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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC. 20549
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FORM 10-K
(MARK ONE)
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/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED
DECEMBER 31, 1999
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OR
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/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD
FROM TO
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COMMISSION FILE NUMBER 0-26083
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INSWEB CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 94-3220479
(State or other jurisdiction (I.R.S. Employer
of Identification No.)
Incorporation or organization)
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901 MARSHALL STREET, REDWOOD CITY, CALIFORNIA 94063
(Address of principal executive offices)
(650) 298-9100
(Registrant's telephone number, including area code)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
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NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.001 PAR VALUE
(Title of Class)
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. /X/
The aggregate market value of registrant's voting and non-voting common
equity held by nonaffiliates of registrant, based upon the closing sale price of
the common stock on March 17, 2000, as reported on the Nasdaq National Market,
was approximately $133,283,000. Shares of common stock held by each officer,
director and holder of 5% or more of the outstanding common stock have been
excluded in that such persons may be deemed to be affiliates. This determination
of affiliate status is not necessarily a conclusive determination for other
purposes.
Outstanding shares of registrant's common stock, $0.001 par value, as of
March 17, 2000: 35,006,062.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the definitive Proxy Statement for registrant's 2000 Annual Meeting
of Stockholders to be filed with the Commission pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this Report are
incorporated by reference into Part III of this Form 10-K Report.
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PART I
THIS REPORT INCLUDES A NUMBER OF FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS
REFLECT OUR CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND OUR POTENTIAL
FINANCIAL PERFORMANCE AND ARE SUBJECT TO RISKS AND UNCERTAINTIES THAT COULD
CAUSE OUR ACTUAL RESULTS AND FINANCIAL POSITION TO DIFFER MATERIALLY FROM WHAT
WE SAY IN THIS REPORT. THESE FACTORS INCLUDE, BUT ARE NOT LIMITED TO, OUR
ABILITY TO GENERATE SIGNIFICANT REVENUES FROM OUR CORE BUSINESS; OUR ABILITY TO
ACHIEVE OR MAINTAIN PROFITABILITY; OUR RELIANCE ON AUTOMOBILE INSURANCE; OUR
ABILITY TO EXPAND OUR OPERATIONS; OUR RELIANCE ON A LIMITED NUMBER OF INSURANCE
COMPANIES FOR OUR CURRENT REVENUES; AND THE SUCCESS OF OUR ONLINE RELATIONSHIPS
IN ATTRACTING CONSUMERS TO OUR WEBSITE. WE MORE FULLY DISCUSS THESE AND OTHER
RISK FACTORS IN "ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND OPERATING RESULTS--RISK FACTORS" AND ELSEWHERE IN THIS REPORT, IN
OUR REGISTRATION STATEMENT ON FORM S-1 (333-78095), AS AMENDED, ORIGINALLY FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 23, 1999 AND IN OUR OTHER
FILINGS WITH THE SEC.
ITEM 1. BUSINESS
OVERVIEW
InsWeb operates a leading online insurance marketplace that enables
consumers to comparison shop online and obtain insurance company-sponsored
quotes for a variety of insurance products, including automobile, term life,
homeowners, renters, home warranty, individual health, small group health and
Medicare supplement insurance. 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 54 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 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
239 million Internet users worldwide at the end of 1999 and anticipates this
number will grow to approximately 602 million users by the end of 2003. 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 $130 billion worldwide in 1999 to
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approximately $1.6 trillion in 2003. 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.
THE TRADITIONAL MARKET FOR INSURANCE IN THE UNITED STATES
According to A.M. Best, in 1998 the insurance market in the United States
totaled more than $875 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.
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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
$1.0 billion of personal insurance sales in 1999 to over $14.0 billion in 2004,
an annual growth rate of 70%. 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
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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.
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 54 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, 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; underwriting--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 primarily 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.
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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 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
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well as the potential means to develop new products focused on previously
unknown or unreachable market opportunities.
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.
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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 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 underwriting;
- 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
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complexity of the consumer's profile. The quote form captures a comprehensive
set 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 insurance 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.
UNDERWRITING. InsWeb's 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 particular criteria
are having on the number of leads being directed to that company, and also
permits individual criteria to be easily added or removed. Electronic
underwriting eliminates the expense of screening and quoting risks that an
insurance company ultimately may not want to accept. Electronic underwriting
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 conjunction with the
participating 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.
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
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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. In
addition, InsWeb will perform the closing services, in both a traditional agency
and an online setting, for some participating insurance companies.
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. In August 1999, InsWeb introduced its Customer Care
Center to provide additional help to consumers working through the process of
shopping for insurance online. The Customer Care Center provides additional
consumer assistance through real-time chat and live telephone support.
AGENCY OPERATIONS
InsWeb, through its licensed affiliate, began providing closing services
comparable to traditional insurance agencies in October 1999. These closing
services include advising consumers about coverage options, confirming consumer
information, selling the policy, and taking a premium deposit. The InsWeb
affiliate receives a percentage of the premium for each policy sold. The agency
operations were initially limited to closing business on behalf of four auto
insurance companies in the state of California, but are intended to expand to
other states and product lines in 2000. Ten individual agents are employed by
the affiliate to perform these services.
PRODUCTS AND SERVICES
Insurance companies participating in InsWeb's online insurance marketplace
offer automobile, term life, homeowners, renters, and individual and small group
health insurance, as well as motorcycle insurance, and fixed annuities.
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 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 31. The
following table shows, as of March 31, 2000, 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............................. 46 plus D.C. 94.8%
3 or more............................. 37 85.5%
4 or more............................. 25 72.5%
5 or more............................. 18 55.9%
</TABLE>
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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 six or more
companies in all 50 states plus D.C. The following table shows, as of March 31,
2000, the percentage of the U.S. population residing in states where at least
six 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>
6 or more............................. 50 plus D.C. 100.0%
7 or more............................. 49 plus D.C. 93.3%
8 or more............................. 48 plus D.C. 92.9%
</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. As of March 31, 2000, the InsWeb online
marketplace offered quotes for individual health insurance from at least one
insurance company in 40 states plus D.C. (representing 85.1% of the population)
and two insurance companies in 25 states (representing 69.1% of the population).
HOMEOWNERS/RENTERS INSURANCE. InsWeb began offering homeowners and renters
insurance quotes in July 1998. As of March 31, 2000, the InsWeb online
marketplace offered quotes for homeowners insurance from at least one insurance
company in 49 states plus D.C. (representing 98.8% of the population), two or
more insurance companies in 15 states (representing 34.8% of the population) and
three or more insurance companies in 8 states (representing 9.1% of the
population). The online marketplace offers quotes for renters insurance from at
least one insurance company in 48 states plus D.C. (representing 98.4% of the
population), two or more insurance companies in 9 states (representing 21.9% of
the population) and three insurance companies in 1 state (representing 1.8% 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
small group health, 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
state or 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.
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. The
joint venture is in the early stages of developing its online marketplace, which
is scheduled to be operational in mid-2000.
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.
INSWEB DATA SERVICES. InsWeb's extensive database currently contains more
than 5,800,000 consumer profiles generated during the consumer shopping
sessions, with approximately 1,200,000 profiles being added each quarter. InsWeb
provides specialized reports summarizing this information to insurance companies
that participate in the InsWeb marketplace for an additional charge. The reports
contain only aggregated data about consumers; no personally identifiable
information is available to the insurance company. The InsWeb data reports are
more timely and Internet-focused than other marketing reports available to
insurance companies. Currently, data products are available to participating
insurance companies for auto insurance and term life insurance.
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INSURANCE COMPANY RELATIONSHIPS
As of March 31, 2000, InsWeb had relationships with 54 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
Allstate Progressive
Avomark (Ohio Casualty) RelianceDirect
CNA Reliant
Country Mutual State Farm
Electric Insurance The Commerce Group
Explorer Travelers
GE Financial Assurance Tri-State
Term Life................... Amica MONY Life Insurance Company
CNA Ohio National
John Hancock State Farm
Lincoln Benefit (Allstate) Western Southern
GE Financial Assurance* Old Republic Life
Midland Life Zurich Kemper
Homeowners/Renters.......... AIG Nationwide
American Family State Farm
Homesite
Individual Health........... Blue Cross/Blue Shield of Florida Golden Rule
Blue Cross/Blue Shield of New Mutual of Omaha
Jersey
Blue Cross/Blue Shield of Virginia Pacificare
Central States
Healthnet*
</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 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%, 11%
and 11%, respectively, of InsWeb's revenues for the year ended December 31,
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."
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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. 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. This agreement
expires in September 2000.
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<PAGE>
In December 1999, InsWeb and Microsoft entered into a two-year agreement
pursuant to which Microsoft's MSN Insurance Center on MSN MoneyCentral offers
co-branded comparative shopping services provided by InsWeb. The agreement
provides for InsWeb to be the exclusive provider of online insurance quotation
services on the MSN Insurance Center. Under the agreement, InsWeb has agreed to
pay to MSN fixed fees for certain traffic guarantees plus a fee for each user
delivered to an InsWeb quote form from the co-branded site in excess of certain
minimums.
In February 2000, InsWeb and America On-line entered into a two-year
agreement pursuant to which America Online offers a co-branded version of the
InsWeb online insurance marketplace across the Netscape Netcenter, Compuserve
and Digital City websites. The agreement provides for InsWeb to be the exclusive
provider of online insurance quotation services on the Netscape website and
premier insurance comparison-shopping aggregator of insurance offerings for
Compuserve and Digital City. Under the agreement, InsWeb has agreed to pay to
AOL fixed fees for certain impression targets plus a fee for each click-through
over a certain cumulative minimum threshold.
At December 31, 1999, future minimum payments under these three agreements
were $12,212,500 in 2000 and $9,925,000 in 2001.
As of December 31, 1999, InsWeb had agreements with 139 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
December 31, 1999, are as follows:
<TABLE>
<S> <C>
AutoMall InfoSpace.com
CarClub.com Looksmart
CarPrices.com Microsoft
E*Trade Snap.com
GO Network (Infoseek) 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 was expanded in 1999 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.
INSWEB REWARDS PROGRAM. In March 2000, InsWeb began a new initiative to
increase the value of a consumer's visit to the InsWeb site even if the consumer
does not obtain an insurance quote. The InsWeb Rewards Program presents
participating consumers with highly targeted offers for products and services at
preferential terms. Companies that participate in this program have the ability
to target particular market segments by defining various criteria to be met by
consumers in order to be presented with their offer. Consumers also will be able
to select the type of offers in which they are interested, including Auto, Home,
Financial Services, Health/Fitness, Travel and Entertainment/Dining. The offer
will be in the form of direct links to the rewards sponsor's website, submitting
the consumer's contact information to the reward sponsor for follow-up, or
electronic coupons that the consumer can print directly from the InsWeb site.
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<PAGE>
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 Client Development 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.
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 employing each
of the 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 that 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 that 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
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<PAGE>
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.
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 underwrite and rate a consumer's profile against
all participating insurance companies' criteria. 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 that 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 1999, InsWeb implemented more than 60 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.
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InsWeb is also researching new methods of designing more useful
insurance-related material and presenting it 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 $8.9 million in 1999. Product development
expenses in 1998 included approximately $5.5 million of purchased software
licenses that were expensed due to InsWeb's decision not to integrate the
software into its products. As of December 31, 1999, InsWeb had a product
development staff of 101 full-time employees, all located at its headquarters in
Redwood City, California.
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 or requests to
participate in an InsWeb Rewards Program. 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;
- companies that provide quotes and sell insurance policies online;
- 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.
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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;
- speed, accessibility and convenience;
- quality and quantity of website content; and
- relationships with other online companies.
Based on published reports by Media Metrix concerning recent site visit
data, published estimates by Forrester Research and Cyber Dialogue regarding the
total number of consumers shopping online for insurance, and publicly available
financial and operational data of other companies offering online insurance
quotes, InsWeb believes that its website is one of the three leading insurance
marketplaces in the United States. InsWeb 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, compensation,
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, InsWeb, an insurance company doing business with InsWeb, our
officers, or agents with whom we contract could be subject to various sanctions,
including censure, fines, a cease-and-desist order or other penalties. 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 or
otherwise
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harm 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 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 several states
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.
In order to provide its current and future closing services and conduct
other future business activities that require a license, InsWeb has caused a
wholly-owned subsidiary to be licensed as an insurance agent. This subsidiary is
currently licensed in 39 states and in the remaining eleven states where
corporations are not eligible to become licensed, InsWeb is licensed through its
officers or through resident agents that contract with InsWeb. InsWeb intends to
post prominently on its website the jurisdictions in which the subsidiary is
licensed. Links to agents that contract with InsWeb will be established to
afford consumers access to licensed agencies. InsWeb's operations depend on the
validity of and its continued good standing under the licenses and approvals
pursuant to which InsWeb's subsidiary, licensed officers and resident agents
operate. Licensing laws and regulations vary from jurisdiction to jurisdiction.
The applicable licensing laws and regulations are subject to amendment or
interpretation by regulatory authorities. Such authorities generally are vested
with broad discretion concerning the allowance, renewal and revocation of
licenses and approvals. The inability to obtain the requisite agent licenses or
other necessary licenses, permits, or authorizations could harm InsWeb's
business.
InsWeb transferred to its licensed subsidiary responsibility for the ongoing
operation of InsWeb's website in April 1999, and intends to conduct business
activities that require a license through this subsidiary and InsWeb's licensed
officers and agents. Offering services through this licensed subsidiary or
through licensed officers and agents 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 developed its Customer 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 Customer Care Center should not require licensure; however, InsWeb
intends to comply with any licensing requirement of the jurisdictions served by
the Customer 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 and, under certain circumstances, the payment of insurance-related
compensation to unlicensed persons. If InsWeb does not comply with these
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state laws, InsWeb could be subject to fines or other enforcement proceedings
that could harm its business. To date, InsWeb has not been notified by any
regulatory authority that its information practices or compensation
methodologies 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. The INSWEB mark has been
registered in the United States, France, Germany, South Korea and the United
Kingdom, and applications are pending in several other countries. Other U.S. and
worldwide trademark applications include, but are not limited to, eAgent,
InsWeb.com, Powered by InsWeb, and Where You and Your Insurance Really Click.
InsWeb has applied for patents on its core technology and related patentable
subject matter, however no patent has yet issued, and thus InsWeb cannot yet
legally prevent a competitor from independently using similar functionality.
InsWeb's pending trademark registration and patent applications may not be
approved or granted, or, if granted, may be successfully challenged by others or
invalidated through administrative process or litigation. 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 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 December 31, 1999, InsWeb had 297 full-time employees, including 101
employees primarily engaged in product development, 125 in sales and marketing
and 71 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.
19
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
As of March 7, 2000, our executive officers were as follows:
<TABLE>
<CAPTION>
NAME POSITION WITH THE COMPANY AGE
- ---- ----------------------------------------------------------- --------
<S> <C> <C>
Hussein A. Enan............... Chairman of the Board, President and Chief Executive 53
Officer
James M. Corroon.............. Vice Chairman of the Board 60
Mark P. Guthrie............... Executive Vice President, Chief Operating Officer and 38
Acting Chief Financial Officer
Marian C. Taylor.............. Senior Vice President, Secretary 51
</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.
JAMES M. CORROON has been a director of InsWeb since August 1996 and has
served as its Vice Chairman of the Board since August 1999. 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.
MARK P. GUTHRIE joined InsWeb in September 1997 as Senior Vice President of
Strategic Partnerships and has served as its Executive Vice President since
July 1998 and as its Chief Operating Officer since January 2000. From 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.
MARIAN C. TAYLOR joined InsWeb in July 1997 as Senior Vice President,
General Counsel and Secretary and currently serves as Senior Vice President 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 1993, Ms. Taylor was vice president
and corporate counsel of Enan & Company.
ITEM 2. PROPERTIES.
InsWeb's corporate headquarters and its principal administrative, product
development, sales and marketing operations are located in approximately 75,500
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. In October 1999, InsWeb entered into a 12-year
lease for approximately 160,000 square feet in San Carlos, California to house
InsWeb's future headquarters. InsWeb intends to move its executive,
administrative and marketing personnel to the San Carlos facility in the first
six months of 2000 with the technical staff scheduled to move later in 2000.
After the completion of these moves, InsWeb expects to sublease the office space
it currently leases in Redwood City.
InsWeb's Customer Care Center and agency operations is located in
approximately 17,000 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 also
leases sales offices in Chicago, Illinois and Abindon, Maryland. InsWeb believes
that its existing facilities are adequate to meet
20
<PAGE>
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.
ITEM 3. LEGAL PROCEEDINGS.
InsWeb is not a party to any pending legal proceedings which it believes
will materially affect its financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
InsWeb did not submit any matters to a vote of its security holders during
the quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
InsWeb consummated its initial public offering on July 23, 1999. Our common
stock is quoted on the Nasdaq National Market under the symbol "INSW." As of
December 31, 1999, there were approximately 212 stockholders of record. Because
many shares are held by brokers and other institutions on behalf of
stockholders, we are unable to estimate the total number of stockholders
represented by these record holders. The following table sets forth, for the
quarters indicated, the high and low sales price per share of our common stock
as reported on the Nasdaq National Market:
<TABLE>
<CAPTION>
PRICE RANGE
------------------------------------------
THIRD QUARTER FOURTH QUARTER
-------------------- -------------------
HIGH LOW HIGH LOW
-------- --------- -------- --------
<S> <C> <C> <C> <C>
Year Ended December 31, 1999................. $44.00 $15.44 $35.69 $16.00
</TABLE>
We have not paid any cash dividends on our capital stock. We currently
intend to retain our earnings for use in the operation and expansion of our
business and, therefore, we do not anticipate paying any cash dividends in the
foreseeable future.
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<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Operating results" and the consolidated financial statements and the notes
thereto included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1995(1) 1996 1997 1998 1999
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA
Revenues:
Transaction fees................... $ -- $ 6,617 $ 115,758 $ 3,151,423 $ 19,137,713
Development and maintenance fees... 199,351 551,406 789,337 2,673,450
Other revenues..................... 41,936 82,507 369,416 29,375
----------- ----------- ----------- ------------ ------------
Total revenues................... -- 247,904 749,671 4,310,176 21,840,538
Operating expenses:
Product development................ 773,713 2,899,737 3,209,587 10,077,497 8,870,530
Sales and marketing................ 551,964 2,009,701 3,166,644 8,953,700 33,477,172
General and administrative......... 699,690 2,730,066 3,258,881 6,639,816 13,474,201
Amortization of stock-based
compensation..................... -- -- 470,455 540,489 1,272,106
Amortization of intangible
assets........................... -- -- -- -- 3,129,047
----------- ----------- ----------- ------------ ------------
Total operating expenses......... 2,025,367 7,639,504 10,105,567 26,211,502 60,223,056
----------- ----------- ----------- ------------ ------------
Loss from operations................. (2,025,367) (7,391,600) (9,355,896) (21,901,326) (38,382,518)
Other income (expense), net.......... -- -- -- 600,000 (165,841)
Interest income (expense), net....... (5,851) 121,584 293,173 (1,188,550) 2,347,543
----------- ----------- ----------- ------------ ------------
Net loss............................. $(2,031,219) $(7,270,016) $(9,062,723) $(22,489,876) $(36,200,816)
=========== =========== =========== ============ ============
Net loss per share basic and
diluted............................ $ (677.07) $ (0.56) $ (0.62) $ (1.52) $ (1.52)
=========== =========== =========== ============ ============
Shares used in computing net loss per
share--basic and diluted........... 3,000 13,054,716 4,601,318 14,813,013 23,863,850
=========== =========== =========== ============ ============
Pro forma net loss per share--basic
and diluted........................ $ (677.07) $ (0.40) $ (0.43) $ (0.92) $ (1.17)
=========== =========== =========== ============ ============
Shares used in computing pro forma
net loss per share--basic and
diluted............................ 3,000 18,348,845 21,242,209 24,408,089 31,000,310
=========== =========== =========== ============ ============
</TABLE>
- --------------------------
(1) Represents period from February 28, 1995 (Inception) to December 31, 1995
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------------------------
1995 1996 1997 1998 1999
---------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA
Cash and equivalents......................... 6,150 6,806,899 2,360,153 8,337,133 $25,688,760
Short-term investments....................... -- -- -- -- 64.063,830
Working capital (deficit).................... (1,564,389) 6,738,942 2,039,789 5,496,879 91,362,020
Total assets................................. 423,294 9,352,924 5,139,749 49,356,748 118,280,904
Long term debt............................... -- -- -- 2,089,137 1,464,558
Total stockholders' equity (deficit)......... (1,184,168) 7,476,248 3.062,630 19,582,072 111,184,822
</TABLE>
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<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THIS ANNUAL REPORT ON FORM 10-K AND IN PARTICULAR MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 BELOW UNDER THE CAPTION "RISK
FACTORS," AS WELL AS IN INSWEB'S REGISTRATION STATEMENT ON FORM S-1 AND OTHER
DOCUMENTS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, THAT COULD CAUSE
INSWEB'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE
CURRENTLY ANTICIPATED.
OVERVIEW
InsWeb operates an online insurance marketplace that enables consumers to
shop online for a variety of insurance products, including automobile, term
life, homeowners, renters and 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 49
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 earned.
23
<PAGE>
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 78% in 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%, 11% and 11%,
respectively, of InsWeb's revenues for the year ended December 31, 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
new insurance companies are added 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 and expenses
related to its customer care and insurance agency operations. 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.
24
<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
December 31, 1999, InsWeb had an accumulated deficit of $74.4 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 DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Transaction fees.............................. 15.4% 73.1% 87.6%
Development and maintenance fees.............. 73.6 18.3 12.2
Other revenues................................ 11.0 8.6 0.2
-------- ------ ------
Total revenues.............................. 100.0 100.0 100.0
Operating expenses:
Product development........................... 428.1 233.8 40.6
Sales and marketing........................... 422.4 207.7 153.3
General and administrative.................... 434.7 154.1 61.7
Amortization of stock-based compensation...... 62.8 12.5 5.8
Amortization of intangible assets............. -- -- 14.3
Total operating expenses.................... 1,348.0 608.1 275.7
-------- ------ ------
Loss from operations............................ (1,248.0) (508.1) (175.7)
Other income, net............................... -- 13.9 (0.8)
Interest income (expense), net.................. 39.1 (27.6) 10.7
-------- ------ ------
Net loss........................................ (1,208.9)% (521.8)% (165.8)%
======== ====== ======
</TABLE>
25
<PAGE>
YEARS ENDED DECEMBER 31, 1999 AND 1998
REVENUES
TRANSACTION FEES. Transaction fees accounted for $19.1 million, or 87.6%,
of total revenues in 1999, compared to $3.2 million, or 73.1%, 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.
Although transaction fees are expected to increase in fiscal 2000, they may not
grow at as high a rate as in prior periods.
DEVELOPMENT AND MAINTENANCE FEES. Development and maintenance fees
accounted for $2.7 million, or 12.2%, of total revenues in 1999, compared to
$789,000, or 18.3% 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 1999
compared to 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 decreased to
$8.9 million in 1999 from $10.1 million in 1998. This decrease was primarily due
to the $5.5 million cost of software licenses that were expensed in 1998 due to
InsWeb's decision not to integrate the software into its products. Exclusive of
this expense, product development expenses increased in 1999 over 1998,
primarily due 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
$33.5 million in 1999 from $9.0 million 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
Customer Care Center to provide additional customer service.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $13.5 million in 1999 from $6.6 million 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 STOCK-BASED COMPENSATION. Amortization of stock-based
compensation was $1.3 million in 1999 compared to $500,000 in 1998. This
increase was attributable to the amortization of additional deferred
compensation charges related to certain stock option grants where the Company
has determined that the deemed fair market value on the date of grant was in
excess of the exercise price of the options.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets was
$3.1 million in 1999. This amount was attributable to the acquisition of
Benelytics in December 1998.
OTHER INCOME, NET
Other expense in 1999 primarily consisted of InsWeb's equity share of the
net loss of InsWeb Japan K.K. As of December 31, 1999, InsWeb owned a 25% equity
interest in InsWeb Japan K.K. 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. Additionally, the Company has a $5.5 million
letter of credit
26
<PAGE>
securing the lease which is collateralized by a portion of the Company's
investments. This line increases to $9.0 million in May 2000.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net includes income earned on InsWeb's invested
cash and investments and expenses related to its outstanding debt obligations.
Net interest income was $2.3 million in 1999, compared to net interest expense
of $1.2 million in 1998. The increase in net interest income was primarily a
result of the repayment of the line of credit and the investment of the proceeds
from the issuances of preferred and common stock.
YEARS ENDED DECEMBER 31, 1998 AND 1997
REVENUES
TRANSACTION FEES. Transaction fees increased to $3.2 million in 1998 from
$116,000 in 1997. 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. 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 in 1997 related to services that InsWeb no longer offers.
OPERATING EXPENSES
PRODUCT DEVELOPMENT. Product development expenses increased to
$10.1 million in 1998 from $3.2 million in 1997. The increase in 1998 was
primarily due to the $5.5 million cost of software licenses that 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. 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 $6.6 million in 1998 from $3.3 million in 1997. These increases were
primarily due to increased personnel and related costs, increased office and
occupancy costs and increased depreciation related to capital expenditures.
AMORTIZATION OF STOCK-BASED COMPENSATION. Amortization of stock-based
compensation was $0.5 million in 1998 compared to $0.5 million in 1997. The
amortization is attributable to the amortization of deferred compensation
charges related to certain stock option grants where the Company has determined
that the deemed fair market value on the date of grant was in excess of the
exercise price of the options.
27
<PAGE>
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 resulted from InsWeb's
investment of proceeds received from the sale of preferred and common stock.
LIQUIDITY AND CAPITAL RESOURCES
InsWeb has financed its operations primarily through private placements of
equity securities, borrowings from an affiliate of one of its investors and an
initial public offering of its common stock, which raised net proceeds of
$89.6 million in July 1999. At December 31, 1999, InsWeb's principal source of
liquidity was $89.8 million in cash, cash equivalents and short-term
investments.
Net cash used in operating activities was $32.4 million in 1999 compared to
$18.0 million in 1998. In each period, the use of cash primarily consisted of
InsWeb's operating loss before noncash items. In 1999, the noncash items
included amortization of intangibles of $3.1 million associated with the
acquisition of Benelytics, Inc. in December 1998, amortization of deferred
compensation of $1.2 million and depreciation and amortization of fixed assets
of $1.8 million. In 1998, the noncash items included a loss on software licenses
of $5.5 million, $650,000 from the sale of 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 1999.
Net cash used in investing activities was $74.2 million in 1999 and
$3.9 million in 1998. Net cash used in investing activities in 1999 primarily
consisted of the purchase of short-term investments with the proceeds from the
issuances of preferred and common stock. Net cash used in investing activities
in 1998 primarily consisted of investments in leasehold improvements and
purchases of equipment and furniture.
Net cash provided by financing activities was $124.0 million in 1999 and
$27.9 million in 1998. Net cash provided by financing activities during 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 and net proceeds of $89.6 million from the public offering of
common stock. 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.
InsWeb had no material commitments for capital expenditures at December 31,
1999 but expects such expenditures to total approximately $17.6 million in 2000.
Such expenditures will primarily be for equipment, software, furniture and
leasehold improvements, including approximately $11.3 million related to its new
headquarters facility. To secure its obligations under its principal lease,
InsWeb has provided the lessor with a $5.5 million letter of credit which is
collateralized by a portion of InsWeb's investment portfolio. This letter of
credit will be increased to $9.0 million in May, 2000. InsWeb also has total
minimum lease obligations of $112.0 million through 2011 under noncancelable
operating leases. In addition, InsWeb is obligated to make minimum payments
totaling $22.1 million through April 2001 under various marketing agreements
with its online partners.
InsWeb currently anticipates that its balances of cash and cash equivalents
and short-term investments, together with 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
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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 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, 2000. The
adoption of SFAS No. 133 did not have a material effect on InsWeb's results of
operations or financial condition.
In December 1998, the American Institute of Certified Public Accountants, or
AICPA, issued SOP 98-9, Modification of SOP 97-2, Software Revenue Recognition,
with respect to certain transactions. SOP 98-9 amends SOP 97-2 and SOP 98-4 by
extending the deferral of the application of certain provisions of SOP 97-2
amended by SOP 98-4 through fiscal years beginning on or before March 15, 1999.
All other provisions of SOP 98-9 are effective for transactions entered into in
fiscal years beginning after March 15, 1999. InsWeb does not expect adoption of
this statement to have a material effect on its financial position, results of
operations or cash flows.
In November 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No 100, Restructuring and Impairment Charges. In
December 1999, the SEC issued SAB No. 101 Revenue Recognition in Financial
Statements. SAB No. 100 expresses the views of the SEC staff regarding the
accounting for and disclosure of certain expenses not commonly reported in
connection with exit activities and business combinations. This includes the
accrual of exit and employee termination costs and the recognition of impairment
charges. SAB No 101 expresses the views of the SEC staff in applying accounting
principles generally accepted in the United States to certain revenue
recognition issues. InsWeb is assessing the impact of these SABs on its
financial position, results of operations and cash flows.
RISK FACTORS
OUR FUTURE BUSINESS, OPERATING RESULTS AND FINANCIAL CONDITION ARE SUBJECT
TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED BELOW.
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
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- 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 $38.4 million for the
year ended December 31, 1999, and as of December 31, 1999, our accumulated
deficit was $74.4 million. We intend to make significant additional 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.
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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 and/or revenue
from insurance agency activities 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 and/or revenue from insurance
agency activities may also be harmed due to technical difficulties on our
website that hamper a consumer's ability to start or complete a shopping
session.
SEASONALITY AFFECTING INSURANCE SHOPPING AND INTERNET USAGE MAY CAUSE
FLUCTUATIONS IN OUR OPERATING RESULTS
We have experienced some seasonality in our business associated with general
slowness in the insurance industry during the year-end holiday period. We expect
to continue to experience seasonality as our business matures. Because of this
seasonality, investors may not be able to predict our annual operating results
based on a quarter-to-quarter comparison of our operating results. We believe
seasonality will have an ongoing impact on our business.
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 78% in the year ended
December 31, 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
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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 have increased and intend to continue to increase our
financial commitment to creating and maintaining prominent brand awareness. We
currently use online advertising and marketing, and print, radio and television
advertisements in national and key local 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. In September 1999, we announced our intention to commit at least
$75 million over the next two years in support of our consumer marketing program
including these advertising initiatives. 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, and services
such as performing selected activities on behalf of insurance companies as
an authorized agent;
- 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;
- 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, regulatory issues, 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
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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.
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 and proposed methods to encourage our participating insurance
companies to be responsive to consumer requests, these steps and/or proposed
methods may not be successful. In addition, if any of our major participating
insurance companies were to discontinue their 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 approximately 9% 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, holds
approximately 6% of our outstanding common stock. 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.
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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%, 11% and 11%, respectively, of our revenues for the year ended
December 31, 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 underwriting
criteria or geographic coverage 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 49 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 15. 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 50
jurisdictions including D.C. in which there are three or fewer insurance
companies offering automobile insurance quotes on our online marketplace, State
Farm is a participant in 49 jurisdictions and AIG is a participant in 36
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, in October 1999 Allstate Corp. announced
an agreement to acquire the personal lines business of CNA Financial Corp., one
of our participating insurance companies. Also, in March 2000, CNA announced its
intention to sell its life insurance and reinsurance units. 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 HARM 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.
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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 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 year ended December 31, 1999, we received approximately 10.1% of
our website traffic from our online relationship with Yahoo!, and approximately
33.7% of our traffic from all of our online relationships combined. In addition,
in December 1999, we entered into a marketing agreement with Microsoft and in
February 2000, we entered into a marketing agreement with certain properties
owned by America Online. 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, OUR OFFICERS, OR AGENTS WITH WHOM WE CONTRACT
TO LEGAL PENALTIES IF WE FAIL TO COMPLY, AND 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,
an insurance company doing business with us, our officers, or agents with whom
we contract could be subject to various sanctions, including censure, fines, a
cease-and-desist order or other
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penalties. 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 or otherwise harm 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.
THE RECENTLY ENACTED GRAMM-LEACH-BLILEY ACT MAY ALTER THE TRADITIONAL STRUCTURE
OF INSURANCE REGULATION AND IMPOSE NEW OR ADDITIONAL LEGAL REQUIREMENTS ON OUR
BUSINESS
The November 1999 passage of the Gramm-Leach-Bliley Act (S.900) increased
the potential for significant changes in the structure and regulation of the
insurance industry. Traditionally, regulation of insurance has been almost
exclusively the province of the states, including regulation of sales practices,
underwriting requirements and claims payments. Moreover, with limited
exceptions, securities firms and banking institutions historically were
prohibited from engaging in the business of insurance, and were regulated by
federal agencies. The Gramm-Leach-Bliley Act eliminated these legislative
barriers between segments of the financial services industry. Although insurance
will still be regulated primarily by the states, insurance entities that become
part of a financial services institution may be indirectly impacted by the
federal regulatory requirements pertaining to banks or securities firms.
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 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.
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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 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
37
<PAGE>
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 297 employees as of
December 31, 1999, 213 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.
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-
38
<PAGE>
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.
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 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
39
<PAGE>
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;
- 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.
40
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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 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 may not be realized. 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 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 United States, France, Germany, South
Korea and the United Kingdom and applications are pending in several other
countries. Other U.S. and worldwide trademark applications include, but are not
limited to, eAgent, InsWeb.com, Powered by InsWeb, and Where You and Your
Insurance Really Click. We have patent applications on file in the U.S. Our
trademark registration and patent 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.
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. We have been subject to infringement
claims in the ordinary course of business, including claims of alleged
infringement of the patent and 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.
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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.
OUR STOCK PRICE MAY FLUCTUATE WIDELY, AND INTERNET STOCKS IN GENERAL HAVE BEEN
EXTREMELY VOLATILE
The trading price of our common stock has been 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.
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.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
InsWeb is exposed to financial market risks including changes in interest
rates and to a lesser degree foreign currency exchange rates. The fair value of
InsWeb's investment portfolio or related income would not be significantly
impacted by either a 10% increase or decrease in interest rates due mainly to
the short term nature of the major portion of InsWeb's investment portfolio.
InsWeb's interest income is sensitive to changes in the general level of U.S.
interest rates, particularly since the majority of our funds are invested in
instruments with maturities less than one year, except for certain U.S. agency
securities which are designated to support our letter of credit whose maturity
is two years. InsWeb's policy is to limit the risk of principal loss and ensure
the safety of invested funds by limiting market and credit risk. Funds in excess
of current operating requirements are invested in obligations of the U.S.
government and its agencies and investment grade obligations of state and local
governments and large corporations.
The table below represents carrying amounts and related weighted-average
interest rates by year of maturity of InsWeb's investment portfolio:
<TABLE>
<CAPTION>
2000 2001 TOTAL
-------- -------- --------
<S> <C> <C> <C>
(In thousands, except interest rates)
Cash and equivalents............................. $25,688 $25,688
Average interest rate............................ 5.67% 5.67%
Investments...................................... $64,105 $ 4,979 $69,084
Average interest rate............................ 5.93% 5.93% 5.93%
Total investment securities...................... $89,793 $ 4,979 $94,772
Average interest rate.......................... 5.86% 5.93% 5.86%
</TABLE>
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<PAGE>
InsWeb's revenue and capital spending is transacted in U.S. dollars. As
discussed in the notes to the consolidated financial statements, InsWeb
investment in InsWeb Japan K.K. and the note payable to strategic partner and
shareholder is denominated in Japanese Yen. InsWeb has not engaged in hedging
transactions to reduce its exposure to fluctuations that may arise from changes
in foreign exchange rates. Based on InsWeb's overall currency rate exposure at
December 31, 1999 a near-term 10% appreciation or depreciation would have an
immaterial affect on InsWeb's operating results or financial condition.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements and Supplementary Data required by this item are
set forth at the pages indicated at Item 14(a).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
The SEC allows us to include information required in this report by
referring to other documents or reports we have already or will soon be filing.
This is called "incorporation by reference." We intend to file our definitive
proxy statement pursuant to Regulation 14A not later than 120 days after the end
of the fiscal year covered by this report, and certain information therein is
incorporated in this report by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference to
information set forth in our definitive proxy statement under the heading
"Proposal No. 1--Election of Directors" and in Part I of this report under the
heading "Executive Officers of the Registrant."
The information required by this Item with respect to compliance with
Section 16(a) of the Securities Exchange Act of 1934 is incorporated by
reference to information set forth in our definitive proxy statement under the
heading "Executive Compensation and Other Matters."
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference to
information set forth in our definitive proxy statement under the heading
"Executive Compensation and Other Matters."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference to
information set forth in our definitive proxy statement under the heading "Stock
Ownership of Certain Beneficial Owners and Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference to
information set forth in our definitive proxy statement under the heading
"Certain Relationships and Related Transactions."
43
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this Form:
1. Financial Statements:
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Public Accountants.................... 46
Consolidated Balance Sheets................................. 47
Consolidated Statements of Operations....................... 48
Consolidated Statements of Stockholders' Equity............. 49
Consolidated Statements of Cash Flows....................... 50
Notes to Consolidated Financial Statements.................. 52
</TABLE>
2. Financial Statement Schedules:
The following financial statement schedule of InsWeb Corporation for
the years ended December 31, 1999, 1998 and 1997 is filed as part of this
report and should be read in conjunction with the consolidated financial
statements of Insweb Corporation.
Schedule II--Valuation and Qualifying Accounts
Other schedules have been omitted because the required information is
not present or not present in amounts sufficient to require submission of
the schedules or because the information required is included in the
consolidated financial statements or notes thereto.
3. Exhibits:
See Index to Exhibits. The Exhibits listed in the accompanying Index
are filed as part of this report.
(b) Reports on Form 8-K:
Current Report on Form 8-K dated March 16, 2000, relating to the
Company's announcement of the resignation of Stephen I. Robertson as
Executive Vice President and Chief Financial Officer.
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ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The report of Independent Accountants, Consolidated Financial Statements and
Notes to Consolidated Financial Statements follow below on pages 46 to 67.
45
<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, of stockholders' equity and of cash flows
present fairly, in all material respects, the financial position of InsWeb
Corporation and Subsidiaries (the Company) at December 31, 1999 and 1998, and
the results of their operations and of their cash flows for each of the
three years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States. 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 auditing standards
generally accepted in the United States 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 21, 2000
46
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998
------------------ ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 25,688,760 $ 8,337,133
Short-term investments.................................... 64,063,070 --
------------ ------------
Total cash, cash equivalents and short-term
investments........................................... 89,751,830 8,337,133
Accounts receivable, net of allowance of $141,780 and
$0...................................................... 4,267,691 1,192,174
Prepaid expenses and other current assets................. 2,974,024 653,734
Receivable for sale of preferred stock.................... -- 22,999,377
------------ ------------
Total current assets.................................... 96,993,545 33,182,418
Property and equipment, net............................... 7,356,863 3,998,185
Investment in joint venture............................... 1,449,597 2,089,137
Long-term investments in securities....................... 4,978,761 --
Intangible assets, net of accumulated amortization of
$3,129,047 and $0....................................... 5,568,094 8,697,141
Deposits.................................................. 1,934,045 1,389,867
------------ ------------
Total assets............................................ $118,280,905 $ 49,356,748
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 288,974 $ 524,926
Note payable to officer................................... -- 25,000
Accrued expenses.......................................... 5,159,933 3,119,362
Deferred revenue.......................................... 182,618 226,251
Payable to former Series B stockholder.................... -- 4,500,000
Line of credit from affiliate............................. -- 19,290,000
------------ ------------
Total current liabilities............................... 5,631,525 27,685,539
Note payable to strategic partner........................... 1,464,558 2,089,137
------------ ------------
Total liabilities....................................... 7,096,083 29,774,676
Commitments and contingencies (Note 8)
Stockholders' equity:
Convertible preferred stock, $0.001 par value. Authorized:
5,000,000 shares. Issued no shares in 1999 and 492,134
shares in 1998. Outstanding: no shares in 1999, 633,347
shares in 1998 -- 633
Common stock, $0.001 par value. Authorized: 150,000,000;
Issued and outstanding: 34,742,784 shares in 1999, and
15,939,823 shares in 1998................................. 34,743 15,940
Paid-in capital............................................. 188,222,780 59,475,314
Accumulated other comprehensive income...................... 112,843 --
Common stock warrants....................................... 113,071 113,071
Deferred stock compensation................................. (2,887,995) (1,813,082)
Accumulated deficit......................................... (74,410,620) (38,209,804)
------------ ------------
Total stockholders' equity.............................. 111,184,822 19,582,072
------------ ------------
Total liabilities and stockholders' equity.............. $118,280,905 $ 49,356,748
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
47
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Revenues:
Transaction fees................................... $ 19,137,713 $ 3,151,423 $ 115,758
Development and maintenance fees................... 2,673,450 789,337 551,406
Other revenues..................................... 29,375 369,416 82,507
------------ ------------ -----------
Total revenues................................... 21,840,538 4,310,176 749,671
Operating expenses:
Product development................................ 8,870,530 10,077,497 3,209,587
Sales and marketing................................ 33,477,172 8,953,700 3,166,644
General and administrative......................... 13,474,201 6,639,816 3,258,881
Amortization of stock-based compensation........... 1,272,106 540,489 470,455
Amortization of intangible assets.................. 3,129,047 -- --
------------ ------------ -----------
Total operating expenses......................... 60,223,056 26,211,502 10,105,567
Loss from operations............................. (38,382,518) (21,901,326) (9,355,896)
Other income (expense), net.......................... (165,841) 600,000 --
Interest income (expense), net....................... 2,347,543 (1,188,550) 293,173
------------ ------------ -----------
Net loss........................................... $(36,200,816) $(22,489,876) $(9,062,723)
============ ============ ===========
Net loss per share--basic and diluted................ $ (1.52) $ (1.52) $ (0.62)
============ ============ ===========
Weighted average used in computing net loss per
share--basic and diluted........................... 23,863,850 14,813,013 14,601,318
============ ============ ===========
Pro forma net loss per share--basic and diluted...... $ (1.17) (0.92) (0.43)
============ ============ ===========
Weighted average shares used in computing pro forma
net loss per share--basic and diluted.............. 31,000,310 24,408,089 21,242,209
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
48
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK COMMON DEFERRED
------------------- --------------------- PAID-IN STOCK STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS COMPENSATION
-------- -------- ---------- -------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1996....... 352,942 $ 352 14,596,305 $14,596 $ 14,118,505 $ $
Issuance of preferred stock for
cash, net of $38,252 in issuance
costs........................... 89,784 90 4,159,060
Exercise of stock options......... 15,000 15 19,485
Deferred stock compensation....... 1,206,098 (1,206,098)
Amortization of deferred stock
compensation.................... 470,455
Net loss..........................
-------- ----- ---------- ------- ------------ -------- -----------
Balances, December 31, 1997....... 442,726 442 14,611,305 14,611 19,503,148 (735,643)
Issuance of 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 (1,617,928)
Amortization of deferred stock
compensation.................... 540,489
Net loss..........................
-------- ----- ---------- ------- ------------ -------- -----------
Balances, December 31, 1998....... 633,347 633 15,939,823 15,940 59,475,314 113,071 (1,813,082)
Issuance of preferred stock for
cash and receivable, net of
71,083 in issuance costs........ 185,775 186 34,928,741
Issuance of common stock for
cash............................ 32,159 32 296,898
Issuance of common stock in
initial public offering......... 5,750,000 5,750 89,548,727
Conversion of preferred shares to
common shares related to initial
public offering................. (819,122) (819) 12,286,830 12,287 (11,468)
Deferred stock compensation....... 2,347,019 (2,347,019)
Amortization of deferred stock
compensation.................... 1,272,106
Exercise of stock options......... 733,948 734 1,637,549
Comprehensive income:
Cumulative translation
adjustment......................
Unrealized loss on investments....
Net loss..........................
Comprehensive loss................
-------- ----- ---------- ------- ------------ -------- -----------
Balances, December 31, 1999....... -- $ -- 34,742,760 $34,743 $188,222,780 $113,071 $(2,887,995)
======== ===== ========== ======= ============ ======== ===========
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE ACCUMULATED
INCOME DEFICIT TOTAL
------------- ------------ ------------
<S> <C> <C> <C>
Balances, December 31, 1996....... $ $ (6,657,205) $ 7,476,248
Issuance of preferred stock for
cash, net of $38,252 in issuance
costs........................... 4,159,150
Exercise of stock options......... 19,500
Deferred stock compensation.......
Amortization of deferred stock
compensation.................... 470,455
Net loss.......................... (9,062,723) (9,062,723)
-------- ------------ ------------
Balances, December 31, 1997....... (15,719,928) 3,062,630
Issuance of 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....... --
Amortization of deferred stock
compensation.................... 540,489
Net loss.......................... (22,489,876) (22,489,876)
-------- ------------ ------------
Balances, December 31, 1998....... (38,209,804) 19,582,072
Issuance of preferred stock for
cash and receivable, net of
71,083 in issuance costs........ 34,928,927
Issuance of common stock for
cash............................ 296,930
Issuance of common stock in
initial public offering......... 89,554,477
Conversion of preferred shares to
common shares related to initial
public offering................. --
Deferred stock compensation....... --
Amortization of deferred stock
compensation.................... 1,272,106
Exercise of stock options......... 1,638,283
Comprehensive income:
Cumulative translation
adjustment...................... 155,086 155,086
Unrealized loss on investments.... (42,243) (42,243)
Net loss.......................... (36,200,816) (36,200,816)
------------
Comprehensive loss................ (36,087,973)
-------- ------------ ------------
Balances, December 31, 1999....... $112,843 $(74,410,620) $111,184,822
======== ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
49
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(36,200,816) $(22,489,876) $(9,062,723)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 1,812,845 984,877 411,339
Amortization of stock-based compensation................ 1,272,106 540,489 470,455
Amortization of intangible assets....................... 3,129,047 -- --
Foreign currency translation gain on note payable to
strategic partner...................................... 158,053 -- --
Equity loss from joint venture.......................... 11,993 -- --
Loss on disposal of equipment........................... 3,074
Loss on software license................................ -- 5,450,000 --
Income from sale of property and casualty agents
business............................................... -- (650,000) --
Revenue from software license agreement................. -- (350,000) --
Non compete agreement expense........................... -- 50,000 --
Changes in assets and liabilities:
Accounts receivable..................................... (3,075,517) (1,054,272) (58,257)
Prepaid expenses and other current assets............... (2,320,290) (559,881) 33,010
Deposits................................................ (544,178) (1,366,353) (23,514)
Accounts payable........................................ (235,952) 261,475 24,940
Accrued expenses........................................ 3,689,572 1,022,171 211,193
Deferred revenue........................................ (43,633) 152,556 33,248
Interest received on note receivable from officers........ -- 68,436 77,211
Interest paid on note payable to officer.................. -- (68,436) (68,938)
------------ ------------ -----------
Net cash used in operating activities................. (32,343,696) (18,008,814) (7,952,036)
Cash flows from investing activities:
Purchase of short term investments--net................... (64,105,313) -- --
Purchase of held-to-maturity securities................... (4,978,761) -- --
Sales of property and equipment........................... 15,020 35,334 11,313
Purchases of property and equipment....................... (5,189,617) (3,972,587) (684,673)
Cash acquired in acquisition.............................. -- 16,708 --
------------ ------------ -----------
Net cash used in investing activities................. (74,258,671) (3,920,545) (673,360)
Cash flows from financing activities:
Proceeds from issuance of preferred stock, net............ 56,279,304 8,048,018 4,159,150
Proceeds from initial public offering of common stock,
net..................................................... 89,554,477 -- --
Proceeds from issuance of common stock.................... 296,930 -- --
Proceeds from exercise of stock options................... 1,638,283 568,321 19,500
Issuance of notes receivable from officer................. -- (4,000,000) --
Proceeds from repayment of notes receivable from
officer................................................. -- 5,525,000 --
Payment to former Series B stockholder.................... (4,500,000) -- --
Payment of note payable to officer........................ (25,000) (1,525,000) --
Proceeds from line of credit from affiliate............... -- 23,290,000 --
Payments on line of credit from affiliate................. (19,290,000) (4,000,000) --
------------ ------------ -----------
Net cash provided by financing activities............. 123,953,994 27,906,339 4,178,650
------------ ------------ -----------
Net increase (decrease) in cash and cash equivalents........ 17,351,627 (5,976,980) (4,446,746)
Cash and cash equivalents, beginning of period.............. 8,337,133 2,360,153 6,806,899
------------ ------------ -----------
Cash and cash equivalents, end of period.................... $ 25,688,760 $ 8,337,133 $ 2,360,153
============ ============ ===========
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------
1999 1998 1997
------------ ------------ -----------
<S> <C> <C> <C>
Supplemental disclosure of cash activities:
Cash paid during the period for interest.................. $ 1,229,448 $ 794,406 $ 192,493
============ ============ ===========
Supplemental schedule of noncash financing activities:
Deferred stock compensation from issuance of options........ $ 2,347,019 $ 1,617,928 $ 1,206,098
============ ============ ===========
Note payable to strategic partner for initial investment in
joint venture............................................. $ -- $ 2,089,137 $ --
============ ============ ===========
Proceeds from sale of a portion of investment in joint
venture used to reduce note payable to the strategic
partner................................................... $ 782,630 $ -- $ --
============ ============ ===========
Issuance of common stock for acquisition of Benelytics, Inc. $ -- $ 8,389,042 $ --
============ ============ ===========
Issuance of common stock warrants in connection with
acquisition of Benelytics, Inc............................ $ -- $ 113,071 $ --
============ ============ ===========
Receivable for sale of preferred stock...................... $ -- $ 22,999,377 $ --
============ ============ ===========
Preferred stock issuance costs accrued but not paid......... $ -- $ 1,649,000 $ --
============ ============ ===========
Conversion of preferred stock to common stock............... $ 819 $ -- $ --
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
51
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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.
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.
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.
INVESTMENTS IN SECURITIES
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. Securities are classified as held-to-maturity when the
Company has the positive intent and ability to hold the securities to maturity.
Securities classified as held-to-maturity are carried at amortized cost, which
is adjusted for amortization of premiums and accretion of discounts to maturity.
Such amortization is included in interest income. Securities not classified as
held-to-maturity are classified as available-for-sale and are carried at fair
value based on quoted market prices, with unrealized gains and losses 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. The
Company did not recognize any material gains or losses upon the sale of
securities.
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 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.
52
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
PRODUCT DEVELOPMENT COSTS
Product development costs and costs of enhancing existing products are
charged to technology costs as incurred. Software development costs are required
to be capitalized beginning when a product's technological feasibility has been
established by completion of a working model of the product and ending when the
product is available for general lease to customers. To date, completion of a
working model of the Company's products and general release have substantially
coincided. As a result, the Company has not capitalized any software development
costs since these costs have not been significant.
ONLINE MARKETING FEES
The Company enters into marketing agreements, which require revenue sharing
from transaction fees, fixed fee payments or per unit based charges 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, 1999, 1998 and 1997 were $13,040,000, $2,338,378 and
$41,579, respectively.
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.
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 two 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
53
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 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
Payments to collateralize certain lease commitments have been recorded as
deposits.
FOREIGN CURRENCY TRANSLATION
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 and the resulting foreign currency gain (loss)
is included in the consolidated statements of operations. The investment in
InsWeb Japan K.K. is translated into U.S. dollars at the applicable balance
sheet rate and the resulting translation adjustment is recorded to a separate
component of stockholders' equity.
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
and cash equivalents with a single major bank, which deposits may exceed federal
deposit insurance limits.
The Company's short- and long-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.
The Company's customer base is dispersed across many different geographic
areas, most customers are in a single industry in the United States. Collection
of trade receivables may be affected by changes in economic or other industry
conditions and may, accordingly, impact the Company's overall credit risk. The
Company performs ongoing credit evaluations of its customers and generally does
not require collateral.
54
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Company reviews the need for allowances for potential credit losses and
reserves for potential credit losses are maintained.
SIGNIFICANT CUSTOMERS
For the year ended December 31, 1999, three customers accounted for 11.2%,
11.3% and 30.8%, respectively, 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 year ended December 31, 1997, one
customer accounted for 19.4% of total revenues. At December 31, 1999 two
customers accounted for 22.3% and 20.6% of accounts receivable, respectively. At
December 31, 1998, one customer accounted for 48.9% of accounts receivable.
STOCK SPLITS
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. 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 June 1999 stock
split, net loss per share--basic and diluted was $0.93 and $2.28 for the years
ended December 31, 1997 and 1998.
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.
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 as of the beginning of such periods or at the
original date of issuance, if later.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS
No. 130, REPORTING COMPREHENSIVE INCOME. SFAS 130 requires items of other
comprehensive income (loss) be classified, net of income taxes, by their nature
in the financial statements. For the Company, other comprehensive income
includes
55
<PAGE>
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
primarily foreign currency translation adjustments and unrealized losses on
investments. Prior to December 31, 1998, accumulated other comprehensive income
was not significiant The change in the components of accumulated other
comprehensive income, net of taxes, is summarized as follows.
<TABLE>
<CAPTION>
FOREIGN ACCUMULATED
CURRENCY UNREALIZED OTHER
TRANSLATION LOSSES ON COMPREHENSIVE
ADJUSTMENTS INVESTMENTS INCOME
----------- ----------- -------------
<S> <C> <C> <C>
Balance, December 31, 1998............................... $ -- $ -- $ --
Other comprehensive income (loss)........................ 155,086 (42,243) 112,843
-------- -------- --------
Balance, December 31, 1999............................... $155,086 $(42,243) $112,843
======== ======== ========
</TABLE>
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 in accordance with
the provisions of SFAS No. 123 and under Emerging Issues Task Force No. 96-18,
ACCOUNTING FOR EQUITY INSTRUMENTS THAT ARE ISSUED TO OTHER THAN EMPLOYEES FOR
ACQUIRING, OR IN CONJUNCTION WITH SELLING GOODS AND SERVICES. Under these
provisions, options are recorded at their fair value on the measurement date,
which is typically the date of grant. The Company amortizes stock based
compensation recorded in connection with certain stock option grants over the
vesting periods of the related options.
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.
RECENT ACCOUNTING PRONOUNCEMENTS
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, 2000. The
Company's adoption of SFAS No. 133 is not expected to not have material effect
on the Company's results of operations, financial condition or cash flows.
56
<PAGE>
In December 1998, the AICPA issued SOP 98-9, Modification of SOP 97-2,
SOFTWARE REVENUE RECOGNITION WITH RESPECT TO CERTAIN TRANSACTIONS. SOP 98-9
amends SOP 97-2 and SOP 98-4 by extending the deferral of the application of
certain provisions of SOP 97-2 amended by SOP 98-4 through fiscal years
beginning on or before March 15, 1999. All other provisions of SOP 98-9 are
effective for transactions entered into in fiscal years beginning after
March 15, 1999. The Company does not anticipate adoption of this statement to
have a material effect on the Company's financial position, results of
operations or cash flows.
In November 1999, the Securities and Exchange Commission (SEC) issued Staff
accounting Bulletin (SAB) No 100, Restructuring and Impairment Charges, SAB No.
100 expresses the views of the SEC staff regarding the accounting for and
disclosure of certain expenses not commonly reported in connection with exit
activities and business combinations. This includes the accrual of exit and
employee termination costs and the recognition of impairment charges. In
December 1999, the SEC issued SAB No. 101 Revenue recognition in Financial
Statements. SAB No 101 expresses the views of the SEC staff in applying
accounting principles generally accepted in the United States to certain revenue
recognition issues. The Company is assessing the impact of these SABs on its
financial position, results of operations and cash flows.
RECLASSIFICATIONS
Certain amounts in the prior years' financial statements have been
reclassified to conform to the December 31, 1999 presentation. These
reclassifications did not change previously reported total assets, liabilities,
stockholders' equity or net loss.
3. CASH AND INVESTMENTS
Cash and investments consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1999 1998
----------- ----------
<S> <C> <C>
Cash and cash equivalents:
Cash.............................................. $ 1,131,558 $ 315,263
Money market funds................................ 13,655,335 8,021,870
Taxable municipal securities...................... 5,000,000 --
Commercial paper.................................. 5,901,867 --
----------- ----------
25,688,760 8,337,133
Short-term investments:
Certificates of deposit........................... 1,500,000 --
Commercial paper.................................. 62,563,070 --
----------- ----------
64,063,070 --
Cash, cash equivalents and short-term investments... $89,751,830 $8,337,133
=========== ==========
Long-term investments--U.S. Agency securities....... $ 4,978,761 $ --
=========== ==========
</TABLE>
The Company's investments in short-term securities are classified as
available-for-sale. At December 31, 1999, the carrying value of short-term
available-for sale securities is shown net of gross unrealized losses of $42,243
which are included as a component of stockholder's equity and are attributable
to the Company's investments in commercial paper. The fair value of all other
short-term securities approximates cost due to the short maturities of these
instruments. At December 31, 1999, all cash, cash equivalents and short-term
investments mature in 2000.
57
<PAGE>
3. CASH AND INVESTMENTS (CONTINUED)
Long-term investments are treated as held-to-maturity for financial
reporting purposes. At December 31, 1999, the fair value of the Company's long
term investments in debt securities was $4,947,040 which included gross
unrealized losses of $31,721. The Company's long term investments at December
31, 1999 mature in 2001.
4. PREPAID EXPENSES AND OTHER ASSETS
Prepaid expenses and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1999 1998
---------- --------
<S> <C> <C>
Prepaid marketing fees................................ $1,200,000 $425,000
Prepaid insurance..................................... 824,000 64,253
Prepaid rent.......................................... 128,287 --
Interest receivable................................... 343,864 --
Other................................................. 477,873 164,481
---------- --------
$2,974,024 $653,734
========== ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1999 1998
----------- -----------
<S> <C> <C>
Computer and office equipment...................... $ 4,807,243 $ 1,972,168
Furniture and fixtures............................. 1,665,678 1,010,266
Leasehold improvements............................. 2,325,952 1,986,897
Purchased software................................. 1,510,267 386,566
Construction in progress........................... 66,181 --
----------- -----------
10,375,321 5,355,897
Less accumulated depreciation and amortization..... (3,018,458) (1,357,712)
----------- -----------
$ 7,356,863 $ 3,998,185
=========== ===========
</TABLE>
Depreciation and amortization expense was $1,812,845, $984,877 and $411,339
for the years ended December 31, 1999, 1998 and 1997, respectively.
6. INSWEB JAPAN
On December 15, 1998, the Company entered into a Joint Venture Agreement
with a strategic partner and significant stockholder. 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 a 40% interest in
InsWeb Japan K.K in exchange for a promissory note in the principal amount of
$2,089,137 from the strategic partner. In conjunction with this agreement, the
Company also entered into an agreement to provide consulting and hosting
services to assist the Joint Venture in developing their internet strategy. For
the year ended December 31, 1999, $354,970 was billed and under this contract
and is included in development and maintenance fees. At December 31, 1999,
$170,561 of accounts receivable was due from Insweb Japan, K.K.
58
<PAGE>
6. INSWEB JAPAN (CONTINUED)
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.
The promissory note due to the strategic partner is payable in Yen and
accrues interest at 5% per annum, which is payable quarterly on the last 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 related to this note for the year ended December 31, 1999 was
$42,977. As of December 31, 1999 and 1998, $1,464,558 and $2,089,137 was
outstanding under the note, respectively
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Accrued employee compensation........................ $1,439,130 $ 309,311
Employee stock purchase plan......................... 796,303 --
Accrued interest..................................... 16,289 652,681
Accrued expenses for preferred stock financing....... -- 1,649,000
Accrued payments to vendors.......................... 1,818,862 442,872
Accrued fee sharing.................................. 733,774 --
Deferred rent........................................ 268,601 --
Other................................................ 86,974 65,498
---------- ----------
$5,159,933 $3,119,362
========== ==========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its current office facilities under noncancelable
operating leases which expire at various dates through August 2012.
At December 31, 1999, future minimum lease payments under noncancelable
operating leases are as follows:
<TABLE>
<S> <C>
2000........................................................ $ 5,387,400
2001........................................................ 8,921,900
2002........................................................ 9,197,200
2003........................................................ 9,335,400
2004........................................................ 9,449,300
Thereafter.................................................. 69,728,100
------------
$112,019,300
============
</TABLE>
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
$1,458,296, $1,093,735, $474,104 (net of sublease rental income of $671,586,
$26,222 and $40,485), respectively.
59
<PAGE>
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
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.
In October 1999, the Company signed a 12-year lease for approximately
160,000 square feet to house the Company's future headquarters in San Carlos,
California. Under the terms of this lease, the Company is responsible for taxes,
insurance and maintenance expenses. As a condition of the lease the Company is
required to provide a $5.0 million letter of credit secured by a portion of the
Company's investments as a security deposit. In May 2000, the letter of credit
will increase to $9.5 million.
MARKETING AGREEMENTS
The Company is required to make fixed payments under various marketing
agreements, which expire at various dates through 2002. At December 31, 1999,
future minimum payments under these agreements, including the AOL agreement (See
Note 16), are as follows:
<TABLE>
<S> <C>
2000........................................................ $12,212,500
2001........................................................ 9,925,000
-----------
$22,137,500
===========
</TABLE>
In addition to the fixed fees certain of these agreements require the
Company to pay fees for each user delivered to the Company's website in excess
of certain minimums.
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.
9. RELATED PARTY TRANSACTIONS
STOCKHOLDER AND CUSTOMER
A stockholder, who is also a customer, accounted for $430,845, $133,517 and
$163,175 of the Company's revenue during 1999, 1998 and 1997, respectively. At
December 31, 1999 and 1998, this customer accounted for $0 and $34,600 of
accounts receivable, respectively.
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.
60
<PAGE>
9. RELATED PARTY TRANSACTIONS (CONTINUED)
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 along with accrued interest.
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 a significant stockholder of
the Company, is also a customer and accounted for $133,187 and $247,711 of the
Company's revenue during 1999 and 1998. This customer accounted for $15,495 and
$6,405 of accounts receivable at December 31, 1999 and 1998.
STOCKHOLDER AGREEMENTS
In November 1996, the Company entered into the following agreements with the
then 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. The amount available under the line of
credit commitment was reduced to $12,500,000 in May 1999 and was subsequently
cancelled in conjunction with the closing of the Company's initial public
offering in July 1999.
Under the line of credit agreement, all borrowings were uncollateralized and
bore interest at 15% per annum. 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 $538,513 and $1,311,119 for the years
ended December 31, 1999 and 1998, respectively. At December 31, 1999 and 1998,
there was $0 and $623,191, 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 and the
Company is under no further obligation to deliver additional software or
documentation or to provide any maintenance for previously delivered software.
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
61
<PAGE>
9. RELATED PARTY TRANSACTIONS (CONTINUED)
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.
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 payment of 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. The remaining amounts were paid in full
during 1999. In 1998 the Company determined that it would 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.
MARKETING AGREEMENTS
For the year ended December 31, 1999, the Company recognized $4,548,776 in
marketing expense under a marketing agreement with an Internet company. An
affiliate of the Internet company became a principal stockholder of the Company
on December 30, 1998.
10. STOCKHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
In July 1999, the Company sold 5,750,000 shares of common stock including
the exercise of the underwriters' over-allotment option in an underwritten
public offering at a price per share of $17.00 per share. The Company received
net proceeds of approximately $89,554,477, after underwriting discount and
offering expenses. Simultaneously with the closing of the public offering, all
819,122 shares of the Company's preferred stock were converted to common stock
on a fifteen for one basis. Prior to the conversion the Series A, A-1, B, C, D
and E preferred stockholders held certain voting, dividend, liquidation and
conversion rights. No dividends were declared by the Board of Directors through
the date of conversion. In accordance with its line of credit agreement with its
affiliate (see Note 9), the Company did not declare or pay any dividends while
the line of credit was in effect.
STOCK OPTION PLANS
In September 1995, the Company authorized the 1995 Stock Option Plan (the
1995 Plan) under which the Board of Directors was authorized to grant stock
options to employees, officers, directors, independent contractors and
consultants of the Company and its subsidiaries. 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. No options remain
outstanding under the 1995 plan as of December 31, 1999.
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
62
<PAGE>
10. STOCKHOLDERS' EQUITY (CONTINUED)
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 at the fair
market value on the date of grant.
As of December 31, 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.
Activity under all the Plans is as follows:
<TABLE>
<CAPTION>
SHARES AVAILABLE NUMBER OF AGGREGATE WEIGHTED AVERAGE
FOR GRANT SHARES EXERCISE PRICE PRICE EXERCISE PRICE
---------------- --------- -------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
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....... 5,337,083 --
Options granted.................. (3,845,408) 3,845,408 $9.23-$60.00 93,958,445 $24.43
Options exercised................ -- (733,948) $0.016-$10.67 (1,637,549) $ 2.23
Options canceled................. 544,200 (544,200) $0.50-$45.00 (7,728,228) $14.20
---------- --------- -----------
Balances, December 31, 1999...... 2,422,503 4,664,075 $0.50-$60.00 $90,664,407 $19.43
========== ========= ===========
</TABLE>
Options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
OPTIONS CURRENTLY
OPTIONS OUTSTANDING EXERCISABLE
------------------------------ ----------------------------
WEIGHTED AVERAGE WEIGHTED
NUMBER REMAINING NUMBER AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE OUTSTANDING EXERCISE PRICE
- --------------- ----------- ---------------- ----------- --------------
<S> <C> <C> <C> <C>
$0.50--$3.12.............................. 816,268 8.06 446,927 2.54
$3.12--$7.50.............................. 360,401 8.76 140,920 4.99
$9.23..................................... 663,302 9.25 128,188 9.23
$10.67.................................... 865,514 9.40 123,584 10.67
$10.67--$17.32............................ 503,215 9.58 7,962 14.77
$17.50--$31.75............................ 322,875 9.78 10,584 23.46
$45.00.................................... 810,000 9.55 -- --
$60.00.................................... 322,500 9.55 -- --
--------- ---- ------- ------
4,664,075 9.18 858,165 $ 5.48
========= ==== ======= ======
</TABLE>
63
<PAGE>
10. STOCKHOLDERS' EQUITY (CONTINUED)
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.
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, which is generally
three years. Consequently, the Company recorded deferred stock compensation of
$2,347,019, $1,617,928 and $1,206,098, net of terminations, during the years
ended December 31, 1999, 1998 and 1997, respectively. Amortization of stock
compensation expense recognized for the years ended December 31, 1999, 1998 and
1997 totaled $1,272,106, $540,489, and $470,455, respectively. The Company's
stock option grants and related deemed fair value are as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
NUMBER OF OPTIONS WEIGHTED AVERAGE DEEMED FAIR
GRANTED EXERCISE PRICE VALUE
----------------- ---------------- ----------------
<S> <C> <C> <C>
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 year ended December 31, 1999
Options granted above deemed fair value....... 1,251,374 $48.40 $17.00
Options granted at deemed fair value.......... 992,627 $15.51 $15.51
Options granted below deemed fair value....... 1,601,407 $11.23 $12.98
--------- ------ ------
Total....................................... 3,845,408 $24.43 $12.94
========= ====== ======
</TABLE>
Stock compensation is being amortized over the vesting periods of the
options on a graded vesting method. This compensation expense relates to options
awarded to individuals in all operating expense categories. The amortization of
deferred compensation will approximate $1,350,000 for 2000, $1,158,000 for 2001,
and $380,000 for 2002.
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,
-----------------------------------------
1999 1998 1998
------------ ------------ -----------
<S> <C> <C> <C>
Net loss as reported................................. $(36,200,816) $(22,489,876) $(9,062,723)
Net loss per share as reported....................... $ (1.52) $ (1.52) $ (0.62)
Net loss--pro forma (computed using SFAS No. 123).... $(37,663,442) $(22,538,660) $(9,078,246)
Net loss per share--pro forma (computed using SFAS
No. 123)........................................... $ (1.58) $ (1.52) $ (0.62)
</TABLE>
64
<PAGE>
10. STOCKHOLDERS' EQUITY (CONTINUED)
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 per share weighted average fair value of options granted for the years
ended December 31, 1999, 1998 and 1997 was $2.94, $0.56 and $1.37, respectively,
as estimated on the date of grant using the Black-Scholes options pricing model
with the following assumptions:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Risk-free interest rate.................................... 4.6-6.19% 4.6-5.6% 4.6-6.2%
Expected life.............................................. 2.5 years 3 years 3 years
Expected dividend yield.................................... -- -- --
Volatility................................................. 0%-147% -- --
</TABLE>
The risk-free interest rate range represents the low and high end of the
range used at different points during the year. Prior to the Company's initial
public offering in July 1999, the Company did not have actively traded equity
securities, and, accordingly, 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 commenced on the
effective date of an initial public offering and will terminate on January 31,
2000. After the effective date of the 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.
11. 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
are fully exerciseable and expire on June 1, 2003. At December 31, 1999 and
1998, respectively, no warrants had been exercised and remained outstanding. The
fair value of these warrants was accounted for as part of the purchase price for
Benelytics, Inc.
12. INCOME TAXES
As of December 31, 1999, the Company had net operating loss carryforwards of
approximately $73,400,000 for both federal and $45,100,000 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.
65
<PAGE>
12. INCOME TAXES (CONTINUED)
The components of the net deferred tax assets and liabilities are presented
below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1999 1998
------------ ------------
<S> <C> <C>
Net operating loss carryforwards................. $ 27,590,917 $ 15,372,116
Tax credit carryforwards......................... 31,247 31,247
Accruals and reserves............................ 266,943 116,958
Other............................................ 335,128 39,643
------------ ------------
28,224,235 15,559,964
Less valuation allowance......................... (28,224,235) (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, 1999 and 1998 increased by $12,664,271 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 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,
--------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal tax benefit at statutory rate................ (34)% (34)% (34)%
State taxes, net of federal benefit.................. (3) (6) (6)
Nondeductible goodwill amortization.................. 4 -- --
Nondeductible stock compensation..................... 1 -- --
Adjustment due to increase in valuation allowance.... 32 40 40
--- --- ---
Provision for income taxes........................... 0% 0% 0%
=== === ===
</TABLE>
13. EMPLOYEE BENEFIT PLAN
The Company has a deferred contribution plan offered to all eligible
employees and is qualified under section 401(k) of the Internal Revenue code.
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 years ended December 31, 1999 and 1998 were $282,162 and $180,751,
respectively.
14. 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 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
66
<PAGE>
14. BENELYTICS, INC. ACQUISITION (CONTINUED)
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. Amortization expense was
$3,129,047 and $0 for the years ended December 31, 1999 and 1998, respectively.
The following pro forma results of operations reflect the combined results
of the Company and Benelytics, Inc. for the fiscal years ended December 31, 1998
and 1997 and have been prepared 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>
YEAR ENDED DECEMBER 31,
---------------------------
1998 1997
------------ ------------
<S> <C> <C>
(UNAUDITED)
Revenues......................................... $ 4,315,126 $ 749,671
Net loss......................................... $(26,968,212) $(12,820,740)
Net loss per share............................... $ (1.72) $ (0.83)
Shares used in computing net loss per share...... 15,677,903 15,509,879
</TABLE>
15. SEGMENT INFORMATION
The Company adopted SFAS No. 131, DISCLOSURES ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION, in fiscal 1999. SFAS No. 131 supercedes SFAS
No. 14, FINANCIAL REPORTING FOR SEGMENTS OF A BUSINESS ENTERPRISE and
establishes standards for reporting information about operating segments.
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance.
The Company operates in one segment, business-to-consumer electronic
insurance services. The Company markets its online marketplace in the United
States and Canada. The Chief Executive Officer has been identified as the Chief
Operating Decision Maker ("CODM") because he has final authority over resource
allocation decisions and performance assessment. The CODM does not receive
discrete financial information about individual components of the Company's
operations.
16. SUBSEQUENT EVENT (UNAUDITED)
In February 2000, the Company and America Online (AOL) entered into a
two-year agreement pursuant to which America Online offers a co-branded version
of the InsWeb online insurance marketplace across the Netscape Netcenter ,
CompuServe and Digital City websites. The agreement provides for InsWeb to be
the exclusive provider of online insurance quotation services on the Netscape
website and premier insurance comparison-shopping aggregator of insurance
offerings for CompuServe and Digital City. Under the agreement, InsWeb has
agreed to pay to AOL fixed fees for certain impression targets plus a fee for
each click over a certain cumulative minimum threshold.
67
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934 the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on March 29, 2000.
<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 Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
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 (Principal March 29, 2000
Hussein A. Enan Executive Officer)
/s/ JAMES M. CORROON
------------------------------------------- Vice Chairman of the Board March 29, 2000
James M. Corroon
/s/ MARK P. GUTHRIE Acting Chief Financial Officer
------------------------------------------- (Principal Financial and March 29, 2000
Mark P. Guthrie Accounting Officer)
/s/ BRUCE A. BUNNER
------------------------------------------- Director March 29, 2000
Bruce A. Bunner
/s/ RONALD FISHER
------------------------------------------- Director March 29, 2000
Ronald Fisher
/s/ RICHARD J. FREEMAN
------------------------------------------- Director March 29, 2000
Richard J. Freeman
/s/ M. GORDON GADDY
------------------------------------------- Director March 29, 2000
M. Gordon Gaddy
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ RICHARD D. HEADLEY
------------------------------------------- Director March 29, 2000
Richard D. Headley
/s/ YOSHITAKA KITAO
------------------------------------------- Director March 29, 2000
Yoshitaka Kitao
/s/ DONALD K. MORFORD
------------------------------------------- Director March 29, 2000
Donald K. Morford
/s/ ROBERT C. NEVINS
------------------------------------------- Director March 29, 2000
Robert C. Nevins
/s/ ROBERT A. PUCCINELLI
------------------------------------------- Director March 29, 2000
Robert A. Puccinelli
/s/ DARRELL J. TICEHURST
------------------------------------------- Vice Chairman of the Board March 29, 2000
Darrell J. Ticehurst
</TABLE>
<PAGE>
INSWEB CORPORATION AND SUBSDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD
- ----------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful accounts.......... $ -- $302,189 $ -- $(160,409) $141,780
====== ======== ==== ========= ========
Year ended December 31, 1998:
Allowance for doubtful accounts.......... $5,000 $ -- $ -- $ (5,000) $ --
====== ======== ==== ========= ========
Year ended December 31, 1997:
Allowance for doubtful accounts.......... $7,200 $ -- $ -- $ (2,200) $ 5,000
====== ======== ==== ========= ========
</TABLE>
S-1
<PAGE>
INSWEB CORPORATION
EXHIBITS
TO
FORM 10-K ANNUAL REPORT
FOR THE YEAR ENDED
DECEMBER 31, 1999
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
*3.1 Amended and Restated Certificate of Incorporation of
Registrant.
*3.2 Bylaws of Registrant.
*4.1 Third Amended and Restated Investor Rights Agreement among
Registrant and certain Stockholders of Registrant, dated
as of March 31, 1999.
*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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------- -----------------------
<C> <S>
*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 February
26, 1999.
*10.18+ License Agreement between Registrant and Yahoo! Inc. dated
as of February 12, 1999.
*10.19+ Services Agreements between Registrant and State Farm Mutual
Automobile Insurance Company dated as of September 15,
1998.
10.20 Lease between Registrant and Spieker Properties, L.P. dated
October 27, 1999.
21.1 Subsidiaries of Registrant.
23.1 Consent of Independent Accountants.
23.2 Report of Independent Accountants on Financial Statement
Schedule.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* Previously filed with InsWeb's Registration Statement on Form S-1 (File
No. 333-78095), as amended.
+ Confidential treatment has been granted as to a portion of this Exhibit.
<PAGE>
EXHIBIT 10.20
BASIC LEASE INFORMATION
OFFICE NET
LEASE DATE: October 27, 1999
TENANT: InsWeb Corporation, a Delaware
corporation
TENANT'S NOTICE ADDRESS: 901 Marshall Street
Redwood City, CA 94063
Attn: InsWeb Corporate General
Counsel
Attn: Sheryl Dodsworth, Senior
Vice President, Finance &
Administration
With a copy to:
959 Skyway Road
San Carlos, California 94070
Attn: Facilities Manager
TENANT'S BILLING ADDRESS: 901 Marshall Street
Redwood City, CA 94063
TENANT CONTACT: Sheryl Dodsworth, PHONE NUMBERS: 650-298-9100
Senior Vice President, 650-817-0115
Finance & Administration
FAX NUMBER: 650-817-0355
LANDLORD: Spieker Properties, L.P., a
California limited partnership
LANDLORD'S NOTICE ADDRESS: 555 Twin Dolphin Drive,
Suite 110
Redwood City, CA 94065
With a copy to:
950 Tower Lane, Suite 120
Foster City, CA 94404
LANDLORD'S REMITTANCE ADDRESS: Spieker Properties LP
Department 12541
PO Box 45587
San Francisco, CA 94145-0587
PROJECT DESCRIPTION: That certain real property,
which real property includes
the land, commonly known as
Skyway Landing, and located
at 959 Skyway Road, San
Carlos, California, which
includes two (2) three-story
office buildings (Building A
and Building B).
BUILDING DESCRIPTIONS: That certain portion of the
Project, commonly known as
Building A, Skyway Landing,
located at 959 Skyway Road,
San Carlos, California,
consisting of a three-story
building with approximately
one hundred sixteen thousand
seventeen (116,017) rentable
square ("BUILDING A"), and
that certain portion of the
Project, commonly known as
Building B, Skyway Landing,
located at 999 Skyway Road,
San Carlos, California,
consisting of a three-story
building with approximately
one hundred twenty one
thousand one hundred seventy
one (121,171) rentable
square feet ("BUILDING B").
PREMISES: The entire third (3rd) floor
of Building A consisting of
approximately thirty-nine
thousand four hundred
seventy-three (39,473)
rentable square feet, as
depicted on EXHIBIT B
attached hereto (the
"BUILDING A PREMISES") and
the entirety of Building B
consisting of approximately
one hundred twenty-one
thousand one hundred seventy
one (121,171) rentable
square feet as depicted on
EXHIBIT B attached hereto
(the "BUILDING B PREMISES").
The Building A Premises
together with the Building B
Premises in the aggregate
consists of approximately
one hundred sixty thousand
six hundred forty four
(160,644) rentable square
feet.
PERMITTED USE: General office and
administration, sales,
development, marketing of
software and the transaction
of e-commerce and services
directly
<PAGE>
related thereto.
OCCUPANCY DENSITY: 5 persons per 1,000 rentable
square feet.
PARKING DENSITY AND PARKING CHARGE: 3.3 parking stalls per 1,000
rentable square feet,
including handicap, visitor,
and reserved stalls, for a
total of 545 total parking
spaces; $0 per space / per
month.
SCHEDULED TERM COMMENCEMENT DATE: See Paragraph 39.C hereof.
SCHEDULED LENGTH OF TERM: One hundred forty-four (144)
months following the
Building B Term Commencement
Date (as defined in
Paragraph 39.C).
SCHEDULED TERM EXPIRATION DATE: August 31, 2012
RENT:
BASE RENT: $128,287.25 per month
(subject to adjustment as
provided in Paragraph 39.A
hereof).
ESTIMATED FIRST YEAR OPERATING EXPENSES: $28,815.29 per month
SECURITY DEPOSIT: Nine Million Five Hundred
Thousand and No/100 Dollars
($9,500,000.00) Letter of
Credit delivered in
accordance with the terms of
Paragraph 39.B (subject to
adjustment as provided in
Paragraphs 39.B and 19
hereof), and a cash security
deposit in an amount equal
to Two Hundred Fifty
Thousand and No/100 Dollars
($250,000.00).
TENANT'S PROPORTIONATE SHARE:
OF BUILDING: Building A: 34%
Building B: 100%
OF PROJECT: 67%
The foregoing Basic Lease Information is incorporated into and made a part of
this Lease. Each reference in this Lease to any of the Basic Lease Information
shall mean the respective information above and shall be construed to
incorporate all of the terms provided under the particular Lease paragraph
pertaining to such information. In the event of any conflict between the Basic
Lease Information and the Lease, the latter shall control.
LANDLORD TENANT
Spieker Properties, L.P., InsWeb Corporation
a California limited partnership a Delaware corporation
By: Spieker Properties, Inc., By: /s/ Sheryl Dodsworth
a Maryland corporation, ---------------------
its general partner Sheryl Dodsworth
Its: Senior Vice President,
Finance and
Administration
By: /s/ James M. Corroon
By: /s/ Nancy B. Gille ---------------------
------------------ James M. Corroon
Nancy B. Gille Its: Vice Chairman
Its: Vice President
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Basic Lease Information......................................................................................1
Table of Contents............................................................................................2
1. Premises.................................................................................................1
2. Possession and Lease Commencement........................................................................1
3. Term.....................................................................................................1
4. Use......................................................................................................1
5. Rules and Regulations....................................................................................1
6. Rent.....................................................................................................1
7. Operating Expenses.......................................................................................1
8. Insurance and Indemnification............................................................................1
9. Waiver of Subrogation....................................................................................1
10. Landlord's Repairs and Maintenance.......................................................................1
11. Tenant's Repairs and Maintenance.........................................................................1
12. Alterations..............................................................................................1
13. Signs....................................................................................................1
14. Inspection/Posting Notices...............................................................................1
15. Services and Utilities...................................................................................1
16. Subordination............................................................................................1
17. Financial Statements.....................................................................................1
18. Estoppel Certificate.....................................................................................1
19. Security Deposit.........................................................................................1
20. Limitation of Tenant's Remedies..........................................................................1
21. Assignment and Subletting................................................................................1
22. Authority of Tenant......................................................................................1
23. Condemnation.............................................................................................1
24. Casualty Damage..........................................................................................1
25. Holding Over.............................................................................................1
26. Default..................................................................................................1
27. Liens....................................................................................................1
28. Substitution.............................................................................................1
29. Transfers by Landlord....................................................................................1
30. Right of Landlord to Perform Tenant's Covenants..........................................................1
31. Waiver...................................................................................................1
32. Notices..................................................................................................1
33. Attorney's Fees..........................................................................................1
34. Successors and Assigns...................................................................................1
35. Force Majeure............................................................................................1
36. Surrender of Premises....................................................................................1
37. Parking..................................................................................................1
38. Miscellaneous............................................................................................1
39. Additional Provisions....................................................................................1
40. Jury Trial Waiver........................................................................................1
Signatures...............................................................................................1
Exhibits:
Exhibit A................................................................................Rules and Regulations
Exhibit B............................................................................................Site Plan
Exhibit C...............................................................Tenant Improvements and Specifications
Exhibit D .............................................................................................Signage
Exhibit E ....................................................................................Generator Spaces
Exhibit F .....................................................................................Expansion Space
</TABLE>
3
<PAGE>
LEASE
THIS LEASE is made as of the 27th day of October 1999, by and between Spieker
Properties, L.P., a California limited partnership (hereinafter called
"LANDLORD"), and InsWeb Corporation, a Delaware corporation (hereinafter called
"TENANT").
1. PREMISES
Landlord leases to Tenant and Tenant leases from Landlord, upon the terms
and conditions hereinafter set forth, those premises outlined in red on EXHIBIT
B and described in the Basic Lease Information. The Building A Premises and the
Building B Premises, each as described in the Basic Lease Information and
Paragraph 39.C hereof, shall sometimes be referred to herein, collectively, as
the "PREMISES". The Premises shall be all or part of the Building A and Building
B (collectively, the "BUILDING") and of a project (the "PROJECT"), which may
consist of more than one building and additional facilities, as described in the
Basic Lease Information. The Building and Project are outlined in blue and green
respectively on EXHIBIT B. Landlord and Tenant acknowledge that physical changes
may occur from time to time in the Premises, Building or Project, and that the
number of buildings and additional facilities which constitute the Project may
change from time to time, which may result in an adjustment in Tenant's
Proportionate Share, as defined in the Basic Lease Information, as provided in
Paragraph 7.A; provided, however, that any such physical changes shall not
materially and adversely affect Tenant's Permitted Use (as defined herein) of
the Premises, Building or Project. Landlord shall provide prior notice to Tenant
prior to making any such physical changes. Landlord hereby represents to Tenant
that Landlord is vested in title to the Project and represents further that
Landlord has commenced construction of the Building in the Project in accordance
with EXHIBIT C, attached hereto.
2. POSSESSION AND LEASE COMMENCEMENT
A. INTENTIONALLY OMITTED.
B. CONSTRUCTION OF IMPROVEMENTS. If this Lease pertains to a Building to be
constructed or improvements to be constructed within a Building, the provisions
of this Paragraph 2.B. shall apply in lieu of the provisions of Paragraph 2.A.
above and the term commencement dates ("TERM COMMENCEMENT DATE") applicable to
the Building A Premises and the Building B Premises, respectively, shall be the
dates described in Paragraph 39.C hereof. Landlord shall deliver possession of
the Premises to Tenant as follows: (i) Building A Premises on or before July 1,
2000; and (ii) the Building B Premises on or before March 1, 2001. Tenant may
terminate this Lease by delivering written notice to Landlord on or before March
15, 2001 if Landlord has not (i) substantially completed the Building A Premises
Tenant Improvements (as defined in EXHIBIT C) to be constructed by Landlord as
described in EXHIBIT C to this Lease and completed the Base Building Work in the
Building B Premises to an extent which is sufficiently complete to permit access
by Tenant as described in Paragraph 39.E hereof, both by March 1, 2001; (ii)
Tenant has given Landlord at least twenty (20) days' prior written notice
("TENANT'S TERMINATION NOTICE PERIOD") of Landlord's failure to do so, except
for punchlist items, and except for delays caused by Tenant or other third
parties (including delays caused by the contractor or anyone else performing
services on behalf of Tenant) or by events beyond Landlord's control and other
force majeure events, including, but not limited to, strikes, material
shortages, delays of governmental agencies and Acts of God, which delays will
not be cause for termination hereunder; and (iii) Landlord has not, as of the
expiration of Tenant's Termination Notice Period, substantially completed the
Premises and delivered possession of the Premises to Tenant. In the event of
such termination, Landlord shall return any Security Deposit to Tenant as well
as any other sums paid hereunder by Tenant to Landlord. All obligations of
Tenant and Landlord under this Lease shall thereafter terminate and no party
shall have any further obligations under this Lease. If for any reason Landlord
cannot deliver possession of the Premises to Tenant as provided herein, Landlord
shall not be subject to any liability therefor, nor shall Landlord be in default
hereunder nor shall such failure affect the validity of this Lease, and Tenant
agrees to accept possession of the Premises at such time as such improvements to
be constructed by Landlord have been substantially completed, except as
expressly provided in this Paragraph 2.B. Tenant shall not be liable for any
Rent for any period prior to the Term Commencement Date (but without affecting
any obligations of Tenant under any improvement agreement appended to this
Lease). Substantial completion of the Building A Premises Tenant Improvements
and the Building B Premises Tenant Improvements respectively shall be as defined
in Exhibit C, as such definition is provided with respect to each of the
Building A Premises and the Building B Premises. Substantial completion shall
have occurred notwithstanding Tenant's submission of a punchlist to Landlord,
which Tenant shall submit, if at all, within ten (10) business days following
the Building A Premises Term Commencement Date with respect to the Building A
Premises and within fifteen (15) business days following the Building B Premises
Term Commencement Date with respect to the Building B Premises, or otherwise in
accordance with any improvement agreement appended to this Lease. Upon
Landlord's request, Tenant shall promptly execute and return to Landlord a
"Start-Up Letter" in which Tenant shall agree, among other things, to acceptance
of the Premises and to the determination of the Term Commencement Date, in
accordance with the terms of this Lease, but Tenant's failure or refusal to do
so shall not negate Tenant's acceptance of the Premises or affect determination
of the Term Commencement Date.
C. BASE BUILDING WORK PUNCHLIST.
(1) Within five (5) days following the date Landlord delivers written
notice of substantial completion of the Base Building Work located in the
Building A Premises, Tenant shall notify Landlord of certain dates occurring
within twenty (20) days after Landlord's delivery of such notice during which
period Tenant is available to jointly inspect the Building A Premises with
Landlord. Upon selecting a mutually acceptable time and date, Tenant and
Landlord and their respective agents shall conduct an inspection of the Building
A Premises and shall together develop a punchlist of items, if any, of the Base
Building Work located in the Building A Premises that is not complete or that
requires corrections. Landlord shall proceed diligently to remedy such items at
Landlord's cost and expense provided such items are part of the Building A
Premises Base Building Work to be constructed by Landlord in accordance with
Schedule 1 of EXHIBIT C hereof, are otherwise consistent with Landlord's
obligations under this Lease and are not a necessary result of Tenant's intended
use. Substantial completion shall not be delayed notwithstanding any such
punchlist. In the event Tenant fails to so notify Landlord, Tenant shall be
deemed to accept the Building A Premises "as is" with respect to the Base
Building Work located therein and to have waived any punchlist items with
respect thereto.
(2) Within five (5) days following the date Landlord delivers written
notice of substantial completion of the Base Building Work located in the
Building B Premises, Tenant shall notify Landlord of certain dates occurring
within twenty (20) days after Landlord's delivery of such notice during which
period Tenant is available to jointly inspect the Building B Premises with
Landlord. Upon selecting a mutually acceptable time and date, Tenant and
Landlord and their respective agents shall conduct an inspection of the Building
B Premises and shall together develop a punchlist of items, if any, of the Base
Building Work located in the Building B Premises that is not complete or that
requires corrections. Landlord shall proceed diligently to remedy such items at
Landlord's cost and expense provided such items are part of the Building B
Premises Base Building Work to be constructed by Landlord in accordance with
Schedule 1 of EXHIBIT C hereof, are otherwise consistent with Landlord's
obligations under this Lease and are not a necessary result of Tenant's intended
use. Substantial completion shall not be delayed notwithstanding any such
punchlist. In the event Tenant fails to so notify Landlord, Tenant
4
<PAGE>
shall be deemed to accept the Building B Premises "as is" with respect to the
Base Building Work located therein and to have waived any punchlist items with
respect thereto.
3. TERM
The term of this Lease (the "TERM") shall commence on the Term Commencement
Date and continue in full force and effect for the number of months specified as
the Length of Term in the Basic Lease Information or until this Lease is
terminated as otherwise provided herein. If the Term Commencement Date is a date
other than the first day of the calendar month, the Term shall be the number of
months of the Length of Term in addition to the remainder of the calendar month
following the Term Commencement Date.
4. USE
A. GENERAL. Tenant shall use the Premises for the permitted use specified
in the Basic Lease Information ("PERMITTED USE") and for no other use or
purpose. Tenant shall make reasonable efforts to control Tenant's employees,
agents, customers, visitors, invitees, licensees, contractors, assignees and
subtenants (collectively, "TENANT'S PARTIES") in such a manner that Tenant and
Tenant's Parties cumulatively do not exceed the occupant density (the "OCCUPANCY
DENSITY") or the parking density (the "PARKING DENSITY") specified in the Basic
Lease Information at any time. So long as Tenant is occupying the Premises,
Tenant and Tenant's Parties shall have the nonexclusive right to use, in common
with other parties occupying the Building or Project, the parking areas,
driveways and other common areas of the Building and Project, subject to the
terms of this Lease and such rules and regulations as Landlord may from time to
time prescribe. Landlord reserves the right, without notice or liability to
Tenant, and without the same constituting an actual or constructive eviction, to
alter or modify the common areas from time to time, including the location and
configuration thereof, and the amenities and facilities which Landlord may
determine to provide from time to time, provided that any such alteration or
modification of the common areas shall not materially and adversely interfere
with Tenant's Permitted Use hereunder.
B. LIMITATIONS. Tenant shall not permit any odors, smoke, dust, gas,
substances, noise or vibrations to emanate from the Premises or from any portion
of the common areas as a result of Tenant's or any Tenant's Party's use thereof,
nor take any action which would constitute a nuisance or would disturb, obstruct
or endanger any other tenants or occupants of the Building or Project or
elsewhere, or interfere with their use of their respective premises or common
areas. Storage outside the Premises of materials, vehicles or any other items is
prohibited. Tenant shall not use or allow the Premises to be used for any
immoral, improper or unlawful purpose, nor shall Tenant cause or maintain or
permit any nuisance in, on or about the Premises. Tenant shall not commit or
suffer the commission of any waste in, on or about the Premises. Tenant shall
not allow any sale by auction upon the Premises, or place any loads upon the
floors, walls or ceilings which could endanger the structure, or place any
harmful substances in the drainage system of the Building or Project. No waste,
materials or refuse shall be dumped upon or permitted to remain outside the
Premises. Landlord shall not be responsible to Tenant for the non-compliance by
any other tenant or occupant of the Building or Project with any of the
above-referenced rules or any other terms or provisions of such tenant's or
occupant's lease or other contract.
C. COMPLIANCE WITH REGULATIONS. Tenant shall at its sole cost and expense
strictly comply with all existing or future applicable municipal, state and
federal and other governmental statutes, rules, requirements, regulations, laws
and ordinances, including zoning ordinances and regulations, and covenants,
easements and restrictions of record governing and relating to the use,
occupancy or possession of the Premises, to Tenant's use of the common areas, or
to the use, storage, generation or disposal of Hazardous Materials (hereinafter
defined) (collectively "REGULATIONS"). Landlord shall be responsible for
complying with Regulations (and the ADA to the extent expressly provided in this
Lease) pertaining to the common areas of the Project prior to and except to the
extent arising out of Tenant's occupancy or use of the Premises or common areas
or construction of any Tenant Improvements or Alterations made by or on behalf
of Tenant, whether by Landlord or otherwise and whether performed before or
after the Term Commencement Date, or installation of any equipment, fixtures,
furniture or other personal property in or about the Premises; provided,
however; that Landlord may treat costs of such compliance as an Operating
Expense in accordance with the terms of Paragraph 7 hereof and to the extent
expressly provided below in this Paragraph 4.C. Tenant shall at its sole cost
and expense obtain any and all licenses or permits necessary for Tenant's use of
the Premises. Tenant shall at its sole cost and expense promptly comply with the
requirements of any board of fire underwriters or other similar body now or
hereafter constituted. Tenant shall not do or permit anything to be done in, on,
under or about the Project or bring or keep anything which will in any way
increase the rate of any insurance upon the Premises, Building or Project or
upon any contents therein or cause a cancellation of said insurance or otherwise
affect said insurance in any manner. Tenant's obligations pursuant to the
foregoing indemnity shall survive the expiration or earlier termination of this
Lease. Tenant shall have the sole responsibility for complying, at Tenant's
cost, with any and all provisions of the Americans with Disabilities Act of
1990, as it has been and may later be amended ("ADA"), (i) with respect to each
of the Building A Premises and the Building B Premises; and (ii) with respect to
the common areas of the Project where in the case of this clause (ii) such
compliance has been brought about by: (A) any of the Building A Premises Tenant
Improvements or Alterations to the Building A Premises and the Building B
Premises (to the extent any such compliance item arises after the date Landlord
delivers possession of the Building B Premises to Tenant), or to the common
areas made by or on behalf of Tenant, whether by Landlord or otherwise, and
performed after the Building A Premises Term Commencement Date and delivery of
possession of the Building B Premises to Tenant; (B) requirements of Tenant's
employees, or any changes to Tenant's use of the Premises; or (C) any
architectural barriers caused by Tenant's installation of any equipment,
fixtures, furniture, or other personal property in or about the Premises (items
(i) and (ii) collectively, "TENANT'S ADA RESPONSIBILITIES"). Tenant shall
indemnify, defend and hold Landlord, its agents and employees harmless from and
against any and all claims, damages, or liabilities (including, without
limitation, reasonable attorneys' fees and costs) arising directly or indirectly
from Tenant's failure to satisfy any of Tenant's ADA Responsibilities and/or any
Regulation (except to the extent such compliance with Regulations is expressly
made a Landlord responsibility hereunder). Landlord shall indemnify, defend and
hold Tenant, its agents and employees harmless from and against any and all
claims, damages or liabilities arising directly or indirectly from Landlord's
failure to comply with any obligations of a landlord under the ADA, other than
such claims, damages or liabilities arising from Tenant's failure to satisfy any
of Tenant's ADA Responsibilities; provided, however, that Landlord may treat
costs of ADA compliance with respect to the common areas of the Project to the
extent such compliance item arises after the date Landlord delivers possession
of the Building A Premises and the Building B Premises as an Operating Expense
in accordance with Paragraph 7 hereof. In the event that during the Term hereof,
or any extension thereto, a governmental agency or other entity with appropriate
jurisdiction requires work to be performed to comply with either the ADA,
regardless of whether the costs thereof shall be deemed an Operating Expense or
attributable to the account of Tenant or another tenant in the Project, Landlord
shall perform all such work that is of a structural nature, is located in the
common areas of the Project or is visible form the exterior of the Building.
Landlord shall, at Tenant's written request, perform such nonstructural
compliance work in the Premises on Tenant's behalf. Landlord represents that, as
of the dates Landlord delivers possession of the Building A Premises and the
Building B Premises, respectively, to Tenant, to the best of Landlord's actual
knowledge, the Base Building Work and the Building A Premises Tenant
Improvements shall comply in all material respects with each of: (x) the ADA,
and (y) Regulations, as the ADA and Regulations have each been interpreted in
San Mateo County and as each of the ADA and Regulations pertain to each of the
Base Building Work and the Building A Premises Tenant Improvements. Any costs
incurred by Landlord to comply with ADA and Regulations solely as described in
the foregoing sentence shall not be an Operating Expense as defined herein.
D. HAZARDOUS MATERIALS. As used in this Lease, "HAZARDOUS MATERIALS" shall
include, but not be limited to, hazardous, toxic and radioactive materials and
those substances defined as "hazardous substances," "hazardous materials,"
"hazardous wastes," "toxic substances," or other similar designations in any
Regulation. Tenant shall not cause, or allow any of Tenant's Parties to cause,
any
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Hazardous Materials to be handled, used, generated, stored, released or disposed
of in, on, under or about the Premises, the Building or the Project or
surrounding land or environment in violation of any Regulations. Tenant must
obtain Landlord's written consent prior to the introduction of any Hazardous
Materials onto the Project. Notwithstanding the foregoing, Tenant may handle,
store, use and dispose of products containing small quantities of Hazardous
Materials for "general office purposes" (such as toner for copiers) to the
extent customary and necessary for the Permitted Use of the Premises; provided
that Tenant shall always handle, store, use, and dispose of any such Hazardous
Materials in a safe and lawful manner and never allow such Hazardous Materials
to contaminate the Premises, Building, or Project or surrounding land or
environment. Tenant shall immediately notify Landlord in writing of any
Hazardous Materials' contamination of any portion of the Project of which Tenant
becomes aware, whether or not caused by Tenant. Landlord shall have the right at
all reasonable times to inspect the Premises and to conduct tests and
investigations to determine whether Tenant is in compliance with the foregoing
provisions, the costs of all such inspections, tests and investigations to be
borne by Landlord unless Landlord has reasonable cause to believe Tenant or any
of Tenant's Parties has violated this Paragraph 4.D or any Regulation, in which
event, such costs shall be borne solely by Tenant. Tenant shall indemnify,
defend (by counsel reasonably acceptable to Landlord), protect and hold Landlord
harmless from and against any and all claims, liabilities, losses, costs, loss
of rents, liens, damages, injuries or expenses (including attorneys' and
consultants' fees and court costs), demands, causes of action, or judgments
directly or indirectly arising out of or related to the use, generation,
storage, release, or disposal of Hazardous Materials by Tenant or any of
Tenant's Parties in, on, under or about the Premises, the Building or the
Project or surrounding land or environment, which indemnity shall include,
without limitation, damages for personal or bodily injury, property damage,
damage to the environment or natural resources occurring on or off the Premises,
losses attributable to diminution in value or adverse effects on marketability,
the cost of any investigation, monitoring, government oversight, repair,
removal, remediation, restoration, abatement, and disposal, and the preparation
of any closure or other required plans, whether such action is required or
necessary prior to or following the expiration or earlier termination of this
Lease. Neither the consent by Landlord to the use, generation, storage, release
or disposal of Hazardous Materials nor the strict compliance by Tenant with all
laws pertaining to Hazardous Materials shall excuse Tenant from Tenant's
obligation of indemnification pursuant to this Paragraph 4.D. Tenant's
obligations pursuant to the foregoing indemnity shall survive the expiration or
earlier termination of this Lease. Landlord shall indemnify, defend and hold
Tenant harmless from and against any and all claims, judgments, damages,
penalties, fines, costs, liabilities or losses, including without limitation
reasonable attorneys' fees and costs, arising out of any Hazardous Material in,
on or about the Project or the Premises which was created, handled, placed,
stored, used, transported or disposed of prior to the dates Landlord delivers
possession of the Building A Premises and the Building B Premises, respectively,
excluding, however, any Hazardous Material whose presence was caused by Tenant
or any Tenant's Parties. Landlord's obligations pursuant to the foregoing
indemnity shall survive the expiration or earlier termination of this Lease.
5. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the building rules and
regulations attached hereto as EXHIBIT A and any other reasonable rules and
regulations and any modifications or additions thereto which Landlord may from
time to time prescribe in writing for the purpose of maintaining the proper
care, cleanliness, safety, traffic flow and general order of the Premises or the
Building or Project. Tenant shall cause Tenant's Parties to comply with such
rules and regulations. Landlord shall apply such rules and regulations in a
nondiscriminatory manner Landlord shall not be responsible to Tenant for the
non-compliance by any other tenant or occupant of the Building or Project with
any of such rules and regulations, any other tenant's or occupant's lease or any
Regulations.
6. RENT
A. BASE RENT. Tenant shall pay to Landlord and Landlord shall receive,
without notice or demand throughout the Term, Base Rent as specified in the
Basic Lease Information, payable in monthly installments in advance on or before
the first day of each calendar month, in lawful money of the United States,
without deduction or offset whatsoever, at the Remittance Address specified in
the Basic Lease Information or to such other place as Landlord may from time to
time designate in writing. Base Rent for the first full month of the Term shall
be paid by Tenant upon Tenant's execution of this Lease. If the obligation for
payment of Base Rent commences on a day other than the first day of a month,
then Base Rent shall be prorated and the prorated installment shall be paid on
the first day of the calendar month next succeeding the Term Commencement Date.
The Base Rent payable by Tenant hereunder is subject to adjustment as provided
elsewhere in this Lease, as applicable. As used herein, the term "Base Rent"
shall mean the Base Rent specified in the Basic Lease Information as it may be
so adjusted from time to time.
B. ADDITIONAL RENT. All monies other than Base Rent required to be paid by
Tenant hereunder, including, but not limited to, Tenant's Proportionate Share of
Operating Expenses, as specified in Paragraph 7 of this Lease, charges to be
paid by Tenant under Paragraph 15, the interest and late charge described in
Paragraphs 26.C. and D., and any monies spent by Landlord pursuant to Paragraph
30, shall be considered additional rent ("ADDITIONAL RENT"). "RENT" shall mean
Base Rent and Additional Rent.
7. OPERATING EXPENSES
A. OPERATING EXPENSES. In addition to the Base Rent required to be paid
hereunder, Tenant shall pay as Additional Rent, Tenant's Proportionate Share of
the Building and/or Project (as applicable), as defined in the Basic Lease
Information, of Operating Expenses (defined below) in the manner set forth
below. Tenant shall pay the applicable Tenant's Proportionate Share of such
Operating Expenses. Landlord and Tenant acknowledge that if the number of
buildings which constitute the Project increases or decreases, or if physical
changes are made to the Premises, Building or Project or the configuration of
any thereof, Landlord may at its discretion reasonably adjust Tenant's
Proportionate Share of the Building or Project to reflect the change. Landlord
shall operate and maintain the Building and the Project in a manner consistent
with Landlord's operation and management of other buildings and projects owned
by Spieker Properties, L.P. in the mid-Peninsula geographical area, or if
Spieker Properties, L.P. does not own any buildings or projects in the
mid-Peninsula geographic area, in a manner consistent with similar office
buildings and projects located in such geographic area. In the event that
Spieker Properties, L.P., or an affiliate thereof, is not the Landlord under
this Lease, the Landlord under this Lease shall operate the Building and the
Project in a first-class manner consistent with other first-class buildings and
projects in the mid-Peninsula geographic area. Landlord's determination of
Tenant's Proportionate Share of the Building and of the Project shall be
conclusive so long as it is reasonably and consistently applied. "OPERATING
EXPENSES" shall mean all expenses and costs of every kind and nature which
Landlord shall pay or become obligated to pay, because of or in connection with
the ownership, management, maintenance, repair, preservation, replacement and
operation of the Building or Project and its supporting facilities and such
additional facilities now and in subsequent years as may be reasonably
determined by Landlord to be necessary or desirable to the Building and/or
Project (as determined in a reasonable manner) other than those expenses and
costs which are specifically attributable to Tenant or which are expressly made
the financial responsibility of Landlord or specific tenants of the Building or
Project pursuant to this Lease. Operating Expenses shall include, but are not
limited to, the following:
(1) TAXES. All real property taxes and assessments, possessory interest
taxes, sales taxes, personal property taxes, business or license taxes
or fees, gross receipts taxes, service payments in lieu of such taxes
or fees, annual or periodic license or use fees, excises, transit
charges, and other impositions, general and special, ordinary and
extraordinary, unforeseen as well as foreseen, of any kind (including
fees "in-lieu" of any such tax or assessment) which are now or
hereafter assessed, levied, charged, confirmed, or imposed by any
public authority upon the Building or Project, its operations or the
Rent (or any portion or
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component thereof), or any tax, assessment or fee imposed in
substitution, partially or totally, of any of the above. Operating
Expenses shall also include any taxes, assessments, reassessments, or
other fees or impositions with respect to the development, leasing,
management, maintenance, alteration, repair, use or occupancy of the
Premises, Building or Project or any portion thereof, including,
without limitation, by or for Tenant, and all increases therein or
reassessments thereof whether the increases or reassessments result
from increased rate and/or valuation (whether upon a transfer of the
Building or Project or any portion thereof or any interest therein or
for any other reason). Operating Expenses shall not include inheritance
or estate taxes imposed upon or assessed against the interest of any
person in the Project, or taxes computed upon the basis of the net
income of any owners of any interest in the Project. If it shall not be
lawful for Tenant to reimburse Landlord for all or any part of such
taxes, the monthly rental payable to Landlord under this Lease shall be
revised to net Landlord the same net rental after imposition of any
such taxes by Landlord as would have been payable to Landlord prior to
the payment of any such taxes.
(2) INSURANCE. All insurance premiums and costs, including, but not
limited to, any deductible amounts, premiums and other costs of
insurance incurred by Landlord, including for the insurance coverage
set forth in Paragraph 8.A. herein. Notwithstanding the foregoing, in
the event an earthquake event which affects the Premises, the Building
or the Project occurs, insurance deductibles due in connection with
earthquake insurance covering such event shall only be passed through
as an Operating Expense at one time up to an amount equal to Two
Hundred Fifty Thousand Dollars ($250,000.00) and any amounts in excess
shall be amortized over the useful life of the repairs and restoration
made in connection with such earthquake event as such useful is
reasonably determined by Landlord and in accordance with generally
accepted accounting principles.
(3) COMMON AREA MAINTENANCE.
(a) Repairs, replacements, and general maintenance of and for
the Building and Project and public and common areas and
facilities of and comprising the Building and Project,
including, but not limited to, the roof and roof membrane,
windows, elevators, restrooms, conference rooms, if any,
health club facilities, if any, lobbies, mezzanines,
balconies, mechanical rooms, building exteriors, alarm
systems, pest extermination, landscaped areas, parking and
service areas, driveways, sidewalks, loading areas, fire
sprinkler systems, sanitary and storm sewer lines, utility
services, heating/ventilation/air conditioning systems,
electrical, mechanical or other systems, telephone equipment
and wiring servicing, plumbing, lighting, and any other items
or areas which affect the operation or appearance of the
Building or Project, which determination shall be at
Landlord's discretion, except for: those items expressly made
the financial responsibility of Landlord pursuant to Paragraph
10 hereof; those items to the extent paid for by the proceeds
of insurance; and those items attributable solely or jointly
to specific tenants of the Building or Project.
(b) Repairs, replacements, and general maintenance shall
include the cost of any capital improvements made to or
capital assets acquired for the Project or Building that in
Landlord's discretion may reduce any other Operating Expenses,
including present or future repair work, are reasonably
necessary for the health and safety of the occupants of the
Building or Project, or are required to comply with any
Regulation, such costs or allocable portions thereof to be
amortized over the useful life of such improvement as Landlord
shall reasonably determine, substantially in accordance with
generally accepted accounting principles, together with
interest on the unamortized balance at the publicly announced
"prime rate" charged by Wells Fargo Bank, N.A. (San Francisco)
or its successor at the time such improvements or capital
assets are constructed or acquired, plus two (2) percentage
points, or in the absence of such prime rate, then at the U.S.
Treasury six-month market note (or bond, if so designated)
rate as published by any national financial publication
selected by Landlord, plus four (4) percentage points, but in
no event more than the maximum rate permitted by law. Any
significant capital items to be replaced during the last
twenty-four (24) months of the initial Term shall be treated
in accordance with the terms of this Paragraph 7 or shall be
shared between Landlord and Tenant in a manner to allocate the
anticipated benefits of such items as reasonably determined by
Landlord, which ever is less to Tenant.
(c) Payment under or for any easement, license, permit,
operating agreement, declaration, restrictive covenant or
instrument relating to the Building or Project; provided,
however, that such costs shall not include any costs
associated with airplane hangers on the Project.
(d) All expenses and rental related to services and costs of
supplies, materials and equipment used in operating, managing
and maintaining the Premises, Building and Project, the
equipment therein and the adjacent sidewalks, driveways,
parking and service areas, including, without limitation,
expenses related to service agreements regarding security,
fire and other alarm systems, janitorial services, window
cleaning, elevator maintenance, Building exterior maintenance,
landscaping and expenses related to the administration,
management and operation of the Project, including without
limitation salaries, wages and benefits for employees or
independent contractors to the extent directly involved in the
operation and management of the Building or Project and
management office rent for office space occupied by employees
or independent contractors to the extent directly involved in
the operation and management of the Building or Project.
(e) The cost of supplying any services and utilities which
benefit all or a portion of the Premises, Building or Project,
including without limitation services and utilities provided
pursuant to Paragraph 15 hereof; provided, however, that
Tenant may contract directly with Pacific Gas & Electric
Company for such services and utilities with respect to the
Building B Premises, and in such event, the costs of such
services and utilities shall be excluded from the computation
of the management fee described in subparagraph (g) below.
(f) Legal expenses and the cost of audits by certified public
accountants; provided, however, that legal expenses chargeable
as Operating Expenses shall not include the cost of
negotiating leases, collecting rents, evicting tenants nor
shall it include costs incurred in legal proceedings with or
against any tenant or to enforce the provisions of any lease.
(g) A management and accounting cost recovery fee not to
exceed three percent (3%) during the first forty-eight months
following the Building B Premises Term Commencement Date and
four percent (4%) for the balance of the initial Term of this
Lease, each of the sum of the Project's base rents and
Operating Expenses (other than such management and accounting
fee).
(h) Repairs, replacements, and general maintenance shall
include the cost of any remediation of or repair due to the
use of any common Hazardous Materials, such as office and
janitorial supplies and materials used in connection with the
systems and equipment which operate the Building and the
Project, with such Hazardous Materials used in customary
quantities in connection with the ownership, management,
maintenance, repair, preservation, replacement and operation
of the Building or Project and its supporting facilities and
such additional facilities now and in subsequent years as may
be determined by Landlord to be necessary or desirable to the
Building and/or Project (as determined in a reasonable
manner).
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If the rentable area of the Building and/or Project is not fully occupied during
any fiscal year of the Term as determined by Landlord, an adjustment shall be
made in Landlord's discretion in computing the Operating Expenses for such year
so that Tenant pays an equitable portion of all variable items (e.g., utilities,
janitorial services and other component expenses that are affected by variations
in occupancy levels) of Operating Expenses, as reasonably determined by
Landlord; provided, however, that in no event shall Landlord be entitled to
collect in excess of one hundred percent (100%) of the total Operating Expenses
from all of the tenants in the Building or Project, as the case may be.
Operating Expenses shall not include the cost of providing tenant improvements
or other specific costs incurred for the account of, separately billed to and
paid by specific tenants of the Building or Project, the initial construction
cost of the Building, or debt service on any mortgage or deed of trust recorded
with respect to the Project other than pursuant to Paragraph 7.A.(3)(b) above.
Notwithstanding anything herein to the contrary, in any instance wherein
Landlord, in Landlord's reasonable discretion, deems Tenant to be responsible
for any amounts greater than Tenant's Proportionate Share, Landlord shall have
the right to allocate costs in any manner Landlord deems appropriate. Landlord
shall enforce the foregoing sentence in a nondiscriminatory manner with respect
to all tenants of the Building in accordance with their respective leases.
In addition, notwithstanding anything in the definition of Operating Expenses in
this Lease to the contrary, Operating Expenses shall not include the following,
except to the extent specifically provided:
(i) Any ground lease rental;
(ii) Costs of capital improvements, replacements or equipment and
any depreciation or amortization expenses thereon, except to
the extent included in Operating Expenses in Paragraph 7.A of
this Lease;
(iii) Rentals for items (except when needed in connection with
normal repairs and maintenance of permanent systems) which if
purchased, rather than rented, would constitute a capital
improvement which is specifically excluded in clause (ii)
above (excluding, however, equipment not affixed to the
Building or Project which is used in providing janitorial or
similar services);
(iv) Costs incurred by Landlord for the repair of damage to or
rebuilding of the Building or Project, to the extent that
Landlord is reimbursed by insurance proceeds;
(v) Costs, including permit, license and inspection costs,
incurred with respect to the installation of tenant or other
occupant improvements made for tenants or other occupants in
the Building or the Project or incurred in renovating or
otherwise improving, decorating, painting or redecorating
vacant space for or the premises of other tenants or other
occupants of the Building;
(vi) Marketing costs, including leasing commissions, attorneys'
fees in connection with the negotiation and preparation or
enforcement of letters, deal memos, letters of intent, leases,
subleases and/or assignments, space planning costs, and other
costs and expenses incurred in connection with lease, sublease
and/or assignment negotiations and transactions with present
or prospective tenants or other occupants of the Building or
the Project;
(vii) Costs incurred by Landlord due to the violation by Landlord of
the terms and conditions of any lease of space in the Building
or the Project or any costs incurred by Landlord in connection
with disputes with other tenants of the Building or Project;
(viii) Except to the extent included in Operating Expenses in
Paragraph 7.A(3) above, interest, principal, points and fees
on debt or amortization payments on any mortgage or deed of
trust or any other debt instrument encumbering the Building or
Project or the land on which the Building or Project is
situated;
(ix) Except for making repairs or keeping permanent systems in
operation while repairs are being made, rentals and other
related expenses incurred in leasing air conditioning systems,
elevators or other equipment ordinarily considered to be of a
capital nature, except equipment not affixed to the Building
or Project which is used in providing janitorial or similar
services;
(x) Advertising and promotional expenditures (except for retail
property promotions);
(xi) Costs incurred in connection with upgrading the Building or
Project to comply with disability, life, fire and safety codes
in effect prior to the issuance of the temporary certificate
of occupancy for the Building;
(xii) Interest, fines or penalties incurred as a result of
Landlord's failure to make payments when due unless such
failure is commercially reasonable under the circumstances;
(xiii) Costs arising from Landlord's charitable or political
contributions;
(xiv) Costs for acquisition of sculpture, paintings or other objects
of art in common areas;
(xv) The depreciation of the Building and other real property
structures in the Project;
(xvi) Costs to correct defects in construction and design materials
or workmanship in the Building or Project during the
construction warranty period applicable to the Project;
(xvii) The costs of a full roof replacement during the initial Term
of this Lease;
(xviii) After hours and excess or special utilities or services
provided to other tenants of the Project and not to Tenant;
(xix) The costs of repairs and maintenance of the structural
soundness of the roof, the foundation and the exterior and
interior walls of the Building A Premises and the Building B
Premises as such costs are expressly made Landlord's
responsibility in Paragraph 10 hereof;
(xx) The costs of services provided to the Building or Project
charged by an affiliate of Landlord to the extent such costs
are above then-current market rates for such services as
reasonably determined by Landlord;
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(xxi) Except as expressly provided herein, the cost incurred to
treat, survey, clean, contain, abate, remove or otherwise
remedy Hazardous Materials in, on or about the Building or
Project due to another tenant's default under its lease or due
to an act of Landlord or Landlord's agents, employees or
invitees;
(xxii) Landlord's general corporate overhead and general
administrative expenses not related to the operation of the
Building or the Project, except as specifically set forth in
Paragraph 7.A of this Lease; and
(xxiii) Any bad debt loss, rent loss or reserves for bad debts or rent
loss, or reserves for equipment or capital replacement.
The above enumeration of services and facilities shall not be deemed to impose
an obligation on Landlord to make available or provide such services or
facilities except to the extent if any that Landlord has specifically agreed
elsewhere in this Lease to make the same available or provide the same. Without
limiting the generality of the foregoing, Tenant acknowledges and agrees that it
shall be responsible for providing adequate security for its use of the
Premises, the Building and the Project and that Landlord shall have no
obligation or liability with respect thereto, except to the extent if any that
Landlord has specifically agreed elsewhere in this Lease to provide the same.
B. PAYMENT OF ESTIMATED OPERATING EXPENSES. "ESTIMATED OPERATING EXPENSES" for
any particular year shall mean Landlord's estimate of the Operating Expenses for
such fiscal year made with respect to such fiscal year as hereinafter provided.
Landlord shall have the right from time to time to revise its fiscal year and
interim accounting periods so long as the periods as so revised are reconciled
with prior periods in a reasonable manner. During the last month of each fiscal
year during the Term, or as soon thereafter as practicable, Landlord shall give
Tenant written notice of the Estimated Operating Expenses for the ensuing fiscal
year. Tenant shall pay Tenant's Proportionate Share of the Estimated Operating
Expenses with installments of Base Rent for the fiscal year to which the
Estimated Operating Expenses applies in monthly installments on the first day of
each calendar month during such year, in advance. Such payment shall be
construed to be Additional Rent for all purposes hereunder. If at any time
during the course of the fiscal year, Landlord determines that Operating
Expenses are projected to vary from the then Estimated Operating Expenses by
more than five percent (5%), Landlord may, by written notice to Tenant, revise
the Estimated Operating Expenses for the balance of such fiscal year, and
Tenant's monthly installments for the remainder of such year shall be adjusted
so that by the end of such fiscal year Tenant has paid to Landlord Tenant's
Proportionate Share of the revised Estimated Operating Expenses for such year,
such revised installment amounts to be Additional Rent for all purposes
hereunder.
C. COMPUTATION OF OPERATING EXPENSE ADJUSTMENT. "OPERATING EXPENSE ADJUSTMENT"
shall mean the difference between Estimated Operating Expenses and actual
Operating Expenses for any fiscal year determined as hereinafter provided.
Within ninety (90) days after the end of each fiscal year, or as soon thereafter
as practicable, Landlord shall deliver to Tenant a statement of actual Operating
Expenses for the fiscal year just ended, accompanied by a computation of
Operating Expense Adjustment. If such statement shows that Tenant's payment
based upon Estimated Operating Expenses is less than Tenant's Proportionate
Share of Operating Expenses, then Tenant shall pay to Landlord the difference
within thirty (30) days after receipt of such statement, such payment to
constitute Additional Rent for all purposes hereunder. If such statement shows
that Tenant's payments of Estimated Operating Expenses exceed Tenant's
Proportionate Share of Operating Expenses, then (provided that Tenant is not in
default under this Lease) Landlord shall pay to Tenant the difference within
thirty (30) days after delivery of such statement to Tenant. If this Lease has
been terminated or the Term hereof has expired prior to the date of such
statement, then the Operating Expense Adjustment shall be paid by the
appropriate party within thirty (30) days after the date of delivery of the
statement. Should this Lease commence or terminate at any time other than the
first day of the fiscal year, Tenant's Proportionate Share of the Operating
Expense Adjustment shall be prorated based on a month of 30 days and the number
of calendar months during such fiscal year that this Lease is in effect.
Notwithstanding anything to the contrary contained in Paragraph 7.A or 7.B,
Landlord's failure to provide any notices or statements within the time periods
specified in those paragraphs shall in no way excuse Tenant from its obligation
to pay Tenant's Proportionate Share of Operating Expenses.
D. NET LEASE. This shall be a triple net Lease and Base Rent shall be paid to
Landlord absolutely net of all costs and expenses, except as specifically
provided to the contrary in this Lease. The provisions for payment of Operating
Expenses and the Operating Expense Adjustment are intended to pass on to Tenant
and reimburse Landlord for all costs and expenses of the nature described in
Paragraph 7.A. incurred in connection with the ownership, management,
maintenance, repair, preservation, replacement and operation of the Building
and/or Project and its supporting facilities and such additional facilities now
and in subsequent years as may be determined by Landlord to be necessary to the
Building and/or Project.
E. TENANT AUDIT. If Tenant shall dispute the amount set forth in any statement
provided by Landlord under Paragraph 7.B. or 7.C. above, Tenant shall have the
right, not later than sixty (60) days following receipt of such statement and
upon the condition that Tenant shall first deposit with Landlord the full amount
in dispute, to cause Landlord's books and records with respect to Operating
Expenses for such fiscal year to be audited by certified public accountants
selected by Tenant and subject to Landlord's reasonable right of approval. The
Operating Expense Adjustment shall be appropriately adjusted on the basis of
such audit. If such audit discloses a liability for a refund in excess of six
percent (6%) of Tenant's Proportionate Share of the Operating Expenses
previously reported, the cost of such audit shall be borne by Landlord;
otherwise the cost of such audit shall be paid by Tenant. If Tenant shall not
request an audit in accordance with the provisions of this Paragraph 7.E. within
sixty (60) days after receipt of Landlord's statement provided pursuant to
Paragraph 7.B. or 7.C., such statement shall be final and binding for all
purposes hereof.
8. INSURANCE AND INDEMNIFICATION
A. LANDLORD'S INSURANCE. All insurance maintained by Landlord shall be for the
sole benefit of Landlord and under Landlord's sole control.
(1) PROPERTY INSURANCE. Landlord agrees to maintain property insurance
insuring the Building against damage or destruction due to risk
including fire, vandalism, and malicious mischief in an amount not less
than the replacement cost thereof, in the form and with deductibles and
endorsements as selected by Landlord. At its election, Landlord may
instead (but shall have no obligation to) obtain "All Risk" coverage,
and may also obtain earthquake, pollution, and/or flood insurance in
amounts selected by Landlord.
(2) OPTIONAL INSURANCE. Landlord, at Landlord's option, may also (but
shall have no obligation to) carry insurance against loss of rent, in
an amount equal to the amount of Base Rent and Additional Rent that
Landlord could be required to abate to all Building tenants in the
event of condemnation or casualty damage for a period of twelve (12)
months. Landlord may also (but shall have no obligation to) carry such
other insurance as Landlord may deem prudent or advisable, including,
without limitation, liability insurance in such amounts and on such
terms as Landlord shall determine. Landlord shall not be obligated to
insure, and shall have no responsibility whatsoever for any damage to,
any furniture, machinery, goods, inventory or supplies, or other
personal property or fixtures which Tenant may keep or maintain in the
Premises, or any leasehold improvements, additions or alterations
within the Premises.
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B. TENANT'S INSURANCE.
(1) PROPERTY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term, insurance on all personal property and
fixtures of Tenant and all improvements, additions or alterations made
by or for Tenant to the Premises on an "All Risk" basis, insuring such
property for the full replacement value of such property. Tenant's
property insurance shall also cover the Generator, as described in
Paragraph 39.D.
(2) LIABILITY INSURANCE. Tenant shall procure at Tenant's sole cost and
expense and keep in effect from the date of this Lease and at all times
until the end of the Term Commercial General Liability insurance
covering bodily injury and property damage liability occurring in or
about the Premises or arising out of the use and occupancy of the
Premises and the Project, and any part of either, and any areas
adjacent thereto, and the business operated by Tenant or by any other
occupant of the Premises, but such occupants shall not include any
other tenants of the Project except to the extent that such other
tenant is Tenant's invitee. Such insurance shall include contractual
liability insurance coverage insuring all of Tenant's indemnity
obligations under this Lease. Such coverage shall have a minimum
combined single limit of liability of at least Two Million Dollars
($2,000,000.00), and a minimum general aggregate limit of Three Million
Dollars ($3,000,000.00), with an "Additional Insured - Managers or
Lessors of Premises Endorsement." All such policies shall be written to
apply to all bodily injury (including death), property damage or loss,
personal and advertising injury, occurring during the policy term,
shall be endorsed to add Landlord and any party holding an interest to
which this Lease may be subordinated as an additional insured, and
shall provide that such coverage shall be "PRIMARY" and
non-contributing with any insurance maintained by Landlord, which shall
be excess insurance only. Such coverage shall also contain endorsements
including employees as additional insureds if not covered by Tenant's
Commercial General Liability Insurance. All such insurance shall
provide for the severability of interests of insureds; and shall be
written on an "OCCURRENCE" basis, which shall afford coverage for all
claims based on acts, omissions, injury and damage, which occurred or
arose (or the onset of which occurred or arose) in whole or in part
during the policy period.
(3) WORKERS' COMPENSATION AND EMPLOYERS' LIABILITY INSURANCE. Tenant
shall carry Workers' Compensation Insurance as required by applicable
California state law or other applicable Regulation, throughout the
Term at Tenant's sole cost and expense. Tenant shall also carry
Employers' Liability Insurance in amounts not less than One Million
Dollars ($1,000,000) each accident for bodily injury by accident; One
Million Dollars ($1,000,000) policy limit for bodily injury by disease;
and One Million Dollars ($1,000,000) each employee for bodily injury by
disease, throughout the Term at Tenant's sole cost and expense.
(4) GENERAL INSURANCE REQUIREMENTS. All coverages described in this
Paragraph 8.B. shall be endorsed to (i) provide Landlord with thirty
(30) days' notice of cancellation (for reasons other than failure to
pay an associated premium) or change in any material term and ten (10)
days' notice of cancellation due to failure to pay the associated
premium; and (ii) waive all rights of subrogation by the insurance
carrier against Landlord. If at any time during the Term the amount or
coverage of insurance which Tenant is required to carry under this
Paragraph 8.B. is, in Landlord's reasonable judgment, materially less
than the amount or type of insurance coverage typically carried by
owners or tenants of properties located in the general area in which
the Premises are located which are similar to and operated for similar
purposes as the Premises or if Tenant's use of the Premises should
change with or without Landlord's consent, Landlord shall have the
right to require Tenant to increase the amount or change the types of
insurance coverage required under this Paragraph 8.B. All insurance
policies required to be carried by Tenant under this Lease shall be
written by companies rated A X or better in "Best's Insurance Guide"
and authorized to do business in the State of California. In any event
deductible amounts under all insurance policies required to be carried
by Tenant under this Lease shall not exceed Five Thousand Dollars
($5,000.00) per occurrence. Tenant shall deliver to Landlord on or
before the Term Commencement Date, and thereafter at least thirty (30)
days before the expiration dates of the expired policies, certified
copies of Tenant's insurance policies, or a certificate evidencing the
same issued by the insurer thereunder; and, if Tenant shall fail to
procure such insurance, or to deliver such policies or certificates,
Landlord may, at Landlord's option and in addition to Landlord's other
remedies in the event of a default by Tenant hereunder, procure the
same for the account of Tenant, and the cost thereof shall be paid to
Landlord as Additional Rent.
C. TENANT INDEMNIFICATION. Tenant shall indemnify, defend by counsel
mutually acceptable to Landlord, Tenant and Tenant's insurer, protect
and hold Landlord harmless from and against any and all claims,
liabilities, losses, costs, loss of rents, liens, damages, injuries or
expenses, including reasonable attorneys' and consultants' fees and
court costs, demands, causes of action, or judgments, directly or
indirectly arising out of or related to: (1) claims of injury to or
death of persons or damage to property occurring or resulting directly
or indirectly from the use or occupancy of the Premises, Building or
Project by Tenant or Tenant's Parties, or from activities or failures
to act of Tenant or Tenant's Parties; (2) claims arising from work or
labor performed, or for materials or supplies furnished to or at the
request or for the account of Tenant in connection with performance of
any work done for the account of Tenant within the Premises or Project;
(3) claims arising from any breach or default on the part of Tenant in
the performance of any covenant contained in this Lease; and (4) claims
arising from the negligence or intentional acts or omissions of Tenant
or Tenant's Parties. The foregoing indemnity by Tenant shall not be
applicable to claims to the extent arising from the gross negligence or
willful misconduct of Landlord or Landlord's agents, employees or
invitees. The provisions of this Paragraph shall survive the expiration
or earlier termination of this Lease.
D. LANDLORD INDEMNIFICATION. Landlord shall indemnify, defend by counsel
mutually acceptable to Tenant, Landlord and Landlord's insurer, protect and hold
Tenant harmless from and against any and all claims, liabilities, losses, costs,
damages, injuries or expenses, including reasonable attorneys' and consultants'
fees and court costs, demands, causes of action, or judgments arising out of or
relating to the gross negligence or willful misconduct of Landlord or Landlord's
agents, employees or invitees. Notwithstanding the foregoing or subparagraph 8.C
above, or anything to the contrary contained in this Lease, Landlord shall in no
event be liable to Tenant and Tenant hereby waives all claims against Landlord
for any injury or damage to any person or property in or about the Premises,
Building or Project, including without limitation the common areas, whether
caused by theft, fire, rain or water leakage of any character from the roof,
walls, plumbing, sprinklers, pipes, basement or any other portion of the
Premises, Building or Project, or caused by gas, fire, oil or electricity in, on
or about the Premises, Building or Project, or from any other systems except in
each case to the extent caused by the gross negligence or willful misconduct of
Landlord, or Landlord's agents, employees or invitees, or by acts of God
(including without limitation flood or earthquake), acts of a public enemy,
riot, strike, insurrection, war, court order, requisition or order of
governmental body or authority or from any other cause whatsoever, or for any
damage or inconvenience which may arise through repair, subject to and except as
expressly otherwise provided in Paragraph 9 or 10 of this Lease. In addition,
Landlord shall in no event be liable for (i) injury to Tenant's business or any
loss of income or profit therefrom or from consequential damages, or (ii) sums
up to the amount of insurance proceeds received by Tenant. The foregoing
indemnity by Landlord shall not be applicable to claims to the extent arising
from the negligence or willful misconduct of Tenant or Tenant's Parties. The
foregoing indemnity by Landlord shall survive the expiration or earlier
termination of this Lease.
9. WAIVER OF SUBROGATION
To the extent permitted by law and without affecting the coverage provided
by insurance to be maintained hereunder or any other rights or remedies,
Landlord and Tenant each waive any right to recover against the other for: (a)
damages for injury to or death of
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persons; (b) damages to property, including personal property; (c) damages to
the Premises or any part thereof; and (d) claims arising by reason of the
foregoing due to hazards covered by insurance maintained or required to be
maintained pursuant to this Lease to the extent of proceeds recovered therefrom,
or proceeds which would have been recoverable therefrom in the case of the
failure of any party to maintain any insurance coverage required to be
maintained by such party pursuant to this Lease. This provision is intended to
waive fully, any rights and/or claims arising by reason of the foregoing, but
only to the extent that any of the foregoing damages and/or claims referred to
above are covered or would be covered, and only to the extent of such coverage,
by insurance actually carried or required to be maintained pursuant to this
Lease by either Landlord or Tenant. This provision is also intended to waive
fully, and for the benefit of each party, any rights and/or claims which might
give rise to a right of subrogation on any insurance carrier. Subject to all
qualifications of this Paragraph 9, Landlord waives its rights as specified in
this Paragraph 9 with respect to any subtenant that it has approved pursuant to
Paragraph 21 but only in exchange for the written waiver of such rights to be
given by such subtenant to Landlord upon such subtenant taking possession of the
Premises or a portion thereof. Each party shall cause each insurance policy
obtained by it to provide that the insurance company waives all right of
recovery by way of subrogation against either party in connection with any
damage covered by any policy.
10. LANDLORD'S REPAIRS AND MAINTENANCE
Landlord shall at Landlord's expense maintain in good repair, reasonable
wear and tear excepted, the structural soundness of the roof and foundations,
and the structural soundness of the exterior and interior load-bearing walls of
the Building. The term "exterior walls" as used herein shall not include
windows, glass or plate glass, doors, special store fronts or office entries.
Landlord shall maintain in good and working condition the building systems,
landscaping, hardscaping and parking areas, each as described in Paragraph
7.A.3(a) hereof, which costs may be treated as an Operating Expense in
accordance with Paragraph 7. Any damage caused by or repairs necessitated by any
negligence or act of Tenant or Tenant's Parties may be repaired by Landlord at
Landlord's option and Tenant's expense. Tenant shall immediately give Landlord
written notice of any defect or need of repairs in such components of the
Building for which Landlord is responsible, after which Landlord shall have a
reasonable opportunity and the right to enter the Premises at all reasonable
times to repair same. Landlord's liability with respect to any defects, repairs,
or maintenance for which Landlord is responsible under any of the provisions of
this Lease shall be limited to the cost of such repairs or maintenance, and
there shall be no abatement of rent and no liability of Landlord by reason of
any injury to or interference with Tenant's business arising from the making of
repairs, alterations or improvements in or to any portion of the Premises, the
Building or the Project or to fixtures, appurtenances or equipment in the
Building, except as provided in Paragraph 24. Except for the structural frame
and foundation, Tenant may have the right to make repairs for any repairs or
maintenance for which Landlord is responsible and for which Tenant has submitted
written notice of same, and Landlord has not determined to repair and/or begun
such repair within thirty (30) days after receipt of such notice or such shorter
time as shall be reasonable in the event of an emergency (which shall be
situations of risk of personal injury or death, significant property damage to
Tenant's personal property or property damage to the Premises or the Building or
Project, or in the event work in connection with the compliance with Regulations
is immediately required); provided however, that if such damage is of such a
nature that it cannot be repaired with such thirty (30) day period, then the
period shall be extended (except in case of emergency as aforesaid) so long as a
reasonable course of action is commenced within such thirty (30) day period and
is thereafter diligently prosecuted to completion. In the event that Tenant so
performs any repairs, Landlord shall reimburse the actual and reasonable cost
thereof to Tenant within thirty (30) days after Landlord's receipt of written
demand therefor accompanied by documentary evidence of such costs, except in the
case of a dispute between the parties regarding the existence of a breach by
Landlord as described in this Paragraph 10, in which event the parties shall
submit such dispute to arbitration as herein described. Base Rent and Additional
Rent shall not be diminished during the period of notice or repair. In the event
that any dispute regarding the existence of a breach by Landlord of this
paragraph cannot be resolved by the parties within a reasonable period of time,
Landlord and Tenant shall submit such dispute to arbitration in accordance with
Paragraph 39.F hereof. Notwithstanding the right of Tenant under this paragraph
or Paragraph 11 to make repairs, should such repair or other maintenance as
undertaken by Tenant affect any operation or part of the Building in an adverse
manner so that Landlord shall have to correct such effect, Tenant shall be
solely liable and responsible for Landlord's cost of returning the Building or
system or operation to proper condition. Subject to punchlist items, by taking
possession of the Premises, Tenant accepts them "as is," as being in good order,
condition and repair and the condition in which Landlord is obligated to deliver
them and suitable for the Permitted Use and Tenant's intended operations in the
Premises, whether or not any notice of acceptance is given.
11. TENANT'S REPAIRS AND MAINTENANCE
Tenant shall at all times during the Term at Tenant's expense maintain all
parts of the Premises and such portions of the Building as are within the
exclusive control of Tenant (except to the extent such repair and maintenance
obligations are express obligations of Landlord as described in Paragraph 10
hereof) in a first-class, good, clean and secure condition and promptly make all
necessary repairs and replacements, as reasonably determined by Landlord, with
materials and workmanship of the generally equivalent character, kind and
quality as the original. Notwithstanding anything to the contrary contained
herein, Tenant shall, at its expense, promptly repair any damage to the Premises
or the Building or Project resulting from or caused by any negligence or act of
Tenant or Tenant's Parties.
12. ALTERATIONS
A. Tenant shall not make, or allow to be made, any alterations, physical
additions, improvements or partitions, including without limitation the
attachment of any fixtures or equipment, in, about or to the Premises
("ALTERATIONS") without obtaining the prior written consent of Landlord, which
consent shall not be unreasonably withheld with respect to proposed Alterations
which: (a) comply with all applicable Regulations; (b) are, in Landlord's
opinion, compatible with the Building or the Project and its mechanical,
plumbing, electrical, heating/ventilation/air conditioning systems, and will not
cause the Building or Project or such systems to be required to be modified to
comply with any Regulations (including, without limitation, the Americans With
Disabilities Act); and (c) will not interfere with the use and occupancy of any
other portion of the Building or Project by any other tenant or its invitees.
Specifically, but without limiting the generality of the foregoing, Landlord
shall have the right of written consent for all plans and specifications for the
proposed Alterations, construction means and methods, all appropriate permits
and licenses, any contractor or subcontractor to be employed on the work of
Alterations, and the time for performance of such work, and may impose rules and
regulations for contractors and subcontractors performing such work. Tenant
shall also supply to Landlord any documents and information reasonably requested
by Landlord in connection with Landlord's consideration of a request for
approval hereunder. Notwithstanding the foregoing, Tenant shall have the right,
without consent of, but upon at least ten (10) business days' prior written
notice (as provided under Paragraph 12.B below) to, Landlord, to make
non-structural, cosmetic Alterations within the interior of the Premises (and
which are not visible from the outside of the Premises), which do not impair the
value of the Building, and which cost, in the aggregate, less than Fifty
Thousand and No/100 Dollars ($50,000.00) in any twelve (12) month period during
the Term of this Lease a "PERMITTED ALTERATION"), provided that such Alterations
shall nevertheless be subject to all of the remaining requirements of this
Paragraph 12, including without limitation, subparagraphs (a) through (c) above
and payment of the administration fee referred to in this Paragraph 12.A, other
than the requirement of Landlord's prior consent. In addition, all Alterations
shall be performed by duly licensed contractors or subcontractors reasonably
acceptable to Landlord, proof of insurance shall be submitted to Landlord as
required under Paragraph 8.B above, and Landlord reserves the right to impose
reasonable rules and regulations for contractors and subcontractors. Tenant
shall, if requested by Landlord, promptly furnish Landlord with complete
as-built plans and specifications for any Alterations performed by Tenant to the
Premises, at Tenant's sole cost and expense. Tenant shall cause all Alterations
to be accomplished in a first-class, good and workmanlike manner, and to comply
with all applicable Regulations and Paragraph 27 hereof. Tenant shall at
Tenant's sole expense, perform any additional work required under applicable
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Regulations due to the Alterations hereunder. No review or consent by Landlord
of or to any proposed Alteration or additional work shall constitute a waiver of
Tenant's obligations under this Paragraph 12, nor constitute any warranty or
representation that the same complies with all applicable Regulations, for which
Tenant shall at all times be solely responsible. Tenant shall reimburse Landlord
for all costs which Landlord may incur in connection with granting approval to
Tenant for any such Alterations, including any actual and reasonable costs or
expenses which Landlord may incur in electing to have outside architects and
engineers review said plans and specifications, and shall pay Landlord as
Additional Rent hereunder an administration fee not to exceed ten percent (10%)
of the cost of the Alterations, which amount shall be negotiated in good faith
by the parties at the time Landlord consents to Tenant's request, or in the
event of a Permitted Alteration, at the time Tenant informs Landlord of such
Permitted Alteration. All such Alterations shall remain the property of Tenant
until the expiration or earlier termination of this Lease, at which time they
shall be and become the property of Landlord; provided, however, that Landlord
may, at Landlord's option, require that Tenant, at Tenant's expense, remove any
or all Alterations made by Tenant and restore the Premises by the expiration or
earlier termination of this Lease, to their condition existing prior to the
construction of any such Alterations. All such removals and restoration shall be
accomplished in a first-class and good and workmanlike manner so as not to cause
any damage to the Premises or Project whatsoever. If Tenant fails to remove such
Alterations or Tenant's trade fixtures or furniture or other personal property,
Landlord may keep and use them or remove any of them and cause them to be stored
or sold in accordance with applicable law, at Tenant's sole expense. In addition
to and wholly apart from Tenant's obligation to pay Tenant's Proportionate Share
of Operating Expenses, Tenant shall be responsible for and shall pay prior to
delinquency any taxes or governmental service fees, possessory interest taxes,
fees or charges in lieu of any such taxes, capital levies, or other charges
imposed upon, levied with respect to or assessed against its fixtures or
personal property, on the value of Alterations within the Premises, and on
Tenant's interest pursuant to this Lease, or any increase in any of the
foregoing based on such Alterations. To the extent that any such taxes are not
separately assessed or billed to Tenant, Tenant shall pay the amount thereof as
invoiced to Tenant by Landlord.
In addition, at Landlord's election and notwithstanding the foregoing, however,
Tenant shall pay to Landlord the cost of removing any such Alterations
(excluding those which Tenant shall not be required to remove as provided in
Paragraph 12.C below) and restoring the Premises to their original condition
such cost to include a reasonable charge for Landlord's overhead and profit as
provided above, and such amount may be deducted from the Security Deposit or any
other sums or amounts held by Landlord under this Lease.
B. In compliance with Paragraph 27 hereof, at least ten (10) business days
before beginning construction of any Alteration, Tenant shall give Landlord
written notice of the expected commencement date of that construction to permit
Landlord to post and record a notice of non-responsibility. Upon substantial
completion of construction, if the law so provides, Tenant shall cause a timely
notice of completion to be recorded in the office of the recorder of the county
in which the Building is located.
C. Notwithstanding anything to the contrary contained in Paragraph 12.A, at the
time Landlord gives its consent for any Alterations after the initial tenant
improvements, Tenant shall also be notified whether or not Landlord will require
that such Alterations be removed upon the expiration or earlier termination of
this Lease. If Landlord fails to so notify Tenant, it shall be assumed that
Landlord will NOT require their removal.
13. SIGNS
Tenant shall not place, install, affix, paint or maintain any signs, notices,
graphics or banners whatsoever or any window decor which is visible in or from
public view or corridors, the common areas or the exterior of the Premises or
the Building, in or on any exterior window or window fronting upon any common
areas or service area without Landlord's prior written approval which Landlord
shall have the right to withhold in its absolute and sole discretion; provided
that Tenant's name shall be included in any Building-standard door and directory
signage, if any, in accordance with Landlord's Building signage program,
including without limitation, payment by Tenant of any cost for maintaining such
signage, which fee shall constitute Additional Rent hereunder. Any installation
of signs, notices, graphics or banners on or about the Premises or Project
approved by Landlord shall be subject to any Regulations and to any other
requirements imposed by Landlord. Tenant shall remove all such signs or graphics
by the expiration or any earlier termination of this Lease or by Tenant's
vacation of the Premises. Such installations and removals shall be made in such
manner as to avoid injury to or defacement of the Premises, Building or Project
and any other improvements contained therein, and Tenant shall repair any injury
or defacement including without limitation discoloration caused by such
installation or removal. Any signage rights granted by Landlord to Tenant shall
be exclusive to Tenant and such rights shall not be assigned, subleased or
otherwise conveyed without the prior written approval of Landlord of which
Landlord shall have the right to withhold in its absolute and sole discretion.
Tenant shall be entitled to one (1) temporary sign to be located on the Building
A monument as determined by Landlord. Such sign will be designed, constructed
and installed at Tenant's sole cost and expense. All signs shall be subject to
Landlord's approval, which Landlord shall have the right to withhold in its
absolute and sole discretion, and approval of any public authorities having
jurisdiction. Tenant shall be responsible to maintain the sign in its original
condition. Tenant's temporary sign shall at all times remain the property of
Tenant and, upon written request by Landlord after Tenant's occupancy of the
Building B Premises, Tenant must remove such temporary sign. Tenant shall repair
any damage caused in the removal of its temporary Building A monument sign.
Tenant's signage rights under this Paragraph are personal to the original Tenant
named in this Lease and shall not inure to the benefit of any assignees or
subtenants. Notwithstanding anything contained in this Paragraph 13 to the
contrary, Tenant shall be entitled to three (3) signs to be located as follows
(a) one (1) sign on the precast concrete panel above the third floor window line
at the southwest corner of the most southern facade of Building B; and (b) one
(1) sign on the precast concrete panel above the third floor window line at the
northwest corner of the most western facade of Building B; and (c) one (1)
monument sign for Building B, each as depicted on EXHIBIT D attached hereto.
Such signage right is personal to Tenant and subject to the following terms and
conditions:
1. Tenant shall submit plans and drawings for such signage to the
City of San Carlos and to any other public authorities having
jurisdiction and shall obtain written approval from each such
jurisdiction prior to installation, and shall fully comply
with all applicable Regulations
2. Tenant shall, at Tenant's sole cost and expense, design,
construct and install such signage.
3. All signs shall be subject to Landlord's prior written
approval, which Landlord shall have the right to withhold in
its absolute and sole discretion.
4. Tenant shall maintain its signage in good condition and
repair, and all costs of maintenance and repair shall be borne
by Tenant. Maintenance shall include, without limitation,
cleaning and, if such signage is illuminated, relamping at
reasonable intervals. Tenant shall be responsible for any
electrical energy used in connection with its signs.
5. At Landlord's option, Tenant's signage rights granted hereby
may be revoked and terminated upon occurrence of any of the
following events:
(a) Tenant shall be in material default, as defined in
paragraph 26 as determined by Landlord in its sole
discretion, and shall not have cured said default for a
period of ninety (90) days.
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(b) Except with respect to Permitted Transfers described in
Paragraph 21.A(3) hereof, Tenant shall assign this Lease
or sublet any portion of the Premises without Landlord's
prior written consent in accordance with Paragraph 21,
or Tenant occupies less than sixty-five percent (65%) of
the Premises in Building B.
(c) This Lease shall terminate or otherwise no longer be in
effect.
6. Upon the expiration or earlier termination of this Lease or at
such other time that Tenant's signage rights are terminated
pursuant to the terms hereof, Landlord shall cause Tenant's
signage to be removed from the Building and the Building to be
repaired and restored to the condition which existed prior to
the installation of Tenant's signage (including, if necessary,
the replacement of any precast concrete panels), all at the
sole cost and expense of Tenant and otherwise in accordance
with Paragraph 36 of this Lease, without further notice from
Landlord notwithstanding anything to the contrary contained in
this Lease. Tenant shall pay all costs and expenses for such
removal and restoration within thirty (30) days following
delivery of an invoice therefor.
14. INSPECTION/POSTING NOTICES
After reasonable notice, except in emergencies where no such notice shall be
required, Landlord and Landlord's agents and representatives, shall have the
right to enter the Premises to inspect the same, to clean, to perform such work
as may be permitted or required hereunder, to make repairs, improvements or
alterations to the Premises, Building or Project or to other tenant spaces
therein, to deal with emergencies, to post such notices as may be permitted or
required by law to prevent the perfection of liens against Landlord's interest
in the Project or to exhibit the Premises to prospective tenants, purchasers,
encumbrancers or to others, or for any other purpose as Landlord may deem
necessary or desirable; provided, however, that Landlord shall use reasonable
efforts not to unreasonably interfere with Tenant's business operations. Tenant
shall not be entitled to any abatement of Rent by reason of the exercise of any
such right of entry, except to the extent Landlord receives insurance proceeds.
Tenant waives any claim for damages for any injury or inconvenience to or
interference with Tenant's business, any loss of occupancy or quiet enjoyment of
the Premises, and any other loss occasioned thereby. Landlord shall at all times
have and retain a key with which to unlock all of the doors in, upon and about
the Premises, excluding Tenant's vaults and safes or special security areas
(designated in advance), and Landlord shall have the right to use any and all
means which Landlord may deem necessary or proper to open said doors in an
emergency, in order to obtain entry to any portion of the Premises, and any
entry to the Premises or portions thereof obtained by Landlord by any of said
means, or otherwise, shall not be construed to be a forcible or unlawful entry
into, or a detainer of, the Premises, or an eviction, actual or constructive, of
Tenant from the Premises or any portions thereof. At any time within six (6)
months prior to the expiration of the Term or following any earlier termination
of this Lease or agreement to terminate this Lease, Landlord shall have the
right to erect on the Premises, Building and/or Project a suitable sign
indicating that the Premises are available for lease.
15. SERVICES AND UTILITIES
A. Subject to the provisions elsewhere herein contained, Landlord shall furnish
to the Premises during ordinary business hours of generally recognized business
days, to be determined by Landlord (but exclusive, in any event, of Saturdays,
Sundays and legal holidays), water for lavatory and drinking purposes and
electricity, heat and air conditioning as usually furnished or supplied for use
of the Premises for reasonable and normal office use as of the date Tenant takes
possession of the Premises as determined by Landlord (but not including
above-standard or continuous cooling for excessive heat-generating machines,
excess lighting or equipment), janitorial services during the times and in the
manner that such services are, in Landlord's judgment, customarily furnished in
comparable office buildings in the immediate market area, and elevator service.
Subject to Paragraph 7.A hereof, Landlord shall make available to the Premises
twenty-four (24) hours per day, seven (7) days per week, electric current as
required for operation of the Premises for the Permitted Use for normal lighting
and office business machines and water to the Premises for drinking and lavatory
purposes in such amounts as required for the comfortable use of the Premises.
Provided Tenant is not in material default beyond any applicable cure period,
Landlord shall provide additional or after-hours electricity, heating or air
conditioning as provided herein. With respect to the Building A Premises, any
such after-hours use of such utilities or other services will be made available
and will be billed as an after-hours Rent assessment. After-hours use may be
metered by Landlord with a bypass timer located on the applicable floors of
Building A or through establishment of a recognized monthly after-hours
assessment based upon Landlord's estimate of Tenant's usage. Such costs will be
payable by Tenant to Landlord within thirty (30) days after demand as Additional
Rent. The minimum amount of after-hours usage shall be two (2) hours, and the
cost thereof shall not exceed Twenty-Five Dollars ($ 25.00) per hour per floor
of the Building A Premises during the initial year of the Lease Term, subject to
adjustment thereafter to reflect increases in the cost of such utilities or
services. Tenant is hereby authorized to contract directly with Pacific Gas &
Electric Company with respect only to the Building B Premises, Tenant agrees at
all times to cooperate fully with Landlord and to abide by all of the
regulations and requirements which Landlord may prescribe for the proper
functioning and protection of electrical, heating, ventilating and air
conditioning systems. Wherever heat-generating machines, excess lighting or
equipment are used in the Premises which affect the temperature otherwise
maintained by the air conditioning system, Landlord reserves the right to
install supplementary air conditioning units in the Premises and the cost
thereof, including the cost of installation and the cost of operation and
maintenance thereof, shall be paid by Tenant to Landlord upon demand by
Landlord. Tenant acknowledges and agrees that Tenant's use of the Building A
Premises after ordinary business hours and outside of generally recognized
business days (generally recognized business days shall not include Saturdays,
Sundays, and legal holidays) imposes additional burden on Building A's
janitorial services, fluorescent light tubes, HVAC and electrical service, and
other common area utilities and services.
B. Tenant shall not without written consent of Landlord use any apparatus,
equipment or device in the Premises, including without limitation, computers,
electronic data processing machines, copying machines, and other machines, using
excess lighting or using electric current, water, or any other resource in
excess of or which will in any way increase the amount of electricity, water, or
any other resource being furnished or supplied for the use of the Premises for
reasonable and normal office use, and the Permitted Use, in each case as of the
date Tenant takes possession of the Premises as determined by Landlord, or which
will require additions or alterations to or interfere with the Building power
distribution systems; nor connect with electric current, except through existing
electrical outlets in the Premises or water pipes, any apparatus, equipment or
device for the purpose of using electrical current, water, or any other
resource. If Tenant shall require water or electric current or any other
resource in excess of that being furnished or supplied for the use of the
Premises as of the date Tenant takes possession of the Premises as determined by
Landlord, Tenant shall first procure the written consent of Landlord which
Landlord may refuse, to the use thereof, and Landlord may cause a special meter
to be installed in the Premises so as to measure the amount of water, electric
current or other resource consumed for any such other use. Tenant shall pay
directly to Landlord as an addition to and separate from payment of Operating
Expenses the cost of all such additional resources, energy, utility service and
meters (and of installation, maintenance and repair thereof and of any
additional circuits or other equipment necessary to furnish such additional
resources, energy, utility or service). Landlord may add to the separate or
metered charge a recovery of additional expense incurred in keeping account of
the excess water, electric current or other resource so consumed. Landlord shall
not be liable for any damages directly or indirectly resulting from nor shall
the Rent or any monies owed Landlord under this Lease herein reserved be abated
by reason of: (a) the installation, use or interruption of use of any equipment
used in connection with the furnishing of any such utilities or services, or any
change in the character or means of supplying or providing any such utilities or
services or any supplier thereof; (b) the failure to furnish or delay in
furnishing any such utilities or services when such failure or delay is caused
by acts of God or the elements, labor disturbances of any character, or any
other accidents or other conditions beyond the reasonable control of Landlord or
because of any interruption of
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service due to Tenant's use of water, electric current or other resource in
excess of that being supplied or furnished for the use of the Premises as of the
date Tenant takes possession of the Premises; (c) the inadequacy, limitation,
curtailment, rationing or restriction on use of water, electricity, gas or any
other form of energy or any other service or utility whatsoever serving the
Premises or Project, whether by Regulation or otherwise; or (d) the partial or
total unavailability of any such utilities or services to the Premises or the
Building, whether by Regulation or otherwise; nor shall any such occurrence
constitute an actual or constructive eviction of Tenant. Landlord shall further
have no obligation to protect or preserve any apparatus, equipment or device
installed by Tenant in the Premises, including without limitation by providing
additional or after-hours heating or air conditioning, except as otherwise
provided in this Lease. Landlord shall be entitled to cooperate voluntarily and
in a reasonable manner with the efforts of national, state or local governmental
agencies or utility suppliers in reducing energy or other resource consumption.
The obligation to make services available hereunder shall be subject to the
limitations of any such voluntary, reasonable program. Notwithstanding the
foregoing, if Tenant is prevented from using, and does not use, all or part of
the Premises (the "AFFECTED AREA") as a result of a Essential Services
Interruption Event as defined below, and the remaining portions of the Premises
are not reasonably sufficient to allow Tenant to conduct its business in the
Premises and if this Essential Services Interruption Event continues for three
(3) consecutive business days after Landlord's receipt of notice from Tenant of
the Essential Services Interruption Event (the "ELIGIBILITY PERIOD"), the Rent
payable under this Lease shall be abated after the expiration of the Eligibility
Period for such time that Tenant continues to be prevented from using, and does
not use, the Affected Area in the proportion that the rentable area of the
Affected Area bears to the total rentable area of the Premises to the extent
that Landlord receives insurance proceeds. If, however, Tenant reoccupies any
portion of the Premises during this period, the Rent allocable to this
reoccupied portion (based on the proportion that the rentable area of the
reoccupied portion of the Premises bears to the total rentable area of the
Premises) shall be payable by Tenant from the date on which Tenant reoccupies
this portion of the Premises. A "ESSENTIAL SERVICES INTERRUPTION EVENT" shall
mean the failure of or interruption in essential services required to be
supplied by Landlord to the Premises during ordinary business hours (7:00 a.m.
to 6:00 p.m.) of generally recognized business days which occurs solely as a
result of Landlord's or Landlord's agents', employees' or invitees', active
negligence or willful misconduct. In the event of a stoppage or interruption of
services, Landlord shall diligently attempt to resume such services as promptly
as practicable. In addition, Landlord reserves the right to change the supplier
or provider of any such utility or service from time to time. Tenant shall have
no right to contract with or otherwise obtain any electrical or other such
service for or with respect to the Premises or Tenant's operations therein from
any supplier or provider of any such service. Tenant shall cooperate with
Landlord and any supplier or provider of such services designated by Landlord
from time to time to facilitate the delivery of such services to Tenant at the
Premises and to the Building and Project, including without limitation allowing
Landlord and Landlord's suppliers or providers, and their respective agents and
contractors, reasonable access to the Premises for the purpose of installing,
maintaining, repairing, replacing or upgrading such service or any equipment or
machinery associated therewith.
C. Tenant shall pay, within thirty (30) days after demand, for all utilities
furnished to the Building A Premises, or if not separately billed to or metered
to Tenant, Tenant's Proportionate Share of all charges jointly serving the
Project in accordance with Paragraph 7. All sums payable under this Paragraph 15
shall constitute Additional Rent hereunder.
16. SUBORDINATION
Without the necessity of any additional document being executed by Tenant for
the purpose of effecting a subordination, this Lease shall be and is hereby
declared to be subject and subordinate at all times to: (a) all ground leases or
underlying leases which may now exist or hereafter be executed affecting the
Premises and/or the land upon which the Premises and Project are situated, or
both; and (b) any mortgage or deed of trust which may now exist or be placed
upon the Building, the Project and/or the land upon which the Premises or the
Project are situated, or said ground leases or underlying leases, or Landlord's
interest or estate in any of said items which is specified as security.
Notwithstanding the foregoing, Landlord shall have the right to subordinate or
cause to be subordinated any such ground leases or underlying leases or any such
liens to this Lease. If any ground lease or underlying lease terminates for any
reason or any mortgage or deed of trust is foreclosed or a conveyance in lieu of
foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination, attorn to and become the Tenant of the successor in interest to
Landlord provided that Tenant shall not be disturbed in its possession under
this Lease by such successor in interest so long as Tenant is not in default
under this Lease. Within ten (10) days after request by Landlord, Tenant shall
execute and deliver any additional documents evidencing Tenant's attornment or
the subordination of this Lease with respect to any such ground leases or
underlying leases or any such mortgage or deed of trust, in the form requested
by Landlord or by any ground landlord, mortgagee, or beneficiary under a deed of
trust, subject to such nondisturbance requirement. If requested in writing by
Tenant, Landlord shall use commercially reasonable efforts to obtain a
subordination, nondisturbance and attornment agreement for the benefit of Tenant
reflecting the foregoing from any ground landlord, mortgagee or beneficiary, at
Tenant's expense, subject to such other terms and conditions as the ground
landlord, mortgagee or beneficiary may require.
17. FINANCIAL STATEMENTS
At the request of Landlord from time to time, Tenant shall provide to Landlord
Tenant's and any guarantor's audited current financial statements or other
information discussing financial worth of Tenant and any guarantor, which
Landlord shall use solely for purposes of this Lease and in connection with the
ownership, management, financing and disposition of the Project. So long as
Tenant is a publicly traded company as described in Paragraph 21.C below,
Tenant's quarterly and annual published financial statements shall satisfy the
requirements of this Paragraph 17.
18. ESTOPPEL CERTIFICATE
Tenant agrees from time to time, within ten (10) business days after request of
Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that this Lease is in full force and effect, that this Lease
has not been modified (or stating all modifications, written or oral, to this
Lease), the date to which Rent has been paid, the unexpired portion of this
Lease, that there are no current defaults by Landlord or Tenant under this Lease
(or specifying any such defaults), that the leasehold estate granted by this
Lease is the sole interest of Tenant in the Premises and/or the land at which
the Premises are situated, and such other matters pertaining to this Lease as
may be reasonably requested by Landlord or any mortgagee, beneficiary, purchaser
or prospective purchaser of the Building or Project or any interest therein.
Failure by Tenant to execute and deliver such certificate shall constitute an
acceptance of the Premises and acknowledgment by Tenant that the statements
included are true and correct without exception. Tenant agrees that if Tenant
fails to execute and deliver such certificate within such ten (10) day period,
Landlord may execute and deliver such certificate on Tenant's behalf and that
such certificate shall be binding on Tenant. Landlord and Tenant intend that any
statement delivered pursuant to this Paragraph may be relied upon by any
mortgagee, beneficiary, purchaser or prospective purchaser of the Building or
Project or any interest therein. The parties agree that Tenant's obligation to
furnish such estoppel certificates in a timely fashion is a material inducement
for Landlord's execution of this Lease, and shall be an event of default
(without any cure period that might be provided under Paragraph 26.A(3) of this
Lease) if Tenant fails to fully comply or makes any material misstatement in any
such certificate.
19. SECURITY DEPOSIT
Tenant agrees to deposit with Landlord upon execution of this Lease, a cash
security deposit as stated in the Basic Lease Information and the security
described in Paragraph 39.B at the times and in the amounts described in such
paragraph (the "SECURITY DEPOSIT"), which sum shall be held and owned by
Landlord, without obligation to pay interest, as security for the performance of
Tenant's covenants and obligations under this Lease. The Security Deposit is not
an advance rental deposit or a measure of damages incurred by Landlord in case
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of Tenant's default. Upon the occurrence of any event of default by Tenant,
Landlord may from time to time, without prejudice to any other remedy provided
herein or by law, use such fund as a credit to the extent necessary to credit
against any arrears of Rent or other payments due to Landlord hereunder, and any
other damage, injury, expense or liability caused by such event of default, and
Tenant shall pay to Landlord, on demand, the amount so applied in order to
restore the Security Deposit to its original amount. Although the Security
Deposit shall be deemed the property of Landlord, any remaining balance of such
deposit shall be returned by Landlord to Tenant at such time after termination
of this Lease that all of Tenant's obligations under this Lease have been
fulfilled, reduced by such amounts as may be required by Landlord to remedy
defaults on the part of Tenant in the payment of Rent or other obligations of
Tenant under this Lease, to repair damage to the Premises, Building or Project
caused by Tenant or any Tenant's Parties and to clean the Premises. Landlord may
use and commingle the Security Deposit with other funds of Landlord.
20. LIMITATION OF TENANT'S REMEDIES
The obligations and liability of Landlord to Tenant for any default by Landlord
under the terms of this Lease are not personal obligations of Landlord or of the
individual or other partners of Landlord or its or their partners, directors,
officers, or shareholders, and Tenant agrees to look solely to Landlord's
interest in the Project for the recovery of any amount from Landlord, and shall
not look to other assets of Landlord nor seek recourse against the assets of the
individual or other partners of Landlord or its or their partners, directors,
officers or shareholders. Any lien obtained to enforce any such judgment and any
levy of execution thereon shall be subject and subordinate to any lien, mortgage
or deed of trust on the Project. Under no circumstances shall Tenant have the
right to offset against or recoup Rent or other payments due and to become due
to Landlord hereunder except as expressly provided in this Lease, which Rent and
other payments shall be absolutely due and payable hereunder in accordance with
the terms hereof.
21. ASSIGNMENT AND SUBLETTING
A. (1) GENERAL. This Lease has been negotiated to be and is granted as an
accommodation to Tenant. Accordingly, this Lease is personal to Tenant,
and Tenant's rights granted hereunder do not include the right to
assign this Lease or sublease the Premises, or to receive any excess,
either in installments or lump sum, over the Rent which is expressly
reserved by Landlord as hereinafter provided, except as otherwise
expressly hereinafter provided. Tenant shall not assign or pledge this
Lease or sublet the Premises or any part thereof, whether voluntarily
or by operation of law, or permit the use or occupancy of the Premises
or any part thereof by anyone other than Tenant, or suffer or permit
any such assignment, pledge, subleasing or occupancy, without
Landlord's prior written consent except as provided herein. If Tenant
desires to assign this Lease or sublet any or all of the Premises,
Tenant shall give Landlord written notice (the "TRANSFER NOTICE") at
least thirty (30) days prior to the anticipated effective date of the
proposed assignment or sublease, which shall contain all of the
information reasonably requested by Landlord to address Landlord's
decision criteria specified hereinafter. Landlord shall then have a
period of twenty (20) days following receipt of the Transfer Notice to
notify Tenant in writing that Landlord elects either: (i) to terminate
this Lease as to the space so affected as of the date so requested by
Tenant; or (ii) to consent to the proposed assignment or sublease,
subject, however, to Landlord's prior written consent of the proposed
assignee or subtenant and of any related documents or agreements
associated with the assignment or sublease. If Landlord should fail to
notify Tenant in writing of such election within said period, Landlord
shall be deemed to have waived option (i) above, but written consent by
Landlord of the proposed assignee or subtenant shall still be required.
If Landlord does not exercise option (i) above, Landlord's consent to a
proposed assignment or sublease shall not be unreasonably withheld.
Consent to any assignment or subletting shall not constitute consent to
any subsequent transaction to which this Paragraph 21 applies.
Notwithstanding the foregoing, Landlord hereby waives its right to
recapture all or a portion of the Premises, as such right is described
in clause (i) above, in the following circumstance only: (X) Such
proposed sublease shall commence during the first thirty-six (36)
months of the Term of this Lease, and (Y) the term of such proposed
sublease shall expire before the expiration of the forty-second (42nd)
month following the Building A Premsies Term Commencement Date and no
extension options shall be granted in such sublease. In the event both
clauses (X) and (Y) above are met to Landlord's sole satisfaction, the
terms of Paragraph 21.B below shall apply provided, however, with
respect to the division of bonus rent, Tenant shall be entitled to
one-hundred percent (100%) thereof.
(2) CONDITIONS OF LANDLORD'S CONSENT. Without limiting the other instances
in which it may be reasonable for Landlord to withhold Landlord's
consent to an assignment or subletting, Landlord and Tenant acknowledge
that it shall be reasonable for Landlord to withhold Landlord's consent
in the following instances: if the proposed assignee does not agree to
be bound by and assume the obligations of Tenant under this Lease in
form and substance satisfactory to Landlord; the use of the Premises by
such proposed assignee or subtenant would not be a Permitted Use or
would violate any exclusivity or other arrangement which Landlord has
with any other tenant or occupant or any Regulation or would increase
the Occupancy Density or Parking Density of the Building or Project, or
would otherwise result in an undesirable tenant mix for the Project as
determined by Landlord; the proposed assignee or subtenant is not of
sound financial condition as determined by Landlord in Landlord's
reasonable discretion; the proposed assignee or subtenant is a
governmental agency; the proposed assignee or subtenant does not have a
good reputation as a tenant of property or a good business reputation;
the proposed assignee or subtenant is a person with whom Landlord is
negotiating to lease space in the Project or is a present tenant of the
Project; the assignment or subletting would entail any Alterations
which would lessen the value of the leasehold improvements in the
Premises or use of any Hazardous Materials or other noxious use or use
which may disturb other tenants of the Project; or Tenant is in default
of any material obligation of Tenant under this Lease, or Tenant has
defaulted under this Lease on three (3) or more occasions during any
twelve (12) months preceding the date that Tenant shall request
consent. Failure by or refusal of Landlord to consent to a proposed
assignee or subtenant shall not cause a termination of this Lease. Upon
a termination under Paragraph 21.A.(1)(i), Landlord may lease the
Premises to any party, including parties with whom Tenant has
negotiated an assignment or sublease, without incurring any liability
to Tenant. At the option of Landlord, a surrender and termination of
this Lease shall operate as an assignment to Landlord of some or all
subleases or subtenancies. Landlord shall exercise this option by
giving notice of that assignment to such subtenants on or before the
effective date of the surrender and termination. In connection with
each request for assignment or subletting, Tenant shall pay to Landlord
Landlord's standard fee for approving such requests, which amount shall
not exceed One Thousand Five Hundred and No/100 Dollars ($1,500.00), as
well as all costs incurred by Landlord or any mortgagee or ground
lessor in approving each such request and effecting any such transfer,
including, without limitation, reasonable attorneys' fees.
(3) PERMITTED TRANSFERS. An "Affiliate" means any entity that (i) controls,
is controlled by, or is under common control with Tenant (ii) results
from the transfer of all or substantially all of Tenant's assets or
stock, or (iii) results from the merger or consolidation of Tenant with
another entity. "Control," as used in the previous sentence, means the
direct or indirect ownership of more than fifty percent (50%) of the
voting securities of an entity or possession of the right to vote more
than fifty percent (50%) of the voting interest in the ordinary
direction of the entity's affairs. Notwithstanding anything to the
contrary contained in this Lease, Landlord's consent is not required
for any assignment of this Lease or sublease of all or a portion of the
Premises to an Affiliate so long as the following conditions are met (a
"PERMITTED TRANSFER"): (a) at least ten (10) business days before any
such assignment or sublease, Landlord receives written notice of such
assignment or sublease (as well as any documents or information
reasonably requested by Landlord regarding the proposed intended
transfer and the transferee); (b) Tenant is not then and has not been
in material default under this Lease; (c) if the transfer is an
assignment or any other transfer to an Affiliate
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other than a sublease, the intended assignee assumes in writing all of
Tenant's obligations under this Lease relating to the Premises in form
satisfactory to Landlord or, if the transfer is a sublease, the
intended sublessee accepts the sublease in form satisfactory to
Landlord; (d) the intended transferee has a tangible net worth, as
evidenced by financial statements delivered to Landlord and certified
by an independent certified public accountant in accordance with
generally accepted accounting principles that are consistently applied,
at least equal to an amount that would allow such proposed transferee
to meet all of Tenant's obligations under the this Lease for the
remainder of the Term, as such amount is determined by Landlord in its
sole discretion; (e) the Premises shall continue to be operated solely
for the use specified in the Basic Lease Information; and (f) Tenant
shall pay to Landlord Landlord's standard fee for approving assignments
and subleases and all costs reasonably incurred by Landlord or any
mortgagee or ground lessor for such assignment or subletting,
including, without limitation, reasonable attorneys' fees. No transfer
to an Affiliate in accordance with this subparagraph shall relieve
Tenant named herein of any obligation under this Lease or alter the
primary liability of Tenant named herein for the payment of Rent or for
the performance of any other obligation to be performed by Tenant,
including the obligations contained in Paragraph 25 with respect to any
Affiliate.
B. BONUS RENT. Subject to Paragraph 21.A (1) above, Any Rent or other
consideration realized by Tenant under any such sublease or assignment in excess
of the Rent payable hereunder (excluding consideration for the use of Tenant's
telephone system, furniture or other services or equipment provided by Tenant to
the proposed sublessee during the term of the proposed sublease, provided that
such exclusions are made in good faith and are not above the market value for
such equipment and/or services, as such market value is reasonably determined by
Landlord and Tenant), after amortization of a reasonable brokerage commission
and the reasonable, actual out of pocket costs of tenant improvements made
solely in connection with the sublease or assignment and incurred by Tenant,
shall be divided and paid, ten percent (10%) to Tenant, ninety percent (90%) to
Landlord. In any subletting or assignment undertaken by Tenant, Tenant shall
diligently seek to obtain the maximum rental amount available in the marketplace
for comparable space available for primary leasing.
C. CORPORATION. If Tenant is a corporation, a transfer of corporate shares by
sale, assignment, bequest, inheritance, operation of law or other disposition
(including such a transfer to or by a receiver or trustee in federal or state
bankruptcy, insolvency or other proceedings) resulting in a change in the
present control of such corporation or any of its parent corporations by the
person or persons owning a majority of said corporate shares, shall constitute
an assignment for purposes of this Lease. Notwithstanding anything to the
contrary in this Lease, the transfer of outstanding capital stock or other
listed equity interests, or the purchase of outstanding capital stock or other
listed equity interests, or the purchase of equity interests issued in an
initial public offering of stock, by persons or parties other than "insiders"
within the meaning of the Securities Exchange Act of 1934, as amended, through
the "over-the-counter" market or any recognized national or international
securities exchange shall not be included in determining whether control has
been transferred.
D. UNINCORPORATED ENTITY. If Tenant is a partnership, joint venture,
unincorporated limited liability company or other unincorporated business form,
a transfer of the interest of persons, firms or entities responsible for
managerial control of Tenant by sale, assignment, bequest, inheritance,
operation of law or other disposition, so as to result in a change in the
present control of said entity and/or of the underlying beneficial interests of
said entity and/or a change in the identity of the persons responsible for the
general credit obligations of said entity shall constitute an assignment for all
purposes of this Lease.
E. LIABILITY. No assignment or subletting by Tenant, permitted or otherwise,
shall relieve Tenant of any obligation under this Lease or alter the primary
liability of the Tenant named herein for the payment of Rent or for the
performance of any other obligations to be performed by Tenant, including
obligations contained in Paragraph 25 with respect to any assignee or subtenant.
Landlord may collect rent or other amounts or any portion thereof from any
assignee, subtenant, or other occupant of the Premises, permitted or otherwise,
and apply the net rent collected to the Rent payable hereunder, but no such
collection shall be deemed to be a waiver of this Paragraph 21, or the
acceptance of the assignee, subtenant or occupant as tenant, or a release of
Tenant from the further performance by Tenant of the obligations of Tenant under
this Lease. Any assignment or subletting which conflicts with the provisions
hereof shall be void.
22. AUTHORITY
Landlord represents and warrants that it has full right and authority to enter
into this Lease and to perform all of Landlord's obligations hereunder and that
all persons signing this Lease on its behalf are authorized to do. Tenant and
the person or persons, if any, signing on behalf of Tenant, jointly and
severally represent and warrant that Tenant has full right and authority to
enter into this Lease, and to perform all of Tenant's obligations hereunder, and
that all persons signing this Lease on its behalf are authorized to do so.
23. CONDEMNATION
A. CONDEMNATION RESULTING IN TERMINATION. If the whole or any substantial part
of the Premises should be taken or condemned for any public use under any
Regulation, or by right of eminent domain, or by private purchase in lieu
thereof, and the taking would prevent or materially interfere with the Permitted
Use of the Premises, either party shall have the right to terminate this Lease
at its option. If any material portion of the Building or Project is taken or
condemned for any public use under any Regulation, or by right of eminent
domain, or by private purchase in lieu thereof, Landlord may terminate this
Lease at its option. In either of such events, the Rent shall be abated during
the unexpired portion of this Lease, effective when the physical taking of said
Premises shall have occurred.
B. CONDEMNATION NOT RESULTING IN TERMINATION. If a portion of the Project of
which the Premises are a part should be taken or condemned for any public use
under any Regulation, or by right of eminent domain, or by private purchase in
lieu thereof, and the taking prevents or materially interferes with the
Permitted Use of the Premises, and this Lease is not terminated as provided in
Paragraph 23.A. above, the Rent payable hereunder during the unexpired portion
of this Lease shall be reduced, beginning on the date when the physical taking
shall have occurred, to such amount as may be fair and reasonable under all of
the circumstances, but only after giving Landlord credit for all sums received
or to be received by Tenant by the condemning authority. Notwithstanding
anything to the contrary contained in this Paragraph, if the temporary use or
occupancy of any part of the Premises shall be taken or appropriated under power
of eminent domain during the Term, this Lease shall be and remain unaffected by
such taking or appropriation and Tenant shall continue to pay in full all Rent
payable hereunder by Tenant during the Term; in the event of any such temporary
appropriation or taking, Tenant shall be entitled to receive that portion of any
award which represents compensation for the use of or occupancy of the Premises
during the Term, and Landlord shall be entitled to receive that portion of any
award which represents the cost of restoration of the Premises and the use and
occupancy of the Premises.
C. AWARD. Landlord shall be entitled to (and Tenant shall assign to Landlord)
any and all payment, income, rent, award or any interest therein whatsoever
which may be paid or made in connection with such taking or conveyance and
Tenant shall have no claim against Landlord or otherwise for any sums paid by
virtue of such proceedings, whether or not attributable to the value of any
unexpired portion of this Lease, except as expressly provided in this Lease.
Notwithstanding the foregoing, any compensation specifically and separately
awarded Tenant for Tenant's personal property, Tenant Improvements to the extent
paid for by Tenant, moving costs and "good will" (to the extent such award is
expressly made to Tenant by the appropriate authority and does not in any way
reduce Landlord's award), shall be and remain the property of Tenant.
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D. WAIVER OF CCP Section 1265.130. Each party waives the provisions of
California Civil Code Procedure Section 1265.130 allowing either party to
petition the superior court to terminate this Lease as a result of a partial
taking.
24. CASUALTY DAMAGE
A. GENERAL. If the Premises or Building should be damaged or destroyed by fire,
tornado, or other casualty (collectively, "CASUALTY"), Tenant shall give
immediate written notice thereof to Landlord. Within thirty (30) days after
Landlord's receipt of such notice, Landlord shall notify Tenant whether in
Landlord's estimation material restoration of the Premises can reasonably be
made within two hundred seventy (270) days from the date Landlord becomes aware
of such destruction. Landlord's determination shall be binding on Tenant.
B. WITHIN 270 DAYS. If the Premises or Building should be damaged by Casualty to
such extent that material restoration can in Landlord's estimation be reasonably
completed within two hundred seventy (270) days after the date Landlord becomes
aware of destruction, this Lease shall not terminate. Provided that insurance
proceeds are received by Landlord to fully repair the damage, Landlord shall
proceed to rebuild and repair the Premises in the manner determined by Landlord,
except that Landlord shall not be required to rebuild, repair or replace any
part of the Alterations (excluding the initial Tenant Improvements) which may
have been placed on or about the Premises by Tenant. If the Premises are
untenantable in whole or in part following such damage, the Rent payable
hereunder during the period in which they are untenantable shall be abated
proportionately.
C. GREATER THAN 270 DAYS. If the Premises or Building should be damaged by
Casualty to such extent that rebuilding or repairs cannot in Landlord's
estimation be reasonably completed within two hundred seventy (270) days after
the date Landlord becomes aware of damage, and such damage materially and
adversely interferes with the conduct of Tenant's business in the Premises, then
either party shall have the right to cancel this Lease by giving the other party
written notice within ten (10) days from the date of Landlord's notice that
material restoration of the Premises cannot be made within such two hundred
seventy (270) day period or notice that Landlord has elected not to rebuild or
repair the Premises. Said cancellation shall be effective thirty (30) days from
the first day that either party gives its notice to cancel. If neither party
elects to so cancel this Lease, Landlord shall proceed to rebuild and repair the
Premises diligently and in the manner determined by Landlord, except that
Landlord shall not be required to rebuild, repair or replace any part of any
Alterations which may have been placed on or about the Premises by Tenant. If
the Premises are untenantable in whole or in part following such damage, the
Rent payable hereunder during the period in which they are untenantable shall be
abated proportionately. Notwithstanding the above, Landlord shall not be
required to rebuild, repair or replace any part of any Alterations which may
have been placed, on or about the Premises by Tenant. If the Premises are
untenantable in whole or in part following such damage, the Rent payable
hereunder during the period in which they are untenantable shall be abated
proportionately. If the parties hereto do not terminate this Lease as provided
in this paragraph, Landlord shall commence repairs and restoration of the
Premises diligently and in the manner determined by Landlord.
D. TENANT'S FAULT. Notwithstanding anything herein to the contrary, if the
Premises or any other portion of the Building are damaged by Casualty resulting
from the fault, negligence, or breach of this Lease by Tenant or any of Tenant's
Parties, Base Rent and Additional Rent shall not be diminished during the repair
of such damage and Tenant shall be liable to Landlord for the cost and expense
of the repair and restoration of the Building caused thereby to the extent such
cost and expense is not covered by insurance proceeds; provided that Tenant
shall not be liable for that portion of the repair costs for which Landlord was
obligated under the terms of this Lease to carry insurance but failed to carry
such insurance.
E. INSURANCE PROCEEDS. Notwithstanding anything herein to the contrary, and
provided that Landlord carries the insurance coverages expressly required under
the terms of this Lease with respect to the that portion of the Premises or
Building which is damaged or destroyed, if the Premises or Building are damaged
or destroyed and are not fully covered by the insurance proceeds received by
Landlord or if the holder of any indebtedness secured by a mortgage or deed of
trust covering the Premises requires that the insurance proceeds be applied to
such indebtedness, then in either case Landlord shall have the right to
terminate this Lease by delivering written notice of termination to Tenant
within thirty (30) days after the date of notice to Landlord that said damage or
destruction is not fully covered by insurance or such requirement is made by any
such holder, as the case may be, whereupon this Lease shall terminate. For
purposes of this Paragraph 24, insurance proceeds shall include deductible
amounts associated therewith, provided, however, that such amounts may be deemed
Operating Expenses in accordance with Paragraph 7 hereof.
F. WAIVER. This Paragraph 24 shall be Tenant's sole and exclusive remedy in the
event of damage or destruction to the Premises or the Building. As a material
inducement to Landlord entering into this Lease, Tenant hereby waives any rights
it may have under Sections 1932, 1933(4), 1941 or 1942 of the Civil Code of
California with respect to any destruction of the Premises, Landlord's
obligation for tenantability of the Premises and Tenant's right to make repairs
and deduct the expenses of such repairs, or under any similar law, statute or
ordinance now or hereafter in effect.
G. TENANT'S PERSONAL PROPERTY. In the event of any damage or destruction of the
Premises or the Building, under no circumstances shall Landlord be required to
repair any injury or damage to, or make any repairs to or replacements of,
Tenant's personal property.
25. HOLDING OVER
Unless Landlord expressly consents in writing to Tenant's holding over, Tenant
shall be unlawfully and illegally in possession of the Premises, whether or not
Landlord accepts any rent from Tenant or any other person while Tenant remains
in possession of the Premises without Landlord's written consent. If Tenant
shall retain possession of the Premises or any portion thereof without
Landlord's consent following the expiration of this Lease or sooner termination
for any reason, then Tenant shall pay to Landlord for each day of such retention
the amount of any damages suffered by Landlord due to Tenant's holding over,
plus the greater of the following: (i) one-hundred fifty percent (150%) of the
amount of daily rental plus Operating Expenses as of the last month prior to the
date of expiration or earlier termination, or (ii) one-hundred fifty percent
(150%) of the fair rental value of the Premises as reasonably determined by
Landlord. Tenant shall also indemnify, defend, protect and hold Landlord
harmless from any loss, liability or cost, including consequential and
incidental damages and reasonable attorneys' fees, incurred by Landlord
resulting from delay by Tenant in surrendering the Premises, including, without
limitation, any claims made by the succeeding tenant founded on such delay.
Acceptance of Rent by Landlord following expiration or earlier termination of
this Lease, or following demand by Landlord for possession of the Premises,
shall not constitute a renewal of this Lease, and nothing contained in this
Paragraph 25 shall waive Landlord's right of reentry or any other right.
Additionally, if upon expiration or earlier termination of this Lease, or
following demand by Landlord for possession of the Premises, Tenant has not
fulfilled its obligation with respect to repairs and cleanup of the Premises or
any other Tenant obligations as set forth in this Lease, then Landlord shall
have the right to perform any such obligations as it deems necessary at Tenant's
sole cost and expense, and any time required by Landlord to complete such
obligations shall be considered a period of holding over and the terms of this
Paragraph 25 shall apply. The provisions of this Paragraph 25 shall survive any
expiration or earlier termination of this Lease.
26. DEFAULT
A. EVENTS OF DEFAULT. The occurrence of any of the following shall constitute an
event of default on the part of Tenant:
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(1) ABANDONMENT. Abandonment or vacation of the Premises for a
continuous period in excess of thirty (30) days. Tenant waives any
right to notice Tenant may have under Section 1951.3 of the Civil Code
of the State of California, the terms of this Paragraph 26.A. being
deemed such notice to Tenant as required by said Section 1951.3.
(2) NONPAYMENT OF RENT. Failure to pay any installment of Rent or any
other amount due and payable hereunder when said payment is due, such
failure continuing for three (3) days after written notice of such
failure, as to which time is of the essence, provided that Landlord
shall not be required to provide such notice more than once during the
twelve (12) month period commencing with the date of such notice. The
second failure to pay any such amount when such payment is due during
such 12-month period shall be an event of default hereunder without
notice. Such notice period shall run concurrently with, rather than
supplement, any statutory notice period required under Code of Civil
Procedure Section 1161 or any similar or successor statute.
(3) OTHER OBLIGATIONS. Failure to perform any obligation, agreement or
covenant under this Lease other than those matters specified in
subparagraphs (1) and (2) of this Paragraph 26.A., such failure
continuing for thirty (30) days after written notice of such failure,
as to which time is of the essence. Notwithstanding anything to the
contrary contained in this Lease, the following shall constitute an
event of default under this Paragraph 26.A(3) without any such notice
or lapse of time: (i) failure to provide an estoppel certificate when
and as required under Paragraph 18 hereof; (ii) failure to maintain
insurance required under Paragraph 8 hereof; (iii) failure to vacate
the Premises upon the expiration or earlier termination of this Lease;
(iv) failure to comply with any obligation under this Lease pertaining
to Hazardous Materials; (v) any other matter provided for in another
subparagraph of this Paragraph 26.A or for which another time limit is
provided elsewhere in this Lease, including without limitation, under
Exhibit C to this Lease.
(4) GENERAL ASSIGNMENT. A general assignment by Tenant for the benefit
of creditors.
(5) BANKRUPTCY. The filing of any voluntary petition in bankruptcy by
Tenant, or the filing of an involuntary petition by Tenant's creditors,
which involuntary petition remains undischarged for a period of sixty
(60) days. If under applicable law, the trustee in bankruptcy or Tenant
has the right to affirm this Lease and continue to perform the
obligations of Tenant hereunder, such trustee or Tenant shall, in such
time period as may be permitted by the bankruptcy court having
jurisdiction, cure all defaults of Tenant hereunder outstanding as of
the date of the affirmance of this Lease and provide to Landlord such
adequate assurances as may be necessary to ensure Landlord of the
continued performance of Tenant's obligations under this Lease.
(6) RECEIVERSHIP. The employment of a receiver to take possession of
substantially all of Tenant's assets or Tenant's leasehold of the
Premises, if such appointment remains undismissed or undischarged for a
period of thirty (30) days after the order therefor.
(7) ATTACHMENT. The attachment, execution or other judicial seizure of
all or substantially all of Tenant's assets or Tenant's leasehold of
the Premises, if such attachment or other seizure remains undismissed
or undischarged for a period of thirty (30) days after the levy
thereof.
(8) INSOLVENCY. The admission by Tenant in writing of its inability to
pay its debts as they become due.
B. REMEDIES UPON DEFAULT.
(1) TERMINATION. In the event of the occurrence of any event of
default, Landlord shall have the right to give a written termination
notice to Tenant, and on the date specified in such notice, Tenant's
right to possession shall terminate, and this Lease shall terminate
unless on or before such date all Rent in arrears and all costs and
expenses incurred by or on behalf of Landlord hereunder shall have been
paid by Tenant and all other events of default of this Lease by Tenant
at the time existing shall have been fully remedied to the satisfaction
of Landlord. At any time after such termination, Landlord may recover
possession of the Premises or any part thereof and expel and remove
therefrom Tenant and any other person occupying the same, including any
subtenant or subtenants notwithstanding Landlord's consent to any
sublease, by any lawful means, and again repossess and enjoy the
Premises without prejudice to any of the remedies that Landlord may
have under this Lease, or at law or equity by any reason of Tenant's
default or of such termination. Landlord hereby reserves the right, but
shall not have the obligation, to recognize the continued possession of
any subtenant. The delivery or surrender to Landlord by or on behalf of
Tenant of keys, entry codes, or other means to bypass security at the
Premises shall not terminate this Lease.
(2) CONTINUATION AFTER DEFAULT. Even though an event of default may
have occurred, this Lease shall continue in effect for so long as
Landlord does not terminate Tenant's right to possession under
Paragraph 26.B.(1) hereof, and Landlord may enforce all of Landlord's
rights and remedies under this Lease and at law or in equity, including
without limitation, the right to recover Rent as it becomes due, and
Landlord, without terminating this Lease, may exercise all of the
rights and remedies of a landlord under Section 1951.4 of the Civil
Code of the State of California or any successor code section. Acts of
maintenance, preservation or efforts to lease the Premises or the
appointment of a receiver under application of Landlord to protect
Landlord's interest under this Lease or other entry by Landlord upon
the Premises shall not constitute an election to terminate Tenant's
right to possession.
(3) INTENTIONALLY OMITTED.
C. DAMAGES AFTER DEFAULT. Should Landlord terminate this Lease pursuant to the
provisions of Paragraph 26.B.(1) hereof, Landlord shall have the rights and
remedies of a Landlord provided by Section 1951.2 of the Civil Code of the State
of California, or any successor code sections. Upon such termination, in
addition to any other rights and remedies to which Landlord may be entitled
under applicable law or at equity, Landlord shall be entitled to recover from
Tenant: (1) the worth at the time of award of the unpaid Rent and other amounts
which had been earned at the time of termination, (2) the worth at the time of
award of the amount by which the unpaid Rent and other amounts that would have
been earned after the date of termination until the time of award exceeds the
amount of such Rent loss that Tenant proves could have been reasonably avoided;
(3) the worth at the time of award of the amount by which the unpaid Rent and
other amounts for the balance of the Term after the time of award exceeds the
amount of such Rent loss that the Tenant proves could be reasonably avoided; and
(4) any other amount and court costs necessary to compensate Landlord for all
detriment proximately caused by Tenant's failure to perform Tenant's obligations
under this Lease or which, in the ordinary course of things, would be likely to
result therefrom. The "worth at the time of award" as used in (1) and (2) above
shall be computed at the Applicable Interest Rate (defined below). The "worth at
the time of award" as used in (3) above shall be computed by discounting such
amount at the Federal Discount Rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). If this Lease provides for any
periods during the Term during which Tenant is not required to pay Base Rent or
if Tenant otherwise receives a Rent concession, then upon the occurrence of an
event of default, Tenant shall owe to Landlord the full amount of such Base Rent
or value of such Rent concession, plus interest at the Applicable Interest Rate,
calculated from the date that such Base Rent or Rent concession would have been
payable.
D. LATE CHARGE. In addition to its other remedies, Landlord shall have the right
without notice or demand to add to the amount of any payment required to be made
by Tenant hereunder, and which is not paid and received by Landlord on or before
the first day of each
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calendar month, an amount equal to three percent (3%) of the delinquency for
each month or portion thereof that the delinquency remains outstanding to
compensate Landlord for the loss of the use of the amount not paid and the
administrative costs caused by the delinquency, the parties agreeing that
Landlord's damage by virtue of such delinquencies would be extremely difficult
and impracticable to compute and the amount stated herein represents a
reasonable estimate thereof; provided, however, that one (1) time during any
twelve (12) month period of the Term, Landlord shall provide to Tenant verbal or
written notice, at Landlord's election, of Tenant's failure to pay an amount
owed and the late fee described herein shall not apply for a period of three (3)
business days following Landlord's delivery of such notice. Any waiver by
Landlord of any late charges or failure to claim the same shall not constitute a
waiver of other late charges or any other remedies available to Landlord.
E. INTEREST. Interest shall accrue on all sums not paid when due hereunder at
the lesser of eighteen percent (18%) per annum or the maximum interest rate
allowed by law ("APPLICABLE INTEREST RATE") from the due date until paid.
F. REMEDIES CUMULATIVE. All rights, privileges and elections or remedies of the
parties are cumulative and not alternative, to the extent permitted by law and
except as otherwise provided herein.
G. PRESUMPTION. With respect to this Paragraph 26 (Default), except as otherwise
expressly stated, with respect to any consent, determination or estimation of
Landlord required or allowed or requested of Landlord, Landlord's consent,
determination or estimation shall be given or made solely by Landlord in
Landlord's good faith opinion, whether or not objectively reasonable.
27. LIENS
Tenant shall at all times keep the Premises and the Project free from liens
arising out of or related to work or services performed, materials or supplies
furnished or obligations incurred by or on behalf of Tenant or in connection
with work made, suffered or done by or on behalf of Tenant in or on the Premises
or Project. If Tenant shall not, within ten (10) days following the imposition
of any such lien, cause the same to be released of record by payment or posting
of a proper bond, Landlord shall have, in addition to all other remedies
provided herein and by law, the right, but not the obligation, to cause the same
to be released by such means as Landlord shall deem proper, including payment of
the claim giving rise to such lien. All sums paid by Landlord on behalf of
Tenant and all expenses incurred by Landlord in connection therefor shall be
payable to Landlord by Tenant on demand with interest at the Applicable Interest
Rate as Additional Rent. Landlord shall have the right at all times to post and
keep posted on the Premises any notices permitted or required by law, or which
Landlord shall deem proper, for the protection of Landlord, the Premises, the
Project and any other party having an interest therein, from mechanics' and
materialmen's liens, and Tenant shall give Landlord not less than ten (10)
business days prior written notice of the commencement of any work in the
Premises or Project which could lawfully give rise to a claim for mechanics' or
materialmen's liens to permit Landlord to post and record a timely notice of
non-responsibility, as Landlord may elect to proceed or as the law may from time
to time provide, for which purpose, if Landlord shall so determine, Landlord may
enter the Premises. Tenant shall not remove any such notice posted by Landlord
without Landlord's consent, and in any event not before completion of the work
which could lawfully give rise to a claim for mechanics' or materialmen's liens.
28. SUBSTITUTION
Intentionally Omitted.
29. TRANSFERS BY LANDLORD
In the event of a sale or conveyance by Landlord of the Building or a
foreclosure by any creditor of Landlord, the same shall operate to release
Landlord from any liability upon any of the covenants or conditions, express or
implied, herein contained in favor of Tenant, to the extent required to be
performed after the passing of title to Landlord's successor-in-interest;
provided, however, that such release shall be effective only upon Landlord's
actual delivery of the LOC (defined herein) to any such successor, and written
notice by Landlord to Tenant of such delivery, and only to the extent that such
successor assumes, expressly or by operation of law, Landlord's obligations
hereunder. In such event, Tenant agrees to look solely to the responsibility of
the successor-in-interest of Landlord under this Lease with respect to the
performance of the covenants and duties of "Landlord" to be performed after the
passing of title to Landlord's successor-in-interest. This Lease shall not be
affected by any such sale and Tenant agrees to attorn to the purchaser or
assignee. Landlord's successor(s)-in-interest shall not have liability to Tenant
with respect to the failure to perform any of the obligations of "Landlord," to
the extent required to be performed prior to the date such
successor(s)-in-interest became the owner of the Building.
30. RIGHT OF LANDLORD TO PERFORM TENANT'S COVENANTS
All covenants and agreements to be performed by Tenant under any of the terms of
this Lease shall be performed by Tenant at Tenant's sole cost and expense and
without any abatement of Rent. Except with respect to Hazardous Materials and
Tenant's obligations in Paragraph 4.D hereof, If Tenant shall fail to pay any
sum of money, other than Base Rent, required to be paid by Tenant hereunder or
shall fail to perform any other act on Tenant's part to be performed hereunder,
including Tenant's obligations under Paragraph 11 hereof, and such failure shall
continue for thirty (30) days after written notice thereof by Landlord, in
addition to the other rights and remedies of Landlord, Landlord may make any
such payment and perform any such act on Tenant's part. In the case of an
emergency (which shall be situations of risk of personal injury or death,
significant property damage to Tenant's personal property or property damage to
the Premises or the Building or Project, or in the event work in connection with
the compliance with Regulations is immediately required), no prior notification
by Landlord shall be required. Landlord may take such actions without any
obligation and without releasing Tenant from any of Tenant's obligations. All
sums so paid by Landlord and all incidental costs incurred by Landlord and
interest thereon at the Applicable Interest Rate, from the date of payment by
Landlord, shall be paid to Landlord on demand as Additional Rent.
31. WAIVER
If either Landlord or Tenant waives the performance of any term, covenant or
condition contained in this Lease, such waiver shall not be deemed to be a
waiver of any subsequent breach of the same or any other term, covenant or
condition contained herein, or constitute a course of dealing contrary to the
expressed terms of this Lease. The acceptance of Rent by Landlord shall not
constitute a waiver of any preceding breach by Tenant of any term, covenant or
condition of this Lease, regardless of Landlord's knowledge of such preceding
breach at the time Landlord accepted such Rent. Failure by Landlord to enforce
any of the terms, covenants or conditions of this Lease for any length of time
shall not be deemed to waive or decrease the right of Landlord to insist
thereafter upon strict performance by Tenant. Waiver by Landlord of any term,
covenant or condition contained in this Lease may only be made by a written
document signed by Landlord, based upon full knowledge of the circumstances.
32. NOTICES
Each provision of this Lease or of any applicable governmental laws, ordinances,
regulations and other requirements with reference to sending, mailing, or
delivery of any notice or the making of any payment by Landlord or Tenant to the
other shall be deemed to be complied with when and if the following steps are
taken:
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A. RENT. All Rent and other payments required to be made by Tenant to Landlord
hereunder shall be payable to Landlord at Landlord's Remittance Address set
forth in the Basic Lease Information, or at such other address as Landlord may
specify from time to time by written notice delivered in accordance herewith.
Tenant's obligation to pay Rent and any other amounts to Landlord under the
terms of this Lease shall not be deemed satisfied until such Rent and other
amounts have been actually received by Landlord.
B. OTHER. All notices, demands, consents and approvals which may or are required
to be given by either party to the other hereunder shall be in writing and
either personally delivered, sent by commercial overnight courier, mailed,
certified or registered, postage prepaid or sent by facsimile with confirmed
receipt (and with an original sent by commercial overnight courier), and in each
case addressed to the party to be notified at the Notice Address for such party
as specified in the Basic Lease Information or to such other place as the party
to be notified may from time to time designate by at least fifteen (15) days
notice to the notifying party. Notices shall be deemed served upon receipt or
refusal to accept delivery.
C. REQUIRED NOTICES. Tenant shall immediately notify Landlord in writing of any
notice of a violation or a potential or alleged violation of any Regulation that
relates to the Premises or the Project, or of any inquiry, investigation,
enforcement or other action that is instituted or threatened by any governmental
or regulatory agency against Tenant or any other occupant of the Premises, or
any claim that is instituted or threatened by any third party that relates to
the Premises or the Project.
33. ATTORNEYS' FEES
If Landlord places the enforcement of this Lease, or any part thereof, or the
collection of any Rent due, or to become due hereunder, or recovery of
possession of the Premises in the hands of an attorney, Tenant shall pay to
Landlord, upon demand, Landlord's reasonable attorneys' fees and court costs,
whether incurred without trial, at trial, appeal or review. In any action which
Landlord or Tenant brings to enforce its respective rights hereunder, the
unsuccessful party shall pay all costs incurred by the prevailing party
including reasonable attorneys' fees, to be fixed by the court, and said costs
and attorneys' fees shall be a part of the judgment in said action.
34. SUCCESSORS AND ASSIGNS
This Lease shall be binding upon and inure to the benefit of Landlord, its
successors and assigns, and shall be binding upon and inure to the benefit of
Tenant, its successors, and to the extent assignment is approved by Landlord as
provided hereunder, Tenant's assigns.
35. FORCE MAJEURE
Subject to any express statements to the contrary contained in EXHIBIT C hereof,
if performance by a party of any portion of this Lease is made impossible by any
prevention, delay, or stoppage caused by strikes, lockouts, labor disputes, acts
of God, inability to obtain services, labor, or materials or reasonable
substitutes for those items, government actions, civil commotions, fire or other
casualty, or other causes beyond the reasonable control of the party obligated
to perform, performance by that party for a period equal to the period of that
prevention, delay, or stoppage is excused. Tenant's obligation to pay Rent,
however, is not excused by this Paragraph 35.
36. SURRENDER OF PREMISES
Tenant shall, upon expiration or sooner termination of this Lease, surrender the
Premises to Landlord in the same condition as existed on the date Tenant
originally took possession thereof, reasonable wear and tear excepted,
including, but not limited to, all holes in walls repaired and all floors broom
cleaned and free of any Tenant-introduced marking or painting, all to the
reasonable satisfaction of Landlord. Tenant shall remove all of its debris from
the Project. At or before the time of surrender, Tenant shall comply with the
terms of Paragraph 12.A. hereof with respect to Alterations to the Premises and
all other matters addressed in such Paragraph. If the Premises are not so
surrendered at the expiration or sooner termination of this Lease, the
provisions of Paragraph 25 hereof shall apply. All keys to the Premises or any
part thereof shall be surrendered to Landlord upon expiration or sooner
termination of the Term. Tenant shall give written notice to Landlord at least
thirty (30) days prior to vacating the Premises and shall meet with Landlord for
a joint inspection of the Premises for the purpose of confirming Tenant's
obligations with respect to the surrender of the Premises at the time of
vacating, but nothing contained herein shall be construed as an extension of the
Term or as a consent by Landlord to any holding over by Tenant. In the event of
Tenant's failure to give such notice or participate in such joint inspection,
Landlord's inspection at or after Tenant's vacating the Premises shall
conclusively be deemed correct for purposes of determining Tenant's
responsibility for repairs and restoration. Any delay caused by Tenant's failure
to carry out its obligations under this Paragraph 36 beyond the term hereof,
shall constitute unlawful and illegal possession of Premises under Paragraph 25
hereof.
37. PARKING
So long as Tenant is occupying the Premises, Tenant and Tenant's Parties
shall have the right to use up to the number of parking spaces, if any,
specified in the Basic Lease Information on an unreserved, nonexclusive, first
come, first served basis, for passenger-size automobiles, in the parking areas
in the Project designated from time to time by Landlord for use in common by
tenants of the Building.
Tenant may request additional parking spaces from time to time and if
Landlord in its sole discretion agrees to make such additional spaces available
for use by Tenant, such spaces shall be provided on a month-to-month unreserved
and nonexclusive basis (unless otherwise agreed in writing by Landlord), and
shall otherwise be subject to such terms and conditions as Landlord may require.
Tenant shall at all times comply and shall make reasonable efforts to cause
all Tenant's Parties and visitors to comply with all Regulations and any rules
and regulations established from time to time by Landlord relating to parking at
the Project, including any keycard, sticker or other identification or entrance
system, and hours of operation, as applicable.
Landlord shall have no liability for any damage to property or other items
located in the parking areas of the Project, nor for any personal injuries or
death arising out of the use of parking areas in the Project by Tenant or any
Tenant's Parties. Without limiting the foregoing, if Landlord arranges for the
parking areas to be operated by an independent contractor not affiliated with
Landlord, Tenant acknowledges that Landlord shall have no liability for claims
arising through acts or omissions of such independent contractor. In all events,
Tenant agrees to look first to its insurance carrier and to require that
Tenant's Parties look first to their respective insurance carriers for payment
of any losses sustained in connection with any use of the parking areas.
Landlord reserves the right to assign specific spaces, and to reserve
spaces for visitors, small cars, disabled persons or for other tenants or
guests, and Tenant shall not park and shall not allow Tenant's Parties to park
in any such assigned or reserved spaces. Landlord also reserves the right to
alter, modify, relocate or close all or any portion of the parking areas in
order to make repairs or perform maintenance service, or to restripe or renovate
the parking areas, or if required by casualty, condemnation, act of God,
Regulations or for any other reason deemed reasonable by Landlord, provided that
such repairs or maintenance does not materially and adversely affect Tenant's
parking privileges expressly granted in this Lease on a long-term or permanent
basis and provided further that Landlord cannot provide reasonable alternative
parking to Tenant.
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38. MISCELLANEOUS
A. GENERAL. The term "Tenant" or any pronoun used in place thereof shall
indicate and include the masculine or feminine, the singular or plural number,
individuals, firms or corporations, and their respective successors, executors,
administrators and permitted assigns, according to the context hereof.
B. TIME. Time is of the essence regarding this Lease and all of its provisions.
C. CHOICE OF LAW. This Lease shall in all respects be governed by the laws of
the State of California.
D. ENTIRE AGREEMENT. This Lease, together with its Exhibits, addenda and
attachments and the Basic Lease Information, contains all the agreements of the
parties hereto and supersedes any previous negotiations. There have been no
representations made by the Landlord or understandings made between the parties
other than those set forth in this Lease and its Exhibits, addenda and
attachments and the Basic Lease Information.
E. MODIFICATION. This Lease may not be modified except by a written instrument
signed by the parties hereto. Tenant accepts the area of the Premises as
specified in the Basic Lease Information as the approximate area of the Premises
for all purposes under this Lease, and acknowledges and agrees that no other
definition of the area (rentable, usable or otherwise) of the Premises shall
apply. Tenant shall in no event be entitled to a recalculation of the square
footage of the Premises, rentable, usable or otherwise, and no recalculation, if
made, irrespective of its purpose, shall reduce Tenant's obligations under this
Lease in any manner, including without limitation the amount of Base Rent
payable by Tenant or Tenant's Proportionate Share of the Building and of the
Project.
F. SEVERABILITY. If, for any reason whatsoever, any of the provisions hereof
shall be unenforceable or ineffective, all of the other provisions shall be and
remain in full force and effect.
G. RECORDATION. Tenant shall not record this Lease or a short form memorandum
hereof.
H. EXAMINATION OF LEASE. Submission of this Lease to Tenant does not constitute
an option or offer to lease and this Lease is not effective otherwise until
execution and delivery by both Landlord and Tenant.
I. ACCORD AND SATISFACTION. No payment by Tenant of a lesser amount than the
total Rent due nor any endorsement on any check or letter accompanying any check
or payment of Rent shall be deemed an accord and satisfaction of full payment of
Rent, and Landlord may accept such payment without prejudice to Landlord's right
to recover the balance of such Rent or to pursue other remedies. All offers by
or on behalf of Tenant of accord and satisfaction are hereby rejected in
advance.
J. EASEMENTS. Landlord may grant easements on the Project and dedicate for
public use portions of the Project without Tenant's consent; provided that no
such grant or dedication shall materially interfere with Tenant's Permitted Use
of the Premises. Upon Landlord's request, Tenant shall execute, acknowledge and
deliver to Landlord documents, instruments, maps and plats necessary to
effectuate Tenant's covenants hereunder.
K. DRAFTING AND DETERMINATION PRESUMPTION. The parties acknowledge that this
Lease has been agreed to by both the parties, that both Landlord and Tenant have
consulted with attorneys with respect to the terms of this Lease and that no
presumption shall be created against Landlord because Landlord drafted this
Lease. If Landlord fails to respond to any request for its consent within the
time period, if any, specified in this Lease, Landlord shall be deemed to have
disapproved such request.
L. EXHIBITS. The Basic Lease Information, and the Exhibits, addenda and
attachments attached hereto are hereby incorporated herein by this reference and
made a part of this Lease as though fully set forth herein.
M. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off of light, air
or view by any structure which may be erected on lands adjacent to or in the
vicinity of the Building shall in no way affect this Lease or impose any
liability on Landlord.
N. NO THIRD PARTY BENEFIT. This Lease is a contract between Landlord and Tenant
and nothing herein is intended to create any third party benefit.
O. QUIET ENJOYMENT. Upon payment by Tenant of the Rent, and upon the observance
and performance of all of the other covenants, terms and conditions on Tenant's
part to be observed and performed, Tenant shall peaceably and quietly hold and
enjoy the Premises for the term hereby demised without hindrance or interruption
by Landlord or any other person or persons lawfully or equitably claiming by,
through or under Landlord, subject, nevertheless, to all of the other terms and
conditions of this Lease. Landlord shall not be liable for any hindrance,
interruption, interference or disturbance by other tenants or third persons, nor
shall Tenant be released from any obligations under this Lease because of such
hindrance, interruption, interference or disturbance.
P. COUNTERPARTS. This Lease may be executed in any number of counterparts, each
of which shall be deemed an original.
Q. MULTIPLE PARTIES. If more than one person or entity is named herein as
Tenant, such multiple parties shall have joint and several responsibility to
comply with the terms of this Lease.
R. PRORATIONS. Any Rent or other amounts payable to Landlord by Tenant hereunder
for any fractional month shall be prorated based on a month of 30 days. As used
herein, the term "fiscal year" shall mean the calendar year or such other fiscal
year as Landlord may deem appropriate.
39. ADDITIONAL PROVISIONS
A. RENT.
Subject to the provisions of Paragraph 2.B. and this Paragraph 39, Base Rent,
net of Operating Expenses per Paragraph 7 of this Lease, for the Premises shall
be as follows:
For the period commencing upon the Building $128,287.25 per month plus
A Premises Term Commencement Date through operating expenses per Paragraph
the day preceding the Building B Premises 7 of this Lease. Operating
Term Commencement Date: Expenses for calendar year 2000
are estimated to be $28,815.29
per month.
From the Building B Premises Term $522,093.00 per month plus
Commencement Date though the end of the operating expenses per Paragraph
7 of this Lease. Operating
Expenses for calendar year 2000
are estimated to be $117,270.12
per month.
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twelfth month thereafter:
Month 13 through Month 24: $538,094.00 per month plus
operating expenses per Paragraph
7 of this Lease
Month 25: through Month 36: $554,585.00 per month plus
operating expenses per Paragraph
7 of this Lease.
Month 37 through Month 48: $571,582.00 per month plus
operating expenses per Paragraph
7 of this Lease.
Month 49 through Month 60: $589,099.00 per month plus
operating expenses per Paragraph
7 of this Lease.
Month 61 through Month 72: $607,153.00 per month plus
operating expenses per Paragraph
7 of this Lease.
Month 73 through Month 84: $625,761.00 per month plus
operating expenses per Paragraph
7 of this Lease.
Month 84 through Month 96: $644,939.00 per month plus
operating expenses per Paragraph
7 of this Lease.
Month 97 through Month 108: $664,705.00 per month plus
operating expenses per Paragraph
7 of this Lease
Month 109 through Month 120: $685,076.00 per month plus
operating expenses per Paragraph
7 of this Lease.
Month 121 through Month 132: $706,072.00 per month plus
operating expenses per Paragraph
7 of this Lease.
Month 133 through Month 144: $727,711.00 per month plus
operating expenses per Paragraph
7 of this Lease.
B. LETTER OF CREDIT.
(1) DELIVERY OF LETTER OF CREDIT. In addition to depositing the
cash security deposit described in the Basic Lease Information
with Landlord, Tenant shall, within ten (10) business days
following Tenant's execution of this Lease, deliver to
Landlord and cause to be in effect during the Lease Term an
unconditional, irrevocable letter of credit ("LOC") in the
amount equal to Five Million and No/100 Dollars, which amount
shall, by the express terms of the LOC, automatically increase
to an amount equal to Nine Million Five Hundred Thousand
Dollars on May 1, 2000 (the "LOC AMOUNT") (Landlord's
construction schedule currently reflects timing such that the
structural steel of Building B may be erected by May 1, 2000,
subject to Tenant Delays (as defined in Exhibit C) and other
conditions expressly provided in Exhibit C; provided, however,
that no reference to such schedule shall appear in the
language of the LOC document and the completion of the
erection of the structural steel of Building B shall in no
event be deemed or interpreted to be a condition precedent to
the automatic increase in the LOC Amount to Nine Million Five
Hundred Thousand Dollars on May 1, 2000). The initial term of
the LOC shall be four (4) years and shall thereafter renew
automatically from year to year through the date which is
thirty (30) days after expiration of this Lease or any
extension hereto. The express terms of the LOC shall provide
that the issuing bank shall notify Landlord in writing at
least sixty (60) days in advance in the event that such
issuing bank shall not automatically renew the LOC as
described above and Landlord shall then be entitled to draw on
the LOC as provided herein. The LOC shall be in a form
acceptable to Landlord and shall be issued by an LOC bank
selected by Tenant and acceptable to Landlord. An LOC bank is
a bank that accepts deposits, maintains accounts, has a local
office that will negotiate a letter of credit, and the
deposits of which are insured by the Federal Deposit Insurance
Corporation. Tenant shall pay all expenses, points, or fees
incurred by Tenant in obtaining the LOC. The LOC shall not be
mortgaged, assigned or encumbered in any manner whatsoever by
Tenant without the prior written consent of Landlord. Tenant
acknowledges that Landlord has the right to transfer or
mortgage its interest in the Project, the Building and in this
Lease and Tenant agrees that in the event of any such transfer
or mortgage, Landlord shall have the right to transfer or
assign the LOC and/or the LOC Security Deposit (as defined
below) to the transferee or mortgagee, and in the event of
such transfer, Tenant shall look solely to such transferee or
mortgagee for the return of the LOC and/or the LOC Security
Deposit. Landlord shall be responsible for a reasonable and
actual standard transfer fee of the issuing bank charged in
connection with such transfer.
(2) REPLACEMENT OF LETTER OF CREDIT. Tenant may, from time to
time, replace any existing LOC with a new LOC if the new LOC
(a) becomes effective at least thirty (30) days before
expiration of the LOC that it replaces; (b) is in the required
LOC amount; (c) is issued by an LOC bank acceptable to
Landlord; and (d) otherwise complies with the requirements of
this Paragraph 39.
(3) LANDLORD'S RIGHT TO DRAW ON LETTER OF CREDIT. Landlord shall
hold the LOC as security for the performance of Tenant's
obligations under this Lease. If, after notice and failure to
cure within any applicable period provided in this Lease,
Tenant defaults on any provision of this Lease, Landlord may,
without prejudice to any other remedy it has, and after
Landlord first applies the cash security described in the
Basic Lease Information to any such Tenant default, draw on
that portion of the LOC necessary to (a) pay Rent or other sum
in default; (b) pay or reimburse Landlord for any amount that
Landlord may spend or become obligated to spend in exercising
Landlord's rights under Paragraph 30 (Right of Landlord to
Perform Tenant's Covenant); and/or (c) compensate Landlord for
any expense, loss, or damage that Landlord may suffer because
of Tenant's default. If Tenant fails to renew or replace the
LOC at least thirty (30) days before its expiration, Landlord
may, without prejudice to any other remedy it has, draw on the
entire amount of the LOC.
(4) LOC SECURITY DEPOSIT. Any amount of the LOC that is drawn on
by Landlord but not applied by Landlord shall be held by
Landlord as a security deposit (the "LOC SECURITY DEPOSIT") in
accordance with Paragraph 19 of this Lease.
(5) RESTORATION OF LETTER OF CREDIT AND LOC SECURITY DEPOSIT. If
Landlord draws on any portion of the LOC and/or applies all or
any portion of such draw, Tenant shall, within five (5)
business days after demand by Landlord, either (a) deposit
cash with Landlord in an amount that, when added to the amount
remaining under the LOC and the amount of any LOC Security
Deposit, shall equal the LOC Amount then required under this
Paragraph 39; or (b) reinstate the LOC to the full LOC Amount.
(6) REDUCTION OF LETTER OF CREDIT. The LOC Amount may be reduced
at the times and to the corresponding amounts specified in
this Paragraph 39.D(6) if each of the following conditions is
satisfied to Landlord's satisfaction in each case: (i) Tenant
is not and has not been in material default under the terms of
this Lease beyond any applicable cure period, (ii) Tenant
provides to Landlord ten (10) days prior written notice of any
such reduction; (iii) the LOC provides that the issuing bank
shall notify Landlord in writing at least five (5) business
days prior to any such
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reduction, and (iv) each of the conditions precedent described
in clauses 1. through 6., inclusive, is satisfied to
Landlord's satisfaction:
1. At any time after the end of the thirty-sixth (36th)
month following the Building B Premises Term
Commencement Date, the LOC Amount may be reduced to
an amount equal to Eight Million and No/100 Dollars
($8,000,000.00) if the following conditions precedent
are satisfied to Landlord's satisfaction: (i) Tenant
has a tangible net worth in excess of Fifty Million
and No/100 Dollars ($50,000,000.00), which amount
shall be determined by Landlord to its satisfaction
prior to any reduction in the LOC Amount, and in
connection with such determination, Tenant shall
deliver to Landlord for review Tenant's financial
statements prepared in accordance with generally
accepted accounting principles and audited by a
nationally recognized public accounting firm
reasonably acceptable to Landlord, and any other
financial information reasonably requested by
Landlord ("TENANT'S FINANCIAL INFORMATION"); and (ii)
Tenant's Financial Information reflects four (4)
consecutive calendar quarters of profitability, as
determined by Landlord, during the time period
immediately preceding Tenant's request for reduction
in the LOC Amount.
2. At any time after the end of the forty-eighth (48th)
month following the Building B Premises Term
Commencement Date, the LOC Amount may be reduced to
an amount equal to Seven Million and No/100 Dollars
($7,000,000.00) if the following conditions precedent
are satisfied to Landlord's satisfaction: (i) Tenant
has a tangible net worth in excess of Fifty Million
and No/100 Dollars ($50,000,000.00) as reflected in
Tenant's Financial Information, which amount shall be
determined by Landlord to its satisfaction prior to
any reduction in the LOC Amount; and (ii) Tenant's
Financial Information reflects profitability for the
period which occurs during the twelve (12) calendar
months prior to the reduction in the LOC Amount
described in this subparagraph, as such profitability
is determined by Landlord, during the time period
immediately preceding Tenant's request for reduction
in the LOC Amount.
3. If: (i) Tenant has a tangible net worth in excess of
Seventy-Five Million and No/100 Dollars
($75,000,000.00) as reflected in Tenant's Financial
Information, which amount shall be determined by
Landlord to its satisfaction prior to any reduction
in the LOC Amount; and (ii) Tenant's Financial
Information reflects profitability for the period
which occurs during the twelve (12) calendar months
prior to the reduction in the LOC Amount described in
this subparagraph, as such profitability is
determined by Landlord, during the time period
immediately preceding Tenant's request for reduction
in the LOC Amount, then the following reductions in
the LOC Amount may be made in accordance with the
terms of this Paragraph 39.B:
a. At any time after the end of the sixtieth
(60th) month following the Building B
Premises Term Commencement Date, the LOC
Amount may be reduced to an amount equal to
Six Million and No/100 Dollars
($6,000,000.00);
b. At any time after the end of the
seventy-second (72nd) month following the
Building B Premises Term Commencement Date,
the LOC Amount may be reduced to an amount
equal to Five Million and No/100 Dollars
($5,000,000.00);
c. At any time after the end of the
eighty-fourth (84th) month following the
Building B Premises Term Commencement Date,
the LOC Amount may be reduced to an amount
equal to Four Million and No/100 Dollars
($4,000,000.00);
d. At any time after the end of the
ninety-sixth (96th) month following the
Building B Premises Term Commencement Date,
the LOC Amount may be reduced to an amount
equal to Three Million and No/100 Dollars
($3,000,000.00).
In the event that any of the above described reductions to the
LOC is made and, subsequently, Tenant fails to meet the
corresponding profitability and net worth condition precedent
for a period of thirty (30) days following delivery by
Landlord of written notice of any such failure, Tenant shall
within forty-eight (48) hours, increase the face amount of the
LOC to an amount equal to the LOC Amount existing prior to
such reduction.
(7) SURETY BOND. Subject to Landlord's prior written approval
(which may be withheld in Landlord's sole discretion), Tenant
may provide a surety bond (a "SURETY BOND") in form and
substance acceptable to Landlord for a portion of the LOC
Amount, as such portion is determined by Landlord in its sole
discretion In the event Landlord accepts a Surety Bond as
provided in this Paragraph 39.B(7), any reduction in the LOC
Amount as provided herein shall first be made to the Surety
Bond and the reduction amount remaining, if any, shall then be
made to the LOC. If Tenant provides to Landlord a Surety Bond
in accordance with this paragraph, Landlord may, at any time,
require Tenant to replace such Surety Bond with a LOC as
provided herein.
C. SCHEDULED TERM COMMENCEMENT DATE:
(1) For the portion of the Premises depicted on EXHIBIT B (the "BUILDING A
PREMISES") consisting of approximately 39,473 rentable square feet, the
Scheduled Term Commencement Date (the "BUILDING A TERM COMMENCEMENT
DATE") shall be the earlier of (1) March 1, 2000, subject to extension
for delays in Landlord's construction of the Building A Premises Tenant
Improvements or Base Building Work caused by force majeure as defined
in Paragraph 35 hereof (ii) the date on which the Building A Premises
Tenant Improvements described in EXHIBIT C are substantially complete
as defined in Exhibit C, or (iii) the date Tenant commences business
operations in the Building A Premises, as evidenced by, among other
things, the presence in the Building A Premises of business files and,
during normal business hours, employees (excluding employees or other
agents of Tenant installing and testing Tenant's equipment, furniture
and fixtures).
(2) For the portion of the Premises depicted on EXHIBIT B (the "BUILDING B
PREMISES") consisting of approximately 121,171 rentable square feet,
the Scheduled Term Commencement Date (the "BUILDING B TERM COMMENCEMENT
DATE") shall be the earlier of (1) September 1, 2000 (as such date may
be adjusted pursuant to Paragraph C.5.1 of Exhibit C attached hereto),
(ii) the date on which the Building B Premises Tenant Improvements
described in EXHIBIT C are substantially complete as defined in Exhibit
C, or (iii) the date Tenant commences business operations in the
Building B Premises, as evidenced by, among other
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things, the presence in the Building B Premises of business files and,
during normal business hours, employees (excluding employees or other
agents of Tenant installing and testing Tenant's equipment, furniture
and fixtures).
D. GENERATOR.
(1) Tenant shall, at Tenant's sole cost and expense, install a generator
with a self-contained above-ground fuel tank (the "GENERATOR") on the
area specifically designated on EXHIBIT E and, if necessary, as
determined by Landlord in its reasonable discretion, any parking spaces
(the "SPACES") which Spaces shall be selected by Landlord in Landlord's
sole discretion; provided, however, that, in Landlord's sole
determination, such installation of the Generator is feasible with
respect to, among other things, available location, weight and size of
the Generator. Prior to Landlord's selection of the Spaces, Tenant
shall provide Landlord with a detailed written statement describing the
specifications of the Generator for Landlord's approval, which approval
may be withheld in Landlord's sole discretion. Provided that, pursuant
to the terms of this Lease, Tenant does install the Generator, the
Generator shall remain the property of Tenant for its own exclusive
use; provided, however, that Tenant, at Tenant's expense, shall remove
the Generator and restore the Spaces by the expiration or earlier
termination of this Lease, to its condition existing prior to the
installation of the Generator and in a manner consistent with the terms
of this Lease.
(3) Tenant shall at all times during the Term at Tenant's expense maintain
all parts of the Generator and such portions of the Spaces as are
within the exclusive control of Tenant in a good, clean and working
condition and promptly make all necessary repairs and replacements, as
reasonably determined by Landlord, with materials and workmanship of
the same character, kind and quality as the original. Notwithstanding
anything to the contrary contained herein, Tenant shall, at its
expense, promptly repair any damage to the Generator or the Spaces
resulting from or caused by any negligence or act of Tenant or Tenant's
Parties.
(4) The terms of Paragraph 4D hereof (Hazardous Materials), and Tenant's
obligations thereunder, shall apply to the Spaces and the Generator and
the use thereof.
E. EARLY ACCESS. Provided that Tenant does not interfere with the
construction of the Base Building Work, and in accordance with this
Paragraph 39.E, Tenant shall have the right to access the Building B
Premises upon the sufficient completion of the Base Building Work (as
described below) during normal business hours after reasonable prior
notice to Landlord for purposes of constructing the Building B Premises
Tenant Improvements in accordance with EXHIBIT C hereto (as the
timeline for such construction and installation is described below),
with all terms and conditions of this Lease in full force and effect,
excluding payment of Rent and Operating Expenses. Any interference by
Tenant or any of Tenant's Parties with the construction of the Base
Building Work shall constitute a Tenant Delay as defined in EXHIBIT C
(which Tenant Delay shall apply to each of the Building A Premises and
the Building B Premises). The Base Building Work shall be sufficiently
complete to permit access by Tenant to the Premises and commencement of
construction of Building B Premises Tenant Improvements on a minimum of
one floor of the Building B Premises on or before June 1, 2000 and the
entire Building B Premises on or before July 1, 2000; provided,
however, that in the event that Devcon is not the general contractor
for the Building B Premises Tenant Improvements, the dates previously
stated in this sentence shall be July 1, 2000 and August 1, 2000,
respectively. Access to the Building B Premises shall be based upon the
criteria described below for sufficient completion. The Base Building
Work will be completed simultaneously with the construction of Building
B Premises Tenant Improvements. Sufficient completion of the Building B
Premises Base Building Work shall be defined as follows: (i) the
permanent roof, or a watertight temporary roof, complete so that a
watertight condition is continuously maintained; (ii) permanent curtain
wall, perimeter insulation and sheet rock and glass complete or a
watertight temporary enclosure complete so that a watertight condition
is continuously maintained; (iii) base building core walls complete;
(iv) mechanical, electrical, plumbing and sprinkler riser work
sufficiently complete to permit connection of tenant improvements; (v)
the base building sprinkler loop and ductwork sufficiently complete to
permit connection of applicable Tenant Improvements; and (vi) floor
slab complete and broom clean.
F. ARBITRATION DISPUTES.
(1) The parties agree that any and all disputes, claims or controversies arising
out of or relating to Paragraph 10 of this Lease, except for issues arising in
connection with the payment of Rent and all other matters entitled to
"fast-track" adjudication including, but not limited to, eviction, that are not
resolved by their mutual agreement shall be submitted to final and binding
arbitration before JAMS/ENDISPUTE, or its successor, pursuant to the United
States Arbitration Act, 9 U.S.C. Sec. 1 et seq. Either party may commence the
arbitration process called for in this Paragraph 39.F by filing a written demand
for arbitration with JAMS/ENDISPUTE with a copy to the other party. The
arbitration will be conducted in San Mateo County, California, and in accordance
with the provisions of JAMS/ENDISPUTE's Streamlined Arbitration Rules and
Procedures in effect at the time of filing the demand for arbitration. The
parties will cooperate with JAMS/ENDISPUTE and with one another in selecting an
arbitrator from JAMS/ENDISPUTE's panel of neutrals, and in scheduling the
arbitration proceedings. The parties covenant that they will participate in the
proceedings in good faith, and that they will share equally in its costs,
including, without limitation, the arbitrator's fees, provided that each party
shall bear its own attorneys' fees in connection with any arbitration. The
provisions of this Paragraph may be enforced by any Court of competent
jurisdiction, and, in the event that the arbitration process continues through
and including a final determination of liability in accordance with this
provision, the prevailing party shall be entitled to an award of all costs, fees
and expenses, including reasonable attorneys' fees, to be paid by the party
against whom enforcement is ordered.
(2) NOTICE: By initialing the space below you are agreeing to have all disputes,
claims or controversies arising out of or relating to Paragraph 10 of the Lease,
except for issues arising in connection with the payment of Rent and all other
matters entitled to "fast-track" adjudication including, but not limited to,
eviction, decided by neutral arbitration, and you are giving up any rights you
might possess to have those matters litigated in a court or jury trial. By
initialing in the space below you are giving up your judicial rights to
discovery and appeal except to the extent that they are specifically provided
for under this Paragraph 39.F. If you refuse to submit to arbitration after
agreeing to this provision, you may be compelled to arbitrate under federal or
state law. Your agreement to this arbitration provision is voluntary.
We have read and understand the foregoing and agree to
submission of all disputes, claims or controversies arising
out of or related to Paragraph 10 of this Lease, except for
issues arising in connection with the payment of Rent and all
other matters entitled to "fast-track" adjudication including,
but not limited to, eviction, to neutral arbitration in
accordance with this Paragraph 39E.
----------- -----------
Landlord Tenant
(G) RIGHT OF FIRST OFFER. After the initial leasing of the entire Building,
and provided Tenant is not, and has not been, in material default of
any terms and conditions of this Lease, Tenant shall have a recurring
right of first offer to lease the first and second
24
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floor of Building A, approximately eighty thousand (80,000) square feet
(the "EXPANSION SPACE"), as shown on EXHIBIT F at such time as such
Expansion Space is made available for lease by Landlord and as such
Expansion Space is vacated by the prior tenant. Upon notification by
Landlord in writing of the availability of the Expansion Space and the
terms and conditions on which Landlord is willing to lease such
Expansion Space to Tenant, Tenant shall have five (5) business days to
notify Landlord in writing of Tenant's desire to exercise Tenant's
right of first offer on the terms and conditions. In the event Tenant
fails to give Landlord notice of Tenant's election to lease such
Expansion Space within such time period, Tenant shall have no further
right, title or interest in such Expansion Space with respect to such
particular notification by Landlord. If, on the other hand, Tenant
exercises its right of first offer in the manner prescribed, Tenant
shall immediately deliver to Landlord payment for the first month's
rent for such Expansion Space (in the same manner as provided for in
this Lease), and the lease for such Expansion Space shall be
consummated without delay in accordance with the terms and conditions
set forth in Landlord's notice. Notwithstanding anything to the
contrary herein contained, Tenant's right to the Expansion Space shall
be conditioned upon the following: (i) at the time Tenant agrees to
accept the Expansion Space and at the time of the commencement of the
term for the Expansion Space, Tenant shall be in possession of and
occupying seventy-five percent (75%) of the Premises for the conduct of
its business therein and the same shall not be occupied by any
assignee, subtenant or licensee and, provided further, that the option
for additional space shall be applicable hereunder only if the
Expansion Space will actually be occupied by Tenant and (ii) the
agreement of acceptance shall constitute a representation by Tenant to
Landlord, effective as of the date of the agreement of acceptance and
as of the date of commencement of the lease for the Expansion Space,
that Tenant does not intend to assign the lease for the Expansion
Space, in whole or in part or sublet for a period greater than
twenty-four (24) months all or any portion of the Premises, the
election to expand being for the purpose of utilizing the Expansion
Space for Tenant's purposes in the conduct of Tenant's business
therein.
40. JURY TRIAL WAIVER
EACH PARTY HERETO (WHICH INCLUDES ANY ASSIGNEE, SUCCESSOR HEIR OR PERSONAL
REPRESENTATIVE OF A PARTY) SHALL NOT SEEK A JURY TRIAL, HEREBY WAIVES TRIAL BY
JURY, AND HEREBY FURTHER WAIVES ANY OBJECTION TO VENUE IN THE COUNTY IN WHICH
THE BUILDING IS LOCATED, AND AGREES AND CONSENTS TO PERSONAL JURISDICTION OF THE
COURTS OF THE STATE IN WHICH THE PROPERTY IS LOCATED, IN ANY ACTION OR
PROCEEDING OR COUNTERCLAIM BROUGHT BY ANY PARTY HERETO AGAINST THE OTHER ON ANY
MATTER WHATSOEVER ARISING OUT OF OR IN ANY WAY CONNECTED WITH THIS LEASE, THE
RELATIONSHIP OF LANDLORD AND TENANT, TENANT'S USE OR OCCUPANCY OF THE PREMISES,
OR ANY CLAIM OF INJURY OR DAMAGE, OR THE ENFORCEMENT OF ANY REMEDY UNDER ANY
STATUTE, EMERGENCY OR OTHERWISE, WHETHER ANY OF THE FOREGOING IS BASED ON THIS
LEASE OR ON TORT LAW. EACH PARTY REPRESENTS THAT IT HAS HAD THE OPPORTUNITY TO
CONSULT WITH LEGAL COUNSEL CONCERNING THE EFFECT OF THIS PARAGRAPH 40. THE
PROVISIONS OF THIS PARAGRAPH 40 SHALL SURVIVE THE EXPIRATION OR EARLIER
TERMINATION OF THIS LEASE.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the day
and the year first above written.
LANDLORD
Spieker Properties, L.P.,
a California limited partnership
By: Spieker Properties, Inc.,
a Maryland corporation,
its general partner
By: /s/ Nancy B. Gille
------------------
Nancy B. Gille
Its: Vice President
Date: 10/27/99
--------
TENANT
InsWeb Corporation
A Delaware corporation
By: /s/ Sheryl Dodsworth
--------------------
Sheryl Dodsworth,
Its: Senior Vice President, Finance &
Administration
Date: 10/27/99
--------
By: /s/ James M. Corroon
--------------------
James M. Corroon,
Its: Vice Chairman
Date: 10/27/99
--------
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EXHIBIT A
RULES AND REGULATIONS
1. Driveways, sidewalks, halls, passages, exits, entrances, elevators,
escalators and stairways shall not be obstructed by tenants or used by
tenants for any purpose other than for ingress to and egress from their
respective premises. The driveways, sidewalks, halls, passages, exits,
entrances, elevators and stairways are not for the use of the general
public and Landlord shall in all cases retain the right to control and
prevent access thereto by all persons whose presence, in the judgment of
Landlord, shall be prejudicial to the safety, character, reputation and
interests of the Building, the Project and its tenants, provided that
nothing herein contained shall be construed to prevent such access to
persons with whom any tenant normally deals in the ordinary course of such
tenant's business unless such persons are engaged in illegal activities. No
tenant, and no employees or invitees of any tenant, shall go upon the roof
of any Building, except as authorized by Landlord. No tenant, and no
employees or invitees of any tenant shall move any common area furniture
without Landlord's consent.
2. No sign, placard, banner, picture, name, advertisement or notice, visible
from the exterior of the Premises or the Building or the common areas of
the Building shall be inscribed, painted, affixed, installed or otherwise
displayed by Tenant either on its Premises or any part of the Building or
Project without the prior written consent of Landlord in Landlord's sole
and absolute discretion. Landlord shall have the right to remove any such
sign, placard, banner, picture, name, advertisement, or notice without
notice to and at the expense of Tenant, which were installed or displayed
in violation of this rule. If Landlord shall have given such consent to
Tenant at any time, whether before or after the execution of Tenant's
Lease, such consent shall in no way operate as a waiver or release of any
of the provisions hereof or of the Lease, and shall be deemed to relate
only to the particular sign, placard, banner, picture, name, advertisement
or notice so consented to by Landlord and shall not be construed as
dispensing with the necessity of obtaining the specific written consent of
Landlord with respect to any other such sign, placard, banner, picture,
name, advertisement or notice.
All approved signs or lettering on doors and walls shall be printed,
painted, affixed or inscribed at the expense of Tenant by a person or
vendor approved by Landlord and shall be removed by Tenant at the time of
vacancy at Tenant's expense.
3. The directory of the Building or Project will be provided exclusively for
the display of the name and location of tenants only and Landlord reserves
the right to charge for the use thereof and to exclude any other names
therefrom.
4. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, awnings, hangings or decorations shall be attached to, hung or
placed in, or used in connection with, any window or door on the Premises
without the prior written consent of Landlord. In any event with the prior
written consent of Landlord, all such items shall be installed inboard of
Landlord's standard window covering and shall in no way be visible from the
exterior of the Building. All electrical ceiling fixtures hung in offices
or spaces along the perimeter of the Building must be fluorescent or of a
quality, type, design, and bulb color approved by Landlord. No articles
shall be placed or kept on the window sills so as to be visible from the
exterior of the Building. No articles shall be placed against glass
partitions or doors which Landlord considers unsightly from outside
Tenant's Premises.
5. Landlord reserves the right to exclude from the Building and the Project,
between the hours of 6 p.m. and 8 a.m. and at all hours on Saturdays,
Sundays and legal holidays, all persons who are not tenants or their
accompanied guests in the Building. Each tenant shall be responsible for
all persons for whom it allows to enter the Building or the Project and
shall be liable to Landlord for all acts of such persons.
Landlord and its agents shall not be liable for damages for any error
concerning the admission to, or exclusion from, the Building or the Project
of any person.
During the continuance of any invasion, mob, riot, public excitement or
other circumstance rendering such action advisable in Landlord's opinion,
Landlord reserves the right (but shall not be obligated) to prevent access
to the Building and the Project during the continuance of that event by any
means it considers appropriate for the safety of tenants and protection of
the Building, property in the Building and the Project.
6. All cleaning and janitorial services for the Building and the Premises
shall be provided exclusively through Landlord. Except with the written
consent of Landlord, no person or persons other than those approved by
Landlord shall be permitted to enter the Building for the purpose of
cleaning the same. Tenant shall not cause any unnecessary labor by reason
of Tenant's carelessness or indifference in the preservation of good order
and cleanliness of its Premises. Landlord shall in no way be responsible to
Tenant for any loss of property on the Premises, however occurring, or for
any damage done to Tenant's property by the janitor or any other employee
or any other person.
7. Tenant shall see that all doors of its Premises are closed and securely
locked and must observe strict care and caution that all water faucets or
water apparatus, coffee pots or other heat-generating devices are entirely
shut off before Tenant or its employees leave the Premises, and that all
utilities shall likewise be carefully shut off, so as to prevent waste or
damage. Tenant shall be responsible for any damage or injuries sustained by
other tenants or occupants of the Building or Project or by Landlord for
noncompliance with this rule. On multiple-tenancy floors, all tenants shall
keep the door or doors to the Building corridors closed at all times except
for ingress and egress.
8. Tenant shall not use any method of heating or air-conditioning other than
that supplied by Landlord. As more specifically provided in Tenant's lease
of the Premises, Tenant shall not waste electricity, water or
air-conditioning and agrees to cooperate fully with Landlord to assure the
most effective operation of the Building's heating and air-conditioning,
and shall refrain from attempting to adjust any controls other than room
thermostats installed for Tenant's use.
9. Landlord will furnish Tenant free of charge with two keys to each door in
the Premises. Landlord may make a reasonable charge for any additional
keys, and Tenant shall not make or have made additional keys. Tenant shall
not alter any lock or access device or install a new or additional lock or
access device or bolt on any door of its Premises, without the prior
written consent of Landlord. If Landlord shall give its consent, Tenant
shall in each case furnish Landlord with a key for any such lock. Tenant,
upon the termination of its tenancy, shall deliver to Landlord the keys for
all doors which have been furnished to Tenant, and in the event of loss of
any keys so furnished, shall pay Landlord therefor.
10. The restrooms, toilets, urinals, wash bowls and other apparatus shall not
be used for any purpose other than that for which they were constructed and
no foreign substance of any kind whatsoever shall be thrown into them. The
expense of any breakage, stoppage, or damage resulting from violation of
this rule shall be borne by the tenant who, or whose employees or invitees,
shall have caused the breakage, stoppage, or damage.
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11. Tenant shall not use or keep in or on the Premises, the Building or the
Project any kerosene, gasoline, or inflammable or combustible fluid or
material.
12. Tenant shall not use, keep or permit to be used or kept in its Premises any
foul or noxious gas or substance. Tenant shall not allow the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or
other occupants of the Building by reason of noise, odors and/or vibrations
or interfere in any way with other tenants or those having business
therein, nor shall any animals or birds be brought or kept in or about the
Premises, the Building, or the Project.
13. No cooking shall be done or permitted by any tenant on the Premises, except
that use by the tenant of Underwriters' Laboratory (UL) approved equipment,
refrigerators and microwave ovens may be used in the Premises for the
preparation of coffee, tea, hot chocolate and similar beverages, storing
and heating food for tenants and their employees shall be permitted. All
uses must be in accordance with all applicable federal, state and city
laws, codes, ordinances, rules and regulations and the Lease.
Notwithstanding the foregoing, subject to Landlord's reasonable
approval,Tenant shall have the right to install kitchen cooking facilities
in the Building B Premises.
14. Except with the prior written consent of Landlord, Tenant shall not sell,
or permit the sale, at retail, of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise in or on the Premises,
nor shall Tenant carry on, or permit or allow any employee or other person
to carry on, the business of stenography, typewriting or any similar
business in or from the Premises for the service or accommodation of
occupants of any other portion of the Building, nor shall the Premises be
used for the storage of merchandise or for manufacturing of any kind, or
the business of a public barber shop, beauty parlor, nor shall the Premises
be used for any illegal, improper, immoral or objectionable purpose, or any
business or activity other than that specifically provided for in such
Tenant's Lease. Tenant shall not accept hairstyling, barbering, shoeshine,
nail, massage or similar services in the Premises or common areas except as
authorized by Landlord.
15. If Tenant requires telegraphic, telephonic, telecommunications, data
processing, burglar alarm or similar services, it shall first obtain, and
comply with, Landlord's instructions in their installation. The cost of
purchasing, installation and maintenance of such services shall be borne
solely by Tenant.
16. Landlord will direct electricians as to where and how telephone, telegraph
and electrical wires are to be introduced or installed. No boring or
cutting for wires will be allowed without the prior written consent of
Landlord. The location of burglar alarms, telephones, call boxes and other
office equipment affixed to the Premises shall be subject to the prior
written approval of Landlord.
17. Tenant shall not install any radio or television antenna, satellite dish,
loudspeaker or any other device on the exterior walls or the roof of the
Building, without Landlord's consent. Tenant shall not interfere with radio
or television broadcasting or reception from or in the Building, the
Project or elsewhere.
18. Tenant shall not mark, or drive nails, screws or drill into the partitions,
woodwork or drywall or in any way deface the Premises or any part thereof
without Landlord's consent. Tenant may install nails and screws in areas of
the Premises that have been identified for those purposes to Landlord by
Tenant at the time those walls or partitions were installed in the
Premises. Tenant shall not lay linoleum, tile, carpet or any other floor
covering so that the same shall be affixed to the floor of its Premises in
any manner except as approved in writing by Landlord. The expense of
repairing any damage resulting from a violation of this rule or the removal
of any floor covering shall be borne by the tenant by whom, or by whose
contractors, employees or invitees, the damage shall have been caused.
19. No furniture, freight, equipment, materials, supplies, packages,
merchandise or other property will be received in the Building or carried
up or down the elevators except between such hours and in such elevators as
shall be designated by Landlord.
Tenant shall not place a load upon any floor of its Premises which exceeds
the load per square foot which such floor was designed to carry or which is
allowed by law. Landlord shall have the right to prescribe the weight, size
and position of all safes, furniture or other heavy equipment brought into
the Building. Safes or other heavy objects shall, if considered necessary
by Landlord, stand on wood strips of such thickness as determined by
Landlord to be necessary to properly distribute the weight thereof.
Landlord will not be responsible for loss of or damage to any such safe,
equipment or property from any cause, and all damage done to the Building
by moving or maintaining any such safe, equipment or other property shall
be repaired at the expense of Tenant.
Business machines and mechanical equipment belonging to Tenant which cause
noise or vibration that may be transmitted to the structure of the Building
or to any space therein to such a degree as to be objectionable to Landlord
or to any tenants in the Building shall be placed and maintained by Tenant,
at Tenant's expense, on vibration eliminators or other devices sufficient
to eliminate noise or vibration. The persons employed to move such
equipment in or out of the Building must be acceptable to Landlord.
20. Tenant shall not install, maintain or operate upon its Premises any vending
machine without the written consent of Landlord.
21. There shall not be used in any space, or in the public areas of the Project
either by Tenant or others, any hand trucks except those equipped with
rubber tires and side guards or such other material handling equipment as
Landlord may approve. Tenants using hand trucks shall be required to use
the freight elevator, or such elevator as Landlord shall designate. No
other vehicles of any kind shall be brought by Tenant into or kept in or
about its Premises.
22. Each tenant shall store all its trash and garbage within the interior of
the Premises. Tenant shall not place in the trash boxes or receptacles any
personal trash or any material that may not or cannot be disposed of in the
ordinary and customary manner of removing and disposing of trash and
garbage in the city, without violation of any law or ordinance governing
such disposal. All trash, garbage and refuse disposal shall be made only
through entry-ways and elevators provided for such purposes and at such
times as Landlord shall designate. If the Building has implemented a
building-wide recycling program for tenants, Tenant shall use good faith
efforts to participate in said program.
23. Canvassing, soliciting, distribution of handbills or any other written
material and peddling in the Building and the Project are prohibited and
each tenant shall cooperate to prevent the same. No tenant shall make
room-to-room solicitation of business from other tenants in the Building or
the Project, without the written consent of Landlord.
24. Landlord shall have the right, exercisable without notice and without
liability to any tenant, to change the name and address of the Building and
the Project. Landlord shall reimburse Tenant for any actual costs
reasonably incurred by Tenant as a result of such change.
25. Landlord reserves the right to exclude or expel from the Project any person
who, in Landlord's judgment, is under the influence of alcohol or drugs or
who commits any act in violation of any of these Rules and Regulations.
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26. Without the prior written consent of Landlord, Tenant shall not use the
name of the Building or the Project or any photograph or other likeness of
the Building or the Project in connection with, or in promoting or
advertising, Tenant's business except that Tenant may include the
Building's or Project's name in Tenant's address.
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27. Tenant shall comply with all safety, fire protection and evacuation
procedures and regulations established by Landlord or any governmental
agency.
28. Tenant assumes any and all responsibility for protecting its Premises from
theft, robbery and pilferage, which includes keeping doors locked and other
means of entry to the Premises closed.
29. The requirements of Tenant will be attended to only upon appropriate
application at the office of the Building by an authorized individual.
Employees of Landlord shall not perform any work or do anything outside of
their regular duties unless under special instructions from Landlord, and
no employees of Landlord will admit any person (tenant or otherwise) to any
office without specific instructions from Landlord.
30. Landlord reserves the right to designate the use of the parking spaces on
the Project. Tenant or Tenant's guests shall park between designated
parking lines only, and shall not occupy two parking spaces with one car.
Parking spaces shall be for passenger vehicles only; no boats, trucks,
trailers, recreational vehicles or other types of vehicles may be parked in
the parking areas (except that trucks may be loaded and unloaded in
designated loading areas). Vehicles in violation of the above shall be
subject to tow-away, at vehicle owner's expense. Vehicles parked on the
Project overnight without prior written consent of the Landlord shall be
deemed abandoned and shall be subject to tow-away at vehicle owner's
expense. No tenant of the Building shall park in visitor or reserved
parking areas. Any tenant found parking in such designated visitor or
reserved parking areas or unauthorized areas shall be subject to tow-away
at vehicle owner's expense. The parking areas shall not be used to provide
car wash, oil changes, detailing, automotive repair or other services
unless otherwise approved or furnished by Landlord. Tenant will from time
to time, upon the request of Landlord, supply Landlord with a list of
license plate numbers of vehicles owned or operated by its employees or
agents.
31. No smoking of any kind shall be permitted anywhere within the Building,
including, without limitation, the Premises and those areas immediately
adjacent to the entrances and exits to the Building, or any other area as
Landlord elects. Smoking in the Project is only permitted in smoking areas
identified by Landlord, which may be relocated from time to time.
32. If the Building furnishes common area conferences rooms for tenant usage,
Landlord shall have the right to control each tenant's usage of the
conference rooms, including limiting tenant usage so that the rooms are
equally available to all tenants in the Building. Any common area amenities
or facilities shall be provided from time to time at Landlord's discretion.
33. Tenant shall not swap or exchange building keys or cardkeys with other
employees or tenants in the Building or the Project.
34. Tenant shall endeavor to cause the observance of all of the foregoing Rules
and Regulations by Tenant's employees, agents, clients, customers, invitees
and guests.
35. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify, alter or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of any premises in the
Project.
36. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular tenant or tenants, but no such waiver by Landlord
shall be construed as a waiver of such Rules and Regulations in favor of
any other tenant or tenants, nor prevent Landlord from thereafter enforcing
any such Rules and Regulations against any or all tenants of the Building.
37. Landlord reserves the right to make such other and reasonable rules and
regulations as in its judgment may from time to time be needed for safety
and security, for care and cleanliness of the Building and the Project and
for the preservation of good order therein. Tenant agrees to abide by all
such Rules and Regulations herein stated and any additional rules and
regulations which are adopted.
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EXHIBIT B
SITE PLAN
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EXHIBIT C
LEASE IMPROVEMENT AGREEMENT
This Lease Improvement Agreement ("IMPROVEMENT AGREEMENT")
sets forth the terms and conditions relating to construction of the initial
tenant improvements described in each of the Building A Premises Plans (as
defined herein) to be prepared and approved as provided below (the "BUILDING A
PREMISES TENANT IMPROVEMENTS") in the Building A Premises and the Building B
Premises Plans (as defined herein) to be prepared and approved as provided below
(the "BUILDING B PREMISES TENANT IMPROVEMENTS", and together with the Building A
Tenant Improvements, collectively, the "TENANT IMPROVEMENTS". Capitalized terms
used but not otherwise defined herein shall have the meanings set forth in the
Lease (the "LEASE") to which this Improvement Agreement is attached and forms a
part.
A. THE PREMISES.
1. BASE BUILDING WORK. Landlord acknowledges that it has commenced, and
agrees to diligently pursue to completion at Landlord's sole cost,
construction of the Building and base portion of the Building, and parking,
landscaping and other elements (the "BASE BUILDING WORK") each as
identified on, and substantially in accordance with, the permit set of
plans and specifications described on SCHEDULE 1 to this EXHIBIT C, subject
to normal construction deviations, and subject to and in accordance with
Regulations. Schedule 1 has previously been approved by the City of San
Carlos and was made available to Tenant for review prior to the execution
of the Lease.
2. SPECIFICATIONS FOR STANDARD TENANT IMPROVEMENTS.
2.1. Specifications of standard building components which will
comprise and be used in the construction of the Tenant Improvements
("STANDARDS") are set forth in SCHEDULE 2 to this EXHIBIT C. As used
herein, "STANDARDS" or "BUILDING STANDARDS" shall mean the standards for a
particular item selected from time to time by Landlord for the Building,
including those set forth on SCHEDULE 2 of this EXHIBIT C, or such other
standards of equal or better quality as may be mutually agreed between
Landlord and Tenant in writing.
2.2. No deviations from the Standards are permitted, except as
requested by Tenant and approved by Landlord in the Building A Premises
Plans and/or the Building B Premises Plans, as the case may be. Tenant
shall pay all costs and expenses associated with any deviation from
Building Standards. Landlord reserves the right to require restoration to
the Building Standards, those specialized improvements and/or those
improvements that are not consistent with the overall Building Standards
and systems.
2.3. Tenant shall provide to Landlord the names and qualifications
of any consulting engineers or design build contractors that Tenant or
Space Planner (as defined herein) shall employ to design the Building A
Premises Space Plan, the Building A Premises Plans, the Building B
Premises Space Plan and the Building B Premises Plans.
3. MISCELLANEOUS. A default under this Improvement Agreement shall
constitute a default under the Lease, and the parties shall be entitled to
all rights and remedies under the Lease in the event of a default hereunder
by the other party (notwithstanding that the Term thereof has not
commenced).
B. THE BUILDING A PREMISES.
1. BUILDING A PREMISES PLANS AND SPECIFICATIONS.
1.1. Tenant shall retain the services of DES Architects/Engineers (the
"SPACE PLANNER") to prepare a detailed space plan (the "BUILDING A PREMISES
SPACE PLAN") mutually satisfactory to Landlord and Tenant for the construction
of the Building A Premises Tenant Improvements in the Building A Premises. The
Building A Premises Space Plan shall include floor and furniture plans
(including partial and full height partitions, flooring, case work, doors, and
sidelites). Landlord shall approve or disapprove the Building A Premises Space
Plan and any proposed revisions thereto in writing within five (5) business days
after receipt thereof, which approval shall not be unreasonably withheld. In the
event that Tenant fails to deliver an approved Building A Premises Space Plan on
or before November 8, 1999, such failure shall constitute a Tenant Delay
hereunder.
1.2. Based on the approved Building A Premises Space Plan, Tenant shall
cause the Space Planner to prepare detailed plans, specifications and working
drawings for the construction of the Building A Premises Tenant Improvements
(the "BUILDING A PREMISES PLANS"). Tenant has commenced and shall continue to
diligently pursue the preparation of the Building A Premises Plans. Landlord
shall approve or disapprove the Building A Premises Plans and any proposed
revisions thereto, including the estimated cost of the Building A Premises
Tenant Improvements, in writing within three (3) business days after receipt
thereof. If Landlord fails to approve or disapprove the Building A Premises
Space Plan or Building A Premises Plans or any revisions thereto within the time
limits specified herein, Landlord shall be deemed to have approved the same.
Tenant shall cause the final Building A Premises Plans and the cost estimate to
be prepared and approved no later than December 22, 1999. In the event Tenant
fails to prepare and approve the final Building A Premises Plans and the cost
estimate on or before December 22, 1999, such failure shall constitute a Tenant
Delay hereunder.
1.3. In connection with the development of the Building A Premises
Plans, on or before November 23, 1999, Tenant shall cause the Space Planner, in
cooperation with Landlord and Landlord's contractor, to identify and to approve
in writing all long-lead items and shall provide to Landlord a written list of
such items. For purposes of this Improvement Agreement, long-lead items shall be
construction materials and equipment essential for the timely completion of the
Building A Premises Tenant Improvements, including, but not limited to, carpet,
light fixtures, supplemental HVAC and special finishes. In the event Tenant
fails to deliver such written list to Landlord on or before November 23, 1999,
such failure shall constitute a Tenant Delay hereunder.
1.4. Notwithstanding the foregoing, Tenant shall cause the Space
Planner to deliver to Landlord on or before December 22, 1999 plans,
specifications and working drawings for the construction of the Building A
Premises Tenant Improvements which are sufficiently complete to enable the City
of San Carlos to issue any required permits.
1.5. Notwithstanding Landlord's review and approval of the Building A
Premises Space Plan and the Building A Premises Plans and any revisions thereto,
Landlord shall have no responsibility or liability whatsoever for any errors or
omissions contained in the Building A Premises Space Plan or Building A Premises
Plans, or to verify dimensions or conditions, or for the quality, design or
compliance with applicable Regulation of any improvements described therein or
constructed in accordance therewith. Landlord hereby assigns to Tenant all
warranties and guarantees by the contractor who constructs the Building A
Premises Tenant Improvements relating to the Building A Premises Tenant
Improvements, and Tenant hereby waives all claims against Landlord relating to,
or arising out of the design of the Building A Premises Tenant Improvements.
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2. CONSTRUCTION OF BUILDING A PREMISES TENANT IMPROVEMENTS.
2.1. Upon Landlord's approval of the Building A Premises Plans
including the estimate of the cost of the Building A Premises Tenant
Improvements, Landlord shall cause its contractor to proceed to secure a
building permit and commence construction of the Building A Premises Tenant
Improvements provided that Tenant shall cooperate with Landlord in executing
permit applications and performing other actions reasonably necessary to enable
Landlord to obtain any required permits or certificates of occupancy. Landlord
shall make commercially reasonable efforts to cause its contractor to complete
the Building A Premises Tenant Improvements as soon as is reasonably
practicable.
2.2. Without limiting the provisions of Paragraph 35 of the Lease,
Landlord shall not be liable for any direct or indirect damages suffered by
Tenant as a result of delays in construction beyond Landlord's reasonable
control, including, but not limited to, delays due to strikes or unavailability
of materials or labor, or delays caused by Tenant (including delays by the Space
Planner, Tenant's contractor or anyone else performing services on behalf of
Tenant).
2.3. If any work is to be performed on the Building A Premises by
Tenant or Tenant's contractor or agents:
(a) Such work shall proceed upon Landlord's written
approval of Tenant's contractor, public liability and property
damage insurance carried by Tenant's contractor, and detailed
plans and specifications for such work, shall be at Tenant's
sole cost and expense and shall further be subject to the
provisions of Paragraphs 12 and 27 of the Lease.
(b) All work shall be done in conformity with a valid
building permit when required, a copy of which shall be
furnished to Landlord before such work is commenced, and in
any case, all such work shall be performed in accordance with
all applicable Regulations. Notwithstanding any failure by
Landlord to object to any such work, Landlord shall have no
responsibility for Tenant's failure to comply with all
applicable Regulations.
(c) If required by Landlord or any lender of Landlord,
all work by Tenant or Tenant's contractor or agents shall be
done with union labor in accordance with all union labor
agreements applicable to the trades being employed.
(d) All work by Tenant or Tenant's contractor or agents
shall be scheduled through Landlord.
(e) Tenant or Tenant's contractor or agents shall
arrange for necessary utility, hoisting and elevator service
with Landlord's contractor and shall pay such reasonable
charges, if any, for such services as may be charged by
Tenant's or Landlord's contractor.
(f) Tenant's entry to the Building A Premises for any
purpose, including, without limitation, inspection or
performance of Tenant construction by Tenant's agents, prior
to the date Tenant's obligation to pay rent commences shall be
subject to all the terms and conditions of the Lease except
the payment of Rent with respect to the Building A Premises.
Tenant's entry shall mean entry by Tenant, its officers,
contractors, licensees, agents, servants, employees, guests,
invitees, or visitors.
(g) Tenant shall promptly reimburse Landlord upon demand
for any reasonable expense actually incurred by the Landlord
by reason of faulty work done by Tenant or its contractors or
by reason of any delays caused by such work, or by reason of
inadequate clean-up.
3. BUILDING A PREMISES TENANT IMPROVEMENT COST.
3.1. The cost of the Building A Premises Tenant Improvements (as such
costs are approved by Tenant as provided herein, except to the extent that any
costs in connection with the Building A Premises Tenant Improvements are
required for compliance with any Regulation) shall be paid for by Tenant,
including, without limitation, the cost of: Standards; space plans and studies;
architectural and engineering fees; permits, approvals and other governmental
fees; labor, material, equipment and supplies; construction fees and other
amounts payable to contractors or subcontractors; taxes; filing and recording
fees; premiums for insurance and bonds; attorneys' fees; and all other costs
expended or to be expended in the construction of the Building A Premises Tenant
Improvements; and an administration fee of ten percent (10%) of the total cost
of the Building A Premises Tenant Improvements Allowance.
3.2. Provided Tenant is not in material default under the Lease,
including this Improvement Agreement, Landlord shall contribute a one-time
tenant improvement allowance not to exceed One Million Eighty-Five Thousand Five
Hundred Seven and 50/100 Dollars ($1,085,507.50) ("BUILDING A PREMISES TENANT
IMPROVEMENT ALLOWANCE") to be credited by Landlord toward the cost of the
initial Building A Premises Tenant Improvements as provided herein. No credit
shall be given to Tenant if the cost of the Building A Premises Tenant
Improvements is less than the Building A Premises Tenant Improvement Allowance.
3.3. On or before 5:00 p.m. on the 14th day of January, 2000, Landlord
shall deliver to Tenant a construction budget in connection with the Building A
Premises Tenant Improvements which budget shall be a stipulated sum contract
(the "BUDGET") for Tenant's review and approval, which approval shall not be
unreasonably withheld, conditioned or delayed. Landlord shall enter into a
contract with Landlord's contractor on the basis of such approved Budget;
provided, however, the Budget shall be subject to change orders as provided
herein. Tenant shall either approve or disapprove the Budget in writing within
five (5) business days following the date of Landlord's delivery of the Budget.
In the event that Tenant fails to so approve or disapprove the Budget within
such time period, Tenant shall be deemed to have approved the Budget. In the
event Tenant disapproves of the Budget, Tenant shall describe in its written
objection letter those particular line items to which Tenant objects, detailed
reasons supporting such objection and a suggested remedy. If such objections are
reasonable, Landlord shall revise the Budget accordingly and shall resubmit the
Budget to Tenant for its review and approval as provided in this paragraph.
Notwithstanding the foregoing, Tenant hereby acknowledges and agrees that
Landlord shall not be required to submit the Building A Premises Tenant
Improvement work to a competitive bidding process and that Landlord shall not be
required to use the lowest costs of labor and/or materials available in the
market but shall instead be entitled, in Landlord's sole discretion, to
consider, among other things, the quality of the work and materials of
contractors, the contractors' availability and timing for the construction and
the competitive pricing of labor and materials as determined by Landlord by
referencing Landlord's prior experience through competitive bidding to
contractors in the geographic market in which Building A is located.
Notwithstanding the foregoing, in the event that Tenant objects to a Budget, any
delay caused in connection with such objection shall not be deemed a Landlord
Delay hereunder.
3.4. If the cost of the Building A Premises Tenant Improvements
increases after Tenant's approval of the Building A Premises Plans and the
Budget due to the requirements of any governmental agency or applicable
Regulation, Tenant's proportionate share pursuant to paragraph B.3.5(a) hereof
shall be adjusted accordingly.
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3.5. The costs and expenses associated with the Tenant Improvements
shall be paid as follows:
(a) Disbursement of Building A Premises Tenant Improvement
Allowance. On or before the twenty-fifth (25th) day of the calendar
month, during construction of the Building A Premises Tenant
Improvements (or such other date as Landlord may designate),
Landlord shall deliver to Tenant a request for payment of Landlord's
contractor. Such request shall include a schedule, by trade, of
percentage of completion of the Building A Premises Tenant
Improvements, detailing the portion of the work completed and the
portion not completed. Within ten (10) business days of receipt of
such request, Tenant shall deliver a check made payable (or transfer
funds electronically) to Landlord in payment of Tenant's
proportionate share of such request for payment. For purposes of
this Paragraph B.3.5(a), Tenant's proportionate share is defined as
that portion of such request for payment that is in proportion to
the excess costs (the costs in excess of the Building A Premises
Tenant Improvement Allowance), as such excess costs may from time to
time increase as provided herein, as a percentage of the total cost
of the Building A Premises Tenant Improvements. Tenant acknowledges
that it is responsible for all costs of the Building A Premises
Tenant Improvements in excess of the Building A Premises Tenant
Improvement Allowance, except to the extent that excess costs over
the Building A Premises Tenant Improvement Allowance are incurred
solely in connection with material deviations in the Base Building
Work performed by Landlord or Landlord's agents, in the Building A
Premises from the plans and specifications set forth in Schedule 1,
attached hereto.
(b) Other Terms. Landlord shall only be obligated to make
disbursements from the Building A Premises Tenant Improvement
Allowance in accordance with the terms of this Agreement.
3.6. If Tenant requests any change(s) in the Building A Premises Plans after
approval of the estimate of the cost of the Building A Premises Tenant
Improvements and any such requested changes are approved by Landlord in writing
in Landlord's reasonable discretion, Landlord shall advise Tenant promptly of
any cost increases or decreases and/or delays such approved change(s) will cause
in the construction of the Building A Premises Tenant Improvements. Tenant shall
approve or disapprove any or all such change(s) within three (3) business days
after notice from Landlord of such cost increases and/or delays. To the extent
Tenant disapproves any such cost increase and/or delay attributable thereto,
Landlord shall have the right, in its sole discretion, to disapprove Tenant's
request for any changes to the approved Building A Premises Plans. If the cost
of the Building A Premises Tenant Improvements increases due to any changes in
the Building A Premises Plan(s) requested by Tenant, Tenant shall pay the amount
of such increase and Tenant's proportionate share as defined in Paragraph
B.3.5(a) above shall be adjusted accordingly.
4. COMPLETION OF THE BUILDING A PREMISES TENANT IMPROVEMENTS AND BUILDING A
PREMISES RENTAL COMMENCEMENT DATE.
4.1. Tenant's obligation to pay Rent under the Lease with respect to
the Building A Premises shall commence on the applicable date described in
Paragraph 2 and Paragraphs 39.C and 39.E of the Lease. However:
(a) If Tenant delays in preparing or approving the Building A
Premises Space Plans or the Building A Premises Plans, or fails to
approve the estimate of the cost of the Building A Premises Tenant
Improvements or any other matter requiring Tenant's approval, or to
pay Tenant's proportionate share of the excess cost of Building A
Premises Tenant Improvements as provided herein, in each case within
the time limits specified herein; or
(b) If the construction period is extended because Tenant
requests any changes in construction, or modifies the approved
Building A Premises Plans or if the same do not comply with
applicable Regulations; or
(c) If Landlord is otherwise delayed in the construction of
the Building A Premises Tenant Improvements for any act or omission
of or breach by Tenant or anyone performing services on behalf of
Tenant or on account of any work performed on the Building A
Premises by Tenant or Tenant's contractors or agents,
then the date that the Premises shall be deemed substantially complete for
purposes of rent commencement as described in Paragraph 2 and Paragraphs 39.C
and 39.E of the Lease shall be deemed to be accelerated by the total number of
days of Tenant delays described in (a) through (c) above (each, a "TENANT
DELAY"), calculated in accordance with the provisions of Paragraph 4.2 below.
4.2. If the Building A Premises Term Commencement Date has not
commenced on or before March 1, 2000 and substantial completion of the Building
A Premises Tenant Improvements has been delayed on account of any Tenant Delays,
then upon actual substantial completion of the Tenant Improvements (as defined
in Paragraph 2 of the Lease), Landlord shall notify Tenant in writing of the
date substantial completion of the Tenant Improvements would have occurred but
for such Tenant Delays, and such date shall thereafter be deemed to be the
Building A Premises Term Commencement Date for all purposes under the Lease.
Tenant shall pay to Landlord, within three (3) business days after receipt of
such written notice (which notice shall include a summary of Tenant Delays), the
per diem Base Rent times the number of days between the date the Building A
Premises Term Commencement Date would have otherwise occurred but for the Tenant
Delays (as determined by the Space Planner or Landlord's contractor), and the
date of actual substantial completion of the Building A Premises Tenant
Improvements.
4.3. Promptly after substantial completion of the Building A Premises
Tenant Improvements, Landlord shall give notice to Tenant and Tenant shall
conduct an inspection of the Building A Premises with a representative of
Landlord and develop with such representative of Landlord a punchlist of items
of the Building A Premises Tenant Improvements that are not complete or that
require corrections. Upon receipt of such punchlist, Landlord shall proceed
diligently to remedy such items provided such items are part of the Building A
Premises Tenant Improvements to be constructed by Landlord hereunder and are
otherwise consistent with Landlord's obligations under this Improvement
Agreement and provided Tenant has fully paid Landlord for the cost of the
Building A Tenant Improvements exceeding the Building A Tenant Improvement
Allowance in accordance with the terms of this Improvement Agreement.
Substantial completion shall not be delayed notwithstanding delivery of any such
punchlist.
4.4. For purposes of the Lease and this Improvement Agreement,
"SUBSTANTIAL COMPLETION," with respect to the Building A Premises, shall have
occurred when Landlord's architect and Tenant's architect state in writing that
each of the following factors have been substantially fulfilled: (a) the
Building A Premises Tenant Improvements are substantially complete in accordance
with the approved Building A Premises Plans, the material terms of the Lease and
this Improvement Agreement and (b) the City of San Carlos confirms that Landlord
has met the material requirements for a temporary certificate of occupancy with
respect to the Building B Premises.
C. BUILDING B PREMISES.
1. BUILDING B PREMISES PLANS AND SPECIFICATIONS.
1.1 Tenant shall retain the services of Space Planner to prepare a
detailed space plan (the "BUILDING B PREMISES SPACE PLAN") mutually
satisfactory to Landlord and Tenant for the construction of the Building B
Premises Tenant Improvements in the Building B Premises. Tenant shall
submit the Building B Premises Space Plan and any proposed revisions
thereto to Landlord for
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Landlord's approval. The Building B Premises Space Plan shall include
floor and furniture plans (including partial and full height partitions,
flooring, case work, doors, and sidelites). Landlord shall approve or
disapprove the Building B Premises Space Plan and any proposed revisions
thereto in writing within five (5) business days after receipt thereof,
which approval shall not be unreasonably withheld.
1.2 Based on the approved Building B Premises Space Plan, Tenant
shall cause the Space Planner to prepare detailed plans, specifications
and working drawings mutually satisfactory to Landlord and Tenant for the
construction of the Building B Premises Tenant Improvements (the "BUILDING
B PREMISES PLANS"). Tenant shall diligently pursue the preparation of the
Building B Premises Plans. Tenant shall submit to Landlord for approval
the Building B Premises Plans and any proposed revisions thereto,
including the estimated cost of the Building B Premises Tenant
Improvements. Landlord shall respond with its approval or disapproval of
the Building B Premises Plans within eight (8) business days after
Landlord's receipt thereof. All necessary revisions to the Building B
Premises Space Plan and the Building B Premises Plans shall be made within
ten (10) business days after Landlord's response thereto. This procedure
shall be repeated until Landlord ultimately approves the Building B
Premises Space Plan and Building B Premises Plans.
1.3 Tenant shall be responsible for ensuring that the Building B
Premises Plans are compatible with the design, construction and equipment
of Building B, comply with applicable Regulations and the Standards
(defined herein), and contain all such information as may be required to
show locations, types and requirements for all heat loads, people loads,
floor loads, power and plumbing, regular and special HVAC needs, telephone
communications, telephone and electrical outlets, lighting, light fixtures
and related power, and electrical and telephone switches, B.T.U.
calculations, electrical requirements and special receptacle requirements.
The Building B Premises Plans shall also include mechanical, electrical,
plumbing, structural and engineering drawings mutually satisfactory to
Landlord and Tenant which shall be prepared by Space Planner or Space
Planner or Tenant's consulting engineers or design build contractors.
Notwithstanding Landlord's review and approval of the Building B Premises
Space Plan and the Building B Premises Plans and any revisions thereto,
Landlord shall have no responsibility or liability whatsoever for any
errors or omissions contained in the Building B Premises Space Plan or
Building B Premises Plans or any revisions thereto, or to verify
dimensions or conditions, or for the quality, design or compliance with
applicable Regulations of any improvements described therein or
constructed in accordance therewith. Tenant hereby waives all claims
against Landlord relating to, or arising out of the design or construction
of, the Building B Premises Tenant Improvements.
1.4 Landlord may approve or disapprove the Building B Premises Space
Plan or Building B Premises Plans or any proposed revision thereto
submitted to Landlord in Landlord's reasonable discretion. Landlord shall
approve or disapprove any Building B Premises Plans or proposed revisions
thereto submitted to Landlord for Landlord's approval within eight (8)
business days after Landlord's receipt thereof. Landlord shall not be
deemed to have approved the Building B Premises Space Plan, the Building B
Premises Plans, or any proposed revisions thereto, unless approved by
Landlord in writing and if Landlord has not approved in writing any
Building B Premises Space Plan, Building B Premises Plans, or proposed
revisions thereto submitted to Landlord within ten (10) business days
after Landlord's receipt thereof, Landlord shall be deemed to have
disapproved the same.
2. CONSTRUCTION OF BUILDING B PREMISES TENANT IMPROVEMENTS.
2.1 Within ten (10) days after Tenant's and Landlord's approval of
the Building B Premises Plans including the estimate of the cost of the
Building B Premises Tenant Improvements, Tenant shall cause the contractor
to proceed to secure a building permit and commence construction of the
Building B Premises Tenant Improvements provided that the Building has in
Landlord's discretion reached the stage of construction where it is
appropriate to commence construction of the Building B Premises Tenant
Improvements in the Building B Premises.
2.2 Tenant shall be responsible for obtaining all governmental
approvals to the full extent necessary for the construction and
installation of the Building B Premises Tenant Improvements and for
Tenant's occupancy of the Building B Premises, in compliance with all
applicable Regulations (except with respect to Regulations applicable
solely to Landlord's construction of the Base Building Work located in the
Building B Premises). Tenant shall employ DevCon as the contractor or such
other contractor or contractors as shall be approved by Landlord in
writing to construct the Building B Premises Tenant Improvements in
conformance with the approved Building B Premises Space Plan and Building
B Premises Plans. The construction contracts between Tenant and the
approved contractor shall be subject to Landlord's prior reasonable
approval and shall provide for progress payments. The contractor(s) shall
be duly licensed and Landlord's approval of the contractor(s) shall be
conditioned, among other things, upon the contractor's reputation for
quality of work, timeliness of performance, integrity and Landlord's prior
experience with such contractor.
2.3 Without limiting the provisions of Paragraph 35 of the Lease,
Landlord shall not be liable for any direct or indirect damages suffered
by Tenant as a result of delays in construction beyond Landlord's
reasonable control, including, but not limited to, delays due to strikes
or unavailability of materials or labor, or delays caused by Tenant
(including delays by the Space Planner, the contractor or anyone else
performing services on behalf of Landlord or Tenant).
2.4 All work to be performed on the Building B Premises by Tenant or
Tenant's contractor or agents shall be subject to the following
conditions:
(a) Such work shall proceed upon Landlord's written approval of
Tenant's contractor, and public liability and property damage insurance carried
by Tenant's contractor, and shall further be subject to the provisions of
Paragraphs 12 and 27 of the Lease.
(b) All work shall be done in conformity with a valid building
permit when required, a copy of which shall be furnished to Landlord before such
work is commenced, and in any case, all such work shall be performed in a good
and workmanlike and first-class manner, and in accordance with all applicable
Regulations and the requirements and standards of any insurance underwriting
board, inspection bureau or insurance carrier insuring the Building B Premises
pursuant to the Lease. Notwithstanding any failure by Landlord to object to any
such work, Landlord shall have no responsibility for Tenant's failure to comply
with all applicable Regulations. Tenant shall be responsible for ensuring that
construction and installation of the Building B Premises Tenant Improvements
will not affect the structural integrity of Building B.
(c) If required by Landlord or any lender of Landlord, all work
by Tenant or Tenant's contractor shall be done with union labor in accordance
with all union labor agreements applicable to the trades being employed.
(d) Landlord or Landlord's agents shall have the right to
inspect the construction of the Building B Premises Tenant Improvements by
Tenant during the progress thereof. If Landlord shall give notice of faulty
construction or any other deviation from the approved Building B Premises Space
Plan or Building B Premises Plans, as such faulty construction is reasonably
determined by Landlord, Tenant shall cause its contractor to make corrections
promptly. However, neither the privilege herein granted to Landlord to make such
inspections, nor the making of such inspections by Landlord, shall operate as a
waiver of any
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right of Landlord to require good and workmanlike construction and improvements
erected in accordance with the approved Building B Premises Space Plan or
Building B Premises Plans.
(e) Tenant shall make reasonable efforts to cause its contractor
to complete the Building B Premises Tenant Improvements as soon as reasonably
possible.
(f) Tenant's construction of the Building B Premises Tenant
Improvements shall comply with the following: (i) the Building B Premises
Tenant Improvements shall be constructed in strict accordance with the
approved Building B Premises Space Plan or Building B Premises Plans; (ii)
Tenant and its contractor shall submit schedules of all work relating to the
Building B Premises Tenant Improvements to Landlord for Landlord's approval
within two (2) business days following the selection of the contractor and
the approval of the Building B Premises Plans. Landlord shall within five (5)
business days after receipt thereof inform Tenant of any changes which are
necessary and TENANT SHALL ENDEAVOR TO CAUSE Tenant's contractor TO adhere to
such corrected schedule; and (iii) Tenant shall abide by all rules made by
Landlord with respect to the use of freight, loading dock, and service
elevators, storage of materials, coordination of work with the contractors of
other tenants, and any other matter in connection with this Improvement
Agreement, including, without limitation, the construction of the Building B
Premises Tenant Improvements.
(g) Tenant or Tenant's contractor or agents shall arrange for
necessary utility, hoisting and elevator service with Landlord's contractor and
shall pay such reasonable charges for such services, IF ANY, as may be charged
by Tenant's or Landlord's contractor.
(h) Tenant's entry to the Building B Premises for any purpose,
including, without limitation, inspection or performance of Tenant construction
by Tenant's agents, prior to the date Tenant's obligation to pay rent commences
shall be subject to all the terms and conditions of the Lease except the payment
of Rent with respect to the Building B Premises. Tenant's entry shall mean entry
by Tenant, its officers, contractors, licensees, agents, servants, employees,
guests, invitees, or visitors.
(i) Tenant shall promptly reimburse Landlord upon demand for any
reasonable expense actually incurred by the Landlord by reason of faulty work
done by Tenant or its contractors or by reason of any delays caused by such
work, or by reason of inadequate clean-up.
(j) Except to the extent caused by Landlord's gross
negligence or willful misconduct, Tenant hereby indemnifies and holds
Landlord harmless with respect to any and all costs, losses, damages,
injuries and liabilities relating in any way to any act or omission of Tenant
or Tenant's contractor or agents, or anyone directly or indirectly employed
by any of them, in connection with the Building B Premises Tenant
Improvements and any breach of Tenant's obligations under this Improvement
Agreement, or in connection with Tenant's non-payment of any amount arising
out of the Building B Premises Tenant Improvements as such amounts are due
from Tenant as expressly provided herein. Such indemnity by Tenant, as set
forth above, shall also apply with respect to any and all costs, losses,
damages, injuries, and liabilities related in any way to Landlord's
performance OF any ministerial acts reasonably necessary (i) to permit Tenant
to complete the Building B Premises Tenant Improvements, and (ii) to enable
Tenant to obtain any building permit or certificate of occupancy for the
Building B Premises.
(k) Tenant's contractor and the subcontractors utilized by
Tenant's contractor shall guarantee to Tenant and for the benefit of Landlord
that the portion of the Building B Premises Tenant Improvements for which it is
responsible shall be free from any defects in workmanship and materials for a
period of not less than one (1) year from the date of completion thereof. Each
of Tenant's contractor and the subcontractors utilized by Tenant's contractor
shall be responsible for the replacement or repair, without additional charge,
of all work done or furnished in accordance with its contract that shall become
defective within one (1) year after the later to occur of (i) completion of the
work performed by such contractor of subcontractors and (ii) the Building B
Premises Term Commencement Date. The correction of such work shall include,
without additional charge, all additional expenses and damages incurred in
connection with such removal or replacement of all or any part of the Building B
Premises Tenant Improvements, and/or Building B and/or common areas that may be
damaged or disturbed thereby. All such warranties or guarantees as to materials
or workmanship of or with respect to the Building B Premises Tenant Improvements
shall be contained in the construction contract or subcontract and shall be
written such that such guarantees or warranties shall inure to the benefit of
both Landlord and Tenant, as their respective interests may appear, and can be
directly enforced by either. Tenant covenants to give to Landlord any assignment
or other assurances which may be necessary to effect such rights of direct
enforcement.
(l) Commencing upon Landlord's delivery of the Building B
Premises to Tenant, Tenant shall hold weekly meetings at a reasonable time with
the Space Planner and the contractor regarding the progress of the preparation
of the Building B Premises Plans and the construction of the Building B Premises
Tenant Improvements, which meetings shall be held at a location designated by
Tenant, and Landlord and/or its agents shall receive prior notice of, and shall
have the right to attend, all such meetings, and upon Landlord's request,
certain of Tenant's contractors shall attend such meetings. One such meeting
each month shall include the review of contractor's current request for payment.
2.5 Tenant and Tenant's contractors and all other parties performing
work on the Premises on Tenant's behalf shall comply with the each of the
Building rules and regulations as described in the Lease and with the contractor
rules and regulations, attached hereto as SCHEDULE 3. Tenant shall be liable for
any violation of the Building or the contractor rules and regulations by
Tenant's contractors or any other party performing work on the Premises on
Tenant's behalf.
3. BUILDING B PREMISES TENANT IMPROVEMENT COST.
3.1 The cost of the Building B Premises Tenant Improvements shall be
paid for by Tenant, including, without limitation, the cost of: Standards;
space plans and studies; architectural and engineering fees; permits,
approvals and other governmental fees; labor, material, equipment and
supplies; construction fees and other amounts payable to contractors or
subcontractors; taxes; taxes; filing and recording fees; premiums for
insurance and bonds; attorneys' fees; and all other costs expended or to
be expended in the construction of the Building B Premises Tenant
Improvements; and an administration fee payable to Landlord of six percent
(6%) of the total cost of the Building B Premises Tenant Improvements
Allowance.
3.2 Provided Tenant is not in material default under the Lease,
including this Improvement Agreement, Landlord shall contribute a one-time
tenant improvement allowance not to exceed Three Million Three Hundred
Thirty-Two Thousand Two Hundred Two and 50/100 Dollars ($3,332,202.50)
("BUILDING B PREMISES TENANT IMPROVEMENT ALLOWANCE") toward the cost of
the initial Building B Premises Tenant Improvements. Provided Tenant is
not then in default under the Lease, including this Improvement Agreement,
during the construction of the Tenant Improvements, Landlord shall make
monthly disbursements of the Building B Premises Tenant Improvement
Allowance for the benefit of Tenant in connection with the costs and
expenses associated with the Building B Premises Tenant Improvements and
shall authorize the release of monies for the benefit of Tenant as
follows:
(a) Monthly Disbursements. On or before the twenty-first (21st) day
of the calendar month, during the construction of the Tenant Improvements
(or such other date as Landlord may designate in writing), Tenant shall
deliver to Landlord: (i) a request
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for payment of Tenant's contractor, which request shall be approved by
Tenant, showing the schedule, by trade, of percentage of completion of the
Building B Premises Tenant Improvements, detailing the portion of the work
completed and the portion not completed; (ii) invoices from any
subcontractor, laborer, materialmen, supplier and any other party which
performed work on Tenant's behalf pursuant to this Exhibit C, including,
but not limited to, labor rendered and materials delivered to the Building
B Premises; (iii) executed conditional mechanic's lien releases from all
of the parties submitting invoices with respect to the work performed and
for which payment is requested to be made, which releases shall comply
with the appropriate provisions of California Civil Code 3262(d); (iv)
executed unconditional mechanic's lien releases from all of the parties
with respect to work performed and included on prior pay requests, which
releases shall comply with the appropriate provisions of California Civil
Code; and (v) all other information reasonably requested by Landlord.
Tenant's request for payment shall be deemed Tenant's acceptance and
approval of the specific work furnished and or the materials actually
supplied as set forth in Tenant's payment request. Within ten (10)
business days thereafter, Landlord shall deliver a check (or transfer
funds electronically) to Tenant made jointly payable to Tenant's
contractor and Tenant in payment of the lesser of (A) Landlord's
proportionate share of the amount of such request for payment by Tenant's
contractor, as set forth in this paragraph, less a ten percent (10%)
retention (the aggregate amount of such retentions to be known as the
"FINAL RETENTION"), and (B) the balance of any remaining available portion
of the Building B Premises Tenant Improvement Allowance (not including the
Final Retention), provided Landlord does not dispute any request for
payment based upon noncompliance with the Plans and or Standards, or due
to any substandard work, or for any other reasonable cause. For purposes
of this Improvement Agreement, Landlord's proportionate share shall be the
product of the following: (X) the amount of the Building B Premises Tenant
Improvement Allowance over total cost of the Building B Premises Tenant
Improvements, as such total cost may from time to time increase as
provided herein, multiplied by (Y) the total amount approved by Landlord
in Tenant's written request for payment as described above. Landlord's
payment of such amounts shall not be deemed Landlord's approval or
acceptance of the work furnished or materials supplied as set forth in
Tenant's payment request.
(b) Final Retention. Subject to the provisions of this Exhibit C, a
check for the Final Retention payable jointly to Tenant's contractor and
Tenant shall be delivered by Landlord to Tenant following the completion
of the construction of the Building B Premises Tenant Improvements and
expiration of the time for filing of any mechanics' liens claimed or which
might be filed on account of any work ordered by Tenant or its contractor
or any subcontractor; provided that (A) Tenant delivers to Landlord
properly executed and unconditional mechanics lien releases in compliance
with both California Civil Code Section 3262(d)(2) and with Section
3262(d)(3) or Section 3262(d)(4) (which mechanics' lien releases shall be
executed by the subcontractors, labor suppliers and materialmen in
addition to Tenant's contractor), and all appropriate bills and supporting
documentation for the work ordered by Tenant or its contractor or any
subcontractor, (B) Landlord has determined that no substantial work exists
which adversely affects the mechanical, electrical, plumbing, heating,
ventilating and air conditioning, life-safety or other systems of the
Building or Project, the structure or exterior appearance of the Building
or Project, and (C) Space Planner and Tenant's contractor deliver to
Landlord a certificate of completion, in a form reasonably acceptable to
Landlord certifying that the construction of the Building B Premises
Tenant Improvements has been substantially completed.
(c) Other Terms. Landlord shall only be obligated to make
disbursements from the Building B Premises Tenant Improvement Allowance in
accordance with the terms of this Agreement.
3.3 If the cost of the Building B Premises Tenant Improvements
increases after the Tenant's approval of the Building B Premises Plans due
to the requirements of any governmental agency or applicable Regulation,
Landlord's proportionate share pursuant to paragraph C3.2.(a) above shall
be adjusted accordingly.
3.4 If Tenant requests any change(s) in the Building B Premises
Plans after approval of the estimate of the cost of the Building B
Premises Tenant Improvements and any such requested changes are approved
by Landlord in writing in Landlord's reasonable discretion, Landlord's
proportionate share pursuant to paragraph C3.2.(a) above shall adjust
accordingly.
4. BUILDING B PREMISES INSURANCE REQUIREMENTS.
4.1 All of Tenant's contractors shall carry worker's compensation
insurance covering all of their respective employees, and shall also carry
public liability insurance, including property damage, all with limits, in
form and with companies as are required to be carried by Tenant as set
forth in Paragraph 8 of the Lease.
4.2 Tenant or Tenant's contractor shall carry "Builder's Risk"
insurance in an amount approved by Landlord covering the construction of
the Building B Premises Tenant Improvements, and such other insurance as
Landlord may require, it being understood and agreed that the Building B
Premises Tenant Improvements shall be insured by Tenant pursuant to
Paragraph 8 of the Lease immediately upon completion thereof. Such
insurance shall be in amounts and shall include such extended coverage
endorsements as may be reasonably required by Landlord including, but not
limited to, the requirement that all of Tenant's contractors shall carry
general liability and Products and Completed Operation coverage insurance,
each in amounts not less than $500,000 per incident, $1,000,000 in
aggregate, and in form and with companies as are required to be carried by
Tenant as set forth in Paragraph 8 of the Lease.
4.3 Certificates for all insurance carried pursuant to this
Improvement Agreement must comply with the requirements of Paragraph 8 of
the Lease and shall be delivered to Landlord before the commencement of
construction of the Building B Premises Tenant Improvements and before the
contractor's equipment is moved onto the site. In the event the Building B
Premises Tenant Improvements are damaged by any cause during the course of
the construction thereof, Tenant shall immediately repair the same at
Tenant's sole cost and expense. Tenant's contractors shall maintain all of
the foregoing insurance coverage in force until the Building B Premises
Tenant Improvements are fully completed and accepted by Landlord, except
for any Product and Completed Operation Coverage insurance required by
Landlord, which is to be maintained for ten (10) years following
completion of the work and acceptance by Landlord and Tenant. All policies
carried under this Paragraph C.4.3 shall insure Landlord and Tenant, as
their interests may appear, as well as the contractors. All insurance
maintained by Tenant's contractors shall preclude subrogation claims by
the insurer against anyone insured thereunder. Such insurance shall
provide that it is primary insurance as respects the owner and that any
other insurance maintained by owner is excess and noncontributing with the
insurance required hereunder. Landlord may, in its discretion, require
Tenant or Tenant's contractor to obtain a lien and completion bond or some
alternate form of security satisfactory to Landlord in an amount
sufficient to ensure the lien-free completion of the Building B Premises
Tenant Improvements and naming Landlord as a co-obligee.
5. BUILDING B PREMISES COMPLETION AND BUILDING B PREMISES RENTAL COMMENCEMENT
DATE.
5.1 Tenant's obligation to pay an increase in Rent as described in
Paragraph 39.A of the Lease shall commence on the Building B Premises Term
Commencement Date described in Paragraph 39.C of the Lease,
notwithstanding anything to the contrary contained in Paragraph 2 of the
Lease. However, except as otherwise provided herein, Landlord Delays (as
defined below) shall extend the Building B Premises Term Commencement
Date, but only in the event that substantial completion of the Building B
Premises Tenant Improvements is actually delayed beyond September 1, 2000,
despite Tenant's reasonable efforts to adapt and compensate for such
delays. In addition, no Landlord Delays shall be deemed to have occurred
unless Tenant has provided notice, in
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compliance with the Lease, to Landlord specifying that a delay shall be
deemed to have occurred because of actions, inactions or circumstances
specified in the notice in reasonable detail. If such actions, inactions or
circumstances are not cured by Landlord within one (1) business day after
receipt of such notice ("COUNT DATE"), and if such actions, inaction or
circumstances otherwise qualify as a Landlord Delay, then a Landlord Delay
shall be deemed to have occurred commencing as of the Count Date. The
Building B Premises Term Commencement Date shall be extended by one day for
each day from the Count Date that a Landlord Delay has occurred, as
calculated as provided above. The term "Landlord Delays," as such term may
be used in this Improvement Agreement, shall mean any actual delays in the
completion of the Building B Premises Tenant Improvements which are due to
any act or omission of Landlord, its agents or contractors. Landlord Delays
shall include: (i) delays in the giving of authorizations or approvals by
Landlord beyond the periods provided in this Improvement Agreement, (ii)
delays due to the acts or failures to act, of Landlord, its agents or
contractors, where such acts or failures to act actually result in a delay
OF the completion of the Tenant Improvements beyond September 1, 2000,
provided that Tenant acts in a commercially reasonable manner to mitigate
any such delay, and (iii) delays due to the unreasonable interference of
Landlord, its agents or contractors with the completion of the Tenant
Improvements. Notwithstanding anything to the contrary contained in this
Improvement Agreement or in the Lease, if a Landlord Delay does occur but
the Building B Premises is substantially complete on or before September 1,
2000, then the Building B Premises Term Commencement Date shall not be
extended and shall be the date described in Paragraph 39.C(2) of the Lease.
In the event a Landlord Delay shall not occur, then the Building B Premises
Term Commencement Date shall be the date described in Paragraph 39.C of the
Lease.
5.2 Within ten (10) days after completion of construction of the
Building B Premises Tenant Improvements, Tenant shall cause a Notice of
Completion to be recorded in the office of the Recorder of the county in
which Building B is located in accordance with Section 3093 of the Civil
Code of the State of California or any successor statute, and shall
furnish a copy thereof to Landlord upon such recordation. If Tenant fails
to do so, Landlord may execute and file the same on behalf of Tenant as
Tenant's agent for such purpose, at Tenant's sole cost and expense. At the
conclusion of construction, (i) Tenant shall cause the Space Planner and
the contractor (i) to update the approved Building B Premises Plans as
necessary to reflect all changes made to the approved Building B Premises
Plans during the course of construction, (ii) to certify to the best of
their knowledge that the "record-set" of as-built drawings are true and
correct, which certification shall survive the expiration or termination
of the Lease, and (c) to deliver to Landlord two (2) sets of copies of
such record set of "as-built" drawings on CAD within ninety (90) days
following issuance of a certificate of occupancy for the Building B
Premises, and (iii) Tenant shall deliver to Landlord a copy of all
warranties, guarantees, and operating manuals and information relating to
the improvements, equipment, and systems in the Building B Premises.
5.3 For purposes of the Lease and this Improvement Agreement,
"SUBSTANTIAL COMPLETION," with respect to the Building B Premises, shall
have occurred when Landlord's architect and Tenant's architect state in
writing that the Building B Premises Tenant Improvements are substantially
complete in accordance with the terms of the Lease and this Improvement
Agreement.
37
<PAGE>
SCHEDULE 1
TO EXHIBIT C
BASE BUILDING WORK
The Base Building Work is defined as that work which is identified on the
contract documents listed below, which are incorporated into Landlord's Contract
for Construction Services with Devcon Construction, and including any changes,
revisions and modifications that may have been made to such contract documents
before, during or after construction of the Base Building.
SPECIFICATIONS, titled "Skyway Landing" by B.H. Bocook Architect, Inc., dated
December 21, 1998.
DRAWINGS, titled "Skyway Landing" by B.H. Bocook Architect, Inc., as follow:
<TABLE>
<CAPTION>
Drawing/Dated Drawing/Dated Drawing/Dated
- ------------------------------------------ ----------------------------------------- ------------------------------------------
<S> <C> <C>
A-0.0 /March 19, 1999 A-4.1B /March 19, 1999 E0.0 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-0.1 /December 18, 1998 A-4.2B /March 19, 1999 E0.1 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-0.2 /December 18, 1998 A-4.3B /March 19, 1999 E-1.0 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-0.3 /December 18, 1998 A-5.1 /December 18, 1998 E-1.1 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-0.4A /December 18, 1998 A-6.1A /December 18, 1998 E-1.2 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-0.4B /December 18, 1998 A-6.2A /October 9, 1998 E-2.1.1A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-1.1 /April 9, 1999 A-6.3A /October 9, 1998 E-2.1.2A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-1.2 /April 9, 1999 A-6.1B /December 18, 1998 E-2.2.1A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-1.3 /April 9, 1999 A-6.2B /October 9, 1998 E-2.2.2A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-2.1 /April 9, 1999 A-6.3B /October 9, 1998 E-2.3.1A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-2.2 /April 9, 1999 A-7.1A /December 18, 1998 E-2.3.2A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-2.3 /April 9, 1999 A-7.2A /December 18, 1998 E-3.1.1A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-2.4 /April 9, 1999 A-7.3A /December 18, 1998 E-3.1.2A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-2.5 /April 9, 1999 A-7.4A /December 18, 1998 E-3.2.1A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-2.6 /April 9, 1999 A-7.1B /December 18, 1998 E-3.2.2A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-2.7 /April 9, 1999 A-7.2B /December 18, 1998 E-3.3.1A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-2.8 /April 9, 1999 A-7.3B /December 18, 1998 E-3.3.2A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-2.9 /April 9, 1999 A-7.4B /April 27, 1999 E-3.4A /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-2.10 /April 9, 1999 A-7.5 /March 19, 1999 E-4.0 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-3.1 /April 9, 1999 A-8.1 /December 18, 1998 E-5.0 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-3.2 /April 9, 1999 A-8.2 /April 27, 1999 E-5.1 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-3.3 /April 9, 1999 A-8.3 /December 18, 1998 E-6.0 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-3.4 /April 9, 1999 A-9.1 /December 18, 1998 E-6.1 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-3.5 /April 9, 1999 S-1.1 /March 19, 1999 E-6.2 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-3.6 /April 9, 1999 S-1.2 /January 7, 1999 E-6.3 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-3.7 /April 9, 1999 S-1.3 /October 9, 1998 P-0.1 /December 18, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-3.8 /April 9, 1999 S-2.1 /March 19, 1999 P-2.1-A /December 18, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-3. /April 9, 1999 S-2.1A /April 26, 1999 P-2.2-A /October 9, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-3.10 /April 9, 1999 S-2.1B /October 9, 1998 P-2.3-A /October 9, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
C-3.11 /April 9, 1999 S-2.1BA /October 9, 1998 P-2.4-A /December 18, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-1.1 /March 19, 1999 S-2.2 /April 26, 1999 P-3.1-A /October 9, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-1.2 /April 27, 1999 S-2.2B /October 9, 1998 P-4.1-A /October 9, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.1A /March 19, 1999 S-2.3 /April 26, 1999 P-4.2-A /December 18, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.2A /March 19, 1999 S-2.3B /October 9, 1998 P-2.1-B /December 18, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.3A /March 19, 1999 S-2.4 /April 26, 1999 P-2.2-B /October 9, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.4A /March 19, 1999 S-2.4B /October 9, 1998 P-2.3-B /October 9, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.5A /March 19, 1999 S-2.5 /December 18, 1998 P-2.4-B /December 18, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.6A /October 9, 1998 S-2.5B /October 9, 1998 P-3.1-B /October 9, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.1B /March 19, 1999 S-3.1 /April 26, 1999 P-4.1-B /October 9, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.2B /March 19, 1999 S-3.2 /April 26, 1999 P-4.2-B /October 9, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.3B /March 19, 1999 S-4.1 /March 19, 1999 F-1.1 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.4B /March 19, 1999 S-4.2 /March 19, 1999 F-1.2 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.5B /March 19, 1999 S-5.1 /March 19, 1999 F-2.1 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-2.6B /October 9, 1998 S-5.2 /December 18, 1998 F-2.2 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.1A /December 18, 1998 S-5.3 /December 18, 1998 F-3.0 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.2A /December 18, 1998 S-5.4 /October 9, 1998 F-4.0 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.1B /January 21, 1999 S-5.5 /March 19, 1999 F-4.1 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.2B /October 9, 1998 S-5.6 /April 26, 1999 L-1 /April 3, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.3 /October 9, 1998 S-5.7 /April 26, 1999 L-2 /December 18, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.4 /October 9, 1998 S-7.1 /December 18, 1998 L-3 /December 18, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.5 /December 18, 1998 S-8.1 /December 18, 1998 L-4 /December 18, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.5A /December 18, 1998 M-1 /April 26, 1999 L-5 /April 9, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.6Ae /December 18, 1998 M-2A /March 19, 1999 L-6 /December 18, 1998
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.6As /December 18, 1998 M-3A /March 19, 1999 L-0 (Levee/Wetland) /January 21, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.5B /December 18, 1998 M-4A /March 19, 1999 L-1 (Levee/Wetland) /January 21, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.5Be /December 18, 1998 M-5A /March 19, 1999 L-2 (Levee/Wetland) /January 21, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-3.6Bs /October 9, 1998 M-6A /March 19, 1999 A8-1 /June 10, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-4.1A /March 19, 1999 M-7 /March 19, 1999 A8-2 /June 10, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-4.2A /March 19, 1999 M-8 /March 19, 1999 A8-3 /June 10, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
A-4.3A /March 19, 1999 ME-1 /March 19, 1999
- ------------------------------------------ ----------------------------------------- ------------------------------------------
</TABLE>
38
<PAGE>
SCHEDULE 2
TO EXHIBIT C
BUILDING STANDARDS
39
<PAGE>
SCHEDULE 3
TO EXHIBIT C
GENERAL REQUIREMENTS FOR BUILDING CONSTRUCTION WORK
- --------------------------------------------------------------------------------
INTENT
The intent of these General Requirements is to communicate Spieker Properties
general performance expectations and requirements of contractors performing work
in our projects. While these requirements may not cover all specific project
requirements, or may not apply to all projects, they are intended to communicate
a basic overall methodology for doing construction work in Spieker Properties
projects.
PRELIMINARY
1. All work performed shall be performed by union signatory general contractor
utilizing all union labor and must comply with all applicable rules,
regulations, and codes of the building, city, state, and federal
governmental agencies having jurisdiction. The General Contractor will file
drawings and secure all required permits prior to beginning work, unless
circumstances require earlier construction commencement, as directed by the
Owner's architect. All construction within the leased premises shall
conform to applicable sections of California Title 24 Standards and the
American with Disabilities Act (ADA).
2. All work shall be performed during regular business hours (7:00 A.M. - 6:00
P.M.), Monday through Friday, with the exception of work types listed
below. All building system operations will be maintained in normal
operation, and will not be adversely impacted by construction work, unless
specifically authorized by a Project Management representative. The
contractor shall communicate requests to the Management Office 24 hours in
advance of any required interruption of any building services.
EXCEPTIONS - The following work is required to be performed on an
overtime or off-hours basis : core drilling, nailing of tackless carpet
stripping, spray painting of any lacquer or other volatile or odor
creating substances, and any type of concrete chipping. Any scheduling
requests for these types of off-hours work must be approved and
authorized by the Management Office prior to performance any of work.
3. All contractors must supply Certificate(s) of Insurance naming Spieker
Properties, L.P. as additionally insured prior to the start of any
construction. Insurance certificates and copies of permits, as required,
must be provided to Project Management prior to the commencement of any
work.
4. Contractors representative will meet with Project Management representative
prior to beginning contracted work, to review the scope of construction
work, construction methods, these general requirements, any additional
project specific requirements, and any potential impact to the satisfactory
on-going operation of building services.
5. The contractor will coordinate proper parking locations for construction
personnel with Project Management prior to starting construction, to avoid
impacting our tenants parking availability.
PROJECT AREA ACCESS
1. Access to project buildings, parking structures, suites, etc. will be
coordinated in advance with Project Office. No installed access control or
security system will be over ridden or bypassed for any reason, or at any
time. All construction personnel will be limited to those areas for which
they have been given specific access.
2. Access to all electrical closets, telephone closets, mechanical rooms, and
suites must be coordinated in advance through the Project Office.
Electrical, telephone, and other equipment rooms will be kept closed and
locked when they are not physically occupied.
DURING WORK PERFORMANCE
1. Upon the start of construction, the contractor will provide walk-off mats
at all entrances to the construction area(s) from stairwells (if used) and
entrances to all elevators.
2. Contractors shall maintain cleanliness throughout; do not clutter or block
hallways, exits, elevator lobby, electrical or telephone rooms. Building
fire rated doors will not be propped open, removed, or their door closures
disconnected. Nor will elevator doors be propped or jammed open to prevent
the automatic function of it's timed door actuators. CONTRACTORS ARE
REQUIRED TO UTILIZE THE FREIGHT ELEVATOR ONLY! Where a freight elevator is
not available, Project Management will designate the appropriate elevator
for contractor use. Where available, elevator protective pads will be used
whenever moving materials or equipment in the elevator. Contractors are
responsible for all damage they cause and clean-up.
3. Building electrical closets will not, AT ANY TIME, OR FOR ANY REASON, be
utilized for the storage of any construction project materials or trash, as
such storage constitutes a violation of prevailing fire codes.
4. All material deliveries, and debris removal, must be made as expeditiously
as possible so as to not have these vehicles blocking accesses to / from
the building. The contractor, at contractor expense must remove all
construction debris from the building. Building trash dumpsters are not to
be utilized for the disposal of construction project debris, as these are
provided for tenant use. As may be required, Contractor will make
arrangements for delivery of a debris box for his use. The Project Office
will approve an appropriate location for the debris box while it is on the
project. Delivery or removal of large amounts of material is to be done
after normal business hours with 24-hr. prior approval of the Project
Manager.
40
<PAGE>
5. The contractor is responsible for taking the following precautions / steps
to protect the satisfactory on-going operation of all building systems and
tenant operations :
- Covering HVAC supply and return duct openings to protect from
construction dirt / dust being spread to other areas of the
building or into the HVAC equipment / system. This can be
accomplished by sealing off, covering with filtering media, or
other Project Management approved method.
- Coordinate with Project Manager prior to construction to have
fire sprinkler systems isolated, smoke detectors disabled, or
alarm systems de-activated for periods as may be necessary.
Contractor will protect those smoke detectors or fire
sprinkler heads left installed in the area, after disabling,
by covering them with plastic bags during construction.
- Where electrical components or circuits are removed,
contractor will ensure full compliance with OSHA required
lockout / tagout procedures to prevent personal injuries or
system outages.
- Develop the best isolation possible of the construction area
to contain any dirt, dust, noise or other potential tenant
impact which may be generated by demo, construction work and
clean-up.
6. Any damage to any project area including but not limited to, parking areas,
doors, freight elevators, and carpets will be reported to the Project
Office and repaired by the contractor immediately. Spieker Properties
reserves the right to remedy any damage at the Contractors expense if the
damage is not repaired in a timely manner.
7. No powder-actuated guns are to be used without the specific prior
authorization of the Project Management Office.
8. No foreign substances are to be poured down any restroom floor drains, or
into other restroom fixtures.
9. All firewall and floor penetrations shall be sleeved and sealed in
accordance with applicable fire code, using only approved, UL listed, fire
stop materials. All firestop installations must be reviewed and approved by
the Project Manager prior to closing the associated area of work.
10. All electrical panel and circuit breaker labeling will be performed in
accordance with acceptable industry methods, or as may be directed by
Project Management.
11. Contractor will notify the Management Office at least 48 hours in advance
of construction completion. A walk-through and punch list will be developed
for each job.
12. Smoking is prohibited in all buildings, and parking garages, at all times.
13. The Contractor is responsible for ensuring, on an on-going basis, that
common areas, work space, and construction use restrooms are thoroughly
cleaned upon completion of work, including trash and material disposal,
removal of all noise and dust shielding materials installed at beginning of
project, windows cleaned, etc.
14. THE PROJECT OFFICE IS TO BE NOTIFIED IMMEDIATELY SHOULD ANY EMERGENCY
DEVELOP, ANY BUILDING SYSTEM OR OPERATION BE IMPACTED, OR ANY ASPECT OF THE
CONSTRUCTION EFFORT IMPACT ANY TENANT.
SAFETY / COMPLIANCE
1. General Contractor is responsible for ensuring jobsite safety compliance.
This includes the work force as well as anyone entering the construction
area. Protective barricades will be placed as required to ensure general
area safety. Material Safety Data Sheets (MSDS) for all materials to be
used on the jobsite must be provided to the Project Manager for review
prior to bringing the materials into the project. The contractor will
further ensure that a copy of each MSDS is available at the jobsite
whenever a specific material is in use.
2. No welding, burning, or cutting with an open flame will be performed
without prior notification to the Project Office so that appropriate
actions may be taken with fire alarm systems and fire sprinkler systems.
Appropriate fire extinguishers will be immediately available at all times.
3. The contractor is responsible for ensuring that all of their
sub-contractors are aware, and in compliance, with these general
requirements.
MATERIALS
1. The contractor shall contact the Management Office at the start of
construction for instructions on building keying, specific hardware and
other standards, as may be applicable, unless this coordination is
accomplished through hardware submittals. All permanent keying will be
provided through the Management Office.
2. All HVAC, electrical, plumbing, fire alarm system, fire sprinkler, building
control and lighting components installed will be of Building Standard
manufacture, unless noted as otherwise on the approved plans and
specifications. This includes but is not limited to thermostats, controls,
diffusers, lighting fixtures, switches, lamps, relays, smoke detectors,
fire sprinkler heads, sprinkler flow switches, manual pull stations,
indicator horns / strobes, etc.
PROJECT COMPLETION
1. Upon completion of project, contractor will perform a full air balance of
any installed or modified HVAC systems, providing one copy of each air
balance report to the Management Office.
2. Upon completion of project, a completed test report (witnessed by a Fire
Department representative as required) will be provided to the Project
Management Office for all fire sprinkler or fire alarm systems having been
impacted by any aspect of the construction work.
41
<PAGE>
3. Upon completion of construction, one (1) set of as-built prints, and one
(1) set of as-built sepias, are to be provided to the Management Office.
4. Contractor will ensure that specific submittals, manufacturers operation
and maintenance manuals, and applicable manufacturers cut sheets are
delivered to the Project Office for ALL equipment or components installed
in the course of their work. This includes, but is not limited to,
mechanical equipment, fire alarm system components, fire sprinkler system
components, HVAC system equipment or components, lighting system
components, electrical distribution or control components, and any sensing
or monitoring components.
5. Upon completion of construction clean inside of all perimeter windows and
the interior of all lighting fixtures and louvers. Thoroughly clean all
work areas, common areas where impacted, construction use restrooms, and
freight elevators. Coordinate construction clean-up schedule with
Management Office.
BUILDING CONTACT LIST
Any questions or concerns should be directed to :
PROJECT DIRECTOR - ________________
BUILDING MANAGERS - ________________
CUSTOMER SERV. REP. - ________________
BUILDING ENGINEER - ________________
MANAGEMENT OFFICE - (___) __________
MANAGEMENT OFFICE FAX - (___) __________
42
<PAGE>
EXHIBIT 21.1
SUBSIDIARIES OF INSWEB CORPORATION
1. Strategic Concepts Corporation, a California corporation;
2. InsWeb Insurance Services, Inc., formerly known as Avatar Insurance
Services, Inc., a California corporation; and
3. Benelytics, Inc., a California corporation.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statement on Form S-8 (No. 333-89943) of InsWeb Corporation of our report dated
January 21, 2000 relating to the financial statements, which appears in this
Annual Report on Form 10-K. We also consent to the incorporation by reference of
our report dated January 21, 2000 relating to the financial statement schedules,
which appears in this Form 10-K.
PricewaterhouseCoopers LLP
San Francisco, California
March 28, 2000
<PAGE>
EXHIBIT 23.2
REPORT OF INDEPENDENT ACCOUNTANTS ON
FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders of
InsWeb Corporation and Subsidiaries:
Our audits of the consolidated financial statements referred to in our report
dated January 21, 2000 which report and consolidated financial statements appear
in this Annual Report on Form 10-K also included an audit of the financial
statement schedule listed in Item 14(a)(2) of this Form 10-K. In our opinion,
this financial statement schedule presents fairly, in all material respects, the
information set forth therein when read in conjunction with the related
consolidated financial statements.
PricewaterhouseCoopers LLP
San Francisco, California
January 21, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 25,689
<SECURITIES> 64,063
<RECEIVABLES> 4,410
<ALLOWANCES> (142)
<INVENTORY> 0
<CURRENT-ASSETS> 96,994
<PP&E> 10,375
<DEPRECIATION> (3,018)
<TOTAL-ASSETS> 118,291
<CURRENT-LIABILITIES> 5632
<BONDS> 1,465
0
0
<COMMON> 35
<OTHER-SE> 111,150
<TOTAL-LIABILITY-AND-EQUITY> 118,291
<SALES> 21,841
<TOTAL-REVENUES> 21,841
<CGS> 0
<TOTAL-COSTS> 60,233
<OTHER-EXPENSES> 165
<LOSS-PROVISION> 302
<INTEREST-EXPENSE> 45
<INCOME-PRETAX> (36,201)
<INCOME-TAX> 0
<INCOME-CONTINUING> (36,201)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (36,201)
<EPS-BASIC> (1.52)
<EPS-DILUTED> (1.52)
</TABLE>
