<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number: 000-28600
CCC INFORMATION SERVICES GROUP INC.
(Exact name of registrant as specified in its charter)
DELAWARE 54-1242469
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
WORLD TRADE CENTER CHICAGO 60654
444 MERCHANDISE MART (Zip Code)
CHICAGO, ILLINOIS
(Address of principal executive offices)
(312) 222-4636
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
As of April 30, 1998, CCC Information Services Group Inc. common stock, par
value $0.10 per share, outstanding was 24,770,333 shares.
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CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
TABLE OF CONTENTS
<TABLE>
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Page(s)
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Interim Statement of Operations (Unaudited),
Quarter and Three Months Ended March 31, 1998 and 1997 3
Consolidated Interim Balance Sheet,
March 31, 1998 (Unaudited) and December 31, 1997 4
Consolidated Interim Statement of Cash Flows (Unaudited),
Three Months Ended March 31, 1998 and 1997 5
Notes to Consolidated Interim Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis
of Results of Operations and Financial Condition 7-8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 9
Item 2. Changes in Securities 9
Item 3. Defaults Upon Senior Securities 9
Item 4. Submission of Matters to a Vote of Security Holders 9
Item 5. Other Information 9
Item 6. Exhibits and Reports on Form 8-K 9-10
SIGNATURES 11
EXHIBIT INDEX 12
</TABLE>
2
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CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED INTERIM STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1998 1997
--------- ---------
<S> <C> <C>
Revenues $ 44,691 $ 36,777
Expenses:
Production and customer support 9,907 8,649
Commissions, royalties and licenses 5,319 4,211
Selling, general and administrative 14,023 12,003
Depreciation and amortization 2,171 1,782
Product development and programming 6,115 4,445
--------- ---------
Total operating expenses 37,535 31,090
--------- ---------
Operating income 7,156 5,687
Interest expense (64) (37)
Other income, net 471 279
--------- ---------
Income before income taxes 7,563 5,929
Income tax provision (3,162) (2,510)
--------- ---------
Net income 4,401 3,419
Dividends and accretion on mandatorily
redeemable preferred stock (94) (88)
--------- ---------
Net income (loss) applicable to common stock $ 4,307 $ 3,331
--------- ---------
--------- ---------
Per Share Data
Income per common share - basic $ 0.17 $ 0.14
--------- ---------
--------- ---------
Income per common share - diluted $ 0.17 $ 0.13
--------- ---------
--------- ---------
Weighted average shares outstanding:
Basic 24,638 23,511
Diluted 25,418 24,802
</TABLE>
The accompanying notes are an integral part of these
consolidated interim financial statements.
3
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CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash $ 7,257 $ 2,064
Investments in marketable securities 7,307 30,054
Accounts receivable (net of reserves of $2,769 (unaudited) and
$2,663 at March 31, 1998 and December 31, 1997, respectively) 19,227 18,302
Other current assets 6,262 5,270
----------- ------------
Total current assets 40,053 55,690
Property and equipment (net of accumulated depreciation
of $28,632 (unaudited) and $26,793 at March 31, 1998 and
December 31, 1997, respectively) 13,951 9,700
Goodwill (net of accumulated amortization of $10,574 (unaudited) and
$10,238 at March 31, 1998 and December 31, 1997, respectively) 9,549 9,885
Deferred income taxes 7,151 7,237
Long term investment 20,000 -
Other assets 1,005 982
----------- ------------
Total Assets $ 91,709 $ 83,494
----------- ------------
----------- ------------
LIABILITIES, MANDATORILY REDEEMABLE PREFERRED STOCK
AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 19,601 $ 18,383
Income taxes payable 2,934 2,637
Current portion of long-term debt 80 111
Deferred revenues 5,810 5,824
----------- ------------
Total current liabilities 28,425 26,955
Long-term deferred revenue 1,651 1,728
Other liabilities 3,826 3,930
----------- ------------
Total liabilities 33,902 32,613
----------- ------------
Mandatorily redeemable preferred stock ($1.00 par value,
100,000 shares authorized, 4,915 designated and outstanding
at March 31, 1998 (unaudited) and December 31, 1997) 5,148 5,054
----------- ------------
Common stock ($0.10 par value, 30,000,000 shares authorized
for all periods presented, 24,764,583 (unaudited) and
24,577,910 shares issued and outstanding at March 31, 1998
and December 31, 1997, respectively) 2,476 2,458
Additional paid-in capital 92,780 90,273
Accumulated deficit (42,124) (46,431)
Treasury stock, at cost (473) (473)
----------- ------------
Total stockholders' equity 52,659 45,827
----------- ------------
Total Liabilities, Mandatorily Redeemable Preferred Stock and
Stockholders' Equity $ 91,709 $ 83,494
----------- ------------
----------- ------------
</TABLE>
The accompanying notes are an integral part of these
consolidated interim financial statements.
4
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CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
CONSOLIDATED INTERIM STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------
1998 1997
-------- --------
<S> <C> <C>
Operating activities:
Net income $ 4,401 $ 3,419
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization of equipment
and purchased software 1,826 1,437
Amortization of goodwill 336 336
Deferred income taxes 86 (198)
Contract funding revenue amortization - (96)
Other, net 13 45
Changes in:
Accounts receivable, net (925) (1,050)
Other current assets (992) (1,704)
Other assets (24) 118
Accounts payable and accrued expenses 1,218 (711)
Income taxes payable 2,270 3,087
Deferred revenues (91) 3,297
Other liabilities (104) 8
-------- --------
Net cash provided by operating activities 8,014 7,988
-------- --------
Investing activities:
Purchases of equipment and software (4,290) (1,805)
Purchases of land and buildings (1,800) -
Purchase of investment securities (8,333) (950)
Purchase of long term investment (20,000) -
Proceeds from the sale of investment securities 31,079 -
-------- --------
Net cash used for investing activities (3,344) (2,755)
-------- --------
Financing activities:
Principal repayments on long-term debt (31) (29)
Proceeds from exercise of stock options 553 199
-------- --------
Net cash provided by (used for) financing activities 522 170
-------- --------
Net increase (decrease) in cash 5,192 5,403
Cash:
Beginning of period 2,064 9,403
-------- --------
End of period $ 7,256 $ 14,806
-------- --------
-------- --------
Supplemental Disclosures:
Cash (paid) / received:
Interest (34) (17)
Income taxes, net (779) 380
</TABLE>
The accompanying notes are an integral part of these
consolidated interim financial statements.
5
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CCC INFORMATION SERVICES GROUP INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS AND ORGANIZATION
CCC Information Services Group Inc. ("Company") (formerly known as
InfoVest Corporation), through its wholly owned subsidiary CCC Information
Services Inc., is a supplier of automobile claims information and processing
services, claims management software and communication services. The
Company's services and products enable automobile insurance company customers
and collision repair facility customers to improve efficiency, manage costs
and increase consumer satisfaction in the management of automobile claims and
restoration.
As of March 31, 1998, White River Ventures Inc. ("White River") held
approximately 35% of the total outstanding common stock of the Company. White
River is a wholly owned subsidiary of White River Corporation. As a result of
White River's substantial equity interest and 51% voting power, including
rights established through its ownership interest in the Company's
Mandatorily Redeemable Series E Preferred Stock, the Company is a
consolidated subsidiary of White River.
NOTE 2 - CONSOLIDATED INTERIM FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying consolidated interim financial statements as of and for
the three months ended March 31, 1998 and 1997 are unaudited. The Company is
of the opinion that all material adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the Company's
interim results of operations and financial condition have been included. The
results of operations for any interim period should not be regarded as
necessarily indicative of results of operations for any future period. These
consolidated interim financial statements should be read in conjunction with
the Company's 1997 Annual Report on Form 10-K filed with the Securities and
Exchange Commission.
PER SHARE INFORMATION
Earnings per share are based on the weighted average number of shares of
common stock outstanding and common stock equivalents using the treasury
method computed as follows;
<TABLE>
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Weighted average common shares outstanding:
Shares attributable to common stock outstanding 24,638 23,511
Shares attributable to common stock equivalents outstanding 780 1,291
------ ------
25,418 24,802
------ ------
------ ------
</TABLE>
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." SFAS No. 131 establishes
new standards for reporting information about
6
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operating segments in interim and annual financial statements. This statement
is also effective for fiscal years beginning after December 15, 1997. The
Company is currently evaluating the impact this statement will have on the
consolidated financial statements.
NOTE 4 - NONCASH INVESTING AND FINANCING ACTIVITIES
The Company directly charges its accumulated deficit account for
preferred stock accretion and preferred stock dividends accrued. These
amounts totaled $0.1 million during the three months ended March 31, 1998 and
1997, respectively.
In conjunction with the exercise of certain stock options, the Company
has reduced current income taxes payable with an offsetting credit to paid-in
capital for the tax benefit of stock options exercised. During the three
months ended March 31, 1998 and 1997, these amounts totaled $1.973 thousand
and $290 thousand, respectively.
NOTE 5 - LEGAL PROCEEDINGS
The Company is a party to various claims and routine litigation arising
in the normal course of business. Such claims and litigation are not expected
to have a material adverse effect on the financial condition or results of
operations of the Company.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1998 COMPARED WITH QUARTER ENDED MARCH 31, 1997
CCC Information Services Group Inc. ("Company") reported net income
applicable to common stock of $4.3 million, or $0.17 per share on a diluted
basis, for the quarter ended March 31, 1998, versus a $3.3 million, or $0.13
per share on a diluted basis, for the same quarter last year. First quarter
1998 operating income of $7.2 million was $1.5 million, or 25.8%, higher than
the same quarter last year.
First quarter 1998 revenues of $44.7 million were $7.9 million, or
21.5%, higher than the same quarter last year. The increase in revenues was
primarily due to higher revenues from workflow/collision estimating software
seats. Workflow/collision estimating software seat revenues increased due to
an increase in the number of seats in both the autobody and insurance markets.
Production and customer support expenses increased from $8.6 million, or
23.5% of revenues, to $9.9 million, or 22.2% of revenues. The increase in
dollars was attributable primarily to an increase in productive and customer
support capacity following an increase in workflow/collision estimating seat
implementations. The decline as a percentage of revenue was primarily due to
the leveraging of costs against a higher revenue base. Commission, royalties
and licenses increased from $4.2 million, or 11.5% of revenues, to $5.3
million, or 11.9% of revenues. The increase in dollars and as a percent of
revenues was due primarily to higher revenues from PATHWAYS workflow
estimating seats and autobody collision estimating seats, which generate both
a commission and a data royalty. Selling, general and administrative
increased from $12.0 million, or 32.6% of revenues, to $14.0 million, or
31.4% of revenues. The increase in dollars was due primarily to an increase
in the resources committed to selling both workflow/collision estimating and
consultative services and efforts to build and upgrade internal systems.
Depreciation and amortization increased from $1.8 million, or 4.8% of
revenues, to $2.2 million, or 4.9% of revenues. The increase in dollars was a
result of higher capital expenditures for internal systems, primarily
expenditures for product engineering and customer support. Product
development and programming increased from $4.4 million, or 12.1% of
revenues, to $6.1 million, or 13.7% of revenues. The dollar increase was due
primarily to an increased allocation of Company resources to product
development and wage pressure associated with retaining and recruiting
software engineers.
7
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First quarter income taxes increased from $2.5 million, or 42.3% of
income before taxes, to $3.2 million, or 41.8% of income before taxes. The
dollar increase was attributable to higher pretax income.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 1998, net cash provided by
operating activities was $8.0 million. The Company applied $4.3 million to
the purchase of equipment and software, $1.8 million to the purchase of a
building in Sioux Falls, South Dakota associated with the relocation of
certain customer service and claims processing operations and invested $20.0
million in a long term investment in a Company which is developing services
to manage insurance rating information.
In connection with the second quarter decision to relocate certain
customer service and claims processing operations to South Dakota, the
Company will charge operations during the second quarter with a one-time
after-tax cost of $1.0 million. Operating expenses will begin to show the
benefits associated with this decision in the fourth quarter of 1998.
Management believes that cash flows from operations and the Company's
credit facility will be sufficient to meet the Company's liquidity needs over
the next 12 months. There can be no assurance, however, that the Company will
be able to satisfy its liquidity needs in the future without engaging in
financing activities beyond that described above.
FORWARD-LOOKING STATEMENTS
The Private Securities Litigation Reform Act of 1995 contains certain
safe harbors regarding forward-looking statements. In that context, the
discussion under liquidity and capital resources above contains a
forward-looking statement which involves certain degrees of risks and
uncertainties. The risks and uncertainties, include, without limitation, the
effect of competitive pricing within the industry, the presence of
competitors with greater financial resources than the Company, the intense
competition for top software engineering talent and the volatile nature of
technological change within the automobile claims industry. Additional
factors that could affect the Company's financial condition and results of
operations are included in the Company's Initial Public Offering Prospectus
and Registration on Form S-1 filed with the Securities and Exchange
Commission ("Commission") on August 16, 1996 and the Company's 1997 Annual
Report on Form 10-K, as amended, filed with the Commission on March 31, 1998.
8
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CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is a party to various claims and routine litigation arising
in the normal course of business. Such claims and litigation are not expected
to have a material adverse effect on the financial condition or results of
operations of the Company.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Amended and Restated Certificate of Incorporation of the
Company filed as Exhibit 3.1 of the Company's Annual Report on
Form 10-K (the "Annual Report") (filed with the Commission File
No. 000-28600 on March 14, 1997, and hereby incorporated by
reference)
3.2 Amended and Restated Bylaws (incorporated herein by reference
to Exhibit 3.2 of the Company's Annual Report on Form 10-K,
Commission File No. 000-28600)
4.1 Stockholder's Agreement (incorporated herein by reference to
Exhibit 4.2 of the Company's Registration Statement on Form
S-1, Commission File No. 333-07287)
4.2 Regulatory Contingency Agreement dated as of June 16, 1994 by
and among the Company and White River Ventures Inc.
(incorporated herein by reference to Exhibit 4.3 of the
Company's Registration Statement on Form S-1, Commission File
No. 333-07287)
4.3 Series C Preferred Designation (incorporated herein by
reference to Exhibit 4.4 of the Company's Registration
Statement on Form S-1, Commission File No. 333-07287)
4.4 Series D Preferred Designation (incorporated herein by
reference to Exhibit 4.5 of the Company's Registration
Statement on Form S-1, Commission File No. 333-07287)
4.5 Series E Preferred Designation (incorporated herein by
reference to Exhibit 4.6 of the Company's Registration
Statement on Form S-1, Commission File No. 333-07287)
10.1 Credit Facility Agreement between CCC Information Services
Inc., Signet Bank and the other financial institutions party
thereto (incorporated herein by reference to Exhibit 10.1 of
the Company's Annual Report on Form 10-K, Commission File No.
000-28600)
9
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10.2 Amendment dated September 30, 1997 to Credit Facility Agreement
between CCC Information Services Inc., Signet Bank and the
other financial institutions party thereto (incorporated herein
by reference to Exhibit 10.2 of the Company's Quarterly Report
filed on Form 10-Q, Commission File No. 000-28600, filed November
11, 1997)
10.3 Motors Crash Estimating Guide Data License (incorporated herein
by reference to Exhibit 10.3 of the Company's Registration
Statement on Form S-1, Commission File No. 333-07287)
10.4 Stock Option Plan (incorporated herein by reference to Exhibit
10.3 of the Company's Annual Report on Form 10-K, Commission
File No. 000-28600)
10.5 1997 Stock Option Plan (incorporated herein by reference to
Exhibit 4.04 of the Company's Registration Statement on Form
S-8, Commission File No. 333-07287)
10.6 1997 Stock Option Agreement (incorporated herein by reference
to Exhibit 4.05 of the Company's Registration Statement on Form
S-8, Commission File No. 333-07287)
10.7 Securities Purchase Agreement between Company and InsurQuote
Systems Inc. dated February 10, 1998
10.8 Investment Agreement between Company and InsurQuote Systems
Inc. dated February 10, 1998
10.9 Common Stock Warrant to purchase 440,350 shares of InsurQuote
Systems Inc. dated February 10, 1998
10.10 401(K) Company Retirement Saving & Investment Savings Plan
(incorporated herein by reference to Exhibit 4.4 of the
Company's Registration Agreement on Form S-8, Commission Number
333-32139 filed July 25, 1997)
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
10
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CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: May 15, 1998 CCC Information Services Group Inc.
By: /s/ David M. Phillips
----------------------------------
Name: David M. Phillips
Title: Chairman and Chief Executive
Officer
By: /s/ Leonard L. Ciarrocchi
----------------------------------
Name: Leonard L. Ciarrocchi
Title: Executive Vice President
and Chief Financial Officer
By: /s/ Michael P. Devereux
----------------------------------
Name: Michael P. Devereux
Title: Vice President, Controller
and Chief Accounting Officer
11
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CCC INFORMATION SERVICES GROUP INC.
AND SUBSIDIARIES
EXHIBIT INDEX
3.1 Amended and Restated Certificate of Incorporation of the Company
filed as Exhibit 3.1 of the Company's Annual Report on Form 10-K (the
"Annual Report") (filed with the Commission File No. 000-28600 on
March 14, 1997, and hereby incorporated by reference)
3.2 Amended and Restated Bylaws (incorporated herein by reference to
Exhibit 3.2 of the Company's Annual Report on Form 10-K, Commission
File No. 000-28600)
4.1 Stockholder's Agreement (incorporated herein by reference to Exhibit
4.2 of the Company's Registration Statement on Form S-1, Commission
File No. 333-07287)
4.2 Regulatory Contingency Agreement dated as of June 16, 1994 by and
among the Company and White River Ventures Inc. (incorporated herein
by reference to Exhibit 4.3 of the Company's Registration Statement
on Form S-1, Commission File No. 333-07287)
4.3 Series C Preferred Designation (incorporated herein by reference to
Exhibit 4.4 of the Company's Registration Statement on Form S-1,
Commission File No. 333-07287)
4.4 Series D Preferred Designation (incorporated herein by reference to
Exhibit 4.5 of the Company's Registration Statement on Form S-1,
Commission File No. 333-07287)
4.5 Series E Preferred Designation (incorporated herein by reference to
Exhibit 4.6 of the Company's Registration Statement on Form S-1,
Commission File No. 333-07287)
10.1 Credit Facility Agreement between CCC Information Services Inc.,
Signet Bank and the other financial institutions party thereto
(incorporated herein by reference to Exhibit 10.1 of the Company's
Annual Report on Form 10-K, Commission File No. 000-28600)
10.2 Amendment dated September 30, 1997 to Credit Facility Agreement
between CCC Information Services Inc., Signet Bank and the other
financial institutions party thereto (incorporated herein by reference
to Exhibit 10.2 of the Company's Quarterly Report filed on Form 10-Q,
Commission File No. 000-28600, filed November 11, 1997)
10.3 Motors Crash Estimating Guide Data License (incorporated herein by
reference to Exhibit 10.3 of the Company's Registration Statement on
Form S-1, Commission File No. 333-07287)
10.4 Stock Option Plan (incorporated herein by reference to Exhibit 10.3
of the Company's Annual Report on Form 10-K, Commission File No.
000-28600)
10.5 1997 Stock Option Plan (incorporated herein by reference to Exhibit
4.04 of the Company's Registration Statement on Form S-8, Commission
File No. 333-07287)
10.6 1997 Stock Option Agreement (incorporated herein by reference to
Exhibit 4.05 of the Company's Registration Statement on Form S-8,
Commission File No. 333-07287)
10.7 Securities Purchase Agreement between Company and InsurQuote Systems
Inc. dated February 10, 1998
10.8 Investment Agreement between Company and InsurQuote Systems Inc.
dated February 10, 1998
10.9 Common Stock Warrant to purchase 440,350 shares of InsurQuote Systems
Inc. dated February 10, 1998
10.10 401(K) Company Retirement Saving & Investment Savings Plan
(incorporated herein by reference to Exhibit 4.4 of the Company's
Registration Agreement on Form S-8, Commission Number 333-32139 filed
July 25, 1997)
27 Financial Data Schedule
(b) Reports on Form 8-K
12
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SECURITIES PURCHASE AGREEMENT
BETWEEN
INSURQUOTE SYSTEMS, INC.
AND
CCC INFORMATION SERVICES INC.
DATED AS OF FEBRUARY 10, 1998
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.1 General. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.2 Definitions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. PURCHASE OF SECURITIES. . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1 Purchase and Issuance of Securities. . . . . . . . . . . . . . . . . 8
2.2 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . 9
3.1 Organization; Good Standing; Qualification . . . . . . . . . . . . . 9
3.2 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Valid Issuance of Common Stock, the
Subordinated Notes, and the Warrants . . . . . . . . . . . . . . . .10
3.4 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . . .10
3.5 Capitalization and Voting Rights . . . . . . . . . . . . . . . . . .11
3.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
3.7 Contracts and Other Commitments. . . . . . . . . . . . . . . . . . .12
3.8 Related-Party Transactions . . . . . . . . . . . . . . . . . . . . .12
3.9 Registration Right . . . . . . . . . . . . . . . . . . . . . . . . .13
3.10 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
3.11 Compliance With Other Instruments. . . . . . . . . . . . . . . . . .13
3.12 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
3.13 Title to Property and Assets; Leases . . . . . . . . . . . . . . . .14
3.14 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . .15
3.15 Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
3.16 Holding Company Act and Investment Company
Act Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
3.17 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
3.18 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
3.19 ERISA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
3.20 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . .19
3.21 Offering of the Shares . . . . . . . . . . . . . . . . . . . . . . .20
3.22 Intellectual Property. . . . . . . . . . . . . . . . . . . . . . . .21
3.23 Labor Relations. . . . . . . . . . . . . . . . . . . . . . . . . . .22
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. . . . . . . . . . . . . .22
4.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . .22
4.2 No Conflict. . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
i
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4.3 Acquire Entirely for Own Account . . . . . . . . . . . . . . . . . .23
4.4 Reliance Upon Investor's Representations . . . . . . . . . . . . . .23
4.5 Sophisticated Investor . . . . . . . . . . . . . . . . . . . . . . .23
4.6 Access to Data . . . . . . . . . . . . . . . . . . . . . . . . . . .24
4.7 Restricted Securities. . . . . . . . . . . . . . . . . . . . . . . .24
4.8 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
5. COVENANTS OF THE COMPANY. . . . . . . . . . . . . . . . . . . . . . . . .25
5.1 Financial Statements and Other Reports . . . . . . . . . . . . . . .25
5.2 Other Financial Information. . . . . . . . . . . . . . . . . . . . .27
5.3 Inspection of Property . . . . . . . . . . . . . . . . . . . . . . .27
5.4 Lost, Stolen, Destroyed or Mutilated
Certificates or Subordinated Notes . . . . . . . . . . . . . . . . .27
5.5 Limitation on Payment Restrictions . . . . . . . . . . . . . . . . .27
5.6 Limitation on Transactions with Affiliates . . . . . . . . . . . . .28
5.7 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .28
5.8 Maintenance, etc.. . . . . . . . . . . . . . . . . . . . . . . . . .28
5.9 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . .29
5.10 [Intentionally Omitted]. . . . . . . . . . . . . . . . . . . . . . .29
5.11 Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . . . .29
5.12 Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . .29
5.13 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . .29
5.14 Notice of Suits, Adverse Changes in Business
and Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
5.15 Liens or Encumbrances. . . . . . . . . . . . . . . . . . . . . . . .30
5.16 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
5.17 Consolidations, Mergers or Acquisitions. . . . . . . . . . . . . . .31
5.18 [Intentionally Omitted.] . . . . . . . . . . . . . . . . . . . . . .31
5.19 Fiscal Year-End. . . . . . . . . . . . . . . . . . . . . . . . . . .32
5.20 Payments on Subordinated Debt. . . . . . . . . . . . . . . . . . . .32
5.21 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . .32
5.22 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
5.23 Disaster Recovery and Contingency Program. . . . . . . . . . . . . .32
5.24 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
5.25 Issuance of Additional Equity. . . . . . . . . . . . . . . . . . . .33
[Intentionally Omitted].. . . . . . . . . . . . . . . . . . . . . . . . .33
6. [INTENTIONALLY OMITTED] . . . . . . . . . . . . . . . . . . . . . . . . .33
7. DEFAULTS AND EVENTS OF DEFAULT UNDER THE NOTES. . . . . . . . . . . . . .33
8. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING . . . . . . . . . . . . .35
8.1 Representations and Warranties . . . . . . . . . . . . . . . . . . .36
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8.2 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
8.3 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . .36
8.4 Proceedings and Documents. . . . . . . . . . . . . . . . . . . . . .36
8.5 Opinion of Company Counsel . . . . . . . . . . . . . . . . . . . . .36
8.6 Investment Agreement . . . . . . . . . . . . . . . . . . . . . . . .36
8.7 Registration Rights Agreement. . . . . . . . . . . . . . . . . . . .37
8.8 Restated Articles. . . . . . . . . . . . . . . . . . . . . . . . . .37
8.9 Purchase Documents . . . . . . . . . . . . . . . . . . . . . . . . .37
8.10 Employment Agreements. . . . . . . . . . . . . . . . . . . . . . . .37
8.11 Blue Sky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
8.12 Marketing and Sales Agreement. . . . . . . . . . . . . . . . . . . .37
9. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. . . . . . . . . . . .37
9.1 Representations and Warranties . . . . . . . . . . . . . . . . . . .37
9.2 Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . .38
9.3 Opinion of Investor's Counsel. . . . . . . . . . . . . . . . . . . .38
9.4 Blue Sky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
9.5 Investment Agreement . . . . . . . . . . . . . . . . . . . . . . . .38
9.6 Performance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
9.7 Proceedings and Documents. . . . . . . . . . . . . . . . . . . . . .38
9.8 Purchase Documents . . . . . . . . . . . . . . . . . . . . . . . . .39
9.9 Registration Rights Agreement. . . . . . . . . . . . . . . . . . . .39
9.10 Marketing and Sales Agreement. . . . . . . . . . . . . . . . . . . .39
9.11 Restated Articles. . . . . . . . . . . . . . . . . . . . . . . . . .39
10. [Intentionally Omitted].. . . . . . . . . . . . . . . . . . . . . . . . .39
11. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
11.1 Indemnification by the Company . . . . . . . . . . . . . . . . . . .39
11.2 Indemnification by the Investor. . . . . . . . . . . . . . . . . . .40
12. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
12.1 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . .41
12.2 Expiration of Warranties . . . . . . . . . . . . . . . . . . . . . .41
12.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . .42
12.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . .42
12.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
12.6 Titles and Subtitles . . . . . . . . . . . . . . . . . . . . . . . .42
12.7 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
12.8 Finder's Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . .43
12.9 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . .44
12.10 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . .44
12.11 Specific Enforcement. . . . . . . . . . . . . . . . . . . . . . . .44
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APPENDIX I Alternative Covenants
EXHIBITS
EXHIBIT A Second Amended and Restated Articles of
Incorporation
EXHIBIT B Form of Subordinated Notes
EXHIBIT C Form of Warrants
EXHIBIT D Terms and Mechanics of Look Back Adjustment
EXHIBIT E Investment Agreement
EXHIBIT F Opinion of Company Counsel
EXHIBIT G Performance Targets
EXHIBIT H Registration Rights Agreement
EXHIBIT I Opinion of Winston & Strawn
EXHIBIT J Employment Agreements
EXHIBIT K Marketing and Sales Agreements
SCHEDULES
Schedule 3 Schedule of Exceptions
Schedule 3.1 Organization of the Company
Schedule 3.3 Valid Issuance of Common Stock
Schedule 3.5(iii) Outstanding Shares of Capital Stock
Schedule 3.5(v) Outstanding Options and Warrants
Schedule 3.6 Subsidiaries
Schedule 3.7 Contracts and Other Commitments
Schedule 3.8 Related Party Transactions
Schedule 3.9 Registration Rights
Schedule 3.10 Permits
Schedule 3.11 Compliance with Other Instruments
Schedule 3.12 Litigation
Schedule 3.13 Title to Property and Assets; Leases
Schedule 3.14 Financial Statements
Schedule 3.15 Changes
Schedule 3.17 Taxes
Schedule 3.19 ERISA Plans
Schedule 3.20 Environmental Matters
Schedule 3.22(a) Intellectual Property
Schedule 3.22(b) Owned Software
Schedule 3.22(d) Third Party Software
Schedule 3.22(g) Intellectual Property Compliance
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Schedule 3.22(h) Proprietary Information and Inventions Agreements
Schedule 5.6 Transactions with Affiliates
Schedule 5.15(f) Liens and Encumbrances
Schedule 5.16(c) Senior Debt
Schedule 9.2 Third Party Consents
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SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement is made as of the 10th day of
February, 1998, by and between InsurQuote Systems, Inc., a Utah corporation
(the "Company"), and CCC Information Services Inc., a Delaware corporation
(the "Investor").
The Company and the Investor are entering into this Agreement in
connection with the issuance and sale by the Company to the Investor of (i)
333,750 shares of Common Stock, (ii) 145,414 shares of Series C Preferred
Stock, (iii) 320,203 shares of Series D Preferred Stock, (iv) $8,900,000 of
the Subordinated Notes and (v) Warrants to acquire up to 440,350 shares of
the Common Stock.
The parties hereto agree as follows:
1. DEFINITIONS
1.1 GENERAL. Each term defined in the preamble and in the recitals
of this Agreement shall have the meaning set forth above whenever used herein,
unless otherwise expressly provided or unless the context clearly requires
otherwise.
1.2 DEFINITIONS. As used herein, the following terms shall have the
meanings ascribed to them in this SECTION 1.2:
AFFILIATE. As defined in SECTION 3.8.
AGREEMENT. This Securities Purchase Agreement, together with all
Exhibits and Schedules referred to herein, as amended, modified or supplemented
from time to time in accordance with the terms hereof.
ANCILLARY AGREEMENT. As defined in SECTION 3.1.
ASSOCIATE. As defined in SECTION 3.8.
BANKRUPTCY CODE. As defined in SECTION 7(h).
CAPITAL EXPENDITURES (INCLUDING CAPITALIZED SOFTWARE). Means
expenditures (a) for any fixed assets or improvements,
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replacements, substitutions or additions thereto that have a useful life or
more than one (1) year and an individual cost in excess of $1,000 per item,
including direct or indirect acquisition of such assets, or (b) for any
Capital Leases. NOTWITHSTANDING THE FOREGOING, the term Capital Expenditures
does not include permitted acquisitions under SECTION 5.17.
CAPITAL LEASES. Means capital leases and subleases as defined in the
Financial Accounting Standards Board Statement of Financial Accounting Standards
No. 13 dated November 1976 (as amended and updated from time to time).
CCC OPTION. As defined in the Investment Agreement.
CHANGE OF CONTROL. Any "person" or "group" (as defined in Section
13(d) and 14(d) of the Exchange Act), other than Investor and current
shareholders of the Company, becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act), directly or indirectly, of more than
50% of the total outstanding voting stock of the Company or the Company becomes
subject to a consolidation or merger with another corporation and the
shareholders of the Company immediately prior to such transaction own less than
50% of the voting power of the surviving corporation, or the Company sells or
transfers a majority of its assets to a third party.
CLOSING. The actual conveyance, transfer, assignment and delivery of
the Securities in exchange for the consideration payable to the Company on the
Closing Date pursuant to this Agreement.
CLOSING DATE. Five (5) days following the date on which Investor and
the Company mutually agree all closing conditions have been satisfied (or will
be satisfied on the Closing Date) or waived or such other date as Investor and
the Company may mutually agree in writing in either case, upon which the Closing
shall occur.
COMMON STOCK. The common stock of the Company, with no par value.
COMMISSION. Means the Securities and Exchange Commission.
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COMPANY. As defined in the preamble hereto.
COMPANY INDEMNIFIED PARTY. As defined in SECTION 11.2(b).
COMPANY PLAN. As defined in SECTION 3.19(g).
COMPANY'S KNOWLEDGE. The knowledge of the officers of the Company
after due inquiry and reasonable investigation.
CONSENTS. As defined in SECTION 3.4.
CONTENT. Insurance company-specific rating information for personal
auto insurance, obtained by the Company and integrated with the Company's rating
software for the purpose of developing insurance premiums and completing other
rating functions consistent with the Company's software.
DEFAULT. As defined in SECTION 7.
EMPLOYMENT AGREEMENTS. As defined in SECTION 8.10.
ERISA. As defined in SECTION 3.19(g).
EVENT OF DEFAULT. As defined in SECTION 7.
EXCHANGE ACT. The Securities Exchange Act of 1934, as amended.
FINANCIAL STATEMENTS. As defined in SECTION 3.14(a).
FULLY-DILUTED VOTING POWER. As defined in the Investment Agreement.
GAAP. Means generally accepted accounting principles in the United
States as in effect from time to time.
GOVERNMENTAL AUTHORITY. Shall mean any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial regulatory or administrative functions of or
pertaining to government.
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INDEBTEDNESS. Except as otherwise agreed to herein, means, without
duplication, (i) any obligation of such Person for borrowed money, including,
without limitation, (a) any obligation of such Person evidenced by bonds,
debentures, notes or other similar debt instruments, and (b) any obligation for
borrowed money which is non-recourse to the credit of such Person but which is
secured by a Lien on any asset of such Person, (ii) any obligation of such
Person on account of deposits or advances other than in the ordinary course of
business but in no event greater than $1,000,000, (iii) any obligation of such
Person for the deferred purchase price of any property or services, except trade
accounts payable, (iv) any obligation of such Person as lessee under a Capital
Lease, and (v) any Indebtedness of another Person secured by a Lien on any asset
of such first Person, whether or not such Indebtedness is assumed by such first
Person. For all purposes of this Agreement, the Indebtedness of any Person
shall include the Indebtedness of any partnership or joint venture in which such
Person is liable as a general partner or a joint venturer.
INTELLECTUAL PROPERTY. As defined in SECTION 3.22(a).
INVESTMENT AGREEMENT. As defined in SECTION 8.6.
INVESTOR. As defined in the preamble hereto.
INVESTOR INDEMNIFIED PARTY. As defined in SECTION 11.1(b).
KEY MAN INSURANCE. One or more insurance policies issued by one or
more insurers reasonably acceptable to the Investor on the lives of Dave
Whetten, Bill Woahn and Frank Weinrauch, each having a death benefit to the
Company at all times of not less than $1,000,000.
LIEN. Shall mean any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property, whether such
interest is based on common law, statute or contract, other than a lease
properly classified as an operating lease under GAAP. The term "Lien" shall
also include liens and encumbrances affecting Property. For the purpose of this
Agreement, the Company shall be deemed to be the owner of any Property which it
has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the
6
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Property has been retained by or vested in some other Person for security
purposes.
LOSSES. As defined in SECTION 11.1.
MARKETING AGREEMENT. As defined in SECTION 8.12.
MATERIAL ADVERSE EFFECT. Shall mean the effect of any event or
condition which, alone or when taken together with other events or conditions
occurring or existing concurrently therewith, except for those events or
conditions that are primarily caused by conditions affecting the United States
economy as a whole or affecting the industry in which the Company competes as a
whole, (a) has or may be reasonably expected to have a material adverse effect
upon the business operations, assets, condition (financial or otherwise) of the
Company and its Subsidiaries taken as a whole, (b) materially impairs the
ability of the Company or any of its Subsidiaries to perform its respective
obligations under the Purchase Documents to which it is a party.
MATERIAL INDEBTEDNESS. As defined in SECTION 7(k).
ORGANIC DOCUMENT. Means, relative to any entity, its certificate and
articles of incorporation or organization, its by-laws or operating agreements,
all equity holder agreements, voting agreements and similar arrangements
applicable to any of its authorized shares of capital stock, its partnership
interests or its member interests, and any other arrangements relating to the
control or management of any such entity (whether existing as a corporation, a
partnership, an LLC or otherwise).
OWNED SOFTWARE. As defined in SECTION 3.22(b).
PERMITTED GUARANTEES. As defined in SECTION 5.24.
PERMITTED INDEBTEDNESS. As defined in SECTION 5.16
PERMITTED LIENS. Those Liens not prohibited by SECTION 5.15.
PERMITTED PURCHASE MONEY INDEBTEDNESS. Indebtedness permitted by
SECTION 5.16(b).
7
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PERMITTED SENIOR DEBT. As set forth on SCHEDULE 5.16(c) hereto. When
such Permitted Senior Debt is repaid by the Company, Permitted Senior Debt shall
be reduced by the amount of such repayment.
PERSON. Any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, limited liability company,
association, corporation, institution, entity, party or government (whether
national, federal, state, county, city, municipal or otherwise, including
without limitation any instrumentality, division, agency, body or department
thereof).
PLAN. As defined in SECTION 3.19(g).
PROPERLY CONTESTED. A contest currently being conducted by the
Company in good faith by appropriate proceedings diligently prosecuted.
PROPERTY. Shall mean any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
PURCHASE DOCUMENTS. As defined in SECTION 3.11.
PURCHASE MONEY LIENS. Liens arising in favor of sellers or lessors
for indebtedness and obligations incurred to purchase or lease fixed or capital
assets.
PURCHASE PRICE. As defined in SECTION 2.1(a).
REGISTRATION RIGHTS AGREEMENT. As defined in SECTION 8.7.
REPORTABLE EVENT. Shall mean a Reportable Event as defined in Section
4043(b) of ERISA as to which the PBGC has not by regulation waived the
requirement that it be notified within 30 days of the occurrence of such an
event.
RESTATED ARTICLES. The Second Amended and Restated Articles of
Incorporation of the Company in the form attached hereto as EXHIBIT A.
RETIREE WELFARE PLAN. As defined in SECTION 3.19(g).
8
<PAGE>
SECURITIES. The shares of Common Stock, Series C Preferred Stock,
Series D Preferred Stock, Series E Preferred Stock and the Subordinated Notes
and the Warrants being acquired by the Investor pursuant to the Purchase
Documents.
SECURITIES ACT. Shall mean the Securities Act of 1933, as amended.
SENIOR DEBT DOCUMENTS. The documents pursuant to which the Company is
indebted under the Permitted Senior Debt.
SERIES A PREFERRED STOCK. The preferred stock of the Company,
designated series A, no par value per share.
SERIES B PREFERRED STOCK. The preferred stock of the Company,
designated series B, no par value per share.
SERIES C PREFERRED STOCK. The preferred stock of the Company,
designated series C, no par value per share.
SERIES D PREFERRED STOCK. The preferred stock of the Company,
designated series D, no par value per share.
SERIES E PREFERRED STOCK. The preferred stock of the Company,
designated series E, no par value per share.
SOFTWARE. Collectively, the Owned Software and the Third Party
Software.
STEP UP EVENT OF DEFAULT. As defined in SECTION 7.
STOCK OPTION PLAN. The 1994 Stock Option Plan of the Company, as
amended and restated.
SUBORDINATED NOTES. The 7.5% senior subordinated notes of the Company
in the form attached to this Agreement as EXHIBIT B.
SUBSIDIARY. Means (i) any Person of which 50% or more of the
securities having ordinary voting power for the election of directors are at the
time owned directly or indirectly by the Company or any Subsidiary thereof, (ii)
any Person of which 50% or more of the joint venture, limited partnership or
partnership interests are at the time owned directly or indirectly by the
10
<PAGE>
Company or any Subsidiary thereof or (iii) any Person which is a limited
partnership in which the Corporation or any Subsidiary is at the time the
general partner or at the time owns 50% or more of the general partner of such
Person.
SUBSIDIARIES' KNOWLEDGE. The knowledge of the officers of each
Subsidiary after due inquiry and reasonable investigation.
TAXES. All federal, state, local, foreign and provincial income,
capital gains, property transfer, payroll, withholding, excise, sales, use, use
and occupancy, mercantile, real estate, personal property, value added, capital
stock, franchise or other taxes, assessments or charges and estimated taxes
relating thereto.
THIRD PARTY SOFTWARE. As defined in SECTION 3.22(b).
WARRANTS. The warrants of the Company in the form attached to this
Agreement as EXHIBIT C.
WELFARE PLAN. As defined in SECTION 3.19(g).
2. PURCHASE OF SECURITIES
2.1 PURCHASE AND ISSUANCE OF SECURITIES
(a) Upon the terms and subject to the conditions of this Agreement,
the Investor agrees to acquire, and the Company agrees to issue to the Investor,
333,750 shares of Common Stock, 145,414 shares of Series C Preferred Stock,
(iii) 320,203 shares of Series D Preferred Stock, (iv) $8,900,000 face amount of
the Subordinated Notes which shall bear interest as provided in such notes and
shall mature and be due on February 10, 2003 and (v) Warrants to acquire 440,350
shares of Common Stock. In consideration of the issuance of the Securities and
the granting of the Option, the Investor will pay the following to the Company
at the Closing: (i) $1,530,114 for the Common Stock, (ii) $5,000,000 for the
Series C Preferred Stock, (iii) $4,469,886 for the Series D Preferred Stock,
(iv) $8,900,000 for the Subordinated Notes and (v) $100,000 for the Warrants
(collectively, the "PURCHASE PRICE").
(b) If, and only if, the Company performs as set forth in the
memorandum attached hereto as EXHIBIT D, the Investor shall make an adjustment
to its investment (including the Stage II
11
<PAGE>
Investment as set forth in Section 2.2. of the Investment Agreement)
hereunder as calculated in EXHIBIT D. In such a case, the Investor will
either (i) make an additional capital contribution in cash to the Company, or
(ii) in lieu of the capital contribution set forth in clause (i), reduce its
equity ownership in the Company by canceling the Warrants in part and
returning shares of the Common Stock as provided in EXHIBIT D and adjusting
the conversion features of the Series C Preferred Stock and the Series D
Preferred Stock in a manner consistent with EXHIBIT D. The Investor shall in
its sole discretion use the method of adjusting its investment under this
paragraph (b) as more fully set forth in EXHIBIT D.
2.2 CLOSING
The Closing shall take place at the office of Winston & Strawn, 35
West Wacker Drive, Chicago, Illinois, at 10:00 a.m. local time, February 10,
1998, or at such other time, date or place as the Company and the Investor may
mutually agree upon in writing. At the Closing, the Company shall deliver to
the Investor certificates representing the shares of Common Stock and Series C
Preferred Stock, Series D Preferred Stock and the Subordinated Notes and the
Warrants that the Investor is acquiring in exchange for the delivery by the
Investor to the Company of the Purchase Price by wire transfer of federal funds
as directed by the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Investor that,
except as set forth on SCHEDULE 3, under the title "Exceptions," furnished to
the Investor specifically identifying the relevant subparagraphs hereof:
3.1 ORGANIZATION; GOOD STANDING; QUALIFICATION
Except as set forth on SCHEDULE 3.1 hereto, the Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of Utah, has all requisite corporate power and authority to
own and operate its properties and assets and to carry on its business as now
conducted and as proposed to be conducted, to execute and deliver this
Agreement, the Investment Agreement, and the Registration Rights Agreement, the
Subordinated Notes, the Warrants and any Ancillary Agreement,
12
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to execute, issue and deliver the Common Stock, the Series C Preferred Stock,
the Series D Preferred Stock, the Subordinated Notes and the Warrants, and to
carry out the provisions of this Agreement, the Investment Agreement, the
Registration Rights Agreement, the Restated Articles, the Subordinated Notes,
the Warrants and any Ancillary Agreement. The Company is duly qualified as a
foreign corporation to do business and is in good standing in each
jurisdiction in which the failure so to qualify would have a Material Adverse
Effect. For purposes of this Agreement, the term "ANCILLARY AGREEMENT" shall
refer collectively to the Employment Agreements and the Restated Articles.
3.2 AUTHORIZATION
All corporate action on the part of the Company, its officers,
directors and stockholders necessary for the authorization, execution and
delivery of this Agreement, the Investment Agreement, the Registration Rights
Agreement, and any Ancillary Agreement, the performance of all obligations of
the Company hereunder and thereunder and the authorization, issuance (or
reservation for issuance), sale and delivery of the Common Stock, the Series C
Preferred Stock, the Series D Preferred Stock, the Subordinated Notes and the
Warrants being sold hereunder has been taken, and for the authorization and
reservation for issuance of the Series E Preferred Stock. This Agreement, the
Investment Agreement, the Registration Rights Agreement, the Subordinated Notes,
the Warrants and any Ancillary Agreement have been duly executed and delivered
by the Company and constitute valid and legally binding obligations of the
Company, enforceable in accordance with their respective terms (except as
enforcement hereof or thereof may be limited by (i) bankruptcy, insolvency,
reorganization, moratorium and similar laws, both state and federal, affecting
the enforcement of creditors' rights or remedies in general as from time to time
in effect or (ii) the exercise by courts of equity powers). Prior to the
Closing, the Restated Articles will have been filed with the Division of
Corporations and Commercial Code of the Department of Commerce of the State of
Utah in accordance with the Utah Revised Business Corporation Act.
3.3 VALID ISSUANCE OF COMMON STOCK, THE SUBORDINATED NOTES, AND THE
WARRANTS
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Except as set forth on SCHEDULE 3.3 hereto, the Common Stock, the
Series C Preferred Stock, the Series D Preferred Stock, the Subordinated Notes
and the Warrants that are being acquired by the Investor hereunder, when issued,
sold, and delivered in accordance with the terms of this Agreement for the
consideration expressed herein, will be duly and validly issued, fully paid, and
nonassessable, and will be free and clear of all liens, pledges, security
interests, options, rights of first refusal, encumbrances, claims, preemptive
rights and other third party rights other than as provided hereunder, the
Investment Agreement, the Registration Rights Agreement and any Ancillary
Agreement and under applicable state and federal securities laws.
3.4 GOVERNMENTAL CONSENTS
No consent, approval, qualification, order or authorization of, or
declaration or filing with, any local, state, or federal governmental authority
("CONSENTS") is required on the part of the Company in connection with the
Company's valid execution, delivery, or performance of the Investment Agreement
and the Purchase Documents and the offer, sale, issuance or delivery of the
Common Stock, the Series C Preferred Stock, the Series D Preferred Stock, the
Subordinated Notes, or the Warrants by the Company, except (i) the filing of the
Restated Articles with the Division of Corporations and Commercial Code of the
Department of Commerce of the State of Utah, and (ii) such Consents as have been
made prior to the Closing, except that any notices required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities Act, or
such postclosing filings as may be required under applicable state securities
laws, any of which will be timely filed within the applicable periods therefor.
3.5 CAPITALIZATION AND VOTING RIGHTS
The authorized capital stock of the Company consists, or will consist
immediately prior to the Closing, of:
(i) PREFERRED STOCK. 3,000,000 shares of preferred stock, of which
167,399 shares have been designated Series A Preferred Stock, 695,485 shares
have been designated Series B Preferred Stock, 1,075,117 shares have been
designated Series C Preferred Stock, 320,203 shares have been designated as
Series D Preferred Stock and 100 shares have been designated as Series E
Preferred Stock. Shares of the Company's preferred stock will be
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issued and outstanding immediately prior to the Closing as follows: 103,500
shares of Series A Preferred 603,164 shares of Series B Preferred Stock, no
shares of Series C Preferred Stock, no shares of Series D Preferred Stock,
and no shares of Series E Preferred Stock.
(ii) COMMON STOCK. 7,000,000 shares of Common Stock, of which 636,723
shares are issued and outstanding.
(iii) The outstanding shares of Common Stock, Series A Preferred Stock
and Series B Preferred Stock are owned by the stockholders and in the numbers
specified in SCHEDULE 3.5(iii) hereto.
(iv) The outstanding shares of Common Stock, Series A Preferred Stock
and Series B Preferred Stock have been issued in accordance with the
registration or qualification provisions of the Securities Act or exemptions
therefrom and any relevant state securities laws or pursuant to valid exemptions
therefrom.
(v) Except for (A) rights arising under the Investment Agreement, (B)
currently outstanding options to purchase 398,630 shares of Common Stock, and
(C) certain options and warrants set forth on SCHEDULE 3.5(V) hereto, there are
not outstanding any options, warrants, rights (including conversion or
preemptive rights and rights of first refusal), or agreements for the purchase
or acquisition from the Company of any shares of its capital stock. In addition
to the aforementioned options, the Company has reserved an additional 148,241
shares of its Common Stock for purchase upon exercise of options to be granted
in the future under the Company's Stock Option Plan or for direct stock awards
to employees. The Company is not a party or subject to any agreement or
understanding, and, to the Company's knowledge, there is no agreement or
understanding between any persons that affects or relates to the voting or
giving of written consents with respect to any security or the voting by a
director of the Company.
3.6 SUBSIDIARIES
SCHEDULE 3.6 hereto lists each of the Subsidiaries. Each of the
Subsidiaries is duly organized and existing under the laws of the jurisdiction
in which it is incorporated or organized and is in good standing under such
laws. Each Subsidiary is duly qualified as a foreign corporation to do business
and is in good
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standing in every jurisdiction (domestic or foreign) in which the nature of
the respective business conducted or property owned by it makes such a
qualification necessary and where the failure to so qualify would have a
Material Adverse Effect. All of the outstanding shares of the capital stock
of each of the Subsidiaries have been duly and validly authorized and issued,
are fully paid and nonassessable, and are owned by the Company, free and
clear of any Lien. To the Company's Knowledge, there are not outstanding any
options, warrants, rights (including conversion or preemptive rights and
rights of first refusal) or agreements for the purchase or acquisition from
any Subsidiary of any shares of its capital stock. None of the Subsidiaries
is a party or subject to any agreement or understanding, and, to the
Company's Knowledge, there is no agreement or understanding between any
persons, that affects or relates to the voting or giving of written consents
with respect to any security or the voting by a director of any of the
Subsidiaries.
3.7 CONTRACTS AND OTHER COMMITMENTS
Set forth on SCHEDULE 3.7 hereto is a list of all contracts,
agreements, leases, commitments, or proposed transactions, written or oral,
absolute or contingent which are material to the Company and its Subsidiaries
taken as a whole.
3.8 RELATED-PARTY TRANSACTIONS
Except as set forth on SCHEDULE 3.8 hereto, no employee, officer, or
director of the Company or any of the Subsidiaries or any "AFFILIATE" or
"ASSOCIATE" (as such terms are defined in Rule 12b-2 under the Exchange Act) of
such employee, officer or director or member of his or her immediate family is
indebted to the Company or any of the Subsidiaries, nor is the Company or any of
the Subsidiaries indebted (or committed to make loans or extend or guarantee
credit) to any of them. To the Company's Knowledge, none of such persons has
any direct or indirect ownership interest in any firm or corporation with which
the Company or any of the Subsidiaries is affiliated or with which the Company
or any of the Subsidiaries has a business relationship, or any firm or
corporation that competes with the Company or any of the Subsidiaries, except
that employees, officers, or directors of the Company or the Subsidiaries, their
Affiliates and Associates and members of their immediate families may own stock
in publicly traded companies that may compete with the Company. There are no
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transactions, excluding normal wages, stock options and other benefits in
accordance with standard Company employment policies and arrangements between
the Company or the Subsidiaries on the one hand and any employee or director of
the Company or the Subsidiaries, or any Affiliate, Associate or member of the
immediate family of any such employee or director on the other hand, in effect
on the Closing and involving, directly or indirectly, the (i) payment by the
Company or any of the Subsidiaries to any such employee or director or any
Affiliate, associate or member of the immediate family of any such employee or
director, of any aggregate amount in excess of $25,000 or (ii) transfer of
property by the Company or any of the Subsidiaries to any such employee or
director or any Affiliate, Associate or member of the immediate family of any
such employee or director, having an aggregate value in excess of $25,000.
Payments of cash and transfers of property to the Affiliates, Associates and
members of the immediate family of a person shall be aggregated with payments of
cash and transfers of property to such person for purposes of determining
whether the payments of cash or transfers of property to such person have an
aggregate value which exceeds $25,000.
3.9 REGISTRATION RIGHTS
Except as provided in the Registration Rights Agreement, or as set
forth on SCHEDULE 3.9 hereto, the Company is not obligated to register under the
Securities Act any of its presently outstanding securities or any of its
securities that may subsequently be issued.
3.10 PERMITS
Except as set forth on SCHEDULE 3.10 hereto, the Company and the
Subsidiaries have all franchises, permits, licenses, and any similar authority
necessary for the conduct of their respective businesses as now being conducted
by each of them, the lack of which could, individually or in the aggregate, have
a Material Adverse Effect. Neither the Company nor any of the Subsidiaries is
in default of or in violation in any material respect of any of such franchises,
permits, licenses or other similar authority.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS
Neither the Company nor any of the Subsidiaries is in violation or
default (i) of any provision of its charter or bylaws,
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(ii) in any provision of any mortgage, indenture, agreement, instrument, or
contract to which it is a party or by which it is bound or (iii) of any
judgment, order, writ, decree, statute, rule, or regulation applicable to the
Company or the Subsidiaries other than, with respect to Clause (ii) or (iii),
such violations or defaults which, individually or in the aggregate, do not
have a Material Adverse Effect. Neither the execution and delivery of this
Agreement, the Investment Agreement, the Registration Rights Agreement, the
Subordinated Notes, the Warrants and any Ancillary Agreement, nor the
consummation of the transactions contemplated hereby and thereby, will
conflict with or result in a breach of the terms, conditions or provisions
of, or give rise to a right of termination under, or constitute a default
under, or result in any violation of, the Restated Articles or bylaws of the
Company, or any mortgage, agreement, instrument, order, judgment, decree,
statute, law, rule or regulation to which the Company or any of its
Subsidiaries or any of their respective property is subject other than
breaches, defaults or violations set forth on SCHEDULE 3.11 or which,
individually or in the aggregate, do not have a Material Adverse Effect or
materially adversely affect the ability of the Company to perform its
obligations under this Agreement, the Investment Agreement, the Registration
Rights Agreement, the Subordinated Notes, the Warrants, the Restated Articles
and any Ancillary Agreement (collectively, the "PURCHASE DOCUMENTS").
3.12 LITIGATION
There is no action, suit, proceeding, or investigation pending or to
the Company's Knowledge currently threatened against the Company or any of the
Subsidiaries or any of their respective properties or assets, that questions the
validity of any of the Purchase Documents or the right of the Company to enter
into such agreements, or to consummate the transactions contemplated hereby or
thereby, or that might result, either individually or in the aggregate, in any
Material Adverse Effect, or in any material change in the current equity
ownership of the Company or the Subsidiaries (including, without limitation, any
action, suit, proceeding, or investigation pending or currently threatened
involving the prior employment of any of the Company's or the Subsidiaries'
employees, their use in connection with the Company's or the Subsidiaries'
businesses of any information or techniques allegedly proprietary to any of
their former employers, their obligations under any agreements with prior
employers, or negotiations by the Company or the Subsidiaries with potential
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backers of, or investors in, the Company or the Subsidiaries or their proposed
businesses). Neither the Company nor any of the Subsidiaries is a party to, or
to the best of the Company's Knowledge, named in any order, writ, injunction,
judgment, or decree of any court, government agency, or instrumentality. There
is no action, suit, or proceeding initiated by the Company or any of the
Subsidiaries currently pending or that the Company or any of the Subsidiaries
currently intends to initiate, except as set forth on SCHEDULE 3.12 hereto.
3.13 TITLE TO PROPERTY AND ASSETS; LEASES
Except (a) as reflected in the Financial Statements, (b) for liens for
current taxes not yet delinquent, (c) for liens imposed by law and incurred in
the ordinary course of business for obligations not past due to carriers,
warehousemen, laborers, materialmen and the like, (d) for liens in respect of
pledges or deposits under workers' compensation laws or similar legislation or
(e) for minor defects in title, none of which, individually or in the aggregate,
materially interferes with the use of such property, the Company and the
Subsidiaries have good and marketable title to their respective properties and
assets free and clear of all mortgages and Liens other than those Liens which,
individually or in the aggregate, do not have a Material Adverse Effect except
as set forth on SCHEDULE 3.13, hereto. With respect to the property and assets
it leases, the Company and the Subsidiaries are in compliance with such leases
and hold a valid leasehold interest free of any Liens, subject to clauses
(a)-(e) above. The Company and the Subsidiaries maintain insurance in such
amounts and of such a character as is usually maintained by or required for
companies engaged in the same or similar business.
3.14 FINANCIAL STATEMENTS
(a) The Company has delivered to the Investor its audited financial
statements, including the consolidated balance sheets as of June 30, 1997 and
1996 and related unaudited consolidating balance statements and the related
consolidated and unaudited consolidating statements of operations, statements of
stockholders' deficit and statements of cash flows for the fiscal years then
ended, and the related notes thereto (collectively such audited and unaudited
financial statements are referred to as the "FINANCIAL STATEMENTS").
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(b) The Financial Statements have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods indicated and with
each other, except that unaudited Financial Statements may not contain all
footnotes required by GAAP. The Financial Statements fairly present the
financial condition, operating results and cash flows of the Company and its
Subsidiaries as of the dates, and for the periods, indicated therein. Except as
set forth in the Financial Statements, as of the date of this Agreement, the
Company has no material liabilities, contingent or otherwise, of a nature
required under GAAP to be disclosed on a balance sheet or notes to financial
statements of the Company other than liabilities incurred in the ordinary course
of business subsequent to June 30, 1997. Except as disclosed in the Financial
Statements, the Company is not a guarantor or indemnitor of any indebtedness of
any other person, firm, or corporation. The Company maintains a standard system
of accounting (except as set forth on SCHEDULE 3.14 hereto)and maintains and
will continue to maintain the books and records of the Company in a manner which
permits the Company to prepare financial statements in accordance with GAAP.
3.15 CHANGES
Except as contemplated or permitted by this Agreement or as set forth
in SCHEDULE 3.15 hereto, since June 30, 1997 through the date of this Agreement,
there has not been:
(a) any change in the assets, liabilities, financial condition, or
operating results of the Company from that reflected in the Financial Statements
that has had, in the aggregate, a Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by
insurance, that has had a Material Adverse Effect;
(c) any waiver or compromise by the Company or any of the
Subsidiaries of a materially valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any Lien or payment of any
obligation by the Company or any of the Subsidiaries, except in the ordinary
course of business and that is not, individually or in the aggregate, material
to the business, operations, condition (financial or other), results of
operations, assets, properties or
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prospects of the Company (as such business is presently conducted and as it
is proposed to be conducted);
(e) any material change to a material contract or arrangement by
which the Company or any of the Subsidiaries or any of their assets are bound or
subject;
(f) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company or any of the
Subsidiaries;
(g) any sale, assignment, or transfer of any patents, trademarks,
copyrights, trade secrets, or other intangible assets, except in the ordinary
course of business;
(h) any resignation or termination of employment of any officer or
key employee of the Company or any of the Subsidiaries; and the Company, to its
knowledge, does not know of the impending resignation or termination of
employment of any such officer or employee;
(i) any receipt of notice that there has been a loss of, or material
order cancellation or reduction by, any customer of the Company or any of the
Subsidiaries which has accounted for 10% or more of the Company's revenues in
the year ended June 30, 1997;
(j) in any mortgage, pledge, transfer of a security interest in, or
Lien, created by the Company or any of the Subsidiaries, with respect to any of
its material properties or assets, except liens for taxes not yet due or
payable;
(k) any loans or guarantees made by the Company or any of its
Subsidiaries to or for the benefit of its employees, officers, or directors, or
any members of their immediate families, other than (i) normal travel advances
and other advances made in the ordinary course of its business, or (ii) loans or
guarantees which do not exceed $100,000 in the aggregate;
(l) any declaration, setting aside, or payment or other distribution
in respect of any of the Company's capital stock, or any direct or indirect
redemption, purchase, or other acquisition of any of such stock by the Company;
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(m) to the Company's knowledge, any other event or condition of any
character that, individually or in the aggregate, reasonably could be expected
to have a Material Adverse Effect; or
(n) any agreement or commitment by the Company or any of the
Subsidiaries to do any of the things described in this SECTION 3.15 (other than
negotiations with the Investor regarding the transactions contemplated by this
Agreement).
3.16 HOLDING COMPANY ACT AND INVESTMENT COMPANY ACT STATUS
The Company is not a "holding company" or a "public utility company"
as such terms are defined in the Public Utility Holding Company Act of 1935, as
amended. The Company is not an "investment company", or a company "controlled"
by an "investment company", within the meaning of the Investment Company Act of
1940, as amended.
3.17 TAXES
Except as set forth on SCHEDULE 3.17 hereto, the Company and the
Subsidiaries have filed all required Tax returns and reports which are material
and have paid, or adequately provided for the payment of, all Taxes, assessments
and other governmental charges imposed upon them or upon any of their respective
assets, income or franchises.
3.18 DISCLOSURE
Neither this Agreement nor the Schedules hereto nor any certificate
referred to herein furnished to the Investor by or on behalf of the Company
pursuant to this Agreement or any other Purchase Document contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements contained herein and therein not misleading.
3.19 ERISA
(a) SCHEDULE 3.19 hereto sets forth a true, correct, and complete
list of all Plans. The Company and the Subsidiaries have, with respect to each
Company Plan, made available to the Investor true and complete copies of (i) all
Plan documents and agreements; (ii) the most recent summary plan description for
each Plan and
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material employee communications; (iii) the most recent annual report
(including all Schedules thereto); and (iv) if the Plan is intended to
qualify under Section 401(a) or 403(a) of the Code, the most recent
determination letter received from the Internal Revenue Service or opinion
letter received from the sponsor of a prototype plan.
(b) To the Company's Knowledge, with respect to each Plan, neither
the Company nor any of the Subsidiaries has direct or indirect, actual or
contingent, liability, other than to make payments for contributions, premiums
or benefits when due in the ordinary course, all of which payments that are due
and owing have been made and no Plan is a "defined benefit plan" (as defined in
Section 3(35) of ERISA). No assets of the Company or any of the Subsidiaries
are subject to any lien under Sections 302(f), 306(a), 307(a), 412 or 4068 of
ERISA or Sections 401(a)(29) or 412(n) of the Code.
(c) With respect to each Company Plan: (i) each such Plan materially
conforms to, and its administration is in material compliance with, all
applicable laws and regulations; (ii) each such Plan is intended to qualify
under Sections 401(a) or 403(a) of the Code so qualifies; (iii) all payments
required, due and owing with respect to such Plans to date have been made, all
amounts accrued as liabilities and expenses of the Company and the Subsidiaries
through the date of the Financial Statements which have not been paid have been
properly reflected in the Financial Statements through the date of the Financial
Statements; (iv) to the Company's Knowledge all payments, contributions, and
premiums paid or required to be paid meet the requirements for deductibility
under the Code, and no payment is required under any such Plan that, by
operation of Section 280G of the Code, would not be deductible; (v) no such Plan
is subject to Section 302 of ERISA or Section 412 of the Code; (vi) no such Plan
is subject to Title IV of ERISA; (vii) there are no actions, suits or claims
pending or, to the knowledge of the Company, threatened (other than routine
claims for benefits); (viii) each such Plan that is a group health plan has been
operated in compliance with Section 4980B of the Code at all times, except to
the extent that non-compliance has not resulted or will not result in a material
liability; and (ix) no event, condition or circumstance has occurred or is
expected to occur that could result in a partial termination (within the meaning
of Section 411(d)(3) of the Code) of such Plan.
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(d) No Company Plan is funded through a "rabbi trust" or similar
funding vehicle, and no assets of the Company are held in such a trust or
funding vehicle. Except as specified on SCHEDULE 3.19 hereto there are no (i)
Retiree Welfare Plans, (ii) unfunded benefit obligations of the Company relating
to former or current employees of the Company or any of the Subsidiaries that
are not fairly reflected by reserves shown in the Financial Statements or (iii)
reserves, assets, surplus or prepaid premiums under any Welfare Plan. Except as
set forth in SCHEDULE 3.19 hereto, no Company Plan provides for severance pay,
unemployment compensation or any similar payment with respect to any current or
former employee, officer, director or agent of or consultant to the Company or
any of the Subsidiaries. The consummation of the transactions contemplated by
this Agreement will not (i) entitle any current or former employee, officer,
director or agent of or consultant to the Company or any of the Subsidiaries to
severance pay, unemployment compensation or any similar payment, (ii) accelerate
the time of payment or vesting of or increase the amount of compensation due to
any current or former employee, officer, director or agent of or consultant to
the Company or any of the Subsidiaries, or (iii) constitute or involve a
"prohibited transaction" (as defined in Section 406 or 407 of ERISA or Section
4975 of the Code).
(e) The Company or any of the Subsidiaries, as the case may be, has
the unqualified right to prospectively amend, modify and terminate each Company
Plan (except to the extent prohibited by law).
(f) No Company Plan is a "multiple employer plan" or a "multiemployer
plan" within the meaning of ERISA or the Code; and neither the Company nor any
of the Subsidiaries has direct or indirect, actual or contingent, liability with
respect to any partial or complete withdrawal (as such terms are defined in
Sections 4203 and 4205 of ERISA) from any multiemployer plan.
(g) As these terms are used in this Section:
"Company Plan" means any Plan that provides benefits with respect to
employees or former employees of the Company or any of the Subsidiaries.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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"Plan" means any "employee benefit plan" within the meaning of Section
3(3) of ERISA with respect to which the Company or any of the Subsidiaries has
any direct or indirect, fixed or contingent, liability.
"Welfare Plan" means any Plan that is a welfare plan within the
meaning of Section 3(1) of ERISA and provides benefits with respect to employees
or former employees of the Company or any of the Subsidiaries.
"Retiree Welfare Plan" means any Welfare Plan that provides benefits
with respect to employees or former employees of the Company or any of the
Subsidiaries beyond their retirement or other termination of service (other than
coverage mandated under Section 4980B of the Code).
3.20 ENVIRONMENTAL MATTERS
Neither the Company nor any of the Subsidiaries has disposed of or
arranged for the disposal of any hazardous substances, other than in conformity
with applicable laws and regulations, at any facility, location or site owned or
leased by the Company or any of the Subsidiaries except to the extent that such
disposals do not, individually or in the aggregate, have a Material Adverse
Effect and, to the Company's Knowledge, neither the Company nor any of the
Subsidiaries has been designated a potentially liable party for remedial action
or response costs in connection with such facility, location or site under the
Comprehensive Environmental Response, Compensation and Liability Act, as
amended, the Federal Resource Conservation and Recovery Act, as amended, the
Toxic Control Substance Act, the Clean Water Act, the Clean Air Act or
comparable state statutes, except to the extent that any such designation does
not have a Material Adverse Effect. Except as set forth on SCHEDULE 3.20
hereto, to the Company's Knowledge, except for such use or storage of hazardous
substances as is incidental to the conduct of the Company's or any of the
Subsidiaries' operations, which use and storage is or has been in conformity
with applicable laws and regulations, no property or asset owned or leased by
the Company or any of the Subsidiaries has been used for the storage, treatment,
generation, processing, production or disposal of any hazardous substances or as
a landfill or other waste disposal site, except to the extent that such uses or
storage do not, individually or in the aggregate, have a Material Adverse
Effect. To the Company's Knowledge,
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underground storage tanks are not and have not been located on or under any
property or assets owned or leased by the Company or any of the Subsidiaries,
except to the extent that such storage tanks do not, individually or in the
aggregate, have a Material Adverse Effect. For the purposes of this SECTION
3.20, "hazardous substances" shall mean those substances defined or listed
by the Comprehensive Environmental Response, Compensation and Liability Act,
as amended, the Federal Resource Conservation and Recovery Act, as amended,
the Toxic Control Substance Act, the Clean Water Act, the Clean Air Act or
comparable state statutes, and regulations thereunder.
3.21 OFFERING OF THE SHARES
Neither the Company nor, to the Company's Knowledge, any person
acting on its behalf has offered the Securities or any similar securities of the
Company for sale or exchange to, solicited any offers to buy such securities of
the Company from, or otherwise approached or negotiated with respect to such
securities of the Company with, any person other than the Investor and a limited
number of other "accredited investors" (as defined in Rule 501(a) under the
Securities Act). Neither the Company nor, to the Company's Knowledge, any
person acting on its behalf has taken or will take any action (including,
without limitation, any offering of any securities of the Company under
circumstances which would require the integration of such offering with the
offering of the Securities under the Securities Act and the rules and
regulations of the Commission thereunder) which might subject the offering,
issuance or exchange of the Securities to the registration requirements of
Section 5 of the Securities Act. The Company will offer and exchange the
Securities in compliance with all applicable state securities laws and will make
all necessary filings and qualifications required by such laws.
3.22 INTELLECTUAL PROPERTY
(a) Attached hereto as SCHEDULE 3.22(a) is a listing of all
intellectual property that is material to the Company and/or the Subsidiaries in
which the Company or any of the Subsidiaries holds any ownership interest or
written license to use ("INTELLECTUAL PROPERTY"). The Intellectual Property
includes: (i) patents and patent applications; (ii) registered copyrights,
material unregistered works and works for which copyright applications have been
filed; (iii) federal or state registered
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trademarks, service marks and trade names for which applications have been
filed; (iv) material common law trademarks, service marks and trade names;
and (v) items which the Company or any of the Subsidiaries considers to be a
material trade secret.
(b) Attached hereto as SCHEDULE 3.22(b) is a listing of all software
and databases that are material to the conduct of the business of the Company
and the Subsidiaries in which the Company or any of the Subsidiaries: (i) holds
any ownership interest ("OWNED SOFTWARE"); or (ii) holds written license to use
(with said license agreement being also identified), but excluding PC based
software that is available pursuant to "shrink wrap" agreements ("THIRD PARTY
SOFTWARE"). To the Company's Knowledge and Subsidiaries' Knowledge, the Company
and the Subsidiaries do not use any software or databases that are material to
the business of the Company and the Subsidiaries for which the user has neither
ownership rights nor a valid license.
(c) To the Company's Knowledge and the Subsidiaries' Knowledge, the
Company or one of the Subsidiaries possesses legal rights in the Intellectual
Property and Owned Software that are sufficient to conduct the business of the
Company and the Subsidiaries as the same is presently conducted.
(d) To the Company's Knowledge and the Subsidiaries' Knowledge, the
Company and the Subsidiaries possess valid licenses to use the Third Party
Software used by the Company and the Subsidiaries that is available pursuant to
"shrink wrap" agreements, except as set forth on SCHEDULE 3.22(d) hereto.
(e) Except for options, licenses or agreements (i) with its own
employees, officers, directors or consultants, substantially in the form
referenced in subparagraph (h) below, or (ii) options, licenses or agreements
granted, received or entered into in the ordinary course of the Company's or any
Subsidiary's business, to the knowledge of the Company and the Subsidiaries,
there are no outstanding options, licenses or agreements of any kind relating to
the Intellectual Property to which the Company or the Subsidiaries is a party.
(f) Except for agreements with its own employees or consultants,
substantially in the form referenced in subparagraph (h) below, to the Company's
Knowledge and the Subsidiaries' Knowledge, there are no outstanding options,
licenses or agreements
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of any kind relating to the Software to which the Company or the Subsidiaries
is a party.
(g) To the Company's Knowledge and the Subsidiaries' Knowledge,
neither the Company nor any of the Subsidiaries has received any written
communications alleging that the Company or any of the Subsidiaries has violated
or, by conducting its business as the same is proposed to be conducted by the
Company or any of the Subsidiaries, would violate any Intellectual Property of
any other person or entity nor, to the knowledge of the Company and the
Subsidiaries, does such a present violation exist.
(h) Except for the persons listed in SCHEDULE 3.22(h) hereto, each
employee and officer of the Company or any of the Subsidiaries has executed the
Company's or the Subsidiaries' standard Proprietary Information and Inventions
Agreement substantially in the form provided to the Investor.
3.23 LABOR RELATIONS
There is no pending or, to the Company's Knowledge, threatened strike,
picketing, work stoppage or work slowdown involving employees of the Company or
any of the Subsidiaries. No union is certified by the National Labor Relations
Board as collective bargaining agent for employees of the Company or any of the
Subsidiaries. To the Company's Knowledge, no written demand is pending for
recognition of such employees, no election for certification is pending, and, to
the best of the Company's Knowledge, no such demand is scheduled. The Company
has not incurred any liability or obligation, either directly or indirectly,
under the Worker Adjustment and Retraining Notification Act, as it may be
amended from time to time, or any state or local plant closing and severance
laws or regulations, and, to the Company's Knowledge within the six-month period
immediately following this transaction, the Company will not incur any such
liability or obligation if, during such six-month period, only terminations of
employment in the normal course of operations occur.
4. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR
The Investor hereby represents and warrants that:
4.1 AUTHORIZATION
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All corporate action on the part of the Investor, its officers,
directors and stockholders necessary for the authorization, execution and
delivery of this Agreement, the Investment Agreement, the Registration Rights
Agreement, and any Ancillary Agreement, the performance of all obligations of
the Investor hereunder and thereunder has been taken, and this Agreement,
Investment Agreement, the Registration Rights Agreement, the Ancillary Agreement
have and constitute valid and legally binding obligations of the Investor,
enforceable in accordance with their respective terms (except as enforcement
hereof or thereof may be limited by (i) bankruptcy, insolvency, reorganization,
moratorium and similar laws, both state and federal, affecting the enforcement
of creditors' rights or remedies in general as from time to time in effect or
(ii) the exercise by courts of equity powers).
4.2 NO CONFLICT.
Neither the execution of this Agreement, the Investment Agreement, nor
the Warrant Agreement by Investor nor the performance by Investor of its
obligations under this Agreement, the Investment Agreement or the Warrant
Agreement will conflict with or result in a breach of any of the terms or
provisions of, or constitute a default under, any contract to which Investor is
a party or is bound, the articles of incorporation and bylaws of the Investor or
any applicable law or order to which Investor is a party or by which Investor is
bound.
4.3 ACQUIRE ENTIRELY FOR OWN ACCOUNT
This Agreement is made with the Investor in reliance upon the
Investor's representation to the Company, which by its execution of this
Agreement it hereby confirms, that, the Securities to be acquired by the
Investor will be acquired for investment for the Investor's own account, not as
a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and that the Investor has no present intention of selling,
granting any participation in, or otherwise distributing the same. By executing
this Agreement, the Investor further represents that it does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the Securities.
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4.4 RELIANCE UPON INVESTOR'S REPRESENTATIONS
The Investor understands that the Securities are not registered under
the Securities Act on the ground that the acquisition provided for in this
Agreement and the issuance of securities hereunder is exempt from registration
under the Securities Act pursuant to Section 4(2) thereof, and that the
Company's reliance on such exemption is predicated on the Investor's
representations set forth herein.
4.5 SOPHISTICATED INVESTOR
The Investor is a sophisticated purchaser with respect to the
Securities, has been given the opportunity to access the records of the Company
and its Subsidiaries and has made its own independent analysis and investigation
into the business, operations, financial condition and general creditworthiness
of the Company and the Subsidiaries and has made its own independent decision to
acquire on the date hereof the Securities pursuant to the terms and conditions
set forth in this Agreement, except that the Investor has relied upon the
representations, warranties and covenants of the Company contained in this
Agreement. The Investor is an "accredited investor" as such term is defined in
Rule 501 under the Securities Act.
4.6 ACCESS TO DATA
The Investor has received and reviewed information about the Company
and has had an opportunity to review and discuss the Company's business,
management and financial affairs with its management. The Investor understands
that such discussions, as well as any written information issued by the Company,
were intended to describe the aspects of the Company's business and prospects
which the Company believes to be material, but were not necessarily a thorough
or exhaustive description.
4.7 RESTRICTED SECURITIES
The Investor understands that the Securities may not be sold,
transferred, or otherwise disposed of without registration under the Securities
Act or an exemption therefrom, and that in the absence of an effective
registration statement covering the Securities or an available exemption from
registration under the Securities Act, the Securities must be held indefinitely,
subject,
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in the case of the Series C Preferred Stock, to redemption in accordance with
its terms. In particular, the Investor is aware that the Securities may not
be sold pursuant to Rule 144 promulgated under the Securities Act unless all
of the conditions of that Rule are met. Among the conditions for use of Rule
144 is the availability of current information to the public about the
Company. Such information is not now available and, except as otherwise
contemplated by this Agreement, the Company has no present plans to make such
information available.
4.8 LEGEND
To the extent applicable, each certificate or other document
evidencing any of the Securities being acquired hereunder shall be endorsed with
the legend set forth below, and the Investor covenants that, except to the
extent such restrictions are waived by the Company, such Investor shall not
transfer the shares represented by any such certificate without complying with
the restrictions on transfer described in the legend endorsed on such
certificate:
"THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, PLEDGED, OR
HYPOTHECATED ABSENT AN EFFECTIVE REGISTRATION THEREOF UNDER
SUCH ACT OR COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH
ACT, OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT
SUCH REGISTRATION IS NOT REQUIRED."
5. COVENANTS OF THE COMPANY
From the date of this Agreement, and thereafter so long as the
Investor or any of its Affiliates shall hold Securities representing ten percent
(10%) or more of the Fully-Diluted Voting Power of the Company, and so long as
there shall be any Subordinated Note outstanding, the Company will duly perform
and observe for the benefit of the holders of the Securities, each and all of
the covenants and agreements hereinafter set forth, PROVIDED, that, if all of
the Subordinated Notes shall have been paid in full, the Company will not be
obligated to perform and
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observe the covenants and agreements set forth in SECTIONS 5.15 THROUGH 5.18,
5.20 AND 5.22 THROUGH 5.25; FURTHER; PROVIDED, that so long as the Investor
or any of its Affiliates shall hold any of the Securities the Company will
duly perform and observe for the benefit of the holders of the Securities,
the covenants set forth in SECTIONS 5.1 AND 5.2; FURTHER; PROVIDED; that at
any time that a party other than the Investor or any of its Affiliates holds
the Subordinated Note, then the covenants and agreements set forth in
SECTIONS 5.2, 5.5, 5.22, 5.23 AND 5.25 shall no longer be in effect and
SECTIONS 5.15 AND 5.17 shall be replaced by the replacement sections set
forth on APPENDIX I hereto.
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS
(a) as soon as practicable and in any event within thirty (30)
calendar days after the end of each calendar month, an unaudited consolidated
statement of operations, consolidated statement of stockholders equity/deficit
and a consolidated statement of cash flows of the Company and its Subsidiaries
for the period from the beginning of the then current calendar month to the end
of such month, and an unaudited consolidated balance sheet of the Company and
its Subsidiaries as of the end of such month, in the form prepared by the
Company for its internal use consistent with past practice and setting forth in
each case in comparative form figures for the corresponding period or date in
the preceding calendar year.
(b) as soon as practicable and in any event within sixty (60)
calendar days (thirty (30) calendar days after the end of each quarter nine
months after the Closing Date) after the end of each quarter (other than the
last quarter) in each year, an unaudited consolidated and consolidating
statement of operations, consolidated and consolidating statement of
stockholders equity/deficit and a consolidated and consolidating statement of
cash flows of the Company and its Subsidiaries for the period from the beginning
of the then current quarter to the end of such quarter, and an unaudited
consolidated and consolidating balance sheet of the Company and its Subsidiaries
as of the end of such quarter, setting forth in each case in comparative form
figures for the corresponding period or date in the preceding calendar year, all
in reasonable detail sufficient to permit the Investor to satisfy its Commission
reporting obligations and certified by an authorized financial officer of the
Company, subject to changes resulting from year-end adjustments and in each case
accompanied by
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a review report by a nationally recognized firm of independent public
accountants which shall have performed such review in accordance with
Statements on Standards for Accounting and Review Services (or any applicable
successor statement) issued by the American Institute of Certified Public
Accountants;
(c) as soon as practicable and in any event within ninety (90)
days after the end of each year (sixty (60) days after the end of each year
beginning with the first fiscal year end nine months after the Closing Date),
audited consolidated and consolidating statements of operations and audited
consolidated and consolidating statements of cash flows and an audited
consolidated statement of stockholders equity/deficit (including all of the
related consolidating statements) of the Company and its Subsidiaries for such
year, and an audited consolidated and unaudited consolidating balance sheet of
the Company and its Subsidiaries as of the end of such year, together with
related schedules and notes thereof, setting forth in each case in comparative
form the corresponding figures from the preceding calendar year, all in
reasonable detail sufficient to permit the Investor to satisfy its Commission
reporting obligations and examined and reported on by a nationally recognized
firm of independent public accountants of recognized standing selected by the
Company;
(d) promptly upon transmission thereof, copies of all such
financial statements, proxy statements, notices and reports as the Company shall
send to its stockholders and copies of all such registration statements, other
than registration statements relating to employee benefit or dividend
reinvestment plans, and all such regular and periodic reports as it shall file
with the Commission; and
Together with each delivery of financial statements required by clauses (b) and
(c) of this SUBSECTION 5.1, the Company will deliver to the Investor a
certificate by an authorized financial officer of the Company regarding
compliance by the Company with the covenants set forth in SUBSECTIONS 5.5, 5.6,
5.7, 5.8, 5.9, 5.11, 5.12, 5.13, 5.15, 5.16, 5.17, 5.22, 5.24 AND 5.25 hereof,
and that such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis.
5.2 OTHER FINANCIAL INFORMATION
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The Company agrees that it will deliver to the Investor promptly after
the end of each calendar quarter, but in any event no more than sixty (60)
calendar days after the end of each calendar quarter (thirty (30) calendar days
after the end of each calendar quarter beginning with the first calendar quarter
nine months after the Closing Date), such financial information concerning the
business and operations of the Company and its Subsidiaries (i) for such
preceding calendar quarter as shall be reasonably necessary or desirable to
permit the Investor to prepare and issue to the public, in the ordinary course
of the Investor's business, an "earnings" release relating to the Investor's
consolidated operations for such fiscal period, and(ii) to permit the Investor
to compare month over month, year over year and month to budgeted financial
information of the Company.
5.3 INSPECTION OF PROPERTY
The Company will permit representatives of the Investor, to visit and
inspect, at the Investor's expense, any of the properties of the Company and its
Subsidiaries, to examine the corporate books and make copies or extracts
therefrom and to discuss the affairs, finances and accounts of the Company and
its Subsidiaries with the principal officers of the Company, all at such
reasonable times and as often as the Investor may reasonably request.
5.4 LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES OR SUBORDINATED
NOTES
Upon receipt of evidence satisfactory to the Company of the loss,
theft, destruction or mutilation of any certificate representing the Securities,
in the case of loss, theft or destruction, upon delivery of an indemnity
reasonably satisfactory to the Company, or, in the case of mutilation, upon
surrender and cancellation thereof, the Company will issue a new certificate or
Subordinated Note of like tenor for a number of shares of Common Stock, Series C
Preferred Stock, Series D Preferred Stock, Series E Preferred Stock or Warrants
or face value of the Subordinated Notes as the case may be, equal to the number
of shares of such stock or face value of such notes represented by the
certificate or Subordinate Note lost, stolen, destroyed or mutilated.
5.5 LIMITATION ON PAYMENT RESTRICTIONS. Other than in connection
with Permitted Senior Debt, unless the Investor
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otherwise consents in writing, the Company will not, and will not permit any
of its Subsidiaries to, enter into any loan or other agreement containing a
dividend limitation which restricts the ability of the Company to pay
dividends on the Series C Preferred Stock in accordance with the Restated
Articles.
5.6 LIMITATION ON TRANSACTIONS WITH AFFILIATES
Except as set forth on SCHEDULE 5.6 or as contemplated by this
Agreement or any Purchase Document, unless the Investor consents in writing, the
Company will not, and will not permit any of its Subsidiaries to, conduct,
directly or indirectly, any business or enter into any transaction with any
employee or director of the Company or any of its Subsidiaries or any Affiliate,
Associate or member of the immediate family of any such employee or director
involving, directly or indirectly, the (i) payment by the Company or any of its
Subsidiaries to any such employee or director or any of the Affiliates,
Associates or members of the immediate family of any such employee or director
of an aggregate amount in excess of $50,000 or (ii) transfer of property by the
Company or any of its Subsidiaries to any such employee or director or any
Affiliate, Associate or member of the immediate family of any such employee or
director, having an aggregate value in excess of $50,000 without the approval of
the disinterested members of the Board of Directors. Payments of cash and
transfers of property to the Affiliates, Associates and members of the immediate
family of a person shall be aggregated with payments of cash and transfers of
property to such person for purposes of determining whether the payments of cash
or transfers of property to such person have an aggregate value which exceeds
$10,000.
5.7 INSURANCE
(a) Unless the Investor otherwise consents in writing, the Company
will maintain, and will cause each of its Subsidiaries to maintain, insurance
coverage by financially sound and reputable insurers in such forms and amounts
and against such risks which are approved by the board of directors of the
Company from time to time.
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(b) Within ninety (90) days after the Closing, the Company shall use
its reasonable best efforts to obtain and at all times thereafter shall maintain
the Key Man Insurance.
5.8 MAINTENANCE, ETC.
Unless the Investor otherwise consents in writing, the Company will
maintain, preserve and keep, and will cause each of its Subsidiaries to
maintain, preserve and keep, its properties which are used or useful in the
conduct of its business (whether owned in fee or a leasehold interest) in good
repair and working order (ordinary wear and tear excepted) and from time to time
will make all necessary repairs, replacements, renewals and additions so that at
all times the efficiency thereof shall be maintained, unless the failure to
maintain would not reasonably be expected to have a Material Adverse Effect.
5.9 NATURE OF BUSINESS
Unless the Investor otherwise consents in writing, neither the Company
nor any of its Subsidiaries will engage in any business if, as a result, the
general nature of the business, taken on a consolidated basis, which would then
be engaged in by the Company and its Subsidiaries, would be materially changed
from the general nature of the business engaged in by the Company and its
Subsidiaries on the date of this Agreement.
5.10 [Intentionally Omitted].
5.11 USE OF PROCEEDS
The Company agrees that it will use the proceeds of the sale of the
Securities hereunder for the retirement of approximately $6.5 million of
indebtedness, product development, content development and working capital.
5.12 PAYMENT OF TAXES
The Company will, and will cause each of its Subsidiaries to pay and
discharge promptly as they become due and payable all material taxes,
assessments and other governmental charges or levies imposed upon it or its
income or upon any of its property, as well as all claims of any kind (including
claims for labor, materials and supplies) which, if unpaid, might by law become
a
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Lien upon its property; PROVIDED that no such Person shall be required to pay
any such tax, assessment, charge, levy or claim if the amount, applicability or
validity thereof shall currently be contested in good faith by appropriate
proceedings promptly initiated and diligently conducted and if it shall have set
aside on its books such reserves, if any, with respect thereto as are required
by GAAP; PROVIDED FURTHER, that the Company will, and will cause each of its
Subsidiaries to, pay any such tax, assessment, charge, levy or claim prior to
the commencement of any proceeding to foreclose any Lien securing the same.
5.13 CONDUCT OF BUSINESS
Subject to SECTION 5.17 hereof, the Company and each Subsidiary shall
(a) maintain its corporate existence, (b) maintain in full force and effect all
bonds, franchises, patents and trademarks, and all governmental licenses,
permits and authorizations, in each case which are material to the conduct of
its business, (c) maintain in full force and effect all leases, contracts and
other rights, and all non-governmental licenses, permits and authorizations, in
each case the loss of which would have a Material Adverse Effect, and (d) comply
with all applicable laws, orders, regulations and ordinances of all Governmental
Authorities, except for such laws, orders, regulations and ordinances the
violation of which would not be reasonably likely to have a Material Adverse
Effect.
5.14 NOTICE OF SUITS, ADVERSE CHANGES IN BUSINESS AND DEFAULTS
The Company and each Subsidiary shall immediately as to PARAGRAPH (d)
below, or as to all other paragraphs of this SECTION 5.14, as soon as possible,
and in any event within fifteen (15) days after it learns of any of the
following, give written notice to the Investor of:
(a) any proceeding(s) being instituted or threatened to be instituted
by or against the Company or a Subsidiary in any federal, state, local or
foreign court or before any Governmental Authority in which injunctive relief is
requested which would reasonably be expected to materially and adversely affect
the business of the Company and its Subsidiaries taken as a whole or in which
the amount in controversy exceeds $100,000 and any litigation, proceeding,
investigation or claim that would
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reasonably be expected to materially impair the Company's ability to perform
any of its material obligations under (i) any of the Purchase Documents, or
(ii) the Restated Articles, as amended, or by-laws, as amended, of the
Company or any Subsidiary;
(b) any change in the business, assets or financial condition, of the
Company or any Subsidiary which can reasonably be expected to have a Material
Adverse Effect;
(c) the occurrence of any Event of Default as defined in any of the
Senior Debt Documents; and
(d) the occurrence of any Event of Default under SECTION 7 hereof or
the Subordinated Note.
5.15 LIENS OR ENCUMBRANCES
The Company will not create or suffer to exist or permit any
Subsidiary to create or suffer to exist, any Lien upon any of its Property,
income or profits, whether now owned or hereafter acquired, EXCEPT AS FOLLOWS
(collectively, the "PERMITTED LIENS"):
(a) Liens at any time granted in favor of the Investor;
(b) (A) Liens for taxes (excluding any Lien imposed pursuant to any
of the provisions of ERISA) not yet due or that are being Properly Contested and
(B) statutory Liens arising in the ordinary course of the Company's business by
operation of law or regulation, but only if payment in respect of any such Lien
is not at the time required or such Liens are being Properly Contested.
(c) Purchase Money Liens securing Permitted Purchase Money
Indebtedness;
(d) Liens securing Indebtedness of one of the Company's Subsidiaries
to the Company or another such Subsidiary;
(e) reservations, exceptions, easements, rights-of-way and other
similar encumbrances affecting the real Property of the Company and its
Subsidiaries that do not interfere with the ordinary conduct of the business of
the Company and Subsidiaries;
(f) such other Liens existing on the Closing Date which are set forth
on SCHEDULE 5.15(f);
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(g) Liens securing obligations of the Company in respect of Permitted
Senior Debt; and
(h) such other Liens as the Investor may hereafter approve in
writing.
5.16 INDEBTEDNESS
Except as expressly provided herein, neither the Company, nor any
Subsidiary will incur, create, assume, become or be liable in any manner with
respect to any Indebtedness, EXCEPT AS FOLLOWS (collectively, the "PERMITTED
INDEBTEDNESS"): (a) the Indebtedness evidenced by the Subordinated Notes and
other obligations of the Company under this Agreement and the other Purchase
Documents to which the Company is a party, (b) Indebtedness of the Company
secured by Purchase Money Liens and Indebtedness of the Company under Capital
Leases not to exceed $2,000,000 in the aggregate at any time outstanding and
shall be secured solely by trade accounts receivable and equipment; and (c)
Permitted Senior Debt(as set forth on SCHEDULE 5.16(c)).
5.17 CONSOLIDATIONS, MERGERS OR ACQUISITIONS
Neither the Company nor any Subsidiary will recapitalize or
consolidate with, merge with, acquire the capital stock of, or otherwise acquire
all or any substantial part of the assets or properties of any other Person
except that (i) a wholly-owned Subsidiary of the Company may merge into another
wholly-owned Subsidiary of the Company, (ii) a Subsidiary of the Company may
merge into the Company, and (iii) the Company may acquire the capital stock of,
or otherwise acquire all or any substantial part of the assets or Properties of
any other Person, if the aggregate consideration payable for such acquisition is
less than or equal to $1,000,000 for a rolling twelve (12) month period and such
acquisition is otherwise permitted by this Agreement.
5.18 [INTENTIONALLY OMITTED.]
5.19 FISCAL YEAR-END
Neither the Company nor any Subsidiary will change its fiscal year end
from June 30 of each year without the approval of the Investor which consent
will not be unreasonably withheld.
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5.20 PAYMENTS ON SUBORDINATED DEBT
Except as expressly agreed to herein, the Company will not make any
principal payment of or interest payment on, or purchase or acquire, or prepay,
any Indebtedness which is subordinate to the Subordinated Notes; or permit any
notes or agreements evidencing Indebtedness which is subordinated to the
Subordinated Notes, or any subordination agreement executed in connection
therewith, to be modified or amended or any agreement or consent to be given
thereunder, whereby any provisions thereof relating to the subordination thereof
to the Subordinated Notes are waived, modified or discharged, or there is any
acceleration of the maturities therein provided.
5.21 BOOKS AND RECORDS
Beginning nine months after the Closing Date, the Company will keep
and maintain satisfactory and adequate books and records of account in which
entries are made in accordance with GAAP.
5.22 PERFORMANCE
The Company will deliver to the Investor promptly after the end of
each quarter, but in any event no more than thirty (30) calendar days after the
end of each quarter, a statement describing the percent of Content completed as
of the end of such quarter.
5.23 DISASTER RECOVERY AND CONTINGENCY PROGRAM
Within 120 days of the Closing Date, the Company and each Subsidiary
will implement and maintain (and at least annually review the sufficiency of) a
disaster recovery and contingency plan that addresses plans for continuing
operations upon the occurrence of a natural disaster or other event that
destroys or prevents the use of or access to any of the Company's primary
mainframe computer systems and addresses events that destroy or prevent the use
of or access to other material computer systems, material information databases
and records, and primary operations facility.
5.24 GUARANTIES
Neither the Company, nor any Subsidiary will guarantee, assume or
otherwise agree to become liable in any way, either directly or indirectly, for
any additional indebtedness or
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liability of any other Person, EXCEPT AS FOLLOWS (collectively, the
"PERMITTED GUARANTIES"): (a) in favor of Investor, OR (b) to endorse checks
or drafts in the ordinary course of business, OR (c) guarantees or other
contingent obligations to secure on behalf of the Company performance or
payment bonds, bids, tenders, contracts, leases, franchises or public and
statutory obligations in the ordinary course of such business, (d) to the
extent that the Investor otherwise consents in writing, or (e) guarantees of
Permitted Indebtedness. NOTWITHSTANDING THE FOREGOING EXCEPTIONS, neither
the Company nor any Subsidiary may become so liable in a manner that
otherwise violates any covenant hereunder or that otherwise causes an Event
of Default hereunder.
5.25 ISSUANCE OF ADDITIONAL EQUITY
Neither the Company nor any Subsidiary will permit the issuance (or
reissuance) of any equity interests (common stock, preferred stock, partnership
interests, member interests or otherwise) or any options, warrants, convertible
securities or other rights to purchase such beneficial or equity interest,
except for (i) the grant of options under the Company's 1994 Stock Option Plan,
(ii) the issuance of stock upon exercise or conversion of outstanding options,
warrants or other securities convertible into or exchangeable for stock of the
Company, (iii) pursuant to written agreements provided to the Investor prior to
the date hereof that provide for the issuance of stock to former employees of
the Company on a future date; or (iv) as otherwise contemplated by or permitted
under the Purchase Documents.
5.26 [INTENTIONALLY OMITTED].
6. [INTENTIONALLY OMITTED]
7. DEFAULTS AND EVENTS OF DEFAULT UNDER THE NOTES
Upon the occurrence of any of the following events prior to the repayment
of the Subordinated Notes (each a "DEFAULT"):
(a) the Company fails to pay all or any portion of the principal on
the Subordinated Notes when due; or the Company fails to pay any interest or
fails to pay any other amounts payable under the Subordinated Notes, and such
failure to pay interest, or other amounts continues for more than five (5) days
after such amount becomes
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due in accordance with the terms of the Subordinated Notes; or
(b) the Company fails or neglects to perform, keep or observe any of
the covenants, conditions, promises or agreements contained in SECTIONS 5.6,
5.9, 5.16, AND 5.17; or
(c) the Company fails or neglects to perform, keep or observe any of
the covenants, conditions, promises or agreements contained in SECTIONS 5.1,
5.2, 5.4, 5.7, 5.12, 5.13(d) OR 5.15 hereof or in the Subordinated Notes and
such failure or neglect continues for a period of thirty (30) days (only five
(5) days in the case of SECTION 5.1, 5.2 OR 5.22 and sixty (60) days in the case
of SECTION 5.12) after the Company's Knowledge or receives notice from Investor
of such failure, of such failure or neglect; or
(d) any warranty or representation heretofore, now or hereafter made
by the Company in or pursuant to any of the Purchase Documents is untrue or
incorrect in any material respect as of the date as of which made, or any
schedule, certificate, financial data or notice furnished at any time to the
Investor by the Company under or pursuant to the Purchase Documents, is untrue
or incorrect in any material respect on the date as of which made and in either
case results in a Material Adverse Effect; or
(e) a judgment or order requiring payment in excess of insurance
coverage by more than $100,000 shall be rendered against the Company and such
judgement or order shall remain unsatisfied or undischarged or unbonded and in
effect for thirty (30) consecutive days without a stay of enforcement or
execution; or
(f) a notice of Lien, levy or assessment (other than a Permitted
Lien) is filed or recorded with respect to any material portion of the assets of
the Company by any Governmental Authority for any taxes or debts owing at any
time or times hereafter to any one or more of them become a Lien (other than a
Permitted Lien) upon any material portion of the assets of the Company and any
of the foregoing is not cured within thirty (30) days; or
(g) any material portion of the assets of the Company is attached,
subjected to a writ or distress warrant, or is levied upon (and any of the
foregoing is not cured within ten (10) days)
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seized or comes within the possession of any receiver, trustee, custodian or
assignee for the benefit of creditors; or
(h) a proceeding under 11 U.S.C. Sections 101 ET SEQ., as amended,
and any similar or successor Federal statute, and the rules and regulations
thereunder (collectively, the "BANKRUPTCY CODE"), seeking an order for relief or
under any other bankruptcy, reorganization, arrangement of debt, insolvency,
readjustment of debt or receivership law or statute is filed against the Company
and such proceeding is not dismissed within sixty (60) days of the date of its
filing, or a proceeding under the Bankruptcy Code seeking an order for relief or
under any bankruptcy, reorganization, arrangement of debt, insolvency,
readjustment of debt or receivership law or statute is filed by the Company, or
the Company makes an assignment for the benefit of creditors, or the Company
takes any corporate action to authorize any of the foregoing; or
(i) the Company voluntarily or involuntarily dissolves or is
dissolved, or its existence terminates or is terminated; or
(j) the Company becomes insolvent or fails generally to pay its debts
as they become due; or
(k) the Company fails to pay any principal of or interest on any
Indebtedness having an outstanding principal amount of $100,000 or more
("MATERIAL INDEBTEDNESS") (including without limitation any such Indebtedness
assumed or guaranteed and any Indebtedness pursuant to any Senior Debt
Documents) for a period longer than the grace period, if any, provided for such
payment; or any default under any instrument or agreement evidencing, creating,
securing or otherwise relating to Material Indebtedness (including without
limitation any guaranty or assumption agreement relating to such Material
Indebtedness) or other event occurs and continues beyond any applicable grace
period, if the effect of such default or other event is to cause, or to permit
the holder or holders of such Material Indebtedness (or their representative) to
cause, such Material Indebtedness (or the obligations under any such guaranty or
assumption agreement) to become due and payable prior to the stated maturity
thereof; or
(l) [Intentionally Omitted];
(m) a Change of Control shall occur; or
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(n) the Company fails to meet any of the performance targets set
forth on EXHIBIT G. Such performance shall be measured on a cumulative annual
basis.
then, and in any such event, (x) if such event is of the type described in
paragraph (h) or (i) of this SECTION 7, there will be an automatic Event of
Default ("Event of Default") and the Subordinated Notes and all other amounts
owing under this Agreement shall automatically become due and payable, or (y) in
any other such Default, and at any time thereafter, if such Default shall then
be continuing, the Investor may, by written notice to the Company, declare an
Event of Default and declare due and payable the principal of, and interest on,
the Subordinated Notes and all other amounts owing under this Agreement,
whereupon the same shall be immediately due and payable. In the event of an
Event of Default, the Subordinated Notes shall become due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived. In the event of a Default described in Paragraph (n)
(a "STEP-UP EVENT OF DEFAULT"), then in addition to all other remedies allowed
hereunder and in the Subordinated Notes, the Warrants shall be immediately
adjusted pursuant to SECTION 4 of the Warrants.
8. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING
The obligations of the Investor under SECTION 2.1(a) of this Agreement
are subject to the fulfillment on or before the Closing of each of the following
conditions, the waiver of which shall only be effective against the Investor if
it consents in writing thereto:
8.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company contained in SECTION
3 shall be true in all material respects on and as of the Closing with the same
effect as though such representations and warranties had been made on and as of
the Closing, except for changes contemplated by this Agreement (including
SCHEDULE 3 hereto) and except for those representations and warranties which
address matters only as of a particular date. Investor shall have received a
certificate dated as of the Closing Date signed by an executive officer of the
Company confirming the fulfillment of this condition.
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8.2 PERFORMANCE
The Company shall have performed and complied in all material respects
with all agreements, obligations, and conditions contained in this Agreement
that are required to be performed or complied with by it on or before the
Closing and Investor shall have received a certificate dated as of the Closing
signed by an executive officer of the Company confirming the fulfillment of this
condition.
8.3 QUALIFICATIONS
All authorizations, approvals, waivers, Consents or permits, if any,
of any governmental authority or regulatory body that are required in connection
with the lawful issuance and transfer of the Securities pursuant to this
Agreement shall be duly obtained and effective as of the Closing. All required
third party consents shall have been obtained.
8.4 PROCEEDINGS AND DOCUMENTS
All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Investor's special
counsel, which shall have received all such counterpart original and certified
or other copies of such documents as it may reasonably request.
8.5 OPINION OF COMPANY COUNSEL
The Investor shall have received from Wilson, Sonsini, Goodrich &
Rosati, Professional Corporation, special counsel for the Company, an opinion,
dated the date of the Closing, in form and substance satisfactory to special
counsel to the Investor, to the effect set forth in EXHIBIT F.
8.6 INVESTMENT AGREEMENT
The Company, the Investor and the stockholders of the Company set
forth on Exhibit A to the Investment Agreement shall have entered into the
Investment Agreement in the form attached hereto as EXHIBIT E (the "Investment
Agreement").
8.7 REGISTRATION RIGHTS AGREEMENT
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The Company and the Investor shall have entered into the Registration
Rights Agreement in the form attached hereto as EXHIBIT H (the "REGISTRATION
RIGHTS AGREEMENT").
8.8 RESTATED ARTICLES.
The Company shall adopt and file with the Division of Corporations and
Commercial Code of the Department of Commerce of the State of Utah on or before
the Closing the Restated Articles.
8.9 PURCHASE DOCUMENTS
The Company shall have issued and delivered to the Investor the
Securities to be issued by it pursuant to this Agreement; and the Investor shall
have received a counterpart of this Agreement and of each of the other Purchase
Documents, duly executed by each party thereto.
8.10 EMPLOYMENT AGREEMENTS
The Company and each of Dave Whetten, Bill Woahn and Frank Weinrauch shall
have entered into an Employment Agreement in substantially the form attached
hereto as EXHIBIT J (the "EMPLOYMENT AGREEMENTS").
8.11 BLUE SKY
The Company shall have obtained all necessary Blue Sky law permits and
qualifications, or secured an exemption therefrom, required by any state for the
offer and sale of the Common Stock, Preferred Stock, Subordinated Notes and
Warrants hereunder and under the other Purchase Documents and the Common Stock
issuable upon conversion of such Preferred Stock and the exercise of such
Warrants.
8.12 MARKETING AND SALES AGREEMENT.
The Company and the Investor shall have entered into the Marketing and
Sales Agreement in the form attached hereto as EXHIBIT K (the "MARKETING
AGREEMENT").
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9. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING
The obligations of the Company to the Investor under this Agreement
are subject to the fulfillment on or before the Closing of each of the following
conditions by the Investor:
9.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Investor contained in
SECTION 4 shall be true in all material respects on and as of the Closing with
the same effect as though such representations and warranties had been made on
and as of the Closing, except for changes contemplated by this Agreement
(including SCHEDULE 3 hereto) and except for those representations and
warranties which address matters only as of a particular date.
9.2 QUALIFICATIONS
All authorizations, approvals, waivers, Consents or permits, if any,
of any governmental authority or regulatory body that are required in connection
with the lawful issuance and exchange of the Common Stock, Series C Preferred
Stock, the Subordinated Notes and the Warrants pursuant to this Agreement shall
be duly obtained and effective as of the Closing. All required third party
consents identified on SCHEDULE 9.2 shall have been obtained.
9.3 OPINION OF INVESTOR'S COUNSEL
The Company shall have received from Winston & Strawn, special counsel
for the Investor, an opinion, dated the date of the Closing, in form and
substance satisfactory to special counsel to the Company, to the effect set
forth in EXHIBIT I.
9.4 BLUE SKY
The Company shall have obtained all necessary Blue Sky law permits and
qualifications, or secured an exemption therefrom, required by any state for the
offer and sale of the Common Stock, Preferred Stock, Subordinated Notes and
Warrants hereunder and under the other Purchase Documents and the Common Stock
issuable upon conversion of such Preferred Stock and the exercise of such
Warrants.
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9.5 INVESTMENT AGREEMENT
The Company, the Investor and the stockholders of the Company set
forth on Exhibit A to the Investment Agreement shall have entered into the
Investment Agreement.
9.6 PERFORMANCE
The Investor shall have performed and complied in all material
respects with all agreements, obligations, and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing and Company shall have received a certificate dated as of the
Closing signed by an executive officer of the Company confirming the fulfillment
of this condition.
9.7 PROCEEDINGS AND DOCUMENTS
All corporate and other proceedings in connection with the
transactions contemplated at the Closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to the Company's special
counsel, which shall have received all such counterpart original and certified
or other copies of such documents as it may reasonably request.
9.8 PURCHASE DOCUMENTS
The Company shall receive a counterpart of this Agreement and of each
of the other Purchase Documents, duly executed by each party thereto.
9.9 REGISTRATION RIGHTS AGREEMENT
The Company and the Investor shall have entered into the Registration
Rights Agreement.
9.10 MARKETING AND SALES AGREEMENT.
The Company and the Investor shall have entered into the Marketing
Agreement.
9.11 RESTATED ARTICLES.
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The Restated Articles shall have been filed with the Division of
Corporations and Commercial Code of the Department of Commerce of the State of
Utah.
10. [Intentionally Omitted].
11. INDEMNIFICATION
11.1 INDEMNIFICATION BY THE COMPANY
(a) The Company hereby agrees to indemnify and hold harmless the
Investor (including its officers, directors and employees) and its affiliates
against any and all losses, damages, liabilities, claims, demands, judgments,
settlements, costs and expenses of any nature whatsoever of the Investor
(including reasonable attorneys' fees) (collectively, "LOSSES") resulting from
or arising out of the inaccuracy of any representation or warranty or the breach
or non-performance of any covenant or agreement of the Company contained in this
Agreement.
(b) If any action, proceeding or claim shall be brought or asserted
against the Investor (including its officers, directors and employees) or its
Affiliates (each, an "INVESTOR INDEMNIFIED PARTY") by any third party, which
action, proceeding or claim, if determined adversely to the interest of the
Investor Indemnified Party, would entitle the Investor Indemnified Party to
indemnity pursuant to this SECTION 11.1, the Investor Indemnified Party shall
promptly but in no event later than 30 days from the date that such Investor
Indemnified Party shall become aware of such action, proceeding or claim, notify
the Company of the same in writing specifying in detail the basis of such claim
and the facts pertaining thereto, and the Company shall be entitled to assume
the defense thereof and have the sole control of the defense and settlement
thereof, including the employment of counsel and the payment of all expenses;
PROVIDED, HOWEVER, that the Investor Indemnified Party shall have the right to
employ counsel separate from counsel employed by the Company in any such action
and to participate in the defense thereof, and the fees and expenses of such
counsel shall be at the expense of the Investor Indemnified Party unless (i) (1)
the employment thereof has been specifically authorized by the Company in
writing or (2) the use of counsel chosen by the Company to represent the
Investor Indemnified Party would present such counsel with a conflict of
interest or (ii) the Company has failed to assume the defense and to employ
counsel.
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The Company shall not be liable for any settlement of any such action or
proceeding effected without the written consent of the Company (unless such
consent is unreasonably withheld by the Company), but if settled with the
written consent of the Company, or if there shall be a final judgment for
plaintiff in any such action, the Company agrees to indemnify and hold
harmless the Investor Indemnified Party from and against any and all Losses
by reason of such settlement or judgment. Notwithstanding the foregoing,
without the written consent of the Investor Indemnified Party, the Company
shall not be entitled to settle any nonmonetary claim involving the business,
operations or assets of the Investor Indemnified Party if such settlement
would impose on it any obligation which cannot be satisfied by the payment of
money. The Company agrees to indemnify and hold harmless the Investor
Indemnified Party from any and all legal expenses reasonably incurred by such
Investor Indemnified Party in connection with the successful enforcement of
its rights, in whole or in part, to indemnity under this SECTION 11.1.
(c) The Company's total indemnification obligation hereunder shall
not exceed the Purchase Price.
11.2 INDEMNIFICATION BY THE INVESTOR
(a) The Investor hereby agrees to indemnify and hold harmless the
Company (including its officers, directors and employees) or its Affiliates
against any and all Losses resulting from or arising out of the inaccuracy of
any representation or warranty or the breach or non-performance of any covenant
or agreement of the Investor contained in this Agreement.
(b) If any action, proceeding or claim shall be brought or asserted
against the Company (including its officers, directors and employees) or its
Affiliates (each a "COMPANY INDEMNIFIED PARTY") by any third party, which
action, proceeding or claim, if determined adversely to the interests of the
Company Indemnified Party, would entitle the Company Indemnified Party to
indemnity pursuant to this SECTION 11.2, the Company Indemnified Party shall
promptly, but in no event later than 30 days from the date that such Company
Indemnified Party shall become aware of such action, proceeding or claim, notify
the Investor of the same in writing specifying in detail the basis of such claim
and the facts pertaining thereto, and the Investor shall be entitled to assume
the defense thereof and have sole control of defense and settlement
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thereof, including the employment of counsel and the payment of all expenses;
PROVIDED, HOWEVER, that the Company Indemnified Party shall have the right to
employ counsel separate from counsel employed by the Investor in any such
action and to participate in the defense thereof, and the fees and expenses
of such counsel employed by the Company Indemnified Party shall be at the
expense of the Company Indemnified Party unless (i) (1) the employment
thereof has been specifically authorized by the Investor in writing or (2)
the use of counsel chosen by the Investor to represent the Company
Indemnified Party would present such counsel with a conflict of interest or
(ii) the Investor has failed to assume the defense and to employ counsel.
The Investor shall not be liable for any settlement of any such action or
proceeding effected without the written consent of the Investor (unless such
consent is unreasonably withheld by the Investor), but if settled with the
written consent of the Investor or if there shall be a final judgment for the
plaintiff in any such action, the Investor agrees to indemnify and hold
harmless the Company Indemnified Party against any and all Losses by reason
of such settlement or judgment. Notwithstanding the foregoing, without the
written consent of the Company Indemnified Party, the Investor shall not be
entitled to settle any nonmonetary claim involving the business, operations
or assets of the Company Indemnified Party if such settlement would impose on
the Company Indemnified Party any obligation which cannot be satisfied by the
payment of money. The Investor agrees to indemnify and hold harmless the
Company Indemnified Party from any and all legal expenses reasonably incurred
by the Company Indemnified Party in connection with the successful
enforcement of its rights, in whole or in part, to indemnity under this
SECTION 11.2.
12. MISCELLANEOUS
12.1 ENTIRE AGREEMENT
This Agreement and the documents referred to herein constitute the
entire agreement among the parties and no party shall be liable or bound to any
other party in any manner by any warranties, representations, or covenants
except as specifically set forth herein or therein.
12.2 EXPIRATION OF WARRANTIES
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The warranties and representations of the Company and the Investor
contained in this Agreement shall in no way be affected by an investigation of
the subject matter thereof made by or on behalf of the Company or the Investor
and shall expire three years from the date of the Closing and be of no further
force and effect on such date except that (i) the representations and warranties
contained in SECTIONS 3.17, 3.19 AND 3.20 shall survive the Closing until the
expiration of the applicable statute of limitations and (ii) the representations
and warranties contained in SECTIONS 3.1, 3.2, 3.3, 3.4, 3.5 and 3.6 and the
provisions of SECTION 6.1 shall survive the Closing and continue indefinitely.
12.3 SUCCESSORS AND ASSIGNS
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
12.4 GOVERNING LAW
THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED UNDER
THE LAWS OF THE STATE OF ILLINOIS WITHOUT REFERENCE TO THE PRINCIPLES OF THE
CONFLICTS OF LAWS THEREOF.
12.5 COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
12.6 TITLES AND SUBTITLES
The titles and subtitles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
12.7 NOTICES
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Unless otherwise provided, any notice required or permitted under this
Agreement shall be given in writing and shall be deemed effectively given upon
personal delivery to the party to be notified by hand or professional courier
service, upon confirmation of telex or telecopy, five days after deposit with
the United States Post Office, by registered or certified mail, postage prepaid
or upon the next day following deposit with a nationally recognized overnight
air courier, addressed as follows:
(a) if to the Investor, to:
CCC Information Services Inc.
World Trade Center Chicago
444 Merchandise Mart
Chicago, Illinois 60654
Attention: Leonard L. Ciarrocchi
Telecopy: (312) 527-1843
With a copy to:
Leland E. Hutchinson
Winston & Strawn
35 West Wacker Drive
Chicago, Illinois 60601-9703
Telecopy: (312) 558-5700
(b) if to the Company, to:
InsurQuote Systems, Inc.
517 East 1860 South
Provo, Utah 84606
Attention: Bill Woahn
Telecopy: (801) 373-4017
With a copy to:
Mark Bonham
Wilson, Sonsini, Goodrich & Rosati
650 Page Mill Road
Palo Alto, California 94304
Telecopy: (650) 493-6811
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Any party may by notice given in accordance with this SECTION 12.7 to the other
party to this Agreement designate another address or person for receipt of
notice hereunder.
12.8 FINDER'S FEES
Each party represents that it neither is nor will be obligated for any
finder's fee or commission in connection with this transaction.
The Investor agrees to indemnify and to hold harmless the Company from
any liability for any commission or compensation in the nature of a finder's fee
(and the cost and expenses of defending against such liability or asserted
liability) for which the Investor or any of its officers, partners, employees,
or representatives is responsible.
The Company agrees to indemnify and hold harmless the Investor from
any liability for any commission or compensation in the nature of a finder's fee
(and the costs and expenses of defending against such liability or asserted
liability) for which the Company or any of its officers, employees, or
representatives is responsible.
12.9 AMENDMENTS AND WAIVERS
Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the parties hereto.
12.10 SEVERABILITY
If one or more provisions of this Agreement are held to be
unenforceable under applicable law, such provision shall be excluded from this
Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
12.11 SPECIFIC ENFORCEMENT
The Investor, on the one hand, and the Company, on the other hand,
acknowledge and agree that irreparable damage would
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occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an injunction
or injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the
United States or any state thereof having jurisdiction, this remedy being in
addition to any other remedy to which they may be entitled at-law or equity.
55
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
CCC INFORMATION SERVICES INC.
By: __________________________
Name:
Title:
INSURQUOTE SYSTEMS, INC.
By: ___________________________
Name:
Title:
<PAGE>
______________________________________________________________________________
INVESTMENT AGREEMENT
by and among
CCC INFORMATION SERVICES INC.,
INSURQUOTE SYSTEMS, INC.,
and
CERTAIN STOCKHOLDERS OF INSURQUOTE IDENTIFIED
ON EXHIBIT A HERETO
dated as of
February 10, 1998
______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
Page
1. Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . 5
1.1. Authority, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2. Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3. Capital, Charter and By-Laws. . . . . . . . . . . . . . . . . . . . 5
2. Investment Arrangements.. . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1. Securities Purchase Agreement . . . . . . . . . . . . . . . . . . . 6
2.2. Stage II Investment . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3. Exclusive Financing Source. . . . . . . . . . . . . . . . . . . . . 7
2.4. CCC Option. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5. Look-back Adjustment. . . . . . . . . . . . . . . . . . . . . . . . 8
3. Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.1. Board of Directors. . . . . . . . . . . . . . . . . . . . . . . . . 8
3.2. Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3. Covenant to Vote. . . . . . . . . . . . . . . . . . . . . . . . . .10
3.4. Look Back Targets . . . . . . . . . . . . . . . . . . . . . . . . .10
4. Conduct of Business . . . . . . . . . . . . . . . . . . . . . . . . . . .10
4.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
4.2. Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
4.3. Control of IPO and Subsequent Offerings . . . . . . . . . . . . . .11
4.4. Board Approvals . . . . . . . . . . . . . . . . . . . . . . . . . .11
5. Consents for Certain Corporate Actions. . . . . . . . . . . . . . . . . .11
5.1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
5.2. Stockholders' Action. . . . . . . . . . . . . . . . . . . . . . . .12
6. Restrictions on Transfer. . . . . . . . . . . . . . . . . . . . . . . . .13
6.1. General Restrictions. . . . . . . . . . . . . . . . . . . . . . . .13
6.2. Permitted Transfers by Outside Stockholders . . . . . . . . . . . .13
6.3. Permitted Transfers by Inside Stockholders. . . . . . . . . . . . .14
6.4. Permitted Investor Solicitations. . . . . . . . . . . . . . . . . .14
6.5. Market Stand-Off Agreement. . . . . . . . . . . . . . . . . . . . .14
6.6. Notice of Proposed Transfer . . . . . . . . . . . . . . . . . . . .14
7. Share Certificates. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
7.1. Restrictive Endorsement . . . . . . . . . . . . . . . . . . . . . .15
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8. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
8.1. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
8.2. Stop Order. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
8.3. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
8.4. Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
8.5. Assignment. . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
8.6. GOVERNING LAW; CONSENT TO JURISDICTION. . . . . . . . . . . . . . .16
8.7. Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
8.8. Entire Agreement; Headings. . . . . . . . . . . . . . . . . . . . .16
8.9. Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . .16
8.10. Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . .17
8.11. Specific Performance. . . . . . . . . . . . . . . . . . . . . . . .17
8.12. Relationship of the Parties . . . . . . . . . . . . . . . . . . . .17
8.13. Nature of Obligations . . . . . . . . . . . . . . . . . . . . . . .17
8.14. Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
8.15. Finder's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . .18
ii
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INVESTMENT AGREEMENT
INVESTMENT AGREEMENT (this "Agreement"), dated as of February 10,
1998, by and among InsurQuote Systems, Inc., a Utah corporation (the "Company"),
CCC Information Services Inc., a Delaware corporation ("Investor"), and the
Inside Stockholders of the Company identified on Exhibit A hereto (collectively,
the "Initial Inside Stockholders").
The Company and Investor are participating in a financing transaction
pursuant to which Investor is purchasing Common Stock, Series C Preferred Stock,
Series D Preferred Stock, Subordinated Notes, and Warrants of the Company under
a securities purchase agreement (the "Securities Purchase Agreement") of even
date herewith. The Company also intends to make certain arrangements regarding
future financings and to enter into an exclusive relationship with respect to
certain matters set forth herein. In addition, the Initial Inside Stockholders,
the Company, and Investor desire to establish certain contractual relationships
regarding the governance of the Company as set forth herein. The execution and
delivery of this Agreement is a condition to the closing of the transactions
contemplated by the Securities Purchase Agreement.
The parties hereto agree as follows:
DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
"AFFILIATE" means, with respect to the Company or any Subsidiary, any
Person that (at the time when the determination is to be made) directly, or
indirectly through one or more intermediaries, controls, or is controlled by, or
is under common control with, that other Person. As used in the foregoing
sentence, the terms "control" (including, with correlative meaning, the terms
"controlling," "controlled by" and "under common control with") means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.
<PAGE>
"BASE SALARY" means the annual base salary paid on a periodic basis by
the Company to any Person excluding any bonus, stock option, warrant and other
incentive compensation.
"BOARD OF DIRECTORS" means the Company's board of directors.
"CCC OPTION" means the option described in Section 2.4.
"COMPENSATION" means any Base Salary, wage, commission, bonus, stock
option, warrant or other consideration extended by the Company to any Person.
"COMMISSION" means the Securities and Exchange Commission.
"COMMON STOCK" means the Company's Common Stock, no par value per
share.
"COMMON STOCK EQUIVALENTS" means all options, warrants and other
rights to acquire Common Stock or securities convertible into or exchangeable
for Common Stock, except the CCC Option, without taking into account the
exercise price of any such options, warrants or other rights.
"DISPOSE" (including, with correlative meaning, the term
"Disposition") means any sale, assignment, transfer, pledge, encumbrance or
other disposition.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time. Reference to
a particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of such similar Federal
statute.
"FULLY-DILUTED VOTING POWER" means the number of votes eligible to be
cast at a meeting of stockholders on a matter submitted to stockholders,
assuming exercise or conversion of all Common Stock Equivalents (including
exercise of all issued and unissued options or stock awards under duly
authorized stock-based
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compensation programs, and conversion of all outstanding shares of Series C
Preferred Stock and Series D Preferred Stock).
"INSIDE STOCKHOLDERS" means and includes the Initial Inside
Stockholders and any Permitted Transferees of the Initial Inside Stockholders
who are bound hereby.
"IPO" means the initial public offering of the Common Stock of the
Company having net proceeds to the Company of $20 million or more underwritten
on a firm commitment basis pursuant to an effective registration statement under
the Securities Act.
"MARKET VALUE" means the fair market value of shares of the Company's
Common Stock to be issued pursuant to the exercise of the CCC Option. If the
shares are listed on a national securities exchange or report on the NASDAQ, the
Market Value shall be the average per-share Closing bid and asked prices during
the 30 day period prior to the determination of Market Value, and if not, then
Market Value shall be determined by the agreement of two investment bankers, one
each selected by the Company and Investor, respectively. If such investment
bankers are unable to agree, the Company and Investor shall mutually agree on a
third investment banker, which shall make a final and binding determination of
Market Value; provided, however, that Market Value shall mean the value
determined by such investment bankers without taking into account any discount
for illiquidity or premium for control.
"MATERIAL ADVERSE EFFECT" means Material Adverse Effect as defined in
the Securities Purchase Agreement.
"OUTSIDE STOCKHOLDERS" means and includes Investor and any transferees
of Investor who are bound hereby.
"PERMITTED TRANSFEREE" means any Person who is the recipient of Common
Stock or Common Stock Equivalents in a Disposition made by any Inside
Stockholder to any spouse, parent, child, brother or sister of such Inside
Stockholder, issue of any of the foregoing individuals (including individuals
legally adopted into the line of descent), charitable trust established pursuant
to Section 501 of the Internal Revenue Code of 1986, as amended, trust for the
benefit of any of the foregoing individuals or estate of any of the foregoing
individuals.
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"PERSON" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company
or any other entity or organization, including a government or political
subdivision or any agency or instrumentality thereof.
"PREFERRED STOCK" means shares of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock and the Series D
Preferred Stock.
"REDEMPTION DATE" means the first day on which shares of the Series C
Preferred Stock are no longer issued and outstanding.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement, dated as of the date hereof, between the Company and Investor.
"RESTATED ARTICLES" means the Company's Second Amended and Restated
Articles of Incorporation.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect from time to time. Reference to
a particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of such similar Federal statute.
"SENIOR STOCK" means the Senior Stock defined in Section 5.1(d).
"SERIES A PREFERRED STOCK" means the Company's Series A Preferred
Stock, no par value per share.
"SERIES B PREFERRED STOCK" means the Company's Series B Preferred
Stock, no par value per share.
"SERIES C PREFERRED STOCK" means the Company's Series C Preferred
Stock, no par value per share.
"SERIES D PREFERRED STOCK" means the Company's Series D Preferred
Stock, no par value per share.
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"SERIES E PREFERRED STOCK" means the Company's Series E Preferred
Stock, no par value per share.
"STAGE II INVESTMENT" has the meaning set forth in Section 2.2.
"STOCKHOLDER" means any Inside Stockholder or Outside Stockholder.
"SUBORDINATED NOTES" means the Company's 7.5% Subordinated Notes due
February 10, 2003 in the principal amount of $8,900,000.
"SUBSIDIARY" means (i) any Person of which 50% or more of the
securities having ordinary voting power for the election of directors are at the
time owned directly or indirectly by the Company or any Subsidiary thereof, (ii)
any Person of which 50% or more of the joint venture, limited partnership or
partnership interests are at the time owned directly or indirectly by the
Company or any Subsidiary thereof or (iii) any Person which is a limited
partnership in which the Corporation or any Subsidiary is at the time the
general partner or at the time owns 50% or more of the general partner of such
Person.
"SUBSEQUENT OFFERING" means the sale of the Common Stock or any Common
Stock Equivalent in a public offering (other than the IPO) pursuant to an
effective registration statement under the Securities Act.
"VOTING STOCK" means (i) the Common Stock, (ii) to the extent issued
and outstanding, the Series A Preferred Stock and Series B Preferred Stock and
(iii) after the exercise of the CCC Option, the Series C Preferred Stock, to the
extent issued and outstanding.
"WARRANTS" means the warrants to acquire 440,350 shares of Common
Stock of the Company issued to Investor.
1. REPRESENTATIONS AND WARRANTIES.
1.1. AUTHORITY, ETC. Each of the parties hereto represents and
warrants to the other parties that: (i) it has full right, power and authority
to enter into this Agreement and to
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perform its obligations hereunder; (ii) this Agreement has been duly
authorized, executed and delivered by it and, assuming the due authorization,
execution and delivery of this Agreement by the other parties hereto,
constitutes the legal, valid and binding obligation of such party,
enforceable against it in accordance with its terms; (iii) no consent,
approval or authorization of any Person is required to be obtained by or with
respect to such party in connection with the execution and delivery by it of
this Agreement or the performance by it of its obligations hereunder; and
(iv) neither the execution nor the delivery of this Agreement by such party
nor the performance by it of its obligations hereunder will conflict with or
result in a material breach or violation of (A) its organizational documents
(if any), (B) any contract, agreement or any arrangement to which it is a
party or by which it or any of its properties or assets is bound or (C) any
order, decree, law, rule or regulation applicable to it or any of its
properties or assets, which breach or violation would have a Material Adverse
Effect, respectively, on the Company, the rights of the Investor or the
rights of the Inside Stockholders.
1.2. OWNERSHIP. As of the closing under the Securities Purchase
Agreement, each of the Stockholders represents and warrants to each other and to
the Company that: (i) it is the legal holder and beneficial owner of the number
of shares of Common Stock and Preferred Stock set forth opposite its name on
Exhibit A hereto, free and clear of all liens and encumbrances; (ii) it has sole
voting power with respect to such shares of Common Stock and Preferred Stock;
and (iii) it had full right, power and authority to acquire such shares of
Common Stock at the time of such acquisition.
1.3. CAPITAL, CHARTER AND BY-LAWS. The Company represents and
warrants to each of the Stockholders that: (i) the authorized capital stock of
the Company consists, or will consist immediately prior to the closing of the
transactions contemplated by the Securities Purchase Agreement of (A) 3,000,000
shares of preferred stock, of which 167,399 shares have been designated Series A
Preferred Stock (103,500 shares of which are issued and outstanding), 695,485
shares have been designated Series B Preferred Stock (603,164 shares of which
are issued and outstanding) 1,075,117 shares have been designated Series C
Preferred Stock (no shares of which are issued and outstanding), and 320,203
shares have been designated Series D Preferred Stock
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(no shares of which are issued and outstanding), and 100 shares have been
designated Series E Preferred Stock (no shares of which are issued and
outstanding), (B) 7,000,000 shares of Common Stock, (636,723 shares of which
are issued and outstanding); (ii) except as set forth in Section 2 and on
Schedule 1.3 hereto, it has not granted or issued or agreed to grant or issue
as of the date hereof any warrants, options or similar rights to acquire or
receive any of the authorized but unissued shares of its capital stock or any
securities or other property convertible into shares of its capital stock;
(iii) attached hereto as Exhibit B is a true, correct and complete copy of
the Second Amended and Restated Articles of Incorporation of the Company
(together with all amendments thereto) as of the date hereof; (iv) attached
hereto as Exhibit C is a true, correct and complete copy of the By-laws of
the Company (together with all amendments thereto) as of the date hereof.
2. INVESTMENT ARRANGEMENTS.
2.1. SECURITIES PURCHASE AGREEMENT. The Company and Investor have
entered into the Securities Purchase Agreement providing for the purchase by
Investor of 333,750 shares of Common Stock, 145,414 shares of Series C Preferred
Stock, 320,203 shares of Series D Preferred Stock, $8,900,000 of Subordinated
Notes, and Warrants to buy 440,350 shares of Common Stock.
2.2. STAGE II INVESTMENT. Investor and the Company agree that, if
requested by the Company, Investor shall purchase up to 929,703 additional
shares of Series C Preferred Stock (the "Stage II Investment") subject to the
following conditions:
(a) The purchase price per share shall be $16.13 subject to
adjustment in a manner consistent with EXHIBIT D to the Securities Purchase
Agreement.
(b) The shares shall be purchased in three tranches, none of which
shall exceed $5,000,000, subject to adjustment in a manner consistent with
Exhibit D to the Securities Purchase Agreement.
(c) The first tranche may not be purchased before January 1, 1999,
and subsequent tranches may not be requested by the Company more often than once
per calendar quarter.
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(d) Investor's obligation to invest is subject to the joint approval
by the parties of a business plan for the period covered by the particular
tranche (Investor's approval, if given, shall be given within thirty (30) days
and shall not be unreasonably withheld).
(e) The funds provided by the Stage II Investment shall be used for
content development, working capital, and general corporate purposes.
(f) In connection with the Stage II Investment, the Company shall
enter into a Securities Purchase Agreement with Investor containing
representations, warranties, terms and conditions typical in private preferred
equity investments.
2.3. EXCLUSIVE FINANCING SOURCE. (a) Except as otherwise provided
in Section 2.3(b) and Section 4.3, from the date hereof until July 1, 2000,
Investor shall have the sole right to provide the Company with equity
financing. Except as otherwise provided in Section 4.3, from July 1, 2000
until the Redemption Date, Investor shall have the right of first refusal set
forth in Section 2.3(c) with respect to any proposed financing of or
investment in the Company.
(b) Notwithstanding the provisions of Section 2.3(a), for so long as
a Step-Up Event of Default (as defined in the Securities Purchase Agreement) has
not occurred under the Subordinated Notes, Investor shall have only the right of
first refusal set forth in Section 2.3(c) rather than the exclusive right set
forth in Section 2.3(a) with respect to any proposed equity financing of or
investment in the Company if, and only if, (i) Investor has declined to make any
part of the Stage II Investment or (ii) before July 1, 2000, the Company
presents Investor with an offer of equity financing by a third party with a
pre-money enterprise value of $125 million or more. If a Step-Up Event of
Default has occurred under the Subordinated Notes, Investor shall have the
exclusive right set forth in Section 2.3(a).
(c) Pursuant to the right of first refusal referred to in Section
2.3(a) and 2.3(b), the Company shall provide Investor with the proposed terms of
any investment of funds or financing that the Company desires to seek from a
source outside the Company. Investor shall have the sole and exclusive right to
make such
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investment or to provide such financing for a period of thirty (30) days. If
Investor does not make such investment or provide such financing within such
thirty (30) day period, the Company may thereafter attempt to close such
investment or financing on such proposed terms for one hundred twenty (120)
days with a party or parties other than Investor. If such proposed
investment or financing does not close within such one hundred twenty (120)
day time period, such proposed investment or financing must again be offered
to Investor under this provision.
2.4. CCC OPTION. (a) At any time after July 1, 2000 until July 1,
2010, Investor may at its option purchase shares (in one transaction) of Common
Stock sufficient to cause Investor to have 51% of the Fully-Diluted Voting Power
of the Company (the "CCC Option"). The exercise price of the CCC Option shall
be the Market Value of the Common Stock issuable pursuant to the CCC Option at
the time that Investor exercises the CCC Option.
(b) At the time that Investor exercises the CCC Option, it shall also
purchase 100 shares of the Series E Preferred Stock with the terms and
conditions set forth in the Restated Articles for a purchase price of $10.00 per
share. The effect of the terms of the Series E Preferred Stock shall be to give
Investor 51% of the votes on all matters submitted to a vote of stockholders for
so long as Investor and its Affiliates own at least 30% of the Voting Stock
outstanding from time to time.
(c) In connection with the exercise of the CCC Option, Investor must
exercise all of the Warrants.
(d) At any time after July 1, 2005, if the Company has a signed letter
of intent for a proposed Change of Control transaction (as defined in the
Securities Purchase Agreement) and the Company notifies the Investor of such
transaction, then the Investor shall have 15 days from the receipt of such
notice, to notify the Company of the Investor's intent to exercise the CCC
Option, and the Investor shall have a total of 90 days from the date of notice
to complete the exercise of the CCC Option. If the Investor does not complete
the exercise of the CCC Option by the end of such 90 day period, the CCC Option
shall thereupon immediately terminate.
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(e) If the Company proposes to the Investor an IPO, then (i) the CCC
Option shall become immediately exercisable, and (ii) at the request of the
Company, Investor must immediately exercise the CCC Option or the CCC Option
shall be adjusted as provided in paragraph (f).
(f) In the event that the CCC Option is to be adjusted as provided in
paragraph (e), the CCC Option shall thereafter have the following terms: for
five years from the date of the closing of the IPO (the "IPO Closing"), Investor
may at its option purchase that number of shares of Common Stock (in one
transaction) that would have been sufficient to cause Investor to have 51% of
the Fully-Diluted Voting Power of the Company as of the completion of the IPO
Closing at a purchase price per share equal to 120% of the initial price to
public shown on the final prospectus filed with the Commission.
2.5. LOOK-BACK ADJUSTMENT. In the event that the Investor makes an
adjustment to its investment as provided in Section 2.1(b) of the Securities
Purchase Agreement and Exhibit D thereto, the parties hereto mutually agree and
covenant that they will vote their Common Stock and Common Stock Equivalents to
amend the Restated Articles to adjust the provisions relating to the Series C
Preferred Stock and the Series D Preferred Stock in a manner consistent with
Exhibit D to the Securities Purchase Agreement.
3. CORPORATE GOVERNANCE.
3.1. BOARD OF DIRECTORS. The Stockholders hereby agree that from the
date hereof to (and including) the earlier of (i) the date that Investor
exercises the CCC Option or (ii) the Redemption Date, the Stockholders shall
take all actions necessary to cause the Board of Directors to approve and
appoint the following designees as members of the Board of Directors: (i) at
least one director designated by Investor, and (ii) such additional directors
designated by Investor so that its representation on the board of directors of
the Company shall be in proportion (rounding to the nearest whole person) to the
percentage of votes that it is entitled to cast on matters submitted to a vote
of stockholders. After the date on which Investor exercises the CCC Option, the
Stockholders shall take such action as may be necessary to elect the following
persons to the board of directors of the
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Company: (i) two (2) individuals designated by Investor; (ii) one (1)
additional individual who is not a director, officer or employee of Investor
which individual shall be nominated by Investor; (iii) two (2) individuals
who are management members of the Company designated by the holders (voting
as a class) of a majority of the shares of Common Stock held by the Inside
Stockholders; (iv) one (1) individual who is not a director, officer, or
employee of the Company which person is designated by the holders (voting as
a class) of a majority of the shares of the Common Stock held by the Inside
Stockholders; and (v) one (1) individual nominated by the agreement of a
majority of the directors nominated by Investor and a majority of the
directors nominated by the Inside Stockholders. Notwithstanding the
preceding sentence, if, after the exercise of the CCC Option, the Series E
Preferred Stock does not vote according to its terms because Investor and its
Affiliates own less than 30% of the Voting Stock, the representation of
Investor on the board of directors shall be in proportion to the percentage
of votes that it is entitled to cast on matters submitted to a vote of
stockholders.
3.2. VACANCIES. In the event that a vacancy shall exist or occur on
the Board of Directors at any time by reason of a member's death, disability,
retirement, resignation, removal (with or without cause) or otherwise, each
Stockholder hereby agrees to cause the members designated by or on behalf of it
to vote for that individual designated (and approved, if required) pursuant to
Section 3.1(a) to fill such vacancy and serve as a member by whichever of the
Stockholders that had designated (and received approval, if required) pursuant
to Section 3.1(a) the member whose death, disability, retirement, resignation or
removal (with or without cause) resulted in such vacancy on the Board of
Directors. Each Stockholder hereby agrees to cause the members designated by or
on behalf of it not to vote for the removal without cause of a member designated
(or approved) pursuant to Section 3.1(a) by another Stockholder without such
other Stockholder's prior written consent. Each Stockholder hereby agrees to
cause the members designated by it not to vote for the removal for cause of a
member designated (or approved) pursuant to Section 3.1(a) by another
Stockholder unless (i) such Stockholder has consulted such other Stockholder and
(ii) such member has breached his fiduciary duties to the Company (as determined
in good faith by an affirmative vote of a majority of the Board of Directors).
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3.3. COVENANT TO VOTE. Each Stockholder hereby agrees to take all
reasonable actions within its power necessary to call, or cause the Company and
the appropriate officers and directors of the Company to call, special or annual
meetings of stockholders of the Company and to vote all shares of Voting Stock
and Series E Preferred Stock owned or held of record by such Stockholder at any
such annual or special meeting in favor of, or take all reasonable actions by
written consent in lieu of any such meeting necessary to cause, the election as
members of the Board of Directors of those individuals so designated in
accordance with, and to otherwise effect the intent of, this Article 3. In
addition, each Stockholder agrees to vote the shares of Voting Stock and Series
E Preferred Stock owned by such Stockholder upon any other matter arising under
this Agreement submitted to a vote of the Stockholders in a manner so as to
implement the terms of this Agreement.
3.4. LOOK BACK TARGETS. Until the earliest of (i) the Redemption
Date, (ii) the date that Investor exercises the CCC Option, (iii) a Step-Up
Event of Default under the Note or (iv) the Investor owns 66-2/3% of the
Fully-Diluted Voting Power of the Company, the Investor shall permit the
officers of the Company appointed with the consent of a majority of the
directors appointed by the Inside Stockholders to attempt to achieve the targets
set forth in Exhibit D to the Securities Purchase Agreement, unless the Investor
in good faith can demonstrate that the Company is highly unlikely to achieve
such targets.
4. CONDUCT OF BUSINESS.
4.1. GENERAL. The Stockholders and the Company confirm that it is
their intention that the business and affairs of the Company and its
Subsidiaries will continue to be directed by its Board of Directors in the best
interests of the Company and its Subsidiaries, taken as a whole. In furtherance
of the foregoing, each of the Stockholders agrees that, after the date hereof,
it will not, directly or indirectly, enter into any written or oral contract,
agreement or arrangement to engage in business or enter into any transaction
with the Company or any of its Subsidiaries unless the terms and provisions of
such contract, agreement or arrangement or the terms on which such business or
transaction is conducted, as the case may be, are fair to the Company as
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determined by the Board of Directors after review of each such transaction.
4.2. MEETINGS. Meetings of the Board of Directors will be held at
least four (4) times per year. Until the Company becomes profitable or Investor
otherwise agrees, meetings of the Board of Directors will be held every two (2)
months, or six (6) times per year.
4.3. CONTROL OF IPO AND SUBSEQUENT OFFERINGS. A majority of the
directors designated by the Inside Stockholders pursuant to Section 3.1 shall,
to the extent permitted by applicable law and subject to the fiduciary duties of
the members of the Board of Directors who were not designated by the Inside
Stockholders, be delegated the authority of the Board of Directors with respect
to the timing, price and other terms of the IPO and Subsequent Offerings.
4.4. BOARD APPROVALS. The approval of a majority of the Board of
Directors shall be required for the following:
(a) The hiring of all officers of the Company;
(b) All employment agreements and all Compensation programs for
officers and key employees (which shall also require the
approval of a majority of the disinterested directors or the
compensation committee of the board, if established);
(c) All stock issuances;
(d) Subject to Section 5.1(g) all stock option programs and all
grants of stock-based Compensation (which shall also require
approval by a majority of disinterested directors or the
compensation committee of the board, if established);
(e) Annual budgets and financial plans;
(f) All real estate leases or purchases.
5. CONSENTS FOR CERTAIN CORPORATE ACTIONS.
5.1. For so long as any of the Series C Preferred Stock is held by
the Investor or any of its Affiliates, in addition to any vote of the holders of
the Company's capital stock required by
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law, the Company shall not take (or agree to take) and the Company shall
cause its Subsidiaries not to take (or agree to take) any of the following
actions, without the written consent of the holders of a majority of the
issued and outstanding shares of Series C Preferred Stock:
(a) Any merger or consolidation involving the Company or any of its
Subsidiaries (other than transactions involving the merger or consolidation of a
Subsidiary of the Company with or into the Company or with or into a wholly
owned Subsidiary of the Company);
(b) Any sale, lease, exchange, transfer or other disposition,
directly or indirectly, in a single transaction or series of related
transactions, of all or substantially all of the assets of, or except as
contemplated by this Agreement and the Securities Purchase Agreement, any shares
of the capital stock of, the Company or any of its Subsidiaries to or with any
Person other than to or with the Company or a wholly owned Subsidiary of the
Company;
(c) Any amendment, modification or supplement to, or repeal of any
provision of, the Company's Second Amended and Restated Articles of
Incorporation or By-laws;
(d) Any increase or reduction of any class or series of Preferred
Stock or the creation of any class of capital stock of the Company having rights
senior to or in parity with the Preferred Stock with respect to dividend rights
and with respect to the distribution of assets upon the liquidation, dissolution
or winding up, whether voluntary or involuntary, of the Company ("Senior Stock")
or, except as contemplated by this Agreement or the Securities Purchase
Agreement the sale or issuance of shares of Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock or Senior Stock (or warrants, options
or rights to acquire or receive shares of Senior Stock or any securities or
other property convertible into shares of Senior Stock);
(e) The dissolution of the Company or any of its Subsidiaries; the
adoption of a plan of liquidation of the Company or any of its Subsidiaries;
without giving fifteen (15) days' prior written notice to Investor, any action
by the Company or any of its Subsidiaries to commence any suit, case, proceeding
or other action
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(i) under any existing or future law of any jurisdiction relating to
bankruptcy, insolvency, reorganization or relief of debtors seeking to have
an order for relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement, adjustment,
winding-up, liquidation, dissolution, composition or other relief with
respect to it or (ii) seeking appointment of a receiver, trustee, custodian
or other similar official for it or for all or any substantial part of its
assets, or making a general assignment for the benefit of its creditors;
(f) The redemption, repurchase or other offer to purchase made by the
Company or any of its Subsidiaries for any equity securities of the Company;
(g) Any adoption of, amendment of, or increase in any stock option or
stock-based compensation program.
5.2. STOCKHOLDERS' ACTION. The Inside Stockholders agree that they
will not vote their shares at any annual or special meeting of stockholders, or
execute any written consent in lieu thereof, to cause any of the actions set
forth in Section 5.1 except in accordance with the provisions of Section 5.1.
6. RESTRICTIONS ON TRANSFER.
6.1. GENERAL RESTRICTIONS. Until the earlier of the exercise or
termination of the CCC Option or December 31, 2002, none of (i) the Common Stock
Equivalents owned as of the close of business on the date hereof, (ii) the
shares of Common Stock and Preferred Stock received by the Outside Stockholder
pursuant to the Securities Purchase Agreement, (iii) the Common Stock
Equivalents acquired after the close of business on the date hereof, (iv) the
shares of Common Stock owned as of the close of business on the date hereof and
(v) the shares of Common Stock hereafter received upon the conversion or
exchange of the Common Stock Equivalents described in clauses (i) and (iii) by
any of the Stockholders may be Disposed of by any of the Stockholders unless:
(a) such Disposition shall be in accordance with the requirements of
Sections 6.2 and 6.3 of this Agreement;
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(b) the proposed recipient of such shares (other than a recipient in
a Subsequent Offering or in a Disposition under Rule 144 under the
Securities Act) shall deliver to the Company a written acknowledgment that
the shares to be received in such proposed Disposition are subject to this
Agreement and the proposed recipient and his or its successors in interest
are bound hereby; and
(c) such Disposition shall be made pursuant to an effective
registration statement under the Securities Act and any applicable state
securities laws, or an exemption from such registration, and prior to any
such Disposition the Stockholder proposing to Dispose such shares shall
give the Company (i) notice describing the manner and circumstances of the
proposed Disposition and (ii) if reasonably requested by the Company, a
written opinion of legal counsel, who shall be reasonably satisfactory to
the Company, such opinion to be in form and substance reasonably
satisfactory to the Company, to the effect that the proposed Disposition
may be effected without registration under the Securities Act and any
applicable state securities laws.
Any attempted Disposition of shares of Common Stock or Common Stock Equivalents
referred to in Section 6.1 other than in accordance with this Agreement shall be
null and void and neither the Company nor any transfer agent of such shares
shall give any effect to such attempted Disposition in its stock records.
6.2. PERMITTED TRANSFERS BY OUTSIDE STOCKHOLDERS. Until the earlier
of the exercise or termination of the CCC Option or December 31, 2002, an
Outside Stockholder may Dispose of any shares of Common Stock or Common Stock
Equivalents; provided, however, that an Outside Stockholder may not, without the
board of directors of the Company's prior written consent, which consent will
not be unreasonably withheld, transfer any such shares to any Person that either
is an insurance company or that is an officer, director, agent, employee,
consultant or other representative of an insurance company or to a competitor of
the Company as determined from time to time in good faith by the board of
directors of the Company in a written determination that shall be delivered to
Investor.
6.3. PERMITTED TRANSFERS BY INSIDE STOCKHOLDERS. Until the earlier of
the exercise or termination of the CCC Option or
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December 31, 2002: (a) No Inside Stockholder shall Dispose of any shares of
Common Stock except for Dispositions by: (i) such Inside Stockholder to
Permitted Transferees; (ii) such Inside Stockholder to Investor in connection
with any solicitation; (iii) such Inside Stockholder in connection with any
merger, consolidation or sale effected in accordance with the terms of
Section 5.1(a) and the mandatory redemption provisions contained in the
Restated Articles, (iv) such Inside Stockholder of up to an aggregate of 10%
of such Inside Stockholder's holdings of Common Stock and Common Stock
Equivalents as of the date hereof in connection with or at any time after the
IPO or in connection with the exercise of the CCC Option, and (v)
non-management Inside Stockholders in the IPO provided that approval has been
obtained from both the underwriters of the IPO and board of directors of the
Company.
(b) Notwithstanding anything in Section 6.3(a) to the contrary, in
the event of the death or disability of an Inside Stockholder who is an officer,
director or employee of the Company, the shares of Common Stock owned by such
Inside Stockholder may be disposed of at any time and from time to time.
6.4. PERMITTED INVESTOR SOLICITATIONS. Investor shall have the right
to solicit the purchase of, and to purchase, any shares of Common Stock or
Common Stock Equivalent owned as of the date hereof by any Person and any person
holding the shares described in Section 6.3(b).
6.5. MARKET STAND-OFF AGREEMENT. Each Stockholder agrees, if
requested by the Company and an underwriter of Common Stock (or other
securities) of the Company in connection with the IPO, not to sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such Stockholder during a period of time determined by the Company and
its underwriters (not to exceed 180 days) following the effective date of the
final prospectus contained in the registration statement of the Company filed
under the Securities Act relating to such IPO.
6.6. NOTICE OF PROPOSED TRANSFER. Investor shall give the Company
sixty (60) days' advance written notice of any proposed transfer pursuant to
Section 6.2 hereof.
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7. SHARE CERTIFICATES.
7.1. RESTRICTIVE ENDORSEMENT. Until the termination of this Agreement
pursuant to Section 9.1, in addition to any other legend that the Company may
deem advisable under the Securities Act and certain state securities laws, the
certificates representing all (i) Common Stock Equivalents owned as of the close
of business on the date hereof, (ii) the shares of Common Stock and Preferred
Stock received by the Outside Stockholder pursuant to the Investment Agreement,
(iii) the Common Stock Equivalents acquired after the close of business on the
date hereof, (iv) the shares of Common Stock owned as of the close of business
on the date hereof, and (v) the shares of Common Stock hereafter received upon
the conversion or exchange of the Common Stock Equivalents described in clauses
(i) and (iii), by a Stockholder shall be endorsed as follows:
THIS CERTIFICATE IS SUBJECT TO, AND IS TRANSFERABLE ONLY
UPON COMPLIANCE WITH, THE PROVISIONS OF THE INVESTMENT
AGREEMENT, DATED AS OF FEBRUARY 10, 1998, BY AND AMONG
INSURQUOTE SYSTEMS, INC. AND CERTAIN OF ITS STOCKHOLDERS. A
COPY OF THE ABOVE REFERENCED AGREEMENT IS ON FILE AT THE
OFFICES OF INSURQUOTE SYSTEMS, INC.
8. MISCELLANEOUS.
8.1. TERMINATION. This Agreement shall terminate upon the first to
occur of: (i) the written agreement of a majority in interest of the parties
hereto or their respective successors, assigns, heirs and administrators; (ii)
the liquidation or dissolution of the Company; or (iii) except for the
provisions in Section 2.4 relating to the CCC Option, the Redemption Date.
8.2. STOP ORDER. Each Stockholder agrees that a stop order shall be
placed in the stock transfer records of the Company against the transfer of
shares of Voting Stock and Common Stock Equivalents subject to this Agreement.
8.3. NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal
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<PAGE>
delivery to the party to be notified by hand or professional courier service,
upon confirmation of telex or telecopy, five days after deposit with the
United States Post Office, by registered or certified mail postage prepaid or
upon the next day following deposit with a nationally recognized overnight
air courier, addressed as follows:
(a) if to a Stockholder, to the address set forth in the record books
of the Company; or
(b) if to the Company, to the address set forth in the Securities
Purchase Agreement, or at such other address as the Company shall have
furnished to each Stockholder at the time outstanding.
Any party may by notice given in accordance with this Section 8.3 to the other
party to this Agreement designate another address or person for receipt of
notice hereunder.
8.4. AMENDMENT. This Agreement may not be amended except by an
instrument in writing signed by the Company, Investor, and the holders of a
majority of the Common Stock and Common Stock Equivalents shown on Exhibit A
hereto.
8.5. ASSIGNMENT. Neither this Agreement, nor any right, remedy,
obligation or liability arising hereunder or by reason hereof shall be
assignable by the Company or any Inside Stockholder without the consent of the
holders of a majority of the Series C Preferred Stock. Neither this Agreement,
nor any right, remedy, obligation or liability arising hereunder or by reason
hereof shall be assignable by the Investor without the consent of a majority in
interest of the Inside Stockholders. Subject to the foregoing, this Agreement
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors, assigns, heirs and administrators.
8.6. GOVERNING LAW; CONSENT TO JURISDICTION. THIS AGREEMENT SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE
OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS PRINCIPLES THEREOF.
8.7. SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced
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<PAGE>
by any rule of law, or public policy, all other provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in
any manner materially adverse to any party.
8.8. ENTIRE AGREEMENT; HEADINGS. This Agreement together with other
documents and agreements referenced herein contains the entire understanding of
the parties hereto with respect to its subject matter and supersedes all prior
agreements and understandings, oral or written, with respect thereto. The
headings in this Agreement are for reference purposes only and shall not limit
or otherwise affect the meaning or interpretation of this Agreement.
8.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument.
8.10. FURTHER ASSURANCES. Each party hereto shall do and perform or
cause to be done and performed all further acts and things and shall execute and
deliver all other agreements, certificates, instruments, and documents as any
other party hereto reasonably may request in order to carry out the intent and
accomplish the purposes of this Agreement.
8.11. SPECIFIC PERFORMANCE. The parties hereto agree that money
damages or other remedy at law would not be sufficient or adequate remedy for
any breach or violation of, or a default under, this Agreement by them and that,
in addition to all other remedies available to them, each of them shall be
entitled to an injunction restraining such breach, violation or default or
threatened breach, violation or default and to any other equitable relief,
including without limitation specific performance, without bond or other
security being required.
8.12. RELATIONSHIP OF THE PARTIES. This Agreement relates to the
governance of the Company, restrictions and/or conditions of share transfers by
the Inside Stockholders and the Outside Stockholders and certain other matters
expressed herein. The relationship of the Inside Stockholders and the Outside
Stockholders as such, herein is limited to that of respective
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<PAGE>
stockholders. Nothing in this Agreement shall be construed as permitting or
obligating the Outside Stockholders to act as financial or business advisors
or consultants to the Inside Stockholders or the Company, as creating any
fiduciary obligation on the Outside Stockholders to the Inside Stockholders
or the Company or as creating any joint venture, agency or other relationship
between or among the parties other than as expressly specified in this
Agreement. While each of the Outside Stockholders could have elected to
enter into an agreement with the Inside Stockholders and the Company
independently, they agreed to negotiate and enter into this single Agreement
together, in order to expedite the mechanics thereof and shall not be deemed
acting in concert, nor shall any Outside Stockholder be held accountable or
liable for any acts or omissions of any other Outside Stockholder, the
obligations and undertakings of the Outside Stockholders hereunder being in
each case several and not joint, and no decision, action or omission by any
Outside Stockholder in connection with or arising out of this Agreement shall
impair or prejudice the rights or remedies of any other Outside Stockholder,
except as otherwise expressly provided herein. Nothing in this Section 8.12
disclaims or limits the obligations of any Outside Stockholder acting in any
other capacity (such as action in the capacity of a director of the Company).
8.13. NATURE OF OBLIGATIONS. The obligations and rights of each
Stockholder under this Agreement are several and not joint.
8.14. EXPENSES.
The Company will pay promptly the reasonable out-of-pocket expenses of
Investor (including, without limitation, the fees and disbursements of counsel
to Investor and due diligence and accounting services performed by their outside
auditors and consultants) incurred in connection with the transactions
contemplated by (i) this Agreement, and (ii) the Securities Purchase Agreement
dated as of the date hereof between the Company and Investor.
8.15. FINDER'S FEES. Investor and the Company each agree that they
will indemnify the other and hold the other harmless from any loss, claim,
damage, or expense resulting by any claim for finder's fees arising out of their
respective actions
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<PAGE>
preceding the closing the closing of the transaction contemplated by the
Securities Purchase Agreement.
22
<PAGE>
SIGNATURE PAGE
In witness whereof, the parties have signed this Investment Agreement
the day and year first above written.
InsurQuote Systems, Inc.
By: ____________________________
Title: _______________________
Address: 517 East 1860 South
Provo, Utah 84606
CCC Information Services Inc.
By: ____________________________
Title: _______________________
Address: 444 Merchandise Mart
World Trade Center Chicago
Chicago, IL 60654
Inside Stockholders:
David Whetten
Signature:_______________________
Address: _______________________
_______________________
_______________________
Rosana Whetten
Signature:_______________________
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<PAGE>
Address: _______________________
_______________________
_______________________
Bill Woahn
Signature:_______________________
Address: _______________________
_______________________
_______________________
Frank Weinrauch
Signature:_______________________
Address: _______________________
_______________________
_______________________
Wasatch Venture Corporation
Signature:_______________________
Address: _______________________
_______________________
_______________________
Beesmark Investments L.C.
Signature:_______________________
Address: _______________________
_______________________
_______________________
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<PAGE>
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE
SOLD, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE TRANSFERRED FOR VALUE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS
COVERING SUCH SECURITIES OR UNLESS THE ISSUER RECEIVES AN OPINION OF COUNSEL
ACCEPTABLE TO THE ISSUER STATING THAT SUCH SALE, ASSIGNMENT, PLEDGE OR
TRANSFER IS EXEMPT FROM THE REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
COMMON STOCK WARRANT
To Purchase 440,350
Shares of Common Stock of
InsurQuote Systems, Inc.
February 10, 1998
THIS CERTIFIES THAT, for good and valuable consideration received by
InsurQuote Systems, Inc., a Utah corporation (the "Company"), CCC Information
Services Inc., a Delaware corporation (the "Investor") or its registered
assigns is entitled to subscribe for and purchase from the Company at any
time after the date hereof to and including the expiration of this Warrant,
440,350 fully paid and nonassessable shares of the Company's Common Stock, no
par value, at a price of $20.21 per share (the "Exercise Price"):
This Warrant was granted by the Company to the Investor pursuant to that
certain Investment Agreement dated February 10, 1998 by and among the
Company, the Investor and certain shareholders of the Company (the
"Investment Agreement"), and the related Securities Purchase Agreement dated
February 10, 1998 by and between the Company and the Investor (the
"Securities Purchase Agreement). Pursuant to the Securities Purchase
Agreement, the Investor is acquiring from the Company for an aggregate
consideration of $20,000,000, and the Company is issuing to the Investor,
333,750 shares of Common Stock, 145,414 shares of Series C Preferred Stock,
320,203 shares of Series D Preferred Stock, a Subordinated Promissory Note in
the principal amount of $8,900,000 (the "Subordinated Note") and this
Warrant. Capitalized terms used but not otherwise defined herein shall have
the meanings given them in the Investment Agreement and the Securities
Purchase Agreement.
This Warrant is subject to the following provisions, terms and
conditions:
<PAGE>
1. TERM OF WARRANT.
(a) The rights represented by this Warrant may be exercised by the
holder hereof, in whole or in part, at any time after the date hereof through
February 10, 2008 unless earlier terminated in whole or in part as provided
in paragraph (c) below. This Warrant shall be void and of no further force
or effect automatically upon any such expiration date.
(b) In the event that the Company performs as set forth in Exhibit
D to the Securities Purchase Agreement and the Investor elects to reduce its
equity ownership in the Company in accordance with Section 2.1(b) of the
Securities Purchase Agreement and Exhibit D thereto, this Warrant shall be
adjusted as provided in such Exhibit D and shall terminate in part as
provided in Exhibit D.
(c) In the event that the Investor exercises the CCC Option
pursuant to Section 2.4 of the Investment Agreement, upon the closing of the
purchase of shares of the Company's Common Stock pursuant to such CCC Option,
this Warrant shall terminate without further action on the part of the
Company, the Investor or any other person and shall be void and of no further
forces or effect.
2. EXERCISE OF WARRANT. The rights represented by this Warrant may be
exercised by the holder hereof, in whole or in part (but not as to a
fractional share of Common Stock), by written notice of exercise delivered to
the Company ten (10) days prior to the intended date of exercise and by the
surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and upon payment to it by certified or bank check or
wire transfer of the purchase price for such shares; provided, however, that
the rights represented by this Warrant must be exercised prior to the closing
of the Investor's purchase of shares of the Company's Common Stock pursuant
to the exercise of the CCC Option pursuant to Section 2.4 of the Investment
Agreement.
3. ISSUANCE OF SHARES. The Company agrees that the shares purchased
hereby shall be and are deemed to be issued to the record holder hereof as of
the close of business on the date on which this Warrant shall have been
exercised by surrender of the Warrant and payment for the shares. Subject to
the provisions of the next succeeding paragraph, certificates for the shares
of stock so purchased shall be delivered to the holder hereof within a
reasonable time, not exceeding ten (10) days after the rights represented by
this Warrant shall have been so exercised, and, unless this Warrant has
expired, a new Warrant representing the number of shares, if any, with
respect to which this Warrant shall not then have been exercised shall also
be delivered to the holder hereof within such time.
Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of paragraph 8 hereof.
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<PAGE>
4. ADJUSTMENT FOR A STEP-UP EVENT OF DEFAULT. If there is a Step-Up
Event of Default (as defined in the Securities Purchase Agreement), then so
long as the Step-Up Event of Default continues, the number of shares of the
Company's Common Stock the Investor shall be entitled to purchase pursuant to
this Warrant shall be increased to that number of shares that, when added to
the shares of Common Stock and Common Stock Equivalents (as defined in the
Investment Agreement) then held by the Investor and its Affiliates, equal 51%
of the Fully-Diluted Voting Power of the Company and the Exercise Price shall
be proportionately reduced; provided, however, that in the event that this
Warrant has not been exercised on the date that the Company provides the
Investor with written notice that it is no longer in such Default, the
Exercise Price shall be appropriately increased to the original Exercise
Price, as adjusted pursuant to Section 5 below, and the number of shares of
the Company's Common Stock the Investor shall be entitled to purchase
hereunder shall be appropriately reduced.
5. ANTI-DILUTION ADJUSTMENTS. The above provisions are, however,
subject to the following:
(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of Common Stock or declare a dividend payable
in Common Stock, (i) the Exercise Price of this Warrant and (ii) the Trigger
Price (as defined in Section 5(d)(i) in effect immediately prior to the
subdivision, combination or record date for such dividend payable in Common
Stock shall forthwith be proportionately increased, in the case of
combination, or decreased, in the case of subdivision or dividend payable in
Common Stock. Upon each adjustment of the Exercise Price, the holder of this
Warrant shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares obtained by multiplying
the Exercise Price immediately prior to such adjustment by the number of
shares purchasable pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Exercise Price resulting from such
adjustment.
(b) No fractional shares of Common Stock are to be issued upon the
exercise of this Warrant, but the Company shall pay a cash adjustment in
respect of any fraction of a share which would otherwise be issuable in an
amount equal to the same fraction of the market price per share of Common
Stock on the day of exercise as determined in good faith by the Company.
(c) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common
Stock shall be entitled to receive stock, securities or assets with respect
to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holder hereof shall thereafter
have the right to purchase and receive, upon the basis and upon the terms and
conditions specified in this Warrant and in lieu of the shares of Common
Stock of the Company immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby, such stock, securities or
assets as may be issued or payable with respect to or in exchange for a
number of
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<PAGE>
outstanding shares of such Common Stock equal to the number of shares of such
stock immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of the holder of this Warrant to the end that the provisions hereof
(including without limitation provisions for adjustments of the Exercise
Price and of the number of shares purchasable upon the exercise of this
Warrant) shall thereafter be applicable, as nearly as may be, in relation to
any shares of stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company shall not effect any such consolidation, merger
or sale unless prior to the consummation thereof the successor corporation
(if other than the Company) resulting from such consolidation or merger, or
the corporation purchasing such assets, shall assume by operation of law or
written instrument, the obligation to deliver to such holder such shares of
stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to purchase. Notice of such assumption shall be
promptly mailed to the registered holder hereof at the last address of such
holder appearing on the books of the Company.
Notwithstanding any language to the contrary set forth in this
paragraph 5(c), if an occurrence or event described herein shall take place
in which the shareholders of the Company receive cash for their shares of
Common Stock of the Company and a successor corporation or corporation
purchasing assets shall survive the transaction then, at the election of the
record holder hereof, such corporation shall be obligated to purchase this
Warrant (or the unexercised part hereof) from the record holder without
requiring the holder to exercise all or part of the Warrant. If such
corporation refuses to so purchase this Warrant then the Company shall
purchase the Warrant for cash. In either case the purchase price shall be
the amount per share that shareholders of the outstanding Common Stock of the
Company shall receive as a result of the transaction multiplied by the number
of shares covered by the Warrant, minus the aggregate Exercise Price of the
Warrant. Such purchase shall be closed within 60 days following the election
of the holder to sell this Warrant.
(d)(i) If the Company issues or sells any shares of Common Stock
for a consideration per share less than $16.13 (the "Trigger Price") (other
than dividends payable in shares of Common Stock or subdivisions or
combinations of Common Stock as contemplated in Section 5(a) above), or
issues any options, warrants, or other rights to purchase Common Stock at a
consideration per share less than the Trigger Price, or issues securities
convertible into Common Stock at a conversion price per share of less than
the Trigger Price then the Exercise Price in effect immediately prior to such
issuance or sale shall be adjusted so as to equal a fraction, (a) the
numerator of which shall be an amount equal to the sum of (A) the aggregate
number of shares of Common Stock outstanding immediately prior to such
issuance or sale multiplied by the applicable Exercise Price in effect
immediately prior to such issuance or sale, and (B) the total consideration
payable to the Company upon such issuance or sale of such Common Stock and/or
such purchase rights or convertible securities, plus the consideration
payable to the Company upon the exercise of such purchase rights or upon
conversion of such convertible securities, and (b) the denominator of which
shall be an amount equal to the aggregate number of shares of Common Stock
outstanding
4
<PAGE>
immediately after such issuance or sale plus the number of shares of Common
Stock issuable upon the exercise of any purchase rights and/or upon the
conversion of convertible securities issued in such issuance. An adjustment
to the Trigger Price shall be made in proportion to the adjustment to the
Exercise Price. If the Exercise Price and the Trigger Price are adjusted as
the result of the issuance of any options, warrants or other purchase rights
or upon the issuance of convertible securities, no further adjustments of
such Exercise Price and such Trigger Price shall be made at the time of the
exercise of such options, warrants or other purchase rights or convertible
securities. If securities are sold for a consideration other than cash, the
amount of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined by the Board
of Directors of the Company. No adjustment shall be made in the Exercise
Price or the Trigger Price with respect to the creation, grant, or exercise
of the options, warrants and rights identified in Section 3.5(v) of the
Securities Purchase Agreement.
(ii) Upon any adjustment of the Exercise Price pursuant to
subsection 5(d)(i) hereof, the holder of this Warrant shall thereafter (until
another such adjustment) be entitled to purchase, at the new Exercise Price,
the number of shares of Common Stock determined by multiplying the number of
shares as to which this Warrant was exercisable immediately prior to such
adjustment by the Exercise Price which would have been in effect but for
subsection 5(d) hereof and dividing the product so obtained by the Exercise
Price as adjusted pursuant to subsection 5(d) (i) hereof.
(iii) ISSUANCE FOR CASH. In case of the issuance of additional
shares of Common Stock entirely for cash, the consideration received by the
Company therefor shall be deemed to be the amount of cash received by the
Company for such shares, without deducting therefrom any commissions or other
expenses paid or incurred by the Company for any underwriting of, or
otherwise in connection with, the issuance of such shares of Common Stock.
(iv) ISSUANCE FOR PROPERTY. In case of the issuance of additional
shares of Common Stock for a consideration other than cash, or for a
consideration a part of which shall be other than cash, the amount of per
share consideration other than cash received by the Company for such shares
shall be deemed to be the fair market value of such consideration as
determined in good faith by the Board of Directors.
(e) Upon any adjustment of the Exercise Price and the Trigger
Price, then, and in each such case, the Company shall give written notice
thereof, by first class mail, postage prepaid, addressed to the registered
holder of this Warrant at the address of such holder as shown on the books of
the Company, which notice shall state the Exercise Price and the Trigger
Price resulting from such adjustment and the increase or decrease, if any, in
the number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
6. COMMON STOCK. As used herein, the term "Common Stock" shall mean
and include the Company's presently authorized shares of Common Stock and
shall also include any capital stock
5
<PAGE>
of any class of the Company hereafter authorized which shall not be limited
to fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution, dissolution or winding up of
the Company; provided that the shares purchasable pursuant to this Warrant
shall include shares designated as Common Stock of the Company on the date of
original issue of this Warrant or, in the case of any reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
Section 5 above.
7. NO VOTING RIGHTS. This Warrant shall not entitle the holder hereof to
any voting rights or other rights as a stockholder of the Company.
8. REGISTRATION, TRANSFER, EXCHANGE AND REPLACEMENT OF SECURITIES.
Reference is hereby made to the Investment Agreement and the Securities Purchase
Agreement for certain provisions relating to the registration, transfer,
exchange and replacement of the Warrants and Common Stock. To transfer this
Warrant, the holder shall deliver to the Company a Notice of Assignment
(substantially in the form attached hereto) duly executed by the holder hereof
(or its attorney) specifying that this Warrant (or any portion hereof) is to be
transferred to the Person(s) named therein.
9. ADDITIONAL RIGHT TO CONVERT WARRANT.
(a) Subject to the provisions of Section 8 hereof, the holder of this
Warrant shall have the right to require the Company to convert this Warrant (the
"Conversion Right") at any time prior to its expiration into shares of Common
Stock as provided for in this Section 9. Upon exercise of the Conversion Right,
the Company shall deliver to the holder (without payment by the holder of any
Exercise Price) that number of shares of Common Stock equal to the quotient
obtained by dividing (x) the value of the Warrant at the time the Conversion
Right is exercised (determined by subtracting the aggregate Exercise Price in
effect immediately prior to the exercise of the Conversion Right from the
aggregate Fair Market Value for the Warrant shares immediately prior to the
exercise of the Conversion Right) by (y) the Fair Market Value of one share of
Common Stock immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time
or from time to time, prior to its expiration, on any business day be delivering
a written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Company's Common Stock the
warrantholder will purchase pursuant to such conversion and (ii) a place and
date not less than one nor more than 20 business days from the date of the
Conversion Notice for the closing of such purchase.
(c) At any closing under Section 9(b) hereof, (i) the holder will
surrender the Warrant and (ii) the Company will deliver to the holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion, together with cash, in lieu of any
6
<PAGE>
fraction of a share, and (iii) the Company will deliver to the holder a new
warrant representing the number of shares, if any, with respect to which the
warrant shall not have been exercised.
(d) "FAIR MARKET VALUE" means, with respect to the Company's
Common Stock, as of any date:
(i) if the Common Stock is listed or admitted to unlisted
trading privileges on any national securities exchange or is not so listed or
admitted but transactions in the Common Stock are reported on the NASDAQ
National Market System, the reported closing price of the Common Stock on
such exchange or by the NASDAQ National Market System as of such date (or, if
no shares were traded on such day, as of the next preceding day on which
there was such a trade); or
(ii) if the Common Stock is not so listed or admitted to
unlisted trading privileges or reported on the NASDAQ National Market System,
and bid and asked prices therefor in the over-the-counter market are reported
by the NASDAQ system or National Quotation Bureau, Inc. (or any comparable
reporting service), the mean of the closing bid and asked prices as of such
date, as so reported by the NASDAQ System, or, if not so reported thereon, as
reported by National Quotation Bureau, Inc. (or such comparable reporting
service); or
(iii) if the Common Stock is not so listed or admitted to
unlisted trading privileges, or reported on the NASDAQ National Market System,
and such bid and asked prices are not so reported by the NASDAQ system or
National Quotation Bureau, Inc. (or any comparable reporting service), [such
price as the Company's Board of Directors determines in good faith] in the
exercise of its reasonable discretion.
(e) Notwithstanding any other provision of this Warrant to the
contrary, the Investor shall not be entitled to convert this Warrant under
this Section 9 to the extent, and only to the extent, that the Company has
repaid in cash all or any portion of the outstanding principal of the
Subordinated Note or to the extent the Subordinated Note remains outstanding
after giving effect to the conversion of this Warrant under this Section 9.
For example, if the Company has repaid all outstanding principal and interest
on the Subordinated Note, the Investor shall not be entitled to convert this
Warrant under this Section 9; and if the Company has pre-paid $1,000,000 of
the outstanding principal of the Subordinated Note, the Investor shall pay
$1,000,000 of the total Exercise Price of this Warrant in cash and the
balance may be converted under this Section 9.
7
<PAGE>
IN WITNESS WHEREOF, InsurQuote Systems, Inc. has caused this Warrant to be
executed by its duly authorized officers and this Warrant to be dated as of the
date and year first above written.
INSURQUOTE SYSTEMS, INC.
By_________________________________
Its________________________________
By_________________________________
Its________________________________
8
<PAGE>
EXERCISE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
INSURQUOTE SYSTEMS, INC.
The undersigned, the holder of the within warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder __________________ shares of the Common Stock, $________
par value, of InsurQuote Systems, Inc. and herewith makes payment of
$_________ therefor, and requests that the certificates for such shares be
issued in the name of __________________________________ and be delivered to
________________________________ whose address is
______________________________________________.
Dated:__________________ _________________________________________________
(Signature must conform in all respects to the name
of holder as specified on the face of the warrant)
(Address)
(City - State - Zip)
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<PAGE>
ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)
For value received, the undersigned hereby sells, assigns and transfers
unto _____________________________ the right represented by the within warrant
to purchase _______________________ of the shares of Common Stock, $_________
par value, of InsurQuote Systems, Inc. to which the within warrant relates, and
appoints ______________________________ attorney to transfer said right on the
books of InsurQuote Systems, Inc., with full power of substitution in the
premises.
Dated:__________________ _________________________________________________
(Signature must conform in all respects to the name
of holder as specified on the face of the warrant)
(Address)
(City - State - Zip)
In the presence of:
10
<PAGE>
CONVERSION NOTICE
(TO BE SIGNED ONLY UPON EXERCISE OF CONVERSION RIGHT
SET FORTH IN SECTION 8 OF THE WARRANT)
TO INSURQUOTE SYSTEMS, INC.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the Conversion Right set forth in Section 8 of such Warrant
and to purchase __________________ shares of the Common Stock, $________ par
value, of InsurQuote Systems, Inc. The closing of this conversion shall take
place at the offices of the Company on __________________. Certificates for the
shares to be delivered at the closing shall be issued in the name of ___________
__________________, whose address is ____________________________________.
Dated:__________________ _________________________________________________
(Signature must conform in all respects to the name
of holder as specified on the face of the warrant)
(Address)
11
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<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,257
<SECURITIES> 7,307
<RECEIVABLES> 21,996
<ALLOWANCES> (2,769)
<INVENTORY> 0
<CURRENT-ASSETS> 6,262
<PP&E> 42,583
<DEPRECIATION> (28,632)
<TOTAL-ASSETS> 91,709
<CURRENT-LIABILITIES> 28,425
<BONDS> 0
5,148
0
<COMMON> 2,476
<OTHER-SE> (42,124)
<TOTAL-LIABILITY-AND-EQUITY> 91,709
<SALES> 0
<TOTAL-REVENUES> 44,691
<CGS> 0
<TOTAL-COSTS> 37,535
<OTHER-EXPENSES> 471
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 64
<INCOME-PRETAX> 7,563
<INCOME-TAX> 3,162
<INCOME-CONTINUING> 4,401
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,401
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.17
</TABLE>
