<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 30, 1999
REGISTRATION NO. 333-79355
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 5 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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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)
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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 30, 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 705,000 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. At our request, the underwriters have reserved for sale, at the
initial public offering price, up to 5% of the shares being offered for several
of our employees and directors and others who have a relationship to us.
------------------------
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
[INSIDE FRONT COVER 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...
We believe Quotesmith.com is the better way.
Subheadings: Instant insurance quotes from over 300 companies. Each quote
guaranteed accurate. Consumers can search the market in
seconds and buy from the company of their 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
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
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- 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.
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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.
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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.
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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
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<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> 9
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
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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;
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- 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.
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<PAGE> 12
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.
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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> 14
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> 15
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> 16
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
14
<PAGE> 17
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. On July 28, 1999, we received notice from TechSearch L.L.C. that
it believes our Web site is inducing the infringement of a patent it allegedly
holds. 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. 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. We believe that this is the most reasonably likely worst case
scenario that could result from a year 2000 problem. Year 2000 problems that any
third parties or we experience could harm our business. 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. 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> 18
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> 19
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> 20
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> 21
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. A significant portion of the funds we intend
to use for the expansion of our sales and marketing expenses will be spent on
advertising via television, radio and direct mail. 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> 22
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> 23
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.
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<PAGE> 24
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> 25
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 May 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> 26
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. In particular, in the 12
months following this
24
<PAGE> 27
offering of our common stock, we currently intend to use approximately $26
million of the net proceeds from this offering for expansion of our selling and
marketing efforts, including brand promotion.
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
25
<PAGE> 28
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.
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
26
<PAGE> 29
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.
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%
27
<PAGE> 30
from 20.6% principally as a result of increases in salaries and benefits of
$92,000 and legal and accounting fees of $38,000.
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 six 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> 31
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> 32
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:
- providing a licensed agent's explanation of 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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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> 46
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.
On July 28, 1999, we received notice from TechSearch L.L.C. that it
believes our Web site is inducing the infringement of a patent it allegedly
holds. While we believe that the claim is without merit and intend to
vigorously defend the claim, we cannot assure you that the ultimate outcome of
this matter will not have a material adverse effect on us.
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> 47
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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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..................... 34 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> 49
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
operating 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. There
are no family relationships among our directors, officers or key employees.
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<PAGE> 51
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> 52
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> 54
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 circumstances. We believe that these provisions and
agreements are necessary to attract and retain qualified persons as directors
and officers.
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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 that represents a percentage of the regular first year and renewal
commissions we receive from Quicken InsureMarket customers who purchase
insurance through our service. We have agreed to provide Intuit Insurance
Services with at least as favorable a compensation arrangement as we provide to
any other third party with a similar arrangement. 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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<PAGE> 57
PRINCIPAL STOCKHOLDERS
The following table sets forth information with respect to beneficial
ownership of our common stock as of the date hereof, 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 18,515,091 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(1).................................... 7,314,334 54.1% 39.5%
William V. Thoms...................................... 2,160,000 16.0 11.7
Ronald A. Wozniak(2).................................. 55,281 * *
Timothy F. Shannon(3)................................. 33,333 * *
Bruce J. Rueben(3).................................... 27,000 * *
ALL EXECUTIVE OFFICERS AND DIRECTORS AS A GROUP (10
PERSONS)(4)........................................... 9,632,906 70.6 51.7
OTHER FIVE PERCENT STOCKHOLDERS
Intuit Inc.(5)........................................ 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) Includes 3,657,167 shares owned by Mr. Bland as a tenant in common with his
wife, Maureen A. Bland, and 3,657,167 shares owned by Southcote Partners,
L.P., a limited partnership whose sole general partners are Mr. and Mrs.
Bland.
(2) Consists of shares purchasable upon exercise of fully vested options.
(3) Includes options to purchase 25,000 shares that are fully vested.
(4) Includes options to purchase 120,239 shares that are fully vested.
(5) 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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<PAGE> 58
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 the date hereof, we had 13,515,091 shares of common stock outstanding
held of record by 33 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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<PAGE> 59
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 195,000 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> 65
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> 66
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 705,000 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> 67
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> 68
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
Pursuant to a subscription agreement between us and Intuit that we will
enter into after the effectiveness of this offering, we have agreed to sell
directly to Intuit, shares of common stock in this offering having an aggregate
purchase price of $3 million at a price per share equal to the initial public
offering price. We cannot assure you that Intuit will purchase any of the shares
in this offering. Although Intuit has expressed an intention to purchase these
shares, the subscription agreement will not be entered into before the effective
date of the offering. Accordingly, Intuit will not be legally obligated to
acquire the shares until that time. The purchase price for these shares will be
paid directly to us at the closing of sale of the other shares offered hereby.
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. 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.
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> 69
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.
While we have provided a summary of the material terms of the contents of
contracts or any other documents the summary does not describe all of the
details of the contracts and other documents. 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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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, 2000. 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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
INSIDE BACK COVER
Top of Page: Bold, Buyer-Driven (circular stock photo, fades)
Insurance
Headline: Term life purchase example...
Subheading: In just four steps, Quotesmith.com customers can search the
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an application
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STEP 3: Consumers select the plan and company of their choice...
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Bottom of Page: Capital letters, QUOTESMITH.COM
<PAGE> 86
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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> 87
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>
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.
The Registrant has entered into indemnification agreements with its
directors. These directorship agreements provide that the directors will be
indemnified against expenses
II-1
<PAGE> 88
(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.
(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.
II-2
<PAGE> 89
(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> 90
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS:
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
1.1+ Form of Underwriting Agreement
1.2+ Form of Subscription Agreement between the Registrant and
Intuit Inc.
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) 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 Employment Agreement between Registrant and Robert S. Bland
10.4 Employment Agreement between Registrant and William V. Thoms
10.5 Employment Agreement between Registrant and Ronald A.
Wozniak
10.6 Employment Agreement between Registrant and Thomas A. Munro
10.7 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>
- -------------------------
+ Previously filed
II-4
<PAGE> 91
(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> 92
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Amendment No. 5 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 30, 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. 5 to the Registration Statement has been signed by the following persons in
the capacities indicated on July 30, 1999:
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ROBERT S. BLAND Chairman, President and Chief Executive Officer
- --------------------------------------------- (Principal Executive Officer)
Robert S. Bland
* Executive Vice President and Director
- ---------------------------------------------
William V. Thoms
* 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> 93
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------- -----------
<C> <S>
4.3(a) Certificate of Designation, Preferences and Rights
5.1 Opinion of Freeborn & Peters
10.3 Employment Agreement between the Registrant and Robert S.
Bland
10.4 Employment Agreement between the Registrant and William V.
Thoms
10.5 Employment Agreement between the Registrant and Ronald A.
Wozniak
10.6 Employment Agreement between the Registrant and Thomas A.
Munro
10.7 Employment Agreement between the Registrant and Burke A.
Christensen
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
23.6 Consent of Freeborn & Peters (included in Exhibit 5.1)
</TABLE>
II-7
<PAGE> 1
EXHIBIT 4.3(a)
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF SERIES A PARTICIPATING PREFERRED STOCK
of
QUOTESMITH.COM, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
We, Robert S. Bland, Chairman, President and Chief Executive Officer,
and Thomas A. Munro, Secretary of Quotesmith.com, Inc., a corporation organized
and existing under the General Corporation Law of the State of Delaware (the
"Corporation"), in accordance with the provisions of Section 103 thereof, DO
HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors by
the Certificate of Incorporation of the Corporation, the Board of Directors on
July 7, 1999 adopted the following resolution creating a series of 300,000
shares of preferred stock designated as Series A Participating Preferred Stock:
RESOLVED, that pursuant to the authority vested in the Board of
Directors of the Corporation in accordance with the provisions of its
Certificate of Incorporation, as amended, a series of preferred stock, par value
$.001 per share, of the Corporation (such preferred stock being herein referred
to as "Preferred Stock," which term shall include any additional shares of
preferred stock of the same class heretofore or hereafter authorized to be
issued by the Corporation), consisting of 300,000 shares is hereby created, and
the voting powers, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, are
as follows:
Section 1. Designation and Amount. There shall be a series of Preferred
Stock of the Corporation which shall be designated as "Series A Participating
Preferred Stock," par value $.001 per share (hereinafter called "Series A
Preferred Stock"), and the number of shares constituting such series shall be
300,000. Such number of shares may be increased or decreased by resolution of
the Board of Directors and by the filing of a certificate pursuant to the
provisions of the General Corporation Law of the State of Delaware stating that
such increase or reduction has been so authorized; provided, however, that no
decrease shall reduce the number of shares of Series A Preferred Stock to a
number less than that of the shares then outstanding plus the number of shares
of Series A Preferred Stock issuable upon exercise of outstanding rights,
options or warrants or upon conversion of outstanding securities issued by the
Corporation.
<PAGE> 2
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the shares
of Series A Preferred Stock with respect to dividends, the holders of shares of
Series A Preferred Stock shall be entitled to receive, when, as and if declared
by the Board of Directors out of funds legally available for the purpose,
quarterly dividends payable in cash to holders of record on the last business
day of March, June, September and December in each year (each such date being
referred to herein as a "Quarterly Dividend Payment Date"), commencing on the
first Quarterly Dividend Payment Date after the first issuance of a share or
fraction of a share of Series A Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the
provision for adjustment hereinafter set forth, 100 times the aggregate per
share amount of all cash dividends, and 100 times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock (hereinafter defined) or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, par value $.001 per share, of the
Corporation (the "Common Stock") since the immediately preceding Quarterly
Dividend Payment Date, or, with respect to the first Quarterly Dividend Payment
Date, since the first issuance of any share or fraction of a share of Series A
Preferred Stock. In the event the Corporation shall at any time following July
7, 1999 effect a subdivision, split, combination or consolidation of the Common
Stock (by reclassification or otherwise than by payment of dividends in Common
Stock), then in each such case the amount to which holders of shares of Series A
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying each such amount by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Corporation shall declare a dividend or distribution on the
Series A Preferred Stock as provided in paragraph (A) above at the time it
declares a dividend or distribution on the Common Stock (other than a dividend
payable in shares of Common Stock).
(C) No dividend or distribution (other than a dividend payable in
shares of Common Stock) shall be paid or payable to the holders of shares of
Common Stock unless, prior thereto, all accrued but unpaid dividends to the date
of such dividend or distribution shall have been paid to the holders of shares
of Series A Preferred Stock.
<PAGE> 3
(D) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares of Series A Preferred Stock, unless
the date of issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or unless the date of
issue is a Quarterly Dividend Payment Date or is a date after the record date
for the determination of holders of shares of Series A Preferred Stock entitled
to receive a quarterly dividend and before such Quarterly Dividend Payment Date,
in either of which events such dividends shall begin to accrue and be cumulative
from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall
not bear interest. Dividends paid on the shares of Series A Preferred Stock in
an amount less than the total amount of such dividends at the time accrued and
payable on such shares shall be allocated pro rata on a share-by-share basis
among all such shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series A Preferred
Stock entitled to receive payment of a dividend or distribution declared
thereon, which record date shall be no more than 30 days prior to the date fixed
for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
one one-hundredth of a share of Series A Preferred Stock shall entitle the
holder thereof to one vote on all matters submitted to a vote of the
stockholders of the Corporation. In the event the Corporation shall at any time
following July 7, 1999 effect a subdivision, split, combination or
consolidation of the Common Stock (by reclassification or otherwise than by
payment of dividends in Common Stock), then in each such case the number of
votes per share to which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by multiplying such
number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series A Preferred Stock and the holders of shares of Common Stock and
any other capital stock of the Corporation having general voting rights shall
vote together as one class on all matters submitted to a vote of stockholders of
the Corporation.
(C) (i) Whenever, at any time or times, dividends payable on any share
or shares of Series A Preferred Stock shall be in arrears in an amount
equal to at least six full quarterly dividends (whether or not declared
and whether or not consecutive), the holders of record of the
outstanding Preferred Stock shall have the exclusive right, voting
separately as a single class, to elect two directors of the Corporation
at a special meeting of stockholders of the Corporation or at the
Corporation's next annual meeting of stockholders, and at each
subsequent annual meeting of stockholders, as provided below. At
elections for such directors, the holders of shares of Series A
Preferred Stock shall be entitled to cast one vote for each one
one-hundredth of a share of Series A Preferred Stock held.
<PAGE> 4
(ii) Upon the vesting of such right of the holders of the
Preferred Stock, the maximum authorized number of members of the Board
of Directors shall automatically be increased by two and the two
vacancies so created shall be filled by vote of the holders of the
outstanding Preferred Stock as hereinafter set forth. A special meeting
of the stockholders of the Corporation then entitled to vote shall be
called by the Chairman or the President or the Secretary of the
Corporation, if requested in writing by the holders of record of not
less than 10% of the Preferred Stock then outstanding. At such special
meeting, or, if no such special meeting shall have been called, then at
the next annual meeting of stockholders of the Corporation, the holders
of the shares of the Preferred Stock shall elect, voting as above
provided, two directors of the Corporation to fill the aforesaid
vacancies created by the automatic increase in the number of members of
the Board of Directors. At any and all such meetings for such election,
the holders of a majority of the outstanding shares of the Preferred
Stock shall be necessary to constitute a quorum for such election,
whether present in person or by proxy, and such two directors shall be
elected by the vote of at least a plurality of shares held by such
stockholders present or represented at the meeting. Any director
elected by holders of shares of the Preferred Stock pursuant to this
Section may be removed at any annual or special meeting, by vote of a
majority of the stockholders voting as a class who elected such
director, with or without cause. In case any vacancy shall occur among
the directors elected by the holders of the Preferred Stock pursuant to
this Section, such vacancy may be filled by the remaining director so
elected, or his successor then in office, and the director so elected
to fill such vacancy shall serve until the next meeting of stockholders
for the election of directors. After the holders of the Preferred Stock
shall have exercised their right to elect Directors in any default
period and during the continuance of such period, the number of
Directors shall not be further increased or decreased except by vote of
the holders of Preferred Stock as herein provided or pursuant to the
rights of any equity securities ranking senior to or pari passu with
the Series A Preferred Stock.
(iii) The right of the holders of the Preferred Stock, voting
separately as a class, to elect two members of the Board of Directors
of the Corporation as aforesaid shall continue until, and only until,
such time as all arrears in dividends (whether or not declared) on the
Preferred Stock shall have been paid or declared and set apart for
payment, at which time such right shall terminate, except as herein or
by law expressly provided, subject to revesting in the event of each
and every subsequent default of the character above-mentioned. Upon any
termination of the right of the holders of the shares of the Preferred
Stock as a class to vote for directors as herein provided, the term of
office of all directors then in office elected by the holders of
Preferred Stock pursuant to this Section shall terminate immediately.
Whenever the term of office of the directors elected by the holders of
the Preferred Stock pursuant to this Section shall terminate and the
special voting powers vested in the holders of the Preferred Stock
pursuant to this Section shall have expired, the maximum number of
members of the Board of Directors of the Corporation shall be such
number as may be provided for in the By-laws of the Corporation
irrespective of any increase made pursuant to the provisions of this
Section.
<PAGE> 5
(D) Except as set forth herein, holders of Series A Preferred Stock
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Stock as
set forth herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series A Preferred Stock outstanding shall have
been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on,
or redeem or purchase or otherwise acquire for consideration any shares
of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or
upon liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred
Stock, provided that the Corporation may at any time redeem, purchase
or otherwise acquire shares of any such parity stock in exchange for
shares of any stock of the Corporation ranking junior (either as to
dividends or upon dissolution, liquidation or winding up) to the Series
A Preferred Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as the Board
of Directors, after consideration of the respective annual dividend
rates and other relative rights and preferences of the respective
series and classes, shall determine in good faith will result in fair
and equitable treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this Section,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of
<PAGE> 6
Preferred Stock to be created by resolution or resolutions of the Board of
Directors, subject to the conditions and restrictions on issuance set forth
herein.
Section 6. Liquidation, Dissolution or Winding Up. (A) Upon any
voluntary liquidation, dissolution or winding up of the Corporation, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Preferred Stock unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received $1.00 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series A Liquidation Preference"). Following
the payment of the full amount of the Series A Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series A
Preferred Stock unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment") equal to the
quotient obtained by dividing (i) the Series A Liquidation Preference by (ii)
100 (as appropriately adjusted as set forth in subparagraph C below to reflect
such events (other than stock dividends) as stock splits and recapitalizations
with respect to the Common Stock) (such number in clause (ii), the "Adjustment
Number"). Following the payment of the full amount of the Series A Liquidation
Preference and the Common Adjustment in respect of all outstanding shares of
Series A Preferred Stock and Common Stock, respectively, holders of Series A
Preferred Stock and holders of shares of Common Stock shall receive their
ratable and proportionate share of the remaining assets to be distributed in the
ratio, on a per share basis, of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis, respectively.
(B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other series of Preferred Stock, if any,
which rank on a parity with the Series A Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such parity shares in
proportion to their respective liquidation preferences.
(C) In the event the Corporation shall at any time following July 7,
1999 effect a subdivision, split, combination or consolidation of the Common
Stock (by reclassification or otherwise than by payment of dividends in Common
Stock), then in each such case the Adjustment Number in effect immediately prior
to such event shall be adjusted by multiplying such Adjustment Number by a
fraction the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
<PAGE> 7
Section 7. Consolidation, Merger, etc. In case the Corporation shall
enter into any consolidation, merger, combination or other transaction in which
the shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case the shares of
Series A Preferred Stock shall at the same time be similarly exchanged or
changed in an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time effect a subdivision, split,
combination or consolidation of the Common Stock (by reclassification or
otherwise than by payment of dividends in Common Stock), then in each such case
the amount set forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by multiplying
such amount by a fraction the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
Section 8. Redemption. The shares of a Series A Preferred Stock shall
not be redeemable by the Corporation. The preceding sentence shall not limit the
ability of the Corporation to purchase or otherwise deal in such shares of stock
to the extent permitted by law.
Section 9. Ranking. The Series A Preferred Stock shall rank junior to
all other series of the Corporation's preferred stock (whether with or without
par value) as to the payment of dividends and the distribution of assets, unless
the terms of any such series shall provide otherwise.
Section 10. Amendment. The Certificate of Incorporation of the
Corporation shall not be amended in any manner which would materially alter or
change the powers, preferences or special rights of the Series A Preferred Stock
so as to affect them adversely without the affirmative vote of the holders of a
majority or more of the outstanding shares of Series A Preferred Stock, voting
separately as a class.
Section 11. Fractional Shares. Series A Preferred Stock may be issued
in fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
<PAGE> 8
IN WITNESS WHEREOF, Quotesmith.com 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, and the same to be attested by
Thomas A. Munro, its Secretary, this 30th day of July.
QUOTESMITH.COM, INC.
By: /s/ ROBERT S. BLAND
-------------------------
Robert S. Bland
Chairman, President and
Chief Executive Officer
(SEAL)
Attest:
By: /s/ THOMAS A. MUNRO
-----------------------
Thomas A. Munro
Secretary
[Signature Page to Certificate of Designation]
<PAGE> 1
EXHIBIT 5.1
[LETTERHEAD OF FREEBORN & PETERS]
July 30, 1999
Quotesmith.com, Inc.
8205 South Cass Avenue, Suite 102
Darien, Illinois 60561
Ladies and Gentlemen,
We have examined the Registration Statement on Form S-1, Registration
Number 333-79355, originally filed with the Securities and Exchange Commission
on May 26, 1999 (as amended or supplemented, the "Registration Statement"), in
connection with the registration under the Securities Act of 1933, as amended,
of shares of Common Stock of Quotesmith.com, Inc. (the "Shares") and the
associated preferred stock purchase rights (the "Rights"). The Shares, which
include shares of Common Stock issuable pursuant to an over allotment option
granted to the underwriters, are to be sold to (1) the underwriters as described
in such Registration Statement for the sale to the public or issued to the
representatives of the underwriters and (2) Intuit Inc. As your counsel in
connection with this transaction, we have examined the proceedings proposed to
be taken in connection with the sale and issuance of the Shares and the Rights.
It is our opinion that, upon approval by the price committee duly
authorized by the Company's Board of Directors, the Shares and the Rights when
issued and sold in the manner referred to in the Registration Statement will be
legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement, and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendment thereto.
Very truly yours,
/s/ Freeborn & Peters
<PAGE> 1
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
Quotesmith.com, Inc., a Delaware corporation (the "Company") and Robert
S. Bland ("Executive") enter into this Employment Agreement as of July 7, 1999
(the "Agreement"), effective as of the Effective Date.
WHEREAS, Company is planning an initial public offering of its stock,
and has begun to take the necessary steps in furtherance of this course of
action;
WHEREAS, as a condition to taking the Company public, the parties have
agreed to enter into a new Employment Agreement;
WHEREAS, the Company desires to employ Executive upon the terms and
subject to the conditions of this Agreement; and
WHEREAS, Executive desires to be employed by the Company upon the terms
and subject to the conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth below, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and Executive hereby
covenant and agree as follows:
1. Definitions. For purposes of this Agreement, the following
capitalized terms shall have the following meanings, and all other capitalized
terms used in this Agreement but not defined in this paragraph 1 shall have the
meanings assigned elsewhere in this Agreement:
"Base Salary" means $250,000.
"Cause" means:
(i) Executive's conviction of (or plea of no contest or
similar plea to) a felony;
(ii) Executive's intentional continuing refusal to
substantially perform his obligations and duties under this
Agreement (except by reason of incapacity due to illness or
accident) if he (a) shall have failed to remedy the alleged
breach caused by such conduct within 30 days from the date
written notice is given by the Company demanding that he
remedy the alleged breach caused by such conduct, or (b) shall
have failed to take reasonable steps in good faith to that end
during such 30-day period, provided that after the end of such
30-day period there shall have been delivered to Executive a
certified copy of a resolution of the
<PAGE> 2
Board of Directors of the Company, taken at a meeting of the
Board of Directors at which Executive, together with his
counsel, is given the opportunity to be heard, finding that
Executive was guilty of an intentional continuing refusal to
substantially perform his obligations and duties under this
Agreement and specifying the details thereof, and that
Executive has failed to take reasonable steps in good faith to
remedy the alleged breach caused by such conduct,
(iii) Executive engaged in willful fraud or defalcation,
either of which involved funds or other assets of the Company;
or
(iv) upon Executive's breach of any material term of this
Agreement (including, but not limited to, the noncompete and
confidentiality provisions in paragraphs 7 and 8).
"Change in Control" means and shall be deemed to occur:
(i) in the event any "person" (as such term is used in
paragraphs 13(d) and 14(d) of the Exchange Act) (other than
Robert S. Bland and his affiliates) or more than one such
person acting as a group, other than a trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly,
of the securities of the Company, in a transaction or a series
of transactions, representing thirty percent (30%) or more of
the combined voting power of the Company's then outstanding
securities ordinarily having the right to vote for the
election of directors of the Company;
(ii) during any period of two consecutive years during the
Employment Period, individuals who at the beginning of the
Employment Period constitute the Board of Directors of the
Company cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by the Company's stockholders, of each director who was not a
director at the beginning of the Employment Period has been
approved in advance by directors representing at least
two-thirds of the directors then in office who were (A)
directors at the beginning of the Employment Period, or (B)
previously approved in accordance with this subparagraph (ii);
(iii) the Company sells or otherwise disposes of all or
substantially all of its assets; and
(iv) the Company participates in a merger or consolidation
and, immediately following the consummation of such merger or
consolidation, the Company's stockholders prior to such merger
or consolidation do not own 50% or more of the voting shares
of stock of the surviving or successor corporation.
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<PAGE> 3
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
"Compensation Committee" means the applicable compensation committee of
the Board of Directors of the Company.
"Disabled" or "Disability" means a determination, made at the request
of Executive or upon the reasonable request of the Company set forth in
a notice to Executive, by a physician selected by the Company and
Executive, that Executive is unable to perform his duties as specified
in this Agreement and in all reasonable medical likelihood such
inability will continue for a period in excess of 180 days, or for
shorter periods aggregating to more than 180 days in any consecutive
nine-month period.
"Effective Date" shall be the closing date of the Company's initial
public offering pursuant to the S-1 Registration Statement with the
Securities and Exchange Commission on May ____, 1999.
"Employment Period" means the term of Executive's employment pursuant
to the provisions of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor thereto.
"Good Reason" means:
(i) a Change in Control of the Company;
(ii) a decrease in the total amount of Executive's Base Salary
below the amount in effect on the date hereof;
(iii) a reduction in Executive's title, a material reduction
in his authority, duties or job responsibilities, a material
adverse change in his working conditions (including the
relocation of Executive's office more than 40 miles from the
Company's present executive offices), without Executive's
consent, as determined by Executive in his reasonable
judgment;
(iv) a failure by the Company to comply with any material
provision of this Agreement if the Company shall have failed
to remedy the alleged breach within 60 days from the date
written notice of such noncompliance is given by Executive to
the Company; or
(v) any purported termination of Executive's employment which
is not effected pursuant to a proper Notice of Termination
(and for purposes of this Agreement no such purported
termination shall be effective).
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<PAGE> 4
"Notice of Termination" means a written notice of either the Company or
Executive, as applicable, setting forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination.
"Termination Date" means the effective date of employment termination.
2. Term of Employment. The Company shall employ Executive, and
Executive shall be employed by the Company and shall provide services to the
Company upon the terms and conditions hereinafter set forth. The initial term of
Executive's employment with the Company shall continue, unless earlier
terminated pursuant to Section 5 hereof, through December 31, 2001 (the
"Employment Period"); provided, however, that after expiration of the initial
term, the Employment Period shall automatically be renewed each January 1 for
successive one-year terms unless the Company or Executive delivers written
notice to the other party at least sixty (60) days preceding the expiration of
the initial term or any one-year extension date of the intention not to extend
the term of this Agreement.
3. Performance of Duties. Executive shall have the titles of Chairman
of the Board of Directors, President and Chief Executive Officer of the Company,
and he shall possess such powers and perform such duties as are normally
incident to such position, as provided in the By-laws of the Company and in
accordance with the General Corporation Law of the State of Delaware. During
this period, Executive agrees that he shall perform his duties faithfully and
efficiently subject to the direction of the Board of Directors of the Company,
and the Company agrees that Executive shall be required to report only to the
Board of Directors.
Executive agrees that during the Employment Period he shall devote substantially
his full business time to business affairs of the Company, provided, however,
that notwithstanding any other provision hereof, Executive may serve in any
capacity with any civic, educational and charitable organization provided, in
each case, such activities do not materially interfere with the performance of
his duties hereunder, and such service is consistent with all Company policies
and procedures regarding such service. Executive shall be entitled to retain all
compensation (whether in the form of cash, equity securities or perquisites)
paid or delivered to Executive in connection with such civic, educational or
charitable activities. Executive agrees that Executive shall not, without the
prior consent of the Board of Directors of the Company (which consent shall not
be unreasonably withheld), agree to serve on any boards of directors other than
the boards of directors upon which Executive presently serves.
4. Compensation. For services rendered by Executive, and upon the
condition that Executive fully and faithfully perform all of his duties and
obligations set forth herein, Executive shall be compensated for his services as
follows:
(a) Base Salary. Executive shall receive an annual salary,
payable in monthly or more frequent installments, in accordance with
the usual payroll practice of the Company, in an amount equal to
$250,000 (the "Base Salary"), less income tax
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<PAGE> 5
withholdings and other normal employee deductions. The Base Salary
shall be reviewed annually as of the end of each fiscal year commencing
January 1, 2002 by the Compensation Committee, and may, at the sole
discretion of the Compensation Committee, be increased by an amount
that it deems appropriate, If the Base Salary is increased by the
Compensation Committee, it shall not be decreased thereafter during the
Employment Period.
(b) Bonus. Executive shall receive bonus payments in
accordance with any arrangements or bonus plans established by the
Company, in such amounts and upon such terms as are determined by the
Compensation Committee.
(c) Management Stock Option Plan. Should the Company establish
a stock option plan or plans with respect to which senior executives of
the Company participate and which excepts other employees of the
Company generally, Executive shall be entitled to participate in such
plans in the same manner as other senior executives of the Company.
(d) Benefits. During his employment with the Company,
Executive shall be entitled to participate, to the extent he meets all
eligibility requirements of general application, in any and all
employee benefit plans, programs and arrangements which are now or
hereafter adopted by the Company to provide benefits for its employees,
including, but not limited to, medical and hospitalization, group term
life insurance, disability, and retirement plans. Additionally,
Executive shall receive such other benefits as Company may make
generally available to its senior executive officers.
(e) Vacation. Executive shall be entitled to six (6) weeks of
paid vacation, in accordance with the policy of the Company in effect
from time to time, to be taken at times agreeable to both the Executive
and the Company.
(f) Travel and Expenses. The Company shall reimburse Executive
for the reasonable and necessary business expenses incurred by him in
connection with the performance of his duties and obligations as set
forth herein consistent with any existent Company policy with respect
to same. Reimbursement shall be made upon the presentation by Executive
to the Company of reasonably detailed statements of such expenses.
Payment of the Base Salary shall not in any way limit or reduce any other
obligation of the Company pursuant to this Agreement, and no other compensation,
benefit, or payment hereunder shall in any way limit or reduce the obligation of
the Company to pay Executive's Base Salary, except that, for the period
commencing on the date Executive becomes Disabled and ending on the Termination
Date, the Base Salary shall be reduced by any amounts that are payable to
Executive prior to or during such period under any disability benefit plan of
the Company in which Executive participates.
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<PAGE> 6
5. Termination. Executive's employment hereunder shall terminate at the
end of the Employment Period. In addition, the Employment Period may be
terminated at any time as provided herein. After Notice of Termination has been
delivered, and prior to the Termination Date, Executive shall make reasonable
efforts to cooperate with Company in achieving a transition of Executive's
duties and responsibilities.
(a) Cause. The Employment Period may be terminated at the
option of the Company for Cause effective upon the date stated in the
Notice of Termination to Executive.
(b) Death. The Employment Period will terminate automatically
effective upon Executive's death.
(c) Disability. In the event Executive becomes Disabled (as
such term is hereinafter defined) during the Employment Period, and the
Company is unable to make a reasonable accommodation which would enable
Executive to continue to perform the essential functions of his
employment position with the Company, the Employment Period may be
terminated at the option of Executive or the Company effective 30 days
after a Notice of Termination is given (provided that Executive shall
not have returned to the performance of his duties on a full-time basis
during such 30-day period). Unless otherwise agreed by Executive and
the Board of Directors, the determination by the physician selected by
Company and Executive that Executive is Disabled shall be binding upon
the Company and Executive.
(d) Voluntary Resignation. Executive may resign his employment
at any time with or without Good Reason, effective upon Notice of
Termination (which shall state whether such resignation is with Good
Reason) given by Executive to the Company.
(e) Termination without Cause by the Company. The Company may
terminate Executive's employment at any time, effective upon Notice of
Termination (which shall state that such termination is without Cause)
given by the Company to Executive.
If, within 30 days after any Notice of Termination for Cause is given by the
Company, Executive notifies the Company that a dispute exists concerning the
termination, then the Termination Date shall be the date (the "Final
Determination") as determined either by mutual written agreement of the parties,
by a binding and final arbitration award or by a final judgment, order or decree
of a court of competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected). Notwithstanding the foregoing, the
Company shall not be prohibited from removing Executive from his position with
the Company pending the Final Determination provided that such removal is
without prejudice to Executive's rights to receive all benefits from the Company
to which he may be entitled upon the Final Determination.
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<PAGE> 7
6. Separation Benefits. Executive shall be entitled to receive
separation benefits upon such events and in such amounts as are set forth in
this Section 6.
(a) Termination Without Cause or for Good Reason. In the event
that Executive's employment with the Company is terminated at any time
during the Employment Period by the Company without Cause, or by
Executive for Good Reason, then Executive (or if he shall have died
after termination but prior to payment, his surviving spouse, or if he
leaves no spouse, his personal representative, as successor in
interest) shall be paid by the Company an amount equal to the product
of Executive's Base Salary in effect as of the Date of Termination,
multiplied by two, payable in cash in a lump sum on or before the
fifteenth day following the Date of Termination.
(b) Termination Upon Death. If the Employment Period is
terminated by Executive's death, the Company shall pay Executive's
surviving spouse, or if he leaves no spouse, his personal
representative, as successor in interest, (i) an amount equal to the
then current Base Salary (paid in one lump sum payment on or before the
fifteenth day following the date of Executive's death), and (ii) any
death benefit payable under any employee benefit plans, programs and
arrangements of the Company in which Executive is a participant on the
date of his death.
(c) Termination Upon Disability. If the Employment Period is
terminated in accordance with the terms of paragraph 5(c) because of
Executive's Disability, the Company shall pay to Executive (or in the
event of Executive's death after finding of Disability, his surviving
spouse, or if he leaves no spouse, his personal representative, as
successor in interest) all compensation and benefits specified under
paragraph 4 herein, for a period of one year from the Date of
Termination, payable in the same manner as if the Employment Period had
not been terminated.
(d) Additional Separation Benefit. For a period of three years
following (i) the full completion of the Employment Period or (ii)
following the Date of Termination of the Employment Period for any
reason other than termination by the Company for Cause or termination
by Executive for other than Good Reason, the Company shall permit, at
the Company's expense, Executive, his spouse and dependents, as
applicable (the "Benefit Participants"), to participate in all group
medical health insurance plans and employee benefit plans, programs and
arrangements now or hereafter made available to the senior executive
employees of the Company (the "Plans") (including but not limited to
such Plans in which Executive was entitled to participate immediately
prior to the Date of Termination), in the same manner provided to its
other senior executive employees; provided, however, that this
paragraph 6(d) shall not apply in the event that (i) the Company shall
hereafter terminate the applicable Plan, or (ii) the participation of
the Benefit Participants in such Plan is prohibited by law or, if
applicable, would disqualify such Plan as a tax qualified plan pursuant
to the Code, or (iii) the participation of the Benefit Participants
violates the general terms and provisions of such applicable Plan. In
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<PAGE> 8
the event that any of the Benefit Participants' participation in such
Plans is prohibited by law or, if applicable, would disqualify the Plan
as a tax qualified plan, or the participation of the Benefit
Participants violates the general terms and provisions of such
applicable Plan, the Company shall permit the Benefit Participants to
acquire substantially comparable coverage or benefits, at the Company's
expense, from a source of Executive's or his spouse's choosing,
provided, however, that if provision of such coverage or benefit would
result in a cost of excess of 130% of the cost to the Company if
provided under a Company Plan, the Company may satisfy its obligations
under this paragraph 6(d) by contributing to the Benefit Participants
130% of the cost to the Company under the Company Plans.
Notwithstanding the foregoing, in no event will the Benefit
Participants receive from the Company the coverage and benefits
contemplated by this paragraph 6(d) if the Benefit Participants receive
such coverage and benefits from any other source.
(e) Excise Tax Gross-Up. If Executive becomes entitled to one
or more payments (with a "payment" including, but not limited to, the
vesting of an option or other non-cash benefit or property), whether
pursuant to the terms of this Agreement or any other plan, arrangement,
or agreement with the Company or any affiliated company (the "Total
Payments"), which are or become subject to the tax imposed by Section
4999 of the Code (or any similar tax that may hereafter be imposed)
(the "Excise Tax"), the Company shall pay to Executive at the time
specified below an additional amount (the "Gross-Up Payment") (which
shall include, but not be limited to, reimbursement for any penalties
and interest that may accrue in respect of such Excise Tax) such that
the net amount retained by Executive, after reduction for any Excise
Tax (including any penalties or interest thereon) on the Total Payments
and any federal, state and local income or employment tax and Excise
Tax on the Gross-Up Payment provided for by this subparagraph (e), but
before reduction for any federal, state, or local income or employment
tax on the Total Payments, shall be equal to the sum of (a) the Total
Payments, and (b) an amount equal to the product of any deductions
disallowed to Executive for federal, state, or local income tax
purposes because of the inclusion of the Gross-Up Payment in
Executive's adjusted gross income multiplied by the highest applicable
marginal rate of federal, state, or local income taxation,
respectively, for the calendar year in which the Gross-Up Payment is to
be made.
For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such
Excise Tax:
(i) The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in
the written opinion of independent compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and
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<PAGE> 9
reasonably acceptable to Executive, the Total Payments (in
whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within
the meaning of Section 280G(b)(4) of the Code in excess of the
base amount within the meaning of Section 280G(b)(3) of the
Code or are otherwise not subject to the Excise Tax;
(ii) The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the
lesser of (A) the total amount of the Total Payments or (B)
the total amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying
clause (i) above); and
(iii) The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Independent Advisors in accordance with the principles
of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the
Gross-Up Payment, Executive shall be deemed (A) to pay federal income
taxes at the highest marginal rate of federal income taxation for the
calendar year in which the Gross-Up Payment is to be made; (B) to pay
any applicable state and local income taxes at the highest marginal
rate of taxation for the calendar year in which the Gross-Up Payment is
to be made, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes if paid
in such year (determined without regard to limitations on deductions
based upon the amount of Executive's adjusted gross income); and (C) to
have otherwise allowable deductions for federal, state, and local
income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-Up Payment in Executive's adjusted gross income.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time the Gross-Up
Payment is made, Executive shall repay to the Company at the time that
the amount of such reduction in Excise Tax is finally determined (but,
if previously paid to the taxing authorities, not prior to the time the
amount of such reduction is refunded to Executive or otherwise realized
as a benefit of Executive) the portion of the Gross-Up Payment that
would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-Up Payment, plus interest on the amount
of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder at the time the Gross-Up Payment is
made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment in respect of such
excess (plus any interest and penalties payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
The Gross-Up Payment provided for above shall be paid
on the 30th day (or such earlier date as the Excise Tax becomes due and
payable to the taxing authorities)
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<PAGE> 10
after it has been determined that the Total Payments (or any portion
thereof) are subject to the Excise Tax; provided, however, that if the
amount of such Gross-Up Payment or portion thereof cannot be finally
determined on or before such day, the Company shall pay to Executive on
such day an estimate, as determined by he Independent Advisors, of the
minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code), as soon as the amount thereof can be
determined. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to Executive, payable on
the fifth day after demand by the Company (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code). If more than
one Gross-Up Payment is made, the amount of each Gross-Up Payment shall
be computed so as not to duplicate any prior Gross-Up Payment. The
Company shall have the right to control all proceedings with the
Internal Revenue Service that may arise in connection with the
determination and assessment of any Excise Tax and, at its sole option,
the Company may pursue or forego any and all administrative appeals,
proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties
thereon); provided, however, that the Company's control over any
such proceedings shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder, and Executive shall be
entitled to settle or contest any other issue raised by the Internal
Revenue Service or any other taxing authority. Executive shall
cooperate with the Company in any proceedings relating to the
determination and assessment of any Excise Tax and shall not take any
position or action that would materially increase the amount of any
Gross-Up Payment hereunder.
7. Noncompetition. During the Employment Period and continuing until
the second anniversary thereof, Executive shall not, without the prior written
authorization of the Board of Directors of the Company, (i) directly or
indirectly render services of a business, professional or commercial nature
(whether for compensation or otherwise) to any person or entity competitive or
adverse to the Company's business welfare, (ii) engage in any activity, whether
alone, as a partner, or as an officer, director, employee, consultant,
independent contractor, or stockholder in any other corporation, person, or
entity which is competitive with or adverse to the Company's business welfare,
(iii) hire or solicit for hire any of the Company's employees, prospective
employees or consultants (iv) solicit the business of any client of the Company,
or any prospective client of the Company that had been serviced or solicited by
the Company during the two (2) years preceding Executive's termination, or (v)
enter into any agreements with any supplier of the Company regarding the sale or
distribution of products of the supplier.
In the event that Executive's employment with the Company is terminated by
Executive or the Company at any time, for any reason whatsoever, the Company
shall have the right to inform any of Executive's future employers or
prospective employers of the existence of this Section 7 of the Agreement. This
Section 7 shall not, however, prevent Executive from investing in
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<PAGE> 11
securities issued by any such competitive or adverse corporation provided the
holdings thereof by Executive do not constitute more than three percent of any
one class of such securities.
8. Confidentiality.
(a) Disclosure and Use. Executive shall not disclose or use,
or authorize anyone else to disclose or use, at any time, either during
or after the Employment Period, any trade secrets or other confidential
information of the Company of which Executive is or becomes informed or
aware of prior to or during the Employment Period, except (i) as may be
required for Executive to perform his duties and obligations under this
Agreement, (ii) to the extent such information has been disclosed to
Executive by a third party who is not affiliated with the Company or
which otherwise becomes generally available to the public, (iii)
information which must be disclosed as a result of a subpoena or other
legal process, provided that the Company is given reasonable notice and
an opportunity to obtain a protective order, or (iv) unless Executive
shall first secure the Company's prior written authorization. This
paragraph shall survive the termination of this Employment Period,
whether by lapse of time or otherwise, and shall remain in effect and
be enforceable against Executive for as long as any such Company trade
secrets or confidential information retains commercial value. Executive
shall execute additional agreements and confirmations of his
obligations to the Company concerning such non-disclosure of Company
trade secrets and other confidential information as the Company may
require from time to time, provided that the execution of such
additional agreements and confirmations are (i) reasonable and (ii) are
required of all other senior executive employees of the Company under
similar circumstances.
(b) Return of Materials. Upon termination of his employment
for any reason, Executive (or in the event of termination due to
Executive's death, his surviving spouse or personal representative, as
applicable) shall promptly deliver to the Company all materials of a
secret or confidential nature relating to the Company's business, which
are in the possession or under the control of Executive.
9. Inventions. Executive hereby assigns to the Company all of his
rights, title, and interest in and to all inventions, discoveries, processes,
designs, and other intellectual property, including but not limited to trade
secrets, copyrights, patents, trademarks and trade names (collectively
hereinafter referred to as "Inventions"), and all improvements on existing
Inventions made or discovered by Executive during the term of his employment by
the Company. Promptly upon the development or making of any such Invention or
improvement thereon, Executive shall disclose the same to the Company and shall
execute and deliver to it such reasonable documents as it may request to confirm
the assignment of Executive's rights therein and, if requested, shall assist the
Company in applying for copyright, patent or trademark protection and
prosecuting any patents which may be available in respect thereof. The Company
acknowledges and hereby notifies Executive that this paragraph 9 does not apply
to an Invention for which no equipment, supplies, facility or trade secret
information of the Company was used
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<PAGE> 12
and which was developed entirely on Executive's own time, unless (a) the
Invention relates to (i) the business of the Company, or (ii) the Company's
actual or demonstrably anticipated research or development, or (b) the Invention
results from any work performed by Executive for the Company.
10. Remedies. If, at any time, Executive violates to any material
extent any of the covenants or agreements set forth in paragraphs 7, 8 or 9, the
Company shall have the right to terminate all of its obligations to make further
payments under this Agreement. Executive acknowledges that the Company would be
irreparably injured by a violation of paragraphs 7, 8 or 9, that damages for
such a breach are not easily calculated, and that any remedy at law would be
inadequate. Therefore, Executive agrees that the Company shall be entitled to an
injunction restraining Executive from any actual or threatened breach of
paragraphs 7, 8 or 9 or to any other appropriate equitable remedy without any
bond or other security being required.
It is expressly understood between the parties that this injunctive or equitable
relief shall not be Employer's exclusive remedy for breach of this Agreement.
Without limitation, in the event of any breach by Executive of paragraphs 7, 8
or 9 of this Agreement, such Executive shall not be entitled to receive any
salary payments or any other compensation beyond the date of such breach to
which he would otherwise be entitled, and Executive shall be obligated to repay
to Employer salary payments received by him at any time after the occurrence of
such breach.
11. Resolution of Disputes.
(a) In the event of any controversy among the parties hereto
arising out of, or relating to, this Agreement (other than a
controversy arising out of or relating to paragraphs 7, 8 or 9 hereof),
which cannot be settled amicably by the parties, such controversy shall
be finally settled by arbitration conducted expeditiously in accordance
with the American Arbitration Association Commercial Arbitration Rules
and the Supplementary Procedures for Large, Complex Disputes, by an
independent arbitrator. Either the Company or Executive may institute
such arbitration proceeding by giving written notice to the other
party. A hearing shall be held by the arbitrator in the City of
Chicago, Illinois, and a decision of the matter submitted to the
arbitrator shall be rendered promptly in accordance with the rules of
the American Arbitration Association. The prevailing party shall be
entitled to all costs and expenses with respect to such arbitration,
including reasonable attorneys' fees. The decision of the arbitrator
shall be final and binding upon all parties hereto. Judgment upon the
award rendered may be entered in any court having jurisdiction thereof.
(b) Notwithstanding the foregoing, Executive acknowledges and
agrees that the Company may seek in a court of competent jurisdiction
an injunction prohibiting Executive's breach or alleged breach of
paragraphs 7, 8 and 9.
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<PAGE> 13
12. Legal Fees. Should any litigation or arbitration be commenced
concerning any provision of this Agreement or Executive's employment or
termination of employment, the prevailing party shall be entitled, in addition
to such other relief as may be granted, to its attorneys' fees and costs
incurred by reason of such litigation or arbitration.
13. Executive's Representations and Warranties. Executive hereby
represents, warrants, and covenants that:
(a) Executive has no actual or potential conflict of interest
performing Executive's obligations and duties hereunder, will avoid any
such conflict during the Employment Period and will immediately report
any such conflict to the Company;
(b) the execution, delivery, and performance of this Agreement
by Executive will not violate any law, order, regulation, agreement,
contract, promise or duty by which Executive is bound;
(c) this Agreement is duly executed and is valid and binding
on Executive in accordance with its terms; and
(d) the Inventions developed by Executive for, or delivered by
Executive to, the Company do not and will not infringe upon any third
party trade secrets, copyrights, patents, trademarks or similar
proprietary rights. Executive hereby indemnifies and holds harmless the
Company and its directors, officers, employees, affiliates, agents,
representatives, successors and assigns for any breach of the foregoing
representation and warranty. The foregoing indemnity shall survive any
termination of this Agreement or the Employment Period for any reason.
14. Amendment and Termination. This Agreement may not be amended or
canceled except by written instrument signed by both parties and approved by the
Board of Directors or a committee thereof.
15. Modification and Waiver of Breach. No waiver or modification of
this Agreement shall be binding unless it is in writing, signed by the parties
hereto. The waiver by Company or Executive of any term or breach of this
Agreement shall not prevent a subsequent enforcement of such term or any other
term and shall not be deemed to be a waiver of any subsequent breach.
16. Notice. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed given or delivered and
received (i) when delivered personally (which shall be deemed to include
delivery via express courier such as Federal Express), or (ii) three days after
having been sent by registered or certified mail, return receipt requested, or
(iii) upon receipt when sent by facsimile, telegram or telex followed by a
confirmation letter sent by registered or certified mail, return receipt
requested, addressed as follows:
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If to the Company: Quotesmith.com, Inc.
8205 South Cass Avenue
Suite 102
Darien, IL 60561
Facsimile: (800) 515-0270
Attention: President
With a Copy to: Craig C. Bradley, Esq.
Freeborn & Peters
311 South Wacker Drive
Suite 3000
Chicago, IL 60606
Facsimile: (312) 360-6573
If to Executive: Robert S. Bland
8205 South Cass Avenue
Suite 102
Darien, IL 60561
Facsimile: (800) 515-0270
Either the Company or Executive may, at any time, by notice to the other,
designate another address for service of notice on such party.
17. Non-assignment. The interests of Executive under this Agreement are
not subject to the claims of his creditors and may not be voluntarily or
involuntarily assigned, alienated or encumbered. Company may assign its rights,
duties or obligations under this Agreement to any person with whom it has merged
or consolidated, or to whom it has transferred all, or substantially all, of its
assets.
18. Severability. If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed (i) modified
only to the extent necessary to render such provision valid, or (ii) not
applicable to given circumstances, or (iii) excised from this Agreement, as the
situation may require, and this Agreement shall be construed and enforced as if
such provision had been included herein as so modified in scope or application,
or had not been included herein, as the case may be. Should this Agreement, or
any one of more of the provisions hereof, be held to be invalid, illegal or
unenforceable within any governmental jurisdiction or subdivision thereof, the
Agreement or any such provision or provisions shall not as a consequence thereof
be deemed to be invalid, illegal or unenforceable in any other governmental
jurisdiction or subdivision thereof.
19. Successors. This Agreement shall be binding upon, and inure to the
benefit of the parties and their permitted successors and assigns. Nothing in
this Agreement, express or
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<PAGE> 15
implied, is intended or shall be construed to confer upon any person, other than
the parties and their respective successors and assigns permitted by this
Agreement, any right, remedy or claim under, or by reason of, this Agreement.
20. Entire Agreement. This Agreement constitutes the entire agreement
between Company and Executive with respect to the subject matter hereof. This
Agreement supersedes any prior agreement made between the parties.
21. Counterparts. The Agreement may be executed in two or more
counterparts, any one of which shall be deemed an original and all of which
taken together shall constitute a single instrument.
22. Governing Law. This Agreement, and all matters or disputes relating
to the validity, construction, performance or enforcement hereof, shall be
governed, construed and controlled by and under the laws of the State of
Illinois without regard to principles of conflicts of law.
23. Effective Date. This Agreement shall be effective on the Effective
Date. If the initial public offering is not consummated, this Agreement shall be
null and void.
24. EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD AND ACCEPTS THE
PROVISIONS OF THIS AGREEMENT. HE ALSO ACKNOWLEDGES THAT HE HAS HAD THE
OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS AGREEMENT.
[Signature page follows]
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<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date written above.
QUOTESMITH.COM, INC.
By: /s/ WILLIAM V. THOMS
-----------------------------
William V. Thoms
Executive Vice President
EXECUTIVE
By: /s/ ROBERT S. BLAND
-----------------------------
Robert S. Bland
President and Chief Executive
Officer
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<PAGE> 1
EXHIBIT 10.4
FORM OF
EMPLOYMENT AGREEMENT
Quotesmith.com, Inc., a Delaware corporation (the "Company") and
William V. Thoms ("Executive") enter into this Employment Agreement as of
July 7, 1999 (the "Agreement"), effective as of the Effective Date.
WHEREAS, Company is planning an initial public offering of its stock,
and has begun to take the necessary steps in furtherance of this course of
action;
WHEREAS, as a condition to taking the Company public, the parties have
agreed to enter into a new Employment Agreement;
WHEREAS, the Company desires to employ Executive upon the terms and
subject to the conditions of this Agreement; and
WHEREAS, Executive desires to be employed by the Company upon the terms
and subject to the conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth below, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and Executive hereby
covenant and agree as follows:
1. Definitions. For purposes of this Agreement, the following
capitalized terms shall have the following meanings, and all other capitalized
terms used in this Agreement but not defined in this paragraph 1 shall have the
meanings assigned elsewhere in this Agreement:
"Base Salary" means $200,000.
"Cause" means:
(i) Executive's conviction of (or plea of no contest or
similar plea to) a felony;
(ii) Executive's intentional continuing refusal to
substantially perform his obligations and duties under this
Agreement (except by reason of incapacity due to illness or
accident) if he (a) shall have failed to remedy the alleged
breach caused by such conduct within 30 days from the date
written notice is given by the Company demanding that he
remedy the alleged breach caused by such conduct, or (b) shall
have failed to take reasonable steps in good faith to that end
during such 30-day period, provided that after the end of such
30-day period there shall have been delivered to Executive a
certified copy of a resolution of the Board of Directors of
the Company, taken at a meeting of the Board of Directors at
which Executive,
<PAGE> 2
together with his counsel, is given the opportunity to be
heard, finding that Executive was guilty of intentional
continuing refusal to substantially perform his obligations
and duties under this Agreement and specifying the details
thereof, and that Executive has failed to take reasonable
steps in good faith to remedy the alleged breach caused by
such conduct,
(iii) Executive engaged in willful fraud or defalcation,
either of which involved funds or other assets of the Company;
or
(iv) upon Executive's breach of any material term of this
Agreement (including, but not limited to, the noncompete and
confidentiality provisions in paragraphs 7 and 8).
"Change in Control" means and shall be deemed to occur:
(i) in the event any "person" (as such term is used in
paragraphs 13(d) and 14(d) of the Exchange Act) (other than
Robert S. Bland and his affiliates) or more than one such
person acting as a group, other than a trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly,
of the securities of the Company, in a transaction or a series
of transactions, representing thirty percent (30%) or more of
the combined voting power of the Company's then outstanding
securities ordinarily having the right to vote for the
election of directors of the Company;
(ii) during any period of two consecutive years during the
Employment Period, individuals who at the beginning of the
Employment Period constitute the Board of Directors of the
Company cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by the Company's stockholders, of each director who was not a
director at the beginning of the Employment Period has been
approved in advance by directors representing at least
two-thirds of the directors then in office who were (A)
directors at the beginning of the Employment Period, or (B)
previously approved in accordance with this subparagraph (ii);
(iii) the Company sells or otherwise disposes of all or
substantially all of its assets; and
(iv) the Company participates in a merger or consolidation
and, immediately following the consummation of such merger or
consolidation, the Company's stockholders prior to such merger
or consolidation do not own 50% or more of the voting shares
of stock of the surviving or successor corporation.
2
<PAGE> 3
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
"Compensation Committee" means the applicable compensation committee of
the Board of Directors of the Company.
"Disabled" or "Disability" means a determination, made at the request
of Executive or upon the reasonable request of the Company set forth in
a notice to Executive, by a physician selected by the Company and
Executive, that Executive is unable to perform his duties as specified
in this Agreement and in all reasonable medical likelihood such
inability will continue for a period in excess of 180 days, or for
shorter periods aggregating to more than 180 days in any consecutive
nine-month period.
"Effective Date" shall be the closing date of the Company's initial
public offering pursuant to the S-1 Registration Statement with the
Securities and Exchange Commission on May ____, 1999.
"Employment Period" means the term of Executive's employment pursuant
to the provisions of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor thereto.
"Good Reason" means:
(i) a Change in Control of the Company;
(ii) a decrease in the total amount of Executive's Base Salary
below the amount in effect on the date hereof;
(iii) a reduction in Executive's title, a material reduction
in his authority, duties or job responsibilities, a material
adverse change in his working conditions (including the
relocation of Executive's office more than 40 miles from the
Company's present executive offices), without Executive's
consent, as determined by Executive in his reasonable
judgment;
(iv) a failure by the Company to comply with any material
provision of this Agreement if the Company shall have failed
to remedy the alleged breach within 60 days from the date
written notice of such noncompliance is given by Executive to
the Company; or
(v) any purported termination of Executive's employment which
is not effected pursuant to a proper Notice of Termination
(and for purposes of this Agreement no such purported
termination shall be effective).
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<PAGE> 4
"Notice of Termination" means a written notice of either the Company or
Executive, as applicable, setting forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination.
"Termination Date" means the effective date of employment termination.
2. Term of Employment. The Company shall employ Executive, and
Executive shall be employed by the Company and shall provide services to the
Company upon the terms and conditions hereinafter set forth. The initial term of
Executive's employment with the Company shall continue, unless earlier
terminated pursuant to Section 5 hereof, through December 31, 2001 (the
"Employment Period"); provided, however, that after expiration of the initial
term, the Employment Period shall automatically be renewed each January 1 for
successive one-year terms unless the Company or Executive delivers written
notice to the other party at least sixty (60) days preceding the expiration of
the initial term or any one-year extension date of the intention not to extend
the term of this Agreement.
3. Performance of Duties. Executive shall have the title of Executive
Vice President of the Company, and he shall possess such powers and perform such
duties as are normally incident to such position, as provided in the By-laws of
the Company and in accordance with the General Corporation Law of the State of
Delaware. During this period, Executive agrees that he shall perform his duties
faithfully and efficiently subject to the direction of the President and the
Board of Directors of the Company, and the Company agrees that Executive shall
be required to report to the President and to the Board of Directors.
Executive agrees that during the Employment Period he shall devote substantially
his full business time to business affairs of the Company, provided, however,
that notwithstanding any other provision hereof, Executive may serve in any
capacity with any civic, educational and charitable organization provided, in
each case, such activities do not materially interfere with the performance of
his duties hereunder, and such service is consistent with all Company policies
and procedures regarding such service. Executive shall be entitled to retain all
compensation (whether in the form of cash, equity securities or perquisites)
paid or delivered to Executive in connection with such civic, educational or
charitable activities. Executive agrees that Executive shall not, without the
prior consent of the Board of Directors of the Company (which consent shall not
be unreasonably withheld), agree to serve on any boards of directors other than
the boards of directors upon which Executive presently serves.
4. Compensation. For services rendered by Executive, and upon the
condition that Executive fully and faithfully perform all of his duties and
obligations set forth herein, Executive shall be compensated for his services as
follows:
a. Base Salary. Executive shall receive an annual salary,
payable in monthly or more frequent installments, in accordance with
the usual payroll practice of the Company, in an amount equal to
$________ (the "Base Salary"), less income tax withholdings and
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<PAGE> 5
other normal employee deductions. The Base Salary shall be reviewed
annually as of the end of each fiscal year commencing January 1, 2002
by the Compensation Committee, and may, at the sole discretion of the
Compensation Committee, be increased by an amount that it deems
appropriate, If the Base Salary is increased by the Compensation
Committee, it shall not be decreased thereafter during the Employment
Period.
b. Bonus. Executive shall receive bonus payments in accordance
with any arrangements or bonus plans established by the Company, in
such amounts and upon such terms as are determined by the Compensation
Committee.
c. Management Stock Option Plan. Should the Company establish
a stock option plan or plans with respect to which senior executives of
the Company participate and which excepts other employees of the
Company generally, Executive shall be entitled to participate in such
plans in the same manner as other senior executives of the Company.
d. Benefits. During his employment with the Company,
Executive shall be entitled to participate, to the extent he meets all
eligibility requirements of general application, in any and all
employee benefit plans, programs and arrangements which are now or
hereafter adopted by the Company to provide benefits for its employees,
including, but not limited to, medical and hospitalization, group term
life insurance, disability, and retirement plans. Additionally,
Executive shall receive such other benefits as Company may make
generally available to its senior executive officers.
e. Vacation. Executive shall be entitled to _______weeks of
paid vacation, in accordance with the policy of the Company in effect
from time to time, to be taken at times agreeable to both the Executive
and the Company.
f. Travel and Expenses. The Company shall reimburse Executive
for the reasonable and necessary business expenses incurred by him in
connection with the performance of his duties and obligations as set
forth herein consistent with any existent Company policy with respect
to same. Reimbursement shall be made upon the presentation by Executive
to the Company of reasonably detailed statements of such expenses.
Payment of the Base Salary shall not in any way limit or reduce any other
obligation of the Company pursuant to this Agreement, and no other compensation,
benefit, or payment hereunder shall in any way limit or reduce the obligation of
the Company to pay Executive's Base Salary, except that, for the period
commencing on the date Executive becomes Disabled and ending on the Termination
Date, the Base Salary shall be reduced by any amounts that are payable to
Executive prior to or during such period under any disability benefit plan of
the Company in which Executive participates.
5. Termination. Executive's employment hereunder shall terminate at the
end of the Employment Period. In addition, the Employment Period may be
terminated at any time as provided herein. After Notice of Termination has been
delivered, and prior to the Termination Date,
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<PAGE> 6
Executive shall make reasonable efforts to cooperate with Company in achieving a
transition of Executive's duties and responsibilities.
a. Cause. The Employment Period may be terminated at the
option of the Company for Cause effective upon the date stated in the
Notice of Termination to Executive.
b. Death. The Employment Period will terminate automatically
effective upon Executive's death.
c. Disability. In the event Executive becomes Disabled (as
such term is hereinafter defined) during the Employment Period, and the
Company is unable to make a reasonable accommodation which would enable
Executive to continue to perform the essential functions of his
employment position with the Company, the Employment Period may be
terminated at the option of Executive or the Company effective 30 days
after a Notice of Termination is given (provided that Executive shall
not have returned to the performance of his duties on a full-time basis
during such 30-day period). Unless otherwise agreed by Executive and
the Board of Directors, the determination by the physician selected by
Company and Executive that Executive is Disabled shall be binding upon
the Company and Executive.
d. Voluntary Resignation. Executive may resign his employment
at any time with or without Good Reason, effective upon Notice of
Termination (which shall state whether such resignation is with Good
Reason) given by Executive to the Company.
e. Termination without Cause by the Company. The Company may
terminate Executive's employment at any time, effective upon Notice of
Termination (which shall state that such termination is without Cause)
given by the Company to Executive.
If, within 30 days after any Notice of Termination for Cause is given by the
Company, Executive notifies the Company that a dispute exists concerning the
termination, then the Termination Date shall be the date (the "Final
Determination") as determined either by mutual written agreement of the parties,
by a binding and final arbitration award or by a final judgment, order or decree
of a court of competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected). Notwithstanding the foregoing, the
Company shall not be prohibited from removing Executive from his position with
the Company pending the Final Determination provided that such removal is
without prejudice to Executive's rights to receive all benefits from the Company
to which he may be entitled upon the Final Determination.
6. Separation Benefits. Executive shall be entitled to receive
separation benefits upon such events and in such amounts as are set forth in
this Section 6.
a. Termination Without Cause or for Good Reason. In the event
that Executive's employment with the Company is terminated at any time
during the
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<PAGE> 7
Employment Period by the Company without Cause, or by Executive for
Good Reason, then Executive (or if he shall have died after termination
but prior to payment, his surviving spouse, or if he leaves no spouse,
his personal representative, as successor in interest) shall be paid by
the Company an amount equal to the product of Executive's Base Salary
in effect as of the Date of Termination, multiplied by two, payable in
cash in a lump sum on or before the fifteenth day following the Date of
Termination.
b. Termination Upon Death. If the Employment Period is
terminated by Executive's death, the Company shall pay Executive's
surviving spouse, or if he leaves no spouse, his personal
representative, as successor in interest, (i) an amount equal to the
then current Base Salary (paid in one lump sum payment on or before the
fifteenth day following the date of Executive's death), and (ii) any
death benefit payable under any employee benefit plans, programs and
arrangements of the Company in which Executive is a participant on the
date of his death.
c. Termination Upon Disability. If the Employment Period is
terminated in accordance with the terms of paragraph 5(c) because of
Executive's Disability, the Company shall pay to Executive (or in the
event of Executive's death after finding of Disability, his surviving
spouse, or if he leaves no spouse, his personal representative, as
successor in interest) all compensation and benefits specified under
paragraph 4 herein, for a period of one year from the Date of
Termination, payable in the same manner as if the Employment Period had
not been terminated.
d. Additional Separation Benefit. For a period of three years
following (i) the full completion of the Employment Period or (ii)
following the Date of Termination of the Employment Period for any
reason other than termination by the Company for Cause or termination
by Executive for other than Good Reason, the Company shall permit, at
the Company's expense, Executive, his spouse and dependents, as
applicable (the "Benefit Participants"), to participate in all group
medical health insurance plans and employee benefit plans, programs and
arrangements now or hereafter made available to the senior executive
employees of the Company (the "Plans") (including but not limited to
such Plans in which Executive was entitled to participate immediately
prior to the Date of Termination), in the same manner provided to its
other senior executive employees; provided, however, that this
paragraph 6(d) shall not apply in the event that (i) the Company shall
hereafter terminate the applicable Plan, or (ii) the participation of
the Benefit Participants in such Plan is prohibited by law or, if
applicable, would disqualify such Plan as a tax qualified plan pursuant
to the Code, or (iii) the participation of the Benefit Participants
violates the general terms and provisions of such applicable Plan. In
the event that any of the Benefit Participants' participation in such
Plans is prohibited by law or, if applicable, would disqualify the Plan
as a tax qualified plan, or the participation of the Benefit
Participants violates the general terms and provisions of such
applicable Plan, the Company shall permit the Benefit Participants to
acquire substantially comparable coverage or benefits, at the Company's
expense, from a source of Executive's or his spouse's choosing,
provided,
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<PAGE> 8
however, that if provision of such coverage or benefit would result in
a cost of excess of 130% of the cost to the Company if provided under a
Company Plan, the Company may satisfy its obligations under this
paragraph 6(d) by contributing to the Benefit Participants 130% of the
cost to the Company under the Company Plans. Notwithstanding the
foregoing, in no event will the Benefit Participants receive from the
Company the coverage and benefits contemplated by this paragraph 6(d)
if the Benefit Participants receive such coverage and benefits from any
other source.
e. Excise Tax Gross-Up. If Executive becomes entitled to one
or more payments (with a "payment" including, but not limited to, the
vesting of an option or other non-cash benefit or property), whether
pursuant to the terms of this Agreement or any other plan, arrangement,
or agreement with the Company or any affiliated company (the "Total
Payments"), which are or become subject to the tax imposed by Section
4999 of the Code (or any similar tax that may hereafter be imposed)
(the "Excise Tax"), the Company shall pay to Executive at the time
specified below an additional amount (the "Gross-Up Payment") (which
shall include, but not be limited to, reimbursement for any penalties
and interest that may accrue in respect of such Excise Tax) such that
the net amount retained by Executive, after reduction for any Excise
Tax (including any penalties or interest thereon) on the Total Payments
and any federal, state and local income or employment tax and Excise
Tax on the Gross-Up Payment provided for by this subparagraph (e), but
before reduction for any federal, state, or local income or employment
tax on the Total Payments, shall be equal to the sum of (a) the Total
Payments, and (b) an amount equal to the product of any deductions
disallowed to Executive for federal, state, or local income tax
purposes because of the inclusion of the Gross-Up Payment in
Executive's adjusted gross income multiplied by the highest applicable
marginal rate of federal, state, or local income taxation,
respectively, for the calendar year in which the Gross-Up Payment is to
be made.
For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such
Excise Tax:
i. The Total Payments shall be treated as "parachute
payments" within the meaning of Section 280G(b)(2) of the
Code, and all "excess parachute payments" within the meaning
of Section 280G(b)(1) of the Code shall be treated as subject
to the Excise Tax, unless, and except to the extent that, in
the written opinion of independent compensation consultants or
auditors of nationally recognized standing ("Independent
Advisors") selected by the Company and reasonably acceptable
to Executive, the Total Payments (in whole or in part) do not
constitute parachute payments, or such excess parachute
payments (in whole or in part) represent reasonable
compensation for services actually rendered within the meaning
of Section 280G(b)(4) of the Code in excess of the base amount
within the meaning of Section 280G(b)(3) of the Code or are
otherwise not subject to the Excise Tax;
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<PAGE> 9
ii. The amount of the Total Payments which shall be
treated as subject to the Excise Tax shall be equal to the
lesser of (A) the total amount of the Total Payments or (B)
the total amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying
clause (i) above); and
iii. The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Independent Advisors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the
Gross-Up Payment, Executive shall be deemed (A) to pay federal income
taxes at the highest marginal rate of federal income taxation for the
calendar year in which the Gross-Up Payment is to be made; (B) to pay
any applicable state and local income taxes at the highest marginal
rate of taxation for the calendar year in which the Gross-Up Payment is
to be made, net of the maximum reduction in federal income taxes which
could be obtained from deduction of such state and local taxes if paid
in such year (determined without regard to limitations on deductions
based upon the amount of Executive's adjusted gross income); and (C) to
have otherwise allowable deductions for federal, state, and local
income tax purposes at least equal to those disallowed because of the
inclusion of the Gross-Up Payment in Executive's adjusted gross income.
In the event that the Excise Tax is subsequently determined to be less
than the amount taken into account hereunder at the time the Gross-Up
Payment is made, Executive shall repay to the Company at the time that
the amount of such reduction in Excise Tax is finally determined (but,
if previously paid to the taxing authorities, not prior to the time the
amount of such reduction is refunded to Executive or otherwise realized
as a benefit of Executive) the portion of the Gross-Up Payment that
would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-Up Payment, plus interest on the amount
of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder at the time the Gross-Up Payment is
made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment in respect of such
excess (plus any interest and penalties payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
The Gross-Up Payment provided for above shall be paid
on the 30th day (or such earlier date as the Excise Tax becomes due and
payable to the taxing authorities) after it has been determined that
the Total Payments (or any portion thereof) are subject to the Excise
Tax; provided, however, that if the amount of such Gross-Up Payment or
portion thereof cannot be finally determined on or before such day, the
Company shall pay to Executive on such day an estimate, as determined
by he Independent Advisors, of the minimum amount of such payments and
shall pay the remainder of such payments (together with interest at the
rate provided in Section 1274(b)(2)(B) of the Code), as soon as the
amount thereof can be determined. In the event that the amount of the
estimated payments
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<PAGE> 10
exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to Executive, payable on
the fifth day after demand by the Company (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code). If more than
one Gross-Up Payment is made, the amount of each Gross-Up Payment shall
be computed so as not to duplicate any prior Gross-Up Payment. The
Company shall have the right to control all proceedings with the
Internal Revenue Service that may arise in connection with the
determination and assessment of any Excise Tax and, at its sole option,
the Company may pursue or forego any and all administrative appeals,
proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties
thereon); provided, however, that the Company's control over any such
proceedings shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder, and Executive shall be entitled to
settle or contest any other issue raised by the Internal Revenue
Service or any other taxing authority. Executive shall cooperate with
the Company in any proceedings relating to the determination and
assessment of any Excise Tax and shall not take any position or action
that would materially increase the amount of any Gross-Up Payment
hereunder.
7. Noncompetition. During the Employment Period and continuing until
the second anniversary thereof, Executive shall not, without the prior written
authorization of the Board of Directors of the Company, (i) directly or
indirectly render services of a business, professional or commercial nature
(whether for compensation or otherwise) to any person or entity competitive or
adverse to the Company's business welfare, (ii) engage in any activity, whether
alone, as a partner, or as an officer, director, employee, consultant,
independent contractor, or stockholder in any other corporation, person, or
entity which is competitive with or adverse to the Company's business welfare,
(iii) hire or solicit for hire any of the Company's employees, prospective
employees or consultants (iv) solicit the business of any client of the Company,
or any prospective client of the Company that had been serviced or solicited by
the Company during the two (2) years preceding Executive's termination, or (v)
enter into any agreements with any supplier of the Company regarding the sale or
distribution of products of the supplier.
In the event that Executive's employment with the Company is terminated by
Executive or the Company at any time, for any reason whatsoever, the Company
shall have the right to inform any of Executive's future employers or
prospective employers of the existence of this Section 7 of the Agreement. This
Section 7 shall not, however, prevent Executive from investing in securities
issued by any such competitive or adverse corporation provided the holdings
thereof by Executive do not constitute more than three percent of any one class
of such securities.
8. Confidentiality.
a. Disclosure and Use. Executive shall not disclose or use, or
authorize anyone else to disclose or use, at any time, either during or
after the Employment Period, any trade secrets or other confidential
information of the Company of which Executive is or becomes informed or
aware of prior to or during the Employment Period, except (i) as may be
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<PAGE> 11
required for Executive to perform his duties and obligations under this
Agreement, (ii) to the extent such information has been disclosed to
Executive by a third party who is not affiliated with the Company or
which otherwise becomes generally available to the public, (iii)
information which must be disclosed as a result of a subpoena or other
legal process, provided that the Company is given reasonable notice and
an opportunity to obtain a protective order, or (iv) unless Executive
shall first secure the Company's prior written authorization. This
paragraph shall survive the termination of this Employment Period,
whether by lapse of time or otherwise, and shall remain in effect and
be enforceable against Executive for as long as any such Company trade
secrets or confidential information retains commercial value. Executive
shall execute additional agreements and confirmations of his
obligations to the Company concerning such non-disclosure of Company
trade secrets and other confidential information as the Company may
require from time to time, provided that the execution of such
additional agreements and confirmations are (i) reasonable and (ii) are
required of all other senior executive employees of the Company under
similar circumstances.
b. Return of Materials. Upon termination of his employment for
any reason, Executive (or in the event of termination due to
Executive's death, his surviving spouse or personal representative, as
applicable) shall promptly deliver to the Company all materials of a
secret or confidential nature relating to the Company's business, which
are in the possession or under the control of Executive.
9. Inventions. Executive hereby assigns to the Company all of his
rights, title, and interest in and to all inventions, discoveries, processes,
designs, and other intellectual property, including but not limited to trade
secrets, copyrights, patents, trademarks and trade names (collectively
hereinafter referred to as "Inventions"), and all improvements on existing
Inventions made or discovered by Executive during the term of his employment by
the Company. Promptly upon the development or making of any such Invention or
improvement thereon, Executive shall disclose the same to the Company and shall
execute and deliver to it such reasonable documents as it may request to confirm
the assignment of Executive's rights therein and, if requested, shall assist the
Company in applying for copyright, patent or trademark protection and
prosecuting any patents which may be available in respect thereof. The Company
acknowledges and hereby notifies Executive that this paragraph 9 does not apply
to an Invention for which no equipment, supplies, facility or trade secret
information of the Company was used and which was developed entirely on
Executive's own time, unless (a) the Invention relates to (i) the business of
the Company, or (ii) the Company's actual or demonstrably anticipated research
or development, or (b) the Invention results from any work performed by
Executive for the Company.
10. Remedies. If, at any time, Executive violates to any material
extent any of the covenants or agreements set forth in paragraphs 7, 8 or 9, the
Company shall have the right to terminate all of its obligations to make further
payments under this Agreement. Executive acknowledges that the Company would be
irreparably injured by a violation of paragraphs 7, 8 or 9, that damages for
such a breach are not easily calculated, and that any remedy at law would be
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inadequate. Therefore, Executive agrees that the Company shall be entitled to an
injunction restraining Executive from any actual or threatened breach of
paragraphs 7, 8 or 9 or to any other appropriate equitable remedy without any
bond or other security being required.
It is expressly understood between the parties that this injunctive or equitable
relief shall not be Employer's exclusive remedy for breach of this Agreement.
Without limitation, in the event of any breach by Executive of paragraphs 7, 8
or 9 of this Agreement, such Executive shall not be entitled to receive any
salary payments or any other compensation beyond the date of such breach to
which he would otherwise be entitled, and Executive shall be obligated to repay
to Employer salary payments received by him at any time after the occurrence of
such breach.
11. Resolution of Disputes.
a. In the event of any controversy among the parties hereto
arising out of, or relating to, this Agreement (other than a
controversy arising out of or relating to paragraphs 7, 8 or 9 hereof),
which cannot be settled amicably by the parties, such controversy shall
be finally settled by arbitration conducted expeditiously in accordance
with the American Arbitration Association Commercial Arbitration Rules
and the Supplementary Procedures for Large, Complex Disputes, by an
independent arbitrator. Either the Company or Executive may institute
such arbitration proceeding by giving written notice to the other
party. A hearing shall be held by the arbitrator in the City of
Chicago, Illinois, and a decision of the matter submitted to the
arbitrator shall be rendered promptly in accordance with the rules of
the American Arbitration Association. The prevailing party shall be
entitled to all costs and expenses with respect to such arbitration,
including reasonable attorneys' fees. The decision of the arbitrator
shall be final and binding upon all parties hereto. Judgment upon the
award rendered may be entered in any court having jurisdiction thereof.
b. Notwithstanding the foregoing, Executive acknowledges and
agrees that the Company may seek in a court of competent jurisdiction
an injunction prohibiting Executive's breach or alleged breach of
paragraphs 7, 8 and 9.
12. Legal Fees. Should any litigation or arbitration be commenced
concerning any provision of this Agreement or Executive's employment or
termination of employment, the prevailing party shall be entitled, in addition
to such other relief as may be granted, to its attorneys' fees and costs
incurred by reason of such litigation or arbitration.
13. Executive's Representations and Warranties. Executive hereby
represents, warrants, and covenants that:
(a) Executive has no actual or potential conflict of interest
performing Executive's obligations and duties hereunder, will avoid any
such conflict during the Employment Period and will immediately report
any such conflict to the Company;
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(b) the execution, delivery, and performance of this Agreement
by Executive will not violate any law, order, regulation, agreement,
contract, promise or duty by which Executive is bound;
(c) this Agreement is duly executed and is valid and binding
on Executive in accordance with its terms; and
(d) the Inventions developed by Executive for, or delivered by
Executive to, the Company do not and will not infringe upon any third
party trade secrets, copyrights, patents, trademarks or similar
proprietary rights. Executive hereby indemnifies and holds harmless the
Company and its directors, officers, employees, affiliates, agents,
representatives, successors and assigns for any breach of the foregoing
representation and warranty. The foregoing indemnity shall survive any
termination of this Agreement or the Employment Period for any reason.
14. Amendment and Termination. This Agreement may not be amended or
canceled except by written instrument signed by both parties and approved by the
Board of Directors or a committee thereof.
15. Modification and Waiver of Breach. No waiver or modification of
this Agreement shall be binding unless it is in writing, signed by the parties
hereto. The waiver by Company or Executive of any term or breach of this
Agreement shall not prevent a subsequent enforcement of such term or any other
term and shall not be deemed to be a waiver of any subsequent breach.
16. Notice. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed given or delivered and
received (i) when delivered personally (which shall be deemed to include
delivery via express courier such as Federal Express), or (ii) three days after
having been sent by registered or certified mail, return receipt requested, or
(iii) upon receipt when sent by facsimile, telegram or telex followed by a
confirmation letter sent by registered or certified mail, return receipt
requested, addressed as follows:
If to the Company: Quotesmith.com, Inc.
8205 South Cass Avenue
Suite 102
Darien, IL 60561
Facsimile: (800) 515-0270
Attention: President
With a Copy to: Craig C. Bradley, Esq.
Freeborn & Peters
311 South Wacker Drive
Suite 3000
Chicago, IL 60606
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Facsimile: (312) 360-6573
If to Executive: William V. Thoms
8205 South Cass Avenue
Suite 102
Darien, IL 60561
Facsimile: (800) 515-0270
Either the Company or Executive may, at any time, by notice to the other,
designate another address for service of notice on such party.
17. Non-assignment. The interests of Executive under this Agreement are
not subject to the claims of his creditors and may not be voluntarily or
involuntarily assigned, alienated or encumbered. Company may assign its rights,
duties or obligations under this Agreement to any person with whom it has merged
or consolidated, or to whom it has transferred all, or substantially all, of its
assets.
18. Severability. If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed (i) modified
only to the extent necessary to render such provision valid, or (ii) not
applicable to given circumstances, or (iii) excised from this Agreement, as the
situation may require, and this Agreement shall be construed and enforced as if
such provision had been included herein as so modified in scope or application,
or had not been included herein, as the case may be. Should this Agreement, or
any one of more of the provisions hereof, be held to be invalid, illegal or
unenforceable within any governmental jurisdiction or subdivision thereof, the
Agreement or any such provision or provisions shall not as a consequence thereof
be deemed to be invalid, illegal or unenforceable in any other governmental
jurisdiction or subdivision thereof.
19. Successors. This Agreement shall be binding upon, and inure to the
benefit of the parties and their permitted successors and assigns. Nothing in
this Agreement, express or implied, is intended or shall be construed to confer
upon any person, other than the parties and their respective successors and
assigns permitted by this Agreement, any right, remedy or claim under, or by
reason of, this Agreement.
20. Entire Agreement. This Agreement constitutes the entire agreement
between Company and Executive with respect to the subject matter hereof. This
Agreement supersedes any prior agreement made between the parties.
21. Counterparts. The Agreement may be executed in two or more
counterparts, any one of which shall be deemed an original and all of which
taken together shall constitute a single instrument.
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<PAGE> 15
22. Governing Law. This Agreement, and all matters or disputes relating
to the validity, construction, performance or enforcement hereof, shall be
governed, construed and controlled by and under the laws of the State of
Illinois without regard to principles of conflicts of law.
23. Effective Date. This Agreement shall be effective on the Effective
Date. If the initial public offering is not consummated, this Agreement shall be
null and void.
24. EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD AND ACCEPTS THE
PROVISIONS OF THIS AGREEMENT. HE ALSO ACKNOWLEDGES THAT HE HAS HAD THE
OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS AGREEMENT.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date written above.
QUOTESMITH.COM, INC.
By: /s/ ROBERT S. BLAND
-------------------------------------
ROBERT S. Bland
President and Chief Executive Officer
EXECUTIVE
By: /s/ WILLIAM V. THOMS
-------------------------------------
William V. Thoms
Executive Vice President
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<PAGE> 1
EXHIBIT 10.5
FORM OF
EMPLOYMENT AGREEMENT
Quotesmith.com, Inc., a Delaware corporation (the "Company") and Ronald
A. Wozniak ("Executive") enter into this Employment Agreement as of July 7, 1999
(the "Agreement"), effective as of the effective date of the Company's
Registration Statement on Form S-1 (Registration Number 333-79355) filed with
the Securities and Exchange Commission related to its initial public offering of
the Company's common stock (the "Effective Date").
WHEREAS, Company is planning an initial public offering of its stock,
and has begun to take the necessary steps in furtherance of this course of
action;
WHEREAS, as a condition to taking the Company public, the parties have
agreed to enter into a new Agreement; and
WHEREAS, both the Executive and the Company are willing to enter into
this Agreement upon the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and
Executive hereby covenant and agree as follows:
1. TERM OF EMPLOYMENT. The Company shall employ Executive, and
Executive shall be employed by the Company for the period that ends on December
31, 2001 or such earlier date as Executive's employment terminates under Section
3 of this Agreement (the "Employment Term"). After expiration of the initial
term, as set forth herein, the Employment Term shall automatically be renewed
each January 1 for successive one-year terms unless the Company or Executive
delivers written notice to the other party at least sixty (60) days preceding
the expiration of the initial term or any one-year extension date of the
intention not to extend the term of this Agreement.
2. PERFORMANCE OF DUTIES. Executive shall have the title of Vice
President of Information Systems. Executive will report to the Company's
President and Chief Executive Officer, or such other officer as the Board of
Directors may direct. Executive will have such powers and perform such duties as
are normally incident to the position of Vice President as provided in the
Company's by-laws and in accordance with applicable law. Executive will
discharge his duties subject to and in observance of such reasonable rules,
regulations, policies, directions and restrictions as may be established from
time to time by the Company.
Throughout the Employment Term, Executive shall devote substantially his full
business time, attention, knowledge and skills, faithfully, diligently and to
the best of his ability, to the active performance of his duties and
responsibilities hereunder, and do such traveling as may reasonably be required
in connection with the performance of such duties and responsibilities.
<PAGE> 2
3. COMPENSATION.
(a) BASE SALARY. For services rendered by Executive to the
Company during the Employment Term the Company will pay Executive an annual base
salary payable in monthly or more frequent installments, in accordance with the
usual payroll practice of the Company in an amount equal to $125,000 (the "Base
Salary"), less income tax withholdings and other normal employee deductions. The
Base Salary shall not be decreased during the Employment Term but may, at the
sole discretion of the Company, from time to time be increased by an amount
which the Company deems appropriate.
(b) BONUS. At the reasonable determination of the Board, the
Executive shall be eligible to receive an annual bonus based upon the factors
reasonably chosen by the Board, including, without limitation, the profitability
of the Company and performance of, or contribution by, Executive with respect
thereto. Such bonus shall be payable within ninety (90) days after the end of
the fiscal year in which it is earned.
(c) VACATION. Throughout the Employment Term, Executive will
be entitled to take, at such times as are mutually convenient to Executive and
the Company, a total of three (3) weeks of paid vacation annually in accordance
with the Company's policy.
(d) FRINGE BENEFITS. The Company shall make available to
Executive, throughout the Employment Term, such benefits and perquisites as are
generally provided by the Company to its executive employees. Executive shall be
eligible to participate in and receive coverage and benefits under all group
insurance, stock ownership and other employee benefit plans, programs and
arrangements of the Company which are now or hereafter adopted by the Company
for the benefit of its senior executive employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans,
programs and arrangements.
(e) BUSINESS EXPENSES. The Company shall reimburse Executive
for the reasonable and necessary business expenses incurred by Executive in
connection with the performance of his employment duties during the Employment
Term. Such expenses shall include, but are not limited to, all expenses of
travel and living expenses while away from home on business or at the request of
and in the service of the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by the
Company. Reimbursement shall be made upon the presentation by Executive to the
Company of reasonably detailed statements of such expenses.
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<PAGE> 3
4 TERMINATION.
(a) FOR CAUSE. The Employment Term may be terminated at any
time at the option of the Company for "Cause," as defined in this subsection
(a), effective upon Notice of Termination, as defined in subsection (f), to
Executive. As used in this Agreement, the term "Cause" means: (i) Executive's
conviction of, or plea of nolo contendere to, a felony; (ii) Executive's breach
of any legal duty of loyalty to the Company, misappropriation of the Company's
funds, or dishonest, fraudulent, illegal or unethical business conduct; (iii)
Executive's failure to satisfactorily perform his duties under this Agreement,
which failure continues after notice from the Company and a reasonable cure
period; (iv) Executive's breach of the obligations provided in sections 6, 7 or
8 of this Agreement; (v) Executive's illegal use of controlled substances, (vi)
any material breach of this Agreement by the Executive (other than one
identified above) which shall continue after notice from the Company and a
reasonable cure period. Termination for Cause shall be effective immediately for
those events described in subparagraphs (i), (ii), (iv), and (v). Termination
for Cause shall be effective immediately upon the giving of notice by the
Company to Executive of the continuance of Executive's failure to perform or
comply with respect to the items described in subparagraph (iii) above or the
continuance of a breach described in subparagraph (vi) above. In the event that
the Executive is purportedly terminated for cause and a court, arbitrator, or
other tribunal having jurisdiction determines that Cause was not present, then
such purported termination for Cause shall be deemed a termination without Cause
pursuant to section 4(b) and Executive's rights and remedies will be governed by
section 4(g) hereof, in full satisfaction and in lieu of any and all other or
further remedies the Executive may have.
(b) WITHOUT CAUSE. The Company may terminate the Executive
without Cause and for any reason effective upon Notice of Termination to the
Executive or such later date as may be specified in such notice.
(c) DEATH. The Employment Term shall terminate automatically
effective upon the death of Executive.
(d) DISABILITY. The Employment Term shall terminate
automatically effective upon Notice of Termination to Executive (or such later
date as may be specified in such notice) following a determination by the Board
of Directors that the Executive is unable to perform the essential functions of
his employment position due to a disability of Executive that cannot be
reasonably accommodated by the Company.
(e) TERMINATION BY EXECUTIVE. Executive may terminate the
Employment Term upon Notice of Termination to the Company delivered at least 60
days before the effective date of termination.
(f) NOTICE OF TERMINATION. Any termination of the Employment
Term by the Company or by Executive (other than termination upon Executive's
death) shall be
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<PAGE> 4
communicated by written Notice of Termination to the other party hereto. For
purposes of this Agreement, a "Notice of Termination" shall mean a notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of the Employment Term under the section so
indicated.
(g) TERMINATION DISPUTES. If, within 30 days after any Notice
of Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding and final arbitration
award or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
5. SEVERANCE BENEFITS.
(a) TERMINATION FOR CAUSE OR BY EXECUTIVE. If the Employment
Term is terminated by the Company for Cause under section 4(a) of this
Agreement, or if the Employment Term is terminated by the Executive under
section 4(e) of this Agreement, the Company shall have no further liability
under this Agreement except to pay Executive (i) the value of any accrued salary
or other compensation due to Executive as of the effective date of such
termination, and (ii) any benefit payable under the employee benefit plans,
programs and arrangements of the Company in which Executive is a participant on
the date of delivery of the Notice of Termination.
(b) TERMINATION WITHOUT CAUSE. If the Employment Term is
terminated by the Company without Cause (other than because of death or
disability) under section 4(b), the Company shall pay Executive (A) the value of
any accrued salary or other compensation due to Executive as of the effective
date of such termination, (B) any benefit payable under the employee benefit
plans, programs and arrangements of the Company in which Executive is a
participant on the date of delivery of Notice of Termination, and (C) severance
benefits in an amount equal to the product of Executive's Base Salary in effect
as of the date of such termination, multiplied by one, payable in a lump sum on
or before the fifteenth date following the date of termination.
(c) COMPENSATION UPON DEATH. If the Employment Term is
terminated by the death of the Executive, the Company shall have no further
liability under this Agreement except to pay Executive (i) the value of any
accrued salary, or other compensation due to Executive as of the date of the
Executive's death, and (ii) any benefit payable under all employee benefit
plans, programs and arrangements of the Company in which Executive is a
participant on the date of his death.
(d) COMPENSATION UPON DISABILITY. If the Employment Term is
terminated by the Company under section 4(d) of this Agreement due to
Executive's disability, the
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<PAGE> 5
Company shall have no further liability under this Agreement except to pay
Executive (i) the value of any accrued salary or other compensation due to
Executive as of the effective date of such termination, and (ii) any benefit
payable under the employee benefit plans, programs and arrangements of the
Company in which Executive is a participant on the date of delivery of the
Notice of Termination, provided, however, that in the event Executive is paid
disability benefits under any disability benefit plan of the Company in which he
participates, any salary payments made to Executive during such period shall be
reduced by the sum of such amounts.
6. CONFIDENTIAL INFORMATION.
(a) DISCLOSURE AND USE. Executive shall not disclose or use at
any time, either during or after Executive's employment with the Company or any
other direct or indirect subsidiary of the Company (collectively referred to
herein as the "Company"), any trade secrets or other confidential information,
whether patentable or not, of the Company, including but not limited to,
technical or non-technical data, a formula, pattern, compilation, program,
device, method, technique, drawing, process, financial data, or list of actual
or potential customers or suppliers, of which Executive is or becomes informed
or aware during his employment, whether or not developed by Executive, except
(i) as may be required for Executive to perform his employment duties with the
Company; (ii) to the extent such information has been disclosed to Executive by
a third party who is not subject to restriction on the dissemination of such
information or becomes generally available to the public other than as a result
of a disclosure by a party who is not subject to restriction on the
dissemination of such information; (iii) information which must be disclosed as
a result of a subpoena or other legal process, after the Company has had the
opportunity to request a suitable protective order for such information, or (iv)
unless Executive shall first secure the Company's prior written authorization.
This covenant shall survive the termination of Executive's employment with the
Company, and shall remain in effect and be enforceable against Executive for so
long as any such Company secret or confidential information retains economic
value, whether actual or potential, from not being generally known to other
persons who can obtain economic value from its disclosure or use. Executive
shall execute such reasonable further agreements of Executive's obligations to
the Company concerning non-disclosure of Company trade secrets and confidential
information as the Company may require from time to time.
(b) RETURN OF MATERIALS. Upon termination of the Employment
Term, Executive (or in the event of termination due to Executive's death, his
estate or devisee, legatee or other designee, as applicable) shall promptly
deliver to the Company all assets of the Company, including materials of a
secret or confidential nature relating to the Company's business, which are in
the possession or under the control of Executive.
7. INVENTIONS AND DISCOVERIES. Executive hereby assigns to the Company
all of his rights, title and interest in and to all inventions, discoveries,
processes, designs and other intellectual property, including without
limitation, copyrights, patents, trademarks and trade names (hereinafter
referred to collectively as the "Inventions"), and all improvements on
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<PAGE> 6
existing Inventions made or discovered by Executive during the Employment Term.
Promptly upon the development or making of any such Invention or improvement
thereon, Executive shall disclose the same to the Company and shall execute and
deliver to the Company such reasonable documents as the Company may request to
confirm the assignment of Executive's rights therein and, if requested by the
Company, shall assist the Company in applying for copyrights and trademark
protection and in applying for and prosecuting any patents which may be
available for said Invention or improvement. The Company acknowledges and hereby
notifies Executive that this section 6 does not apply to an Invention for which
no equipment, supplies, facility or trade secret information of the Company was
used and which was developed entirely on Executive's own time, unless (a) the
Invention relates to (i) the business of the Company, or (ii) the Company's
actual or demonstrably anticipated research or development, or (b) the Invention
results from any work performed by Executive for the Company.
8. RESTRICTIVE COVENANTS.
(a) RESTRICTION ON COMPETITION. During the Employment Term and
for a two-year period following the Employment Term, Executive shall not,
without the prior written authorization of the Board of Directors of the
Company, directly or indirectly render services of a business, professional or
commercial nature (whether for compensation or otherwise) to any person or
entity competitive or adverse to the Company's business welfare or engage in any
activity whether alone, as a partner, or as an officer, director, employee,
consultant, independent contractor, or stockholder in any other corporation,
person, or entity which is competitive with or adverse to the Company's business
welfare. This section 8(a) shall not, however, prohibit Executive from investing
in the publicly traded securities issued by any such competitive or adverse
corporation, provided the holdings thereof by Executive do not constitute more
that two percent of any one class of such securities.
(b) RESTRICTION ON EMPLOYEE SOLICITATION. During the
Employment Term and for a two-year period following the Employment Term,
Executive shall not employ or attempt to employ or assist anyone else to employ
any person who is at such time, or at any time during the preceding year was, an
employee of or consultant to the Company, provided that this clause shall not
restrict Executive from employing a third party vendor who supplies generic
services to the industry. As used in this section 8, the verb "employ" shall
include its variations, for example, retain, engage or conduct business with;
the term the "Company" shall include subsidiaries or affiliates, if any, of the
Company.
(c) REASONABLE SCOPE AND TIME. The parties acknowledge that
the time, scope, and other provisions of this Agreement have been specifically
negotiated by the parties and agree that all such provisions are reasonable
under the circumstances and are given as an integral and essential part of
Executive's employment hereunder. In the event that any covenant
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<PAGE> 7
contained in this Agreement is determined by any court of competent jurisdiction
to be unenforceable by reason of its extending for too great a period of time or
by reason of its being too extensive in any other respect, it shall be
interpreted to extend only over the maximum period of time for which it may be
enforceable and to the maximum intent in all other respects as to which it may
be enforceable, all as determined by such court in such action.
9. SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable, either in its entirety or by virtue of its scope or application
to given circumstances, such provision shall thereupon be deemed (i) modified
only to the extent necessary to render it valid, or (ii) not applicable to given
circumstances, or (iii) excised from this Agreement, as the situation may
require, and this Agreement shall be construed and enforced as if such provision
had been included herein as so modified in scope or application, or had not been
included herein, as the case may be.
10. ARBITRATION OF DISPUTES. Any controversy or claim arising out of or
relating to this Agreement, or the breach of this Agreement, (other than a
controversy arising out of or relating to Sections 6, 7 or 8 hereof), shall be
settled by arbitration in Chicago, Illinois, conducted in accordance with the
American Arbitration Association Commercial Arbitration Rules and the
Supplementary procedures for Large, Complex Disputes, by an independent
arbitrator. Either the Company or Executive may institute such arbitration
proceeding by giving written notice to the other party. The decision of the
arbitrator shall be final and binding upon both parties hereto. Judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
11. ENFORCEMENT. Executive hereby acknowledges that the Company would
suffer irreparable injury if the provisions of sections 6, 7, and 8 herein,
which shall survive the termination of this Agreement, were breached and that
the Company's remedies at law would be inadequate in the event of such breach or
threatened breach. Accordingly, Executive hereby agrees that any such breach or
threatened breach may, in addition to any and all other available remedies
(including those remedies provided in section 10), be preliminarily and
permanently enjoined in a court of law or equity by the Company without bond.
12. LEGAL FEES AND EXPENSES. In the event of litigation or arbitration
under this Agreement, the prevailing party shall be entitled, in addition to
such other relief as may be granted, to its attorneys' fees and costs incurred
by reason of such litigation or arbitration.
13. GENERAL PROVISIONS.
(A) NOTICES. Any notice, request, demand or other
communication required or permitted to be given hereunder shall be in writing
and personally delivered or sent by registered or certified mail, return receipt
requested, or by a facsimile, telegram or telex followed by a confirmation
letter sent by registered or certified mail, return receipt requested, addressed
as follows:
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<PAGE> 8
To the Company: Quotesmith.com, Inc.
8205 South Cass
Darien, IL 60561
Attention: President
Fax: (800) 515-0270
with a copy to: Craig C. Bradley, Esq.
Freeborn & Peters
311 South Wacker Drive
Suite 3000
Chicago, Illinois 60606
Fax: (312) 360-6573
To Executive: Mr. Ronald A. Wozniak
8205 South Cass
Darien, IL 60561
Either the Company or Executive may, at any time, by notice to the other,
designate another address for service of notice on such party. When the letter,
facsimile, telegram or telex is dispatched as provided for above, the notice
shall be deemed to be made when the addressee receives the letter, facsimile,
telegram or telex, or within three days after it is sent, whichever is earlier.
(b) AMENDMENTS. Neither this Agreement nor any of the terms or
conditions hereof may be waived, amended or modified except by means of a
written instrument duly executed by the party to be charged therewith.
(c) CAPTIONS AND HEADINGS. The captions and section headings
used in this Agreement are for convenience of reference only, and shall not
affect the construction or interpretation of this Agreement or any of the
provisions hereof.
(d) GOVERNING LAW. This Agreement, and all matters or disputes
relating to the validity, construction, performance or enforcement hereof, shall
be governed, construed and controlled by and under the laws of the State of
Illinois without regard to principles of conflicts of law.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, personal representatives, successors and
permitted assigns.
(f) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original hereof, but all
of which together shall constitute one and the same instrument.
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(g) ENTIRE AGREEMENT. Except as otherwise set forth or
referred to in this Agreement, this Agreement constitutes the sole and entire
agreement and understanding between the parties hereto as to the subject matter
hereof, and supersedes all prior discussions, agreements and understandings of
every kind and nature between them as to such subject matter.
(h) RELIANCE BY THIRD PARTIES. This Agreement is intended for
the sole and exclusive benefit of the parties hereto and their respective heirs,
executors, administrators, personal representatives, successors and permitted
assigns, and no other person or entity shall have any right to rely on this
Agreement or to claim or derive any benefit therefrom absent the express written
consent of the party to be charged with such reliance or benefit.
14. EFFECTIVE DATE. This Agreement shall be effective on the Effective
Date. If the initial public offering is not consummated, this Agreement shall be
null and void.
15. ACKNOWLEDGMENT. EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD
AND ACCEPTS THE PROVISIONS OF THIS AGREEMENT. HE ALSO ACKNOWLEDGES THAT HE HAS
HAD THE OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS
AGREEMENT.
[Signature page follows]
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IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date written above.
QUOTESMITH.COM, INC.
By: /s/ ROBERT S. BLAND
-----------------------------------
Robert S. Bland, President
By: /s/ RONALD A. WOZNIAK
-----------------------------------
Ronald A. Wozniak
Vice President of Information
Systems
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EXHIBIT 10.6
EMPLOYMENT AGREEMENT
Quotesmith.com, Inc., a Delaware corporation (the "Company") and Thomas
A. Munro ("Executive") enter into this Employment Agreement as of July 7, 1999
(the "Agreement"), effective as of the Effective Date.
WHEREAS, Company is planning an initial public offering of its stock,
and has begun to take the necessary steps in furtherance of this course of
action;
WHEREAS, as a condition to taking the Company public, the parties have
agreed to enter into a new Employment Agreement;
WHEREAS, the Company desires to employ Executive upon the terms and
subject to the conditions of this Agreement; and
WHEREAS, Executive desires to be employed by the Company upon the terms
and subject to the conditions of this Agreement.
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth below, and for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the Company and Executive hereby
covenant and agree as follows:
1. Definitions. For purposes of this Agreement, the following
capitalized terms shall have the following meanings, and all other capitalized
terms used in this Agreement but not defined in this paragraph 1 shall have the
meanings assigned elsewhere in this Agreement:
"Base Salary" means $225,000.
"Cause" means:
(i) Executive's conviction of (or plea of no contest or
similar plea to) a felony; or
(ii) Executive's intentional continuing refusal to
substantially perform his obligations and duties under this
Agreement (except by reason of incapacity due to illness or
accident) if he (a) shall have failed to remedy the alleged
breach caused by such conduct within 30 days from the date
written notice is given by the Company demanding that he
remedy the alleged breach caused by such conduct, or (b) shall
have failed to take reasonable steps in good faith to that end
during such 30-day period, provided that after the end of such
30-day period there shall have been delivered to Executive a
certified copy of a resolution of the Board of Directors of
the Company, taken at a meeting of the Board of Directors at
which Executive, together with his counsel, is given the
opportunity to be heard, finding that Executive was guilty of
intentionally refusing to substantially perform his
obligations and duties
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under this Agreement and specifying the details thereof, and
that Executive has failed to take reasonable steps in good
faith to remedy the alleged breach caused by such conduct,
(iii) upon a finding that Executive engaged in willful
fraud or defalcation, either of which involved funds or other
assets of the Company; or
(iv) upon Executive's breach of any material term of
this Agreement (including, but not limited to, the noncompete
and confidentiality provisions in paragraphs 7 and 8).
"Change in Control" means and shall be deemed to occur:
(i) in the event any "person" (as such term is used in
paragraphs 13(d) and 14(d) of the Exchange Act) (other than
Robert S. Bland and his affiliates) or more than one such
person acting as a group, other than a trustee or other
fiduciary holding securities under an employee benefit plan of
the Company, is or becomes the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly,
of the securities of the Company, in a transaction or a series
of transactions, representing thirty percent (30%) or more of
the combined voting power of the Company's then outstanding
securities ordinarily having the right to vote for the
election of directors of the Company;
(ii) during any period of two consecutive years during
the Employment Period, individuals who at the beginning of the
Employment Period constitute the Board of Directors of the
Company cease for any reason to constitute at least a majority
thereof, unless the election, or the nomination for election
by the Company's stockholders, of each director who was not a
director at the beginning of the Employment Period has been
approved in advance by directors representing at least
two-thirds of the directors then in office who were (A)
directors at the beginning of the Employment Period, or (B)
previously approved in accordance with this subparagraph (ii);
(iii) the Company sells or otherwise disposes of all or
substantially all of its assets; and
(iv) the Company participates in a merger or
consolidation and, immediately following the consummation of
such merger or consolidation, the Company's stockholders prior
to such merger or consolidation do not own 50% or more of the
voting shares of stock of the surviving or successor
corporation.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor thereto.
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"Compensation Committee" means the applicable compensation committee of
the Board of Directors of the Company.
"Disabled" or "Disability" means a determination, made at the request
of Executive or upon the reasonable request of the Company set forth in
a notice to Executive, by a physician selected by the Company and
Executive, that Executive is unable to perform his duties as specified
in this Agreement and in all reasonable medical likelihood such
inability will continue for a period in excess of 180 days, or for
shorter periods aggregating to more than 180 days in any consecutive
nine-month period.
"Effective Date" shall be the closing date of the Company's initial
public offering pursuant to the S-1 Registration Statement with the
Securities and Exchange Commission on May ____, 1999.
"Employment Period" means the term of Executive's employment pursuant
to the provisions of this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and any successor thereto.
"Good Reason" means:
(i) a Change in Control of the Company;
(ii) a decrease in the total amount of Executive's Base
Salary below the amount in effect on the date hereof;
(iii) a reduction in Executive's title, a material
reduction in his authority, duties or job responsibilities, a
material adverse change in his working conditions (including
the relocation of Executive's office more than 40 miles from
the Company's present executive offices), without Executive's
consent, as determined by Executive in his reasonable
judgment;
(iv) a failure by the Company to comply with any material
provision of this Agreement if the Company shall have failed
to remedy the alleged breach within 60 days from the date
written notice of such noncompliance is given by Executive to
the Company; or
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(v) any purported termination of Executive's employment
which is not effected pursuant to a proper Notice of
Termination (and for purposes of this Agreement no such
purported termination shall be effective).
"Notice of Termination" means a written notice of either the Company or
Executive, as applicable, setting forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination.
"Termination Date" means the effective date of employment termination.
2. Term of Employment. The Company shall employ Executive, and
Executive shall be employed by the Company and shall provide services to the
Company upon the terms and conditions hereinafter set forth. The initial term of
Executive's employment with the Company shall continue, unless earlier
terminated pursuant to Section 5 hereof, through December 31, 2001 (the
"Employment Period"); provided, however, that after expiration of the initial
term, the Employment Period shall automatically be renewed each January 1 for
successive one-year terms unless the Company or Executive delivers written
notice to the other party at least sixty (60) days preceding the expiration of
the initial term or any one-year extension date of the intention not to extend
the term of this Agreement.
3. Performance of Duties. Executive shall have the titles of Vice
President and Chief Financial Officer of the Company, and he shall possess such
powers and perform such duties as are normally incident to such position, as
provided in the By-laws of the Company and in accordance with the General
Corporation Law of the State of Delaware. During this period, Executive agrees
that he shall perform his duties faithfully and efficiently subject to the
direction of the President and the Board of Directors of the Company, and the
Company agrees that Executive shall be required to report to the President and
to the Board of Directors.
Executive agrees that during the Employment Period he shall devote substantially
his full business time to business affairs of the Company, provided, however,
that notwithstanding any other provision hereof, Executive may serve in any
capacity with any civic, educational and charitable organization provided, in
each case, such activities do not materially interfere with the performance of
his duties hereunder, and such service is consistent with all Company policies
and procedures regarding such service. Executive shall be entitled to retain all
compensation (whether in the form of cash, equity securities or perquisites)
paid or delivered to Executive in connection with such civic, educational or
charitable activities. Executive agrees that Executive shall not, without the
prior consent of the Board of Directors of the Company (which consent shall not
be unreasonably withheld), agree to serve on any boards of directors other than
the boards of directors upon which Executive presently serves.
4. Compensation. For services rendered by Executive, and upon the
condition that Executive fully and faithfully perform all of his duties and
obligations set forth herein, Executive shall be compensated for his services as
follows:
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1. Base Salary. Executive shall receive an annual salary,
payable in monthly or more frequent installments, in accordance with
the usual payroll practice of the Company, in an amount equal to
$________ (the "Base Salary"), less income tax withholdings and other
normal employee deductions. The Base Salary shall be reviewed annually
as of the end of each fiscal year commencing January 1, 2002 by the
Compensation Committee, and may, at the sole discretion of the
Compensation Committee, be increased by an amount that it deems
appropriate. If the Base Salary is increased by the Compensation
Committee, it shall not be decreased thereafter during the Employment
Period.
2. Bonus. Executive shall receive bonus payments in
accordance with any arrangements or bonus plans established by the
Company, in such amounts and upon such terms as are determined by the
Compensation Committee.
(c) Management Stock Option Plan. Should the Company
establish a stock option plan or plans with respect to which senior
executives of the Company participate and which excepts other employees
of the Company generally, Executive shall be entitled to participate in
such plans in the same manner as other senior executives of the
Company.
(d) Benefits. During his employment with the Company,
Executive shall be entitled to participate, to the extent he meets all
eligibility requirements of general application, in any and all
employee benefit plans, programs and arrangements which are now or
hereafter adopted by the Company to provide benefits for its employees,
including, but not limited to, medical and hospitalization, group term
life insurance, disability, and retirement plans. Additionally,
Executive shall receive such other benefits as Company may make
generally available to its senior executive officers.
(e) Vacation. Executive shall be entitled to _______weeks
of paid vacation, in accordance with the policy of the Company in
effect from time to time, to be taken at times agreeable to both the
Executive and the Company.
(f) Travel and Expenses. The Company shall reimburse
Executive for the reasonable and necessary business expenses incurred
by him in connection with the performance of his duties and obligations
as set forth herein consistent with any existent Company policy with
respect to same. Reimbursement shall be made upon the presentation by
Executive to the Company of reasonably detailed statements of such
expenses.
Payment of the Base Salary shall not in any way limit or reduce any other
obligation of the Company pursuant to this Agreement, and no other compensation,
benefit, or payment hereunder shall in any way limit or reduce the obligation of
the Company to pay Executive's Base Salary, except that, for the period
commencing on the date Executive becomes Disabled and ending on the Termination
Date, the Base Salary shall be reduced by any amounts that are payable to
Executive prior to or during such period under any disability benefit plan of
the Company in which Executive participates.
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5. Termination. Executive's employment hereunder shall terminate
at the end of the Employment Period. In addition, the Employment Period may be
terminated at any time as provided herein. After Notice of Termination has been
delivered, and prior to the Termination Date, Executive shall make reasonable
efforts to cooperate with Company in achieving a transition of Executive's
duties and responsibilities.
1. Cause. The Employment Period may be terminated at the
option of the Company for Cause effective upon the date stated in the
Notice of Termination to Executive.
2. Death. The Employment Period will terminate
automatically effective upon Executive's death.
3. Disability. In the event Executive becomes Disabled (as
such term is hereinafter defined) during the Employment Period, and the
Company is unable to make a reasonable accommodation which would enable
Executive to continue to perform the essential functions of his
employment position with the Company, the Employment Period may be
terminated at the option of Executive or the Company effective 30 days
after a Notice of Termination is given (provided that Executive shall
not have returned to the performance of his duties on a full-time basis
during such 30-day period). Unless otherwise agreed by Executive and
the Board of Directors, the determination by the physician selected by
Company and Executive that Executive is Disabled shall be binding upon
the Company and Executive.
4. Voluntary Resignation. Executive may resign his
employment at any time with or without Good Reason, effective upon
Notice of Termination (which shall state whether such resignation is
with Good Reason) given by Executive to the Company.
5. Termination without Cause by the Company. The Company
may terminate Executive's employment at any time, effective upon Notice
of Termination (which shall state that such termination is without
Cause) given by the Company to Executive.
If, within 30 days after any Notice of Termination for Cause is given by the
Company, Executive notifies the Company that a dispute exists concerning the
termination, then the Termination Date shall be the date (the "Final
Determination") as determined either by mutual written agreement of the parties,
by a binding and final arbitration award or by a final judgment, order or decree
of a court of competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected). Notwithstanding the foregoing, the
Company shall not be prohibited from removing Executive from his position with
the Company pending the Final Determination provided that such removal is
without prejudice to Executive's rights to receive all benefits from the Company
to which he may be entitled upon the Final Determination.
6. Separation Benefits. Executive shall be entitled to receive
separation benefits upon such events and in such amounts as are set forth in
this Section 6.
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1. Termination Without Cause or for Good Reason. In the
event that Executive's employment with the Company is terminated at any
time during the Employment Period by the Company without Cause, or by
Executive for Good Reason, then Executive (or if he shall have died
after termination but prior to payment, his surviving spouse, or if he
leaves no spouse, his personal representative, as successor in
interest) shall be paid by the Company an amount equal to the product
of Executive's Base Salary in effect as of the Date of Termination,
multiplied by two, payable in cash in a lump sum on or before the
fifteenth day following the Date of Termination.
2. Termination Upon Death. If the Employment Period is
terminated by Executive's death, the Company shall pay Executive's
surviving spouse, or if he leaves no spouse, his personal
representative, as successor in interest, (i) an amount equal to the
then current Base Salary (paid in one lump sum payment on or before the
fifteenth day following the date of Executive's death), and (ii) any
death benefit payable under any employee benefit plans, programs and
arrangements of the Company in which Executive is a participant on the
date of his death.
3. Termination Upon Disability. If the Employment Period
is terminated in accordance with the terms of paragraph 5(c) because of
Executive's Disability, the Company shall pay to Executive (or in the
event of Executive's death after finding of Disability, his surviving
spouse, or if he leaves no spouse, his personal representative, as
successor in interest) all compensation and benefits specified under
paragraph 4 herein, for a period of one year from the Date of
Termination, payable in the same manner as if the Employment Period had
not been terminated.
4. Additional Separation Benefit. For a period of three
years following (i) the full completion of the Employment Period or
(ii) following the Date of Termination of the Employment Period for any
reason other than termination by the Company for Cause or termination
by Executive for other than Good Reason, the Company shall permit, at
the Company's expense, Executive, his spouse and dependents, as
applicable (the "Benefit Participants"), to participate in all group
medical health insurance plans and employee benefit plans, programs and
arrangements now or hereafter made available to the senior executive
employees of the Company (the "Plans") (including but not limited to
such Plans in which Executive was entitled to participate immediately
prior to the Date of Termination), in the same manner provided to its
other senior executive employees; provided, however, that this
paragraph 6(d) shall not apply in the event that (i) the Company shall
hereafter terminate the applicable Plan, or (ii) the participation of
the Benefit Participants in such Plan is prohibited by law or, if
applicable, would disqualify such Plan as a tax qualified plan pursuant
to the Code, or (iii) the participation of the Benefit Participants
violates the general terms and provisions of such applicable Plan. In
the event that any of the Benefit Participants' participation in such
Plans is prohibited by law or, if applicable, would disqualify the Plan
as a tax qualified plan, or the participation of the Benefit
Participants violates the general terms
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and provisions of such applicable Plan, the Company shall permit the
Benefit Participants to acquire substantially comparable coverage or
benefits, at the Company's expense, from a source of Executive's or his
spouse's choosing, provided, however, that if provision of such
coverage or benefit would result in a cost of excess of 130% of the
cost to the Company if provided under a Company Plan, the Company may
satisfy its obligations under this paragraph 6(d) by contributing to
the Benefit Participants 130% of the cost to the Company under the
Company Plans. Notwithstanding the foregoing, in no event will the
Benefit Participants receive from the Company the coverage and benefits
contemplated by this paragraph 6(d) if the Benefit Participants receive
such coverage and benefits from any other source.
5. Excise Tax Gross-Up. If Executive becomes entitled to
one or more payments (with a "payment" including, but not limited to,
the vesting of an option or other non-cash benefit or property),
whether pursuant to the terms of this Agreement or any other plan,
arrangement, or agreement with the Company or any affiliated company
(the "Total Payments"), which are or become subject to the tax imposed
by Section 4999 of the Code (or any similar tax that may hereafter be
imposed) (the "Excise Tax"), the Company shall pay to Executive at the
time specified below an additional amount (the "Gross-Up Payment")
(which shall include, but not be limited to, reimbursement for any
penalties and interest that may accrue in respect of such Excise Tax)
such that the net amount retained by Executive, after reduction for any
Excise Tax (including any penalties or interest thereon) on the Total
Payments and any federal, state and local income or employment tax and
Excise Tax on the Gross-Up Payment provided for by this subparagraph
(e), but before reduction for any federal, state, or local income or
employment tax on the Total Payments, shall be equal to the sum of (a)
the Total Payments, and (b) an amount equal to the product of any
deductions disallowed to Executive for federal, state, or local income
tax purposes because of the inclusion of the Gross-Up Payment in
Executive's adjusted gross income multiplied by the highest applicable
marginal rate of federal, state, or local income taxation,
respectively, for the calendar year in which the Gross-Up Payment is to
be made.
For purposes of determining whether any of the Total
Payments will be subject to the Excise Tax and the amount of such
Excise Tax:
1. The Total Payments shall be treated as
"parachute payments" within the meaning of Section 280G(b)(2)
of the Code, and all "excess parachute payments" within the
meaning of Section 280G(b)(1) of the Code shall be treated as
subject to the Excise Tax, unless, and except to the extent
that, in the written opinion of independent compensation
consultants or auditors of nationally recognized standing
("Independent Advisors") selected by the Company and
reasonably acceptable to Executive, the Total Payments (in
whole or in part) do not constitute parachute payments, or
such excess parachute payments (in whole or in part) represent
reasonable compensation for services actually rendered within
the meaning of Section
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280G(b)(4) of the Code in excess of the base amount within the
meaning of Section 280G(b)(3) of the Code or are otherwise not
subject to the Excise Tax;
2. The amount of the Total Payments which shall
be treated as subject to the Excise Tax shall be equal to the
lesser of (A) the total amount of the Total Payments or (B)
the total amount of excess parachute payments within the
meaning of Section 280G(b)(1) of the Code (after applying
clause (i) above); and
3. The value of any non-cash benefits or any
deferred payment or benefit shall be determined by the
Independent Advisors in accordance with the principles of
Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed (A) to pay federal income taxes at
the highest marginal rate of federal income taxation for the calendar
year in which the Gross-Up Payment is to be made; (B) to pay any
applicable state and local income taxes at the highest marginal rate of
taxation for the calendar year in which the Gross-Up Payment is to be
made, net of the maximum reduction in federal income taxes which could
be obtained from deduction of such state and local taxes if paid in
such year (determined without regard to limitations on deductions based
upon the amount of Executive's adjusted gross income); and (C) to have
otherwise allowable deductions for federal, state, and local income tax
purposes at least equal to those disallowed because of the inclusion of
the Gross-Up Payment in Executive's adjusted gross income. In the event
that the Excise Tax is subsequently determined to be less than the
amount taken into account hereunder at the time the Gross-Up Payment is
made, Executive shall repay to the Company at the time that the amount
of such reduction in Excise Tax is finally determined (but, if
previously paid to the taxing authorities, not prior to the time the
amount of such reduction is refunded to Executive or otherwise realized
as a benefit of Executive) the portion of the Gross-Up Payment that
would not have been paid if such Excise Tax had been applied in
initially calculating the Gross-Up Payment, plus interest on the amount
of such repayment at the rate provided in Section 1274(b)(2)(B) of the
Code. In the event that the Excise Tax is determined to exceed the
amount taken into account hereunder at the time the Gross-Up Payment is
made (including by reason of any payment the existence or amount of
which cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional Gross-Up Payment in respect of such
excess (plus any interest and penalties payable with respect to such
excess) at the time that the amount of such excess is finally
determined.
The Gross-Up Payment provided for above shall be paid
on the 30th day (or such earlier date as the Excise Tax becomes due and
payable to the taxing authorities) after it has been determined that
the Total Payments (or any portion thereof) are subject to the Excise
Tax; provided, however, that if the amount of such Gross-Up Payment or
portion thereof cannot be finally determined on or before such day, the
Company shall pay to Executive on such day an estimate, as determined
by he Independent Advisors, of the
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minimum amount of such payments and shall pay the remainder of such
payments (together with interest at the rate provided in Section
1274(b)(2)(B) of the Code), as soon as the amount thereof can be
determined. In the event that the amount of the estimated payments
exceeds the amount subsequently determined to have been due, such
excess shall constitute a loan by the Company to Executive, payable on
the fifth day after demand by the Company (together with interest at
the rate provided in Section 1274(b)(2)(B) of the Code). If more than
one Gross-Up Payment is made, the amount of each Gross-Up Payment shall
be computed so as not to duplicate any prior Gross-Up Payment. The
Company shall have the right to control all proceedings with the
Internal Revenue Service that may arise in connection with the
determination and assessment of any Excise Tax and, at its sole option,
the Company may pursue or forego any and all administrative appeals,
proceedings, hearings, and conferences with any taxing authority in
respect of such Excise Tax (including any interest or penalties
thereon); provided, however, that the Company's control over any such
proceedings shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder, and Executive shall be entitled to
settle or contest any other issue raised by the Internal Revenue
Service or any other taxing authority. Executive shall cooperate with
the Company in any proceedings relating to the determination and
assessment of any Excise Tax and shall not take any position or action
that would materially increase the amount of any Gross-Up Payment
hereunder.
7. Noncompetition. During the Employment Period and continuing
until the second anniversary thereof, Executive shall not, without the prior
written authorization of the Board of Directors of the Company, (i) directly or
indirectly render services of a business, professional or commercial nature
(whether for compensation or otherwise) to any person or entity competitive or
adverse to the Company's business welfare, (ii) engage in any activity, whether
alone, as a partner, or as an officer, director, employee, consultant,
independent contractor, or stockholder in any other corporation, person, or
entity which is competitive with or adverse to the Company's business welfare,
(iii) hire or solicit for hire any of the Company's employees, prospective
employees or consultants (iv) solicit the business of any client of the Company,
or any prospective client of the Company that had been serviced or solicited by
the Company during the two (2) years preceding Executive's termination, or (v)
enter into any agreements with any supplier of the Company regarding the sale or
distribution of products of the supplier.
In the event that Executive's employment with the Company is terminated by
Executive or the Company at any time, for any reason whatsoever, the Company
shall have the right to inform any of Executive's future employers or
prospective employers of the existence of this Section 7 of the Agreement. This
Section 7 shall not, however, prevent Executive from investing in securities
issued by any such competitive or adverse corporation provided the holdings
thereof by Executive do not constitute more than three percent of any one class
of such securities.
8. Confidentiality.
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1. Disclosure and Use. Executive shall not disclose or
use, or authorize anyone else to disclose or use, at any time, either
during or after the Employment Period, any trade secrets or other
confidential information of the Company of which Executive is or
becomes informed or aware of prior to or during the Employment Period,
except (i) as may be required for Executive to perform his duties and
obligations under this Agreement, (ii) to the extent such information
has been disclosed to Executive by a third party who is not affiliated
with the Company or which otherwise becomes generally available to the
public, (iii) information which must be disclosed as a result of a
subpoena or other legal process, provided that the Company is given
reasonable notice and an opportunity to obtain a protective order, or
(iv) unless Executive shall first secure the Company's prior written
authorization. This paragraph shall survive the termination of this
Employment Period, whether by lapse of time or otherwise, and shall
remain in effect and be enforceable against Executive for as long as
any such Company trade secrets or confidential information retains
commercial value. Executive shall execute additional agreements and
confirmations of his obligations to the Company concerning such
non-disclosure of Company trade secrets and other confidential
information as the Company may require from time to time, provided that
the execution of such additional agreements and confirmations are (i)
reasonable and (ii) are required of all other senior executive
employees of the Company under similar circumstances.
2. Return of Materials. Upon termination of his employment
for any reason, Executive (or in the event of termination due to
Executive's death, his surviving spouse or personal representative, as
applicable) shall promptly deliver to the Company all materials of a
secret or confidential nature relating to the Company's business, which
are in the possession or under the control of Executive.
9. Inventions. Executive hereby assigns to the Company all of his
rights, title, and interest in and to all inventions, discoveries, processes,
designs, and other intellectual property, including but not limited to trade
secrets, copyrights, patents, trademarks and trade names (collectively
hereinafter referred to as "Inventions"), and all improvements on existing
Inventions made or discovered by Executive during the term of his employment by
the Company. Promptly upon the development or making of any such Invention or
improvement thereon, Executive shall disclose the same to the Company and shall
execute and deliver to it such reasonable documents as it may request to confirm
the assignment of Executive's rights therein and, if requested, shall assist the
Company in applying for copyright, patent or trademark protection and
prosecuting any patents which may be available in respect thereof. The Company
acknowledges and hereby notifies Executive that this paragraph 9 does not apply
to an Invention for which no equipment, supplies, facility or trade secret
information of the Company was used and which was developed entirely on
Executive's own time, unless (a) the Invention relates to (i) the business of
the Company, or (ii) the Company's actual or demonstrably anticipated research
or development, or (b) the Invention results from any work performed by
Executive for the Company.
10. Remedies. If, at any time, Executive violates to any material
extent any of the covenants or agreements set forth in paragraphs 7, 8 or 9, the
Company shall have the right to
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terminate all of its obligations to make further payments under this Agreement.
Executive acknowledges that the Company would be irreparably injured by a
violation of paragraphs 7, 8 or 9, that damages for such a breach are not easily
calculated, and that any remedy at law would be inadequate. Therefore, Executive
agrees that the Company shall be entitled to an injunction restraining Executive
from any actual or threatened breach of paragraphs 7, 8 or 9 or to any other
appropriate equitable remedy without any bond or other security being required.
It is expressly understood between the parties that this injunctive or equitable
relief shall not be Employer's exclusive remedy for breach of this Agreement.
Without limitation, in the event of any breach by Executive of paragraphs 7, 8
or 9 of this Agreement, such Executive shall not be entitled to receive any
salary payments or any other compensation beyond the date of such breach to
which he would otherwise be entitled, and Executive shall be obligated to repay
to Employer salary payments received by him at any time after the occurrence of
such breach.
11. Resolution of Disputes.
1. In the event of any controversy among the parties
hereto arising out of, or relating to, this Agreement (other than a
controversy arising out of or relating to paragraphs 7, 8 or 9 hereof),
which cannot be settled amicably by the parties, such controversy shall
be finally settled by arbitration conducted expeditiously in accordance
with the American Arbitration Association Commercial Arbitration Rules
and the Supplementary Procedures for Large, Complex Disputes, by an
independent arbitrator. Either the Company or Executive may institute
such arbitration proceeding by giving written notice to the other
party. A hearing shall be held by the arbitrator in the City of
Chicago, Illinois, and a decision of the matter submitted to the
arbitrator shall be rendered promptly in accordance with the rules of
the American Arbitration Association. The prevailing party shall be
entitled to all costs and expenses with respect to such arbitration,
including reasonable attorneys' fees. The decision of the arbitrator
shall be final and binding upon all parties hereto. Judgment upon the
award rendered may be entered in any court having jurisdiction thereof.
2. Notwithstanding the foregoing, Executive acknowledges
and agrees that the Company may seek in a court of competent
jurisdiction an injunction prohibiting Executive's breach or alleged
breach of paragraphs 7, 8 and 9.
12. Legal Fees. Should any litigation or arbitration be commenced
concerning any provision of this Agreement or Executive's employment or
termination of employment, the prevailing party shall be entitled, in addition
to such other relief as may be granted, to its attorneys' fees and costs
incurred by reason of such litigation or arbitration.
13. Executive's Representations and Warranties. Executive hereby
represents, warrants, and covenants that:
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<PAGE> 13
(a) Executive has no actual or potential conflict of
interest performing Executive's obligations and duties hereunder, will
avoid any such conflict during the Employment Period and will
immediately report any such conflict to the Company;
(b) the execution, delivery, and performance of this
Agreement by Executive will not violate any law, order, regulation,
agreement, contract, promise or duty by which Executive is bound;
(c) this Agreement is duly executed and is valid and
binding on Executive in accordance with its terms; and
(d) the Inventions developed by Executive for, or
delivered by Executive to, the Company do not and will not infringe
upon any third party trade secrets, copyrights, patents, trademarks or
similar proprietary rights. Executive hereby indemnifies and holds
harmless the Company and its directors, officers, employees,
affiliates, agents, representatives, successors and assigns for any
breach of the foregoing representation and warranty. The foregoing
indemnity shall survive any termination of this Agreement or the
Employment Period for any reason.
14. Amendment and Termination. This Agreement may not be amended
or canceled except by written instrument signed by both parties and approved by
the Board of Directors or a committee thereof.
15. Modification and Waiver of Breach. No waiver or modification
of this Agreement shall be binding unless it is in writing, signed by the
parties hereto. The waiver by Company or Executive of any term or breach of this
Agreement shall not prevent a subsequent enforcement of such term or any other
term and shall not be deemed to be a waiver of any subsequent breach.
16. Notice. Any notice required or permitted to be given under
this Agreement shall be in writing and shall be deemed given or delivered and
received (i) when delivered personally (which shall be deemed to include
delivery via express courier such as Federal Express), or (ii) three days after
having been sent by registered or certified mail, return receipt requested, or
(iii) upon receipt when sent by facsimile, telegram or telex followed by a
confirmation letter sent by registered or certified mail, return receipt
requested, addressed as follows:
If to the Company: Quotesmith.com, Inc.
8205 South Cass Avenue
Suite 102
Darien, IL 60561
Facsimile: (800) 515-0270
Attention: President
With a Copy to: Craig C. Bradley, Esq.
Freeborn & Peters
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<PAGE> 14
311 South Wacker Drive
Suite 3000
Chicago, IL 60606
Facsimile: (312) 360-6573
If to Executive: Thomas A. Munro
8205 South Cass Avenue
Suite 102
Darien, IL 60561
Facsimile: (800) 515-0270
Either the Company or Executive may, at any time, by notice to the other,
designate another address for service of notice on such party.
17. Non-assignment. The interests of Executive under this
Agreement are not subject to the claims of his creditors and may not be
voluntarily or involuntarily assigned, alienated or encumbered. Company may
assign its rights, duties or obligations under this Agreement to any person with
whom it has merged or consolidated, or to whom it has transferred all, or
substantially all, of its assets.
18. Severability. If any provision of this Agreement is held
invalid or unenforceable, either in its entirety or by virtue of its scope or
application to given circumstances, such provision shall thereupon be deemed (i)
modified only to the extent necessary to render such provision valid, or (ii)
not applicable to given circumstances, or (iii) excised from this Agreement, as
the situation may require, and this Agreement shall be construed and enforced as
if such provision had been included herein as so modified in scope or
application, or had not been included herein, as the case may be. Should this
Agreement, or any one of more of the provisions hereof, be held to be invalid,
illegal or unenforceable within any governmental jurisdiction or subdivision
thereof, the Agreement or any such provision or provisions shall not as a
consequence thereof be deemed to be invalid, illegal or unenforceable in any
other governmental jurisdiction or subdivision thereof.
19. Successors. This Agreement shall be binding upon, and inure to
the benefit of the parties and their permitted successors and assigns. Nothing
in this Agreement, express or implied, is intended or shall be construed to
confer upon any person, other than the parties and their respective successors
and assigns permitted by this Agreement, any right, remedy or claim under, or by
reason of, this Agreement.
20. Entire Agreement. This Agreement constitutes the entire
agreement between Company and Executive with respect to the subject matter
hereof. This Agreement supersedes any prior agreement made between the parties.
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<PAGE> 15
21. Counterparts. The Agreement may be executed in two or more
counterparts, any one of which shall be deemed an original and all of which
taken together shall constitute a single instrument.
22. Governing Law. This Agreement, and all matters or disputes
relating to the validity, construction, performance or enforcement hereof, shall
be governed, construed and controlled by and under the laws of the State of
Illinois without regard to principles of conflicts of law.
23. Effective Date. This Agreement shall be effective on the
Effective Date. If the initial public offering is not consummated, this
Agreement shall be null and void.
24. EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD AND
ACCEPTS THE PROVISIONS OF THIS AGREEMENT. HE ALSO ACKNOWLEDGES THAT HE HAS HAD
THE OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS AGREEMENT.
[Signature page follows]
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<PAGE> 16
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date written above.
QUOTESMITH.COM, INC.
By: /s/ ROBERT S. BLAND
----------------------------------
Robert S. Bland
President and Chief Executive
Officer
EXECUTIVE
By: /s/ THOMAS A. MUNRO
----------------------------------
Thomas A. Munro
Vice President and Chief
Financial Officer
16
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
Quotesmith.com, Inc., a Delaware corporation (the "Company") and Burke
A. Christensen ("Executive") enter into this Employment Agreement as of July 7,
1999 (the "Agreement"), effective as of the effective date of the Company's
Registration Statement on Form S-1 (Registration Number 333-79355) filed with
the Securities and Exchange Commission related to its initial public offering of
the Company's common stock (the "Effective Date").
WHEREAS, Company is planning an initial public offering of its stock,
and has begun to take the necessary steps in furtherance of this course of
action;
WHEREAS, as a condition to taking the Company public, the parties have
agreed to enter into a new Agreement; and
WHEREAS, both the Executive and the Company are willing to enter into
this Agreement upon the terms and conditions herein set forth;
NOW THEREFORE, in consideration of the mutual covenants and agreements
set forth in this Agreement, and for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and
Executive hereby covenant and agree as follows:
1. TERM OF EMPLOYMENT. The Company shall employ Executive, and
Executive shall be employed by the Company for the period that ends on December
31, 2001 or such earlier date as Executive's employment terminates under Section
3 of this Agreement (the "Employment Term"). After expiration of the initial
term, as set forth herein, the Employment Term shall automatically be renewed
each January 1 for successive one-year terms unless the Company or Executive
delivers written notice to the other party at least sixty (60) days preceding
the expiration of the initial term or any one-year extension date of the
intention not to extend the term of this Agreement.
2. PERFORMANCE OF DUTIES. Executive shall have the title of
Vice President of Operations and General Counsel. Executive will report to the
Company's President and Chief Executive Officer, or such other officer as the
Board of Directors may direct. Executive will have such powers and perform such
duties as are normally incident to the position of Vice President as provided in
the Company's by-laws and in accordance with applicable law. Executive will
discharge his duties subject to and in observance of such reasonable rules,
regulations, policies, directions and restrictions as may be established from
time to time by the Company.
Throughout the Employment Term, Executive shall devote substantially his full
business time, attention, knowledge and skills, faithfully, diligently and to
the best of his ability, to the active performance of his duties and
responsibilities hereunder, and do such traveling as may reasonably be required
in connection with the performance of such duties and responsibilities.
<PAGE> 2
3. COMPENSATION.
(a) BASE SALARY. For services rendered by Executive to the
Company during the Employment Term the Company will pay Executive an annual base
salary payable in monthly or more frequent installments, in accordance with the
usual payroll practice of the Company in an amount equal to $150,000 (the "Base
Salary"), less income tax withholdings and other normal employee deductions. The
Base Salary shall not be decreased during the Employment Term but may, at the
sole discretion of the Company, from time to time be increased by an amount
which the Company deems appropriate.
(b) BONUS. At the reasonable determination of the Board, the
Executive shall be eligible to receive an annual bonus based upon the factors
reasonably chosen by the Board, including, without limitation, the profitability
of the Company and performance of, or contribution by, Executive with respect
thereto. Such bonus shall be payable within ninety (90) days after the end of
the fiscal year in which it is earned.
(c) VACATION. Throughout the Employment Term, Executive will
be entitled to take, at such times as are mutually convenient to Executive and
the Company, a total of three (3) weeks of paid vacation annually in accordance
with the Company's policy.
(d) FRINGE BENEFITS. The Company shall make available to
Executive, throughout the Employment Term, such benefits and perquisites as are
generally provided by the Company to its executive employees. Executive shall be
eligible to participate in and receive coverage and benefits under all group
insurance, stock ownership and other employee benefit plans, programs and
arrangements of the Company which are now or hereafter adopted by the Company
for the benefit of its senior executive employees, subject to and on a basis
consistent with the terms, conditions and overall administration of such plans,
programs and arrangements.
(e) BUSINESS EXPENSES. The Company shall reimburse Executive
for the reasonable and necessary business expenses incurred by Executive in
connection with the performance of his employment duties during the Employment
Term. Such expenses shall include, but are not limited to, all expenses of
travel and living expenses while away from home on business or at the request of
and in the service of the Company, provided that such expenses are incurred and
accounted for in accordance with the policies and procedures established by the
Company. Reimbursement shall be made upon the presentation by Executive to the
Company of reasonably detailed statements of such expenses.
4 TERMINATION.
<PAGE> 3
(a) FOR CAUSE. The Employment Term may be terminated at any
time at the option of the Company for "Cause," as defined in this subsection
(a), effective upon Notice of Termination, as defined in subsection (f), to
Executive. As used in this Agreement, the term "Cause" means: (i) Executive's
conviction of, or plea of nolo contendere to, a felony; (ii) Executive's breach
of any legal duty of loyalty to the Company, misappropriation of the Company's
funds, or dishonest, fraudulent, illegal or unethical business conduct; (iii)
Executive's failure to satisfactorily perform his duties under this Agreement,
which failure continues after notice from the Company and a reasonable cure
period; (iv) Executive's breach of the obligations provided in sections 6, 7 or
8 of this Agreement; (v) Executive's illegal use of controlled substances, (vi)
any material breach of this Agreement by the Executive (other than one
identified above) which shall continue after notice from the Company and a
reasonable cure period. Termination for Cause shall be effective immediately for
those events described in subparagraphs (i), (ii), (iv), and (v). Termination
for Cause shall be effective immediately upon the giving of notice by the
Company to Executive of the continuance of Executive's failure to perform or
comply with respect to the items described in subparagraph (iii) above or the
continuance of a breach described in subparagraph (vi) above. In the event that
the Executive is purportedly terminated for cause and a court, arbitrator, or
other tribunal having jurisdiction determines that Cause was not present, then
such purported termination for Cause shall be deemed a termination without Cause
pursuant to section 4(b) and Executive's rights and remedies will be governed by
section 4(g) hereof, in full satisfaction and in lieu of any and all other or
further remedies the Executive may have.
(b) WITHOUT CAUSE. The Company may terminate the Executive
without Cause and for any reason effective upon Notice of Termination to the
Executive or such later date as may be specified in such notice.
(c) DEATH. The Employment Term shall terminate automatically
effective upon the death of Executive.
(d) DISABILITY. The Employment Term shall terminate
automatically effective upon Notice of Termination to Executive (or such later
date as may be specified in such notice) following a determination by the Board
of Directors that the Executive is unable to perform the essential functions of
his employment position due to a disability of Executive that cannot be
reasonably accommodated by the Company.
(e) TERMINATION BY EXECUTIVE. Executive may terminate the
Employment Term upon Notice of Termination to the Company delivered at least 60
days before the effective date of termination.
(f) NOTICE OF TERMINATION. Any termination of the Employment
Term by the Company or by Executive (other than termination upon Executive's
death) shall be communicated by written Notice of Termination to the other party
hereto. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision
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<PAGE> 4
in this Agreement relied upon and shall set forth in reasonable detail the facts
and circumstances claimed to provide a basis for termination of the Employment
Term under the section so indicated.
(g) TERMINATION DISPUTES. If, within 30 days after any Notice
of Termination is given, the party receiving such Notice of Termination notifies
the other party that a dispute exists concerning the termination, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding and final arbitration
award or by a final judgment, order or decree of a court of competent
jurisdiction (the time for appeal therefrom having expired and no appeal having
been perfected).
5. SEVERANCE BENEFITS.
(a) TERMINATION FOR CAUSE OR BY EXECUTIVE. If the Employment
Term is terminated by the Company for Cause under section 4(a) of this
Agreement, or if the Employment Term is terminated by the Executive under
section 4(e) of this Agreement, the Company shall have no further liability
under this Agreement except to pay Executive (i) the value of any accrued salary
or other compensation due to Executive as of the effective date of such
termination, and (ii) any benefit payable under the employee benefit plans,
programs and arrangements of the Company in which Executive is a participant on
the date of delivery of the Notice of Termination.
(b) TERMINATION WITHOUT CAUSE. If the Employment Term is
terminated by the Company without Cause (other than because of death or
disability) under section 4(b), the Company shall pay Executive (A) the value of
any accrued salary or other compensation due to Executive as of the effective
date of such termination, (B) any benefit payable under the employee benefit
plans, programs and arrangements of the Company in which Executive is a
participant on the date of delivery of Notice of Termination, and (C) severance
benefits in an amount equal to the product of Executive's Base Salary in effect
as of the date of such termination, multiplied by one, payable in a lump sum on
or before the fifteenth date following the date of termination.
(c) COMPENSATION UPON DEATH. If the Employment Term is
terminated by the death of the Executive, the Company shall have no further
liability under this Agreement except to pay Executive (i) the value of any
accrued salary, or other compensation due to Executive as of the date of the
Executive's death, and (ii) any benefit payable under all employee benefit
plans, programs and arrangements of the Company in which Executive is a
participant on the date of his death.
(d) COMPENSATION UPON DISABILITY. If the Employment Term is
terminated by the Company under section 4(d) of this Agreement due to
Executive's disability, the Company shall have no further liability under this
Agreement except to pay Executive (i) the value of any accrued salary or other
compensation due to Executive as of the effective date of such termination, and
(ii) any benefit payable under the employee benefit plans, programs and
arrangements of the Company in which Executive is a participant on the date of
delivery of the Notice of Termination, provided, however, that in the event
Executive is paid disability benefits under any disability benefit plan of the
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<PAGE> 5
Company in which he participates, any salary payments made to Executive during
such period shall be reduced by the sum of such amounts.
6. CONFIDENTIAL INFORMATION.
(a) DISCLOSURE AND USE. Executive shall not disclose or use at
any time, either during or after Executive's employment with the Company or any
other direct or indirect subsidiary of the Company (collectively referred to
herein as the "Company"), any trade secrets or other confidential information,
whether patentable or not, of the Company, including but not limited to,
technical or non-technical data, a formula, pattern, compilation, program,
device, method, technique, drawing, process, financial data, or list of actual
or potential customers or suppliers, of which Executive is or becomes informed
or aware during his employment, whether or not developed by Executive, except
(i) as may be required for Executive to perform his employment duties with the
Company; (ii) to the extent such information has been disclosed to Executive by
a third party who is not subject to restriction on the dissemination of such
information or becomes generally available to the public other than as a result
of a disclosure by a party who is not subject to restriction on the
dissemination of such information; (iii) information which must be disclosed as
a result of a subpoena or other legal process, after the Company has had the
opportunity to request a suitable protective order for such information, or (iv)
unless Executive shall first secure the Company's prior written authorization.
This covenant shall survive the termination of Executive's employment with the
Company, and shall remain in effect and be enforceable against Executive for so
long as any such Company secret or confidential information retains economic
value, whether actual or potential, from not being generally known to other
persons who can obtain economic value from its disclosure or use. Executive
shall execute such reasonable further agreements of Executive's obligations to
the Company concerning non-disclosure of Company trade secrets and confidential
information as the Company may require from time to time.
(b) RETURN OF MATERIALS. Upon termination of the Employment
Term, Executive (or in the event of termination due to Executive's death, his
estate or devisee, legatee or other designee, as applicable) shall promptly
deliver to the Company all assets of the Company, including materials of a
secret or confidential nature relating to the Company's business, which are in
the possession or under the control of Executive.
7. INVENTIONS AND DISCOVERIES. Executive hereby assigns to the
Company all of his rights, title and interest in and to all inventions,
discoveries, processes, designs and other intellectual property, including
without limitation, copyrights, patents, trademarks and trade names (hereinafter
referred to collectively as the "Inventions"), and all improvements on existing
Inventions made or discovered by Executive during the Employment Term. Promptly
upon the development or making of any such Invention or improvement thereon,
Executive shall disclose the same to the Company and shall execute and deliver
to the Company such reasonable documents as the Company may request to confirm
the assignment of Executive's rights therein and, if requested by the Company,
shall assist the Company in applying for copyrights and trademark protection and
in applying for and prosecuting any patents which may be available for said
Invention or improvement. The Company
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<PAGE> 6
acknowledges and hereby notifies Executive that this section 6 does not apply to
an Invention for which no equipment, supplies, facility or trade secret
information of the Company was used and which was developed entirely on
Executive's own time, unless (a) the Invention relates to (i) the business of
the Company, or (ii) the Company's actual or demonstrably anticipated research
or development, or (b) the Invention results from any work performed by
Executive for the Company.
8. RESTRICTIVE COVENANTS.
(a) RESTRICTION ON COMPETITION. During the Employment Term and
for a two-year period following the Employment Term, Executive shall not,
without the prior written authorization of the Board of Directors of the
Company, directly or indirectly render services of a business, professional or
commercial nature (whether for compensation or otherwise) to any person or
entity competitive or adverse to the Company's business welfare or engage in any
activity whether alone, as a partner, or as an officer, director, employee,
consultant, independent contractor, or stockholder in any other corporation,
person, or entity which is competitive with or adverse to the Company's business
welfare. This section 8(a) shall not, however, prohibit Executive from investing
in the publicly traded securities issued by any such competitive or adverse
corporation, provided the holdings thereof by Executive do not constitute more
that two percent of any one class of such securities.
(b) RESTRICTION ON EMPLOYEE SOLICITATION. During the
Employment Term and for a two-year period following the Employment Term,
Executive shall not employ or attempt to employ or assist anyone else to employ
any person who is at such time, or at any time during the preceding year was, an
employee of or consultant to the Company, provided that this clause shall not
restrict Executive from employing a third party vendor who supplies generic
services to the industry. As used in this section 8, the verb "employ" shall
include its variations, for example, retain, engage or conduct business with;
the term the "Company" shall include subsidiaries or affiliates, if any, of the
Company.
(c) REASONABLE SCOPE AND TIME. The parties acknowledge that
the time, scope, and other provisions of this Agreement have been specifically
negotiated by the parties and agree that all such provisions are reasonable
under the circumstances and are given as an integral and essential part of
Executive's employment hereunder. In the event that any covenant contained in
this Agreement is determined by any court of competent jurisdiction to be
unenforceable by reason of its extending for too great a period of time or by
reason of its being too extensive in any other respect, it shall be interpreted
to extend only over the maximum period of time for which it may be enforceable
and to the maximum intent in all other respects as to which it may be
enforceable, all as determined by such court in such action.
9. SEVERABILITY. If any provision of this Agreement is held
invalid or unenforceable, either in its entirety or by virtue of its scope or
application to given circumstances, such provision
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<PAGE> 7
shall thereupon be deemed (i) modified only to the extent necessary to render it
valid, or (ii) not applicable to given circumstances, or (iii) excised from this
Agreement, as the situation may require, and this Agreement shall be construed
and enforced as if such provision had been included herein as so modified in
scope or application, or had not been included herein, as the case may be.
10. ARBITRATION OF DISPUTES. Any controversy or claim arising out
of or relating to this Agreement, or the breach of this Agreement, (other than a
controversy arising out of or relating to Sections 6, 7 or 8 hereof), shall be
settled by arbitration in Chicago, Illinois, conducted in accordance with the
American Arbitration Association Commercial Arbitration Rules and the
Supplementary procedures for Large, Complex Disputes, by an independent
arbitrator. Either the Company or Executive may institute such arbitration
proceeding by giving written notice to the other party. The decision of the
arbitrator shall be final and binding upon both parties hereto. Judgment upon
the award rendered by the arbitrator may be entered in any court having
jurisdiction thereof.
11. ENFORCEMENT. Executive hereby acknowledges that the Company
would suffer irreparable injury if the provisions of sections 6, 7, and 8
herein, which shall survive the termination of this Agreement, were breached and
that the Company's remedies at law would be inadequate in the event of such
breach or threatened breach. Accordingly, Executive hereby agrees that any such
breach or threatened breach may, in addition to any and all other available
remedies (including those remedies provided in section 10), be preliminarily and
permanently enjoined in a court of law or equity by the Company without bond.
12. LEGAL FEES AND EXPENSES. In the event of litigation or
arbitration under this Agreement, the prevailing party shall be entitled, in
addition to such other relief as may be granted, to its attorneys' fees and
costs incurred by reason of such litigation or arbitration.
13. GENERAL PROVISIONS.
(a) NOTICES. Any notice, request, demand or other
communication required or permitted to be given hereunder shall be in writing
and personally delivered or sent by registered or certified mail, return receipt
requested, or by a facsimile, telegram or telex followed by a confirmation
letter sent by registered or certified mail, return receipt requested, addressed
as follows:
To the Company: Quotesmith.com, Inc.
8205 South Cass
Darien, IL 60561
Attention: President
Fax: (800) 515-0270
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<PAGE> 8
with a copy to: Craig C. Bradley, Esq.
Freeborn & Peters
311 South Wacker Drive
Suite 3000
Chicago, Illinois 60606
Fax: (312) 360-6573
To Executive: Mr. Burke A. Christensen
8205 South Cass
Darien, IL 60561
Either the Company or Executive may, at any time, by notice to the other,
designate another address for service of notice on such party. When the letter,
facsimile, telegram or telex is dispatched as provided for above, the notice
shall be deemed to be made when the addressee receives the letter, facsimile,
telegram or telex, or within three days after it is sent, whichever is earlier.
(b) AMENDMENTS. Neither this Agreement nor any of the terms or
conditions hereof may be waived, amended or modified except by means of a
written instrument duly executed by the party to be charged therewith.
(c) CAPTIONS AND HEADINGS. The captions and section headings
used in this Agreement are for convenience of reference only, and shall not
affect the construction or interpretation of this Agreement or any of the
provisions hereof.
(d) GOVERNING LAW. This Agreement, and all matters or disputes
relating to the validity, construction, performance or enforcement hereof, shall
be governed, construed and controlled by and under the laws of the State of
Illinois without regard to principles of conflicts of law.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
heirs, executors, administrators, personal representatives, successors and
permitted assigns.
(f) COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original hereof,
but all of which together shall constitute one and the same instrument.
(g) ENTIRE AGREEMENT. Except as otherwise set forth or
referred to in this Agreement, this Agreement constitutes the sole and entire
agreement and understanding between the parties hereto as to the subject matter
hereof, and supersedes all prior discussions, agreements and understandings of
every kind and nature between them as to such subject matter.
(h) RELIANCE BY THIRD PARTIES. This Agreement is intended for
the sole and exclusive benefit of the parties hereto and their respective heirs,
executors, administrators, personal
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<PAGE> 9
representatives, successors and permitted assigns, and no other person or entity
shall have any right to rely on this Agreement or to claim or derive any benefit
therefrom absent the express written consent of the party to be charged with
such reliance or benefit.
14. EFFECTIVE DATE. This Agreement shall be effective on the Effective
Date. If the initial public offering is not consummated, this Agreement shall be
null and void.
15. ACKNOWLEDGMENT. EXECUTIVE ACKNOWLEDGES THAT HE HAS READ, UNDERSTOOD
AND ACCEPTS THE PROVISIONS OF THIS AGREEMENT. HE ALSO ACKNOWLEDGES THAT HE HAS
HAD THE OPPORTUNITY TO AND HAS REVIEWED THE TERMS AND CONDITIONS OF THIS
AGREEMENT.
[Signature page follows]
9
<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Employment Agreement
as of the date written above.
QUOTESMITH.COM, INC.
By: /s/ ROBERT S. BLAND
----------------------------------
Robert S. Bland, President
By: /s/ BURKE A. CHRISTENSEN
----------------------------------
Burke A. Christensen
Vice President of Operations
10
<PAGE> 1
EXHIBIT 10.14
SERVICES AGREEMENT
This Services Agreement ("Agreement") is made as of this 9th day of
September, 1998 by and between Quotesmith Corporation, a Delaware corporation
("Quotesmith"), having its principal place of business at 8205 South Cass
Avenue, Suite 102, Darien Illinois 60561, and Intuit Insurance Services, Inc., a
Virginia corporation ("IIS"), having its principal place of business at 500
Montgomery Street, Fifth Floor, Alexandria, Virginia 22314.
W I T N E S S E T H
WHEREAS, Quotesmith has developed and maintains certain insurance
quotation extraction software and related insurance quotation information files
and provides its customers with instantaneous insurance quotations from
approximately 350 insurance companies over the Internet and related insurance
application processing and brokerage services; and
WHEREAS, IIS desires to utilize, license and operate on a
non-transferable, non-exclusive basis on the terms set forth herein certain of
Quotesmith's extraction software and related insurance quotation information
files so that IIS (or its affiliates) may publish instant insurance quotations
on the Internet derived from such software and information files and facilitate
a consumer's request to obtain insurance applications from Quotesmith through
IIS' (or its affiliates) Internet-based services (which services, as currently
made available through its main Internet site/functionality and other online
channels such as AOL, are branded as Quicken InsureMarket and referred to herein
as "QIM"), and to obtain other insurance related services from Quotesmith.
NOW THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth and for other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereto hereby agree as follows:
1. Definitions. Capitalized terms used herein shall have the following
meanings:
"Application" means a completed final application for insurance
coverage submitted by a person who has previously initiated and transmitted a
related Request for Application (defined below) through QIM to Quotesmith.
"Authorized Site(s)" means the location(s) of IIS' principal office in
Alexandria, Virginia, and such other sites as may used by IIS in the future to
support its Internet insurance services, e.g., development, testing, staging and
"hot" back-up sites. IIS will identify the location(s) of the Authorized Site(s)
in writing, which list may be added to or changed only upon thirty (30) days
prior written notice by IIS to Quotesmith. At the date of signing this
Agreement, IIS' only Authorized Site is its principal office in Alexandria,
Virginia.
"Quotesmith Licensed Data Files" means the insurance rate data files
described
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SCHEDULE 1 attached hereto, as updated from time to time by Quotesmith.
"Quotesmith Licensed Extraction Programs" means Quotesmith's computer
software programs files described SCHEDULE 1 attached hereto that interpret
consumer responses to standard underwriting and rating questions in order to
generate and present policy premium quotations using the rate information
contained in the Quotesmith Licensed Data Files.
"Quotesmith Licensed Software" means the Quotesmith Licensed Data Files
and the Quotesmith Licensed Extraction Programs.
"Request for Application" or "RFA" means the policy application
information transmitted by a person to Quotesmith for processing after such
person has received a quote for an insurance product available through
Quotesmith using a means provided by IIS or its affiliates to generate Requests
for Applications, including without limitation, through QIM or other Internet
sites and through telephonic requests for applications from prospective
applicants if a phone number for Quotesmith is published by IIS. The format of
and information to be contained in Requests for Applications processed through
IIS and its affiliates, and the manner of forwarding the same to Quotesmith, is
set forth on SCHEDULE 2 attached hereto.
2. License.
(a) Quotesmith grants to IIS, during the term of this Agreement and
subject to the terms and conditions of this Agreement, a non-exclusive and
non-transferable license to utilize the Quotesmith Licensed Software at the
Authorized Site(s) in order to generate and publish on-line insurance product
premium quotations to QIM site visitors and visitors to any other Internet sites
used by IIS or its affiliates, including OEM arrangements whereby QIM (whether
under its own brand name or a third party's name) is linked to Internet sites
owned by third parties, provided and on the condition that any Requests for
Applications for insurance products for which quotes were provided using the
Quotesmith Licensed Software shall be forwarded to Quotesmith for processing
pursuant to this Agreement. Pursuant to such license, Quotesmith shall ensure
that the Quotesmith Licensed Software (i) is made available to IIS as
contemplated by this Agreement and (ii) meet the specifications set forth on
SCHEDULE 1 attached hereto.
(b) Upon the execution and delivery of this Agreement, Quotesmith shall
deliver to IIS one (1) copy of the source and object code for the Quotesmith
Licensed Software , as well as any documentation with respect thereto, for use
by IIS at the Authorized Site(s) as provided in this Agreement. IIS and its
affiliates shall have the right to make a reasonable number of copies of and use
the Quotesmith Licensed Software, as well as the right to modify, alter or merge
the Quotesmith Licensed Software or portions thereof with other insurance
products marketed by IIS or any of its affiliates, in support of their insurance
product marketing, promotion and distribution activities.
(c) IIS is responsible for installing and operating the Quotesmith
Licensed Software on hardware located at the Authorized Site(s), including the
costs of obtaining and operating all
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hardware required to operate the Quotesmith Licensed Software as well as the
costs for IIS personnel to effect such installation. Quotesmith shall make its
personnel available to IIS for consultation to the extent such availability does
not unduly interfere with the normal operations of Quotesmith, provided that IIS
will reimburse Quotesmith for the reasonable travel, meal lodging and other
out-of-pocket costs of Quotesmith employees visiting IIS locations to assist in
such installation. If Quotesmith reasonably determines that the time demands of
IIS on Quotesmith personnel pursuant to this Section 2(c) are unexpectedly
significant, the parties agree to make appropriate arrangements for cost-sharing
by IIS.
(d) Without limiting the terms of SCHEDULE 1, Quotesmith shall make
available to IIS, on a schedule and in a manner acceptable to both parties (but
no less often than Quotesmith updates its data files for its own use or for the
use of third parties), updated information for the Quotesmith Licensed Data
Files (including, without limitation, policy pricing, coverage and independent
rating information). Quotesmith shall provide IIS with written notification of
the availability of such updates, and IIS shall bear responsibility for the
costs of transmitting such information to the Authorized Site(s).
3. Publication of Quotesmith Information; IIS Interface Design.
(a) IIS shall determine its utilization of the Quotesmith Licensed
Software and Quotesmith's processing services, including but not limited to the
quotes to be displayed, the method and order of their display, those products
quoted by Quotesmith on QIM for which Request for Application functionality will
be made available, and the manner in which Quotesmith's information will be
integrated with existing and future QIM products and functionality.
(b) IIS will be responsible for designing and installing, at IIS'
expense, any "front-end" interface that is required to access the Quotesmith
Licensed Data Files in order to generate and publish premium quotations on QIM
(the "IIS Interface"). Quotesmith shall make its personnel available to IIS for
consultation regarding the development and installation of the IIS Interface to
the extent such availability does not unduly interfere with the normal
operations of Quotesmith, provided that IIS will reimburse Quotesmith for the
reasonable travel, meal, lodging and other out-of-pocket costs of Quotesmith
employees visiting IIS locations to assist in such development and installation.
If Quotesmith reasonably determines that the time demands of IIS on Quotesmith
personnel pursuant to this Section 3 are unexpectedly significant, the parties
agree to make appropriate arrangements for cost-sharing by IIS.
4. Processing of Insurance Applications.
(a) IIS shall cause (and shall cause IIS affiliates and all other third
parties who may publish quotations generated through the Quotesmith Licensed
Software licensed by IIS) any Requests for Applications or other inquiries
originating from quotations generated through or based upon the Quotesmith
Licensed Software (including, without limitation, non-online means such as
telephone or written communications) to be transmitted to Quotesmith for
processing as
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contemplated by this Agreement. IIS shall be responsible for implementing the
functionality on QIM necessary to support the collection of information in, and
the transmittal of, any Requests for Application to Quotesmith.
(b) Upon its receipt of Requests for Applications, Quotesmith shall be
responsible for (i) accepting and processing such Requests for Applications in
accordance with applicable law and insurer procedures, (ii) transmitting,
preparing and reviewing Applications, and (iii) generally providing high quality
customer service and insurance agency and brokerage services to applicants, such
as establishing contact with applicants, providing information and forms,
providing assistance in completing Applications, processing Applications and
obtaining or providing any required notices or acknowledgments, following-up on
unreturned Applications and otherwise working with applicants and insurance
carriers to cause policies to be delivered, paid for and go in-force). In this
respect, IIS and Quotesmith will develop mutually agreed upon procedures that
will facilitate the efficient and effective transfer of QIM visitor calls from
IIS' customer service operations to Quotesmith's customer service operations.
(c) A designee of Quotesmith, which until further notice shall be
Robert Bland, shall be the agent of record with respect to all Applications.
Quotesmith shall provide IIS with advance written notice of any change in its
designated agent in sufficient time for IIS to make any changes to its Internet
sites that may be caused by such change. Quotesmith will also provide IIS with
copies of any communications it or its designees receive from insurance
regulators relating to inquiries or investigations of Quotesmith's activities
that could affect its performance of this Agreement (such as those relating to
Quotesmith's advertising on the Internet, or any licenses or carrier
appointments required to provide online quotations). Quotesmith will provide IIS
with an adequate opportunity to review and provide comments to Quotesmith on
such investigations or inquiry before Quotesmith responds and, in any event,
will not refer to IIS, Intuit or QIM directly or indirectly without IIS' advance
written approval.
(d) IIS permits Internet site visitors to provide information in order
to use QIM's site functionality and tools and, at such visitor's election, to
transmit selected information to an insurance carrier or agent using such QIM
functionality. Subject to any restrictions under applicable law, nothing in this
Agreement shall prevent IIS or affiliates from using information obtained from
any site visitors for research, marketing and other purposes. Notwithstanding
the foregoing and to the extent Quotesmith notifies IIS in writing from time to
time using an agreed upon method that a site visitor who transmitted a Request
for Application to Quotesmith has purchased an insurance product through
Quotesmith (a "Quotesmith Policyholder"), IIS shall not (1) target, directly
solicit and specifically refer a Quotesmith Policyholder to another carrier
regarding the same type of insurance product purchased by such person through
Quotesmith, or (2) soliciting a Quotesmith Policyholder to visit QIM for the
purpose of purchasing the same type of insurance product already purchased by
such person from Quotesmith, unless such person in either circumstance requests
to change carriers or independently indicates an interest in another carrier's
products. Nothing in this Agreement shall prevent IIS from making general
announcements to report QIM enhancements and encourage persons to visit its
Internet sites.
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5. Compensation.
(a) Quotesmith (or its designated agent) shall be exclusively entitled
to collect all sales commissions (and/or other sales-related payments or fees
without regard to how they are termed or characterized) from insurance carriers
with respect to those insurance policies which are delivered, paid for and go
in-force as a result of a Request for Application having been transmitted to
Quotesmith by IIS or its affiliate (each, a "Policy"). Quotesmith shall
internally code all such applicants and policyholders as having been originated
through IIS or any IIS affiliate in Quotesmith's computerized customer lead
source tracking systems.
(b) For each Policy, Quotesmith shall pay to IIS or its designee, on a
monthly basis within twenty days after the end of each calendar month, fifty
percent (50%) of the regular first year and renewal agent/broker commissions
(the "Base Amount") actually received by Quotesmith (or its designated agent) in
the month just then ended from each insurance company as indicated on each such
company's regular agent and broker commission statement. A corresponding
detailed report describing amounts owed to IIS or its designee shall accompany
such payment. The Base Amount shall not include, and Quotesmith shall be
entitled solely to retain, any and all subsequent and/or additional
compensation, prizes, trips and/or profitability-based, volume-based or other
commission bonuses or property of cash-in-kind value that may be subsequently
given, paid or transferred to Quotesmith by any insurance company relative to
Policies, provided that such amounts do not appear on Quotesmith's regular
commission statements. A illustrative payment calculation is attached hereto as
SCHEDULE 3. During the term of this Agreement, Quotesmith shall provide IIS with
at least as favorable a compensation arrangement as Quotesmith provides to any
other third party with which it has entered into a similar or analogous
arrangement.
(c) Quotesmith shall maintain complete books and records relating to
any and all amounts owed or due to IIS hereunder (the "Records"). Upon 30 days
advance written notice, IIS may audit the Records during normal business hours
at Quotesmith's principal office. Quotesmith shall reasonably cooperate in any
such audit, provided that any interference with Quotesmith's operations shall be
minimized. Any such audit may be conducted no more frequently than once every
six months and, in any case, not later than one year after the Agreement's
expiration or termination. IIS may make and retain copies of any Records, and
shall provide a written report to Quotesmith reflecting the audit's conclusions
and findings if IIS claims to have been underpaid. IIS shall bear the expenses
of any audit unless Quotesmith has underpaid IIS by more than five percent for
the period of time audited, in which case Quotesmith shall reimburse IIS for its
reasonable out-of-pocket audit costs (which shall not include any salary
expenses for IIS employees conducting such audit) and promptly pay IIS the
amount of any underpayment plus interest on such amount at the prime lending
rate announced from time to time in the Wall Street Journal (or any successor
publication thereto).
(d) IIS shall provide Quotesmith with monthly reports on QIM site
activity relating to Quotesmith's presence on QIM. Quotesmith will provide IIS
with weekly reports on the status of Requests for Applications being processed
by Quotesmith.
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6. Licensing Restrictions.
Notwithstanding reference herein to the non-exclusive nature of the
license granted herein, Quotesmith agrees that it shall not license, sell,
provide or otherwise transfer or share the Quotesmith Licensed Software, or any
portion or update thereof, with any entity identified on SCHEDULE 4 attached
hereto (the "Restricted Companies"); provided, however, that (i) the
restrictions of this Section 6 shall lapse upon written notice by Quotesmith to
IIS at such time as any milestone set forth on SCHEDULE 5 attached hereto is not
achieved (as and when provided on such SCHEDULE 5), and (ii) the restrictions of
this Section 6 shall lapse as to any entity identified on SCHEDULE 4 as a "One
Year Company" if, as of the date which is one year after the date hereof, such
entity is not then publishing quotations generated by the Quotesmith Licensed
Software through an arrangement with IIS or an IIS affiliate.
7. Representations and Warranties; LIMITATION OF LIABILITY.
(a) Each party hereto represents and warrants to the other that: (i)
the execution, delivery and performance of this Agreement by such party shall
not conflict with or result in any breach of, or constitute a default under, any
material agreement, instrument or undertaking to which it is a party or by which
any of its property is bound; and (ii) it has the corporate power to make and
carry out the terms of this Agreement and it has taken, and shall take, all
actions, corporate or otherwise, necessary or advisable to authorize the
execution, delivery and performance of, and to perform, its respective
obligations under this Agreement.
(b) Quotesmith represents and warrants to IIS that: (i) the Quotesmith
Licensed Software (including any portion thereof) as provided to IIS does not
infringe upon any U.S. patent, copyright, trademark or other intellectual
property rights of any third party, and there is no litigation, arbitration or
other proceeding or claim pending or, to Quotesmith's knowledge, threatened with
respect thereto; and (ii) Quotesmith (and its designated agents) possess, and
shall possess during the term of this Agreement, all applicable governmental and
private (e.g., insurer) licenses, appointments, authorizations permits and
qualifications necessary relating to its conduct of the activities contemplated
by this Agreement and comply with all applicable laws and regulations.
(c) Quotesmith shall use its best commercial efforts, consistent with
past practices, to maintain the proper operation of the Quotesmith Licensed
Extraction Programs and the accuracy of the information contained in Quotesmith
Licensed Data Files. In no event shall Quotesmith be responsible for the
publication of inaccurate premium quotations published by IIS, its affiliates or
any third party who receives quotations by or through IIS to the extent that
such inaccuracy is caused by the modification of the Quotesmith Licensed
Software by any person other than Quotesmith (or its agents or subcontractors).
The parties agree to qualify published quotations with cautionary notices in a
form and substance reasonably acceptable to Quotesmith and IIS.
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(d) EXCEPT AS EXPRESSLY STATED HEREIN, NEITHER PARTY HERETO MAKES ANY
OTHER REPRESENTATION OR WARRANTY AND HEREBY EXCLUDES AND DISCLAIMS ALL IMPLIED
WARRANTIES, INCLUDING BUT NOT LIMITED TO WARRANTIES RELATING TO QUALITY,
PERFORMANCE, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
(e) NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY BUT SUBJECT TO
THEIR INDEMNIFICATION OBLIGATIONS SET FORTH IN SECTION 9 HEREIN, UNDER NO
CIRCUMSTANCES SHALL EITHER PARTY BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL, OR
CONSEQUENTIAL DAMAGES (INCLUDING LOST PROFITS) OF THE OTHER PARTY OR ANY THIRD
PARTY, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
(f) Each party hereto shall at all times during the term of this
Agreement provide and maintain insurance with the following limits: General
Liability (including contractual liability), $1,000,000 limit per occurrence;
Electronic Data Processing Errors and Omissions Liability, $1,000,000 limit per
claim; and Insurance Agent Errors and Omissions Liability, $1,000,000 limit per
claim. All such insurance shall be with a company with a minimum A.M. Best's
rating of (B++, VII). Each party shall provide the other party with certificates
evidencing the foregoing insurance coverages prior to the execution of this
Agreement, and from time to time as requested by the other party during the term
hereof. Failure to maintain the foregoing insurance shall not relieve a party of
its indemnification obligations pursuant to this Agreement.
8. Protection of Proprietary Rights.
(a) During the Term, either party may disclose to the other party
certain confidential information orally, in writing or through facility visits
or may have access to certain confidential information of the other party, which
information may include, but is not limited to, computer source code and
architecture; financial information or projections; lists of and information
about agents, vendors, suppliers and, subject to any other provisions of this
Agreement, site visitors and customers; specifications and uses of products and
services; product research; sales, marketing and strategic plans and forecasts;
product and availability information (e.g., launch and release dates, product
development plans, and new or improved features); and information otherwise
defined and maintained as "trade secrets" under applicable trade secrets law
(collectively, "Confidential Information"); provided, however, that Confidential
Information does not include information that: (a) receiving party can
demonstrate was known by receiving party prior to the disclosure thereof by
disclosing party; (b) properly came into the possession of receiving party from
a third party which was not known to be under any obligation to maintain the
confidentiality of such information; (c) is or has become part of the public
domain through no act or fault on the part of the receiving party in breach of
this Agreement; or (d) receiving party can demonstrate was independently
developed by or for receiving party without the use of Confidential Information.
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(b) The receiving party (i) will maintain and protect the
confidentiality of such Confidential Information and not disclose such to any
third party nor use it in any way not contemplated by this Agreement, (ii) will
formulate and adopt appropriate safeguards in light of its own operating
activities as is necessary to ensure protection of the confidentiality of such
information, and (iii) may disclose the Confidential Information only to its
employees who require access in performance of work for and on behalf of it,
provided that such disclosure shall be made only after the employee to whom such
disclosure is to be made has been advised of the confidential nature of such
information, and has agreed to maintain its confidentiality.
(c) The receiving party shall not make any copies of any of the
disclosing party's Confidential Information, except as reasonably required to
perform this Agreement, and shall return (or purge or destroy, in those cases
where it is not technologically feasible to return such information) any such
Confidential Information including, without limitation, those portions of notes,
memoranda, electronic media, records, plans, sketches or other documents
containing the disclosing party's Confidential Information within thirty days
after the termination or expiration of this Agreement. The foregoing prohibition
on disclosure shall not apply to the extent that disclosure of Confidential
Information to proper legal and regulatory authorities is required by law or
regulation. In the event the receiving party receives a request to disclose all
or any part of the Confidential Information under the terms of a subpoena or
order issued by a court of competent jurisdiction or by a governmental body, the
receiving party agrees to: (a) notify the disclosing party promptly of such
request; and (b) cooperate with the disclosing party's efforts to seek a
protective order or other judicial relief.
(d) To the extent that the Confidential Information is a copyrighted or
trademarked work of the disclosing party, the receiving party shall, as
reasonably directed by disclosing party, maintain all applicable copyright
notices, trademarks, and proprietary legends on such Confidential Information
and all copies thereof.
(e) Except as otherwise contemplated or permitted by this Agreement,
IIS shall not:
(i) copy the Quotesmith Licensed Software;
(ii) modify or alter the Quotesmith Licensed Software in any
way, or merge it with another product; or
(iii) sell, lease, sublicense, or otherwise distribute the
Quotesmith Licensed Software to any other person, firm or entity .
(f) Nothing in this Agreement precludes IIS from developing its own
rating and quoting engines or databases so long as it does not violate its
confidentiality obligations herein.
9. Indemnification.
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(a) IIS shall indemnify, defend, and hold Quotesmith and its officers,
directors and shareholders, and their respective heirs, executors, personal
representatives, successors and permitted assigns, harmless from and against any
and all costs, expenses, losses, damages, fines, penalties or liabilities
(including without limitation reasonable attorneys' fees, but not including the
special, indirect, incidental or consequential damages of such third party, such
as lost profits) (collectively "Losses") resulting from any claim made by a
third party incurred by any of such indemnified parties with respect to, in
connection with, arising from, or alleged to result from, arise out of, or in
connection with any breach of any representation, warranty or covenant set forth
in this Agreement by IIS or its affiliates, except to the extent such Losses are
caused by the negligence or willful misconduct by Quotesmith or its designated
agents in their performance of this Agreement.
(b) Quotesmith shall indemnify, defend, and hold IIS, its affiliates
and the respective officers, directors and shareholders thereof, and their
respective heirs, executors, personal representatives, successors and permitted
assigns, harmless from and against any and all Losses resulting from any claim
made by a third party incurred by any of such indemnified parties with respect
to, in connection with, arising from, or alleged to result from, arise out of,
or in connection with any breach of any representation, warranty or covenant set
forth in this Agreement by Quotesmith or its designated agents, except to the
extent that such Losses are caused by the negligence or willful misconduct by
IIS or its affiliates in their performance of this Agreement.
(c) Each party (the "indemnifying party") shall indemnify, defend, and
hold the other party, its affiliates, and its and their directors, officers,
attorneys, agents, employees and representatives (the "indemnified party")
harmless from and against any and all Losses resulting from any claim made by a
third party of an infringement of such third party's U.S. patent, copyright,
trademark or other intellectual property rights asserted against the indemnified
party to the extent caused by the indemnifying party in the course its
performance of this Agreement. In the event of such a claim, the indemnifying
party may at its option and sole expense: (i) procure for the indemnified party
the right to continue to perform this Agreement without the claimed
infringement, or (ii) take actions to eliminate any claimed infringement so long
as such actions do not degrade the indemnifying party's performance of the
Agreement. If such infringement cannot be reasonably settled, corrected or
avoided within thirty days of the receipt of the claim, the indemnified party
may terminate this Agreement pursuant to Section 10(c) hereof.
(d) Any party claiming a right to indemnification pursuant to this
Agreement shall give written notice to the indemnifying party promptly following
its receipt of any claim covered by Sections 9(a), 9(b) or 9(c). The
indemnifying party shall have the right to control and direct the investigation,
defense and settlement of such claim; provided, however, that the failure of the
indemnified party to provide timely notice shall only relieve the indemnifying
party from its obligations hereunder to the extent that such late notice
prejudiced its defense or resulted in increased Losses. The indemnified party
shall reasonably cooperate with the indemnifying party in connection with the
foregoing, at the expense of the indemnifying party. The indemnified
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party has the right to review and approve any counsel selected by the
indemnifying party to defend the indemnified party and the terms and conditions
of any settlement affecting the indemnified party entered into pursuant to
Sections 9(a), 9(b) or 9(c), which approval shall not be unreasonably withheld.
10. Term; Termination.
(a) This Agreement shall commence and be effective on the date hereof
and, unless earlier terminated in accordance with the terms of this Agreement,
shall continue until the third (3rd) annual anniversary of the date hereof.
(b) Each of Quotesmith and IIS agrees to exert its commercially
reasonable efforts so that IIS can begin providing instant quotes on QIM in as
short a time as the capabilities and technologies of each party will allow
(c) Upon the occurrence of any of the following events of default,
after giving written notice to the defaulting party and following the expiration
of the cure period set forth below in this Section 10(c), the non-defaulting
party may declare the defaulting party to be in breach of this Agreement and may
terminate this Agreement: (i) the failure of the defaulting party substantially
to perform or comply with any material provision of this Agreement; (ii) the
admission in writing by the defaulting party of its inability to pay its debts
as they mature, or the making by the defaulting party of an assignment for the
benefit of creditors; or (iii) the filing of a petition under any bankruptcy
act, receivership statute or like law or statute by the defaulting party, or the
making of an application for a receiver by the defaulting party, where such
petition or application is not dismissed or otherwise favorably resolved within
60 days. Upon receipt of a notice of default containing a reasonably detailed
statement of the alleged default, the defaulting party shall have a period of 45
days in which to cure the alleged default. If the alleged default has not been
cured during such 45-day period, then the non-defaulting party may terminate
this Agreement immediately following expiration of the foregoing cure period
upon further written notice to the defaulting party. During any notice and cure
period, both parties shall continue to be bound by all the terms and conditions
of this Agreement.
(d) Upon termination of this Agreement for any reason or its
expiration, IIS shall immediately begin taking steps to cease using any and all
Quotesmith Licensed Software and, within forty five (45) days after such
termination or expiration, shall have ceased such use and shall return to
Quotesmith or destroy, at IIS' expense, and make no further use of, all copies
of the Quotesmith Licensed Software in IIS' possession or control. Upon request,
(1) IIS shall certify, in writing, to Quotesmith as to the return or destruction
of all copies in whatever media of the Quotesmith Licensed Software (including,
without limitation, all source and object code and documentation), and (2) each
party shall certify, in writing, to the other as to the return or destruction of
the requesting party's Confidential Information.
(e) Termination of this Agreement through any means for any reason
shall not relieve either party of any obligation accrued prior to such
termination and shall be without prejudice to
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the rights and remedies with respect to default or breach of this Agreement
prior to termination, and each party's rights to unpaid compensation and
reimbursement hereunder shall survive such termination. In addition, the
following provisions shall survive any termination of this Agreement in
accordance with their respective terms: Sections 1, 5, 7, 8, 9 10, and 11.
11. Miscellaneous.
(a) The parties agree that neither party shall (i) disclose the
transactions or relationships contemplated hereby, except as may be necessary in
connection with a request by a governmental agency, regulatory or supervisory
authority or court or as required by law, (ii) use in advertising or publicity
the name of the other party hereto, or any partner or employee of the other
party hereto or any of its respective affiliates, or any trade name, trademark,
service mark, symbol or other identification owned by the other party hereto or
any of its respective affiliates, or (iii) represent, directly or indirectly,
that any product, service or activity provided to the other party has been
approved or endorsed by the other party, in any of the foregoing cases without
the prior written consent of the other party.
(b) The parties agree that it is impossible to measure in money IIS'
damages by reason of a failure of Quotesmith to abide by the restrictions of
Section 6 of this Agreement, or Quotesmith's damages by reason of a failure of
IIS to abide by the restrictions of Section 8 of this Agreement. Therefore, if
IIS shall institute any action or proceeding to enforce the terms or alleging a
breach of the provisions of such Section 6 of this Agreement by Quotesmith or,
alternatively, Quotesmith shall institute any action or proceeding to enforce
the terms or alleging a breach of the provisions of such Section 8 of this
Agreement by IIS, then in addition to any other remedy available at law, the
instituting party may seek specific performance of the terms of such section;
and Quotesmith and IIS, as the case may be, hereby waive the claim or defense
that a remedy at law alone is adequate, and agree (to the maximum extent
permitted by law) to have such provisions specifically enforced against it by
any court of equity, without the necessity of the instituting party posting any
bond or other security, and consents to the entry of injunctive relief against
it enjoining or restraining any violation or threatened violation of such
section of this Agreement.
(c) Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
(d) A modification or waiver of the provisions of this Agreement shall
be effective only if made in writing, and signed by both parties. The failure of
either party to insist upon strict performance of any of the provisions of this
Agreement shall not be construed as a waiver of that party's rights arising out
of any subsequent default of the same or similar nature.
(e) The language of this Agreement shall be deemed to be that chosen by
the parties
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hereto as an expression of their mutual intent, and no rule of strict
construction or presumption favoring or disfavoring any party shall be applied
against either party.
(f) This Agreement shall be binding upon and inure to the benefit of
each party's respective permitted successors and assigns; provided, however,
that neither party shall assign its rights or obligations under this Agreement,
by operation of law or otherwise, without the written consent of the other
party.
(g) During the term of this Agreement and for a period of one year
after its termination or expiration, each party (and its affiliates) hereto
shall (i) respect and not interfere with the other's employment relationships,
and (ii) not, directly or indirectly, attempt to influence any employee of the
other party to discontinue the employment relationship, nor solicit, hire or
seek to solicit or hire any employee of the other party.
(h) The parties understand that United States laws prohibit (a) the
exportation from the United States to certain foreign countries of certain types
of United States originated technical data and the products produced directly by
the use of such data, and (b) the reexportation to such foreign countries from
foreign sources of such technical data and products. The parties agree and
assure each other, that pursuant to and in conformance with the requirements of
United States existing and future laws and regulations, none of the Quotesmith
Licensed Software, is either intended to be or will actually be shipped,
exported or reexported by either party directly or indirectly to any person or
organization located in such a prohibited country in violation thereof, except
as otherwise authorized by appropriate United States governmental authority.
(i) In performing its obligations and exercising its rights hereunder,
each party shall comply with all applicable federal, state, and municipal laws
and regulations.
(j) Except as expressly provided herein, this Agreement is not intended
and will not be construed to create any third party beneficiary rights.
(k) This Agreement shall be construed, interpreted, and governed by the
substantive laws (and not the law of conflicts) of the State of Illinois.
(l) This Agreement, together with its schedules, constitutes the entire
agreement between the parties, and there are no representations, warranties,
covenants or understandings between the parties with respect to the subject
matter hereof other than those expressly set forth herein or therein.
(m) All notices, requests, and other communications required or
permitted hereunder shall be in writing and shall be deemed to have been
received by a party when actually received in the case of hand delivery, or five
(5) days after mailing by first class mail, postage prepaid, to each party at
its respective address set forth in the first paragraph hereof (or to such other
address as a party may designate in writing).
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(n) The captions in this Agreement are for convenience and
identification purposes only, are not an integral part of this Agreement and are
not to be considered in the interpretation of any part hereof.
(o) This Agreement may be executed in separate counterparts, each of
which when so executed shall be an original, but all of such counterparts shall
together constitute but one and the same instrument.
(p) Neither party shall be responsible for any failure to perform
(other than payment obligations) due to unforeseen circumstances beyond a
party's control, including but not limited to acts of God, war, riot, embargoes,
acts of civil or military authorities, fire, floods, accidents, strikes, or
shortages of transportation, utilities, facilities, fuel, energy, labor or
materials.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first written above.
INTUIT INSURANCE SERVICES, INC.
By:
------------------------------------
Title:
---------------------------------
QUOTESMITH CORPORATION
By:
------------------------------------
Title:
---------------------------------
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SCHEDULE 1
QUOTESMITH LICENSED SOFTWARE SPECIFICATIONS/FUNCTIONALITY
A. General Specifications/Functionality
1. Hardware and operating systems used by Quotesmith to operate the
Quotesmith Licensed Software:
* Silicon Graphics Challenger S w/R4400 200Mhz processor
* 256 megabytes RAM memory
* 6 gigabyte hard drive
2 gigabyte SCSI II
4 gigabyte SCSI III Fast/Wide/Differential
* IRIX 6.3 Operating System
2. Installation, interface and operating specifications/documentation:
* Source code written in ANSI C compiled using Silicon Graphics
compiler with Extended Development Option (EDO) license.
* Nightly data transfer files are all fixed length binary files. All
compressed fields have been converted to ASCII. Files are compressed using
COMPRESS and then archived using TAR.
* An FTP session update can be initiated by Quotesmith at will and is
conducted by Quotesmith on a nightly basis.
* The data files used to produce actual quotes are typically fixed
length binary files. Some rate tables (such as the state/zipcode/county
territory index files have been loaded into UNIX DBM structure to provide
indexed lookup. Most of the other files are sequentially scanned to produce
quotes.
* Quotesmith does not use any other third party database software at
its Web site.
For further technical assistance and information, contact Quotesmith's
Webmaster, George Farris at Package Software Associates in Chicago, IL:
George Farris, President
Package Software Associates
Phone (312) 266-4531
Fax (312) 266-4538
e-mail: [email protected]
3. Updates of Data. Quotesmith shall do the following:
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(a) Make available Quotesmith operational support to IIS for
Quotesmith's data, formats and data transfer processes by providing access to
Quotesmith personnel during normal business hours and through emergency access
numbers during non-business hours.
(b) Provide IIS with specifications and detailed information
relating to the process of backing up and recovering Quotesmith data, including
providing IIS with access to the archival version of the Quotesmith Licensed
Software within one business day of IIS' request.
(c) Ensure the standardization of data and data formats by
providing thirty days advanced written notice to IIS of changes to Quotesmith's
data formats.
(d) Update Quotesmith data on a timely basis by making such
available to IIS on the same business day that Quotesmith makes such changes to
its Internet websites (or those of any other third parties using the Quotesmith
Licensed Software). IIS understands that Quotesmith makes any necessary updates
to the Quotesmith Licensed Software no less often than once per business day,
and more often as the circumstances requires.
(e) Maintain a process by which Quotesmith promptly notifies
IIS of corrections to Quotesmith's data however the need for such correction is
identified.
4. Software specifications (general):
(a) Quotesmith Licensed Extraction Files: See A.2 above.
(b) Quotesmith Licensed Data Files: See A.2 above.
B. Description of Quotesmith Licensed Data Files
The following Quotesmith Licensed Data Files refer to the insurance
price and policy comparison data files which have been developed and maintained
(or are under development, as set forth below) by Quotesmith and are now in
commercial use by Quotesmith (or are scheduled to be in commercial use by
Quotesmith in the future); provided, however, that such Data Files when used in
conjunction with the Quotesmith Licensed Extraction Programs, in the form
provided by Quotesmith to IIS, shall meet (i) the general specifications and
exhibit the general functionality set forth above and (ii) the specific
specifications and exhibit the specific functionality set forth below:
1. Individual Term Life Insurance. The specific functionality of this Data File
shall include the following:
(a) Support the provision of a guarantee to potential applicants which
is, from an applicant's perspective, no less valuable than any
guarantees which Quotesmith offers from time to time, if any, with
respect to such Data File, e.g., Quotesmith is currently offering (but
is not,
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by this provision, obligated to continue to offer) a low price
guarantee to its potential direct applicants backed by a $500.00
payment.
(b) Provide data (premium rates, ratings information, policy
information, underwriting requirements and guaranteed maximum annual
premiums) for no less than the number of companies and policies as may
be offered by Quotesmith on its site or made available to third
parties. Quotesmith currently offers quotations from approximately 170
companies, and will its use commercial best efforts, consistent with
past practices, to maintain or expand the number of term life companies
and policies quoted through the Quotesmith Licensed Software.
(c) Provide annual premium quotes for all coverage, initial rate
guarantee, birthdate and sex combinations no less accurate than those
offered by Quotesmith on its site or made available to third parties.
Quotesmith currently announces that its rates are accurate within $2 to
account for rounding, and will its use commercial best efforts,
consistent with past practices, to maintain or improve the accuracy of
the term life quotes available through the Quotesmith Licensed
Software.
(d) Reflect Quotesmith's continuing updates to, or verification of,
participating carriers' data contained in this Quotesmith Licensed Data
File, which are performed on an as required basis and, in any event,
Quotesmith proactively updates or verifies information from all
carriers contained in this Quotesmith Licensed Data Files as reasonably
necessary under the then prevailing business and market conditions.
2. Individual "Final Expense" Whole Life Insurance. The specific functionality
of this Data File shall include the following:
(a) Support the provision of a guarantee to potential applicants which
is, from an applicant's perspective, no less valuable than any
guarantees Quotesmith offers from time to time, if any, with respect to
such Data File.
(b) Provide data (premium rates, ratings information, policy
information, underwriting requirements and guaranteed maximum annual
premiums) for no less than the number of companies and policies as may
be offered by Quotesmith on its site or made available to third
parties. Quotesmith currently offers quotations from 50 companies, and
will its use commercial best efforts, consistent with past practices,
to maintain or expand the number of final expense whole life companies
and policies quoted through the Quotesmith Licensed Software.
(c) Provide annual premium quotes for all coverage, initial rate
guarantee, birthdate and sex combinations no less accurate than those
offered by Quotesmith on its site or made available to third parties.
Quotesmith currently announces that its rates are accurate within $2 to
account for rounding, and will its use commercial best efforts,
consistent with past
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practices, to maintain or improve the accuracy of the final expense
whole life quotes available through the Quotesmith Licensed Software.
(d) Reflect Quotesmith's continuing updates to, or verification of,
participating carriers' data contained in this Quotesmith Licensed Data
File, which are performed on an as required basis and, in any event,
Quotesmith proactively updates or verifies information from all
carriers contained in this Quotesmith Licensed Data File as reasonably
necessary under the then prevailing business and market conditions.
3. Single Premium Tax-Deferred Annuities. The specific functionality of this
Data File shall include the following:
(a) Support the provision of a guarantee to potential applicants which
is, from an applicant's perspective, no less valuable than any
guarantees Quotesmith offers from time to time, if any, with respect to
such Data File.
(b) Provide data (projected account values, annual effective yield
projected rates, brochure information, annual withdrawal features,
surrender charges, settlement options, future annuity values, other
fees and general information) for no less than the number of companies
and annuities as may be offered by Quotesmith on its site or made
available to third parties. Quotesmith currently offers quotations from
approximately 110 companies, and will its use commercial best efforts,
consistent with past practices, to maintain or expand the number of
single term tax-deferred annuity companies and products quoted through
the Quotesmith Licensed Software.
(c) Provide projected account values and annual effective yield
projected rates for all coverage, initial rate guarantee, birthdate and
sex combinations no less accurate than those offered by Quotesmith on
its site or made available to third parties. Quotesmith will its use
commercial best efforts, consistent with past practices, to maintain or
improve the accuracy of the single term tax-deferred annuity quotes
available through the Quotesmith Licensed Software.
(d) Reflect Quotesmith's continuing updates to, or verification of,
participating carriers' data contained in this Quotesmith Licensed Data
File, which are performed on an as required basis and, in any event,
Quotesmith proactively updates or verifies information from all
carriers contained in this Quotesmith Licensed Data File as reasonably
necessary under the then prevailing business and market conditions.
4. Medicare Supplement Insurance. The specific functionality of this Data File
shall include the following:
(a) Support the provision of a guarantee to potential applicants which
is, from an applicant's perspective, no less valuable than any
guarantees Quotesmith offers from time to time, if any, with respect to
such Data File.
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(b) Provide data (premium rates, Medicare supplement policy comparison
chart, benefit analysis, plan specifications, comments and additional
benefits of this plan not covered by Medicare) for no less than the
number of companies and policies as may be offered by Quotesmith on its
site or made available to third parties. Quotesmith currently offers
quotations from approximately 85 companies, and will its use commercial
best efforts, consistent with past practices, to maintain or expand the
number of Medicare Supplement insurance companies and policies quoted
through the Quotesmith Licensed Software.
(c) Provide annual premium quotes for all coverage, initial rate
guarantee, birthdate and sex combinations no less accurate than those
offered by Quotesmith on its site or made available to third parties.
Quotesmith currently announces that its rates are accurate within $2 to
account for rounding, and will its use commercial best efforts,
consistent with past practices, to maintain or improve the accuracy of
the Medicare Supplement insurance quotes available through the
Quotesmith Licensed Software.
(d) Reflect Quotesmith's continuing updates to, or verification of,
participating carriers' data contained in this Quotesmith Licensed Data
File, which are performed on an as required basis and, in any event,
Quotesmith proactively updates or verifies information from all
carriers contained in this Quotesmith Licensed Data File as reasonably
necessary under the then prevailing business and market conditions.
5. Individual And Family Medical Insurance. The specific functionality of this
Data File shall include the following:
(a) Support the provision of a guarantee to potential applicants which
is, from an applicant's perspective, no less valuable than any
guarantees Quotesmith offers from time to time, if any, with respect to
such Data File.
(b) Provide data (premium rates, ratings information, policy
information, underwriting requirements and guaranteed maximum annual
premiums) for no less than the number of companies and policies as may
be offered by Quotesmith on its site or made available to third
parties. Quotesmith currently offers quotations from approximately 85
companies, and will its use commercial best efforts, consistent with
past practices, to maintain or expand the number of individual and
family medical insurance companies and policies quoted through the
Quotesmith Licensed Software.
(c) Provide annual premium quotes for all coverage, initial rate
guarantee, birthdate and sex combinations no less accurate than those
offered by Quotesmith on its site or made available to third parties.
Quotesmith currently announces that its rates are accurate within $2 to
account for rounding, and will its use commercial best efforts,
consistent with past practices, to maintain or improve the accuracy of
the individual and family medical insurance quotes available through
the Quotesmith Licensed Software.
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(d) Reflect Quotesmith's continuing updates to, or verification of,
participating carriers' data contained in this Quotesmith Licensed Data
File, which are performed on an as required basis and, in any event,
Quotesmith proactively updates or verifies information from all
carriers contained in this Quotesmith Licensed Data File as reasonably
necessary under the then prevailing business and market conditions.
6. Small Group (1-99 Employees) Medical Insurance. Quotesmith is in the process
of developing the Quotesmith Licensed Software for The Small Group (1-99
Employees) Medical Insurance product area, and will use its commercial best
efforts to deliver the same to IIS by October 31, 1998. The specific
functionality of this Data File shall include the following:
(a) Support the provision of a guarantee to potential applicants which
is, from an applicant's perspective, no less valuable than any
guarantees Quotesmith offers from time to time, if any, with respect to
such Data File.
(b) Provide data (premium rates, ratings information, policy
information, underwriting requirements and guaranteed maximum annual
premiums) for no less than the number of companies and policies as may
be offered by Quotesmith on its site or made available to third
parties. Quotesmith currently offers quotations from approximately 75
companies, and will its use commercial best efforts, consistent with
past practices, to maintain or expand the number of small group medical
insurance companies and policies quoted through the Quotesmith Licensed
Software.
(c) Provide annual premium quotes for all coverage, initial rate
guarantee, birthdate and sex combinations no less accurate than those
offered by Quotesmith on its site or made available to third parties.
Quotesmith will its use commercial best efforts, consistent with past
practices, to maintain or improve the accuracy of the small group
medical insurance quotes available through the Quotesmith Licensed
Software.
(d) Reflect Quotesmith's continuing updates to, or verification of,
participating carriers' data contained in this Quotesmith Licensed Data
File, which are performed on an as required basis and, in any event,
Quotesmith proactively updates or verifies information from all
carriers contained in this Quotesmith Licensed Data File as reasonably
necessary under the then prevailing business and market conditions.
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SCHEDULE 2
INFORMATION RELATING TO REQUESTS FOR APPLICATIONS
A. IIS will collect the following information from each applicant and provide to
Quotesmith for each Request for Application:
o IIS-generated Request for Application ID Number
o Date of Request for Application
o Name
o Street address
o City, State and Zip Code
o Daytime Phone number
o Evening Phone number
o Email address
o Date of Birth
o Sex
o Name of Insurance Company and plan for which applying
o Policy Face Value requested
o Annual Premium quoted
B. IIS will transmit Requests for Applications using encrypted Internet email to
a single email address at Quotesmith in a mutually agreed upon format.
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SCHEDULE 3
COMPENSATION ILLUSTRATION
A. ILLUSTRATION OF COMPENSATION CALCULATION
(This illustration is subject to the terms and conditions of the body of this
Agreement and, in the event of any conflict in the interpretation of the body of
this Agreement and this illustration, the body of the Agreement shall prevail).
1. During December, 1998, Quotesmith receives a total of $10,000 in
sales compensation relating to Policies (as defined in Section 5 of the
Agreement), which amount will be considered the "Base Amount" for the purpose of
this illustration.
2. By January 20, 1999, Quotesmith would send a detailed report to IIS
relating to amounts owed to IIS pursuant to the Agreement, including a payment
to IIS (or IIS' designee) of 50% of the foregoing Base Amount, i.e., $5,000 in
this illustration.
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SCHEDULE 4
RESTRICTED COMPANIES
The following companies are designated as "Restricted Companies":
o InfoSeek
o InsWeb
o Lycos
o Microsoft
o Netscape
o QuickQuote
o RightQuote
o Yahoo!
o InfoSpace ("One Year Company")
o Money Magazine On-Line ("One Year Company")
o Quote.com ("One Year Company")
o The following entities which as of the date hereof have a written arrangement
with IIS or any IIS affiliate with respect to the marketing of insurance
products: CNNfn, AOL, Excite, Motley Fool and The Wedding Channel.
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SCHEDULE 5
MILESTONES
1. By October 31, 1998: IIS (or its affiliate) will be providing access to
instant insurance quotations from QIM that utilize quotes from at least
one product line of insurance that Quotesmith is providing.
2. By August 1, 1999: IIS (or its affiliate) will be transmitting no less
than 3,000 Requests for Applications for all product lines per month to
Quotesmith as measured by the greater of either: (i) the number of
Requests for Applications for all product lines transmitted to
Quotesmith during the month of July, 1999, or (ii) the average monthly
number of Requests for Applications for all product lines transmitted
to Quotesmith during the three month period immediately preceding such
month (for August, such period would be May, June and July, 1999),
i.e., the total number of Requests for Applications transmitted to
Quotesmith during such three month period divided by three. IIS'
satisfaction of this volume requirement will be measured monthly
thereafter based on the foregoing procedure, e.g., for September, 1999,
the parties would use the greater of the number of Requests for
Applications transmitted during August, 1999, or the average number
transmitted during the three month period of June, July and August
1999, and so one for each month thereafter.
3. By August 1, 2000: IIS (or its affiliate) will be transmitting no less
than 6,000 Requests for Applications for all product lines per month to
Quotesmith as measured by the greater of either: (i) the number of
Requests for Applications for all product lines transmitted to
Quotesmith during the month of July, 2000, or (ii) the average monthly
number of Requests for Applications for all product lines transmitted
to Quotesmith during the three month period immediately preceding such
month (for August, such period would be May, June and July, 2000),
i.e., the total number of Requests for Applications transmitted to
Quotesmith during such three month period divided by three. IIS'
satisfaction of this volume requirement will be measured monthly
thereafter based on the foregoing procedure, e.g., for September, 2000,
the parties would use the greater of the number of Requests for
Applications transmitted during August, 2000, or the average number
transmitted during the three month period of June, July and August
2000, and so one for each month thereafter.
- ----------------
Each of the above milestone dates shall be extended if and to the extent (i.e.,
a day for day basis) that the Small Group (1-99 Employees) Medical Insurance
Data File is not made available to IIS in reasonably sufficient time to be
installed and operating on QIM by its targeted delivery date of October 31,
1998.
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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. 5 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 30, 1999
