UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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Date of Report (Date of earliest event reported): November 23, 2005
HEALTH BENEFITS DIRECT CORPORATION
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(Exact Name of Registrant as Specified in Charter)
Delaware 333-123081 98-0438502
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2900 Gateway Drive
Pompano Beach, FL 33069
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (954) 944-4447
Darwin Resources Corp.
455-5525 West Boulevard
Vancouver, B.C., Canada
V6M 3W6
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(Former name or former address, if changed since last report)
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Check the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any of the
following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 DFR
240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange
Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4 (c) under the
Exchange Act (17 CFR 240.13e-4(c)) -
CURRENT REPORT ON FORM 8-K
HEALTH BENEFITS DIRECT CORPORATION
NOVEMBER 29, 2005
TABLE OF CONTENTS
Page
Item 1.01. Entry into a Material Definitive Agreement..........................1
Item 2.01. Completion of Acquisition or Disposition of Assets..................2
Merger..............................................................2
Description of Our Company..........................................4
Description of Business.............................................4
Management's Discussion and Analysis or Plan of Operations..........9
Risk Factors.......................................................12
Security Ownership of Certain Beneficial Owners and Management.....26
Directors and Executive Officers...................................27
Executive Compensation.............................................30
Certain Relationships and Related Transactions.....................33
Item 3.02. Unregistered Sales of Equity Securities............................33
Item 5.01. Changes in Control of Registrant...................................38
Item 5.02. Departure of Directors or Principal Officers; Election of
Directors; Appointment of Principal Officers.......................38
Item 5.03 Amendments to Certificate of Incorporation or Bylaws...............38
Item 5.06. Change in Shell Company Status.....................................38
Item 7.01. Regulation FD Disclosure ..........................................38
Item 9.01. Financial Statements and Exhibits..................................39
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ITEMS 1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT
THE MERGER
On November 22, 2005, Darwin Resources Corp., a Nevada corporation
("Darwin-NV") was merged with and into Darwin Resources Corp., a Delaware
corporation ("Darwin-DE") for the sole purpose of changing the state of
incorporation from Nevada to Delaware pursuant to a Certificate of Ownership and
Merger dated November 21, 2005 and approved by stockholders on November 21,
2005. Under the terms of the Certificate of Ownership and Merger, each share of
Darwin-NV was exchanged for 1.317663818 shares of Darwin-DE.
On November 23, 2005 Darwin-DE entered into an Agreement and Plan of
Merger (the "Merger Agreement") by and among Darwin-DE, Health Benefits Direct
Corporation, a privately held Delaware corporation ("HBDC"), and HBDC II, Inc.,
a newly formed wholly-owned Delaware subsidiary of Darwin-DE ("Acquisition
Sub"). Upon closing of the merger transactions contemplated under the Merger
Agreement (the "Merger"), Acquisition Sub will be merged with and into HBDC, and
HBDC will become a wholly-owned subsidiary of Darwin-DE. Pursuant to the terms
of the Merger Agreement, HBDC's name will be changed to "HBDC II, Inc." and
following the Merger, Darwin-DE will change its name to Health Benefits Direct
Corporation.
In addition, pursuant to the terms and conditions of the Merger
Agreement:
o Each share of HBDC issued and outstanding immediately prior to the closing
of the Merger will be converted into the right to receive one share of
Darwin-DE common stock.
o 2,791,471 shares of Darwin-DE common stock, which are registered under an
SB-2 for resale, will remain outstanding and 6,851,852 (5,200,000 prior to
the Delaware reincorporation) shares of Darwin-DE outstanding common stock
will be cancelled by Robert Ferguson, Darwin-DE's president and sole
director prior to the Merger.
o Immediately after closing of the Merger on November 23, 2005, there will be
13,891,471 shares of Darwin-DE common stock issued and outstanding,
approximately 59.7% of which shares will be held by the former stockholders
of HBDC.
o Upon the closing of the Merger, each outstanding option or warrant to
acquire HBDC's capital stock will be assumed by Darwin-DE and will
thereafter be exercisable for shares of Darwin-DE's common stock.
o HBDC will have raised not less than $2,000,000 in funding on terms
acceptable to Darwin-DE prior to the closing of the Merger.
o Upon closing of the Merger, Robert Ferguson will resign as the sole
director and officer of Darwin-DE and all of its subsidiaries.
o Upon closing of the Merger, Darwin-DE's board of directors will consist of
Scott Frohman and Charles Eissa, both of whom are existing directors of
HBDC, as well as Alvin Clemans, Paul Soltoff, John Harrison, Leon Brauser
and an additional director to be named later.
o The Merger Agreement contained customary representations and warranties,
pre-closing covenants, and closing conditions, including approval of the
Merger by HBDC's stockholders.
As of the date of the Merger Agreement and currently, there are no
material relationships between Darwin-DE or any of its affiliates and HBDC,
other than in respect of the Merger Agreement.
The foregoing description of the Merger Agreement does not purport to
be complete and is qualified in its entirety by reference to the complete text
of the Merger Agreement, which is filed as Exhibit 2.1 hereto and incorporated
herein by reference.
ITEM 2.01. COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS
As used in this Current Report on Form 8-K, unless the context
otherwise requires, the term "the Company" refers to Darwin-DE and its
subsidiaries following the closing of the Merger. Information regarding the
Company, HBDC and the principal terms of the Merger are set forth below.
MERGER
THE MERGER. On November 23, 2005, Darwin-DE entered into the Merger
Agreement with HBDC and Acquisition Sub. Upon closing of the Merger on November
23, 2005, Acquisition Sub was merged with and into HBDC, and HBDC became a
wholly-owned subsidiary of Darwin-DE. Pursuant to the terms of the Merger
Agreement, HBDC's name was changed to HBDC II, Inc. and Darwin-DE changed its
name to Health Benefits Direct Corporation.
Pursuant to the Merger Agreement, at closing, stockholders of HBDC
received one share of Darwin-DE's common stock for each issued and outstanding
share of HBDC's common stock. As a result, at closing Darwin-DE issued 8,291,797
shares of its common stock to the former stockholders of HBDC, representing
approximately 59.7% of Darwin-DE outstanding common stock following the Merger,
in exchange for 100% of the outstanding capital stock of HBDC. Concurrently with
the closing of the Merger, Darwin-DE completed a private offering to accredited
investors of units, with each unit consisting of (i) 50,000 shares of its common
stock and (ii) a detachable, transferable warrant to purchase 25,000 shares of
its common stock, and received gross proceeds of $2,000,000 at the closing of
the private placement. See Item 3.02 below.
The Company assumed all of HBDC's obligations under its outstanding
stock options. At the time of the Merger, HBDC had outstanding stock options and
warrants to purchase an aggregate of 2,294,500 and 125,000 shares of common
stock, respectively, which outstanding options and warrants became stock options
and warrants to purchase the same number of shares of Darwin-DE's common stock,
after giving effect to the Merger. Neither Darwin-DE nor HBDC had any other
options or warrants to purchase shares of capital stock outstanding immediately
prior to the closing of the private placement.
The shares of the Darwin-DE's common stock issued to former holders of
HBDC's common stock in connection with the Merger, and the shares of Darwin DE's
common stock and warrants issued in the private placement, were not registered
under the Securities Act of 1933, as amended (the "Securities Act"), in reliance
upon the exemption from registration provided by Section 4(2) of that Act and
Regulation D promulgated under that section, which exempts transactions by an
issuer not involving any public offering. These securities may not be offered or
sold in the United States absent registration or an applicable exemption from
the registration requirements. Certificates representing these shares contain a
legend stating the same.
In connection with the Merger, 6,851,852 (5,200,000 prior to the
Delaware reincorporation) shares of Darwin-DE common stock owned by Robert
Ferguson, Darwin-DE's president and sole director prior to the Merger, were
cancelled. Giving effect to the cancellation of such shares, there were
2,791,471 shares of our common stock outstanding before giving effect to the
stock issuances in the Merger and private placement. The 2,791,471 shares
constitute Darwin-DE's "public float" prior to the Merger.
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Prior to the closing of the Merger, there were no material
relationships between Darwin-DE and HBDC or any of their respective affiliates,
directors or officers, or any associates of the respective officers or
directors.
CHANGES RESULTING FROM THE MERGER. The Company intends to carry on
HBDC's business as its sole line of business. The Company has relocated its
executive offices to 2900 Gateway Drive, Pompano Beach, FL 33069 and its
telephone number is (954) 944-4447.
Pre-Merger stockholders of Darwin-NV will not be required to exchange
their existing Darwin Resources Corp. stock certificates for certificates of
Darwin-DE, since the OTC Bulletin Board will consider the existing stock
certificates as constituting "good delivery" in securities transactions
subsequent to the Merger. The American Stock Exchange and Nasdaq SmallCap
Market, where Darwin-DE intends to apply to list its common stock for trading,
will also consider the submission of existing stock certificates as "good
delivery." Darwin-DE cannot be certain that it will receive approval to list its
common stock on any exchange or market.
The Merger and its related transactions were approved by the holders of
a requisite number of shares of (i) HBDC's common stock by written consent in
lieu of a meeting on November 23, 2005 and (ii) Darwin-NV's common stock by
written consent in lieu of a meeting on November 21, 2005. Under Delaware
corporate law, HBDC's stockholders who did not consent to the Merger may demand
in writing, pursuant to the exercise of their appraisal rights, that HBDC pay
them the fair value of their shares. Determination of fair value is based on all
relevant factors, except for any appreciation or depreciation resulting from the
anticipation or accomplishment of the Merger.
CHANGES TO THE BOARD OF DIRECTORS. Upon closing of the Merger, Robert
Ferguson resigned as the sole director and officer of Darwin-DE and all of its
subsidiaries. Pursuant to the terms of the Merger Agreement, (i) Scott Frohman,
Charles Eissa, Alvin Clemens, Paul Soltoff, John Harrison, Leon Brauser and one
additional person to be named later, were elected as directors of Darwin-DE and
(ii) Scott Frohman, Charles Eissa and Daniel Brauser were elected as directors
of HBDC, effective at the closing of the Merger.
All directors hold office for two-year terms until the election and
qualification of their successors. Officers are elected by the board of
directors and serve at the discretion of the board.
ACCOUNTING TREATMENT; CHANGE OF CONTROL. The Merger is being accounted
for as a "reverse merger," since the stockholders of HBDC own a majority of the
outstanding shares of Darwin-DE common stock immediately following the Merger.
HBDC is deemed to be the acquiror in the reverse merger and, consequently, the
assets and liabilities and the historical operations that will be reflected in
the financial statements will be those of HBDC and will be recorded at the
historical cost basis of HBDC. Except as described in the previous paragraphs
and in "Certain Relationships and Related Transactions," no arrangements or
understandings exist among present or former controlling stockholders with
respect to the election of members of the Company's board of directors and, to
our knowledge, no other arrangements exist that might result in a change of
control of the Company. Further, as a result of the issuance of the shares of
Darwin DE's common stock pursuant to the Merger, a change in control of the
company occurred on the date of the consummation of the Merger. Darwin-DE will
continue to be a "small business issuer," as defined under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), following the Merger.
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DESCRIPTION OF OUR COMPANY
Darwin-NV was formed as a Nevada corporation on October 21, 2004 for
the purpose of acquiring exploration and development stage natural resource
properties. Darwin-NV has been in the development stage since its inception and
had not commenced business operations prior to the Merger. On November 22, 2005,
Darwin-NV merged into Darwin-DE for the sole purpose of reincorporating in the
State of Delaware.
In February 2004, HBDC was formed for the purpose of acquiring, owning
and operating businesses engaged in direct marketing and distribution of health
and life insurance products, primarily involving the Internet. On September 9,
2005, HBDC acquired three affiliated Internet health insurance marketing
companies, Platinum Partners, LLC, a Florida limited liability company, Health
Benefits Direct II, LLC, a Florida limited liability company, and Health
Benefits Direct III, LLC, a Florida limited liability company. These businesses
have been in operation since 2004. HBDC issued 7,500,000 shares of its common
stock and a warrant to purchase 50,000 shares of its common stock, in the
aggregate, in exchange for 100% of the limited liability company interests of
these companies.
After the Merger, the Company succeeded to the business of HBDC as its
sole line of business.
DESCRIPTION OF BUSINESS
All references to the "Company" for periods prior to the closing of the
Merger refer to HBDC, and references to the "Company" for periods subsequent to
the closing of the Merger refer to Darwin-DE and its subsidiaries.
OVERVIEW
The Company operates an online insurance marketplace that enables
consumers to shop online for individual health and life insurance and obtain
insurance company-sponsored quotes for such coverage. The Company is seeking to
expand its ownership and operation of Internet insurance marketing companies,
internally and through acquisitions. The Company's marketplace brings consumers
and insurance companies together online. The Company's service is free to
consumers and its principal source of revenue is commissions paid by insurance
companies. Specifically, the Company's revenues are in the form of commission
fees paid by the carriers to the Company as compensation for policies sold. For
each policy issued, the Company is paid a commission based on a specific
percentage of premium paid by the consumer to the carrier on a monthly basis for
as many months as that consumer pays the carrier for that particular policy.
The Company believes that with its current strategy of organic growth
and acquisitions along with increasing its current product line catering to
newly emerging products such as Health Savings Accounts ("HSA"), high-deductible
major medical policies and critical illness products, it will be able to
establish itself as a dominant organization in this rapidly growing industry.
The Company also has discussed future ideas of strategically purchasing an
insurance company that would present an opportunity for the Company to become a
re-insurer of its own products, which could add to profitability. In addition,
the Company believes that with the emergence and growth in the popularity of
HSAs there will be additional opportunities such as becoming fund managers for
these HSA deposits.
The Company has combined extensive knowledge of the insurance industry,
technological expertise and agency relationships with nine insurance companies
and has developed what it believes is a sophisticated, integrated online
technology platform with call center follow-on services that delivers
significant benefits to both consumers and insurance companies.
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Consumers benefit from:
o One-stop comparison shopping from multiple insurance companies
for multiple products;
o Accurate, insurance company-linked quotes;
o Easy access to insurance-related information and tools; and
o Convenience and privacy without sales pressure.
Insurance companies benefit from:
o Lower client acquisition cost made possible by an
Internet-based marketplace;
o Scalable customer acquisition processes that allow substantial
increases in activity;
o Access to customers, screened through an insurance provider's
underwriting criteria, who have indicated initial purchasing
intent; and
o Improved underwriting accuracy.
The Company's strategy is to provide a leading online insurance
marketplace by:
o Increasing its insurance company relationships;
o Increasing the number of products and services offered;
o Increasing the number of states in which the Company's call
center personnel are licensed as agents and permitted to
consummate sales and add follow-on services; and
o Further integrating insurance company-provided filtering and
underwriting criteria into the Company's technology platform.
Commissions related to health insurance accounted for approximately 97%
of the Company's revenues in 2004 and for the nine months ended September 30,
2005. The Company expects that such fees will continue to account for a
substantial portion of the Company's revenues for the foreseeable future. The
Company intends to expand product offerings and therefore expects fees related
to health insurance to eventually decrease as a percentage of revenues.
Similarly, while fees related to life insurance are expected to increase in the
near-term, such revenues are expected to decrease as additional products are
offered online.
The Company has incurred significant losses since inception and intends
to continue to invest heavily in product development, sales and marketing and
technology infrastructure. As a result, the Company may continue to incur
operating losses in the future.
MARKETS
The Company acts as an independent agent selling insurance and
non-insurance products on behalf of a number of unrelated insurance companies.
The Company intends to increase the number and variety of products it sells by
developing new products in conjunction with existing insurance companies and by
increasing the number of insurance companies for which it acts as agent.
5
The Company currently maintains relationships with the following
insurance companies:
o Continental General Insurance Company (Ceres Group)
o Empire and Marine Fire Insurance Company (Zurich)
o Golden Rule Life Insurance Company (United Health)
o Companion Life Insurance Company
o Protective Life Corporation
o Jefferson National Life Insurance Company (Inviva)
o Fortis Life Insurance Company
o Chase Insurance Company
o Empire General Life Insurance Company
The Company has, in its short time in the industry, had multiple
successes working with many of these insurance companies developing and refining
products and processes new to the industry.
INCREASE IN DEMAND FOR INDIVIDUAL POLICIES
The number of individuals seeking personal health insurance policies,
rather than relying on group plans sponsored by their employers, has increased
dramatically over the past five years. Much of this increase in demand stems
from higher costs related to participating in group insurance plans or employers
dropping health insurance coverage in efforts to trim expenses. Specifically,
according to the 2005 Annual Employer Health Benefits Survey by the Kaiser
Family Foundation in Menlo Park, Calif., and the Health Research & Educational
Trust in Chicago, employers in the United States offering health insurance
dropped to 60 percent in 2005 from 69 percent in 2000 and the percentage of U.S.
workers covered by their employers' health insurance plan dropped to 60 percent
from 63 percent in 2000.
INSURANCE LANDSCAPE
Insurance companies and independent agents operate in a highly
competitive environment. A significant amount of insurance continues to be sold
by agents to individuals utilizing interpersonal contact. The Internet
represents an efficient channel to connect the insurance companies with their
customers. However, the traditional insurance companies and individual agents
are not yet fully utilizing Internet technologies to sell products.
Individual consumers are increasingly utilizing the Internet for
education, information and to purchase products. The Company believes that it
has insurance sales and technological expertise to efficiently match insurance
company products with insurance customer needs over the Internet.
TRADITIONAL AGENCIES AND AGENTS
Traditional agents are restricted to their immediate geographic
location and therefore generally require highly targeted and expensive leads to
generate sufficient sales to provide adequate financial compensation. Insurance
companies must pay high enough commissions to provide sufficient incentive for
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agents, while responding to pressure to maintain or lower their commission
expenses. Taken together - the high cost of generating quality leads, the
physical limits on agents in regards to setting and commuting to appointments,
and the industry need for competitively priced products - the Company believes
traditional agencies and agents must find a more efficient sales model.
ONLINE AGENCIES
While the idea of accepting, processing, and issuing policies without
any consumer/agent interaction can be much more cost efficient when compared to
the classic models, it often disregards the complexity and cost of insurance
products. Consumers who are willing to purchase relatively simple, low cost and
low risk items such as compact discs, flowers and books over the Internet may
not be willing to purchase complicated and higher cost items such as health and
related insurance policies in the same manner. Further, consumers who buy other
items on the Internet may prefer to discuss insurance decisions with an
insurance agent. Finally, consumers may be unwilling to divulge highly personal
medical, financial and other information over the Internet.
THE COMPANY'S OPERATING MODEL
The Company's operating model combines the Internet and the agent to
address the issues of high costs and inefficiency in the traditional agency and
the reluctance of insurance customers to purchase personal, complex and
relatively expensive products online without the help of a professional. The
Company's technology utilizes the expansive reach and speed of the Internet to
instantly provide a prospective customer with product information regardless of
his or her location. At the same time, the customer can initiate an online
request for an immediate phone call from one of the Company's licensed insurance
agent employees to receive additional assistance to make the purchase.
OPPORTUNITY
The Company seeks to:
o develop additional insurance and related products;
o increase the number of insurance companies that it represents;
and
o improve its technologies and methods to target those
individual insurance customers who are currently underserved
by, or do not respond to, the traditional insurance sales
methods.
COMPETITION
Several other companies pursue online Internet insurance sales,
including Insweb, Quotesmith.com and Esurance.com. The Company recognizes that
the barriers of entry into its business are low and that better funded online
companies, or a conglomerate of health insurance companies could, at any time,
develop an online platform that competes directly with the Company, thus
resulting in a material adverse effect on the Company's business.
EMPLOYEES
The Company currently has 90 employees, including licensed agents,
comprised mostly of employees of the Company's operating subsidiaries acquired
following the reorganization of the Company's three operating subsidiaries. All
of the 90 employees are full-time employees. We enjoy good employee relations.
7
None of our employees are members of any labor union and we are not a party to
any collective bargaining agreement.
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company currently utilizes proprietary software to support its
Internet platform and proprietary processes and procedures related to customer
acquisitions and insurance product sales. The Company protects its intellectual
property through existing laws and regulations and by contractual restrictions.
It relies upon copyright law, trade secret protection and confidentiality or
license agreements with its employees, customers, partners and others to help
protect intellectual property. The Company does not have any patents or
patent-pending technology or own any other intellectual property.
GOVERNMENT REGULATION
The Company's insurance activities are subject to governmental
regulation at both the state and federal level. The Company's non-insurance
activities are subject to government regulation much like many other
non-insurance companies. The insurance companies, whose products the Company
sells, are also subject to governmental regulation at both the state and federal
level. In addition, there are still relatively few laws or regulations
specifically addressed to the Company's Internet activities. As a result, the
manner in which existing laws and regulations should be applied to the Internet
in general, and how they relate to the Company's businesses in particular, is
unclear in many cases. Such uncertainty arises under existing laws regulating
matters, including user privacy, defamation, pricing, advertising, taxation,
gambling, sweepstakes, promotions, content regulation, quality of products and
services, and intellectual property ownership and infringement.
The Company will post privacy policy and practices concerning the use
and disclosure of any user data on the Company's websites. Failure to comply
with posted privacy policies, Federal Trade Commission requirements, or other
domestic or international privacy-related laws and regulations could result in
governmental proceedings. There are a large number of legislative proposals
before the U.S. Congress and various state legislative bodies regarding privacy
issues. It is not possible to predict whether or when such legislation may be
adopted, and certain proposals, if adopted, could harm the Company's business
through a decrease in use and revenue.
CORPORATE INFORMATION
The Company's corporate headquarters are located at 2900 Gateway Drive,
Pompano Beach, FL 33069. The Company's telephone number is (954) 944-4447, and
its fax number is (954) 691-4010.
FACILITIES
The Company currently leases 10,312 square feet in an office building
located at 2900 Gateway Drive, Pompano Beach, FL 33069. The lease provides for
monthly payments of $11,600 (which increases to $11,948 beginning February 9,
2006), and terminates on February 8, 2007, with the option to renew for three
years. In the event the extension option is exercised, monthly rents will
increase from $12,306 to $13,055 during such three-year period.
LITIGATION
We are involved in lawsuits, claims and legal proceedings as is normal
in the ordinary course of our business. Any possible adverse outcome arising
from these matters is not expected to have a material impact on our results of
operation or financial position, either individually or in the aggregate.
However, our evaluation of the likely impact of these pending lawsuits could
change in the future. If the potential loss from any claim or legal proceeding
8
is probable and can be estimated, we will accrue a liability for estimated
settlements and incurred but unpaid legal fees for services performed to date.
In our opinion, the ultimate resolution of these matters will not have a
materially adverse effect on our financial position, liquidity or results of
operations.
FORWARD-LOOKING STATEMENTS
This Current Report on Form 8-K contains forward-looking statements (as
defined in Section 27A of the Securities Act and Section 21E of the Exchange
Act). To the extent that any statements made in this Report contain information
that is not historical, these statements are essentially forward-looking.
Forward-looking statements can be identified by the use of words such as
"expects," "plans" "will," "may," "anticipates," "believes," "should,"
"intends," "estimates," "projects" and other words of similar meaning. These
statements are subject to risks and uncertainties that cannot be predicted or
quantified and consequently, actual results may differ materially from those
expressed or implied by such forward-looking statements. Such risks and
uncertainties include those outlined in "Risk Factors" below and include,
without limitation, the Company's limited and unprofitable operating history,
the ability to raise capital to finance the growth of the Company's service
offerings, the ability to increase its relationships with insurance companies
and other providers, the effectiveness, profitability and the marketability of
those offerings, the concentration of the Company's revenue among a few sources,
the ability to identify, structure and integrate acquisitions, the ability of
the Company to operate as a public company, the ability of the Company to comply
with the regulatory requirements of the insurance industry, the Company's
ability to protect its proprietary information, general economic and business
conditions, the impact competition, the Company's expectations and estimates
concerning future financial performance and financing plans, adverse results of
any legal proceedings, the impact of current, pending or future legislation and
regulation on the insurance and/or Internet industry, the volatility of the
Company's operating results and financial condition, the Company's ability to
attract or retain qualified senior management personnel, including sales and
marketing and technical personnel and other risks detailed from time to time in
the Company's filings with the SEC, or otherwise.
Information regarding market and industry statistics contained in this
Report is included based on information available to the Company that it
believes is accurate. It is generally based on industry and other publications
that are not produced for purposes of securities Offerings or economic analysis.
The Company has not reviewed or included data from all sources, and cannot
assure investors of the accuracy or completeness of the data included in this
Report. Forecasts and other forward-looking information obtained from these
sources are subject to the same qualifications and the additional uncertainties
accompanying any estimates of future market size, revenue and market acceptance
of products and services. The Company does not undertake any obligation to
publicly update any forward-looking statements. As a result, investors should
not place undue reliance on these forward-looking statements.
MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
All references to the "Company" for periods prior to the closing of the
Merger refer to HBDC, and references to the "Company" for periods subsequent to
the closing of the Merger refer to Darwin-DE and its subsidiaries.
THE FOLLOWING DISCUSSION SHOULD BE READ TOGETHER WITH THE INFORMATION
CONTAINED IN THE FINANCIAL STATEMENTS AND RELATED NOTES INCLUDED ELSEWHERE IN
THIS CURRENT REPORT ON FORM 8-K .
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OVERVIEW
Platinum Partners, LLC., d/b/a Health Benefits Direct, was formed under
the laws of the State of Florida in January 2004 with the name "Platinum
Partners, LLC." Platinum Partners II LLC was formed under the laws of the State
of Florida in August of 2004 with the name "Platinum Partners II, LLC." Platinum
Partners II, LLC is the sole member of Health Benefits Direct II, LLC. On
September 9, 2005, Health Benefits Direct Corporation (HBDC) was formed as a
Delaware Corporation. Simultaneously, the Members of Platinum Partners I, LLC
and Platinum Partners II, LLC exchanged their ownership interest in the LLC's
for a pro rata exchange share of HBDC. As a result of the reorganization, HBDC
is the sole member of the existing LLC's and is doing business as "Health
Benefits Direct."
The Company specializes in the direct marketing of health, life and
related insurance products to individuals, families and groups. The Company has
developed proprietary technology and processes to connect prospective insurance
customers with the Company's agents and service personnel using an integrated
on-line platform with call center follow up. The Company employs licensed agents
supported by verification, underwriting, customer service and technology
employees for the purpose of providing immediate information to prospective
customers and selling insurance products. The Company receives commission and
other fees from the insurance companies for the sale of their products.
CRITICAL ACCOUNTING POLICIES
Financial Reporting Release No. 60, which was released by the
Securities and Exchange Commission (the "SEC"), encourages all companies to
include a discussion of critical accounting policies or methods used in the
preparation of financial statements. The Company's consolidated financial
statements include a summary of the significant accounting policies and methods
used in the preparation of the consolidated financial statements. Management
believes the following critical accounting policies affect the significant
judgments and estimates used in the preparation of the financial statements.
The Company follows the guidance of the SEC's Staff Accounting Bulletin
104 for revenue recognition. Insurance premium commissions are recognized
pro-rata over the terms of the policies. The unearned portion of premium
commissions is included in the consolidated balance sheet as a liability for
unearned commission advances. The Company receives fees for the placement and
issuance of insurance policies that are in addition to, and separate from, any
sales commissions paid by insurance companies. As these policy fees are not
refundable and the Company has no continuing obligation, all such revenues are
recognized on the effective date of the policies or, in certain cases, the
billing date, whichever is later.
Use of Estimates - Management's discussion and analysis or plan of
operations is based upon the Company consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America. The preparation of these financial statements
requires management to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues, and expenses, and related disclosure
of contingent assets and liabilities. On an ongoing basis, management evaluates
these estimates, including those related to allowances for doubtful accounts
receivable and long-lived assets. Management bases these estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis of making judgments
about the carrying value of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under
different assumptions or conditions.
10
RESULTS OF OPERATIONS
REVENUES
For the nine months ended September 30, 2005, the Company generated
revenues of $1,627,330 compared to $628,177 for the prior period ended September
30, 2004, an increase of approximately 159%. The primary reasons for the
increase in revenues is the increase in number of licensed insurance agents
employed by the Company and the increase of the number of products being sold.
TOTAL OPERATING EXPENSES
The Company's total operating expenses increased approximately 155% for
the nine months ended September 30, 2005 as compared to the nine months ended
September 30, 2004. These increases include:
Salaries and Benefits Expense - salaries and benefits expense consists
of personnel cost and sales commissions expense. For the nine months ended
September 30, 2005, salaries and benefits costs were $1,912,233 as compared to
$435,454 for the prior period ended September 30, 2004, an increase of
$1,476,779 or approximately 339%. These increases were the result of additional
personnel employed by the Company and sales commission expense.
Management Salaries - management salaries expense consists of salaries
to the founders of the Company. For the nine months ended September 30, 2005,
management salaries were $472,500 as compared to $367,500 for the prior period
ended September 30, 2004, an increase of $105,000 or approximately 29%. These
increases were primarily attributable to a full nine months expense for the
period ended September 30, 2005 and only seven months for the prior period ended
September 30, 2004.
Lead Cost - lead cost consists of the cost to generate internal leads
and purchase leads from external vendors. For the nine months ended September
30, 2005, lead expense was $491,876 as compared to $276,153 for the prior period
ended September 30, 2004, an increase of $215,723 or approximately 78%. This
increase was primarily attributable to the increased number of insurance agents.
Facilities Expenses - the Company's facilities expenses consists of
rent expenses and utilities. For the nine months ended September 30, 2005,
facilities expenses were $132,425 as compared to $88,496 for the prior period
ended September 30, 2004, an increase of $43,929 or approximately 50%. This
increase is primarily attributed to a full nine months of rent for the current
period and only seven months of rent for the period ended September 30, 2004.
Other Selling, General and Administrative Expenses - other selling,
general and administrative expenses consist primarily of legal, accounting,
human resources, telecommunications, office supplies, depreciation and corporate
governance and compliance. For the nine months ended September 30, 2005, other
selling, general and administrative expenses were $537,495 as compared to
$222,283 for the prior nine months ended September 30, 2004, an increase of
$315,212 or approximately 142%. These increased other selling, general and
administrative expenses reflect increases in professional fees,
telecommunications, depreciation, computer expenses, office supplies and other
fixed expenses resulting from growth stage companies.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 2005, the Company had a cash balance of $16,192 and a
working capital deficit of $2,791,324. Net cash used in operations was $734,908
for the nine months ended September 30, 2005, as compared to net cash used in
operations of $331,519 for the prior period ended September 30, 2004. For the
nine months ended September 30, 2005, the Company used cash to fund the Company
loss of $1,937,989 offset by non-cash items such as depreciation expense of
11
$59,515, accrued management salaries of $472,500 and unearned commission
advances totaling $447,406, as well as changes in assets and liabilities of
$223,660.
Net cash used by investing activities for the nine months ended
September 30, 2005 was $207,987 as compared to net cash used in investing
activities of $172,932 for the prior period ended September 30, 2004. For the
nine months ended September 30, 2005 and 2004, the primary use of the cash was
to purchase fixed assets.
Net cash provided by financing activities for the nine months ended
September 30, 2005 was $945,570 as compared to $521,500 for the prior period
ended September 30, 2004. For the nine months ended September 30, 2005, the
Company utilized $209,000 from the line of credit as described in Note 3 of the
Notes to Consolidated Financial Statements appearing elsewhere herein. The
Company also received $186,400 from the sale of common stock and, $550,170 from
stockholders' loans.
To fund its operations and strategic acquisitions, the Company is
seeking to raise additional capital through sale of common stock and warrants.
CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This Current Report on Form 8-K and other written reports and oral
statements made from time to time by the Company may contain so-called
"forward-looking statements," all of which are subject to risks and
uncertainties. One can identify these forward-looking statements by their use of
words such as "expects," "plans," "will," "estimates," "forecasts," "projects"
and other works of similar meaning. One can identify them by the fact that they
do not relate strictly to historical or current facts. These statements are
likely to address the Company's growth strategy, financial results, and product
and development programs. One must carefully consider any such statement and
should understand that many factors could cause actual results to differ from
the Company's forward-looking statements. These factors include inaccurate
assumptions and a broad variety of other risks and uncertainties, including some
that are known and some that are not. No forward-looking statement can be
guaranteed and actual future results may vary materially.
The Company does not assume the obligation to update any
forward-looking statement. One should carefully evaluate such statements in
light of factors described in the Company's filings with the SEC, especially on
Forms 10-KSB, 10-QSB and 8-K. In various filing the Company has identified
important factors that could cause actual results to differ from expected or
historic results. The Company notes these factors for investors as permitted by
the Private Securities Litigation Reform Act of 1995. One should understand that
it is not possible to predict or identify all such factors. Consequently, the
reader should not consider any such list to be a complete list of all potential
risks or uncertainties.
RISK FACTORS
Investing in our common stock involves a high degree of risk.
Prospective investors should carefully consider the risks described below,
together with all of the other information included or referred to in this
Current Report on Form 8-K, before purchasing shares of our common stock. There
are numerous and varied risks, known and unknown, that may prevent the Company
from achieving its goals. The risks described below are not the only ones the
Company will face. If any of these risks actually occur, the Company's business,
financial condition or results of operation may be materially adversely
affected. In such case, the trading price of our common stock could decline and
investors in our common stock could lose all or part of their investment.
12
RISKS RELATING TO THE COMPANY
THE COMPANY'S LIMITED OPERATING HISTORY MAKES EVALUATION OF ITS BUSINESS
EXTREMELY DIFFICULT.
HBDC was incorporated in September 2005 as a successor to three
independent, but affiliated operating companies that began operations in 2004.
HBDC has limited historical data upon which to forecast operating expenses or
future needs and operating results. HBDC's limited operating history will make
it difficult for investors to evaluate the Company's business and prospects.
Investors must consider the Company's prospects in light of the risks, expenses
and difficulties it faces as an early stage company with a limited operating
history, new organizational structure and operating in a highly regulated and
competitive industry. The Company will also be exposed to additional risks as a
result of its plan to acquire additional operating companies under its newly
adopted holding company structure that will be exposed to all of the risks the
Company presently faces.
HBDC HAS A HISTORY OF LOSSES, EXPECTS FUTURE LOSSES AND IT MAY NOT ACHIEVE OR
MAINTAIN PROFITABILITY.
The Company's ability to achieve profitability will depend upon its
ability to generate and sustain substantially increased revenues. While the
Company believes it will achieve break even within the next few fiscal quarters,
the Company believes that it may incur substantial operating losses in the
future as it executes its growth strategy. HBDC incurred operating losses of
$1,127,857 for the year ended December 31, 2004 and $1,937,989 for the nine
months ended September 30, 2005. The Company intends to make significant
expenditures related to marketing, hiring of additional personnel and
development of its website, technology and infrastructure. HBDC's revenue has
historically been unpredictable and may remain so for the foreseeable future.
The Company's operating results for future periods are subject to numerous
uncertainties, and the Company may not achieve sufficient revenues to become
profitable. Even if the Company achieves profitability, it may not sustain or
increase profitability on a quarterly or annual basis in the future.
AN INVESTOR IN THE COMMON STOCK MUST CONSIDER THE UNCERTAINTIES FACING EARLY
STAGE COMPANIES IN NEW AND HIGHLY REGULATED INDUSTRIES.
An investor in the common stock must consider the uncertainties facing
early stage companies in new and highly regulated industries. These
uncertainties include:
o an evolving business model which makes future success
uncertain and an investment in the common stock highly
speculative;
o the uncertainty and the extent to which consumers will accept
the Internet as a viable tool for comparison shopping for
insurance;
o the lack of a well-developed brand which may limit the
Company's ability to attract users to its website and to close
insurance sales;
o the potential development of comparable services and lack of
barriers to entry by better funded competitors and traditional
insurance companies; and
o the Company's new corporate organization, lack of experience
in managing acquisitions, regulatory and public reporting
requirements and the Company's anticipated growth could lead
to management distractions and higher than expected operating
expenses.
13
THE COMPANY MAY NEED TO SEEK ADDITIONAL FINANCING IN THE FUTURE THAT MAY NOT BE
AVAILABLE ON REASONABLE TERMS OR AT ALL.
Until the Company is able to achieve profitability, which it may not
achieve, it will need to seek additional financing to continue its business
operations. Such financing could be on terms that are dilutive to existing
stockholders and could involve the issuance of securities that have rights and
preferences that are senior to those associated with the common stock. Moreover,
if such financing were not available or were available only upon terms that were
unacceptable, the Company could be required to significantly curtail operations.
The Company has no committed sources of additional capital. HBDC's
organizational and offering activities had been financed by the founders and
with $225,000 of privately placed securities during September 2005. The Company
will need additional funds to support its growth, fund future acquisitions,
pursue business opportunities, react to unforeseen difficulties or to respond to
competitive pressures. There can be no assurance that any financing arrangements
will be available in amounts or on terms acceptable, if at all. Furthermore, the
sale of additional equity or convertible debt securities may result in further
dilution to existing stockholders. If the Company raises additional funds
through the issuance of debt, it will be required to service that debt and is
likely to become subject to restrictive covenants and other restrictions
contained in the instruments governing that debt, which may limit the Company's
operational flexibility. If adequate additional funds are not available, the
Company may be required to delay, reduce the scope of or eliminate material
parts of the implementation of its business strategy, including the possibility
of additional acquisitions or internally developed businesses.
BECAUSE SUBSTANTIALLY ALL OF THE COMPANY'S REVENUE IS ATTRIBUTABLE TO HEALTH
INSURANCE PURCHASED ON THE COMPANY'S ONLINE MARKETPLACE, THE COMPANY IS
ESPECIALLY VULNERABLE TO RISKS RELATED TO THE ONLINE MARKET FOR HEALTH INSURANCE
AND THE HEALTH INSURANCE AND MEDICAL INDUSTRY GENERALLY.
Health insurance commissions accounted for approximately 97% of
revenues in the year ended December 31, 2004 and the nine months ended September
30, 2005. The Company anticipates that health insurance commissions will
continue to account for a substantial portion of the Company's revenues for the
foreseeable future. As a result, if the Company fails to attract a broad base of
consumers to shop for health insurance on its website, or if changes in the
health insurance industry make electronic commerce a less attractive means to
shop for this type of insurance, the Company's ability to generate revenue will
be significantly reduced and its business will be harmed. In addition, the
Company's business is likely to be affected by any events or changes that affect
the health insurance industry as a whole.
THE COMPANY'S PLANS TO EXPAND OPERATIONS COULD RESULT IN SIGNIFICANT
EXPENDITURES, AND THE COMPANY MAY NOT GENERATE SUFFICIENT REVENUE TO OFFSET
THESE EXPENDITURES.
The Company intends to expand operations by, among other things:
o introducing additional insurance products, including increased
varieties of health and life insurance;
o increasing the Company's insurance company relationships and
expanding the number of states in which the Company and its
participating insurance companies may offer coverage through
the Company's online marketplace;
o increasing the level of technology integration with the
Company's participating insurance companies;
14
o expanding the Company's geographic coverage; and
o extending the Company's market presence through Internet
portals, financial institutions, websites, such as insurance
shopping sites, and other online companies.
The Company may not be able to achieve expansion in a cost-effective or
timely manner, or these efforts may not increase the overall market acceptance
of its products and services. Expansion of the Company's operations will require
significant additional expenditures and could strain management, financial, and
operational resources. The lack of market acceptance of its business model for
acquiring insurance products or the Company's inability to generate enough
revenue from expanded services or products to offset their costs could
significantly harm the Company's business.
BECAUSE A LIMITED NUMBER OF INSURANCE COMPANIES ACCOUNT FOR A MAJORITY OF THE
COMPANY'S REVENUES, THE LOSS OF A SINGLE INSURANCE COMPANY RELATIONSHIP COULD
RESULT IN A SUBSTANTIAL DROP IN THE COMPANY'S REVENUES.
Three carrier's commissions cumulatively account for 90% of HBDC's 2005
revenues. These are Protective Life Corporation, Consumers Choice USA and
Continental General Insurance Company. At HBDC's inception and until the last
quarter of 2004, Protective Life Corporation commissions accounted for 100% of
HBDC's revenues. Should Protective Life Corporation cease to participate in the
Company's online marketplace, or should it change its filtering criteria in a
way that reduces the proportion of consumers that are offered quotes from that
insurance company, the Company's operating results could be materially harmed.
Because of the broad market presence of some of the Company's participating
insurance companies, the Company expects to continue to generate a substantial
portion of its revenues from a limited number of insurance companies for the
foreseeable future.
THE COMPANY DOES NOT HAVE EXCLUSIVE RELATIONSHIPS OR LONG-TERM CONTRACTS WITH
INSURANCE COMPANIES.
The Company does not have any exclusive relationship with any insurance
companies. Thus, the Company's customers may seek to use the Company's services
but may also be able to obtain quotes and coverage from these insurance
companies directly without using the Company's website, including from the
insurance companies and their traditional agents and brokers, directly.
Insurance companies can also offer their products and services over the
Internet, either directly to consumers or through online competitors. In
addition, most of the Company's agreements with participating insurance
companies are cancelable at the option of either party.
THE COMPANY MAY MAKE ACQUISITIONS, WHICH COULD DIVERT MANAGEMENT'S ATTENTION,
CAUSE OWNERSHIP DILUTION TO STOCKHOLDERS AND BE DIFFICULT TO INTEGRATE.
The Company's business strategy depends in part upon its ability to
identify, structure and integrate acquisitions that are complementary with its
business. Acquisitions, strategic relationships and investments in the
technology and Internet sectors involve a high degree of risk. The Company may
also be unable to find a sufficient number of attractive opportunities, if any,
to meet its objectives. Although many technology and Internet companies have
grown in terms of revenue, few companies are profitable or have competitive
market share. The Company's potential acquisitions, relationships or investment
targets and partners may have histories of net losses and may expect net losses
for the foreseeable future.
Acquisition transactions are accompanied by a number of risks that
could harm the Company and its business, operating results and financial
condition:
15
o the Company could experience a substantial strain on its
resources, including time and money, and it may not be
successful;
o management's attention may be diverted from ongoing business
concerns;
o while integrating new companies, the Company may lose key
executives or other employees of these companies;
o the Company could experience customer dissatisfaction or
performance problems with an acquired company or technology;
o the Company may become subject to unknown or underestimated
liabilities of an acquired entity or incur unexpected expenses
or losses from such acquisitions;
o the Company may face difficulty in obtaining audited financial
statements required for SEC reporting and may face SEC and/or
NASD regulatory scrutiny, including possible penalties and
sanctions; and
o the Company may incur possible impairment charges related to
goodwill or other intangible assets or other unanticipated
events or circumstances, any of which could harm the Company's
business.
Consequently, the Company might not be successful in integrating any
acquired businesses, products or technologies, and might not achieve anticipated
revenue and cost benefits.
THE COMPANY MAY NOT BE ABLE TO EFFECTIVELY MANAGE ITS GROWTH, WHICH WOULD
ADVERSELY AFFECT ITS BUSINESS STRATEGY.
The Company's strategy envisions growing its business. If the Company
fails to effectively manage its growth, its financial results could be adversely
affected. The Company must continue to refine and expand its business
development capabilities, systems and processes and access to financing sources.
As the Company grows, it must continue to hire, train, supervise and manage new
employees. The Company cannot assure investors that it will be able to:
o meet its capital needs;
o expand its infrastructure effectively or efficiently or in a
timely manner;
o allocate human resources optimally;
o identify, hire or retain qualified employees; or
o incorporate effectively the components of any business that
may be acquired in an effort to achieve growth.
If the Company is unable to manage its growth, its operations and
financial results could be adversely affected.
16
THE COMPANY HAS LIMITED EXPERIENCE OPERATING AS A PUBLIC COMPANY.
Prior to the closing of the Merger, HBDC had always operated as a
private company. Certain members of the Company's management have limited or no
experience operating a company whose securities are traded or listed on an
exchange, nor with SEC rules and requirements, including SEC reporting practices
and requirements that are applicable to a publicly traded company. The Company
anticipates that continued growth and plans to become an SEC reporting company
will require the Company to recruit, hire, train and retain a substantial number
of new, highly qualified personnel.
THE COMPANY DEPENDS ON ITS KEY PERSONNEL AND THE LOSS OF THEIR SERVICES WOULD
ADVERSELY AFFECT THE COMPANY'S OPERATIONS.
If the Company is unable to maintain key personnel and attract new
employees, the execution of the Company's business strategy may be hindered and
its growth limited. The Company believes that its success is largely dependent
on the continued employment of its senior management. If one or more of these
individuals were unable or unwilling to continue in their present positions, the
Company's business could be seriously harmed.
DELAWARE LAW AND THE COMPANY'S CHARTER DOCUMENTS CONTAIN PROVISIONS THAT COULD
DISCOURAGE OR PREVENT A POTENTIAL TAKEOVER, EVEN IF SUCH A TRANSACTION WOULD BE
BENEFICIAL TO THE COMPANY'S STOCKHOLDERS.
Provisions of Delaware law and the Company's Certificate of
Incorporation and By-Laws could make more difficult the acquisition of the
Company by means of a tender offer, a proxy contest, or otherwise, and the
removal of incumbent officers and directors. See "Description of Capital Stock."
RISKS RELATING TO THE COMPANY'S BUSINESS
IF INSURANCE COMPANIES DO NOT PERMIT THE COMPANY TO OFFER THEIR PRODUCTS OR
THEIR PRODUCTS AND SERVICE ARE NOT DESIRABLE, BUSINESS WILL SUFFER.
The Company's opportunity to succeed depends on the quality of the
products and services available for sale to its consumers from participating
insurance companies, including timely responses to requests for quotes or
coverage. If participating insurance companies do not provide high-quality
products and services, or properly service the policies they sell, the Company's
business may be harmed and the Company's reputation damaged. In addition, if
participating insurance companies were to discontinue their business, be
downgraded by insurance company rating services, suffer financial declines, or
be affected by trends in the insurance industry, the Company's business would be
adversely affected.
LAWS AND REGULATIONS THAT GOVERN THE INSURANCE INDUSTRY COULD EXPOSE THE
COMPANY, OR PARTICIPATING INSURANCE COMPANIES, TO LEGAL PENALTIES FOR FAILURE TO
COMPLY, OR COULD REQUIRE CHANGES BE ADOPTED TO THE COMPANY'S BUSINESS.
The Company performs functions for licensed insurance companies and is
required to comply with a complex myriad of federal and state rules and
regulations. Rules and regulations applicable to the insurance business vary,
often dramatically, from state to state. If the Company fails to comply with
these rules and regulations, the Company could be subject to fines, penalties,
sanctions, and restrictions on its activities. Insurance regulators have the
ability to issue cease-and-desist orders, penalties, and to investigate the
Company's business practices and methods. This risk, as well as changes in
regulations or regulatory acceptance of the Company's activities, or the
enforcement or interpretation of existing law, could expose the Company to
additional costs, including indemnification of participating insurance companies
17
for their costs, and could require changes to the Company's business or
otherwise harm the Company's business.
The Company intends to expand operations to include new products and
services and to offer existing and new products in new jurisdictions within the
United States, which may require the Company to comply with additional laws and
regulations. If the Company fails to adequately comply with these laws and
regulations, its ability to offer some products or services in a particular
jurisdiction could be delayed or prevented and the Company's business could be
harmed. Compliance with these laws and regulations and those of other
jurisdictions into which the Company expands may require the Company to obtain
appropriate business licenses, make necessary filings and obtain necessary
bonds, appoint agents and make periodic business reports.
THE COMPANY MAY HAVE DIFFICULTY INTEGRATING ADDITIONAL INSURANCE COMPANIES INTO
ITS ONLINE MARKETPLACE.
Integration of new insurance companies requires a significant amount of
time and resources as well as significant cooperation from the insurance
company. Integration is a technologically difficult process. Insurance companies
may not be willing to invest the time and resources necessary to successfully
integrate, or the Company may not be able to overcome the technological
difficulties associated with, or devote the time and resources necessary to,
integration. Maintaining and updating information from participating insurance
companies also requires cooperation and involves costs, time, and resources
which might not be cost effective or possible.
UNCERTAINTY IN THE MARKETPLACE REGARDING THE USE OF PERSONAL INFORMATION OR
PROPOSED LEGISLATION COULD REDUCE DEMAND FOR THE COMPANY'S SERVICES AND RESULT
IN INCREASED EXPENSES.
Concern among consumers and legislators regarding the use of personal
information gathered from Internet users could create uncertainty in the
marketplace. This could reduce demand for the Company's services, increase the
cost of doing business as a result of new security measures, possible litigation
or otherwise, or increase service delivery costs, or otherwise harm the
Company's business. Many state insurance codes limit the collection and use of
personal information by insurance companies, agents, or insurance service
organizations.
IF THE COMPANY IS UNABLE TO SAFEGUARD THE SECURITY AND PRIVACY OF ONLINE
TRANSACTIONS AND CONFIDENTIAL DATA, THE COMPANY'S BUSINESS MAY BE HARMED.
A significant aspect of the Company's business involves the
transmission of personally identifiable information of Internet users, as well
as other confidential information, over public networks. Security issues in
Internet transactions and online commerce exist although the Company endeavors
to utilize advanced protection from the threat of improper access to the
Company's networks and transaction data. If any compromise or breach of security
were to occur, it could harm the Company's reputation and expose it to possible
liability. Even if such breach were to occur to one of the Company's
competitors, or other Internet based concern, in particular if it involves an
insurance company or financial institution, such event could hurt the Company's
business. A lack of confidence in online security in general could impact the
Company's business. Avoidance of the Company's security measures could result in
a misappropriation of the Company's proprietary information or create
interruptions in operations. The Company may be required to make significant
expenditures to continually upgrade and protect against security breaches and to
alleviate problems caused by breaches or deficiencies in its security
protections.
18
IF THE COMPANY IS UNABLE TO PROMOTE ITS BRAND AND EXPAND ITS BRAND RECOGNITION,
THE COMPANY'S ABILITY TO DRAW CONSUMERS TO ITS WEBSITE WILL BE LIMITED.
A number of companies offer services that are similar to and are
competitive with the Company. Establishing and maintaining the Company's brand
may be a critical element in retaining clients and securing additional
customers. The Company's relationships with participating insurance companies
and new insurance companies that participate with the Company is critical to the
Company's profitably and business plan. The Company currently uses online
advertising and marketing services and television advertisements to promote its
services. If such marketing efforts do not generate sufficient revenue or the
Company otherwise fails to successfully promote its product offerings, or if
these efforts require excessive expenditures, the Company's business success
will be jeopardized. If users of the Company's website do not perceive the
Company's existing services or the products and services of participating
insurance companies to be of high quality, or if the Company alters or modifies
its brand image, introduces new services or enters into new business ventures
that are not successful, the Company's business would be harmed.
THE COMPANY INCORPORATES THIRD-PARTY TECHNOLOGIES AND SERVICES INTO ITS ONLINE
MARKETPLACE, AND IF THE PROVIDERS OF THESE TECHNOLOGIES AND SERVICES FAIL IN A
TIMELY MANNER TO DEVELOP, LICENSE OR SUPPORT TECHNOLOGY NECESSARY TO THE
COMPANY'S SERVICES, MARKET ACCEPTANCE OF THE COMPANY'S ONLINE MARKETPLACE COULD
BE HARMED.
The Company has incorporated technology developed by third parties into
it online marketplace, and will continue to incorporate third-party technology
in future products and services. The Company has limited control over whether or
when these third-party technologies will be developed or enhanced. If a
third-party fails to timely develop, license or support technology necessary to
the Company's services, market acceptance of the Company's online marketplace
could be harmed.
THE COMPANY MAY EXPERIENCE TECHNOLOGICAL PROBLEMS OR SERVICE INTERRUPTIONS WITH
INDIVIDUAL INSURANCE COMPANIES, WHICH COULD HARM THE QUALITY OF SERVICE ON THE
COMPANY'S WEBSITE.
Several participating insurance companies require that the Company's
web servers communicate with their computer systems in order to perform the
filtering and risk analysis functions required to generate quotes. The
availability of quotes may be dependent upon the reliability of the insurance
company's own computer systems, over which the Company has no control. A
malfunction in an insurance company's computer system or in the Internet
connection between the Company's web servers and the insurance company system,
or an excess of data traffic could result in a delay in the delivery of e-mail
or quotes or could cause an insurance company that provides instant quotes to
become unavailable until the problem is remedied. A computer malfunction could
cause an insurance company to quote erroneous rates, in which case the insurance
company would be required to take itself offline until the malfunction can be
corrected. Technological problems with or interruption of communications with an
insurance company's computer systems could materially reduce the number of
competing insurance companies available to provide quotes, and therefore the
level of service perceived by consumers, on the Company's online marketplace.
THE COMPANY'S FACILITIES AND SYSTEMS ARE VULNERABLE TO NATURAL DISASTERS AND
OTHER UNEXPECTED LOSSES, AND IT MAY NOT HAVE ADEQUATE INSURANCE TO COVER SUCH
LOSSES.
The Company's computer hardware operations are located in leased
facilities in Pompano Beach, Florida. The Company also maintains an off-site
backup system. The Company's geographic location is susceptible to hurricanes
and other natural disasters. If such location experienced a system failure, the
performance of the Company's website would be harmed. These systems are also
vulnerable to damage from fire, floods, power loss, telecommunications failures,
19
break-ins and similar events. If the Company seeks to replicate its systems at
other locations, it will face a number of technical challenges, particularly
with respect to database replications, which it may not be able to address
successfully. Although the Company carries property insurance, its coverage may
not be adequate to compensate for all losses that may occur. The Company's
servers may also be vulnerable to computer viruses, physical or electronic
break-ins and similar disruptions.
THE COMPANY RELIES ON THIRD PARTY CO-LOCATION PROVIDERS, AND A FAILURE OF
SERVICE BY THESE PROVIDERS COULD ADVERSELY AFFECT THE COMPANY'S BUSINESS AND
REPUTATION.
The Company relies upon third party co-location providers to host the
Company's main servers. In the event that these providers experience any
interruption in operations or cease operations for any reason or if the Company
is unable to agree on satisfactory terms for continued hosting relationships,
the Company would be forced to enter into a relationship with other service
providers or assume hosting responsibilities. If the Company is forced to switch
hosting facilities, it may not be successful in finding an alternative service
provider on acceptable terms or in hosting the computer servers itself. The
Company may also be limited in its remedies against these providers in the event
of a failure of service. In the past, short-term outages have occurred in the
service maintained by co-location providers which could recur. The Company also
may rely on third party providers for components of its technology platform,
such as hardware and software providers, credit card processors and domain name
registrars. A failure or limitation of service or available capacity by any of
these third party providers could adversely affect the Company's business and
reputation.
QUARTERLY RESULTS OF OPERATIONS MIGHT FLUCTUATE DUE TO CHANGES IN THE SEARCH
ENGINE BASED ALGORITHMS, WHICH COULD ADVERSELY AFFECT THE COMPANY'S REVENUE AND
IN TURN THE MARKET PRICE OF ITS COMMON STOCK.
The Company's revenue is heavily dependent on how search engines treat
the Company's content in their indexes. In the event search engines determine
that the Company's content is not high quality, such search engines may not rank
the Company's content as highly in their indexes resulting in a reduction in the
Company's traffic, which may cause lower than expected revenues. The Company is
greatly dependent on a small number of major search engines, namely Google,
Yahoo!, MSN, and AOL. Search engines tend to adjust their algorithms
periodically and each adjustment tends to have an impact on how the Company's
content ranks in their indexes. These constant fluctuations could make it
difficult for the Company to predict future revenues.
THE COMPANY MAY BE SUBJECT TO LITIGATION FOR INFRINGING THE INTELLECTUAL
PROPERTY RIGHTS OF OTHERS.
The Company's success will depend, in part, on its ability to protect
its intellectual property and to operate without infringing on the intellectual
property rights of others. There can be no guarantee that any of the Company's
intellectual property is adequately safeguarded, or that they will not be
challenged by third parties. Moreover, the Company could be subject to patent
infringement claims or other intellectual property infringement claims that
would be costly to defend and could limit the Company's ability to use certain
critical technologies.
Any patent litigation could negatively impact the Company's business by
diverting resources and management attention from other aspects of the business
and adding uncertainty as to the ownership of technology and services that the
Company views as proprietary and essential to the Company's business. In
addition, a successful claim of patent infringement against the Company and the
Company's failure or inability to license the infringed or similar technology on
reasonable terms, or at all, could have a material adverse effect on the
Company's business.
20
RISKS RELATING TO THE COMPANY'S INDUSTRY
INCREASED COMPETITION MAY NEGATIVELY IMPACT THE COMPANY'S REVENUES.
The Company expects competition to intensify in the future because
current and new competitors can enter the Company's market with little
difficulty. The barriers to entering the Company's market are relatively low.
These factors could adversely affect the Company's competitive position.
Some of the Company's competitors, as well as potential entrants into
the Company's market, may be better positioned to succeed in this market. They
may have:
o longer operating histories;
o more management experience;
o an employee base with more extensive experience;
o a better ability to service customers in multiple cities in
the United States and internationally by virtue of the
location of sales offices;
o larger customer bases;
o greater brand recognition; and
o significantly greater financial, marketing and other
resources.
In addition, many current and potential competitors can devote
substantially greater resources than the Company can to promotion, website
development and systems development. Furthermore, there are numerous larger,
more well-established and well-financed entities with which the Company will
compete and that could acquire or create competing companies and/or invest in or
form joint ventures in categories or countries of interest to the Company, all
of which could adversely impact the Company's business. Any of these trends
could increase competition and reduce the demand for any of the Company's
services.
Accordingly, the Company may not be able to maintain or grow traffic to
its website or participating insurance companies, the Company's competitors may
grow faster than the Company does, or companies with whom the Company has
strategic relationships may discontinue their relationships with the Company.
IF CONSUMERS ARE UNWILLING TO SHOP FOR INSURANCE ON THE INTERNET INSTEAD OF
TRADITIONAL AVENUES, THIS WILL HAVE A NEGATIVE IMPACT ON THE COMPANY'S
OPERATIONS.
Shopping for insurance on the Internet is a relatively new concept.
Recently introduced services and products on the Internet are subject to a high
level of uncertainty, and there are few proven services and products. The
Company's success will depend on the Company's ability to engage consumers who
have historically shopped for insurance through traditional distribution
avenues. In order for the Company to be successful, consumers must become
willing to adopt new ways of conducting business and exchanging information. In
addition, a substantial proportion of the consumers who use the Company's
website may be using the Company's service because it is new and different
rather than because they believe that it offers a better way to shop for
insurance. Such consumer usage may overstate the long-term acceptance rate and
consumers may return to more familiar means of shopping for insurance.
21
GOVERNMENT REGULATION OF THE INTERNET MAY ADVERSELY AFFECT THE COMPANY'S
BUSINESS AND OPERATING RESULTS.
The Company may be subject to additional operating restrictions and
regulations in the future. Companies engaging in online search, commerce and
related businesses face uncertainty related to future government regulation of
the Internet. Due to the rapid growth and widespread use of the Internet,
legislatures at the federal and state levels are enacting and considering
various laws and regulations relating to the Internet. Furthermore, the
application of existing laws and regulations to Internet companies remains
somewhat unclear. The Company's business and operating results may be negatively
affected by new laws, and such existing or new regulations may expose the
Company to substantial compliance costs and liabilities and may impede the
growth in use of the Internet.
The application of these statutes and others to the Internet search
industry is not entirely settled. Further, several existing and proposed federal
laws could have an impact on the Company's business:
o The Digital Millennium Copyright Act and its related safe
harbors, are intended to reduce the liability of online
service providers for listing or linking to third-party web
sites that include materials that infringe copyrights or other
rights of others.
o The CAN-SPAM Act of 2003 and certain state laws are intended
to regulate interstate commerce by imposing limitations and
penalties on the transmission of unsolicited commercial
electronic mail via the Internet.
With respect to the subject matter of each of these laws, courts may
apply these laws in unintended and unexpected ways. As a company that provides
services over the Internet, the Company may be subject to an action brought
under any of these or future laws governing online services. Many of the
services of the Internet are automated and companies, such as the Company, may
be unknowing conduits for illegal or prohibited materials. It is not known how
courts will rule in many circumstances; for example, it is possible that some
courts could find strict liability or impose "know your customer" standards of
conduct in certain circumstances.
The Company may also be subject to costs and liabilities with respect
to privacy issues. Several Internet companies have incurred costs and paid
penalties for violating their privacy policies. Further, it is anticipated that
new legislation will be adopted by federal and state governments with respect to
user privacy. Additionally, foreign governments may pass laws which could
negatively impact the Company's business or may prosecute the Company for its
products and services based upon existing laws. The restrictions imposed by, and
costs of complying with, current and possible future laws and regulations
related to the Company's business could harm its business and operating results.
GOVERNMENT REGULATIONS AND LEGAL UNCERTAINTIES RELATING TO THE INTERNET AND
ONLINE COMMERCE COULD NEGATIVELY IMPACT THE COMPANY'S BUSINESS.
Online commerce is relatively new and rapidly changing, and federal and
state regulations relating to the Internet and online commerce are evolving.
Currently, there are few laws or regulations directly applicable to the Internet
or online commerce on the Internet, and the laws governing the Internet that
exist remain largely unsettled. New Internet laws and regulations could dampen
growth in use and acceptance of the Internet for commerce. In addition,
applicability to the Internet of existing laws governing issues such as property
ownership, copyrights and other intellectual property issues, libel, obscenity
22
and personal privacy is uncertain. The vast majority of those laws were adopted
prior to the advent of the Internet and related technologies and, as a result,
do not expressly contemplate or address the unique issues presented by the
Internet and related technologies. Further, growth and development of online
commerce have prompted calls for more stringent consumer protection laws, both
in the U.S. and abroad. The adoption or modification of laws or regulations
applicable to the Internet could have a material adverse effect on the Company's
Internet business operations. The Company also will be subject to regulation not
specifically related to the Internet, including laws affecting direct marketers
and advertisers.
In addition, in 1998, the Internet Tax Freedom Act was enacted, which
generally placed a three-year moratorium on state and local taxes on Internet
access and on multiple or discriminatory state and local taxes on electronic
commerce. This moratorium was recently extended until November 1, 2007. The
Company cannot predict whether this moratorium will be extended in the future or
whether future legislation will alter the nature of the moratorium. If this
moratorium is not extended in its current form, state and local governments
could impose additional taxes on Internet-based transactions, and these taxes
could decrease the Company's ability to compete with traditional retailers and
could have a material adverse effect on the Company's business, financial
condition, results of operations and cash flow.
In addition, several telecommunications carriers have requested that
the Federal Communications Commission ("FCC") regulate telecommunications over
the Internet. Due to the increasing use of the Internet and the burden it has
placed on the current telecommunications infrastructure, telephone carriers have
requested the FCC to regulate Internet service providers and impose access fees
on those providers. If the FCC imposes access fees, the costs of using the
Internet could increase dramatically. This could result in the reduced use of
the Internet as a medium for commerce, which could have a material adverse
effect on the Company's Internet business operations.
RISKS RELATING TO THE COMPANY'S COMMON STOCK
APPLICABLE SEC RULES GOVERNING THE TRADING OF "PENNY STOCKS" LIMITS THE TRADING
AND LIQUIDITY OF OUR COMMON STOCK WHICH MAY AFFECT THE TRADING PRICE OF OUR
COMMON STOCK.
The common stock received in the Merger is expected to be quoted on the
OTCBB, and will likely trade (currently (and may in the future)) below $5.00 per
share; therefore, the common stock is considered a "penny stock" and subject to
SEC rules and regulations which impose limitations upon the manner in which such
shares may be publicly traded. These regulations require the delivery, prior to
any transaction involving a penny stock, of a disclosure schedule explaining the
penny stock market and the associated risks. Under these regulations, certain
brokers who recommend such securities to persons other than established
customers or certain accredited investors must make a special written
suitability determination regarding such a purchaser and receive such
purchaser's written agreement to a transaction prior to sale. These regulations
have the effect of limiting the trading activity of the common stock and
reducing the liquidity of an investment in the common stock. Therefore, the
Company's stockholders may find it difficult to obtain accurate quotations of
the Company's common stock and/or to sell their shares.
THE MARKET PRICE OF OUR COMMON STOCK IS LIKELY TO BE HIGHLY VOLATILE AND SUBJECT
TO WIDE FLUCTUATIONS.
The market price of our common stock is likely to be highly volatile
and could be subject to wide fluctuations in response to a number of factors,
some of which are beyond the Company's control, including:
o announcements of new products or services by the Company's
competitors;
23
o fluctuations in revenue attributable to changes in the search
engine based algorithms that rank the relevance of the
Company's content;
o quarterly variations in the Company's revenues and operating
expenses;
o announcements of technological innovations or new products or
services by us; and
o sales of the common stock by the Company's founders or other
selling stock holders.
THERE MAY BE A LIMITED PUBLIC MARKET FOR THE COMPANY'S SECURITIES AND THE
COMPANY MAY FAIL TO QUALIFY FOR NASDAQ OR OTHER LISTING.
Although the Company intends to apply for listing of its common stock
on either the Nasdaq Stock Market or a registered exchange, there can be no
assurance if and when initial listing criteria could be met or if such
application would be granted, or that the trading of the common stock will be
sustained. In the event that the common stock fails to qualify for initial or
continued inclusion on the Nasdaq Stock Market or for initial or continued
listing on a registered stock exchange, trading, if any, in the common stock,
would then continue to be conducted on the OTCBB and in what are commonly
referred to as "pink sheets." As a result, an investor may find it more
difficult to dispose of, or to obtain accurate quotations as to the market value
of the common stock, and the common stock would become substantially less
attractive for margin loans, for investment by financial institutions, as
consideration in future capital raising transactions or other purposes.
THE COMMON STOCK IS CONTROLLED BY INSIDERS.
The founders of HBDC and certain affiliated parties beneficially own
approximately 56.3% of the Company's outstanding shares of common stock. Such
concentrated control of the Company may adversely affect the price of the common
stock. The Company's principal security holders may be able to control matters
requiring approval by security holders, including the election of directors.
Such concentrated control may also make it difficult for stockholders to receive
a premium for their shares of common stock in the event of a merger with a third
party or different transaction that requires stockholder approval. In addition,
certain provisions of Delaware law could have the effect of making it more
difficult or more expensive for a third party to acquire, or of discouraging a
third party from attempting to acquire, control of the Company. Accordingly,
under certain circumstances, investors may have no effective voice in the
management of the Company.
THE COMPANY DOES NOT EXPECT TO PAY DIVIDENDS FOR THE FORESEEABLE FUTURE.
The Company currently intends to retain any future earnings to support
the development and expansion of its business and does not anticipate paying
cash dividends in the foreseeable future. Any payment of future dividends will
be at the discretion of the board of directors after taking into account various
factors, including but not limited to the Company's financial condition,
operating results, cash needs, growth plans and the terms of any credit
agreements that the Company may be a party to at the time. Accordingly,
investors must rely on sales of their common stock after price appreciation,
which may never occur, as the only way to realize their investment. Investors
seeking cash dividends should not purchase the common stock.
24
MERGERS OF THE TYPE WE JUST COMPLETED ARE USUALLY HEAVILY SCRUTINIZED BY THE SEC
AND WE MAY ENCOUNTER DIFFICULTIES OR DELAYS IN OBTAINING FUTURE REGULATORY
APPROVALS.
Historically, the SEC and Nasdaq have not generally favored
transactions in which a privately-held company merges into a largely inactive
company with publicly traded stock, and there is a significant risk that we may
encounter difficulties in obtaining the regulatory approvals necessary to
conduct future financing or acquisition transactions, or to eventually achieve a
listing of shares on one of the Nasdaq stock markets or on a national securities
exchange. On June 28, 2005, the SEC adopted rules dealing with private company
mergers into dormant or inactive public companies. As a result, it is likely
that we will be scrutinized carefully by the SEC and possibly by the National
Association of Securities Dealers or Nasdaq, which could result in difficulties
or delays in achieving SEC clearance of any future registration statements or
other SEC filings that we may pursue, in attracting NASD-member broker-dealers
to serve as market-makers in our stock, or in achieving admission to one of the
Nasdaq stock markets or any other national securities market. As a consequence,
our financial condition and the value and liquidity of our shares may be
negatively impacted.
25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the number of
shares of our common stock beneficially owned on November 23, 2005, immediately
following the Merger, by:
o each person who is known by us to beneficially own 5% or more
of our common stock;
o each of our directors and named executive officers; and
o all of our directors and executive officers, as a group.
Except as otherwise set forth below, the address of each of the persons listed below is
----------------------------------------------------------------.
NAME AND ADDRESS OF NUMBER OF SHARES PERCENTAGE OF SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED (1) BENEFICIALLY OWNED (2)
------------------------------------------------- ------------------------------------- -------------------------------
5% OR GREATER STOCKHOLDERS:
Marlin Capital Partners I, LLC 2,563,750 (3) 18.5%
DIRECTORS AND NAMED EXECUTIVE OFFICERS:
Scott Frohman 2,847,083 (4) 20.5%
Charles Eissa 2,405,964 (5) 17.3%
Anthony Verdi 0 (6) 0
Daniel Brauser 2,563,750 (7) 18.5%
Alvin Clemens 300,000 (8) 2.2%
Paul Soltoff 0 (9) 0
John Harrison 0 (9) 0
Leon Brauser 0 (9) 0
All officers and directors as a group (8 persons) 8,116,797 58.4%
(3)(4)(5)(6)(7)(8)(9)
------------------------------
* Less than 1% of outstanding shares.
(1) Unless otherwise indicated, includes shares owned by a spouse, minor
children and relatives sharing the same home, as well as entities owned
or controlled by the named person. Also includes options to purchase
shares of common stock exercisable within sixty (60) days. Unless
otherwise noted, shares are owned of record and beneficially by the
named person.
(2) Based upon 13,891,471 shares of common stock outstanding on November
23, 2005 immediately following the Merger and, with respect to each
individual holder, rights to acquire common stock exercisable within
sixty (60) days.
(3) Includes 174,869 shares issued upon conversion of outstanding loans to
HBDC.
(4) Includes (i) 250,000 shares issued in exchange for accrued salary and
(ii) 100,000 shares issued upon conversion of outstanding loans to
HBDC. Does not include outstanding options to purchase 600,000 shares
that are not currently exercisable.
26
(5) Includes (i) 250,000 shares issued in exchange for accrued salary and
(ii) 25,131 shares issued upon conversion of outstanding loans to HBDC.
Does not include outstanding options to purchase 500,000 shares that
are not currently exercisable.
(6) Does not include outstanding options to purchase 350,000 shares that
are not currently exercisable.
(7) Includes 2,563,750 shares owned by Marlin Capital Partners I, LLC, of
which Dan Brauser is the Manager and therefore may be deemed to
beneficially own such shares. Mr. Brauser disclaims beneficial
ownership of the shares owned by Marlin Capital Partners I, LLC, except
to the extent of his equity interest therein. Does not include
outstanding options to purchase 500,000 shares that are not currently
exercisable.
(8) Does not include (i) outstanding options to purchase 500,000 shares and
(ii) warrants to purchase 75,000 shares.
(9) Does not include outstanding options to purchase 250,000 shares.
DIrECTORS AND EXECUTIVE OFFICERS
The following table sets forth information regarding the members of our
board of directors and our executive officers. All of our officers and directors
were appointed on November 23, 2005, the closing date of the Merger. All
directors hold office for two-year terms until the election and qualification of
their successors. Officers are elected annually by the board of directors and
serve at the discretion of the board.
NAME AGE POSITION
---- --- --------
Scott Frohman 38 Chief Executive Officer and Director
Charles Eissa 33 Chief Operating Officer, President and Director
Anthony Verdi 56 Chief Financial Officer and Assistant Secretary
Daniel Brauser 24 Senior Vice President and Secretary
Alvin Clemens 67 Chairman of the Board of Directors
Paul Soltoff 52 Board of Directors
John Harrison 62 Board of Directors
Leon Brauser 80 Board of Directors
The board of directors is in the process of electing one additional
director. The principal occupations for the past five years (and, in some
instances, for prior years) of each of our current directors and executive
officers are as follows:
SCOTT FROHMAN. Scott Frohman was the co-founder of HBDC and was
appointed Chief Executive Officer and a Director of the Company on November 23,
2005 upon the closing of the Merger. Mr. Frohman has over a decade of extensive
entrepreneurial experience in building and driving professional start-up
organizations. Mr. Frohman served as Executive Vice President of Verid Inc., an
identity verification service company, from May 2003 to January 2004. In 1997,
he formed National Lead Services, specializing in various types of consumer and
business data services, which later was acquired by Seisint Inc. in 1999. Mr.
Frohman also served as Vice President of Naviant from June 2004 to December 2004
and as Vice President of Seisnit from September 1999 to May 2002.
27
CHARLES EISSA. Charles Eissa was the co-founder of HBDC and was
appointed President, Chief Operating Officer and a Director of the Company on
November 23, 2005 upon the closing of the Merger. Mr. Eissa holds over a decade
of experience and proven success, specializing in the operations and technology
that transformed several start-up ventures into large scalable organizations.
Prior to co-founding the Company, Mr. Eissa founded InTransit Media in 2004,
controlling all advertising on commuter trains operated by the Port Authority of
NY and NJ, delivering 72 million annual viewer impressions. Other prior
successes include being involved in the 1998 inception of Seisint Inc, a leading
database and technology services company acquired by Lexis Nexis for $775
million in 2004. During his tenure at Seisint, from 1998 through 2004, Mr. Eissa
was part of the team that co-founded and spun off a division named eDirect.com,
which went on to make several key mergers and acquisitions consolidating under
the name of Naviant, an industry leader in permission-based Internet marketing
acquired by Equifax for $135 million in 2003. Prior to Naviant, Mr. Eissa served
as Vice President Sales for Lens Express Inc. During his seven year tenure, Lens
Express earned its place on the Inc. 500 for three consecutive years later
resulting in an acquisition by 1-800-Contacts.
ANTHONY VERDI. Anthony Verdi was appointed Chief Financial Officer and
Assistant Secretary on November 23, 2005 upon the closing of the Merger and has
more than thirty-four years of insurance industry experience in executive
management positions in both finance and operations. From 1971 to 1986, he
served in various finance and accounting capacities for the Academy Insurance
Group, ultimately serving as the Assistant Controller responsible for SEC and
management reporting. From 1986 to 1990 he was Vice-President - Controller for
the InterCounty Hospitalization and Health Plans, a group medical insurer, where
he was responsible for accounting, actuarial and underwriting functions as well
as strategic initiatives, which ultimately resulted in the acquisition of
InterCounty by Pennsylvania Blue Shield. From 1990 to 1998 Mr. Verdi served as
Chief Financial Officer of Provident American Corporation. From 1998 until 2001,
Mr. Verdi served as Chief Operating Officer of Provident and Chief Financial
Officer of HealthAxis. Since 2001, Mr. Verdi has provided consulting services to
life, health and property and casualty insurance company agency and venture
capital clients, which consulting services has included interim management and
advice regarding acquisitions, divestitures, product development, reinsurance
programs, regulatory interaction, operations, organizational development and
personnel recruiting.
DANIEL BRAUSER. Daniel Brauser was appointed Senior Vice President and
Secretary of the Company on November 23, 2005 upon the closing of the Merger.
Until Mr. Verdi's appointment as Chief Financial Officer of HBDC in November
2005, Mr. Brauser served as HBDC's Chief Financial Officer. Prior to HBDC's
formation, Mr. Brauser served as the Accounts Receivables Manager for Omnipoint
Marketing, a South Florida based internet marketing firm from August 2003 to
January 2004. During his tenure with Omnipoint Marketing, Mr. Brauser worked
directly with the executives and founders creating and implementing management
reporting tools, customer credit policy and new business tracking procedures.
Prior to working at Omnipoint Marketing, Mr. Brauser served as a Financial
Analyst at Seisint Inc., from May 2003 until August 2004. With Seisint Inc., Mr.
Brauser built strategic competitive market analysis outlining company strengths
and possible areas of necessary development and managed multiple ongoing data
acquisition projects.
ALVIN CLEMENS. Alvin H. Clemens became a director of the Company on
November 23, 2005 upon the closing of the Merger and has more than forty-five
years of insurance industry experience as an entrepreneur and senior executive.
He was the founder, Chairman of the Board and CEO of Academy Insurance Group,
from 1970 to 1985. Academy Insurance Group pioneered direct marketing of life
and health products in the early 1970s and also developed a large captive agency
force selling whole life insurance products to non-commissioned military
officers. Academy reached a market capitalization of $500 million by 1985. Mr.
Clemens acquired a controlling interest in Provident American Corporation, an
insurance holding company, in 1989 and served as Chairman and CEO until 2001.
During that time, Provident introduced unique medical products for the
28
individual market and recruited an independent sales force that ultimately
exceeded 20,000 agents selling more than 4,000 policies per month. In 1998, Mr.
Clemens founded HealthAxis as a subsidiary of Provident which was a pioneer in
utilizing the Internet to make direct sales to insurance customers which reached
a market capitalization of approximately $2 billion in 2001. Mr. Clemens raised
capital and negotiated agreements with insurance companies and Web portals such
as AOL and Lycos to build a substantial internet marketing organization. From
2001 to the present, Mr. Clemens has performed business and insurance industry
consulting services through The Provident, a company he owns and operates, in
addition to managing his private investments. Mr. Clemens has a B.S. degree in
Business Administration from the Penn State University and currently serves on
the Board of Trustees as well as the Building, Finance and Executive Committees
of Penn State University. He is also a past member of the Board of Directors of
the Pennsylvania Insurance Federation and the Young President's Organization
(YPO), and a current member of the World President's Organization (WPO). Mr.
Clemens is a past recipient of the Theodor Herzel Award given by The Jerusalem
Fund of Aish Ha Torah and the municipality of Jerusalem for Citizenship and
Entrepreneurship. In 1995, Pennsylvania Governor Tom Ridge appointed Mr. Clemens
to the Banking and Insurance Transition Team. Mr. Clemens was Co-Chairman of the
Pennsylvania IMPACCT Commission on Banking and Insurance. IMPACCT was created to
streamline government and make it more efficient. Mr. Clemens is listed in Who's
Who in Finance and Industry, Who's Who in America and Who's Who in the World.
PAUL SOLTOFF. Paul Soltoff became a director of the Company on November
23, 2005 upon the closing of the Merger and has served as Chairman of the Board
and Chief Executive Officer of SendTec, Inc. since its inception in February
2000. Upon consummation of the SendTec merger on September 1, 2004 with a
subsidiary of theglobe.com, inc., Mr. Soltoff continued in the position of Chief
Executive Officer of SendTec, subsequently acquired in October 2005 by an
affiliate of RelationServe Media, Inc. Mr. Soltoff was also elected to
theglobe.com's Board of Directors and served as a director until the acquisition
by RelationServe. In 1997, Mr. Soltoff became the Chief Executive Officer of
Soltoff Direct Corporation, a specialized direct marketing consulting company
located in St. Petersburg, Florida. Since the inception of SendTec, Soltoff
Direct Corporation has been largely inactive.
JOHN HARRISON. John Harrison became a director of the Company on
November 23, 2005 upon the closing of the Merger and is a founding Partner and
Executive Director of The Keystone Equities Group, Inc., a full service
investment banking group and a registered NASD broker-dealer which began in
2003, where he focuses on mergers and acquisitions and raising capital for
marketing services companies. He is also a Managing Director of Covenant
Partners, a hedge fund that invests in direct marketing services companies. In
1999, prior to joining Keystone Equities, Mr. Harrison was a founding Partner of
Emerging Growth Equities, Ltd., a full service investment banking and brokerage
firm focused on raising capital for emerging technology companies addressing
high-growth industry sectors. Mr. Harrison also was President of DiMark for 15
years, beginning in 1985, and led the company's growth to becoming the
sixth-largest direct marketing agency in the world before overseeing the sale of
the company to Harte-Hanks in 1996. He also has held senior management positions
with CUNA Mutual, RLI Insurance and CNA Insurance where he directed their direct
marketing practice. Mr. Harrison is Chairman of the Board of Professional
Insurance Marketing Association (PIMA) and is on the Advisory Board of DePaul
University's Interactive and Direct Marketing Institute. He sits on the Boards
of The Credo Group, a digital insurance agency; IXI Corporation, a database
marketing company that uses proprietary wealth and asset information; and
Solutionary, Inc., a full-service provider of managed security services. He is
also an active member of Benefits Marketing Association and Mass Marketing
Insurance Institute.
LEON BRAUSER. Leon Brauser became a director of the Company on November
23, 2005 upon the closing of the Merger and brings to the board of directors
more than 50 years of experience in launching and growing businesses. His first
venture originated with a New York-based car dealership, Brauser Motors, which
29
was quickly complemented with a daily car rental and leasing company. In 1972,
Mr. Brauser acquired Kertz Security Systems, Inc. and developed it into the
region's leading security systems provider. It was purchased by Wayne Huizenga's
Republic Industries in 1995. Since that time, Mr. Brauser has been a private
investor.
There are no family relationships among our directors and executive
officers, except that Leon Brauser, one of our directors, is the grandfather of
Daniel Brauser, our Senior Vice President and Secretary.
MEETINGS OF OUR BOARD OF DIRECTORS
The Company's board of directors held no meetings during the year ended
December 31, 2004.
BOARD COMMITTEES
AUDIT COMMITTEE. We intend to establish an audit committee of the board
of directors, which will consist of independent directors. The audit committee's
duties would be to recommend to our board of directors the engagement of
independent auditors to audit our financial statements and to review our
accounting and auditing principles. The audit committee would review the scope,
timing and fees for the annual audit and the results of audit examinations
performed by the internal auditors and independent public accountants, including
their recommendations to improve the system of accounting and internal controls.
The audit committee would at all times be composed exclusively of directors who
are, in the opinion of our board of directors, free from any relationship which
would interfere with the exercise of independent judgment as a committee member
and who possess an understanding of financial statements and generally accepted
accounting principles.
COMPENSATION COMMITTEE. We intend to establish a compensation committee
of the board of directors. The compensation committee would review and approve
our salary and benefits policies, including compensation of executive officers.
The compensation committee would also administer our stock option plans and
recommend and approve grants of stock options under such plans.
DIRECTOR COMPENSATION
On November 23, 2005, each non-employee board member received a stock
option for 250,000 shares of common stock with an exercise price equal to $1.00
per share, which vests as follows: 100,000 shares on the six month anniversary
of the grant; 75,000 shares on the first anniversary of the grant and the
remaining 75,000 shares in twelve equal increments at the end of each calendar
month thereafter. Alvin Clemens, as Chairman, received an additional option
grant equal to 250,000 shares with an exercise price equal to $1.00, which vests
as set forth above.
30
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table sets forth, for the years
indicated, all cash compensation paid, distributed or accrued for services,
including salary and bonus amounts, rendered in all capacities by the Company's
chief executive officer and all other executive officers who received or are
entitled to receive remuneration in excess of $100,000 during the stated
periods.
Long-term
Annual Compensation Compensation
--------------------------- ----------------------------
Awards Payouts
-------------- -------------
Securities
Underlying LTIP All Other
Fiscal Salary Bonus Options/ Payouts Compensation
Name and Principal Position Year ($) ($) SARs (#) ($) ($)
--------------------------------- --------- ---------------- ---------- -------------- ------------- -----------------
Scott Frohman
CHIEF EXECUTIVE OFFICER 2004 $175,000 (1) - - - -
Charles Eissa
CHIEF OPERATING OFFICER &
PRESIDENT 2004 $175,000 (1) - - - -
Daniel Brauser
SENIOR VICE PRESIDENT &
SECRETARY 2004 $175,000 (1) - - - -
-------------------------
(1) Amounts accrued by HBDC but not paid. In connection with the consummation
of the Merger, these amounts were converted into shares of our common
stock.
OPTIONS GRANTS IN LAST FISCAL YEAR
As of fiscal year end 2004, no options had been granted. On November
10, 2005, Anthony Verdi, as Chief Financial Officer, received an option grant of
350,000 shares, which vests as follows: 100,000 shares on the six month
anniversary of the grant, 125,000 shares on the first anniversary of the grant
and the remaining 125,000 shares in twelve equal increments at the end of each
calendar month thereafter.
In addition to the foregoing, HBDC previously granted 2,294,500 options
to its existing management and employees, of which 600,000, 500,000 and 500,000
were granted to its founders, Scott Frohman, Charles Eissa and Daniel Brauser,
respectively. These options have an exercise price of $2.50 and vest over four
years, with 25% vesting on November 30, 2006 and the remainder vesting in 36
equal increments at the end of each calendar month thereafter. Pursuant to the
Merger, we have assumed these previously granted options.
EMPLOYMENT AND INDEMNIFICATION AGREEMENTS
Pursuant to a written employment agreement, dated October 10, 2005,
Scott Frohman was named Chief Executive Officer of HBDC. He is paid a salary of
$258,300 per annum and is entitled to receive such bonus compensation as a
majority of the board of directors may determine from time to time. Mr.
Frohman's employment agreement has a term of two years.
Pursuant to a written employment agreement, dated November 18, 2005,
Charles Eissa was named Chief Operating Officer of HBDC. He is paid a salary of
$214,200 per annum and is entitled to receive such bonus compensation as a
majority of the board of directors may determine from time to time. Mr. Eissa's
employment agreement has a term of two years.
Pursuant to a written employment agreement, dated as of October 10,
2005, Daniel Brauser was named Chief Financial Officer of HBDC. As of November
10, 2005, Mr. Brauser resigned as Chief Financial Officer. Pursuant to a written
employment agreement dated as of November 10, 2005, Daniel Brauser was named
Senior Vice President of HBDC. He is paid a salary of $157,500 and is entitled
to receive such bonus compensation as a majority of the board of directors may
determine from time to time. Mr. Brauser's employment agreement has a term of
two years.
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Pursuant to a written employment agreement dated as of November 10,
2005, Anthony Verdi was named Chief Financial Officer of HBDC. He is paid a
salary of $225,000 and is entitled to receive such bonus compensation as a
majority of the board of directors may determine from time to time. Mr. Verdi's
employment agreement has a term of two years.
Pursuant to Director and Officer Indemnification Agreements entered
into with each of our directors and officers, HBDC has agreed to indemnify each
of the above mentioned officers of HBDC to the fullest extent of the law
permitted or required by the State of Delaware.
STOCK OPTION PLANS
On November 18, 2005, HBDC's stockholders approved the Company's 2005
Non-Employee Directors Stock Option Plan (the "Directors Plan"). Effective
November 23, 2005, the Directors Plan was assumed by Darwin-DE and approved by
written consent of a majority of Darwin-DE's stockholders. Key features of the
Directors Plan include:
o Non-employee directors of the Company and its subsidiaries are
eligible to participate in the Directors Plan. The term of the
Directors Plan is eight years. 1,500,000 shares of common
stock have been reserved for issuance under the Directors
Plan.
o Options are issued at "Fair Market Value" as such term is
defined in the Directors Plan (which shall be $1.00 per share
until trading commences in Darwin-DE's common stock).
o Options may only be issued as non-qualified stock options.
o Each newly elected or appointed non-employee director shall be
granted an option to purchase 250,000 shares of common stock,
exercisable as to 40% of such shares on the date which is six
months from the date of grant, exercisable as to 30% of such
shares on the date which is one year from the date of grant
and 30% in twelve equal increments at the end of each calendar
month thereafter.
o Each non-employee director who is appointed Chairman of the
Board shall receive an additional option to purchase 250,000
shares of common stock, exercisable on the same terms as the
other non-employee director options.
o Stockholder approval is required in order to replace or
reprice options.
o The Directors Plan is administered by the board of directors
or a committee designated by the board of directors.
o Options have a maximum of ten years.
o Upon a change in control any unvested position of outstanding
options shall vest and become immediately exercisable ten days
prior to such change in control.
On November 18, 2005, HBDC's stockholders adopted the 2005 Incentive
Stock Plan (the "Incentive Plan"). Effective November 23, 2005, the Incentive
Plan was assumed by Darwin-DE and approved by written consent of a majority of
Darwin-DE's stockholders. The purpose of the Incentive Plan is to encourage
stock ownership by the Company's officers, directors, key employees and
consultants, and to give such persons a greater personal interest in the success
of the business and an added incentive to continue to advance and contribute to
the Company and to attract new directors, officers, consultants, advisors and
employees whose services are considered valuable. The Incentive Plan provides
for the grant of options and the issuance of restricted shares for an aggregate
of 2,750,000 shares of common stock that have been reserved under the Incentive
Plan. Options are issued at "Fair Market Value" as such term is defined in the
Incentive Plan (which shall be $1.00 per share until trading commences in
Darwin-DE's common stock). Both incentive and nonqualified stock options may be
granted under the Incentive Plan and the Incentive Plan terminates on November
18, 2015. As of November 23, 2005, options to purchase 2,644,500 shares have
been granted under the Incentive Plan.
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The exercise price of options granted pursuant to this Incentive Plan
is determined by a committee but the option term may not exceed 10 years. For
holders of 10% or more of the combined voting power of all classes of the
Company's stock, options may not be granted at less than 110% of the fair market
value of the common stock at the date of grant and the option term may not
exceed eight years.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 2005, Scott Frohman, the Company's Chief Executive Officer and a
Director, had advanced HBDC a total of $191,000, accruing interest at 5% per
annum, payable upon the demand of Scott Frohman. Of this amount, $95,500 was
repaid out of the net proceeds of the private placement and $95,500 was
converted into common stock at $1.00 per share upon the closing of the private
placement.
During 2005, Charles Eissa, the Company's Chief Operating Officer,
President and a Director, had advanced HBDC a total of $48,000, accruing
interest at 5% per annum, payable upon the demand of Charles Eissa. Of this
amount, $24,000 was repaid out of the net proceeds of the private placement and
$24,000 was converted into common stock at $1.00 per share upon the closing of
the private placement.
During 2005, Marlin Capital Partners I, LLC had advanced HBDC a total
of $334,400, accruing interest at 5% per annum, payable upon the demand of
Marlin Capital Partners I, LLC. Daniel Brauser, the Company's Senior Vice
President and Secretary, is an affiliate and control person of Marlin Capital
Partners I, LLC. Of this amount, $167,200 was repaid out of the net proceeds of
the private placement and $167,200 was converted into common stock at $1.00 per
share upon the closing of the private placement.
ITEM 3.02. UNREGISTERED SALES OF EQUITY SECURITIES
In connection with the Merger, Darwin-DE completed the closing of a
private placement of a total of 40 units, each unit consisting of 50,000 shares
of our common stock and a detachable, transferable warrant to purchase shares of
our common stock, at a purchase price of $50,000 per unit, to accredited
investors pursuant to the terms of a Confidential Private Offering Memorandum,
dated November 21, 2005, as supplemented. Each warrant entitles the holder to
purchase 25,000 shares of common stock at an exercise price of $1.50 per share
through November 23, 2008, subject to certain redemption provisions. We received
gross proceeds from the private placement of $2,000,000.
The private placement was made solely to "accredited investors," as
that term is defined in Regulation D under the Securities Act. None of the
units, warrants or common stock, or shares of our common stock underlying such
securities, were registered under the Securities Act, or the securities laws of
any state, and were offered and sold in reliance on the exemption from
registration afforded by Section 4(2) and Regulation D (Rule 506) under the
Securities Act and corresponding provisions of state securities laws, which
exempts transactions by an issuer not involving any public offering.
We expect to use a significant portion of net proceeds of the private
placement to fund the Company's growth and for strategic acquisition funding. A
lesser portion of the net proceeds will be used for general and administrative
expenses, SEC compliance and related costs, sales and marketing, capital
marketing initiatives, and the repayment of outstanding indebtedness.
33
We believe that the net proceeds from the private placement available
for our working capital will be sufficient to sustain our operating expenses for
approximately three months after the initial closing of the private placement.
We may need to seek additional sources of financing, including equipment
financing and debt and equity financing, depending on the availability of cash
flow at that time, and our success in further identifying and closing
acquisitions. Any additional equity financing will result in dilution to the
percentage ownership of our stockholders. There is no assurance that we will be
able to obtain additional financing when it is needed, or that such financing,
if available, can be obtained on terms favorable to us and our stockholders.
The Keystone Equities Group, Inc. served as placement agent in
connection with the private placement. The placement agent received (i) a cash
fee of $ 80,000 [4% of the gross proceeds], (ii) warrants to purchase 100,000
shares [5% of the shares sold in the private placement] of our common stock at
an exercise price of $1.50 per share on terms which are identical to those
warrants included in the units and (iii) fees and expenses of the private
placement not to exceed $15,000.
Warren V. Musser provided certain financial advisory services in
connection with the private placement. Pursuant to the terms of his agreement,
he received (i) a cash fee of $ 80,000 [4% of the gross proceeds], (ii) warrants
to purchase 100,000 shares [5% of the shares sold in the private placement] of
our common stock at an exercise price of $1.50 per share on terms which are
identical to those warrants included in the units and (iii) fees and expenses of
the private placement not to exceed $15,000.
DESCRIPTION OF SECURITIES
The Company is authorized to issue 90,000,000 shares of common stock
and 10,000,000 shares of preferred stock. Immediately following the Merger and
the closing of the private placement on November 23, 2005, there were 13,891,471
shares of common stock issued and outstanding and no shares of preferred stock
issued and outstanding.
COMMON STOCK
The holders of common stock are entitled to one vote per share. The
Company's Certificate of Incorporation does not provide for cumulative voting.
The holders of common stock are entitled to receive ratably such dividends, if
any, as may be declared by the board of directors out of legally available
funds. However, the current policy of the board of directors is to retain
earnings, if any, for operations and growth. Upon liquidation, dissolution or
winding-up, the holders of common stock are entitled to share ratably in all
assets that are legally available for distribution. The holders of common stock
have no preemptive, subscription, redemption or conversion rights. The rights,
preferences and privileges of holders of common stock are subject to, and may be
adversely affected by, the rights of the holders of any series of preferred
stock, which may be designated solely by action of the board of directors and
issued in the future.
PREFERRED STOCK
The board of directors is authorized, subject to any limitations
prescribed by law, without further vote or action by the stockholders, to issue
from time to time shares of preferred stock in one or more series. Each such
series of preferred stock shall have such number of shares, designations,
preferences, voting powers, qualifications, and special or relative rights or
privileges as shall be determined by the board of directors, which may include,
among others, dividend rights, voting rights, liquidation preferences,
conversion rights and preemptive rights.
34
OPTIONS
On November 23, 2005, each non-employee member of the board of
directors received an eight-year stock option to purchase 250,000 shares of
common stock with an exercise price equal to $1.00 per share, which vests as
follows: 100,000 shares on the six month anniversary of the grant; 75,000 shares
on the first anniversary of the grant and the remaining 75,000 shares in twelve
equal increments at the end of each calendar month thereafter. Alvin Clemens, as
Chairman, received an additional option grant equal to 250,000 shares with an
exercise price equal to $1.00 per share, which vests as set forth above. Anthony
Verdi, as Chief Financial Officer, received an option grant of 350,000 shares,
which vests as follows: 100,000 shares on the six month anniversary of the
grant, 125,000 shares on the first anniversary of the grant and the remaining
125,000 shares in twelve equal increments at the end of each calendar month
thereafter.
In addition to the foregoing, HBDC previously granted 2,294,500 options
to its existing management and employees, of which 600,000, 500,000 and 500,000
were granted to its founders, Scott Frohman, Charles Eissa and Daniel Brauser,
respectively. These options have an exercise price of $2.50 and vest over four
years, with 25% vesting on November 30, 2006 and the remainder vesting in 36
equal increments at the end of each calendar month thereafter.
WARRANTS
In connection with the private placement, the Company issued three-year
warrants to purchase up to 1,000,000 shares of common stock at $1.50 per share.
In addition, under a Contribution Agreement, at the closing of the private
placement, the Company issued a warrant to acquire 50,000 shares of common stock
under the same terms as the warrants issued to investors in the private
placement. Prior to exercise, the warrants do not confer upon holders any voting
or any other rights as a stockholder.
REGISTRATION RIGHTS
The Company is obligated to file a registration statement with the SEC
within ninety (90) days following the date of the closing of the private
placement (the "Registration Statement Filing Date") covering the resale of the
shares of common stock issued in the private placement and the shares of common
stock issuable upon exercise of the Warrants issued in the private placement. If
the Company does not file the registration statement with the SEC by the
Registration Statement Filing Date, then the Company shall make pro rata
payments to each purchaser of Units, payable in cash, as liquidated damages and
not as a penalty, in an amount equal to 1.0% of the aggregate dollar amount of
Units purchased by such investor for each thirty (30) day period or pro rata for
any portion thereof following the Registration Statement Filing Date by which
such registration statement should have been filed for which no registration
statement is filed. In addition, if the registration statement is not declared
effective by the SEC within ninety (90) days following its filing (the ninetieth
(90th) day following the filing of the registration statement is referred to
herein as the "Registration Statement Effective Date"), then the Company shall
make pro rata payments to each purchaser of Units, payable in cash or common
stock at the Company's election, as liquidated damages and not as a penalty, in
an amount equal to 1.0% of the aggregate dollar amount of Units purchased by
such investor for each thirty (30) day period or pro rata for any portion
thereof following the Registration Statement Effective Date that the
registration statement has not been declared effective. The Company is obligated
to include shares held by the HBDC founders, officers and directors in any
registration filed for investors in the private placement.
Under certain circumstances, the Company is entitled to defer or delay
filing of the registration statement upon the occurrence of certain events, upon
determination of the Company that delay would be in the best interest of the
Company, and in the event that the Company is offering its own securities in an
underwritten public offering.
35
The description of registration rights is qualified in its entirety by
reference to the Registration Rights Agreement filed herewith as Exhibit 10.6.
LOCK-UP AGREEMENTS
All Shares of common stock held by Scott Frohman, Charles Eissa and
Daniel Brauser (together, with the shares held by their respective affiliates)
(the "Lock Up Shares") are subject to lock-up provisions that provide
restrictions on the future sale of common stock by the holders and their
transferees. These lock-up provisions provide, in general, that the Lock Up
Shares may not directly or indirectly, be offered, sold, offered for sell,
contracted for sale, hedged, or otherwise transferred or disposed of for a
period of twelve (12) months following the purchase of such shares in the
private placement and for an additional twelve (12) months thereafter each
holder may only sell up to 50% of such holder's Lock Up Shares. The Company has
agreed that within twelve (12) months following the private placement, subject
to the Lock Up Shares restriction on future sales, that the Company shall file a
registration statement with the SEC covering the resale of the shares of common
stock held by the founders of HBDC and for management shares issued and issuable
under options and other awards, which shares may be included in any Registration
Statement on Form SB-2 covering the resale of the shares of common stock sold in
the private placement and the shares of common stock issuable upon exercise of
the Warrants.
MARKET PRICE AND DIVIDENDS
HBDC is, and has always been a privately held company and now is a
wholly-owned subsidiary of the Company. There is not, and never has been a
public market for the securities of HBDC. HBDC has never declared or paid any
cash dividends on its capital stock. In addition, there has never been a trading
market for Darwin-NV's common stock.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") provides,
in general, that a corporation incorporated under the laws of the State of
Delaware, such as the Company, may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than a derivative action by or in the right of the
corporation) by reason of the fact that such person is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee or agent of another
enterprise, against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person in
connection with such action, suit or proceeding if such person acted in good
faith and in a manner such person reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe such person's conduct was
unlawful. In the case of a derivative action, a Delaware corporation may
indemnify any such person against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of such action or suit if such person acted in good faith and in a
manner such person reasonably believed to be in or not opposed to the best
interests of the corporation, except that no indemnification will be made in
respect of any claim, issue or matter as to which such person will have been
adjudged to be liable to the corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or any other court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnity for such expenses.
The Company's Certificate of Incorporation and Bylaws provide that the
Company will indemnify the Company's directors, officers, employees and agents
to the extent and in the manner permitted by the provisions of the DGCL, as
36
amended from time to time, subject to any permissible expansion or limitation of
such indemnification, as may be set forth in any stockholders' or directors'
resolution or by contract. The Company also has director and officer
indemnification agreements with each of its executive officers and directors
that provide, among other things, for the indemnification to the fullest extent
permitted or required by Delaware law, provided that such indemnitee shall not
be entitled to indemnification in connection with any "claim" (as such term is
defined in the agreement) initiated by the indemnitee against the Company or the
Company's directors or officers unless the Company joins or consents to the
initiation of such claim, or the purchase and sale of securities by the
indemnitee in violation of Section 16(b) of the Exchange Act.
Any repeal or modification of these provisions approved by the
Company's stockholders shall be prospective only, and shall not adversely affect
any limitation on the liability of a director or officer of the Company existing
as of the time of such repeal or modification.
The Company is also permitted to apply for insurance on behalf of any
director, officer, employee or other agent for liability arising out of his
actions, whether or not the DGCL would permit indemnification.
In addition, pursuant to the Company prospective acquisition
agreements, if the sellers are entitled to indemnification, for any reason,
including but not limited to a breach of a representation or warranty, the
Company may become obligated to issue additional shares of common stock in an
aggregate amount equal to the amount of damages divided by the fair market value
of the common stock or pay such amounts in cash.
ANTI-TAKEOVER EFFECT OF DELAWARE LAW, CERTAIN BY-LAW PROVISIONS
Certain provisions of the Company's By-Laws are intended to strengthen
the board of directors' position in the event of a hostile takeover attempt.
These provisions have the following effects:
o they provide that directors shall hold office for two-year
periods;
o they provide that only business brought before an annual
meeting by the board of directors or by a stockholder who
complies with the procedures set forth in the By-Laws may be
transacted at an annual meeting of stockholders; and
o they provide for advance notice or certain stockholder
actions, such as the nomination of directors and stockholder
proposals.
The Company is subject to the provisions of Section 203 of the DGCL, an
anti-takeover law. In general, Section 203 prohibits a publicly held Delaware
corporation from engaging in a "business combination" with an "interested
stockholder" for a period of three years after the date of the transaction in
which the person became an interested stockholder, unless the business
combination is approved in a prescribed manner. For purposes of Section 203, a
"business combination" includes a merger, asset sale or other transaction
resulting in a financial benefit to the interested stockholder, and an
"interested stockholder" is a person who, together with affiliates and
associates, owns, or within three years prior, did own, 15% or more of the
voting stock.
TRADING INFORMATION
Our common stock is currently quoted on the OTC Bulletin Board but is
not trading. As soon as practicable, and assuming we satisfy all necessary
initial listing requirements, we intend to apply our common stock for trading on
37
the American Stock Exchange or Nasdaq SmallCap Market, although we cannot be
certain that this application will be approved.
The transfer agent for our common stock is Pacific Stock Transfer
Company, 500 E. Warm Springs Road, Suite 240, Las Vegas, Nevada 89119. The
Company will serve as warrant agent for the outstanding warrants.
ITEM 5.01. CHANGES IN CONTROL OF REGISTRANT.
Reference is made to the disclosure set forth under Item 2.01 of this
Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
ITEM 5.02. DEPARTURE OF DIRECTORS OR PRINCIPAL OFFICERS; ELECTION OF
DIRECTORS; APPOINTMENT OF PRINCIPAL OFFICERS.
In connection with the closing of the Merger, Darwin-DE's sole officer
and director that was serving prior to the closing of the Merger resigned as of
November 23, 2005, the effective date of the Merger. Pursuant to the terms of
the Merger Agreement, the new directors and officers of the Company are as set
forth therein. Reference is made to the disclosure set forth under Item 2.01 of
this Current Report on Form 8-K, which disclosure is incorporated herein by
reference.
ITEM 5.03. AMENDMENTS TO CERTIFICATE OF INCORPORATION OR BYLAWS
On November 23, 2005, the Company's newly elected board of directors
approved an amendment to its certificate of incorporation, recommending a change
of its name from Darwin Resources Corp. to "Health Benefits Direct Corporation".
On November 23, 2005, stockholders representing the requisite number of votes
necessary to approve an amendment to the certificate of incorporation took
action via written consent, approving the corporate name change. On November 23,
2005, the Company filed the amendment to the certificate of incorporation with
the Secretary of State of the State of Delaware.
ITEM 5.06. CHANGE IN SHELL COMPANY STATUS
As a result of the consummation of the Merger described in Items 1.01
and 2.01 of this Form 8-K, we believe that the Company is no longer a shell
corporation as that term is defined in Rule 405 of the Securities Act and Rule
12b-2 of the Exchange Act.
ITEM 7.01. REGULATION FD DISCLOSURE
In connection with the private placement of units that is being
consummated with the Merger, the potential investors in the private placement
received certain information relating to projections made by the Company's
management. Such projections are included with this Current Report on Form 8-K
as Exhibit 99.1 attached hereto. The projections were not prepared with a view
towards public disclosure or compliance with published guidelines of the SEC,
the guidelines established by the American Institute of Certified Public
Accountants for Prospective Financial Information, or generally accepted
accounting principles. The Company's certified public accountants have not
examined or compiled any of these projections or expressed any conclusion or
provided any form of assurance with respect to the projections and, accordingly,
assume no responsibility for them. The information included in Exhibit 99.1 is
being furnished and shall not be deemed "filed" for purposes of Section 18 of
the Exchange Act, or otherwise subject to the liabilities of such section. The
information in this Report under Item 7.01 and at Exhibit 99.1 shall not be
incorporated by reference into any filing under the Securities Act or the
Exchange Act regardless of any incorporation by reference language in any such
filing. This Report will not be deemed an admission as to the materiality of any
information in this Report that is being disclosed pursuant to the Item 7.01.
The document that is being disclosed pursuant to this Item 7.01 as
Exhibit 99.1 to this Report, contains forward-looking statements (as defined in
Section 27A of the Securities Act and Section 21E of the Exchange Act) that are
not historical facts, but rather are based on current expectations, estimates
and projections about the Company's business, the Company's beliefs and
assumptions. Forward-looking statements can be identified by the use of words
such as "expects," "plans" "will," "may," "anticipates," "believes," "should,"
"intends," "estimates," "projects" and other words of similar meaning. These
statements are not guarantees of future performance and are subject to risks and
uncertainties that cannot be predicted or quantified and consequently, actual
results may differ materially from those expressed or implied by such
38
forward-looking statements. Such risks and uncertainties include those outlined
in "Risk Factors" above.
Persons are cautioned not to place undue reliance on these
forward-looking statements, which reflect management's view only as of the date
on which they were made. The Company undertakes no obligation to update these
statements or publicly release the results of any revisions to the
forward-looking statements that appear in the information disclosed pursuant to
this Item 7.01 to reflect events or circumstances after the date of this Report,
the date of the accompanying materials included in Exhibit 99.1, or the date of
any documents incorporated by reference or to reflect the occurrence of
unanticipated events.
ITEM 9.01. FINANCIAL STATEMENTS AND EXHIBITS
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED. In accordance
with Item 9.01(a), HBDC's audited financial statements for the fiscal year ended
December 31, 2004 and HBDC's unaudited financial statements for the interim
period ended September 30, 2005 are filed in this Current Report on Form 8-K as
Exhibit 99.2.
(b) PRO FORMA FINANCIAL INFORMATION. In accordance with Item
9.01(b), our pro forma financial statements are filed in this Current Report on
Form 8-K as Exhibit 99.3.
(d) Exhibits.
The exhibits listed in the following Exhibit Index are filed as part of
this Current Report on Form 8-K.
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger, dated as of November 23, 2005,
by and among Darwin-DE, Health Benefits Direct Corporation,
and HBDC II, Inc.
3.1 Certificate of Incorporation of Darwin-DE (incorporated herein
by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed with the Commission on November 22, 2005)
3.2 Certificate of Ownership and Merger merging Darwin-NV and
Darwin-DE (incorporated herein by reference to Exhibit 2.2 to
the Company's Current Report on Form 8-K filed with the
Commission on November 22, 2005)
3.3 Certificate of Amendment to Certificate of Incorporation of
Darwin-DE, changing name to Health Benefits Direct Corporation
3.4 Certificate of Merger of HBDC II, Inc. with and into Health
Benefits Direct Corporation
3.5 Bylaws of Darwin-DE (incorporated herein by reference to
Exhibit 3.2 to the Company's Current Report on Form 8-K filed
with the Commission on November 22, 2005)
4.1 Form of Common Stock Purchase Warrant Certificate
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10.1 Health Benefits Direct Corporation 2005 Incentive Stock Plan
10.2 Health Benefits Direct Corporation 2005 Non-Employee Directors
Stock Option Plan
10.3 Placement Agent Agreement, dated October 19, 2005, by and
between Keystone Equities Group, Inc. and Health Benefits
Direct Corp.
10.4 Final Term Sheet, dated as of November 15, 2005, by and among
Health Benefits Direct Corporation, Keystone Equities Group,
Inc. and The Musser Group LLC
10.5 Form of Private Placement Subscription Agreement
10.6 Form of Health Benefits Direct Corporation Registration Rights
Agreement
10.7 Lease Agreement dated February 9, 2004 by and between Case
Holding Co. and Platinum Partners, LLC for 2900 Gateway Drive,
Pompano Beach, Florida
10.8 Managing General Agents Agreement by and between Michael
Tobias (Health Benefits Direct) and Health Plan
Administrators, Inc., dated as of November 11, 2005
10.9 Marketer/Agent Bonus Compensation Agreement by and between
Health Benefits Direct Corporation and Continental General
Insurance Products, dated as of May 10, 2005
10.10 Schedule of Commissions by and between Health Benefits Direct
Corporation and Continental General Insurance Products, dated
as of May 10, 2005
10.11 Marketer/Agent Compensation Agreement by and between Health
Benefits Direct Corporation and Jefferson National Life
Insurance Company, dated as of May 10, 2005
10.12 Managing General Agent Contract by and between Health Benefits
Direct Corporation and America's Health Care Plan/Rx America
Agency, Inc.
10.13 Marketer/Agent Compensation Agreement by and between Health
Benefits Direct Corporation and Golden Rule Insurance
Products, dated as of May 10, 2005
10.14 Employment Agreement dated October 10, 2005, by and Between
Health Benefits Direct Corporation and Scott Frohman
10.15 Employment Agreement dated November 18, 2005, by and between
Health Benefits Direct Corporation and Charles Eissa
10.16 Employment Agreement dated November 10, 2005, by and between
Health Benefits Direct Corporation and Daniel Brauser
10.17 Employment Agreement dated November 10, 2005, by and between
Health Benefits Direct Corporation and Anthony Verdi
40
10.18 Director and Officer Indemnification Agreement dated November
15, 2005, between Health Benefits Direct Corporation and Scott
Frohman
10.19 Director and Officer Indemnification Agreement dated November
18, 2005, between Health Benefits Direct Corporation and
Charles Eissa
10.20 Director and Officer Indemnification Agreement dated November
15, 2005, between Health Benefits Direct Corporation and
Daniel Brauser
10.21 Director and Officer Indemnification Agreement dated November
10, 2005, between Health Benefits Direct Corporation and
Anthony Verdi
10.22 Securities Contribution Agreement dated as of September 9,
2005, by and among Health Benefits Direct Corporation, Marlin
Capital Partners I, LLC, Scott Frohman, Charles Eissa,
Platinum Partners II LLC and Dana Boskoff
10.23 Letter from Robert Ferguson dated as of November 23, 2005,
resigning as a director and officer of Darwin-DE and its
subsidiaries
10.24 Lockup Agreement, dated as of November 23, 2005, by and among
Health Benefits Direct Corporation, Scott Frohman, Charles
Eissa and Daniel Brauser
10.25 Advisory Agreement dated as of November 1, 2005, by and
between Health Benefits Direct Corporation and Warren V.
Musser
99.1 Financial Projections
99.2 Health Benefits Direct Corporation Financial Statements for
the period from January 27, 2004 (inception) through December
31, 2004 and for the nine months ended September 30, 2005
(unaudited) and for the period from January 27, 2004
(inception) through September 30, 2004 (unaudited)
99.3 Unaudited pro forma consolidated balance sheet for the year
ended December 31, 2004 and for the nine months ended
September 30, 2005 and unaudited pro forma consolidated
statement of operations for the year ended December 31, 2004
and for the nine months ended September 30, 2005
41
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: November 30, 2005 HEALTH BENEFITS DIRECT CORPORATION
By: /s/ Scott Frohman
------------------------------
Scott Frohman
Chief Executive Officer
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
----------- -----------
2.1 Agreement and Plan of Merger, dated as of November 23, 2005,
by and among Darwin-DE, Health Benefits Direct Corporation,
and HBDC II, Inc.
3.1 Certificate of Incorporation of Darwin-DE (incorporated herein
by reference to Exhibit 3.1 to the Company's Current Report on
Form 8-K filed with the Commission on November 22, 2005)
3.2 Certificate of Ownership and Merger merging Darwin-NV and
Darwin-DE (incorporated herein by reference to Exhibit 2.2 to
the Company's Current Report on Form 8-K filed with the
Commission on November 22, 2005)
3.3 Certificate of Amendment to Certificate of Incorporation of
Darwin-DE, changing name to Health Benefits Direct Corporation
3.4 Certificate of Merger of HBDC II, Inc. with and into Health
Benefits Direct Corporation
3.5 Bylaws of Darwin-DE (incorporated herein by reference to
Exhibit 3.2 to the Company's Current Report on Form 8-K filed
with the Commission on November 22, 2005)
4.1 Form of Common Stock Purchase Warrant Certificate
10.1 Health Benefits Direct Corporation 2005 Incentive Stock Plan
10.2 Health Benefits Direct Corporation 2005 Non-Employee Directors
Stock Option Plan
10.3 Placement Agent Agreement, dated October 19, 2005, by and
between Keystone Equities Group, Inc. and Health Benefits
Direct Corp.
10.4 Final Term Sheet, dated as of November 15, 2005, by and among
Health Benefits Direct Corporation, Keystone Equities Group,
Inc. and The Musser Group LLC
10.5 Form of Private Placement Subscription Agreement
10.6 Form of Health Benefits Direct Corporation Registration Rights
Agreement
10.7 Lease Agreement dated February 9, 2004 by and between Case
Holding Co. and Platinum Partners, LLC for 2900 Gateway Drive,
Pompano Beach, Florida
10.8 Managing General Agents Agreement by and between Michael
Tobias (Health Benefits Direct) and Health Plan
Administrators, Inc., dated as of November 11, 2005
10.9 Marketer/Agent Bonus Compensation Agreement by and between
Health Benefits Direct Corporation and Continental General
Insurance Products, dated as of May 10, 2005
10.10 Schedule of Commissions by and between Health Benefits Direct
Corporation and Continental General Insurance Products, dated
as of May 10, 2005
10.11 Marketer/Agent Compensation Agreement by and between Health
Benefits Direct Corporation and Jefferson National Life
Insurance Company, dated as of May 10, 2005
10.12 Managing General Agent Contract by and between Health Benefits
Direct Corporation and America's Health Care Plan/Rx America
Agency, Inc.
10.13 Marketer/Agent Compensation Agreement by and between Health
Benefits Direct Corporation and Golden Rule Insurance
Products, dated as of May 10, 2005
10.14 Employment Agreement dated October 10, 2005, by and Between
Health Benefits Direct Corporation and Scott Frohman
10.15 Employment Agreement dated November 18, 2005, by and between
Health Benefits Direct Corporation and Charles Eissa
10.16 Employment Agreement dated November 10, 2005, by and between
Health Benefits Direct Corporation and Daniel Brauser
10.17 Employment Agreement dated November 10, 2005, by and between
Health Benefits Direct Corporation and Anthony Verdi
10.18 Director and Officer Indemnification Agreement dated November
15, 2005, between Health Benefits Direct Corporation and Scott
Frohman
10.19 Director and Officer Indemnification Agreement dated November
18, 2005, between Health Benefits Direct Corporation and
Charles Eissa
10.20 Director and Officer Indemnification Agreement dated November
15, 2005, between Health Benefits Direct Corporation and
Daniel Brauser
10.21 Director and Officer Indemnification Agreement dated November
10, 2005, between Health Benefits Direct Corporation and
Anthony Verdi
10.22 Securities Contribution Agreement dated as of September 9,
2005, by and among Health Benefits Direct Corporation, Marlin
Capital Partners I, LLC, Scott Frohman, Charles Eissa,
Platinum Partners II LLC and Dana Boskoff
10.23 Letter from Robert Ferguson dated as of November 23, 2005,
resigning as a director and officer of Darwin-DE and its
subsidiaries
10.24 Lockup Agreement, dated as of November 23, 2005, by and among
Health Benefits Direct Corporation, Scott Frohman, Charles
Eissa and Daniel Brauser
10.25 Advisory Agreement dated as of November 1, 2005, by and
between Health Benefits Direct Corporation and Warren V.
Musser
99.1 Financial Projections
99.2 Health Benefits Direct Corporation Financial Statements for
the period from January 27, 2004 (inception) through December
31, 2004 and for the nine months ended September 30, 2005
(unaudited) and for the period from January 27, 2004
(inception) through September 30, 2004 (unaudited)
99.3 Unaudited pro forma consolidated balance sheet for the year
ended December 31, 2004 and for the nine months ended
September 30, 2005 and unaudited pro forma consolidated
statement of operations for the year ended December 31, 2004
and for the nine months ended September 30, 2005
Exhibit 2.1
================================================================================
AGREEMENT OF MERGER AND
PLAN OF REORGANIZATION
among
DARWIN RESOURCES CORP.
HBDC II, INC. and
HEALTH BENEFITS DIRECT CORPORATION
November 23, 2005
================================================================================
TABLE OF CONTENTS
1. The Merger.................................................................1
1.1 Merger................................................................1
1.2 Effective Time........................................................1
1.3 Certificate of Incorporation, By-laws, Directors and Officers.........2
1.4 Assets and Liabilities................................................2
1.5 Manner and Basis of Converting Shares.................................2
1.6 Surrender and Exchange of Certificates................................3
1.7 Parent Common Stock...................................................4
1.8 Operation of Surviving Corporation....................................4
1.9 Further Assurances....................................................4
2. Representations and Warranties of the Company..............................4
2.1 Organization, Standing, Subsidiaries, Etc.............................4
2.2 Qualification.........................................................4
2.3 Capitalization of the Company.........................................5
2.4 Indebtedness..........................................................5
2.5 Company Stockholders..................................................5
2.6 Corporate Acts and Proceedings........................................5
2.7 Compliance with Laws and Instruments..................................5
2.8 Binding Obligations...................................................6
2.9 Broker's and Finder's Fees............................................6
2.10 Financial Statements.................................................6
2.11 Absence of Undisclosed Liabilities...................................7
2.12 Changes..............................................................7
2.13 Schedule of Assets and Contracts.....................................8
2.14 Employees...........................................................10
2.15 Tax Returns and Audits..............................................10
2.16 Patents and Other Intangible Assets.................................10
2.17 Employee Benefit Plans; ERISA.......................................11
2.18 Title to Property and Encumbrances..................................12
2.19 Condition of Properties.............................................12
2.20 Insurance Coverage..................................................12
2.21 Litigation..........................................................13
2.22 Licenses............................................................13
2.23 Interested Party Transactions.......................................13
2.24 Environmental Matters...............................................13
2.25 Questionable Payments...............................................14
2.26 Obligations to or by Stockholders...................................14
2.27 Duty to Make Inquiry................................................14
2.28 Disclosure..........................................................14
3. Representations and Warranties of Parent and Acquisition Corp.............15
3.1 Organization and Standing............................................15
3.2 Corporate Authority..................................................15
3.3 Broker's and Finder's Fees...........................................15
3.4 Capitalization of Parent.............................................16
i
3.5 Acquisition Corp.....................................................16
3.6 Validity of Shares...................................................16
3.7 SEC Reporting and Compliance.........................................16
3.8 Financial Statements.................................................17
3.9 Governmental Consents................................................17
3.10 Compliance with Laws and Other Instruments..........................17
3.11 No General Solicitation.............................................18
3.12 Binding Obligations.................................................18
3.13 Absence of Undisclosed Liabilities..................................18
3.14 Changes.............................................................18
3.15 Tax Returns and Audits..............................................19
3.16 Employee Benefit Plans; ERISA.......................................19
3.17 Litigation..........................................................20
3.18 Interested Party Transactions.......................................20
3.19 Questionable Payments...............................................20
3.20 Obligations to or by Stockholders...................................21
3.21 Schedule of Assets and Contracts....................................21
3.22 Employees...........................................................22
3.23 Disclosure..........................................................22
4. Additional Representations, Warranties and Covenants of the Stockholders..22
5. Conduct of Businesses Pending the Merger..................................22
5.1 Conduct of Business by the Company Pending the Merger................22
5.2 Conduct of Business by Parent and Acquisition Corp...................23
6. Additional Agreements.....................................................24
6.1 Access and Information...............................................24
6.2 Additional Agreements................................................25
6.3 Publicity............................................................25
6.4 Appointment of Directors and Officers................................26
6.5 Parent Name Change and Exchange Listing..............................26
7. Conditions of Parties' Obligations........................................26
7.1 Parent and Acquisition Corp..........................................26
7.2 Company Obligations..................................................27
8. Non-Survival of Representations and Warranties............................29
9. Amendment of Agreement....................................................30
10. Definitions..............................................................30
11. Closing..................................................................33
12. Indemnification and Related Matters......................................34
12.1 Indemnification by Parent...........................................34
12.2 Survival............................................................34
12.3 Time Limitations....................................................34
12.4 Limitation on Liability.............................................34
12.5 Notice of Claims....................................................35
12.6 Payment of Damages..................................................36
13. Termination Prior to Closing.............................................36
13.1 Termination of Agreement............................................36
13.2 Termination of Obligations..........................................36
ii
14. Miscellaneous............................................................37
14.1 Notices.............................................................37
14.2 Entire Agreement....................................................37
14.3 Expenses............................................................37
14.4 Dispute Resolution..................................................37
14.5 Time................................................................38
14.6 Severability........................................................38
14.7 Successors and Assigns..............................................38
14.8 No Third Parties Benefited..........................................38
14.9 Counterparts........................................................38
14.10 Recitals, Schedules and Exhibits...................................38
14.11 Section Headings and Gender........................................39
14.12 Governing Law......................................................39
iii
LIST OF EXHIBITS AND SCHEDULES
EXHIBITS
A Certificate of Merger
B Certificate of Incorporation of the Company
C By-laws of the Company
D Directors and Officers of the Surviving Corporation and Parent
E Form of Opinion of Parent's Counsel
F Releases of Officers of Parent
COMPANY DISCLOSURE SCHEDULES
1.5 Holders of Parent Common Stock Post-Merger
1.5A Holders of Parent Common Stock Post-Merger Under the Options and
Warrants
2.2 Jurisdictions Qualified to do Business
2.7 Compliance with Laws
2.13(a) Schedule of Leased Real and Personal Property
2.13(b) Material Agreements
2.13(c) Schedule of Insurance
2.13(d) Schedule of Company Bank Accounts
2.13(e) Schedule of Patents and Other Intangible Assets
PARENT DISCLOSURE SCHEDULES
3.21 Schedule of Assets and Contracts
iv
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
THIS AGREEMENT OF MERGER AND PLAN OF REORGANIZATION is made and entered into on
November 22, 2005, by and among DARWIN RESOURCES CORP., a Delaware corporation
("PARENT"), HBDC II, INC., a Delaware corporation ("ACQUISITION CORP."), which
is a wholly-owned subsidiary of Parent, and HEALTH BENEFITS DIRECT CORPORATION,
a Delaware corporation (the "COMPANY").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Board of Directors of each of Acquisition Corp., Parent and the
Company have each determined that it is fair to and in the best interests of
their respective corporations and stockholders for the Company to be merged with
and into Acquisition Corp. (the "MERGER") upon the terms and subject to the
conditions set forth herein;
WHEREAS, the Board of Directors of Acquisition Corp. and the Board of Directors
of the Company have approved the Merger in accordance with the General
Corporation Law of the State of Delaware (the "DGCL"), and upon the terms and
subject to the conditions set forth herein and in the Certificate of Merger (the
"CERTIFICATE OF MERGER") attached as EXHIBIT A hereto; and the Board of
Directors of Parent also has approved this Agreement and the Certificate of
Merger;
WHEREAS, the requisite Stockholders (as such term is defined in Section 10
hereof) have approved by written consent pursuant to Section 228(a) of the DGCL
this Agreement and the Certificate of Merger and the transactions contemplated
and described hereby and thereby, including without limitation the Merger, and
Parent, as the sole stockholder of Acquisition Corp., has approved this
Agreement, the Certificate of Merger and the transactions contemplated and
described hereby and thereby, including without limitation the Merger;
WHEREAS, the parties hereto intend that the Merger contemplated herein shall
qualify as a reorganization within the meaning of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"), by reason of Section
368(a)(2)(E) of the Code.
NOW, THEREFORE, in consideration of the mutual agreements and covenants
hereinafter set forth, the parties hereto agree as follows:
1. The Merger.
1.1 MERGER. Subject to the terms and conditions of this Agreement
and the Certificate of Merger, the Company shall be merged with and into
Acquisition Corp. in accordance with Section 251 of the DGCL. At the Effective
Time (as hereinafter defined), the separate legal existence of Acquisition Corp.
shall cease, and the Company shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "SURVIVING CORPORATION") and shall
continue its corporate existence under the laws of the State of Delaware under
the name "HBDC II, INC."
1.2 EFFECTIVE TIME. The Merger shall become effective on the date
and at the time the Certificate of Merger is filed with the Secretary of State
of the State of Delaware in accordance with Section 251 of the DGCL. The time at
which the Merger shall become effective as aforesaid is referred to hereinafter
as the "Effective Time."
1
1.3 CERTIFICATE OF INCORPORATION, BY-LAWS, DIRECTORS AND OFFICERS.
(a) The Certificate of Incorporation of the Company, as in
effect immediately prior to the Effective Time, attached as EXHIBIT B hereto,
shall be the Certificate of Incorporation of the Surviving Corporation from and
after the Effective Time until amended in accordance with applicable law.
(b) The By-laws of the Company, as in effect immediately prior
to the Effective Time, attached as EXHIBIT C hereto, shall be the By-laws of the
Surviving Corporation from and after the Effective Time until amended in
accordance with applicable law, the Certificate of Incorporation and such
By-laws.
(c) The directors, officers and key employees listed in EXHIBIT
D hereto shall be the directors, officers and key employees of the Surviving
Corporation, and each shall hold his respective office or offices from and after
the Effective Time until his successor shall have been elected and shall have
qualified in accordance with applicable law, or as otherwise provided in the
Certificate of Incorporation or By-laws of the Surviving Corporation.
1.4 ASSETS AND LIABILITIES. At the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises of a
public as well as of a private nature, and be subject to all the restrictions,
disabilities and duties of each of Acquisition Corp and the Company
(collectively, the "Constituent Corporations"); and all the rights, privileges,
powers and franchises of each of the Constituent Corporations, and all property,
real, personal and mixed, and all debts due to any of the Constituent
Corporations on whatever account, as well for stock subscriptions as all other
things in action or belonging to each of the Constituent Corporations, shall be
vested in the Surviving Corporation; and all property, rights, privileges,
powers and franchises, and all and every other interest shall be thereafter as
effectively the property of the Surviving Corporation as they were of the
several and respective Constituent Corporations, and the title to any real
estate vested by deed or otherwise in either of the such Constituent
Corporations shall not revert or be in any way impaired by the Merger; but all
rights of creditors and all liens upon any property of any of the Constituent
Corporations shall be preserved unimpaired, and all debts, liabilities and
duties of the Constituent Corporations shall thenceforth attach to the Surviving
Corporation, and may be enforced against it to the same extent as if said debts,
liabilities and duties had been incurred or contracted by it.
1.5 MANNER AND BASIS OF CONVERTING SHARES.
(a) At the Effective Time:
(i) each share of common stock, par value $0.001 per share,
of Acquisition Corp. that shall be outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive onen (1) share of
common stock, par value $0.001 per share, of the Surviving Corporation, so that
at the Effective Time, Parent shall be the holder of all of the issued and
outstanding shares of the Surviving Corporation;
(ii) the shares of common stock, par value $0.001 per share,
of the Company (the "COMPANY COMMON STOCK"), beneficially owned by the
Stockholders listed in SCHEDULE 1.5 (other than shares of Company Common Stock
2
as to which appraisal rights are perfected pursuant to the applicable provisions
of the DGCL and not withdrawn or otherwise forfeited and shares of Company
Common Stock set forth in Section 1.5(a)(ii) hereof), shall, by virtue of the
Merger and without any action on the part of the holders thereof, be converted
into the right to receive the number of shares of Parent Common Stock specified
in SCHEDULE 1.5 for each of the Stockholders, which shall be equal to one (1)
share of Parent Common Stock for each share of Company Common Stock;
(iii) the right to acquire any shares of Company Common
Stock under any Warrants or Options listed on SCHEDULE 1.5A shall, by virtue of
the Merger and without any action on the part of the holders of such Warrants or
Options, the Company, the Surviving Corporation, or the Parent, be converted
into the right to receive the number of shares of Parent Common Stock specified
in Warrant or Option for each share of Company Common Stock, at the exercise
price per share stated in such Warrant or Option of the Company, including all
obligations to issue such shares of Company Common Stock upon satisfaction of
any and all conditions or agreements affecting such issuance by the holder
thereof or the Company (including, without limitation, any vesting conditions or
other restrictions and the obligation to register such shares under the
Securities Act of 1933, as amended, if any) which conditions, restrictions, and
obligations shall expressly be assumed by the Parent as its obligation and
continued with respect to such holders and the Parent shall assume all of the
obligations of the Company under the Warrants and Options following the
Effective Time; and
(iv) each share of Company Common Stock held in the treasury
of the Company immediately prior to the Effective Time shall be cancelled in the
Merger and cease to exist.
(b) After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the Surviving
Corporation of the shares of Company Common Stock that were outstanding
immediately prior to the Effective Time.
1.6 SURRENDER AND EXCHANGE OF CERTIFICATES. Promptly after the
Effective Time and upon (i) surrender of a certificate or certificates
representing shares of Company Common Stock that were outstanding immediately
prior to the Effective Time or an affidavit and indemnification in form
reasonably acceptable to counsel for the Parent stating that such Stockholder
has lost their certificate or certificates or that such have been destroyed and
(ii) delivery of a Letter of Transmittal (as described in Section 4 hereof),
Parent shall issue to each record holder of the Company Common Stock
surrendering such certificate or certificates and Letter of Transmittal, a
certificate or certificates registered in the name of such Stockholder
representing the number of shares of Parent Common Stock that such Stockholder
shall be entitled to receive as set forth in Section 1.5(a)(ii) hereof. Until
the certificate, certificates or affidavit is or are surrendered together with
the Letter of Transmittal as contemplated by this Section 1.6 and Section 4
hereof, each certificate or affidavit that immediately prior to the Effective
Time represented any outstanding shares of Company Common Stock shall be deemed
at and after the Effective Time to represent only the right to receive upon
surrender as aforesaid the Parent Common Stock specified in SCHEDULE 1.5 hereof
for the holder thereof or to perfect any rights of appraisal which such holder
may have pursuant to the applicable provisions of the DGCL.
3
1.7 PARENT COMMON STOCK. Parent agrees that it will cause the Parent
Common Stock into which the Company Common Stock is converted at the Effective
Time pursuant to Section 1.5(a)(ii) and which Parent Stock may be issued
following the Effective Time pursuant to Section 1.5(a)(iii) pursuant to
Warrants or Options to be available for such purposes. Parent further covenants
that immediately following the Effective Time, Parent will effect cancellations
of its outstanding shares of Common Stock and that there will be no more than
2,791,471 shares of Parent Common Stock issued and outstanding, and that no
other common or preferred stock or equity securities or any options, warrants,
rights or other agreements or instruments convertible, exchangeable or
exercisable into common or preferred stock or other equity securities shall be
issued or outstanding, except as described herein.
1.8 OPERATION OF SURVIVING CORPORATION. The Company acknowledges
that upon the effectiveness of the Merger, and the material compliance by the
Parent and Acquisition Corp. of its duties and obligations hereunder, Parent
shall have the absolute and unqualified right to deal with the assets and
business of the Surviving Corporation as its own property without limitation on
the disposition or use of such assets or the conduct of such business.
1.9 FURTHER ASSURANCES. From time to time, from and after the
Effective Time, as and when reasonably requested by Parent, the proper officers
and directors of the Company as of the Effective Time shall, for and on behalf
and in the name of the Company or otherwise, execute and deliver all such deeds,
bills of sale, assignments and other instruments and shall take or cause to be
taken such further actions as Parent, Acquisition Corp. or their respective
successors or assigns reasonably may deem necessary or desirable in order to
confirm or record or otherwise transfer to the Surviving Corporation title to
and possession of all of the properties, rights, privileges, powers, franchises
and immunities of the Company or otherwise to carry out fully the provisions and
purposes of this Agreement and the Certificate of Merger.
2. Representations and Warranties of the Company. The Company hereby
represents and warrants to Parent and Acquisition Corp. as follows:
2.1 ORGANIZATION, STANDING, SUBSIDIARIES, ETC.
(a) The Company is a corporation duly organized and existing in
good standing under the laws of the State of Delaware, and has all requisite
power and authority (corporate and other) to carry on its business, to own or
lease its properties and assets, to enter into this Agreement and the
Certificate of Merger and to carry out the terms hereof and thereof. Copies of
the Certificate of Incorporation and By-laws of the Company that have been
delivered to Parent and Acquisition Corp. prior to the execution of this
Agreement are true and complete and have not since been amended or repealed.
(b) The Company has no subsidiaries or direct or indirect
interest (by way of stock ownership or otherwise) in any firm, corporation,
limited liability company, partnership, association or business.
2.2 QUALIFICATION. The Company is duly qualified to conduct
business as a foreign corporation and is in good standing in each jurisdiction
wherein the nature of its activities or its properties owned or leased makes
such qualification necessary, except where the failure to be so qualified would
not have a material adverse effect on the condition (financial or otherwise),
4
properties, assets, liabilities, business operations, results of operations or
prospects of the Company taken as a whole (the "CONDITION OF THE COMPANY").
SCHEDULE 2.2 sets forth a list of the jurisdictions in which the Company is so
qualified to conduct business.
2.3 CAPITALIZATION OF THE COMPANY. The authorized capital stock of
the Company consists of 90,000,000 shares of Company Common Stock and 10,000,000
shares of Preferred Stock, and the Company has no authority to issue any other
capital stock. There are 7,800,000 shares of Company Common Stock issued and
outstanding and no shares of Preferred Stock issued and outstanding, and such
shares are duly authorized, validly issued, fully paid and non-assessable, and
none of such shares have been issued in violation of the preemptive rights of
any person. The offer, issuance and sale of such shares of Company Common Stock
were (a) exempt from the registration and prospectus delivery requirements of
the Securities Act, (b) registered or qualified (or were exempt from
registration or qualification) under the registration or qualification
requirements of all applicable state securities laws and (c) accomplished in
conformity with all other applicable securities laws. None of such shares of
Company Stock are subject to a right of withdrawal or a right of rescission
under any federal or state securities or blue-sky law. Except as otherwise set
forth in this Agreement or any Schedule hereto, the Company has no outstanding
options, rights or commitments to issue Company Common Stock or other Equity
Securities of the Company, and there are no outstanding securities convertible
or exercisable into or exchangeable for Company Common Stock or other Equity
Securities of the Company.
2.4 INDEBTEDNESS. The Company has no Indebtedness for Borrowed
Money, except as otherwise set forth in the Agreement or any Schedule hereto or
disclosed on the Balance Sheet.
2.5 COMPANY STOCKHOLDERS. SCHEDULE 1.5 and SCHEDULE 1.5A hereto
contain a true and complete list of the names of the record owner of all of the
outstanding shares of Company Common Stock (the "COMPANY STOCK") and other
Equity Securities of the Company, together with the number of securities held or
to which such person has rights to acquire. To the knowledge of the Company,
there is no voting trust, agreement or arrangement among any of the beneficial
holders of Company Stock affecting the nomination or election of directors or
the exercise of the voting rights of Company Stock.
2.6 CORPORATE ACTS AND PROCEEDINGS. The execution, delivery and
performance of this Agreement and the Certificate of Merger (together, the
"MERGER DOCUMENTS") have been duly authorized by the Board of Directors of the
Company and have been approved by the requisite vote of the Stockholders, and
all of the corporate acts and other proceedings required for the due and valid
authorization, execution, delivery and performance of the Merger Documents and
the consummation of the Merger have been validly and appropriately taken, except
for the filing referred to in Section 1.2.
2.7 COMPLIANCE WITH LAWS AND INSTRUMENTS. Except as set forth in
SCHEDULE 2.7 the business, products and operations of the Company have been and
are being conducted in compliance in all material respects with all applicable
laws, rules and regulations, except for such violations thereof for which the
penalties, in the aggregate, would not have a material adverse effect on the
Condition of the Company. The execution, delivery and performance by the Company
5
of the Merger Documents and the consummation by the Company of the transactions
contemplated by this Agreement: (a) will not require any authorization, consent
or approval of, or filing or registration with, any court or governmental agency
or instrumentality, except such as shall have been obtained prior to the Closing
or as set forth in SCHEDULE 2.7, (b) will not cause the Company to violate or
contravene (i) any provision of law, (ii) any rule or regulation of any agency
or government, (iii) any order, judgment or decree of any court, or (iv) any
provision of the Certificate of Incorporation or By-laws of the Company, (c)
will not violate or be in conflict with, result in a breach of or constitute
(with or without notice or lapse of time, or both) a default under, any
indenture, loan or credit agreement, deed of trust, mortgage, security agreement
or other contract, agreement or instrument to which the Company is a party or by
which the Company or any of its properties is bound or affected, except as would
not have a material adverse effect on the Condition of the Company, and (d) will
not result in the creation or imposition of any Lien upon any property or asset
of the Company. The Company is not in violation of, or (with or without notice
or lapse of time, or both) in default under, any term or provision of its
Certificate of Incorporation or By-laws or of any indenture, loan or credit
agreement, deed of trust, mortgage, security agreement or, except as would not
materially and adversely affect the Condition of the Company, or any other
material agreement or instrument to which the Company is a party or by which the
Company or any of its properties is bound or affected.
2.8 BINDING OBLIGATIONS. The Merger Documents constitute the legal,
valid and binding obligations of the Company and are enforceable against the
Company in accordance with their respective terms, except as such enforcement is
limited by bankruptcy, insolvency and other similar laws affecting the
enforcement of creditors' rights generally and by general principles of equity.
2.9 BROKER'S AND FINDER'S FEES. No Person has, or as a result of
the transactions contemplated or described herein will have, any right or valid
claim against the Company, Parent, Acquisition Corp. or any Stockholder for any
commission, fee or other compensation as a finder or broker, or in any similar
capacity, except as disclosed in a Schedule hereto as provided in any document
or agreement disclosed in any schedule hereto. Parent and Acquisition on the one
hand and the Company on the other, hereby indemnify and hold each other harmless
from and against any and all claims, losses or liabilities for any such
commission, fee or other compensation as a result of the claim by any other
Person that the indemnifying party or parties introduced or assisted them in
connection with the transactions contemplated or described here.
2.10 FINANCIAL STATEMENTS. Parent has previously been provided: the
Company's audited balance sheets as of December 31, 2004, and the audited
statements of operations, stockholders' (deficit) equity and cash flows for the
year ended December 31, 2004; (the "BALANCE SHEET DATE") and the statements of
operations, stockholders' (deficit) equity and cash flows for the period ended
September 30, 2004. Such financial statements (i) are in accordance with the
books and records of the Company, (ii) present fairly in all material respects
the financial condition of the Company at the dates therein specified and the
results of its operations and changes in financial position for the periods
therein specified and (iii) have been prepared in accordance with generally
accepted accounting principles ("GAAP") applied on a basis consistent with prior
accounting periods.
6
2.11 ABSENCE OF UNDISCLOSED LIABILITIES. The Company has no
material obligation or liability (whether accrued, absolute, contingent,
liquidated or otherwise, whether due or to become due), arising out of any
transaction entered into at or prior to the Closing, except (a) as disclosed in
the Balance Sheet or in any Schedule hereto, (b) to the extent set forth on or
reserved against in the Balance Sheet or the Notes to the Financial Statements,
(c) current liabilities incurred and obligations under agreements entered into
in the usual and ordinary course of business since the Balance Sheet Date, none
of which (individually or in the aggregate) has had or will have a material
adverse effect on the Condition of the Company, and (d) by the specific terms of
any written agreement, document or arrangement identified in the Schedules.
2.12 CHANGES. Since the Balance Sheet Date, except as disclosed in
any Schedule hereto, the Company has not (a) incurred any debts, obligations or
liabilities, absolute, accrued, contingent or otherwise, whether due or to
become due, except for fees, expenses and liabilities incurred in connection
with the Merger and related transactions and current liabilities incurred in the
usual and ordinary course of business, (b) discharged or satisfied any Liens
other than those securing, or paid any obligation or liability other than,
current liabilities shown on the Balance Sheet and current liabilities incurred
since the Balance Sheet Date, in each case in the usual and ordinary course of
business, (c) mortgaged, pledged or subjected to Lien any of its assets,
tangible or intangible other than in the usual and ordinary course of business,
(d) sold, transferred or leased any of its assets, except in the usual and
ordinary course of business, (e) cancelled or compromised any debt or claim, or
waived or released any right, of material value, (f) suffered any physical
damage, destruction or loss (whether or not covered by insurance) materially and
adversely affecting the Condition of the Company, (g) entered into any
transaction other than in the usual and ordinary course of business, (h)
encountered any labor union difficulties, (i) made or granted any wage or salary
increase or made any increase in the amounts payable under any profit sharing,
bonus, deferred compensation, severance pay, insurance, pension, retirement or
other employee benefit plan, agreement or arrangement, other than in the
ordinary course of business consistent with past practice, or entered into any
employment agreement, (j) issued or sold any shares of capital stock, bonds,
notes, debentures or other securities or granted any options (including employee
stock options), warrants or other rights with respect thereto, (k) declared or
paid any dividends on or made any other distributions with respect to, or
purchased or redeemed, any of its outstanding capital stock, (l) suffered or
experienced any change in, or condition affecting, the Condition of the Company
other than changes, events or conditions in the usual and ordinary course of its
business, none of which (either by itself or in conjunction with all such other
changes, events and conditions) has been materially adverse, (m) made any change
in the accounting principles, methods or practices followed by it or
depreciation or amortization policies or rates theretofore adopted, (n) made or
permitted any amendment or termination of any material contract, agreement or
license to which it is a party, (o) suffered any material loss not reflected in
the Balance Sheet or its statement of income for the period ended on the Balance
Sheet Date, (p) paid, or made any accrual or arrangement for payment of, bonuses
or special compensation of any kind or any severance or termination pay to any
present or former officer, director, employee, stockholder or consultant, (q)
made or agreed to make any charitable contributions or incurred any non-business
expenses in excess of $50,000 in the aggregate, or (r) entered into any
agreement, or otherwise obligated itself, to do any of the foregoing.
7
2.13 SCHEDULE OF ASSETS AND CONTRACTS. Attached hereto as SCHEDULES
2.13(A) through 2.13(E) are various schedules listing assets and contracts of
the Company, as described herein. For the purposes hereof, any information
disclosed in the Financial Statements described in Schedule 2.10 hereof and in
any private placement memorandum, supplement thereto, or Form 8-K of Parent
filed with the SEC ("Disclosures") shall be deemed included in disclosures made
hereunder,
(a) SCHEDULE 2.13(A) contains a true and complete list of all
real property leased by the Company, including a brief description of each item
thereof and of the nature of the Company's interest therein, and of all tangible
personal property owned or leased by the Company having a cost or fair market
value of greater than $100,000, including a brief description of each item and
of the nature of the interest of the Company therein. All the real property
listed in SCHEDULE 2.13(A) is leased by the Company under valid and enforceable
leases having the rental terms, termination dates and renewal and purchase
options described in SCHEDULE 2.13(A); such leases are enforceable in accordance
with their terms, and there is not, under any such lease, any existing default
or event of default or event which with notice or lapse of time, or both, would
constitute a default by the Company, and the Company has not received any notice
or claim of any such default. The Company does not own any real property.
(b) Except as expressly set forth in this Agreement, the
Balance Sheet or the notes thereto, or as disclosed in SCHEDULE 2.13(B) hereto,
the Company is not a party to any written or oral agreement not made in the
ordinary course of business that is material to the Company. Except as disclosed
in SCHEDULE 2.13(B) hereto, the Company is not a party to or otherwise barred by
any written or oral (a) agreement with any labor union, (b) agreement for the
purchase of fixed assets or for the purchase of materials, supplies or equipment
in excess of normal operating requirements, (c) agreement for the employment of
any officer, individual employee or other Person on a full-time basis or any
agreement with any Person for consulting services, (d) bonus, pension, profit
sharing, retirement, stock purchase, stock option, deferred compensation,
medical, hospitalization or life insurance or similar plan, contract or
understanding with respect to any or all of the employees of the Company or any
other Person, (e) indenture, loan or credit agreement, note agreement, deed of
trust, mortgage, security agreement, promissory note or other agreement or
instrument relating to or evidencing Indebtedness for Borrowed Money or
subjecting any asset or property of the Company to any Lien or evidencing any
Indebtedness, (f) guaranty of any Indebtedness, (g) other than as set forth in
SCHEDULE 2.13(A) hereto, lease or agreement under which the Company is lessee of
or holds or operates any property, real or personal, owned by any other Person
under which payments to such Person exceed $100,000 per year or with an
unexpired term (including any period covered by an option to renew exercisable
by any other party) of more than 60 days, (h) lease or agreement under which the
Company is lessor or permits any Person to hold or operate any property, real or
personal, owned or controlled by the Company, (i) agreement granting any
preemptive right, right of first refusal or similar right to any Person, (j)
agreement or arrangement with any Affiliate or any "associate" (as such term is
defined in Rule 405 under the Securities Act) of the Company or any present or
former officer, director or stockholder of the Company, (k) agreement obligating
the Company to pay any royalty or similar charge for the use or exploitation of
any tangible or intangible property, (1) covenant not to compete or other
restriction on its ability to conduct a business or engage in any other
activity, (m) distributor, dealer, manufacturer's representative, sales agency,
franchise or advertising contract or commitment, (n) agreement to register
8
securities under the Securities Act, (o) collective bargaining agreement, or (p)
agreement or other commitment or arrangement with any Person continuing for a
period of more than three months from the Closing Date which involves an
expenditure or receipt by the Company in excess of $100,000. Except as disclosed
in SCHEDULE 2.13(B), none of the agreements, contracts, leases, instruments or
other documents or arrangements listed in SCHEDULES 2.13(A) through 2.13(E)
requires the consent of any of the parties thereto other than the Company to
permit the contract, agreement, lease, instrument or other document or
arrangement to remain effective following consummation of the Merger and the
transactions contemplated hereby.
(c) SCHEDULE 2.13(C) contains a true and complete list and
description of all insurance policies and insurance coverage with respect to the
Company, its business, premises, properties, assets, employees and agents
including, without limitation, fire and casualty insurance, property and
liability insurance, product liability insurance, life insurance, medical and
hospital insurance and workers' compensation insurance; such list includes with
respect to each policy (i) a general description of the insured loss coverage,
(ii) the expiration date of coverage, (iii) the annual premium, and (iv) the
dollar limitations of coverage and a general description of each deductible
feature.
(d) SCHEDULE 2.13(D) contains a true and complete list and
description of each bank account, savings account, other deposit relationship
and safety deposit box of the Company, including the name of the bank or other
depository, the account number and the names of the individuals having signature
or other withdrawal authority with respect thereto.
(e) SCHEDULE 2.13(E) contains a true and complete list of all
patents, patent applications, trade names, trademarks, trademark registrations
and applications, copyrights, copyright registrations and applications, and
grants of licenses, both domestic and foreign, presently owned, possessed, used
or held by the Company; and, except as set forth in SCHEDULE 2.13(E) the Company
owns the entire right, title and interest in and to the same, free and clear of
all Liens and restrictions. SCHEDULE 2.13(E) also contains a true and complete
list of all licenses granted to or by the Company with respect to the foregoing.
Except as disclosed in SCHEDULE 2.13(E) all patents, patent applications, trade
names, trademarks, trademark registrations and applications, copyrights,
copyright registrations and applications and grants of licenses set forth (i)
are subject to no pending or, to the Company's knowledge, threatened challenge,
and (ii) can and will be transferred by the Company to the Surviving Corporation
as a result of the Merger and without the consent of any Person other than the
Company. Neither the execution nor delivery of the Merger Documents, nor the
consummation of the transactions contemplated thereby will give any licensor or
licensee of the Company any right to change the terms or provisions of,
terminate or cancel, any license to which the Company is a party.
(f) The Company has made available to Parent and Acquisition
Corp. true and complete copies of all agreements and other documents and a
description of all applicable oral agreements disclosed or referred to in
SCHEDULES 2.13(A) through 2.13(E), as well as any additional agreements or
documents, requested by Parent or Acquisition Corp. The Company has in all
material respects performed all obligations required to be performed by it to
date and is not in default in any respect under any of the contracts,
agreements, leases, documents, commitments or other arrangements to which it is
a party or by which it or any of its property is otherwise bound or affected. To
the best current actual knowledge of the Company, all parties having material
9
contractual arrangements with the Company are in substantial compliance
therewith and none are in material default thereunder. The Company does not have
outstanding any power of attorney.
2.14 EMPLOYEES. The Company has complied in all material respects
with all laws relating to the employment of labor, and the Company has
encountered no material labor union difficulties. Other than pursuant to
ordinary arrangements of employment compensation, or as set forth on any of the
Schedules hereto, the Company is not under any obligation or liability to any
officer, director or employee of the Company.
2.15 TAX RETURNS AND AUDITS. All required federal, state and local
Tax Returns of the Company have been accurately prepared and duly and timely
filed, and all federal, state and local Taxes required to be paid with respect
to the periods covered by such returns have been paid. The Company is not and
has not been delinquent in the payment of any Tax. The Company has not had a Tax
deficiency proposed or assessed against it and has not executed a waiver of any
statute of limitations on the assessment or collection of any Tax. None of the
Company's federal income tax returns nor any state or local income or franchise
tax returns has been audited by governmental authorities. The reserves for Taxes
reflected on the Balance Sheet are and will be sufficient for the payment of all
unpaid Taxes payable by the Company as of the Balance Sheet Date. Since the
Balance Sheet Date, the Company has made adequate provisions on its books of
account for all Taxes with respect to its business, properties and operations
for such period. The Company has withheld or collected from each payment made to
each of its employees the amount of all taxes (including, but not limited to,
federal, state and local income taxes, Federal Insurance Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper Tax receiving officers or
authorized depositaries. There are no federal, state, local or foreign audits,
actions, suits, proceedings, investigations, claims or administrative
proceedings relating to Taxes or any Tax Returns of the Company now pending, and
the Company has not received any notice of any proposed audits, investigations,
claims or administrative proceedings relating to Taxes or any Tax Returns. The
Company is not obligated to make a payment, or is a party to an agreement that
under certain circumstances could obligate it to make a payment, that would not
be deductible under Section 280G of the Code. The Company has not agreed nor is
required to make any adjustments under Section 481(a) of the Code (or any
similar provision of state, local and foreign law) by reason of a change in
accounting method or otherwise for any Tax period for which the applicable
statute of limitations has not yet expired. The Company (i) is not a party to,
is bound by or has any obligation under, any Tax sharing agreement, Tax
indemnification agreement or similar contract or arrangement, whether written or
unwritten (collectively, "TAX SHARING AGREEMENTS"), or (ii) does not have any
potential liability or obligation to any person as a result of, or pursuant to,
any such Tax Sharing Agreements.
2.16 PATENTS AND OTHER INTANGIBLE ASSETS. (a) Except as set forth
in the Disclosures or in SCHEDULE 2.16, the Company (i) owns or has the right to
use, free and clear of all Liens, claims and restrictions, all patents,
trademarks, service marks, trade names, copyrights, licenses and rights with
respect to the foregoing used in or necessary for the conduct of its business as
now conducted or proposed to be conducted without infringing upon or otherwise
10
acting adversely to the right or claimed right of any Person under or with
respect to any of the foregoing and (ii) is not obligated or under any liability
to make any payments by way of royalties, fees or otherwise to any owner or
licensor of, or other claimant to, any patent, trademark, service mark, trade
name, copyright or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
(b) To the best knowledge of the Company, the Company owns and
has the unrestricted right to use all trade secrets, if any, including know-how,
negative know-how, formulas, patterns, programs, devices, methods, techniques,
inventions, designs, processes, computer programs and technical data and all
information that derives independent economic value, actual or potential, from
not being generally known or known by competitors (collectively, "intellectual
property") required for or incident to the development, operation and sale of
all products and services sold by the Company, free and clear of any right, Lien
or claim of others; provided, however, the possibility exists that other
Persons, completely independent of the Company or its employees or agents, could
have developed intellectual property similar or identical to that of the
Company. The Company is not aware of any such development of substantially
identical trade secrets or technical information by others. All intellectual
property can and will be transferred by the Company to the Surviving Corporation
as a result of the Merger and without the consent of any Person other than the
Company.
2.17 EMPLOYEE BENEFIT PLANS; ERISA. (a) Except as disclosed in
SCHEDULE 2.17 hereto, there are no "employee benefit plans" (within the meaning
of Section 3(3) of the ERISA) nor any other employee benefit or fringe benefit
arrangements, practices, contracts, policies or programs of every type other
than programs merely involving the regular payment of wages, commissions, or
bonuses established, maintained or contributed to by the Company, whether
written or unwritten and whether or not funded. The plans listed in SCHEDULE
2.17 hereto are hereinafter referred to as the "EMPLOYEE BENEFIT PLANS."
(b) All current and prior material documents, including all
amendments thereto, with respect to each Employee Benefit Plan have been made
available to Parent and Acquisition Corp. or their advisors.
(c) To the knowledge of the Company, all Employee Benefit
Plans are in material compliance with the applicable requirements of ERISA, the
Internal Revenue Code of 1986, as amended (the "Code") and any other applicable
state, federal or foreign law.
(d) There are no pending claims or lawsuits which have been
asserted or instituted against any Employee Benefit Plan, the assets of any of
the trusts or funds under the Employee Benefit Plans, the plan sponsor or the
plan administrator of any of the Employee Benefit Plans or against any fiduciary
of an Employee Benefit Plan with respect to the operation of such plan, nor does
the Company have any knowledge of any incident, transaction, occurrence or
circumstance which might reasonably be expected to form the basis of any such
claim or lawsuit.
(e) There is no pending or, to the knowledge of the Company,
contemplated investigation, or pending or possible enforcement action by the
Pension Benefit Guaranty Corporation, the Department of Labor, the Internal
Revenue Service or any other government agency with respect to any Employee
Benefit Plan and the Company has no knowledge of any incident, transaction,
11
occurrence or circumstance which might reasonably be expected to trigger such an
investigation or enforcement action.
(f) No actual or, to the knowledge of the Company, contingent
liability exists with respect to the funding of any Employee Benefit Plan or for
any other expense or obligation of any Employee Benefit Plan, except as
disclosed on the financial statements of the Company or the Schedules to this
Agreement, and no contingent liability exists under ERISA with respect to any
"multi-employer plan," as defined in Section 3(37) or Section 4001(a)(3) of
ERISA.
(g) No events have occurred or are expected to occur with
respect to any Employee Benefit Plan that would cause a material change in the
costs of providing benefits under such Employee Benefit Plan or would cause a
material change in the cost of providing for other liabilities of such Employee
Benefit Plan.
2.18 TITLE TO PROPERTY AND ENCUMBRANCES. The Company has good, valid
and indefeasible marketable title to all properties and assets used in the
conduct of its business (except for property held under valid and subsisting
leases which are in full force and effect and which are not in default) free of
all Liens (except as set forth in any Schedule hereto) and other encumbrances,
except Permitted Liens and such ordinary and customary imperfections of title,
restrictions and encumbrances as do not, individually or in the aggregate,
materially detract from the value of the property or assets or materially impair
the use made thereof by the Company in its business. Without limiting the
generality of the foregoing, the Company has good and indefeasible title to all
of its properties and assets reflected in the Balance Sheet, except for property
disposed of in the usual and ordinary course of business since the Balance Sheet
Date and for property held under valid and subsisting leases which are in full
force and effect and which are not in default.
2.19 CONDITION OF PROPERTIES. All facilities, machinery, equipment,
fixtures and other properties owned, leased or used by the Company are in
operating condition and repair, subject to ordinary wear and tear, and are
adequate and sufficient for the Company's business.
2.20 INSURANCE COVERAGE. There is in full force and effect one or
more policies of insurance issued by insurers of recognized responsibility,
insuring the Company and its properties, products and business against such
losses and risks, and in such amounts, as are customary for corporations of
established reputation engaged in the same or similar business and similarly
situated. The Company has not been refused any insurance coverage sought or
applied for, and the Company has no reason to believe that it will be unable to
renew its existing insurance coverage as and when the same shall expire upon
terms at least as favorable to those currently in effect, other than possible
increases in premiums that do not result from any act or omission of the
Company. No suit, proceeding or action or, to the best current actual knowledge
of the Company, threat of suit, proceeding or action has been asserted or made
against the Company within the last five years due to alleged bodily injury,
disease, medical condition, death or property damage arising out of the function
or malfunction of a product, procedure or service designed, manufactured, sold
or distributed by the Company.
12
2.21 LITIGATION. Except as disclosed in the Disclosures or any
Schedule hereto, there is no legal action, suit, arbitration or other legal,
administrative or other governmental proceeding pending or, to the best
knowledge of the Company, threatened against or affecting the Company or its
properties, assets or business, and after reasonable investigation, the Company
is not aware of any incident, transaction, occurrence or circumstance that might
reasonably be expected to result in or form the basis for any such action, suit,
arbitration or other proceeding. The Company is not in default with respect to
any order, writ, judgment, injunction, decree, determination or award of any
court or any governmental agency or instrumentality or arbitration authority.
2.22 LICENSES. The Company possesses from all appropriate
governmental authorities all licenses, permits, authorizations, approvals,
franchises and rights necessary for the Company to engage in the business
currently conducted by it, all of which are in full force and effect.
2.23 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the
Disclosures or any Schedule hereto, no officer, director or stockholder of the
Company or any Affiliate or "associate" (as such term is defined in Rule 405
under the Securities Act) of any such Person or the Company has or has had,
either directly or indirectly, (a) an interest in any Person that (i) furnishes
or sells services or products that are furnished or sold or are proposed to be
furnished or sold by the Company or (ii) purchases from or sells or furnishes to
the Company any goods or services, or (b) a beneficial interest in any contract
or agreement to which the Company is a party or by which it may be bound or
affected.
2.24 ENVIRONMENTAL MATTERS.
(a) To the knowledge of the Company, the Company has never
generated, used, handled, treated, released, stored or disposed of any Hazardous
Materials on any real property on which it now has or previously had any
leasehold or ownership interest, except in compliance with all applicable
Environmental Laws.
(b) To the knowledge of the Company, the historical and present
operations of the business of the Company are in compliance with all applicable
Environmental Laws, except where any non-compliance has not had and would not
reasonably be expected to have a material adverse effect on the Condition of the
Company.
(c) There are no material pending or, to the knowledge of the
Company, threatened, demands, claims, information requests or notices of
noncompliance or violation against or to the Company relating to any
Environmental Law; and, to the knowledge of the Company, there are no conditions
or occurrences on any of the real property used by the Company in connection
with its business that would reasonably be expected to lead to any such demands,
claims or notices against or to the Company, except such as have not had, and
would not reasonably be expected to have, a material adverse effect on the
Condition of the Company.
(d) To the knowledge of the Company, (i) the Company has not,
sent or disposed of, otherwise had taken or transported, arranged for the taking
or disposal of (on behalf of itself, a customer or any other party) or in any
other manner participated or been involved in the taking of or disposal or
13
release of a Hazardous Material to or at a site that is contaminated by any
Hazardous Material or that, pursuant to any Environmental Law, (A) has been
placed on the "National Priorities List", the "CERCLIS" list, or any similar
state or federal list, or (B) is subject to or the source of a claim, an
administrative order or other request to take "removal", "remedial",
"corrective" or any other "response" action, as defined in any Environmental
Law, or to pay for the costs of any such action at the site; (ii) the Company is
not involved in (and has no basis to reasonably expect to be involved in) any
suit or proceeding and has not received (and has no basis to reasonably expect
to receive) any notice, request for information or other communication from any
governmental authority or other third party with respect to a release or
threatened release of any Hazardous Material or a violation or alleged violation
of any Environmental Law, and has not received (and has no basis to reasonably
expect to receive) notice of any claims from any Person relating to property
damage, natural resource damage or to personal injuries from exposure to any
Hazardous Material; and (iii) the Company has timely filed every report required
to be filed, acquired all necessary certificates, approvals and permits, and
generated and maintained all required data, documentation and records under all
Environmental Laws, in all such instances except where the failure to do so
would not reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the Condition of the Company.
2.25 QUESTIONABLE PAYMENTS. Neither the Company nor any director,
officer or, to the best knowledge of the Company, agent, employee or other
Person associated with or acting on behalf of the Company, has used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; made any direct or indirect
unlawful payments to government officials or employees from corporate funds;
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets; made any false or fictitious entries on the books of record of any
such corporations; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.
2.26 OBLIGATIONS TO OR BY STOCKHOLDERS. Except as disclosed in the
Disclosures or any Schedule hereto, the Company has no liability or obligation
or commitment to any Stockholder or any Affiliate or "associate" (as such term
is defined in Rule 405 under the Securities Act) of any Stockholder, nor does
any Stockholder or any such Affiliate or associate have any liability,
obligation or commitment to the Company.
2.27 DUTY TO MAKE INQUIRY. To the extent that any of the
representations or warranties in this Section 2 are qualified by "knowledge" or
"belief," the Company represents and warrants that it has made due and
reasonable inquiry and investigation concerning the matters to which such
representations and warranties relate, including, but not limited to, diligent
inquiry of its directors, officers and key personnel.
2.28 DISCLOSURE. There is no fact relating to the Company that the
Company has not disclosed to Parent and Acquisition Corp. in writing which has
had or is currently having a material and adverse effect nor, insofar as the
Company can now foresee, will materially and adversely affect, the Condition of
the Company. No representation or warranty by the Company herein and no
information disclosed in the schedules or exhibits hereto by the Company
contains any untrue statement of a material fact or omits to state a material
fact necessary to make the statements contained herein or therein not
misleading.
14
3. Representations and Warranties of Parent and Acquisition Corp.
Parent and Acquisition Corp. represent and warrant to the Company as follows:
3.1 ORGANIZATION AND STANDING. Parent is a corporation duly
organized and existing in good standing under the laws of the State of Delaware.
Acquisition Corp. is a corporation duly organized and existing in good standing
under the laws of the State of Delaware. Parent and Acquisition Corp. have
heretofore delivered to the Company complete and correct copies of their
respective Certificates of Incorporation and By-laws as now in effect. Parent
and Acquisition Corp. have full corporate power and authority to carry on their
respective businesses as they are now being conducted and as now proposed to be
conducted and to own or lease their respective properties and assets. Neither
Parent nor Acquisition Corp. has any subsidiaries (except Parent's ownership of
Acquisition Corp.) or direct or indirect interest (by way of stock ownership or
otherwise) in any firm, corporation, limited liability company, partnership,
association or business. Parent owns all of the issued and outstanding capital
stock of Acquisition Corp. free and clear of all Liens, and Acquisition Corp.
has no outstanding options, warrants or rights to purchase capital stock or
other equity securities of Acquisition Corp., other than the capital stock owned
by Parent. The Parent has no liability of obligation for any of the activities
of DEL Explorations Ltd., a British Columbia, Canada company ("DEL"), as have
been described in the Parent SEC Filings (as hereinafter defined) and all of the
shares of DEL have been distributed prior to the Effective Time to the
shareholders of Parent in a lawful distribution without any further obligation
or liability to parent a result of such distribution. Unless the context
otherwise requires, all references in this Section 3 to the "Parent" shall be
treated as being a reference to the Parent and Acquisition Corp. taken together
as one enterprise.
3.2 CORPORATE AUTHORITY. Each of Parent and/or Acquisition Corp. (as
the case may be) has full corporate power and authority to enter into the Merger
Documents and the other agreements to be made pursuant to the Merger Documents,
and to carry out the transactions contemplated hereby and thereby. All corporate
acts and proceedings required for the authorization, execution, delivery and
performance of the Merger Documents and such other agreements and documents by
Parent and/or Acquisition Corp. (as the case may be) have been duly and validly
taken or will have been so taken prior to the Closing. Each of the Merger
Documents constitutes a legal, valid and binding obligation of Parent and/or
Acquisition Corp. (as the case may be), each enforceable against them in
accordance with their respective terms, except as such enforcement may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors' rights generally and by general principles of equity.
3.3 BROKER'S AND FINDER'S FEES. No person, firm, corporation or
other entity is entitled by reason of any act or omission of Parent or
Acquisition Corp. to any broker's or finder's fees, commission or other similar
compensation with respect to the execution and delivery of this Agreement or the
Certificate of Merger, or with respect to the consummation of the transactions
contemplated hereby or thereby, except as disclosed in a Schedule hereto or
provided in any document or agreement disclosed in any Schedule hereto. Parent
and Acquisition Corp. jointly and severally indemnify and hold Company harmless
from and against any and all loss, claim or liability arising out of any such
claim from any other Person who claim they introduced Parent or Acquisition
Corp. to, or assisted them with the transactions contemplated by or described
herein.
15
3.4 CAPITALIZATION OF PARENT. The authorized capital stock of Parent
consists of (a) 90,000,000 shares of common stock, par value $0.001 per share
(the "PARENT COMMON STOCK"), of which not more than 2,791,471 shares will,
following the Effective Time, be issued and outstanding, before taking into
consideration the issuance of Parent Common Stock in the Merger, and (b)
10,000,000 shares of preferred stock, par value $0.001 per share, of which 0
shares have been, or will be issued at the Closing, designated as any series of
Preferred Stock (the "PARENT PREFERRED STOCK"). Parent has no outstanding
options, rights or commitments to issue shares of Parent Common Stock or any
other Equity Security of Parent or Acquisition Corp., and there are no
outstanding securities convertible or exercisable into or exchangeable for
shares of Parent Common Stock or any other Equity Security of Parent or
Acquisition Corp. There is no voting trust, agreement or arrangement among any
of the beneficial holders of Parent Common Stock affecting the nomination or
election of directors or the exercise of the voting rights of Parent Common
Stock. All outstanding shares of the capital stock of Parent are validly issued
and outstanding, fully paid and non-assessable, and none of such shares have
been issued in violation of the preemptive rights of any person.
3.5 ACQUISITION CORP. Acquisition Corp. is a wholly-owned Delaware
subsidiary of Parent that was formed specifically for the purpose of the Merger
and that has not conducted any business or acquired any property, and will not
conduct any business or acquire any property prior to the Closing Date, except
in preparation for and otherwise in connection with the transactions
contemplated by this Agreement, the Certificate of Merger and the other
agreements to be made pursuant to or in connection with this Agreement and the
Certificate of Merger.
3.6 VALIDITY OF SHARES. The 2,791,471 shares of Parent Common Stock
to be issued at the Closing pursuant to Section 1.5(a)(ii) hereof, when issued
and delivered in accordance with the terms hereof and of the Certificate of
Merger, shall be duly and validly issued, fully paid and non-assessable. Based
in part on the representations and warranties of the Stockholders as
contemplated by Section 4 hereof and assuming the accuracy thereof, the issuance
of the Parent Common Stock upon the Merger pursuant to Section 1.5(a)(ii) will
be exempt from the registration and prospectus delivery requirements of the
Securities Act and from the qualification or registration requirements of any
applicable state blue sky or securities laws.
3.7 SEC REPORTING AND COMPLIANCE. (a) Parent filed a registration
statement on Form SB-2 under the Securities Act which became effective on or
about May 27, 2005. Since that date, Parent has filed with the Commission all
registration statements, proxy statements, information statements and reports
required to be filed pursuant to the Exchange Act. Parent has not filed with the
Commission a certificate on Form 15 pursuant to Rule 12h-3 of the Exchange Act.
(b) Parent has delivered to the Company true and complete copies
of the registration statements, information statements and other reports
(collectively, the "PARENT SEC DOCUMENTS") filed by the Parent with the
Commission. None of the Parent SEC Documents, as of their respective dates,
contained any untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements contained therein not misleading.
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(c) Except as set forth on SCHEDULE 3.7, Parent has not filed,
and nothing has occurred with respect to which Parent would be required to file,
any report on Form 8-K. Prior to and until the Closing, Parent will provide to
the Company copies of any and all amendments or supplements to the Parent SEC
Documents filed with the Commission and all subsequent registration statements
and reports filed by Parent subsequent to the filing of the Parent SEC Documents
with the Commission and any and all subsequent information statements, proxy
statements, reports or notices filed by the Parent with the Commission or
delivered to the stockholders of Parent.
(d) Parent is not an investment company within the meaning of
Section 3 of the Investment Company Act.
(e) The shares of Parent Common Stock are quoted on the
Over-the-Counter (OTC) Bulletin Board under the symbol "DWRC" and Parent is in
compliance in all material respects with all rules and regulations of the OTC
Bulletin Board applicable to it and the Parent Stock.
(f) Between the date hereof and the Closing Date, Parent shall
continue to satisfy the filing requirements of the Exchange Act and all other
requirements of applicable securities laws and the OTC Bulletin Board.
(g) To the best knowledge of the Parent, the Parent has
otherwise complied with the Securities Act, Exchange Act and all other
applicable federal and state securities laws.
3.8 FINANCIAL STATEMENTS. The balance sheets, and statements of
income, stockholders' equity and cash flows contained in the Parent SEC
Documents (the "PARENT FINANCIAL STATEMENTS") (i) have been prepared in
accordance with GAAP applied on a basis consistent with prior periods (and, in
the case of unaudited financial information, on a basis consistent with year-end
audits), (ii) are in accordance with the books and records of the Parent, and
(iii) present fairly in all material respects the financial condition of the
Parent at the dates therein specified and the results of its operations and
changes in financial position for the periods therein specified. The financial
statements included in the Form SB-2 are audited by Morgan & Company, Parent's
independent certified public accountants. The financial information included in
the Quarterly Report on Form 10-QSB for the quarter ended July 31, 2005, is
unaudited, but reflects all adjustments (including normally recurring accounts)
that Parent considers necessary for a fair presentation of such information and
have been prepared in accordance with generally accepted accounting principles,
consistently applied.
3.9 GOVERNMENTAL CONSENTS. All material consents, approvals, orders,
or authorizations of, or registrations, qualifications, designations,
declarations, or filings with any federal or state governmental authority on the
part of Parent or Acquisition Corp. required in connection with the consummation
of the Merger shall have been obtained prior to, and be effective as of, the
Closing.
3.10 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS. The execution,
delivery and performance by Parent and/or Acquisition Corp. of this Agreement,
the Certificate of Merger and the other agreements to be made by Parent or
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Acquisition Corp. pursuant to or in connection with this Agreement or the
Certificate of Merger and the consummation by Parent and/or Acquisition Corp. of
the transactions contemplated by the Merger Documents will not cause Parent
and/or Acquisition Corp. to violate or contravene (i) any provision of law, (ii)
any rule or regulation of any agency or government, (iii) any order, judgment or
decree of any court, or (v) any provision of their respective certificates of
incorporation or by-laws as amended and in effect on and as of the Closing Date
and will not violate or be in conflict with, result in a breach of or constitute
(with or without notice or lapse of time, or both) a default under any material
indenture, loan or credit agreement, deed of trust, mortgage, security agreement
or other agreement or contract to which Parent or Acquisition Corp. is a party
or by which Parent and/or Acquisition Corp. or any of their respective
properties is bound.
3.11 NO GENERAL SOLICITATION. In issuing Parent Common Stock in the
Merger hereunder, neither Parent nor anyone acting on its behalf has offered to
sell the Parent Common Stock by any form of general solicitation or advertising.
3.12 BINDING OBLIGATIONS. The Merger Documents constitute the legal,
valid and binding obligations of the Parent and Acquisition Corp., and are
enforceable against the Parent and Acquisition Corp., in accordance with their
respective terms, except as such enforcement is limited by bankruptcy,
insolvency and other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity.
3.13 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Parent nor
Acquisition Corp. has any material obligation or liability (whether accrued,
absolute, contingent, liquidated or otherwise, whether due or to become due),
arising out of any transaction entered into at or prior to the Closing, except
(a) as disclosed in the Parent SEC Documents, (b) to the extent set forth on or
reserved against in the balance sheet of Parent in the most recent SEC Report
filed by Parent (the "PARENT BALANCE SHEET") or the notes to the Parent
Financial Statements, (c) current liabilities incurred and obligations under
agreements entered into in the usual and ordinary course of business since the
date of the balance sheet which appears in the most recent SEC Report filed by
Parent (the "PARENT BALANCE SHEET DATE"), none of which (individually or in the
aggregate) materially and adversely affects the condition (financial or
otherwise), properties, assets, liabilities, business operations, results of
operations or prospects of the Parent or Acquisition Corp., taken as a whole
(the "CONDITION OF THE PARENT"), and (d) by the specific terms of any written
agreement, document or arrangement attached as an exhibit to the Parent SEC
Documents.
3.14 CHANGES. Since the Parent Balance Sheet Date, except as
disclosed in the Parent SEC Documents, the Parent has not (a) incurred any
debts, obligations or liabilities, absolute, accrued or, to the Parent's
knowledge, contingent, whether due or to become due, except for current
liabilities incurred in the usual and ordinary course of business, (b)
discharged or satisfied any Liens other than those securing, or paid any
obligation or liability other than, current liabilities shown on the Parent
Balance Sheet and current liabilities incurred since the Parent Balance Sheet
Date, in each case in the usual and ordinary course of business, (c) mortgaged,
pledged or subjected to Lien any of its assets, tangible or intangible, other
than in the usual and ordinary course of business, (d) sold, transferred or
leased any of its assets, except in the usual and ordinary course of business,
(e) cancelled or compromised any debt or claim, or waived or released any right
of material value, (f) suffered any physical damage, destruction or loss
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(whether or not covered by insurance) which could reasonably be expected to have
a material adverse effect on the Condition of the Parent, (g) entered into any
transaction other than in the usual and ordinary course of business, (h)
encountered any labor union difficulties, (i) made or granted any wage or salary
increase or made any increase in the amounts payable under any profit sharing,
bonus, deferred compensation, severance pay, insurance, pension, retirement or
other employee benefit plan, agreement or arrangement, other than in the
ordinary course of business consistent with past practice, or entered into any
employment agreement, (j) issued or sold any shares of capital stock, bonds,
notes, debentures or other securities or granted any options (including employee
stock options), warrants or other rights with respect thereto, (k) declared or
paid any dividends on or made any other distributions with respect to, or
purchased or redeemed, any of its outstanding capital stock, (l) suffered or
experienced any change in, or condition affecting, the financial condition of
the Parent other than changes, events or conditions in the usual and ordinary
course of its business, none of which (either by itself or in conjunction with
all such other changes, events and conditions) could reasonably be expected to
have a material adverse effect on the Condition of the Parent, (m) made any
change in the accounting principles, methods or practices followed by it or
depreciation or amortization policies or rates theretofore adopted, (n) made or
permitted any amendment or termination of any material contract, agreement or
license to which it is a party, (o) suffered any material loss not reflected in
the Parent Balance Sheet or its statement of income for the year ended on the
Parent Balance Sheet Date, (p) paid, or made any accrual or arrangement for
payment of, bonuses or special compensation of any kind or any severance or
termination pay to any present or former officer, director, employee,
stockholder or consultant, (q) made or agreed to make any charitable
contributions or incurred any non-business expenses in excess of $5,000 in the
aggregate, or (r) entered into any agreement, or otherwise obligated itself, to
do any of the foregoing.
3.15 TAX RETURNS AND AUDITS. All required federal, state and local
Tax Returns of the Parent have been accurately prepared in all material respects
and duly and timely filed, and all federal, state and local Taxes required to be
paid with respect to the periods covered by such returns have been paid to the
extent that the same are material and have become due, except where the failure
so to file or pay could not reasonably be expected to have a material adverse
effect upon the Condition of the Parent. The Parent is not and has not been
delinquent in the payment of any Tax. The Parent has not had a Tax deficiency
assessed against it. None of the Parent's federal income tax returns nor any
state or local income or franchise tax returns has been audited by governmental
authorities. The reserves for Taxes reflected on the Parent Balance Sheet are
sufficient for the payment of all unpaid Taxes payable by the Parent with
respect to the period ended on the Parent Balance Sheet Date. There are no
federal, state, local or foreign audits, actions, suits, proceedings,
investigations, claims or administrative proceedings relating to Taxes or any
Tax Returns of the Parent now pending, and the Parent has not received any
notice of any proposed audits, investigations, claims or administrative
proceedings relating to Taxes or any Tax Returns.
3.16 EMPLOYEE BENEFIT PLANS; ERISA. (a) Except as disclosed in the
Parent SEC Documents, there are no "employee benefit plans" (within the meaning
of Section 3(3) of ERISA) nor any other employee benefit or fringe benefit
arrangements, practices, contracts, policies or programs other than programs
merely involving the regular payment of wages, commissions, or bonuses
established, maintained or contributed to by the Parent. Any plans listed in the
Parent SEC Documents are hereinafter referred to as the "PARENT EMPLOYEE BENEFIT
PLANS."
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(b) Any current and prior material documents, including all
amendments thereto, with respect to each Parent Employee Benefit Plan have been
given to the Company or its advisors.
(c) All Parent Employee Benefit Plans are in material compliance
with the applicable requirements of ERISA, the Code and any other applicable
state, federal or foreign law.
(d) There are no pending, or to the knowledge of the Parent,
threatened, claims or lawsuits which have been asserted or instituted against
any Parent Employee Benefit Plan, the assets of any of the trusts or funds under
the Parent Employee Benefit Plans, the plan sponsor or the plan administrator of
any of the Parent Employee Benefit Plans or against any fiduciary of a Parent
Employee Benefit Plan with respect to the operation of such plan.
(e) There is no pending, or to the knowledge of the Parent,
threatened, investigation or pending or possible enforcement action by the
Pension Benefit Guaranty Corporation, the Department of Labor, the Internal
Revenue Service or any other government agency with respect to any Parent
Employee Benefit Plan.
(f) No actual or, to the knowledge of Parent, contingent
liability exists with respect to the funding of any Parent Employee Benefit Plan
or for any other expense or obligation of any Parent Employee Benefit Plan,
except as disclosed on the financial statements of the Parent or the Parent SEC
Documents, and to the knowledge of the Parent, no contingent liability exists
under ERISA with respect to any "multi-employer plan," as defined in Section
3(37) or Section 4001(a)(3) of ERISA.
3.17 LITIGATION. There is no legal action, suit, arbitration or
other legal, administrative or other governmental proceeding pending or, to the
knowledge of the Parent, threatened against or affecting the Parent or
Acquisition Corp. or their properties, assets or business. To the knowledge of
the Parent, neither Parent nor Acquisition Corp. is in default with respect to
any order, writ, judgment, injunction, decree, determination or award of any
court or any governmental agency or instrumentality or arbitration authority.
3.18 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the
Parent SEC Documents, no officer, director or stockholder of the Parent or any
Affiliate or "associate" (as such term is defined in Rule 405 under the
Securities Act) of any such Person or the Parent has or has had, either directly
or indirectly, (a) an interest in any Person that (i) furnishes or sells
services or products that are furnished or sold or are proposed to be furnished
or sold by the Parent or (ii) purchases from or sells or furnishes to the Parent
any goods or services, or (b) a beneficial interest in any contract or agreement
to which the Parent is a party or by which it may be bound or affected.
3.19 QUESTIONABLE PAYMENTS. Neither the Parent, Acquisition Corp.
nor to the knowledge of the Parent, any director, officer, agent, employee or
other Person associated with or acting on behalf of the Parent or Acquisition
20
Corp., has used any corporate funds for unlawful contributions, gifts,
entertainment or other unlawful expenses relating to political activity; made
any direct or indirect unlawful payments to government officials or employees
from corporate funds; established or maintained any unlawful or unrecorded fund
of corporate monies or other assets; made any false or fictitious entries on the
books of record of any such corporations; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment.
3.20 OBLIGATIONS TO OR BY STOCKHOLDERS. Except as disclosed in the
Parent SEC Documents, the Parent has no liability or obligation or commitment to
any stockholder of Parent or any Affiliate or "associate" (as such term is
defined in Rule 405 under the Securities Act) of any stockholder of Parent, nor
does any stockholder of Parent or any such Affiliate or associate have any
liability, obligation or commitment to the Parent.
3.21 SCHEDULE OF ASSETS AND CONTRACTS. Except as expressly set forth
in this Agreement, the Parent Balance Sheet or the notes thereto, the Parent is
not a party to any written or oral agreement not made in the ordinary course of
business that is material to the Parent. Parent does not own any real property.
Parent is not a party to or otherwise barred by any written or oral (a)
agreement with any labor union, (b) agreement for the purchase of fixed assets
or for the purchase of materials, supplies or equipment in excess of normal
operating requirements, (c) agreement for the employment of any officer,
individual employee or other Person on a full-time basis or any agreement with
any Person for consulting services, (d) bonus, pension, profit sharing,
retirement, stock purchase, stock option, deferred compensation, medical,
hospitalization or life insurance or similar plan, contract or understanding
with respect to any or all of the employees of Parent or any other Person, (e)
indenture, loan or credit agreement, note agreement, deed of trust, mortgage,
security agreement, promissory note or other agreement or instrument relating to
or evidencing Indebtedness for Borrowed Money or subjecting any asset or
property of Parent to any Lien or evidencing any Indebtedness, (f) guaranty of
any Indebtedness, (g) lease or agreement under which Parent is lessee of or
holds or operates any property, real or personal, owned by any other Person, (h)
lease or agreement under which Parent is lessor or permits any Person to hold or
operate any property, real or personal, owned or controlled by Parent, (i)
agreement granting any preemptive right, right of first refusal or similar right
to any Person, (j) agreement or arrangement with any Affiliate or any
"associate" (as such term is defined in Rule 405 under the Securities Act) of
Parent or any present or former officer, director or stockholder of Parent, (k)
agreement obligating Parent to pay any royalty or similar charge for the use or
exploitation of any tangible or intangible property, (1) covenant not to compete
or other restriction on its ability to conduct a business or engage in any other
activity, (m) distributor, dealer, manufacturer's representative, sales agency,
franchise or advertising contract or commitment, (n) agreement to register
securities under the Securities Act, (o) collective bargaining agreement, or (p)
agreement or other commitment or arrangement with any Person continuing for a
period of more than three months from the Closing Date that involves an
expenditure or receipt by Parent in excess of $1,000. The Parent maintains no
insurance policies or insurance coverage of any kind with respect to Parent, its
business, premises, properties, assets, employees and agents. SCHEDULE 3.21
contains a true and complete list and description of each bank account, savings
account, other deposit relationship and safety deposit box of Parent, including
the name of the bank or other depository, the account number and the names of
the individuals having signature or other withdrawal authority with respect
thereto. Except as disclosed on SCHEDULE 3.21, no consent of any bank or other
21
depository is required to maintain any bank account, other deposit relationship
or safety deposit box of Parent in effect following the consummation of the
Merger and the transactions contemplated hereby. Parent has furnished to the
Company true and complete copies of all agreements and other documents disclosed
or referred to in SCHEDULE 3.21, as well as any additional agreements or
documents, requested by the Company.
3.22 EMPLOYEES. Other than pursuant to ordinary arrangements of
employment compensation, Parent is not under any obligation or liability to any
officer, director, employee or Affiliate of Parent.
3.23 DISCLOSURE. There is no fact relating to Parent that Parent has
not disclosed to the Company in writing that materially and adversely affects
nor, insofar as Parent can now foresee, will materially and adversely affect,
the condition (financial or otherwise), properties, assets, liabilities,
business operations, results of operations or prospects of Parent. No
representation or warranty by Parent herein and no information disclosed in the
schedules or exhibits hereto by Parent contains any untrue statement of a
material fact or omits to state a material fact necessary to make the statements
contained herein or therein misleading.
4. Additional Representations, Warranties and Covenants of the
Stockholders.
Promptly after the Effective Time, Parent shall cause to be mailed
to each holder of record of Company Common Stock that was converted pursuant to
Section 1.5 hereof into the right to receive Parent Common Stock a letter of
transmittal ("Letter of Transmittal") which shall contain additional
representations, warranties and covenants of such Stockholder, including without
limitation, that (i) such Stockholder has full right, power and authority to
deliver such Company Common Stock and Letter of Transmittal, (ii) the delivery
of such Company Common Stock will not violate or be in conflict with, result in
a breach of or constitute a default under, any indenture, loan or credit
agreement, deed of trust, mortgage, security agreement or other agreement or
instrument to which such Stockholder is bound or affected, (iii) such
Stockholder has good, valid and marketable title to all shares of Company Common
Stock indicated in such Letter of Transmittal and that such Stockholder is not
affected by any voting trust, agreement or arrangement affecting the voting
rights of such Company Common Stock, (iv) such Stockholder is an "accredited
investor," as such term is defined in Regulation D under the Securities Act and
that such Stockholder is acquiring Parent Common Stock for investment purposes,
and not with a view to selling or otherwise distributing such Parent Common
Stock in violation of the Securities Act or the securities laws of any state,
and (v) such Stockholder has had an opportunity to ask and receive answers to
any questions such Stockholder may have had concerning the terms and conditions
of the Merger and the Parent Common Stock and has obtained any additional
information that such Stockholder has requested. Delivery shall be effected, and
risk of loss and title to the Parent Common Stock shall pass, only upon delivery
to the Parent (or an agent of the Parent) of (x) certificates evidencing
ownership thereof as contemplated by Section 1.6 hereof (or affidavit of lost
certificate), and (y) the Letter of Transmittal containing the representations,
warranties and covenants contemplated by this Section 4.
5. Conduct of Businesses Pending the Merger.
5.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Prior to
the Effective Time, unless Parent or Acquisition Corp. shall otherwise agree in
writing or as otherwise contemplated by this Agreement:
22
(i) the business of the Company shall be conducted only in
the ordinary course;
(ii) the Company shall not (A) directly or indirectly
redeem, purchase or otherwise acquire or agree to redeem, purchase or otherwise
acquire any shares of its capital stock; (B) amend its Certificate of
Incorporation or By-laws except to effectuate the transactions contemplated in
the Disclosures or (C) split, combine or reclassify the outstanding Company
Stock or declare, set aside or pay any dividend payable in cash, stock or
property or make any distribution with respect to any such stock;
(iii) the Company shall not (A) issue or agree to issue any
additional shares of, or options, warrants or rights of any kind to acquire any
shares of, Company Stock, except to issue shares of Company Common Stock in
connection with any matter relating to the Disclosures (B) acquire or dispose of
any fixed assets or acquire or dispose of any other substantial assets other
than in the ordinary course of business; (C) incur additional Indebtedness or
any other liabilities or enter into any other transaction other than in the
ordinary course of business; (D) enter into any contract, agreement, commitment
or arrangement with respect to any of the foregoing; or (E) except as
contemplated by this Agreement, enter into any contract, agreement, commitment
or arrangement to dissolve, merge, consolidate or enter into any other material
business combination;
(iv) the Company shall use its best efforts to preserve
intact the business organization of the Company, to keep available the service
of its present officers and key employees, and to preserve the good will of
those having business relationships with it;
(v) the Company will not, nor will it authorize any director
or authorize or permit any officer or employee or any attorney, accountant or
other representative retained by it to, make, solicit, encourage any inquiries
with respect to, or engage in any negotiations concerning, any Acquisition
Proposal (as defined below). The Company will promptly advise Parent orally and
in writing of any such inquiries or proposals (or requests for information) and
the substance thereof. As used in this paragraph, "Acquisition Proposal" shall
mean any proposal for a merger or other business combination involving the
Company or for the acquisition of a substantial equity interest in it or any
material assets of it other than as contemplated by this Agreement. The Company
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any person conducted heretofore with respect to
any of the foregoing; and
(vi) the Company will not enter into any new employment
agreements with any of its officers or employees or grant any increases in the
compensation or benefits of its officers and employees or amend any employee
benefit plan or arrangement.
5.2 CONDUCT OF BUSINESS BY PARENT AND ACQUISITION CORP. PENDING THE
MERGER. Prior to the Effective Time, unless the Company shall otherwise agree in
writing or as otherwise contemplated by this Agreement:
(i) the business of Parent and Acquisition Corp. shall be
conducted only in the ordinary course; PROVIDED, HOWEVER, that Parent shall take
the steps necessary to have discontinued its existing business without liability
to Parent or Acquisition Corp. as of the Closing Date;
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(ii) neither Parent nor Acquisition Corp. shall (A) directly
or indirectly redeem, purchase or otherwise acquire or agree to redeem, purchase
or otherwise acquire any shares of its capital stock; (B) amend its certificate
of incorporation or by-laws other than to authorize the Parent to issue one or
more series or classes of preferred stock in order to create therefrom the
Parent Series A Preferred Stock which shall be issued at the Closing in the
Private Placement; or (C) split, combine or reclassify its capital stock or
declare, set aside or pay any dividend payable in cash, stock or property or
make any distribution with respect to such stock; and
(iii) neither Parent nor Acquisition Corp. shall (A) issue
or agree to issue any additional shares of, or options, warrants or rights of
any kind to acquire shares of, its capital stock; (B) acquire or dispose of any
assets other than in the ordinary course of business (except for dispositions in
connection with Section 5.2(i) hereof); (C) incur additional Indebtedness or any
other liabilities or enter into any other transaction except in the ordinary
course of business; (D) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing, or (E) except as contemplated
by this Agreement, enter into any contract, agreement, commitment or arrangement
to dissolve, merge; consolidate or enter into any other material business
contract or enter into any negotiations in connection therewith.
(iv) neither the Parent nor Acquisition Corp. will, nor will
they authorize any director or authorize or permit any officer or employee or
any attorney, accountant or other representative retained by them to, make,
solicit, encourage any inquiries with respect to, or engage in any negotiations
concerning, any Acquisition Proposal (as defined below for purposes of this
paragraph). Parent will promptly advise the Company orally and in writing of any
such inquiries or proposals (or requests for information) and the substance
thereof. As used in this paragraph, "ACQUISITION PROPOSAL" shall mean any
proposal for a merger or other business combination involving the Parent or
Acquisition Corp or for the acquisition of a substantial equity interest in
either of them or any material assets of either of them other than as
contemplated by this Agreement. The Parent will immediately cease and cause to
be terminated any existing activities, discussions or negotiations with any
person conducted heretofore with respect to any of the foregoing; and
(v) neither the Parent nor Acquisition Corp. will enter into
any new employment agreements with any of their officers or employees or grant
any increases in the compensation or benefits of their officers and employees.
6. Additional Agreements.
6.1 ACCESS AND INFORMATION. The Company, Parent and Acquisition
Corp. shall each afford to the other and to the other's accountants, counsel and
other representatives full access during normal business hours throughout the
period prior to the Effective Time of all of its properties, books, contracts,
commitments and records (including but not limited to tax returns) and during
such period, each shall furnish promptly to the other all information concerning
its business, properties and personnel as such other party may reasonably
request, provided that no investigation pursuant to this Section 6.1 shall
affect any representations or warranties made herein. Each party shall hold, and
24
shall cause its employees and agents to hold, in confidence all such information
(other than such information which (i) is already in such party's possession or
(ii) becomes generally available to the public other than as a result of a
disclosure by such party or its directors, officers, managers, employees, agents
or advisors, or (iii) becomes available to such party on a non-confidential
basis from a source other than a party hereto or its advisors, provided that
such source is not known by such party to be bound by a confidentiality
agreement with or other obligation of secrecy to a party hereto or another party
until such time as such information is otherwise publicly available; PROVIDED,
HOWEVER, that (A) any such information may be disclosed to such party's
directors, officers, employees and representatives of such party's advisors who
need to know such information for the purpose of evaluating the transactions
contemplated hereby (it being understood that such directors, officers,
employees and representatives shall be informed by such party of the
confidential nature of such information), (B) any disclosure of such information
may be made as to which the party hereto furnishing such information has
consented in writing, and (C) any such information may be disclosed pursuant to
a judicial, administrative or governmental order or request; PROVIDED, however,
that the requested party will promptly so notify the other party so that the
other party may seek a protective order or appropriate remedy and/or waive
compliance with this Agreement and if such protective order or other remedy is
not obtained or the other party waives compliance with this provision, the
requested party will furnish only that portion of such information which is
legally required and will exercise its best efforts to obtain a protective order
or other reliable assurance that confidential treatment will be accorded the
information furnished). If this Agreement is terminated, each party will deliver
to the other all documents and other materials (including copies) obtained by
such party or on its behalf from the other party as a result of this Agreement
or in connection herewith, whether so obtained before or after the execution
hereof.
6.2 ADDITIONAL AGREEMENTS. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use its commercially
reasonable efforts to take, or cause to be taken, all action and to do, or cause
to be done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its commercially reasonable efforts to satisfy
the conditions precedent to the obligations of any of the parties hereto to
obtain all necessary waivers, and to lift any injunction or other legal bar to
the Merger (and, in such case, to proceed with the Merger as expeditiously as
possible). In order to obtain any necessary governmental or regulatory action or
non-action, waiver, consent, extension or approval, each of Parent, Acquisition
Corp. and the Company agrees to take all reasonable actions and to enter into
all reasonable agreements as may be necessary to obtain timely governmental or
regulatory approvals and to take such further action in connection therewith as
may be necessary. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and/or directors of Parent, Acquisition Corp. and the
Company shall take all such necessary action.
6.3 PUBLICITY. No party shall issue any press release or public
announcement pertaining to the Merger that has not been agreed upon in advance
by Parent and the Company, except as Parent reasonably determines to be
necessary in order to comply with the rules of the Commission or of the
principal trading exchange or market for Parent Common Stock, provided that in
such case Parent will use its best efforts to allow Company to review and
reasonably approve any same prior to its release.
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6.4 APPOINTMENT OF DIRECTORS AND OFFICERS. Immediately upon the
Effective Time, Parent shall accept the resignations of the current officers and
directors of Parent as provided by Section 7.2(f)(6) hereof, and shall cause the
persons listed as directors in EXHIBIT D hereto to be elected to the Board of
Directors of Parent. At the first annual meeting of Parent stockholders and
thereafter, the election of members of Parent's Board of Directors shall be
accomplished in accordance with the by-laws of Parent.
6.5 PARENT NAME CHANGE AND EXCHANGE LISTING. At the Effective Time,
Parent shall take all required legal actions to change its corporate name to
Health Benefits Direct Corporation. Promptly following the Effective Time,
Parent shall take all required actions to, upon satisfaction of the original
listing requirements, list the Parent Common Stock for trading on the American
Stock Exchange or the Nasdaq Small cap Market.
7. Conditions of Parties' Obligations.
7.1 PARENT AND ACQUISITION CORP. OBLIGATIONS. The obligations of
Parent and Acquisition Corp. under this Agreement and the Certificate of Merger
are subject to the fulfillment at or prior to the Closing of the following
conditions, any of which may be waived in whole or in part by Parent.
(a) NO ERRORS, ETC. The representations and warranties of the
Company under this Agreement shall be deemed to have been made again on the
Closing Date and shall then be true and correct in all material respects.
(b) COMPLIANCE WITH AGREEMENT. The Company shall have performed
and complied in all material respects with all agreements and conditions
required by this Agreement to be performed or complied with by them on or before
the Closing Date.
(c) NO DEFAULT OR ADVERSE CHANGE. There shall not exist on the
Closing Date any Default or Event of Default or any event or condition that,
with the giving of notice or lapse of time, or both, would constitute a Default
or Event of Default, and since the Balance Sheet Date, there shall have been no
material adverse change in the Condition of the Company.
(d) CERTIFICATE OF OFFICERS. The Company shall have delivered to
Parent and Acquisition Corp. a certificate dated the Closing Date, executed on
its behalf by the Chief Executive Officer and Chief Financial Officer of the
Company, certifying the satisfaction of the conditions specified in paragraphs
(a), (b) and (c) of this Section 7.1.
(e) NO RESTRAINING ACTION. No action or proceeding before any
court, governmental body or agency shall have been threatened, asserted or
instituted to restrain or prohibit, or to obtain substantial damages in respect
of, this Agreement or the Certificate of Merger or the carrying out of the
transactions contemplated by the Merger Documents.
(f) SUPPORTING DOCUMENTS. Parent and Acquisition Corp. shall
have received the following:
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(1) Copies of resolutions of the Board of Directors and the
stockholders of the Company, certified by the Secretary of the Company,
authorizing and approving the execution, delivery and performance of the Merger
Documents and all other documents and instruments to be delivered pursuant
hereto and thereto.
(2) A certificate of incumbency executed by the Secretary of
the Company certifying the names, titles and signatures of the officers
authorized to execute any documents referred to in this Agreement and further
certifying that the Certificate of Incorporation and By-laws of the Company
delivered to Parent and Acquisition Corp. at the time of the execution of this
Agreement have been validly adopted and have not been amended or modified.
(3) A certificate, dated the Closing Date, executed by the
Company's Secretary, certifying that, except for the filing of the Certificate
of Merger: (i) all consents, authorizations, orders and approvals of, and
filings and registrations with, any court, governmental body or instrumentality
that are required for the execution and delivery of this Agreement and the
Certificate of Merger and the consummation of the Merger shall have been duly
made or obtained, and all material consents by third parties that are required
for the Merger have been obtained; and (ii) no action or proceeding before any
court, governmental body or agency has been threatened, asserted or instituted
to restrain or prohibit, or to obtain substantial damages in respect of, this
Agreement or the Certificate of Merger or the carrying out of the transactions
contemplated by the Merger Documents.
(4) Evidence as of a recent date of the good standing and
corporate existence of the Company issued by the Secretary of State of the State
of Delaware and evidence that the Company is qualified to transact business as a
foreign corporation and is in good standing in each state of the United States
and in each other jurisdiction where the character of the property owned or
leased by it or the nature of its activities makes such qualification necessary.
(5) Such additional supporting documentation and other
information with respect to the transactions contemplated hereby as Parent and
Acquisition Corp. may reasonably request.
(g) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transactions shall be reasonably
satisfactory in form and substance to Parent and Acquisition Corp. The Company
shall furnish to Parent and Acquisition Corp. such supporting documentation and
evidence of the satisfaction of any or all of the conditions precedent specified
in this Section 7.1 as Parent or its counsel may reasonably request.
7.2 COMPANY OBLIGATIONS. The obligations of the Company under this
Agreement and the Certificate of Merger are subject to the fulfillment at or
prior to the Closing of the conditions precedent specified in paragraphs (f),
(g), (h) and (i) of Section 7.1 hereof, and the following additional conditions:
27
(a) NO ERRORS, ETC. The representations and warranties of Parent
and Acquisition Corp. under this Agreement shall be deemed to have been made
again on the Closing Date and shall then be true and correct in all material
respects.
(b) COMPLIANCE WITH AGREEMENT. Parent and Acquisition Corp.
shall have performed and complied in all material respects with all agreements
and conditions required by this Agreement and the Certificate of Merger to be
performed or complied with by them on or before the Closing Date.
(c) NO DEFAULT OR ADVERSE CHANGE. There shall not exist on the
Closing Date any Default or Event of Default or any event or condition, that
with the giving of notice or lapse of time, or both, would constitute a Default
or Event of Default, and since the Parent Balance Sheet Date, there shall have
been no material adverse change in the Condition of the Parent.
(d) CERTIFICATE OF OFFICERS. Parent and Acquisition Corp. shall
have delivered to the Company a certificate dated the Closing Date, executed on
their behalf by their respective Presidents or other duly authorized officers,
certifying the satisfaction of the conditions specified in paragraphs (a), (b),
and (c) of this Section 7.2.
(e) OPINION OF PARENT'S COUNSEL. The Company shall have received
from Cane Clark, LLP., Las Vegas, Nevada, counsel for Parent, a favorable
opinion dated the Closing Date to the effect set forth in Exhibit E hereto.
(f) SUPPORTING DOCUMENTS. The Company shall have received the
following:
(1) Copies of resolutions of Parent's and Acquisition
Corp.'s respective board of directors and the sole stockholder of Acquisition
Corp., certified by their respective Secretaries, authorizing and approving, to
the extent applicable, the execution, delivery and performance of this
Agreement, the Certificate of Merger and all other documents and instruments to
be delivered by them pursuant hereto and thereto.
(2) A certificate of incumbency executed by the respective
Secretaries of Parent and Acquisition Corp. certifying the names, titles and
signatures of the officers authorized to execute the documents referred to in
paragraph (i) above and further certifying that the certificates of
incorporation and by-laws of Parent and Acquisition Corp. appended thereto have
not been amended or modified.
(3) A certificate, dated the Closing Date, executed by the
Secretary of each of the Parent and Acquisition Corp., certifying that, except
for the filing of the Certificate of Merger: (i) all consents, authorizations,
orders and approvals of, and filings and registrations with, any court,
governmental body or instrumentality that are required for the execution and
delivery of this Agreement and the Certificate of Merger and the consummation of
the Merger shall have been duly made or obtained, and all material consents by
third parties required for the Merger have been obtained; and (ii) no action or
proceeding before any court, governmental body or agency has been threatened,
asserted or instituted to restrain or prohibit, or to obtain substantial damages
28
in respect of, this Agreement or the Certificate of Merger or the carrying out
of the transactions contemplated by any of the Merger Documents.
(4) A certificate of Pacific Stock Transfer, Parent's
transfer agent and registrar, certifying as of the business day prior to the
date any shares of Parent Common Stock are first issued to the Company's
stockholders pursuant to the Merger, a true and complete list of the names and
addresses of the record owners of all of the outstanding shares of Parent Common
Stock, together with the number of shares of Parent Common Stock held by each
record owner.
(5) A letter from Pacific Stock Transfer, Parent's transfer
agent and registrar setting forth that the number of shares of Parent Common
Stock that would be issued and outstanding as of the Closing Date, giving effect
to all agreements with Parent's stockholders, but prior to the closing of the
sale and cancellations contemplated thereby, is no more than 2,775,000 shares of
Parent Common Stock.
(6) (i) The executed resignations of all directors and
officers of Parent, with the director resignations to take effect at the
Effective Time, and (ii) executed releases from Robert Ferguson and, in the form
attached hereto as EXHIBIT F
(7) Evidence as of a recent date of the good standing and
corporate existence of each of the Parent and Acquisition Corp. issued by the
Secretary of State of their respective states of incorporation and evidence that
the Parent and Acquisition Corp. are qualified to transact business as foreign
corporations and are in good standing in each state of the United States and in
each other jurisdiction where the character of the property owned or leased by
them or the nature of their activities makes such qualification necessary.
(8) Such additional supporting documentation and other
information with respect to the transactions contemplated hereby as the Company
may reasonably request.
(g) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings and actions taken in connection with the transactions contemplated
hereby and all certificates, opinions, agreements, instruments and documents
mentioned herein or incident to any such transactions shall be satisfactory in
form and substance to the Company. Parent and Acquisition Corp. shall furnish to
the Company such supporting documentation and evidence of satisfaction of any or
all of the conditions specified in this Section 7.2 as the Company may
reasonably request.
The Company and Parent may waive compliance with any of the conditions precedent
specified in this Section 7.2.
8. Non-Survival of Representations and Warranties.
Except as provided under Section 12, the representations and warranties of the
parties made in Sections 2 and 3 of this Agreement (including the Schedules to
the Agreement which are hereby incorporated by reference) shall not survive
beyond the Effective Time. This Section 8 shall not limit any claim in any way
29
based upon any certificate, opinion, covenant, or agreement which by its terms
is relied upon by the Company or contemplates performance after the Effective
Time or pursuant to any other Certificate, statement or agreement or any claim
for fraud.
9. Amendment of Agreement.
This Agreement and the Certificate of Merger may be amended or modified at any
time in all respects by an instrument in writing executed (i) in the case of
this Agreement by the parties hereto and (ii) in the case of the Certificate of
Merger by the parties thereto.
10. Definitions.
Unless the context otherwise requires, the terms defined in this Section 10
shall have the meanings herein specified for all purposes of this Agreement,
applicable to both the singular and plural forms of any of the terms herein
defined.
"ACQUISITION CORP." means HBDC II, Inc., a Delaware corporation.
"AFFILIATE" shall mean any Person that directly or indirectly controls, is
controlled by, or is under common control with, the indicated Person.
"AGREEMENT" shall mean this Agreement.
"BALANCE SHEET" and "BALANCE SHEET DATE" shall have the meanings assigned to
such terms in Section 2.10 hereof.
"CERTIFICATE OF MERGER" shall have the meaning assigned to it in the second
recital of this Agreement.
"CLOSING" and "CLOSING DATE" shall have the meanings assigned to such terms in
Section 11 hereof.
"CODE" shall mean the Internal Revenue Code of 1986, as amended.
"COMMISSION" or "SEC" shall mean the U.S. Securities and Exchange Commission.
"COMPANY" shall mean Health Benefits Direct Corporation, a Delaware corporation.
"COMPANY COMMON STOCK" shall mean the Common Stock of the Company.
"COMPANY STOCK" shall have the meaning assigned to it in Section 2.5.
"CONDITION OF THE COMPANY" shall have the meaning assigned to it in Section 2.2
hereof.
"CONDITION OF THE PARENT" shall have the meaning assigned to it in Section 3.13
hereof.
"DEFAULT" shall mean a default or failure in the due observance or performance
of any covenant, condition or agreement on the part of the Company to be
observed or performed under the terms of this Agreement or the Certificate of
Merger, if such default or failure in performance shall remain un-remedied for
five (5) days.
"DGCL" shall mean the General Corporation Law of the State of Delaware.
"DETERMINATION DATE" shall have the meaning set forth in Section 11.6 hereof.
"EFFECTIVE TIME" shall have the meaning assigned to it in Section 1.2 hereof.
"EMPLOYEE BENEFIT PLANS" shall have the meaning assigned to it in Section 2.17
hereof.
30
"ENVIRONMENTAL LAWS" means the Comprehensive Environmental Response,
Compensation and Liability Act, 42 U.S.C. ss.ss. 9601, et seq.; the Emergency
Planning and Community Right-to-Know Act of 1986, 42 U.S.C. ss.ss. 11001, et
seq.; the Resource Conservation and Recovery Act, 42 U.S.C. ss.ss. 6901, et
seq.; the Toxic Substances Control Act, 15 U.S.C. ss.ss. 2601 et seq.; the
Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss.ss. 136, et
seq. and comparable state statutes dealing with the registration, labeling and
use of pesticides and herbicides; the Clean Air Act, 42 U.S.C. ss.ss. 7401 et
seq.; the Clean Water Act (Federal Water Pollution Control Act), 33 U.S.C.
ss.ss. 1251 et seq.; the Safe Drinking Water Act, 42 U.S.C. ss.ss. 300f, et
seq.; the Hazardous Materials Transportation Act, 49 U.S.C. ss.ss. 1801, et
seq.; as any of the above statutes have been amended as of the date hereof, all
rules, regulations and policies promulgated pursuant to any of the above
statutes, and any other foreign, federal, state or local law, statute,
ordinance, rule, regulation or policy governing environmental matters, as the
same have been amended as of the date hereof.
"EQUITY SECURITY" shall mean any stock or similar security of an issuer or any
security (whether stock or Indebtedness for Borrowed Money) convertible, with or
without consideration, into any stock or similar equity security, or any
security (whether stock or Indebtedness for Borrowed Money) carrying any warrant
or right to subscribe to or purchase any stock or similar security, or any such
warrant or right.
"ERISA" shall mean the Employee Retirement Income Securities Act of 1974, as
amended.
"EVENT OF DEFAULT" shall mean (a) the failure of the Company to pay any
Indebtedness for Borrowed Money, or any interest or premium thereon, within five
(5) days after the same shall become due, whether such Indebtedness shall become
due by scheduled maturity, by required prepayment, by acceleration, by demand or
otherwise, (b) an event of default under any agreement or instrument evidencing
or securing or relating to any such Indebtedness, or (c) the failure of the
Company to perform or observe any material term, covenant, agreement or
condition on its part to be performed or observed under any agreement or
instrument evidencing or securing or relating to any such Indebtedness when such
term, covenant or agreement is required to be performed or observed.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended.
"FAIR MARKET VALUE" shall mean, with respect to a share of Common Stock on any
Determination Date, the average of the daily closing prices for the 10
consecutive business days prior to such date. The closing price for each day
shall be the last sales price or in case no sale takes place on such day, the
average of the closing high bid and low asked prices, in either case (a) as
officially quoted by the NASD over the counter bulletin board, Nasdaq Small Cap
Market or the Nasdaq National Market or such other market on which the Common
Stock is then listed for trading, or (b) if, in the reasonable judgment of the
Board of Directors of Parent, the NASD over-the-counter bulletin board, the
Nasdaq Small Cap Market or the Nasdaq National Market is no longer the principal
United States market for the Common Stock, then as quoted on the principal
United States market for the Common Stock as determined by the Board of
Directors of Parent, or (c) if, in the reasonable judgment of the Board of
Directors of the Parent, there exists no principal United States market for the
Common Stock, then as reasonably determined by the Board of Directors of Parent.
"GAAP" shall mean generally accepted accounting principles in the United States,
as in effect from time to time.
31
"HAZARDOUS MATERIAL" means any substance or material meeting any one or more of
the following criteria: (a) it is or contains a substance designated as or
meeting the characteristics of a hazardous waste, hazardous substance, hazardous
material, pollutant, contaminant or toxic substance under any Environmental Law;
(b) its presence at some quantity requires investigation, notification or
remediation under any Environmental Law; or (c) it contains, without limiting
the foregoing, asbestos, polychlorinated biphenyls, petroleum hydrocarbons,
petroleum derived substances or waste, pesticides, herbicides, crude oil or any
fraction thereof, nuclear fuel, natural gas or synthetic gas.
"INDEBTEDNESS" shall mean any obligation of the Company which under generally
accepted accounting principles is required to be shown on the balance sheet of
the Company as a liability. Any obligation secured by a Lien on, or payable out
of the proceeds of production from, property of the Company shall be deemed to
be Indebtedness even though such obligation is not assumed by the Company.
"INDEBTEDNESS FOR BORROWED MONEY" shall mean (a) all Indebtedness in respect of
money borrowed including, without limitation, Indebtedness which represents the
unpaid amount of the purchase price of any property and is incurred in lieu of
borrowing money or using available funds to pay such amounts and not
constituting an account payable or expense accrual incurred or assumed in the
ordinary course of business of the Company, (b) all Indebtedness evidenced by a
promissory note, bond or similar written obligation to pay money, or (c) all
such Indebtedness guaranteed by the Company or for which the Company is
otherwise contingently liable.
"INVESTMENT COMPANY ACT" shall mean the Investment Company Act of 1940, as
amended.
"KNOWLEDGE" and "KNOW" means, when referring to any person or entity, the actual
knowledge of such person or entity of a particular matter or fact, and what that
person or entity would have reasonably known after due inquiry. An entity will
be deemed to have "knowledge" of a particular fact or other matter if any
individual who is serving, or who has served, as an executive officer of such
entity has actual "knowledge" of such fact or other matter, or had actual
"knowledge" during the time of such service of such fact or other matter, or
would have had "knowledge" of such particular fact or matter after due inquiry.
"LETTER OF TRANSMITTAL" shall have the meaning assigned to it in Section 4
hereof.
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind, including, without limitation, any conditional sale or other
title retention agreement, any lease in the nature thereof and the filing of or
agreement to give any financing statement under the Uniform Commercial Code of
any jurisdiction and including any lien or charge arising by statute or other
law.
"MERGER" shall have the meaning assigned to it in Section 1.1 hereof.
"MERGER DOCUMENTS" shall have the meaning assigned to it in Section 2.6 hereof.
"PARENT" shall mean Darwin Resources Corp., a Delaware corporation.
"PARENT BALANCE SHEET DATE" shall have the meaning assigned to it in Section
3.14 hereof.
"PARENT COMMON STOCK" shall mean the common stock, par value $.001 per share, of
Parent.
"PARENT EMPLOYEE BENEFIT PLANS" shall have the meaning assigned to it in Section
3.16 hereof.
"PARENT FINANCIAL STATEMENTS" shall have the meaning assigned to it in Section
3.8 hereof.
32
"PARENT SEC DOCUMENTS" shall have the meaning assigned to it in Section 3.7
hereof.
"PARENT WARRANTS" shall have the meaning assigned to it in Section 1.7(c)
hereof.
"PERMITTED LIENS" shall mean (a) Liens for taxes and assessments or governmental
charges or levies not at the time due or in respect of which the validity
thereof shall currently be contested in good faith by appropriate proceedings;
(b) Liens in respect of pledges or deposits under workmen's compensation laws or
similar legislation, carriers', warehousemen's, mechanics', laborers' and
materialmens' and similar Liens, if the obligations secured by such Liens are
not then delinquent or are being contested in good faith by appropriate
proceedings; and (c) Liens incidental to the conduct of the business of the
Company that were not incurred in connection with the borrowing of money or the
obtaining of advances or credits and which do not in the aggregate materially
detract from the value of its property or materially impair the use made thereof
by the Company in its business.
"PERSON" shall include all natural persons, corporations, business trusts,
associations, limited liability companies, partnerships, joint ventures and
other entities and governments and agencies and political subdivisions.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
"STOCKHOLDERS" shall mean all of the stockholders of the Company.
"SURVIVING CORPORATION" shall have the meaning assigned to it in Section 1.1
hereof.
"TAX" or "TAXES" shall mean (a) any and all taxes, assessments, customs, duties,
levies, fees, tariffs, imposts, deficiencies and other governmental charges of
any kind whatsoever (including, but not limited to, taxes on or with respect to
net or gross income, franchise, profits, gross receipts, capital, sales, use, ad
valorem, value added, transfer, real property transfer, transfer gains, transfer
taxes, inventory, capital stock, license, payroll, employment, social security,
unemployment, severance, occupation, real or personal property, estimated taxes,
rent, excise, occupancy, recordation, bulk transfer, intangibles, alternative
minimum, doing business, withholding and stamp), together with any interest
thereon, penalties, fines, damages costs, fees, additions to tax or additional
amounts with respect thereto, imposed by the United States (federal, state or
local) or other applicable jurisdiction; (b) any liability for the payment of
any amounts described in clause (a) as a result of being a member of an
affiliated, consolidated, combined, unitary or similar group or as a result of
transferor or successor liability, including, without limitation, by reason of
Regulation section 1.1502-6; and (c) any liability for the payments of any
amounts as a result of being a party to any Tax Sharing Agreement or as a result
of any express or implied obligation to indemnify any other Person with respect
to the payment of any amounts of the type described in clause (a) or (b).
"TAX RETURN" shall include all returns and reports (including elections,
declarations, disclosures, schedules, estimates and information returns
(including Form 1099 and partnership returns filed on Form 1065) required to be
supplied to a Tax authority relating to Taxes.
11. Closing.
The closing of the Merger (the "CLOSING") shall occur concurrently with the
Effective Time (the "CLOSING DATE"). The Closing shall occur at the offices of
Olshan Grundman Frome Rosenzweig & Wolosky, LLP referred to in Section 14.1
hereof. At the Closing, Parent shall present for delivery to each Stockholder
the certificate representing the Parent Common Stock to be issued pursuant to
33
Section 1.5(a)(ii) hereof to them pursuant to Sections 1.6 and 4 hereof. Such
presentment for delivery shall be against delivery to Parent and Acquisition
Corp. of the certificates, opinions, agreements and other instruments referred
to in Section 7.1 hereof, and the certificates representing all of the Common
Stock issued and outstanding immediately prior to the Effective Time. Parent
will deliver at such Closing to the Company the officers' certificate and
opinion referred to in Section 7.2 hereof. All of the other documents and
certificates and agreements referenced in Section 7 will also be executed as
described therein. At the Effective Time, all actions to be taken at the Closing
shall be deemed to be taken simultaneously.
12. Indemnification and Related Matters.
12.1 INDEMNIFICATION BY PARENT. Parent shall indemnify and hold
harmless the Company and the Stockholders (the "COMPANY INDEMNIFIED PARTIES"),
and shall reimburse the Company Indemnified Parties for, any loss, liability,
claim, damage, expense (including, but not limited to, costs of investigation
and defense and reasonable attorneys' fees) or diminution of value
(collectively, "DAMAGES") arising from or in connection with (a) any inaccuracy,
in any material respect, in any of the representations and warranties of Parent
and Acquisition Corp. in this Agreement or in any certificate delivered by
Parent and Acquisition Corp. to the Company pursuant to this Agreement, or any
actions, omissions or statements of fact inconsistent with any such
representation or warranty, (b) any failure by Parent or Acquisition Corp. to
perform or comply in any material respect with any covenant or agreement in this
Agreement, (c) any claim for brokerage or finder's fees or commissions or
similar payments based upon any agreement or understanding alleged to have been
made by any such party with Parent or Acquisition Corp. in connection with any
of the transactions contemplated by this Agreement, (d) taxes attributable to
any transaction or event occurring on or prior to the Closing, (e) any claim
relating to or arising out of any liabilities reflected on the Balance Sheet or
with respect to accounting fees arising thereafter, or (f) any litigation,
action, claim, proceeding or investigation by any third party relating to or
arising out of the business or operations of Parent, or the actions of Parent or
any holder of Parent capital stock prior to the Effective Time.
12.2 SURVIVAL. All representations, warranties, covenants and
agreements of Parent and Acquisition Corp. contained in this Agreement or in any
certificate delivered pursuant to this Agreement shall survive the Closing for
the time period set forth in Section 12.3 notwithstanding any investigation
conducted with respect thereto. The representations and warranties of the
Company contained in this Agreement or in any certificate delivered pursuant to
this Agreement shall not survive the Closing.
12.3 TIME LIMITATIONS. Neither Parent nor Acquisition Corp. shall
have any liability (for indemnification or otherwise) with respect to any
representation or warranty, or agreement to be performed and complied with prior
to the Effective Time, unless on or before the one-year anniversary of the
Effective Time (the "CLAIMS DEADLINE"), Parent is given notice of a claim with
respect thereto, in accordance with Section 12.7, specifying the factual basis
therefore in reasonable detail to the extent then known by the Company
Indemnified Parties.
12.4 LIMITATION ON LIABILITY. The obligations to Parent and
Acquisition Corp. to the Company Indemnified Parties set forth in Section 12.1
shall be subject to the following limitations:
34
(a) The aggregate liability of Parent and Acquisition Corp.
to the Company Indemnified Parties under this Agreement shall not exceed the
gross proceeds of the sale of any shares of Parent Common Stock effected in
contemplation of the Merger and shall be payable at the election of the Parent
by the issuance of additional shares of Common stock pursuant to Section 12.6.
(b) Other than claims based on fraud or for specific
performance, injunctive or other equitable relief, the indemnity provided in
this Section 12 shall be the sole and exclusive remedy of the Company
Indemnified Parties against Parent and Acquisition Corp. at law or equity for
any matter covered by Section 12.1.
12.5 NOTICE OF CLAIMS.
(a) If, at any time on or prior to the Claims Deadline,
Company Indemnified Parties shall assert a claim for indemnification pursuant to
Section 12.1, such Company Indemnified Parties shall submit to Parent a written
claim in good faith signed by an authorized officer of the Company or other
Company Indemnified Parties, as applicable, stating: (i) that a Company
Indemnified Party incurred or reasonably believes it may incur Damages and the
reasonable estimate of the amount of any such Damages; (ii) in reasonable
detail, the facts alleged as the basis for such claim and the section or
sections of this Agreement alleged as the basis or bases for the claim; and
(iii) if the Damages have actually been incurred, the number of additional
shares of Common Stock to which the Stockholders are entitled with respect to
such Damages, which shall be determined as provided in Section 12.6 below. If
the claim is for Damages which the Company Indemnified Parties reasonably
believe may be incurred or are otherwise un-liquidated, the written claim of the
applicable Company Indemnified Parties shall state the reasonable estimate of
such Damages, in which event a claim shall be deemed to have been asserted under
this Article 12 in the amount of such estimated Damages, but no distribution of
additional shares of Common Stock to the Stockholders pursuant to Section 12.6
below shall be made until such Damages have actually been incurred.
(b) In the event that any action, suit or proceeding is
brought against any Company Indemnified Party with respect to which Parent may
have liability under this Section 12, the Parent shall have the right, at its
cost and expense, to defend such action, suit or proceeding in the name and on
behalf of the Company Indemnified Party; provided, however, that a Company
Indemnified Party shall have the right to retain its own counsel, with fees and
expenses paid by Parent, if representation of the Company Indemnified Party by
counsel retained by Parent would be inappropriate because of actual or potential
differing interests between Parent and the Company Indemnified Party. In
connection with any action, suit or proceeding subject to the Section 12 hereof,
Parent and each Company Indemnified Party agree to render to each other such
assistance as may reasonably be required in order to ensure proper and adequate
defense of such action, suit or proceeding. Parent shall not, without the prior
written consent of the applicable Company Indemnified Parties, which consent
shall not be unreasonably withheld or delayed, settle or compromise any claim or
demand if such settlement or compromise does not include an irrevocable and
unconditional release of such Company Indemnified Parties for any liability
arising out of such claim or demand.
35
12.6 PAYMENT OF DAMAGES. In the event that the Company Indemnified
Parties shall be entitled to indemnification pursuant to this Section 12 for
actual Damages incurred by them, Parent shall, within thirty (30) days after the
final determination of the amount of such Damages, issue to the Stockholders
that number of additional shares of Common Stock in an aggregate amount equal to
the quotient obtained by dividing (x) the amount of such Damages by (y) the Fair
Market Value per share of the Common Stock as of the date (the "DETERMINATION
DATE") of the submission of the notice of claim to Parent pursuant to Section
12.5. Such shares of Common Stock shall be issued to the Stockholders pro rata,
in proportion to the number of Parent Shares issued (or issuable) to the
Stockholders at the Effective Time and under the Private Placement.
13. Termination Prior to Closing.
13.1 TERMINATION OF AGREEMENT. This Agreement may be terminated at
any time prior to the Closing:
(a) By the mutual written consent of the Company, Acquisition
Corp. and Parent;
(b) By the Company, if Parent or Acquisition Corp. (i) fails to
perform in any material respect any of its agreements contained herein required
to be performed by it on or prior to the Closing Date, (ii) materially breaches
any of its representations, warranties or covenants contained herein, which
failure or breach is not cured within thirty (30) days after the Company has
notified Parent and Acquisition Corp. of its intent to terminate this Agreement
pursuant to this paragraph (b);
(c) By Parent and Acquisition Corp., if the Company (i) fails
to perform in any material respect any of its agreements contained herein
required to be performed by it on or prior to the Closing Date, (ii) materially
breach any of its representations, warranties or covenants contained herein,
which failure or breach is not cured within thirty (30) days after Parent or
Acquisition Corp. has notified the Company of its intent to terminate this
Agreement pursuant to this paragraph (c);
(d) By either the Company, on the one hand, or Parent and
Acquisition Corp., on the other hand, if there shall be any order, writ,
injunction or decree of any court or governmental or regulatory agency binding
on Parent, Acquisition Corp. or the Company, which prohibits or materially
restrains any of them from consummating the transactions contemplated hereby,
provided that the parties hereto shall have used their best efforts to have any
such order, writ, injunction or decree lifted and the same shall not have been
lifted within ninety (90) days after entry, by any such court or governmental or
regulatory agency; or
(e) By either the Company, on the one hand, or Parent and
Acquisition Corp., on the other hand, if the Closing has not occurred on or
prior to December 31, 2004, for any reason other than delay or nonperformance of
the party seeking such termination.
13.2 TERMINATION OF OBLIGATIONS. Termination of this Agreement
pursuant to this Section 13 shall terminate all obligations of the parties
hereunder, except for the obligations under Sections 6.1, 14.3 and 14.12;
36
provided, however, that termination pursuant to paragraphs (b) or (c) of Section
13.1 shall not relieve the defaulting or breaching party or parties from any
liability to the other parties hereto.
14. Miscellaneous.
14.1 NOTICES. Any notice, request or other communication hereunder
shall be given in writing and shall be served either personally by overnight
delivery or delivered by mail, certified return receipt and addressed to the
following addresses:
If to Parent
or Acquisition Corp.: Darwin Resources Corp.
455-5525 West Boulevard
Vancouver, B.C., Canada V6M 3W6
Attn: Robert Ferguson
With a copy to: Cane Clark LLP
3273 E. Warm Springs
Las Vegas, NV 89120
(702) 944-7100 (Fax)
If to the Company: Health Benefits Direct Corporation
2900 Gateway Drive
Pompano Beach, FL 33069
Attention: Scott Frohman,
Chief Executive Officer
With a copy to: Olshan Grundman Frome Rosenzweig &
Wolosky LLP
Park Avenue Tower
65 East 55th Street
New York, NY 10022-1106
Attention: Harvey J. Kesner, Esq.
Notices shall be deemed received at the earlier of actual receipt or three (3)
business days following mailing. Counsel for a party (or any authorized
representative) shall have authority to accept delivery of any notice on behalf
of such party.
14.2 ENTIRE AGREEMENT. This Agreement, including the schedules and
exhibits attached hereto and other documents referred to herein, contains the
entire understanding of the parties hereto with respect to the subject matter
hereof. This Agreement supersedes all prior agreements and undertakings between
the parties with respect to such subject matter.
14.3 EXPENSES. Each party shall bear and pay all of the legal,
accounting and other expenses incurred by it in connection with the transactions
contemplated by this Agreement;
14.4 DISPUTE RESOLUTION. The Parties agree to attempt initially to
solve all claims, disputes or controversies arising under, out of or in
connection with this Agreement by conducting good faith negotiations. If the
Parties are unable to settle the matter between themselves, the matter shall
thereafter be resolved by alternative dispute resolution, starting with
37
mediation and including, if necessary, a final and binding arbitration. Whenever
a Party shall decide to institute arbitration proceedings, it shall give written
notice to that effect to the other Party. The Party giving such notice shall
refrain from instituting the arbitration proceedings for a period of sixty (60)
days following such notice. During such period, the Parties shall make good
faith efforts to amicably resolve the dispute without arbitration. Any
arbitration hereunder shall be conducted under the rules of the American
Arbitration Association. Each such arbitration shall be conducted by a panel of
three arbitrators: one arbitrator shall be appointed by each of Parent and
Company and the third shall be appointed by the American Arbitration
Association. Any such arbitration shall be held in New York, New York. The
arbitrators shall have the authority to grant specific performance. Judgment
upon the award so rendered may be entered in any court having jurisdiction or
application may be made to such court for judicial acceptance of any award and
an order of enforcement, as the case may be. In no event shall a demand for
arbitration be made after the date when institution of a legal or equitable
proceeding based on such claim, dispute or other matter in question would be
barred under this Agreement or by the applicable statute of limitation. The
prevailing party in any such arbitration shall be entitled to recover from the
other party, in addition to any other remedies, all reasonable costs, attorneys'
fees and other expenses incurred by such prevailing party.
14.5 TIME. Time is of the essence in the performance of the parties'
respective obligations herein contained.
14.6 SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
14.7 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
assigns and heirs; provided, however, that neither party shall directly or
indirectly transfer or assign any of its rights hereunder in whole or in part
without the written consent of the others , which may be withheld in its sole
discretion , and any such transfer or assignment without said consent shall be
void.
14.8 NO THIRD PARTIES BENEFITED. This Agreement is made and entered
into for the sole protection and benefit of the parties hereto, their
successors, assigns and heirs, and no other Person shall have any right or
action under this Agreement.
14.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, with the same effect as if all parties had signed the same
document. Each such counterpart shall be an original, but all such counterparts
together shall constitute a single agreement.
14.10 RECITALS, SCHEDULES AND EXHIBITS. The Recitals, Schedules and
Exhibits to this Agreement are incorporated herein and, by this reference, made
a part hereof as if fully set forth herein.
38
14.11 SECTION HEADINGS AND GENDER. The Section headings used herein
are inserted for reference purposes only and shall not in any way affect the
meaning or interpretation of this Agreement. All personal pronouns used in this
Agreement shall include the other genders, whether used in the masculine,
feminine or neuter gender, and the singular shall include the plural, and vice
versa, whenever and as often as may be appropriate.
14.12 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware without regard to principles of conflict of laws.
39
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
to be binding and effective as of the day and year first above written.
PARENT:
DARWIN RESOURCES CORP.
By: /s/ Robert Ferguson
--------------------------------------
Name: Robert Ferguson
Title: President
ACQUISITION CORP:
HBDC II, INC.
By: /s/ Robert Ferguson
--------------------------------------
Name: Robert Ferguson
Title: President
COMPANY:
HEALTH BENEFITS DIRECT CORPORATION
By: /s/ Scott Frohman
--------------------------------------
Name: Scott Frohman
Title: Chief Executive Officer
Exhibit 3.3
STATE OF DELAWARE
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
The corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware does hereby certify:
FIRST: That by written consent of the Board of Directors of:
DARWIN RESOURCES CORP.
--------------------------------------------------------------------------------
resolutions were duly adopted setting forth a proposed amendment of the
Certificate of Incorporation of said corporation, declaring said amendment to be
advisable and calling a meeting of the stockholders of said corporation for
consideration thereof. The resolution setting forth the proposed amendment is as
follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended
by changing the Article thereof numbered "FIRST" so that, as amended, said
Article shall be and read as follows:
FIRST: The name of this Corporation is HEALTH BENEFITS DIRECT
CORPORATION.
SECOND: That thereafter, pursuant to resolution of its Board of Directors and in
accordance with Section 228(a) of the General Corporation Law of the State of
Delaware, a written consent of the stockholders of said corporation was adopted,
in which consent the necessary number of shares as required by statute were
voted in favor of the amendment.
THIRD: That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
FOURTH: That the capital of said corporation shall not be reduced under or by
reason of said amendment.
IN WITNESS WHEREOF, said corporation has caused this certificate to be signed
this 23rd day of November, 2005
BY: /s/ Robert Ferguson
------------------------------------
Authorized Officer
TITLE President
NAME: Robert Ferguson
---------------------------------
Print or Type
Exhibit 3.4
CERTIFICATE OF MERGER
OF
HBDC II, INC.
a Delaware corporation
WITH AND INTO
HEALTH BENEFITS DIRECT CORPORATION
a Delaware corporation
(Pursuant to Title 8, Section 251(c) of the
Delaware General Corporation Law)
The undersigned corporation, organized and existing
under and by virtue of the General Corporation Law of the State
of Delaware, does hereby certify:
FIRST: HBDC II, Inc. is being merged into Health Benefits
Direct Corporation and the name of the surviving corporation is
HBDC II, Inc.
SECOND: That an agreement of merger and plan of
reorganization (the "Merger Agreement"), whereby HBDC II, Inc. is
merged with and into Health Benefits Direct Corporation, has been
approved, adopted, certified, executed and acknowledged by each
of the constituent corporations in accordance with the
requirements of Title 8, Section 251(c) of the General
Corporation Law of the State of Delaware.
THIRD: That the Certificate of Incorporation of Health
Benefits Direct Corporation shall be the Certificate of
Incorporation of the surviving corporation.
FOURTH: That the merger is to become effective upon filing.
FIFTH: That the executed Merger Agreement is on file at the
principal place of business of the surviving corporation located
at c/o Olshan Grundman Frome Rosenzweig & Wolosky LLC. 65 East
55(degree)' Street, New York, New York 10022.
SIXTH: That a copy of the Merger Agreement will be furnished
by the surviving corporation, on request and without cost, to any
stockholder of any constituent corporation.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the undersigned has executed this
certificate as of the 23r(degree) day of November, 2005.
HEALTH BENEFITS DIRECT
CORPORATION
By: /s/ Scott Frohman
---------------------------------
Name: Scott Frohman
Title: Chief Executive Officer
HBDC II, INC.
By /s/ Robert Ferguson
----------------------------------
Name: Robert Ferguson
Title: President
Exhibit 4.1
WARRANTS
NO. HBDC-001 HEALTH BENEFITS DIRECT ________ SHARES
CORPORATION
WARRANT TO PURCHASE COMMON STOCK
VOID AFTER 5:30 P.M., EASTERN
TIME, ON THE EXPIRATION DATE
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND
MAY NOT BE SOLD, PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED WITHOUT
COMPLIANCE WITH THE REGISTRATION OR QUALIFICATION PROVISIONS OF APPLICABLE
FEDERAL AND STATE SECURITIES LAWS OR APPLICABLE EXEMPTIONS THEREFROM.
FOR VALUE RECEIVED, HEALTH BENEFITS DIRECT CORPORATION, a Delaware
corporation (the "Company"), hereby agrees to sell upon the terms and on the
conditions hereinafter set forth, but no later than 5:30 p.m., Eastern Time, on
the Expiration Date (as hereinafter defined) to ________________ or registered
assigns (the "Holder"), under the terms as hereinafter set forth,
__________________ (_____________) fully paid and non-assessable shares of the
Company's Common Stock, par value $0.001 per share (the "Warrant Stock"), at a
purchase price of ONE DOLLAR AND FIFTY CENTS ($1.50) per share (the "Warrant
Price"), pursuant to this warrant (this "Warrant"). The number of shares of
Warrant Stock to be so issued and the Warrant Price are subject to adjustment in
certain events as hereinafter set forth. The term "Common Stock" shall mean,
when used herein, unless the context otherwise requires, the stock and other
securities and property at the time receivable upon the exercise of this
Warrant.
Capitalized terms used and not otherwise defined herein shall have the
respective meanings attributed thereto in Section 10.
1. EXERCISE OF WARRANT.
a. The Holder may exercise this Warrant according to its terms by
surrendering this Warrant to the Company at the address set forth in Section 10,
the subscription form attached hereto having then been duly executed by the
Holder, accompanied by cash, certified check or bank draft in payment of the
purchase price, in lawful money of the United States of America, for the number
of shares of the Warrant Stock specified in the subscription form, or as
otherwise provided in this Warrant, prior to 5:30 p.m., Eastern Time, on
__________________, 2008 (the "Expiration Date").
b. This Warrant may be exercised in whole or in part so long as any
exercise in part hereof would not involve the issuance of fractional shares of
Warrant Stock. If exercised in part, the Company shall deliver to the Holder a
new Warrant, identical in form, in the name of the Holder, evidencing the right
to purchase the number of shares of Warrant Stock as to which this Warrant has
not been exercised, which new Warrant shall be signed by the Chairman, Chief
Executive Officer or President and the Secretary or Assistant Secretary of the
Company. The term Warrant as used herein shall include any subsequent Warrant
issued as provided herein.
c. No fractional shares or scrip representing fractional shares shall
be issued upon the exercise of this Warrant. The Company shall pay cash in lieu
of fractions with respect to the Warrants based upon the fair market value of
such fractional shares of Common Stock (which shall be the closing price of such
shares on the exchange or market on which the Common Stock is then traded) at
the time of exercise of this Warrant.
d. In the event of any exercise of the rights represented by this
Warrant, a certificate or certificates for the Warrant Stock so purchased,
registered in the name of the Holder, shall be delivered to the Holder within a
reasonable time after such rights shall have been so exercised. The person or
entity in whose name any certificate for the Warrant Stock is issued upon
exercise of the rights represented by this Warrant shall for all purposes be
deemed to have become the holder of record of such shares immediately prior to
the close of business on the date on which the Warrant was surrendered and
payment of the Warrant Price and any applicable taxes was made, irrespective of
the date of delivery of such certificate, except that, if the date of such
surrender and payment is a date when the stock transfer books of the Company are
closed, such person shall be deemed to have become the holder of such shares at
the opening of business on the next succeeding date on which the stock transfer
books are open. Except as provided in Section 4 hereof, the Company shall pay
any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of shares of Common Stock on exercise of this
Warrant.
2. DISPOSITION OF WARRANT STOCK AND WARRANT.
a. The Holder hereby acknowledges that this Warrant and any Warrant
Stock purchased pursuant hereto are, as of the date hereof, not registered: (i)
under the Act on the ground that the issuance of this Warrant is exempt from
registration under Section 4(2) of the Act as not involving any public offering
or (ii) under any applicable state securities law because the issuance of this
Warrant does not involve any public offering; and that the Company's reliance on
the Section 4(2) exemption of the Act and under applicable state securities laws
is predicated in part on the representations hereby made to the Company by the
Holder that it is acquiring this Warrant and will acquire the Warrant Stock for
investment for its own account, with no present intention of dividing its
participation with others or reselling or otherwise distributing the same,
subject, nevertheless, to any requirement of law that the disposition of its
property shall at all times be within its control.
The Holder hereby agrees that it will not sell or transfer all or any
part of this Warrant and/or Warrant Stock unless and until it shall first have
given notice to the Company describing such sale or transfer and furnished to
the Company either (i) an opinion, reasonably satisfactory to counsel for the
Company, of counsel (skilled in securities matters, selected by the Holder and
reasonably satisfactory to the Company) to the effect that the proposed sale or
2
transfer may be made without registration under the Act and without registration
or qualification under any state law, or (ii) an interpretative letter from the
Securities and Exchange Commission to the effect that no enforcement action will
be recommended if the proposed sale or transfer is made without registration
under the Act.
b. If, at the time of issuance of the shares issuable upon exercise of
this Warrant, no registration statement is in effect with respect to such shares
under applicable provisions of the Act, the Company may at its election require
that the Holder provide the Company with written reconfirmation of the Holder's
investment intent and that any stock certificate delivered to the Holder of a
surrendered Warrant shall bear legends reading substantially as follows:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 OR AN OPINION OF COUNSEL SATISFACTORY TO
THE ISSUER OF THIS CERTIFICATE THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT."
In addition, so long as the foregoing legend may remain on any stock certificate
delivered to the Holder, the Company may maintain appropriate "stop transfer"
orders with respect to such certificates and the shares represented thereby on
its books and records and with those to whom it may delegate registrar and
transfer functions.
3. RESERVATION OF SHARES. The Company hereby agrees that at all times
there shall be reserved for issuance upon the exercise of this Warrant such
number of shares of its Common Stock as shall be required for issuance upon
exercise of this Warrant. The Company further agrees that all shares which may
be issued upon the exercise of the rights represented by this Warrant will be
duly authorized and will, upon issuance and against payment of the exercise
price, be validly issued, fully paid and non-assessable, free from all taxes,
liens, charges and preemptive rights with respect to the issuance thereof, other
than taxes, if any, in respect of any transfer occurring contemporaneously with
such issuance and other than transfer restrictions imposed by federal and state
securities laws.
4. EXCHANGE, TRANSFER OR ASSIGNMENT OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other Warrants of different denominations, entitling the
Holder or Holders thereof to purchase in the aggregate the same number of shares
of Common Stock purchasable hereunder. Upon surrender of this Warrant to the
Company or at the office of its stock transfer agent, if any, with the
Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be canceled. This Warrant may be divided or combined
with other Warrants that carry the same rights upon presentation hereof at the
office of the Company or at the office of its stock transfer agent, if any,
together with a written notice specifying the names and denominations in which
new Warrants are to be issued and signed by the Holder hereof.
3
5. CAPITAL ADJUSTMENTS. This Warrant is subject to the following further
provisions:
a. RECAPITALIZATION, RECLASSIFICATION AND SUCCESSION. If any
recapitalization of the Company or reclassification of its Common Stock or any
merger or consolidation of the Company into or with a corporation or other
business entity, or the sale or transfer of all or substantially all of the
Company's assets or of any successor corporation's assets to any other
corporation or business entity (any such corporation or other business entity
being included within the meaning of the term "successor corporation") shall be
effected, at any time while this Warrant remains outstanding and unexpired,
then, as a condition of such recapitalization, reclassification, merger,
consolidation, sale or transfer, lawful and adequate provision shall be made
whereby the Holder of this Warrant thereafter shall have the right to receive
upon the exercise hereof as provided in Section 1 and in lieu of the shares of
Common Stock immediately theretofore issuable upon the exercise of this Warrant,
such shares of capital stock, securities or other property as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
Common Stock equal to the number of shares of Common Stock immediately
theretofore issuable upon the exercise of this Warrant had such
recapitalization, reclassification, merger, consolidation, sale or transfer not
taken place, and in each such case, the terms of this Warrant shall be
applicable to the shares of stock or other securities or property receivable
upon the exercise of this Warrant after such consummation.
b. SUBDIVISION OR COMBINATION OF SHARES. If the Company at any time
while this Warrant remains outstanding and unexpired shall subdivide or combine
its Common Stock, the number of shares of Warrant Stock purchasable upon
exercise of this Warrant and the Warrant Price shall be proportionately
adjusted.
c. STOCK DIVIDENDS AND DISTRIBUTIONS. If the Company at any time while
this Warrant is outstanding and unexpired shall issue or pay the holders of its
Common Stock, or take a record of the holders of its Common Stock for the
purpose of entitling them to receive, a dividend payable in, or other
distribution of, Common Stock, then (i) the Warrant Price shall be adjusted in
accordance with Section 5(e) and (ii) the number of shares of Warrant Stock
purchasable upon exercise of this Warrant shall be adjusted to the number of
shares of Common Stock that Holder would have owned immediately following such
action had this Warrant been exercised immediately prior thereto.
d. STOCK AND RIGHTS OFFERING TO SHAREHOLDERS. If the Company shall at
any time after the date of issuance of this Warrant distribute to all holders of
its Common Stock any shares of capital stock of the Company (other than Common
Stock) or evidences of its indebtedness or assets (excluding cash dividends or
distributions paid from retained earnings or current year's or prior year's
earnings of the Company) or rights or warrants to subscribe for or purchase any
of its securities (excluding those referred to in the immediately preceding
paragraph) (any of the foregoing being hereinafter in this paragraph called the
"Securities"), then in each such case, the Company shall reserve shares or other
units of such securities for distribution to the Holder upon exercise of this
Warrant so that, in addition to the shares of the Common Stock to which such
Holder is entitled, such Holder will receive upon such exercise the amount and
kind of such Securities which such Holder would have received if the Holder had,
immediately prior to the record date for the distribution of the Securities,
exercised this Warrant.
4
e. WARRANT PRICE ADJUSTMENT. Whenever the number of shares of Warrant
Stock purchasable upon exercise of this Warrant is adjusted, as herein provided,
the Warrant Price payable upon the exercise of this Warrant shall be adjusted to
that price determined by multiplying the Warrant Price immediately prior to such
adjustment by a fraction (i) the numerator of which shall be the number of
shares of Warrant Stock purchasable upon exercise of this Warrant immediately
prior to such adjustment, and (ii) the denominator of which shall be the number
of shares of Warrant Stock purchasable upon exercise of this Warrant immediately
thereafter.
f. CERTAIN SHARES EXCLUDED. The number of shares of Common Stock
outstanding at any given time for purposes of the adjustments set forth in this
Section 5 shall exclude any shares then directly or indirectly held in the
treasury of the Company.
g. DEFERRAL AND CUMULATION OF DE MINIMIS ADJUSTMENTS. The Company
shall not be required to make any adjustment pursuant to this Section 5 if the
amount of such adjustment would be less than one percent (1%) of the Warrant
Price in effect immediately before the event that would otherwise have given
rise to such adjustment. In such case, however, any adjustment that would
otherwise have been required to be made shall be made at the time of and
together with the next subsequent adjustment which, together with any adjustment
or adjustments so carried forward, shall amount to not less than one percent
(1%) of the Warrant Price in effect immediately before the event giving rise to
such next subsequent adjustment.
h. DURATION OF ADJUSTMENT. Following each computation or readjustment
as provided in this Section 5, the new adjusted Warrant Price and number of
shares of Warrant Stock purchasable upon exercise of this Warrant shall remain
in effect until a further computation or readjustment thereof is required.
6. NOTICE TO HOLDERS.
a. NOTICE OF RECORD DATE. In case:
(i) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant) for the purpose of entitling them to receive any dividend (other
than a cash dividend payable out of earned surplus of the Company) or other
distribution, or any right to subscribe for or purchase any shares of stock of
any class or any other securities, or to receive any other right;
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation with or
merger of the Company into another corporation, or any conveyance of all or
substantially all of the assets of the Company to another corporation; or
(iii) of any voluntary dissolution, liquidation or winding-up of
the Company;
then, and in each such case, the Company will mail or cause to be mailed to the
Holder hereof at the time outstanding a notice specifying, as the case may be,
5
(i) the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation or
winding-up is to take place, and the time, if any, is to be fixed, as of which
the holders of record of Common Stock (or such stock or securities at the time
receivable upon the exercise of this Warrant) shall be entitled to exchange
their shares of Common Stock (or such other stock or securities) for securities
or other property deliverable upon such reorganization, reclassification,
consolidation, merger, conveyance, dissolution or winding-up. Such notice shall
be mailed at least thirty (30) days prior to the record date therein specified,
or if no record date shall have been specified therein, at least thirty (30)
days prior to such specified date, provided, however, failure to provide any
such notice shall not affect the validity of such transaction.
b. CERTIFICATE OF ADJUSTMENT. Whenever any adjustment shall be made
pursuant to Section 5 hereof, the Company shall promptly make a certificate
signed by its Chairman, Chief Executive Officer, President, Vice President,
Chief Financial Officer or Treasurer, setting forth in reasonable detail the
event requiring the adjustment, the amount of the adjustment, the method by
which such adjustment was calculated and the Warrant Price and number of shares
of Warrant Stock purchasable upon exercise of this Warrant after giving effect
to such adjustment, and shall promptly cause copies of such certificates to be
mailed (by first class mail, postage prepaid) to the Holder of this Warrant.
7. LOSS, THEFT, DESTRUCTION OR MUTILATION. Upon receipt by the Company of
evidence satisfactory to it, in the exercise of its reasonable discretion, of
the ownership and the loss, theft, destruction or mutilation of this Warrant
and, in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to the Company and, in the case of mutilation, upon surrender and
cancellation thereof, the Company will execute and deliver in lieu thereof,
without expense to the Holder, a new Warrant of like tenor dated the date
hereof.
8. WARRANT HOLDER NOT A STOCKHOLDER. The Holder of this Warrant, as such,
shall not be entitled by reason of this Warrant to any rights whatsoever as a
stockholder of the Company.
9. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms have the respective meanings:
a. "AFFILIATE": with respect to any Person, the following: (i) any
other Person that at such time directly or indirectly through one or more
intermediaries controls, or is controlled by or is under common control with
such first Person or (ii) any Person beneficially owning or holding, directly or
indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% of more of any class of voting or equity interests. As used in such
definition, "controls," "controlled by" and "under common control," as used with
respect to an Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management policies of such
Person, whether through the ownership of voting securities, by agreement or
otherwise.
6
b. "PERSON": any natural person, corporation, division of a
corporation, partnership, limited liability company, trust, joint venture,
association, company, estate, unincorporated organization or government or any
agency or political subdivision thereof.
c. "SUBSIDIARIES": with respect to any Person, any corporation,
association or other business entity (whether now existing or hereafter
organized) of which at least a majority of the securities or other ownership
interests having ordinary voting power for the election of directors is, at the
time as of which any determination is being made, owned or controlled by such
Person or one or more subsidiaries of such Person.
10. NOTICES. Any notice required or contemplated by this Warrant shall be
deemed to have been duly given if transmitted by registered or certified mail,
return receipt requested, or nationally recognized overnight delivery service,
to the Company at its principal executive offices 2900 Gateway Drive, Pompano
Beach, Florida 33069, Attention: Scott Frohman, Chief Executive Officer, or to
the Holder at the name and address set forth in the Warrant Register maintained
by the Company.
11. CHOICE OF LAW. THIS WARRANT IS ISSUED UNDER AND SHALL FOR ALL PURPOSES
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE
OF DELAWARE, WITHOUT GIVING EFFECT TO PRINCIPLES OF CONFLICTS OF LAW.
12. JURISDICTION AND VENUE. The Company and Holder hereby agree that any
dispute which may arise between them arising out of or in connection with this
Warrant shall be adjudicated before a court located in Kent County, Delaware and
they hereby submit to the exclusive jurisdiction of the federal and state courts
of the State of Delaware located in Kent County with respect to any action or
legal proceeding commenced by any party, and irrevocably waive any objection
they now or hereafter may have respecting the venue of any such action or
proceeding brought in such a court or respecting the fact that such court is an
inconvenient forum, relating to or arising out of this Warrant or any acts or
omissions relating to the sale of the securities hereunder, and consent to the
service of process in any such action or legal proceeding by means of registered
or certified mail, return receipt requested, in care of the address set forth
herein or such other address as either party shall furnish in writing to the
other.
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IN WITNESS WHEREOF, the Company has duly caused this Warrant to be
signed on its behalf, in its corporate name and by its duly authorized officers,
as of this __ day of _____________________, 2005.
HEALTH BENEFITS DIRECT CORPORATION
By:_______________________________
Name: Scott Frohman
Title: Chief Executive Officer
8
FORM OF EXERCISE
(to be executed by the registered holder hereof)
The undersigned hereby exercises the right to purchase _________ shares of
common stock, par value $0.001 per share ("Common Stock"), of Health Benefits
Direct Corporation evidenced by the within Warrant Certificate for an Applicable
Exercise Price of $1.50 per share and herewith makes payment of the purchase
price in full of $__________. Kindly issue certificates for shares of Common
Stock (and for the unexercised balance of the Warrants evidenced by the within
Warrant Certificate, if any) in accordance with the instructions given below.
Dated:____________________ , 20__ .
________________________________
Instructions for registration of stock
________________________________
Name (Please Print)
Social Security or other identifying Number:
Address:__________________________________
City/State and Zip Code
Instructions for registration of certificate representing
the unexercised balance of Warrants (if any)
_____________________________
Name (Please Print)
Social Security or other identifying Number: ___________
Address:____________________________________
City, State and Zip Code
9
Exhibit 10.1
HEALTH BENEFITS DIRECT CORPORATION
2005 INCENTIVE STOCK PLAN
1. PURPOSE OF THE PLAN.
This 2005 Incentive Stock Plan (the "Plan") is intended as an
incentive, to retain in the employ of and as directors, officers, consultants,
advisors and employees to Health Benefits Direct Corporation, a Delaware
corporation (the "Company"), and any Subsidiary of the Company, within the
meaning of Section 424(f) of the United States Internal Revenue Code of 1986, as
amended (the "Code"), persons of training, experience and ability, to attract
new directors, officers, consultants, advisors and employees whose services are
considered valuable, to encourage the sense of proprietorship and to stimulate
the active interest of such persons in the development and financial success of
the Company and its Subsidiaries.
It is further intended that certain options granted pursuant to the
Plan shall constitute incentive stock options within the meaning of Section 422
of the Code (the "Incentive Options") while certain other options granted
pursuant to the Plan shall be nonqualified stock options (the "Nonqualified
Options"). Incentive Options and Nonqualified Options are hereinafter referred
to collectively as "Options."
The Company intends that the Plan meet the requirements of Rule 16b-3
("Rule 16b-3") promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and that transactions of the type specified in
subparagraphs (c) to (f) inclusive of Rule 16b-3 by officers and directors of
the Company pursuant to the Plan will be exempt from the operation of Section
16(b) of the Exchange Act. Further, the Plan is intended to satisfy the
performance-based compensation exception to the limitation on the Company's tax
deductions imposed by Section 162(m) of the Code with respect to those Options
for which qualification for such exception is intended. In all cases, the terms,
provisions, conditions and limitations of the Plan shall be construed and
interpreted consistent with the Company's intent as stated in this Section 1.
2. ADMINISTRATION OF THE PLAN.
The Board of Directors of the Company (the "Board") shall appoint and
maintain as administrator of the Plan a Committee (the "Committee") consisting
of two or more directors who are "Non-Employee Directors" (as such term is
defined in Rule 16b-3) and "Outside Directors" (as such term is defined in
Section 162(m) of the Code), which shall serve at the pleasure of the Board. The
Committee, subject to Sections 3, 5 and 6 hereof, shall have full power and
authority to designate recipients of Options and restricted stock ("Restricted
Stock") and to determine the terms and conditions of the respective Option and
Restricted Stock agreements (which need not be identical) and to interpret the
provisions and supervise the administration of the Plan. The Committee shall
have the authority, without limitation, to designate which Options granted under
the Plan shall be Incentive Options and which shall be Nonqualified Options. To
the extent any Option does not qualify as an Incentive Option, it shall
constitute a separate Nonqualified Option.
Subject to the provisions of the Plan, the Committee shall interpret
the Plan and all Options and Restricted Stock granted under the Plan, shall make
such rules as it deems necessary for the proper administration of the Plan,
shall make all other determinations necessary or advisable for the
administration of the Plan and shall correct any defects or supply any omission
or reconcile any inconsistency in the Plan or in any Options or Restricted Stock
granted under the Plan in the manner and to the extent that the Committee deems
desirable to carry into effect the Plan or any Options or Restricted Stock. The
act or determination of a majority of the Committee shall be the act or
determination of the Committee and any decision reduced to writing and signed by
all of the members of the Committee shall be fully effective as if it had been
made by a majority at a meeting duly held. Subject to the provisions of the
Plan, any action taken or determination made by the Committee pursuant to this
and the other Sections of the Plan shall be conclusive on all parties.
In the event that for any reason the Committee is unable to act or if
the Committee at the time of any grant, award or other acquisition under the
Plan does not consist of two or more Non-Employee Directors, or if there shall
be no such Committee, then the Plan shall be administered by the Board, and
references herein to the Committee (except in the proviso to this sentence)
shall be deemed to be references to the Board, and any such grant, award or
other acquisition may be approved or ratified in any other manner contemplated
by subparagraph (d) of Rule 16b-3; provided, however, that grants to the
Company's Chief Executive Officer or to any of the Company's other four most
highly compensated officers that are intended to qualify as performance-based
compensation under Section 162(m) of the Code may only be granted by the
Committee.
3. DESIGNATION OF OPTIONEES AND GRANTEES.
The persons eligible for participation in the Plan as recipients of
Options (the "Optionees") or Restricted Stock (the "Grantees" and together with
Optionees, the "Participants") shall include directors, officers and employees
of, and subject to their meeting the eligibility requirements of Rule 701
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
consultants, vendors, joint venture partners, and advisors to, the Company or
any Subsidiary; provided that Incentive Options may only be granted to employees
of the Company and any Subsidiary. In selecting Participants, and in determining
the number of shares to be covered by each Option or share of Restricted Stock
granted to Participants, the Committee may consider any factors it deems
relevant, including without limitation, the office or position held by the
Participant or the Participant's relationship to the Company, the Participant's
degree of responsibility for and contribution to the growth and success of the
Company or any Subsidiary, the Participant's length of service, promotions and
potential. A Participant who has been granted an Option or Restricted Stock
hereunder may be granted an additional Option or Options, or Restricted Stock if
the Committee shall so determine.
4. STOCK RESERVED FOR THE PLAN.
Subject to adjustment as provided in Section 8 hereof, a total of
2,750,000 shares of the Company's Common Stock, par value $0.001 per share (the
"Stock"), shall be subject to the Plan. The maximum number of shares of Stock
2
that may be subject to Options granted under the Plan to any individual in any
calendar year shall not exceed 1,000,000 shares and the method of counting such
shares shall conform to any requirements applicable to performance-based
compensation under Section 162(m) of the Code, if qualification as
performance-based compensation under Section 162(m) of the Code is intended. The
shares of Stock subject to the Plan shall consist of unissued shares, treasury
shares or previously issued shares held by any Subsidiary of the Company, and
such amount of shares of Stock shall be and is hereby reserved for such purpose.
Any of such shares of Stock that may remain unsold and that are not subject to
outstanding Options at the termination of the Plan shall cease to be reserved
for the purposes of the Plan, but until termination of the Plan the Company
shall at all times reserve a sufficient number of shares of Stock to meet the
requirements of the Plan. Should any Option or Restricted Stock expire or be
canceled prior to its exercise or vesting in full or should the number of shares
of Stock to be delivered upon the exercise or vesting in full of an Option or
Restricted Stock be reduced for any reason, the shares of Stock theretofore
subject to such Option or Restricted Stock may be subject to future Options or
Restricted Stock under the Plan, except where such reissuance is inconsistent
with the provisions of Section 162(m) of the Code where qualification as
performance-based compensation under Section 162(m) of the Code is intended.
5. TERMS AND CONDITIONS OF OPTIONS.
Options granted under the Plan shall be subject to the following
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) OPTION PRICE. The purchase price of each share of Stock
purchasable under an Incentive Option shall be determined by the Committee at
the time of grant, but shall not be less than 100% of the Fair Market Value (as
defined below) of such share of Stock on the date the Option is granted;
provided, however, that with respect to an Optionee who, at the time such
Incentive Option is granted, owns (within the meaning of Section 424(d) of the
Code) more than 10% of the total combined voting power of all classes of stock
of the Company or of any Subsidiary, the purchase price per share of Stock shall
be at least 110% of the Fair Market Value per share of Stock on the date of
grant. The purchase price of each share of Stock purchasable under a
Nonqualified Option shall not be less than 100% of the Fair Market Value of such
share of Stock on the date the Option is granted; provided, however, that if an
option granted to the Company's Chief Executive Officer or to any of the
Company's other four most highly compensated officers is intended to qualify as
performance-based compensation under Section 162(m) of the Code, the exercise
price of such Option shall not be less than 100% of the Fair Market Value (as
such term is defined below) of such share of Stock on the date the Option is
granted. The exercise price for each Option shall be subject to adjustment as
provided in Section 8 below. "Fair Market Value" means the closing price on the
final trading day immediately prior to the grant of publicly traded shares of
Stock on the principal securities exchange on which shares of Stock are listed
(if the shares of Stock are so listed), or on the NASDAQ Stock Market (if the
shares of Stock are regularly quoted on the NASDAQ Stock Market), or, if not so
listed or regularly quoted, the mean between the closing bid and asked prices of
publicly traded shares of Stock in the over the counter market, or, if such bid
and asked prices shall not be available, as reported by any nationally
recognized quotation service selected by the Company, or as determined by the
Committee in a manner consistent with the provisions of the Code. Prior to
Commencement of trading; the Fair Market Value shall be $1.00 per share.
Anything in this Section 5(a) to the contrary notwithstanding, in no event shall
3
the purchase price of a share of Stock be less than the minimum price permitted
under the rules and policies of any national securities exchange on which the
shares of Stock are listed.
(b) OPTION TERM. The term of each Option shall be fixed by the
Committee, but no Option shall be exercisable more than ten years after the date
such Option is granted and in the case of an Incentive Option granted to an
Optionee who, at the time such Incentive Option is granted, owns (within the
meaning of Section 424(d) of the Code) more than 10% of the total combined
voting power of all classes of stock of the Company or of any Subsidiary, no
such Incentive Option shall be exercisable more than five years after the date
such Incentive Option is granted.
(c) EXERCISABILITY. Subject to Section 5(j) hereof, Options shall be
exercisable at such time or times and subject to such terms and conditions as
shall be determined by the Committee at the time of grant; provided, however, no
Options shall be exercisable until such time as any vesting limitation required
by Section 16 of the Exchange Act, and related rules, shall be satisfied if such
limitation shall be required for continued validity of the exemption provided
under Rule 16b-3(d)(3).
Upon the occurrence of a "Change in Control" (as hereinafter defined),
the Committee may accelerate the vesting and exercisability of outstanding
Options, in whole or in part, as determined by the Committee in its sole
discretion. In its sole discretion, the Committee may also determine that, upon
the occurrence of a Change in Control, each outstanding Option shall terminate
within a specified number of days after notice to the Optionee thereunder, and
each such Optionee shall receive, with respect to each share of Company Stock
subject to such Option, an amount equal to the excess of the Fair Market Value
of such shares immediately prior to such Change in Control over the exercise
price per share of such Option; such amount shall be payable in cash, in one or
more kinds of property (including the property, if any, payable in the
transaction) or a combination thereof, as the Committee shall determine in its
sole discretion.
For purposes of the Plan, a Change in Control shall be deemed to have
occurred if:
(i) a tender offer (or series of related offers) shall be made
and consummated for the ownership of 50% or more of the outstanding
voting securities of the Company, unless as a result of such tender
offer more than 50% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by
the stockholders of the Company (as of the time immediately prior to
the commencement of such offer), any employee benefit plan of the
Company or its Subsidiaries, and their affiliates;
(ii) the Company shall be merged or consolidated with another
corporation, unless as a result of such merger or consolidation more
than 50% of the outstanding voting securities of the surviving or
resulting corporation shall be owned in the aggregate by the
stockholders of the Company (as of the time immediately prior to such
transaction), any employee benefit plan of the Company or its
Subsidiaries, and their affiliates;
(iii) the Company shall sell substantially all of its assets to
another corporation that is not wholly owned by the Company, unless as
a result of such sale more than 50% of such assets shall be owned in
4
the aggregate by the stockholders of the Company (as of the time
immediately prior to such transaction), any employee benefit plan of
the Company or its Subsidiaries and their affiliates; or
(iv) a Person (as defined below) shall acquire 50% or more of the
outstanding voting securities of the Company (whether directly,
indirectly, beneficially or of record), unless as a result of such
acquisition more than 50% of the outstanding voting securities of the
surviving or resulting corporation shall be owned in the aggregate by
the stockholders of the Company (as of the time immediately prior to
the first acquisition of such securities by such Person), any employee
benefit plan of the Company or its Subsidiaries, and their affiliates.
For purposes of this Section 5(c), ownership of voting securities
shall take into account and shall include ownership as determined by applying
the provisions of Rule 13d-3(d)(I)(i) (as in effect on the date hereof) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). In
addition, for such purposes, "Person" shall have the meaning given in Section
3(a)(9) of the Exchange Act, as modified and used in Sections 13(d) and 14(d)
thereof; however, a Person shall not include (A) the Company or any of its
Subsidiaries; (B) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any of its Subsidiaries; (C) an
underwriter temporarily holding securities pursuant to an offering of such
securities; or (D) a corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportion as their
ownership of stock of the Company.
(d) METHOD OF EXERCISE. Options to the extent then exercisable may be
exercised in whole or in part at any time during the option period, by giving
written notice to the Company specifying the number of shares of Stock to be
purchased, accompanied by payment in full of the purchase price, in cash, or by
check or such other instrument as may be acceptable to the Committee. As
determined by the Committee, in its sole discretion, at or after grant, payment
in full or in part may be made at the election of the Optionee (i) in the form
of Stock owned by the Optionee (based on the Fair Market Value of the Stock
which is not the subject of any pledge or security interest, (ii) in the form of
shares of Stock withheld by the Company from the shares of Stock otherwise to be
received with such withheld shares of Stock having a Fair Market Value equal to
the exercise price of the Option, or (iii) by a combination of the foregoing,
such Fair Market Value determined by applying the principles set forth in
Section 5(a), provided that the combined value of all cash and cash equivalents
and the Fair Market Value of any shares surrendered to the Company is at least
equal to such exercise price and except with respect to (ii) above, such method
of payment will not cause a disqualifying disposition of all or a portion of the
Stock received upon exercise of an Incentive Option. An Optionee shall have the
right to dividends and other rights of a stockholder with respect to shares of
Stock purchased upon exercise of an Option at such time as the Optionee (i) has
given written notice of exercise and has paid in full for such shares, and (ii)
has satisfied such conditions that may be imposed by the Company with respect to
the withholding of taxes.
(e) NON-TRANSFERABILITY OF OPTIONS. Options are not transferable and
may be exercised solely by the Optionee during his lifetime or after his death
by the person or persons entitled thereto under his will or the laws of descent
and distribution. The Committee, in its sole discretion, may permit a transfer
of a Nonqualified Option to (i) a trust for the benefit of the Optionee or (ii)
5
a member of the Optionee's immediate family (or a trust for his or her benefit).
Any attempt to transfer, assign, pledge or otherwise dispose of, or to subject
to execution, attachment or similar process, any Option contrary to the
provisions hereof shall be void and ineffective and shall give no right to the
purported transferee.
(f) TERMINATION BY DEATH. Unless otherwise determined by the
Committee, if any Optionee's employment with or service to the Company or any
Subsidiary terminates by reason of death, the Option may thereafter be
exercised, to the extent then exercisable (or on such accelerated basis as the
Committee shall determine at or after grant), by the legal representative of the
estate or by the legatee of the Optionee under the will of the Optionee, for a
period of one (1) year after the date of such death or until the expiration of
the stated term of such Option as provided under the Plan, whichever period is
shorter.
(g) TERMINATION BY REASON OF DISABILITY. Unless otherwise determined
by the Committee, if any Optionee's employment with or service to the Company or
any Subsidiary terminates by reason of total and permanent disability, any
Option held by such Optionee may thereafter be exercised, to the extent it was
exercisable at the time of termination due to disability (or on such accelerated
basis as the Committee shall determine at or after grant), but may not be
exercised after ninety (90) days after the date of such termination of
employment or service or the expiration of the stated term of such Option,
whichever period is shorter; PROVIDED, HOWEVER, that, if the Optionee dies
within such ninety (90) day period, any unexercised Option held by such Optionee
shall thereafter be exercisable to the extent to which it was exercisable at the
time of death for a period of one (1) year after the date of such death or for
the stated term of such Option, whichever period is shorter.
(h) TERMINATION BY REASON OF RETIREMENT. Unless otherwise determined
by the Committee, if any Optionee's employment with or service to the Company or
any Subsidiary terminates by reason of Normal or Early Retirement (as such terms
are defined below), any Option held by such Optionee may thereafter be exercised
to the extent it was exercisable at the time of such Retirement (or on such
accelerated basis as the Committee shall determine at or after grant), but may
not be exercised after ninety (90) days after the date of such termination of
employment or service or the expiration of the stated term of such Option,
whichever period is shorter; provided, however, that, if the Optionee dies
within such ninety (90) day period, any unexercised Option held by such Optionee
shall thereafter be exercisable, to the extent to which it was exercisable at
the time of death, for a period of one (1) year after the date of such death or
for the stated term of such Option, whichever period is shorter.
For purposes of this paragraph (h), "Normal Retirement" shall mean
retirement from active employment with the Company or any Subsidiary on or after
the normal retirement date specified in the applicable Company or Subsidiary
pension plan or if no such pension plan, age 65, and "Early Retirement" shall
mean retirement from active employment with the Company or any Subsidiary
pursuant to the early retirement provisions of the applicable Company or
Subsidiary pension plan or if no such pension plan, age 55.
(i) OTHER TERMINATION. Unless otherwise determined by the Committee,
if any Optionee's employment with or service to the Company or any Subsidiary
terminates for any reason other than death, disability or Normal or Early
Retirement, the Option shall thereupon terminate, except that the portion of any
6
Option that was exercisable on the date of such termination of employment or
service may be exercised for the lesser of ninety (90) days after the date of
termination or the balance of such Option's term if the Optionee's employment or
service with the Company or any Subsidiary is terminated by the Company or such
Subsidiary without cause; provided, however, that if the Optionee's employment
or service with the Company or any Subsidiary is terminated by the Company or
such Subsidiary for cause any unexercised portion of any Option shall
immediately terminate in its entirety (the determination as to whether
termination was for cause to be made by the Committee in its sole and absolute
discretion). The transfer of an Optionee from the employ of or service to the
Company to the employ of or service to a Subsidiary, or vice versa, or from one
Subsidiary to another, shall not be deemed to constitute a termination of
employment or service for purposes of the Plan.
(i) In the event that an Optionee is removed as a director,
officer or employee by the Company at any time other than for "Cause" or resigns
as a director, officer or employee for "Good Reason" the Option granted to such
Optionee may be exercised by the Optionee, to the extent the Option was
exercisable on the date such Optionee ceases to be a director,officer or
employee. Such Option may be exercised at any time within one (1) year after the
date the Optionee ceases to be a director,officer or employee, at which time the
Option shall terminate or prior to the date on which the Option otherwise
expires by its terms, whichever is earlier; provided, however, if the Optionee
dies before the Options are forfeited and no longer exercisable, the terms and
provisions of Section 5(f) shall control. For purposes hereof, "Cause" shall
exist upon a good-faith determination by the Board, following a hearing before
the Board at which an Optionee was represented by counsel and given an
opportunity to be heard, that such Optionee has been convicted of an act of
willful and material embezzlement or fraud against the Company or of a felony
under any state or federal statute; provided, however, that it is specifically
understood that "Cause" shall not include any act of commission or omission in
the good-faith exercise of such Optionee's business judgment as a director,
officer or employee of the Comapny, as the case may be, of the Company, or upon
the advice of counsel to the Company.
(ii) In the event an Optionee resigns as a director, officer, or
employee for Good Reason (as defined hereinafter), then the Option granted to
such Optionee may be exercised by the Optionee, to the extent the Option was
exercisable on the date such Optionee ceases to be a director, officer or
employee. Such Option may be exercised at any time within one (1) year after the
date the Optionee ceases to be a director, officer, or employee at which time
the Option shall terminate or prior to the date on which the Option otherwise
expires by its terms, whichever is earlier; provided, however, if the Optionee
dies before the Options are forfeited and no longer exercisable, the terms and
provisions of Section 5(f) shall control. For purposes of this Section 5(i) Good
Reason shall exist upon the occurrence of the following:
(a) the assignment of Optionee of any duties inconsistent
with the position in the Company that Optionee held
immediately prior to the assignment;
(b) a Change of Control, or a significant adverse
alteration in the status or conditions of Optionee's
participation with the Company or other nature of
Optionee's responsibilities from those in effect prior
to such Change of Control, including any significant
alteration in Optionee's responsibilities immediately
prior to such Change in Control; and
(c) the failure by the Company to continue to provide
Optionee with benefits substantially similar to those
enjoyed by Optionee prior to such failure.
(j) LIMIT ON VALUE OF INCENTIVE OPTION. The aggregate Fair Market
Value, determined as of the date the Incentive Option is granted, of Stock for
which Incentive Options are exercisable for the first time by any Optionee
during any calendar year under the Plan (and/or any other stock option plans of
the Company or any Subsidiary) shall not exceed $100,000.
6. TERMS AND CONDITIONS OF RESTRICTED STOCK.
Restricted Stock may be granted under this Plan aside from, or in
association with, any other award and shall be subject to the following
conditions and shall contain such additional terms and conditions (including
provisions relating to the acceleration of vesting of Restricted Stock upon a
Change of Control), not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
(a) GRANTEE RIGHTS. A Grantee shall have no rights to an award of
Restricted Stock unless and until Grantee accepts the award within the period
prescribed by the Committee and, if the Committee shall deem desirable, makes
payment to the Company in cash, or by check or such other instrument as may be
acceptable to the Committee. After acceptance and issuance of a certificate or
certificates, as provided for below, the Grantee shall have the rights of a
stockholder with respect to Restricted Stock subject to the non-transferability
and forfeiture restrictions described in Section 6(d) below.
(b) ISSUANCE OF CERTIFICATES. The Company shall issue in the Grantee's
name a certificate or certificates for the shares of Common Stock associated
with the award promptly after the Grantee accepts such award.
(c) DELIVERY OF CERTIFICATES. Unless otherwise provided, any
certificate or certificates issued evidencing shares of Restricted Stock shall
not be delivered to the Grantee until such shares are free of any restrictions
specified by the Committee at the time of grant.
(d) FORFEITABILITY, NON-TRANSFERABILITY OF RESTRICTED STOCK. Shares of
Restricted Stock are forfeitable until the terms of the Restricted Stock grant
have been satisfied. Shares of Restricted Stock are not transferable until the
date on which the Committee has specified such restrictions have lapsed. Unless
otherwise provided, distributions in the form of dividends or otherwise of
additional shares or property in respect of shares of Restricted Stock shall be
subject to the same restrictions as such shares of Restricted Stock.
7
(e) CHANGE OF CONTROL. Upon the occurrence of a Change in Control as
defined in Section 5(c), the Committee may accelerate the vesting of outstanding
Restricted Stock, in whole or in part, as determined by the Committee, in its
sole discretion.
(f) TERMINATION OF EMPLOYMENT. In the event the Grantee ceases to be
an employee or otherwise associated with the Company or any Subsidiary with the
consent of the Committee, or upon his death, Retirement or disability, the
restrictions imposed under this Section 6 shall lapse with respect to such
number of shares theretofore awarded to him as shall be determined by the
Committee, but, in no event, less than a number equal to the product of (i) a
fraction the numerator of which is the number of completed months elapsed after
the date of award of the Restricted Stock to the Grantee to the date of
termination and the denominator of which is the number of months in the
Restriction Period and (ii) the number of shares of Restricted Stock. As to any
Restricted Stock then remaining, all such Restricted Stock shall be forfeited.
In the event the Grantee ceases to be an employee or otherwise
associated with the Company for any other reason, all shares of Restricted Stock
theretofore awarded to him which are still subject to restrictions shall be
forfeited and the Company shall have the right to complete the blank stock
power; PROVIDED, HOWEVER, that the Committee may provide, by rule or regulation
or in any award agreement that restrictions or forfeiture conditions relating to
shares of Restricted Stock will be waived in whole or in part in the event of
termination resulting from specified causes, and the Committee may in other
cases waive in whole or in part restrictions or forfeiture conditions relating
to Restricted Stock.
7. TERM OF PLAN.
No Option or Restricted Stock shall be granted pursuant to the Plan on
the date which is ten years from the effective date of the Plan, but Options
theretofore granted may extend beyond that date.
8. CAPITAL CHANGE OF THE COMPANY.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, or other change in corporate structure
affecting the Stock, the Committee shall make an appropriate and equitable
adjustment in the number and kind of shares reserved for issuance under the Plan
and in the number and option price of shares subject to outstanding Options
granted under the Plan, to the end that after such event each Optionee's
proportionate interest shall be maintained as immediately before the occurrence
of such event. The Committee shall, to the extent feasible, make such other
adjustments as may be required under the tax laws so that any Incentive Options
previously granted shall not be deemed modified within the meaning of Section
424(h) of the Code. Appropriate adjustments shall also be made in the case of
outstanding Restricted Stock granted under the Plan.
The adjustments described above will be made only to the extent
consistent with continued qualification of the Option under Section 422 of the
Code (in the case of an Incentive Option) and Section 409A of the Code.
8
9. PURCHASE FOR INVESTMENT/CONDITIONS.
Unless the Options and shares covered by the Plan have been registered
under the Securities Act, or the Company has determined that such registration
is unnecessary, each person exercising or receiving Options or Restricted Stock
under the Plan may be required by the Company to give a representation in
writing that he is acquiring the securities for his own account for investment
and not with a view to, or for sale in connection with, the distribution of any
part thereof. The Committee may impose any additional or further restrictions on
awards of Options or Restricted Stock as shall be determined by the Committee at
the time of award.
10. TAXES.
(a) The Company may make such provisions as it may deem appropriate,
consistent with applicable law, in connection with any Options or Restricted
Stock granted under the Plan with respect to the withholding of any taxes
(including income or employment taxes) or any other tax matters.
(b) If any Grantee, in connection with the acquisition of Restricted
Stock, makes the election permitted under Section 83(b) of the Code (that is, an
election to include in gross income in the year of transfer the amounts
specified in Section 83(b)), such Grantee shall notify the Company of the
election with the Internal Revenue Service pursuant to regulations issued under
the authority of Code Section 83(b).
(c) If any Grantee shall make any disposition of shares of Stock
issued pursuant to the exercise of an Incentive Option under the circumstances
described in Section 421(b) of the Code (relating to certain disqualifying
dispositions), such Grantee shall notify the Company of such disposition within
ten (10) days hereof.
11. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on November 23, 2005; provided, however,
that if, and only if, certain options are intended to qualify as Incentive Stock
Options, the Plan must subsequently be approved by majority vote of the
Company's stockholders no later than November 22, 2006, and further, that in the
event certain Option grants hereunder are intended to qualify as
performance-based compensation within the meaning of Section 162(m) of the Code,
the requirements as to shareholder approval set forth in Section 162(m) of the
Code are satisfied.
12. AMENDMENT AND TERMINATION.
The Board may amend, suspend, or terminate the Plan, except that no
amendment shall be made that would impair the rights of any Participant under
any Option or Restricted Stock theretofore granted without the Participant's
consent, and except that no amendment shall be made which, without the approval
of the stockholders of the Company would:
(a) materially increase the number of shares that may be issued under
the Plan, except as is provided in Section 8;
9
(b) materially increase the benefits accruing to the Participants
under the Plan;
(c) materially modify the requirements as to eligibility for
participation in the Plan;
(d) decrease the exercise price of an Incentive Option to less than
100% of the Fair Market Value per share of Stock on the date of grant thereof or
the exercise price of a Nonqualified Option to less than 100% of the Fair Market
Value per share of Stock on the date of grant thereof; or
(e) extend the term of any Option beyond that provided for in Section
5(b).
The Committee may at any time or times amend the Plan or any
outstanding award for any purpose which may at the time be permitted by law, or
may at any time terminate the Plan as to any further grants of awards, provided
that (except to the extent expressly required or permitted by the Plan) no such
amendment will, without the approval of the stockholders of the Company,
effectuate a change for which stockholder approval is required in order for the
Plan to continue to qualify for the award of Incentive Options under Section 422
of the Code.
It is the intention of the Board that the Plan comply strictly with
the provisions of Section 409A of the Code and Treasury Regulations and other
Internal Revenue Service guidance promulgated thereunder (the "Section 409A
Rules") and the Committee shall exercise its discretion in granting awards
hereunder (and the terms of such awards), accordingly. The Plan and any grant of
an award hereunder may be amended from time to time (without, in the case of an
award, the consent of the Participant) as may be necessary or appropriate to
comply with the Section 409A Rules.
13. GOVERNMENT REGULATIONS.
The Plan, and the grant and exercise of Options or Restricted Stock
hereunder, and the obligation of the Company to sell and deliver shares under
such Options and Restricted Stock shall be subject to all applicable laws, rules
and regulations, and to such approvals by any governmental agencies, national
securities exchanges and interdealer quotation systems as may be required.
14. GENERAL PROVISIONS.
(a) CERTIFICATES. All certificates for shares of Stock delivered under
the Plan shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, or other securities
commission having jurisdiction, any applicable Federal or state securities law,
any stock exchange or interdealer quotation system upon which the Stock is then
listed or traded and the Committee may cause a legend or legends to be placed on
any such certificates to make appropriate reference to such restrictions.
(b) EMPLOYMENT MATTERS. Neither the adoption of the Plan nor any grant
or award under the Plan shall confer upon any Participant who is an employee of
the Company or any Subsidiary any right to continued employment or, in the case
of a Participant who is a director, continued service as a director, with the
10
Company or a Subsidiary, as the case may be, nor shall it interfere in any way
with the right of the Company or any Subsidiary to terminate the employment of
any of its employees, the service of any of its directors or the retention of
any of its consultants or advisors at any time.
(c) LIMITATION OF LIABILITY. No member of the Committee, or any
officer or employee of the Company acting on behalf of the Committee, shall be
personally liable for any action, determination or interpretation taken or made
in good faith with respect to the Plan, and all members of the Committee and
each and any officer or employee of the Company acting on their behalf shall, to
the extent permitted by law, be fully indemnified and protected by the Company
in respect of any such action, determination or interpretation.
(d) REGISTRATION OF STOCK. Notwithstanding any other provision in the
Plan, no Option may be exercised unless and until the Stock to be issued upon
the exercise thereof has been registered under the Securities Act and applicable
state securities laws, or are, in the opinion of counsel to the Company, exempt
from such registration in the United States. The Company shall not be under any
obligation to register under applicable federal or state securities laws any
Stock to be issued upon the exercise of an Option granted hereunder in order to
permit the exercise of an Option and the issuance and sale of the Stock subject
to such Option, although the Company may in its sole discretion register such
Stock at such time as the Company shall determine. If the Company chooses to
comply with such an exemption from registration, the Stock issued under the Plan
may, at the direction of the Committee, bear an appropriate restrictive legend
restricting the transfer or pledge of the Stock represented thereby, and the
Committee may also give appropriate stop transfer instructions with respect to
such Stock to the Company's transfer agent.
15. NON-UNIFORM DETERMINATIONS.
The Committee's determinations under the Plan, including, without
limitation, (i) the determination of the Participants to receive awards, (ii)
the form, amount and timing of such awards, (iii) the terms and provisions of
such awards and (ii) the agreements evidencing the same, need not be uniform and
may be made by it selectively among Participants who receive, or who are
eligible to receive, awards under the Plan, whether or not such Participants are
similarly situated.
16. GOVERNING LAW.
The validity, construction, and effect of the Plan and any rules and
regulations relating to the Plan shall be determined in accordance with the
internal laws of the State of Delaware, without giving effect to principles of
conflicts of laws, and applicable federal law.
Health Benefits Direct Corporation
November 23, 2005
Exhibit 10.2
HEALTH BENEFITS DIRECT CORPORATION
2005 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
1. PURPOSE OF THE PLAN.
This 2005 Non-Employee Directors Stock Option Plan (the "Plan") is
intended as an incentive to enable Health Benefits Direct Corporation, a
Delaware corporation with its principal office at 2900 Gateway Drive, Pompano
Beach, FL 33069 (the "Company"), to attract and retain the services of
experienced and highly-qualified individuals as directors of the Company and to
encourage stock ownership by such directors so that their interests are aligned
with the interests of the Company and its shareholders. It is intended that
participants in the Plan may acquire or increase their proprietary interests in
the Company and be encouraged to remain in the directorship of the Company. For
purposes of the Plan, a parent corporation and a subsidiary corporation shall be
as defined in Sections 424(e) and 424(f) of the Internal Revenue Code of 1986,
as amended (the "Code").
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board of Directors of the
Company (the "Board") and/or by a duly appointed committee of the Board having
such powers as shall be specified by the Board. Any subsequent references herein
to the Board shall also mean the committee if such committee has been appointed
and, unless the powers of the committee have been specifically limited, the
committee shall have all of the powers of the Board granted herein, including,
without limitation, the power to terminate or amend the Plan at any time subject
to the terms of the Plan and any applicable limitations imposed by law. The
Board shall have authority to administer the Plan subject to the provisions of
the Plan but shall have no authority, discretion or power to select the
non-employee directors of the Company who will receive options under the Plan,
to set the exercise price of the options granted under the Plan, to determine
the number of shares of common stock to be granted upon exercise of options or
the time at which such options are to be granted, to establish the duration of
option grants, or to alter other terms or conditions specified in the Plan. All
questions of interpretation of the Plan or of any options granted under the Plan
(an "Option") shall be determined by the Board, and such determinations shall be
final and binding upon all persons having an interest in the Plan and/or any
Option. Any officer of the Company shall have the authority to act on behalf of
the Company with respect to any matter, right, obligation, or election which is
the responsibility of or which is allocated to the Company herein, provided the
officer has apparent authority with respect to such matter, right, obligation,
or election.
3. ELIGIBILITY AND TYPE OF OPTION.
Options may be granted only to directors of the Company who, at the
time of such grant, are not employees of the Company or of any parent or
subsidiary corporation of the Company ("Non-Employee Directors"). Options
granted to Non-Employee Directors shall be nonqualified stock options; that is,
options that are not treated as having been granted under Section 422(b) of the
Code. A person granted an Option is hereinafter referred to as an "Optionee."
4. SHARES SUBJECT TO OPTION.
Subject to adjustment as provided in Section 8 hereof, a total of
1,500,000 shares of the Company's common stock, $0.001 par value per share (the
"Stock"), shall be subject to the Plan. The shares of Stock subject to the Plan
shall consist of unissued shares or treasury shares, and such amount of shares
of Stock shall be and is hereby reserved for such purpose. Any of such shares of
Stock that may remain unsold and that are not subject to outstanding Options at
the termination of the Plan shall cease to be reserved for the purposes of the
Plan, but until termination of the Plan the Company shall at all times reserve a
sufficient number of shares of Stock to meet the requirements of the Plan. If an
Option expires or becomes unexercisable without having been exercised in full,
or is forfeited, the unpurchased shares which were subject thereto shall become
available for future grant or sale under the Plan. Stock used to pay the
exercise price of an Option shall not become available for future grant or sale
under the Plan. Stock used to satisfy tax withholding obligations shall not
become available for future grant to sale under the Plan.
5. TIME FOR GRANTING OPTIONS.
All Options shall be granted, if at all, within eight years from the
Effective Date.
6. TERMS, CONDITIONS AND FORM OF OPTIONS.
Options granted pursuant to the Plan shall be evidenced by written
agreements specifying the number of shares of Stock covered thereby, which
written agreement may incorporate all or any of the terms of the Plan by
reference and shall comply with and be subject to the following terms and
conditions:
(a) AUTOMATIC GRANT OF OPTIONS. Subject to execution by a Non-Employee
Director of an appropriate Option Agreement, Options shall be granted
automatically and without further action of the Board, as follows:
(i) Each person (other than the Chairman) who is newly elected or
appointed as an Non-Employee Director on or after the Effective Date shall be
granted an Option on the day of such initial election or appointment (and not
upon any future re-election or appointment) to purchase Two Hundred Fifty
Thousand (250,000) shares of Stock.
(ii) Notwithstanding the foregoing, any person may elect not to
receive an Option to be granted pursuant to this Section 6(a) by delivering
written notice of such election to the Board no later than the day prior to the
date on which such Option would otherwise be granted. A person so declining an
Option shall receive no payment or other consideration in lieu of such declined
Option. A person who has declined an Option may revoke such election by
delivering written notice of such revocation to the Board no later than the day
prior to the date on which such Option would be granted pursuant to this Section
6(a).
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(iii)Notwithstanding any other provision of the Plan to the contrary,
no Option shall be granted to any individual on a day when he or she is no
longer serving as a Non-Employee Director of the Company.
(b) OPTION EXERCISE PRICE. The purchase price of each share of Stock
purchasable under an Option shall be the Fair Market Value (as defined below) of
such share of Stock on the date the Option is granted. "Fair Market Value" means
the average of the high and low prices of publicly traded shares of Stock,
rounded to the nearest cent, on the principal national securities exchange on
which shares of Stock are listed (if the shares of Stock are so listed), or on
the Nasdaq Stock Market (if the shares of Stock are regularly quoted on the
Nasdaq Stock Market), or, if not so listed or regularly quoted, the mean between
the closing bid and asked prices of publicly traded shares of Stock in the
over-the-counter market, or, if such bid and asked prices shall not be
available, as reported by any nationally recognized quotation service selected
by the Company, or as determined by the Committee in a manner consistent with
the provisions of the Code. Anything in this Section 6(b) to the contrary
notwithstanding, in no event shall the purchase price of a share of Stock be
less than the minimum price permitted under the rules and policies of any
national securities exchange on which the shares of Stock are listed. Prior to
commencement of trading, the Fair Market Value shall be $1.00 per share
(c) EXERCISE PERIOD AND EXERCISABILITY OF OPTIONS. An Option granted
pursuant to the Plan shall be exercisable for a term of ten (10) years. Options
granted pursuant to the Plan shall be exercisable as follows: forty percent
(40%) of the aggregate shares of Stock purchasable under an Option shall be
exercisable on the date of grant of such Option, thirty percent (30%) of the
aggregate shares of Stock purchasable under an Option shall be exercisable on
the first anniversary of the date of grant, and the remaining thirty percent
(30%) of the aggregate shares of Stock purchasable under an Option shall be
exercisable in twelve equal increments at the end of each calendar month
thereafter; provided, however, no option shall be exercisable until such time as
any vesting limitation required by Section 16 of the Securities Exchange Act of
1934, as amended, and related rules shall be satisfied if such limitation shall
be required for continued availability of the exemption provided under Rule
16b-3(d)(3).
(d) TERMINATION OF OPTIONS.
(i) In the event that an Optionee ceases to be a director of the
Company because the Optionee has become permanently disabled (within the meaning
of Section 22(e)(3) of the Code), the Option granted to such Optionee may be
exercised by the Optionee, to the extent the Option was exercisable on the date
such Optionee ceases to be a director. Such Option may be exercised at any time
within one (1) year after the date the Optionee ceases to be a director, at
which time the Option shall terminate or prior to the date on which the Option
otherwise expires by its terms, whichever is earlier; provided, however, if the
Optionee dies before the Options are forfeited and no longer exercisable, the
terms and provisions of Section 6(d)(ii) shall control.
(ii) In the event of the death of an Optionee, the Option granted to
such Optionee may be exercised, to the extent the Option was exercisable on the
date of such Optionee's death, by the estate of such Optionee or by any person
or persons who acquired the right to exercise such Option by bequest or
inheritance or otherwise by reason of the death of such Optionee. Such Option
may be exercised at any time within one (1) year after the date of death of such
Optionee, at which time the Option shall terminate, or prior to the date on
which the option otherwise expires by its terms, whichever is earlier.
3
(iii) In the event that an Optionee ceases to be a director of the
Company on account of fraud, dishonesty or other acts detrimental to the
interests of the Company or any direct or indirect subsidiary of the Company,
the Option granted to such Optionee shall terminate on the date such Optionee
ceases to be a director of the Company.
(iv) In the event that an Optionee is removed as a Director by the
Company at any time other than for "Cause" or resigns as a director for "Good
Reason" the Option granted to such Optionee may be exercised by the Optionee, to
the extent the Option was exercisable on the date such Optionee ceases to be a
director. Such Option may be exercised at any time within one (1) year after the
date the Optionee ceases to be a director, at which time the Option shall
terminate or prior to the date on which the Option otherwise expires by its
terms, whichever is earlier; provided, however, if the Optionee dies before the
Options are forfeited and no longer exercisable, the terms and provisions of
Section 6(d)(ii) shall control. For purposes hereof, "Cause" shall exist upon a
good-faith determination by the Board, following a hearing before the Board at
which an Optionee was represented by counsel and given an opportunity to be
heard, that such Optionee has been convicted of an act of willful and material
embezzlement or fraud against the Company or of a felony under any state or
federal statute; provided, however, that it is specifically understood that
"Cause" shall not include any act of commission or omission in the good-faith
exercise of such Optionee's business judgment as a Non-Employee Director, as the
case may be, of the Company, or upon the advice of counsel to the Company.
(v) In the event an Optionee resigns as a director for Good Reason (as
defined hereinafter), then the Option granted to such Optionee may be exercised
by the Optionee, to the extent the Option was exercisable on the date such
Optionee ceases to be a director. Such Option may be exercised at any time
within one (1) year after the date the Optionee ceases to be a director, at
which time the Option shall terminate or prior to the date on which the Option
otherwise expires by its terms, whichever is earlier; provided, however, if the
Optionee dies before the Options are forfeited and no longer exercisable, the
terms and provisions of Section 6(d)(ii) shall control. For purposes of this
Section 6(d)(vi) Good Reason shall exist upon the occurrence of the following:
(i) the occurrence of any of the following circumstances:
(a) the assignment of Optionee of any duties inconsistent
with the position in the Company that Optionee held
immediately prior to the assignment;
(b) a Change of Control, or a significant adverse
alteration in the status or conditions of Optionee's
participation with the Company or other nature of
Optionee's responsibilities from those in effect prior
to such Change of Control, including any significant
alteration in Optionee's responsibilities immediately
prior to such Change in Control; and
(c) the failure by the Company to continue to provide
Optionee with benefits substantially similar to those
enjoyed by Optionee prior to such failure.
4
(vi) In the event that an Optionee ceases to be a director of the
Company for any reason other than permanent disability (within the meaning of
Section 22(e)(3) of the Code), death or on account of fraud, dishonesty or other
acts detrimental to the interests of the Company or any direct or indirect
subsidiary of the Company, the Option granted to such Optionee may be exercised
by him or her, but only to the extent the Option was exercisable on the date
such Optionee ceases to be a director. Such Option may be exercised at any time
within one (1) year after the date such Optionee ceases to be a director of the
Company, at which time the Option shall terminate, or prior to the date on which
the option expires by its terms, whichever is earlier.
(e) PAYMENT OF OPTION EXERCISE. Payment of the exercise price for the
number of shares of Stock being purchased pursuant to any Option shall be made
in cash, by check or such other instrument as may be acceptable to the
Committee.
(f) CHANGE OF CONTROL. A "Change of Control" shall be deemed to have
occurred in the event any of the following occurs with respect to the Company:
(i) a tender offer (or series of related offers) shall be made and
consummated for the ownership of 50% or more of the outstanding voting
securities of the Company, unless as a result of such tender offer more than 50%
of the outstanding voting securities of the surviving or resulting corporation
shall be owned in the aggregate by the shareholders of the Company (as of the
time immediately prior to the commencement of such offer), any employee benefit
plan of the Company or its subsidiaries, and their affiliates;
(ii) the Company shall be merged or consolidated with another
corporation, unless as a result of such merger or consolidation more than 50% of
the outstanding voting securities of the surviving or resulting corporation
shall be owned in the aggregate by the shareholders of the Company (as of the
time immediately prior to such transaction), any employee benefit plan of the
Company or its subsidiaries, and their affiliates;
(iii) the Company shall sell substantially all of its assets to
another corporation that is not wholly owned by the Company, unless as a result
of such sale more than 50% of such assets shall be owned in the aggregate by the
shareholders of the Company (as of the time immediately prior to such
transaction), any employee benefit plan of the Company or its subsidiaries, and
their affiliates; or
(iv) a Person (as defined below) shall acquire 50% or more of the
outstanding voting securities of the Company (whether directly, indirectly,
beneficially or of record), unless as a result of such acquisition more than 50%
5
of the outstanding voting securities of the surviving or resulting corporation
shall be owned in the aggregate by the shareholders of the Company (as of the
time immediately prior to the first acquisition of such securities by such
Person), any employee benefit plan of the Company or its subsidiaries, and their
affiliates.
For purposes of this Section 6(f), ownership of voting securities shall
take into account and shall include ownership as determined by applying the
provisions of Rule 13d-3(d)(I)(i) (as in effect on the date hereof) under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). In addition,
for such purposes, "Person" shall have the meaning given in Section 3(a)(9) of
the Exchange Act, as modified and used in Sections 13(d) and 14(d) thereof;
however, a Person shall not include (A) the Company or any of its subsidiaries;
(B) a trustee or other fiduciary holding securities under an employee benefit
plan of the Company or any of its subsidiaries; (C) an underwriter temporarily
holding securities pursuant to an offering of such securities; or (D) a
corporation owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportion as their ownership of stock of the Company.
In the event of a Change of Control, any unexercisable or unvested portion
of the outstanding Options shall be immediately exercisable and vested in full
as of the date ten (10) days prior to the expected date of the Change of
Control. The exercise or vesting of any Option that was permissible solely by
reason of this Section 6(f) shall be conditioned upon the consummation of the
Change of Control. In addition, the surviving, continuing, successor, or
purchasing corporation or parent corporation thereof, as the case may be (the
"Acquiring Corporation"), may either assume the Company's rights and obligations
under outstanding Options or substitute outstanding Options for substantially
equivalent options for the Acquiring Corporation's stock. For purposes of this
Section 6(f), an Option shall be deemed assumed if, following the Change of
Control, the Option confers the right to acquire in accordance with its terms
and conditions, for each share of Stock subject to the Option immediately prior
to the Change of Control, the consideration (whether stock, cash, other
securities or property) to which a holder of a share of Stock on the effective
date of the Change of Control was entitled. Any Options which are neither
assumed nor substituted for by the Acquiring Corporation in connection with the
Change of Control nor exercised as of the date of the Change of Control shall
terminate and cease to be outstanding effective as of the date of the Change of
Control.
(g) STOCKHOLDER APPROVAL. Notwithstanding any provision to the contrary,
no Option granted pursuant to the Plan may be exercised prior to obtaining
shareholder approval of the Plan.
7. TERMINATION OR AMENDMENT OF PLAN.
(a) The Board may amend, suspend, or terminate the Plan, except that no
amendment shall be made that would impair the rights of any Optionee under any
Option theretofore granted without the Optionee's consent, and except that no
amendment shall be made without the approval of the shareholders of the Company
that would
(i) materially increase the number of shares that may be issued under
the Plan, except as is provided in Section 8;
6
(ii) materially increase the benefits accruing to the Optionees under
the Plan;
(iii)materially modify the requirements as to eligibility for
participation in the Plan;
(iv) decrease the exercise price of an Option to less than 100% of the
Fair Market Value per share of Stock on the date of grant thereof; or
(v) extend the term of any Option beyond that provided for in Section
6(c).
The Board may amend the terms of any Option theretofore granted,
prospectively or retroactively, but no such amendment shall impair the rights of
any Optionee without the Optionee's consent.
(b) It is the intention of the Board that the Plan comply strictly with
the provisions of Section 409A of the Code and Treasury Regulations and other
Internal Revenue Service guidance promulgated thereunder (the "Section 409A
Rules") and the Board shall exercise its discretion in granting Options
hereunder (and the terms of such Options) accordingly. The Plan and any grant of
an Option hereunder may be amended from time to time (without, in the case of an
Option, the consent of the Optionee) as may be necessary or appropriate to
comply with the Section 409A Rules.
8. EFFECT OF CHANGE IN STOCK SUBJECT TO PLAN.
Appropriate adjustments shall be made in the number and class of shares of
Stock subject to the Plan, the number of shares to be granted under the Plan and
to any outstanding Options and in the Option exercise price of any outstanding
Options in the event of a stock dividend, stock split, recapitalization, reverse
stock split, combination, reclassification or like change in the capital
structure of the Company.
9. TRANSFERABILITY OF OPTIONS.
(a) Except as provided in Section 9(b) hereof, an Option may be exercised
during the lifetime of the Optionee only by the Optionee or the Optionee's
guardian or legal representative and may not be assigned or transferred in any
manner except by will or by the laws of descent and distribution; PROVIDED,
HOWEVER, that Options may be transferred under a qualified domestic relations
order (as defined in the Code or Title I of the Employee Retirement Income
Security Act, or the rules promulgated thereunder).
(b) Notwithstanding the foregoing, with the consent of the Board, in its
sole discretion, an Optionee may transfer all or a portion of the Option to: (i)
an Immediate Family Member (as hereinafter defined), (ii) a trust for the
exclusive benefit of the Optionee and/or one or more Immediate Family Members,
(iii) a partnership in which the Optionee and/or one or more Immediate Family
Members are the only partners, or (iv) such other person or entity as the Board
may permit (individually, a "Permitted Transferee"). For purposes of this
Section 9(b), "Immediate Family Members" shall mean the Optionee's spouse,
former spouse, children or grandchildren, whether natural or adopted. As a
7
condition to such transfer, each Permitted Transferee to whom the Option or any
interest therein is transferred shall agree in writing (in a form satisfactory
to the Company) to be bound by all of the terms and conditions of the Option
Agreement evidencing such Option and any additional restrictions or conditions
as the Company may require. Following the transfer of an Option, the term
"Optionee" shall refer to the Permitted Transferee, except that, with respect to
any provision for the Company's tax withholding obligations, if any, such term
shall refer to the original Optionee. The Company shall have no obligation to
notify a Permitted Transferee of any termination of the transferred Option,
including an early termination pursuant to Section 6(d) hereof. A Permitted
Transferee shall be prohibited from making a subsequent transfer of a
transferred Option except to the original Optionee or to another Permitted
Transferee or as provided in Section 9(a) hereof.
10. RE-PRICING OF OPTIONS/REPLACEMENT OPTIONS.
The Company shall not re-price any Options or issue any replacement Options
unless the Option re-pricing or Option replacement shall have been approved by
the holders of a majority of the outstanding shares of the voting stock of the
Company.
11. GOVERNMENT REGULATIONS.
(a) The Plan, and the grant and exercise of Options hereunder, and the
obligation of the Company to sell and deliver shares under such Options, shall
be subject to all applicable laws, rules and regulations, and to such approvals
by any governmental agencies, national securities exchanges and interdealer
quotation systems as may be required.
(b) It is the Company's intent that the Plan comply in all respects with
Rule 16b-3 of the Exchange Act and any regulations promulgated thereunder. If
any provision of this Plan is later found not to be in compliance with such
Rule, the provision shall be deemed null and void. All grants and exercises of
Options under this Plan shall be executed in accordance with the requirements of
Section 16 of the Exchange Act and any regulations promulgated thereunder.
12. GENERAL PROVISIONS.
(a) CERTIFICATES. All certificates for shares of Stock delivered under the
Plan shall be subject to such stop transfer orders and other restrictions as the
Board may deem advisable under the rules, regulations and other requirements of
the Securities and Exchange Commission, or other securities commission having
jurisdiction, any applicable Federal or state securities law, any stock exchange
or interdealer quotation system upon which the Stock is then listed or traded
and the Board may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(b) EMPLOYMENT MATTERS. The adoption of the Plan shall not confer upon any
Optionee of the Company or any subsidiary any right to continued service as a
director with the Company, nor shall it interfere in any way with the right of
the Company to terminate the service of any of its directors at any time.
8
(c) LIMITATION OF LIABILITY. No member of the Board, or any officer or
employee of the Company acting on behalf of the Board, shall be personally
liable for any action, determination or interpretation taken or made in good
faith with respect to the Plan, and all members of the Board and each and any
officer or employee of the Company acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.
13. REGISTRATION OF STOCK.
Notwithstanding any other provision in the Plan, no Option may be exercised
unless and until the Stock to be issued upon the exercise thereof has been
registered under the Securities Act and applicable state securities laws, or
are, in the opinion of counsel to the Company, exempt from such registration in
the United States. The Company shall not be under any obligation to register
under applicable federal or state securities laws any Stock to be issued upon
the exercise of an Option granted hereunder in order to permit the exercise of
an Option and the issuance and sale of the Stock subject to such Option,
although the Company may in its sole discretion register such Stock at such time
as the Company shall determine. If the Company chooses to comply with such an
exemption from registration, the Stock issued under the Plan may, at the
direction of the Committee, bear an appropriate restrictive legend restricting
the transfer or pledge of the Stock represented thereby, and the Committee may
also give appropriate stop transfer instructions with respect to such Stock to
the Company's transfer agent.
14. EFFECTIVE DATE OF PLAN.
The Plan shall be effective on November 23, 2005; provided, however, that
the Plan shall be approved by the shareholders not later than November 22, 2006.
9
Exhibit 10.3
THE KEYSTONE EQUITIES GROUP(TM)
TURNING VISION INTO REALITY
CONFIDENTIAL
October 19, 2005
Mr. Scott Frohman
Chief Executive Officer
Health Benefits Direct Corporation
4800 North Federal Highway, Suite D-108
Boca Raton, FL 33431
Dear Scott:
In response to our recent discussions, I am pleased to propose an
Agreement ("Agreement") between The Keystone Equities Group, LP, a Pennsylvania
limited partnership ("TKEG") and Health Benefits Direct Corporation, a Delaware
corporation (together with its affiliates and subsidiaries, hereby referred to
as the "Company"), as follows:
1. SERVICES TO BE RENDERED. During the Term, the Company hereby
retains TKEG to serve as its exclusive placement agent for a best-efforts
private placement (the "Placement") of up to 100 Units at a proposed offering
price of $60,000 per Unit, for maximum gross proceeds of up to $6,000,000. Each
Unit is currently expected to consist of (1) 40,000 shares of common stock of
the Company, $0.001 par value per share ("Common Stock"), and (ii) a three-year
warrant to purchase 10,000 shares of Common Stock at a proposed exercise price
$3.00 per share. TKEG agrees that it will use its best efforts to find
purchasers of the Units (the "Investors"), and any such Investors shall qualify
themselves as "accredited investors" as defined in Rule 501(a) under the
Securities Act of 1933 (the "Act"), but TKEG disclaims any agreement, expressed
or implied, in this Agreement or otherwise, that it will be successful in
placing the Units. If TKEG agrees to act as the placement agent for the
Placement, the Company agrees to not offer the Units to prospective investors,
or accept any subscriptions from prospective investors to invest in the Units,
except through TKEG, without the prior written consent of TKEG. It is understood
that the decision by TKEG to act as placement agent will depend on satisfactory
results of TKEG's due diligence investigation and the final approval by TKEG's
internal investment banking commitment committee. Notwithstanding anything in
this Agreement to the contrary, the Company shall have the sole and absolute
discretion to accept or not accept, in whole or in part, the terms of any
subscription for Units.
2. INFORMATION. In connection with TKEG's engagement, the Company
will furnish, or cause to be furnished, to TKEG all data, material and other
information requested by TKEG for the purposes of performing the services
contemplated hereunder, subject to a non-disclosure agreement signed by TKEG and
the Company. The Company represents and warrants to TKEG that any such
information, any reports required by it to be filed by it with any state or
federal authority (collectively "Reports") and any other information supplied to
TKEG or Investors by or on behalf of the Company in connection with the
Placement will not contain any materially untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein not
misleading. The Company agrees to use its best efforts to cooperate with TKEG in
connection with the provision of services by TKEG hereunder, including
attendance or participation via phone by appropriate officers or principals of
the Company (with reasonable notice and availability) for meetings coordinated
by TKEG.
3. OFFERING MEMORANDUM. The Company shall prepare disclosure
documents to be provided to potential purchasers of the Units as offering
materials (the "Offering Materials"). The Company represents and warrants to the
best of its knowledge that the Offering Materials will not, as of the Closing
Date of the Placement, contain any untrue statement of material fact or omit to
state any material fact required to be stated therein, or necessary to make the
statements contained therein, not misleading. TKEG recognizes and acknowledges
The Keystone Equities Group, LP o Member NASD & SIPC o MSRB Registrant
1003 Egypt Road o Oaks, PA 19456-1155 o Tel: 800-715-9905 o Fax: 610-415-6328
o Int'l Tel: 1-610-415-6300
www.keystoneequities.com
TKEG - Health Benefits Direct Engagement Letter
October 19, 2005
Page 2 of 7
CONFIDENTIAL
that it is not authorized to make any representations and statements to any
potential purchaser other than and to the extent that such representations and
statements are contained in the Offering Materials.
4. TERM AND TERMINATION. The engagement of TKEG shall begin as of
the date hereof and continue until the earlier of (i) the date on which the
Company has accepted subscriptions for all Units or (ii) December 31, 2005 (the
"Term), unless the Term is extended by mutual agreement of TKEG and the Company.
During the Term, either party hereto may terminate the Agreement by giving 30
days prior written notice to the other party ("Termination Notice'). Upon
expiration or termination of this Agreement, TKEG shall have no further
obligations to the Company hereunder. If any potential Investor solicited by
TKEG and first introduced to the Company by TKEG during the Term makes an
Investment in the Company within twelve (12) months of termination of the Term,
TKEG shall be entitled to fees and warrants as outlined in paragraph 5 herein.
Any fees due or claimed by any other placement agents will be paid by the
Company. Sections 2, 3, 4, 5, 7, 8, 9, 10, 11, 12, 13, 14 and 15 of this
Agreement shall survive termination and remain operative and in full force and
effect.
5. PLACEMENT AGENT FEES. In consideration for serving as the
Placement Agent for the Placement, the Company agrees to (i) pay TKEG on the
Closing Date of the Placement, and on the date of any subsequent closing of such
Placement, a cash placement fee ("Placement Agent Cash Fee) of eight (8%)
percent of the gross proceeds of the sale of the Units subscribed for in the
Placement, and (ii) issue to TKEG (or its designees) warrants (the "Placement
Agent Warrants") to purchase a dollar value of shares of Common Stock of the
Company equal to ten (10%) percent of the total gross proceeds of the Placement.
The Placement Agent Warrants shall have a term of five (5) years from the
Closing Date of the Placement, and an exercise price equal to the price per
share of Common Stock in the Units purchased by Investors in the Placement. The
Company will also reimburse TKEG, upon request, for documented expenses
("Out-of-Pocket Expenses") reasonably and directly incurred in performing the
services of Placement Agent for the Placement, including reasonable fees and
disbursements of TKEG's counsel, which are, in the aggregate, not expected to
exceed $25,000. This Out-of-Pocket Expenses estimate explicitly assumes that the
Company will retain legal counsel to draft the Offering Materials for the
Placement.
6. OBLIGATIONS LIMITED. TKEG shall be under no obligation hereunder
to make an independent appraisal of assets or investigation or inquiry as to any
information regarding, or any representations of, Company and shall have no
liability hereunder in regard thereto.
7. INDEMNIFICATION. The Company agrees to indemnify TKEG and its
representatives, agents, partners, affiliates, officers and directors in
accordance with the indemnification provisions set forth in Appendix A, attached
hereto and made part hereof.
8. NO LIABILITY. The Company agrees that neither TKEG nor any of its
partners, affiliates, directors, agents, employees or controlling persons shall
have any liability to the Company or any, person asserting claims on behalf of
or in right of the Company in connection with or as a result of either TKEG's
engagement under this Agreement or any matter referred to in this Agreement,
except to the extent that any losses, claims, damages, liabilities or expenses
incurred by the Company are determined by a court of competent jurisdiction to
have resulted solely from the gross negligence or willful misconduct of TKEG in
performing the services that are the subject of this Agreement.
9. INDEPENDENT CONTRACTOR. The parties hereto acknowledge and agree
that the engagement of TKEG hereunder is not intended to confer rights upon any
person (including shareholders, employees or creditors of TKEG) not a party
hereto as against Company or its affiliates, or their respective directors,
officers, employees or agents, successors or assigns. TKEG shall act as an
independent contractor under this Agreement and does not create any partnership,
joint venture or other similar relationship between the Company and TKEG and any
duties arising out of its engagement shall be owed solely to Company. TKEG shall
TKEG - Health Benefits Direct Engagement Letter
October 19, 2005
Page 3 of 7
CONFIDENTIAL
have no authority to accept any order or to bind or obligate the Company in any
way or to renew any debt or obligation for or on account of the Company without
the Company's prior written consent. As an independent contractor, TKEG will be
solely responsible for its income and all other applicable taxes. TKEG shall
have no restrictions to on its ability to provide services to companies other
than the Company, except as stated herein.
10. SEVERABILITY. If any provision of this Agreement for any reason
shall be held to be illegal, invalid or unenforceable, such illegality shall not
affect any other provision of this Agreement and this Agreement shall be amended
so as to enforce the illegal, invalid or unenforceable provision to the maximum
extent permitted by applicable law, and the parties shall cooperate in good
faith to further modify this Agreement so as to preserve to the maximum extent
possible the intended benefits to be received by the parties hereto.
11. PUBLICITY. With the Company's prior approval, which shall not be
unreasonably withheld or delayed, TKEG may, at its own expense, place customary
tombstone announcements or advertisements in financial newspapers and journals
describing its services hereunder upon completion of the Placement.
12. ASSIGNMENT; BENEFIT. Neither party hereto, without the explicit
prior written consent of the other may assign this Agreement or, in whole or in
part, the rights and obligations hereunder. The provisions of the Agreement will
be binding upon and inure to the benefit of the parties hereto and then
respective heirs, legal representatives, permitted successors and assigns.
13. ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement sets forth
the entire understanding of the parties hereto with respect to the transactions
contemplated hereby and supersedes any prior or contemporaneous communications,
understandings, arrangements, discussions and agreements between the parties
hereto concerning the subject matter herein. No change, amendment or supplement
to, or waiver of this Agreement will be valid or of any effect, except by the
written agreement of the parties hereto. The waiver of any particular condition,
precedent, or provision provided by this Agreement will not constitute the
waiver of any other.
14. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Pennsylvania without regard
to its conflict of laws provisions. Any action or proceeding brought by either
party against the other party arising out of or related to this Agreement shall
be brought exclusively in the courts of the Commonwealth of Pennsylvania located
in Montgomery County, Pennsylvania or in the United States District Court for
the Eastern District of Pennsylvania, which courts shall have exclusive
jurisdiction over the adjudication of such matters, and the Company and TKEG
consent to the jurisdiction of such courts and personal service with respect
thereto. The Company hereby consents to personal jurisdiction, service and venue
in any court in which any claim arising out of or in any way relating to this
Agreement is brought by any third party against TKEG or any indemnified party;
except as to any third party claim as to which the court before which such third
party claim is pending has determined by final non-appealable order that TKEG or
an indemnified party is not subject to jurisdiction. The Company agrees that a
final judgment in any such proceeding or counterclaim brought in any such court
shall be conclusive and binding upon the Company and may be enforced in any
other courts to the jurisdiction of which the Company is or may be subject by
suit upon such judgment. Each of TKEG and the Company waives all right to trial
by jury in any proceeding or counterclaim (whether based upon contract, tort or
otherwise) in any way arising out of or relating to this agreement.
15. REPRESENTATIONS.
15.1 Each party hereto represents, warrants and covenants to the
other party that:
(a) it has the power and authority to enter into this
Agreement and to perform its respective obligations hereunder.
TKEG - Health Benefits Direct Engagement Letter
October 19, 2005
Page 4 of 7
CONFIDENTIAL
(b) this Agreement has been duly authorized, executed and
delivered and constitutes the legal, valid and binding obligation of such party,
enforceable against it in accordance with its terms.
(c) the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby will not result in any
violation of, or be in conflict with, or constitute a default under, any
agreement or instrument to which such party is a party or by which its
properties are bound, or any judgment, decree, order, statute, rule or
regulation applicable to such party.
15.2 TKEG represents, warrants and covenants to the Company
that:
(a) it is in compliance and will comply with all applicable
laws, rules and regulations regarding its provision of services hereunder.
(b) it has and will maintain all licenses and memberships
required to perform its obligations and services hereunder in accordance with
applicable law.
(c) it has not and will not take any action, directly or
indirectly that would cause the Placement to violate the provisions of the Act,
the Securities Exchange Act of 1934 (the "1934 Act"), the respective rules and
regulations promulgated thereunder (the "Rules and Regulations") or applicable
"blue sky" laws of any state or jurisdiction and it will, insofar as is under
its control, conduct the Placement in a manner prescribed by Rule 506 of
Regulation D.
(d) it is a member in good standing of the National
Association of Securities Dealers, Inc., and is a broker-dealer registered as
such under the 1934 Act and under the securities laws of the states in which the
Units will be offered or sold by it unless an exemption for such state
registration is available. It is in compliance with the rules and regulations
applicable to it generally and applicable to its participation in the Placement.
(e) it has not taken and will not take any action, directly
or indirectly, that may cause the Placement to fail to be entitled to exemption
from registration under United States federal securities laws, or applicable
state securities or "blue sky" laws, or the applicable laws of the foreign
countries in which the securities may be offered or sold.
(f) it will comply with all federal and state laws in
connection with the performance of its obligations under this Agreement.
The Company shall be responsible for any costs and expenses
associated with filings, applications or registrations with any governmental or
regulatory body, including, without limitation, those associated with any sales
pursuant to Regulation D under the Act, "blue sky" and the laws of the foreign
countries in which the securities will be offered or sold that are required to
be made by the Company.
16. COUNTERPARTS. This Agreement may be executed in or more
counterparts, each of which may be deemed an original and all of which together
shall constitute one and the same instrument.
TKEG - Health Benefits Direct Engagement Letter
October 19, 2005
Page 5 of 7
CONFIDENTIAL
17. NOTICES: Any notice, consent or other communication given
pursuant to this Agreement shall be in writing and shall be effective when (i)
delivered personally, (ii) sent by telex or telecopies (with receipt confirmed),
provided that a copy is mailed registered mail, return receipt requested, or
(iii) when received by the addressee, if sent by Express Mail, Federal Express
or other express delivery service (receipt requested), in each case to the
appropriate addressee set forth below:
If to TKEG: Mr. Richard A. Hansen
The Keystone Equities Group
1003 Egypt Road, Box 1155
Oaks, PA 19456-1155
If to the Company: Mr. Scott Frohman
Health Benefits Direct Corporation
4800 North Federal Highway, Suite D-108
Boca Raton, FL 33431
If the foregoing correctly sets forth your understanding, please so
indicate by signing and returning to us the enclosed copy of this letter.
Sincerely,
THE KEYSTONE EQUITIES GROUP, LP
By /S/ Richard A. Hansen By: /S/ William B. Fretz
--------------------- --------------------
Richard A. Hansen William B. Fretz
Chairman President
Intending to be legally bound the foregoing
is Confirmed and Agreed to by:
HEALTH BENEFITS DIRECT CORPORATION
By /S/ Scott Frohman Date: 11/17/05
-----------------
Scott Frohman
CEO
TKEG - Health Benefits Direct Engagement Letter
October 19, 2005
Page 6 of 7
CONFIDENTIAL
APPENDIX A
INDEMNIFICATION
The Company agrees to indemnify and hold harmless TKEG and its affiliates (as
defined in Rule 405 under the Securities Act of 1933, as amended) and their
respective directors, officers, employees, agents and controlling persons (TKEG
and each such person being an "Indemnified Party') from and against all losses,
claims, damages and liabilities (or actions, including shareholder actions, in
respect thereof), joint or several, to which such Indemnified Party may become
subject under any applicable federal or state law, or otherwise, which are
related to or result from the performance by TKEG of the services contemplated
by, or the engagement of TKEG pursuant to, this Agreement and will promptly
reimburse any Indemnified Party for all reasonable expenses (including
reasonable counsel fees and expenses) as they are incurred in connection with
the investigation of, preparation for or defense arising from any threatened or
pending claim, whether of not such Indemnified Party is a party and whether or
not such claim, action or proceeding is initiated or brought by the Company. The
Company will not be liable to any Indemnified Party under the foregoing
indemnification and reimbursement provisions, (i) for any settlement by an
Indemnified Party effected without its prior written consent (not to be
unreasonably withheld); or (ii) to the extent that any loss, claim, damage or
liability is found in a final, non-appealable judgment by a court of competent
jurisdiction to have resulted primarily from TKEG's willful misconduct or gross
negligence. The Company also agrees that no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company or it security holders or creditors related to or arising out of the
engagement of TKEG pursuant to, or the performance by TKEG of the services
contemplated by, this Agreement except to the extent that any loss, claim,
damage or liability is found in a final, non-appealable judgment by a court of
competent jurisdiction to have resulted primarily from TKEG's willful misconduct
or gross negligence.
Promptly after receipt by an Indemnified Party of notice of any
intention or threat to commence an action, suit or proceeding or notice of the
commencement of any action, suit or proceeding, such Indemnified Party will, if
a claim in respect thereof is to be made against the Company pursuant hereto,
promptly notify the company in writing of the same. In case any such action is
brought against any Indemnified Party and such Indemnified Party notifies the
Company of the commencement thereof, the Company may elect to assume the defense
thereof, with counsel reasonably satisfactory to such Indemnified Party, and an
Indemnified Party may employ counsel to participate in the defense of any such
action provided, that the employment of such counsel shall be at the Indemnified
Party's own expense, unless (i) the employment of such counsel has been
authorized in writing by the Company, (ii) the Indemnified Party has reasonably
concluded (based upon advice of counsel to the Indemnified Party) that there may
be legal defenses available to it or other Indemnified Parties that are
different from or in addition to those available to the Company, or that a
conflict or potential conflict exists (based upon advice of counsel to the
Indemnified Party) between the Indemnified Party and the Company that makes it
impossible or inadvisable for counsel to the Indemnifying Party to conduct the
defense of both The Company and the Indemnified Party (in which case the Company
will not have the right to direct the defense of such action on behalf of the
Indemnified Party), or (iii) the Company has not in fact employed counsel
reasonably satisfactory to the Indemnified Party to assume the defense of such
action within a reasonable time after receiving notice of the action, suit or
proceeding, in each of which cases the reasonable fees, disbursements and other
charges of such counsel will be at the expense of the Company; provided,
further, that in no event shall the Company be required to pay fess and expenses
for more than one firm of attorneys representing Indemnified Parties unless the
defense of one Indemnified Party is unique or separate from that of another
Indemnified party subject to the same claim or action. Any failure or delay by
an Indemnified Party to give the notice referred to in this paragraph shall not
affect such Indemnified Party's right to be indemnified hereunder, except to the
extent that such failure or delay causes actual harm to the Company, or
prejudices to its ability to defend such action, suit or proceeding on behalf of
such Indemnified Party.
If the indemnification provided for in this Agreement is for any
reason held unenforceable by an Indemnified Party, the Company agrees to
contribute to the losses, claims, damages and liabilities for which such
TKEG - Health Benefits Direct Engagement Letter
October 19, 2005
Page 7 of 7
CONFIDENTIAL
indemnification is held unenforceable (i) in such proportion as is appropriate
to reflect the relative benefits to the Company, on the one hand, and TKEG on
the other hand, of the Offering as contemplated whether or not the Offering is
consummated or, (ii) if (but only if) the allocation provided for in clause (i)
is for any reason unenforceable, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) but any other relevant
equitable considerations. The Company agrees that for the purposes of this
paragraph the relative benefits to the Company and TKEG of the Offering as
contemplated shall be deemed to be in the same proportion that the total value
received or contemplated to be received by the Company or its shareholders, as
the case may be, as a result of or in connection with the Offering bear to the
fees paid or to be paid to TKEG under this Agreement. Notwithstanding the
foregoing, the Company expressly aggress that TKEG shall not be required to
contribute any amount in excess of the amount by which fees paid TKEG hereunder
(excluding reimbursable expenses), exceeds the amount of any damages which TKGE
has otherwise been required to pay.
The Company aggress that without TKEG's prior written consent, which
shall not be unreasonably withheld, it will not settle, compromise or consent to
the entry of any judgment in any pending or threatened claim, action or
proceeding in respect of which indemnification could be sought under the
indemnification provisions of this Agreement (in which TKEG or any other
Indemnified Party is an actual or potential party to such claim, action or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of each Indemnified Party from all liability arising out
of such claim, action or proceeding.
In the event that an Indemnified Party is requested or required to
appear as a witness in any action brought by or on behalf of or against the
Company in which such Indemnified Party is not named as a defendant, the Company
agrees to promptly reimburse TKEG on a monthly basis for all expenses incurred
by it in connection with such Indemnified Party's appearing and preparing to
appear as such a witness, including, without limitation, the reasonable fees and
disbursements of its legal counsel.
If multiple claims are brought with respect to at least one of which
indemnification is permitted under applicable law and provided for under this
Agreement the Company agrees that any judgment of arbitrate award shall be
conclusively deemed to be based on claims as to which indemnification is
permitted and provided for, except to the extent the judgment or arbitrate award
expressly states that it, or any portion thereof, is based solely on a claim as
to which indemnification is not available.
Exhibit 10.4
TERM SHEET
Proposed investment in
HEALTH BENEFITS DIRECT CORPORATION
November 16, 2005
This letter contains the basic terms upon which certain investors (the
"Investors") acceptable to Keystone Equities Group, Inc. ("Keystone") and/or
introduced by Warren V. Musser ("Musser", and collectively with Keystone, the
"Investors' Representatives") propose to negotiate an acquisition of equity
interests (the "TRANSACTION") in Health Benefits Direct Corporation (the
"COMPANY"), subject to the completion of documentation satisfactory to the
Investors.
1. DESCRIPTION OF TRANSACTION. The Investors propose to acquire
7,500,000 shares of a newly issued Common Stock (the "COMMON STOCK") and a
three-year warrant to purchase 3,750,000 shares of common stock of the Company
with a strike price of $1.50 per share (the "Warrants") from the Company for an
aggregate purchase price of $7,500,000. Scott Frohman, Charles Eissa and Daniel
Brauser (or their respective affiliates) are the initial holders of the
Company's capital stock (the "Initial Holders" or "Founders"). The Company will
establish the employee option pool before the Closing of the Transaction. The
Company will increase the size of the offering up to $8,250,000 if requested by
the Investors' Representatives.
Post Acquisition Capitalization
-------------------------------
Shares Primary Fully Diluted
------ ------- -------------
New Common Stock 7,500,000 39.0% 26.7%
Founder's Common 7,500,000 39.0% 26.7%
Other Common 300,000 1.6% 1.1%
Accrued Salaries & Debt converted 1,300,000 6.8% 4.6%
into Common Stock
Warrants 4,625,000 16.4%
Retained by stockholders of 2,650,000 13.8% 9.4%
----
publicly-traded company
Employee & Director Option Pool 4,250,000 15.1%
--------- ----
Total Common Equivalents 26,875,000 100% 100%
2. THE CLOSINGS; PAYMENT OF PURCHASE PRICE; USE OF PROCEEDS. The first
Closing of the sale of shares equal to approximately $3,000,000 shall take place
on or about November 23, 2005 (the "First Closing"). The purchase price for such
shares will be paid in full at such Closing. The second Closing of the shares
equal to at least $3,000,000 shall take place on or about December 5, 2005 (the
"Second Closing" and, together with the First Closing, the "Closings"). The
purchase price for such shares will be paid in full at such Closing
1
The proceeds to the Company from this transaction will be used for
future acquisitions and strategic partners arrangements to be approved by the
board of directors (see below) and working capital purposes and not to make any
payments to employees, stockholders or other affiliates of the Company outside
of the ordinary course of business, except as provided herein.
3. BOARD REPRESENTATION. Provided the Closings occur in accordance with
the terms set forth herein, the Board of Directors of the Company (the "Board")
will consist of seven (7) directors, each elected for a two (2) year term. The
Investors and each of the Founders and any significant existing holders of
common stock (collectively, the "Initial Holders") will agree to vote their
shares to elect the Board as follows: three (3) directors nominated by the
Investors' Representatives (two of whom shall initially be Alvin Clemens and
John Harrison), three (3) directors nominated by the Founders, (whom shall
initially include Scott Frohman and Charles Eissa), and one (1) independent
director (the "Independent Director") mutually acceptable to the Founders and
Keystone, whom shall initially be Paul Soltoff. All unnamed directors shall have
qualifications that meet all necessary NASDAQ or other exchange requirements.
Each committee of the Board must also include at least one (1) director
nominated by the Investors' Representatives and the Independent Director.
Alvin Clemens shall serve as the Chairman of the Board. Scott Frohman
will continue to serve as CEO of the Company.
Each non-employee board member shall receive a stock option for 250,000
shares of the Company's common stock with an exercise price equal to $1.00 which
shall vest as follows: 100,000 shares upon grant; 75,000 shares on the first
anniversary of the grant and the remaining 75,000 shares in twelve equal
increments at the end of each calendar month thereafter. Alvin Clemens, as
Chairman shall receive an additional option grant equal to 250,000 shares with
an exercise price equal to $1.00 which shall vest as set forth above. Anthony
Verdi, as CFO, shall receive an option grant of 350,000 shares, which shall vest
as follows: 100,000 upon grant, 125,000 on the first anniversary of the grant
and the remaining 125,000 in twelve equal increments at the end of each calendar
month thereafter.
In addition to the foregoing, the Company previously granted 2,294,500
options to its existing management and employees (the "Employee Options"), of
which 1,600,000 were granted to the Company's founders, Scott Frohman, Charles
Eissa and Daniel Brauser; all the Employee Options have an exercise price of
$2.50 per share, and vest over four year, with 25% vesting on the November 30,
2006, and the remainder vesting in 36 equal increments at the end of each
calendar month thereafter.
Any other option grants shall be submitted the board of directors and
subject to board approval following the Transaction.
In the event the Second Closing does not occur or if the amount of
cumulative gross proceeds raised at the First and Second Closing is less than
$6,000,000, then the Initial Holders shall have the right to elect six (6) of
2
the seven (7) members of the Board of Directors, it being agreed that Alvin
Clemens shall remain on the board serving as its Chairman.
The Company shall obtain Directors' & Officers' Insurance in amounts
customary for a Company engaged in the insurance industry within thirty (30)
days of the Closing.
4. VOTING. Each share of common stock shall have one vote per share.
5. ACCRUED EXPENSES; OUTSTANDING DEBT DUE TO RELATED PARTIES. All
accrued but unpaid salary expenses recorded on the books and records of the
Company as of the Closing date, estimated to be $1,000,000, shall be converted
into shares of common stock at $1.00 per share. Of the outstanding debt owed to
any Initial Holder or other related party, 50% shall be paid out of the gross
proceeds of the Offering and 50% shall be converted into common shares of the
Company's stock at the Offering price. All such shares shall be subject to the
Lock Up Agreement described in paragraph 12 below.
6. INTERIM CHIEF FINANCIAL OFFICER. The Company shall appoint Anthony
Verdi as Interim Chief Financial Officer prior to the Closing.
7. HEADQUARTERS LOCATION. The Company's headquarters shall be relocated
to the Philadelphia area, or such other location approved by the board of
directors.
8. SUBSCRIPTION AGREEMENT. The subscription agreement and other related
agreements will be drafted by counsel to the Company and will contain
representations, warranties, covenants (including information and inspection
rights) and indemnification provisions customary in such transactions. The
conditions precedent to Investor's obligations under the Subscription Agreement
and other documents will include completion of mutually acceptable documentation
(including a revised Private Placement Memorandum), completion of the Investor's
due diligence on the Company and the public company shell to their sole
satisfaction, and no material adverse changes to the Company.
9. EXCLUSIVITY. For a period of 45 days from the date of your
acceptance of this letter, the Company and the Initial Holders (i) shall deal
exclusively with Keystone and Musser in connection with the issue or sale of any
equity or debt securities or assets of the Company or any merger or
consolidation involving the Company, (ii) shall not solicit, or engage others to
solicit, offers for the purchase or acquisition of any equity or debt securities
or assets of the Company or for any merger or consolidation involving the
Company, (iii) shall not negotiate with or enter into any agreements or
understandings with respect to any such transaction and (iv) shall inform
Keystone and Musser of any such solicitation or offer. The above exclusivity may
be exempted on a case-by-case basis with prior written approval from Keystone
and Musser. In the event of a breach of this provision for any reason, the
Company shall pay $50,000 to Keystone and $50,000 to Musser.
10. NO INCONSISTENT ARRANGEMENTS. The Company and the Initial Holders
represent and warrant that neither Keystone Equities nor Musser will not incur
any liability in connection with the Transaction to any third party with whom
3
the Company or the Initial Holders or any of their representatives have had
discussions regarding any other transaction. This paragraph survives the
termination of this letter.
11. FEES. (A) Keystone, the Placement Agent, shall receive a commission
paid by the Company equal to 4% of the gross proceeds raised in the Transaction.
Keystone also will receive warrants equal to 5% of the shares sold in the
Transaction, plus fees and expenses not to exceed $15,000. (B) Musser, the
finder, shall receive a fee paid by the Company equal to 4% of the gross
proceeds raised in the Transaction in consideration of its introduction to the
Company of qualified investors. Musser also will receive warrants equal to 5% of
the shares sold in the Transaction, plus fees and expenses not to exceed
$15,000.
12. LOCK UP AGREEMENTS. Each Initial Holder (and their respective
affiliates, if applicable), and any related party receiving shares in exchange
for outstanding debt, shall enter into a lock up agreement which shall provide
that no such holder may sell any of his Company shares until the first
anniversary of the Closing, and thereafter may only sell up to 50% of such
Initial Holder's shares through the second anniversary of the Closing.
13. REGISTRATION RIGHTS. The Company shall file a Registration
Statement within 90 days of the Closing relating to the common shares into which
the New Preferred Stock and the warrants convert, which Registration Statement
shall be declared effective within 180 days of the Closing. If the Registration
Statement is not effective within 180 days of the Closing, a 1.0% penalty per
month will be assessed until the Registration Statement is effective. The
penalty will be payable monthly in cash.
* * * * *
4
Except for the provisions of numbered paragraphs 9, 10 and 11 terms of
this letter, which upon execution of this letter will be binding on the parties,
this letter is not a binding agreement or an offer. This letter does not contain
all material terms upon which the parties intend to agree and is only intended
to provide a basis on which to begin to work on a final agreement. A binding
commitment will only be made pursuant to the execution of a definitive
subscription agreement, and other related agreements, mutually acceptable to the
Company and the Investors and only after all of the conditions noted above have
been satisfied and, other than as set forth in numbered paragraphs 9, 10 and 11,
no past or future action, course of conduct or failure to act relating to the
Transaction, or relating to the negotiation of, or the failure to negotiate, the
terms of the Transaction will give rise to any obligation or other liability on
the part of either of us.
KEYSTONE EQUITIES GROUP, INC.
By: /s/ Richard A. Hansen /s/ Warren V. Musser
--------------------------------- ---------------------------------
Name: RICHARD A. HANSEN WARREN V. MUSSER
-------------------------------
As of this ___ day of November, 2005, the undersigned hereby
acknowledges that the terms of this non-binding proposal are acceptable as a
basis for negotiating an investment in the Company and agrees to be legally
bound by numbered paragraphs 9, 10 and 11 terms of this letter.
HEALTH BENEFITS DIRECT CORPORATION
By:/s/ Scott Frohman
---------------------------------
Name: Scott Frohman
-------------------------------
Title: CEO
-----------------------------
5
INITIAL HOLDERS:
/s/ Scott Frohman
--------------------------------
Name: Scott Frohman
/s/ Charles Eissa
--------------------------------
Name: Charles Eissa
/s/ Daniel Brauser
-------------------------------
Name: Daniel Brauser
Exhibit 10.5
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT made as of this ____ day _____________ 2005,
between Health Benefits Direct Corporation, a Delaware corporation, with offices
at 2900 Gateway Drive, Pompano Beach, FL 33069 (the "Company") and the
undersigned (the "Subscriber").
WHEREAS, pursuant to a Confidential Memorandum dated November 21,
2005, (the "PPM"), the Company is offering in a private placement (the
"Offering") to accredited investors up to 150 Units for a purchase price of
$50,000 per Unit to a maximum of $7,500,000. Each Unit consists of 50,000 shares
of the Company's common stock, par value $0.001 per share (the "Common Stock"),
and a three-year warrant to purchase 25,000 shares of Common Stock at $1.50 per
share; and
WHEREAS, the Subscriber desires to subscribe for the number of Units
set forth on the signature page hereof, on the terms and conditions hereinafter
set forth.
NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants hereinafter set forth, the parties hereto do hereby agree as
follows:
I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS AND COVENANTS OF SUBSCRIBER
1.1 Subject to the terms and conditions hereinafter set forth, the
Subscriber hereby subscribes for and agrees to purchase from the Company such
number of Units as is set forth upon the signature page hereof, at a price equal
to $50,000 per Unit, and the Company agrees to sell such Units to the Subscriber
for said purchase price, subject to the Company's right to sell to the
Subscriber such lesser number of Units (or no Units) as the Company may, in its
sole discretion, deem necessary or desirable. The purchase price is payable by
wire transfer of immediately available funds to the account of the Company,
pursuant to the wire instructions attached hereto as EXHIBIT A.
1.2 The Subscriber recognizes that the purchase of Units involves a
high degree of risk in that (i) an investment in the Company is highly
speculative and only investors who can afford the loss of their entire
investment should consider investing in the Company and the Units; (ii) the
Units are not registered under the Securities Act of 1933, as amended (the
"Act"), or any state securities law; (iii) there is no trading market for the
Units, none is likely ever to develop, and the Subscriber may not be able to
liquidate his, her or its investment; (iv) transferability of the Units is
extremely limited; and (v) an investor could suffer the loss of his, her or its
entire investment.
1.3 The Subscriber is an "accredited investor" as such term in defined
in Rule 501 of Regulation D promulgated under the Act, and that the Subscriber
is able to bear the economic risk of an investment in the Units.
1.4 The Subscriber has prior investment experience (including
investment in non listed and non registered securities), and has read and
evaluated, or has employed the services of an investment advisor, attorney or
accountant to read and evaluate, all of the documents furnished or made
available by the Company to the Subscriber and to all other prospective
investors in the Units, including the PPM, as well as the merits and risks of
such an investment by the Subscriber. The Subscriber's overall commitment to
investments which are not readily marketable is not disproportionate to the
Subscriber's net worth, and the Subscriber's investment in the Units will not
cause such overall commitment to become excessive. The Subscriber, if an
individual, has adequate means of providing for his or her current needs and
personal and family contingencies and has no need for liquidity in his or her
investment in the Units. The Subscriber is financially able to bear the economic
risk of this investment, including the ability to afford holding the Units for
an indefinite period or a complete loss of this investment.
1.5 The Subscriber acknowledges receipt and careful review of the PPM,
the draft Current Report on Form 8-K with regard to the Company's merger with a
publicly-traded company, all supplements to the PPM, and all other documents
furnished in connection with this transaction (collectively, the "Offering
Documents") and has been furnished by the Company during the course of this
transaction with all information regarding the Company which the Subscriber has
requested or desires to know; and the Subscriber has been afforded the
opportunity to ask questions of and receive answers from duly authorized
officers or other representatives of the Company concerning the terms and
conditions of the Offering, and any additional information which the Subscriber
has requested.
1.6 The Subscriber acknowledges that the purchase of Units may involve
tax consequences to the Subscriber and that the contents of the Offering
Documents do not contain tax advice. The Subscriber acknowledges that the
Subscriber must retain his, her or its own professional advisors to evaluate the
tax and other consequences to the Subscriber of an investment in the Units. The
Subscriber acknowledges that it is the responsibility of the Subscriber to
determine the appropriateness and the merits of a corporate entity to own the
Subscriber's Units and the corporate structure of such entity.
1.7 The Subscriber acknowledges that this Offering has not been
reviewed by the Securities and Exchange Commission (the "SEC") or any state
securities commission, and that no federal or state agency has made any finding
or determination regarding the fairness or merits of the Offering. The
Subscriber represents that the Units are being purchased for his, her or its own
account, for investment only, and not with a view toward distribution or resale
to others. The Subscriber agrees that he, she or it will not sell or otherwise
transfer the Units unless they are registered under the Act or unless an
exemption from such registration is available, as the same may be amended from
time to time.
1.8 The Subscriber understands that the provisions of Rule 144 under
the Act are not available for at least one (1) year to permit resales of the
Units, and there can be no assurance that the conditions necessary to permit
such sales under Rule 144 will ever be satisfied. The Subscriber understands
that the Company is under no obligation to comply with the conditions of Rule
144 or take any other action necessary in order to make any exemption for the
sale of the Units without registration available.
1.9 The Subscriber agrees to hold the Company and its directors,
officers and controlling persons and their respective heirs, representatives,
successors and assigns harmless and to indemnify them against all liabilities,
2
costs and expenses incurred by them as a result of any misrepresentation made by
the Subscriber contained herein or any sale or distribution by the Subscriber in
violation of the Act (including without limitation the rules promulgated
thereunder), any state securities laws, or the Company's certificate of
incorporation or by-laws, as amended from time to time.
1.10 The Subscriber consents to the placement of a legend on any
certificate or other document evidencing the Units stating that they have not
been registered under the Act and setting forth or referring to the restrictions
on transferability and sale thereof.
1.11 The Subscriber understands that the Company will review and rely
on this Subscription Agreement without making any independent investigation; and
it is agreed that the Company reserves the unrestricted right to reject or limit
any subscription and to withdraw the Offering at any time.
1.12 The Subscriber hereby represents that the address of the
Subscriber furnished at the end of this Subscription Agreement is the
undersigned's principal residence if the Subscriber is an individual or its
principal business address if it is a corporation or other entity.
1.13 The Subscriber acknowledges that if the Subscriber is a
Registered Representative of an NASD member firm, the Subscriber must give such
firm the notice required by the NASD's Conduct Rules, receipt of which must be
acknowledged by such firm on the signature page hereof.
1.14 The Subscriber hereby represents that, except as expressly set
forth in the Offering Documents, no representations or warranties have been made
to the Subscriber by the Company or any agent, employee or affiliate of the
Company and in entering into this transaction, the Subscriber is not relying on
any information, other than that contained in the Offering Documents and the
results of independent investigation by the Subscriber.
1.15 All information provided by the Subscriber in the Investor
Questionnaire attached hereto as EXHIBIT B is true and accurate in all respects,
and the Subscriber acknowledges that the Company will be relying on such
information to its possible detriment in deciding whether the Company can sell
these securities to the Subscriber without giving rise to the loss of an
exemption from registration under the applicable securities laws.
1.16 The Subscriber is aware that the Company has not entered into any
agreement or understanding providing for the purchase of any business or assets
other than those referred to in the PPM and no such agreements have been made,
or are being negotiated, and that by execution of this Subscription Agreement,
the Subscriber consents to any and all resulting terms of such purchases which
will be in the sole discretion of the Company over which the Subscriber will
have no effective influence.
II. REPRESENTATIONS BY THE COMPANY
The Company represents and warrants to the Subscriber that as of the
date of the closing of this Offering (the "Closing Date"):
3
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of Delaware and has the
corporate power to conduct the business which it conducts and proposes to
conduct.
(b) The execution, delivery and performance of this Subscription
Agreement by the Company have been duly authorized by the Company and all other
corporate action required to authorize and consummate the offer and sale of the
Units have been duly taken and approved.
(c) The Units have been duly and validly authorized and issued.
(d) The Company has obtained, or is in the process of obtaining, all
licenses, permits and other governmental authorizations necessary to the conduct
of its business, except where the failure to so obtain such licenses, permits
and authorizations would not have a material adverse effect on the Company. Such
licenses, permits and other governmental authorizations obtained are in full
force and effect, except where the failure to be so would not have a material
adverse effect on the Company, and the Company is in all material respects
complying therewith.
(e) The Company knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which would materially
adversely affect the business, financial condition or operations of the Company.
(f) The Company is not in violation of or default under, nor will the
execution and delivery of this Subscription Agreement or the issuance of the
Units, or the consummation of the transactions herein contemplated, result in a
violation of, or constitute a default under, the Company's certificate of
incorporation or by-laws, any material obligations, agreements, covenants or
conditions contained in any bond, debenture, note or other evidence of
indebtedness or in any material contract, indenture, mortgage, loan agreement,
lease, joint venture or other agreement or instrument to which the Company is a
party or by which it or any of its properties may be bound or any material
order, rule, regulation, writ, injunction, or decree of any government,
governmental instrumentality or court, domestic or foreign.
III. COVENANTS BY THE COMPANY
The Company agrees Subscribers shall have the certain registration
rights with respect to the shares of Common Stock underlying the Units issued to
Subscribers pursuant to the terms of the Registration Rights Agreement annexed
hereto as EXHIBIT C.
IV. TERMS OF SUBSCRIPTION
4.1 Subject to Section 4.2 hereof, the subscription period will begin
as of November 21, 2005 and will terminate at 11:59 PM Eastern Time, on December
31, 2005, unless sooner terminated by the Company, or extended by the Company.
4.2 The Subscriber has effected a wire transfer in the full amount of
the purchase price for the Units to the Company's account in accordance with the
wire instructions set forth on EXHIBIT A hereto.
4
4.3 The Subscriber hereby authorizes and directs the Company to
deliver any certificates or other written instruments representing the Units to
be issued to such Subscriber pursuant to this Subscription Agreement to the
address indicated on the signature page hereof.
4.4 The Subscriber hereby authorizes and directs the Company to return
any funds, without interest, for unaccepted subscriptions to the same account
from which the funds were drawn.
4.5 If the Subscriber is not a United States person, such Subscriber
shall immediately notify the Company and the Subscriber hereby represents that
the Subscriber is satisfied as to the full observance of the laws of its
jurisdiction in connection with any invitation to subscribe for the Units or any
use of this Subscription Agreement, including (i) the legal requirements within
its jurisdiction for the purchase of the Units, (ii) any foreign exchange
restrictions applicable to such purchase, (iii) any governmental or other
consents that may need to be obtained, and (iv) the income tax and other tax
consequences, if any, that may be relevant to the purchase, holding, redemption,
sale or transfer of the Units or the securities comprising the Units. Such
Subscriber's subscription and payment for, and continued beneficial ownership
of, the Units and the securities comprising the Units will not violate any
applicable securities or other laws of the Subscriber's jurisdiction.
V. MISCELLANEOUS
5.1 Any notice or other communication given hereunder shall be deemed
sufficient if in writing and sent by reputable overnight courier, facsimile
(with receipt of confirmation) or registered or certified mail, return receipt
requested, addressed to the Company, at the address set forth in the first
paragraph hereof, Attention Daniel Brauser, facsimile (954) 691-4010 and to the
Subscriber at the address indicated on the signature page hereof. Notices shall
be deemed to have been given on the date of mailing or fax, except notices of
change of address, which shall be deemed to have been given when received.
5.2 This Subscription Agreement shall not be changed, modified or
amended except by a writing signed by the parties to be charged, and this
Subscription Agreement may not be discharged except by performance in accordance
with its terms or by a writing signed by the party to be charged.
5.3 This Subscription Agreement shall be binding upon and inure to the
benefit of the parties hereto and to their respective heirs, legal
representatives, successors and assigns. This Subscription Agreement sets forth
the entire agreement and understanding between the parties as to the subject
matter thereof and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
5.4 Notwithstanding the place where this Subscription Agreement may be
executed by any of the parties hereto, the parties expressly agree that all the
terms and provisions hereof shall be construed in accordance with and governed
by the laws of the State of Delaware. The parties hereby agree that any dispute
which may arise between them arising out of or in connection with this
Subscription Agreement shall be adjudicated before a court located in Broward
County, Florida and they hereby submit to the exclusive jurisdiction of the
federal and state courts of the State of Florida located in Broward County with
5
respect to any action or legal proceeding commenced by any party, and
irrevocably waive any objection they now or hereafter may have respecting the
venue of any such action or proceeding brought in such a court or respecting the
fact that such court is an inconvenient forum, relating to or arising out of
this Subscription Agreement or any acts or omissions relating to the sale of the
securities hereunder, and consent to the service of process in any such action
or legal proceeding by means of registered or certified mail, return receipt
requested, in care of the address set forth below or such other address as the
undersigned shall furnish in writing to the other.
5.5 This Subscription Agreement may be executed in counterparts. Upon
the execution and delivery of this Subscription Agreement by the Subscriber,
this Subscription Agreement shall become a binding obligation of the Subscriber
with respect to the purchase of Units as herein provided; subject, however, to
the right hereby reserved to the Company to (i) enter into the same agreements
with other subscribers, (ii) add and/or to delete other persons as subscribers
and (iii) cut back or reject any subscription.
5.6 The holding of any provision of this Subscription Agreement to be
invalid or unenforceable by a court of competent jurisdiction shall not affect
any other provision of this Subscription Agreement, which shall remain in full
force and effect.
5.7 It is agreed that a waiver by either party of a breach of any
provision of this Subscription Agreement shall not operate, or be construed, as
a waiver of any subsequent breach by that same party.
5.8 The parties agree to execute and deliver all such further
documents, agreements and instruments and take such other and further action as
may be necessary or appropriate to carry out the purposes and intent of this
Subscription Agreement.
[SIGNATURE PAGES FOLLOW]
6
IN WITNESS WHEREOF, the parties have executed this Subscription
Agreement as of the day and year first written above.
______________________________ X $50,000 for each Unit = $___________________.
Number of Units subscribed for Aggregate Purchase Price
MANNER IN WHICH TITLE IS TO BE HELD (PLEASE CHECK ONE):
1. ___ Individual 7. ___ Trust/Estate/Pension or Profit sharing
Plan
Date Opened:______________
2. ___ Joint Tenants with Right of 8. ___ As a Custodian for
Survivorship ________________________________
Under the Uniform Gift to Minors Act
of the State of
________________________________
3. ___ Community Property 9. ___ Married with Separate Property
4. ___ Tenants in Common 10. ___ Keogh
5. ___ Corporation/Partnership/ Limited 11. ___ Tenants by the Entirety
Liability Company
6. ___ IRA 12. ___ Foundation described in Section
501(c)(3) of the Internal Revenue Code
of 1986, as amended.
IF MORE THAN ONE SUBSCRIBER, EACH SUBSCRIBER MUST SIGN.
INDIVIDUAL SUBSCRIBERS MUST COMPLETE PAGE 8
SUBSCRIBERS WHICH ARE ENTITIES MUST COMPLETE PAGE 9.
7
EXECUTION BY NATURAL PERSONS
--------------------------------------------------------------------------------
Exact Name in Which Title is to be Held
------------------------------- ------------------------------------
Name (Please Print) Name of Additional Subscriber
------------------------------- ------------------------------------
Residence: Number and Street Address of Additional Subscriber
------------------------------- ------------------------------------
City, State and Zip Code City, State and Zip Code
------------------------------- ------------------------------------
Social Security Number Social Security Number
------------------------------- ------------------------------------
Telephone Number Telephone Number
------------------------------- ------------------------------------
Fax Number (if available) Fax Number (if available)
------------------------------- ------------------------------------
E-Mail (if available) E-Mail (if available)
------------------------------- ------------------------------------
(Signature) (Signature of Additional Subscriber)
ACCEPTED this ___ day of _________ 2005,
on behalf Health Benefits Direct Corporation
By: ________________________________________
Name:
Title:
8
EXECUTION BY SUBSCRIBER WHICH IS AN ENTITY
(Corporation, Partnership, Trust, Etc.)
--------------------------------------------------------------------------------
Name of Entity (Please Print)
Date of Incorporation or Organization:
-----------------------------------------
State of Principal Office:
-----------------------------------------------------
Federal Taxpayer Identification Number:
----------------------------------------
--------------------------------------------
Office Address
--------------------------------------------
City, State and Zip Code
--------------------------------------------
Telephone Number
--------------------------------------------
Fax Number (if available)
--------------------------------------------
E-Mail (if available)
[seal] By:
------------------------------
Name:
Attest: Title:
-----------------------
(If Entity is a Corporation)
*IF SUBSCRIBER IS A REGISTERED
REPRESENTATIVE WITH AN NASD MEMBER FIRM,
HAVE THE FOLLOWING ACKNOWLEDGEMENT SIGNED
BY THE APPROPRIATE PARTY:
The undersigned NASD member firm
acknowledges receipt of the notice
required by Rule 3050 of the NASD
Conduct Rules
ACCEPTED this ____ day of __________
2005, on behalf of Health Benefits Direct
Corporation
By:
------------------------------
Name:
Title:
9
EXHIBIT A
WIRE INSTRUCTIONS
WIRE INSTRUCTIONS:
Bank Routing # 036001808
Account # 7760105689
Account Name: Keystone: Health Benefits Escrow Account
Bank: Commerce Bank
Bank address: 498 2nd Avenue
Collegeville, PA 19426
Telephone: 610-409-8650
1
EXHIBIT B
INVESTOR QUESTIONNAIRE
INSTRUCTIONS
This Questionnaire is being given to each person or entity expressing an
interest in participating in the Offering. The purpose of this Questionnaire is
to obtain certain information regarding your status, so the Company can comply
with various laws and regulations governing this investment.
Your answers will be kept confidential. However, you hereby agree that the
Company may present this Questionnaire to such parties as it deems appropriate
in order to ascertain that the offer and the sale of the securities to you will
not result in violations of federal or state securities laws which are being
relied upon by the Company in connection with the offer and sale thereof.
1
INVESTOR QUESTIONNAIRE
INSTRUCTIONS: CHECK ALL BOXES BELOW WHICH CORRECTLY DESCRIBE YOU.
|_| You are (I) a bank, as defined in Section 3(a)(2) of the Securities
Act of 1933, as amended - (the "Securities Act"), (II) a savings and
loan association or other institution, as defined in Section
3(a)(5)(A) of the Securities Act, whether acting in an individual or
fiduciary capacity, (III) a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), (IV) an insurance company as defined in Section 2(13)
of the Securities Act, (V) an investment company registered under the
Investment Company - Act of 1940, as amended (the "Investment Company
Act"), (VI) a business development company as defined in Section
2(a)(48) of the Investment Company Act, (VII) a Small Business
Investment Company licensed by the U.S. Small Business Administration
under Section 301 (c) or (d) of the Small Business Investment Act of
1958, as amended, (VIII) a plan established and maintained by a state,
its political subdivisions, or an agency or instrumentality of a state
or its political subdivisions, for the benefit of its employees and
you have total assets in excess of $5,000,000, or (IX) an employee
benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and (1) the decision that
you shall subscribe for and purchase Units offered by Health Benefits
Direct Corporation (the "Units"), is made by a plan fiduciary, as
defined in Section 3(21) of ERISA, which is either a bank, savings and
loan association, insurance company, or registered investment adviser,
(2) you have total assets in excess of $5,000,000 and the decision
that you shall subscribe for and purchase the Units is made solely by
persons or entities that are accredited investors, as defined in Rule
501 of Regulation D promulgated under the Securities Act ("Regulation
D") or (3) you are a self-directed plan and the decision that you
shall subscribe for and purchase the Units is made solely by persons
or entities that are accredited investors.
|_| You are a private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940, as amended.
|_| You are an organization described in Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended (the "Code"), a corporation,
Massachusetts or similar business trust or a partnership, in each case
not formed for the specific purpose of making an investment in the
Units and with total assets in excess of $5,000,000.
|_| You are a director or executive officer of Health Benefits Direct
Corporation.
|_| You are a natural person whose individual net worth, or joint net
worth with your spouse, exceeds $1,000,000 at the time of your
subscription for and purchase of the Units.
2
|_| You are a natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with
your spouse in excess of $300,000 in each of the two most recent
years, and who has a reasonable expectation of reaching the same
income level in the current year.
|_| You are a trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the Units, whose subscription
for and purchase of the Units is directed by a sophisticated person as
described in Rule 506(b)(2)(ii) of Regulation D.
|_| You are an entity in which all of the equity owners are persons or
entities described in one of the preceding paragraphs.
The undersigned hereby represents and warrants that all of its answers to
this Investor Questionnaire are true as of the date of its execution of the
Subscription Agreement pursuant to which it purchased Units, each Unit
consisting of (i) 50,000 shares of common stock, and (ii) a three-year warrant
to purchase 25,000 shares of the common stock of Health Benefits Direct
Corporation.
--------------------------------------- ------------------------------------
Name of Purchaser [please print] Name of Co-Purchaser [please print]
--------------------------------------- ------------------------------------
Signature of Purchaser (Entities please Signature of Co-Purchaser
provide signature of Purchaser's duly
authorized signatory.)
---------------------------------------
Name of Signatory (Entities only)
---------------------------------------
Title of Signatory (Entities only)
3
SPECIAL NOTICE TO FLORIDA RESIDENTS
THE UNITS REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY, THE
HOLDER IN A TRANSACTION EXEMPT UNDER ss. 517.061 OF THE FLORIDA
SECURITIES ACT. THE UNITS HAVE NOT BEEN REGISTERED UNDER SAID ACT IN
THE STATE OF FLORIDA. IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE
PRIVILEGE OF VOIDING THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST
TENDER OF CONSIDERATION IS MADE BY SUCH PURCHASER TO THE ISSUER, AN
AGENT OF THE ISSUER, OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE
AVAILABILITY OF THAT PRIVILEGE IS COMMUNICATED TO SUCH PURCHASER,
WHICHEVER OCCURS LATER.
4
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
5
Exhibit 10.6
HEALTH BENEFITS DIRECT CORPORATION
REGISTRATION RIGHTS AGREEMENT
NOVEMBER ___, 2005
TABLE OF CONTENTS
PAGE
1. Registration Rights.........................................................1
1.1 Definitions............................................................1
1.2 Company Registration...................................................2
1.3 Obligations of the Company.............................................3
1.4 Furnish Information....................................................4
1.5 Delay of Registration..................................................4
1.6 Indemnification........................................................4
1.7 Reports Under Securities Exchange Act..................................6
1.8 Transfer or Assignment of Registration Rights..........................7
1.9 "Market Stand-Off" Agreement...........................................7
2. Covenants of the Company to the Investors...................................8
2.1 Information Rights.....................................................8
2.2 Confidentiality........................................................8
3. Legend......................................................................8
4. Miscellaneous...............................................................9
4.1 Governing Law..........................................................9
4.2 Waivers and Amendments.................................................9
4.3 Successors and Assigns.................................................9
4.4 Entire Agreement.......................................................9
4.5 Notices...............................................................10
4.6 Interpretation........................................................10
4.7 Severability..........................................................10
4.8 Counterparts..........................................................10
4.9 Telecopy Execution and Delivery.......................................10
i
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is made as of
________________, 2005, between Health Benefits Direct Corporation, a Delaware
corporation (the "COMPANY"), and the individuals and entities listed on Schedule
A hereto (each, an "INVESTOR" and collectively, the "INVESTORS").
R E C I T A L S
WHEREAS, the Company and the Investors are parties to the Subscription
Agreement dated _________________ __, 2005 pursuant to a Private Placement
Memorandum dated November 21, 2005 (the "SUBSCRIPTION AGREEMENT");
WHEREAS, the Investors' obligations under the Subscription Agreement are
conditioned upon certain registration rights under the Securities Act of 1933,
as amended (the "SECURITIES ACT") as described in the Subscription Agreement;
and
WHEREAS, the Investors and the Company desire to provide for the rights of
registration under the Securities Act as are provided herein upon the execution
and delivery of this Agreement by such investors and the Company.
NOW, THEREFORE, in consideration of the promises, covenants, and conditions
set forth herein, the parties hereto hereby agree as follows:
1. REGISTRATION RIGHTS.
1.1 DEFINITIONS. As used in this Agreement, the following terms shall have
the meanings set forth below:
(a) "COMMISSION" means the United States Securities and Exchange
Commission.
(b) "COMMON STOCK" means the Company's common stock, par value $0.001
per share.
(c) "CONVERSION STOCK" means the shares of Common Stock issued or
issuable upon conversion of the Warrants to purchase Common Stock issued
pursuant to the Subscription Agreement.
(d) "EFFECTIVENESS DATE" means the 180th day following the date
hereof.
(e) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(f) "FILING DATE" means, with respect to the Registration Statement
required to be filed hereunder, a date no later than ninety (90) days following
the date hereof.
(g) "INVESTOR" means any person owning Registrable Securities.
(h) The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(i) "REGISTRABLE SECURITIES" means (i) the Conversion Stock and (ii)
any of the Shares (or issuable upon the conversion or exercise of any warrant,
right or other security that is issued as) or a dividend or other distribution
with respect to, or in exchange for, or in replacement of, the shares referenced
in (i) and (ii) above; PROVIDED, HOWEVER, that Registrable Securities shall not
include any shares of Common Stock which have previously been registered or
which have been sold to the public either pursuant to a registration statement
or Rule 144, or which have been sold in a private transaction in which the
transferor's rights under this Section 1 are not assigned.
(j) "RULE 144" means Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(k) "RULE 145" means Rule 145 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(l) "SHARES" means the shares of the Common Stock issued pursuant to
the Subscription Agreement.
(m) "WARRANTS" means the warrants to purchase Common Stock issued
pursuant to the Subscription Agreement.
1.2 COMPANY REGISTRATION.
(a) On or prior to the Filing Date the Company shall prepare and file
with the Commission a Registration Statement covering the Registrable Securities
for an offering to be made on a continuous basis pursuant to Rule 415. The
Registration Statement shall be on Form SB-2 or Form S-3 (except if the Company
is not then eligible to register for resale the Registrable Securities on Form
SB-2 or Form S-3, in which case such registration shall be on another
appropriate form in accordance herewith). The Company shall cause the
Registration Statement to become effective and remain effective as provided
herein. The Company shall use its reasonable commercial efforts to cause the
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event no later than
the Effectiveness Date. The Company shall use its reasonable commercial efforts
to keep the Registration Statement continuously effective under the Securities
Act until the date which is the earlier date of when (i) all Registrable
Securities have been sold or (ii) all Registrable Securities may be sold
immediately without registration under the Securities Act and without volume
restrictions pursuant to Rule 144(k), as determined by the counsel to the
Company pursuant to a written opinion letter to such effect, addressed and
acceptable to the Company's transfer agent and the affected Investors.
2
(b) If: (i) the Registration Statement is not filed on or prior to the
Filing Date; (ii) the Registration Statement is not declared effective by the
Commission by the Effectiveness Date; or (iii) after the Registration Statement
is filed with and declared effective by the Commission, the Registration
Statement ceases to be effective (by suspension or otherwise) as to all
Registrable Securities to which it is required to relate at any time prior to
the expiration of the Effectiveness Period (without being succeeded immediately
by an additional registration statement filed and declared effective) for a
period of time which shall exceed 30 days in the aggregate per year or more than
20 consecutive calendar days (defined as a period of 365 days commencing on the
date the Registration Statement is declared effective); (any such failure or
breach being referred to as an "Event," and for purposes of clause (i) or (ii)
the date on which such Event occurs, or for purposes of clause (iii) the date
which such 30 day or 20 consecutive day period (as the case may be) is exceeded,
or for purposes of clause (iv) the date on which such three (3) Trading Day
period is exceeded, being referred to as "Event Date"), then until the
applicable Event is cured, the Company shall pay to each Investor an amount in
cash, as liquidated damages and not as a penalty, equal to 1.0% for each thirty
(30) day period (prorated for partial periods) on a daily basis of the aggregate
amount invested by such Investor. While such Event continues, such liquidated
damages shall be paid not less often than each thirty (30) days. Any unpaid
liquidated damages as of the date when an Event has been cured by the Company
shall be paid within three (3) days following the date on which such Event has
been cured by the Company.
(c) The Company shall bear and pay all expenses incurred in connection
with any registration, filing or qualification of Registrable Securities with
respect to the registrations pursuant to this Section 1.2 for each Investor,
including (without limitation) all registration, filing and qualification fees,
printer's fees, accounting fees and fees and disbursements of counsel for the
Company, but excluding underwriting discounts and commissions relating to
Registrable Securities and fees and disbursements of counsel for the Investors.
1.3 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1 to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement with
respect to such Registrable Securities and use its commercially reasonable
efforts to cause such registration statement to become effective, and, upon the
request of the Investors of at least a majority of the Registrable Securities
registered thereunder, keep such registration statement effective for a period
which shall end the earlier of when (i) all Registrable Securities have been
sold or (ii) all Registrable Securities may be sold immediately without
registration under the Securities Act and without volume restrictions pursuant
to Rule 144(k);
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Investors such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
3
to facilitate the disposition of Registrable Securities owned by them (provided
that the Company would not be required to print such prospectuses if readily
available to Investors from any electronic service, such as on the EDGAR filing
database maintained at www.sec.gov);
(d) Use its commercially reasonable efforts to register and qualify
the securities covered by such registration statement under such other
securities' or blue sky laws of such jurisdictions as shall be reasonably
requested by the Investors; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions;
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering (each Investor
participating in such underwriting shall also enter into and perform its
obligations under such an agreement);
(f) Notify each Investor of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing;
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or nationally recognized
quotation system on which similar securities issued by the Company are then
listed; and
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.4 FURNISH INFORMATION. It shall be a condition precedent to the
Company's obligations to take any action pursuant to this Section 1 with respect
to the Registrable Securities of any selling Investor that such Investor shall
furnish to the Company such information regarding such Investor, the Registrable
Securities held by such Investor, and the intended method of disposition of such
securities as shall be required by the Company or the managing underwriters, if
any, to effect the registration of such Investor's Registrable Securities.
1.5 DELAY OF REGISTRATION. No Investor shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.6 INDEMNIFICATION.
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Investor, any underwriter (as defined in the Securities Act)
for such Investor and each person, if any, who controls such Investor or
underwriter within the meaning of the Securities Act or the Exchange Act,
against any losses, claims, damages, or liabilities (joint or several) to which
4
any of the foregoing persons may become subject under the Securities Act, the
Exchange Act or other federal or state securities law, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any of the following statements, omissions or violations
(collectively, a "VIOLATION"): (i) any untrue statement or alleged untrue
statement of a material fact contained in a registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto (collectively, the "FILINGS"), (ii) the
omission or alleged omission to state in the Filings a material fact required to
be stated therein, or necessary to make the statements therein not misleading,
or (iii) any violation or alleged violation by the Company of the Securities
Act, the Exchange Act, any state securities law or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any state securities
law; and the Company will pay any legal or other expenses reasonably incurred by
any person to be indemnified pursuant to this Section 1.7(a) in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 1.7(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation that
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Investor,
underwriter or controlling person.
(b) To the extent permitted by law, each Investor will indemnify and
hold harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the Company
within the meaning of the Securities Act, any underwriter, any other Investor
selling securities in such registration statement and any controlling person of
any such underwriter or other Investor, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons may become
subject under the Securities Act, the Exchange Act or other federal or state
securities law insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Investor expressly for use in connection with such registration; and each such
Investor will pay any legal or other expenses reasonably incurred by any person
to be indemnified pursuant to this Section 1.6(b) in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the indemnity agreement contained in this Section 1.6(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Investor (which consent shall not be unreasonably withheld); PROVIDED, HOWEVER,
in no event shall any indemnity under this subsection 1.6(b) exceed the gross
proceeds from the offering received by such Investor.
(c) Promptly after receipt by an indemnified party under this Section
1.6 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.6, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party
5
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if materially prejudicial to its ability to defend such action, shall
relieve such indemnifying party of any liability to the indemnified party under
this Section 1.6, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.6.
(d) If the indemnification provided for in Sections 1.6(a) and (b) is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, claim, damage or expense referred to therein,
then the indemnifying party in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in such
loss, liability, claim or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission. In no event shall any Investor
be required to contribute an amount in excess of the gross proceeds from the
offering received by such Investor.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions of the underwriting agreement
shall control.
(f) The obligations of the Company and Investors under this Section
1.7 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.7 REPORTS UNDER SECURITIES EXCHANGE ACT. With a view to making available
the benefits of certain rules and regulations of the Commission, including Rule
144, that may at any time permit an Investor to sell securities of the Company
to the public without registration or pursuant to a registration on Form SB-2,
the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144, at all times after ninety (90) days after
the effective date of the first registration statement filed by the Company for
the offering of its securities to the general public;
6
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Exchange Act, as is necessary to enable the
Investors to utilize Form SB-2 for the sale of their Registrable Securities,
such action to be taken as soon as practicable after the end of the fiscal year
in which the first registration statement filed by the Company for the offering
of its securities to the general public is declared effective;
(c) file with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any Investor, so long as the Investor owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 (at any
time after ninety (90) calendar days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form SB-2 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other reports
and documents so filed by the Company, and (iii) such other information as may
be reasonably requested in availing any Investor of any rule or regulation of
the Commission that permits the selling of any such securities without
registration or pursuant to such form.
1.8 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
transferred or assigned, but only with all related obligations, by a Investor to
a transferee or assignee who (a) acquires at least 50,000 shares (subject to
appropriate adjustment for stock splits, stock dividends and combinations) of
Registrable Securities from such transferring Investor or (b) holds Registrable
Securities immediately prior to such transfer or assignment; provided that in
the case of (a), (i) prior to such transfer or assignment, the Company is
furnished with written notice stating the name and address of such transferee or
assignee and identifying the securities with respect to which such registration
rights are being transferred or assigned, (ii) such transferee or assignee
agrees in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.9 and (iii)
such transfer or assignment shall be effective only if immediately following
such transfer or assignment the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act.
1.9 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees that it will
not, without the prior written consent of the managing underwriter, during the
period commencing on the date of the final prospectus relating to the Company's
initial underwritten public offering and ending on the date specified by the
Company and the managing underwriter (such period not to exceed one hundred
eighty (180) calendar days) (i) lend, offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any securities of the Company, including
(without limitation) shares of Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock (whether now owned or hereafter
7
acquired) or (ii) enter into any swap or other arrangement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
any securities of the Company, including (without limitation) shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (whether now owned or hereafter acquired), whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of securities, in cash or otherwise. The foregoing covenants shall apply only to
the Company's initial underwritten public offering of equity securities, shall
not apply to the sale of any shares by a Investor to an underwriter pursuant to
an underwriting agreement and shall only be applicable to the Investors if all
the Company's executive officers, directors and greater than five percent (5%)
stockholders enter into similar agreements. Each Investor agrees to execute an
agreement(s) reflecting (i) and (ii) above as may be requested by the managing
underwriters at the time of the initial underwritten public offering, and
further agrees that the Company may impose stop transfer instructions with its
transfer agent in order to enforce the covenants in (i) and (ii) above. The
underwriters in connection with the Company's initial underwritten public
offering are intended third party beneficiaries of the covenants in this Section
1.9 and shall have the right, power and authority to enforce such covenants as
though they were a party hereto.
2. COVENANTS OF THE COMPANY TO THE INVESTORS.
2.1 INFORMATION RIGHTS. The Company shall deliver to each Investor who
holds (and continues to hold) at least 50,000 shares of Conversion Stock
(subject to appropriate adjustment for stock splits, stock dividends and
combinations), upon the request of such Investor, (which may be satisfied by
filing of Company quarterly and annual reports under the Exchange Act):
(a) as soon as practicable, but in any event within one hundred twenty
(120) calendar days after the end of each fiscal year of the Company,
consolidated balance sheets of the Company and its subsidiaries, if any, as of
the end of such fiscal year, and consolidated statements of income and
consolidated statements of cash flows of the Company and its subsidiaries, if
any, for such year, prepared in accordance with generally accepted accounting
principles ("GAAP"), all in reasonable detail; and
(b) as soon as practicable, but in any event within forty-five (45)
calendar days after the end of each of the first three (3) quarters of each
fiscal year of the Company, consolidated balance sheets of the Company and its
subsidiaries, if any, as of the end of such quarter, and consolidated statements
of income and consolidated statements of cash flows of the Company and its
subsidiaries, if any, for such quarter prepared in accordance with GAAP, all in
reasonable detail.
2.2 CONFIDENTIALITY. Each Investor receiving any non-public information of
the Company hereby agrees to hold in confidence and trust and to act in a
fiduciary manner with respect to all information so provided; PROVIDED, HOWEVER,
that notwithstanding the foregoing, an Investor may include summary financial
information concerning the Company and general statements concerning the nature
and progress of the Company's business in an Investor's reports to its
affiliates.
3. LEGEND.
(a) Each certificate representing the shares of Common Stock held by
the Investors shall be endorsed with the following legend (the "LEGEND"):
8
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO A LOCK-UP PERIOD OF UP TO 180 DAYS
FOLLOWING THE EFFECTIVE DATE OF A REGISTRATION
STATEMENT OF THE COMPANY FILED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AS SET FORTH
IN THAT CERTAIN REGISTRATION RIGHTS AGREEMENT
BETWEEN THE CORPORATION AND THE ORIGINAL HOLDER OF
THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT
THE CORPORATION'S PRINCIPAL OFFICE. SUCH LOCK-UP
PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.
(b) The Company agrees that, during the term of this Agreement, it
will not remove, and will not permit to be removed (upon registration of
transfer, re-issuance or otherwise), the Legend from any such certificate and
will place or cause to be placed the Legend on any new certificate theretofore
represented by a certificate carrying the Legend.
4. MISCELLANEOUS.
4.1 GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of Delaware as such laws are applied to agreements between
Delaware residents entered into and to be performed entirely within Delaware,
without regard to conflict of laws rules.
4.2 WAIVERS AND AMENDMENTS. This Agreement may be terminated and any term
of this Agreement may be amended or waived (either generally or in a particular
instance and either retroactively or prospectively) with the written consent of
the Company and Investors holding at least a majority of the Registrable
Securities then outstanding (the "MAJORITY INVESTORS"). Notwithstanding the
foregoing, additional parties may be added as Investors under this Agreement
with the written consent of the Company and the Majority Investors. No such
amendment or waiver shall reduce the aforesaid percentage of the Registrable
Securities, the holders of which are required to consent to any termination,
amendment or waiver without the consent of the record holders of all of the
Registrable Securities. Any termination, amendment or waiver effected in
accordance with this Section 4.2 shall be binding upon each holder of
Registrable Securities then outstanding, each future holder of all such
Registrable Securities and the Company.
4.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions of this Agreement shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
4.4 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subject matter
hereof, and no party shall be liable or bound to any other party in any manner
by any warranties, representations or covenants except as specifically set forth
herein.
9
4.5 NOTICES. All notices and other communications required or permitted
under this Agreement shall be in writing and shall be delivered personally by
hand or by courier, mailed by United States first-class mail, postage prepaid,
sent by facsimile or sent by electronic mail directed (a) if to an Investor, at
such Investor's address, facsimile number or electronic mail address set forth
in the Company's records, or at such other address, facsimile number or
electronic mail address as such Investor may designate by ten (10) days' advance
written notice to the other parties hereto or (b) if to the Company, to its
address, facsimile number or electronic mail address set forth on its signature
page to this Agreement and directed to the attention of the President, or at
such other address, facsimile number or electronic mail address as the Company
may designate by ten (10) days' advance written notice to the other parties
hereto. All such notices and other communications shall be effective or deemed
given upon personal delivery, on the date of mailing, upon confirmation of
facsimile transfer or upon confirmation of electronic mail delivery.
4.6 INTERPRETATION. The words "include," "includes" and "including" when
used herein shall be deemed in each case to be followed by the words "without
limitation." The titles and subtitles used in this Agreement are used for
convenience only and are not considered in construing or interpreting this
Agreement.
4.7 SEVERABILITY. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be excluded from
this Agreement, and the balance of the Agreement shall be interpreted as if such
provision were so excluded, and shall be enforceable in accordance with its
terms.
4.8 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
4.9 TELECOPY EXECUTION AND DELIVERY. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more parties
hereto by facsimile or similar electronic transmission device pursuant to which
the signature of or on behalf of such party can be seen, and such execution and
delivery shall be considered valid, binding and effective for all purposes. At
the request of any party hereto, all parties hereto agree to execute an original
of this Agreement as well as any facsimile, telecopy or other reproduction
hereof.
10
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day, month and year first set forth above.
"Company"
Health Benefits Direct Corporation
By:________________________________
Name
Title:
ADDRESS:
--------
2900 Gateway Drive
Pompano Beach, Florida 33069
Telephone: (954) 944-4447
Telecopy: (954) 691-4010
Attention: President
Email:________________________
IN WITNESS WHEREOF, the parties have executed this Agreement on the
day, month and year first set forth above.
"Investor"
--------------------------------
By:
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Name
Title:
Address:
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--------------------------------
--------------------------------
--------------------------------
Telephone:
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Telecopy:
----------------------
Email:
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SCHEDULE A
INVESTORS
Exhibit 10.7
THIS LEASE is made this 9TH day of February, 2004, by and between Case
Holding Co., a FLORIDA corporation, of 4367 N. FEDERAL HWY, SUITE 209, FORT
LAUDERDALE FLORIDA (hereinafter referred to as "Lessor"), and Platinum Partners,
LLC, a Florida limited liability company, of 555 South Federal Highway, Suite
200, Boca Raton, Florida 33432 (hereinafter referred to as "Lessee" )
WITNESSETH: That the said Lessor hereby leases and demises unto the said
Lessee the following described premises:
10,312 SF +/- located at 2900 Gateway Drive, Pompano Beach, Florida
_______
TO HAVE AND TO HOLD the premises from the 9TH day of February, 2004, for
the term of three (3) years thereafter, the said Lessee paying to the Lessor the
monthly rent(s) in accordance with the following rental rate schedule:
Feb. 9, 2004 - August 8, 2004 $0/month
Aug 9, 2004 - February 8, 2005 $10,000/month
February 9, 2005 - February 8, 2006 $11,600/month
February 9, 2006-.February 8, 2007 $11,948/month
All "CAM" charges are already included in the monthly rental rate schedule
listed above, Electric and sales tax are not included and Lessee shall be
responsible for all alarm fees relating to the demised premises as charged by
the City of Pompano Beach, FL. Monthly rent shall be paid in U.S. dollars in
accordance with the above schedule, being due on the 5 day of the month. Payment
shall be sent to: CASE HOLDING COMPANY, INC., 4367 NORTH FEDERAL HIGHWAY, SUITE
209, FORT LAUDERDALE, FLORIDA 33308.
All Lessee improvements to the premises ("Lessee Improvements"), which
shall include, without limitation, painting, carpeting, etc., shall be performed
at Lessee's expense. All Lessee Improvements shall be subject to the approval of
Lessor, such approval not to be unreasonably withheld or delayed. Lessee
Improvements must be completed by the 60th day from the execution of this
Agreement, provided any such delay is not attributable to Lessor.
Notwithstanding the foregoing, during the term of this Agreement, Lessee shall
have the right to make interior partition changes to the subject premises
provided Lessee obtains all required governmental approvals and permits.
Lessee's electric bill shall be calculated based on the pro rata share
of the building occupied by Lessee, which is 68.63% of the total building
located at the premises. Therefore, the total monthly electric bill paid by
Lessee will be 68.63% of the monthly total for the building split with the
other tenant(s) in the building, the only other tenant being Imperial Majesty
Cruise Lines as of the date of the execution of this Agreement, occupying 31.37%
of the building Located at the premises.
Upon the expiration of this Agreement, Lessee shall have the right to
exercise an option to extend the lease term for a three (3) year period
commencing February 9, 2007 and ending February 8, 2010 ("Option Period").
Lessor shall notify Lessee, it writing, not later than 120 days prior to the
initial lease term expiration, inquiring as to whether Lessee desires to extend
the lease term for the Option Period, in the Lessee's sole determination. Upon
Lessee's receipt of notification from Lessor in accordance with Section 7,
Lessee shall have five (5) business days to respond to Lessor as to whether
Lessee desires to exercise the option and extend the lease through the Option
Period. Should Lessee not respond within the prescribed time period, Lessor
shall deem such failure to be a rejection of the exercise of the option by
Lessee. If the option is exercised, the monthly rent shall be as follows:
February 9, 2007 - February 8, 2008 $12,306/month
February 9, 2008 - February 8, 2009 $12,675/month
February 9, 2009 - February 8, 2010 $13,055/month
During the term of this Agreement, Lessee shall have a right of first
refusal regarding the space within the building that is occupied by Imperial
Majesty Cruise Lines as of the execution date of this Agreement should said
space become available. Lessor shall promptly give written notice to Lessee of
such availability prior to entering into any agreement with any third party to
occupy the space, affording Lessee the opportunity to occupy such space. Lessee
shall have five (5) business days to respond to Lessor as to whether Lessee
desires to occupy such space, in Lessee's sole discretion. Should Lessee not
respond within the prescribed time period, Lessor shall deem such failure to be
a rejection by Lessee. If Lessee desires to occupy such space the parties shall
negotiate in good faith to enter into a lease agreement. If, within thirty (30)
1 days of Lessor's receipt of Lessee's intention to occupy such space, the
parties are unable to negotiate a lease agreement for such space acceptable to
the both parties, Lessor may lease the space to a third party.
1. The Lessee hereby covenants with the Lessor that the Lessee will pay the
rent herein reserved at the times and in the manner aforesaid, and will pay
all charges for electricity used on the premises. Lessor shall be responsible
for gas and water used on the premises. Should said rent or charges for
electricity herein provided for at any time remain due and unpaid for a period
of thirty (30) days after the same shall have become due, the said Lessor may at
Lessor's option, consider the said Lessee a tenant at sufferance and immediately
re-enter upon the premises and the entire monthly rent for the monthly rental
period then next ensuing shall at once be due and payable and may be immediately
collected by distress or otherwise. The Lessee will not use or permit the
premises to be used for any illegal purposes, nor permit the disturbance, noise
or annoyance whatsoever, detrimental to the premises or to the comfort of the
other habitants of said building or its neighbors; and will not sublet or assign
this lease nor any part thereof without the written consent of the Lessor.
2. The Lessee will keep the interior of the premises, and all windows, doors,
fixtures, interior walls, pipes, and other appurtenances, in good and
substantial repair and in clean condition, damage by fire or storm excepted; and
will exercise all reasonable care in the use of halls, stairs, bathrooms,
closets, and other fixtures and parts of the premises used in common with other
tenants in said building which may be necessary for the preservation of the
property and the comfort of the other tenants; and will also permit the Lessor
or Lessor's agents or employees; at all reasonable times, to enter into the
premises and inspect the conditions thereof, and make such repairs as may be
necessary; and will at the expiration of said term, without demand, quietly and
peaceably deliver up the possession of the premises, in the condition it was
received, subject to Lessor Improvements, if any, less reasonable wear and tear,
and destruction by fire or storm excepted.
3. The Lessor hereby covenants with the Lessee, that the Lessor will, during
the continuance of said term, keep all the external parts of the premises in
good repair; that in case the said building and premises or any part thereof,
shall at any time be destroyed or so damaged by fire or storm as to render same
unfit for occupation or use, both Lessor and Lessee shall have the option to
terminate this Lease, or, if acceptable to Lessee, Lessor may repair and rebuild
the premises refunding the rents hereby reserved, until the said premises are
repaired and fit for occupancy and use, and that the Lessee may quietly hold and
enjoy the premises without any interruption by the Lessor or any person claiming
under the Lessor.
4. In case of the failure of the Lessee to pay the rents or other charges
herein reserved when due, and same is collected by suit or through an attorney,
the Lessee agrees to pay the Lessor reasonable attorney's fees, together with
all reasonable costs incurred.
5. The parties hereto waive trail by jury and agree to submit to the personal
jurisdiction and venue of a court of subject matter jurisdiction located in
Broward County, State of Florida. No action hereunder may be commenced if more
than one (1) year after the cause of action giving rise thereto has elapsed.
6. Lessee agrees to pay a Security Deposit of $20,000 upon execution of this
Agreement to secure Lessee's pledge of full compliance with the terms of this
Agreement. At the expiration of said term, upon Lessee's delivery of possession
of the premises, in the condition it was received, or as improved by Lessee
Improvements, if any, less reasonable wear and tear, and destruction by fire or
storm excepted, Lessor shall refund Lessee the Security Deposit.
7. Any notice or other communication under this Agreement shall be in writing
and shall be sent by certified mail or registered United States mail, addressed
to the respective parties at their addresses set forth in the introductory
paragraph hereof. Any such notices or other communications shall be deemed given
when personally delivered, one (1) business day after being sent by a nationally
recognized overnight delivery service at the sender's cost, or five (5);
business days after being deposited, postage paid, in the United States mail.
Unless specifically disallowed by law, should litigation arise hereunder,
service of process therefore may be obtained through certified mail, return
receipt requested; the parties hereto waiving method by which service was
perfected.
8. RADON GAS: Radon is naturally occurring radioactive gas that, when it has
accumulated in a building in a sufficient quantities, may present health risks
to persons who are exposed to it over time. Levels of radon that exceed federal
and state guidelines have been found in buildings in Florida. Additional
information regarding radon and radon testing may be obtained from your county
health unit.
IN WITNESS WHEREOF, the said parties have hereunto set their hands and
seals this 9TH day of February, 2004.
Signed, sealed and delivered in the presence of:
Witness: /s/ DORIS E. AURELUIS Case Holding Co. ("Lessor")
------------------------
By:
--------------------------------
Witness: Title: President
------------------------ ----------------------------
Witness: Platinum Partners, LLC ("Lessee")
------------------------
By: /s/ Scott Frohman
--------------------------------
Witness: Title: CEO
------------------------ ----------------------------
Exhibit 10.8
MANAGING GENERAL AGENTS AGREEMENT
HEALTH PLAN ADMINISTRATORS, INC.
1. PARTIES. The parties to this MANAGING GENERAL AGENT AGREEMENT are: Health
Plan Administrators, Inc. hereinafter called (HPA), with its principal place of
business at 15438 N. Florida Ave., Suite 105, Tampa, FL 33613, and Michael
Tobias (Health Benefits Direct) hereinafter called (MGA), with its principal
place of business at 2900 Gateway Drive, Fort Lauderdale FL 33069
WHEREAS, HPA, wishes to retain MGA to represent it as MANAGING GENERAL AGENT;
and WHEREAS, MGA, wishes to represent HPA as its MANAGING GENERAL AGENT.
THEREFORE, in consideration of the mutual covenants and agreement made herein,
HPA and MGA hereby agree as follows:
2. APPOINTMENT. HPA hereby appoints MGA, and MGA agrees to act as HPA's Managing
General Agent on the terms and conditions stated herein.
3. RELATIONSHIP. MGA is an independent contractor, and nothing herein shall be
construed to create the relationship of Employer and Employee between HPA and
MGA. In performance of any and all of the obligations hereunder, MGA shall be
acting on its own behalf and not as an employee, partner or associate of HPA and
it shall not hold itself out in any capacity other than a Managing General Agent
authorized to solicit and submit insurance applications for HPA. HPA may
periodically prescribe rules and regulations regarding eligibility requirements
of applicants for insurance.
4. TERM. This agreement shall become effective on the date when both parties
have executed it and shall be for an indefinite term and is terminable at will,
with notice as set forth herein.
5. MGA DUTIES. As a Managing General Agent of HPA, MGA agrees to use his best
efforts:
A. recruit, train and supervise agents, subject to approval by HPA, to
promote and effect sales of STM available through HPA. HPA reserves the
right to refuse to accept any proposed agent, at HPA's sole discretion;
B. to distribute APPROVED descriptive and educational material regarding
the HPA plans available to HPA agents.
C. to comply with all HPA's rules and regulations and with all laws and
regulations of the state in which it or its agents solicit business;
D. to timely and adequately train all agents;
E. to prevent any agent to solicit insurance for HPA until the agent is
duly licensed and appointed with the proper State Insurance Department;
F. to be responsible for having licenses for itself and for all its agents
in the state in which it and its agents solicit insurance, and for renewing
these licenses yearly; for paying for all agents' licenses, bond fees, and
fees and taxes required by any state, Local or Municipal government;
6. LIMITATIONS ON AUTHORITY. MGA does not possess nor is it entitled to exercise
any authority on behalf of HPA other than that expressly conferred by the
Agreement. The following specific limitations on the authority of the MGA do not
exclude any other limitations on its authority. Specifically, by way of
description, and not limitation, MGA shall not have any authority:
A. to make, alter or discharge any of the terms, rates, or conditions of
any contract, policy or benefit program provided by HPA, either directly or
indirectly;
B. to make, alter or waive any procedural rule or regulation of HPA;
C. to waive any forfeiture;
D. to extend the time for payment on any premium;
E, to guarantee dividends or experience rating refunds;
F. to solicit collection of any monies;
G. to issue or circulate (printed materials, fax or on the Internet)
advertisements or literature unless it is first approved in writing by HPA;
H. to alter any forms provided by HPA;
I. to substitute forms in place of those provided by HPA;
J. to expend, or contract for the expenditure of funds of HPA, except as
expressly authorized in writing;
K. to act as a writing insurance agent, except as provided in Managing
General Agent Commission Agreement between MGA and HPA.
L. to institute legal proceedings of any kind or character on behalf of HPA
in connection with any matter pertaining to business covered by this
Agreement. MGA agrees to notify HPA promptly in writing, of the institution
of any legal proceedings against it or HPA in connection with the business
covered by this Agreement.
7. EXPENSES AND RESPONSIBILITIES. MGA shall pay all expenses incurred by MGA.
MGA shall be responsible to HPA for all premiums received by MGA or by any
employee, agent or representative of MGA. In soliciting applications, neither
MGA nor its agents, or employees, will make representations or guarantees to
applicants as to the issuance of a policy or coverage of specific medical
conditions or claims. Each agent shall ask each applicant every question on the
enrollment application and will record truthful and complete answers with
nothing left out that the applicant in any way stated.
8. HOLD HARMLESS AGREEMENT. MGA shall indemnify and save HPA harmless from any
loss or expense on account of any unauthorized act or transaction by MGA or by
any employee, agent or representative of MGA. MGA is responsible to HPA for the
performance, fidelity and honesty of its agents and employees during and after
the term of their agreement with it as regards to this Agreement ; and for all
funds collected or entrusted to it or its agents and employees.
9. SUPPLIES. All printed matter and supplies HPA furnishes are HPA's property
and shall be promptly returned to HPA upon request or when this agreement
terminates. Commissions shall not be paid until this property is received by
HPA, via certified mail and it has signed a statement that all of HPA's property
has been returned to HPA. Until the return, HPA shall be entitled to withhold
all monies due MGA.
10. ASSIGNMENT. Neither this agreement nor any right or beneficial interest
herein or acquired hereunder may be assigned by MGA without the prior specific
consent of HPA, except to a bank or similar financial institution for purposes
of serving as collateral; provided, however, that no such assignment shall in
any way affect HPA's right to offset amounts owed by MGA to HPA whether under
this Agreement or otherwise, against amounts due MGA under this Agreement.
11. TERMINATION. MGA may terminate this Agreement by mailing written notice,
postage prepaid, to HPA not less than thirty days prior to the effective date of
such termination provided in such notice. If no termination date is provided in
such notice, this Agreement shall terminate thirty days after receipt of such
notice by HPA. HPA may terminate this Agreement by mailing written notice,
postage prepaid, to MGA at his last known post office address not less than
thirty days prior to the effective date of termination. If no termination date
is provided in such notice, this Agreement shall terminate thirty (30) days
after receipt of such notice by MGA.
12. IMMEDIATE TERMINATION. HPA may terminate this Agreement effective
immediately upon mailing written notice, postage prepaid, to MGA at the last
known post office address, for fraud, misappropriation of funds, failure to
remit premiums or other monies due or to account for any monies received on
behalf of HPA, violation, or failure by MGA to follow and observe the rules or
regulations prescribed by HPA.
13. VESTING. (A) In the event of termination other than for reasons listed below
in Section 13B, for business administrated by Health Plan Administrators, Inc.,
ADMINISTRATOR shall continue to pay compensation related to covered cases
procured through the Managing General Agent prior to the termination date of
this agreement. (B) If this agreement terminates for the following reasons no
further service fees will be payable by the Administrator; 1) Fraud,
misappropriation of funds, failure to remit or account for premiums. 2) If the
writing agent is not duly licensed as an insurance agent or broker at the time
the commissions are to be paid. 3) Failure of MGA to adequately service their
clients.
14. WHEN PAYABLE. All commissions and service fees due MGA shall be payable
monthly following receipt of the applicable premium by HPA. At the option of
HPA, Service Fees due the MGA totaling less than $25.00 may be held and paid in
the next month when total Service Fees due equal or exceed $25.00. Please see
attached MGA HPA Commission Addendum for commission percentage payable. All
commissions paid to a writing agent shall be paid from the commission paid to
MGA and it shall be MGA's sole responsibility to make payments to a writing
agent. At the request of MGA, HPA shall pay MGA and MGA's agents a division of
the compensation, but in that event, once HPA pays as directed by MGA, MGA
agrees to indemnify, defend, protect and hold harmless HPA from any and all
claims by any writing agent for unpaid commissions or in any dispute over
commissions. MGA CANNOT ADVERTISE IN WRITING, OR DO A MASS MAILING, A COMMISSION
HIGHER THAN THE STANDARD AGENT COMMISSION DETERMINED BY HPA, FOR THAT PRODUCT.
15. REFUND OF PREMIUMS. If any premium is returned or refunded for any reason,
either before or after termination of this Agreement, the amount of Service Fees
previously credited or paid on such premiums to MGA or MGA's employees and
agents shall immediately become due and payable by the MGA to HPA and will be
deducted from all Service Fees otherwise payable hereunder thereafter until
fully paid.
16. APPLICABILITY. This Agreement governs the terms and payment of
Service Fees on premiums paid on coverage which is placed in force while this
Agreement is in effect to the exclusion of all prior agreements, whether such
premiums are paid while this Agreement is in effect or after its termination.
17. ERRORS AND OMISSIONS. For MGA's protection and HPA's, MGA shall carry an
Errors and Omissions liability policy covering MGA for not less than $100,000.00
per occurrence. MGA shall provide copy of Errors and Omissions policy to HPA
upon execution of this Agreement.
18. AMENDMENT, MODIFICATION AND TERMINATION. This Agreement may be amended from
time to time by thirty days prior written notice from HPA to MGA.
19. WAIVER. The failure of HPA to enforce any provision hereof shall not
constitute a waiver of any such provisions, either currently or in the future.
20. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement among the
parties, and supersedes and replaces all existing or prior agreements between
the parties.
21. JURISDICTION, LAW AND VENUE. This Agreement has been finally
executed in the State of Florida and is subject to the jurisdiction of the
courts of the State of Florida, Hillsborough County and is to be interpreted in
accordance with the laws of the State of Florida. Venue for any action, suit or
other proceeding, including non-contract disputes, shall be exclusively in
Tampa, Florida. MGA agrees to consent to the Jurisdiction of the courts of
Florida and waive any other venue.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto, who
have set their hands and seals individually or by their officers on the dates
written below.
COMPANY NAME
Health Benefits Direct
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BY: Michael Charles Tobias
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DATE: 11/11/05 TITLE: Vice President
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HEALTH PLAN ADMINISTRATORS, INC.
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BY:
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DATE: TITLE:
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MGA PLEASE COMPLETE THE FOLLOWING:
Corporation Name________________ E-mail___________ Web-site ____________
Tax ID#____________ SS#____________ Telephone #_________ Fax telephone__________
Also include copy's of the agency's and your agent current insurance licenses,
state appointment fee, the completed appointment forms, signed MGA commission
addendum, any state forms that may be required and the completed MGA contract.
Exhibit 10.9
Marketer/Agent Bonus Compensation Agreement
Continental General Insurance Products
This agreement is entered is entered into this 10th day of May, 2005 by and
between Health Benefits Direct, LLC and Insurance Specialists Group.
For all Continental General Insurance Company insurance policies sold and issued
by any registered agent employed by Health Benefits Direct, Insurance
Specialists Group shall pay to Health Benefits Direct additional bonus
compensation equal to 3% of commissionable premium on an 'as earned' basis.
This is for the policy months 1 thru 12.
Insurance Specialists Group
By:
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Title:
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Date: 5/10/2005
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Health Benefits Direct
By: Scott Frohman
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Title: CEO
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Date: 5/10/2005
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Exhibit 10.10
SCHEDULE OF COMMISSIONS
CONTINENTAL GENERAL INSURANCE COMPANY
OMAHA, NEBRASKA
FOR
____________________________ ____________________________________
NAME OF AGENT** EFFECTIVE DATE OF THIS SCHEDULE
This Schedule becomes a part of the Agreement between the Agent and Continental
General Insurance Company. The terms and conditions of the Agreement and any
supplement thereto will also be terms and conditions of this Schedule.
First year and renewal commissions on plans of insurance not listed shall be
determined by the Company. The Company reserves the right to change this
compensation schedule at any time. The commission will be based on the
percentage of the base premium rate as of the initial effective date of
coverage. Commissions are not paid on renewal or attained age increases, dues,
or fees.
In order to receive overwrite commissions on any sub-agent, you must have a
resident or nonresident license in any state where the sub-agent writes
business, if the state has so mandated. On business written by sub-agents of the
Agent, the overwrite commissions payable to Agent will be the difference, if
any, between commissions payable to Agent and any commissions payable to
sub-agent.
SCHEDULE OF COMMISSIONS-ACCIDENT AND HEALTH
Commissions are paid on initial base premiums.
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POLICY TYPE PERCENT OF PREMIUM
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SHORT TERM CARE, HOSPITAL INDEMNITY Forms 4ST/4HP 1st Year 2nd Yr & After
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75 11
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COMPREHENSIVE LONG-TERM CARE,
BASIC LONG-TERM CARE 1st Year 2nd - 10th Year 11th Year & After
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o Commissions on Return of Premium Rider are not
paid after the first year.
Forms 4T114T2/4N1/4N2
or state variations
Age 54 & Under 95 15.5 4.5
Age 55-59 85 15.5 4.5
Age 60-64 80 15.5 4.5
Age 65-69 75 15.5 4.5
Age 70-74 70 15.5 4.5
Age 75-79 65 15.5 4.5
Age 80-84 50 15.5 4.5
Age 85 & Over 45 15.5 4.5
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TEN PAY (All States) 10 Pay
1st - 10th Year
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Age 54 & Under 22
Age 55-59 21
Age 60-64 21
Age 65-69 20
Age 70-74 19
Age 75-79 18
Age 80-84 17
Age 85 & Over 17
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Forms 4T114T2/4N1/4N2 (Delaware) 1st Year 2nd Yr & After
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25 25
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o Commissions are not paid on additional tobacco premium.
o If a policy is changed to a different plan, 1st Year commissions will be
paid only on the amount of the increased premium.
o Note: Submission of applications for policies covered by this Schedule will
constitute acceptance by the Agent of the compensation specified herein.
o For persons that become Medicare eligible and continue their current
policy, NO COMMISSION will be paid.
o Commissions are based on the age of the oldest insured.
o In Pennsylvania, General Agent /s/ Susan May
102.H-GA.05-20-05 - Page 1 of 3 - Susan May
Sr. Vice President
SCHEDULE OF COMMISSIONS-ACCIDENT AND HEALTH
Commissions are paid on initial base premiums.
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POLICY TYPE PERCENT OF PREMIUM
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Forms 4T 1 /4T2 (Wisconsin) 1st Year 2nd Yr & After
--------------------------------------
Age 54 & Under 87 21.75
Age 55 - 59 82 20.5
Age 60 - 64 77 19.25
Age 65 - 69 72 18
Age 70 - 74 67 16.75
Age 75 - 79 62 15.5
Age 80 - 84 57 14.25
Age 85 & Over 52 13
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Forms 4T1/4T2/4N1/4N2 (Michigan) 1st Year 2nd - 3rd Year 4th - 10th Year 11th Yr & After
-------------------------------------------------------------------------
Age 54 & Under 95 15.5 15.5 4.5
Age 55- 59 85 15.5 15.5 4.5
Age 60 - 64 80 15.5 15.5 4.5
Age 65 - 79
Policies issued WITHOUT Return of Premium Rider 33 33 16 16
Policies issued WITH Return of Premium Rider 27 27 10 10
Age 80 & Over
Policies issued WITHOUT Return of Premium Rider 27 27 10 10
Policies issued WITH Return of Premium Rider 21 21 4 4
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MEDICARE SUPPLEMENT (ATTAINED AGE) +++ 1st - 6th Year 7th Yr & After
------------------------------------------
Forms 3AA/3AB/3AC/3AD/3AF/3AG/3AK or state variations
Plans A and C 18 4.5
Plans B, D, E, G and High Deductible F 23 4.5
Plans F 32 4.5
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(Wisconsin Indiana)
All Plans 24 4.5
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(Texas) 1st - 7th Year 8th Yr & After
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Plans A and C 18 4.5
Plans B, D, E, G and High Deductible F 23 4.5
Plan F 32 4.5
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(Michigan) 1st - 3rd Year 4th Yr & After
------------------------------------------
Plans A and C 23 4
Plans B, D, E, G and High Deductible F 33 4
Plan F 37 4
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MEDICARE SUPPLEMENT (ISSUE AGE) +++ 1st - 6th Year 7th Yr & After
------------------------------------------
(AR, CT, GA, HI, ID, KS, MO, MT, OR)
Plans A and C 13 4.5
Plans E and G 18 4.5
Plan F 27 4.5
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(Washington)
All plans 13 13
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(Minnesota)
All plans 18 4.5
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(Maryland) 1st Year 2nd Yr & After
------------------------------------------
All plans 4 4
+ Part B Deductible/Rider IS commissionable on High Deductible F plan only.
Part B Deductible/Rider is NOT commissioned on Plans C & F.
++ Commissions are not paid on rate increase except in WA.
o Replacements from Plans A, B, C & F to Plan E are disallowed. Replacements
from Plans D & G to Plan E are discouraged; however, they will be allowed
with full underwriting and only renewal commissions (7 + years, 8 + years
in Texas) will be paid.
o Commissions are not paid on additional tobacco premium.
o If a policy is changed to a different plan, 1st Year commissions will be
paid only on the amount of the increased premium.
o Note: Submission of applications for policies covered by this Schedule will
constitute acceptance by the Agent of the compensation specified herein.
o For persons that become Medicare eligible and continue their current
policy, NO COMMISSION will be paid.
o Commissions are based on the age of the oldest insured.
o In Pennsylvania, General Agent /s/ Susan May
102.H-GA.05-20-05 - Page 2 of 3 - Susan May
Sr. Vice President
SCHEDULE OF COMMISSIONS-ACCIDENT AND HEALTH
Commissions are paid on initial base premiums.
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POLICY TYPE PERCENT OF PREMIUM
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MAJOR MEDICAL PLANS 1st Year 2nd Yr & After
------------------------------------------
Advantage Series*
CGI HSAdvantage Plus
Elite Advantage
Select Advantage 27 7
Affordable & Comprehensive
Forms AOQ, BOO, KOQ, LOO 27 7
Economical
Form COQ, MOQ 17 6
Hospital/Surgical
Form EOQ 28 7
Simple HSA**
Form NHQ 29 7
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CRITICAL ILLNESS 1st Year 2nd Yr & After
------------------------------------------
Forms 92Q/93Q 60 7
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CANCER (LUMP-SUM BENEFIT) 1st Year 2nd Yr & After
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Form 920 or state variations 68 21
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CANCER 1st Year 2nd - 3rd Year 4th Yr & After
------------------------------------------------------
Forms 907/908 70 18 14
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ACCIDENT ONLY 1st Year 2nd Yr & After
------------------------------------------
Forms 810/816 or state variations 62 18
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DENTAL 1st Year 2nd Yr & After
------------------------------------------
Grin and Share It 11 7
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SHORT TERM MAJOR MEDICAL 1st Year
------------------------------------------
Form TMP 24
Form TMQ 22
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* Commissions are paid on medical rate-ups and additional tobacco premium.
** Commissions are paid on medical rate-ups.
o Commissions are not paid on additional tobacco premium.
o If a policy is changed to a different plan, renewal commissions will be
paid.
o Note: Submission of applications for policies covered by this Schedule will
constitute acceptance by the Agent of the compensation specified herein.
o For persons that become Medicare eligible and continue their current
policy, NO COMMISSION will be paid.
o In Pennsylvania, General Agent /s/ Susan May
102.H-GA.05-20-05 - Page 3 of 3 - Susan May
Sr. Vice President
Exhibit 10.11
Marketer/Agent Compensation Agreement
Jefferson National Life Insurance Products
This agreement is entered is entered into this 10th day of May, 2005 by and
between Health Benefits Direct, LLC and Insurance Specialists Group.
For all Jefferson National Life Insurance Company insurance policies sold and
issued by any registered agent employed by Health Benefits Direct, Insurance
Specialists Group shall pay to Health Benefits Direct commissions equal to 110%
of commissionable premium for months 1 thru 12.
Insurance Specialists Group
By:
-----------------
Title:
-----------------
Date: 5/10/2005
-----------------
Health Benefits Direct
By: Scott Frohman
------------------
Title: CEO
-----------------
Date: 5/10/2005
-----------------
Exhibit 10.12
CONSUMER'S CHOICE/USA MANAGING GENERAL AGENT
(37.5%) CONTRACT
This Agreement is effective as of DATE by and among America's Health Care
Plan/Rx America Agency, Inc.. (herein referred to as "AGENCY"), America's Health
Care Benefit Plan, LLC (herein referred to as "THE PLAN" or "PLAN") and Managing
General Agent (herein referred to as "ASSOCIATE").
AGENCY hereby appoints the above named ASSOCIATE as its representative to
solicit and obtain new Memberships in THE PLAN and to explain benefits of
membership to new PLAN members.
The above named ASSOCIATE hereby accepts said appointment from AGENCY and agrees
and covenants as follows:
1. To study, read, review THE PLAN's benefits as provided and to view PLAN's
home page www.consumers-choice-usa.com in order to keep current on PLAN's
benefits.
2. To accurately inform PLAN members about PLAN endorsed programs and all
other benefits and services provided by THE PLAN.
3. To present pursuant to this Agreement only material furnished or approved
by AGENCY and PLAN for use by ASSOCIATE. ASSOCIATE understands that all
materials provided by AGENCY and PLAN are the sole property of AGENCY and
PLAN and may be covered by trademarks and copyrights. All said materials
constitute valuable business property which will be returned to AGENCY upon
termination of this Agreement. The names, logos, trademarks and other
advertising of AGENCY and PLAN or of any of its affiliated associations or
endorsed vendors may not be used unless approval is received in writing,
and then only during the term of this Agreement. After termination
ASSOCIATE may not use any name or material similar to that of AGENCY and/or
THE PLAN for a period of two (2) years.
4. ASSOCIATE understands and agrees that any use of membership lists or any
other materials for any purpose other than those set forth in writing by
AGENCY, during the term of this agreement or for a two (2) year period
after shall entitle AGENCY to seek, in addition to the recovery of any
damages to which it may be entitled by law, injunctive relief to enforce
this covenant from any court of competent jurisdiction.
5. Termination. This Agreement may be terminated by the AGENCY, PLAN or
ASSOCIATE with or without cause upon written notice sent to the last known
address of the other parties. AGENCY may, at its sole discretion, terminate
its relationship with an ASSOCIATE, at which point the ASSOCIATE would no
longer be allowed to solicit new members for THE PLAN.
6. Vested Commissions. ASSOCIATE is fully vested after two years and/or
certain number of cases (see chart below) have been enrolled by ASSOCIATE
(and appointed sub-Associates). If total of ASSOCIATE's (and appointed
sub-Associates') in-force cases drops below (50) for three consecutive
months, the ASSOCIATE is no longer vested. Unvested sub-Associate
commission will be included in the Charter Associate's sales compensation
schedule.
(*) = Required field
/x/ I do not want commission annualization (advance commissions)
/ / I do want an initial 6 (six) month advance at issue on credit card, bank
draft and EFT payments. I understand that after I have 10 cases in force, I
may request eight (8) month advance with, with approval of AGENCY.
BACKGROUND
*1. DO YOU CARRY ERRORS AND OMISSIONS PROTECTION?
/ / Yes / / No
*2. HAVE YOU EVER BEEN CONVICTED OR HAD A SENTENCE IMPOSED OR SUSPENDED OR BEEN
PARDONED FOR CONVICTION OF, OR PLEADED GUILTY OR NOLO CONTENDERE TO AN
INDICTMENT CHARGING ANY CRIME: (A) INVOLVING FRAUD, DISHONESTY OR MORAL
TURPITUDE, OR (B) CHARGING A VIOLATION OF ANY DISCIPLINARY PROCEEDINGS OF
ANY FEDERAL OR STATE REGULATORY AGENCY?
/ / Yes / / No If yes, give particulars:
*3. Has an application for bond ever been declined to you?
/ / Yes / / No If yes, for what reason?
*4. Have you ever been refused any license applied for?
/ / Yes / / No If yes, what state(s) and why?
*5. Has your appointment ever been terminated involuntarily by an insurance
company for reasons other than lack of production?
/ / Yes / / No If yes, give details:
*6. Has your license ever been cited, suspended or revoked by any state(s)?
/ / Yes / / No If yes, what state(s) and why?
*7. Is any charge by any state currently pending against you or against the
agency or any member of the agency?
/ / Yes / / No
*8. Do you work for or are you under contract to any financial institution such
as a bank, a savings and loan association, any subsidiary, affiliate or holding
company of such financial institution?
/ / Yes / / No If yes, please provide the name and address of the
financial institution.
*9. Are there any outstanding judgments or liens (including state or federal tax
liens) against you?
/ / Yes / / No
CERTIFICATION/AUTHORIZATION
*10. a. I certify, under penalty of perjury, that all answers and responses to
questions or inquiries contained in this application are true,
correct, and complete answers and responses. I further certify that I
have read and am familiar with the sections of the insurance code in
the state in which I am seeking appointment and that I am withholding
no information that would affect my qualification for this
appointment. I further certify that I am not prohibited by the Violent
Crime Control and Law Enforcement Act of 1994 from engaging in the
business of insurance or that I have obtained consent from the
appropriate insurance regulator to do so.
b. I also authorize the Insurance Company to order an investigative
report as may be required. I understand that information for the
report may be secured from financial sources, and/or public records,
or personal interviews with third parties, such as family members,
business associates, and/or others with whom I am acquainted. This
inquiry may include information as to my character, general
reputation, personal characteristics, mode of living, or educational
background. I understand that I have the right to make a written
request within a reasonable period of time for a complete and accurate
disclosure of this information if I so desire.
c. All appointed agents must comply with all insurance laws, regulations
and insurance department bulletins in the jurisdictions in which he is
appointed. The applicant may not use, distribute, or publish any
advertisement (as defined by the laws of the jurisdiction for which
the applicant is appointed), solicitation material, or proposal that
references Companion Life Insurance Company which has not been filed
with and approved in writing by Companion Life Insurance Company. The
applicant shall not use Companion service or trade marks without prior
written approval from Companion Life Insurance Company. The applicant
agrees to assist and cooperate with Companion Life Insurance Company
regarding any and all insurance department inquiries, complaints, or
investigations. The applicant agrees to assist and cooperate with any
other insurance company regarding any inquiries related to that
company.
AGENT NAME:
SIGN NAME
ELECTRONICALLY:
ELECTRONICALLY SIGNED as of //. Click for information on your E-SIGNATURE
/s/ Michael K. Owens
Michael K. Owens
America's Health Care/Rx
Plan, Inc.
Exhibit 10.13
Marketer/Agent Compensation Agreement
Golden Rule Insurance Products
This agreement is entered is entered into this 10th day of May, 2005 by and
between Health Benefits Direct, LLC and Insurance Specialists Group.
For all Golden Rule Insurance Company insurance policies sold and issued by any
registered agent employed by Health Benefits Direct, Insurance Specialists Group
shall pay to Health Benefits Direct commissions equal to 26% of commissionable
premium for months 1 thru 12, commissions equal to 6% of commissionable premium
for months 13 thru 36 and commissions equal 5% of commissionable premium for
months 37 an thereafter.
Insurance Specialists Group
By:
-----------------
Title:
-----------------
Date: 5/10/2005
-----------------
Health Benefits Direct
By: Scott Frohman
------------------
Title: CEO
-----------------
Date: 5/10/2005
-----------------
Exhibit 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 10th day
of October, 2005, by and between HEALTH BENEFITS DIRECT CORPORATION, a Delaware
corporation with offices at 2900 Gateway Drive, Pompano Beach, Florida 33069
(the "CORPORATION"), and Scott Frohman, an individual residing at 347 N. New
River Drive East, Apt. 3001, Fort Lauderdale, FL 33301 (the "EXECUTIVE"), under
the following circumstances:
RECITALS:
A. The Corporation desires to secure the services of the Executive upon
the terms and conditions hereinafter set forth; and
B. The Executive desires to render services to the Corporation upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties mutually agree as follows:
1. EMPLOYMENT. The Corporation hereby employs the Executive and the
Executive hereby accepts employment as an executive of the Corporation, subject
to the terms and conditions set forth in this Agreement.
2. DUTIES. The Executive shall serve as the Chief Executive Officer of
the Corporation with such duties, responsibilities and authority as are
commensurate and consistent with his position, as may be, from time to time,
assigned to him by the Board of Directors of the Corporation. The Executive
shall report directly to the Board of Directors of the Corporation. During the
term of this Agreement, the Executive shall devote his full business time and
efforts to the performance of his duties hereunder unless otherwise authorized
by the Board of Directors. Notwithstanding the foregoing, the expenditure of
reasonable amounts of time by the Executive for the making of passive personal
investments, the conduct of private business affairs and charitable and
professional activities shall be allowed, provided such activities do not
materially interfere with the services required to be rendered to the
Corporation hereunder and do not violate the restrictive covenants set forth in
SECTION 9 below.
3. TERM OF EMPLOYMENT. The term of the Executive's employment hereunder,
unless sooner terminated as provided herein (the "INITIAL TERM"), shall be for a
period of two (2) years commencing on the date hereof (the "COMMENCEMENT DATE").
The term of this Agreement shall automatically be extended for additional terms
of one year each (each a "RENEWAL TERM") unless either party gives prior written
notice of non-renewal to the other party no later than sixty (60) days prior to
the expiration of the Initial Term ("NON-RENEWAL NOTICE"), or the then current
Renewal Term, as the case may be. For purposes of this Agreement, the Initial
Term and any Renewal Term are hereinafter collectively referred to as the
"TERM."
4. COMPENSATION OF EXECUTIVE.
(a) The Corporation shall pay the Executive as compensation for his
services hereunder, in equal semi-monthly or bi-weekly installments during the
Term, the sum of Two Hundred Fifty Eight Thousand Three Hundred Dollars
($258,300) per annum (the "BASE SALARY"), less such deductions as shall be
required to be withheld by applicable law and regulations. The Corporation shall
review the Base Salary on an annual basis and has the right but not the
obligation to increase it, but has no right to decrease the Base Salary.
(b) In addition to the Base Salary set forth in Section 4(a) above,
the Executive shall be entitled to such bonus compensation (in cash, capital
stock or other property) as a majority of the members of the Board of Directors
of the Corporation may determine from time to time in their sole discretion.
(c) The Corporation shall pay or reimburse the Executive for all
reasonable out-of-pocket expenses actually incurred or paid by the Executive in
the course of his employment, consistent with the Corporation's policy for
reimbursement of expenses from time to time.
(d) The Executive shall be entitled to participate in such pension,
profit sharing, group insurance, hospitalization, and group health and benefit
plans and all other benefits and plans as the Corporation provides to its senior
executives (the "BENEFIT PLANS").
5. TERMINATION.
(a) This Agreement and the Executive's employment hereunder shall
terminate upon the happening of any of the following events:
(i) upon the Executive's death;
(ii) upon the Executive's "Total Disability" (as herein defined);
(iii) upon the expiration of the Initial Term of this Agreement
or any Renewal Term thereof, if either party has provided a timely notice of
non-renewal in accordance with Section 3, above;
(iv) at the Corporation's option, upon sixty (60) days prior
written notice to the Executive if without cause;
(v) at the Executive's option, upon thirty (30) days prior
written notice to the Corporation;
(vi) at the Executive's option, in the event of an act by the
Corporation, defined in Section 5(c), below, as constituting "Good Reason" for
termination by the Executive; and
(vii) at the Corporation's option, in the event of an act by the
Executive, defined in Section 5(d), below, as constituting "Cause" for
termination by the Corporation.
2
(b) For purposes of this Agreement, the Executive shall be deemed to
be suffering from a "TOTAL DISABILITY" if the Executive has failed to perform
his regular and customary duties to the Corporation for a period of 180 days out
of any 360-day period and if before the Executive has become "Rehabilitated" (as
herein defined) a majority of the members of the Board of Directors of the
Corporation, exclusive of the Executive, vote to determine that the Executive is
mentally or physically incapable or unable to continue to perform such regular
and customary duties of employment. As used herein, the term "REHABILITATED"
shall mean such time as the Executive is willing, able and commences to devote
his time and energies to the affairs of the Corporation to the extent and in the
manner that he did so prior to his Disability.
(c) For purposes of this Agreement, the term "GOOD REASON" shall mean
that the Executive has resigned due to the failure of the Corporation to meet
any of its obligations to the Executive under this or any other agreement
between the Corporation and the Executive, and failure to cure the same within
thirty (30) days following Executive's delivery of notice specifying the
breach(es) by the Corporation.
(d) For purposes of this Agreement, the term "CAUSE" shall mean
material, gross and willful misconduct on the part of the Executive in
connection with his employment duties hereunder or commission of a felony or act
of dishonesty resulting in material harm to the Corporation by the Executive.
6. EFFECTS OF TERMINATION.
(a) Upon termination of the Executive's employment pursuant to Section
5(a)(i), the Executive's estate or beneficiaries shall be entitled to the
following severance benefits: (i) three (3) months' Base Salary at the then
current rate, payable in a lump sum, less withholding of applicable taxes; and
(ii) continued provision for a period of one (1) year following the Executive's
death of benefits under Benefit Plans extended from time to time by the
Corporation to its senior executives.
(b) Upon termination of the Executive's employment pursuant to Section
5(a)(ii), the Executive shall be entitled to the following severance benefits:
(i) thirty-six (36) months' Base Salary at the then current rate, to be paid
from the date of termination until paid in full in accordance with the
Corporation's usual practices, including the withholding of all applicable
taxes; (ii) continued provision during said thirty-six (36) month period of the
benefits under Benefit Plans extended from time to time by the Corporation to
its senior executives; and (iii) payment on a prorated basis of any bonus or
other payments earned in connection with the Corporation's then-existing bonus
plan in place at the time of termination. The Corporation may credit against
such amounts any proceeds paid to Executive with respect to any disability
policy maintained for his benefit.
(c) Upon termination of the Executive's employment pursuant to Section
5(a)(iii), where the Corporation has offered to renew the term of the
Executive's employment for an additional one (1) year period and the Executive
3
chooses not to continue in the employ of the Corporation, the Executive shall be
entitled to receive only the accrued but unpaid compensation and vacation pay
through the date of termination and any other benefits accrued to him under any
Benefit Plans outstanding at such time. In the event the Corporation tenders
Non-Renewal Notice to the Executive, then the Executive shall be entitled to the
same severance benefits as if the Executive's employment were terminated
pursuant to Section 5(a)(iv) or Section 5(a)(vi); PROVIDED, HOWEVER, if such
Non-Renewal Notice was triggered due to the Corporation's statement that the
Executive's employment was terminated due to Section 5(a)(v) (for "Cause"), then
payment of severance benefits will be contingent upon a determination as to
whether termination was properly for "Cause."
(d) Upon termination of the Executive's employment pursuant to Section
5(a)(iv) or (vi), the Executive shall be entitled to the following severance
benefits: (i) twelve (12) months' Base Salary at the then current rate, to be
paid upon the date of termination of employment in monthly installments, less
withholding of all applicable taxes; (ii) continued provision for a period of
twelve (12) months after the date of termination of the benefits under Benefit
Plans extended from time to time by the Corporation to its senior executives;
and (iii) payment on a prorated basis of any bonus or other payments earned in
connection with any bonus plan to which the Executive was a participant as of
the date of the Executive's termination of employment.
(e) Upon termination of the Executive's employment pursuant to Section
5(a)(v) or (vii), the Executive shall be entitled to the following severance
benefits: (i) accrued and unpaid Base Salary and vacation pay through the date
of termination, less withholding of applicable taxes; and (ii) continued
provision, for a period of one (1) month after the date of the Executive's
termination of employment, of benefits under Benefit Plans extended to the
Executive at the time of termination.
(f) The Executive shall be obligated to seek other employment in order
to mitigate his damages resulting from his discharge pursuant to Sections
5(a)(iv), (v), (vi) or (vii), provided that such employment need not be taken at
a level below chief operating officer of a subsequent company. Any payments
required to be made hereunder by the Corporation to the Executive shall continue
to the Executive's beneficiaries in the event of his death until paid in full.
7. VACATIONS. The Executive shall be entitled to a vacation of four (4)
weeks per year, during which period his salary shall be paid in full. The
Executive shall take his vacation at such time or times as the Executive and the
Corporation shall determine is mutually convenient. Any vacation not taken in
one (1) year shall not accrue, provided that if vacation is not taken due to the
Corporation's business necessities, up to two (2) weeks' vacation may carry over
to the subsequent year.
8. DISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive recognizes,
acknowledges and agrees that he has had and will continue to have access to
secret and confidential information regarding the Corporation, including but not
limited to, its products, formulae, patents, sources of supply, customer
dealings, data, know-how and business plans, provided such information is not in
4
or does not hereafter become part of the public domain, or become known to
others through no fault of the Executive. The Executive acknowledges that such
information is of great value to the Corporation, is the sole property of the
Corporation, and has been and will be acquired by him in confidence. In
consideration of the obligations undertaken by the Corporation herein, the
Executive will not, at any time, during or after his employment hereunder,
reveal, divulge or make known to any person, any information acquired by the
Executive during the course of his employment, which is treated as confidential
by the Corporation, and not otherwise in the public domain. The provisions of
this Section 8 shall survive the Executive's employment hereunder except in the
event of a termination of this Agreement pursuant to Section 5(a)(iv) or (vi),
hereof, or as detailed in the provision above. All references to the Corporation
in Section 8 and Section 9 hereof shall include any subsidiary of the
Corporation.
9. COVENANT NOT TO COMPETE OR SOLICIT.
(a) The Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of the Corporation that the Executive
agree, and accordingly, the Executive does hereby agree, that he shall not,
directly or indirectly, at any time during the "Restricted Period" within the
"Restricted Area" (as those terms are defined in Section 9(e) below):
(i) except as provided in Subsection (c) below, engage in any
line of business in which the Corporation was engaged or had a formal plan to
enter during the period of Executive's employment with the Corporation,
including but not limited to the business of operating an online insurance
marketplace, either on his own behalf or as an officer, director, stockholder,
partner, consultant, associate, employee, owner, agent, creditor, independent
contractor, or co-venturer of any third party; or
(ii) solicit to employ or engage, for or on behalf of himself or
any third party, any employee or agent of the Corporation.
(b) The Executive hereby agrees that he will not, directly or
indirectly, for or on behalf of himself or any third party, at any time during
the Term and during the Restricted Period solicit any customers of the
Corporation with respect to products competitive with products then being sold
by the Corporation.
(c) If any of the restrictions contained in this Section 9 shall be
deemed to be unenforceable by reason of the extent, duration or geographical
scope thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, geographical scope, or other
provisions hereof, and in its reduced form this Section shall then be
enforceable in the manner contemplated hereby.
(d) This Section 9 shall not be construed to prevent the Executive
from owning, directly or indirectly, in the aggregate, an amount not exceeding
five percent (5%) of the issued and outstanding voting securities of any class
5
of any corporation whose voting capital stock is traded or listed on a national
securities exchange or in the over-the-counter market.
(e) The term "RESTRICTED PERIOD," as used in this Section 9, shall
mean the period of the Executive's actual employment hereunder, plus twelve (12)
months after the date the Executive is actually no longer employed by the
Corporation. The term "RESTRICTED AREA" as used in this Section 9 shall mean the
continental United States.
(f) The provisions of this Section 9 shall survive the termination of
the Executive's employment hereunder and until the end of the Restricted Period
as provided in Section 9(e) hereof except in the event that this Agreement is
terminated pursuant to Section 5(a)(iv) or (vi), hereof, in which case such
provisions shall not survive termination of this Agreement. In no event shall
the terms of Section 9 be enforceable, should the Corporation be in default of
any of its obligations to the Executive at the time of his termination of
employment by the Corporation.
10. MISCELLANEOUS.
(a) The Executive acknowledges that the services to be rendered by him
under the provisions of this Agreement are of a special, unique and
extraordinary character and that it would be difficult or impossible to replace
such services. Accordingly, the Executive agrees that any breach or threatened
breach by him of Sections 8 or 9 of this Agreement shall entitle the
Corporation, in addition to all other legal remedies available to it, to apply
to any court of competent jurisdiction to seek to enjoin such breach or
threatened breach. The parties understand and intend that each restriction
agreed to by the Executive hereinabove shall be construed as separable and
divisible from every other restriction, that the unenforceability of any
restriction shall not limit the enforceability, in whole or in part, of any
other restriction, and that one or more or all of such restrictions may be
enforced in whole or in part as the circumstances warrant. In the event that any
restriction in this Agreement is more restrictive than permitted by law in the
jurisdiction in which the Corporation seeks enforcement thereof, such
restriction shall be limited to the extent permitted by law. The remedy of
injunctive relief herein set forth shall be in addition to, and not in lieu of,
any other rights or remedies that the Corporation may have at law or in equity.
(b) Neither the Executive nor the Corporation may assign or delegate
any of their rights or duties under this Agreement without the express written
consent of the other; provided however that the Corporation shall have the right
to delegate its obligation of payment of all sums due to the Executive
hereunder, provided that such delegation shall not relieve the Corporation of
any of its obligations hereunder.
(c) This Agreement constitutes and embodies the full and complete
understanding and agreement of the parties with respect to the Executive's
employment by the Corporation, supersedes all prior understandings and
agreements, whether oral or written, between the Executive and the Corporation,
and shall not be amended, modified or changed except by an instrument in writing
executed by the party to be charged. The invalidity or partial invalidity of one
or more provisions of this Agreement shall not invalidate any other provision of
this Agreement. No waiver by either party of any provision or condition to be
6
performed shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
(d) This Agreement shall inure to the benefit of, be binding upon and
enforceable against, the parties hereto and their respective successors, heirs,
beneficiaries and permitted assigns.
(e) The headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
(f) All notices, requests, demands and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given when personally delivered, sent by registered or certified
mail, return receipt requested, postage prepaid, or by private overnight mail
service (e.g. Federal Express) to the party at the address set forth above or to
such other address as either party may hereafter give notice of in accordance
with the provisions hereof. Notices shall be deemed given on the sooner of the
date actually received or the third business day after sending.
(g) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without giving effect to such State's
conflicts of laws provisions and each of the parties hereto irrevocably consents
to the jurisdiction and venue of the federal and state courts located in the
State of Delaware.
(h) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one of the same instrument. The parties hereto have
executed this Agreement as of the date set forth above.
CORPORATION: EXECUTIVE:
HEALTH BENEFITS DIRECT CORPORATION Scott Frohman
By: /s/ Charles Eissa /s/ Scott Frohman
----------------------------- ----------------------------------
Signature
Title: President & COO
--------------------------
Exhibit 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 18th day of
November, 2005, by and between HEALTH BENEFITS DIRECT CORPORATION, a Delaware
corporation with offices at 2900 Gateway Drive, Pompano Beach, Florida 33069
(the "CORPORATION"), and Charles Eissa, an individual residing at 4696 N.
Andrews Avenue, Fort Lauderdale, FL 33309 (the "EXECUTIVE"), under the following
circumstances:
RECITALS:
A. The Corporation desires to secure the services of the Executive upon the
terms and conditions hereinafter set forth; and
B. The Executive desires to render services to the Corporation upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties mutually agree as follows:
1. EMPLOYMENT. The Corporation hereby employs the Executive and the
Executive hereby accepts employment as an executive of the Corporation, subject
to the terms and conditions set forth in this Agreement.
2. DUTIES. The Executive shall serve as the Chief Operating Officer of
the Corporation with such duties, responsibilities and authority as are
commensurate and consistent with his position, as may be, from time to time,
assigned to him by the Board of Directors of the Corporation. The Executive
shall report directly to the Board of Directors of the Corporation. During the
term of this Agreement, the Executive shall devote his full business time and
efforts to the performance of his duties hereunder unless otherwise authorized
by the Board of Directors. Notwithstanding the foregoing, the expenditure of
reasonable amounts of time by the Executive for the making of passive personal
investments, the conduct of private business affairs and charitable and
professional activities shall be allowed, provided such activities do not
materially interfere with the services required to be rendered to the
Corporation hereunder and do not violate the restrictive covenants set forth in
SECTION 9 below.
3. TERM OF EMPLOYMENT. The term of the Executive's employment hereunder,
unless sooner terminated as provided herein (the "INITIAL TERM"), shall be for a
period of two (2) years commencing on the date hereof (the "COMMENCEMENT DATE").
The term of this Agreement shall automatically be extended for additional terms
of one year each (each a "RENEWAL TERM") unless either party gives prior written
notice of non-renewal to the other party no later than sixty (60) days prior to
the expiration of the Initial Term ("NON-RENEWAL NOTICE"), or the then current
Renewal Term, as the case may be. For purposes of this Agreement, the Initial
Term and any Renewal Term are hereinafter collectively referred to as the
"TERM."
4. COMPENSATION OF EXECUTIVE.
(a) The Corporation shall pay the Executive as compensation for his
services hereunder, in equal semi-monthly or bi-weekly installments during the
Term, the sum of Two Hundred Fourteen Thousand Two Hundred Dollars ($214,200)
per annum (the "BASE SALARY"), less such deductions as shall be required to be
withheld by applicable law and regulations. The Corporation shall review the
Base Salary on an annual basis and has the right but not the obligation to
increase it, but has no right to decrease the Base Salary.
(b) In addition to the Base Salary set forth in Section 4(a) above,
the Executive shall be entitled to such bonus compensation (in cash, capital
stock or other property) as a majority of the members of the Board of Directors
of the Corporation may determine from time to time in their sole discretion.
(c) The Corporation shall pay or reimburse the Executive for all
reasonable out-of-pocket expenses actually incurred or paid by the Executive in
the course of his employment, consistent with the Corporation's policy for
reimbursement of expenses from time to time.
(d) The Executive shall be entitled to participate in such pension,
profit sharing, group insurance, hospitalization, and group health and benefit
plans and all other benefits and plans as the Corporation provides to its senior
executives (the "BENEFIT PLANS").
5. TERMINATION.
(a) This Agreement and the Executive's employment hereunder shall
terminate upon the happening of any of the following events:
(i) upon the Executive's death;
(ii) upon the Executive's "Total Disability" (as herein defined);
(iii) upon the expiration of the Initial Term of this Agreement
or any Renewal Term thereof, if either party has provided a timely notice of
non-renewal in accordance with Section 3, above;
(iv) at the Corporation's option, upon sixty (60) days prior
written notice to the Executive if without cause;
(v) at the Executive's option, upon thirty (30) days prior
written notice to the Corporation;
(vi) at the Executive's option, in the event of an act by the
Corporation, defined in Section 5(c), below, as constituting "Good Reason" for
termination by the Executive; and
(vii) at the Corporation's option, in the event of an act by the
Executive, defined in Section 5(d), below, as constituting "Cause" for
termination by the Corporation.
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(b) For purposes of this Agreement, the Executive shall be deemed to
be suffering from a "TOTAL DISABILITY" if the Executive has failed to perform
his regular and customary duties to the Corporation for a period of 180 days out
of any 360-day period and if before the Executive has become "Rehabilitated" (as
herein defined) a majority of the members of the Board of Directors of the
Corporation, exclusive of the Executive, vote to determine that the Executive is
mentally or physically incapable or unable to continue to perform such regular
and customary duties of employment. As used herein, the term "REHABILITATED"
shall mean such time as the Executive is willing, able and commences to devote
his time and energies to the affairs of the Corporation to the extent and in the
manner that he did so prior to his Disability.
(c) For purposes of this Agreement, the term "GOOD REASON" shall mean
that the Executive has resigned due to the failure of the Corporation to meet
any of its obligations to the Executive under this or any other agreement
between the Corporation and the Executive, and failure to cure the same within
thirty (30) days following Executive's delivery of notice specifying the
breach(es) by the Corporation.
(d) For purposes of this Agreement, the term "CAUSE" shall mean
material, gross and willful misconduct on the part of the Executive in
connection with his employment duties hereunder or commission of a felony or act
of dishonesty resulting in material harm to the Corporation by the Executive.
6. EFFECTS OF TERMINATION.
(a) Upon termination of the Executive's employment pursuant to Section
5(a)(i), the Executive's estate or beneficiaries shall be entitled to the
following severance benefits: (i) three (3) months' Base Salary at the then
current rate, payable in a lump sum, less withholding of applicable taxes; and
(ii) continued provision for a period of one (1) year following the Executive's
death of benefits under Benefit Plans extended from time to time by the
Corporation to its senior executives.
(b) Upon termination of the Executive's employment pursuant to Section
5(a)(ii), the Executive shall be entitled to the following severance benefits:
(i) thirty-six (36) months' Base Salary at the then current rate, to be paid
from the date of termination until paid in full in accordance with the
Corporation's usual practices, including the withholding of all applicable
taxes; (ii) continued provision during said thirty-six (36) month period of the
benefits under Benefit Plans extended from time to time by the Corporation to
its senior executives; and (iii) payment on a prorated basis of any bonus or
other payments earned in connection with the Corporation's then-existing bonus
plan in place at the time of termination. The Corporation may credit against
such amounts any proceeds paid to Executive with respect to any disability
policy maintained for his benefit.
(c) Upon termination of the Executive's employment pursuant to Section
5(a)(iii), where the Corporation has offered to renew the term of the
Executive's employment for an additional one (1) year period and the Executive
3
chooses not to continue in the employ of the Corporation, the Executive shall be
entitled to receive only the accrued but unpaid compensation and vacation pay
through the date of termination and any other benefits accrued to him under any
Benefit Plans outstanding at such time. In the event the Corporation tenders
Non-Renewal Notice to the Executive, then the Executive shall be entitled to the
same severance benefits as if the Executive's employment were terminated
pursuant to Section 5(a)(iv) or Section 5(a)(vi); PROVIDED, HOWEVER, if such
Non-Renewal Notice was triggered due to the Corporation's statement that the
Executive's employment was terminated due to Section 5(a)(v) (for "Cause"), then
payment of severance benefits will be contingent upon a determination as to
whether termination was properly for "Cause."
(d) Upon termination of the Executive's employment pursuant to Section
5(a)(iv) or (vi), the Executive shall be entitled to the following severance
benefits: (i) twelve (12) months' Base Salary at the then current rate, to be
paid upon the date of termination of employment in monthly installments, less
withholding of all applicable taxes; (ii) continued provision for a period of
twelve (12) months after the date of termination of the benefits under Benefit
Plans extended from time to time by the Corporation to its senior executives;
and (iii) payment on a prorated basis of any bonus or other payments earned in
connection with any bonus plan to which the Executive was a participant as of
the date of the Executive's termination of employment.
(e) Upon termination of the Executive's employment pursuant to Section
5(a)(v) or (vii), the Executive shall be entitled to the following severance
benefits: (i) accrued and unpaid Base Salary and vacation pay through the date
of termination, less withholding of applicable taxes; and (ii) continued
provision, for a period of one (1) month after the date of the Executive's
termination of employment, of benefits under Benefit Plans extended to the
Executive at the time of termination.
(f) The Executive shall be obligated to seek other employment in order
to mitigate his damages resulting from his discharge pursuant to Sections
5(a)(iv), (v), (vi) or (vii), provided that such employment need not be taken at
a level below chief operating officer of a subsequent company. Any payments
required to be made hereunder by the Corporation to the Executive shall continue
to the Executive's beneficiaries in the event of his death until paid in full.
7. VACATIONS. The Executive shall be entitled to a vacation of four (4)
weeks per year, during which period his salary shall be paid in full. The
Executive shall take his vacation at such time or times as the Executive and the
Corporation shall determine is mutually convenient. Any vacation not taken in
one (1) year shall not accrue, provided that if vacation is not taken due to the
Corporation's business necessities, up to two (2) weeks' vacation may carry over
to the subsequent year.
8. DISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive recognizes,
acknowledges and agrees that he has had and will continue to have access to
secret and confidential information regarding the Corporation, including but not
limited to, its products, formulae, patents, sources of supply, customer
4
dealings, data, know-how and business plans, provided such information is not in
or does not hereafter become part of the public domain, or become known to
others through no fault of the Executive. The Executive acknowledges that such
information is of great value to the Corporation, is the sole property of the
Corporation, and has been and will be acquired by him in confidence. In
consideration of the obligations undertaken by the Corporation herein, the
Executive will not, at any time, during or after his employment hereunder,
reveal, divulge or make known to any person, any information acquired by the
Executive during the course of his employment, which is treated as confidential
by the Corporation, and not otherwise in the public domain. The provisions of
this Section 8 shall survive the Executive's employment hereunder except in the
event of a termination of this Agreement pursuant to Section 5(a)(iv) or (vi),
hereof, or as detailed in the provision above. All references to the Corporation
in Section 8 and Section 9 hereof shall include any subsidiary of the
Corporation.
9. COVENANT NOT TO COMPETE OR SOLICIT.
(a) The Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of the Corporation that the Executive
agree, and accordingly, the Executive does hereby agree, that he shall not,
directly or indirectly, at any time during the "Restricted Period" within the
"Restricted Area" (as those terms are defined in Section 9(e) below):
(i) except as provided in Subsection (c) below, engage in any
line of business in which the Corporation was engaged or had a formal plan to
enter during the period of Executive's employment with the Corporation,
including but not limited to the business of operating an online insurance
marketplace, either on his own behalf or as an officer, director, stockholder,
partner, consultant, associate, employee, owner, agent, creditor, independent
contractor, or co-venturer of any third party; or
(ii) solicit to employ or engage, for or on behalf of himself or
any third party, any employee or agent of the Corporation.
(b) The Executive hereby agrees that he will not, directly or
indirectly, for or on behalf of himself or any third party, at any time during
the Term and during the Restricted Period solicit any customers of the
Corporation with respect to products competitive with products then being sold
by the Corporation.
(c) If any of the restrictions contained in this Section 9 shall be
deemed to be unenforceable by reason of the extent, duration or geographical
scope thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, geographical scope, or other
provisions hereof, and in its reduced form this Section shall then be
enforceable in the manner contemplated hereby.
(d) This Section 9 shall not be construed to prevent the Executive
from owning, directly or indirectly, in the aggregate, an amount not exceeding
5
five percent (5%) of the issued and outstanding voting securities of any class
of any corporation whose voting capital stock is traded or listed on a national
securities exchange or in the over-the-counter market.
(e) The term "RESTRICTED PERIOD," as used in this Section 9, shall
mean the period of the Executive's actual employment hereunder, plus twelve (12)
months after the date the Executive is actually no longer employed by the
Corporation. The term "RESTRICTED AREA" as used in this Section 9 shall mean the
continental United States.
(f) The provisions of this Section 9 shall survive the termination of
the Executive's employment hereunder and until the end of the Restricted Period
as provided in Section 9(e) hereof except in the event that this Agreement is
terminated pursuant to Section 5(a)(iv) or (vi), hereof, in which case such
provisions shall not survive termination of this Agreement. In no event shall
the terms of Section 9 be enforceable, should the Corporation be in default of
any of its obligations to the Executive at the time of his termination of
employment by the Corporation.
10. MISCELLANEOUS.
(a) The Executive acknowledges that the services to be rendered by him
under the provisions of this Agreement are of a special, unique and
extraordinary character and that it would be difficult or impossible to replace
such services. Accordingly, the Executive agrees that any breach or threatened
breach by him of Sections 8 or 9 of this Agreement shall entitle the
Corporation, in addition to all other legal remedies available to it, to apply
to any court of competent jurisdiction to seek to enjoin such breach or
threatened breach. The parties understand and intend that each restriction
agreed to by the Executive hereinabove shall be construed as separable and
divisible from every other restriction, that the unenforceability of any
restriction shall not limit the enforceability, in whole or in part, of any
other restriction, and that one or more or all of such restrictions may be
enforced in whole or in part as the circumstances warrant. In the event that any
restriction in this Agreement is more restrictive than permitted by law in the
jurisdiction in which the Corporation seeks enforcement thereof, such
restriction shall be limited to the extent permitted by law. The remedy of
injunctive relief herein set forth shall be in addition to, and not in lieu of,
any other rights or remedies that the Corporation may have at law or in equity.
(b) Neither the Executive nor the Corporation may assign or delegate
any of their rights or duties under this Agreement without the express written
consent of the other; provided however that the Corporation shall have the right
to delegate its obligation of payment of all sums due to the Executive
hereunder, provided that such delegation shall not relieve the Corporation of
any of its obligations hereunder.
(c) This Agreement constitutes and embodies the full and complete
understanding and agreement of the parties with respect to the Executive's
employment by the Corporation, supersedes all prior understandings and
agreements, whether oral or written, between the Executive and the Corporation,
and shall not be amended, modified or changed except by an instrument in writing
6
executed by the party to be charged. The invalidity or partial invalidity of one
or more provisions of this Agreement shall not invalidate any other provision of
this Agreement. No waiver by either party of any provision or condition to be
performed shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
(d) This Agreement shall inure to the benefit of, be binding upon and
enforceable against, the parties hereto and their respective successors, heirs,
beneficiaries and permitted assigns.
(e) The headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
(f) All notices, requests, demands and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given when personally delivered, sent by registered or certified
mail, return receipt requested, postage prepaid, or by private overnight mail
service (e.g. Federal Express) to the party at the address set forth above or to
such other address as either party may hereafter give notice of in accordance
with the provisions hereof. Notices shall be deemed given on the sooner of the
date actually received or the third business day after sending.
(g) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without giving effect to such State's
conflicts of laws provisions and each of the parties hereto irrevocably consents
to the jurisdiction and venue of the federal and state courts located in the
State of Delaware.
(h) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one of the same instrument. The parties hereto have
executed this Agreement as of the date set forth above.
CORPORATION: EXECUTIVE:
HEALTH BENEFITS DIRECT CORPORATION Charles Eissa
By: /s/ Scott Frohman /s/ Charles Eissa
-------------------------- ------------------------------
Signature
Title: CEO
-------------------------
Exhibit 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 10th day of
November, 2005, by and between HEALTH BENEFITS DIRECT CORPORATION, a Delaware
corporation with offices at 2900 Gateway Drive, Pompano Beach, Florida 33069
(the "CORPORATION"), and Daniel Brauser, an individual residing at 2361 N.E.
48th Court, Lighthouse Point, FL 33064 (the "EXECUTIVE"), under the following
circumstances:
RECITALS:
A. The Corporation desires to secure the services of the Executive upon the
terms and conditions hereinafter set forth; and
B. The Executive desires to render services to the Corporation upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties mutually agree as follows:
1. EMPLOYMENT. The Corporation hereby employs the Executive and the
Executive hereby accepts employment as an executive of the Corporation, subject
to the terms and conditions set forth in this Agreement.
2. DUTIES. The Executive shall serve as the Senior Vice President of the
Corporation with such duties, responsibilities and authority as are commensurate
and consistent with his position, as may be, from time to time, assigned to him
by the Board of Directors of the Corporation. The Executive shall report
directly to the Board of Directors of the Corporation. During the term of this
Agreement, the Executive shall devote his full business time and efforts to the
performance of his duties hereunder unless otherwise authorized by the Board of
Directors. Notwithstanding the foregoing, the expenditure of reasonable amounts
of time by the Executive for the making of passive personal investments, the
conduct of private business affairs and charitable and professional activities
shall be allowed, provided such activities do not materially interfere with the
services required to be rendered to the Corporation hereunder and do not violate
the restrictive covenants set forth in SECTION 9 below.
3. TERM OF EMPLOYMENT. The term of the Executive's employment hereunder,
unless sooner terminated as provided herein (the "INITIAL TERM"), shall be for a
period of two (2) years commencing on the date hereof (the "COMMENCEMENT DATE").
The term of this Agreement shall automatically be extended for additional terms
of one year each (each a "RENEWAL TERM") unless either party gives prior written
notice of non-renewal to the other party no later than sixty (60) days prior to
the expiration of the Initial Term ("NON-RENEWAL NOTICE"), or the then current
Renewal Term, as the case may be. For purposes of this Agreement, the Initial
Term and any Renewal Term are hereinafter collectively referred to as the
"TERM."
4. COMPENSATION OF EXECUTIVE.
(a) The Corporation shall pay the Executive as compensation for his
services hereunder, in equal semi-monthly or bi-weekly installments during the
Term, the sum of One Hundred Fifty Seven Thousand Five Hundred Dollars
($157,500) per annum (the "BASE SALARY"), less such deductions as shall be
required to be withheld by applicable law and regulations. The Corporation shall
review the Base Salary on an annual basis and has the right but not the
obligation to increase it, but has no right to decrease the Base Salary.
(b) In addition to the Base Salary set forth in Section 4(a) above,
the Executive shall be entitled to such bonus compensation (in cash, capital
stock or other property) as a majority of the members of the Board of Directors
of the Corporation may determine from time to time in their sole discretion.
(c) The Corporation shall pay or reimburse the Executive for all
reasonable out-of-pocket expenses actually incurred or paid by the Executive in
the course of his employment, consistent with the Corporation's policy for
reimbursement of expenses from time to time.
(d) The Executive shall be entitled to participate in such pension,
profit sharing, group insurance, hospitalization, and group health and benefit
plans and all other benefits and plans as the Corporation provides to its senior
executives (the "BENEFIT PLANS").
5. TERMINATION.
(a) This Agreement and the Executive's employment hereunder shall
terminate upon the happening of any of the following events:
(i) upon the Executive's death;
(ii) upon the Executive's "Total Disability" (as herein defined);
(iii) upon the expiration of the Initial Term of this Agreement
or any Renewal Term thereof, if either party has provided a timely notice of
non-renewal in accordance with Section 3, above;
(iv) at the Corporation's option, upon sixty (60) days prior
written notice to the Executive if without cause;
(v) at the Executive's option, upon thirty (30) days prior
written notice to the Corporation;
(vi) at the Executive's option, in the event of an act by the
Corporation, defined in Section 5(c), below, as constituting "Good Reason" for
termination by the Executive; and
(vii) at the Corporation's option, in the event of an act by the
Executive, defined in Section 5(d), below, as constituting "Cause" for
termination by the Corporation.
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(b) For purposes of this Agreement, the Executive shall be deemed to
be suffering from a "TOTAL DISABILITY" if the Executive has failed to perform
his regular and customary duties to the Corporation for a period of 180 days out
of any 360-day period and if before the Executive has become "Rehabilitated" (as
herein defined) a majority of the members of the Board of Directors of the
Corporation, exclusive of the Executive, vote to determine that the Executive is
mentally or physically incapable or unable to continue to perform such regular
and customary duties of employment. As used herein, the term "REHABILITATED"
shall mean such time as the Executive is willing, able and commences to devote
his time and energies to the affairs of the Corporation to the extent and in the
manner that he did so prior to his Disability.
(c) For purposes of this Agreement, the term "GOOD REASON" shall mean
that the Executive has resigned due to the failure of the Corporation to meet
any of its obligations to the Executive under this or any other agreement
between the Corporation and the Executive, and failure to cure the same within
thirty (30) days following Executive's delivery of notice specifying the
breach(es) by the Corporation.
(d) For purposes of this Agreement, the term "CAUSE" shall mean
material, gross and willful misconduct on the part of the Executive in
connection with his employment duties hereunder or commission of a felony or act
of dishonesty resulting in material harm to the Corporation by the Executive.
6. EFFECTS OF TERMINATION.
(a) Upon termination of the Executive's employment pursuant to Section
5(a)(i), the Executive's estate or beneficiaries shall be entitled to the
following severance benefits: (i) three (3) months' Base Salary at the then
current rate, payable in a lump sum, less withholding of applicable taxes; and
(ii) continued provision for a period of one (1) year following the Executive's
death of benefits under Benefit Plans extended from time to time by the
Corporation to its senior executives.
(b) Upon termination of the Executive's employment pursuant to Section
5(a)(ii), the Executive shall be entitled to the following severance benefits:
(i) thirty-six (36) months' Base Salary at the then current rate, to be paid
from the date of termination until paid in full in accordance with the
Corporation's usual practices, including the withholding of all applicable
taxes; (ii) continued provision during said thirty-six (36) month period of the
benefits under Benefit Plans extended from time to time by the Corporation to
its senior executives; and (iii) payment on a prorated basis of any bonus or
other payments earned in connection with the Corporation's then-existing bonus
plan in place at the time of termination. The Corporation may credit against
such amounts any proceeds paid to Executive with respect to any disability
policy maintained for his benefit.
(c) Upon termination of the Executive's employment pursuant to Section
5(a)(iii), where the Corporation has offered to renew the term of the
3
Executive's employment for an additional one (1) year period and the Executive
chooses not to continue in the employ of the Corporation, the Executive shall be
entitled to receive only the accrued but unpaid compensation and vacation pay
through the date of termination and any other benefits accrued to him under any
Benefit Plans outstanding at such time. In the event the Corporation tenders
Non-Renewal Notice to the Executive, then the Executive shall be entitled to the
same severance benefits as if the Executive's employment were terminated
pursuant to Section 5(a)(iv) or Section 5(a)(vi); PROVIDED, HOWEVER, if such
Non-Renewal Notice was triggered due to the Corporation's statement that the
Executive's employment was terminated due to Section 5(a)(v) (for "Cause"), then
payment of severance benefits will be contingent upon a determination as to
whether termination was properly for "Cause."
(d) Upon termination of the Executive's employment pursuant to Section
5(a)(iv) or (vi), the Executive shall be entitled to the following severance
benefits: (i) twelve (12) months' Base Salary at the then current rate, to be
paid upon the date of termination of employment in monthly installments, less
withholding of all applicable taxes; (ii) continued provision for a period of
twelve (12) months after the date of termination of the benefits under Benefit
Plans extended from time to time by the Corporation to its senior executives;
and (iii) payment on a prorated basis of any bonus or other payments earned in
connection with any bonus plan to which the Executive was a participant as of
the date of the Executive's termination of employment.
(e) Upon termination of the Executive's employment pursuant to Section
5(a)(v) or (vii), the Executive shall be entitled to the following severance
benefits: (i) accrued and unpaid Base Salary and vacation pay through the date
of termination, less withholding of applicable taxes; and (ii) continued
provision, for a period of one (1) month after the date of the Executive's
termination of employment, of benefits under Benefit Plans extended to the
Executive at the time of termination.
(f) The Executive shall be obligated to seek other employment in order
to mitigate his damages resulting from his discharge pursuant to Sections
5(a)(iv), (v), (vi) or (vii), provided that such employment need not be taken at
a level below chief operating officer of a subsequent company. Any payments
required to be made hereunder by the Corporation to the Executive shall continue
to the Executive's beneficiaries in the event of his death until paid in full.
7. VACATIONS. The Executive shall be entitled to a vacation of four (4)
weeks per year, during which period his salary shall be paid in full. The
Executive shall take his vacation at such time or times as the Executive and the
Corporation shall determine is mutually convenient. Any vacation not taken in
one (1) year shall not accrue, provided that if vacation is not taken due to the
Corporation's business necessities, up to two (2) weeks' vacation may carry over
to the subsequent year.
8. DISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive recognizes,
acknowledges and agrees that he has had and will continue to have access to
secret and confidential information regarding the Corporation, including but not
limited to, its products, formulae, patents, sources of supply, customer
dealings, data, know-how and business plans, provided such information is not in
4
or does not hereafter become part of the public domain, or become known to
others through no fault of the Executive. The Executive acknowledges that such
information is of great value to the Corporation, is the sole property of the
Corporation, and has been and will be acquired by him in confidence. In
consideration of the obligations undertaken by the Corporation herein, the
Executive will not, at any time, during or after his employment hereunder,
reveal, divulge or make known to any person, any information acquired by the
Executive during the course of his employment, which is treated as confidential
by the Corporation, and not otherwise in the public domain. The provisions of
this Section 8 shall survive the Executive's employment hereunder except in the
event of a termination of this Agreement pursuant to Section 5(a)(iv) or (vi),
hereof, or as detailed in the provision above. All references to the Corporation
in Section 8 and Section 9 hereof shall include any subsidiary of the
Corporation.
9. COVENANT NOT TO COMPETE OR SOLICIT.
(a) The Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of the Corporation that the Executive
agree, and accordingly, the Executive does hereby agree, that he shall not,
directly or indirectly, at any time during the "Restricted Period" within the
"Restricted Area" (as those terms are defined in Section 9(e) below):
(i) except as provided in Subsection (c) below, engage in any
line of business in which the Corporation was engaged or had a formal plan to
enter during the period of Executive's employment with the Corporation,
including but not limited to the business of operating an online insurance
marketplace, either on his own behalf or as an officer, director, stockholder,
partner, consultant, associate, employee, owner, agent, creditor, independent
contractor, or co-venturer of any third party; or
(ii) solicit to employ or engage, for or on behalf of himself or
any third party, any employee or agent of the Corporation.
(b) The Executive hereby agrees that he will not, directly or
indirectly, for or on behalf of himself or any third party, at any time during
the Term and during the Restricted Period solicit any customers of the
Corporation with respect to products competitive with products then being sold
by the Corporation.
(c) If any of the restrictions contained in this Section 9 shall be
deemed to be unenforceable by reason of the extent, duration or geographical
scope thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, geographical scope, or other
provisions hereof, and in its reduced form this Section shall then be
enforceable in the manner contemplated hereby.
(d) This Section 9 shall not be construed to prevent the Executive
from owning, directly or indirectly, in the aggregate, an amount not exceeding
5
five percent (5%) of the issued and outstanding voting securities of any class
of any corporation whose voting capital stock is traded or listed on a national
securities exchange or in the over-the-counter market.
(e) The term "RESTRICTED PERIOD," as used in this Section 9, shall
mean the period of the Executive's actual employment hereunder, plus twelve (12)
months after the date the Executive is actually no longer employed by the
Corporation. The term "RESTRICTED AREA" as used in this Section 9 shall mean the
continental United States.
(f) The provisions of this Section 9 shall survive the termination of
the Executive's employment hereunder and until the end of the Restricted Period
as provided in Section 9(e) hereof except in the event that this Agreement is
terminated pursuant to Section 5(a)(iv) or (vi), hereof, in which case such
provisions shall not survive termination of this Agreement. In no event shall
the terms of Section 9 be enforceable, should the Corporation be in default of
any of its obligations to the Executive at the time of his termination of
employment by the Corporation.
10. MISCELLANEOUS.
(a) The Executive acknowledges that the services to be rendered by him
under the provisions of this Agreement are of a special, unique and
extraordinary character and that it would be difficult or impossible to replace
such services. Accordingly, the Executive agrees that any breach or threatened
breach by him of Sections 8 or 9 of this Agreement shall entitle the
Corporation, in addition to all other legal remedies available to it, to apply
to any court of competent jurisdiction to seek to enjoin such breach or
threatened breach. The parties understand and intend that each restriction
agreed to by the Executive hereinabove shall be construed as separable and
divisible from every other restriction, that the unenforceability of any
restriction shall not limit the enforceability, in whole or in part, of any
other restriction, and that one or more or all of such restrictions may be
enforced in whole or in part as the circumstances warrant. In the event that any
restriction in this Agreement is more restrictive than permitted by law in the
jurisdiction in which the Corporation seeks enforcement thereof, such
restriction shall be limited to the extent permitted by law. The remedy of
injunctive relief herein set forth shall be in addition to, and not in lieu of,
any other rights or remedies that the Corporation may have at law or in equity.
(b) Neither the Executive nor the Corporation may assign or delegate
any of their rights or duties under this Agreement without the express written
consent of the other; provided however that the Corporation shall have the right
to delegate its obligation of payment of all sums due to the Executive
hereunder, provided that such delegation shall not relieve the Corporation of
any of its obligations hereunder.
(c) This Agreement constitutes and embodies the full and complete
understanding and agreement of the parties with respect to the Executive's
employment by the Corporation, supersedes all prior understandings and
agreements, whether oral or written, between the Executive and the Corporation,
and shall not be amended, modified or changed except by an instrument in writing
executed by the party to be charged. The invalidity or partial invalidity of one
6
or more provisions of this Agreement shall not invalidate any other provision of
this Agreement. No waiver by either party of any provision or condition to be
performed shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
(d) This Agreement shall inure to the benefit of, be binding upon and
enforceable against, the parties hereto and their respective successors, heirs,
beneficiaries and permitted assigns.
(e) The headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
(f) All notices, requests, demands and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given when personally delivered, sent by registered or certified
mail, return receipt requested, postage prepaid, or by private overnight mail
service (e.g. Federal Express) to the party at the address set forth above or to
such other address as either party may hereafter give notice of in accordance
with the provisions hereof. Notices shall be deemed given on the sooner of the
date actually received or the third business day after sending.
(g) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without giving effect to such State's
conflicts of laws provisions and each of the parties hereto irrevocably consents
to the jurisdiction and venue of the federal and state courts located in the
State of Delaware.
(h) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one of the same instrument. The parties hereto have
executed this Agreement as of the date set forth above.
CORPORATION: EXECUTIVE:
HEALTH BENEFITS DIRECT CORPORATION Daniel Brauser
By: /s/ Scott Frohman /s/ Daniel Brauser
----------------------------- -----------------------------------
Signature
Title: CEO
---------------------------
Exhibit 10.17
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT is made and entered into as of this 10th day
of November, 2005, by and between HEALTH BENEFITS DIRECT CORPORATION, a Delaware
corporation with offices at 2900 Gateway Drive, Pompano Beach, Florida 33069
(the "CORPORATION"), and Anthony Verdi, an individual residing at 345 Beech
Lane, West Chester, PA 19382 (the "EXECUTIVE"), under the following
circumstances:
RECITALS:
A. The Corporation desires to secure the services of the Executive upon
the terms and conditions hereinafter set forth; and
B. The Executive desires to render services to the Corporation upon the
terms and conditions hereinafter set forth.
NOW, THEREFORE, the parties mutually agree as follows:
1. EMPLOYMENT. The Corporation hereby employs the Executive and the
Executive hereby accepts employment as an executive of the Corporation, subject
to the terms and conditions set forth in this Agreement.
2. DUTIES. The Executive shall serve as the Chief Financial Officer of
the Corporation with such duties, responsibilities and authority as are
commensurate and consistent with his position, as may be, from time to time,
assigned to him by the Board of Directors of the Corporation. The Executive
shall report directly to the Board of Directors of the Corporation. During the
term of this Agreement, the Executive shall devote his full business time and
efforts to the performance of his duties hereunder unless otherwise authorized
by the Board of Directors. Notwithstanding the foregoing, the expenditure of
reasonable amounts of time by the Executive for the making of passive personal
investments, the conduct of private business affairs and charitable and
professional activities shall be allowed, provided such activities do not
materially interfere with the services required to be rendered to the
Corporation hereunder and do not violate the restrictive covenants set forth in
SECTION 9 below.
3. TERM OF EMPLOYMENT. The term of the Executive's employment hereunder,
unless sooner terminated as provided herein (the "INITIAL TERM"), shall be for a
period of two (2) years commencing on the date hereof (the "COMMENCEMENT DATE").
The term of this Agreement shall automatically be extended for additional terms
of one year each (each a "RENEWAL TERM") unless either party gives prior written
notice of non-renewal to the other party no later than sixty (60) days prior to
the expiration of the Initial Term ("NON-RENEWAL NOTICE"), or the then current
Renewal Term, as the case may be. For purposes of this Agreement, the Initial
Term and any Renewal Term are hereinafter collectively referred to as the
"TERM."
4. COMPENSATION OF EXECUTIVE.
(a) The Corporation shall pay the Executive as compensation for his
services hereunder, in equal semi-monthly or bi-weekly installments during the
Term, the sum of Two Hundred and Twenty Five Thousand Dollars ($225,000) per
annum (the "BASE SALARY"), less such deductions as shall be required to be
withheld by applicable law and regulations. The Corporation shall review the
Base Salary on an annual basis and has the right but not the obligation to
increase it, but has no right to decrease the Base Salary.
(b) In addition to the Base Salary set forth in Section 4(a) above,
the Executive shall be entitled to such bonus compensation (in cash, capital
stock or other property) as a majority of the members of the Board of Directors
of the Corporation may determine from time to time in their sole discretion.
(c) The Corporation shall pay or reimburse the Executive for all
reasonable out-of-pocket expenses actually incurred or paid by the Executive in
the course of his employment, consistent with the Corporation's policy for
reimbursement of expenses from time to time.
(d) The Executive shall be entitled to participate in such pension,
profit sharing, group insurance, hospitalization, and group health and benefit
plans and all other benefits and plans as the Corporation provides to its senior
executives (the "BENEFIT PLANS").
5. TERMINATION.
(a) This Agreement and the Executive's employment hereunder shall
terminate upon the happening of any of the following events:
(i) upon the Executive's death;
(ii) upon the Executive's "Total Disability" (as herein
defined);
(iii) upon the expiration of the Initial Term of this Agreement
or any Renewal Term thereof, if either party has provided a timely notice of
non-renewal in accordance with Section 3, above;
(iv) at the Corporation's option, upon sixty (60) days prior
written notice to the Executive if without cause;
(v) at the Executive's option, upon thirty (30) days prior
written notice to the Corporation;
(vi) at the Executive's option, in the event of an act by the
Corporation, defined in Section 5(c), below, as constituting "Good Reason" for
termination by the Executive; and
(vii) at the Corporation's option, in the event of an act by the
Executive, defined in Section 5(d), below, as constituting "Cause" for
termination by the Corporation.
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(b) For purposes of this Agreement, the Executive shall be deemed to
be suffering from a "TOTAL DISABILITY" if the Executive has failed to perform
his regular and customary duties to the Corporation for a period of 180 days out
of any 360-day period and if before the Executive has become "Rehabilitated" (as
herein defined) a majority of the members of the Board of Directors of the
Corporation, exclusive of the Executive, vote to determine that the Executive is
mentally or physically incapable or unable to continue to perform such regular
and customary duties of employment. As used herein, the term "REHABILITATED"
shall mean such time as the Executive is willing, able and commences to devote
his time and energies to the affairs of the Corporation to the extent and in the
manner that he did so prior to his Disability.
(c) For purposes of this Agreement, the term "GOOD REASON" shall mean
that the Executive has resigned due to the failure of the Corporation to meet
any of its obligations to the Executive under this or any other agreement
between the Corporation and the Executive, and failure to cure the same within
thirty (30) days following Executive's delivery of notice specifying the
breach(es) by the Corporation.
(d) For purposes of this Agreement, the term "CAUSE" shall mean
material, gross and willful misconduct on the part of the Executive in
connection with his employment duties hereunder or commission of a felony or act
of dishonesty resulting in material harm to the Corporation by the Executive.
6. EFFECTS OF TERMINATION.
(a) Upon termination of the Executive's employment pursuant to
Section 5(a)(i), the Executive's estate or beneficiaries shall be entitled to
the following severance benefits: (i) three (3) months' Base Salary at the then
current rate, payable in a lump sum, less withholding of applicable taxes; and
(ii) continued provision for a period of one (1) year following the Executive's
death of benefits under Benefit Plans extended from time to time by the
Corporation to its senior executives.
(b) Upon termination of the Executive's employment pursuant to
Section 5(a)(ii), the Executive shall be entitled to the following severance
benefits: (i) thirty-six (36) months' Base Salary at the then current rate, to
be paid from the date of termination until paid in full in accordance with the
Corporation's usual practices, including the withholding of all applicable
taxes; (ii) continued provision during said thirty-six (36) month period of the
benefits under Benefit Plans extended from time to time by the Corporation to
its senior executives; and (iii) payment on a prorated basis of any bonus or
other payments earned in connection with the Corporation's then-existing bonus
plan in place at the time of termination. The Corporation may credit against
such amounts any proceeds paid to Executive with respect to any disability
policy maintained for his benefit.
(c) Upon termination of the Executive's employment pursuant to
Section 5(a)(iii), where the Corporation has offered to renew the term of the
Executive's employment for an additional one (1) year period and the Executive
chooses not to continue in the employ of the Corporation, the Executive shall be
entitled to receive only the accrued but unpaid compensation and vacation pay
through the date of termination and any other benefits accrued to him under any
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Benefit Plans outstanding at such time. In the event the Corporation tenders
Non-Renewal Notice to the Executive, then the Executive shall be entitled to the
same severance benefits as if the Executive's employment were terminated
pursuant to Section 5(a)(iv) or Section 5(a)(vi); PROVIDED, HOWEVER, if such
Non-Renewal Notice was triggered due to the Corporation's statement that the
Executive's employment was terminated due to Section 5(a)(v) (for "Cause"), then
payment of severance benefits will be contingent upon a determination as to
whether termination was properly for "Cause."
(d) Upon termination of the Executive's employment pursuant to
Section 5(a)(iv) or (vi), the Executive shall be entitled to the following
severance benefits: (i) twelve (12) months' Base Salary at the then current
rate, to be paid upon the date of termination of employment in monthly
installments, less withholding of all applicable taxes; (ii) continued provision
for a period of twelve (12) months after the date of termination of the benefits
under Benefit Plans extended from time to time by the Corporation to its senior
executives; and (iii) payment on a prorated basis of any bonus or other payments
earned in connection with any bonus plan to which the Executive was a
participant as of the date of the Executive's termination of employment.
(e) Upon termination of the Executive's employment pursuant to
Section 5(a)(v) or (vii), the Executive shall be entitled to the following
severance benefits: (i) accrued and unpaid Base Salary and vacation pay through
the date of termination, less withholding of applicable taxes; and (ii)
continued provision, for a period of one (1) month after the date of the
Executive's termination of employment, of benefits under Benefit Plans extended
to the Executive at the time of termination.
(f) The Executive shall be obligated to seek other employment in
order to mitigate his damages resulting from his discharge pursuant to Sections
5(a)(iv), (v), (vi) or (vii), provided that such employment need not be taken at
a level below chief operating officer of a subsequent company. Any payments
required to be made hereunder by the Corporation to the Executive shall continue
to the Executive's beneficiaries in the event of his death until paid in full.
7. VACATIONS. The Executive shall be entitled to a vacation of four
(4) weeks per year, during which period his salary shall be paid in full. The
Executive shall take his vacation at such time or times as the Executive and the
Corporation shall determine is mutually convenient. Any vacation not taken in
one (1) year shall not accrue, provided that if vacation is not taken due to the
Corporation's business necessities, up to two (2) weeks' vacation may carry over
to the subsequent year.
8. DISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive recognizes,
acknowledges and agrees that he has had and will continue to have access to
secret and confidential information regarding the Corporation, including but not
limited to, its products, formulae, patents, sources of supply, customer
dealings, data, know-how and business plans, provided such information is not in
or does not hereafter become part of the public domain, or become known to
others through no fault of the Executive. The Executive acknowledges that such
information is of great value to the Corporation, is the sole property of the
Corporation, and has been and will be acquired by him in confidence. In
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consideration of the obligations undertaken by the Corporation herein, the
Executive will not, at any time, during or after his employment hereunder,
reveal, divulge or make known to any person, any information acquired by the
Executive during the course of his employment, which is treated as confidential
by the Corporation, and not otherwise in the public domain. The provisions of
this Section 8 shall survive the Executive's employment hereunder except in the
event of a termination of this Agreement pursuant to Section 5(a)(iv) or (vi),
hereof, or as detailed in the provision above. All references to the Corporation
in Section 8 and Section 9 hereof shall include any subsidiary of the
Corporation.
9. COVENANT NOT TO COMPETE OR SOLICIT.
(a) The Executive recognizes that the services to be performed by him
hereunder are special, unique and extraordinary. The parties confirm that it is
reasonably necessary for the protection of the Corporation that the Executive
agree, and accordingly, the Executive does hereby agree, that he shall not,
directly or indirectly, at any time during the "Restricted Period" within the
"Restricted Area" (as those terms are defined in Section 9(e) below):
(i) except as provided in Subsection (c) below, engage in any
line of business in which the Corporation was engaged or had a formal plan to
enter during the period of Executive's employment with the Corporation,
including but not limited to the business of operating an online insurance
marketplace, either on his own behalf or as an officer, director, stockholder,
partner, consultant, associate, employee, owner, agent, creditor, independent
contractor, or co-venturer of any third party; (for the absence of doubt,
notwithstanding anything herein to the contrary, Executive shall not be
restricted from participating or from engaging in, as officer, director,
stockholder, partner, consultant, associate, employee, owner, agent, creditor,
independent contractor, or co-venturer, any business that is a licensed
insurance company, provided that if such licensed insurance company maintains or
operates an online insurance marketplace, Executive may not be assigned to such
online insurance marketplace as his primary functional area of responsibility);
or
(ii) solicit to employ or engage, for or on behalf of himself or
any third party, any employee or agent of the Corporation.
(b) The Executive hereby agrees that he will not, directly or
indirectly, for or on behalf of himself or any third party, at any time during
the Term and during the Restricted Period, solicit any customers of the
Corporation with respect to products competitive with products then being sold
by the Corporation.
(c) If any of the restrictions contained in this Section 9 shall be
deemed to be unenforceable by reason of the extent, duration or geographical
scope thereof, or otherwise, then the court making such determination shall have
the right to reduce such extent, duration, geographical scope, or other
provisions hereof, and in its reduced form this Section shall then be
enforceable in the manner contemplated hereby.
(d) This Section 9 shall not be construed to prevent the Executive
from owning, directly or indirectly, in the aggregate, an amount not exceeding
five percent (5%) of the issued and outstanding voting securities of any class
of any corporation whose voting capital stock is traded or listed on a national
securities exchange or in the over-the-counter market.
(e) The term "RESTRICTED PERIOD," as used in this Section 9, shall
mean the period of the Executive's actual employment hereunder, plus twelve (12)
months after the date the Executive is actually no longer employed by the
Corporation. The term "RESTRICTED AREA" as used in this Section 9 shall mean the
continental United States.
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(f) The provisions of this Section 9 shall survive the termination of
the Executive's employment hereunder and until the end of the Restricted Period
as provided in Section 9(e) hereof except in the event that this Agreement is
terminated pursuant to Section 5(a)(iv) or (vi), hereof, in which case such
provisions shall not survive termination of this Agreement. In no event shall
the terms of Section 9 be enforceable, should the Corporation be in default of
any of its obligations to the Executive at the time of his termination of
employment by the Corporation.
10. MISCELLANEOUS.
(a) The Executive acknowledges that the services to be rendered by
him under the provisions of this Agreement are of a special, unique and
extraordinary character and that it would be difficult or impossible to replace
such services. Accordingly, the Executive agrees that any breach or threatened
breach by him of Sections 8 or 9 of this Agreement shall entitle the
Corporation, in addition to all other legal remedies available to it, to apply
to any court of competent jurisdiction to seek to enjoin such breach or
threatened breach. The parties understand and intend that each restriction
agreed to by the Executive hereinabove shall be construed as separable and
divisible from every other restriction, that the unenforceability of any
restriction shall not limit the enforceability, in whole or in part, of any
other restriction, and that one or more or all of such restrictions may be
enforced in whole or in part as the circumstances warrant. In the event that any
restriction in this Agreement is more restrictive than permitted by law in the
jurisdiction in which the Corporation seeks enforcement thereof, such
restriction shall be limited to the extent permitted by law. The remedy of
injunctive relief herein set forth shall be in addition to, and not in lieu of,
any other rights or remedies that the Corporation may have at law or in equity.
(b) Neither the Executive nor the Corporation may assign or delegate
any of their rights or duties under this Agreement without the express written
consent of the other; provided however that the Corporation shall have the right
to delegate its obligation of payment of all sums due to the Executive
hereunder, provided that such delegation shall not relieve the Corporation of
any of its obligations hereunder.
(c) This Agreement constitutes and embodies the full and complete
understanding and agreement of the parties with respect to the Executive's
employment by the Corporation, supersedes all prior understandings and
agreements, whether oral or written, between the Executive and the Corporation,
and shall not be amended, modified or changed except by an instrument in writing
executed by the party to be charged. The invalidity or partial invalidity of one
or more provisions of this Agreement shall not invalidate any other provision of
this Agreement. No waiver by either party of any provision or condition to be
performed shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or any prior or subsequent time.
(d) This Agreement shall inure to the benefit of, be binding upon and
enforceable against, the parties hereto and their respective successors, heirs,
beneficiaries and permitted assigns.
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(e) The headings contained in this Agreement are for convenience of
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
(f) All notices, requests, demands and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given when personally delivered, sent by registered or certified
mail, return receipt requested, postage prepaid, or by private overnight mail
service (e.g. Federal Express) to the party at the address set forth above or to
such other address as either party may hereafter give notice of in accordance
with the provisions hereof. Notices shall be deemed given on the sooner of the
date actually received or the third business day after sending.
(g) This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware without giving effect to such State's
conflicts of laws provisions and each of the parties hereto irrevocably consents
to the jurisdiction and venue of the federal and state courts located in the
State of Delaware.
(h) This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one of the same instrument. The parties hereto have
executed this Agreement as of the date set forth above.
CORPORATION: EXECUTIVE:
HEALTH BENEFITS DIRECT CORPORATION Anthony Verdi
By: /s/ Charles Eissa /s/ Anthony Verdi
------------------------------- ---------------------------------
Signature
Title: President , COO
----------------------------
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Exhibit 10.18
[FORM OF INDEMNIFICATION AGREEMENT]
HEALTH BENEFITS DIRECT CORPORATION
DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
This Director and Officer Indemnification Agreement, dated as of November
15th, 2005 (this "Agreement"), is made by and between Health Benefits Direct
Corporation, a Delaware corporation (the "COMPANY"), and Scott Frohman (the
"INDEMNITEE").
RECITALS:
A. Section 141 of the Delaware General Corporation Law provides that the
business and affairs of a corporation shall be managed by or under the direction
of its board of directors.
B. By virtue of the managerial prerogatives vested in the directors and
officers of a Delaware corporation, directors and officers act as fiduciaries of
the corporation and its stockholders.
C. Thus, it is critically important to the Company and its stockholders
that the Company be able to attract and retain the most capable persons
reasonably available to serve as directors and officers of the Company.
D. In recognition of the need for corporations to be able to induce capable
and responsible persons to accept positions in corporate management, Delaware
law authorizes (and in some instances requires) corporations to indemnify their
directors and officers, and further authorizes corporations to purchase and
maintain insurance for the benefit of their directors and officers.
E. The Delaware courts have recognized that indemnification by a
corporation serves the dual policies of (1) allowing corporate officials to
resist unjustified lawsuits, secure in the knowledge that, if vindicated, the
corporation will bear the expense of litigation, and (2) encouraging capable
women and men to serve as corporate directors and officers, secure in the
knowledge that the corporation will absorb the costs of defending their honesty
and integrity.
F. The number of lawsuits challenging the judgment and actions of directors
and officers of Delaware corporations, the costs of defending those lawsuits and
the threat to personal assets have all materially increased over the past
several years, chilling the willingness of capable women and men to undertake
the responsibilities imposed on corporate directors and officers.
G. Recent federal legislation and rules adopted by the Securities and
Exchange Commission and the national securities exchanges have exposed such
directors and officers to new and substantially broadened civil liabilities.
H. Under Delaware law, a director's or officer's right to be reimbursed for
the costs of defense of criminal actions, whether such claims are asserted under
state or federal law, does not depend upon the merits of the claims asserted
against the director or officer and is separate and distinct from any right to
indemnification the director may be able to establish.
I. Indemnitee is, or will be, a director and/or officer of the Company and
his or her willingness to serve in such capacity is predicated, in substantial
part, upon the Company's willingness to indemnify him or her in accordance with
the principles reflected above, to the fullest extent permitted by the laws of
the State of Delaware, and upon the other undertakings set forth in this
Agreement.
J. Therefore, in recognition of the need to provide Indemnitee with
substantial protection against personal liability, in order to procure
Indemnitee's continued service as a director and/or officer of the Company and
to enhance Indemnitee's ability to serve the Company in an effective manner, and
in order to provide such protection pursuant to express contract rights
(intended to be enforceable irrespective of, among other things, any amendment
to the Company's certificate of incorporation or bylaws (collectively, the
"CONSTITUENT DOCUMENTS"), any change in the composition of the Company's Board
of Directors (the "BOARD") or any change-in-control or business combination
transaction relating to the Company), the Company wishes to provide in this
Agreement for the indemnification and advancement of Expenses to Indemnitee on
the terms, and subject to the conditions, set forth in this Agreement.
K. In light of the considerations referred to in the preceding recitals, it
is the Company's intention and desire that the provisions of this Agreement be
construed liberally, subject to their express terms, to maximize the protections
to be provided to Indemnitee hereunder.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "CHANGE IN CONTROL" shall have occurred at such time, if any, as
Incumbent Directors cease for any reason to constitute a majority of Directors.
For purposes of this Section 1(a), "INCUMBENT DIRECTORS" means the individuals
who, as of the date hereof, are Directors of the Company and any individual
becoming a Director subsequent to the date hereof whose election, nomination for
election by the Company's stockholders, or appointment, was approved by a vote
of at least a majority of the then Incumbent Directors (either by a specific
vote or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such nomination);
PROVIDED, HOWEVER, that an individual shall not be an Incumbent Director if such
individual's election or appointment to the Board occurs as a result of an
actual or threatened election contest (as described in Rule 14a-12(c) of the
Securities Exchange Act of 1934, as amended) with respect to the election or
removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.
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(b) "CLAIM" means (i) any threatened, asserted, pending or completed
claim, demand, action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, investigative or other, and whether made pursuant
to federal, state or other law; and (ii) any inquiry or investigation, whether
made, instituted or conducted by the Company or any other Person, including,
without limitation, any federal, state or other governmental entity, that
Indemnitee reasonably determines might lead to the institution of any such
claim, demand, action, suit or proceeding. For the avoidance of doubt, the
Company intends indemnity to be provided hereunder in respect of acts or failure
to act prior to, on or after the date hereof.
(c) "CONTROLLED AFFILIATE" means any corporation, limited liability
company, partnership, joint venture, trust or other entity or enterprise,
whether or not for profit, that is directly or indirectly controlled by the
Company. For purposes of this definition, "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of an entity or enterprise, whether through the ownership
of voting securities, through other voting rights, by contract or otherwise;
PROVIDED that direct or indirect beneficial ownership of capital stock or other
interests in an entity or enterprise entitling the holder to cast 15% or more of
the total number of votes generally entitled to be cast in the election of
directors (or persons performing comparable functions) of such entity or
enterprise shall be deemed to constitute control for purposes of this
definition.
(d) "DISINTERESTED DIRECTOR" means a director of the Company who is
not and was not a party to the Claim in respect of which indemnification is
sought by Indemnitee.
(e) "EXPENSES" means attorneys' and experts' fees and expenses and all
other costs and expenses paid or payable in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to investigate, defend, be a witness in or participate in (including
on appeal), any Claim.
(f) "INDEMNIFIABLE CLAIM" means any Claim based upon, arising out of
or resulting from (i) any actual, alleged or suspected act or failure to act by
Indemnitee in his or her capacity as a director, officer, employee or agent of
the Company or as a director, officer, employee, member, manager, trustee or
agent of any other corporation, limited liability company, partnership, joint
venture, trust or other entity or enterprise, whether or not for profit, as to
which Indemnitee is or was serving at the request of the Company, (ii) any
actual, alleged or suspected act or failure to act by Indemnitee in respect of
any business, transaction, communication, filing, disclosure or other activity
of the Company or any other entity or enterprise referred to in clause (i) of
this sentence, or (iii) Indemnitee's status as a current or former director,
officer, employee or agent of the Company or as a current or former director,
officer, employee, member, manager, trustee or agent of the Company or any other
entity or enterprise referred to in clause (i) of this sentence or any actual,
alleged or suspected act or failure to act by Indemnitee in connection with any
obligation or restriction imposed upon Indemnitee by reason of such status. In
addition to any service at the actual request of the Company, for purposes of
this Agreement, Indemnitee shall be deemed to be serving or to have served at
the request of the Company as a director, officer, employee, member, manager,
trustee or agent of another entity or enterprise if Indemnitee is or was serving
as a director, officer, employee, member, manager, agent, trustee or other
fiduciary of such entity or enterprise and (i) such entity or enterprise is or
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at the time of such service was a Controlled Affiliate, (ii) such entity or
enterprise is or at the time of such service was an employee benefit plan (or
related trust) sponsored or maintained by the Company or a Controlled Affiliate,
or (iii) the Company or a Controlled Affiliate (by action of the Board, any
committee thereof or the Company's Chief Executive Officer ("CEO") (other than
as the CEO him or herself)) caused or authorized Indemnitee to be nominated,
elected, appointed, designated, employed, engaged or selected to serve in such
capacity.
(g) "INDEMNIFIABLE LOSSES" means any and all Losses relating to,
arising out of or resulting from any Indemnifiable Claim; PROVIDED, HOWEVER,
that Indemnifiable Losses shall not include Losses incurred by Indemnitee in
respect of any Indemnifiable Claim (or any matter or issue therein) as to which
Indemnitee shall have been adjudged liable to the Company, unless and only to
the extent that the Delaware Court of Chancery or the court in which such
Indemnifiable Claim was brought shall have determined upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, Indemnitee is fairly and reasonably entitled to indemnification for
such Expenses as the court shall deem proper.
(h) "INDEPENDENT COUNSEL" means a nationally recognized law firm, or a
member of a nationally recognized law firm, that is experienced in matters of
Delaware corporate law and neither presently is, nor in the past five years has
been, retained to represent: (i) the Company (or any subsidiary) or Indemnitee
in any matter material to either such party (other than with respect to matters
concerning the Indemnitee under this Agreement, or of other indemnitees under
similar indemnification agreements) or (ii) any other named (or, as to a
threatened matter, reasonably likely to be named) party to the Indemnifiable
Claim giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's rights under this Agreement.
(i) "LOSSES" means any and all Expenses, damages, losses, liabilities,
judgments, fines, penalties (whether civil, criminal or other) and amounts paid
or payable in settlement, including, without limitation, all interest,
assessments and other charges paid or payable in connection with or in respect
of any of the foregoing.
(j) "PERSON" means any individual, entity or group, within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended.
(k) "STANDARD OF CONDUCT" means the standard for conduct by Indemnitee
that is a condition precedent to indemnification of Indemnitee hereunder against
Indemnifiable Losses relating to, arising out of or resulting from an
Indemnifiable Claim. The Standard of Conduct is (i) good faith and a reasonable
belief by Indemnitee that his action was in or not opposed to the best interests
of the Company and, with respect to any criminal action or proceeding, that
Indemnitee had no reasonable cause to believe that his conduct was unlawful, or
(ii) any other applicable standard of conduct that may hereafter be substituted
under Section 145(a) or (b) of the Delaware General Corporation Law or any
successor to such provision(s).
4
2. INDEMNIFICATION OBLIGATION. Subject only to Section 7 and to the
proviso in this Section, the Company shall indemnify, defend and hold harmless
Indemnitee, to the fullest extent permitted or required by the laws of the State
of Delaware in effect on the date hereof or as such laws may from time to time
hereafter be amended to increase the scope of such permitted indemnification,
against any and all Indemnifiable Claims and Indemnifiable Losses; PROVIDED,
HOWEVER, that, except as provided in Section 5, Indemnitee shall not be entitled
to indemnification pursuant to this Agreement in connection with (i) any Claim
initiated by Indemnitee against the Company or any director or officer of the
Company unless the Company has joined in or consented to the initiation of such
Claim, or (ii) the purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company
acknowledges that the foregoing obligation may be broader than that now provided
by applicable law and the Company's Constituent Documents and intends that it be
interpreted consistently with this Section and the recitals to this Agreement.
3. ADVANCEMENT OF EXPENSES. Indemnitee shall have the right to
advancement by the Company prior to the final disposition of any Indemnifiable
Claim of any and all actual and reasonable Expenses relating to, arising out of
or resulting from any Indemnifiable Claim paid or incurred by Indemnitee.
Without limiting the generality or effect of any other provision hereof,
Indemnitee's right to such advancement is not subject to the satisfaction of any
Standard of Conduct. Without limiting the generality or effect of the foregoing,
within five business days after any request by Indemnitee that is accompanied by
supporting documentation for specific reasonable Expenses to be reimbursed or
advanced, the Company shall, in accordance with such request (but without
duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to
Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse
Indemnitee for such Expenses; PROVIDED that Indemnitee shall repay, without
interest, any amounts actually advanced to Indemnitee that, at the final
disposition of the Indemnifiable Claim to which the advance related, were in
excess of amounts paid or payable by Indemnitee in respect of Expenses relating
to, arising out of or resulting from such Indemnifiable Claim. In connection
with any such payment, advancement or reimbursement, at the request of the
Company, Indemnitee shall execute and deliver to the Company an undertaking,
which need not be secured and shall be accepted without reference to
Indemnitee's ability to repay the Expenses, by or on behalf of the Indemnitee,
to repay any amounts paid, advanced or reimbursed by the Company in respect of
Expenses relating to, arising out of or resulting from any Indemnifiable Claim
in respect of which it shall have been determined, following the final
disposition of such Indemnifiable Claim and in accordance with Section 7, that
Indemnitee is not entitled to indemnification hereunder.
4. INDEMNIFICATION FOR ADDITIONAL EXPENSES. Without limiting the
generality or effect of the foregoing, the Company shall indemnify and hold
harmless Indemnitee against and, if requested by Indemnitee, shall reimburse
Indemnitee for, or advance to Indemnitee, within five business days of such
request accompanied by supporting documentation for specific Expenses to be
reimbursed or advanced, any and all actual and reasonable Expenses paid or
incurred by Indemnitee in connection with any Claim made, instituted or
conducted by Indemnitee for (a) indemnification or reimbursement or advance
payment of Expenses by the Company under any provision of this Agreement, or
under any other agreement or provision of the Constituent Documents now or
hereafter in effect relating to Indemnifiable Claims, and/or (b) recovery under
any directors' and officers' liability insurance policies maintained by the
Company; PROVIDED, HOWEVER, if it is ultimately determined that the Indemnitee
5
is not entitled to such indemnification, reimbursement, advance or insurance
recovery, as the case may be, then the Indemnitee shall be obligated to repay
any such Expenses to the Company; PROVIDED FURTHER, that, regardless in each
case of whether Indemnitee ultimately is determined to be entitled to such
indemnification, reimbursement, advance or insurance recovery, as the case may
be, Indemnitee shall return, without interest, any such advance of Expenses (or
portion thereof) which remains unspent at the final disposition of the Claim to
which the advance related.
5. PARTIAL INDEMNITY. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of any
Indemnifiable Loss but not for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
6. PROCEDURE FOR NOTIFICATION. To obtain indemnification under this
Agreement in respect of an Indemnifiable Claim or Indemnifiable Loss, Indemnitee
shall submit to the Company a written request therefore, including a brief
description (based upon information then available to Indemnitee) of such
Indemnifiable Claim or Indemnifiable Loss. If, at the time of the receipt of
such request, the Company has directors' and officers' liability insurance in
effect under which coverage for such Indemnifiable Claim or Indemnifiable Loss
is potentially available, the Company shall give prompt written notice of such
Indemnifiable Claim or Indemnifiable Loss to the applicable insurers in
accordance with the procedures set forth in the applicable policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of the Indemnitee, all Indemnifiable Claims and Indemnifiable
Losses in accordance with the terms of such policies. The Company shall provide
to Indemnitee a copy of such notice delivered to the applicable insurers,
substantially concurrently with the delivery thereof by the Company. The failure
by Indemnitee to timely notify the Company of any Indemnifiable Claim or
Indemnifiable Loss shall not relieve the Company from any liability hereunder
unless, and only to the extent that, the Company did not otherwise learn of such
Indemnifiable Claim or Indemnifiable Loss and to the extent that such failure
results in forfeiture by the Company of substantial defenses, rights or
insurance coverage.
7. DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) To the extent that Indemnitee shall have been successful on the
merits or otherwise in defense of any Indemnifiable Claim or any portion thereof
or in defense of any issue or matter therein, including, without limitation,
dismissal without prejudice, Indemnitee shall be indemnified against all
Indemnifiable Losses relating to, arising out of or resulting from such
Indemnifiable Claim in accordance with Section 2 and no Standard of Conduct
Determination (as defined in Section 7(b)) shall be required.
(b) To the extent that the provisions of Section 7(a) are inapplicable
to an Indemnifiable Claim that shall have been finally disposed of, any
determination of whether Indemnitee has satisfied the applicable Standard of
Conduct (a "STANDARD OF CONDUCT DETERMINATION") shall be made as follows: (i) if
a Change in Control shall not have occurred, or if a Change in Control shall
have occurred but Indemnitee shall have requested that the Standard of Conduct
Determination be made pursuant to this clause (i), (A) by a majority vote of the
Disinterested Directors, even if less than a quorum of the Board, (B) if such
Disinterested Directors so direct, by a majority vote of a committee of
6
Disinterested Directors designated by a majority vote of all Disinterested
Directors, or (C) if there are no such Disinterested Directors, or if a majority
of the Disinterested Directors so direct, by Independent Counsel in a written
opinion addressed to the Board, a copy of which shall be delivered to
Indemnitee; and (ii) if a Change in Control shall have occurred and Indemnitee
shall not have requested that the Standard of Conduct Determination be made
pursuant to clause (i) above, by Independent Counsel in a written opinion
addressed to the Board, a copy of which shall be delivered to Indemnitee.
(c) If (i) Indemnitee shall be entitled to indemnification hereunder
against any Indemnifiable Losses pursuant to Section 7(a), (ii) no determination
of whether Indemnitee has satisfied any applicable standard of conduct under
Delaware law is a legally required condition precedent to indemnification of
Indemnitee hereunder against any Indemnifiable Losses, or (iii) Indemnitee has
been determined or deemed pursuant to Section 7(b) to have satisfied the
applicable Standard of Conduct, then the Company shall pay to Indemnitee, within
five business days after the later of (x) the Notification Date in respect of
the Indemnifiable Claim or portion thereof to which such Indemnifiable Losses
are related, out of which such Indemnifiable Losses arose or from which such
Indemnifiable Losses resulted, and (y) the earliest date on which the applicable
criterion specified in clause (i), (ii) or (iii) above shall have been
satisfied, an amount equal to the amount of such Indemnifiable Losses. Nothing
herein is intended to mean or imply that the Company is intending to use Section
145(f) of the Delaware General Corporation Law to dispense with a requirement
that Indemnitee meet the applicable Standard of Conduct where it is otherwise
required by such statute.
(d) If a Standard of Conduct Determination is required to be, but has
not been, made by Independent Counsel pursuant to Section 7(b)(i), the
Independent Counsel shall be selected by the Board or a committee of the Board,
and the Company shall give written notice to Indemnitee advising him or her of
the identity of the Independent Counsel so selected. If a Standard of Conduct
Determination is required to be, or to have been, made by Independent Counsel
pursuant to Section 7(b)(ii), the Independent Counsel shall be selected by
Indemnitee, and Indemnitee shall give written notice to the Company advising it
of the identity of the Independent Counsel so selected. In either case,
Indemnitee or the Company, as applicable, may, within five business days after
receiving written notice of selection from the other, deliver to the other a
written objection to such selection; PROVIDED, HOWEVER, that such objection may
be asserted only on the ground that the Independent Counsel so selected does not
satisfy the criteria set forth in the definition of "Independent Counsel" in
Section 1(h), and the objection shall set forth with particularity the factual
basis of such assertion. Absent a proper and timely objection, the Person so
selected shall act as Independent Counsel. If such written objection is properly
and timely made and substantiated, (i) the Independent Counsel so selected may
not serve as Independent Counsel unless and until such objection is withdrawn or
a court has determined that such objection is without merit and (ii) the
non-objecting party may, at its option, select an alternative Independent
Counsel and give written notice to the other party advising such other party of
the identity of the alternative Independent Counsel so selected, in which case
the provisions of the two immediately preceding sentences and clause (i) of this
sentence shall apply to such subsequent selection and notice. If applicable, the
provisions of clause (ii) of the immediately preceding sentence shall apply to
successive alternative selections. If no Independent Counsel that is permitted
under the foregoing provisions of this Section 7(d) to make the Standard of
7
Conduct Determination shall have been selected within 30 calendar days after the
Company gives its initial notice pursuant to the first sentence of this Section
7(d) or Indemnitee gives its initial notice pursuant to the second sentence of
this Section 7(d), as the case may be, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware for resolution of any
objection which shall have been made by the Company or Indemnitee to the other's
selection of Independent Counsel and/or for the appointment as Independent
Counsel of a person or firm selected by the Court or by such other person as the
Court shall designate, and the person or firm with respect to whom all
objections are so resolved or the person or firm so appointed will act as
Independent Counsel. In all events, the Company shall pay all of the actual and
reasonable fees and expenses of the Independent Counsel incurred in connection
with the Independent Counsel's determination pursuant to Section 7(b).
8. COOPERATION. Indemnitee shall cooperate with reasonable requests of
the Company in connection with any Indemnifiable Claim and any individual or
firm making such Standard of Conduct Determination, including providing to such
Person documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to defend the Indemnifiable Claim or make any Standard of
Conduct Determination without incurring any unreimbursed cost in connection
therewith. The Company shall indemnify and hold harmless Indemnitee against and,
if requested by Indemnitee, shall reimburse Indemnitee for, or advance to
Indemnitee, within five business days of such request accompanied by supporting
documentation for specific costs and expenses to be reimbursed or advanced, any
and all costs and expenses (including attorneys' and experts' fees and expenses)
actually and reasonably incurred by Indemnitee in so cooperating with the Person
defending the Indemnifiable Claim or making such Standard of Conduct
Determination.
9. PRESUMPTION OF ENTITLEMENT. Notwithstanding any other provision
hereof, in making any Standard of Conduct Determination, the Person making such
determination shall presume that Indemnitee has satisfied the applicable
Standard of Conduct.
10. NO OTHER PRESUMPTION. For purposes of this Agreement, the termination
of any Claim by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere or its equivalent,
will not create a presumption that Indemnitee did not meet any applicable
Standard of Conduct or that indemnification hereunder is otherwise not
permitted.
11. NON-EXCLUSIVITY. The rights of Indemnitee hereunder will be in
addition to any other rights Indemnitee may have under the Constituent
Documents, or the substantive laws of the Company's jurisdiction of
incorporation, any other contract or otherwise (collectively, "OTHER INDEMNITY
PROVISIONS"); PROVIDED, HOWEVER, that (a) to the extent that Indemnitee
otherwise would have any greater right to indemnification under any Other
Indemnity Provision, Indemnitee will without further action be deemed to have
such greater right hereunder, and (b) to the extent that any change is made to
any Other Indemnity Provision which permits any greater right to indemnification
than that provided under this Agreement as of the date hereof, Indemnitee will
be deemed to have such greater right hereunder. The Company may not, without the
8
consent of Indemnitee, adopt any amendment to any of the Constituent Documents
the effect of which would be to deny, diminish or encumber Indemnitee's right to
indemnification under this Agreement.
12. LIABILITY INSURANCE AND FUNDING. For the duration of Indemnitee's
service as a director and/or officer of the Company and for a reasonable period
of time thereafter, which such period shall be determined by the Company in its
sole discretion, the Company shall use commercially reasonable efforts (taking
into account the scope and amount of coverage available relative to the cost
thereof) to cause to be maintained in effect policies of directors' and
officers' liability insurance providing coverage for directors and/or officers
of the Company, and, if applicable, that is substantially comparable in scope
and amount to that provided by the Company's current policies of directors' and
officers' liability insurance. Upon reasonable request, the Company shall
provide Indemnitee or his or her counsel with a copy of all directors' and
officers' liability insurance applications, binders, policies, declarations,
endorsements and other related materials. In all policies of directors' and
officers' liability insurance obtained by the Company, Indemnitee shall be named
as an insured in such a manner as to provide Indemnitee the same rights and
benefits, subject to the same limitations, as are accorded to the Company's
directors and officers most favorably insured by such policy. Notwithstanding
the foregoing, (i) the Company may, but shall not be required to, create a trust
fund, grant a security interest or use other means, including, without
limitation, a letter of credit, to ensure the payment of such amounts as may be
necessary to satisfy its obligations to indemnify and advance expenses pursuant
to this Agreement and (ii) in renewing or seeking to renew any insurance
hereunder, the Company will not be required to expend more than 2.0 times the
premium amount of the immediately preceding policy period (equitably adjusted if
necessary to reflect differences in policy periods).
13. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the related rights
of recovery of Indemnitee against other Persons (other than Indemnitee's
successors), including any entity or enterprise referred to in clause (i) of the
definition of "Indemnifiable Claim" in Section 1(f). Indemnitee shall execute
all papers reasonably required to evidence such rights (all of Indemnitee's
reasonable Expenses, including attorneys' fees and charges, related thereto to
be reimbursed by or, at the option of Indemnitee, advanced by the Company).
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment to Indemnitee in respect of any Indemnifiable
Losses to the extent Indemnitee has otherwise already actually received payment
(net of Expenses incurred in connection therewith) under any insurance policy,
the Constituent Documents and Other Indemnity Provisions or otherwise (including
from any entity or enterprise referred to in clause (i) of the definition of
"Indemnifiable Claim" in Section 1(f)) in respect of such Indemnifiable Losses
otherwise indemnifiable hereunder.
15. DEFENSE OF CLAIMS. Subject to the provisions of applicable policies of
directors' and officers' liability insurance, if any, the Company shall be
entitled to participate in the defense of any Indemnifiable Claim or to assume
or lead the defense thereof with counsel reasonably satisfactory to the
Indemnitee; PROVIDED that if Indemnitee determines, after consultation with
counsel selected by Indemnitee, that (a) the use of counsel chosen by the
Company to represent Indemnitee would present such counsel with an actual or
9
potential conflict, (b) the named parties in any such Indemnifiable Claim
(including any impleaded parties) include both the Company and Indemnitee and
Indemnitee shall conclude that there may be one or more legal defenses available
to him or her that are different from or in addition to those available to the
Company, (c) any such representation by such counsel would be precluded under
the applicable standards of professional conduct then prevailing, or (d)
Indemnitee has interests in the claim or underlying subject matter that are
different from or in addition to those of other Persons against whom the Claim
has been made or might reasonably be expected to be made, then Indemnitee shall
be entitled to retain separate counsel (but not more than one law firm plus, if
applicable, local counsel in respect of any particular Indemnifiable Claim for
all indemnitees in Indemnitee's circumstances) at the Company's expense. The
Company shall not be liable to Indemnitee under this Agreement for any amounts
paid in settlement of any threatened or pending Indemnifiable Claim effected
without the Company's prior written consent. The Company shall not, without the
prior written consent of the Indemnitee, effect any settlement of any threatened
or pending Indemnifiable Claim which the Indemnitee is or could have been a
party unless such settlement solely involves the payment of money and includes a
complete and unconditional release of the Indemnitee from all liability on any
claims that are the subject matter of such Indemnifiable Claim. Neither the
Company nor Indemnitee shall unreasonably withhold its consent to any proposed
settlement; PROVIDED that Indemnitee may withhold consent to any settlement that
does not provide a complete and unconditional release of Indemnitee.
16. MUTUAL ACKNOWLEDGMENT. Both the Company and the Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company may be
required in the future to undertake to the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify Indemnitee
and, in that event, the Indemnitee's rights and the Company's obligations
hereunder shall be subject to that determination.
17. SUCCESSORS AND BINDING AGREEMENT.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and any successor to the Company, including, without limitation, any
Person acquiring directly or indirectly all or substantially all of the business
or assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor will thereafter be deemed the
"Company" for purposes of this Agreement), but shall not otherwise be assignable
or delegatable by the Company.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Indemnitee's personal or legal representatives, executors, administrators,
heirs, distributees, legatees and other successors.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 17(a) and 17(b). Without limiting the generality or effect of the
foregoing, Indemnitee's right to receive payments hereunder shall not be
10
assignable, whether by pledge, creation of a security interest or otherwise,
other than by a transfer by the Indemnitee's will or by the laws of descent and
distribution, and, in the event of any attempted assignment or transfer contrary
to this Section 17(c), the Company shall have no liability to pay any amount so
attempted to be assigned or transferred.
18. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder must be in writing and shall be deemed to
have been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or one business day after
having been sent for next-day delivery by a nationally recognized overnight
courier service, addressed to the Company (to the attention of the Secretary of
the Company) and to Indemnitee at the applicable address shown on the signature
page hereto, or to such other address as any party may have furnished to the
other in writing and in accordance herewith, except that notices of changes of
address will be effective only upon receipt.
19. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the Chancery Court of the
State of Delaware for all purposes in connection with any action or proceeding
which arises out of or relates to this Agreement, waive all procedural
objections to suit in that jurisdiction, including, without limitation,
objections as to venue or inconvenience, agree that service in any such action
may be made by notice given in accordance with Section 18 and also agree that
any action instituted under this Agreement shall be brought only in the Chancery
Court of the State of Delaware.
20. VALIDITY. If any provision of this Agreement or the application of any
provision hereof to any Person or circumstance is held invalid, unenforceable or
otherwise illegal, the remainder of this Agreement and the application of such
provision to any other Person or circumstance shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent, and only to the extent, necessary to make it
enforceable, valid or legal. In the event that any court or other adjudicative
body shall decline to reform any provision of this Agreement held to be invalid,
unenforceable or otherwise illegal as contemplated by the immediately preceding
sentence, the parties thereto shall take all such action as may be necessary or
appropriate to replace the provision so held to be invalid, unenforceable or
otherwise illegal with one or more alternative provisions that effectuate the
purpose and intent of the original provisions of this Agreement as fully as
possible without being invalid, unenforceable or otherwise illegal.
21. MISCELLANEOUS. No provision of this Agreement may be waived, modified
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Indemnitee and the Company. No waiver by either party hereto
at any time of any breach by the other party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, expressed or implied with respect to the subject matter
hereof have been made by either party that are not set forth expressly in this
Agreement.
11
22. CERTAIN INTERPRETIVE MATTERS. Unless the context of this Agreement
otherwise requires, (1) "it" or "its" or words of any gender include each other
gender, (2) words using the singular or plural number also include the plural or
singular number, respectively, (3) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement, (4) the terms
"Article," "Section," "Annex" or "Exhibit" refer to the specified Article,
Section, Annex or Exhibit of or to this Agreement, (5) the terms "include,"
"includes" and "including" will be deemed to be followed by the words "without
limitation" (whether or not so expressed), and (6) the word "or" is disjunctive
but not exclusive. Whenever this Agreement refers to a number of days, such
number will refer to calendar days unless business days are specified and
whenever action must be taken (including the giving of notice or the delivery of
documents) under this Agreement during a certain period of time or by a
particular date that ends or occurs on a non-business day, then such period or
date will be extended until the immediately following business day. As used
herein, "BUSINESS DAY" means any day other than Saturday, Sunday or a United
States federal holiday.
23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter of this Agreement.
Any prior agreements or understandings between the parties hereto with respect
to indemnification are hereby terminated and of no further force or effect. This
Agreement is not the exclusive means of securing indemnification rights of
Indemnitee and is in addition to any rights Indemnitee may have under any
Constituent Documents.
24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together shall constitute one and the same agreement.
12
IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused
its duly authorized representative to execute this Agreement as of the date
first above written.
HEALTH BENEFITS DIRECT CORPORATION
By: /s/ Charles Eissa
----------------------------------------
Name: Charles Eissa
Title: President, COO
INDEMNITEE:
/s/ Scott Frohman
--------------------------------------------
Name:
Address: 2900 Gateway Dr.
-----------------------------------
Pompano, Fl 33069
------------------------------------------
------------------------------------------
SIGNATURE PAGE TO DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
Exhibit 10.19
[FORM OF INDEMNIFICATION AGREEMENT]
HEALTH BENEFITS DIRECT CORPORATION
DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
This Director and Officer Indemnification Agreement, dated as of
November 18, 2005 (this "Agreement"), is made by and between Health Benefits
Direct Corporation, a Delaware corporation (the "COMPANY"), and
Charles Eissa (the "INDEMNITEE").
RECITALS:
A. Section 141 of the Delaware General Corporation Law provides that the
business and affairs of a corporation shall be managed by or under the direction
of its board of directors.
B. By virtue of the managerial prerogatives vested in the directors and
officers of a Delaware corporation, directors and officers act as fiduciaries of
the corporation and its stockholders.
C. Thus, it is critically important to the Company and its stockholders
that the Company be able to attract and retain the most capable persons
reasonably available to serve as directors and officers of the Company.
D. In recognition of the need for corporations to be able to induce capable
and responsible persons to accept positions in corporate management, Delaware
law authorizes (and in some instances requires) corporations to indemnify their
directors and officers, and further authorizes corporations to purchase and
maintain insurance for the benefit of their directors and officers.
E. The Delaware courts have recognized that indemnification by a
corporation serves the dual policies of (1) allowing corporate officials to
resist unjustified lawsuits, secure in the knowledge that, if vindicated, the
corporation will bear the expense of litigation, and (2) encouraging capable
women and men to serve as corporate directors and officers, secure in the
knowledge that the corporation will absorb the costs of defending their honesty
and integrity.
F. The number of lawsuits challenging the judgment and actions of directors
and officers of Delaware corporations, the costs of defending those lawsuits and
the threat to personal assets have all materially increased over the past
several years, chilling the willingness of capable women and men to undertake
the responsibilities imposed on corporate directors and officers.
G. Recent federal legislation and rules adopted by the Securities and
Exchange Commission and the national securities exchanges have exposed such
directors and officers to new and substantially broadened civil liabilities.
H. Under Delaware law, a director's or officer's right to be reimbursed for
the costs of defense of criminal actions, whether such claims are asserted under
state or federal law, does not depend upon the merits of the claims asserted
against the director or officer and is separate and distinct from any right to
indemnification the director may be able to establish.
I. Indemnitee is, or will be, a director and/or officer of the Company and
his or her willingness to serve in such capacity is predicated, in substantial
part, upon the Company's willingness to indemnify him or her in accordance with
the principles reflected above, to the fullest extent permitted by the laws of
the State of Delaware, and upon the other undertakings set forth in this
Agreement.
J. Therefore, in recognition of the need to provide Indemnitee with
substantial protection against personal liability, in order to procure
Indemnitee's continued service as a director and/or officer of the Company and
to enhance Indemnitee's ability to serve the Company in an effective manner, and
in order to provide such protection pursuant to express contract rights
(intended to be enforceable irrespective of, among other things, any amendment
to the Company's certificate of incorporation or bylaws (collectively, the
"CONSTITUENT DOCUMENTS"), any change in the composition of the Company's Board
of Directors (the "BOARD") or any change-in-control or business combination
transaction relating to the Company), the Company wishes to provide in this
Agreement for the indemnification and advancement of Expenses to Indemnitee on
the terms, and subject to the conditions, set forth in this Agreement.
K. In light of the considerations referred to in the preceding recitals, it
is the Company's intention and desire that the provisions of this Agreement be
construed liberally, subject to their express terms, to maximize the protections
to be provided to Indemnitee hereunder.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "CHANGE IN CONTROL" shall have occurred at such time, if any, as
Incumbent Directors cease for any reason to constitute a majority of Directors.
For purposes of this Section 1(a), "INCUMBENT DIRECTORS" means the individuals
who, as of the date hereof, are Directors of the Company and any individual
becoming a Director subsequent to the date hereof whose election, nomination for
election by the Company's stockholders, or appointment, was approved by a vote
of at least a majority of the then Incumbent Directors (either by a specific
vote or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such nomination);
PROVIDED, HOWEVER, that an individual shall not be an Incumbent Director if such
individual's election or appointment to the Board occurs as a result of an
actual or threatened election contest (as described in Rule 14a-12(c) of the
Securities Exchange Act of 1934, as amended) with respect to the election or
removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.
2
(b) "CLAIM" means (i) any threatened, asserted, pending or completed
claim, demand, action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, investigative or other, and whether made pursuant
to federal, state or other law; and (ii) any inquiry or investigation, whether
made, instituted or conducted by the Company or any other Person, including,
without limitation, any federal, state or other governmental entity, that
Indemnitee reasonably determines might lead to the institution of any such
claim, demand, action, suit or proceeding. For the avoidance of doubt, the
Company intends indemnity to be provided hereunder in respect of acts or failure
to act prior to, on or after the date hereof.
(c) "CONTROLLED AFFILIATE" means any corporation, limited liability
company, partnership, joint venture, trust or other entity or enterprise,
whether or not for profit, that is directly or indirectly controlled by the
Company. For purposes of this definition, "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of an entity or enterprise, whether through the ownership
of voting securities, through other voting rights, by contract or otherwise;
PROVIDED that direct or indirect beneficial ownership of capital stock or other
interests in an entity or enterprise entitling the holder to cast 15% or more of
the total number of votes generally entitled to be cast in the election of
directors (or persons performing comparable functions) of such entity or
enterprise shall be deemed to constitute control for purposes of this
definition.
(d) "DISINTERESTED DIRECTOR" means a director of the Company who is
not and was not a party to the Claim in respect of which indemnification is
sought by Indemnitee.
(e) "EXPENSES" means attorneys' and experts' fees and expenses and all
other costs and expenses paid or payable in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to investigate, defend, be a witness in or participate in (including
on appeal), any Claim.
(f) "INDEMNIFIABLE CLAIM" means any Claim based upon, arising out of
or resulting from (i) any actual, alleged or suspected act or failure to act by
Indemnitee in his or her capacity as a director, officer, employee or agent of
the Company or as a director, officer, employee, member, manager, trustee or
agent of any other corporation, limited liability company, partnership, joint
venture, trust or other entity or enterprise, whether or not for profit, as to
which Indemnitee is or was serving at the request of the Company, (ii) any
actual, alleged or suspected act or failure to act by Indemnitee in respect of
any business, transaction, communication, filing, disclosure or other activity
of the Company or any other entity or enterprise referred to in clause (i) of
this sentence, or (iii) Indemnitee's status as a current or former director,
officer, employee or agent of the Company or as a current or former director,
officer, employee, member, manager, trustee or agent of the Company or any other
entity or enterprise referred to in clause (i) of this sentence or any actual,
alleged or suspected act or failure to act by Indemnitee in connection with any
obligation or restriction imposed upon Indemnitee by reason of such status. In
addition to any service at the actual request of the Company, for purposes of
this Agreement, Indemnitee shall be deemed to be serving or to have served at
the request of the Company as a director, officer, employee, member, manager,
trustee or agent of another entity or enterprise if Indemnitee is or was serving
as a director, officer, employee, member, manager, agent, trustee or other
fiduciary of such entity or enterprise and (i) such entity or enterprise is or
3
at the time of such service was a Controlled Affiliate, (ii) such entity or
enterprise is or at the time of such service was an employee benefit plan (or
related trust) sponsored or maintained by the Company or a Controlled Affiliate,
or (iii) the Company or a Controlled Affiliate (by action of the Board, any
committee thereof or the Company's Chief Executive Officer ("CEO") (other than
as the CEO him or herself)) caused or authorized Indemnitee to be nominated,
elected, appointed, designated, employed, engaged or selected to serve in such
capacity.
(g) "INDEMNIFIABLE LOSSES" means any and all Losses relating to,
arising out of or resulting from any Indemnifiable Claim; PROVIDED, HOWEVER,
that Indemnifiable Losses shall not include Losses incurred by Indemnitee in
respect of any Indemnifiable Claim (or any matter or issue therein) as to which
Indemnitee shall have been adjudged liable to the Company, unless and only to
the extent that the Delaware Court of Chancery or the court in which such
Indemnifiable Claim was brought shall have determined upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, Indemnitee is fairly and reasonably entitled to indemnification for
such Expenses as the court shall deem proper.
(h) "INDEPENDENT COUNSEL" means a nationally recognized law firm, or a
member of a nationally recognized law firm, that is experienced in matters of
Delaware corporate law and neither presently is, nor in the past five years has
been, retained to represent: (i) the Company (or any subsidiary) or Indemnitee
in any matter material to either such party (other than with respect to matters
concerning the Indemnitee under this Agreement, or of other indemnitees under
similar indemnification agreements) or (ii) any other named (or, as to a
threatened matter, reasonably likely to be named) party to the Indemnifiable
Claim giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's rights under this Agreement.
(i) "LOSSES" means any and all Expenses, damages, losses, liabilities,
judgments, fines, penalties (whether civil, criminal or other) and amounts paid
or payable in settlement, including, without limitation, all interest,
assessments and other charges paid or payable in connection with or in respect
of any of the foregoing.
(j) "PERSON" means any individual, entity or group, within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended.
(k) "STANDARD OF CONDUCT" means the standard for conduct by Indemnitee
that is a condition precedent to indemnification of Indemnitee hereunder against
Indemnifiable Losses relating to, arising out of or resulting from an
Indemnifiable Claim. The Standard of Conduct is (i) good faith and a reasonable
belief by Indemnitee that his action was in or not opposed to the best interests
of the Company and, with respect to any criminal action or proceeding, that
Indemnitee had no reasonable cause to believe that his conduct was unlawful, or
(ii) any other applicable standard of conduct that may hereafter be substituted
under Section 145(a) or (b) of the Delaware General Corporation Law or any
successor to such provision(s).
4
2. INDEMNIFICATION OBLIGATION. Subject only to Section 7 and to the
proviso in this Section, the Company shall indemnify, defend and hold harmless
Indemnitee, to the fullest extent permitted or required by the laws of the State
of Delaware in effect on the date hereof or as such laws may from time to time
hereafter be amended to increase the scope of such permitted indemnification,
against any and all Indemnifiable Claims and Indemnifiable Losses; PROVIDED,
HOWEVER, that, except as provided in Section 5, Indemnitee shall not be entitled
to indemnification pursuant to this Agreement in connection with (i) any Claim
initiated by Indemnitee against the Company or any director or officer of the
Company unless the Company has joined in or consented to the initiation of such
Claim, or (ii) the purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company
acknowledges that the foregoing obligation may be broader than that now provided
by applicable law and the Company's Constituent Documents and intends that it be
interpreted consistently with this Section and the recitals to this Agreement.
3. ADVANCEMENT OF EXPENSES. Indemnitee shall have the right to
advancement by the Company prior to the final disposition of any Indemnifiable
Claim of any and all actual and reasonable Expenses relating to, arising out of
or resulting from any Indemnifiable Claim paid or incurred by Indemnitee.
Without limiting the generality or effect of any other provision hereof,
Indemnitee's right to such advancement is not subject to the satisfaction of any
Standard of Conduct. Without limiting the generality or effect of the foregoing,
within five business days after any request by Indemnitee that is accompanied by
supporting documentation for specific reasonable Expenses to be reimbursed or
advanced, the Company shall, in accordance with such request (but without
duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to
Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse
Indemnitee for such Expenses; PROVIDED that Indemnitee shall repay, without
interest, any amounts actually advanced to Indemnitee that, at the final
disposition of the Indemnifiable Claim to which the advance related, were in
excess of amounts paid or payable by Indemnitee in respect of Expenses relating
to, arising out of or resulting from such Indemnifiable Claim. In connection
with any such payment, advancement or reimbursement, at the request of the
Company, Indemnitee shall execute and deliver to the Company an undertaking,
which need not be secured and shall be accepted without reference to
Indemnitee's ability to repay the Expenses, by or on behalf of the Indemnitee,
to repay any amounts paid, advanced or reimbursed by the Company in respect of
Expenses relating to, arising out of or resulting from any Indemnifiable Claim
in respect of which it shall have been determined, following the final
disposition of such Indemnifiable Claim and in accordance with Section 7, that
Indemnitee is not entitled to indemnification hereunder.
4. INDEMNIFICATION FOR ADDITIONAL EXPENSES. Without limiting the
generality or effect of the foregoing, the Company shall indemnify and hold
harmless Indemnitee against and, if requested by Indemnitee, shall reimburse
Indemnitee for, or advance to Indemnitee, within five business days of such
request accompanied by supporting documentation for specific Expenses to be
reimbursed or advanced, any and all actual and reasonable Expenses paid or
incurred by Indemnitee in connection with any Claim made, instituted or
conducted by Indemnitee for (a) indemnification or reimbursement or advance
payment of Expenses by the Company under any provision of this Agreement, or
under any other agreement or provision of the Constituent Documents now or
hereafter in effect relating to Indemnifiable Claims, and/or (b) recovery under
any directors' and officers' liability insurance policies maintained by the
Company; PROVIDED, HOWEVER, if it is ultimately determined that the Indemnitee
5
is not entitled to such indemnification, reimbursement, advance or insurance
recovery, as the case may be, then the Indemnitee shall be obligated to repay
any such Expenses to the Company; PROVIDED FURTHER, that, regardless in each
case of whether Indemnitee ultimately is determined to be entitled to such
indemnification, reimbursement, advance or insurance recovery, as the case may
be, Indemnitee shall return, without interest, any such advance of Expenses (or
portion thereof) which remains unspent at the final disposition of the Claim to
which the advance related.
5. PARTIAL INDEMNITY. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of any
Indemnifiable Loss but not for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
6. PROCEDURE FOR NOTIFICATION. To obtain indemnification under this
Agreement in respect of an Indemnifiable Claim or Indemnifiable Loss, Indemnitee
shall submit to the Company a written request therefore, including a brief
description (based upon information then available to Indemnitee) of such
Indemnifiable Claim or Indemnifiable Loss. If, at the time of the receipt of
such request, the Company has directors' and officers' liability insurance in
effect under which coverage for such Indemnifiable Claim or Indemnifiable Loss
is potentially available, the Company shall give prompt written notice of such
Indemnifiable Claim or Indemnifiable Loss to the applicable insurers in
accordance with the procedures set forth in the applicable policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of the Indemnitee, all Indemnifiable Claims and Indemnifiable
Losses in accordance with the terms of such policies. The Company shall provide
to Indemnitee a copy of such notice delivered to the applicable insurers,
substantially concurrently with the delivery thereof by the Company. The failure
by Indemnitee to timely notify the Company of any Indemnifiable Claim or
Indemnifiable Loss shall not relieve the Company from any liability hereunder
unless, and only to the extent that, the Company did not otherwise learn of such
Indemnifiable Claim or Indemnifiable Loss and to the extent that such failure
results in forfeiture by the Company of substantial defenses, rights or
insurance coverage.
7. DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) To the extent that Indemnitee shall have been successful on the
merits or otherwise in defense of any Indemnifiable Claim or any portion thereof
or in defense of any issue or matter therein, including, without limitation,
dismissal without prejudice, Indemnitee shall be indemnified against all
Indemnifiable Losses relating to, arising out of or resulting from such
Indemnifiable Claim in accordance with Section 2 and no Standard of Conduct
Determination (as defined in Section 7(b)) shall be required.
(b) To the extent that the provisions of Section 7(a) are inapplicable
to an Indemnifiable Claim that shall have been finally disposed of, any
determination of whether Indemnitee has satisfied the applicable Standard of
Conduct (a "STANDARD OF CONDUCT DETERMINATION") shall be made as follows: (i) if
a Change in Control shall not have occurred, or if a Change in Control shall
have occurred but Indemnitee shall have requested that the Standard of Conduct
Determination be made pursuant to this clause (i), (A) by a majority vote of the
Disinterested Directors, even if less than a quorum of the Board, (B) if such
Disinterested Directors so direct, by a majority vote of a committee of
6
Disinterested Directors designated by a majority vote of all Disinterested
Directors, or (C) if there are no such Disinterested Directors, or if a majority
of the Disinterested Directors so direct, by Independent Counsel in a written
opinion addressed to the Board, a copy of which shall be delivered to
Indemnitee; and (ii) if a Change in Control shall have occurred and Indemnitee
shall not have requested that the Standard of Conduct Determination be made
pursuant to clause (i) above, by Independent Counsel in a written opinion
addressed to the Board, a copy of which shall be delivered to Indemnitee.
(c) If (i) Indemnitee shall be entitled to indemnification hereunder
against any Indemnifiable Losses pursuant to Section 7(a), (ii) no determination
of whether Indemnitee has satisfied any applicable standard of conduct under
Delaware law is a legally required condition precedent to indemnification of
Indemnitee hereunder against any Indemnifiable Losses, or (iii) Indemnitee has
been determined or deemed pursuant to Section 7(b) to have satisfied the
applicable Standard of Conduct, then the Company shall pay to Indemnitee, within
five business days after the later of (x) the Notification Date in respect of
the Indemnifiable Claim or portion thereof to which such Indemnifiable Losses
are related, out of which such Indemnifiable Losses arose or from which such
Indemnifiable Losses resulted, and (y) the earliest date on which the applicable
criterion specified in clause (i), (ii) or (iii) above shall have been
satisfied, an amount equal to the amount of such Indemnifiable Losses. Nothing
herein is intended to mean or imply that the Company is intending to use Section
145(f) of the Delaware General Corporation Law to dispense with a requirement
that Indemnitee meet the applicable Standard of Conduct where it is otherwise
required by such statute.
(d) If a Standard of Conduct Determination is required to be, but has
not been, made by Independent Counsel pursuant to Section 7(b)(i), the
Independent Counsel shall be selected by the Board or a committee of the Board,
and the Company shall give written notice to Indemnitee advising him or her of
the identity of the Independent Counsel so selected. If a Standard of Conduct
Determination is required to be, or to have been, made by Independent Counsel
pursuant to Section 7(b)(ii), the Independent Counsel shall be selected by
Indemnitee, and Indemnitee shall give written notice to the Company advising it
of the identity of the Independent Counsel so selected. In either case,
Indemnitee or the Company, as applicable, may, within five business days after
receiving written notice of selection from the other, deliver to the other a
written objection to such selection; PROVIDED, HOWEVER, that such objection may
be asserted only on the ground that the Independent Counsel so selected does not
satisfy the criteria set forth in the definition of "Independent Counsel" in
Section 1(h), and the objection shall set forth with particularity the factual
basis of such assertion. Absent a proper and timely objection, the Person so
selected shall act as Independent Counsel. If such written objection is properly
and timely made and substantiated, (i) the Independent Counsel so selected may
not serve as Independent Counsel unless and until such objection is withdrawn or
a court has determined that such objection is without merit and (ii) the
non-objecting party may, at its option, select an alternative Independent
Counsel and give written notice to the other party advising such other party of
the identity of the alternative Independent Counsel so selected, in which case
the provisions of the two immediately preceding sentences and clause (i) of this
sentence shall apply to such subsequent selection and notice. If applicable, the
provisions of clause (ii) of the immediately preceding sentence shall apply to
successive alternative selections. If no Independent Counsel that is permitted
under the foregoing provisions of this Section 7(d) to make the Standard of
7
Conduct Determination shall have been selected within 30 calendar days after the
Company gives its initial notice pursuant to the first sentence of this Section
7(d) or Indemnitee gives its initial notice pursuant to the second sentence of
this Section 7(d), as the case may be, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware for resolution of any
objection which shall have been made by the Company or Indemnitee to the other's
selection of Independent Counsel and/or for the appointment as Independent
Counsel of a person or firm selected by the Court or by such other person as the
Court shall designate, and the person or firm with respect to whom all
objections are so resolved or the person or firm so appointed will act as
Independent Counsel. In all events, the Company shall pay all of the actual and
reasonable fees and expenses of the Independent Counsel incurred in connection
with the Independent Counsel's determination pursuant to Section 7(b).
8. COOPERATION. Indemnitee shall cooperate with reasonable requests of
the Company in connection with any Indemnifiable Claim and any individual or
firm making such Standard of Conduct Determination, including providing to such
Person documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to defend the Indemnifiable Claim or make any Standard of
Conduct Determination without incurring any unreimbursed cost in connection
therewith. The Company shall indemnify and hold harmless Indemnitee against and,
if requested by Indemnitee, shall reimburse Indemnitee for, or advance to
Indemnitee, within five business days of such request accompanied by supporting
documentation for specific costs and expenses to be reimbursed or advanced, any
and all costs and expenses (including attorneys' and experts' fees and expenses)
actually and reasonably incurred by Indemnitee in so cooperating with the Person
defending the Indemnifiable Claim or making such Standard of Conduct
Determination.
9. PRESUMPTION OF ENTITLEMENT. Notwithstanding any other provision
hereof, in making any Standard of Conduct Determination, the Person making such
determination shall presume that Indemnitee has satisfied the applicable
Standard of Conduct.
10. NO OTHER PRESUMPTION. For purposes of this Agreement, the termination
of any Claim by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere or its equivalent,
will not create a presumption that Indemnitee did not meet any applicable
Standard of Conduct or that indemnification hereunder is otherwise not
permitted.
11. NON-EXCLUSIVITY. The rights of Indemnitee hereunder will be in
addition to any other rights Indemnitee may have under the Constituent
Documents, or the substantive laws of the Company's jurisdiction of
incorporation, any other contract or otherwise (collectively, "OTHER INDEMNITY
PROVISIONS"); PROVIDED, HOWEVER, that (a) to the extent that Indemnitee
otherwise would have any greater right to indemnification under any Other
Indemnity Provision, Indemnitee will without further action be deemed to have
such greater right hereunder, and (b) to the extent that any change is made to
any Other Indemnity Provision which permits any greater right to indemnification
than that provided under this Agreement as of the date hereof, Indemnitee will
be deemed to have such greater right hereunder. The Company may not, without the
8
consent of Indemnitee, adopt any amendment to any of the Constituent Documents
the effect of which would be to deny, diminish or encumber Indemnitee's right to
indemnification under this Agreement.
12. LIABILITY INSURANCE AND FUNDING. For the duration of Indemnitee's
service as a director and/or officer of the Company and for a reasonable period
of time thereafter, which such period shall be determined by the Company in its
sole discretion, the Company shall use commercially reasonable efforts (taking
into account the scope and amount of coverage available relative to the cost
thereof) to cause to be maintained in effect policies of directors' and
officers' liability insurance providing coverage for directors and/or officers
of the Company, and, if applicable, that is substantially comparable in scope
and amount to that provided by the Company's current policies of directors' and
officers' liability insurance. Upon reasonable request, the Company shall
provide Indemnitee or his or her counsel with a copy of all directors' and
officers' liability insurance applications, binders, policies, declarations,
endorsements and other related materials. In all policies of directors' and
officers' liability insurance obtained by the Company, Indemnitee shall be named
as an insured in such a manner as to provide Indemnitee the same rights and
benefits, subject to the same limitations, as are accorded to the Company's
directors and officers most favorably insured by such policy. Notwithstanding
the foregoing, (i) the Company may, but shall not be required to, create a trust
fund, grant a security interest or use other means, including, without
limitation, a letter of credit, to ensure the payment of such amounts as may be
necessary to satisfy its obligations to indemnify and advance expenses pursuant
to this Agreement and (ii) in renewing or seeking to renew any insurance
hereunder, the Company will not be required to expend more than 2.0 times the
premium amount of the immediately preceding policy period (equitably adjusted if
necessary to reflect differences in policy periods).
13. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the related rights
of recovery of Indemnitee against other Persons (other than Indemnitee's
successors), including any entity or enterprise referred to in clause (i) of the
definition of "Indemnifiable Claim" in Section 1(f). Indemnitee shall execute
all papers reasonably required to evidence such rights (all of Indemnitee's
reasonable Expenses, including attorneys' fees and charges, related thereto to
be reimbursed by or, at the option of Indemnitee, advanced by the Company).
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment to Indemnitee in respect of any Indemnifiable
Losses to the extent Indemnitee has otherwise already actually received payment
(net of Expenses incurred in connection therewith) under any insurance policy,
the Constituent Documents and Other Indemnity Provisions or otherwise (including
from any entity or enterprise referred to in clause (i) of the definition of
"Indemnifiable Claim" in Section 1(f)) in respect of such Indemnifiable Losses
otherwise indemnifiable hereunder.
15. DEFENSE OF CLAIMS. Subject to the provisions of applicable policies of
directors' and officers' liability insurance, if any, the Company shall be
entitled to participate in the defense of any Indemnifiable Claim or to assume
or lead the defense thereof with counsel reasonably satisfactory to the
Indemnitee; PROVIDED that if Indemnitee determines, after consultation with
counsel selected by Indemnitee, that (a) the use of counsel chosen by the
Company to represent Indemnitee would present such counsel with an actual or
9
potential conflict, (b) the named parties in any such Indemnifiable Claim
(including any impleaded parties) include both the Company and Indemnitee and
Indemnitee shall conclude that there may be one or more legal defenses available
to him or her that are different from or in addition to those available to the
Company, (c) any such representation by such counsel would be precluded under
the applicable standards of professional conduct then prevailing, or (d)
Indemnitee has interests in the claim or underlying subject matter that are
different from or in addition to those of other Persons against whom the Claim
has been made or might reasonably be expected to be made, then Indemnitee shall
be entitled to retain separate counsel (but not more than one law firm plus, if
applicable, local counsel in respect of any particular Indemnifiable Claim for
all indemnitees in Indemnitee's circumstances) at the Company's expense. The
Company shall not be liable to Indemnitee under this Agreement for any amounts
paid in settlement of any threatened or pending Indemnifiable Claim effected
without the Company's prior written consent. The Company shall not, without the
prior written consent of the Indemnitee, effect any settlement of any threatened
or pending Indemnifiable Claim which the Indemnitee is or could have been a
party unless such settlement solely involves the payment of money and includes a
complete and unconditional release of the Indemnitee from all liability on any
claims that are the subject matter of such Indemnifiable Claim. Neither the
Company nor Indemnitee shall unreasonably withhold its consent to any proposed
settlement; PROVIDED that Indemnitee may withhold consent to any settlement that
does not provide a complete and unconditional release of Indemnitee.
16. MUTUAL ACKNOWLEDGMENT. Both the Company and the Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company may be
required in the future to undertake to the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify Indemnitee
and, in that event, the Indemnitee's rights and the Company's obligations
hereunder shall be subject to that determination.
17. SUCCESSORS AND BINDING AGREEMENT.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and any successor to the Company, including, without limitation, any
Person acquiring directly or indirectly all or substantially all of the business
or assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor will thereafter be deemed the
"Company" for purposes of this Agreement), but shall not otherwise be assignable
or delegatable by the Company.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Indemnitee's personal or legal representatives, executors, administrators,
heirs, distributees, legatees and other successors.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 17(a) and 17(b). Without limiting the generality or effect of the
foregoing, Indemnitee's right to receive payments hereunder shall not be
10
assignable, whether by pledge, creation of a security interest or otherwise,
other than by a transfer by the Indemnitee's will or by the laws of descent and
distribution, and, in the event of any attempted assignment or transfer contrary
to this Section 17(c), the Company shall have no liability to pay any amount so
attempted to be assigned or transferred.
18. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder must be in writing and shall be deemed to
have been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or one business day after
having been sent for next-day delivery by a nationally recognized overnight
courier service, addressed to the Company (to the attention of the Secretary of
the Company) and to Indemnitee at the applicable address shown on the signature
page hereto, or to such other address as any party may have furnished to the
other in writing and in accordance herewith, except that notices of changes of
address will be effective only upon receipt.
19. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the Chancery Court of the
State of Delaware for all purposes in connection with any action or proceeding
which arises out of or relates to this Agreement, waive all procedural
objections to suit in that jurisdiction, including, without limitation,
objections as to venue or inconvenience, agree that service in any such action
may be made by notice given in accordance with Section 18 and also agree that
any action instituted under this Agreement shall be brought only in the Chancery
Court of the State of Delaware.
20. VALIDITY. If any provision of this Agreement or the application of any
provision hereof to any Person or circumstance is held invalid, unenforceable or
otherwise illegal, the remainder of this Agreement and the application of such
provision to any other Person or circumstance shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent, and only to the extent, necessary to make it
enforceable, valid or legal. In the event that any court or other adjudicative
body shall decline to reform any provision of this Agreement held to be invalid,
unenforceable or otherwise illegal as contemplated by the immediately preceding
sentence, the parties thereto shall take all such action as may be necessary or
appropriate to replace the provision so held to be invalid, unenforceable or
otherwise illegal with one or more alternative provisions that effectuate the
purpose and intent of the original provisions of this Agreement as fully as
possible without being invalid, unenforceable or otherwise illegal.
21. MISCELLANEOUS. No provision of this Agreement may be waived, modified
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Indemnitee and the Company. No waiver by either party hereto
at any time of any breach by the other party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, expressed or implied with respect to the subject matter
hereof have been made by either party that are not set forth expressly in this
Agreement.
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22. CERTAIN INTERPRETIVE MATTERS. Unless the context of this Agreement
otherwise requires, (1) "it" or "its" or words of any gender include each other
gender, (2) words using the singular or plural number also include the plural or
singular number, respectively, (3) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement, (4) the terms
"Article," "Section," "Annex" or "Exhibit" refer to the specified Article,
Section, Annex or Exhibit of or to this Agreement, (5) the terms "include,"
"includes" and "including" will be deemed to be followed by the words "without
limitation" (whether or not so expressed), and (6) the word "or" is disjunctive
but not exclusive. Whenever this Agreement refers to a number of days, such
number will refer to calendar days unless business days are specified and
whenever action must be taken (including the giving of notice or the delivery of
documents) under this Agreement during a certain period of time or by a
particular date that ends or occurs on a non-business day, then such period or
date will be extended until the immediately following business day. As used
herein, "BUSINESS DAY" means any day other than Saturday, Sunday or a United
States federal holiday.
23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter of this Agreement.
Any prior agreements or understandings between the parties hereto with respect
to indemnification are hereby terminated and of no further force or effect. This
Agreement is not the exclusive means of securing indemnification rights of
Indemnitee and is in addition to any rights Indemnitee may have under any
Constituent Documents.
24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused
its duly authorized representative to execute this Agreement as of the date
first above written.
HEALTH BENEFITS DIRECT CORPORATION
By: /s/ Scott Frohman
----------------------------------------
Name: Scott Frohman
Title: CEO
INDEMNITEE:
/s/ Charles Eissa
--------------------------------------------
Name:
Address: 2900 Gateway Dr.
-----------------------------------
Pompano, Fl 33069
------------------------------------------
------------------------------------------
SIGNATURE PAGE TO DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
Exhibit 10.20
[FORM OF INDEMNIFICATION AGREEMENT]
HEALTH BENEFITS DIRECT CORPORATION
DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
This Director and Officer Indemnification Agreement, dated as of November
15th, 2005 (this "Agreement"), is made by and between Health Benefits Direct
Corporation, a Delaware corporation (the "COMPANY"), and Daniel Brauser (the
"INDEMNITEE").
RECITALS:
A. Section 141 of the Delaware General Corporation Law provides that the
business and affairs of a corporation shall be managed by or under the direction
of its board of directors.
B. By virtue of the managerial prerogatives vested in the directors and
officers of a Delaware corporation, directors and officers act as fiduciaries of
the corporation and its stockholders.
C. Thus, it is critically important to the Company and its stockholders
that the Company be able to attract and retain the most capable persons
reasonably available to serve as directors and officers of the Company.
D. In recognition of the need for corporations to be able to induce capable
and responsible persons to accept positions in corporate management, Delaware
law authorizes (and in some instances requires) corporations to indemnify their
directors and officers, and further authorizes corporations to purchase and
maintain insurance for the benefit of their directors and officers.
E. The Delaware courts have recognized that indemnification by a
corporation serves the dual policies of (1) allowing corporate officials to
resist unjustified lawsuits, secure in the knowledge that, if vindicated, the
corporation will bear the expense of litigation, and (2) encouraging capable
women and men to serve as corporate directors and officers, secure in the
knowledge that the corporation will absorb the costs of defending their honesty
and integrity.
F. The number of lawsuits challenging the judgment and actions of directors
and officers of Delaware corporations, the costs of defending those lawsuits and
the threat to personal assets have all materially increased over the past
several years, chilling the willingness of capable women and men to undertake
the responsibilities imposed on corporate directors and officers.
G. Recent federal legislation and rules adopted by the Securities and
Exchange Commission and the national securities exchanges have exposed such
directors and officers to new and substantially broadened civil liabilities.
H. Under Delaware law, a director's or officer's right to be reimbursed for
the costs of defense of criminal actions, whether such claims are asserted under
state or federal law, does not depend upon the merits of the claims asserted
against the director or officer and is separate and distinct from any right to
indemnification the director may be able to establish.
I. Indemnitee is, or will be, a director and/or officer of the Company and
his or her willingness to serve in such capacity is predicated, in substantial
part, upon the Company's willingness to indemnify him or her in accordance with
the principles reflected above, to the fullest extent permitted by the laws of
the State of Delaware, and upon the other undertakings set forth in this
Agreement.
J. Therefore, in recognition of the need to provide Indemnitee with
substantial protection against personal liability, in order to procure
Indemnitee's continued service as a director and/or officer of the Company and
to enhance Indemnitee's ability to serve the Company in an effective manner, and
in order to provide such protection pursuant to express contract rights
(intended to be enforceable irrespective of, among other things, any amendment
to the Company's certificate of incorporation or bylaws (collectively, the
"CONSTITUENT DOCUMENTS"), any change in the composition of the Company's Board
of Directors (the "BOARD") or any change-in-control or business combination
transaction relating to the Company), the Company wishes to provide in this
Agreement for the indemnification and advancement of Expenses to Indemnitee on
the terms, and subject to the conditions, set forth in this Agreement.
K. In light of the considerations referred to in the preceding recitals, it
is the Company's intention and desire that the provisions of this Agreement be
construed liberally, subject to their express terms, to maximize the protections
to be provided to Indemnitee hereunder.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "CHANGE IN CONTROL" shall have occurred at such time, if any, as
Incumbent Directors cease for any reason to constitute a majority of Directors.
For purposes of this Section 1(a), "INCUMBENT DIRECTORS" means the individuals
who, as of the date hereof, are Directors of the Company and any individual
becoming a Director subsequent to the date hereof whose election, nomination for
election by the Company's stockholders, or appointment, was approved by a vote
of at least a majority of the then Incumbent Directors (either by a specific
vote or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such nomination);
PROVIDED, HOWEVER, that an individual shall not be an Incumbent Director if such
individual's election or appointment to the Board occurs as a result of an
actual or threatened election contest (as described in Rule 14a-12(c) of the
Securities Exchange Act of 1934, as amended) with respect to the election or
removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.
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(b) "CLAIM" means (i) any threatened, asserted, pending or completed
claim, demand, action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, investigative or other, and whether made pursuant
to federal, state or other law; and (ii) any inquiry or investigation, whether
made, instituted or conducted by the Company or any other Person, including,
without limitation, any federal, state or other governmental entity, that
Indemnitee reasonably determines might lead to the institution of any such
claim, demand, action, suit or proceeding. For the avoidance of doubt, the
Company intends indemnity to be provided hereunder in respect of acts or failure
to act prior to, on or after the date hereof.
(c) "CONTROLLED AFFILIATE" means any corporation, limited liability
company, partnership, joint venture, trust or other entity or enterprise,
whether or not for profit, that is directly or indirectly controlled by the
Company. For purposes of this definition, "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of an entity or enterprise, whether through the ownership
of voting securities, through other voting rights, by contract or otherwise;
PROVIDED that direct or indirect beneficial ownership of capital stock or other
interests in an entity or enterprise entitling the holder to cast 15% or more of
the total number of votes generally entitled to be cast in the election of
directors (or persons performing comparable functions) of such entity or
enterprise shall be deemed to constitute control for purposes of this
definition.
(d) "DISINTERESTED DIRECTOR" means a director of the Company who is
not and was not a party to the Claim in respect of which indemnification is
sought by Indemnitee.
(e) "EXPENSES" means attorneys' and experts' fees and expenses and all
other costs and expenses paid or payable in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to investigate, defend, be a witness in or participate in (including
on appeal), any Claim.
(f) "INDEMNIFIABLE CLAIM" means any Claim based upon, arising out of
or resulting from (i) any actual, alleged or suspected act or failure to act by
Indemnitee in his or her capacity as a director, officer, employee or agent of
the Company or as a director, officer, employee, member, manager, trustee or
agent of any other corporation, limited liability company, partnership, joint
venture, trust or other entity or enterprise, whether or not for profit, as to
which Indemnitee is or was serving at the request of the Company, (ii) any
actual, alleged or suspected act or failure to act by Indemnitee in respect of
any business, transaction, communication, filing, disclosure or other activity
of the Company or any other entity or enterprise referred to in clause (i) of
this sentence, or (iii) Indemnitee's status as a current or former director,
officer, employee or agent of the Company or as a current or former director,
officer, employee, member, manager, trustee or agent of the Company or any other
entity or enterprise referred to in clause (i) of this sentence or any actual,
alleged or suspected act or failure to act by Indemnitee in connection with any
obligation or restriction imposed upon Indemnitee by reason of such status. In
addition to any service at the actual request of the Company, for purposes of
this Agreement, Indemnitee shall be deemed to be serving or to have served at
the request of the Company as a director, officer, employee, member, manager,
trustee or agent of another entity or enterprise if Indemnitee is or was serving
as a director, officer, employee, member, manager, agent, trustee or other
fiduciary of such entity or enterprise and (i) such entity or enterprise is or
3
at the time of such service was a Controlled Affiliate, (ii) such entity or
enterprise is or at the time of such service was an employee benefit plan (or
related trust) sponsored or maintained by the Company or a Controlled Affiliate,
or (iii) the Company or a Controlled Affiliate (by action of the Board, any
committee thereof or the Company's Chief Executive Officer ("CEO") (other than
as the CEO him or herself)) caused or authorized Indemnitee to be nominated,
elected, appointed, designated, employed, engaged or selected to serve in such
capacity.
(g) "INDEMNIFIABLE LOSSES" means any and all Losses relating to,
arising out of or resulting from any Indemnifiable Claim; PROVIDED, HOWEVER,
that Indemnifiable Losses shall not include Losses incurred by Indemnitee in
respect of any Indemnifiable Claim (or any matter or issue therein) as to which
Indemnitee shall have been adjudged liable to the Company, unless and only to
the extent that the Delaware Court of Chancery or the court in which such
Indemnifiable Claim was brought shall have determined upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, Indemnitee is fairly and reasonably entitled to indemnification for
such Expenses as the court shall deem proper.
(h) "INDEPENDENT COUNSEL" means a nationally recognized law firm, or a
member of a nationally recognized law firm, that is experienced in matters of
Delaware corporate law and neither presently is, nor in the past five years has
been, retained to represent: (i) the Company (or any subsidiary) or Indemnitee
in any matter material to either such party (other than with respect to matters
concerning the Indemnitee under this Agreement, or of other indemnitees under
similar indemnification agreements) or (ii) any other named (or, as to a
threatened matter, reasonably likely to be named) party to the Indemnifiable
Claim giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's rights under this Agreement.
(i) "LOSSES" means any and all Expenses, damages, losses, liabilities,
judgments, fines, penalties (whether civil, criminal or other) and amounts paid
or payable in settlement, including, without limitation, all interest,
assessments and other charges paid or payable in connection with or in respect
of any of the foregoing.
(j) "PERSON" means any individual, entity or group, within the meaning
of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as
amended.
(k) "STANDARD OF CONDUCT" means the standard for conduct by Indemnitee
that is a condition precedent to indemnification of Indemnitee hereunder against
Indemnifiable Losses relating to, arising out of or resulting from an
Indemnifiable Claim. The Standard of Conduct is (i) good faith and a reasonable
belief by Indemnitee that his action was in or not opposed to the best interests
of the Company and, with respect to any criminal action or proceeding, that
Indemnitee had no reasonable cause to believe that his conduct was unlawful, or
(ii) any other applicable standard of conduct that may hereafter be substituted
under Section 145(a) or (b) of the Delaware General Corporation Law or any
successor to such provision(s).
4
2. INDEMNIFICATION OBLIGATION. Subject only to Section 7 and to the
proviso in this Section, the Company shall indemnify, defend and hold harmless
Indemnitee, to the fullest extent permitted or required by the laws of the State
of Delaware in effect on the date hereof or as such laws may from time to time
hereafter be amended to increase the scope of such permitted indemnification,
against any and all Indemnifiable Claims and Indemnifiable Losses; PROVIDED,
HOWEVER, that, except as provided in Section 5, Indemnitee shall not be entitled
to indemnification pursuant to this Agreement in connection with (i) any Claim
initiated by Indemnitee against the Company or any director or officer of the
Company unless the Company has joined in or consented to the initiation of such
Claim, or (ii) the purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company
acknowledges that the foregoing obligation may be broader than that now provided
by applicable law and the Company's Constituent Documents and intends that it be
interpreted consistently with this Section and the recitals to this Agreement.
3. ADVANCEMENT OF EXPENSES. Indemnitee shall have the right to
advancement by the Company prior to the final disposition of any Indemnifiable
Claim of any and all actual and reasonable Expenses relating to, arising out of
or resulting from any Indemnifiable Claim paid or incurred by Indemnitee.
Without limiting the generality or effect of any other provision hereof,
Indemnitee's right to such advancement is not subject to the satisfaction of any
Standard of Conduct. Without limiting the generality or effect of the foregoing,
within five business days after any request by Indemnitee that is accompanied by
supporting documentation for specific reasonable Expenses to be reimbursed or
advanced, the Company shall, in accordance with such request (but without
duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to
Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse
Indemnitee for such Expenses; PROVIDED that Indemnitee shall repay, without
interest, any amounts actually advanced to Indemnitee that, at the final
disposition of the Indemnifiable Claim to which the advance related, were in
excess of amounts paid or payable by Indemnitee in respect of Expenses relating
to, arising out of or resulting from such Indemnifiable Claim. In connection
with any such payment, advancement or reimbursement, at the request of the
Company, Indemnitee shall execute and deliver to the Company an undertaking,
which need not be secured and shall be accepted without reference to
Indemnitee's ability to repay the Expenses, by or on behalf of the Indemnitee,
to repay any amounts paid, advanced or reimbursed by the Company in respect of
Expenses relating to, arising out of or resulting from any Indemnifiable Claim
in respect of which it shall have been determined, following the final
disposition of such Indemnifiable Claim and in accordance with Section 7, that
Indemnitee is not entitled to indemnification hereunder.
4. INDEMNIFICATION FOR ADDITIONAL EXPENSES. Without limiting the
generality or effect of the foregoing, the Company shall indemnify and hold
harmless Indemnitee against and, if requested by Indemnitee, shall reimburse
Indemnitee for, or advance to Indemnitee, within five business days of such
request accompanied by supporting documentation for specific Expenses to be
reimbursed or advanced, any and all actual and reasonable Expenses paid or
incurred by Indemnitee in connection with any Claim made, instituted or
conducted by Indemnitee for (a) indemnification or reimbursement or advance
payment of Expenses by the Company under any provision of this Agreement, or
under any other agreement or provision of the Constituent Documents now or
hereafter in effect relating to Indemnifiable Claims, and/or (b) recovery under
any directors' and officers' liability insurance policies maintained by the
Company; PROVIDED, HOWEVER, if it is ultimately determined that the Indemnitee
5
is not entitled to such indemnification, reimbursement, advance or insurance
recovery, as the case may be, then the Indemnitee shall be obligated to repay
any such Expenses to the Company; PROVIDED FURTHER, that, regardless in each
case of whether Indemnitee ultimately is determined to be entitled to such
indemnification, reimbursement, advance or insurance recovery, as the case may
be, Indemnitee shall return, without interest, any such advance of Expenses (or
portion thereof) which remains unspent at the final disposition of the Claim to
which the advance related.
5. PARTIAL INDEMNITY. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of any
Indemnifiable Loss but not for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
6. PROCEDURE FOR NOTIFICATION. To obtain indemnification under this
Agreement in respect of an Indemnifiable Claim or Indemnifiable Loss, Indemnitee
shall submit to the Company a written request therefore, including a brief
description (based upon information then available to Indemnitee) of such
Indemnifiable Claim or Indemnifiable Loss. If, at the time of the receipt of
such request, the Company has directors' and officers' liability insurance in
effect under which coverage for such Indemnifiable Claim or Indemnifiable Loss
is potentially available, the Company shall give prompt written notice of such
Indemnifiable Claim or Indemnifiable Loss to the applicable insurers in
accordance with the procedures set forth in the applicable policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of the Indemnitee, all Indemnifiable Claims and Indemnifiable
Losses in accordance with the terms of such policies. The Company shall provide
to Indemnitee a copy of such notice delivered to the applicable insurers,
substantially concurrently with the delivery thereof by the Company. The failure
by Indemnitee to timely notify the Company of any Indemnifiable Claim or
Indemnifiable Loss shall not relieve the Company from any liability hereunder
unless, and only to the extent that, the Company did not otherwise learn of such
Indemnifiable Claim or Indemnifiable Loss and to the extent that such failure
results in forfeiture by the Company of substantial defenses, rights or
insurance coverage.
7. DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) To the extent that Indemnitee shall have been successful on the
merits or otherwise in defense of any Indemnifiable Claim or any portion thereof
or in defense of any issue or matter therein, including, without limitation,
dismissal without prejudice, Indemnitee shall be indemnified against all
Indemnifiable Losses relating to, arising out of or resulting from such
Indemnifiable Claim in accordance with Section 2 and no Standard of Conduct
Determination (as defined in Section 7(b)) shall be required.
(b) To the extent that the provisions of Section 7(a) are inapplicable
to an Indemnifiable Claim that shall have been finally disposed of, any
determination of whether Indemnitee has satisfied the applicable Standard of
Conduct (a "STANDARD OF CONDUCT DETERMINATION") shall be made as follows: (i) if
a Change in Control shall not have occurred, or if a Change in Control shall
have occurred but Indemnitee shall have requested that the Standard of Conduct
Determination be made pursuant to this clause (i), (A) by a majority vote of the
Disinterested Directors, even if less than a quorum of the Board, (B) if such
Disinterested Directors so direct, by a majority vote of a committee of
6
Disinterested Directors designated by a majority vote of all Disinterested
Directors, or (C) if there are no such Disinterested Directors, or if a majority
of the Disinterested Directors so direct, by Independent Counsel in a written
opinion addressed to the Board, a copy of which shall be delivered to
Indemnitee; and (ii) if a Change in Control shall have occurred and Indemnitee
shall not have requested that the Standard of Conduct Determination be made
pursuant to clause (i) above, by Independent Counsel in a written opinion
addressed to the Board, a copy of which shall be delivered to Indemnitee.
(c) If (i) Indemnitee shall be entitled to indemnification hereunder
against any Indemnifiable Losses pursuant to Section 7(a), (ii) no determination
of whether Indemnitee has satisfied any applicable standard of conduct under
Delaware law is a legally required condition precedent to indemnification of
Indemnitee hereunder against any Indemnifiable Losses, or (iii) Indemnitee has
been determined or deemed pursuant to Section 7(b) to have satisfied the
applicable Standard of Conduct, then the Company shall pay to Indemnitee, within
five business days after the later of (x) the Notification Date in respect of
the Indemnifiable Claim or portion thereof to which such Indemnifiable Losses
are related, out of which such Indemnifiable Losses arose or from which such
Indemnifiable Losses resulted, and (y) the earliest date on which the applicable
criterion specified in clause (i), (ii) or (iii) above shall have been
satisfied, an amount equal to the amount of such Indemnifiable Losses. Nothing
herein is intended to mean or imply that the Company is intending to use Section
145(f) of the Delaware General Corporation Law to dispense with a requirement
that Indemnitee meet the applicable Standard of Conduct where it is otherwise
required by such statute.
(d) If a Standard of Conduct Determination is required to be, but has
not been, made by Independent Counsel pursuant to Section 7(b)(i), the
Independent Counsel shall be selected by the Board or a committee of the Board,
and the Company shall give written notice to Indemnitee advising him or her of
the identity of the Independent Counsel so selected. If a Standard of Conduct
Determination is required to be, or to have been, made by Independent Counsel
pursuant to Section 7(b)(ii), the Independent Counsel shall be selected by
Indemnitee, and Indemnitee shall give written notice to the Company advising it
of the identity of the Independent Counsel so selected. In either case,
Indemnitee or the Company, as applicable, may, within five business days after
receiving written notice of selection from the other, deliver to the other a
written objection to such selection; PROVIDED, HOWEVER, that such objection may
be asserted only on the ground that the Independent Counsel so selected does not
satisfy the criteria set forth in the definition of "Independent Counsel" in
Section 1(h), and the objection shall set forth with particularity the factual
basis of such assertion. Absent a proper and timely objection, the Person so
selected shall act as Independent Counsel. If such written objection is properly
and timely made and substantiated, (i) the Independent Counsel so selected may
not serve as Independent Counsel unless and until such objection is withdrawn or
a court has determined that such objection is without merit and (ii) the
non-objecting party may, at its option, select an alternative Independent
Counsel and give written notice to the other party advising such other party of
the identity of the alternative Independent Counsel so selected, in which case
the provisions of the two immediately preceding sentences and clause (i) of this
sentence shall apply to such subsequent selection and notice. If applicable, the
provisions of clause (ii) of the immediately preceding sentence shall apply to
successive alternative selections. If no Independent Counsel that is permitted
under the foregoing provisions of this Section 7(d) to make the Standard of
7
Conduct Determination shall have been selected within 30 calendar days after the
Company gives its initial notice pursuant to the first sentence of this Section
7(d) or Indemnitee gives its initial notice pursuant to the second sentence of
this Section 7(d), as the case may be, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware for resolution of any
objection which shall have been made by the Company or Indemnitee to the other's
selection of Independent Counsel and/or for the appointment as Independent
Counsel of a person or firm selected by the Court or by such other person as the
Court shall designate, and the person or firm with respect to whom all
objections are so resolved or the person or firm so appointed will act as
Independent Counsel. In all events, the Company shall pay all of the actual and
reasonable fees and expenses of the Independent Counsel incurred in connection
with the Independent Counsel's determination pursuant to Section 7(b).
8. COOPERATION. Indemnitee shall cooperate with reasonable requests of
the Company in connection with any Indemnifiable Claim and any individual or
firm making such Standard of Conduct Determination, including providing to such
Person documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to defend the Indemnifiable Claim or make any Standard of
Conduct Determination without incurring any unreimbursed cost in connection
therewith. The Company shall indemnify and hold harmless Indemnitee against and,
if requested by Indemnitee, shall reimburse Indemnitee for, or advance to
Indemnitee, within five business days of such request accompanied by supporting
documentation for specific costs and expenses to be reimbursed or advanced, any
and all costs and expenses (including attorneys' and experts' fees and expenses)
actually and reasonably incurred by Indemnitee in so cooperating with the Person
defending the Indemnifiable Claim or making such Standard of Conduct
Determination.
9. PRESUMPTION OF ENTITLEMENT. Notwithstanding any other provision
hereof, in making any Standard of Conduct Determination, the Person making such
determination shall presume that Indemnitee has satisfied the applicable
Standard of Conduct.
10. NO OTHER PRESUMPTION. For purposes of this Agreement, the termination
of any Claim by judgment, order, settlement (whether with or without court
approval) or conviction, or upon a plea of nolo contendere or its equivalent,
will not create a presumption that Indemnitee did not meet any applicable
Standard of Conduct or that indemnification hereunder is otherwise not
permitted.
11. NON-EXCLUSIVITY. The rights of Indemnitee hereunder will be in
addition to any other rights Indemnitee may have under the Constituent
Documents, or the substantive laws of the Company's jurisdiction of
incorporation, any other contract or otherwise (collectively, "OTHER INDEMNITY
PROVISIONS"); PROVIDED, HOWEVER, that (a) to the extent that Indemnitee
otherwise would have any greater right to indemnification under any Other
Indemnity Provision, Indemnitee will without further action be deemed to have
such greater right hereunder, and (b) to the extent that any change is made to
any Other Indemnity Provision which permits any greater right to indemnification
than that provided under this Agreement as of the date hereof, Indemnitee will
be deemed to have such greater right hereunder. The Company may not, without the
8
consent of Indemnitee, adopt any amendment to any of the Constituent Documents
the effect of which would be to deny, diminish or encumber Indemnitee's right to
indemnification under this Agreement.
12. LIABILITY INSURANCE AND FUNDING. For the duration of Indemnitee's
service as a director and/or officer of the Company and for a reasonable period
of time thereafter, which such period shall be determined by the Company in its
sole discretion, the Company shall use commercially reasonable efforts (taking
into account the scope and amount of coverage available relative to the cost
thereof) to cause to be maintained in effect policies of directors' and
officers' liability insurance providing coverage for directors and/or officers
of the Company, and, if applicable, that is substantially comparable in scope
and amount to that provided by the Company's current policies of directors' and
officers' liability insurance. Upon reasonable request, the Company shall
provide Indemnitee or his or her counsel with a copy of all directors' and
officers' liability insurance applications, binders, policies, declarations,
endorsements and other related materials. In all policies of directors' and
officers' liability insurance obtained by the Company, Indemnitee shall be named
as an insured in such a manner as to provide Indemnitee the same rights and
benefits, subject to the same limitations, as are accorded to the Company's
directors and officers most favorably insured by such policy. Notwithstanding
the foregoing, (i) the Company may, but shall not be required to, create a trust
fund, grant a security interest or use other means, including, without
limitation, a letter of credit, to ensure the payment of such amounts as may be
necessary to satisfy its obligations to indemnify and advance expenses pursuant
to this Agreement and (ii) in renewing or seeking to renew any insurance
hereunder, the Company will not be required to expend more than 2.0 times the
premium amount of the immediately preceding policy period (equitably adjusted if
necessary to reflect differences in policy periods).
13. SUBROGATION. In the event of payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the related rights
of recovery of Indemnitee against other Persons (other than Indemnitee's
successors), including any entity or enterprise referred to in clause (i) of the
definition of "Indemnifiable Claim" in Section 1(f). Indemnitee shall execute
all papers reasonably required to evidence such rights (all of Indemnitee's
reasonable Expenses, including attorneys' fees and charges, related thereto to
be reimbursed by or, at the option of Indemnitee, advanced by the Company).
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under this
Agreement to make any payment to Indemnitee in respect of any Indemnifiable
Losses to the extent Indemnitee has otherwise already actually received payment
(net of Expenses incurred in connection therewith) under any insurance policy,
the Constituent Documents and Other Indemnity Provisions or otherwise (including
from any entity or enterprise referred to in clause (i) of the definition of
"Indemnifiable Claim" in Section 1(f)) in respect of such Indemnifiable Losses
otherwise indemnifiable hereunder.
15. DEFENSE OF CLAIMS. Subject to the provisions of applicable policies of
directors' and officers' liability insurance, if any, the Company shall be
entitled to participate in the defense of any Indemnifiable Claim or to assume
or lead the defense thereof with counsel reasonably satisfactory to the
Indemnitee; PROVIDED that if Indemnitee determines, after consultation with
counsel selected by Indemnitee, that (a) the use of counsel chosen by the
Company to represent Indemnitee would present such counsel with an actual or
9
potential conflict, (b) the named parties in any such Indemnifiable Claim
(including any impleaded parties) include both the Company and Indemnitee and
Indemnitee shall conclude that there may be one or more legal defenses available
to him or her that are different from or in addition to those available to the
Company, (c) any such representation by such counsel would be precluded under
the applicable standards of professional conduct then prevailing, or (d)
Indemnitee has interests in the claim or underlying subject matter that are
different from or in addition to those of other Persons against whom the Claim
has been made or might reasonably be expected to be made, then Indemnitee shall
be entitled to retain separate counsel (but not more than one law firm plus, if
applicable, local counsel in respect of any particular Indemnifiable Claim for
all indemnitees in Indemnitee's circumstances) at the Company's expense. The
Company shall not be liable to Indemnitee under this Agreement for any amounts
paid in settlement of any threatened or pending Indemnifiable Claim effected
without the Company's prior written consent. The Company shall not, without the
prior written consent of the Indemnitee, effect any settlement of any threatened
or pending Indemnifiable Claim which the Indemnitee is or could have been a
party unless such settlement solely involves the payment of money and includes a
complete and unconditional release of the Indemnitee from all liability on any
claims that are the subject matter of such Indemnifiable Claim. Neither the
Company nor Indemnitee shall unreasonably withhold its consent to any proposed
settlement; PROVIDED that Indemnitee may withhold consent to any settlement that
does not provide a complete and unconditional release of Indemnitee.
16. MUTUAL ACKNOWLEDGMENT. Both the Company and the Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company may be
required in the future to undertake to the Securities and Exchange Commission to
submit the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify Indemnitee
and, in that event, the Indemnitee's rights and the Company's obligations
hereunder shall be subject to that determination.
17. SUCCESSORS AND BINDING AGREEMENT.
(a) This Agreement shall be binding upon and inure to the benefit of
the Company and any successor to the Company, including, without limitation, any
Person acquiring directly or indirectly all or substantially all of the business
or assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor will thereafter be deemed the
"Company" for purposes of this Agreement), but shall not otherwise be assignable
or delegatable by the Company.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Indemnitee's personal or legal representatives, executors, administrators,
heirs, distributees, legatees and other successors.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 17(a) and 17(b). Without limiting the generality or effect of the
foregoing, Indemnitee's right to receive payments hereunder shall not be
10
assignable, whether by pledge, creation of a security interest or otherwise,
other than by a transfer by the Indemnitee's will or by the laws of descent and
distribution, and, in the event of any attempted assignment or transfer contrary
to this Section 17(c), the Company shall have no liability to pay any amount so
attempted to be assigned or transferred.
18. NOTICES. For all purposes of this Agreement, all communications,
including without limitation notices, consents, requests or approvals, required
or permitted to be given hereunder must be in writing and shall be deemed to
have been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or one business day after
having been sent for next-day delivery by a nationally recognized overnight
courier service, addressed to the Company (to the attention of the Secretary of
the Company) and to Indemnitee at the applicable address shown on the signature
page hereto, or to such other address as any party may have furnished to the
other in writing and in accordance herewith, except that notices of changes of
address will be effective only upon receipt.
19. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the Chancery Court of the
State of Delaware for all purposes in connection with any action or proceeding
which arises out of or relates to this Agreement, waive all procedural
objections to suit in that jurisdiction, including, without limitation,
objections as to venue or inconvenience, agree that service in any such action
may be made by notice given in accordance with Section 18 and also agree that
any action instituted under this Agreement shall be brought only in the Chancery
Court of the State of Delaware.
20. VALIDITY. If any provision of this Agreement or the application of any
provision hereof to any Person or circumstance is held invalid, unenforceable or
otherwise illegal, the remainder of this Agreement and the application of such
provision to any other Person or circumstance shall not be affected, and the
provision so held to be invalid, unenforceable or otherwise illegal shall be
reformed to the extent, and only to the extent, necessary to make it
enforceable, valid or legal. In the event that any court or other adjudicative
body shall decline to reform any provision of this Agreement held to be invalid,
unenforceable or otherwise illegal as contemplated by the immediately preceding
sentence, the parties thereto shall take all such action as may be necessary or
appropriate to replace the provision so held to be invalid, unenforceable or
otherwise illegal with one or more alternative provisions that effectuate the
purpose and intent of the original provisions of this Agreement as fully as
possible without being invalid, unenforceable or otherwise illegal.
21. MISCELLANEOUS. No provision of this Agreement may be waived, modified
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by Indemnitee and the Company. No waiver by either party hereto
at any time of any breach by the other party hereto or compliance with any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, expressed or implied with respect to the subject matter
hereof have been made by either party that are not set forth expressly in this
Agreement.
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22. CERTAIN INTERPRETIVE MATTERS. Unless the context of this Agreement
otherwise requires, (1) "it" or "its" or words of any gender include each other
gender, (2) words using the singular or plural number also include the plural or
singular number, respectively, (3) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement, (4) the terms
"Article," "Section," "Annex" or "Exhibit" refer to the specified Article,
Section, Annex or Exhibit of or to this Agreement, (5) the terms "include,"
"includes" and "including" will be deemed to be followed by the words "without
limitation" (whether or not so expressed), and (6) the word "or" is disjunctive
but not exclusive. Whenever this Agreement refers to a number of days, such
number will refer to calendar days unless business days are specified and
whenever action must be taken (including the giving of notice or the delivery of
documents) under this Agreement during a certain period of time or by a
particular date that ends or occurs on a non-business day, then such period or
date will be extended until the immediately following business day. As used
herein, "BUSINESS DAY" means any day other than Saturday, Sunday or a United
States federal holiday.
23. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both written and oral,
between the parties hereto with respect to the subject matter of this Agreement.
Any prior agreements or understandings between the parties hereto with respect
to indemnification are hereby terminated and of no further force or effect. This
Agreement is not the exclusive means of securing indemnification rights of
Indemnitee and is in addition to any rights Indemnitee may have under any
Constituent Documents.
24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together shall constitute one and the same agreement.
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IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused
its duly authorized representative to execute this Agreement as of the date
first above written.
HEALTH BENEFITS DIRECT CORPORATION
By: /s/ Scott Frohman
----------------------------------------
Name: Scott Frohman
Title: CEO
INDEMNITEE:
/s/ Daniel Brauser
--------------------------------------------
Name: Daniel Brauser
Address: 2361 NE 45th Court
-----------------------------------
Lighthouse Point, Fl 33064
------------------------------------------
------------------------------------------
SIGNATURE PAGE TO DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
Exhibit 10.21
[FORM OF INDEMNIFICATION AGREEMENT]
HEALTH BENEFITS DIRECT CORPORATION
DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
This Director and Officer Indemnification Agreement, dated as of
November 10, 2005 (this "AGREEMENT"), is made by and between Health Benefits
Direct Corporation, a Delaware corporation (the "COMPANY"), and Anthony R. Verdi
(the "INDEMNITEE").
RECITALS:
A. Section 141 of the Delaware General Corporation Law provides that
the business and affairs of a corporation shall be managed by or under the
direction of its board of directors.
B. By virtue of the managerial prerogatives vested in the directors and
officers of a Delaware corporation, directors and officers act as fiduciaries of
the corporation and its stockholders.
C. Thus, it is critically important to the Company and its stockholders
that the Company be able to attract and retain the most capable persons
reasonably available to serve as directors and officers of the Company.
D. In recognition of the need for corporations to be able to induce
capable and responsible persons to accept positions in corporate management,
Delaware law authorizes (and in some instances requires) corporations to
indemnify their directors and officers, and further authorizes corporations to
purchase and maintain insurance for the benefit of their directors and officers.
E. The Delaware courts have recognized that indemnification by a
corporation serves the dual policies of (1) allowing corporate officials to
resist unjustified lawsuits, secure in the knowledge that, if vindicated, the
corporation will bear the expense of litigation, and (2) encouraging capable
women and men to serve as corporate directors and officers, secure in the
knowledge that the corporation will absorb the costs of defending their honesty
and integrity.
F. The number of lawsuits challenging the judgment and actions of
directors and officers of Delaware corporations, the costs of defending those
lawsuits and the threat to personal assets have all materially increased over
the past several years, chilling the willingness of capable women and men to
undertake the responsibilities imposed on corporate directors and officers.
G. Recent federal legislation and rules adopted by the Securities and
Exchange Commission and the national securities exchanges have exposed such
directors and officers to new and substantially broadened civil liabilities.
H. Under Delaware law, a director's or officer's right to be reimbursed
for the costs of defense of criminal actions, whether such claims are asserted
under state or federal law, does not depend upon the merits of the claims
asserted against the director or officer and is separate and distinct from any
right to indemnification the director may be able to establish.
I. Indemnitee is, or will be, a director and/or officer of the Company
and his or her willingness to serve in such capacity is predicated, in
substantial part, upon the Company's willingness to indemnify him or her in
accordance with the principles reflected above, to the fullest extent permitted
by the laws of the State of Delaware, and upon the other undertakings set forth
in this Agreement.
J. Therefore, in recognition of the need to provide Indemnitee with
substantial protection against personal liability, in order to procure
Indemnitee's continued service as a director and/or officer of the Company and
to enhance Indemnitee's ability to serve the Company in an effective manner, and
in order to provide such protection pursuant to express contract rights
(intended to be enforceable irrespective of, among other things, any amendment
to the Company's certificate of incorporation or bylaws (collectively, the
"CONSTITUENT DOCUMENTS"), any change in the composition of the Company's Board
of Directors (the "BOARD") or any change-in-control or business combination
transaction relating to the Company), the Company wishes to provide in this
Agreement for the indemnification and advancement of Expenses to Indemnitee on
the terms, and subject to the conditions, set forth in this Agreement.
K. In light of the considerations referred to in the preceding
recitals, it is the Company's intention and desire that the provisions of this
Agreement be construed liberally, subject to their express terms, to maximize
the protections to be provided to Indemnitee hereunder.
AGREEMENT:
NOW, THEREFORE, the parties hereby agree as follows:
1. CERTAIN DEFINITIONS. In addition to terms defined elsewhere herein,
the following terms have the following meanings when used in this Agreement with
initial capital letters:
(a) "CHANGE IN CONTROL" shall have occurred at such time, if any, as
Incumbent Directors cease for any reason to constitute a majority of Directors.
For purposes of this Section 1(a), "INCUMBENT DIRECTORS" means the individuals
who, as of the date hereof, are Directors of the Company and any individual
becoming a Director subsequent to the date hereof whose election, nomination for
election by the Company's stockholders, or appointment, was approved by a vote
of at least a majority of the then Incumbent Directors (either by a specific
vote or by approval of the proxy statement of the Company in which such person
is named as a nominee for director, without objection to such nomination);
PROVIDED, HOWEVER, that an individual shall not be an Incumbent Director if such
individual's election or appointment to the Board occurs as a result of an
actual or threatened election contest (as described in Rule 14a-12(c) of the
Securities Exchange Act of 1934, as amended) with respect to the election or
removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board.
2
(b) "CLAIM" means (i) any threatened, asserted, pending or completed
claim, demand, action, suit or proceeding, whether civil, criminal,
administrative, arbitrative, investigative or other, and whether made pursuant
to federal, state or other law; and (ii) any inquiry or investigation, whether
made, instituted or conducted by the Company or any other Person, including,
without limitation, any federal, state or other governmental entity, that
Indemnitee reasonably determines might lead to the institution of any such
claim, demand, action, suit or proceeding. For the avoidance of doubt, the
Company intends indemnity to be provided hereunder in respect of acts or failure
to act prior to, on or after the date hereof.
(c) "CONTROLLED AFFILIATE" means any corporation, limited liability
company, partnership, joint venture, trust or other entity or enterprise,
whether or not for profit, that is directly or indirectly controlled by the
Company. For purposes of this definition, "CONTROL" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of an entity or enterprise, whether through the ownership
of voting securities, through other voting rights, by contract or otherwise;
PROVIDED that direct or indirect beneficial ownership of capital stock or other
interests in an entity or enterprise entitling the holder to cast 15% or more of
the total number of votes generally entitled to be cast in the election of
directors (or persons performing comparable functions) of such entity or
enterprise shall be deemed to constitute control for purposes of this
definition.
(d) "DISINTERESTED DIRECTOR" means a director of the Company who is
not and was not a party to the Claim in respect of which indemnification is
sought by Indemnitee.
(e) "EXPENSES" means attorneys' and experts' fees and expenses and
all other costs and expenses paid or payable in connection with investigating,
defending, being a witness in or participating in (including on appeal), or
preparing to investigate, defend, be a witness in or participate in (including
on appeal), any Claim.
(f) "INDEMNIFIABLE CLAIM" means any Claim based upon, arising out of
or resulting from (i) any actual, alleged or suspected act or failure to act by
Indemnitee in his or her capacity as a director, officer, employee or agent of
the Company or as a director, officer, employee, member, manager, trustee or
agent of any other corporation, limited liability company, partnership, joint
venture, trust or other entity or enterprise, whether or not for profit, as to
which Indemnitee is or was serving at the request of the Company, (ii) any
actual, alleged or suspected act or failure to act by Indemnitee in respect of
any business, transaction, communication, filing, disclosure or other activity
of the Company or any other entity or enterprise referred to in clause (i) of
this sentence, or (iii) Indemnitee's status as a current or former director,
officer, employee or agent of the Company or as a current or former director,
officer, employee, member, manager, trustee or agent of the Company or any other
entity or enterprise referred to in clause (i) of this sentence or any actual,
alleged or suspected act or failure to act by Indemnitee in connection with any
obligation or restriction imposed upon Indemnitee by reason of such status. In
addition to any service at the actual request of the Company, for purposes of
this Agreement, Indemnitee shall be deemed to be serving or to have served at
the request of the Company as a director, officer, employee, member, manager,
trustee or agent of another entity or enterprise if Indemnitee is or was serving
as a director, officer, employee, member, manager, agent, trustee or other
fiduciary of such entity or enterprise and (i) such entity or enterprise is or
3
at the time of such service was a Controlled Affiliate, (ii) such entity or
enterprise is or at the time of such service was an employee benefit plan (or
related trust) sponsored or maintained by the Company or a Controlled Affiliate,
or (iii) the Company or a Controlled Affiliate (by action of the Board, any
committee thereof or the Company's Chief Executive Officer ("CEO") (other than
as the CEO him or herself)) caused or authorized Indemnitee to be nominated,
elected, appointed, designated, employed, engaged or selected to serve in such
capacity.
(g) "INDEMNIFIABLE LOSSES" means any and all Losses relating to,
arising out of or resulting from any Indemnifiable Claim; PROVIDED, HOWEVER,
that Indemnifiable Losses shall not include Losses incurred by Indemnitee in
respect of any Indemnifiable Claim (or any matter or issue therein) as to which
Indemnitee shall have been adjudged liable to the Company, unless and only to
the extent that the Delaware Court of Chancery or the court in which such
Indemnifiable Claim was brought shall have determined upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, Indemnitee is fairly and reasonably entitled to indemnification for
such Expenses as the court shall deem proper.
(h) "INDEPENDENT COUNSEL" means a nationally recognized law firm, or
a member of a nationally recognized law firm, that is experienced in matters of
Delaware corporate law and neither presently is, nor in the past five years has
been, retained to represent: (i) the Company (or any subsidiary) or Indemnitee
in any matter material to either such party (other than with respect to matters
concerning the Indemnitee under this Agreement, or of other indemnitees under
similar indemnification agreements) or (ii) any other named (or, as to a
threatened matter, reasonably likely to be named) party to the Indemnifiable
Claim giving rise to a claim for indemnification hereunder. Notwithstanding the
foregoing, the term "Independent Counsel" shall not include any person who,
under the applicable standards of professional conduct then prevailing, would
have a conflict of interest in representing either the Company or Indemnitee in
an action to determine Indemnitee's rights under this Agreement.
(i) "LOSSES" means any and all Expenses, damages, losses,
liabilities, judgments, fines, penalties (whether civil, criminal or other) and
amounts paid or payable in settlement, including, without limitation, all
interest, assessments and other charges paid or payable in connection with or in
respect of any of the foregoing.
(j) "PERSON" means any individual, entity or group, within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended.
(k) "STANDARD OF CONDUCT" means the standard for conduct by
Indemnitee that is a condition precedent to indemnification of Indemnitee
hereunder against Indemnifiable Losses relating to, arising out of or resulting
from an Indemnifiable Claim. The Standard of Conduct is (i) good faith and a
reasonable belief by Indemnitee that his action was in or not opposed to the
best interests of the Company and, with respect to any criminal action or
proceeding, that Indemnitee had no reasonable cause to believe that his conduct
was unlawful, or (ii) any other applicable standard of conduct that may
hereafter be substituted under Section 145(a) or (b) of the Delaware General
Corporation Law or any successor to such provision(s).
4
2. INDEMNIFICATION OBLIGATION. Subject only to Section 7 and to the
proviso in this Section, the Company shall indemnify, defend and hold harmless
Indemnitee, to the fullest extent permitted or required by the laws of the State
of Delaware in effect on the date hereof or as such laws may from time to time
hereafter be amended to increase the scope of such permitted indemnification,
against any and all Indemnifiable Claims and Indemnifiable Losses; PROVIDED,
HOWEVER, that, except as provided in Section 5, Indemnitee shall not be entitled
to indemnification pursuant to this Agreement in connection with (i) any Claim
initiated by Indemnitee against the Company or any director or officer of the
Company unless the Company has joined in or consented to the initiation of such
Claim, or (ii) the purchase and sale by Indemnitee of securities in violation of
Section 16(b) of the Securities Exchange Act of 1934, as amended. The Company
acknowledges that the foregoing obligation may be broader than that now provided
by applicable law and the Company's Constituent Documents and intends that it be
interpreted consistently with this Section and the recitals to this Agreement.
3. ADVANCEMENT OF EXPENSES. Indemnitee shall have the right to
advancement by the Company prior to the final disposition of any Indemnifiable
Claim of any and all actual and reasonable Expenses relating to, arising out of
or resulting from any Indemnifiable Claim paid or incurred by Indemnitee.
Without limiting the generality or effect of any other provision hereof,
Indemnitee's right to such advancement is not subject to the satisfaction of any
Standard of Conduct. Without limiting the generality or effect of the foregoing,
within five business days after any request by Indemnitee that is accompanied by
supporting documentation for specific reasonable Expenses to be reimbursed or
advanced, the Company shall, in accordance with such request (but without
duplication), (a) pay such Expenses on behalf of Indemnitee, (b) advance to
Indemnitee funds in an amount sufficient to pay such Expenses, or (c) reimburse
Indemnitee for such Expenses; PROVIDED that Indemnitee shall repay, without
interest, any amounts actually advanced to Indemnitee that, at the final
disposition of the Indemnifiable Claim to which the advance related, were in
excess of amounts paid or payable by Indemnitee in respect of Expenses relating
to, arising out of or resulting from such Indemnifiable Claim. In connection
with any such payment, advancement or reimbursement, at the request of the
Company, Indemnitee shall execute and deliver to the Company an undertaking,
which need not be secured and shall be accepted without reference to
Indemnitee's ability to repay the Expenses, by or on behalf of the Indemnitee,
to repay any amounts paid, advanced or reimbursed by the Company in respect of
Expenses relating to, arising out of or resulting from any Indemnifiable Claim
in respect of which it shall have been determined, following the final
disposition of such Indemnifiable Claim and in accordance with Section 7, that
Indemnitee is not entitled to indemnification hereunder.
4. INDEMNIFICATION FOR ADDITIONAL EXPENSES. Without limiting the
generality or effect of the foregoing, the Company shall indemnify and hold
harmless Indemnitee against and, if requested by Indemnitee, shall reimburse
Indemnitee for, or advance to Indemnitee, within five business days of such
request accompanied by supporting documentation for specific Expenses to be
reimbursed or advanced, any and all actual and reasonable Expenses paid or
incurred by Indemnitee in connection with any Claim made, instituted or
conducted by Indemnitee for (a) indemnification or reimbursement or advance
payment of Expenses by the Company under any provision of this Agreement, or
under any other agreement or provision of the Constituent Documents now or
hereafter in effect relating to Indemnifiable Claims, and/or (b) recovery under
any directors' and officers' liability insurance policies maintained by the
5
Company; PROVIDED, HOWEVER, if it is ultimately determined that the Indemnitee
is not entitled to such indemnification, reimbursement, advance or insurance
recovery, as the case may be, then the Indemnitee shall be obligated to repay
any such Expenses to the Company; PROVIDED FURTHER, that, regardless in each
case of whether Indemnitee ultimately is determined to be entitled to such
indemnification, reimbursement, advance or insurance recovery, as the case may
be, Indemnitee shall return, without interest, any such advance of Expenses (or
portion thereof) which remains unspent at the final disposition of the Claim to
which the advance related.
5. PARTIAL INDEMNITY. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of any
Indemnifiable Loss but not for all of the total amount thereof, the Company
shall nevertheless indemnify Indemnitee for the portion thereof to which
Indemnitee is entitled.
6. PROCEDURE FOR NOTIFICATION. To obtain indemnification under this
Agreement in respect of an Indemnifiable Claim or Indemnifiable Loss, Indemnitee
shall submit to the Company a written request therefore, including a brief
description (based upon information then available to Indemnitee) of such
Indemnifiable Claim or Indemnifiable Loss. If, at the time of the receipt of
such request, the Company has directors' and officers' liability insurance in
effect under which coverage for such Indemnifiable Claim or Indemnifiable Loss
is potentially available, the Company shall give prompt written notice of such
Indemnifiable Claim or Indemnifiable Loss to the applicable insurers in
accordance with the procedures set forth in the applicable policies. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of the Indemnitee, all Indemnifiable Claims and Indemnifiable
Losses in accordance with the terms of such policies. The Company shall provide
to Indemnitee a copy of such notice delivered to the applicable insurers,
substantially concurrently with the delivery thereof by the Company. The failure
by Indemnitee to timely notify the Company of any Indemnifiable Claim or
Indemnifiable Loss shall not relieve the Company from any liability hereunder
unless, and only to the extent that, the Company did not otherwise learn of such
Indemnifiable Claim or Indemnifiable Loss and to the extent that such failure
results in forfeiture by the Company of substantial defenses, rights or
insurance coverage.
7. DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) To the extent that Indemnitee shall have been successful on the
merits or otherwise in defense of any Indemnifiable Claim or any portion thereof
or in defense of any issue or matter therein, including, without limitation,
dismissal without prejudice, Indemnitee shall be indemnified against all
Indemnifiable Losses relating to, arising out of or resulting from such
Indemnifiable Claim in accordance with Section 2 and no Standard of Conduct
Determination (as defined in Section 7(b)) shall be required.
(b) To the extent that the provisions of Section 7(a) are
inapplicable to an Indemnifiable Claim that shall have been finally disposed of,
any determination of whether Indemnitee has satisfied the applicable Standard of
Conduct (a "STANDARD OF CONDUCT DETERMINATION") shall be made as follows: (i) if
a Change in Control shall not have occurred, or if a Change in Control shall
have occurred but Indemnitee shall have requested that the Standard of Conduct
Determination be made pursuant to this clause (i), (A) by a majority vote of the
Disinterested Directors, even if less than a quorum of the Board, (B) if such
6
Disinterested Directors so direct, by a majority vote of a committee of
Disinterested Directors designated by a majority vote of all Disinterested
Directors, or (C) if there are no such Disinterested Directors, or if a majority
of the Disinterested Directors so direct, by Independent Counsel in a written
opinion addressed to the Board, a copy of which shall be delivered to
Indemnitee; and (ii) if a Change in Control shall have occurred and Indemnitee
shall not have requested that the Standard of Conduct Determination be made
pursuant to clause (i) above, by Independent Counsel in a written opinion
addressed to the Board, a copy of which shall be delivered to Indemnitee.
(c) If (i) Indemnitee shall be entitled to indemnification hereunder
against any Indemnifiable Losses pursuant to Section 7(a), (ii) no determination
of whether Indemnitee has satisfied any applicable standard of conduct under
Delaware law is a legally required condition precedent to indemnification of
Indemnitee hereunder against any Indemnifiable Losses, or (iii) Indemnitee has
been determined or deemed pursuant to Section 7(b) to have satisfied the
applicable Standard of Conduct, then the Company shall pay to Indemnitee, within
five business days after the later of (x) the Notification Date in respect of
the Indemnifiable Claim or portion thereof to which such Indemnifiable Losses
are related, out of which such Indemnifiable Losses arose or from which such
Indemnifiable Losses resulted, and (y) the earliest date on which the applicable
criterion specified in clause (i), (ii) or (iii) above shall have been
satisfied, an amount equal to the amount of such Indemnifiable Losses. Nothing
herein is intended to mean or imply that the Company is intending to use Section
145(f) of the Delaware General Corporation Law to dispense with a requirement
that Indemnitee meet the applicable Standard of Conduct where it is otherwise
required by such statute.
(d) If a Standard of Conduct Determination is required to be, but
has not been, made by Independent Counsel pursuant to Section 7(b)(i), the
Independent Counsel shall be selected by the Board or a committee of the Board,
and the Company shall give written notice to Indemnitee advising him or her of
the identity of the Independent Counsel so selected. If a Standard of Conduct
Determination is required to be, or to have been, made by Independent Counsel
pursuant to Section 7(b)(ii), the Independent Counsel shall be selected by
Indemnitee, and Indemnitee shall give written notice to the Company advising it
of the identity of the Independent Counsel so selected. In either case,
Indemnitee or the Company, as applicable, may, within five business days after
receiving written notice of selection from the other, deliver to the other a
written objection to such selection; PROVIDED, HOWEVER, that such objection may
be asserted only on the ground that the Independent Counsel so selected does not
satisfy the criteria set forth in the definition of "Independent Counsel" in
Section 1(h), and the objection shall set forth with particularity the factual
basis of such assertion. Absent a proper and timely objection, the Person so
selected shall act as Independent Counsel. If such written objection is properly
and timely made and substantiated, (i) the Independent Counsel so selected may
not serve as Independent Counsel unless and until such objection is withdrawn or
a court has determined that such objection is without merit and (ii) the
non-objecting party may, at its option, select an alternative Independent
Counsel and give written notice to the other party advising such other party of
the identity of the alternative Independent Counsel so selected, in which case
the provisions of the two immediately preceding sentences and clause (i) of this
sentence shall apply to such subsequent selection and notice. If applicable, the
provisions of clause (ii) of the immediately preceding sentence shall apply to
successive alternative selections. If no Independent Counsel that is permitted
under the foregoing provisions of this Section 7(d) to make the Standard of
7
Conduct Determination shall have been selected within 30 calendar days after the
Company gives its initial notice pursuant to the first sentence of this Section
7(d) or Indemnitee gives its initial notice pursuant to the second sentence of
this Section 7(d), as the case may be, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware for resolution of any
objection which shall have been made by the Company or Indemnitee to the other's
selection of Independent Counsel and/or for the appointment as Independent
Counsel of a person or firm selected by the Court or by such other person as the
Court shall designate, and the person or firm with respect to whom all
objections are so resolved or the person or firm so appointed will act as
Independent Counsel. In all events, the Company shall pay all of the actual and
reasonable fees and expenses of the Independent Counsel incurred in connection
with the Independent Counsel's determination pursuant to Section 7(b).
8. COOPERATION. Indemnitee shall cooperate with reasonable requests of
the Company in connection with any Indemnifiable Claim and any individual or
firm making such Standard of Conduct Determination, including providing to such
Person documentation or information which is not privileged or otherwise
protected from disclosure and which is reasonably available to Indemnitee and
reasonably necessary to defend the Indemnifiable Claim or make any Standard of
Conduct Determination without incurring any unreimbursed cost in connection
therewith. The Company shall indemnify and hold harmless Indemnitee against and,
if requested by Indemnitee, shall reimburse Indemnitee for, or advance to
Indemnitee, within five business days of such request accompanied by supporting
documentation for specific costs and expenses to be reimbursed or advanced, any
and all costs and expenses (including attorneys' and experts' fees and expenses)
actually and reasonably incurred by Indemnitee in so cooperating with the Person
defending the Indemnifiable Claim or making such Standard of Conduct
Determination.
9. PRESUMPTION OF ENTITLEMENT. Notwithstanding any other provision
hereof, in making any Standard of Conduct Determination, the Person making such
determination shall presume that Indemnitee has satisfied the applicable
Standard of Conduct.
10. NO OTHER PRESUMPTION. For purposes of this Agreement, the
termination of any Claim by judgment, order, settlement (whether with or without
court approval) or conviction, or upon a plea of nolo contendere or its
equivalent, will not create a presumption that Indemnitee did not meet any
applicable Standard of Conduct or that indemnification hereunder is otherwise
not permitted.
11. NON-EXCLUSIVITY. The rights of Indemnitee hereunder will be in
addition to any other rights Indemnitee may have under the Constituent
Documents, or the substantive laws of the Company's jurisdiction of
incorporation, any other contract or otherwise (collectively, "OTHER INDEMNITY
PROVISIONS"); PROVIDED, HOWEVER, that (a) to the extent that Indemnitee
otherwise would have any greater right to indemnification under any Other
Indemnity Provision, Indemnitee will without further action be deemed to have
such greater right hereunder, and (b) to the extent that any change is made to
any Other Indemnity Provision which permits any greater right to indemnification
than that provided under this Agreement as of the date hereof, Indemnitee will
be deemed to have such greater right hereunder. The Company may not, without the
8
consent of Indemnitee, adopt any amendment to any of the Constituent Documents
the effect of which would be to deny, diminish or encumber Indemnitee's right to
indemnification under this Agreement.
12. LIABILITY INSURANCE AND FUNDING. For the duration of Indemnitee's
service as a director and/or officer of the Company and for a reasonable period
of time thereafter, which such period shall be determined by the Company in its
sole discretion, the Company shall use commercially reasonable efforts (taking
into account the scope and amount of coverage available relative to the cost
thereof) to cause to be maintained in effect policies of directors' and
officers' liability insurance providing coverage for directors and/or officers
of the Company, and, if applicable, that is substantially comparable in scope
and amount to that provided by the Company's current policies of directors' and
officers' liability insurance. Upon reasonable request, the Company shall
provide Indemnitee or his or her counsel with a copy of all directors' and
officers' liability insurance applications, binders, policies, declarations,
endorsements and other related materials. In all policies of directors' and
officers' liability insurance obtained by the Company, Indemnitee shall be named
as an insured in such a manner as to provide Indemnitee the same rights and
benefits, subject to the same limitations, as are accorded to the Company's
directors and officers most favorably insured by such policy. Notwithstanding
the foregoing, (i) the Company may, but shall not be required to, create a trust
fund, grant a security interest or use other means, including, without
limitation, a letter of credit, to ensure the payment of such amounts as may be
necessary to satisfy its obligations to indemnify and advance expenses pursuant
to this Agreement and (ii) in renewing or seeking to renew any insurance
hereunder, the Company will not be required to expend more than 2.0 times the
premium amount of the immediately preceding policy period (equitably adjusted if
necessary to reflect differences in policy periods).
13. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the related
rights of recovery of Indemnitee against other Persons (other than Indemnitee's
successors), including any entity or enterprise referred to in clause (i) of the
definition of "Indemnifiable Claim" in Section 1(f). Indemnitee shall execute
all papers reasonably required to evidence such rights (all of Indemnitee's
reasonable Expenses, including attorneys' fees and charges, related thereto to
be reimbursed by or, at the option of Indemnitee, advanced by the Company).
14. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment to Indemnitee in respect of any Indemnifiable
Losses to the extent Indemnitee has otherwise already actually received payment
(net of Expenses incurred in connection therewith) under any insurance policy,
the Constituent Documents and Other Indemnity Provisions or otherwise (including
from any entity or enterprise referred to in clause (i) of the definition of
"Indemnifiable Claim" in Section 1(f)) in respect of such Indemnifiable Losses
otherwise indemnifiable hereunder.
15. DEFENSE OF CLAIMS. Subject to the provisions of applicable policies
of directors' and officers' liability insurance, if any, the Company shall be
entitled to participate in the defense of any Indemnifiable Claim or to assume
or lead the defense thereof with counsel reasonably satisfactory to the
Indemnitee; PROVIDED that if Indemnitee determines, after consultation with
counsel selected by Indemnitee, that (a) the use of counsel chosen by the
Company to represent Indemnitee would present such counsel with an actual or
potential conflict, (b) the named parties in any such Indemnifiable Claim
9
(including any impleaded parties) include both the Company and Indemnitee and
Indemnitee shall conclude that there may be one or more legal defenses available
to him or her that are different from or in addition to those available to the
Company, (c) any such representation by such counsel would be precluded under
the applicable standards of professional conduct then prevailing, or (d)
Indemnitee has interests in the claim or underlying subject matter that are
different from or in addition to those of other Persons against whom the Claim
has been made or might reasonably be expected to be made, then Indemnitee shall
be entitled to retain separate counsel (but not more than one law firm plus, if
applicable, local counsel in respect of any particular Indemnifiable Claim for
all indemnitees in Indemnitee's circumstances) at the Company's expense. The
Company shall not be liable to Indemnitee under this Agreement for any amounts
paid in settlement of any threatened or pending Indemnifiable Claim effected
without the Company's prior written consent. The Company shall not, without the
prior written consent of the Indemnitee, effect any settlement of any threatened
or pending Indemnifiable Claim which the Indemnitee is or could have been a
party unless such settlement solely involves the payment of money and includes a
complete and unconditional release of the Indemnitee from all liability on any
claims that are the subject matter of such Indemnifiable Claim. Neither the
Company nor Indemnitee shall unreasonably withhold its consent to any proposed
settlement; PROVIDED that Indemnitee may withhold consent to any settlement that
does not provide a complete and unconditional release of Indemnitee.
16. MUTUAL ACKNOWLEDGMENT. Both the Company and the Indemnitee
acknowledge that in certain instances, Federal law or applicable public policy
may prohibit the Company from indemnifying its directors and officers under this
Agreement or otherwise. Indemnitee understands and acknowledges that the Company
may be required in the future to undertake to the Securities and Exchange
Commission to submit the question of indemnification to a court in certain
circumstances for a determination of the Company's right under public policy to
indemnify Indemnitee and, in that event, the Indemnitee's rights and the
Company's obligations hereunder shall be subject to that determination.
17. SUCCESSORS AND BINDING AGREEMENT.
(a) This Agreement shall be binding upon and inure to the benefit
of the Company and any successor to the Company, including, without limitation,
any Person acquiring directly or indirectly all or substantially all of the
business or assets of the Company whether by purchase, merger, consolidation,
reorganization or otherwise (and such successor will thereafter be deemed the
"Company" for purposes of this Agreement), but shall not otherwise be assignable
or delegatable by the Company.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Indemnitee's personal or legal representatives, executors,
administrators, heirs, distributees, legatees and other successors.
(c) This Agreement is personal in nature and neither of the parties
hereto shall, without the consent of the other, assign or delegate this
Agreement or any rights or obligations hereunder except as expressly provided in
Sections 17(a) and 17(b). Without limiting the generality or effect of the
foregoing, Indemnitee's right to receive payments hereunder shall not be
10
assignable, whether by pledge, creation of a security interest or otherwise,
other than by a transfer by the Indemnitee's will or by the laws of descent and
distribution, and, in the event of any attempted assignment or transfer contrary
to this Section 17(c), the Company shall have no liability to pay any amount so
attempted to be assigned or transferred.
18. NOTICES. For all purposes of this Agreement, all
communications, including without limitation notices, consents, requests or
approvals, required or permitted to be given hereunder must be in writing and
shall be deemed to have been duly given when hand delivered or dispatched by
electronic facsimile transmission (with receipt thereof orally confirmed), or
one business day after having been sent for next-day delivery by a nationally
recognized overnight courier service, addressed to the Company (to the attention
of the Secretary of the Company) and to Indemnitee at the applicable address
shown on the signature page hereto, or to such other address as any party may
have furnished to the other in writing and in accordance herewith, except that
notices of changes of address will be effective only upon receipt.
19. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by and construed in accordance
with the substantive laws of the State of Delaware, without giving effect to the
principles of conflict of laws of such State. The Company and Indemnitee each
hereby irrevocably consent to the jurisdiction of the Chancery Court of the
State of Delaware for all purposes in connection with any action or proceeding
which arises out of or relates to this Agreement, waive all procedural
objections to suit in that jurisdiction, including, without limitation,
objections as to venue or inconvenience, agree that service in any such action
may be made by notice given in accordance with Section 18 and also agree that
any action instituted under this Agreement shall be brought only in the Chancery
Court of the State of Delaware.
20. VALIDITY. If any provision of this Agreement or the application
of any provision hereof to any Person or circumstance is held invalid,
unenforceable or otherwise illegal, the remainder of this Agreement and the
application of such provision to any other Person or circumstance shall not be
affected, and the provision so held to be invalid, unenforceable or otherwise
illegal shall be reformed to the extent, and only to the extent, necessary to
make it enforceable, valid or legal. In the event that any court or other
adjudicative body shall decline to reform any provision of this Agreement held
to be invalid, unenforceable or otherwise illegal as contemplated by the
immediately preceding sentence, the parties thereto shall take all such action
as may be necessary or appropriate to replace the provision so held to be
invalid, unenforceable or otherwise illegal with one or more alternative
provisions that effectuate the purpose and intent of the original provisions of
this Agreement as fully as possible without being invalid, unenforceable or
otherwise illegal.
21. MISCELLANEOUS. No provision of this Agreement may be waived,
modified or discharged unless such waiver, modification or discharge is agreed
to in writing signed by Indemnitee and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, expressed or implied with respect to the subject matter
hereof have been made by either party that are not set forth expressly in this
Agreement.
11
22. CERTAIN INTERPRETIVE MATTERS. Unless the context of this
Agreement otherwise requires, (1) "it" or "its" or words of any gender include
each other gender, (2) words using the singular or plural number also include
the plural or singular number, respectively, (3) the terms "hereof," "herein,"
"hereby" and derivative or similar words refer to this entire Agreement, (4) the
terms "Article," "Section," "Annex" or "Exhibit" refer to the specified Article,
Section, Annex or Exhibit of or to this Agreement, (5) the terms "include,"
"includes" and "including" will be deemed to be followed by the words "without
limitation" (whether or not so expressed), and (6) the word "or" is disjunctive
but not exclusive. Whenever this Agreement refers to a number of days, such
number will refer to calendar days unless business days are specified and
whenever action must be taken (including the giving of notice or the delivery of
documents) under this Agreement during a certain period of time or by a
particular date that ends or occurs on a non-business day, then such period or
date will be extended until the immediately following business day. As used
herein, "BUSINESS DAY" means any day other than Saturday, Sunday or a United
States federal holiday.
23. ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, between the parties hereto with respect to the subject matter of this
Agreement. Any prior agreements or understandings between the parties hereto
with respect to indemnification are hereby terminated and of no further force or
effect. This Agreement is not the exclusive means of securing indemnification
rights of Indemnitee and is in addition to any rights Indemnitee may have under
any Constituent Documents.
24. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which will be deemed to be an original but all of which
together shall constitute one and the same agreement.
12
IN WITNESS WHEREOF, Indemnitee has executed and the Company has caused
its duly authorized representative to execute this Agreement as of the date
first above written.
HEALTH BENEFITS DIRECT CORPORATION
By: /s/ Scott Frohman
---------------------
Name: Scott Frohman
Title: CEO
INDEMNITEE:
/s/ Anthony R. Verdi
------------------------------------------
Name: Anthony R. Verdi
Address: 345 Beech Lane
West Chester, PA 19382
SIGNATURE PAGE TO DIRECTOR AND OFFICER INDEMNIFICATION AGREEMENT
Exhibit 10.22
-------------------------------------------------------
SECURITIES CONTRIBUTION AGREEMENT
-------------------------------------------------------
BY AND AMONG
HEALTH BENEFITS DIRECT CORPORATION
MARLIN CAPITAL PARTNERS I, LLC
SCOTT FROHMAN
CHARLES EISSA
PLATINUM PARTNERS II, LLC
AND
DANA BOSKOFF
DATED AS OF SEPTEMBER 9, 2005
TABLE OF CONTENTS
PAGE
ARTICLE I
THE TRANSACTION
Section 1.01 The Contribution................................................1
Section 1.02 Consideration...................................................1
Section 1.03 Closing.........................................................2
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE TRANSFERORS
Section 2.01 Corporate Existence.............................................2
Section 2.02 Authorization; Validity.........................................2
Section 2.03 No Conflict.....................................................3
Section 2.04 Consents and Approvals..........................................3
Section 2.05 Capitalization..................................................3
Section 2.06 Purchase Entirely for Own Account...............................4
Section 2.07 Transferor Address, Access to Information, Experience, Etc......4
Section 2.08 Restricted Securities...........................................4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HBDC
Section 3.01 Corporate Existence.............................................5
Section 3.02 Authorization; Validity.........................................5
Section 3.03 No Conflict.....................................................5
Section 3.04 Consents and Approvals..........................................5
Section 3.05 Valid Issuance of Exchange Shares...............................6
ARTICLE IV
INDEMNIFICATION
Section 4.01 Indemnification of Transferors..................................6
Section 4.02 Indemnification of HBDC.........................................6
ARTICLE V
MISCELLANEOUS
Section 5.01 Fees and Expenses...............................................7
Section 5.02 Entire Agreement................................................7
Section 5.03 Notices.........................................................7
Section 5.04 Amendments; Waivers.............................................7
Section 5.05 Construction....................................................7
Section 5.06 Successors and Assigns..........................................7
i
TABLE OF CONTENTS
(continued)
PAGE
Section 5.07 No Third-Party Beneficiaries....................................8
Section 5.08 Governing Law...................................................8
Section 5.09 Survival........................................................8
Section 5.10 Execution.......................................................8
Section 5.11 Severability....................................................8
Section 5.12 Pronouns........................................................8
Section 5.13 Remedies........................................................9
ii
SECURITIES CONTRIBUTION AGREEMENT
THIS SECURITIES CONTRIBUTION AGREEMENT (this "AGREEMENT") is entered into
as of this 9th day of September, 2005 by and among Health Benefits Direct
Corporation, a Delaware corporation ("HBDC"), Marlin Capital Partners I, LLC, a
Florida limited liability company ("MARLIN"), Scott Frohman ("FROHMAN"), Charles
Eissa ("EISSA"), Platinum Partners II, L.L.C. ("PLATINUM II"), a Florida limited
liability company, and Dana Boskoff ("BOSKOFF").
W I T N E S S E T H:
WHEREAS, Marlin, Frohman, Eissa and Platinum II (each, a "TRANSFEROR," and
collectively, the "TRANSFERORS") together own all of the issued and outstanding
equity securities of Platinum Partners, LLC, a Florida limited liability company
("PLATINUM"), Health Benefits Direct II, LLC, a Florida limited liability
company ("HBDII"), and Health Benefits Direct III, LLC, a Florida limited
liability company ("HBDIII");
WHEREAS, the Board of Directors of HBDC, and the members and managers of
Platinum, HBDII and HBDIII (the "TRANSFERRED COMPANIES") believe it is in the
best interests of their respective companies for the Transferred Companies to
become wholly-owned subsidiaries of HBDC by having the Transferors, subject to
and in accordance with the terms and conditions set forth herein, contribute all
of their membership interests in the Transferred Companies (the "INTERESTS") to
HBDC, in exchange for 7,500,000 shares (the "EXCHANGE SHARES") of HBDC's common
stock, $.001 par value per share (the "COMMON STOCK"), which shall represent
100% of HBDC's Common Stock immediately upon the Closing (as hereinafter
defined); and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the transactions provided for herein.
NOW, THEREFORE, in consideration of the respective representations,
warranties, agreements and covenants contained herein, and for such other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
THE TRANSACTION
Section 1.01 THE CONTRIBUTION. On the Closing Date (as hereinafter
defined), and at the Closing Time (as hereinafter defined), subject in all
instances to each of the terms, conditions, provisions, and limitations
contained in this Agreement, the Transferors shall contribute, transfer, convey,
and assign to HBDC, free and clear of any and all liens and charges, and HBDC
shall acquire from the Transferors, their Interests, comprising, as to each such
Transferor, its entire ownership interest in the Transferred Companies, so that
thereafter HBDC shall become the sole holder of the Interests.
Section 1.02 CONSIDERATION. As consideration for contributing its Interests
to HBDC as provided in Section 1.01 above, each Transferor shall be entitled to
receive that number of Exchange Shares set forth opposite its name on SCHEDULE
1.02 attached hereto and made a part hereof.
Section 1.03 CLOSING.
(a) The closing of the transactions contemplated hereby (the
"CLOSING") shall be held simultaneously with the execution of this Agreement at
such times and place as the parties hereto may mutually agree. The date on which
the Closing actually occurs is referred to herein as the "CLOSING DATE" and the
time at which the Closing occurs is referred to herein as the "CLOSING TIME."
(b) On the Closing Date, and at the Closing Time, HBDC shall deliver
to each Transferor a certificate (or certificates), registered in the name of
such Transferor or its nominee, representing that number of Exchange Shares to
be received by it pursuant to Schedule 1.02, and each Transferor shall deliver
to HBDC one or more limited liability company interest certificates, or such
other evidence of ownership that is reasonably satisfactory to HBDC and its
counsel, representing all of such Transferor's Interests, accompanied by a duly
executed transfer instrument in form and substance mutually satisfactory to the
parties (this exchange, together with all other related transactions provided
for in this Agreement are collectively referred to herein as the "TRANSACTION").
For the avoidance of doubt, to the extent that any Transferor's ownership
interest in a Transferred Company is not certificated on the Closing Date, this
Section 1.03(b) does not create an obligation on the part of such Transferor to
certificate such ownership interest.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE TRANSFERORS
Each of the Transferors, recognizing that HBDC is relying on the contents
of this Article II as a material inducement to its execution, delivery and
performance of this Agreement, hereby represents and warrants, jointly and
severally, to HBDC as follows:
Section 2.01 CORPORATE EXISTENCE. Each of the Transferred Companies is a
limited liability company, duly organized, validly existing and in good standing
under the laws of the State of Florida, possessing the requisite power and
authority to own, operate and lease its properties and assets, and to carry on
its business as now and as currently proposed to be conducted. Each Transferred
Company is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of the properties owned
or leased by it, or the nature of its activities, is such that qualification as
a foreign corporation in that jurisdiction is required by law. True and accurate
copies of the, certificate of incorporation, bylaws, partnership agreement,
articles of organization, operating agreement, or such other constitutive
documents, as the case may be, each as amended and in effect on and as of the
Closing (the "ORGANIZATIONAL DOCUMENTS"), of the Transferred Companies have been
delivered to HBDC.
Section 2.02 AUTHORIZATION; VALIDITY. Each of the Transferors has all
requisite power and authority to enter into this Agreement and all other
documents and instruments required to be executed by it in connection with the
Transaction (together, the "TRANSFEROR RELATED AGREEMENTS"). The execution and
delivery of this Agreement and the Transferor Related Agreements and the
consummation of the Transaction have been duly authorized by all necessary
action, corporate, partnership, limited liability company or otherwise and no
2
further action is required on the part of the Transferors and the Transferred
Companies, as the case may be, to authorize the execution and delivery of this
Agreement, the Transferor Related Agreements and the Transaction. This Agreement
and the Transferor Related Agreements have been duly executed and delivered by
the Transferors, and, assuming the due authorization, execution and delivery by
the other parties hereto and thereto, constitute a valid and binding obligation
of the Transferors, enforceable in accordance with their respective terms.
Section 2.03 NO CONFLICT. The execution and delivery of this Agreement and
any Transferor Related Agreement by any Transferor does not, and the
consummation of the Transaction will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time, or
both), or give rise to a right of termination, cancellation, modification or
acceleration of any obligation or loss of any benefit under (any such event, a
"CONFLICT") (a) any provision of the Transferred Companies' or any Transferor's
Organizational Documents, (b) any mortgage, indenture, lease, contract or other
agreement or instrument or permit, concession, franchise or license to which the
Transferred Companies or any Transferor are subject, or (c) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the
Transferred Companies or any Transferor, or their respective properties or
assets.
Section 2.04 CONSENTS AND APPROVALS. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other federal, state, county, local or
foreign governmental authority, instrumentality, agency or commission (a
"GOVERNMENTAL ENTITY") or other third party, including a party to any agreement
with the Transferred Companies or any Transferor (so as not to trigger a
Conflict), is required by or with respect to the Transferred Companies or any
Transferor in connection with the execution and delivery of this Agreement and
the Transferor Related Agreements or for consummation of the Transaction, except
for such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws.
Section 2.05 CAPITALIZATION.
(a) All of the Interests of the Transferred Companies are listed on
SCHEDULE 2.05 attached hereto and made a part hereof, and the Interests are held
solely by the Transferors. The Interests are duly authorized, validly issued,
fully paid and nonassessable and are not subject to any preemptive right,
whether created by statute, the Transferred Companies' Organizational Documents
or any agreement to which either the Transferred Companies or any Transferor is
a party or by which the Transferred Companies or any Transferor is bound, and
such Interests were issued in compliance with all federal and state securities
laws. There are no declared or unpaid accrued dividends with respect to any of
the Interests.
(b) The Transferors hold no other equity securities, or securities
convertible into, exchangeable for, exercisable for or in any other way
evidencing the right to receive equity securities of any of the Transferred
Companies, authorized, issued or outstanding other than the Interests.
(c) Each Transferor owns the Interests set forth opposite its name on
Schedule 2.05 free and clear of any and all liens, claims, encumbrances, and
rights of others.
3
(d) Each Transferor is authorized and entitled to sell, transfer and
convey to the HBDC free and clear title to the Interests, without any further
approval or authorization being required.
(e) At the Closing Time, the Interests being contributed by each
Transferor to HBDC will constitute all of the Interests of the Transferred
Companies and the Transferred Companies will become wholly-owned subsidiaries of
HBDC.
Section 2.06 PURCHASE ENTIRELY FOR OWN ACCOUNT. The Exchange Shares to be
received by each Transferor pursuant to the terms hereof will be acquired for
investment for each Transferor's own account, not as a nominee or agent, and not
with a view to the resale or distribution of any part thereof. No Transferor has
any present intention of selling, granting any participation in, or otherwise
distributing the Exchange Shares to be acquired by such Transferor. No
Transferor has any contract, undertaking, agreement or arrangement with any
person or entity to sell or transfer, or grant any participation to such person
or entity or to any third party, with respect to any of the Exchange Shares to
be acquired by such Transferor.
Section 2.07 TRANSFEROR ADDRESS, ACCESS TO INFORMATION, EXPERIENCE, ETC.
(a) The address set forth on the signature pages by each Transferor
is such Transferor's true and correct business, residence or domicile address.
Each Transferor has received and read and is familiar with this Agreement and
the Transferor Related Agreements. Each Transferor has had an opportunity to ask
questions of and receive answers from representatives of HBDC concerning the
terms and conditions of this investment. Each Transferor has substantial
experience in evaluating non-liquid investments such as an investment in the
Exchange Shares and is capable of evaluating the merits and risks of an
investment in HBDC. Each Transferor is an "accredited investor" as that term is
defined in Rule 501(c) of Regulation D promulgated under the Securities Act of
1933, as amended (the "SECURITIES ACT").
(b) Each Transferor was furnished access to the business records of
HBDC and such additional information and documents as such Transferor requested
and was afforded an opportunity to ask questions of, and receive answers from,
representatives of HBDC concerning the terms and conditions of this Agreement,
the acquisition of the Exchange Shares, the business, operations, market
potential, capitalization, financial condition and prospects of HBDC, and all
other matters deemed relevant to such Transferor.
(c) Each Transferor acknowledges that it had an opportunity to
evaluate all information regarding HBDC as it deemed necessary or desirable in
connection with the Transaction, independently evaluated the Transaction and
reached its own decision to enter into this Agreement and the Transferor Related
Agreements.
Section 2.08 RESTRICTED SECURITIES. Each Transferor understands that the
Exchange Shares were not registered under the Securities Act or the laws of any
state and may not be sold or transferred, or otherwise disposed of, without
registration under the Securities Act and applicable state securities laws, or
pursuant to an exemption therefrom. In the absence of an effective registration
statement covering the Exchange Shares, such Transferor may sell or transfer, or
otherwise dispose of, the Exchange Shares only in a manner consistent with its
4
representations and agreements set forth herein and any applicable federal and
state securities laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HBDC
HBDC, recognizing that the Transferors are relying on the contents of this
Article III as a material inducement to their execution, delivery and
performance of this Agreement, hereby represents and warrants to the Transferors
as follows:
Section 3.01 CORPORATE EXISTENCE. HBDC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware,
possessing the requisite power and authority to own, operate and lease its
properties and assets and to carry on its business as now and as currently
proposed to be conducted. HBDC is duly qualified as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
the properties owned or leased by it, or the nature of its activities, is such
that qualification as a foreign corporation in that jurisdiction is required by
law. True and accurate copies of HBDC's Organizational Documents have been
delivered to the Transferors.
Section 3.02 AUTHORIZATION; VALIDITY. HBDC has all requisite power and
authority to enter into this Agreement and all other documents and instruments
required to be executed by it in connection with the Transaction (collectively,
the "HBDC RELATED AGREEMENTS"). The execution and delivery of this Agreement and
the HBDC Related Agreements, the consummation of the Transaction and the
issuance of the Exchange Shares in accordance with the Transaction have been
duly authorized by all necessary action, corporate or otherwise, and no further
action is required on the part of HBDC to authorize the Agreement, the HBDC
Related Agreements, the Transaction and the issuance of the Exchange Shares in
accordance with the Transaction. This Agreement and the HBDC Related Agreements
have been duly authorized and validly executed and delivered by HBDC, and,
assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute a valid and binding obligation of HBDC,
enforceable in accordance with their respective terms.
Section 3.03 NO CONFLICT. The execution and delivery of this Agreement and
the HBDC Related Agreements do not, and, the performance thereof by HBDC and the
consummation of the Transaction, will not result in a Conflict with (a) any
provision of HBDC's Organizational Documents, (b) any mortgage, indenture,
lease, contract or other agreement or instrument or permit, concession,
franchise or license to which HBDC, its properties or its assets (including
intangible assets) are subject, or (c) any judgment, order, decree, statute,
law, ordinance, rule or regulation applicable to HBDC, its properties or its
assets.
Section 3.04 CONSENTS AND APPROVALS. No consent, waiver, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity or other third party, including a party to any agreement with HBDC (so as
not to trigger a Conflict), is required by or with respect to HBDC in connection
with the execution and delivery of this Agreement and the HBDC Related
Agreements or for the performance hereof and thereof and for the consummation of
the Transaction, except for such consents, waivers, approvals, orders,
5
authorizations, registrations, declarations and filings as may be required under
applicable securities laws.
Section 3.05 VALID ISSUANCE OF EXCHANGE SHARES. The Exchange Shares have
been duly authorized and validly reserved for issuance, and, when issued and
delivered by HBDC in accordance with the provisions of this Agreement, will (a)
be duly authorized, validly issued, fully paid, and nonassessable and free of
preemptive rights, and free and clear of all liens, claims, encumbrances,
adverse interests of any kind and free of any restriction on transfer, other
than restrictions on transfer under applicable federal and state securities
laws, and (b) represent (i) 100% of HBDC's issued and outstanding Common Stock.
The Exchange Shares will be issued in compliance with all applicable federal and
state securities laws. Upon issuance and delivery of the Exchange Shares by HBDC
in accordance with the provisions of this Agreement, the authorized, issued and
outstanding capital stock of HBDC will consist solely of the Exchange Shares.
ARTICLE IV
INDEMNIFICATION
Section 4.01 INDEMNIFICATION OF TRANSFERORS. HBDC will indemnify and hold
the Transferors and their directors, officers, shareholders, members, partners,
employees and agents (each, a "TRANSFEROR PARTY") harmless from any and all
losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation that any such Transferor
Party may suffer or incur as a result of or relating to: (a) any
misrepresentation, breach or inaccuracy, of any of the representations,
warranties, covenants or agreements made by HBDC in this Agreement or in any
HBDC Related Agreement or (b) any cause of action, suit or claim brought or made
against such Transferor Party and arising solely out of or solely resulting from
the execution, delivery, performance or enforcement of this Agreement or any
HBDC Related Agreement and without causation by any other activity, obligation,
condition or liability pertaining to such Transferor. HBDC will reimburse such
Transferor for its reasonable legal and other expenses (including the cost of
any investigation, preparation and travel in connection therewith) incurred in
connection therewith, as such expenses are incurred.
Section 4.02 INDEMNIFICATION OF HBDC. The Transferors, jointly and
severally, will indemnify and hold HBDC and its directors, officers,
stockholders, employees and agents (each, an "HBDC PARTY") harmless from any and
all losses, liabilities, obligations, claims, contingencies, damages, costs and
expenses, including all judgments, amounts paid in settlements, court costs and
reasonable attorneys' fees and costs of investigation that any such HBDC Party
may suffer or incur as a result of or relating to: (a) any misrepresentation,
breach or inaccuracy, of any of the representations, warranties, covenants or
agreements made by any Transferor in this Agreement or in any Transferor Related
Agreement or (b) any cause of action, suit or claim brought or made against such
Transferor Party and arising solely out of or solely resulting from the
execution, delivery, performance or enforcement of this Agreement or any
Transferor Related Agreement and without causation by any other activity,
obligation, condition or liability pertaining to HBDC. The Transferors will
reimburse HBDC for its reasonable legal and other expenses (including the cost
of any investigation, preparation and travel in connection therewith) incurred
in connection therewith, as such expenses are incurred.
6
ARTICLE V
MISCELLANEOUS
Section 5.01 FEES AND EXPENSES. Except as otherwise set forth in this
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement.
Section 5.02 ENTIRE AGREEMENT. This Agreement, together with the schedules
hereto, contains the entire understanding of the parties with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such document and schedules.
Section 5.03 NOTICES. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (a) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile number set forth on the signature pages attached hereto prior to 6:30
p.m. (New York City time) on a business day, (b) the next business day after the
date of transmission, if such notice or communication is delivered via facsimile
at the facsimile number set forth on the signature pages attached hereto on a
day that is not a business day or later than 6:30 p.m. (New York City time) on
any business day, (c) the second business day following the date of mailing, if
sent by U.S. nationally recognized overnight courier service, or (d) upon actual
receipt by the party to whom such notice is required to be given. The address
for such notices and communications shall be as set forth on the signature pages
attached hereto.
Section 5.04 AMENDMENTS; WAIVERS. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by HBDC and each Transferor or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any subsequent
default or a waiver of any other provision, condition or requirement hereof, nor
shall any delay or omission of either party to exercise any right hereunder in
any manner impair the exercise of any such right.
Section 5.05 CONSTRUCTION. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof. The language used in this Agreement will be
deemed to be the language chosen by the parties to express their mutual intent,
and no rules of strict construction will be applied against any party. This
Agreement shall be construed as if drafted jointly by the parties, and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Agreement.
Section 5.06 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties and their successors and permitted
assigns. None of the parties hereto may assign this Agreement or any rights or
obligations hereunder without the prior written consent of each of the other
parties.
7
Section 5.07 NO THIRD-PARTY BENEFICIARIES. This Agreement is intended for
the benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
Section 5.08 GOVERNING LAW. All questions concerning the construction,
validity, enforcement and interpretation of this Agreement shall be governed by
and construed and enforced in accordance with the internal laws of the State of
Delaware, without regard to the principles of conflicts of law thereof. Each
party hereto hereby irrevocably waives personal service of process and consents
to process being served in any such suit, action or proceeding by mailing a copy
thereof via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
If any party shall commence an action or proceeding to enforce any provision of
this Agreement, then the prevailing party in such action or proceeding shall be
reimbursed by the other party for its attorneys fees and other costs and
expenses incurred with the investigation, preparation and prosecution of such
action or proceeding.
Section 5.09 SURVIVAL. The representations, warranties, agreements and
covenants contained herein shall survive the Closing.
Section 5.10 EXECUTION. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that all
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) with the same force and effect as if such facsimile signature page
were an original thereof.
Section 5.11 SEVERABILITY. If any provision of this Agreement is held to be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Agreement shall not in any way be
affected or impaired thereby and the parties will attempt to agree upon a valid
and enforceable provision that is a reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Agreement.
Section 5.12 PRONOUNS. Whenever the pronouns "it" or "its" are used herein,
they shall also be deemed to mean "he" or "his" or "she" or "hers" whenever
applicable. Words in the singular shall be read and construed as though in the
plural and words in the plural shall be read and construed as though in the
singular in all cases where they would so apply.
8
Section 5.13 REMEDIES. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, each of the
Transferors and HBDC will be entitled to specific performance under this
Agreement. The parties agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
[Signature Pages Follow]
9
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first set forth.
HEALTH BENEFITS DIRECT CORPORATION
By:/s/ Daniel Brauser
---------------------
Name: Daniel Brauser
Title: CFO
Address: 2900 Gateway Drive
Pompano Beach, FL 33069
Facsimile No. 954-691-4010
SIGNATURE PAGE TO SECURITIES CONTRIBUTION AGREEMENT
S-1
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first set forth.
MARLIN CAPITAL PARTNERS I, LLC
By: /s/ Michael Brauser
-----------------------
Name: Michael Brauser
Title: Manager
Address: 2900 Gateway Drive
Pompano Beach, FL 33069
Facsimile No. 954-691-4010
SIGNATURE PAGE TO SECURITIES CONTRIBUTION AGREEMENT
S-2
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first set forth.
PLATINUM PARTNERS II, LLC
By: /s/ Michael Brauser
-----------------------
Name: Michael Brauser
Title: Manager
Address: 2900 Gateway Drive
Pompano Beach, FL 33069
Facsimile No. 954-691-4010
SIGNATURE PAGE TO SECURITIES CONTRIBUTION AGREEMENT
S-3
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first set forth.
By: /s/ Scott Frohman
-----------------------
Name: SCOTT FROHMAN
Address: 2900 Gateway Drive
Pompano Beach, FL 33069
Facsimile No. 954-691-4010
SIGNATURE PAGE TO SECURITIES CONTRIBUTION AGREEMENT
S-4
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first set forth.
/s/ Charles Eissa
-------------------------------------------
CHARLES EISSA
Address: 2900 Gateway Drive
Pompano Beach, FL 33069
Facsimile No. 954-691-4010
SIGNATURE PAGE TO SECURITIES CONTRIBUTION AGREEMENT
S-5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year hereinabove first set forth.
/s/ Dana Boskoff
------------------------------------------
DANA BOSKOFF
Address: 136 E. 36th Street
New York, NY 10016
Apt. #80
Facsimile No. 212-202-6139
SIGNATURE PAGE TO SECURITIES CONTRIBUTION AGREEMENT
S-6
Exhibit 10.23
RESIGNATION
I, ROBERT FERGUSON, hereby resign from all director and officer
positions I hold with Health Benefits Direct Corporation and any of its direct
or indirect subsidiaries effective immediately.
Dated: November 23, 2005 /s/ Robert Ferguson
-------------------------------
ROBERT FERGUSON
Exhibit 10.24
LOCK-UP AGREEMENT
The undersigned is the beneficial owner of shares of common stock,
$0.001 par value per share (the "COMMON STOCK"), securities substantially
similar to the Common Stock ("OTHER SECURITIES"), or securities convertible into
or exercisable or exchangeable for the Common Stock or Other Securities
("Convertible Securities"), of Health Benefits Direct Corporation, a Delaware
corporation (the "COMPANY"), (including shares of Common Stock acquired in
connection with the contribution by such persons of certain limited liability
company membership interests of predecessor businesses to the Company), such
securities, and all such additional securities owned or acquired by the
undersigned, subject to this Agreement. The undersigned understands that the
Company intends to enter into a reverse merger transaction with a
publicly-traded company, concurrently with a private placement of up to
$7,500,000 worth of Units, with each Unit consisting of 50,000 shares of Common
Stock and a warrant to purchase 25,000 shares of Common Stock (the "FUNDING
TRANSACTIONS").
In recognition of the benefit that the Funding Transactions will
confer upon the undersigned, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the undersigned
agrees, for the benefit of the Company, and each investor in the Funding
Transaction, that, during the period ending twenty four (24) months after the
closing of the Funding Transactions (the "Lock Up Period"), the undersigned will
not, without the prior written consent of the investors holding a majority of
the Common Stock underlying the Units, directly or indirectly, (i) offer, sell,
offer to sell, contract to sell, hedge, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or sell (or announce any offer, sale, offer of sale,
contract of sale, hedge, pledge, sale of any option or contract to purchase,
purchase of any option or contract of sale, grant of any option, right or
warrant to purchase or other sale or disposition), or otherwise transfer or
dispose of (or enter into any transaction or device which is designed to, or
could be expected to, result in the disposition by any person at any time in the
future), any shares of Common Stock, Other Securities, or Convertible
Securities, beneficially owned (within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), by the undersigned on the date
hereof or hereafter acquired or (ii) enter into any swap or other agreement or
any transaction that transfers, in whole or in part, directly or indirectly, the
economic consequence of ownership of the Common Stock, Other Securities, or
Convertible Securities, whether any such swap or transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Stock, Other
Securities, or Convertible Securities, in cash or otherwise; provided, however,
that during the last twelve (12) months of the Lock Up Period, only fifty (50)
percent of the undersigned's Common Stock, Other Securities, or Convertible
Securities shall be subject to the foregoing restrictions.
Within twelve (12) months following the initial closing of the
Funding Transaction, subject to the Lock Up Shares restriction on future sales,
the Company shall file a registration statement with the SEC covering the resale
of the shares of Common Stock held by founders and for management shares issued
and issuable under options and other awards, which shares may be included in any
Registration Statement on Form SB-2 covering the resale of the shares of Common
Stock and warrants offered pursuant to the Founding Transaction.
In furtherance of the foregoing, the Company and its transfer agent
are hereby authorized to decline to make any transfer of securities if such
transfer would constitute a violation or breach of this agreement.
Notwithstanding the foregoing, the undersigned may transfer Common
Stock, Other Securities, or Convertible Securities (i) as a bona fide gift or
gifts, provided that prior to such transfer the donee or donees thereof agree in
writing to be bound by the restrictions set forth herein, (ii) to any trust,
partnership, corporation or other entity formed for the direct or indirect
benefit of the undersigned or the immediate family of the undersigned, provided
that prior to such transfer a duly authorized officer, representative or trustee
of such transferee agrees in writing to be bound by the restrictions set forth
herein, and provided further that any such transfer shall not involve a
disposition for value or (iii) if such transfer occurs by operation of law, such
as rules of descent and distribution, statutes governing the effects of a merger
or a qualified domestic order, provided that prior to such transfer the
transferee executes an agreement stating that the transferee is receiving and
holding the shares subject to the provisions of this agreement. For purposes
hereof, "immediate family" shall mean any relationship by blood, marriage or
adoption, not more remote than first cousin.
The undersigned understands that the Company and the investors will
proceed with the Funding Transactions in reliance on this agreement. Whether or
not the Funding Transactions are consummated depends on a number of factors,
including market conditions. The undersigned hereby represents and warrants that
the undersigned has full power and authority to enter into this agreement and
that, upon request, the undersigned will execute any additional documents
necessary in connection with the enforcement hereof. Any obligations of the
undersigned shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
[REMAINDER OF PAGE INTENTIONALLY BLANK]
2
IN WITNESS WHEREOF, the undersigned has caused this Lock-Up
Agreement to be executed as of 23rd day of November 2005.
HEALTH BENEFITS DIRECT CORP.
By: /s/ Scott Frohman
-----------------
Name: Scott Frohman
Title:
Scott Frohman
/s/ Scott Frohman
---------------------
Charles Eissa
/s/ Charles Eissa
---------------------
Daniel Brauser
/s/ Daniel Brauser
---------------------
Exhibit 10.25
ADVISORY AGREEMENT
THIS AGREEMENT (the "AGREEMENT"), dated as of November 1, 2005, by and
between Health Benefits Direct Corporation, a Delaware corporation (the
"COMPANY"), and Warren V. Musser (the "ADVISOR").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the Advisor and the Advisor
desires to be retained by the Company pursuant to the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises and covenants herein contained, it is hereby agreed as follows:
Section 1. RETENTION.
(a) The Company hereby retains the Advisor on an
non-exclusive basis to perform the services set forth in Section 1(b),
commencing on the date hereof, and the Advisor hereby accepts such retention and
shall perform for the Company the duties described herein, faithfully and to the
best of his ability.
(b) The Advisor shall serve as a business advisor to the
Company and render such advice and services to the Company as may be reasonably
requested by the Company including, without limitation, introducing the Company
to prospective equity investors.
Section 2. COMPENSATION.
(a) In consideration of the Advisor introducing the Company
to certain potential providers of an equity financing (the "EQUITY FINANCING")
which the Company closes, the Company shall pay the Advisor a fee consisting of
(i) cash in an amount equal to four percent (4%) of the total gross cash
proceeds of the Equity Financing and (ii) warrants to purchase such number of
shares of the Company's common stock (the "COMMON STOCK") as shall equal five
percent (5%) of the shares of the Common Stock issued or to be issued upon
conversion and/or exercise in the Equity Financing on a post-financing basis, at
an exercise price equal to $1.50 per share, exercisable, in whole or in part,
during the five (5) year period commencing on the issuance date of such warrants
(the "WARRANT Fee"). The Warrant Fee, at the option of the Advisor, may be paid
for in cash or by an exchange as a "cashless exercise." The Advisor will limit
his activities described in this Section 2 to making introductions between the
Company and individuals that may be interested in investing in the Company. In
this role, the Advisor will not solicit such individuals to make an investment
in the Company, make any recommendations to such individuals regarding an
investment in the Company, or provide any analysis or advice regarding an
investment in the Company to such individuals.
(b) The Company shall not pay to the Advisor any retainer.
(c) Except as otherwise provided for herein:
(i) All fees due to the Advisor hereunder shall have
no offsets, are non-refundable, non-cancelable and shall be free and clear of
any and all encumbrances.
(ii) All cash fees due the Advisor hereunder shall be
paid to the Advisor immediately upon closing of any Equity Financing
(collectively, the "FEE TRANSACTION") by wire transfer of immediately available
funds from the proceeds of the Fee Transaction, either directly or from the
formal or informal escrow arrangement established for the Fee Transaction
(collectively, the "CLOSING AGENT"), pursuant to the written wire transfer
instructions of the Advisor provided to the Closing Agent.
(iii) All securities fees due the Advisor hereunder
shall be made via DTC or the DWAC system, or by certified certificates, as
applicable, and shall be delivered to the Advisor from the Closing Agent
immediately upon closing of any Fee Transaction.
(iv) All securities fees due the Advisor hereunder
shall be duly issued, fully-paid (exclusive of warrants or options) and
non-assessable and shall be in the same form, with the same terms and conditions
as the securities provided to the Company pursuant to any Fee Transaction.
(v) The Company authorizes and directs the Closing
Agent to distribute directly or from escrow any and all fees due the Advisor
hereunder. The Company agrees that such fees and the manner of payment and
delivery as herein provided shall be included in the documentation of any Fee
Transaction.
Section 3. EXPENSES. The Company shall reimburse the Advisor for
all out-of-pocket expenses incurred by the Advisor in connection with his duties
hereunder, including but not limited to the Advisor's due diligence activities
with respect to the Company. Any such expenses shall be evidenced by written
documentation prior to reimbursement and shall not exceed fifteen thousand
dollars ($15,000) in the aggregate. Reimbursement by the Company to the Advisor,
or to any third party designated by the Advisor, will be made immediately upon
closing of any Fee Transaction by wire transfer of immediately available funds
from the proceeds of the Fee Transaction pursuant to wire instructions provided
to the Company by the Advisor.
Section 4. TERMINATION. Either party may terminate this Agreement
at any time for any reason or no reason; PROVIDED, HOWEVER, that the Company
shall not terminate, cancel or rescind any agreements, term sheets or letters of
intent pursuant to any Equity Financing unless such cancellation is made
pursuant to pertinent "out clauses" of those respective documents ("JUST
CAUSE"). In the event the Company elects not to proceed with an Equity Financing
that was facilitated by the Advisor without Just Cause, the Company shall
immediately pay to the Advisor a termination fee equal to the greater of (a)
$50,000 or (b) fifty percent (50%) of the total fees that would have been paid
to the Advisor had the transaction been effected.
Section 5. CONFIDENTIAL INFORMATION. The Advisor agrees that during
and after the term of this Agreement, it will keep in strictest confidence, and
will not disclose or make accessible to any other person without the written
consent of the Company, the Company's products, services and technology, both
current and under development, promotion and marketing programs, lists, trade
secrets and other confidential and proprietary business information of the
Company or any of its clients and third parties including, without limitation,
Proprietary Information (as defined in Section 6) (all of the foregoing is
referred to herein as the "CONFIDENTIAL INFORMATION"). The Advisor agrees (a)
not to use any such Confidential Information for himself or others; and (b) not
to take any such material or reproductions thereof from the Company's facilities
at any time except, in each case, as required in connection with the Advisor's
duties hereunder. Notwithstanding the foregoing, the parties agree that the
Advisor is free to use (a) information in the public domain not as a result of a
2
breach of this Agreement, (b) information lawfully received form a third party
who had the right to disclose such information and (c) the Advisor's own
independent skill, knowledge, know-how and experience to whatever extent and in
whatever way it wishes, in each case consistent with his obligations as the
Advisor and that, at all times, the Advisor is free to conduct any research
relating to the Company's business.
Section 6. OWNERSHIP OF PROPRIETARY INFORMATION. The Advisor agrees
that all information that has been created, discovered or developed by the
Company, its subsidiaries, affiliates, licensors, licensees, successors or
assigns (collectively, the "AFFILIATES") (including, without limitation,
information relating to the development of the Company's business created,
discovered, developed by the Company or any of its affiliates during the term of
this Agreement, and information relating to the Company's customers, suppliers,
advisors, and licensees) and/or in which property rights have been assigned or
otherwise conveyed to the Company or the Affiliates, shall be the sole property
of the Company or the Affiliates, as applicable, and the Company or the
Affiliates, as the case may be, shall be the sole owner of all patents,
copyrights and other rights in connection therewith, including, without
limitation, the right to make application for statutory protection. All the
aforementioned information is hereinafter called "PROPRIETARY INFORMATION." By
way of illustration, but not limitation, Proprietary Information includes trade
secrets, processes, discoveries, structures, inventions, designs, ideas, works
of authorship, copyrightable works, trademarks, copyrights, formulas,
improvements, inventions, product concepts, techniques, marketing plans, merger
and acquisition targets, strategies, forecasts, blueprints, sketches, records,
notes, devices, drawings, customer lists, patent applications, continuation
applications, continuation-in-part applications, file wrapper continuation
applications and divisional applications and information about the Company's
Affiliates, its employees and/or advisors (including, without limitation, the
compensation, job responsibility and job performance of such employees and/or
advisors). All original content, proprietary information, trademarks,
copyrights, patents or other intellectual property created by the Advisor that
does not include any specific information relative to the Company's proprietary
information, shall be the sole and exclusive property of the Advisor.
Section 7. INDEMNIFICATION. The Company represents that all
materials provided or to be provided to the Advisor or any third party regarding
the Company's financial affairs or operations are and shall be truthful and
accurate and in compliance with any and all applicable federal and state
securities laws. The Company agrees to indemnify and hold harmless the Advisor
and his advisors, professionals and affiliates, the respective directors,
officers, partners, members, managers, agents and employees and each other
person, if any, controlling the Advisor or any of his affiliates to the full
extent lawful, from and against all losses, claims, damages, liabilities and
expenses incurred by them (including reasonable attorneys' fees and
disbursements) that result from actions taken or omitted to be taken (including
any untrue statements made or any statement omitted to be made) by the Company,
its agents or employees which relate to the scope of this Agreement and the
performance of the services by the Advisor contemplated hereunder. Each person
or entity seeking indemnification hereunder shall promptly notify the Company of
any loss, claim, damage or expense for which the Company may become liable
pursuant to this Section 7. No party shall pay, settle or acknowledge liability
under any such claim without consent of the party liable for indemnification,
and shall permit the Company a reasonable opportunity to cure any underlying
3
problem or to mitigate actual or potential damages. The scope of this
indemnification between the Advisor and the Company shall be limited to, and
pertain only to certain transactions contemplated or entered into pursuant to
this Agreement. The Company shall have the opportunity to defend any claim for
which it may be liable hereunder, provided it notifies the party claiming the
right to indemnification in writing within fifteen (15) days of notice of the
claim. The rights stated pursuant to this Section 7 shall be in addition to any
rights that the Advisor, or any other person entitled to indemnification may
have in common law or otherwise, including, but not limited to, any right to
contribution.
Section 8. NOTICES. Any notice or other communication under this Agreement shall
be in writing and shall be deemed to have been duly given: (a) upon facsimile
transmission (with written transmission confirmation report) at the number
designated below; (b) when delivered personally against receipt therefore; (c)
one day after being sent by Federal Express or similar overnight delivery; or
(d) five (5) business days after being mailed registered or certified mail,
postage prepaid. The addresses for such communications shall be as set forth
below or to such other address as a party shall give by notice hereunder to the
other party to this Agreement.
If to the Company:
Health Benefits Direct Corporation
2900 Gateway Drive
Pompano Beach, Florida 33069
Telephone: (954) 944-4447
Telecopy: (954) 691-4010
Attention: Mr. Scott Frohman, Chief Executive Officer
If to the Advisor:
Warren V. Musser
435 Devon Park Drive, Suite 500
Wayne, PA 19087
Telephone: 610-975-4910
Telecopy: 610-975-4911
Attention: Mr. Warren V. Musser
Section 9. STATUS OF ADVISOR. The Advisor shall be deemed to be an
independent contractor and, except as expressly provided or authorized in this
Agreement, shall have no authority to act for on behalf of or represent the
Company. This Agreement does not create a partnership or joint venture.
Section 10. OTHER ACTIVITIES OF ADVISOR. The Company recognizes that
the Advisor now renders and may continue to render consulting and other services
to other companies that may or may not conduct business and activities similar
to those of the Company. The Advisor shall not be required to devote his full
time and attention to the performance of his duties under this Agreement, but
shall devote only so much of his time and attention as it deems reasonable or
necessary for such purposes.
4
Section 11. SUCCESSORS AND ASSIGNS. This Agreement and all of the
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. This Agreement and
any of the rights, interests or obligations hereunder may be assigned by the
Advisor without the prior written consent of the Company. This Agreement and any
of the rights, interests or obligations hereunder may not be assigned by the
Company without the prior written consent of the Advisor, which consent shall
not be unreasonably withheld.
Section 12. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be declared by a court of competent jurisdiction to be invalid,
illegal or incapable of being enforced in whole or in part, the remaining
conditions and provisions or portions thereof shall nevertheless remain in full
force and effect and enforceable to the extent they are valid, legal and
enforceable, and no provision shall be deemed dependent upon any other covenant
or provision unless so expressed herein.
Section 13. ENTIRE AGREEMENT; MODIFICATION. This Agreement contains
the entire agreement of the parties relating to the subject matter hereof, and
the parties hereto have made no agreements, representations or warranties
relating to the subject matter of this Agreement which are not set forth herein.
No amendment or modification of this Agreement shall be valid unless made in
writing and signed by each of the parties hereto.
Section 14. NON-WAIVER. The failure of any party to insist upon the
strict performance of any of the terms, conditions and provisions of this
Agreement shall not be construed as a waiver or relinquishment of future
compliance therewith; and the said terms, conditions and provisions shall remain
in full force and effect. No waiver of any term or condition of this Agreement
on the part of any party shall be effective for any purpose whatsoever unless
such waiver is in writing and signed by such party.
Section 15. REMEDIES FOR BREACH. The Advisor and the Company
mutually agree that any breach of Sections 2, 4, 5, 6, or 7 of this Agreement by
the Advisor or the Company may cause irreparable damage to the other party
and/or their affiliates, and that monetary damages alone would not be adequate
and, in the event of such breach or threat of breach, the damaged party shall
have, in addition to any and all remedies at law and without the posting of a
bond or other security, the right to an injunction, specific performance or
other equitable relief necessary to prevent or redress the violation of either
party's obligations under such Sections. In the event that an actual proceeding
is brought in equity to enforce such Sections, the offending party shall not
urge as a defense that there is an adequate remedy at law nor shall the damaged
party be prevented from seeking any other remedies that may be available to it.
The defaulting party shall pay all attorneys' fees and costs incurred by the
other party in enforcing this Agreement.
Section 16. GOVERNING LAW. The parties hereto acknowledge that the
transactions contemplated by this Agreement bear a reasonable relation to the
Commonwealth of Pennsylvania. This Agreement shall be governed by, and construed
and interpreted in accordance with, the internal laws of the Commonwealth of
Pennsylvania without regard to such state's principles of conflicts of laws. The
parties irrevocably and unconditionally agree that the exclusive place of
jurisdiction for any action, suit or proceeding ("ACTIONS") relating to this
Agreement shall be in the state and/or federal courts situate in the county and
5
state of Pennsylvania. Each party irrevocably and unconditionally waives any
objection it may have to the venue of any Action brought in such courts or to
the convenience of the forum. Final judgment in any such Action shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment, a
certified or true copy of which shall be conclusive evidence of the fact and the
amount of any indebtedness or liability of any party therein described. Service
of process in any Action by any party may be made by serving a copy of the
summons and complaint, in addition to any other relevant documents, by
commercial overnight courier to any other party at their address set forth in
this Agreement.
Section 17. HEADINGS. The headings of the Sections are inserted for
convenience of reference only and shall not affect any interpretation of this
Agreement.
Section 18. COUNTERPARTS. This Agreement may be executed in
counterpart signatures, each of which shall be deemed an original, but all of
which, when taken together, shall constitute one and the same instrument, it
being understood that both parties need not sign the same counterpart. In the
event that any signature is delivered by facsimile transmission, such signature
shall create a valid and binding obligation of the party executing (or on whose
behalf such signature is executed) the same with the same force and effect as if
such facsimile signature page were an original thereof.
[Signature Page Immediately Follows]
6
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first written above.
HEALTH BENEFITS DIRECT CORPORATION
By: /s/ Scott Frohman
-----------------------------------
Name: Scott Frohman
Title: CEO
/s/ Warren V. Musser
---------------------------------------
Warren V. Musser
SIGNATURE PAGE TO ADVISORY AGREEMENT
Exhibit 99.1
FINANCIAL PROJECTIONS
The Company does not, as a matter of course, publicly disclose
financial forecasts. However, in connection with this Offering, we are providing
to prospective investors the following financial projections prepared by the
Company's management. These projections were not prepared with a view towards
public disclosure or compliance with published guidelines of the Securities and
Exchange Commission, the guidelines established by the American Institute of
Certified Public Accountants for Prospective Financial Information or generally
accepted accounting principles. The Company's certified public accountants have
not examined or compiled any of these projections or expressed any conclusion or
provided any form of assurance with respect to the projections and, accordingly,
assume no responsibility for them. These projections are not fact and should not
be relied upon as being indicative of future results. You are cautioned not to
place undue reliance on these projections.
HEALTH BENEFITS DIRECT CORPORATION
15 MONTH PROJECTED STATEMENTS OF OPERATIONS
-------------------------------------------------------------------
FOR THE THREE MONTHS ENDING:
-------------------------------------------------------------------
12/31/2005 3/31/2006 6/30/2006 9/30/2006 12/31/2006
-------------------------------------------------------------------
REVENUES:
-------------------------------------------------------------------
TOTAL REVENUES 702,360 1,277,209 3,157,261 5,375,071 7,900,037
-------------------------------------------------------------------
OPERATING EXPENSES:
TOTAL OPERATING EXPENSES 1,548,886 1,839,188 3,163,452 4,559,569 5,966,033
-------------------------------------------------------------------
INCOME (LOSS) BEFORE FEDERAL TAXES (846,526) (561,979) (6,191) 815,502 1,934,004
Provision for Federal Taxes 453,836
-------------------------------------------------------------------
NET INCOME (LOSS) $(846,526) $(561,979) $(6,191) $815,502 $1,480,168
===================================================================
---------------------------------------------
FOR THE TWELVE MONTHS ENDING:
---------------------------------------------
12/31/05 12/31/06
---------------------------------------------
REVENUES:
---------------------------------------------
TOTAL REVENUES 2,329,690 17,709,579
---------------------------------------------
OPERATING EXPENSES:
TOTAL OPERATING EXPENSES 5,093,945 15,528,242
---------------------------------------------
INCOME (LOSS) BEFORE FEDERAL TAXES (2,764,255) 2,181,337
Provision for Federal Taxes 453,836
---------------------------------------------
NET INCOME (LOSS) $(2,764,255) $1,727,501
=============================================
2
The projections set forth above constitute forward-looking
statements and involve numerous risks and uncertainties, see RISK FACTORS
beginning on page 12. While presented with numerical specificity, these
projections reflect numerous assumptions made by the Company's management, many
of which are inherently uncertain and subject to change. In addition, factors
such as industry performance and general business, economic, regulatory, market
and financial conditions, all of which are difficult to predict, may cause these
projections or the underlying assumptions to be inaccurate. Accordingly, it is
expected that there will be differences between actual and projected results,
and actual results may be materially greater or less than those contained in the
projections. Neither the Company nor any of its affiliates, advisors or
representatives has made or makes any representation to any person regarding the
Company's ultimate performance compared to the information contained in these
projections. Except to the extent required under applicable laws, the Company
does not intend to update or otherwise revise these projections to reflect
circumstances existing after the date when made or to reflect the occurrence of
future events even in the event any or all of the assumptions underlying these
projections are shown to be in error. These projections should be read in
conjunction with the Risk Factors beginning on page 12.
REVENUE MODEL
The Company generates commission and fee revenue from the sale and
service of insurance policies and products offered by third parties. The Company
utilizes a proprietary technology, the Internet, and other marketing methods
together with licensed agent employees to sell products offered by external
parties.
The agents rely on leads that the Company acquires from various
sources, which include internet based marketing and traditional marketing
techniques.
Revenues are earned from commissions paid by the third parties at
negotiated rates from the insurance carriers and vary from product to product.
The Company receives advances for commissions on certain products based on a
calculation of annualized premium, commission percentage rate and advance
period. This calculation varies from product to product and by carrier, and the
Company may have limited ability to control the amount it receives from the
carriers. In addition to a commission, on some products, the Company receives
placement fees. Currently, the Company establishes a deferred revenue liability
to reflect commissions paid but not yet earned. The Company's cash flow from
operations is in excess of operating earnings, although this may change in
future periods.
The projections assume that the Company will recruit additional
agents throughout 2006 and that their sales productivity in terms of close and
placement rates will be consistent with the results achieved in 2005 to date.
There is no assurance that the Company will be able to identify other similar
digitally-based agencies or other complimentary businesses that would be
acquisition candidates or that, if identified, that the Company would be able to
successfully negotiate a purchase. Therefore, these projections do not include
any allowance for any acquisition. If the Company consummates one or more
acquisitions during the time period covered by the projections, such projections
would change materially. See RISK FACTORS on page 15.
3
While the Company does not have exclusive and non-cancelable
contracts with insurance carriers, the projections were prepared assuming that
these relationships will be sustained, that the products and rates offered by
the current carriers will remain competitive and that the service levels
provided by these insurance carriers will be equal to current service levels in
most cases and improved in the case of the Company's life insurance product. See
RISK FACTORS, including those on page 15.
The Company has a limited operating history and based on that
history has developed average measures of performance. The Company has utilized
these performance measures in the projections including average annualized
premium an individual agent sells per day, placement and retention rates. There
are many factors influencing these performance measures and actual results may
differ materially from these projections. See RISK FACTORS, including those on
page 13.
EXPENSE MODEL
The Company's largest expense category is salaries and related
employee costs and a significant portion of those expenses relate to agent
employee compensation. The projections assume that the Company will add
approximately 100 additional agents in 2006 and, as such, that increase in
headcount is reflected in the projections. The Company's support staff and
related expenses are projected to increase, but at a rate generally less than
the increase in agents so non-variable salary expense related to operations is
projected to represent a smaller percentage of revenue. Other expenses are
assumed to increase generally in proportion to the increase in the Company's
number of agents. In addition, in anticipation of becoming a public company,
costs related to professional and consulting fees have been increased
significantly in 2006 as compared to 2005.
The Company will be subject federal income taxes as a "C"
corporation effective from September 2005. The federal income tax provision was
projected after giving effect to the expected tax loss carry forward from 2005
and using the corporate tax rate currently in effect.
4
EXHIBIT 99.2
HEALTH BENEFITS DIRECT CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Pages
--------
Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheet as of December 31, 2004 and as
of September 30, 2005 F-3
Consolidated Statements of Operations for the period from F-4
January 27, 2004 (inception) through December 31, 2004 and
for the nine months ending September 30, 2005 (unaudited)
and for the period from January 27, 2004 (inception)
through September 30, 2004 (unaudited)
Consolidated Statement of Shareholders' Equity as of F-5
December 31, 2004 and as of September 30, 2005 (unaudited)
Consolidated Statements of Cash Flows for the period from F-6
January 27, 2004 (inception) through December 31, 2004 and
For the nine months ending September 30, 2005 (unaudited)
and for the period from January 27, 2004 (inception)
through September 30, 2004 (unaudited)
Notes to Consolidated Financial Statements F-7
2700 N. Military Trail, Suite 200
Boca Raton, FL 33431
Tel. 561-939-1275
S & CO. Fax. 561-826-8100
e-mail:info@sherbcpa.com
Sherb & Co., LLP Offices in New York and Florida
--------------------------------------------------------------------------------
CERTIFIED PUBLIC ACCOUNTANTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Health Benefits Direct Corporation F/K/A
Platinum Partners, LLC And Platinum Partners II, LLC. And Subsidiary
d/b/a Health Benefits Direct
We have audited the accompanying consolidated balance sheet. Health Benefits
Direct Corporation F/K/A Platinum Partners, LLC and Platinum Partners II, LLC
and Subsidiary d/b/a Health Benefits Direct as of December 31, 2004, and the
related consolidated statements of operations, shareholders' deficit and cash
flows for the period January 27, 2004 (inception) through December 31, 2004.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). 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 amount and disclosures in the consolidated
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 Health Benefits Direct
Corporation F/K/A Platinum Partners, LLC and Platinum Partners II, LLC and
Subsidiary d/b/a Health Benefits Direct as of December 31, 2004, and the results
of their operations and their cash flows for the period ended December 31, 2004,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ Sherb & Co., LLP
----------------------------
Certified Public Accountants
Boca Raton, Florida
September 13, 2005
F-2
HEALTH BENEFITS DIRECT CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
December 31, 2004 September 30, 2005
----------------- ------------------
CURRENT ASSETS: (unaudited)
Cash $ 13,517 $ 16,192
Accounts receivable (net of allowance
for doubtful accounts of $9,817 as of December 31, 2004
and $13,437 as of September 30, 2005) 33,556 4,969
Other receivable - related party 22,249 41,034
----------- -----------
Total Current Assets 69,322 62,195
PROPERTY AND EQUIPMENT - Net 175,742 314,214
OTHER ASSETS 22,665 85,664
----------- -----------
Total Assets $ 267,729 $ 462,073
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 12,876 $ 72,895
Accounts payable - related party 60,469 188,870
Accrued expenses 84,241 172,678
Accrued salaries - management 525,000 997,500
Unearned commission advances -- 447,406
Line of credit 200,000 399,000
Loans payable - shareholders' 25,000 575,170
----------- -----------
Total Current Liabilities $ 907,586 $ 2,853,519
SHAREHOLDERS' DEFICIT:
Preferred stock ($.001 Par value; 5,000,000 shares authorized;
0 shares issued and outstanding) -- --
Common stock ($.001 Par value; 40,000,000 shares authorized;
7,325,000 and 7,800,000 shares issued and outstanding as of
December 31, 2004 and September 30, 2005, respectively) 7,325 7,800
Additional paid in capital 480,675 666,600
Accumulated deficit (1,127,857) (3,065,846)
----------- -----------
Total Shareholders' Deficit (639,857) (2,391,446)
----------- -----------
Total Liabilities and Shareholders' Deficit $ 267,729 $ 462,073
=========== ===========
See accompanying notes.
F-3
HEALTH BENEFITS DIRECT CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
For the period from January 27, 2004 (inception) through December 31, 2004 and for the nine months ending
September 30, 2005 (unaudited) and for the period from January 27, 2004 (inception)
through September 30, 2004 (unaudited)
December 31, 2004 September 30, 2005 September 30, 2004
----------------- ------------------ ------------------
(unaudited) (unaudited)
TOTAL REVENUES $ 1,402,721 $ 1,627,330 $ 628,177
----------- ----------- -----------
OPERATING EXPENSES:
Salaries and benefits expense 960,626 1,912,233 435,454
Salaries - management 525,000 472,500 367,500
Lead expense 499,680 491,876 276,153
Facilities expense 132,789 132,425 88,496
Consulting fees 130,040 -- --
Other selling, general and administrative 277,385 537,495 222,283
----------- ----------- -----------
Total Operating Expenses 2,525,520 3,546,529 1,389,886
----------- ----------- -----------
LOSS FROM OPERATIONS (1,122,799) (1,919,199) (761,709)
----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense (5,133) (18,790) (3,190)
Other income 75 -- --
----------- ----------- -----------
Total Other Expenses (5,058) (18,790) (3,190)
----------- ----------- -----------
NET LOSS $(1,127,857) $(1,937,989) $ (764,899)
=========== =========== ===========
See accompanying notes.
F-4
HEALTH BENEFITS DIRECT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the period from January 27, 2004 (inception) through December 31, 2004 and
for the nine months ending September 30, 2005 (unaudited)
Preferred Stock, $.001 Par Common Stock, $.001 Par
Value Value
---------------------------------- ---------------------------
Number of Number of
Shares Amount Shares Amount
-------------- ------------- --------- ---------
Balance, January 27, 2004 - $ - - $ -
Common stock issued for cash - - 7,325,000 7,325
Additional capital contributions - - - -
Net loss for the year - - - -
-------------- ------------- --------- ---------
Balance, December 31, 2004 - - 7,325,000 $ 7,325
Common stock issued for cash - - 300,000 300
Common stock issued for Acquisition
of remaining minority interest - - 175,000 175
Net loss for the nine months ended
September 30, 2005 - - - -
-------------- ------------- --------- ---------
Balance, September 30, 2005 - $ - 7,800,000 $ 7,800
============== ============= ========= =========
See accompanying notes.
F-5
HEALTH BENEFITS DIRECT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the period from January 27, 2004 (inception) through December 31, 2004 and
for the nine months ending September 30, 2005 (unaudited)
Additional Total
Paid-in Accumulated Stockholders'
Capital Deficit Equity
----------- -------------- -------------
Balance, January 27, 2004 $ - $ - $ -
Common stock issued for cash 92,675 100,000
Additional capital contributions 388,000 388,000
Net loss for the year - (1,127,857) (1,127,857)
----------- -------------- -------------
Balance, December 31, 2004 $ 480,675 $ (1,127,857) $ (639,857)
Common stock issued for cash 186,100 - 186,400
Common stock issued for Acquisition
of remaining minority interest (175) - -
Net loss for the nine months ended
September 30, 2005 - (1,937,989) (1,937,989)
----------- -------------- -------------
Balance, September 30, 2005 $ 666,600 $ (3,065,846) $ (2,391,446)
=========== ============== =============
See accompanying notes.
F-5
HEALTH BENEFITS DIRECT CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the period from January 27, 2004 (inception) through December 31, 2004 and for the nine months ending September 30, 2005
(unaudited) and for the period from January 27, 2004 (inception) through September 30, 2004 (unaudited)
December 31, 2004 September 30, 2005 September 2004
----------------- ------------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES: (unaudited) (unaudited)
Net loss $ (1,127,857) $ (1,937,989) $ (764,899)
Adjustments to reconcile net loss to net cash flows
used in operating activities:
Depreciation 37,797 59,515 23,873
Provision for bad debt 9,817 - -
Increase in:
Accounts receivable (43,373) 28,587 (28,652)
Other receivable - related party (22,249) (18,785) (5,515)
Other assets (22,665) (62,998) (33,066)
Increase in:
Accounts payable 12,876 60,019 -
Accounts payable - related party 60,469 128,400 (1)
Unearned commission advances - 447,406 -
Accrued expenses 84,241 88,437 109,241
Deferred revenue - -
Accrued salaries - management 525,000 472,500 367,500
------------- ------------- -----------
Net cash flows used in operating activities (485,944) (734,908) (331,519)
------------- ------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (188,539) (207,987) (172,932)
------------- ------------- -----------
Net cash flows used in investing activities (188,539) (207,987) (172,932)
------------- ------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from shareholders' investments 488,000 186,400 321,500
Proceeds from shareholder loans - 550,170 -
Net proceeds from line of credit 200,000 209,000 200,000
------------- ------------- -----------
Net cash flows provided by financing activities 688,000 945,570 521,500
------------- ------------- -----------
Net increase in cash 13,517 2,675 17,049
Cash - Beginning of period - 13,517 -
------------- ------------- -----------
Cash - End of period $ 13,517 $ 16,192 $ 17,049
============= ============= ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ (5,133) $ (17,019) $ -
============= ============= ===========
Income taxes $ - $ - $ -
============= ============= ===========
See accompanying notes.
F-6
HEALTH BENEFITS DIRECT
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
-----------------------------------------------------------
ORGANIZATION AND BASIS OF PRESENTATION
Platinum Partners, LLC., d/b/a Health Benefits Direct, was formed under the laws
of the state of Florida in January 2004 with the name "Platinum Partners, LLC."
Platinum Partners II LLC. was formed under the laws of the state of Florida in
August of 2004 with the name "Platinum Partners II, LLC." Platinum Partners II,
LLC. is the sole member of Health Benefits Direct II, LLC. On September 9, 2005,
Health Benefits Direct Corporation (the Company) was formed as a Delaware
Corporation. Simultaneously, the Members of Platinum Partners I, LLC and
Platinum Partners II, LLC (Common ownership) exchanged their ownership interest
in the LLC's for a pro-rata exchange share of the Company. As a result of the
reorganization, the Company is the sole member of the existing LLC's and is
doing business as "Health Benefits Direct."
The Company specializes in the direct marketing of health, life and related
insurance products to individuals, families and groups. The Company has
developed proprietary technology and processes to connect prospective insurance
customers with the Company's agents and service personnel using an integrated
on-line platform with call center follow up. The Company employs licensed agents
supported by verification, underwriting, customer service and technology
employees for the purpose of providing immediate information to prospective
customers and selling insurance products. The Company receives commission and
other fees from the insurance companies for the sale of their products.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates. Significant estimates in 2004 include the
allowance for doubtful accounts and the useful life of property, plant and
equipment.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts reported in the balance sheet for cash, accounts
receivable, accounts payable, accrued expenses, payroll taxes payable, and notes
payable approximate their fair market value based on the short-term maturity of
these instruments.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all cash and
other demand deposits to be cash and cash equivalents. As of December 31, 2004,
and as of September 30, 2005 the Company had no cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are reported at net realizable value. The Company has
established an allowance for doubtful accounts based upon factors pertaining to
the credit risk of specific customers, historical trends, and other information.
Delinquent accounts are written-off when it is determined that the amounts are
uncollectible. At December 31, 2004, and as of September 30, 2005 the allowance
for doubtful accounts was $9,817 and $13,437 respectively.
Accounts receivable from one customer accounted for 60% of the Company's
accounts receivable balance at December 31, 2004.
F-7
HEALTH BENEFITS DIRECT
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
-------------------------------------------------------------------------
PROPERTY AND EQUIPMENT
Property and equipment are carried at cost. The cost of repairs and maintenance
is expensed as incurred; major replacements and improvements are capitalized.
When assets are retired or disposed of, the cost and accumulated depreciation
are removed from the accounts, and any resulting gains or losses are included in
income in the year of disposition. In accordance with Statement of Financial
Accounting Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets", the Company examines the possibility of decreases in the
value of fixed assets when events or changes in circumstances reflect the fact
that their recorded value may not be recoverable. Depreciation is calculated on
a straight-line basis over the estimated useful life of the assets.
REVENUE RECOGNITION
The Company follows the guidance of the Securities and Exchange Commission's
Staff Accounting Bulletin 104 for revenue recognition. Insurance premium
commissions are recognized pro-rata over the terms of the policies. The unearned
portion of premium commissions is included in the consolidated balance sheet as
a liability for unearned commission advances. The Company receives fees for the
placement and issuance of insurance policies that are in addition to, and
separate from, any sales commissions paid by insurance companies. As these
policy fees are not refundable and the Company has no continuing obligation, all
such revenues are recognized on the effective date of the policies or, in
certain cases, the billing date, whichever is later.
LEAD COST
Lead costs are costs incurred in acquiring potential client data. Lead costs are
expensed as incurred. For the period January 27, 2004 (inception) through
December 31, 2004, lead cost expense amounted to $499,680. For the period
January 1, 2005 through September 30, 2005 lead cost amounted to $491,876. Lead
expense for the period January 27, 2004 (inception) through September 30, 2004
amounted to $276,153.
CONCENTRATIONS OF CREDIT RISK AND MAJOR CUSTOMERS
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of cash and trade accounts receivable. The
Company places its cash with high credit quality financial institutions.
Concentrations of credit risk with respect to trade accounts receivables is
limited due to generally short payment terms. The Company also performs ongoing
credit evaluations of its customers to help further reduce credit risk.
As of December 31, 2004, approximately 84% of our revenue was received from one
insurance company. Management believes that a comparable carrier is readily
available should the need arise.
As of September 30, 2005 approximately 90% of our revenue was received from
three insurance companies. Management believes that comparable carriers and
products are available should the need arise.
F-8
HEALTH BENEFITS DIRECT
NOTES TO FINANCIAL STATEMENTS
INCOME TAXES
Through September 6, 2005, the Company was organized as a combination of limited
liability companies "LLCs". In lieu of corporation income taxes, the members of
the LLCs were eligible for their proportional share of the Company's net losses.
Therefore, no provision or liability for Federal income taxes has been included
in the financial statements as of December 31, 2004.
The Company was taxed as a combination of LLCs until September 6, 2005, when the
Company changed its form of ownership to a C corporation. As a result of the
change of ownership, the Company accounts for income taxes under the liability
method in accordance with Statement of Financial Accounting Standards No. 109,
"ACCOUNTING FOR INCOME TAXES" under this method, deferred income tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax
rates and laws that will be in effect when the differences are expected to
reverse.
Had income taxes been determined based on a effective tax rate of 38% consistent
with the method of SFAS 109, the Company's net losses for all periods presented
would not have changed.
RECENT ACCOUNTING PRONOUNCEMENTS
In April 2005, the Securities and Exchange Commission's Office of the Chief
Accountant and its Division of Corporation Finance has released Staff Accounting
Bulletin (SAB) No.107 to provide guidance regarding the application of FASB
Statement No.123 (revised 2004), Share-Based Payment. Statement No. 123(R)
covers a wide range of share-based compensation arrangements including share
options, restricted share plans, performance-based awards, share appreciation
rights, and employee share purchase plans. SAB 107 provides interpretative
guidance related to the interaction between Statement No. 123R and certain SEC
rules and regulations, as well as the staff's views regarding the valuation of
share-based payment arrangements for public companies. SAB 107 also reminds
public companies of the importance of including disclosures within filings made
with the SEC relating to the accounting for share-based payment transactions,
particularly during the transition to Statement No. 123R.
In May 2005, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 154, "Accounting Changes and Error
Corrections-a replacement of APB Opinion No. 20 and FASB Statement No.3" ("SFAS
154"). This Statement replaces APB Opinion No. 20, Accounting Changes, and FASB
Statement No. 3, Reporting Accounting Changes in Interim Financial Statements,
and changes the requirements for the accounting for and reporting of a change in
accounting principle. This Statement applies to all voluntary changes in
accounting principle. It also applies to changes required by an accounting
pronouncement in the unusual instance that the pronouncement does not include
specific transition provisions. When a pronouncement includes specific
transition provisions, those provisions should be followed.
F-9
HEALTH BENEFITS DIRECT
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at December 31, 2004 and for
the nine months ended September 30, 2005:
2005
Useful Life 2004 (unaudited)
----------- ---------- ------------
Computer Equipment and Software 3 Years $ 145,283 $ 188,360
Software Development 3 Years - 121,568
Office Furniture and Equipment 5 Years 27,465 59,607
Leasehold Improvements 3 Years 40,791 41,991
---------- ----------
213,539 411,526
Accumulated Depreciation (37,797) (97,312)
---------- ----------
$ 175,742 $ 314,214
========== ==========
Depreciation expense for 2004 totaled $37,797. Depreciation expense for the
period from January 1, 2005 through September 30, 2005 totaled $59,515.
Depreciation expense for the period January 27, 2004 (inception) through
September 30, 2004 totaled $23,873.
NOTE 3 - LINE OF CREDIT
Union Planters Bank, N.A. - The line of credit was dated August 2004 with a
maturity date of August 2006 at an interest rate of prime 3.75 plus 1%. As of
December 31, 2004 the outstanding balance was $200,000. As of September 30, 2005
the outstanding balance was $399,000. This line of credit is personally
guaranteed by the principles of the Company.
Dell Business Credit - The revolving line of credit was dated January 1, 2005 at
an interest rate 26%. The total line of credit available is $10,000. As of
September 30, 2005 the outstanding balance was $10,000.
NOTE 4 - NOTE PAYABLE - RELATED PARTY
As of December 31, 2004, the Company had an outstanding note payable due to a
director of the Company of $25,000. This Note was issued in exchange for
computer equipment supplied to the Company with an estimated fair market value
of $25,000. This note bears interest at 5% per annum and is due upon demand. As
of September 30, 2005, the Company had outstanding loans payable due to the
shareholders of the Company of $575,171. These loans bear interest ranging from
0% to 5% per annum and are due upon demand.
NOTE 5 - SHAREHOLDERS DEFICIT
For the period of January 27, 2004 (inception) through December 31, 2004,
shareholders' contributed $488,000 in cash for their initial investment in the
Company. On September 9, 2005, in connection with the reorganizations described
in the basis of presentation, a shareholder was issued common stock purchase
warrants to purchase 50,000 shares of common stock at an exercise price of $3.00
per share concurrently with Health Benefits Direct Corporation's first financing
that could result in gross proceeds to HBDC of at least $250,000.
F-10
HEALTH BENEFITS DIRECT
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - SHAREHOLDERS DEFICIT, (CONTINUED)
On September 16, 2005, the company sold 300,000 shares of common stock and
issued stock purchase warrants to purchase 75,000 shares of common stock to an
investor for net proceeds of approximately $186,000. The warrants are
exercisable at $1.50 per share and expire in five years.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases office space in Pompano Beach, Florida under an operating
lease which expires in February 2007. The Pompano Beach, Florida office lease
agreement has certain escalation clauses and renewal options. Future minimum
rental payments required under this operating lease is as follows:
December 31, 2004
Lease Payments
---------------------
Year Ended December 31,
2005 $ 137,600
2006 143,000
2007 12,000
---------------------
Total minimum lease payments 292,600
=====================
Rent expense for the period of January 27, 2004 (inception) through December 31,
2004 was $104,241. Rent expense for the period of January 1, 2005 through
September 30, 2005 was $101,412. Rent expense for the period January 27, 2004
(inception) through September 30, 2004 was $74,241.
LITIGATION.
We are involved in lawsuits, claims and legal proceedings as is normal in the
ordinary course of our business. Any possible adverse outcome arising from these
matters is not expected to have a material impact on our results of operations
or financial position, either individually or in the aggregate. However, our
evaluation of the likely impact of these pending lawsuits could change in the
future. If the potential loss from any claim or legal proceeding is probable and
can be estimated, we will accrue a liability for estimated settlements and
incurred but unpaid legal fees for services performed to date. In our opinion,
the ultimate resolution of these matters will not have a materially adverse
effect on our financial position, liquidity or results of operations.
NOTE 7 - RELATED PARTY TRANASCTIONS
The Shareholders of the Company, from time to time, provide advances to the
Company for operating expenses. These advances are short-term in nature and
non-interest bearing. As of December 31, 2004, the amounts due to the
Shareholders totaled $60,469. As of September 30, 2005 the amounts due to the
Shareholders totaled $188,870.
F-11
HEALTH BENEFITS DIRECT
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - RELATED PARTY TRANASCTIONS, (CONTINUED)
The Company, from time to time, provides advances to a related party under
common ownership. These advances are short-term in nature and non-interest
bearing. As of December 31, 2004, the amount due from the related party totaled
$22,249. As of September 30, 2005 the amount due from the related party totaled
$41,034.
NOTE 8 - SALARIES PAYABLE - MANAGEMENT
On March 1, 2004, it was resolved by the Board of Directors that each member of
management shall receive compensation in the amount of $17,500 per month. In the
event that in a period of any given calendar month the Company realizes a profit
of an amount less than $52,500, these salaries shall not be distributed and will
be accounted for as "Salaries Payable" and will be distributed on a later date
to be determined by the Board. For the period of January 27, 2004 (inception)
through December 31, 2004, Salaries payable - management, totaled $525,000. As
of September 30, 2005 Salaries payable to management amounted to $997,500.
NOTE 9 - SUBSEQUENT EVENTS
During 2005, the Company increased the line of credit to $400,000. The Company
also renewed the existing facility and extended the maturity date to August
2006.
F-12
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following Unaudited Pro Forma Combined Financial Statements of Darwin
Resources Corp. ("Darwin") and Health Benefits Direct Corporation ("HBDC") gives
effect to the merger between Darwin and HBDC under the purchase method of
accounting prescribed by Accounting Principles Board Opinion No. 16, Business
Combinations. These Pro Forma statements are presented for illustrative purposes
only. The pro forma adjustments are based upon available information and
assumptions that management believes are reasonable. The Unaudited Pro Forma
Combined Financial Statements do not purport to represent what the results of
operations or financial position of Darwin would actually have been if the
merger had in fact occurred on January 1, 2004 nor do they purport to project
the results of operations or financial position of Darwin for any future period
or as of any date, respectively. The acquisition of HBDC by Darwin has been
accounted for as a reverse acquisition under the purchase method for business
combinations. The combination of the two companies is recorded as a
recapitalization of HBDC pursuant to which HBDC is treated as the continuing
entity. Accordingly, the operations presented in the unaudited pro forma
statement of operations include only the historical operations of HBDC.
These Unaudited Pro Forma Combined Financial Statements do not give effect to
any restructuring costs or to any potential cost savings or other operating
efficiencies that could result from the merger between Darwin and HBDC.
You should read the financial information in this section along with Darwin's
historical financial statements and accompanying notes in prior Securities and
Exchange Commission filings and in this Current Report on Form 8-K.
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of September 30, 2005
(NOTE 1)
Pro Forma Adjustments
Health Benefits Darwin
Direct Resources Corp. DR CR Pro Forma
---------------- --------------- --------- ----------- -------------
ASSETS
CURRENT ASSETS:
Cash $ 16,192 $ 59,311 $ 75,503
Accounts receivable (net of allowance 4,969 -- 4,969
Other receivable - related party 41,034 2,000 43,034
----------- ----------- -----------
Total Current Assets 62,195 61,311 123,506
PROPERTY AND EQUIPMENT - Net 314,214 1,979 316,193
OTHER ASSETS 85,664 -- 85,664
----------- ----------- -----------
Total Assets $ 462,073 $ 63,290 $ 525,363
----------- ----------- -----------
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 72,895 $ 3,000 $ 75,895
Accounts payable - related party 188,870 -- 188,870
Accrued expenses 172,678 -- 172,678
Accrued salaries - management 997,500 -- 997,500
Unearned commission advances 447,406 -- 447,406
Line of credit 399,000 -- 399,000
Loans payable - shareholders' 575,170 -- 575,170
----------- ----------- -----------
Total Current Liabilities 2,853,519 3,000 2,856,519
SHAREHOLDERS' DEFICIT:
Preferred stock -- -- --
Common stock 7,800 7,319 4,544 10,575
Additional paid in capital 666,600 99,106 41,591 724,115
Accumulated deficit (3,065,846) (46,135) 46,135 (3,065,846)
----------- ----------- -----------
Total Shareholders' Deficit (2,391,446) 60,290 (2,331,156)
----------- ----------- -----------
Total Liabilities and Shareholders' Deficit $ 462,073 $ 63,290 $ 525,363
----------- ----------- -----------
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the nine months ended September 30, 2005
--------------------------------
As Reported
--------------------------------
Health Benefits Darwin Pro Forma Adjustments
Direct Resources Corp. DR CR Pro Forma
---------------- --------------- --------- ----------- -------------
TOTAL REVENUES $ 1,627,330 $ -- $ 1,627,330
----------- ----------- -----------
OPERATING EXPENSES:
Salaries and benefits expense 1,912,233 -- 1,912,233
Salaries - management 472,500 -- 472,500
Lead expense 491,876 -- 491,876
Facilities expense 132,425 -- 132,425
Other selling, general and administrative 537,495 -- 537,495
----------- ----------- -----------
Total Operating Expenses 3,546,529 -- 3,546,529
----------- ----------- -----------
LOSS FROM OPERATIONS (1,919,199) -- (1,919,199)
----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense (18,790) -- (18,790)
Other income -- -- --
----------- ----------- -----------
Total Other Expenses (18,790) -- (18,790)
----------- ----------- -----------
NET LOSS $(1,937,989) -- $ (1,937,989)
=========== ----------- ============
Net loss per common share - Basis $ (0.26) $ (0.19)
=========== ============
Net loss per lommon share - Diluted $ (0.26) $ (0.19)
=========== ============
Weighted average shares outstanding
- Basic 7,353,676 10,128,676
=========== ============
Weighted average shares outstanding
- Diluted 7,353,676 10,128,676
=========== ============
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
As of DECEMBER 31, 2004
(NOTE 2)
Pro Forma Adjustments
Health Benefits Darwin
Direct Resources Corp. DR CR Pro Forma
---------------- --------------- --------- ----------- -------------
ASSETS
CURRENT ASSETS:
Cash $ 13,517 $ 105,717 $ 119,234
Accounts receivable 33,556 33,556
Other receivable - related party 22,249 -- 22,249
----------- ----------- -----------
Total Current Assets 69,322 105,717 175,039
PROPERTY AND EQUIPMENT - Net 175,742 -- 175,742
OTHER ASSETS 22,665 -- 22,665
----------- ----------- -----------
Total Assets $ 267,729 $ 105,717 $ 373,446
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable $ 12,876 $ 6,706 $ 19,582
Accounts payable - related party 60,469 1,669 62,138
Accrued expenses 84,241 -- 84,241
Accrued salaries - management 525,000 -- 525,000
Line of credit 200,000 -- 200,000
Loans payable - shareholders' 25,000 -- 25,000
----------- ----------- -----------
Total Current Liabilities 907,586 8,375 915,961
SHAREHOLDERS' DEFICIT:
Preferred stock -- -- --
Common stock 7,325 7,319 4,544 10,100
Additional paid in capital 480,675 99,106 4,539 575,242
Accumulated deficit (1,127,857) (9,083) 9,083 (1,127,857)
----------- ----------- -----------
Total Shareholders' Deficit (639,857) 97,342 (542,515)
----------- ----------- -----------
Total Liabilities and Shareholders' Deficit $ 267,729 $ 105,717 $ 373,446
=========== =========== ===========
HEALTH BENEFITS DIRECT CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the period from January 27, 2004 (inception) through December 31, 2004
--------------------------------
As Reported
--------------------------------
Health Benefits Darwin Pro Forma Adjustments
Direct Resources Corp. DR CR Pro Forma
---------------- --------------- --------- ----------- -------------
TOTAL REVENUES $ 1,402,721 $ -- $1 ,402,721
----------- ----------- -----------
OPERATING EXPENSES:
Salaries and benefits expense 960,626 -- 960,626
Salaries - management 525,000 -- 525,000
Lead expense 499,680 -- 499,680
Facilities expense 132,789 -- 132,789
Consulting fees 130,040 -- 130,040
Other selling, general and administrative 277,385 -- 277,385
----------- ----------- -----------
Total Operating Expenses 2,525,520 -- 2,525,520
----------- ----------- -----------
LOSS FROM OPERATIONS (1,122,799) -- (1,122,799)
----------- ----------- -----------
OTHER INCOME (EXPENSES):
Interest expense (5,133) -- (5,133)
Other income 75 -- 75
----------- ----------- -----------
Total Other Expenses (5,058) -- (5,058)
NET LOSS $(1,127,857) -- $(1,127,857)
----------- ----------- -----------
Net loss per common share - Basis $ (0.15) $ (0.11)
=========== ===========
Net loss per common share - Diluted $ (0.15) $ (0.11)
=========== ===========
Weighted average shares outstanding
- Basic 7,325,000 10,100,000
=========== ===========
Weighted average shares outstanding
- Diluted 7,325,000 10,100,000
=========== ===========
Health Benefits Direct Corporation and Subsidiaries
Unaudited Pro Forma Adjustments
September 30, 2005 and December 31, 2004
Pro Forma adjustments reflect the following transactions:
DR CR
------- ------
Note 1.
Common stock .................. 4,544
Additional Paid-in Capital..... 41,591
Accumulated deficit ........... 46,135
Note 2
Common stock .................. 4,544
Additional Paid-in Capital..... 4,539
Accumulated deficit ........... 9,083
To record recapitalization of HBDC and cancellation of 6,851,852 shares of
common stock by Robert Ferguson, Darwin's president and sole director.
The acquisition has been accounted for as a reverse acquisition under the
purchase method for business combinations. The combination of the two companies
is recorded as a recapitalization of Health Benefits Direct Corporation,
pursuant to which HBDC is treated as the continuing entity.