<PAGE>
As filed with the Securities and Exchange Commission on May 12, 1999
Registration No. 333-74291
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------
Amendment No. 3 to
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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INTELLIGENT LIFE CORPORATION
(Exact Name of Registrant as Specified in its Charter)
Florida 7375 65-0423422
(State or other (Primary Standard (I.R.S. Employer
Jurisdiction of Industrial Identification Number)
Incorporation or Classification Code
Organization) Number)
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11811 U.S. Highway One, Suite 101
North Palm Beach, Florida 33408
(561) 627-7330
(Address, Including Zip Code and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
---------------
William P. Anderson, III
President and Chief Executive Officer
Intelligent Life Corporation
11811 U.S. Highway One, Suite 101
North Palm Beach, Florida 33408
(561) 630-1200
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
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Copies to:
John F. Sandy Smith, Esq. Kevin Keogh, Esq.
Grant W. Collingsworth, Esq. White & Case LLP
Morris, Manning & Martin, L.L.P. 1155 Avenue of the Americas
1600 Atlanta Financial Center New York, New York 10036-2787
3343 Peachtree Road, N.E. (212) 819-8200
Atlanta, Georgia 30326
(404) 233-7000
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Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement is declared effective.
If any of the securities being registered on this Form are offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act") please check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration 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(c)
under the Securities Act, please 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 Commission, acting pursuant to Section 8(a), may
determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities, and we are not soliciting offers to buy these +
+securities, in any state where the offer or sale is not tpermitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED APRIL 21, 1999
PROSPECTUS
3,500,000 Shares
[COMPANY LOGO]
Common Stock
-----------
Intelligent Life Corporation provides consumers with independent and
objective research comparing various consumer banking and credit products, such
as mortgages, home equity loans and credit cards. We also publish original
editorial content relating to personal finance matters. We provide this
information through our internet sites Bankrate.com, theWhiz.com, Consejero.com
and CPNet.com and in print through Bank Rate Monitor and Consumer Mortgage
Guide.
[LOGO] [LOGO] [LOGO] [LOGO]
This is our initial public offering. We anticipate that the initial public
offering price will be between $11 and $13 per share. We have applied to list
the common stock on the Nasdaq National Market under the symbol "ILIF."
-----------
See "Risk Factors" beginning on page 8 for a discussion of material factors
that you should consider before you invest in the common stock being sold with
this prospectus.
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.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public Offering Price........................................... $ $
Underwriting Discounts and Commissions.......................... $ $
Proceeds to Intelligent Life Corporation........................ $ $
</TABLE>
The underwriters may purchase up to an additional 525,000 shares of common
stock from Intelligent Life Corporation at the public price less underwriting
discounts solely to cover over-allotments.
ING Baring Furman Selz LLC Warburg Dillon Read LLC
Online distribution by
E*TRADE Securities
-----------
This prospectus is dated , 1999.
<PAGE>
[Artwork]
[Heading of first page of artwork is entitled: "bankrate.com is Intelligent
Life's flagship site." Contains fifteen screenshots of the Company's web
sites. There is wording outside of the screenshots that describes the
screenshots and provides certain information about the Company. The
descriptions are as follows: "Our home page combines news, features and
overnight averages on the most popular yields and rates. Links lead to topical
home pages with more in depth information"; "Our extensive data includes a
credit card database with 7,000 entries accessed by a search engine";
"bankrate.com surveys 100 banks thrifts and credit unions to track online
banking fees"; "Articles and background information supplement surveys"; "A
proprietary bank rating system keeps readers informed about financial strength
of banks"; "Rate and news links lead to a topical home page, a search page and
then to a listing of the rates in a specified market"; " "How to' information
promotes money management skills"; "Co-branded partners include many leading
online information"; and "Bank Rate Monitor en espanol provides our banking
and credit research and editorial information for Spanish speakers."]
[Heading of second page of artwork is entitled: "Consejero.com targets a
Spanish-speaking audience." Page contains six screenshots of the Company's web
sites. There is wording outside of the screenshots that provides a description
of the screenshot and provides certain information about the Company. The
descriptions are as follows: "Consejero.com reaches a worldwide Spanish-
speaking audience with news and financial information"; "Consejero.com
includes stories from Spain, major Latin American countries, and the U.S.";
"What better way to see what's going on at your friends' schools than by
reading their campus newspapers? This site links to the best.' Yahoo! Internet
Life Magazine, September 1997"; and "In partnership with college newspapers,
CPNet helps students get a good start in life. The site debuted in September
1995, and is now a leading index of online student newspapers."]
[Heading of third page of artwork is entitled: "Intelligent Life examines
personal finance." Contains five screenshots of the Company's web sites. There
is wording outside of the screenshots that describes the screenshots and
provides certain information about the Company. The descriptions are as
follows: "Intelligent Life provides research comparing various consumer
banking and credit products and offers original online editorial content
relating to personal finance issues"; "bankrate.com attracts consumers who are
desirable to advertisers"; "Mortgage rates and news are the most popular
destinations"; "State averages arm borrowers with information to locate the
best rate"; "theWhiz.com contains financial advice to help the average person
manage her life"; "theWhiz.com contains financial advice to help the average
person manage her life"; "Finding and keeping a job is the foundation for a
good financial future"; and "The cost of life provides a humorous and
entertaining look at everyday purchases...."
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information and financial statements and notes thereto appearing elsewhere in
this prospectus. Immediately prior to completion of this offering, all
outstanding shares of our Series A Preferred Stock and Series B Preferred Stock
will be converted into shares of common stock. Except for those places where we
tell you otherwise, all information contained in this prospectus gives effect
to this conversion. Except for those places where we tell you otherwise, the
information in this prospectus assumes that the underwriters' over-allotment
option will not be exercised. Except for those places where we tell you
otherwise, the information in this prospectus assumes a five to one stock
split, effected in the form of a stock dividend, to be paid on each issued and
outstanding share of common stock immediately prior to completion of this
offering. See "Description of Capital Stock" on page 48 and "Underwriting" on
page 53.
The Company
Overview
We provide consumers with independent and objective research comparing
various consumer banking and credit products. We also publish original
editorial content relating to personal finance matters. Since 1984, we have
provided this information to leading newspapers and magazines and through our
publication Bank Rate Monitor. Today, we publish our data online through our
principal web site, Bankrate.com, and through distribution (or syndication)
arrangements with more than 60 web site operators. Our unique information,
which is compiled by 38 researchers, is accompanied by extensive editorial
content designed to assist consumers with their decision making process.
Information is presented for 120 geographic markets and nationally and includes
data regarding:
. mortgage and home equity loans;
. credit cards;
. automobile loans;
. checking accounts;
. ATM fees; and
. yields on savings instruments.
We are currently using the resources of Bankrate.com to create new online
publications that provide personal finance information to additional targeted
audiences. These publications include:
. theWhiz.com, which targets an audience that is younger, more female and
more ethnically diverse than typical personal finance publications;
. Consejero.com, which targets a Spanish-speaking audience;
. CPNet.com, which targets the college market; and
. Garzarelli.com, a subscription-based service.
The "Business and Finance Report" compiled by Media Metrix, Inc. for the
quarter ended December 31, 1998 indicated that we had 1.3 million unique
visitors, compared to 1.1 million for the quarter ended September 30, 1998.
Unique visitors are the number of different web users that visited our sites
over the course of the reporting period.
3
<PAGE>
Our Opportunity
We believe many purchasers of financial products and services are relatively
uninformed with respect to these products and services and often rely upon
personal relationships when making such purchases. As the sale of many of these
products and services moves to the web, where there is little personal contact,
we believe that consumers will seek sources of independent, objective
information such as Bankrate.com to facilitate and support their buying
decisions. Our publications are targeted to fulfill the market need for online
personal and consumer finance information.
We use our comparative data regarding financial products and related
editorial content to create a unique web-based service designed to enable our
audience to keep abreast of personal finance developments and better manage
their financial affairs. As a result, we believe we can assemble a loyal base
of users made up of targeted audiences that are attractive to advertisers.
Strategy
Our objective is to create a series of online publications that are trusted
sources of editorial content for consumers in the area of personal finance.
Elements of our strategy include:
.increase awareness of our publications;
.expand existing publications;
.grow distribution relationships;
.add new publications; and
.provide high value added solutions to advertisers.
4
<PAGE>
Background
Intelligent Life commenced internet operations in 1995. In 1997, following
the hiring of William P. Anderson, III, our President and Chief Executive
Officer, our online activities became our principal focus. Since commencing
online operations, we have developed substantial online business capabilities,
and now create and host a significant number of web sites and sell and deliver
advertising relating to all of these sites. As a result of having developed
this infrastructure, we believe we are well-positioned to grow our business.
Our focus on online activities has resulted in a corresponding growth in online
publishing revenue as well as net losses.
Mar 31, Jun 30, Sep 30, Dec 31, Mar 31,
1998 1998 1998 1998 1999
------- ------- ------- ------- -------
Publishing Revenue 703 1,175 1,168 927 1,478
For the quarter ended March 31, 1999, the above graph excludes significant
noncash transactions incurred by Intelligent Life for noncash compensation
expense totaling approximately $1,893,000 and a noncash financing charge of
approximately $2,656,000, in each case resulting from the issuance of stock or
options below fair market value. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Noncash Charges" on page 24.
Intelligent Life was incorporated in Florida in 1993 and acquired the assets
of its predecessor at that time. Our principal executive office is located at
11811 U.S. Highway One, Suite 101, North Palm Beach, Florida 33408 and our
telephone number is (561) 627-7330.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Common stock offered by
Intelligent Life............... 3,500,000 shares
Common stock outstanding after
this offering.................. 13,440,988 shares
Use of proceeds................. For expansion of our business, including
marketing and promotional expenditures,
investment in editorial and content
production resources, and possible future
acquisitions, and for general corporate
purposes, including working capital. See "Use
of Proceeds" on page 14.
Proposed Nasdaq Stock Market
symbol......................... ILIF
</TABLE>
The common stock outstanding after this offering excludes:
. 787,500 shares of common stock issuable upon the exercise of options
outstanding at April 15, 1999, at a weighted average exercise price of
$2.50 per share, and 472,500 shares of common stock issuable upon
exercise of options to be granted upon completion of this offering with
an exercise price equal to the initial public offering price; and
. 525,000 shares of common stock that may be sold by Intelligent Life
pursuant to the Underwriters' over-allotment option.
The common stock outstanding after this offering includes:
. 5,359,350 shares of common stock issuable upon the automatic conversion
of all Series A and Series B Preferred Stock outstanding at December 31,
1998 upon completion of the offering;
. 339,200 shares of common stock issuable upon the automatic conversion of
Series B Preferred Stock that was issued on April 9, 1999 upon
conversion of a promissory note issued by Intelligent Life on March 9,
1999 for $1 million; and
. 189,238 shares of common stock resulting from the reclassification of
redeemable common stock upon cancellation of the put right associated
with such shares and upon forgiveness of a promissory note issued in
consideration for 454,170 shares of redeemable common stock (264,932
shares of stock were reacquired). See "Management--Stock Option and
Other Compensation Plans" on page 43.
6
<PAGE>
Summary Financial and Operating Data
<TABLE>
<CAPTION>
Six Months
Year Ended June 30, Ended December 31,
---------------------------------- ----------------------------
1996 1997 1998 1997 1998
---------- ---------- ---------- ------------- -------------
in thousands, except share in thousands, except share
and per share data and per share data
<S> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Online publishing
revenue................ $ 70 $ 485 $ 1,282 $ 508 $ 1,809
Print publishing and
licensing revenue...... 1,558 2,058 2,559 1,180 1,660
---------- ---------- ---------- ------------- -------------
Total revenue.......... 1,628 2,543 3,841 1,688 3,469
Loss from operations.... (619) (879) (2,828) (939) (2,287)
Net loss................ (672) (956) (2,782) (904) (2,095)
Conversion of
nonredeemable
convertible series A
preferred stock to
redeemable............. -- -- -- -- (4,438)
Net loss applicable to
common stock........... (672) (956) (2,782) (904) (6,533)
Basic and diluted net
loss per share......... $ (0.13) $ (0.20) $ (0.72) $ (0.24) $ (1.63)
Weighted average shares
outstanding used in
basic and diluted per
share calculation(1)... 5,000,000 4,743,590 3,846,200 3,846,200 4,018,700
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, 1998
--------------------------------------
in thousands
Pro forma
Actual Pro forma (2) As Adjusted(3)
-------- ------------- --------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 1,633 $2,633 $40,923
Working capital......... 658 1,658 39,948
Total assets............ 3,099 4,099 42,389
Long-term liabilities... 263 263 263
Redeemable convertible
preferred stock........ 12,198 -- --
Total stockholders'
equity (deficit)....... (10,985) 2,213 40,503
</TABLE>
- --------
(1) Weighted average shares outstanding do not include shares underlying
outstanding stock options and shares underlying redeemable common stock and
convertible preferred stock because such securities are anti-dilutive for
each of the periods presented.
(2) This column includes the impact of (a) the issuance of 5,359,350 shares of
common stock issuable upon conversion of all Series A and Series B
Preferred Stock outstanding at December 31, 1998 upon completion of the
offering; (b) the issuance of 339,200 shares of common stock issuable upon
automatic conversion of Series B Preferred Stock that was issued on
April 9, 1999 upon conversion of a promissory note issued by Intelligent
Life on March 9, 1999 for $1 million and the associated charge of
$2,656,000; and (c) the reclassification of 189,238 shares of common stock
reclassified from redeemable common stock upon cancellation of the put
right associated with such shares and upon forgiveness of a promissory note
issued in consideration for 454,170 shares of redeemable common stock
(264,932 shares of stock were reacquired) and the associated charge of
$1,782,000.
(3) This column contains pro forma balance sheet data that has been adjusted to
give effect to the sale by Intelligent Life of the 3,500,000 shares of
common stock offered hereby at an assumed initial public offering price of
$12 per share and the receipt of the estimated net proceeds therefrom. See
"Use of Proceeds" on page 14 and "Capitalization" on page 15.
7
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. In
addition to the other information in this prospectus, you should carefully read
and consider the following risk factors before investing in our common stock.
We have a history of losses
We incurred net losses of approximately $2,782,000, $956,000 and $672,000
for the years ended June 30, 1998, 1997 and 1996 and a net loss of $2,095,000
for the six months ended December 31, 1998. We had an accumulated deficit of
approximately $10,745,000 as of December 31, 1998. We anticipate that we may
incur operating losses in the future due to a high level of planned
expenditures. Furthermore, we will incur significant noncash charges during the
next four years. Although our revenue has grown rapidly in recent periods, such
growth may not continue and may not lead to profitability.
Our success depends upon internet advertising revenue
We expect to derive more than half of our revenues for the foreseeable
future through the sale of advertising space on our internet web pages. Any
factors that limit the amount advertisers are willing to spend on advertising
on our web sites could have a material adverse effect on our business. These
factors may include:
. lack of standards for measuring web site traffic or effectiveness of web
site advertising;
. lack of established pricing models for internet advertising;
. failure of traditional media advertisers to adopt internet advertising;
. introduction of alternative advertising sources; and
. lack of significant growth in web site traffic.
The internet is a new medium for advertising and its effectiveness is
unproven. Demonstrating the effectiveness of advertising on our web sites is
critical to our ability to generate advertising revenue. Currently, there are
no widely accepted standards to measure the effectiveness of internet
advertising, and we cannot be certain that such standards will develop
sufficiently to support our growth through internet advertising.
Currently, a number of different pricing models are used to sell advertising
on the internet. Pricing models are typically either CPM-based (cost per
thousand) or performance-based. We predominantly utilize the CPM-based model,
which is based upon the number of advertisement impressions. The performance-
based, or per click, model is payable on each individual click even though it
may take multiple advertisement impressions to generate one click. We cannot
predict which pricing model, if any, will emerge as the industry standard.
Therefore, it is difficult for us to project our future advertising rates and
revenues. For instance, banner advertising, which is currently our primary
source of online revenue, may not be an effective advertising method in the
future. If we are unable to adapt to new forms of internet advertising and
pricing models, our business could be adversely affected.
Financial services companies account for a majority of our advertising
revenues. We will need to sell advertising to customers outside of the
financial services industry in order to significantly increase our revenues. To
date, relatively few advertisers from industries other than the technology and
financial services industries have devoted a significant portion of their
advertising budgets to internet advertising. If we do not attract advertisers
from other industries, our business could be adversely affected.
Our success depends upon interest rate activity and mortgage refinancing
Approximately 90% and 75% of our advertisement views and page views,
respectively, are attributable to the Bankrate.com site. Given that this site
provides interest rate information for mortgages and other loans, credit cards
and savings accounts, visitor traffic to this site increases with interest rate
movements and decreases with interest rate stability. Factors that have caused
significant visitor fluctuations in the past have
8
<PAGE>
been Federal Reserve actions and general market conditions affecting home
mortgage interest rates. Approximately 40% of visits to Bankrate.com are to its
mortgage pages. Accordingly, the level of traffic to Bankrate.com is heavily
dependent on interest rates and mortgage refinancing activity. A slowdown in
mortgage refinancings could have a material adverse effect on our business.
We believe that as we continue to develop web sites of broader interest, the
percentage of overall site traffic seeking mortgage information will decline.
To accelerate the growth of traffic to our other sites, we are working with our
syndication partners to program web sites other than Bankrate.com more
intensively, and we are promoting these sites aggressively. We cannot assure
you that we will be successful in these efforts.
Our success depends upon establishing and maintaining distribution arrangements
Our business strategy includes the distribution of our content through the
establishment of co-branded web pages with high-traffic business and personal
finance sections of online services and web sites. A co-branded site is
typically a custom version of Bankrate.com with the graphical look and feel,
and navigation, of the other web site. Providing access to these co-branded web
pages is a significant part of the value we offer to our advertisers. We
compete with other internet content providers to maintain our current
relationships with other web site operators and establish new relationships. In
addition, as we expand our personal finance content, some of these web site
operators may perceive us as a competitor. As a result, they may be unwilling
to promote distribution of our banking and credit content. We cannot assure you
that our distribution arrangements will attract a sufficient number of users to
support our current advertising model. In January 1999, 44% of the traffic to
our web sites originated from the web sites of operators we have distribution
arrangements with. Our business could be adversely affected if we do not
establish and maintain distribution arrangements on favorable economic terms.
Our success depends upon increasing brand awareness of our web sites
Although Intelligent Life and its predecessors have been in business since
1976, we commenced our internet operations by introducing Bankrate.com in 1995.
Due to the limited operating history of our internet operations, it is
important that we develop brand awareness of our web sites in order for them to
be attractive to advertisers. The importance of our brand recognition will
increase as competition in the internet advertising market increases. As a
result, developing and maintaining awareness of our web sites by promoting our
brand names is critical to maintaining our growth. As competing web sites
become established on the internet, the cost of developing brand awareness
increases significantly.
Successfully promoting and positioning our web sites and brand names will
depend largely on the effectiveness of our marketing efforts and our ability to
develop favorable traffic patterns to our web sites. Therefore, we may need to
increase our financial commitment to creating and maintaining brand awareness
among users. We intend to use a portion of the proceeds of this offering to
increase our marketing efforts and promote our brand awareness. If we fail to
successfully promote our web sites and brand names or if we incur significant
expense in doing so, it could have a material adverse effect on our business.
Our markets are highly competitive
We compete for internet advertising revenues with a number of finance-
related web sites, such as MarketWatch.com, CNNfn.com and Quicken.com, and
traditional publishers and distributors of personal finance content such as
MSNBC, CNN, Money Magazine and USA Today. In addition, new competitors may
easily enter this market as there are few barriers to entry. Many of our
existing competitors, as well as a number of potential new competitors, have
longer operating histories, greater name recognition, larger customer bases and
significantly greater financial, technical and marketing resources than us.
Many competitors, such as Quicken.com, also have complementary products or
services that drive traffic to their web sites. Increased competition could
result in lower web site traffic, advertising rate reductions, reduced margins
or loss of market share, any of which would adversely affect our business. We
cannot be certain that we will be able to compete successfully against current
or future competitors.
9
<PAGE>
Our web sites may encounter technical problems and service interruptions
In the past, our web sites have experienced significant increases in traffic
in response to interest rate movements and other business or financial news
events. The number of our users has continued to increase over time, and we are
seeking to further increase our user base. As a result, our internet servers
must accommodate spikes in demand for our web pages in addition to potential
significant growth in traffic. Our web sites have in the past and may in the
future experience slower response times or interruptions as a result of
increased traffic or other reasons. For example, from October 29, 1998 to April
28, 1999, we experienced approximately one percent of interruption time,
averaging approximately two minutes per interruption. This downtime included
interruptions for routine maintenance. These delays and interruptions resulting
from failure to maintain internet service connections to our site could
frustrate users and reduce our future web site traffic, which could have a
material adverse effect on our business.
All of our communications and network equipment is located at our corporate
headquarters in North Palm Beach, Florida. Any system failure at this location
could lead to interruptions or delays in service for our web sites, which could
have a material adverse effect on our business. Our operations are dependent
upon our ability to protect our systems against damage from fires, hurricanes,
earthquakes, power losses, telecommunications failures, break-ins, computer
viruses, hacker attacks and other events beyond our control. Although we
maintain business interruption insurance, it may not adequately compensate us
for losses that may occur due to failures of our systems.
We rely on the protection of our intellectual property
Our intellectual property consists of the content of our web sites and print
publications. We rely on a combination of copyrights, trademarks, trade secret
laws and our user policy and restrictions on disclosure to protect our
intellectual property. We may also enter into confidentiality agreements with
our employees and consultants and seek to control access to and distribution of
our proprietary information. Despite these precautions, it may be possible for
other parties to copy or otherwise obtain and use the content of our web sites
or print publications without authorization. A failure to protect our
intellectual property in a meaningful manner could have a material adverse
effect on our business.
Because we license some of our data and content from other parties, we may
be exposed to infringement actions if such parties do not possess the necessary
proprietary rights. Generally, we obtain representations as to the origin and
ownership of licensed content and obtain indemnification to cover any breach of
any such representations. However, such representations may not be accurate and
such indemnification may not be sufficient to provide adequate compensation for
any breach of such representations.
Any future infringement or other claims or prosecutions related to our
intellectual property could have a material adverse effect on our business. Any
such claims, with or without merit, could be time-consuming, result in costly
litigation and diversion of technical and management personnel or require us to
introduce new content or trademarks, develop new technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on acceptable terms, if at all.
We may face liability for information on our web sites
Much of the information published on our web sites relates to the
competitiveness of financial institutions' rates, products and services. We may
be subjected to claims for defamation, negligence, copyright or trademark
infringement or other theories relating to the information we publish on our
web sites. These types of claims have been brought, sometimes successfully,
against online services as well as print publications. Our insurance may not
adequately protect us against these types of claims.
Future government regulation of the internet is uncertain and subject to change
As internet commerce continues to evolve, increasing regulation by federal
or state agencies or foreign governments may occur. Such regulation is likely
in the areas of user privacy, pricing, content and quality of products and
services. Additionally, taxation of internet use or electronic commerce
transactions may be imposed. Any regulation imposing fees for internet use or
electronic commerce transactions could result in a
10
<PAGE>
decline in the use of the internet and the viability of internet commerce,
which could have a material adverse effect on our business.
Our ownership is heavily concentrated in our management
Our officers and directors will beneficially own approximately 67% of
Intelligent Life's outstanding common stock after this offering. Peter C.
Morse, our largest shareholder, will beneficially own approximately 41% of
Intelligent Life's outstanding common stock after this offering. As a result,
our officers and directors will be able to exercise control over all matters
requiring shareholder approval. In particular, these controlling shareholders
will have the ability to elect all of our directors and approve or disapprove
significant corporate transactions. This control could be used to prevent or
significantly delay another company or person from acquiring or merging with
us.
Our rapid growth may strain our operations
Since we began our internet operations in 1995, we have expanded our
operations significantly, and we intend to continue to do so. Our future
expansion may place a significant strain on our management. To manage the
expected growth of our operations and personnel, we must expand and improve our
existing management, operational and financial systems. If we fail to expand
and improve these systems in a timely manner, this failure could have a
material adverse effect on our business.
Our new managers must work together effectively as a team
We have recently added key managerial, technical and operations personnel.
For example, our President and Chief Executive Officer was hired in 1997, our
Senior Vice President--Administration was hired in 1998, and our Senior Vice
President--Marketing was hired in 1999. We are also significantly increasing
our employee base. These new personnel must integrate themselves into our daily
operations and work effectively as a team in order for us to be successful. We
cannot be certain that this will occur in all instances.
Our success depends upon management and key employees
Our success depends largely upon retaining the continued services of our
executive officers and other key management and developing personnel as well as
hiring and training additional employees.We have a number of key employees on
whom we depend and who may be difficult to replace. Specifically, we rely on
William P. Anderson, III, our President and Chief Executive Officer, and our
key employees, Sara Campbell Taylor, Peter W. Minford, G. Cotter Cunningham and
Robert J. DeFranco. All of our employees are employed by the Vincam Group under
an employee leasing contract. This contract has a one-year term and there can
be no assurance of its renewal. A failure to retain our current key employees
or to hire enough qualified employees to sustain our growth could have a
material adverse effect on our business.
Our Articles of Incorporation and Bylaws, as well as Florida law, may prevent
or delay a future takeover
Our Articles of Incorporation and Bylaws may have the effect of delaying or
preventing a merger or acquisition, or making such a transaction less desirable
to a potential acquirer, even when shareholders may consider the acquisition or
merger favorable. For example, our Articles of Incorporation and Bylaws provide
that:
. the board of directors has the authority, without shareholder approval,
to issue up to 10,000,000 shares of preferred stock and to determine the
rights (including voting rights) associated with such preferred stock
(which issuance may adversely affect the market price of the common stock
and the voting rights of the holders of common stock);
. the board of directors is classified and directors have three-year terms;
. cumulative voting for the election of directors is prohibited;
. approval by 66 2/3% of the shareholders is required for material
amendments to the Articles of Incorporation or Bylaws; and
. certain procedures must be followed before matters can be proposed by
shareholders for consideration at shareholder meetings.
11
<PAGE>
Florida law also contains "control share acquisition" and "affiliate
transaction" provisions that may also delay, prevent, or discourage an
acquisition of or merger with Intelligent Life. See "Description of Capital
Stock--Material Provisions of Florida Law" on page 46.
We have broad discretion in the use of proceeds from this offering
The net proceeds from the sale of the common stock will become part of our
general working capital upon completion of this offering, and we may use these
funds in a variety of ways, including increasing our sales and marketing
activities, increasing our content development activities and pursuing
strategic acquisitions and partnerships. We will have considerable discretion
in the application of the net proceeds of this offering to these uses. In
addition, the timing of our use of the net proceeds will depend on a number of
factors, including the amount of our future revenues.
We may encounter difficulties with future acquisitions
A part of our business strategy is to acquire web sites and other content
providers that will be complementary to our current activities. Any
acquisitions may present a number of potential risks that could result in a
material adverse effect on our business. These risks include the following:
. failure to integrate the technical operations and personnel in a timely
and cost-effective manner;
. failure to retain key personnel of the acquired company; and
. assumption of unexpected material liabilities.
In addition, we cannot assure you that we will be able to identify suitable
acquisition candidates that are available for sale at reasonable prices. We may
finance future acquisitions using some or all of the proceeds of this offering.
We may also finance future acquisitions with debt financing, which would
increase our debt service requirements, or through the issuance of additional
common or preferred stock, which could result in dilution to our shareholders.
We cannot assure you that we will be able to arrange adequate financing on
acceptable terms.
Our results of operations may fluctuate significantly
Our results of operations may fluctuate significantly in the future as a
result of several factors, many of which are beyond our control. These factors
include:
. changes in fees paid by advertisers;
. traffic levels on our web sites, which can fluctuate significantly as a
result of financial news events;
. changes in the demand for internet products and services;
. changes in fee or revenue-sharing arrangements with our distribution
partners;
. our ability to enter into or renew key distribution agreements;
. the introduction of new internet advertising services by us or our
competitors;
. changes in our capital or operating expenses as we expand our operations;
and
. general economic conditions.
Our future revenues and results of operations may be difficult to forecast
due to these factors. As a result, we believe that period-to-period comparisons
of our results of operations may not be meaningful, and you should not rely on
past periods as indicators of future performance. In future periods, our
results of operations may fall below the expectations of securities analysts
and investors, which could adversely affect the trading price of the common
stock.
Our stock price may be volatile in the future
We cannot predict whether a trading market for our common stock will develop
or how liquid that market might become. The initial public offering price for
our common stock has been determined by negotiations between us and ING Baring
Furman Selz LLC and may not be indicative of prices that will prevail in the
12
<PAGE>
trading market. The stock prices and trading volume of internet-related
companies have been extremely volatile of late. Accordingly, our stock prices
after this offering may be volatile as well. In addition, following periods of
downward volatility in the market price of a company's securities, class action
litigation is often brought against the company. Downward volatility of our
stock prices could lead to class action litigation, resulting in substantial
costs and a diversion of our management's attention and resources.
Future sales of common stock could adversely affect stock price
Sales of significant amounts of common stock in the public market after this
offering, or the perception that such sales may occur, could materially
adversely affect the market price of the common stock.
We will have 13,440,988 shares of common stock outstanding after this
offering. Of these shares, the 3,500,000 shares offered hereby will be eligible
for immediate sale in the public market without restriction, except shares
purchased by our "affiliates" within the meaning of Rule 144 under the
Securities Act.
The remaining 9,940,988 shares are held by existing stockholders and are
"restricted securities" within the meaning of Rule 144 under the Securities
Act. Restricted securities may be sold in the public market only if registered
or if the sale transaction qualifies for an exemption from registration under
the Securities Act. Our officers and certain of our directors and existing
stockholders have agreed that they will not sell, directly or indirectly, any
common stock without the prior consent of ING Baring Furman Selz LLC for a
period of 180 days from the date of this prospectus. As a result, additional
shares may become available for sale to the public as follows: 878,750 and
339,200 shares may be eligible for sale pursuant to Rule 144 on November 25,
1999 and March 9, 2000, respectively; and 8,723,038 shares may be eligible for
sale pursuant to Rule 144 upon the expiration of lock-up agreements 180 days
after the date of this prospectus. Certain holders of these shares,
representing approximately 9,683,988 shares of common stock, have the right,
subject to restrictive conditions, to include their shares in future
registration statements relating to our securities and/or to cause us to
register certain shares of common stock owned by them.
In addition, we have outstanding options to purchase 787,500 shares of
common stock, at least 46,748 of which will be vested and upon exercise will be
eligible for sale in the public market beginning 180 days after the date of
this prospectus. We are also granting options to a broad base of employees upon
completion of this offering, which will be exercisable for an aggregate of
72,500 shares of common stock at the initial public offering price. In
addition, we are granting options to a consultant upon completion of this
offering, which will be exercisable for an aggregate of 400,000 shares of
common stock at the initial public offering price. See "Management--Consulting
Agreements" on page 44.
New investors in Intelligent Life will incur immediate and substantial dilution
If you purchase common stock in this offering, you will incur immediate and
substantial dilution in net tangible book value per share in the amount of
$8.99. Further dilution may result if options to purchase shares of common
stock are exercised by option holders in the future.
We may experience Year 2000 problems
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, software programs that have time-sensitive components may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in system failure, causing disruptions to our operations.
We may be affected by Year 2000 issues related to non-compliant internal
systems developed by us or by third-party vendors. We have received written
certifications from all manufacturers of our third-party systems that they are
Year 2000 compliant. We are not currently aware of any material systems that
contain embedded chips that are not Year 2000 compliant, or that we will not be
able to bring into compliance in a timely fashion. We plan to complete final
testing of all our systems for Year 2000 compliance by May 30, 1999. We intend
to
13
<PAGE>
take steps to bring into compliance any system we find not to be Year 2000
compliant based upon our final test phase. Failure of our systems to be Year
2000 compliant could result in an inability of users to view our sites, which
would have a material adverse effect on our business. Such failures could also
require substantial time and effort on the part of management.
FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus contain forward-looking
information. These statements are found in the sections entitled "Prospectus
Summary," "Risk Factors," "Use of Proceeds," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business." They
include statements concerning:
. our business strategy;
. liquidity and capital expenditures;
. use of proceeds of the offering;
. future sources of revenues;
. expansion of our online publications;
. trends in internet activity generally;
. trends in government regulation; and
. payment of dividends.
You can identify these statements by forward-looking words such as "expect,"
"believe," "goal," "plan," "intend," "estimate," "may" and "will" or similar
words. You should be aware that these statements are subject to known and
unknown risks, uncertainties and other factors, including those discussed in
the section entitled "Risk Factors," that could cause the actual results to
differ materially from those suggested by the forward-looking statements.
USE OF PROCEEDS
The net proceeds to Intelligent Life from the sale of the 3,500,000 shares
of common stock offered hereby are estimated to be approximately $38,289,650
($44,148,650 if the underwriters exercise their over-allotment option in full),
assuming an initial public offering price of $12 per share and after deducting
estimated underwriting discounts and commissions and estimated expenses payable
by Intelligent Life in connection with the offering.
We intend to use the net proceeds from the offering primarily as working
capital for expansion of our business, including marketing and promotional
expenditures, investment in editorial and content production resources, and
possible future acquisitions, and for general corporate purposes. We currently
have no specific agreements, commitments or understandings with respect to any
acquisition. The amounts we actually use for each purpose may vary
significantly depending upon certain factors, including economic or industry
conditions, changes in the competitive environment and strategic opportunities
that may arise. In addition, we believe that it is important to create a public
market for our common stock to facilitate future access to public market funds
and provide the availability of a publicly-traded stock if we decide to issue
common stock in connection with future acquisitions. Pending application of the
net proceeds as described above, we intend to invest the net proceeds of the
offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock and we do
not anticipate declaring or paying any cash dividends for the foreseeable
future. We currently expect to retain all earnings, if any, for investment in
our business. Our Board of Directors has broad discretion as to whether to pay
dividends. Any determination whether to pay dividends will depend on a number
of factors, including our results of operations, financial position and capital
requirements, general business conditions, restrictions imposed by financing
arrangements, if any, legal and regulatory restrictions on the payment of
dividends and other factors that our Board of Directors deems relevant.
14
<PAGE>
CAPITALIZATION
The following table sets forth at December 31, 1998: (1) the capitalization
of Intelligent Life; (2) the pro forma capitalization of Intelligent Life
giving effect to (a) conversion of all Series A and Series B Preferred Stock
outstanding at December 31, 1998 to 5,359,350 shares of common stock upon
completion of the offering; (b) the issuance of 339,200 shares of common stock
issuable upon automatic conversion of Series B Preferred Stock that was issued
on April 9, 1999 upon conversion of a promissory note issued by Intelligent
Life on March 9, 1999 for $1 million and the associated charge of $2,656,000;
and (c) the reclassification of 189,238 shares of redeemable common stock upon
cancellation of the put right associated with such shares and upon forgiveness
of a promissory note issued in consideration for 454,170 shares of redeemable
common stock (264,932 shares of stock were reacquired) and the associated
charge of $1,782,000; and (3) the pro forma capitalization of Intelligent Life
as adjusted to give effect to the sale of the shares of common stock offered
hereby and the application of the net proceeds. This table should be read in
conjunction with our financial statements and the notes thereto appearing
elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of
December 31, 1998
-----------------------------
Pro forma
Pro As
Actual forma Adjusted
-------- -------- ---------
in thousands
<S> <C> <C> <C>
Current portion of capital lease obligations.... $ 113 $ 113 $ 113
======== ======== ========
Capital lease obligations, long term............ $ 263 $ 263 $ 263
Redeemable Convertible Series A Preferred Stock,
noncumulative, par value $.01 per share,
liquidation value $65 per share, stated at
redemption value--90,000 shares authorized;
89,612 shares issued and outstanding, actual;
and no shares issued or outstanding, pro forma
and pro forma as adjusted...................... 10,216 -- --
Redeemable Convertible Series B Preferred Stock,
noncumulative, par value $.01 per share,
liquidation value $114 per share, stated at
redemption value -- 30,000 shares authorized;
17,575 shares issued and outstanding, actual;
and no shares issued or outstanding, pro forma
and pro forma as adjusted...................... 1,983 -- --
Redeemable common stock, par value $.01 per
share, redemption value $0.52 per share --
454,170 shares issued and outstanding, actual;
and no shares issued or outstanding, pro forma
and pro forma as adjusted...................... 236 -- --
Loan receivable for redeemable common stock..... (236) -- --
Stockholders' equity (deficit):
Preferred stock, 10,000,000 shares authorized
and undesignated, none issued, pro forma as
adjusted..................................... -- -- --
Common stock, $.01 par value; 100,000,000
shares authorized, 4,053,200 shares issued
and outstanding, actual; 9,940,988 shares
issued and outstanding pro forma and
13,440,988 shares issued and outstanding, pro
forma as adjusted(1)......................... 41 99 134
Additional paid-in capital...................... -- 17,684 55,939
Unamortized stock compensation expense.......... (281) (60) (60)
Accumulated deficit............................. (10,745) (15,510) (15,510)
-------- -------- --------
Total stockholders' equity (deficit)........ (10,985) 2,213 40,503
-------- -------- --------
Total capitalization...................... $ 1,477 $ 2,476 $ 40,766
======== ======== ========
</TABLE>
- --------
(1) Excludes: 3,000,000 shares of common stock presently reserved for issuance
upon exercise of options granted under the 1997 and 1999 Equity
Compensation Plans of which options to purchase 787,500 shares of common
stock are issuable upon the exercise of options outstanding at April 15,
1999 at a weighted average exercise price of $2.50 per share. An additional
472,500 shares of common stock will be issuable upon the exercise of
options to be granted upon completion of this offering at the initial
public offering price. See "Management -- Stock Option and Other
Compensation Plans" on page 43.
15
<PAGE>
DILUTION
As of December 31, 1998, the pro forma net tangible book value of
Intelligent Life was approximately $2,208,830, or $0.22 per share of common
stock. Pro forma net tangible book value per share represents the amount of
Intelligent Life's total tangible assets less total liabilities, divided by the
number of shares of common stock outstanding, giving pro forma effect to the
(a) automatic conversion of all Series A and Series B Preferred Stock
outstanding at December 31, 1998 to 5,359,350 shares of common stock upon
completion of the offering; (b) the issuance of 339,200 shares of common stock
issuable upon the automatic conversion of Series B Preferred Stock that was
issued on April 9, 1999 upon conversion of a promissory note issued by the
Company on March 9, 1999 for $1 million; and (c) 189,238 shares of common stock
reclassified from redeemable common stock upon cancellation of the put right
associated with such shares and upon forgiveness of a promissory note issued in
consideration for 454,170 shares of redeemable common stock (264,932 shares of
stock were reacquired). After giving effect to the sale by Intelligent Life of
the 3,500,000 shares of common stock offered hereby at an assumed initial
public offering price of $12 per share and the application of the estimated net
proceeds therefrom after deducting the underwriting discounts and estimated
offering expenses, the adjusted net tangible book value of Intelligent Life at
December 31, 1998, would have been approximately $40,498,830, or $3.01 per
share of common stock. This represents an immediate increase in such net
tangible book value of $2.79 per share to existing shareholders and an
immediate decrease in net tangible book value of $8.99 per share to new
investors. The following table illustrates this unaudited per-share dilution to
new investors:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $12.00
Net tangible book value per share as of December 31, 1998... $0.22
Increase in net tangible book value per share attributable
to new investors........................................... $2.79
-----
Adjusted net tangible book value per share after the
offering..................................................... $ 3.01
------
Dilution per share to new investors........................... $ 8.99
======
</TABLE>
The following table sets forth, as of December 31, 1998, giving effect to
the transactions discussed above, (1) the number of shares of common stock
previously issued by Intelligent Life, (2) the total consideration reflected in
the accounts of Intelligent Life, and (3) the average price per share to the
existing shareholders and new investors. These amounts assume the sale by
Intelligent Life of 3,500,000 shares of common stock at an assumed initial
public offering price of $12 per share and do not reflect deduction of
estimated underwriting discounts and commissions and offering expenses:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ ------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders.. 9,940,988 74.0% $ 9,300,242 18.1% $ 0.94
New investors.......... 3,500,000 26.0 42,000,000 81.9 $12.00
---------- ----- ----------- -----
Total................ 13,440,988 100.0% $51,300,242 100.0%
========== ===== =========== =====
</TABLE>
Assuming full exercise of the underwriters' over-allotment option, the
percentage of shares held by existing shareholders would be decreased to 71.2%
of the total number of shares of common stock to be outstanding after the
offering, and the number of shares held by new shareholders would be increased
to 4,025,000 shares, or 28.8% of the total number of shares of common stock to
be outstanding after the offering.
The foregoing tables and other information excludes shares of common stock
issuable upon exercise of options held by certain officers, directors and
employees of Intelligent Life.
As of April 15, 1999, there were outstanding options to acquire
approximately 787,500 shares of common stock at exercise prices ranging from
$1.30 to $2.97 per share and a weighted average exercise price of $2.50 per
share. In addition, options to acquire 472,500 shares of common stock will be
granted upon completion of this offering at the initial public offering price.
The exercise of these options will have the effect of increasing the net
tangible book value dilution of new investors in this offering. See "Shares
Eligible for Future Sale" on page 51.
16
<PAGE>
SELECTED FINANCIAL DATA
Our selected financial data set forth below should be read in conjunction
with our financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 18 of this prospectus. The statement of operations data for
the years ended June 30, 1994 and 1995, and the balance sheet data as of June
30, 1994 and 1995, are derived from unaudited financial statements not included
in this prospectus. The statement of operations data for the years ended
June 30, 1996 and 1997, and the balance sheet data as of June 30, 1996 and
1997, are derived from, and are qualified by reference to, the financial
statements included elsewhere in this prospectus, which have been audited by
Thomas & Clough Co., P.A. The statement of operations data for the year ended
June 30, 1998, and the balance sheet data as of June 30, 1998 are derived from,
and are qualified by reference to, the financial statements included elsewhere
in the prospectus, which have been audited by KPMG LLP. The statement of
operations data for the six-month periods ended December 31, 1997 and 1998 and
the balance sheet data as of December 31, 1998 are derived from unaudited
financial data. In the opinion of our management, the unaudited financial
statements have been prepared on a basis consistent with the financial
statements which appear elsewhere in this prospectus, and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position and results of operations for such
unaudited periods. Historical results are not necessarily indicative of results
to be expected in the future.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
---------------------------------------------------------- ----------------------
1994 1995 1996 1997 1998 1997 1998
---------- ---------- ---------- ---------- ---------- ---------- ----------
in thousands, except share and per share data in thousands,
except share
and per share data
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue:
Online publishing...... $ 0 $ 0 $ 70 $ 485 $ 1,282 $ 508 $ 1,809
Print publishing and
licensing............. 871 1,109 1,558 2,058 2,559 1,180 1,660
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenue......... 871 1,109 1,628 2,543 3,841 1,688 3,469
Cost of operations:
Online publishing...... 0 0 16 582 862 321 979
Print publishing and
licensing............. 668 884 971 1,186 1,962 957 1,101
Sales.................. 0 0 98 90 665 117 817
Marketing.............. 14 23 34 1 145 18 305
Product research....... 258 274 508 721 1,216 493 916
General and
administrative........ 288 404 522 768 1,663 695 871
Depreciation and
amortization.......... 95 69 98 74 67 25 98
Stock based
compensation.......... 0 0 0 0 89 0 669
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total cost of
operations........... 1,323 1,654 2,247 3,422 6,669 2,627 5,756
---------- ---------- ---------- ---------- ---------- ---------- ----------
Loss from operations.... (452) (545) (619) (879) (2,828) (939) (2,287)
Other income (expense).. (13) (410) (53) (77) 46 35 192
---------- ---------- ---------- ---------- ---------- ---------- ----------
Loss before income
taxes.................. (465) (955) (672) (956) (2,782) (904) (2,095)
Income taxes............ -- -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss................ (465) (955) (672) (956) (2,782) (904) (2,095)
Conversion of
nonredeemable
convertible Series A
Preferred Stock to
redeemable............. -- -- -- -- -- -- (4,438)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net loss applicable to
common stock........... $ (465) $ (955) $ (672) $ (956) $ (2,782) $ (904) $ (6,533)
========== ========== ========== ========== ========== ========== ==========
Basic and diluted net
loss per share......... $ (0.10) $ (0.19) $ (0.13) $ (0.20) $ (0.72) $ (0.24) $ (1.63)
Weighted average shares
outstanding used in
basic and diluted per-
share calculation...... 4,824,170 5,000,000 5,000,000 4,743,590 3,846,200 3,846,200 4,018,700
</TABLE>
<TABLE>
<CAPTION>
As of June 30, As of
-------------------------------------- December 31,
1994 1995 1996 1997 1998 1998
----- ------- ------- ------ ------ ------------
in thousands in thousands
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents.............. $ 0 $ (4) $ 0 $1,763 $ 910 $ 1,633
Working capital........... (424) (597) (1,649) 887 164 658
Total assets.............. 695 273 311 2,193 1,768 3,099
Obligations under capital
leases, long term........ 379 700 0 0 14 263
Redeemable preferred
stock.................... -- -- -- -- -- 12,198
Total stockholders' equity
(deficit)................ (140) (1,096) (1,508) 1,035 657 (10,985)
</TABLE>
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the financial
statements and related notes contained in this prospectus. The following
discussion contains forward-looking statements that involve risks and
uncertainties. Intelligent Life's fiscal year ends on June 30. The fiscal year
ended June 30, 1996 is referred to as fiscal 1996, the fiscal year ended June
30, 1997 is referred to as fiscal 1997 and the fiscal year ended June 30, 1998
is referred to as fiscal 1998.
Overview
Intelligent Life is the leading provider of independent, objective research
regarding consumer banking and credit products and a significant publisher of
original editorial content relating to personal finance matters. We provide
this information through our internet sites Bankrate.com, theWhiz.com,
Consejero.com and CPNet.com and in print through Bank Rate Monitor and
Consumer Mortgage Guide. Our online operations are the principal focus of our
activities today. Prior to 1995, our principal businesses were the publication
of print newsletters and syndication of bank and credit product research to
newspapers and magazines. In 1995, we introduced the Consumer Mortgage Guide,
which is an advertisement for newspapers consisting of product and rate
information in tabular form from local mortgage companies that pay a weekly
fee for inclusion in the table.
In fiscal 1996, we commenced our online operations by displaying our
research through an internet site, Bankrate.com. By putting our information
online, we were able to create new revenue opportunities through the sale of
graphical and hyperlink advertising associated with our rate and yield tables.
In fiscal 1997, we determined that we would concentrate principally on our
online operations. Since that time, we have significantly expanded the scope
and depth of Bankrate.com and made investments in four new online
publications: theWhiz.com, Bankrate.com en Espanol, Consejero.com and
CPNet.com. These new publications accounted for 12% of total online revenues
for the fiscal year ended June 30, 1998 and 2% of total online revenues for
the six months ended December 31, 1998.
In order to focus on our online activities, we have reduced the number of
print newsletters we publish from five to three and eliminated active
marketing of our print publications. We have also ceased marketing Consumer
Mortgage Guide as a separate product. We now provide this product to
newspapers as a part of a broader relationship that is primarily directed
toward online activities.
We believe that recognition of our research as the leading source of
independent, objective information on banking and credit products is essential
to our success. As a result, we have sought to maximize distribution of our
research to gain brand recognition as a research authority. We are currently
seeking to increase traffic to Bankrate.com in order to build our brand
awareness and reach among online users.
The following are descriptions of the revenue and expense components of our
statement of operations:
Online publishing revenue represents the sale of advertising,
sponsorships and hyperlinks in connection with our web sites. Such
advertising is sold to advertisers according to the cost per thousand
impressions, or CPM, the advertiser receives. The amount of advertising we
sell is a function of (1) the number of advertisements we have per page,
(2) the number of visitors viewing our pages, and (3) the capacity of our
sales force. Revenue from advertising sales is invoiced monthly based on
the expected number of advertisement impressions, or number of times that
an advertisement is viewed. Revenue is recognized monthly based on the
percentage of impressions received to the total number of impressions
purchased. Revenue for impressions that have been invoiced but not
delivered is deferred. Hyperlinks to
18
<PAGE>
various third-party web sites are sold for a fixed monthly fee, which is
recognized as revenue in the month earned. For our revenue sharing
distribution arrangements with web site operators, revenue is recorded on a
gross basis, with payments for our distribution arrangements being included
in online publishing costs.
Print publishing and licensing revenue represents advertising revenue
from the sale of advertising in Consumer Mortgage Guide rate tables,
newsletter subscriptions, and licensing of research information. We charge
a commission for placement of Consumer Mortgage Guide in a print
publication. Advertising revenue and commission income is recognized when
Consumer Mortgage Guide runs in the publication. Revenue from our
newsletters is recognized ratably over the period of the subscription,
which is generally up to one year. Revenue from the sale of research
information is recognized ratably over the contract period.
Online publishing costs represent expenses directly associated with the
creation of online publishing revenue. These costs include contractual
revenue sharing obligations resulting from our distribution arrangements
(distribution payments), editorial costs, and allocated overhead.
Distribution payments are made to web site operators for visitors directed
to our web sites. These costs increase with gains in traffic to our sites.
Editorial costs relate to writers and editors who create original content
for our online publications and associates who build web pages. These costs
have increased as we have added online publications and co-branded versions
of our sites under distribution arrangements. These sites must be
maintained on a daily basis.
Print publishing and licensing costs represent expenses directly
associated with print publishing revenue. These costs include contractual
revenue sharing obligations with newspapers related to Consumer Mortgage
Guide, personnel costs, printing and allocated overhead.
Sales costs represent direct selling expenses, principally for online
advertising, and include sales commissions, personnel costs and allocated
overhead.
Marketing costs represent expenses associated with expanding brand
awareness of our products and services to consumers and include
advertising, including banner advertising, marketing and promotion costs.
Product research costs represent expenses related to gathering data on
banking and credit products and include compensation and benefits,
facilities costs, telephone costs and computer systems expenses.
General and administrative costs represent compensation and benefits for
administration, advertising management, accounting and finance, facilities
expenses, professional fees and non-allocated overhead.
Depreciation and amortization represents the cost of capital asset
acquisitions spread over their expected useful lives. These expenses are
spread over three to seven years and are calculated on a straight line
basis.
Stock based compensation represents expenses associated with stock
grants to our officers and employees as additional compensation for their
services.
Other income (expense) is comprised of interest income and expense and
gains and losses on the sale of assets.
Results of Operations
We have compared our financial results for the year ended June 30, 1996,
1997 and 1998 as well as the six months ended December 31, 1997 and 1998.
19
<PAGE>
The following tables displays our results of operations expressed as a
percentage of total revenues:
<TABLE>
<CAPTION>
Year Ended June Six Months Ended
30, December 31,
--------------------- -------------------
1996 1997 1998 1997 1998
----- ----- ----- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue:
Online publishing........... 4.3 % 19.1 % 33.4 % 30.1 % 52.1 %
Print publishing and
licensing.................. 95.7 80.9 66.6 69.9 47.9
----- ----- ----- -------- --------
Total revenue.............. 100.0 100.0 100.0 100.0 100.0
Cost of operations:
Online publishing........... 1.0 22.9 22.4 19.0 28.2
Print publishing and
licensing.................. 59.6 46.6 51.1 56.7 31.7
Sales....................... 6.0 3.5 17.3 6.9 23.6
Marketing................... 2.1 0.0 3.8 1.1 8.8
Product research............ 31.2 28.4 31.7 29.2 26.4
General and administrative.. 32.1 30.3 43.3 41.2 25.1
Depreciation and
amortization............... 6.0 2.9 1.7 1.5 2.8
Stock based compensation.... 0.0 0.0 2.3 0.0 19.3
----- ----- ----- -------- --------
Total cost of operations..... 138.0 134.6 173.6 155.6 165.9
----- ----- ----- -------- --------
Loss from operations......... (38.0) (34.6) (73.6) (55.6) (65.9)
Other income (expense)....... (3.3) (3.0) 1.2 2.1 5.5
----- ----- ----- -------- --------
Net loss................... (41.3)% (37.6)% (72.4)% (53.5)% (60.4)%
===== ===== ===== ======== ========
</TABLE>
Six Months Ended December 31, 1998 Compared to Six Months Ended December 31,
1997
Revenues
Total revenue increased to $3,469,000 for the six months ended December 31,
1998 from $1,688,000 for the six months ended December 31, 1997, representing a
106% increase.
Online publishing revenue increased to $1,809,000 for the six months ended
December 31, 1998 from $508,000 for the six months ended December 31, 1997,
representing a 256% increase. This increase was due primarily to a higher level
of advertising sales and higher advertising rates. The higher advertising sales
were facilitated by an increase in advertising inventory resulting from an
increase in the number of distribution arrangements as well as higher overall
internet traffic.
Print publishing and licensing revenue increased to $1,660,000 for the six
months ended December 31, 1998 from $1,180,000 for the six months ended
December 31, 1997, representing a 41% increase. This increase resulted from the
sale of a higher number of advertisements for Consumer Mortgage Guide, which
resulted primarily from growth in the number of participating newspapers.
Cost of Operations
Online publishing costs increased to $979,000 for the six months ended
December 31, 1998 from $321,000 for the six months ended December 31, 1997,
representing a 205% increase. The increase was due to greater revenue sharing
obligations and personnel costs related to expanded online publishing
operations.
Print publishing and licensing costs increased to $1,101,000 for the six
months ended December 31, 1998 from $957,000 for the six months ended December
31, 1997, representing a 15% increase. The increase resulted from higher
payments to newspapers principally because of higher revenues from Consumer
Mortgage Guide.
Sales costs increased to $817,000 for the six months ended December 31, 1998
from $117,000 for the six months ended December 31, 1997, representing a 598%
increase. The increase was primarily the result of an increase in sales
personnel, opening of sales offices in California and New York and
implementation of a more aggressive sales commission structure.
20
<PAGE>
Marketing costs increased to $305,000 for the six months ended December 31,
1998 from $18,000 for the six months ended December 31, 1997 representing a
1,594% increase. The increase resulted from hiring a public relations firm to
promote our online activities, creating and producing sales materials for
online advertising and purchasing banner advertising to test the effectiveness
of using such advertising to increase visitors to Bankrate.com.
Product research costs increased to $916,000 for the six months ended
December 31, 1998 from $493,000 for the six months ended December 31, 1997,
representing a 86% increase. The increase resulted from additional personnel
relating to an expanded number of products in which we conduct research and
additional quality control personnel.
General and administrative costs increased to $871,000 for the six months
ended December 31, 1998 from $695,000 for the six months ended December 31,
1997, representing a 25% increase. The increase was principally related to
expenses incurred to allow for anticipated growth, including additional
compensation and benefits for new personnel, facilities costs and professional
costs.
Depreciation and amortization increased to $98,000 for the six months ended
December 31, 1998 from $25,000 for the six months ended December 31, 1997,
representing a 292% increase. The increase was mainly attributable to higher
expenses for software, computer systems and components.
Stock-based compensation increased by $669,000 as a result of shares issued
in conjunction with the hiring of our President and Chief Executive Officer and
stock issued to Christy Heady as part of an employment agreement with
Intelligent Life entered into in conjunction with the purchase of theWhiz.com.
In December 1998, we sold one of our print publications, Bank Advertising
News, resulting in a gain of $186,000 which is included in other income
(expense). The sale was the result of management's assessment that this
publication no longer fit our strategy.
Year Ended June 30, 1998 Compared to Year Ended June 30, 1997
Revenues
Total revenue increased to $3,841,000 in fiscal 1998 from $2,543,000 in
fiscal 1997, representing a 51% increase.
Online publishing revenue increased to $1,282,000 in fiscal 1998 from
$485,000 in fiscal 1997, representing a 164% increase. This increase was due to
more advertisements being sold, higher advertising rates and an increase in
inventory available for sale. A change of site design for Bankrate.com to allow
for a larger number of advertisements per page also contributed to the revenue
growth.
Print publishing and licensing revenue increased to $2,559,000 in fiscal
1998 from $2,058,000 in fiscal 1997, representing a 24% increase. The increase
resulted from the sale of a higher number of advertisements for Consumer
Mortgage Guide, which resulted primarily from growth in the number of
participating newspapers.
Cost of Operations
Online publishing costs increased to $862,000 in fiscal 1998 from $582,000
in fiscal 1997, representing a 48% increase. The increase resulted from higher
payments made under distribution arrangements and additional editorial staff.
Print publishing and licensing costs increased to $1,962,000 in fiscal 1998
from $1,186,000 in fiscal 1997, representing a 65% increase. The increase was
substantially a result of higher payments to newspapers given the higher level
of Consumer Mortgage Guide revenues.
Sales costs increased to $665,000 in fiscal 1998 from $90,000 in fiscal
1997, representing a 639% increase. The increase was due to additional sales
staff, higher commissions resulting from increased revenues and higher
commission rates for our online sales staff.
21
<PAGE>
Marketing costs increased to $145,000 in fiscal 1998 from $1,485 in fiscal
1997, representing a 9,664% increase. The increase was due to the hiring of a
public relations firm to promote our expanded online activities and the costs
of creating and producing sales materials for online advertising. Additional
costs were incurred in fiscal 1998 when we purchased such advertising to test
its effectiveness in increasing visitors to Bankrate.com.
Product research costs increased to $1,216,000 in fiscal 1998 from $721,000
in fiscal 1997, representing a 69% increase. The increase was principally
related to the addition of 20 local markets in which we conducted research and
an expansion in the number of products for which we gathered data.
General and administrative costs increased to $1,663,000 in fiscal 1998 from
$768,000 in fiscal 1997, representing a 117% increase. The increase was
principally related to the hiring of new senior management, expansion of office
space and additional professional fees.
Depreciation and amortization decreased to $67,000 in fiscal 1998 from
$74,000 in fiscal 1997, representing a 9% decrease.
Year Ended June 30, 1997 Compared to Year Ended June 30, 1996
Revenues
Total revenue increased to $2,543,000 in fiscal 1997 from $1,628,000 in
fiscal 1996, representing a 56% increase.
Online publishing revenue increased to $485,000 in fiscal 1997 from $70,000
in fiscal 1996, representing a 593% increase. In fiscal 1996, Intelligent Life
initiated its online publishing operations. In fiscal 1997, Intelligent Life
conducted online publishing operations for the full year.
Print publishing and licensing revenue increased to $2,058,000 in fiscal
1997 from $1,558,000 in fiscal 1996, representing a 32% increase. The increase
resulted from the sale of a higher number of advertisements for Consumer
Mortgage Guide, which resulted primarily from growth in the number of
participating newspapers.
Cost of Operations
Online publishing costs increased to $582,000 in fiscal 1997 from $16,000 in
fiscal 1996. The increase was primarily due to higher payments made under
distribution arrangements resulting from growth of online publishing revenue.
Print publishing and licensing costs increased to $1,186,000 in fiscal 1997
from $971,000 in fiscal 1996, representing a 22% increase. The increase was
primarily due to higher payments to newspapers due to growth in Consumer
Mortgage Guide revenues.
Sales costs decreased to $90,000 in fiscal 1997 from $98,000 for fiscal
1996, representing an 8% decrease. The decrease was primarily due to reduced
sales costs while we were changing the focus of our operations.
Marketing costs decreased to $1,485 in fiscal 1997 from $34,000 in fiscal
1996, representing a 96% decrease. The decrease was due to suspension of
marketing activities in anticipation of increased online activities.
Product research costs increased to $721,000 in fiscal 1997 from $508,000 in
fiscal 1996, representing a 42% increase. The increase was due to conducting
research in a greater number of local markets.
General and administrative costs increased to $768,000 in fiscal 1997 from
$522,000 in fiscal 1996, representing a 47% increase. The increase was
principally related to recruiting costs associated with identifying and
retaining a new President and Chief Executive Officer, implementing a new
accounting system and the costs associated with the acquisition of MoneyWhiz,
which subsequently became theWhiz.com.
Depreciation and amortization was $74,000 in fiscal 1997, compared to
$98,000 in fiscal 1996, representing a decrease of 24%. The decrease was
principally related to the elimination of amortization of certain subscription
costs and depreciation related to certain assets.
22
<PAGE>
Quarterly Results of Operations
The following table presents certain unaudited quarterly statement of
operations data for each of our last ten quarters through the period ending
December 31, 1998. The information has been derived from our unaudited
financial statements. In the opinion of our management, the unaudited financial
statements have been prepared on a basis consistent with the financial
statements which appear elsewhere in this prospectus and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the financial position and results of operations for such
unaudited periods. Historical results are not necessarily indicative of results
to be expected in the future.
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------------------
Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Mar. 31 June 30 Sept. 30 Dec. 31
1996 1996 1997 1997 1997 1997 1998 1998 1998 1998
-------- ------- ------- ------- -------- ------- ------- ------- -------- -------
in thousands
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Online publishing...... $ 58 $ 88 $ 166 $ 173 $ 224 $ 284 $ 328 $ 446 $ 817 $ 992
Print publishing and
licensing............. 488 490 515 565 592 588 622 757 766 894
------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Total revenue.......... 546 578 681 738 816 872 950 1,203 1,583 1,886
Cost of operations:
Online publishing...... 89 144 154 195 115 206 210 331 458 521
Print publishing and
licensing............. 288 277 278 343 448 510 536 468 495 606
Sales.................. 25 23 18 24 47 70 139 409 442 375
Marketing.............. 0 0 0 1 7 11 47 80 49 256
Product research....... 174 186 162 199 210 283 286 437 435 481
General and
administrative........ 99 88 93 488 284 411 422 546 426 445
Depreciation and
amortization.......... 13 17 20 24 4 21 21 21 42 56
Stock based
compensation.......... 0 0 0 0 0 0 0 89 409 260
------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Total cost of
operations............ 688 735 725 1,274 1,115 1,512 1,661 2,381 2,756 3,000
------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Loss from operations... (142) (157) (44) (536) (299) (640) (711) (1,178) (1,173) (1,114)
Other income (expense).. (15) (16) (31) (15) 18 17 8 3 5 187
------ ------ ------ ------ ------ ------ ------ ------- ------- ------
Net loss............... $ (157) $ (173) $ (75) $ (551) $ (281) $ (623) $ (703) $(1,175) $(1,168) $ (927)
====== ====== ====== ====== ====== ====== ====== ======= ======= ======
</TABLE>
Liquidity and Capital Resources
We have funded Intelligent Life using capital raised from shareholders. As
of December 31, 1998, we had working capital of $658,000 and cash and cash
equivalents of $1,633,000.
Cash used in operating activities during the six months ended December 31,
1998 was $1,207,000 and during the years ended June 30, 1998, 1997 and 1996 was
$2,761,000, $834,000 and $345,000, respectively. The cash used in operating
activities was for funding operating losses arising from the expansion of
Bankrate.com and the creation of four new online publications.
Cash used in investing activities during the six months ended December 31,
1998 was $27,000 and during the years ended June 30, 1998, 1997 and 1996 was
$407,000, $91,000 and $40,000, respectively. The cash used in investing
activities was primarily for purchases of computer equipment and office
furniture.
Cash from financing activities during the six months ended December 31, 1998
was $1,957,000 and during the years ended June 30, 1998, 1997 and 1996 was
$2,316,000, $2,687,000 and $385,000, respectively. These financing activities
consisted primarily of issuances of preferred stock. In September 1997, we
completed a private placement of Series A Preferred Stock, totalling 42,308
shares, resulting in gross proceeds of $2,750,000. In October 1997 and June
1998, we completed additional private placements of 24,228 shares of Series A
Preferred Stock, resulting in gross proceeds of $1,575,000. In November 1998,
we completed a private placement of 17,575 shares of Series B Preferred Stock,
resulting in gross proceeds of $1,982,000. Each share of Series A and Series B
Preferred Stock is convertible into 50 shares of common stock.
Peter C. Morse, a director of Intelligent Life and a principal stockholder,
made loans to Intelligent Life during the years ended June 30, 1997 and 1998 in
the amounts of $687,000 and $200,000, respectively. Interest rates for the
loans were between 6.5% and 7%. The loans have subsequently been contributed to
capital.
23
<PAGE>
We have experienced a substantial increase in our capital expenditures,
which is consistent with our growth in operations and staffing. We anticipate
that capital expenditures will continue to increase for the foreseeable future.
Additionally, we will evaluate possible investments in our business, technology
and products. We believe our existing liquidity and capital resources, and the
proceeds resulting from the sale of common stock in this offering, will be
sufficient to satisfy our cash requirements for at least the next twelve months
and for up to the next eighteen months. To the extent that such amounts are
insufficient, we will be required to raise additional funds through equity or
debt financing. If adequate funds are not available or are not available on
acceptable terms, our ability to fund our expansion, take advantage of
unanticipated opportunities or otherwise respond to competitive pressure would
be significantly limited. There can be no assurance that we will be able to
raise such funds on favorable terms, or at all.
We believe that the cash used in operating activities, cash flows used in
investing activities and cash flows from financing activities line items from
our statement of cash flows as well as the total current assets and total
current liabilities line items from our balance sheet are the leading
indicators of our liquidity and capital resources.
Recent Accounting Pronouncements
In June 1997, SFAS No. 130, "Reporting Comprehensive Income," was issued and
was adopted by Intelligent Life as of July 1, 1998. SFAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. This statement requires
that an enterprise (1) classify items of other comprehensive income by their
nature in financial statements and (2) display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of statements of financial position.
Comprehensive income is defined as the change in equity during the financial
reporting period of a business enterprise resulting from non-owner sources.
Comprehensive income equals the net loss for all periods presented.
In June 1997, SFAS No. 131, "Disclosures about Segments of an Enterprise
with Related Information," was issued. SFAS No. 131 establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to stockholders. SFAS No. 131 is effective for financial statements for
periods beginning after December 31, 1997. Intelligent Life will determine the
applicability of SFAS No. 131 and apply it in the future if necessary.
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," was issued. SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. SFAS
No. 133 requires that changes in the derivative's fair value be recognized
currently in the statement of operations unless specific hedge accounting
criteria are met. Special accounting for qualifying hedges allows a
derivative's gains and losses to offset related results on the hedged item in
the statement of operations, and requires that a company formally document,
designate, and assess the effectiveness of transactions that receive hedge
accounting. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999. A company may also implement the provision of SFAS No. 133 as of the
beginning of any fiscal quarter after issuance. SFAS No. 133 cannot be applied
retroactively, and must be applied to (1) derivative instruments and (2)
certain derivative instruments embedded in hybrid contracts that were issued
acquired, or substantively modified after December 31, 1997. Intelligent Life
has not yet adopted SFAS No. 133 and presently does not have any derivative
instruments.
Noncash Charges
During the first calendar quarter of 1999, we granted options to purchase
shares of common stock at exercise prices that were less than the fair market
value of the underlying shares of common stock. This will result in total
noncash compensation expense of approximately $5,900,000 over the period that
these options vest, which is generally three to four years. The noncash
compensation expense was approximately $1,893,000 for the first calendar
quarter of 1999. In addition, we incurred a one-time noncash financing charge
during the first calendar quarter of 1999 of approximately $2,656,000 relating
to a convertible promissory note that was converted into fully paid Series B
Preferred Stock on April 9, 1999.
24
<PAGE>
Income Taxes
Intelligent Life's effective tax rate differs from the statutory federal
income tax rate, primarily as a result of the uncertainty regarding Intelligent
Life's ability to utilize its net operating loss carryforwards. Due to the
uncertainty surrounding the timing or realization of the benefits of its net
operating loss carryforwards in future tax returns, Intelligent Life has placed
a valuation allowance against its otherwise recognizable deferred tax assets.
At December 31, 1998, Intelligent Life had approximately $5,300,000 of net
operating loss carryforwards for tax reporting purposes available to offset
future taxable income. Intelligent Life's net operating loss carryforwards
expire from 2012 through 2018. The Tax Reform Act of 1986 imposes substantial
restrictions on the utilization of net operating losses and tax credits in the
event of an "ownership change" of a corporation. Due to the change in
Intelligent Life's ownership interests in the third quarter of 1997, future
utilization of Intelligent Life's net operating loss carryforwards will be
subject to certain limitations or annual restrictions. See note 7 of the notes
to the financial statements appearing elsewhere in this prospectus.
Impact of Year 2000 Computer Issues
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, software programs that have time-sensitive components may recognize a
date represented as "00" as the year 1900 rather than the year 2000. This could
result in a system failure causing disruptions to our operations.
To determine the Year 2000 readiness of all of Intelligent Life's systems,
we have conducted an initial remediation phase, which included the utilization
of a third-party consultant hired exclusively for Year 2000 review. We intend
to complete the final testing phase by May 30, 1999.
Our internal information technology and non-information technology systems
are generally licensed from third parties rather than being internally
developed. Specifically, our research database is the only information
technology system that has been internally developed. No non-information
technology systems have been internally developed. We have received written
certifications from all manufacturers of third-party systems that they are Year
2000 compliant. In addition to these certifications, we are independently
testing all internally developed and third-party systems through our third-
party consultant and our internal staff to ensure that they are Year 2000
compliant. We intend to take steps to bring into compliance any system we find
not to be Year 2000 compliant. We plan to complete testing of all internally
developed and third-party systems for Year 2000 compliance by May 30, 1999.
Therefore, until final testing is completed, we will not be able to make a
final determination as to whether any of our systems need to be revised or
replaced. However, based upon our testing to date, we are not currently aware
of any Year 2000 compliance problem relating to our IT and non-IT internal
systems.
Our business is also dependent upon the computer-controlled systems of third
parties such as suppliers, customers and service providers. A systemic failure
outside of our control, such as a prolonged loss of internet,
telecommunications, electrical or telephone services could prevent users from
accessing our web sites, which could have a material adverse effect on our
business. We have received written certifications from all material third
parties that their systems are Year 2000 compliant.
To date, we have spent approximately $200,000 on Year 2000 compliance
issues, including the purchase of hardware and the cost of a third-party
consultant. Based on our current assessment, we do not anticipate that
additional costs associated with remediating the Year 2000 issue will have a
material adverse effect on our business.
We do not currently anticipate having to develop a contingency plan for
handling a Year 2000 problem that is not detected and corrected prior to its
occurrence.
There is general uncertainty inherent in the Year 2000 computer problem. The
consequences of Year 2000 failures could have a material adverse effect on our
business. In particular, Year 2000 computer problems could require substantial
time and effort on the part of management.
25
<PAGE>
BUSINESS
Overview
We provide consumers with independent and objective research comparing
various consumer banking and credit products, such as mortgages, home equity
loans and credit cards. We also publish original editorial content relating to
personal finance matters. Since 1984, we have provided this information to
leading newspapers and magazines and through our publication Bank Rate Monitor.
Today, we publish our data online through our principal web site, Bankrate.com,
and through distribution (or syndication) arrangements with more than 60 web
site operators. Information is presented for over 120 geographic markets and
nationally and includes data regarding mortgage and home equity loans, credit
cards, automobile loans, checking accounts, ATM fees and yields on savings
instruments. Our unique information, which is compiled by 38 researchers, is
accompanied by extensive editorial content designed to assist consumers with
their decision-making process. Due to the average per capita income, level of
education and professional status of Bankrate.com's audience, we believe this
audience, which may search for information by product and geographic area using
this web site, represents a desirable group of target customers for our
advertisers. Additionally, we believe that the average price for banner
advertisements on Bankrate.com are approximately 10% higher than average market
prices for comparable advertisements.
We are currently using the resources of Bankrate.com to create new online
publications that provide personal finance information to additional targeted
audiences. These publications include: theWhiz.com, which targets an audience
that is younger, more female and more ethnically diverse than typical personal
finance publications; Consejero.com, which targets a Spanish-speaking audience;
CPNet.com, which targets the college market; and Garzarelli.com, a
subscription-based service. Our goal is to develop a broad base of loyal users
of our network of web sites who believe our information can improve their
personal financial lives.
The "Business and Finance Report" compiled by Media Metrix, Inc., for the
quarter ended December 31, 1998 indicated that we had 1.3 million unique
visitors, compared to 1.1 million for the quarter ended September 30, 1998.
Unique visitors are the number of different web users that visited our sites
over the course of the reporting period.
Our Opportunity
We believe many purchasers of financial products and services are relatively
uninformed with respect to these products and services, and often rely upon
personal relationships when making such purchases. We also believe many of
these products and services are not well explained, and alternatives are not
typically presented, when marketed to consumers through traditional media. As
the sale of many of these products and services moves to the web, where there
is little personal contact, we believe that consumers will seek sources of
independent, objective information such as Bankrate.com to facilitate and
support their buying decisions. Because of the interactive nature of the
internet, where web technology allows us to display extensive research on
financial products and services that was previously unavailable to consumers,
we believe we are able to provide a superior vehicle to educate consumers about
how to best select and purchase such products and services.
We believe the majority of the financial information available on the web is
oriented toward investment advice and providing business news and financial
market information, rather than personal and consumer finance data. Our
publications are targeted to fulfill the market need for personal and consumer
finance information.
By expanding our comparative data regarding financial products and related
editorial content, we are creating a unique web-based service designed to
enable our audience to keep abreast of personal finance developments and better
manage their financial affairs. As a result, we believe we can assemble a loyal
base of users made up of targeted audiences that are attractive to advertisers.
26
<PAGE>
We believe that advertising spending by financial products and services
components is growing relatively rapidly as compared to advertising spending in
other categories. According to Advertising Age, advertising spending by
financial products and services companies grew at an annual rate of 17% from
1996 to 1997.
We believe Intelligent Life will benefit significantly from the anticipated
growth in internet usage and spending on internet advertising, direct marketing
and electronic commerce. The following table highlights anticipated growth in
these areas.
Internet Growth in the United States
<TABLE>
<CAPTION>
1998 2000 2002
------ ------- -------
in millions
<S> <C> <C> <C>
Number of internet users........................... 67 92 123
Advertising spending............................... $1,873 $ 4,352 $ 7,672
Direct marketing spending.......................... $ 190 $ 632 $ 1,335
Electronic commerce................................ $7,100 $15,600 $37,500
</TABLE>
--------
Source: Jupiter Communications, LLC
Strategy
Our objective is to create a series of online publications that are trusted
sources of editorial content for consumers in the area of personal finance.
Elements of our strategy include:
Increase Awareness of Our Publications. We intend to aggressively promote
our online publications. Developing greater awareness of our brand names should
increase the value of our web sites to potential advertisers and web sites with
which we may enter into distribution arrangements. Historically, we have had
relatively low levels of promotional expenditures. With the proceeds of this
offering, we anticipate increasing our marketing efforts substantially.
Expand Existing Publications. We plan to expand and improve our existing
online publications by including additional editorial and research content.
Recent additions to Bankrate.com include information regarding 30-year jumbo
mortgages, VA mortgages, money market accounts, credit unions, Year 2000 issues
and bank ratings. We expect forthcoming additions will include new content in
the areas of investment and insurance on theWhiz.com and Consejero.com.
Grow Distribution Relationships. We intend to pursue new and expand existing
distribution relationships in order to increase site traffic and raise the
profile of our brand names. In particular, we intend to focus on increasing the
number of distribution relationships we have for theWhiz.com and Consejero.com.
Add New Publications. We intend to use our expertise in producing online
research and editorial content to develop new online publications similar in
concept to Bankrate.com in complementary areas such as property and casualty
insurance and tax planning. In addition to developing publications internally,
and in order to accelerate our growth, we intend to pursue acquisitions of
personal finance companies and products that will extend our network of web
sites.
Provide High Value Added Solutions to Advertisers. Delivering audiences to
our advertisers on a targeted demographic basis, segmented by geographic region
and product of interest, provides high value added marketing solutions to
advertisers. By expanding the breadth and depth of our online publications and
adding to our advertising inventory, we believe we will be able to expand the
scope of our services, thereby increasing sales to existing advertisers and
attracting new advertisers.
27
<PAGE>
Bankrate.com
Bankrate.com, our flagship web site, provides editorial and research
information on banking and credit products to assist consumers in making
informed financial decisions. Bankrate.com has its roots in our print
publications and content syndication activities, which have provided surveys
of interest rate data to consumers and institutions for over 16 years. Our
online surveys have been expanded to include data on 46 products collected
from more than 3,500 institutions nationwide. This information is gathered and
presented by metropolitan area, which provides more valuable information to
consumers than aggregated national information and allows advertisers to
target prospective customers geographically. Media Metrix, Inc., an
independent research firm, lists Bankrate.com as the business site with the
twenty-first and fifteenth highest volume of traffic during the third and
fourth calendar quarters, respectively, of 1998, with 1.1 million and
1.3 million unique visitors. We believe that Bankrate.com compares favorably
to sites producing original editorial content on personal finance subjects in
terms of pages viewed by a visitor during each visit. Bankrate.com may be
compared to sites producing original editorial content on personal finance
subjects during the third and fourth calendar quarters of 1998 as follows:
Comparison of Personal Finance Editorial Sites in 1998
<TABLE>
<CAPTION>
Third Quarter Fourth Quarter
------------------------------- -------------------------------
Average Average
Unique Pages Unique Pages
Site Visitors(1) Reach(2) Viewed(3) Visitors(1) Reach(2) Viewed(3)
------------------------ ------------ -------- --------- ------------ -------- ---------
in thousands in thousands
<S> <C> <C> <C> <C> <C> <C>
Money (Pathfinder)...... 1,964 3.7% 5 1,783 3.3% 16
Bankrate.com............ 1,070 2.0 26 1,323 2.4 21
Forbes.................. 917 1.7 15 860 1.6 70
Business Week........... 680 1.3 15 897 1.7 6
Red Herring............. 652 1.2 3 436 0.8 9
Fortune (Pathfinder).... 592 1.1 17 828 1.5 10
Smart Money (Wall Street
Journal)............... 484 0.9 20 261 0.5 52
Kiplinger's............. 279 0.5 5 189 0.3 20
</TABLE>
--------
Source of Data: Media Metrix, Inc.
(1) Unique Visitors means the estimated number of different web users that
visited the site over the course of the reporting period.
(2) Reach means the number of unique web users that visited the site at
least once over the course of the reporting period, expressed as a
percentage of the total web audience.
(3) Average pages viewed means the average number of pages visited during
the reporting period per user. Page means a single screen view of
textual and graphical information.
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Bankrate.com is structured in channels, which are typically organized around
banking or credit products and include original content and research. The
following chart illustrates how Bankrate.com is structured:
[A screen of Bankrate.com's web site. A banner along with a navigation bar is
at the top of the page and a navigation bar is on the left side of the page.
Balloons are inserted throughout the page with text describing the channels,
the information presented on the page and the updating features of the home
page.]
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Users may search for information on the mortgage pages of Bankrate.com by
product of interest and geographic location.
[A screen of Bankrate.com's web site. An advertisement along with a navigation
bar is at the top of the page. A banner is on the left side of the page.
Balloons are inserted throughout the page with text explaining the page's
features.]
30
<PAGE>
Bankrate.com also includes pages in which web site operators may preview
upcoming features to assist with planning advertising campaigns.
[A screen of Bankrate.com's web site. A banner along with a navigation bar is
at the top of the page and a navigation bar is on the left side of the page.
Text in a balloon explains how the site can be utilized].
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Bankrate.com also distributes electronic newsletters daily and weekly to
approximately 90,000 subscribers covering topics such as mortgages, credit
cards, banking, small businesses, CD rates and Federal Funds rates. We also
maintain message boards where visitors can post questions for members of the
Bankrate.com community to answer. Topics parallel the channels offered by
Bankrate.com.
Distribution Arrangements
A significant portion of the traffic to Bankrate.com, as well as our other
web sites, is attributable to the distribution (or syndication) arrangements we
have with other web site operators. In January 1999, approximately 44% of the
total traffic to Bankrate.com and our other web sites originated from the web
sites of these operators.
Our distribution arrangements fall into two categories: (1) those in which
we establish a "co-branded" site with another web site operator, and (2) those
in which we provide content to the other operator's web site together with a
hyperlink to our own site. We have found co-branding to be more effective in
driving traffic to our sites.
Co-branded sites are created pursuant to agreements with other web site
operators. Generally, agreements relating to co-branded sites provide for us to
host, sell and serve advertisements to and collect revenues from the co-branded
sites. Under these agreements, the other operators are typically paid 38%-40%
of revenues generated by the related co-branded sites.
Under distribution arrangements that do not include co-branded sites, we
contract to provide content in exchange for a fee. The content identifies
Bankrate.com as its source and typically includes a link to Bankrate.com. We
have arrangements such as these with Yahoo!, SecureTax.com, Microsoft's
MoneyCentral, CNNfn, Standard & Poor's and other web sites.
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Intelligent Life has distribution relationships with the seven highest-
volume business networks as of the fourth calendar quarter of 1998, as
identified by Media Metrix, Inc. According to Media Metrix, business networks
and sites reach about 49% of web users, and our distribution partners include
every financial site that reaches 4% or more of web users. The table below
lists parties with which we have distribution agreements as of March 10, 1999:
Access Atlanta Fiera Inc. Providence Online
America Online Forbes Quicken.com
AT&T Worldnet Go Carolinas RealTimes
Austin 360 Go Hamptons Roads Realtor.com
Auto-by-Tel Go PBI San Antonio Express
Auto Connect Hispanic Online San Diego Insider
Auto Site HomeFair ScarsdaleNet.com
Black Families Housenet.com SecureTax.com
Business Today Houston Chronicle Sign on San Diego
Business Week Enterprise Inman New Features Sign on San Diego en
Business Week Online Inside New Orleans Espanol
CarBuyer.com Intellichoice Smackem.com
CarPrices.com Kiplinger's Smart Money Magazine
Classified Ventures MarketWatch.com SoFla.com
CNNfn.com Microsoft Network Spring Street
Compare.net (Carpoint & Money Standard & Poor's
Compuserve Central) Tegris
Concerto Technologies Milwaukee Journal US News & World Report
Credit Info Corp Sentinel Yahoo! (Loan Center & Tax
Discover Omaha MindSpring Center)
Dollar Stretcher Money Magazine Your New House
Edmunds Monster Board YUPI Internet
Family Money Motley Fool Zack's
NandoNet ZDTV.com
Financial Product Research
Our research staff is made up of 38 people who track weekly comparative
information on 46 financial products and services, including checking accounts,
consumer loans, lines of credit, mortgages, certificates of deposit, savings
accounts, credit cards, money market accounts and online accounts. We cover
both personal and small business accounts offered through individual offices
and on the internet by banks, thrifts, credit unions, credit card issuers,
mortgage bankers and mortgage brokers. Over 150,000 items of data are gathered
each week for over 120 markets across the United States and Puerto Rico from
over 3,500 institutions. The information obtained includes not only rates and
yields but related data such as lock periods, fees, points, and loan sizes for
mortgages and grace period, late penalties, cash advance fees, minimum payments
and terms and conditions for credit cards.
We adhere to a strict methodology in developing our markets and our
institutional survey group. The market universe includes the 100 largest U.S.
markets, as defined by the U.S. Census Bureau's Metropolitan Statistical Area
categories, along with the largest market in each state that does not include
one of the largest 100 markets. We provide a comparative analysis of data by
market as well as on a national basis.
Institutions in the survey group include the largest banks and thrifts
within each market area based on total deposits. The number of institutions
tracked within a given market is based on product availability and number of
institutions in the market area. In each of the largest 50 markets, ten
institutions are tracked. In each of the smaller markets, four or more
institutions are tracked. The institutions included in the survey group are
verified, and adjusted if necessary, on a quarterly basis using FDIC data.
Credit unions are not included in the market
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<PAGE>
survey group since product availability is based on membership. The largest 50
U.S. credit unions are tracked as a separate survey group for comparison
purposes.
All products included in our database have closely defined criteria so that
information provided by institutions is truly comparative in nature. Data
undergo three levels of quality control prior to being accepted for inclusion
in the database. The first level is automatically performed by our editing
software, which identifies unusual changes. The second level is visual
proofing, which is performed by a researcher who gathers rates from
institutions through surveys. The researcher reviews the surveys to determine
whether there have been any changes in the data on a weekly basis. If there has
been a change that is outside of a specified range, the researcher verifies
that the data is correct by calling the institution. Once the data are
verified, they are forwarded to a senior researcher for review. The third level
is a dedicated quality control staff consisting of senior researchers reviewing
each market to ensure that the data have been correctly updated and correctly
entered into our databank. The quality control staff reviews each market for
overall accuracy and consistency of all fees and related information disclosed
to consumers. The staff also reviews the comparability of products,
institutional accuracy and survey accuracy. In addition, anonymous shopping, in
which we place calls to institutions in order to obtain rate information
without identifying ourselves as Bankrate.com, is performed on a weekly basis
to validate data. Institutions providing invalid data are contacted by our
quality control staff to ensure that future information will be accurate.
Institutions listed in our tables on Bankrate.com that purchase hyperlinks to
their own sites or other advertising must comply with the same criteria for
product listings that apply to other institutions and quotes or they are
removed. The criteria for product listings consists of specific attributes,
such as loan size and term, that are used to define each type of financial
instrument in order to ensure uniformity in the products that are compared. No
special offers are listed on our internet sites. All of our new research
employees are provided with a four-week program of classroom and on-the-job
training to ensure consistency of data-gathering and validation techniques.
We are aware of the potential conflict of interest resulting from the sale
of advertising to financial institutions while providing independent and
objective research. However, no such conflicts of interests have compromised or
are expected to compromise our ability to provide independent and objective
research.
At the end of each weekly survey, data are archived as part of our 16 year
old cumulative historical data file. This file provides a unique resource for
our financial analysts and editorial team in developing trend graphs, charts
and narrative analysis.
Editorial Content
In addition to our research department, we maintain an editorial staff of
ten senior editors and 14 full-time reporters. We also have relationships with
freelance writers. Most of our editorial staff are experienced journalists with
newspaper or broadcast outlet experience. For example, the reporters and
editors of Bankrate.com have professional journalistic work experience ranging
from 1 to 20 years, with an average of ten years of experience. Our editorial
staff produces original online content such as "A good deal of credit insurance
may be bad for consumers" and "Do your homework before trying to buy that
foreclosed home." We believe the quality of our original content plays a
critical role in attracting visitors to our sites and co-branded partners to
Intelligent Life.
While the majority of the content within our web sites is original and
produced internally, we also include third-party content. This content is
acquired under advertising revenue-sharing agreements which allow us to
incorporate relevant information on our web site that would otherwise require
additional resources for us to produce. An example of this type of arrangement
is the incorporation in Bankrate.com of financial calculators created and owned
by SmartMoney.
Print Publications
We continue to sell traditional print publications to absorb part of the
cost of creating research and original content. These publications are as
follows:
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<PAGE>
Consumer Mortgage Guide. Consumer Mortgage Guide began publication in May
1995 and generates revenue through the sale of mortgage rate listings in major
metropolitan newspapers across the United States. We enter into agreements with
the newspapers under which the newspapers provide us with print space in which
we publish the mortgage rate listings at no charge. In turn, we sell
advertising with the listings and split revenue with the newspapers on a
percentage basis.
Newsletters. We publish three newsletters: 100 Highest Yields and Jumbo
Flash Report, which target individual consumers, and Bank Rate Monitor, which
targets an institutional audience. These newsletters provide rate information
with minimal editorial content.
theWhiz.com
theWhiz.com provides original content about personal finance that is easy to
understand and entertaining. We believe traditional and online personal finance
publications and web sites target white males over 40 years old with relatively
high incomes, who are interested in investing. theWhiz.com is designed to
address the personal finance needs of a younger, more female and more
ethnically diverse audience. As with Bankrate.com, theWhiz.com is divided into
channels, each of which includes original editorial content. All of
theWhiz.com's stories are archived and easily accessible via our archive home
page and site map. The following chart illustrates how theWhiz.com is
structured.
[A screen of theWhiz.com's web site. A banner along with a navigation bar is at
the top of the page and a navigation bar is on the left side of the page.
Balloons are inserted throughout with text describing what is on the page].
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<PAGE>
theWhiz.com also has a community section which encourages readers to
interact with other visitors, theWhiz.com's staff and financial experts. Our
"Talk to theWhiz" forum allows readers to get expert advice on questions like
"Can a credit repair agency help me with my student loan debt?" The questions
and answers are archived so that new readers can research their interests. If
the answer isn't there, readers can fill out an e-mail form and submit their
question.
Since theWhiz.com publishes content on personal finance and lifestyle topics
and is not intended simply to provide objective information, we expect to use
theWhiz.com as a platform for electronic commerce.
Other Online Publications
Consejero.com
Consejero.com provides personal finance information in Spanish and serves as
a consumer guide to understanding local and international financial issues.
Consejero.com features country-specific personal finance content for the United
States as well as Argentina, Brazil, Chile, Colombia, Costa Rica, Mexico,
Panama, Peru, Puerto Rico, Spain and Venezuela. Spanish is the second most
common language found on the internet today, yet we believe that little useful
content on financial topics in Spanish currently exists on the internet. We aim
to satisfy the need for such data and capitalize on the anticipated rapid
growth of internet use by people who speak Spanish.
Consejero.com provides twice-daily news and feature articles written by
established journalists working from major cities in Latin America and Spain.
The topics are picked from day-to-day issues consumers face in their particular
countries. The site also provides general and entertainment news acquired
through arrangements with traditional media. We also expect to add the
capability to conduct transactions with advertisers.
Consejero.com also includes information provided by Bankrate.com en Espanol,
an extension of Bankrate.com. Bankrate.com en Espanol provides the same
information and many of the services of Bankrate.com in Spanish but with
supplementary articles and tables to facilitate understanding for those who may
not be familiar with U.S. financial products and terms yet must maneuver in a
mostly English-language financial system. Both Consejero.com and Bankrate.com
en Espanol intend to enter into distribution and co-branding agreements with
the small but growing number of internet companies that are emerging to serve
Spanish-speaking markets in the United States, Latin America and Europe to
enhance our brand recognition and content distribution.
CPNet.com
Through CPNet.com, our online network of college newspaper web sites, we
provide online content and advertising management to hundreds of college
newspapers across the country. CPNet.com includes news articles and feature
articles covering events and issues of interest to college students. Topics
include current events, lifestyle and entertainment as well as topics that
reflect college life. In addition to creating advertising relationships that
will allow us to offer an integrated outlet for advertisers seeking to reach
the college market, this gives us the ability to develop user relationships
that allow us to cross-promote our publications to young consumers. We believe
that college students use the internet more than many other segments of the
population. We believe that this network will be highly attractive to
advertisers since very few online publications offer a mechanism for national
advertisements to reach college students with one advertisement purchase.
CPNet.com aims to fulfill this market need.
Garzarelli.com and Possible Future Publications
We intend to use our online expertise and relationships to launch new online
publications. In October 1998, we launched a new electronic subscription site
for Wall Street investment advisor Elaine Garzarelli called Garzarelli.com. We
are responsible for the site's design, electronic subscription fulfillment,
partner linking, site management and advertising sales. Ms. Garzarelli owns the
internet site address, selects the content of the site and has the sole
authority to determine whether the content can be distributed to other
websites. The subscription revenues generated from Garzarelli.com are divided
between us and Ms. Garzarelli. We receive
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<PAGE>
17% of subscription revenues, and she receives the remainder. We also receive
50% of all advertising revenues from Garzarelli.com. Our agreement with Ms.
Garzarelli extends until August 2000 and renews automatically on an annual
basis. However, this agreement may be terminated by Intelligent Life or Ms.
Garzarelli at any time with 90 days' prior notice.
In addition, in March 1999 we entered into a letter of intent with MECA
Software, LLC to create a new personal finance destination site and transaction
platform using the name "Managing Your Money" and the internet address MYM.com.
MYM.com is expected to offer record-keeping tools and financial calculators as
well as editorial content regarding personal finance issues such as home
buying, investing and retirement planning. MECA is expected to provide a
royalty-free license to the name "Managing Your Money" for use in this site and
to provide support for site development. Intelligent Life is expected to
provide editorial content and site design services. Intelligent Life is also
expected to be responsible for selling advertising on the site. MECA and
Intelligent Life will share the initial expenses of this operation equally. The
structure of the joint venture is subject to the negotiation of a definitive
agreement that will address additional terms, such as revenue sharing
arrangements. The letter of intent will expire on July 5, 1999 if a definitive
agreement has not been signed by that time. We cannot be certain that a
definitive agreement will be reached.
Consumer Marketing
Our expenditures on marketing and promotion to date have been limited. We
have principally relied on our co-branded distribution network to increase
traffic to our web sites. This approach has been supplemented with public
relations activities and limited direct-response expenditures. In addition,
Intelligent Life's history of providing editorial content to newspapers and
broadcasters has earned Bank Rate Monitor a high level of awareness among
journalists. As a result, Bank Rate Monitor is often cited as an authority on
banking and credit products in an editorial context. We intend to use part of
the proceeds of this offering to further build consumer brand recognition of
our web sites.
To date, our direct-response marketing has consisted of placing banner
advertising on third party web sites either by purchasing or bartering
advertising impressions. Our strategy is to purchase advertising at either a
fixed cost per clickthrough or at a low CPM. We believe that the advertising
proceeds from one of our visitors generally allow us to recover much of the per
visitor cost of placing our advertising. If the majority of this cost can be
recovered on an initial visit, we may build a substantial base of repeat users
at a low cost. We anticipate the majority of our future advertising and
promotional expenditures will be allocated to web-based advertising.
Advertising Sales
Our advertising sales staff consists of 14 salespeople and support staff.
Five salespersons are located in our North Palm Beach corporate headquarters,
with the remainder in our satellite offices in New York, Chicago and Los
Angeles. Each salesperson is responsible for a designated geographic area
covering the Southeast, Mid-Atlantic, New England, Great Lakes, Midwest, Great
Plains, Northwest or Southwest regions of the United States. Salespeople sell
advertising related to all of our publications. We believe our sales force is
highly effective. In recent months, our advertising revenue has increased
because we have been able to sell up to approximately 75% of our online
advertising inventory. Online publishing revenue, which consists of the sale of
advertising, sponsorships and hyperlinks with our web sites, increased to
$1,809,000 for the six months ended December 31, 1998 from $508,000 for the six
months ended December 31, 1997, representing a 256% increase.
Our salespeople present advertising solutions to potential advertisers using
inventory created by our own web sites and co-branded web sites. We believe
this combined network of sites enhances value for advertisers and direct
marketers by (1) alleviating the need to purchase a series of advertising
campaigns from numerous web publishers, (2) providing advertisers and direct
marketers with access to a wide variety of business and personal finance online
content, and (3) providing targeted access to internet users with desirable
demographics. Advertisers and direct marketers can enhance the effectiveness of
their campaigns by customizing advertising delivery on our networks within a
particular content channel or across an entire network.
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Advertising Alternatives
Our advertisers can target prospective customers using three different
approaches:
. targeting specific geographic and product areas, for example,
mortgage rates in Atlanta;
. targeting specific product channels, for example, all borrowers
interested in the home equity channel; or
. general rotation throughout a particular site, such as Bankrate.com.
Our most common graphical advertisement sizes are banners, which are
prominently displayed at the top of a page (486 x 60 pixels) and badges, which
are smaller than banners and less visible (125 x 125 pixels). Banners and
badges are offered for general rotation or specific sites. List prices may vary
depending upon the quantity of advertisements purchased by an advertiser and
the length of time an advertiser runs an advertisement on our sites. List
prices for banner and badge advertisements with premium placement may be as low
as $30 CPM and as high as $90 CPM. Discounts and commissions are available
based upon the volume of advertisements purchased. For example, for purchases
of more than 75,000 advertisement views, a volume-based discount on the list
price may be available.
We also sell posters, which are oversize advertisements that contain more
information than traditional advertisements. We position posters on certain
pages so that they dominate the page. The actual price averages $75 CPM.
Advertisers may also purchase sponsorship positions on the Bankrate.com home
page and the main page for each product channel. The cost of the sponsorship is
based on banner rates for impressions received. Advertisers can also sponsor an
entire channel. In addition, we offer a reference bar above all rate tables. A
reference bar is an advertising feature that contains tab references for
consumers on such topics as insurance, credit reports, credit problems and
moving rates. Users who click on the tabs are taken to an advertiser's web site
for answers to their particular questions or needs. The cost of the
advertisement is based on banner rates for number of impressions.
Providing effective tools for managing advertising campaigns is essential to
maintaining advertising relationships. We use a state-of-the-art program under
license that allows our advertisers to monitor their spending on our web sites
in real-time for impressions received and clickthrough ratios generated.
Hyperlinks
Financial institutions that are listed in our rate tables have the
opportunity to hyperlink their listings. By clicking on the hyperlink, users
are taken to the institution's web site. A substantial benefit to advertisers
with the hyperlink rate listing is that the hyperlinks are in fixed placement
on the rate pages and are shown every time a user accesses a page. In contrast,
banner advertisements are rotated based on the number of impressions purchased.
Hyperlink fees are sold for three-month periods. The number of hyperlinked rate
listings that can be added to a rate page is limited only by the number of
institutions listed, while banner positions are limited by space available. The
actual rates for hyperlinks are $45 CPM.
Rate Alert E-Mail Sponsorships
We issue weekly updates on mortgage rates via e-mail to customers who have
requested this free service. Rate alerts are issued for credit card and savings
account updates on a less-frequent basis. Advertisers can sponsor the e-mails
with text listings that are hyperlinked to their web site. Banner
advertisements to be included with each e-mail are under development. The cost
for sponsoring a rate alert is $0.25 per subscriber.
Chat Room Sponsorships
We offer advertisers chat rooms in Bankrate.com and theWhiz.com in which
they may promote their spokespeople or products and acquire valuable real-time
feedback from consumers. In these chat rooms, a moderator from the
theWhiz.com's staff screens questions from visitors. The advertiser or host
then answers questions and receives "virtual focus group" feedback from users.
We generally charge advertisers $6,000 per session.
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Advertisers
We market to local advertisers targeting a specific audience in a city or
state and also to national advertisers targeting the entire country. No
advertiser accounts for more than 10% of our revenues. As of January 31, 1999,
we had approximately 192 advertisers. A representative sample of our national
and regional advertisers includes:
<TABLE>
<S> <C>
Aames Home Loans Household Finance
American Express Intuit
American Home Loans M&I Mortgage
Auto-by-Tel Mackinac Savings
Capital One Microsoft
Countrywide Home Loans Mortgage Expo
Crestar Mortgage NationsBank
Downey Savings NetBank
First Mortgage Network NextCard
First Union Pacific Shore Funding
First USA Visa Providian Financial
Four Web sites Superior Bank
General Motors United Lending Group
</TABLE>
All of the listed advertisers have been our customers for at least six
months and are representative of the types of industries, as well as national
and regional scope of our advertising base.
Competition
Intelligent Life competes for advertising revenues across the broad category
of personal finance information provided in traditional media such as
newspapers, magazines, radio and television and in the developing market for
online financial publications. There are many competitors that have
substantially greater resources than Intelligent Life. Our online competition
includes the following:
. personal finance sections of general interest sites such as Yahoo! and
America Online;
. personal finance destination sites such as Quicken.com, MoneyCentral,
Forbes, Business Week, Fortune, Smart Money, Kiplinger's and Money.com;
and
. e-commerce sites that provide bank and credit product information such as
e-Loan and GetSmart.
Competition in the online segment is generally directed at growing users and
revenue using marketing and promotion to increase traffic to our web sites. We
believe that original content and objective product information differentiate
us from our competitors.
Operations
Our principal office in North Palm Beach, Florida is where our proprietary
web sites are hosted and all of our network operations are controlled. Internet
access is maintained through multiple T-1 connections with Cable & Wireless
PLC. The computer equipment used to operate our web sites is powered by
uninterruptible power supply units and a generator.
Proprietary Rights
Our proprietary intellectual property consists of our unique research and
editorial content. We rely primarily on a combination of copyrights,
trademarks, trade secret laws, our user policy and restrictions on disclosure
to protect this content.
Employees
As of April 15, 1999, we had 137 full-time employees, of which 40 were in
product and content development, 23 in sales and marketing, 40 in editorial, 21
in administration and 13 in other departments. We have never had a work
stoppage and none of our employees are represented under collective bargaining
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agreements. We consider our employee relations to be good. Our employees are
legally employed by Vincam Human Resources, Inc., and work for us under an
employee leasing arrangement. See "Management--Employee Leasing" on page 44.
Properties
Our principal administrative, sales, marketing and research facilities are
located on approximately 14,000 square feet of leased office space in North
Palm Beach, Florida. We believe that our facilities are adequate to meet our
needs for the foreseeable future.
Legal Proceedings
Intelligent Life is not a party to any material legal proceeding.
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MANAGEMENT
Directors and Executive Officers
Our directors and executive officers and their ages as of the date of this
prospectus are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
William P. Anderson,
III.................... 50 President, Chief Executive Officer and Director
Sara Campbell Taylor.... 41 Senior Vice President--Sales and Syndication
Peter W. Minford........ 41 Senior Vice President--Administration
G. Cotter Cunningham.... 36 Senior Vice President--Marketing
Bruns H. Grayson(1)..... 51 Director
Peter C. Morse(2)....... 52 Director
Randall E.
Poliner(1)(2).......... 43 Director
</TABLE>
--------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
William P. Anderson, III has served as President and Chief Executive Officer
of Intelligent Life and director since July 1997. From its creation to June
1997, Mr. Anderson served as President and Chief Executive Officer of Block
Financial Corporation, a subsidiary of H&R Block, Inc. engaged in consumer
lending, software and online financial services delivery. From August 1992 to
September 1995, Mr. Anderson served as Chief Financial Officer of H&R Block,
Inc. From July 1973 to November 1991, Mr. Anderson worked at KPMG Peat Marwick
in various capacities including serving as partner-in-charge of the national
corporate finance practice within the management consulting department. Mr.
Anderson is a member of the Board of Directors of SecureTax.com, Inc., a
privately held company. Mr. Anderson holds a Bachelor of Mechanical Engineering
from Auburn University and an M.B.A. from Emory University.
Sara Campbell Taylor has served as Senior Vice President--Sales and
Syndication of Intelligent Life, responsible for advertising sales and
distribution arrangements, since May 1996. From January 1993 to June 1996, Ms.
Taylor served as Vice President--Asset Securitization for ABN Amro Securities,
Inc., an investment banking firm. Ms. Taylor specialized in mergers and
acquisitions, structured finance and asset valuation. Ms. Campbell holds a B.S.
in Finance from Pennsylvania State University.
Peter W. Minford has served as Senior Vice President--Administration of
Intelligent Life since February 1998. From August 1992 to February 1998, Mr.
Minford served as Senior Vice President-Administration at The Bank of Tampa.
Mr. Minford has held various senior management positions in commercial banking
for over 19 years including roles in credit administration, commercial lending,
general administration and operations. Mr. Minford holds a B.S. in Finance from
Florida State University and an M.B.A. from the University of South Florida.
G. Cotter Cunningham has served as Senior Vice President--Marketing of
Intelligent Life since February 1999. From August 1997 to January 1999, Mr.
Cunningham was Vice President of Valentine McCormick Ligibel, Inc., an
advertising agency specializing in new media. From August 1992 to July 1997,
Mr. Cunningham was Vice President of Block Financial Corporation, where he
created, launched and directed the CompuServe Visa and WebCare Visa credit card
programs. Mr. Cunningham holds a B.S. in Economics from the University of
Memphis and an M.B.A. from Vanderbilt University's Owen Graduate School of
Management.
Bruns H. Grayson has served as director of Intelligent Life since June 1997.
Since 1982, Mr. Grayson has been the managing partner of ABS Ventures, a series
of venture capital funds affiliated with BT Alex. Brown Incorporated. Mr.
Grayson is also a member of the Board of Directors of Anadigics, Inc., Dialog
Software, Inc., Formation Systems, Inc., i-Logix, Inc., Software Corporation of
America and Telogy Networks, Inc. Mr. Grayson holds a B.A. from Harvard
College, an M.A. from Oxford University and a J.D. from the University of
Virginia Law School. Mr. Grayson was a Rhodes Scholar in 1974.
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Peter C. Morse has served as a director of Intelligent Life since July 1993.
Mr. Morse served as our President and Chief Executive Officer from July 1993
until July 1997 and served as our Chairman from July 1997 until April 1999.
Since 1982, Mr. Morse has served as President of Morse Partners, Ltd., a
private equity firm that acquires operating companies and provides expansion
capital. From 1986 to 1990, Mr. Morse was Chairman of FAO Schwarz, the national
chain of children's gifts stores. Mr. Morse has also held senior positions at
Janney Montgomery Scott, Inc., an investment banking firm. Mr. Morse holds a
B.S.B.A. from Georgetown University and an M.B.A. from Columbia University.
Randall E. Poliner has served as a director of Intelligent Life since
November 1998. Since April 1993, Mr. Poliner has served as President of Antares
Capital Corporation, a private venture capital firm investing equity capital in
developmental and expansion stage companies. Mr. Poliner holds a Bachelor of
Electrical Engineering from the Georgia Institute of Technology, an M.S. from
Carnegie-Mellon University and an M.B.A. from Harvard Business School.
Terms of Directors
Concurrently with the effective date of this offering, the Board of
Directors will be divided into three classes, with members serving for
staggered three-year terms. The Board will be comprised of one Class I director
(Mr. Poliner), two Class II directors (Messrs. Anderson and Grayson) and one
Class III director (Mr. Morse). At each annual meeting of shareholders, a class
of directors will be elected for a three-year term to succeed the directors of
the same class whose terms are then expiring. The terms of the initial Class I
directors, Class II directors and Class III directors will expire upon the
election and qualification of successor directors at the 2000, 2001 and 2002
annual meetings of shareholders, respectively. There are no family
relationships between any of the directors or executive officers of Intelligent
Life.
Committees of the Board of Directors
The members of the Audit Committee are Peter C. Morse (Chairman) and Randall
E. Poliner. The Audit Committee reviews the scope and timing of our audit
services and any other services our independent auditors are asked to perform,
the auditor's report on our financial statements following completion of their
audit and their policies and procedures with respect to internal accounting and
financial control. In addition, the Audit Committee makes annual
recommendations to the Board of Directors for the appointment of independent
auditors for the following year.
The members of the Compensation Committee are Bruns H. Grayson (Chairman)
and Randall E. Poliner. The Compensation Committee reviews and evaluates the
compensation and benefits of all our officers, reviews general policy matters
relating to compensation and benefits of employees of Intelligent Life and
makes recommendations concerning these matters to the Board of Directors. The
Compensation Committee also administers our stock option plans.
Compensation of Directors
Neither employee nor non-employee directors receive compensation for
services performed in their capacity as directors. We reimburse each director
for reasonable out-of-pocket expenses incurred in attending meetings of the
Board of Directors and any of its committees.
Compensation Committee Interlocks and Insider Participation
No member of the Compensation Committee is or will be an executive officer
of Intelligent Life.
Executive Compensation
The following table sets forth the total compensation for 1998 for our
President and Chief Executive Officer. No other executive officer of
Intelligent Life received total annual salary and bonuses for the fiscal year
ended June 30, 1998 in excess of $100,000.
42
<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation(1) Awards
---------------------------------
Restricted Stock All Other
Name and Principal Position Salary Bonus Awards Compensation
- --------------------------- --------------------------------- ------------
<S> <C> <C> <C> <C>
William P. Anderson, III........ $ 275,000 $ 0 $354,253(2) $30,852(3)
President and Chief Executive
Officer
</TABLE>
- --------
(1) In accordance with the rules of the Securities and Exchange Commission, the
compensation set forth in the table does not include compensation in the
form of perquisites or other personal benefits because such perquisites and
other personal benefits constituted less than the lesser of $50,000 or 10%
of the total annual salary and bonus for the named executive officer for
such year.
(2) Consists of the net value of a restricted stock award of 454,170 shares of
common stock granted in exchange for a promissory note in the amount of
$236,168. No such shares were vested as of June 30, 1998. As of March 10,
1999, 189,238 shares had vested, and the remaining shares had been
reacquired by Intelligent Life. Accordingly, Intelligent Life recorded
compensation expense relating to these shares of approximately $1,782,000
in the quarter ended March 31, 1999. As a result of the reacquisition we
cancelled $137,765 of the note, and the remaining balance of the note,
$98,403, was forgiven.
(3) Consists of a one time payment for relocation expenses.
Stock Option and Other Compensation Plans
1997 Equity Compensation Plan. Our 1997 Equity Compensation Plan (the "1997
Plan") became effective on July 30, 1997. The aggregate number of shares
reserved for issuance under the Equity Compensation Plan is 1,500,000 shares.
The purpose of the Equity Compensation Plan is to provide incentives for key
employees, officers, consultants and directors to promote the success of
Intelligent Life, thereby benefiting shareholders and aligning the economic
interests of the participants with those of the shareholders. Awards granted
under the Equity Compensation Plan may be restricted stock, options intended to
qualify as "incentive stock options" or nonqualified stock options.
As of April 15, 1999, options to purchase 429,000 shares of common stock
were outstanding under the 1997 Plan at a weighted average exercise price of
$2.10 per share. No shares of common stock had been issued upon exercise of
options granted under the 1997 Plan.
Intelligent Life is granting options upon completion of this offering under
the 1997 Plan to a broad base of employees exercisable for an aggregate of
72,500 shares of common stock at the initial public offering price.
1999 Equity Compensation Plan. Our 1999 Equity Compensation Plan (the "1999
Plan") became effective on March 10, 1999. The aggregate number of shares
reserved for issuance under the Equity Compensation Plan is 1,500,000 shares.
The purpose of the 1999 Plan is to provide incentives for key employees,
officers, consultants and directors to promote the success of Intelligent Life,
thereby benefiting shareholders and aligning the economic interests of the
participants with those of the shareholders. Awards granted under the Equity
Compensation Plan may be restricted stock, options intended to qualify as
"incentive stock options" or nonqualified stock options.
As of April 15, 1999, options to purchase 358,500 shares of common stock
were outstanding under the 1999 Plan at a weighted average exercise price of
$2.97 per share. All of these options were granted in March 1999. Intelligent
Life is also granting options upon completion of this offering under the 1999
Plan to a consultant exercisable for an aggregate of 400,000 shares of common
stock at the initial public offering price. No shares of common stock had been
issued upon exercise of options granted under the 1999 Plan.
43
<PAGE>
Incentive Compensation Plan. We have adopted an incentive compensation plan
for our 1999 fiscal year. The plan is administered by the Compensation
Committee of the Board of Directors, which determines eligible participants,
performance goals, measurement criteria, performance ratings and amount and
timing of payments. Awards under the plan are determined annually on the basis
of our performance over the year in relation to certain pre-determined
financial and operating goals. All awards are paid in full, in cash, following
the year of performance. Awards are granted under the plan at the sole
discretion of the Compensation Committee.
Employee Leasing
We lease all of our employees from Vincam Human Resources, Inc. The terms
under which we lease our employees are set forth in an agreement between Vincam
and us dated February 25, 1999.
Our agreement with Vincam is a co-employment arrangement, which allows
Vincam to assume some of our rights and responsibilities with respect to our
employees. All of our employees have submitted employment applications to
Vincam and have been approved for hire by Vincam but assigned to our worksite
to perform services under our direction and control. We transfer to Vincam's
payroll all employees identified to work at our workplace provided each such
employee accepts employment offered by Vincam. Vincam maintains workers'
compensation coverage and group health coverage for each employee.
Vincam assumes our rights as to the employees, including the right to hire,
fire, discipline and pay wages. We do, however, retain the right to reject the
assignment of any worker to our worksite by Vincam prior to assignment to our
worksite or during the course of the assignment. As a result, we retain control
over employees in a manner typical of an employer/employee relationship.
Additionally, we retain such discretion, supervision and control over the
employees as is necessary to conduct our business on a day-to-day basis. The
Agreement between Vincam and Intelligent Life is filed as an exhibit to the
registration statement of which this prospectus is a part.
The agreement has a one-year term. During this time, either party may
terminate the agreement by giving thirty days' written notice, unless
terminated for cause, which includes non-payment when due of any amount payable
under the agreement or breach of a material term. After the first year, the
agreement renews automatically on the date the agreement was originally entered
into for an additional year.
Employment Agreements
Mr. Anderson has entered into an employment agreement with Intelligent Life
effective as of March 10, 1999. Pursuant to this agreement, Mr. Anderson is
entitled to receive an annual base salary of $275,000 and is entitled to a
bonus as determined by the Board of Directors. In addition, Mr. Anderson is
eligible to participate in, and has been granted options to acquire 358,500
shares of common stock under, Intelligent Life's 1999 Equity Compensation Plan.
Under the terms of the agreement, Mr. Anderson has assigned to Intelligent Life
all of his copyrights, trade secrets and patent rights that relate to the
business of Intelligent Life. Additionally, Mr. Anderson has agreed not to
compete with Intelligent Life during the term of his employment and for a
period of two years after termination of his employment. Mr. Anderson has also
agreed not to solicit customers and employees of Intelligent Life for a period
of two years following termination of his employment with Intelligent Life. In
connection with any termination of Mr. Anderson's employment, other than
voluntary termination, Mr. Anderson will be entitled to receive a severance
payment equal to the amount of his base salary and benefits for a 12-month
period.
Consulting Agreement
Intelligent Life has entered into a consulting agreement with Edward V.
Blanchard, Jr. Mr. Blanchard will be responsible for identifying merger and
acquisition opportunities and managing these activities for Intelligent Life.
Mr. Blanchard will receive an annual retainer of $225,000, payable monthly, and
reimbursement for expenses incurred by him in carrying out his consulting
duties. The consulting agreement extends until May 2000 and automatically
renews on an annual basis unless terminated by either party. Intelligent Life
may terminate the consulting agreement if Mr. Blanchard breaches the consulting
agreement or engages in conduct that is disloyal to Intelligent Life. Upon
completion of this offering, Mr. Blanchard will also be granted options
exercisable for an aggregate of 400,000 shares of common stock at the initial
public offering price.
44
<PAGE>
Limitation of Liability and Indemnification of Officers and Directors
Our Articles of Incorporation provide that the liability of our directors
for monetary damages is eliminated to the fullest extent permissible under
Florida law and that we may indemnify our officers, employees and agents to
the fullest extent permitted under Florida law.
Our Bylaws provide that we must indemnify our directors against all
liabilities to the fullest extent permitted under Florida law and that we must
advance all reasonable expenses incurred in a proceeding where the director
was either a party or a witness because he or she was a director.
Intelligent Life maintains a directors' and officers' liability insurance
policy in the amount of $1,000,000.
45
<PAGE>
CERTAIN TRANSACTIONS
We entered into three lease agreements with Bombay Holdings, Inc. for our
principal corporate offices and facilities. Bombay is wholly owned by Peter C.
Morse, a director of Intelligent Life. The leases include renewal options and
require Intelligent Life to pay a percentage of the common maintenance charges.
Rent expense paid to Bombay was $99,192 for the six months ended December 31,
1998 and $164,552, $85,591 and $83,858 for the fiscal years ended 1998, 1997
and 1996, respectively. We believe that the terms of the lease agreements are
no less favorable to us than those that could have been obtained from
unaffiliated third parties.
Mr. Morse made loans to Intelligent Life during the years ended June 30,
1997 and 1998 in the amounts of $687,000 and $200,000, respectively. Interest
rates for the loans were between 6.5% and 7%. The loans have subsequently been
contributed to capital.
In June 1998, Mr. Morse acquired 10,769 shares of Series A Preferred Stock
from Intelligent Life for a purchase price of $65 per share, which was the
price paid by third parties in the same transaction. The aggregate purchase
price was $699,985. Immediately prior to completion of this offering, these
shares of preferred stock will be converted into 538,450 shares of common stock
having an aggregate value of $6,461,400, assuming an initial public offering
price of $12. In November 1998, Mr. Morse acquired 527 shares of Series B
Preferred Stock from Intelligent Life for a purchase price of $114 per share,
which was the price paid by third parties in the same transaction. The
aggregate purchase price was $60,078. Immediately prior to completion of this
offering, these shares of preferred stock will be converted into 26,350 shares
of common stock having an aggregate value of $316,200, assuming an initial
public offering price of $12.
As part of a compensation package, we sold 454,170 shares of common stock to
William P. Anderson, III, our President and Chief Executive Officer, effective
when Mr. Anderson was hired in July 1997. In exchange for such shares,
Mr. Anderson executed a promissory note to us for $236,168, which was payable
over a ten-year term and bore interest at 6.42%. The stock sale was treated as
a variable option grant for accounting purposes with respect to the difference
between the purchase price of such shares of $2.97 per share and the fair
market value of such shares of $10.80 per share. Accordingly, compensation
expense was recorded, totaling approximately $2,282,000 through March 10, 1999.
These shares were subject to vesting provisions, which had lapsed as to 189,238
shares as of March 10, 1999. On that date, Intelligent Life reacquired
264,932 shares of unvested common stock from Mr. Anderson in exchange for
cancellation of $137,765 of Mr. Anderson's promissory note. The remaining
amount of the note, in the amount of $98,403, was forgiven.
On March 9, 1999, Intelligent Life issued Mr. Anderson options to acquire
358,500 shares of common stock at an exercise price of $2.97 per share. The
fair market value of such shares was $10.80 per share; accordingly we will
incur a stock compensation charge of approximately $2,807,000 relating to these
options over a three-year vesting period. The options are intended to qualify
as incentive stock options. The options vest in equal monthly installments.
On March 9, 1999, Intelligent Life issued a promissory note to Antares
Capital Fund II Limited Partnership. Randall E. Poliner, a director of
Intelligent Life, is President of the general partner of Antares. Pursuant to
the note, Antares loaned Intelligent Life $1,000,000 at an interest rate of 8%,
which was payable on April 9, 1999. The amount borrowed under the note is being
used for general corporate purposes. On April 9, 1999, in accordance with the
terms of the note, the principal amount plus interest was automatically
converted into 6,784 shares of Series B Preferred Stock at a conversion price
of $148.40 per share. The fair market value of such shares was $10.80 per
share; accordingly we incurred a finance charge of approximately $2,656,000 for
the quarter ended March 31, 1999. Each share of Series B Preferred Stock will
be converted into 50 shares of common stock immediately prior to completion of
this offering. The aggregate value of the shares at conversion, assuming an
initial public offering price of $12, will be $4,070,400.
Our Board of Directors has adopted a resolution whereby all future
transactions with related parties, including any loans from us to our officers,
directors, principal stockholders or affiliates, must be approved by a majority
of the Board of Directors, including a majority of the independent and
disinterested members of the Board of Directors or a majority of the
disinterested stockholders and must be on terms no less favorable to us than
could be obtained from unaffiliated third parties.
46
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the beneficial
ownership of our common stock as of the date of this prospectus and as adjusted
to reflect the sale by Intelligent Life of the common stock being offered
hereby, relating to: (1) each of our directors; (2) our President and Chief
Executive Officer; (3) all those known by us to be beneficial owners of more
than five percent of the outstanding shares of common stock; and (4) all of our
executive officers and directors as a group.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned
Prior to Offering (1) After Offering (1)
----------------------------- -----------------------------
Shares Percent Shares Percent
--------------- ------------- --------------- -------------
<S> <C> <C> <C> <C>
Peter C. Morse.......... 5,488,800 55.2% 5,488,800 40.8%
200 Four Falls
Corporate Center, Suite
205
West Conshohocken,
Pennsylvania 19428
Robert H. Lessin(2)..... 1,276,900 12.8 1,276,900 9.5
826 Broadway
New York, New York
10003
Bruns H. Grayson(3)..... 1,264,950 12.7 1,264,950 9.4
1 South Street, Suite
2150
Baltimore, Maryland
21202
William P. Anderson, 209,154 2.1 209,154 1.6
III(4).................
11811 U.S. Highway One,
Suite 101
North Palm Beach,
Florida 33408
Randall E. Poliner(5)... 778,650 7.8 778,650 5.8
7900 Miami Lakes Drive
West
Miami Lakes, Florida
33016
All directors and
executive officers as a
group
(seven persons)(4)..... 9,018,454 90.7 9,018,454 67.1
</TABLE>
- --------
(1) For purposes of calculating the percentage beneficially owned, the number
of shares of common stock deemed outstanding prior to the offering includes
(1) 9,940,988 shares outstanding as of April 15, 1999 and (2) shares
issuable upon the exercise of options which may be exercised within 60 days
following April 15, 1999 ("Presently Exercisable Options"). The number of
shares of common stock deemed outstanding after this offering includes the
additional 3,500,000 shares that are being offered for sale in this
offering. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission that deem shares to be
beneficially owned by any person or group that has or shares voting and
investment power with respect to such shares. Presently Exercisable Options
are deemed to be outstanding and to be beneficially owned by the person or
group holding such options for the purpose of computing the percentage
ownership of such person or group but are not treated as outstanding for
the purpose of computing the percentage ownership of any other person or
group.
(2) Includes shares owned by BRM Holdings LLC. Mr. Lessin is a control person
of BRM Holdings LLC and is the beneficial owner of such shares.
(3) Consists of shares owned by ABS Ventures IV, L.P. and ABX Fund, L.P. Mr.
Grayson is the managing member of each general partner of these limited
partnerships. Mr. Grayson disclaims beneficial ownership of such shares.
(4) Includes 19,916 shares of common stock issuable upon exercise of stock
options that are exercisable within 60 days of April 15, 1999 and 12,500
shares held by Mr. Anderson's children.
(5) Consists of shares owned by Antares Capital Fund II Limited Partnership and
ACF II Side Fund Limited Partnership. Mr. Poliner is President of Antares
Capital Partners II, Inc., the general partner of such limited
partnerships, and is a beneficial owner of such shares.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Our authorized capital stock consists of (1) 100,000,000 shares of common
stock, $.01 par value per share, and (2) 10,000,000 shares of preferred stock,
$.01 par value per share. As of April 15, 1999, we had issued and outstanding
9,940,988 shares of common stock (assuming the conversion of all outstanding
shares of preferred stock into shares of common stock). As of April 15, 1999,
the outstanding shares of our common stock were held by four shareholders and
shares of our Series A and Series B Preferred Stock were held by 15
shareholders. The following description of our capital stock is a summary and
is qualified in its entirety by the provisions of our Articles of Incorporation
and Bylaws, copies of which have been filed as exhibits to the registration
statement of which this prospectus is a part.
Common Stock
Holders of shares of common stock are entitled to one vote per share for the
election of directors and all matters to be submitted to a vote of Intelligent
Life's shareholders. Subject to the rights of any holders of preferred stock
which may be issued in the future, the holders of shares of common stock are
entitled to share ratably in such dividends as may be declared by the Board of
Directors and paid by Intelligent Life out of funds legally available therefor.
In the event of dissolution, liquidation or winding up of Intelligent Life,
holders of shares of common stock are entitled to share ratably in all assets
remaining after payment of all liabilities and liquidation preferences, if any.
Holders of shares of common stock have no preemptive, subscription, redemption
or conversion rights. The outstanding shares of common stock are, and the
shares of common stock to be issued by Intelligent Life in connection with this
offering will be, duly authorized, validly issued, fully paid and
nonassessable.
Preferred Stock
The Board of Directors is authorized, subject to certain limitations
prescribed by law, without further shareholder approval, to issue from time to
time up to an aggregate of 10,000,000 shares of preferred stock in one or more
series and to fix or alter the designations, preferences, rights and any
qualifications, limitations or restrictions on the shares of each such series
thereof, including the dividend rights, dividend rates, conversion rights,
voting rights, terms of redemption (including sinking fund provisions),
redemption price or prices, liquidation preferences and the number of shares
constituting any series or designations of such series. The issuance of
preferred stock may have the effect of delaying or preventing a change of
control of Intelligent Life.
Material Articles of Incorporation and Bylaw Provisions
Intelligent Life's Articles of Incorporation provide that special meetings
of shareholders may be called only by: (1) the Board of Directors; (2) the
Chairman of the Board of Directors (if one is so appointed); (3) the Chief
Executive Officer; (4) the President; or (5) holders of not less than 35% of
all votes entitled to be cast on any issue proposed to be considered at the
proposed special meeting. The Articles of Incorporation and Bylaws also provide
for a classified Board of Directors and permit removal of directors only for
cause. See "Management--Directors and Executive Officers" on page 41.
Intelligent Life's Bylaws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors or a
committee thereof, of candidates for election as directors, as well as for
other shareholder proposals to be considered at shareholders' meetings. Notice
of shareholder proposals and director nominations must be given in writing to
the secretary of Intelligent Life before the meeting at which such matters are
to be acted upon or directors are to be elected. Such notice must be received
at the principal executive offices of Intelligent Life, with respect to
shareholder proposals and elections to be held at the annual meeting, not less
than 60 days before the date of the meeting at which the directors are to be
elected; however, if less than 70 days' notice or prior public disclosure of
the date of the scheduled meeting is given or made,
48
<PAGE>
notice by the shareholder, to be timely, must be delivered or received not
later than the close of business on the tenth day following the earlier of the
day on which notice of the date of the meeting is mailed to shareholders or
public disclosure of the date of such meeting is made.
Notice to Intelligent Life from a shareholder who intends to present a
proposal or to nominate a person for election as a director at a shareholders'
meeting must contain biographical information about the shareholder giving such
notice and, in the case of director nominations, all information that would be
required to be included in a proxy statement soliciting proxies for the
election of the proposed nominee (including such person's written consent to
serve as a director if so elected). If the presiding officer at the meeting
determines that a shareholder's proposal or nomination is not made in
accordance with the procedures set forth in the Articles of Incorporation, such
proposal or nomination, at the direction of such presiding officer, may be
disregarded. The notice requirement for shareholder proposals contained in the
Articles of Incorporation does not restrict a shareholder's right to include
proposals in Intelligent Life's annual proxy materials pursuant to rules
promulgated under the Exchange Act.
The Articles of Incorporation provide that directors may be removed only
. for cause; and
. only by the affirmative vote, at any annual or special meeting of the
shareholders, of not less than 66 2/3% of the total number of votes of
the then-outstanding shares of capital stock of Intelligent Life that
are entitled to vote generally in the election of directors, voting
together as a single class (if notice of such proposed removal was
contained in the notice of such meeting).
"For cause" means (1) misconduct as a director of Intelligent Life or any
subsidiary of Intelligent Life which involves dishonesty with respect to a
material corporate activity or material corporate assets, or (2) conviction of
an offense punishable by one or more years of imprisonment (other than minor
regulatory infractions and traffic violations which do not materially and
adversely affect Intelligent Life).
The Board of Directors has the power to increase or decrease the authorized
number of directors, with or without shareholder approval. Newly created
directorships resulting from any increase in the number of directors or any
vacancy of the Board of Directors may be filled by the affirmative vote of a
majority of the remaining directors then in office or, if not filled by the
directors, by the shareholders.
The Articles of Incorporation provide that in discharging the duties of
their respective positions and in determining what is believed to be in the
best interests of Intelligent Life, the Board of Directors, any committee of
the Board of Directors and any individual director, in addition to considering
the effects of any action on Intelligent Life or its shareholders, may, to the
extent permitted by applicable Florida law, in his or her or their sole
discretion, consider the interests of the employees, customers, suppliers and
creditors of Intelligent Life and its subsidiaries, the communities in which
offices or other establishments of Intelligent Life and its subsidiaries are
located and all other factors such director(s) may consider pertinent.
The preceding provisions of the Articles of Incorporation may be changed
only upon the affirmative vote of holders of at least 66 2/3% of the total
number of the then-outstanding shares of capital stock of Intelligent Life that
are entitled to vote generally in the election of directors, voting together as
a single class.
The provisions of the Articles of Incorporation and Bylaws summarized in the
preceding paragraphs and the provisions of the Florida Business Corporations
Act ("FBCA") described under "Certain Provisions of Florida Law" contain
provisions that may have the effect of delaying or preventing a non-negotiated
merger or other business combination involving Intelligent Life. These
provisions are intended to encourage any person interested in acquiring
Intelligent Life to negotiate with and obtain the approval of the Board of
Directors in connection with the transaction. Certain of these provisions may,
however, discourage a future acquisition of Intelligent Life not approved by
the board of directors in which shareholders might receive a high value for
their shares or that a substantial number or even a majority of Intelligent
Life's shareholders might believe to
49
<PAGE>
be in their best interest. As a result, shareholders who desire to participate
in such a transaction may not have the opportunity to do so. Such provisions
could also discourage bids for the common stock at a premium, as well as create
a depressive effect on the market price of the common stock.
Material Provisions of Florida Law
Intelligent Life is subject to several anti-takeover provisions under
Florida law that apply to a public corporation organized under Florida law,
unless the corporation has elected to opt out of those provisions in its
articles of incorporation or bylaws. Intelligent Life has not elected to opt
out of those provisions. The FBCA prohibits the voting of shares in a publicly-
held Florida corporation that are acquired in a "control share acquisition"
unless the holders of a majority of the corporation's voting shares (exclusive
of shares held by officers of the corporation, inside directors or the
acquiring party) approve the granting of voting rights as to the shares
acquired in the control share acquisition. A "control share acquisition" is
defined as an acquisition that immediately thereafter entitles the acquiring
party to 20% or more of the total voting power in an election of directors.
The FBCA also contains an "affiliated transaction" provision that prohibits
a publicly-held Florida corporation from engaging in a broad range of business
combinations or other extraordinary corporate transactions with an "interested
shareholder" unless: (1) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder;
(2) the interested shareholder has owned at least 80% of the corporation's
outstanding voting shares for at least five years; or (3) the transaction is
approved by the holders of two-thirds of the corporation's voting shares other
than those owned by the interested shareholder. An interested shareholder is
defined as a person who together with affiliates and associates beneficially
owns more than 10% of the corporation's outstanding voting shares.
Registration Rights
The holders of 5,698,550 shares of common stock are entitled to require us
to prepare and file a registration statement to register such shares under the
Securities Act. We must prepare and file such a registration statement upon the
request of holders of the number of such shares having an anticipated aggregate
offering price of at least $15,000,000. Such request can be made at any time
following 180 days after the date of this prospectus. These holders are
entitled to demand such registration one time only. Such holders also have
certain Form S-3 demand registration rights.
In addition, the holders of such 5,698,550 shares of common stock and the
holders of an additional 3,985,438 shares of common stock are entitled to have
such shares included in a registration statement filed by Intelligent Life,
subject to certain restrictions, for an unlimited time. We are required to bear
the expense of such registrations except for any underwriting discounts and
commissions, which will be borne by the participating shareholders in
proportion to the number of shares sold.
Listing
Application has been made to include our common stock on the Nasdaq National
Market under the trading symbol "ILIF."
Transfer Agent and Registrar
The transfer agent for our common stock is SunTrust Bank, Inc.
50
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of our common stock in the public market could
adversely affect prevailing market prices of our common stock. Furthermore,
since a significant number of our shares will not be available for sale
following this offering because of certain contractual and legal restrictions
on resale described below, sales of substantial amounts of common stock in the
public market after these restrictions lapse could adversely affect the
prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding an aggregate of
13,440,988 shares of our common stock, assuming no exercise of the
underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, the 3,500,000 shares sold in this offering will be freely
tradeable without restriction or registration under the Securities Act, unless
such shares are purchased by our "affiliates." Affiliates are persons who
possess some control over us, such as our executive officers, directors and
significant shareholders.
The remaining 9,940,988 shares of common stock are held by existing
stockholders and may be sold in the public market only if registered or if they
qualify for an exemption from registration, including those under Rule 144
promulgated under the Securities Act. Rule 144 is summarized below. As a result
of the contractual restrictions described below and the provisions of Rule 144,
these securities could be available for sale in the public market as follows:
. 1,217,950 shares may be eligible for sale in accordance with the
requirements of Rule 144 upon expiration of their respective one-year
holding periods, which will occur on November 25, 1999 as to 878,750
shares and will occur on March 9, 2000 as to 339,200 shares; and
. 8,723,038 shares may be eligible for sale in accordance with the
requirements of Rule 144 upon expiration of lock-up agreements, as
described below.
Lock-Up Agreements. All of our executive officers, those of our directors
who have legal right of disposition of shares of common stock and our principal
stockholders have signed lock-up agreements under which they agreed not to
transfer or dispose of, directly or indirectly, any shares of common stock or
any securities convertible into or exercisable or exchangeable for shares of
common stock, for a period of 180 days after the date of this prospectus.
Transfers or dispositions can be made sooner with the prior written consent of
ING Baring Furman Selz LLC.
Rule 144. In general, under Rule 144 as currently in effect, beginning 90
days after the date of this prospectus, a person who has beneficially owned
shares of our common stock for at least one year would be entitled to sell
within any three-month period a number of shares that does not exceed the
greater of:
. 1% of the number of shares of common stock then outstanding, which will
equal approximately 134,409 shares immediately after this offering; or
. the average weekly trading volume of the common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to such sale.
Sales under Rule 144 are also subject to certain manner of sale provisions
and notice requirements and to the availability of current public information
about us.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years,
including the holding period of any prior owner other than an affiliate, is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144. Therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering.
Rule 701. In general, under Rule 701 of the Securities Act as currently in
effect, any of our employees, consultants or advisors who purchases shares from
us in connection with a compensatory stock or option plan or
51
<PAGE>
other written agreement is eligible to resell such shares 90 days after the
effective date of this offering in reliance on Rule 144, but without compliance
with certain restrictions, including the holding period, contained in Rule 144.
Registration Rights. Upon completion of this offering, the holders of
9,683,988 shares of our common stock, or their transferees, will be entitled to
have their shares registered under the Securities Act. See "Description of
Capital Stock--Registration Rights" on page 47. After such a registration,
these shares become freely tradeable without restriction under the Securities
Act.
Stock Options. Immediately after this offering, we intend to file a
registration statement on Form S-8 under the Securities Act covering the
3,000,000 shares of common stock reserved for issuance under our 1997 and 1999
Equity Compensation Plans. As of April 15, 1999, options to purchase 787,500
shares of common stock were issued and outstanding. Upon the expiration of the
lock-up agreements describe above, at least 46,748 shares of common stock are
expected to be subject to vested options (based on options outstanding as of
April 15, 1999). Such registration statement is expected to be filed and become
effective as soon as practicable after the effective date of this offering.
Accordingly, shares registered under such registration statement will, subject
to vesting provisions and Rule 144 volume limitations applicable to our
Affiliates, be available for sale in the open market immediately after the 180-
day lock-up agreements expire.
52
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an underwriting agreement, dated
, 1999, the underwriters named below, who are represented by ING Baring
Furman Selz LLC and Warburg Dillon Read LLC, a subsidiary of UBS AG, have
severally agreed to purchase from Intelligent Life the number of shares of
common stock set forth opposite their names below.
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
ING Baring Furman Selz LLC.......................................
Warburg Dillon Read LLC, a subsidiary of UBS AG..................
----
Total..........................................................
====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The underwriters are obligated to
purchase and accept delivery of all the shares of common stock (other than
those shares covered by the over-allotment option described below) if any are
purchased.
The underwriters propose initially to offer the shares of common stock in
part directly to the public at the initial public offering price set forth on
the cover page of this prospectus and in part to certain dealers (including the
underwriters) at such price less a concession not in excess of $ per share.
The underwriters may allow, and such dealers may re-allow, to certain other
dealers, a concession not in excess of $ per share.
The following table shows the underwriting discounts and commissions to be
paid to the underwriters by us in connection with this offering. These amounts
are shown assuming both no exercise and full exercise of the underwriters'
option to purchase additional shares of common stock.
<TABLE>
<CAPTION>
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per share........................................ $ $
Total............................................ $ $
</TABLE>
Other expenses of this offering (including the registration fees and the
fees and expenses of the financial printer, counsel and accountants) payable by
us are expected to be approximately $ .
We have granted to the underwriters an option, exercisable within 30 days
after the date of this prospectus, to purchase, from time to time, in whole or
in part, up to an aggregate of 525,000 additional shares of common stock at the
public offering price less the underwriting discounts and commissions. The
underwriters may exercise such option solely to cover over-allotments, if any,
made in connection with this offering. To the extent that the underwriters
exercise such option, each underwriter will become obligated, subject to
certain conditions, to purchase its pro rata portion of such additional shares
based on such underwriter's percentage underwriting commitment as indicated in
the table above.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, or to contribute to payments
that the underwriters may be required to make in respect of any of those
liabilities.
53
<PAGE>
Intelligent Life, along with our executive officers and certain of our
directors and existing stockholders, has agreed not to directly or indirectly
offer, sell, offer to sell, contract to sell, grant any option for the sale or
purchase of or otherwise dispose of any shares of common stock or any
securities convertible into or exercisable or exchangeable for common stock or
enter into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any shares of common
stock for a period of 180 days from the date of this prospectus without the
prior written consent of ING Baring Furman Selz LLC. Such consent may be given
at any time without public notice.
No action has been taken by us or the underwriters that would permit a
public offering of the shares of common stock offered hereby in any
jurisdiction other than the United States where action for that purpose is
required. The shares of common stock offered hereby may not be offered or sold,
directly or indirectly, nor may this prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
common stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this prospectus
comes are advised to inform themselves about, and to observe, any restrictions
relating to the offering of the common stock and the distribution of this
prospectus. This prospectus is not an offer to sell or a solicitation of an
offer to buy any shares of common stock offered hereby in any jurisdiction in
which such an offer or solicitation is unlawful.
ING Baring Furman Selz LLC has advised Intelligent Life that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
The underwriters and dealers may engage in passive market-making
transactions in the common stock in accordance with Rule 103 under Regulation M
promulgated by the SEC. In general, a passive market-maker may not bid for or
purchase shares of common stock at a price that exceeds the highest independent
bid. In addition, the net daily purchases made by any passive market-maker
generally may not exceed 30% of its average daily trading volume in the common
stock during a specified two-month prior period, or 200 shares, whichever is
greater. A passive market-maker must identify passive market-making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market-
making may stabilize or maintain the market price of the common stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market-making and may end passive market-making activities at any
time.
In connection with this offering, the underwriters may engage in
transactions on the Nasdaq National Market or the over-the-counter market or
otherwise that stabilize, maintain or otherwise affect the price of the common
stock. Specifically, the underwriters may overallot this offering, creating a
syndicate short position. In addition, the underwriters may bid for and
purchase shares of common stock in the open market to cover syndicate short
positions or to stabilize the price of the common stock. In addition, ING
Baring Furman Selz LLC, on behalf of the underwriters, may reclaim selling
concessions allowed to an underwriter or dealer if the underwriting syndicate
repurchases shares distributed by that underwriter or dealer. These activities
may stabilize or maintain the market price of the common stock above
independent market levels. The underwriters are not required to engage in these
activities and may end any of these activities at any time.
Prior to this offering, there has been no public market for the common
stock. As a result, the initial public offering price for the common stock has
been determined by negotiation between Intelligent Life and ING Baring Furman
Selz LLC. Among the factors considered in determining the public offering price
were:
. prevailing market conditions;
. Intelligent Life's results of operations in recent periods;
. the present stage of Intelligent Life's development;
. the market capitalizations and development stages of other companies
that we and the underwriters believe to be comparable to Intelligent
Life; and
. estimates of Intelligent Life's growth potential.
54
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of the common stock offered
hereby will be passed upon for us by Morris, Manning & Martin, L.L.P., Atlanta,
Georgia. Certain legal matters in connection with this offering will be passed
upon for the underwriters by White & Case LLP, New York, New York.
EXPERTS
The financial statements of Intelligent Life included in this prospectus to
the extent and for the periods indicated in their reports have been audited by
KPMG LLP and Thomas & Clough Co., P.A., independent public accountants and are
included herein in reliance upon the authority of these firms as experts in
accounting and auditing.
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission a registration
statement on Form S-1 under the Securities Act with respect to the shares of
common stock offered hereby. This prospectus is only a part of the registration
statement and does not contain all of the information included in the
registration statement. Further information with respect to Intelligent Life
and the common stock offered hereby can be found in the registration statement.
Statements made in this prospectus as to the contents of any contract,
agreement or other document are not necessarily complete. Such documents are
filed as exhibits to the registration statement, and all descriptions in this
prospectus are qualified in all respects by reference to the registration
statement. The registration statement and the exhibits and schedules thereto
may be inspected without charge at the public reference facilities maintained
by the Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the following regional offices of the Commission: Seven World Trade
Center, Room 1400, New York, New York 10048 and Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024, at prescribed rates.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. In addition, Intelligent Life is required
to file electronic versions of these documents with the Commission through the
Commission's Electronic Data Gathering, Analysis, and Retrieval (EDGAR) system.
The Commission maintains an internet site at http://www.sec.gov that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission.
55
<PAGE>
INTELLIGENT LIFE CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements:
Reports of Independent Public Accountants................................. F-2
Balance Sheets as of June 30, 1997 and 1998 and December 31, 1998
(unaudited).............................................................. F-4
Statements of Operations for the Years Ended June 30, 1996, 1997 and 1998
and Six Months Ended December 31, 1997 (unaudited) and 1998 (unaudited).. F-5
Statements of Redeemable Stock and Stockholders' Equity (Deficit) for the
Years Ended June 30, 1996, 1997 and 1998 and Six Months Ended December
31, 1998 (unaudited)..................................................... F-6
Statements of Cash Flows for the Years Ended June 30, 1996, 1997 and 1998
and Six Months Ended December 31, 1997 (unaudited) and 1998 (unaudited).. F-7
Notes to Financial Statements (All information subsequent to June 30, 1998
is unaudited)............................................................ F-8
</TABLE>
F-1
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Intelligent Life Corporation:
We have audited the accompanying balance sheet of Intelligent Life
Corporation as of June 30, 1998, and the related statements of operations,
redeemable stock and stockholders' equity (deficit), and cash flows for the
year then ended. 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 audit.
We conducted our audit 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 audit provides 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 Intelligent Life
Corporation as of June 30, 1998, and the results of its operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
KPMG LLP
Miami, Florida
October 1, 1998
F-2
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
Intelligent Life Corporation:
We have audited the accompanying balance sheet of Intelligent Life
Corporation (formerly, Bank Rate Monitor, Inc.), as of June 30, 1997, and the
related statements of operations, redeemable stock and stockholders' equity
(deficit), and cash flows for the two years then ended. 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 Intelligent Life
Corporation (formerly, Bank Rate Monitor, Inc.) as of June 30, 1997, and the
results of its operations and its cash flows for the two years then ended in
conformity with generally accepted accounting principles.
Thomas & Clough Co., P.A.
Palm Beach, Florida
July 23, 1998
F-3
<PAGE>
INTELLIGENT LIFE CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------ December 31, December 31,
1997 1998 1998 1998
----------- ----------- ------------ ------------
(unaudited) (unaudited)
(pro forma)
(Note 10)
<S> <C> <C> <C> <C>
Assets
Cash and cash equiva-
lents................... $ 1,762,828 $ 910,427 $ 1,633,100 $ 2,633,100
Accounts receivable...... 311,410 346,461 563,383 563,383
Less: allowance for
doubtful accounts....... (31,346) (23,946) (24,847) (24,847)
----------- ----------- ------------ ------------
Total accounts
receivable............ 280,064 322,515 538,536 538,536
Other current assets,
including prepaid
expenses of $74,962
at December 31, 1998 ... 1,432 27,960 109,488 109,488
----------- ----------- ------------ ------------
Total current
assets.............. 2,044,324 1,260,902 2,281,124 3,281,124
Furniture, fixtures and
equipment, net ......... 142,490 505,275 813,659 813,659
Intangible assets, net of
accumulated amortization
of $146,496, $152,433
and $152,976 at June 30,
1997, June 30, 1998 and
December 31, 1998,
respectively............ 5,945 1,722 4,569 4,569
----------- ----------- ------------ ------------
Total assets......... $ 2,192,759 $ 1,767,899 $ 3,099,352 $ 4,099,352
=========== =========== ============ ============
Liabilities, Redeemable
Stock and Stockholders'
Equity (Deficit)
Liabilities:
Accounts payable....... $ 374,005 $ 205,791 $ 308,667 $ 308,667
Accrued expenses ...... 287,726 406,658 588,212 588,212
Deferred revenue....... 495,535 476,120 612,660 612,660
Current portion of
obligations under
capital leases ....... -- 8,011 113,405 113,405
----------- ----------- ------------ ------------
Total current
liabilities......... 1,157,266 1,096,580 1,622,944 1,622,944
Obligations under capital
leases, long term ...... -- 14,237 263,009 263,009
----------- ----------- ------------ ------------
Total liabilities.... 1,157,266 1,110,817 1,885,953 1,885,953
----------- ----------- ------------ ------------
Commitments and
contingencies
Redeemable Convertible
series A preferred
stock, noncumulative,
par value $.01 per
share, liquidation value
$65 per share, stated at
redemption value--90,000
shares authorized;
89,612 shares issued and
outstanding at
December 31, 1998; and
no shares issued or
outstanding, pro forma
at December 31, 1998 ... -- -- 10,215,768 --
Redeemable Convertible
series B preferred
stock, noncumulative,
par value $.01 per
share, liquidation value
$114 per share, stated
at redemption value--
30,000 shares
authorized; 17,575
shares issued and
outstanding at
December 31, 1998; and
no shares issued or
outstanding, pro forma
at December 31, 1998 ... -- -- 1,982,535 --
Redeemable Common Stock:
Redeemable common
stock, par value $.01
per share, redemption
value $0.52 per
share--454,170 shares
issued and outstanding
at June 30, 1998 and
December 31, 1998; and
no shares issued or
outstanding, pro forma
at December 31, 1998.. -- 236,168 236,168 --
Loan receivable for
redeemable common
stock................. -- (236,168) (236,168) --
Stockholders' equity
(deficit):
Preferred Stock,
10,000,000 shares
authorized and
undesignated, pro
forma at December 31,
1998.................. -- -- -- --
Convertible series A
preferred stock,
noncumulative, par
value $.01 per share,
liquidation value $65
per share--90,000
shares authorized;
53,846 and 89,612
shares issued and
outstanding at
June 30, 1997 and
June 30, 1998,
respectively.......... 3,462,108 5,777,627 -- --
Common stock, par value
$.01 per share--
100,000,000 shares
authorized; 3,846,200,
3,846,200 and
4,053,200 shares
issued and outstanding
at June 30, 1997, June
30, 1998 and
December 31, 1998,
respectively and
9,940,988 shares
issued and
outstanding, pro forma
at December 31, 1998.. 38,462 38,462 40,532 99,410
Additional paid in
capital............... -- 354,253 -- 17,684,425
Unamortized stock
compensation expense.. -- (265,690) (280,690) (60,000)
Accumulated deficit.... (2,465,077) (5,247,570) (10,744,746) (15,510,436)
----------- ----------- ------------ ------------
Total stockholders'
equity (deficit).... 1,035,493 657,082 (10,984,904) 2,213,399
----------- ----------- ------------ ------------
Total liabilities,
redeemable stock and
stockholders' equity
(deficit)........... $ 2,192,759 $ 1,767,899 $ 3,099,352 $ 4,099,352
=========== =========== ============ ============
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE>
INTELLIGENT LIFE CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six months ended
Year ended June 30, December 31,
----------------------------------- ------------------------
1996 1997 1998 1997 1998
---------- ---------- ----------- ----------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Revenue:
Online publishing .... $ 70,406 $ 484,511 $ 1,281,284 $ 507,717 $ 1,808,877
Print publishing and
licensing ........... 1,557,595 2,058,045 2,559,293 1,180,522 1,660,314
---------- ---------- ----------- ---------- -----------
Total revenue....... 1,628,001 2,542,556 3,840,577 1,688,239 3,469,191
---------- ---------- ----------- ---------- -----------
Cost of operations:
Online publishing..... 16,476 582,399 862,007 321,216 978,964
Print publishing and
licensing............ 971,331 1,185,969 1,961,714 957,447 1,100,693
Sales................. 97,640 89,848 665,007 117,300 817,403
Marketing............. 33,686 1,485 145,632 18,124 304,919
Product research...... 507,975 720,508 1,215,888 493,257 915,961
General and
administrative
expenses............. 522,056 767,957 1,663,728 695,191 871,057
Depreciation and
amortization......... 97,668 73,754 66,666 25,088 98,491
Stock based
compensation ........ -- -- 88,563 -- 669,000
---------- ---------- ----------- ---------- -----------
Total cost of
operations......... 2,246,832 3,421,920 6,669,205 2,627,623 5,756,488
---------- ---------- ----------- ---------- -----------
Loss from
operations......... (618,831) (879,364) (2,828,628) (939,384) (2,287,297)
Other income (expense):
Interest income....... -- 2,141 52,351 35,269 18,924
Interest expense...... (56,193) (85,870) (6,216) -- (12,433)
Other ................ 2,584 7,473 -- -- 185,588
---------- ---------- ----------- ---------- -----------
Other income--net... (53,609) (76,256) 46,135 35,269 192,079
Loss before income
taxes................ (672,440) (955,620) (2,782,493) (904,115) (2,095,218)
Income taxes ........... -- -- -- -- --
---------- ---------- ----------- ---------- -----------
Net loss............ $ (672,440) $ (955,620) $(2,782,493) $ (904,115) $(2,095,218)
Charge for conversion of
nonredeemable
convertible Series A
preferred stock to
redeemable ............ -- -- -- -- (4,438,141)
Net loss applicable to
common stock........... $ (672,440) $ (955,620) $(2,782,493) $ (904,115) $(6,533,359)
========== ========== =========== ========== ===========
Basic and diluted net
loss per share $ (.13) $ (.20) $ (.72) $ (.24) $ (1.63)
========== ========== =========== ========== ===========
Weighted average shares
outstanding used in
basic and diluted per-
share calculation...... 5,000,000 4,743,590 3,846,200 3,846,200 4,018,700
========== ========== =========== ========== ===========
Pro forma provision for
income taxes........... -- --
---------- ----------
Pro forma net loss...... $ (672,440) $ (955,620)
========== ==========
Pro forma net loss per
share.................. $ (.13) $ (.20)
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-5
<PAGE>
INTELLIGENT LIFE CORPORATION
STATEMENTS OF REDEEMABLE STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Redeemable Redeemable
Convertible Convertible Convertible
Series A Series B Series A
Preferred Stock Preferred Stock Redeemable Common Stock Preferred Stock
-------------------- ------------------- ------------------------------- --------------------
Note
Share Amount Shares Amount Shares Amount Receivable Shares Amount
------- ----------- ------- ---------- -------- --------- ---------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July
1, 1995.......... -- $ -- -- $ -- -- $ -- $ -- -- $ --
Stockholder
loans
contributed to
capital......... -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- --
------- ----------- ------- ---------- -------- --------- --------- ------- -----------
Balance at June
30, 1996......... -- $ -- -- $ -- -- $ -- $ -- -- $ --
Stockholder
loans
contributed to
capital......... -- -- -- -- -- -- -- -- --
Exchange of
common stock for
preferred stock
by principal
stockholder..... -- -- -- -- -- -- -- 23,076 1,499,940
Issuance of
preferred stock,
net of issuance
costs........... -- -- -- -- -- -- -- 30,770 1,962,168
Net loss........ -- -- -- -- -- -- -- -- --
Reclassification
of accumulated
deficit to
additional paid
in capital due
to change from S
corp status to C
corp ........... -- -- -- -- -- -- -- -- --
------- ----------- ------- ---------- -------- --------- --------- ------- -----------
Balance at June
30, 1997......... -- $ -- -- $ -- -- $ -- $ -- 53,846 $ 3,462,108
Issuance of
preferred stock,
net of issuance
costs........... -- -- -- -- -- -- -- 28,074 1,815,519
Stockholder
loans converted
to preferred
stock........... -- -- -- -- -- -- -- 7,692 500,000
Redeemable
common stock
issued.......... -- -- -- -- 454,170 236,168 (236,168) -- --
Compensation
expense relating
to common stock
vesting......... -- -- -- -- -- -- -- -- --
Net loss........ -- -- -- -- -- -- -- -- --
------- ----------- ------- ---------- -------- --------- --------- ------- -----------
Balance at June
30, 1998......... -- $ -- -- $ -- 454,170 $ 236,168 $(236,168) 89,612 $ 5,777,627
Issuance of
common stock
(Unaudited)..... -- -- -- -- -- -- -- -- --
Compensation
expense relating
to common stock
grants
(Unaudited)..... -- -- -- -- -- -- -- -- --
Issuance of
preferred stock,
net of issuance
costs
(Unaudited)..... -- -- 17,575 1,982,535 -- -- -- -- --
Conversion of
nonredeemable
convertible
series A
preferred stock
to redeemable
(Unaudited) .... 89,612 10,215,768 -- -- -- -- -- (89,612) (5,777,627)
Net loss
(Unaudited)..... -- -- -- -- -- -- -- -- --
------- ----------- ------- ---------- -------- --------- --------- ------- -----------
Balance at
December 31, 1998
(Unaudited)...... 89,612 $10,215,768 17,575 $1,982,535 454,170 $ 236,168 $(236,168) -- $ --
Conversion of
Series A and
Series B
preferred stock
to common stock
(Note 10)
(Unaudited)...... (89,612) (10,215,768) (17,575) (1,982,535) -- -- -- -- --
Issuance and
conversion of
promissory note
to Series B
preferred stock
and conversion of
Series B
preferred stock
to common stock
(Note 10)
(Unaudited)...... -- -- -- -- -- -- -- -- --
Forgiveness of
note receivable
for redeemable
common stock,
reclassification
of redeemable
common stock to
common stock,
cancellation of
the put right
associated with
such shares and
reacquisition of
forfeited shares
(Note 10)
(Unaudited)...... -- -- -- -- (454,170) (236,168) 236,168 -- --
------- ----------- ------- ---------- -------- --------- --------- ------- -----------
Balance at
December 31, 1998
(Unaudited) (pro
forma) (Note
10).............. -- -- -- -- -- -- -- -- $ --
======= =========== ======= ========== ======== ========= ========= ======= ===========
<CAPTION>
Common Stock Unamortized Total
-------------------- Additional Stock Stockholders'
Paid in Compensation Accumulated Equity
Shares Amount Capital Expense Deficit (Deficit)
----------- -------- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at July
1, 1995.......... 5,000,000 $50,000 $ 275,000 $ -- $ (1,420,537) $ (1,095,537)
Stockholder
loans
contributed to
capital......... -- -- 260,000 -- -- 260,000
Net loss........ -- -- -- -- (672,440) (672,440)
----------- -------- ------------ ------------ ------------- --------------
Balance at June
30, 1996......... 5,000,000 $50,000 $ 535,000 $ -- $ (2,092,977) $ (1,507,977)
Stockholder
loans
contributed to
capital......... -- -- 1,536,922 -- -- 1,536,922
Exchange of
common stock for
preferred stock
by principal
stockholder..... (1,153,800) (11,538) (1,488,402) -- -- --
Issuance of
preferred stock,
net of issuance
costs........... -- -- -- -- -- 1,962,168
Net loss........ -- -- -- -- (955,620) (955,620)
Reclassification
of accumulated
deficit to
additional paid
in capital due
to change from S
corp status to C
corp ........... -- -- (583,520) -- 583,520 --
----------- -------- ------------ ------------ ------------- --------------
Balance at June
30, 1997......... 3,846,200 $38,462 $ -- $ -- $ (2,465,077) $ 1,035,493
Issuance of
preferred stock,
net of issuance
costs........... -- -- -- -- -- 1,815,519
Stockholder
loans converted
to preferred
stock........... -- -- -- -- -- 500,000
Redeemable
common stock
issued.......... -- -- 354,253 (354,253) -- --
Compensation
expense relating
to common stock
vesting......... -- -- -- 88,563 -- 88,563
Net loss........ -- -- -- (2,782,493) (2,782,493)
----------- -------- ------------ ------------ ------------- --------------
Balance at June
30, 1998......... 3,846,200 $38,462 $ 354,253 $(265,690) $ (5,247,570) $ 657,082
Issuance of
common stock
(Unaudited)..... 207,000 2,070 266,930 (269,000) -- --
Compensation
expense relating
to common stock
grants
(Unaudited)..... -- -- 415,000 254,000 -- 669,000
Issuance of
preferred stock,
net of issuance
costs
(Unaudited)..... -- -- -- -- -- --
Conversion of
nonredeemable
convertible
series A
preferred stock
to redeemable
(Unaudited) .... -- -- (1,036,183) -- (3,401,958) (10,215,768)
Net loss
(Unaudited)..... -- -- -- -- (2,095,218) (2,095,218)
----------- -------- ------------ ------------ ------------- --------------
Balance at
December 31, 1998
(Unaudited)...... 4,053,200 $40,532 $ -- $(280,690) $(10,744,746) $(10,984,904)
Conversion of
Series A and
Series B
preferred stock
to common stock
(Note 10)
(Unaudited)...... 5,359,350 53,593 12,144,710 -- -- 12,198,303
Issuance and
conversion of
promissory note
to Series B
preferred stock
and conversion of
Series B
preferred stock
to common stock
(Note 10)
(Unaudited)...... 339,200 3,392 1,003,608 -- (7,000) 1,000,000
Forgiveness of
note receivable
for redeemable
common stock,
reclassification
of redeemable
common stock to
common stock,
cancellation of
the put right
associated with
such shares and
reacquisition of
forfeited shares
(Note 10)
(Unaudited)...... 189,238 1,893 98,107 220,690 (320,690) --
----------- -------- ------------ ------------ ------------- --------------
Balance at
December 31, 1998
(Unaudited) (pro
forma) (Note
10).............. 9,940,988 $99,410 $13,246,425 $ (60,000) $(11,072,436) $ 2,213,399
=========== ======== ============ ============ ============= ==============
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
INTELLIGENT LIFE CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six months ended
Year ended June 30, December 31,
------------------------------------ -------------------------
1996 1997 1998 1997 1998
---------- ---------- ------------ ----------- ------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $ (672,440) $ (955,620) $ (2,782,493) $ (904,115) $ (2,095,218)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization.......... 97,669 73,754 66,666 41,578 98,491
Stock compensation
earned................ -- -- 88,563 -- 669,000
Changes in operating
assets and
liabilities:
Increase in accounts
receivable.......... (98,062) (109,793) (42,451) (5,228) (216,021)
Decrease (Increase)
in other current
assets.............. 2,401 7,480 (22,305) (255) (84,375)
Increase (Decrease)
in accounts
payable............. 163,640 59,238 (168,214) (272,167) 102,876
Increase in accrued
expenses............ 70,618 218,705 118,932 49,062 181,554
Increase (Decrease)
in deferred
revenue............. 90,747 (127,480) (19,415) (120,199) 136,540
---------- ---------- ------------ ---------- ------------
Total adjustments.. 327,013 121,904 21,776 (307,209) 888,065
---------- ---------- ------------ ---------- ------------
Net cash used in
operating
activities........ (345,427) (833,716) (2,760,717) (1,211,324) (1,207,153)
---------- ---------- ------------ ---------- ------------
Cash flows used in
investing activities:
Purchases of
equipment............. (39,643) (90,501) (407,203) (276,575) (26,875)
---------- ---------- ------------ ---------- ------------
Net cash used in
investing
activities........ (39,643) (90,501) (407,203) (276,575) (26,875)
---------- ---------- ------------ ---------- ------------
Cash flows from
financing activities:
Loans from
stockholders.......... 385,070 687,000 500,000 15,743 --
Principal payments on
capital lease
obligations........... -- -- -- -- (25,834)
Proceeds from issuance
of preferred stock.... -- 2,000,045 1,815,519 822,665 1,982,535
---------- ---------- ------------ ---------- ------------
Net cash provided
by financing
activities........ 385,070 2,687,045 2,315,519 838,408 1,956,701
---------- ---------- ------------ ---------- ------------
Net increase
(decrease) in cash
and cash
equivalents....... -- $1,762,828 (852,401) (649,491) 722,673
Cash and cash
equivalents at
beginning of year...... -- -- 1,762,828 1,762,828 910,427
---------- ---------- ------------ ---------- ------------
Cash and cash
equivalents at end of
year................... $ -- $1,762,828 $ 910,427 $1,113,337 $ 1,633,100
========== ========== ============ ========== ============
Supplementary
disclosures of cash
flow information:
Cash paid during the
year for interest..... $ 25,600 $ 113,200 $ 6,216 $ -- $ 12,433
========== ========== ============ ========== ============
Supplemental schedule of
noncash investing and
financing activities:
Accounts payable
related to
recapitalization and
issuance of stock..... $ -- $ 37,877 $ -- $ -- $ --
========== ========== ============ ========== ============
Stockholder loans
contributed to capital
for preferred stock... $ 260,000 $1,536,922 $ 500,000 $ -- $ --
========== ========== ============ ========== ============
Equipment acquired
under capital leases.. $ -- $ -- $ 18,000 $ -- $ 380,000
========== ========== ============ ========== ============
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS
June 30, 1997 and 1998
(All information subsequent to June 30, 1998 is unaudited)
(1) Organization and Summary of Significant Accounting Policies
(a) Description of Business
Intelligent Life Corporation (the "Company"), formerly known as Bank Rate
Monitor, Inc., is organized under the laws of the state of Florida. Under the
provisions of the Internal Revenue Code of 1986, as amended, the Company
elected to be taxed as an S corporation. On June 19, 1997, the Company ceased
to be an S corporation and became a C corporation for income tax purposes.
The Company is a provider of research regarding consumer banking and credit
products and a publisher of original editorial content relating to personal
finance matters. The Company provides this information through its internet
sites and print publications.
(b) Need for Future Capital and Initial Public Offering
The Company has sustained losses and negative cash flows from operations for
the past five fiscal years and for the six months ended December 31, 1998 and
expects these conditions to continue for the foreseeable future. As of December
31, 1998, the Company had an accumulated deficit of approximately $10,744,746.
The Company's business plan is dependent on obtaining additional financing.
In March 1999, the Board of Directors authorized the filing of a
registration statement with the Securities and Exchange Commission ("SEC") that
would permit the Company to sell shares of the Company's common stock in
connection with a proposed initial public offering ("IPO").
If the IPO is consummated, immediately prior to the proposed offering all of
the then outstanding shares of the Company's Convertible Preferred Stock will
be converted into shares of common stock.
(c) Unaudited Interim Information
The interim financial statements of the Company for the six months ended
December 31, 1997 and 1998, included herein have been prepared by the Company,
without audit, pursuant to the rules and regulations of the SEC. In the opinion
of management, the accompanying unaudited interim financial statements reflect
all adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the financial position of the Company at December 31, 1998, and
the results of its operations and its cash flows for the six months ended
December 31, 1997 and 1998. Historical results are not necessarily indicative
of the results to be expected in the future.
(d) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent gains and losses at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
F-8
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All information subsequent to June 30, 1998 is unaudited)
(e) Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. The cost of
these investments approximates fair value.
(f) Fixed Assets
Property and equipment are stated at cost and are depreciated on a straight-
line basis over the estimated useful lives of the assets which range from three
to seven years. Leasehold improvements are amortized on a straight-line basis
over the shorter of the lease term (if the Company does not retain ownership of
the property or have a bargain purchase price) or the estimated useful lives of
the improvements. Equipment under capital leases are stated at the present
value of the minimum lease payments.
(g) Intangible Assets
Intangible assets consist principally of trademarks. The cost of trademarks
is being amortized over the trademarks' estimated useful lives of five years on
a straight-line basis.
(h) Computation of Net Loss Per Share
The Company has presented net loss per share pursuant to SFAS No. 128,
"Earnings per Share," and the Securities and Exchange Commission Staff
Accounting Bulletin No. 98. Pursuant to SEC Staff Accounting Bulletin No. 98,
common stock and convertible preferred stock issued for nominal consideration,
prior to the anticipated effective date of the IPO, are required to be included
in the calculation of basic and diluted net loss per share, as if they were
outstanding for all periods presented. To date, the Company has not had any
issuances or grants for nominal consideration.
Diluted loss per share has not been presented separately, as the outstanding
stock options, redeemable common stock and convertible preferred stock are
anti-dilutive for each of the periods presented.
Securities that could potentially dilute basic earnings per share ("EPS") in
the future that were not included in diluted EPS because their effect on
periods presented was antidilutive total 0, 538,460 and 896,120 for the years
ended June 30, 1996, 1997 and 1998, and 1,138,631 for the six months ended
December 31, 1998.
(i) Stock-based Compensation
The Company accounts for stock-based compensation arrangements in accordance
with the provisions of Accounting Principles Board ("APB") No. 25, "Accounting
for Stock Issued to Employees," and complies with the disclosure requirements
of SFAS No. 123, "Accounting for Stock-Based Compensation." Under APB No. 25,
compensation cost, if any, for fixed plan accounting, is recognized over the
respective vesting period based on the difference, on the date of grant,
between the fair value of the Company's common stock and the grant price.
(j) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
F-9
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All information subsequent to June 30, 1998 is unaudited)
(k) Revenue Recognition
The Company generates revenue from two primary sources: online publishing
and print publishing and licensing.
The Company sells advertisements for its various internet sites (including
co-branded sites) including banner and billboard advertisements. Advertising
sales are invoiced monthly based on the expected number of advertisement
"impressions" or number of times that ad is viewed by users of the Company's
internet sites. Revenue is recognized monthly based on the percentage of actual
impressions to the total number of impressions contracted. Revenue for
impressions invoiced but not delivered is deferred. The Company sells
hyperlinks to various third-party internet sites that generate a fixed monthly
fee, which is recognized in the month earned. The Company is also involved in
revenue sharing arrangements with its online "partners" where the consumer uses
hyperlinks to link to co-branded sites principally hosted by the Company.
Revenue is effectively allocated to each partner based on the percentage of ad
views at each site. The allocated revenue is shared according to the
distribution agreements. Revenue is recorded gross and partnership payments are
recorded in cost of operations.
The Company sells advertisements for consumer mortgage rate tables. The rate
tables and advertising are published in various newspapers under revenue
sharing arrangements. Revenue is recognized when the tables are run in the
respective newspaper. Revenue is recorded gross and revenue sharing payments
are recorded in cost of operations. In addition, the Company earns subscription
revenue from the three newsletters. Revenue is recognized ratably over the
period of the subscription, which is generally up to one year. The Company also
earns print revenue through other means including licensing rate tables for
insertion into newspapers and by providing product rates and yields to
financial institutions for publication. Revenue is recognized ratably over the
contract period.
Barter transactions are recorded at the lower of estimated fair value of the
goods or services received or the estimated fair value of the advertisements
given. To date, barter transactions have been immaterial.
(l) Marketing
Marketing includes advertising costs, which are charged to expense as
incurred.
(m) Recent Accounting Pronouncements
In June 1997, SFAS 130, "Reporting Comprehensive Income," was issued and was
adopted by the Company as of July 1, 1998. SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. This statement requires that an
enterprise (a) classify items of other comprehensive income by their nature in
financial statements and (b) display the accumulated balance of other
comprehensive income separately from accumulated deficit and additional paid-in
capital in the equity section of statements of financial position.
Comprehensive income is defined as the change in equity during the financial
reporting period of a business enterprise resulting from non-owner sources.
Comprehensive income approximates the net loss for all periods presented.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise with Related Information." SFAS No. 131 establishes standards for
the way public business enterprises report information about operating segments
in annual financial statements and requires those enterprises to report
selected information about operating segments in interim financial reports
issued to stockholders. SFAS No. 131 is effective for financial statements for
fiscal years beginning after December 31, 1997. The Company will determine the
applicability of SFAS No. 131 and apply if necessary.
F-10
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All information subsequent to June 30, 1998 is unaudited)
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133 is effective for all fiscal years beginning after June 15, 1999. This
statement does not currently apply to the Company as the Company currently does
not have any derivative instruments or hedging activities.
(n) Stock Splits
In June 1997 and August 1997, the Company authorized and executed a 100-for-
1 and a 10-for-1 stock split, respectively. Additionally, on April 9, 1999, the
Company authorized and executed a five to one stock split, effected as a stock
dividend, of each issued and outstanding share of common stock. The information
in the accompanying financial statements has been retroactively restated to
reflect the effects of these stock splits and dividend.
(2) Capitalization
Authorized Shares
In April 1999, the Company amended and restated its certificate of
incorporation. As a result the total number of shares which the Company is
authorized to issue is 100,120,000 shares: 100,000,000 of these shares are
Common Stock, each having a par value of $0.01; and 120,000 shares are
Preferred Stock each having a par value of $0.01, of which 90,000 shares are
Series A Convertible Preferred Stock and 30,000 shares are Series B Convertible
Preferred Stock.
Common Stock and Convertible Preferred Stock
In 1996 and 1997, the Director and then sole stockholder, Peter C. Morse
("Morse"), contributed loans due to him to additional paid in capital in the
aggregate amount of $260,000 and $1,536,922, respectively.
In June 1997, the Company and certain investors entered into a Series A
Preferred Stock Purchase Agreement (the "Agreement"). The Series A Preferred
Stock is voting, noncumulative and preferred as to the first $4.55 per share
per year of funds legally available and declared by the Board of Directors, has
a liquidation preference above common stockholders of $65.00 per share, each
share is convertible into 50 shares of common stock at a conversion price of
$1.30, and has other rights and preferences. Pursuant to the Agreement,
investors acquired 30,770 shares of Series A Preferred Stock at $65 per share.
During 1997, Morse exchanged 1,153,800 shares of common stock for 23,076 shares
of Series A Preferred.
In August and September 1997, 11,538 shares of Series A Preferred Stock were
issued at $65 per share, resulting in net proceeds to the Company of $740,709.
In October 1997, an additional 1,154 shares of Series A Preferred Stock were
issued at $65 per share, resulting in net proceeds to the Company of $75,000.
Investors agreed to acquire 23,074 shares of Series A Preferred Stock at $65 a
share, resulting in proceeds to the Company of $1,499,810. This purchase
included the contribution of loans due to Morse in the amount of $200,000 and
the contribution of $300,000 in loans due to other investors for an aggregate
of 7,692 shares of Series A Preferred Stock.
On November 24, 1998, the Series A Preferred Stock was converted from
nonredeemable Preferred Stock to redeemable Preferred Stock. This transaction
was treated as an extinguishment and the new instrument has been recorded at
fair value on the conversion date. The difference between the fair value on the
conversion date and the carrying value was charged to equity.
F-11
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All information subsequent to June 30, 1998 is unaudited)
In November 1998, the Company and certain investors entered into a Series B
Preferred Stock Purchase Agreement. Pursuant to the agreement, 17,575 shares of
Series B Preferred Stock were issued at $113.80 per share, resulting in net
proceeds to the Company of $1,982,535. The Series B Preferred Stock is voting,
noncumulative and preferred as to the first $8.00 per share per year out of
funds legally available and declared by the Board of Directors, has liquidation
preferences over the Series A Preferred and common stockholders of $113.80 per
share, each share is convertible into 50 shares of common stock at a conversion
price of $2.28, and has other right and preferences.
The redemption clause of the Series A Preferred and Series B Preferred Stock
allows the holders of 20% or more of the aggregate number of shares of Common
Stock issuable upon the conversion of the Series A Preferred and Series B
Preferred then outstanding to redeem their shares on or after January 2, 2003,
provided that the maximum number of shares of Series A Preferred and Series B
Preferred which the Company is obligated to redeem does not exceed the
aggregate of 35,729 shares prior to January 3, 2004 and 71,458 shares prior to
January 3, 2005, and thereafter the Company is obligated to redeem all of such
shares outstanding as to which such right has been exercised. The redemption
price is equal to the greatest of (as defined in the respective agreement) (x)
the Series A Liquidation Preference or Series B Liquidation Preference,
applicable to such shares or (y) the Fair Market Value of such shares or (z) an
amount per share of Series A Preferred or Series B Preferred equal to ten (10)
times the Net After Tax Earnings Per Share for the most recently completed
fiscal year of the corporation times the number of shares of Common Stock
issuable upon the conversion of one (1) share of Series A Preferred or Series B
Preferred and the conversion price then in effect. The Company is recording
accretion on the Series A Preferred and Series B Preferred Stock equal to the
difference between the net proceeds received and the redemption amount of
approximately $14,500,000 based on the estimated fair value at December 31,
1998 using the interest method from the conversion date for the Series A
Preferred and original issuance date for the Series B Preferred through the
final redemption date of January 3, 2005. The accretion for the Series A
Preferred and Series B Preferred for the one month through December 31, 1998 is
not significant and was not recorded.
Restricted Stock Grants
Effective August 1998, the Company entered into a Restricted Stock Grant
Agreement (the "Stock Agreement") with an employee of the Company (the
"Grantee") that provides for the issuance of restricted stock to the Grantee in
accordance with the 1997 Equity Compensation Plan (as discussed in note 3 to
the financial statements) in satisfaction of certain obligations as described
in an employment agreement between the Company and the Grantee. The Company
issued 207,000 shares of its common stock to the Grantee in August 1998,
subject to the restrictions set forth in the Stock Agreement. Restrictions
lapsed on 138,000 shares during the six-month period ended December 31, 1998
and the remainder will lapse in 1999. Total compensation expense to be
recognized by the Company over the vesting period amounts to $269,000 (based on
estimated values from other transactions involving sales of the Company's
stock) of which $209,000 was recognized during the six-month period ended
December 31, 1998.
In March 1998, the Company entered into a Restricted Stock Grant Agreement
(the "Grant Agreement") with an Officer of the Company (the "Officer") that
provides for the issuance of restricted stock to the Officer in accordance with
the 1997 Equity Compensation Plan (as discussed note 3 to the financial
statements). On March 23, 1998, the Company issued 454,170 shares of its common
stock to the Officer for an aggregate consideration of $236,168, which amount
was paid by an interest-bearing promissory note from the Officer. The officer
has a put right which requires the Company to repurchase his shares at the same
price he paid for the shares including interest. Restrictions lapse as follows:
113,540 shares on July 1, 1998, and 9,460 shares on the first day of each month
starting August 1, 1998 and ending July 1, 2001. In accordance with Emerging
F-12
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All information subsequent to June 30, 1998 is unaudited)
Issues Task Force 95-16, this arrangement is being accounted for as a variable
plan which requires increases or decreases in stock based compensation expense
based upon increases or decreases in the Company's fair market value.
Compensation expense recognized during 1998 in accordance with FASB
Interpretation No. 28 approximated $88,000 and $460,000 for the six-months
ended December 31, 1998 based on estimated values from other transactions
involving sales of the Company's stock.
(3) Stock Option Plan
During 1997, the Company adopted the 1997 Equity Compensation Plan (the
"Plan") to provide directors, officers, non-employee members of the Board of
Directors of the Company and certain consultants and advisors with the
opportunity to receive grants of incentive stock options, non-qualified stock
options and restricted stock. The Board of Directors has the sole authority to
determine who receives such grants, the type, size and timing of such grants,
and specify the terms of any noncompetition or other agreements relating to the
grants. The aggregate number of shares that may be issued under the Plan is
900,000; 46,550 shares are available for grant as of December 31, 1998.
The exercise price of any option grant shall be determined by the Board of
Directors and may be equal to, greater than, or less than the fair market value
of the stock on the grant date. Provided, however, that the exercise price
shall be equal to or greater than the fair market value of the stock on the
grant date and an option may not be granted to an employee who at the time of
the grant owns more than 10 percent of the total combined voting power of all
classes of stock of the Company, unless the exercise price is not less than 110
percent of the fair market value of the stock on the date of the grant.
The per share weighted-average fair value of stock options granted during
the year ended June 30, 1998 was approximately $.40 and for the six months
ended December 31, 1998 was between $.40 and $1.30 on the date of grant using
the Black-Scholes option pricing model (excluding a volatility assumption) with
the following weighted-average assumptions: expected dividend yield of 0
percent, risk-free interest rates of 4.76 percent to 5.67 percent, and expected
lives of 5.5 years and 6 years.
The Company applies APB Opinion No. 25 in accounting for its Plan. Had the
Company determined compensation cost based on the fair value at the grant date
for its stock options under SFAS No. 123, the Company's net loss would have
increased to the pro forma amount indicated below:
<TABLE>
<CAPTION>
Year Ended
-------------------------
June 30, Six Months Ended
June 30, 1997 1998 December 31, 1998
------------- ----------- -----------------
(unaudited)
<S> <C> <C> <C>
Net loss applicable to common
stock
As reported..................... $(955,620) $(2,782,493) $(6,533,359)
========= =========== ===========
Pro forma....................... $(955,620) $(2,792,493) $(6,548,359)
========= =========== ===========
Basic net loss per common
share--as reported............. $ (.20) $ (.72) $ (1.63)
========= =========== ===========
Basic net loss per common
share--pro forma............... $ (.20) $ (.73) $ (1.63)
========= =========== ===========
</TABLE>
F-13
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All information subsequent to June 30, 1998 is unaudited)
Stock option activity during the years ended December 31, 1997 and 1998 and
the six months ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Number Weighted average
of Shares exercise price
--------- -----------------
<S> <C> <C>
Balance at June 30, 1996............................ -- --
Granted........................................... -- --
Exercised......................................... -- --
Forfeited......................................... -- --
Expired........................................... -- --
Balance at June 30, 1997............................ -- --
Granted........................................... 89,530 $1.30
Exercised......................................... -- --
Forfeited......................................... -- --
Expired........................................... -- --
Balance at June 30, 1998............................ 89,530 $1.30
Granted........................................... 102,750 $1.30
Exercised......................................... -- --
Forfeited......................................... -- --
Expired........................................... -- --
Balance at December 31, 1998 (unaudited)............ 192,280 $1.30
</TABLE>
At June 30, 1998, the exercise price and weighted-average remaining
contractual life of outstanding options was $1.30 and 9.5 years, respectively.
At June 30, 1998, there were no options exercisable.
The above table does not include the 661,170 shares of restricted stock
issued under the Plan per note 2 to the financial statements.
(4) Financial Statement Details
<TABLE>
<CAPTION>
Year Ended
-------------------- Six Months Ended
June 30, June 30, December 31,
1997 1998 1998
--------- --------- ----------------
(Unaudited)
<S> <C> <C> <C>
Furniture, fixtures and equipment
consists of the following:
Furniture and fixtures................. $ 80,138 $ 157,519 $ 159,674
Computers and software, including
assets under capital leases of $0, $0,
and $379,887, respectively............ 229,672 469,669 872,163
Equipment including assets under
capital leases of $0, $17,950, and
$17,950, respectively................. 11,882 106,735 108,417
Leasehold improvements................. 1,596 12,879 12,879
--------- --------- ----------
323,288 746,802 1,153,133
Less: accumulated depreciation and
amortization, including amounts
related to assets under capital leases
of $0, $496 and $31,194,
respectively.......................... (180,798) (241,527) (339,474)
--------- --------- ----------
$ 142,490 $ 505,275 $ 813,659
========= ========= ==========
</TABLE>
F-14
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All information subsequent to June 30, 1998 is unaudited)
<TABLE>
<CAPTION>
Year Ended
----------------- Six Months Ended
June 30, June 30, December 31,
1997 1998 1998
-------- -------- ----------------
(Unaudited)
<S> <C> <C> <C>
Accrued expenses consist of the following:
Accrued vacation........................... 15,070 72,523 129,050
Partner payments........................... 9,560 75,987 71,068
Commissions payable........................ 130,404 143,123 135,909
Accrued payroll and related costs.......... 67,693 43,074 87,465
Other...................................... 64,999 71,951 164,720
-------- -------- --------
$287,726 $406,658 $588,212
======== ======== ========
</TABLE>
(5) Related Party Transactions
As a Director and majority stockholder, Morse is a related party. The
Company leases offices in South Florida from Bombay Holdings, Inc. ("Bombay")
which is wholly owned by Morse. Total rent paid to Bombay for the years ended
June 30, 1997 and 1998 and the six months ended December 31, 1998 was $85,591,
$164,552, and $99,192, respectively (see Note 8).
During the six-month period ended December 31, 1998, Bombay entered into an
additional lease with the Company totaling $101,000 to be paid over a 19 month
period.
Morse has from time to time advanced capital to the Company. Such loans for
the years ended June 30, 1997 and 1998 and the six months ended December 31,
1998 amounted to $687,000, $200,000 and $0, respectively. Interest rates for
the loans were 6.5-7%. During 1996 and 1997, certain stockholder loans were
contributed to capital (see Note 2). In 1998, Morse and another stockholder
converted stockholder loans to 7,692 shares of Convertible Preferred Stock. In
addition, during 1997, Morse exchanged 1,153,800 shares of Common Stock for
23,076 shares of Convertible Series A Preferred Stock (see Note 2).
Morse Partners, Ltd., a partnership controlled by Morse advanced the Company
$138,750 for the year ended June 30, 1997. The amount has subsequently been
repaid.
(6) Sale of Publication
In December 1998, the Company sold substantially all of the assets,
including the intellectual property of one of its newsletters, Bank Advertising
News. The newsletter was sold for $125,000 in cash and assumed liabilities
approximating $80,000. The gain on the sale was $185,588, net of $16,524 of
selling expenses, and has been recorded in other income.
Revenue for Bank Advertising News for the year ended June 30, 1998 and the
six months ended December 31, 1998 was $178,270 and $82,953, respectively. Cost
of operations for Bank Advertising News for the year ended June 30, 1998 and
the six months ended December 31, 1998 was $57,445 and $53,138, respectively.
Net assets (liabilities) of Bank Advertising News at June 30, 1998 and date of
sale were approximately $(120,000) and $(80,000), respectively.
(7) Income Taxes
The Company did not record any income tax expense during the years ended
June 30, 1996 and 1997 because it was operating as an S Corporation. Further
there was no pro forma provision for income taxes for these years because the
Company reported operating losses.
F-15
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All information subsequent to June 30, 1998 is unaudited)
An increase in the valuation allowance offset the deferred tax asset caused
by net operating losses which are not currently usable. This increase is the
principal differences between the expected amounts of tax benefits computed by
applying the statutory federal income tax rate to the Company's loss before
income taxes for the year ended June 30, 1998 and the six months ended December
31, 1998. The Company booked no tax benefit for these periods.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at June 30,
1997 and 1998 and December 31, 1998 are presented below:
<TABLE>
<CAPTION>
Year ended Six Months Ended
--------------------------- December 31,
June 30, 1997 June 30, 1998 1998
------------- ------------- ----------------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss
carryforward................... $ 9,811 $ 1,196,975 $ 1,983,228
Intangible assets............... 127,667 143,438 143,438
Allowance for doubtful
accounts....................... -- 9,011 9,350
--------- ----------- -----------
Total gross deferred tax
assets....................... 137,478 1,349,424 2,136,016
Less valuation allowance.......... (137,478) (1,349,424) (2,136,016)
--------- ----------- -----------
Net deferred tax assets........... $ -- $ -- $ --
========= =========== ===========
</TABLE>
The valuation allowance for deferred income tax assets as of June 30, 1997
and 1998 and at December 31, 1998 was $137,478, $1,349,424 and $2,136,016,
respectively. The net change in the total valuation allowance for the years
ended June 30, 1997, 1998 and the six months ended December 31, 1998 was an
increase of $137,478, $1,211,946 and $786,592, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred income tax assets will
not be realized. The ultimate realization of deferred income tax assets is
dependent upon the generation of future taxable income during the periods in
which those temporary differences become deductible. Management considers the
scheduled reversal of deferred income tax liabilities, projected future taxable
income, and tax planning strategies in making this assessment.
At December 31, 1998, the Company had net operating loss carryforwards of
approximately $5,300,000, which expire beginning in 2012 through 2018. The
amount of net operating loss carryforwards may be limited if the Company has an
ownership change. In the event of an ownership change, the amount of taxable
income of a loss corporation for any postchange year which may be offset by
prechange losses shall not exceed the Internal Revenue Code Section 382
limitation for such year. Generally, an ownership change occurs if a 5%
shareholder or any equity structure shift increases the percentage of the stock
of the loss corporation owned by more than 50 percentage points over the lowest
percentage of stock of the loss corporation owned by such shareholders at any
time during a three-year look back testing period. The Section 382 limitation
is equal to the value of the old loss corporation (before the ownership change)
multiplied by the Federal long-term tax-exempt rate.
(8)Commitments and Contingencies
Leases
Bombay is wholly owned by Morse. The Company leases office space from Bombay
under the terms of a lease agreement dated May 1, 1994 and amendments dated
September 1, 1997 and January 1, 1998. The lease includes renewal options for a
period of three years and requires the Company to pay a percentage of the
common maintenance charges. The lease payments are subject to an annual
increase based upon the consumer price index of the Fort Lauderdale/Miami
region. Offices in New York and California are month-to-month leases.
F-16
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All information subsequent to June 30, 1998 is unaudited)
Total rent expense amounted to $85,591 and $164,552 for the years ended June
30, 1997 and 1998 and $109,872 for the six months ended December 31, 1998.
Future minimum lease payments under noncancelable operating leases and
future minimum capital lease payments as of June 30, 1998 were:
<TABLE>
<CAPTION>
Operating
Year ending June 30 leases Capital leases
------------------- ---------- --------------
<S> <C> <C>
1999.............................................. $123,700 10,728
2000.............................................. 123,700 9,358
2001.............................................. 20,617 6,820
2002.............................................. -- --
2003.............................................. -- --
Thereafter........................................ -- --
-------- --------
Total minimum lease payments........................ $268,017 26,906
========
Less amount representing interest at rates ranging
from 11.5% to 16%.................................. (4,658)
Present value of net minimum capital lease
payments......................................... 22,248
Less current installments of obligations under
current leases..................................... (8,011)
--------
Obligations under capital leases, excluding current
installments....................................... $ 14,237
========
</TABLE>
Distribution arrangements
The Company has various agreements with advertisers, content providers and
other websites that require it to feature such parties exclusively in certain
sections of its internet sites.
Legal Proceedings
The Company is involved in various claims and legal actions arising in the
ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations, or liquidity.
(9)Other Subsequent Events (Unaudited)
Purchase of CPNet.com
In January 1999, the Company purchased all of the assets of CPNet.com,
excluding cash and real or personal property leases for $25,000 in cash. In
addition, the sellers were employed by the Company and granted 30,000 options
under the 1997 Equity Compensation Plan with an exercise price of $1.30. Based
on the estimated values from other stock transactions involving sales of the
Company's stock, the Company will incur a total stock compensation charge of
$45,000. CPNet.com's historical statements of operations are insignificant to
the Company.
1997 Equity Compensation Plan
In January 1999, the Company amended the 1997 Equity Compensation Plan (the
"Plan") to increase the number of shares of common stock of the Company
authorized for issuance under the Plan to 1,500,000 shares.
1999 Equity Compensation Plan
In March 1999, the Company's stockholders approved the 1999 Equity
Compensation Plan (the "1999 Plan"), to provide designated employees of the
Company and its subsidiaries, certain consultants and non-employee members of
the Board of Directors of the Company with the opportunity to receive grants of
incentive stock options, nonqualified stock options and restricted stock. The
1999 Plan is authorized to grant options for up to 1,500,000 shares. In March
1999, the Company granted 358,500 shares to the Officer.
F-17
<PAGE>
INTELLIGENT LIFE CORPORATION
NOTES TO FINANCIAL STATEMENTS--(Continued)
(All information subsequent to June 30, 1998 is unaudited)
Stock Options
On March 2, 1999 and March 12, 1999 the Company granted 201,720 and 5,000
options, respectively, under the 1997 Equity Compensation Plan to purchase
common stock at $2.97 per share. These options vest over a 48 month period,
and accordingly the Company will recognize total compensation expense relating
to these options of approximately $1,620,000 ratably over the vesting period.
Effective with the proposed IPO, the Company granted 472,500 options and the
Board has authorized the grant of another 25,000 options under the 1997 Equity
Compensation Plan to purchase common stock at the IPO price which vest one-
fourth after one year and the remaining equally over 36 months.
Redeemable Common Stock
On March 10, 1999 the note receivable for the restricted stock grant to the
Officer (see Note 2) was forgiven, the unvested shares (264,932) were
effectively forfeited, the Officer's put right was cancelled, and certain
other changes were made. Accordingly, "fixed" option accounting treatment was
established on this date. The total charge for stock based compensation
expense relating to this restricted stock grant for the period January 1, 1999
through March 9, 1999 was approximately $1,782,000. On March 9, 1999, the
Officer was also granted 358,500 options under the 1999 Equity Compensation
Plan to purchase 358,500 shares of common stock at $2.97 per share which vest
over a 36 month period, and accordingly the Company will recognize total
compensation expense relating to these options of approximately $2,807,000,
ratably over the vesting period.
Convertible Promissory Note
On March 9, 1999, one of the Series B Preferred Stockholders loaned the
Company $1 million due April 9, 1999. The loan bears interest at 8% and, if
unpaid on April 9, 1999, converts into fully paid Series B Preferred Stock at
a conversion price of $2.97 per share. On April 9, 1999, the principal amount
of the loan plus interest was converted into 6,784 shares of Series B
Preferred Stock, and accordingly the Company recognized a finance charge of
approximately $2,656,000 during the quarter ended March 31, 1999.
Amended Articles of Incorporation
Immediately prior to or upon the effective date of the IPO, the Company's
Articles will be Amended and restated to among other matters, designate 10
million shares of Preferred Stock that the board will have the authority to
designate rights and privileges.
(10) Pro forma (unaudited)
The unaudited pro forma December 31, 1998 balance sheet gives effect to the
following:
. Conversion of all convertible Preferred Stock outstanding at December
31, 1998 to common stock;
. Issuance of a $1 million note on March 9, 1999, subsequent conversion to
6,784 shares of Series B Preferred Stock and conversion of Series B
Preferred Stock to common stock and the associated finance charge of
approximately $2,656,000; and
. Reclassification of 189,238 shares of redeemable common stock to common
stock upon cancellation of the put right associated with such shares and
upon forgiveness of a promissory note issued in consideration for
454,170 shares (264,932 shares of stock were reacquired) and the
associated compensation charge of approximately $1,782,000.
F-18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
You may rely only on the information contained in this prospectus. We have
not authorized anyone to provide information different from that contained in
this prospectus. Neither the delivery of this prospectus nor the sale of
common stock means that information contained in this prospectus is correct
after the date of this prospectus. This prospectus is not an offer to sell or
a solicitation of an offer to buy common stock in any circumstances under
which the offer or solicitation is unlawful.
---------------
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Forward-Looking Statements............................................... 14
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 14
Capitalization........................................................... 15
Dilution................................................................. 16
Selected Financial Data.................................................. 17
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 18
Business................................................................. 26
Management............................................................... 41
Certain Transactions..................................................... 46
Principal Shareholders................................................... 47
Description of Capital Stock............................................. 48
Shares Eligible for Future Sale.......................................... 51
Underwriting............................................................. 53
Legal Matters............................................................ 55
Experts.................................................................. 55
Additional Information................................................... 55
Index to Financial Statements............................................ F-1
</TABLE>
---------------
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealers' obligation to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
3,500,000 Shares
[Company Logo]
Common Stock
---------------
PROSPECTUS
---------------
ING Baring Furman Selz LLC
Warburg Dillon Read LLC
Online distribution by
E*TRADE Securities
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
Item 13. Other Expenses of Issuance and Distribution
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee.................. $ 14,547
National Association of Securities Dealers, Inc. fee................. $ 5,100
Nasdaq Stock Market listing fee...................................... $ 87,000
Accountants' fees and expenses....................................... $ 310,000
Legal fees and expenses.............................................. $ 250,000
Blue Sky fees and expenses........................................... $ 10,000
Transfer Agent's fees and expenses................................... $ 5,250
Printing and engraving expenses...................................... $ 83,000
Miscellaneous........................................................ $ 5,103
---------
Total Expenses..................................................... $ 770,000
=========
</TABLE>
All fees other than the SEC registration fee, the NASD fee and the Nasdaq
National Market listing fee are estimated.
Item 14. Indemnification of Directors and Officers
Intelligent Life's Amended and Restated Articles of Incorporation provide
that the liability of the directors for monetary damages shall be eliminated to
the fullest extent permissible under the Florida Business Corporation Act (the
"FBCA"), and Intelligent Life may indemnify our officers, employees and agents
to the fullest extent permitted under the FBCA.
Intelligent Life's Amended and Restated Bylaws provide that Intelligent Life
must indemnify its directors against all liabilities to the fullest extent
permitted under the FBCA and that Intelligent Life must advance all reasonable
expenses incurred in a proceeding where the director was either a party or a
witness because he or she was a director.
The FBCA provides that, in general, a corporation may indemnify any person
who is or was a party to any proceeding (other than action by, or in the right
of, such corporation) by reason of the fact that he or she is or was a director
or officer of Intelligent Life, against liability incurred in connection with
such proceeding, including any appeal thereof, provided certain standards are
met, including that such officer or director acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interests of the corporation, and provided further that, with respect to any
criminal action or proceeding, the officer or director had no reasonable cause
to believe his or her conduct was unlawful. In the case of proceedings by or in
the right of the corporation, the FBCA provides that, in general, a company may
indemnify any person who was or is a party to any such proceeding by reason of
the fact that he or she is or was a director or officer of the corporation
against expenses and amounts paid in settlement of such proceeding, including
any appeal thereof, provided that such person acted in good faith and in a
manner he or she reasonably believed to be in, or not opposed to, the best
interest of the corporation, except that no indemnification shall be made in
respect of any claim as to which such person is adjudged liable unless a court
of competent jurisdiction determines upon application that such person is
fairly and reasonably entitled to indemnity. To the extent that any officers or
directors are successful on the merits or otherwise in the defense of any of
the proceedings described above, the FBCA provides that a corporation is
required to indemnify such officers or directors against expenses actually and
reasonably incurred in connection therewith. However, the FBCA further provides
that, in general, indemnification or advancement of expenses shall not be made
to or on behalf of any officer or director if a judgment or other final
adjudication establishes that his or her actions, or omissions to act, were
material to the cause of action so adjudicated and constitute: (1) a violation
of the criminal law, unless the director or officer had reasonable cause to
believe his or her conduct was lawful or had no reasonable cause to believe it
was
II-1
<PAGE>
unlawful; (2) a transaction from which the director or officer derived an
improper personal benefit; (3) in the case of a director, circumstances under
which the director has voted for or assented to a distribution made in
violation of the FBCA or such corporation's Articles of Incorporation; or (4)
willful misconduct or a conscious disregard for the best interests of the
corporation in a proceeding by or in the right of the corporation to procure a
judgment in its favor or in a proceeding by or in the right of a shareholder.
Section of the Underwriting Agreement filed as Exhibit 1.1 hereto also
contains certain provisions pursuant to which certain officers, directors and
controlling persons of Intelligent Life may be entitled to be indemnified by
the underwriters named therein.
Item 15. Recent Sales of Unregistered Securities
During the past three years, Intelligent Life has issued the securities set
forth below which were not registered under the Securities Act:
(1) On June 20, 1997, Intelligent Life issued 10,770 shares of its
Series A Preferred Stock to ABS Ventures IV, L.P. for aggregate cash
consideration of $1,500,005.
(2) On June 26, 1997, Intelligent Life issued 7,693 shares of its Series
A Preferred Stock to R. Palmer Baker, Jr., Jeremiah Milbank, III and Robert
O'Block for aggregate cash consideration of $500,045.
(3) On August 27, 1997, Intelligent Life issued 3,846 shares of its
Series A Preferred Stock to ABS Ventures IV, L.P. and ABX Fund, L.P. for
aggregate cash consideration of $249,990.
(4) On September 12, 1997, Intelligent Life issued 7,692 shares of its
Series A Preferred Stock to BRM Holdings, LLC for aggregate cash
consideration of $499,980.
(5) On October 14, 1997, Intelligent Life issued 1,154 shares of its
Series A Preferred Stock to John E. Davidson and George Fischer for
aggregate cash consideration of $75,010.
(6) On June 10, 1998, Intelligent Life issued 23,074 shares of its
Series A Preferred Stock to ABS Ventures IV, L.P., ABX Fund, L.P., R.
Palmer Baker, Jr., John E. Davidson, George Fischer, Henry Kravis, Robert
H. Lessin, Jeremiah Milbank III, Peter Morse, Robert O'Block and Peter S.
Tobeason for aggregate cash consideration of $1,499,810.
(7) On November 25, 1998, Intelligent Life issued 17,575 shares of its
Series B Preferred Stock to ABS Ventures IV, L.P., ABX Fund, L.P., Antares
Capital Fund II Ltd., ACF II Side Fund L.P. and John E. Davidson, George
Fischer, Jeremiah Milbank, III, Peter Morse and Robert O'Block for
aggregate cash consideration of $2,000,032.
(8) On March 9, 1999, Intelligent Life issued a note to Antares Capital
Fund II Limited Partnership for aggregate cash consideration of $1,000,000
that was converted into 6,784 shares of Series B Preferred Stock on April
9, 1999.
The issuance of the securities in the transactions described above were
deemed to be exempt from registration under the Securities Act in reliance on
Section 4(2) of the Securities Act and Regulation D promulgated thereunder as
transactions by an issuer not involving any public offering.
(9) Intelligent Life has issued stock options to purchase an aggregate
of 787,500 shares of Common Stock at a weighted average exercise price of
$2.50 per share to Peter Minford and Brian Morse on April 30, 1998; Jose
Fernandez on July 20, 1998; Robert Caston, Karen Christie, Linda Green,
Melissa Pedersen, William Plasencia and Procopia Skoran on November 30,
1998; Julio Fernandez and Sherry Fernandez on January 7, 1999; Sara
Campbell, Roberto Casin, G. Cotter Cunningham, Robert J. DeFranco, Sharon
Giannotti, Linda Green, Joseph Jones, Peter Minford, Gilbert Morejon and
Brian O'Connor on March 2, 1999; and Monica Lewman on March 12, 1999. No
shares of common stock have been issued pursuant to the exercise of such
options.
The issuance of securities in the transaction described above was deemed to
be exempt from registration under the Securities Act in reliance on Rule 701 of
the Securities Act.
II-2
<PAGE>
Item 16. Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1+ Form of Underwriting Agreement.
3.1* Form of Amended and Restated Articles of Incorporation of the
Registrant.
3.2* Form of Amended and Restated Bylaws of the Registrant.
4.1* See Exhibits 3.1 and 3.2 for provisions of the Amended and Restated
Articles of Incorporation and Amended and Restated Bylaws of the
Registrant defining rights of the holders of common stock of the
Registrant.
4.2* Specimen Stock Certificate.
5.1* Opinion of Morris, Manning & Martin, L.L.P., counsel to the
Registrant, as to the legality of the shares being registered.
10.1* Lease Agreement, dated May 1, 1994, between Intelligent Life
Corporation and Bombay Holdings, Inc., as amended.
10.2* Lease Agreement, dated October 6, 1997, between Intelligent Life
Corporation and Bombay Holdings, Inc.
10.3* Lease Agreement, dated January 31, 1999, between Intelligent Life
Corporation and Bombay Holdings, Inc.
10.4* Professional Employer Agreement, dated February 25, 1999, between
Intelligent Life Corporation and Vincam Human Resources, Inc.
10.5* Intelligent Life Corporation 1997 Equity Compensation Plan.
10.6* Intelligent Life Corporation 1999 Equity Compensation Plan.
10.7* Form of Stock Option Agreement under the 1997 Equity Compensation
Plan.
10.8* Promissory Note, dated March 9, 1999, executed by Intelligent Life
Corporation and payable to Antares Capital Fund II Limited
Partnership.
10.9* Cancellation and Stock Repurchase Agreement, dated as of March 10,
1999, by Intelligent Life Corporation in favor of William P.
Anderson, III.
10.10* Agreement of Cancellation and Release, dated as of March 10, 1999,
between Intelligent Life Corporation and William P. Anderson, III.
10.11* Incentive Stock Option Grant Agreement, dated as of March 10, 1999,
between Intelligent Life Corporation and William P. Anderson, III.
10.12* Executive Employment Agreement, dated as of March 10, 1999, between
Intelligent Life Corporation and William P. Anderson, III.
10.13+ Consulting Agreement, dated as of May 12, 1999, between Intelligent
Life Corporation and Edward V. Blanchard, Jr.
23.1+ Consent of KPMG LLP.
23.2+ Consent of Thomas & Clough Co., P.A.
23.3* Consent of Morris, Manning & Martin, L.L.P. (included in Exhibit
5.1).
24.1* Powers of Attorney (included on signature page).
27.1* Financial Data Schedule.
</TABLE>
- --------
+ Filed herewith.
* Previously filed.
** To be filed by amendment
II-3
<PAGE>
Item 17. Undertakings
(a) 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.
(b) 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 Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, 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.
(c) The Registrant hereby undertakes that:
(i) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of the
Registration Statement as of the time it was declared effective.
(ii) For 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-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of North Palm Beach, State
of Florida on the 12th day of May, 1999.
Intelligent Life Corporation
/s/ William P. Anderson, III
By: _________________________________
William P. Anderson, III
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints William P. Anderson, III and Peter W. Minford,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and any subsequent
registration statements pursuant to Rule 462 of the Securities Act and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that each of said
attorneys-in-fact or his substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William P. Anderson, III President, Chief Executive May 12, 1999
______________________________________ Officer and Director
William P. Anderson, III (Principal Executive
Officer)
* Senior Vice President-- May 12, 1999
______________________________________ Administration and Chief
Peter W. Minford Financial Officer
(Principal Financial and
Accounting Officer)
* Director May 12, 1999
______________________________________
Bruns H. Grayson
* Director May 12, 1999
______________________________________
Peter C. Morse
* Director May 12, 1999
______________________________________
Randall E. Poliner
</TABLE>
/s/ William P. Anderson, III
*By: ____________________________
William P. Anderson, III
Attorney-in-Fact
II-5
<PAGE>
3,500,000 Shares
INTELLIGENT LIFE CORPORATION,
COMMON STOCK
(Par Value $.01 Per Share)
UNDERWRITING AGREEMENT
----------------------
May 12, 1999
ING BARING FURMAN SELZ LLC
WARBURG DILLON READ LLC
a subsidiary of UBS AG
As Representatives of the
several Underwriters
c/o ING Baring Furman Selz LLC
Park Avenue Plaza
55 East 52nd Street
New York, New York 10055
Ladies and Gentlemen:
Section 1. Introduction. Intelligent Life Corporation, a Florida
corporation (the "Company"), proposes to issue and sell to the several
-------
underwriters named in Schedule I hereto (the "Underwriters"), for which ING
------------
Baring Furman Selz LLC and Warburg Dillon Read LLC, a subsidiary of UBS AG are
acting as representatives (the "Representatives"), an aggregate of 3,500,000
---------------
shares of the Company's common stock, par value $.01 per share (the "Common
------
Stock"). The 3,500,000 shares of Common Stock to be sold by the Company are
- -----
referred to herein as the "Firm Shares." The Company also proposes to issue and
-----------
sell to the several Underwriters an aggregate of not more than 525,000
additional shares of Common Stock (the "Additional Shares"), if requested by the
-----------------
Underwriters in accordance with Section 9 hereof. The Firm Shares and the
Additional Shares are collectively referred to herein as the "Shares." The
------
words "you" and "your" refer to the Representatives.
--- ----
The Company hereby agrees with the several Underwriters as follows:
Section 2. Representations and Warranties of the Company. The Company
represents, warrants and agrees with each of the Underwriters that:
(a) Preparation, Filing of Registration Statement, Preliminary
Prospectuses, Prospectus. A registration statement on Form S-1 (File No.
333-74291) under the
<PAGE>
Securities Act of 1933 as amended (the "Act"), with respect to the Shares,
---
including a form of prospectus subject to completion, has been prepared by
the Company in conformity with the requirements of the Act and the rules
and regulations of the Securities and Exchange Commission (the
"Commission") thereunder (the "Rules and Regulations"). Such registration
---------- ---------------------
statement has been filed with the Commission under the Act, and one or more
amendments to such registration statement may also have been so filed. As
used in this Agreement, the term "Registration Statement" means such
----------------------
registration statement, as amended at the time when it was or is declared
effective, including all financial schedules and exhibits thereto; the
Registration Statement shall be deemed to include any information omitted
therefrom pursuant to Rule 430A under the Act and included in the
Prospectus (as hereinafter defined) and shall also mean any registration
statement filed pursuant to Rule 462(b) under the Act; the term
"Preliminary Prospectus" means each prospectus subject to completion
----------------------
contained in the Registration Statement or any amendment thereto (including
the prospectus subject to completion, if any, included in the Registration
Statement or any amendment thereto or filed pursuant to Rule 424(a) under
the Act at the time it was or is declared effective); and the term
"Prospectus" means the prospectus first filed with the Commission pursuant
----------
to Rule 424(b) under the Act or, if no prospectus is required to be filed
pursuant to said Rule 424(b), such term means the prospectus included in
the Registration Statement.
(b) Compliance with Registration Requirements. The Company has not
received any order preventing or suspending the use of any Preliminary
Prospectus and the Company has not received any notice that the Commission
has instituted nor, to the Company's knowledge, has the Commission
threatened to institute any proceedings with respect to such an order.
When any Preliminary Prospectus was filed with the Commission it (i)
contained all statements required to be stated therein in accordance with,
and complied in all material respects with, the requirements of the Act and
the Rules and Regulations and (ii) did not include any untrue statement of
a material fact or omit to state any material fact necessary in order to
make the statements therein, in the light of the circumstances under which
they were made, not misleading. When the Registration Statement or any
amendment thereto was or is declared effective, it (i) contained or will
contain all statements required to be stated therein in accordance with,
and complied or will comply in all material respects with, the requirements
of the Act and the Rules and Regulations and (ii) did not or will not
include any untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading.
When the Prospectus and when any amendment or supplement thereto is filed
with the Commission pursuant to Rule 424(b) (or, if the Prospectus or such
amendment or supplement is not required to be so filed, when the
Registration Statement and when any amendment thereto containing such
amendment or supplement to the Prospectus was or is declared effective) and
at all times subsequent thereto up to and including the Closing Date (as
defined in Section 3 hereof) and the Option Closing Date (as defined in
Section 9 hereof), the Prospectus, as amended or supplemented at any such
time, (i) contained or will contain all statements required to be stated
therein in accordance with, and complied or will comply in all material
respects with the requirements of, the Act and the Rules and Regulations
and (ii) did not or will not include
2
<PAGE>
any untrue statement of a material fact or omit to state any material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading. The foregoing
provisions of this paragraph (b) shall not apply to (i) statements or
omissions made in any Preliminary Prospectus which have been corrected in a
subsequent Preliminary Prospectus or the Prospectus or (ii) statements or
omissions made in any Preliminary Prospectus, the Registration Statement or
any amendment thereto or the Prospectus or any amendment or supplement
thereto in reliance upon, and in conformity with, information furnished in
writing to the Company by or on behalf of the Underwriters through the
Representatives expressly for use therein.
(c) Due Incorporation, Qualification of Company. The Company (i) is
a duly incorporated and validly existing corporation in good standing under
the laws of its jurisdiction of incorporation, with sufficient corporate
power and corporate authority to own or lease its properties and to conduct
its business as described in the Registration Statement and the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus); and (ii) is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction (A) in which the
conduct of its business requires such qualification (except for those
jurisdictions in which the failure so to qualify has not had and will not
have a Material Adverse Effect (as hereinafter defined)) and (B) in which
it owns or leases property. "Material Adverse Effect" means, when used in
-----------------------
connection with the Company, any development, change or effect that is
materially adverse to the business, properties, assets, net worth,
condition (financial or other) or results of operations of the Company.
(d) Capitalization. The Company has the duly authorized and validly
outstanding capitalization set forth under the caption "Capitalization" in
the Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus) and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, based on the
assumptions and including the exceptions set forth therein and the
footnotes thereto. The capital stock of the Company conforms in all
material respects to the description thereof contained in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus). The outstanding shares of Common Stock have been duly
authorized and validly issued by the Company and are fully paid and
nonassessable. Except as created hereby or described in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), there are no outstanding options, warrants, rights or other
arrangements requiring the Company at any time to issue any capital stock.
As of the Closing Date, no holders of outstanding shares of capital stock
of the Company are entitled as such to any preemptive or other rights to
subscribe for any of the Shares, other than those which have been waived or
satisfied, and neither the filing of the Registration Statement nor the
offering or sale of the Shares as contemplated by this Agreement gives rise
to any rights, other than those that have been waived or satisfied, for or
relating to, the registration of any securities of the Company. All offers
and sales of the Company's capital stock prior to the date hereof were at
all relevant times exempt from the registration requirements of the Act and
were duly registered with or the subject of an available exemption from the
registration
3
<PAGE>
requirements of the applicable state securities or Blue Sky laws. The
Shares have been duly authorized; on the Closing Date or the Option Closing
Date (as the case may be), after payment therefor in accordance with the
terms of this Agreement, (i) the Firm Shares and the Additional Shares to
be sold by the Company hereunder will be validly issued, fully paid and
nonassessable, and (ii) good and marketable title to the Shares will pass
to the Underwriters on the Closing Date or the Option Closing Date (as the
case may be) free and clear of any lien, encumbrance, security interest,
claim or other restriction whatsoever.
(e) Exchange Act Registration; Nasdaq. The Company has filed a
registration statement pursuant to Section 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act") to register the Common Stock
------------
thereunder. The Company has received, subject to notice of issuance,
approval to have the Shares quoted on the National Market System of the
National Association of Securities Dealers' Automated Quotation System, and
the Company knows of no reason or set of facts which is reasonably likely
to adversely affect such approval.
(f) Financial Statements. The consolidated financial statements and
the related notes and schedules thereto included in the Registration
Statement and the Prospectus (or, if the Prospectus is not in existence,
the most recent Preliminary Prospectus) fairly present, in all material
respects, the consolidated financial condition, results of operations,
stockholders' equity and cash flows of the Company at the dates and for the
periods specified therein. Such financial statements and the related notes
and schedules thereto have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved (except as otherwise noted therein) and such financial statements
as are audited have been examined by KPMG LLC or Thomas & Clough Co., P.A.,
as indicated therein, each of which are independent public accountants
within the meaning of the Act and the Rules and Regulations, as indicated
in their reports filed therewith. The selected financial information set
forth under the captions "Prospectus Summary Summary Financial and
Operating Data" and "Selected Financial Data" in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus) has
been prepared on a basis consistent with the consolidated financial
statements of the Company.
(g) Tax Returns. The Company has filed all necessary federal, state
and local income, franchise and other material tax returns and have paid
all taxes shown as due thereunder, and the Company has no knowledge of any
tax deficiency that is reasonably likely to be assessed against the Company
which, if so assessed, would have a Material Adverse Effect.
(h) Insurance. The Company maintains insurance of the types and in
amounts which it reasonably believes to be adequate for the business of the
Company, all of which insurance is in full force and effect. The Company
(i) has not received any notice from any insurer or agent of such insurer
that substantial capital improvements or other material expenditures will
have to be made in order to continue such insurance and (ii)
4
<PAGE>
has no reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or will not be able to
obtain similar coverage from similar insurers at a cost that would not have
a material adverse effect on the business, prospects, financial condition
or results of operation of the Company.
(i) Absence of Proceedings. Except as disclosed in the Prospectus
(or, if the Prospectus is not in existence, the most recent Preliminary
Prospectus), there is no action, suit, proceeding or investigation pending
or, to the Company's knowledge, threatened before or by any court,
regulatory body or administrative agency or any other governmental agency
or body, domestic or foreign, that (i) questions the validity of the
capital stock of the Company or this Agreement or of any action taken or to
be taken by the Company pursuant to or in connection with this Agreement,
(ii) is required to be disclosed in the Registration Statement which is not
so disclosed (and such proceedings, if any, as are summarized in the
Registration Statement are accurately summarized in all material respects),
or (iii) if decided adversely to the Company, would have a Material Adverse
Effect.
(j) Authorization; Binding Agreement; No Violation. The Company has
all requisite corporate, power and authority to enter into this Agreement
and to consummate the transactions provided for herein. This Agreement has
been duly authorized, executed and delivered by the Company and, assuming
it is a binding agreement of the Underwriters, constitutes a legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting the enforcement of
creditors' rights and the application of general equitable principles
relating to the availability of remedies and except as rights to indemnity
or contribution may be limited by federal or state securities laws and the
public policy underlying such laws), and none of the Company's execution or
delivery of this Agreement, its performance hereunder, its consummation of
the transactions contemplated herein, its application of the net proceeds
of the offering in the manner set forth under the caption "Use of Proceeds"
or the conduct of its business as described in the Prospectus (or, if the
Prospectus is not in existence, the most recent Preliminary Prospectus),
conflicts or will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes or will
constitute a default under, causes or will cause (or permits or will
permit) the maturation or acceleration of any liability or obligation or
the termination of any right under, or result in the creation or imposition
of any lien, charge, or encumbrance upon, any property or assets of the
Company pursuant to the terms of (i) the articles of incorporation or by-
laws of the Company, (ii) any indenture, mortgage, deed of trust, voting
trust agreement, stockholders' agreement, note agreement or other agreement
or instrument to which the Company is a party or by which it may be bound
or to which any of its property is or may be subject or (iii) any statute,
judgment, decree, order, rule or regulation applicable to the Company of
any government, arbitrator, court, regulatory body or administrative agency
or other governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any of its activities or properties,
except, in the cases of clauses (ii) and (iii)
5
<PAGE>
above, for breaches, violations, defaults or terminations which would not
be reasonably likely to have a Material Adverse Effect.
(k) Exhibits. All executed agreements or copies of executed
agreements filed as exhibits to the Registration Statement to which the
Company is a party or by which it is or may be bound or to which any of its
assets, properties or businesses is or may be subject have been duly and
validly authorized, executed and delivered by the Company and, assuming
such agreements are the legal, valid, binding and enforceable agreements of
the other parties thereto, constitute the legal, valid and binding
agreements of the Company, enforceable against it in accordance with their
respective terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws
of general application relating to or affecting the enforcement of
creditors' rights generally and the application of general equitable
principles relating to the availability of remedies and except as rights to
indemnity or contribution may be limited by federal or state securities
laws and the public policy underlying such laws). The descriptions in the
Registration Statement of contracts and other documents are accurate in all
material respects and fairly present the information required to be shown
with respect thereto by the Act and the Rules and Regulations, and there
are no contracts or other documents which are required by the Act or the
Rules and Regulations to be described in the Registration Statement or
filed as exhibits to the Registration Statement which are not described or
filed as required, and the exhibits which have been filed are complete and
correct copies of the documents of which they purport to be copies.
(l) Liabilities, Obligations, Dividends; No Material Adverse Change.
Subsequent to the most recent respective dates as of which information is
given in the Prospectus (or, if the Prospectus is not in existence, the
most recent Preliminary Prospectus), and except as expressly contemplated
therein, (i) the Company has not incurred, other than in the ordinary
course of its business, any material liabilities or obligations, direct or
contingent, or purchased any of its outstanding capital stock, paid or
declared any dividends or other distributions on its capital stock or
entered into any material transactions not in the ordinary course of
business and there has been no material change in capital stock or long- or
short-term debt of the Company, and (ii) there has not been any Material
Adverse Effect.
(m) No Violation. The Company (or the manner in which it conducts
its business) is not in breach or violation of, or in default under, any
term or provision of (i) its certificate of incorporation or bylaws, (ii)
any indenture, mortgage, deed of trust, voting trust agreement,
stockholders' agreement, note agreement or other agreement or instrument to
which it is a party or by which it is or may be bound or to which any of
its property is or may be subject, or any indebtedness, the effect of which
breach or default singly or in the aggregate would have a Material Adverse
Effect, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company or of any arbitrator, court, regulatory body,
administrative agency or any other governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any of its activities or
6
<PAGE>
properties and the effect of which breach or default singly or in the
aggregate would have a Material Adverse Effect.
(n) Labor Disturbances. No labor disturbance by the employees of the
Company exists or, to the Company's knowledge, is threatened.
(o) Intellectual Property. The Company owns and possess all right,
title and interest in and to, or have duly licensed from other parties, all
trademarks, copyrights and other proprietary rights ("Trade Rights")
------------
material to the business of the Company. The Company has not received any
notice of infringement, misappropriation or conflict from any party as to
such material Trade Rights that has not been resolved or disposed of and,
to the Company's knowledge, the Company has not infringed, misappropriated
or otherwise conflicted with material Trade Rights of any third parties,
which infringement, misappropriation or conflict would have a Material
Adverse Effect.
(p) Absence of Further Requirements. No consent, approval,
authorization or order of or filing with any court, regulatory body,
administrative agency or any other governmental agency or body, domestic or
foreign, is required for the performance of this Agreement or the
consummation of the transactions contemplated hereby, except such as have
been or may be required to be obtained under the Act or may be required
under state securities or Blue Sky laws in connection with the
Underwriters' purchase and distribution of the Shares.
(q) No Stabilization or Manipulation. Neither the Company nor any of
its officers, directors or affiliates (within the meaning of the Rules and
Regulations) has taken, directly or indirectly, any action designed to
stabilize or manipulate the price of any security of the Company, or which
has constituted or which might in the future reasonably be expected to
cause or result in stabilization or manipulation of the price of any
security of the Company, to facilitate the sale or resale of the Shares or
otherwise.
(r) Properties and Assets. The Company has good and valid title to,
or valid and enforceable leasehold interests in, all properties and assets
owned or leased by it, free and clear of all mortgages, liens,
encumbrances, security interests, claims, restrictions, equities, claims
and defects, except such as are described in the Registration Statement and
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus), or such as do not materially adversely affect the
value of any of such properties or assets taken as a whole and do not
materially interfere with the use made and proposed to be made of any of
such properties or assets. The Company owns or leases all such properties
as are materially necessary to its operations as now conducted, and as
proposed to be conducted as set forth in the Registration Statement and the
Prospectus (or, if the Prospectus is not in existence, the most recent
Preliminary Prospectus); and the properties and business of the Company
conforms in all material respects to the descriptions thereof contained in
the Registration Statement and the Prospectus (or, if the Prospectus is not
in existence, the most recent Preliminary Prospectus). All the material
leases and subleases of the Company, and under which the Company holds
properties or
7
<PAGE>
assets as lessee or sublessee, constitute valid leasehold interests of the
Company free and clear of any lien, encumbrance, security interest,
restriction, equity, claim or defect, are in full force and effect, and the
Company is not in default in respect of any of the material terms or
provisions of any such material leases or subleases, and the Company does
not have notice of any claim which has been asserted by anyone adverse to
the Company's rights as lessee or sublessee under either the material lease
or sublease, or affecting or questioning the Company's right to the
continued possession of the leased or subleased premises under any such
material lease or sublease, in each case which default or claim would have
a Material Adverse Effect.
(s) Environmental, Safety, Health, Similar Laws. The Company has not
violated any environmental, safety, health or similar law applicable to the
business of the Company, nor any federal or state law relating to
discrimination in the hiring, promotion, or pay of employees, nor any
applicable federal or state wages and hours law, nor any provisions of the
federal Employee Retirement Income Security Act or the rules and
regulations promulgated thereunder, the consequences of which violation
would have a Material Adverse Effect.
(t) Licenses, Permits. The Company holds and at the Closing Date and
any later Option Closing Date, as the case may be, will hold, all material
franchises, licenses, permits, approvals, certificates and other
authorizations ("Authorizations") from federal, state and foreign and other
--------------
governmental or regulatory authorities necessary to the ownership, leasing
and operation of their properties or required for the present conduct of
business, and such Authorizations are in full force and effect and the
Company is in compliance therewith in all material respects except where
the failure so to obtain, maintain or comply would not be reasonably likely
to have a Material Adverse Effect. No event has occurred (including,
without limitation, the receipt of any notice from any authority or
governing body) that allows or, after notice or lapse of time or both,
would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the material rights of the holder of any
such Authorization.
(u) Related Party Relationships/Transactions. Except as disclosed in
the Prospectus, there are no business relationships or related party
transactions required to be disclosed therein by Item 404 of Regulation S-K
of the Commission.
(v) Statistical, Market-Related Data. The statistical and market-
related data included in the Prospectus (or, if the Prospectus is not in
existence, the most recent Preliminary Prospectus) are based on or derived
from independent sources that the Company believes to be reliable and
accurate in all material respects, or represent the Company's good-faith
estimate made on the basis of data derived from such sources.
(w) Internal Accounting Controls. The Company maintains a system of
internal accounting controls sufficient to provide reasonable assurances
that: (i) transactions are executed in accordance with management's general
or specific
8
<PAGE>
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii)
access to assets is permitted only in accordance with management's general
or specific authorization; and (iv) the recorded accountability for assets
is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(x) Compliance with Cuba Act. The Company is in compliance with all
provisions of Florida Statutes (S)517.075, and the regulations thereunder,
relating to issuers doing business with Cuba.
(y) Political Contributions; Payments to Officials. The Company has
not at any time during the last five years (i) made any unlawful
contribution to any candidate for foreign office, or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
foreign, United States or state governmental officer or official, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States.
(z) Investment Company Act. The Company is not, and after giving
effect to the offering of the Shares contemplated hereby and the
application of the proceeds therefrom, will not be, an "investment company"
or an entity "controlled" by an investment company, as such terms are
defined in Section 3(a) of the Investment Company Act of 1940, as amended.
(aa) Year 2000. The Company has reviewed its operations and has made
inquiries of any other parties with which the Company has a material
relationship in order to evaluate the extent to which the business or
operations of the Company will be affected by the Year 2000 Problem (as
defined below). As a result of such review, management of the Company has
no reason to believe, and does not believe, that the Year 2000 Problem will
result in a Material Adverse Effect or result in any material loss or
interference with the business or operations of the Company. The "Year
2000 Problem" means any significant risk that computer hardware or software
used in the receipt, transmission, processing, manipulation, storage,
retrieval, retransmission or other utilization of data or in the operation
of mechanical or electrical systems of any kind will not, in the case of
dates or time periods occurring after December 31, 1999, function at least
as effectively as in the case of dates or time periods occurring prior to
January 1, 2000.
Section 3. Purchase, Sale and Delivery of the Shares. On the basis of the
representations, warranties, covenants and agreements herein contained, but
subject to the terms and conditions herein set forth, the Company agrees to sell
to each Underwriter and each Underwriter, severally and not jointly, agrees to
purchase from the Company at a purchase price of $[____] per Share, the number
of Firm Shares set forth opposite the name of such Underwriter on Schedule I.
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9
<PAGE>
Delivery of certificates, and payment of the purchase price, for the Firm
Shares shall be made at the offices of ING Baring Furman Selz LLC at Park Avenue
Plaza, 55 East 52nd Street, New York, New York 10055, or such other location as
shall be agreed upon by the Company and the Representatives. Such delivery and
payment shall be made at 10:00 a.m., New York City time, on May 18, 1999 or at
such other time and date not more than ten business days thereafter as shall be
agreed upon by the Representatives and the Company. The time and date of such
delivery and payment are herein called the "Closing Date." Delivery of the
------------
certificates for the Firm Shares shall be made through the facilities of the
Depository Trust Company to the Representatives for the respective accounts of
the several Underwriters against payment by the several Underwriters through the
Representatives of the purchase price for the Firm Shares by wire transfer of
immediately-available funds to an account designated to the Representatives in
writing at least two business days preceding the Closing Date. The certificates
for the Shares to be so delivered will be in definitive, fully-registered form,
will bear no restrictive legends and will be in such denominations and
registered in such names as the Representatives shall request, not less than two
full business days prior to the Closing Date. The certificates for the Firm
Shares will be made available to the Representatives at such office or such
other place as the Representatives may designate for inspection, checking and
packaging not later than 9:30 a.m., New York time on the business day prior to
the Closing Date.
Section 4. Public Offering of the Shares. It is understood that the
Underwriters propose to make a public offering of the Shares at the price and
upon the other terms set forth in the Prospectus.
Section 5. Covenants of the Company. The Company covenants and agrees
with each of the Underwriters that:
(a) Filing of Registration Statement, Prospectus. Promptly following
execution of this Agreement, the Company shall file with the Commission
either (i) if the Registration Statement, as it may have been amended, has
been declared by the Commission to be effective under the Act, a prospectus
in the form most recently included in an amendment to the Registration
Statement filed with the Commission (or, if no such amendment shall have
been filed, in the Registration Statement), with such insertions and
changes as are required by Rule 430A under the Act and as shall have been
provided to and approved by the Representatives prior to the filing
thereof, or (ii) if the Registration Statement, as it may have been
amended, has not been declared by the Commission to be effective under the
Act, an amendment to the Registration Statement, including a form of
prospectus, a copy of which amendment has been furnished to and approved by
the Representatives prior to the filing thereof. If the Registration
Statement does not cover all of the Shares, the Company shall file with the
Commission a registration statement under Rule 462(b) of the Rules and
Regulations registering the Shares not so covered by 10:00 p.m., New York
City time, on the date of this Agreement, and shall pay to the Commission
the filing fee for such registration statement at the time of filing or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) of the Rules and Regulations.
10
<PAGE>
(b) Effectiveness; Amendments, Final Prospectus. The Company will
use its best efforts to cause the Registration Statement, if not effective
at the time of execution of this Agreement, and any amendments thereto to
become effective as promptly as practicable. If required, the Company will
file the Prospectus and any amendment or supplement thereto with the
Commission in the manner and within the time period required by Rule 424(b)
under the Act. During any time when a prospectus relating to the Shares is
required to be delivered under the Act, the Company (i) will comply with
all requirements imposed upon it by the Act and the Rules and Regulations
to the extent necessary to permit the continuance of sales of or dealings
in the Shares in accordance with the provisions hereof and of the
Prospectus, as then amended or supplemented, and (ii) will not file with
the Commission the prospectus or the amendment referred to in the third
sentence of Section 2(a) hereof or any amendment or supplement to such
prospectus or any amendment to the Registration Statement, of which the
Representatives shall not previously have been advised and furnished with a
copy a reasonable period of time prior to the proposed filing and as to
which filing the Representatives shall not have given their consent.
(c) Information to be Provided to Representatives; Stop Orders. As
soon as the Company is advised or obtains knowledge thereof, the Company
will advise the Representatives (i) when the Registration Statement, as
amended, has become effective; if the provisions of Rule 430A promulgated
under the Act will be relied upon, when the Prospectus has been filed in
accordance with said Rule 430A and when any post-effective amendment to the
Registration Statement becomes effective; (ii) of any request made by the
Commission for amending the Registration Statement, for supplementing any
Preliminary Prospectus or the Prospectus or for additional information, or
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or any order preventing or suspending the use of any Preliminary
Prospectus or the Prospectus in any jurisdiction or any amendment or
supplement thereto or the institution or threat of any investigation or
proceeding for that purpose, and will use its best efforts to prevent the
issuance of any such order and, if issued, to obtain the lifting thereof as
soon as possible.
(d) Blue Sky Laws. The Company will (i) use its best efforts to
arrange for the qualification of the Shares for offer and sale under the
state securities or Blue Sky Laws of such jurisdictions as the
Representatives may designate, and the continuation of such qualifications
in effect for as long as may be necessary to complete the distribution of
the Shares, and (ii) make such applications, file such documents and
furnish such information as may be required for the purposes set forth in
clause (i); provided, however, that the Company shall not be required to
qualify as a foreign corporation or file a general or unlimited consent to
service of process in any such jurisdiction.
(e) Use of Prospectus; Amendment. The Company consents to the use of
the Prospectus (and any amendment or supplement thereto) by the
Underwriters and all dealers to whom the Shares may be sold, in connection
with the offering or sale of the Shares and for such period of time
thereafter as the Prospectus is required by law to be
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delivered in connection therewith. The Company shall promptly notify the
Representatives if, at any time when a prospectus relating to the Shares is
required to be delivered under the Act, any event occurs as a result of
which the Prospectus, as then amended or supplemented, would include any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements therein not misleading, or it becomes
necessary at any time to amend or supplement the Prospectus to comply with
the Act or the Rules and Regulations. In such case, and at any other time
during such period that counsel to the Underwriters determines that it is
necessary to amend or supplement the Prospectus to comply with the Act or
the Rules and Regulations, the Company will, subject to Section 5(a)
hereof, promptly prepare and file with the Commission an amendment to the
Registration Statement or an amendment or supplement to the Prospectus that
will correct such statement or omission or effect such compliance, each
such amendment or supplement to be reasonably satisfactory to counsel to
the Underwriters, and shall use its best efforts to cause any such
amendment to the Registration Statement to become effective as soon as
possible. In the event that any Underwriter is required to deliver a
prospectus nine months or more following the effective date of the
Registration Statement, the Company shall upon request (but at the expense
of such Underwriter) prepare promptly such prospectus or prospectuses as
may be necessary to permit compliance with the requirements of Section
10(a)(3) of the Act.
(f) Earnings Statement. As soon as practicable, but in any event not
later than 45 days after the end of the twelve-month period beginning on
the day after the end of the fiscal quarter of the Company during which the
effective date of the Registration Statement occurs (90 days in the event
that the end of such fiscal quarter is the end of the Company's fiscal
year), the Company will make generally available to its security holders,
in the manner specified in Rule 158(b) of the Rules and Regulations, and to
the Representatives, an earnings statement which will be in the detail
required by, and will otherwise comply with, the provisions of Section
11(a) of the Act and Rule 158(a) of the Rules and Regulations, which
statement need not be audited unless required by the Act or the Rules and
Regulations, covering a period of at least twelve consecutive months after
the effective date of the Registration Statement.
(g) Reports. During the period of five years from the date hereof,
the Company will furnish to its stockholders, as soon as practicable,
annual reports (including financial statements audited by independent
public accountants) and unaudited quarterly reports of earnings, and will
deliver to the Representatives:
(i) concurrently with furnishing any quarterly reports to its
stockholders, statements of income of the Company for each quarter in
the form furnished to the Company's stockholders;
(ii) concurrently with furnishing annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of income,
stockholders' equity and cash flows of the Company
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for such fiscal year, accompanied by a copy of the report thereon of
independent public accountants;
(iii) as soon as they are available, copies of all information
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
National Association of Securities Dealers, Inc. ("NASD") or any
securities exchange;
(v) every press release and every material news item or
article of interest to the financial community in respect of the
Company or its affairs that is released or prepared by the Company;
and
(vi) any additional information of a public nature concerning
the Company or its business that is in the possession of the Company
at such time and that the Representatives may reasonably request.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries are
consolidated, and will be accompanied by similar financial statements for
any significant subsidiary that is not so consolidated.
(h) Material Transactions. The Company will not, prior to the
earliest of the Option Closing Date, the termination or expiration of the
Underwriters' right to purchase Additional Shares, and the purchase of all
Additional Shares available for purchase pursuant to Section 9, enter into
any material transaction, other than in the ordinary course of business and
except as contemplated by the Prospectus.
(i) Transfer Agent, Registrar. The Company will maintain a transfer
agent and, if necessary under the jurisdiction of incorporation of the
Company, a registrar (which may be the same entity as the transfer agent)
for the Common Stock.
(j) Copies of Registration Statement, Preliminary Prospectus,
Prospectus. The Company will furnish to the Representatives or on the
Representatives' order, without charge, at such place as the
Representatives may designate, copies of the Registration Statement (of
which two copies will be signed, and which will include all financial
statements and exhibits) and any pre-effective or post-effective amendments
thereto (of which two copies will be signed, and which will include all
financial statements and exhibits), each Preliminary Prospectus and the
Prospectus, and all amendments and supplements thereto, in each case as
soon as available and in such quantities as the Representatives may
reasonably request.
(k) Correspondence with the Commission. The Company will promptly
deliver to the Representatives copies of all correspondence to and from,
and all
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documents issued to and by, the Commission in connection with the
registration of the Shares under the Act.
(l) Limitation on Issuance and Sale. Without the prior written
consent of ING Baring Furman Selz LLC, which shall not be unreasonably
withheld, the Company will not issue or directly or indirectly offer, sell,
offer to sell, contract to sell, grant any option for the sale or purchase
of, or otherwise dispose of (or announce any issuance, offer, sale, offer
to sell, contract to sell, option grant or other disposition of) any shares
of Common Stock or any security convertible or exchangeable into or
exercisable for Common Stock, or any substantially similar securities, for
a period of 180 days from the date of the Prospectus, except for: (i) the
issuance of shares of Common Stock upon conversion of the 54,229
outstanding shares of Series A Convertible Preferred Stock and the 24,359
outstanding shares of Series B Convertible Preferred Stock in connection
with the consummation of the transactions contemplated hereby and by the
Prospectus; (ii) the issuance of options to subscribe for shares of Common
Stock or the issuance of shares of Common Stock, in each case pursuant to
the Company's 1997 Equity Compensation Plan or 1999 Equity Compensation
Plan (each as defined in the Prospectus); (iii) the issuance of shares of
Common Stock in connection with an acquisition by the Company of, or joint
venture or similar transaction with, another business or entity, provided
that either (x) the terms of such acquisition, joint venture or similar
transaction prohibit the resale or other disposition of such shares for the
period ending 180 days after the date hereof, or (y) a favorable opinion
(setting forth no material qualification other than such as are normally
included in such opinions) is issued by a nationally recognized investment
bank as to the fairness of the transaction to unaffiliated shareholders of
the other company prior to execution by the Company of any agreement
relating to such acquisition, joint venture or similar transaction; and
(iv) as contemplated by the Prospectus.
(m) Listing on Nasdaq. The Company will use its best efforts to
cause the Shares to be included for quotation on the Nasdaq National Market
prior to the Closing Date, and to maintain the listing of the Shares on the
Nasdaq National Market or a national securities exchange for a period of
three years following the date of this Agreement.
(n) Use of Proceeds. The Company will apply the net proceeds of the
offering received by it in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(o) Filing of Reports. The Company will timely file all such
reports, forms or other documents as may be required from time to time,
under the Act, the Rules and Regulations, the Exchange Act and the rules
and regulations thereunder, and all such reports, forms and documents filed
will comply as to form and substance with the applicable requirements under
the Act, the Rules and Regulations and the Exchange Act and the rules and
regulations thereunder.
(p) Communications with Press. Prior to the earliest of the Option
Closing Date, the termination or expiration of the Underwriters' right to
purchase Additional
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Shares, and the purchase of all Additional Shares available for purchase
pursuant to Section 9, the Company will issue no press release or other
communication (except for communications relating to product announcements
in the ordinary course of business) and hold no press conferences with
respect to the Company or with respect to the financial condition, results
of operations, business, properties, assets or liabilities of the Company
or the Offering without the prior consent of the Representatives, which
shall not be unreasonably withheld.
(q) Other Tasks. The Company will exercise its best efforts to do
and perform all tasks required or necessary to be done or performed under
this Agreement by the Company prior to the Closing Date or any Option
Closing Date, as the case may be, and to satisfy all conditions precedent
to the delivery of the Shares.
Section 6. Expenses.
(a) Responsibility for Company/Underwriter Expenses. Regardless of
whether the transactions contemplated in this Agreement are consummated, and
regardless of whether for any reason this Agreement is terminated, subject to
Section 6(a), the Company will pay, and hereby agrees to indemnify each
Underwriter against, all fees and expenses incident to the performance of the
obligations of the Company under this Agreement, including, but not limited to,
(i) fees and expenses of accountants and counsel for the Company, (ii) all costs
and expenses incurred in connection with the preparation, duplication, printing,
filing, delivery and shipping of copies of the Registration Statement and any
pre-effective or post-effective amendments thereto, any Preliminary Prospectus
and the Prospectus and any amendments or supplements thereto (including postage
costs related to the delivery by the Underwriters of any Preliminary Prospectus
or Prospectus, or any amendment or supplement thereto), this Agreement, the
Agreement Among Underwriters, the Underwriters' Questionnaire, the Underwriters'
Power of Attorney, and all other documents in connection with the transactions
contemplated herein, including the cost of all copies thereof, (iii) fees and
expenses relating to qualification of the Shares under state securities or Blue
Sky Laws, including the cost of preparing and mailing the preliminary and final
blue sky memoranda and filing fees and disbursements and reasonable fees of
counsel for the Underwriters and other related expenses, if any, in connection
therewith, (iv) filing fees of the Commission relating to registration of the
Shares under the Act, (v) any fees and expenses in connection with the quotation
of the Shares on the Nasdaq National Market, (vi) the filing fees incident to,
and the fees and disbursements of counsel for the Underwriters in connection
with, securing any required review by the NASD of the terms of the underwriting
of the Shares as set forth in this Agreement, (vii) costs and expenses incident
to the preparation, issuance and delivery to the Underwriters of any
certificates evidencing the Shares, including the transfer agent's and the
registrar's fees and any applicable transfer taxes incurred in connection with
the delivery to the Underwriters of the Shares to be sold by the Company
pursuant to this Agreement, (viii) costs and expenses incident to any meetings
with prospective investors in the Shares (other than as shall have been
specifically approved by the Representatives to be paid for by the
Underwriters), (ix) costs and expenses of advertising relating to the offering
of the Shares (other than as shall have been specifically approved by the
Representatives to be paid for by the Underwriters), and (x) all other costs and
15
<PAGE>
expenses incident to the performance of its obligations hereunder that are not
otherwise specifically provided for in this section. Except as set forth above
and in Section 6(b) below, the Underwriters shall pay all of their own expenses
(including the fees and disbursements of their counsel and their travel
expenses) incurred in connection with this Agreement and the transactions
contemplated hereby.
(b) Responsibility for Expenses if Purchase of Shares Not
Consummated. If the purchase of the Shares as herein contemplated is not
consummated for any reason other than the Underwriters' default under this
Agreement or other than by reason of the Representatives giving the notice to
the Company set forth in Section 11(a), the Company shall reimburse the several
Underwriters for their reasonable out-of-pocket expenses (including reasonable
counsel fees and disbursements) in connection with any investigation made by
them, and any preparation made by them in respect of marketing of the Shares or
in contemplation of the performance by them of their obligations hereunder.
Section 7. Conditions of the Underwriters' Obligations. The
obligation of each Underwriter to purchase and pay for the Shares set forth
opposite the name of such Underwriter in Schedule I is subject to, in the
----------
discretion of the Underwriters, the continuing accuracy of the representations
and warranties of the Company herein as of the date hereof and as of the Closing
Date as if they had been made on and as of the Closing Date, the accuracy on and
as of the Closing Date of the statements of officers of the Company made
pursuant to the provisions hereof, the performance by the Company on and as of
the Closing Date of all of its covenants and agreements hereunder which are to
be performed on or prior to the Closing Date, and the following additional
conditions:
(a) Effectiveness of Registration Statement, Filing of Prospectus.
If the Company has elected to rely on Rule 430A under the Act, the Registration
Statement shall have been declared effective, and the Prospectus (containing the
information omitted pursuant to Rule 430A) shall have been filed with the
Commission not later than the Commission's close of business on the second
business day following the date hereof or such later time and date to which the
Representatives shall have consented; if the Company does not elect to rely on
Rule 430A, the Registration Statement (including any registration statement
filed under Rule 462(b)) shall have been declared effective not later than 11:00
a.m. New York time, on the first business day following the date hereof or such
later time and date to which the Representatives shall have consented; if
required, in the case of any changes in or amendments or supplements to the
Prospectus in addition to those contemplated above, the Company shall have filed
such Prospectus as amended or supplemented with the Commission in the manner and
within the time period required by Rule 424(b) under the Act; no stop order
suspending the effectiveness of the Registration Statement or any amendment
thereto shall have been issued, and no proceedings for that purpose shall have
been instituted or, to the knowledge of the Company or the Representatives,
shall be contemplated or threatened by the Commission; and the Company shall
have complied with any request of the Commission for additional information (to
be included in the Registration Statement or the Prospectus or otherwise).
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<PAGE>
(b) No Misstatements/Omissions. The Registration Statement, or any
amendment thereto, shall not contain an untrue statement of material fact,
or omit to state a material fact that is required to be stated therein or
is necessary to make the statements therein not misleading, and the
Prospectus, or any supplement thereto, shall not contain an untrue
statement of material fact, or omit to state a material fact that is
required to be stated therein or is necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(c) Opinion of Underwriters' Counsel. On or prior to the Closing
Date, the Representatives shall have received from White & Case LLP,
counsel to the Underwriters, such opinion or opinions with respect to the
issuance and sale of the Firm Shares, the Registration Statement and the
Prospectus and such other related matters as the Representatives reasonably
may request, and such counsel shall have received such documents and other
information as they request to enable them to pass upon such matters.
(d) Opinion of Counsel to the Company. On the Closing Date, the
Underwriters shall have received the opinion, dated the Closing Date, of
Morris, Manning & Martin, L.L.P. counsel to the Company, in the form
attached hereto as Appendix A, addressed to the Underwriters.
----------
(e) Other Documents, Certificates, Opinions. On or prior to the
Closing Date, counsel to the Underwriters shall have been furnished such
documents, certificates and opinions as they may reasonably require in
order to evidence the accuracy, completeness or satisfaction of any of the
representations or warranties of the Company, or conditions herein
contained.
(f) Comfort Letter of Thomas & Clough Co., P.A. At the time of
execution of this Agreement, the Representatives shall have received a
letter from Thomas & Clough Co., P.A., addressed to the Company and the
Underwriters, confirming that it is an independent certified public
accountant with respect to the Company within the meaning of the Act and
the Rules and Regulations thereunder and setting forth certain information
as may be requested by the Representatives concerning financial and
operating data of the Company for the years ending June 30, 1996 and 1997
contained in the Preliminary Prospectus. Such letter shall be in a form
reasonably satisfactory to the Representatives and their counsel.
(g) Comfort Letter and Bringdown Letter of KPMG LLC. At the time of
execution of this Agreement, the Representatives shall have received a
letter from KPMG LLC, addressed to the Company and the Underwriters,
confirming that it is an independent certified public accountant with
respect to the Company within the meaning of the Act and the Rules and
Regulations thereunder and setting forth certain information as may be
requested by the Representatives concerning financial and operating data of
the Company for the year ending June 30, 1998 contained in the Preliminary
Prospectus (the "KPMG Original Letter"). On the Closing Date, the
--------------------
Representatives shall have received
17
<PAGE>
a letter from KPMG LLC, addressed to the Company and the Underwriters,
dated the Closing Date, confirming that it is an independent certified
public accountant with respect to the Company within the meaning of the Act
and the Rules and Regulations thereunder and based upon the procedures
described in the KPMG Original Letter, but carried out to a date not more
than three days prior to the Closing Date, (i) confirming that the
statements and conclusions set forth in the KPMG Original Letter are
accurate as of the Closing Date; and (ii) setting forth any revisions and
additions to the statements and conclusions set forth in the KPMG Original
Letter that are necessary to reflect any changes in the facts described in
the KPMG Original Letter since the date of such letter, or to reflect the
availability of more recent financial statements, data or information. It
is a condition of your obligations hereunder that such letter not disclose
any change, or any development involving a prospective change, in or
affecting the business or properties of the Company which, in your
reasonable judgment, makes it impracticable or inadvisable to proceed with
the public offering of the Shares as contemplated by the Prospectus. In
addition, you shall have received from KPMG LLC a letter addressed to the
Company and made available to you for the use of the Underwriters stating
that its review of the Company's system of internal accounting controls, to
the extent it deemed necessary in establishing the scope of its latest
examination of the Company's financial statements, did not disclose any
weaknesses in internal controls that it considered to be material
weaknesses. All such letters shall be in a form reasonably satisfactory to
the Representatives and their counsel.
(h) Officers' Certificate. On the Closing Date, the Representatives
shall have received a certificate, dated the Closing Date, of the principal
executive officer and the principal financial or accounting officer of the
Company to the effect that each of such persons has carefully examined the
Registration Statement and the Prospectus and any amendments or supplements
thereto and this Agreement, and that:
(i) The representations and warranties of the Company set
forth in this Agreement are true and correct, as if made on and as of
the Closing Date, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this Agreement on
its part to be performed or satisfied at or prior to the Closing Date;
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that
purpose have been instituted or are pending or, to the best knowledge
of each of such persons, are contemplated or threatened, under the Act
and any and all filings required by Rule 424 and Rule 430A have been
timely made;
(iii) The Registration Statement and Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and neither the
Registration Statement nor any amendment thereto includes any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
18
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statements therein not misleading and neither the Prospectus nor any
supplement thereto includes any untrue statement of a material fact or
omits or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; and
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus up to and
including the Closing Date, other than as contemplated by the
Prospectus: the Company has not incurred, other than in the ordinary
course of its business, any material liabilities or obligations,
direct or contingent; the Company has not purchased any of its
outstanding capital stock or paid or declared any dividends or other
distributions on its capital stock; the Company has not entered into
any transactions not in the ordinary course of business; and there has
not been any change in the capital stock or consolidated long-term
debt or any increase in the consolidated short-term borrowings (other
than any increase in short-term borrowings in the ordinary course of
business) of the Company or any material adverse change to the
business, properties, assets, net worth, condition (financial or
other), or results of operations of the Company; the Company has not
sustained any material loss or damage to its property or assets,
whether or not insured; and there is no litigation which is pending or
threatened against the Company which if adversely decided would have a
Material Adverse Effect.
References to the Registration Statement and the Prospectus in this
paragraph (h) are to such documents as amended and supplemented at the
date of the certificate.
(i) No Material Change. Subsequent to the respective dates as of
which information is given in the Registration Statement and the Prospectus
up to and including the Closing Date there has not been (i) any material
change specified in the letter referred to in paragraph (g) of this Section
7 or (ii) any material adverse change, or any development involving a
reasonably likely prospective material adverse change, in the business or
properties of the Company, whether or not arising in the ordinary course of
business, which change in the case of clause (i) or change or development
in the case of clause (ii) makes it impractical or inadvisable in the
Representatives' judgment to proceed with the public offering or the
delivery of the Shares as contemplated by the Prospectus.
(j) No Stop Orders by State Authorities. No order suspending the
sale of the Shares in any jurisdiction designated by you pursuant to
Section 5(d) hereof has been issued on or prior to the Closing Date and no
proceedings for that purpose have been instituted or, to your knowledge or
that of the Company, have been or are contemplated.
(k) Lockup Agreements. The Representatives shall have received from
each person identified on Appendix B attached hereto an agreement to the
----------
effect that, absent the prior written consent of ING Baring Furman Selz
LLC, such person will not (and, to the extent allowable by law, will not
permit any other person who is a transferee of such
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<PAGE>
person's shares of Common Stock or substantially similar securities of the
Company to) directly or indirectly offer, sell, offer to sell, contract to
sell, grant any option for the sale or purchase of, or otherwise dispose
of, any shares of Common Stock (including but not limited to any shares of
Common Stock issued or issuable upon conversion of shares of Series A or
Series B Preferred Stock of the Company), or any security convertible or
exchangeable into or exercisable for Common Stock (including but not
limited to shares of Series A and Series B Preferred Stock of the Company),
or any substantially similar securities, whether now owned or hereafter
acquired or owned by such person listed on Appendix B or with respect to
----------
which such person listed on Appendix B has the power of disposition or
----------
beneficial ownership (collectively, the "Lockup Shares") or, in any manner,
-------------
transfer all or a portion of the economic consequences associated with the
ownership of the Lockup Shares, for a period of 180 days from the date of
the Prospectus otherwise than (i) as a bona fide gift or gifts, provided
that the donee or donees thereof agree to be bound by this restriction.
(l) Additional Documents. The Company shall have furnished the
Underwriters with such further opinions, letters, certificates or documents
as you or counsel for the Representatives may reasonably request. All
opinions, certificates, letters and documents to be furnished by the
Company shall be deemed to comply with the provisions hereof (to the extent
a form of such document is not attached hereto) only if they are reasonably
satisfactory in all material respects to the Representatives and to counsel
for the Representatives. The Company shall furnish the Representatives
with conformed copies of such opinions, certificates, letters and documents
in such quantities as you reasonably request. The certificates delivered
under this Section 7 shall constitute representations, warranties and
agreements of the Company, as to all matters set forth therein, as fully
and effectively as if such matters had been set forth in Section 2 of this
Agreement.
(m) The Shares shall have been duly authorized for quotation on the
Nasdaq National Market.
Section 8. Indemnification.
(a) By the Company. The Company agrees to indemnify and hold
harmless each Underwriter and each person, if any, who controls such Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
against any and all losses, claims, damages or liabilities, joint or several
(and actions in respect thereof), to which such Underwriter or such controlling
person may become subject, under the Act or other federal or state statutory law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement or the Prospectus or any Preliminary Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission therein of a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse, as
incurred, such Underwriter or such controlling persons for any legal or other
expenses reasonably incurred by
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such Underwriter or such controlling persons in connection with investigating,
defending or appearing as a third party witness in connection with any such
loss, claim, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss, claim,
damage, liability or action arises out of or is based upon any untrue statement
or alleged untrue statement or omission or alleged omission made in any of such
documents in reliance upon and in conformity with information furnished in
writing to the Company on behalf of such Underwriter through the Representatives
expressly for use therein and provided further that such indemnity with respect
to any Preliminary Prospectus shall not inure to the benefit of any Underwriter
(or to the benefit of any person controlling such Underwriter) from whom the
person asserting any such loss, claim, damage, liability or action purchased
Shares which are the subject thereof to the extent that any such loss, claim,
damage, liability or action (i) results from the fact that such Underwriter
failed to send or give a copy of the Prospectus (as amended or supplemented) to
such person at or prior to the confirmation of the sale of such Shares to such
person in any case where such delivery is required by the Act and (ii) arises
out of or is based upon an untrue statement or omission of a material fact
contained in such Preliminary Prospectus that was corrected in the Prospectus
(as amended and supplemented), unless such failure resulted from non-compliance
by the Company with Section 5(j) hereof. The indemnity agreement in this
paragraph (a) shall be in addition to any liability that the Company may
otherwise have.
(b) By the Underwriters. Each Underwriter agrees, severally but not
jointly, to indemnify and hold harmless the Company, each of its directors, each
of its officers who has signed the Registration Statement and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, against any and all losses, claims, damages or
liabilities, joint or several (and actions in respect thereof), to which the
Company, its directors, each of its officers who has signed the Registration
Statement or such controlling person may become subject, under the Act or other
federal or state statutory law or regulation, at common law or otherwise,
insofar as such losses, claims, damages, liabilities or actions arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the Registration Statement or the Prospectus or any
Preliminary Prospectus, or any amendment or supplement thereto, or arise out of
or are based upon the omission or alleged omission therein of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with information furnished in writing by that
Underwriter through the Representatives to the Company expressly for use
therein, and will reimburse, as incurred, the Company, its directors, each of
its officers who has signed the Registration Statement and such controlling
persons for any legal or other expenses reasonably incurred by the Company or
any such person in connection with investigating, defending or appearing as a
third-party witness in connection with any such loss, claim, damage, liability
or action. The indemnity agreement contained in this paragraph (b) shall be in
addition to any liability that the Underwriters may otherwise have.
(c) Indemnification Procedure. Promptly after receipt by an
indemnified party under this Section 8 of notice of the commencement of any
action, such indemnified party
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will, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 8, notify such indemnifying party or
parties of the commencement thereof; but the omission so to notify the
indemnifying party shall not relieve it from any liability to the extent that
the indemnifying party was not adversely affected by such omission, or from any
liability which it may have to any indemnified party otherwise than under
paragraph (a) or (b) of this Section 8. In case any such action is brought
against an indemnified party and it notifies an indemnifying party or parties of
the commencement thereof, the indemnifying party or parties against which a
claim is to be made will be entitled to participate therein and, to the extent
that it or they may wish, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party (who shall not, except with the consent
of the indemnified party, be counsel to the indemnifying party); provided
however, that if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party has reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those available to
the indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to participate in the defense of such action on behalf
of such indemnified party or parties. Upon receipt of notice from the
indemnifying party to such indemnified party of its election so to assume the
defense of such action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under this
Section 8 for any legal or other expenses (other than the reasonable costs of
investigation) subsequently incurred by such indemnified party in connection
with the defense thereof, unless (i) the indemnified party has employed such
counsel in accordance with the proviso to the immediately preceding sentence,
(ii) the indemnifying party has not employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, or (iii) the indemnifying party
has authorized in writing the employment of counsel for the indemnified party at
the expense of the indemnifying party; provided, however, that the Company shall
only be liable for the reasonable fees and expenses of one such additional
counsel in any single jurisdiction plus appropriate local counsel in other
jurisdictions. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or failure to act, by or on behalf of any indemnified
party.
(d) Contribution. If the indemnification provided for in this
Section 8 is unavailable or insufficient to hold harmless an indemnified party
under paragraph (a) or (b) above in respect of any losses, claims, damages,
expenses or liabilities (or actions in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) (i) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, from the offering of the Shares or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only
22
<PAGE>
the relative benefits referred to in clause (i) above but also the relative
fault of each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand in connection with the statements or omissions
that resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand, and the Underwriters, on the other, shall be deemed to
be in the same proportion as the total net proceeds from the offering of the
Shares (before deducting expenses) bear to the total underwriting discounts
received by the Underwriters hereunder, in each case as set forth in the table
on the cover page of the Prospectus. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriters, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this paragraph (d) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to above in this paragraph (d). The amount paid or payable by an
indemnified party as a result of the losses, claims, damages or liabilities (or
actions in respect thereof) referred to above in this paragraph (d) shall be
deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph (d), the Underwriters
shall not be required to contribute any amount in excess of the underwriting
discount applicable to the Shares purchased by the Underwriters hereunder. The
Underwriters' obligations to contribute pursuant to this paragraph (d) are
several in proportion to their respective underwriting obligations, and not
joint. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For purposes of this
paragraph (d), (i) each person, if any, who controls an Underwriter within the
meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have
the same rights to contribution as such Underwriter and (ii) each director of
the Company, each officer of the Company who has signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act shall have the same
rights to contribution as the Company, subject in each case to this paragraph
(d). Any party entitled to contribution will, promptly after receipt of notice
of commencement of any action, suit or proceeding against such party in respect
to which a claim for contribution may be made against another party or parties
under this paragraph (d), notify such party or parties from whom contribution
may be sought, but the omission so to notify such party or parties shall not
relieve the party or parties from whom contribution may be sought from any other
obligation (x) it or they may have hereunder or otherwise than under this
paragraph (d) or (y) to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may otherwise have.
Section 9. Right to Increase Offering. At any time during a period
of 30 days from the date of the Prospectus, the Underwriters, by no less than
two business days' prior notice to the Company, may designate a closing (which
may be concurrent with, and part of, the closing
23
<PAGE>
on the Closing Date with respect to the Firm Shares or which may be a second
closing held on a date subsequent to the Closing Date; in either case the date
of such closing shall be referred to herein as the "Option Closing Date") at
-------------------
which the Underwriters may purchase all or less than all of the Additional
Shares in accordance with the provisions of this Section 9 at the purchase price
per share to be paid for the Firm Shares. In no event shall the Option Closing
Date be later than ten business days after written notice of election to
purchase Additional Shares is given.
The Company agrees to sell to the several Underwriters on the Option
Closing Date the number of Additional Shares specified in such notice and the
Underwriters agree severally and not jointly, to purchase such Additional Shares
on the Option Closing Date. Such Additional Shares shall be purchased for the
account of each Underwriter in the same proportion as the number of Firm Shares
set forth opposite the name of such Underwriter on Schedule I bears to the total
number of Firm Shares (subject to adjustment by you to eliminate fractions) and
may be purchased by the Underwriters only for the purpose of covering over-
allotments made in connection with the sale of the Firm Shares.
No Additional Shares shall be sold or delivered unless the Firm Shares
previously have been, or simultaneously are, sold and delivered. The right to
purchase the Additional Shares or any portion thereof may be surrendered and
terminated at any time upon notice by you to the Company.
Except to the extent modified by this Section 9, all provisions of
this Agreement relating to the transactions contemplated to occur on the Closing
Date for the sale of the Firm Shares shall apply, mutatis mutandis, to the
Option Closing Date for the sale of the Additional Shares.
Section 10. Representations, etc. to Survive Delivery. The
respective representations, warranties, agreements, covenants, indemnities and
statements of, and on behalf of, the Company and its officers and the
Underwriters, respectively, set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of the Underwriters, and will survive delivery of and payment for the
Shares. Any successors to the Underwriters shall be entitled to the indemnity,
contribution and reimbursement agreements contained in this Agreement.
Section 11. Effective Date and Termination.
(a) Effective Date. This Agreement shall become effective at 11:00
A.M., New York time on the first business day following the date hereof, or at
such earlier time after the Registration Statement becomes effective as the
Representatives, in their sole discretion, shall release the Shares for the sale
to the public, unless the Representatives shall have given written notice to the
Company that the Representatives on behalf of the Underwriters elect that this
Agreement shall not become effective; provided, however, that the provisions of
this Section and of Section 6 and Section 8 hereof shall at all times be
effective. For purposes of this Section 11(a), the Shares to be purchased
hereunder shall be deemed to have been so released upon the earlier of
notification by the Representatives to securities dealers releasing such Shares
for offering
24
<PAGE>
or the release by the Representatives for publication of the first newspaper
advertisement which is subsequently published relating to the Shares.
(b) Termination. This Agreement (except for the provisions of
Sections 6 and 8 hereof) may be terminated by the Representatives by notice to
the Company if the Company has failed to comply in any material respect with any
of the provisions of this Agreement required on its part to be performed at or
prior to the Closing Date or the Option Closing Date, or if any of the
representations or warranties of the Company is not accurate in any respect or
if the covenants, agreements or conditions of, or applicable to the Company
herein contained have not been complied with in any respect or satisfied within
the time specified on the Closing Date or the Option Closing Date, respectively,
or if prior to the Closing Date or the Option Closing Date:
(i) the Company shall have sustained a loss by strike, fire,
flood, hurricane, accident or other calamity of such a character as to
interfere materially with the conduct of the business and operations
of the Company regardless of whether or not such loss is covered by
insurance;
(ii) trading in the Common Stock shall have been suspended by
the Commission or the Nasdaq National Market or trading in securities
generally on the New York Stock Exchange or the Nasdaq National Market
System shall have been suspended or a material limitation on such
trading shall have been imposed or minimum or maximum prices shall
have been established on any such exchange or market system;
(iii) a banking moratorium shall have been declared by New York
State or United States authorities;
(iv) there shall have been an outbreak or escalation of
hostilities between the United States and any foreign power or an
outbreak or escalation of any other insurrection or armed conflict
involving the United States; or
(v) there shall have been a material adverse change in (A)
general economic, political or financial conditions or (B) the present
or prospective business or condition (financial or other) of the
Company that in the Representatives' judgment makes it impracticable
or inadvisable to make or consummate the public offering, sale or
delivery of the Company's Shares on the terms and in the manner
contemplated in the Prospectus and the Registration Statement.
(c) Termination After Purchase of Firm Shares. Termination of this
Agreement under this Section 11 or Section 12 after the Firm Shares have been
purchased by the Underwriters hereunder shall be applicable only to the
Additional Shares. Termination of this Agreement shall be without liability of
any party to any other party other than as provided in Sections 6 and 8 hereof.
Section 12. Substitution of Underwriters.
25
<PAGE>
(a) Default by Underwriter of 10% or Less. If one or more of the
Underwriters shall fail or refuse (otherwise than for a reason sufficient to
justify the termination of this Agreement under the provisions of Section 7 or
11 hereof) to purchase and pay for (a) in the case of the Closing Date, the
number of Firm Shares agreed to be purchased by such Underwriter or Underwriters
upon tender to you of such Firm Shares in accordance with the terms hereof or
(b) in the case of the Option Closing Date, the number of Additional Shares
agreed to be purchased by such Underwriter or Underwriters upon tender to you of
such Additional Shares in accordance with the terms hereof, and the number of
such Shares shall not exceed 10% of the Firm Shares or Additional Shares
required to be purchased on the Closing Date or the Option Closing Date, as the
case may be, then each of the non-defaulting Underwriters shall purchase and pay
for (in addition to the number of such Shares or Additional Shares that it has
severally agreed to purchase hereunder) that proportion of the number of Shares
or Additional Shares that the defaulting Underwriter or Underwriters shall have
so failed or refused to purchase on such Closing Date or Option Closing Date, as
the case may be, which the number of Shares or Additional Shares agreed to be
purchased by such non-defaulting Underwriter bears to the aggregate number of
Shares or Additional Shares so agreed to be purchased by all such non-defaulting
Underwriters on such Closing Date or Option Closing Date, as the case may be.
In such case, you shall have the right to postpone the Closing Date or the
Option Closing Date, as the case may be, to a date not exceeding seven full
business days after the date originally fixed as such Closing Date or the Option
Closing Date, as the case may be, pursuant to the terms hereof in order that any
necessary changes in the Registration Statement, the Prospectus or any other
documents or arrangements may be made.
(b) Default by Underwriter of More Than 10%. If one or more of the
Underwriters shall fail or refuse (otherwise than for a reason sufficient to
justify the termination of this Agreement under the provisions of Section 7 or
11 hereof) to purchase and pay for (a) in the case of the Closing Date, the
number of Firm Shares agreed to be purchased by such Underwriter or Underwriters
upon tender to you of such Firm Shares in accordance with the terms hereof or
(b) in the case of the Option Closing Date, the number of Additional Shares
agreed to be purchased by such Underwriter or Underwriters upon tender to you of
such Additional Shares in accordance with the terms hereof, and the number of
such Shares shall exceed 10% of the Firm Shares or Additional Shares required to
be purchased by all the Underwriters on the Closing Date or the Option Closing
Date, as the case may be, then (unless within 48 hours after such default
arrangements to your satisfaction shall have been made for the purchase of the
defaulted Shares by an Underwriter or Underwriters) and subject to the
provisions of Section 11(a) hereof, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter or on the part of the
Company except as otherwise provided in Sections 6 and 8 hereof. As used in
this Agreement, the term "Underwriter" includes any person substituted for an
Underwriter under this paragraph. Nothing in this Section 12, and no action
taken hereunder, shall relieve any defaulting Underwriter from liability in
respect of any default of such Underwriter under this Agreement.
Section 13. Notices. All communications hereunder shall be in
writing and if sent to the Representatives shall be mailed or delivered or
telecopied and confirmed by letter to c/o ING Baring Furman Selz LLC at Park
Avenue Plaza, 55 East 52nd Street, New York, New York 10055, Attention:
Syndicate Department, with a copy to White & Case LLP, 1155 Avenue
26
<PAGE>
of the Americas, New York, New York 10036-2787, Attention: Kevin Keogh, or, if
sent to the Company, shall be mailed or delivered or telecopied and confirmed by
letter to the Company at 11811 U.S. Highway One, Suite 101, North Palm Beach,
Florida 33408, Attention: William P. Anderson, III, with a copy to Morris,
Manning & Martin L.L.P., 1600 Atlanta Financial Center, 3343 Peachtree Road,
N.E., Atlanta, Georgia 30326, Attention: John F. Sandy Smith.
Section 14. Successors. This Agreement shall inure to the benefit of
and be binding upon the Company and each Underwriter and the Company's and each
Underwriter's respective successors and legal representatives, and nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any other person any legal or equitable right, remedy or claim under or in
respect of this Agreement, or any provisions herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person, except that the representations, warranties, indemnities and
contribution agreements of the Company contained in this Agreement shall also be
for the benefit of any person or persons, if any, who control any Underwriter
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act,
and except that the Underwriters' indemnity and contribution agreements shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement, and any person or persons,
if any, who control the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act. No purchaser of Shares from the Underwriters
will be deemed a successor because of such purchase.
Section 15. Applicable Law; Jurisdiction. This Agreement shall be
governed by and construed in accordance with the laws of the State of New York,
without giving effect to the choice of law or conflict of law principles
thereof. Each party hereto consents to the jurisdiction of each court in which
any action is commenced seeking indemnity or contribution pursuant to Section 8
above and agrees to accept, either directly or through an agent, service of
process of each such court.
Section 16. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, and all
of which together shall be deemed to be one and the same instrument.
* * *
27
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate the Underwriters' acceptance thereof in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
INTELLIGENT LIFE CORPORATION
By:
---------------------------------
Name:
Title:
Accepted as of the date first
above written:
ING BARING FURMAN SELZ LLC
Acting on its own behalf and as one of the
Representatives of the several Underwriters
referred to in the foregoing Agreement
By:
-------------------------------------
Name:
Title:
28
<PAGE>
SCHEDULE I
UNDERWRITERS
Underwriting Agreement dated May 12, 1999
<TABLE>
<CAPTION>
Number of Firm
Shares to be
Purchased from
Name and Address the Company
- ---------------- ---------------------
<S> <C>
ING Baring Furman Selz LLC..........................
Warburg Dillon Read LLC, a subsidiary of UBS AG.....
-----------
Total...............................................
===========
</TABLE>
<PAGE>
APPENDIX A
OPINION OF COUNSEL TO THE COMPANY
---------------------------------
(a) The Company is a corporation validly existing and in good standing
under the laws of the state of its incorporation with all requisite corporate
power and corporate authority to own or lease its properties and to conduct its
business as described in the Prospectus,
(b) The authorized, issued and outstanding capital stock of the
Company is as set forth under the caption "Capitalization" in the Prospectus;
the issued and outstanding shares of the Company's capital stock have been duly
authorized and validly issued, are fully paid and nonassessable and have been
issued in compliance with all federal and state securities laws and, to the
knowledge of such counsel, have not been issued in violation of any preemptive
right, co-sale right, registration right, right of first refusal or other
similar right;
(c) The Company has duly authorized the issuance and sale of the
Shares to be sold by it hereunder; such Shares, when issued by the Company and
paid for in accordance with the terms hereof, will be validly issued, fully paid
and nonassessable and will conform in all material respects to the description
thereof contained in the Prospectus and, to such counsel's knowledge, will be
sold free and clear of any pledge, lien, security interests, encumbrance, claim,
or equitable interest, and, to the knowledge of such counsel, not in violation
of or subject to any preemptive right, co-sale right, right of first refusal or
other similar right, which rights have not previously been waived, in connection
with the purchase or sale of any of the Shares;
(d) To the knowledge of such counsel, there are no contracts or
documents which are required by the Act to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement which are not described or filed as required by the Act and the Rules
and Regulations;
(e) The statements set forth under the headings "Risk Factors -- Our
Articles of Incorporation and Bylaws, as well as Florida law, may prevent or
delay a future takeover," "Risk Factors -- future sales of common stock could
adversely affect stock price," "Management -- Stock Option and Other
Compensation Plans," "Certain Transactions," Description of Capital Stock and
"Shares Eligible for Future Sale" in the Prospectus and the statements in
response to Items 14 and 15 of Form S-1 of the Registration Statement, insofar
as such statements constitute a summary of the legal matters, documents or
proceedings referred to therein, provide an accurate summary in all material
respects of such legal matters, documents and proceedings;
(f) The Company has all requisite corporate legal right, power, and
authority to enter into this Agreement and to consummate the transactions
provided for herein; this Agreement has been duly authorized, executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company;
(g) None of the Company's execution or delivery of this Agreement, its
performance hereof or its consummation of the transactions contemplated herein
conflicts or will conflict with or results or will result in any breach or
violation of any of the terms or provisions
1
<PAGE>
of, or constitute a default under, the terms of the certificate of incorporation
or by-laws of the Company, the terms of any indenture, mortgage, deed of trust,
voting trust agreement, stockholder's agreement, note agreement or other
agreement or instrument filed as an exhibit to the Registration Statement to
which the Company is a party or by which it is or may be bound or to which any
of its properties may be subject, or any Florida or United States statute, rule
or regulation, or any rule or regulation of any state or federal regulatory body
or administrative agency or other governmental agency or body, or, to the
knowledge of such counsel, of any arbitrator or court having such jurisdiction;
(h) No consent, approval, authorization or order of any state or
federal court regulatory body or administrative agency or Florida or federal
governmental agency or body has been or is required for the Company's
performance of this Agreement or the consummation of the transactions
contemplated hereby, except such as have been obtained under the Act or may be
required under state securities or Blue Sky laws or may be required by the
National Association of Securities Dealers, Inc. (as to which such counsel may
express no opinion) in connection with the purchase and distribution by the
Underwriters of the Shares;
(i) All holders of Series A and Series B Preferred Stock of the
Company who have rights pursuant to a duly executed Shareholders' Agreement to
cause the Company to register shares of Common Stock because of the filing of
the Registration Statement by the Company, have validly and irrevocably waived
such rights; to the best knowledge of such counsel, after due investigation, no
other holder of securities of the Company has such registration rights;
(j) No transfer taxes are required to be paid in connection with the
sale or delivery to the Underwriters of the Shares;
(k) The Company is not an "investment company" or an entity
"controlled" by an investment company, as those terms are defined in the
Investment Company Act of 1940, as amended;
(l) The Common Stock has been registered pursuant to Section 12(g) of
the Exchange Act; the Shares have been duly authorized for listing on the Nasdaq
National Market System;
(m) To such counsel's knowledge, there is not pending or threatened
against the Company any action, suit, proceeding or investigation before or by
any court, regulatory body or administrative agency, or any other governmental
agency or body, domestic or foreign of a character required to be disclosed in
the Registration Statement or the Prospectus, which is not so disclosed therein;
(n) The Registration Statement has become effective under the Act, and
to such counsel's knowledge, no stop order suspending the effectiveness of the
Registration Statement has been issued by the Commission nor, to such counsel's
knowledge, has any proceeding been instituted or contemplated for that purpose
under the Act. The Prospectus has
2
<PAGE>
been filed with the Commission pursuant to Rule 424(b) of the rules and
regulations promulgated under the Act within the time period required thereby;
(o) The Registration Statement and the Prospectus and any further
amendments or supplements thereto made by the Company prior to the Closing Date
appeared on their face to be appropriately responsive in all material respects
to the requirements of the Act and the applicable Rules and Regulations
promulgated under the Act; and
(p) Such counsel have no reason to believe that the Registration
Statement at the effective date thereof contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, or that the
Prospectus as of its date or at the Closing Date or the Option Closing Date, as
the case may be, contained or contains any untrue statement of a material fact
or omitted or omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
In rendering any such opinion, which shall be in accord with the
"Interpretive Standards Applicable to Certain Legal Opinions to Third Parties in
Corporate Transactions" issued by the State Bar of Georgia, such counsel may
rely, (i) as to matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Company and public officials and
(ii) as to matters of Florida law, upon counsel admitted to practice in such
jurisdictions who are satisfactory to the Underwriters and their counsel,
provided that counsel for the Company shall state that the opinions of such
other counsel are satisfactory in scope and substance and that the Underwriters
are justified in relying thereon.
References to the Registration Statement and the Prospectus in such
opinion shall include any amendment or supplement thereto at the date of such
opinion.
3
<PAGE>
APPENDIX B
SHAREHOLDERS SUBJECT TO LOCKUP AGREEMENTS
-----------------------------------------
ABS Ventures IV, L.P.
ABX Fund, L.P.
ACF II Side Fund Limited Partnership
Antares Capital Partners II, Inc.
BRM Holdings LLC
William P. Anderson, III
Palmer Baker
Cotter Cunningham
John Davison
Jose Fernandez
George Fischer
Christy Heady
Henry Kravis
Robert H. Lessin
Jeremiah Milbank
Peter Minford
Brian Morse
Peter C. Morse
Robert O'Block
Sara Campbell Taylor
Peter Tobeason
<PAGE>
EXHIBIT 10.12
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is made as of the
10th day of March, 1999 between WILLIAM P. ANDERSON, III, an individual resident
of the State of Florida ("Executive"), and INTELLIGENT LIFE CORPORATION, a
Florida corporation with its principal place of business located in North Palm
Beach, Florida (the "Company").
WHEREAS, the Company desires to employ Executive as the Chief Executive
Officer of the Company, and Executive desires to accept said employment from the
Company; and
WHEREAS, the Company and Executive have agreed upon the terms and
conditions of Executive's employment with the Company and the parties desire to
express the terms and conditions in this employment agreement.
WHEREAS, the Company and the Executive have entered into that certain
Restricted Stock Grant between the Company and Executive dated as of March 23,
1998; that certain Promissory Note dated March 23, 1998, that certain Severance
Agreement between the Company and the Executive dated as of March 23, 1998 (the
"Severance Agreement"), that certain Noncompetition Agreement between the
Company and the Executive dated as of November 28, 1998 (the "Noncompetition
Agreement"), that certain Employee Nondisclosure and Developments Agreement
between the Company and Executive dated as of November 28, 1998 ("Nondisclosure
Agreement") and that certain Cancellation and Stock Purchase Agreement between
the Company and the Executive dated March 10, 1999 (the "Cancellation
Agreement") (the Severance Agreement, Noncompetition Agreement, Nondisclosure
Agreement and the Cancellation Agreement and all other prior agreements between
the Company and Executive not otherwise stated herein are collectively referred
to as "Prior Agreements") and desire to more fully expand the terms and
conditions of the Executives employment with the Company.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and accepted, the parties hereby
agree as follows:
1. Employment of Executive. The Company hereby employs Executive, and
-----------------------
Executive hereby accepts such employment from the Company, under the terms of
this Agreement for a period beginning on the Effective Date and terminating on
the second anniversary thereof (the "Term"), unless this Agreement is otherwise
extended or terminated pursuant to the provisions of Section 6 hereof. This
Agreement replaces and supersedes all Prior Agreements as herein defined, and
is, in its entirety, the sole agreement of employment between the Company and
the Executive.
<PAGE>
2. Duties. During the Term of this Agreement, Executive shall be employed as
------
the Chief Executive Officer of the Company. Executive's responsibilities as
Chief Executive Officer shall include the management of the affairs of the
Company, including without limitation, oversight of the Company's strategic
technology and market development programs, and other duties as may be assigned
to Executive by the Board of Directors from time to time. The Executive shall
devote his full business time, attention, skill, energies and efforts to the
diligent performance of his duties hereunder, except during periods of illness
or periods of vacation and leaves of absence consistent with the Company's
policy.
3. Base Salary. Executive's base salary commencing on March 10, 1999 and
-----------
during the Term and any Renewal Term(s) (as defined below) of this Agreement
shall be equal to $275,000 per annum (the "Base Salary"), which amount may be
subject to adjustment annually at the discretion of the Company. The Base Salary
shall be paid to Executive by the Company monthly in arrears or in accordance
with the Company's regular payroll practice as in effect from time to time.
4. Annual Bonus. Immediately following completion of each fiscal year of the
------------
Company and no later than four (4) months after such date, Executive may
receive, in the sole discretion of the Board of Directors, an annual bonus
("Annual Bonus") for such year in addition to the Base Salary.
5. Benefits and other Compensation. Commencing on the date of this Agreement
-------------------------------
and during the Term of this Agreement, the Company shall provide the benefits
described below.
(a) Management Stock Incentive Program. The Executive shall be eligible to
----------------------------------
participate in the Company's stock option, stock purchase or other stock
incentive plan(s) to the extent generally available to executive officers of the
Company and shall be eligible for the grant of stock options, restricted stock
and other awards thereunder as determined by the Board of Directors. The
Executive shall be granted an option under the Intelligent Life Corporation 1999
Equity Compensation Plan (the "Equity Plan") to acquire 71,700 shares of the
Company's common stock at an exercise price of $14.84 per share, subject to such
other terms as specifically provided in the Incentive Stock Option Grant, dated
of even date herewith.
(b) Vacation. Executive shall receive four (4) weeks paid vacation time
--------
each year.
(c) Medical Insurance. The Company shall provide Executive with medical
-----------------
insurance coverage for Executive and his immediate family in accordance with and
subject to the terms of the Company's medical insurance plan, if any, as it
exists from time to time.
(d) Expenses. Executive shall be reimbursed monthly by the Company for the
--------
ordinary and necessary business expenses incurred by him in the performance of
his duties for the Company; provided that Executive shall first document said
business expenses in the manner generally required by the Company under its
policies and procedures, and in any event, the manner required to meet
applicable regulations of the Internal Revenue Service relating to the
deductibility of such expenses.
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<PAGE>
6. Term and Termination. Term and Termination are as follows:
--------------------
(a) The term of this Agreement (the "Term") shall commence on the Effective
Date and end on the second anniversary thereof. The term shall be automatically
extended for successive two (2) year periods ("Renewal Term(s)") unless either
party hereto delivers to the other written notice three (3) months prior to the
end of the Term of its desire to terminate this Agreement.
(b) Any termination of employment, including an Involuntary Termination of
Employment, shall be communicated by a written notice of termination (a "Notice
of Termination") in accordance with Section 21 hereof.
7. Severance Compensation upon Termination. In the event of Executive's
---------------------------------------
Involuntary Termination of Employment, the Company shall pay to Executive, upon
the Executive's execution and delivery of a release in form and substance
reasonably satisfactory to the Chairman of the Board, subject to customary
employment taxes and deductions, compensation as follows:
(a) If such Involuntary Termination of Employment occurs during the first,
second, third or fourth year of Executive's employment, the Company shall pay
Executive his Base Salary and Benefits (as described in Section 5 hereof), in
accordance with standard Company payroll policy for a period of six (6) months
following Termination Date.
(b) Any payments due under this Section 7 shall be in addition to and not
in lieu of any payments or benefits accrued for Executive through the
Termination Date under any other plan, policy or program of the Company.
(c) Notwithstanding anything to the contrary, whether by the terms
contained herein or in the Equity Plan or Incentive Stock Option Grant, upon
cessation of his employment with the Company for any reason, Executive shall
retain the incentive stock option granted to him pursuant to that certain
Incentive Stock Option Grant of even date herewith until the end of the option
term. In the event Executive's employment with the Company is terminated by the
Company for any reason or is terminated by the Executive for Good Reason, this
Option shall continue to vest and become exercisable in accordance with the
vesting schedule set forth in the Stock Option Grant for a period of nine (9)
months following the date of termination of employment.
8. Executive Works. Executive agrees that Executive will promptly disclose to
---------------
the Company all Executive Works. Executive hereby irrevocably assigns to the
Company all right, title and interest in and to any and all Executive Works that
relate to the Business of the Company, including all worldwide copyrights, trade
secrets, patent rights, and all confidential, proprietary and property rights
therein, and Executive will execute, without
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<PAGE>
requiring the Company to provide any further consideration therefor, such
confirmatory assignments, instruments and documents as the Company deems
necessary or desirable in order to effect such assignment.
9. Works Made for Hire. The Company and Executive acknowledge that in the
-------------------
course of Executive's employment by the Company, Executive may from time to time
create for the Company or its customers certain works of authorship. Such works
may consist of manuals, documentation, pamphlets, instructional materials,
videodisks, computer programs, user interfaces, tapes or other copyrightable
material, or portions thereof, and may be created within or without the
Company's facilities and before, during or after normal business hours. All such
works related to or useful in the business of the Company are specifically
intended to be works made for hire by Executive and owned by the Company or its
customers, as applicable, and Executive shall cooperate with the Company in the
protection of the Company or its customer's, as applicable, copyrights therein
and, to the extent deemed desirable by the Company or its customers, as
applicable, the registration of such copyrights.
10. Products, Notes, Records and Software. All memoranda, notes, records and
-------------------------------------
other documents and computer software made or compiled by Executive or made
available to him during the Term of this Agreement concerning the Company,
including, without limitation, all customer data, billing information, service
data, and other technical material, confidential information and trade secrets
of the Company and its affiliates, shall be the Company's property and Executive
shall deliver all such materials (and all copies thereof) to the Company within
three (3) days after any termination of his employment with the Company.
11. Nondisclosure. Executive acknowledges and agrees that during the Term or
-------------
any Renewal Term of this Agreement, he will have access to trade secrets and
other confidential or proprietary information peculiar to the Company, the
disclosure or use of which would injure the Company. Therefore, Executive agrees
that he will not at any time during or after the Term or any Renewal Term of his
employment by the Company reveal to any person or entity any of the trade
secrets or confidential information concerning the organization, business,
technology or finances of the Company or of any third party that the Company is
under and obligation to keep confidential (including but not limited to trade
secrets or confidential information respecting inventions, products, designs,
specifications, methods, know-how, techniques, systems processes, software
programs, works of authorship, customer lists projects, plans and proposals),
except as may be required in the ordinary course of performing his duties as an
employee of the Company. Executive shall keep secret all matters entrusted to
him and shall not use or attempt to use any such information in any manner which
could reasonably be expected to injure or cause loss or may be calculated to
injure or cause loss whether directly or indirectly to the Company.
12. Noncompetition. During the time Executive is employed by the Company and
--------------
for a period of two (2) years after termination of his employment, Executive
will not singly,
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<PAGE>
jointly, or as a partner, member, employee, agent, officer, director,
stockholder (except as a holder of not more than five percent (5%) of the
outstanding stock of any company listed on the a national securities exchange,
or actively traded in a national over the counter market), consultant,
independent contractor, or joint venturer of another Person, or in any other
capacity, directly or beneficially, own manage, operate, join control, or
participate in the ownership, management, operation or control of, or permit the
use of his name by, or work for, or provide consulting, financial or other
assistance to, or be connected in any manner with a Competing Business;
13. Nonsolicitation.
---------------
(a) Customers. During Executive's employment with the Company,
---------
Executive shall not, directly or indirectly without the Company's prior written
consent, contact any customer of the Company with whom Executive had material
contact by reason of his employment with the Company ("Customer"), in the
Territory for business purposes unrelated to furthering the Business of the
Company. For a period of two (2) years following any termination of Executive's
employment with the Company, Executive shall not, directly or indirectly, in the
Territory, (i) contact, solicit, divert or take away, any Customer for purposes
of, or with respect to, selling a product or service which competes with the
Business of the Company, or (ii) take any affirmative action in regard to
establishing or continuing a relationship with a Customer for purposes of
making, or which directly or indirectly results in, a sale of a product or
service which competes with the Business of the Company.
(b) Employees. During the Term of Executive's employment with the
---------
Company and for a period of two (2) years following termination of Executive's
employment with the Company, Executive shall not, directly or indirectly,
recruit or hire, or attempt to recruit or hire, any other employees of the
Company who were employed by the Company during the Term of Executive's
employment with the Company and who are actively employed at the time of the
solicitation or attempted solicitation.
14. Remedy for Breach. Executive agrees that the Company's remedies at law
-----------------
of the Company for any actual or threatened breach by Executive of any of the
covenants contained in Paragraphs 8 through 13 of this Agreement would be
inadequate and that the Company shall be entitled to specific performance by
Executive of the covenants in such paragraphs or injunctive relief against
activities in violation of such paragraphs, or both, by temporary or permanent
injunction or other appropriate judicial remedy, writ or order, in addition to
any damages and legal expenses (including attorney's fees) which the Company may
be legally entitled to recover. Executive acknowledges and agrees that the
covenants contained in Paragraphs 8 through 13 of this Agreement shall be
construed as agreements independent of any other provision of this or any other
contract between the parties hereto, and that the existence of any claim or
cause of action by Executive against the Company, whether predicated upon this
or any other contract, shall not constitute a defense to the enforcement by the
Company of said covenants.
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<PAGE>
15. Survival. The provisions of Paragraphs 8 through 14 shall survive
--------
termination of this Agreement.
16. Invalidity of Any Provision. It is the intention of the parties hereto
---------------------------
that Sections 8 through 14 of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies of each state and
jurisdiction in which such enforcement is sought, but that the unenforceability
(or the modification to conform with such laws or public policies) of any
provision hereof shall not render unenforceable or impair the remainder of this
Agreement which shall be deemed amended to delete or modify, as necessary, the
invalid or unenforceable provisions. The parties further agree to alter the
balance of this Agreement in order to render the same valid and enforceable.
17. Applicable Law. This Agreement is being executed in the State of Florida
--------------
and shall be construed and enforced in accordance with the internal laws of the
Florida without giving effect to the conflicts laws of such state.
18. Waiver of Breach. The waiver by the Company of a breach of any provision
----------------
of this Agreement by Executive shall not operate or be construed as a waiver of
any subsequent breach by Executive.
19. Successors and Assigns.
----------------------
(a) This Agreement shall be binding upon and shall inure to the benefit of
the Company, its Successors and Assigns, and the Company shall require any
Successors and Assigns to expressly assume and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required to
perform it if no such succession or assignment had taken place.
(b) Neither this Agreement nor any right or interest hereunder shall be
assignable or transferable by the Executive, his beneficiaries or legal
representatives, except by will or by the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal personal representative under all circumstances.
20. Entire Agreement. This Agreement, together with any grants of stock option
----------------
as provided in that certain Incentive Stock Option Grant of even date herewith,
under the Equity Plan contains the entire agreement of the parties. This
Agreement may not be changed orally but only by an agreement in writing signed
by the party against whom enforcement of any waiver, changes, modification,
extension, or discharge is sought.
21. Definitions.
-----------
For purposes of this Agreement, the following terms shall have the
following meanings:
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<PAGE>
(a) "Act" shall mean the Securities Act of 1933, as amended.
(b) "Accrued Compensation" shall mean an amount, including all amounts
earned or accrued through the Termination Date but not paid as of the
Termination Date including, (i) base salary of the Executive, (ii) reimbursement
for reasonable and necessary expenses incurred by the Executive on behalf of the
Company as of the Termination Date, and (iii) bonuses and incentive compensation
owed to the Executive.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Business of the Company" shall mean conducting research on banking and
credit products and providing such information to consumers in print and
electronic form and any other financial research business in which the Company
has engaged in substantial activities.
(e) The termination of the Executive's employment shall be for "Cause" if
it is a result of:
(i) any act that (A) constitutes, on the part of the Executive,
fraud, dishonesty, gross malfeasance of duty, or conduct grossly
inappropriate to the Executive's office, and (B) is demonstrably likely to
lead to material injury to the Company or resulted or was intended to
result in direct or indirect gain to or personal enrichment of the
Executive including the misappropriation of funds or any act of common law
fraud; or
(ii) habitual insobriety or substance abuse; or
(iii) the conviction (from which no appeal may be or is timely taken)
of the Executive of a felony or any crime involving moral turpitude; or
(iv) willful misconduct or gross negligence by Executive in the
performance of his duties, the willful failure of Executive to perform a
material function of Executives duties hereunder, or Executive's engaging
in a conflict of interest or other breach of fiduciary duty.
provided, however, that in the case of clause (i) above, such conduct shall
-------- -------
not constitute Cause unless (A) there shall have been delivered to the
Executive a written notice setting forth with specificity the reasons that
the Board believes the Executive's conduct constitutes the criteria set
forth in clause (i), (B) the Executive shall have been provided the
opportunity to be heard in person by the Board (with the assistance of the
Executive's counsel if the Executive so desires), and (C) after such
hearing, the termination is evidenced by a resolution adopted in good faith
by two-thirds of the members of the Board (other than the Executive).
(f) A "Change in Control" shall mean the occurrence during the Term of any
of the following events:
-7-
<PAGE>
(i) An acquisition (other than directly from the Company) of any
voting securities of the Company (the "Voting Securities") by any "Person"
(as the term person is used for purposes of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934 (the "1934 Act")) immediately after which
such Person has "Beneficial Ownership" (within the meaning of Rule 13d-3
promulgated under the 1934 Act) of 20% or more of the combined voting power
of the Company's then outstanding Voting Securities; provided, however,
-------- -------
that in determining whether a Change in Control has occurred, Voting
Securities which are acquired in a "Non-Control Acquisition" (as
hereinafter defined) or the acquisition of voting securities by a Person
who, immediately prior to such acquisition, had Beneficial Ownership of 20%
or more of the combined voting power of the Company's then outstanding
voting securities shall not constitute an acquisition which would cause a
Change in Control. A "Non-Control Acquisition" shall mean an acquisition by
(1) an employee benefit plan (or a trust forming a part thereof) maintained
by (x) the Company or (y) any corporation or other Person of which a
majority of its voting power or its equity securities or equity interest is
owned directly or indirectly by the Company (a "Subsidiary"), (2) the
Company or any Subsidiary, or (3) any Person in connection with a "Non-
Control Transaction" (as hereinafter defined).
(ii) The individuals who, as of the date of this Agreement, are
members of the Board (the "Incumbent Board") cease for any reason to
constitute at least two-thirds of the Board; provided, however, that if the
-------- -------
election, or nomination for election by the Company's stockholders, of any
new director was approved by a vote of at least two-thirds of the Incumbent
Board, such new director shall, for purposes of this Agreement, be
considered a member of the Incumbent Board; provided, further, however,
-------- ------- -------
that no individual shall be considered a member of the Incumbent Board if
such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated
under the 1934 Act) or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board (a "Proxy
Contest") including by reason of any agreement intended to avoid or settle
any Election Contest or Proxy Contest; or
(iii) Approval by stockholders of the Company of:
(A) A merger, consolidation or reorganization involving the
Company, unless
(1) the stockholders of the Company, immediately before
such merger, consolidation or reorganization, own, directly or
indirectly, immediately following such merger, consolidation or
reorganization, at least two-thirds of the combined voting power
of the outstanding voting securities of the corporation
resulting from such merger or consolidation or reorganization
(the "Surviving Corporation") in substantially the same
proportion as their ownership of the Voting
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<PAGE>
EXHIBIT 23.1
The Board of Directors and Stockholders
Intelligent Life Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Atlanta, Georgia
May 12, 1999
<PAGE>
EXHIBIT 23.2
ACCOUNTANTS' CONSENT
The Board of Directors and Stockholders
Intelligent Life Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the prospectus.
/s/ Thomas & Clough Co., P.A.
Palm Beach, Florida
May 12, 1999
