<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 12, 1999
REGISTRATION NO. 333-79355
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 3 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
QUOTESMITH.COM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)
7375
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION OR CODE NUMBER)
58-1521612
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)
8205 SOUTH CASS AVENUE, SUITE 102
DARIEN, ILLINOIS 60561
(630) 515-0170
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
BURKE A. CHRISTENSEN, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
QUOTESMITH.COM, INC.
8205 SOUTH CASS AVENUE, SUITE 102
DARIEN, ILLINOIS 60561
(630) 515-0170
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
ROBERT A. MCWILLIAMS, ESQ.
CRAIG C. BRADLEY, ESQ.
GORDON P. PAULSON, ESQ.
FREEBORN & PETERS
311 SOUTH WACKER DRIVE, SUITE 3000
CHICAGO, ILLINOIS 60606
(312) 360-6551
(312) 360-6570 (FAX)
LARRY A. BARDEN, ESQ.
JON A. BALLIS, ESQ.
SHARON R. FLANAGAN, ESQ.
SIDLEY & AUSTIN
ONE FIRST NATIONAL PLAZA
CHICAGO, ILLINOIS 60603
(312) 853-7000
(312) 853-7036 (FAX)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF THE PROPOSED SALE TO THE PUBLIC: As soon
as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement number for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE CANNOT
SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE SECURITIES, AND IT IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN
ANY STATE WHERE SUCH AN OFFER OR SALE IS NOT PERMITTED.
SUBJECT TO COMPLETION, DATED JULY 12, 1999
PROSPECTUS
5,000,000 SHARES
[QUOTESMITH.COM LOGO]
COMMON STOCK
This is an initial public offering of common stock by Quotesmith.com, Inc.
We are selling 5,000,000 shares of our common stock. We have agreed to sell to
Intuit Inc., one of our stockholders, shares in this offering having an
aggregate purchase price of $3 million and a per share purchase price equal to
the initial public offering price. We estimate that the initial public offering
price will be between $9.00 and $11.00 per share.
------------------------
There is currently no public market for our common stock. Our common stock
has been approved for quotation on the Nasdaq National Market under the symbol
"QUOT."
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
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<S> <C> <C>
Initial public offering price............................... $ $
Underwriting discounts and commissions...................... $ $
Proceeds to Quotesmith.com, before expenses................. $ $
</TABLE>
------------------------
Quotesmith.com has granted the underwriters an option for a period of 30
days to purchase up to 750,000 additional shares of common stock. The
underwriters are severally underwriting the shares being offered, other than
shares sold directly to Intuit, on a firm commitment basis. No underwriting
discounts or commissions will be paid in connection with our sale of common
stock to Intuit.
------------------------
INVESTING IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7.
------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
HAMBRECHT & QUIST
PAINEWEBBER INCORPORATED
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO
INCORPORATED
CHARLES SCHWAB & CO., INC.
, 1999
<PAGE> 3
[PROPOSED GATEFOLD ARTWORK]
GATEFOLD PAGE
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Top of page: Buyer-Driven (circular stock photo, fades)
Insurance
Headline: There has to be a better way...
Quotesmith.com is the better way.
Subheadings: Instant insurance quotes from over 300 companies. Each quote
guaranteed accurate. Search the market in seconds. Buy from
the company of your choice.
Background: Faded, Names of various insurance companies for which
Quotesmith.com is appointed as an agent.
Bottom of Page: Quotesmith.com service mark.
<PAGE> 4
Top of Left
and Right Page: Capital letters, Discover a New and Better Way to Buy
Insurance
Top of Left
Page:
Headline: Instant Term Life Quotes
Subheading: Pick a rate guarantee and go! View policies, coverages
independent ratings, underwriting guidelines and premiums.
Picture: Family in a swimming pool.
Middle of Left
Page:
Headline: Instant Auto Insurance Quotes
Subheading: We've made it quick and easy to get instant auto insurance
quotes from dozens of leading auto insurers.
Picture: Automobile.
Bottom of Left
Page:
Headline: Instant Medical Insurance Quotes
Subheading: The instant way to find medical insurance for yourself, your
family or your small business. Participation by leading
companies and plans eliminates the hassle of buying medical
insurance.
Picture: Doctor and patient.
Middle of Left
and Right Page:
Pictures: 1. Home page view of Quotesmith.com Web site
2. Certificate: $500 accuracy guarantee
$500 lowest term life price guarantee
Top of Right Page:
Headline: Instant Dental Insurance Quotes
Subheading: Can the Internet give you whiter teeth and a better smile?
This is the new and easy way to get dental insurance quotes
for yourself, your family and your business.
Picture: Dentist and patient.
Upper Middle of
Right Page:
Headline: Instant Medicare Supplement Quotes
Subheading: For ages 65 and up, there's no reason to be confused by the
bewildering choices and high cost of Medicare supplement
insurance. We give you instant quotes -- all sorted by
lowest cost -- and vital policy information at your
fingertips.
Picture: Man and a boy with a bike.
Lower Middle of
Right Page:
Headline: Instant Annuity Quotes
Subheading: Quotesmith.com makes it easy to check rates, yields and
future values on fixed rate, tax-deferred annuities.
Independent claims-paying ratings are also shown along with
every quote.
Bottom Right of
Page:
Headline: Instant No-Physical Exam Life Insurance Quotes
Subheading: Here's a quote service for those who want life insurance
coverage without having any exams. Whole life insurance
quotes now included!
Picture: Man and woman walking.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 7
Special Note Regarding Forward-Looking Statements........... 18
Use of Proceeds............................................. 19
Dividend Policy............................................. 19
Capitalization.............................................. 20
Dilution.................................................... 21
Selected Financial and Other Data........................... 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 23
Business.................................................... 32
Management.................................................. 46
Certain Transactions........................................ 54
Principal Stockholders...................................... 55
Description of Capital Stock................................ 56
Shares Eligible for Future Sale............................. 62
Underwriting................................................ 64
Plan of Distribution........................................ 66
Legal Matters............................................... 66
Experts..................................................... 66
Additional Information...................................... 67
Index to Financial Statements............................... F-1
</TABLE>
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PROSPECTUS SUMMARY
This summary highlights selected information contained elsewhere in the
prospectus. This summary may not contain all of the information that you should
consider before investing in our common stock. You should read the entire
prospectus carefully, including the information under "Risk Factors" beginning
on page 7 and the financial statements beginning on page F-1, before making an
investment decision.
QUOTESMITH.COM
We believe that Quotesmith.com is the most comprehensive Internet-based
insurance service available. The Quotesmith.com service enables consumers and
business owners to obtain instant quotes from over 300 insurance companies, and
we guarantee the accuracy of every quote. Combining the reach and efficiency of
the Internet with our proprietary database and industry expertise developed over
the past 15 years, we provide a complete "quote to policy delivery" insurance
solution without the involvement of any commissioned salespeople.
We have created a model that addresses the challenges faced by traditional
insurance distribution methods in a manner that offers significant benefits to
both consumers and insurance companies. The Quotesmith.com model allows
consumers to:
- efficiently search for, analyze and compare insurance products;
- quickly request and obtain insurance quotes; and
- easily select and purchase insurance from the insurance company of their
choice.
While we have recently expanded the types of insurance products that we offer to
our customers, historically our primary product has been term life insurance.
Since we began providing instant insurance quotes on the Internet in May 1996,
consumers have purchased more than 29,000 paid insurance policies through us.
Insurance premiums paid in the United States in 1998 exceeded $1.1
trillion. The growing acceptance of the Internet and electronic commerce
presents a significant opportunity for the insurance industry by allowing
self-directed consumers to more efficiently and effectively research and
transact with insurance companies. The fragmentation of the insurance industry
and the significant price and product variation has led consumers and insurance
companies to seek alternative means of purchase and distribution. According to a
recent research report, Internet-influenced sales of insurance are expected to
grow from $1.5 billion in 1998 to $11.0 billion in 2003. We believe that the
vast information sharing and communications power of the Internet will
significantly improve the insurance industry for both consumers and insurance
companies.
While a number of new companies have emerged in an attempt to capitalize on
this online insurance opportunity, we do not believe that any of these efforts
fully addresses the limitations inherent in traditional insurance distribution
or the challenges faced by consumers in effectively purchasing insurance. The
Quotesmith.com solution provides the following principal advantages to both
consumers and insurance companies:
- Comprehensive source of insurance information and products including
insurance quotes from over 300 insurance companies across several types
of insurance and access to what we believe is the largest, most complete
repository of comparative information on insurance products, insurance
pricing and insurance providers.
- Guaranteed-accurate instant quotes for which we offer a $500 cash reward
guarantee that we provide an accurate quote. This Quotesmith.com
guarantee is unmatched by our competitors.
3
<PAGE> 7
- A no salesperson approach that eliminates face-to-face commissioned
agents from the insurance purchase process and puts consumers in control
of their insurance purchase decisions.
- Convenience for consumers to gather information and compare insurance
products on a single Web site, from any location and on their own time.
- Quote to policy delivery support that provides continued, value-added
service and assistance throughout the insurance purchase process
including answering questions and arranging paramedical examinations.
- Focus on customer service through a highly-trained, experienced and
non-commissioned customer service staff that provides support throughout
the application process and aims to eliminate consumer dissatisfaction
and frustration.
- Fully licensed national insurance agency with the ability to provide
insurance policies to consumers throughout the United States.
- User friendly system that provides service 24 hours a day, 7 days a week
through an easy to use Web site designed for fast viewing and rapid
downloading.
The Quotesmith.com model is unique and distinct from both traditional and
online models. Our Internet-based model provides a complete "quote to policy
delivery" insurance solution. By providing extensive comparative information and
responsive customer service throughout the entire insurance information
gathering and purchase process, our model enhances the consumer experience at
each stage and streamlines the overall process. We are not a lead referral
service or an online distribution channel for a single insurance company, but
rather we generate revenues when our customers have successfully obtained an
insurance policy from the insurance company of their choice through our service.
We strive to be the leading Internet-based service for all insurance needs
of consumers and small businesses. We plan to continue to build the
Quotesmith.com brand, offer additional insurance products, expand the number of
participating insurance companies, leverage our customer base, strengthen and
pursue strategic relationships and continue to focus on customer service.
We incorporated and began our operations in March 1984 with an electronic
quotation and policy information service for insurance agents and brokers. Over
the past 15 years, we have been developing our proprietary insurance price
comparison service technology and industry expertise. In 1993, we became
licensed to offer insurance throughout the United States and in 1994 began
providing quotes directly to consumers. We recently entered into a strategic
agreement with Intuit Insurance Services, Inc., a wholly-owned subsidiary of
Intuit Inc., which licenses our insurance quotation database technologies and
extends our customer service and insurance brokerage capabilities to Intuit
Insurance Services and several of its affiliated Internet sites.
Our headquarters and principal offices are located at 8205 South Cass
Avenue, Suite 102, Darien, Illinois 60561, and our telephone number is (630)
515-0170.
4
<PAGE> 8
THE OFFERING
Common stock offered by Quotesmith.com...... 5,000,000 shares
Common stock to be outstanding after this
offering.................................... 18,515,091 shares
Use of proceeds............................. For repayment of debt, general
corporate purposes, including
selling, marketing and brand
promotion expenditures and
working capital purposes. See
"Use of Proceeds" on page 19.
Risk factors................................ For a discussion of certain
risks you should consider before
investing in Quotesmith.com
common stock, see "Risk Factors"
beginning on page 7.
Proposed Nasdaq National Market symbol...... QUOT
------------------------
These share numbers exclude:
- 500,000 shares of common stock issuable upon exercise of options
outstanding as the date hereof and 212,000 shares of common stock
issuable upon exercise of options that we will grant upon completion of
this offering, under our 1997 Stock Option Plan; and
- 1,013,000 shares of common stock available for future grant or issuance
under our 1997 Stock Option Plan and 1999 Employee Stock Purchase Plan
after our grant of options to purchase 212,000 shares upon the completion
of this offering.
------------------------
Unless otherwise indicated, all information in this prospectus assumes that
the underwriters' over-allotment option will not be exercised.
------------------------
We maintain a Web site on the World Wide Web at www.quotesmith.com. The
information on our Web site is not part of this prospectus. Quotesmith.com and
the Quotesmith.com logo are service marks of Quotesmith.com, Inc. All brand
names and trademarks appearing in this prospectus are the property of their
respective holders.
5
<PAGE> 9
The statement of operations data and balance sheet data presented below are
derived from our financial statements included at the end of this prospectus
beginning on page F-1. The as adjusted balance sheet data summarized below
reflects the application of the net proceeds from the sale of the shares of
common stock in this offering at an assumed initial public offering price of
$10.00 per share, after deducting estimated underwriting discounts and
commissions and estimated offering expenses.
SUMMARY FINANCIAL AND OTHER INFORMATION
(in thousands, except per share data and selected operating statistics)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------- --------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.......................... $3,812 $4,262 $5,576 $2,556 $ 3,050
Expenses(1)....................... 3,446 4,898 5,774 2,318 6,207
Operating income (loss)........... 366 (636) (198) 238 (3,157)
Net income (loss)................. 223 (467) (196) 195 (3,116)
Basic and diluted net income
(loss) per share................ $ 0.02 $(0.04) $(0.02) $ 0.02 $ (0.23)
Weighted average common shares and
equivalents outstanding:
Basic........................ 12,154 11,956 12,258 12,145 13,271
Diluted...................... 12,154 11,956 12,258 12,187 13,271
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1999
--------------------
AS
ACTUAL ADJUSTED
------ --------
<S> <C> <C>
BALANCE SHEET DATA:
Cash................................................... $3,387 $46,946
Working capital........................................ 1,538 47,275
Total assets........................................... 5,074 48,421
Total stockholders' equity............................. 2,214 47,739
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------------- --------------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING STATISTICS:
Quotes............................ 354,000 592,000 831,000 304,000 702,000
</TABLE>
- -------------------------
(1) Since January 1, 1997, our direct response advertising costs no longer
qualify for deferral and are expensed as incurred. If direct response
advertising costs had not been deferred and amortized for any year, expenses
would have been $3.6 million in 1996 and $4.4 million in 1997.
6
<PAGE> 10
RISK FACTORS
You should consider carefully the following risk factors and all other
information contained in this prospectus before purchasing our common stock.
Investing in our common stock involves a high degree of risk. Any of the
following risks could materially harm our business, operating results and
financial condition and could result in a complete loss of your investment.
RISKS RELATED TO OUR BUSINESS
YOU MAY HAVE DIFFICULTY EVALUATING OUR BUSINESS BECAUSE OF OUR LIMITED
ELECTRONIC COMMERCE HISTORY
Although we began operations in 1984, we did not begin our Internet
operations until May 1996. Accordingly, we have a limited history in operating
our electronic commerce business on which you can evaluate our company and
prospects. Our prospects must be considered in light of the risks,
uncertainties, expenses and difficulties frequently encountered by companies in
a transitional stage of development, particularly companies in new and rapidly
evolving markets, such as electronic commerce, using new and unproven business
models.
OUR INTERNET-BASED INSURANCE SERVICE HAS NOT BEEN PROFITABLE AND MAY NOT BECOME
PROFITABLE IN THE FUTURE
Our first complete year of focusing on our Internet-based insurance service
was 1997. We incurred operating losses of approximately $636,000 in 1997,
$198,000 in 1998 and $3.2 million for the six months ended June 30, 1999.
Because we plan to continue to significantly increase our operating expenses in
an attempt to increase our consumer base, we will need to generate significantly
higher revenues to achieve profitability. Even if we achieve profitability, we
may not be able to maintain profitability in the future. In addition, as our
business model evolves, we expect to introduce a number of new products and
services that may or may not be profitable for us.
IF THE TERM LIFE INSURANCE INDUSTRY DECLINES, OUR BUSINESS WILL SUFFER BECAUSE
NEARLY ALL OF OUR REVENUES ARE CURRENTLY DERIVED FROM CONSUMERS PURCHASING TERM
LIFE INSURANCE THROUGH US
Because nearly all of our revenues are currently derived from consumers
purchasing term life insurance through us, our current financial condition is
largely dependent on the term life insurance industry and in particular
consumers' demand for term life insurance policies. If sales of term life
insurance decline, whether due to the introduction of new products, shifting
consumer preferences or otherwise, our business would be substantially harmed.
In addition, in recent years, term life insurance premiums have been declining.
This decline has caused our average commission per equivalent face amount of a
policy to decrease and has contributed to our operating losses since 1997. If
term life insurance premiums continue to decline, it may become more difficult
for us to become profitable.
7
<PAGE> 11
IF THE PURCHASE OF INSURANCE OVER THE INTERNET OR OUR SERVICE OFFERINGS DO NOT
ACHIEVE WIDESPREAD CONSUMER ACCEPTANCE, OUR BUSINESS WILL BE HARMED
Our success will depend in large part on widespread consumer acceptance of
purchasing insurance online. The development of an online market for insurance
has only recently begun, is rapidly evolving and likely will be characterized by
an increasing number of market entrants. Therefore, there is significant
uncertainty with respect to the viability and growth potential of this market.
Our future growth, if any, will depend on the following critical factors:
- the growth of the Internet as a commerce medium generally, and as a
market for consumer financial products and services specifically;
- consumers' willingness to conduct self-directed insurance research;
- our ability to successfully and cost-effectively market our services to a
sufficiently large number of consumers;
- our ability to consistently fulfill application requests on an efficient
and timely basis; and
- our ability to overcome a perception among many consumers that obtaining
insurance online is risky.
There can be no assurance that the market for our services will develop,
that our services will be adopted or that consumers will significantly increase
their use of the Internet for obtaining insurance. If the online market for
insurance fails to develop or develops more slowly than expected, or if our
services do not achieve widespread market acceptance, our business would be
significantly harmed.
WE MAY GENERATE LIMITED REVENUES BECAUSE CONSUMERS CAN OBTAIN FREE QUOTES AND
OTHER INFORMATION WITHOUT PURCHASING INSURANCE THROUGH OUR WEB SITE
We only generate revenues if a consumer purchases insurance through our
service. Consumers can access our Web site and obtain quotes and other
information free of charge without any obligation to purchase insurance through
us. Because virtually all of the insurance policies quoted at our Web site can
be purchased through sources other than us, consumers may take the quotes and
other information that we provide to them and purchase one of our quoted
policies from the agent or broker of their choice. If consumers only use our Web
site for quote information purposes, we will not generate revenues and our
business would be significantly harmed.
WE MAY EXPERIENCE SIGNIFICANT FLUCTUATIONS IN OUR QUARTERLY RESULTS, WHICH MAKES
IT DIFFICULT FOR INVESTORS TO MAKE RELIABLE PERIOD-TO-PERIOD COMPARISONS AND MAY
CONTRIBUTE TO VOLATILITY IN OUR STOCK PRICE
Our quarterly revenues and operating results have fluctuated significantly
in the past and we expect them to continue to fluctuate significantly in the
future. Causes of these fluctuations have included, among other factors:
- the length of time it takes for an insurance company to verify that an
applicant meets the specified underwriting criteria -- this process can
be lengthy, unpredictable and subject to delays over which we have little
or no control, including underwriting backlogs of the insurance company
and the accuracy of information provided by the applicant; we tend to
place a significant number of policies with the most price-competitive
insurance companies, who, due to volume, have longer and more
unpredictable underwriting time frames;
8
<PAGE> 12
- increases in selling and marketing expenses, as well as other operating
expenses;
- volatility in bonus commissions paid to us by insurance companies which
typically are highest in the fourth quarter;
- volatility in renewal commission income;
- the conversion and fulfillment rates of consumers' applications, which
vary according to insurance product;
- new sites, services and products by our competitors;
- price competition by insurance companies in the sale of insurance
policies; and
- the level of Internet usage for insurance products and services.
In addition, we have a very long revenue cycle. As a result, substantial
portions of our expenses, including selling and marketing expenses, are incurred
well in advance of potential revenue generation. If revenues do not meet our
expectations as a result of these selling and marketing expenses, our results of
operations will be harmed.
Any one or more of the above-mentioned factors could harm our business and
results of operations, which makes quarterly predictions difficult and often
unreliable. As a result, we believe that quarter-to-quarter comparisons of our
operating results are not necessarily meaningful and not good indicators of our
future performance. Due to the above-mentioned and other factors, it is possible
that in one or more future quarters our operating results will fall below the
expectations of securities analysts and investors. If this happens, the trading
price of our common stock would likely decrease.
WE MUST FURTHER DEVELOP OUR BRAND RECOGNITION IN ORDER TO REMAIN COMPETITIVE
There are a growing number of Web sites that offer services that are
competitive with the services we offer. Therefore, we believe that broader
recognition and a favorable consumer perception of the Quotesmith.com brand are
essential to our future success. Accordingly, we intend to continue to pursue an
aggressive brand-enhancement strategy consisting of our traditional print
advertising, as well as national radio and television advertising, online
marketing and promotional efforts. We incurred approximately $1.8 million of
selling and marketing expenses during the twelve months ended December 31, 1998
and $2.1 million for the six months ended June 30, 1999. To increase awareness
of our brand we are expecting to incur significantly greater amounts. If these
expenditures do not result in a sufficient increase in revenues to cover these
additional selling and marketing expenses, our business, results of operations
and financial condition would be harmed.
WE MUST SUCCESSFULLY EXPAND INTO ADDITIONAL INSURANCE PRODUCTS IN ORDER TO
REMAIN COMPETITIVE
We have recently expanded our product offering to include other types of
insurance in addition to our traditional term life product and may continue to
do so in the future. Expanding our product offering has required significant
expenditures and further expansion, if any, will require additional
expenditures. In addition, a portion of our increased selling and marketing
expenditures will be used to promote these new product offerings. However, to
date we have generated small amounts of revenues from our new product types. If
our new product offerings do not generate sufficient revenues to cover the
related expenditures, our business, results of operations and financial
condition would be harmed.
9
<PAGE> 13
PURSUANT TO OUR AGREEMENT WITH INTUIT INSURANCE SERVICES, WE MAY NOT PURSUE SOME
STRATEGIC RELATIONSHIPS OR AGREEMENTS WITHOUT ITS PRIOR CONSENT AND INTUIT
INSURANCE SERVICES MAINTAINS A WEB SITE THAT IS COMPETITIVE WITH OUR SERVICE
Pursuant to the services agreement we have with Intuit Insurance Services,
in some situations we may not enter into strategic relationships or agreements
with some companies, many of whom are significant participants in electronic
commerce, without Intuit Insurance Services' prior consent. This agreement may
preclude us from entering into strategic relationships we find desirable. In
addition, Intuit Insurance Services' Quicken InsureMarket provides online
insurance services similar to ours. Because Intuit Insurance Services operates a
competitive service and Intuit Inc. is one of our significant stockholders, we
may face conflicts of interest with Intuit that could harm our business. For
more information about our relationship with Intuit Inc. and Intuit Insurance
Services refer to "Business -- Strategic Relationships and Agreements -- Intuit
Inc." on page 42 and "Certain Transactions" on page 54.
BECAUSE WE GENERATE A SIGNIFICANT AMOUNT OF REVENUE FROM A SMALL NUMBER OF
INSURANCE COMPANIES, WE COULD EXPERIENCE A SUBSTANTIAL DROP IN OUR REVENUES IF
HIGH VOLUME INSURANCE COMPANIES REFUSE TO APPOINT US AS THEIR AGENT
We generate a significant portion of our revenues in any given year from a
small number of insurance companies. Our top five insurance companies
represented 54.9% of the paid policies we sold for the six months ended June 30,
1999, 64.0% during 1998 and 77.5% in 1997. These insurance companies that
generate large policy volume for us do so principally because they offer the
lowest risk-adjusted premium rates during the relevant period.
We conduct our insurance business pursuant to agency contracts with
insurance companies. We cannot guarantee that we will continue to be appointed
as an agent to offer insurance for these or any other insurance companies. In
addition, these contracts, if entered into, can be terminated with or without
cause and with little or no notice to us by the insurance company. The loss of
one or more of these agency contracts with an insurance company that is charging
competitive or low premium rates could harm our business substantially.
WE DO NOT HAVE AGENCY CONTRACTS WITH ALL OF THE INSURANCE COMPANIES WE QUOTE ON
OUR WEB SITE AND SOME INSURANCE COMPANIES MAY REFUSE TO PARTICIPATE IN OUR
DATABASE OR REFUSE TO DO BUSINESS WITH US
While we obtain the information contained in our database directly from
over 300 insurance companies being quoted and listed at our Web site, we
currently hold agency contracts with 115 insurance companies. We typically seek
formal agency appointment from an insurance company after we receive a purchase
request for that insurance company's product from a consumer. In the past a
number of insurance companies quoted on our Web site have refused to appoint us
as an agent or refused to permit us to publish their quotes for various reasons,
including:
- we do not meet with our customers on a face-to-face basis;
- some insurance companies may have exclusive relationships with other
agents;
- we publicly market our service on a price-oriented basis which is not
compatible with the insurance company's branding efforts; and
- a formal business relationship with us might be perceived negatively by
the insurance company's existing distribution channels.
10
<PAGE> 14
We do not intentionally include in our database insurance companies who
object to their inclusion. If a significant number of insurance companies object
to the inclusion of their information in our database the breadth of our
database would be limited. In addition, we only generate revenues from the 115
insurance companies for whom we are appointed as an agent. If consumers desire
to purchase a material number of policies from insurance companies with whom we
are not appointed as an agent, and these insurance companies refuse to enter
into agency contracts with us, it could harm our business and results of
operations.
OUR STRATEGIC RELATIONSHIPS AND AGREEMENTS DO NOT CURRENTLY, AND MAY NEVER,
GENERATE A MATERIAL AMOUNT OF REVENUES FOR US
As part of our marketing strategy, we recently began to enter into
strategic relationships and agreements to increase our access to online
consumers. We currently have strategic agreements with Intuit Insurance
Services, drkoop.com, XOOM.com and The Progressive Corporation. However, to date
we have derived only a minimal amount of revenues from these arrangements. Under
certain of these strategic agreements, we are obligated to pay referral fees
based upon requests for applications or quotes, each of which do not generate
revenue for us unless it results in a purchased insurance policy. In addition,
most of these strategic agreements permit either party to terminate the
agreement with short notice. As a result, we cannot assure you that any of these
relationships or agreements will be profitable or generate any material amount
of revenues in the future. If our strategic relationships and agreements do not
meet our expectations regarding revenues and earnings, our business could be
harmed.
IF WE DO NOT MANAGE OUR GROWTH EFFECTIVELY, OUR BUSINESS COULD BE HARMED
We have expanded our operations significantly since May 1996 and anticipate
that further expansion will be required to realize our growth strategy. Our
operations growth has placed significant demands on our management and other
resources, which is likely to continue. To manage our future growth, we will
need to attract, hire and retain highly skilled and motivated officers, managers
and employees and improve existing systems and/or implement new systems for:
- transaction processing;
- operational and financial management; and
- training, integrating and managing our growing employee base.
We may not be successful in managing or expanding our operations or maintaining
adequate management, financial and operating systems and controls.
IF OUR QUOTES ARE INACCURATE AND WE MUST PAY OUT CASH REWARD GUARANTEES, OUR
BUSINESS COULD BE HARMED.
We offer consumers a $500 cash reward guarantee that we provide an accurate
quote. In 1997, we paid $10,000 in cash reward guarantees, in 1998, we paid
$8,500 and for the six months ended June 30, 1999, we paid $6,000. If our quotes
or those of services with respect to which we have click-through arrangements
are inaccurate and we are required to pay a substantial number of cash reward
guarantees, we could be harmed.
IF WE LOSE ANY OF OUR EXECUTIVE OFFICERS OUR BUSINESS MAY SUFFER BECAUSE WE RELY
ON THEIR KNOWLEDGE OF OUR BUSINESS
We believe that our success is significantly dependent upon the continued
employment and collective skills of our executive officers, including founder
and chief executive officer,
11
<PAGE> 15
Robert S. Bland, and executive vice president, William V. Thoms. We maintain key
man life insurance policies on Messrs. Bland and Thoms and both of these
officers have entered into employment contracts with us. The loss of either of
these two executives or any of our other executive officers could harm our
company.
SOME OF OUR EXECUTIVE OFFICERS AND KEY EMPLOYEES HAVE ONLY RECENTLY BEGUN
EMPLOYMENT WITH US AND MAY NOT WORK WELL TOGETHER
Thomas A. Munro, our vice president and chief financial officer; Burke A.
Christensen, our vice president of operations and general counsel; Richard W.
Graeber, our vice president of Internet operations; and Grant F. Kuphall, our
vice president of business development, all began employment with us since
January 1, 1999. These individuals have not previously worked together and may
not work together effectively. If these individuals do not work together
effectively, our business would suffer.
RISKS RELATED TO THE INSURANCE INDUSTRY
OUR BONUS COMMISSION REVENUES ARE HIGHLY UNPREDICTABLE WHICH MAY CAUSE
FLUCTUATIONS IN OUR OPERATING RESULTS
Our bonus commission revenues relate to the amount of premiums paid for new
insurance policies to a single insurance company. In other words, if consumers
purchase policies from a fewer number of insurance companies our bonus
commissions will be higher than if the same policies were purchased from a
larger number of insurance companies. The decision to purchase a policy from a
particular insurance company typically relates to, among other factors, price of
the policy and rating of the insurance company, both are factors over which we
have no control. Insurance companies often change their prices in the middle of
the year for competitive reasons. This may reduce the number of policies placed
with that insurance company which may then reduce our potential bonus
commissions. In addition, we have no control over the bonus commission rates
that are set by each individual insurance company. As a result of these factors,
we are unable to control the amount of bonus commission we receive in any
particular quarter or year and these amounts may fluctuate significantly.
THE INSURANCE SALES INDUSTRY IS INTENSELY COMPETITIVE, AND IF WE FAIL TO
SUCCESSFULLY COMPETE IN THIS INDUSTRY OUR MARKET SHARE AND BUSINESS WILL BE
HARMED
The markets for the products and services offered on our service are
intensely competitive and characterized by rapidly changing technology, evolving
regulatory requirements and changing consumer demands. We compete with both
traditional insurance distribution channels, including insurance agents and
brokers, new non-traditional channels such as commercial banks and savings and
loan associations, and a growing number of direct distributors including other
online services, such as Quicken InsureMarket, InsWeb Corporation and
SelectQuote.
We also potentially face competition from a number of large online services
that have expertise in developing online commerce and in facilitating a high
volume of Internet traffic for or on behalf of our competitors. For instance,
some of our competitors have relationships with major electronic commerce
companies, including Quicken InsureMarket, which has a relationship with America
Online, and InsWeb, which has relationships with Yahoo!, Snap and Infoseek.
Other large companies with strong brand recognition, technical expertise and
experience in online commerce and direct marketing could also seek to compete in
the online insurance market.
12
<PAGE> 16
There can be no assurance that we will be able to successfully compete with
any of these current or potential insurance providers. For more information
refer to "Business -- Competition" beginning on page 42.
RISKS RELATED TO REGULATION
OUR COMPLIANCE WITH THE STRICT REGULATORY ENVIRONMENT APPLICABLE TO THE
INSURANCE INDUSTRY IS COSTLY, AND IF WE FAIL TO COMPLY WITH THE NUMEROUS LAWS
AND REGULATIONS THAT GOVERN THE INDUSTRY WE COULD BE SUBJECT TO PENALTIES
We must comply with the complex rules and regulations of each
jurisdiction's insurance department which impose strict and burdensome
guidelines on us regarding our operations. Compliance with these rules and
regulations imposes significant costs on our business. Each jurisdiction's
insurance department typically has the power, among other things, to:
- authorize how, by which personnel and under what circumstances an
insurance premium can be quoted and published;
- approve which entities can be paid commissions from insurance companies;
- license insurance agents and brokers; and
- approve policy forms and regulate some premium rates.
Due to the complexity, periodic modification and differing statutory
interpretations of these laws, we may not have always been and we may not always
be in compliance with all these laws. Failure to comply with these numerous laws
could result in fines, additional licensing requirements or the revocation of
our license in the particular jurisdiction. These penalties could significantly
increase our general operating expenses and harm our business. In addition, even
if the allegations in any regulatory action against us turn out to be false,
negative publicity relating to any allegations could result in a loss of
consumer confidence and significant damage to our brand. We believe that because
many consumers and insurance companies are not yet comfortable with the concept
of purchasing insurance online, the publicity relating to any such regulatory or
legal issues could harm our business. For more information refer to
"Business -- Regulation" beginning on page 43.
REGULATION OF THE SALE OF INSURANCE OVER THE INTERNET AND OTHER ELECTRONIC
COMMERCE IS UNSETTLED, AND FUTURE REGULATIONS COULD FORCE US TO CHANGE THE WAY
WE DO BUSINESS OR MAKE OPERATING OUR BUSINESS MORE COSTLY
As a company involved in the sale of insurance over the Internet, we are
subject to additional regulatory risk as insurance regulations have not been
fully modified to cover Internet transactions. Currently, many state insurance
regulators are exploring the need for specific regulation of insurance sales
over the Internet. Any new regulation could dampen the growth of the Internet as
a means of providing insurance services. Moreover, the laws governing general
commerce on the Internet remain largely unsettled, even in areas where there has
been some legislative action. It may take years to determine whether and how
existing laws such as those governing intellectual property, privacy and
taxation apply to the Internet. In addition, the growth and development of the
market for electronic commerce may prompt calls for more stringent consumer
protection laws that may impose additional burdens on companies conducting
business over the Internet. Any new laws or regulations or new interpretations
of existing laws or regulations relating to the Internet could harm our
business.
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<PAGE> 17
IF WE BECOME SUBJECT TO LEGAL LIABILITY FOR THE INFORMATION WE DISTRIBUTE ON OUR
WEB SITE, OUR BUSINESS COULD BE HARMED
Our customers rely upon information we publish regarding insurance quotes,
coverages, exclusions, limitations and ratings. To the extent that the
information we provide is not accurate, we could be liable for damages from both
consumers and insurance companies. These types of claims have been brought,
sometimes successfully, against online services and print publications in the
past. These types of claims could be time-consuming and expensive to defend,
divert management's attention, and could cause consumers to lose confidence in
our service. As a result, these types of claims, whether or not successful,
could harm our business, financial condition and results of operations.
In addition, because we are appointed as an agent for only 115 of the over
300 insurance companies quoted on our Web site, we do not have contractual
authorization to publish information regarding the policies from insurance
companies for whom we are not appointed. Several of these insurance companies
have in the past demanded that we cease publishing their policy information and
others may do so in the future. In some cases we have published information
despite these demands. If we are required to stop publishing information
regarding some of the insurance policies that we track in our database, it could
harm us.
RISKS RELATED TO THE INTERNET AND ELECTRONIC COMMERCE
ANY FAILURES OF, OR CAPACITY CONSTRAINTS IN, OUR SYSTEMS OR THE SYSTEMS OF THIRD
PARTIES ON WHICH WE RELY COULD REDUCE OR LIMIT VISITORS TO OUR WEB SITE AND HARM
OUR ABILITY TO GENERATE REVENUE
We use both internally-developed and third-party systems to operate our
service. If the number of users of our service increases substantially, we will
need to significantly expand and upgrade our technology, transaction processing
systems and network infrastructure. We do not know whether we will be able to
accurately project the rate or timing of any these increases, or expand and
upgrade our systems and infrastructure to accommodate these increases in a
timely manner. Our ability to facilitate transactions successfully and provide
high quality customer service also depends on the efficient and uninterrupted
operation of our computer and communications hardware systems. Our service has
experienced periodic system interruptions, and it is likely that these
interruptions will continue to occur from time to time. Additionally, our
systems and operations are vulnerable to damage or interruption from human
error, natural disasters, power loss, telecommunication failures, break-ins,
sabotage, computer viruses, acts of vandalism and similar events. We may not
carry sufficient business interruption insurance to compensate for losses that
could occur. Any system failure that causes an interruption in service or
decreases the responsiveness of the our service would impair our
revenue-generating capabilities, and could damage our reputation and our brand
name.
OUR SUCCESS DEPENDS, IN PART, ON OUR ABILITY TO PROTECT OUR PROPRIETARY
TECHNOLOGY
We believe that our success depends, in part, on protecting our
intellectual property. Other than our trademarks, most of our intellectual
property consists of proprietary or confidential information that is not subject
to patent or similar protection. Competitors may independently develop similar
or superior products, software or business models.
We cannot guarantee that we will be able to protect our intellectual
property. Unauthorized third parties may try to copy our products or business
model or use our confidential information to develop competing products. Legal
standards relating to the validity, enforceability and scope of protection of
proprietary rights in Internet-related
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<PAGE> 18
businesses are uncertain and still evolving. As a result, we cannot predict the
future viability or value of our proprietary rights and those of other companies
within the industry.
WE MAY BE SUBJECT TO CLAIMS OF INFRINGEMENT THAT MAY BE COSTLY TO RESOLVE AND,
IF SUCCESSFUL, COULD HARM OUR BUSINESS
Our business activities and products may infringe upon the proprietary
rights of others. Parties may assert valid or invalid infringement claims
against us. Any infringement claims and resulting litigation, should it occur,
could subject us to significant liability for damages and could result in
invalidation of our proprietary rights. Even if we eventually won, any resulting
litigation could be time-consuming and expensive to defend and could divert our
management's attention.
IF WE ARE UNABLE TO ADAPT TO THE RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY, WE
WILL NOT REMAIN COMPETITIVE AND OUR BUSINESS WILL SUFFER
Our market is characterized by rapidly changing technologies, frequent new
product and service introductions and evolving industry standards. The recent
growth of the Internet and intense competition in our industry exacerbate these
market characteristics. Our future success will depend on our ability to adapt
to rapidly changing technologies by continually improving the features and
reliability of our database and service. We may experience difficulties that
could delay or prevent the successful introduction or marketing of new products
and services. In addition, new enhancements must meet the requirements of our
current and prospective customers and must achieve significant market
acceptance. We could also incur substantial costs if we need to modify our
service or infrastructures or adapt our technology to respond to these changes.
IF THE YEAR 2000 PROBLEM HARMS OUR INSURANCE COMPANY SUPPLIERS WE MAY FACE
DIFFICULTY COLLECTING REVENUE AND MAINTAINING CONSUMER CONFIDENCE IN OUR SERVICE
The risks posed by year 2000 issues could adversely affect our business in
a number of significant ways. Although we believe that our internally developed
systems and technology are year 2000 ready, our information technology system
nevertheless could be substantially impaired or cease to operate due to year
2000 problems. Additionally, we rely on information technology supplied by third
parties, and our participating insurance company suppliers are also dependent on
information technology systems and on their own third party vendors' systems.
Specifically, if insurance companies are unable to track the receipt of premiums
or the payment of insurance benefits, we will face difficulty collecting
commissions and maintaining our customers confidence in our service. Year 2000
problems that any third parties or we experience could harm our business.
Additionally, the Internet could face serious disruptions arising from the year
2000 problem. For more information refer to "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Year 2000 Readiness
Disclosure" beginning on page 30.
DEMAND FOR OUR SERVICES MAY BE REDUCED IF WE ARE UNABLE TO SAFEGUARD THE
SECURITY AND PRIVACY OF OUR CUSTOMER'S INFORMATION
A significant barrier to electronic commerce and online communications has
been the need for secure transmission of confidential information over the
Internet. Our ability to secure the transmission of confidential information
over the Internet is essential in maintaining consumer and insurance company
confidence in our service. In addition, because we handle confidential and
sensitive information about our customers, any security breaches would
15
<PAGE> 19
damage our reputation and could expose us to litigation and liability. We cannot
guarantee that our systems will prevent security breaches.
OUR BUSINESS ASSUMES THE CONTINUED DEPENDABILITY OF THE INTERNET INFRASTRUCTURE
Our success will depend upon the development and maintenance of the
Internet's infrastructure to cope with its significant growth and increased
traffic. This will require a reliable network backbone with the necessary speed,
data capacity and security, and the timely development of complementary
products, such as high-speed modems, for providing reliable Internet access and
services. The Internet has experienced a variety of outages and other delays as
a result of damage to portions of its infrastructure and could face outages and
delays in the future. Outages and delays are likely to cause a loss of business
by affecting the level of Internet usage and the processing of insurance quotes
and applications requests made through our Web site. We are unlikely to make up
for this loss of business.
RISKS RELATED TO THIS OFFERING AND OWNERSHIP OF OUR COMMON STOCK
OUR STOCK PRICE MAY HAVE WIDE FLUCTUATIONS, AND INTERNET-RELATED STOCKS HAVE
BEEN PARTICULARLY VOLATILE
The market price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations. Recently, the stock market has
experienced significant price and volume fluctuations and the market prices of
securities of technology companies, particularly Internet-related companies,
have been highly volatile. Market fluctuations, as well as general political and
economic conditions, such as a recession or interest rate or currency rate
fluctuations, could adversely affect the market price of our common stock. In
addition, the market prices for stocks of Internet-related and technology
companies, particularly following an initial public offering, frequently reach
levels that bear no relationship to the operating performance of such companies.
These market prices generally are not sustainable and are subject to wide
variations. If our common stock trades to unsustainably high levels following
this offering, it likely will thereafter experience a material decline.
In the past, securities class action litigation has often been brought
against a company following periods of volatility in the market price of their
securities. We may in the future be the target of similar litigation. Securities
litigation could result in substantial costs, divert management's attention and
resources, and harm our financial condition and results of operations.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE
After this offering and after our grant of options to purchase 212,000
shares upon completion of this offering, we will have 18,515,091 shares of
common stock outstanding and we will have an additional 712,000 shares of common
stock reserved for issuance pursuant to outstanding stock options. Following the
consummation of this offering we intend to register for resale up to 1,225,000
shares of common stock reserved for issuance under our 1997 Stock Option Plan
and 1999 Employee Stock Purchase Plan. The federal securities laws impose
restrictions on the ability of stockholders who acquired their shares prior to
this offering to resell their shares. Also, our directors, officers and
substantially all of our current stockholders have agreed, subject to limited
exceptions, not to sell their shares for a period of 180 days after the date of
this prospectus.
We cannot predict if future sales of our common stock, or the availability
of our common stock for sale, will cause the market price of our common stock to
decline.
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<PAGE> 20
TWO OF OUR OFFICERS AND DIRECTORS WILL OWN A MAJORITY OF OUR STOCK AND WILL
CONTINUE TO CONTROL OUR COMPANY AFTER THIS OFFERING AND THEIR INTERESTS MAY NOT
BE THE SAME AS OUR PUBLIC STOCKHOLDERS
Following this offering, Robert Bland, our chairman, president and chief
executive officer will directly or indirectly control 39.5% of our outstanding
common stock, and William Thoms, our executive vice president, will directly
control 11.7% of our outstanding common stock. As a result, if Messrs. Bland and
Thoms act together, they will be able to take any of the following actions
without the approval of our public stockholders:
- elect our directors;
- amend several provisions of our charter;
- approve a merger, sale of assets or other major corporate transaction;
- defeat any takeover attempt, even if it would be beneficial to our public
stockholders; and
- otherwise control the outcome of all matters submitted for a stockholder
vote.
This control could discourage others from initiating a potential merger,
takeover or another change of control transaction that could be beneficial to
our public stockholders. As a result, the market price of our common stock could
be harmed.
OUR CHARTER DOCUMENTS AND DELAWARE LAW CONTAIN PROVISIONS THAT MAY DISCOURAGE
TAKEOVER ATTEMPTS WHICH COULD PRECLUDE OUR STOCKHOLDERS FROM RECEIVING A CHANGE
OF CONTROL PREMIUM
Our certificate of incorporation and bylaws and Delaware law contain
anti-takeover provisions that could have the effect of delaying or preventing
changes in control that a stockholder may consider favorable. The provisions in
our charter documents include the following:
- a classified board of directors with three-year staggered terms;
- the ability of our board of directors to issue shares of preferred stock
and to determine the price and other terms, including preferences and
voting rights, of those shares without stockholder approval;
- stockholder action to be taken only at a special or regular meeting; and
- advance notice procedures for nominating candidates to our board of
directors.
Our preferred stock purchase rights would cause substantial dilution to any
person or group who attempts to acquire a significant interest in our company
without advance approval of our board of directors. In addition, our executive
officers have employment agreements that may entitle them to substantial
payments in the event of a change of control.
The foregoing could have the effect of delaying, deferring or preventing a
change in control of our company, discourage bids for our common stock at a
premium over the market price, or harm the market price of, and the voting and
other rights of the holders of, our common stock. We also are subject to
Delaware laws that could have similar effects. One of these laws prohibits us
from engaging in a business combination with any significant stockholder for a
period of three years from the date the person became a significant stockholder
unless specific conditions are met. For more information refer to "Description
of Capital Stock -- Delaware Anti-Takeover, Certificate of Incorporation and
By-law Provisions" beginning on page 59.
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<PAGE> 21
OUR MANAGEMENT TEAM WILL HAVE BROAD DISCRETION OVER THE USE OF PROCEEDS FROM
THIS OFFERING
The net proceeds of this offering are estimated to be approximately
$45,525,000 at an assumed initial public offering price of $10.00 per share and
after deducting the estimated underwriting discount and estimated offering
expenses. Our management will retain broad discretion as to the allocation of
the proceeds of this offering and we may not be able to invest these proceeds to
yield a significant return. As of the date of this prospectus, we do not intend
to use the proceeds from this offering other than for repaying debt, expanding
our marketing and brand promotion and working capital and general corporate
purposes.
YOU WILL EXPERIENCE IMMEDIATE AND SUBSTANTIAL DILUTION
The initial public offering price is expected to be substantially higher
than the net tangible book value of each outstanding share of common stock. If
you purchase common stock in this offering, you will suffer immediate and
substantial dilution. The dilution will be $7.42 per share in the net tangible
book value of the common stock from the assumed initial public offering price of
$10.00 per share. In addition, if outstanding options to purchase shares of
common stock are exercised, there could be further dilution. For more
information refer to "Dilution" on page 21.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements under "Prospectus Summary," "Risk Factors,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business" and elsewhere in this prospectus are "forward-looking
statements." These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of
activity, performance, or achievements to be materially different from any
future results, levels of activity, performance, or achievements expressed or
implied by these forward-looking statements. These factors include, among other
things, those listed under "Risk Factors" and elsewhere in this prospectus.
In some cases, you can identify forward-looking statements by terminology
such as "may," "will," "should," "could," "expects," "plans," "anticipates,"
"believes," "estimates," "predicts," "potential," "intends," or "continue" or
the negative of these terms or other comparable terminology. Although we believe
that the expectations reflected in the forward-looking statements are
reasonable, we cannot guarantee future results, levels of activity, performance,
or achievements.
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<PAGE> 22
USE OF PROCEEDS
We will receive net proceeds of $45,525,000 from the sale of the 5,000,000
shares of common stock in this offering at an assumed initial public offering
price of $ 10.00 per share, after deducting estimated offering expenses of
$975,000 and estimated underwriting discounts and commissions. If the
underwriters exercise their over-allotment option in full, we will receive total
net proceeds of $52,500,000.
We will use approximately $2.0 million of the proceeds of this offering to
repay a $2.0 million loan we received from Intuit on June 24, 1999. The loan
from Intuit bears an interest rate of 12.5% per annum and interest is payable
quarterly. This loan becomes payable on the earlier of (1) December 24, 2000 or
(2) the date of the closing of this offering. In addition, we will be required
to prepay this loan to the extent of any proceeds we receive from a sale of our
equity securities or securities convertible into equity securities. We are using
the proceeds of the loan from Intuit for general corporate purposes including
selling and marketing expenditures.
In the 12 months following this offering, we intend to use approximately
$26 million of the net proceeds for expansion of our selling and marketing
efforts, including brand promotion. The amounts we actually expend for any of
the foregoing purposes may vary significantly and will depend on a number of
factors, including the amount of our future revenues. We intend to use the
remainder of the net proceeds, over time, for general corporate purposes,
including working capital to fund operating losses, if any, and capital
expenditures. We may also use a portion of the net proceeds currently intended
for general corporate purposes to acquire or invest in complementary businesses,
technologies, products or services, although no specific acquisitions or
investments are planned and no portion of the net proceeds has been allocated
for any acquisition or investment. Pending these uses, we intend to invest the
net proceeds of this offering in investment-grade, interest-bearing securities.
Accordingly, we will have broad discretion in the application of the net
proceeds of this offering. Please refer to "Risk Factors -- Our management team
will have broad discretion over the use of proceeds from this offering" on page
18.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock and
do not intend nor expect to pay any cash dividends in the foreseeable future. We
intend to retain future earnings, if any, to finance the expansion of our
business.
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<PAGE> 23
CAPITALIZATION
The following table sets forth our capitalization as of June 30, 1999:
- on an actual basis; and
- on an as adjusted basis to reflect:
+ our receipt of the estimated net proceeds from the sale of the shares of
common stock in this offering at an assumed initial public offering
price of $10.00 per share less the estimated offering expenses and
underwriting discounts and commissions; and
+ the application of approximately $2.0 million of the net proceeds of
this offering to repay the loan from Intuit as described in "Use of
Proceeds" on page 19.
The outstanding share information excludes:
- 500,000 shares of common stock issuable upon the exercise of outstanding
stock options at a weighted average exercise price of $4.62 per share;
and
- 1,225,000 shares of common stock reserved for future grant or issuance
under our 1997 Stock Option Plan and our 1999 Employee Stock Purchase
Plan.
Upon completion of this offering, options to purchase 212,000 shares of
common stock will be issued to several of our directors and employees at the
initial public offering price. For more information please refer to
"Management -- Stock Based Plans" beginning on page 51 and notes 6 and 8 to our
financial statements beginning of page F-12.
This information is qualified by, and should be read in conjunction with,
our financial statements and related notes appearing at the end of this
prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1999
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable............................................... $ 2,000 $ --
Stockholders' equity:
Preferred stock, $.001 par value, 5,000,000 shares
authorized; no shares issued and outstanding, actual
and as adjusted........................................ -- --
Common stock, $.001 par value, 60,000,000 shares
authorized; 13,515,091 shares issued and outstanding,
actual; 18,515,091 shares issued and outstanding, as
adjusted............................................... 16 21
Additional paid-in capital................................ 5,964 51,484
Retained-earnings deficit................................. (3,503) (3,503)
Treasury stock at cost (2,534,000 shares)................. (263) (263)
------- -------
Total stockholders' equity............................. 2,214 47,739
------- -------
Total capitalization................................... $ 4,214 $47,739
======= =======
</TABLE>
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<PAGE> 24
DILUTION
Our net tangible book value as of June 30, 1999 was $2,214,396, or $0.16
per share. Net tangible book value per share is determined by dividing the
number of outstanding shares of our common stock into our net tangible book
value, which is our total tangible assets less our total liabilities. Dilution
in net tangible book value per share represents the difference between the
amount per share paid by purchasers of shares of common stock in this offering
and the net tangible book value per share of common stock immediately after
completion of this offering. Assuming our sale of the shares of common stock
being offered hereby at an assumed initial public offering price of $10.00 per
share and after deducting the estimated underwriting discounts and commissions
and estimated offering expenses, the net tangible book value of our company as
of June 30, 1999 would have been approximately $47,739,000, or $2.58 per share.
This represents an immediate increase in net tangible book value of $2.42 per
share to existing stockholders and an immediate dilution of $7.42 per share to
new investors purchasing shares at the initial public offering price. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share.................... $10.00
Net tangible book value per share before the offering.... $0.16
Increase in net tangible book value attributable to new
investors............................................. 2.42
-----
Net tangible book value per share after offering........... 2.58
------
Dilution in net tangible book value per share to new
investors................................................ $ 7.42
======
</TABLE>
The following table summarizes, as of June 30, 1999, the differences
between the number of shares of common stock purchased from us, the total
consideration paid to us and the average price per share paid by existing
stockholders and by investors purchasing shares of common stock in this offering
at an assumed initial public offering price of $10.00, before deducting the
estimated underwriting discounts and commissions and estimated offering
expenses:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- --------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders........... 13,515,091 73.0% $ 5,717,158 10.3% $ 0.42
New investors................... 5,000,000 27.0 50,000,000 89.7 10.00
----------- ----- ----------- -----
Total...................... 18,515,091 100.0% 55,717,158 100.0%
=========== ===== =========== =====
</TABLE>
The foregoing discussion and tables assume no exercise of any stock options
outstanding as of June 30, 1999. The table excludes an aggregate of 1,475,000
shares of common stock reserved for issuance pursuant to the 1997 Stock Option
Plan and 250,000 shares of common stock reserved for issuance pursuant to the
1999 Employee Stock Purchase Plan. There are currently outstanding options to
purchase a total of 500,000 shares of common stock with a weighted average
exercise price of $4.62 per share. To the extent that any of these options are
exercised, there would be further dilution to new public investors. For more
information please refer to "Capitalization," on page 20, "Management -- Stock
Based Plans" beginning on page 51 and notes 6 and 8 to our financial statements
beginning on page F-12.
21
<PAGE> 25
SELECTED FINANCIAL AND OTHER DATA
The historical statement of operations data and balance sheet data in the
table below are derived from our financial statements. This data should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" beginning on page 23 and with the financial
statements, related notes, and other financial information beginning on page
F-1. The historical results presented below are not necessarily indicative of
the results to be expected for any future period.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------- ----------------
1994 1995(1) 1996 1997 1998 1998 1999
------ ------- ------ ------ ------ ------ -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues....................... $1,138 $2,243 $3,812 $4,262 $5,576 $2,556 $ 3,050
Expenses:
Selling and
marketing(2)........... 267 266 1,109 2,152 1,791 621 2,132
Operations................ 538 1,022 1,551 1,794 2,690 1,208 2,690
General and
administrative......... 400 472 786 952 1,293 489 1,385
------ ------ ------ ------ ------ ------ -------
Total expenses......... 1,205 1,760 3,446 4,898 5,774 2,318 6,207
Operating income (loss)........ (67) 483 366 (636) (198) 238 (3,157)
Interest income (expense),
net.......................... (16) (10) (14) (41) 2 (10) 41
Deferred income taxes
(credit)..................... -- 81 129 (210) -- 33 --
------ ------ ------ ------ ------ ------ -------
Net income (loss).............. $ (83) $ 392 $ 223 $ (467) $ (196) $ 195 $(3,116)
====== ====== ====== ====== ====== ====== =======
Basic and diluted net income
(loss) per share............. $(0.01) $ 0.03 $ 0.02 $(0.04) $(0.02) $ 0.02 $ (0.23)
====== ====== ====== ====== ====== ====== =======
Weighted average common shares
and equivalents outstanding:
Basic..................... 13,706 13,706 12,154 11,956 12,258 12,145 13,271
Diluted................... 13,706 13,706 12,154 11,956 12,258 12,187 13,271
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------
1994 1995 1996 1997 1998 JUNE 30, 1999
------ ------ ------ ------ ------ --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.......................... $ 10 $ 34 $ 1 $ 4 $ 518 $3,387
Working capital (deficit)..... (85) 257 334 (121) 749 1,538
Total assets.................. 149 687 869 830 1,806 5,074
Long-term liabilities......... 74 21 146 233 -- --
Total liabilities............. 280 427 636 1,063 817 2,860
Total stockholders' equity
(deficiency in assets)...... (131) 260 233 (233) 989 2,214
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
--------------------------- -----------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING STATISTICS:
Quotes................................. 354,000 592,000 831,000 304,000 702,000
</TABLE>
- -------------------------
(1) As of January 1, 1995, in accordance with a new accounting standard, we
changed our method of accounting for direct response advertising costs and
began to defer those costs and amortize them over the period of expected
future benefits. The change in accounting had the effect of increasing 1995
net income by $274,000 or $0.02 per share.
(2) Since January 1, 1997, our direct response advertising costs no longer
qualify for deferral and are expensed as incurred. If direct response
advertising costs had not been deferred and amortized for any year, selling
and marketing expenses would have been $621,000 in 1995, $1.2 million in
1996, and $1.7 million in 1997.
22
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our financial
statements and the notes thereto and the other financial information appearing
elsewhere in this prospectus. In addition to historical information, the
following discussion and other parts of this prospectus contain forward-looking
information that involves risks and uncertainties. Our actual results could
differ materially from those anticipated by these forward-looking information
due to factors discussed under "Risk Factors" beginning on page 7, "Special Note
Regarding Forward-Looking Statements" on page 18 and elsewhere in this
prospectus.
OVERVIEW
We believe that Quotesmith.com is the most comprehensive Internet-based
insurance service available. Our service allows consumers to compare insurance
products, obtain instant quotes from over 300 companies and purchase insurance
from the company of their choice -- all without the involvement of any
commissioned salespeople. The Quotesmith.com model offers significant benefits
to buyers of insurance who are able to obtain information from an unbiased
source, as well as benefits to insurance companies who are able to efficiently
market their products to a large group of interested consumers.
We incorporated and began our operations in March 1984 and during the
period from 1984 to 1994, we provided an electronic quotation and policy
information service to insurance agents and brokers. During this period, we
built our proprietary database and price comparison technology, and we began
securing key insurance company support and recruiting and training employees.
Throughout this period we were not engaged in the marketing of insurance to
consumers. In 1994, we began focusing our business strategy on marketing term
life insurance to self-directed consumers utilizing our proprietary insurance
price comparison technology. In May 1996, we began providing real time quotes
for term life insurance on the Internet and began receiving online insurance
application requests from consumers. During 1998 and in the first quarter of
1999, we raised $4.7 million through the sale of our common stock, including
$3.0 million from Intuit.
We are licensed as an agent for life and health insurance throughout the
United States. We recently expanded our Internet service offerings and now
include instant quotes for several types of insurance, including dental,
individual and family medical insurance, Medicare supplement insurance,
"no-exam" whole life insurance, fixed annuity insurance and, through
click-through arrangements with Progressive and Quicken InsureMarket, access to
private passenger automobile insurance quotes. We have also started to offer
small group medical insurance quotes and products to businesses of up to 100
employees.
We generate revenues from the receipt of commissions paid to us by
insurance companies based upon the policy premiums paid by consumers through our
service. These revenues come in the form of first year, bonus and renewal
commissions that vary by company and product. We recognize the full first year
commission revenues after the insurance company approves the policy and accepts
the initial payment. At the time revenue is recognized, an allowance is recorded
based on historical information for estimated commissions that will not be
received due to the non-payment of installment first year premiums. First year
commission revenues per policy can fluctuate due to changing premiums,
commission rates, and types or amount of insurance sold. We occasionally receive
bonuses based upon individual criteria set by insurance companies. We recognize
bonus revenues when we receive notification from the insurance company of the
bonus due to us. Bonus revenues are typically higher in the fourth quarter due
to the bonus system used by many life insurance companies. Revenues for renewal
23
<PAGE> 27
commissions are recognized after we receive notice that the insurance company
has received payment for a renewal premium. Renewal commission rates are
significantly less than first year commission rates and may not be offered by
every insurance company. We also generate a portion of our revenues from fees
through our arrangements with Progressive and Intuit Insurance Services. Our
revenue recognition accounting policy has been applied to all periods presented
in "Selected Financial and Other Data" on page 22.
The timing between when we submit a consumer's application for insurance to
the insurance company and when we generate revenues has varied over time. The
type of insurance product and the insurance company's backlog are the primary
factors that impact the length of time between submitted applications and
revenue recognition. Over the past three years, the time between application
submission and revenue recognition has averaged approximately four months. Any
changes in the amount of time between submitted application and revenue
recognition, of which a significant part is not under our control, will create
fluctuations in our operating results and could harm our business, operating
results and financial condition.
The insurance industry is heavily regulated and prices are set by the
insurance companies typically after they have registered changes with the state
insurance departments. Insurance agents are precluded from discounting or
rebating commissions, and they are not allowed to set premium or commission
levels.
From May 1, 1996 through June 30, 1999, we have provided over two million
quotes, collected over 120,000 insurance application requests and sold over
29,000 paid insurance policies. Over 98% of our revenues in 1998 were derived
from the sale of term life policies. See "Risk Factors -- If the term life
insurance industry declines, our business will suffer because nearly all of our
revenues are currently derived from consumers purchasing term life insurance
through us" on page 7. Our top five insurance companies represented 64.0% of the
policies we delivered during 1998, 77.5% during 1997 and 77.4% during 1996. Of
our top ten insurance companies in 1998, 40.0% were not in the top ten in 1997.
Our top insurance company for 1998 accounted for 21.8% of the 1998 policies
delivered, but only accounted for 8.2% in 1997 and 1.7% in 1996 of all policies
delivered. See "Risk Factors -- Because we generate a significant amount of
revenue from a small number of insurance companies we could experience a
substantial drop in our revenues if high volume insurance companies refuse to
appoint us as their agent" on page 10.
Other revenues are primarily comprised of revenue streams associated with
our historical business of providing electronic quotations and policy
information to insurance agents and brokers. These revenues are recognized when
we receive notification that these revenues have been earned.
Operations expenses are comprised of both variable and semi-variable
expenses, including wages, benefits and expenses associated with processing
insurance applications and maintaining our database and Web site. The historical
lag between the time an application is submitted to the insurance companies and
when we recognize revenues, significantly impacts our operating results as most
of our variable expenses are incurred prior to application submission.
Selling and marketing expenses consist primarily of direct advertising
costs. Beginning in 1994, we initiated a series of magazine advertisements aimed
at consumers and began to provide insurance price comparison reports and
solicitations by mail. During the period from 1994 to 1998, we continued to use
direct advertising as our primary method of marketing. In the foreseeable
future, we expect to significantly increase our advertising and marketing
efforts in an attempt to build greater brand awareness.
24
<PAGE> 28
General and administrative expenses consist primarily of executive
compensation and benefits, financial and legal expenses and office expenses
(rent and utilities). An additional facilities expansion is planned for mid
1999. In 1998, we recorded compensation expense of $150,000 relating to the
issuance of stock options to employees. In the six months ended June 30, 1999,
we recorded compensation expense of $957,000 relating to the issuance of stock
options and common stock sold to employees. These amounts represent the earned
portion of the difference between the deemed value of our common stock for
accounting purposes at the date of grant or amendment of the vesting and
expiration terms of the options as compared to the exercise price of these
options or sales price of the stock. Additional unearned compensation expense
will be amortized over the remaining vesting period of the applicable options in
the amounts of $222,000 for the remainder of 1999, $192,000 in 2000 and $40,000
in 2001.
RESULTS OF OPERATIONS
The following table sets forth our results of operations expressed as a
percentage of total revenues:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL REVENUES
------------------------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------- ------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues:
Commission............................... 91.7% 96.6% 98.8% 98.4% 99.0%
Other.................................... 8.3 3.4 1.2 1.6 1.0
----- ----- ----- ----- ------
Total revenues...................... 100.0 100.0 100.0 100.0 100.0
Expenses:
Selling and marketing.................... 29.1 50.5 32.1 24.3 69.9
Operations............................... 40.7 42.1 48.2 47.2 88.2
General and administrative............... 20.6 22.3 23.2 19.2 45.4
----- ----- ----- ----- ------
Total expenses...................... 90.4 114.9 103.5 90.7 203.5
----- ----- ----- ----- ------
Operating income (loss).................... 9.6 (14.9) (3.5) 9.3 (103.5)
Interest income (expense), net............. (0.4) (1.0) -- (0.4) 1.3
----- ----- ----- ----- ------
Income (loss) before taxes................. 9.2 (15.9) (3.5) 8.9 (102.2)
Income taxes (credit)...................... 3.4 (5.0) -- 1.3 --
----- ----- ----- ----- ------
Net income (loss).......................... 5.8% (10.9)% (3.5)% 7.6% (102.2)%
===== ===== ===== ===== ======
</TABLE>
COMPARISON OF THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
Revenues
Revenues increased 19.3% to $3.1 million for the six months ended June 30,
1999 from $2.6 million for the six months ended June 30, 1998. The growth in
revenues in the 1999 period was due to a 15.7% growth in the number of paid
policies and a 64.2% increase in bonus and renewal revenues from $183,000 to
$300,000.
Expenses
Selling and Marketing. Selling and marketing expenses increased 243.0% to
$2.1 million for the six months ended June 30, 1999 from $621,000 for the six
months ended June 30, 1998, and increased as a percentage of revenues to 69.9%
from 24.3%. The increase in expenses, in total and as a percentage of total
revenues, was due to the expansion of print and radio advertisements.
25
<PAGE> 29
Operations. Operations expenses increased 122.9% to $2.7 million for the
six months ended June 30, 1999 from $1.2 million for the six months ended June
30, 1998, and increased as a percentage of revenues to 88.2% from 47.2%. This
increase included compensation expense of $549,000 relating to stock options
granted in 1999 as described in note 8 to our financial statements. The increase
also included increased payroll and related costs of $560,000, due primarily to
a staffing increase of 65.3% over the same period in 1998 as a result of
increased policy processing. The remaining increase is due principally to
office-related expenses.
General and Administrative. General and administrative expenses increased
182.8% to $1.4 million for the six months ended June 30, 1999 from $490,000 for
the six months ended June 30, 1998 and increased as a percentage of revenues to
45.4% from 19.2%. This increase included compensation expense of $408,000
relating to common stock sold and stock options granted in 1999 as described in
note 8 to our financial statements. This increase also reflected additional
executive and financial personnel, increased rent due to the expansion of
facilities and increased legal and accounting fees.
Interest Income (Expense), Net
Interest income, net for the six months ended June 30, 1999 was $41,000 of
gross interest income. Interest expense, net of $10,000 for the same period last
year included interest expense of $18,000 and interest income of $8,000. The
decrease in interest expense is attributable to the retirement of notes payable
and the increase in interest income is due to investment of proceeds from the
private sale of common stock in 1998 and 1999.
Income Taxes (Credit)
We had no income tax credit for the six months ended June 30, 1999 due to
valuation allowances provided against net deferred tax assets. Our income tax
provision for the six months ended June 30, 1998 reflected a lower effective tax
rate due to the utilization of operating loss carryforwards.
COMPARISON OF YEARS ENDED DECEMBER 31, 1998 AND 1997
Revenues
Revenues increased 30.8% to $5.6 million in 1998 from $4.3 million in 1997.
The growth in revenues in 1998 was primarily driven by an increase in the number
of paid policies of 24.7%, plus bonus and renewal revenues increased 125.3% to
$799,000 in 1998 from $355,000 in 1997.
Expenses
Selling and Marketing. Selling and marketing expenses decreased 16.8% to
$1.8 million in 1998 from $2.2 million in 1997, and decreased as a percentage of
revenues to 32.1% from 50.5%. Beginning on January 1, 1997, we no longer
qualified to defer direct response advertising costs. Accordingly, 1997 selling
and marketing expenses included advertising costs incurred in 1997 as well as
amortization of previous years' costs that were unamortized as of December 31,
1996 of $494,000. Adjusting 1997 advertising expenses to eliminate the
amortization of prior period deferrals of advertising costs reduces 1997 selling
and marketing expenses to $1.7 million. Selling and marketing expenses in 1998
increased by 8.0% from adjusted 1997 amounts.
Operations. Operations expenses increased 49.9% to $2.7 million in 1998
from $1.8 million in 1997, and increased as a percentage of revenues to 48.2%
from 42.1%. Operations expenses primarily increased due to an increase in staff
and associated wages and benefits. Postage and other variable costs also
increased to a lesser extent, but not as a percentage of revenues.
26
<PAGE> 30
General and Administrative. General and administrative expenses increased
35.8% to $1.3 million in 1998 from $952,000 in 1997, and increased to 23.2% of
revenues in 1998 from 22.3% of revenues in 1997. The increase in general and
administrative expenses included $150,000 recorded as compensation expense in
1998 relating to stock options. The remainder of the increase was primarily due
to professional fees.
Interest Income (Expense), Net
Interest income, net was $2,000 in 1998 as compared to interest expense,
net of $41,000 in 1997. The components are included in Note 2 to our financial
statements. This decrease in interest expense is attributable to the retirement
of notes payable. The increase in interest income is attributable to the
investment of proceeds from the private sale of common stock during 1998.
Income Taxes (Credit)
Due to losses incurred for financial reporting and income tax purposes, we
provided valuation allowances to reduce our net deferred tax assets to zero as
of December 31, 1997 and 1998. Components of our 1998 and 1997 tax provisions
are described in note 3 to our financial statements.
COMPARISONS OF YEARS ENDED DECEMBER 31, 1997 AND 1996
Revenues
Revenues increased 11.8% to $4.3 million in 1997 from $3.8 million in 1996.
The growth in revenues in 1997 was driven by an increase in commission revenues
of $619,000, or 17.7%. Commission revenues growth was due to an increase in the
number of paid policies by 30.7%, partially offset by a decrease in the average
first year commission revenues per policy of 10.4%. Bonus and renewal commission
revenues increased 1.1% to $355,000 in 1997 from $351,000 in 1996.
Expenses
Selling and Marketing. Selling and marketing expenses increased 94.0% to
$2.2 million in 1997 from $1.1 million in 1996, and increased as a percentage of
revenues to 50.5% from 29.1%. Beginning on January 1, 1997, we no longer
qualified to defer our direct response advertising costs. Accordingly, 1997
selling and marketing expenses included advertising costs incurred in 1997 as
well as amortization of previous years' costs that were unamortized as of
December 31, 1996 of $494,000. In 1996, selling and marketing expenses included
the effect of a net deferral of costs of $139,000. Adjusting 1997 and 1996
advertising expenses to eliminate the effect of deferral and amortization of
advertising costs reduces 1997 expenses to $1.7 million and increases 1996
expenses to $1.2 million. As adjusted, 1997 selling and marketing expenses
increased by 32.8% over 1996.
Operations. Operations expense increased 15.7% to $1.8 million in 1997 from
$1.6 million in 1996, and increased as a percentage of revenues to 42.1% from
40.7%. Operations expenses primarily increased due to an increase in staff
during 1997.
General and Administrative. General and administrative expenses increased
21.0% to $952,000 in 1997 from $786,000 in 1996, and increased as a percentage
of revenues to 22.3% from 20.6% as a result of increased salaries and benefits,
legal and accounting fees and rent.
27
<PAGE> 31
Interest Income (Expense), Net
Interest expense, net was $41,000 in 1997 and an expense of $14,000 in
1996. The components are included in Note 2 to our financial statements.
Interest expense increased due to an increase in notes payable.
Income Taxes (Credit)
As described in note 3 to the accompanying financial statements, income
taxes in 1997 reflect an effective tax rate that is less than 1996 due to the
valuation allowances provided against net deferred tax assets in 1997.
SELECTED QUARTERLY OPERATING RESULTS
The following table sets forth selected unaudited statements of operations
data on an absolute basis and as a percentage of revenues for the five most
recent quarters. The information for each of these quarters has been prepared on
substantially the same basis as the audited financial statements included
elsewhere in this prospectus, and, in our opinion, include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the results of operations for these periods. Historical results
are not necessarily indicative of the results to be expected in the future, and
results of interim periods are not necessarily indicative of results for the
entire year.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------
MAR. 31, JUN. 30, SEP. 30, DEC. 31, MAR. 31, JUN. 30,
1998 1998 1998 1998 1999 1999
-------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. $1,165 $1,391 $1,345 $1,675 $ 1,463 $ 1,587
Expenses:
Selling and marketing.............. 277 344 482 688 681 1,451
Operations......................... 534 674 734 748 1,507 1,183
General and administrative......... 266 223 283 521 721 664
------ ------ ------ ------ ------- -------
Total expenses............. 1,077 1,241 1,499 1,957 2,909 3,298
------ ------ ------ ------ ------- -------
Operating income (loss).............. 88 150 (154) (282) (1,446) (1,711)
Interest income (expense), net....... (10) -- 5 7 16 25
------ ------ ------ ------ ------- -------
Income (loss) before income taxes.... 78 150 (149) (275) (1,430) (1,686)
Income taxes (credit)................ -- 33 (33) -- -- --
------ ------ ------ ------ ------- -------
Net income (loss).................... $ 78 $ 117 $ (116) $ (275) $(1,430) $(1,686)
====== ====== ====== ====== ======= =======
</TABLE>
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Expenses:
Selling and marketing.............. 23.8 24.7 35.8 41.1 46.5 91.4
Operations......................... 45.9 48.5 54.6 44.6 103.0 74.6
General and administrative......... 22.8 16.0 21.0 49.3 49.3 41.8
----- ----- ----- ----- ----- ------
Total expenses............. 92.5 89.2 111.4 116.8 198.8 207.8
----- ----- ----- ----- ----- ------
Operating income (loss).............. 7.5 10.8 (11.4) (16.8) (98.8) (107.8)
Interest income (expense), net....... (0.8) -- 0.4 0.4 1.1 1.6
----- ----- ----- ----- ----- ------
Income (loss) before income taxes.... 6.7 10.8 (11.0) (16.4) (97.7) (106.2)
Income taxes (credit)................ -- 2.4 (2.4) -- -- --
----- ----- ----- ----- ----- ------
Net income (loss).................... 6.7% 8.4% (8.6)% (16.4)% (97.7)% (106.2)%
===== ===== ===== ===== ===== ======
</TABLE>
28
<PAGE> 32
In the foregoing table, revenues for the quarter ended December 31, 1998
increased as compared to the previous quarter primarily due to bonus commission
revenues that are typically higher in the fourth quarter.
Compensation expense has been reported relating to the issuance of stock
options and the sale of stock to employees. Amounts included in general and
administrative expenses were $50,000 in the quarter ended March 31, 1998,
$100,000 in the quarter ended December 31, 1998, $242,000 in the quarter ended
March 31, 1999, and $166,000 in the quarter ended June 30, 1999. Amounts
included in operations expenses were $549,000 in the quarter ended March 31,
1999.
The increases in selling and marketing expenses in total and as a
percentage of revenues are due to our planned increases in advertising costs.
The remaining increases in operations and general and administrative expenses in
total and as a percentage of revenues are primarily due to increased staffing
and expansion of processing and facilities. The expenses as a percentage of
revenues are lower in the quarter ended December 31, 1998 due to the higher
bonus commission revenues reported in that quarter.
LIQUIDITY AND CAPITAL RESOURCES
Since 1995, our primary sources of operating funds have been commissions, a
private financing and bank borrowings. During the first quarter of 1999 and in
1998, we raised our first outside financing through the sale of common stock.
Total proceeds of the sale of our common stock were $3.4 million in 1999 and
$1.3 million in 1998.
Cash used in operating activities was $2.0 million for the six months ended
June 30, 1999, compared to less than $1000 of cash provided for the six months
ended June 30, 1998. The increase in cash used in the 1999 period was primarily
a result of a net loss for the period. Cash used in operations was $135,000 in
1998 and $10,000 in 1997, as compared to cash provided by operations of $34,000
in 1996. These amounts reflect increasing amounts of cash used for advertising
and operations.
Cash used in investing activities was $290,000 for the six months ended
June 30, 1999, $73,000 for the six months ended June 30, 1998, $186,000 in 1998,
$107,000 in 1997, and $51,000 in 1996. These funds were primarily used for the
purchase of furniture, equipment and computer software.
Cash provided by financing activities was $5.2 million for the six months
ended June 30, 1999, attributable principally to proceeds from private sales of
our common stock of $3.4 million and a $2.0 million loan discussed in the
following paragraph. Cash provided by financing activities was $1.0 million for
the six months ended June 30, 1998 and $835,000 for the full 1998 year,
primarily as a result of proceeds from the private sale of our common stock of
$1.3 million mostly in the six month period. These amounts were reduced by
repayment of notes of $130,000 for the six month period and $433,000 for the
full 1998 year. Cash provided by financing activities was $121,000 in 1997 as
compared to cash used in financing activities of $17,000 in 1996, and reflects
proceeds from the issuance of notes payable, and in 1996, the purchase of
$250,000 of treasury stock.
On June 24, 1999, we borrowed $2.0 million from Intuit. The loan from
Intuit bears an interest rate of 12.5% per annum and interest is payable
quarterly. This loan must be repaid on the earlier of (1) December 24, 2000 or
(2) the date of the closing of this offering. In addition, we will be required
to prepay this loan to the extent of any proceeds we receive from a sale of our
equity securities or securities convertible into equity securities.
29
<PAGE> 33
We currently expect that the cash proceeds we receive from this offering,
together with our existing cash balances, will be sufficient to meet our
anticipated cash requirements for at least the next 12 months. We may need to
raise additional capital in order to meet competitive pressures, support more
rapid expansion, develop new products, acquire related or complementary
businesses or technologies and or take advantage of unforeseen opportunities.
The timing and amounts of working capital expenditures are difficult to predict,
and if they vary materially, we may require additional financing sooner than
anticipated. If we require additional equity financing, it may be dilutive to
our stockholders and the equity securities issued in a subsequent offering may
have rights or privileges senior to the holders of our common stock. If debt
financing is available, it may require restrictive covenants with respect to
dividends, raising capital and other financial and operational matters, which
could impact or restrict our operations. If we cannot obtain adequate financing
on acceptable terms, we may be required to reduce the scope of our marketing or
operations, which could harm our business, results of operations and our
financial condition.
YEAR 2000 READINESS DISCLOSURE
Our State Of Readiness. We have defined year 2000 compliance as follows:
That the information technology time and date data processes,
including, but not limited to, calculating, comparing and sequencing
data from, into and between the 20th and 21st centuries contained in
our products and services offered through our service, will function
accurately, continuously and without degradation in performance and
without requiring intervention or modification in any manner that will
or could harm the performance of these products or the delivery of
these services as applicable at any time hereafter.
Our year 2000 project encompasses both information and non-information
systems within Quotesmith.com as well as the investigation of our strategic
suppliers/business partners. To date, we have not experienced any material year
2000 problems. We have internally performed and evaluated all year 2000
compliance evaluation, remediation, testing and compliance certification. We
have relied completely on internal resources and not used any third-party with
respect to our year 2000 efforts.
Our goal is to have all year 2000 issues resolved by September 30, 1999. To
that end, we have inventoried and assessed the year 2000 readiness of the
following:
In-house Applications. We have internally developed most of the systems
used in the operation of our business and believe that these systems are year
2000 compliant. On March 31, 1999, we completed the assessment, remediation and
testing of all of our internally developed production systems.
Third Party Software and Hardware. We have assessed the year 2000 readiness
of our third-party supplied hardware and software. The failure of such hardware
and software systems to be year 2000 compliant could adversely affect business
functions as well as the operations of our Web site. As part of our assessment
program, we have contacted third party vendors and licensors of software and
computer technology to seek assurances that their products are year 2000
compliant. We have not used any independent verification processes to assure the
year 2000 compliance of third parties. We completed the assessment process in
the second quarter of 1999.
As a result of our evaluation of third party supplied hardware and
software, we did not discover any material issues. However, we determined that
we will need to apply several software upgrade patches to achieve year 2000
compliance. We expect that there will be no
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cost to obtain and install the necessary software upgrades. We expect to obtain
and install all software upgrades by September 30, 1999.
Business Partners. We have contacted our material insurance company
participants whose products or services are sold through our service to
determine if they are year 2000 compliant. We have received responses from 80%
of the insurance companies we have contacted. All of the respondents have stated
that they have year 2000 programs in place and currently are or will be year
2000 compliant. We expect to complete this process by July 31, 1999.
Non-information Technology Facilities and Utilities. This category includes
components in our office support systems including copy machines, fax machines,
telephone and communications systems, postage machines, electrical, and air
handlers. We have completed our evaluation of our non-information technology
systems for year 2000 compliance.
As a result of this evaluation, we did not discover any material hardware
issues. However, we determined that we will need to apply a software upgrade to
our voice mail system to achieve year 2000 compliance. We expect that the cost
of obtaining and installing the software upgrade will be approximately $4,000.
We expect to obtain and install the software upgrade by September 30, 1999.
We have contacted our property management firm to obtain a statement of
year 2000 readiness of our office space.
The Costs To Address Year 2000 Issues. We have expensed and will continue
to expense amounts incurred in connection with year 2000 compliance. To date, we
have expended approximately $50,000, and we expect to expend an additional
$10,000, to become year 2000 ready. The additional costs to make any other
products or services year 2000 compliant by the end of the third quarter of 1999
will be expensed as incurred. We do not expect any additional costs to be
material.
We are not currently aware of any material operational issues or costs
associated with preparing our systems for the year 2000. However, we may
experience unexpected material costs caused by undetected errors or defects in
the technology used in our systems or because of the failure of a material
insurance company participant in our program to be year 2000 compliant.
Risks Associated With Year 2000 Issues. Notwithstanding our year 2000
compliance efforts, the failure of a material system or vendor, including one or
more insurance company participants in our service, or the Internet generally,
to be year 2000 compliant could harm the operation of our service, prevent some
products and services from being offered through our service, or have other
unforeseen, harmful consequences to us.
Finally, we also are subject to external year 2000-related failures or
disruptions that might generally affect industry and commerce, such as utility
or transportation company year 2000 compliance failures and related service
interruptions. All of these factors could harm our business, financial condition
and results of operations.
Contingency Plans. There is a possibility that an unforeseen year
2000-related event may occur and cause a disruption for which we are not
currently prepared. Our contingency plan for this possibility includes having
our computer programmers and support staff on call or on site to respond to any
disruption of our business during a critical transition date -- e.g., September
9, 1999 or January 1, 2000. We will continue to assess our systems and those of
our vendors throughout the remainder of this year. If our contingency plan is
inadequate to prevent or resolve a year 2000 disruption, there could be a
material harmful effect on our business, financial condition and results of
operations.
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BUSINESS
OVERVIEW
We believe that Quotesmith.com is the most comprehensive Internet-based
insurance service available. The Quotesmith.com service enables consumers and
business owners to obtain instant quotes from over 300 insurance companies, and
we guarantee the accuracy of every quote. Combining the reach and efficiency of
the Internet with our proprietary database and industry expertise developed over
the past 15 years, we provide a complete "quote to policy delivery" insurance
solution without the involvement of any commissioned salespeople.
We have created a model that addresses the challenges faced by traditional
insurance distribution methods in a manner that offers significant benefits to
both consumers and insurance companies. The Quotesmith.com model allows
consumers to:
- efficiently search for, analyze and compare insurance products;
- quickly request and obtain insurance quotes; and
- easily select and purchase insurance from the insurance company of their
choice.
INDUSTRY BACKGROUND
The Traditional Insurance Market in the United States
The insurance market in the United States represented over $1.1 trillion in
premiums paid in 1998. Insurance products are widely held by households and
businesses. Estimates by the United States Bureau of Labor Statistics showed
that in 1997, the average household paid nearly $4,500 for personal insurance
products, accounting for 12.9% of the average annual household spending of
approximately $35,000.
The United States insurance market is broadly divided into two categories:
life and health insurance and property and casualty insurance. Over 4,500
insurance companies distribute their products through a network of agents and
brokers or sell directly to consumers. There are approximately one million
individuals licensed as agents and brokers to sell insurance in the United
States. A variety of distribution systems have evolved, including "captive"
one-company agents and independent agents and brokers that typically represent
only two to five insurance companies.
Challenges to Purchasing and Delivering Insurance
There are numerous challenges to the informed purchase and delivery of
insurance products. Some of these challenges are due to the specialized nature
of insurance products and other challenges result from the way in which
insurance has been traditionally distributed.
These challenges include:
- Fragmented delivery. Insurance products are available from captive
agents, independent agents and direct distribution channels as well as
new entrants, including banks and other financial institutions. Because
of this fragmentation, there has been no single source of policy coverage
and pricing information from which a consumer can obtain unbiased and
complete information.
- Quantity and variation of products. Insurance policies vary by type of
insurance product, underwriting guidelines, insurance company,
jurisdiction and the particular characteristics and preferences of the
consumer. This creates a complex pricing structure that is not readily
understandable or comparable without the use of technology.
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- Information-intensive underwriting process. The underwriting process
requires consumers to submit, and insurance companies to collect, large
amounts of individualized and personal information. This process is
difficult and time consuming and, if not accurately completed, will delay
the approval of a policy.
- Negative consumer perception. Consumers often believe that they paid too
much for their insurance and were not properly informed by insurance
agents. Face-to-face contact with an insurance agent may convey the sense
of a high-pressure sales environment with a lack of unbiased information.
- Misalignment of interests between insurance agents and
consumers. Commission-based insurance agents represent only a limited
number of insurance companies. Accordingly, they are compensated to
promote and sell a limited range of products, which is in direct conflict
with the consumer's need to obtain insurance at the lowest price.
- Inconvenient and time-consuming purchase. Researching policy coverages,
contacting competing insurance companies, collecting information and
obtaining insurance quotes require large blocks of time usually during
regular working hours. Consumers are often unable to shop for insurance
on their own time and from the convenience of their own home.
Distribution of insurance through traditional agent and broker sales forces
is expensive and inefficient for insurance companies. According to an industry
marketing association, total marketing and sales costs are $144 for every $100
of first year life and health insurance premiums. Traditional agency
distribution methods have high fixed costs associated with establishing and
maintaining numerous branch and local offices, high commission structures,
recurring training costs and high agent turnover. In addition, insurance
companies often do not target all segments of the population because of the
inability to profitably serve these segments through traditional distribution
channels.
Emergence of the Internet and Electronic Commerce
The Internet has emerged as a global medium for communication, information
and commerce. A recent research report estimates that there were 142 million
Internet users worldwide at the end of 1998 and anticipates this number will
grow to approximately 399 million users by the end of 2002. The Internet
possesses a number of unique characteristics that differentiate it from
traditional media and other methods of commerce, including:
- companies can reach and serve a large and global group of consumers
electronically from a central location;
- companies can provide personalized, low-cost and real time consumer
interaction;
- users communicate or access information without geographic or temporal
limitations;
- users enjoy greater convenience and privacy and face less sales pressure;
and
- users have an enormous diversity of easily accessible content and
commerce offerings.
As a result of these unique characteristics and the Internet's growing
adoption rate, businesses have an enormous opportunity to conduct commerce over
the Internet. A recent research report estimates that commerce over the Internet
will increase from approximately $50 billion worldwide in 1998 to approximately
$734 billion in 2002. The Internet gives companies the opportunity to develop
one-to-one relationships with consumers worldwide without having to make the
significant investments to build and manage a local market
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presence or develop the printing and mailing capabilities associated with
traditional direct marketing activities.
Emergence of the Electronic Service Category
A new category of Internet-based electronic service providers has emerged
that offers a focused range of services with special emphasis on providing
relevant content, information and transaction capabilities. Recent examples
include companies operating as online providers of mortgages, online securities
brokers and automobile referral services. These consumer-focused, one-stop,
information-based destinations provide enhanced, high margin services by acting
as independent intermediaries that facilitate interaction and transaction flow
between buyers and sellers. Consumers benefit because they are able to obtain
value-added information services and transaction capabilities on their own time
schedule. Sellers benefit because they are able to deliver targeted offerings
more effectively to consumers.
Online Insurance Opportunity
The growing acceptance of the Internet and electronic commerce presents a
significant opportunity for the insurance industry by allowing consumers to more
efficiently and effectively research and transact with insurance companies. The
fragmentation of the insurance industry and the significant price and product
variation has led consumers to seek alternative means of purchase and insurance
companies to seek alternative means of distribution. According to a recent
research report, Internet-influenced sales of insurance are expected to grow
from $1.5 billion in 1998 to $11.0 billion in 2003. We believe that the vast
information sharing and communications power of the Internet will significantly
improve the insurance industry for both consumers and insurance companies.
Characteristics of the insurance product that make it particularly well
suited for delivery over the Internet include:
- insurance is an information-based product that needs no physical shipment
or warehousing of merchandise;
- through a single medium consumers can access information and compare a
wide variety of insurance companies' products;
- effective two-way communication flow via the Internet allows insurance
companies to interact with consumers and rapidly collect underwriting
information;
- enhanced convenience, privacy and control over the process of researching
and purchasing insurance without the pressure of a commissioned agent;
and
- ability of insurance companies to target and serve segments of the market
which previously were unprofitable through traditional distribution
channels by reducing the need for large sales staff and costly local
offices.
Many companies are trying to address this significant online insurance
opportunity. Some companies have created "lead referral" Web sites for the
purpose of capturing consumer name and address information to be forwarded, as a
prospective sales lead, to a specified insurance company or its traditional
sales force. Many of these Web sites are paid upfront referral fees, are aligned
with a limited number of insurance companies and often do not reveal many of the
lowest priced insurance policies. Consumers are often still forced to complete
their purchase through a commissioned salesperson. Additionally, these companies
typically do not offer any personalized customer service or insurance
fulfillment capabilities and, therefore, do not offer a complete quote to policy
delivery insurance solution.
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Existing insurance companies and their agents and brokers have created Web
sites to sell their insurance products online as an alternative to their
traditional sales activities. Some companies have created Web sites with the
primary purpose of creating an insurance sale online for a single insurance
company or group of insurance companies with little or no comparative overview
of prices. These companies perpetuate the fragmentation in the industry by not
offering a comprehensive database of pricing and coverage information.
As a result of the shortcomings inherent in the online lead referral and
single company approaches, we believe there exists a significant market
opportunity for the emergence of a large-scale, comprehensive and unbiased
Internet-based insurance service. Self-directed consumers will be attracted to
the broadest selection of insurance companies and a compelling value proposition
based upon price, time and transaction fulfillment.
THE QUOTESMITH.COM SOLUTION
We believe that Quotesmith.com is the most comprehensive Internet-based
insurance service available. The Quotesmith.com service enables consumers and
business owners to obtain instant quotes from over 300 insurance companies, and
we guarantee the accuracy of every quote. Combining the reach and efficiency of
the Internet with our proprietary database and industry expertise developed over
the past 15 years, we provide a complete "quote to policy delivery" insurance
solution without the involvement of any commissioned salespeople.
We have created a model that addresses the challenges faced by traditional
insurance distribution methods in a manner that offers significant benefits to
both consumers and insurance companies. The Quotesmith.com model allows
consumers to:
- efficiently search for, analyze and compare insurance products;
- quickly request and obtain insurance quotes; and
- easily select and purchase insurance from the insurance company of their
choice.
The Quotesmith.com solution provides the following principal advantages to
both consumers and insurance companies:
Comprehensive Source of Insurance Information and Products. On a single Web
site, we provide insurance quotes from over 300 insurance companies across
several types of insurance including individual term life, private passenger
automobile, dental, individual and family medical, Medicare supplement, small
group medical, "no exam" whole life and fixed annuity. We believe we offer
consumers access to the largest, most complete repository of comparative
information on insurance products, insurance pricing and insurance providers. We
empower consumers with relevant current pricing knowledge, coverage information
and independent rating information so that consumers can make informed buying
decisions.
Guaranteed-Accurate Instant Quotes. Over the past 15 years, we have
developed what we believe to be the most complete, regularly updated database
used to determine insurance quotes. The ability to obtain instant quotes on the
Internet is the first priority for consumers purchasing insurance online,
according to a 1997 survey by an independent research group. We obtain and
regularly update all of our pricing, underwriting and policy coverage
information contained in our databases directly from the insurance company to
ensure accuracy. We offer consumers a unique $500 cash reward guarantee that we
provide an accurate quote. In addition, we also offer a $500 cash reward
guarantee that we provide the lowest price quote available with respect to term
life policies. These Quotesmith.com guarantees are unmatched by any competitor.
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A No Salesperson Approach. At Quotesmith.com, we provide self-directed
insurance buyers with a "no salesperson" promise. We put consumers in control of
their insurance purchase decisions by giving them the ability to efficiently
search, analyze and compare prices of insurance products from multiple insurance
companies in complete privacy, on their own time and free from the pressure to
buy associated with traditional salespeople. Consumers choose from what we
believe is the largest selection of insurance companies using their own
preferences regarding price and insurance company rating. Consumers are able to
purchase insurance directly through us without ever speaking to a commissioned
salesperson.
Convenience. Consumers who use Quotesmith.com no longer need to contact
different insurance companies or salespeople, one by one, in order to gather
information to make educated decisions. Unlike traditional agents who only
recommend and promote a limited number of insurance companies' policies, we
provide real time access to a large database of over 300 insurance companies'
products. Our comparison service presents users with a comprehensive listing of
insurance quotes, ranked by price. We believe that this large array of available
insurance providers in a single destination saves consumers time and effort in
searching for and obtaining the most suitable coverage.
Quote to Policy Delivery Support. Consumers purchase insurance directly
through us. Unlike insurance lead referral services, at Quotesmith.com, we do
not abandon the consumer once the insurance company has been selected, but
continue to provide value-added support and service throughout the insurance
purchase process. We facilitate this process by:
- interpreting various pricing, coverage and independent rating information
when asked;
- assisting consumers in completing insurance applications; and
- arranging and monitoring the collection of outside underwriting
information including paramedical examinations, laboratory reports and
medical records.
Focus on Customer Service. Customer service is both our foundation and a
strategic priority. We provide a high level of customer service throughout the
application process and aim to eliminate consumer dissatisfaction and
frustration. Our non-commissioned customer service staff has an average of 11
years of experience in the insurance industry.
We implement our customer service objectives by:
- requiring all new employees to attend "Quotesmith University," a two-week
training course that teaches all of the service tasks we perform for our
customers;
- maintaining our own call center to ensure prompt and consistent responses
to phone, mail and e-mail inquiries;
- providing regular application status reports to our customers on a
consistent basis through policy delivery; and
- offering a 30-day cancellation option on all paid term life policies.
Fully Licensed National Insurance Agency. Unlike traditional insurance
agents who are often only licensed in one or a limited number of states, our
company or one of our employees is licensed to offer life and health insurance
throughout the United States. This allows us to process and offer insurance
policies to consumers nationwide. Over a 15-year period, we have established
vital information-contributor relationships with over 300 insurance companies,
of which we are currently appointed as an authorized agent by 115 insurance
companies. We typically seek and receive formal agency appointment from an
insurance company after we receive a purchase request for that company's product
from a prospective customer.
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User Friendly System. At our Web site, www.quotesmith.com, consumers can
access our Internet-based services and initiate purchase requests 24 hours a
day, 7 days a week. Our easy to use Web site is designed for fast viewing, rapid
downloading and general compatibility with most commonly used browsers.
OUR STRATEGY
Our strategy is to be the leading Internet-based service for all insurance
needs of individuals and small businesses. The key elements of our strategy
include:
Continue to Build the Quotesmith.com Brand. We believe that building
awareness of the Quotesmith.com brand is critical in our effort to be the
leading Internet-based insurance service. To date, we have focused our consumer
marketing efforts on traditional direct response print advertising in personal
finance and special interest magazines. We have recently begun radio advertising
and entered into strategic online agreements with companies such as Intuit
Insurance Services, drkoop.com and XOOM.com. In order to build our brand, we
plan to add to these strategic online relationships and agreements as well as to
continue to develop our traditional advertising efforts, positive press coverage
and strong word of mouth support.
Offer Additional Insurance Products. We will continue to expand into
additional types of insurance. We expect to leverage our brand, proprietary
database and operational infrastructure to expand the breadth of insurance
products we offer to our customers. While historically our primary product has
been term life insurance, we now offer dental, individual and family medical,
Medicare supplement, small group medical, "no-exam" whole life insurance and
fixed annuity. Additionally, we offer access to private passenger automobile
insurance quotes through click-through arrangements with Quicken InsureMarket
and Progressive. We plan to expand these offerings and add additional life and
health insurance and property and casualty insurance products. We plan to market
these products to both new customers and to our existing customer base.
Expand Number of Participating Insurance Companies. We intend to increase
the number of participating insurance companies in our service. A significant
factor in our success has been our ability to demonstrate to an increasing
number of leading insurance companies that we can generate incremental revenues
for them within their existing pricing structures. We plan to extend this
ability to broaden our relationships with major insurance companies based on
reputation, quality and national presence in order to expand our insurance
product offerings.
Leverage Customer Base. We have expanded our insurance product offerings
and believe there is significant opportunity to leverage our existing customer
base and provide new products to them without significant customer acquisition
costs. We plan to tailor our marketing efforts based on consumer profiles
contained in our database of existing customers.
Strengthen and Pursue Strategic Relationships and Agreements. We believe
that strategic joint ventures and licensing arrangements are attractive methods
of expansion, as they will enable us to combine our expertise in Internet-based
insurance offerings with other brand names, complementary services or
technology. We currently have strategic agreements with Intuit Insurance
Services, drkoop.com, XOOM.com and Progressive. We plan to expand these and
pursue additional relationships and agreements in the future. In addition, we
may seek to acquire complementary technologies or businesses.
Continue to Focus on Customer Service. At Quotesmith.com, we provide
insurance products and services for consumers from initial evaluation through
policy delivery. In order to provide the highest level of service throughout the
insurance buying process, we will monitor feedback from consumers and add new
features designed to increase customer usage and loyalty.
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THE QUOTESMITH.COM BUSINESS MODEL
We have created a model that enables consumers to shop for and purchase
insurance in a manner that we believe is simpler, faster and more convenient
than traditional methods. We provide a complete "quote to policy delivery"
insurance solution using our technology and non-commissioned customer service
staff. Our model:
- allows consumers to specify the desired coverage and range of
substitutability among insurance companies and policy features--for
example, consumers may want to purchase insurance from a company rated
"A" or better by A.M. Best;
- allows consumers to choose the premium range they are prepared to pay for
the policy they want;
- allows consumers to purchase insurance without the involvement of a
commissioned salesperson;
- allows us to monitor and care for applicants through the underwriting
process and policy delivery stage;
- allows us to guarantee the initially quoted premium subject to the
accuracy of the information provided by consumers as compared against
each insurance company's published underwriting guidelines; and
- allows insurance companies to offer additional policies within their
existing pricing structures.
Our customer service representatives are motivated to provide value-added
service and assistance and not to generate insurance purchase requests.
Accordingly, we do not assign consumers to individual employees. Instead, we
rely upon our information processing systems to provide each customer service
representative with access to the customer account and market-related
information necessary to respond to any customer's inquiries. We employ a team
approach. If a customer wishes to initiate an insurance application request or
obtain information concerning an application already in process, each and every
customer service representative is able to provide assistance.
Our process at Quotesmith.com is comprised of four primary stages.
Initial Information Evaluation. Consumers visit our user-friendly Web site
and access our comprehensive database of insurance policy price rates,
underwriting guidelines, policy coverage and exclusion information,
claims-paying ability ratings of over 300 insurance companies. To help consumers
understand the underwriting process, our Web site provides information and
helpful tips on how the underwriting process works.
Search, Retrieval and Comparison. Consumers can quickly obtain a customized
cost comparison report in a single search by completing a brief and confidential
questionnaire at the start of the online session. Each anonymous consumer
inquiry triggers a proprietary cost search and comparison algorithm that sorts
through a database of thousands of insurance options that is updated daily. The
search result, delivered in seconds, is a comprehensive comparison of insurance
policies ranked by the lowest price that matches the consumer's criteria.
Consumers can then click to view:
- specific coverage details about the policy;
- exclusions and guarantees (including policy acceptance guidelines); and
- latest claims-paying ability ratings from five independent rating
services.
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Application Processing. If a consumer desires to purchase a policy, the
consumer selects an insurance company and policy and requests an application for
that policy while online. We accept requests for applications from consumers
throughout the United States, 24 hours a day, 7 days a week. We also provide
toll-free support during business hours. In response to the consumer's request,
we promptly mail insurance applications and state mandated forms to the
consumer. After the consumer receives the application, we provide help in
completing and proofreading the application, which the consumer returns to us to
begin the underwriting process.
Within two business days of receiving a completed application, we call to
thank the consumer and review the application. After this telephone discussion,
we submit the application to the insurance company for underwriting on behalf of
the consumer.
Underwriting. During the underwriting process at Quotesmith.com, we
regularly track the progress of the consumer's outstanding items. We also assist
the insurance company by arranging for a paramedical examination and facilitate
the collection of the driver, medical and credit records. We receive weekly
status reports from the insurance company regarding the application and
regularly communicate this information to the consumer. We review all policies
for accuracy prior to delivery to the consumer.
If an insurance company declines to issue the policy or issues a counter
offer at a higher premium, we send a letter to the consumer stating the reasons
that the policy is not being issued as applied for. In this instance, we also
assist the consumer in finding suitable alternative coverage wherever possible
and whenever asked.
Once a policy has been issued and been paid for by the consumer, we receive
a commission from the insurance company. We do not charge consumers for using
our Quotesmith.com technology and do not currently sell banner advertising at
our Web site.
INSURANCE PRODUCTS
Quotesmith.com historically offered quote and policy-related information
regarding term life insurance. For more information refer to "Risk Factors -- If
the term life insurance industry declines, our business will suffer because
nearly all of our revenues are currently derived from consumers purchasing term
life insurance through us" on page 7. We recently began offering instant quotes
and related information on additional insurance products for both individuals
and small businesses. Our current product offerings include:
- Individual term life. This is life insurance coverage that has no cash
value and continues for a fixed period of time such as 15, 20 or 25
years. We have been offering instant quotes and delivering term life
policies since 1993.
- Private passenger automobile. This provides collision and liability
insurance to individuals for private cars and vehicles. We provide access
to instant quotes using click-through arrangements with Progressive and
Quicken InsureMarket. We do not currently deliver automobile insurance
policies.
- Dental. This is generally an add-on product to medical insurance. In
second quarter 1999, we began offering instant quotes from a wide variety
of traditional and managed-care dental plans for individuals, families
and small businesses that employ up to 100 people.
- Individual and family medical. This is also known as comprehensive major
medical insurance. We offer instant quotes, delivered policies and track
traditional plans, PPOs, HMOs and Blue Cross and Blue Shield plans.
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- Medicare supplement. This provides health insurance for people ages 65
and older to fill in coverages not provided by Medicare. We offer instant
quotes and deliver supplemental health policies.
- Small group medical. We define small group medical insurance as those
comprehensive medical plans that are offered to firms that employ up to
100 people. We began offering instant quotes from, and tracking
traditional plans of, PPOs, HMOs and Blue Cross and Blue Shield plans in
second quarter 1999.
- "No-exam" whole life. This provides insurance for persons with adverse
health histories who want life insurance coverage without a paramedical
examination. We offer instant quotes and deliver whole life policies.
- Single premium fixed annuity. This product accumulates a lump-sum cash
payment on a tax-deferred basis at fixed interest rates over time. We
offer instant quotes and deliver fixed annuity products.
The following table shows information with respect to the principal product
types currently available through our services. We obtained the information
regarding United States 1998 annual premiums from A.M. Best.
<TABLE>
<CAPTION>
QUOTESMITH.COM SERVICE
AS OF JULY 5, 1999
-------------------------------------
UNITED STATES NUMBER OF QUOTED
TYPE OF INSURANCE PRODUCT 1998 ANNUAL PREMIUMS STATES COVERED INSURANCE COMPANIES
------------------------- -------------------- -------------- -------------------
<S> <C> <C> <C>
Individual term life.............. $ 7 billion 50 and D.C. 131
Private passenger automobile...... 119 billion 47 44
Dental............................ 2 billion 50 and D.C. 33
Individual and family medical..... 93 billion 41 and D.C. 34
Supplemental health............... 7 billion 49 and D.C. 66
Small group medical............... 520 billion 26 13
"No exam" whole life.............. -- 50 and D.C. 58
Fixed annuities................... 38 billion 50 and D.C. 92
</TABLE>
TECHNOLOGY
Proprietary Insurance Information Databases. We maintain a proprietary
database of premium rates and policy coverage information from over 300
insurance companies. At Quotesmith.com, we do not rely upon state insurance
departments or any other regulatory agencies to obtain any insurance pricing
information. Instead, we obtain and regularly update all of the pricing,
underwriting and policy coverage information contained in our databases directly
from each quoted insurance company. We obtain claims-paying ability ratings from
A.M. Best, Duff & Phelps Credit Rating Co., Moody's, Standard & Poor's, and
Weiss Ratings, Inc. and hold licenses to re-distribute the copyrighted rating of
each company. Our dedicated staff of seven full-time market reporters regularly
contacts the insurance companies quoted on our service and monitors and updates
our databases as market conditions warrant. Each business day we make several
thousand changes to our database.
Technology Systems. Our systems for processing quotes, purchase requests,
application progress tracking, customer notification and revenue recognition are
highly automated and integrated. Customer service representatives equipped with
online computer terminals can access a customer's account information from our
database on demand. Our core technology systems use a combination of our own
proprietary technologies and commercially available, licensed technologies from
Silicon Graphics, Netscape Communications, Santa Cruz Operation (SCO) and
others. We have internally developed and enhanced our proprietary programs over
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a period of 15 years utilizing scalable tools and platforms to allow us to
rapidly expand our network and computing capacity.
An internal programming and system administration staff supports our
technology. In addition to supporting the systems, our staff continually
enhances our software and hardware and develops new systems and services to
better service our customers and business objectives.
Server Hosting and Backup. Our Web site system hardware is hosted at
AboveNet Communications in San Jose, California and Vienna, Virginia. These
grade "A" telecommunications data centers provide redundant communications lines
to the Internet backbone, emergency power backup, and security, as well as
24-hour monitoring and engineering support. In addition, we have implemented
load balancing systems and our own redundant servers to provide for fault
tolerance. These redundancies permit us to perform scheduled maintenance without
taking our Web site offline. Finally, tape backups are performed nightly to
prevent a loss of data.
MARKETING
At Quotesmith.com, we attract new consumers and communicate the
availability of new products and services primarily through direct response
marketing methods. We have established ourselves as a leading Internet-based
insurance brand through an offline marketing campaign consisting primarily of
magazine advertisements, radio and direct mail. We employ in-house volume media
buying and other strategies to minimize the expenses of broad-based advertising.
Using our proprietary information processing systems and consumer database as
well as other resources, we employ statistical analysis to measure the
effectiveness and efficiency of our marketing efforts.
While our brand awareness to date has been achieved without any affiliation
with an Internet portal or search engine, we have recently entered into several
strategic online relationships and agreements. We intend to increase marketing
expenditures and continue to aggressively pursue a marketing strategy designed
to promote our Quotesmith.com brand and consumer awareness of the benefits of
buying insurance through us. We intend to target households and small
businesses.
Our marketing strategy is to promote our brand and attract self-directed
consumers to our Web site. Our marketing initiatives include:
- utilizing direct response print advertisements placed primarily in
financially-oriented magazines and special interest magazines such as
Kiplinger's Personal Finance, Money Magazine, SmartMoney, Smithsonian,
Flying, Forbes, AOPA, Worth, ABA Journal, Mutual Funds, American
Spectator, Discover and Popular Science;
- advertising via television, radio and direct mail; and
- entering into strategic relationships with other Web sites to increase
our access to online consumers.
STRATEGIC RELATIONSHIPS AND AGREEMENTS
At Quotesmith.com, we selectively pursue strategic relationships and
agreements to expand our access to online consumers, to build our brand name
recognition and to expand our products and services. Recently, we entered into
strategic relationships with drkoop.com and XOOM.com. However, to date we have
not derived a material amount of revenues from these arrangements.
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<PAGE> 45
Intuit Inc. In September 1998, we entered into a services agreement with
Intuit Insurance Services (IIS), pursuant to which we license IIS some of our
insurance quotation technologies and provide IIS and several of its affiliated
Internet sites our customer service and insurance brokerage capabilities. This
service agreement is for a term of three years. We will pay a fee to IIS for
Quicken InsureMarket customers who purchase insurance through the Quotesmith.com
service. To date, we have not derived a material amount of revenues from this
service agreement. Recently, we entered into a Web linking agreement with Intuit
to provide customers the ability to click-through to Quicken InsureMarket's
private passenger automobile insurance quotation service. Additionally, Intuit
has made a strategic investment in our company.
The Progressive Corporation. In September 1998, we entered into an
agreement with Progressive, the nation's fifth largest private passenger
automobile insurance company, to provide a click-through to their private
passenger automobile insurance service. As a result of this agreement, visitors
from our Web site may click into Progressive's Web site to obtain instant
automobile insurance quotes from State Farm, Allstate, Progressive and other
automobile insurance companies. Progressive compensates us for this traffic
based upon the number of completed quotes. We do not currently deliver
automobile insurance policies.
COMPETITION
We compete with online and traditional providers of insurance products. The
market for selling insurance products over the Internet is new, rapidly evolving
and intensely competitive. Current and new competitors may be able to launch new
sites at a relatively low cost. There are a number of companies that either sell
insurance online, such as Quicken InsureMarket, or provide lead referral
services online, such as InsWeb Corporation.
We believe that Quotesmith.com is the most comprehensive Internet-based
insurance service because we provide consumers complete quote to policy delivery
insurance services and instant quotes from over 300 insurance companies. Our
Internet-based, lead-referral competitors generally capture consumer name and
address information to be forwarded, as a prospective sales lead, to a specified
insurance company, without personalized customer service or fulfillment
capabilities. Other Internet-based competitors have created Web sites as
alternatives to their traditional sales activities and offer products from a
single insurance company or a relatively small group of insurance companies with
little or no comparative overview of prices. While we believe that our complete
quote to policy delivery service offers a more comprehensive Internet-based
insurance service solution than these competitors, we nonetheless expect to face
intense competition from these other types of insurance services.
We also face competition from the traditional distributors of insurance
such as captive agents, independent brokers and agents and direct distributors
of insurance. Insurance companies and distributors of insurance products are
increasingly competing with banks, securities firms and mutual fund companies
that sell insurance or alternative products to similar consumers. Traditionally,
regulation separated the activity in the financial services industry and
protected insurance companies' markets from competition. However, recent
regulatory changes have begun to permit these financial institutions to also
sell insurance.
We potentially face competition from unanticipated alternatives to our
insurance service from a number of large Internet companies and services that
have expertise in developing online commerce and in facilitating Internet
traffic, including America Online, Microsoft and Yahoo!. These potential
competitors could choose to compete with us directly or indirectly through
affiliations with other electronic commerce companies, including direct
competitors. Other large companies with strong brand recognition, technical
expertise and experience in
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Internet commerce could also seek to compete with us. Competition from these and
other sources could harm our business, results of operations and financial
condition.
We believe that the principal competitive factors in our markets are price,
brand recognition, Web site accessibility, ability to fulfill customer purchase
requests, customer service, reliability of delivery, ease of use, and technical
expertise and capabilities. Many of our current and potential competitors,
including Internet directories and search engines and traditional insurance
agents and brokers, have longer operating histories, larger consumer bases,
greater brand recognition and significantly greater financial, marketing,
technical and other resources than us. Several of these competitors may be able
to secure products and services on more favorable terms than we can obtain. In
addition, many of these competitors may be able to devote significantly greater
resources than us for developing Web sites and systems, marketing and
promotional campaigns, attracting traffic to their Web sites and attracting and
retaining key employees.
Increased competition may result in reduced operating margins, loss of
market share and damage to our brand. We cannot assure you that we will be able
to compete successfully against current and future competitors or that
competition will not harm our business, results of operations and financial
condition.
REGULATION
The insurance industry and the marketers of insurance products are subject
to extensive regulation by state governments and by the District of Columbia.
This regulation extends to the operations of insurance companies, insurance
agents and to our service.
Our products are sold throughout the United States through licenses held by
our company and/or one of our employees as is required by each state's insurance
department. In general, state insurance laws establish supervisory agencies with
broad administrative and supervisory powers to:
- grant and revoke licenses to transact business;
- impose continuing education requirements;
- regulate trade practices;
- require statutory financial statements of the insurance companies;
- approve individuals and entities to whom commissions can be paid;
- regulate methods of transacting business and advertising; and
- approve policy forms, and regulate premium rates for some forms of
insurance.
Moreover, existing state insurance regulations require that a firm, or
individual within that firm, must be licensed in order to quote an insurance
premium. State insurance regulatory authorities regularly make inquiries, hold
investigations and administer market conduct examinations with respect to
compliance with applicable insurance laws and regulations by insurance companies
and their agents. In recent years, a number of insurance agents and the life
insurance companies they represent, have been the subject of regulatory
proceedings and litigation relating to alleged improper life insurance pricing
and sales practices. Some of these agents and insurance companies have incurred
or paid substantial amounts in connection with the resolution of these matters.
We do not currently sell the types of life insurance -- primarily cash value
life insurance policies such as universal life -- which are the subject of these
actions.
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<PAGE> 47
In addition, licensing laws applicable to insurance marketing activities
and the receipt of commissions vary by jurisdiction and are subject to
interpretation as to the application of these requirements to specific
activities or transactions. Our company and/or one of our employees is currently
licensed to sell insurance in every state. We do not permit any of our other
personnel who have contact with customers to act as insurance agents. We monitor
the regulatory compliance of our sales, marketing and advertising practices and
the related activities of our employees. We also provide continuing education
and training to our staff in an effort to ensure compliance with applicable
insurance laws and regulations. However, we cannot assure you that a state
insurance department will not make a determination that one or more of these
activities constitute the solicitation of insurance and that this personnel must
be licensed. Such a determination could harm our business.
While no regulatory actions are pending against us, we can give you no
assurance that we would deemed to be in compliance with all applicable insurance
licensing requirements of each jurisdiction in which we operate. Nor can we
assure you that we do not need to obtain any additional licenses.
The federal government does not directly regulate the marketing of most
insurance products. However, some products, such as variable life insurance,
must be registered under federal securities laws and therefore the entities
selling these products must be registered with the NASD. We do not currently
sell any federally regulated insurance products. If we elect to sell these
federally regulated products in the future, we would be required to qualify for
and obtain the required licenses and registrations. We cannot assure you that we
will be able to obtain these licenses.
Further, we are subject to various federal laws and regulations affecting
matters such as pensions, age and sex discrimination, financial services,
securities and taxation. Recently, the Office of the Comptroller of the Currency
has issued a number of rulings that have expanded the ability of banks to sell
some insurance products. In the past, Congress has considered legislation that
could, among other things, eliminate existing restrictions on the affiliation of
insurance companies, banks and securities firms. This legislation and other
future federal or state legislation, if enacted, could result in increased
regulation of our business.
The future regulation of insurance sales via the Internet as a part of the
new and rapidly growing electronic commerce business sector is unclear. We
believe that we are currently in compliance with all of these regulations.
However, if additional state or federal regulations are adopted, they may have
an adverse impact on us.
LEGAL AND REGULATORY PROCEEDINGS
From time to time we have been, and expect to continue to be, subject to
legal proceedings and claims in the ordinary course of business. Legal
proceedings and claims may include claims of alleged infringement of third party
intellectual property rights and notices from state regulators that we may have
violated state regulations. These claims, even if without merit, could result in
the significant expenditure of our financial and managerial resources. We are
not aware of any legal proceedings or claims that we believe will, individually
or in the aggregate, harm our business, financial condition or results of
operations.
EMPLOYEES
As of June 30, 1999, we had 88 employees. We have never had a work
stoppage. A collective bargaining unit does not represent our employees. We
consider our relations with our employees to be good. Our future success will
depend, in part, on our ability to continue
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<PAGE> 48
to attract, integrate, retain and motivate highly qualified technical and
managerial personnel, for whom competition is intense.
FACILITIES
Our executive, administrative and operating offices are located in
approximately 16,000 square feet of leased office space in Darien, Illinois
under a lease that expires on December 31, 2003. We anticipate that we may
require additional space within the next 12 months to accommodate our
anticipated growth and that suitable office space will be available on
commercially reasonable terms.
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<PAGE> 49
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS, DIRECTOR NOMINEES AND KEY EMPLOYEES
The following table sets forth information regarding our executive officers
and key employees, directors and the individuals who have agreed to join our
board of directors upon the completion of this offering.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert S. Bland (1)..................... 45 Chairman of the Board, President and
Chief Executive Officer
William V. Thoms (1).................... 46 Executive Vice President and Director
Thomas A. Munro......................... 38 Vice President, Chief Financial Officer
and Secretary
Burke A. Christensen.................... 53 Vice President of Operations and General
Counsel
Richard C. Claahsen..................... 36 Vice President of Regulatory Affairs
Richard W. Graeber...................... 34 Vice President of Internet Operations
Grant F. Kuphall........................ 45 Vice President of Business Development
Ronald A. Wozniak....................... 45 Vice President of Information Technology
Bruce J. Rueben (2)(3).................. 46 Director
Timothy F. Shannon (2)(3)............... 45 Director
Jeremiah A. Denton, Jr. (4)............. 74 Director Nominee
Richard F. Gretsch (2)(4)............... 46 Director Nominee
John McCartney (3)(4)................... 46 Director Nominee
</TABLE>
- -------------------------
(1) Will become a member of the executive committee upon completion of this
offering
(2) Will become a member of the compensation committee upon completion of this
offering
(3) Will become a member of the audit committee upon completion of this offering
(4) Will become a director upon the completion of this offering
Robert S. Bland has served as our chairman of the board, president and
chief executive officer since he founded Quotesmith.com in 1984. From 1979 to
1984, Mr. Bland was president and sole stockholder of Security Funding
Corporation, an insurance agency. In March 1984, Mr. Bland sold Security Funding
Corporation in order to raise capital to found our company. Mr. Bland holds a
B.S. in marketing from the University of Colorado.
William V. Thoms has served as our executive vice president since 1994.
From 1988 to 1993, Mr. Thoms was responsible for our operations and customer
service departments. Mr. Thoms is a founding stockholder of Quotesmith.com.
Prior to joining us, Mr. Thoms was a sales manager for Western Dressing, Inc., a
privately held salad dressing manufacturing company, from 1972 to 1987.
Thomas A. Munro has served as our vice president, chief financial officer
and secretary since March 1999. From July 1998 to March 1999, Mr. Munro was
chief financial officer of Bowne Business Solutions, a subsidiary of Bowne & Co.
Prior to joining Bowne & Co., Mr. Munro was chief financial officer of Donnelley
Enterprise Solutions, Inc., a public company. In 1997, Mr. Munro was the
Corporate Controller for Donnelley Enterprise Solutions Inc. From 1995 to 1996,
Mr. Munro was controller at R.R. Donnelly & Sons, Donnelley Business Services
Division, which completed its initial public offering during this time. From
1987 to 1995, Mr. Munro was employed in various financial and management
positions at
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<PAGE> 50
R.R. Donnelley & Sons. Mr. Munro holds a B.S. from Brigham Young University and
an M.B.A. from the University of Chicago.
Burke A. Christensen has served as our vice president of operations and
general counsel since January 1999. From 1997 to 1998, Mr. Christensen was
engaged in the private practice of insurance law with Bell, Boyd & Lloyd, a
Chicago-based law firm. From 1995 to 1997, Mr. Christensen was the vice
president and chief operating officer of A.W. Ormiston & Co. insurance agency.
From 1984 to 1995, Mr. Christensen was vice president and general counsel of the
American Society of Chartered Life Underwriters, Bryn Mawr, Pennsylvania. Mr.
Christensen was awarded the Chartered Life Underwriter designation in 1987. He
holds a B.S. in history from Utah State University and a J.D. from the
University of Utah College of Law.
Richard C. Claahsen has served as our vice president of regulatory affairs
since May 1999. From June 1997 to May 1999, Mr. Claahsen served as our director
of regulatory affairs. From October 1996 to June 1997, he was a special agent
with Northwestern Mutual Life Insurance Company. From 1993 to 1996, Mr. Claahsen
was a litigation paralegal at Templeton & Associates of Chicago, Illinois. In
1999, Mr. Claahsen received his Chartered Life Underwriter designation from The
American College of Bryn Mawr, Pennsylvania. Mr. Claahsen holds a B.A. and an
M.A. in philosophy from the Catholic University of America and a J.D. from ITT
Chicago Kent College of Law.
Richard W. Graeber has served as our vice president of Internet operations
since April 1999 with overall responsibility for our Web site operations. From
1998 to 1999, Mr. Graeber was director of Internet services at Package Software
Associates, a consulting firm specializing in Internet and intranet site
development. From 1996 to 1998, Mr. Graeber was head of information technology
at International Bankers School. From 1988 to 1996, Mr. Graeber was manager of
information services at Vector Securities International.
Grant F. Kuphall has served as our vice president of business development
since January 1999. From April 1995 to December 1998, Mr. Kuphall was senior
vice president of Hutchinson, Shockey, Erley & Co., a municipal bond trading and
underwriting firm. From 1987 to 1995, Mr. Kuphall was a principal at Morgan
Stanley & Co. in the municipal bond trading department. Mr. Kuphall holds a B.A.
in economics from Beloit College and an M.B.A. from the University of Chicago.
Ronald A. Wozniak has served as our vice president of information
technology since December 1997. Mr. Wozniak joined us in November 1996 as a
programmer and analyst. From March 1994 to November 1996, Mr. Wozniak was a
senior financial systems analyst at Loyola University Medical Center in Maywood,
Illinois. From September 1993 to February 1994, he was employed as a programmer
and analyst at Data Control and Research, Ltd. Mr. Wozniak holds a B.S. in
management from Northern Illinois University.
Bruce J. Rueben became a director of Quotesmith.com in January 1998. He has
been president of the Minnesota Hospital and Health Care Partnership,
Minnesota's hospital association, since November 1998. From January 1994 to
November 1998, Mr. Rueben was president of the Maine Hospital Association. From
1989 to 1994, Mr. Rueben was senior vice president and assistant treasurer of
the Virginia Hospital Association. Mr. Rueben holds a B.S. from the Virginia
Commonwealth University School of Business and an M.B.A. from the University of
South Carolina.
Timothy F. Shannon became a director of Quotesmith.com in January 1998.
Since 1991, he has been President of Bradner Smith & Company, a subsidiary of
Bradner Central Company. In 1995, he was appointed to the Bradner Central
Company board of directors. Bradner Central
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Company, headquartered in Chicago, is a wholesale paper distribution company
with annual revenues that exceed $300 million. Mr. Shannon holds a B.S. in
Business Administration from the University of Illinois.
Admiral Jeremiah A. Denton, Jr. will become a director of Quotesmith.com
upon the completion of this offering. He currently serves as president of the
National Forum Foundation. Admiral Denton was elected as a United States Senator
from Alabama in 1980, and served from 1981 to 1987. From 1987 to 1989, Admiral
Denton, after being appointed by President Reagan, served as chairman of the
presidential commission on Merchant Marine and Defense. Admiral Denton holds a
B.S. from the United States Naval Academy and an M.A. in international affairs
from George Washington University.
Richard F. Gretsch will become a director of Quotesmith.com upon the
completion of this offering. He currently serves as global offering manager for
AT&T Global Network Services and has held this position since AT&T purchased the
IBM global network. Mr. Gretsch had been global offering manager for IBM
Internet Connection Service since 1995. From 1977 to 1995, he was employed with
IBM Corporation in various capacities including advisory instructor, systems
engineering, major account development and securities industry client manager.
Mr. Gretsch holds a B.S. in finance and accounting from the University of
Arizona and an M.B.A. from the University of Notre Dame.
John McCartney will become a director of Quotesmith.com upon the completion
of this offering. Since October 1998, Mr. McCartney has served as vice chairman
of Datatec, Ltd, a global provider of Internet-related products and services.
Datatec, with annual revenues of greater than $1 billion, is headquartered in
Johannesburg, South Africa and publicly traded on the Johannesburg stock
exchange. From June 1997 to March 1998, Mr. McCartney was president of the
client access business unit of 3Com Corporation, which merged with U.S. Robotics
Corporation in 1997. Mr. McCartney served on the board of directors of U.S.
Robotics Corporation from 1985 through 1997. He also served in various executive
capacities at U.S. Robotics Corporation, including as president and chief
executive officer. In addition to serving on the board of directors of Datatec,
Mr. McCartney serves on the board of directors of A.M. Castle Corp. (AMEX) and
Altec Lansing Technologies, a privately held company. Mr. McCartney holds a B.A.
in philosophy from Davidson College and an M.B.A. from the Wharton School,
University of Pennsylvania.
BOARD COMPOSITION
Our board of directors is currently comprised of four directors and will be
expanded to seven directors upon the completion of this offering. Following this
offering, our board of directors will be divided into three classes serving
staggered three year terms, except for the first term of Class I directors, who
will serve for a one year term and Class II directors, who will serve for a two
year term. Each year, the directors of one class will stand for election as
their terms of office expire. We expect that, after the offering Messrs. Gretsch
and Rueben will be designated as Class I directors, with their terms of office
expiring in 2000, Messrs. Denton and McCartney will be designated as Class II
directors with their terms of office expiring in 2001, and Messrs. Bland,
Shannon and Thoms will be designated as Class III directors with their terms of
office expiring in 2002.
Each officer is elected by, and serves at the discretion of, our board of
directors. Each of our officers and directors, other than non-employee
directors, devotes his full time to our affairs. Our non-employee directors
devote such time to our affairs as is necessary to discharge their duties. The
are no family relationships among our directors, officers or key employees.
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<PAGE> 52
BOARD COMMITTEES
Currently, our board of directors does not have any committees. Upon the
completion of this offering, our board of directors intends to create an
executive committee, an audit committee and a compensation committee.
We expect that our executive committee will consist of Messrs. Bland, Thoms
and a non-employee director who will be named prior to the completion of this
offering. The executive committee will be authorized to exercise, between
meetings of our board of directors, all of the powers and authority of our board
of directors in the direction and management of our company, except to the
extent prohibited by applicable law or our certificate of incorporation, or
another committee shall have been accorded authority over the matter.
We expect that the audit committee will consist of Messrs. McCartney,
Shannon and Rueben. The audit committee will review our financial statements and
accounting practices, make recommendations to our board of directors regarding
the selection of independent auditors and review the results and scope of the
audit and other services provided by our independent auditors.
We expect that the compensation committee will consist of Messrs. Gretsch,
Shannon and Rueben. The compensation committee will make recommendations to the
board of directors concerning salaries and incentive compensation for our
executive officers and administers our employee benefit plans.
DIRECTOR COMPENSATION
Directors who are also employees of Quotesmith.com receive no compensation
for serving on our board of directors. Non-employee directors receive an annual
stipend of $10,000 per year. In addition, we reimburse non-employee directors
for all travel and other expenses incurred in connection with attending board
and committee meetings. Non-employee directors are also eligible to receive
stock option grants under the 1997 Stock Option Plan. Pursuant to this plan,
Messrs. Rueben and Shannon received grants of 25,000 options each on January 1,
1998. These options are vested and are exercisable at an exercise price of $1.00
per share. Admiral Denton and Messrs. Gretsch and McCartney will each receive
options to purchase 25,000 shares of common stock upon the completion of the
offering. These options will be fully vested at the time of grant with an
exercise price equal to the initial public offering price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our anticipated members of our compensation committee is an officer
or employee of Quotesmith.com. None of our executive officers serves as a member
of the board of directors or compensation committee of any entity that has one
or more executive officers serving on our compensation committee.
During 1998, our board of directors set the compensation for our executive
officers. Mr. Bland, our president and chief executive officer, and Mr. Thoms,
our executive vice president, participated as directors in deliberations and
determinations regarding executive compensation.
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<PAGE> 53
EXECUTIVE COMPENSATION
The following table sets forth information concerning compensation we paid
to our chief executive officer and each of our other executive officers
receiving compensation greater than $100,000 in the fiscal year ended December
31, 1998 (the "named executive officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL NUMBER OF
COMPENSATION SECURITIES
------------------ UNDERLYING
NAME AND POSITION SALARY BONUS OPTIONS
----------------- ------ ----- ----------
<S> <C> <C> <C>
Robert S. Bland
Chief Executive Officer................................ $192,308 $ -- --
William V. Thoms
Executive Vice President............................... 198,077 -- 25,000
Ronald A. Wozniak
Vice President, Information Technology................. 115,702 5,250 --
</TABLE>
Mr. Munro joined us in March 1999 as our vice president, chief financial
officer and secretary and will be compensated at an annual base salary of
$225,000 during the year ended December 31, 1999. Mr. Christensen joined us in
January 1999 as our vice president of operations and general counsel and will be
compensated at an annual base salary of $150,000 for the year ended December 31,
1999.
STOCK OPTIONS
The table at the top of page 51 sets forth information regarding options to
acquire our common stock granted to our named executive officers in 1998. Mr.
Thoms options to purchase 25,000 shares were fully vested upon his receipt of
the options at an exercise price of $2.00 per share. The percent of total
options granted to employees in 1998 is based on an aggregate of 125,000 shares
subject to options granted in 1998.
All options granted to executives were granted at an exercise price equal
to the fair market value of our common stock as determined by our board of
directors at the time of grant. In determining the fair market value of our
common stock, our board of directors considered various factors, including our
financial condition and business prospects, our operating results, sales of
stock to and offers from unaffiliated third parties, the absence of a market for
our common stock and risks regarding our company. Our common stock was not
publicly traded at the time of the grant.
Potential realizable value is calculated by assuming that the initial
public offering price of $10.00 per share appreciates at the indicated rate for
the entire term of the option and that the option is exercised at the exercise
price and sold on the last day at the appreciated price. Potential realizable
values are net of exercise price, but before taxes associated with exercise. The
assumed 0%, 5% and 10% rates of stock appreciation are provided in accordance
with the rules of the Securities and Exchange Commission and do not represent
our estimate or projection of our future stock price.
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OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
PERCENT POTENTIAL
NUMBER OF TOTAL REALIZABLE VALUE AT ASSUMED ANNUAL
OF SECURITIES OPTIONS RATES OF STOCK PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ---------------------------------------
NAME GRANTED 1998 SHARE DATE 0% 5% 10%
- ---- ------------- ------------ --------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert S. Bland...... -- --% $ -- -- $ -- $ -- $ --
William V. Thoms..... 25,000 20 2.00 7/31/98 200,000 206,250 212,500
Ronald A. Wozniak.... -- -- -- -- -- -- --
</TABLE>
OPTION GRANTS IN 1999
In January 1999, we granted Mr. Christensen options, each of which expires
January 1, 2009, to purchase: 25,000 shares of our common stock with an exercise
price of $3.00 per share, vesting as of November 16, 1999; 25,000 shares of our
common stock with an exercise price of $5.00 per share, vesting as of May 16,
2000; 25,000 shares of our common stock with an exercise price of $7.00 per
share, vesting as of November 16, 2000; and 25,000 shares of our common stock at
an exercise price of $9.00 per share, vesting as of November 16, 2001.
In March 1999, we granted Mr. Munro options, each of which expires March
29, 2009, to purchase: 30,000 shares of our common stock with an exercise price
of $5.00 per share; 30,000 shares of our common stock with an exercise price of
$7.00 per share; and 30,000 shares of our common stock at $9.00 per share. Each
of Mr. Munro's options will vest over a 36-month period by 2.77% of the total
number of shares optioned each month, however, in the 36th month, these options
will vest by 3.05% of the total number of shares optioned.
OPTION EXERCISES AND HOLDINGS
The following table sets forth information concerning the year-end value of
unexercised options held by our named executive officers. During 1998, Mr. Thoms
exercised options to purchase 25,000 shares of our common stock at an exercise
price of $2.00 per share. The deemed value of the shares at time of exercise was
$3.00 per share.
YEAR-END OPTIONS
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
DECEMBER 31, 1998 DECEMBER 31, 1998
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Robert S. Bland................... -- -- $ -- $ --
William V. Thoms.................. -- -- -- --
Ronald Wozniak.................... 50,000 -- 400,000(1) --
</TABLE>
- -------------------------
(1) Calculated by determining the difference between the assumed initial
offering price of $10.00 and the exercise price of Mr. Wozniak's options.
STOCK BASED PLANS
1997 Stock Option Plan (Amended and Restated). We have established a stock
option plan to provide additional incentive to our employees, officers,
directors and consultants. Pursuant to the stock option plan, we may grant
incentive stock options to our employees and officers
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<PAGE> 55
and non-qualified stock options to our employees, officers, directors and
consultants. Our board of directors or a committee to whom the board has
delegated authority, selects the individuals to whom options are granted,
interprets and adopts rules for the operation of the stock option plan and
specifies the vesting, exercise price and other terms of options. There are a
total of 1,475,000 shares reserved for issuance pursuant to the 1997 Stock
Option Plan of which, as of May 1, 1999, we have granted options to purchase an
aggregate of 500,000 shares of our common stock, at a weighted average exercise
price of $4.62 per share. Upon completion of this offering, options to purchase
212,000 shares of common stock will be issued to several of our directors and
employees at the initial public offering price.
The maximum term of an incentive stock option granted under the options is
generally limited to ten years. If an optionee terminates his or her service
with Quotesmith.com, the optionee generally may exercise only those options
vested as of the date of termination of service. Unless otherwise specified in
the option agreement, the optionee must effect this exercise within three months
of termination of service for any reason other than death or disability. The
exercise price of incentive stock options granted under the stock option plan
must be at least equal to the fair market value of our common stock on the date
of grant and in the case of 10% shareholders, 110% of the fair market value.
Payment of the exercise price may be made by these methods as determined by the
plan administrator and may include cash, check, a promissory note, consideration
under a cashless exercise program or, in certain cases, shares of our common
stock owned by the optionee.
In the event we are acquired or merged with another entity or we transfer
all or substantially all of our assets, then immediately prior to the change of
control all outstanding options will be deemed to be vested and exercisable.
1999 Employee Stock Purchase Plan. On March 29, 1999, our board of
directors established the 1999 Employee Stock Purchase Plan under which a total
of 250,000 shares of common stock will be made available for sale to our
employees. The purchase plan will become effective upon the completion of this
offering. The purchase plan, which is intended to qualify as an employee stock
purchase plan within the meaning of Section 423 of the Internal Revenue Code of
1986, as amended, will be administered by our board of directors or by a
committee appointed by our board of directors. Employees are eligible to
participate if they are employed by us for at least 20 hours per week and for
more than five months in any calendar year. The purchase plan permits eligible
employees to purchase common stock through payroll deductions, which may not
exceed 10% of an employee's compensation, subject to several limitations.
The purchase period will be implemented in a series of consecutive,
overlapping offering periods, each approximately six months in duration.
Purchase periods will begin on the first trading day on or after January 1 and
July 1 of each year and terminate on the last trading day in the period six
months later. However, the first purchase period will begin on the date on which
the registration statement of which this prospectus is a part is declared
effective by the SEC and will terminate on the last trading day in the period
ending December 31, 1999. Each participant will be entitled through a payroll
deduction account to accumulate amounts for the purchase of common stock on the
last date of each purchase period. The purchase price of each share of common
stock under the purchase plan will be set by the administrator of the plan and
will be no less than 85% of the fair market value per share of common stock on
the start date of that purchase period or, if lower, no less than 85% of the
fair market value on the last day of the purchase period. Employees may modify
or end their participation in the offering at any time during the offering
period. Participation ends automatically on termination of employment with us.
The purchase plan will terminate in 2009 unless sooner terminated by our board
of directors.
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EMPLOYMENT AGREEMENTS AND CHANGE OF CONTROL ARRANGEMENTS
We have entered into employment agreements with Messrs. Bland, Thoms,
Munro, Christensen and Wozniak. These agreements set forth each executive's base
annual compensation level, eligibility for salary increases, bonuses and options
and level of benefits.
In addition, each of the agreements provides for separation benefits if one
of these executives is terminated without cause or if the executive terminates
his employment for good reason, including a change of control of our company. In
the event of a termination without cause or for good reason, each of Messrs.
Bland, Thoms and Munro is entitled to receive a lump sum payment equal to two
times his base annual salary. In the event of a termination without cause,
Messrs. Christensen and Wozniak are entitled to receive a lump sum payment equal
to his annual base salary. In connection with a separation payment, Messrs.
Bland, Thoms and Munro are entitled to gross up payments for any excise taxation
incurred. In addition, if Mr. Munro is terminated without cause, the outstanding
options that would vest over the next 12 months will vest and become immediately
exercisable.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Our certificate of incorporation permits us to indemnify our directors and
officers to the fullest extent permitted under Delaware General Corporation Law.
As permitted by Delaware law, our certificate of incorporation includes a
provision that eliminates the personal liability of our directors for monetary
damages for breach of fiduciary duty as a director, except for liability:
- for any breach of the director's duty of loyalty to the company or our
stockholders;
- for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
- for liability under section 174 of the Delaware General Corporation Law
regarding unlawful dividends and stock purchases; or
- for any transaction from which the director derived an improper personal
benefit.
This limitation of liability does not apply to liabilities arising under
the federal securities laws and does not affect the availability of equitable
remedies such as injunctive relief or rescission.
Further, as permitted by Delaware law, our by-laws provide that we are
required to indemnify our directors and officers to the fullest extent permitted
by Delaware law. In addition, our by-laws provide that:
- we are permitted to indemnify our other employees and agents to the
fullest extent permitted by Delaware law;
- we are required in certain circumstances to advance expenses, as
incurred, to our directors and officers in connection with a legal
proceeding; and
- the rights conferred in the certificate of incorporation and by-laws are
not exclusive.
We have or will enter into agreements to indemnify our directors and
executive officers, in addition to indemnification provided for in our
certificate of incorporation and by-laws. These agreements, among other things,
provide for indemnification of our directors and executive officers for most
expenses, including attorneys fees, judgments, fines and settlement amounts
incurred by an indemnified person in any action or proceeding, including any
action by or in the right of our company or any other company or enterprise to
which the person provides services at our request. We are also required to
advance expenses in some
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<PAGE> 57
circumstances. We believe that these provisions and agreements are necessary to
attract and retain qualified persons as directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons pursuant
to the provisions of our certificate of incorporation and by-laws, Delaware law
or the agreements described above, we have been informed that in the opinion of
the SEC indemnification of this type is against public policy as expressed in
the Securities Act of 1933 and is, therefore, unenforceable.
CERTAIN TRANSACTIONS
Since January 1, 1996, there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which we were or are a
party in which the amount involved exceeds $60,000 and in which any director,
executive officer or holder of more than 5% of our common stock had or will have
a direct or indirect interest other than the transactions described below.
In September 1998, we entered into a services agreement with Intuit
Insurance Services. Pursuant to this services agreement, we license a portion of
our insurance database technology and support facilities to Intuit Insurance
Services in connection with its Quicken InsureMarket service. This agreement
permits Intuit to use our technology directly or to direct customers to our Web
site. Quicken InsureMarket customers who utilize our services and request
applications for insurance are forwarded to us for processing. We are entitled
to collect all amounts received from insurance companies with respect to Quicken
InsureMarket customers who use our services. We pay a fee to Intuit Insurance
Services for Quicken Insure Market customers who purchase insurance through our
service. While the license we provide to Intuit Insurance Services is
non-exclusive and non-transferable, we agreed to some restrictions on our
ability to license our proprietary database to parties specified in the services
agreement. To date, we have not paid Intuit Insurance Services, nor have we
received revenue, greater than $60,000 in any year or period for transactions
related to the services agreement.
In February 1999, we sold 1,000,000 shares of common stock to Intuit for
aggregate consideration of $3.0 million. As a part of that transaction, we
granted Intuit specific registration rights pursuant to an investor rights
agreement. For a description of these registration rights refer to "Description
of Capital Stock -- Registration Rights" beginning on page 61.
In June 1999, we received a $2.0 million loan from Intuit. For more
information refer to "Use of Proceeds" on page 19.
We have also entered into a Web site linking agreement whereby we have
agreed to pay a fee to Intuit Insurance Services for Quicken InsureMarket
customers who purchase insurance through the Quotesmith.com service. Amounts
paid to Intuit Insurance Services under the Web linking agreement have not to
date exceeded $60,000 in any year, but could in future years.
We have entered into compensation arrangements with several of our
directors and officers. See "Management -- Employment Agreements and Change of
Control Arrangements" on page 53. We have entered into indemnification
agreements with our officers and directors. See "Management -- Indemnification
of Directors and Executive Officers and Limitation of Liability" beginning on
page 53.
We have agreed to sell to Intuit shares in this offering having an
aggregate purchase price of $3 million and a per share price equal to the
initial public offering price. For more information refer to "Plan of
Distribution" on page 66.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of June 30, 1999, as adjusted to reflect the
sale of shares of common stock in this offering, by:
- each stockholder that is known to us to beneficially own more than 5% of
our common stock;
- each of our directors;
- our chief executive officer and each of the executive officers named in
the summary compensation table; and
- all of our executive officers and directors as a group.
Unless otherwise indicated, the mailing address for each of the named
individuals is c/o Quotesmith.com, Inc., 8205 South Cass Avenue, Suite 102,
Darien, Illinois 60561.
Applicable percentage ownership in the table is based upon 13,515,091
shares of common stock outstanding as of the date hereof and shares outstanding
immediately following the completion of this offering. Beneficial ownership is
determined in accordance with the rules of the SEC. Shares of common stock
subject to options presently exercisable or exercisable within 60 days as of the
date hereof are deemed to be outstanding for the purpose of computing the
percentage ownership of the person or entity holding options, but are not
treated as outstanding for the purpose of computing the percentage ownership for
any other person or entity. To the extent that shares of common stock are issued
upon the exercise of options, warrants or other rights to acquire our capital
stock that are presently outstanding or granted in the future or reserved for
future issuance under our stock plans, new public investors will be subject to
further dilution.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED
--------------------------------------
PRIOR TO OFFERING AFTER OFFERING
-------------------- --------------
NUMBER PERCENT PERCENT
------ ------- -------
<S> <C> <C> <C>
OUR CEO, NAMED EXECUTIVE OFFICERS AND DIRECTORS
Robert S. Bland....................................... 7,314,334 54.1% 39.5%
William V. Thoms...................................... 2,160,000 16.0 11.7
Ronald A. Wozniak(1).................................. 55,281 * *
Timothy F. Shannon(2)................................. 33,333 * *
Bruce J. Rueben(2).................................... 27,000 * *
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP (10
PERSONS)(3)........................................... 9,630,413 70.6 51.7
OTHER FIVE PERCENT STOCKHOLDERS
Intuit Inc.(4)........................................ 1,000,000 7.4 7.0
James and Donna Bellinger............................. 761,001 5.6 4.1
Gary C. Beede......................................... 700,000 5.2 3.8
William G. Schaefer, Jr............................... 700,000 5.2 3.8
</TABLE>
- -------------------------
* Less than 1%.
(1) Consists of shares purchasable upon exercise of fully vested options.
(2) Includes options to purchase 25,000 shares that are fully vested.
(3) Includes options to purchase 117,746 shares that are fully vested.
(4) Intuit's address is 2535 Garcia Avenue, Mountain View, California 94043.
Intuit's beneficial ownership after the offering includes 300,000 shares we
have agreed to sell to Intuit in this offering, assuming an initial public
offering price of $10.00 per share.
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DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, our authorized capital stock will consist
of 60,000,000 shares of common stock and 5,000,000 shares of preferred stock.
The following summary of our common stock and preferred stock is subject to, and
qualified in its entirety by, our certificate of incorporation and by-laws and
by the provisions of applicable law.
COMMON STOCK
As of June 30, 1999, we had 13,515,091 shares of common stock outstanding
held of record by 32 stockholders. Subject to preferences that may apply to
shares of preferred stock outstanding at any time, the holders of outstanding
shares of our common stock are entitled to receive dividends out of assets
legally available therefor at times and in amounts as the board of directors may
from time to time determine. Each stockholder is entitled to one vote for each
share of common stock held on all matters submitted to a vote of stockholders.
Cumulative voting for the election of directors is not provided for in our
certificate of incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. Our
common stock is not entitled to preemptive rights and is not subject to
conversion or redemption. Upon the occurrence of a liquidation, dissolution or
winding-up of our company, the holders of shares of common stock would be
entitled to share ratably in the distribution of all of our assets remaining
available for distribution after satisfaction of all our liabilities and the
payment of the liquidation preference of any outstanding preferred stock. Each
outstanding share of common stock is, and all shares of common stock to be
outstanding upon completion of this offering will be, fully paid and
non-assessable.
PREFERRED STOCK
As of June 30, 1999, we had no shares of preferred stock outstanding. The
board of directors has the authority, within the limitations and restrictions
stated in the certificate of incorporation, to provide by resolution for the
issuance of shares of preferred stock, in one or more classes or series, and to
fix the rights, preferences, privileges and restrictions thereof, including
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences and the number of shares constituting any series or the
designation of a series. The issuance of preferred stock could have the effect
of decreasing the market price of the common stock and could adversely affect
the voting and other rights of the holders of common stock. See "Risk
Factors -- Our charter documents and Delaware law contain provisions that may
discourage takeover attempts which could preclude our stockholders from
receiving a change of control premium" on page 17.
The board of directors has adopted a stockholder rights plan. In connection
with the adoption of the stockholder rights plan, the board of directors has
created one series of preferred stock, consisting of 600,000 shares of Series A
Participating Preferred. No shares of Series A Participating Preferred have been
issued as of the date of this prospectus. Each share of the Series A
Participating Preferred, when and if issued, would entitle the holder to receive
quarterly dividends equal to the greater of $1.00 per share or 100 times the
dividends per share declared with respect to the common stock. Dividends on the
Series A Participating Preferred are cumulative. Holders of the Series A
Participating Preferred would be entitled to exercise 100 votes per share on all
matters submitted to a vote of stockholders and, except as otherwise required by
law, would vote together with the holders of common stock as a single class. In
the event of liquidation, eligible holders would receive a preference of $1.00
per share over the common stock. In general, each share of the Series A
Participating Preferred is intended to
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have a value and voting rights equal to 100 shares of common stock, and
appropriate anti-dilutive adjustments will be made in accordance with the terms
of the Series A Participating Preferred in the event of certain changes in
common stock. Except as contemplated in connection with the stockholder rights
plan described below, we have no present plans to issue any of the preferred
stock.
OPTIONS
Under the 1997 Stock Option Plan, as of June 30, 1999 we had granted
options to purchase 500,000 shares of our common stock at a weighted average
exercise price of $4.62 per share. Upon completion of this offering, we will
issue options to purchase 212,000 shares of our common stock to certain
directors and employees at the initial public offering price. After the
completion of this offering and the grant of options to purchase 212,000 shares,
763,000 shares of common stock will be available for future grant or issuance
under the 1997 Stock Option Plan.
RIGHTS PLAN
Our board of directors has declared a dividend distribution of one
preferred share purchase right for each outstanding share of common stock. The
dividend is payable to stockholders of record immediately prior to the closing
of the offering, which is the record date for this distribution and with respect
to common stock issued thereafter until the distribution date. Except as set
forth below, each right, when it becomes exercisable, entitles the registered
holder to purchase from us one one-hundredth of a share of the Series A
Participating Preferred at an exercise price equal to five times the initial
offering price of our common stock, subject to adjustment. The description and
terms of the rights are set forth in a rights agreement between us and Harris
Trust and Savings Bank, as rights agent. A copy of the rights agreement is
available to stockholders free of charge from us upon request directed to our
corporate secretary.
Initially, the rights will be attached to all certificates representing
shares of common stock then outstanding, and no separate rights certificates
will be distributed. The rights will separate from the common stock upon a
distribution date, which is the earliest to occur of:
- 10 days following public announcement that an acquiring person, a person
or group of affiliated or associated persons, has acquired beneficial
ownership of 15% or more of the outstanding common stock; or
- 15 business days or a later date as our board may determine following the
commencement of, or announcement of an intention to make, a tender offer
or exchange offer the consummation of which would result in a person or
group becoming an acquiring person.
The definition of an acquiring person includes a person or group that
beneficially owns 15% or more of our outstanding common stock, but excludes any
of our employee benefits plans. Each of Robert S. Bland and William V. Thoms,
their extended family, family trusts and other of their affiliates and
associates will not be deemed to be an acquiring person as long as these persons
beneficially own less than 43.5% of our outstanding common stock in the case of
Mr. Bland and 15.7% in the case of Mr. Thoms. The date that a person or group
becomes an acquiring person is the "share acquisition date." Until a right is
exercised, the holder thereof, as such, will not have any rights as a
stockholder, including the right to vote or receive dividends thereon.
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The rights agreement provides that, until the distribution date, the rights
will be transferred with and only with the common stock. Until the distribution
date, or earlier redemption or expiration of the rights, new common stock
certificates issued after the record date upon transfer or new issuance of
common stock will contain a notation incorporating the rights agreement by
reference. Until the distribution date, or earlier redemption or expiration of
the rights, the surrender for transfer of any certificates for common stock
outstanding as of the record date, even without any notation or a copy of the
summary of rights attached thereto, will also constitute the transfer of the
rights associated with the common stock represented by this certificate. As soon
as practicable following the distribution date, separate certificates evidencing
the rights will be mailed to holders of record of the common stock as of the
close of business on the distribution date and to each initial record holder of
certain common stock issued after the distribution date, and separate rights
certificates alone will evidence the rights.
The rights are not exercisable until the distribution date and will expire
at the close of business on the tenth anniversary of the effective date of the
plan, unless earlier redeemed by us as described below.
In the event that any person becomes an acquiring person, in lieu of
acquiring preferred stock, each holder of a right (other than an acquiring
person) will thereafter have the right to receive upon payment of the exercise
price, the number of shares of common stock, or, in certain circumstances, cash,
property or other of our securities, having a value equal to two times the
exercise price. Notwithstanding the foregoing, following the occurrence of
triggering events described above or in the paragraph below, all rights that
are, or (under certain circumstances specified in the rights agreement) were,
beneficially owned by any acquiring person or any affiliate or associate thereof
will be null and void.
In the event that, at any time following the share acquisition date, we are
acquired in a merger or other business combination transaction, or more than 50%
of our assets or earning power is sold or transferred to any other person, then
each holder of a right, except rights which previously have been voided as set
forth above shall thereafter have the right to receive, upon exercise, common
stock of the acquiring company having a value equal to two times the exercise
price of the right.
The exercise price and the number of shares of preferred stock or other
securities or property issuable upon exercise of the rights are subject to
adjustment from time to time to as a result of, among other things, a
subdivision, split -- other than a stock dividend on the common stock payable in
shares of common stock -- combination, consolidation or reclassification of the
Series A Participating Preferred or the common stock, or a reverse split of the
outstanding shares of Series A Participating Preferred or common stock.
At any time prior to the earlier to occur of a person becoming an acquiring
person or the expiration of the rights, and under certain other circumstances,
we may redeem the rights in whole, but not in part, at a price of $0.01 per
right which redemption shall be effective upon the action of the board of
directors. Additionally, at any time after a triggering event and prior to the
time that a person or group acquires 50% or more of the outstanding common
stock, we may exchange the rights, other than those that have become null and
void, in whole or in part, for shares of common stock at an exchange ratio of
one share of common stock per right, subject to adjustment.
The provisions of the rights agreement may be amended by our board of
directors in order to cure any ambiguity, defect or inconsistency, provided that
after such time as any
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person becomes an acquiring person, the rights agreement may not be amended in
any manner that would adversely affect the interests of the holders of the
rights.
DELAWARE ANTI-TAKEOVER, CERTIFICATE OF INCORPORATION AND BY-LAW PROVISIONS
Several provisions of Delaware law and our certificate of incorporation and
by-laws could make more difficult the acquisition of our company by means of a
tender offer, a proxy contest, or otherwise, and the removal of incumbent
officers and directors. These provisions are expected to discourage specific
types of coercive takeover practices and inadequate takeover bids and to
encourage persons seeking to acquire control of our company to first negotiate
with us. We believe that the benefits of increased protection of our potential
ability to negotiate with the proponent of an unfriendly or unsolicited proposal
to acquire or restructure our company outweighs the disadvantages of
discouraging these proposals. The increased protection is beneficial even if a
proposal is priced above the then-current market value of our common stock,
because negotiation of these proposals could result in an improvement of their
terms.
Section 203 of the Delaware General Corporation Law. We are subject to the
provisions of Section 203 of the Delaware General Corporation Law. This
provision generally prohibits any publicly-held Delaware corporation from
engaging in a business combination with an interested stockholder for a period
of three years after the date of the transaction in which the person became an
interested stockholder, unless:
- the transaction in which the stockholder became an interested stockholder
is approved by the board of directors prior to the date the interested
stockholder attained this status;
- upon consummation of the transaction that resulted in the stockholder
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction was commenced, excluding those shares owned by persons
who are directors and also officers and stock held by some employee stock
option plans; or
- on or subsequent to that date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested shareholder.
A business combination includes a merger, asset sale or other transaction
resulting in a financial benefit to the stockholder. For purposes of Section
203, an interested stockholder is defined to include any person that is:
- the owner of 15% or more of the outstanding voting stock of the
corporation;
- an affiliate or associate of the corporation and was the owner of 15% or
more of the voting stock outstanding of the corporation, at any time
within three years immediately prior to the relevant date; and
- an affiliate or associate of the persons described in the foregoing
bullet points.
The restrictions contained in Section 203 do not apply to Mr. Bland, our
chairman, president and chief executive officer, or Mr. Thoms, our executive
vice president, because each was an interested stockholder before our voting
stock was listed on a national securities exchange or authorized for quotation
on the Nasdaq National Market or held by record by more than 2,000 stockholders.
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Stockholders may, by adopting an amendment to the corporation's certificate
of incorporation or bylaws, elect for the corporation not to be governed by
Section 203, effective 12 months after adoption. Neither our certificate of
incorporation nor our by-laws exempt us from the restrictions imposed under
Section 203 of the Delaware General Corporation Law. We anticipate that the
provisions of Section 203 of the Delaware General Corporation Law may encourage
companies interested in acquiring us to negotiate in advance with our board of
directors because the stockholder approval requirement would be avoided if a
majority of the directors then in office approve either the business combination
or the transaction that results in the stockholder becoming an interested
stockholder.
Classification and Structure of our Board of Directors. Immediately upon
the completion of this offering, our board of directors will be divided into
three classes of directors serving staggered, three-year terms. The number of
directors will be fixed by resolution of our board of directors consisting of at
least three but not more than nine directors. The size of our board is currently
fixed at four members and will be increased to seven members contemporaneously
with the completion of this offering. The directors shall be elected at the
annual meeting of the stockholders, except for filling vacancies. Directors may
be removed only for cause and only with the approval of the holders of at least
80% of voting power present and entitled to vote at a meeting of stockholders.
Vacancies and newly-created directorships resulting from any increase in the
number of directors may be filled by a majority of the directors then in office,
a sole remaining director, or if a Delaware provision expressly confers power on
stockholders to fill a directorship at a special meeting, by the holders of at
least 80% of the voting power present and entitled to vote at a meeting of
stockholders.
As a result of the classification of our board of directors, approximately
one-third of the members of our board of directors will be elected each year.
When coupled with the provision of our certificate of incorporation authorizing
the board of directors to fill vacant directorships and increase the size of the
board of directors up to nine, these provisions may prevent stockholders from
removing incumbent directors and simultaneously gaining control of the board of
directors by filling the vacancies created by removals with their own nominees.
Meetings of Stockholders. Our certificate of incorporation and by-laws
provide that any action required or permitted to be taken by our stockholders
may be effected at a duly called annual or special meeting of our stockholders.
Special meetings of stockholders may be called by the chief executive officer or
by a majority of our board of directors. These provisions may have the effect of
deterring hostile takeovers or delaying changes in control of our management.
Written Consent. Under our certificate of incorporation, our stockholders
will not be allowed to take action in writing outside of an annual or special
meeting of our stockholders.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. Our by-laws require that timely notice in proper form be provided
by stockholders seeking to bring business before, or to nominate candidates for
election as directors at, the annual meeting of stockholders. The notice must be
received by us 120 calendar days in advance of the date specified in the
previous year's notice of the annual meeting. These provisions may preclude
stockholders from timely bringing matters before, or from making nominations for
directors at, an annual meeting of stockholders.
Amendment of our Certificate of Incorporation and By-Laws. Generally, our
certificate of incorporation may be amended by the approval of the majority of
our board of directors and a majority of our outstanding voting securities.
However, the approval of at least 80% of voting securities is required to amend
a provision in the certificate of incorporation relating to the
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liability or indemnification of our officers and directors, the structure and
classification of our board of directors and stockholder actions. Our board of
directors is authorized to amend our by-laws consistent with Delaware law and
our certificate of incorporation.
REGISTRATION RIGHTS
As part of our sale of common stock to Intuit in February 1999, we entered
into an investor rights agreement with Intuit. This agreement provides Intuit
with the following registration rights:
- If Intuit requests that we file a registration statement covering its
shares of common stock at least 180 days after the consummation of this
offering, we must make our best efforts to file such a statement as soon
as possible. If, however, we find that the registration would be
detrimental to our company, we may postpone the requested filing for a
period of 90 days.
- Intuit may not sell or transfer any of the shares purchased in February
1999 unless either (A) there is a registration statement in effect
covering the shares or (B)(i) the transferee has agreed to be bound by
all the terms and conditions of the investor rights agreement and (ii)
Intuit has provided us with an opinion of counsel stating that the
transfer will not require the registration of its shares.
- We must notify Intuit of our intention to file a registration statement
covering any securities issued by our company as well as allow them to
include its shares in the registration statement.
- If Intuit requests, we must file a short form registration statement
covering its shares. We must make our best efforts to file such a
statement as soon as possible. If, however, we find that the registration
is impermissible under the applicable securities laws, or we have
effected two similar registrations within the preceding 12 months, we may
refuse to initiate the requested filing. Furthermore, if we find the
requested registration would be detrimental to the company, we may
postpone the requested filing for a period of 90 days.
Under the investor rights agreement, we will pay all of Intuit's
registration costs and expenses unless Intuit withdraws a requested filing
initiated by us. We will indemnify Intuit to the full extent allowed by law for
any liabilities to which it may become subject as a result of any registration
filed pursuant to the investor rights agreement, provided the liability arises
out of any act or omission of the company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is Harris Trust and
Savings Bank, Chicago, Illinois.
LISTING
We have applied for quotation of the common stock on the Nasdaq National
Market under the trading symbol "QUOT."
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SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, we will have outstanding 18,515,091
shares of common stock, based upon shares outstanding on the date hereof.
Excluding the 5,000,000 shares of our common stock offered in this offering and
assuming no exercise of the underwriters' over-allotment option, immediately
prior to the effective date of the registration statement, there will be
13,515,091 shares of common stock outstanding. Nearly all of these shares are
subject to lock-up agreements with the underwriters pursuant to which the
holders of the restricted shares have agreed not to sell, pledge or otherwise
dispose of such shares for a period of at least 180 days after the date of this
prospectus. Hambrecht & Quist LLC may release the shares subject to the lock-up
agreements in whole or in part at any time with or without notice. However,
Hambrecht & Quist LLC has no current plans to do so.
Beginning 180 days after the effective date of the registration statement,
approximately 3,247,300 shares will become eligible for sale in the public
market when the underwriter's lock-up agreements expire unless the underwriters
elect, in their sole discretion, to release these shares from the lock-up
agreements earlier. In addition to the shares described above, after such 180th
day, approximately 10,267,791 shares will become available for sale at various
times pursuant to Rule 144.
Certain of the restricted shares that will become available for sale in the
public market beginning 180 days after the effective date will be subject to
certain volume and other resale restrictions pursuant to Rule 144 because the
holders are affiliates of our company. The general provisions of Rule 144 are
described below.
In general, under Rule 144, an affiliate of our company, or a person, or
persons whose shares are aggregated, who has beneficially owned restricted
shares for at least one year, will be entitled to sell in any three-month period
a number of shares that does not exceed the greater of:
- 1% of the then outstanding shares of the common stock -- approximately
shares immediately after this offering; or
- the average weekly trading volume during the four calendar weeks
preceding the date on which notice of the sale is filed with the SEC.
Sales pursuant to Rule 144 are subject to certain requirements relating to
manner of sale, notice and availability of current public information about us.
A person or persons whose shares are aggregated who is not deemed to have been
an affiliate of ours at any time during the 90 days immediately preceding the
sale and who has beneficially owned his or her shares for at least two years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above.
As of the date hereof, options to purchase 500,000 shares of our common
stock had been granted and are outstanding under the 1997 Stock Option Plan of
which 192,000 options are exercisable. Upon the completion of this offering, we
will grant options to purchase 212,000 shares of our common stock under the 1997
Stock Option Plan. After the completion of the offering and the grant of options
to purchase 212,000 shares, options to purchase an additional 763,000 shares of
common stock will be available for future grant or issuance. Beginning 180 days
after the effective date, approximately 347,430 shares issuable upon the
exercise of vested options will become eligible for sale. In addition, as of the
date hereof, 250,000 shares of common stock were reserved for issuance under our
1999 Employee Stock Purchase Plan.
We intend to file, within 180 days after the date of this prospectus, a
Form S-8 registration statement under the Securities Act to register shares
issued pursuant to restricted stock
62
<PAGE> 66
purchase agreements under the 1997 Stock Option Plan and the 1999 Employee Stock
Purchase Plan, shares issued in connection with option exercises and shares
reserved for issuance under all stock plans. Shares of common stock issued
pursuant to the restricted stock agreements under the 1997 Stock Option Plan,
the 1999 Employee Stock Purchase Plan or upon exercise of options after the
effective date of the Form S-8 will be available for sale in the public market,
subject to Rule 144 volume limitations applicable to affiliates and lock-up
agreements.
LOCK-UP AGREEMENTS
All officers and directors and most holders of our common stock and options
to purchase common stock have agreed pursuant to "lock-up" agreements, subject
to limited exceptions, that they will not offer, sell, contract to sell, pledge,
grant any option to sell, or otherwise dispose of, directly or indirectly, any
shares of common stock or securities convertible or exchangeable for common
stock, or warrants or other rights to purchase common stock for a period of 180
days after the date of this prospectus without the prior written consent of
Hambrecht & Quist LLC.
63
<PAGE> 67
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement, the
underwriters named below, through their representatives, Hambrecht & Quist LLC,
PaineWebber Incorporated, ABN AMRO Incorporated and Charles Schwab & Co., Inc.,
have severally agreed to purchase from us the numbers of shares of common stock
set forth opposite their names below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
---- ---------
<S> <C>
Hambrecht & Quist LLC.......................................
PaineWebber Incorporated....................................
ABN AMRO Incorporated.......................................
Charles Schwab & Co., Inc. .................................
---------
Total.................................................. 5,000,000
=========
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to specific conditions precedent. These conditions
precedent include the absence of any material adverse change in our business and
the receipt of specified certificates, opinions and letters from us, our counsel
and our independent auditors. The nature of the underwriters' obligation is that
they are committed to purchase all shares of common stock offered by this
prospectus if any of these shares are purchased.
The following table shows the per share and total underwriting discounts
and commissions we will pay to the underwriters. These amounts are shown
assuming both no exercise and full exercise of the underwriters' over-allotment
option to purchase additional shares of common stock.
UNDERWRITING DISCOUNTS AND COMMISSIONS PAYABLE BY QUOTESMITH.COM
<TABLE>
<CAPTION>
WITH WITHOUT
OVER-ALLOTMENT EXERCISE OVER-ALLOTMENT EXERCISE
----------------------- -----------------------
<S> <C> <C>
Per Share................................. $ $
Total..................................... $ $
</TABLE>
We estimate that the total expenses of this offering, excluding
underwriting discounts and commissions, will be approximately $975,000.
The underwriters propose to offer the shares of common stock directly to
the public at the initial public offering price set forth on the cover page of
this prospectus and to dealers at that price less a concession not in excess of
$ per share. The underwriters may allow, and these dealers may reallow, a
concession not in excess of $ per share to other dealers. After the initial
public offering of the shares has been completed, the representatives of the
underwriters may change the offering price and other selling terms. The
representatives of the underwriters have informed us that the underwriters do
not intend to confirm discretionary sales in excess of 5% of the shares of
common stock offered by this prospectus.
We have granted to the underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to 750,000 additional
shares of common stock at the initial public offering price set forth on the
cover page of this prospectus, less the underwriting
64
<PAGE> 68
discount. To the extent that the underwriters exercise this option, each of the
underwriters will have a firm commitment to purchase approximately the same
percentage thereof which the number of shares of common stock to be purchased by
it shown in the above table bears to the total number of shares of common stock
offered by this prospectus. We will be obligated, pursuant to the option, to
sell shares to the underwriters to the extent the option is exercised. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of shares of common stock offered by this prospectus.
At the request of Quotesmith.com, the underwriters have reserved for sale,
at the initial public offering price, up to 5% of the shares of common stock
offered hereby for several of our employees and directors and other persons who
have relationships with us. We cannot assure you that any of the reserved shares
will be purchased. The number of shares available for sale to the general public
in this offering will be reduced by the number of reserved shares purchased. Any
reserved shares not purchased will be offered to the general public on the same
basis as the other shares offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
We have agreed to indemnify the underwriters against specified liabilities,
including liabilities under the Securities Act of 1933, and to contribute to
payments the underwriters may be required to make in respect thereof.
We and most of our stockholders including executive officers and directors,
who will collectively own 13,321,758 shares of common stock after this offering,
have agreed that they will not, without the prior written consent of Hambrecht &
Quist LLC, offer, sell or otherwise dispose of any shares of common stock,
options or warrants to acquire shares of common stock or securities exchangeable
for or convertible into shares of common stock owned by them during the 180-day
period following the date of this prospectus. We have agreed that we will not,
without the prior written consent of Hambrecht & Quist LLC, offer, sell or
otherwise dispose of any shares of common stock, options or warrants to acquire
shares of common stock or securities exchangeable for or convertible into shares
of common stock during the 180-day period following the date of this prospectus,
except that we may issue shares upon the exercise of options granted prior to
the date hereof, and may grant additional options under our stock option plans,
provided that, without the prior written consent of Hambrecht & Quist LLC, these
additional options shall not be exercisable during this period.
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for the common stock will be determined
by negotiation among us and the representatives of the several underwriters.
Among the factors to be considered in determining the initial public offering
price of the common stock are:
- prevailing market and economic conditions;
- our revenues and earnings;
- market valuations of other companies engaged in activities similar to us;
- estimates of our business potential and prospects;
- the present state of our business operations;
- our management; and
- other factors we and the representatives of the several underwriters deem
relevant.
65
<PAGE> 69
The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions or other factors.
Persons participating in this offering may over-allot or effect
transactions that stabilize, maintain or otherwise affect the market price of
the common stock at levels above those that might otherwise prevail in the open
market, including by entering stabilizing bids. These transactions may include
entering stabilizing bids, effecting syndicate covering transactions or imposing
penalty bids. A stabilizing bid means the placing of any bid or effecting of any
purchase, for the purpose of pegging, fixing or maintaining the price of the
common stock. A syndicate covering transaction means the placing of any bid on
behalf of the underwriting syndicate or the effecting of any purchase to reduce
a short position created in connection with the offering. A penalty bid means an
arrangement that permits the underwriters to reclaim a selling concession from a
syndicate member in connection with the offering when shares of common stock
sold by the syndicate member are purchased in syndicate covering transactions.
These activities by the underwriters may stabilize, maintain or otherwise affect
the market price of the common stock. As a result, the price of the common stock
may be higher than the price that otherwise might exist in the open market.
These transactions may be effected on the Nasdaq National Market, in the
over-the-counter market or otherwise. Stabilizing, if commenced, may be
discontinued at any time.
PLAN OF DISTRIBUTION
We have agreed to sell directly to Intuit, pursuant to a subscription
agreement between us and Intuit to be entered into after the effectiveness of
this offering, shares of common stock in this offering having an aggregate
purchase price of $3 million and a price per share equal to the initial public
offering price. The purchase price for these shares will be paid directly to us
at the closing of sale of the other shares offered hereby. In the event and to
the extent that Intuit does not purchase these shares, the underwriters will
purchase those shares on the same terms and conditions as the other shares being
offered by this prospectus, and those shares will be offered to the public at
the initial public offering price per share and otherwise on the same basis as
the other shares offered hereby. The underwriters will not receive any fees or
commissions with respect to any shares sold to Intuit pursuant to the
subscription agreement. We cannot assure you that Intuit will purchase any of
the shares in this offering. The number of shares available for sale to the
general public in the offering will be reduced by the number of shares sold to
Intuit.
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered hereby
will be passed upon for us by Freeborn & Peters, Chicago, Illinois. Certain
legal matters will be passed upon for the underwriters by Sidley & Austin,
Chicago, Illinois.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and 1997, and for each of the three years in the
period ended December 31, 1998, as set forth in their report. We have included
our financial statements in the prospectus and elsewhere in the registration
statement in reliance on Ernst & Young LLP's report, given on their authority as
experts in accounting and auditing.
66
<PAGE> 70
ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 under the
Securities Act with respect to the shares of common stock offered hereby. This
prospectus does not contain all of the information set forth in the registration
statement. For further information with respect to our business and the common
stock offered by this prospectus, please refer to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
any other document to which reference is made are not necessarily complete. In
each instance where a copy of such contract or other document has been filed as
an exhibit to the registration statement, please refer to the registration
statement, each such statement being qualified in all respects by such
reference.
You may read and copy all or any portion of the registration statement at
the offices of the SEC at Judiciary Plaza, 450 Fifth Street, Washington, D.C.
20549, and copies of all or any part of the registration statement may be
obtained from the Public Reference Section of the SEC, Washington, D.C. 20549
upon the payment of the fees prescribed by the SEC. Please call the SEC at
1-800-SEC-0330 for further information about the public reference rooms. The SEC
maintains a Web site, http://www.sec.gov, that contains reports, proxy and
information statements and other information regarding registrants, such as us,
that file electronically with the SEC.
Upon completion of this offering, we will become subject to the information
and periodic reporting requirements of the Securities Exchange Act of 1934, and,
in accordance therewith, will file periodic reports, proxy statements and other
information with the SEC. These periodic reports, proxy statements and other
information will be available for inspection and copying at the SEC's public
reference rooms and the SEC's Web site.
67
<PAGE> 71
QUOTESMITH.COM, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors.............................. F-2
Balance Sheets as of December 31, 1997 and 1998, and June
30, 1999.................................................. F-3
Statements of Operations for the Years Ended December 31,
1996, 1997, and 1998, and the Six Months Ended June 30,
1998 and 1999............................................. F-4
Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1997, and 1998, and the Six Months
Ended June 30, 1999....................................... F-5
Statements of Cash Flows for the Years Ended December 31,
1996, 1997, and 1998, and the Six Months Ended June 30,
1998 and 1999............................................. F-6
Notes to Financial Statements............................... F-7
</TABLE>
F-1
<PAGE> 72
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Quotesmith.com, Inc.
We have audited the accompanying balance sheets of Quotesmith.com, Inc. as
of December 31, 1998 and 1997, and the related statements of operations,
stockholders' equity, and cash flows for each of the three years in the period
ended December 31, 1998. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Quotesmith.com, Inc. at
December 31, 1998 and 1997, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998 in conformity
with generally accepted accounting principles.
As discussed in Note 2 to the financial statements the Company changed its
method of accounting for commission revenues.
ERNST & YOUNG LLP
Chicago, Illinois
February 22, 1999
F-2
<PAGE> 73
QUOTESMITH.COM, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------ JUNE 30,
1997 1998 1999
---- ---- --------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Cash................................................. $ 3,809 $ 518,202 $ 3,387,471
Commissions receivable, less allowances
(1997 -- $114,000; 1998 -- $127,000;
1999 -- $154,000) (Note 2)......................... 691,023 1,007,662 975,806
Other assets......................................... 14,184 39,248 34,458
---------- ---------- -----------
Total current assets................................. 709,016 1,565,112 4,397,735
Furniture, equipment, and computer software at cost,
less accumulated depreciation (1997 -- $107,304;
1998 -- $166,102; 1999 -- $232,358)................ 121,420 240,606 464,466
Deferred offering expenses (Note 8).................. -- -- 212,045
---------- ---------- -----------
Total assets......................................... $ 830,436 $1,805,718 $ 5,074,246
========== ========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued liabilities............. $ 630,386 $ 816,327 $ 859,850
Notes payable (Note 4 and 8)......................... 200,000 -- 2,000,000
---------- ---------- -----------
Total current liabilities............................ 830,386 816,327 2,859,850
Notes payable to bank due after one year (Note 4).... 233,330 -- --
---------- ---------- -----------
Total liabilities.................................... 1,063,716 816,327 2,859,850
Commitments and contingencies (Notes 5, 7, and 8)
Stockholders' equity (deficiency in assets) (Notes 4,
5, 6, and 8):
Common stock, $.001 par value; shares
authorized: 1997 and 1998 -- 35,000,000; 1999
- 60,000,000; shares issued:
1997 -- 14,490,000; 1998 -- 14,921,091;
1999 -- 16,049,091............................ 14,490 14,921 16,049
Additional paid-in capital...................... 206,220 1,624,061 5,964,109
Retained-earnings deficit....................... (190,990) (386,591) (3,502,762)
Treasury stock at cost (2,534,000 shares)....... (263,000) (263,000) (263,000)
---------- ---------- -----------
Total stockholders' equity (deficiency in assets).... (233,280) 989,391 2,214,396
---------- ---------- -----------
Total liabilities and stockholders' equity........... $ 830,436 $1,805,718 $ 5,074,246
========== ========== ===========
</TABLE>
See accompanying notes.
F-3
<PAGE> 74
QUOTESMITH.COM, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------- --------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Commission revenues
(Note 2).................. $3,496,805 $ 4,115,809 $ 5,507,596 $ 2,516,037 $ 3,019,473
Other revenue................ 315,331 146,425 68,034 39,764 30,727
---------- ----------- ----------- ----------- -----------
Total revenues................. 3,812,136 4,262,234 5,575,630 2,555,801 3,050,200
Expenses:
Selling and marketing
(Note 2).................. 1,109,283 2,151,996 1,791,145 621,377 2,131,597
Operations (Note 8).......... 1,550,642 1,794,261 2,689,408 1,206,996 2,690,142
General and administrative
(Note 8).................. 786,256 951,519 1,292,481 489,814 1,385,207
---------- ----------- ----------- ----------- -----------
Total expenses................. 3,446,181 4,897,776 5,773,034 2,318,187 6,206,946
---------- ----------- ----------- ----------- -----------
Operating income (loss)........ 365,955 (635,542) (197,404) 237,614 (3,156,746)
Interest income (expense), net
(Note 2)..................... (13,735) (40,851) 1,803 (9,802) 40,575
---------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes........................ 352,220 (676,393) (195,601) 227,812 (3,116,171)
Income taxes (credit) (Note
3)........................... 129,300 (209,800) -- 33,295 --
---------- ----------- ----------- ----------- -----------
Net income (loss).............. $ 222,920 $ (466,593) $ (195,601) $ 194,517 $(3,116,171)
========== =========== =========== =========== ===========
Net income (loss) per common
share, basic and diluted
(Note 2)..................... $ 0.02 $ (0.04) $ (0.02) $ 0.02 $ (0.23)
========== =========== =========== =========== ===========
Weighted average common shares
and equivalents outstanding:
Basic........................ 12,154,493 11,956,000 12,258,064 12,145,438 13,270,535
Diluted...................... 12,154,493 11,956,000 12,258,064 12,187,105 13,270,535
</TABLE>
See accompanying notes.
F-4
<PAGE> 75
QUOTESMITH.COM, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- STOCKHOLDERS'
NUMBER OF ADDITIONAL RETAINED EQUITY
SHARES PAR PAID-IN EARNINGS TREASURY (DEFICIENCY
ISSUED VALUE CAPITAL (DEFICIT) STOCK IN ASSETS)
--------- ----- ---------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
1996:
Balance at January 1................... 14,490,000 $14,490 $ 206,220 $ 52,683 $ (13,000) $ 260,393
Net income............................. -- -- -- 222,920 -- 222,920
Purchase of treasury stock (Note 5).... -- -- -- -- (250,000) (250,000)
---------- ------- ---------- ----------- --------- ----------
Balance at December 31................. 14,490,000 14,490 206,220 275,603 (263,000) 233,313
1997:
Net loss............................... -- -- -- (466,593) -- (466,593)
---------- ------- ---------- ----------- --------- ----------
Balance at December 31................. 14,490,000 14,490 206,220 (190,990) (263,000) (233,280)
1998:
Net loss............................... -- -- -- (195,601) -- (195,601)
Proceeds from sale of common stock
(Note 5)............................. 431,091 431 1,267,841 -- -- 1,268,272
Effect of stock options granted (Note
6)................................... -- -- 150,000 -- -- 150,000
---------- ------- ---------- ----------- --------- ----------
Balance at December 31................. 14,921,091 14,921 1,624,061 (386,591) (263,000) 989,391
1999 (unaudited):
Net loss............................... -- -- -- (3,116,171) -- (3,116,171)
Proceeds from sale of common stock
(Note 8)............................. 1,128,000 1,128 3,382,872 -- -- 3,384,000
Effect of common stock sold and stock
options granted (Note 8)............. -- -- 957,176 -- -- 957,176
---------- ------- ---------- ----------- --------- ----------
Balance at June 30 (unaudited)......... 16,049,091 $16,049 $5,964,109 $(3,502,762) $(263,000) $2,214,396
========== ======= ========== =========== ========= ==========
</TABLE>
See accompanying notes.
F-5
<PAGE> 76
QUOTESMITH.COM, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------------------- -------------------------
1996 1997 1998 1998 1999
---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss).............. $ 222,920 $(466,593) $(195,601) $ 194,517 $(3,116,171)
Adjustments to reconcile to
net cash provided (used)
by operating activities:
Depreciation expense... 30,693 31,204 66,574 23,556 66,256
Accounts payable and
accrued
liabilities......... (153,062) 516,836 185,941 (200,946) 43,523
Commissions
receivable.......... (49,515) (383,481) (316,639) (95,271) 31,856
Stock compensation..... -- -- 150,000 50,000 957,176
Deferred taxes
(credit)............ 129,300 (209,800) -- 33,295 --
Amortization of direct-
response advertising
costs............... 848,776 494,074 -- -- --
Deferral of
direct-response
advertising costs... (988,162) -- -- -- --
Other assets........... (6,670) 7,433 (25,064) (4,693) 4,790
--------- --------- --------- ---------- -----------
Net cash provided (used) by
operating activities...... 34,280 (10,327) (134,789) 458 (2,012,570)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of furniture,
equipment, and software..... (50,767) (107,454) (185,760) (73,189) (290,116)
--------- --------- --------- ---------- -----------
Net cash used by investing
activities.................. (50,767) (107,454) (185,760) (73,189) (290,116)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of
common stock................ -- -- 1,268,272 1,156,000 3,384,000
Proceeds from (repayment of)
notes payable............... 232,776 120,830 (433,330) (129,938) 2,000,000
Purchase of treasury stock..... (250,000) -- -- -- --
Deferred offering expenses Note
8........................... -- -- -- -- (212,045)
--------- --------- --------- ---------- -----------
Net cash provided (used) by
financing activities........ (17,224) 120,830 834,942 1,026,062 5,171,955
--------- --------- --------- ---------- -----------
NET INCREASE (DECREASE) IN
CASH........................... (33,711) 3,049 514,393 953,331 2,869,269
CASH AT BEGINNING OF PERIOD...... 34,471 760 3,809 3,809 518,202
--------- --------- --------- ---------- -----------
CASH AT END OF PERIOD............ $ 760 $ 3,809 $ 518,202 $ 957,140 $ 3,387,471
========= ========= ========= ========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 77
QUOTESMITH.COM, INC.
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS
Quotesmith.com, Inc. (the Company) has developed an Internet-based
insurance service that enables consumers and business owners to obtain instant
quotes from over 300 insurance companies without the involvement of any
commissioned salespeople. The Company's model allows consumers to: (1) search
for, analyze and compare insurance products; (2) request and obtain insurance
quotes; and (3) select and purchase insurance coverage from the insurance
company of their choice.
The Company incorporated and began its operations in March 1984 and during
the period from 1984 to 1994 provided an electronic quotation and policy
information service to insurance agents and brokers. Throughout this period the
Company was not engaged in the marketing of insurance to consumers. In 1994, the
Company began focusing its business strategy on marketing term life insurance to
self-directed consumers utilizing its proprietary insurance price comparison
technology. In May 1996, the Company began providing real-time quotes for term
life insurance on the Internet and began receiving online insurance application
requests from consumers.
Over the last four years, the Company's primary revenue source has been
commissions derived from the sale of individual term life insurance.
Applications are underwritten and commissions are received from numerous life
insurance companies. Revenues from some of these companies have exceeded ten
percent of the Company's total revenues. In 1996, these included two companies
with revenues of $1,765,000 and $402,000. In 1997, these included four companies
with revenues of $814,000, $735,000, $526,000 and $437,000. In 1998, these
included one company with revenues of $1,295,000. The Company's business
represents one business segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Such estimates and assumptions could change as more
information becomes known which could impact the amounts reported and disclosed
herein.
REVENUE RECOGNITION
The Company recognizes annual first year commissions as revenues when the
policy has been approved by the underwriter and an initial premium payment
(which may be annual, semi-annual, quarterly, or monthly) has been made by the
customer. An allowance is provided for estimated commissions that will not be
received due to the nonpayment of installment first year premiums. In the
accompanying financial statements, the aforementioned method has been applied in
all periods.
In previously reported financial statements, the aforementioned method of
accounting for first year commissions had been applied since January 1, 1997. As
of that date, an accounting change was made, and the cumulative effect of the
change was reported in the 1997 statement of operations. In the previously
reported financial statements, prior to 1997, estimated annual first year
commissions were recognized as revenues, after applying a reserve for expected
"not
F-7
<PAGE> 78
QUOTESMITH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
taken" policies, at the time applications were received by the Company after
substantially all required brokerage services relating to placement of the
insurance had been provided. The change to the current method was made to better
reflect when revenues are realized.
Since the accompanying financial statements were prepared for the initial
public offering of the Company's common stock, the January 1, 1997 accounting
change was applied retroactively. As a result, the $593,000 ($0.05 per share)
cumulative effect of the accounting change, a reduction of income, was removed
from the 1997 statement of operations. Also, 1996 net income previously reported
was reduced by $263,000 ($0.02 per share).
Revenues for renewal and bonus commissions and other revenues are
recognized when the Company receives notification that such revenues have been
earned.
ADVERTISING COSTS
Selling and marketing expenses in the accompanying financial statements are
comprised of advertising costs. In 1996 and 1995 (but not subsequently), direct
response advertising costs qualified for capitalization and were amortized over
the expected period of future benefits, which resulted in such costs being
amortized principally within one year. As the Company evolved to an
Internet-based insurance service in 1997, the Company no longer had the ability
to determine which advertising programs had elicited an applicant's direct
response. Accordingly, beginning in 1997, advertising costs are expensed as
incurred. In 1997, advertising expense includes 1997 costs incurred plus
amortization of 1996 costs that were unamortized as of December 31, 1996 of
$494,000.
STOCK COMPENSATION
The Company uses the intrinsic value method to measure compensation
expense, if any, relating to stock options. Any compensation expense is
determined at the date of grant, or the date of subsequent modification to
option terms, based on any excess of the fair value of the related shares over
the exercise price, and amortized over the options' vesting periods.
FURNITURE, EQUIPMENT, AND COMPUTER SOFTWARE
Furniture, equipment, and capitalized application development costs of
internal-use computer software are depreciated over useful lives of five to
seven years using principally an accelerated method of depreciation. Repair and
maintenance costs are charged to expense as incurred. Depreciation expense was
$31,000 in 1996 and 1997 and $67,000 in 1998.
TREASURY STOCK
The cost of reacquiring the Company's common stock is reported as a
separate component of stockholders' equity.
INCOME TAXES
Deferred income taxes are determined based on the temporary differences
between financial reporting and tax bases of assets and liabilities and the
effect of net operating loss carryforwards and are measured using enacted tax
rates.
F-8
<PAGE> 79
QUOTESMITH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FINANCIAL INSTRUMENTS
The fair values of financial instruments, principally commissions
receivable, other assets, accounts payable and accrued liabilities, and notes
payable approximate their December 31, 1998 and 1997 carrying values.
NON-OPERATING INCOME AND EXPENSE
Interest income (expense), net in the accompanying statements of operations
includes the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Interest income............................. $ -- $ 3,049 $ 29,531
Interest expense............................ (13,735) (43,900) (27,728)
-------- -------- --------
Interest income (expense), net.............. $(13,735) $(40,851) $ 1,803
======== ======== ========
</TABLE>
NET INCOME (LOSS) PER SHARE
Basic net income or loss per share and diluted net loss per share reflect
net income or loss divided by the weighted average number of common shares
outstanding. Diluted net income per share reflects net income divided by the
weighted average number of common shares outstanding plus common share
equivalents, computed using the treasury stock method, due to the dilutive
effect of stock options. Diluted net loss per share does not include the effect
of the common share equivalents because the effect would be antidilutive.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Board Executive Committee (AcSEC)
issued Statement of Position (SOP) 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use." SOP 98-1 requires specific
accounting treatment for internal use software which is effective for fiscal
years beginning after December 15, 1998. Accordingly, the Company has adopted
SOP 98-1 in 1999, and does not expect that SOP 98-1 will have a material effect
on the Company's results of operations or financial position.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 133, "Accounting for
Derivative Instruments and Hedging Activities," which is effective for fiscal
years beginning after June 15, 1999. The Company does not expect the adoption of
SFAS 133 will have a material effect on the Company's results of operations or
financial position.
UNAUDITED INTERIM INFORMATION
The accompanying financial statements and notes as of June 30, 1999 and for
the three months ended June 30, 1998 and 1999 are unaudited. In the opinion of
management, such information contains all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the Company's
financial statements. The results of
F-9
<PAGE> 80
QUOTESMITH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
operations for the interim period are not necessarily indicative of results that
may be expected for the entire year.
3. INCOME TAXES
A reconciliation of income taxes (credit) based on the federal tax rate to
amounts reported in the statements of operations is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Pre-tax income (loss) times federal rate............ $119,800 $(230,000) $(66,500)
State income taxes (credit)......................... 14,200 (32,500) (9,400)
Increase (decrease) in valuation allowance.......... (9,400) 55,000 56,000
Stock compensation.................................. -- -- 19,400
Other............................................... 4,700 (2,300) 500
-------- --------- --------
Income taxes (credit)............................... $129,300 $(209,800) $ --
======== ========= ========
</TABLE>
The components of the provision (credit) for deferred income taxes are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Federal............................................. $115,100 $(183,800) $ --
State............................................... 14,200 (26,000) --
-------- --------- --------
$129,300 $(209,800) $ --
======== ========= ========
</TABLE>
Deferred income taxes reflect the net tax effect of temporary differences
between the amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes and the effect of net operating
loss carryforwards. Significant components of the Company's deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1997 1998
---- ----
<S> <C> <C>
Deferred tax liabilities:
Commissions receivable............................. $ 268,000 $ 391,000
Other assets....................................... 7,000 9,000
--------- ---------
Total deferred tax liabilities....................... 275,000 400,000
Deferred tax assets:
Net operating loss carryforwards................... 123,000 155,000
Accounts payable................................... 207,000 317,000
Stock compensation................................. -- 39,000
--------- ---------
Total gross deferred tax assets...................... 330,000 511,000
Valuation allowance.................................. (55,000) (111,000)
--------- ---------
Net deferred tax assets.............................. 275,000 400,000
--------- ---------
Net deferred tax amounts............................. $ -- $ --
========= =========
</TABLE>
F-10
<PAGE> 81
QUOTESMITH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. INCOME TAXES (CONTINUED)
As of December 31, 1998, the Company had net operating loss carryforwards
of $400,000 available to offset future taxable income, which expire $76,000 in
2001 and the remainder in 2006 to 2018. There were no income taxes paid or
recovered in 1996, 1997, or 1998.
4. NOTES PAYABLE
Interest paid under a bank line-of-credit agreement amounted to $12,000 in
1996, $43,000 in 1997, and $31,000 in 1998 at an interest rate of 9% payable
monthly. Amounts previously borrowed under the agreement had been repaid as of
December 31, 1998, and the agreement was terminated. Amounts drawn under the
line-of-credit agreement had been collateralized by substantially all the assets
of the Company and guaranteed personally by officers of the Company.
5. STOCKHOLDERS' EQUITY AND RELATED PARTY TRANSACTIONS
During 1998, the Company sold 431,091 shares of its common stock for
proceeds of $1,268,272, resulting in credits to common stock of $431 and
additional paid-in capital of $1,267,841. Also, in 1998, the Company's
stockholders agreed to terminate an agreement under which the Company previously
had commitments and options to purchase its common stock from stockholders.
In September 1998, the Company entered into a three year services agreement
with a third party (the Party) under which the Company will pay a fee to the
Party for its customers who purchase insurance through the Company's service. In
February 1999, the Company sold 1,000,000 shares of its common stock to the
parent company of the Party (the Investor) for proceeds of $3,000,000 and
entered into stockholder agreements with the Investor and other major Company
stockholders. The stockholder agreements give the Investor the right to acquire
any new shares issued by the Company and the right to request the Company to
file a registration statement with the Securities and Exchange Commission
relating to the Investor's shares. The Investor's right to acquire any new
shares issued by the Company terminates upon a public offering of the Company's
common stock.
During 1996, the Company purchased 1,750,000 shares of its common stock at
a cost of $250,000.
As of December 31, 1998, other assets includes $10,000 due from an officer
on which interest was accruing at 10%. The amount was repaid in January 1999.
F-11
<PAGE> 82
QUOTESMITH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS
A summary of the Company's common stock option activity with employees and
directors for 1997 and 1998 is as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE PER SHARE
-------------------------------
FAIR VALUE OF
OPTIONS
SHARES EXERCISE PRICE GRANTED
------ -------------- -------------
<S> <C> <C> <C>
1997
Granted and outstanding at December
31, 1997.......................... 75,000 $2.00 $1.09
1998
Granted with exercise price:
Less than stock value............. 50,000 1.00 2.35
Equal to stock value.............. 50,000 2.50 0.05
Greater than stock value.......... 75,000 7.00 --
-------
175,000 4.00 0.40
Exercised............................ (25,000) 2.00
Forfeited............................ (25,000) 2.00
-------
Outstanding at December 31, 1998..... 200,000 3.75
=======
</TABLE>
In 1998, the Company recorded compensation expense, reported in general and
administrative expense, of $150,000 relating to stock options with a
corresponding credit to additional paid-in capital.
The fair value of options granted in the foregoing table was computed using
the minimum value method. Weighted average assumptions used in the computation
include a risk free interest rate of 5% and an expected option life of 5 years.
If stock-based compensation cost in the accompanying financial statements had
been computed using the fair value method, the net loss would have been $248,000
($0.02 per share) in 1998 and unchanged in 1997 and 1996.
F-12
<PAGE> 83
QUOTESMITH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. STOCK OPTIONS (CONTINUED)
Share and per share information relating to options outstanding is as
follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
AS OF PRICES SHARES LIFE(YEARS) PRICE SHARES PRICE
----- -------- ------ ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997...... $2.00 75,000 7 $2.00 25,000 $2.00
======= =======
December 31, 1998...... 1.00 50,000 9 1.00 50,000 1.00
2.00 50,000 9 2.00 50,000 2.00
3.00 25,000 10 3.00 25,000 3.00
5.00 25,000 10 5.00
7.00 25,000 10 7.00
9.00 25,000 10 9.00
------- -------
1.00-9.00 200,000 8 3.75 125,000 1.80
======= =======
</TABLE>
The unexercisable options become exercisable in one to three years. As of
December 31, 1998, the Company had 500,000 shares reserved for issuance of
options and, accordingly, as of December 31, 1998, had an additional 300,000
options reserved for issuance with varying terms, including expiration dates of
up to ten years from date of grant. See Note 8 for 1999 activity.
7. COMMITMENTS AND CONTINGENCIES
As of December 31, 1998, the Company leases office space under an operating
lease agreement in which the Company is committed to annual rent expense of
approximately $100,000 through 2003. In addition, the Company must pay its
proportionate share of taxes and operating costs. Rent expense was $41,000 in
1996, $61,000 in 1997, and $100,000 in 1998.
The Company has employment agreements with certain of its executives under
which the Company would be required to pay severance of one to two years of
annual salary to terminate those agreements.
The Company is subject to legal proceedings and claims in the ordinary
course of business. The Company is not aware of any legal proceedings or claims
that are believed to have a material effect on the Company's financial position.
8. INTERIM FINANCIAL INFORMATION (UNAUDITED)
COMMON STOCK SOLD AND OPTIONS GRANTED
For the six months ended June 30, 1999, the Company sold 1,128,000 shares
of common stock at $3.00 per share for proceeds of $3,384,000. Such sales
included 1,000,000 shares sold to an Investor as described in Note 5 and shares
sold to employees of 100,000 in January 1999 and 28,000 in March 1999.
In January 1999, the Company issued 175,000 stock options to employees with
an average exercise price of $6.43 per share, and 100,000 stock options with an
average exercise price of
F-13
<PAGE> 84
QUOTESMITH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
$6.00 per share were forfeited. In March and April 1999, the Company issued
225,000 stock options to employees with an average exercise price of $4.60 per
share.
For common stock sold and stock options granted to employees in March and
April 1999, compensation expense of $1,411,000 has been measured based on an
estimated fair value of the Company's common stock of $10.00 per share.
Compensation expense of $957,000 ($0.07 per share) was charged to expense in the
six months ended June 30, 1999, including $549,000 to operations expense and
$408,000 to general and administrative expense with corresponding credits to
additional paid-in capital. Unamortized compensation expense of $454,000 as of
June 30, 1999 relating to nonvested stock options will be amortized over the
vesting period of the options. The expense amortization will be $222,000 in the
remainder of 1999, $192,000 in 2000 and $40,000 in 2001.
The Company has committed to grant 212,000 options to directors and
employees upon completion of the public offering of the Company's common stock.
The options will have an exercise price equal to the initial public offering
price.
Shares reserved for exercise of stock options were increased to 1,475,000
in May 1999.
EMPLOYEE STOCK PURCHASE PLAN
In March 1999, the Company adopted a plan under which employees may
purchase shares of the Company's common stock through payroll deductions of up
to 10% of each employee's compensation. The first offering period during which
shares may be purchased will begin at the effective date of the Company's
initial public offering of its common stock and end on December 31, 1999.
Subsequent offering periods will be in six-month intervals. Shares may be
purchased at 85% of the lower of the fair value of the common stock on the first
or the last day of each offering period. The Company reserved 250,000 shares for
purchase under the plan.
PREFERRED STOCK
In May 1999, the Company authorized 5,000,000 shares of $0.001 par value
preferred stock. No shares have been issued.
STOCKHOLDER RIGHTS PLAN
In May 1999, the Company declared a distribution of one preferred stock
purchase right for each outstanding share of its common stock, and the Company
intends to issue those rights along with future issuances of common shares. The
rights become exercisable only if a person or group acquires or announces the
intent to acquire 15% or more of the Company's common stock. Prior to the rights
becoming exercisable, the Company may redeem the rights for $0.01 per right. If
the rights become exercisable, the Company may exchange each right for one share
of common stock providing that 50% of the Company has not been acquired. The
rights expire in 2009.
If the rights become exercisable and they have not been exchanged, holders
of each right, other than the acquiring person or group, would be entitled to
acquire one hundredth of a share of the Company's preferred stock at an exercise
price equal to five times the initial
F-14
<PAGE> 85
QUOTESMITH.COM, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INTERIM FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
offering price of the Company's common stock. If issued, each preferred share
would entitle the holder to cumulative quarterly dividends of the greater of
$1.00 per share or 100 times the common share dividends. The preferred
shareholders would receive 100 votes per share and have a liquidation preference
of $1.00 per share over the common shares.
In lieu of purchasing preferred shares, holders of each right, other than
the acquiring person or group, on payment of the exercise price, would be
entitled to acquire the number of shares of the Company's common stock or other
assets with a value of two times the exercise price. In addition, if 50% of the
Company is acquired, the holders of each right would be entitled to acquire the
number of shares of the acquiring company's common stock having a value of two
times the exercise price.
LEASE AGREEMENT
In April 1999, the Company entered into an operating lease agreement in
which the Company is committed to additional annual rent expense of $100,000
through 2003.
NOTE PAYABLE
In June 1999, the Company borrowed $2,000,000 from the Investor referred to
in Note 5. The loan must be repaid at the earlier of December 2000 or the date
of a sale of the Company's common stock registered under the Securities Act of
1933, as amended. Additionally, the loan must be repaid to the extent of the net
proceeds to the Company from any sale of common stock or securities convertible
into common stock. Interest accrues at an annual rate of 12.5% payable
quarterly.
DEFERRED OFFERING EXPENSES
Deferred offering expenses represent incremental costs relating to the
initial public offering of the Company's common stock.
F-15
<PAGE> 86
INSIDE BACK COVER
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Insurance
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<PAGE> 87
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5,000,000 SHARES
[QUOTESMITH.COM LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
HAMBRECHT & QUIST
PAINEWEBBER INCORPORATED
ABN AMRO ROTHSCHILD
A DIVISION OF ABN AMRO INCORPORATED
CHARLES SCHWAB & CO., INC.
------------------------
, 1999
------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell and seeking offers to buy,
shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of our common stock.
No action is being taken in any jurisdiction outside the United States to
permit a public offering of our common stock or possession or distribution of
this prospectus in any such jurisdiction. Persons who come into possession of
this prospectus in jurisdictions outside the United States are required to
inform themselves about and to observe any restrictions as to this offering and
the distribution of this prospectus applicable to that jurisdiction.
Until , 1999, all dealers that buy, sell or trade in our common
stock, whether or not participating in this offering, may be required to deliver
a prospectus. This delivery requirement is in addition to the dealers'
obligation to deliver a prospectus when acting as underwriters and with respect
to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 88
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by Registrant in connection with
the sale of shares of common stock being registered hereby. All amounts are
estimates except the SEC registration fee, the NASD filing fee and the Nasdaq
National Market Listing Fee.
<TABLE>
<S> <C>
SEC Registration Fee........................................ $ 22,240
NASD Filing Fee............................................. 8,500
NASDAQ National Market Listing Fee.......................... 95,000
Blue Sky Fees and Expenses.................................. 10,000
Printing and Engraving Expenses............................. 200,000
Legal Fees and Expenses..................................... 300,000
Accounting Fees and Expenses................................ 300,000
Transfer Agent and Registrar Fees........................... 10,000
Miscellaneous Expenses...................................... 29,260
--------
Total.................................................. $975,000
========
</TABLE>
- -------------------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the "DGCL") authorizes
a corporation's Board of Directors to grant indemnity to directors and officers
in terms sufficiently broad to permit such indemnification under certain
circumstances for liabilities (including reimbursement for expenses incurred)
arising under the Securities Act of 1933, as amended (the "Securities Act").
As permitted by the DGCL, Article Sixth of the Registrant's certificate of
incorporation and Article VI of the Registrant by-laws together provide that (i)
the Registrant shall indemnify its directors and officers to the fullest extent
permitted by the DGCL, subject to certain very limited exceptions; (ii) the
Registrant is permitted to indemnify its other employees to the maximum extent
and in the manner permitted by applicable Delaware law (iii) the Registrant is
required to advance expenses, as incurred, to its directors and officers in
connection with a legal proceeding, subject to certain limited exceptions; and
(iv) the rights conferred in the By-Laws are not exclusive. As permitted by the
DGCL, the Registrant's certificate of incorporation includes a provision that
eliminates the personal inability of its directors for monetary damages for
breach of fiduciary duty as a director, to the fullest extent permitted by
Delaware law. This provision in the certificate of incorporation does not
eliminate the directors' fiduciary duty, and in appropriate circumstances
equitable remedies such as injunctive or other forms of non-monetary relief will
remain available under Delaware law. In addition, each director will continue to
be subject to liability for breach of the director's duty of loyalty to the
Registrant for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
II-1
<PAGE> 89
The Registrant has entered into indemnification agreements with its
directors. These directorship agreements provide that the directors will be
indemnified against expenses (including attorneys' fees), judgments, fines,
amounts paid in settlement such (if settlement is approved by the Registrant) in
any action or proceeding, including any derivative action, on account of their
service as directors of the Registrant or of any subsidiary of the Registrant or
of any other company or enterprise in which they are serving at the request of
the Registrant. No indemnity will be provided to any director under these
agreements if the director did not act in good faith or in the best interests of
Registrant, or in a criminal action if the Directors had reasonable cause to
believe its conduct was unlawful. In addition, no indemnification will be
provided for which payment is made to or on behalf of the director under any
insurance policy, or in connection with any proceeding initiated by the
director, or if a proceeding was initiated by the director not in good faith or
claims under Section 16(b) of the Securities Exchange Act of 1954, as amended,
or if such indemnification is determined by a court of competent jurisdiction to
be contrary to public policy.
Under Article VI of the Registrant's by-laws, the Registrant is authorized
to insurance covering the Registrant's directors and officers against liability
asserted against them in their capacity as such.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since May 26, 1996, we have sold and issued the following unregistered
securities:
(1) On February 28, 1998, we sold 5,000 shares of common stock to William
V. Thoms for $10,000.
(2) On March 31, 1998, we sold 20,000 shares of our common stock to William
V. Thoms for $40,000.
(3) On March 31, 1998, we sold 8,333.33 shares of common stock to Timothy
Shannon for $25,000.
(4) On April 2, 1998, we sold 4,000 shares of common stock to John M.
Conness, D.D.S. and Mary Lu Conness, as tenants-in-common, for $12,000.
(5) On April 3, 1998, we sold 50,000 shares of common stock to Harris Bank
Palatine as custodian for Gerald F. Fitzgerald for $150,000.
(6) On April 3, 1998, we sold 150,000 shares of common stock to Catholic
Order of Foresters for $450,000.
(7) On April 8, 1998, we sold 8,333 shares of common stock to each of Grace
Reilly, Kevin Reilly, John Reilly and Chris Reilly for aggregate
consideration of $100,000.
(8) On April 8, 1998, we sold 8,333.33 shares of common stock to First
National Bank of LaGrange, IRA #3530, for $25,000.
(9) On April 8, 1998, we sold 91,668 shares of common stock to Reimark
Capital, LLC for $275,000.
(10) On April 13, 1998, we sold 2,000 shares of common stock to Denise D.
Rueben and Bruce J. Rueben, as tenants-in-common, for $6,000.
(11) On April 13, 1998, we sold 16,000 shares of common stock to Kevin
Dolehide, D.O. and Mary Eileen Dolehide, as tenants-in-common, for
$48,000.
(12) On April 20, 1998, we sold 2,000 shares of common stock to Thomas R.
Lang and Electa Lang, as joint tenants with rights of survivorship,
for $6,000.
(13) On May 1, 1998, we sold 3,000 shares of common stock to William W.
Hembrough and Jean A. Hembrough, as tenants-in-common, for $9,000.
II-2
<PAGE> 90
(14) On July 21, 1998, we sold 1,666 shares of common stock to James
Haggerty and Noreen Haggerty, as tenants-in-common, for $4,998.
(15) On August 11, 1998, we sold 3,333 shares of common stock to Peter C.
Poisson for $9,999.
(16) On August 20, 1998, we sold 3,000 shares of common stock to John M.
Conness, D.D.S. and Mary Lu Conness, as tenants-in-common, for $9,000.
(17) On August 31, 1998, we sold 15,000 shares of common stock to John
Dolehide, D.O. for $45,000.
(18) On October 31, 1998, we sold 2,425 shares of common stock to Robert C.
and Beth S. Dolehide, as tenants-in-common, for $7,275.
(19) On November 30, 1998, we sold 12,000 shares of common stock to Robert
Chaps and Eileen M. Hayes, as joint tenants with rights of
survivorships, for $36,000.
(20) On January 17, 1999, we sold 100,000 shares of common stock to Grant
F. Kuphall for $300,000.
(21) On February 10, 1999, we sold 1,000,000 shares of common stock to
Intuit, Inc. for $3,000,000.
(22) On March 29, 1999, we sold 28,000 shares of common stock to Thomas A.
Munro and Francis M. Munro, as tenants in common, for $84,000.
The issuances described above in this Item 15 were deemed exempt from
registration under the Securities Act in reliance on Section 4(2) of the
Securities Act as transactions by an issuer not involving any public offering.
II-3
<PAGE> 91
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1+ Restated Certificate of Incorporation of Registrant
3.2+ Amended and Restated By-Laws of Registrant
4.2 Specimen Certificate for Registrant's common stock
4.3+ Form of Rights Agreement
4.3(a)+ Form of Certificate of Designation, Preferences and Rights
4.4+ Investor Rights Agreement, dated February 10, 1999, between
Registrant and Intuit Inc.
5.1* Opinion of Freeborn & Peters
10.1 Quotesmith.com 1997 Stock Option Plan (as amended and
restated March 29, 1999) of Registrant
10.2 Quotesmith.com 1999 Employee Stock Purchase Plan
10.3+ Form of Employment Agreement between Registrant and Robert
S. Bland
10.4+ Form of Employment Agreement between Registrant and William
V. Thoms
10.5+ Form of Employment Agreement between Registrant and Ronald
A. Wozniak
10.6+ Form of Employment Agreement between Registrant and Thomas
A. Munro
10.7+ Form of Employment Agreement between Registrant and Burke A.
Christensen
10.8+ Form of Director Indemnification Agreement
10.9+ Lease dated as of August 1994, between Registrant and
LaSalle National Trust N.A.
10.10+ Lease Amendment Agreement dated as of November 1995, between
Registrant and LaSalle National Trust N.A.
10.11+ Lease Amendment Agreement as of September 1997, between
Registrant and LaSalle National Trust N.A.
10.12+ Lease Amendment Agreement dated as of July 1998, between
Registrant and LaSalle National Trust N.A.
10.13+ Note Purchase Agreement, dated as of June 23, 1999, by and
between the Registrant and Intuit Inc.
10.14++ Services Agreement, dated as of September 9, 1998, by and
between the Registrant and Intuit Insurance Services, Inc.
23.1 Consent of Ernst & Young LLP
23.2+ Consent of Admiral Jeremiah A. Denton, Jr.
23.3+ Consent of Richard F. Gretsch
23.4+ Consent of John McCartney
23.5* Consent of Freeborn & Peters (included in Exhibit 5.1)
24.1+ Power of Attorney (See page II-6)
27.1+ Financial Data Schedule (for SEC use only)
</TABLE>
- -------------------------
* To be filed by amendment.
+ Previously filed
++ Confidential treatment has been requested for this exhibit
II-4
<PAGE> 92
(B) FINANCIAL STATEMENT SCHEDULES:
All schedules have been omitted because the information required to be set
forth therein is not applicable or is shown in the combined financial statements
or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the SEC such indemnification is against
public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby further undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 3 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Chicago, State of Illinois, on July 9, 1999.
QUOTESMITH.COM, INC.
By: /s/ ROBERT S. BLAND
------------------------------------
Name: Robert S. Bland,
Title: Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed by the following persons in
the capacities indicated on July 9, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ROBERT S. BLAND Chairman, President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer)
Robert S. Bland
/s/ WILLIAM V. THOMS Executive Vice President and Director
- ---------------------------------------------
William V. Thoms
/s/ THOMAS A. MUNRO Vice President, Chief Financial Officer and
- --------------------------------------------- Secretary (Principal Financial and Accounting
Thomas A. Munro Officer)
* Director
- ---------------------------------------------
Bruce J. Rueben
* Director
- ---------------------------------------------
Timothy F. Shannon
* /s/ ROBERT S. BLAND
- ---------------------------------------------
Robert S. Bland
Pursuant to Power of Attorney
</TABLE>
II-6
<PAGE> 94
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1 Restated Certificate of Incorporation of Registrant
3.2 Amended and Restated By-Laws of Registrant
4.2 Specimen Certificate for Registrant's common stock
10.1 Quotesmith.com 1997 Stock Option Plan (as amended and
restated March 29, 1999)
10.2 Quotesmith.com 1999 Employee Stock Purchase Plan
23.1 Consent of Ernst & Young LLP
</TABLE>
II-7
<PAGE> 1
EXHIBIT 1.1
QUOTESMITH.COM, INC.
~ SHARES(1)
COMMON STOCK
UNDERWRITING AGREEMENT
July __, 1999
HAMBRECHT & QUIST LLC
PAINEWEBBER INCORPORATED
ABN AMRO INCORPORATED
CHARLES SCHWAB & CO., INC.
c/o Hambrecht & Quist LLC
One Bush Street
San Francisco, CA 94104
Ladies and Gentlemen:
Quotesmith.com, Inc., a Delaware corporation (herein called the
Company), proposes to issue and sell ~ shares of its authorized but unissued
Common Stock, $ ~ par value (herein called the Common Stock) (said ~ shares of
Common Stock being herein called the Underwritten Stock). The Company proposes
to grant to the Underwriters (as hereinafter defined) an option to purchase up
to ~ additional shares of Common Stock (herein called the Option Stock and with
the Underwritten Stock herein collectively called the Stock). The Common Stock
is more fully described in the Registration Statement and the Prospectus
hereinafter mentioned.
The Company hereby confirms the agreements made with respect to the
purchase of the Stock by the several underwriters, for whom you are acting,
named in Schedule I hereto (herein collectively called the Underwriters, which
term shall also include any underwriter purchasing Stock pursuant to Section
3(b) hereof). You represent and warrant that you have been authorized by each of
the other Underwriters to enter into this Agreement on its behalf and to act for
it in the manner herein provided.
1. REGISTRATION STATEMENT. The Company has filed with the Securities and
Exchange Commission (herein called the Commission) a registration statement on
Form S-1 (No. 333-79355), including the related preliminary prospectus, for the
registration under the Securities Act of 1933, as amended (herein called the
Securities Act) of the Stock. Copies of such registration statement and of each
amendment thereto, if any, including the related preliminary prospectus (meeting
the
- ----------
(1)Plus an option to purchase from the Company up to ~ additional shares to
cover over-allotments.
<PAGE> 2
requirements of Rule 430A of the rules and regulations of the Commission)
heretofore filed by the Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean
such registration statement, including all exhibits and financial statements,
all information omitted therefrom in reliance upon Rule 430A and contained in
the Prospectus referred to below, in the form in which it became effective, and
any registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Stock (herein called a Rule
462(b) registration statement), and, in the event of any amendment thereto after
the effective date of such registration statement (herein called the Effective
Date), shall also mean (from and after the effectiveness of such amendment) such
registration statement as so amended (including any Rule 462(b) registration
statement). The term Prospectus as used in this Agreement shall mean the
prospectus relating to the Stock first filed with the Commission pursuant to
Rule 424(b) and Rule 430A (or if no such filing is required, as included in the
Registration Statement) and, in the event of any supplement or amendment to such
prospectus after the Effective Date, shall also mean (from and after the filing
with the Commission of such supplement or the effectiveness of such amendment)
such prospectus as so supplemented or amended. The term Preliminary Prospectus
as used in this Agreement shall mean each preliminary prospectus included in
such registration statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the
Securities Act, and no post-effective amendment to the Registration Statement
has been filed as of the date of this Agreement. The Company has caused to be
delivered to you copies of each Preliminary Prospectus and has consented to the
use of such copies for the purposes permitted by the Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company hereby represents and warrants as follows:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as
described in the Registration Statement and the Prospectus and as being
conducted, and is duly qualified as a foreign corporation and in good
standing in all jurisdictions in which the character of the property
owned or leased or the nature of the business transacted by it makes
qualification necessary (except where the failure to be so qualified
would not have a material adverse effect on the business, properties,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole).
(ii) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus, there has not been any
materially adverse change in the business, properties, financial
condition or results of operations of the Company, whether or not
arising from transactions in the ordinary course of business, other than
as set forth in the Registration Statement and the Prospectus, and since
such dates, except in the ordinary course of business, the Company has
not entered into any material transaction not referred to in the
Registration Statement and the Prospectus.
-2-
<PAGE> 3
(iii) The Registration Statement and the Prospectus comply, and
on the Closing Date (as hereinafter defined) and any later date on which
Option Stock is to be purchased, the Prospectus will comply, in all
material respects, with the provisions of the Securities Act and the
Securities Exchange Act of 1934, as amended (herein called the Exchange
Act) and the rules and regulations of the Commission thereunder; on the
Effective Date, the Registration Statement did not contain any untrue
statement of a material fact and did not omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading; and, on the Effective Date the
Prospectus did not and, on the Closing Date and any later date on which
Option Stock is to be purchased, will not contain any untrue statement
of a material fact or omit to state any material fact necessary in order
to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that none of
the representations and warranties in this subparagraph (iii) shall
apply to statements in the Registration Statement or the Prospectus made
in reliance upon and in conformity with the information described in
Section 4(b) hereof, which is the only information furnished to the
Company by or on behalf of the Underwriters for use in the Registration
Statement or the Prospectus.
(iv) The Stock, when issued and sold to the Underwriters as
provided herein, will be duly and validly issued, fully paid and
nonassessable and conforms to the description thereof in the Prospectus.
No further approval or authority of the stockholders or the Board of
Directors of the Company will be required for the issuance and sale of
the Stock as contemplated herein.
(v) The Stock to be issued and sold by the Company is authorized
for listing by the Nasdaq National Market upon official notice of
issuance.
(vi) Attached hereto as Schedule II is a capitalization table of
the Company setting forth all holders of securities of the Company.
(vii) The Company owns and possesses all right, title and
interest in and to all trademarks, copyrights and other proprietary
rights ("Trade Rights") material to the business of the Company. The
Company has not received any written notice of infringement,
misappropriation or conflict from any third party as to such Trade
Rights and the Company has not infringed, misappropriated or otherwise
conflicted with material Trade Rights of any third parties.
(viii) The conduct of the business of the Company is in
compliance in all respects with applicable federal, state, local and
foreign laws and regulations, except where the failure to be in
compliance would not have a material adverse effect upon the condition
(financial or otherwise) or results of operations of the Company.
-3-
<PAGE> 4
3. PURCHASE OF THE STOCK BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties and subject to
the terms and conditions herein set forth, the Company agrees to issue and sell
~ shares of the Underwritten Stock to the several Underwriters and each of the
Underwriters agrees to purchase from the Company the respective aggregate number
of shares of Underwritten Stock set forth opposite its name in Schedule I. The
price at which such shares of Underwritten Stock shall be sold by the Company
and purchased by the several Underwriters shall be $___ per share. In making
this Agreement, each Underwriter is contracting severally and not jointly;
except as provided in paragraphs (b) and (c) of this Section 3, the agreement of
each Underwriter is to purchase only the respective number of shares of the
Underwritten Stock specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of shares of the Stock agreed to be purchased by such
Underwriter or Underwriters, the Company shall immediately give notice thereof
to you, and the non-defaulting Underwriters shall have the right within 24 hours
after the receipt by you of such notice to purchase, or procure one or more
other Underwriters to purchase, in such proportions as may be agreed upon
between you and such purchasing Underwriter or Underwriters and upon the terms
herein set forth, all or any part of the shares of the Stock which such
defaulting Underwriter or Underwriters agreed to purchase. If the non-defaulting
Underwriters fail so to make such arrangements with respect to all such shares
and portion, the number of shares of the Stock which each non-defaulting
Underwriter is otherwise obligated to purchase under this Agreement shall be
automatically increased on a pro rata basis to absorb the remaining shares and
portion which the defaulting Underwriter or Underwriters agreed to purchase;
provided, however, that the non-defaulting Underwriters shall not be obligated
to purchase the shares and portion which the defaulting Underwriter or
Underwriters agreed to purchase if the aggregate number of such shares of the
Stock exceeds 10% of the total number of shares of the Stock which all
Underwriters agreed to purchase hereunder. If the total number of shares of the
Stock which the defaulting Underwriter or Underwriters agreed to purchase shall
not be purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 5 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to said Section 5 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all the shares of the Stock which the defaulting Underwriter or Underwriters
agreed to purchase hereunder, this Agreement shall be terminated without further
act or deed and without any liability on the part of the Company to any
non-defaulting Underwriter and without any liability on the part of any
non-defaulting Underwriter to the Company. Nothing in this paragraph (b), and no
action taken hereunder, shall relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
-4-
<PAGE> 5
(c) On the basis of the representations, warranties and covenants herein
contained, and subject to the terms and conditions herein set forth, the Company
grants an option to the several Underwriters to purchase, severally and not
jointly, up to o shares in the aggregate of the Option Stock from the Company at
the same price per share as the Underwriters shall pay for the Underwritten
Stock. Said option may be exercised only to cover over-allotments in the sale of
the Underwritten Stock by the Underwriters and may be exercised in whole or in
part at any time (but not more than once) on or before the thirtieth day after
the date of this Agreement upon written notice by you to the Company setting
forth the aggregate number of shares of the Option Stock as to which the several
Underwriters are exercising the option. Delivery of certificates for the shares
of Option Stock, and payment therefor, shall be made as provided in Section 5
hereof. The number of shares of the Option Stock to be purchased by each
Underwriter shall be the same percentage of the total number of shares of the
Option Stock to be purchased by the several Underwriters as such Underwriter is
purchasing of the Underwritten Stock, as adjusted by you in such manner as you
deem advisable to avoid fractional shares.
4. OFFERING BY UNDERWRITERS.
(a) The terms of the initial public offering by the Underwriters of the
Stock to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information set forth under "Underwriting" in the Registration
Statement, any Preliminary Prospectus and the Prospectus relating to the Stock
filed by the Company (insofar as such information relates to the Underwriters)
constitutes the only information furnished by the Underwriters to the Company
for inclusion in the Registration Statement, any Preliminary Prospectus, and the
Prospectus, and you on behalf of the respective Underwriters represent and
warrant to the Company that the statements made therein are correct in all
material respects.
5. DELIVERY OF AND PAYMENT FOR THE STOCK.
(a) Delivery of certificates for the shares of the Underwritten Stock
and the Option Stock (if the option granted by Section 3(c) hereof shall have
been exercised not later than 7:00 A.M., San Francisco time, on the date two
business days preceding the Closing Date), and payment therefor, shall be made
at the office of Freeborn & Peters, 311 South Wacker Drive, Chicago, Illinois,
at 7:00 a.m., San Francisco time, on the fourth business day after the date of
this Agreement, or at such time on such other day, not later than seven full
business days after such fourth business day, as shall be agreed upon in writing
by the Company and you. The date and hour of such delivery and payment (which
may be postponed as provided in Section 3(b) hereof) are herein called the
Closing Date.
(b) If the option granted by Section 3(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Option Stock, and
payment therefor, shall be made at the office of Freeborn & Peters, 311 South
Wacker Drive, Chicago, Illinois, at 7:00 a.m., San Francisco time, on the third
business day after the exercise of such option.
-5-
<PAGE> 6
(c) Payment for the Stock purchased from the Company shall be made to
the Company or its order by one or more wire transfers of same day funds. Such
payment shall be made upon delivery of certificates for the Stock to you for the
respective accounts of the several Underwriters against receipt therefor signed
by you. Certificates for the Stock to be delivered to you shall be registered in
such name or names and shall be in such denominations as you may request at
least one business day before the Closing Date, in the case of Underwritten
Stock, and at least one business day prior to the purchase thereof, in the case
of the Option Stock. Such certificates will be made available to the
Underwriters for inspection, checking and packaging at the offices of Lewco
Securities Corporation, 2 Broadway, New York, New York 10004 on the business day
prior to the Closing Date or, in the case of the Option Stock, by 3:00 p.m., New
York time, on the business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not have been
received by you on the Closing Date or any later date on which Option Stock is
purchased for the account of such Underwriter. Any such payment by you shall not
relieve such Underwriter from any of its obligations hereunder.
6. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees
as follows:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information
previously omitted at the time of effectiveness of the Registration
Statement in reliance on Rule 430A and (ii) not file any amendment to
the Registration Statement or supplement to the Prospectus of which you
shall not previously have been advised and furnished with a copy or to
which you shall have reasonably objected in writing or which is not in
compliance with the Securities Act or the rules and regulations of the
Commission.
(b) The Company will promptly notify each Underwriter in the
event of (i) the request by the Commission for amendment of the
Registration Statement or for supplement to the Prospectus or for any
additional information, (ii) the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement, (iii)
the institution or notice of intended institution of any action or
proceeding for that purpose, (iv) the receipt by the Company of any
notification with respect to the suspension of the qualification of the
Stock for sale in any jurisdiction, or (v) the receipt by it of notice
of the initiation or threatening of any proceeding for such purpose. The
Company will make every reasonable effort to prevent the issuance of
such a stop order and, if such an order shall at any time be issued, to
obtain the withdrawal thereof at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver
to you a signed copy of the Registration Statement as originally filed
and of each amendment thereto filed prior to the time the Registration
Statement becomes effective and, promptly upon the filing thereof, a
signed copy of each post-effective amendment, if any, to the
Registration Statement (together with, in each case, all exhibits
thereto unless previously furnished to you) and will also deliver to
you, for distribution to the Underwriters, a sufficient number
-6-
<PAGE> 7
of additional conformed copies of each of the foregoing (but without
exhibits) so that one copy of each may be distributed to each
Underwriter, (ii) as promptly as possible deliver to you and send to the
several Underwriters, at such office or offices as you may designate, as
many copies of the Prospectus as you may reasonably request, and (iii)
thereafter from time to time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer, likewise
send to the Underwriters as many additional copies of the Prospectus and
as many copies of any supplement to the Prospectus and of any amended
prospectus, filed by the Company with the Commission, as you may
reasonably request for the purposes contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event
relating to or affecting the Company, or of which the Company shall be
advised in writing by you, shall occur as a result of which it is
necessary, in the opinion of counsel for the Company or of counsel for
the Underwriters, to supplement or amend the Prospectus in order to make
the Prospectus not misleading in the light of the circumstances existing
at the time it is delivered to a purchaser of the Stock, the Company
will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus so that the Prospectus as so
supplemented or amended will not contain any untrue statement of a
material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances existing
at the time such Prospectus is delivered to such purchaser, not
misleading. If, after the initial public offering of the Stock by the
Underwriters and during such period, the Underwriters shall propose to
vary the terms of offering thereof by reason of changes in general
market conditions or otherwise, you will advise the Company in writing
of the proposed variation, and, if in the opinion either of counsel for
the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company
will forthwith prepare and file with the Commission a supplement to the
Prospectus or an amended prospectus setting forth such variation. The
Company authorizes the Underwriters and all dealers to whom any of the
Stock may be sold by the several Underwriters to use the Prospectus, as
from time to time amended or supplemented, in connection with the sale
of the Stock in accordance with the applicable provisions of the
Securities Act and the applicable rules and regulations thereunder for
such period.
(e) Prior to the filing thereof with the Commission, the Company
will submit to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the
Prospectus or any amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in
the qualification of the Stock for offer and sale under the securities
or blue sky laws of such jurisdictions as you may designate and, during
the period in which a prospectus is required by law to be delivered by
an Underwriter or dealer, in keeping such qualifications in good
standing under said securities or blue sky laws; provided, however, that
the Company shall not be obligated to file any general consent to
service of process or to qualify as a foreign corporation in any
jurisdiction in which it is not so qualified. The Company will, from
time to time, prepare
-7-
<PAGE> 8
and file such statements, reports, and other documents as are or may be
required to continue such qualifications in effect for so long a period
as you may reasonably request for distribution of the Stock.
(g) During a period of five years commencing with the date
hereof, the Company will furnish to you, and to each Underwriter who may
so request in writing, copies of all periodic and special reports
furnished to stockholders of the Company and of all information,
documents and reports filed with the Commission.
(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective
Date, the Company will make generally available to its security holders
an earnings statement in accordance with Section 11(a) of the Securities
Act and Rule 158 thereunder.
(i) The Company agrees to pay all costs and expenses incident to
the performance of its obligations under this Agreement, including all
costs and expenses incident to (i) the preparation, printing and filing
with the Commission and the National Association of Securities Dealers,
Inc. of the Registration Statement, any Preliminary Prospectus and the
Prospectus, (ii) the furnishing to the Underwriters of copies of any
Preliminary Prospectus and of the several documents required by
paragraph (c) of this Section 6 to be so furnished, (iii) the printing
of this Agreement and related documents delivered to the Underwriters,
(iv) the preparation, printing and filing of all supplements and
amendments to the Prospectus referred to in paragraph (d) of this
Section 6, (v) the furnishing to you and the Underwriters of the reports
and information referred to in paragraph (g) of this Section 6 and (vi)
the printing and issuance of stock certificates, including the transfer
agent's fees.
(j) The Company agrees to reimburse you, for the account of the
several Underwriters, for blue sky fees and related disbursements
(including counsel fees and disbursements and cost of printing memoranda
for the Underwriters) paid by or for the account of the Underwriters or
their counsel in qualifying the Stock under state securities or blue sky
laws and in the review of the offering by the NASD.
(k) The Company hereby agrees that, without the prior written
consent of Hambrecht & Quist LLC on behalf of the Underwriters, the
Company will not, for a period of 180 days following the commencement of
the public offering of the Stock by the Underwriters, directly or
indirectly, (i) sell, offer, contract to sell, make any short sale,
pledge, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any
rights to purchase or acquire Common Stock or (ii) enter into any swap
or other agreement that transfers, in whole or in part, any of the
economic consequences or ownership of Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise.
The foregoing sentence shall not apply to (A) the Stock to be sold to
the Underwriters pursuant to this Agreement, (B) shares of Common Stock
issued by the Company upon the exercise
-8-
<PAGE> 9
of options granted under the stock option plans of the Company (the
"Option Plans"), all as described under the caption "Capitalization" in
the Preliminary Prospectus, and (C) options to purchase Common Stock
granted under the Option Plans.
(l) If at any time during the 25-day period after the
Registration Statement becomes effective any rumor, publication or event
relating to or affecting the Company shall occur as a result of which in
your opinion the market price for the Stock has been or is likely to be
materially affected (regardless of whether such rumor, publication or
event necessitates a supplement to or amendment of the Prospectus), the
Company will, after written notice from you advising the Company to the
effect set forth above, forthwith prepare, consult with you concerning
the substance of, and disseminate a press release or other public
statement, reasonably satisfactory to you, responding to or commenting
on such rumor, publication or event.
(m) The Company is familiar with the Investment Company Act of
1940, as amended, and has in the past conducted its affairs, and will in
the future conduct its affairs, in such a manner to ensure that the
Company was not and will not be an "investment company" or a company
"controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, and the rules and
regulations thereunder.
7. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person (including each partner or officer thereof) who controls any
Underwriter within the meaning of Section 15 of the Securities Act from and
against any and all losses, claims, damages or liabilities, joint or several, to
which such indemnified parties or any of them may become subject under the
Securities Act, the Securities Exchange Act of 1934, as amended (herein called
the Exchange Act), or the common law or otherwise, and the Company agrees to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission or alleged omission
to state therein a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading; provided, however, that (1) the indemnity agreements of the Company
contained in this paragraph (a) shall not apply to any such losses, claims,
damages, liabilities or expenses if such statement or omission was made in
reliance upon and in conformity with the information described in Section 4(b)
hereof that has been furnished to the Company by or on behalf
-9-
<PAGE> 10
of any Underwriter for use in any Preliminary Prospectus or the Registration
Statement or the Prospectus or any such amendment thereof or supplement thereto
and (2) the indemnity agreement contained in this paragraph (a) with respect to
any Preliminary Prospectus shall not inure to the benefit of any Underwriter
from whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the Stock which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 6 hereof. The indemnity agreements of
the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 2 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and payment
for the Stock.
(b) Each Underwriter severally agrees to indemnify and hold harmless the
Company, each of its officers who signs the Registration Statement on his own
behalf or pursuant to a power of attorney, each of its directors, each other
Underwriter and each person (including each partner or officer thereof) who
controls the Company or any such other Underwriter within the meaning of Section
15 of the Securities Act, from and against any and all losses, claims, damages
or liabilities, joint or several, to which such indemnified parties or any of
them may become subject under the Securities Act, the Exchange Act, or the
common law or otherwise and to reimburse each of them for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement) or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or as supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto) or the omission or alleged omission to state therein a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading, but in each case
only if such statement or omission was made in reliance upon and in conformity
with the information described in Section 4(b) hereof that has been furnished to
the Company by or on behalf of such indemnifying Underwriter for use in the
Registration Statement or the Prospectus or any such amendment thereof or
supplement thereto. The indemnity agreement of each Underwriter contained in
this paragraph (b) shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any indemnified party
and shall survive the delivery of and payment for the Stock.
(c) Each party indemnified under the provision of paragraphs (a) and (b)
of this Section 7 agrees that, upon the service of a summons or other initial
legal process upon it in any action or suit instituted against it or upon its
receipt of written notification of the commencement
-10-
<PAGE> 11
of any investigation or inquiry of, or proceeding against, it in respect of
which indemnity may be sought on account of any indemnity agreement contained in
such paragraphs, it will promptly give written notice (herein called the Notice)
of such service or notification to the party or parties from whom
indemnification may be sought hereunder. No indemnification provided for in such
paragraphs shall be available to any party who shall fail so to give the Notice
if the party to whom such Notice was not given was unaware of the action, suit,
investigation, inquiry or proceeding to which the Notice would have related and
was prejudiced by the failure to give the Notice, but the omission so to notify
such indemnifying party or parties of any such service or notification shall not
relieve such indemnifying party or parties from any liability which it or they
may have to the indemnified party for contribution or otherwise than on account
of such indemnity agreement. Any indemnifying party shall be entitled at its own
expense to participate in the defense of any action, suit or proceeding against,
or investigation or inquiry of, an indemnified party. Any indemnifying party
shall be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (herein called the Notice of Defense) to the
indemnified party, to assume (alone or in conjunction with any other
indemnifying party or parties) the entire defense of such action, suit,
investigation, inquiry or proceeding, in which event such defense shall be
conducted, at the expense of the indemnifying party or parties, by counsel
chosen by such indemnifying party or parties and reasonably satisfactory to the
indemnified party or parties; provided, however, that (i) if the indemnified
party or parties reasonably determine that there may be a conflict between the
positions of the indemnifying party or parties and of the indemnified party or
parties in conducting the defense of such action, suit, investigation, inquiry
or proceeding or that there may be legal defenses available to such indemnified
party or parties different from or in addition to those available to the
indemnifying party or parties, then counsel for the indemnified party or parties
shall be entitled to conduct the defense to the extent reasonably determined by
such counsel to be necessary to protect the interests of the indemnified party
or parties and (ii) in any event, the indemnified party or parties shall be
entitled to have counsel chosen by such indemnified party or parties participate
in, but not conduct, the defense. If, within a reasonable time after receipt of
the Notice, an indemnifying party gives a Notice of Defense and the counsel
chosen by the indemnifying party or parties is reasonably satisfactory to the
indemnified party or parties, the indemnifying party or parties will not be
liable under paragraphs (a) through (c) of this Section 7 for any legal or other
expenses subsequently incurred by the indemnified party or parties in connection
with the defense of the action, suit, investigation, inquiry or proceeding,
except that (A) the indemnifying party or parties shall bear the legal and other
expenses incurred in connection with the conduct of the defense as referred to
in clause (i) of the proviso to the preceding sentence and (B) the indemnifying
party or parties shall bear such other expenses as it or they have authorized to
be incurred by the indemnified party or parties. If, within a reasonable time
after receipt of the Notice, no Notice of Defense has been given, the
indemnifying party or parties shall be responsible for any legal or other
expenses incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding.
(d) If the indemnification provided for in this Section 7 is unavailable
or insufficient to hold harmless an indemnified party under paragraph (a) or (b)
of this Section 7, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities
referred to in paragraph (a) or (b) of this Section 7 (i) in such proportion as
is appropriate to reflect the relative benefits received by each indemnifying
party from the offering of the Stock or (ii) if the
-11-
<PAGE> 12
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of each indemnifying
party in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, or actions in respect thereof, as well
as any other relevant equitable considerations. The relative benefits received
by the Company and the Underwriters shall be deemed to be in the same respective
proportions as the total net proceeds from the offering of the Stock received by
the Company and the total underwriting discount received by the Underwriters, as
set forth in the table on the cover page of the Prospectus, bear to the
aggregate public offering price of the Stock. Relative fault shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by each indemnifying party and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the Stock purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of a
summons or other initial legal process upon it in any action instituted against
it in respect of which contribution may be sought, it will promptly give written
notice of such service to the party or parties from whom contribution may be
sought, but the omission so to notify such party or parties of any such service
shall not relieve the party from whom contribution may be sought from any
obligation it may have hereunder or otherwise (except as specifically provided
in paragraph (c) of this Section 7).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding in respect of which
indemnification may be sought hereunder (whether or not such Underwriter or any
person who controls such Underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act is a party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of such Underwriter and each such controlling
person from all liability arising out of such claim, action, suit or proceeding.
-12-
<PAGE> 13
8. TERMINATION. This Agreement may be terminated by you at any time
prior to the Closing Date by giving written notice to the Company if after the
date of this Agreement trading in the Common Stock shall have been suspended, or
if there shall have occurred (i) the engagement in hostilities or an escalation
of major hostilities by the United States or the declaration of war or a
national emergency by the United States on or after the date hereof, (ii) any
outbreak of hostilities or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
calamity, crisis or change in economic or political conditions in the financial
markets of the United States would, in the Underwriters' reasonable judgment,
make the offering or delivery of the Stock impracticable, (iii) suspension of
trading in securities generally or a material adverse decline in value of
securities generally on the New York Stock Exchange, the American Stock
Exchange, The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative body,
agency or other governmental authority which in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 6 hereof.
9. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters to purchase and pay for the Stock shall be subject to the
performance by the Company of all its obligations to be performed hereunder at
or prior to the Closing Date or any later date on which Option Stock is to be
purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and
no stop order suspending the effectiveness thereof shall have been
issued and no proceedings therefor shall be pending or threatened by the
Commission.
(b) The legality and sufficiency of the sale of the Stock
hereunder and the validity and form of the certificates representing the
Stock, all corporate proceedings and other legal matters incident to the
foregoing, and the form of the Registration Statement and of the
Prospectus (except as to the financial statements contained therein),
shall have been approved at or prior to the Closing Date by Sidley &
Austin, counsel for the Underwriters.
(c) You shall have received from Freeborn & Peters, counsel for
the Company, an opinion, addressed to the Underwriters and dated the
Closing Date, covering the matters set forth in Annex A hereto, and if
Option Stock is purchased at any date after the Closing Date, an
additional opinion from such counsel, addressed to the Underwriters and
dated
-13-
<PAGE> 14
such later date, confirming that the statements expressed as of the
Closing Date in such opinion remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date,
the statements made in the Registration Statement and the Prospectus
were true and correct and neither the Registration Statement nor the
Prospectus omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein,
respectively, not misleading, (ii) since the Effective Date, no event
has occurred which should have been set forth in a supplement or
amendment to the Prospectus which has not been set forth in such a
supplement or amendment, (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which
it originally became effective and the Prospectus contained therein,
there has not been any material adverse change or any development
involving a prospective material adverse change in or affecting the
business, properties, financial condition or results of operations of
the Company, whether or not arising from transactions in the ordinary
course of business, and, since such dates, except in the ordinary course
of business, the Company has not entered into any material transaction
not referred to in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, (iv)
there are not any material contingent obligations which are not
disclosed in the Registration Statement and the Prospectus, (v) there
are not any pending or known threatened legal proceedings to which the
Company is a party or of which property of the Company or any of its
subsidiaries is the subject which are material and which are not
disclosed in the Registration Statement and the Prospectus, (vi) there
are not any franchises, contracts, leases or other documents which are
required to be filed as exhibits to the Registration Statement which
have not been filed as required, (vii) the representations and
warranties of the Company herein are true and correct in all material
respects as of the Closing Date or any later date on which Option Stock
is to be purchased, as the case may be, and (viii) there has not been
any material change in the market for securities in general or in
political, financial or economic conditions from those reasonably
foreseeable as to render it impracticable in your reasonable judgment to
make a public offering of the Stock, or a material adverse change in
market levels for securities in general (or those of companies in
particular) or financial or economic conditions which render it
inadvisable to proceed.
(e) You shall have received on the Closing Date and on any later
date on which Option Stock is purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed by the President
and the Chief Financial Officer of the Company, stating that the
respective signers of said certificate have carefully examined the
Registration Statement in the form in which it originally became
effective and the Prospectus contained therein and any supplements or
amendments thereto, and that the statements included in clauses (i)
through (vii) of paragraph (d) of this Section 9 are true and correct.
(f) You shall have received from Ernst & Young LLP, a letter or
letters, addressed to the Underwriters and dated the Closing Date and
any later date on which Option Stock is purchased, confirming that they
are independent public accountants with respect to the Company within
the meaning of the Securities Act and the applicable published rules and
regulations thereunder and based upon the procedures described in their
-14-
<PAGE> 15
letter delivered to you concurrently with the execution of this
Agreement (herein called the Original Letter), but carried out to a date
not more than three business days prior to the Closing Date or such
later date on which Option Stock is purchased (i) confirming, to the
extent true, that the statements and conclusions set forth in the
Original Letter are accurate as of the Closing Date or such later date,
as the case may be, and (ii) setting forth any revisions and additions
to the statements and conclusions set forth in the Original Letter which
are necessary to reflect any changes in the facts described in the
Original Letter since the date of the Original Letter or to reflect the
availability of more recent financial statements, data or information.
The letters shall not disclose any change, or any development involving
a prospective change, in or affecting the business or properties of the
Company which, in your sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Stock or the
purchase of the Option Stock as contemplated by the Prospectus.
(g) You shall have received on the Closing Date and on any later
date on which Option Stock is purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed by the President
and the Chief Financial Officer of the Company, verifying the truth and
accuracy of any statistical or financial figure included in the
Prospectus which has not been otherwise verified by the letters referred
to in clause (f) above, such verification to include the provision of
documentary evidence supporting any such statistical or financial
figure.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several
jurisdictions, or other evidence satisfactory to you, of the
qualification referred to in paragraph (f) of Section 6 hereof.
(i) Prior to the Closing Date, the Stock to be issued and sold
by the Company shall have been duly authorized for listing by the Nasdaq
National Market upon official notice of issuance.
(j) On or prior to the Closing Date, you shall have received
from all directors, officers, and beneficial holders of the outstanding
Common Stock stockholders agreements, in form reasonably satisfactory to
Hambrecht & Quist LLC, stating that without the prior written consent of
Hambrecht & Quist LLC on behalf of the Underwriters, such person or
entity will not, for a period of 180 days following the commencement of
the public offering of the Stock by the Underwriters, directly or
indirectly, (i) sell, offer, contract to sell, make any short sale,
pledge, sell any option or contract to purchase, purchase any option or
contract to sell, grant any option, right or warrant to purchase or
otherwise transfer or dispose of any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for or any
rights to purchase or acquire Common Stock or (ii) enter into any swap
or other agreement that transfers, in whole or in part, any of the
economic consequences or ownership of Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise.
-15-
<PAGE> 16
All the agreements, opinions, certificates and letters mentioned above
or elsewhere in this Agreement shall be deemed to be in compliance with the
provisions hereof only if Sidley & Austin, counsel for the Underwriters, shall
be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not be
fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the transactions
contemplated hereby.
10. CONDITIONS OF THE OBLIGATION OF THE COMPANY. The obligation of the
Company to deliver the Stock shall be subject to the conditions that (a) the
Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall not
be fulfilled, this Agreement may be terminated by the Company by giving notice
to you. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that in the event of any such termination the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 6 hereof.
11. REIMBURSEMENT OF CERTAIN EXPENSES. In addition to its other
obligations under Section 7 of this Agreement, the Company hereby agrees to
reimburse on a quarterly basis the Underwriters for all reasonable legal and
other expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 7 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 11 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
12. PERSONS ENTITLED TO BENEFIT OF AGREEMENT. This Agreement shall inure
to the benefit of the Company and the several Underwriters and, with respect to
the provisions of Section 7 hereof, the several parties (in addition to the
Company and the several Underwriters)
-16-
<PAGE> 17
indemnified under the provisions of said Section 7, and their respective
personal representatives, successors and assigns. Nothing in this Agreement is
intended or shall be construed to give to any other person, firm or corporation
any legal or equitable remedy or claim under or in respect of this Agreement or
any provision herein contained. The term "successors and assigns" as herein used
shall not include any purchaser, as such purchaser, of any of the Stock from any
of the several Underwriters.
13. NOTICES. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telecopy and, if to the Underwriters, shall
be mailed, telecopied or delivered to Hambrecht & Quist LLC, One Bush Street,
San Francisco, California 94104, telecopy: (415) 439-3624, Attention: Legal
Department; and if to the Company, shall be mailed, telecopied or delivered to
it at its office, 8205 South Cass Avenue, Suite 102, Darien, Illinois 60561,
telecopy: (630) 515-0270, Attention: Robert Bland. All notices given by telecopy
shall be promptly confirmed by mail.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or their respective directors or officers, and (c) delivery and
payment for the Stock under this Agreement; provided, however, that if this
Agreement is terminated prior to the Closing Date, the provisions of paragraphs
(k) and (l) of Section 6 hereof shall be of no further force or effect.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of California.
-17-
<PAGE> 18
Please sign and return to the Company the enclosed duplicates of this
letter, whereupon this letter will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
QUOTESMITH.COM, INC.
By __________________________
Robert S. Bland
Chief Executive Officer
The foregoing Agreement is hereby confirmed
and accepted as of the date first above written.
HAMBRECHT & QUIST LLC
PAINEWEBBER INCORPORATED
ABN AMRO INCORPORATED
CHARLES SCHWAB & CO., INC.
By Hambrecht & Quist LLC
By __________________________
Managing Director
Acting on behalf of the several Underwriters,
including themselves, named in Schedule I hereto.
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<PAGE> 19
SCHEDULE I
UNDERWRITERS
<TABLE>
<CAPTION>
NUMBER OF
SHARES
TO BE
UNDERWRITERS PURCHASED
------------ ---------
<S> <C>
Hambrecht & Quist LLC......................................
PaineWebber Incorporated...................................
ABN Amro Incorporated......................................
Charles Schwab & Co., Inc..................................
Total ............................................. o
=========
</TABLE>
<PAGE> 20
ANNEX A
MATTERS TO BE COVERED IN THE OPINION OF FREEBORN & PETERS
COUNSEL FOR THE COMPANY
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, is duly qualified as a foreign
corporation and in good standing in each state of the United States of
America in which its ownership or leasing of property requires such
qualification (except where the failure to be so qualified would not
have a material adverse effect on the business, properties, financial
condition or results of operations of the Company), and has full
corporate power and authority to own or lease its properties and conduct
its business as described in the Registration Statement;
(ii) the authorized capital stock of the Company consists of
60,000,000 shares of Common Stock, of which there are outstanding ~
shares (including the Underwritten Stock plus the number of shares of
Option Stock issued on the date hereof), and 5,000,000 shares of
Preferred Stock, $.001 par value, of which none is outstanding shares;
proper corporate proceedings have been taken validly to authorize such
authorized capital stock; all of the outstanding shares of such capital
stock (including the Underwritten Stock and the shares of Option Stock
issued, if any) have been duly and validly issued and are fully paid and
nonassessable; any Option Stock purchased after the Closing Date, when
issued and delivered to and paid for by the Underwriters as provided in
the Underwriting Agreement, will have been duly and validly issued and
be fully paid and nonassessable; and no preemptive rights of, or rights
of refusal in favor of, stockholders exist with respect to the Stock, or
the issue and sale thereof, pursuant to the Certificate of Incorporation
or Bylaws of the Company and, to the knowledge of such counsel, there
are no contractual preemptive rights that have not been waived, rights
of first refusal or rights of co-sale which exist with respect to the
issue and sale of the Stock;
(iii) the Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement or
suspending or preventing the use of the Prospectus is in effect and no
proceedings for that purpose have been instituted or are pending or
contemplated by the Commission;
(iv) the Registration Statement and the Prospectus (except as to
the financial statements and schedules and other financial data
contained therein, as to which such counsel need express no opinion)
comply as to form in all material respects with the requirements of the
Securities Act and with the rules and regulations of the Commission
thereunder;
(v) such counsel has no reason to believe that the Registration
Statement (except as to the financial statements and schedules and other
financial and statistical data contained therein, as to which such
counsel need not express any opinion or belief) at the Effective
<PAGE> 21
Date contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, or that the Prospectus (except as
to the financial statements and schedules and other financial data
contained or incorporated by reference therein, as to which such counsel
need not express any opinion or belief) as of its date or at the Closing
Date (or any later date on which Option Stock is purchased), contained
or contains any untrue statement of a material fact or omitted or omits
to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(vi) the information required to be set forth in the
Registration Statement in answer to Items 9, 10 (insofar as it relates
to such counsel) and 11(c) of Form S-1 is to the best of such counsel's
knowledge accurately and adequately set forth therein in all material
respects or no response is required with respect to such Items, and, the
description of the Company's stock option plan and the options granted
and which may be granted thereunder and the options granted otherwise
than under such plan set forth in the Prospectus accurately and fairly
presents the information required to be shown with respect to said plan
and options to the extent required by the Securities Act and the rules
and regulations of the Commission thereunder;
(vii) such counsel does not know of any franchises, contracts,
leases, documents or legal proceedings, pending or threatened, which in
the opinion of such counsel are of a character required to be described
in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement, which are not described and
filed as required;
(viii) the Underwriting Agreement has been duly authorized,
executed and delivered by the Company;
(ix) the issue and sale by the Company of the shares of Stock
sold by the Company as contemplated by the Underwriting Agreement will
not conflict with, or result in a breach of, the Certificate of
Incorporation or Bylaws of the Company or any agreement or instrument
known to such counsel to which the Company is a party or any applicable
law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality;
(x) all holders of securities of the Company having rights to
the registration of shares of Common Stock, or other securities, because
of the filing of the Registration Statement by the Company have waived
such rights or such rights have expired by reason of lapse of time
following notification of the Company's intent to file the Registration
Statement;
(xi) no consent, approval, authorization or order of any court
or governmental agency or body is required for the consummation of the
transactions contemplated in the Underwriting Agreement, except such as
have been obtained under the Securities Act and such as may be required
under state securities or blue sky laws in connection with the purchase
and distribution of the Stock by the Underwriters; and
Annex A-3
<PAGE> 22
(xii) the Stock issued and sold by the Company has been duly
authorized for listing by the Nasdaq National Market upon official
notice of issuance.
<PAGE> 1
EXHIBIT 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
QUOTESMITH.COM, INC.
The name of the corporation is Quotesmith.com, Inc, and the original
Certificate of Incorporation of the corporation was filed with the Secretary of
State of the State of Delaware on May 9, 1984, and was amended on each of March
3, 1998 and October 20, 1998. The original Certificate of Incorporation of the
corporation, as amended, is hereby amended and restated to read in its entirety
as follows:
"FIRST: The name of the corporation is Quotesmith.com, Inc.
SECOND: The registered office of the corporation in the State
of Delaware is located at No. 306 South State Street, in the City of
Dover, County of Kent; and the name of its registered agent at such
address is United States Corporation Company.
THIRD: The purposes of the corporation are to engage in any
lawful act or activity for which corporations may be organized under
the General Corporation Law of the State of Delaware.
FOURTH: (1) The total number of shares of stock which the
Corporation shall have authority to issue is 65 million (65,000,000),
consisting of 60 million (60,000,000) shares of Common Stock, par
value $.001 per share ("Common Stock") and five million (5,000,000) of
Preferred Stock, par value $.001 per share ("Preferred Stock").
(2) Shares of Preferred Stock may be issued in one or more
series, from time to time, with each such series to consist of such
number of shares and to have such voting powers, full or limited, or
no voting powers, and such designations, preferences and relative,
participating, optional or special rights, and the qualifications,
limitations or restrictions thereof, as shall be stated in the
resolution or resolutions providing for the issuance of such series
adopted by the Board of Directors of the corporation (the "Board of
Directors"), and the Board of Directors is hereby expressly vested
with authority, to the full extent now or hereafter provided by law,
to adopt any such resolution or resolutions.
The authority of the Board of Directors with respect to each
series shall include, but not be limited to, determination of the
following:
1
<PAGE> 2
(a) the number of shares constituting that series
and the distinctive designation of that series;
(b) the dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which
date or dates, and the relative rights of priority, if any,
of payment of dividends on shares of that series;
(c) whether that series shall have voting rights, in
addition to the voting rights provided by law, and, if so,
the terms of such voting rights;
(d) whether that series shall have conversion
privileges, and, if so, the terms and conditions of such
conversion, including provision for adjustment of the
conversion rate in such events as the Board of Directors
shall determine;
(e) whether or not the shares of that series shall
be redeemable, and if, so, the terms and conditions of such
redemption, including the date or dates upon or after which
they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) whether that series shall have a sinking fund
for the redemption or purchase of shares of that series, and,
if so, the terms and amount of such sinking fund;
(g) the rights of the shares of that series in the
event of voluntary or involuntary liquidation, dissolution or
winding-up of the Corporation, and the relative rights of
priority, if any, of payment of shares of that series; and
(h) any other relative rights, preferences and
limitations of that series.
(3) (a) Each holder of Common Stock, as such, shall be
entitled to one vote for each share of Common Stock held of record by
such holder on all matters on which stockholders generally are
entitled to vote; provided, however, that, except as otherwise
required by law, holders of Common Stock, as such, shall not be
entitled to vote on any amendment to this Certificate of Incorporation
(including any certificate of designations relating to any series of
Preferred Stock) that relates solely to the terms of one or more
outstanding series of Preferred Stock if the holders of such affected
series are entitled, either separately or together with the holders of
one or more other such series, to vote thereon pursuant to this
Certificate of Incorporation (including any certificate of
designations relating to any series of Preferred Stock) or pursuant to
the General Corporation Law of the State of Delaware.
2
<PAGE> 3
(b) Except as otherwise required by law, holders of
a series of Preferred Stock, as such, shall be entitled only
to such voting rights, if any, as shall expressly be granted
thereto by this Certificate of Incorporation (including any
certificate of designations relating to such series).
(c) Subject to applicable law and the rights, if
any, of the holders of any outstanding series of Preferred
Stock or any class or series of stock having a preference
over or the right to participate with the Common Stock with
respect to the payment of dividends, dividends may be
declared and paid on the Common Stock at such times and in
such amounts as the Board of Directors in its discretion
shall determine.
(d) Upon the dissolution, liquidation or winding up
of the corporation, subject to the rights, if any, of the
holders of any outstanding series of Preferred Stock or any
class or series of stock having a preference over or the
right to participate with the Common Stock with respect to
the distribution of assets of the corporation upon such
dissolution, liquidation or winding up of the corporation,
the holders of the Common Stock, as such, shall be entitled
to receive the assets of the corporation available for
distribution to its stockholders ratably in proportion to the
number of shares held by them.
FIFTH: The Board of Directors shall be authorized to
make, amend, alter, change, add to or repeal the By-Laws of
the corporation in any manner not inconsistent with the laws
of the State of Delaware, subject to the power of the
stockholders to amend, alter, change, add to or repeal the
By-Laws made by the Board of Directors. Notwithstanding
anything contained in this Certificate of Incorporation to
the contrary, the affirmative vote of the holders of at least
80 percent in voting power of all the shares of the
corporation entitled to vote generally in the election of
directors, voting together as a single class, shall be
required in order for the stockholders to alter, amend or
repeal any provision of the By-Laws which is to the same
effect as Article Sixth, Article Seventh, and Article Eighth
of this Certificate of Incorporation or to adopt any
provision inconsistent therewith.
SIXTH: (1) The corporation may indemnify to the
fullest extent permitted by law any person made or threatened
to be made a party to an action or proceeding, whether
criminal, civil, administrative or investigative, by reason
of the fact that the person, or such person's testator or
intestate is or was a director, officer or employee of the
corporation or any predecessor of the corporation or serves
or served at any other enterprise as a director, officer or
employee at the request of the corporation or any predecessor
to the corporation.
3
<PAGE> 4
(2) To the fullest extent permitted by Delaware law
as the same exists or as may hereafter be amended, a director
of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for a
breach of fiduciary duty as director.
(3) Neither any amendment nor repeal of this Article
Sixth, nor the adoption of any provision of the corporation's
Certificate of Incorporation inconsistent with this Article
Sixth, shall eliminate or reduce the effect of this Article
Sixth, in respect of any matter occurring, or any action or
proceeding accruing or arising or that, but for this adoption
of an inconsistent provision.
SEVENTH: (1) The business and affairs of the
corporation shall be managed by or under the direction of a
Board of Directors consisting of not less than 3 directors nor
more than 9 directors, the exact number of directors to be
determined from time to time by resolution adopted by
affirmative vote of a majority of the Board of Directors in a
manner set forth in the By-Laws of the corporation. On the
effective date of the Corporation's Registration Statement
filed with the Securities and Exchange Commission
(Registration No. 333-79355), as amended, the directors shall
be divided into three classes designated Class I, Class II and
Class III. Each class shall consist, as nearly as possible, of
one-third of the total number of directors constituting the
entire Board of Directors. Class I directors shall be
originally elected for a term expiring at the 2000 annual
meeting of stockholders, Class II directors shall be
originally elected for a term expiring at the 2001 succeeding
annual meeting of stockholders, and Class III directors shall
be originally elected for a term expiring at the 2002
succeeding annual meeting of stockholders. At each succeeding
annual meeting of stockholders following 2000, successors to
the class of directors whose term expires at that annual
meeting shall be elected for a term expiring at the third
succeeding annual meeting. If the number of directors is
changed, any increase or decrease shall be apportioned among
the classes so as to maintain the number of directors in each
class as nearly equal as possible, and any additional director
of any class elected to fill a newly created directorship
resulting from an increase in such class shall hold office for
a term that shall coincide with the remaining term of that
class, but in no case shall a decrease in the number of
directors remove or shorten the term of any incumbent
director. A director shall hold office until the annual
meeting for the year in which his term expires and until his
successor shall be elected and shall qualify, subject to,
however, prior death, resignation, retirement,
disqualification or removal from office. Any newly created
directorship on the Board of Directors that results from an
increase in the number of directors and any vacancy occurring
in the Board of Directors shall be filled only by a majority
of the directors then in office, although less than a quorum,
or by a sole remaining director. If any applicable provision
of the General Corporation Law of the State of Delaware
expressly confers power on stockholders to fill such a
directorship at a special meeting of stockholders, such a
directorship may be filled at such meeting only by the
affirmative vote of at least 80 percent of the voting power of
all shares of the corporation entitled to vote generally in
the election of directors, voting as a single class. Any
director elected to fill a vacancy not resulting from an
increase in the number of directors shall have the same
remaining term as that of his predecessor. Directors may be
removed only for cause, and only by the affirmative vote of at
least 80 percent in voting power of all shares of the
corporation entitled to vote generally in the election of
directors, voting as a single class.
4
<PAGE> 5
(2) Notwithstanding the foregoing, whenever the
holders of any one or more series of Preferred Stock issued
by the corporation shall have the right, voting separately as
a series or separately as a class with one or more such other
series, to elect directors at an annual or special meeting of
stockholders, the election, term of office, removal, filling
of vacancies and other features of such directorships shall
be governed by the terms of this Certificate of Incorporation
(including any certificate of designations relating to any
series of Preferred Stock) applicable thereto, and such
directors so elected shall not be divided into classes
pursuant to this Article Seventh unless expressly provided by
such terms.
EIGHTH: Any action required or permitted to be taken
by the holders of the Common Stock of the corporation must be
effected at a duly called annual or special meeting of such
holders and may not be effected by any consent in writing by
such holders. Except as otherwise required by law and subject
to the rights of the holders of any series of Preferred Stock
special meetings of stockholders of the corporation may be
called only by the Chief Executive Officer of the corporation
or by the Board of Directors pursuant to a resolution
approved by the Board of Directors.
NINTH: The Corporation reserves the right at any
time, and from time to time, to amend, alter, change or
repeal any provision contained in this Certificate of
Incorporation, and other provisions authorized by the laws of
the State of Delaware at the time in force may be added or
inserted, in the manner now or hereafter prescribed by law;
and all rights, preferences and privileges of whatsoever
nature conferred upon stockholders, directors or any other
persons whomsoever by and pursuant to this Certificate of
Incorporation in its present form or as hereafter amended are
granted subject to the rights reserved in this article;
provided, however, that the affirmative vote of 80% of the
voting power of the capital stock of the Corporation entitled
to vote thereon shall be required to amend, alter or repeal,
or adopt any provision inconsistent with, whether by
amendment, merger or otherwise, the provisions of Articles
Sixth, Seventh and Eighth."
Quotesmith.com, Inc. does hereby further certify that this Restated
Certificate of Incorporation was duly adopted by the Board of Directors and by
written consent of the stockholders in accordance with the provisions of
Sections 228, 242 and 245 of the General Corporation Law of the State of
Delaware.
5
<PAGE> 6
IN WITNESS WHEREOF, QUOTESMITH.COM, INC. has caused its corporate seal
to be hereunto affixed and this certificate to be signed by Robert S. Bland,
its Chairman, President and Chief Executive Officer, this ____ day of
__________, 1999.
QUOTESMITH.COM, INC.
By:
------------------------------------
Name: Robert S. Bland
Title: Chairman, President and
Chief Executive Officer
6
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
BY-LAWS
OF
QUOTESMITH.COM, INC.,
A DELAWARE CORPORATION
<PAGE> 2
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE
The registered office of the corporation shall be fixed in the
Certificate of Incorporation (the "Certificate of Incorporation"), of the
corporation.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS
Meetings of stockholders shall be held at any place within or outside
the State of Delaware designated by the board of directors. In the absence of
any such designation, stockholders' meetings shall be held at the registered
office of the corporation.
2.2 ANNUAL MEETING
(a) The annual meeting of stockholders shall be held each
year on a date and at a time designated by the board of directors. In the
absence of such designation, the annual meeting of stockholders shall be held
on the third Thursday in May of each year at 10:00 a.m. However, if such day
falls on a legal holiday, then the annual meeting shall be held at the same
time and place on the next succeeding full business day. At the annual meeting,
directors shall be elected, and any other proper business may be transacted.
(b) At an annual meeting of the stockholders, only such
business shall be conducted as shall have been properly brought before the
meeting. To be properly brought before an annual meeting, business must be: (i)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board of directors, (ii) otherwise properly brought before
the meeting by or at the direction of the board of directors, or (iii) otherwise
properly brought before the meeting by a stockholder. For business to be
properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the secretary of the
corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the corporation not
less than 120 calendar days in advance of the date specified in the
corporation's proxy statement released to stockholders in connection with the
previous year's annual meeting of stockholders; provided, however, that in the
event that no annual meeting was held in the previous year or the date of the
annual meeting has been changed by more than 30 days from the date contemplated
at
<PAGE> 3
the time of the previous year's proxy statement, notice by the stockholder
to be timely must be so received a reasonable time before the solicitation is
made. A stockholder's notice to the secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the
corporation which are beneficially owned by the stockholder, (iv) any material
interest of the stockholder in such business and (v) any other information that
is required to be provided by the stockholder pursuant to Regulation 14A under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), in his or her
capacity as a proponent of a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
a stockholder must provide notice as required by the regulations promulgated
under the 1934 Act. Notwithstanding anything in these By-Laws to the contrary,
no business shall be conducted at any annual meeting except in accordance with
the procedures set forth in this paragraph (b). The chairman of the annual
meeting shall, if the facts warrant, determine and declare at the meeting that
business was not properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he or she should so determine, he or
she shall so declare at the meeting that any such business not properly brought
before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the
procedures set forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the board of directors of the
corporation may be made at a meeting of stockholders by or at the direction of
the board of directors or by any stockholder of the corporation entitled to
vote in the election of directors at the meeting who complies with the notice
procedures set forth in this paragraph (c). Such nominations, other than those
made by or at the direction of the board of directors, shall be made pursuant
to timely notice in writing to the secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 2.2. Such stockholder's
notice shall set forth (i) as to each person, if any, whom the stockholder
proposes to nominate for election or re-election as a director: (A) the name,
age, business address and residential address of such person, (B) the principal
occupation or employment of such person, (C) the class and number of shares of
the corporation which are beneficially owned by such person, (D) a description
of all arrangements or understandings between the stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant to
which the nominations are being made by the stockholder, and (E) any other
information relating to such person that is required to be disclosed in
solicitations of proxies for elections of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such stockholder giving notice, the information required to be provided
pursuant to paragraph (b) of this Section 2.2. At the request of the board of
directors, any person nominated by a stockholder for election as a director
shall furnish to the secretary of the corporation that information required to
be set forth in the stockholder's notice of nomination that pertains to the
nominee. No person shall be eligible for election as a director of the
corporation unless nominated in accordance with the procedures set forth in
this paragraph (c). The chairman of the meeting shall, if the facts warrant,
determine and
2
<PAGE> 4
declare at the meeting that a nomination was not made in accordance with the
procedures prescribed by these By-Laws, and if he or she should so determine,
he or she shall so declare at the meeting, and the defective nomination shall
be disregarded.
2.3 SPECIAL MEETING
A special meeting of the stockholders may be called at any time by the
board of directors pursuant to a resolution duly adopted by the Board of
Directors or the chief executive officer, and such special meetings may not be
called by any other person or persons.
If a special meeting is called by the chief executive officer, the
request shall be in writing, specifying the time of such meeting and the
general nature of the business proposed to be transacted, and shall be
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board of directors and the
secretary of the corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The secretary shall cause
notice to be promptly given to the stockholders entitled to vote, in accordance
with the provisions of Sections 2.5 and 2.6, that a meeting will be held at the
time requested by the person or persons who called the meeting, not less than
10 nor more than 60 days after the receipt of the request. If the notice is not
given within 20 days after the receipt of the request, the chief executive
officer may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing, or affecting the time when
a meeting of stockholders may be held when called by action of the board of
directors.
2.4 ORGANIZATION
Meetings of stockholders shall be presided over by the chairman of the
board, if any, or in his or her absence by the vice chairman of the board, if
any, or in his or her absence by the chief executive officer, if any, or in his
or her absence by the president, if any, or in his or her absence a vice
president, or in the absence of the foregoing persons by a chairman designated
by the board of directors, or in the absence of such designation by a chairman
chosen at the meeting. The secretary shall act as secretary of the meeting, but
in his or her absence the chairman of the meeting may appoint any person to act
as secretary of the meeting.
2.5 NOTICE OF STOCKHOLDERS' MEETINGS
Except as set forth in Section 2.3, all notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 2.6 of
these By-Laws not less than 10 nor more than 60 days before the date of the
meeting. The notice shall specify the place, date, and hour of the meeting and
(i) in the case of a special meeting, the general nature of the business to be
transacted (no business other than that specified in the notice may be
transacted) or (ii) in the case of the annual meeting, those matters which the
board of directors, at the time of giving the notice, intends to present for
action by the stockholders (but any proper matter may be presented at the
meeting for such action). The notice of any meeting at which directors are to
be elected shall include the name of any nominee or nominees who, at the time
of the notice, the board intends to present for election.
3
<PAGE> 5
2.6 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of stockholders shall be given either
personally or by first-class mail or by telegraphic or other written
communication. Notices not personally delivered shall be sent charges prepaid
and shall be addressed to the stockholder at the address of that stockholder
appearing on the books of the corporation or given by the stockholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that stockholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.7 QUORUM
The presence in person or by proxy of the holders of a majority of the
voting power of the shares entitled to vote thereat constitutes a quorum for
the transaction of business at all meetings of stockholders; provided, however,
that in the case of any vote to be taken by classes, the holders of a majority
of the votes entitled to be cast by the stockholders of a particular class
shall constitute a quorum for the transaction of business by such class. The
stockholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the voting
power of the shares required to constitute a quorum.
2.8 ADJOURNED MEETING; NOTICE
Any stockholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the voting power of the shares represented at that meeting, either in person or
by proxy. In the absence of a quorum, no other business may be transacted at
that meeting except as provided in Section 2.7 of these By-Laws.
When any meeting of stockholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting
is fixed or if the adjournment is for more than 30 days from the date set forth
the original meeting, then notice of the adjourned meeting shall be given.
Notice of any such adjourned meeting shall be given to each stockholder of
record entitled to vote at the adjourned meeting in accordance with the
provisions of Sections 2.5 and 2.6 of these By-Laws. At any adjourned meeting
the corporation may transact any business which might have been transacted at
the original meeting.
4
<PAGE> 6
2.9 VOTING
Voting at any meeting of stockholders need not be by ballot, unless
otherwise provided in the Certificate of Incorporation.
The stockholders entitled to vote at any meeting of stockholders shall
be determined in accordance with the provisions of Section 2.12 of these
By-Laws, subject to the provisions of Sections 217 and 218 of the General
Corporation Law of Delaware (relating to voting rights of fiduciaries, pledgors
and joint owners, and to voting trusts and other voting agreements).
Each stockholder shall be entitled to that number of votes for each
share held as is set forth in the Certificate of Incorporation or in the
resolution or resolutions adopted by the board of directors providing for the
issuance of such stock, except as may otherwise be required by law.
Any stockholder entitled to vote on any matter may vote part of the
shares in favor of the proposal and refrain from voting the remaining shares
or, except when the matter is the election of directors, may vote them against
the proposal; but if the stockholder fails to specify the number of shares
which the stockholder is voting affirmatively, it will be conclusively presumed
that the stockholder's approving vote is with respect to all shares which the
stockholder is entitled to vote.
If a quorum is present, the affirmative vote of at least a majority of
the voting power of the shares represented, in person or by proxy, and voting
at a duly held meeting and authorized to vote on the subject matter shall be
the act of the stockholders, unless the vote of a greater number or a vote by
classes is required by law or by the Certificate of Incorporation.
2.10 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions at any meeting of stockholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and
notice, if a quorum be present either in person or by proxy, and if, either
before or after the meeting, each person entitled to vote, who was not present
in person or by proxy, signs a written waiver of notice or a consent to the
holding of the meeting or an approval of the minutes thereof. The waiver of
notice or consent or approval need not specify either the business to be
transacted or the purpose of any annual or special meeting of stockholders. All
such waivers, consents, and approvals shall be filed with the corporate records
or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.11 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING
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For purposes of determining the stockholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than 60 days nor less than 10 days before the date of
any such meeting nor more than 60 days before any such action without a
meeting, and in such event only stockholders of record on the date so fixed are
entitled to notice and to vote or to give consents, as the case may be,
notwithstanding any transfer of any shares on the books of the corporation
after the record date.
If the board of directors does not so fix a record date, the record
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day preceding
the day on which notice is given, or, if notice is waived, at the close of
business on the business day preceding the day on which the meeting is held.
The record date for any other purpose shall be as provided in Article VIII of
these By-Laws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the Secretary
of the corporation, but no such proxy shall be voted or acted upon after three
(3) years from its date, unless the proxy provides for a longer period. A proxy
shall be deemed signed if the stockholder's name is placed on the proxy
(whether by manual signature, typewriting, telegraphic transmission or
otherwise) by the stockholder or the stockholder's attorney-in-fact. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A stockholder may revoke any proxy that is not
irrevocable by attending the meeting and voting in person or by filing an
instrument in writing revoking the proxy or another duly executed proxy bearing
a later date with the secretary of the corporation.
2.13 INSPECTORS OF ELECTION
Before any meeting of stockholders, the board of directors may appoint
an inspector or inspectors of election to act at the meeting or its
adjournment. If no inspector of election is so appointed, then the chairman of
the meeting may, and on the request of any stockholder or a stockholder's proxy
shall, appoint an inspector or inspectors of election to act at the meeting.
The number of inspectors shall be either one or three. If inspectors are
appointed at a meeting pursuant to the request of one or more stockholders or
proxies, then the holders of a majority of the voting power of shares or their
proxies present at the meeting shall determine whether one or three inspectors
are to be appointed. If any person appointed as inspector fails to appear or
fails or refuses to act, then the chairman of the meeting may, and upon the
request of any stockholder or a stockholder's proxy shall, appoint a person to
fill that vacancy.
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Such inspectors shall:
(a) determine the number of shares outstanding and the voting
power of each, the number of shares represented at the meeting, the existence
of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in
any way arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the
election or vote with fairness to all stockholders.
ARTICLE III
DIRECTORS
3.1 POWERS
Subject to the provisions of the General Corporation Law of Delaware
and to any limitations in the Certificate of Incorporation or these By-Laws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction
of the board of directors.
3.2 NUMBER AND TERM OF OFFICE
The authorized number and term of directors shall be as set forth in
the Certificate of Incorporation.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
If for any cause, the directors shall not have been elected at an annual
meeting, they may be elected as soon thereafter as convenient at a special
meeting of the stockholders called for that purpose in the manner provided in
these By-Laws.
3.3 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the chief executive officer, the secretary or the board
of directors, unless the notice specifies a
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later time for that resignation to become effective. If the resignation of a
director is effective at a future time, the board of directors may elect a
successor to take office when the resignation becomes effective.
Unless otherwise provided in the Certificate of Incorporation or these
By-Laws, vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote
of the stockholders or by court order may be filled only by the affirmative
vote of a majority of the voting power of shares represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute a majority of the required quorum), or by the
written consent of a majority of the voting power of shares entitled to vote
thereon. Each director so elected shall hold office until the next annual
meeting of the stockholders and until a successor has been elected and
qualified.
Unless otherwise provided in the Certificate of Incorporation or these
By-Laws:
(i) Vacancies and newly created directorships resulting from
any increase in the authorized number of directors to be elected by all of the
stockholders entitled to vote, voting as a single class, may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or
series thereof are entitled to elect one or more directors by the provisions of
the Certificate of Incorporation vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the directors
elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a
stockholder, or other fiduciary entrusted with like responsibility for the
person or estate of a stockholder, may call a special meeting of stockholders
in the manner prescribed by the provisions of the Certificate of Incorporation
or these By-Laws, or may apply to the Court of Chancery for a decree summarily
ordering an election as provided in Section 211 of the General Corporation Law
of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least 10% of the total number of the then outstanding shares having
the right to vote for such directors, summarily order an election to be held to
fill any such vacancies or newly created directorships, or to replace the
directors chosen by the directors then in office as aforesaid, which election
shall be governed by the provisions of Section 211 of the General Corporation
Law of Delaware so far as applicable.
3.4 REMOVAL
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Subject to any limitations imposed by law, and unless otherwise
provided in the Certificate of Incorporation the board of directors, or any
individual director, may be removed from office at any time by the affirmative
vote of the holders of at least a majority of the voting power of the then
outstanding shares of the capital stock of the corporation entitled to vote at
an election of directors.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of Delaware that has been designated from time to
time by resolution of the board of directors. In the absence of such a
designation, regular meetings shall be held at the principal executive office
of the corporation. Special meetings of the board of directors may be held at
any place within or outside the State of Delaware that has been designated in
the notice of the meeting or, if not stated in the notice or if there is no
notice, at the principal executive office of the corporation.
Any meeting, regular or special, may be held by conference telephone
or similar communication equipment, so long as all directors participating in
the meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 FIRST MEETINGS
The first meeting of each newly elected board of directors shall be
held at such time and place as shall be fixed by the vote of the stockholders
at the annual meeting, and no notice of such meeting shall be necessary to the
newly elected directors in order legally to constitute the meeting so long as a
quorum is present at the first meeting of such newly elected board of
directors. In the event of the failure of the stockholders to fix the time or
place of such first meeting of the newly elected board of directors, or in the
event such meeting is not held at the time and place so fixed by the
stockholders, the meeting may be held at such time and place as shall be
specified in a notice given as hereinafter provided for special meetings of the
board of directors, or as shall be specified in a written waiver signed by all
of the directors.
3.7 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
if the dates of such meetings are fixed by the board of directors.
3.8 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, or in the absence of
the chairman of the board by the chief executive officer or by a majority of
the directors then in office.
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Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at the director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least seven days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least 48 hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the director or to a person at the office of the director who the
person giving the notice has reason to believe will promptly communicate it to
the director. The notice need not specify the purpose of the meeting. In
addition, if the meeting is to be held at the principal executive office of the
corporation, the notice need not specify the place of the meeting.
3.9 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in
Section 3.11 of these By-Laws. Every act or decision done or made by a majority
of the directors present at a duly held meeting at which a quorum is present
shall be regarded as the act of the board of directors, subject to the
provisions of the Certificate of Incorporation and applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.10 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
3.11 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.12 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not
be given if announced at the meeting at which the adjournment is taken, unless
the meeting is adjourned for more than 24 hours. If the meeting is adjourned
for more than 24 hours, then notice of the time and place of the adjourned
meeting shall be given before the adjourned meeting takes place, in the manner
specified in Section 3.8 of these By-Laws, to the directors who were not
present at the time of the adjournment.
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3.13 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board of
directors individually or collectively consent in writing to that action. Such
action by written consent shall have the same force and effect as a unanimous
vote of the board of directors. Such written consent and any counterparts
thereof shall be filed with the minutes of the proceedings of the board.
3.14 ORGANIZATION
Meetings of the board of directors shall be presided over by the
chairman of the board, if any, or in his or her absence by the vice chairman of
the board, if any, or in his or her absence by the chief executive officer, or
in their absence by a chairman chosen at the meeting. The secretary shall act
as secretary of the meeting, but in his or her absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
3.15 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.15 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.16 APPROVAL OF LOANS TO OFFICERS
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or of its
subsidiary, including any officer or employee who is a director of the
corporation or its subsidiary, whenever, in the judgment of the directors, such
loan, guaranty or assistance may reasonably be expected to benefit the
corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured, or secured in such manner as the board of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this section shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
ARTICLE IV
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
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The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board of
directors. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of the committee. The appointment of members or alternate members of a
committee requires the vote of a majority of the authorized number of
directors. Any committee, to the extent provided in the resolution of the
board, shall have all the authority of the board, but no such committee shall
have the power or authority to (i) amend the Certificate of Incorporation
(except that a committee may, to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the board
of directors as provided in Section 151(a) of the General Corporation Law of
Delaware, fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the
corporation or the conversion into, or the exchange of such shares for, shares
of any other class or classes or any other series of the same or any other
class or classes of stock of the corporation), (ii) adopt an agreement of
merger or consolidation under Sections 251, 252, 255, 256, 257, 258, 263 or 264
of the General Corporation Law of Delaware, (iii) recommend to the stockholders
the sale, lease or exchange of all or substantially all of the corporation's
property and assets, (iv) recommend to the stockholders a dissolution of the
corporation or a revocation of a dissolution, or (v) amend the By-Laws of the
corporation; and, unless the board resolution establishing the committee, the
By-Laws or the Certificate of Incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend, to authorize
the issuance of stock, or to adopt a certificate of ownership and merger
pursuant to Section 253 of the General Corporation Law of Delaware.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article III of these By-Laws,
Section 3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7
(special meetings and notice), Section 3.9 (quorum), Section 3.10 (waiver of
notice), Section 3.11 (adjournment), Section 3.12 (notice of adjournment), and
Section 3.13 (action without meeting), with such changes in the context of
those By-Laws as are necessary to substitute the committee and its members for
the board of directors and its members; provided, however, that the time of
regular meetings of committees may be determined either by resolution of the
board of directors or by resolution of the committee, that special meetings of
committees may also be called by resolution of the board of directors, and that
notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The
board of directors may adopt rules for the government of any committee not
inconsistent with the provisions of these By-Laws.
ARTICLE V
OFFICERS
5.1 OFFICERS
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The corporation shall have such officers as determined by the board of
directors, which officers may include a chairman of the board, a chief
executive officer, a president, a secretary, a chief financial officer and a
treasurer. The corporation may also have, at the discretion of the board of
directors, one or more vice presidents, one or more assistant secretaries, one
or more assistant treasurers, and such other officers as may be appointed in
accordance with the provisions of Section 5.3 of these By-Laws. Any number of
offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these By-Laws, shall be chosen by the board of directors, subject to the
rights, if any, of an officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the chief executive
officer to appoint, such other officers as the business of the corporation may
require, each of whom shall hold office for such period, have such authority,
and perform such duties as are provided in these By-Laws or as the board of
directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of any officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless
otherwise specified in that notice, the acceptance of the resignation shall not
be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these By-Laws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall serve
as the corporation's general manager, and shall have general supervision,
direction and control of the corporation's business and its officers, and, if
present, preside at meetings of the stockholders and the board of directors and
exercise and perform such other powers and duties as may from time to time be
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assigned to him or her by the board of directors or as may be prescribed by
these By-Laws. If there is no chief executive officer, then the chairman of the
board shall also be the chief executive officer of the corporation and shall
have the powers and duties prescribed in Section 5.7 of these By-Laws. The
chairman of the board shall report to the board of directors.
5.7 CHIEF EXECUTIVE OFFICER
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the chief executive officer of the corporation shall, subject to the control of
the board of directors, have general supervision, direction, and control of the
business and the officers of the corporation. He or she shall preside at all
meetings of the stockholders and, in the absence or nonexistence of a chairman
of the board, at all meetings of the board of directors. He shall have the
general powers and duties of management usually vested in the chief executive
officer of a corporation, and shall have such other powers and duties as may be
prescribed by the board of directors or these By-Laws.
5.8 PRESIDENT
The president may assume and perform the duties of the chief executive
officer in the absence or disability of the chief executive officer or whenever
the office of the chief executive officer is vacant. The president of the
corporation shall exercise and perform such powers and duties as may from time
to time be assigned to him or her by the board of directors or as may be
prescribed by these By-Laws. In the absence or nonexistence of the chairman of
the board and chief executive officer, he or she shall preside at all meetings
of the stockholders and at all meetings of the board of directors and shall
perform such other duties as the board of directors may from time to time
determine.
5.9 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform
all the duties of the president and when so acting shall have all the powers
of, and be subject to all the restrictions upon, the president. The vice
presidents shall have such other powers and perform such other duties as from
time to time may be prescribed for them respectively by the board of directors,
these By-Laws, the chairman of the board or the chief executive officer.
5.10 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special,
how authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
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The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names
of all stockholders and their addresses, the number and classes of shares held
by each, the number and date of certificates evidencing such shares, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the board of directors required to be given by law
or by these By-Laws. He or she shall keep the seal of the corporation, if one
be adopted, in safe custody and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by these
By-Laws.
5.11 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain, or cause to be
kept and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other
valuables in the name and to the credit of the corporation with such
depositaries as may be designated by the board of directors. He or she shall
disburse the funds of the corporation as may be ordered by the board of
directors, shall render to the chief executive officer and directors, whenever
they request it, an account of all of his or her transactions as chief
financial officer and of the financial condition of the corporation, and shall
have such other powers and perform such other duties as may be prescribed by
the board of directors or these By-Laws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of Delaware, indemnify each of its
directors and officers against expenses (including attorneys' fees), judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with any action, suit or proceeding, whether civil, criminal,
administrative or investigative, arising by reason of the fact that such person
is or was a director, office, employee or agent of the corporation; provided,
however, that the corporation shall not be required to indemnify or advance
expenses to any director or officer in connection with any proceeding brought
or claim made by such person, unless such indemnification or advancement of
expenses is expressly required to be made by law or by contract or the
proceeding or claim
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was authorized in advance by the board of directors of the corporation. The
corporation may modify by contract the extent of the rights provided by this
Section 6.1 and the rights to advancement provided by Section 6.3, provided
that any modification that has the effect of diminishing or restricting such
rights shall be prospective in effect and shall not affect such rights with
respect to conduct occurring prior to the date of the contract. For purposes of
this Section 6.1, a "director" or "officer" of the corporation includes any
person (i) who is or was a director or officer of the corporation, (ii) who is
or was serving at the request of the corporation as a director or officer of
another corporation, partnership, joint venture, trust or other enterprise, or
(iii) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power to indemnify each of its
employees and agents (other than directors and officers) to the maximum extent
and in the manner permitted by the General Corporation Law of Delaware against
expenses (including attorneys' fees), judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Section 6.2, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is
or was an employee or agent of the corporation, (ii) who is or was serving at
the request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 INSURANCE
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against any liability asserted against or incurred by him or
her in any capacity, or arising out of his or her status as such, whether or
not the corporation would have power to indemnify him or her against such
liability under the provisions of the General Corporation Law of Delaware. The
corporation may establish alternative arrangements for purposes of funding
indemnification, including, without limitation, trusts, letters of credit,
captive insurance entities and reciprocal risk retention group arrangements.
6.4 ADVANCEMENT OF EXPENSES
The corporation shall advance to any person who was or is a party or
witness or is threatened to be made a party or witness to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal
administrative or investigative by reason of the fact that he or she is or was
a director or officer, as defined in this Article VI, all expenses incurred by
the person in connection with such proceeding. All expenses incurred by such
person in connection with such proceeding shall be paid promptly upon request
therefore, but in any event prior to the ultimate disposition of the
proceeding, provided that an undertaking has been furnished by or on behalf of
the person requesting advancement to repay said amounts if it should be
determined ultimately that he or she is not entitled to be indemnified under
this Article VI or otherwise.
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Notwithstanding the foregoing, no advance shall be made by the
corporation to an officer of the corporation (except by reason of the fact that
such officer is or was also a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made by the board of directors (i) by a majority vote of the directors
who are not parties to the action, suit or proceeding, or (ii) by a committee
of such directors designated by a majority vote of such directors, even though
less than a quorum, or (iii) if there are no such directors, or if such
directors so direct, by independent legal counsel in a written opinion, that
the facts known to the determining party(ies) at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith
or in a manner that such person did not believe either to be in or not opposed
to the best interests of the corporation.
6.5 NON-EXCLUSIVITY OF RIGHTS
The rights conferred on any person by this By-Law shall not be
exclusive of any other rights which such person may have or hereafter acquire
under any statute, provision of the Certificate of Incorporation, By-Laws,
agreement, vote of stockholders or disinterested directors or otherwise, either
as to action in such person's official capacity or as to action in any other
capacity while holding office. The corporation is specifically authorized to
enter into individual contracts with any or all of its directors, officers,
employees and agents respecting indemnification and advances to the fullest
extent not prohibited by the General Corporation Law of Delaware.
6.6 SURVIVAL OF RIGHTS
The rights conferred on any person by this By-Law shall continue as to
a person who has ceased to be a director, officer, employee or other agent and
shall inure to the benefit of the heirs, executors and administrators of such
person.
6.7 AMENDMENTS
Any repeal or modification of this By-Law shall have prospective
effect only, and shall not affect the rights of any person under this By-Law as
in effect at the time of an alleged action or omission to act giving rise to a
proceeding against such person, if such alleged action or omission occurred
prior to the repeal or modification of this By-Law.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS
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<PAGE> 19
The corporation shall, either at its principal executive office or at
such place or places as designated by the board of directors, keep (i) a record
of its stockholders listing their names and addresses and the number and class
of shares held by each, (ii) a copy of these By-Laws as amended to date, and
(iii) accounting books and other records.
Any stockholder of record, in person or by attorney or other agent,
shall, upon written demand under oath stating the purpose thereof, have the
right during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders and its other books and
records, and to make copies or extracts therefrom. A proper purpose shall mean
a purpose reasonably related to such person's interest as a stockholder. In
every instance where an attorney or other agent is the person who seeks the
right to inspection, a power of attorney or other writing that authorizes the
attorney or other agent to so act on behalf of the stockholder shall accompany
the demand under oath. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
The officer who has charge of the stock ledger of the corporation
shall prepare and make, at least ten (10) days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of such
stockholder. Such list shall be open to the examination of any stockholder, for
any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
7.2 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the chief executive officer, the president,
any vice president, the chief financial officer, the secretary or assistant
secretary of this corporation, or any other person authorized by the board of
directors or the chief executive officer or the president or a vice president,
is authorized to vote, represent, and exercise on behalf of this corporation
all rights incident to any and all shares of any other corporation or
corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE VII
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the stockholders entitled to receive
payment of any dividend or other distribution of allotment of any rights, or
for purposes of determining the stockholders
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<PAGE> 20
entitled to exercise any rights in respect of any other lawful action (other
than action by stockholders by written consent without a meeting), the board of
directors may fix, in advance, a record date, which shall not be more than 60
days before any such action. In that case, only stockholders of record at the
close of business on the date so fixed are entitled to receive the dividend,
distribution or allotment of rights, or to exercise such rights, as the case
may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date so fixed, except as otherwise provided by
law.
If the board of directors does not fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution, or the
60th day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by
resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness
that are issued in the name of or payable to the corporation, and only the
persons so authorized shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED
The officers of the corporation enumerated Section 5.1 of these
By-Laws shall have the authority to execute in the name of the corporation
bonds, contracts, deeds, leases and other written instruments to be executed by
the corporation. In addition, the board of directors, except as otherwise
provided in these By-Laws, may authorize any other officer or officers, or
agent or agents, to enter into any contract or execute any instrument in the
name of and on behalf of the corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the board
of directors or within the agency power of an officer, no officer, agent or
employee shall have any power or authority to bind the corporation by any
contract or engagement, or to pledge its credit or render it liable for any
purpose or for any amount.
8.4 STOCK CERTIFICATES; PARTLY PAID SHARES
The shares of the corporation shall be represented by certificates,
provided that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
its stock shall be uncertificated shares. Any such resolution shall not apply
to shares represented by a certificate until such certificate is surrendered to
the corporation. Notwithstanding the adoption of such a resolution by the board
of directors, any holder of uncertificated shares shall, upon request, be
entitled to have a certificate signed by or in the name of the corporation by
the chairman or vice-chairman of the board of directors or the chief executive
officer, the president or a vice-president, and by the chief financial officer,
the secretary or an assistant secretary of the corporation, representing the
number of shares registered in certificate form. Any or all of the signatures
on the certificate may be a facsimile(s). If any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate has ceased to be such officer, transfer agent or registrar before
such certificate is issued, such certificate may be issued by the corporation
with the same effect as if such person were such officer, transfer agent or
registrar at the date of issue.
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<PAGE> 21
The corporation may issue the whole or any part of its shares as
partly paid and subject to call for the remainder of the consideration to be
paid therefor. Upon the face or back of each stock certificate issued to
represent any such partly paid shares, or upon the books and records of the
corporation in the case of uncertificated partly paid shares, the total amount
of the consideration to be paid therefor and the amount paid thereon shall be
stated. Upon the declaration of any dividend on fully paid shares, the
corporation shall declare a dividend upon partly paid shares of the same class,
but only upon the basis of the percentage of the consideration actually paid
thereon.
8.5 SPECIAL DESIGNATION ON CERTIFICATES
If the corporation is authorized to issue more than one class of stock
or more than one series of any class pursuant to the Certificate of
Incorporation then the powers, designations, preferences, and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights shall be set forth in full or summarized on the face
or back of the certificate that the corporation shall issue to represent such
class or series of stock; provided, however, that, except as otherwise provided
in Section 202 of the General Corporation Law of Delaware, in lieu of the
foregoing requirements there may be set forth on the face or back of such
certificate a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences, and
relative, participation, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights.
8.6 LOST CERTIFICATES
Except as provided in this Section 8.6, no new certificates for shares
shall be issued to replace previously issued certificates unless the latter are
surrendered to the corporation and canceled at the same time. The board of
directors may, if any share certificate or certificate for any other security
is lost, stolen or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the board of directors may require;
the board of directors may require indemnification of the corporation secured
by a bond or other adequate security sufficient to protect the corporation
against any claim that may be made against it, including any expense or
liability, on account of the alleged loss, theft or destruction of the
certificate or the issuance of the replacement certificate.
8.7 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules
of construction, and definitions in the General Corporation Law of Delaware
shall govern the construction of these By-Laws. Without limiting the generality
of this provision, the singular number includes the plural, the plural number
includes the singular, and the term "person" includes both a corporation and a
natural person.
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<PAGE> 22
ARTICLE IX
AMENDMENTS
Subject to Section 6.7, hereof the By-Laws of the corporation may be
adopted, amended or repealed and new By-Laws adopted by the affirmative vote of
stockholders holding a majority of the voting power of stock entitled to vote,
or by the board of directors.
ARTICLE X
DISSOLUTION
If it should be deemed advisable in the judgment of the board of
directors of the corporation that the corporation be dissolved, the board,
after the adoption of a resolution to that effect by a majority of the whole
board at any meeting called for that purpose, shall cause notice to be mailed
to each stockholder entitled to vote thereon of the adoption of the resolution
and of a meeting of stockholders to take action upon the resolution.
At the meeting a vote shall be taken for and against the proposed
dissolution. If a majority of the voting power of the outstanding stock of the
corporation entitled to vote thereon votes for the proposed dissolution, then a
certificate stating that the dissolution has been authorized in accordance with
the provisions of Section 275 of the General Corporation Law of Delaware and
setting forth the names and residences of the directors and officers shall be
executed, acknowledged, and filed and shall become effective in accordance with
Section 103 of the General Corporation Law of Delaware. Upon such certificate's
becoming effective in accordance with Section 103 of the General Corporation
Law of Delaware, the corporation shall be dissolved.
Whenever all the stockholders entitled to vote on a dissolution
consent in writing, either in person or by duly authorized attorney, to a
dissolution, no meeting of directors or stockholders shall be necessary. The
consent shall be filed and shall become effective in accordance with Section
103 of the General Corporation Law of Delaware. Upon such consent's becoming
effective in accordance with Section 103 of the General Corporation Law of
Delaware, the corporation shall be dissolved. If the consent is signed by an
attorney, then the original power of attorney or a photocopy thereof shall b
attached to and filed with the consent. The consent filed with the Secretary of
State shall have attached to it the affidavit of the secretary or some other
officer of the corporation stating that the consent has been signed by or on
behalf of all the stockholders entitled to vote on a dissolution; in addition,
there shall be attached to the consent a certification by the secretary or some
other officer of the corporation setting forth the names and residences of the
directors and officers of the corporation.
ARTICLE XI
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<PAGE> 23
CUSTODIAN
11.1 APPOINTMENT OF A CUSTODIAN IN CERTAIN CASES
The Court of Chancery, upon application of any stockholder, may
appoint one or more persons to be custodians and, if the corporation is
insolvent, to be receivers, of and for the corporation when:
(i) at any meeting held for the election of directors the
stockholders are so divided that they have failed to elect successors to
directors whose terms have expired or would have expired upon qualification of
their successors; or
(ii) the business of the corporation is suffering or is
threatened with irreparable injury because the directors are so divided
respecting the management of the affairs of the corporation that the required
vote for action by the board of directors cannot be obtained and the
stockholders are unable to terminate this division; or
(iii) the corporation has abandoned its business and has
failed within a reasonable time to take steps to dissolve, liquidate or
distribute its assets.
11.2 DUTIES OF CUSTODIAN
The custodian shall have all the powers and title of a receiver
appointed under Section 291 of the General Corporation Law of Delaware, but the
authority of the custodian shall be to continue the business of the corporation
and not to liquidate its affairs and distribute its assets, except when the
Court of Chancery otherwise orders and except in cases arising under Sections
226(a)(3) or 352(a)(2) of the General Corporation Law of Delaware.
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<PAGE> 1
EXHIBIT 4.2
COMMON STOCK COMMON STOCK
PAR VALUE $.001 PAR VALUE $.001
- ------------------------- -------------------------
CERTIFICATE NUMBER NUMBER OF SHARES
[QUOTESMITH.COM LOGO APPEARS HERE]
INCORPORATED UNDER THE LAWS
OF THE STATE OF DELAWARE CUSIP NUMBER
------------------------
SEE REVERSE FOR CERTAIN DEFINITIONS
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK OF Quotesmith.com, Inc.
transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed. This certificate and the shares represented hereby are issued and
shall be subject to all of the provisions of the Certificate of Incorporation
of the Corporation and its By-Laws, as each shall be amended or restated from
time to time (copies of which are on file at the office of the Corporation), to
all of which the holder by acceptance hereof assents. This certificate is not
valid until countersigned by a Transfer Agent and registered by a Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated: /s/ Robert S. Bland
-------------------
CHAIRMAN
HARRIS TRUST AND SAVINGS BANK
TRANSFER AGENT AND REGISTRAR
[SEAL APPEARS HERE]
BY:
--------------------------
AUTHORIZED SIGNATURE
<PAGE> 2
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, THE POWERS, DESIGNATIONS, REFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF AND
THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR
RIGHTS.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
- ----------------------------------------------------------------------------------------------
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - Custodian
TEN ENT - as tenants by the entireties (cust) (minor)
JT TEN - as joint tenants with right of under the Uniform Gifts
survivorship and not as tenants in to Minors Act
common (State)
- ----------------------------------------------------------------------------------------------
</TABLE>
Additional abbreviations may also be used though not in the above
list.
For value received, ________________________ hereby sell, assign and
transfer unto
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ----------------------------------------
- ----------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING POSTAL ZIP CODE
OF ASSIGNEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
__________________________________________________________________________Shares
stock represented by the within Certificate, and do hereby irrevocably
constitute and appoint
_________________________________ Attorney to transfer the said stock on the
books of the within named Corporation with full power of substitution in the
premises.
Dated
----------------------------
X
---------------------------------------
X
---------------------------------------
This certificate also evidences and entitles the holder hereof to certain
rights as set forth in the Rights Agreement between Quotesmith.com, Inc. (the
"Company") and Harris Trust and Savings Bank dated as of July , 1999 (the
"Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of the
Company. Under certain circumstances, as set forth in the Rights Agreement,
such Rights will be evidenced by separate certificates and will no longer be
evidenced by this certificate. The Company will mail to the holder of this
certificate a copy of the Rights Agreement, as in effect on the date of
mailing, without charge promptly after receipt of a written request therefor.
Under certain circumstances set forth in the Rights Agreement, Rights issued
to, or held by, any Person who is, was or becomes an Acquiring Person or an
Affiliate or Associate thereof (as such terms are defined in the Rights
Agreement), whether currently held by or on behalf of such Person or by any
subsequent holder, shall become null and void.
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME(S) AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed
By
------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY
AN ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM, PURSUANT TO S.E.C. RULE 17Ad-15
<PAGE> 1
EXHIBIT 10.1
QUOTESMITH.COM INC.
1997 STOCK OPTION PLAN
(AS AMENDED AND RESTATED MARCH 29, 1999)
1. Establishment and Purpose.
(a) Establishment. The Quotesmith Corporation 1997 Stock Option Plan,
initially adopted and effective on _____, 1997, is amended and restated in its
entirety hereby and is renamed the Quotesmith.com Inc.1997 Stock Option Plan
(As Amended and Restated March 29, 1999). Options granted under this Plan may
be "incentive stock options" intended to satisfy the requirements of Section
422 of the Code, or "nonqualified options."
(b) Purpose. The purposes of this Plan are to attract and retain the
best available personnel for positions of substantial responsibility, to
provide additional incentive to Employees, Directors and Consultants and to
promote the success of the Company's business. Options granted under the Plan
may be Incentive Stock Options or Nonqualified Stock Options, as determined by
the Administrator at the time of grant.
2. Definitions. As used herein, the following definitions shall apply:
(a) "Administrator" means the Board of Directors of the Company and/or
Committee appointed by the Board pursuant to Section 4 of the Plan.
(b) "Affiliate" means a parent or subsidiary corporation as defined in
the applicable provisions (currently Section 424(e) and (f), respectively) of
the Code.
(c) "Agreement" means the written agreement between the Company and an
Optionee evidencing the grant of an Option and setting forth the terms and
conditions thereof.
(d) "Applicable Laws" means the requirements relating to the
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any other country or jurisdiction where Options are granted under the Plan.
(e) "Board" means the Board of Directors of the Company.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
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<PAGE> 2
(g) "Committee" means a committee appointed by the Board to administer
the Plan in accordance with Section 4 hereof, and to perform the functions set
forth herein.
(h) "Common Stock" means the Common Stock of the Company.
(i) "Company" means Quotesmith.com Incorporated, a Delaware
corporation.
(j) "Consultant" means any person who is engaged by the Company or any
Affiliate to render consulting or advisory services and is compensated for such
services.
(k) "Director" means a member of the Board of Directors of the Company
or any of its Affiliates.
(l) "Disability" means total and permanent disability as defined in
Section 22(e)(3) of the Code.
(m) "Employee" means any person, including Officers and Directors,
employed by the Company or any Affiliate designated by the Administrator as
eligible to receive Options subject to the conditions set forth herein. For
purposes hereof, "Employee" shall also include individuals who have not
commenced employment with the Company but have received an offer of employment
with the Company. A person shall not cease to be an Employee in the case of (i)
any leave approved by the Company or (ii) transfers between locations of the
Company or between the Company and its Affiliates. For purposes of ISOs, no
such leave may exceed ninety (90) days, unless reemployment upon expiration of
such leave is guaranteed by statute or contract. reemployment upon expiration
of a leave of absence as provided by the Company is not so guaranteed, on the
181st day of such leave any ISO held by the Optionee shall cease to be treated
as an ISO and shall be treated for tax purposes as a NQO. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(n) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(o) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(i) if the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the
National Market or SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or
the closing bid, if no sales were reported) as quoted on such exchange
or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other
source as the Administrator deems reliable;
2
<PAGE> 3
(ii) if the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market
Value shall be the mean between the high bid and low asked prices for
the Common Stock on the last market trading day prior to the day of
determination; or
(iii) in the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith
by the Administrator.
(p) "Incentive Stock Option" or "ISO" means an Option satisfying the
requirements of Section 422 of the Code and designated by the Administrator as
an Incentive Stock Option.
(q) "Nonqualified Stock Option" or "NQO" means an Option that is not
an Incentive Stock Option.
(r) "Officer" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "Option" means a stock option granted pursuant to the Plan.
(t) "Option Agreement" means an agreement between the Company and an
Optionee evidencing the terms and conditions of an individual Option grant. The
Option Agreement is subject to the terms and conditions of the Plan.
(u) "Optioned Stock" means the Common Stock subject to an Option.
(v) "Optionee" means a person to whom an Option has been granted under
the Plan.
(w) "Parent" means a "parent corporation" within the meaning of
Section 424(e) of the Code, whether now or hereafter existing.
(x) "Plan" means the Quotesmith.com Inc. 1997 Stock Option Plan, as
amended and restated hereby.
(y) "Plan Year" shall be a calendar year.
(z) "Section 16(b)" means Section 16(b) of the Exchange Act.
(aa) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
3
<PAGE> 4
(bb) "Subsidiary" means a "subsidiary corporation" within the meaning
of Section 424(f) of the Code, whether now or hereafter existing.
(cc) "Ten-Percent Stockholder" means an Employee, who, at the time an
Incentive Stock Option is to be granted to him or her, owns (within the meaning
of Section 422(b) (6) of the Code) stock possessing more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company, or
any Affiliate.
3. Stock Subject to the Plan. Subject to Section 11 of the Plan, the
maximum aggregate number of Shares which may be subject to options and sold
under the Plan is One Million Five Hundred Thousand (1,500,000) Shares.
If an Option expires, is canceled, surrendered (without exercise)
or otherwise become unexercisable for any reason, the Shares allocable to the
canceled, surrendered or otherwise terminated Option may again be the subject
of Options granted hereunder (unless the Plan has terminated). However, Shares
that have actually been issued under the Plan, upon exercise of an Option,
shall not be returned to the Plan and shall not become available for future
distribution under the Plan. Shares that are retained by the Company upon
exercise of an Option in order to satisfy the exercise price for such Option or
any withholding taxes due with respect to such exercise shall be treated as not
issued and shall continue to be available under the Plan.
4. Administration.
(a) Administrator. The Plan shall be administered by the Board
and/or by a duly appointed Committee of the Board having such powers
as shall be specified by the Board. A majority of a quorum of the
Board or Committee, as the case may be, may authorize any action.
(b) Compliance with Section 162(m) of the Code. In the event that
the Company is a "publicly held corporation" as defined in paragraph
(2) of section 162(m) of the Code, as amended, and the regulations
promulgated thereunder ("Section 162(m)"), the Company may establish a
committee of outside directors meeting the requirements of Section
162(m) to approve the grant of Options which might reasonably be
anticipated to result in the payment of employee remuneration that
would otherwise exceed the limit on employee remuneration deductible
for income tax purposes pursuant to Section 162(m).
(c) Powers of the Administrator. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by
the Board to such Committee, and subject to the approval of any
relevant authorities, the Administrator shall have the authority in
its discretion:
(i) to determine the Fair Market Value;
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<PAGE> 5
(ii) to select Employees, Directors and/or Consultants to whom
Options may from time to time be granted hereunder;
(iii) to determine the terms and conditions of any Option
granted hereunder. Such terms and conditions include, without
limitation, the exercise price, the time when Options may be exercised,
any vesting acceleration or waiver of forfeiture restrictions, and any
restriction or limitation regarding any Option or the Common Stock
relating thereto, based in each case on such factors as the
Administrator, in its sole discretion, shall determine;
(iv) to determine the number of shares of Common Stock to be
covered by each such Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Option granted hereunder;
(vii) to determine whether and under what circumstances an
Option may be settled in cash under Section 9(e) instead of Common
Stock;
(viii) in order to fulfill the purposes of the Plan and without
amending the Plan, to modify grants of Options to participants who are
foreign nationals or employed outside of the United States in order to
recognize differences in local law, tax policies customs;
(ix) to allow Optionees to satisfy withholding tax obligations
as contemplated by Section 10 hereof;
(x) to construe and interpret the terms of the Plan and awards
granted pursuant to the Plan and to establish, amend and revoke rules
and regulations for the administration of the Plan, including, but
without limitation, correcting any defect or supplying any omission,
or reconciling any inconsistency in the Plan or in any Agreement, in
the manner and to the extent it shall deem necessary or advisable to
make the Plan fully effective;
(xi) to determine the duration and purposes for leaves of
absence which may be granted to an Optionee on an individual basis
without constituting a termination of employment or service for
purposes of the Plan;
(xii) to exercise its discretion with respect to the powers and
rights granted to it as set forth in the Plan; and
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<PAGE> 6
(xiii) generally, to exercise such powers and to perform such
acts as are deemed necessary or advisable to promote the best
interests of the Company with respect to the Plan.
(d) Effect of Administrator's Decision. All decisions,
determinations and interpretations of the Administrator shall be final, binding
and conclusive upon the Company and its Affiliates, the Optionees and all other
persons having any interest therein.
(e) Indemnification. The Administrator shall not be liable for any
action, failure to act, determination or interpretation made in good faith with
respect to this Plan or any transaction hereunder, except for liability arising
from his or her own willful misfeasance, gross negligence or reckless disregard
of his or her duties. The Company hereby agrees to indemnity the Administrator
for all costs and expenses and, to the extent permitted by applicable law, any
liability incurred in connection with defending against, responding to,
negotiation for the settlement of or otherwise dealing with any claim, cause of
action or dispute of any kind arising in connection with any actions in
administering this Plan or in authorizing or denying authorization to any
transaction hereunder.
5. Eligibility.
(a) Nonqualified Stock Options may be granted to Employees,
Directors or Consultants. Incentive Stock Options may be granted only to
Employees.
(b) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonqualified Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Affiliate) exceeds $100,000, such Options
shall be treated as Nonqualified Stock Options. For purposes of this Section
5(b), Incentive Stock Options shall be taken into account in the order in which
they were granted. The Fair Market Value of the Shares shall be determined as
of the time the Option with respect to such Shares is granted.
(c) The aggregate number of Options that may be granted to any
Optionee under the Plan shall not exceed fifty percent (50%) of the aggregate
number of Shares referred to in Section 3 hereof.
(d) Neither the Plan nor any Option shall not confer upon any
Optionee any right with respect to continuing the Optionee's relationship as an
Employee, Director or Consultant with the Company, nor shall it interfere in
any way with his or her right or the Company's right to terminate such
relationship at any time, with or without cause.
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<PAGE> 7
6. Term of Plan. The Plan shall become effective upon its adoption by
the Board. It shall continue in effect for a term of ten (10) years unless
sooner terminated under Section 14 of the Plan.
7. Term of Option. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than
ten (10) years from the date it is granted (five (5) years in the case of an
Incentive Stock Option granted to a Ten-Percent Stockholder), or such shorter
term as the Administrator may, subsequent to the granting of any Option,
provide.
8. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for the Shares to
be issued pursuant to exercise of an Option shall be such price as is
determined by the Administrator, but shall be subject to the
following:
(i) In the case of an Incentive Stock Option
(aa) granted to an Employee who is a Ten-Percent
Stockholder, the exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(bb) granted to any other Employee, the per Share
exercise price shall be no less than 100% of the Fair Market
Value per Share on the date of grant.
(ii) In the case of a Nonqualified Stock Option granted to an
Employee, Director or Consultant, the per Share exercise price
shall be no less than [85%] of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price other than as required above
pursuant to a merger or other corporate transaction.
(b) Payment of Option Price. The consideration to be paid for the
Shares to be issued upon exercise of an Option, including the method
of payment, shall be determined by the Administrator (and in the case
of an ISO, shall be determined at the time of grant). Such
consideration may consist of: (i) cash, by check, or cash equivalent,
(ii) promissory note, (iii) by tender to the Company of other Shares
owned by the Optionee which (A) in the case of Shares acquired upon
exercise of an Option have been owned by the Optionee for more than
six months on the date of surrender, and (B) have a Fair Market Value,
as determined by the Administrator (but without regard to any
restrictions on transferability applicable to such stock by reason of
federal or state securities laws or agreements with an underwriter for
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<PAGE> 8
the Company), of not less than the option price of the Shares as to
which such Option shall be exercised (provided such tender of stock
would not constitute a violation of the provisions of any law,
regulation and/or agreement restricting the redemption of the Common
Stock), (iv) consideration received by the Company under a cashless
exercise program, (v) authorization for the Company to retain from the
total number of Shares as to which the Option is exercised that number
of Shares having a Fair Market Value on the date of exercise equal to
the exercise price for the total number of Shares as to which the
Option is exercised, or (vi) such other consideration and method of
payment for the issuance of Shares that may be permitted under
Applicable Laws.
The Administrator shall have the authority to permit or require
the Optionee to secure any promissory note used to exercise an Option
with the Shares acquired on exercise of the Option and/or with other
collateral acceptable to the Company. In making its determination as
to the type of consideration to accept, the Administrator shall
consider if acceptance of such consideration may be reasonably
expected to benefit the Company. The Administrator may at any time or
from time to time grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the option
price and/or which otherwise restrict one or more forms of
consideration.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such
conditions as determined by the Administrator, including performance
criteria with respect to the Company and/or the Optionee, and as shall
be permissible under the terms of the Plan. An Option may not be
exercised for a fraction of a Share.
An Option shall be deemed to be exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance
with the Option Agreement) from the person entitled to exercise the
Option and (ii) full payment for the Shares with respect to which the
Option is exercised. Full payment may, as authorized by the
Administrator, consist of any consideration and method of payment
authorized by the Administrator and permitted by the Option Agreement
and the Plan. Shares issued upon exercise of an Option shall be issued
in the name of the Optionee or, if requested by the Optionee, in the
name of the Optionee and his or her spouse. Until the Shares are
issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no
right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue
(or cause to be issued) such stock certificate promptly upon exercise
of the Option. No adjustment will be made for a dividend or other
right for which the record date is prior to the date the stock
certificate is issued, except as provided in Section 11 of the Plan.
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<PAGE> 9
Exercise of an Option in any manner shall result in a decrease
in the number of Shares thereafter available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to
which the Option is exercised.
(b) Termination of Relationship as Employee, Director or
Consultant. If an Optionee ceases to be an Employee, Director or
Consultant, as the case may be, such Optionee may exercise his or her
Option within such period of time as is specified in the Option
Agreement to the extent that the Option is vested on the date of
termination (but in no event later than the expiration of the term of
the Option as set forth in the Option Agreement). In the absence of a
specified time in the Option Agreement, the Option shall remain
exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his
or her entire Option, the Shares covered by the unvested portion of
the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified
by the Administrator, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan. No termination shall
be deemed to occur if (i) the Optionee is a Consultant or Director who
becomes an Employee within the time specified herein; or (ii) the
Optionee is an Employee who becomes a Consultant or Director who is
not also an employee, within the time specified herein.
(c) Disability of Optionee. If an Optionee ceases to be an
Employee, Director or Consultant as a result of Optionee's Disability,
the Optionee may within six (6) months from the date of such
termination (but in no event later than the expiration date of the
term of such Option as set forth in the Option Agreement), exercise an
Option to the extent otherwise entitled to exercise it at the date of
such termination. To the extent that Optionee is not entitled to
exercise the Option on the date of termination, or if Optionee does
not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate, and the Shares covered
by such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while an Employee,
Director or Consultant, the Option may be exercised at any time within
six (6) months following the date of death (but in no event later than
the expiration date of the term of such Option as set forth in the
Option Agreement), to the extent the Optionee was vested on the date
of death. If, at the time of death, Optionee is not vested as to the
entire Option, the Shares covered by the unvested portion of the
Option shall revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the
person(s) entitled to exercise the Option under the Optionee's will or
under the laws of descent and distribution. If the Option is not so
exercised within the time specified herein, the Option shall
terminate, and the Shares covered by such Option shall revert to the
Plan.
(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously
granted, based on such terms and conditions as the Administrator shall
establish and communicate to the Optionee at the time that such offer
is made.
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<PAGE> 10
10. Withholding to Satisfy Tax Obligations.
(a) Permitted Methods. At the discretion of the Administrator,
Optionees may satisfy withholding obligations as provided in this
Section 10. When an Optionee incurs tax liability in connection with
an Option, which tax liability is subject to tax withholding under
applicable tax laws, and the Optionee is obligated to pay the Company
an amount required to be withheld under applicable tax laws, the
Optionee may satisfy the withholding tax obligation by one or some
combination of the following methods: (i) by cash payment; (ii) out of
Optionee's current compensation; (iii) if permitted by the
Administrator, in its discretion, by surrendering to the Company
Shares that (A) in the case of Shares previously acquired from the
Company, have been owned by the Optionee for more than six months on
the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to or less than Optionee's marginal tax rate times the
ordinary income recognized; or (iv) by electing to have the Company
withhold from the Shares to be issued upon exercise of the Option, if
any, that number of Shares having a Fair Market Value equal to the
amount of withholding due. The Fair Market Value of the Shares to be
withheld shall be determined on the date that the amount of tax to be
withheld is to be determined.
(b) Procedures for Stock Withholding. All elections by an Optionee
to have Shares withheld to satisfy tax withholding obligations shall
be made in writing in a form acceptable to the Administrator and shall
be subject to the following restrictions: (i) the election must be
made on or prior to the applicable tax withholding date; (ii) once
made, the election shall be irrevocable as to the particular Shares of
the Option as to which the election is made; (iii) all elections shall
be subject to the consent or disapproval of the Administrator; (iv) if
the Optionee is an Officer, Director or greater than Ten-Percent
Stockholder within the meaning of Rule 16a-2 under the Exchange Act
("Reporting Person"), the election must comply with the applicable
provisions of Rule 16b-3 and shall be subject to such additional
conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions.
11. Adjustments upon Changes in Capitalization, Merger or Certain
Other Transactions.
(a) Changes in Capitalization. Subject to any required action
by the shareholders of the Company, the number and class of shares of
Common Stock with respect to which Options may be granted under the
Plan, the number and class of Shares of Common Stock which are subject
to outstanding Options granted under the Plan, and the purchase price
per Share of Common Stock , if applicable, shall be proportionately
adjusted for any increase or decrease in the number of issued Shares
of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock,
or any other increase or decrease in the number of issued Shares of
Common Stock effected without receipt of consideration by the Company.
The conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration."
Any such adjustment in the Shares subject to outstanding Incentive
Stock
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<PAGE> 11
Options (including any adjustments in the purchase price) shall be
made in such manner as not to constitute a modification as defined by
Section 424(h)(3) of the Code and only to the extent otherwise
permitted by Sections 422 and 424 of the Code. Adjustments shall be
made by the Administrator, whose determination in that respect shall
be final, binding and conclusive. If, by reason of a change in
Capitalization, an Optionee shall be entitled to exercise an Option
with respect to new, additional or different shares of stock, such
new, additional or different shares shall thereupon be subject to all
of the conditions which were applicable to the Shares subject to the
Option, as the case may be, prior to such Change in Capitalization.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall
notify each Optionee as soon as practicable prior to the effective
date of such proposed action. The Administrator in its discretion may
provide for an Optionee to have the right to exercise his or her
Option until fifteen (15) days prior to such transaction as to all of
the Optioned Stock covered thereby, including Shares as to which the
Option would not otherwise be exercisable. To the extent it has not
been previously exercised, an Option will terminate immediately prior
to the consummation of such proposed action.
(c) Merger or Sale of Assets. If the Company is to be consolidated
with or acquired by another entity in a merger or other reorganization
in which the holders of the outstanding voting stock of the Company
immediately preceding the consummation of such event, shall,
immediately following such event, hold, as a group, less than a
majority of the voting securities of the surviving or successor
entity, or in the event of a sale of all or substantially all of the
Company's assets or otherwise (each, a "Change-of-Control"), then all
outstanding Options, whether or not then vested or exercisable, shall
be deemed to be vested and exercisable immediately prior to the
Change-of-Control.
(d) Certain Distributions. In the event of any distribution to the
Company's shareholders of securities of any other entity or other
assets (other than dividends payable in cash or stock of the Company)
without receipt of consideration by the Company, the Administrator
may, in its discretion, appropriately adjust the price per share of
Common Stock covered by each outstanding Option to reflect the effect
of such distribution.
12. Non-Transferability of Options. Except as otherwise provided in
this Section, Options may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised or purchased during the lifetime
of the Optionee, only by the Optionee. Notwithstanding the foregoing, the
Administrator may, in its discretion, authorize all or a portion of the Options
to be granted to an Optionee to be transferred by such Optionee to (i) the
spouse, children or grandchildren of such Optionee ("Immediate Family
Members"), (ii) a trust of trusts for the benefit of an Immediate Family
Member, or (iii) a partnership in which Immediate Family Members are the only
partners, provided, that (x) there is no consideration for such transfer, (y)
the Option Agreement expressly provides for
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<PAGE> 12
the transfer of the Options in accordance with this Section, and (z) subsequent
transfers of such Options are prohibited except by or in accordance with the
laws of descent or distribution.
13. Time of Granting Options. The date of grant of an Option shall,
for all purposes, be the date on which the Administrator makes the
determination granting such Option, or such other date as is determined by the
Administrator. Notice of the determination shall be given to each Employee,
Director or Consultant to whom an Option is so granted within a reasonable time
after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board or the Administrator may
at any time amend, alter, suspend or terminate the Plan.
(b) Shareholder Approval. To the extent necessary and desirable to
comply with Applicable Laws, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree
as required.
(c) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and
the Administrator, which agreement must be in writing and signed by
the Optionee and the Company. Termination of the Plan shall not affect
the Administrator's ability to exercise the powers granted to it
hereunder with respect to Options granted under the Plan prior to the
date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply
with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the Exchange Act, the rules
and regulations promulgated thereunder, and the requirements of any
Stock Exchange.
(b) Investment Representations. As a condition to the exercise of
an Option, the Administrator may require the person exercising such
Option to represent and warrant to the Company in writing at the time
of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute
such Shares, and will not be sold or transferred other than pursuant
to an effective registration thereof under the Exchange Act or
pursuant to an exemption applicable under the Securities Act of 1933,
as amended, or the rules and regulations promulgated thereunder. The
certificates evidencing any such Shares shall be appropriately
legended to reflect their status as restricted securities.
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<PAGE> 13
16. Regulations and Other Approvals; Governing Law.
(a) This Plan and the rights of all persons claiming hereunder
shall be construed and determined in accordance with the laws of the
State of Illinois.
(b) The obligation of the Company to sell or deliver Shares with
respect to Options granted under the Plan shall be subject to all
Applicable Laws, and the obtaining of all such approvals by
governmental agencies as may be deemed necessary or appropriate by the
Administrator.
(c) The inability of the Company to obtain authority from any
regulatory body having jurisdiction, which authority is deemed by the
Company's counsel to be necessary to the lawful issuance and sale of
any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such
requisite authority shall not have been obtained.
(d) The Plan is intended to comply with Rule 16b-3 promulgated
under the Exchange Act and the Administrator shall interpret and
administer the provisions of the Plan or any Agreement in a manner
consistent therewith. Any provisions inconsistent with such Rule shall
be inoperative and shall not affect the validity of the Plan.
(e) The Administrator may make such changes as may be necessary or
appropriate to comply with the rules and regulations of any government
authority, or to obtain for Employees granted Incentive Stock Options
the tax benefits under the applicable provisions of the Code and
regulations promulgated thereunder.
17. Reservation of Shares. The Company, during the term of this Plan,
shall at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
18. Agreements. Options shall be evidenced by written agreements in
such form as the Administrator shall approve from time to time.
19. Shareholder Approval. The Plan, as amended and restated, shall be
subject to approval by the shareholders of the Company within twelve (12)
months after the date the Plan is so amended and restated. Such shareholder
approval shall be obtained in the degree and manner required under Applicable
Law. All Options issued under the Plan shall become void in the event such
approval is not obtained.
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<PAGE> 1
EXHIBIT 10.2
QUOTESMITH.COM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose.
The purpose of this Plan is to provide Employees of the Company and its
subsidiaries with an opportunity to acquire a proprietary interest in the
Company through the purchase of shares of Common Stock of the Company and
thereby provide Employees with an additional incentive to contribute to the
prosperity of the Company. It is the intention of the Company that the Plan
qualify as an "Employee Stock Purchase Plan" under Section 423 of the Code. The
provisions of the Plan shall, accordingly, be construed so as to extend and
limit participation in a manner consistent with the requirements of Section 423
of the Code.
2. Definitions.
"Administrator" means the Board of Directors of the Company and/or
Committee appointed by the Board.
"Affiliate" shall mean a parent or subsidiary corporation as defined in
the applicable provisions (currently Section 424(e) and (f),
respectively) of the Code.
"Applicable Laws" means the requirements relating to the administration
of stock purchase plans under U.S. state corporate laws, U.S. federal
and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable
laws of any other country or jurisdiction where Shares are issued under
the Plan.
"Board" shall mean the Board of Directors of the Company.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the Committee appointed by the Board to
administer the Plan.
"Common Stock" shall mean the Common Stock of the Company.
"Company" shall mean Quotesmith.com, Inc., a Delaware corporation.
"Employee" shall mean any individual who is an employee of the Company,
or of any Affiliate designated by the Administrator as eligible to
participate in the Plan, for purposes of tax withholding under the Code
whose customary employment with the Company is at least twenty (20)
hours per week and more than five (5) months in any calendar year. For
purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave
of absence approved
<PAGE> 2
by the Company or Affiliate. Where the period of leave exceeds ninety
(90) days and the individual's right to reemployment is not guaranteed
by statute or by contract, the employment relationship will be deemed
to have terminated on the ninety first (91) day of such leave.
"Five-Percent Stockholder" shall mean an Employee who owns (or is
deemed to own pursuant to Section 424(d) of the Code, or would own upon
the exercise of any option extended hereunder or any other option,
whether qualified or nonqualified, held by such employee) shares of
capital stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of stock of the Company,
or any subsidiary of the Company.
"Offering Date" shall mean the first business day of each Purchase
Period.
"Fair Market Value" means, as of any date, the value of Common Stock
determined as follows:
(i) if the Common Stock is listed on any established stock
exchange or a national market system, including without
limitation the National Market or SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the
closing sales price for such stock (or the closing bid, if
no sales were reported) as quoted on such exchange or
system for the last market trading day prior to the time
of determination, as reported in The Wall Street Journal
or such other source as the Administrator deems reliable;
(ii) if the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its
Fair Market Value shall be the mean between the high bid
and low asked prices for the Common Stock on the last
market trading day prior to the day of determination; or
(iii) in the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined
in good faith by the Administrator.
"Participant" shall mean an Employee who is a participant in the Plan.
"Pay" shall mean an Employee's total compensation paid by the Company,
exclusive of any payment in cash or kind under any stock option plan,
deferred compensation plan, or other employee benefit plan or program
of the Company.
"Plan" shall mean this Quotesmith.com, Inc. 1999 Employee Stock
Purchase Plan.
"Plan Year" shall mean a calendar year.
"Purchase Date" shall mean the last business day of each Purchase
Period.
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<PAGE> 3
"Purchase Period" shall mean a six-month period that commences on the
Offering Date and ends on the Purchase Date. The initial period shall
commence on the date the Company's Registration Statement respecting
its public offering is declared effective by the Securities and
Exchange Commission and ending on December 31, 1999, and subsequent
six-month periods thereafter commencing on January 1, 2000, during
which options granted pursuant to the Plan may be exercised.
"Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 8 of the Plan.
"Shareholder" shall mean a record holder of shares entitled to vote
shares of Common Stock.
"Subsidiary" shall mean a subsidiary corporation of the Company within
the meaning of Section 424(f) of the Code, whether now or hereafter
existing.
3. Administration.
The Board shall appoint an Administrator who will serve for such period
of time as the Board may specify and who may be removed by the Board at any
time. The Administrator will have the authority and responsibility for the
day-to-day administration of the Plan, the authority and responsibility
specifically provided in this Plan and any additional duties, responsibility and
authority delegated by the Board. The Administrator may delegate to one or more
individuals the day-to-day administration of the Plan. The Administrator shall
have full power and authority to promulgate any rules and regulations which it
deems necessary for the proper administration of the Plan, to interpret the
provisions and supervise the administration of the Plan, to make factual
determinations relevant to Plan entitlements, and to take all action in
connection with administration of the Plan as it deems necessary or advisable,
consistent with the delegation from the Board, provided, however, the
administration of the Plan shall be consistent with Rule 16b-3 ("Rule 16b-3")
under the Securities Exchange Act of 1934, The administration, interpretation or
application of the Plan by the Administrator shall be final and binding upon all
Participants. The Company shall pay all expenses incurred in the administration
of the Plan. No Board or Committee member shall be liable for any action or
determination made in good faith with respect to the Plan or any option granted
thereunder.
4. Eligibility.
Any Employee employed by either the Company, or by any Affiliate
designated by the Administrator as eligible to participate in the Plan, on a
given Offering Date shall be eligible to participate in the Plan with respect to
the Purchase Period commencing on such Offering Date. Any provisions of the Plan
to the contrary notwithstanding, no Employee shall be granted an option under
the Plan (i) if such Employee is a Five Percent Stockholder, or (ii) if an
Employee who receives Pay paid by the Company or by an Affiliate equal to more
than $125,000 for any calendar year and who is a "highly compensated employee"
within the meaning of Section 414(q) of the Code.
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<PAGE> 4
5. Participation and Withdrawal.
(a) Payroll Deduction Authorization and Plan Enrollment. An eligible
Employee may become a Participant by completing and filing, on a
date prescribed by the Administrator prior to an applicable
Offering Date, a payroll deduction authorization and Plan
enrollment form provided by the Company. Once properly made, an
eligible Employee's election to participate shall be
automatically renewed for each subsequent Offering Period,
subject to any termination or withdrawal as provided in Section
5(c). Payroll deductions for a Participant shall commence on the
first payroll following the Offering Date and shall end on the
last payroll in Purchase Period to which such authorization is
applicable, unless sooner terminated by the Participant as
provided in Section 5(c). An eligible Employee may authorize
payroll deductions at the rate of any whole percentage of the
Employee's Pay, in an amount not exceeding ten percent (10%) of
Pay received by Employee on each payday during the Purchase
Period, and the aggregate of such payroll deductions during the
Purchase Period shall not exceed ten percent (10%) of the
Employee's Pay during the Purchase Period. All payroll
deductions made for a Participant shall be credited to his
account under the Plan and will be withheld in whole percentages
only. A Participant may not make any additional payments into
such account.
(b) Modification of Payroll Deduction. A Participant may decrease
his or her rate of payroll deductions at any time in accordance
with procedures prescribed by the Administrator. A Participant
may increase his or her rate of payroll deductions only
effective on the first payroll date following the next Purchase
Date by filing a new payroll deduction authorization and Plan
enrollment form.
(c) Discontinuance of Participation. A Participant may discontinue
participation in the Plan at any time during a Purchase Period
by completing and filing a new payroll deduction authorization
and Plan enrollment form with the Company.
If a Participant discontinues participation during a Purchase
Period, his or her accumulated payroll deductions will remain in
the Plan for purchase of shares as specified in Section 7 on the
following Purchase Date, but the Participant will not again
participate until he or she re-enrolls in the Plan.
Alternatively, participants may request a cash distribution of
monies accumulated but not yet distributed by following
procedures specified by the Administrator. The Administrator may
(1) establish rules limiting the frequency with which
Participants may discontinue and resume payroll deductions under
the Plan and may impose a waiting period on Participants wishing
to resume payroll deductions following discontinuance, and (2)
change the rules regarding discontinuance of participation or
changes in participation in the Plan.
In the event any Participant terminates employment with the
Company for any reason (including death) prior to the expiration
of a Purchase Period, the Participant's participation in the
Plan shall terminate and all accumulated payroll
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<PAGE> 5
deductions credited to the Participant's account shall be paid
to the Participant or the Participant's estate without interest
(except where required by local law).
(d) Failure to Follow Procedures. If a Participant has not followed
procedures prescribed by the Administrator to change the rate of
payroll deductions or to discontinue the payroll deductions, the
rate of payroll deductions shall continue at the originally
elected rate throughout the Purchase Period and future Purchase
Periods (or any lower maximum rate then in effect).
(e) Tax Withholding. At the time the option is exercised, or at the
time the Company's Common Stock issued under the Plan is
disposed of, the Participant must make adequate provision for
the Company's federal, state, or other tax withholding
obligations, if any, which arise upon the exercise of the option
or the disposition of the Common Stock. At any time, the Company
may, but will not be obligated to, withhold from the
Participant's Pay the amount necessary for the Company to meet
applicable withholding obligations, including any withholding
required to make available to the Company any tax deductions or
benefits attributable to sale or early disposition of Common
Stock by the Employee.
6. Offering.
(a) Maximum Number of Shares. The maximum number of Shares that may
be sold under the Plan is Two Hundred Fifty Thousand (250,000),
subject to adjustment upon changes in capitalization of the
Company as provided in Section 9. Shares sold under the Plan may
be either authorized and unissued Shares or issued Shares
heretofore or hereafter acquired and held as treasury Shares, as
the Administrator may from time to time determine. If on a given
Purchase Date the number of shares with respect to which options
are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of
the shares remaining available for purchase in as uniform a
manner as shall be practicable and as it shall determine to be
equitable.
(b) Purchase Periods. The Plan will operate with successive
semi-annual Purchase Periods after the initial Purchase Period
with a new Purchase Period commencing on the first business day
of July and January of each year, or on such other date as the
Administrator shall determine, and continuing thereafter until
terminated in accordance with Sections 12 or 13 hereof. The
Administrator shall have the power to change the duration of the
Purchase Periods with respect to future offerings without
shareholder approval if such change is announced at least
fifteen (15) days prior to the scheduled beginning of the first
Purchase Period to be affected.
(c) Option to Purchase. With respect to each Purchase Period, each
eligible Employee who has elected to participate as provided in
Section 5(a) shall be granted an option to purchase the number
of shares of Common Stock which may be purchased with the
payroll deductions accumulated in an account maintained on
behalf of such Employee during each Purchase Period at the
purchase price specified in
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subparagraph (d) below, subject to the limitation contained in
this subparagraph (c). No Participant shall have the right to
purchase more than an aggregate of $25,000 of Shares under the
Plan and any other employee stock purchase plan of the Company
described in Section 423 of the Code, in any calendar year,
based upon the Fair Market Value per Share of such Common Stock
(determined at the time such option is granted). The foregoing
sentence shall be interpreted so as to comply with Code Section
423(b)(8).
(d) Option Price. The option price under each option shall be the
lower of: (i) a percentage (not less than eighty-five percent
(85%)) established by the Administrator ("Designated
Percentage") of the Fair Market Value of the Common Stock on the
Offering Date on which an option is granted, or (ii) the
Designated Percentage of the Fair Market Value of the Common
Stock on the Purchase Date. The Administrator may change the
Designated Percentage with respect to any future Purchase
Period, but not below eighty-five percent (85%), and the
Administrator may determine with respect to any prospective
Purchase Period that the option price shall be the Designated
Percentage of the Fair Market Value of the Common Stock on the
Purchase Date.
7. Purchase of Stock.
Upon the expiration of each Purchase Period, a Participant's option
shall be exercised automatically for the purchase of that number of full and
fractional shares of Common Stock which the accumulated payroll deductions
credited to the Participant's account at that time shall purchase at the
applicable price specified in Section 6(d), subject to Section 6(c).
8. Payment and Delivery.
Upon the exercise of an option on each Purchase Date, the Company or
Affiliate shall deliver to the Participant a record of the Common Stock
purchased, except as specified below. Shares to be delivered to a Participant
under the Plan will be registered in the name of the Participant or, if the
Participant so directs by written notice to the Administrator prior to the
Purchase Date, in the names of the Participant and one such other person as may
be designated by the Participant, as joint tenants with rights of survivorship,
to the extent permitted by the Applicable Laws. The Administrator may permit or
require that shares be deposited directly with a broker designated by the
Administrator (or a broker selected by the Administrator) or to a designated
agent of the Company, and the Administrator may utilize electronic or automated
methods of share transfer. The Administrator may require that shares be retained
with such broker or agent for a designated period of time (and may restrict
dispositions during that period) and/or may establish other procedures to permit
tracking of disqualifying dispositions of such shares or to restrict transfer of
such shares. The Administrator may require that shares purchased under the Plan
shall automatically participate in a dividend reinvestment plan or program
maintained by the Company. The Company shall retain the amount of payroll
deductions used to purchase Common Stock as full payment for the Common Stock
and the Common Stock shall then be fully paid and non-assessable. No Participant
shall have any voting, dividend, or other shareholder rights with respect to
shares subject to any option granted under the Plan until the
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shares subject to the option have been purchased and delivered to the
Participant as provided in Section 8.
9. Recapitalization.
(a) If after the grant of an option, but prior to the purchase of
Common Stock under the option, there is any increase or decrease
in the number of outstanding shares of Common Stock because of a
stock split, stock dividend, combination or recapitalization of
shares subject to options, the number of shares to be purchased
pursuant to an option, the share limit of Section 6(c) and the
maximum number of shares specified in Section 6(a) shall be
proportionately increased or decreased, the terms relating to
the purchase price with respect to the option shall be
appropriately adjusted by the Administrator, and the
Administrator shall take any further actions which, in the
exercise of its discretion, may be necessary or appropriate
under the circumstances.
(b) The Administrator, if it so determines in the exercise of its
sole discretion, also may adjust the number of shares specified
in Section 6(a), as well as the price per share of Common Stock
covered by each outstanding option and the maximum number of
shares subject to any individual option, in the event the
Company effects one or more reorganizations, recapitalizations,
spin-offs, split-ups, rights offerings or reductions of shares
of its outstanding Common Stock.
(c) The Administrator's determinations under this Section 9 shall be
conclusive and binding on all parties.
10. Merger, Liquidation, Other Corporation Transactions.
(a) In the event of the proposed liquidation or dissolution of the
Company, the Purchase Period then in progress will terminate
immediately prior to the consummation of such proposed
liquidation or dissolution, unless otherwise provided by the
Administrator in its sole discretion, and all outstanding
options shall automatically terminate and the amounts of all
payroll deductions will be refunded without interest to the
Participants.
(b) In the event of a proposed sale of all or substantially all of
the assets of the Company, or the merger or consolidation of the
Company with or into another corporation, then in the sole
discretion of the Administrator, (1) each option shall be
assumed or an equivalent option shall be substituted by the
successor corporation or parent or subsidiary of such successor
corporation, (2) a date established by the Administrator on or
before the date of consummation of such merger, consolidation or
sale shall be treated as an Exercise Date, and all outstanding
options shall be deemed exercisable on such date or (3) all
outstanding options shall terminate and the accumulated payroll
deductions shall be returned to the Participants, without
interest.
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11. Transferability.
Neither payroll deductions credited to a Participant's account nor any
rights with regard to the exercise of an option or to receive Shares under the
Plan may be voluntarily or involuntarily assigned, transferred, pledged, or
otherwise disposed of in any way other than by will or the laws of descent and
distribution or by a "qualified domestic relations order" under the Code, and
any other attempted assignment, transfer, pledge, or other disposition shall be
null and void and without effect. If a Participant in any manner attempts to
transfer, assign or otherwise encumber his or her rights or interest under the
Plan, other than as permitted by the Code, such act shall be treated as an
election by the Participant to discontinue participation in the Plan pursuant to
Section 5(c). Any option granted to a Participant under the Plan may be
exercised only by the Participant during his or her lifetime.
12. Term of Plan.
The Plan shall continue for a ten year term measured from its Effective
Date, unless previously terminated in accordance with Section 13.
13. Amendment or Termination of the Plan.
The Administrator may, in its sole discretion, insofar as permitted by
law, terminate or suspend the Plan or revise or amend it in any respect
whatsoever. No such termination shall affect options previously granted and
exercised, nor shall any amendment make any change in any option theretofore
granted which would adversely affect the rights of any Participant. No revision
or amendment shall be made without prior approval of the shareholders if such
amendment would:
(a) materially increase the number of shares subject to the Plan,
other than an adjustment under Section 9 of the Plan;
(b) materially modify the requirements as to eligibility for
participation in the Plan, except as otherwise specified in this
Plan;
(c) reduce the purchase price specified in Section 6(d), except as
specified in Section 9; or
(d) extend the term of the Plan beyond the date specified in Section
12.
14. Use of Funds.
All payroll deductions received or held by the Company or Affiliate
under the Plan may be used by the Company or by the Affiliate for any corporate
purpose, and may be commingled with its other corporate funds. No interest shall
be paid or credited to the Participant with respect
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to such payroll deductions except where required by local law as determined by
the Administrator.
15. Local Law.
The Administrator may adopt rules or procedures relating to the
operation and administration of the Plan to accommodate the specific
requirements of local laws and procedures. Without limiting the generality of
the foregoing, the Administrator is specifically authorized to adopt rules and
procedures regarding handling of payroll deductions, payment of interest,
payroll tax, withholding procedures and handling of stock certificates which
vary with local requirements.
16. Securities Laws Compliance.
The Company shall not be under any obligation to issue Common Stock
upon the exercise of any option unless and until the Company has determined
that: (i) it and the Participant have taken all actions required to register the
Common Stock under the Securities Act of 1933, or to perfect an exemption from
the registration requirements thereof; (ii) any applicable listing requirement
of any stock exchange on which the Common Stock is listed has been satisfied;
and (iii) all other applicable provisions of state and federal law have been
satisfied.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such shares if such a
representation is required by Applicable Law.
17. Notices.
All notices or other communications by a Participant to the Company or
Affiliate under or in connection with the Plan shall be deemed to have been
given when received by the Administrator or when received in the form specified
by the Administrator at the location, or by the person, designated by the
Administrator for the receipt thereof.
18. No Enlargement of Employee Rights.
Nothing contained in this Plan shall be deemed to give any Employee the
right to be retained in the employ of the Company or of the Affiliate or to
interfere with the right of the Company or Affiliate to discharge any Employee
at any time.
19. Regulations and Other Approvals; Governing Law.
(a) This Plan and the rights of all persons claiming hereunder shall
be construed and determined in accordance with the laws of the
State of Illinois.
(b) This Plan and the Company's obligation to sell and deliver
Shares under the Plan shall be subject to all Applicable Laws,
and the obtaining of such approvals by
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governmental agencies required in connection with the Plan or
the authorization, issuance, sale, or delivery of stock
hereunder.
20. Notice of Disqualifying Disposition.
The Administrator may require, as a condition of participation in the
Plan, that a Participant agree to promptly notify the Company of any disposition
of Shares acquired pursuant to an option granted under the Plan within two years
of the grant date of the applicable option or within one year of the transfer of
the Shares to him or her (a "disqualifying disposition"), and the number of
Shares disposed of.
21. Effective Date; Shareholder Approval.
This Plan shall become effective upon the effective date of the S-1
registration statement filed by the Company pursuant to an initial public
offering of its Shares, subject to approval by the shareholders of the Company
within twelve (12) months after the date the Plan is adopted by the Board of
Directors ("Effective Date"). Such shareholder approval shall be obtained in the
degree and manner required under Applicable Law. All Shares issued under the
Plan shall become void in the event such approval is not obtained. No options
shall be granted under the Plan prior to such effective date.
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EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated February 22, 1999 in Amendment No. 3 to the Registration
Statement (Form S-1 No. 333-79355) and the related Prospectus of Quotesmith.com,
Inc.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
July 9, 1999
