<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 6, 1999
Registration No. 333-78095
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INSWEB CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 7389 94-3220749
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code number) Identification
incorporation or organization) No.)
</TABLE>
901 MARSHALL STREET, REDWOOD CITY, CALIFORNIA 94063
(650) 298-9100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
HUSSEIN A. ENAN
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
INSWEB CORPORATION
901 MARSHALL STREET
REDWOOD CITY, CALIFORNIA 94063
(650) 298-9100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
DENNIS C. SULLIVAN, ESQ. KEVIN P. KENNEDY, ESQ.
PAUL A. BLUMENSTEIN, ESQ. Shearman & Sterling
MICHAEL B. GEBHARDT, ESQ. 1550 El Camino Real, Suite 100
Gray Cary Ware & Freidenrich LLP Menlo Park, California 94025-4100
400 Hamilton Avenue (650) 330-2200
Palo Alto, California 94301-1825
(650) 328-6561
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this registration statement.
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If any of the securities being registered on this form are being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. / /
------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION. DATED JULY 6, 1999.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED.
THE COMPANY MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT
AN OFFER TO SELL SECURITIES, AND THE COMPANY IS NOT SOLICITING OFFERS TO BUY
THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED.
<PAGE>
4,000,000 Shares
[INSWEB LOGO]
Common Stock
-------------
This is an initial public offering of shares of common stock of InsWeb. All
of the 4,000,000 shares of common stock are being sold by InsWeb.
It is currently estimated that the initial public offering price per share
will be between $11.00 and $13.00. Application has been made for quotation of
the common stock on the Nasdaq National Market under the symbol "INSW."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF INSWEB COMMON STOCK.
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
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<TABLE>
<CAPTION>
Per Share Total
----------- ---------
<S> <C> <C>
Initial public offering price.............................................................. $ $
Underwriting discount...................................................................... $ $
Proceeds, before expenses, to InsWeb....................................................... $ $
</TABLE>
To the extent that the underwriters sell more than 4,000,000 shares of
common stock, the underwriters have the option to purchase up to an additional
600,000 shares from InsWeb at the initial public offering price less the
underwriting discount.
------------------
The underwriters expect to deliver the shares against payment in New York,
New York on , 1999.
GOLDMAN, SACHS & CO.
BANCBOSTON ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
E*OFFERING
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Prospectus dated , 1999.
<PAGE>
Description of Artwork
[INSIDE FRONT COVER]
[Eight photographs depict a consumer in various stages of shopping for
insurance over the telephone. Photographs include a consumer using a telephone
directory and waiting while placed on hold. The insweb.com logo, the slogan
"Where You And Your Insurance Really Click" and the following text appear in the
center of the photograph: "The old way of shopping for insurance has just
changed."]
[GATEFOLD]
[At the top of the page there is the InsWeb logo with the following caption:
"All the tools, information and help you need to comparison shop for insurance
quotes--online."]
[A picture of InsWeb's online insurance marketplace at insweb.com. Two-page
screen shot of InsWeb's website with textual descriptions of the tools,
information and help available to consumers, surrounded by the following text
flowed to both sides.]
DETAILED, PERSONALIZED QUOTES FOR EVERY INSURANCE NEED.
InsWeb's step-by-step process offers consumers convenience and value--making
it easy to compare free, customized quotes from some of the most recognized
names in insurance. Whether it's auto, health, homeowners, life or renters
insurance they need, consumers can comparison shop for quotes quickly and
easily--all in one place.
TOOLS & ADVICE PUT POWER IN THE HANDS OF THE CONSUMER.
Our insurance marketplace puts consumers in complete control of their
insurance decisions. An array of tools help and information guides them through
the intricacies of insurance. And our interactive content--calculators, coverage
analyzers, estimators and quizzes--helps consumers make educated buying
decisions.
SAFEGUARDING CUSTOMER PRIVACY IS OUR PRIORITY.
Recognizing the importance of earning trust by protecting consumers'
privacy, InsWeb maintains an unbiased and safe marketplace for them to conduct
their insurance business. To ensure the security of data transmissions, we
employ encryption technology, which protects sensitive consumer information. We
also utilize firewall technology to safeguard all data on our site.
Additionally, InsWeb is a member of the TRUSTe Privacy Program.
CONSUMER PROFILE SAVED FOR FUTURE VISITS.
Individual data and consumer preferences are saved, making it even simpler
for consumers to come back to compare quotes as their insurance needs change.
EVERYTHING CONSUMERS NEED TO SHOP FOR AUTO, HEALTH, HOME, LIFE AND RENTERS
INSURANCE.
Available 24-hours a day, 7-days a week, InsWeb offers the tools, advice and
ease-of-use insurance shoppers are looking for. It is a convenient way for
people to compare quotes--and get all the information they need in a
comfortable, pressure-free environment.
[Back Cover]
[At the top center of the page is the following heading:]
<PAGE>
National Coverage
Auto/Health/Home/Life/Renters
[Beneath the heading, there is a map of the United States which depicts the
carrier coverage for each insurance product as of June 1999.]
[Below the map, the InsWeb logo is centered above the following text:]
PARTICIPATING INSURANCE COMPANIES
The InsWeb Online Insurance Marketplace includes many of the largest and
most recognized insurance companies in the United States.
<TABLE>
<S> <C> <C> <C> <C>
AAA Michigan Blue Cross/Blue Hartford Metropolitan Life RelianceDirect
AIG Shield of Florida IAG (Hartford) The MONY Group/ Reliant
American Family CNA John Hancock MONY Life Insurance State Farm
Amica The Commerce Group Kemper Company TIG
Auto Club South Country Lincoln Benefit Mutual of Omaha Tri-State
(AAA) Explorer (Allstate) Nationwide United Security
Avomark (Ohio GE Auto Insurance Ohio National Western Southern
Casualty) Program from Zurich Kemper
Colonial Penn
Insurance Company
</TABLE>
InsWeb-Registered Trademark- is a registered trademark of InsWeb. All other
brand names or trademarks appearing in this prospectus are the property of the
holders of those names or marks.
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER
BEFORE INVESTING IN INSWEB COMMON STOCK. YOU SHOULD READ THE FOLLOWING SUMMARY
TOGETHER WITH THE MORE DETAILED INFORMATION REGARDING INSWEB AND THE COMMON
STOCK BEING SOLD IN THIS OFFERING AND OUR FINANCIAL STATEMENTS AND NOTES TO
THOSE STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
INSWEB
InsWeb operates a leading online insurance marketplace that enables
consumers to shop online for automobile, term life, homeowners, renters and
individual health insurance and obtain insurance company-sponsored quotes for
actual coverage. InsWeb's marketplace brings consumers and insurance companies
together online, providing consumers with the insurance they need and insurance
companies with the customers they want. InsWeb's service is free to consumers;
its principal source of revenues is transaction fees paid by insurance
companies.
InsWeb has combined extensive knowledge of the insurance industry,
technological expertise and close relationships with more than 35 insurance
companies to develop a sophisticated, integrated online technology platform that
delivers significant benefits to both consumers and insurance companies.
Consumers benefit from:
- One-stop comparison shopping for multiple insurance products in an
unbiased marketplace;
- Accurate, insurance company-sponsored quotes;
- Easy access to insurance-related information and proprietary analytical
tools; and
- Convenience, control and privacy without sales pressure.
Insurance companies benefit from:
- Lower customer acquisition and service costs made possible by an
Internet-based model that is largely automated and therefore
cost-efficient and scalable, allowing substantial increases in the number
of transactions on the online marketplace with minimal increases in costs;
- Access to consumers who have been pre-screened based on filtering criteria
provided by the insurance company to ensure that they meet the insurer's
risk profile and who have indicated an interest in purchasing insurance
from the insurance company;
- Rapid feedback on their market performance enabling quick and easy
adjustments to their product offerings; and
- Improved underwriting profitability and the opportunity to provide
enhanced product offerings.
InsWeb's strategy is to provide the leading online insurance marketplace by:
- Adding insurance company relationships and increasing the number of
products and services each company offers and the number of states in
which each company offers them;
- Continuing to build strong relationships with an expanding base of
insurance companies whose filtering and underwriting criteria are
integrated into InsWeb's technology platform;
- Working with participating insurance companies to utilize the InsWeb
platform to further reduce the costs of acquiring and servicing their
customers;
- Leveraging its technology platform and consumer database to provide
additional services to consumers and insurance companies; and
- Enhancing its brand awareness and market presence by expanding its offline
and online marketing campaigns as well as its network of online
relationships.
Transaction fees related to automobile insurance accounted for approximately
75% of InsWeb's revenues in 1998 and 84% in the six months ended June 30, 1999,
and InsWeb expects that such fees will continue to account for a substantial
portion of its revenues for the foreseeable future. InsWeb intends to expand its
other product offerings and expects fees related to automobile insurance to
eventually decrease as a percentage of revenues as additional insurance
companies and products are brought online.
InsWeb has incurred significant losses since inception and had an
accumulated deficit of $55.9 million as of June 30, 1999. InsWeb intends to
continue to invest heavily in product development, sales and marketing and its
administrative infrastructure. As a result, InsWeb believes that it will
continue to incur substantial operating losses for the forseeable future.
3
<PAGE>
THE OFFERING
Unless stated otherwise, the information presented in this prospectus
assumes that the underwriters do not exercise their option to purchase
additional shares in this offering, that all outstanding shares of preferred
stock are converted to common stock upon the closing of this offering, and that
a three-for-two split of InsWeb common stock is effected before the completion
of this offering.
<TABLE>
<S> <C>
Shares offered by InsWeb.......................... 4,000,000 shares
Shares to be outstanding after the offering....... 32,524,825 shares
Use of proceeds................................... For general corporate purposes, principally
working capital and capital expenditures. See "Use
of Proceeds."
Proposed Nasdaq National Market symbol............ INSW
</TABLE>
These share numbers are based on shares outstanding as of June 30, 1999, but
exclude:
- 3,469,823 shares of common stock issuable upon exercise of options
outstanding at June 30, 1999 under InsWeb's stock option plans, with a
weighted average exercise price of $6.46 per share;
- 2,347,586 shares of common stock available for future grant or issuance
under InsWeb's various stock plans; InsWeb intends to grant options to
purchase approximately 1,250,000 of these shares to its executive officers
and members of its management team, at exercise prices ranging from $45.00
to $60.00 per share, prior to the consummation of this offering; and
- 12,246 shares of common stock issuable upon exercise of warrants at an
exercise price of $10.86 per share.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 28, SIX MONTHS
1995 ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, -------------------------------- --------------------
1995 1996 1997 1998 1998 1999
-------------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.......................................... $ -- $ 248 $ 750 $ 4,310 $ 1,027 $ 8,372
Operating expenses................................ 2,025 7,640 10,106 26,211 8,707 23,186
Loss from operations.............................. (2,025) (7,392) (9,356) (21,901) (7,680) (14,814)
Net loss.......................................... (2,031) (7,270) (9,063) (22,490) (7,890) (14,998)
Net loss per share--basic and diluted (1)......... $ (677.00) $ (0.56) $ (0.62) $ (1.52) $ (0.54) $ (0.94)
Shares used in computing net loss per share--basic
and diluted (1)................................. 3 13,055 14,601 14,813 14,663 16,024
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED (2)
--------- ---------------
<CAPTION>
(UNAUDITED)
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................................ $ 9,660 $ 53,300
Short-term investments............................................................... 15,840 15,840
Working capital...................................................................... 25,406 69,046
Total assets......................................................................... 48,480 92,120
Long-term debt....................................................................... 1,240 1,240
Total stockholders' equity........................................................... 40,946 84,586
</TABLE>
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(1) See Note 2 of Notes to InsWeb's Consolidated Financial Statements for a
description of the computation of the number of shares and net loss per
share.
(2) Adjusted to reflect the sale of 4,000,000 shares of common stock in this
offering at an assumed initial public offering price of $12.00 per share and
after deducting the estimated underwriting discount and offering expenses
and giving effect to the application of the net proceeds. See "Use of
Proceeds" and "Capitalization."
InsWeb was incorporated in California in February 1995 and reincorporated in
Delaware in November 1996. InsWeb's principal executive offices are located at
901 Marshall Street, Redwood City, California 94063, its telephone number is
(650) 298-9100, and its website is located at www.insweb.com. Information on
InsWeb's website is not a part of this prospectus.
4
<PAGE>
RISK FACTORS
SET FORTH BELOW IS A DISCUSSION OF WHAT WE BELIEVE TO BE THE PRINCIPAL RISKS
AND UNCERTAINTIES AFFECTING OUR BUSINESS OR AN INVESTMENT IN OUR COMMON STOCK.
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A DECISION
TO BUY OUR COMMON STOCK. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION
CONTAINED IN THIS PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED
NOTES.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE DID NOT BEGIN TO GENERATE
SIGNIFICANT REVENUES FROM OUR CORE BUSINESS UNTIL 1998
We were incorporated in February 1995, but we did not begin to generate
significant transaction fees from our online marketplace until 1998. Our limited
operating history makes an evaluation of our future prospects very difficult. An
investor in our common stock must consider the uncertainties frequently
encountered by early stage companies in new and rapidly evolving markets. These
uncertainties include:
- an evolving and unpredictable business model, which makes prediction of
future results uncertain and an investment in our common stock highly
speculative;
- the lack of a well-developed brand identity, which may limit our ability
to draw consumers to our website;
- the potential development of comparable services by competitors, which may
reduce our market share;
- the uncertainty of the extent to which the consumer market will adopt the
Internet as a medium for comparison shopping for insurance, which may
limit our ability to generate revenue from consumers that visit our online
marketplace; and
- our potential inability to successfully manage our anticipated growth,
which could lead to management distractions and increased operating
expenses.
To address these uncertainties, we must, among other things:
- enhance the brand identity of our online insurance marketplace;
- maintain and increase our strategic alliances with other online businesses
to increase traffic to our website;
- maintain, increase and geographically diversify our base of participating
insurance companies;
- continue to ensure that our participating insurance companies offer
competitive insurance products;
- satisfy legal and regulatory requirements applicable to the insurance
industry; and
- continue to address consumer privacy concerns.
Our business strategy may not be successful and we may not be able to
successfully address these uncertainties. Moreover, our ability to take the
foregoing steps may be hampered by our limited financial resources should we
fail to rapidly increase revenues or should increased revenues be more than
offset by increased operating expenses .
WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES AND WE MAY NOT ACHIEVE OR
MAINTAIN PROFITABILITY
Given planned investment levels, our ability to achieve profitability will
depend upon our ability to generate and sustain substantially increased
revenues. As a result, we believe that we will incur substantial operating
losses for the foreseeable future. We incurred operating losses of $21.9 million
for the year ended December 31, 1998 and $14.8 million for the six months ended
June 30, 1999,
5
<PAGE>
and as of June 30, 1999, our accumulated deficit was $55.9 million. We intend to
make significant expenditures related to marketing, hiring of additional
personnel and development of our website, technology and infrastructure.
Although we have experienced significant revenue growth in recent periods, this
growth rate is not sustainable and will decrease in the future. Our operating
results for future periods are subject to numerous uncertainties, and we may not
achieve sufficient revenues to become profitable. Even if we achieve
profitability, we may not sustain or increase profitability on a quarterly or
annual basis in the future. If we are unable to achieve profitability, we will
need to seek additional financing to continue our business operations. Such
financing could be on terms that are dilutive to our existing stockholders or
could involve the issuance of securities that have rights and preferences that
are senior to those associated with our common stock. Moreover, if such
financing were not available or were available only upon terms that were
unacceptable to us, we could be required to significantly curtail our
operations.
OUR FUTURE REVENUES ARE UNPREDICTABLE, OUR OPERATING RESULTS ARE LIKELY TO
FLUCTUATE FROM QUARTER TO QUARTER, AND IF WE FAIL TO MEET THE EXPECTATIONS OF
SECURITIES ANALYSTS OR INVESTORS, OUR STOCK PRICE COULD DECLINE SIGNIFICANTLY
Due to our limited operating history, the emerging nature of the market in
which we compete and the high proportion of our revenues that are derived from
consumer traffic on our website, our future revenues are inherently difficult to
forecast. We believe that period-to-period comparisons of our operating results
may not be meaningful, and you should not rely upon them as an indication of our
future performance. Moreover, our expense levels are based largely on our
investment plans and estimates of future revenues. We may be unable to adjust
our spending to compensate for an unexpected shortfall in revenues. Accordingly,
any significant shortfall in revenues relative to our planned expenditures would
harm our results of operations and could cause our stock price to fall sharply,
particularly following quarters in which our operating results fail to meet the
expectations of securities analysts or investors.
Factors that may cause fluctuations in our operating results include the
following, many of which are outside our control:
- We may experience consumer dissatisfaction with our online marketplace as
we add or change features, or as the insurance coverage offered by
participating insurance companies varies;
- Consumer traffic on our online marketplace may decline as a result of the
announcement or introduction of a competing online insurance marketplace
or other new websites, products or services offered by our competitors;
- Such consumer traffic may also fluctuate as a result of changes in
consumer acceptance of Internet commerce, particularly in connection with
shopping for insurance;
- Our revenues may be harmed if we lose a significant insurance company
relationship or if any of our participating insurance companies merge with
one another;
- Use of the Internet by consumers may fluctuate due to seasonal factors or
other uncontrollable factors affecting consumer behavior and may be
affected by occasional slow Internet performance due to technical problems
or traffic bottlenecks on the network;
- Our ability to convert site visits into transaction fees may fluctuate due
to changes in our user interface or other features on our site or changes
in the filtering criteria used by our participating insurance companies to
determine which consumers will be offered quotes; and
- Our ability to generate transaction fees may also be harmed due to
technical difficulties on our website that hamper a consumer's ability to
start or complete a shopping session.
6
<PAGE>
SEASONALITY AFFECTING INSURANCE SHOPPING AND INTERNET USAGE MAY CAUSE
FLUCTUATIONS IN OUR OPERATING RESULTS
Our business may experience seasonality as it matures. If this occurs,
investors may not be able to predict our annual operating results based on a
quarter-to-quarter comparison of our operating results. We believe that our
business may be subject to such seasonality; however, to date, our quarter-to-
quarter growth in revenues has offset any effects due to seasonality, and
therefore it has not been possible thus far to assess the degree to which our
business may be seasonal.
BECAUSE SUBSTANTIALLY ALL OF OUR REVENUE IS ATTRIBUTABLE TO AUTOMOBILE INSURANCE
SHOPPING ON OUR ONLINE MARKETPLACE, WE ARE ESPECIALLY VULNERABLE TO RISKS
RELATED TO THE ONLINE MARKET FOR AUTOMOBILE INSURANCE OR THE AUTOMOBILE
INSURANCE INDUSTRY GENERALLY
Automobile insurance accounted for approximately 75% of our revenues in the
year ended December 31, 1998 and approximately 84% in the six months ended June
30, 1999. We anticipate that automobile insurance will continue to account for a
substantial portion of our revenues for the foreseeable future. As a result, if
we fail to attract a broad base of consumers to shop for automobile insurance on
our site, or if changes in the automobile insurance industry make electronic
commerce a less attractive means to shop for this type of insurance, our ability
to generate revenue will be reduced and our business will be harmed. In
addition, our business is likely to be affected by any events or changes that
affect the automobile insurance industry as a whole.
IF WE ARE UNABLE TO PROMOTE OUR BRAND AND EXPAND OUR BRAND RECOGNITION, OUR
ABILITY TO DRAW CONSUMERS TO OUR WEBSITE WILL BE LIMITED
A growing number of websites offer services that are similar to and
competitive with the services offered on our online insurance marketplace.
Therefore, establishing and maintaining our brand is critical to attracting
additional consumers to our website, strengthening our relationships with
participating insurance companies and attracting new insurance companies. If our
brand does not achieve positive recognition in the market, our ability to draw
consumers to our website will be limited. In order to attract and retain
consumers and insurance companies and to promote and maintain our brand, we
intend to increase our financial commitment to creating and maintaining
prominent brand awareness. We currently use online advertising and marketing and
radio advertisements in key markets to promote our brand. In addition, we are
continuously expanding our offline mass-marketing campaign, which includes
increasing spending on a combination of radio, television and print media. If
our marketing efforts do not generate a corresponding increase in revenues or we
otherwise fail to successfully promote our brand, or if these efforts require
excessive expenditures, our business will be harmed. Moreover, if visitors to
our website do not perceive our existing services or the products and services
of our participating insurance companies to be of high quality, or if we alter
or modify our brand image, introduce new services or enter into new business
ventures that are not favorably received, the value of our brand could be
harmed.
OUR PLANS TO EXPAND OUR OPERATIONS COULD RESULT IN SIGNIFICANT EXPENDITURES, AND
WE MAY NOT GENERATE SUFFICIENT REVENUE TO OFFSET THESE EXPENDITURES
We intend to expand our operations by, among other things:
- offering new and complementary products such as small group health
insurance and small business property and casualty insurance;
- adding new insurance companies and helping our existing insurance
companies to expand the number of states in which they are offering
coverage in our online marketplace;
- increasing the level of technology integration between our platform and
the systems of our participating insurance companies;
7
<PAGE>
- expanding our geographic coverage outside the United States; and
- extending our market presence through relationships with Internet portals,
financial institutions, websites oriented to activities that involve the
purchase of insurance, such as automobile shopping sites, and other online
companies.
We may not be able to accomplish this expansion in a cost-effective or timely
manner, or these efforts may not increase the overall market acceptance of our
products and services. Expansion of our operations in this manner could also
require significant additional expenditures and strain our management, financial
and operational resources. The lack of market acceptance of these efforts or our
inability to generate enough revenue from these expanded services or products to
offset their cost could harm our business.
COMPETITION IN THE MARKET FOR ONLINE DISTRIBUTION OF INSURANCE IS INTENSE, AND
IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH CURRENT COMPETITORS OR NEW
COMPETITORS THAT ENTER THE MARKET, THE FEES PAID TO US BY PARTICIPATING
INSURANCE COMPANIES MAY FALL, THE FEES CHARGED BY ONLINE COMPANIES WITH WHICH WE
HAVE STRATEGIC RELATIONSHIPS MAY RISE, AND OUR MARKET SHARE MAY SUFFER
The online insurance distribution market is a new industry and, like the
broader electronic commerce market, is rapidly evolving and is highly
competitive. Increased competition, particularly by companies offering online
insurance distribution, could reduce the fees we are able to charge our
participating insurance companies or increase the fees we are required to pay to
online companies with which we have strategic relationships, resulting in
reduced margins or loss of market share, any of which could harm our business.
Some of our current competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing and other resources than we do. In addition, we believe we will face
increasing competition as the online financial services industry develops and
evolves. Our current and future competitors may be able to:
- undertake more extensive marketing campaigns for their brands and
services;
- devote more resources to website and systems development;
- adopt more aggressive pricing policies; and
- make more attractive offers to potential employees, online companies and
third-party service providers.
Accordingly, we may not be able to maintain or grow consumer traffic to our
website and our base of participating insurance companies, our competitors may
grow faster than we do, or companies with whom we have strategic relationships
may discontinue their relationships with us, any of which would harm our
business. See "Business--Competition."
IF OUR PARTICIPATING INSURANCE COMPANIES DO NOT CONTINUE TO PROVIDE HIGH-QUALITY
PRODUCTS AND SERVICE TO CONSUMERS, OUR BRAND WILL BE HARMED AND OUR ABILITY TO
ATTRACT CONSUMERS TO OUR WEBSITE WILL BE LIMITED
Our ability to provide a high-quality shopping experience to consumers
depends in part on the quality of the products and services consumers receive
from our participating insurance companies, including timely response to
requests for quotes or coverage. If our participating insurance companies do not
provide consumers with high-quality products and services, the value of our
brand may be harmed and the number of consumers using our services may decline.
We have from time to time received complaints from consumers who have not
received a timely response to a request for an insurance quote. Although we have
taken steps to encourage our participating insurance companies to be responsive
to consumer requests, these steps may not be successful. In addition, if any of
our major participating insurance companies were to discontinue their
8
<PAGE>
business, be downgraded by insurance company rating services or be financially
harmed by trends in the insurance industry, our brand may be harmed.
BECAUSE SEVERAL OF THE INSURANCE COMPANIES WITH WHICH WE HAVE RELATIONSHIPS ARE
MAJOR STOCKHOLDERS OR ARE ASSOCIATED WITH MEMBERS OF OUR BOARD OF DIRECTORS, WE
MAY FIND IT DIFFICULT TO TERMINATE OR SUSPEND THE PARTICIPATION OF ONE OF THESE
INSURANCE COMPANIES BASED UPON THE QUALITY OF ITS SERVICE. THIS COULD, IN TURN,
CAUSE THE QUALITY OF OUR SERVICES TO DECREASE AND HARM OUR BRAND IMAGE WITH
CONSUMERS
Several insurance companies participating in our online marketplace own
significant portions of our outstanding stock, are affiliated with members of
our board of directors or have close business relationships with members of our
board. One insurance company, Nationwide, holds 11.2% of our outstanding common
stock, and Richard D. Headley, senior vice president and chief information
officer of Nationwide Insurance Enterprise, an affiliate of Nationwide, is a
member of our board. Another insurance company, CNA, is affiliated with
Insurance Information Exchange L.L.C., which holds 8.8% of our outstanding
common stock. Philip L. Engel, president of the CNA insurance companies, is a
member of our board. Most of our other outside directors are affiliated with
companies, such as insurance brokerage firms, that may have substantial business
dealings with many of the insurance companies with which we have relationships.
As a result of such affiliations or relationships, we may find it difficult to
terminate or suspend the participation of one of these insurance companies based
upon the quality of its service. This could, in turn, cause the quality of our
services to decrease and harm our brand image with consumers.
BECAUSE A LIMITED NUMBER OF INSURANCE COMPANIES ACCOUNT FOR A MAJORITY OF OUR
REVENUES, THE LOSS OF A SINGLE INSURANCE COMPANY RELATIONSHIP COULD RESULT IN A
SUBSTANTIAL DROP IN OUR REVENUES
Revenues from State Farm, AIG and American Family accounted for
approximately 31%, 12% and 11%, respectively, of our revenues for the six months
ended June 30, 1999, and revenues from State Farm, AIG and RelianceDirect
accounted for approximately 40%, 16% and 10%, respectively, of our revenues for
the year ended December 31, 1998. Should one of these insurance companies cease
to participate in our online marketplace, or should it change its filtering
criteria in a way that reduces the proportion of consumers that are offered
quotes from that insurance company, our operating results could be materially
harmed. Because of the broad market presence of some of our participating
insurance companies, we expect to continue to generate a substantial portion of
our revenues from a limited number of insurance companies for the foreseeable
future.
IN MOST JURISDICTIONS, WE RELY ON THE PARTICIPATION OF A LIMITED NUMBER OF
INSURANCE COMPANIES ON OUR ONLINE MARKETPLACE, AND THE LOSS OF ANY OF THESE
INSURANCE COMPANIES COULD MAKE OUR ONLINE MARKETPLACE LESS ATTRACTIVE TO
CONSUMERS
Consumer demand for the services offered on our website in any jurisdiction
is substantially dependent upon the participation of competing brand-name
insurance companies offering competitive quotes for a given insurance product in
that jurisdiction. Accordingly, the success of our business depends on our
ability to attract and retain well-known insurance companies to participate in
our marketplace. Although we currently have relationships with 38 insurance
companies overall, in individual jurisdictions where competing quotes for
comparable products are available on our online marketplace, the number of
companies offering quotes ranges from two to 12. If we are unable to increase
the number of insurance companies that participate in our online marketplace,
particularly in the jurisdictions where we currently offer comparable insurance
products from only two or three insurance companies, we may not be able to
attract additional consumers or may lose our existing consumers to other online
competitors offering a wider variety of insurance companies. Of the 30
jurisdictions in which there are three or fewer insurance companies offering
automobile
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insurance quotes on our online marketplace, State Farm is a participant in 26
jurisdictions and AIG is a participant in 16 jurisdictions. If either of these
insurance companies discontinued or significantly reduced its participation in
our online marketplace, the attractiveness of the marketplace to consumers in
these jurisdictions would be diminished.
In addition, we believe that there is a general trend toward consolidation
in the insurance industry. For example, Allstate Corp. recently announced an
agreement to acquire the personal lines business of CNA Financial Corp., one of
our participating insurance companies. In the jurisdictions where we currently
offer comparable insurance products from three or fewer insurance companies, the
loss of one or more of these companies, whether due to industry consolidation or
otherwise, could materially reduce the selection of insurance companies
available to consumers on our website, substantially reducing the attraction of
our online marketplace to consumers.
WE MAY HAVE DIFFICULTY INTEGRATING NEW INSURANCE COMPANIES INTO OUR ONLINE
MARKETPLACE, WHICH COULD HURT OUR ABILITY TO OFFER IMPROVED COMPARISON SHOPPING
OPPORTUNITIES AND THUS LIMIT THE ATTRACTIVENESS OF OUR SERVICE TO CONSUMERS
Integration of an insurance company into our online marketplace requires a
significant commitment of time and resources on our part and on the part of the
insurance company, and is a technologically difficult process. This integration
process typically takes from three to six months to complete and typically
requires us to expend between 160 and 2,000 man-hours. Potential participating
insurance companies may not be willing to invest the time and resources
necessary to achieve this integration, or we may not be able to overcome the
technological difficulties associated with, or devote the time and resources
necessary to, successfully integrate the insurance company into our online
marketplace.
WE DO NOT HAVE EXCLUSIVE RELATIONSHIPS OR LONG-TERM CONTRACTS WITH INSURANCE
COMPANIES, WHICH MAY LIMIT OUR ABILITY TO RETAIN THESE INSURANCE COMPANIES AS
PARTICIPANTS IN OUR MARKETPLACE AND MAINTAIN THE ATTRACTIVENESS OF OUR SERVICES
TO CONSUMERS
We do not have an exclusive relationship with any of the insurance companies
whose insurance products are offered on our online marketplace, and thus,
consumers may obtain quotes and coverage from these insurance companies without
using our website. Our participating insurance companies offer their products
directly to consumers through insurance agents, mass marketing campaigns or
through other traditional methods of insurance distribution. These insurance
companies can also offer their products and services over the Internet, either
directly to consumers or through one or more of our online competitors, or both.
In addition, most of our agreements with our participating insurance companies
are cancelable at the option of either party upon 90 days' notice or less.
TRAFFIC ON OUR WEBSITE IS HEAVILY DEPENDENT ON OUR ONLINE RELATIONSHIPS. THESE
RELATIONSHIPS MAY NOT GENERATE SUFFICIENT REVENUES TO JUSTIFY THE FEES WE PAY TO
ONLINE COMPANIES, AND OUR CONSUMER TRAFFIC MAY DECLINE IN THE EVENT AN ONLINE
RELATIONSHIP IS UNSUCCESSFUL
We rely on relationships with a variety of Internet portals, financial
institutions, and other online companies to attract consumers to our website. In
a typical arrangement, the online company includes a "link" on its website on
which a user can click to jump to our website or to a site that we operate under
the online company's name; as part of the arrangement, we typically pay the
online company a portion of the resulting transaction fees and in some cases a
fixed fee. These relationships may not continue to generate a substantial amount
of new traffic on our website, or the revenues generated by these relationships
may be insufficient to justify our payment obligations. Furthermore, the value
of these relationships is based on the continued positive market presence,
reputation and growth of these online companies' websites and services. Any
decline in
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the market presence, business or reputation of these online companies' websites
and services will reduce the value of these relationships to us and could harm
our business.
We have entered into an arrangement with Yahoo! Inc. under which our site is
the exclusive insurance site included in the Yahoo! Insurance Information
Center. In the six months ended June 30, 1999, we received approximately 19% of
our website traffic from our online relationship with Yahoo!, and approximately
45% of our traffic from all of our online relationships combined. Our ability to
increase our revenues will depend, in part, on increased traffic to our website
that we expect to generate through these online relationships.
Our relationships with online companies typically have a 12-month term and
do not provide us with automatic renewal rights upon termination. In addition,
these agreements are typically terminable by either party on 30 to 90 days'
notice. The termination, nonrenewal or renewal on unfavorable terms of a
relationship from which we generate significant traffic to our website, such as
our relationship with Yahoo!, would harm our business. Additionally, an online
company's failure to maintain efficient and uninterrupted operation of its
computer and communications hardware systems would likely reduce the amount of
traffic we receive from the company's site, harming our business.
LAWS AND REGULATIONS THAT GOVERN THE INSURANCE INDUSTRY COULD EXPOSE US OR OUR
PARTICIPATING INSURANCE COMPANIES TO LEGAL PENALTIES IF WE FAIL TO COMPLY, OR
COULD REQUIRE CHANGES TO OUR BUSINESS
We perform functions for licensed insurance companies and are, therefore,
required to comply with a complex set of rules and regulations that often vary
from state to state. If we fail to comply with these rules and regulations, we
or an insurance company doing business with us could be subject to censure,
fines or a cease-and-desist order. This risk, as well as changes in the
regulatory climate or the enforcement or interpretation of existing law, could
expose us to additional costs, including indemnification of participating
insurance companies for their costs, and could require changes to our business.
Furthermore, because the application of online commerce to the consumer
insurance market is relatively new, the impact of current or future regulations
on InsWeb's business is difficult to anticipate. See "Business--Government
Regulation."
OUR INTENDED EXPANSION OF OUR BUSINESS WILL SUBJECT US TO ADDITIONAL REGULATIONS
WHICH MAY DELAY OR PREVENT OUR EXPANSION AND HARM OUR BUSINESS
We intend to expand our operations to include new products and services and
to offer existing and new products in new jurisdictions within and outside the
United States, which may require us to comply with additional laws and
regulations. If we fail to adequately comply with these laws and regulations,
our ability to offer some of our products or services in a particular
jurisdiction could be delayed or prevented and our business could be harmed. For
example, we recently introduced our automobile insurance shopping service in
several provinces in Canada. This expansion will require us to comply with the
laws and regulations of the various provinces or the Canadian national insurance
regulatory scheme. Compliance with these laws and regulations and those of other
jurisdictions into which we expand may require us to obtain appropriate business
licenses, make necessary filings and obtain necessary bonds, appoint foreign
agents and make periodic business reports.
IF WE ARE UNABLE TO SAFEGUARD THE SECURITY AND PRIVACY OF CONSUMERS' AND
PARTICIPATING INSURANCE COMPANIES' CONFIDENTIAL DATA, CONSUMERS AND INSURANCE
COMPANIES MAY NOT USE OUR SERVICES AND OUR BUSINESS MAY BE HARMED
A significant barrier to electronic commerce and communications is the
secure transmission of personally identifiable information of Internet users as
well as other confidential information over public networks. If any compromise
or breach of security were to occur, it could harm our reputation and expose us
to possible liability. A party who is able to circumvent our security
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measures could misappropriate proprietary information or cause interruptions in
our operations. We may be required to make significant expenditures to protect
against security breaches or to alleviate problems caused by any breaches. To
date, we have experienced no breaches in our network security. We rely on
encryption and authentication technology licensed from third parties to provide
the security and authentication necessary to effect secure transmission of
confidential information, such as names, addresses, Social Security and credit
card numbers, user names and passwords and insurance company rate information.
Advances in computer capabilities, new discoveries in the field of cryptography,
or other events or developments could result in a compromise or breach of the
algorithms we use to protect consumers' and insurance companies' confidential
information.
UNCERTAINTY IN THE MARKETPLACE REGARDING THE USE OF INTERNET USERS' PERSONAL
INFORMATION, OR PROPOSED LEGISLATION LIMITING SUCH USE, COULD REDUCE DEMAND FOR
OUR SERVICES AND RESULT IN INCREASED EXPENSES
Concern among consumers and legislators regarding the use of personal
information gathered from Internet users could create uncertainty in the
marketplace. This could reduce demand for our services, increase the cost of
doing business as a result of litigation costs or increased service delivery
costs, or otherwise harm our business. Legislation has been proposed that would
limit the uses of personally identifiable information of Internet users gathered
online or require online services to establish privacy policies. Many state
insurance codes limit the collection and use of personal information by
insurance companies, agents, or insurance service organizations. Moreover, the
Federal Trade Commission has recently settled a proceeding against one online
service that agreed in the settlement to limit the manner in which personal
information could be collected from users and provided to third parties.
SYSTEM FAILURES COULD REDUCE OR LIMIT TRAFFIC ON OUR WEBSITE AND HARM OUR
ABILITY TO GENERATE REVENUE
Since launching our online marketplace, we have experienced occasional minor
system failures or outages which have resulted in the online marketplace being
out of service for a period ranging from several minutes to three hours while
our technicians brought backup systems online. We may experience further system
failures or outages in the future that could disrupt the operation of our
website and could harm our business. Our revenues depend in large part on the
volume of traffic on our website and, more particularly, on the number of
insurance quotes generated by our website in response to consumer inquiries.
Accordingly, the performance, reliability and availability of our website,
quote-generating systems and network infrastructure are critical to our
reputation and our ability to attract a high volume of traffic on our website
and to attract and retain participating insurance companies. Moreover, we
believe that consumers who have a negative experience with an electronic
commerce website may be reluctant to return to that site. Thus, a significant
failure or outage affecting our systems could result in severe long-term damage
to our business.
IF WE DO NOT SUCCESSFULLY ENHANCE OR EXPAND OUR TECHNOLOGY INFRASTRUCTURE TO
ACCOMMODATE INCREASES IN THE VOLUME OF TRAFFIC ON OUR WEBSITE, OUR WEBSITE MAY
NOT PERFORM AT LEVELS THAT ARE SATISFACTORY TO CONSUMERS
We are continually enhancing and expanding our technology, quote generating
systems, network infrastructure and other technologies to accommodate a
substantial increase in the volume of traffic on our website. We may be
unsuccessful in these efforts or we may be unable to accurately project the rate
or timing of increases in the volume of traffic on our website. In addition, we
cannot predict whether additional network capacity will be available from third
party suppliers as we need it. Also, our network or our suppliers' networks
might be unable to timely achieve or maintain a sufficiently high capacity of
data transmission to timely process orders or effectively
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download data, especially if our website traffic increases. Our failure to
achieve or maintain high capacity data transmission could significantly reduce
consumer demand for our services.
OUR FACILITIES AND SYSTEMS ARE VULNERABLE TO NATURAL DISASTERS AND OTHER
UNEXPECTED LOSSES, AND WE MAY NOT HAVE ADEQUATE INSURANCE TO COVER SUCH LOSSES
Our computer hardware operations are located in leased facilities in Redwood
City. A full backup system is located in Irvine, California. Each of these areas
is susceptible to earthquakes. If both of these locations experienced a system
failure, the performance of our website would be harmed. These systems are also
vulnerable to damage from fire, floods, power loss, telecommunications failures,
break-ins and similar events. If we seek to replicate our systems at other
locations, we will face a number of technical challenges, particularly with
respect to database replications, which we may not be able to address
successfully. Although we carry property and business interruption insurance,
our coverage may not be adequate to compensate us for all losses that may occur.
Our servers may also be vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions.
WE MAY EXPERIENCE TECHNOLOGICAL PROBLEMS OR SERVICE INTERRUPTIONS WITH
INDIVIDUAL INSURANCE COMPANIES, WHICH COULD HARM THE QUALITY OF SERVICE ON OUR
WEBSITE
Several of our participating insurance companies have chosen a technical
solution that requires that our Web servers communicate with these insurance
companies' computer systems in order to perform the filtering and risk analysis
functions required to generate quotes. Thus, the availability of quotes from a
given insurance company may depend in large part upon the reliability of that
insurance company's own computer systems, over which we have no control. A
malfunction in an insurance company's computer system or in the Internet
connection between our Web servers and the insurance company's system, or an
excess of data traffic on that system could result in a delay in the delivery of
e-mail quotes or could cause an insurance company that provides instant quotes
to go offline until the problem can be remedied. Further, a computer malfunction
could cause an insurance company to quote erroneous rates, in which case the
insurance company would be required to take itself offline until the malfunction
can be corrected. Any technological problems with or interruption of
communications with an insurance company's computer systems could materially
reduce the number of competing insurance companies available to provide quotes,
and therefore the level of service perceived by consumers, on our online
marketplace.
OUR RECENT GROWTH HAS PLACED A SIGNIFICANT STRAIN ON OUR MANAGEMENT, SYSTEMS AND
RESOURCES, AND WE MAY EXPERIENCE DIFFICULTIES IN MANAGING OUR EXPECTED GROWTH IN
THE FUTURE
We are currently experiencing growth and expansion which has placed, and
will likely continue to place, a strain on our administrative, operational and
financial resources and increased demands on our systems and controls. If our
management is unable to manage this growth effectively, our business will be
harmed. This growth has resulted in a continuing increase in the level of
responsibility for our management personnel. We anticipate that continued growth
will require us to recruit, hire, train and retain a substantial number of new
managerial, technical, sales and marketing personnel. Of our 228 employees as of
June 30, 1999, 133 have been with us less than 18 months, and we expect that our
rate of hiring will continue at a very high pace. Our ability to manage our
growth successfully will also require us to continue to expand and improve our
operational, management and financial systems and controls on a timely basis.
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WE RELY ON THE SERVICES OF OUR EXECUTIVE OFFICERS AND OTHER KEY PERSONNEL, WHOSE
KNOWLEDGE OF OUR BUSINESS AND THE INSURANCE INDUSTRY AND TECHNICAL EXPERTISE
WOULD BE EXTREMELY DIFFICULT TO REPLACE
Our future success is substantially dependent on the continued services and
continuing contributions of our senior management and other key personnel,
particularly Hussein A. Enan, our Chairman, President and Chief Executive
Officer. The loss of the services of any of our executive officers or other key
employees could harm our business. We have no long-term employment agreements
with any of our key personnel other than Mr. Enan, whose employment agreement
expires in July 2002. We maintain a $2 million life insurance policy on Mr. Enan
that names us as the beneficiary, but maintain no similar insurance on any of
our other key employees.
BECAUSE OF INTENSE COMPETITION FOR TECHNICAL PERSONNEL, WE MAY NOT BE ABLE TO
RECRUIT OR RETAIN NECESSARY PERSONNEL, WHICH COULD SLOW THE PROCESS OF ADDING
NEW INSURANCE COMPANIES TO OUR WEBSITE OR OTHERWISE HARM OUR BUSINESS
Our future success depends on our continuing to attract, retain and motivate
highly skilled employees, particularly with respect to technology development
and implementation, including integration of insurance companies into our online
marketplace. If we are not able to attract and retain new personnel,
particularly to expand our technology development and implementation team, our
business will be harmed. The implementation of new insurance companies on our
site is a technologically complex and labor-intensive process. Accordingly, any
difficulty we face in attracting and retaining talented development and
implementation personnel could slow the process of adding new insurance
companies to our online marketplace and therefore limit our ability to increase
the attractiveness of our services to consumers. Competition for personnel in
our industry is intense. We may be unable to retain our key employees or
attract, assimilate or retain other highly qualified employees in the future. We
have from time to time experienced, and we expect to continue to experience in
the future, difficulty in hiring and retaining employees with appropriate
qualifications.
OUR SUCCESS DEPENDS ON CONTINUED GROWTH OF ELECTRONIC COMMERCE, WHICH MAY NOT
ACHIEVE BROAD ACCEPTANCE BY CONSUMERS
Our future revenues and profits are substantially dependent upon the
widespread acceptance and use of the Internet by consumers as an effective
medium for commerce. Rapid growth in the use of the Internet is a recent
phenomenon, and it may not continue, or the Internet may not be adopted as a
medium of commerce by a broad base of consumers. If a broad base of consumers do
not adopt the Internet as a medium of commerce, our business may fail.
OUR SUCCESS DEPENDS ON THE WILLINGNESS OF CONSUMERS TO SHOP FOR INSURANCE ON THE
INTERNET INSTEAD OF BY MORE TRADITIONAL MEANS. CONSUMERS MAY NOT BE WILLING TO
DO THIS
Shopping for insurance on the Internet is a relatively untested concept, and
if it does not gain widespread acceptance, our business may fail. Demand and
market acceptance for recently introduced services and products on the Internet
are subject to a high level of uncertainty, and there are few proven services
and products. Our success will depend on our ability to engage consumers who
have historically shopped for insurance through traditional distribution
channels. In order for us to be successful, many of these consumers must be
willing to utilize new ways of conducting business and exchanging information.
In addition, a substantial proportion of the consumers who use our website may
be using our service because it is new and different rather than because they
believe that it offers a better way to shop for insurance. Such consumers may
use our service only once or twice and then return to more familiar means of
shopping for insurance.
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IF THE INTERNET DOES NOT CONTINUE TO DEVELOP AND RELIABLY SUPPORT THE DEMANDS
PLACED ON IT BY ELECTRONIC COMMERCE AND OTHER HIGH-VOLUME APPLICATIONS, OUR
BUSINESS WILL SUFFER
The Internet may not become a viable medium for commerce or comparison
insurance shopping for a number of reasons, including potentially inadequate
development of the necessary network infrastructure or delayed development of
enabling technologies and performance improvements. If the Internet continues to
experience significant growth in the number of users, levels of traffic or
networks' capacities for transmitting large amounts of data, the Internet's
infrastructure may not be able to support the demands placed upon it. The
Internet has experienced a variety of outages and other delays as a result of
damage to portions of its infrastructure, and it could face additional outages
and delays in the future. These delays might include outages and delays
resulting from year 2000 readiness issues. If the systems supporting the
Internet infrastructure are not year 2000 ready, our business could be seriously
harmed. These outages and delays could reduce the level of traffic and therefore
the number of consumer insurance inquiries on our website. In addition, the
Internet could lose its viability due to delays in the development or adoption
of new standards and protocols required to handle increased levels of Internet
activity, or due to increased governmental regulation. Changes in or
insufficient availability of telecommunications services to support the Internet
could also result in slower response times and reduced use of the Internet.
REGULATION OF THE INTERNET IS UNSETTLED, AND FUTURE REGULATIONS COULD INHIBIT
THE GROWTH OF THE INTERNET AND OTHERWISE HARM OUR BUSINESS
The laws governing the Internet remain largely unsettled, even in areas
where there has been some legislative action. Furthermore, the growth and
development of the market for electronic commerce may prompt the enactment of
more stringent consumer protection laws that may impose additional burdens on
companies conducting business online. The adoption of additional laws or
regulations may inhibit the growth of the Internet as a medium for commerce and
comparison insurance shopping, which could, in turn, decrease demand for our
services, increase our cost of doing business, or otherwise harm our business.
In addition, applicability to the Internet of existing laws governing issues
including property ownership, copyrights and other intellectual property issues,
taxation, libel and personal privacy is uncertain. The vast majority of these
laws were adopted prior to the advent of the Internet and related technologies
and, as a result, do not contemplate or address the unique issues of the
Internet and related technologies.
OUR PLANNED INTERNATIONAL EXPANSION MAY BE DIFFICULT AND WILL EXPOSE US TO RISKS
ASSOCIATED WITH INTERNATIONAL OPERATIONS, INCLUDING RECESSIONS IN FOREIGN
ECONOMIES, DIFFICULTIES IN COLLECTIONS AND REGULATORY REQUIREMENTS
A component of our strategy is to expand our international operations.
However, our investments in establishing these operations may not produce enough
revenue to justify our investments. We have recently entered into a joint
venture to develop an online insurance marketplace in Japan through InsWeb Japan
K.K., of which we currently own a 25% equity interest. We also recently began
offering automobile insurance quoting services in some provinces of Canada. Our
international operations are subject to other inherent risks, including:
- the impact of recessions in foreign economies on the level of consumers'
insurance shopping and purchasing behavior;
- greater difficulty in accounts receivable collection and longer collection
periods;
- unexpected changes in regulatory requirements, particularly with respect
to the insurance industry;
- difficulties and costs of staffing and managing foreign operations;
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- reduced protection for intellectual property rights in some countries;
- seasonal reductions in business activity during the summer months in
Europe and other parts of the world;
- potentially adverse tax consequences; and
- political and economic instability.
To the extent we do business with foreign insurance companies, our
international revenues may be denominated in foreign currencies. Accordingly,
fluctuations in currency exchange rates may reduce revenues from international
sales.
OUR PLANNED INTERNATIONAL EXPANSION MAY BE UNSUCCESSFUL AS A RESULT OF OUR
LIMITED EXPERIENCE WITH INTERNATIONAL OPERATIONS
We have limited experience with the insurance industry outside the United
States and with marketing and selling our products and services internationally.
Accordingly, our planned international expansion may not be successful. We
cannot be sure that we will be able to attract insurance companies in these or
other jurisdictions or that we will be able to successfully adapt our online
insurance marketplace model to the regulatory system of, and insurance products
and services offered in, these jurisdictions. In addition, competitors which
have greater local market knowledge or regulatory understanding may exist or
arise in other markets and impede our ability to successfully expand in these
markets.
OUR ENTRY INTO ADDITIONAL INTERNATIONAL MARKETS WILL REQUIRE SIGNIFICANT
MANAGEMENT ATTENTION AND FINANCIAL RESOURCES, WHICH MAY LESSEN OUR ABILITY TO
MANAGE OUR EXISTING BUSINESS EFFECTIVELY
Our entry into additional international markets will require significant
management attention and financial resources, which may lessen our ability to
manage our existing business effectively. Entry into new markets will involve
increases in the level of responsibility of our management personnel. It may
also require us to hire additional management personnel and integrate them with
our existing management team. Our ability to successfully enter into additional
markets will also require us to continue to expand and improve our operational
and management systems. If our management is unable to manage this process
effectively, or if expenses associated with such expansion are not offset by
revenues from such markets, our business will be harmed.
ANY ACQUISITIONS THAT WE UNDERTAKE, INCLUDING OUR RECENT ACQUISITION OF
BENELYTICS, INC., COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE
STOCKHOLDER VALUE AND HARM OUR OPERATING RESULTS
We may acquire or make investments in complementary businesses,
technologies, services or products if appropriate opportunities arise. For
example, in December 1998, we acquired Benelytics, Inc., a developer of employee
health benefits selection and management software and reference data products.
The process of integrating any acquired business, technology, service or product
into our business and operations may result in unforeseen operating difficulties
and expenditures. Integration of an acquired company also may consume much of
our management's time and attention that would otherwise be available for
ongoing development of our business. Moreover, the anticipated benefits of any
acquisition, including Benelytics, may not be realized. We currently do not have
any understandings, commitments or agreements with respect to any other material
acquisition, and we are not currently pursuing any other material acquisition.
We may be unable to identify, negotiate or finance future acquisitions
successfully, or to integrate successfully any acquisitions with our current
business. Future acquisitions could result in potentially dilutive issuances of
equity securities or the incurrence of debt, contingent liabilities or
amortization
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expenses related to goodwill and other intangible assets, any of which could
harm our business. For example, in connection with the Benelytics acquisition,
we recorded $7.3 million in goodwill, which will be amortized over a period of
three years, and $1.4 million to software and other intangible assets, which
will be amortized over two years.
WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS
We regard our intellectual property as critical to our success. We rely on
trademark, copyright and trade secret laws to protect our proprietary rights. We
have registered the INSWEB mark in the U.S. and have also applied for
registration in the U.S. of the InsWeb logo and the marks InsWeb.com,
Simplifying Your Insurance Decisions, Where You And Your Insurance Really Click,
EAgent, Benelytics and Powered by InsWeb. We have also applied for registration
of the InsWeb logo and the marks InsWeb and InsWeb.com in Japan and Korea. Our
trademark registration applications may not be approved or granted, or, if
granted, may be successfully challenged by others or invalidated through
administrative process or litigation. Notwithstanding these laws, we may be
unsuccessful in protecting our intellectual property rights or in obtaining
patents or registered trademarks for which we apply. See "Business--Intellectual
Property."
WE MAY BE SUBJECT TO CLAIMS FOR INFRINGEMENT OF INTELLECTUAL PROPERTY, WITH OR
WITHOUT MERIT, WHICH COULD BE COSTLY TO DEFEND OR SETTLE
We may from time to time be subject to claims of infringement of other
parties' proprietary rights or claims that our own trademarks, patents or other
intellectual property rights are invalid. In the past we have been subject to
infringement claims in the ordinary course of business, including claims of
alleged infringement of the trademark rights of third parties by us and
companies with which we have business relationships. Any claims of this type,
with or without merit, could be time consuming to defend, result in costly
litigation, divert management attention and resources or require us to enter
into royalty or license agreements. License agreements may not be available on
reasonable terms, if at all, and the assertion or prosecution of any
infringement claims could significantly harm our business.
WE INCORPORATE THIRD-PARTY TECHNOLOGIES AND SERVICES INTO OUR ONLINE
MARKETPLACE, AND IF THE PROVIDERS OF THESE TECHNOLOGIES AND SERVICES FAIL IN A
TIMELY MANNER TO DEVELOP, LICENSE OR SUPPORT TECHNOLOGY NECESSARY TO OUR
SERVICES, MARKET ACCEPTANCE OF OUR ONLINE MARKETPLACE COULD BE HARMED
We have incorporated technology developed by third parties into our online
marketplace, and we will continue to incorporate third-party technology in our
future products and services. We have limited control over whether or when these
third-party technologies will be developed or enhanced. If a third-party fails
to timely develop, license or support technology necessary to our services,
market acceptance of our online marketplace could be harmed.
IF OUR INTERNAL SYSTEMS, OR THE INTERNAL SYSTEMS OF OUR PARTICIPATING INSURANCE
COMPANIES OR OTHER ONLINE COMPANIES, ARE NOT YEAR 2000 READY, THE OPERATION OF
OUR WEBSITE COULD BE DISRUPTED AND OUR BUSINESS COULD BE SERIOUSLY HARMED
Many existing computer programs and installed computer systems include
computer code that uses only two digits to identify a year. These systems could
fail to function or produce delayed or erroneous results if they interpret "00"
to mean 1900 rather than 2000. As a result of this problem, commonly referred to
as the "year 2000" problem, older computer programs or systems may need to be
upgraded or replaced. Any failure of our internal systems, the systems that
carry Internet traffic on our online marketplace or those of our participating
insurance companies or online companies with which we have relationships as a
result of the year 2000 problem could harm our business.
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We know of no practicable way to overcome a third-party system failure or a
failure of the systems that carry Internet traffic. Because of this view, and
because we believe that our own mission-critical systems are year 2000
compliant, we have not developed and do not intend to develop contingency plans
to address our potential worst-case scenarios associated with a failure of such
systems related to the year 2000 problem. Any such failure could result in a
significant slowdown in the rate at which traffic is transmitted to or from our
website, a reduction in the traffic that is directed to our website by other
online companies, or a temporary shutdown of our online marketplace, any of
which would materially harm our business. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000 Readiness."
OUR EXECUTIVE OFFICERS AND DIRECTORS AND ENTITIES AFFILIATED WITH THEM WILL OWN
A LARGE PERCENTAGE OF OUR VOTING STOCK AFTER THE OFFERING, WHICH WILL ALLOW THEM
TO SIGNIFICANTLY INFLUENCE ALL MATTERS REQUIRING STOCKHOLDER APPROVAL
Our executive officers and directors and entities affiliated with them will
beneficially own approximately 76.3% of our outstanding common stock following
the completion of this offering. These persons and entities, acting together,
would be able to significantly influence all matters requiring approval by our
stockholders, including the election of directors and the approval of mergers
and other business combinations and may make decisions that are not in the best
interest of all stockholders.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS
OFFERING AND MAY NOT OBTAIN A SIGNIFICANT RETURN ON THE USE OF THESE PROCEEDS
The net proceeds to us from this offering are estimated to be approximately
$43.6 million after deducting the estimated underwriting discount and offering
expenses. We currently have no specific plans for a significant portion of our
net proceeds from this offering. Consequently, our management will have the
discretion to allocate the net proceeds to uses that some stockholders may not
deem desirable. Management's allocation of the proceeds of this offering may not
benefit our business, and we may not be able to obtain a significant return on
any use of the proceeds of this offering.
OUR STOCK PRICE MAY FLUCTUATE WIDELY, AND INTERNET STOCKS IN PARTICULAR HAVE
BEEN EXTREMELY VOLATILE
The trading price of our common stock is likely to be highly volatile and
may be significantly affected by factors including actual or anticipated
fluctuations in our operating results, new products or new contracts by us or
our competitors, conditions and trends in the electronic commerce and insurance
industries, changes in financial estimates by securities analysts, general
market conditions and other factors. The trading prices of many Internet stocks
have experienced extreme price and volume fluctuations. These fluctuations often
have been unrelated or disproportionate to the operating performance of these
companies. These fluctuations may continue and could harm our stock price. Any
negative change in the public's perception of the prospects of Internet or
electronic commerce companies could also depress our stock price regardless of
our results.
AN AGGREGATE OF 28,500,180 SHARES, OR 87.6%, OF OUR OUTSTANDING STOCK WILL
BECOME ELIGIBLE FOR RESALE IN THE PUBLIC MARKET BETWEEN 90 DAYS AND ONE YEAR
AFTER THIS OFFERING, AND FUTURE SALES OF SUCH STOCK MAY CAUSE OUR STOCK PRICE TO
DECLINE
Sales of substantial amounts of our common stock in the public market after
this offering could reduce the prevailing market prices for our common stock. Of
the 32,524,825 shares of common stock to be outstanding upon the closing of this
offering, the 4,000,000 shares offered hereby will be freely tradable without
restriction or further registration, other than shares purchased by our
officers, directors or other "affiliates" within the meaning of Rule 144 under
the Securities Act of
18
<PAGE>
1933, which will be restricted from sale until 180 days after the date of this
prospectus pursuant to agreements between these affiliates and the underwriters.
An additional 24,645 shares held by existing stockholders prior to this offering
will be eligible for immediate sale in the public market without restriction.
The remaining 28,500,180 shares of our common stock held by existing
stockholders upon the completion of this offering will become eligible for
resale in the public market as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES/PERCENT
OUTSTANDING AFTER
THE OFFERING DATE WHEN SHARES BECOME AVAILABLE FOR RESALE IN THE PUBLIC MARKET
- ------------------------------------- --------------------------------------------------------------------------
<C> <S>
14,542/0.1% 90 days after the date of this prospectus.
19,891,030/69.8% 180 days after the date of this prospectus pursuant to agreements between
the stockholders and the underwriters or InsWeb, provided that the
underwriters can waive this restriction at any time. 17,712,491 of these
shares will also be subject to sales volume restrictions under Rule 144
under the Securities Act.
8,594,608/30.1% Upon expiration of applicable one-year holding periods under Rule 144,
which will expire between February 26, 2000 and June 3, 2000, subject to
sales volume restrictions under Rule 144.
</TABLE>
In addition, we intend to file a registration statement on Form S-8 under
the Securities Act approximately 90 days after the date of this offering to
register an aggregate of 6,267,428 shares of common stock issued or reserved for
issuance under our various stock plans.
DELAWARE LAW AND OUR CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD DISCOURAGE
OR PREVENT A POTENTIAL TAKEOVER, EVEN IF SUCH A TRANSACTION WOULD BE BENEFICIAL
TO OUR STOCKHOLDERS
Provisions of Delaware law and our certificate of incorporation and bylaws
could make more difficult the acquisition of us by means of a tender offer, a
proxy contest, or otherwise, and the removal of incumbent officers and
directors. See "Description of Capital Stock."
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION IN THE NET TANGIBLE BOOK
VALUE OF THE STOCK YOU PURCHASE
We expect the initial public offering price to be substantially higher than
the book value per share of the outstanding common stock immediately after this
offering. Accordingly, if you purchase common stock in this offering, you will
experience immediate dilution of approximately $9.62 in the book value per share
of the common stock from the price you pay for the common stock. See "Dilution."
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. You should not rely on these forward-looking statements. We use
words like "anticipates," "believes," "plans," "expects," "future," "intends"
and similar expressions to identify these forward-looking statements. This
prospectus also contains forward-looking statements attributed to third parties
regarding their estimates of the growth of electronic commerce and the insurance
market. You should not place undue reliance on these forward-looking statements,
which apply only as of the date of this prospectus. Our actual results could
differ materially from those anticipated in these forward-looking statements for
many reasons, including those described in the risk factors above and elsewhere
in this prospectus. You should carefully read the entire prospectus before
purchasing our common stock.
19
<PAGE>
USE OF PROCEEDS
The net proceeds to InsWeb from the sale of the 4,000,000 shares of common
stock in this offering are estimated to be approximately $43.6 million, assuming
an initial public offering price of $12.00 per share and after deducting the
estimated underwriting discount and offering expenses. InsWeb intends to use
these net proceeds for general corporate purposes, principally working capital
and capital expenditures. InsWeb may also use a portion of the net proceeds to
acquire or invest in complementary businesses or products or to obtain the right
to use complementary technologies, although InsWeb has no current commitments or
agreements with respect to any of these types of acquisitions or investments.
Pending these uses, InsWeb will invest the net proceeds of this offering in
short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
InsWeb has never paid cash dividends on its capital stock. InsWeb currently
expects to retain earnings, if any, to finance the growth and development of its
business, and does not anticipate paying any cash dividends on its stock in the
foreseeable future.
20
<PAGE>
CAPITALIZATION
The following table sets forth InsWeb's capitalization as of June 30, 1999:
- on an actual basis;
- on a pro forma basis, giving effect to the conversion of all outstanding
shares of preferred stock into an aggregate of 12,286,830 shares of common
stock upon the closing of this offering; and
- on a pro forma basis, as adjusted to reflect an increase in the authorized
number of shares of common stock and preferred stock and the sale of the
4,000,000 shares of common stock in this offering, at an assumed initial
public offering price of $12.00 per share and after deducting the
estimated underwriting discount and offering expenses, and InsWeb's
receipt and application of the net proceeds.
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- ------------
(UNAUDITED, IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt............................................................ $ 1,240 $ 1,240 $ 1,240
---------- ----------- ------------
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized, 819,122
shares issued and outstanding, actual; 2,000,000 shares authorized,
none issued or outstanding, pro forma; 5,000,000 shares authorized,
none issued or outstanding, pro forma as adjusted..................... 1 -- --
Common stock, $0.001 par value; 50,000,000 shares authorized, 16,237,995
shares issued and outstanding, actual; 50,000,000 shares authorized,
28,524,825 shares issued and outstanding, pro forma; 150,000,000
shares authorized, 32,524,825 shares issued and outstanding, pro forma
as adjusted(1)........................................................ 16 28 32
Paid-in capital......................................................... 99,580 99,569 143,205
Common stock warrants................................................... 113 113 113
Deferred stock compensation............................................. (2,912) (2,912) (2,912)
Accumulated deficit..................................................... (55,852) (55,852) (55,852)
---------- ----------- ------------
Total stockholders' equity............................................ 40,946 40,946 84,586
---------- ----------- ------------
Total capitalization................................................ $ 42,186 $ 42,186 $ 85,826
---------- ----------- ------------
---------- ----------- ------------
</TABLE>
- --------------
(1) Excludes:
- 3,469,823 shares issuable upon exercise of options outstanding at June 30,
1999 under InsWeb's various stock option plans, with a weighted average
exercise price of $6.46 per share;
- 2,347,586 shares of common stock available for future grant or issuance
under InsWeb's various stock plans; InsWeb intends to grant options to
purchase approximately 1,250,000 of these shares to its executive officers
and members of its management team, at exercise prices ranging from $45.00
to $60.00 per share, prior to the consummation of this offering; and
- 12,246 shares of common stock issuable upon exercise of warrants at an
exercise price of $10.86 per share.
See "Management--Stock Plans," "Description of Capital Stock" and Notes 11,
12 and 15 of Notes to InsWeb's Consolidated Financial Statements.
21
<PAGE>
DILUTION
The pro forma net tangible book value of InsWeb's common stock as of June
30, 1999 was approximately $33.8 million, or $1.19 per share. Pro forma net
tangible book value per share represents the amount of InsWeb's total assets,
excluding net intangible assets, less its total liabilities, divided by the
total number of shares of common stock outstanding, after giving effect to the
conversion of all outstanding shares of preferred stock into common stock.
Dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of InsWeb
common stock in this offering and the pro forma net tangible book value per
share of InsWeb's common stock immediately after the offering. After giving
effect to InsWeb's sale of the 4,000,000 shares of common stock in this
offering, at an assumed initial public offering price of $12.00 per share, and
after deducting the estimated underwriting discount and offering expenses
payable by InsWeb, the pro forma net tangible book value of InsWeb's common
stock would have been $77.4 million, or $2.38 per share. This represents an
immediate increase in net tangible book value of $1.19 per share to existing
stockholders and an immediate dilution of $9.62 per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ 12.00
---------
Pro forma net tangible book value per share as of June 30, 1999... $ 1.19
Increase in net tangible book value per share attributable to new
public investors................................................ $ 1.19
---------
Pro forma net tangible book value per share after the offering...... $ 2.38
---------
Dilution per share to new public investors $ 9.62
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis as of June 30, 1999,
the number of shares of common stock purchased from InsWeb by existing
stockholders and by the new investors, together with the total price and average
price per share paid by each of these groups. The information presented is based
upon an assumed initial public offering price of $12.00 per share, before
deducting the estimated underwriting discount and offering expenses payable by
InsWeb:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ --------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- --------- ---------------- --------- --------------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 28,524,825 88% $ 87,643,005 65% $ 3.02
New investors................... 4,000,000 12 48,000,000 35 12.00
------------- --------- ---------------- ---------
Total......................... 32,524,825 100.0% $ 135,643,005 100.0% 4.17
------------- --------- ---------------- ---------
------------- --------- ---------------- ---------
</TABLE>
The foregoing discussion and tables are based upon the number of shares
actually outstanding on June 30, 1999 and shares committed to be issued on June
30, 1999 and issued subsequent to that date, and assume no exercise of options
or warrants outstanding as of June 30, 1999. As of that date, there were:
- 3,469,823 shares issuable upon exercise of options outstanding under
InsWeb's various stock plans, with a weighted average exercise price of
$6.46 per share; and
- 12,246 shares of common stock issuable upon exercise of warrants at an
exercise price of $10.86 per share.
To the extent these options and warrants are exercised, there will be
further dilution to the new investors. See "Management--Stock Plans" and Notes
11, 12 and 15 of Notes to InsWeb's Consolidated Financial Statements.
22
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and InsWeb's consolidated financial statements and
the notes thereto included elsewhere in this prospectus. The consolidated
statement of operations data set forth below for the years ended December 31,
1996, 1997 and 1998 and the consolidated balance sheet data as of December 31,
1997 and 1998 are derived from, and are qualified by reference to, InsWeb's
audited consolidated financial statements included elsewhere in this prospectus.
The consolidated statement of operations data for the period from February 28,
1995 (inception) to December 31, 1995 and the consolidated balance sheet data as
of December 31, 1995 and 1996 are derived from audited consolidated financial
statements not included in this prospectus. The consolidated statement of
operations data set forth below for the six month periods ended June 30, 1998
and 1999 and the consolidated balance sheet data as of June 30, 1999 are derived
from, and are qualified by reference to, InsWeb's unaudited consolidated
financial statements included elsewhere in this prospectus. The unaudited
consolidated financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of InsWeb's
financial position and results of operations. The results of operations for the
six months ended June 30, 1999 are not necessarily indicative of the results
that may be expected for the full year ending December 31, 1999, or any other
future period.
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 28,
1995 SIX MONTHS ENDED
(INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30,
DECEMBER 31, ------------------------------- --------------------
1995 1996 1997 1998 1998 1999
-------------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction fees............................... $ -- $ 7 $ 116 $ 3,152 $ 662 $ 7,324
Development and maintenance fees............... -- 199 551 789 346 1,042
Other revenues................................. -- 42 83 369 19 6
-------------- --------- --------- --------- --------- ---------
Total revenues............................... -- 248 750 4,310 1,027 8,372
-------------- --------- --------- --------- --------- ---------
Operating expenses:
Product development............................ 774 2,900 3,210 10,077(1) 2,040 3,770
Sales and marketing............................ 551 2,010 3,167 8,954 3,773 12,140
General and administrative..................... 700 2,730 3,729 7,180 2,894 5,712
Amortization of intangible assets.............. -- -- -- -- -- 1,564
-------------- --------- --------- --------- --------- ---------
Total operating expenses..................... 2,025 7,640 10,106 26,211 8,707 23,186
-------------- --------- --------- --------- --------- ---------
Loss from operations............................. (2,025) (7,392) (9,356) (21,901) (7,680) (14,814)
-------------- --------- --------- --------- --------- ---------
Other income, net................................ -- -- -- 600 -- --
Interest income (expense), net................... (6) 122 293 (1,189) (210) (184)
-------------- --------- --------- --------- --------- ---------
Net loss......................................... $ (2,031) $ (7,270) $ (9,063) $ (22,490) $ 7,890 $ (14,998)
-------------- --------- --------- --------- --------- ---------
-------------- --------- --------- --------- --------- ---------
Net loss per share--basic and diluted(2)......... $ (677.00) $ (0.56) $ (0.62) $ (1.52) $ (0.54) $ (0.94)
-------------- --------- --------- --------- --------- ---------
-------------- --------- --------- --------- --------- ---------
Shares used in computing net loss per
share--basic and diluted(2).................... 3 13,055 14,601 14,813 14,663 16,024
-------------- --------- --------- --------- --------- ---------
-------------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------ JUNE 30,
1995 1996 1997 1998 1999
--------- --------- --------- --------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................... $ 6 $ 6,807 $ 2,360 $ 8,337 $ 9,660
Short-term investments....................................... -- -- -- -- 15,840
Working capital (deficit).................................... (1,564) 6,739 2,040 5,496 25,406
Total assets................................................. 423 9,353 5,140 49,357 48,480
Long-term debt............................................... -- -- -- 2,089 1,240
Total stockholders' equity (deficit)......................... (1,184) 7,476 3,063 19,582 40,946
</TABLE>
- ------------------
(1) Product development costs for the year ended December 31, 1998 include $5.5
million of software licenses expensed due to InsWeb's decision not to
integrate the software into its products. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
(2) See Note 2 of Notes to InsWeb's Consolidated Financial Statements for a
description of the computation of the number of shares and net loss per
share.
23
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
Effective December 31, 1998, InsWeb acquired all of the outstanding shares
of Benelytics, Inc., a developer of employee health benefits selection and
management software and reference data products. The acquisition was accounted
for using the purchase method of accounting, and accordingly, the purchase price
was allocated to the tangible and intangible assets acquired and liabilities
assumed on the basis of their respective fair values on the acquisition date.
The following unaudited pro forma consolidated statement of operations data
reflects the acquisition of Benelytics as if the acquisition had occurred on
January 1, 1998. The pro forma consolidated statement of operations data may not
be indicative of the results of operations had the acquisition actually occurred
on January 1, 1998, nor do they purport to indicate the future results of
operations of InsWeb.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
-------------------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction fees........................................................................... $ 3,152
Development and maintenance fees........................................................... 789
Other revenues............................................................................. 374
--------
Total revenues........................................................................... 4,315
--------
Operating expenses:
Product development........................................................................ 10,465(1)
Sales and marketing........................................................................ 9,147
General and administrative................................................................. 7,856
Amortization of intangible assets.......................................................... 3,129
--------
Total operating expenses................................................................. 30,597
Loss from operations......................................................................... (26,282)
--------
Other income, net............................................................................ 601
Interest income (expense), net............................................................... (1,287)
--------
Net loss..................................................................................... $ (26,968)
--------
--------
Pro forma net loss per share--basic and diluted(2)........................................... $ (1.72)
--------
--------
Shares used in computing pro forma net loss per share--basic and diluted(2).................. 15,678
--------
--------
</TABLE>
- --------------
(1) Product development costs include $5.5 million of software licenses expensed
due to InsWeb's decision not to integrate the software into its products.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations."
(2) See Note B of Notes to Consolidated Pro Forma Financial Information for a
description of the method used to compute basic and diluted net loss per
share.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITH RESPECT TO
INSWEB'S FUTURE FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE
SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THE FACTORS DESCRIBED IN
"RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS, THAT COULD CAUSE INSWEB'S
ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE CURRENTLY
ANTICIPATED.
OVERVIEW
InsWeb operates a leading online insurance marketplace that enables
consumers to shop online for a variety of insurance products, including
automobile, term life, homeowners, renters and individual health insurance, and
obtain insurance company-sponsored quotes for actual coverage. In order to
create this marketplace, InsWeb has established close relationships with more
than 35 insurance companies throughout the United States.
InsWeb was incorporated in February 1995. During 1995 and 1996, InsWeb's
operating activities principally involved the design of its online marketplace
and the development of a technology platform capable of handling the complex
processing requirements of numerous insurance companies as well as heavy volumes
of consumer traffic. From late 1996 through early 1998, InsWeb focused its
efforts on establishing relationships with leading insurance companies,
assisting them with the development of their online distribution strategies and
building custom interfaces between their information systems and InsWeb's
technology platform. In the second quarter of 1998, InsWeb initiated activities
designed to attract consumer traffic to its website, including commencing local
advertising campaigns and the establishment of strategic relationships with key
Internet portals such as Yahoo!, as well as other online businesses that are
sources of insurance shoppers, such as personal finance, automobile purchase and
mortgage origination websites. As a result of these activities, consumer visits
to the InsWeb site and completed shopping sessions (site visits in which a
consumer completes a quote form for a particular insurance product) have
increased substantially in subsequent quarters.
InsWeb's principal source of revenues is transaction fees. While quotes
obtained through InsWeb's online insurance marketplace are provided to consumers
free of charge, InsWeb's participating insurance companies pay transaction fees
to InsWeb generally based on qualified leads delivered to them electronically.
Qualified leads are produced in two ways: for insurance companies offering
consumers instant online quotes, a qualified lead is produced when a consumer
requests insurance coverage based on a specific quote; for insurance companies
providing e-mail or other offline quotes, a qualified lead is produced when the
consumer clicks to request the quote itself. In either case, transaction fees
are payable whether or not the consumer actually purchases an insurance policy
from the insurance company, and revenue from transaction fees is recognized at
the time the qualified lead is delivered to the insurance company.
InsWeb also generates development and maintenance fees from its
participating insurance companies. InsWeb charges a fee to design and develop
customized interfaces between an insurance company's information system and the
InsWeb site. Development fees are typically recognized when the insurance
company's integration with the InsWeb site becomes operational. Additional
development fees are charged as insurance companies add new products, increase
their geographic coverage and convert to instant quoting capability on InsWeb's
online insurance marketplace, as well as for periodic upgrades and changes to
insurance companies' information resident on the InsWeb site. InsWeb charges
maintenance fees for maintaining and servicing the programs of the individual
insurance companies and for maintaining any hardware at InsWeb's facility that
is dedicated to specific insurance companies. These maintenance fees are
typically payable monthly and are recognized as revenue ratably over the term of
the maintenance agreement. Prepaid development and maintenance fees are recorded
as deferred revenue until
25
<PAGE>
earned. Development and maintenance fees are expected to account for a declining
percentage of total revenues as InsWeb's online marketplace expands and
transaction fees increase.
InsWeb initially focused its efforts on developing insurance company
coverage for automobile insurance in order to be able to offer true comparative
online shopping for this important segment of the insurance market. Automobile
insurance accounted for approximately 64% of total revenues in 1997, 75% in 1998
and 84% in the six months ended June 30, 1999. Automobile insurance is expected
to continue to account for a substantial portion of InsWeb's revenues for the
foreseeable future and may continue to increase as a percentage of revenues as
transaction fees account for a greater portion of InsWeb's revenues. However,
InsWeb intends to continue to expand its online insurance marketplace by adding
new products and additional insurance companies and expects fees related to
automobile insurance to eventually decrease as a percentage of revenues as
additional insurance companies and products are brought online.
Despite the ongoing addition of new insurance companies to its online
insurance marketplace, InsWeb has been dependent on a limited number of
insurance companies for a majority of its revenues. Revenues from State Farm,
AIG and American Family accounted for approximately 31%, 12% and 11%,
respectively, of InsWeb's revenues for the six months ended June 30, 1999, and
revenues from State Farm, AIG and RelianceDirect accounted for approximately
40%, 16% and 10%, respectively, of InsWeb's revenues for the year ended December
31, 1998. InsWeb expects its revenues to become less concentrated as the Company
continues to add new insurance companies to its online insurance marketplace.
However, because of the broad market presence of some of InsWeb's participating
insurance companies, InsWeb expects to continue to generate a substantial
portion of its revenues from a limited number of insurance companies for the
foreseeable future.
Product development expenses consist primarily of payroll and related
expenses for development and technology personnel. To date, InsWeb has not
capitalized any of its software development costs. Because the timing of the
commercial release of its products has substantially coincided with their
technological feasibility, all software development costs have been expensed as
incurred. InsWeb intends to continue to expand its online insurance marketplace
by adding additional product offerings and participating insurance companies and
expects that these activities will require additional personnel. Accordingly,
InsWeb expects that its product development expenses will continue to increase
for the foreseeable future.
Sales and marketing expenses consist primarily of payroll and related
expenses for InsWeb's sales and marketing personnel as well as consumer
marketing expenditures for advertising, public relations, promotions and fees
paid to online companies with which InsWeb has relationships. InsWeb intends to
significantly increase its sales and marketing expenses in order to establish
and maintain relationships with insurance companies, attract increased consumer
traffic to the InsWeb site, and develop the InsWeb brand. InsWeb intends to
invest substantially in an integrated consumer marketing program including the
expansion and enhancement of its network of online relationships as well as
traditional offline and online advertising campaigns designed to increase
consumer awareness of InsWeb and its online insurance marketplace. At the same
time, InsWeb intends to continue to devote substantial resources to market the
InsWeb online marketplace to insurance companies, to add new insurance companies
and expand relationships with participating companies so that it can offer
consumers greater comparison shopping opportunities over an increasingly broad
selection of products.
General and administrative expenses consist primarily of payroll and related
expenses for InsWeb's management, administrative and accounting personnel,
expenses relating to site operations, professional fees and other general
corporate expenses. InsWeb expects that, in support of the continued growth of
its business and its operations as a public company, general and administrative
expenses will continue to increase for the foreseeable future.
26
<PAGE>
In order to accelerate the development of its health insurance product
offerings, InsWeb acquired Benelytics, Inc., a developer of employee health
benefits selection and management software and reference data products. The
acquisition was effective on December 31, 1998 and was accounted for using the
purchase method of accounting. Accordingly, the purchase price was allocated to
the tangible and intangible assets acquired and liabilities assumed on the basis
of their respective fair values as of the acquisition date. The total purchase
price of $8.7 million consisted of 908,561 shares and warrants to purchase an
aggregate of 12,246 shares of the Company's common stock with an estimated fair
value of approximately $8.5 million and acquisition-related expenses and assumed
liabilities. Of the total purchase price, $7.3 million was allocated to goodwill
and $1.4 million to software and other intangible assets. The goodwill will be
amortized over three years, and the other intangible assets will be amortized
over two years.
Since its inception, InsWeb has incurred significant losses, and as of June
30, 1999, InsWeb had an accumulated deficit of $55.9 million. These losses and
this accumulated deficit have resulted from the significant costs incurred in
the development of InsWeb's technology platform, the establishment of
relationships with insurance companies, their integration with the InsWeb site,
and InsWeb's marketing and sales activities. InsWeb intends to continue to
invest heavily in product development, sales and marketing and in its
administrative infrastructure. As a result, InsWeb believes that it will
continue to incur substantial operating losses for the foreseeable future.
Although InsWeb has experienced significant revenue growth in recent periods,
its operating results for future periods are subject to numerous uncertainties,
and there can be no assurance that InsWeb's revenue growth will continue or that
it will be able to achieve or sustain profitability. In view of the rapidly
evolving nature of InsWeb's business and its limited operating history, InsWeb
believes that period-to-period comparisons of its operating results are not
necessarily meaningful and should not be relied upon as an indication of future
performance.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage
of total revenues for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, JUNE 30,
--------------------------------- ---------------------
1996 1997 1998 1998 1999
---------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Transaction fees............................... 2.7% 15.4% 73.1% 64.5% 87.5%
Development and maintenance fees............... 80.4 73.6 18.3 33.7 12.4
Other revenues................................. 16.9 11.0 8.6 1.8 0.1
---------- ---------- --------- ---------- ---------
Total revenues............................... 100.0 100.0 100.0 100.0 100.0
---------- ---------- --------- ---------- ---------
Operating expenses:
Product development............................ 1,169.7 428.1 233.8 198.7 45.0
Sales and marketing............................ 810.7 422.4 207.7 367.5 145.0
General and administrative..................... 1,101.2 497.5 166.6 281.8 68.2
Amortization of intangible assets.............. -- -- -- -- 18.7
---------- ---------- --------- ---------- ---------
Total operating expenses..................... 3,081.6 1,348.0 608.1 848.0 276.9
---------- ---------- --------- ---------- ---------
Loss from operations............................. (2,981.6) (1,248.0) (508.1) (748.0) (176.9)
---------- ---------- --------- ---------- ---------
Other income, net................................ -- -- 13.9 -- --
Interest income (expense), net................... 49.0 39.1 (27.6) (20.4) (2.2)
---------- ---------- --------- ---------- ---------
Net loss......................................... (2,932.6)% (1,208.9)% (521.8)% (768.4)% (179.1)%
---------- ---------- --------- ---------- ---------
---------- ---------- --------- ---------- ---------
</TABLE>
27
<PAGE>
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
REVENUES
TRANSACTION FEES. Transaction fees accounted for $7.3 million, or 87.5%, of
total revenues for the six months ended June 30, 1999, compared to $662,000, or
64.5%, for the comparable period in 1998. This increase was the result of a
substantial increase in the number of completed shopping sessions and, to a
lesser extent, increased revenues per completed shopping session. The increase
in shopping sessions resulted from increased consumer traffic due to InsWeb's
consumer marketing activities and the addition of a substantial number of online
relationships. The increase in revenues per completed shopping session was due
to increased insurance company coverage and, to a lesser degree, increases in
the average transaction fee per qualified lead.
DEVELOPMENT AND MAINTENANCE FEES. Development and maintenance fees
accounted for $1.0 million, or 12.4%, of total revenues for the six months ended
June 30, 1999, compared to $346,000, or 33.7%, for the comparable period in
1998. The increase in development fees resulted primarily from an increased
number of participating insurance companies whose integration with the InsWeb
online insurance marketplace became operational during the six months ended June
30, 1999, compared to the comparable period in 1998. Maintenance fees increased
as a result of the expansion in the overall number of InsWeb's participating
insurance companies.
OPERATING EXPENSES
PRODUCT DEVELOPMENT. Product development expenses increased to $3.8 million
for the six months ended June 30, 1999 from $2.0 million for the comparable
period in 1998. This increase was primarily attributable to the hiring of
personnel to support the requirements of InsWeb's growing network of
participating insurance companies and online relationships and to design, test
and deploy InsWeb's expanding line of product offerings.
SALES AND MARKETING. Sales and marketing expenses increased to $12.1
million for the six months ended June 30, 1999 from $3.8 million for the
comparable period in 1998. This increase was due to substantial increases in
consumer marketing expenses, including increased costs and fees associated with
new and existing online relationships, costs related to national radio and
television campaigns, an increase in sales and marketing personnel and operating
costs associated with establishing the Company's e-Care Center to provide
additional customer service.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $5.7 million for the six months ended June 30, 1999 from $2.9 million for the
comparable period in 1998. This increase was primarily due to increased
personnel and related costs, increased office and occupancy costs associated
with additional leased office facilities and increased depreciation related to
capital expenditures.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets during
the six months ended June 30, 1999 was $1.6 million. This amount was
attributable to the acquisition of Benelytics in December 1998.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net includes income earned on InsWeb's invested
cash and expense related to its outstanding debt obligations. Net interest
expense for the six months ended June 30, 1999 was $184,000, compared to
$210,000 for the comparable period in 1998. The decrease in net interest expense
was primarily a result of the repayment of the line of credit and the investment
of the proceeds from the issuances of preferred stock.
28
<PAGE>
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
REVENUES
TRANSACTION FEES. Transaction fees increased to $3.2 million in 1998 from
$116,000 in 1997 and $7,000 in 1996. These increases were primarily due to
substantial increases in the number of completed shopping sessions and, to a
lesser extent, increased revenues per completed shopping session. The increase
in shopping sessions resulted from increased consumer traffic due to InsWeb's
consumer marketing activities that were initiated in the second quarter of 1998
and the addition of a substantial number of online relationships. The increase
in revenues per completed shopping session was due to increased insurance
company coverage and, to a lesser degree, increases in the average transaction
fee per qualified lead.
DEVELOPMENT AND MAINTENANCE FEES. Development and maintenance fees
increased to $789,000 in 1998 from $551,000 in 1997 and $199,000 in 1996. These
increases were primarily the result of increases in the number of new insurance
carriers added to the InsWeb online insurance marketplace.
OTHER REVENUES. Other revenues of $369,000 in 1998 related primarily to
fees received under a non-recurring license of software technology. Other
revenues of $83,000 and $42,000 in 1997 and 1996, respectively, related to
services which InsWeb no longer offers.
OPERATING EXPENSES
PRODUCT DEVELOPMENT. Product development expenses increased to $10.1
million in 1998 from $3.2 million in 1997 and $2.9 million in 1996. The increase
in 1998 was primarily due to the $5.5 million cost of software licenses which
were expensed due to InsWeb's decision not to integrate the software into its
products. The remainder of the increase was due to the continued hiring of
personnel to support the requirements of InsWeb's growing network of
participating insurance companies and online relationships and to design, test
and deploy InsWeb's expanding line of product offerings.
SALES AND MARKETING. Sales and marketing expenses increased to $9.0 million
in 1998 from $3.2 million in 1997 and $2.0 million in 1996. These increases were
due to a substantial increase in consumer marketing expenses, including costs
and fees associated with new online relationships, as well as an increase in
sales and marketing personnel and related costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $7.2 million in 1998 from $3.7 million in 1997 and $2.7 million in 1996.
These increases were primarily due to increased personnel and related costs,
increased office and occupancy costs and increased depreciation related to
capital expenditures.
OTHER INCOME, NET
Other income, net in 1998 represented income from the sale of assets of
InsWeb's property and casualty agents line of business, net of a $50,000
non-compete fee.
INTEREST INCOME (EXPENSE), NET
Net interest expense of $1.2 million in 1998 was due to interest paid on
increased borrowings. Net interest income in 1997 and 1996 resulted from
InsWeb's investment of proceeds received from the sale of preferred and common
stock.
29
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of
operations data for the six quarters ended June 30, 1999, and such data
expressed as a percentage of total revenues for each quarter. This information
has been derived from InsWeb's unaudited consolidated financial statements. In
management's opinion, this unaudited information has been prepared on the same
basis as InsWeb's annual consolidated financial statements and includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the information for the quarters presented. This
information should be read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this prospectus. Historical
results for any quarter are not necessarily indicative of the results to be
expected for any future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1998 1998 1998 1998 1999 1999
--------- ----------- ----------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction fees..................... $ 172 $ 490 $ 1,059 $ 1,431 $ 2,868 $ 4,456
Development and maintenance fees..... 103 243 204 239 443 599
Other revenues....................... 9 10 -- 350 -- 6
--------- ----------- ----------- --------- --------- ---------
Total revenues..................... 284 743 1,263 2,020 3,311 5,061
--------- ----------- ----------- --------- --------- ---------
Operating expenses:
Product development.................. 893 1,147 1,232 6,805 1,551 2,219
Sales and marketing.................. 1,272 2,501 2,223 2,958 3,849 8,291
General and administrative........... 1,332 1,562 1,758 2,528 2,682 3,030
Amortization of intangible assets.... -- -- -- -- 782 782
--------- ----------- ----------- --------- --------- ---------
Total operating expenses........... 3,497 5,210 5,213 12,291 8,864 14,322
--------- ----------- ----------- --------- --------- ---------
Loss from operations................... (3,213) (4,467) (3,950) (10,271) (5,553) (9,261)
--------- ----------- ----------- --------- --------- ---------
Other income, net...................... -- -- -- 600 -- --
Interest income (expense), net......... (18) (192) (370) (609) (468) 284
--------- ----------- ----------- --------- --------- ---------
Net loss............................... $ (3,231) $ (4,659) $ (4,320) $ (10,280) $ (6,021) $ (8,977)
--------- ----------- ----------- --------- --------- ---------
--------- ----------- ----------- --------- --------- ---------
AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Transaction fees..................... 60.6% 66.0% 83.8% 70.9% 86.6% 88.1%
Development and maintenance fees..... 36.3 32.7 16.2 11.8 13.4 11.8
Other revenues....................... 3.1 1.3 -- 17.3 -- .1
--------- ----------- ----------- --------- --------- ---------
Total revenues..................... 100.0 100.0 100.0 100.0 100.0 100.0
--------- ----------- ----------- --------- --------- ---------
Operating expenses:
Product development.................. 314.4 154.4 97.5 336.9 46.9 43.8
Sales and marketing.................. 447.9 336.6 176.0 146.4 116.2 163.8
General and administrative........... 469.0 210.2 139.2 125.2 81.0 59.9
Amortization of intangible assets.... -- -- -- -- 23.6 15.5
--------- ----------- ----------- --------- --------- ---------
Total operating expenses........... 1,231.3 701.2 412.7 608.5 267.7 283.0
--------- ----------- ----------- --------- --------- ---------
Loss from operations................... (1,131.3) (601.2) (312.7) (508.5) (167.7) (183.0)
--------- ----------- ----------- --------- --------- ---------
Other income, net...................... -- -- -- 29.7 --
Interest income (expense), net......... (6.3) (25.8) (29.3) (30.1) (14.1) 5.6
--------- ----------- ----------- --------- --------- ---------
Net loss............................... (1,137.6)% (627.0)% (342.0)% (508.9)% (181.8)% (177.4)%
--------- ----------- ----------- --------- --------- ---------
--------- ----------- ----------- --------- --------- ---------
</TABLE>
30
<PAGE>
InsWeb's transaction fee revenues have increased steadily over the last six
quarters, primarily as a result of continued increases in the number of
completed shopping sessions and, to a lesser extent, increased revenues per
completed shopping session. Development and maintenance revenues have increased
as a function of the addition and integration of new insurance companies to
InsWeb's online insurance marketplace but have declined as a percentage of total
revenues as consumer traffic and transaction fees have increased.
Quarterly increases in operating expenses reflected the continued expansion
of the Company's operations throughout the six-quarter period, although certain
categories of expenditures fluctuated on a quarter-to-quarter basis. The
increase in sales and marketing expenses for the quarter ended June 30, 1998
reflected the launch of InsWeb's advertising campaign and the establishment of
several key online relationships. The increase in sales and marketing expenses
for the quarter ended June 30, 1999 reflected national radio and television
campaigns, increased fees associated with new and existing online relationships
and costs associated with establishing the Company's e-Care Center. The increase
in product development costs for the quarter ended December 31, 1998 was
primarily due to the $5.5 million cost of software licenses which were expensed
due to InsWeb's decision not to integrate the software into its products. Other
income of $600,000 in the quarter ended December 31, 1998 represented the sale
of assets of InsWeb's property and casualty agents line of business, net of a
$50,000 non-compete fee. Net interest expense increased quarter-to-quarter
during 1998 as a result of increased borrowings by InsWeb. Net interest expense
decreased in the first quarter of 1999, when InsWeb repaid its outstanding
borrowings with proceeds from the issuance of preferred stock. Net interest
income increased in the second quarter of 1999 as a result of the investment of
proceeds from issuances of preferred stock in March and April 1999.
InsWeb expects to experience significant fluctuations in future quarterly
operating results due to a variety of factors, many of which are outside of
InsWeb's control. InsWeb's limited operating history and the emerging nature of
the markets in which it competes make it difficult for InsWeb to accurately
forecast its operating results. InsWeb's operating results in one or more future
quarters may fall below the expectations of securities analysts and investors,
which would almost certainly cause the trading price of InsWeb's common stock to
decline.
LIQUIDITY AND CAPITAL RESOURCES
InsWeb has financed its operations primarily through private placements of
equity securities and borrowings from an affiliate of one of its investors.
Through June 30, 1999, net proceeds from the sale of InsWeb's equity securities
totaled $85.3 million. In November 1996, InsWeb entered into a $25 million line
of credit arrangement with an affiliate of one of its investors under which it
made periodic borrowings during 1998 to fund its working capital and capital
expenditure requirements. This line of credit was reduced to $12.5 million in
May 1999. At June 30, 1999, there were no borrowings outstanding under the line
of credit, and the line of credit will terminate upon the closing of this
offering.
Net cash used in operating activities was $15.4 million in the first six
months of 1999 and $18.0 million and $8.0 million in 1998 and 1997,
respectively. In each period, the use of cash primarily consisted of InsWeb's
net loss before noncash items. In 1998, the noncash items included a loss on
software licenses of $5.5 million, $650,000 from the sale of the property and
casualty agents line of business and $350,000 of revenue from an agreement to
license software. Increases in accounts receivable and deposits, partially
offset by increases in accounts payable and accrued expenses, also contributed
to the cash used in operations in 1998 and the six months ended June 30, 1999.
31
<PAGE>
Net cash used in investing activities was $18.8 million in the first six
months of 1999 and $3.9 million and $673,000 in 1998 and 1997, respectively. For
the six months ended June 30, 1999, net cash used in investing activities
primarily consisted of the purchase of short-term investments with the proceeds
from the issuances of preferred stock. Net cash used in investing activities for
1998 and 1997 primarily consisted of investments in leasehold improvements and
purchases of equipment and furniture.
Net cash provided by financing activities was $35.5 million in the first six
months of 1999 and $27.9 million and $4.2 million in 1998 and 1997,
respectively. Net cash provided by financing activities during the six months
ended June 30, 1999 primarily consisted of net proceeds of $56.3 million from
the issuance of preferred stock, offset by the repayment of $19.3 million in
borrowings under the line of credit. Net cash provided during 1998 primarily
consisted of $19.3 million in net borrowings under the line of credit and $8.0
million in proceeds from the issuance of preferred stock. Net cash provided
during 1997 primarily consisted of net proceeds of $4.2 million from the
issuance of preferred stock.
At June 30, 1999, InsWeb's principal sources of liquidity were $9.7 million
in cash and cash equivalents, $15.8 million in short-term investments and $12.5
million available under its line of credit, which will terminate upon the
closing of this offering.
InsWeb had no material commitments for capital expenditures at June 30, 1999
but expects such expenditures to total approximately $3.8 million in 1999. Such
expenditures will primarily be for equipment, software, furniture and leasehold
improvements. InsWeb also has total minimum lease obligations of $23.1 million
through September 2008 under noncancelable operating leases. In addition, InsWeb
is obligated to make minimum payments totaling $10.3 million through April 2001
under various marketing agreements.
InsWeb currently anticipates that its balances of cash and cash equivalents
and short-term investments, together with the net proceeds of this offering and
cash generated by its operations, will be sufficient to meet its anticipated
cash needs for working capital and capital expenditures for at least the next 12
months. InsWeb may require additional capital prior to the end of this period
if, for example, it were to experience greater than expected losses from
operations or if it were to pursue one or more business acquisitions or
investments. InsWeb cannot be certain that additional financing will be
available when required, on favorable terms or at all. If InsWeb is not
successful in raising additional capital as required, its business could be
materially harmed. If additional funds are raised through the issuance of equity
securities, the percentage ownership of InsWeb's then-current stockholders would
be reduced.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued Statement of Position No. 98-1,
ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL
USE, or SOP 98-1. SOP 98-1 provides guidance on accounting for the costs of
computer software developed or obtained for internal use and defines specific
criteria that determine when such costs are required to be expensed and when
they may be capitalized. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. Accordingly, InsWeb will adopt SOP 98-1 for its financial
statements for the year ending December 31, 1999. Management does not believe
that the adoption of SOP 98-1 will have a material effect on InsWeb's results of
operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES, or SFAS No. 133. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and hedging activities. SFAS No.
133 is effective for fiscal years beginning after June 15, 1999.
32
<PAGE>
Management does not believe that the adoption of SFAS No. 133 will have a
material effect on InsWeb's results of operations or financial condition.
YEAR 2000 READINESS
Year 2000 issues may adversely affect our business. Many existing computer
programs and installed computer systems include computer code that uses only two
digits to identify a year. These systems could fail to function or produce
delayed or erroneous results if they interpret "00" to mean 1900 rather than
2000. As a result of this problem, commonly referred to as the "year 2000"
problem, older computer programs or systems may need to be upgraded or replaced.
Any year 2000-related failure of InsWeb's internal systems, the systems that
carry Internet traffic on InsWeb's online marketplace or those of insurance
companies or online companies with which it has relationships could harm its
business.
InsWeb has implemented a year 2000 program to review and assure the year
2000 readiness of InsWeb's information technology, or IT, systems, which consist
of a combination of internally-developed software and third-party software and
hardware. The year 2000 program is being run by a year 2000 team led by members
of InsWeb's senior management and technical staff.
InsWeb has internally developed most of the systems used in the operation of
its online insurance marketplace and believes that its internally-developed
software is year 2000 compliant. These systems include software used to
interconnect InsWeb with the IT systems of its participating insurance companies
and software that runs InsWeb's consumer interaction and transaction processing
functions. InsWeb has completed its assessment of these systems and is in the
process of addressing the limited remediation issues identified during that
phase. InsWeb expects to complete all remediation and testing work on these
systems before the end of the third quarter of 1999.
InsWeb is also assessing the year 2000 readiness of its third-party-supplied
hardware and software. The failure of such software and systems to be year 2000
compliant could adversely impact InsWeb's internal business functions as well as
the operation of its website. As part of its assessment program, InsWeb has
contacted third-party vendors and licensors of software and computer technology
to seek their assurance that their products and services are year 2000
compliant. InsWeb has been informed by the vendors of InsWeb's material
third-party software and hardware components that the products being used by
InsWeb are year 2000 compliant. The assessment process was substantially
completed during the first quarter of 1999. InsWeb expects to fix or replace any
noncompliant components before the end of the third quarter of 1999.
In addition, InsWeb is performing full end-to-end testing of all key
business functions in a closed, simulated operating environment each calendar
quarter to ensure that hardware and software systems previously verified to be
year 2000 compliant maintain such compliance as changes are made to these
systems.
To date, InsWeb has not incurred any material expenditures in connection
with the assessment of its year 2000 readiness and related remediation. Most of
its expenses have consisted of personnel costs that have been incurred since
October 1998 and have been expensed as incurred. The total expenses associated
with the completion of InsWeb's assessment program and any further remediation
that may be required is inherently difficult to determine, although InsWeb
currently expects that the total amount of such expenses will be approximately
$700,000.
The year 2000 readiness of the general infrastructure necessary to support
InsWeb's operations is difficult to assess. For instance, InsWeb depends on the
integrity and stability of the Internet to provide its services. InsWeb also
depends on the year 2000 compliance of the computer systems used by insurance
companies and online companies with which it has relationships as well as the
33
<PAGE>
computer networks and services used by consumers who seek to use InsWeb's online
marketplace. Thus, the infrastructure necessary to support InsWeb's operations
consists of a network of computers and telecommunications systems located
throughout the United States and operated by numerous unrelated entities and
individuals, none of which has the ability to control or manage the potential
year 2000 issues that may impact the entire infrastructure. InsWeb's ability to
assess the reliability of this infrastructure is limited and is based solely on
generally available news reports, surveys and similar industry data. Based on
these sources, InsWeb believes that most entities and individuals that rely
significantly on the Internet are carefully reviewing and attempting to
remediate issues relating to year 2000 compliance, but it is not possible to
predict whether these efforts will be successful in reducing or eliminating the
potential negative impact of the year 2000 problem. A significant disruption in
the ability of consumers to reliably access the Internet or portions of it would
have an adverse effect on demand for InsWeb's services and would harm its
business.
InsWeb believes that its most reasonably likely worst-case scenarios related
to the year 2000 problem are:
- a significant year 2000 problem encountered by one or more of InsWeb's key
participating insurance companies whose systems are linked electronically
to InsWeb's online insurance marketplace, which could result in such
companies' quotes being unavailable on the online marketplace, or in the
inability of such companies to respond to consumers' requests for
coverage;
- a significant year 2000 problem encountered by one or more online
companies with which InsWeb has a relationship, which could result in a
material reduction in consumer traffic to InsWeb's online insurance
marketplace; or
- a failure of or degradation in performance due to year 2000 issues
encountered by a substantial proportion of the systems that carry Internet
traffic, which could adversely affect traffic to and performance of
InsWeb's website.
InsWeb's contingency plan in the event of a significant problem on the part
of a participating insurance company is to remove that company from the online
marketplace until the problem is addressed. InsWeb has not yet developed and
does not intend to develop contingency plans to address its other potential
worst-case scenarios because, in the case of its own systems, it believes such
systems are year 2000 compliant, and, in the case of systems of online companies
with which InsWeb has relationships and the systems that carry Internet traffic,
it knows of no practical way to overcome a failure of such a system that
materially affects the operation of the online marketplace. Any year
2000-related failure of the mission-critical systems of InsWeb, or any insurance
companies or online companies with which InsWeb has relationships or a failure
of a substantial proportion of the systems that carry Internet traffic could
result in a significant slowdown in the rate at which traffic is transmitted to
or from InsWeb's website, a reduction in the traffic that is directed to
InsWeb's website by other online companies, or a temporary shut-down of its
online marketplace, any of which could materially harm InsWeb's business.
34
<PAGE>
BUSINESS
InsWeb operates a leading online insurance marketplace that enables
consumers to shop online for a variety of insurance products, including
automobile, term life, homeowners, renters and individual health insurance, and
obtain insurance company-sponsored quotes for actual coverage. InsWeb's
marketplace capitalizes upon the advantages of the Internet to directly link
consumers and insurance companies, providing consumers with the insurance they
need and insurance companies with the customers they want. InsWeb has combined
extensive knowledge of the insurance industry, technological expertise and close
relationships with more than 35 insurance companies to develop a sophisticated,
integrated online delivery platform. InsWeb's platform enables consumers to
efficiently research insurance-related topics, search for, analyze and compare
insurance products and apply for and receive insurance company-sponsored quotes
for actual coverage. In addition, InsWeb provides insurance companies with a
flow of pre-qualified consumers at substantially lower acquisition costs as well
as the scalable, cost-efficient distribution capabilities of InsWeb's
Internet-based model.
INDUSTRY BACKGROUND
ELECTRONIC COMMERCE
The Internet has emerged as a global medium for communication, information
and commerce. International Data Corporation estimates that there were 142
million Internet users worldwide at the end of 1998 and anticipates this number
will grow to approximately 399 million users by the end of 2002. The Internet
possesses a number of unique characteristics that differentiate it from
traditional media and methods of commerce:
- users are able to quickly and easily communicate or access information
without geographic or temporal limitations;
- companies can more cost-effectively and efficiently reach and serve a
large and global group of customers electronically from a central
location;
- companies can provide personalized, low-cost and real-time customer
interaction;
- users enjoy greater convenience and privacy and face less sales pressure;
- users can access a vast amount of information regarding the pricing,
quality and specifications of products and services; and
- companies can easily obtain demographic and behavioral data about
customers, increasing opportunities for direct marketing and personalized
services.
As a result of these unique characteristics and the Internet's growing
adoption rate, businesses have a tremendous opportunity to conduct commerce over
the Internet. International Data Corporation estimates that commerce over the
Internet will increase from approximately $50 billion worldwide in 1998 to
approximately $734 billion in 2002. While many companies initially focused on
facilitating and conducting transactions between businesses over the Internet,
more recently, companies have increasingly used the Internet for a wide variety
of consumer transactions, beginning with the distribution of commodity products,
including books, CDs and videocassettes. As consumers have begun to recognize
the advantages of electronic commerce and have become more comfortable with the
reliability and security of the Internet, companies have begun to offer more
complex products and services online. This trend has continued with the
proliferation of online financial services, beginning with comparatively simple
electronic banking transactions, progressing in complexity to stock trading and
mortgage lending and more recently extending to insurance products and services.
35
<PAGE>
THE TRADITIONAL MARKET FOR INSURANCE IN THE UNITED STATES
According to A.M. Best, in 1997 the insurance market in the United States
totaled more than $800 billion of direct premiums written. Approximately half of
this market consists of personal insurance products such as automobile,
homeowners, term life and health insurance, which are sold to consumers by
insurance companies that compete, state-by-state, primarily on the basis of
price and service. Insurance companies have traditionally used one of three
separate and distinct distribution channels to market their products and
services: independent agents, exclusive agents and direct marketing.
Until the 1970s, the distribution of insurance products was dominated by
independent agents, who solicited and sold insurance on behalf of a broad array
of companies from which they received commissions. Historically, these agents
were able to offer consumers the ability to comparison shop by providing access
to information regarding policies available from multiple companies who
accounted for a substantial majority of the policies being sold at that time.
According to Conning and Company, Inc., however, the market share of independent
agency-based insurance companies for the sale of personal lines of insurance
decreased to 53% by 1972 and to 33% by 1996. Insurance companies representing
the remainder of the market distribute their products either through exclusive
agents, who offer only one company's products, or directly to consumers through
mass marketing techniques such as direct mail and telephone solicitation.
The fragmentation of the insurance industry into independent agent,
exclusive agent and direct distribution channels has made comparison shopping
across a broad range of insurance companies an extremely difficult and
frustrating experience for the consumer. Because of this fragmentation, there is
no single source where consumers can access information regarding the products
and services of a competitive sample of insurance companies. In addition, many
insurance products are complex and combine coverage for multiple risks, making
it difficult for the consumer to compare products on an "apples-to-apples"
basis. Price variability among insurance carriers is often significant. For
example, publicly-filed insurance rates posted on the California Department of
Insurance website in June 1999 show that, within some of the major metropolitan
areas in California, for the same consumer, there was up to a 160% price
differential for homeowners insurance premiums, a 408% differential for
automobile insurance premiums and a 415% differential for renters insurance
premiums. Consumers are often unaware of the extent of this potential price
variability because effectively comparing quotes requires them to undertake the
difficult and time-consuming task of separately contacting several companies and
agents, filling out multiple applications and facing repeated sales pressure,
with no guarantee of achieving their objective of a meaningful comparison.
For insurance companies, regardless of the distribution channel they employ,
the cost of acquiring and servicing customers remains a substantial expense and
reduces profitability. Just finding the customers who fit within the company's
specific targeted risk profiles is a very expensive and time-consuming process,
requiring inefficient advertising and marketing techniques that necessarily
target an overly broad range and large number of potential customers. Once these
customers are identified, significant additional resources are usually required
to effect a sale.
The combination of these factors has led to an inefficient market that
benefits neither the consumer nor the insurance company. Prices are high,
comparison shopping is extremely difficult and the substantial costs of customer
acquisition and servicing continue to put pressure on profitability.
MARKET OPPORTUNITY FOR ONLINE INSURANCE
According to Forrester Research, the market penetration for sales of
personal insurance products which are researched and selected online, but
purchased through any distribution channel, is expected to grow from $1.5
billion of personal insurance sales in 1998 to over
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$11.1 billion in 2003, an annual growth rate of 49%. Insurance products are
ideally suited to an Internet-based distribution and servicing model for the
following reasons:
- insurance products are information-based, thus requiring no physical
delivery or warehousing;
- complex insurance products can be made more understandable through readily
accessible supporting information and glossaries;
- through a single medium, consumers can access information regarding, and
compare the products of, insurance companies using any of the three
traditional distribution channels;
- consumers can compare the terms, conditions and exact coverages of various
insurance products at their own pace, without sales pressure;
- customer data can be efficiently captured through a website, allowing
real-time automated underwriting and streamlined overall processing; and
- insurance companies can reduce the high costs associated with distribution
and servicing through traditional channels.
The Internet can be used in a variety of ways to provide consumers with an
accessible source of pricing and explanatory information on insurance products
and services and provide insurance companies with a cost-effective means of
acquiring and servicing customers. To date, most efforts at using the Internet
to achieve these objectives have employed one of the following three models,
none of which fully capitalizes upon the inherent advantages of Internet-based
distribution:
- SINGLE INSURANCE COMPANY WEBSITE. Many insurance companies have
implemented their own proprietary websites to provide quotes and services.
These websites can be convenient for consumers and allow potential cost
savings for insurance companies; however, they typically provide no
comparative shopping opportunity for the consumer and each insurance
company is required to bear all of the initial and ongoing technology and
marketing costs related to its website.
- WEB-BASED INFORMATION DELIVERY. Several companies have established
websites that utilize publicly available rate data from generic filings
made by insurance companies with state regulators to provide estimated
quotes for a number of insurance companies. While offering online access
to information and the appearance of comparison shopping and requiring no
involvement on the part of insurance companies, this model affords no real
online transactional capability. The estimated quotes may differ
significantly from the price of any coverage actually offered by the
insurance companies, and some companies for whom estimated quotes are
given may not be willing to insure the consumer at all. In any case, the
consumer must still go through the tedious process of completing separate
applications for each insurance company in order to receive an actual
quote.
- WEB-ASSISTED AGENCY DISTRIBUTION. A third online model provides an
Internet-based distribution channel for traditional insurance agencies.
This model allows some limited comparison shopping and requires minimal
investment on the part of the agency. However, like the information
delivery model described above, the quotes provided are estimates that
have not been approved by the insurance company and the consumer must work
through the traditional agency process to receive a firm quote. In
addition, the consumer does not have access to the products of insurance
companies that choose not to distribute their products through independent
agents, which represent approximately two-thirds of the personal insurance
market. Because the agencies must process applications in the traditional
way and must add additional personnel to process additional applications,
there is little opportunity to use technology to reduce costs.
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InsWeb believes that, while each of these models brings some benefits to
consumers and insurance companies, none adequately capitalizes on the powerful
advantages of the Internet. In order to accomplish this, InsWeb believes that a
model is needed that directly links consumers and insurance companies, allowing
consumers to compare insurance company-sponsored quotes for actual coverage from
a variety of companies on an apples-to-apples basis and enabling insurance
companies to take full advantage of the cost-saving potential of the Internet.
THE INSWEB SOLUTION
InsWeb has developed an online marketplace for insurance products and
services that fully capitalizes upon the advantages of the Internet to directly
link consumers and insurance companies, providing consumers with the insurance
they need and insurance companies with the customers they want. InsWeb has
combined extensive knowledge of the insurance industry, technological expertise
and close relationships with a broad array of insurance companies to develop a
sophisticated, integrated online delivery platform. InsWeb's platform enables
consumers to efficiently research insurance-related topics, search for, analyze
and compare insurance products and apply for and receive insurance
company-sponsored quotes for actual coverage. In addition, InsWeb provides
insurance companies with a flow of pre-qualified consumers at substantially
lower acquisition costs as well as an Internet-based model that is largely
automated and therefore cost-efficient and scalable, allowing substantial
increases in the number of transactions on the online marketplace with minimal
increases in costs.
BENEFITS TO CONSUMERS
ONE-STOP COMPARISON SHOPPING FOR MULTIPLE PRODUCTS. InsWeb provides an
online marketplace through which consumers can choose among products offered by
insurance companies using all three traditional distribution channels. To date,
InsWeb has developed relationships with 38 leading insurance companies
throughout the U.S. A consumer shopping for an insurance product at InsWeb's
online marketplace can receive quotes from InsWeb's participating insurance
companies who offer the product in the consumer's state. Consumers can receive
quotes for automobile, homeowners/renters, individual health and term life
insurance products in an unbiased marketplace in which consumers make their own
decisions based on the reputation of the insurance company, the level of
coverage and the price of the product being offered. Consumers save time, effort
and money by avoiding the need to contact and complete applications with
multiple insurance companies and agents.
ACCURATE, INSURANCE COMPANY-SPONSORED QUOTES. InsWeb works directly with
participating insurance companies to automate their data capture--I.E., the
processes by which they receive consumer data; filtering--I.E., the evaluation
of consumer data to determine which consumers they are willing to insure;
rating--I.E., determining a price quote based on a consumer's data; and quote
generation--I.E., electronic presentation of price quotes to consumers. As a
result, InsWeb provides consumers accurate, insurance company sponsored quotes
for actual insurance coverage. By contrast, the quotes provided by most online
quotation and information services are estimated from insurance companies'
public rate filings, and consumers using these services may find their actual
premium to be significantly different from the initial quote they received, if
the quoted company is willing to insure them at all. InsWeb believes that online
consumers expect accurate quotes for actual coverage and is committed to working
directly with insurance companies to meet that expectation.
EASE OF USE. InsWeb offers consumers who want to purchase insurance a
variety of helpful information in an easy-to-use format. At the click of a
mouse, consumers can access educational materials on insurance, including
answers to frequently asked questions, a glossary, informative articles and
ratings of insurance companies. InsWeb also provides its customers with
interactive website features to assist them in analyzing the type and amount of
insurance coverage that is
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most suitable for their needs. InsWeb enables consumers to update and store
their profiles after each interaction, so that repeated visits are more
productive.
CONVENIENCE AND CONTROL. InsWeb provides consumers with the convenience of
shopping from home or office, 24 hours a day, 7 days a week. InsWeb rapidly
responds to consumer inquiries with insurance company-sponsored quotes. InsWeb's
technology and systems are designed to seamlessly and automatically feed the
consumer's data to the insurance company, helping minimize the time and effort
required to consummate a transaction. Through InsWeb's online tools and
analyzers, consumers can assess and manage their insurance needs on their own.
Consumers do not face any sales pressure and may proceed at their own pace,
knowing that their information will be safely and privately stored by InsWeb so
that future sessions can be conducted without the need to reenter the
information. InsWeb is a member of the Online Privacy Alliance and a licensee of
the TRUSTe Privacy Program and adheres to their standards regarding the
protection of the confidential information of online consumers. See "--Privacy
Policy."
BENEFITS TO INSURANCE COMPANIES
LOWER COSTS OF CUSTOMER ACQUISITION AND SERVICE. InsWeb's sophisticated,
integrated technology platform allows each insurance company to offer its
products online regardless of the traditional distribution channel that the
company employs. The information systems of InsWeb's participating insurance
companies are closely integrated with InsWeb's website, enabling them to fully
capitalize on the advantages of its Internet-based distribution model. Because
consumers are pre-screened, insurance companies do not waste resources on
unqualified applicants. In addition, the efficiency and scalability of InsWeb's
Internet-based distribution model allows insurance companies to screen and
underwrite additional customers at minimal marginal cost. For insurance
companies that utilize agents, InsWeb frees up agent time and resources for more
productive, value-added uses, such as closing business and servicing customers.
ENHANCED ACCESS TO NEW QUALIFIED CUSTOMERS. InsWeb enables insurance
companies to take advantage of the Internet as part of their strategy to
accelerate growth and improve their market share. InsWeb provides insurance
companies with a flow of new customers that have been pre-screened based on each
company's unique selection criteria. By participating in InsWeb's online
insurance marketplace, insurance companies gain access to a growing population
of technology-oriented consumers who are increasingly turning to the Internet as
a preferred means of researching and purchasing products and services. InsWeb
offers insurance companies the ability to benefit from the growth of the
Internet and changes in consumer purchasing behavior, as well as improve their
competitive position in attracting desirable new customers.
RAPID MARKET FEEDBACK. InsWeb's advanced technology platform enables
insurance companies to obtain rapid feedback on their comparative performance
within the InsWeb insurance marketplace. This information allows insurance
companies to more quickly and easily adjust their product offerings to add or
remove particular products, change product features, adjust underwriting
criteria and distribute current information to prospective customers. InsWeb
believes that this access to market feedback offers its participating insurance
companies a competitive advantage over other insurance companies.
IMPROVED UNDERWRITING PROFITABILITY AND PRODUCT INNOVATION. Through InsWeb,
insurance companies can acquire and service customers at lower costs. Reduced
customer acquisition and servicing costs enable insurance companies to
underwrite their existing products more profitably and potentially to expand
their product offerings, since reduced costs may allow them to profitably
underwrite more and varied risks. In addition, InsWeb's database of consumer
information and behavior provides insurance companies with the ability to more
frequently and easily evaluate the comparative attractiveness of their existing
products, as well as the potential means to develop new products focused on
previously unknown or unreachable market opportunities.
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INSWEB'S STRATEGY
InsWeb's strategy is to capitalize upon its expertise, technology and
relationships to provide the leading online insurance marketplace for consumers
and insurance companies. The key elements of InsWeb's strategy include:
ENHANCE THE COMPARATIVE SHOPPING EXPERIENCE FOR CONSUMERS. InsWeb's
objective is to provide consumers and small businesses with a comprehensive
selection of insurance products and services. To achieve this objective, InsWeb
intends to:
- add additional insurance companies to the InsWeb online insurance
marketplace;
- increase the number of states where its participating insurance companies
offer coverage online;
- work with its participating insurance companies to expand the products and
services they offer through the InsWeb online insurance marketplace;
- work with both new and existing insurance companies to offer consumers
more instant online quotes;
- offer products and services to small businesses; and
- expand its geographic coverage outside of the United States.
While expanding its products and services, InsWeb intends to continue to provide
the highest quality customer service and to enhance the overall user experience
on its website.
BUILD STRONG RELATIONSHIPS AND EXTENSIVE TECHNOLOGY INTEGRATION WITH
INSURANCE COMPANIES. InsWeb believes that its combination of extensive
technology integration, industry expertise and strong relationships with
insurance companies provides significant competitive advantages. Integrating
each insurance company into the InsWeb platform presents unique technical and
operational challenges and, therefore, requires a close working relationship
between the insurance company and InsWeb. Following the development process,
InsWeb's implementation and technology teams continue to work closely with each
insurance company on an ongoing basis to integrate InsWeb's infrastructure with
each insurance company's systems. InsWeb responds to each insurance company's
unique needs for integration and program development by offering a full array of
services, from software integration to change management and electronic commerce
strategy development. InsWeb also provides insurance companies with performance
feedback through its extensive consumer and transaction database. InsWeb intends
to continue to strengthen its relationships with participating insurance
companies and to work closely with newly added insurance companies to integrate
their systems with its infrastructure.
REDUCE CUSTOMER ACQUISITION AND SERVICING COSTS. InsWeb intends to continue
to develop technology-based solutions aimed at reducing the overall customer
acquisition and servicing costs of insurance companies. By focusing on the
continued development of its fully integrated, scalable technology platform,
InsWeb intends to enable insurance companies to better target and reach
prospective customers and realize economies of scale not attainable through
traditional insurance distribution channels or other Internet-based distribution
models. By continually incorporating and upgrading fully automated processes for
data capture and delivery, filtering, rating and quote generation, InsWeb
believes that it can significantly reduce customer acquisition costs. InsWeb
intends to continue to work with insurance companies in exploring additional
ways to utilize the InsWeb platform to further reduce the costs associated with
acquiring and servicing customers.
LEVERAGE ITS TECHNOLOGY PLATFORM AND EXTENSIVE CONSUMER DATABASE. InsWeb
has invested significant resources to develop and deploy its technology
platform, as well as its extensive
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consumer and transaction database. InsWeb intends to leverage these assets to
enhance the breadth and value of its product and service offerings.
Specifically, InsWeb intends to:
- leverage its technology platform and consumer database to create
opportunities for insurance companies to expand their product offerings;
- continue to license its technology to selected insurance companies and
financial institutions to allow these companies to provide quoting
functionality on their websites;
- continue to provide insurance companies with rapid market feedback on new
product configurations and market performance; and
- leverage its technology platform to provide additional services to
consumers and insurance companies.
EXPAND BRAND AWARENESS AND PRESENCE. InsWeb intends to continue to use both
offline and online marketing campaigns to maximize consumer awareness and
enhance its brand recognition. InsWeb's objective is to become the preferred
online marketplace for insurance products and services. InsWeb will continue to
carefully target online companies with strong market reach, such as major
portals, as well as online companies that are a likely source of insurance
shoppers, such as personal finance, automobile purchase or mortgage origination
websites. Where appropriate, InsWeb intends to form co-branded relationships
with full or limited InsWeb functionality.
THE INSWEB ONLINE INSURANCE MARKETPLACE
The InsWeb online insurance marketplace is a Web-based marketplace that
links consumers directly with insurance companies and enables comparison
shopping for insurance coverage in a convenient and pressure-free environment.
Consumers visiting the InsWeb online insurance marketplace can receive insurance
company-sponsored quotes for actual coverage for a variety of insurance
products, and also can use a variety of InsWeb's interactive website features
and insurance-related information to assist them in determining the type and
amount of insurance coverage that is most suitable for their needs. Consumers
can also access their personal insurance profile, allowing them to retrieve
insurance information stored during previous visits.
THE QUOTE GENERATION AND PURCHASE PROCESS
The quote generation and purchase process involves the following steps:
- data entry by the consumer;
- electronic filtering of the consumer's data;
- electronic rating and generation of price quotes;
- presentation of quotes to the consumer;
- delivery of leads to the insurance companies; and
- subsequent purchase of the insurance policy.
Quotes obtained through the online marketplace are free to consumers, while
participating insurance companies pay transaction fees to InsWeb generally based
on the delivery of qualified leads.
DATA ENTRY. To initiate a shopping session, a consumer completes an online
form that requests information such as the consumer's age, address and coverage
requirements, a process that InsWeb estimates takes approximately 10 to 25
minutes, depending on the type of insurance sought and the complexity of the
consumer's profile. The quote form captures a comprehensive set
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of information designed to address each of the participating insurance
companies' filtering and rating criteria. To assist consumers in evaluating and
fulfilling their insurance needs, InsWeb provides consumers a variety of
interactive website features and insurance-related information. In addition,
InsWeb provides online help throughout the data entry process. The consumer is
required to complete only one form to obtain quotes for a particular type of
insurance from all participating companies offering that type of insurance in
the consumer's state. Throughout the data entry process, consumers are presented
with the option of saving their data into their personal insurance profile.
Consumers who are returning to the online marketplace can simply enter their
user name and password to retrieve information they entered during previous
visits. This information can be used to automatically complete portions of the
quote form for other insurance products. Because the information insurance
companies use to filter, rate and provide quotes to a consumer is entered
directly by the consumer, the companies can reduce or eliminate the expense
associated with collecting consumer data. Moreover, information entered directly
by consumers typically contains fewer errors than information provided orally to
an agent or insurance company representative, who must then enter that
information manually into the insurance company's system.
FILTERING. InsWeb's filtering software uses criteria set by each
participating insurance company to analyze a consumer's data and determine
whether it fits within the company's targeted risk profiles. InsWeb's system can
provide rapid feedback to an insurance company regarding the impact that a
particular filter is having on the number of leads being directed to that
company, and also permits individual filters to be easily added or removed.
Electronic filtering eliminates the expense of screening and quoting risks that
an insurance company ultimately may not want to underwrite. Electronic filtering
also ensures that consumers are only presented with quotes from companies who
are interested in doing business with them. For a consumer who is not offered
coverage by an insurance company, no quote from that company is presented, thus
preserving the insurance company's opportunity to do business with the consumer
in the future.
RATING. InsWeb's rating process compares a consumer's data against criteria
used in an insurance company's underwriting process to generate insurance
company-sponsored quotes. InsWeb integrates each of its participating insurance
companies' rating criteria into its online marketplace through one of several
rating solutions, depending on the company's preference. These solutions
include:
- a customized interface between InsWeb's site and the company's own rating
engine, which may be housed on the company's legacy system or at InsWeb's
facility;
- an interface between InsWeb's site and a third-party rating engine of the
company's choice; or
- an integration of the company's rating criteria into one of InsWeb's
proprietary rating engines.
In each case, the rating process is developed in close cooperation with the
insurance company.
PRESENTATION OF QUOTES. After a consumer has completed the form for a
particular product and requested quotes, the consumer is presented with a "quote
pad." The quote pad contains the logos of insurance companies interested in
providing quotes, along with prices for the companies offering instant quotes.
The quote pad also informs the consumer which companies will provide quotes on a
delayed basis, either via e-mail, mail or telephone. The response method varies
among insurance products and companies. Currently, substantially all term life
and health quotes are provided through instant quotes, while most quotes for
automobile insurance are delivered by e-mail. InsWeb is working with its
participating insurance companies to increase implementation of instant quoting
capability.
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DELIVERY OF LEADS. InsWeb's participating insurance companies pay
transaction fees to InsWeb generally based on the delivery of qualified leads.
Qualified leads are produced in two ways: for insurance companies providing
instant online quotes, a qualified lead is produced when a consumer clicks to
request insurance coverage based on a specific quote; for insurance companies
providing e-mail or other offline quotes, a qualified lead is produced when a
consumer clicks to request the quote itself. In either case, InsWeb is paid a
transaction fee whether or not the consumer actually purchases a policy. Once a
lead is generated by the consumer's request for an application or offline quote,
InsWeb transmits the lead to the selected insurance company by e-mail, file
transfer or direct connection to the insurance company's information system.
InsWeb provides each participating insurance company with custom-formatted lead
information based on the company's individual requirements.
PURCHASE OF POLICY. After InsWeb generates and delivers a qualified lead,
insurance companies may respond directly to the interested consumer by e-mail,
mail or telephone to close the purchase of the policy or direct the lead to an
agent for follow-up. This portion of the transaction does not require further
involvement by InsWeb, although InsWeb monitors insurance company responses and
works with companies and agents to ensure that they are responding to leads
generated from the online insurance marketplace in a timely fashion.
CUSTOMER CARE. InsWeb provides assistance to consumers throughout the data
entry, quote-generation, delivery and purchase process through embedded help
icons, which link to explanations of the various steps in the process and
through e-mail support. InsWeb is currently developing its e-Care Center to
provide additional help to consumers working through the process of shopping for
insurance online. The e-Care Center will provide additional consumer assistance
through real-time chat and live telephone support. InsWeb expects to make the
initial services of the e-Care Center available to consumers in the summer of
1999.
PRODUCT LINES
Insurance companies participating in InsWeb's online insurance marketplace
offer automobile, term life, homeowners, renters, and individual health
insurance, as well as motorcycle insurance, and fixed annuities. The following
table shows information with respect to the principal product lines currently
offered on InsWeb's marketplace.
<TABLE>
<CAPTION>
INSWEB ONLINE MARKETPLACE
U.S. MARKET -------------------------------------
-------------------- PARTICIPATING
ANNUAL PREMIUMS IN INSURANCE
PRODUCT LINE 1997 STATES COVERED COMPANIES
- ----------------------------------- -------------------- ------------------ -----------------
<S> <C> <C> <C>
Private Automobile................. $ 116 billion(1) 49 plus D.C. 22
Term Life.......................... $ 14 billion(2) 50 plus D.C. 13
Individual Health.................. $ 71 billion(3) 41 plus D.C. 7
Homeowners/Renters................. $ 29 billion(1) 48/50 plus D.C. 4/3
</TABLE>
-------------------------------
(1) Source: A.M. Best, AGGREGATES AND
AVERAGES--PROPERTY-CASUALTY, 1998.
(2) Estimated based on information obtained from: A.M. Best,
AGGREGATES AND AVERAGES--LIFE-HEALTH, 1998; LIMRA
International, Inc.
(3) Estimated based on information obtained from: A.M. Best,
AGGREGATES AND AVERAGES--PROPERTY-CASUALTY,--LIFE-HEALTH
AND--HMO, 1998.
AUTOMOBILE INSURANCE. Automobile insurance comprises the largest segment of
the consumer insurance market, and, to date, has accounted for most of the
consumer traffic on InsWeb's online marketplace and a substantial majority of
its revenues. InsWeb believes that, for the
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foreseeable future, most of its consumer traffic will continue to be generated
by prospective purchasers of automobile insurance. The number of automobile
insurance companies participating in the InsWeb online marketplace has grown
rapidly; since January 1997, the number of participating insurance companies has
grown from two to 22. The following table shows, as of June 30, 1999, the
percentage of the U.S. population residing in states where at least two
companies offer automobile insurance quotes on the InsWeb online marketplace:
<TABLE>
<CAPTION>
PERCENTAGE OF U.S. POPULATION
NUMBER OF COMPANIES RESIDING IN STATES AND
OFFERING AUTO QUOTES NUMBER OF STATES JURISDICTIONS COVERED
- ------------------------------------------- ----------------- -------------------------------
<S> <C> <C>
2 or more.................................. 43 plus D.C. 89.5%
3 or more.................................. 33 77.5%
4 or more.................................. 21 64.5%
5 or more.................................. 13 47.3%
</TABLE>
TERM LIFE INSURANCE. InsWeb began offering term life insurance quotes in
April 1996 through a single insurance company. The InsWeb online marketplace
currently offers comparative quotes for term life insurance from five or more
companies in 49 states plus D.C. The following table shows, as of June 30, 1999,
the percentage of the U.S. population residing in states where at least five
companies offer term life insurance quotes on the InsWeb online marketplace:
<TABLE>
<CAPTION>
PERCENTAGE OF U.S. POPULATION
NUMBER OF COMPANIES RESIDING IN STATES AND
OFFERING TERM LIFE QUOTES NUMBER OF STATES JURISDICTIONS COVERED
- ------------------------------------------- ----------------- -------------------------------
<S> <C> <C>
5 or more.................................. 49 plus D.C. 93.2%
6 or more.................................. 49 plus D.C. 93.2%
7 or more.................................. 48 plus D.C. 92.8%
8 or more.................................. 43 plus D.C. 86.1%
</TABLE>
INDIVIDUAL HEALTH INSURANCE. InsWeb began offering individual health
insurance quotes in August 1998. Individual health insurance is available in the
form of preferred provider organization plans, health maintenance organization
plans and traditional indemnity plans. The InsWeb online marketplace currently
offers quotes for individual health insurance from at least one insurance
company in 41 states plus D.C. (representing 73.8% of the population) and two
insurance companies in 20 states (representing 40.1% of the population).
HOMEOWNERS/RENTERS INSURANCE. InsWeb began offering homeowners and renters
insurance quotes in July 1998. The InsWeb online marketplace currently offers
quotes for homeowners insurance from at least one insurance company in 48 states
plus D.C. (representing 96.5% of the population), two or more insurance
companies in 30 states plus D.C. (representing 48.3% of the population) and
three or more insurance companies in 16 states (representing 31.1% of the
population). The online marketplace currently offers quotes for renters
insurance from at least one insurance company in all 50 states plus D.C., two or
more insurance companies in 39 states plus D.C. (representing 80.8% of the
population) and three insurance companies in 18 states (representing 37.0% of
the population).
OTHER PRODUCTS AND SERVICES. InsWeb's online marketplace allows consumers
to shop for other types of insurance in most states. These product lines include
motorcycle insurance and fixed annuities. At present, the InsWeb online
marketplace does not offer multiple quotes with respect to these types of
insurance, which are each offered by a single insurance company in the states in
which they are available. InsWeb's strategy is to expand the range of insurance
products and services offered through its online insurance marketplace. From
time to time, InsWeb licenses its insurance quoting functionality to insurance
companies and financial institutions on a selected basis.
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NON-U.S. MARKETS. In December 1998, InsWeb entered into a joint venture
with SOFTBANK Corp. to create an online insurance marketplace for the Japanese
market. InsWeb currently holds a 25% equity interest in the joint venture. See
"Certain Transactions." The joint venture is in the early stages of developing
its online marketplace, which is not scheduled to be operational before late
1999.
In April 1999, InsWeb added automobile insurance quoting functionality for
consumers to its online marketplace through one insurance company in Alberta,
New Brunswick and Ontario, Canada.
INSURANCE COMPANY RELATIONSHIPS
As of June 30, 1999, Insweb had relationships with 38 insurance companies,
including many large companies with established brand names that InsWeb believes
are attractive to consumers. These companies include:
<TABLE>
<CAPTION>
TYPE OF INSURANCE INSURANCE COMPANIES
- ------------------------------ ----------------------------------------------------------------------------------
<S> <C> <C>
Automobile.................... AAA Michigan Hartford
AIG Kemper
American Family Nationwide
Amica New York Central Mutual*
Auto Club South (AAA) Progressive*
Avomark (Ohio Casualty) RelianceDirect
CNA Reliant
Country State Farm
Electric Insurance* The Commerce Group
Explorer TIG
GE Financial Assurance Tri-State
Term Life..................... Amica MONY Life Insurance Company
CNA Ohio National
GE Financial Assurance* Old Republic Life
John Hancock State Farm
Lincoln Benefit (Allstate) Western Southern
Metropolitan Life Zurich Kemper
Midland Life
Homeowners/Renters............ AIG Nationwide
American Family State Farm
Individual Health............. Blue Cross/Blue Shield of Florida IAG (Hartford)
Blue Cross/Blue Shield of New Jersey Mutual of Omaha
Blue Cross/Blue Shield of Virginia Central United Security
States*
</TABLE>
- --------------
* Agreement signed and implementation in process.
To date, InsWeb has been dependent on a limited number of insurance
companies for substantially all of its revenues. The amount of revenues
generated from a given company depends upon a number of variables that are
difficult for InsWeb to control, such as the degree to which the insurance
company's quotes are competitive with those of other insurance companies, and
the proportion of consumers that fit within the insurance company's targeted
risk profiles, as determined by the filtering criteria that the insurance
company is using at any given time. Accordingly, the amount of revenue that
InsWeb generates from a given insurance company is
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likely to fluctuate from year to year, both in absolute terms and as a
percentage of total revenues. Revenues from State Farm, AIG and American Family
accounted for approximately 31%, 12% and 11%, respectively, of InsWeb's revenues
for the six months ended June 30, 1999, and revenues from State Farm, AIG and
RelianceDirect accounted for approximately 40%, 16% and 10% of revenues for the
year ended December 31, 1998. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
INTERACTIVE WEBSITE FEATURES AND INFORMATION
To assist consumers in evaluating and fulfilling their insurance needs,
InsWeb provides consumers with a variety of interactive website features and
insurance-related information, including:
- tools to help consumers estimate their coverage requirements for auto and
term life insurance;
- research capabilities to help consumers review the financial strength of
insurance companies nationwide;
- frequently asked questions on insurance;
- articles on a wide variety of insurance and personal finance topics; and
- glossaries of insurance-related terms.
MARKETING AND SALES
InsWeb's marketing program consists of a two-pronged effort, with
substantial resources directed both at attracting increased consumer traffic to
the InsWeb website and building and expanding relationships with participating
insurance companies. InsWeb believes that increased traffic will encourage
insurance companies to develop and expand their relationship with InsWeb, and
that enhancing the comparative shopping opportunities available through
increased insurance company participation will drive further increases in
consumer traffic.
CONSUMER MARKETING
InsWeb's consumer marketing program seeks to increase consumer traffic and
brand awareness through the establishment of relationships with online companies
as well as through direct offline and online consumer marketing.
ONLINE RELATIONSHIPS. InsWeb believes that relationships with high-profile
online companies can drive significant traffic to its site. InsWeb seeks out
relationships with companies whose websites feature a high volume of traffic or
a substantive focus that is related to the purchase of insurance coverage, such
as sites related to automobiles or homes. Agreements with these online companies
typically provide that InsWeb and the online company will share revenue from
transaction fees generated through the relationship, and some require InsWeb to
also pay a fixed fee to the online company. Online companies integrate links
into their websites connecting to InsWeb's marketplace. InsWeb provides
functionality to further integrate with online companies and, in some cases,
provides co-branding functionality whereby the online company's logo is
presented on the InsWeb marketplace to those consumers directed to InsWeb's
marketplace from a company's site. For some of InsWeb's more significant online
relationships, including those with Yahoo!, Snap.com and GO Network (Infoseek),
InsWeb has further integrated its functionality with these companies' sites by
customizing the look and feel of InsWeb's insurance related content and
marketplace to replicate the design characteristics of the company's site.
Additionally, some of these companies have developed customized interfaces on
their own site to link to the InsWeb marketplace. InsWeb's agreements with
online companies typically have a 12-month term, with either party having a
right to terminate the agreement on 30 to 90 days' notice.
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Notwithstanding the foregoing, the integration process requires a significant
investment of the company's time and resources, which InsWeb believes motivates
the company to maintain a long-term relationship with InsWeb.
InsWeb and Yahoo! have entered into an agreement pursuant to which Yahoo!
offers a co-branded version of the InsWeb online insurance marketplace on the
Yahoo! website. The agreement provides for InsWeb to be the exclusive provider
of online insurance quotation services on the Yahoo! site. Under the agreement,
InsWeb has agreed to pay to Yahoo! fixed fees plus a referral fee for each user
delivered to an InsWeb quote form from the co-branded site. As of June 30, 1999,
InsWeb had paid Yahoo! fixed fees and referral fees totaling $4,839,000, and
InsWeb is obligated to pay additional fixed fees totaling $4,800,000 through
June 2000. The term of the agreement runs until September 30, 2000.
As of June 30, 1999, InsWeb had agreements with 89 online companies. The
principal online companies with which InsWeb has relationships, based on the
fees InsWeb has incurred for their services during the six months ended June 30,
1999, are as follows:
<TABLE>
<S> <C>
- - 123Inc. - GO Network (Infoseek)
- - CarClub.com - InfoSpace.com
- - CarPrices.com - Looksmart
- - E*Trade - Snap.com
- - Go2Net - Yahoo!
</TABLE>
TRADITIONAL CONSUMER MARKETING. As part of its branding effort, InsWeb has
developed a consumer marketing campaign, which began in 1998 with radio
advertising in selected metropolitan markets and which has recently been
expanded to include national television and syndicated radio advertising. InsWeb
also conducts other consumer marketing activities, such as sweepstakes contests
and other promotional activities.
ONLINE DIRECT-RESPONSE ADVERTISING. InsWeb's online direct-response
advertising is intended to create a presence for InsWeb on a wide range of
websites whose audiences closely match its target audience. InsWeb's key
advertisements are delivered through content sponsorships, banners and keywords
on financial, news, real estate, classifieds, automobile, directory and general
interest sites. InsWeb's advertisements are targeted primarily to consumers who
are actively seeking insurance.
BUILDING AND MAINTAINING RELATIONSHIPS WITH INSURANCE COMPANIES
InsWeb believes that establishing long-term relationships with reputable
insurance companies is essential to its ability to offer a desirable insurance
marketplace on its website. Accordingly, a significant portion of InsWeb's sales
and marketing organization consists of an Insurance Services Group, whose role
is to market the online marketplace to insurance companies. The focus of this
group is to maintain and expand the product offerings available on the online
marketplace by selling InsWeb's services to new companies and expanding InsWeb's
relationship with participating insurance companies.
An insurance company's decision to participate in the online marketplace
typically involves significant discussions between InsWeb and the insurance
company regarding the types of products and services the insurance company wants
to offer, the markets in which the insurance company wants to initially
participate and the terms of the agreement between InsWeb and the insurance
company. In addition, both InsWeb and the insurance company devote significant
resources to complete the integration of the insurance company into InsWeb's
website. This integration process typically takes from three to six months to
complete.
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Once an insurance company decides to participate in InsWeb's online
insurance marketplace, InsWeb's implementation team of more than 20 people work
with the company to integrate its insurance product information, which entails a
process of specification development, education, planning and activation.
Because of the complexity of interfacing with an insurance company's legacy
computer systems, the implementation team conducts a thorough assessment of the
company's business processes, technical capabilities and desired interface to
develop a comprehensive integration plan. Although the implementation process
can be costly and time-consuming for both InsWeb and the insurance company,
InsWeb believes that it represents a significant commitment by the company and
that the company typically views this expenditure of time and resources as an
investment in a long-term relationship with InsWeb. Once an insurance company's
initial implementation is complete, InsWeb works with the company to expand its
geographic coverage and add insurance products.
InsWeb pursues its relationship-building strategy with insurance companies
at three levels: executive management, middle management and operations
personnel. By investing in relationships at all three of these levels, InsWeb
believes that it will have greater success in maintaining and potentially
expanding those relationships. Additionally, InsWeb believes that strong
relationships at each level of an organization are important to ensure effective
coordination and product implementation.
InsWeb markets its online marketplace to insurance companies who employ all
three traditional distribution channels. InsWeb believes its online insurance
marketplace provides significant benefits to insurance companies regardless of
the distribution channel they use. InsWeb has also developed programs targeted
at the needs of specific channels. For example, InsWeb's prototype AGENT IN THE
MIDDLE software enables participating insurance companies who employ an
agency-based distribution model to present online quotes through an agent rather
than directly to the consumer. InsWeb's E-AGENT CERTIFICATION is an
Internet-based training program which provides agents with training in the use
of the Internet to process insurance quote requests.
TECHNOLOGY
ARCHITECTURE AND INTERFACES
Since its inception, InsWeb has invested significant resources to develop
and deploy its proprietary technology platform which InsWeb believes constitutes
a significant competitive advantage.
InsWeb's software architecture facilitates interoperability among software
components to maximize responsiveness, flexibility and reliability. This
architecture enables InsWeb to efficiently develop and deploy new insurance
company-specific modules for filtering, rating and data delivery. It also
simplifies the process of providing InsWeb's core marketplace functionality for
use on insurance company sites. In order to speed implementation for each
participating insurance company, InsWeb has developed transmission software
components which allow consumer data to be custom-formatted for delivery to each
insurance company based on the requirements of the insurance company's computer
system. InsWeb has developed custom communication software to provide multiple
types of real-time telecommunication links to its participating insurance
companies. These components provide a variety of solutions to the insurance
companies to best meet their needs and interface with their legacy systems.
InsWeb has devoted significant time and resources to maximize the efficiency of
integrating new insurance companies into its online marketplace and to create a
flexible, customizable Web interface. InsWeb's front-end user interface is
accessible to consumers via standard Web browsers and is designed without
unnecessary graphics that would increase download time.
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InsWeb's server software operates on servers running the Microsoft Windows
NT operating system. The software is designed for a high-volume transaction
processing environment, with a focus on reliability, redundancy and
around-the-clock availability. It is designed to enable the system to respond
rapidly and to simultaneously filter and rate a consumer's profile against all
participating insurance companies' filters. The software is also designed for
scalability, enabling InsWeb to expand processing capacity through the addition
of more processors and servers as transaction volumes increase.
SECURITY
InsWeb employs third-party firewall technology to protect its corporate
network from intrusion and uses proprietary designs to isolate confidential data
on its network so that only selected information is publicly available on its
website. Consumer information is transmitted to InsWeb's site using Secure
Socket Layer encryption technology, a widely-used technology for transmitting
encoded data via a Web browser. InsWeb employs a number of other encryption
methods for delivery of consumer information to insurance companies. InsWeb
protects its system management functions using security models integrated with
the operating system. Additionally, some sensitive software applications
incorporate proprietary authentication schemes.
SITE OPERATIONS
InsWeb's hardware servers, storage systems, Internet connections, back-up
strategies and network are designed to allow its online marketplace to operate
continuously. InsWeb's main Web servers are located at its headquarters facility
in Redwood City, California. InsWeb uses multiple service providers to access
the Internet over multiple dedicated communication lines. InsWeb uses a separate
server to operate the software for each primary insurance product, as well as at
least one redundant server for each core product. InsWeb uses a number of
internally-developed and third-party software products to monitor the
performance and availability of its website and core products. InsWeb
continuously monitors consumer traffic, response times and capacity to ensure a
high quality of service for consumers and insurance companies. InsWeb maintains
a back-up facility in Irvine, California through a third-party service provider
to ensure the continuous operation of its online marketplace in case of a
failure at its main facility.
PRODUCT DEVELOPMENT
InsWeb devotes significant resources to improving the structure of its
products and delivering additional tools which allow insurance companies to
effectively reach consumers. InsWeb generally follows a semi-quarterly release
schedule for new versions of its online user interface, which may incorporate
technology advances, new product features and improvements in consumer
interactivity. InsWeb also devotes significant resources to refining its online
consumer tools and research materials and developing new support products.
During 1998, InsWeb implemented more than 20 site upgrades and product releases
for its core products in order to add new insurance companies to its online
marketplace, add new states for participating insurance companies and improve
the functionality and consumer experience of its website. InsWeb is also
researching new methods of designing more useful insurance-related material and
presenting them to the consumer in a more meaningful context.
InsWeb's product development expenses were approximately $3.2 million in
1997, $10.1 million in 1998 and $3.8 million in the first six months of 1999.
Product development expenses in 1998 included approximately $5.5 million of
purchased software licenses which were expensed due to InsWeb's decision not to
integrate the software into its products. As of June 30, 1999, InsWeb had a
product development staff of 91 full-time employees, all located at its
headquarters in Redwood City, California.
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PRIVACY POLICY
InsWeb believes that the privacy of personally identifiable information of
Internet users is becoming increasingly important as the use of the Internet for
electronic commerce continues to grow. InsWeb has adopted a privacy policy for
information of users of its online marketplace. InsWeb does not disclose any
personally identifiable information of a user to InsWeb's participating
insurance companies until the user specifically requests insurance coverage
based on an instant online quote, or requests an offline quote. InsWeb does not
sell or otherwise make available to any other party any personally identifiable
information concerning its users. However, InsWeb does compile user information
in its databases. This aggregated statistical information is analyzed internally
by InsWeb for marketing purposes and to improve the content and site layout of
its website. This information is made available in aggregate form only, without
individual identification of consumers, to InsWeb's participating insurance
companies for their use in adjusting, refining and expanding their product
offerings. InsWeb is a member of the Online Privacy Alliance and a licensee of
the TRUSTe Privacy Program and adheres to their standards regarding the
protection of the personally identifiable information of Internet users.
COMPETITION
The online insurance distribution market is a new industry and, like the
broader electronic commerce market, is rapidly evolving and is highly
competitive. Increased competition, particularly by companies offering online
insurance distribution, could reduce the fees InsWeb is able to charge its
participating insurance companies or increase the fees it is required to pay to
online companies with which it has relationships, resulting in reduced margins
or loss of market share, any of which could harm its business.
InsWeb competes with:
- single insurance company websites that offer quotes for the company's own
insurance products online or by telephone;
- Web-based information delivery services that use generic filings with
state regulators to deliver estimated price quotes from various insurance
companies;
- Web-assisted agency distribution services, such as Quotesmith.com, that
provide an Internet-based distribution channel for traditional insurance
agencies;
- Intuit, Inc.'s InsureMarket website, which offers some insurance
company-generated insurance quotes;
- online workplace marketers that sell insurance to employees over their
employer's intranet; and
- providers of software technology to insurance companies and other
competitors that may target electronic commerce solutions for the
insurance industry.
InsWeb believes the principal bases for competition in the online insurance
distribution market include:
- brand awareness;
- variety and quality of insurance company selection;
- strength of relationships and depth of technology integration with
insurance companies;
- accuracy of insurance quotes;
- breadth and pricing of insurance product selection;
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- speed, accessibility and convenience;
- quality and quantity of website content; and
- relationships with other online companies.
InsWeb currently operates a leading online insurance marketplace, and
believes that, other than InsureMarket, which offers insurance company-sponsored
quotes for term life insurance and a limited selection of such quotes for
automobile insurance, no competitors currently offer the opportunity to
comparison shop from among competing insurance company-generated quotes. InsWeb
believes that its ability to offer competing insurance company-sponsored quotes
gives it an advantage over companies that may provide estimated quotes, or
insurance company websites that only offer quotes from a single insurance
company.
Notwithstanding the foregoing, some of InsWeb's current competitors have
longer operating histories, larger customer bases, greater brand recognition and
significantly greater financial, marketing and other resources than InsWeb does.
In addition, InsWeb believes it will face increasing competition as the online
financial services industry develops and evolves. InsWeb's current and future
competitors may be able to:
- undertake more extensive marketing campaigns for their brands and
services;
- devote more resources to website and systems development;
- adopt more aggressive pricing policies; and
- make more attractive offers to potential employees, companies with which
we have distribution relationships and third-party service providers.
Accordingly, InsWeb may not be able to maintain or grow consumer traffic to its
website and its base of participating insurance companies, its competitors may
grow faster than it does, or companies with which it has strategic relationships
may discontinue their relationships with it, any of which would harm its
business.
GOVERNMENT REGULATION
The insurance industry is subject to extensive regulation under state laws.
Insurance laws and regulations cover all aspects of the insurance process,
including sales techniques, underwriting for eligibility, rates, claim payments
and record keeping by licensed insurance companies and insurance agents. InsWeb
performs functions for licensed insurance companies and is, therefore, required
to comply with a complex set of rules and regulations that often vary from state
to state. If InsWeb fails to comply with these rules and regulations, an
insurance company doing business with InsWeb could be subject to censure, fines
or a cease-and-desist order. This risk, as well as changes in the regulatory
climate or the enforcement or interpretation of existing law, could require
changes to InsWeb's business. Furthermore, because the application of online
commerce to the insurance market is relatively new, the impact of current or
future regulations on InsWeb's business is difficult to anticipate.
A company that does business as an insurance agent is generally required to
be licensed in any state in which it conducts that business. Although InsWeb
does not believe that its historical or current activities constitute doing
business as an insurance agent under existing laws and regulations, InsWeb has
received direct and indirect inquiries from insurance regulatory authorities in
California, Maryland and Arizona suggesting that its activities may be
considered to fall under their licensing jurisdiction. Should these or other
regulatory authorities pursue inquiries and ultimately determine that InsWeb's
activities required licensure, InsWeb's business could be harmed.
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In order to position itself for future business activities that may require
a license, InsWeb has caused a wholly-owned subsidiary to be licensed as an
insurance agent. This subsidiary is currently licensed in 38 states and has
sought or will seek licenses in the remaining states where corporations are
eligible to become licensed. In states where corporations are not eligible to
become licensed, InsWeb is seeking to become licensed through its officers or
through resident agents that contract with InsWeb.
InsWeb transferred to its licensed subsidiary responsibility for the ongoing
operation of InsWeb's website in April 1999, and intends to conduct any future
business activities that require a license through this subsidiary and InsWeb's
licensed officers and agents. Offering services through this licensed subsidiary
could create conflicts with insurance companies that have policies prohibiting
them from employing insurance agents or from selling insurance through agents
that compete with their own exclusive agents. These conflicts could result in a
loss of business from these insurance companies and could harm InsWeb's
business.
InsWeb is currently developing its e-Care Center to provide assistance to
consumers who visit InsWeb's website through real-time chat and live telephone
support. InsWeb believes that the defined responsibilities of the service
representatives staffing the e-Care Center should not require licensure;
however, InsWeb intends to comply with any licensing requirement of the
jurisdictions served by the e-Care Center.
InsWeb faces additional regulatory risk because most of the laws and
regulations governing insurance agents contemplate or assume paper-based
transactions and do not currently address the delivery of required disclosures
or other documents through electronic communications. Until these laws and
regulations are revised to clarify their applicability to electronic commerce,
any company offering insurance products and services through the Internet or
other means of electronic commerce will face uncertainty as to compliance with
these laws and regulations. Moreover, there are a number of bills pending before
Congress that could fundamentally change the traditional role of state
regulation of insurance. InsWeb's policies and procedures may not be deemed
acceptable by any regulatory body examining its activities in light of these
potentially different laws and regulations. Any adverse regulatory actions could
seriously harm InsWeb's business.
In addition, many state insurance codes limit the collection and use of
personal information by insurance companies, agents, or insurance service
organizations. If InsWeb does not comply with these state laws, InsWeb could be
subject to fines or other enforcement proceedings that could harm its business
in a particular state. To date, InsWeb has not been notified by any regulatory
authority that its information practices do not comply with these state laws.
INTELLECTUAL PROPERTY
InsWeb regards its intellectual property as critical to its success, and
relies upon trademark, copyright and trade secrets laws in the United States and
other jurisdictions to protect its proprietary rights. InsWeb holds a U.S.
federal trademark registration for its INSWEB mark. It has also applied for
registration of the InsWeb logo and the marks InsWeb.com, Simplifying Your
Insurance Decisions, Where You And Your Insurance Really Click, EAgent,
Benelytics and Powered By InsWeb in the U.S. InsWeb has also applied for
registration of the InsWeb logo and the marks InsWeb and InsWeb.com in Japan and
Korea. InsWeb's trademark registration applications may not be approved or
granted, or, if granted, may be successfully challenged by others or invalidated
through administrative process or litigation. InsWeb has not patented the core
functionality of its online marketplace and thus could not legally prevent a
competitor from independently developing similar functionality. In addition,
effective patent, copyright, trademark, and trade secret protection may be
unavailable or limited in some foreign countries. InsWeb also seeks to protect
its proprietary rights through physical and technological security measures, and
through the use of
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confidentiality or license agreements with its business partners, employees,
consultants, advisors and others, and generally to control access to, and
distribution and use of, its software, documentation, business and other
proprietary information. Despite InsWeb's efforts to protect its proprietary
rights from unauthorized use or disclosure, employees, consultants, advisors or
others may not maintain the confidentiality of InsWeb's proprietary information,
and this proprietary information may otherwise become known, or be independently
developed, by competitors. The steps InsWeb has taken may not prevent
misappropriation of its proprietary rights, particularly in foreign countries
where laws or law enforcement practices may not protect its proprietary rights
as fully as in the U.S.
InsWeb licenses its trademarks and similar proprietary rights to third
parties. While InsWeb attempts to ensure that the quality of its brand is
maintained by these companies, they may take actions that could harm the value
of InsWeb's proprietary rights or the reputation of InsWeb or its services.
InsWeb may receive notice of claims of infringement of other parties'
proprietary rights or claims that its own patents or other intellectual property
rights are invalid. From time to time InsWeb has been subject to infringement
claims in the ordinary course of its business, including claims of alleged
infringement of the trademark rights of third parties by InsWeb and the
companies with which it does business. Any of these claims, with or without
merit, could be time consuming to defend, result in costly litigation, divert
management attention and resources or require InsWeb to enter into royalty or
licensing agreements. Licenses may not be available on reasonable terms, if at
all, and the assertion or prosecution of any infringement claims could
significantly harm InsWeb's business.
EMPLOYEES
As of June 30, 1999, InsWeb had 228 full-time employees, including 91
employees primarily engaged in product development, 89 in sales and marketing
and 48 in management and administration. InsWeb has never had a work stoppage,
and none of its employees are currently represented under collective bargaining
agreements. InsWeb considers its relations with its employees to be good. InsWeb
believes that its future success will depend in part on the continued service of
its senior management and key technical personnel and its ability to attract,
integrate, retain and motivate highly qualified technical and managerial
personnel. Competition for qualified personnel in InsWeb's industry and
geographical location is intense. InsWeb may not continue to be successful in
attracting and retaining a sufficient number of qualified personnel to conduct
its business in the future.
FACILITIES
InsWeb's corporate headquarters and its principal administrative, product
development, sales and marketing operations are located in approximately 65,000
square feet of office space in Redwood City, California, which InsWeb occupies
under a lease expiring in September 2008, subject to InsWeb's option to extend
the term for an additional 10 years. InsWeb currently subleases approximately
15,180 square feet of this space which it intends to occupy as its anticipated
future growth requires. InsWeb's e-Care Center is located in approximately
12,500 square feet of office space in Westlake Village, California, which InsWeb
occupies under a lease expiring in July 2004, subject to InsWeb's option to
extend the term for an additional 10 years. InsWeb believes that its existing
facilities are adequate to meet its needs for the immediate future and that
future growth can be accommodated through the leasing of additional or
alternative space near its current facilities.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
InsWeb's executive officers and directors and their ages as of June 30,
1999, are as follows:
<TABLE>
<CAPTION>
NAME AGE TITLE
- ------------------------------------- --------- -----------------------------------------------
<S> <C> <C>
Hussein A. Enan...................... 53 Chairman of the Board, President and Chief
Executive Officer
Darrell J. Ticehurst................. 59 Vice Chairman of the Board
Mark P. Guthrie...................... 38 Executive Vice President of Operations
Kevin M. Keegan...................... 50 Executive Vice President and President,
Insurance Services Group
Stephen I. Robertson................. 38 Executive Vice President and Chief Financial
Officer
Marian C. Taylor..................... 50 Senior Vice President, General Counsel and
Secretary
Bruce A. Bunner...................... 65 Director
James M. Corroon..................... 60 Director
Philip L. Engel...................... 58 Director
Ronald Fisher........................ 51 Director
Richard J. Freeman................... 46 Director
M. Gordon Gaddy...................... 62 Director
Richard D. Headley................... 50 Director
Yoshitaka Kitao...................... 48 Director
Claude Y. Mercier.................... 56 Director
Donald K. Morford.................... 64 Director
Robert C. Nevins..................... 65 Director
Robert A. Puccinelli................. 62 Director
</TABLE>
HUSSEIN A. ENAN co-founded InsWeb in February 1995 and has served as its
Chairman of the Board and Chief Executive Officer since its inception and as its
President since May 1999. From March 1992 to November 1994, Mr. Enan was a
general partner at E.W. Blanch, a reinsurance intermediary that merged with his
own wholly-owned company, Enan & Company, a reinsurance intermediary, in March
1992. Mr. Enan founded Enan & Company in February 1979. From November 1970 to
March 1979, Mr. Enan held various executive positions at BEP International, a
Canadian reinsurance intermediary.
DARRELL J. TICEHURST co-founded InsWeb in February 1995, has served as a
director since its inception and as its Vice Chairman of the Board since May
1999. Mr. Ticehurst served as InsWeb's President and Chief Technology Officer
from its inception to May 1999. From January 1992 to December 1995, Mr.
Ticehurst was president of CSA, a technology consulting firm. From June 1986 to
January 1992, Mr. Ticehurst was president and chief executive officer of
Intelligent Access, Inc., a company which he co-founded in 1986 and which
developed integrated communications components for personal computers.
MARK P. GUTHRIE joined InsWeb in September 1997 as Senior Vice President of
Strategic Partnerships and has served as its Executive Vice President of
Operations since July 1998. From
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July 1995 to August 1997, Mr. Guthrie held various positions with Industrial
Indemnity, a nationwide property and casualty insurance company, most recently
as senior operating officer of national programs.
KEVIN M. KEEGAN joined InsWeb in September 1997 as President of the
Insurance Services Group, and has served as Executive Vice President since
August 1998. From January 1990 to August 1997, Mr. Keegan held various
management positions with Marshall & Swift, a company that collects cost data
for insurance claims, including vice president of marketing, president and chief
operating officer.
STEPHEN I. ROBERTSON joined InsWeb in July 1998 as Senior Vice President and
Chief Financial Officer and has served as its Executive Vice President and Chief
Financial Officer since May 1999. From November 1997 to July 1998, Mr. Robertson
was a senior vice president of Lehman Brothers. From September 1986 to October
1997, Mr. Robertson held various investment banking positions, primarily
covering the U.S. insurance industry, with Salomon Brothers, Smith Barney and
Alex. Brown.
MARIAN C. TAYLOR joined InsWeb in July 1997 as Senior Vice President,
General Counsel and Secretary. From April 1993 to June 1997, Ms. Taylor was
engaged in the private practice of law. From March 1992 to March 1993, Ms.
Taylor was a vice president of E.W. Blanch. From September 1990 to March 1992,
Ms. Taylor was vice president and corporate counsel of Enan & Company.
BRUCE A. BUNNER has been a director of InsWeb since September 1995. Mr.
Bunner has been president of Financial Structures Ltd., a wholly-owned
subsidiary of Royal & SunAlliance USA, since January 1996. From January 1991 to
April 1995, Mr. Bunner was chairman of Centre Reinsurance Company of New York, a
reinsurance company. From March 1983 to June 1986, Mr. Bunner served as
Insurance Commissioner for the State of California. Mr. Bunner is also a
director of Mercury General Corporation and Amwest Insurance Group, Inc.
JAMES M. CORROON has been a director of InsWeb since August 1996. Mr.
Corroon has been a director of Willis Corroon of California, an insurance
services firm, since January 1996. From October 1966 to December 1995 Mr.
Corroon held various management positions with Willis Corroon and its
predecessor entity, Corroon & Black Corporation.
PHILIP L. ENGEL has been a director of InsWeb since February 1997. Mr. Engel
has been president of the CNA insurance companies since October 1992. Mr. Engel
is a director of CNA Financial Corporation, the holding company for CNA's
insurance operations, as well as a director of AMS Services, Inc., a CNA
majority-owned automation company servicing independent insurance agents and
property-casualty insurance companies. Mr. Engel has held various management
positions with CNA since June 1961.
RONALD FISHER has been a director since May 1999. Mr. Fisher has been vice
chairman of SOFTBANK Holdings Inc., an affiliate of SOFTBANK Corp., since
October 1995. From January 1990 to February 1996, Mr. Fisher was chief executive
officer of Phoenix Technologies, Ltd., a developer and marketer of system
software products.
RICHARD J. FREEMAN has been a director of InsWeb since August 1998. Mr.
Freeman has been a managing director of Century Capital Management, Inc., an
investment management and advisory firm, since September 1993. Mr. Freeman is
also a director of VISTA Information Solutions, Inc., a provider of
environmental risk information.
M. GORDON GADDY has been a director of InsWeb since June 1995. Mr. Gaddy has
been chairman of IAG, a life and health insurance agency, since April 1996. From
June 1995 to June 1997, Mr. Gaddy served as Chief Executive Officer of InsWeb's
Life Health Division. From
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January 1991 to January 1995, Mr. Gaddy was president of Fortis USA, an
international financial services company, and chairman of nine Fortis operating
subsidiaries in the U.S.
RICHARD D. HEADLEY has been a director of InsWeb since February 1998. Mr.
Headley has been senior vice president and chief information officer of
Nationwide Insurance Enterprise, an insurance and financial services company,
since October 1997. From January 1975 to October 1997, Mr. Headley held various
management positions with Banc One Corporation, including chairman and chief
executive officer of Banc One Services Corporation.
YOSHITAKA KITAO has been a director of InsWeb since February 1999. Mr. Kitao
has been the executive vice president and chief executive officer in the
corporate strategy department of SOFTBANK Corp. since June 1995. From June 1992
to June 1995, Mr. Kitao served as general manager of Nomura Securities Corp.,
Ltd., a brokerage and investment bank. Mr. Kitao is a director of Ziff-Davis,
Inc., a publicly-held media company focused on technology.
CLAUDE Y. MERCIER has been a director of InsWeb since November 1998. Mr.
Mercier has been the president and chief executive officer of Seabury & Smith,
Inc., a firm specializing in insurance program management, since November 1992.
DONALD K. MORFORD has been a director of InsWeb since May 1997. Mr. Morford
has been vice chairman of Sedgwick North America, an insurance brokerage firm,
since January 1997. From January 1989 to January 1997, Mr. Morford was president
and chief operating officer of Sedgwick North America.
ROBERT C. NEVINS has been a director of InsWeb since September 1995. Mr.
Nevins has been executive vice president of Acordia, Inc., an insurance
brokerage firm, since February 1996, and has been its chief operating officer
since February 1998. Since December 1993, Mr. Nevins has also been president of
R.C. Nevins & Company, which consults with agents, brokers and companies on
insurance and management issues.
ROBERT A. PUCCINELLI has been a director of InsWeb since May 1998. From
October 1985 to May 1995, Mr. Puccinelli was chairman and chief executive
officer of Industrial Indemnity, a nationwide property and casualty insurance
company. Mr. Puccinelli is also a director of Paula Financial Corp.
BOARD COMPOSITION
InsWeb currently has authorized 14 directors. Upon the closing of this
offering, InsWeb's certificate of incorporation will provide that the terms of
office of the members of the Board of Directors will be divided into three
classes: Class I, whose term will expire at the annual meeting of stockholders
to be held in 2000, Class II, whose term will expire at the annual meeting of
stockholders to be held in 2001, and Class III, whose term will expire at the
annual meeting of stockholders to be held in 2002. The Class I directors are
Messrs. Bunner, Gaddy, Nevins, Morford and Puccinelli, the Class II directors
are Messrs. Corroon, Fisher, Freeman, Mercier and Ticehurst and the Class III
directors are Messrs. Enan, Engel, Headley and Kitao. At each annual meeting of
stockholders after the initial classification, the successors to directors whose
term will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following their election. In
addition, upon the closing of this offering, InsWeb's bylaws will provide that
the authorized number of directors may be changed only by resolution of the
board. Any additional directorships resulting from an increase in the number of
directors will be distributed among the three classes so that, as nearly as
possible, each class will consist of one-third of the total number of directors.
This classification of the Board may delay or prevent changes in control or
management of InsWeb.
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Each officer is elected by the Board and serves at its discretion. Each of
InsWeb's officers and directors, other than nonemployee directors, devotes his
or her full time to the affairs of InsWeb. InsWeb's nonemployee directors devote
the amount of time to the affairs of InsWeb as is necessary to discharge their
duties. There are no family relationships among any of the directors, officers
or key employees of InsWeb.
BOARD COMMITTEES
The audit committee of InsWeb's Board of Directors recommends the
appointment of InsWeb's independent auditors, reviews InsWeb's internal
accounting procedures and financial statements and consults with and reviews the
services provided by InsWeb's independent auditors, including the results and
scope of their audit. The audit committee currently consists of Messrs. Bunner,
Corroon and Puccinelli.
The compensation committee of InsWeb's Board of Directors reviews and
recommends to the Board the compensation and benefits of all executive officers
of InsWeb, administers InsWeb's stock option plans and establishes and reviews
general policies relating to compensation and benefits of InsWeb employees. The
compensation committee currently consists of Messrs. Corroon, Morford and
Nevins.
COMPENSATION OF DIRECTORS
Directors of InsWeb do not receive cash compensation for their services as
directors or members of committees of the Board, but are reimbursed for
reasonable expenses incurred in attending meetings of the Board. Beginning in
May 1998, independent directors have received vested options to purchase 750
shares of InsWeb common stock for each regularly scheduled Board meeting
attended. After June 1999, under InsWeb's 1997 Stock Option Plan, independent
directors are eligible to receive vested options to purchase 1,125 shares of
common stock for each regularly scheduled Board meeting attended and vested
options to purchase 375 shares for attending any meeting of a Board committee on
which they serve, at an exercise price equal to the fair market value of
InsWeb's common stock on the date of grant. Mr. Gaddy is not eligible to receive
these grants until he is 100% vested in an option that was previously granted to
him, which vests over a three-year period ending September 1, 1999.
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EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth information regarding compensation received
during the year ended December 31, 1998 by InsWeb's Chief Executive Officer and
each of the four other most highly compensated executive officers of InsWeb:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM AND
OTHER
COMPENSATION
---------------
ANNUAL COMPENSATION NUMBER OF
------------------------------ SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION SALARY COMPENSATION(1) OPTIONS
- --------------------------------------------------------------------- ----------- ----------------- ---------------
<S> <C> <C> <C>
Hussein A. Enan(2) .................................................. $ 180,000 $ 4,495 --
Chairman of the Board and Chief Executive Officer
Kevin M. Keegan ..................................................... 180,000 4,125 84,375
Executive Vice President and President, Insurance Services Group
Darrell J. Ticehurst(2) ............................................. 150,144 4,316 --
President and Chief Technology Officer
Mark P. Guthrie ..................................................... 147,500 4,425 84,375
Executive Vice President of Operations
Marian C. Taylor .................................................... 139,000 4,160 30,000
Senior Vice President, General Counsel and Secretary
</TABLE>
- --------------
(1) Represents matching contributions made by InsWeb under its 401(k) plan.
(2) In May 1999, Mr. Enan was elected to the additional office of President and
Mr. Ticehurst became Vice Chairman of the Board.
OPTION GRANTS
The following table sets forth information regarding grants of stock options
to each of the executive officers named in the Summary Compensation Table during
the year ended December 31, 1998. All options granted to these executive
officers in 1998 were granted under InsWeb's 1997 Stock Option Plan. The
percentage of total options set forth below is based on an aggregate of
1,171,388 options granted in 1998. All options were granted at the fair market
value of InsWeb's common stock, as determined by the Board of Directors on the
date of grant. Potential realizable values are net of exercise price, but before
taxes associated with exercise. Amounts represent hypothetical gains that could
be achieved for the options if exercised at the end of the option term. The
assumed 5% and 10% rates of stock price appreciation are provided in accordance
with rules of the SEC and do not represent InsWeb's estimate or projection of
the future common stock price.
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OPTIONS GRANTED IN YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
INDIVIDUAL GRANTS ASSUMED ANNUAL RATES
------------------------------------------------------
NUMBER OF % OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED IN 1998 ($/SHARE) DATE 5% 10%
- --------------------------------------- ----------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Hussein A. Enan........................ -- -- -- -- -- --
Kevin M. Keegan........................ 84,375(1) 7.2% 3.12 8/1/08 408,387 620,730
Darrell J. Ticehurst................... -- -- -- -- -- --
Mark P. Guthrie........................ 84,375(1) 7.2 3.12 8/1/08 408,387 620,730
Marian C. Taylor....................... 30,000(2) 2.6 3.12 8/1/08 145,204 220,704
</TABLE>
- --------------
(1) These options vest as follows: 37,500 vest monthly over a period of 36
months; 18,750 vest after 42 months, with the possibility of acceleration to
vesting over 36 months if specific performance goals are met as of December
31,1998; and 28,125 vest after 48 months, with the possibility of
acceleration to vesting over 36 months if specific performance goals are
exceeded as of June 30, 1999.
(2) These options vest over a period of 36 months; but 11,250 will become fully
vested immediately upon completion of this offering.
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth the number of shares of common stock acquired
and the value realized upon exercise of stock options in 1998 and the number of
shares of common stock subject to exercisable and unexercisable options held as
of December 31, 1998 by each of the executive officers named in the Summary
Compensation Table:
AGGREGATE OPTION EXERCISES IN 1998 AND VALUES AT DECEMBER 31, 1998
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
VALUE OF UNEXERCISED
UNEXERCISED
NUMBER OF OPTIONS AT 12/31/98 IN-THE-MONEY OPTIONS AT
SHARES 12/31/98(1)
ACQUIRED ON VALUE -------------------- ------------------------
NAME EXERCISE REALIZED(2) VESTED UNVESTED VESTED UNVESTED
- --------------------------------------------- ------------- ------------ --------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Hussein A. Enan.............................. -- -- -- -- -- --
Kevin M. Keegan.............................. 28,500 $ 67,070 11,085 127,290 $ 70,565 $ 801,209
Darrell J. Ticehurst......................... -- -- -- -- -- --
Mark P. Guthrie.............................. 19,999 47,065 10,211 114,165 64,805 714,752
Marian C. Taylor............................. -- -- 30,938 59,063 202,551 376,149
</TABLE>
- --------------
(1) The value of unexercised options set forth above is calculated based on the
deemed fair value of the underlying securities on December 31, 1998 of $9.23
per share, minus the exercise price.
(2) The value realized upon exercise is based on the deemed fair value of the
underlying securities on the date of exercise, minus the exercise price.
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EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
In July 1999, InsWeb entered into an employment agreement with Hussein A.
Enan, InsWeb's Chairman of the Board, President and Chief Executive Officer. The
agreement has a term of three years, expiring in July 2002, and provides for
annual one-year extensions of the term thereafter unless either party provides
notice to the other that it elects not to renew the agreement. The agreement
fixes Mr. Enan's base salary at $250,000 per year, subject to periodic review by
the Board of Directors, and also entitles him to such incentive-based
compensation as the Board of Directors may award from time to time as well as
other benefits provided to other InsWeb senior executives. The agreement
requires Mr. Enan to devote his full time and attention to the affairs of
InsWeb. If InsWeb terminates Mr. Enan's employment other than for "cause" (which
is defined to include conviction of a felony or a crime involving moral
turpitude, commission of an act of theft or fraud against InsWeb, or repeated
failure or inability to perform his duties under the agreement) or if Mr. Enan
voluntarily terminates his employment for "good reason" following certain
specified actions by InsWeb (including a material reduction in his duties or
responsibilities or a breach of the agreement by InsWeb that is not promptly
cured), Mr. Enan will be entitled to receive severance payments equal to his
then current base salary for a period equal to the greater of the unexpired term
of the agreement or 12 months. Upon any other termination of Mr. Enan's
employment, he will be entitled only to accrued salary through the date of
termination and any other vested benefits. The agreement also prohibits Mr. Enan
from soliciting the employment of InsWeb's officers, employees and consultants
for a period of one year following any termination for "cause," or any voluntary
termination, other than for "good reason."
InsWeb's 1997 Stock Option Plan and Senior Executive Nonstatutory Stock
Option Plan provide that, in the event of a change of control of InsWeb, each
outstanding option must be assumed or an equivalent option substituted by the
acquiring corporation, or the option will become fully vested. The options
terminate if they are not assumed, substituted or exercised prior to a change of
control. Further, options granted under the 1997 plan typically provide for full
acceleration of vesting if, within 12 months following a change in control, the
optionee is terminated without cause or resigns for "good reason," as defined in
the option agreement. In July 1998, InsWeb granted an option under the 1997
Stock Option Plan to Stephen I. Robertson, InsWeb's Executive Vice President and
Chief Financial Officer, which provides for full acceleration of vesting upon
any change of control.
STOCK PLANS
1997 STOCK OPTION PLAN
InsWeb's 1997 Stock Option Plan was adopted by the Board of Directors and
approved by the stockholders in July 1997. InsWeb is authorized to issue up to
6,183,030 shares of common stock under this plan, reduced by 475,646 shares
issued or subject to outstanding options as of June 30, 1999 under InsWeb's
Senior Executive Nonstatutory Stock Option Plan and 71,251 shares available for
grant as of June 30, 1999 under that plan. This number of shares may be
increased on January 1, 2000 and each subsequent January 1 during the term of
the plan by 5% of the number of shares of common stock issued and outstanding on
the immediately preceding December 31. This plan is currently being administered
by the compensation committee of the Board. The plan allows grants of incentive
stock options, within the meaning of Section 422 of the Internal Revenue Code to
employees, including officers and employee directors. In addition, it allows
grants of nonstatutory options to employees, independent directors and
consultants. The plan provides for the automatic grant of an option for 1,125
shares of common stock to each independent director in attendance at each
regular quarterly meeting of the Board of Directors and an option for 375 shares
of common stock to each independent director in attendance at each meeting of a
Board committee on which that director serves. These independent director
options are fully vested and
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exercisable on and after the date of grant at a price equal to the fair market
value of InsWeb's common stock on the date of grant. The plan expires in July
2007, but may be terminated sooner by the Board.
The exercise price of incentive stock options granted under the 1997 Stock
Option Plan must not be less than the fair market value of a share of common
stock on the date of grant. In the case of nonstatutory stock options, the
exercise price must not be less than 85% of the fair market value of a share of
common stock on the date of grant. With respect to any optionee who owns stock
representing more than 10% of the voting power of all classes of InsWeb's
outstanding capital stock, the exercise price of any incentive stock option must
be equal to at least 110% of the fair market value of a share of the common
stock on the date of grant, and the term of the option may not exceed five
years. The terms of all other options may not exceed ten years. The aggregate
fair market value of the common stock for which an incentive stock option may
become exercisable for the first time may not exceed $100,000 in any calendar
year. The fair market value will be determined as of the date of the option
grant. The Board or any committee administering the 1997 Stock Option Plan has
discretion to determine vesting schedules and exercise requirements, if any, of
all options granted under the plan. However, the plan provides that in
connection with a change of control, if the acquiring corporation fails to
assume the plan's outstanding options or replace them with substantially
equivalent new options, all options will become immediately exercisable in full.
In addition, InsWeb has provided for full acceleration of the exercisability of
these options if, within 12 months following a change in control, the optionee
is terminated without cause or resigns for "good reason," as defined in the
option agreement.
As of June 30, 1999, 262,399 shares of common stock had been issued upon
exercise of options outstanding under this plan. Options to purchase 3,097,401
shares of common stock, at a weighted average exercise price of $7.14, were
outstanding, and 2,276,335 shares remained available for future grants. In
addition, InsWeb intends to grant options to purchase approximately 1,250,000 of
these shares to its executive officers and members of its management team, at
exercise prices ranging from $45.00 to $60.00 per share, prior to the
consummation of this offering.
1999 EMPLOYEE STOCK PURCHASE PLAN
InsWeb's 1999 Employee Stock Purchase Plan was adopted by the Board in June
1999, and approved by the stockholders in July 1999. A total of 450,000 shares
of common stock are reserved for issuance under the plan, subject to an increase
of 300,000 shares on January 1, 2000 and annually thereafter through January 1,
2008. This plan, which is intended to qualify under Section 423 of the Internal
Revenue Code, will be administered by the compensation committee of the Board.
Employees, including officers and employee directors, are eligible to
participate in the plan if they are employed by InsWeb for more than 20 hours
per week. The plan will be implemented during sequential six-month offering
periods, the first of which will commence on the effective date of this offering
and will terminate on January 31, 2000. After the effective date of this
offering, offering periods under the plan will generally begin on February 1 and
August 1 of each year.
The Employee Stock Purchase Plan permits eligible employees to purchase
InsWeb common stock through payroll deductions, which may not exceed 15% of the
employee's base salary. Stock may be purchased under the plan at a price equal
to 85% of the fair market value of InsWeb common stock on either the first or
the last day of the offering period, whichever is lower. Employees may end their
participation in the offering at any time during the offering period, and
participation ends automatically on termination of a participant's employment
with InsWeb. Participants may not purchase shares of common stock having a
value, measured at the beginning of the offering period, greater than $25,000 in
any calendar year or more than 2,500 shares in any offering period.
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SENIOR EXECUTIVE NONSTATUTORY OPTION PLAN
InsWeb's Senior Executive Nonstatutory Stock Option Plan was adopted by the
Board of Directors and approved by the stockholders in July 1997. In May 1998,
the Board amended the plan to provide that shares subject to options that are
terminated or expire will not be available for future grant under this plan.
Accordingly, the share reserve under the plan may be reduced from time to time
as options are terminated or expire, and such options will then be available for
grant under the 1997 Stock Option Plan. As of June 30, 1999, a total of 546,896
shares of common stock were reserved for issuance under this plan. The plan
allows grants of nonstatutory stock options to InsWeb's senior executives and
members of the Board. Unless terminated sooner by the Board, the plan will
terminate when all shares authorized for issuance under the plan have been
issued and all restrictions on the shares have lapsed.
The exercise price of stock options granted under the Senior Executive Plan
are subject to determination by the Board or the Compensation Committee. The
term of any option granted under this plan was 10 years unless otherwise
determined by the Board or the Compensation Committee. The Board or any
committee administering the plan had discretion to determine vesting schedules
and exercise requirements, if any, of all options granted under the plan.
However, the plan provides that in connection with a change in control, if the
acquiring corporation fails to assume the plan's outstanding options or replace
them with substantially equivalent new options, all options will become
immediately exercisable in full. In addition, InsWeb has provided for full
acceleration of the vesting of these options if, within 12 months following a
change in control of InsWeb, the optionee is terminated without cause or resigns
for "good reason," as defined in the option agreement.
As of June 30, 1999, 305,543 shares of common stock had been issued upon
exercise of options outstanding under this plan, options to purchase 170,102
shares of common stock, at a weighted average exercise price of $1.34, were
outstanding, and 71,251 shares remained available for future grant.
401(K) PLAN
InsWeb's 401(k) retirement and deferred savings plan covers all eligible
employees and is intended to qualify as a tax-qualified plan under the Internal
Revenue Code. Employees are eligible to participate in the plan on the first day
of the month immediately following three months of service with InsWeb. The plan
provides that each participant may contribute up to 15% of his or her pre-tax
gross compensation up to a statutory limit, which is $10,000 in calendar year
1999. All amounts contributed by participants and earnings on participant
contributions are fully vested at all times. InsWeb may contribute an amount
equal to one-half of the first 6% of each participant's contribution. InsWeb may
also make discretionary non-matching contributions. InsWeb's contributions vest
one-third per year over three years. InsWeb's contributions to the plan through
June 30, 1999 totaled approximately $128,000.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit this indemnification under
some circumstances for liabilities, including reimbursement for expenses
incurred, arising under the Securities Act.
As permitted by the Delaware General Corporation Law, InsWeb has adopted
provisions in its certificate of incorporation which provide that its directors
shall not be personally liable for monetary damages to InsWeb or its
stockholders for a breach of fiduciary duty as a director, except liability for:
- a breach of the director's duty of loyalty to InsWeb or its stockholders;
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- acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
- an act related to the unlawful stock repurchase or payment of a dividend
under Section 174 of the Delaware General Corporation Law; or
- transactions from which the director derived an improper personal benefit.
These limitations of liability do not affect the availability of equitable
remedies such as injunctive relief or rescission. InsWeb's certificate of
incorporation also authorizes InsWeb to indemnify its officers, directors and
other agents to the full extent permitted under Delaware law.
As permitted by the Delaware General Corporation Law, InsWeb's bylaws
provide that:
- InsWeb is required to indemnify its directors and officers to the fullest
extent permitted by the Delaware General Corporation Law, subject to
limited exceptions;
- InsWeb is required to indemnify its other employees to the extent that it
indemnifies its officers and directors, unless otherwise required by law,
InsWeb's certificate of incorporation, its bylaws or agreements;
- InsWeb is required to advance expenses, as incurred, to its directors and
officers in connection with a legal proceeding to the fullest extent
permitted by the Delaware General Corporation Law, subject to limited
exceptions; and
- the rights provided in the bylaws are not exclusive.
InsWeb intends to enter into separate indemnification agreements with each
of its directors and officers which may be broader than the specific
indemnification provisions contained in the Delaware General Corporation Law.
These indemnification agreements may require InsWeb, among other things, to
indemnify its officers and directors against liabilities that may arise by
reason of their status or service as directors or officers, other than
liabilities arising from willful misconduct. These indemnification agreements
also may require InsWeb to advance any expenses incurred by the directors or
officers as a result of any proceeding against them as to which they could be
indemnified and to obtain directors' and officers' insurance if available on
reasonable terms.
InsWeb has maintained directors' and officers' liability insurance since
February 1996, and intends to continue to maintain this insurance in the future.
At present, there is no pending litigation or proceeding involving any of
InsWeb's directors, officers, employees or agents where indemnification by
InsWeb is sought. In addition, InsWeb is not aware of any threatened litigation
or proceeding which may result in a claim for indemnification.
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CERTAIN TRANSACTIONS
FINANCING TRANSACTIONS
Since January 1996, InsWeb has sold and issued an aggregate of 819,122
shares of its preferred stock, in six series. Each share of preferred stock is
currently convertible into 15 shares of common stock, and all outstanding shares
of preferred stock will be automatically converted into common stock upon the
closing of this offering.
In February 1996, InsWeb sold 176,471 shares of its Series A preferred stock
to Nationwide Mutual Insurance Company, or Nationwide, at a purchase price of
$42.50 per share, or $7,500,018 in the aggregate. Richard D. Headley, a director
of InsWeb, is senior vice president and chief information officer of Nationwide
Insurance Enterprise, an affiliate of Nationwide.
In November 1996, InsWeb sold 176,471 shares of its Series B preferred stock
to Insurance Information Exchange, L.L.C., or IIX, at a purchase price of $46.75
per share, or $8,250,000 in the aggregate. Philip L. Engel, a director of
InsWeb, is president of the CNA insurance companies and a director of CNA
Financial Corporation, all of which are affiliates of IIX.
In May 1997, InsWeb sold 53,476 shares of its Series C preferred stock to
Century Capital Partners, L.P., or Century, at a purchase price of $46.75 per
share, or $2,500,003 in the aggregate. Richard J. Freeman, a director of InsWeb,
is a shareholder of CCP Capital, Inc., the general partner of Century and is
vice president of Century Capital Management, the investment adviser to Century
and CCP Capital, Inc.
In May 1997, InsWeb sold 27,864 shares of its Series A-1 preferred stock at
a purchase price of $46.75 per share and 8,444 shares of its Series C preferred
stock at a purchase price of $46.75 per share to Nationwide, for an aggregate
purchase price of $1,697,399.
In December 1998, InsWeb sold 42,978 shares of its Series D preferred stock
to SOFTBANK Ventures, Inc. and 6,430 shares of its Series D preferred stock to
Century at a purchase price of $162.875 per share, for an aggregate purchase
price of $7,000,042 in the case of SOFTBANK Ventures, Inc. and $1,047,286 in the
case of Century. Yoshitaka Kitao, a director of InsWeb, is executive vice
president and chief executive officer in the corporate strategy department of
SOFTBANK Corp., of which SOFTBANK Ventures, Inc. is an affiliate. Ronald Fisher,
a director of InsWeb, is vice chairman of SOFTBANK Holdings Inc., an affiliate
of SOFTBANK Corp.
In December 1998, InsWeb committed to sell, and in February 1999, InsWeb
sold 141,213 shares of its Series D preferred stock to SOFTVEN No. 2 Investment
Enterprise Partnership, an affiliate of SOFTBANK Corp., at a purchase price of
$162.875 per share, or $23,000,067 in the aggregate.
In March and April 1999, InsWeb sold an aggregate of 185,775 shares of its
Series E preferred stock to SOFTBANK America, Inc., an affiliate of SOFTBANK
Corp., at a purchase price of $188.40 per share, or $35,000,010 in the
aggregate.
JOINT VENTURE
In December 1998, InsWeb entered into a joint venture agreement with
SOFTBANK Corp. to develop, implement and market an online insurance marketplace
in Japan and the Republic of Korea. The joint venture will be conducted through
InsWeb Japan K.K., a Japanese corporation. In December 1998, InsWeb purchased a
40% interest in InsWeb Japan K.K. from SOFTBANK Corp. by delivering a promissory
note in the principal amount of Y240,000,000, or U.S. $2,089,137 based on the
conversion rate at the time of the transaction, payable in December 2002. See
Note 6 of Notes to InsWeb's Consolidated Financial Statements. In May 1999,
InsWeb sold a portion of its interest in InsWeb Japan K.K. to a third party for
US $782,630, reducing InsWeb's ownership interest to 25%.
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InsWeb used the proceeds from the sale to partially repay the promissory note
payable to SOFTBANK Corp. In connection with the joint venture agreement, InsWeb
granted to InsWeb Japan K.K. the right to use InsWeb's technology to conduct its
business in the Japanese and Korean markets.
LOANS TO AND FROM OFFICERS
Between the date of InsWeb's inception and March 1996, Mr. Enan loaned an
aggregate of $1,721,569 to InsWeb to cover startup expenses. This loan was
evidenced by an uncollateralized demand promissory note which was interest free
from March 1996 to April 1997 and bore interest at 6% per annum thereafter.
InsWeb repaid $196,569 of this amount in 1996 and repaid the remaining balance
in full in September 1998.
In February 1996, Mr. Enan borrowed $1,525,000 from InsWeb. This loan was
evidenced by an uncollateralized demand promissory note bearing interest at 6%
per annum. Mr. Enan repaid this loan in full in September 1998.
In August 1998, InsWeb loaned $3,000,000 to Mr. Enan and $1,000,000 to Mr.
Ticehurst. These loans were evidenced by promissory notes bearing interest at
15% per year and collateralized by shares of InsWeb's common stock owned by
Messrs. Enan and Ticehurst. These loans were repaid in full in September 1998.
TRANSACTIONS WITH IIX AND ITS AFFILIATES
In connection with the sale of Series B preferred stock in November 1996,
InsWeb, IIX and its affiliated entities entered into the following agreements:
LINE OF CREDIT. InsWeb entered into a line of credit arrangement with AMS
Services, Inc., an affiliate of IIX. The line of credit originally entitled
InsWeb to borrow up to $25,000,000 from AMS. Borrowings under the line of credit
accrue interest at the rate of 15% per annum, payable quarterly. The rights and
obligations of AMS under the line of credit were assigned to and assumed by
Continental Casualty Company, an affiliate of IIX, in April 1998. In May 1999,
the line of credit was reduced to $12,500,000. As of June 30, 1999, there was no
principal amount outstanding under the line of credit. The line of credit will
terminate upon the closing of this offering. See Note 10 of Notes to InsWeb's
Consolidated Financial Statements.
ASSET PURCHASE AGREEMENT. In accordance with an Asset Purchase Agreement,
InsWeb agreed to sell to IIX certain assets related to its property and casualty
agents line of business for a purchase price of $650,000.
JOINT MARKETING AND LICENSE AGREEMENT. In accordance with a Joint Marketing
and License Agreement, InsWeb and IIX agreed to license certain software to each
other. The agreement specified the following cross-licensing fees:
- InsWeb was to pay IIX $5,450,000 for five year non-exclusive licenses to
certain software owned by IIX and $50,000 for a non-compete agreement, and
- IIX was to pay InsWeb $350,000 for five-year non-exclusive licenses to
certain software owned by InsWeb. In addition, the agreement provided for
the payment of transaction fees by each party to the other based on
revenues resulting from the joint marketing efforts and utilization of
each other's software.
Under the terms of the Joint Marketing and License Agreement, InsWeb's
obligations to IIX of $5,500,000 were to be offset against IIX's obligations to
the Company of $1,000,000, consisting of
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the $350,000 license fee payable under the agreement and of the $650,000
purchase price payable under the Asset Purchase Agreement. Payment was to be
made in November 1998.
In December 1998, the parties agreed to amend the Joint Marketing and
License Agreement. The amendment eliminated the transaction fees and revised the
payment terms to allow InsWeb to make four quarterly payments to IIX of
$1,125,000 each, due on the first day of each quarter beginning January 1, 1999.
No interest is payable on the outstanding balance. InsWeb is under no obligation
to deliver additional software or documentation to IIX or to provide any
maintenance for previously delivered software. See Note 10 of Notes to InsWeb's
Consolidated Financial Statements.
COMMERCIAL TRANSACTIONS
Nationwide, a principal stockholder of InsWeb, is also a customer.
Nationwide accounted for $134,000 of InsWeb's revenue during 1998.
The CNA insurance companies, which are affiliates of IIX, a principal
stockholder of InsWeb, are also customers of InsWeb. The CNA insurance companies
accounted for $248,000 of InsWeb's revenue during 1998.
InsWeb and Yahoo! Inc. have entered into a license agreement dated as of
February 12, 1998 and amended as of March 31, 1999. See "Business--Marketing and
Sales." SOFTBANK Corp., a principal stockholder of InsWeb, is also the
beneficial owner of approximately 27.5% of the outstanding stock of Yahoo!. In
addition, Yoshitaka Kitao, a director of InsWeb, is an executive vice president
of SOFTBANK Corp. and chief executive officer of its corporate strategy
department and Ronald Fisher, a director of InsWeb, is vice chairman of SOFTBANK
Holdings Inc., an affiliate of SOFTBANK Corp.
OTHER TRANSACTIONS
In September 1995, in lieu of compensation as Chief Operating Officer of
InsWeb's Life Health Division, Mr. Gaddy received an incentive stock option to
purchase 250,000 shares of InsWeb common stock, at an exercise price of $0.024
per share. Under an agreement with Mr. Gaddy entered into on February 29, 1996,
InsWeb has also paid to Mr. Gaddy 10% of the net revenues of its life and health
product sales through the end of February 1999. The total amount paid to Mr.
Gaddy under this agreement was $100,000.
InsWeb is a party to an employment agreement with Mr. Enan. See
"Management-- Employment Contracts and Termination of Employment and Change of
Control Arrangements."
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PRINCIPAL STOCKHOLDERS
The following table sets forth information known to InsWeb regarding the
beneficial ownership of InsWeb's common stock as of June 30, 1999, by:
- each stockholder who is known by InsWeb to beneficially own more than 5%
of InsWeb's common stock;
- each of InsWeb's executive officers listed on the Summary Compensation
Table under "Management;"
- each of InsWeb's directors; and
- all of InsWeb's executive officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING(1)
----------------------------
NUMBER OF SHARES PRIOR TO THE AFTER THE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
- ----------------------------------------------------------------- --------------------- --------------- -----------
<S> <C> <C> <C>
5% STOCKHOLDERS:
SOFTBANK Corp.(2)................................................ 9,192,120 32.2% 28.3
Nationwide Mutual Insurance Company(3)........................... 3,191,685 11.2 9.8
Insurance Information Exchange, L.L.C.(4)........................ 2,507,505 8.8 7.7
EXECUTIVE OFFICERS AND DIRECTORS:
Hussein A. Enan(5)............................................... 4,976,288 17.5 15.3
Kevin M. Keegan(6)............................................... 79,818 * *
Darrell J. Ticehurst(7).......................................... 1,723,583 6.0 5.3
Mark P. Guthrie(8)............................................... 65,444 * *
Marian C. Taylor(9).............................................. 53,970 * *
Bruce A. Bunner(10).............................................. 99,120 * *
James M. Corroon(11)............................................. 39,000 * *
Philip L. Engel(12).............................................. 2,507,505 8.8 7.7
Ronald Fisher(13)................................................ 9,192,120 32.2 28.3
Richard J. Freeman(14)........................................... 1,343,249 4.7 4.1
M. Gordon Gaddy(15).............................................. 381,017 1.3 1.2
Richard D. Headley(16)........................................... 3,191,685 11.2 9.8
Yoshitaka Kitao(17).............................................. 9,192,120 32.2 28.3
Claude Y. Mercier(18)............................................ 1,125,000 3.9 3.4
Donald K. Morford(19)............................................ 95,319 * *
Robert C. Nevins................................................. 75,000 * *
Robert A. Puccinelli(20)......................................... 78,000 * *
All executive officers and directors as a group (18
persons)(21)................................................... 25,091,219 86.9 76.3
</TABLE>
- --------------
* Less than 1%.
(1) Number of shares beneficially owned and the percentage of shares outstanding
are based on (a) 28,524,825 shares outstanding as of June 30, 1999 and (b)
32,524,825 shares outstanding after completion of this offering, assuming no
exercise of the underwriters' over-allotment option. Beneficial ownership is
determined in accordance with the rules of the SEC and generally includes
voting or investment power with respect to securities. All shares of common
stock subject to options exercisable within 60 days following June 30, 1999
are deemed to be outstanding and beneficially owned by the person holding
those options for the purpose of computing the number of shares beneficially
owned and the percentage of ownership of that
67
<PAGE>
person. They are not, however, deemed to be outstanding and beneficially
owned for the purpose of computing the percentage ownership of any other
person. Except as indicated in the other footnotes to the table and subject
to applicable community property laws, based on information provided by the
persons named in the table, these persons have sole voting and investment
power with respect to all shares of the common stock shown as beneficially
owned by them.
(2) Consists of 6,429,255 shares held by SOFTBANK America, Inc., 644,670 shares
held by SOFTBANK Ventures, Inc. and 2,118,195 shares held by SOFTVEN No. 2
Investment Enterprise Partnership, each of which is an affiliate of SOFTBANK
Corp. The address for SOFTBANK Corp. is 1-16-8 Nihonbashi-Kakigaracho,
Chuo-ku, Tokyo 103 0014.
(3) The address for Nationwide Mutual Insurance Company is One Nationwide Plaza,
Columbus, Ohio 43216.
(4) The address for Insurance Information Exchange, L.L.C. is c/o AMS Services,
Inc., 410 Amherst Street, Birch Pond West, Nashua, New Hampshire 03063.
(5) The address for Mr. Enan is c/o InsWeb Corporation, 901 Marshall Street,
Redwood City, California 94063.
(6) Includes 47,568 shares subject to options exercisable within 60 days
following June 30, 1999.
(7) The address for Mr. Ticehurst is c/o InsWeb Corporation, 901 Marshall
Street, Redwood City, California 94063.
(8) Includes 41,694 shares subject to options exercisable within 60 days
following June 30, 1999.
(9) Includes 53,970 shares subject to options exercisable within 60 days
following June 30, 1999.
(10) Includes 99,120 shares subject to options exercisable within 60 days
following June 30, 1999.
(11) Includes 1,500 shares subject to options exercisable within 60 days
following June 30, 1999.
(12) Consists of shares held by Insurance Information Exchange, L.L.C. Mr. Engel
is president of the CNA insurance companies, an affiliate of Insurance
Information Exchange, and may be deemed to have voting or investment control
with respect to these shares. Mr. Engel disclaims beneficial ownership of
these shares. The address for Mr. Engel is c/o CNA, CNA Plaza, Chicago,
Illinois 60685.
(13) Consists of shares held by entities affiliated with SOFTBANK Corp. Mr.
Fisher is vice chairman of SOFTBANK Holdings Inc., an affiliate of SOFTBANK
Corp., and may be deemed to have voting or investment control with respect
to these shares. Mr. Fisher disclaims beneficial ownership with respect to
these shares. The address for Mr. Fisher is c/o SOFTBANK Holdings Inc., 10
Langley Road, Suite 403, Newton Center, MA 02459. See footnote 2.
(14) Consists of shares held by Century Capital Partners, L.P. Mr. Freeman is a
shareholder of CCP Capital, Inc., the general partner of Century Capital
Partners, L.P., and is vice president of Century Capital Management, the
investment adviser to Century Capital Partners, L.P. and may be deemed to
have voting or investment control with respect to these shares. Mr. Freeman
disclaims beneficial ownership of these shares, except to the extent of his
proportionate interest in them. The address for Mr. Freeman is c/o Century
Capital Management, Inc., One Liberty Square, Boston, Massachusetts 02109.
(15) Includes 72,917 shares subject to options exercisable within 60 days
following June 30, 1999.
(16) Consists of shares held by Nationwide Mutual Insurance Company. Mr. Headley
is senior vice president and chief information officer of Nationwide
Insurance Enterprise, an affiliate of
68
<PAGE>
Nationwide, and may be deemed to have voting or investment control with
respect to these shares. Mr. Headley disclaims beneficial ownership of these
shares. The address for Mr. Headley is One Nationwide Plaza, Columbus, Ohio
43216.
(17) Consists of shares held by entities affiliated with SOFTBANK Corp. Mr.
Kitao is executive vice president and chief executive officer in the
corporate strategy department of SOFTBANK Corp., and may be deemed to have
voting or investment control with respect to these shares. Mr. Kitao
disclaims beneficial ownership of these shares. The address for Mr. Kitao is
c/o SOFTBANK Corp., 1-16-8 Nihonbashi-Kakigaracho, Chuo-Ku, Tokyo 103 0014.
See footnote 2.
(18) Consists of shares held by Marsh & McLennan Risk Capital Holdings, Ltd. Mr.
Mercier is the president and chief executive officer of Seabury & Smith,
Inc., part of the risk and insurance services division of Marsh & McLennan
Companies, Inc., and an affiliate of Marsh & McLennan Risk Capital Holdings,
Ltd., and may be deemed to have voting or investment control with respect to
these shares. Mr. Mercier disclaims beneficial ownership of these shares.
(19) Includes 1,500 shares subject to options exercisable within 60 days
following June 30, 1999.
(20) Includes 3,000 shares subject to options exercisable within 60 days
following June 30, 1999.
(21) Includes 350,372 shares subject to options exercisable within 60 days
following June 30, 1999. The 9,192,120 shares listed as beneficially owned
by Messrs. Fisher and Kitao represent shares beneficially owned by SOFTBANK
Corp. and are counted only once to calculate the total shares and percentage
figures. See footnotes 2,13 and 17.
69
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, InsWeb's authorized capital stock will
consist of 150,000,000 shares of common stock, $0.001 par value per share, and
5,000,000 shares of preferred stock, $0.001 par value per share.
The following is a summary of the material terms of InsWeb's common stock
and preferred stock. Please see InsWeb's certificate of incorporation, filed as
an exhibit to the registration statement of which this prospectus is a part, for
more detailed information.
COMMON STOCK
As of June 30, 1999, there were 16,237,995 shares of InsWeb common stock
outstanding held of record by 129 stockholders. The holders of InsWeb common
stock are entitled to one vote for each share held of record on all matters
submitted to a vote of stockholders. Upon the closing of this offering, holders
of a majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Subject to
preferences applicable to any outstanding preferred stock, holders of common
stock are entitled to receive ratably any dividends declared by the board out of
funds legally available therefor. See "Dividend Policy." In the event of a
liquidation, dissolution or winding up of InsWeb, holders of common stock are
entitled to share ratably in the assets remaining after payment of liabilities
and the liquidation preferences of any outstanding preferred stock. Holders of
InsWeb common stock have no preemptive, conversion or redemption rights. Each
outstanding share of common stock is, and all shares of common stock to be
outstanding upon the closing of this offering will be, fully paid and
non-assessable.
PREFERRED STOCK
Upon the closing of this offering, all InsWeb preferred stock outstanding
will be converted into an aggregate of 12,286,830 shares of common stock, and up
to 5,000,000 shares of undesignated preferred stock will be authorized for
issuance. InsWeb's Board of Directors has the authority, without further action
by its stockholders, to issue preferred stock in one or more series. In
addition, the Board may fix the rights, preferences and privileges of any
preferred stock it determines to issue. Any or all of these rights may be
superior to the rights of the common stock. Preferred stock could thus be issued
quickly with terms calculated to delay or prevent a change in control of InsWeb
or to make removal of management more difficult. Additionally, the issuance of
preferred stock may decrease the market price of InsWeb common stock. At
present, InsWeb has no plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Under the Third Amended and Restated Investor Rights Agreement dated as of
March 31, 1999, by and among InsWeb and various of its stockholders, holders of
an aggregate of 24,659,429 shares of InsWeb common stock have various
registration rights with respect to their shares of common stock.
Beginning six months after the date of this prospectus, holders of an
aggregate of 8,710,965 shares of common stock have the right to require InsWeb,
on not more than one occasion, to file a registration statement under the
Securities Act to register these shares, at InsWeb's expense. Demand for this
registration must be made by holders of at least 40% of the shares that are
entitled to this registration, and the aggregate offering price of the
securities to be included must be at least $10,000,000. These holders also have
the right to demand not more than two registrations during any twelve month
period on Form S-3, provided that there is an aggregate proposed offering price
of at least $1,000,000. InsWeb may, under some circumstances, defer this
registration not more
70
<PAGE>
than once in a twelve month period for up to 90 days, and the underwriters of
the offering under this registration have the right, subject to some
limitations, to limit the number of shares included.
If InsWeb proposes to register any of its securities under the Securities
Act for InsWeb's own account or for the account of other security holders,
holders of an aggregate of 24,659,429 shares of InsWeb common stock are entitled
to notice of that registration and have the right to include some or all of
their shares of common stock in that registration, at InsWeb's expense, subject
to marketing and other limitations.
ANTITAKEOVER PROVISIONS
DELAWARE LAW
InsWeb will be subject to Section 203 of the Delaware General Corporation
Law regulating corporate takeovers, which prohibits a Delaware corporation from
engaging in any business combination with an "interested stockholder" unless:
- prior to the date of the transaction, the board of directors of the
corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder;
- the stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced, excluding for purposes
of determining the number of shares outstanding (a) shares owned by
persons who are directors and also officers, and (b) shares owned by
employee stock plans in which employee participants do not have the right
to determine confidentially whether shares held subject to the plan will
be tendered in a tender or exchange offer; or
- on or subsequent to the date of the transaction, the business combination
is approved by the board and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least 66 2/3% of the outstanding voting stock which is not owned by the
interested stockholder.
Except as otherwise specified in Section 203, an interested stockholder is
defined to include (a) any person that is the owner of 15% or more of the
outstanding voting securities of the corporation, or is an affiliate or
associate of the corporation and was the owner of 15% or more of the outstanding
voting stock of the corporation at any time within three years immediately prior
to the date of determination and (b) the affiliates and associates of any such
person.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Provisions of InsWeb's certificate of incorporation and bylaws, which will
become effective upon the closing of this offering, may have the effect of
making it more difficult for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of InsWeb. These provisions
could cause the price of InsWeb common stock to decrease. Some of these
provisions allow InsWeb to issue preferred stock without any vote or further
action by the stockholders, eliminate the right of stockholders to act by
written consent without a meeting and eliminate cumulative voting in the
election of directors. These provisions may make it more difficult for
stockholders to take specific corporate actions and could have the effect of
delaying or preventing a change in control of InsWeb.
InsWeb's certificate of incorporation provides that, upon the closing of
this offering, InsWeb's Board will be divided into three classes of directors
with each class serving a staggered three-year term. See "Management--Board
Composition." The classification system of electing directors may discourage a
third party from making a tender offer or otherwise attempting to obtain control
of
71
<PAGE>
InsWeb and may maintain the incumbency of the Board, because the classification
of the Board generally increases the difficulty of replacing a majority of the
directors. InsWeb's bylaws eliminate the right of stockholders to call special
meetings of stockholders. The authorization of undesignated preferred stock
makes it possible for the board to issue preferred stock with voting or other
rights or preferences that could impede the success of any attempt to change
control of InsWeb. These and other provisions may have the effect of deferring
hostile takeovers or delaying changes in control or management of InsWeb. The
amendment of any of these provisions would require approval by holders of at
least 66 2/3% of the outstanding common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is American Stock
Transfer & Trust Co.
LISTING
InsWeb has applied to have its common stock approved for listing on the
Nasdaq National Market under the trading symbol "INSW."
72
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for InsWeb's
common stock. Future sales of substantial amounts of InsWeb common stock in the
public market, or the possibility of these sales, could adversely affect the
trading price of the common stock.
Upon completion of this offering, InsWeb will have outstanding 32,524,825
shares of common stock, assuming no exercise of the underwriters' over-allotment
option and no exercise of outstanding options to purchase common stock after
June 30, 1999. Of these shares, the 4,000,000 shares sold in this offering will
be freely tradable without restriction or further registration under the
Securities Act, except for any shares purchased by "affiliates" of InsWeb, as
defined in Rule 144 under the Securities Act, which would be subject to the
limitations and restrictions described below. Such shares purchased by
affiliates will also be restricted from sale until 180 days after the date of
this prospectus pursuant to lock-up agreements between these affiliates and the
underwriters. In addition, 24,645 shares held by existing stockholders prior to
the offering will be eligible for immediate sale in the public market without
restriction.
The remaining 28,500,180 shares of common stock outstanding upon completion
of this offering will be "restricted securities" as defined in Rule 144. These
securities may be sold in the public market only if registered or if they
qualify for an exemption from registration under Rules 144 or 701 under the
Securities Act, which are summarized below. Sales of these restricted securities
in the public market, or the availability of these shares for sale, could
adversely affect the trading price of InsWeb's common stock.
Holders of approximately 28,460,181 of these restricted securities,
including all of InsWeb's officers and directors and the entities affiliated
with them, have entered into lock-up agreements providing that, subject to
limited exceptions, they will not sell, directly or indirectly, any common stock
without the prior consent of Goldman, Sachs & Co. for a period of 180 days from
the date of this prospectus.
The amounts of restricted securities that will be available for sale in the
public market, subject in some cases to the volume limitations and other
restrictions of Rule 144, will be as follows:
<TABLE>
<CAPTION>
NUMBER OF
SHARES/PERCENT
OUTSTANDING AFTER
THE OFFERING DATE WHEN SHARES BECOME AVAILABLE FOR RESALE IN THE PUBLIC MARKET
- ------------------------------------- --------------------------------------------------------------------------
<C> <S>
14,542/0.1% 90 days after the date of this prospectus.
19,891,030/69.8% 180 days after the date of this prospectus pursuant to agreements between
the stockholders and the underwriters or InsWeb, provided that the
underwriters can waive this restriction at any time. 17,712,491 of these
shares will also be subject to sales volume restrictions under Rule 144
under the Securities Act.
8,594,608/30.1% Upon expiration of applicable one-year holding periods under Rule 144,
which will expire between February 26, 2000 and June 3, 2000, subject to
sales volume restrictions under Rule 144.
</TABLE>
Shares issued upon exercise of options granted by InsWeb prior to the date
of this prospectus will be available for sale in the public market under Rule
701 of the Securities Act. Rule 701 permits resales of these shares in reliance
upon Rule 144 but without compliance with various restrictions, including the
holding period requirement, imposed under Rule 144. In general, under Rule 144,
beginning 90 days after the date of this prospectus, a person (or persons whose
shares are aggregated) who has beneficially owned restricted securities for at
least one year would be entitled
73
<PAGE>
to sell within any three-month period a number of shares not to exceed the
greater of (1) one percent of the then outstanding shares of common stock or (2)
the average weekly trading volume of InsWeb's common stock during the four
calendar weeks preceding the filing of a Form 144 with respect to the sale.
Sales under Rule 144 are also subject to manner of sale and notice requirements,
as well as to the availability of current public information about InsWeb. Under
Rule 144(k), a person who is not deemed to have been an affiliate at any time
during the 90 days preceding a sale and who has beneficially owned the shares
proposed to be sold for at least two years is entitled to sell the shares
without complying with the manner of sale, public information, volume limitation
or notice provisions of Rule 144.
InsWeb has reserved an aggregate of 8,784,705 shares of common stock for
issuance pursuant to its various stock plans. As of June 30, 1999, options to
purchase an aggregate of 3,469,823 shares of common stock were outstanding and
2,797,586 shares remained available for grant under InsWeb's stock plans. InsWeb
intends to file registration statements on Form S-8 under the Securities Act
approximately 90 days after the date of this prospectus to register an aggregate
of 6,267,428 shares of common stock issued or reserved for issuance under its
stock option plans and employee stock purchase plan. Shares of common stock
issued under the foregoing plans, after the filing of related registration
statements, will be freely tradable in the public market, subject in the case of
the holders to the Rule 144 limitations applicable to InsWeb affiliates, lock-up
agreements with the underwriters and vesting restrictions imposed by InsWeb.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for
InsWeb by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. Certain legal
matters relating to the initial public offering will be passed upon for the
underwriters by Shearman & Sterling, Menlo Park, California.
EXPERTS
The financial statements included in this registration statement have been
audited by PricewaterhouseCoopers LLP, independent accountants. The companies
and periods covered by these audits are indicated in the individual reports of
PricewaterhouseCoopers LLP. Such financial statements have been so included in
reliance on the reports of PricewaterhouseCoopers LLP given on the authority of
said firm as experts in auditing and accounting.
WHERE TO FIND ADDITIONAL INFORMATION ABOUT INSWEB
InsWeb has filed with the SEC a registration statement on form S-1,
including the exhibits and schedules thereto, under the Securities Act with
respect to the shares to be sold in this offering. This prospectus does not
contain all the information set forth in the registration statement. For further
information about InsWeb and the shares to be sold in this offering, please
refer to the registration statement. Statements contained in this prospectus as
to the contents of any contract, agreement or other document referred to, are
not necessarily complete, and in each instance please refer to the copy of the
contract, agreement or other document filed as an exhibit to the registration
statement, each statement being qualified in all respects by this reference.
You may read and copy all or any portion of the registration statement or
any reports, statements or other information InsWeb files with the SEC at the
SEC's public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.C., Washington, D.C. 20549 and at the regional offices of the SEC located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and the
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. You can request copies of these documents upon payment of a
duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330
for further information on the operation of the public reference rooms. InsWeb's
SEC filings, including the registration statement will also be available to you
on the SEC's Web site. The address of this site is http://www.sec.gov.
74
<PAGE>
INSWEB CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
INSWEB CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................................................ F-2
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Operations.................................................................... F-4
Consolidated Statements of Stockholders' Equity.......................................................... F-5
Consolidated Statements of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-8
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Overview................................................................................................. F-29
Pro Forma Consolidated Statement of Operations........................................................... F-30
Notes to Pro Forma Consolidated Financial Information.................................................... F-31
BENELYTICS, INC. FINANCIAL STATEMENTS
Report of Independent Accountants........................................................................ F-32
Balance Sheets........................................................................................... F-33
Statements of Operations................................................................................. F-34
Statements of Stockholders' Deficit...................................................................... F-35
Statements of Cash Flow.................................................................................. F-36
Notes to Financial Statements............................................................................ F-37
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS OF
INSWEB CORPORATION AND SUBSIDIARIES:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of InsWeb
Corporation and Subsidiaries as of December 31, 1997 and 1998, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/PricewaterhouseCoopers LLP
San Francisco, California
January 15, 1999
F-2
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
------------ ------------ JUNE 30, PRO FORMA
1999 STOCKHOLDERS'
------------ EQUITY AS OF
JUNE 30, 1999
(UNAUDITED) --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................ $ 2,360,153 $ 8,337,133 $ 9,660,382
Short-term investments............................... -- -- 15,839,864
------------ ------------ ------------
Total cash, cash equivalents and short-term
investments...................................... $ 2,360,153 $ 8,337,133 25,500,246
Accounts receivable, net of allowance of $5,000 at
December 31, 1997 and $0 at December 31, 1998 and
June 30, 1999...................................... 116,819 1,192,174 4,385,711
Receivables from employees........................... 21,083 -- 13,611
Note receivable from officer......................... 1,525,000 -- --
Prepaid expenses and other current assets............ 93,853 653,734 1,800,076
Receivable for sale of preferred stock............... -- 22,999,377 --
------------ ------------ ------------
Total current assets............................. 4,116,908 33,182,418 31,699,644
Property and equipment, net.......................... 999,327 3,998,185 6,269,545
Investment in joint venture.......................... -- 2,089,137 1,288,133
Intangible assets, net............................... -- 8,697,141 7,132,617
Deposits............................................. 23,514 1,389,867 2,089,964
------------ ------------ ------------
Total assets..................................... $ 5,139,749 $ 49,356,748 $ 48,479,903
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..................................... $ 159,657 $ 524,926 $ 1,449,563
Note payable to officer.............................. 1,525,000 25,000 --
Accrued expenses..................................... 318,766 3,119,362 2,379,951
Deferred revenue..................................... 73,696 226,251 213,909
Payable to Series B stockholder...................... -- 4,500,000 2,250,000
Line of credit from affiliate........................ -- 19,290,000 --
------------ ------------ ------------
Total current liabilities........................ 2,077,119 27,685,539 6,293,423
Note payable to strategic partner...................... -- 2,089,137 1,240,182
------------ ------------ ------------
Total liabilities................................ 2,077,119 29,774,676 7,533,605
------------ ------------ ------------
Commitments and contingencies (Note 9)
Stockholders' equity:
Convertible preferred stock, $0.001 par value.
Authorized: 2,000,000 shares (Aggregate preference
in liquidation $85,994,844)......................
Issued: 442,726 shares in 1997, 492,134 shares in
1998, 669,986 shares in 1999 and no pro forma
shares (unaudited). Outstanding: 442,726 shares
in 1997, 633,347 shares in 1998, 819,122 shares
in 1999 (unaudited) and no pro forma shares
(unaudited)...................................... 442 633 819 $ --
Common stock, $0.001 par value. Authorized:
50,000,000 actual and pro forma shares (unaudited).
Issued and outstanding: 14,611,305 shares in 1997,
15,939,823 shares in 1998, 16,237,995 shares in
1999 (unaudited) and 28,524,825 pro forma shares
(unaudited)........................................ 14,611 15,940 16,238 28,525
Paid-in capital...................................... 22,147,175 62,119,341 99,580,470 99,569,002
Common stock warrants................................ -- 113,071 113,071 113,071
Deferred stock compensation.......................... (735,643) (1,813,082) (2,911,999) (2,911,999)
Accumulated deficit.................................. (18,363,955) (40,853,831) (55,852,301) (55,852,301)
------------ ------------ ------------ --------------
Total stockholders' equity....................... 3,062,630 19,582,072 40,946,298 $ 40,946,298
------------ ------------ ------------ --------------
--------------
Total liabilities and stockholders' equity..... $ 5,139,749 $ 49,356,748 $ 48,479,903
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------- -------------------------------
1996 1997 1998 1998 1999
------------- -------------- --------------- -------------- ---------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Transaction fees.............. $ 6,617 $ 115,758 $ 3,151,423 $ 662,061 $ 7,323,391
Development and maintenance
fees........................ 199,351 551,406 789,337 345,524 1,041,994
Other revenues................ 41,936 82,507 369,416 19,117 6,432
------------- -------------- --------------- -------------- ---------------
Total revenues.............. 247,904 749,671 4,310,176 1,026,702 8,371,817
------------- -------------- --------------- -------------- ---------------
Operating expenses:
Product development........... 2,899,737 3,209,587 10,077,497 2,039,726 3,769,403
Sales and marketing........... 2,009,701 3,166,644 8,953,700 3,773,130 12,140,351
General and
administrative.............. 2,730,066 3,729,336 7,180,305 2,893,890 5,711,322
Amortization of intangible
assets -- -- -- -- 1,564,524
------------- -------------- --------------- -------------- ---------------
Total operating
expenses.................. 7,639,504 10,105,567 26,211,502 8,706,746 23,185,600
------------- -------------- --------------- -------------- ---------------
Loss from operations........ (7,391,600) (9,355,896) (21,901,326) (7,680,044) (14,813,783)
------------- -------------- --------------- -------------- ---------------
Other income, net............... -- -- 600,000 -- --
Interest income (expense),
net........................... 121,584 293,173 (1,188,550) (209,476) (184,687)
------------- -------------- --------------- -------------- ---------------
Net loss.................... $ (7,270,016) $ (9,062,723) $ (22,489,876) $ (7,889,520) $ (14,998,470)
------------- -------------- --------------- -------------- ---------------
------------- -------------- --------------- -------------- ---------------
Net loss per share--basic and
diluted....................... $ (0.56) $ (0.62) $ (1.52) $ (0.54) $ (0.94)
------------- -------------- --------------- -------------- ---------------
------------- -------------- --------------- -------------- ---------------
Shares used in computing net
loss per share--basic and
diluted....................... 13,054,716 14,601,318 14,813,013 14,663,101 16,023,988
------------- -------------- --------------- -------------- ---------------
------------- -------------- --------------- -------------- ---------------
Pro forma net loss per
share--basic and diluted...... $ (0.92) $ (0.53)
--------------- ---------------
--------------- ---------------
Shares used in computing pro
forma net loss per
share--basic and diluted...... 24,408,089 28,310,818
--------------- ---------------
--------------- ---------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED
STOCK COMMON STOCK COMMON
---------------------- --------------------- PAID-IN STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS
--------- ----------- ---------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances, at December 31, 1995..................... -- $ -- 3,000 $ 375,000 $ 472,048 $ --
Conversion of prior year common stock par value.... (374,997) 374,997
Issuance of common stock to founders............... 12,747,000 12,747 191,205
Issuance of common stock for purchase of certain
third party assets............................... 30,000 30 5,970
Issuance of Series A preferred stock for cash, net
of $27,449 in issuance costs..................... 176,471 176 7,472,393
Issuance of Series B preferred stock for cash, net
of $31,231 in issuance costs..................... 176,471 176 8,218,612
Exercise of stock options.......................... 1,816,305 1,816 27,307
Net loss...........................................
--------- ----- ---------- --------- ----------- -----------
Balances, December 31, 1996........................ 352,942 352 14,596,305 14,596 16,762,532 --
Issuance of Series C preferred stock for cash, net
of $38,252 in issuance costs..................... 61,920 62 2,856,446
Issuance of Series A-1 preferred stock for cash.... 27,864 28 1,302,614
Exercise of stock options.......................... 15,000 15 19,485
Deferred stock compensation........................ 1,206,098
Amortization of deferred stock compensation........
Net loss...........................................
--------- ----- ---------- --------- ----------- -----------
Balances, December 31, 1997........................ 442,726 442 14,611,305 14,611 22,147,175 --
Issuance of Series D preferred stock for cash and
receivable, net of $1,649,000 in issuance
costs............................................ 190,621 191 29,398,204
Issuance of common stock for acquisition........... 908,561 909 8,388,133
Issuance of common stock warrants in connection
with acquisition................................. 113,071
Exercise of stock options.......................... 419,957 420 567,901
Deferred stock compensation........................ 1,617,928
Amortization of deferred stock compensation........
Net loss...........................................
--------- ----- ---------- --------- ----------- -----------
Balances, December 31, 1998........................ 633,347 633 15,939,823 15,940 62,119,341 113,071
Issuance of Series E preferred stock for cash and
receivable, net of $37,482 in issuance costs..... 185,775 186 34,962,342
Issuance costs of Series D preferred stock......... (33,601)
Issuance of common stock for cash.................. 32,159 32 296,898
Exercise of stock options.......................... 266,013 266 556,069
Deferred stock compensation........................ 1,679,421
Amortization of deferred stock compensation........
Net loss...........................................
--------- ----- ---------- --------- ----------- -----------
Balances, June 30, 1999 (unaudited)................ 819,122 $ 819 16,237,995 $ 16,238 $99,580,470 $ 113,071
--------- ----- ---------- --------- ----------- -----------
--------- ----- ---------- --------- ----------- -----------
<CAPTION>
DEFERRED STOCK ACCUMULATED
COMPENSATION DEFICIT TOTAL
-------------- ------------- ------------
<S> <C> <C> <C>
Balances, at December 31, 1995..................... $ -- $(2,031,216) $ (1,184,168)
Conversion of prior year common stock par value.... --
Issuance of common stock to founders............... 203,952
Issuance of common stock for purchase of certain
third party assets............................... 6,000
Issuance of Series A preferred stock for cash, net
of $27,449 in issuance costs..................... 7,472,569
Issuance of Series B preferred stock for cash, net
of $31,231 in issuance costs..................... 8,218,788
Exercise of stock options.......................... 29,123
Net loss........................................... (7,270,016) (7,270,016)
-------------- ------------- ------------
Balances, December 31, 1996........................ -- (9,301,232) 7,476,248
Issuance of Series C preferred stock for cash, net
of $38,252 in issuance costs..................... 2,856,508
Issuance of Series A-1 preferred stock for cash.... 1,302,642
Exercise of stock options.......................... 19,500
Deferred stock compensation........................ (1,206,098) --
Amortization of deferred stock compensation........ 470,455 470,455
Net loss........................................... (9,062,723) (9,062,723)
-------------- ------------- ------------
Balances, December 31, 1997........................ (735,643) (18,363,955) 3,062,630
Issuance of Series D preferred stock for cash and
receivable, net of $1,649,000 in issuance
costs............................................ 29,398,395
Issuance of common stock for acquisition........... 8,389,042
Issuance of common stock warrants in connection
with acquisition................................. 113,071
Exercise of stock options.......................... 568,321
Deferred stock compensation........................ (1,617,928) --
Amortization of deferred stock compensation........ 540,489 540,489
Net loss........................................... (22,489,876) (22,489,876)
-------------- ------------- ------------
Balances, December 31, 1998........................ (1,813,082) (40,853,831) 19,582,072
Issuance of Series E preferred stock for cash and
receivable, net of $37,482 in issuance costs..... 34,962,528
Issuance costs of Series D preferred stock......... (33,601)
Issuance of common stock for cash.................. 296,930
Exercise of stock options.......................... 556,335
Deferred stock compensation........................ (1,679,421) --
Amortization of deferred stock compensation........ 580,504 580,504
Net loss........................................... (14,998,470) (14,998,470)
-------------- ------------- ------------
Balances, June 30, 1999 (unaudited)................ $ (2,911,999) $(55,852,301) $ 40,946,298
-------------- ------------- ------------
-------------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss............................................. $(7,270,016) $(9,062,723) $(22,489,876) $(7,889,520) $(14,998,470)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 399,091 411,339 984,877 329,403 683,101
Amortization of deferred stock compensation........ -- 470,455 540,489 191,500 580,504
Amortization of intangible assets.................. -- -- -- -- 1,564,524
Loss on software licenses.......................... -- -- 5,450,000 -- --
Income from sale of property and casualty agents
line of business................................. -- -- (650,000) -- --
Revenue from software license agreement............ -- -- (350,000) -- --
Noncompete agreement expense....................... -- -- 50,000 -- --
Foreign currency transaction gain on note
payable.......................................... -- -- -- -- (66,325)
Equity loss from joint venture..................... -- -- -- -- 18,374
Changes in assets and liabilities:
Accounts receivable................................ (70,406) (37,174) (1,075,355) (306,027) (3,193,537)
Receivable from employees.......................... -- (21,083) 21,083 20,862 (13,611)
Prepaid expenses and other current assets.......... (91,404) 33,010 (559,881) (568,773) (1,146,342)
Deposits........................................... 11,640 (23,514) (1,366,353) (1,398,363) (700,097)
Accounts payable................................... (106,639) 24,940 261,475 (60,959) 924,637
Accrued expenses................................... (14,810) 211,193 1,022,171 197,197 909,589
Deferred revenue................................... 35,017 33,248 152,556 70,054 (12,342)
Interest received on note receivable from officer.... -- 77,211 68,436 45,374 --
Interest paid on note payable to officer............. -- (68,938) (68,436) (45,374) --
----------- ----------- ------------ ----------- ------------
Net cash used in operating activities............ (7,107,527) (7,952,036) (18,008,814) (9,414,626) (15,449,995)
----------- ----------- ------------ ----------- ------------
Cash flows from investing activities:
Purchase of intangible assets........................ (62,423) -- -- -- --
Purchase of short term investments................... -- -- -- -- (15,839,864)
Purchases of property and equipment.................. (656,168) (684,673) (3,972,587) (809,492) (2,954,461)
Sales of property and equipment...................... -- 11,313 35,334 -- --
Cash acquired in acquisition......................... -- -- 16,708 -- --
----------- ----------- ------------ ----------- ------------
Net cash used in investing activities............ (718,591) (673,360) (3,920,545) (809,492) (18,794,325)
----------- ----------- ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of Series A preferred stock... 7,500,018 -- -- -- --
Proceeds from issuance of Series B preferred stock... 8,250,019 -- -- -- --
Proceeds from issuance of Series C preferred stock... -- 2,894,760 -- -- --
Proceeds from issuance of Series A-1 preferred
stock.............................................. -- 1,302,642 -- -- --
Proceeds from issuance of Series D preferred stock... -- -- 8,048,018 -- 22,999,377
Proceeds from issuance of Series E preferred stock... -- -- -- -- 35,000,010
Payment of issuance costs related to preferred stock
financing.......................................... (58,680) (38,252) -- -- (1,720,083)
Proceeds from issuance of common stock............... 152,952 -- -- -- 296,930
Proceeds from exercise of stock options.............. 29,123 19,500 568,321 20,700 556,335
Issuance of notes receivable from officer............ (1,602,211) -- (4,000,000) -- --
Proceeds from repayment of notes receivable from
officer............................................ 355,646 -- 5,525,000 -- --
Payment to Series B stockholder...................... -- -- -- -- (2,250,000)
Payment of note payable to officer................... -- -- (1,525,000) -- (25,000)
Proceeds from line of credit from affiliate.......... -- -- 23,290,000 8,025,000 --
Payments on line of credit from affiliate............ -- -- (4,000,000) -- (19,290,000)
----------- ----------- ------------ ----------- ------------
Net cash provided by financing activities........ 14,626,867 4,178,650 27,906,339 8,045,700 35,567,569
----------- ----------- ------------ ----------- ------------
Net increase (decrease) in cash and cash equivalents... 6,800,749 (4,446,746) 5,976,980 (2,178,418) 1,323,249
Cash and cash equivalents, beginning of period......... 6,150 6,806,899 2,360,153 2,360,153 8,337,133
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents, end of period............... $ 6,806,899 $ 2,360,153 $ 8,337,133 $ 181,735 $ 9,660,382
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
</TABLE>
F-6
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the period for interest............. $ 17,157 $ 192,493 $ 794,406 $ 246,896 $ 1,229,448
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Supplemental schedule of noncash financing activities:
Note payable to Series B preferred stockholder for
software license and noncompete agreement, net of
income from sale of property and casualty agents
line of business and software license agreement.... $ -- $ -- $ 4,500,000 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Note payable to strategic partner for initial
investment in joint venture........................ $ -- $ -- $ 2,089,137 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Issuance of common stock for certain assets.......... $ 57,000 $ -- $ -- $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Deferred stock compensation from issuance of options $ -- $ 1,206,098 $ 1,617,928 $ -- $ 1,679,421
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Issuance of common stock for Benelytics, Inc.
acquisition........................................ $ -- $ -- $ 8,389,042 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Issuance of common stock warrants for Benelytics,
Inc. acquisition................................... $ -- $ -- $ 113,071 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Receivable for sale of Series D preferred stock...... $ -- $ -- $ 22,999,377 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Series D preferred stock issuance costs accrued but
not paid........................................... $ -- $ -- $ 1,649,000 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Proceeds from sale of a portion of InsWeb Japan K.K.
used to reduce note payable to the strategic
partner............................................ $ -- $ -- $ -- $ -- $ 782,630
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. BUSINESS OF THE COMPANY
InsWeb Corporation, formerly Strategic Concepts Corporation (the Company),
was incorporated in the State of California on February 28, 1995 to provide,
through InsWeb's site, a centralized interactive marketplace for insurance
information and electronic quotation. In November 1996, the Company was
reincorporated as a Delaware corporation. The Company conducts its business
within one industry segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries, InsWeb Insurance Services, Inc. (formerly
Avatar Insurance Services, Inc.) and Benelytics, Inc. Benelytics, Inc. was
purchased on December 31, 1998, and the acquisition was accounted for as a
purchase. Accordingly, the results of operations of Benelytics, Inc. for the
year ended December 31, 1998 are not included in the consolidated financial
statements. All significant intercompany accounts and transactions have been
eliminated in the consolidated financial statements. Investments in 20 to 50
percent owned affiliates are accounted for on the equity method. All common
share and per share amounts reflect a 10-for-1 split approved by the Board of
Directors in 1997 and a 3-for-2 split authorized in June 1999 (see Note 11).
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less at the date of purchase to be cash equivalents. Cash and cash
equivalents are stated at cost, which approximates market.
SHORT-TERM INVESTMENTS
The Company accounts for its short-term investments under Statement of
Financial Accounting Standards No. 115 (SFAS No. 115), ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES. SFAS No. 115 requires the
classification of investments in debt and equity securities with readily
determined fair values as "held-to-maturity," "available-for-sale," or
"trading." The Company's policy is to protect the value of investment portfolio
and to minimize principal risk by earning returns based on current interest
rates. Management determines the appropriate classification of its debt and
equity securities at the time of purchase and reevaluates such designation as of
each balance sheet date. The Company's debt securities are classified as
available-for-sale and are carried at fair value based on quoted market prices,
with unrealized gains and losses, if material, reported as a component of other
comprehensive income (loss) in stockholder's equity. The cost of securities sold
is based on the specific identification method.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, short-term investments, accounts
receivable, accounts payable and accrued expenses, approximate fair value due to
their short maturities. In addition, the carrying amounts of
F-8
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the note receivable from and notes payable to officer, line of credit from
affiliate and note payable to the Series B stockholder approximate fair value
due to their short maturities.
REVENUE RECOGNITION
Transaction fee revenue is recognized when a qualified consumer lead is
delivered to an insurance company customer. Revenue from development fees is
recognized when the development work is completed and the insurance company's
integration with the Company's site becomes operational. Maintenance revenue is
recognized ratably over the term of the customer agreement. Other revenue
represents revenue from operating activities which are nonrecurring in nature
and is recognized when the service is performed and no additional significant
obligations exist. Deferred revenue represents prepayment for development and
maintenance services which will be rendered in the future.
UNAUDITED INTERIM RESULTS
The accompanying interim financial statements as of June 30, 1999, and for
the six months ended June 30, 1998 and 1999, are unaudited. The unaudited
interim financial statements have been prepared on the same basis as the annual
financial statements and, in the opinion of management, reflect all adjustments,
which include only normal recurring adjustments, necessary to present fairly the
Company's financial position as of June 30, 1999 and results of operations and
cash flows for the six months ended June 30, 1998 and 1999. The financial data
and other information disclosed in these notes to consolidated financial
statements related to these periods are unaudited. The results for the six
months ended June 30, 1999 are not necessarily indicative of the results to be
expected for the year ending December 31, 1999.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to product development expense as
incurred.
ONLINE MARKETING FEES
The Company enters into marketing agreements, which require revenue sharing
from transaction fees and fixed fee payments, with various participating online
companies. Revenue sharing from transaction fees are expensed in the period the
related qualified consumer lead is delivered to an insurance company customer.
Fixed fee payments are capitalized and expensed on a straight-line basis over
the term of the agreement.
ADVERTISING COSTS
Costs related to advertising and promotion of products are charged to sales
and marketing expense as incurred. Advertising costs charged to expense for the
years ended December 31, 1996, 1997 and 1998 were $117,707, $41,579 and
$2,338,378, respectively, and for the six months ended June 30, 1998 and 1999
were $700,065 and $3,872,395, respectively.
F-9
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation on computer and office equipment, furniture and fixtures and
purchased software is calculated using the straight-line method over the
estimated useful lives of the assets, generally three to five years.
Amortization on leasehold improvements is calculated using the straight-line
method over the estimated useful lives of the improvements or the remaining life
of the lease, whichever is shorter. When property and equipment are retired or
otherwise disposed of, the cost and related accumulated depreciation are removed
from the accounts and the resulting gain or loss is included in income.
Expenditures for maintenance and repairs are charged to expense as incurred.
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121 (SFAS No.
121), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. SFAS No. 121 requires recognition of impairment losses
related to long-lived assets in the event the net carrying value of such assets
exceeds the future undiscounted cash flows attributable to such assets. The
Company assesses the impairment of its long-lived assets when events or changes
in circumstances indicate that the carrying value of an asset may not be
recoverable.
INTANGIBLE ASSETS
Intangible assets are recorded at cost. Amortization is provided on a
straight-line method over the estimated useful lives of the related assets.
Management estimates the useful lives of the purchased software, non-compete
agreements, assembled workforce and contractual relationships to be two years.
Unidentified assets allocated to goodwill are being amortized over three years.
DEPOSITS
The Company has made payments to collateralize certain lease commitments
which have been recorded as deposits.
FOREIGN CURRENCY TRANSLATIONS
The long-term note payable to strategic partner is translated from Japanese
yen into U.S. dollars in accordance with SFAS No. 52, FOREIGN CURRENCY
TRANSLATION. Accordingly, it is translated at the current exchange rate as of
the applicable balance sheet date. Foreign currency transaction gains and losses
have not been material to date.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk, as defined by SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH
CONCENTRATIONS OF CREDIT RISK, consist principally of cash, cash equivalents,
short-term investments and accounts receivable. The Company deposits its cash
F-10
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
and cash equivalents with a single major bank, which deposits may exceed federal
deposit insurance limits.
The Company's short-term investments consist of diversified investment grade
securities. The Company's investment policy limits the amount of credit exposure
to investments in any one issue, and the Company believes no significant
concentration of credit risk exists with respect to these investments.
With respect to accounts receivable, while the Company's customer base is
dispersed across many different geographic areas, most customers are in a single
industry in the United States. The Company performs ongoing credit evaluations
of its customers and generally does not require collateral. The Company reviews
the need for allowances for potential credit losses and such losses have been
within management's expectations.
For the year ended December 31, 1996, two customers accounted for 12.5% and
17.9%, respectively, of total revenues. For the year ended December 31, 1997,
one customer accounted for 19.4% of total revenues. For the year ended December
31, 1998, three customers accounted for 10.3%, 16.3% and 39.5%, respectively, of
total revenues. For the six months ended June 30, 1998, three customers
accounted for 13.3%, 17.3% and 35.5%, respectively, of total revenues. For the
six months ended June 30, 1999, three customers accounted for 10.5%, 12.2% and
30.9%, respectively, of total revenues.
RISKS AND UNCERTAINTIES
The Company is subject to all of the risks inherent in an early stage
business in the electronic commerce industry. These risks include, but are not
limited to, a limited operating history, limited management resources,
dependence upon consumer acceptance of the Internet, Internet related security
risks and the changing nature of the electronic commerce industry. Due to the
foregoing factors, the Company's operating results may be materially affected.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
F-11
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, and complies with the disclosure provisions of
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Under APB No. 25,
compensation expense is based on the difference, if any, between the fair value
of the Company's stock and the exercise price of the option on the measurement
date, which is typically the date of grant.
The Company accounts for options granted to non-employees under SFAS No.
123. Under SFAS No. 123, options are recorded at their fair value on the
measurement date, which is typically the date of grant.
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of
shares of common stock outstanding while diluted earnings per share reflects the
potential dilution that would occur if preferred stock had been converted and
stock options and warrants had been exercised. Common equivalent shares from
preferred stock, stock options and warrants have been excluded from the
computation of net loss per share-diluted as their effect is antidilutive.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from nonowner sources. The adoption of this statement had no
material impact on the Company's financial statements for the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
On March 4, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
(SOP) 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED
FOR INTERNAL USE. SOP 98-1 requires that the costs of computer software
developed or obtained for internal use be capitalized. SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998.
Accordingly, the Company will adopt SOP 98-1 in its financial statements for the
year ending December 31, 1999. The impact on the financial statements of the
adoption of this standard is not expected to be material.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. The Company
does not believe the adoption of SFAS No. 133 will have a material effect on the
Company's results of operations or financial condition.
F-12
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the prior years' financial statements have been
reclassified to conform to the December 31, 1998 presentation. These
reclassifications did not change previously reported total assets, liabilities,
stockholders' equity or net loss.
3. CASH, CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
Cash, cash equivalents and short-term investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------- ------------- JUNE 30,
1999
--------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and cash equivalents
Cash......................................... $ 1,000 $ 315,263 $ 22,659
Money market funds........................... 2,359,153 8,021,870 5,651,695
Commercial paper............................. -- -- 3,986,028
------------- ------------- --------------
2,360,153 8,337,133 9,660,382
Short-term investments
Commercial paper............................. -- -- 15,839,864
------------- ------------- --------------
Cash, cash equivalents and short-term
investments.................................. $ 2,360,153 $ 8,337,133 $ 25,500,246
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
Through June 30, 1999, the difference between the fair value and the
amortized cost of available-for-sale securities was not significant; therefore,
no unrealized gains or losses have been recorded in stockholder's equity. At
June 30, 1999, the contractual maturity of the Company's short-term investments
was less than five months.
4. BENELYTICS, INC. ACQUISITION
On December 31, 1998, the Company acquired all of the outstanding shares of
Benelytics, Inc. in exchange for 908,561 shares and warrants to purchase an
aggregate of 12,246 shares (see Note 12) of the Company's common stock valued at
$9.23 per share. Transaction costs of $85,800 were incurred.
The acquisition has been accounted for under the purchase method of
accounting. The aggregate purchase price of $8,587,913, together with $172,418
of liabilities assumed, has been allocated based on the fair value of the assets
acquired. The tangible assets of $63,190 comprise cash and fixed assets.
Intangible assets of $1,380,000 comprise purchased software, non-compete
agreements, assembled workforce and contractual relationships and are being
amortized over two years. Goodwill of $7,317,141 is being amortized over three
years.
The following pro forma results of operations reflect the combined results
of the Company and Benelytics, Inc. for the fiscal years ended December 31, 1997
and 1998 and have been prepared
F-13
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
4. BENELYTICS, INC. ACQUISITION (CONTINUED)
as though the entities had been combined as of January 1, 1997 and 1998. The
proforma results do not reflect any nonrecurring charges which resulted directly
from the transaction.
<TABLE>
<CAPTION>
1997 1998
--------------- ---------------
(UNAUDITED)
<S> <C> <C>
Revenues................................................... $ 749,671 $ 4,315,126
Net loss................................................... $ (12,820,740) $ (26,968,212)
Net loss per share......................................... $ (0.83) $ (1.72)
Shares used in computing net loss per share................ 15,509,879 15,677,903
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
1997 1998
------------- -------------- JUNE 30, 1999
--------------
(UNAUDITED)
<S> <C> <C> <C>
Computer and office equipment.................. $ 1,254,476 $ 1,972,168 $ 3,586,687
Furniture and fixtures......................... 192,920 1,010,266 1,414,563
Leasehold improvements......................... 97,643 1,986,897 2,170,054
Purchased software............................. 168,995 386,566 1,000,211
------------- -------------- --------------
1,714,034 5,355,897 8,171,515
Less accumulated depreciation and
amortization................................. (714,707) (1,357,712) (1,901,970)
------------- -------------- --------------
$ 999,327 $ 3,998,185 $ 6,269,545
------------- -------------- --------------
------------- -------------- --------------
</TABLE>
Depreciation and amortization expense was $399,091, $411,339 and $984,877
for the years ended December 31, 1996, 1997 and 1998, respectively. Depreciation
and amortization expense was $329,403 and $683,101 for the six months ended June
30, 1998 and 1999, respectively.
6. INVESTMENT IN JOINT VENTURE
On December 15, 1998, the Company entered into a Joint Venture Agreement
with a strategic partner. The purpose of the joint venture is to develop,
implement and market an online insurance marketplace in Japan and the Republic
of Korea. The joint venture contemplated by the agreement will be carried out
exclusively through a newly-formed Japanese corporation, InsWeb Japan K.K. On
December 30, 1998, the Company purchased 40% of InsWeb Japan K.K. from the
strategic partner. The purchase was financed by a promissory note payable to the
strategic partner.
On May 14, 1999, the Company sold a portion of its interest in InsWeb Japan
K.K. to a common stockholder for $782,630. As a result of this sale, the
Company's interest in this joint venture decreased from 40% to 25%. The Company
used the proceeds from the sale to partially repay the note payable to the
strategic partner. (See Note 10).
F-14
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
7. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1998
-------------- JUNE 30, 1999
--------------
(UNAUDITED)
<S> <C> <C>
Purchased software............................................ $ 850,000 $ 850,000
Non-compete agreements........................................ 320,000 320,000
Assembled workforce........................................... 100,000 100,000
Contractual relationships..................................... 110,000 110,000
Goodwill...................................................... 7,317,141 7,317,141
-------------- --------------
8,697,141 8,697,141
Less accumulated amortization................................. -- (1,564,524)
-------------- --------------
$ 8,697,141 $ 7,132,617
-------------- --------------
-------------- --------------
</TABLE>
Amortization expense was $0 for the year ended December 31, 1998 and
$1,564,524 for the six months ended June 30, 1999.
8. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1997 1998
----------- ------------- JUNE 30, 1999
-------------
(UNAUDITED)
<S> <C> <C> <C>
Accrued employee compensation...................... $ 176,386 $ 309,311 $ 1,020,501
Accrued interest................................... -- 652,681 6,738
Accrued expenses for Series D financing............ -- 1,649,000 --
Accrued payments to vendors........................ 120,403 442,872 924,780
Accrued fee sharing................................ -- -- 319,697
Other.............................................. 21,977 65,498 108,235
----------- ------------- -------------
$ 318,766 $ 3,119,362 $ 2,379,951
----------- ------------- -------------
----------- ------------- -------------
</TABLE>
9. COMMITMENTS
LEASES
The Company leases its current office facilities under noncancelable
operating leases which expire at various dates through September 2008.
F-15
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
9. COMMITMENTS (CONTINUED)
At June 30, 1999, future minimum lease payments under noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
1999.......................................................... $ 1,845,135
2000.......................................................... 2,339,919
2001.......................................................... 2,448,539
2002.......................................................... 2,525,532
2003.......................................................... 2,459,320
Thereafter.................................................... 11,489,936
-----------
$23,108,381
-----------
-----------
</TABLE>
Net rent expense for the years ended December 31, 1996, 1997 and 1998 was
$496,031, $474,104 and $1,093,735 (net of sublease rental income of $49,324,
$40,485 and $26,222), respectively, and the net rent expense for the six months
ended June 30, 1998 and 1999 was $455,903 and $498,180 (net of sublease rental
income of $0 and $338,688), respectively.
One of the office leases is for a 65,000 square foot building in Redwood
City, California. Under the terms of this lease, the Company is responsible for
taxes, insurance and maintenance expenses. This lease includes the option to
extend the term for two consecutive five-year periods at the expiration of the
initial term and at the end of the first five-year extension period.
MARKETING AGREEMENTS
The Company is required to make fixed payments under various marketing
agreements, which expire at various dates through April 2001.
At June 30, 1999, future minimum payments under these agreements are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1999.......................................................................... $ 3,411,464
2000.......................................................................... 4,211,178
2001.......................................................................... 2,690,369
--------------
$ 10,313,011
--------------
--------------
</TABLE>
LITIGATION
From time to time, the Company is subject to legal proceedings and claims in
the ordinary course of business. The Company currently is not aware of any legal
proceedings or claims that it believes will have, individually or in the
aggregate, a material adverse effect on its business, prospects, financial
condition and operating results.
F-16
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
10. RELATED PARTY TRANSACTIONS
STOCKHOLDER AND CUSTOMER
A stockholder, who is also a customer, accounted for $15,650, $163,175 and
$133,517 of the Company's revenue during 1996, 1997 and 1998, respectively. For
the six months ended June 30, 1998 and 1999, the customer accounted for $27,408
and $430,845 of the Company's revenue, respectively. This customer accounted for
$2,780 and $34,600 of accounts receivable at December 31, 1997 and 1998,
respectively, and $224,145 of accounts receivable at June 30, 1999.
NOTES PAYABLE TO OFFICERS
From the Company's inception through March 1996, the Company borrowed from
its Chief Executive Officer an aggregate of $1,721,569 to cover start-up costs.
The loan was evidenced by an uncollateralized demand promissory note bearing
interest at 6% per annum. The Company paid $196,569 on the note in 1996 and paid
the remaining balance of $1,525,000 in September 1998.
In December 1998, Benelytics, Inc. borrowed $25,000 from its President in
exchange for an uncollateralized demand promissory note bearing interest at
4.33% per annum. The note was paid in full by the Company in January 1999.
NOTES RECEIVABLE FROM OFFICERS
In February 1996, the Company lent the Chief Executive Officer $1,525,000.
The loan was evidenced by an uncollateralized demand promissory note bearing
interest at 6% per annum. The Chief Executive Officer paid the note in full in
September 1998.
In August 1998, the Company lent the Chief Executive Officer and the
President $3,000,000 and $1,000,000, respectively, in exchange for promissory
notes. The notes accrued interest at 15% per annum and were collateralized by
shares of the Company's common stock owned by the officers. The officers used
the proceeds of these loans to acquire another stockholder's interest in 885,000
shares of the Company's common stock. These notes and accrued interest were paid
in full in September 1998.
AFFILIATE AND CUSTOMER
An affiliate, who owns a majority interest in the Company's Series B
preferred stockholder, is also a customer and accounted for $247,711 of the
Company's revenue during 1998. For the six months ended June 30, 1998 and 1999,
the customer accounted for $176,240 and $133,459 of the Company's revenue,
respectively. This customer accounted for $0 and $6,405 of accounts receivable
at December 31, 1997 and 1998, respectively, and $35,280 of accounts receivable
at June 30, 1999.
NOTE PAYABLE TO STRATEGIC PARTNER
On December 30, 1998, the Company purchased a 40% interest in InsWeb Japan
K.K in exchange for a promissory note in the principal amount of $2,089,137 (see
Note 6). The promissory note is payable in Yen and accrues interest at 5% per
annum, which is payable quarterly on the last
F-17
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
day of each calendar quarter. The promissory note, together with all accrued and
unpaid interest, is due and payable on the earlier of the closing date of an
initial public offering of the securities of InsWeb Japan K.K. or December 15,
2002. Interest expense for the six months ended June 30, 1999 was $44,993. In
conjunction with the sale of a portion of its investment in InsWeb Japan K.K. in
May 1999 (see Note 6), the Company prepaid $782,630 of the promissory note.
STOCKHOLDER AGREEMENTS
In November 1996, the Company entered into the following agreements with the
Series B preferred stockholder (the Series B stockholder).
LINE OF CREDIT AGREEMENT
The Company obtained a five-year line of credit totaling $25,000,000 from
the Series B stockholder. In April 1998, the line of credit commitment was
assigned to and assumed by the majority stockholder of the Series B stockholder,
who is also a customer of the Company. In connection with the May 11, 1999 sale
of common and preferred stock from the Series B stockholder to the Series E
stockholder, the line of credit commitment was reduced to $12,500,000 (see
below).
Under the line of credit agreement, all borrowings are uncollateralized and
bear interest at 15% per annum. The Company may not declare or pay any dividends
while the credit agreement is in effect. The principal is due at the earlier of
the completion of a public offering of the Company's securities or November
2001, and interest is due quarterly. There were no borrowings in 1996 or 1997.
As of December 31, 1998, the Company had a balance of $19,290,000 outstanding,
which it repaid in March 1999. Interest expense related to the line of credit
was $1,311,119 for the year ended December 31, 1998 and $538,513 for the six
months ended June 30, 1999. At December 31, 1998 and June 30, 1999, there was
$623,191 and $0, respectively, of accrued interest payable.
ASSET PURCHASE AGREEMENT
In March 1997, the Company sold the assets of its Property and Casualty
Agents line of business to the Series B stockholder in accordance with an Asset
Purchase Agreement. The Company recognized the associated income of $650,000,
net of the related noncompete agreement payment, in December 1998 as other
income on the statement of operations.
JOINT MARKETING AND LICENSE AGREEMENT
In accordance with a Joint Marketing and License Agreement, the Company and
the Series B stockholder agreed to license certain software to each other. The
transfers of the licensed software were completed in December 1998. The
agreement specified the following cross-licensing fees: (i) the Company was to
pay the Series B stockholder $50,000 and $5,450,000 for a non-compete agreement
and five-year non-exclusive licenses to certain software owned by the Series B
stockholder, respectively, and (ii) the Series B stockholder was to pay the
Company $350,000 for five-year non-exclusive licenses to certain software owned
by the Company. In addition, the agreement provided for the payment of
transaction fees by each party to the other based on revenues resulting from the
joint marketing efforts and utilization of each other's software.
F-18
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
10. RELATED PARTY TRANSACTIONS (CONTINUED)
Under the terms of the Joint Marketing and License Agreement, the Company's
payments to the Series B stockholder of $5,500,000 were to be offset against the
Series B stockholder's payments to the Company of $1,000,000, consisting of the
$350,000 license fee payable under the agreement and of the $650,000 purchase
price payable under the Asset Purchase Agreement. Payment was originally to be
made in November 1998.
In December 1998, the parties agreed to amend the Joint Marketing and
License Agreement. The amendment eliminated the transaction fees and revised the
payment terms to allow the Company to make four quarterly payments to the Series
B stockholder of $1,125,000 each, due on the first day of each quarter beginning
January 1, 1999. No interest is payable on the outstanding balance. At December
31, 1998 and June 30, 1999, the Company owed the Series B stockholder $4,500,000
and $2,250,000, respectively. In addition, the Company changed its technology
plans in 1998 and determined that it will not be integrating the software
licensed from the Series B stockholder into its products. As a result, the
$5,450,000 software licenses were recorded as product development expense.
Regarding the software licensed to the Series B stockholder by the Company, the
Company is under no further obligation to deliver additional software or
documentation or to provide any maintenance for previously delivered software.
SALE OF COMMON AND PREFERRED STOCK
On May 11, 1999, the Series B stockholder sold 2,647,065 and 9,304 shares of
common and Series B preferred stock, respectively, to the Series E stockholder.
In connection with this sale, the Series B stockholder relinquished its special
voting privileges and one position on the Board of Directors (see Note 11). In
addition, in connection with this sale, the line of credit commitment with the
majority stockholder of the Series B stockholder was reduced to $12,500,000.
MARKETING AGREEMENTS
During the six months ended June 30, 1999, the Company recognized $1,990,897
in marketing expense under a marketing agreement with an Internet company. A
beneficial owner of 28.1% of the outstanding stock of the Internet company
became a principal stockholder of the Company on December 30, 1998.
F-19
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company had the following series of convertible preferred stock
authorized, issued and outstanding:
<TABLE>
<CAPTION>
ISSUED OUTSTANDING
--------------------------------- ---------------------------------
DECEMBER 31, DECEMBER 31, SERIES
-------------------- -------------------- LIQUIDATION
AUTHORIZED 1997 1998 1997 1998 PREFERENCE
----------- --------- --------- JUNE 30, --------- --------- JUNE 30, -----------
1999 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Series A........... 176,471 176,471 176,471 176,471 176,471 176,471 176,471 $ 7,500,018
Series A-1......... 27,864 27,864 27,864 27,864 27,864 27,864 27,864 1,302,642
Series B........... 176,471 176,471 176,471 176,471 176,471 176,471 176,471 8,250,019
Series C........... 61,920 61,920 61,920 61,920 61,920 61,920 61,920 2,894,760
Series D........... 190,621 -- 49,408 190,621 -- 190,621 190,621 31,047,395
Series E........... 185,775 -- -- 185,775 -- -- 185,775 35,000,010
</TABLE>
CONVERSION
Each share of preferred stock may be converted into shares of common stock
on a fifteen-for-one basis, subject to adjustments under specific circumstances.
Conversion is (i) at the option of the preferred stockholder, (ii) automatic
upon the closing of an initial public offering of the Company's common stock at
an aggregate offering price of at least $20,000,000 and per share offering price
of not less than $12.56, (iii) upon the vote or written consent of the holders
of a majority of the outstanding shares of preferred stock or (iv) if less than
10,000 shares of preferred stock shall remain outstanding. The Company has
reserved 12,286,830 shares of common stock for the conversion of the outstanding
and issuable shares of preferred stock.
DIVIDENDS
The holders of the Series A, Series A-1, Series B and Series C preferred
stock are entitled to annual noncumulative dividends of $4.00 per share when,
and if, declared by the Company's Board of Directors. The holders of the Series
D and Series E preferred stock are entitled to annual noncumulative dividends of
$14.00 and $16.00 per share, respectively, when, and if, declared by the
Company's Board of Directors. In accordance with its line of credit agreement
with its affiliate (see Note 10), the Company may not declare or pay any
dividends while the line of credit is in effect. As of June 30, 1999, no
dividends had been declared or paid.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company
either voluntary or involuntary, the assets of the Company available for
distribution shall be distributed (i) $42.50 per outstanding share of Series A
preferred stock, (ii) $46.75 per outstanding share of Series A-1, Series B and
Series C preferred stock, (iii) $162.875 per outstanding share of Series D
preferred stock and (iv) $188.40 per outstanding share of Series E preferred
stock. If the assets of the Company available for distribution are not
sufficient to pay the full amount of this distribution, such assets will be
distributed ratably among the holders of the preferred stock based on the full
F-20
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
preferential amount per share of the preferred stock that each such holder is
entitled to receive. Any assets of the Company available for distribution in
excess of the liquidation preference amounts will be distributed pro rata to the
holders of common stock based on the number of shares held.
REDEMPTION
The preferred stock is not redeemable.
VOTING RIGHTS
The holders of common stock are entitled to one vote for each share. The
holders of Series A, Series A-1, Series C, Series D and Series E preferred stock
are entitled to one vote for each share of common stock into which such share of
the preferred stock is convertible. Until May 1999, the holders of Series B
preferred stock were entitled to the number of votes necessary to constitute, in
the aggregate, 51% of the outstanding voting securities of the Company. The
Series B stockholder relinquished these privileges in connection with its May
11, 1999 sale of common and preferred stock to the Series E stockholder (see
Note 10).
As long as more than 88,236 shares of Series A preferred stock are
outstanding, the holders of Series A preferred stock and Series A-1 preferred
stock, voting together, are entitled to elect one member of the Company's Board
of Directors. As long as more than 176,471 shares of Series B preferred stock
are outstanding, the holders of Series B preferred stock are entitled to elect
two members of the Company's Board of Directors, and, if there are less than
176,471 but more than 88,236 shares of Series B preferred stock outstanding, the
holders of Series B preferred stock are entitled to elect one member of the
Board of Directors. As long as more than 49,408 shares of Series D preferred
stock are outstanding, the holders of Series D preferred stock are entitled to
elect one member of the Board of Directors. The holders of Series C and Series E
preferred stock and common stock, voting together, are entitled to elect the
remaining members of the Board of Directors.
Each member of the Board of Directors elected by the holders of Series A,
Series A-1, Series C, Series D and Series E preferred stock and common stock has
one vote, and the members of the Board of Directors elected by the holders of
Series B preferred stock, voting together, has that number of votes necessary to
constitute, in the aggregate, 51% of the outstanding votes held by all members
of the Board of Directors. The Series B stockholder relinquished these
privileges in connection with its May 11, 1999 sale of common and preferred
stock to the Series E stockholder (see Note 10).
Subsequent to the termination of the special voting privileges, described
above, the holders of Series B preferred stock are entitled to one vote for each
share of common stock into which such share of Series B preferred stock is then
convertible, and each director elected by the holders of the Series B preferred
stock has one vote.
F-21
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
COVENANTS
Under the stock purchase agreement pursuant to which the current holder of
Series B preferred stock acquired such shares, (i) the current Series B
stockholder shall have the right to name the Company's Chief Executive Officer
if, for any reason, the current Chief Executive Officer terminates his
employment with the Company, or if on November 22, 2001, there has not been a
closing of an initial public offering of the Company's securities; and (ii) the
current Series B stockholder shall purchase all of the Chief Executive Officer's
ownership in the Company at a price to be determined by an independent
investment banker in the case of the death or permanent disability of the
current Chief Executive Officer, at his or his heirs' election. The current
Chief Executive Officer has the sole discretion as to when and whether the
Company will sell its common stock in a public offering, so long as he holds
2,250,000 shares of the Company's stock.
REGISTRATION RIGHTS
The holders of preferred stock and certain holders of common stock are
entitled to certain rights with respect to the registration of certain
outstanding common stock and common stock issuable upon conversion of
outstanding preferred stock (the Registrable Securities). Beginning six months
after the effective date of the first registration statement for a public
offering of the Company's securities, holders of Series A, Series A-1, Series D
and Series E preferred stock will have the right to require the Company, on not
more than one occasion, to file a registration statement under the Securities
Act, at the Company's expense, in order to register such number of Registrable
Securities as such holders desire to include in such registration statement,
together with the Registrable Securities of other holders who wish to
participate in such registrations, provided that the aggregate offering price of
the included Registrable Securities is at least $10,000,000. The Company may, in
certain circumstances, defer such registration, and the underwriters of such an
offering have the right, subject to certain limitations, to limit the number of
shares included in such registration. In the event that the Company proposes to
register any of its securities under the Securities Act for its own account or
for the account of other security holders, holders of Registrable Securities are
entitled to notice of such registration and have the right to include some or
all of the Registrable Securities held by them in such registration at the
Company's expense, subject to marketing and other limitations.
COMMON STOCK
In June, 1999, the Board of Directors approved a three-for-two stock split
of its common stock. All common share and per common share amounts in the
accompanying consolidated financial statements have been restated to give
retroactive effect to the stock split for all periods. Prior to giving
retroactive effect to the stock split, net loss per share--basic and diluted was
$0.84, $0.93 and $2.28 for the years ended December 31, 1996, 1997 and 1998,
respectively, and $0.81 and $1.39 for the six months ended June 30, 1998 and
1999, respectively.
F-22
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLANS
In September 1995, the Company authorized the 1995 Stock Option Plan (the
1995 Plan) under which the Board of Directors may grant incentive stock options
to employees of the Company and its subsidiaries. Under the 1995 Plan, the Board
of Directors may also grant nonqualified stock options to employees, officers,
directors, independent contractors and consultants of the Company and its
subsidiaries. Options granted under the 1995 Plan during 1995 and 1996 became
fully vested in November 1996 due to the change in control of ownership
following the execution of the Series B stock purchase agreement. In 1997, the
Board of Directors terminated the 1995 Plan and provided that no further options
would be granted pursuant to the 1995 Plan, but that the terms of the 1995 Plan
would continue to govern the options then outstanding under the 1995 Plan.
In July 1997, the Company authorized the 1997 Stock Option Plan (the 1997
Option Plan) and the Senior Executive Option Plan (the Executive Plan). Under
the 1997 Option Plan the Board of Directors may issue incentive stock options to
employees of the Company and its subsidiaries and may also issue nonqualified
stock options to employees, officers, directors, independent contractors and
consultants of the Company and its subsidiaries. Under the Executive Plan the
Board of Directors may issue nonqualified stock options to employees, officers
and directors of the Company and its subsidiaries. Following attendance at each
regularly scheduled meeting of the Board of Directors, each eligible director is
granted a fully-vested option to purchase 750 shares of common stock.
As of June 30, 1999, 6,183,030 total shares of the Company's common stock
have been reserved for issuance upon exercise of stock options under the 1997
Option Plan and the Executive Plan. The 1997 Option Plan was amended in August
1998, providing an automatic annual increase in the share reserve, to be
effective on the first day of each fiscal year, by a number of shares equal to
5% of the number of common shares outstanding as of the last day of the
preceding fiscal year.
Options granted under the Plans generally vest in equal monthly installments
over a three-year period, except for certain options granted to members of the
Company's Board of Directors, which vest immediately. The options expire ten
years from the date of grant.
F-23
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
Activity under all the Plans is as follows:
<TABLE>
<CAPTION>
SHARES
AVAILABLE NUMBER OF EXERCISE AGGREGATE WEIGHTED AVERAGE
FOR GRANT SHARES PRICE PRICE EXERCISE PRICE
------------ ------------ ------------- ----------- -------------------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1995............ 300,000 1,950,000 $0.016 $ 31,200 $ 0.02
Additional shares reserved............. 1,734,705 --
Options granted........................ (257,250) 257,250 $0.50 128,625 $ 0.50
Options exercised...................... -- (1,816,305) $0.016-$0.50 (29,123) $ 0.02
Options canceled....................... 27,000 (27,000) $0.50 (13,500) $ 0.50
------------ ------------ -----------
Balances, December 31, 1996............ 1,804,455 363,945 $0.016-$0.50 117,202 $ 0.32
Options granted........................ (1,228,650) 1,228,650 $1.30-$2.65 2,528,147 $ 2.06
Options exercised...................... -- (15,000) $1.30 (19,500) $ 1.30
Options canceled....................... 31,575 (31,575) $0.50-$2.65 (22,228) $ 0.70
------------ ------------ -----------
Balances, December 31, 1997............ 607,380 1,546,020 $0.016-$2.65 2,603,621 $ 1.68
Additional shares reserved............. 750,000 --
Options granted........................ (1,171,388) 1,171,388 $2.65-$5.00 4,513,065 $ 3.85
Options exercised...................... -- (419,957) $1.30-$2.65 (568,321) $ 1.35
Options canceled....................... 200,636 (200,636) $0.50-$2.65 (476,626) $ 2.38
------------ ------------ -----------
Balances, December 31, 1998............ 386,628 2,096,815 $0.016-$5.00 6,071,739 $ 2.90
Additional shares reserved............. 3,600,000 --
Options granted........................ (1,755,910) 1,755,910 $5.00-$10.67 $17,546,734 $ 10.00
Options exercised...................... -- (266,034) $0.50-$10.67 (556,837) $ 2.09
Options canceled....................... 116,868 (116,868) $2.65-$10.67 (636,895) $ 5.28
------------ ------------ -----------
Balances, June 30, 1999 (unaudited).... 2,347,586 3,469,823 $0.016-$10.67 $22,424,741 $ 6.46
------------ ------------ -----------
------------ ------------ -----------
</TABLE>
Options outstanding and currently exercisable by exercise price at June 30,
1999 are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS CURRENTLY
- ---------------------------------------------- EXERCISABLE
WEIGHTED AVERAGE -----------------
EXERCISE NUMBER REMAINING CONTRACTUAL NUMBER
PRICES OUTSTANDING LIFE OUTSTANDING
- --------- ------------ --------------------- -----------------
<S> <C> <C> <C>
$ 0.016 61,620 6.25 61,620
$ 0.50 140,700 7.04 130,700
$ 1.30 166,352 8.05 114,478
$ 2.65 434,012 8.20 202,770
$ 3.12 483,004 9.03 94,005
$ 5.00 474,509 9.26 69,444
$ 9.23 776,355 9.77 14,508
$ 10.67 933,271 9.90 27,116
------------ --------
3,469,823 714,641
------------ --------
------------ --------
</TABLE>
The Company accounts for employee and board of director stock options in
accordance with the provisions of APB No. 25 and complies with the disclosure
provisions of SFAS No. 123.
F-24
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
Under APB No. 25, compensation expense is recognized based on the amount by
which the fair value of the underlying common stock exceeds the exercise price
of the stock options at the measurement date, which in the case of employee
stock options is typically the date of grant. For financial reporting purposes,
the Company has determined that the deemed fair market value on the date of
grant of certain employee stock options was in excess of the exercise price of
the options. This amount is recorded as deferred compensation and is classified
as a reduction of stockholders' equity and is amortized as a charge to
operations over the vesting period of the applicable options. The vesting period
is generally three years. Consequently, the Company recorded deferred stock
compensation of $1,206,098 and $1,617,928 during the years ended December 31,
1997 and 1998, respectively and $1,679,421 during the six months ended June 30,
1999. Amortization recognized for the years ended December 31, 1997 and 1998 and
the six months ended June 30, 1998 and 1999 totaled $470,455, $540,489, $191,500
and $580,504, respectively. The Company's stock option grants and related deemed
fair value are as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED
OPTIONS AVERAGE WEIGHTED AVERAGE
GRANTED EXERCISE PRICE DEEMED FAIR VALUE
----------- -------------- -----------------
<S> <C> <C> <C>
For year ended December 31, 1996
Options granted at deemed fair value.................. 257,250 $ 0.500 $ 0.500
----------- -------------- --------
----------- -------------- --------
For year ended December 31, 1997
Options granted at deemed fair value.................. 168,750 $ 1.317 $ 1.317
Options granted below deemed fair value............... 1,059,900 $ 2.178 $ 3.117
----------- -------------- --------
Total............................................... 1,228,650 $ 2.060 $ 2.869
----------- -------------- --------
----------- -------------- --------
For year ended December 31, 1998
Options granted at deemed fair value.................. 502,838 $ 4.188 $ 4.188
Options granted below deemed fair value............... 668,550 $ 3.548 $ 6.019
----------- -------------- --------
Total............................................... 1,171,388 $ 3.850 $ 5.233
----------- -------------- --------
----------- -------------- --------
For six months ended June 30, 1999
Options granted at deemed fair value.................. 323,384 $ 9.256 $ 9.256
Options granted below deemed fair value............... 1,432,526 $ 10.168 $ 11.294
----------- -------------- --------
Total............................................... 1,755,910 $ 10.000 $ 10.918
----------- -------------- --------
----------- -------------- --------
</TABLE>
F-25
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
11. STOCKHOLDERS' EQUITY (CONTINUED)
Had compensation cost for option grants to employees been determined
consistent with SFAS No. 123, the Company's net loss would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
-------------- -------------- ---------------
<S> <C> <C> <C>
Net loss as reported......................... $ (7,270,016) $ (9,062,723) $ (22,489,876)
Net loss per share as reported............... $ (0.56) $ (0.62) $ (1.52)
Net loss--pro forma.......................... $ (7,270,016) $ (9,078,246) $ (22,538,660)
Net loss per share--pro forma................ $ (0.56) $ (0.62) $ (1.52)
</TABLE>
The above pro forma disclosures are not necessarily representative of the
effects on reported income or loss for future years as additional grants are
made each year and options vest over several years.
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes options pricing model with the following assumptions by year:
<TABLE>
<CAPTION>
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Risk-free interest rate............................ 5.3 - 6.6% 4.6 - 6.2% 4.6 - 5.6%
Expected life...................................... 3 years 3 years 3 years
Expected dividend yield............................ -- -- --
Volatility......................................... -- -- --
</TABLE>
The risk-free interest rate range represents the low and high end of the
range used at different points during the year. Because the Company does not
have actively traded equity securities, volatility is not considered in
determining the value of options granted to employees.
EMPLOYEE STOCK PURCHASE PLAN
On June 24, 1999, the Company authorized the 1999 Employee Stock Purchase
Plan (the 1999 Plan) under which employees may acquire common stock of the
Company. The maximum number of shares of common stock issuable under the 1999
Plan is 450,000 shares, to be increased by 300,000 shares each year beginning on
January 1, 2000 and through January 1, 2008. The 1999 Plan will be implemented
during sequential six-month offering periods, the first of which will commence
on the effective date of an initial public offering and will terminate on
January 31, 2000. After the effective date of an initial public offering,
offering periods will generally begin on February 1 and August 1 of each year.
Employees may purchase common stock of the Company at a price equal to 85% of
the fair market value of the common stock on either the first or the last day of
the offering period, whichever is lower. The 1999 Plan will terminate upon the
earlier of its termination by the Board of Directors or the date on which all of
the shares of common stock available for issuance have been issued.
F-26
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
12. COMMON STOCK WARRANTS
In connection with the acquisition of Benelytics, Inc., the Company assumed
all warrants then outstanding to purchase common stock of Benelytics, Inc. and
converted them into warrants to purchase an aggregate of 12,246 shares of the
Company's common stock at an exercise price of $10.86 per share. The warrants
expire on June 1, 2003. The fair value of these warrants was accounted for as
part of the purchase price for Benelytics, Inc.
13. INCOME TAXES
In February 1996, the Company terminated its S Corporation election and is
currently taxed as a C Corporation. Net operating losses generated prior to the
termination were passed through to the stockholders.
As of December 31, 1998, the Company had net operating loss carryforwards of
approximately $31,000,000 for both federal and state income tax purposes. The
federal and state net operating loss carryforwards begin to expire in the years
2011 and 2004, respectively.
The Company's ability to utilize its net operating loss carryforwards to
offset future taxable income may be subject to restrictions attributable to
equity transactions that result in changes in ownership as defined in the Tax
Reform Act of 1986. These restrictions may limit, on an annual basis, the
Company's future use of its net operating loss carryforwards. The amount, if
any, of such limitations has not yet been determined.
The components of the net deferred tax assets and liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1997 1998
-------------- ---------------
<S> <C> <C>
Net operating loss carryforwards............................. $ 5,952,164 $ 15,372,116
Tax credit carryforwards..................................... 31,247 31,247
Accruals and reserves........................................ 46,298 116,958
Other........................................................ 25,692 39,643
-------------- ---------------
6,055,401 15,559,964
Less valuation allowance..................................... (6,055,401) (15,559,964)
-------------- ---------------
Net deferred tax asset....................................... $ -- $ --
-------------- ---------------
-------------- ---------------
</TABLE>
Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its net deferred tax asset. The valuation allowance recorded for the
years ended December 31, 1997 and 1998 increased by $6,055,401 and $9,504,563,
respectively.
The difference between the income tax benefit at the federal statutory rate
of 34% and the Company's effective tax rate is due primarily to the valuation
allowance established to offset the
F-27
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE SIX MONTHS ENDED
JUNE 30, 1998 AND 1999 IS UNAUDITED)
13. INCOME TAXES (CONTINUED)
deferred tax assets. The provision for income taxes is different than the amount
computed using the applicable statutory federal income tax rate with the
difference for each year summarized below:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
Federal tax benefit at statutory rate............................. (34)% (34)% (34)%
State taxes, net of federal benefit............................... (6) (6) (6)
Adjustment due to increase in valuation allowance................. 40 40 40
-- -- --
Provision for income taxes........................................ 0% 0% 0%
-- -- --
-- -- --
</TABLE>
14. EMPLOYEE BENEFIT PLAN
Effective January 1, 1998, the Company adopted a 401(k) Plan. The Company
will match 50% of the first 6% of elective contributions made by each qualifying
employee. Each participant is 100% vested in elective contributions and is
incrementally vested one-third at the end of each of three years of service in
employer contributions. Employer contributions for the year ended December 31,
1998 were $180,751 and for the six months ended June 30, 1998 and 1999 were
$87,784 and $128,080, respectively.
15. UNAUDITED PRO FORMA INFORMATION
All outstanding preferred stock will be converted automatically into common
stock assuming conversion criteria is met (see Note 11). The pro forma effect of
the conversion has been presented as a separate column in the Company's balance
sheet, assuming the conversion had occurred as of June 30, 1999.
Pro forma net loss per share-basic and diluted represents what the net loss
per share-basic and diluted would have been assuming the conversion of the
outstanding preferred stock been outstanding during such periods.
F-28
<PAGE>
INSWEB CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Overview
Effective December 31, 1998, InsWeb acquired all the outstanding shares of
Benelytics, Inc., a developer of employee health benefits selection and
management software and reference data products. The acquisition was accounted
for using the purchase method of accounting and, accordingly, the purchase price
was allocated to the tangible and intangible assets acquired and liabilities
assumed on the basis of their fair values on the acquisition date. The fair
value of intangible assets was determined using a combination of methods,
including preparation of a discounted cash flow analysis, research and
investigation into the presence and nature of intangible assets acquired, and
the amounts paid for covenants not to compete.
The total purchase price of approximately $8.7 million consisted of 908,561
shares and warrants to purchase an aggregate of 12,246 shares of InsWeb's Common
Stock with an estimated fair value of approximately $8.5 million,
acquisition-related expenses of approximately $86,000 for miscellaneous
transaction fees and $172,000 of assumed liabilities. Of the total purchase
price, approximately $63,000 was allocated to net tangible assets and
approximately $8.7 million was allocated to intangible assets, including
purchased software ($850,000), covenants not to compete ($320,000), assembled
workforce ($100,000), contractual relationships ($110,000), and goodwill
(approximately $7.3 million). The acquired intangible assets will be amortized
over their estimated useful lives of two to three years.
The following unaudited pro forma consolidated statement of operations gives
effect to this acquisition as if it had occurred on January 1, 1998, by
consolidating the results of operations of Benelytics for the year ended
December 31, 1998 with the results of operations of InsWeb for the year ended
December 31, 1998.
The unaudited pro forma consolidated statement of operations are not
necessarily indicative of the operating results that would have been achieved
had the transactions been in effect as of January 1, 1998 and should not be
construed as being representative of future operating results.
The historical financial statements of InsWeb and Benelytics are included
elsewhere in this Prospectus and the unaudited pro forma consolidated financial
information presented herein should be read in conjunction with those financial
statements and related notes.
F-29
<PAGE>
INSWEB CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------
INSWEB BENELYTICS ADJUSTMENTS PRO FORMA
---------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Transaction fees........................................... $ 3,152 $ -- $ -- $ 3,152
Development and maintenance fees........................... 789 -- -- 789
Other revenues............................................. 369 5 -- 374
---------- ----------- ------------ -----------
Total revenues........................................... 4,310 5 -- 4,315
---------- ----------- ------------ -----------
Operating expenses:
Product development........................................ 10,077 388 10,465
Sales and marketing........................................ 8,954 193 9,147
General and administrative................................. 7,180 676 7,856
Amortization of intangible assets.......................... -- -- 3,129(A) 3,129
---------- ----------- ------------ -----------
Total operating expenses................................. 26,211 1,257 3,129 30,597
---------- ----------- ------------ -----------
Loss from operations......................................... (21,901) (1,252) (3,129) (26,282)
---------- ----------- ------------ -----------
Other income, net............................................ 600 1 -- 601
Interest income (expense), net............................... (1,189) (98) (1,287)
---------- ----------- ------------ -----------
Net loss..................................................... $ (22,490) $ (1,349) $ (3,129) $ (26,968)
---------- ----------- ------------ -----------
---------- ----------- ------------ -----------
Pro forma net loss per share--basic and diluted(B)........... $ (1.72)
-----------
-----------
Shares used in computing pro forma net loss per share--basic
and diluted(B).............................................. 15,678
-----------
-----------
</TABLE>
See accompanying Notes to Pro Forma Consolidated Financial Information
F-30
<PAGE>
INSWEB CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(unaudited)
The following adjustments were applied to InsWeb's historical financial
statements and those of Benelytics to arrive at the pro forma consolidated
financial information.
(A) To record amortization of: purchased software totaling $425,000 over the
estimated period of benefit of two years, covenants not to compete
totaling $160,000 over the estimated period of benefit of two years,
assembled workforce totaling $50,000 over the estimated period of benefit
of two years, contractual relationships totaling $55,000 over the
estimated period of benefit of two years, and acquired goodwill totaling
approximately $2.4 million over the estimated period of benefit of three
years.
(B) Pro forma basic and diluted net loss per share for the year ended
December 31, 1998 was computed using the weighted average number of
common shares outstanding. Differences between historical weighted
average shares outstanding and pro forma weighted average shares
outstanding used to compute net loss per share result from the inclusion
of shares issued in conjunction with the acquisition as if these shares
were outstanding from January 1, 1998.
F-31
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Benelytics, Inc.:
In our opinion, the accompanying balance sheets and the related statements
of operations, stockholders' deficit and cash flows present fairly, in all
material respects, the financial position of Benelytics, Inc. (a development
stage enterprise) as of December 31, 1997 and 1998 and the results of its
operations and cash flows for the years ended December 31, 1997 and 1998 and the
period from March 20, 1996 (inception) to December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
April 9, 1999
F-32
<PAGE>
BENELYTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1997 1998
------------ --------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 63,554 $ 12,611
Prepaid expenses and other current assets......................................... 5,170 --
------------ --------------
Total current assets........................................................ 68,724 12,611
Property and equipment, net....................................................... 82,040 46,482
Deposits.......................................................................... 10,340 5,085
------------ --------------
Total assets................................................................ $ 161,104 $ 64,178
------------ --------------
------------ --------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses............................................. $ 50,228 $ 149,918
Note payable to officer........................................................... -- 25,000
Convertible promissory notes...................................................... 175,000 664,899
------------ --------------
Total liabilities........................................................... 225,228 839,817
Stockholders' deficit:
Series A convertible preferred stock, no par;
Authorized: 1,000,000 shares (aggregate preference in liquidation $600,000 and
$890,000 for 1997 and 1998, respectively). Issued and outstanding: 600,000 and
890,000 shares in 1997 and 1998, respectively................................. 584,250 874,250
Common stock, no par;
Authorized: 10,000,000 shares. Issued and outstanding: 1,095,000 and 3,389,600
shares in 1997 and 1998, respectively......................................... 10,950 146,120
Restricted common stock, no par;
Issued and outstanding: 1,125,000 and 0 shares in 1997 and 1998, respectively... 11,250 --
Paid-in capital................................................................... 72,978 193,242
Warrants.......................................................................... -- 70,398
Deferred stock compensation....................................................... (33,192) --
Deficit accumulated during the development stage.................................. (710,360) (2,059,649)
------------ --------------
Total stockholders' deficit................................................. (64,124) (775,639)
------------ --------------
Total liabilities and stockholders' deficit................................. $ 161,104 $ 64,178
------------ --------------
------------ --------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
BENELYTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEARS ENDED DECEMBER MARCH 20, 1996
31, (INCEPTION) TO
------------------------------ DECEMBER 31,
1997 1998 1998
-------------- -------------- ---------------
<S> <C> <C> <C>
Revenues........................................................ $ -- $ 4,950 $ 4,950
-------------- -------------- ---------------
Operating expenses:
Product development........................................... 258,780 388,252 690,602
Sales and marketing........................................... 108,875 193,133 315,452
General and administrative.................................... 262,340 676,133 961,983
-------------- -------------- ---------------
Total operating expenses.................................... 629,995 1,257,518 1,968,037
-------------- -------------- ---------------
Loss from operations........................................ (629,995) (1,252,568) (1,963,087)
-------------- -------------- ---------------
Other income (expense), net..................................... (800) 1,186 (480)
Interest income (expense), net.................................. 1,825 (97,907) (96,082)
-------------- -------------- ---------------
Net loss.................................................... $ (628,970) $ (1,349,289) $ (2,059,649)
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-34
<PAGE>
BENELYTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
SERIES A CONVERTIBLE
RESTRICTED
PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- -------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- --------- --------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, March 20, 1996 (inception)........ -- $ -- -- $ -- -- $ -- $ --
Issuance of restricted common stock for cash
on March 20, 1996 for $0.01 per share..... 3,000,000 30,000
Repurchase of common stock on March 25, 1996
for $0.01 per share....................... (800,000) (8,000)
Issuance of common stock for cash on
November 1, 1996 for $0.01 per share...... 1,000 10
Issuance of common stock for cash on
November 27, 1996 for $0.01 per share..... 19,000 190
Issuance of Series A preferred stock for
cash on December 12, 1996 for $1.00 per
share, net of $10,939 in issuance costs... 300,000 289,061
Contributed capital from owners............. 27,578
Vesting of restricted common stock.......... 575,000 5,750 (575,000) (5,750)
Net loss....................................
--------- --------- --------- --------- --------- ----------- ---------
Balances, December 31, 1996................. 300,000 289,061 595,000 5,950 1,625,000 16,250 27,578
Issuance of Series A preferred stock for
cash on March 12, 1997 for $1.00 per
share, net of $4,811 in issuance costs.... 50,000 45,189
Issuance of Series A preferred stock for
cash on October 2, 1997 for $1.00 per
share..................................... 50,000 50,000
Issuance of Series A preferred stock, upon
conversion of promissory notes, on October
2, 1997 for $1.00 per share............... 200,000 200,000
Deferred stock compensation................. 45,400
Amortization of deferred stock
compensation..............................
Vesting of restricted common stock.......... 500,000 5,000 (500,000) (5,000)
Net loss....................................
--------- --------- --------- --------- --------- ----------- ---------
Balances, December 31, 1997................. 600,000 584,250 1,095,000 10,950 1,125,000 11,250 72,978
Issuance of Series A preferred stock for
cash on January 5, 1998 for $1.00 per
share..................................... 165,000 165,000
Issuance of Series A preferred stock, upon
conversion of promissory notes, on January
5, 1998 for $1.00 per share............... 125,000 125,000
Issuance of common stock for cash on January
15, 1998 for $0.01 per share.............. 750,000 75,000
Issuance of warrants in conjunction with
issuance of convertible debt..............
Exercise of stock options................... 419,600 48,920
Deferred stock compensation................. 120,264
Amortization of deferred stock
compensation..............................
Vesting of restricted common stock.......... 1,125,000 11,250 (1,125,000) (11,250)
Net loss....................................
--------- --------- --------- --------- --------- ----------- ---------
Balances, December 31, 1998................. 890,000 $ 874,250 3,389,600 $ 146,120 -- $ -- $ 193,242
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
<CAPTION>
DEFERRED
STOCK ACCUMULATED
WARRANTS COMPENSATION DEFICIT TOTAL
----------- -------------- ------------- ----------
<S> <C> <C> <C> <C>
Balances, March 20, 1996 (inception)........ $ -- $ -- $ -- $ --
Issuance of restricted common stock for cash
on March 20, 1996 for $0.01 per share..... 30,000
Repurchase of common stock on March 25, 1996
for $0.01 per share....................... (8,000)
Issuance of common stock for cash on
November 1, 1996 for $0.01 per share...... 10
Issuance of common stock for cash on
November 27, 1996 for $0.01 per share..... 190
Issuance of Series A preferred stock for
cash on December 12, 1996 for $1.00 per
share, net of $10,939 in issuance costs... 289,061
Contributed capital from owners............. 27,578
Vesting of restricted common stock.......... --
Net loss.................................... (81,390) (81,390)
----------- -------------- ------------- ----------
Balances, December 31, 1996................. -- -- (81,390) 257,449
Issuance of Series A preferred stock for
cash on March 12, 1997 for $1.00 per
share, net of $4,811 in issuance costs.... 45,189
Issuance of Series A preferred stock for
cash on October 2, 1997 for $1.00 per
share..................................... 50,000
Issuance of Series A preferred stock, upon
conversion of promissory notes, on October
2, 1997 for $1.00 per share............... 200,000
Deferred stock compensation................. (45,400) --
Amortization of deferred stock
compensation.............................. 12,208 12,208
Vesting of restricted common stock.......... --
Net loss.................................... (628,970) (628,970)
----------- -------------- ------------- ----------
Balances, December 31, 1997................. -- (33,192) (710,360) (64,124)
Issuance of Series A preferred stock for
cash on January 5, 1998 for $1.00 per
share..................................... 165,000
Issuance of Series A preferred stock, upon
conversion of promissory notes, on January
5, 1998 for $1.00 per share............... 125,000
Issuance of common stock for cash on January
15, 1998 for $0.01 per share.............. 75,000
Issuance of warrants in conjunction with
issuance of convertible debt.............. 70,398 70,398
Exercise of stock options................... 48,920
Deferred stock compensation................. (120,264) --
Amortization of deferred stock
compensation.............................. 153,456 153,456
Vesting of restricted common stock.......... --
Net loss.................................... (1,349,289) (1,349,289)
----------- -------------- ------------- ----------
Balances, December 31, 1998................. $ 70,398 $ -- $(2,059,649) $ (775,639)
----------- -------------- ------------- ----------
----------- -------------- ------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-35
<PAGE>
BENELYTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOW
<TABLE>
<CAPTION>
FOR THE
PERIOD FROM
FOR THE YEARS ENDED DECEMBER MARCH 20, 1996
31, (INCEPTION) TO
------------------------------ DECEMBER 31,
1997 1998 1998
-------------- -------------- ---------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss...................................................... $ (628,970) $ (1,349,289) $ (2,059,649)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 9,621 42,807 52,428
Amortization of debt discount............................... -- 70,398 70,398
Amortization of deferred stock compensation................. 12,208 153,456 165,664
Contributed capital (expenses paid by owners)............... -- -- 27,578
Changes in assets and liabilities:
Prepaid expenses and other current assets................. (5,170) 5,170 --
Deposits.................................................. (10,340) 5,255 (5,085)
Accounts payable and accrued expenses..................... 36,290 99,690 149,918
-------------- -------------- ---------------
Net cash used in operating activities................... (586,361) (972,513) (1,598,748)
-------------- -------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment........................... (84,221) (7,249) (98,910)
-------------- -------------- ---------------
Net cash used in investing activities................... (84,221) (7,249) (98,910)
-------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from note payable to officer......................... -- 25,000 25,000
Proceeds from issuance of convertible promissory notes........ 375,000 664,899 1,039,899
Proceeds from issuance of Series A preferred stock............ 100,000 165,000 565,000
Proceeds from issuance of common stock........................ -- 75,000 75,200
Proceeds from exercise of stock options....................... -- 48,920 48,920
Proceeds from issuance of restricted common stock............. -- -- 30,000
Repurchase of common stock.................................... -- -- (8,000)
Payment of convertible promissory notes....................... -- (50,000) (50,000)
Payment of issuance costs related to preferred stock
financing................................................... (4,811) -- (15,750)
-------------- -------------- ---------------
Net cash provided by financing activities............... 470,189 928,819 1,710,269
-------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents............ (200,393) (50,943) 12,611
Cash and cash equivalents, beginning of period.................. 263,947 63,554 --
-------------- -------------- ---------------
Cash and cash equivalents, end of period........................ $ 63,554 $ 12,611 $ 12,611
-------------- -------------- ---------------
-------------- -------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest...................... $ -- $ -- $ --
-------------- -------------- ---------------
-------------- -------------- ---------------
Supplemental disclosure of noncash financing activities:
Promissory notes converted to Series A preferred stock........ $ 200,000 $ 125,000 $ 325,000
-------------- -------------- ---------------
-------------- -------------- ---------------
Issuance of warrants in conjunction with issuance of
convertible debt............................................ $ -- $ 70,398 $ 70,398
-------------- -------------- ---------------
-------------- -------------- ---------------
Vesting of restricted common stock............................ $ 5,000 $ 11,250 $ 22,000
-------------- -------------- ---------------
-------------- -------------- ---------------
Deferred stock compensation from issuance of stock options.... $ 45,400 $ 120,264 $ 165,664
-------------- -------------- ---------------
-------------- -------------- ---------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-36
<PAGE>
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS OF THE COMPANY
Benelytics, Inc. ("the Company") was incorporated in California on March 20,
1996. The Company is a developer of employee health benefits selection and
management software and reference data products. Currently, customers can obtain
the reference data by ordering a single report or subscribing to a series of
reports.
For the period from inception (March 20, 1996) through December 31, 1997,
the Company had not commenced its planned principal operations. During 1998, the
Company commenced its planned principal operations, but had no significant
revenue therefrom. Therefore, the Company is treated as a development stage
enterprise, in accordance with Statement of Financial Accounting Standards (SFAS
No. 7), ACCOUNTING AND REPORTING BY DEVELOPMENT STAGE ENTERPRISES, from its
inception date (March 20, 1996) through December 31, 1998.
The Company became a wholly owned subsidiary of InsWeb Corporation
("InsWeb") on December 31, 1998, when InsWeb acquired all of the outstanding
common and preferred stock, warrants and convertible promissory notes of the
Company. These financial statements reflect the Company's position, immediately
prior to the acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three
months or less at the date of purchase to be cash equivalents. Cash and cash
equivalents are stated at cost, which approximates market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts payable and accrued expenses,
approximate fair value due to their short maturities.
REVENUE RECOGNITION
Revenues consist of report revenues and subscription revenues. Report
revenue is recognized at the time the report is delivered to the customer.
Subscription revenue is recognized ratably over the period during which the
service is provided.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to product development expense as
incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation.
Depreciation on computer and office equipment, furniture and fixtures and
purchased software is calculated using the straight-line method over the
estimated useful lives of the assets, generally three to five years. When
property and equipment are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and the resulting
gain or loss is included in income. Expenditures for maintenance and repairs are
charged to expense as incurred.
F-37
<PAGE>
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 requires recognition
of impairment losses related to long-lived assets in the event the net carrying
value of such assets exceeds the future undiscounted cash flows attributable to
such assets. The Company assesses the impairment of its long-lived assets when
events or changes in circumstances indicate that the carrying value of an asset
may not be recoverable.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk, as defined by SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH
CONCENTRATIONS OF CREDIT RISK, consist principally of cash and cash equivalents.
The Company deposits its cash and cash equivalents with a single major bank,
which deposits may exceed federal deposit insurance limits.
DEBT WITH STOCK PURCHASE WARRANTS
The Company accounts for stock purchase warrants as a separate component of
equity and as a discount on the associated debt based on the relative fair value
of the stock purchase warrants at the time of issuance (see Note 8). The
discount on debt is amortized, as interest expense, over the period that the
debt is outstanding.
RISKS AND UNCERTAINTIES
The Company is subject to all of the risks inherent in an early stage
business in the electronic commerce industry. These risks include, but are not
limited to, a limited operating history, limited management resources,
dependence upon consumer acceptance of the Internet, Internet related security
risks and the changing nature of the electronic commerce industry. Due to the
foregoing factors, the Company's operating results may be materially affected.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference
between the financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amounts expected to be realized.
F-38
<PAGE>
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES,and complies with the disclosure provisions of
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Under APB No. 25,
compensation expense is based on the difference, if any, between the fair value
of the Company's stock and the exercise price of the option on the measurement
date, which is typically the date of grant.
The Company accounts for options granted to non-employees under SFAS No.
123. Under SFAS No. 123, options are recorded at their fair value on the
measurement date, which is typically the date of grant.
Since all options outstanding at December 31, 1998 vested 100% upon the
acquisition, the Company charged all remaining deferred stock compensation to
operations in 1998.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No.
130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for
reporting comprehensive income and its components in financial statements.
Comprehensive income, as defined, includes all changes in equity (net assets)
during a period from nonowner sources. To date, the Company has not had any
transactions that are required to be reported in comprehensive income.
RECENT ACCOUNTING PRONOUNCEMENTS
On March 4, 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
(SOP) 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED
FOR INTERNAL USE. SOP 98-1 requires that the costs of computer software
developed or obtained for internal use be capitalized. SOP 98-1 is effective for
financial statements for fiscal years beginning after December 15, 1998. The
impact on the financial statements of the adoption of this standard is not
expected to be material.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging activities. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999. The Company
does not believe the adoption of SFAS No. 133 will have a material effect on the
Company's results of operations or financial condition.
F-39
<PAGE>
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Computer and office equipment.......................................... $ 23,807 $ 31,056
Furniture and fixtures................................................. 10,797 10,797
Purchased software..................................................... 57,057 57,057
--------- ---------
91,661 98,910
Less accumulated depreciation and amortization......................... (9,621) (52,428)
--------- ---------
$ 82,040 $ 46,482
--------- ---------
--------- ---------
</TABLE>
Depreciation and amortization expense was $9,621, $42,807 and $52,428 for
the years ended December 31, 1997 and 1998 and for the period from inception to
December 31, 1998, respectively.
4. OPERATING LEASES
The Company leases its current office facilities under an operating lease
which expires on February 28, 1999.
Rent expense was $54,701, $57,791 and $113,596 for the years ended December
31, 1997 and 1998 and for the period from inception to December 31, 1998,
respectively.
5. RELATED PARTY TRANSACTIONS
NOTES PAYABLE TO OFFICERS
In May 1997, the Company borrowed $50,000 (see Note 6) from its President,
in exchange for an uncollateralized demand promissory note, convertible to
preferred stock on or before May 31, 1998. The note bears interest at 6.23% per
annum. The note was paid in full in January 1998.
In December 1998, the Company borrowed $25,000 from its President, in
exchange for an uncollateralized demand promissory note bearing interest at
4.33% per annum. The note was paid in full in January 1999.
RESELLER AGREEMENT
The Company has a reseller agreement with a company, in which its owners are
investors and one of the owners is a director. Since the Company had not
significantly commenced its planned principal operations, there was no effect on
the amounts reported in the financial statements.
6. CONVERTIBLE PROMISSORY NOTES
Convertible promissory notes consist of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Note payable to related party (Note 5).............................. $ 50,000 $ --
Notes payable to non-related parties................................ 125,000 664,899
----------- -----------
$ 175,000 $ 664,899
----------- -----------
----------- -----------
</TABLE>
F-40
<PAGE>
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CONVERTIBLE PROMISSORY NOTES (CONTINUED)
From May through September 1997, the Company borrowed an aggregate of
$200,000 from its owners in exchange for uncollateralized demand promissory
notes, convertible to Series A preferred stock on or before May 31, 1998. The
notes bore interest at rates ranging from 5.81% to 6.23%. In October 1997, these
notes were converted to Series A preferred stock.
In October and November 1997, the Company borrowed $25,000 and $100,000,
respectively, from non-related parties in exchange for uncollateralized demand
promissory notes, convertible to Series A preferred stock on or before October
30, 1998 and November 14, 1998, respectively. The notes bear interest at 5.81%
per annum. In January 1998, these notes were converted to Series A preferred
stock.
In May and June 1998, the Company borrowed $175,000 and $489,899,
respectively, from non-related parties in exchange for uncollateralized demand
promissory notes. Upon the next equity financing, these notes and related
interest that is accrued or unpaid automatically convert into such series of
equity instrument issued at the price per share paid for such equity
instruments. The notes bear interest at 8.0% per annum. In connection with the
issuance of these promissory notes, the Company also issued stock purchase
warrants (see Note 8).
7. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
At December 31, 1997 and 1998, the Company had 1,000,000 authorized shares
of Series A convertible preferred stock, of which 600,000 and 890,000 shares,
respectively, were issued and outstanding.
CONVERSION
Each share of preferred stock may be converted into such number of shares of
common stock as determined by dividing the issuance price by the conversion
price. The issuance price and conversion price of the preferred stock are $1.00
and $1.00, respectively, subject to adjustments under specific circumstances.
Conversion is (i) at the option of the preferred stockholder or (ii) automatic
upon the closing of an underwritten public offering of the Company's common
stock at an aggregate offering price of at least $15,000,000 and per share
offering price not less than $5.00 per share. The Company has reserved 890,000
shares of common stock for the conversion of the outstanding and issuable shares
of preferred stock.
DIVIDENDS
When, and if, declared by the Company's Board of Directors, the holders of
the preferred stock are entitled to annual noncumulative dividends of $0.08 per
share or, if greater, an amount equal to those dividends paid on any other
outstanding shares. As of December 31, 1998, no dividends had been declared or
paid.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company,
either voluntary or involuntary, the assets of the Company available for
distribution shall first be distributed $1.00 per outstanding share of preferred
stock, plus a further amount equal to any dividends declared but
F-41
<PAGE>
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
unpaid on such shares. If the assets of the Company available for distribution
are not sufficient to pay the full amount of this distribution, such assets will
be distributed ratably among the holders of the preferred stock based on the
full preferential amount that each such holder is entitled to receive. Any
assets of the Company available for distribution in excess of the liquidation
preference amounts will be distributed pro rata to the holders of the preferred
and common stock, based on the number of common shares held (on an
"if-converted" basis for preferred stock). Preferred stockholders may receive
distributions of no more than $3.00 per share of preferred stock held.
REDEMPTION
The preferred stock is not redeemable.
VOTING RIGHTS
The holders of common stock are entitled to one vote for each share of
common stock held. The holders of preferred stock are entitled to one vote for
each share of common stock into which such share of the preferred stock is
convertible. The holders of preferred stock, voting together, are entitled to
elect one member of the Company's Board of Directors. The holders of common
stock, voting together, are entitled to elect one member of the Company's Board
of Directors. The holders of preferred stock and common stock, voting together,
are entitled to elect any remaining members of the Company's Board of Directors.
REGISTRATION RIGHTS
The holders of preferred stock are entitled to certain rights with respect
to the registration of common stock issued and issuable upon conversion of
outstanding preferred stock (the Registrable Securities). At any time after
December 31, 2000, a holder or holders of the preferred stock will have the
right to require the Company to file a registration statement under the
Securities Act, at the Company's expense, in order to register such number of
Registrable Securities as such holder or holders desire to include in such
registration statement, together with the Registrable Securities of other
holders who wish to participate in such registration, provided that the
registration will effect the registration of at least 40% of the Registrable
Securities or the anticipated aggregate offering price of such registration
exceeds $10,000,000. The Company may, in certain circumstances, defer such
registration, and the underwriters of such an offering have the right, subject
to certain limitations, to limit the number of Registrable Securities included
in such registration. In the event that the Company proposes to register any of
its securities under the Securities Act for its own account or for the account
of other security holders, holders of Registrable Securities are entitled to
notice of such registration and have the right to include some or all of the
Registrable Securities held by them in such registration at the Company's
expense, subject to marketing and other limitations.
F-42
<PAGE>
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
RESTRICTED COMMON STOCK
On March 20, 1996, the Company issued, for cash, 3,000,000 shares of common
stock at $0.01 per share to three officers. The shares are subject to the right
of repurchase by the company following a termination. The Company's right to
repurchase the shares is released ratably in equal monthly installments
beginning April 1, 1996. On April 1, 1997, the agreements were amended to
provide that all the shares be fully released from the Company's right of
repurchase in the event that the Company (1) merges into any other corporation
or (2) sells or conveys all or substantially all of its assets to any other
entity in a transaction in which the stockholders of the Company own,
immediately after the transaction, less than a majority of the outstanding
voting securities of the surviving entity or its parent entity. During 1996, one
officer terminated, and the Company repurchased 800,000 shares for $8,000.
STOCK OPTION PLAN
In December 1996, the Company authorized the 1996 Stock Option Plan (the
Plan) under which the Board of Directors may grant incentive stock options to
employees, officers and directors of the Company and any of its subsidiaries. A
total of 1,333,333 shares of common stock are reserved for issuance under the
Plan.
Options granted under the Plan generally vest in equal monthly installments
over a four-year period. The options generally expire ten years from the date of
grant.
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE
AVAILABLE FOR NUMBER EXERCISE AGGREGATE EXERCISE
GRANT OF SHARES PRICE PRICE PRICE
------------- ------------ ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1996................... 1,333,333 -- -- -- --
Options granted............................... (309,000) 309,000 $ 0.10 $ 30,900 $ 0.10
Options exercised............................. -- -- -- -- --
Options canceled.............................. 4,000 (4,000) $ 0.10 (400) $ 0.10
------------- ------------ -----------
Balances, December 31, 1997................... 1,028,333 305,000 $ 0.10 30,500 $ 0.10
Options granted............................... (114,600) 114,600 $ 0.10-0.20 18,420 $ 0.16
Options exercised............................. -- (419,600) $ 0.10-0.20 (48,920) $ 0.12
Options canceled.............................. -- -- -- -- --
------------- ------------ -----------
Balances, December 31, 1998................... 913,733 -- -- $ -- --
------------- ------------ -----------
------------- ------------ -----------
</TABLE>
The Company accounts for employee stock options in accordance with the
provisions of APB No. 25 and complies with the disclosure provisions of SFAS No.
123.
Under APB No. 25, compensation expense is recognized based on the amount by
which the fair value of the underlying common stock exceeds the exercise price
of the stock options at the measurement date, which in the case of employee
stock options is typically the date of grant. For financial reporting purposes,
the Company has determined that the deemed fair market value on the date of
grant of employee stock options was in excess of the exercise price of the
options. This amount is recorded as a reduction of stockholders' equity and is
amortized as a charge to
F-43
<PAGE>
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
operations over the vesting period of the applicable options. Consequently, the
Company deferred stock compensation of $16,400 and $46,600 for the years ended
December 31, 1997 and 1998, respectively. Amortization recognized for the years
ended December 31, 1997 and 1998 totaled $4,292 and $58,708, respectively.
Had compensation cost for option grants to employees been determined
consistent with SFAS No. 123, the Company's net loss would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------------
1997 1998
----------- -------------
<S> <C> <C>
Net loss as reported.............................................. $ 628,970 $ 1,349,289
Net loss--pro forma............................................... $ 629,828 $ 1,351,986
</TABLE>
The above proforma disclosures are not necessarily representative of the
effects on reported income or loss for future years as additional grants are
made each year and options vest over several years.
All employee stock options were granted at exercise prices less than the
fair market value on the date of grant. The weighted average grant date fair
value of stock options granted during 1997 and 1998 was $0.08 and $0.15,
respectively.
The fair value of stock options granted to non-employees was $29,000 and
$73,664 for the years ended December 31, 1997 and 1998, respectively. These
amounts have been recorded as deferred stock compensation. Of the deferred stock
compensation, $7,916 and $94,748 was amortized for the years ended December 31,
1997 and 1998, respectively.
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes options pricing model with the following assumptions by year:
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Risk-free interest rate........................................... 6.0 -- 6.4% 5.3 -- 5.5%
Expected life..................................................... 3 years 3 years
Expected dividend yield........................................... -- --
Volaility......................................................... -- --
</TABLE>
The risk-free interest rate range represents the low and high end of the
range used at different points during the year. Because the Company does not
have actively traded equity securities, volatility is not considered in
determining the fair value of options granted to employees.
8. WARRANTS
In connection with the issuance of the convertible promissory notes in May
and June 1998 (see Note 6), the Company issued stock purchase warrants to
purchase $132,980 (20% of the amounts borrowed under the convertible promissory
notes) of the Company's stock, the series of which will be that series issued in
the Company's next equity financing. The exercise price of the stock purchase
warrants will be equal to the per share price at which the next series of equity
financing is
F-44
<PAGE>
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. WARRANTS (CONTINUED)
issued. The number of shares which may be issued upon exercise of the stock
purchase warrants will be equal to $132,980 divided by the exercise price of the
stock purchase warrants.
9. INCOME TAXES
No deferred provision or benefit for income taxes has been recorded as the
Company is in a net deferred tax asset position as a result of net operating
losses. A full valuation has been provided as management believes that it is
more likely than not, based on available evidence, that the deferred tax assets
will not be realized.
At December 31, 1998, the Company has federal net operating loss
carryforwards of approximately $1,900,000, which begin to expire in 2012. The
income tax benefit from the utilization of net operating loss carryforwards may
be limited in certain circumstances including, but not limited to, cumulative
stock ownership changes of more than 50% over a three-year period. The amount of
such limitations, if any, has not yet been determined.
F-45
<PAGE>
UNDERWRITING
InsWeb and the underwriters for this offering named below (the
"Underwriters") have entered into an underwriting agreement with respect to the
shares being offered. Subject to certain conditions, each Underwriter has
severally agreed to purchase the number of shares indicated in the following
table. Goldman, Sachs & Co., BancBoston Robertson Stephens Inc., Donaldson,
Lufkin & Jenrette Securities Corporation and E*OFFERING Corp. are the
representatives of the Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
- ------------------------------------------------------------------------------------- -----------------
<S> <C>
Goldman, Sachs & Co..................................................................
BancBoston Robertson Stephens Inc....................................................
Donaldson, Lufkin & Jenrette Securities Corporation..................................
E*OFFERING Corp......................................................................
------
Total..........................................................................
------
------
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional 600,000
shares from InsWeb to cover these sales. They may exercise that option for 30
days. If any shares are purchased pursuant to this option, the Underwriters will
severally purchase shares in approximately the same proportion as set forth in
the table above.
The following table shows the per share and total underwriting discounts and
commissions to be paid to the Underwriters by InsWeb. These amounts are shown
assuming both no exercise and full exercise of the Underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by InsWeb
-------------------------------
No Exercise Full Exercise
-------------- ---------------
<S> <C> <C>
Per share.............................................................. $ $
Total.................................................................. $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus. Any
shares sold by the Underwriters to securities dealers may be sold at a discount
of up to $ per share from the initial public offering price. Any such
securities dealers may resell any shares purchased from the Underwriters to
certain other brokers or dealers at a discount of up to $ per share
from the initial public offering price. If all of the shares are not sold at the
initial public offering price, the representatives may change the offering price
and the other selling terms.
InsWeb, its directors, officers and stockholders have agreed with the
Underwriters not to dispose of or hedge any of their common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent of the
representatives of the Underwriters. These agreements apply to all shares owned
by these individuals prior to this offering, as well as to any shares purchased
by these individuals pursuant to the reserve share program described below.
InsWeb's agreement does not limit its ability to
U-1
<PAGE>
make grants under its existing employee benefit plans. See "Shares Eligible for
Future Sale" for a discussion of certain transfer restrictions.
Prior to this offering, there has been no public market for the shares. The
initial public offering price will be negotiated among InsWeb and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be InsWeb's historical performance, estimates of the business
potential and earnings prospects of InsWeb, an assessment of InsWeb's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
InsWeb has applied to have its common stock listed for quotation on the
Nasdaq National Market under the symbol "INSW."
In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in this offering.
Stabilizing transactions consist of certain bids or purchases made for the
purpose of preventing or retarding a decline in the market price of the common
stock while this offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a
particular Underwriter repays to the Underwriters a portion of the underwriting
discount received by it because the representatives have repurchased shares sold
by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the open
market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Underwriters do not expect sales to discretionary accounts to exceed
five percent of the total number of shares offered.
The Underwriters have reserved for sale, at the initial public offering
price, up to 7.5% of the common stock offered by this prospectus for directors,
officers, employees and other friends of InsWeb through a directed share
program. The number of shares available for sale to the general public in the
offering will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not so purchased will be offered by the Underwriters
to the general public on the same basis as the other shares to be sold in this
offering.
InsWeb estimates that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately $1.0 million.
InsWeb has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act.
U-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely on
any unauthorized information or representations. This prospectus is an offer to
sell only the shares offered hereby, but only under circumstances and in
jurisdictions where it is lawful to do so. The information contained in this
prospectus is current only as of its date.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 5
Forward-Looking Statements..................... 20
Use of Proceeds................................ 20
Dividend Policy................................ 20
Capitalization................................. 21
Dilution....................................... 22
Selected Consolidated Financial Data........... 23
Selected Pro Forma Consolidated Financial
Data.......................................... 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.................................... 25
Business....................................... 35
Management..................................... 54
Certain Transactions........................... 64
Principal Stockholders......................... 67
Description of Capital Stock................... 70
Shares Eligible For Future Sale................ 73
Legal Matters.................................. 74
Experts........................................ 74
Where to Find Additional Information About
InsWeb........................................ 74
Index to Financial Statements.................. F-1
Underwriting................................... U-1
</TABLE>
----------------
Through and including , 1999, (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a prospectus
when acting as underwriter and with respect to an unsold allotment or
subscription.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
4,000,000 Shares
INSWEB CORPORATION
Common Stock
------------------------------
[INSWEB LOGO]
------------------------------
GOLDMAN, SACHS & CO.
BANCBOSTON ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
E*OFFERING
Representatives of the Underwriters
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all costs and expenses, other than the
underwriting discounts and commissions payable by the Registrant in connection
with the sale and distribution of the common stock being registered. All amounts
shown are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market application
fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............ $ 16,625
NASD filing fee................................................ 6,250
Nasdaq National Market application fee......................... 95,000
Blue sky qualification fees and expenses....................... 5,000
Printing and engraving expenses................................ 230,000
Legal fees and expenses........................................ 300,000
Accounting fees and expenses................................... 279,000
Transfer agent and registrar fees.............................. 7,500
Miscellaneous expenses......................................... 60,625
----------
Total...................................................... $1,000,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification
of officers, directors and other corporate agents under certain circumstances
and subject to certain limitations. The Registrant's Certificate of
Incorporation and Bylaws provide that the Registrant shall indemnify its
directors, officers, employees and agents to the full extent permitted by
Delaware General Corporation Law, including in circumstances in which
indemnification is otherwise discretionary under Delaware law. In addition, the
Registrant intends to enter into separate indemnification agreements (Exhibit
10.1) with its directors and officers which would require the Registrant, among
other things, to indemnify them against certain liabilities which may arise by
reason of their status or service (other than liabilities arising from willful
misconduct of a culpable nature). The Registrant also intends to maintain
director and officer liability insurance, if available on reasonable terms.
These indemnification provisions and the indemnification agreements may be
sufficiently broad to permit indemnification of the Registrant's officers and
directors for liabilities (including reimbursement of expenses incurred) arising
under the Securities Act.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the
Underwriters of the Registrant and its officers and directors for certain
liabilities arising under the Securities Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since March 31, 1996, InsWeb has issued and sold the following
unregistered securities:
1. From inception through June 30, 1999, InsWeb issued options to
purchase an aggregate of 6,363,188 shares of common stock under its stock
options plans, of which 2,517,297 have been exercised.
2. In February 1996, InsWeb sold 176,471 shares of its Series A
preferred stock to Nationwide Mutual Insurance Company at a purchase price
of $42.50 per share, for an aggregate purchase price of $7,500,018.
II-1
<PAGE>
3. In November 1996, InsWeb sold 176,471 shares of its Series B
preferred stock to Insurance Information Exchange at a purchase price of
$46.75 per share, for an aggregate purchase price of $8,250,000.
4. In May 1997, InsWeb sold 53,476 shares of its Series C preferred
stock to Century Capital Partners, L.P. at a purchase price of $46.75 per
share, for an aggregate purchase price of $2,500,003.
5. In May 1997, InsWeb sold 27,864 shares of its Series A-1 preferred
stock and 8,444 shares of its Series C preferred stock to Nationwide Mutual
Insurance Company, for an aggregate purchase price of $1,697,399.
6. In December 1998 and February 1999, InsWeb sold an aggregate of
190,621 shares of its Series D preferred stock to two entities affiliated
with SOFTBANK Corp. and Century Capital Partners, L.P., at a purchase price
of $162.875 per share, for an aggregate purchase price of $31,047,395.
7. In March and April 1999, InsWeb sold an aggregate of 185,775 shares
of its Series E preferred stock to an entity affiliated with SOFTBANK Corp.,
at a purchase price of $188.40 per share, for an aggregate purchase price of
$35,000,010.
There were no underwriters employed in connection with any of the
transactions set forth in this Item 15.
For additional information concerning these equity investment transactions,
see the section entitled "Certain Transactions" in the prospectus.
The issuances described in Items 15(a)(1) through 15(a)(7) were deemed
exempt from registration under the Securities Act in reliance on Section 4(2) of
the Securities Act as transactions by an issuer not involving a public offering.
Certain issuances described in Item 15(a)(1) were deemed exempt from
registration under the Securities Act in reliance on Section 4(2) or Rule 701
promulgated thereunder as transactions pursuant to compensatory benefit plans
and contracts relating to compensation. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about InsWeb or had access, through
employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
*3.1 Fifth Restated Certificate of Incorporation of Registrant
*3.2 Bylaws of Registrant
**3.3 Form of Amended and Restated Certificate of Incorporation of Registrant to
be filed after the closing of the offering made pursuant to this
Registration Statement
**4.1 Specimen certificate representing the common stock
*4.2 Third Amended and Restated Investor Rights Agreement among Registrant and
certain Stockholders of Registrant, dated as of March 31, 1999
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- --------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
**10.1 Form of Indemnification Agreement between Registrant and Registrant's
directors and officers
*10.2 1997 Stock Option Plan
*10.3 1999 Employee Stock Purchase Plan
*10.4 Series A Preferred Stock Purchase Agreement between Registrant and
Nationwide Mutual Insurance Company, dated as of January 30, 1996
*10.5 Stock Purchase Agreement between Registrant and Insurance Information
Exchange, L.L.C., dated as of November 22, 1996
*10.6 Non-Exclusive Joint Marketing and License Agreement between Registrant and
Insurance Information Exchange, L.L.C., dated as of November 22, 1996
*10.7 Asset Purchase Agreement between Registrant and Insurance Information
Exchange, L.L.C., dated as of November 22, 1996
*10.8 Letter of Credit Agreement between Registrant and AMS Services, Inc.,
dated as of November 22, 1996
*10.9 Assignment and Assumption Agreement by and among Registrant, AMS Services,
Inc. and Continental Casualty Company, dated as of April 10, 1998
*10.10 Employment Agreement between Registrant and Hussein A. Enan, dated
November 22, 1996
*10.11 Option Agreement between Insurance Information Exchange, L.L.C. and
Hussein A. Enan, dated as of November 22, 1996
*10.12 Series C Stock Purchase Agreement between Registrant and Century Capital
Partners, L.P., dated as of February 21, 1997
*10.13 Subscription Agreement between Registrant and Nationwide Mutual Insurance
Company, dated as of May 15, 1997
*10.14 Series D Preferred Stock Purchase Agreement by and among Registrant,
SOFTBANK Ventures, Inc., SOFTVEN No. 2 Investment Enterprise Partnership
and Century Capital Partners, L.P., dated as of December 15, 1998, as
amended
*10.15 Agreement and Plan of Reorganization by and among Registrant, Benelytics
Acquisition Corporation and Benelytics, Inc., dated as of December 31,
1998
*10.16 Joint Venture Agreement by and between Registrant and SOFTBANK Corp.,
dated as of December 15, 1998
*10.17 Series E Preferred Stock Purchase Agreement by and between Registrant and
SOFTBANK America Inc., dated as of March 31, 1999
*10.18+ License Agreement between Registrant and Yahoo! Inc. dated as of February
12, 1998, as amended
*10.19+ Services Agreements between Registrant and State Farm Mutual Automobile
Insurance Company dated as of August 23 and October 22, 1997, as amended
*21.1 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2 Consent of PricewaterhouseCoopers LLP, independent accountants
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- --------------------------------------------------------------------------
<C> <S>
23.3 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
*24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested as to a portion of this Exhibit.
(B) FINANCIAL STATEMENT SCHEDULES.
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under
the Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the provisions referenced in Item 14 of
this Registration Statement or otherwise, the Registrant has been advised that
in the opinion of the Commission such indemnification is against public policy
as expressed in the Securities Act, and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer,
or controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered hereunder, the Registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of Prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of Prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at the time shall be deemed to be the
initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Redwood City, State of California, on
July 6, 1999
<TABLE>
<S> <C> <C>
INSWEB CORPORATION
By: /s/ HUSSEIN A. ENAN
-----------------------------------------
Hussein A. Enan
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
Chairman of the Board,
/s/ HUSSEIN A. ENAN President and Chief
- ------------------------------ Executive Officer July 6, 1999
Hussein A. Enan (PRINCIPAL EXECUTIVE
OFFICER)
/s/ DARRELL J. TICEHURST*
- ------------------------------ Vice Chairman of the Board July 6, 1999
Darrell J. Ticehurst
Executive Vice President
/s/ STEPHEN I. ROBERTSON* and Chief Financial
- ------------------------------ Officer (PRINCIPAL July 6, 1999
Stephen I. Robertson FINANCIAL AND ACCOUNTING
OFFICER)
/s/ BRUCE A. BUNNER*
- ------------------------------ Director July 6, 1999
Bruce A. Bunner
/s/ JAMES M. CORROON*
- ------------------------------ Director July 6, 1999
James M. Corroon
/s/ PHILIP L. ENGEL*
- ------------------------------ Director July 6, 1999
Philip L. Engel
- ------------------------------ Director July , 1999
Ronald Fisher
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
/s/ RICHARD J. FREEMAN*
- ------------------------------ Director July 6, 1999
Richard J. Freeman
/s/ M. GORDON GADDY*
- ------------------------------ Director July 6, 1999
M. Gordon Gaddy
/s/ RICHARD D. HEADLEY*
- ------------------------------ Director July 6, 1999
Richard D. Headley
/s/ YOSHITAKA KITAO*
- ------------------------------ Director July 6, 1999
Yoshitaka Kitao
/s/ CLAUDE Y. MERCIER*
- ------------------------------ Director July 6, 1999
Claude Y. Mercier
/s/ DONALD K. MORFORD*
- ------------------------------ Director July 6, 1999
Donald K. Morford
/s/ ROBERT C. NEVINS*
- ------------------------------ Director July 6, 1999
Robert C. Nevins
/s/ ROBERT A. PUCCINELLI*
- ------------------------------ Director July 6, 1999
Robert A. Puccinelli
</TABLE>
<TABLE>
<S> <C> <C> <C>
*By: /s/ HUSSEIN A. ENAN
-------------------------
Hussein A. Enan
ATTORNEY-IN-FACT
</TABLE>
II-6
<PAGE>
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
--------------------------------------
ALLOWANCE FOR BALANCE AT CHARGED TO COSTS AND CHARGED TO WRITE-OFFS NET OF BALANCE AT
DOUBTFUL ACCOUNTS BEGINNING OF YEAR EXPENSES OTHER ACCOUNTS RECOVERIES END OF YEAR
- -------------------- ------------------ --------------------- --------------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
1998................ $ 5,000 $ -- $ -- $ 5,000 $ 0
1997................ $ 7,200 $ -- $ -- $ 2,200 $ 5,000
1996................ $ 0 $ 7,200 $ -- $ -- $ 7,200
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- --------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
*3.1 Fifth Restated Certificate of Incorporation of Registrant
*3.2 Bylaws of Registrant
**3.3 Form of Amended and Restated Certificate of Incorporation of Registrant to
be filed after the closing of the offering made pursuant to this
Registration Statement
**4.1 Specimen certificate representing the common stock
*4.2 Third Amended and Restated Investor Rights Agreement among Registrant and
certain Stockholders of Registrant, dated as of March 31, 1999
5.1 Opinion of Gray Cary Ware & Freidenrich LLP
**10.1 Form of Indemnification Agreement between Registrant and Registrant's
directors and officers
*10.2 1997 Stock Option Plan
*10.3 1999 Employee Stock Purchase Plan
*10.4 Series A Preferred Stock Purchase Agreement between Registrant and
Nationwide Mutual Insurance Company, dated as of January 30, 1996
*10.5 Stock Purchase Agreement between Registrant and Insurance Information
Exchange, L.L.C., dated as of November 22, 1996
*10.6 Non-Exclusive Joint Marketing and License Agreement between Registrant and
Insurance Information Exchange, L.L.C., dated as of November 22, 1996
*10.7 Asset Purchase Agreement between Registrant and Insurance Information
Exchange, L.L.C., dated as of November 22, 1996
*10.8 Letter of Credit Agreement between Registrant and AMS Services, Inc.,
dated as of November 22, 1996
*10.9 Assignment and Assumption Agreement by and among Registrant, AMS Services,
Inc. and Continental Casualty Company, dated as of April 10, 1998
*10.10 Employment Agreement between Registrant and Hussein A. Enan, dated
November 22, 1996
*10.11 Option Agreement between Insurance Information Exchange, L.L.C. and
Hussein A. Enan, dated as of November 22, 1996
*10.12 Series C Stock Purchase Agreement between Registrant and Century Capital
Partners, L.P., dated as of February 21, 1997
*10.13 Subscription Agreement between Registrant and Nationwide Mutual Insurance
Company, dated as of May 15, 1997
*10.14 Series D Preferred Stock Purchase Agreement by and among Registrant,
SOFTBANK Ventures, Inc., SOFTVEN No. 2 Investment Enterprise Partnership
and Century Capital Partners, L.P., dated as of December 15, 1998, as
amended
*10.15 Agreement and Plan of Reorganization by and among Registrant, Benelytics
Acquisition Corporation and Benelytics, Inc., dated as of December 31,
1998
*10.16 Joint Venture Agreement by and between Registrant and SOFTBANK Corp.,
dated as of December 15, 1998
*10.17 Series E Preferred Stock Purchase Agreement by and between Registrant and
SOFTBANK America Inc., dated as of March 31, 1999
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- --------------------------------------------------------------------------
<C> <S>
*10.18+ License Agreement between Registrant and Yahoo! Inc. dated as of February
12, 1998, as amended
*10.19+ Services Agreements between Registrant and State Farm Mutual Automobile
Insurance Company dated as of August 23 and October 22, 1997, as amended
*21.1 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2 Consent of PricewaterhouseCoopers LLP, independent accountants
23.3 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
*24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
</TABLE>
- --------------
* Previously filed.
** To be filed by amendment.
+ Confidential treatment has been requested as to a portion of this Exhibit.
<PAGE>
EXHIBIT 1.1
INSWEB CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
July [ ], 1999
Goldman, Sachs & Co.
BancBoston Robertson Stephens Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
E*OFFERING Corp.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.
2765 Sand Hill Road
Menlo Park, California 94025
Ladies and Gentlemen:
InsWeb Corporation, a Delaware corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
Underwriters named in Schedule I hereto (the "Underwriters") an aggregate of
4,000,000 shares (the "Firm Shares") and, at the election of the Underwriters,
up to 600,000 additional shares (the "Optional Shares") of Common Stock
("Stock") of the Company. The Firm Shares and the Optional Shares that the
Underwriters elect to purchase pursuant to Section 2 hereof are herein
collectively called the "Shares".
1. (a) The Company represents and warrants to, and agrees with, each of
the Underwriters that:
(i) A registration statement on Form S-1 (File No. 333-78095) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in the
form heretofore delivered to you, and, excluding exhibits thereto, to you
for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of 1933,
as amended (the "Act"), which became effective upon filing, no other
document with respect to the Initial Registration Statement has heretofore
been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has
been issued and no proceeding for that purpose has been initiated or
threatened by the Commission (any preliminary prospectus included in the
Initial Registration Statement or filed with the Commission pursuant to Rule
424(a) of the rules and regulations of the Commission under the Act is
hereinafter called a "Preliminary Prospectus"; the various parts of the
Initial Registration Statement and the Rule 462(b) Registration Statement,
if any, including all exhibits thereto and including the information
contained in the form of final prospectus filed with the Commission pursuant
to Rule 424(b) under the Act in accordance with Section 5(a) hereof and
deemed by virtue of Rule 430A under the Act to be part of the Initial
Registration Statement at the time it was declared effective or such part of
the Rule 462(b) Registration Statement, if any, became or hereafter becomes
effective, each as
<PAGE>
amended at the time such part of the Initial Registration Statement became
effective, are hereinafter collectively called the "Registration Statement";
and such final prospectus, in the form first filed pursuant to Rule 424(b)
under the Act, is hereinafter called the "Prospectus");
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of the
Commission thereunder, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; PROVIDED, HOWEVER, that this
representation and warranty shall not apply to any statements or omissions
made in reliance upon and in conformity with information furnished in
writing to the Company by an Underwriter through Goldman, Sachs & Co.
expressly for use therein;
(iii) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of the
Act and the rules and regulations of the Commission thereunder and do not
and will not, as of the applicable effective date as to the Registration
Statement and any amendment thereto and as of the applicable filing date as
to the Prospectus and any amendment or supplement thereto, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading;
PROVIDED, HOWEVER, that this representation and warranty shall not apply to
any statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
Goldman, Sachs & Co. expressly for use therein;
(iv) Neither the Company nor any of its subsidiaries (a list of which is
set forth on Schedule I hereto, the "Subsidiaries") has sustained since the
date of the latest audited financial statements included in the Prospectus
any material loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any
labor dispute or court or governmental action, order or decree, otherwise
than as set forth or contemplated in the Prospectus; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been any change in the capital
stock or long-term debt of the Company or any of its Subsidiaries or any
material adverse change, or any development involving a prospective material
adverse change, in or affecting the general affairs, management, financial
position, stockholders' equity or results of operations of the Company and
its Subsidiaries, otherwise than as set forth or contemplated in the
Prospectus;
(v) Neither the Company nor any of its Subsidiaries owns any real
property; and the Company and its subsidiaries have good and marketable
title to all personal property owned by them, in each case free and clear of
all liens, encumbrances and defects except such as are described in the
Prospectus or such as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such
property by the Company and its Subsidiaries; and any real property and
buildings held under lease by the Company or any of its Subsidiaries are
held by it under valid, subsisting and enforceable leases with such
exceptions as are not material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company or such
Subsidiary;
(vi) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
power and authority (corporate and other) to own its properties and conduct
its business as described in the Prospectus, and has been duly qualified as
a foreign corporation for the transaction of business and is in good
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standing under the laws of each other jurisdiction in which it owns or
leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and each
Subsidiary of the Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation and InsWeb Insurance Services, Inc., a California corporation
(the "Insurance Subsidiary") has been duly qualified as a foreign
corporation for the transaction of business and is in good standing under
the laws of each other jurisdiction in which it owns or leases properties or
conducts any business so as to require such qualification, or is subject to
no material liability or disability by reason of the failure to be so
qualified in any such jurisdiction;
(vii) The Company and each of its Subsidiaries have all necessary
authorizations, approvals, orders, consents, licenses, certificates,
permits, registrations or qualifications of and from all insurance
regulatory authorities to conduct their businesses as described in the
Prospectus, or are subject to no material liability or disability by reason
of the failure to have authorizations, approvals, orders, consents,
licenses, certificates, permits, registrations or qualifications; and,
except as described in the Prospectus, none of the Company or any of its
Subsidiaries has received any notification from any insurance regulatory
authority to the effect that any additional authorization, approval, order,
consent, license, certificate, permit, registration or qualification is
needed to be obtained by any of the Company or its Subsidiaries in any case
where it could be reasonably expected that the failure to obtain such
authorization, approval, order, consent, license, certificate, permit,
registration or qualification or the limiting of such business would have a
material adverse effect on the general affairs, management, the current or
future financial position, business prospects, stockholders' equity or
results of operations of the Company and its Subsidiaries, taken as a whole,
or result in any material loss of interference with the Company's business
or operations (a "Material Adverse Effect"); the Insurance Subsidiary is
duly licensed or authorized as an insurance agency in each jurisdiction
listed on Schedule II attached hereto;
(viii) Each of the Company and its Subsidiaries is in compliance with the
requirements of the insurance laws and regulations of its state of
incorporation and the insurance laws and regulations of other jurisdictions
which are applicable to the Company or such Subsidiary, and has filed all
notices, reports, documents or other information required to be filed
thereunder, except where the failure to comply with such requirement could
not reasonably be expected to have a Material Adverse Effect;
(ix) The Company will have an authorized capitalization as of the First
Time of Delivery (as defined in Section 4 hereof), as set forth in the
Prospectus for "pro forma as adjusted" under the caption "Capitalization",
and all of the issued shares of capital stock of the Company have been duly
and validly authorized and issued are fully paid and non-assessable and
conform to the description of the Stock contained in the Prospectus; and all
of the issued shares of capital stock of each Subsidiary of the Company have
been duly and validly authorized and issued, are fully paid and
non-assessable and (except for directors' qualifying shares) are owned
directly or indirectly by the Company, free and clear of all liens,
encumbrances, equities or claims;
(x) The unissued Shares to be issued and sold by the Company to the
Underwriters hereunder have been duly and validly authorized and, when
issued and delivered against payment therefor as provided herein, will be
duly and validly issued and fully paid and non-assessable and will conform
to the description of the Stock contained in the Prospectus;
(xi) The issue and sale of the Shares to be sold by the Company
hereunder and the compliance by the Company with all of the provisions of
this Agreement and the
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consummation of the transactions herein contemplated will not conflict with
or result in a breach or violation of any of the terms or provisions of, or
constitute a default under, any indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound or to which any of the property or assets of the
Company or any of its Subsidiaries is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any of its Subsidiaries or any statute or any
order, rule or regulation of any court or governmental agency or body having
jurisdiction over the Company or any of its Subsidiaries or any of their
properties; and no consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws or the bylaws, rules and regulations of
the National Association Securities Dealers, Inc. (the "NASD") in connection
with the purchase and distribution of the Shares by the Underwriters;
(xii) Neither the Company nor any of its Subsidiaries is in violation of
its Certificate of Incorporation or By-laws or in default in the performance
or observance of any material obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, loan agreement lease or
other agreement or instrument to which it is a party or by which it or any
of its properties may be bound;
(xiii) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, under the caption "Government Regulation"
and under the caption "Risk Factors--Laws and regulations that govern the
insurance industry...", insofar as they purport to describe the laws and
documents referred to therein, are accurate, complete and fair in all
material respects;
(xiv) Other than as set forth in the Prospectus, there are no legal or
governmental proceedings pending to which the Company or any of its
Subsidiaries is a party or of which any property of the Company or any of
its Subsidiaries is the subject which, if determined adversely to the
Company or any of its Subsidiaries, would individually or in the aggregate
have a Material Adverse Effect; and, to the best of the Company's knowledge,
no such proceedings are threatened or contemplated by governmental
authorities or threatened by others;
(xv) The Company is not and, after giving effect to the offering and sale
of the Shares, will not be an "investment company" or an entity "controlled"
by an "investment company", as such terms are defined in the Investment
Company Act of 1940, as amended (the "Investment Company Act");
(xvi) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida statutes;
(xvii) To the Company's knowledge, PricewaterhouseCoopers, LLP, who have
certified certain financial statements of the Company and Benelytics, Inc.
are independent public accountants as required by the Act and the rules and
regulations of the Commission thereunder;
(xviii) The Company has reviewed its operations and that of its
Subsidiaries and any third parties with which the Company has a material
relationship to evaluate the extent to which the business or operations of
the Company or any of its Subsidiaries will be affected by the Year
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2000 Problem. As a result of such review, the company has no reason to
believe, and does not believe, that the Year 2000 Problem will have a
Material Adverse Effect. The "Year 2000 Problem" as used herein means any
significant risk that computer hardware or software used in the receipt,
transmission, processing, manipulation, storage, retrieval, retransmission
or other utilization of data or in the operation of mechanical or electrical
systems of any kind will not, in the case of dates or time periods occurring
after December 31, 1999, function at least as effectively as in the case of
dates or time periods occurring prior to January 1, 2000;
(xix) The Company and its Subsidiaries own or possess, or can acquire on
reasonable terms, all licenses, inventions, copyrights, know-how (including
trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), trademarks, service marks
and trade names, patents and patent rights necessary to carry on its
business as described in the Prospectus, and, except as set forth in the
Prospectus, neither the Company nor any of its Subsidiaries has received any
correspondence relating to any of the foregoing or notice of infringement of
or conflict with asserted rights of others with respect to any of the
foregoing;
(xx) No material labor dispute with the employees of the Company or any
of its Subsidiaries exists, or, to the knowledge of the Company, is
imminent; and the Company is not aware of any existing, threatened or
imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that could result in any Material
Adverse Effect;
(xxi) The Company and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are prudent and customary in the business in which they are
engaged; neither the Company nor any of its Subsidiaries has been refused
any insurance coverage sought or applied for; and the Company and its
Subsidiaries have no reason to believe that they will not be able to renew
their existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue their business at a cost that would not have a Material Adverse
Effect;
(xxii) Each of the Company and its Subsidiaries possesses all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct its respective
business, except where failure to possess such certificate, authorization or
permit would not reasonably result in a Material Adverse Effect, and neither
the Company nor any Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit which, if the subject of an unfavorable decision,
ruling or finding, would result in a Material Adverse Effect;
(xxiii) Each of the Company and its Subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that
(i) transactions are executed in accordance with management's general or
specific authorizations; (ii) transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences;
(xxiv) All United States federal income tax returns of the Company and its
Subsidiaries required by law to be filed have been filed and all taxes shown
by such returns or otherwise assessed, which are due and payable, have been
paid, except assessments against which appeals have been or will be promptly
taken and as to which adequate reserves have been provided. The Company and
its Subsidiaries have filed all other tax returns that are required to
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have been filed by it pursuant to applicable foreign, state, local or other
law and has paid all taxes due pursuant to such returns or pursuant to any
assessment received by the Company and its Subsidiaries, except for such
taxes, if any, as are being contested in good faith and as to which adequate
reserves have been provided. The charges, accruals and reserves on the books
of the Company and its Subsidiaries in respect of any income and corporation
tax liability for any years not finally determined are adequate to meet any
assessments or re-assessments for additional income tax for any years not
finally determined; and
(xxv) Each of the Company and its Subsidiaries (i) is in compliance with
any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) has received all permits, licenses
or other approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (iii) is in compliance with all
terms and conditions of any such permit, license or approval, except where
such noncompliance with Environmental Laws, failure to receive required
permits, licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a Material Adverse Effect; and
(xxvi) There is no legal or beneficial owner of any securities of the
Company who has any rights, not effectively satisfied or waived, that
require registration of any securities of the Company in connection with the
filing of the Registration Statement.
2. Subject to the terms and conditions herein set forth, the Company agrees
to issue and sell to each of the Underwriters, and each of the Underwriters
agrees, severally and not jointly, to purchase from the Company, at a purchase
price per share of $ , the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I hereto and (b) in the event and to the
extent that the Underwriters shall exercise the election to purchase Optional
Shares as provided below, the Company agrees to sell to each of the
Underwriters, and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company, at the purchase price per share set forth in clause
(a) of this Section 2, that portion of the number of Optional Shares as to which
such election shall have been exercised (to be adjusted by you so as to
eliminate fractional shares) determined by multiplying such number of Optional
Shares by a fraction the numerator of which is the maximum number of Optional
Shares which such Underwriter is entitled to purchase as set forth opposite the
name of such Underwriter in Schedule I hereto and the denominator of which is
the maximum number of Optional Shares that all of the Underwriters are entitled
to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at their
election up to 600,000 Optional Shares, at the purchase price per share set
forth in the paragraph above, for the sole purpose of covering overallotments in
the sale of the Firm Shares. Any such election to purchase Optional Shares may
be exercised only by written notice from you to the Company, given within a
period of 30 calendar days after the date of this Agreement and setting forth
the aggregate number of Optional Shares to be purchased and the date on which
such Optional Shares are to be delivered, as determined by you but in no event
earlier than the First Time of Delivery (as defined in Section 4 hereof) or,
unless you and the Company otherwise agree in writing, earlier than two or later
than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive form, and in such authorized denominations and registered in such
names as Goldman, Sachs & Co. may request upon at least forty-eight hours' prior
notice to the Company shall be delivered by or on
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behalf of the Company to Goldman, Sachs & Co., through the facilities of the
Depository Trust Company ("DTC") for the account of such Underwriter, against
payment by or on behalf of such Underwriter of the purchase price therefor by
wire transfer of Federal (same-day) funds to the account specified by the
Company and to Goldman, Sachs & Co. at least forty-eight hours in advance. The
Company will cause the certificates representing the Shares to be made available
for checking and packaging at least twenty-four hours prior to the Time of
Delivery (as defined below) with respect thereto at the office of DTC or its
designated custodian (the "Designated Office").
The time and date of such delivery and payment shall be, with respect to the
Firm Shares, 9:30 a.m., New York City time, on , 1999 or such other time
and date as Goldman, Sachs & Co. and the Company may agree upon in writing, and,
with respect to the Optional Shares, 9:30 a.m., New York City time, on the date
specified by Goldman, Sachs & Co. in the written notice given by Goldman, Sachs
& Co. of the Underwriters' election to purchase such Optional Shares, or such
other time and date as Goldman, Sachs & Co. and the Company may agree upon in
writing. Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery", such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second Time of
Delivery", and each such time and date for delivery is herein called a "Time of
Delivery".
(b) The documents to be delivered at each Time of Delivery by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross-receipt
for the Shares and any additional documents requested by the Underwriters
pursuant to Section 7(j) hereof, will be delivered at the offices of Gray Cary
Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, California 94301 (the
"Closing Location"), and the Shares will be delivered at the Designated Office,
all at such Time of Delivery. A meeting will be held at the Closing Location at
6:00 p.m., New York City time, on the New York Business Day next preceding each
Time of Delivery, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by the
parties hereto. For the purposes of this Section 4, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file such
Prospectus pursuant to Rule 424(b) under the Act not later than the Commission's
close of business on the second business day following the execution and
delivery of this Agreement, or, if applicable, such earlier time as may be
required by Rule 430A(a)(3) under the Act; to make no further amendment or any
supplement to the Registration Statement or Prospectus prior to the last Time of
Delivery which shall be disapproved by you promptly after reasonable notice
thereof; to advise you, promptly after it receives notice thereof, of the time
when any amendment to the Registration Statement has been filed or becomes
effective or any supplement to the Prospectus or any amended Prospectus has been
filed and to furnish you with copies thereof; to advise you, promptly after it
receives notice thereof, of the issuance by the Commission of any stop order or
of any order preventing or suspending the use of any Preliminary Prospectus or
prospectus, of the suspension of the qualification of the Shares for offering or
sale in any jurisdiction, of the initiation or threatening of any proceeding for
any such purpose, or of any request by the Commission for the amending or
supplementing of the Registration Statement or Prospectus or for additional
information; and, in the event of the issuance of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to obtain
the withdrawal of such order;
(b) Promptly from time to time to take such action as you may reasonably
request to qualify the Shares for offering and sale under the securities laws of
such jurisdictions as you may request
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and to comply with such laws so as to permit the continuance of sales and
dealings therein in such jurisdictions for as long as may be necessary to
complete the distribution of the Shares, provided that in connection therewith
the Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 a.m., New York City time, on the New York Business Day
next succeeding the date of this Agreement and from time to time, to furnish the
Underwriters with copies of the Prospectus in New York City in such quantities
as you may reasonably request, and, if the delivery of a prospectus is required
at any time prior to the expiration of nine months after the time of issue of
the Prospectus in connection with the offering or sale of the Shares and if at
such time any event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were made
when such Prospectus is delivered, not misleading, or, if for any other reason
it shall be necessary during such period to amend or supplement the Prospectus
in order to comply with the Act, to notify you and upon your request to prepare
and furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an amended
Prospectus or a supplement to the Prospectus which will correct such statement
or omission or effect such compliance, and in case any Underwriter is required
to deliver a prospectus in connection with sales of any of the Shares at any
time nine months or more after the time of issue of the Prospectus, upon your
request but at the expense of such Underwriter, to prepare and deliver to such
Underwriter as many copies as you may request of an amended or supplemented
Prospectus complying with Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the effective
date of the Registration Statement (as defined in Rule 158(c) under the Act), an
earnings statement of the Company and its Subsidiaries (which need not be
audited) complying with Section 11(a) of the Act and the rules and regulations
of the Commission thereunder (including, at the option of the Company, Rule
158);
(e) During the period beginning from the date hereof and continuing to and
including the date 180 days after the date of the Prospectus, not to offer,
sell, contract to sell or otherwise dispose of, except as provided hereunder,
any securities of the Company that are substantially similar to the Shares,
including but not limited to any securities that are convertible into or that
represent the right to receive, Stock or any such substantially similar
securities (other than (i) pursuant to employee stock plans existing on, or upon
the conversion or exchange of convertible or exchangeable securities outstanding
as of, the date of this Agreement, or (ii) pursuant to an acquisition
transaction, provided that any person who acquires equity securities of the
Company in such transaction agrees not to offer, sell, contract to sell or
otherwise dispose of such securities during the period ending 180 days after the
date of the Prospectus), without your prior written consent;
(f) To furnish to its stockholders as soon as practicable after the end of
each fiscal year an annual report (including a balance sheet and statements of
income, stockholders' equity and cash flows of the Company and its consolidated
Subsidiaries certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of each fiscal
year (beginning with the fiscal quarter ending after the effective date of the
Registration Statement), to make available to its stockholders consolidated
summary financial information of the Company and its subsidiaries for such
quarter in reasonable detail;
(g) During a period of five years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders generally and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any national
securities
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exchange on which any class of securities of the Company is listed; and (ii)
such additional information concerning the business and financial condition of
the Company as you may from time to time reasonably request (such financial
statements to be on a consolidated basis to the extent the accounts of the
Company and its subsidiaries are consolidated in reports furnished to its
stockholders generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under the
caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the Nasdaq
National Market ("Nasdaq");
(j) To file with the Commission such information on Form 10-Q or Form 10-K
as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall file a
Rule 462(b) Registration Statement with the Commission in compliance with Rule
462(b) by 10:00 p.m., Washington, D.C. time, on the date of this Agreement, and
the Company shall at the time of filing either pay to the Commission the filing
fee for the Rule 462(b) Registration Statement or give irrevocable instructions
for the payment of such fee pursuant to Rule 111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that it
will pay or cause to be paid the following: (i) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements thereto
and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the Blue Sky Memorandum, closing documents
(including any compilations thereof) and any other documents in connection with
the offering, purchase, sale and delivery of the Shares; (iii) all expenses in
connection with the qualification of the Shares for offering and sale under
state securities laws as provided in Section 5(b) hereof, including the fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey; (iv) all fees and
expenses in connection with listing the Shares on the Nasdaq; (v) the filing
fees incident to, and the fees and disbursements of counsel for the Underwriters
in connection with, securing any required review by the NASD of the terms of the
sale of the Shares; (vi) the cost of preparing stock certificates; (vii) the
cost and charges of any transfer agent or registrar; and (viii) all other costs
and expenses incident to the performance of its obligations hereunder which are
not otherwise specifically provided for in this Section. It is understood,
however, that except as provided in this Section, and Sections 8 and 11 hereof,
the Underwriters will pay all of their own costs and expenses, including the
fees of their counsel, stock transfer taxes on resale of any of the Shares by
them, and any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by the
rules and regulations under the Act and in accordance with Section 5(a) hereof;
if the Company has elected to rely upon Rule 462(b), the Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., Washington,
D.C. time, on the date of this Agreement; no stop order suspending the
effectiveness of the Registration
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Statement or any part thereof shall have been issued and no proceeding for that
purpose shall have been initiated or threatened by the Commission; and all
requests for additional information on the part of the Commission shall have
been complied with to your reasonable satisfaction;
(b) Shearman & Sterling, counsel for the Underwriters, shall have furnished
to you such written opinion or opinions (a draft of each such opinion is
attached as Annex II(a) hereto), dated such Time of Delivery, with respect to
the matters covered in paragraphs (i), (ii), (vi), (xi) and (xii) of subsection
(c) below as well as such other related matters as you may reasonably request,
and such counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Gray Cary Ware & Freidenrich LLP, counsel for the Company, shall have
furnished to you their written opinion (a draft of such opinion is attached as
Annex II(b) hereto), dated such Time of Delivery, in form and substance
satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own its properties and conduct its business
as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
(including the Shares being delivered at such Time of Delivery) have been
duly and validly authorized and issued and are fully paid and
non-assessable; and the Shares conform to the description of the Stock
contained in the Prospectus;
(iii) The Company has been duly qualified as a foreign corporation for
the transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases properties or conducts any
business so as to require such qualification, or is subject to no material
liability or disability by reason of failure to be so qualified in any such
jurisdiction (such counsel being entitled to rely in respect of the opinion
in this clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that such
counsel shall state that they have no reason to believe that both you and
they are not justified in relying upon such opinions and certificates);
(iv) Each Subsidiary of the Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation; and all of the issued shares of capital stock
of each such Subsidiary have been duly and validly authorized and issued,
are fully paid and non-assessable, and (except for directors' qualifying
shares) are owned directly or indirectly by the Company, free and clear of
all liens, encumbrances, equities or claims (such counsel being entitled to
rely in respect of the opinion in this clause upon opinions of local counsel
and in respect to matters of fact upon certificates of officers of the
Company or its Subsidiaries, provided that such counsel shall state that
they believe that both you and they are justified in relying upon such
opinions and certificates);
(v) The lease for the Company's principal place of business located at
901 and 1001 Marshall Street, Redwood City, California 94063 is a valid and
enforceable lease with such exceptions as are not material and do not
interfere with the use made and proposed to be made of such property and
buildings by the Company and its Subsidiaries;
(vi) To the best of such counsel's knowledge and other than as set forth
in the Prospectus, there are no legal or governmental proceedings pending to
which the Company or any of its Subsidiaries a party or of which any
property of the Company or any of its Subsidiaries is the subject which, if
determined adversely to the Company or any of its Subsidiaries, would
individually or in the aggregate have a material adverse effect on the
current or future consolidated financial position, stockholders' equity or
results of operations of
10
<PAGE>
the Company and its Subsidiaries; and, to the best of such counsel's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(vii) This Agreement has been duly authorized, executed and delivered by
the Company;
(viii) The issue and sale of the Shares being delivered at such Time of
Delivery to be sold by the Company and the compliance by the Company with
all of the provisions of this Agreement and the consummation of the
transactions herein contemplated will not conflict with or result in a
breach or violation of any of the terms or provisions of, or constitute a
default under, any material indenture, mortgage, deed of trust, loan
agreement or other agreement or instrument known to such counsel to which
the Company or any of its Subsidiaries is a party or by which the Company is
bound or to which any of the property or assets of the Company or any of its
Subsidiaries is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the Company or
any statute or any order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over the Company or
any of its Subsidiaries or any of their properties;
(ix) No consent, approval, authorization, order, registration or
qualification of or with any such court or governmental agency or body is
required for the issue and sale of the Shares or the consummation by the
Company of the transactions contemplated by this Agreement, except the
registration under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required under
state securities or Blue Sky laws in connection with the purchase and
distribution of the Shares by the Underwriters;
(x) Neither the Company nor any of its Subsidiaries is in violation of
its Certificate of Incorporation or, to such counsel's knowledge, By-laws or
in default in the performance or observance of any material obligation,
agreement, covenant or condition contained in any material indenture,
mortgage, deed of trust, loan agreement, lease or other agreement or
instrument to which it is a party or by which it or any of its properties
may be bound;
(xi) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, and under the caption "Underwriting",
insofar as they purport to describe the provisions of the laws and documents
referred to therein, are accurate and complete in all material respects;
(xii) The Company is not an "investment company" or an entity
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act; and
(xiii) The Registration Statement and the Prospectus and any further
amendments and supplements thereto made by the Company prior to such Time of
Delivery (other than the financial statements and related schedules and
other financial data included therein or derived therefrom, as to which such
counsel need express no opinion) comply as to form in all material respects
with the requirements of the Act and the rules and regulations thereunder;
although they have not undertaken to independently verify and do not assume
any responsibility for the accuracy, completeness or fairness of the
statements contained in the Registration Statement or the Prospectus, except
for those referred to in the opinion in subsection (xi) of this Section
7(c), they have no reason to believe that, as of its effective date, the
Registration Statement or any further amendment thereto made by the Company
prior to such Time of Delivery (other than the financial statements and
related schedules and other financial data included therein or derived
therefrom, as to which such counsel need express no opinion) contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such Time of
11
<PAGE>
Delivery (other than the financial statements and related schedules and
other financial data included therein or derived therefrom, as to which such
counsel need express no opinion) contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading or that, as of such Time of Delivery, either the Registration
Statement or the Prospectus or any further amendment or supplement thereto
made by the Company prior to such Time of Delivery (other than the financial
statements and related schedules therein, as to which such counsel need
express no opinion) contains an untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein, in the
light of the circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration Statement required to
be filed or of any contracts or other documents of a character required to
be filed as an exhibit to the Registration Statement or required to be
described in the Registration Statement or the Prospectus which are not
filed or described as required.
(d) LeBoeuf, Lamb, Greene & MacRae, special regulatory counsel to the
Company, shall have furnished to you their written opinion (a draft of such
opinion is attached as Annex II(c) hereto), dated such Time of Delivery, in form
and substance satisfactory to you, to the effect that:
(i) The Company and each of its Subsidiaries have all necessary
authorizations, approvals, orders, consents, licenses, certificates,
permits, registrations or qualifications of and from all insurance
regulatory authorities to conduct their businesses as described in the
Prospectus, or are subject to no material liability or disability by reason
of the failure to have authorizations, approvals, orders, consents,
licenses, certificates, permits, registrations or qualifications; and none
of the Company or any of its Subsidiaries has received any notification from
any insurance regulatory authority to the effect that any additional
authorization, approval, order, consent, license, certificate, permit,
registration or qualification is needed to be obtained by any of the Company
or its Subsidiaries in any case where it could be reasonably expected that
the failure to obtain such authorization, approval, order, consent, license,
certificate, permit, registration or qualification or the limiting of such
business would have a material adverse effect on the general affairs,
management, the current or future financial position, business prospects,
stockholders' equity or results of operations of the Company and its
Subsidiaries or result in any material loss of interference with the
Company's business or operations (a "Material Adverse Effect");
(ii) To the best of such counsel's knowledge, each of the Company and
its Subsidiaries is in compliance with the requirements of the insurance
laws and regulations of its state of incorporation and the insurance laws
and regulations of other jurisdictions which are applicable to the Company
or such Subsidiary, and has filed all notices, reports, documents or other
information required to be filed thereunder (such counsel being entitled to
rely in respect of the opinion in this clause upon opinions of local counsel
and in respect of matters of fact upon certificates of officers of the
Company, provided that such counsel shall state that she believes that both
you and she are justified in relying upon such opinions and certificates;
and
(iii) The statements set forth in the Prospectus under the captions
"Government Regulation" and under the caption "Risk Factors--[Government
Regulation]", insofar as they purport to describe the laws and documents
referred to therein, are accurate, complete and fair.
Such counsel shall also state that although they do not assume any
responsibility for the accuracy, completeness or fairness of the statements
contained in the Registration Statement or the Prospectus, except for those
referred to in the opinion in subsection (iii) of this Section 7(d), she has no
reason to believe that, as of its effective date, the Registration Statement or
any further
12
<PAGE>
amendment thereto made by the Company prior to such Time of Delivery (other than
the financial statements and related schedules therein, as to which such counsel
need express no opinion) contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the Company
prior to such Time of Delivery (other than the financial statements and related
schedules therein, as to which such counsel need express no opinion) contained
an untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading or that, as of such Time of Delivery,
either the Registration Statement or the Prospectus or any further amendment or
supplement thereto made by the Company prior to such Time of Delivery (other
than the financial statements and related schedules therein, as to which such
counsel need express no opinion) contains an untrue statement of a material fact
or omits to state a material fact necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
they do not know of any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character required to be filed
as an exhibit to the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or described as
required.
(e) On the date of the Prospectus at a time prior to the execution of this
Agreement, at 9:30 a.m., New York City time, on the effective date of any
post-effective amendment to the Registration Statement filed subsequent to the
date of this Agreement and also at each Time of Delivery, PricewaterhouseCoopers
LLP shall have furnished to you a letter or letters, dated the respective dates
of delivery thereof, in form and substance satisfactory to you, to the effect
set forth in Annex I hereto (the executed copy of the letter delivered prior to
the execution of this Agreement is attached as Annex I(a) hereto and a draft of
the form of letter to be delivered on the effective date of any post-effective
amendment to the Registration Statement and as of each Time of Delivery is
attached as Annex I(b) hereto);
(f)(i) Neither the Company nor any of its Subsidiaries shall have sustained
since the date of the latest audited financial statements included in the
Prospectus any loss or interference with its business from fire, explosion,
flood or other calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree, otherwise than as set
forth or contemplated in the Prospectus, and (ii) since the respective dates as
of which information is given in the Prospectus there shall not have been any
change in the capital stock or long-term debt of the Company or any of its
Subsidiaries or any change, or any development involving a prospective change,
in or affecting the general affairs, management, financial position,
stockholders' equity or results of operations of the Company and its
Subsidiaries, otherwise than as set forth or contemplated in the Prospectus, the
effect of which, in any such case described in clause (i) or (ii), is in the
judgment of the Representatives so material and adverse as to make it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
(g) On or after the date hereof there shall not have occurred any of the
following: (i) a suspension or material limitation in trading in securities
generally on the New York Stock Exchange or on Nasdaq; (ii) a suspension or
material limitation in trading in the Company's securities on Nasdaq; (iii) a
general moratorium on commercial banking activities declared by either Federal
or New York or California State authorities; or (iv) the outbreak or escalation
of hostilities involving the United States or the declaration by the United
States of a national emergency or war, if the effect of any such event specified
in this clause (iv) in the judgment of the Representatives makes it
impracticable or inadvisable to proceed with the public offering or the delivery
of the Shares being delivered at such Time of Delivery on the terms and in the
manner contemplated in the Prospectus;
13
<PAGE>
(h) The Shares to be sold at such Time of Delivery shall have been duly
listed for quotation on Nasdaq;
(i) The Company has obtained and delivered to the Underwriters executed
copies of an agreement from each director and executive officer of the Company
and each stockholder holding more than % of the Company's capital stock to
the effect set forth in Subsection 5(e) hereof in form and substance
satisfactory to you;
(j) The Company shall have complied with the provisions of Section 5(c)
hereof with respect to the furnishing of prospectuses on the New York Business
Day next succeeding the date of this Agreement; and
(k) The Company shall have furnished or caused to be furnished to you at
such Time of Delivery certificates of officers of the Company, satisfactory to
you, as to the accuracy of the representations and warranties of the Company
herein at and as of such Time of Delivery, as to the performance by the Company
of all of its respective obligations hereunder to be performed at or prior to
such Time of Delivery, and as to such other matters as you may reasonably
request, and the Company shall have furnished or caused to be furnished
certificates as to the matters set forth in subsections (a) and (f) of this
Section, and as to such other matters as you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to which
such Underwriter may become subject, under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon an untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, the Registration
Statement or the Prospectus, or any amendment or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse each Underwriter for any legal or
other expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; PROVIDED, HOWEVER, that the Company shall not be liable in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in any Preliminary Prospectus, the Registration Statement
or the Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any Underwriter
through Goldman, Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company against
any losses, claims, damages or liabilities to which the Company may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such amendment
or supplement in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through Goldman, Sachs & Co.
expressly for use therein; and will reimburse the Company for any legal or other
expenses reasonably incurred by the Company in connection with investigating or
defending any such action or claim as such expenses are incurred.
14
<PAGE>
(c) Promptly after receipt by an indemnified party under subsection (a) or
(b) above of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against an indemnifying party
under such subsection, notify the indemnifying party in writing of the
commencement thereof; but the omission so to notify the indemnifying party shall
not relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel satisfactory to such indemnified party (which shall not, except with the
consent of the indemnified party, be counsel to the indemnifying party), and,
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party shall not be
liable to such indemnified party under such subsection for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof other than reasonable
costs of investigation. No indemnifying party shall, without the written consent
of the indemnified party, effect the settlement or compromise of, or consent to
the entry of any judgment with respect to, any pending or threatened action or
claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential party
to such action or claim) unless such settlement, compromise or judgment (i)
includes an unconditional release of the indemnified party from all liability
arising out of such action or claim and (ii) does not include a statement as to
or an admission of fault, culpability or a failure to act, by or on behalf of
any indemnified party.
(d) If the indemnification provided for in this Section 8 is unavailable to
or insufficient to hold harmless an indemnified party under subsection (a) or
(b) above in respect of any losses, claims, damages or liabilities (or actions
in respect thereof) referred to therein, then each indemnifying party shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities (or actions in respect thereof)
in such proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriters on the other from the
offering of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law or if the indemnified
party failed to give the notice required under subsection (c) above, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one hand and
the Underwriters on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriters
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares purchased under this Agreement (before
deducting expenses) received by the Company bear to the total underwriting
discounts and commissions received by the Underwriters with respect to the
Shares purchased under this Agreement, in each case as set forth in the table on
the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or the
Underwriters on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and equitable
if contributions pursuant to this subsection (d) were determined by PRO RATA
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this subsection (d). The amount
paid or payable by an indemnified party as a result of the losses,
15
<PAGE>
claims, damages or liabilities (or actions in respect thereof) referred to above
in this subsection (d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
subsection (d), no Underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds the
amount of any damages which such Underwriter has otherwise been required to pay
by reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The Underwriters'
obligations in this subsection (d) to contribute are several in proportion to
their respective underwriting obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in addition
to any liability which the Company may otherwise have and shall extend, upon the
same terms and conditions, to each person, if any, who controls any Underwriter
within the meaning of the Act; and the obligations of the Underwriters under
this Section 8 shall be in addition to any liability which the respective
Underwriters may otherwise have and shall extend, upon the same terms and
conditions, to each officer and director of the Company and to each person, if
any, who controls the Company within the meaning of the Act.
9. (a) If any Underwriter shall default in its obligation to purchase the
Shares which it has agreed to purchase hereunder at a Time of Delivery, you may
in your discretion arrange for you or another party or other parties to purchase
such Shares on the terms contained herein. If within thirty-six hours after such
default by any Underwriter you do not arrange for the purchase of such Shares,
then the Company shall be entitled to a further period of thirty-six hours
within which to procure another party or other parties satisfactory to you to
purchase such Shares on such terms. In the event that, within the respective
prescribed periods, you notify the Company that you have so arranged for the
purchase of such Shares, or the Company notifies you that it has so arranged for
the purchase of such Shares, you or the Company shall have the right to postpone
such Time of Delivery for a period of not more than seven days, in order to
effect whatever changes may thereby be made necessary in the Registration
Statement or the Prospectus, or in any other documents or arrangements, and the
Company agrees to file promptly any amendments to the Registration Statement or
the Prospectus which in your opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person substituted
under this Section with like effect as if such person had originally been a
party to this Agreement with respect to such Shares.
(b) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased does not exceed one-eleventh of the aggregate number of all
of the Shares to be purchased at such Time of Delivery, then the Company shall
have the right to require each non-defaulting Underwriter to purchase the number
of Shares which such Underwriter agreed to purchase hereunder at such Time of
Delivery and, in addition, to require each non-defaulting Underwriter to
purchase its pro rata share (based on the number of Shares which such
Underwriter agreed to purchase hereunder) of the Shares of such defaulting
Underwriter or Underwriters for which such arrangements have not been made; but
nothing herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of the
Shares of a defaulting Underwriter or Underwriters by you and the Company as
provided in subsection (a) above, the aggregate number of such Shares which
remains unpurchased exceeds one-eleventh of the aggregate number of all of the
Shares to be purchased at such Time of Delivery, or if the Company shall not
exercise the right described in subsection (b) above to require non-defaulting
Underwriters
16
<PAGE>
to purchase Shares of a defaulting Underwriter or Underwriters, then this
Agreement (or, with respect to the Second Time of Delivery, the obligations of
the Underwriters to purchase and of the Company to sell the Optional Shares)
shall thereupon terminate, without liability on the part of any non-defaulting
Underwriter or the Company, except for the expenses to be borne by the Company
and the Underwriters as provided in Section 6 hereof and the indemnity and
contribution agreements in Section 8 hereof; but nothing herein shall relieve a
defaulting Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties and
other statements of the Company, and the several Underwriters, as set forth in
this Agreement or made by or on behalf of them, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof, the
Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason any Shares are
not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10004, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
upon receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company, or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
14. Time shall be of the essence of this Agreement. As used herein, the term
"business day" shall mean any day when the Commission's office in Washington,
D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with the
laws of the State of New York.
17
<PAGE>
16. This Agreement may be executed by any one or more of the parties hereto
in any number of counterparts, each of which shall be deemed to be an original,
but all such counterparts shall together constitute one and the same instrument.
If the foregoing is in accordance with your understanding, please sign and
return to us 10 counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
InsWeb Corporation
By: __________________________________
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
BancBoston Robertson Stephens Inc.
Donaldson, Lufkin & Jenrette Securities Corporation
E*OFFERING Corp.
By:
- ---------------------------------------------
(Goldman, Sachs & Co.)
On behalf of each of the Underwriters
18
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
NUMBER OF OPTIONAL
SHARES TO BE
TOTAL NUMBER OF PURCHASED IF
FIRM SHARES MAXIMUM OPTION
UNDERWRITER TO BE PURCHASED EXERCISED
- -------------------------------------------------------------------------- ---------------- -------------------
<S> <C> <C>
Goldman, Sachs & Co.......................................................
BancBoston Robertson Stephens Inc.........................................
Donaldson, Lufkin & Jenrette Securities Corporation Inc...................
E*OFFERING Corp...........................................................
[NAMES OF OTHER UNDERWRITERS............................................ ]
---------------- -------------------
Total.................................................................
---------------- -------------------
---------------- -------------------
</TABLE>
19
<PAGE>
ANNEX I
FORM OF ANNEX I DESCRIPTION OF COMFORT LETTER
Pursuant to Section 7(d) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect to
the Company and its Subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any supplementary
financial information and schedules (and, if applicable, financial forecasts
and/or pro forma financial information) examined by them and included in the
Prospectus or the Registration Statement comply as to form in all material
respects with the applicable accounting requirements of the Act and the
related published rules and regulations thereunder; and, if applicable, they
have made a review in accordance with standards established by the American
Institute of Certified Public Accountants of the unaudited consolidated
interim financial statements, selected financial data, pro forma financial
information, financial forecasts and/or condensed financial statements
derived from audited financial statements of the Company for the periods
specified in such letter, as indicated in their reports thereon, copies of
which have been separately furnished to the representatives of the
Underwriters (the "Representatives");
(iii) They have made a review in accordance with standards established
by the American Institute of Certified Public Accountants of the unaudited
condensed consolidated statements of income, consolidated balance sheets and
consolidated statements of cash flows included in the Prospectus as
indicated in their reports thereon copies of which have been separately
furnished to the Representatives; and on the basis of specified procedures
including inquiries of officials of the Company who have responsibility for
financial and accounting matters regarding whether the unaudited condensed
consolidated financial statements referred to in paragraph (vi)(A)(i) below
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations,
nothing came to their attention that caused them to believe that the
unaudited condensed consolidated financial statements do not comply as to
form in all material respects with the applicable accounting requirements of
the Act and the related published rules and regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company for
the five most recent fiscal years included in the Prospectus agrees with the
corresponding amounts (after restatements where applicable) in the audited
consolidated financial statements for such five fiscal years;
(v) They have compared the information in the Prospectus under selected
captions with the disclosure requirements of Regulation S-K and on the basis
of limited procedures specified in such letter nothing came to their
attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects with
the disclosure requirements of Items 301, 302, 402 and 503(d), respectively,
of Regulation S-K;
(vi) On the basis of limited procedures, not constituting an examination
in accordance with generally accepted auditing standards, consisting of a
reading of the unaudited financial statements and other information referred
to below, a reading of the latest available interim financial statements of
the Company and its Subsidiaries, inspection of the minute books of the
Company and its Subsidiaries since the date of the latest audited financial
statements included in the Prospectus, inquiries of officials of the Company
and its Subsidiaries responsible for financial and accounting matters and
such other inquiries and procedures as may be specified in such letter,
nothing came to their attention that caused them to believe that:
(A) (i) the unaudited consolidated statements of income,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not
<PAGE>
comply as to form in all material respects with the applicable accounting
requirements of the Act and the related published rules and regulations,
or (ii) any material modifications should be made to the unaudited
condensed consolidated statements of income, consolidated balance sheets
and consolidated statements of cash flows included in the Prospectus for
them to be in conformity with generally accepted accounting principles;
(B) any other unaudited income statement data and balance sheet items
included in the Prospectus do not agree with the corresponding items in
the unaudited consolidated financial statements from which such data and
items were derived, and any such unaudited data and items were not
determined on a basis substantially consistent with the basis for the
corresponding amounts in the audited consolidated financial statements
included in the Prospectus;
(C) the unaudited financial statements which were not included in the
Prospectus but from which were derived any unaudited condensed financial
statements referred to in Clause (A) and any unaudited income statement
data and balance sheet items included in the Prospectus and referred to
in Clause (B) were not determined on a basis substantially consistent
with the basis for the audited consolidated financial statements included
in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the Act
and the published rules and regulations thereunder or the pro forma
adjustments have not been properly applied to the historical amounts in
the compilation of those statements;
(E) as of a specified date not more than five days prior to the date
of such letter, there have been any changes in the consolidated capital
stock (other than issuances of capital stock upon exercise of options and
stock appreciation rights, upon earn-outs of performance shares and upon
conversions of convertible securities, in each case which were
outstanding on the date of the latest financial statements included in
the Prospectus) or any increase in the consolidated long-term debt of the
Company and its Subsidiaries, or any decreases in consolidated net
current assets or stockholders' equity or other items specified by the
Representatives, or any increases in any items specified by the
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each case for
changes, increases or decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(F) for the period from the date of the latest financial statements
included in the Prospectus to the specified date referred to in Clause
(E) there were any decreases in consolidated net revenues or operating
profit or the total or per share amounts of consolidated net income or
other items specified by the Representatives, or any increases in any
items specified by the Representatives, in each case as compared with the
comparable period of the preceding year and with any other period of
corresponding length specified by the Representatives, except in each
case for decreases or increases which the Prospectus discloses have
occurred or may occur or which are described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the
2
<PAGE>
Representatives, which are derived from the general accounting records of
the Company and its Subsidiaries, which appear in the Prospectus, or in Part
II of, or in exhibits and schedules to, the Registration Statement specified
by the Representatives, and have compared certain of such amounts,
percentages and financial information with the accounting records of the
Company and its Subsidiaries and have found them to be in agreement.
3
<PAGE>
ANNEX II(c)
FORM OF OPINION OF REGULATORY COUNSEL FOR THE COMPANY
(1) To the best of such counsel's knowledge, except as disclosed in the
Prospectus, none of the Company or any of its Subsidiaries has received any
notification from any insurance regulatory authority to the effect that any
additional authorization, approval, order, consent, license, certificate,
permit, registration or qualification is needed to be obtained by any of the
Company or its Subsidiaries in any case where it could be reasonably expected
that the failure to obtain such authorization, approval, order, consent,
license, certificate, permit, registration or qualification or the limiting of
such business would have a material adverse effect on the general affairs,
management, the current or future financial position, business prospects,
stockholders' equity or results of operations of the Company and its
Subsidiaries or result in any material loss or interference with the Company's
business or operations (a "Material Adverse Effect");
(2) To the best of such counsel's knowledge, each of the Company and its
Subsidiaries is in compliance with the requirements of the insurance laws and
regulations of its state of incorporation and the insurance laws and regulations
of other jurisdictions which are applicable to the Company or such Subsidiary,
and has filed all notices, reports, documents or other information required to
be filed thereunder (such counsel being entitled to rely in respect of the
opinion in this clause upon opinions of local counsel and in respect of matters
of fact upon certificates of officers of the Company, provided that such counsel
shall state that he believes that both you and he are justified in relying upon
such opinions and certificates); and
(3) The statements set forth in the Prospectus under the captions
"Government Regulation" and under the caption "Risk Factors--If we do not comply
with the numerous laws and regulations that govern the insurance industry, our
business could be harmed" insofar as they purport to describe the laws and
documents referred to therein, are accurate, complete and fair.
Such counsel shall also state that he has no reason to believe that, as of
its effective date and the date hereof, the descriptions and statements
described in subsection (3) above (the "Regulatory Paragraphs") and contained in
the Registration Statement or any further amendment thereto made by the Company
contained or contain an untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading or that, as of its date and the date hereof,
the Regulatory Paragraphs in the Prospectus or any further amendment or
supplement thereto made by the Company contained or contain an untrue statement
of a material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
<PAGE>
EXHIBIT 5.1
[GRAY CARY WARE & FREIDENRICH LLP LETTERHEAD]
July 6, 1999
VIA EDGAR
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W., Mail Stop 3-9
Washington, D.C. 20549
RE: INSWEB CORPORATION REGISTRATION STATEMENT ON FORM S-1
Ladies and Gentlemen:
As counsel to InsWeb Corporation (the "Company"), we are rendering this
opinion in connection with a proposed sale of those certain shares of the
Company's newly-issued Common Stock as set forth in the Registration Statement
on Form S-1 to which this opinion is being filed as Exhibit 5.1 (the "Shares").
We have examined all instruments, documents and records which we deemed relevant
and necessary for the basis of our opinion hereinafter expressed. In such
examination, we have assumed the genuineness of all signatures and the
authenticity of all documents submitted to us as originals and the conformity to
the originals of all documents submitted to us as copies.
Based on such examination, we are of the opinion that the Shares identified
in the above-referenced Registration Statement will be, upon effectiveness of
the Registration Statement and receipt by the Company of payment therefor,
validly authorized, legally issued, fully paid, and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
above-referenced Registration Statement and to the use of our name wherever it
appears in said Registration Statement, including the Prospectus constituting a
part thereof, as originally filed or as subsequently amended.
Respectfully submitted,
/s/ GRAY CARY WARE & FREIDENRICH
LLP
GRAY CARY WARE & FREIDENRICH LLP
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated January 15, 1999 on our audits of the consolidated financial
statements and financial statement schedules of InsWeb Corporation as of
December 31, 1997 and 1998 and for the years ended December 31, 1996, 1997 and
1998. We also consent to the references to our firm under the captions "Experts"
and "Selected Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP
San Francisco, California
July 6, 1999
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of
our report dated April 9, 1999 on our audits of the financial statements of
Benelytics, Inc. as of December 31, 1997 and 1998 and for the years ended
December 31, 1997 and 1998 and for the period from March 20, 1996 (inception) to
December 31, 1998.
/s/ PricewaterhouseCoopers LLP
San Francisco, California
July 6, 1999
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<PAGE>
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<INTEREST-EXPENSE> (293) 1,189 185
<INCOME-PRETAX> (9,063) (22,490) (14,998)
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<INCOME-CONTINUING> (9,063) (22,490) (14,998)
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