AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 7, 1999
FORM S-1
REGISTRATION STATEMENT
UNDER
INSWEB CORPORATION
(Exact name of Registrant as specified in its charter)
DELAWARE 7389 94-3220749
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code number) Identification
incorporation or organization) No.)
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901 MARSHALL STREET, REDWOOD CITY, CALIFORNIA 94063
(650) 298-9100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
HUSSEIN A. ENAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
INSWEB CORPORATION
901 MARSHALL STREET
REDWOOD CITY, CALIFORNIA 94063
(650) 298-9100
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
DENNIS C. SULLIVAN, ESQ. KEVIN P. KENNEDY, ESQ.
PAUL A. BLUMENSTEIN, ESQ. Shearman & Sterling
MICHAEL B. GEBHARDT, ESQ. 1550 El Camino Real, Suite 100
Gray Cary Ware & Freidenrich LLP Menlo Park, California 94025-4100
400 Hamilton Avenue (650) 330-2200
Palo Alto, California 94301-1825
(650) 328-6561
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If any of the securities being registered on this form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box. / /
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / /
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE (1) REGISTRATION FEE
Common Stock ($0.001 par value)...................... $ 57,500,000 $ 15,985
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
SUBJECT TO COMPLETION. DATED MAY 7, 1999.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THE COMPANY MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL SECURITIES, AND THE COMPANY IS NOT SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER IS NOT PERMITTED.
[LOGO]
Shares
INSWEB CORPORATION
Common Stock
This is an initial public offering of shares of common stock of InsWeb. All of the shares of common stock are being sold by InsWeb.
Prior to this offering, there has been no public market for InsWeb's common stock. It is currently estimated that the initial public offering price per share will be between $ and $ . Application has been made for quotation of the common stock on the Nasdaq National Market under the symbol "INSW."
SEE "RISK FACTORS" BEGINNING ON PAGE 5 TO READ ABOUT FACTORS YOU SHOULD
CONSIDER BEFORE BUYING SHARES OF INSWEB COMMON STOCK.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Per Share Total
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Initial public offering price.............................................................. $ $
Underwriting discount...................................................................... $ $
Proceeds, before expenses, to InsWeb....................................................... $ $
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The underwriters may, under certain circumstances, purchase up to an additional shares from InsWeb at the initial public offering price less the underwriting discount.
The underwriters expect to deliver the shares against payment in New York, New York on , 1999.
GOLDMAN, SACHS & CO.
BANCBOSTON ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
Prospectus dated , 1999.
[INSIDE FRONT COVER]
[artwork to come]
InsWeb-Registered Trademark- is a registered trademark of InsWeb. All other brand names or trademarks appearing in this prospectus are the property of the holders of those names or marks.
PROSPECTUS SUMMARY
THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD CONSIDER BEFORE INVESTING IN INSWEB COMMON STOCK. YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED INFORMATION REGARDING INSWEB AND THE COMMON
STOCK BEING SOLD IN THIS OFFERING AND OUR FINANCIAL STATEMENTS AND NOTES TO THOSE STATEMENTS APPEARING ELSEWHERE IN THIS PROSPECTUS.
INSWEB
InsWeb operates the leading online insurance marketplace in the United States. InsWeb's marketplace capitalizes upon the advantages of the Internet to directly link consumers and insurance companies, providing consumers with the insurance they need and insurance companies with the customers they want. InsWeb has combined extensive knowledge of the insurance industry, technological expertise and deep relationships with more than 30 insurance companies to develop a sophisticated, integrated online technology platform that delivers significant benefits to both consumers and insurance companies.
Consumers benefit from:
- One-stop comparison shopping for multiple insurance products in an unbiased marketplace;
- Accurate, insurance company-sponsored quotes;
- Easy access to insurance-related information and proprietary analytical tools; and
- Convenience, control and privacy without sales pressure.
Insurance companies benefit from:
- Lower customer acquisition and service costs made possible by the scalable, cost-efficient distribution capabilities of InsWeb's Internet-based model;
- Access to pre-screened and qualified customers from the growing population of technology-oriented consumers who shop online;
- Rapid feedback on their market performance enabling quick and easy adjustments to their product offerings; and
- Improved underwriting profitability and the opportunity to provide enhanced product offerings.
InsWeb's strategy is to strengthen its position as the provider of the leading online insurance marketplace by:
- Enhancing the comparative shopping experience for consumers by increasing the number of its insurance company partners, the number of products and services each partner offers and the number of states in which each partner offers them.
- Continuing to build strong relationships and deep technology integration with an expanding base of insurance company partners;
- Working with its insurance company partners to utilize the InsWeb platform to further reduce the costs of acquiring and servicing their customers;
- Leveraging its technology platform and consumer database to provide additional services to consumers and insurance companies; and
- Enhancing its brand awareness and market presence by expanding its offline and online marketing campaigns as well as its network of online partners.
InsWeb was incorporated in California in February 1995 and reincorporated in
Delaware in November 1996. InsWeb's principal executive offices are located at
901 Marshall Street, Redwood City, California 94063, its telephone number is
(650) 298-9100, and its website is located at www.insweb.com. Information on
InsWeb's website is not a part of this prospectus.
THE OFFERING
Unless stated otherwise, the information presented in this prospectus assumes that the underwriters do not exercise their option to purchase additional shares in this offering, that all outstanding shares of preferred stock are converted to common stock upon the closing of this offering, and that a for split of InsWeb common stock is effected before the completion of this offering.
Shares offered by InsWeb............................. shares
Shares to be outstanding after the offering.......... shares
Use of proceeds...................................... For general corporate purposes, principally working
capital and capital expenditures. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol............... INSW
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These share numbers are based on shares outstanding as of March 31, 1999, but exclude:
- shares of common stock issuable upon exercise of options outstanding at March 31, 1999 under InsWeb's stock option plans, with a weighted average exercise price of $ per share;
- shares of common stock available for future grant or issuance under InsWeb's various stock plans; and
- shares of common stock issuable upon exercise of warrants at an exercise price of $ per share.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PERIOD FROM
FEBRUARY 28, THREE MONTHS ENDED
1995
(INCEPTION) TO YEAR ENDED DECEMBER 31, MARCH 31,
DECEMBER 31, -------------------------------- --------------------
1995 1996 1997 1998 1998 1999
-------------- --------- --------- ---------- --------- ---------
(UNAUDITED)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ -- $ 248 $ 750 $ 4,310 $ 284 $ 3,311
Operating expenses....................................... 2,025 7,640 10,106 26,211 3,497 8,739
Loss from operations..................................... (2,025) (7,392) (9,356) (21,901) (3,213) (5,428)
Net loss................................................. (2,031) (7,270) (9,063) (22,490) (3,231) (5,896)
Net loss per share--basic and diluted (1)................ $ (1,015.50) $ (0.84) $ (0.93) $ (2.28) $ (0.33) $ (0.55)
Shares used in computing net loss per share-- basic and
diluted (1)............................................ 2 8,703 9,734 9,875 9,754 10,637
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MARCH 31, 1999
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ACTUAL AS ADJUSTED (2)
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(UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.................................................................. $ 9,657
Working capital............................................................................ 35,431
Total assets............................................................................... 56,533
Long-term debt............................................................................. 2,089
Total stockholders' equity................................................................. 49,160
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(1) See Note 2 of Notes to InsWeb's Consolidated Financial Statements for a description of the computation of the number of shares and net loss per share.
(2) Adjusted to reflect the sale of shares of common stock in this offering at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and offering expenses and giving effect to the application of the net proceeds. See "Use of Proceeds" and "Capitalization."
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS DESCRIBED BELOW BEFORE MAKING A DECISION TO BUY OUR COMMON STOCK. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW ARE NOT THE ONLY ONES WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN TO US OR THAT WE CURRENTLY DEEM IMMATERIAL MAY ALSO HARM OUR BUSINESS.
IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS COULD BE HARMED, THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU MAY LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD ALSO REFER TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING OUR FINANCIAL STATEMENTS AND THE RELATED NOTES.
OUR BUSINESS IS DIFFICULT TO EVALUATE BECAUSE WE HAVE A LIMITED OPERATING HISTORY
We were incorporated in February 1995. Our limited operating history makes an evaluation of our future prospects very difficult. An investor in our common stock must consider the risks and difficulties frequently encountered by early stage companies in new and rapidly evolving markets. These risks include:
- an evolving and unpredictable business model;
- the lack of a well-developed brand identity;
- the potential development of comparable services by competitors;
- the uncertainty of the extent to which the consumer market will adopt the Internet as a medium for comparison shopping for insurance; and
- the management of anticipated growth.
To address these risks, we must, among other things:
- enhance the brand identity of the InsWeb online insurance marketplace;
- maintain and increase our strategic alliances to increase traffic to our website;
- increase the number of consumer shopping sessions and leads generated for insurance companies on our website;
- maintain, increase and geographically diversify our base of insurance company partners;
- maintain and increase our products and services;
- continue to ensure that our insurance company partners offer competitive insurance products;
- continue to develop and upgrade our technology and transaction-processing systems;
- continue to improve the functionality and user experience offered by our website;
- satisfy legal and regulatory requirements applicable to the insurance industry; and
- continue to address consumer privacy concerns.
Our business strategy may not be successful and we may not be able to successfully address these risks.
WE HAVE A HISTORY OF LOSSES, WE EXPECT FUTURE LOSSES AND WE MAY NOT ACHIEVE OR MAINTAIN PROFITABILITY
Given planned investment levels, our ability to achieve profitability will depend upon our ability to generate and sustain substantially increased revenues. As a result, we believe that we will incur
substantial operating losses for the foreseeable future. We incurred operating losses of $21.9 million for the year ended December 31, 1998 and $5.4 million for the quarter ended March 31, 1999, and as of March 31, 1999, our accumulated deficit was $46.8 million. We intend to make significant expenditures related to marketing, hiring of additional personnel and development of our website, technology and infrastructure. Although we have experienced significant revenue growth in recent periods, this growth rate is not sustainable and will decrease in the future. Our operating results for future periods are subject to numerous uncertainties, and we may not achieve sufficient revenues to become profitable. Even if we achieve profitability, we may not sustain or increase profitability on a quarterly or annual basis in the future.
OUR FUTURE REVENUES ARE UNPREDICTABLE, AND OUR OPERATING RESULTS ARE LIKELY TO FLUCTUATE FROM QUARTER TO QUARTER
Due to our limited operating history, the emerging nature of the market in which we compete and the high proportion of our revenues that are derived from consumer traffic on our website, our future revenues are inherently difficult to forecast. We believe that period-to-period comparisons of our operating results may not be meaningful, and you should not rely upon them as an indication of our future performance. Our expense levels are based largely on our investment plans and estimates of future revenues. We may be unable to adjust our spending to compensate for an unexpected shortfall in revenues. Accordingly, any significant shortfall in revenues relative to our planned expenditures would harm our results of operations.
We expect our future quarterly operating results to fluctuate due to a variety of factors, many of which are outside our control. Factors that could harm our quarterly operating results include:
- our inability to retain existing insurance companies as partners or attract new insurance company partners;
- decreases in transaction fees paid to us by our insurance company partners;
- lower-than-anticipated levels of traffic on our website or our inability to convert consumer site visits to shopping sessions or leads;
- consumer dissatisfaction with our online marketplace and the products or services provided by our insurance company partners;
- the announcement or introduction of new websites, services or products by our competitors;
- our inability to expand our insurance company partner base geographically;
- our inability to maintain and increase the functionality of our website and to add new products and services;
- the level of use of the Internet generally and the extent and rate of consumer acceptance of the Internet for comparison shopping for insurance;
- difficulties in building and maintaining strategic alliances with online partners;
- difficulties in upgrading and developing our systems and infrastructure;
- technical difficulties, system downtime or Internet brownouts;
- government regulation of our business, the insurance industry and the Internet; and
- general economic conditions and economic conditions specific to the electronic commerce industry.
SEASONALITY MAY CAUSE FLUCTUATIONS IN OUR OPERATING RESULTS
To date, our quarter-to-quarter growth in revenues has offset any effects due to seasonality. However, our business may experience seasonality as it matures. If this occurs, investors may not be able to predict our annual operating results based on a quarter-to-quarter comparison of our operating results. We expect that insurance shopping by consumers will typically decline during the Thanksgiving and Christmas holidays. In addition, Internet usage typically declines during the summer.
SUBSTANTIALLY ALL OF OUR REVENUE IS ATTRIBUTABLE TO AUTOMOBILE INSURANCE SHOPPING ON OUR ONLINE MARKETPLACE
To date, substantially all of our revenues have been attributable to automobile insurance shopping on our online marketplace. We anticipate that purchases of automobile insurance will account for a substantial portion of our revenues for the foreseeable future. As a result, if we fail to attract a broad base of consumers to shop for automobile insurance on our site, or if changes in the insurance industry make electronic commerce a less attractive means to shop for this type of insurance, our business will be harmed. In addition, our business is likely to be affected by any events or changes that affect the automobile insurance industry as a whole.
OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO PROMOTE OUR BRAND AND EXPAND OUR BRAND RECOGNITION
A growing number of websites offer services that are similar to and competitive with the services offered on our online insurance marketplace. Therefore, establishing and maintaining our brand is critical to attracting additional consumers to our website, strengthening our relationships with current insurance company partners and attracting new partners. Our brand may not achieve positive recognition in the market. In order to attract and retain consumers and insurance company partners and to promote and maintain our brand, we intend to increase our financial commitment to creating and maintaining prominent brand awareness. We currently use online advertising and marketing and radio advertisements in key markets to promote our brand. In addition, we are continuously expanding our offline mass-marketing campaign, which includes increasing spending on a combination of radio, television and print media. If our marketing efforts do not generate a corresponding increase in revenues or we otherwise fail to successfully promote our brand, or if these efforts require excessive expenditures, our business will be harmed. Moreover, if visitors to our website do not perceive our existing services or the products and services of our insurance company partners to be of high quality, or if we alter or modify our brand image, introduce new services or enter into new business ventures that are not favorably received, the value of our brand could be harmed.
OUR PLANS FOR EXPANSION OF OUR OPERATIONS COULD RESULT IN SIGNIFICANT EXPENDITURES, AND WE MAY NOT GENERATE REVENUE TO OFFSET THESE EXPENDITURES
We intend to expand our operations by offering new and complementary products, adding new insurance company partners, expanding the geographic participation of our insurance company partners, expanding our existing products and services and expanding our market presence through relationships with third parties. We may not be able to accomplish this expansion in a cost-effective or timely manner, or these efforts may not increase the overall market acceptance of our products and services. Expansion of our operations in this manner could also require significant additional expenditures and strain our management, financial and operational resources. The lack of market acceptance of these efforts or our inability to generate enough revenue from these expanded services or products to offset their cost could harm our business.
OUR MARKET IS HIGHLY COMPETITIVE
The online insurance distribution market is a new industry and, like the broader electronic commerce market, is rapidly evolving and is highly competitive. Increased competition, particularly by companies offering online insurance distribution, could reduce the fees we are able to charge our insurance company partners or increase the fees we are required to pay to our online partners, resulting in reduced margins or loss of market share, any of which could harm our business.
We compete with:
- single insurance company websites that offer quotes for the company's own insurance products online or by telephone;
- Web-based information delivery services that use generic filings with state regulators to deliver estimated price quotes from various insurance companies;
- Web-assisted agency distribution services that provide an Internet-based distribution channel for traditional insurance agencies;
- other online insurance marketplaces, including Intuit, Inc.'s InsureMarket website, which offer some insurance company-generated insurance quotes;
- online workplace marketers that sell insurance to employees over their employer's intranet; and
- providers of software technology to insurance companies and other competitors that may target electronic commerce solutions for the insurance industry.
We believe the principal bases for competition in the online insurance distribution market include:
- brand awareness;
- variety and quality of insurance company selection;
- strength of relationships and depth of technology integration with insurance companies;
- accuracy of insurance quotes;
- breadth and pricing of insurance product selection;
- speed, accessibility and convenience;
- quality and quantity of website content; and
- relationships with online partners.
Some of our current competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than we do. In addition, we believe we will face increasing competition as the online financial services industry develops and evolves. Our current and future competitors may be able to:
- undertake more extensive marketing campaigns for their brands and services;
- devote more resources to website and systems development;
- adopt more aggressive pricing policies; and
- make more attractive offers to potential employees, distribution partners and third-party service providers.
Accordingly, we may not be able to maintain or grow consumer traffic to our website and our insurance company partner base, our competitors may grow faster than we do, or our strategic partners may discontinue their relationships with us, any of which would harm our business.
IF OUR INSURANCE COMPANY PARTNERS DO NOT CONTINUE TO PROVIDE HIGH-QUALITY PRODUCTS AND SERVICE TO CONSUMERS, OUR BRAND WILL BE HARMED
Our ability to provide a high-quality experience to consumers depends in part on the quality of the products and services consumers receive from our insurance company partners, including timely response to requests for quotes or coverage. If our insurance company partners do not provide consumers with high-quality products and services, the value of our brand may be harmed and the number of consumers using our services may decline. We have from time to time received complaints from consumers who have not received a timely response to a request for an insurance quote. Although we have taken steps to encourage our insurance company partners to be responsive to consumer requests, these steps may not be successful. In addition, if any of our major insurance company partners go out of business, are downgraded by insurance company rating services or are financially harmed by trends in the insurance industry, our brand may be harmed.
IN MOST JURISDICTIONS, WE RELY ON THE PARTICIPATION OF A LIMITED NUMBER OF INSURANCE COMPANIES ON OUR ONLINE MARKETPLACE
Consumer demand for the services offered on our website in any jurisdiction is substantially dependent upon the participation of competing brand-name insurance companies offering competitive quotes for a given insurance product in that jurisdiction. Accordingly, the success of our business depends on our ability to attract and retain well-known insurance companies as partners. Although we currently have 32 insurance company partners overall, in individual states the number of companies offering competing quotes for comparable products on our online insurance marketplace ranges from zero to 11. If we are unable to increase the number of insurance companies that participate in our online marketplace, particularly in the states where we currently offer comparable insurance products from only one or two insurance company partners, we may not be able to attract additional consumers or may lose our existing consumers to other online competitors offering a wider variety of insurance companies. In addition, we believe that there is a general trend toward consolidation in the insurance industry. In the states where we currently offer comparable insurance products from only one or two insurance company partners, the loss of one or more of these company partners, whether due to industry consolidation or otherwise, could materially reduce the selection of insurance companies available to consumers on our website, substantially reducing the attraction of our online marketplace to consumers.
WE MAY HAVE DIFFICULTY INTEGRATING NEW INSURANCE COMPANY PARTNERS INTO OUR ONLINE MARKETPLACE
Integration of an insurance company partner into our online marketplace requires a significant commitment of time and resources on our part and on the part of the insurance company, and is a technologically difficult process. Potential insurance company partners may not be willing to invest the time and resources necessary to achieve this integration, or we may not be able to overcome the technological difficulties associated with, or devote the time and resources necessary to, successfully integrate the insurance company into our online marketplace.
WE DO NOT HAVE EXCLUSIVE RELATIONSHIPS OR LONG-TERM CONTRACTS WITH OUR INSURANCE COMPANY PARTNERS
We do not have an exclusive relationship with any of the insurance companies whose insurance products are offered on our online marketplace. These insurance companies are free to sell their products directly to consumers through insurance agents, mass marketing campaigns or through other traditional methods of insurance distribution. In addition, these insurance companies can also offer their products and services over the Internet, either directly to consumers or through one or more of our online competitors, or both. Accordingly, consumers could have multiple methods to obtain quotes and coverage from these insurance companies and would not have to use our website. In addition, our agreements with our insurance company partners are short-term and are typically cancelable at the option of either party upon 90 days notice.
WE RELY HEAVILY ON ONLINE PARTNERSHIPS FOR TRAFFIC ON OUR WEBSITE
We rely on online partnerships with Internet portals and service providers to attract consumers to our website. These partnerships may not continue to generate a substantial amount of new traffic on our website. We have entered into an arrangement with Yahoo! Inc. under which our site is the exclusive insurance site to which the Yahoo! site is linked. In the three months ended March 31, 1999, we received approximately 21% of our website traffic from our online partnership with Yahoo!, and approximately 45% of our traffic from all of our online partnerships combined. Our ability to increase our revenues will depend, in part, on increased traffic to our website that we expect to generate through these online partnerships.
We have invested and expect to continue to invest significant resources in our online partnerships. The revenues generated by these partnerships may be insufficient to justify our payment obligations. Furthermore, the value of these partnerships is based on the continued positive market presence, reputation and growth of our online partners' websites and services. Any decline in the market presence, business or reputation of our online partners' websites and services will reduce the value of these partnerships to us and could harm our business.
Our online partnerships are typically short-term and do not provide us with automatic renewal rights upon termination. In addition, these agreements are typically terminable by either party on 30 to 60 days notice. The termination, nonrenewal or renewal on unfavorable terms of a relationship from which we generate significant revenues, such as our relationship with Yahoo!, would harm our business. Additionally, an online partner's failure to maintain efficient and uninterrupted operation of its computer and communications hardware systems would likely reduce the amount of traffic we receive from the partner's site, harming our business.
IF WE DO NOT COMPLY WITH THE NUMEROUS LAWS AND REGULATIONS THAT GOVERN THE INSURANCE INDUSTRY, OUR BUSINESS COULD BE HARMED
We perform functions for licensed insurance companies and are, therefore, required to comply with a complex set of rules and regulations that often vary from state to state. If we fail to comply with these rules and regulations, an insurance company doing business with us could be subject to censure, fines or a cease-and-desist order. This risk, as well as changes in the regulatory climate or the enforcement or interpretation of existing law, could require changes to our business. Furthermore, because the application of online commerce to the consumer insurance market is relatively new, the impact of current or future regulations on InsWeb's business is difficult to anticipate. See "Business--Government Regulation."
OUR INTENDED EXPANSION OF OUR BUSINESS WILL SUBJECT US TO ADDITIONAL REGULATIONS
We intend to expand our operations to include new products and services and to offer existing and new products in new jurisdictions within and outside the United States, which may require us to comply with additional laws and regulations. For example, we recently introduced our automobile insurance shopping service in several provinces in Canada. This expansion will require us to comply with the laws and regulations of the various provinces or the Canadian national insurance regulatory scheme. Compliance with these laws and regulations and those of other jurisdictions into which we expand may require us to obtain appropriate business licenses, make necessary filings and obtain necessary bonds, appoint foreign agents and make periodic business reports. If we fail to adequately comply with these laws and regulations, our ability to offer some of our products or services in a particular jurisdiction could be delayed or prevented and our business could be harmed.
OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO SAFEGUARD THE SECURITY AND PRIVACY OF CONSUMERS' AND INSURANCE COMPANY PARTNERS' CONFIDENTIAL DATA
A significant barrier to electronic commerce and communications is the secure transmission of personally identifiable information of Internet users as well as other confidential information over public networks. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure transmission of confidential information, such as names, addresses, Social Security and credit card numbers, user names and passwords and insurance company rate information. Advances in computer capabilities, new discoveries in the field of cryptography, or other events or developments could result in a compromise or breach of the algorithms we use to protect consumers' and insurance companies' confidential information. If any compromise or breach of security were to occur, it could harm our reputation and expose us to possible liability. A party who is able to circumvent our security measures could misappropriate proprietary information or cause interruptions in our operations. We may be required to make significant expenditures to protect against security breaches or to alleviate problems caused by any breaches.
Legislation has been proposed that would limit the uses of personally identifiable information of Internet users gathered online or require online services to establish privacy policies. Many state insurance codes limit the collection and use of personal information by insurance companies, agents, or insurance service organizations. Moreover, the Federal Trade Commission has recently settled a proceeding against one online service that agreed in the settlement to limit the manner in which personal information could be collected from users and provided to third parties. Changes to existing law or the passage of new laws intended to address these issues could create uncertainty in the marketplace. This could reduce demand for our services, increase the cost of doing business as a result of litigation costs or increased service delivery costs, or otherwise harm our business.
SYSTEM FAILURES OR CAPACITY CONSTRAINTS COULD REDUCE OR LIMIT TRAFFIC ON OUR WEBSITE AND HARM OUR BUSINESS
Although we have experienced only minor system failures or outages to date, we may experience further system failures or outages in the future that could disrupt the operation of our website and could harm our business. Our revenues depend in large part on the volume of traffic on our website and, more particularly, on the number of insurance quotes generated by our website in response to consumer inquiries. Accordingly, the performance, reliability and availability of our website, quote-generating systems and network infrastructure are critical to our reputation and our ability to attract a high volume of traffic on our website and to attract and retain insurance company partners.
We are continually enhancing and expanding our technology, quote generating systems, network infrastructure and other technologies to accommodate a substantial increase in the volume of traffic on our website. We may be unsuccessful in these efforts or we may be unable to accurately project the rate or timing of increases in the volume of traffic on our website. In addition, we cannot predict whether additional network capacity will be available from third party suppliers as we need it. Also, our network or our suppliers' networks might be unable to timely achieve or maintain a sufficiently high capacity of data transmission to timely process orders or effectively download data, especially if our website traffic increases. Our failure to achieve or maintain high capacity data transmission could significantly reduce consumer demand for our services.
Our computer hardware operations are located in leased facilities in Redwood City. A full backup system is located in Irvine, California. Each of these areas is susceptible to earthquakes. If both of these locations experienced a system failure, the performance of our website would be harmed. These systems are also vulnerable to damage from fire, floods, power loss, telecommunications failures, break-ins and similar events. If we seek to replicate our systems at other locations, we will face a number of technical challenges, particularly with respect to database replications, which we may not be able to address successfully. Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur. Our servers may also be vulnerable to computer viruses, physical or electronic break-ins and similar disruptions.
WE MAY EXPERIENCE TECHNOLOGICAL PROBLEMS OR SERVICE INTERRUPTIONS WITH INDIVIDUAL INSURANCE COMPANIES
Several of our insurance company partners have chosen a technical solution that requires that our Web servers communicate with these insurance companies' computer systems in order to perform the filtering and rating functions required to generate quotes. Thus, the availability of quotes from a given insurance company may depend in large part upon the reliability of that insurance company's own computer systems, over which we have no control. A malfunction in an insurance company's computer systems, a malfunction in the Internet connection between our Web servers and the insurance company's system, or an excess of data traffic on that system could result in a delay in the delivery of e-mail quotes or could cause an insurance company that provides instant quotes to go offline until the problem can be remedied. Further, a computer malfunction could cause an insurance company to quote erroneous rates, in which case the insurance company would be required to take itself offline until the malfunction can be corrected. Any technological problems with or interruption of communications with an insurance company's computer systems could materially reduce the number of competing insurance companies available to provide quotes, and therefore the level of service perceived by consumers, on our online marketplace.
OUR BUSINESS HAS EXPERIENCED SIGNIFICANT GROWTH IN RECENT PERIODS, AND IF WE ARE UNABLE TO MANAGE THIS GROWTH, OUR BUSINESS WILL BE HARMED
We are currently experiencing growth and expansion which has placed, and will likely continue to place, a strain on our administrative, operational and financial resources and increased demands on our systems and controls. If our management is unable to manage this growth effectively, our business will be harmed. This growth has resulted in a continuing increase in the level of responsibility for our management personnel. We anticipate that continued growth will require us to recruit, hire, train and retain a substantial number of new managerial, technical, sales and marketing personnel. The majority of our current employees have been with us less than 18 months and we expect that our rate of hiring will continue at a very high pace. Our ability to manage our growth successfully will also require us to continue to expand and improve our operational, management and financial systems and controls on a timely basis.
OUR EXECUTIVE OFFICERS AND KEY PERSONNEL ARE CRITICAL TO OUR BUSINESS, AND THE LOSS OF ANY OF THESE OFFICERS OR KEY PERSONNEL WOULD LIKELY HARM OUR BUSINESS
Our future success is substantially dependent on the continued services and continuing contributions of our senior management and other key personnel, particularly Hussein A. Enan, our Chairman, President and Chief Executive Officer. The loss of the services of any of our executive officers or other key employees could harm our business. We have no long-term employment agreements with any of our key personnel other than Mr. Enan, whose employment agreement expires in . We have a $2 million "key person" life insurance policy on Mr. Enan, but maintain no similar insurance on any of our other key employees.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN NECESSARY PERSONNEL, PARTICULARLY TECHNOLOGY DEVELOPMENT AND IMPLEMENTATION PERSONNEL
Our future success depends on our continuing to attract, retain and motivate highly skilled employees, particularly with respect to technology development and implementation, including integration of insurance company partners into our online marketplace. If we are not able to attract and retain new personnel, particularly to expand our technology development and implementation team, our business will be harmed. The implementation of new insurance company partners on our site is a technologically complex and labor-intensive process. Accordingly, any difficulty we face in attracting and retaining talented development and implementation personnel could slow the process of adding new insurance companies to our online marketplace. Competition for personnel in our industry is intense. We may be unable to retain our key employees or attract, assimilate or retain other highly qualified employees in the future. We have from time to time experienced, and we expect to continue to experience in the future, difficulty in hiring and retaining employees with appropriate qualifications.
OUR SUCCESS DEPENDS ON CONTINUED GROWTH OF ELECTRONIC COMMERCE AND THE INFRASTRUCTURE OF THE INTERNET
Our future revenues and profits are substantially dependent upon the widespread acceptance and use of the Internet by consumers as an effective medium for commerce generally, and particularly for comparison shopping for insurance. Rapid growth in the use of the Internet is a recent phenomenon, and it may not continue, or the Internet may not be adopted as a medium of commerce or insurance shopping by a broad base of consumers. Demand and market acceptance for recently introduced services and products on the Internet are subject to a high level of uncertainty and there are few proven services and products. Our success will depend on our ability to engage consumers who have historically shopped for insurance through traditional distribution channels. In order for us to be successful, many of these consumers must be willing to utilize new ways of conducting business and exchanging information.
In addition, the Internet may not become a viable medium for commerce or comparison insurance shopping for a number of reasons, including potentially inadequate development of the necessary network infrastructure or delayed development of enabling technologies and performance improvements. If the Internet continues to experience significant growth in the number of users, levels of traffic or bandwidth requirements, the Internet's infrastructure may not be able to support the demands placed upon it. The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure, and it could face additional outages and delays in the future. These delays might include outages and delays resulting from year 2000 readiness issues. If the systems supporting the Internet infrastructure are not year 2000 ready, our business could be seriously harmed. These outages and delays could reduce the level of traffic and therefore the number of consumer insurance inquiries on our website. In addition, the Internet could lose its viability due to delays in the development or adoption of new standards and protocols required to handle increased levels of Internet activity, or due to increased governmental regulation. Changes in or insufficient availability of telecommunications services to support the Internet could also result in slower response times and reduced use of the Internet.
REGULATION OF THE INTERNET IS UNSETTLED, AND FUTURE REGULATIONS COULD HARM OUR
BUSINESS
The laws governing the Internet remain largely unsettled, even in areas where there has been some legislative action. Furthermore, the growth and development of the market for electronic commerce may prompt the enactment of more stringent consumer protection laws that may impose additional burdens on companies conducting business online. The adoption of additional laws or regulations may inhibit the growth of the Internet as a medium for commerce and comparison insurance shopping, which could, in turn, decrease demand for our services, increase our cost of doing business, or otherwise harm our business. In addition, applicability to the Internet of existing laws governing issues including property ownership, copyrights and other intellectual property issues, taxation, libel and personal privacy is uncertain. The vast majority of these laws were adopted prior to the advent of the Internet and related technologies and, as a result, do not contemplate or address the unique issues of the Internet and related technologies.
OUR PLANNED INTERNATIONAL EXPANSION MAY BE DIFFICULT AND WILL EXPOSE US TO RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
A component of our strategy is to expand our international operations. However, our investments in establishing these operations may not produce enough revenue to justify our investments. We have recently entered into a joint venture to develop an online insurance marketplace in Japan through InsWeb Japan K.K., of which we currently own a 40% equity interest. We also recently began offering automobile insurance quoting services in some provinces of Canada. We have, however, limited experience with the insurance industry outside the United States and with marketing and selling our products and services internationally. We cannot be sure that we will be able to attract insurance company partners in these or other jurisdictions or that we will be able to successfully adapt our online insurance marketplace model to the regulatory system of, and insurance products and services offered in, these jurisdictions. In addition, competitors which have greater local market knowledge or regulatory understanding may exist or arise in other markets and impede our ability to successfully expand in these markets. Our entry into additional international markets will require significant management attention and financial resources. In addition, our international operations are subject to other inherent risks, including:
- the impact of recessions in foreign economies on the level of consumers' insurance shopping and purchasing behavior;
- greater difficulty in accounts receivable collection and longer collection periods;
- unexpected changes in regulatory requirements, particularly with respect to the insurance industry;
- difficulties and costs of staffing and managing foreign operations;
- reduced protection for intellectual property rights in some countries;
- seasonal reductions in business activity during the summer months in Europe and other parts of the world;
- potentially adverse tax consequences; and
- political and economic instability.
To the extent we do business with foreign insurance companies, our international revenues may be denominated in foreign currencies. Accordingly, fluctuations in currency exchange rates may reduce revenues from international sales.
ANY ACQUISITIONS THAT WE UNDERTAKE, INCLUDING OUR RECENT ACQUISITION OF BENELYTICS, INC., COULD BE DIFFICULT TO INTEGRATE, DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE AND HARM OUR OPERATING RESULTS
We may acquire or make investments in complementary businesses, technologies, services or products if appropriate opportunities arise. For example, in December 1998, we acquired Benelytics, Inc., a developer of employee health benefits selection and management software and reference data products. The integration of Benelytics is ongoing, and the process of integrating Benelytics or any other acquired business, technology, service or product into our business and operations may result in unforeseen operating difficulties and expenditures. Integration of an acquired company also may consume significant management resources that would otherwise be available for ongoing development of our business. Moreover, the anticipated benefits of any acquisition, including Benelytics, may not be realized. We currently do not have any understandings, commitments or agreements with respect to any other material acquisition, and we are not currently pursuing any other material acquisition. We may be unable to identify, negotiate or finance future acquisitions successfully, or to integrate successfully any acquisitions with our current business. Future acquisitions could result in potentially dilutive issuances of equity securities or the incurrence of debt, contingent liabilities or amortization expenses related to goodwill and other intangible assets, any of which could harm our business. For example, in connection with the Benelytics acquisition, we recorded $7.3 million in goodwill, which will be amortized over a period of three years, and $1.4 million to software and other intangible assets, which will be amortized over two years.
OUR BUSINESS WILL BE HARMED IF WE ARE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS FROM THIRD PARTY CHALLENGES OR IF WE ARE SUBJECT TO LITIGATION
We regard our intellectual property as critical to our success. We rely upon patent, trademark, copyright and trade secret laws in the United States and other jurisdictions to protect our proprietary rights. Although we have filed two U.S. patent applications and expect to file additional applications, no patents may issue from these applications or, if any patents are issued, any claims allowed may not be sufficiently broad to protect our technology. In addition, any patents issued may be challenged, invalidated or circumvented. We hold a U.S. trademark registration of our INSWEB mark, and we have applied for registration of other marks in the U.S. and for the InsWeb mark and other marks abroad. Our trademark registration applications may not be approved or granted, and these trademarks, if granted, may be challenged or invalidated through administrative process or litigation. In addition, effective patent, copyright, trademark, and trade secret protection may be unavailable or limited in some foreign countries, and the global nature of the Internet makes it virtually impossible to control the ultimate destination of the content of our website.
We license our trademarks and similar proprietary rights to third parties. While we attempt to ensure that the quality of our brand is maintained by these business partners, these partners could take actions that harm the value of our proprietary rights or the reputation of our company or its services.
We may from time to time be subject to claims of infringement of other parties' proprietary rights or claims that our own patents or other intellectual property rights are invalid. From time to time we have been subject to infringement claims in the ordinary course of business, including claims of alleged infringement of the trademark rights of third parties by us and our business partners. Any claims of this type, with or without merit, could be time consuming to defend, result in costly litigation, divert management attention and resources or require us to enter into royalty or license agreements. License agreements may not be available on reasonable terms, if at all, and the assertion or prosecution of any infringement claims could significantly harm our business.
IF THE THIRD-PARTY TECHNOLOGIES AND SERVICES WE USE FAIL OR BECOME UNAVAILABLE, OUR BUSINESS COULD BE HARMED
We have incorporated technology developed by third parties, including security and encryption technology, into our online insurance marketplace, and we will continue to incorporate third-party technology in our future products and services. We have limited control over whether or when these third-party technologies will be developed or enhanced. If a third-party fails or refuses to timely develop, license or support technology necessary to our services, market acceptance of our online insurance marketplace could be harmed.
IF OUR INTERNAL SYSTEMS, OR THE INTERNAL SYSTEMS OF OUR INSURANCE COMPANY CUSTOMERS OR OTHER ONLINE PARTNERS, ARE NOT YEAR 2000 READY, OUR BUSINESS COULD BE SERIOUSLY HARMED
Year 2000 issues may adversely affect our business. Many existing computer programs and installed computer systems include computer code that uses only two digits to identify a year. These systems could fail to function or produce delayed or erroneous results if they interpret "00" to mean 1900 rather than 2000. As a result of this problem, commonly referred to as the "year 2000" problem, older computer programs or systems may need to be upgraded or replaced. Any failure of InsWeb's internal systems, the systems that carry Internet traffic on InsWeb's online insurance marketplace or those of InsWeb's insurance company partners or online partners as a result of the year 2000 problem could harm our business. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Year 2000 Readiness."
OUR EXECUTIVE OFFICERS AND DIRECTORS AND ENTITIES AFFILIATED WITH THEM WILL RETAIN SUBSTANTIAL CONTROL OVER OUR BUSINESS AFTER THE OFFERING
Our executive officers and directors and entities affiliated with them will beneficially own approximately of our outstanding common stock following the completion of this offering. These persons and entities, acting together, would be able to significantly influence all matters requiring approval by our stockholders, including the election of directors and the approval of mergers and other business combinations and may make decisions that are not in the best interest of all stockholders.
OUR MANAGEMENT WILL HAVE BROAD DISCRETION OVER THE USE OF PROCEEDS FROM THIS OFFERING
The net proceeds to us from this offering are estimated to be approximately $ million after deducting the estimated underwriting discount and offering expenses. We currently have no specific plans for a significant portion of our net proceeds from this offering. Consequently, our management will have the discretion to allocate the net proceeds to uses that some stockholders may not deem desirable. Management's allocation of the proceeds of this offering may not benefit our business, and we may not be able to obtain a significant return on any use of the proceeds of this offering.
THERE HAS NOT BEEN A PUBLIC MARKET FOR OUR COMMON STOCK AND INTERNET STOCKS ARE EXTREMELY VOLATILE
Before this offering, there has not been a public market for our common stock. The initial public offering price will be determined through negotiations between us and the representatives of the underwriters and may not be indicative of the prices that will prevail in the trading market after this offering. The trading price of our common stock is likely to be highly volatile and may be significantly affected by factors including actual or anticipated fluctuations in our operating results, new products or new contracts by us or our competitors, conditions and trends in the electronic commerce and insurance industries, changes in financial estimates by securities analysts, general market conditions and other factors. The trading prices of many Internet stocks have experienced
extreme price and volume fluctuations in recent months. These fluctuations often have been unrelated or disproportionate to the operating performance of these companies. These fluctuations may continue and could harm our stock price. Any negative change in the public's perception of the prospects of Internet or electronic commerce companies could also depress our stock price regardless of our results.
FUTURE SALES OF OUR COMMON STOCK MAY CAUSE OUR STOCK PRICE TO DECLINE
Sales of substantial amounts of our common stock in the public market after this offering could reduce the prevailing market prices for our common stock. Of the shares of common stock to be outstanding upon the closing of this offering, the shares offered hereby will be eligible for immediate sale in the public market without restriction, other than shares purchased by our officers, directors or other "affiliates" within the meaning of Rule 144 under the Securities Act of 1933. The remaining shares of our common stock held by existing stockholders upon the closing of this offering will be "restricted securities," as that term is defined in Rule 144. Restricted securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144, 144(k) or 701 under the Securities Act. Holders of approximately of these restricted securities, including all of our officers and directors and the entities affiliated with them, have entered into lock-up agreements providing that, subject to limited exceptions, they will not sell, directly or indirectly, any common stock without the prior consent of Goldman, Sachs & Co. for a period of 180 days from the date of this prospectus. Holders of these restricted securities will be able to sell their shares in the public market as follows:
- restricted shares will be eligible for sale on the date of this prospectus pursuant to Rule 144(k) of the Securities Act;
- restricted shares will be eligible for sale 90 days after the date of this prospectus pursuant to Rule 144 and Rule 701 of the Securities Act;
- restricted shares will be eligible for sale 180 days after the date of this prospectus upon the expiration of the lock-up agreements described above; and
- the remainder of the restricted shares will be eligible for sale from time to time thereafter upon the expiration of the one-year holding periods and subject to the requirements of Rule 144.
In addition, we intend to file a registration statement on Form S-8 under the Securities Act approximately 90 days after the date of this offering to register an aggregate of shares of common stock issued or reserved for issuance under our various stock plans.
OUR CHARTER DOCUMENTS AND OTHER AGREEMENTS MAY HINDER A POTENTIAL TAKEOVER
Provisions of Delaware law and our certificate of incorporation and bylaws could make more difficult the acquisition of us by means of a tender offer, a proxy contest, or otherwise, and the removal of incumbent officers and directors. See "Description of Capital Stock."
INVESTORS WILL EXPERIENCE IMMEDIATE DILUTION
We expect the initial public offering price to be substantially higher than the book value per share of the outstanding common stock immediately after this offering. Accordingly, if you purchase common stock in this offering, you will experience immediate dilution of approximately $ in the book value per share of the common stock from the price you pay for the common stock. See "Dilution."
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and uncertainties. You should not rely on these forward-looking statements. We use words like "anticipates," "believes," "plans," "expects," "future," "intends" and similar expressions to identify these forward-looking statements. This prospectus also contains forward-looking statements attributed to third parties regarding their estimates of the growth of electronic commerce and the insurance market. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this prospectus. Our actual results could differ materially from those anticipated in these forward-looking statements for many reasons, including those described in the risk factors above and elsewhere in this prospectus. You should carefully read the entire prospectus before purchasing our common stock.
USE OF PROCEEDS
The net proceeds to InsWeb from the sale of the shares of
common stock in this offering are estimated to be approximately $
million, assuming an initial public offering price of $ per share
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and after deducting the estimated underwriting discount and offering expenses. InsWeb intends to use these net proceeds for general corporate purposes, principally working capital and capital expenditures. InsWeb may also use a portion of the net proceeds to acquire or invest in complementary businesses or products or to obtain the right to use complementary technologies, although InsWeb has no current commitments or agreements with respect to any of these types of acquisitions or investments. Pending these uses, InsWeb will invest the net proceeds of this offering in short-term, investment-grade, interest-bearing securities.
DIVIDEND POLICY
InsWeb has never paid cash dividends on its capital stock. InsWeb currently expects to retain earnings, if any, to finance the growth and development of its business, and does not anticipate paying any cash dividends on its stock in the foreseeable future.
CAPITALIZATION
The following table sets forth InsWeb's capitalization as of March 31, 1999:
- on an actual basis, including shares committed to be issued on March 31, 1999 and issued subsequent to that date;
- on a pro forma basis, giving effect to the conversion of all outstanding shares of preferred stock into an aggregate of shares of common stock upon the closing of this offering; and
- on a pro forma basis, as adjusted to reflect the sale of the shares of common stock in this offering, at an assumed initial public offering price of $ per share and after deducting the estimated underwriting discount and offering expenses, and InsWeb's receipt and application of the net proceeds.
MARCH 31, 1999
-------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- ------------
(UNAUDITED, IN THOUSANDS)
Long-term debt............................................................ $ 2,089 $ 2,089 $ 2,089
---------- ----------- ------------
Stockholders' equity:
Preferred stock, $0.001 par value; 2,000,000 shares authorized, 819,122
shares issued and outstanding, actual; shares authorized, none
issued or outstanding, pro forma and pro forma as adjusted............ 1 -- --
Common stock, $0.001 par value; shares authorized,
shares issued and outstanding, actual; shares authorized,
shares issued and outstanding, pro forma; shares
authorized, shares issued and outstanding, pro forma as
adjusted(1)........................................................... 10 19
Additional paid-in capital.............................................. 96,534 96,526
Common stock warrants................................................... 113 113 113
Deferred stock compensation............................................. (748) (748) (748)
Accumulated deficit..................................................... (46,750) (46,750) (46,750)
---------- ----------- ------------
Total stockholders' equity............................................ 49,160 49,160
---------- ----------- ------------
Total capitalization................................................ $ 51,249 $ 51,249 $
---------- ----------- ------------
---------- ----------- ------------
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(1) Excludes:
- shares issuable upon exercise of options outstanding at March 31, 1999 under InsWeb's various stock option plans, with a weighted average exercise price of $ per share;
- shares of common stock available for future grant or issuance under InsWeb's various stock plans; and
- shares of common stock issuable upon exercise of warrants at an exercise price of $ per share.
See "Management--Stock Plans," "Description of Capital Stock" and Notes 10, 11 and 15 of Notes to InsWeb's Consolidated Financial Statements.
DILUTION
The pro forma net tangible book value of InsWeb's common stock as of March 31, 1999 was approximately $41.8 million, or $ per share. Pro forma net tangible book value per share represents the amount of InsWeb's total assets, excluding goodwill, less its total liabilities, divided by the total number of shares of common stock outstanding, after giving effect to the conversion of all outstanding shares of preferred stock into common stock. Dilution in pro forma net tangible book value per share represents the difference between the amount per share paid by purchasers of shares of InsWeb common stock in this offering and the pro forma net tangible book value per share of InsWeb's common stock immediately after the offering. After giving effect to InsWeb's sale of the shares of common stock in this offering, at an assumed initial public offering price of $ per share, and after deducting the estimated underwriting discount and offering expenses payable by InsWeb, the pro forma net tangible book value of InsWeb's common stock would have been $ , or $ per share. This represents an immediate increase in net tangible book value of $ per share to existing stockholders and an immediate dilution of $ per share to new investors. The following table illustrates this per share dilution:
Assumed initial public offering price per share.............................. $
---------
Pro forma net tangible book value per share as of March 31, 1999........... $
Increase in net tangible book value per share attributable to new public
investors................................................................ $
---------
Pro forma net tangible book value per share after the offering............... $
---------
Dilution per share to new public investors $
---------
---------
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The following table sets forth, on a pro forma basis as of March 31, 1999, the number of shares of common stock purchased from InsWeb by existing stockholders and by the new investors, together with the total price and average price per share paid by each of these groups. The information presented is based upon an assumed initial public offering price of $ per share, before deducting the estimated underwriting discount and offering expenses payable by InsWeb:
SHARES PURCHASED TOTAL CONSIDERATION
------------------------ ------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------- --------- -------------- --------- ---------------
Existing stockholders...................... % $ 86,147,777 % $
New investors..............................
------------- --------- -------------- ---------
Total.................................... 100.0% $ 100.0% $
------------- --------- -------------- ---------
------------- --------- -------------- ---------
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The foregoing discussion and tables are based upon the number of shares actually outstanding on March 31, 1999 and shares committed to be issued on March 31, 1999 and issued subsequent to that date, and assume no exercise of options or warrants outstanding as of March 31, 1999. As of that date, there were:
- shares issuable upon exercise of options outstanding at March 31, 1999 under InsWeb's various stock plans, with a weighted average exercise price of $ per share; and
- shares of common stock issuable upon exercise of warrants at an exercise price of $ per share.
To the extent these options and warrants are exercised, there will be further dilution to the new investors. See "Management--Stock Plans" and Notes 10, 11 and 15 of Notes to InsWeb's Consolidated Financial Statements.
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and InsWeb's consolidated financial statements and the notes thereto included elsewhere in this prospectus. The consolidated statement of operations data set forth below for the years ended December 31, 1996, 1997 and 1998 and the consolidated balance sheet data as of December 31, 1997 and 1998 are derived from, and are qualified by reference to, InsWeb's audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the period from February 28, 1995 (inception) to December 31, 1995 and the consolidated balance sheet data as of December 31, 1995 and 1996 are derived from audited consolidated financial statements not included in this prospectus. The consolidated statement of operations data set forth below for the three month periods ended March 31, 1998 and 1999 and the consolidated balance sheet data as of March 31, 1999 are derived from, and are qualified by reference to, InsWeb's unaudited consolidated financial statements included elsewhere in this prospectus. The unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of InsWeb's financial position and results of operations. The results of operations for the three months ended March 31, 1999 are not necessarily indicative of the results that may be expected for the full year ending December 31, 1999, or any other future period.
THREE
MONTHS
PERIOD FROM ENDED
FEBRUARY 28, MARCH 31,
1995 ---------
(INCEPTION) TO YEAR ENDED DECEMBER 31, 1998
DECEMBER 31, ------------------------------- ---------
1995 1996 1997 1998
--------------- --------- --------- --------- (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction fees................................................. $ -- $ 7 $ 116 $ 3,152 $ 172
Development and maintenance fees................................. -- 199 551 789 103
Other revenues................................................... -- 42 83 369 9
--------------- --------- --------- --------- ---------
Total revenues................................................. -- 248 750 4,310 284
--------------- --------- --------- --------- ---------
Operating expenses:
Product development.............................................. 774 2,900 3,210 4,627 893
Sales and marketing.............................................. 551 2,010 3,167 8,954 1,272
General and administrative....................................... 700 2,730 3,729 7,180 1,332
Amortization of intangible assets................................ -- -- -- -- --
Impairment loss.................................................. -- -- -- 5,450 --
--------------- --------- --------- --------- ---------
Total operating expenses....................................... 2,025 7,640 10,106 26,211 3,497
--------------- --------- --------- --------- ---------
Loss from operations............................................... (2,025) (7,392) (9,356) (21,901) (3,213)
--------------- --------- --------- --------- ---------
Other income, net.................................................. -- -- -- 600 --
Interest income (expense), net..................................... (6) 122 293 (1,189) (18)
--------------- --------- --------- --------- ---------
Net loss........................................................... $ (2,031) $ (7,270) $ (9,063) $ (22,490) $ (3,231)
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
Net loss per share--basic and diluted(1)........................... $ (1,015.50) $ (0.84) $ (0.93) $ (2.28) $ (0.33)
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
Shares used in computing net loss per share--basic and
diluted(1)....................................................... 2 8,703 9,734 9,875 9,754
--------------- --------- --------- --------- ---------
--------------- --------- --------- --------- ---------
1999
---------
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction fees................................................. $ 2,868
Development and maintenance fees................................. 443
Other revenues................................................... --
---------
Total revenues................................................. 3,311
---------
Operating expenses:
Product development.............................................. 1,551
Sales and marketing.............................................. 3,849
General and administrative....................................... 2,557
Amortization of intangible assets................................ 782
Impairment loss.................................................. --
---------
Total operating expenses....................................... 8,739
---------
Loss from operations............................................... (5,428)
---------
Other income, net.................................................. --
Interest income (expense), net..................................... (468)
---------
Net loss........................................................... $ (5,896)
---------
---------
Net loss per share--basic and diluted(1)........................... $ (0.55)
---------
---------
Shares used in computing net loss per share--basic and
diluted(1)....................................................... 10,637
---------
---------
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DECEMBER 31,
------------------------------------------ MARCH 31,
1995 1996 1997 1998 1999
--------- --------- --------- --------- ------------
(IN THOUSANDS) (UNAUDITED)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents............................................. $ 6 $ 6,807 $ 2,360 $ 8,337 $ 9,657
Working capital (deficit)............................................. (1,564) 6,739 2,040 5,496 35,431
Total assets.......................................................... 423 9,353 5,140 49,357 56,533
Long-term debt........................................................ -- -- -- 2,089 2,089
Total stockholders' equity (deficit).................................. (1,184) 7,476 3,063 19,582 49,160
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(1) See Note 2 of Notes to InsWeb's Consolidated Financial Statements for a description of the computation of the number of shares and net loss per share.
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA
Effective December 31, 1998, InsWeb acquired all of the outstanding shares of Benelytics, Inc., a developer of employee health benefits selection and management software and reference data products. The acquisition was accounted for using the purchase method of accounting, and accordingly, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective fair values on the acquisition date. The following unaudited pro forma consolidated statement of operations data reflects the acquisition of Benelytics as if the acquisition had occurred on January 1, 1998. The pro forma consolidated statement of operations data may not be indicative of the results of operations had the acquisition actually occurred on January 1, 1998, nor do they purport to indicate the future results of operations of InsWeb.
YEAR ENDED
DECEMBER 31, 1998
-------------------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction fees........................................................................... $ 3,152
Development and maintenance fees........................................................... 789
Other revenues............................................................................. 374
--------
Total revenues........................................................................... 4,315
--------
Operating expenses:
Product development........................................................................ 5,015
Sales and marketing........................................................................ 9,147
General and administrative................................................................. 7,856
Amortization of intangible assets.......................................................... 3,129
Impairment loss............................................................................ 5,450
--------
Total operating expenses................................................................. 30,597
Loss from operations......................................................................... (26,282)
--------
Other income, net............................................................................ 601
Interest income (expense), net............................................................... (1,287)
--------
Net loss..................................................................................... $ (26,968)
--------
--------
Pro forma net loss per share--basic and diluted(1)........................................... $ (2.58)
--------
--------
Shares used in computing pro forma net loss per share--basic and diluted(1).................. 10,452
--------
--------
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(1) See Note B of Notes to Consolidated Pro Forma Financial Information for a description of the method used to compute basic and diluted net loss per share.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITH RESPECT TO INSWEB'S FUTURE FINANCIAL PERFORMANCE. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS RISKS AND UNCERTAINTIES, INCLUDING THE FACTORS DESCRIBED IN "RISK FACTORS" AND ELSEWHERE IN THIS PROSPECTUS, THAT COULD CAUSE INSWEB'S ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL RESULTS OR THOSE CURRENTLY ANTICIPATED.
OVERVIEW
InsWeb operates the leading online insurance marketplace in the United States. InsWeb's marketplace enables consumers to shop online for a variety of insurance products, including automobile, term life, homeowners, renters and individual health insurance, and obtain insurance company-sponsored quotes for actual coverage. In order to create this marketplace, InsWeb has partnered with more than 30 insurance companies throughout the United States.
InsWeb was incorporated in February 1995. During 1995 and 1996, InsWeb's operating activities principally involved the design of its online marketplace and the development of a technology platform capable of handling the complex processing requirements of numerous insurance companies as well as heavy volumes of consumer traffic. From late 1996 through early 1998, InsWeb focused its efforts on establishing relationships with leading insurance companies, assisting them with the development of their online distribution strategies and building custom interfaces between their information systems and InsWeb's technology platform. In the second quarter of 1998, InsWeb initiated activities designed to attract consumer traffic to its website, including commencing local advertising campaigns and the establishment of online partnerships with key Internet portals such as Yahoo!, as well as other Web businesses that are sources of insurance shoppers, such as personal finance, automobile purchase or mortgage origination websites. As a result of these activities, consumer visits to the InsWeb site and completed shopping sessions (site visits in which a consumer completes a quote form for a particular insurance product) have increased substantially in subsequent quarters.
InsWeb's principal source of revenues is transaction fees. While quotes obtained through InsWeb's online insurance marketplace are provided to consumers free of charge, InsWeb's insurance company partners pay transaction fees to InsWeb generally based on qualified leads delivered to them electronically. Qualified leads are produced in two ways: for insurance companies offering consumers instant online quotes, a qualified lead is produced when a consumer requests insurance coverage based on a specific quote; for insurance companies providing e-mail or other offline quotes, a qualified lead is produced when the consumer clicks to request the quote itself. In either case, transaction fees are payable whether or not the consumer actually purchases an insurance policy from the insurance company, and revenue from transaction fees is recognized at the time the qualified lead is delivered to the insurance company.
InsWeb also generates development and maintenance fees from its insurance company partners. InsWeb charges a fee to design and develop customized interfaces between an insurance company's information system and the InsWeb site. Development fees are typically recognized when the insurance company's integration with the InsWeb site becomes operational. Additional development fees are charged as insurance companies add new products, increase their geographic coverage and convert to instant quoting capability on InsWeb's online insurance marketplace, as well as for periodic upgrades and changes to insurance companies' information resident on the InsWeb site. InsWeb charges maintenance fees for maintaining and servicing the programs of the individual insurance companies and for maintaining any hardware at InsWeb's facility that is dedicated to specific insurance companies. These maintenance fees are typically
payable monthly and are recognized as revenue ratably over the term of the maintenance agreement. Prepaid development and maintenance fees are recorded as deferred revenue until earned. Development and maintenance fees are expected to account for a declining percentage of total revenues as InsWeb's online marketplace expands and transaction fees increase.
InsWeb initially focused its efforts on developing insurance company coverage for automobile insurance in order to be able to offer true comparative online shopping for this important segment of the insurance market. Automobile insurance accounted for approximately 64% of total revenues in 1997, 70% in 1998 and 83% in the three months ended March 31, 1999. InsWeb intends to continue to expand its online insurance marketplace by adding new products, additional insurance company partners and geographic coverage; however, automobile insurance is expected to continue to account for a substantial portion of InsWeb's revenues for the foreseeable future.
Despite the ongoing addition of new insurance company partners to its online insurance marketplace, InsWeb has been dependent on a limited number of insurance companies for a majority of its revenues. Revenues from State Farm, AIG and American Family accounted for approximately 32%, 13% and 11%, respectively, of InsWeb's revenues for the three months ended March 31, 1999, and revenues from State Farm, AIG and RelianceDirect accounted for approximately 40%, 16% and 10%, respectively, of InsWeb's revenues for the year ended December 31, 1998. InsWeb expects its revenues to become less concentrated as the Company continues to add new insurance company partners to its online insurance marketplace. However, because of the broad market presence of some of InsWeb's insurance company partners, InsWeb expects to continue to generate a substantial portion of its revenues from a limited number of insurance companies for the foreseeable future.
Product development expenses consist primarily of payroll and related expenses for development and technology personnel. To date, InsWeb has not capitalized any of its software development costs. Because the timing of the commercial release of its products has substantially coincided with their technological feasibility, all software development costs have been expensed as incurred. InsWeb intends to continue to expand its online insurance marketplace by adding additional product offerings and insurance company partners and expects that these activities will require additional personnel. Accordingly, InsWeb expects that its product development expenses will continue to increase for the foreseeable future.
Sales and marketing expenses consist primarily of payroll and related expenses for InsWeb's sales and marketing personnel as well as consumer marketing expenditures for advertising, public relations, promotions and fees paid to InsWeb's online partners. InsWeb intends to significantly increase its sales and marketing expenses in order to establish and maintain relationships with insurance companies, attract increased consumer traffic to the InsWeb site, and develop the InsWeb brand. InsWeb intends to invest substantially in an integrated consumer marketing program including the expansion and enhancement of its network of online partners as well as traditional offline and online advertising campaigns designed to increase consumer awareness of InsWeb and its online insurance marketplace. At the same time, InsWeb intends to continue to devote substantial resources to market the InsWeb online marketplace to insurance companies, to add new insurance company partners and expand relationships with existing partners so that it can offer consumers greater comparison shopping opportunities over an increasingly broad selection of products.
General and administrative expenses consist primarily of payroll and related expenses for InsWeb's management, administrative and accounting personnel, expenses relating to site operations, professional fees and other general corporate expenses. InsWeb expects that, in support of the continued growth of its business and its operations as a public company, general and administrative expenses will continue to increase for the foreseeable future.
In order to accelerate the development of its health insurance product offerings, InsWeb acquired Benelytics, Inc., a developer of employee health benefits selection and management software and reference data products. The acquisition was effective on December 31, 1998 and was accounted for using the purchase method of accounting. Accordingly, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their respective fair values as of the acquisition date. The total purchase price of $8.7 million consisted of shares and warrants to purchase an aggregate of shares of the Company's common stock with an estimated fair value of approximately $8.5 million and acquisition-related expenses and assumed liabilities. Of the total purchase price, $7.3 million was allocated to goodwill and $1.4 million to software and other intangible assets. The goodwill will be amortized over three years, and the other intangible assets will be amortized over two years.
Since its inception, InsWeb has incurred significant losses, and as of March 31, 1999, InsWeb had an accumulated deficit of $46.8 million. These losses and this accumulated deficit have resulted from the significant costs incurred in the development of InsWeb's technology platform, the establishment of relationships with its insurance company partners, their integration with the InsWeb site, and InsWeb's marketing and sales activities. InsWeb intends to continue to invest heavily in product development, sales and marketing and in its administrative infrastructure. As a result, InsWeb believes that it will continue to incur substantial operating losses for the foreseeable future. Although InsWeb has experienced significant revenue growth in recent periods, its operating results for future periods are subject to numerous uncertainties, and there can be no assurance that InsWeb's revenue growth will continue or that it will be able to achieve or sustain profitability. In view of the rapidly evolving nature of InsWeb's business and its limited operating history, InsWeb believes that period-to-period comparisons of its operating results are not necessarily meaningful and should not be relied upon as an indication of future performance.
RESULTS OF OPERATIONS
The following table sets forth statement of operations data as a percentage of total revenues for the periods indicated:
YEAR ENDED THREE MONTHS ENDED
DECEMBER 31, MARCH 31,
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1996 1997 1998 1998 1999
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Revenues:
Transaction fees............................... 2.7% 15.4% 73.1% 60.7% 86.6%
Development and maintenance fees............... 80.4 73.6 18.3 36.1 13.4
Other revenues................................. 16.9 11.0 8.6 3.2 --
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Total revenues............................... 100.0 100.0 100.0 100.0 100.0
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Operating expenses:
Product development............................ 1,169.7 428.1 107.4 314.8 46.9
Sales and marketing............................ 810.7 422.4 207.7 448.4 116.2
General and administrative..................... 1,101.2 497.5 166.6 469.7 77.2
Amortization of intangible assets.............. -- -- -- -- 23.6
Impairment loss................................ -- -- 126.4 -- --
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Total operating expenses..................... 3,081.6 1,348.0 608.1 1,232.9 263.9
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Loss from operations............................. (2,981.6) (1,248.0) (508.1) (1,132.9) (163.9)
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Other income, net................................ -- -- 13.9 -- --
Interest income (expense), net................... 49.0 39.1 (27.6) (6.1) (14.1)
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Net loss......................................... (2,932.6)% (1,208.9)% (521.8)% (1,139.0)% (178.0)%
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THREE MONTHS ENDED MARCH 31, 1999 AND 1998
REVENUES
TRANSACTION FEES. Transaction fees accounted for $2.9 million, or 86.6%, of total revenues for the three months ended March 31, 1999, compared to $172,000, or 60.7%, for the comparable period in 1998. This increase was the result of a substantial increase in the number of completed shopping sessions and, to a lesser extent, increased revenues per completed shopping session. The increase in shopping sessions resulted from increased consumer traffic due to InsWeb's consumer marketing activities and the addition of a substantial number of online partners. The increase in revenues per completed shopping session was due to increased insurance company coverage and, to a lesser degree, increases in the average transaction fee per qualified lead.
DEVELOPMENT AND MAINTENANCE FEES. Development and maintenance fees accounted for $443,000, or 13.4%, of total revenues for the three months ended March 31, 1999, compared to $103,000, or 36.1%, for the comparable period in 1998. The increase in development fees resulted primarily from an increased number of new insurance company partners whose integration with the InsWeb online insurance marketplace became operational during the three months ended March 31, 1999, compared to the comparable period in 1998. Maintenance fees increased as a result of the expansion in the overall number of InsWeb's insurance company partners.
OPERATING EXPENSES
PRODUCT DEVELOPMENT. Product development expenses increased to $1.6 million for the three months ended March 31, 1999 from $893,000 for the comparable period in 1998. This increase was primarily attributable to the hiring of personnel to support the requirements of InsWeb's growing network of participating insurance companies and online partners and to design, test and deploy InsWeb's expanding line of product offerings.
SALES AND MARKETING. Sales and marketing expenses increased to $3.8 million for the three months ended March 31, 1999 from $1.3 million for the comparable period in 1998. This increase was due to substantial increases in consumer marketing expenses, including increased costs and fees associated with new online partners, as well as an increase in sales and marketing personnel and related costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased to $2.6 million for the three months ended March 31, 1999 from $1.3 million for the comparable period in 1998. This increase was primarily due to increased personnel and related costs, increased office and occupancy costs associated with additional leased office facilities and increased depreciation related to capital expenditures.
AMORTIZATION OF INTANGIBLE ASSETS. Amortization of intangible assets during the three months ended March 31, 1999 was $782,000. This amount was attributable to the acquisition of Benelytics in December 1998.
INTEREST INCOME (EXPENSE), NET
Interest income (expense), net includes income earned on InsWeb's invested cash and expense related to its outstanding debt obligations. Net interest expense for the three months ended March 31, 1999 was $468,000, compared to $18,000 for the comparable period in 1998. The increased interest expense was due to increased borrowings.
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
REVENUES
TRANSACTION FEES. Transaction fees increased to $3.2 million in 1998 from $116,000 in 1997 and $7,000 in 1996. These increases were primarily due to substantial increases in the number of completed shopping sessions and, to a lesser extent, increased revenues per completed shopping session. The increase in shopping sessions resulted from increased consumer traffic due to InsWeb's consumer marketing activities that were initiated in the second quarter of 1998 and the addition of a substantial number of online partners. The increase in revenues per completed shopping session was due to increased insurance company coverage and, to a lesser degree, increases in the average transaction fee per qualified lead.
DEVELOPMENT AND MAINTENANCE FEES. Development and maintenance fees increased to $789,000 in 1998 from $551,000 in 1997 and $199,000 in 1996. These increases were primarily the result of increases in the number of new insurance carriers added to the InsWeb online insurance marketplace.
OTHER REVENUES. Other revenues of $369,000 in 1998 related primarily to fees received under a non-recurring license of software technology. Other revenues of $83,000 and $42,000 in 1997 and 1996, respectively, related to services which InsWeb no longer offers.
OPERATING EXPENSES
PRODUCT DEVELOPMENT. Product development expenses increased to $4.6 million in 1998 from $3.2 million in 1997 and $2.9 million in 1996. These increases were primarily attributable to continued hiring of personnel to support the requirements of InsWeb's growing network of participating insurance companies and online partners and to design, test and deploy InsWeb's expanding line of product offerings.
SALES AND MARKETING. Sales and marketing expenses increased to $9.0 million in 1998 from $3.2 million in 1997 and $2.0 million in 1996. These increases were due to a substantial increase in consumer marketing expenses, including costs and fees associated with new online partnership agreements, as well as an increase in sales and marketing personnel and related costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased to $7.2 million in 1998 from $3.7 million in 1997 and $2.7 million in 1996. These increases were primarily due to increased personnel and related costs, increased office and occupancy costs and increased depreciation related to capital expenditures.
IMPAIRMENT LOSS. InsWeb assesses the impairment of its long-lived assets when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. In 1998, InsWeb recorded an impairment loss of $5.5 million related to licensed software which InsWeb determined not to integrate into its products and website and which has no alternative future use.
OTHER INCOME, NET
Other income, net in 1998 represented income from the sale of assets of InsWeb's property and casualty agents line of business, net of a $50,000 non-compete fee.
INTEREST INCOME (EXPENSE), NET
Net interest expense of $1.2 million in 1998 was due to interest paid on increased borrowings. Net interest income in 1997 and 1996 resulted from InsWeb's investment of proceeds received from the sale of preferred and common stock.
QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited consolidated statement of operations data for the five quarters ended March 31, 1999, and such data expressed as a percentage of total revenues for each quarter. This information has been derived from InsWeb's unaudited consolidated financial statements. In management's opinion, this unaudited information has been prepared on the same basis as InsWeb's annual consolidated financial statements and includes all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the information for the quarters presented. This information should be read in conjunction with the consolidated financial statements and notes thereto included elsewhere in this Prospectus. Historical results for any quarter are not necessarily indicative of the results to be expected for any future period.
THREE MONTHS ENDED
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MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31,
1998 1998 1998 1998 1999
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(IN THOUSANDS)
STATEMENT OF OPERATIONS DATA:
Revenues:
Transaction fees..................................... $ 172 $ 490 $ 1,059 $ 1,431 $ 2,868
Development and maintenance fees..................... 103 243 204 239 443
Other revenues....................................... 9 10 -- 350 --
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Total revenues..................................... 284 743 1,263 2,020 3,311
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Operating expenses:
Product development.................................. 893 1,147 1,232 1,355 1,551
Sales and marketing.................................. 1,272 2,501 2,223 2,958 3,849
General and administrative........................... 1,332 1,561 1,759 2,528 2,557
Amortization of intangible assets.................... -- -- -- -- 782
Impairment loss...................................... -- -- -- 5,450 --
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Total operating expenses........................... 3,497 5,209 5,214 12,291 8,739
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Loss from operations................................... (3,213) (4,466) (3,951) (10,271) (5,428)
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Other income, net...................................... -- -- -- 600 --
Interest income (expense), net......................... (18) (192) (370) (609) (468)
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Net loss............................................... $ (3,231) $ (4,658) $ (4,321) $ (10,280) $ (5,896)
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AS A PERCENTAGE OF TOTAL REVENUES:
Revenues:
Transaction fees..................................... 60.6% 66.0% 83.8% 70.9% 86.6%
Development and maintenance fees..................... 36.3 32.7 16.2 11.8 13.4
Other revenues....................................... 3.1 1.3 -- 17.3 --
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Total revenues..................................... 100.0 100.0 100.0 100.0 100.0
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Operating expenses:
Product development.................................. 314.8 154.4 97.5 67.1 46.9
Sales and marketing.................................. 448.4 336.6 176.0 146.4 116.2
General and administrative........................... 469.7 210.1 139.3 125.2 77.2
Amortization of intangible assets.................... -- -- -- -- 23.6
Impairment loss...................................... -- -- -- 269.8 --
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Total operating expenses........................... 1,232.9 701.1 412.8 608.5 263.9
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Loss from operations................................... (1,132.9) (601.1) (312.8) (508.5) (163.9)
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Other income, net...................................... -- -- -- 29.7 --
Interest income (expense), net......................... (6.1) (25.8) (29.3) (30.1) (14.1)
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Net loss............................................... (1,139.0)% (626.9)% (342.1)% (508.9)% (178.0)%
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InsWeb's transaction fee revenues have increased steadily over the last five quarters, primarily as a result of continued increases in the number of completed shopping sessions and, to a lesser extent, increased revenues per completed shopping session. Development and maintenance revenues have increased as a function of the addition and integration of new insurance company partners to InsWeb's online insurance marketplace but have declined as a percentage of total revenues as consumer traffic and transaction fees have increased.
Quarterly increases in operating expenses reflected the continued expansion of the Company's operations throughout the five-quarter period, although certain categories of expenditures fluctuated on a quarter-to-quarter basis. The increase in sales and marketing expenses for the quarter ended June 30, 1998 reflected the launch of InsWeb's advertising campaign and the establishment of relationships with several key online partners. The impairment loss of approximately $5.5 million in the quarter ended December 31, 1998 was the result of InsWeb's assessment of its long-lived assets and its determination not to integrate certain licensed software into its products and website. Other income of $600,000 in the quarter ended December 31, 1998 represented the sale of assets of InsWeb's property and casualty agents line of business, net of a $50,000 non-compete fee. Net interest expense increased quarter-to-quarter during 1998 as a result of increased borrowings by InsWeb. Net interest expense decreased in the first quarter of 1999, when InsWeb repaid its outstanding borrowings with proceeds from the issuance of preferred stock.
InsWeb expects to experience significant fluctuations in future quarterly operating results due to a variety of factors, many of which are outside of InsWeb's control. InsWeb's limited operating history and the emerging nature of the markets in which it competes make it difficult for InsWeb to accurately forecast its operating results. InsWeb's operating results in one or more future quarters may fall below the expectations of securities analysts and investors, which would almost certainly cause the trading price of InsWeb's common stock to decline.
LIQUIDITY AND CAPITAL RESOURCES
InsWeb has financed its operations primarily through private placements of equity securities and borrowings from an affiliate of one of its investors. Through March 31, 1999, net proceeds from the sale of InsWeb's equity securities totaled $85.4 million. In November 1996, InsWeb entered into a $25 million line of credit arrangement with an affiliate of one of its investors under which it made periodic borrowings during 1998 to fund its working capital and capital expenditure requirements. At March 31, 1999, there were no borrowings outstanding under the line of credit, and the line of credit will terminate upon the closing of this offering.
Net cash used in operating activities was $6.0 million in the first three months of 1999 and $18.0 million and $8.0 million in 1998 and 1997, respectively. In each period, the use of cash primarily consisted of InsWeb's net loss before noncash items. In 1998, the noncash items included an impairment loss of $5.5 million, $650,000 from the sale of the property and casualty agents line of business and $350,000 of revenue from an agreement to license software. Increases in accounts receivable and deposits, partially offset by increases in accounts payable and accrued expenses, also contributed to the cash used in operations in 1998 and the three months ended March 31, 1999.
Net cash used in investing activities was $757,000 in the first three months of 1999 and $3.9 million and $673,000 in 1998 and 1997, respectively. Net cash used in investing activities for each of these periods primarily consisted of investments in leasehold improvements and purchases of equipment and furniture.
Net cash provided by financing activities was $8.1 million in the first three months of 1999 and $27.9 million and $4.2 million in 1998 and 1997, respectively. Net cash provided by financing activities during the three months ended March 31, 1999 primarily consisted of net proceeds of $28.2 million from the issuance of preferred stock, offset by the repayment of $19.3 million in borrowings under the line of credit. Net cash provided during 1998 primarily consisted of $19.3 million in net borrowings under the line of credit and $8.0 million in proceeds from the issuance of preferred stock. Net cash provided during 1997 primarily consisted of net proceeds of $4.2 million from the issuance of preferred stock.
At April 30, 1999, InsWeb's principal sources of liquidity were $33.3 million in cash and cash equivalents and $25.0 million available under its line of credit, which will terminate upon the closing of this offering.
InsWeb had no material commitments for capital expenditures at March 31, 1999 but expects such expenditures to total approximately $3 million in 1999. Such expenditures will primarily be for equipment, software and furniture. InsWeb also has total minimum lease obligations of $17.6 million through September 2008 under noncancelable operating leases. In addition, InsWeb is obligated to make minimum payments totaling $10.5 million through April 2001 under various marketing agreements.
InsWeb currently anticipates that its balances of cash and cash equivalents together with the net proceeds of this offering and cash generated by its operations, will be sufficient to meet its anticipated cash needs for working capital and capital expenditures for at least the next 18 months. InsWeb may require additional capital prior to the end of this period if, for example, it were to experience greater than expected losses from operations or if it were to pursue one or more business acquisitions or investments. InsWeb cannot be certain that additional financing will be available when required, on favorable terms or at all. If InsWeb is not successful in raising additional capital as required, its business could be materially harmed. If additional funds are raised through the issuance of equity securities, the percentage ownership of InsWeb's then-current stockholders would be reduced.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE, or SOP 98-1. SOP 98-1 provides guidance on accounting for the costs of computer software developed or obtained for internal use and defines specific criteria that determine when such costs are required to be expensed and when they may be capitalized. SOP 98-1 is effective for fiscal years beginning after December 15, 1998. Accordingly, InsWeb will adopt SOP 98-1 for its financial statements for the year ending December 31, 1999. Management does not believe that the adoption of SOP 98-1 will have a material effect on InsWeb's results of operations or financial condition.
In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, or SFAS No. 133. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. Management does not believe that the adoption of SFAS No. 133 will have a material effect on InsWeb's results of operations or financial condition.
YEAR 2000 READINESS
Year 2000 issues may adversely affect our business. Many existing computer programs and installed computer systems include computer code that uses only two digits to identify a year.
These systems could fail to function or produce delayed or erroneous results if they interpret "00" to mean 1900 rather than 2000. As a result of this problem, commonly referred to as the "year 2000" problem, older computer programs or systems may need to be upgraded or replaced. Any failure of InsWeb's internal systems, the systems that carry Internet traffic on InsWeb's online insurance marketplace or those of InsWeb's insurance company partners or online partners as a result of the year 2000 problem could harm our business.
InsWeb has implemented a year 2000 program to review and assure the year 2000 readiness of InsWeb's information technology, or IT, systems, which consist of a combination of internally-developed software and third-party software and hardware. The year 2000 program is being run by a year 2000 team led by members of InsWeb's senior management and technical staff.
InsWeb has internally developed most of the systems used in the operation of its online insurance marketplace and believes that its internally-developed software is year 2000 compliant. These systems include software used to interconnect InsWeb with the IT systems of its insurance company partners and software that runs InsWeb's consumer interaction and transaction processing functions. InsWeb has completed its assessment of these systems and is in the process of addressing the limited remediation issues identified during that phase. InsWeb expects to complete all remediation and testing work on these systems before the end of the third quarter of 1999.
InsWeb is also assessing the year 2000 readiness of its third-party-supplied hardware and software. The failure of such software and systems to be year 2000 compliant could adversely impact InsWeb's internal business functions as well as the operation of its website. As part of its assessment program, InsWeb has contacted third-party vendors and licensors of software and computer technology to seek their assurance that their products and services are year 2000 compliant. InsWeb has been informed by the vendors of InsWeb's material third-party software and hardware components that the products being used by InsWeb are year 2000 compliant. The assessment process was substantially completed during the first quarter of 1999. InsWeb expects to fix or replace any noncompliant components before the end of the third quarter of 1999.
In addition, InsWeb is performing full end-to-end testing of all key business functions in a simulated operating environment each calendar quarter to ensure that hardware and software systems previously verified to be year 2000 compliant maintain such compliance as changes are made to these systems.
To date, InsWeb has not incurred any material expenditures in connection with the assessment of its year 2000 readiness and related remediation. Most of its expenses have consisted of personnel costs that have been incurred since October 1998 and have been expensed as incurred. At this time, the total expenses associated with the completion of InsWeb's assessment program and any further remediation that may be required is inherently difficult to determine, although InsWeb currently expects that the total amount of such expenses will be approximately $700,000.
The year 2000 readiness of the general infrastructure necessary to support InsWeb's operations is difficult to assess. For instance, InsWeb depends on the integrity and stability of the Internet to provide its services. InsWeb also depends on the year 2000 compliance of the computer systems used by its insurance company partners and online partners as well as the computer networks and services used by consumers who seek to use InsWeb's online marketplace. Thus, the infrastructure necessary to support InsWeb's operations consists of a network of computers and telecommunications systems located throughout the United States and operated by numerous unrelated entities and individuals, none of which has the ability to control or manage the potential year 2000 issues that may impact the entire infrastructure. InsWeb's ability to assess the reliability of this infrastructure is limited and is based solely on generally available news reports, surveys and similar industry data. Based on these sources, InsWeb believes that most entities and individuals
that rely significantly on the Internet are carefully reviewing and attempting to remediate issues relating to year 2000 compliance, but it is not possible to predict whether these efforts will be successful in reducing or eliminating the potential negative impact of the year 2000 problem. A significant disruption in the ability of consumers to reliably access the Internet or portions of it would have an adverse effect on demand for InsWeb's services and would harm its business.
InsWeb believes that its most reasonably likely worst-case scenarios related to the year 2000 problem are:
- a significant year 2000 problem encountered by one or more of InsWeb's key insurance company partners whose systems are linked electronically to InsWeb's online insurance marketplace, which could result in such companies' quotes being unavailable on the online marketplace, or in the inability of such companies to respond to consumers' requests for coverage;
- a significant year 2000 problem encountered by one or more of InsWeb's online partners, which could result in a material reduction in consumer traffic to InsWeb's online insurance marketplace; or
- a failure of or degradation in performance due to year 2000 issues encountered by a substantial proportion of the systems that carry Internet traffic, which could adversely affect traffic to and performance of InsWeb's website.
InsWeb has not yet developed and does not intend to develop contingency plans to address these or other potential worst-case scenarios. Any year 2000-related failure of the mission-critical systems of InsWeb, its insurance company partners or its online partners or a failure of a substantial proportion of the systems that carry Internet traffic could materially harm InsWeb's business. Such consequences could include difficulties in operating InsWeb's website effectively, transferring data to or from its insurance company partners or conducting other fundamental parts of its business.
BUSINESS
InsWeb operates the leading online insurance marketplace in the United States. InsWeb's marketplace capitalizes upon the advantages of the Internet to directly link consumers and insurance companies, providing consumers with the insurance they need and insurance companies with the customers they want. InsWeb has combined extensive knowledge of the insurance industry, technological expertise and deep relationships with more than 30 insurance companies to develop a sophisticated, integrated online delivery platform. InsWeb's platform enables consumers to efficiently research insurance-related topics, search for, analyze and compare insurance products and apply for and receive insurance company-sponsored quotes for actual coverage. In addition, InsWeb provides insurance companies with a flow of pre-qualified consumers at substantially lower acquisition costs as well as the scalable, cost-efficient distribution capabilities of InsWeb's Internet-based model.
INDUSTRY BACKGROUND
ELECTRONIC COMMERCE
The Internet has emerged as a global medium for communication, information and commerce. International Data Corporation estimates that there were 142 million Internet users worldwide at the end of 1998 and anticipates this number will grow to approximately 399 million users by the end of 2002. The Internet possesses a number of unique characteristics that differentiate it from traditional media and methods of commerce:
- users are able to quickly and easily communicate or access information without geographic or temporal limitations;
- companies can more cost-effectively and efficiently reach and serve a large and global group of customers electronically from a central location;
- companies can provide personalized, low-cost and real-time customer interaction;
- users enjoy greater convenience and privacy and face less sales pressure;
- users can access a vast amount of information regarding the pricing, quality and specifications of products and services; and
- companies can easily obtain demographic and behavioral data about customers, increasing opportunities for direct marketing and personalized services.
As a result of these unique characteristics and the Internet's growing adoption rate, businesses have a tremendous opportunity to conduct commerce over the Internet. International Data Corporation estimates that commerce over the Internet will increase from approximately $50 billion worldwide in 1998 to approximately $734 billion in 2002. While many companies initially focused on facilitating and conducting transactions between businesses over the Internet, more recently, companies have increasingly used the Internet for a wide variety of consumer transactions, beginning with the distribution of commodity products, including books, CDs and videocassettes. As consumers have begun to recognize the advantages of electronic commerce and have become more comfortable with the reliability and security of the Internet, companies have begun to offer more complex products and services online. This trend has continued with the proliferation of online financial services, beginning with comparatively simple electronic banking transactions, progressing in complexity to stock trading and mortgage lending and more recently extending to insurance products and services.
THE TRADITIONAL MARKET FOR INSURANCE IN THE UNITED STATES
According to A.M. Best, in 1997 the insurance market in the United States totaled more than $800 billion of direct premiums written. Approximately half of this market consists of personal insurance products such as automobile, homeowners, term life and health insurance, which are sold to consumers by insurance companies that compete, state-by-state, primarily on the basis of price and service. Insurance companies have traditionally used one of three separate and distinct distribution channels to market their products and services: independent agents, exclusive agents and direct marketing.
Until the mid 1970s, the distribution of insurance products was dominated by independent agents, who solicited and sold insurance on behalf of a broad array of companies from which they received commissions. Historically, these agents were able to offer consumers the ability to comparison shop by providing access to information regarding policies available from multiple companies who accounted for a substantial majority of the policies being sold at that time. According to Conning and Company, Inc., however, the market share of independent agency-based insurance companies for the sale of personal lines of insurance decreased to 53% by 1972 and to 33% by 1996. Insurance companies representing the remainder of the market distribute their products either through exclusive agents, who offer only one company's products, or directly to consumers through mass marketing techniques such as direct mail and telephone solicitation.
The fragmentation of the insurance industry into independent agent, exclusive agent and direct distribution channels has made comparison shopping across a broad range of insurance companies an extremely difficult and frustrating experience for the consumer. Because of this fragmentation, there is no single source where consumers can access information regarding the products and services of a competitive sample of insurance companies. In addition, many insurance products are complex and combine coverage for multiple risks, making it difficult for the consumer to compare products on an "apples-to-apples" basis. Price variability among insurance carriers is often significant. For example, publicly-filed insurance rates posted on the California Department of Insurance website in April 1999 show that, within the major metropolitan areas in California, for the same consumer, there was up to a 160% price differential for homeowners insurance premiums, a 408% differential for automobile insurance premiums and a 415% differential for renters insurance premiums. Consumers are often unaware of the extent of this potential price variability because effectively comparing quotes requires them to undertake the difficult and time-consuming task of separately contacting several companies and agents, filling out multiple applications and facing repeated sales pressure, with no guarantee of achieving their objective of a meaningful comparison.
For insurance companies, regardless of the distribution channel they employ, the cost of acquiring and servicing customers remains a substantial expense and reduces profitability. Just finding the customers who fit within the company's specific targeted risk profiles is a very expensive and time-consuming process, requiring inefficient advertising and marketing techniques that necessarily target an overly broad range and large number of potential customers. Once these customers are identified, significant additional resources are usually required to effect a sale.
The combination of these factors has led to an inefficient market that benefits neither the consumer nor the insurance company. Prices are high, comparison shopping is extremely difficult and the substantial costs of customer acquisition and servicing continue to put pressure on profitability.
MARKET OPPORTUNITY FOR ONLINE INSURANCE
According to Forrester Research, the market penetration for sales of personal insurance products which are researched and selected online, but purchased through any distribution
channel, is expected to grow from $1.5 billion of personal insurance sales in 1998 to over $11.1 billion in 2003, an annual growth rate of 49%. Insurance products are ideally suited to an Internet-based distribution and servicing model for the following reasons:
- insurance products are information-based, thus requiring no physical delivery or warehousing;
- complex insurance products can be made more understandable through readily accessible supporting information and glossaries;
- through a single medium, consumers can access information regarding, and compare the products of, insurance companies using any of the three traditional distribution channels;
- consumers can compare the terms, conditions and exact coverages of various insurance products at their own pace, without sales pressure;
- customer data can be efficiently captured through a website, allowing real-time automated underwriting and streamlined overall processing; and
- insurance companies can reduce the high costs associated with distribution and servicing through traditional channels.
The Internet can be used in a variety of ways to provide consumers with an accessible source of pricing and explanatory information on insurance products and services and provide insurance companies with a cost-effective means of acquiring and servicing customers. To date, most efforts at using the Internet to achieve these objectives have employed one of the following three models, none of which fully capitalizes upon the inherent advantages of Internet-based distribution:
- SINGLE INSURANCE COMPANY WEBSITE. Many insurance companies have implemented their own proprietary websites to provide quotes and services. These websites can be convenient for consumers and allow potential cost savings for insurance companies; however, they typically provide no comparative shopping opportunity for the consumer and each insurance company is required to bear all of the initial and ongoing technology and marketing costs related to its website.
- WEB-BASED INFORMATION DELIVERY. Several companies have established websites that utilize publicly available rate data from generic filings made by insurance companies with state regulators to provide estimated quotes for a number of insurance companies. While offering online access to information and the appearance of comparison shopping and requiring no involvement on the part of insurance companies, this model affords no real online transactional capability. The estimated quotes may differ significantly from the price of any coverage actually offered by the insurance companies, and some companies for whom estimated quotes are given may not be willing to insure the consumer at all. In any case, the consumer must still go through the tedious process of completing separate applications for each insurance company in order to receive an actual quote.
- WEB-ASSISTED AGENCY DISTRIBUTION. A third online model provides an Internet-based distribution channel for traditional insurance agencies. This model allows some limited comparison shopping and requires minimal investment on the part of the agency. However, like the information delivery model described above, the quotes provided are estimates that have not been approved by the insurance company and the consumer must work through the traditional agency process to receive a firm quote. In addition, the consumer does not have access to the products of insurance companies that choose not to distribute their products through independent agents, which represent approximately two-thirds of the personal insurance market. Because the agencies must process applications in the traditional
way and must add additional personnel to process additional applications, there is little opportunity to use technology to reduce costs.
InsWeb believes that, while each of these models brings some benefits to consumers and insurance companies, none adequately capitalizes on the powerful advantages of the Internet. In order to accomplish this, InsWeb believes that a model is needed that directly links consumers and insurance companies, allowing consumers to compare insurance company-sponsored quotes for actual coverage from a variety of companies on an apples-to-apples basis and enabling insurance companies to take full advantage of the cost-saving potential of the Internet.
THE INSWEB SOLUTION
InsWeb has developed an online marketplace for insurance products and services that fully capitalizes upon the advantages of the Internet to directly link consumers and insurance companies, providing consumers with the insurance they need and insurance companies with the customers they want. InsWeb has combined extensive knowledge of the insurance industry, technological expertise and deep relationships with a broad array of insurance companies to develop a sophisticated, integrated online delivery platform. InsWeb's platform enables consumers to efficiently research insurance-related topics, search for, analyze and compare insurance products and apply for and receive insurance company-sponsored quotes for actual coverage. In addition, InsWeb provides insurance companies with a flow of pre-qualified consumers at substantially lower acquisition costs as well as the scalable, cost-efficient distribution capabilities of InsWeb's Internet-based model.
BENEFITS TO CONSUMERS
ONE-STOP COMPARISON SHOPPING FOR MULTIPLE PRODUCTS. InsWeb provides an online marketplace through which consumers can choose among products offered by insurance companies using all three traditional distribution channels. To date, InsWeb has partnered with 32 leading insurance companies throughout the U.S. A consumer shopping for an insurance product at InsWeb's online marketplace can receive quotes from InsWeb's insurance company partners who offer the product in the consumer's state. Consumers can receive quotes for automobile, homeowners/renters, individual health and term life insurance products in an unbiased marketplace in which consumers make their own decisions based on the reputation of the insurance company, the level of coverage and the price of the product being offered. Consumers save time, effort and money by avoiding the need to contact and complete applications with multiple insurance companies and agents.
ACCURATE, INSURANCE COMPANY-SPONSORED QUOTES. InsWeb works directly with participating insurance companies to automate their data capture and delivery, filtering, rating and quote generation processes. As a result, InsWeb provides consumers accurate, insurance company sponsored quotes for actual insurance coverage. By contrast, the quotes provided by most online quotation and information services are estimated from insurance companies' public rate filings, and consumers using these services may find their actual premium to be significantly different from the initial quote they received, if the quoted company is willing to insure them at all. InsWeb believes that online consumers expect accurate quotes for actual coverage and is committed to working directly with insurance companies to meet that expectation.
EASE OF USE. InsWeb offers consumers who want to purchase insurance a variety of helpful information in an easy-to-use format. At the click of a mouse, consumers can access educational materials on insurance, including answers to frequently asked questions, a glossary, informative articles and ratings of insurance companies. InsWeb also provides its customers with proprietary analytical tools to assist them in determining the type and amount of insurance coverage that is
most suitable for their needs. InsWeb enables consumers to update and store their profiles after each interaction, so that repeated visits are more productive.
CONVENIENCE AND CONTROL. InsWeb provides consumers with the convenience of shopping from home or office, 24 hours a day, 7 days a week. InsWeb rapidly responds to consumer inquiries with insurance company-sponsored quotes. InsWeb's technology and systems are designed to seamlessly and automatically feed the consumer's data to the insurance company, helping minimize the time and effort required to consummate a transaction. Through InsWeb's online tools and analyzers, consumers can assess and manage their insurance needs on their own. Consumers do not face any sales pressure and may proceed at their own pace, knowing that their information will be safely and privately stored by InsWeb so that future sessions can be conducted without the need to reenter the information. InsWeb is a member of the Online Privacy Alliance and a licensee of the TRUSTe Privacy Program and adheres to their standards regarding the protection of the confidential information of online consumers. See "--Privacy Policy."
BENEFITS TO INSURANCE COMPANIES
LOWER COSTS OF CUSTOMER ACQUISITION AND SERVICE. InsWeb's sophisticated, integrated technology platform allows each insurance company to offer its products online regardless of the traditional distribution channel that the company employs. The information systems of InsWeb's insurance company partners are closely integrated with InsWeb's website, enabling them to fully capitalize on the advantages of its Internet-based distribution model. Because consumers are pre-screened, insurance companies do not waste resources on unqualified applicants. In addition, the efficiency and scalability of InsWeb's Internet-based distribution model allows insurance companies to screen and underwrite additional customers at minimal marginal cost. For insurance companies that utilize agents, InsWeb frees up agent time and resources for more productive, value-added uses, such as closing business and servicing customers.
ENHANCED ACCESS TO NEW QUALIFIED CUSTOMERS. InsWeb enables insurance companies to take advantage of the Internet as part of their strategy to accelerate growth and improve their market share. InsWeb provides insurance companies with a flow of new customers that have been pre-screened based on each company's unique selection criteria. By participating in InsWeb's online insurance marketplace, insurance companies gain access to a growing population of technology-oriented consumers who are increasingly turning to the Internet as a preferred means of researching and purchasing products and services. InsWeb offers insurance companies the ability to benefit from the growth of the Internet and changes in consumer purchasing behavior, as well as improve their competitive position in attracting desirable new customers.
RAPID MARKET FEEDBACK. InsWeb's advanced technology platform enables insurance companies to obtain rapid feedback on their comparative performance within the InsWeb insurance marketplace. This information allows insurance companies to more quickly and easily adjust their product offerings to add or remove particular products, change product features, adjust underwriting criteria and distribute current information to prospective customers. InsWeb believes that this access to market feedback offers its insurance company partners a competitive advantage over other insurance companies.
IMPROVED UNDERWRITING PROFITABILITY AND PRODUCT INNOVATION. Through InsWeb, insurance companies can acquire and service customers at lower costs. Reduced customer acquisition and servicing costs enable insurance companies to underwrite their existing products more profitably and potentially to expand their product offerings, since reduced costs may allow them to profitably underwrite more and varied risks. In addition, InsWeb's database of consumer information and behavior provides insurance companies with the ability to more frequently and easily evaluate the comparative attractiveness of their existing products, as well as the potential means to develop new products focused on previously unknown or unreachable market opportunities.
INSWEB'S STRATEGY
InsWeb's strategy is to capitalize upon its expertise, technology and relationships to strengthen its position as the provider of the leading online insurance marketplace for consumers and insurance companies. The key elements of InsWeb's strategy include:
ENHANCE THE COMPARATIVE SHOPPING EXPERIENCE FOR CONSUMERS. InsWeb's objective is to provide consumers and small businesses with a comprehensive selection of insurance products and services. To achieve this objective, InsWeb intends to:
- add additional insurance companies to the InsWeb online insurance marketplace;
- increase the number of states where its insurance company partners offer coverage online;
- work with its insurance company partners to expand the products and services they offer through the InsWeb online insurance marketplace;
- work with both new and existing insurance company partners to offer consumers more instant online quotes;
- offer products and services to small businesses; and
- expand its geographic coverage outside of the United States.
While expanding its products and services, InsWeb intends to continue to provide the highest quality customer service and to enhance the overall user experience on its website.
BUILD STRONG RELATIONSHIPS AND DEEP TECHNOLOGY INTEGRATION WITH INSURANCE COMPANY PARTNERS. InsWeb believes that its combination of deep technology integration, industry expertise and strong relationships with insurance companies provides significant competitive advantages. Integrating each insurance company into the InsWeb platform presents unique technical and operational challenges and, therefore, requires a close working relationship between the insurance company and InsWeb. Following the development process, InsWeb's implementation and technology teams continue to work closely with each insurance company on an ongoing basis to integrate InsWeb's infrastructure with each insurance company's systems. InsWeb responds to each insurance company's unique needs for integration and program development by offering a full array of services, from software integration to change management and electronic commerce strategy development. InsWeb also provides insurance companies with performance feedback through its extensive consumer and transaction database. InsWeb intends to continue to strengthen its relationships with existing insurance company partners and to work closely with new insurance company partners to integrate their systems with its infrastructure.
REDUCE CUSTOMER ACQUISITION AND SERVICING COSTS. InsWeb intends to continue to develop technology-based solutions aimed at reducing the overall customer acquisition and servicing costs of insurance companies. By focusing on the continued development of its fully integrated, scalable technology platform, InsWeb intends to enable insurance companies to better target and reach prospective customers and realize economies of scale not attainable through traditional insurance distribution channels or other Internet-based distribution models. By continually incorporating and upgrading fully automated processes for data capture and delivery, filtering, rating and quote generation, InsWeb believes that it can significantly reduce customer acquisition costs. InsWeb intends to continue to work with insurance companies in exploring additional ways to utilize the InsWeb platform to further reduce the costs associated with acquiring and servicing customers.
LEVERAGE ITS TECHNOLOGY PLATFORM AND EXTENSIVE CONSUMER DATABASE. InsWeb has invested significant resources to develop and deploy its technology platform, as well as its extensive
consumer and transaction database. InsWeb intends to leverage these assets to enhance the breadth and value of its product and service offerings. Specifically, InsWeb intends to:
- leverage its technology platform and consumer database to create opportunities for insurance companies to expand their product offerings;
- continue to license its technology to selected insurance companies and financial institutions to allow these companies to provide quoting functionality on their websites;
- continue to provide insurance companies with rapid market feedback on new product configurations and market performance; and
- leverage its technology platform to provide additional services to consumers and insurance companies.
EXPAND BRAND AWARENESS AND PRESENCE. InsWeb intends to continue to use both offline and online marketing campaigns to maximize consumer awareness and enhance its brand recognition. InsWeb's objective is to become the preferred partner for the provision of insurance products and services online. InsWeb will continue to carefully target partners with strong market reach, such as major portals, as well as partners that are a likely source of insurance shoppers, such as personal finance, automobile purchase or mortgage origination websites. Where appropriate, InsWeb intends to form co-branded partnerships with full or limited InsWeb functionality.
THE INSWEB ONLINE INSURANCE MARKETPLACE
The InsWeb online insurance marketplace is a Web-based marketplace that links consumers directly with insurance companies and enables comparison shopping for insurance coverage in a convenient and pressure-free environment. Consumers visiting the InsWeb online insurance marketplace can receive insurance company-sponsored quotes for actual coverage for a variety of insurance products, and also can use a variety of InsWeb's proprietary analytical tools and insurance-related information to assist them in determining the type and amount of insurance coverage that is most suitable for their needs. Consumers can also access their personal insurance profile, allowing them to retrieve insurance information stored during previous visits.
THE QUOTE GENERATION AND PURCHASE PROCESS
The quote generation and purchase process involves the following steps:
- data entry by the consumer;
- electronic filtering of the consumer's data;
- electronic rating and generation of price quotes;
- presentation of quotes to the consumer;
- delivery of leads to the insurance companies; and
- subsequent purchase of the insurance policy.
Quotes obtained through the online marketplace are free to consumers, while participating insurance companies pay transaction fees to InsWeb generally based on the delivery of qualified leads.
DATA ENTRY. To initiate a shopping session, a consumer completes an online form that requests information such as the consumer's age, address and coverage requirements, a process that InsWeb estimates takes approximately 10 to 25 minutes, depending on the type of insurance sought and the complexity of the consumer's profile. The quote form captures a comprehensive set
of information designed to address each of the participating insurance companies' filtering and rating criteria. To assist consumers in evaluating and fulfilling their insurance needs, InsWeb provides consumers a variety of proprietary analytical tools and insurance-related information. In addition, InsWeb provides online help throughout the data entry process. The consumer is required to complete only one form to obtain quotes for a particular type of insurance from all participating companies offering that type of insurance in the consumer's state. Throughout the data entry process, consumers are presented with the option of saving their data into their personal insurance profile. Consumers who are returning to the online marketplace can simply enter their user name and password to retrieve information they entered during previous visits. This information can be used to automatically complete portions of the quote form for other insurance products. Because the information insurance companies use to filter, rate and provide quotes to a consumer is entered directly by the consumer, the companies can reduce or eliminate the expense associated with collecting consumer data. Moreover, information entered directly by consumers typically contains fewer errors than information provided orally to an agent or insurance company representative, who must then enter that information manually into the insurance company's system.
FILTERING. InsWeb's filtering software uses criteria set by each participating insurance company to analyze a consumer's data and determine whether it fits within the company's targeted risk profiles. InsWeb's system can provide rapid feedback to an insurance company regarding the impact that a particular filter is having on the number of leads being directed to that company, and also permits individual filters to be easily added or removed. Electronic filtering eliminates the expense of screening and quoting risks that an insurance company ultimately may not want to underwrite. Electronic filtering also ensures that consumers are only presented with quotes from companies who are interested in doing business with them. For a consumer who is not offered coverage by an insurance company, no quote from that company is presented, thus preserving the insurance company's opportunity to do business with the consumer in the future.
RATING. InsWeb's rating process compares a consumer's data against criteria used in an insurance company's underwriting process to generate insurance company-sponsored quotes. InsWeb integrates each of its insurance company partners' rating criteria into its online marketplace through one of several rating solutions, depending on the partner's preference. These solutions include:
- a customized interface between InsWeb's site and the company's own rating engine, which may be housed on the company's legacy system or at InsWeb's facility;
- an interface between InsWeb's site and a third-party rating engine of the company's choice; or
- an integration of the company's rating criteria into one of InsWeb's proprietary rating engines.
In each case, the rating process is developed in close cooperation with the insurance company.
PRESENTATION OF QUOTES. After a consumer has completed the form for a particular product and requested quotes, the consumer is presented with a "quote pad." The quote pad contains the logos of insurance companies interested in providing quotes, along with prices for the companies offering instant quotes. The quote pad also informs the consumer which companies will provide quotes on a delayed basis, either via e-mail, mail or telephone. The response method varies among insurance products and companies. Currently, substantially all term life and health quotes are provided through instant quotes, while most quotes for automobile insurance are delivered by e-mail. InsWeb is working with its insurance company partners to increase implementation of instant quoting capability.
DELIVERY OF LEADS. InsWeb's insurance company partners pay transaction fees to InsWeb generally based on the delivery of qualified leads. Qualified leads are produced in two ways: for insurance companies providing instant online quotes, a qualified lead is produced when a consumer clicks to request insurance coverage based on a specific quote; for insurance companies providing e-mail or other offline quotes, a qualified lead is produced when a consumer clicks to request the quote itself. In either case, InsWeb is paid a transaction fee whether or not the consumer actually purchases a policy. Once a lead is generated by the consumer's request for an application or offline quote, InsWeb transmits the lead to the selected insurance company by e-mail, file transfer or direct connection to the insurance company's information system. InsWeb provides each of its insurance company partners with custom-formatted lead information based on the company's individual requirements.
PURCHASE OF POLICY. After InsWeb generates and delivers a qualified lead, insurance companies may respond directly to the interested consumer by e-mail, mail or telephone to close the purchase of the policy or direct the lead to an agent for follow-up. This portion of the transaction does not require further involvement by InsWeb, although InsWeb monitors insurance company responses and works with companies and agents to ensure that they are responding to leads generated from the online insurance marketplace in a timely fashion.
CUSTOMER CARE. InsWeb provides assistance to consumers throughout the data entry, quote-generation, delivery and purchase process through embedded help icons, which link to explanations of the various steps in the process and through e-mail support. InsWeb is currently developing its e-Care Center to provide additional help to consumers working through the process of shopping for insurance online. The e-Care Center will provide additional consumer assistance through real-time chat and live telephone support. InsWeb expects to make the initial services of the e-Care Center available to consumers in the summer of 1999.
PRODUCT LINES
Insurance companies participating in InsWeb's online insurance marketplace offer automobile, term life, homeowners, renters, and individual health insurance, as well as motorcycle insurance, and fixed annuities. The following table shows information with respect to the principal product lines currently offered on InsWeb's marketplace.
INSWEB ONLINE MARKETPLACE
U.S. MARKET -------------------------------------
-------------------- PARTICIPATING
ANNUAL PREMIUMS IN INSURANCE
PRODUCT LINE 1997 STATES COVERED COMPANIES
----------------------------------- -------------------- ------------------ -----------------
Private Automobile................. $ 116 billion(1) 49 plus D.C. 21
Term Life.......................... $ 14 billion(2) 50 plus D.C. 10
Individual Health.................. $ 71 billion(3) 40 plus D.C. 4
Homeowners/Renters................. $ 29 billion(1) 49/47 plus D.C. 3/2
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(1) Source: A.M. Best, AGGREGATES AND
AVERAGES--PROPERTY/CASUALTY, 1998.
(2) Estimated based on information obtained from: A.M. Best,
AGGREGATES AND AVERAGES--LIFE/HEALTH, 1998; LIMRA,
International, Inc.
(3) Estimated based on information obtained from: A.M. Best,
AGGREGATES AND AVERAGES--PROPERTY/CASUALTY, --LIFE/HEALTH
AND --HMO, 1998.
AUTOMOBILE INSURANCE. Automobile insurance comprises the largest segment of the consumer insurance market, and, to date, has accounted for most of the consumer traffic on InsWeb's online marketplace and a substantial majority of its revenues. InsWeb believes that, for the
foreseeable future, most of its consumer traffic will continue to be generated by prospective purchasers of automobile insurance. The number of automobile insurance companies participating in the InsWeb online marketplace has grown rapidly; since January 1997, the number of participating companies has grown from two to 21. The following table shows, as of April 30, 1999, the percentage of the U.S. population residing in states where at least two companies offer automobile insurance quotes on the InsWeb online marketplace:
PERCENTAGE OF U.S. POPULATION
NUMBER OF COMPANIES RESIDING IN STATES AND
OFFERING AUTO QUOTES NUMBER OF STATES JURISDICTIONS COVERED
------------------------------------------- ----------------- -------------------------------
2 or more.................................. 44 plus D.C. 89.9%
3 or more.................................. 35 82.2%
4 or more.................................. 23 66.3%
5 or more.................................. 18 61.4%
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TERM LIFE INSURANCE. InsWeb began offering term life insurance quotes in April 1996 through a single insurance company. The InsWeb online marketplace currently offers comparative quotes for term life insurance from five or more companies in 48 states plus D.C. The following table shows, as of April 30, 1999, the percentage of the U.S. population residing in states where at least five companies offer term life insurance quotes on the InsWeb online marketplace:
PERCENTAGE OF U.S. POPULATION
NUMBER OF COMPANIES RESIDING IN STATES AND
OFFERING TERM LIFE QUOTES NUMBER OF STATES JURISDICTIONS COVERED
------------------------------------------- ----------------- -------------------------------
5 or more.................................. 48 plus D.C. 92.8%
6 or more.................................. 44 plus D.C. 86.6%
7 or more.................................. 41 plus D.C. 83.2%
8 or more.................................. 33 plus D.C. 70.1%
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INDIVIDUAL HEALTH INSURANCE. InsWeb began offering individual health insurance quotes in August 1998. Individual health insurance is available in the form of preferred provider organization plans, health maintenance organization plans and traditional indemnity plans. The InsWeb online marketplace currently offers quotes for individual health insurance from at least one insurance company in 40 states plus D.C. (representing 70.7% of the population) and two insurance companies in 20 states (representing 40.1% of the population).
HOMEOWNERS/RENTERS INSURANCE. InsWeb began offering homeowners and renters insurance quotes in July 1998. The InsWeb online marketplace currently offers quotes for homeowners insurance from at least one insurance company in 49 states plus D.C. (representing 97.7% of the population), two or more insurance companies in 29 states plus D.C. (representing 43.4% of the population) and three or more insurance companies in 11 states (representing 21.3% of the population). The online marketplace currently offers quotes for renters insurance from at least one insurance company in 47 states plus D.C. (representing 96.1% of the population, and two insurance companies in 14 states (representing 24.1% of the population).
OTHER PRODUCTS AND SERVICES. InsWeb's online marketplace allows consumers to shop for other types of insurance in most states. These product lines include motorcycle insurance and fixed annuities. At present, the InsWeb online marketplace does not offer multiple quotes with respect to these types of insurance, which are each offered by a single insurance company in the states in which they are available. InsWeb's strategy is to expand the range of insurance products and services offered through its online insurance marketplace. From time to time, InsWeb licenses its insurance quoting functionality to insurance companies and financial institutions on a selected basis.
NON-U.S. MARKETS. In December 1998, InsWeb entered into a joint venture with SOFTBANK Corp. to create an online insurance marketplace for the Japanese market. InsWeb currently holds a 40% equity interest in the joint venture. See "Certain Transactions." The joint venture is in the early stages of developing its online marketplace, which is not scheduled to be operational before late 1999.
In April 1999, InsWeb added automobile insurance quoting functionality for consumers to its online marketplace through one insurance company in Alberta, New Brunswick and Ontario, Canada.
INSURANCE COMPANY PARTNERS
As of April 30, 1999, there were 32 insurance companies participating in the InsWeb online marketplace, including many large companies with established brand names that InsWeb believes are attractive to consumers. Insurance companies participating in the online marketplace include:
TYPE OF INSURANCE PARTICIPATING INSURANCE COMPANIES
--------------------------------------------- ------------------------------------------------------------------
Automobile................................... AAA Michigan Kemper
AIG Liberty Mutual
American Family Nationwide
Amica Progressive
Auto Club South (AAA) RelianceDirect
Avomark (Ohio Casualty) Reliant
CNA State Farm
Country The Commerce Group
Explorer TIG
GE Financial Assurance Tri-State
Hartford
Term Life.................................... Amica Mutual of New York
CNA Ohio National
John Hancock State Farm
Lincoln Benefit (Allstate) Western Southern
Metropolitan Life Zurich Kemper
Homeowners/Renters........................... AIG State Farm
American Family
Individual Health............................ Blue Cross/Blue Shield of Florida Mutual of Omaha
IAG (Hartford) United Security
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To date, InsWeb has been dependent on a limited number of insurance companies for substantially all of its revenues. The amount of revenues generated from a given company depends upon a number of variables that are difficult for InsWeb to control, such as the degree to which the insurance company's quotes are competitive with those of other insurance companies, and the proportion of consumers that fit within the insurance company's targeted risk profiles, as determined by the filtering criteria that the insurance company is using at any given time. Accordingly, the amount of revenue that InsWeb generates from a given insurance company is likely to fluctuate from year to year, both in absolute terms and as a percentage of total revenues. Revenues from State Farm, AIG and American Family accounted for approximately 32%, 13% and 11%, respectively, of InsWeb's revenues for the three months ended March 31, 1999, and revenues from State Farm, AIG and RelianceDirect accounted for approximately 40%, 16% and 10% of revenues for the year ended December 31, 1998. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
ANALYTICAL TOOLS AND INFORMATION
To assist consumers in evaluating and fulfilling their insurance needs, InsWeb provides consumers with a variety of proprietary analytical tools and insurance-related information, including:
- tools to help consumers estimate their coverage requirements for auto and term life insurance;
- research capabilities to help consumers review the financial strength of insurance companies nationwide;
- frequently asked questions on insurance;
- articles on a wide variety of insurance and personal finance topics; and
- glossaries of insurance-related terms.
MARKETING AND SALES
InsWeb's marketing program consists of a two-pronged effort, with substantial resources directed both at attracting increased consumer traffic to the InsWeb website and building and expanding partnerships with insurance companies. InsWeb believes that increased traffic will encourage insurance companies to develop and expand their relationship with InsWeb, and that enhancing the comparative shopping opportunities available through increased insurance company participation will drive further increases in consumer traffic.
CONSUMER MARKETING
InsWeb's consumer marketing program seeks to increase consumer traffic and brand awareness through the establishment of online partnerships as well as through direct offline and online consumer marketing.
ONLINE PARTNERSHIPS. InsWeb believes that online partnerships with high-profile websites can drive significant traffic to its site. InsWeb seeks out online partners whose websites feature a high volume of traffic or a substantive focus that is related to the purchase of insurance coverage, such as sites related to automobiles or homes. Agreements with online partners typically provide that InsWeb and the online partner will share revenue from transaction fees generated through the partnership, and some require InsWeb to also pay a fixed fee to the online partner. Online partners integrate links into their websites connecting to InsWeb's marketplace. InsWeb provides functionality to further integrate with its online partners and, in some cases, provides co-branding functionality whereby the online partner's logo is presented on the InsWeb marketplace to those consumers directed to InsWeb's marketplace from a partner's site. For some of InsWeb's larger online partnerships, including Yahoo!, Snap! and InfoSeek, InsWeb has further integrated its functionality with its partners' sites by customizing the look and feel of InsWeb's insurance related content and marketplace to replicate the design characteristics of the partners' site. Additionally, some of these partners have developed customized interfaces on their own site to link to the InsWeb marketplace. The integration process requires a significant investment of the partner's time and resources, which InsWeb believes motivates the partner to maintain a long-term relationship with InsWeb. As of April 30, 1999, InsWeb had agreements with 71 online partners, including:
- Yahoo! - E*Trade - Infoseek - E-LOAN - Snap - Infospace.com - Microsoft - PNC Bank - Go2Net - Consumers Car Club |
TRADITIONAL CONSUMER MARKETING. As part of its branding effort, InsWeb has developed a consumer marketing campaign, which began in 1998 with radio advertising in selected metropolitan markets and which has recently been expanded to include national television and syndicated radio advertising. InsWeb also conducts other consumer marketing activities, such as sweepstakes contests and other promotional activities.
ONLINE DIRECT-RESPONSE ADVERTISING. InsWeb's online direct-response advertising is intended to create a presence for InsWeb on a wide range of websites whose audiences closely match its target audience. InsWeb's key advertisements are delivered through content sponsorships, banners and keywords on financial, news, real estate, classifieds, automobile, directory and general interest sites. InsWeb's advertisements are targeted primarily to consumers who are actively seeking insurance.
BUILDING AND MAINTAINING PARTNERSHIPS WITH INSURANCE COMPANIES
InsWeb believes that establishing long-term relationships with reputable insurance companies is essential to its ability to offer a desirable insurance marketplace on its website. Accordingly, a significant portion of InsWeb's sales and marketing organization consists of an Insurance Services Group, whose role is to market the online marketplace to insurance companies. The focus of this group is to maintain and expand the product offerings available on the online marketplace by selling InsWeb's services to new companies and expanding InsWeb's relationship with existing insurance company partners.
An insurance company's decision to participate in the online marketplace typically involves significant discussions between InsWeb and the insurance company regarding the types of products and services the insurance company wants to offer, the markets in which the insurance company wants to initially participate and the terms of the agreement between InsWeb and the insurance company. In addition, both InsWeb and the insurance company devote significant resources to complete the integration of the insurance company into InsWeb's website. This integration process typically takes from two to three months to complete.
Once an insurance company decides to participate in InsWeb's online insurance marketplace, InsWeb's implementation team of more than 20 people work with the company to integrate its insurance product information, which entails a process of specification development, education, planning and activation. Because of the complexity of interfacing with an insurance company's legacy computer systems, the implementation team conducts a thorough assessment of the company's business processes, technical capabilities and desired interface to develop a comprehensive integration plan. Although the implementation process can be costly and time-consuming for both InsWeb and the insurance company, InsWeb believes that it represents a significant commitment by the company and that the company typically views this expenditure of time and resources as an investment in a long-term relationship with InsWeb. Once an insurance company's initial implementation is complete, InsWeb works with the company to expand its geographic coverage and add insurance products.
InsWeb pursues its relationship-building strategy with insurance companies at three levels: executive management, middle management and operations personnel. By investing in relationships at all three of these levels, InsWeb believes that it will have greater success in maintaining and potentially expanding those relationships. Additionally, InsWeb believes that strong relationships at each level of an organization are important to ensure effective coordination and product implementation.
InsWeb markets its online marketplace to insurance companies who employ all three traditional distribution channels. InsWeb believes its online insurance marketplace provides significant benefits to insurance companies regardless of the distribution channel they use. InsWeb has also developed programs targeted at the needs of specific channels. For example, InsWeb's prototype AGENT IN THE MIDDLE software enables insurance company partners who employ an agency-based distribution model to present online quotes through an agent rather than directly to the consumer. InsWeb's E-AGENT CERTIFICATION is an Internet-based training program which provides agents with training in the use of the Internet to process insurance quote requests.
TECHNOLOGY
ARCHITECTURE AND INTERFACES
Since its inception, InsWeb has invested significant resources to develop and deploy its proprietary technology platform which InsWeb believes constitutes a significant competitive advantage.
InsWeb's software architecture facilitates interoperability among software components to maximize responsiveness, flexibility and reliability. This architecture enables InsWeb to efficiently develop and deploy new insurance company-specific modules for filtering, rating and data delivery. It also simplifies the process of providing InsWeb's core marketplace functionality for use on insurance company sites. In order to speed implementation for each participating insurance company, InsWeb has developed transmission software components which allow consumer data to be custom-formatted for delivery to each insurance company based on the requirements of the insurance company's computer system. InsWeb has developed custom communication software to provide multiple types of real-time telecommunication links to its insurance company partners. These components provide a variety of solutions to the insurance companies to best meet their needs and interface with their legacy systems. InsWeb has devoted significant time and resources to maximize the efficiency of integrating new insurance companies into its online marketplace and to create a flexible, customizable Web interface. InsWeb's front-end user interface is accessible to consumers via standard Web browsers and is designed without unnecessary graphics that would increase download time.
InsWeb's server software operates on servers running the Microsoft Windows NT operating system. The software is designed for a high-volume transaction processing environment, with a focus on reliability, redundancy and around-the-clock availability. It is designed to enable the system to respond rapidly and to simultaneously filter and rate a consumer's profile against all participating insurance companies' filters. The software is also designed for scalability, enabling InsWeb to expand processing capacity through the addition of more processors and servers as transaction volumes increase.
SECURITY
InsWeb employs third-party firewall technology to protect its corporate network from intrusion and uses proprietary designs to isolate confidential data on its network so that only selected information is publicly available on its website. InsWeb uses Secure Socket Layer encryption technology to enable consumers to transmit information securely over InsWeb's website. InsWeb employs a number of other encryption methods for delivery of consumer information to insurance companies. InsWeb protects its system management functions using security models integrated with the operating system. Additionally, some sensitive software applications incorporate proprietary authentication schemes.
SITE OPERATIONS
InsWeb's hardware servers, storage systems, Internet connections, back-up strategies and network are designed to allow its online marketplace to operate continuously. InsWeb's main Web servers are located at its headquarters facility in Redwood City, California. InsWeb uses multiple service providers to access the Internet over multiple dedicated communication lines. InsWeb uses a separate server to operate the software for each primary insurance product, as well as at least one redundant server for each core product. InsWeb uses a number of internally-developed and third-party software products to monitor the performance and availability of its website and core products. InsWeb continuously monitors consumer traffic, response times and capacity to ensure a high quality of service for consumers and insurance companies. InsWeb maintains a back-up facility in Irvine, California through a third-party service provider to ensure the continuous operation of its online marketplace in case of a failure at its main facility.
PRODUCT DEVELOPMENT
InsWeb devotes significant resources to improving the structure of its products and delivering additional tools which allow insurance companies to effectively reach consumers. InsWeb generally follows a semi-quarterly release schedule for new versions of its online user interface, which may incorporate technology advances, new product features and improvements in consumer interactivity. InsWeb also devotes significant resources to refining its online consumer tools and research materials and developing new support products. During 1998, InsWeb implemented more than 20 site upgrades and product releases for its core products in order to add new insurance companies to its online marketplace, add new states for existing insurance company partners and improve the functionality and consumer experience of its website. InsWeb is also researching new methods of designing more useful insurance-related material and presenting them to the consumer in a more meaningful context.
InsWeb's product development expenses were approximately $3.2 million in 1997, $4.6 million in 1998 and $1.6 million in the first quarter of 1999. As of March 31, 1999, InsWeb had a product development staff of 74 full-time employees, all located at its headquarters in Redwood City, California.
PRIVACY POLICY
InsWeb believes that the privacy of personally identifiable information of Internet users is becoming increasingly important as the use of the Internet for electronic commerce continues to grow. InsWeb has adopted a privacy policy for information of users of its online marketplace. InsWeb does not disclose any personally identifiable information of a user to InsWeb's insurance company partners until the user specifically requests insurance coverage based on an instant online quote, or requests an offline quote. InsWeb does not sell or otherwise make available to any other party any personally identifiable information concerning its users. However, InsWeb does compile user information in its databases. This aggregated statistical information is analyzed internally by InsWeb for marketing purposes and to improve the content and site layout of its website. This information is made available in aggregate form only, without individual identification of consumers, to InsWeb's insurance company partners for their use in adjusting, refining and expanding their product offerings. InsWeb is a member of the Online Privacy Alliance and a licensee of the TRUSTe Privacy Program and adheres to their standards regarding the protection of the personally identifiable information of Internet users.
COMPETITION
The online insurance distribution market is a new industry and, like the broader electronic commerce market, is rapidly evolving and is highly competitive. Increased competition, particularly by companies offering online insurance distribution, could reduce the fees InsWeb is able to charge its insurance company partners or increase the fees it is required to pay to its online partners, resulting in reduced margins or loss of market share, any of which could harm its business.
InsWeb competes with:
- single insurance company websites that offer quotes for the company's own insurance products online or by telephone;
- Web-based information delivery services that use generic filings with state regulators to deliver estimated price quotes from various insurance companies;
- Web-assisted agency distribution services that provide an Internet-based distribution channel for traditional insurance agencies;
- other online insurance marketplaces, including Intuit, Inc.'s InsureMarket website, which offer some insurance company-generated insurance quotes;
- online workplace marketers that sell insurance to employees over their employer's intranet; and
- providers of software technology to insurance companies and other competitors that may target electronic commerce solutions for the insurance industry.
InsWeb believes the principal bases for competition in the online insurance distribution market include:
- brand awareness;
- variety and quality of insurance company selection;
- strength of relationships and depth of technology integration with insurance companies;
- accuracy of insurance quotes;
- breadth and pricing of insurance product selection;
- speed, accessibility and convenience;
- quality and quantity of website content; and
- relationships with online partners.
Some of InsWeb's current competitors have longer operating histories, larger customer bases, greater brand recognition and significantly greater financial, marketing and other resources than InsWeb does. In addition, InsWeb believes it will face increasing competition as the online financial services industry develops and evolves. InsWeb's current and future competitors may be able to:
- undertake more extensive marketing campaigns for their brands and services;
- devote more resources to website and systems development;
- adopt more aggressive pricing policies; and
- make more attractive offers to potential employees, distribution partners and third-party service providers.
Accordingly, InsWeb may not be able to maintain or grow consumer traffic to its website and its insurance company partner base, its competitors may grow faster than it does, or its strategic partners may discontinue their relationships with it, any of which would harm its business.
GOVERNMENT REGULATION
The insurance industry is subject to extensive regulation under state laws. Insurance laws and regulations cover all aspects of the insurance process, including sales techniques, underwriting for eligibility, rates, claim payments and record keeping by licensed insurance companies and insurance agents. InsWeb performs functions for licensed insurance companies and is, therefore, required to comply with a complex set of rules and regulations that often vary from state to state. If InsWeb fails to comply with these rules and regulations, an insurance company doing business with InsWeb could be subject to censure, fines or a cease-and-desist order. This risk, as well as changes in the regulatory climate or the enforcement or interpretation of existing law, could require changes to InsWeb's business. Furthermore, because the application of online commerce to the insurance market is relatively new, the impact of current or future regulations on InsWeb's business is difficult to anticipate.
A company that does business as an insurance agent is generally required to be licensed in any state in which it conducts that business. Although InsWeb does not believe that its historical or current activities constitute doing business as an insurance agent under existing laws and regulations, InsWeb has received direct and indirect inquiries from insurance regulatory authorities in California, Maryland and Arizona suggesting that its activities may be considered to fall under their licensing jurisdiction. Should these or other regulatory authorities pursue inquiries and ultimately determine that InsWeb's activities required licensure, InsWeb's business could be harmed.
In order to position itself for future business activities that may require a license, InsWeb has caused a wholly-owned subsidiary to be licensed as an insurance agent. This subsidiary is currently licensed in 38 states and has sought or will seek licenses in the remaining states where corporations are eligible to become licensed. In states where corporations are not eligible to become licensed, InsWeb is seeking to become licensed through its officers or through resident agents that contract with InsWeb.
InsWeb transferred to its licensed subsidiary responsibility for the ongoing operation of InsWeb's website in April 1999, and intends to conduct any future business activities that require a license through this subsidiary and InsWeb's licensed officers and agents. Offering services through this licensed subsidiary could create conflicts with existing and potential insurance company partners that have policies prohibiting them from employing insurance agents or from selling insurance through agents that compete with their own exclusive agents. These conflicts could result in a loss of business from these insurance companies and could harm InsWeb's business.
InsWeb is currently developing its e-Care Center to provide assistance to consumers who visit InsWeb's website through real-time chat and live telephone support. InsWeb believes that the defined responsibilities of the service representatives staffing the e-Care Center should not require licensure; however, InsWeb intends to comply with any licensing requirement of the jurisdictions served by the e-Care Center.
InsWeb faces additional regulatory risk because most of the laws and regulations governing insurance agents contemplate or assume paper-based transactions and do not currently address the delivery of required disclosures or other documents through electronic communications. Until these laws and regulations are revised to clarify their applicability to electronic commerce, any company offering insurance products and services through the Internet or other means of electronic commerce will face uncertainty as to compliance with these laws and regulations. Moreover, there
are a number of bills pending before Congress that could fundamentally change the traditional role of state regulation of insurance. InsWeb's policies and procedures may not be deemed acceptable by any regulatory body examining its activities in light of these potentially different laws and regulations. Any adverse regulatory actions could seriously harm InsWeb's business.
In addition, many state insurance codes limit the collection and use of personal information by insurance companies, agents, or insurance service organizations. If InsWeb does not comply with these state laws, InsWeb could be subject to fines or other enforcement proceedings that could harm its business in a particular state. To date, InsWeb has not been notified by any regulatory authority that its information practices do not comply with these state laws.
INTELLECTUAL PROPERTY
InsWeb regards its intellectual property as critical to its success, and relies upon patent, trademark, copyright and trade secrets laws in the United States and other jurisdictions to protect its proprietary rights. InsWeb has filed two U.S. patent applications and expects to file additional applications. No patents may issue from these applications and, if any patents are issued, any claims allowed may not be sufficiently broad to protect InsWeb's technology. In addition, any patents issued may be challenged, invalidated or circumvented. InsWeb holds a U.S. federal trademark registration for its INSWEB mark and has applied for registration of other marks in the U.S. and for the INSWEB mark and other marks abroad. InsWeb's trademark registration applications may not be approved or granted, or, if granted, may be successfully challenged by others or invalidated through administrative process or litigation. In addition, effective patent, copyright, trademark, and trade secret protection may be unavailable or limited in some foreign countries. InsWeb also seeks to protect its proprietary rights through physical and technological security measures, and through the use of confidentiality or license agreements with its business partners, employees, consultants, advisors and others, and generally to control access to, and distribution and use of, its software, documentation, business and other proprietary information. Despite InsWeb's efforts to protect its proprietary rights from unauthorized use or disclosure, employees, consultants, advisors or others may not maintain the confidentiality of InsWeb's proprietary information, and this proprietary information may otherwise become known, or be independently developed, by competitors. The steps InsWeb has taken may not prevent misappropriation of its proprietary rights, particularly in foreign countries where laws or law enforcement practices may not protect its proprietary rights as fully as in the U.S.
InsWeb licenses its trademarks and similar proprietary rights to third parties. While InsWeb attempts to ensure that the quality of its brand is maintained by these business partners, these partners may take actions that could harm the value of InsWeb's proprietary rights or the reputation of InsWeb or its services.
InsWeb may receive notice of claims of infringement of other parties' proprietary rights or claims that its own patents or other intellectual property rights are invalid. From time to time InsWeb has been subject to infringement claims in the ordinary course of its business, including claims of alleged infringement of the trademark rights of third parties by InsWeb and its business partners. Any of these claims, with or without merit, could be time consuming to defend, result in costly litigation, divert management attention and resources or require InsWeb to enter into royalty or licensing agreements. Licenses may not be available on reasonable terms, if at all, and the assertion or prosecution of any infringement claims could significantly harm InsWeb's business.
EMPLOYEES
As of March 31, 1999, InsWeb had 158 full-time employees, including 74 employees primarily engaged in product development, 47 in sales and marketing and 37 in management and
administration. InsWeb has never had a work stoppage, and none of its employees are currently represented under collective bargaining agreements. InsWeb considers its relations with its employees to be good. InsWeb believes that its future success will depend in part on the continued service of its senior management and key technical personnel and its ability to attract, integrate, retain and motivate highly qualified technical and managerial personnel. Competition for qualified personnel in InsWeb's industry and geographical location is intense. InsWeb may not continue to be successful in attracting and retaining a sufficient number of qualified personnel to conduct its business in the future.
FACILITIES
InsWeb's corporate headquarters and its principal administrative, product development, sales and marketing operations are located in approximately 65,000 square feet of office space in Redwood City, California, which InsWeb occupies under a lease expiring in September 2008, subject to InsWeb's option to extend the term for an additional 10 years. InsWeb currently subleases approximately 15,180 square feet of this space which it intends to occupy as its anticipated future growth requires. InsWeb believes that its current facilities will be adequate to meet its needs for the foreseeable future.
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
InsWeb's executive officers and directors and their ages as of April 30, 1999, are as follows:
NAME AGE TITLE
------------------------------------- --- ------------------------------------------------
Hussein A. Enan...................... 53 Chairman of the Board, President and Chief
Executive Officer
Darrell J. Ticehurst................. 59 Vice Chairman of the Board
Mark P. Guthrie...................... 38 Executive Vice President of Operations
Kevin M. Keegan...................... 50 Executive Vice President and President,
Insurance Services Group
Stephen I. Robertson................. 38 Executive Vice President and Chief Financial
Officer
Marian C. Taylor..................... 50 Senior Vice President, General Counsel and
Secretary
Kenneth J. Benvenuto................. 40 Director
Bruce A. Bunner...................... 65 Director
James M. Corroon..................... 59 Director
Philip L. Engel...................... 58 Director
Richard J. Freeman................... 46 Director
M. Gordon Gaddy...................... 62 Director
Richard D. Headley................... 50 Director
Yoshitaka Kitao...................... 48 Director
Claude Y. Mercier.................... 56 Director
Donald K. Morford.................... 64 Director
Robert C. Nevins..................... 65 Director
Robert A. Puccinelli................. 61 Director
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HUSSEIN A. ENAN co-founded InsWeb in February 1995 and has served as its Chairman of the Board and Chief Executive Officer since inception and as its President since May 1999. From March 1992 to November 1994, Mr. Enan was a general partner at E.W. Blanch, a reinsurance intermediary that merged with his own wholly-owned company, Enan & Company, a reinsurance intermediary, in March 1992. Mr. Enan founded Enan & Company in February 1979. From November 1970 to March 1979, Mr. Enan held various executive positions at BEP International, a Canadian reinsurance intermediary.
DARRELL J. TICEHURST co-founded InsWeb in February 1995, has served as a director since its inception and as its Vice Chairman of the Board since May 1999. Mr. Ticehurst served as InsWeb's President and Chief Technology Officer from its inception to May 1999. From January 1992 to December 1995, Mr. Ticehurst was president of CSA, a technology consulting firm. From June 1986 to January 1992, Mr. Ticehurst was president and chief executive officer of Intelligent Access, Inc., a company which he co-founded in 1986 and which developed integrated communications components for personal computers.
MARK P. GUTHRIE joined InsWeb in September 1997 as Senior Vice President of Strategic Partnerships and has served as its Executive Vice President of Operations since July 1998. From
July 1995 to August 1997, Mr. Guthrie held various positions with Industrial Indemnity, a nationwide property and casualty insurance company, most recently as senior operating officer of national programs.
KEVIN M. KEEGAN joined InsWeb in September 1997 as President of the Insurance Services Group, and has served as Executive Vice President since August 1998. From January 1990 to August 1997, Mr. Keegan held various management positions with Marshall & Swift, a company that collects cost data for insurance claims, including vice president of marketing, president and chief operating officer.
STEPHEN I. ROBERTSON joined InsWeb in July 1998 as Senior Vice President and Chief Financial Officer and has served as its Executive Vice President and Chief Financial Officer since May 1999. From November 1997 to July 1998, Mr. Robertson was a senior vice president of Lehman Brothers. From September 1986 to October 1997, Mr. Robertson held various investment banking positions, primarily covering the U.S. insurance industry, with Salomon Brothers, Smith Barney and Alex. Brown.
MARIAN C. TAYLOR joined InsWeb in July 1997 as Senior Vice President, General Counsel and Secretary. From April 1993 to June 1997, Ms. Taylor was engaged in the private practice of law. From March 1992 to March 1993, Ms. Taylor was a vice president of E.W. Blanch. From September 1990 to March 1992, Ms. Taylor was vice president and corporate counsel of Enan & Company.
KENNETH J. BENVENUTO has been a director of InsWeb since August 1998. Mr. Benvenuto has been president and chief executive officer of AMS Services, Inc., a subsidiary of the CNA insurance companies, since May 1998. From January 1996 to May 1998, Mr. Benvenuto was executive vice president and general manager, retail financial services division with CheckFree Corporation, an electronic payment services company. From August 1994 to January 1996, Mr. Benvenuto was president of the treasury products division of Servantis Inc., a software and data processing services company that was acquired by CheckFree.
BRUCE A. BUNNER has been a director of InsWeb since September 1995. Mr. Bunner has been president of Financial Structures Ltd., a wholly-owned subsidiary of Royal & SunAlliance USA, since January 1996. From January 1991 to April 1995, Mr. Bunner was chairman of Centre Reinsurance Company of New York, a reinsurance company. From March 1983 to June 1986, Mr. Bunner served as Insurance Commissioner for the State of California. Mr. Bunner is also a director of Mercury General Corporation and Amwest Insurance Group, Inc.
JAMES M. CORROON has been a director of InsWeb since August 1996. Mr. Corroon has been a director of Willis Corroon of California, an insurance services firm, since January 1996. From October 1966 to December 1995 Mr. Corroon held various management positions with Willis Corroon and its predecessor entity, Corroon & Black Corporation.
PHILIP L. ENGEL has been a director of InsWeb since February 1997. Mr. Engel has been president of the CNA insurance companies since October 1992. Mr. Engel is a director of CNA Financial Corporation, the holding company for CNA's insurance operations, as well as a director of AMS Services, Inc., a CNA majority-owned automation company servicing independent insurance agents and property-casualty insurance companies. Mr. Engel has held various management positions with CNA since June 1961.
RICHARD J. FREEMAN has been a director of InsWeb since August 1998. Mr. Freeman has been a managing director of Century Capital Management, Inc., an investment management and advisory firm, since September 1993. Mr. Freeman is also a director of VISTA Information Solutions, Inc., a provider of environmental risk information.
M. GORDON GADDY has been a director of InsWeb since June 1995. Mr. Gaddy has been chairman of IAG, a life and health insurance agency, since April 1996. From June 1995 to June 1997, Mr. Gaddy served as Chief Executive Officer of InsWeb's Life Health Division. From January 1991 to January 1995, Mr. Gaddy was president of Fortis USA, an international financial services company, and chairman of nine Fortis operating subsidiaries in the U.S.
RICHARD D. HEADLEY has been a director of InsWeb since February 1998. Mr.
Headley has been
senior vice president and chief information officer of Nationwide Insurance
Enterprise, an insurance and financial services company, since October 1997.
From January 1975 to October 1997, Mr. Headley held various management positions
with Banc One Corporation, including chairman and chief executive officer of
Banc One Services Corporation.
YOSHITAKA KITAO has been a director of InsWeb since February 1999. Mr. Kitao has been the executive vice president and chief executive officer in the corporate strategy department of SOFTBANK Corp. since June 1995. From June 1992 to June 1995, Mr. Kitao served as general manager of Nomura Securities Corp., Ltd., a brokerage and investment bank. Mr. Kitao is a director of Ziff-Davis, Inc., a publicly-held media company focused on technology.
CLAUDE Y. MERCIER has been a director of InsWeb since November 1998. Mr. Mercier has been the president and chief executive officer of Seabury & Smith, Inc., a firm specializing in insurance program management, since November 1992.
DONALD K. MORFORD has been a director of InsWeb since May 1997. Mr. Morford has been vice chairman of Sedgwick North America, an insurance brokerage firm, since January 1997. From January 1989 to January 1997, Mr. Morford was president and chief operating officer of Sedgwick North America.
ROBERT C. NEVINS has been a director of InsWeb since September 1995. Mr. Nevins has been executive vice president of Acordia Lloyd Insurance Services, an insurance brokerage firm, since February 1996, and has been its chief operating officer since February 1998. Since December 1993, Mr. Nevins has also been president of R.C. Nevins & Company, which consults with agents, brokers and companies on insurance and management issues.
ROBERT A. PUCCINELLI has been a director of InsWeb since May 1998. From October 1985 to May 1995, Mr. Puccinelli was chairman and chief executive officer of Industrial Indemnity, a nationwide property and casualty insurance company. Mr. Puccinelli is also a director of Paula Financial Corp.
BOARD COMPOSITION
InsWeb currently has authorized 14 directors. Upon the closing of this offering, InsWeb's certificate of incorporation will provide that the terms of office of the members of the Board of Directors will be divided into three classes: Class I, whose term will expire at the annual meeting of stockholders to be held in 2000, Class II, whose term will expire at the annual meeting of stockholders to be held in 2001, and Class III, whose term will expire at the annual meeting of stockholders to be held in 2002. The Class I directors are Messrs. , , , and , the Class II directors are Messrs. , , , and and the Class III directors are Messrs. , , Enan and Ticehurst. At each annual meeting of stockholders after the initial classification, the successors to directors whose term will then expire will be elected to serve from the time of election and qualification until the third annual meeting following their election. In addition, upon the closing of this offering, InsWeb's bylaws will provide that the authorized number of directors may be changed only by resolution of the board. Any additional directorships resulting from an increase in the number of directors will be distributed
among the three classes so that, as nearly as possible, each class will consist of one-third of the total number of directors. This classification of the Board may delay or prevent changes in control or management of InsWeb.
Each officer is elected by the Board and serves at its discretion. Each of InsWeb's officers and directors, other than nonemployee directors, devotes his or her full time to the affairs of InsWeb. InsWeb's nonemployee directors devote the amount of time to the affairs of InsWeb as is necessary to discharge their duties. There are no family relationships among any of the directors, officers or key employees of InsWeb.
BOARD COMMITTEES
The audit committee of InsWeb's Board of Directors recommends the appointment of InsWeb's independent auditors, reviews InsWeb's internal accounting procedures and financial statements and consults with and reviews the services provided by InsWeb's independent auditors, including the results and scope of their audit. The audit committee currently consists of Messrs. Bunner, Corroon and Puccinelli.
The compensation committee of InsWeb's Board of Directors reviews and recommends to the Board the compensation and benefits of all executive officers of InsWeb, administers InsWeb's stock option plans and establishes and reviews general policies relating to compensation and benefits of InsWeb employees. The compensation committee currently consists of Messrs. Corroon, Morford and Nevins.
COMPENSATION OF DIRECTORS
Directors of InsWeb do not receive cash compensation for their services as directors or members of committees of the board, but are reimbursed for reasonable expenses incurred in attending meetings of the board. Beginning in May 1998, nonemployee directors have received vested options to purchase 500 shares of InsWeb common stock for each regularly scheduled board meeting attended. Messrs. Bunner and Gaddy are not eligible to receive these grants until they are 100% vested in options that were previously granted to them. Mr. Bunner holds an option that vests at the rate of 10% per board meeting attended, which was vested with respect to 80% of the underlying shares as of March 31, 1999. Mr. Gaddy's option vests over a three-year period ending September 30, 1999.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION INFORMATION
The following table sets forth information regarding compensation received during the year ended December 31, 1998 by InsWeb's Chief Executive Officer and each of the four other most highly compensated executive officers of InsWeb:
SUMMARY COMPENSATION TABLE
LONG-TERM AND
OTHER
COMPENSATION
---------------
ANNUAL COMPENSATION NUMBER OF
------------------------------ SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL POSITION SALARY COMPENSATION(1) OPTIONS
--------------------------------------------------------------------- ----------- ----------------- ---------------
Hussein A. Enan(2) .................................................. $ 180,000 $ 4,495 --
Chairman of the Board and Chief Executive Officer
Kevin M. Keegan ..................................................... 180,000 4,125
Executive Vice President and President, Insurance Services Group
Darrell J. Ticehurst(2) ............................................. 150,144 4,316 --
President and Chief Technology Officer
Mark P. Guthrie ..................................................... 147,500 4,425
Executive Vice President of Operations
Marian C. Taylor .................................................... 139,000 4,160
Senior Vice President, General Counsel and Secretary
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(1) Represents matching contributions made by InsWeb under its 401(k) plan.
(2) In May 1999, Mr. Enan was elected to the additional office of President and Mr. Ticehurst became Vice Chairman of the Board.
OPTION GRANTS
The following table sets forth information regarding grants of stock options to each of the executive officers named in the Summary Compensation Table during the year ended December 31, 1998. All options granted to these executive officers in 1998 were granted under InsWeb's 1997 stock option plan. The percentage of total options set forth below is based on an aggregate of options granted in 1998. All options were granted at the fair market value of InsWeb's common stock, as determined by the Board of Directors on the date of grant. Potential realizable values are net of exercise price, but before taxes associated with exercise. Amounts represent hypothetical gains that could be achieved for the options if exercised at the end of the option term. The assumed 5% and 10% rates of stock price appreciation are provided in accordance with rules of the SEC and do not represent InsWeb's estimate or projection of the future common stock price.
OPTIONS GRANTED IN YEAR ENDED DECEMBER 31, 1998
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES
INDIVIDUAL GRANTS OF STOCK PRICE
------------------------------------------------------
NUMBER OF % OF TOTAL APPRECIATION
SECURITIES OPTIONS FOR OPTION TERM
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION --------------------
NAME GRANTED IN 1998 ($/SHARE) DATE 5% 10%
---------------------------------------------- ----------- --------------- ----------- ----------- --------- ---------
Hussein A. Enan............................... -- -- -- -- -- --
Kevin M. Keegan............................... (1) 7.2% 8/1/08
Darrell J. Ticehurst.......................... -- -- -- -- -- --
Mark P. Guthrie............................... (1) 7.2 8/1/08
Marian C. Taylor.............................. (2) 2.6 8/1/08
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(1) These options vest as follows: vest monthly over a period of 36 months; vest monthly over a period of 48 months, with the possibility of acceleration to vesting over 36 months if specific performance goals are met as of June 30, 1999; and vest monthly over a period of 48 months, with the possibility of acceleration to vesting over 36 months if specific performance goals are exceeded as of June 30, 1999.
(2) These options vest over a period of 36 months; but will become fully vested immediately upon completion of this offering.
OPTION EXERCISES AND YEAR-END HOLDINGS
The following table sets forth the number of shares of common stock acquired and the value realized upon exercise of stock options in 1998 and the number of shares of common stock subject to exercisable and unexercisable options held as of December 31, 1998 by each of the executive officers named in the Summary Compensation Table:
AGGREGATE OPTION EXERCISES IN 1998 AND VALUES AT DECEMBER 31, 1998
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
NUMBER OF OPTIONS AT 12/31/98 IN-THE-MONEY OPTIONS AT
SHARES 12/31/98(1)
ACQUIRED ON VALUE ------------------------ ------------------------
NAME EXERCISE REALIZED(2) VESTED UNVESTED VESTED UNVESTED
---------------------------------------------- ------------- ------------ ----------- ----------- ----------- -----------
Hussein A. Enan............................... -- -- -- -- -- --
Kevin M. Keegan............................... $ 67,070 $ 70,565 $ 801,209
Darrell J. Ticehurst.......................... -- -- -- -- -- --
Mark P. Guthrie............................... 47,065 64,805 714,752
Marian C. Taylor.............................. -- -- 202,551 376,149
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(1) The value of unexercised options set forth above is calculated based on the deemed fair value of the underlying securities on December 31, 1998 of $ per share, minus the exercise price.
(2) The value realized upon exercise is based on the deemed fair value of the underlying securities on the date of exercise, minus the exercise price.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL ARRANGEMENTS
Hussein A. Enan, InsWeb's Chairman of the Board, President and Chief Executive Officer, and InsWeb have entered into an employment agreement that expires . The agreement fixes his base salary at $180,000 per year and entitles him to the same benefits provided to other InsWeb senior executives. The agreement requires Mr. Enan to devote his full time and attention to InsWeb's business. The agreement also prohibits Mr. Enan from soliciting InsWeb employees, clients or customers for a period of one year following termination of his employment. If InsWeb terminates Mr. Enan's employment without cause, or if he voluntarily terminates his employment following a material reduction in his responsibilities, he will be entitled to receive his salary and benefits for the remaining term of the agreement and will be released from the non-solicitation provision described above. Upon termination for commission of a felony or breach of the employment agreement, Mr. Enan will be entitled only to accrued salary through the date of termination and any vested benefits.
InsWeb's 1997 stock option plan provides that, in the event of a change of control of InsWeb, each outstanding option must be assumed or an equivalent option substituted by the acquiring corporation, or the option will become fully vested. The options terminate if they are not assumed, substituted or exercised prior to a change of control.
STOCK PLANS
1997 STOCK OPTION PLAN
InsWeb's 1997 stock option plan was adopted by the Board of Directors and approved by the stockholders in July 1997. InsWeb is authorized to issue up to shares of common stock under this plan. This number of shares may be increased on January 1, 2000 and each subsequent January 1 during the term of the plan, by 5% of the number of shares of common stock issued and outstanding on the immediately preceding December 31. The 1997 stock option plan is currently being administered by the compensation committee of the Board. The plan allows grants of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code to employees, including officers and employee directors. In addition, it allows grants of nonstatutory options to employees, non-employee directors and consultants. The plan expires in July 2007, but may be terminated sooner by the Board.
The exercise price of incentive stock options granted under the 1997 stock option plan must not be less than the fair market value of a share of common stock on the date of grant. In the case of nonstatutory stock options, the exercise price must not be less than 85% of the fair market value of a share of common stock on the date of grant. With respect to any optionee who owns stock representing more than 10% of the voting power of all classes of InsWeb's outstanding capital stock, the exercise price of any incentive stock option must be equal to at least 110% of the fair market value of a share of the common stock on the date of grant, and the term of the option may not exceed five years. The terms of all other options may not exceed ten years. The aggregate fair market value of the common stock for which an incentive stock option may become exercisable for the first time may not exceed $100,000 in any calendar year. The fair market value will be determined as of the date of the option grant. The board or any committee administering the 1997 stock option plan has discretion to determine vesting schedules and exercise requirements, if any, of all options granted under the plan. However, the plan provides that in connection with a change of control, if the acquiring corporation fails to assume the plan's outstanding options or replace them with substantially equivalent new options, all options will become immediately exercisable in full. In addition, InsWeb has provided for full acceleration of the exercisability of these options if, within 12 months following a change in control, the optionee is terminated without cause or resigns for "good reason," as defined in the option agreement.
As of March 31, 1999, shares of common stock had been issued upon exercise of options outstanding under this plan. Options to purchase shares of common stock, at a weighted average exercise price of $ , were outstanding, and shares remained available for future grants.
1999 EMPLOYEE STOCK PURCHASE PLAN
InsWeb's 1999 employee stock purchase plan was adopted by the board in November 1998, and approved by the stockholders in May 1999. A total of shares of common stock are reserved for issuance under the plan. This plan, which is intended to qualify under Section 423 of the Internal Revenue Code, will be administered by the compensation committee of the Board. Employees, including officers and employee directors, are eligible to participate in the plan if they are employed by InsWeb for more than 20 hours per week and have been so employed for at least three months. The plan will be implemented during sequential six-month offering periods, the first of which will commence on the effective date of this offering and will terminate on January 1, 2000. After the effective date of this offering, offering periods under the plan will generally begin on February 1 and August 1 of each year.
The employee stock purchase plan permits eligible employees to purchase InsWeb common stock through payroll deductions, which may not exceed 15% of the employee's base salary. Stock may be purchased under the plan at a price equal to 85% of the fair market value of InsWeb common stock on either the first or the last day of the offering period, whichever is lower. Employees may end their participation in the offering at any time during the offering period, and participation ends automatically on termination of a participant's employment with InsWeb. Participants may not purchase shares of common stock having a value, measured at the beginning of the offering period, greater than $25,000 in any calendar year or more than 2,500 shares in any offering period.
401(K) PLAN
InsWeb's 401(k) retirement and deferred savings plan covers all eligible employees and is intended to qualify as a tax-qualified plan under the Internal Revenue Code. Employees are eligible to participate in the plan on the first day of the month immediately following three months of service with InsWeb. The plan provides that each participant may contribute up to 15% of his or her pre-tax gross compensation up to a statutory limit, which is $10,000 in calendar year 1999. All amounts contributed by participants and earnings on participant contributions are fully vested at all times. InsWeb may contribute an amount equal to one-half of the first 6% of each participant's contribution. InsWeb may also make discretionary non-matching contributions. InsWeb's contributions vest one-third per year over three years. InsWeb's contributions to the plan through March 31, 1999 totaled approximately $240,000.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF LIABILITY
Section 145 of the Delaware General Corporation Law authorizes a court to award, or a corporation's board of directors to grant, indemnity to directors and officers in terms sufficiently broad to permit this indemnification under some circumstances for liabilities, including reimbursement for expenses incurred, arising under the Securities Act.
As permitted by the Delaware General Corporation Law, InsWeb has adopted provisions in its certificate of incorporation which provide that its directors shall not be personally liable for monetary damages to InsWeb or its stockholders for a breach of fiduciary duty as a director, except liability for:
- a breach of the director's duty of loyalty to InsWeb or its stockholders;
- acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law;
- an act related to the unlawful stock repurchase or payment of a dividend under Section 174 of the Delaware General Corporation Law; or
- transactions from which the director derived an improper personal benefit.
These limitations of liability do not affect the availability of equitable remedies such as injunctive relief or rescission. InsWeb's certificate of incorporation also authorizes InsWeb to indemnify its officers, directors and other agents to the full extent permitted under Delaware law.
As permitted by the Delaware General Corporation Law, InsWeb's bylaws provide that:
- InsWeb is required to indemnify its directors and officers to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions;
- InsWeb is required to indemnify its other employees to the extent that it indemnifies its officers and directors, unless otherwise required by law, InsWeb's certificate of incorporation, its bylaws or agreements;
- InsWeb is required to advance expenses, as incurred, to its directors and officers in connection with a legal proceeding to the fullest extent permitted by the Delaware General Corporation Law, subject to limited exceptions; and
- the rights provided in the bylaws are not exclusive.
InsWeb intends to enter into separate indemnification agreements with each of its directors and officers which may be broader than the specific indemnification provisions contained in the Delaware General Corporation Law. These indemnification agreements may require InsWeb, among other things, to indemnify its officers and directors against liabilities that may arise by reason of their status or service as directors or officers, other than liabilities arising from willful misconduct. These indemnification agreements also may require InsWeb to advance any expenses incurred by the directors or officers as a result of any proceeding against them as to which they could be indemnified and to obtain directors' and officers' insurance if available on reasonable terms.
InsWeb has maintained directors' and officers' liability insurance since February 1996, and intends to continue to maintain this insurance in the future.
At present, there is no pending litigation or proceeding involving any of InsWeb's directors, officers, employees or agents where indemnification by InsWeb is sought. In addition, InsWeb is not aware of any threatened litigation or proceeding which may result in a claim for indemnification.
CERTAIN TRANSACTIONS
FINANCING TRANSACTIONS
Since January 1996, InsWeb has sold and issued an aggregate of 819,122 shares of its preferred stock, in six series. Each share of preferred stock is currently convertible into 10 shares of common stock, and all outstanding shares of preferred stock will be automatically converted into common stock upon the closing of this offering.
In January 1996, InsWeb sold 176,471 shares of its Series A preferred stock to Nationwide Mutual Insurance Company, or Nationwide, at a purchase price of $42.50 per share, or $7,500,018 in the aggregate. Richard D. Headley, a director of InsWeb, is senior vice president and chief information officer of Nationwide Insurance Enterprise, an affiliate of Nationwide.
In November 1996, InsWeb sold 176,471 shares of its Series B preferred stock to Insurance Information Exchange, L.L.C., or IIX, at a purchase price of $46.75 per share, or $8,250,000 in the aggregate. Philip L. Engel, a director of InsWeb, is president of the CNA insurance companies and a director of CNA Financial Corporation, all of which are affiliates of IIX. Kenneth J. Benvenuto, a director of InsWeb, is president and chief executive officer of AMS Services, Inc., a subsidiary of the CNA insurance companies.
In February 1997, InsWeb sold 53,476 shares of its Series C preferred stock to Century Capital Partners, L.P., or Century, at a purchase price of $46.75 per share, or $2,500,003 in the aggregate. Richard J. Freeman, a director of InsWeb, is a shareholder of CCP Capital, Inc., the general partner of Century and is vice president of Century Capital Management, the investment adviser to Century and CCP Capital, Inc.
In May 1997, InsWeb sold 27,864 shares of its Series A-1 preferred stock at a purchase price of $46.75 per share and 8,444 shares of its Series C preferred stock at a purchase price of $46.75 per share to Nationwide, for an aggregate purchase price of $1,697,399.
In December 1998, InsWeb sold 42,978 shares of its Series D preferred stock to SOFTBANK Ventures, Inc. and 6,430 shares of its Series D Preferred Stock to Century at a purchase price of $162.875 per share, for an aggregate purchase price of $7,000,042 in the case of SOFTBANK Ventures, Inc. and $1,047,286 in the case of Century. Yoshitaka Kitao, a director of InsWeb, is executive vice president and chief executive officer in the corporate strategy department of SOFTBANK Corp., of which SOFTBANK Ventures, Inc. is an affiliate.
In December 1998, InsWeb committed to sell, and in February 1999, InsWeb sold 141,213 shares of its Series D preferred stock to SOFTVEN No. 2 Investment Enterprise Partnership, an affiliate of SOFTBANK Corp., at a purchase price of $162.875 per share, or $23,000,067 in the aggregate.
In March and April 1999, InsWeb sold an aggregate of 185,775 shares of its Series E preferred stock to SOFTBANK America, Inc., an affiliate of SOFTBANK Corp., at a purchase price of $188.40 per share, or $35,000,010 in the aggregate.
JOINT VENTURE
In December 1998, InsWeb entered into a joint venture agreement with SOFTBANK Corp. to develop, implement and market an online insurance marketplace in Japan and the Republic of Korea. The joint venture will be conducted through InsWeb Japan K.K., a Japanese corporation. In December 1998, InsWeb purchased a 40% interest in InsWeb Japan K.K. from SOFTBANK Corp. by delivering a promissory note in the principal amount of Y240,000,000, or U.S. $2,089,137 based on the conversion rate at the time of the transaction, payable in December 2002. See Note 9 of Notes to InsWeb's Consolidated Financial Statements. In connection with the joint venture agreement,
InsWeb granted to InsWeb Japan K.K. the right to use InsWeb's technology to conduct its business in the Japanese and Korean markets.
LOANS TO AND FROM OFFICERS
Between the date of InsWeb's inception and March 1996, Mr. Enan loaned an aggregate of $1,721,569 to InsWeb to cover startup expenses. This loan was evidenced by an uncollateralized demand promissory note bearing interest at 6% per annum. InsWeb repaid $196,569 of this amount in 1996 and repaid the remaining balance in full in September 1998.
In February 1996, Mr. Enan borrowed $1,525,000 from InsWeb. This loan was evidenced by an uncollateralized demand promissory note bearing interest at 6% per annum. Mr. Enan repaid this loan in full in September 1998.
In August 1998, InsWeb loaned $3,000,000 to Mr. Enan and $1,000,000 to Mr. Ticehurst. These loans were evidenced by promissory notes bearing interest at 15% per year and collateralized by shares of InsWeb's common stock owned by Messrs. Enan and Ticehurst. These loans were repaid in full in September 1998.
TRANSACTIONS WITH IIX AND ITS AFFILIATES
In connection with the sale of Series B preferred stock in November 1996, InsWeb, IIX and its affiliated entities entered into the following agreements:
LINE OF CREDIT. InsWeb entered into a line of credit arrangement with AMS Services, Inc., an affiliate of IIX. The line of credit entitles InsWeb to borrow up to $25,000,000 from AMS. Borrowings under the line of credit accrue interest at the rate of 15% per annum, payable quarterly. Any principal balance outstanding under the agreement is due in November 2001. The rights and obligations of AMS under the line of credit were assigned to and assumed by Continental Casualty Company, an affiliate of IIX, in April 1998. As of March 31, 1999, there was no principal amount outstanding under the line of credit. See Note 9 of Notes to InsWeb's Consolidated Financial Statements.
ASSET PURCHASE AGREEMENT. In accordance with an Asset Purchase Agreement, InsWeb agreed to sell to IIX certain assets related to its property and casualty agents line of business for a purchase price of $650,000.
JOINT MARKETING AND LICENSE AGREEMENT. In accordance with a Joint Marketing and License Agreement, InsWeb and IIX agreed to license certain software to each other. The agreement specified the following cross-licensing fees:
- InsWeb was to pay IIX $5,450,000 for five year non-exclusive licenses to certain software owned by IIX and $50,000 for a non-compete agreement, and
- IIX was to pay InsWeb $350,000 for five-year non-exclusive licenses to certain software owned by InsWeb. In addition, the agreement provided for the payment of transaction fees by each party to the other based on revenues resulting from the joint marketing efforts and utilization of each other's software.
Under the terms of the Joint Marketing and License Agreement, InsWeb's obligations to IIX of $5,500,000 were to be offset against IIX's obligations to the Company of $1,000,000, consisting of the $350,000 license fee payable under the agreement and of the $650,000 purchase price payable under the Asset Purchase Agreement. Payment was to be made in November 1998.
In December 1998, the parties agreed to amend the Joint Marketing and License Agreement. The amendment eliminated the transaction fees and revised the payment terms to allow InsWeb to
make four quarterly payments to IIX of $1,125,000 each, due on the first day of each quarter beginning January 1, 1999. No interest is payable on the outstanding balance. InsWeb is under no obligation to deliver additional software or documentation to IIX or to provide any maintenance for previously delivered software. See Note 9 of Notes to InsWeb's Consolidated Financial Statements.
COMMERCIAL TRANSACTIONS
Nationwide, a principal stockholder of InsWeb, is also a customer. Nationwide accounted for $134,000 of InsWeb's revenue during 1998.
The CNA insurance companies, which are affiliates of IIX, a principal stockholder of InsWeb, are also customers of InsWeb. The CNA insurance companies accounted for $248,000 of InsWeb's revenue during 1998.
InsWeb and Yahoo! Inc. have entered into a license agreement dated as of February 12, 1998 and amended as of March 31, 1999. Under the agreement, whose term runs until September 30, 2000, Yahoo! has agreed to offer a co-branded version of the InsWeb online insurance marketplace on the Yahoo! website. The agreement provides for InsWeb to be the exclusive provider of online insurance quotation services on the Yahoo! site. Under the agreement, InsWeb has agreed to pay Yahoo! a fixed fee, payable in installments through June 2000, and a referral fee for each user delivered to an InsWeb quote form from the co-branded site. SOFTBANK Corp., a principal stockholder of InsWeb, is also the beneficial owner of approximately 28.1% of the outstanding stock of Yahoo!. In addition, Yoshitaka Kitao, a director of InsWeb, is an executive vice president of SOFTBANK and chief executive officer of its corporate strategy department.
OTHER TRANSACTIONS
In September 1995, in lieu of compensation as Chief Operating Officer of InsWeb's Life Health Division, Mr. Gaddy received an incentive stock option to purchase 250,000 shares of InsWeb common stock, at an exercise price of $0.024 per share. Under an agreement with Mr. Gaddy entered into on February 29, 1996, InsWeb has also paid to Mr. Gaddy 10% of the net revenues of its life and health product sales through the end of February 1999. The total amount paid to Mr. Gaddy under this agreement was $100,000.
InsWeb is a party to an employment agreement with Mr. Enan. See "Management-- Employment Agreement."
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to InsWeb regarding the beneficial ownership of InsWeb's common stock as of March 31, 1999, by:
- each stockholder who is known by InsWeb to beneficially own more than 5% of InsWeb's common stock;
- each of InsWeb's executive officers listed on the Summary Compensation Table under "Management;"
- each of InsWeb's directors; and
- all of InsWeb's executive officers and directors as a group.
PERCENTAGE OF SHARES
OUTSTANDING(1)
---------------------------
NUMBER OF SHARES PRIOR TO THE AFTER THE
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OFFERING OFFERING
----------------------------------------------------------------- --------------------- -------------- -----------
5% STOCKHOLDERS:
SOFTBANK Corp.(2)................................................ 19.6 %
Nationwide Mutual Insurance Company(3)........................... 11.3
Insurance Information Exchange, L.L.C.(4)........................ 18.7
EXECUTIVE OFFICERS AND DIRECTORS:
Hussein A. Enan(5)............................................... 19.8
Kevin M. Keegan(6)............................................... *
Darrell J. Ticehurst(7).......................................... 6.9
Mark P. Guthrie(8)............................................... *
Marian C. Taylor(9).............................................. *
Kenneth J. Benvenuto(10)......................................... 18.7
Bruce A. Bunner(11).............................................. *
James M. Corroon(12)............................................. *
Philip L. Engel(13).............................................. 18.7
Richard J. Freeman(14)........................................... 4.8
M. Gordon Gaddy(15).............................................. 1.3
Richard D. Headley(16)........................................... 11.3
Yoshitaka Kitao(17).............................................. 19.6
Claude Y. Mercier(18)............................................ 4.0
Donald K. Morford(19)............................................ *
Robert C. Nevins(20)............................................. *
Robert A. Puccinelli(21)......................................... *
All executive officers and directors as a group (18
persons)(22)................................................... []
|
* Less than 1%.
(1) Number of shares beneficially owned and the percentage of shares outstanding are based on (a) shares outstanding as of March 31, 1999 and (b) shares outstanding after completion of this offering, assuming no exercise of the underwriters' over-allotment option. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. All shares of common stock subject to options exercisable within 60 days following March 31, 1999 are deemed to be outstanding and beneficially owned by the person holding those options for the purpose of computing the number of shares beneficially owned and the percentage of
ownership of that person. They are not, however, deemed to be outstanding and beneficially owned for the purpose of computing the percentage ownership of any other person. Except as indicated in the other footnotes to the table and subject to applicable community property laws, based on information provided by the persons named in the table, these persons have sole voting and investment power with respect to all shares of the common stock shown as beneficially owned by them.
(2) Includes shares held by SOFTBANK America, Inc., shares held by SOFTBANK Ventures, Inc. and shares held by SOFTVEN No. 2 Investment Enterprise Partnership, each of which is an affiliate of SOFTBANK Corp. The address for SOFTBANK Corp. is 1-16-8 Nihonbashi-Kakigaracho, Chuo-ku, Tokyo 103 0014.
(3) The address for Nationwide Mutual Insurance Company is One Nationwide Plaza, Columbus, Ohio 43216.
(4) The address for Insurance Information Exchange, L.L.C. is c/o AMS Services, Inc., 410 Amherst Street, Birch Pond West, Nashua, New Hampshire 03063.
(5) The address for Mr. Enan is c/o InsWeb Corporation, 901 Marshall Street, Redwood City, California 94063.
(6) Includes shares subject to options exercisable within 60 days following March 31, 1999.
(7) The address for Mr. Ticehurst is c/o InsWeb Corporation, 901 Marshall Street, Redwood City, California 94063.
(8) Includes shares subject to options exercisable within 60 days following March 31, 1999.
(9) Includes shares subject to options exercisable within 60 days following March 31, 1999.
(10) Includes shares held by Insurance Information Exchange, L.L.C. Mr. Benvenuto is president and chief executive officer of AMS Services, Inc., which is a subsidiary of the CNA insurance companies and an affiliate of Insurance Information Exchange, L.L.C., and may be deemed to have voting or investment control with respect to these shares. Mr. Benvenuto disclaims beneficial ownership of these shares. The address for Mr. Benvenuto is c/o AMS Services, Inc., 410 Amherst Street, Birch Pond West, Nashua, New Hampshire 03063.
(11) Includes shares subject to options exercisable within 60 days following March 31, 1999.
(12) Includes shares subject to options exercisable within 60 days following March 31, 1999.
(13) Includes shares held by Insurance Information Exchange, L.L.C. Mr. Engel is president of the CNA insurance companies, an affiliate of Insurance Information Exchange, and may be deemed to have voting or investment control with respect to these shares. Mr. Engel disclaims beneficial ownership of these shares. The address for Mr. Engel is c/o CNA, CNA Plaza, Chicago, Illinois 60685.
(14) Includes shares held by Century Capital Partners, L.P. Mr. Freeman is a shareholder of CCP Capital, Inc., the general partner of Century Capital Partners, L.P., and is vice president of Century Capital Management, the investment adviser to Century Capital Partners, L.P. and may be deemed to have voting or investment control with respect to these shares. Mr. Freeman disclaims beneficial ownership of these shares, except to the extent of his proportionate interest in them. The address for Mr. Freeman is c/o Century Capital Management, Inc., One Liberty Square, Boston, Massachusetts 02109.
(15) Includes shares subject to options exercisable within 60 days following March 31, 1999.
(16) Includes shares held by Nationwide Mutual Insurance Company. Mr. Headley is senior vice president and chief information officer of Nationwide Insurance Enterprise, an affiliate of Nationwide, and may be deemed to have voting or investment control with respect to these shares. Mr. Headley disclaims beneficial ownership of these shares. The address for Mr. Headley is One Nationwide Plaza, Columbus, Ohio 43216.
(17) Includes shares held by entities affiliated with SOFTBANK Corp. Mr. Kitao is executive vice president and chief executive officer in the corporate strategy department of SOFTBANK Corp., and may be deemed to have voting or investment control with respect to these shares. Mr. Kitao disclaims beneficial ownership of these shares. The address for Mr. Kitao is c/o SOFTBANK Corp., 1-16-8 Nihonbashi-Kakigaracho, Chuo-Ku, Tokyo 103 0014.
(18) Includes shares held by Marsh & McLennan Risk Capital Holdings, Ltd. Mr. Mercier is the president and chief executive officer of Seabury & Smith, Inc., part of the risk and insurance services division of Marsh & McLennan Companies, Inc., and an affiliate of Marsh & McLennan Risk Capital Holdings, Ltd., and may be deemed to have voting or investment control with respect to these shares. Mr. Mercier disclaims beneficial ownership of these shares.
(19) Includes shares subject to options exercisable within 60 days following March 31, 1999.
(20) Includes shares subject to options exercisable within 60 days following March 31, 1999.
(21) Includes shares subject to options exercisable within 60 days following March 31, 1999.
(22) Includes shares subject to options exercisable within 60 days following March 31, 1999. The shares listed as held by Messrs. Benvenuto and Engel are the same shares held by Insurance Information Exchange, L.L.C., and are therefore counted only once to calculate the total shares and percentage figures.
DESCRIPTION OF CAPITAL STOCK
Upon the closing of this offering, InsWeb's authorized capital stock will consist of shares of common stock, $0.001 par value per share, and shares of preferred stock, $0.001 par value per share.
The following is a summary of the rights of InsWeb's common stock and preferred stock. This summary is not complete. Please see InsWeb's certificate of incorporation, filed as an exhibit to the registration statement of which this prospectus is a part, for more detailed information.
COMMON STOCK
As of March 31, 1999, there were shares of InsWeb common stock outstanding held of record by 109 stockholders. The holders of InsWeb common stock are entitled to one vote for each share held of record on all matters submitted to a vote of stockholders. Upon the closing of this offering, holders of a majority of the shares of common stock entitled to vote in any election of directors may elect all of the directors standing for election. Subject to preferences applicable to any outstanding preferred stock, holders of common stock are entitled to receive ratably any dividends declared by the board out of funds legally available therefor. See "Dividend Policy." In the event of a liquidation, dissolution or winding up of InsWeb, holders of common stock are entitled to share ratably in the assets remaining after payment of liabilities and the liquidation preferences of any outstanding preferred stock. Holders of InsWeb common stock have no preemptive, conversion or redemption rights. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon the closing of this offering will be, fully paid and non-assessable.
PREFERRED STOCK
Upon the closing of this offering, all InsWeb preferred stock outstanding will be converted into an aggregate of shares of common stock, and up to shares of undesignated preferred stock will be authorized for issuance. InsWeb's Board of Directors has the authority, without further action by its stockholders, to issue preferred stock in one or more series. In addition, the Board may fix the rights, preferences and privileges of any preferred stock it determines to issue. Any or all of these rights may be superior to the rights of the common stock. Preferred stock could thus be issued quickly with terms calculated to delay or prevent a change in control of InsWeb or to make removal of management more difficult. Additionally, the issuance of preferred stock may decrease the market price of InsWeb common stock. At present, InsWeb has no plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Under the Third Amended and Restated Investor Rights Agreement dated as of March 31, 1999, by and among InsWeb and various of its stockholders, holders of an aggregate of shares of InsWeb common stock have various registration rights with respect to their shares of common stock.
Beginning six months after the date of this prospectus, holders of an aggregate of shares of common stock have the right to require InsWeb, on not more than one occasion, to file a registration statement under the Securities Act to register the shares of common stock, at InsWeb's expense. Demand for this registration must be made by holders of at least 40% of the shares that are entitled to this registration, and the aggregate offering price of the securities to be included must be at least $10,000,000. These holders also have the right to demand not more than two registrations during any twelve month period on Form S-3, provided that there is an aggregate proposed offering price of at least $1,000,000. InsWeb may, under some circumstances, defer this registration not more than once in a twelve month period for up to 90 days, and the underwriters of
the offering under this registration have the right, subject to some limitations, to limit the number of shares included.
If InsWeb proposes to register any of its securities under the Securities Act for InsWeb's own account or for the account of other security holders, holders of an aggregate of shares of InsWeb common stock are entitled to notice of that registration and have the right to include some or all of their shares of common stock in that registration, at InsWeb's expense, subject to marketing and other limitations.
ANTITAKEOVER PROVISIONS
DELAWARE LAW
InsWeb will be subject to Section 203 of the Delaware General Corporation Law regulating corporate takeovers, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for three years following the date that the stockholder became an "interested stockholder," unless:
- prior to the date of the transaction, the board of directors of the corporation approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder;
- the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding for purposes of determining the number of shares outstanding (a) shares owned by persons who are directors and also officers, and (b) shares owned by employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
- on or subsequent to the date of the transaction, the business combination is approved by the board and authorized at an annual or special meeting of stockholders, and not by written consent, by the affirmative vote of at least 66 2/3% of the outstanding voting stock which is not owned by the interested stockholder.
CERTIFICATE OF INCORPORATION AND BYLAW PROVISIONS
Provisions of InsWeb's certificate of incorporation and bylaws, which will become effective upon the closing of this offering, may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of InsWeb. These provisions could cause the price of InsWeb common stock to decrease. Some of these provisions allow InsWeb to issue preferred stock without any vote or further action by the stockholders, eliminate the right of stockholders to act by written consent without a meeting and eliminate cumulative voting in the election of directors. These provisions may make it more difficult for stockholders to take specific corporate actions and could have the effect of delaying or preventing a change in control of InsWeb.
InsWeb's certificate of incorporation provides that, upon the closing of this offering, InsWeb's Board will be divided into three classes of directors with each class serving a staggered three-year term. See "Management--Composition of Board." The classification system of electing directors may discourage a third party from making a tender offer or otherwise attempting to obtain control of InsWeb and may maintain the incumbency of the Board, because the classification of the Board generally increases the difficulty of replacing a majority of the directors. InsWeb's bylaws eliminate the right of stockholders to call special meetings of stockholders. The authorization of undesignated preferred stock makes it possible for the board to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of InsWeb. These
and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of InsWeb. The amendment of any of these provisions would require approval by holders of at least 66 2/3% of the outstanding common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is .
LISTING
InsWeb has applied to have its common stock approved for listing on the Nasdaq National Market under the trading symbol "INSW."
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been a public market for InsWeb's common stock. Future sales of substantial amounts of InsWeb common stock in the public market, or the possibility of these sales, could adversely affect the trading price of the common stock.
Upon completion of this offering, InsWeb will have outstanding shares of common stock, assuming no exercise of the underwriters' over-allotment option and no exercise of outstanding options to purchase common stock after March 31, 1999. Of these shares, the shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any shares purchased by "affiliates" of InsWeb, as defined in Rule 144 under the Securities Act, which would be subject to the limitations and restrictions described below.
The remaining shares of common stock outstanding upon completion of this offering will be "restricted securities" as defined in Rule 144. These securities may be sold in the public market only if registered or if they qualify for an exemption from registration under Rules 144 or 701 under the Securities Act, which are summarized below. Sales of these restricted securities in the public market, or the availability of these shares for sale, could adversely affect the trading price of InsWeb's common stock.
Holders of approximately of these restricted securities, including all of InsWeb's officers and directors and the entities affiliated with them, have entered into lock-up agreements providing that, subject to limited exceptions, they will not sell, directly or indirectly, any common stock without the prior consent of Goldman, Sachs & Co. for a period of 180 days from the date of this prospectus.
The number of restricted securities that will be available for sale in the public market, subject in some cases to the volume limitations and other restrictions of Rule 144, will be as follows:
- approximately shares will be eligible for immediate sale as of the date of this prospectus;
- approximately additional shares will be eligible for sale beginning 90 days after the date of this prospectus under Rules 144 and 701; and
- approximately additional shares will be eligible for sale beginning 180 days after the date of this prospectus upon expiration of the lock-up agreements described above.
Approximately remaining restricted securities will not be eligible for sale pursuant to Rule 144 until the expiration of their applicable one-year holding periods, which will expire between 1999 and 2000.
Shares issued upon exercise of options granted by InsWeb prior to the date of this prospectus will be available for sale in the public market under Rule 701 of the Securities Act. Rule 701 permits resales of these shares in reliance upon Rule 144 but without compliance with various restrictions, including the holding period requirement, imposed under Rule 144. In general, under Rule 144, beginning 90 days after the date of this prospectus, a person (or persons whose shares are aggregated) who has beneficially owned restricted securities for at least one year would be entitled to sell within any three-month period a number of shares not to exceed the greater of (1) one percent of the then outstanding shares of common stock or (2) the average weekly trading volume of InsWeb's common stock during the four calendar weeks preceding the filing of a Form 144 with respect to the sale. Sales under Rule 144 are also subject to manner of sale and notice requirements, as well as to the availability of current public information about InsWeb. Under Rule 144(k), a person who is not deemed to have been an affiliate at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two
years is entitled to sell the shares without complying with the manner of sale, public information, volume limitation or notice provisions of Rule 144.
InsWeb has reserved an aggregate of shares of common stock for issuance pursuant to its various stock plans. As of March 31, 1999, options to purchase an aggregate of shares of common stock were outstanding under InsWeb's stock plans. InsWeb intends to file registration statements on Form S-8 under the Securities Act approximately 90 days after the date of this prospectus to register an aggregate of shares of common stock issued or reserved for issuance under its stock option plans and employee stock purchase plan. Shares of common stock issued under the foregoing plans, after the filing of related registration statements, will be freely tradable in the public market, subject in the case of the holders to the Rule 144 limitations applicable to InsWeb affiliates, lock-up agreements with the underwriters and vesting restrictions imposed by InsWeb.
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for InsWeb by Gray Cary Ware & Freidenrich LLP, Palo Alto, California. Certain legal matters relating to the initial public offering will be passed upon for the underwriters by Shearman & Sterling, Menlo Park, California.
EXPERTS
The financial statements included in this registration statement have been audited by PricewaterhouseCoopers LLP, independent accountants. The companies and periods covered by these audits are indicated in the individual reports of PricewaterhouseCoopers LLP. Such financial statements have been so included in reliance on the reports of PricewaterhouseCoopers LLP given on the authority of said firm as experts in auditing and accounting.
WHERE TO FIND ADDITIONAL INFORMATION ABOUT INSWEB
InsWeb has filed with the SEC a registration statement on form S-1, including the exhibits and schedules thereto, under the Securities Act with respect to the shares to be sold in this offering. This prospectus does not contain all the information set forth in the registration statement. For further information about InsWeb and the shares to be sold in this offering, please refer to the registration statement. Statements contained in this prospectus as to the contents of any contract, agreement or other document referred to, are not necessarily complete, and in each instance please refer to the copy of the contract, agreement or other document filed as an exhibit to the registration statement, each statement being qualified in all respects by this reference.
You may read and copy all or any portion of the registration statement or any reports, statements or other information InsWeb files with the SEC at the SEC's public reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.C., Washington, D.C. 20549 and at the regional offices of the SEC located at Seven World Trade Center, 13th Floor, New York, New York 10048 and the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of these documents upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. InsWeb's SEC filings, including the registration statement will also be available to you on the SEC's Web site. The address of this site is http://www.sec.gov.
INSWEB CORPORATION
INDEX TO FINANCIAL STATEMENTS
PAGE
---------
INSWEB CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................................................................ F-2
Consolidated Balance Sheets.............................................................................. F-3
Consolidated Statements of Operations.................................................................... F-4
Consolidated Statements of Stockholders' Equity.......................................................... F-5
Consolidated Statements of Cash Flows.................................................................... F-6
Notes to Consolidated Financial Statements............................................................... F-8
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Overview................................................................................................. F-27
Pro Forma Consolidated Statement of Operations........................................................... F-28
Notes to Pro Forma Consolidated Financial Information.................................................... F-29
BENELYTICS, INC. FINANCIAL STATEMENTS
Report of Independent Accountants........................................................................ F-30
Balance Sheets........................................................................................... F-31
Statements of Operations................................................................................. F-32
Statements of Stockholders' Deficit...................................................................... F-33
Statements of Cash Flows................................................................................. F-34
Notes to Financial Statements............................................................................ F-35
|
REPORT OF INDEPENDENT ACCOUNTANTS
January 15, 1999, except for Note 14, as to which the date is April 22, 1999
To the Board of Directors and Stockholders of InsWeb Corporation and Subsidiaries:
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of operations, stockholders' equity and cash flows present fairly, in all material respects, the financial position of InsWeb Corporation and Subsidiaries as of December 31, 1997 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/PricewaterhouseCoopers LLP San Francisco, California |
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
--------------------------
1997 1998
------------ ------------ MARCH 31, PRO FORMA
1999 STOCKHOLDERS'
------------ EQUITY AS OF
MARCH 31, 1999
(UNAUDITED) ---------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 2,360,153 $ 8,337,133 $ 9,657,421
Accounts receivable, net of allowance of $5,000 at
December 31, 1997 and $0 at December 31, 1998 and
March 31, 1999................................... 116,819 1,192,174 2,549,242
Receivables from employees......................... 21,083 -- 18,461
Note receivable from officer....................... 1,525,000 -- --
Prepaid expenses and other current assets.......... 93,853 653,734 391,944
Receivable for sale of preferred stock............. -- 22,999,377 28,097,222
------------ ------------ ------------
Total current assets........................... 4,116,908 33,182,418 40,714,290
Property and equipment, net........................ 999,327 3,998,185 4,431,494
Investment in joint venture........................ -- 2,089,137 2,084,857
Intangible assets, net............................. -- 8,697,141 7,914,879
Deposits........................................... 23,514 1,389,867 1,386,992
------------ ------------ ------------
Total assets................................... $ 5,139,749 $ 49,356,748 $ 56,532,512
------------ ------------ ------------
------------ ------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $ 159,657 $ 524,926 $ 177,483
Note payable to officer............................ 1,525,000 25,000 --
Accrued expenses................................... 318,766 3,119,362 1,435,615
Deferred revenue................................... 73,696 226,251 295,018
Payable to Series B stockholder.................... -- 4,500,000 3,375,000
Line of credit from affiliate...................... -- 19,290,000 --
------------ ------------ ------------
Total current liabilities...................... 2,077,119 27,685,539 5,283,116
Note payable to strategic partner.................... -- 2,089,137 2,089,137
------------ ------------ ------------
Total liabilities.............................. 2,077,119 29,774,676 7,372,253
------------ ------------ ------------
Commitments and contingencies (Note 8)
Stockholders' equity:
Convertible preferred stock, $0.001 par value.
Authorized: 2,000,000 shares (Aggregate
preference in liquidation $85,994,844).........
Issued: 442,726 shares in 1997, 492,134 shares in
1998, 669,986 shares in 1999 and no pro forma
shares (unaudited). Outstanding: 442,726 shares
in 1997, 633,347 shares in 1998, 819,122 shares
in 1999 and no pro forma shares (unaudited).... 442 633 819 $ --
Common stock, $0.001 par value. Authorized:
50,000,000 shares. Issued and outstanding:
9,740,870 shares in 1997, 10,626,548 shares in
1998, 10,665,832 shares in 1999 and 18,857,052
pro forma shares (unaudited)..................... 9,741 10,627 10,666 18,857
Paid-in capital.................................... 22,152,045 61,224,654 96,533,865 96,526,493
Common stock warrants.............................. -- 113,071 113,071 113,071
Deferred stock compensation........................ (735,643) (913,082) (748,082) (748,082)
Accumulated deficit................................ (18,363,955) (40,853,831) (46,750,080) (46,750,080)
------------ ------------ ------------ ---------------
Total stockholders' equity..................... 3,062,630 19,582,072 49,160,259 $ 49,160,259
------------ ------------ ------------ ---------------
---------------
Total liabilities and stockholders' equity... $ 5,139,749 $ 49,356,748 $ 56,532,512
------------ ------------ ------------
------------ ------------ ------------
|
The accompanying notes are an integral part of these consolidated financial statements.
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------- ----------------------------
1996 1997 1998 1998 1999
------------- -------------- --------------- ------------- -------------
(UNAUDITED)
Revenues:
Transaction fees................ $ 6,617 $ 115,758 $ 3,151,423 $ 172,252 $ 2,868,098
Development and maintenance
fees.......................... 199,351 551,406 789,337 102,403 443,373
Other revenues.................. 41,936 82,507 369,416 9,005 --
------------- -------------- --------------- ------------- -------------
Total revenues................ 247,904 749,671 4,310,176 283,660 3,311,471
------------- -------------- --------------- ------------- -------------
Operating expenses:
Product development............. 2,899,737 3,209,587 4,627,497 893,019 1,551,115
Sales and marketing............. 2,009,701 3,166,644 8,953,700 1,272,059 3,849,213
General and
administrative................ 2,730,066 3,729,336 7,180,305 1,332,256 2,556,979
Amortization of intangible
assets -- -- -- -- 782,262
Impairment loss................. -- -- 5,450,000 -- --
------------- -------------- --------------- ------------- -------------
Total operating
expenses.................... 7,639,504 10,105,567 26,211,502 3,497,334 8,739,569
------------- -------------- --------------- ------------- -------------
Loss from operations.......... (7,391,600) (9,355,896) (21,901,326) (3,213,674) (5,428,098)
------------- -------------- --------------- ------------- -------------
Other income, net................. -- -- 600,000 -- --
Interest income (expense), net.... 121,584 293,173 (1,188,550) (17,408) (468,151)
------------- -------------- --------------- ------------- -------------
Net loss...................... $ (7,270,016) $ (9,062,723) $ (22,489,876) $ (3,231,082) $ (5,896,249)
------------- -------------- --------------- ------------- -------------
------------- -------------- --------------- ------------- -------------
Net loss per share--basic and
diluted......................... $ (0.84) $ (0.93) $ (2.28) $ (0.33) $ (0.55)
------------- -------------- --------------- ------------- -------------
------------- -------------- --------------- ------------- -------------
Shares used in computing net loss
per share--basic and diluted.... 8,703,144 9,734,212 9,875,342 9,753,648 10,637,333
------------- -------------- --------------- ------------- -------------
------------- -------------- --------------- ------------- -------------
Pro forma net loss per
share--basic and diluted........ $ (1.38) $ (0.31)
--------------- -------------
--------------- -------------
Shares used in computing pro forma
net loss per share--basic and
diluted......................... 16,272,059 18,849,194
--------------- -------------
--------------- -------------
|
The accompanying notes are an integral part of these consolidated financial statements.
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED
STOCK COMMON STOCK COMMON
---------------------- ----------------------- PAID-IN STOCK
SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS
--------- ----------- ---------- ----------- ----------- -----------
Balances, at December 31, 1995...................... -- $ -- 200 $ 25,000 $ 822,048 $ --
Conversion of prior year common stock par value..... (24,999) 24,999
Issuance of common stock to founders................ 849,800 849 203,103
Issuance of common stock for purchase of certain
third party assets................................ 2,000 2 5,998
Issuance of Series A preferred stock for cash, net
of $27,449 in issuance costs...................... 176,471 176 7,472,393
Issuance of Series B preferred stock for cash, net
of $31,231 in issuance costs...................... 176,471 176 8,218,612
Exercise of options................................. 121,087 121 29,002
Net loss............................................
--------- ----- ---------- ----------- ----------- -----------
Balances, December 31, 1996......................... 352,942 352 973,087 973 16,776,155 --
Issuance of Series C preferred stock for cash, net
of $38,252 in issuance costs...................... 61,920 62 2,856,446
Issuance of Series A-1 preferred stock for cash..... 27,864 28 1,302,614
Ten-for-one common stock split, July 1997........... 8,757,783 8,758 (8,758)
Exercise of stock options........................... 10,000 10 19,490
Deferred stock compensation......................... 1,206,098
Amortization of deferred stock compensation.........
Net loss............................................
--------- ----- ---------- ----------- ----------- -----------
Balances, December 31, 1997......................... 442,726 442 9,740,870 9,741 22,152,045 --
Issuance of Series D preferred stock for cash and
receivable, net of $1,649,000 in issuance costs... 190,621 191 29,398,204
Issuance of common stock for acquisition............ 605,707 606 8,388,436
Issuance of common stock warrants in connection with
acquisition 113,071
Exercise of stock options........................... 279,971 280 568,041
Deferred stock compensation......................... 717,928
Amortization of deferred stock compensation.........
Net loss............................................
--------- ----- ---------- ----------- ----------- -----------
Balances, December 31, 1998......................... 633,347 633 10,626,548 10,627 61,224,654 113,071
Issuance of Series E preferred stock for cash and
receivable, net of $24,475 in issuance costs...... 185,775 186 34,975,349
Issuance costs of Series D preferred stock.......... (33,601)
Issuance of common stock for cash................... 21,439 21 296,909
Exercise of stock options........................... 17,845 18 70,554
Amortization of deferred stock compensation.........
Net loss............................................
--------- ----- ---------- ----------- ----------- -----------
Balances, March 31, 1999 (unaudited)................ 819,122 $ 819 10,665,832 $ 10,666 $96,533,865 $ 113,071
--------- ----- ---------- ----------- ----------- -----------
--------- ----- ---------- ----------- ----------- -----------
DEFERRED STOCK ACCUMULATED
COMPENSATION DEFICIT TOTAL
-------------- ------------- ------------
Balances, at December 31, 1995...................... $ -- $(2,031,216) $ (1,184,168)
Conversion of prior year common stock par value..... --
Issuance of common stock to founders................ 203,952
Issuance of common stock for purchase of certain
third party assets................................ 6,000
Issuance of Series A preferred stock for cash, net
of $27,449 in issuance costs...................... 7,472,569
Issuance of Series B preferred stock for cash, net
of $31,231 in issuance costs...................... 8,218,788
Exercise of options................................. 29,123
Net loss............................................ (7,270,016) (7,270,016)
-------------- ------------- ------------
Balances, December 31, 1996......................... -- (9,301,232) 7,476,248
Issuance of Series C preferred stock for cash, net
of $38,252 in issuance costs...................... 2,856,508
Issuance of Series A-1 preferred stock for cash..... 1,302,642
Ten-for-one common stock split, July 1997........... --
Exercise of stock options........................... 19,500
Deferred stock compensation......................... (1,206,098) --
Amortization of deferred stock compensation......... 470,455 470,455
Net loss............................................ (9,062,723) (9,062,723)
-------------- ------------- ------------
Balances, December 31, 1997......................... (735,643) (18,363,955) 3,062,630
Issuance of Series D preferred stock for cash and
receivable, net of $1,649,000 in issuance costs... 29,398,395
Issuance of common stock for acquisition............ 8,389,042
Issuance of common stock warrants in connection with
acquisition 113,071
Exercise of stock options........................... 568,321
Deferred stock compensation......................... (717,928) --
Amortization of deferred stock compensation......... 540,489 540,489
Net loss............................................ (22,489,876) (22,489,876)
-------------- ------------- ------------
Balances, December 31, 1998......................... (913,082) (40,853,831) 19,582,072
Issuance of Series E preferred stock for cash and
receivable, net of $24,475 in issuance costs...... 34,975,535
Issuance costs of Series D preferred stock.......... (33,601)
Issuance of common stock for cash................... 296,930
Exercise of stock options........................... 70,572
Amortization of deferred stock compensation......... 165,000 165,000
Net loss............................................ (5,896,249) (5,896,249)
-------------- ------------- ------------
Balances, March 31, 1999 (unaudited)................ $ (748,082) $(46,750,080) $ 49,160,259
-------------- ------------- ------------
-------------- ------------- ------------
|
The accompanying notes are an integral part of these consolidated financial statements.
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
Cash flows from operating activities:
Net loss........................................... $(7,270,016) $(9,062,723) $(22,489,876) $(3,231,082) $ (5,896,249)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization.................... 399,091 411,339 984,877 158,108 323,455
Amortization of deferred stock compensation...... -- 470,455 540,489 95,500 165,000
Amortization of intangible assets................ -- -- -- -- 782,262
Impairment loss.................................. -- -- 5,450,000 -- --
Income from sale of property and casualty agents
line of business............................... -- -- (650,000) -- --
Revenue from software license agreement.......... -- -- (350,000) -- --
Noncompete agreement expense..................... -- -- 50,000 -- --
Equity loss from joint venture................... -- -- -- -- 4,280
Changes in assets and liabilities:
Accounts receivable.............................. (70,406) (37,174) (1,075,355) (76,346) (1,357,068)
Receivable from employees........................ -- (21,083) 21,083 (10,915) (18,461)
Prepaid expenses and other current assets........ (91,404) 33,010 (559,881) (706,088) 261,790
Deposits......................................... 11,640 (23,514) (1,366,353) (1,400,435) 2,875
Accounts payable................................. (106,639) 24,940 261,475 159,005 (347,443)
Accrued expenses................................. (14,810) 211,193 1,022,171 47,540 (34,747)
Deferred revenue................................. 35,017 33,248 152,556 10,518 68,767
Interest received on note receivable from
officer.......................................... -- 77,211 68,436 22,562 --
Interest paid on note payable to officer........... -- (68,938) (68,436) (22,562) --
----------- ----------- ------------ ----------- ------------
Net cash used in operating activities.......... (7,107,527) (7,952,036) (18,008,814) (4,954,195) (6,045,539)
----------- ----------- ------------ ----------- ------------
Cash flows from investing activities:
Purchase of intangible assets...................... (62,423) -- -- -- --
Purchases of property and equipment................ (656,168) (684,673) (3,972,587) (463,516) (756,764)
Sales of property and equipment.................... -- 11,313 35,334 -- --
Cash acquired in acquisition....................... -- -- 16,708 -- --
----------- ----------- ------------ ----------- ------------
Net cash used in investing activities.......... (718,591) (673,360) (3,920,545) (463,516) (756,764)
----------- ----------- ------------ ----------- ------------
Cash flows from financing activities:
Proceeds from issuance of Series A preferred
stock............................................ 7,500,018 -- -- -- --
Proceeds from issuance of Series B preferred
stock............................................ 8,250,019 -- -- -- --
Proceeds from issuance of Series C preferred
stock............................................ -- 2,894,760 -- -- --
Proceeds from issuance of Series A-1 preferred
stock............................................ -- 1,302,642 -- -- --
Proceeds from issuance of Series D preferred
stock............................................ -- -- 8,048,018 -- 22,999,377
Proceeds from issuance of Series E preferred
stock............................................ -- -- -- -- 6,902,788
Payment of issuance costs related to preferred
stock financing.................................. (58,680) (38,252) -- -- (1,707,076)
Proceeds from issuance of common stock............. 152,952 -- -- -- 296,930
Proceeds from exercise of stock options............ 29,123 19,500 568,321 1,200 70,572
Issuance of notes receivable from officer.......... (1,602,211) -- (4,000,000) -- --
Proceeds from repayment of notes receivable from
officer.......................................... 355,646 -- 5,525,000 -- --
Payment to Series B stockholder.................... -- -- -- -- (1,125,000)
Payment of note payable to officer................. -- -- (1,525,000) -- (25,000)
Proceeds from line of credit from affiliate........ -- -- 23,290,000 3,200,000 --
Payments on line of credit from affiliate.......... -- -- (4,000,000) -- (19,290,000)
----------- ----------- ------------ ----------- ------------
Net cash provided by financing activities...... 14,626,867 4,178,650 27,906,339 3,201,200 8,122,591
----------- ----------- ------------ ----------- ------------
Net increase (decrease) in cash and cash
equivalents........................................ 6,800,749 (4,446,746) 5,976,980 (2,216,511) 1,320,288
Cash and cash equivalents, beginning of period....... 6,150 6,806,899 2,360,153 2,360,153 8,337,133
----------- ----------- ------------ ----------- ------------
Cash and cash equivalents, end of period............. $ 6,806,899 $ 2,360,153 $ 8,337,133 $ 143,642 $ 9,657,421
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
|
INSWEB CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW (CONTINUED)
FOR THE THREE MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ----------- ------------ ----------- ------------
(UNAUDITED)
Supplemental disclosure of cash flow information:
Cash paid during the period for interest........... $ 17,157 $ 192,493 $ 794,406 $ 22,562 $ 563,920
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Supplemental schedule of noncash financing
activities:
Note payable to Series B preferred stockholder for
software license and noncompete agreement, net of
income from sale of property and casualty agents
line of business and software license
agreement........................................ $ -- $ -- $ 4,500,000 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Note payable to strategic partner for initial
investment in joint venture...................... $ -- $ -- $ 2,089,137 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Issuance of common stock for certain assets........ $ 57,000 $ -- $ -- $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Deferred stock compensation from issuance of
options $ -- $ 1,206,098 $ 717,928 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Issuance of common stock for Benelytics, Inc.
acquisition...................................... $ -- $ -- $ 8,389,042 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Issuance of common stock warrants for Benelytics,
Inc. acquisition................................. $ -- $ -- $ 113,071 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Receivable for sale of Series D preferred stock.... $ -- $ -- $ 22,999,377 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Series D preferred stock issuance costs accrued but
not paid......................................... $ -- $ -- $ 1,649,000 $ -- $ --
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
Receivable for sale of Series E preferred stock.... $ -- $ -- $ -- $ -- $ 28,097,222
----------- ----------- ------------ ----------- ------------
----------- ----------- ------------ ----------- ------------
|
The accompanying notes are an integral part of these consolidated financial statements.
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
1. BUSINESS OF THE COMPANY
InsWeb Corporation, formerly Strategic Concepts Corporation (the Company), was incorporated in the State of California on February 28, 1995 to provide, through InsWeb's site, a centralized interactive marketplace for insurance information and electronic quotation. In November 1996, the Company was reincorporated as a Delaware corporation. The Company conducts its business within one industry segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, InsWeb Insurance Services, Inc. (formerly Avatar Insurance Services, Inc.) and Benelytics, Inc. Benelytics, Inc. was purchased on December 31, 1998, and the acquisition was accounted for as a purchase. Accordingly, the results of operations of Benelytics, Inc. for the year ended December 31, 1998 are not included in the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Investments in 20 to 50 percent owned affiliates are accounted for on the equity method.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued expenses, approximate fair value due to their short maturities. In addition, the carrying amounts of the note receivable from and notes payable to officer, line of credit from affiliate and note payable to the Series B stockholder approximate fair value due to their short maturities.
REVENUE RECOGNITION
Transaction fee revenue is recognized when a qualified consumer lead is delivered to an insurance company customer. Revenue from development fees is recognized when the development work is completed and the insurance company's integration with the Company's site becomes operational. Maintenance revenue is recognized ratably over the term of the customer agreement. Other revenue represents revenue from operating activities which are nonrecurring in nature and is recognized when the service is performed and no additional significant obligations exist. Deferred revenue represents prepayment for development and maintenance services which will be rendered in the future.
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) UNAUDITED INTERIM RESULTS
The accompanying interim financial statements as of March 31, 1999, and for the three months ended March 31, 1998 and 1999, are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position as of March 31, 1999 and results of operations and cash flows for the three months ended March 31, 1998 and 1999. The financial data and other information disclosed in these notes to consolidated financial statements related to these periods are unaudited. The results for the three months ended March 31, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to product development expense as incurred.
ADVERTISING COSTS
Costs related to advertising and promotion of products are charged to sales and marketing expense as incurred. Advertising costs charged to expense for the years ended December 31, 1996, 1997 and 1998 were $117,707, $41,579 and $2,338,378, respectively, and for the three months ended March 31, 1998 and 1999 were $183,282 and $1,067,574, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation. Depreciation on computer and office equipment, furniture and fixtures and purchased software is calculated using the straight-line method over the estimated useful lives of the assets, generally three to five years. Amortization on leasehold improvements is calculated using the straight-line method over the estimated useful lives of the improvements or the remaining life of the lease, whichever is shorter. When property and equipment are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income. Expenditures for maintenance and repairs are charged to expense as incurred.
LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in
accordance with Statement of Financial Accounting Standards No. 121 (SFAS No.
121), ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED
ASSETS TO BE DISPOSED OF. SFAS No. 121 requires recognition of impairment losses
related to long-lived assets in the event the net carrying value of such assets
exceeds the future undiscounted cash flows attributable to such assets. The
Company assesses the impairment of its long-lived assets when events or changes
in circumstances indicate that the carrying value of an asset may not be
recoverable.
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) INTANGIBLE ASSETS
Intangible assets are recorded at cost. Amortization is provided on a straight-line method over the estimated useful lives of the related assets. Management estimates the useful lives of the purchased software, non-compete agreements, assembled workforce and contractual relationships to be two years. Unidentified assets allocated to goodwill are being amortized over three years.
DEPOSITS
The Company has made payments to collateralize certain lease commitments which have been recorded as deposits.
FOREIGN CURRENCY TRANSLATIONS
The long-term note payable to strategic partner is translated from Japanese yen into U.S. dollars in accordance with SFAS No. 52, FOREIGN CURRENCY TRANSLATION. Accordingly, it is translated at the year-end exchange rate. Foreign currency transaction gains and losses have not been material to date.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration of credit risk, as defined by SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, consist principally of cash and cash equivalents and accounts receivable. The Company deposits its cash and cash equivalents with a single major bank, which deposits may exceed federal deposit insurance limits.
With respect to accounts receivable, while the Company's customer base is dispersed across many different geographic areas, most customers are in a single industry in the United States. The Company performs ongoing credit evaluations of its customers and generally does not require collateral. The Company reviews the need for allowances for potential credit losses and such losses have been within management's expectations.
For the year ended December 31, 1996, two customers accounted for 12.5% and 17.9%, respectively, of total revenues. For the year ended December 31, 1997, one customer accounted for 19.4% of total revenues. For the year ended December 31, 1998, three customers accounted for 10.3%, 16.3% and 39.5%, respectively, of total revenues. For the three months ended March 31, 1998, three customers accounted for 12.4%, 12.8% and 31.9%, respectively, of total revenues. For the three months ended March 31, 1999, three customers accounted for 11.4%, 12.9% and 32.2%, respectively, of total revenues.
RISKS AND UNCERTAINTIES
The Company is subject to all of the risks inherent in an early stage business in the electronic commerce industry. These risks include, but are not limited to, a limited operating history, limited management resources, dependence upon consumer acceptance of the Internet, Internet related
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) security risks and the changing nature of the electronic commerce industry. Due to the foregoing factors, the Company's operating results may be materially affected.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, and complies with the disclosure provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Under APB No. 25, compensation expense is based on the difference, if any, between the fair value of the Company's stock and the exercise price of the option on the measurement date, which is typically the date of grant.
The Company accounts for options granted to non-employees under SFAS No.
123. Under SFAS No. 123, options are recorded at their fair value on the
measurement date, which is typically the date of grant.
STOCK SPLIT
In July 1997, the Company effected a ten-for-one stock split of its common stock. All references in the accompanying consolidated financial statements to shares, share prices, per share amounts and stock plans have been restated for the ten-for-one stock split.
EARNINGS PER SHARE
Basic earnings per share is computed using the weighted average number of shares of common stock outstanding while diluted earnings per share reflects the potential dilution that would occur if preferred stock had been converted and stock options and warrants had been exercised. Common equivalent shares from preferred stock, stock options and warrants have been excluded from the computation of net loss per share-diluted as their effect is antidilutive.
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from nonowner sources. The adoption of this statement had no material impact on the Company's financial statements for the periods presented.
RECENT ACCOUNTING PRONOUNCEMENTS
On March 4, 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 requires that the costs of computer software developed or obtained for internal use be capitalized. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. Accordingly, the Company will adopt SOP 98-1 in its financial statements for the year ending December 31, 1999. The impact on the financial statements of the adoption of this standard is not expected to be material.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The Company does not believe the adoption of SFAS No. 133 will have a material effect on the Company's results of operations or financial condition.
RECLASSIFICATIONS
Certain amounts in the prior years' financial statements have been reclassified to conform to the December 31, 1998 presentation. These reclassifications did not change previously reported total assets, liabilities, stockholders' equity or net loss.
3. BENELYTICS, INC. ACQUISITION
On December 31, 1998, the Company acquired all of the outstanding shares of Benelytics, Inc. in exchange for 605,707 shares and warrants to purchase an aggregate of 8,164 shares (see Note 11) of the Company's common stock valued at $13.85 per share. Transaction costs of $85,800 were incurred.
The acquisition has been accounted for under the purchase method of accounting. The aggregate purchase price of $8,587,913, together with $172,418 of liabilities assumed, has been allocated based on the fair value of the assets acquired. The tangible assets of $63,190 comprise cash and fixed assets. Intangible assets of $1,380,000 comprise purchased software, non-compete agreements, assembled workforce and contractual relationships and are being amortized over two years. Goodwill of $7,317,141 is being amortized over three years.
The following pro forma results of operations reflect the combined results of the Company and Benelytics, Inc. for the fiscal years ended December 31, 1997 and 1998 and have been prepared
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
3. BENELYTICS, INC. ACQUISITION (CONTINUED) as though the entities had been combined as of January 1, 1997 and 1998. The proforma results do not reflect any nonrecurring charges which resulted directly from the transaction.
1997 1998
--------------- ---------------
(UNAUDITED)
Revenues................................................... $ 749,671 $ 4,315,126
Net loss................................................... $ (12,820,740) $ (26,968,212)
Net loss per share......................................... $ (1.24) $ (2.58)
Shares used in computing net loss per share................ 10,339,919 10,451,935
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4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
DECEMBER 31,
-----------------------------
1997 1998
------------- -------------- MARCH 31, 1999
--------------
(UNAUDITED)
Computer and office equipment.................. $ 1,254,476 $ 1,972,168 $ 2,441,148
Furniture and fixtures......................... 192,920 1,010,266 1,028,607
Leasehold improvements......................... 97,643 1,986,897 2,011,904
Purchased software............................. 168,995 386,566 492,161
------------- -------------- --------------
1,714,034 5,355,897 5,973,820
Less accumulated depreciation and
amortization................................. (714,707) (1,357,712) (1,542,326)
------------- -------------- --------------
$ 999,327 $ 3,998,185 $ 4,431,494
------------- -------------- --------------
------------- -------------- --------------
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Depreciation and amortization expense was $399,091, $411,339 and $984,877 for the years ended December 31, 1996, 1997 and 1998, respectively. Depreciation and amortization expense was $158,108 and $323,455 for the three months ended March 31, 1998 and 1999, respectively.
5. INVESTMENT IN JOINT VENTURE
On December 15, 1998, the Company entered into a Joint Venture Agreement with a strategic partner. The purpose of the joint venture is to develop, implement and market an online insurance marketplace in Japan and the Republic of Korea. The joint venture contemplated by the agreement will be carried out exclusively through a newly-formed Japanese corporation, InsWeb Japan K.K. On December 30, 1998, the Company purchased 40% of InsWeb Japan K.K. from the strategic partner. The purchase was financed by a promissory note payable to the strategic partner (see Note 9).
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
DECEMBER 31,
1998
-------------- MARCH 31,
1999
-------------
(UNAUDITED)
Purchased software............................................. $ 850,000 $ 850,000
Non-compete agreements......................................... 320,000 320,000
Assembled workforce............................................ 100,000 100,000
Contractual relationships...................................... 110,000 110,000
Goodwill....................................................... 7,317,141 7,317,141
-------------- -------------
8,697,141 8,697,141
Less accumulated amortization.................................. -- (782,262)
-------------- -------------
$ 8,697,141 $ 7,914,879
-------------- -------------
-------------- -------------
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Amortization expense was $0 for the year ended December 31, 1998 and $782,262 for the three months ended March 31, 1999.
7. ACCRUED EXPENSES
Accrued expenses consist of the following:
DECEMBER 31,
--------------------------
1997 1998
----------- ------------- MARCH 31,
1999
-------------
(UNAUDITED)
Accrued employee compensation...................... $ 176,386 $ 309,311 $ 546,407
Accrued interest................................... -- 652,681 --
Accrued expenses for Series D financing............ -- 1,649,000 --
Accrued payments to vendors........................ 120,403 442,872 621,216
Accrued fee sharing................................ -- -- 202,093
Other.............................................. 21,977 65,498 65,899
----------- ------------- -------------
$ 318,766 $ 3,119,362 $ 1,435,615
----------- ------------- -------------
----------- ------------- -------------
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8. COMMITMENTS
LEASES
The Company leases its current office facilities under noncancelable operating leases which expire at various dates through September 2008.
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
8. COMMITMENTS (CONTINUED) At December 31, 1998, future minimum lease payments under noncancelable operating leases are as follows:
1999.......................................................... $ 1,643,968
2000.......................................................... 1,696,291
2001.......................................................... 1,750,447
2002.......................................................... 1,806,497
2003.......................................................... 1,718,714
Thereafter.................................................... 8,998,712
-----------
$17,614,629
-----------
-----------
|
Net rent expense for the years ended December 31, 1996, 1997 and 1998 was $496,031, $474,104 and $1,093,735 (net of sublease rental income of $49,324, $40,485 and $26,222), respectively, and the net rent expense for March 31, 1998 and 1999 was $190,247 and $251,446 (net of sublease rental income of $0 and $157,984), respectively.
One of the office leases is for a 65,000 square foot building in Redwood City, California. Under the terms of this lease, the Company is responsible for taxes, insurance and maintenance expenses. This lease includes the option to extend the term for two consecutive five-year periods at the expiration of the initial term and at the end of the first five-year extension period.
MARKETING AGREEMENTS
The Company is required to make fixed payments under various marketing agreements, which expire at various dates through April 2001.
At March 31, 1999, future minimum payments under these agreements are as follows:
1999.......................................................................... $ 6,062,450
2000.......................................................................... 4,000,804
2001.......................................................................... 436,107
--------------
$ 10,499,361
--------------
--------------
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LITIGATION
From time to time, the Company is subject to legal proceedings and claims in the ordinary course of business. The Company currently is not aware of any legal proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, prospects, financial condition and operating results.
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
9. RELATED PARTY TRANSACTIONS
STOCKHOLDER AND CUSTOMER
A stockholder, who is also a customer, accounted for $15,650, $163,175 and $133,517 of the Company's revenue during 1996, 1997 and 1998, respectively. For the three months ended March 31, 1998 and 1999, the customer accounted for $11,031 and $176,175 of the Company's revenue, respectively. This customer accounted for $2,780 and $34,600 of accounts receivable at December 31, 1997 and 1998, respectively, and $176,445 of accounts receivable at March 31, 1999.
NOTES PAYABLE TO OFFICERS
From the Company's inception through March 1996, the Company borrowed from its Chief Executive Officer an aggregate of $1,721,569 to cover start-up costs. The loan was evidenced by an uncollateralized demand promissory note bearing interest at 6% per annum. The Company paid $196,569 on the note in 1996 and paid the remaining balance of $1,525,000 in September 1998.
In December 1998, Benelytics, Inc. borrowed $25,000 from its President in exchange for an uncollateralized demand promissory note bearing interest at 4.33% per annum. The note was paid in full by the Company in January 1999.
NOTES RECEIVABLE FROM OFFICERS
In February 1996, the Company lent the Chief Executive Officer $1,525,000. The loan was evidenced by an uncollateralized demand promissory note bearing interest at 6% per annum. The Chief Executive Officer paid the note in full in September 1998.
In August 1998, the Company lent the Chief Executive Officer and the President $3,000,000 and $1,000,000, respectively, in exchange for promissory notes. The notes accrued interest at 15% per annum and were collateralized by shares of the Company's common stock owned by the officers. The officers used the proceeds of these loans to acquire another stockholder's interest in 885,000 shares of the Company's common stock. These notes and accrued interest were paid in full in September 1998.
AFFILIATE AND CUSTOMER
An affiliate, who owns a majority interest in the Company's Series B preferred stockholder, is also a customer and accounted for $247,711 of the Company's revenue during 1998. For the three months ended March 31, 1998 and 1999, the customer accounted for $0 and $50,002 of the Company's revenue, respectively. This customer accounted for $0 and $6,405 of accounts receivable at December 31, 1997 and 1998, respectively, and $22,465 of accounts receivable at March 31, 1999.
NOTE PAYABLE TO STRATEGIC PARTNER
On December 30, 1998, the Company purchased a 40% interest in InsWeb Japan K.K in exchange for a promissory note in the principal amount of Y240,000,000 (US $2,089,137) (see Note 5). The promissory note is payable in Yen and accrues interest at 5% per annum, which is payable
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
9. RELATED PARTY TRANSACTIONS (CONTINUED) quarterly on the last day of each calendar quarter. The promissory note, together with all accrued and unpaid interest, is due and payable on the earlier of the closing date of an initial public offering of the securities of InsWeb Japan K.K. or December 15, 2002. Interest expense for the three months ended March 31, 1999 was $25,407.
STOCKHOLDER AGREEMENTS
In November 1996, the Company entered into the following agreements with the Series B preferred stockholder (the Series B stockholder).
LINE OF CREDIT AGREEMENT
The Company obtained a five-year line of credit totaling $25,000,000 from the Series B stockholder. In April 1998, the line of credit commitment was assigned to and assumed by the majority stockholder of the Series B stockholder, who is also a customer of the Company.
Under the line of credit agreement, all borrowings are uncollateralized and bear interest at 15% per annum. The Company may not declare or pay any dividends while the credit agreement is in effect. The principal is due at the earlier of the completion of a public offering of the Company's securities or November 2001, and interest is due quarterly. There were no borrowings in 1996 or 1997. As of December 31, 1998, the Company had a balance of $19,290,000 outstanding, which it repaid in March 1999. Interest expense related to the line of credit was $1,311,119 for the year ended December 31, 1998 and $538,513 for the three months ended March 31, 1999. At December 31, 1998 and March 31, 1999, there was $623,191 and $0, respectively, of accrued interest payable.
ASSET PURCHASE AGREEMENT
In March 1997, the Company sold the assets of its Property and Casualty Agents line of business to the Series B stockholder in accordance with an Asset Purchase Agreement. The Company recognized the associated income of $650,000, net of the related noncompete agreement payment, in December 1998 as other income on the statement of operations.
JOINT MARKETING AND LICENSE AGREEMENT
In accordance with a Joint Marketing and License Agreement, the Company and the Series B stockholder agreed to license certain software to each other. The transfers of the licensed software were completed in December 1998. The agreement specified the following cross-licensing fees: (i) the Company was to pay the Series B stockholder $50,000 and $5,450,000 for a non-compete agreement and five-year non-exclusive licenses to certain software owned by the Series B stockholder, respectively, and (ii) the Series B stockholder was to pay the Company $350,000 for five-year non-exclusive licenses to certain software owned by the Company. In addition, the agreement provided for the payment of transaction fees by each party to the other based on revenues resulting from the joint marketing efforts and utilization of each other's software.
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
9. RELATED PARTY TRANSACTIONS (CONTINUED)
Under the terms of the Joint Marketing and License Agreement, the Company's payments to the Series B stockholder of $5,500,000 were to be offset against the Series B stockholder's payments to the Company of $1,000,000, consisting of the $350,000 license fee payable under the agreement and of the $650,000 purchase price payable under the Asset Purchase Agreement. Payment was originally to be made in November 1998.
In December 1998, the parties agreed to amend the Joint Marketing and License Agreement. The amendment eliminated the transaction fees and revised the payment terms to allow the Company to make four quarterly payments to the Series B stockholder of $1,125,000 each, due on the first day of each quarter beginning January 1, 1999. No interest is payable on the outstanding balance. At December 31, 1998 and March 31, 1999, the Company owed the Series B stockholder $4,500,000 and $3,375,000, respectively. In addition, the Company changed its technology plans in 1998 and determined that it will not be integrating the software licensed from the Series B stockholder into its products. As a result, no future cash flows could be attributed to the software, and the Company recorded an impairment loss of $5,450,000 (see Note 2). Regarding the software licensed to the Series B stockholder by the Company, the Company is under no further obligation to deliver additional software or documentation or to provide any maintenance for previously delivered software.
MARKETING AGREEMENTS
During the three months ended March 31, 1999, the Company recognized $447,500 in marketing expense under a marketing agreement with an Internet company. A beneficial owner of 28.1% of the outstanding stock of the Internet company became a principal stockholder of the Company on December 30, 1998.
10. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
The Company had the following series of convertible preferred stock authorized, issued and outstanding:
ISSUED OUTSTANDING
--------------------------------- ---------------------------------
DECEMBER 31, DECEMBER 31, SERIES
-------------------- -------------------- LIQUIDATION
AUTHORIZED 1997 1998 1997 1998 PREFERENCE
----------- --------- --------- MARCH 31, --------- --------- MARCH 31, -----------
1999 1999
----------- -----------
(UNAUDITED) (UNAUDITED)
Series A........... 176,471 176,471 176,471 176,471 176,471 176,471 176,471 $ 7,500,018
Series A-1......... 27,864 27,864 27,864 27,864 27,864 27,864 27,864 1,302,642
Series B........... 176,471 176,471 176,471 176,471 176,471 176,471 176,471 8,250,019
Series C........... 61,920 61,920 61,920 61,920 61,920 61,920 61,920 2,894,760
Series D........... 190,621 -- 49,408 190,621 -- 190,621 190,621 31,047,395
Series E........... 185,775 -- -- 36,639 -- -- 185,775 35,000,010
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In addition, at March 31, 1999, the Company had entered into a stock purchase agreement to sell and issue 149,136 shares of authorized but unissued Series E preferred stock. The purchase
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED) price receivable for such shares under the agreement is recorded as a receivable in the financial statements (see Note 14).
CONVERSION
Each share of preferred stock may be converted into shares of common stock on a ten-for-one basis, subject to adjustments under specific circumstances. Conversion is (i) at the option of the preferred stockholder, (ii) automatic upon the closing of an initial public offering of the Company's common stock at an aggregate offering price of at least $20,000,000 and per share offering price of not less than $18.84, (iii) upon the vote or written consent of the holders of a majority of the outstanding shares of preferred stock or (iv) if less than 10,000 shares of preferred stock shall remain outstanding. The Company has reserved 8,191,220 shares of common stock for the conversion of the outstanding and issuable shares of preferred stock.
DIVIDENDS
The holders of the Series A, Series A-1, Series B and Series C preferred stock are entitled to annual noncumulative dividends of $4.00 per share when, and if, declared by the Company's Board of Directors. The holders of the Series D and Series E preferred stock are entitled to annual noncumulative dividends of $14.00 and $16.00 per share, respectively, when, and if, declared by the Company's Board of Directors. In accordance with its line of credit agreement with its affiliate (see Note 9), the Company may not declare or pay any dividends while the line of credit is in effect. As of March 31, 1999, no dividends had been declared or paid.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company either voluntary or involuntary, the assets of the Company available for distribution shall be distributed (i) $42.50 per outstanding share of Series A preferred stock, (ii) $46.75 per outstanding share of Series A-1, Series B and Series C preferred stock, (iii) $162.875 per outstanding share of Series D preferred stock and (iv) $188.40 per outstanding share of Series E preferred stock. If the assets of the Company available for distribution are not sufficient to pay the full amount of this distribution, such assets will be distributed ratably among the holders of the preferred stock based on the full preferential amount per share of the preferred stock that each such holder is entitled to receive. Any assets of the Company available for distribution in excess of the liquidation preference amounts will be distributed pro rata to the holders of common stock based on the number of shares held.
REDEMPTION
The preferred stock is not redeemable.
VOTING RIGHTS
The holders of common stock are entitled to one vote for each share. The holders of Series A, Series A-1, Series C, Series D and Series E preferred stock are entitled to one vote for each share
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED) of common stock into which such share of the preferred stock is convertible. The holders of Series B preferred stock are entitled to the number of votes necessary to constitute, in the aggregate, 51% of the outstanding voting securities of the Company.
As long as more than 88,236 shares of Series A preferred stock are outstanding, the holders of Series A preferred stock and Series A-1 preferred stock, voting together, are entitled to elect one member of the Company's Board of Directors. As long as more than 176,471 shares of Series B preferred stock are outstanding, the holders of Series B preferred stock are entitled to elect two members of the Company's Board of Directors, and, if there are less than 176,471 but more than 88,236 shares of Series B preferred stock outstanding, the holders of Series B preferred stock are entitled to elect one member of the Board of Directors. As long as more than 49,408 shares of Series D preferred stock are outstanding, the holders of Series D preferred stock are entitled to elect one member of the Board of Directors. The holders of Series C and Series E preferred stock and common stock, voting together, are entitled to elect the remaining members of the Board of Directors.
Each member of the Board of Directors elected by the holders of Series A, Series A-1, Series C, Series D and Series E preferred stock and common stock has one vote, and the members of the Board of Directors elected by the holders of Series B preferred stock, voting together, has that number of votes necessary to constitute, in the aggregate, 51% of the outstanding votes held by all members of the Board of Directors.
The special voting privileges of the holders of the Series B preferred stock and of the directors elected by such holders shall each terminate upon the occurrence of any of the following: (i) the reduction of the number of outstanding shares of Series B preferred stock to less than 176,471; (ii) the closing of an underwritten public offering of the Company's common stock at an aggregate offering price of at least $20,000,000 and a per share offering price of at least $4.675; or (iii) such time as the election of the members of the Company's Board of Directors by the holders of the Series B preferred stock is no longer controlled by management-level personnel of either the parent of the current Series B stockholder or one or more of its majority owned and controlled subsidiaries. After such termination, the holders of Series B preferred stock shall be entitled to one vote for each share of common stock into which such share of Series B preferred stock is then convertible, and each director elected by the holders of the Series B preferred stock shall have one vote.
COVENANTS
Under the stock purchase agreement pursuant to which the current holder of Series B preferred stock acquired such shares, (i) the current Series B stockholder shall have the right to name the Company's Chief Executive Officer if, for any reason, the current Chief Executive Officer terminates his employment with the Company, or if on November 22, 2001, there has not been a closing of an initial public offering of the Company's securities; and (ii) the current Series B stockholder shall purchase all of the Chief Executive Officer's ownership in the Company at a price to be determined by an independent investment banker in the case of the death or permanent disability of the current Chief Executive Officer, at his or his heirs' election. The current Chief
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED) Executive Officer has the sole discretion as to when and whether the Company will sell its common stock in a public offering, so long as he holds 1,500,000 shares of the Company's stock.
REGISTRATION RIGHTS
The holders of preferred stock and certain holders of common stock are entitled to certain rights with respect to the registration of certain outstanding common stock and common stock issuable upon conversion of outstanding preferred stock (the Registrable Securities). Beginning six months after the effective date of the first registration statement for a public offering of the Company's securities, holders of Series A, Series A-1, Series D and Series E preferred stock will have the right to require the Company, on not more than one occasion, to file a registration statement under the Securities Act, at the Company's expense, in order to register such number of Registrable Securities as such holders desire to include in such registration statement, together with the Registrable Securities of other holders who wish to participate in such registrations, provided that the aggregate offering price of the included Registrable Securities is at least $10,000,000. The Company may, in certain circumstances, defer such registration, and the underwriters of such an offering have the right, subject to certain limitations, to limit the number of shares included in such registration. In the event that the Company proposes to register any of its securities under the Securities Act for its own account or for the account of other security holders, holders of Registrable Securities are entitled to notice of such registration and have the right to include some or all of the Registrable Securities held by them in such registration at the Company's expense, subject to marketing and other limitations.
STOCK OPTION PLANS
In September 1995, the Company authorized the 1995 Stock Option Plan (the 1995 Plan) under which the Board of Directors may grant incentive stock options to employees of the Company and its subsidiaries. Under the 1995 Plan, the Board of Directors may also grant nonqualified stock options to employees, officers, directors, independent contractors and consultants of the Company and its subsidiaries. Options granted under the 1995 Plan during 1995 and 1996 became fully vested in November 1996 due to the change in control of ownership following the execution of the Series B stock purchase agreement. In 1997, the Board of Directors terminated the 1995 Plan and provided that no further options would be granted pursuant to the 1995 Plan, but that the terms of the 1995 Plan would continue to govern the options then outstanding under the 1995 Plan.
In July 1997, the Company authorized the 1997 Stock Option Plan (the 1997 Option Plan) and the Senior Executive Option Plan (the Executive Plan) (collectively, the 1997 Plans) under which the Board of Directors may issue incentive stock options to employees of the Company and its subsidiaries. Under the 1997 Plans, the Board of Directors may also issue nonqualified stock options to employees, officers, directors, independent contractors and consultants of the Company and its subsidiaries.
Under the 1997 Option Plan and the Executive Plan, 606,450 and 606,450 shares, respectively, of the Company's common stock have been reserved for issuance upon exercise of stock options. In May 1998, the 1997 Plans were amended to effectively transfer 203,450 shares from the
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED) Executive Plan to the 1997 Option Plan. Following such amendments, the maximum aggregate number of shares of common stock that may be issued under the Executive Plan and 1997 Option Plan is 403,000 and 809,900, respectively. The 1997 Option Plan was amended again in August 1998, increasing the shares reserved for issuance by 500,000 shares and providing an automatic annual increase in the share reserve, to be effective on the first day of each fiscal year commencing after an initial public offering, by a number of shares equal to 5% of the number of common shares outstanding as of the last day of the preceding fiscal year.
Options granted under the Plans generally vest in equal monthly installments over a three-year period. The options expire ten years from the date of grant.
Activity under all the Plans is as follows:
SHARES
AVAILABLE NUMBER OF AGGREGATE WEIGHTED AVERAGE
FOR GRANT SHARES EXERCISE PRICE PRICE EXERCISE PRICE
------------ ------------ ---------------- ------------- ------------------
Balances, December 31, 1995..... 200,000 1,300,000 $0.024 $ 31,200 $ 0.02
Additional shares reserved...... 1,156,470 --
Options granted................. (171,500) 171,500 $0.75 128,625 $ 0.75
Options exercised............... -- (1,210,870) $0.024-$0.75 (29,123) $ 0.02
Options canceled................ 18,000 (18,000) $0.75 (13,500) $ 0.75
------------ ------------ -------------
Balances, December 31, 1996..... 1,202,970 242,630 $0.024-$0.75 117,202 $ 0.48
Options granted................. (819,100) 819,100 $1.95-$3.97 2,528,147 $ 3.09
Options exercised............... -- (10,000) $1.95 (19,500) $ 1.95
Options canceled................ 21,050 (21,050) $0.75-$3.97 (22,228) $ 1.06
------------ ------------ -------------
Balances, December 31, 1997..... 404,920 1,030,680 $0.024-$3.97 2,603,621 $ 2.53
Additional shares reserved...... 500,000 --
Options granted................. (780,925) 780,925 $3.97-$7.50 4,513,065 $ 5.77
Options exercised............... -- (279,971) $1.95-$3.97 (568,321) $ 2.02
Options canceled................ 133,757 (133,757) $0.75-$3.97 (476,626) $ 3.56
------------ ------------ -------------
Balances, December 31, 1998..... 257,752 1,397,877 $0.024-$7.50 6,071,739 $ 4.34
Options granted................. (219,000) 219,000 $7.50-$13.85 3,014,100 $ 13.76
Options exercised............... -- (17,845) $0.75-$3.97 (70,572) $ 3.95
Options canceled................ 34,331 (34,331) $3.97-$13.85 (351,000) $ 10.22
------------ ------------ -------------
Balances, March 31, 1999
(unaudited)................... 73,083 1,564,701 $0.024-$13.85 $ 8,664,267 $ 5.54
------------ ------------ -------------
------------ ------------ -------------
|
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED) Options outstanding and currently exercisable by exercise price at March 31, 1999 are as follows:
OPTIONS OUTSTANDING OPTIONS CURRENTLY
------------------------------------------------ EXERCISABLE
WEIGHTED AVERAGE -----------------
EXERCISE NUMBER REMAINING CONTRACTUAL NUMBER
PRICES OUTSTANDING LIFE OUTSTANDING
----------- ------------ --------------------- -----------------
$ 0.024 41,080 6.50 41,080
$ 0.75 118,800 7.36 107,967
$ 1.95 167,390 8.28 122,808
$ 3.97 355,526 8.44 145,415
$ 4.67 362,417 9.28 90,087
$ 7.50 323,488 9.51 27,643
$ 13.85 196,000 9.82 2,000
------------ --------
1,564,701 537,000
------------ --------
------------ --------
|
The Company accounts for employee stock options in accordance with the provisions of APB No. 25 and complies with the disclosure provisions of SFAS No. 123.
Under APB No. 25, compensation expense is recognized based on the amount by which the fair value of the underlying common stock exceeds the exercise price of the stock options at the measurement date, which in the case of employee stock options is typically the date of grant. For financial reporting puposes, the Company has determined that the deemed fair market value on the date of grant of certain employee stock options was in excess of the exercise price of the options. This amount is recorded as a reduction of stockholders' equity and is amortized as a charge to operations over the vesting period of the applicable options.
Had compensation cost for option grants to employees been determined consistent with SFAS No. 123, the Company's net loss would have been as follows:
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1996 1997 1998
-------------- -------------- ---------------
Net loss as reported......................... $ (7,270,016) $ (9,062,723) $ (22,489,876)
Net loss per share as reported............... $ (0.84) $ (0.93) $ (2.28)
Net loss--pro forma.......................... $ (7,270,016) $ (9,078,246) $ (22,538,660)
Net loss per share--pro forma................ $ (0.84) $ (0.93) $ (2.28)
|
The above proforma disclosures are not necessarily representative of the effects on reported income or loss for future years as additional grants are made each year and options vest over several years.
All employee stock options were granted at exercise prices equal to or less than the fair market value on the date of grant. The weighted average grant date fair value of stock options granted during 1996, 1997 and 1998 was $0.63, $2.69 and $4.98, respectively.
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
10. STOCKHOLDERS' EQUITY (CONTINUED) The fair value of each option grant was estimated on the date of grant using the Black-Scholes options pricing model with the following assumptions by year:
1996 1997 1998
------------ ------------ ------------
Risk-free interest rate............................ 5.3 - 6.6% 4.6 - 6.2% 4.6 - 5.6%
Expected life...................................... 3 years 3 years 3 years
Expected dividend yield............................ -- -- --
Volatility......................................... -- -- --
|
The risk-free interest rate range represents the low and high end of the range used at different points during the year. Because the Company does not have actively traded equity securities, volatility is not considered in determining the value of options granted to employees.
11. COMMON STOCK WARRANTS
In connection with the acquisition of Benelytics, Inc., the Company assumed all warrants then outstanding to purchase common stock of Benelytics, Inc. and converted them into warrants to purchase an aggregate of 8,164 shares of the Company's common stock at an exercise price of $16.29 per share. The warrants expire on June 1, 2003. The fair value of these warrants was accounted for as part of the purchase price for Benelytics, Inc.
12. INCOME TAXES
In February 1996, the Company terminated its S Corporation election and is currently taxed as a C Corporation. Net operating losses generated prior to the termination were passed through to the stockholders.
As of December 31, 1998, the Company had net operating loss carryforwards of approximately $31,000,000 for both federal and state income tax purposes. The federal and state net operating loss carryforwards begin to expire in the years 2011 and 2004, respectively.
The Company's ability to utilize its net operating loss carryforwards to offset future taxable income may be subject to restrictions attributable to equity transactions that result in changes in ownership as defined in the Tax Reform Act of 1986. These restrictions may limit, on an annual basis, the Company's future use of its net operating loss carryforwards. The amount, if any, of such limitations has not yet been determined.
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
12. INCOME TAXES (CONTINUED) The components of the net deferred tax assets and liabilities are presented below:
DECEMBER 31,
-------------------------------
1997 1998
-------------- ---------------
Net operating loss carryforwards............................. $ 5,952,164 $ 15,372,116
Tax credit carryforwards..................................... 31,247 31,247
Accruals and reserves........................................ 46,298 116,958
Other........................................................ 25,692 39,643
-------------- ---------------
6,055,401 15,559,964
Less valuation allowance..................................... (6,055,401) (15,559,964)
-------------- ---------------
Net deferred tax asset....................................... $ -- $ --
-------------- ---------------
-------------- ---------------
|
Due to uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its net deferred tax asset. The valuation allowance recorded for the years ended December 31, 1997 and 1998 increased by $6,055,401 and $9,504,563, respectively.
The difference between the income tax benefit at the federal statutory rate of 34% and the Company's effective tax rate is due primarily to the valuation allowance established to offset the deferred tax assets. The provision for income taxes is different than the amount computed using the applicable statutory federal income tax rate with the difference for each year summarized below:
DECEMBER 31,
-------------------------------------
1996 1997 1998
----------- ----------- -----------
Federal tax benefit at statutory rate............................. (34)% (34)% (34)%
State taxes, net of federal benefit............................... (6) (6) (6)
Adjustment due to increase in valuation allowance................. 40 40 40
-- -- --
Provision for income taxes........................................ 0% 0% 0%
-- -- --
-- -- --
|
13. EMPLOYEE BENEFIT PLAN
Effective January 1, 1998, the Company adopted a 401(k) Plan. The Company will match 50% of the first 6% of elective contributions made by each qualifying employee. Each participant is 100% vested in elective contributions and is incrementally vested one-third at the end of each of three years of service in employer contributions. Employer contributions for the year ended December 31, 1998 were $180,751 and for the three months ended March 31, 1998 and 1999 were $44,324 and $59,410, respectively.
14. SUBSEQUENT EVENTS
In connection with the Series E preferred stock purchase agreement (see Note 10), the Company received $28,097,222 for the purchase of 149,136 shares of Series E preferred stock on April 22, 1999.
INSWEB CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION AS OF AND RELATING TO THE THREE MONTHS ENDED
MARCH 31, 1998 AND 1999 IS UNAUDITED)
15. UNAUDITED PRO FORMA INFORMATION
Upon the closing of the Company's initial public offering, all outstanding preferred stock will be converted automatically into common stock assuming conversion criteria is met (see Note 10). The pro forma effect of the conversion has been presented as a separate column in the Company's balance sheet, assuming the conversion had occurred as of March 31, 1999.
Pro forma net loss per share-basic and diluted represents what the net loss per share-basic and diluted would have been had the common stock issuable upon the conversion of the outstanding preferred stock been outstanding during such periods.
INSWEB CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
Overview
Effective December 31, 1998, InsWeb acquired all the outstanding shares of Benelytics, Inc., a developer of employee health benefits selection and management software and reference data products. The acquisition was accounted for using the purchase method of accounting and, accordingly, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values on the acquisition date. The fair value of intangible assets was determined using a combination of methods, including preparation of a discounted cash flow analysis, research and investigation into the presence and nature of intangible assets acquired, and the amounts paid for covenants not to compete.
The total purchase price of approximately $8.7 million consisted of 605,707 shares and warrants to purchase an aggregate of 8,164 shares of InsWeb's Common Stock with an estimated fair value of approximately $8.5 million, acquisition-related expenses of approximately $86,000 for miscellaneous transaction fees and $172,000 of assumed liabilities. Of the total purchase price, approximately $63,000 was allocated to net tangible assets and approximately $8.7 million was allocated to intangible assets, including purchased software ($850,000), covenants not to compete ($320,000), assembled workforce ($100,000), contractual relationships ($110,000), and goodwill (approximately $7.3 million). The acquired intangible assets will be amortized over their estimated useful lives of two to three years.
The following unaudited pro forma consolidated statement of operations gives effect to this acquisition as if it had occurred on January 1, 1998, by consolidating the results of operations of Benelytics for the year ended December 31, 1998 with the results of operations of InsWeb for the year ended December 31, 1998.
The unaudited pro forma consolidated statement of operations are not necessarily indicative of the operating results that would have been achieved had the transactions been in effect as of January 1, 1998 and should not be construed as being representative of future operating results.
The historical financial statements of InsWeb and Benelytics are included elsewhere in this Prospectus and the unaudited pro forma consolidated financial information presented herein should be read in conjunction with those financial statements and related notes.
INSWEB CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
YEAR ENDED DECEMBER 31, 1998
--------------------------------------------------
INSWEB BENELYTICS ADJUSTMENTS PRO FORMA
---------- ----------- ------------ -----------
Revenues:
Transaction fees........................................... $ 3,152 $ -- $ -- $ 3,152
Development and maintenance fees........................... 789 -- -- 789
Other revenues............................................. 369 5 -- 374
---------- ----------- ------------ -----------
Total revenues........................................... 4,310 5 -- 4,315
---------- ----------- ------------ -----------
Operating expenses:
Product development........................................ 4,627 388 5,015
Sales and marketing........................................ 8,954 193 9,147
General and administrative................................. 7,180 676 7,856
Amortization of intangible assets.......................... -- -- 3,129(A) 3,129
Impairment loss............................................ 5,450 -- 5,450
---------- ----------- ------------ -----------
Total operating expenses................................. 26,211 1,257 3,129 30,597
---------- ----------- ------------ -----------
Loss from operations......................................... (21,901) (1,252) (3,129) (26,282)
---------- ----------- ------------ -----------
Other income, net............................................ 600 1 -- 601
Interest income (expense), net............................... (1,189) (98) (1,287)
---------- ----------- ------------ -----------
Net loss..................................................... $ (22,490) $ (1,349) $ (3,129) $ (26,968)
---------- ----------- ------------ -----------
---------- ----------- ------------ -----------
Pro forma net loss per share--basic and diluted(B)........... $ (2.58)
-----------
-----------
Shares used in computing pro forma net loss per share--basic
and diluted(B).............................................. 10,452
-----------
-----------
|
See accompanying Notes to Pro Forma Consolidated Financial Information
INSWEB CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
(unaudited)
The following adjustments were applied to InsWeb's historical financial statements and those of Benelytics to arrive at the pro forma consolidated financial information.
(A) To record amortization of: purchased software totaling $425,000 over the estimated period of benefit of two years, covenants not to compete totaling $160,000 over the estimated period of benefit of two years, assembled workforce totaling $50,000 over the estimated period of benefit of two years, contractual relationships totaling $55,000 over the estimated period of benefit of two years, and acquired goodwill totaling approximately $2.4 million over the estimated period of benefit of three years.
(B) Pro forma basic and diluted net loss per share for the year ended December 31, 1998 was computed using the weighted average number of common shares outstanding. Differences between historical weighted average shares outstanding and pro forma weighted average shares outstanding used to compute net loss per share result from the inclusion of shares issued in conjunction with the acquisition as if these shares were outstanding from January 1, 1998.
REPORT OF INDEPENDENT ACCOUNTANTS
April 9, 1999
To the Board of Directors and Stockholder of Benelytics, Inc.:
In our opinion, the accompanying balance sheets and the related statements of operations, stockholders' deficit and cash flows present fairly, in all material respects, the financial position of Benelytics, Inc. (a development stage enterprise) as of December 31, 1997 and 1998 and the results of its operations and cash flows for the years ended December 31, 1997 and 1998 and the period from March 20, 1996 (inception) to December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP San Francisco, California |
BENELYTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
BALANCE SHEETS
DECEMBER 31,
----------------------------
1997 1998
------------ --------------
ASSETS
Current assets:
Cash and cash equivalents......................................................... $ 63,554 $ 12,611
Prepaid expenses and other current assets......................................... 5,170 --
------------ --------------
Total current assets........................................................ 68,724 12,611
Property and equipment, net....................................................... 82,040 46,482
Deposits.......................................................................... 10,340 5,085
------------ --------------
Total assets................................................................ $ 161,104 $ 64,178
------------ --------------
------------ --------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses............................................. $ 50,228 $ 149,918
Note payable to officer........................................................... -- 25,000
Convertible promissory notes...................................................... 175,000 664,899
------------ --------------
Total liabilities........................................................... 225,228 839,817
Stockholders' deficit:
Series A convertible preferred stock, no par;
Authorized: 1,000,000 shares (aggregate preference in liquidation $600,000 and
$890,000 for 1997 and 1998, respectively). Issued and outstanding: 600,000 and
890,000 shares in 1997 and 1998, respectively................................. 584,250 874,250
Common stock, no par;
Authorized: 10,000,000 shares. Issued and outstanding: 1,095,000 and 3,389,600
shares in 1997 and 1998, respectively......................................... 10,950 146,120
Restricted common stock, no par;
Issued and outstanding: 1,125,000 and 0 shares in 1997 and 1998, respectively... 11,250 --
Paid-in capital................................................................... 72,978 193,242
Warrants.......................................................................... -- 70,398
Deferred stock compensation....................................................... (33,192) --
Deficit accumulated during the development stage.................................. (710,360) (2,059,649)
------------ --------------
Total stockholders' deficit................................................. (64,124) (775,639)
------------ --------------
Total liabilities and stockholders' deficit................................. $ 161,104 $ 64,178
------------ --------------
------------ --------------
|
The accompanying notes are an integral part of these financial statements.
BENELYTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF OPERATIONS
FOR THE
PERIOD FROM
FOR THE YEARS ENDED DECEMBER MARCH 20, 1996
31, (INCEPTION) TO
------------------------------ DECEMBER 31,
1997 1998 1998
-------------- -------------- ---------------
Revenues........................................................ $ -- $ 4,950 $ 4,950
-------------- -------------- ---------------
Operating expenses:
Product development........................................... 258,780 388,252 690,602
Sales and marketing........................................... 108,875 193,133 315,452
General and administrative.................................... 262,340 676,133 961,983
-------------- -------------- ---------------
Total operating expenses.................................... 629,995 1,257,518 1,968,037
-------------- -------------- ---------------
Loss from operations........................................ (629,995) (1,252,568) (1,963,087)
-------------- -------------- ---------------
Other income (expense), net..................................... (800) 1,186 (480)
Interest income (expense), net.................................. 1,825 (97,907) (96,082)
-------------- -------------- ---------------
Net loss.................................................... $ (628,970) $ (1,349,289) $ (2,059,649)
-------------- -------------- ---------------
-------------- -------------- ---------------
|
The accompanying notes are an integral part of these financial statements.
BENELYTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF STOCKHOLDERS' DEFICIT
SERIES A CONVERTIBLE
RESTRICTED
PREFERRED STOCK COMMON STOCK COMMON STOCK
-------------------- -------------------- ---------------------- PAID-IN
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL
--------- --------- --------- --------- --------- ----------- ---------
Balances, March 20, 1996 (inception)........ -- $ -- -- $ -- -- $ -- $ --
Issuance of restricted common stock for cash
on March 20, 1996 for $0.01 per share..... 3,000,000 30,000
Repurchase of common stock on March 25, 1996
for $0.01 per share....................... (800,000) (8,000)
Issuance of common stock for cash on
November 1, 1996 for $0.01 per share...... 1,000 10
Issuance of common stock for cash on
November 27, 1996 for $0.01 per share..... 19,000 190
Issuance of Series A preferred stock for
cash on December 12, 1996 for $1.00 per
share, net of $10,939 in issuance costs... 300,000 289,061
Contributed capital from owners............. 27,578
Vesting of restricted common stock.......... 575,000 5,750 (575,000) (5,750)
Net loss....................................
--------- --------- --------- --------- --------- ----------- ---------
Balances, December 31, 1996................. 300,000 289,061 595,000 5,950 1,625,000 16,250 27,578
Issuance of Series A preferred stock for
cash on March 12, 1997 for $1.00 per
share, net of $4,811 in issuance costs.... 50,000 45,189
Issuance of Series A preferred stock for
cash on October 2, 1997 for $1.00 per
share..................................... 50,000 50,000
Issuance of Series A preferred stock, upon
conversion of promissory notes, on October
2, 1997 for $1.00 per share............... 200,000 200,000
Deferred stock compensation................. 45,400
Amortization of deferred stock
compensation..............................
Vesting of restricted common stock.......... 500,000 5,000 (500,000) (5,000)
Net loss....................................
--------- --------- --------- --------- --------- ----------- ---------
Balances, December 31, 1997................. 600,000 584,250 1,095,000 10,950 1,125,000 11,250 72,978
Issuance of Series A preferred stock for
cash on January 5, 1998 for $1.00 per
share..................................... 165,000 165,000
Issuance of Series A preferred stock, upon
conversion of promissory notes, on January
5, 1998 for $1.00 per share............... 125,000 125,000
Issuance of common stock for cash on January
15, 1998 for $0.01 per share.............. 750,000 75,000
Issuance of warrants in conjunction with
issuance of convertible debt..............
Exercise of stock options................... 419,600 48,920
Deferred stock compensation................. 120,264
Amortization of deferred stock
compensation..............................
Vesting of restricted common stock.......... 1,125,000 11,250 (1,125,000) (11,250)
Net loss....................................
--------- --------- --------- --------- --------- ----------- ---------
Balances, December 31, 1998................. 890,000 $ 874,250 3,389,600 $ 146,120 -- $ -- $ 193,242
--------- --------- --------- --------- --------- ----------- ---------
--------- --------- --------- --------- --------- ----------- ---------
DEFERRED
STOCK ACCUMULATED
WARRANTS COMPENSATION DEFICIT TOTAL
----------- -------------- ------------- ----------
Balances, March 20, 1996 (inception)........ $ -- $ -- $ -- $ --
Issuance of restricted common stock for cash
on March 20, 1996 for $0.01 per share..... 30,000
Repurchase of common stock on March 25, 1996
for $0.01 per share....................... (8,000)
Issuance of common stock for cash on
November 1, 1996 for $0.01 per share...... 10
Issuance of common stock for cash on
November 27, 1996 for $0.01 per share..... 190
Issuance of Series A preferred stock for
cash on December 12, 1996 for $1.00 per
share, net of $10,939 in issuance costs... 289,061
Contributed capital from owners............. 27,578
Vesting of restricted common stock.......... --
Net loss.................................... (81,390) (81,390)
----------- -------------- ------------- ----------
Balances, December 31, 1996................. -- -- (81,390) 257,449
Issuance of Series A preferred stock for
cash on March 12, 1997 for $1.00 per
share, net of $4,811 in issuance costs.... 45,189
Issuance of Series A preferred stock for
cash on October 2, 1997 for $1.00 per
share..................................... 50,000
Issuance of Series A preferred stock, upon
conversion of promissory notes, on October
2, 1997 for $1.00 per share............... 200,000
Deferred stock compensation................. (45,400) --
Amortization of deferred stock
compensation.............................. 12,208 12,208
Vesting of restricted common stock.......... --
Net loss.................................... (628,970) (628,970)
----------- -------------- ------------- ----------
Balances, December 31, 1997................. -- (33,192) (710,360) (64,124)
Issuance of Series A preferred stock for
cash on January 5, 1998 for $1.00 per
share..................................... 165,000
Issuance of Series A preferred stock, upon
conversion of promissory notes, on January
5, 1998 for $1.00 per share............... 125,000
Issuance of common stock for cash on January
15, 1998 for $0.01 per share.............. 75,000
Issuance of warrants in conjunction with
issuance of convertible debt.............. 70,398 70,398
Exercise of stock options................... 48,920
Deferred stock compensation................. (120,264) --
Amortization of deferred stock
compensation.............................. 153,456 153,456
Vesting of restricted common stock.......... --
Net loss.................................... (1,349,289) (1,349,289)
----------- -------------- ------------- ----------
Balances, December 31, 1998................. $ 70,398 $ -- $(2,059,649) $ (775,639)
----------- -------------- ------------- ----------
----------- -------------- ------------- ----------
|
The accompanying notes are an integral part of these financial statements.
BENELYTICS, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
STATEMENTS OF CASH FLOW
FOR THE
PERIOD FROM
FOR THE YEARS ENDED DECEMBER MARCH 20, 1996
31, (INCEPTION) TO
------------------------------ DECEMBER 31,
1997 1998 1998
-------------- -------------- ---------------
Cash flows from operating activities:
Net loss...................................................... $ (628,970) $ (1,349,289) $ (2,059,649)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization............................... 9,621 42,807 52,428
Amortization of debt discount............................... -- 70,398 70,398
Amortization of deferred stock compensation................. 12,208 153,456 165,664
Contributed capital (expenses paid by owners)............... -- -- 27,578
Changes in assets and liabilities:
Prepaid expenses and other current assets................. (5,170) 5,170 --
Deposits.................................................. (10,340) 5,255 (5,085)
Accounts payable and accrued expenses..................... 36,290 99,690 149,918
-------------- -------------- ---------------
Net cash used in operating activities................... (586,361) (972,513) (1,598,748)
-------------- -------------- ---------------
Cash flows from investing activities:
Purchases of property and equipment........................... (84,221) (7,249) (98,910)
-------------- -------------- ---------------
Net cash used in investing activities................... (84,221) (7,249) (98,910)
-------------- -------------- ---------------
Cash flows from financing activities:
Proceeds from note payable to officer......................... -- 25,000 25,000
Proceeds from issuance of convertible promissory notes........ 375,000 664,899 1,039,899
Proceeds from issuance of Series A preferred stock............ 100,000 165,000 565,000
Proceeds from issuance of common stock........................ -- 75,000 75,200
Proceeds from exercise of stock options....................... -- 48,920 48,920
Proceeds from issuance of restricted common stock............. -- -- 30,000
Repurchase of common stock.................................... -- -- (8,000)
Payment of convertible promissory notes....................... -- (50,000) (50,000)
Payment of issuance costs related to preferred stock
financing................................................... (4,811) -- (15,750)
-------------- -------------- ---------------
Net cash provided by financing activities............... 470,189 928,819 1,710,269
-------------- -------------- ---------------
Net increase (decrease) in cash and cash equivalents............ (200,393) (50,943) 12,611
Cash and cash equivalents, beginning of period.................. 263,947 63,554 --
-------------- -------------- ---------------
Cash and cash equivalents, end of period........................ $ 63,554 $ 12,611 $ 12,611
-------------- -------------- ---------------
-------------- -------------- ---------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest...................... $ -- $ -- $ --
-------------- -------------- ---------------
-------------- -------------- ---------------
Supplemental disclosure of noncash financing activities:
Promissory notes converted to Series A preferred stock........ $ 200,000 $ 125,000 $ 325,000
-------------- -------------- ---------------
-------------- -------------- ---------------
Issuance of warrants in conjunction with issuance of
convertible debt............................................ $ -- $ 70,398 $ 70,398
-------------- -------------- ---------------
-------------- -------------- ---------------
Vesting of restricted common stock............................ $ 5,000 $ 11,250 $ 22,000
-------------- -------------- ---------------
-------------- -------------- ---------------
Deferred stock compensation from issuance of stock options.... $ 45,400 $ 120,264 $ 165,664
-------------- -------------- ---------------
-------------- -------------- ---------------
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The accompanying notes are an integral part of these financial statements.
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS
1. BUSINESS OF THE COMPANY
Benelytics, Inc. ("the Company") was incorporated in California on March 20, 1996. The Company is a developer of employee health benefits selection and management software and reference data products. Currently, customers can obtain the reference data by ordering a single report or subscribing to a series of reports.
For the period from inception (March 20, 1996) through December 31, 1997, the Company had not commenced its planned principal operations. During 1998, the Company commenced its planned principal operations, but had no significant revenue therefrom. Therefore, the Company is treated as a development stage enterprise, in accordance with Statement of Financial Accounting Standards (SFAS No. 7), ACCOUNTING AND REPORTING BY DEVELOPMENT STAGE ENTERPRISES, from its inception date (March 20, 1996) through December 31, 1998.
The Company became a wholly owned subsidiary of InsWeb Corporation ("InsWeb") on December 31, 1998, when InsWeb acquired all of the outstanding common and preferred stock, warrants and convertible promissory notes of the Company. These financial statements reflect the Company's position, immediately prior to the acquisition.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are stated at cost, which approximates market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts payable and accrued expenses, approximate fair value due to their short maturities.
REVENUE RECOGNITION
Revenues consist of report revenues and subscription revenues. Report revenue is recognized at the time the report is delivered to the customer. Subscription revenue is recognized ratably over the period during which the service is provided.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to product development expense as incurred.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost less accumulated depreciation. Depreciation on computer and office equipment, furniture and fixtures and purchased software is calculated using the straight-line method over the estimated useful lives of the assets, generally three to five years. When property and equipment are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts and the resulting gain or loss is included in income. Expenditures for maintenance and repairs are charged to expense as incurred.
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) LONG-LIVED ASSETS
The Company evaluates the recoverability of its long-lived assets in accordance with SFAS No. 121, ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. SFAS No. 121 requires recognition of impairment losses related to long-lived assets in the event the net carrying value of such assets exceeds the future undiscounted cash flows attributable to such assets. The Company assesses the impairment of its long-lived assets when events or changes in circumstances indicate that the carrying value of an asset may not be recoverable.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration of credit risk, as defined by SFAS No. 105, DISCLOSURE OF INFORMATION ABOUT FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK AND FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT RISK, consist principally of cash and cash equivalents. The Company deposits its cash and cash equivalents with a single major bank, which deposits may exceed federal deposit insurance limits.
DEBT WITH STOCK PURCHASE WARRANTS
The Company accounts for stock purchase warrants as a separate component of equity and as a discount on the associated debt based on the relative fair value of the stock purchase warrants at the time of issuance (see Note 8). The discount on debt is amortized, as interest expense, over the period that the debt is outstanding.
RISKS AND UNCERTAINTIES
The Company is subject to all of the risks inherent in an early stage business in the electronic commerce industry. These risks include, but are not limited to, a limited operating history, limited management resources, dependence upon consumer acceptance of the Internet, Internet related security risks and the changing nature of the electronic commerce industry. Due to the foregoing factors, the Company's operating results may be materially affected.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
INCOME TAXES
Deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized.
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) STOCK-BASED COMPENSATION
The Company accounts for stock-based employee compensation arrangements in accordance with the provisions of Accounting Principles Board No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,and complies with the disclosure provisions of SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION. Under APB No. 25, compensation expense is based on the difference, if any, between the fair value of the Company's stock and the exercise price of the option on the measurement date, which is typically the date of grant.
The Company accounts for options granted to non-employees under SFAS No.
123. Under SFAS No. 123, options are recorded at their fair value on the
measurement date, which is typically the date of grant.
Since all options outstanding at December 31, 1998 vested 100% upon the acquisition, the Company charged all remaining deferred stock compensation to operations in 1998.
COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted the provisions of SFAS No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from nonowner sources. To date, the Company has not had any transactions that are required to be reported in comprehensive income.
RECENT ACCOUNTING PRONOUNCEMENTS
On March 4, 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position (SOP) 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1 requires that the costs of computer software developed or obtained for internal use be capitalized. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The impact on the financial statements of the adoption of this standard is not expected to be material.
In June 1998, the FASB issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. The Company does not believe the adoption of SFAS No. 133 will have a material effect on the Company's results of operations or financial condition.
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
1997 1998
--------- ---------
Computer and office equipment.......................................... $ 23,807 $ 31,056
Furniture and fixtures................................................. 10,797 10,797
Purchased software..................................................... 57,057 57,057
--------- ---------
91,661 98,910
Less accumulated depreciation and amortization......................... (9,621) (52,428)
--------- ---------
$ 82,040 $ 46,482
--------- ---------
--------- ---------
|
Depreciation and amortization expense was $9,621, $42,807 and $52,428 for the years ended December 31, 1997 and 1998 and for the period from inception to December 31, 1998, respectively.
4. OPERATING LEASES
The Company leases its current office facilities under an operating lease which expires on February 28, 1999.
Rent expense was $54,701, $57,791 and $113,596 for the years ended December 31, 1997 and 1998 and for the period from inception to December 31, 1998, respectively.
5. RELATED PARTY TRANSACTIONS
NOTES PAYABLE TO OFFICERS
In May 1997, the Company borrowed $50,000 (see Note 6) from its President, in exchange for an uncollateralized demand promissory note, convertible to preferred stock on or before May 31, 1998. The note bears interest at 6.23% per annum. The note was paid in full in January 1998.
In December 1998, the Company borrowed $25,000 from its President, in exchange for an uncollateralized demand promissory note bearing interest at 4.33% per annum. The note was paid in full in January 1999.
RESELLER AGREEMENT
The Company has a reseller agreement with a company, in which its owners are investors and one of the owners is a director. Since the Company had not significantly commenced its planned principal operations, there was no effect on the amounts reported in the financial statements.
6. CONVERTIBLE PROMISSORY NOTES
Convertible promissory notes consist of the following:
1997 1998
----------- -----------
Note payable to related party (Note 5).............................. $ 50,000 $ --
Notes payable to non-related parties................................ 125,000 664,899
----------- -----------
$ 175,000 $ 664,899
----------- -----------
----------- -----------
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BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. CONVERTIBLE PROMISSORY NOTES (CONTINUED) From May through September 1997, the Company borrowed an aggregate of $200,000 from its owners in exchange for uncollateralized demand promissory notes, convertible to Series A preferred stock on or before May 31, 1998. The notes bore interest at rates ranging from 5.81% to 6.23%. In October 1997, these notes were converted to Series A preferred stock.
In October and November 1997, the Company borrowed $25,000 and $100,000, respectively, from non-related parties in exchange for uncollateralized demand promissory notes, convertible to Series A preferred stock on or before October 30, 1998 and November 14, 1998, respectively. The notes bear interest at 5.81% per annum. In January 1998, these notes were converted to Series A preferred stock.
In May and June 1998, the Company borrowed $175,000 and $489,899, respectively, from non-related parties in exchange for uncollateralized demand promissory notes. Upon the next equity financing, these notes and related interest that is accrued or unpaid automatically convert into such series of equity instrument issued at the price per share paid for such equity instruments. The notes bear interest at 8.0% per annum. In connection with the issuance of these promissory notes, the Company also issued stock purchase warrants (see Note 8).
7. STOCKHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
At December 31, 1997 and 1998, the Company had 1,000,000 authorized shares of Series A convertible preferred stock, of which 600,000 and 890,000 shares, respectively, were issued and outstanding.
CONVERSION
Each share of preferred stock may be converted into such number of shares of common stock as determined by dividing the issuance price by the conversion price. The issuance price and conversion price of the preferred stock are $1.00 and $1.00, respectively, subject to adjustments under specific circumstances. Conversion is (i) at the option of the preferred stockholder or (ii) automatic upon the closing of an underwritten public offering of the Company's common stock at an aggregate offering price of at least $15,000,000 and per share offering price not less than $5.00 per share. The Company has reserved 890,000 shares of common stock for the conversion of the outstanding and issuable shares of preferred stock.
DIVIDENDS
When, and if, declared by the Company's Board of Directors, the holders of the preferred stock are entitled to annual noncumulative dividends of $0.08 per share or, if greater, an amount equal to those dividends paid on any other outstanding shares. As of December 31, 1998, no dividends had been declared or paid.
LIQUIDATION
In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary, the assets of the Company available for distribution shall first be distributed $1.00 per outstanding share of preferred stock, plus a further amount equal to any dividends declared but
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED) unpaid on such shares. If the assets of the Company available for distribution are not sufficient to pay the full amount of this distribution, such assets will be distributed ratably among the holders of the preferred stock based on the full preferential amount that each such holder is entitled to receive. Any assets of the Company available for distribution in excess of the liquidation preference amounts will be distributed pro rata to the holders of the preferred and common stock, based on the number of common shares held (on an "if-converted" basis for preferred stock). Preferred stockholders may receive distributions of no more than $3.00 per share of preferred stock held.
REDEMPTION
The preferred stock is not redeemable.
VOTING RIGHTS
The holders of common stock are entitled to one vote for each share of common stock held. The holders of preferred stock are entitled to one vote for each share of common stock into which such share of the preferred stock is convertible. The holders of preferred stock, voting together, are entitled to elect one member of the Company's Board of Directors. The holders of common stock, voting together, are entitled to elect one member of the Company's Board of Directors. The holders of preferred stock and common stock, voting together, are entitled to elect any remaining members of the Company's Board of Directors.
REGISTRATION RIGHTS
The holders of preferred stock are entitled to certain rights with respect to the registration of common stock issued and issuable upon conversion of outstanding preferred stock (the Registrable Securities). At any time after December 31, 2000, a holder or holders of the preferred stock will have the right to require the Company to file a registration statement under the Securities Act, at the Company's expense, in order to register such number of Registrable Securities as such holder or holders desire to include in such registration statement, together with the Registrable Securities of other holders who wish to participate in such registration, provided that the registration will effect the registration of at least 40% of the Registrable Securities or the anticipated aggregate offering price of such registration exceeds $10,000,000. The Company may, in certain circumstances, defer such registration, and the underwriters of such an offering have the right, subject to certain limitations, to limit the number of Registrable Securities included in such registration. In the event that the Company proposes to register any of its securities under the Securities Act for its own account or for the account of other security holders, holders of Registrable Securities are entitled to notice of such registration and have the right to include some or all of the Registrable Securities held by them in such registration at the Company's expense, subject to marketing and other limitations.
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED)
RESTRICTED COMMON STOCK
On March 20, 1996, the Company issued, for cash, 3,000,000 shares of common stock at $0.01 per share to three officers. The shares are subject to the right of repurchase by the company following a termination. The Company's right to repurchase the shares is released ratably in equal monthly installments beginning April 1, 1996. On April 1, 1997, the agreements were amended to provide that all the shares be fully released from the Company's right of repurchase in the event that the Company (1) merges into any other corporation or (2) sells or conveys all or substantially all of its assets to any other entity in a transaction in which the stockholders of the Company own, immediately after the transaction, less than a majority of the outstanding voting securities of the surviving entity or its parent entity. During 1996, one officer terminated, and the Company repurchased 800,000 shares for $8,000.
STOCK OPTION PLAN
In December 1996, the Company authorized the 1996 Stock Option Plan (the Plan) under which the Board of Directors may grant incentive stock options to employees, officers and directors of the Company and any of its subsidiaries. A total of 1,333,333 shares of common stock are reserved for issuance under the Plan.
Options granted under the Plan generally vest in equal monthly installments over a four-year period. The options generally expire ten years from the date of grant.
Activity under the Plan is as follows:
WEIGHTED
SHARES AVERAGE
AVAILABLE FOR NUMBER EXERCISE AGGREGATE EXERCISE
GRANT OF SHARES PRICE PRICE PRICE
------------- ------------ ------------ ----------- -----------
Balances, December 31, 1996................... 1,333,333 -- -- -- --
Options granted............................... (309,000) 309,000 $ 0.10 $ 30,900 $ 0.10
Options exercised............................. -- -- -- -- --
Options canceled.............................. 4,000 (4,000) $ 0.10 (400) $ 0.10
------------- ------------ -----------
Balances, December 31, 1997................... 1,028,333 305,000 $ 0.10 30,500 $ 0.10
Options granted............................... (114,600) 114,600 $ 0.10-0.20 18,420 $ 0.16
Options exercised............................. -- (419,600) $ 0.10-0.20 (48,920) $ 0.12
Options canceled.............................. -- -- -- -- --
------------- ------------ -----------
Balances, December 31, 1998................... 913,733 -- -- $ -- --
------------- ------------ -----------
------------- ------------ -----------
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The Company accounts for employee stock options in accordance with the provisions of APB No. 25 and complies with the disclosure provisions of SFAS No. 123.
Under APB No. 25, compensation expense is recognized based on the amount by which the fair value of the underlying common stock exceeds the exercise price of the stock options at the measurement date, which in the case of employee stock options is typically the date of grant. For financial reporting purposes, the Company has determined that the deemed fair market value on the date of grant of certain employee stock options was in excess of the exercise price of the
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY (CONTINUED) options. This amount is recorded as a reduction of stockholders' equity and is amortized as a charge to operations over the vesting period of the applicable options.
Had compensation cost for option grants to employees been determined consistent with SFAS No. 123, the Company's net loss would have been as follows:
YEAR ENDED
DECEMBER 31,
--------------------------
1997 1998
----------- -------------
Net loss as reported.............................................. $ 628,970 $ 1,349,289
Net loss--pro forma............................................... $ 629,828 $ 1,351,986
|
The above proforma disclosures are not necessarily representative of the effects on reported income or loss for future years as additional grants are made each year and options vest over several years.
All employee stock options were granted at exercise prices less than the fair market value on the date of grant. The weighted average grant date fair value of stock options granted during 1997 and 1998 was $0.08 and $0.15, respectively.
The fair value of each option grant was estimated on the date of grant using the Black-Scholes options pricing model with the following assumptions by year:
1997 1998
------------ ------------
Risk-free interest rate........................................... 6.0 -- 6.4% 5.3 -- 5.5%
Expected life..................................................... 3 years 3 years
Expected dividend yield........................................... -- --
Volaility......................................................... -- --
|
The risk-free interest rate range represents the low and high end of the range used at different points during the year. Because the Company does not have actively traded equity securities, volatility is not considered in determining the fair value of options granted to employees.
8. WARRANTS
In connection with the issuance of the convertible promissory notes in May and June 1998 (see Note 6), the Company issued stock purchase warrants to purchase $132,980 (20% of the amounts borrowed under the convertible promissory notes) of the Company's stock, the series of which will be that series issued in the Company's next equity financing. The exercise price of the stock purchase warrants will be equal to the per share price at which the next series of equity financing is issued. The number of shares which may be issued upon exercise of the stock purchase warrants will be equal to $132,980 divided by the exercise price of the stock purchase warrants.
9. INCOME TAXES
No deferred provision or benefit for income taxes has been recorded as the Company is in a net deferred tax asset position as a result of net operating losses. A full valuation has been
BENELYTICS, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED) provided as management believes that it is more likely than not, based on available evidence, that the deferred tax assets will not be realized.
At December 31, 1998, the Company has federal net operating loss carryforwards of approximately $1,900,000, which begin to expire in 2012. The income tax benefit from the utilization of net operating loss carryforwards may be limited in certain circumstances including, but not limited to, cumulative stock ownership changes of more than 50% over a three-year period. The amount of such limitations, if any, has not yet been determined.
UNDERWRITING
InsWeb and the underwriters for this offering named below (the "Underwriters") have entered into an underwriting agreement with respect to the shares being offered. Subject to certain conditions, each Underwriter has severally agreed to purchase the number of shares indicated in the following table. Goldman, Sachs & Co., BancBoston Robertson Stephens Inc., Donaldson, Lufkin & Jenrette Securities Corporation and E*OFFERING are the representatives of the Underwriters.
Underwriters Number of Shares
----------------------------------------------------------------------------------------------- -----------------
Goldman, Sachs & Co............................................................................
BancBoston Robertson Stephens Inc..............................................................
Donaldson, Lufkin & Jenrette Securities Corporation............................................
E*OFFERING Corp................................................................................
------
Total....................................................................................
------
------
|
If the Underwriters sell more shares than the total number set forth in the table above, the Underwriters have an option to buy up to an additional shares from InsWeb to cover these sales. They may exercise that option for 30 days. If any shares are purchased pursuant to this option, the Underwriters will severally purchase shares in approximately the same proportion as set forth in the table above.
The following table shows the per share and total underwriting discounts and commissions to be paid to the Underwriters by InsWeb. These amounts are shown assuming both no exercise and full exercise of the Underwriters' option to purchase additional shares.
Paid by InsWeb
-------------------------------
No Exercise Full Exercise
-------------- ---------------
Per share........................................................................ $ $
Total............................................................................ $ $
|
Shares sold by the Underwriters to the public will initially be offered at the initial public offering price set forth on the cover of this prospectus. Any shares sold by the Underwriters to securities dealers may be sold at a discount of up to $ per share from the initial public offering price. Any such securities dealers may resell any shares purchased from the Underwriters to certain other brokers or dealers at a discount of up to $ per share from the initial public offering price. If all the shares are not sold at the initial public offering price, the representatives may change the offering price and the other selling terms.
InsWeb, its directors, officers and stockholders have agreed with the Underwriters not to dispose of or hedge any of their common stock or securities convertible into or exchangeable for shares of common stock during the period from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of the representatives of the Underwriters. This agreement does not apply to any grants under InsWeb's existing employee benefit plans. See "Shares Eligible for Future Sale" for a discussion of certain transfer restrictions.
Prior to this offering, there has been no public market for the shares. The initial public offering price will be negotiated among InsWeb and the representatives. Among the factors to be considered in determining the initial public offering price of the shares, in addition to prevailing market conditions, will be InsWeb's historical performance, estimates of the business potential and
earnings prospects of InsWeb, an assessment of InsWeb's management and the consideration of the above factors in relation to market valuation of companies in related businesses.
InsWeb has applied to have its common stock listed for quotation on the Nasdaq National Market under the symbol "INSW."
In connection with the offering, the Underwriters may purchase and sell shares of common stock in the open market. These transactions may include short sales, stabilizing transactions and purchases to cover positions created by short sales. Short sales involve the sale by the Underwriters of a greater number of shares than they are required to purchase in this offering. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or retarding a decline in the market price of the common stock while this offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a particular Underwriter repays to the underwriters a portion of the underwriting discount received by it because the representatives have repurchased shares sold by or for the account of such Underwriter in stabilizing or short covering transactions.
These activities by the Underwriters may stabilize, maintain or otherwise affect the market price of the common stock. As a result, the price of the common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced, they may be discontinued by the Underwriters at any time. These transactions may be effected on the Nasdaq National Market, in the over-the-counter market or otherwise.
The Underwriters do not expect sales to discretionary accounts to exceed five percent of the total number of shares offered.
The Underwriters have reserved for sale, at the initial public offering price, up to % of the common stock offered by this prospectus for certain individuals designated by InsWeb who have expressed an interest in purchasing such shares of common stock in the offering. The number of shares available for sale to the general public in the offering will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the Underwriters to the general public on the same basis as the other shares to be sold in this offering.
InsWeb estimates that the total expenses of the offering, excluding underwriting discounts and commissions, will be approximately $ .
InsWeb has agreed to indemnify the several Underwriters against certain liabilities, including liabilities under the Securities Act.
No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. This prospectus is an offer to sell only the shares offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is current only as of its date.
TABLE OF CONTENTS
Prospectus Summary................... 3 Risk Factors......................... 5 Forward-Looking Statements........... 18 Use of Proceeds...................... 19 Dividend Policy...................... 19 Capitalization....................... 20 Dilution............................. 21 Selected Consolidated Financial Data................................ 22 Selected Pro Forma Consolidated Financial Data...................... 23 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 24 Business............................. 34 Management........................... 53 Certain Transactions................. 62 Principal Stockholders............... 65 Description of Capital Stock......... 68 Shares Eligible For Future Sale...... 71 Legal Matters........................ 72 Experts.............................. 72 Where to Find Additional Information About InsWeb........................ 72 Index to Financial Statements........ F-1 Underwriting......................... U-1 |
Through and including , 1999, (the 25th day after the date of this prospectus), all dealers effecting transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to a dealer's obligation to deliver a prospectus when acting as underwriter and with respect to an unsold allotment or subscription.
Shares
INSWEB CORPORATION
Common Stock
[LOGO]
GOLDMAN, SACHS & CO.
BANCBOSTON ROBERTSON STEPHENS
DONALDSON, LUFKIN & JENRETTE
E*OFFERING
Representatives of the Underwriters
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all costs and expenses, other than the underwriting discounts and commissions payable by the Registrant in connection with the sale and distribution of the common stock being registered. All amounts shown are estimates except for the Securities and Exchange Commission registration fee, the NASD filing fee and the Nasdaq National Market application fee.
Securities and Exchange Commission registration fee.............. $ 15,985
NASD filing fee.................................................. 6,250
Nasdaq National Market application fee........................... *
Blue sky qualification fees and expenses......................... *
Printing and engraving expenses.................................. *
Legal fees and expenses.......................................... *
Accounting fees and expenses..................................... *
Director and officer liability insurance......................... *
Transfer agent and registrar fees................................ *
Miscellaneous expenses........................................... *
---------
Total........................................................ $ *
---------
---------
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* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law permits indemnification of officers, directors and other corporate agents under certain circumstances and subject to certain limitations. The Registrant's Certificate of Incorporation and Bylaws provide that the Registrant shall indemnify its directors, officers, employees and agents to the full extent permitted by Delaware General Corporation Law, including in circumstances in which indemnification is otherwise discretionary under Delaware law. In addition, the Registrant intends to enter into separate indemnification agreements (Exhibit 10.1) with its directors and officers which would require the Registrant, among other things, to indemnify them against certain liabilities which may arise by reason of their status or service (other than liabilities arising from willful misconduct of a culpable nature). The Registrant also intends to maintain director and officer liability insurance, if available on reasonable terms. These indemnification provisions and the indemnification agreements may be sufficiently broad to permit indemnification of the Registrant's officers and directors for liabilities (including reimbursement of expenses incurred) arising under the Securities Act.
The Underwriting Agreement (Exhibit 1.1) provides for indemnification by the Underwriters of the Registrant and its officers and directors for certain liabilities arising under the Securities Act, or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
(a) Since March 31, 1996, InsWeb has issued and sold the following unregistered securities:
1. From inception through March 31, 1999, InsWeb issued options to purchase an aggregate of 2,935,025 shares of common stock under its 1995 and 1997 stock options plans, of which 1,371,479 have been exercised.
II-1
2. In January 1996, InsWeb sold 176,471 shares of its Series A preferred stock to Nationwide Mutual Insurance Company at a purchase price of $42.50 per share, for an aggregate purchase price of $7,500,017.50.
3. In November 1996, InsWeb sold 176,471 shares of its Series B preferred stock to Insurance Information Exchange at a purchase price of $46.75 per share, for an aggregate purchase price of $8,250,000.
4. In February 1997, InsWeb sold 53,476 shares of its Series C preferred stock to Century Capital Partners, L.P. at a purchase price of $46.75 per share, for an aggregate purchase price of $2,500,003.
5. In May 1997, InsWeb sold 27,864 shares of its Series A-1 preferred stock and 8,444 shares of its Series C preferred stock to Nationwide Mutual Insurance Company, for an aggregate purchase price of $1,697,399.
6. In December 1998 and February 1999, InsWeb sold an aggregate of 190,621 shares of its Series D preferred stock to two entities affiliated with SOFTBANK Corp. and Century Capital Partners, L.P., at a purchase price of $162.875 per share, for an aggregate purchase price of $31,047,395.37.
7. In March and April 1999, InsWeb sold an aggregate of 185,775 shares of its Series E preferred stock to an entity affiliated with SOFTBANK Corp., at a purchase price of $188.40 per share, for an aggregate purchase price of $35,000,010.00.
There were no underwriters employed in connection with any of the transactions set forth in this Item 15.
For additional information concerning these equity investment transactions, see the section entitled "Certain Transactions" in the prospectus.
The issuances described in Items 15(a)(1) through 15(a)(7) were deemed exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act as transactions by an issuer not involving a public offering. Certain issuances described in Item 15(a)(1) were deemed exempt from registration under the Securities Act in reliance on Section 4(2) or Rule 701 promulgated thereunder as transactions pursuant to compensatory benefit plans and contracts relating to compensation. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. All recipients either received adequate information about InsWeb or had access, through employment or other relationships, to such information.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------ -------------------------------------------------------------------------- *1.1 Form of Underwriting Agreement 3.1 Fifth Restated Certificate of Incorporation of Registrant 3.2 Bylaws of Registrant *4.1 Specimen certificate representing the common stock |
II-2
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ --------------------------------------------------------------------------
4.2 Third Amended and Restated Investor Rights Agreement among Registrant and
certain Stockholders of Registrant, dated as of March 31, 1999.
*5.1 Opinion of Gray Cary Ware & Freidenrich LLP
*10.1 Form of Indemnification Agreement between Registrant and Registrant's
directors and officers
10.2 1997 Stock Option Plan
10.3 1999 Employee Stock Purchase Plan
10.4 Series A Preferred Stock Purchase Agreement between Registrant and
Nationwide Mutual Insurance Company, dated as of January 30, 1996
10.5 Stock Purchase Agreement between Registrant and Insurance Information
Exchange, L.L.C., dated as of November 22, 1996
10.6 Non-Exclusive Joint Marketing and License Agreement between Registrant and
Insurance Information Exchange, L.L.C., dated as of November 22, 1996
10.7 Asset Purchase Agreement between Registrant and Insurance Information
Exchange, L.L.C., dated as of November 22, 1996
10.8 Letter of Credit Agreement between Registrant and AMS Services, Inc.,
dated as of November 22, 1996
10.9 Assignment and Assumption Agreement by and among Registrant, AMS Services,
Inc. and Continental Casualty Company, dated as of April 10, 1998
10.10 Employment Agreement between Registrant and Hussein A. Enan, dated
November 22, 1996
10.11 Option Agreement between Insurance Information Exchange, L.L.C. and
Hussein A. Enan, dated as of November 22, 1996
10.12 Series C Stock Purchase Agreement between Registrant and Century Capital
Partners, L.P., dated as of February 21, 1997
10.13 Subscription Agreement between Registrant and Nationwide Mutual Insurance
Company, dated as of May 15, 1997
10.14 Series D Preferred Stock Purchase Agreement by and among Registrant,
SOFTBANK Ventures, Inc., SOFTVEN No. 2 Investment Enterprise Partnership
and Century Capital Partners, L.P., dated as of December 15, 1998, as
amended.
10.15 Agreement and Plan of Reorganization by and among Registrant, Benelytics
Acquisition Corporation and Benelytics, Inc., dated as of December 31,
1998.
10.16 Joint Venture Agreement by and between Registrant and SOFTBANK Corp.,
dated as of December 15, 1998.
10.17 Series E Preferred Stock Purchase Agreement by and between Registrant and
SOFTBANK America Inc., dated as of February 26, 1999.
*10.18+ License Agreement between Registrant and Yahoo! Inc. dated as of February
12, 1999.
*10.19+ Services Agreements between Registrant and State Farm Mutual Automobile
Insurance Company dated as of September 15, 1998.
21.1 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
|
II-3
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT ------ -------------------------------------------------------------------------- 23.2 Consent of PricewaterhouseCoopers LLP, independent accountants *23.3 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1) 24.1 Power of Attorney (included on signature page) 27.1 Financial Data Schedule |
* To be filed by amendment.
+ Confidential treatment will be requested as to a portion of this Exhibit.
(B) FINANCIAL STATEMENT SCHEDULES.
Schedule II -- Valuation and Qualifying Accounts
Schedules not listed above have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification by the Registrant for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions referenced in Item 14 of this Registration Statement or otherwise, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act, and is therefore unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer, or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the information omitted from the form of Prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and
(2) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of Prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at the time shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Redwood City, State of California, on May 7, 1999
INSWEB CORPORATION
By: /s/ HUSSEIN A. ENAN
-----------------------------------------
Hussein A. Enan
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF
EXECUTIVE OFFICER
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints Hussein A. Enan and Stephen I. Robertson, and each of them acting individually, as his true and lawful attorneys-in-fact and agents, each with full power of substitution, for him in any and all capacities, to sign any and all amendments to this Registration Statement (including post-effective amendments or any abbreviated registration statement and any amendments thereto filed pursuant to Rule 462(b) increasing the number of securities for which registration is sought), and to file the same, with all exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
------------------------------ -------------------------- -------------------
Chairman of the Board,
/s/ HUSSEIN A. ENAN President and Chief
------------------------------ Executive Officer May 7, 1999
Hussein A. Enan (PRINCIPAL EXECUTIVE
OFFICER)
/s/ DARRELL J. TICEHURST
------------------------------ Vice Chairman of the Board May 7, 1999
Darrell J. Ticehurst
Executive Vice President
/s/ STEPHEN I. ROBERTSON and Chief Financial
------------------------------ Officer (PRINCIPAL May 7, 1999
Stephen I. Robertson FINANCIAL AND ACCOUNTING
OFFICER)
/s/ KENNETH J. BENVENUTO
------------------------------ Director May 7, 1999
Kenneth J. Benvenuto
|
II-5
SIGNATURE TITLE DATE
------------------------------ -------------------------- -------------------
/s/ BRUCE A. BUNNER
------------------------------ Director May 7, 1999
Bruce A. Bunner
/s/ JAMES M. CORROON
------------------------------ Director May 7, 1999
James M. Corroon
/s/ PHILIP L. ENGEL
------------------------------ Director May 7, 1999
Philip L. Engel
/s/ RICHARD J. FREEMAN
------------------------------ Director May 7, 1999
Richard J. Freeman
/s/ M. GORDON GADDY
------------------------------ Director May 7, 1999
M. Gordon Gaddy
/s/ RICHARD D. HEADLEY
------------------------------ Director May 7, 1999
Richard D. Headley
------------------------------ Director May , 1999
Yoshitaka Kitao
/s/ CLAUDE Y. MERCIER
------------------------------ Director May 7, 1999
Claude Y. Mercier
/s/ DONALD K. MORFORD
------------------------------ Director May 7, 1999
Donald K. Morford
/s/ ROBERT C. NEVINS
------------------------------ Director May 7, 1999
Robert C. Nevins
/s/ ROBERT A. PUCCINELLI
------------------------------ Director May 7, 1999
Robert A. Puccinelli
|
II-6
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
ADDITIONS
--------------------------------------
ALLOWANCE FOR BALANCE AT CHARGED TO COSTS AND CHARGED TO WRITE-OFFS NET OF BALANCE AT
DOUBTFUL ACCOUNTS BEGINNING OF YEAR EXPENSES OTHER ACCOUNTS RECOVERIES END OF YEAR
-------------------- ------------------ --------------------- --------------- ------------------ ------------
1998................ $ 5,000 $ -- $ -- $ 5,000 $ 0
1997................ $ 7,200 $ -- $ -- $ 2,200 $ 5,000
1996................ $ 0 $ 7,200 $ -- $ -- $ 7,200
|
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ --------------------------------------------------------------------------
*1.1 Form of Underwriting Agreement
3.1 Fifth Restated Certificate of Incorporation of Registrant
3.2 Bylaws of Registrant
*4.1 Specimen certificate representing the common stock
4.2 Third Amended and Restated Investor Rights Agreement among Registrant and
certain Stockholders of Registrant, dated as of March 31, 1999.
*5.1 Opinion of Gray Cary Ware & Freidenrich LLP
*10.1 Form of Indemnification Agreement between Registrant and Registrant's
directors and officers
10.2 1997 Stock Option Plan
10.3 1999 Employee Stock Purchase Plan
10.4 Series A Preferred Stock Purchase Agreement between Registrant and
Nationwide Mutual Insurance Company, dated as of January 30, 1996
10.5 Stock Purchase Agreement between Registrant and Insurance Information
Exchange, L.L.C., dated as of November 22, 1996
10.6 Non-Exclusive Joint Marketing and License Agreement between Registrant and
Insurance Information Exchange, L.L.C., dated as of November 22, 1996
10.7 Asset Purchase Agreement between Registrant and Insurance Information
Exchange, L.L.C., dated as of November 22, 1996
10.8 Letter of Credit Agreement between Registrant and AMS Services, Inc.,
dated as of November 22, 1996
10.9 Assignment and Assumption Agreement by and among Registrant, AMS Services,
Inc. and Continental Casualty Company, dated as of April 10, 1998
10.10 Employment Agreement between Registrant and Hussein A. Enan, dated
November 22, 1996
10.11 Option Agreement between Insurance Information Exchange, L.L.C. and
Hussein A. Enan, dated as of November 22, 1996
10.12 Series C Stock Purchase Agreement between Registrant and Century Capital
Partners, L.P., dated as of February 21, 1997
10.13 Subscription Agreement between Registrant and Nationwide Mutual Insurance
Company, dated as of May 15, 1997
10.14 Series D Preferred Stock Purchase Agreement by and among Registrant,
SOFTBANK Ventures, Inc., SOFTVEN No. 2 Investment Enterprise Partnership
and Century Capital Partners, L.P., dated as of December 15, 1998, as
amended.
10.15 Agreement and Plan of Reorganization by and among Registrant, Benelytics
Acquisition Corporation and Benelytics, Inc., dated as of December 31,
1998.
10.16 Joint Venture Agreement by and between Registrant and SOFTBANK Corp.,
dated as of December 15, 1998.
10.17 Series E Preferred Stock Purchase Agreement by and between Registrant and
SOFTBANK America Inc., dated as of February 26, 1999.
*10.18+ License Agreement between Registrant and Yahoo! Inc. dated as of February
12, 1999.
|
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ --------------------------------------------------------------------------
*10.19+ Services Agreements between Registrant and State Farm Mutual Automobile
Insurance Company dated as of September 15, 1998.
21.1 Subsidiaries of Registrant
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2 Consent of PricewaterhouseCoopers LLP, independent accountants
*23.3 Consent of Gray Cary Ware & Freidenrich LLP (included in Exhibit 5.1)
24.1 Power of Attorney (included on signature page)
27.1 Financial Data Schedule
|
* To be filed by amendment.
+ Confidential treatment will be requested as to a portion of this Exhibit.
Exhibit 3.1
FIFTH RESTATED
CERTIFICATE OF INCORPORATION
OF
INSWEB CORPORATION
InsWeb Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That the name of the Corporation is InsWeb Corporation. The Corporation was originally incorporated under the name InsWeb Merger Corp.; and the original Certificate of Incorporation, the Restated Certificate of Incorporation, the Second Restated Certificate of Incorporation and the Third Restated Certificate of Incorporation were filed with the Secretary of State of the State of Delaware on the 12th day of November, 1996, the 20th day of November, 1996, the 25th day of November, 1996 and the 15th day of May, 1997, respectively; a Certificate of Amendment of the Third Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on the 22nd day of August, 1997, and the Fourth Restated Certificate of Incorporation was filed with the Secretary of State of the State of Delaware on the 30th day of December, 1998.
SECOND: This Fifth Restated Certificate of Incorporation further amends and restates the Certificate of Incorporation of the Corporation to read in full as follows:
ARTICLE 1
The name of the Corporation is InsWeb Corporation.
ARTICLE 2
The address of its registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, 19801, County of New Castle. The name of its registered agent at such address is The Corporation Trust Company.
ARTICLE 3
The nature of the business of the Corporation and the objects or purposes to be transacted, promoted or carried on by it are as follows: To engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware.
ARTICLE 4
The Corporation is authorized to issue two classes of shares, designated, respectively, Preferred Stock and Common Stock. The total number of shares of Preferred Stock the Corporation shall have authority to issue is 2,000,000 and the total number of shares of Common Stock the Corporation shall have authority to issue is 50,000,000. The par value of each class of shares shall be $.001 per share.
The authorized Preferred Stock shall consist of Series A Preferred Stock ("Series A Preferred"), Series A-1 Preferred Stock ("Series A-1 Preferred"), Series B Preferred Stock ("Series B Preferred"), Series C Preferred Stock ("Series C Preferred"), Series D Preferred Stock ("Series D Preferred"), Series E Preferred Stock ("Series E Preferred") and such other series as the Board of Directors shall designate pursuant to this Article 4. Subject to Section 5 of this Article 4, the authorized number of shares of Series A Preferred shall be 176,471, the authorized number of shares of Series A-1 Preferred shall be 27,864, the authorized number of shares of Series B Preferred shall be 176,471, the authorized number of shares of Series C Preferred shall be 61,920, the authorized number of shares of Series D Preferred shall be 190,621 and the authorized number of shares of Series E Preferred shall be 185,775. Subject to the provisions of the laws of the State of Delaware and of this Article 4, the Board of Directors is hereby authorized to fix and alter the terms, including any dividend right, dividend rate, conversion rights, voting rights, rights and terms of redemption (including any sinking fund provisions), redemption price or prices, and liquidation preferences, of any wholly unissued series of Preferred Stock, and the number of shares of Preferred Stock constituting any such series and the designation thereof, or all or any thereof; and to increase or decrease the number of shares of Preferred Stock of any series subsequent to the issue of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares of Preferred Stock of any series shall be so decreased, the shares of Preferred Stock constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of Preferred Stock of such series. The rights, preferences, privileges and restrictions granted to or imposed upon the respective classes of the shares of capital stock or the holders thereof are as follows:
1. Dividend Rate and Rights. Holders of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall be entitled to receive, when and as declared by the Board of Directors out of any assets at the time legally available therefor, noncumulative dividends at the rate of $4.00 per share of Series A Preferred, Series A-1 Preferred, Series B Preferred and Series C Preferred, $14.00 per share of Series D Preferred and $16.00 per share of Series E Preferred in each fiscal year of the Corporation payable in cash. No dividend shall be declared or paid or other distribution made with respect to any series of Preferred Stock unless the Corporation pays a proportionate amount of the dividend preference amount of each series of Preferred Stock then outstanding. No dividends shall be paid or other distribution made (other than those payable solely in Common Stock) with respect to the Common Stock during any fiscal year of the Corporation until dividends in the aforesaid amount on the outstanding shares of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall have been paid in such fiscal
year. After the payment of the full dividend preference amount on the outstanding shares of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred, and subject to the dividend preference of any series of Preferred Stock hereafter created, holders of Common Stock shall be entitled to receive dividends when and as declared by the Board of Directors out of any assets at the time legally available therefor. If dividends are paid in any fiscal year of the Corporation on the Common Stock in excess of $0.10 per share (proportionately adjusted for any stock split or reverse stock split, dividend paid in shares of Common Stock or recapitalization of the Common Stock after the filing of the Fourth Restated Certificate of Incorporation), the holders of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall be entitled to receive, for each share of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred, an amount equal to such excess over $0.10, multiplied by the number of shares of Common Stock into which a share of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series C Preferred, Series D Preferred or Series E Preferred is then convertible.
2. Conversion into Common Stock.
A. Right to Convert. Each share of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, into such number of fully paid and nonassessable shares of Common Stock as is determined by (i) dividing $42.50 by the Series A Preferred Conversion Price, determined as hereinafter provided, in effect at the time of conversion, (ii) dividing $46.75 by the Series A-1 Preferred Conversion Price, determined as hereinafter provided, in effect at the time of the conversion, (iii) dividing $46.75 by the Series B Preferred Conversion Price, determined as hereinafter provided, in effect at the time of the conversion, (iv) dividing $46.75 by the Series C Preferred Conversion Price, determined as hereinafter provided, in effect at the time of the conversion, (v) dividing $162.875 by the Series D Conversion Price, determined as hereinafter provided, in effect at the time of the conversion, or (vi) dividing $188.40 by the Series E Conversion Price, determined as hereinafter provided, in effect at the time of the conversion. The initial Series A Preferred Conversion Price shall be $4.25, subject to adjustment as hereinafter provided. The initial Series A-1 Preferred Conversion Price shall be $4.675, subject to adjustment as hereinafter provided. The initial Series B Preferred Conversion Price shall be $4.675, subject to adjustment as hereinafter provided. The initial Series C Preferred Conversion Price shall be $4.675, subject to adjustment as hereinafter provided. The initial Series D Conversion Price shall be $16.2875, subject to adjustment as hereinafter provided. The initial Series E Conversion Price shall be $18.84, subject to adjustment as hereinafter provided.
The Series A Preferred Conversion Price, the Series A-1 Preferred Conversion Price, the Series B Preferred Conversion Price, the Series C Preferred Conversion Price, the Series D Conversion Price, the Series E Conversion Price and the conversion price of any other series of Preferred Stock hereafter created are sometimes hereinafter collectively referred to as "Conversion Price." The Series A Preferred, the Series A-1 Preferred, the Series B Preferred, the Series C Preferred, the Series D Preferred, the Series E Preferred and any other
series of Preferred Stock hereafter created are sometimes hereinafter collectively referred to as "Preferred Stock" or "Preferred."
Before any holder shall be entitled to convert his outstanding shares of Preferred Stock, he shall surrender the certificate or certificates representing the Preferred Stock to be converted, duly endorsed, or accompanied by proper instruments of transfer, at the office of the Corporation or of any transfer agent, and shall give written notice to the Corporation at such office that he elects to convert the same. The Corporation shall, as soon as practicable thereafter, issue a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the certificate representing the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date.
B. Automatic Conversion. Each share of Preferred Stock shall automatically be converted into shares of Common Stock at its then effective Conversion Price (i) upon the closing of the sale of Common Stock of the Corporation in an underwritten public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, at an aggregate public offering price of at least $20,000,000 and a per share price of at least $18.84 appropriately adjusted for subdivisions and combinations of the Common Stock and dividends of Common Stock subsequent to the filing of the Fifth Restated Certificate of Incorporation, (ii) upon the vote or written consent of the holders of a majority of the outstanding shares of Preferred Stock, or (iii) if less than 10,000 shares of Preferred Stock shall remain outstanding. In such event, the conversion shall occur automatically without further action by the Corporation or by the holders of shares of Preferred. Upon the occurrence of any such automatic conversion, the Corporation shall promptly give written notice thereof to each holder of shares of Preferred, and the holders thereof shall promptly surrender the certificates representing former shares of Preferred at the office of the Corporation or of any transfer agent, in exchange for certificates for the number of shares of Common Stock into which the shares of Preferred surrendered were convertible on the date such automatic conversion occurred.
C. No Fractional Shares. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay an amount in cash equal to such fraction multiplied by the then effective Conversion Price.
D. Adjustments to Conversion Price.
1) Stock Dividend or Stock Subdivision. In the event the Corporation at any time or from time to time shall declare or pay any dividend on the Common Stock payable in Common Stock, or effect a subdivision (stock split) of the Common Stock into a greater number of shares of Common Stock, then and in any such event, the Conversion Price in effect shall be proportionately reduced by multiplying such Conversion Price by a fraction the numerator of which shall be the number of shares of Common Stock actually outstanding
immediately before, and the denominator of which shall be the number of shares of Common Stock actually outstanding immediately after, such dividend or subdivision; the reduction shall become effective:
A) in the case of any such dividend, immediately after the close of business on the record date for the determination of holders of any class of securities entitled to receive such dividend, or
B) in the case of any such subdivision, at the close of business on the date immediately prior to the date upon which such corporate action becomes effective.
2) Stock Combination or Consolidation. In the event at any time or from time to time the outstanding shares of Common shall be combined (reverse stock split) or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, the Conversion Price in effect immediately prior to such combination or consolidation shall, concurrently with the effectiveness of such combination or consolidation, be proportionately increased.
3) Merger or Reorganization. To the extent that Article 4,
Section 3, Liquidation Preference, is inapplicable, in case of any consolidation
or merger of the Corporation as a result of which holders of Common Stock become
entitled to receive other stock or securities or property, or in case of any
conveyance of all or substantially all of the assets of the Corporation to
another corporation, the Corporation shall mail to each holder of Preferred
Stock at least thirty (30) days prior to such event a notice thereof, and each
share of Preferred Stock shall thereafter be convertible into the number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock of the Corporation deliverable upon conversion of such
Preferred Stock would have been entitled upon such consolidation, merger or
conveyance; and, in any such case, appropriate adjustment (as determined by the
Board) shall be made in the application of the provisions herein set forth with
respect to the rights and interest thereafter of the holders of the Preferred
Stock, to the end that the provisions set forth herein (including provisions
with respect to changes in and other adjustments of the Conversion Price) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
shares of stock or other property thereafter deliverable upon the conversion of
the Preferred Stock.
4) Adjustments to Conversion Price for Diluting Issues.
A) Special Definitions. For purposes of this Section 2D, the following definitions shall apply:
(1) "Options" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities.
(2) "Original Issue Date" shall mean, with respect to a particular series of Preferred Stock, the date on which the first share of such series of Preferred Stock was issued.
(3) "Convertible Securities" shall mean any evidences of indebtedness, shares (other than the Common Stock) or other securities convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to Section 2D(4)(C), deemed to be issued) by the Corporation after the Original Issue Date of a particular series of Preferred Stock, other than shares of Common Stock issued or issuable at any time:
(a) upon conversion of any shares of Preferred Stock authorized herein;
(b) not to exceed 2,000,000 shares issued or deemed to be issued after the filing of this Fifth Restated Certificate of Incorporation to officers, directors, employees, and consultants of the Corporation (i) pursuant to agreements entered into by the Corporation prior to the date of this Fifth Restated Certificate of Incorporation or (ii) pursuant to stock option, stock purchase or similar plans;
(c) as a dividend or distribution on the Preferred Stock or any event for which adjustment is made pursuant to Section 2D; or
(d) by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock by this Section 2D(4)(A)(4) or on shares of Common Stock so excluded.
B) No Adjustment of Conversion Price. No adjustment in the Conversion Price of a particular share of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common Stock unless the consideration per share for an Additional Share of Common Stock issued or deemed to be issued by the Corporation is less than the Conversion Price in effect for such share of Preferred Stock on the date of, and immediately prior to, such issue.
C) Deemed Issue of Additional Shares of Common Stock. Except as otherwise provided in Section 2D(4)(A)(4), in the event the Corporation at any time or from time to time after the Original Issue Date of a particular series of Preferred Stock shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided, that in any such case in which Additional Shares of Common Stock are deemed to be issued:
(1) no further adjustment in the Conversion Price of such series of Preferred Stock shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof, the Conversion Price of such series of Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities;
(3) upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price of such series of Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon such expiration, be recomputed as if:
(a) in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common Stock issued were shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon such exercise, or for the issue of all such Convertible Securities, whether or not actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and
(b) in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common Stock deemed to have been then issued was the consideration actually received by the Corporation for the issue of all such Options, whether or not exercised, plus the consideration actually received by the Corporation upon the issue of the Convertible Securities with respect to which such Options were actually exercised;
(4) no readjustment pursuant to clause (2) or (3) above shall have the effect of increasing the Conversion Price of such series of Preferred Stock to an amount which exceeds the lower of (i) the Conversion Price of such series of Preferred Stock on the original adjustment date, or (ii) the Conversion Price of such series of Preferred Stock that would have resulted from any issuance of Additional Shares of Common Stock between the original adjustment date and such readjustment date; and
(5) in the case of any Options which expire by their terms not more than forty-five (45) days after the date of issue thereof, no adjustment of the Conversion Price of such series of Preferred Stock shall be made until the expiration or exercise of all such Options.
D) Adjustment of Conversion Price Upon Issuance of Additional Shares of Common Stock.
(1) Series A Preferred Conversion Price, Series
A-1 Preferred Conversion Price, Series B Preferred Conversion Price, Series C
Preferred Conversion Price, Series D Conversion Price and Series E Conversion
Price. In the event the Corporation, at any time after the date of filing of the
Fifth Restated Certificate of Incorporation, shall issue Additional Shares of
Common Stock (including Additional Shares of Common Stock deemed to be issued
pursuant to Section 2D(4)(C)) without consideration or for a consideration per
share less than the Series A Preferred Conversion Price, the Series A-1
Preferred Conversion Price, the Series B Preferred Conversion Price, the Series
C Preferred Conversion Price, the Series D Preferred Conversion Price or the
Series E Conversion Price, as the case may be, in effect on the date of and
immediately prior to such issue, then and in such event, such Series A Preferred
Conversion Price, Series A-1 Preferred Conversion Price, Series B Preferred
Conversion Price, Series C Preferred Conversion Price, Series D Preferred
Conversion Price or Series E Conversion Price, as the case may be, shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Series A Preferred Conversion Price, Series
A-1 Preferred Conversion Price, Series B Preferred Conversion Price, Series C
Preferred Conversion Price, Series D Preferred Conversion Price or Series E
Conversion Price, as the case may be, by a fraction, the numerator of which
shall be the number of shares of Common Stock outstanding immediately prior to
such issue plus the number of shares of Common Stock which the aggregate
consideration received by the Corporation for the total number of Additional
Shares of Common Stock so issued would purchase at such Series A Preferred
Conversion Price, Series A-1 Preferred Conversion Price, Series B Preferred
Conversion Price, Series C Preferred Conversion Price, Series D Preferred
Conversion Price or Series E Conversion Price, as the case may be; and the
denominator of which shall be the number of shares of Common Stock outstanding
immediately prior to such issue plus the number of such Additional Shares of
Common Stock so issued; and, provided further, that, for the purposes of this
Section 2D(4)(D), all shares of Common Stock issuable upon conversion of
outstanding shares of Preferred Stock or other Convertible Securities or upon
exercise of outstanding Options shall be deemed to be outstanding.
(2) Determination of Consideration. For purposes of this Section 2D, the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property: Such consideration shall:
(i) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation excluding amounts paid or payable for accrued interest or accrued dividends;
(ii) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined in good faith by the Board; and
(iii) in the event Additional Shares of
Common Stock are issued together with other shares or securities or other
assets of the Corporation for consideration which covers both, be the
proportion of such consideration so received, computed as provided in clauses
(i) and (ii) above, as determined in good faith by the Board.
(b) Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to Section 2D(4)(C), relating to Options and Convertible Securities, shall be determined by dividing
(i) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by
(ii) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.
E. No Impairment. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section 2 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Preferred Stock against impairment.
F. Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 2, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and the calculation on which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Preferred Stock.
G. Notices of Record Date. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend which is the same as cash dividends paid in the previous quarter) or other distribution, the Corporation shall mail to each holder of Preferred Stock at least ten (10) days prior to the date specified herein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend or distribution.
H. Common Stock Reserved. The Corporation shall reserve and keep available out of its authorized but unissued Common Stock such number of shares of Common Stock as shall from time to time be sufficient to effect conversion of the Preferred Stock.
3. Liquidation Preference.
A. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the assets of the Corporation available for distribution to its stockholders shall be distributed, subject to the liquidation preference of any series of Preferred Stock hereafter created, to the holders of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series C Preferred, Series D Preferred, Series E Preferred and the holders of Common Stock as follows:
1) The assets available for distribution shall first be
distributed (i) $42.50 per outstanding share of Series A Preferred, (ii) $46.75
per outstanding share of Series A-1 Preferred, (iii) $46.75 per outstanding
share of Series B Preferred, (iv) $46.75 per outstanding share of Series C
Preferred, (v) $162.875 per outstanding share of Series D Preferred and (vi)
$188.40 per outstanding share of Series E Preferred (each adjusted to reflect
any combination or subdivision of the Series A Preferred, Series A-1 Preferred,
Series B Preferred, Series C Preferred, Series D Preferred or Series E
Preferred, as the case may be, after February 15, 1996, February 15, 1996,
November 25, 1996, February 21, 1997, December 30, 1998, or March 31, 1999
respectively); provided, however, that if the assets available for distribution
are insufficient to distribute the full amounts so provided in the preceding
clause, then the entire assets available for distribution shall be distributed
pro rata among the holders of Series A Preferred, Series A-1 Preferred, Series B
Preferred, Series C Preferred, Series D Preferred and Series E Preferred based
on the full preferential amount per share of Series A Preferred, Series A-1
Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series
E Preferred that each such holder is otherwise entitled to receive under this
Section 3A(1) multiplied by the number of shares of Series A Preferred, Series
A-1 Preferred, Series B Preferred, Series C Preferred, Series D Preferred and
Series E Preferred, respectively, held by such holder.
2) After payment of the full amounts provided in clause 1, all remaining assets of the Corporation shall be distributed pro rata to the holders of Common Stock in proportion to the number of shares of Common Stock held, subject to the liquidation preferences of any series of Preferred Stock hereafter created.
B. For purposes of this Section 3, a liquidation shall be deemed to include any of the following with respect to a series of Preferred, unless the holders of a majority of the outstanding shares of that series elect otherwise in writing within ten (10) days of notice by the Corporation: the acquisition of substantially all of the assets of the Corporation, whether by sale, merger or otherwise or the acquisition of a majority of the Corporation's outstanding voting shares by a single holder or group of holders acting in concert, except a transaction in which the Corporation's stockholders receive, as a result of such transaction, all of the shares of the transferee or surviving corporation or its parent and such shares are substantially identical to the shares held by them in the Corporation both in number and in type.
C. For purposes of this Section 3, any securities to be delivered to the holders of the Preferred Stock and Common Stock upon a liquidation or deemed liquidation of the Corporation shall be valued as follows:
1) If traded on a securities exchange, the value shall be deemed to be the average of the closing prices of the securities on such exchange over the 30-day period ending three business days prior to the effective date of the liquidation;
2) If actively traded over-the-counter, the value shall be deemed to be the average of the closing bid prices over the 30-day period ending three business days prior to the effective date of the liquidation; and
3) If there is no active public market for the securities or if the securities are subject to legal restrictions on transfer, the value shall be the fair market value thereof, as mutually determined by the Corporation and the holders of not less than a majority of the outstanding shares of Preferred Stock, provided that if the Corporation and the holders of a majority of the outstanding shares of Preferred Stock are unable to reach agreement, then by independent appraisal by an investment banker hired and paid by the Corporation, but acceptable to the holders of a majority of the outstanding shares of Preferred Stock.
4. Voting Rights.
A. Generally. Except as otherwise required by law and except as provided in Section 4B, the holders of Preferred Stock and the holders of Common Stock shall be entitled to notice of any stockholders' meeting and to vote as a single class upon any matter submitted to the stockholders for a vote as follows:
1) the holders of Series A Preferred, Series A-1 Preferred, Series C Preferred, Series D Preferred and Series E Preferred shall have one vote for each full share of Common Stock into which a share of such series would be convertible on the record date for the vote;
2) the holders of Common Stock shall have one vote per share of Common Stock; and
3) the holders of Series B Preferred shall have that number of votes necessary to constitute, in the aggregate, 51% of the outstanding voting securities of the Corporation; provided, however, that the holders of the Series B Preferred shall have one vote for each full share of Common Stock into which a share of such series would be convertible on the record date for the vote upon the occurrence of any of the following: (i) the number of outstanding shares of Series B Preferred is less than 176,471; (ii) the closing of an underwritten public offering of the Corporation's Common Stock pursuant to an effective registration statement under the Securities Act of 1933, as amended, at an aggregate public offering price of at least $20,000,000 and a per share price of at least $4.675, appropriately adjusted for subdivisions and combinations of the Common Stock and dividends of Common Stock subsequent to the filing of the Fifth Restated Certificate of Incorporation; or (iii) such time as the election of members of the Corporation's Board of Directors by the holders of the Series B Preferred is no longer controlled by management-level personnel of either CNA Financial Corporation or one or more of its majority owned and controlled subsidiaries.
B. Election of Directors. As long as an aggregate of more than 88,236 shares of Series A Preferred are outstanding, at each election of directors, the holders of Series A Preferred and Series A-1 Preferred, voting together as a class, shall be entitled to elect one member of the Corporation's Board of Directors. As long as 176,471 shares of Series B Preferred are outstanding, at each election of directors, the holders of Series B Preferred, voting as a separate class, shall be entitled to elect two members of the Corporation's Board of Directors, and, if there are less than 176,471 but more than 88,236 shares of Series B Preferred outstanding, at the election of directors, the holders of Series B Preferred, voting as a separate class, shall be entitled to elect one member of the Corporation's Board of Directors. As long as an aggregate of more than 49,408 shares of Series D Preferred are outstanding, at each election of directors, the holders of Series D Preferred, voting as a separate class, shall be entitled to elect one member of the Corporation's Board of Directors. Subject to the voting rights of Series A Preferred, Series A-1 Preferred, Series B Preferred, Series D Preferred and any series of Preferred Stock hereafter created, the holders of Series C Preferred, Series E Preferred and Common Stock, voting together as a class (with the holders of Series C Preferred and Series E Preferred having one vote for each full share of Common Stock into which a share of such series is then convertible), shall be entitled to elect the remaining directors to the Corporation's Board of Directors.
Any director who shall have been elected by a specified group of stockholders may be removed during the aforesaid term of office, either for or without cause, by, and only by, the affirmative vote of the holders of a majority of the shares of such specified group, given at a special meeting of such stockholders duly called or by an action by written consent for that purpose. Any vacancy in the Board of Directors caused by the removal, resignation or death of any such director who shall have been elected by a specified group of stockholders or the declaration by the Board of Directors that the office of such director is vacant because such director has been declared of unsound mind by a court or convicted of a felony may be filled by,
and only by, the vote of the holders of a majority of the shares of such specified group given at a special meeting of such stockholders or by an action by written consent.
C. Voting Powers of Directors. Each director on the Corporation's
Board of Directors elected by the holders of Series A Preferred, Series A-1
Preferred, Series C Preferred, Series D Preferred, Series E Preferred and Common
Stock shall have one vote, and the directors on the Corporation's Board of
Directors elected by the holders of Series B Preferred, voting together, shall
have that number of votes necessary to constitute, in the aggregate, 51% of the
outstanding votes held by the members of the Corporation's Board of Directors;
provided, however, that each director elected by the holders of the Series B
Preferred shall have one vote upon the happening of any of the following events:
(i) the number of outstanding shares of Series B Preferred shall be less than
176,471; (ii) the closing of an underwritten public offering of the
Corporation's Common Stock pursuant to an effective registration statement under
the Securities Act of 1933, as amended, at an aggregate public offering price of
at least $20,000,000 and a per share price of at least $4.675, appropriately
adjusted for subdivisions and combinations of the Common Stock and dividends of
Common Stock subsequent to the filing of the Fifth Restated Certificate of
Incorporation; or (iii) such time as the election of members of the
Corporation's Board of Directors by the holders of the Series B Preferred is no
longer controlled by management-level personnel of either CNA Financial
Corporation or one or more of its majority owned and controlled subsidiaries.
5. Covenants.
A. In addition to any other rights provided by law, the Corporation shall not, without first obtaining the affirmative vote or written consent of the affected series of Preferred Stock, whether it be (i) the holders of a majority of the outstanding shares of Series A Preferred and Series A-1 Preferred, (ii) the holders of a majority of the outstanding shares of Series B Preferred, (iii) the holders of a majority of the outstanding shares of Series C Preferred, (iv) the holders of a majority of the outstanding shares of Series D Preferred, (v) the holders of a majority of the outstanding shares of Series E Preferred or (vi) the holders of a majority of the outstanding shares of all series of Preferred Stock combined, do any of the following which would affect such series:
1) amend or repeal any provision of the Corporation's Certificate of Incorporation or Bylaws if such action would (i) increase the number of shares of such series authorized hereby, or (ii) adversely affect the rights, preferences, privileges or restrictions of such series; or
2) authorize or issue shares of any class or series of stock on a par with or having any preference or priority as to dividends or assets on liquidation superior to any such preference or priority of such series other than pursuant to the right of the holders of the Series A Preferred, Series A-1 Preferred, Series B Preferred, Series C Preferred, Series D Preferred and Series E Preferred to participate in future financings as set forth in their respective Stock Purchase Agreements or any Investor Rights Agreement with the Corporation.
B. In addition to any other rights provided by law, the Corporation shall not, without first obtaining the affirmative vote or written consent of the holders of a majority of the outstanding shares of Series D Preferred or Series E Preferred, each voting as a separate class, do any of the following which would affect such series:
1) increase the number of authorized shares of Series D Preferred or Series E Preferred or create any new class or series having rights, preferences or privileges that are on a parity with or superior to the rights, preferences or privileges of the Series D Preferred or Series E Preferred;
2) apply any of its assets in any redemption, retirement, purchase or other acquisition of any of its securities, or declare or pay any dividend or distribution, other than repurchases of shares of Common Stock held by officers, directors, employees or consultants of or to the Corporation upon termination of their employment or services pursuant to agreements providing for the right of repurchase between the Corporation and such persons;
3) dissolve, wind up or liquidate its affairs, merge with or into or consolidate with any other entity, or effect any reorganization or recapitalization (other than a stock split, stock dividend or reverse stock split), or sell, convey or otherwise dispose of all or substantially all of its assets, properties or business; or
4) enter into any transaction with or for the benefit, directly or indirectly, of any holder of any outstanding Series A Preferred, Series A-1 Preferred, Series B Preferred or Series C Preferred or any affiliate thereof (including, without limitation, any amendment of any existing agreement, obligation or commitment, written or oral, with or for the benefit, directly or indirectly, of any such holder or affiliate thereof), except for commercial transactions in the ordinary course of the Corporation's business consistent with past practices.
C. The determination of whether and when the Corporation will sell shares of its Common Stock in an underwritten public offering shall be in the sole discretion of Hussein A. Enan, so long as he holds at least 1,500,000 shares of the Corporation's Common Stock and/or other capital stock convertible into such number of shares.
ARTICLE 5
The Board of Directors is expressly authorized to make, alter, or repeal the bylaws of the Corporation.
ARTICLE 6
Elections of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide.
ARTICLE 7
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof, or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of Title 8 of the Delaware Code or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE 8
1. Limitation of Directors' Liability. The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under Delaware law.
2. Indemnification of Corporate Agents. To the fullest extent permitted by applicable law, the Corporation is authorized to provide indemnification of (and advancement of expenses to) directors, officers, employees and other agents of the Corporation (and any other persons to which Delaware law permits the Corporation to provide indemnification), through Bylaw provisions, agreements with any such director, officer, employee or other agent or other person, vote of stockholders or disinterested directors, or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware law (statutory or nonstatutory), with respect to actions for breach of duty to a corporation, its stockholders and others.
3. Repeal or Modification. Any repeal or modification of the foregoing provisions of this Article 8 by the stockholders of the Corporation shall not adversely affect any right or protection of an agent of the corporation existing at the time of such repeal or modification.
ARTICLE 9
Except as otherwise expressly provided herein, the Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, and all rights conferred upon stockholders herein are granted subject to this reservation.
THIRD: That the Board of Directors of the Corporation, at a meeting held on March 18, 1999, adopted resolutions approving and adopting the foregoing amendment and restatement.
FOURTH: That thereafter, the stockholders of the Corporation took action by executing a written consent in lieu of a meeting in accordance with Section 228(a) of the General Corporation Law of the State of Delaware.
FIFTH: That said amendment and restatement was duly adopted in accordance with the provisions of Sections 242 and 245 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Fifth Restated Certificate of Incorporation to be signed by its duly authorized officer, this 31st day of March, 1999.
INSWEB CORPORATION
By /s/ Hussein A. Enan
--------------------------------------
Hussein A. Enan
Chief Executive Officer
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Exhibit 3.2
BYLAWS
OF
INSWEB CORPORATION
A DELAWARE CORPORATION
TABLE OF CONTENTS
Page
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ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.1 Registered Office. . . . . . . . . . . . . . . . . . . . . . . .1
Section 1.2 Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II STOCKHOLDERS' MEETINGS. . . . . . . . . . . . . . . . . . . . . . . .1
Section 2.1 Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . .1
Section 2.2 Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . .1
Section 2.3 Special Meetings.. . . . . . . . . . . . . . . . . . . . . . . .2
Section 2.4 Notice of Meetings.. . . . . . . . . . . . . . . . . . . . . . .2
Section 2.5 Quorum, Conduct and Voting.. . . . . . . . . . . . . . . . . . .3
Section 2.6 Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . .3
Section 2.7 Voting Procedures and Inspectors of Elections. . . . . . . . . .4
Section 2.8 List of Stockholders.. . . . . . . . . . . . . . . . . . . . . .5
Section 2.9 Stockholder Proposals at Annual Meetings.. . . . . . . . . . . .5
Section 2.10 Nominations of Persons for Election to the Board of
Directors. . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 2.11 Action Without Meeting.. . . . . . . . . . . . . . . . . . . . .7
ARTICLE III DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 3.1 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 3.2 Number of Directors. . . . . . . . . . . . . . . . . . . . . . .8
Section 3.3 Election and Term of Office. . . . . . . . . . . . . . . . . . .8
Section 3.4 Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 3.5 Resignations and Removals. . . . . . . . . . . . . . . . . . . .9
Section 3.6 Meetings.. . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 3.7 Quorum and Voting. . . . . . . . . . . . . . . . . . . . . . . 10
Section 3.8 Action Without Meeting.. . . . . . . . . . . . . . . . . . . . 10
Section 3.9 Fees and Compensation. . . . . . . . . . . . . . . . . . . . . 10
Section 3.10 Committees.. . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.1 Officers Designated. . . . . . . . . . . . . . . . . . . . . . 12
Section 4.2 Tenure and Duties of Officers. . . . . . . . . . . . . . . . . 12
ARTICLE V EXECUTION OF CORPORATE INSTRUMENTS, AND VOTING OF SECURITIES
OWNED BY THE CORPORATION . . . . . . . . . . . . . . . . . . . . . 13
Section 5.1 Execution of Corporate Instruments . . . . . . . . . . . . . . 13
Section 5.2 Voting of Securities Owned by Corporation. . . . . . . . . . . 14
ARTICLE VI SHARES OF STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 6.1 Form and Execution of Certificates . . . . . . . . . . . . . . 14
Section 6.2 Lost Certificates. . . . . . . . . . . . . . . . . . . . . . . 15
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TABLE OF CONTENTS
(continued)
Page
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Section 6.3 Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 6.4 Fixing Record Dates. . . . . . . . . . . . . . . . . . . . . . 15
Section 6.5 Registered Stockholders. . . . . . . . . . . . . . . . . . . . 16
ARTICLE VII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . . . . 16
ARTICLE VIII CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE IX INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS. . . . 17
Section 9.1 Right to Indemnification . . . . . . . . . . . . . . . . . . . 17
Section 9.2 Authority to Advance Expenses. . . . . . . . . . . . . . . . . 18
Section 9.3 Right of Claimant to Bring Suit. . . . . . . . . . . . . . . . 18
Section 9.4 Provisions Nonexclusive. . . . . . . . . . . . . . . . . . . . 18
Section 9.5 Authority to Insure. . . . . . . . . . . . . . . . . . . . . . 19
Section 9.6 Survival of Rights.. . . . . . . . . . . . . . . . . . . . . . 19
Section 9.7 Settlement of Claims.. . . . . . . . . . . . . . . . . . . . . 19
Section 9.8 Effect of Amendment. . . . . . . . . . . . . . . . . . . . . . 19
Section 9.9 Subrogation. . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 9.10 No Duplication of Payments.. . . . . . . . . . . . . . . . . . 19
ARTICLE X NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XI AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
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BYLAWS
OF
INSWEB CORPORATION
ARTICLE I
OFFICES
SECTION 1.1 REGISTERED OFFICE.
The registered office of the corporation in the State of Delaware shall be in the City of Wilmington, County of New Castle.
SECTION 1.2 OTHER OFFICES.
The corporation shall also have and maintain an office or principal place of business at 1875 South Grant Street, Suite 800, San Mateo, California 94402, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require.
ARTICLE II
STOCKHOLDERS' MEETINGS
SECTION 2.1 PLACE OF MEETINGS.
Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors or the Chairman of the Board, or, if not so designated, then at the office of the corporation required to be maintained pursuant to section 1.2 of Article I hereof.
SECTION 2.2 ANNUAL MEETINGS.
The annual meetings of the stockholders of the corporation, commencing with the year 1998, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors or the Chairman of the Board, or, if not so designated, then on April 1, at 10:00 a.m., in each year if not a legal holiday, and, if a legal holiday, at the same hour and place on the next succeeding day not a holiday.
SECTION 2.3 SPECIAL MEETINGS.
Special Meetings of the stockholders of the corporation may be called at any time, for any purpose or purposes, by the President, the Secretary, the Chairman of the Board or the Board of Directors. Upon written request of any stockholder or stockholders holding in the aggregate one-fifth of the voting power of all stockholders delivered in person or sent by registered mail to the Chairman of the Board, President or Secretary of the Corporation, the Secretary shall call a special meeting of stockholders to be held at the office of the corporation required to be maintained pursuant to section 1.2 of Article I hereof at such time as the Secretary may fix, such meeting to be held not less than ten nor more than sixty days after the receipt of such request. If the Secretary shall neglect or refuse to call such meeting, within seven days after the receipt of such request, the stockholder making such request may do so.
SECTION 2.4 NOTICE OF MEETINGS.
(a) Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders, specifying the place, date and hour and purpose or purposes of the meeting, shall be given not less than ten nor more than sixty days before the date of the meeting to each stockholder entitled to vote thereat, directed to his address as it appears upon the books of the corporation; except that where the matter to be acted on is a merger or consolidation of the Corporation or a sale, lease or exchange of all or substantially all of its assets, such notice shall be given not less than twenty nor more than sixty days prior to such meeting.
(b) If at any meeting action is proposed to be taken which, if taken, would entitle Stockholders fulfilling the requirements of Section 262(d) of the Delaware General Corporation Law to an appraisal of the fair value of their shares, the notice of such meeting shall contain a statement of that purpose and to that effect and shall be accompanied by a copy of that statutory section.
(c) When a meeting is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken unless the adjournment is for more than thirty days, or unless after the adjournment a new record date is fixed for the adjourned meeting, in which event a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.
(d) Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, either before or after such meeting, and to the extent permitted by law, will be waived by any stockholder by his attendance thereat, in person or by proxy. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given.
(e) Unless and until voted, every proxy shall be revocable at the pleasure of the person who executed it or of his legal representatives or assigns, except in those cases where an irrevocable proxy permitted by statute has been given.
SECTION 2.5 QUORUM, CONDUCT AND VOTING.
(a) At all meetings of stockholders, except where otherwise provided by law, the Certificate of Incorporation, or these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. Shares, the voting of which at said meeting have been enjoined, or which for any reason cannot be lawfully voted at such meeting, shall not be counted to determine a quorum at said meeting. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. At such adjourned meeting at which a quorum is present or represented any business may be transacted which might have been transacted at the original meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum.
(b) Meetings of the shareholders shall be presided over by one of the
following officers in the order of seniority and if present and acting: (i) the
Chairman of the Board, (ii) the Vice-Chairman of the Board, (iii) the President,
(iv) the Vice-President, or (v) if none of the foregoing is present and acting,
by a chairman to be chosen by the shareholders.
(c) Except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, all action taken by the holders of a majority of the voting power represented at any meeting at which a quorum is present shall be valid and binding upon the corporation.
(d) In the election of directors, a plurality of the votes cast shall elect. No shareholder shall be entitled to exercise the right of cumulative voting at a meeting for the election of directors unless the candidate's name or the candidates' names have been placed in nomination prior to the voting and the shareholder has given notice at the meeting prior to the voting of the shareholder's intention to cumulate the shareholder's votes. If any one shareholder has given such notice, all shareholders may cumulate their votes for such candidates in nomination.
SECTION 2.6 VOTING RIGHTS.
(a) Except as otherwise provided by law, only persons in whose names shares entitled to vote stand on the stock records of the corporation on the record date for determining the stockholders entitled to vote at said meeting shall be entitled to vote at such meeting. Shares standing in the names of two or more persons shall be voted or represented in accordance with the determination of the majority of such persons, or, if only one of such persons is present in person or represented by proxy, such person shall have the right to vote such shares and such shares shall be deemed to be represented for the purpose of determining a quorum.
(b) Every person entitled to vote or execute consents shall have the right to do so either in person or by an agent or agents authorized by a written proxy executed by such person or his duly authorized agent, which proxy shall be filed with the Secretary of the corporation at or before the meeting at which it is to be used. Said proxy so appointed need not be a
stockholder. No proxy shall be voted on after three years from its date unless the proxy provides for a longer period.
(c) Without limiting the manner in which a stockholder may authorize another person or persons to act for him as proxy pursuant to subsection (b) of this section, the following shall constitute a valid means by which a stockholder may grant such authority:
(1) A stockholder may execute a writing authorizing another person or persons to act for him as proxy. Execution may be accomplished by the stockholder or his authorized officer, director, employee or agent signing such writing or causing his or her signature to be affixed to such writing by any reasonable means including, but not limited to, by facsimile signature.
(2) A stockholder may authorize another person or persons to act for him as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. Such authorization can be established by the signature of the stockholder on the proxy, either in writing or by a signature stamp or facsimile signature, or by a number or symbol from which the identity of the stockholder can be determined, or by any other procedure deemed appropriate by the inspectors or other persons making the determination as to due authorization.
If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied.
(d) Any copy, facsimile telecommunication or other reliable reproduction of the writing or transmission created pursuant to subsection (c) of this section may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission.
SECTION 2.7 VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The corporation shall, in advance of any meeting of stockholders, appoint one or more inspectors to act at the meeting and make a written report thereof. The corporation may designate one or more persons as alternate inspectors to replace any inspector who fails to act. If no inspector or alternate is able to act at a meeting of stockholders, the person presiding at the meeting shall appoint one or more inspectors to act at the meeting. Each inspector, before entering upon the discharge of his duties, shall take and sign an oath faithfully to execute the duties of inspector with strict impartiality and according to the best of his ability.
(b) The inspectors shall (i) ascertain the number of shares outstanding
and the voting power of each, (ii) determine the shares represented at a meeting
and the validity of proxies and ballots, (iii) count all votes and ballots,
(iv) determine and retain for a reasonable period a record of the disposition of
any challenges made to any determination by the inspectors, and (v) certify
their determination of the number of shares represented at the meeting, and
their count of all votes and ballots. The inspectors may appoint or retain
other persons or entities to assist the inspectors in the performance of the
duties of the inspectors.
(c) The date and time of the opening and the closing of the polls for each matter upon which the stockholders will vote at a meeting shall be announced at the meeting. No ballot, proxies or votes, nor any revocations thereof or changes thereto, shall be accepted by the inspectors after the closing of the polls unless the Court of Chancery upon application by a stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots, the
inspectors shall be limited to an examination of the proxies, any envelopes
submitted with those proxies, any information provided in accordance with
Section 212(c)(2) of the Delaware General Corporation Law, ballots and the
regular books and records of the corporation, except that the inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their nominees
or similar persons which represent more votes than the holder of a proxy is
authorized by the record owner to cast or more votes than the stockholder holds
of record. If the inspectors consider other reliable information for the
limited purpose permitted herein, the inspectors at the time they make their
certification pursuant to subsection (b)(v) of this section shall specify the
precise information considered by them including the person or persons from whom
they obtained the information, when the information was obtained, the means by
which the information was obtained and the basis for the inspectors' belief that
such information is accurate and reliable.
SECTION 2.8 LIST OF STOCKHOLDERS.
The officer who has charge of the stock ledger of the corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, either at a place within the city where the meeting is to be held and which place shall be specified in the notice of the meeting, or, if not specified, at the place where said meeting is to be held, and the list shall be produced and kept at the time and place of meeting during the whole time thereof, and may be inspected by any stockholder who is present.
SECTION 2.9 STOCKHOLDER PROPOSALS AT ANNUAL MEETINGS.
At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the Board of Directors, otherwise properly brought before the meeting by or at the direction of the Board of Directors or otherwise properly brought before the meeting by a stockholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation. To be timely, a stockholder's notice must be delivered to or mailed and received at the principal executive offices of the corporation, not less than 30 days nor more than 60 days prior to the meeting; PROVIDED, HOWEVER, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made. A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting, (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the stockholder proposing such business, (iii) the class and number of shares of the corporation which are beneficially owned by the stockholder, and (iv) any material interest of the stockholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this section 2.9, PROVIDED, HOWEVER, that nothing in this section 2.9 shall be deemed to preclude discussion by any stockholder of any business properly brought before the annual meeting in accordance with said procedure.
The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this section 2.9, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted.
SECTION 2.10 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS.
In addition to any other applicable requirements, only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the corporation may be made at a meeting of stockholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors or by any stockholder of the corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this section 2.10. Such nominations, other than those made by or at the direction of the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary of the corporation. To be timely, a stockholder's notice shall be delivered to or mailed and received at the principal executive offices of the corporation not less than 30 days nor more than 60 days prior to the meeting; PROVIDED, HOWEVER, that in the event that less than 40 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the 10th day following the day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of the corporation which are beneficially owned by the person, and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Rule 14a under the Securities Exchange Act of 1934, as amended; (b) as to the stockholder giving the notice, (i) the name and record address of the stockholder, and (ii) the class and number of shares of the corporation which are beneficially owned by the stockholder. The corporation may require any proposed nominee to furnish such other information as may reasonably be required by the corporation to determine the eligibility of such proposed nominee to serve as a director of the corporation. No person shall be eligible for election as a director of the corporation unless nominated in accordance with the procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded.
SECTION 2.11 ACTION WITHOUT MEETING.
Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of stockholders of the corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting forth the action so taken, are signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. To be effective, a written consent must be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within sixty days of the earliest dated consent delivered in the manner required by this section 2.11 to the corporation, written consents signed by a sufficient number of holders to take action are delivered to the corporation in accordance with this section 2.11. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 3.1 POWERS.
The powers of the corporation shall be exercised, its business conducted and its property controlled by or under the direction of the Board of Directors.
SECTION 3.2 NUMBER OF DIRECTORS.
The authorized number of directors constituting the Board of Directors shall be not less than nine (9) nor more than fourteen (14) until changed by an amendment of the Bylaws approved by the stockholders. The exact number of directors is set at twelve (12), but may be altered, from time to time, within the limits specified in this Section 3.2, by action of the Board of Directors. The indefinite number of directors may be changed, or a definite number may be fixed without provision for an indefinite number, by a duly adopted amendment to the Articles of Incorporation or by an amendment to this Bylaw duly adopted by the vote or written consent of holders of a majority of the outstanding shares entitled to vote; provided, however, that an amendment reducing the number of directors to fewer than five cannot be adopted if the votes cast against its adoption at a meeting or the shares not consenting in writing in the case of action by written consent are equal to more than sixteen and two-thirds percent (16 2/3%) of the outstanding shares. No decrease in the authorized number of directors shall have the effect of shortening the term of any incumbent director.
SECTION 3.3 ELECTION AND TERM OF OFFICE.
Elected directors shall hold office until the next annual meeting and until their successors shall be duly elected and qualified. A director need not be a stockholder of the Corporation, a citizen of the United States, or a resident of the State of Delaware. If, for any cause, the Board of Directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws.
SECTION 3.4 VACANCIES.
Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director, and each director so elected shall hold office for the unexpired portion of the term of the director whose place shall be vacant, and until his successor shall have been duly elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this section 3.4 in the case of the death, removal or resignation of any director, or if the stockholders fail at any meeting of stockholders at which directors are to be elected (including any meeting referred to in section 3.5 below) to elect the number of directors then constituting the whole Board.
SECTION 3.5 RESIGNATIONS AND REMOVALS.
(a) Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each director so chosen shall hold office for the unexpired portion of the term of the director whose place shall be vacated and until his successor shall have been duly elected and qualified.
(b) At a special meeting of stockholders called for the purpose in the manner hereinabove provided, the Board of Directors, or any individual director, may be removed from office, with or without cause, and a new director or directors elected by a vote of stockholders holding a majority of the outstanding shares entitled to vote at an election of directors.
(c) The Board of Directors may declare vacant the office of any director who has been declared of unsound mind by an order of court or convicted of a felony.
SECTION 3.6 MEETINGS.
(a) The annual meeting of the Board of Directors shall be held immediately after the annual stockholders' meeting and at the place where such meeting is held or at the place announced by the Chairman at such meeting. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it.
(b) Except as hereinafter otherwise provided, regular meetings of the Board of Directors shall be held in the office of the corporation required to be maintained pursuant to section 1.2 of Article I hereof. Regular meetings of the Board of Directors may also be held at any place within or without the State of Delaware which has been designated by resolutions of the Board of Directors or the written consent of all directors.
(c) Special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board or, if there is no Chairman of the Board, by the President, or by any of the directors.
(d) Written notice of the time and place of all regular and special meetings of the Board of Directors shall be delivered personally to each director or sent by telegram or facsimile transmission at least 48 hours before the start of the meeting, or sent by first class mail at least 120 hours before the start of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat.
(e) The Chairman of the Board, if any and if present and acting, the Vice Chairman of the Board, if any and if present and acting, shall preside at all meetings of the Board of Directors.
Otherwise, the President, if any and present and acting, or any director chosen by the Board, shall preside.
SECTION 3.7 QUORUM AND VOTING.
(a) A quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time in accordance with section 3.2 of Article III of these Bylaws. If a vacancy or vacancies prevents such a majority, a majority of the directors then in office shall constitute a quorum, provided such majority shall constitute at least either one-third of the authorized number of directors or two directors, whichever is larger. If the number of Directors is one, than one director shall constitute a quorum. At any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting.
(b) At each meeting of the Board at which a quorum is present all questions and business shall be determined by a vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation, or these Bylaws.
(c) Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communication equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting.
(d) The transactions of any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice, or a consent to holding such meeting, or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting.
SECTION 3.8 ACTION WITHOUT MEETING.
Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board or of such committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board or committee.
SECTION 3.9 FEES AND COMPENSATION.
Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by resolution of the Board of Directors.
SECTION 3.10 COMMITTEES.
(a) EXECUTIVE COMMITTEE: The Board of Directors may, by resolution passed by a majority of the whole Board, appoint an Executive Committee of not less than one member, each of whom shall be a director. The Executive Committee, to the extent permitted by law, shall have and may exercise when the Board of Directors is not in session all powers of the Board in the management of the business and affairs of the corporation, including, without limitation, the power and authority to declare a dividend or to authorize the issuance of stock, except such committee shall not have the power or authority to amend the Certificate of Incorporation, to adopt an agreement or merger or consolidation, to recommend to the stockholders the sale, lease or exchange of all or substantially all of the corporation's property and assets, to recommend to the stockholders of the Corporation a dissolution of the Corporation or a revocation of a dissolution, or to amend these Bylaws.
(b) OTHER COMMITTEES: The Board of Directors may, by resolution passed by a majority of the whole Board, from time to time appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committee, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws.
(c) TERM: The members of all committees of the Board of Directors shall serve a term coexistent with that of the Board of Directors which shall have appointed such committee. The Board, subject to the provisions of subsections (a) or (b) of this section 3.10, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee; provided, that no committee shall consist of less than one member. The membership of a committee member shall terminate on the date of his death or voluntary resignation, but the Board may at any time for any reason remove any individual committee member and the Board may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member.
(d) MEETINGS: Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this section 3.10 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter; special meetings of any such committee may be held at the principal office of the corporation required to be maintained pursuant to section 1.2 of Article I hereof; or at any place which has been designated from time to time by resolution of such committee or by written consent of all members thereof,
and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time after the meeting and will be waived by any director by attendance thereat. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee.
ARTICLE IV
OFFICERS
SECTION 4.1 OFFICERS DESIGNATED.
The officers of the corporation shall be a President and a Secretary. The Board of Directors may appoint a Chairman of the Board, whom shall serve as the Chief Executive Officer of the corporation. The Board of Directors or the President may also appoint a Treasurer, one or more Vice-Presidents, assistant secretaries, assistant treasurers, and such other officers and agents with such powers and duties as it shall deem necessary. The order of the seniority of the Vice-Presidents shall be in the order of their nomination, unless otherwise determined by the Board of Directors. The Board of Directors may assign such additional titles to one or more of the officers as they shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors.
SECTION 4.2 TENURE AND DUTIES OF OFFICERS.
(a) GENERAL: All officers shall be appointed by the Board of Directors in accordance with these bylaws. All officers hold office at the pleasure of the Board of Directors until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. Nothing in these Bylaws shall be construed as creating any kind of contractual right to employment with the corporation.
(b) DUTIES OF THE CHAIRMAN OF THE BOARD OF DIRECTORS: The Chairman of the Board of Directors shall be the chief executive officer of the corporation and, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(c) DUTIES OF PRESIDENT: The President shall be the chief executive officer of the corporation in the absence of the Chairman of the Board and shall preside at all meetings of the
stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. The President shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE-PRESIDENTS: The Vice-Presidents, in the order of their seniority, may assume and perform the duties of the President in the absence or disability of the President or whenever the office of the President is vacant. The Vice-President shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(e) DUTIES OF SECRETARY: The Secretary shall attend all meetings of the stockholders and of the Board of Directors and any committee thereof, and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice, in conformity with these Bylaws, of all meetings of the stockholders, and of all meetings of the Board of Directors and any Committee thereof requiring notice. The Secretary shall perform such other duties and have such other powers as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
(f) DUTIES OF TREASURER: The Treasurer (if there be such an officer appointed) shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner, and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Treasurer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Treasurer shall perform all other duties commonly incident to his office and shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct any Assistant Treasurer or to assume and perform the duties of the Treasurer in the absence or disability of the Treasurer, and each Assistant Treasurer shall perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time.
ARTICLE V
EXECUTION OF CORPORATE INSTRUMENTS, AND
VOTING OF SECURITIES OWNED BY THE CORPORATION
SECTION 5.1 EXECUTION OF CORPORATE INSTRUMENTS.
(a) The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute any corporate instrument or document, or to sign the corporate name without limitation, except where otherwise provided by law, and such execution or signature shall be binding upon the corporation.
(b) Unless otherwise specifically determined by the Board of Directors or otherwise required by law, formal contracts of the corporation, promissory notes, deeds of trust, mortgages and other evidences of indebtedness of the corporation, and other corporate instruments or documents requiring the corporate seal, and certificates of shares of stock owned by the corporation, shall be executed, signed or endorsed by the Chairman of the Board (if there be such an officer appointed) or by the President; such documents may also be executed by any Vice-President and by the Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All other instruments and documents requiring the corporate signature, but not requiring the corporate seal, may be executed as aforesaid or in such other manner as may be directed by the Board of Directors.
(c) All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation, or in special accounts of the corporation, shall be signed by such person or persons as the Board of Directors shall authorize so to do.
SECTION 5.2 VOTING OF SECURITIES OWNED BY CORPORATION.
All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors or, in the absence of such authorization, by the Chairman of the Board (if there be such an officer appointed), or by the President, or by any Vice-President.
ARTICLE VI
SHARES OF STOCK
SECTION 6.1 FORM AND EXECUTION OF CERTIFICATES.
Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by, or in the name of the corporation by, the Chairman of the Board (if there be such an officer appointed), or by the President or any Vice-President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. If the corporation shall be authorized to issue more than one class of stock or more than one series of any class, the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, provided that, except as otherwise provided in Section 202 of the Delaware General
Corporation Law, in lieu of the foregoing requirements, there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock, a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights.
SECTION 6.2 LOST CERTIFICATES.
The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to indemnify the corporation in such manner as it shall require and/or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost or destroyed.
SECTION 6.3 TRANSFERS.
Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a certificate or certificates for a like number of shares, properly endorsed.
SECTION 6.4 FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall not be more than sixty nor less than ten days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the date on which the meeting is held. A determination of stockholders of record entitled notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; PROVIDED, HOWEVER, that the Board of Directors may fix a new record date for the adjourned meeting.
(b) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. If no record date has been fixed by the Board of Directors, the record date for determining
stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by the Delaware General Corporation Law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto.
SECTION 6.5 REGISTERED STOCKHOLDERS.
The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VII
OTHER SECURITIES OF THE CORPORATION
All bonds, debentures and other corporate securities of the corporation, other than stock certificates, may be signed by the Chairman of the Board (if there be such an officer appointed), or the President or any Vice-President or such other person as may be authorized by the Board of Directors and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signature of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation, or
such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation.
ARTICLE VIII
CORPORATE SEAL
The corporate seal shall consist of a die bearing the name of the corporation and the state and date of its incorporation. Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise.
ARTICLE IX
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS
SECTION 9.1 RIGHT TO INDEMNIFICATION.
Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness, or otherwise), in any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "Proceeding"), by reason of the fact that he, or a person of whom he is the legal representative, is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to employee benefit plans, whether the basis of the Proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent (hereafter an "Agent"), shall be indemnified and held harmless by the corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended or interpreted (but, in the case of any such amendment or interpretation, only to the extent that such amendment or interpretation permits the corporation to provide broader indemnification rights than were permitted prior thereto) against all expenses, liability, and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties, and amounts paid or to be paid in settlement, and any interest, assessments, or other charges imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt of any payments under this Article IX) reasonably incurred or suffered by such person in connection with investigating, defending, being a witness in, or participating in (including on appeal), or preparing for any of the foregoing in, any Proceeding (hereinafter "Expenses"); PROVIDED, HOWEVER, that except as to actions to enforce indemnification rights pursuant to section 9.3 of this Article IX, the corporation shall indemnify any Agent seeking
indemnification in connection with a Proceeding (or part thereof) initiated by such person only if the Proceeding (or part thereof) was authorized by the Board of Directors of the corporation. The right to indemnification conferred in this Article shall be a contract right.
SECTION 9.2 AUTHORITY TO ADVANCE EXPENSES.
Expenses incurred by an officer or director (acting in his capacity as such) in defending a Proceeding shall be paid by the corporation in advance of the final disposition of such Proceeding, PROVIDED, HOWEVER, that if required by the Delaware General Corporation Law, as amended, such Expenses shall be advanced only upon delivery to the corporation of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article IX or otherwise. Expenses incurred by other Agents of the corporation (or by the directors or officers not acting in their capacity as such, including service with respect to employee benefit plans) may be advanced upon such terms and conditions as the Board of Directors deems appropriate. Any obligation to reimburse the corporation for Expense advances shall be unsecured and no interest shall be charged thereon.
SECTION 9.3 RIGHT OF CLAIMANT TO BRING SUIT.
If a claim under section 9.1 or 9.2 of this Article is not paid in full by the corporation within 60 days after a written claim has been received by the corporation, the claimant may at any time thereafter bring suit against the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense (including attorneys' fees) of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition where the required undertaking has been tendered to the corporation) that the claimant has not met the standards of conduct that make it permissible under the Delaware General Corporation Law for the corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the corporation. Neither the failure of the corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper under the circumstances because he has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the claimant had not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct.
SECTION 9.4 PROVISIONS NONEXCLUSIVE.
The rights conferred on any person by this Article IX shall not be exclusive of any other rights that such person may have or hereafter acquire under any statute, provision of the Certificate of Incorporation, agreement, vote of stockholders or disinterested directors, or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the extent that any provision of the Certificate of Incorporation,
agreement, or vote of the stockholders or disinterested directors is inconsistent with these Bylaws, the provision, agreement, or vote shall take precedence.
SECTION 9.5 AUTHORITY TO INSURE.
The corporation may purchase and maintain insurance to protect itself and any Agent against any Expense, whether or not the corporation would have the power to indemnify the Agent against such Expense under applicable law or the provisions of this Article.
SECTION 9.6 SURVIVAL OF RIGHTS.
The rights provided by this Article IX shall continue as to a person who has ceased to be an Agent and shall inure to the benefit of the heirs, executors, and administrators of such a person.
SECTION 9.7 SETTLEMENT OF CLAIMS.
The corporation shall not be liable to indemnify any Agent under this Article IX (a) for any amounts paid in settlement of any action or claim effected without the corporation's written consent, which consent shall not be unreasonably withheld; or (b) for any judicial award if the corporation was not given a reasonable and timely opportunity, at its expense, to participate in the defense of such action.
SECTION 9.8 EFFECT OF AMENDMENT.
Any amendment, repeal, or modification of this Article IX shall not adversely affect any right or protection of any Agent existing at the time of such amendment, repeal, or modification.
SECTION 9.9 SUBROGATION.
In the event of payment under this Article IX, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights.
SECTION 9.10 NO DUPLICATION OF PAYMENTS.
The corporation shall not be liable under this Article IX to make any payment in connection with any claim made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement, vote, or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE X
NOTICES
Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, the same shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. Any notice required to be given to any director may be given by the method hereinabove stated, or by telegram or other means of electronic transmission, except that such notice other than one which is delivered personally, shall be sent to such address or (in the case of facsimile telecommunication) facsimile telephone number as such director shall have filed in writing with the Secretary of the corporation, or, in the absence of such filing, to the last known post office address of such director. If no address of a stockholder or director be known, such notice may be sent to the office of the corporation required to be maintained pursuant to section 1.2 of Article I hereof. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall be conclusive evidence of the statements therein contained. All notices given by mail, as above provided, shall be deemed to have been given as at the time of mailing and all notices given by telegram or other means of electronic transmission shall be deemed to have been given as at the sending time recorded by the telegraph company or other electronic transmission equipment operator transmitting the same. It shall not be necessary that the same method of giving be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such a stockholder or such director to receive such notice. Whenever any notice is required to be given under the provisions of the statutes or of the Certificate of Incorporation, or of these Bylaws, a waiver thereof in writing signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the Delaware General Corporation Law, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.
ARTICLE XI
AMENDMENTS
These Bylaws may be repealed, altered or amended or new Bylaws adopted by written consent of stockholders in the manner authorized by section 2.8 of Article II, or at any meeting of the stockholders, either annual or special, by the affirmative vote of a majority of the stock entitled to vote at such meeting. The Board of Directors shall also have the authority to repeal, alter or amend these Bylaws or adopt new Bylaws (including, without limitation, the amendment of any Bylaws setting forth the number of directors who shall constitute the whole Board of Directors) by unanimous written consent or at any annual, regular, or special meeting by the affirmative vote of a majority of the whole number of directors, subject to the power of the stockholders to change or repeal such Bylaws and provided that the Board of Directors shall not make or alter any Bylaws fixing the qualifications, classifications, or term of office of directors.
CERTIFICATE OF SECRETARY
The undersigned, Secretary of Insweb Corporation, a Delaware corporation, hereby certifies that the foregoing is a full, true and correct copy of the Bylaws of said corporation, with all amendments to date of this Certificate.
WITNESS the signature of the undersigned this ____th day of May, 1997.
/s/ Hussein A. Enan ------------------------------------ Hussein A. Enan, Secretary |
Exhibit 4.2
INSWEB CORPORATION
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this "AGREEMENT") is made and entered into as of the 31st day of March, 1999 by and among InsWeb Corporation, a Delaware corporation (together with all corporate predecessors-in-interest, the "COMPANY"), Hussein A. Enan ("ENAN"), Darrell J. Ticehurst ("TICEHURST" and, together with Enan, the "FOUNDERS"), Nationwide Mutual Insurance Company, a mutual insurance company organized under the laws of the State of Ohio ("NATIONWIDE"), Insurance Information Exchange, L.L.C., a Delaware limited liability company ("IIX"), Century Capital Partners, L.P., a Delaware limited partnership ("CCP"), Marsh & McLennan Risk Capital Holdings Ltd., a Delaware corporation ("M&M"), E.W. Blanch Holdings, Inc., a Delaware corporation ("BLANCH"), SOFTVEN No. 2 Investment Enterprise Partnership, a Japanese partnership ("SB1"), SOFTBANK Ventures, Inc., a Japanese corporation ("SB2" and, together with Nationwide, IIX, CCP, M&M, Blanch, and SB1, the "PRIOR INVESTORS") and SOFTBANK America Inc. ("SB3," and together with the Prior Investors, the "INVESTORS").
R E C I T A L S
A. The Company has entered into the following agreements (the "PRIOR
COMPANY AGREEMENTS") with certain of the Prior Investors: (i) that certain
Shareholders' Agreement dated as of September 30, 1995 with the Founders (the
"1995 AGREEMENT"); (ii) that certain Series A Preferred Stock Purchase Agreement
dated as of January 30, 1996 with Nationwide (the "SERIES A AGREEMENT");
(iii) that certain Registration Rights Agreement dated as of February 12, 1996
with the Founders and Nationwide (the "1996 REGISTRATION RIGHTS AGREEMENT");
(iv) that certain Co-Sale Agreement dated as of February ___, 1996 with the
Founders and Nationwide (the "1996 CO-SALE AGREEMENT"); (v) that certain Stock
Purchase Agreement dated as of November 22, 1996 with IIX (the "SERIES B
AGREEMENT"); (vi) that certain Series C Preferred Stock Purchase Agreement dated
as of February 21, 1997 with CCP (the "SERIES C AGREEMENT"); (vii) that certain
Co-Sale Agreement dated as of February 21, 1997 with the Founders and CCP (the
"1997 CO-SALE AGREEMENT"); (viii) that certain Nationwide Subscription Agreement
dated as of May 15, 1997 with Nationwide (the "1997 SUBSCRIPTION AGREEMENT");
and (ix) that certain Amendment One to Registration Rights Agreement dated as of
May 15, 1997 with Nationwide and the Founders (the "AMENDMENT");
B. The Founders have entered into the following agreements (the "PRIOR
FOUNDERS' AGREEMENTS") with certain of the Prior Investors: (i) that certain
Stock Purchase Agreement dated as of November 22, 1996 among the Founders and
IIX (the "IIX TRANSFER AGREEMENT"); (ii) that certain Option Agreement dated as
of November 22, 1996 between Enan and IIX (the "IIX OPTION Agreement");
(iii) that certain Stock Purchase Agreement dated as of September 8, 1998 among
the Founders and CCP (the "CCP TRANSFER AGREEMENT"); (iv) that certain
Securities Purchase Agreement dated as of September 30, 1998 among the Founders
and M&M (the "M&M TRANSFER AGREEMENT"); and (v) that certain Stock Purchase and
Option Agreement dated as of October 27, 1998 between Enan and Blanch (the
"BLANCH TRANSFER AGREEMENT");
C. The Prior Company Agreements and the Prior Founders' Agreements (collectively, the "Prior Rights Agreements") contain certain rights and obligations of the Company and the Prior Investors;
D. The Prior Investors entered into an Amended and Restated Investor Rights Agreement dated as of December 30, 1998 (the "Original Rights Agreement") in order to consolidate, clarify, amend and restate in a single document the ongoing rights of the Prior Investors with respect to certain matters and to accord to purchasers of the Company's Series D Preferred Stock certain rights comparable to those held by other Prior Investors;
E. The Prior Investors entered into a Second Amended and Restated Investor Rights Agreement dated as of February 26, 1999 (the "Amended Rights Agreement") to further amend and restate the Original Rights Agreement;
F. The Company and SB3 have entered into a Series E Preferred Stock Purchase Agreement dated as of March 31, 1999 (the "SERIES E AGREEMENT") pursuant to which SB3 and certain Prior Investors who may become parties thereto (collectively the "SERIES E INVESTORS") will purchase from the Company shares of the Company's Series E Preferred Stock;
G. Pursuant to Section 8.5 of the Amended Rights Agreement, the Amended Rights Agreement may be further amended with the written consent of the Company, the Founders and Holders of a majority of the Registrable Securities outstanding or issuable upon conversion of outstanding securities; and
H. The parties hereto, consisting of the Company, the Founders, SB3 and the requisite majority of the Prior Investors, desire to amend and restate the Amended Rights Agreement to accord to the Series E Investors certain rights comparable to those held by the Prior Investors.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and conditions contained herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Company and the Investors hereby agree as follows:
1. DEFINED TERMS. As used in this Agreement, the following terms shall have the following meanings:
(a) "BOARD" means the Board of Directors of the Company, as constituted from time to time.
(b) "CEO" means the Chief Executive Officer of the Company, as that office and duties thereof are defined in the Bylaws.
(c) "COMMON STOCK" means shares of the Common Stock, $0.001 par value, of the Company.
(d) "DEMAND RIGHTS HOLDERS" means all Holders holding shares of Series A Stock, Series A-1 Stock, Series D Stock or Series E Stock (and/or Common Stock issued upon the conversion of such Series A Stock, Series A-1 Stock, Series D Stock or Series E Stock) then outstanding and not registered.
(e) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, or any similar federal statute and the rules and the regulations of the SEC thereunder, all as in effect from time to time.
(f) "FOUNDER'S STOCK" means shares of Common Stock held by any Founder or Founder's Transferee.
(g) "FOUNDER'S TRANSFEREE" means CCP, M&M, Blanch and any other person or entity to whom any Founder(s) transfer(s) at least 100,000 shares of Common Stock, and any person or entity to whom any such Founder's Transferee(s) transfer(s) at least 50,000 shares of Common Stock, in each case, as adjusted for stock splits, combinations, recapitalizations, stock dividends and the like.
(h) "HOLDER" means any Investor, or any other holder of outstanding Registrable Securities (and/or securities convertible into Registrable Securities) who acquires such securities in accordance with Section 3.10 hereof.
(i) "INITIATING HOLDERS" means any Demand Rights Holder(s) holding in the aggregate not less than forty percent (40%) of the shares of Series A Stock, Series A-1 Stock, Series D Stock or Series E Stock (and/or Common Stock issued upon the conversion of such Series A Stock, Series A-1 Stock, Series D Stock or Series E Stock) then outstanding and not registered.
(j) "PARTICIPATING HOLDERS" means all Holders, whether or not
Initiating Holders, who request that any Registrable Securities held by them be
included in any registration, qualification or compliance initiated pursuant to
Section 3.1, 3.2 or 3.3 hereof.
(k) "PREFERRED HOLDERS" means holders of shares of Preferred Stock, or Common Stock issued upon the conversion thereof.
(l) "PREFERRED STOCK" means shares of Series A Stock, Series A-1 Stock, Series B Stock, Series C Stock, Series D Stock, Series E Stock and any other series of Preferred Stock of the Company hereafter outstanding.
(m) "PREFERRED TRANSFEREE" means each person or entity to whom any Preferred Holder(s) and/or Preferred Transferee(s) transfer(s) at least 10,000 shares of Preferred Stock (and/or Common Stock issued upon conversion of such shares of Preferred Stock), in each case, as adjusted for stock splits, combinations, recapitalizations, stock dividends and the like.
(n) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by filing with the SEC a registration statement in compliance with the Securities Act and the declaration or ordering by the SEC of the effectiveness of such registration statement.
(o) "REGISTRABLE SECURITIES" means: (i) shares of Common Stock
issued or issuable upon conversion of the Preferred Stock; (ii) Founder's Stock;
and (iii) shares of Common Stock issued as (or issuable upon the conversion or
exercise of any warrant, right, or other security that is issued as) a dividend
or other distribution with respect to or in exchange or in replacement of, any
of the securities referred to in clause (i) or (ii) above or this clause (iii);
PROVIDED, HOWEVER, that Common Stock or other securities shall only be treated
as Registrable Securities (A) if and so long as they have not been (I) sold to
or through a broker or dealer or underwriter in a public distribution or a
public securities transaction, (II) sold in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act under
Section 4(1) thereof so that all transfer restrictions (including, without
limitation, the market-stand-off agreement in Section 3.13 hereof), and
restrictive legends with respect thereto, if any, are removed upon the
consummation of such sale, or (B) until the later of (x) such time as the Holder
would be able to sell all of its Registrable Securities in a three (3) month
period pursuant to Rule 144 under the Securities Act or (y) two (2) years after
the effective time of the Company's initial public offering.
(p) "SEC" means the United States Securities and Exchange Commission or any successor agency.
(q) "SECURITIES ACT" means the Securities Act of 1933, as amended, or any similar federal statute and the rules and the regulations of the SEC thereunder, all as in effect from time to time.
(r) "SERIES A STOCK" means shares of Series A Preferred Stock, $0.001 par value, of the Company.
(s) "SERIES A-1 STOCK" means shares of Series A-1 Preferred Stock, $0.001 par value, of the Company.
(t) "SERIES B STOCK" means shares of Series B Preferred Stock, $0.001 par value, of the Company.
(u) "SERIES C STOCK" means shares of Series C Preferred Stock, $0.001 par value, of the Company.
(v) "SERIES D STOCK" means shares of Series D Preferred Stock, $0.001 par value, of the Company.
(w) "SERIES E STOCK" means shares of Series E Preferred Stock, $0.001 par value, of the Company.
2. AMENDMENTS TO THE PRIOR RIGHTS AGREEMENTS. The Prior Company Agreements and Prior Founders' Agreements are amended as set forth below, effective as of the effective date of the Original Rights Agreement.
2.1 THE 1995 AGREEMENT. The 1995 Agreement is hereby amended by
deleting therefrom Section 3 (regarding co-sale rights and rights of first offer
in favor of each of the Founders and the Company), Section 4 (regarding Company
governance), Section 5 regarding "piggyback" registration rights) and Section
6(c) (regarding termination).
2.2 THE SERIES A AGREEMENT. The Series A Agreement is hereby amended by deleting therefrom Sections 7.1, 7.2, 7.3, 7.4 and 7.5 (regarding information rights and conflicts of interest of officers of the Company) and Section 7.6 (regarding participation rights in future financings.
2.3 THE SERIES B AGREEMENT. The Series B Agreement is hereby amended to delete therefrom Section 7A.a (regarding voting rights of the holders of Series B Stock and their designated representatives on the Board), Section 7B (regarding information rights, conflicts of interest of officers of the Company and participation rights in future financings), Section 7C (regarding "piggyback" registration rights) and Section 8 (regarding transfer restrictions on Company shares).
2.4 THE IIX TRANSFER AGREEMENT. The IIX Transfer Agreement is hereby
amended to delete therefrom Section 7A.a (regarding voting rights of the holders
of Series B Stock and their designated representatives on the Board), Section 7B
(regarding rights of co-sale granted by each of the Founders to IIX) and
Section 8 (regarding transfer restrictions on Company shares).
2.5 THE SERIES C AGREEMENT. The Series C Agreement is hereby amended to delete therefrom Sections 7.1, 7.2, 7.3, 7.4 and 7.5 (regarding information rights and conflicts of interest of officers of the Company), Section 7.6 (regarding participation rights in future financings), Section 7.7 (regarding "piggyback" and "S-3" registration rights), Section 7.8 (regarding certain Board observation and information rights) and Section 8 (regarding transfer restrictions on Company shares).
2.6 THE M&M TRANSFER AGREEMENT. The M&M Transfer Agreement is hereby amended to delete therefrom Section 5.3 (regarding rights of co-sale granted by each of the Founders to M&M).
2.7 TERMINATION OF CERTAIN AGREEMENTS. The 1996 Co-Sale Agreement,
the 1997 Co-Sale Agreement, the 1996 Registration Rights Agreement and the
Amendment are each hereby terminated in their entirety.
2.8 SURVIVAL OF OTHER PROVISIONS. Except as specifically provided in this Section 2, the Prior Agreements shall remain in full force and effect. Without limiting the generality of the following:
(a) THE SERIES A AGREEMENT. Section 8.4 (regarding rights of first of first refusal in favor of the Company upon a proposed transfer of securities by Nationwide) of the Series A Agreement shall remain in full force and effect.
(b) THE SERIES B AGREEMENT. Sections 7A.b, c and e (regarding
(i) CNA's right, under certain circumstances to appoint the CEO, (ii) the
obligation of CNA to repurchase Enan's Common Stock under certain circumstances
and (iii) rights in favor of Enan regarding the initial public offering of the
Common Stock) of the Series B Agreement shall remain in full force and effect.
(c) THE IIX TRANSFER AGREEMENT. Sections 7A.b, c and e
(regarding (i) CNA's right, under certain circumstances to appoint the CEO, (ii)
the obligation of CNA to repurchase Enan's Common Stock under certain
circumstances and (iii) rights in favor of Enan regarding the initial public
offering of the Common Stock) and Section 7C (regarding competition by the
Founders with the Company) of the IIX Transfer Agreement shall remain in full
force and effect.
(d) THE M&M TRANSFER AGREEMENT. Section 2 (regarding certain price protection adjustments), Section 5.1 (regarding the Founders obligations with respect to Board representation by M&M) and Section 6 (regarding rights of first refusal in favor of the Founders upon a proposed transfer of securities by M&M) of the M&M Transfer Agreement shall remain in full force and effect.
(e) THE BLANCH TRANSFER AGREEMENT. Sections 2 and 3 (regarding certain "put" and "call" options between Blanch and the Founders) and Section 6 (regarding certain covenants of the Founders and Blanch) shall remain in full force and effect.
3. REGISTRATION RIGHTS.
3.1 COMPANY REGISTRATION.
(a) REGISTRATION RIGHTS. If, at any time or from time to time, the Company shall determine to register any of its securities for its own account or for the account of a security holder or security holders exercising their respective demand registration rights pursuant to Section 3.2 hereof or otherwise (other than a registration relating solely to employee stock option, stock purchase or similar plans, a registration relating solely to an SEC Rule 145 transaction, or a registration on any other form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities), the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) subject to Section 3.1(b), include in such registration (and any related qualifications under blue sky laws or other compliance), and in any underwriting related thereto, all the Registrable Securities specified in a written request or requests, made
within thirty (30) days after receipt of such written notice from the Company, by any Holder, which written request may specify all or a part of such Holder's Registrable Securities.
(b) UNDERWRITING. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders, identifying the managing underwriter(s) (to
the extent known by the Company), as a part of the written notice given pursuant
to Section 3.1(a)(i). In such event, the right of any Holder to registration
pursuant to this Section 3.1 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the managing underwriter or managing underwriters selected for such
underwriting by the Company (or by the Initiating Holders who have demanded such
registration as provided for in Section 3.2(b)). Notwithstanding any other
provision of this Section 3.1, if the managing underwriter(s) determine(s) that
marketing factors require a limitation of the number of shares to be
underwritten and so advise(s) the Company, and (i) if such registration is the
first registered offering of the Company's securities to the general public, the
managing underwriter(s) may exclude from such registration and underwriting some
or all of the Registrable Securities which would otherwise be underwritten
pursuant hereto, and (ii) if such registration is initiated by the Company and
is other than the first registered offering of the Company's securities to the
public, the managing underwriter(s) may limit the number of Registrable
Securities to be included in the registration and underwriting to not less than
twenty-five percent (25%) of the securities included therein (based on aggregate
market value). The Company shall advise all Participating Holders of any such
limitation, and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among the
Participating Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by each such Holder at the time of filing
the registration statement; PROVIDED, HOWEVER, that in a registration initiated
pursuant to Section 3.2 hereof, the allocation of the shares to be included in
such registration shall be determined pursuant to Section 3.2(b) hereof. With
respect to any "selling Holder" that is selling securities hereunder and which
is a partnership or corporation, in the event of any underwriter cutback, the
partners, retired partners or stockholders of such "selling Holder," or the
estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "selling Holder," and any pro rata allocation with respect to such
"selling Holder" shall be based upon the aggregate amounts of shares carrying
registration rights owned by all entities and individuals included in such
"selling Holder," as defined in this sentence. No securities excluded from the
underwriting by reason of such underwriter's marketing limitation shall be
included in such registration. If any Participating Holder disapproves of the
terms of the underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company and the managing underwriter(s). The Registrable
Securities so withdrawn shall also be withdrawn from registration and, unless
Section 3.13 applies to such registration, such withdrawn Registrable Securities
shall not be transferred in a public distribution prior to one hundred eighty
(180) days after the effective date of such registration. If by the withdrawal
of such Registrable Securities a greater number of
Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the managing underwriter(s)), the Company shall offer to all Holders who have requested inclusion of their Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 3.1(b).
(c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 3.1 prior to the effectiveness of such registration whether or not any
Holder has elected to include Registrable Securities in such registration.
3.2 DEMAND REGISTRATION.
(a) DEMAND FOR REGISTRATION. If the Company shall receive from Initiating Holders a written demand that the Company effect a registration of all or a part of the Registrable Securities held by such Initiating Holders, the Company will:
(i) promptly give each other Holder written notice thereof; and
(ii) as soon as practicable, use its diligent best efforts to effect such registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws and appropriate compliance with exemptive regulations issued under the Securities Act and any other applicable governmental requirements or regulations) as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Initiating Holder's or Holders' Registrable Securities as are specified in such demand, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request pursuant to Section 3.1(a)(ii); PROVIDED, HOWEVER, the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 3.2:
(A) Prior to one hundred eighty (180) days after the effective date of the first registration statement for a public offering of securities of the Company (other than a registration statement relating solely to employee stock option, stock purchase or similar plans, a registration relating solely to an SEC Rule 145 transaction, or a registration on any other form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities);
(B) Unless, after the Company gives the notice specified in Section 3.2(a)(i), the Holders propose to sell a number of shares of Registrable Securities having an aggregate proposed offering price of at least $10,000,000;
(C) After the Company has effected one (1) such registration pursuant to this Section 3.2, pursuant to which all of the Registrable Securities included in such registration have been sold; or
(D) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act.
Subject to the foregoing clauses (A) through (D), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable; PROVIDED, HOWEVER, that if the Company shall furnish to the Initiating Holder(s) a certificate signed by the CEO or the President of the Company stating that in the good faith judgment of the Board it would be seriously detrimental to the Company and its stockholders for such registration statement to be filed at the date filing would be required hereunder and that it is therefore essential to defer the filing of such registration statement, the Company's obligation to use its diligent best efforts to file a registration statement shall be deferred for a period not to exceed ninety (90) days from the receipt of the demand from the Initiating Holders; PROVIDED FURTHER that the Company shall not exercise such right to defer a filing more often than once in any twelve (12) month period.
(b) UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable Securities covered by their demand by means of an
underwriting, they shall so advise the Company as a part of their demand made
pursuant to Section 3.2(a), and the Company shall include such information in
the written notices referred to in Sections 3.1(a)(i) and 3.2(a)(i). In such
event, the right of any Holder to registration pursuant hereto shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting. The
Company, together with all Participating Holders, shall enter into an
underwriting agreement in customary form with the managing underwriter or
managing underwriters selected for such underwriting by a majority in interest
of the Initiating Holders (which managing underwriter(s) shall be reasonably
acceptable for the Company). Notwithstanding any other provision of this
Section 3.2, if the managing underwriter(s) determine(s) that marketing factors
require a limitation of the number of shares to be underwritten and so advise(s)
the Initiating Holders in writing, the Initiating Holders shall so advise all
Participating Holders, and the number of shares of Registrable Securities that
may be included in the registration and underwriting shall be allocated in the
following manner: first among the Initiating Holders and the other Demand
Rights Holders who are Participating Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by each
such Holder at the time of filing the registration statement, and thereafter
among the other Participating Holders in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities held by each such Holder at
the time of filing the registration statement. With respect to any "selling
Holder" that is selling securities hereunder and which is a partnership or
corporation, in the event of any underwriter cutback, the partners, retired
partners or stockholders of such "selling Holder," or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "selling Holder,"
any pro rata allocation with respect to such "selling Holder" shall be based
upon the aggregate amounts of shares carrying registration rights owned by all
entities and individuals included in such "selling Holder," as defined in this
sentence. No securities excluded from the registration by reason of such
underwriter's marketing limitation
shall be included in such registration. If any Participating Holder disapproves of the terms of the underwriting, such Holder may elect to withdraw therefrom by written notice to the Company, the managing underwriter(s) and the Initiating Holders. The Registrable Securities so withdrawn shall also be withdrawn from registration and, unless Section 3.13 applies to such registration, such withdrawn Registrable Securities shall not be transferred in a public distribution prior to one hundred eighty (180) days after the effective date of such registration. If by the withdrawal of such Registrable Securities a greater number of Registrable Securities held by other Holders may be included in such registration (up to the maximum of any limitation imposed by the managing underwriter(s)), the Company shall offer to all Holders who have requested inclusion of their Registrable Securities in the registration the right to include additional Registrable Securities in the same proportion used in determining the underwriter limitation in this Section 3.2(b).
(c) OTHER SHARES. If the underwriter has not limited the number of Registrable Securities to be underwritten, the Company may include securities for its own account and/or for the account of other holders of the Company's securities in such registration if the underwriter so agrees.
3.3 FORM S-3 REGISTRATION.
(a) Following the initial offering of the Company's securities to the general public, the Company will use its best efforts to qualify for the registration of its securities on Form S-3 (or a successor form which allows inclusion or incorporation by reference of substantial information by reference to other documents filed with the SEC). After and during any period in which the Company is so qualified, any Holder shall have the right to request an unlimited number of registrations of Registrable Securities on Form S-3 (or such successor form), subject only to: (i) compliance with the procedures specified in Section 3.2(b) (except that all Participating Holders shall have the opportunity to have a ratable portion of their Registrable Securities included in such registration without preference for Demand Rights Holders); (ii) the requirement that the Holders requesting such registration propose to dispose of Registrable Securities having an aggregate proposed offering price of not less than $1,000,000; and (iii) the limitation that the Holders may not demand more than two (2) such registrations on Form S-3 during any twelve (12) month period. The Company shall promptly give notice to all Holders of the receipt of a request for registration pursuant to this Section and shall provide a reasonable opportunity for other Holders to participate in the registration. Subject to the foregoing, the Company will use its diligent best efforts to promptly effect the registration (including, without limitation, the execution of an undertaking to file post-effective amendments, appropriate qualifications under blue sky or other state securities laws and appropriate compliance with applicable regulations issued under the Securities Act and any other governmental requirements and regulations) of all Registrable Securities on Form S-3 to the extent requested by the Holder or Holders thereof.
(b) Notwithstanding the foregoing, the Company shall not be obligated to take any action pursuant to this Section 3.3: (i) during the period starting with the date sixty (60) days prior to the filing of, and ending on a date six (6) months following the effective date
of, a registration statement filed or to be filed by the Company (other than a registration relating solely to employee stock option, stock purchase or similar plans, a registration relating solely to an SEC Rule 145 Transaction or any other registration which is not appropriate for the registration of Registrable Securities), PROVIDED that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; (ii) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; or (iii) if the Company shall furnish to the Holders requesting such registration a certificate signed by the CEO or the President of the Company stating that in the good faith judgment of the Board it would be seriously detrimental to the Company and its stockholders for such registration statement to filed at the date filing would be required hereunder and that it is therefore essential to defer the filing of such registration statement, then the Company's obligation to use its diligent best efforts to file a registration statement shall be deferred for a period not to exceed ninety (90) days from the receipt of the request to file such registration; PROVIDED, that the Company shall not exercise such right to defer a filing more than once in any twelve (12) month period.
3.4 EXPENSES OF REGISTRATION. All expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 3.1, 3.2 or 3.3, including without limitation, all registration, filing and qualification fees, blue sky fees and expenses, printing expenses, escrow fees, accounting fees incidental to or required by such registration (including, without limitation, any special audits), the fees and disbursements of counsel for the Company with respect to such registration and the reasonable fees and disbursements of one (1) counsel for the Participating Holders in such registration shall be borne by the Company; PROVIDED, HOWEVER, that the following expenses shall be borne by the Holders participating in such registration:
(a) All fees and disbursements of counsel for the Holders other than those specifically required herein to be borne by the Company; and
(b) Underwriters' fees, discounts and commissions relating to Registrable Securities being sold in such registration.
If a registration proceeding begun pursuant to Section 3.2 is withdrawn by the Initiating Holders, the expenses of such registration proceeding shall be borne by the Holders, pro rata, according to the number of shares of Registrable Securities requested to be registered by Holders who requested to participate in such registration; PROVIDED, HOWEVER, that if such request is withdrawn after the filing of the registration statement as a result of the addition of materially adverse information concerning the Company in an amendment to such registration statement, which information was known to the Company but not the Initiating Holders at the time of such request, then such expenses that would otherwise be payable by such Holders shall be payable by the Company and such withdrawn request shall not be counted as a request for purposes of Section 3.2 or as a withdrawn demand for purposes of this Section 3.4.
3.5 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 3 to effect the registration of any Registrable Securities, the
Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and keep such registration statement effective for up to one hundred eighty (180) days or until the Holder or Holders have completed the distribution relating thereto, whichever first occurs.
(b) Prepare and file with the SEC 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 Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and to such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them.
(d) Use its best 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 Holders, 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 Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement.
(f) Notify each Holder 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.
3.6 INDEMNIFICATION.
(a) The Company will indemnify each Holder participating in any registration effected pursuant to this Section 3, each of their respective officers, directors, partners and agents, and each person controlling such Holder within the meaning of the Securities Act, and each underwriter, if any, and each person who controls any underwriter within the meaning of the Securities Act, against all claims, losses, damages and liabilities (or actions or settlements in respect thereof) arising out of or based on (i) any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus, offering circular or other similar document (including any related registration statement, notification or the like) incident to any such registration, qualification or compliance, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or (iii) any violation (or alleged violation) by the Company of any federal or state law, rule or regulation applicable to the Company in connection with any such registration, qualification or compliance. The Company will reimburse each such person, each such officer and director, partner, agent and controlling person, each such underwriter and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action; provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage or liability is caused by any untrue statement (or alleged untrue statement) or omission (or alleged omission) based upon written information furnished to the Company by an instrument duly, executed by such Holder or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if securities held by or issuable to such Holder are included in such registration, qualification or compliance, indemnify the Company, each of its directors, each of its officers who sign such registration statement, each underwriter, if any, of the Company's securities covered by such registration statement, each person who controls the Company or such underwriter within the meaning of the Securities Act and each other such Holder, each of its officers, directors, partners and agents and each person controlling such other Holder within the meaning of the Securities Act against all claims, losses, damages and liabilities (or actions or settlements in respect thereof) arising out of or based on (i) any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement or prospectus, or (ii) any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, and will reimburse the Company, such Holders, such directors, officers, persons or underwriters for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement or prospectus in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder and stated to be specifically for use therein; provided that in no event shall the liability of any Holder pursuant to this Section 3.6(a) exceed the amount of the gross proceeds received by such person from the sale of securities in such registration.
(c) Each party entitled to indemnification under this
Section 3.6 (the "INDEMNIFIED PARTY") shall give notice to the party required to
provide such indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense,
and provided further that the failure of any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 3, unless the failure to give notice is
materially prejudicial to an Indemnifying Party's ability to defend such
action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect to such
claim or litigation. An Indemnified Party shall have the right to retain one
(1) separate counsel, with the reasonable fees and expenses to be paid by the
Indemnifying Party, if representation of such Indemnified Party would be
inappropriate due to actual differing interests between such Indemnified
Party and the Indemnifying Party; provided, however, that all Indemnified
Parties with the same actual differing interests from the Indemnifying Party
shall be entitled to payment for only one (1) counsel collectively. The
Indemnifying Party shall pay the expenses of the Indemnified Party as they
become due and payable.
(d) The indemnity provisions contained in Sections 3.6(a) and 3.6(b) shall not apply to amounts paid in settlement of any claim, loss, damage, liability or action if such settlement is effected without the consent of the Indemnifying Party.
(e) If the indemnification provided for in this Section 3.6 is held by a court of competent jurisdiction to be unavailable to an Indemnified Party with respect to any losses, claims, damages or liabilities referred to herein, the Indemnifying Party, in lieu of indemnifying such Indemnified Party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such Indemnified Party as a result of such loss, claim, damage or liability 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 violations(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the Indemnifying Party and of the Indemnified Party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state 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; provided, that in no event shall any contribution by a Holder hereunder exceed the proceeds from the offering received by such Holder.
3.7 INFORMATION BY HOLDER. Each Holder whose securities are included
in any registration shall furnish in writing to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Section 3.
3.8 SALE WITHOUT REGISTRATION. At the time of any transfer of any shares of Preferred Stock or Registrable Securities which shall not be registered under the Securities Act, the Company may require, as a condition of allowing such transfer, that the holder or transferee
furnish to the Company: (a) such information as is reasonably necessary in order to establish that such transfer may be made without registration under the Securities Act; and (b) except for transfers proposed to be made in accordance with SEC Rule 144 or in connection with distributions to partners of Investors which are partnerships, at the expense of the holder or transferee, an opinion of counsel, reasonably satisfactory in form and substance to the Company, to the effect that such transfer may be made without registration under the Securities Act; provided that nothing contained in this Section 3.8 shall relieve the Company from complying with any request for registration, qualification or compliance made pursuant to the other provisions of this Section 3.
3.9 RULE 144 REPORTING. With a view to making available to the Holders the benefits of certain rules and regulations of the SEC which may permit the sale of the Registrable Securities to the public without registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after the effective date of the first registration filed by the Company for an offering of its securities to the general public;
(b) File with the SEC in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, furnish to such Holder forthwith upon request: (i) a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed for an offering of the Company's securities to the general public) and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements); (ii) a copy of the most recent annual or quarterly report of the Company; and (iii) such other reports and documents so filed by the Company as may reasonably be requested in availing such person of any rule or regulation of the SEC permitting the sale of any such securities without registration.
3.10 TRANSFER OF RIGHTS. The rights to cause the Company to register securities granted by the Company under Sections 3.1, 3.2 and 3.3 hereof may not be assigned to a transferee or assignee other than a Founder's Transferee or a Preferred Transferee, in each case who agrees in writing to be bound by the provisions of this Section 3, without the written consent of the Company, provided that a transfer may be made to the corporate successor or an affiliate of a Holder without the consent of the Company if (a) such transfer may otherwise be effected in accordance with the securities laws and (b) the transferee shall agree to be bound by all of the provisions of this Section 3.
3.11 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 3.
3.12 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of Holders other than Founders holding a majority of the then
outstanding Registrable Securities and securities convertible into Registrable
Securities held by all Holders other than Founders, enter into any agreement
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder to (1) require the Company to
effect a registration or (ii) include any securities in any registration filed
under Section 3.1, 3.2 or 3.3 hereof, unless, under the terms of such agreement,
such Holder or prospective Holder may include such securities in any such
registration only to the extent that the inclusion of such securities will not
diminish the amount of Registrable Securities which are included in such
registration and such agreement includes as a term thereof the equivalent of
Section 3.13 hereof.
3.13 MARKET STAND-OFF AGREEMENT. Each Holder hereby agrees that for a period of one hundred eighty (180) days following the effective date of the first registration statement of the Company covering Common Stock (or other securities) to be sold on its behalf in an underwritten public offering (or for such shorter period as may be allowed by the managing underwriter or underwriters of such offering), not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise transfer or dispose of (other than to donees who agree to be similarly bound) any capital stock of the Company held by such Holder at any time during such period except Common Stock included in such registration, PROVIDED, that all officers and directors of the Company who hold securities of the Company, all holders of five percent (5%) or more of the Company's outstanding securities, and all other persons with registration rights (whether or not pursuant to this Agreement) enter into similar agreements. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the securities of each Holder (and the securities of every other person subject to the foregoing restriction) until the end of such period.
4. INFORMATION RIGHTS. The Company and the Investors agree as follows:
4.1 FINANCIAL INFORMATION. Subject to the provisions of this Section 4, the Company will furnish the following reports to each Investor so long as such Investor (together with any of its affiliates) holds not less than 100,000 shares of Common Stock (including shares of Common Stock issuable upon conversion of outstanding shares of Preferred Stock), as adjusted for recapitalizations, stock splits, stock dividends and the like:
(a) As soon as practicable after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), and in any event within forty-five (45) days thereafter, copies of (i) a consolidated balance sheet of the Company and its subsidiaries as at the end of such quarter and (ii) consolidated statements of income, changes in stockholders' equity and cash flows of the Company and its subsidiaries for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles applicable to quarterly financial
statements generally, and certified as complete and correct, subject to changes resulting from year-end adjustments, by a senior financial officer of the Company.
(b) As soon as practicable after the end of each fiscal year of
the Company, and in any event within ninety (90) days thereafter, copies of
(i) a consolidated balance sheet of the Company and its subsidiaries as at the
end of such fiscal year and (ii) consolidated statements of income, changes in
stockholders' equity and cash flows of the Company and its subsidiaries for such
fiscal year, setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance with
generally accepted accounting principles and accompanied by (iii) an opinion
thereon of independent certified public accountants of recognized national
standing selected by the Company, which opinion shall, without qualification,
state that such financial statements present fairly, in all material respects,
the consolidated financial position of the Company being reported upon and its
consolidated results of operations and cash flows and have been prepared in
conformity with generally accepted accounting principles, and that the
examination of such accountants in connection with such financial statements has
been made in accordance with generally accepted auditing standards, and that
such audit provides a reasonable basis for such opinion in the circumstances,
and (iv) a certification by a senior financial officer of the Company that such
financial statements are complete and correct.
(c) Promptly, but in any event not more than five (5) business days after the receipt thereof, a copy of each other report submitted to the Company by independent certified public accountants in connection with any annual, interim or special audit made by them of the books of the Company.
(d) Promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Company to stockholders generally, and of each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters), and each amendment thereto, in respect thereof filed by the Company with, or received by the Company in connection therewith from, the National Association of Securities Dealers, any securities exchange or the SEC.
(e) For so long as such Investor is eligible to receive reports under this Section 4.1, it shall also have the right, at its expense, to visit and inspect any of the properties of the Company or any of its subsidiaries, to examine their books of account and records, to discuss their affairs, finances and accounts with their officers, employees and accountants and to consult with and advise their directors and officers on the management of their business, all at such reasonable times and as often as may be reasonably requested; PROVIDED, HOWEVER, that the Company shall not be obligated to provide any information that it reasonably considers to be a trade secret or to be confidential information.
4.2 ADDITIONAL INFORMATION. As long as any Investor (together with any of its affiliates) holds not less than 200,000 shares of Common Stock (including shares of Common Stock issuable upon conversion of outstanding shares of Preferred Stock), as adjusted for
recapitalizations, stock splits, stock dividends and the like, the Company will mail the following reports to such Investor:
(a) Prior to the end of each fiscal quarter, a budget for the next fiscal quarter, and, as soon as prepared, any other budgets or revised budgets prepared by the Company.
(b) As soon as practicable after the end of each fiscal month, and in any event within thirty (30) days thereafter, a monthly progress report against budget, explaining any material discrepancies.
4.3 TRANSFER OF INFORMATION RIGHTS. The information rights set forth in Sections 4.1 and 4.2 may be transferred in any non-public transfer of securities of the Company, PROVIDED that the Company is given written notice of such transfer, and PROVIDED FURTHER that such rights may only be transferred to a holder of, or affiliated holders who in the aggregate hold, at least the amount of shares specified in Sections 4.1 and 4.2. In the event that the Company reasonably determines that provision of information to a transferee pursuant to this Section 4.3 would materially adversely affect its proprietary or competitive position, such information may be edited in the manner necessary to avoid such affect.
4.4 TERMINATION OF COVENANTS. The covenants set forth in
Sections 4.1 and 4.2 shall terminate and be of no further force or effect at
such time as the Company is required to file reports with the SEC pursuant to
Section 13(a) or 15(d) of the Exchange Act.
4.5 AFFILIATED PARTIES. For purposes of this Section 4, Preferred Stock and/or Common Stock held by affiliated parties shall be deemed to be held by a single Investor. Affiliated parties shall include employees, directors, stockholders or partners of an Investor, and other persons controlling, controlled by or under common control with an Investor. Affiliated groups shall designate one member to receive the information or exercise the rights to which the group is entitled under this Section 4. Notwithstanding the foregoing, for purposes of this Section 4.5, SB1, SB2 and SB3 shall not be treated as being affiliated with one another.
4.6 CONFIDENTIALITY OF INFORMATION; SECURITIES LAWS.
(a) GENERAL. Each Investor agrees to maintain the
confidentiality of any information obtained by such Investor pursuant to
Section 4.1 or 4.2 which may be proprietary to the Company or otherwise
confidential unless and until such information has been made available to the
public or to any other third party on a non-confidential basis, or such Investor
is required to disclose such information by a governmental body. Each Investor
further acknowledges and understands that any information so obtained (whether
or not of a proprietary nature) may be considered "inside" non-public
information. Each Investor agrees that it will not utilize such information in
connection with the purchase and/or sale of the Company's securities, except in
compliance with applicable state and federal securities laws. Information shall
not be confidential or proprietary if: (i) in the possession of Investor at the
time of disclosure as shown by Investor's files and records immediately prior to
the time of disclosure; (ii) before or after it has been disclosed to Investor,
it is part of the public knowledge or literature, not as a result of
any action or inaction of Investor; or (iii) approved for release by written authorization of the Company.
(b) THE BLANCH TRANSFER AGREEMENT. Notwithstanding the provisions of this Section 4, the Company shall not be required to provide to Blanch any information that Enan is not required to provide pursuant to Section 6.4 of the Blanch Transfer Agreement.
5. PARTICIPATION IN FUTURE FINANCINGS.
5.1 ISSUANCES OF NEW SECURITIES. As used in this Section 5, the term "NEW SECURITIES" means any shares of any class or series of capital stock of the Company, whether or not presently authorized, which the Company may hereafter issue, any warrants, options, or rights to acquire such capital stock, and any instrument convertible into or exchangeable for such capital stock.
(a) Except as provided in paragraph (c) below, if the Company
shall issue any New Securities, it shall offer to sell to each Investor who is a
Preferred Holder and to each assignee of a Preferred Holder permitted under
Section 5.3 below a Ratable Portion (as hereinafter defined) of such New
Securities on the same terms and conditions and at the lowest price as such New
Securities are issued to any person in accordance with this Section 5. "RATABLE
PORTION" shall mean that portion of such New Securities that bears the same
ratio to all such New Securities (including for this purpose all New Securities
which may be purchased by all Preferred Holders and their permitted assignees
pursuant to this Section 5) as the number of shares of Common Stock issuable
upon conversion of the Preferred Stock held by such Preferred Holder and the
number of shares of Common Stock issued upon such conversion and held by such
Preferred Holder immediately prior to such issuance of New Securities bears to
the Outstanding Common Shares. "OUTSTANDING COMMON SHARES" means all shares of
Common Stock outstanding and all shares of Common Stock issuable upon conversion
of all convertible securities outstanding and upon exercise of all warrants and
options outstanding, in each case immediately prior to such issuance of New
Securities.
(b) The Company shall use reasonable efforts to notify the eligible Preferred Holders a reasonable time prior to the initial issuance of the New Securities and to provide such Preferred Holders with an opportunity to participate in the issuance contemporaneously with the issuance to the first purchaser(s) of the New Securities; but in no event shall notice be given later than thirty (30) days after such issuance. Such notice shall contain all material terms of the issuance and of the New Securities. Each eligible Preferred Holder may elect to exercise all or any portion of its rights under this Section 5 by giving written notice to the Company within fifteen (15) days following the Company's notice. If the consideration paid by others for the New Securities is not cash, and if the electing Preferred Holder cannot for any reason pay for the New Securities in the form of such non-cash consideration, such Preferred Holder may pay the cash equivalent thereof, as determined in good faith by the Board. All payments shall be delivered by the electing Preferred Holder to the Company not later than the date specified by the Company in its notice, but in no event earlier than twenty (20) days after the Company's notice.
(c) The provisions of this Section 5 shall not apply to (i) shares of Common Stock issued or issuable by the Company, which shares are excluded from the definition of "Additional Shares of Common Stock" for purposes of Article 4, Section 2, of the Certificate of Incorporation of the Company (the "CERTIFICATE"), as such definition may be amended from time to time, or (ii) shares of Series E Stock.
5.2 TERMINATION OF RIGHTS. The rights of the Preferred Holders under this Section 5 shall terminate immediately prior to the closing of an underwritten public offering of securities by the Company which satisfies the requirements of the Certificate for the automatic conversion of the Preferred Stock.
5.3 TRANSFER OF RIGHTS. Each Preferred Holder's rights under this
Section 5 shall be assignable only to a Preferred Transferee who agrees in
writing to be bound by the provisions of this Agreement.
6. RIGHTS REGARDING TRANSFERS OF FOUNDERS' STOCK. Each Founder hereby agrees as follows:
6.1 NOTICE OF PROPOSED TRANSFER. Before a Founder may effect any
transfer of any Founder's Stock (the "OFFERED STOCK"), such Founder (the
"SELLING FOUNDER") must give at the same time to the other Founder (the
"NON-SELLING FOUNDER"), the Company and the Preferred Holders and M&M
(collectively, the "CO-SALE RIGHTS HOLDERS") a written notice signed by the
Selling Founder (the "SELLING FOUNDER'S NOTICE") setting forth the following:
(a) the Selling Founder's bona fide intention to transfer such Offered Stock;
(b) the number of shares of the Offered Stock; (c) the name, address and
relationship, if any, to the Selling Founder of each proposed purchaser or other
transferee; and (d) the bona fide cash price or, in reasonable detail, other
consideration, per share for which the Selling Founder proposes to transfer such
Offered Stock (the "OFFERED PRICE"). The Selling Founder's Notice shall further
state (i) that the Non-Selling Founder may acquire, in accordance with the
provisions of Section 6.2 hereof, any of the Offered Stock for the Offered Price
and upon the other terms and conditions set forth therein; (ii) that if the
Non-Selling Founder does not purchase all of the Offered Stock, the Company may
acquire such Offered Stock not previously purchased (the "REFUSED STOCK") upon
the same terms and conditions; (iii) that if all such Offered Stock is not
purchased by the Non-Selling Founder and/or the Company, the Co-Sale Rights
Holders may exercise their rights under Section 6.3 hereof; and (iv) the date
upon which each of the Non-Selling Founder's, the Company's and the Co-Sale
Rights Holders' rights under this Section 6 with respect to such Offered Stock
expire hereunder. Upon the request of the Non-Selling Founder, the Company or
any Co-Sale Rights Holder, the Selling Founder will promptly furnish such
information to the Non-Selling Founder, the Company and the Co-Sale Rights
Holders as may be reasonably requested to establish that the offer and proposed
transferee are bona fide.
6.2 RIGHTS OF FIRST REFUSAL ON TRANSFERS BY THE FOUNDERS.
(a) NON-SELLING FOUNDER'S RIGHT. The Non-Selling Founder shall
have the right of first refusal to purchase all or any part of the Selling
Founder's Offered Stock, if the Non-Selling Founder gives written notice of the
exercise of such right to the Selling Founder and the Company within fifteen
(15) days (the "NON-SELLING FOUNDER'S REFUSAL PERIOD") after the date of
delivery of the Selling Founder's Notice to the Non-Selling Founder.
(b) THE COMPANY'S RIGHT. If the Non-Selling Founder does not fully exercise his right of first refusal, as provided in Section 6.2(a) above, before the expiration of the Non-Selling Founder's Refusal Period, the Company shall have the right of first refusal to purchase all or any part of the Refused Stock. If the Company desires to exercise its right of first refusal to purchase Refused Stock, the Company must, within the ten (10) day period (the "COMPANY REFUSAL PERIOD") following the end of the Non-Selling Founder's Refusal Period, give written notice to the Selling Founder of its election to purchase an amount of the Refused Stock, indicating the number of shares that it desires to purchase.
(c) PURCHASE PRICE. The purchase price for the Offered Stock to be purchased by the Non-Selling Founder or for the Refused Stock to be purchased by the Company exercising its right of first refusal under this Section 6.2 will be the Offered Price, but will be payable as set forth in Section 6.2(d) below. If the Offered Price includes consideration other than cash, the cash equivalent value of the non-cash consideration will be determined by the Board in good faith, which determination will be binding upon the Selling Founder, the Non-Selling Founder and the Company, absent fraud or error.
(d) PAYMENT. Payment of the purchase price for the Offered Stock to be purchased by the Non-Selling Founder or for the Refused Stock to be purchased by the Company exercising its right of first refusal will be made within seven (7) days after the date of the last day of the Non-Selling Founder's Refusal Period or, if applicable, the Company Refusal Period. Payment of the purchase price will be made, at the option of the Non-Selling Founder or the Company, as the case may be, (i) in cash (by cashier's check or wire transfer), (ii) by cancellation of all or a portion of any outstanding indebtedness of the Selling Founder to the Non-Selling Founder or the Company, as the case may be, or (iii) by any combination of the foregoing.
(e) RIGHTS AS A STOCKHOLDER. If the Non-Selling Founder and/or the Company exercise their rights of first refusal to purchase all of the Offered Stock, then, upon the date the notice of such exercise is given by the Non-Selling Founder and/or the Company, the Selling Founder will have no further rights as a holder of such Offered Stock with respect to which a right of first refusal has been exercised, except the right to receive payment for such Offered Stock from the Non-Selling Founder and/or the Company, as the case may be, in accordance with the terms of this Agreement, and the Selling Founder will forthwith cause all certificate(s) evidencing such Offered Stock to be surrendered to the Company for transfer or cancellation, as the case may be.
(f) SELLING FOUNDER'S RIGHT TO TRANSFER. If the Non-Selling Founder and /or the Company have not elected to purchase all of the Offered Stock, then, subject to the right of co-sale set forth in Section 6.3 hereof, the Selling Founder may transfer the Offered Stock permitted to be sold by the Selling Founder, to any person named as a purchaser or other transferee in the Selling Founder's Notice, at the Offered Price or at a higher price, provided that such transfer (i) is consummated within forty-five (45) days after the date of the Selling Founder's Notice and (ii) is in accordance with all the terms of this Agreement. If the Offered Stock is not so transferred during such period, then the Selling Founder may not transfer any of such Offered Stock without complying again in full with the provisions of this Agreement.
6.3 RIGHT OF CO-SALE.
(a) THE RIGHT. In the event that a Selling Founder proposes to
sell or transfer shares of Founder's Stock, and has complied with the provisions
of Section 6.2 above, and the Non-Selling Founder and/or the Company shall not
have elected to purchase all of the Offered Stock, the Selling Founder shall
give written notice (the "CO-SALE RIGHTS NOTICE") of such proposed sale to each
of the Co-Sale Rights Holders setting forth: (i) the number of shares of the
Offered Stock proposed to be sold or transferred; (ii) the name, address and
relationship, if any, to the Selling Founder of each proposed purchaser or other
transferee; (iii) the Offered Price; and (iv) that the proposed purchaser or
other Transferee has been informed of the co-sale rights provided in this
Section 6.3. The Co-Sale rights Holders shall each have the right, exercisable
upon written notice to the Selling Founder within twenty (20) days after
delivery of the Co-Sale Rights Notice, to participate in such sale of Offered
Stock. Each Co-Sale Rights Holder shall be entitled to sell its Pro Rata Share
(as hereinafter defined) of the shares of Offered Stock proposed to be sold by
the Selling Founder. A Co-Sale Rights Holder's "PRO RATA SHARE" shall be equal
to a fraction, the numerator of which is the number of shares of Common Stock
held by such Co-Sale Rights Holder and the denominator of which is the total
number of shares of Common Stock held by all Co-Sale Rights Holders PLUS the
total number of shares of Founder's Stock held by the Selling Founder. For
purposes of making such computation, Common Stock shall be deemed to include
shares of Common Stock issuable upon conversion of shares of Preferred Stock.
(b) PROHIBITED TRANSFERS. Any attempt to transfer shares of the Company in violation of this Section 6.3 shall be void and the Company agrees that it will not effect such a transfer nor will it treat any alleged transferee as the holder of such shares without the written consent of the Preferred Holders.
6.4 LIMITATIONS ON RIGHTS. Sections 6.1, 6.2 and 6.3 hereof shall not apply to a sale, assignment or transfer of Founder's Stock which constitutes:
(i) A pledge of Founder's Stock made pursuant to a bona fide loan transaction that creates a mere security interest; any transfer to a Founder's ancestors, descendants or spouse or to trusts for the benefit of such persons or a Founder; or any bona fide gift; PROVIDED that the pledgee, transferee or donee shall enter into a written agreement to be bound by and comply with all provisions of this Agreement; provided, that such transferred stock
shall remain "Founder's Stock" hereunder, and such pledgee, transferee or donee shall be treated as a "Founder" for purposes of this Section 6;
(ii) A transfer to any parent, shareholder, subsidiary or affiliate of such Founder or any corporation, general or limited partnership, trust or other entity or organization in which any of the foregoing, individually or in the aggregate, has a majority of the equity interest, and such Founder's immediately family, and trusts if a majority of the beneficiaries of the trust are such Founder or members of his immediate family; or
(iii) A transfer pursuant to Section 7A.c of the Series B Agreement or Section 7A.c of the IIX Transfer Agreement.
6.5 TRANSFER OF RIGHTS. Each Preferred Holder's rights under this
Section 6 shall be assignable only to (i) Preferred Transferees and (ii) any
fund or entity affiliated with and under common control with such Preferred
Holder, in each case who agree in writing to be bound by the provisions of this
Section 6.
6.6 TERMINATION OF RIGHTS. The rights set forth in this Section 6 shall terminate immediately prior to the closing of an underwritten public offering of securities by the Company which satisfies the requirements of the Certificate for the automatic conversion of the Preferred Stock.
7. OTHER COVENANTS.
7.1 CONFLICTS OF INTEREST. Unless the Company first obtains
appropriate approval of the Board and, if necessary, stockholders in accordance
with the Delaware General Corporation Law, the Company shall use its best
efforts to ensure that (a) officers of the Company will not become indebted to
the Company except in connection with stock purchases approved by the Board,
travel advances and other transactions in the ordinary course of business, and
(b) officers of the Company will not have any direct or indirect ownership
interest in any firm or corporation with which the Company has a business
relationship or with which it competes (except that officers may own up to five
percent (5%) of the outstanding stock in publicly traded companies which may
have a business relationship with or compete with the Company).
7.2 LIFE INSURANCE. The Company agrees to maintain "Key Person" insurance, with proceeds payable to the Company, covering the death or disability of Enan in the amount of $2 million, as well as any other members of the Company management deemed by the Board to be essential to the success of the Company.
7.3 SOFTBANK RIGHTS REGARDING BOARD OF DIRECTORS. So long as SB1, SB2 and their affiliates together own not less than fifty percent (50%) of the shares of Common Stock issued or issuable upon conversion of the Series D Stock, the Company and each Investor agrees to use its best efforts (i) at the request of SOFTBANK Corp. ("SOFTBANK"), to cause and maintain the election of one representative of SOFTBANK to the Board or, if SOFTBANK has not designated a representative to the Board, to cause a representative designated by
SOFTBANK to be invited to attend all Board meetings in a nonvoting observer capacity and, in this respect, to give such representative copies of all notices, minutes, consents and other materials that are provided to Board members, provided that such representative shall agree to hold in confidence and trust, and to act in a fiduciary manner with respect to, all information so provided and provided, further, that the Company shall be entitled to exclude such representative from any meeting or portion thereof at which attendance by such representative could adversely affect the attorney-client privilege between the Company and its counsel, and (ii) to limit the size of the Board to fourteen (14) members unless otherwise approved by SOFTBANK or its representative on the Board.
7.4 IIX RIGHTS REGARDING OPERATIONS. As long as IIX and/or any affiliate of IIX beneficially owns at least 1,764,710 shares of Common Stock issued or issuable upon the conversion of Preferred Stock, it shall be entitled to designate at least two (2) members on the Board. In the event IIX and/or its affiliates own less than an aggregate amount of 1,764,710 but more than an aggregate amount of 882,350 of such shares, it shall be entitled to designate at least one (1) member on the Board. Moreover, as long as IIX and/or its affiliates own an aggregate of at least 1,764,710 shares of Common Stock issued or issuable upon the conversion of Preferred Stock, or until such time as the election of members of the Board by holders of the Series B Stock (as provided in the Certificate) is no longer controlled by management-level personnel of either CNA Financial Corporation or one or more of its majority owned and controlled subsidiaries, (i) the two directors designated by IIX, voting together, shall have fifty-one percent (51%) of the votes to be cast by the Board on all matters which come before the Board, and (ii) IIX's vote of its shares of Series B Stock as a stockholder shall constitute fifty-one percent (51%) of all votes to be cast by all stockholders of the Company on all matters on which the stockholders vote.
7.5 INITIAL PUBLIC OFFERING. The determination of whether and when the Company will sell shares of its Common Stock in an underwritten public offering shall be in the sole discretion of Hussein A. Enan, so long as he holds at least 1,500,000 shares of the Company's Common Stock and/or other capital stock convertible into such number of shares. IIX hereby agrees to vote, and to cause its representatives on the Board to vote, in a manner consistent with the foregoing provision.
7.6 NEGATIVE COVENANTS. As long as any shares of the Series D Stock or Series E Stock are outstanding, the Company and each Investor agree that the Company and each of its subsidiaries shall not, without the prior approval of the holders of a majority of the outstanding shares of the Series D Stock and Series E Stock (to the extent such approval is not otherwise required in the Company's Certificate of Incorporation):
(a) amend its Certificate of Incorporation or Bylaws or equivalent organizational document (including, without limitation, by the filing or amendment of any certificate of designation) or in any other way change the rights, preferences or privileges of the Series D Stock or Series E Stock;
(b) increase the authorized number of shares of Series D Stock or Series E Stock, or create any new class or series of securities having rights, preferences or privileges that are on a parity with or superior to the rights, preferences or privileges of the Series D Stock or Series E Stock;
(c) apply any of its assets in any redemption, retirement, purchase or other acquisition of any of its securities, or declare or pay any dividend or distribution, other than dividends or distributions by any subsidiary of the Company to the Company and other than repurchases of shares of Common Stock held by officers, directors, employees or consultants of or to the Company upon termination of their employment or services pursuant to agreements providing for the right of repurchase between the Company and such persons;
(d) dissolve, wind up or liquidate its affairs, merge with or into or consolidate with any other entity, or effect any reorganization or recapitalization (other than a stock split, stock dividend or reverse stock split), or sell, convey or otherwise dispose of all or substantially all of its assets, properties or business; or
(e) enter into any transaction with or for the benefit, directly or indirectly, of any holder of any outstanding Series A Stock, Series A-1 Stock, Series B Stock or Series C Stock or any affiliate thereof (including, without limitation, any amendment of any existing agreement, obligation or commitment, written or oral, with or for the benefit, directly or indirectly, of any such holder or affiliate thereof), except for commercial transactions in the ordinary course of the Company's business consistent with past practices.
7.7 TERMINATION OF RIGHTS. The covenants set forth in this Section 7 shall terminate immediately prior to the closing of an underwritten public offering of securities by the Company which satisfies the requirements of the Certificate for the automatic conversion of the Preferred Stock.
8. MISCELLANEOUS.
8.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents, made and to be performed entirely within the State of California, except to the extent that Delaware corporate law is applicable.
8.2 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto.
8.3 ENTIRE AGREEMENT. This Agreement (including any Schedule hereto) constitutes the full and entire understanding and agreement among the parties with regard to the subject matter hereof.
8.4 SEPARABILITY. Any invalidity, illegally, or limitation of the enforceability with respect to any Investor of any one or more of the provisions of this Agreement, or any part
thereof, whether arising by reason of the law of any such Investor's domicile or otherwise, shall in no way affect or impair the validity, legality, or enforceability of this Agreement with respect to other Investors. In case any provision of this Agreement shall be invalid, illegal, or unenforceable, it shall to the extent practicable, be modified so as to make it valid, legal and enforceable and to retain as nearly as practicable the intent of the parties, and the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby.
8.5 AMENDMENT AND WAIVER. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance, either retroactively or prospectively, and either for a specified period of time or indefinitely), only with the written consent of the Company, the Founders and the Holders of a majority of the Registrable Securities then outstanding or issuable upon conversion of securities then outstanding, which have not been sold to the public; PROVIDED, HOWEVER, that (i) no amendment or waiver which would adversely affect an individual Investor or its permitted assignee(s) in a manner or degree different from other Investors and their permitted assignees shall be effective without the written consent of the Investor and/or assignee(s) so affected; and (ii) no amendment or waiver which would adversely affect the holders of a class or series of Preferred Stock in a manner or degree different from the other classes or series of Preferred Stock shall be effective without the written consent of the holders of a majority of the outstanding shares of the affected class or series of Preferred Stock. No such amendment or waiver shall reduce the aforesaid percentage of Registrable Securities the Holders of which are required to consent to any waiver or supplemental agreement without the consent of the Holders of all of such Registrable Securities, as appropriate. Any amendment or waiver effected in accordance with this Section 8.5 shall be binding upon each holder of Preferred Stock and Registrable Securities, each future holder of all such securities, and the Company. Upon the effectuation of each such amendment or waiver, the Company shall promptly give written notice thereof to the record holders of the Preferred Stock and Registrable Securities who have not previously consented thereto in writing.
8.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right, power, or remedy accruing to any Investor or any subsequent holder of any shares of Preferred Stock or Registrable Securities upon any breach, default or noncompliance of the Company under this Agreement, shall impair any such right, power or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on the Investor's part of any breach, default or noncompliance under this Agreement or any waiver on the Investor's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing, and that all remedies, either under this Agreement, by law, or otherwise afforded to the Investors shall be cumulative and not alternative.
8.7 NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be deemed effectively given upon personal delivery, including delivery by a recognized courier service, or upon delivery by facsimile or on the fifth
(5th) business day following mailing by first-class mail, postage prepaid, addressed (a) if to a Investor, at such Investor's address as set forth on SCHEDULE 1 hereto, or at such other address as such Investor shall have furnished to the Company in writing, or (b) if to the Company, at the address of its principal executive office, or at such other address as the Company shall have furnished to the Investors in writing.
8.8 TITLES AND SUBTITLES. The titles of the Sections and Subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement.
8.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original, but all of which together shall constitute one instrument.
8.10 WAIVER OF PRIOR RIGHT OF FIRST REFUSAL. The Prior Investors hereby consent to, and waive any right of first refusal they may have with respect to, the Company's issuance of Series E Stock under the Series E Agreement; provided that the sale of Series E Stock at the Second Closing under the Series E Agreement is consummated not later than June 30, 1999.
[REST OF THIS PAGE INTENTIONALLY BLANK]
COUNTERPART SIGNATURE PAGE TO
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
The foregoing Agreement is hereby executed as of the date first above written.
INSWEB CORPORATION
By: /s/ Marian C. Taylor
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Name: Marian C. Taylor
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Title: SVP, General Counsel & Secretary
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/s/ Hussein A. Enan
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HUSSEIN A. ENAN
/s/ Darrell T. Ticehurst
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DARRELL T. TICEHURST
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COUNTERPART SIGNATURE PAGE TO
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
The foregoing Agreement is hereby executed as of the date first above written.
NATIONWIDE MUTUAL INSURANCE COMPANY
By: /s/ Jerry D. Cohen
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Name: Jerry D. Cohen
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Title: Investment Officer
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COUNTERPART SIGNATURE PAGE TO
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
The foregoing Agreement is hereby executed as of the date first above written.
INSURANCE INFORMATION EXCHANGE, L.L.C.
By: /s/ Ken Benvenuto
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Name: Ken Benvenuto
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Title: CEO
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COUNTERPART SIGNATURE PAGE TO
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
The foregoing Agreement is hereby executed as of the date first above written.
CENTURY CAPITAL PARTNERS, L.P.
By CCP Capital Partners, Inc., its General Partner
By: /s/ Richard Freeman
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Name: Richard Freeman
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Title: Vice President
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COUNTERPART SIGNATURE PAGE TO
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
The foregoing Agreement is hereby executed as of the date first above written.
MARSH & McLENNAN RISK CAPITAL HOLDINGS LTD.
By: /s/ Frank J. Borolli
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Name: Frank J. Borolli
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Title: Chairman
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COUNTERPART SIGNATURE PAGE TO
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
The foregoing Agreement is hereby executed as of the date first above written.
E. W. BLANCH HOLDINGS, INC.
By: /s/ Daniel P. O'Keefe
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Name: Daniel P. O'Keefe
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Title: Corporate Secretary/SVP
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COUNTERPART SIGNATURE PAGE TO
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
The foregoing Agreement is hereby executed as of the date first above written.
SOFTVEN NO. 2 INVESTMENT ENTERPRISE PARTNERSHIP
By: /s/ Yoshitaka Kitao
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Name: Yoshitaka Kitao
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Title: President
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SOFTBANK VENTURES, INC.
By: /s/ Yoshitaka Kitao
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Name: Yoshitaka Kitao
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Title: President & CEO
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COUNTERPART SIGNATURE PAGE TO
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
The foregoing Agreement is hereby executed as of the date first above written.
SOFTBANK AMERICA INC.
By: /s/ Ronald D. Fisher
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Name: Ronald D. Fisher
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Title: Vice Chairman
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SCHEDULE 1
Hussein A. Enan
InsWeb Corporation
901 Marshall Street
Redwood City, CA 94063
Darrell T. Ticehurst
InsWeb Corporation
901 Marshall Street
Redwood City, CA 94063
Nationwide Mutual Insurance Company
One Nationwide Plaza
Columbus, OH 43216
Insurance Information Exchange, L.L.C.
c/o AMS Services, Inc.
900 Chelmsford Road
Lowell, MA 01851
Century Capital Partners, L.P.
c/o Century Capital Management, Inc.
One Liberty Square
Boston, MA 02109
Marsh & McLennan Risk Capital Holdings, Ltd.
1166 Avenue of the Americas
New York, New York 10036
E.W. Blanch Holdings, Inc.
500 North Akard
Suite 4500
Dallas, TX 75201
SOFTVEN No. 2 Investment Enterprise Partnership
1-16-8 Nihonbashi-Kakigaracho
Chuo-ku, Tokyo 103 0014, Japan
SOFTBANK Ventures, Inc.
1-16-8 Nihonbashi-Kakigaracho
Chuo-ku, Tokyo 103 0014, Japan
SOFTBANK America Inc.
300 Delaware Avenue, Suite 900
Wilmington, DE 19801
Exhibit 10.2
INSWEB CORPORATION
1997 STOCK OPTION PLAN
(As Amended Through March 5, 1999)
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 Establishment. The InsWeb Corporation 1997 Stock Option Plan (the "Plan") is hereby established effective as of July 1, 1997 (the "Effective Date").
1.2 Purpose. The purpose of the Plan is to advance the interests of the Participating Company Group and its stockholders by providing an incentive to attract, retain and reward persons performing services for the Participating Company Group and by motivating such persons to contribute to the growth and profitability of the Participating Company Group.
1.3 Term of Plan. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued and all restrictions on such shares under the terms of the Plan and the agreements evidencing Options granted under the Plan have lapsed. However, all Options shall be granted, if at all, within ten (10) years from the earlier of the date the Plan is adopted by the Board or the date the Plan is duly approved by the stockholders of the Company.
2. DEFINITIONS AND CONSTRUCTION.
2.1 Definitions. Whenever used herein, the following terms shall have their respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.
(c) "Committee" means the Compensation Committee or other committee of the Board duly appointed to administer the Plan and having such powers as shall be specified by the Board. 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 amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law.
(d) "Company" means InsWeb Corporation, a Delaware corporation, or any successor corporation thereto.
(e) "Consultant" means any person, including an advisor, engaged by a Participating Company to render services other than as an Employee or a Director.
(f) "Director" means a member of the Board or of the board of directors of any other Participating Company.
(g) "Disability" means the permanent and total disability of the Optionee within the meaning of Section 22(e)(3) of the Code.
(h) "Employee" means any person treated as an employee (including an officer or a Director who is also treated as an employee) in the records of a Participating Company and, with respect to any Incentive Stock Option granted to such person, who is an employee for purposes of Section 422 of the Code; provided, however, that neither service as a Director nor payment of a director's fee shall be sufficient to constitute employment for purposes of the Plan.
(i) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(j) "Fair Market Value" means, as of any date, the value of a share of Stock or other property as determined by the Board, in its sole discretion, or by the Company, in its sole discretion, if such determination is expressly allocated to the Company herein, subject to the following:
(i) If, on such date, there is a public market for the Stock, the Fair Market Value of a share of Stock shall be the closing sale price of a share of Stock (or the mean of the closing bid and asked prices of a share of Stock if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq Small-Cap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, as reported in the Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system, the date on which the Fair Market Value shall be established shall be the last day on which the Stock was so traded prior to the relevant date, or such other appropriate day as shall be determined by the Board, in its sole discretion.
(ii) If, on such date, there is no public market for the Stock, the Fair Market Value of a share of Stock shall be as determined by the Board without regard to any restriction other than a restriction which, by its terms, will never lapse.
(k) "Incentive Stock Option" means an Option intended to be (as set forth in the Option Agreement) and which qualifies as an incentive stock option within the meaning of Section 422(b) of the Code.
(l) "Insider" means an officer or a Director of the Company or any other person whose transactions in Stock are subject to Section 16 of the Exchange Act.
(m) "Nonstatutory Stock Option" means an Option not intended to be (as set forth in the Option Agreement) or which does not qualify as an Incentive Stock Option.
(n) "Option" means a right to purchase Stock (subject to adjustment as provided in Section 4.2) pursuant to the terms and conditions of the Plan. An Option may be either an Incentive Stock Option or a Nonstatutory Stock Option.
(o) "Option Agreement" means a written agreement between the Company and an Optionee setting forth the terms, conditions and restrictions of the Option granted to the Optionee and any shares acquired upon the exercise thereof.
(p) "Optionee" means a person who has been granted one or more Options.
(q) "Parent Corporation" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code.
(r) "Participating Company" means the Company or any Parent Corporation or Subsidiary Corporation.
(s) "Participating Company Group" means, at any point in time, all corporations collectively which are then Participating Companies.
(t) "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as amended from time to time, or any successor rule or regulation.
(u) "Securities Act" means the Securities Act of 1933, as amended.
(v) "Service" means an Optionee's employment or service with the Participating Company Group, whether in the capacity of an Employee, a Director or a Consultant. The Optionee's Service shall not be deemed to have terminated merely because of a change in the Participating Company for which the Optionee renders such Service, provided that there is no interruption or termination of the Optionee's Service. Furthermore, an Optionee's Service with the Participating Company Group shall not be deemed to have terminated if the Optionee takes any military leave, sick leave, or other bona fide leave of absence approved by the Company; provided, however, that if any such leave exceeds ninety (90) days, on the ninety-first (91st) day of such leave the Optionee's Service shall be deemed to have terminated unless the Optionee's right to return to Service with the Participating Company Group is guaranteed by statute or contract. Notwithstanding the foregoing, unless otherwise designated by the Company or required by law, a leave of absence shall not be treated as Service for purposes of determining vesting under the Optionee's Option Agreement. The Optionee's Service shall be deemed to have terminated either upon an actual termination of Service or upon the corporation for which the Optionee performs Service ceasing to be a Participating Company. Subject to the foregoing, the
Company, in its sole discretion, shall determine whether the Optionee's Service has terminated and the effective date of such termination.
(w) "Stock" means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2.
(x) "Subsidiary Corporation" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code.
(y) "Ten Percent Owner Optionee" means an Optionee who, at the time an Option is granted to the Optionee, owns stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of a Participating Company within the meaning of Section 422(b)(6) of the Code.
2.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise.
3. ADMINISTRATION.
3.1 Administration by the Board. The Plan shall be administered by the Board. All questions of interpretation of the Plan or of any Option shall be determined by the Board, and such determinations shall be final and binding upon all persons having an interest in the Plan or such Option. Any officer of a Participating Company appointed by the Board shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election which is the responsibility of or which is allocated to the Company herein.
3.2 Administration with Respect to Insiders. With respect to participation by Insiders in the Plan, at any time that any class of equity security of the Company is registered pursuant to Section 12 of the Exchange Act, the Plan shall be administered in compliance with the requirements, if any, of Rule 16b-3.
3.3 Powers of the Board. In addition to any other powers set forth in the Plan and subject to the provisions of the Plan, the Board shall have the full and final power and authority, in its sole discretion:
(a) to determine the persons to whom, and the time or times at which, Options shall be granted and the number of shares of Stock to be subject to each Option;
(b) to designate Options as Incentive Stock Options or Nonstatutory Stock Options;
(c) to determine the Fair Market Value of shares of Stock or other property;
(d) to determine the terms, conditions and restrictions applicable to each Option (which need not be identical) and any shares acquired upon the exercise thereof, including, without limitation, (i) the exercise price of the Option, (ii) the method of payment for shares purchased upon the exercise of the Option, (iii) the method for satisfaction of any tax withholding obligation arising in connection with the Option or such shares, including by the withholding or delivery of shares of stock, (iv) the timing, terms and conditions of the exercisability of the Option or the vesting of any shares acquired upon the exercise thereof, (v) the time of the expiration of the Option, (vi) the effect of the Optionee's termination of Service with the Participating Company Group on any of the foregoing, and (vii) all other terms, conditions and restrictions applicable to the Option or such shares not inconsistent with the terms of the Plan;
(e) to approve one or more forms of Option Agreement;
(f) to amend, modify, extend, cancel, renew, reprice or otherwise adjust the exercise price of, or grant a new Option in substitution for, any Option or to waive any restrictions or conditions applicable to any Option or any shares acquired upon the exercise thereof;
(g) to accelerate, continue, extend or defer the exercisability of any Option or the vesting of any shares acquired upon the exercise thereof, including with respect to the period following an Optionee's termination of Service with the Participating Company Group;
(h) to delegate to any proper officer of the Company the authority to grant one or more Options, without further approval of the Board, to any person eligible pursuant to Section 5, other than a person who, at the time of such grant, is an Insider; provided, however, that (i) such Options shall be granted in accordance with the terms of compensation policy guidelines established from time to time by the Board and (ii) each such Option shall be subject to the terms and conditions of the appropriate standard form of Option Agreement approved by the Board and shall conform to the provisions of the Plan;
(i) to prescribe, amend or rescind rules, guidelines and policies relating to the Plan, or to adopt supplements to, or alternative versions of, the Plan, including, without limitation, as the Board deems necessary or desirable to comply with the laws of, or to accommodate the tax policy or custom of, foreign jurisdictions whose citizens may be granted Options; and
(j) to correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Option Agreement and to make all other determinations and take such other actions with respect to the Plan or any Option as the Board may deem advisable to the extent consistent with the Plan and applicable law.
4. SHARES SUBJECT TO PLAN.
4.1 Maximum Number of Shares Issuable.
(a) Subject to adjustment as provided by subsections (b) through (e) of this Section 4.1 and by Section 4.2 below, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be two million four hundred twenty-two thousand nine hundred seven (2,422,907) authorized but unissued or reacquired shares of Stock or any combination thereof.
(b) The maximum aggregate number of shares of Stock that may be issued under the Plan determined in accordance with subsection (a) above shall be cumulatively increased (the "Annual Increase") on each January 1 from and including January 1, 1999 by a number of shares equal to five percent (5%) of the number of shares of Stock issued and outstanding as of the December 31 immediately preceding such January 1.(1)
(c) The maximum aggregate number of shares of Stock that may be issued under the Plan determined in accordance with subsections (a) and (b) above shall be reduced at any time by the sum of:
(i) the cumulative number of shares of Stock issued as of such time upon the exercise of options granted pursuant to the InsWeb Corporation Senior Executive Nonstatutory Stock Option Plan (the "Executive Plan");
(ii) the aggregate number of shares of Stock then subject to options outstanding pursuant to the Executive Plan; and
(iii) the aggregate number of shares of Stock then available for the grant of options pursuant to the Executive Plan;
(d) If an outstanding Option for any reason expires or is terminated or canceled or if shares of Stock are acquired upon the exercise of an Option subject to a Company repurchase option and are repurchased by the Company at the Optionee's exercise price, the shares of Stock allocable to the unexercised portion of such Option, or such repurchased shares of Stock, shall again be available for issuance under the Plan. Furthermore, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be increased by:
(i) the number of shares of Stock surrendered or attested (as provided in Section 6.3) to the Company in payment of the exercise price of Options; and
(ii) the number of shares of Stock withheld upon the exercise of Options in payment of an Optionee's tax withholding obligations.
(e) Notwithstanding the provisions of subsections (a) through
(d) of this Section 4.1, except as adjusted pursuant to Section 4.2, the maximum
aggregate number of shares of Stock that may be issued pursuant to the Plan upon
the exercise of Incentive Stock Options (the "ISO Share Issuance Limit") shall
not exceed 2,422,907, cumulatively increased on each January 1 from and
including January 1, 1999 by that portion of the Annual Increase effective on
such date which does not exceed 700,000 shares.(2)
4.2 Adjustments for Changes in Capital Structure. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, appropriate adjustments shall be made in the number and class of shares subject to the Plan and to any outstanding Options, in the ISO Share Issuance Limit set forth in Section 4.1, and in the exercise price per share of any outstanding Options. If a majority of the shares which are of the same class as the shares that are subject to outstanding Options are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event, as defined in Section 8.1) shares of another corporation (the "New Shares"), the Board may unilaterally amend the outstanding Options to provide that such Options are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the exercise price per share of, the outstanding Options shall be adjusted in a fair and equitable manner as determined by the Board, in its sole discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded up or down to the nearest whole number, as determined by the Board, and in no event may the exercise price of any Option be decreased to an amount less than the par value, if any, of the stock subject to the Option. The adjustments determined by the Board pursuant to this Section 4.2 shall be final, binding and conclusive.
Notwithstanding the foregoing provisions of Section 4.1, at any such time as the offer and sale of securities pursuant to the Plan is subject to compliance with Section 260.140.45 of Title 10 of the California Code of Regulations ("Section 260.140.45"), the total number of shares of Stock issuable upon the exercise of all outstanding Options (together with options outstanding under any other stock option plan of the Company) and the total number of shares provided for under any stock bonus or similar plan of the Company shall not exceed thirty percent (30%) (or such other higher percentage limitation as may be approved by the stockholders of the Company pursuant to Section 260.140.45) of the then outstanding shares of the Company as calculated in accordance with the conditions and exclusions of Section 260.140.45.
5. ELIGIBILITY AND OPTION LIMITATIONS.
5.1 Persons Eligible for Options. Options may be granted only to Employees, Consultants, and Directors. For purposes of the foregoing sentence, "Employees," "Consultants" and "Directors" shall include prospective Employees, prospective Consultants and prospective Directors to whom Options are granted in connection with written offers of an employment or other service relationship with the Participating Company Group. Eligible persons may be granted more than one (1) Option.
5.2 Option Grant Restrictions. Any person who is not an Employee on
the effective date of the grant of an Option to such person may be granted only
a Nonstatutory Stock Option. An Incentive Stock Option granted to a prospective
Employee upon the condition that such person become an Employee shall be deemed
granted effective on the date such person commences service with a Participating
Company, with an exercise price determined as of such date in accordance with
Section 6.1.
5.3 Fair Market Value Limitation. To the extent that options
designated as Incentive Stock Options (granted under all stock option plans of
the Participating Company Group, including the Plan) become exercisable by an
Optionee for the first time during any calendar year for stock having a Fair
Market Value greater than One Hundred Thousand Dollars ($100,000), the portion
of such options which exceeds such amount shall be treated as Nonstatutory Stock
Options. For purposes of this Section 5.3, options designated as Incentive Stock
Options shall be taken into account in the order in which they were granted, and
the Fair Market Value of stock shall be determined as of the time the option
with respect to such stock is granted. If the Code is amended to provide for a
different limitation from that set forth in this Section 5.3, such different
limitation shall be deemed incorporated herein effective as of the date and with
respect to such Options as required or permitted by such amendment to the Code.
If an Option is treated as an Incentive Stock Option in part and as a
Nonstatutory Stock Option in part by reason of the limitation set forth in this
Section 5.3, the Optionee may designate which portion of such Option the
Optionee is exercising. In the absence of such designation, the Optionee shall
be deemed to have exercised the Incentive Stock Option portion of the Option
first. Separate certificates representing each such portion shall be issued upon
the exercise of the Option.
6. TERMS AND CONDITIONS OF OPTIONS.
Options shall be evidenced by Option Agreements specifying the number of shares of Stock covered thereby, in such form as the Board shall from time to time establish. No Option or purported Option shall be a valid and binding obligation of the Company unless evidenced by a fully executed Option Agreement. Option Agreements 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:
6.1 Exercise Price. The exercise price for each Option shall be established in the sole discretion of the Board; provided, however, that (a) the exercise price per share for an
Incentive Stock Option shall be not less than the Fair Market Value of a share of Stock on the effective date of grant of the Option, (b) the exercise price per share for a Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option, and (c) no Incentive Stock Option(3) granted to a Ten Percent Owner Optionee shall have an exercise price per share less than one hundred ten percent (110%) of the Fair Market Value of a share of Stock on the effective date of grant of the Option. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than the minimum exercise price set forth above if such Option is granted pursuant to an assumption or substitution for another option in a manner qualifying under the provisions of Section 424(a) of the Code.
6.2 Exercise Period. Options shall be exercisable at such time or times, or upon such event or events, and subject to such terms, conditions, performance criteria, and restrictions as shall be determined by the Board and set forth in the Option Agreement evidencing such Option; provided, however, that (a) no Option shall be exercisable after the expiration of ten (10) years after the effective date of grant of such Option, (b) no Incentive Stock Option granted to a Ten Percent Owner Optionee shall be exercisable after the expiration of five (5) years after the effective date of grant of such Option, and (c) no Option granted to a prospective Employee, prospective Consultant or prospective Director may become exercisable prior to the date on which such person commences Service with a Participating Company. Subject to the foregoing, unless otherwise specified by the Board in the grant of an Option, any Option granted hereunder shall have a term of ten (10) years from the effective date of grant of the Option.(4)
6.3 Payment of Exercise Price.
(a) Forms of Consideration Authorized. Except as otherwise provided below, payment of the exercise price for the number of shares of Stock being purchased pursuant to any Option shall be made (i) in cash, by check, or cash equivalent, (ii) by tender to the Company, or attestation to the ownership, of shares of Stock owned by the Optionee having a Fair Market Value (as determined by the Company without regard to any restrictions on transferability applicable to such stock by reason of federal or state securities laws or agreements with an underwriter for the Company) not less than the exercise price, (iii) by the assignment of the proceeds of a sale or loan with respect to some or all of the shares being acquired upon the
(4) As amended by the Board on August 24, 1998 effective as of the effective
date of the Company's registration of Stock under Section 12 of the Exchange
Act. Prior to such date, the first sentence of Section 6.2 will contain a clause
(d) reading as follows: "with the exception of an Option granted to an officer,
Director or Consultant, no Option shall become exercisable at a rate less than
twenty percent (20%) per year over a period of five (5) years from the effective
date of grant of such Option, subject to the Optionee's continued Service."
exercise of the Option (including, without limitation, through an exercise
complying with the provisions of Regulation T as promulgated from time to time
by the Board of Governors of the Federal Reserve System) (a "Cashless
Exercise"), (iv) by the Optionee's promissory note in a form approved by the
Company, (v) by such other consideration as may be approved by the Board from
time to time to the extent permitted by applicable law, or (vi) by any
combination thereof. The Board may at any time or from time to time, by adoption
of or by amendment to the standard forms of Option Agreement described in
Section 7, or by other means, grant Options which do not permit all of the
foregoing forms of consideration to be used in payment of the exercise price or
which otherwise restrict one or more forms of consideration.
(b) Tender of Stock. Notwithstanding the foregoing, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock to the extent such tender or attestation would constitute a violation of the provisions of any law, regulation or agreement restricting the redemption of the Company's stock. Unless otherwise provided by the Board, an Option may not be exercised by tender to the Company, or attestation to the ownership, of shares of Stock unless such shares either have been owned by the Optionee for more than six (6) months or were not acquired, directly or indirectly, from the Company.
(c) Cashless Exercise. The Company reserves, at any and all times, the right, in the Company's sole and absolute discretion, to establish, decline to approve or terminate any program or procedures for the exercise of Options by means of a Cashless Exercise.
(d) Payment by Promissory Note. No promissory note shall be permitted if the exercise of an Option using a promissory note would be a violation of any law. Any permitted promissory note shall be on such terms as the Board shall determine at the time the Option is granted. The Board shall have the authority to permit or require the Optionee to secure any promissory note used to exercise an Option with the shares of Stock acquired upon the exercise of the Option or with other collateral acceptable to the Company. Unless otherwise provided by the Board, if the Company at any time is subject to the regulations promulgated by the Board of Governors of the Federal Reserve System or any other governmental entity affecting the extension of credit in connection with the Company's securities, any promissory note shall comply with such applicable regulations, and the Optionee shall pay the unpaid principal and accrued interest, if any, to the extent necessary to comply with such applicable regulations.
6.4 Tax Withholding. The Company shall have the right, but not the obligation, to deduct from the shares of Stock issuable upon the exercise of an Option, or to accept from the Optionee the tender of, a number of whole shares of Stock having a Fair Market Value, as determined by the Company, equal to all or any part of the federal, state, local and foreign taxes, if any, required by law to be withheld by the Participating Company Group with respect to such Option or the shares acquired upon the exercise thereof. Alternatively or in addition, in its sole discretion, the Company shall have the right to require the Optionee, through payroll withholding, cash payment or otherwise, including by means of a Cashless Exercise, to make adequate provision for any such tax withholding obligations of the Participating Company
Group arising in connection with the Option or the shares acquired upon the exercise thereof. The Company shall have no obligation to deliver shares of Stock or to release shares of Stock from an escrow established pursuant to the Option Agreement until the Participating Company Group's tax withholding obligations have been satisfied by the Optionee.
6.5 Repurchase Rights. Shares issued under the Plan may be subject to a right of first refusal, one or more repurchase options, or other conditions and restrictions as determined by the Board in its sole discretion at the time the Option is granted. The Company shall have the right to assign at any time any repurchase right it may have, whether or not such right is then exercisable, to one or more persons as may be selected by the Company. Upon request by the Company, each Optionee shall execute any agreement evidencing such transfer restrictions prior to the receipt of shares of Stock hereunder and shall promptly present to the Company any and all certificates representing shares of Stock acquired hereunder for the placement on such certificates of appropriate legends evidencing any such transfer restrictions.
6.6 Effect of Termination of Service.
(a) Option Exercisability. Subject to earlier termination of the Option as otherwise provided herein, an Option shall be exercisable after an Optionee's termination of Service as follows:
(i) Disability. If the Optionee's Service with the Participating Company Group is terminated because of the Disability of the Optionee, the Option, to the extent unexercised and exercisable on the date on which the Optionee's Service terminated, may be exercised by the Optionee (or the Optionee's guardian or legal representative) at any time prior to the expiration of twelve (12) months (or such other period of time (not less than six (6) months) as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the date of expiration of the Option's term as set forth in the Option Agreement evidencing such Option (the "Option Expiration Date").
(ii) Death. If the Optionee's Service with the
Participating Company Group is terminated because of the death of the Optionee,
the Option, to the extent unexercised and exercisable on the date on which the
Optionee's Service terminated, may be exercised by the Optionee's legal
representative or other person who acquired the right to exercise the Option by
reason of the Optionee's death at any time prior to the expiration of twelve
(12) months (or such other period of time (not less than six (6) months) as
determined by the Board, in its sole discretion) after the date on which the
Optionee's Service terminated, but in any event no later than the Option
Expiration Date. The Optionee's Service shall be deemed to have terminated on
account of death if the Optionee dies within three (3) months after the
Optionee's termination of Service.
(iii) Termination After Change in Control. To the extent provided by the Board and set forth in an Optionee's Option Agreement, if such Optionee's Service with the Participating Company Group is terminated following a Change in Control (as defined below), then (1) the Option, to the extent unexercised on the date on which the
Optionee's Service terminated, shall remain exercisable for such period of time as provided in the Option Agreement, but in any event no later than the Option Expiration Date, and (ii) the vesting and exercisability of the Option shall be accelerated as of the date on which the Optionee's Service terminated to the extent provided in the Option Agreement.
(iv) Other Termination of Service. If the Optionee's Service with the Participating Company Group terminates for any reason, except Disability, death, or following a Change in Control as provided in Section 6.6(a)(iii), the Option, to the extent unexercised and exercisable by the Optionee on the date on which the Optionee's Service terminated, may be exercised by the Optionee within three (3) months (or such other period of time (not less than one (1) month) as determined by the Board, in its sole discretion) after the date on which the Optionee's Service terminated, but in any event no later than the Option Expiration Date.
(b) Extension if Exercise Prevented by Law. Notwithstanding the foregoing, if the exercise of an Option within the applicable time periods set forth in Section 6.6(a) is prevented by the provisions of Section 12 below, the Option shall remain exercisable until three (3) months after the date the Optionee is notified by the Company that the Option is exercisable, but in any event no later than the Option Expiration Date.
(c) Extension if Optionee Subject to Section 16(b). Notwithstanding the foregoing, if a sale within the applicable time periods set forth in Section 6.6(a) of shares acquired upon the exercise of the Option would subject the Optionee to suit under Section 16(b) of the Exchange Act, the Option shall remain exercisable until the earliest to occur of (i) the tenth (10th) day following the date on which a sale of such shares by the Optionee would no longer be subject to such suit, (ii) the one hundred and ninetieth (190th) day after the Optionee's termination of Service, or (iii) the Option Expiration Date.
7. STANDARD FORMS OF OPTION AGREEMENT.
7.1 Incentive Stock Options. Unless otherwise provided by the Board at the time the Option is granted, an Option designated as an "Incentive Stock Option" shall comply with and be subject to the terms and conditions set forth in the form of Incentive Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time.
7.2 Nonstatutory Stock Options. Unless otherwise provided by the Board at the time the Option is granted, an Option designated as a "Nonstatutory Stock Option" shall comply with and be subject to the terms and conditions set forth in the form of Nonstatutory Stock Option Agreement adopted by the Board concurrently with its adoption of the Plan and as amended from time to time.
7.3 Authority to Vary Terms. The Board shall have the authority from time to time to vary the terms of any of the standard forms of Option Agreement described in this Section 7 either in connection with the grant or amendment of an individual Option or in
connection with the authorization of a new standard form or forms; provided, however, that the terms and conditions of any such new, revised or amended standard form or forms of Option Agreement shall be in accordance with the terms of the Plan.
8. CHANGE IN CONTROL.
8.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have occurred if any of the following occurs with respect to the Company:
(i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company (other than as selling stockholders in an underwritten public offering) of more than fifty percent (50%) of the voting stock of the Company;
(ii) a merger or consolidation in which the Company is a party;
(iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or
(iv) a liquidation or dissolution of the Company.
(b) A "Change in Control" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "Transaction") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "Transferee Corporation(s)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.
8.2 Effect of Change in Control on Options. In the event of a Change in Control, 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 for outstanding Options substantially equivalent options for the Acquiring Corporation's stock. For purposes of this Section 8.2, an Option shall be deemed assumed if, following the Change in Control, the Option
confers the right to purchase in accordance with its terms and conditions, for each share of Stock subject to the Option immediately prior to the Change in Control, the consideration (whether stock, cash or other securities or property) to which a holder of a share of Stock on the effective date of the Change in Control was entitled. In the event the Acquiring Corporation elects not to assume or substitute for outstanding Options in connection with a Change in 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 date of the Change in Control. The exercise or vesting of any Option that was permissible solely by reason of this Section 8.2 shall be conditioned upon the consummation of the Change in Control. Any Options which are neither assumed or substituted for by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control shall terminate and cease to be outstanding effective as of the date of the Change in Control. Notwithstanding the foregoing, shares acquired upon exercise of an Option prior to the Change in Control and any consideration received pursuant to the Change in Control with respect to such shares shall continue to be subject to all applicable provisions of the Option Agreement evidencing such Option except as otherwise provided in such Option Agreement. Furthermore, notwithstanding the foregoing, if the corporation the stock of which is subject to the outstanding Options immediately prior to an Ownership Change Event described in Section 8.1(a)(i) constituting a Change in Control is the surviving or continuing corporation and immediately after such Ownership Change Event less than fifty percent (50%) of the total combined voting power of its voting stock is held by another corporation or by other corporations that are members of an affiliated group within the meaning of Section 1504(a) of the Code without regard to the provisions of Section 1504(b) of the Code, the outstanding Options shall not terminate unless the Board otherwise provides in its sole discretion.
9. PROVISION OF INFORMATION.
Each Optionee shall be given access to information concerning the Company equivalent to that information generally made available to the Company's common stockholders.(5)
10. NONTRANSFERABILITY OF OPTIONS.
During the lifetime of the Optionee, an Option shall be exercisable only by the Optionee or the Optionee's guardian or legal representative. No Option shall be assignable or
At least annually, copies of the Company's balance sheet and income statement for the just completed fiscal year shall be made available to each Optionee and purchaser of shares of Stock upon the exercise of an Option. The Company shall not be required to provide such information to persons whose duties in connection with the Company assure them access to equivalent information.
transferable by the Optionee, except by will or by the laws of descent and distribution. Notwithstanding the foregoing, a Nonstatutory Stock Option shall be assignable or transferable to the extent permitted by the Board and set forth in the Option Agreement evidencing such Option.(6)
11. COMPLIANCE WITH SECURITIES LAW.
The grant of Options and the issuance of shares of Stock upon exercise of Options shall be subject to compliance with all applicable requirements of federal, state or foreign law with respect to such securities. Options may not be exercised if the issuance of shares of Stock upon exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any stock exchange or market system upon which the Stock may then be listed. In addition, no Option may be exercised unless (a) a registration statement under the Securities Act shall at the time of exercise of the Option be in effect with respect to the shares issuable upon exercise of the Option or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Option may be issued in accordance with the terms of an applicable exemption from the registration requirements of the Securities Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares hereunder shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of any Option, the Company may require the Optionee to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation and to make any representation or warranty with respect thereto as may be requested by the Company.
12. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
13. TERMINATION OR AMENDMENT OF PLAN.
The Board may terminate or amend the Plan at any time. However,
subject to changes in applicable law, regulations or rules that would permit
otherwise, without the approval of the Company's stockholders, there shall be
(a) no increase in the maximum aggregate number of shares of Stock that may be
issued under the Plan (except by operation of the provisions of Section 4.2),
(b) no change in the class of persons eligible to receive Incentive Stock
Options, and (c) no other amendment of the Plan that would require approval of
the Company's stockholders under any applicable law, regulation or rule. In any
event, no termination or amendment of the Plan may adversely affect any then
outstanding Option or any unexercised portion thereof, without the consent of
the Optionee, unless such termination or amendment is required to enable an
Option designated as an Incentive Stock Option to qualify as an Incentive Stock
Option or is necessary to comply with any applicable law, regulation or
rule.(7)
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing sets forth the InsWeb Corporation 1997 Stock Option Plan as duly adopted and amended by the Board through March 5, 1999.
/s/ Marion C. Taylor ---------------------------------- Secretary |
The Plan or any increase in the maximum number of shares of Stock issuable thereunder as provided in Section 4.1 (the "Maximum Shares") shall be approved by the stockholders of the Company within twelve (12) months of the date of adoption thereof by the Board. Options granted prior to stockholder approval of the Plan or in excess of the Maximum Shares previously approved by the stockholders shall become exercisable no earlier than the date of stockholder approval of the Plan or such increase in the Maximum Shares, as the case may be.
Exhibit 10.3
INSWEB CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
1. ESTABLISHMENT, PURPOSE AND TERM OF PLAN.
1.1 Establishment. The InsWeb Corporation 1999 Employee Stock Purchase Plan (the "Plan") is hereby established effective as of the effective date of the initial registration by the Company of its Stock under Section 12 of the Securities Exchange Act of 1934, as amended (the "Effective Date").
1.2 Purpose. The purpose of the Plan is to advance the interests of
Company and its stockholders by providing an incentive to attract, retain and
reward Eligible Employees of the Participating Company Group and by motivating
such persons to contribute to the growth and profitability of the Participating
Company Group. The Plan provides such Eligible Employees with an opportunity to
acquire a proprietary interest in the Company through the purchase of Stock. The
Company intends that the Plan qualify as an "employee stock purchase plan" under
Section 423 of the Code (including any amendments or replacements of such
section), and the Plan shall be so construed.
1.3 Term of Plan. The Plan shall continue in effect until the earlier of its termination by the Board or the date on which all of the shares of Stock available for issuance under the Plan have been issued.
2. DEFINITIONS AND CONSTRUCTION.
2.1 Definitions. Any term not expressly defined in the Plan but defined for purposes of Section 423 of the Code shall have the same definition herein. Whenever used herein, the following terms shall have their respective meanings set forth below:
(a) "Board" means the Board of Directors of the Company. If one or more Committees have been appointed by the Board to administer the Plan, "Board" also means such Committee(s).
(b) "Code" means the Internal Revenue Code of 1986, as amended, and any applicable regulations promulgated thereunder.
(c) "Committee" means a committee of the Board duly appointed to administer the Plan and having such powers as specified by the Board. 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 amend or terminate the Plan at any time, subject to the terms of the Plan and any applicable limitations imposed by law.
(d) "Company" means InsWeb Corporation, a Delaware corporation, or any successor corporation thereto.
(e) "Compensation" means, with respect to any Offering Period, base salary before deferral of any such base salary under any program or plan, including deduction for any contributions to any plan maintained by a Participating Company and described in Section 401(k) or Section 125 of the Code. Compensation shall not include commissions, overtime, bonuses, annual awards, other incentive payments, shift premiums, long-term disability, workers' compensation, moving allowances, payments pursuant to a severance agreement, termination pay, relocation payments, sign-on bonuses, any amounts directly or indirectly paid pursuant to the Plan or any other stock purchase or stock option plan, or any other payments not included in base salary.
(f) "Eligible Employee" means an Employee who meets the requirements set forth in Section 5 for eligibility to participate in the Plan.
(g) "Employee" means a person treated as an employee of a
Participating Company for purposes of Section 423 of the Code. A Participant
shall be deemed to have ceased to be an Employee either upon an actual
termination of employment or upon the corporation employing the Participant
ceasing to be a Participating Company. For purposes of the Plan, an individual
shall not be deemed to have ceased to be an Employee while on any military
leave, sick leave, or other bona fide leave of absence approved by the Company
of ninety (90) days or less. If an individual's leave of absence exceeds ninety
(90) days, the individual shall be deemed to have ceased to be an Employee on
the ninety-first (91st) day of such leave unless the individual's right to
reemployment with the Participating Company Group is guaranteed either by
statute or by contract. The Company shall determine in good faith and in the
exercise of its discretion whether an individual has become or has ceased to be
an Employee and the effective date of such individual's employment or
termination of employment, as the case may be. For purposes of an individual's
participation in or other rights, if any, under the Plan as of the time of the
Company's determination, all such determinations by the Company shall be final,
binding and conclusive, notwithstanding that the Company or any governmental
agency subsequently makes a contrary determination.
(h) "Fair Market Value" means, as of any date, if on such date the Stock is then listed on a national or regional securities exchange or market system or is regularly quoted by a recognized securities dealer, the closing sale price of a share of Stock (or the mean of the closing bid and asked prices if the Stock is so quoted instead) as quoted on the Nasdaq National Market, the Nasdaq SmallCap Market or such other national or regional securities exchange or market system constituting the primary market for the Stock, or by such recognized dealer, as reported in The Wall Street Journal or such other source as the Company deems reliable. If the relevant date does not fall on a day on which the Stock has traded on such securities exchange or market system or has been quoted by such securities dealer, the date on which the Fair Market Value is established shall be the last day on which the Stock was so traded or quoted prior to the relevant date, or such other appropriate day as determined by the Board, in its discretion. If, on the relevant date, the stock is not then listed on a national or regional securities exchange or market system or regularly quoted by a recognized securities dealer, the Fair Market Value of a share of Stock shall be as determined in good faith by the Board.
(i) "Offering" means an offering of Stock as provided in
Section 6.
(j) "Offering Date" means, for any Offering, the first day of the Offering Period.
(k) "Offering Period" means a period established in accordance with Section 6.1.
(l) "Parent Corporation" means any present or future "parent corporation" of the Company, as defined in Section 424(e) of the Code.
(m) "Participant" means an Eligible Employee who has become a participant in an Offering Period in accordance with Section 7 and remains a participant in accordance with the Plan.
(n) "Participating Company" means the Company or any Parent Corporation or Subsidiary Corporation designated by the Board as a corporation the Employees of which may, if Eligible Employees, participate in the Plan. The Board shall have the sole and absolute discretion to determine from time to time which Parent Corporations or Subsidiary Corporations shall be Participating Companies.
(o) "Participating Company Group" means, at any point in time, the Company and all other corporations collectively which are then Participating Companies.
(p) "Purchase Date" means, for any Offering, the last day of the Offering Period; provided, however, that the Board in its discretion may establish one or more additional Purchase Dates during any Offering Period.
(q) "Purchase Price" means the price at which a share of Stock may be purchased under the Plan, as determined in accordance with Section 9.
(r) "Purchase Right" means an option granted to a Participant pursuant to the Plan to purchase such shares of Stock as provided in Section 8, which the Participant may or may not exercise during the Offering Period in which such option is outstanding. Such option arises from the right of a Participant to withdraw any accumulated payroll deductions of the Participant not previously applied to the purchase of Stock under the Plan and to terminate participation in the Plan at any time during an Offering Period.
(s) "Stock" means the common stock of the Company, as adjusted from time to time in accordance with Section 4.2.
(t) "Subscription Agreement" means a written agreement in such form as specified by the Company, stating an Employee's election to participate in the Plan and authorizing payroll deductions under the Plan from the Employee's Compensation.
(u) "Subscription Date" means the last business day prior to the Offering Date of an Offering Period or such earlier date as the Company shall establish.
(v) "Subsidiary Corporation" means any present or future "subsidiary corporation" of the Company, as defined in Section 424(f) of the Code.
2.2 Construction. Captions and titles contained herein are for convenience only and shall not affect the meaning or interpretation of any provision of the Plan. Except when otherwise indicated by the context, the singular shall include the plural and the plural shall include the singular. Use of the term "or" is not intended to be exclusive, unless the context clearly requires otherwise.
3. ADMINISTRATION.
3.1 Administration by the Board. The Plan shall be administered by the Board. All questions of interpretation of the Plan, of any form of agreement or other document employed by the Company in the administration of the Plan, or of any Purchase Right shall be determined by the Board and shall be final and binding upon all persons having an interest in the Plan or the Purchase Right. Subject to the provisions of the Plan, the Board shall determine all of the relevant terms and conditions of Purchase Rights; provided, however, that all Participants granted Purchase Rights shall have the same rights and privileges within the meaning of Section 423(b)(5) of the Code. All expenses incurred in connection with the administration of the Plan shall be paid by the Company.
3.2 Authority of Officers. Any officer of the Company shall have the authority to act on behalf of the Company with respect to any matter, right, obligation, determination or election that is the responsibility of or that is allocated to the Company herein, provided that the officer has apparent authority with respect to such matter, right, obligation, determination or election.
3.3 Policies and Procedures Established by the Company. The Company may, from time to time, consistent with the Plan and the requirements of Section 423 of the Code, establish, change or terminate such rules, guidelines, policies, procedures, limitations, or adjustments as deemed advisable by the Company, in its discretion, for the proper administration of the Plan, including, without limitation, (a) a minimum payroll deduction amount required for participation in an Offering, (b) a limitation on the frequency or number of changes permitted in the rate of payroll deduction during an Offering, (c) an exchange ratio applicable to amounts withheld in a currency other than United States dollars, (d) a payroll deduction greater than or less than the amount designated by a Participant in order to adjust for the Company's delay or mistake in processing a Subscription Agreement or in otherwise effecting a Participant's election under the Plan or as advisable to comply with the requirements of Section 423 of the Code, and
(e) determination of the date and manner by which the Fair Market Value of a share of Stock is determined for purposes of administration of the Plan.
4. SHARES SUBJECT TO PLAN.
4.1 Maximum Number of Shares Issuable. Subject to adjustment as provided in Section 4.2, the maximum aggregate number of shares of Stock that may be issued under the Plan shall be three hundred thousand (300,000), cumulatively increased on January 1, 2000 and each January 1 thereafter until and including January 1, 2008 by __________________ (________) shares (the "Annual Increase"), and shall consist of authorized but unissued or reacquired shares of Stock, or any combination thereof. If an outstanding Purchase Right for any reason expires or is terminated or canceled, the shares of Stock allocable to the unexercised portion of that Purchase Right shall again be available for issuance under the Plan.
4.2 Adjustments for Changes in Capital Structure. In the event of any stock dividend, stock split, reverse stock split, recapitalization, combination, reclassification or similar change in the capital structure of the Company, or in the event of any merger (including a merger effected for the purpose of changing the Company's domicile), sale of assets or other reorganization in which the Company is a party, appropriate adjustments shall be made in the number and class of shares subject to the Plan, the Annual Increase and each Purchase Right, and in the Purchase Price. If a majority of the shares of the same class as the shares subject to outstanding Purchase Rights are exchanged for, converted into, or otherwise become (whether or not pursuant to an Ownership Change Event) shares of another corporation (the "New Shares"), the Board may unilaterally amend the outstanding Purchase Rights to provide that such Purchase Rights are exercisable for New Shares. In the event of any such amendment, the number of shares subject to, and the Purchase Price of, the outstanding Purchase Rights shall be adjusted in a fair and equitable manner, as determined by the Board, in its discretion. Notwithstanding the foregoing, any fractional share resulting from an adjustment pursuant to this Section 4.2 shall be rounded down to the nearest whole number, and in no event may the Purchase Price be decreased to an amount less than the par value, if any, of the stock subject to the Purchase Right. The adjustments determined by the Board pursuant to this Section 4.2 shall be final, binding and conclusive.
5. ELIGIBILITY.
5.1 Employees Eligible to Participate. Each Employee of a Participating Company is eligible to participate in the Plan and shall be deemed an Eligible Employee, except the following:
(a) Any Employee who has not completed at least three (3) months of continuous employment with the Participating Company Group as of the commencement of the applicable Offering Period; or
(b) Any Employee who is customarily employed by the Participating Company Group for twenty (20) hours or less per week.
5.2 Exclusion of Certain Stockholders. Notwithstanding any provision of the Plan to the contrary, no Employee shall be granted a Purchase Right under the Plan if, immediately after such grant, the Employee would own or hold options to purchase stock of the Company or of any Parent Corporation or Subsidiary Corporation possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of such corporation, as determined in accordance with Section 423(b)(3) of the Code. For purposes of this Section 5.2, the attribution rules of Section 424(d) of the Code shall apply in determining the stock ownership of such Employee.
6. OFFERINGS.
The Plan shall be implemented on and after the Effective Date by
sequential Offerings of approximately six (6) months duration or such other
duration as the Board shall determine (an "Offering Period"); provided,
however, that the first Offering Period (the "Initial Offering Period") shall
commence on the Effective Date and end on or about January 31, 2000.
Subsequent Offering Periods shall commence on or about February 1 and August
1 of each year and end on or about the last days of the next July and
January, respectively, occurring thereafter. Notwithstanding the foregoing,
the Board may establish a different duration for one or more Offering Periods
or different commencing or ending dates for such Offering Periods; provided,
however, that no Offering Period may have a duration exceeding twenty-seven
(27) months. If the first or last day of an Offering Period is not a day on
which the national securities exchanges or Nasdaq Stock Market are open for
trading, the Company shall specify the trading day that will be deemed the
first or last day, as the case may be, of the Offering Period.
7. PARTICIPATION IN THE PLAN.
7.1 Initial Participation. An Eligible Employee may become a Participant in an Offering Period by delivering a properly completed Subscription Agreement to the office designated by the Company not later than the close of business for such office on the Subscription Date established by the Company for that Offering Period. An Eligible Employee who does not deliver a properly completed Subscription Agreement to the Company's designated office on or before the Subscription Date for an Offering Period shall not participate in the Plan for that Offering Period or for any subsequent Offering Period unless the Eligible Employee subsequently delivers a properly completed Subscription Agreement to the appropriate office of the Company on or before the Subscription Date for such subsequent Offering Period. An Employee who becomes an Eligible Employee after the Offering Date of an Offering Period shall not be eligible to participate in that Offering Period but may participate in any subsequent Offering Period provided the Employee is still an Eligible Employee as of the Offering Date of such subsequent Offering Period.
7.2 Continued Participation. A Participant shall automatically participate in the next Offering Period commencing immediately after the Purchase Date of each Offering Period in which the Participant participates provided that the Participant remains an Eligible Employee on the Offering Date of the new Offering Period and has not either (a) withdrawn from the Plan pursuant to Section 12.1 or (b) terminated employment as provided in Section 13. A Participant who may automatically participate in a subsequent Offering Period, as provided in this Section, is not required to deliver any additional Subscription Agreement for the subsequent Offering Period in order to continue participation in the Plan. However, a Participant may deliver a new Subscription Agreement for a subsequent Offering Period in accordance with the procedures set forth in Section 7.1 if the Participant desires to change any of the elections contained in the Participant's then effective Subscription Agreement. In the event that the Board establishes concurrent Offerings, Eligible Employees may not participate simultaneously in more than one Offering.
8. RIGHT TO PURCHASE SHARES.
8.1 Grant of Purchase Right. Except as set forth below, on the Offering Date of each Offering Period, each Participant in that Offering Period shall be granted automatically a Purchase Right consisting of an option to purchase the lesser of (a) that number of whole shares of Stock determined by dividing Twelve Thousand Five Hundred Dollars ($12,500) by the Fair Market Value of a share of Stock on such Offering Date or (b) two thousand five hundred (2,500) shares of Stock. No Purchase Right shall be granted on an Offering Date to any person who is not, on such Offering Date, an Eligible Employee.
8.2 Pro Rata Adjustment of Purchase Right. Notwithstanding the
provisions of Section 8.1, if the Board establishes an Offering Period (other
than the Initial Offering Period) of any duration other than six months, then
(a) the dollar amount in Section 8.1 shall be determined by multiplying
$2,083.33 by the number of months (rounded to the nearest whole month) in the
Offering Period and rounding to the nearest whole dollar, and (b) the share
amount in Section 8.1 shall be determined by multiplying 416.67 shares by the
number of months (rounded to the nearest whole month) in the Offering Period and
rounding to the nearest whole share.
8.3 Calendar Year Purchase Limitation. Notwithstanding any provision of the Plan to the contrary, no Participant shall be granted a Purchase Right which permits his or her right to purchase shares of Stock under the Plan to accrue at a rate which, when aggregated with such Participant's rights to purchase shares under all other employee stock purchase plans of a Participating Company intended to meet the requirements of Section 423 of the Code, exceeds Twenty-Five Thousand Dollars ($25,000) in Fair Market Value (or such other limit, if any, as may be imposed by the Code) for each calendar year in which such Purchase Right is outstanding at any time. For purposes of the preceding sentence, the Fair Market Value of shares purchased during a given Offering Period shall be determined as of the Offering Date for such Offering Period. The limitation described in this Section shall be applied in conformance with applicable regulations under Section 423(b)(8) of the Code.
9. PURCHASE PRICE.
The Purchase Price at which each share of Stock may be acquired in
an Offering Period upon the exercise of all or any portion of a Purchase Right
shall be established by the Board; provided, however, that the Purchase Price
shall not be less than eighty-five percent (85%) of the lesser of (a) the Fair
Market Value of a share of Stock on the Offering Date of the Offering Period or
(b) the Fair Market Value of a share of Stock on the Purchase Date. Unless
otherwise provided by the Board prior to the commencement of an Offering Period,
the Purchase Price for that Offering Period shall be eighty-five percent (85%)
of the lesser of (a) the Fair Market Value of a share of Stock on the Offering
Date of the Offering Period, or (b) the Fair Market Value of a share of Stock on
the Purchase Date.
10. ACCUMULATION OF PURCHASE PRICE THROUGH PAYROLL DEDUCTION.
Shares of Stock acquired pursuant to the exercise of all or any portion of a Purchase Right may be paid for only by means of payroll deductions from the Participant's Compensation accumulated during the Offering Period for which such Purchase Right was granted, subject to the following:
10.1 Amount of Payroll Deductions. Except as otherwise provided herein, the amount to be deducted under the Plan from a Participant's Compensation on each payday during an Offering Period shall be determined by the Participant's Subscription Agreement. The Subscription Agreement shall set forth the percentage of the Participant's Compensation to be deducted on each payday during an Offering Period in whole percentages of not less than one percent (1%) (except as a result of an election pursuant to Section 10.3 to stop payroll deductions effective following the first payday during an Offering) or more than fifteen percent (15%). The Board may change the foregoing limits on payroll deductions effective as of any future Offering Date.
10.2 Commencement of Payroll Deductions. Payroll deductions shall commence on the first payday following the Offering Date and shall continue to the end of the Offering Period unless sooner altered or terminated as provided herein.
10.3 Election to Change or Stop Payroll Deductions. During an Offering Period, a Participant may elect to increase or decrease the rate of or to stop deductions from his or her Compensation by delivering to the Company's designated office an amended Subscription Agreement authorizing such change on or before the Change Notice Date, as defined below. A Participant who elects, effective following the first payday of an Offering Period, to decrease the rate of his or her payroll deductions to zero percent (0%) shall nevertheless remain a Participant in the current Offering Period unless such Participant withdraws from the Plan as provided in Section 12.1. The "Change Notice Date" shall be the day immediately prior to the beginning of the first pay period for which such election is to be effective, unless a different date established by the Company and announced to the Participants.
10.4 Administrative Suspension of Payroll Deductions. The Company
may, in its sole discretion, suspend a Participant's payroll deductions under
the Plan as the Company deems advisable to avoid accumulating payroll
deductions in excess of the amount that could reasonably be anticipated to
purchase the maximum number of shares of Stock permitted (a) under the
Participant's Purchase Right or (b) during a calendar year under the limit
set forth in Section 8.3. Payroll deductions shall be resumed at the rate
specified in the Participant's then effective Subscription Agreement at the
beginning, respectively, of (a) the next Offering Period, provided that the
individual is a Participant in such Offering Period or (b) the next Offering
Period the Purchase Date of which falls in the following calendar year,
unless the Participant has either withdrawn from the Plan as provied in
Section 12.1 or has ceased to be an Eligible Employee.
10.5 Participant Accounts. Individual bookkeeping accounts shall be maintained for each Participant. All payroll deductions from a Participant's Compensation shall be credited to such Participant's Plan account and shall be deposited with the general funds of the Company. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose.
10.6 No Interest Paid. Interest shall not be paid on sums deducted from a Participant's Compensation pursuant to the Plan.
10.7 Voluntary Withdrawal from Plan Account. A Participant may withdraw all or any portion of the payroll deductions credited to his or her Plan account and not previously applied toward the purchase of Stock by delivering to the Company's designated office a written notice on a form provided by the Company for such purpose. A Participant who withdraws the entire remaining balance credited to his or her Plan account shall be deemed to have withdrawn from the Plan in accordance with Section 12.1. Amounts withdrawn shall be returned to the Participant as soon as practicable after the Company's receipt the notice of withdrawal and may not be applied to the purchase of shares in any Offering under the Plan. The Company may from time to time establish or change limitations on the frequency of withdrawals permitted under this Section, establish a minimum dollar amount that must be retained in the Participant's Plan account, or terminate the withdrawal right provided by this Section.
11. PURCHASE OF SHARES.
11.1 Exercise of Purchase Right. On the Purchase Date of an Offering Period, each Participant who has not withdrawn from the Plan and whose participation in the Offering has not terminated before such Purchase Date shall automatically acquire pursuant to the exercise of the Participant's Purchase Right the number of whole shares of Stock determined by dividing (a) the total amount of the Participant's payroll deductions accumulated in the Participant's Plan account during the Offering Period and not previously applied toward the purchase of Stock by (b) the Purchase Price. However, in no event shall the number of shares purchased by the Participant during an Offering Period exceed the number of shares subject to the Participant's Purchase Right. No shares of Stock shall be purchased on a Purchase Date on behalf of a
Participant whose participation in the Offering or the Plan has terminated before such Purchase Date.
11.2 Pro Rata Allocation of Shares. If the number of shares of Stock
which might be purchased by all Participants in the Plan on a Purchase Date
exceeds the number of shares of Stock available in the Plan as provided in
Section 4.1, the Company shall make a pro rata allocation of the remaining
shares in as uniform a manner as practicable and as the Company determines to be
equitable. Any fractional share resulting from such pro rata allocation to any
Participant shall be disregarded.
11.3 Delivery of Certificates. As soon as practicable after each Purchase Date, the Company shall arrange the delivery to each Participant of a certificate representing the shares acquired by the Participant on such Purchase Date; provided that the Company may deliver such shares to a broker designated by the Company that will hold such shares for the benefit of the Participant. Shares to be delivered to a Participant under the Plan shall be registered in the name of the Participant, or, if requested by the Participant, in the name of the Participant and his or her spouse, or, if applicable, in the names of the heirs of the Participant.
11.4 Return of Cash Balance. Any cash balance remaining in a Participant's Plan account following any Purchase Date shall be refunded to the Participant as soon as practicable after such Purchase Date. However, if the cash balance to be returned to a Participant pursuant to the preceding sentence is less than the amount that would have been necessary to purchase an additional whole share of Stock on such Purchase Date, the Company may retain the cash balance in the Participant's Plan account to be applied toward the purchase of shares in the subsequent Offering Period.
11.5 Tax Withholding. At the time a Participant's Purchase Right is exercised, in whole or in part, or at the time a Participant disposes of some or all of the shares he or she acquires under the Plan, the Participant shall make adequate provision for the federal, state, local and foreign tax withholding obligations, if any, of the Participating Company Group which arise upon exercise of the Purchase Right or upon such disposition of shares, respectively. The Participating Company Group may, but shall not be obligated to, withhold from the Participant's compensation the amount necessary to meet such withholding obligations.
11.6 Expiration of Purchase Right. Any portion of a Participant's Purchase Right remaining unexercised after the end of the Offering Period to which the Purchase Right relates shall expire immediately upon the end of the Offering Period.
11.7 Provision of Reports and Stockholder Information to
Participants. Each Participant who has exercised all or part of his or her
Purchase Right shall receive, as soon as practicable after the Purchase Date,
a report of such Participant's Plan account setting forth the total payroll
deductions accumulated prior to such exercise, the number of shares of Stock
purchased, the Purchase Price for such shares, the date of purchase and the
cash balance, if any, remaining immediately after such purchase that is to be
refunded or retained in the Participant's Plan account pursuant to Section
11.4. The report required by this Section may be delivered in such
form and by such means, including by electronic transmission, as the Company may determine. In addition, each Participant shall be provided information concerning the Company equivalent to that information provided generally to the Company's common stockholders.
12. WITHDRAWAL FROM OFFERING OR PLAN.
12.1 Voluntary Withdrawal from the Plan. A Participant may withdraw from the Plan by signing and delivering to the Company's designated office a written notice of withdrawal on a form provided by the Company for this purpose. Such withdrawal may be elected at any time prior to the end of an Offering Period; provided, however, that if a Participant withdraws from the Plan after a Purchase Date, the withdrawal shall not affect shares of Stock acquired by the Participant on such Purchase Date. A Participant who voluntarily withdraws from the Plan is prohibited from resuming participation in the Plan in the same Offering from which he or she withdrew, but may participate in any subsequent Offering by again satisfying the requirements of Sections 5 and 7.1. The Company may impose, from time to time, a requirement that the notice of withdrawal from the Plan be on file with the Company's designated office for a reasonable period prior to the effectiveness of the Participant's withdrawal.
12.2 Return of Payroll Deductions. Upon a Participant's voluntary withdrawal from the Plan pursuant to Section 12.1, the Participant's accumulated payroll deductions which have not been applied toward the purchase of shares shall be refunded to the Participant as soon as practicable after the withdrawal, without the payment of any interest, and the Participant's interest in the Plan shall terminate. Such accumulated payroll deductions to be refunded in accordance with this Section may not be applied to any other Offering under the Plan.
13. TERMINATION OF EMPLOYMENT OR ELIGIBILITY.
Upon a Participant's ceasing, prior to a Purchase Date, to be an Employee of the Participating Company Group for any reason, including retirement, disability or death, or upon the failure of a Participant to remain an Eligible Employee, the Participant's participation in the Plan shall terminate immediately. In such event, the Participant's accumulated payroll deductions which have not been applied toward the purchase of shares shall, as soon as practicable, be returned to the Participant or, in the case of the Participant's death, to the Participant's legal representative, and all of the Participant's rights under the Plan shall terminate. Interest shall not be paid on sums returned pursuant to this Section 13. A Participant whose participation has been so terminated may again become eligible to participate in the Plan by satisfying the requirements of Sections 5 and 7.1.
14. CHANGE IN CONTROL.
14.1 Definitions.
(a) An "Ownership Change Event" shall be deemed to have occurred if any of the following occurs with respect to the Company: (i) the direct or indirect sale or exchange in a single or series of related transactions by the stockholders of the Company of more than fifty percent (50%) of the voting stock of the Company; (ii) a merger or consolidation in which the Company is a party; (iii) the sale, exchange, or transfer of all or substantially all of the assets of the Company; or (iv) a liquidation or dissolution of the Company.
(b) A "Change in Control" shall mean an Ownership Change Event or a series of related Ownership Change Events (collectively, the "Transaction") wherein the stockholders of the Company immediately before the Transaction do not retain immediately after the Transaction, in substantially the same proportions as their ownership of shares of the Company's voting stock immediately before the Transaction, direct or indirect beneficial ownership of more than fifty percent (50%) of the total combined voting power of the outstanding voting stock of the Company or the corporation or corporations to which the assets of the Company were transferred (the "Transferee Corporation(s)"), as the case may be. For purposes of the preceding sentence, indirect beneficial ownership shall include, without limitation, an interest resulting from ownership of the voting stock of one or more corporations which, as a result of the Transaction, own the Company or the Transferee Corporation(s), as the case may be, either directly or through one or more subsidiary corporations. The Board shall have the right to determine whether multiple sales or exchanges of the voting stock of the Company or multiple Ownership Change Events are related, and its determination shall be final, binding and conclusive.
14.2 Effect of Change in Control on Purchase Rights. In the event of a Change in Control, the surviving, continuing, successor, or purchasing corporation or parent corporation thereof, as the case may be (the "Acquiring Corporation"), may assume the Company's rights and obligations under the Plan. If the Acquiring Corporation elects not to assume the Company's rights and obligations under outstanding Purchase Rights, the Purchase Date of the then current Offering Period shall be accelerated to a date before the date of the Change in Control specified by the Board, but the number of shares of Stock subject to outstanding Purchase Rights shall not be adjusted. All Purchase Rights which are neither assumed by the Acquiring Corporation in connection with the Change in Control nor exercised as of the date of the Change in Control shall terminate and cease to be outstanding effective as of the date of the Change in Control.
15. NONTRANSFERABILITY OF PURCHASE RIGHTS.
Neither payroll deductions credited to a Participant's Plan account nor a Participant's Purchase Right may be assigned, transferred, pledged, or otherwise disposed of in any manner other than as provided by the Plan or by will or the laws of descent and distribution. Any such attempted assignment, transfer, pledge or other disposition shall be without effect, except that the Company may treat such act as an election to withdraw from the Plan as provided in Section 12.1. A Purchase Right shall be exercisable during the lifetime of the Participant only by the Participant.
16. COMPLIANCE WITH SECURITIES LAW.
The issuance of shares under the Plan shall be subject to compliance with all applicable requirements of federal, state and foreign law with respect to such securities. A Purchase Right may not be exercised if the issuance of shares upon such exercise would constitute a violation of any applicable federal, state or foreign securities laws or other law or regulations or the requirements of any securities exchange or market system upon which the Stock may then be listed. In addition, no Purchase Right may be exercised unless (a) a registration statement under the Securities Act of 1933, as amended, shall at the time of exercise of the Purchase Right be in effect with respect to the shares issuable upon exercise of the Purchase Right, or (b) in the opinion of legal counsel to the Company, the shares issuable upon exercise of the Purchase Right may be issued in accordance with the terms of an applicable exemption from the registration requirements of said Act. The inability of the Company to obtain from any regulatory body having jurisdiction the authority, if any, deemed by the Company's legal counsel to be necessary to the lawful issuance and sale of any shares under the Plan shall relieve the Company of any liability in respect of the failure to issue or sell such shares as to which such requisite authority shall not have been obtained. As a condition to the exercise of a Purchase Right, the Company may require the Participant to satisfy any qualifications that may be necessary or appropriate, to evidence compliance with any applicable law or regulation, and to make any representation or warranty with respect thereto as may be requested by the Company.
17. RIGHTS AS A STOCKHOLDER AND EMPLOYEE.
A Participant shall have no rights as a stockholder by virtue of the Participant's participation in the Plan until the date of the issuance of a certificate for the shares purchased pursuant to the exercise of the Participant's Purchase Right (as evidenced by the appropriate entry on the books of the Company or of a duly authorized transfer agent of the Company). No adjustment shall be made for dividends, distributions or other rights for which the record date is prior to the date such certificate is issued, except as provided in Section 4.2. Nothing herein shall confer upon a Participant any right to continue in the employ of the Participating Company Group or interfere in any way with any right of the Participating Company Group to terminate the Participant's employment at any time.
18. LEGENDS.
The Company may at any time place legends or other identifying symbols referencing any applicable federal, state or foreign securities law restrictions or any provision convenient in the administration of the Plan on some or all of the certificates representing shares of Stock issued under the Plan. The Participant shall, at the request of the Company, promptly present to the Company any and all certificates representing shares acquired pursuant to a Purchase Right in the possession of the Participant in order to carry out the provisions of this Section. Unless otherwise specified by the Company, legends placed on such certificates may include but shall not be limited to the following:
"THE SHARES EVIDENCED BY THIS CERTIFICATE WERE ISSUED BY THE CORPORATION TO THE REGISTERED HOLDER UPON THE PURCHASE OF SHARES UNDER AN EMPLOYEE STOCK PURCHASE PLAN AS DEFINED IN SECTION 423 OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED. THE TRANSFER AGENT FOR THE SHARES EVIDENCED HEREBY SHALL NOTIFY THE CORPORATION IMMEDIATELY OF ANY TRANSFER OF THE SHARES BY THE REGISTERED HOLDER HEREOF. THE REGISTERED HOLDER SHALL HOLD ALL SHARES PURCHASED UNDER THE PLAN IN THE REGISTERED HOLDER'S NAME (AND NOT IN THE NAME OF ANY NOMINEE)."
19. NOTIFICATION OF DISPOSITION OF SHARES.
The Company may require the Participant to give the Company prompt notice of any disposition of shares acquired by exercise of a Purchase Right within two years from the date of granting such Purchase Right or one year from the date of exercise of such Purchase Right. The Company may require that until such time as a Participant disposes of shares acquired upon exercise of a Purchase Right, the Participant shall hold all such shares in the Participant's name (or, if elected by the Participant, in the name of the Participant and his or her spouse but not in the name of any nominee) until the lapse of the time periods with respect to such Purchase Right referred to in the preceding sentence. The Company may direct that the certificates evidencing shares acquired by exercise of a Purchase Right refer to such requirement to give prompt notice of disposition.
20. NOTICES.
All notices or other communications by a Participant to the Company under or in connection with the Plan shall be deemed to have been duly given when received in the form specified by the Company at the location, or by the person, designated by the Company for the receipt thereof.
21. INDEMNIFICATION.
In addition to such other rights of indemnification as they may have as members of the Board or officers or employees of the Participating Company Group, members of the Board and any officers or employees of the Participating Company Group to whom authority to act for the Board or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys' fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or
proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.
22. AMENDMENT OR TERMINATION OF THE PLAN.
The Board may at any time amend or terminate the Plan, except that
(a) such termination shall not affect Purchase Rights previously granted under
the Plan, except as permitted under the Plan, and (b) no amendment may adversely
affect a Purchase Right previously granted under the Plan (except to the extent
permitted by the Plan or as may be necessary to qualify the Plan as an employee
stock purchase plan pursuant to Section 423 of the Code or to obtain
qualification or registration of the shares of Stock under applicable federal,
state or foreign securities laws). In addition, an amendment to the Plan must be
approved by the stockholders of the Company within twelve (12) months of the
adoption of such amendment if such amendment would authorize the sale of more
shares than are authorized for issuance under the Plan or would change the
definition of the corporations that may be designated by the Board as
Participating Companies.
IN WITNESS WHEREOF, the undersigned Secretary of the Company certifies that the foregoing InsWeb Corporation 1999 Employee Stock Purchase Plan was duly adopted by the Board of Directors of the Company on _____________, 1999.
Exhibit 10.4
STRATEGIC CONCEPTS CORP.
1440 Chapin Avenue, Suite 201
Burlingame, California 94010
SERIES A PREFERRED
STOCK PURCHASE AGREEMENT
JANUARY 30, 1996
EXHIBIT TO STRATEGIC CONCEPTS CORP.
SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
EXHIBIT A - Amendment to Articles of Incorporation EXHIBIT B - Schedule of Exceptions to Representations and Warranties EXHIBIT C - Form of Co-Sale Agreement EXHIBIT D - Form of Registration Rights Agreement EXHIBIT E - Form of Opinion of Morrison & Forester EXHIBIT F - Form of Compliance Certificate |
TABLE OF CONTENTS
Page
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SECTION 1 Authorization and Sale of Series A Preferred Stock...............1
1.1 Authorization...................................................1
1.2 Sale of Series A Preferred Stock................................1
SECTION 2 Closing Date; Delivery...........................................1
2.1 Closing Date....................................................1
2.2 Deliveries......................................................1
SECTION 3 Representations and Warranties of the Company....................2
3.1 Organization and Standing; Articles and By-laws.................2
3.2 Corporate Power.................................................2
3.3 Subsidiaries....................................................2
3.4 Capitalization..................................................2
3.5 Authorization...................................................3
3.6 Title to Properties and Assets; Liens, etc......................3
3.7 Material Contracts and Commitments..............................3
3.8 Patents and Other Intangible Assets.............................4
3.9 Compliance With Other Instruments, None Burdensome, etc.........4
3.10 Litigation, etc.................................................4
3.11 Employees.......................................................5
3.12 Insurance.......................................................5
3.13 Registration Rights.............................................5
3.14 Governmental Consent, Etc.......................................5
3.15 Offering........................................................5
3.16 Brokers or Finders; Other Offers................................5
3.17 Disclosure......................................................6
3.18 Tax Returns and Payments........................................6
3.19 No Conflict of Interest.........................................6
3.20 Corporate Records...............................................6
3.21 Financial Statements............................................6
3.22 Changes.........................................................7
3.23 Environmental Matters...........................................7
3.24 Employee Compensation Plans.....................................8
3.25 Voting Agreements; Shareholder Agreements.......................8
3.26 U.S. Real Property Holding Corporation..........................8
3.27 Private Offering................................................8
3.28 Use of Proceeds.................................................8
3.29 Margin Securities...............................................8
3.30 Absence of Foreign or Enemy Status..............................9
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TABLE OF CONTENTS
(continued)
Page
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SECTION 4 Representations and Warranties of the Purchaser..................9
4.1 Experience......................................................9
4.2 Investment......................................................9
4.3 Rule 144........................................................9
4.4 No Public Market...............................................10
4.5 Access to Data.................................................10
4.6 Authorization..................................................10
4.7 Brokers or Finders.............................................10
4.8 Tax Consequences...............................................10
SECTION 5 Conditions to Closing of Purchaser..............................10
5.1 Representations and Warranties Correct.........................10
5.2 Covenants......................................................11
5.3 Opinion of Company's Counsel...................................11
5.4 Compliance Certificate.........................................11
5.5 Blue Sky.......................................................11
5.6 Legal Matters..................................................11
5.7 Co-Sale and Registration Rights Agreements.....................11
SECTION 6 Conditions to Closing of Company................................11
6.1 Representations................................................11
6.2 Blue Sky.......................................................11
6.3 Legal Matters..................................................11
SECTION 7 Affirmative Covenants of the Company............................12
7.1 Financial Information..........................................12
7.2 Additional Information.........................................13
7.3 Transfer of Information........................................13
7.4 Conflicts of Interest..........................................13
7.5 Termination of Covenants.......................................13
7.6 Participation in Future Financings.............................14
SECTION 8 Restrictions on Transferability of Securities; Compliance
with Securities Act and Right of First Refusal.......................15
8.1 Restrictions on Transferability................................15
8.2 Restrictive Legend.............................................15
8.3 Notice of Proposed Transfers...................................15
8.4 Right of First Refusal.........................................16
8.5 California Corporate Securities Law............................16
SECTION 9 Miscellaneous...................................................17
9.1 Governing Law..................................................17
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TABLE OF CONTENTS
(continued)
Page
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9.2 Survival.......................................................17
9.3 Successors and Assigns.........................................17
9.4 Entire Agreement; Amendment....................................17
9.5 Notices, etc...................................................17
9.6 Delays or Omissions............................................18
9.7 Expenses.......................................................18
9.8 Counterparts...................................................18
9.9 Severability...................................................18
9.10 Titles and Subtitles...........................................18
9.11 Broker's or Finder's Fee.......................................18
9.12 Waiver of Conflict.............................................18
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STRATEGIC CONCEPTS CORP.
SERIES A PREFERRED STOCK
PURCHASE AGREEMENT
This Series A Preferred Stock Purchase Agreement (the "Agreement") is made as of January 30, 1996 by and among Strategic Concepts Corp., a California corporation (the "Company"), and Nationwide Mutual Insurance Company, a mutual insurance company organized under the laws of the State of Ohio (the "Purchaser").
SECTION 1
Authorization and Sale of Series A Preferred Stock
1.1 Authorization. The Company has authorized the sale and issuance of 100% of the authorized shares of its Series A Preferred Stock, being 176,471 shares of its Series A Preferred Stock (the "Shares") having the rights, preferences, privileges and restrictions set forth in the Amendment to Articles of Incorporation (the "Amendment") in the form attached to this Agreement as Exhibit A. The Articles of Incorporation (the "Articles") as amended by the Amendment are referred to herein as the "Amended Articles."
1.2 Sale of Series A Preferred Stock. Subject to the terms and conditions hereof and the rights, preferences, privileges and restrictions set forth in the Amendment, the Company will issue and sell to the Purchaser, and the Purchaser will buy from the Company, the Shares at a cash purchase price of $42.50 per Share.
SECTION 2
Closing Date; Delivery
2.1 Closing Date. The closing of the purchase and sale of the Shares hereunder (the "Closing") shall be held at the offices of Morrison & Foerster LLP, 345 California Street, San Francisco, California at 1:00 p.m., on February 15, 1996 or at such other time and place upon which the Company and the Purchaser shall agree (the date of the Closing is hereinafter referred to as the "Closing Date").
2.2 Deliveries. At the Closing, the Company will deliver to the Purchaser
a certificate or certificates, registered in the Purchaser's name, representing
the Shares, against payment of the aggregate purchase price therefor by check or
wire transfer payable to the Company in the amount determined in accordance with
Section 1.2.
SECTION 3
Representations and Warranties of the Company
Except as set forth in the Schedule of Exceptions to Representations and Warranties attached hereto as Exhibit B, the Company represents and warrants to the Purchaser as follows:
3.1 Organization and Standing; Articles and By-laws. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of California and is in good standing under such laws. The Company has requisite corporate power to own and operate its properties and assets, and to carry on its business as currently conducted and as proposed to be conducted. The Company is not qualified to do business as a foreign corporation in any jurisdiction and the failure to be so qualified does not have a material adverse effect on the Company's business. The Company has furnished the Purchaser copies of its Articles and Bylaws, as amended. Such copies are true, correct and complete and contain all amendments other than the Amendment through the Closing Date.
3.2 Corporate Power. The Company will have at the Closing Date all requisite legal and corporate power to execute and deliver this Agreement, the Co-Sale Agreement in the form attached hereto as Exhibit C (the "Co-Sale Agreement") and the Registration Rights Agreement in the form attached hereto as Exhibit D (the "Registration Rights Agreement") (collectively the "Agreements"), to sell and issue the Shares hereunder, to issue the Common Stock issuable upon conversion of the Shares (the "Conversion Shares") and to carry out and perform its obligations under the terms of the Agreements.
3.3 Subsidiaries. The Company has no subsidiaries or affiliated companies and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or business entity.
3.4 Capitalization. The authorized capital stock of the Company will, upon the filing of the Amendment, consist of 5,000,000 shares of Common Stock, of which 850,000 shares will be issued and outstanding, and 2,000,000 shares of Preferred Stock, 176,471 shares of which will have been designated Series A Preferred Stock, none of which will be issued and outstanding prior to the Closing. All issued and outstanding shares of the Company's capital stock will have been duly authorized and validly issued, will be fully paid and nonassessable and free of liens and encumbrances created by the Company and will have been issued in compliance with all applicable federal and state securities laws. The Company will have reserved 176,471 shares of Common Stock for issuance upon conversion of the Shares. Other than (i) the conversion rights of the Shares issued pursuant to this Agreement, (ii) the rights set forth in the Shareholders' Agreement dated as of September 30, 1995 between the Company, Hussein A. Enan and Darrell T. Ticehurst (the "Founders' Agreement") and (iii) options outstanding under the Company's 1995 Stock Option Plan, there are no preemptive rights, voting agreements, options or warrants or other conversion privileges or rights currently outstanding to purchase any of the authorized but unissued capital stock of the Company. There are 150,000 shares of Common
Stock reserved for issuance under the Company's 1995 Stock Option Plan, pursuant to which options for the purchase of a total of 130,000 shares were outstanding on January 30, 1996.
3.5 Authorization. All corporate action on the part of the Company, its directors and shareholders necessary for the authorization, execution, delivery and performance of the Agreements by the Company, the authorization, sale, issuance and delivery of the Shares and the Conversion Shares (collectively, the "Securities") and the performance of all of the Company's obligations hereunder and thereunder has been taken or will be taken prior to the Closing. The Agreements, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company, enforceable in accordance with their respective terms, except as the indemnification provisions of Section 2.6 of the Registration Rights Agreement may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable and will have the rights, preferences, privileges and restrictions described in the Amendment. The Conversion Shares have been duly and validly reserved and, when issued in compliance with the provisions of this Agreement and the Amendment, will be validly issued, fully paid and nonassessable. The Securities will be free of any liens or encumbrances other than those created by or imposed upon the holders thereof through no action of the Company; provided, however, that the Securities may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein. Except as contemplated herein, the Securities are not subject to any preemptive rights or rights of first refusal.
3.6 Title to Properties and Assets; Liens, etc. The Company has good and marketable title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of current taxes not yet due and payable (the amount of which has been established as a reserve in the Company's financial records to the extent required by generally accepted accounting principles), and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business.
3.7 Material Contracts and Commitments. Set forth on Exhibit B hereto is a list of all material contracts of the Company in effect on January 30, 1996 and a list of all material liabilities or obligations of the Company, absolute or contingent, that exceed $50,000 in any one case. All the material contracts, agreements and instruments to which the Company is a party are valid, binding and in full force and effect in all material respects, and are valid, binding and enforceable by the Company in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. The Company, prior to the Closing, will have provided the Purchaser or its special counsel with true and complete copies of all such material contracts, agreements and instruments.
3.8 Patents and Other Intangible Assets. All the patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes owned by the Company are listed on Exhibit B attached hereto. The Company has sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with or infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any communications alleging that the Company has violated, or by conducting its business as proposed would violate, and, to the best of its knowledge, the Company is not violating, any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees or consultants is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order (except as imposed by laws of general application) of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Company, or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of the Agreements, nor the carrying on of the Company's business by the employees or consultants of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees or consultants is now obligated.
3.9 Compliance With Other Instruments, None Burdensome, etc. The Company is not in violation of any term of its Articles or By-laws, or in any material respect of any term or provision of any mortgage, indebtedness, indenture, contract, agreement or instrument to which it is a party, or any decree, order, statute, rule or regulation applicable to it. The execution, delivery and performance of and compliance with the Agreements, and the issuance of the Securities, will not result in any material violation of, or conflict with, or constitute a material default under, or result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company; and there is no such violation or default which materially and adversely affects the business of the Company or any of the Company's properties or assets.
3.10 Litigation, etc. The Company has not instituted nor is a party to any action, suit, proceeding or investigation against any party. There are to the Company's knowledge no actions, suits, proceedings or investigations pending against the Company or its properties (nor, to the best of the Company's knowledge, against directors, officers or employees of the Company) before any court or governmental agency (nor, to the best of the Company's knowledge, is there any reasonable basis therefor or threat thereof), which, either in any case or in the aggregate, is likely to result in any material adverse change in the business or financial condition of the Company or any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its business, or in any material liability on the part of
the Company, and none which questions the validity of the Agreements or any action taken or to be taken in connection herewith and therewith, including, without limitation, any such action involving the prior employment of any of the Company's employees or their obligations under any agreements with prior employers.
3.11 Employees. To the best of the Company's knowledge, after reasonable investigation, no employee or consultant of the Company is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of any such person with the Company or any other party because of the nature of the business conducted or proposed to be conducted by the Company. The Company has no collective bargaining agreements covering any of its employees. The Company is not aware of any key employee of the Company who has any plans to terminate his or her employment with the Company. All employees of the Company involved in the technical development of the Company's software have executed Proprietary Information Agreements, copies of which will have been made available to the Purchaser or its special counsel prior to the Closing. The Company does not anticipate the necessity to acquire rights to any inventions of any employees, or people it currently intends to hire, made prior to their employment by the Company.
3.12 Insurance. The Company has fire, casualty and liability insurance policies in such amounts and with such coverage as are carried by companies similar to the Company.
3.13 Registration Rights. Except as set forth in this Agreement, the Founders' Agreement and the Registration Rights Agreement, the Company is not under any contractual obligation to register any of its currently outstanding securities or of any of its securities which may hereafter be issued.
3.14 Governmental Consent, Etc. No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of the Agreements, or the offer, sale or issuance of the Securities, or the consummation of any other transaction contemplated hereby or thereby, except for filing of the Amendment in the office of the Secretary of State of the State of California, filing of notices required by Section 25102(f) of the California Corporate Securities Law of 1968 and any other filings required under applicable federal and state securities laws of other states.
3.15 Offering. Subject to the accuracy of the Purchaser's representations in Section 4 hereof and in written responses to the Company's inquiries, the offer, sale and issuance of the Shares in conformity with the terms of this Agreement, and the issuance of the Conversion Shares, constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act").
3.16 Brokers or Finders; Other Offers. The Company has not incurred, and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement.
3.17 Disclosure. The Company has fully provided the Purchaser with all the information which the Purchaser and its special counsel have requested for deciding whether to purchase the Shares. No representation or warranty of the Company or the Subsidiary contained in this Agreement and the Exhibits attached hereto and any certificate furnished or to be furnished to the Purchaser at the Closing (when read together) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.
3.18 Tax Returns and Payments. The Company has filed all tax returns and reports as required by law. Such returns and reports are true and correct in all material respects and accurately reflect all tax liabilities of the Company with respect to all tax periods covered thereby. The Company has not received notice that the Company's income tax returns or any franchise tax return have been audited by any governmental authority. The Company has paid all taxes and other assessments due on or before the date hereof and such payments were made prior to the time penalties that would accrue therein. The Company knows of no new tax assessments. All taxes which should be reserved on the books of the Company in accordance with generally accepted accounting principles have been so reserved.
3.19 No Conflict of Interest. Except for indebtedness to Hussein A. Enan for funds advanced to the Company, the Company is not indebted, directly or indirectly, to any of its officers, directors or shareholders or to their respective spouses or children, in any amount whatsoever. None of said officers, directors or, to the best of the Company's knowledge, shareholders, or any members of their immediate families, are indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, except that officers, directors and/or shareholders of the Company may own up to five percent (5%) of the outstanding stock of publicly traded companies which may have a business relationship with or compete with the Company. Except as contemplated by the Founders' Agreement, no officer, director or shareholder, or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.
3.20 Corporate Records. A copy of the minutes of the proceedings of the shareholders and directors (the "Minutes") has been provided to counsel for the Purchaser. The Minutes are correct and complete and reflect all such proceedings to the date hereof.
3.21 Financial Statements. The Company has delivered to Purchaser its unaudited financial statements (balance sheet and profit and loss statement) at September 30, 1995 and from inception to that date (the "Financial Statements"). The Financial Statements are true, complete and correct in all material respects, subject to normal year-end adjustments, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the period indicated. The Financial Statements accurately set out and describe the financial condition and operating results of the Company as of the date, and for the period, indicated therein, subject to normal year-end audit adjustments. Except as set forth in the
Financial Statements, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to September 30, 1995, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company maintains and will continue to maintain a system of accounting established and administered in accordance with generally accepted accounting principles.
3.22 Changes. Since September 30, 1995, the Company has not:
(a) experienced any change in the assets, liabilities, financial condition or operating results from that reflected in the Financial Statements, except changes in the ordinary course of business which have not been, in the aggregate, materially adverse;
(b) experienced any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business (as such business is presently conducted and as it is proposed to be conducted);
(c) waived a valuable right or a material debt;
(d) discharged or satisfied any lien, claim or encumbrance or payment of any of their obligations, except in the ordinary course of business and which is not material to their assets, properties, financial condition, operating results or business (as such business is presently conducted and as it is proposed to be conducted);
(e) changed or amended any material contract or arrangement by which the Company or any of its assets or properties are bound or subject;
(f) materially changed any compensation arrangement or agreement with any employee;
(g) to the Company's knowledge, experienced any other event or condition of any character which might materially and adversely affect the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted and as it is proposed to be conducted); or
(h) defaulted under any material contract or agreement or any indenture or debt.
3.23 Environmental Matters. The Company and the uses made by it of its properties and assets are in compliance in all material respects with all environmental laws, regulations, rules, orders and ordinances, and the Company, to the best of the Company's knowledge, holds all permits and licenses required to conduct its business thereunder. To the best of the Company's knowledge, all properties and assets leased or owned by the Company, including,
without limitation, all structures, contents, soil, subsoil and ground water, do not contain hazardous substances in quantities that could reasonably be expected to have a material adverse effect on the Company. To the best of the Company's knowledge, the Company has no liability or obligation, whether to any governmental authority or to any other person or entity, for damages, claims, penalties, forfeitures or otherwise, as a consequence of the generation, transportation or disposal of any such hazardous substance or any "hazardous waste," as defined in 42 U.S.C. 6901 et seq.
3.24 Employee Compensation Plans. The Company is not a party to or bound by any currently effective employment contracts, deferred compensation agreements, bonus plans, incentive plans, profit sharing plans, retirement agreements or other employee compensation agreements, except as provided by the Founders' Agreement. Subject to applicable law, the employment of each officer and employee of the Company is terminable at will of the Company, except as provided by the Founders' Agreement.
3.25 Voting Agreements; Shareholder Agreements. The Company is not aware of any voting or other agreements by and between its shareholders concerning the manner in which shares of its capital stock shall be voted, other than as may be contemplated hereunder or set forth in the Founders' Agreement.
3.26 U.S. Real Property Holding Corporation. The Company is not now and
has never been a "United States real property holding corporation," as defined
in Section 897(c)(2) of the Internal Revenue Code of the United States and
Section 1.897-2(b) of the Treasury Regulations promulgated by the Internal
Revenue Service thereunder, and the Company has filed with the Internal Revenue
Service all statements, if any, with its United States income tax returns which
are required under Section 1.897-2(h) of such Regulations.
3.27 Private Offering. The Company has not offered any of the Securities or any similar security of the Company for sale to, or solicited offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any prospective purchaser, other than the Purchaser and up to ten (10) other prospective purchasers who are "qualified institutional buyers" within the meaning of SEC Rule 144A.
3.28 Use of Proceeds. The Company shall apply the net proceeds from the sale of the Securities for general corporate purposes.
3.29 Margin Securities. None of the transactions contemplated herein and in the Securities (including, without limitation, the use of the proceeds from the sale of the Securities) violates, will violate or will result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including, without limitation, Regulation G, Regulation T and Regulation X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. The Company does not own, or with the proceeds of the sale of the Securities intends to own, carry or purchase, or refinance borrowings that were used to own, carry or purchase, any margin security, including margin securities originally issued by the Company. The obligations of the Company under this Agreement and the Securities are not and will not be secured by any margin sold on the basis of any such collateral.
3.30 Absence of Foreign or Enemy Status. The Company is not in violation of, and neither the issue and sale of the Securities by the Company nor its use of the proceeds thereof as contemplated by this Agreement will violate the Trading with the Enemy Act, as amended, or any executive orders, proclamations or regulations issued pursuant thereto, including, without limitation, regulations administered by the Office of Foreign Asset Control of the Department of the Treasury (31 C.F.R., Subtitle B, Chapter V).
SECTION 4
Representations and Warranties of the Purchaser
Purchaser hereby represents and warrants to the Company as follows:
4.1 Experience. Purchaser has substantial experience in evaluating and investing in private placement transactions so that Purchaser is capable of evaluating the merits and risks of Purchaser's investment in the Company. Purchaser, by reason of its business or financial experience or the business or financial experience of its professional advisors who are unaffiliated with and who are not compensated by the Company or any affiliate or selling agent of the Company, directly or indirectly, has the capacity to protect its own interests in connection with the purchase of the Shares hereunder, provided that the foregoing does not limit the right of the Purchaser to rely upon the representations and warranties of the Company set forth in Section 3.
4.2 Investment. Purchaser is acquiring the Shares for investment for Purchaser's own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. Purchaser understands that the Shares have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Purchaser's representations as expressed herein. If Purchaser is not an individual, Purchaser has not been formed for the specific purpose of acquiring the Shares.
4.3 Rule 144. Purchaser acknowledges that the Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including (except as limited by Rule 144(k)), among other things, the existence of a public market for the Shares, the availability of certain current public information about the Company, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of Shares being sold during any three-month period not exceeding specified limitations.
4.4 No Public Market. Purchaser understands that no public market now exists for any of the securities issued by the Company, that the Company has made no assurances that a public market will ever exist for the Shares, and that, even if such a public market exists at some future time, the Company may not then be satisfying the current public information requirements of Rule 144.
4.5 Access to Data. Purchaser and its representatives have met with representatives of the Company and thereby have had the opportunity to ask questions of, and receive answers from, such representatives concerning the Company and the terms and conditions of this transaction, as well as to obtain any information requested by Purchaser. Purchaser believes that any questions raised by Purchaser or its representatives concerning the transaction have been answered to the satisfaction of Purchaser and its representatives. Purchaser's decision to purchase the Shares is based in part on the answers to such questions as Purchaser and its representatives have raised concerning the transaction and on its own evaluation of the risks and merits of the purchase and the Company's proposed business activities, provided that the foregoing does not limit the right of the Purchaser to rely upon the representations and warranties of the Company set forth in Section 3.
4.6 Authorization. The Agreements, when executed and delivered by Purchaser, will constitute a valid and legally binding obligation of Purchaser, enforceable in accordance with their respective terms, except as the indemnification provisions of Section 2.6 of the Registration Rights Agreement may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.
4.7 Brokers or Finders. The Company has not incurred, and will not incur, directly or indirectly, as a result of any action taken by Purchaser, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement.
4.8 Tax Consequences. Purchaser shall be solely responsible for seeking advice on the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Purchaser is not relying on any statements or representations of the Company or any of its agents and understands that Purchaser (and not the Company) shall be responsible for Purchaser's own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
SECTION 5
Conditions to Closing of Purchaser
The Purchaser's obligations to purchase the Shares at the Closing are, at the option of the Purchaser, subject to and conditioned upon the fulfillment or waiver as of the Closing Date of the following conditions:
5.1 Representations and Warranties Correct. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects when made, and
shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date.
5.2 Covenants. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects.
5.3 Opinion of Company's Counsel. The Purchaser shall have received from Morrison & Foerster LLP, counsel to the Company, an opinion addressed to it, dated the Closing Date, in substantially the form of Exhibit E attached hereto.
5.4 Compliance Certificate. The Company shall have delivered to the Purchaser a form of compliance certificate of the Company in the form of Exhibit F hereto, executed by the Chief Executive Officer of the Company, dated the Closing Date, and certifying to the fulfillment of the conditions specified in Sections 5.1, 5.2 and 5.5 of this Agreement.
5.5 Blue Sky. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured exemptions therefrom, required by any state for the offer and sale of the Securities.
5.6 Legal Matters. All material matters of a legal nature which pertain to the Agreements and the transactions contemplated hereby and thereby shall have been reasonably approved by counsel to the Purchaser.
5.7 Co-Sale and Registration Rights Agreements. The Company, the Founders and the Purchaser shall have entered into the Co-Sale Agreement and the Registration Rights Agreement.
SECTION 6
Conditions to Closing of Company
The Company's obligation to sell and issue the Shares at the Closing is, at the option of the Company, subject to and conditioned upon the fulfillment or waiver of the following conditions:
6.1 Representations. The representations made by the Purchaser in Section 4 hereof shall be true and correct when made, and shall be true and correct on the Closing Date.
6.2 Blue Sky. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured exemptions therefrom, required by any state for the offer and sale of the Securities.
6.3 Legal Matters. All material matters of a legal nature which pertain to the Agreements and the transactions contemplated hereby and thereby shall have been reasonably approved by Morrison & Foerster, counsel to the Company.
SECTION 7
Affirmative Covenants of the Company
The Company hereby covenants and agrees as follows:
7.1 Financial Information. The Company will mail the following reports to Purchaser for so long as Purchaser is a holder of any Securities:
(a) As soon as practicable after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), and in any event within forty-five (45) days thereafter, duplicate copies of (i) a consolidated balance sheet of the Company as at the end of such quarter, and (ii) statements of income, changes in shareholders' equity and cash flows of the Company for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter), setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles applicable to quarterly financial statements generally, and certified as complete and correct, subject to changes resulting from year-end adjustments, by a senior financial officer of the Company, and accompanied by the certificate required by this Agreement.
(b) As soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days thereafter, duplicate copies of (i) a balance sheet of the Company as at the end of such year, and (ii) consolidated statements of income, changes in shareholders' equity and cash flows of the Company for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles and accompanied by (iii) an opinion thereon of independent certified public accountants of recognized national standing selected by the Company, which opinion shall, without qualification, state that such financial statements present fairly, in all material respects, the financial position of the Company being reported upon and its results of operations and cash flows and have been prepared in conformity with generally accepted accounting principles, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances. and (iv) a certification by a senior financial officer of the Company that such financial statements are complete and correct.
(c) Promptly, but in any event not more than five (5) business days after the receipt thereof, a copy of each other report submitted to the Company by independent certified public accountants in connection with any annual, interim or special audit made by them of the books of the Company.
(d) Promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Company to stockholders generally, and of each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters), and each amendment thereto, in respect thereof
filed by the Company with, or received the Company in connection therewith from, the National Association of Securities Dealers, any securities exchange or the Securities and Exchange Commission or any successor agency.
(e) For so long as Purchaser is eligible to receive reports under this Section 7.1, it shall also have the right, at its expense, to visit and inspect any of the properties of the Company or any of its subsidiaries, to examine their books of account and records, to discuss their affairs, finances and accounts with their officers, employees and accountants and to consult with and advise their directors and officers on the management of the business, all at such reasonable times and as often as may be reasonably requested; provided, however, that the Company shall not be obligated to provide any information that it reasonably considers to be a trade secret or to be confidential information.
7.2 Additional Information. As long as Purchaser (together with any affiliates) holds not less than 50,000 Shares (or an equivalent number consisting of the Shares and Conversion Shares, as adjusted for recapitalizations, stock splits, stock dividends and the like), the Company will mail the following reports to Purchaser:
(a) Prior to the end of each fiscal quarter, a budget for the next fiscal quarter, and, as soon as prepared, any other budgets or revised budgets prepared by the Company.
(b) As soon as practicable after the end of each fiscal month, and in any event within thirty (30) days thereafter, a monthly progress report against budget, explaining any material discrepancies.
7.3 Transfer of Information. The information rights set forth in Sections 7.1 and 7.2 may be transferred in any non-public transfer of Securities, provided that the Company is given written notice of such transfer, and provided further that the right to receive the information set forth in Section 7.2 may only be transferred to a holder of, or affiliated holders who in the aggregate hold, at least the amount of shares specified in Section 7.2. In the event that the Company reasonably determines that provision of information to a transferee pursuant to this Section 7.3 would materially adversely affect its proprietary or competitive position, such information may be edited in the manner necessary to avoid such affect.
7.4 Conflicts of Interest. Unless the Company first obtains appropriate
approval of its Board of Directors and, if necessary, shareholders in accordance
with the California Corporations Code, the Company shall use its best efforts to
ensure that (a) officers of the Company will not become indebted to the Company
except in connection with stock purchases approved by the Board of Directors,
travel advances and other transactions in the ordinary course of business, and
(b) officers of the Company will not have any direct or indirect ownership
interest in any firm or corporation with which the Company has a business
relationship or with which it competes (except that officers may own up to five
percent (5%) of the outstanding stock in publicly traded companies which may
have a business relationship with or compete with the Company).
7.5 Termination of Covenants. The covenants set forth in Sections 7.1, 7.2 and 7.4 shall terminate and be of no further force or effect at such time as the Company is required to file
reports with the Securities and Exchange Commission (the "Commission") pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
7.6 Participation in Future Financings. As used in this Section 7.6, the term "New Securities" means any class or series of stock of the Company, whether or not presently authorized, and any warrants, options, or rights to acquire such stock, and any instrument convertible into or exchangeable for such stock.
(a) Except as provided in paragraph (c) below, if the Company shall issue any New Securities, it shall offer to sell to Purchaser and to each assignee permitted under paragraph (e) below (Purchaser or such assignee being hereinafter called the "Holder") a Ratable Portion of such New Securities on the same terms and conditions and at the lowest price as such New Securities are issued to any person. "Ratable Portion" shall mean that portion of such New Securities that bears the same ratio to all such New Securities (including for this purpose all New Securities which may be purchased by all Holders pursuant to this Section 7.6) as the number of Shares and Conversion Shares held by the Holder bears to the Outstanding Common Shares. "Outstanding Common Shares" means all shares of Common Stock then outstanding and all shares of Common Stock issuable upon conversion of all convertible securities then outstanding and upon exercise of warrants and options then outstanding.
(b) The Company shall use reasonable efforts to notify the Holder a reasonable time prior to the initial issuance of the New Securities and to provide the Holder with an opportunity to participate in the issuance contemporaneously with the first purchaser of the New Securities; but in no event shall notice be given later than 30 days after the issuance. Such notice shall contain all material terms of the issuance and of the New Securities. The Holder may elect to exercise all or any portion of its rights under this Section 7.6 by giving written notice to the Company within 15 days of the Company's notice. If the consideration paid by others for the New Securities is not cash, and if the electing Holder cannot for any reason pay for the New Securities in the form of such non-cash consideration, the Holder may pay the cash equivalent thereof, as determined in good faith by the Board of Directors. All payments shall be delivered by the electing Holder to the Company not later than the date specified by the Company in its notice, but in no event earlier than 20 days after the Company's notice.
(c) The provisions of this Section 7.6 shall not apply to shares of Common Stock issued or issuable by the Company which shares are excluded from the definition of "Additional Shares of Common Stock" for purposes of Article IV, Section 2, of the Amended Articles.
(d) The rights of the Holder under this Section 7.6 shall terminate immediately prior to the closing of an underwritten public offering of securities by the Company which satisfies the requirements of the Amended Articles (as in effect at such time) for the automatic conversion of the Series A Preferred.
(e) The Purchaser's rights under this Section 7.6 shall be assignable only to an assignee who acquires all of the Purchaser's Shares.
SECTION 8
Restrictions on Transferability of Securities; Compliance with Securities Act and Right of First Refusal
8.1 Restrictions on Transferability. The Securities shall not be sold, assigned,
transferred or pledged except upon the conditions specified in this Section 8.
The Purchaser will cause any proposed purchaser, assignee, transferee, or
pledgee of the Securities held by the Purchaser to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Section 8 and in the Registration Rights Agreement.
8.2 Restrictive Legend. Each certificate representing (i) the Securities and (ii) any other securities issued in respect of the Securities upon any stock split, stock dividend, recapitalization, merger, consolation or similar event, shall (unless otherwise permitted by the provisions of Section 8.3 below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws):
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SERIES A PREFERRED STOCK PURCHASE AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF SECURITIES OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
The Purchaser consents to the Company making a notation on its records and giving instructions to any transfer agent of the Securities in order to implement the restrictions on transfer established in this Section 8.
8.3 Notice of Proposed Transfers. The holder of each certificate
representing securities of the Company required to bear the legend set forth in
Section 8.2 ("Restricted Securities"), by acceptance thereof, agrees to comply
in all respects with the provisions of this Section 8.3. Prior to any proposed
sale, assignment, transfer or pledge of any Restricted Securities, the holder
thereof shall give written notice to the Company of such holder's intention to
effect such transfer, sale, assignment or pledge. Each such notice shall
describe the manner and circumstances of the proposed transfer, sale, assignment
or pledge in sufficient detail, and shall be accompanied at such holder's
expense by either (i) an unqualified written opinion of legal counsel who shall
be, and whose legal opinion shall be, reasonably satisfactory to the Company
addressed to the Company, to the effect that the proposed transfer of the
Restricted Securities may be effected without registration under the Securities
Act, or (ii) a "no action" letter from the Commission to the effect that the
transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon, subject to compliance with Section 8.4 hereof, the holder of
such Restricted Securities shall be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by the holder to
the Company. The Company will not require such
a legal opinion or "no action" letter (a) in any transaction covered by an effective registration statement under the Securities Act, (b) in any transaction in compliance with Rule 144, or (c) in any transfer to a Related Party (as defined in Section 8.4(b)), provided that each transferee agrees in writing to be subject to the terms of this Section 8.3. Until termination of the right of first refusal provided in Section 8.4, such notice shall also set forth the number of Restricted Securities proposed to be transferred, the name and address of the proposed transferee and the proposed amount and form of consideration and terms and conditions of payment. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 8.2 above, except that such certificate shall not bear such restrictive legend if, in the opinion of counsel for such holder and the Company, such legend is not required in order to establish compliance with any provisions of the Securities Act or with Section 8.4 of this Agreement.
8.4 Right of First Refusal. Except as otherwise permitted by subsection
(b) of this Section 8.4, no holder may transfer Restricted Securities to any
person or persons (a "transferee") without first offering such Restricted
Securities to the Company for purchase at the same price and on the same terms
as the proposed transfer to the transferee.
(a) Upon receipt of the notice provided for in Section 8.3, the Company shall have the option for a period of 15 days following the date said notice is received, to purchase all or any part of the Restricted Securities specified in such notice. In the event that the Company shall fail to exercise such option to purchase all Restricted Securities being offered within such 15-day time period, then the holder shall have the right for a period of 45 days after the termination of the 15-day period (or after waiver by the Company of its option to purchase), to transfer the remaining Restricted Securities which were the subject of the option, but only in the manner and on the terms and conditions as set forth in the notice given by the holder.
(b) Each holder of Restricted Securities may, without complying with the provisions of Section 8.4(a), transfer any Restricted Securities owned or held by him to any of his Related Parties and such Related Parties may transfer Restricted Securities to his Related Parties or to such holder. Related Party of any holder shall mean any parent, majority shareholder, subsidiary, partner or affiliate of such holder or any corporation, general or limited partnership, trust or other entity or organization in which any of the foregoing, individually or in the aggregate, has a majority of the equity interest. With respect to any individual, Related Party means members of such holder's immediate family, and trusts if a majority of the beneficiaries of the trust are such holder or members of his immediate family.
(c) The provision of this Section 8.4 shall terminate upon conversion of all of the outstanding Shares into Common Stock. This section shall not apply to Securities sold pursuant to a registration statement filed under the Securities Act which results in the automatic conversion of Shares into Common Stock.
8.5 California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
SECTION 9
Miscellaneous
9.1 Governing Law. This Agreement shall be governed in all respects by the laws of the State of California.
9.2 Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchaser and the closing of the transactions contemplated hereby.
9.3 Successors and Assigns. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the permitted successors, assigns, heirs, executors and administrators of the parties hereto; provided, however, that the rights of the Purchaser to purchase the Shares shall not be assignable without the consent of the Company.
9.4 Entire Agreement; Amendment. This Agreement and the other documents delivered pursuant hereto at the Closing constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof, 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 or therein. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that holders of at least a majority of the Securities (other than shares of such Common Stock that are no longer Registrable Securities, as defined in the Registration Rights Agreement) may, with the written consent of the Company, waive, modify or amend on behalf of all holders, any provisions hereof benefiting such holders, so long as the effect thereof will be that all such holders will be treated equally.
9.5 Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand, messenger or telecopy, addressed (a) if to Purchaser, at One Nationwide Plaza, Columbus, Ohio 43216, Attention: Executive Vice President - Investments, or at such other address as Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of any Securities, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to
and at the address of the last holder of such Securities who has so furnished an
address to the Company, or (c) if to the Company, to its address set forth on
the cover page of this Agreement and addressed to the attention of the Chief
Executive Officer, or at such other address as the Company shall have furnished
to the Purchaser. Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or five
(5) business days after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and postage
prepaid as aforesaid.
9.6 Delays or Omissions. Except where a specific time period is defined in this Agreement for the exercise of a right, or as otherwise expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any holder of any Securities, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative.
9.7 Expenses. The Company and the Purchaser shall bear their own expenses incurred on its behalf with respect to this Agreement and the transactions contemplated hereby. In the event of an action to resolve a dispute regarding interpretation of this Agreement, the expenses of the prevailing party shall be paid by the party which does not prevail.
9.8 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.
9.9 Severability. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party.
9.10 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement.
9.11 Broker's or Finder's Fee. The Company and the Purchaser agree to indemnify and hold harmless the other from any liability for any commission or compensation in the nature of a brokerage or finder's fees or agents' commissions (and the costs and expenses of defending against such liability or asserted liability) for which the Company or the Purchaser or any of their respective officers, agents, employees or representatives is responsible in connection with this transaction.
9.12 Waiver of Conflict. Each party to this Agreement that has been or continues to be represented by Morrison & Foerster hereby acknowledges that Rule 3-310 of the Rules of Professional Conduct promulgated by the State Bar of California requires an attorney to avoid
representations in which the attorney has or had a relationship with another party interested in the representation without the informed written consent of all parties affected. By executing this Agreement, each such party gives its informed written consent to the representation of the Company by Morrison & Foerster in connection with this Agreement and the transactions contemplated hereby.
The foregoing agreement is hereby executed as of the date first above written.
STRATEGIC CONCEPTS CORP.
a California corporation
By: /s/ Hussein A. Enan
Hussein A. Enan,
|
Chief Executive Officer
NATIONWIDE MUTUAL INSURANCE COMPANY
By: /s/ Robert J. Woodward, Jr.
Robert J. Woodward, Jr.
Title: Executive Vice President - Investments
|
Exhibit 10.5
STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made as of this 22nd day of November, 1996, by and between Insurance Information Exchange, L.L.C. a Delaware limited liability corporation ("Buyer"), and InsWeb Corporation, a Delaware corporation ("Company"). Except as otherwise indicated, capitalized terms used herein are defined in Section 8 hereof.
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase from the Company, and the Company desires to sell to Buyer, 176,471 shares of capital stock of the Company in the form of Series B Preferred Stock;
NOW, THEREFORE, in consideration of the premises and of the covenants, agreements, representations and warranties hereinafter set forth and other good and valuable consideration had and received by each of the parties hereto, the parties hereto hereby agree as follows:
Section 1 SALE AND PURCHASE OF SHARES
1A. SALE AND PURCHASE. Upon and subject to the terms and conditions set forth in this Agreement, at the "Closing" (as defined in Section 2A hereof) the Company shall sell to Buyer, and Buyer shall purchase from the Company, for the "Purchase Price" (as defined in Section 1B hereof), 176,471 shares of Series B Preferred Stock of the Company (such shares are hereinafter called in the aggregate the "Shares" and singly a "Share"). Such Shares shall include all of the rights as set forth in the Certificate of Incorporation of the Company for Series B Preferred Stock.
1B. PURCHASE PRICE. The aggregate purchase price for the Shares (the "Purchase Price") shall be $8.25 million dollars payable to the Company at Closing.
Section 2 THE CLOSING
2A. CLOSING. The "Closing" shall be and mean the time at which the
Company makes the sale of the Shares by delivery in a manner set forth in
Section 2B hereof, against payment of the Purchase Price as provided in Section
1B hereof. The Closing shall take place at the offices of the Company at 9:30
a.m. (local time) on November 22, 1996, or at such other time and place as the
parties may agree.
2B. DELIVERY OF THE SHARES. At the Closing the Company shall deliver to the Buyer one or more stock certificates duly issued in the name of the Buyer representing in the aggregate 176,471 Shares which shall pass full title to the Shares to Buyer, free and clear of any lien, encumbrance, charge, equity or restriction whatsoever.
Section 3 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Unless, at the Closing, each of the following conditions is either satisfied, or waived by
Buyer in writing, the Buyer shall not be obligated to effect the transactions contemplated by this Agreement:
3A. REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in Section 5 hereof will be true and correct at and as of the Closing as though then made, except to the extent of changes caused by the transactions expressly contemplated herein.
3B. OPINION OF COMPANY'S COUNSEL. Counsel for the Company shall furnish to the Buyer their written opinion with respect to the matters set forth in EXHIBIT A, addressed to the Buyer and dated the date of the Closing and in form and substance satisfactory to the Buyer.
3C. ABSENCE OF ADVERSE PROCEEDINGS. No claim, investigation, proceeding or litigation, either administrative or judicial, shall be threatened or pending against the Buyer or the Company, for the purpose of enjoining or preventing the consummation of the Agreement or otherwise claiming that this Agreement, or the consummation thereof, is improper, or which might materially and adversely affect the right of Buyer to retain the Shares.
3D. NO ADVERSE CHANGES. There shall have been no material adverse change in the operations of the business of the Company or material deterioration of or damage to the assets of the Company.
3E. COMPANY CERTIFICATE. There shall be furnished to Buyer at or prior to Closing a certificate dated as of the date of Closing signed by the Company to the effect that all of the conditions set forth in Sections 3A, 3C, 3D, 3F, 3G, 3H and 3J hereof have been satisfied.
3F. THIRD PARTY CONSENTS. Any and all consents, approvals and authorizations that may be required from lenders and others for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby shall have been obtained in form and substance satisfactory to Buyer in the exercise of its reasonable judgment.
3G. PROCEEDINGS. All corporate and other proceedings of the Company taken or required to be taken in connection with the transactions contemplated hereby to be consummated at or prior to the Closing and all documents incident thereto will be satisfactory in form and substance to the Buyer and its counsel in the exercise of their reasonable judgment.
3H. CERTIFIED CORPORATE DOCUMENTS. There shall be furnished to the
Buyer prior to or at the Closing: (a) certified copies of the Company's
certificate of incorporation and bylaws, each as in effect at the Closing; and
(b) certified copies of the resolutions duly adopted by the Company's Board of
Directors authorizing the execution, delivery and performance of this Agreement.
3I. CORPORATE RECORDS. At or before the Closing, the Company shall deliver or make available to Buyer copies of such of the Company's stock books, stock ledgers, minute books, corporate seal, copies of all tax returns, all personnel files and all books, records, accounts, ledgers and files of the Company relating to its business as the Buyer shall reasonably have requested.
3J. FINANCIAL STATEMENTS. At the Closing, the Company will deliver to the Buyer audited financial statements of the Company as of December 31, 1995 (the "Financial Statements"). Additionally, the Company will deliver to the Buyer at the Closing statements of income, balance sheets and retained earnings of the Company for the period from January 1, 1996 to September 30, 1996, (the "Pre-Closing Financial Statements").
3K. BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications or secured exemptions therefrom, required by any state for the offer and sale of the Shares.
3L. OTHER AGREEMENTS. The Company and the Buyer shall have entered into a Non Exclusive Joint Marketing and License Agreement and an Asset Purchase Agreement, the Company shall have entered into a Letter of Credit Agreement with Buyer's affiliate, AMS Services, Inc. and shall have executed the promissory note referenced in such agreement, and an Employment Agreement with Mr. Hussein Enan and the Buyer shall have entered into an Option Agreement with Mr. Hussein Enan and a Stock Purchase Agreement with certain employees of the Company each the same as or substantially similar to the agreements attached hereto as EXHIBIT B.
Section 4 CONDITIONS PRECEDENT TO THE COMPANY'S OBLIGATIONS
Unless, at or before the Closing, each of the following conditions is either satisfied, or waived in writing by the Company, the Company shall not be obligated to sell the Shares and shall not otherwise be obligated to effect the transactions contemplated by this Agreement:
4A. REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in Section 6 hereof will be true and correct at and as of the Closing as though then made, except to the extent of changes caused by the transaction expressly contemplated herein.
4B. ABSENCE OF ADVERSE PROCEEDINGS. No claim, investigation, proceeding or litigation, either administrative or judicial, shall be threatened or pending against the Company or the Buyer, for the purpose of enjoining or preventing the consummation of this Agreement or showing the consummation thereof is improper.
4C. PROCEEDINGS. All corporate or other proceedings of the Buyer taken or required to be taken in connection with the transactions contemplated hereby to be consummated at or prior to Closing and all documents incident thereto will be satisfactory in form and substance to the Company and its counsel in the exercise of their reasonable judgment.
4D. BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured exemptions therefrom, required by any state for the offer and sale of the Shares.
4E. OTHER AGREEMENTS. The Company and the Buyer shall have entered into the agreements described in Section 3L above.
4F. NATIONWIDE. The Company shall have obtained from Nationwide Mutual Insurance Company ("Nationwide") as a shareholder of the Company or otherwise any and all approvals, waivers, authorizations or other consents that are required to sell the Shares to Buyer as contemplated by this Agreement from Nationwide pursuant to that Certain Stock Purchase Agreement dated January 30, 1996 or otherwise including any preemptive or registration rights Nationwide may have.
Section 5 REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer as follows:
5A. CAPITALIZATION. The authorized capital stock of the Company consists of 5,000,000 shares of Common Stock, of which 969,500 shares are issued and outstanding, and 2,000,000 shares of Preferred Stock, 176,471 shares of which have been designated Series A Preferred Stock and are issued and outstanding. All issued and outstanding shares of the Company's capital stock will have been duly authorized and validly issued, will be fully paid and nonassessable and free of liens and encumbrances and will have been issued in compliance with all applicable federal and state securities laws. The Company has reserved 176,471 shares of Common Stock for issuance upon conversion of the Series A Preferred Stock and will have reserved 176,471 shares of Common Stock for issuance upon conversion of the Shares. Except as set forth on SCHEDULE 5A, there are no preemptive rights, voting agreements, options or warrants or other conversion privileges or rights currently outstanding to purchase any of the authorized but unissued capital stock of the Company. There are 265,647 shares of Common Stock reserved for issuance under the Company's 1995 Stock Option Plan, pursuant to which options for the purchase of a total of 130,000 shares were outstanding on January 30, 1996.
5B. ORGANIZATION AND CORPORATE POWER. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, has full corporate power and authority to own its properties and to carry on its business as now conducted. Buyer's counsel has been supplied with true and accurate copies of the Company's certificates of incorporation and bylaws as in effect at Closing. The Company has no subsidiaries and does not own any shares of stock or other securities of, or interest in, any other corporation or business.
5C. FINANCIAL STATEMENTS. The audited Financial Statements of the Company and the Pre-Closing Financial Statements, are correct in all material respects, have been prepared in accordance with generally accepted accounting principles consistently applied and present fairly and fully the financial position of the Company and the results of its operations for the respective periods thereof.
5D. NO UNDISCLOSED LIABILITIES. The Company does not have any material liabilities or obligations, absolute, accrued, contingent or otherwise, which have not been reflected in the Financial Statements or the Pre-Closing Financial Statements other than obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements or the Pre-
Closing Financial Statements, which in the aggregate are not material to the financial condition or operating results of the Company.
5E. ABSENCE OF CERTAIN DEVELOPMENT
Except as listed on SCHEDULE 5E or disclosed on the Pre-Closing Financial Statements, since December 31, 1995, the Company has not:
(i) issued any notes, bonds or other debt securities or any equity securities;
(ii) borrowed any amount or incurred or become subject to any liabilities, except current liabilities incurred in the ordinary course of business and except liabilities under contracts entered into in the ordinary course of business which do not exceed $10,000;
(iii) declared or made any payment or distribution of cash or other property to a shareholder with respect to its stock or otherwise, except for normal salaries and expense reimbursement, or purchased or redeemed any shares of its capital stock;
(iv) mortgaged or pledged any of its properties or assets or subjected them to any lien, security interest, charge or other encumbrance, except liens for current property taxes not yet due and payable;
(v) except in the ordinary course of business, sold, assigned or transferred any of its tangible assets, or canceled any debts or claims;
(vi) sold, assigned or transferred any patents, trademarks, service marks, trade names, copyrights, trade secrets or other intangible assets, or disclosed other than to employees of the Company, counsel for the Company, the Buyer or Buyer's representatives any proprietary confidential information;
(vii) suffered any extraordinary losses or waived any rights of material value, whether or not in the ordinary course of business or consistent with past practice;
(viii) made capital expenditures or commitments therefor that individually exceed $10,000 or in the aggregate exceed $50,000;
(ix) entered into any other transaction other than in the ordinary course of business or changed or amended or defaulted under any material transaction, contract or agreement; or
(x) made any loans or advances to, or guarantees for, the benefit of any person.
5F. NO ADVERSE CHANGES. Except as disclosed on SCHEDULE 5F, since December 31, 1995, the properties and assets of the Company have not been materially adversely affected in any way as a result of any casualty or event; and since December 31, 1995, there has been no material adverse change in the operating results, financial condition, indebtedness or to the best knowledge and belief of the Company the business prospects, customer relations, employee relations, corporate standing, or manner of conducting the business or operations of the Company.
5G. ASSETS. Except as specifically stated in SCHEDULE 5G hereof: (i) the Company has good and marketable title to, or a valid leasehold interest in, the properties and assets used by it, located on its premises, shown on the Financial Statements or acquired thereafter, free and clear of all claims, security interests, charges and encumbrances, except as disclosed on the Financial Statements (including the notes thereto) or the Pre-Closing Financial Statements with respect to items acquired thereafter and liens for current property taxes not yet due and payable and possible minor liens and encumbrances which do not in any case materially detract from the value of the assets of the Company or materially impair the operations of the Company, and which have not arisen other than in the ordinary course of business; (ii) the Company's buildings, equipment and other tangible assets are in good operating condition in all material respects and are fit for use in the ordinary course of business; (iii) the Company owns, or has a valid leasehold interest or license in, all assets necessary for the conduct of its business as presently conducted.
5H. ACCOUNTS RECEIVABLE. As of the Closing, all accounts receivable are bona fide and arose out of transactions made in the ordinary course of business; are payable in accordance with their terms and to the best knowledge and belief of the Company subject to no valid counterclaims or set offs. A reserve for bad debts as stated on the Pre-Closing Financial Statements has been established and is adequate in light of the Company's previous receivables collection history.
5I. TAX MATTERS. Except as set forth on SCHEDULE 5I, (i) the Company
have filed with appropriate governmental agencies all tax returns required to be
filed with such agencies and are not delinquent with respect to any such filing,
(ii) the Company has paid, or made adequate provision for the payment of, all
taxes which have or may become due pursuant to such returns and all assessments,
fees and charges claimed to be due by all federal, state, local and other taxing
authorities under the laws as in effect as of the Closing, and (iii) there are
no outstanding agreements, waivers, or other arrangements extending the
statutory period of limitations applicable to any tax return or report by the
Company, or the payment of taxes, charges or deficiencies by the Company for any
period ending at or prior to the date of this Agreement. The Company has no
notice, knowledge or reason to know, after reasonable inquiry of the officers of
the Company, that any state or local taxing authority has asserted any claim or
deficiency for non-payment of any income, franchise, sales, property or other
taxes of whatever nature. The Company has duly withheld from each payment made
to each person from whom such withholding is required by law the amount of all
taxes or other sums (including but not limited to United States federal income
taxes, any applicable state or municipal income tax, disability tax,
unemployment insurance contribution and Federal Insurance Contribution Act
taxes) required to
be withheld therefrom. The Company has paid all amounts withheld to the proper tax receiving officers on or prior to the due date thereof.
5J. CONTRACTS AND COMMITMENTS.
a. Except as expressly contemplated by this Agreement or as set forth on SCHEDULE 5J or SCHEDULE 5P as of the Closing, the Company is not a party to any written or oral:
(i) pension, profit sharing, stock option, employee stock purchase or other plan providing for deferred or other compensation to employees or any other employee benefit plan, or any contract with any labor union;
(ii) contract for the employment of any officer, individual employee or other Person on a full-time, part-time, consulting or other basis;
(iii) contract under which the Company has advanced or loaned any amounts to any other Person;
(iv) agreement or indenture relating to the borrowing of money or the mortgaging, pledging or otherwise placing a lien on any material asset or material group of assets of the Company;
(v) guarantee of any obligation;
(vi) lease or agreement under which the Company or any subsidiary is lessee of or holds or operates any property, real or personal, owned by any other party;
(vii) assignment, license, indemnification or agreement with respect to any intangible property (including copyright, know-how, trade secret or confidential information);
(viii) warranty agreement with respect to licenses, its services rendered or its products sold or leased;
(ix) contract or agreement prohibiting it from freely engaging in any business or competing anywhere in the world.
b. Except as specifically noted on SCHEDULE 5J or as noted in the Financial Statements or Pre-Closing Financial Statements, (i) the Company has performed all material obligations required to be performed by it and it is not in default under or in breach of nor in receipt of any claim of default or breach under any agreement or instrument to which the Company is subject, (ii) to the best knowledge and belief of the Company no event has occurred which with the passage of time or the giving of notice or both would result in a default, breach or event of noncompliance under any agreement or instrument to which the
Company is subject, (iii) the Company has no present expectations or intention of not fully performing all such obligations, and (iv) the Company has no knowledge of any breach or anticipated breach by the other parties to any contract or commitment to which it is a party.
c. Buyer's counsel has had made available to it a true and correct copy of each of the written contracts, agreements or commitments and an accurate description of the oral contracts which are referred to on SCHEDULE 5J, 5N, 5O AND 5P, together with all amendments, waivers or other changes thereto. Each contract, lease agreement or commitment referred to in SCHEDULE 5J, 5N, 5O and 5P is valid, in full force and effect and enforceable in accordance with its terms.
5K. PROPRIETARY RIGHTS. SCHEDULE 5K attached hereto contains a listing and summary description of all of the Company's Proprietary Rights. The Company possesses, through licenses or otherwise, all material Proprietary Rights necessary to the conduct of its business. No loss or expiration of any Proprietary Right is pending or to the best knowledge and belief of the Company threatened and the Company has not granted, or made any commitment to grant, a license with respect to any Proprietary Right, other than in the ordinary course of the Company's business of licensing the Company's software systems. Except as indicated on SCHEDULE 5K, (i) the Company owns all right, title, and interest in and to all of the Proprietary Rights, (ii) there have been no claims made against the Company for the invalidity, abuse, misuse, or unenforceability of any such rights, and to the best knowledge and belief of the Company there are no grounds for the same, (iii) the Company has not received a notice of conflict with the asserted rights of others within the last five years, (iv) to the best knowledge and belief of the Company the conduct of the Company's business has not infringed any Proprietary Rights of others, and to the best knowledge and belief of the Company the Proprietary Rights have not been infringed by other Persons, and (v) neither the execution of the Agreement by the Company nor the performance of the obligations hereunder shall cause the release of any Company source code to any third party under any promissory note, indenture, agreement, contract, license, lease, escrow, instrument or commitment to which the Company is a party. The Company has made available to the Buyer correct and complete copies of all licenses, sublicenses or agreements regarding the possession and/or use of the Proprietary Rights.
5L. LITIGATION, ETC. Except as specifically noted on SCHEDULE 5L, (i) there are no actions, suits, proceedings, orders, investigations or claims pending or to the best knowledge and belief of the Company threatened, against or affecting the Company at law or in equity, or before or by any governmental department, commission, board, bureau, agency for instrumentality, and (ii) the Company is not subject to any arbitration proceedings under collective bargaining agreements or otherwise, or, to the best knowledge and belief of the Company to any governmental investigations or inquiries.
5M. BROKERAGE. There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement to which the Company is a party.
5N. INSURANCE. The attached SCHEDULE 5N entitled "Insurance Schedule" contains a description of each insurance policy maintained by the Company with respect to its properties, assets and businesses, and each such policy is in full force and effect as of the Closing. To the best knowledge and belief of the Company the Company is not in default with respect to its obligations under any insurance policy maintained by it.
5O. NON-COMPETE AND OTHER AGREEMENTS. Except as set forth in SCHEDULE 5O, neither the Company nor to the best knowledge and belief of the Company any of its employees is subject to any non-compete, nondisclosure, confidentiality, employment, consulting or similar agreements relating to the present or proposed business activities of the Company, except for confidentiality and non-disclosure agreements between the Company and its present and former employees. All current Company employees have executed confidentiality and nondisclosure agreements.
5P. EMPLOYEE BENEFITS.
a. With respect to all employees and former employees of the Company, except as set forth on the attached SCHEDULE 5P entitled "Employee Benefits Schedule," the Company does not presently maintain, contribute to or have any liability (including current or potential multi-employer plan withdrawal liability) under any:
(i) non-qualified deferred compensation or retirement plan or arrangement which is an "employee pension benefit plan" as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA");
(ii) qualified defined contribution retirement plan or arrangement which is an employee pension benefit plan;
(iii) qualified defined benefit plan or arrangement which is an employee pension benefit plan;
(iv) "multi-employer plan" as such term is defined in
Section 3(37) of ERISA;
(v) unfunded or funded medical, health or life insurance plan or arrangement for present or future retirees or present or future terminated employees which is an employee welfare benefit plan as defined in Section 3(1) of ERISA: or
(vi) any other employee welfare benefit plan.
b. All employee welfare benefit plans listed on SCHEDULE 5P and related trusts, insurance contracts or other funding arrangements, if any, comply in form and in operation with the requirements of ERISA.
5Q. COMPLIANCE WITH LAWS. Except as set forth in SCHEDULE 5Q, to the best knowledge of the Company after inquiry of its officers and outside counsel, the Company has complied with all laws, regulations and orders material to the operation of its business, including properly qualifying to do business with the Secretary of State in each state where the ownership of property or conduct of business of the Company requires such qualification, and has not received any written or oral notification thereof to the contrary. To the best knowledge and belief of the Company, the Company has complied with all laws (including rules and regulations thereunder) of federal, state, local, and foreign governments (and all agencies thereof) concerning the environment, public health and safety, and employee health and safety, where failure to comply would have a material adverse effect on operations, business or assets of the Company.
5R. NO BREACH OR CONFLICT. Except for the consents required from Nationwide and under a stockholder agreement, all of which shall be obtained or waived by the Company prior to Closing, neither the execution of this Agreement by the Company nor the performance of the obligations of the Company hereunder, nor any action by the Company contemplated by this Agreement, conflicts with, constitutes grounds for termination of, or constitutes a default under, any promissory note, indenture, agreement, contract, license, lease, instrument or commitment to which the Company is a party or by which it may be bound, or conflicts with the Company's articles or certificate of incorporation or bylaws or will result in creation of any lien, security interest encumbrances or other charge on the Company's capital stock or assets. Neither the purchase of the Shares by Buyer nor the consummation of the transactions contemplated by this Agreement will result in any material adverse change in the business or operations of the Company.
5S. OFFICER AND DIRECTORS. SCHEDULE 5S attached hereto and made a part hereof is a true and complete list of all of the directors and officers of the Company as of the date hereof.
5T. DISCLOSURE. The representations or warranties of the Company contained in Section 5 and elsewhere in the Agreement, all information contained herein and in the Schedules and Exhibits attached to this Agreement and the documents furnished to Buyer pursuant to this Agreement is, and shall be at the Closing, correct and complete in all material respects. Such information does not make any untrue statement of a material fact or omit to state all material facts required to be stated therein or necessary to make the statements therein, in light of the circumstances under which such statements are made, correct, complete and not misleading. All information relating to the Company which is known or would on reasonable inquiry be known to the Company and which could reasonably be anticipated to have a material adverse effect on the existing or expected financial condition, indebtedness, operating results, customer relations, employee relations or business properties of the Company has been disclosed to Buyer and any such information arising prior to the Closing will forthwith be disclosed to Buyer. All underlying documents incorporated or referred to in such Exhibits or in documents furnished to Buyer pursuant to this Agreement by the Company are true and correct copies thereof, as the same have been or shall be amended or modified.
5U. OWNERSHIP OF SHARES. The Company now has and will at the Closing have the full right, power and authority to sell and transfer the Shares hereto to Buyer, free and clear of any lien, encumbrance, option, charge, equity or restriction whatsoever.
5V. PRODUCT WARRANTY. Each product or service manufactured, sold, leased, licensed or delivered by Company has been in conformity with all applicable contractual commitments and all express and implied warranties and Company has no liability and there is no basis for any present or future charge, complaint, action, suit, proceeding or claim against Company giving rise to any liability for replacement or repair thereof or other damages in connection therewith. Except as set forth on SCHEDULE 5V, no product or service manufactured, sold, leased, licensed or delivered by Company is subject to any guaranty, warranty or other indemnity beyond the applicable standard terms and conditions of sale or license. SCHEDULE 5V includes copies of the standard terms or conditions of sale or license.
5W. VALID OBLIGATION. The execution and delivery of this Agreement and the consummation by the Company of the transactions contemplated hereby constitute the valid and binding obligation of the Company, enforceable in accordance with its terms except as may be limited by bankruptcy, other similar laws and by general principles of equity.
Section 6 REPRESENTATIONS AND WARRANTIES OF BUYER
The Buyer represents and warrants to the Company as follows:
6A. ORGANIZATION. The Buyer is a limited liability corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the full corporate power and authority to own its properties and carry on its business.
6B. AUTHORIZATION. The execution, delivery and performance of this Agreement have been duly authorized by all requisite corporate action of the Buyer. The Buyer has all requisite corporate authority to perform all of its obligations under this Agreement. This Agreement constitutes valid and binding obligations of the Buyer, subject to the effect of bankruptcy, insolvency, reorganizations and other similar laws relating to or affecting the rights of creditors generally, the terms of this Agreement, as well as limitations imposed by general principles of equity.
6C. BROKERAGE. There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement to which the Buyer is a party.
6D. NO BREACH OR CONFLICT. Neither the execution of this Agreement by Buyer nor the performance of its obligations hereunder, nor any action by it contemplated by this Agreement, conflicts with, constitutes grounds for termination of, or constitutes a default under or conflicts with the Buyer's certificate of incorporation or bylaws.
6E. CLOSING DATE. The representations and warranties of Buyer contained in this Section 6 and elsewhere in this Agreement and all information contained in any exhibit, schedule
or attachment hereto or in any writing delivered by, or on behalf of Buyer to the Company, their counsel or agent will be true and correct in all material respects on the date of the Closing as though then made.
6F. EXPERIENCE. Buyer has substantial experience in evaluating and investing in private placement transactions so that Buyer is capable of evaluating the merits and risks of Buyer's investment in the Company. Buyer, by reason of its business or financial experience or the business or financial experience of its professional advisors who are unaffiliated with and who are not compensated by the Company or any affiliate or selling agent of the Company, directly or indirectly, has the capacity to protect its own interests in conjunction with the purchase of the Shares hereunder, provided that the foregoing does not limit the right of the Buyer to rely upon the representations and warranties of the Company set forth in Section 5.
6G. INVESTMENT. Buyer is acquiring the Shares for investment for Buyer's own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. Buyer understands that the Shares have not been, and will not be, registered under the Securities Act by reason of specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Buyer's representations expressed herein. If Buyer is not an individual, Buyer has not been formed for the specific purpose of acquiring the Shares.
6H. RULE 144. Buyer acknowledges that the Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Buyer is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including (except as limited by Rule 144(k)), among other things, the existence of a public market for the Shares, the availability of certain current public information about the Company, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of Shares being sold during any three-month period not exceeding specified limitations.
6I. NO PUBLIC MARKET. Buyer understands that no public market now exists for any of the securities issued by the Company, that the Company has made no assurances that a public market will ever exist for the Shares, and that, even if such a public market exists at some future time, the Company may not then be satisfying the current public information requirements of Rule 144.
6J. ACCESS TO DATA. Buyer and its representatives have met with representatives of the Company and thereby have had the opportunity to ask questions of, and receive answers from, such representatives concerning the Company and the terms and conditions of this transaction, as well as to obtain any information requested by Buyer. Buyer believes that any questions raised by Buyer or its representatives concerning the transaction have been answered to the satisfaction of Buyer and its representatives. Buyer's decision to purchase the Shares is based in part on the answers to such questions as Buyer and its representatives have raised concerning the transaction
and on its own evaluation of the risks and merits of the purchase and the Company's proposed business activities, provided that the foregoing does not limit the right of the Buyer to rely upon the representations and warranties of the Company set forth in Section 5.
Section 7 COVENANTS
7A. OPERATIONS.
a. The Company will elect to the Board of Directors of the Company two persons nominated by Buyer one of which shall be an officer of Continental Casualty Corporation ("CNA"). As long as Buyer or any Buyer affiliate owns at least 176,471 shares of any class of stock in the Company, it shall be entitled to at least two members on the Board of Directors, and in the event Buyer or any Buyer affiliate owns less than 176,471 but more than 88,235 of such shares, it shall be entitled to at least one member on the Board of Directors. Moreover, as long as Buyer or any Buyer Affiliate owns at least 176,471 shares of any class of stock in the Company or until the closing of an underwritten public offering of securities of the Company which satisfies the requirements of the Amended Certificate for the automatic conversion of the Shares to Common Stock, or until Buyer fails to exercise its Option as described in the Option Agreement attached hereto in Exhibit B, or until the responsibilities of Mr. Dennis Chookazian, Chairman & CEO of CNA, Mr. Philip Engel, President of CNA and Mr. David Hunter, President & CEO of iiX, are changed so substantially, as a management team, that they no longer control Buyer's representation on the Board of Directors of the Company, the two directors nominated by Buyer voting together shall have fifty one percent (51%) of the votes to be cast by the Board of Directors on all matters which come before the Board of Directors of the Company and Buyer's vote of the Shares as a shareholder shall constitute fifty one percent (51%) of all votes to be cast by all shareholders of the Company on all matters on which the shareholders vote.
b. In the event for any reason Hussein A. Enan terminates his
employment with the Company, or upon the fifth (5th)
anniversary of Closing if there has not been a closing of an
underwritten public offering of securities of the Company,
Buyer shall have the right to name any person to assume the
office and responsibilities of CEO of the Company as that
office and those duties are defined in the By-Laws of the
Company and are, as of Closing, being performed by Hussein A.
Enan. If Buyer shall fail to name such successor within sixty
(60) days of the termination of Mr. Enan, or said fifth (5th)
anniversary, then the Board of Directors of the Company shall
have the authority to appoint such successor.
c. In the case of the death or permanent disability of Mr. Enan, Buyer shall promptly, at the election of Mr. Enan or his heirs, purchase all of Mr. Enan's ownership in the Company at a price to be determined by an independent investment banker jointly selected by Mr. Enan or his representative and Buyer.
The Company shall send Buyer written notice of Mr. Enan's death or permanent disability as soon as practicable after the occurrence thereof.
d. Promptly after Closing, assuming that such insurance is available on commercially reasonable terms the Company shall obtain "Key Person" insurance covering the death or disability of Mr. Enan as well as any other members of the Company management deemed by the Board of Directors of the Company to be essential to the success of the Company.
e. The determination of whether and when the Company will sell shares of its Common Stock in an underwritten public offering including the choice of underwriting and the share price shall be in the sole discretion of Hussein A. Enan, so long as he hold 150,000 shares of the capital stock of the Company. Buyer hereby agrees to vote, and hereby agrees to cause its representative on the Board of Directors to vote, in a manner consistent with this right.
7B. AFFIRMATIVE COVENANTS OF THE COMPANY.
a. FINANCIAL INFORMATION. The Company will mail the following reports to Buyer for so long as Buyer is a holder of any Share:
(i) As soon as practicable after the end of each
quarterly fiscal period in each fiscal year of the
Company (other than the last quarterly fiscal period
of each such fiscal year), and in any event within
forty-five (45) days thereafter, duplicate copies of
(i) a consolidated balance sheet of the Company as at
the end of such quarter, and (ii) statements of
income, changes in shareholder's equity and cash
flows of the Company for such quarter and (in the
case of the second and third quarters) for the
portion of the fiscal year ending with such quarter),
setting forth in each case in comparative form the
figures for the corresponding periods in the previous
fiscal year, all in reasonable detail, prepared in
accordance with generally accepted accounting
principles applicable to quarterly financial
statements generally, and certified as complete and
correct, subject to changes resulting from year-end
adjustments, by a senior financial officer of the
Company, and accompanied by the certificate required
by this Agreement.
(ii) As soon as practicable after the end of each fiscal
year of the Company, and in any event within ninety
(90) days thereafter, duplicate copies of (i) a
balance sheet of the Company as at the end of such
year, and (ii) consolidated statements of income,
changes in shareholders' equity and cash flows of the
Company for such year, setting forth in each case in
comparative form the figures for the previous fiscal
year, all in reasonable detail, prepared in
accordance with generally accepted accounting
principles and accompanied by (iii) an opinion
thereon of independent certified public accountants
of recognized national standing selected by the
Company, which opinion shall, without qualification,
state that such
financial statements present fairly, in all material respects, the financial position of the Company being reported upon and its results of operations and cash flows and have been prepared in conformity with generally accepted accounting principles, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (iv) certification by a senior financial officer of the Company that such financial statements are complete and correct.
(iii) Promptly, but in any event not more than five (5) business days after the receipt thereof, a copy of each other report submitted to the Company by independent certified public accountants in connection with any annual, interim or special audit made by them of the books of the Company.
(iv) Promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Company to stockholders generally, and of each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters), and in each amendment thereto, in respect thereof filed by the Company with, or received by the Company in connection therewith from, the National Association of Securities Dealers, any securities exchange or the Securities and Exchange Commission or any successor agency.
(v) For so long as Buyer is eligible to receive reports under this Section 7B(a), it shall also have the right, at its expense, to visit and inspect any of the properties of the Company or any of its subsidiaries, to examine their books of account and records, to discuss their affairs, finances and accounts with their officers and accountants and to consult with and advise their directors and officers on the management of the business, all at such reasonable times and as often as may be reasonably requested; PROVIDED, HOWEVER, that the Company shall not be obligated to provide any information that it reasonably considers to be a trade secret or to be confidential information.
b. ADDITIONAL INFORMATION. As long as Buyer (together with any affiliates) holds not less than 50,000 Shares (or an equivalent number consisting of the Shares and Conversion Shares, as adjusted for recapitalizations, stock splits, stock dividends and the like), the Company will mail the following reports to Buyer:
(i) Prior to the end of each fiscal quarter, a budget for the next fiscal quarter, and, as soon as prepared, any other budgets or revised budgets prepared by the Company.
(ii) As soon as practicable after the end of each fiscal month, and in any event within thirty (30) days thereafter, a monthly progress report against budget, explaining any material discrepancies.
c. TRANSFER OF INFORMATION RIGHTS. The information rights set
forth in Sections 7B(a) and 7B(b) may be transferred in any
non-public transfer of Shares, provided that the Company is
given prior written notice of such transfer, and provided
further that the right to receive the information set forth in
Section 7B(b) may only be transferred to a holder of, or
affiliated holders who in the aggregate hold, at least the
amount of shares specified in Section 7B(b). In the event that
the Company reasonably determines that provision of
information to a transferee pursuant to this Section 7B(c)
would materially adversely affect its proprietary or
competitive position, such information may be edited in the
manner necessary to avoid such effect.
d. CONFLICTS OF INTEREST. Unless the Company first obtains
appropriate approval of its Board of Directors and, if
necessary, shareholders in accordance with the Delaware
General Corporations Law, the Company shall use its best
efforts to ensure that (a) officers of the Company will not
become indebted to the Company except in connection with stock
purchases approved by the Board of Directors, travel advances
and other transactions in the ordinary course of business, and
(b) officers of the Company will not have any direct or
indirect ownership interest in any firm or corporation with
which the Company has a business relationship or with which it
competes (except that officers may own up to five percent (5%)
of the outstanding stock in publicly traded companies which
may have a business relationship with or compete with the
Company).
e. TERMINATION OF COVENANTS. The covenants set forth in Sections 7B(a), (b) and (d) shall terminate and be of no further force or effect at such time as the Company is required to file reports with the Securities and Exchange Commission (the "Commission") pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
f. PARTICIPATION IN FUTURE FINANCINGS. As used in this Section 7B(f), the term "New Securities" means any class or series of stock of the Company, whether or not presently authorized, and any warrants, options, or rights to acquire such stock, and any instrument convertible into or exchangeable for such stock.
(i) Except as provided in paragraph (iii) below, if the Company shall issue any New Securities, it shall offer to sell to Buyer and to each assignee permitted under paragraph (v) below (Buyer or such assignee being hereinafter called the "Holder") a Ratable Portion of such New Securities on the same terms and conditions and at the lowest price as such New Securities are issued to any person. "Ratable Portion" shall mean that portion of such New Securities that bears the same ratio to all such
New Securities (including for this purpose all New Securities which may be purchased by all Holders pursuant to this Section 7B(f)) as the number of Shares and Conversion Shares held by the Holder bears to the outstanding Common Shares. "Outstanding Common Shares" means all shares of Common Stock then outstanding and all shares of Common Stock issuable upon conversion of all convertible securities then outstanding and upon exercise of warrants and options then outstanding.
(ii) The Company shall use reasonable efforts to notify the Holder a reasonable time prior to the initial issuance of the New Securities and to provide the Holder with an opportunity to participate in the issuance contemporaneously with the first purchaser of the New Securities; but in no event shall notice be given later than 30 days after the issuance. Such notice shall contain all material terms of the issuance and of the New Securities. The Holder may elect to exercise all or any portion of its rights under this Section 7B(f) by giving written notice to the Company within 15 days of the Company's notice. If the consideration paid by others for the New Securities is not cash, and if the electing Holder cannot for any reason pay for the New Securities in the form of such non-cash consideration, the Holder may pay the cash equivalent thereof, as determined in good faith by the Board of Directors. All payments shall be delivered by the electing Holder to the Company not later than the date specified by the Company in its notice, but in no event earlier than 20 days after the Company's notice.
(iii) The provisions of this Section 7B(f) shall not apply to shares of the Common Stock issued or issuable by the Company which shares are excluded from the definition of "Additional Shares of Common Stock" for purposes of Article IV, Section 2 of the Amended Articles.
(iv) The rights of the Holder under this Section 7B(f) shall terminate immediately prior to the closing of an underwritten public offering of securities by the Company which satisfies the requirements of the Amended Articles (as in effect at such time) for the automatic conversion of the Series B Preferred.
(v) The Buyer's rights under this Section 7B(f) shall be assignable only to an assignee who acquires all of the Buyer's Shares.
7C. REGISTRATION RIGHTS.
a. PIGGYBACK REGISTRATION RIGHTS.
(i) RIGHT TO PIGGYBACK. Whenever the Company proposes to register any stock (or securities convertible into or exchangeable or exercisable for stock under the Securities Act (a "Piggyback Registration"), the Company
will give prompt written notice to Buyer of its intention to effect such a registration and will, subject to paragraph (a)(ii) below, include in such Piggyback Registration all Registrable Securities with respect to which the Company receives written requests for inclusion therein within fifteen (15) days after receipt of the Company's notice. Registrable Securities with respect to which such request for registration has been received will be registered by the Company and offered to the public on the same terms and conditions applicable to the stock to be sold by the Company or by the person selling under such proposed registration.
(ii) PRIORITY ON PIGGYBACK REGISTRATIONS. If the managing
underwriter advises the Company that in its opinion
the number of securities proposed to be sold exceeds
the number which can be sold in such offering, the
Company will include in such registration the number
of securities which, in the opinion of such
underwriter or underwriters, can be sold as follows:
(1) first, the stock the Company proposes to sell,
(2) second, the Registrable Securities requested to
be included in such registration, by the Buyer which
have requested their Registrable Securities to be
included therein, and (3) third, other Shares
requested to be included in such registration.
(iii) SELECTION OF UNDERWRITERS. If any Piggyback Registration is an underwritten offering, the Board of Directors of Company shall have the right to select a managing underwriter or underwriters to administer the offering.
b. PUBLIC SALE BY HOLDER OF REGISTRABLE SECURITIES. The Buyer, if requested by the managing underwriter or underwriters for any underwritten Piggyback Registration, agrees not to effect any public sale or distribution of Registrable Securities, including a sale pursuant to Rule l44 (or any similar provision then in force) under the Securities Act, during the one hundred eighty (180) day period beginning on the effective date of such Piggyback Registration.
c. REGISTRATION EXPENSES. All of the costs and expenses of each Registration hereunder will be borne by the Company; provided, that the Company shall not bear any underwriters' commissions, brokerage fees, transfer taxes, or the fees and expenses of any accountants or other representatives retained by the Buyer except for the fees and expenses of one counsel chosen by the Buyer.
d. INDEMNIFICATION. This clause (d) shall only be applicable in regard to this Section 7C.
(i) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify, to the full extent permitted by law, the Buyer, its officers and directors and each Person who controls Buyer (within the meaning of the Securities Act and the Securities Exchange Act of 1934, as amended (the
"Exchange Act") against all losses, claims, damages, liabilities and expenses caused by any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospects or any omission or alleged omission to state therein a material fact necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, except insofar as the same are caused by or contained in any information with respect to Buyer furnished in writing to the Company by Buyer expressly for use therein.
(ii) INDEMNIFICATION BY HOLDERS OF REGISTRABLE SECURITIES. In connection with any Registration Statement in which Buyer is participating, Buyer will furnish to the Company in writing such information and affidavits with respect to Buyer as the Company requests for use in connection with any registration statement or prospectus and agrees to indemnify, to the full extent permitted by law, the Company, its directors and officers and each Person who controls the Company (within the meaning of the Securities Act and the Exchange Act) against any losses, claims, damages, liabilities and expenses resulting from any untrue or alleged untrue statement of a material fact or any omission or alleged omission to state a material fact necessary to make the statements in the registration statement or prospectus or preliminary prospectus (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information or affidavit with respect to Buyer so furnished in writing by Buyer. In no event shall the liability of any selling holder of Registrable Securities hereunder be greater in amount than the dollar amount of the proceeds received by such holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.
(iii) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to indemnification hereunder will (i) give prompt written notice to the indemnifying party of any claim with respect to which it seeks indemnification and (ii) unless in such indemnified party's reasonable judgment a conflict of interest may exist between such indemnified and indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. Whether or not such defense is assumed by the indemnifying party, the indemnifying party will not be subject to any liability for any settlement made without its consent (but such consent will not be unreasonably withheld). No indemnifying party will consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from any liability in respect of such claim or litigation. An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party a conflict of interest may exist between such indemnified party and any other such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel.
(iv) CONTRIBUTION. If for any reason the indemnification provided for in the preceding clauses (i) and (ii) is unavailable to an indemnified party or insufficient to hold it harmless as contemplated by the preceding clauses (i) and (ii), then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided that Company shall be required to contribute an amount greater than the net proceeds from the sale of the Shares.
Section 8 RESTRICTIONS ON TRANSFERABILITY OF SHARES: COMPLIANCE WITH SECURITIES ACT.
8A. RESTRICTIONS ON TRANSFERABILITY. The Shares shall not be sold,
assigned, transferred or pledged except upon the conditions specified in this
Section 8. The Buyer will cause any proposed purchaser, assignee, transferee, or
pledgee of the Shares held by the Buyer to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Section 8 and in the Registration Rights Agreement.
8B. RESTRICTIVE LEGEND. Each certificate representing (i) the Shares and (ii) any other securities issued in respect of the Shares upon any stock split, stock dividend, recapitalization, merger, consolation or similar event, shall (unless otherwise permitted by the provisions of Section 9C below) be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws):
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SERIES B PREFERRED STOCK PURCHASE AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE CORPORATION AND CERTAIN HOLDERS OF SECURITIES OF THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
The Buyer consents to the Company making a notation on its records and giving instructions to any transfer agent of the Shares in order to implement the restrictions on transfer established in this Section 8.
8C. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF DELAWARE AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE DELAWARE CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
Section 9 DEFINITIONS
9A. AFFILIATE. "Affiliate" shall mean any Person which owns an interest in Buyer or any Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Buyer or any of its shareholders.
9B. BUSINESS. "Business" shall mean ordinary course of business of the Company which provides a consumer marketplace for insurance education and sales over the Internet or private intranets including the provision of insurance rating software and related services or products to the Company customers.
9C. PROPRIETARY RIGHTS. "Proprietary Rights" means all (a) patents, patent applications, patent disclosures, and improvements thereto, (b) trademarks, service marks, trade dress, logos, trade names, product names and corporate names and registrations and applications for registration thereof, (c) copyrights and registrations and applications for registration thereof, (d) mask works and registrations and applications for registration thereof, (e) computer software, data, and documentation, (f) trade secrets and confidential business information know-how, manufacturing and production processes and techniques, research and development information, drawings, specifications, designs, plans, proposals, technical data, copyrightable works, financial, marketing, and business data, pricing and cost information, business and marketing plans, and customer and supplier lists and information, (g) other intellectual property, and (h) copies and tangible embodiments thereof in whatever form or medium.
9D. PERSON. "Person" shall mean an individual, a partnership, a corporation, an association, a joint stock company, a trust, a joint venture, an unincorporated association and a governmental entity.
Section 10 INDEMNIFICATION
10A. BASIC RIGHT OF BUYER. Notwithstanding the Closing, the delivery of the Shares and regardless of any investigation at any time made by or on behalf of Buyer, the Company indemnifies and agrees to defend, save and hold Buyer, and any stockholder, subsidiary or Affiliate of Buyer, harmless in the event that Buyer, or any stockholder, subsidiary or Affiliate of Buyer, shall at any time or from time to time suffer or become obligated to pay any damage, liability, loss, cost, expense, claim, cause or causes of action (including all reasonable attorneys' fees) ("Indemnifiable Losses") arising out of or resulting from: (i) any
untruth or inaccuracy in any representation of the Company or the breach of any warranty of the Company; (ii) any failure of the Company duly to perform or observe any terms, provisions, covenants, agreements or conditions of this Agreement on the part of the Company to be performed or observed; (iii) any exhibit, certificate or other document furnished by the Company (or any representative of a Company) to Buyer (or any representative of the Buyer); (iv) any fine, penalty, franchise tax, income tax or other tax or amount imposed by any state as a result of Company's business activities in that state prior to Closing; (v) and all claims, demands, suits, actions, losses or judgments (including legal expenses and costs incident to the matters indemnified against in this paragraph 10A, (the events described in (i) through (v) collectively are "Events of Breach"); PROVIDED however, that the Company shall have no obligation to make any payment to Buyer under this Section 10A unless the aggregate amount to which Buyer is entitled by reason of all claims under this Section 10A exceeds $50,000 (it being understood that once such amount is exceeded, the aggregate of all claims under this Section 10A shall be payable by Company on demand by the Buyer) and unless, (i) with respect to any claim arising out of any misrepresentation or incorrect warranty or failure to perform or observe any terms, provision, covenant, agreement or condition required by the Agreement to be performed or observed on or before the Closing, notice of such claim is given by Buyer to the Company within two years after the Closing; and (ii) with respect to any failure to perform or observe any term, provision, covenant, agreement or condition required by this Agreement to be performed or observed after the Closing, notice of such claim is given by Buyer to Company within five years after such failure (six years in the case of the Event of Breach relating to any representation as to tax matters).
10B. PROCEDURE. In the event that any suit, action, investigation,
claim or proceeding is begun, made or instituted as a result of which the
Company may become obligated to Buyer hereunder, Buyer shall give written notice
thereof to the Company. The Company agrees, at the option of the Buyer either
(a) to defend, contest or otherwise protect Buyer against any such suit, action,
investigation, claim or proceeding at their sole cost and expense, or (b) pay
the Buyer's costs and expenses, including attorneys' fees, of any such defense.
Buyer shall have the right to so defend or contest, including without
limitation, the right to make any compromise or settlement thereof.
Section 11 MISCELLANEOUS
11A. REMEDIES. Each party to this Agreement will have the rights and remedies set forth in this Agreement, and all rights and remedies which such parties have been granted at any time under any other agreement or contract and all of the rights which such parties have under any law. Any Person having any rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages by reason of any breach of any provision of the Agreement and to exercise all other rights granted by law.
11B. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations, warranties and indemnity provisions contained herein or made in writing by any party in connection herewith shall survive the execution and delivery of this Agreement, regardless of any investigation made by the Buyer or the Company or on their behalf.
11C. ENTIRE AGREEMENT. This Agreement (together with the exhibits and schedules hereto) contains all of the terms and conditions agreed upon by the parties hereto with reference to the subject matter hereof with regard to such subject matter. No other agreements not specifically referred to herein, oral or otherwise, shall be deemed to exist or to bind any of the parties hereto with regard to such subject matter. No officer or employee of any party has any authority to make any representation or promise not contained in this Agreement, and each of the parties hereto agrees that it has not executed this Agreement in reliance upon any such representation or promise.
11D. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.
11E. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement.
11F. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
11G. GOVERNING LAW. All questions concerning the construction, validity and interpretation of this Agreement and the exhibits and schedules hereto will be governed by the internal law, and not the law of conflicts, of California.
11H. NOTICE. All notices, demands or other communications to be given or delivered under or by reason of the provisions of this Agreement will be in writing and will be deemed to have been given when delivered personally or mailed by certified or registered mail, return receipt requested and postage prepaid, to the recipient. Such notices, demands, and other communications will be sent to the Company and to the Buyer at their respective addresses indicated below:
Buyer:
AMS Services, Inc.
900 Chelmsford Road
Tower 1, 10th Floor
Lowell, MA 01851
Attention: General Counsel
Company:
InsWeb Corporation
1875 South Grant Street, Suite 800
San Mateo, CA 94402
Attention: General Counsel
or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.
11I. ENFORCEMENT. In the event suit is brought to enforce or interpret any part of this Agreement or the rights or obligations of any party to this Agreement, the prevailing party shall be entitled to recover as an element of such party's costs of suit, and not as damages, a reasonable attorney's fee to be fixed by the court. The prevailing party shall be the party who is entitled to recover his costs of suit whether or not the suit proceeds to final judgment. A party not entitled to cover his costs shall not recover attorney's fees.
11J. AMENDMENT. This Agreement may not be changed, amended, terminated or superseded orally, nor may any of the provisions hereof be waived orally, but only by an instrument in writing, signed in each case by an authorized officer of Company and an authorized officer of Buyer.
11K. CONFIDENTIALITY. It is understood and agreed between the parties hereto that the parties are best served by keeping the financial terms of this Agreement confidential and each party hereby agrees that it will use its reasonable efforts to not, through its agents, officers, directors, employees, or by any other means, disclose to any third parties the financial terms of this Agreement; excepting only to counsel, accountants or other agents necessary to consummate the transactions contemplated herein or with the written consent of the other party, for a period of thirty-six (36) months following the Closing except (a) to the extent that such information is required in response to any summons or subpoena or in connection with any litigation, (b) to the extent that such information is believed to be required in order to comply with any law, order, regulation or ruling applicable to such party disclosing such information, (c) to the extent that such information subsequently becomes known to the party disclosing such information through any Person other than a Person whom the disclosing party knows to be acting in violation of his or its obligations to the non-disclosing party and (d) to obtain additional financing or investment in the Company but only pursuant to a written confidentiality agreement with such third party.
11L. PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No party shall issue any press releases and public announcements relating to the subject matter of this Agreement without the prior written approval of the Buyer and the Company; provided, however, that any party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing party will use its best efforts to advise the other parties prior to making the disclosure).
11M. EXPENSES. The Company and the Buyer shall each bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.
11N. CONSTRUCTION. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of interest or interpretation arises, 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 of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law
shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase Agreement to be duly executed and delivered on the date set forth below but intending for all purposes to evidence a formation agreed to and effective as of the date first written above.
BUYER:
Insurance Information Exchange, L.L.C.
By: /s/ David Hunter
-------------------------
David Hunter, President
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COMPANY:
InsWeb Corporation
By /s/ DARRELL J. TICEHURST Attest --------------------------- Name: Darrell J. Ticehurst |
Date
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Secretary (Seal)
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LIST OF EXHIBITS AND SCHEDULES
SECTION DESCRIPTION PROVIDED BY
3B Exhibit A Subject for Company iiX
Counsel's Opinion
3L Exhibit B Other Agreements iiX and InsWeb
5A Schedule 5A Capital Stock InsWeb
5E Schedule 5E List of Developments InsWeb
5F Schedule 5F Adverse Changes InsWeb
5G Schedule 5G Exceptions to Title and InsWeb
Conditions of Assets
5I Schedule 5I Tax Exceptions InsWeb
5J Schedule 5J List of Contracts and InsWeb
Commitments
5K Schedule 5K List of Proprietary Rights InsWeb
5L Schedule 5L Litigation Pending InsWeb
5N Schedule 5N Insurance Schedule (List of InsWeb
Company Insurance Policies)
5O Schedule 5O Non-Compete and other
Agreements in Effect InsWeb
5P Schedule 5P List of Employee Benefits InsWeb
5Q Schedule 5Q Compliance with Laws InsWeb
5S Schedule 5S Officers and Directors InsWeb
Currently in Office
5V Schedule 5V Product Warranties InsWeb
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Exhibit 10.6
NONEXCLUSIVE
JOINT MARKETING AND LICENSE AGREEMENT
This Agreement is made and entered into as of November 22, 1996 (the "Effective Date") by and between Insurance Information Exchange, LLC., a Delaware limited liability corporation with offices in College Station, Texas ("iiX") and InsWeb Corporation, a Delaware corporation with offices in San Mateo, California ("InsWeb").
WHEREAS, the parties hereto agree that it is in their mutual best interests to cooperate according to the terms of this Agreement in jointly developing and offering Internet solutions to the insurance industry.
NOW THEREFORE, in consideration of the terms and conditions set forth herein the parties agree as follows:
1. SCOPE OF RELATIONSHIP AND OBJECTIVES.
A. The parties will share their respective electronic website interfaces and cooperate in developing total solutions for insurance companies, consumers, agents and brokers.
B. This shall not be an exclusive agreement and the parties shall be free to enter into the same or similar agreements with any third party; provided however, where possible each party will grant "preferred vendor" status to the other and will request services and products from the other party rather than a third party.
C. Each company will introduce Property and Casualty insurance accounts to the other company and will make clear that the active technology ties between the two companies are an integral part of their respective marketing efforts. However, each party recognizes that the ultimate decision belongs to the customer, and that there will be instances where one of the parties may find it necessary to cooperate with a competitor of the other party.
D. In general, InsWeb will be responsible for matters relating to the interactions between consumers and Property and Casualty insurance companies. iiX will be responsible for matters relating to the interaction between consumers and agents, and between agents and Property and Casualty insurance companies.
E. Areas of additional exploration will include the cross mirroring of agent and company home pages where there is an advantage to the parties of doing so, and jointly evaluating ways that both companies might benefit from extending the relationship to the Life and Health side of the insurance industry. In particular, both companies will evaluate the possibility of cooperating in integrating case management facilities for Life and Health companies.
F. The parties will license to each other the technologies listed and described on EXHIBIT A attached hereto according to the terms set forth in this Agreement.
G. Any programs, products or technologies including the manuals and documentation related thereto, to be delivered from one party to the other pursuant to this agreement shall be delivered via electronic means only.
2. TERM.
A. This Agreement shall commence as of the Effective Date and shall remain in effect continuously for a period of five (5) years.
B. Termination - Either Party in its discretion may terminate this Agreement by providing thirty (30) days written notice to the other in the event of any of the following:
i. The commencement of any proceedings, whether under court supervision or otherwise, for the liquidation of the other;
ii. The insolvency of the other;
iii. The making of any assignment for the benefit of creditors by the other;
iv. The appointment of a receiver or similar officer for the other;
v. The filing of a petition in bankruptcy by or against the other under any bankruptcy or debtor's law for its relief or reorganization or for the composition, extension, arrangement or readjustment of its obligations.
vi. Material breach of this Agreement by the other Party, which if remediable, has not been corrected within sixty (60) calendar days after written notice.
Upon termination each party shall promptly return to the other all copies of the Software, including modified copies, if any and cease to display of any portion of the Software on the Internet or any intranet. The Software may contain blocks and/or time out programs to prevent use of the Software after termination of this License.
3. RESPONSIBILITIES OF THE PARTIES.
A. Both InsWeb and iiX will have responsibilities for insurance company customer development and both will initiate customer contacts.
B. InsWeb and iiX will work together to promptly and in good faith develop predefined business process templates which will serve as the framework for the customer contact process.
C. Joint sales presentations will be made based on the business process template that the customer either prefers or is likely to prefer, with the objective of better addressing customer needs.
D. As part of the proposal for services to the customer, the general contractor and subcontractor relationship responsibilities between InsWeb and iiX will be defined for each customer or group or customers. These roles will be interchangeable. The business process template will provide a recommended definition of the relationship based on input provided by both InsWeb and iiX. However, the customer's likely or stated preferences will be the determining factor.
E. The customer proposal will include a pricing section developed by InsWeb and iiX, which will cover the services provided and the proposed transaction fees for both InsWeb and iiX products and services.
F. InsWeb will have primary responsibility for developing and implementing the end user (consumer) interface.
G. iiX will have primary responsibility for providing rating services (implementation and maintenance) and underwriting support services, such as MVR's, claims, advanced rules-based underwriting tools, scoring, and reference information which is beyond the customer screening filters provided by InsWeb as part of the end user interface. InsWeb will recommend to its customers the iiX rating services, and underlying services such as underwriting, MVR's, claims services, and other information processing associated with agent support services or the company's preferred business process. InsWeb may also run an insurance company provided rating system or provide a custom rater that will run on the InsWeb system. The preferred method will be to have InsWeb recommend iiX's full rating services and rating maintenance to InsWeb's customers.
H. InsWeb will be responsible for an insurance company's EDI specification and support thereof where the business process template defines a direct relationship between the consumer and the company.
I. iiX will be responsible for an insurance company's EDI specification and support thereof where the business process template involves an agency distribution channel process, or where the business process template involves ongoing case management and other interactive and company data interface processes.
J. iiX and InsWeb will cooperate in providing intranet infrastructure services for those segments of the property and casualty market where the business process template calls for it.
K. Each party shall promptly notify the other of any changes or improvements made to the technology or data set forth on EXHIBIT A attached hereto which is the subject of this Agreement and shall promptly supply the other party free of charge with copies of the most recent version of such technology or data.
L. InsWeb agrees that during the term of this Agreement it will, subject to customer approval, refer to iiX all inquires from insurance agents and brokers (but not MGA's) desiring to establish an interface with consumers on the Internet; provided however, this shall not
apply to insurance agencies or brokers who approach InsWeb for the purpose of participating in an intranet.
4. LICENSE.
A. GRANT OF LICENSE. In consideration of payment of the license fees set forth herein, each party grants to the other for a period of five (5) years following the Effective Date, a nonexclusive, nontransferable right to use and display the programs, documentation and the related files, data and materials described in EXHIBIT A (the "Software"), on a Internet server so that authorized users of that server can access the Software and execute its programs to obtain a desired result as part of an application, product or service offered by the party on the Internet or on various intranets of such end users.
B. OWNERSHIP OF THE SOFTWARE. Each party retains title and ownership of the Software which it owned prior to this Agreement recorded on the original disk copy(ies) and all subsequent copies of the Software, regardless of the form or media in, or on which, the original and other copies may exist or who produced the copies. This Agreement is not a sale of the original Software or any copy. This Software is copyrighted. Unauthorized copying of the Software is expressly forbidden. Each party may copy the Software in machine-readable form for system backup or disaster recovery purposes only, and except as provided herein no other right to reproduce or display the Software is granted. Each party agrees to comply with, and not to bypass, any licensing or security controls which are a part of the Software. Each party shall maintain on the Software and any copies thereof all copyright notices of the other party or any third party as they appear on the Software. No party shall modify, adapt, translate, reverse engineer, decompile, disassemble, or create derivative works based on the Software of the other party. Any authorized transferee of the Software shall be bound by the terms find conditions of this Agreement. In no event shall a party loan, transfer, distribute, assign, rent, lease, sell or otherwise dispose of the Software of the other party to any third party, on a temporary or permanent basis, except with written permission from the owning party. In the event that the Software product to which this Agreement applies contains any insurance rates, each party acknowledges that only those rates which are authorized for use by the other party and the purposes contemplated in this Agreement shall be included.
C. INJUNCTIVE RELIEF. The parties agree that the other party will be irreparably damaged in the event that the Software is used, copied, licensed or conveyed in any manner conflicting with the terms and provisions of this Agreement. Accordingly, upon the occurrence of any such event, each party shall have the right to enjoin such actions. The rights granted in this Section shall be cumulative and not exclusive, and shall be in addition to any and all other rights which a party may have under this Agreement, at law or in equity.
D. GOVERNMENTAL LAWS AND REGULATIONS. To the extent that any Software or any output from the Software is used for the purpose of complying with governmental laws, regulations or reporting, the user shall assume all responsibility for determining that the deliverable or output satisfies the governmental requirements. Any Software provided to or used by any governmental agency shall be provided with "Restricted Rights" and each party shall
place the appropriate Restricted Rights legend, in addition, applicable copyright notices, on the Software prior to providing any governmental agency access to the Software.
5. PAYMENTS.
A. The parties shall pay transaction fees to the other party according to the schedule set forth in this section. The transaction types are more specifically described on EXHIBIT B attached hereto. For all transaction fees which are to be paid one hundred percent (100%) to one party, that party shall be responsible for billing for and collecting such fee from the customer. For transactions fees which are split between the parties, the parties shall determine which party shall bill to and collect from the customer such transaction fee. The billing party shall remit to the other party, monthly to the other party that portion of such transaction fee to which the non billing party is entitled.
B.
FEE
TRANSACTION TYPE RECIPIENT BREAKDOWN
Consumer rating fees from the Both parties 50%/50%
Comparative Rater
Lead referrals - agent pages - iiX iiX 100%
Lead referrals - agent pages from InsWeb
(generic leads referrals) Both parties 75%iiX/25%InsWeb
Consumer to agent to company transaction Both parties 50%/50%
Lead referrals - AMS comparative rating Both parties 50%/50%
(agent)
Lead referrals - AMS comparative rating Both parties 50%/50%
(company)
Lead referrals - InsWeb quotation engine Both parties 50%/50%
(agent)
Lead referrals - InsWeb quotation engine Both parties 50%/50%
(company)
InsWeb generated and maintained InsWeb 100%
rates
iiX rating engine used Both parties 50%/50%
Rating effected off an individual co.'s
page
InsWeb generated and maintained InsWeb 100%
rates
iiX rating engine used Both parties 50%/50%
Rating effected off an individual iiX 100%
agent's page
Consumer to company direct transaction InsWeb 100%
Company rating engine set up and iiX 100%
maintenance fee
Set up fees - rating, information and iiX 100%
underwriting
Set up fees - user interface InsWeb 100%
Set up fees - Company interface To be determined on a case by case
basis.
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C. Notwithstanding the five (5) year term of this Agreement, the parties agree that the schedule and breakdown of transaction fees shall be in effect for the first year of the term and will be reviewed prior to the expiration of the first year of the term. The parties shall review and renew the transaction fee sharing schedule annually prior to the end of each one year period, at terms mutually agreeable to the parties. If proposed changes to the transaction fee schedule cannot be agreed upon within ninety (90) days of the start of the annual negotiations to make such changes, then the fee structure in effect for the prior year will continue in effect until the next annual review or until a mutually agreed upon set of changes is achieved.
D. InsWeb shall pay to iiX license fees for license and use of the Comparative Rate System, Individual Company Raters and Silver Plume Software as follows:
Comparative Rate System $4,000,000 Individual Company Raters $1,350,000 Silver Plume $ 100,000 |
Such license fees, less (i) the license fees payable by iiX to InsWeb hereunder,
(ii) the purchase price payable by iiX to InsWeb pursuant to the Asset Purchase
Agreement entered into by the parties contemporaneously herewith and (iii) the
restrictive covenant fee set forth in Section 10 (the "Net License Fees"), shall
be due and payable in a lump sum in immediately available funds on the second
anniversary of the date of this Agreement. Along with and upon payment of the
Net License Fees, InsWeb shall pay to iiX interest on the entire outstanding Net
License Fee amount at the rate of the Prime composite rate set forth in the Wall
Street Journal on the date of delivery of the first rating programs ("Delivery
Date") plus two percent (2%). Interest shall accrue from the Delivery Date
until the Net License Fees are fully paid.
E. iiX shall pay InsWeb license fees for the license and use of the Agent Updater and Agent Locator Software as follows:
Agent Updater $250,000 Agent Locator $100,000 |
Such license fees shall be due and payable, as an offset against license fees payable by InsWeb to iiX hereunder, on the second anniversary of the date of this Agreement.
6. ACCOUNTING.
During the term of this Agreement each party agrees to keep all usual and proper records and books of account and all usual and proper entries relating to each type of transaction in accordance with generally accepted accounting principles. Each party has the right to review such books and records of the other party at reasonable times and with reasonable notice to verify the billing of customers, collection and payment of the transaction fees set forth in this Agreement. In the event that a party identifies any errors or discrepancies in the accounting for a payment of the transaction fees the parties shall meet and in good faith resolve such differences. In the event that the differences cannot be reconciled, then either party may request that a
mutually agreed upon independent, nationally recognized certified public accounting firm be retained to audit the books and records of the other party. Such audit shall be pursuant to reasonable advanced written notice and at the expense of the party requesting such audit. All discrepancies shall promptly be corrected including any additional payments or refund of payments necessary to correct such discrepancy. "Material" shall mean a discrepancy amounting to at least ten percent (10%) of the amount that should have been reported. If a Material discrepancy is disclosed in favor of the party which requested the audit, then the other party shall be responsible for the cost of the audit.
7. PERSONNEL.
A. Any personnel assigned by a party to perform services or work pursuant to this Agreement shall at all times remain an employee or independent contractor of the party which assigned that person to the project. The assigning party shall be solely responsible for the payment of such persons' compensation, including the provision for employment taxes, expenses and benefits which may apply to said person.
B. Each party agrees that it will not hire an employee or consultant any individual who is an employee or contractor for the other party during the term of this Agreement and for a period of six (6) months thereafter, unless such individual has not been employed by the other party for a period of at least six (6) months at the time of the offer of employment is made, or unless otherwise agreed to in writing by the parties.
8. OWNERSHIP.
Each party intends and agrees to retain ownership of any and all Confidential Information, products, trademarks, Software and materials ("Intellectual Property") which it owned prior to or developed during or pursuant to this Agreement. Therefore, this Agreement shall not pass any right, title or ownership of any Intellectual Property from one party to the other.
9. CONFIDENTIALITY.
A. STANDARD CARE. Each party acknowledges and agrees that all information (including all third-party proprietary materials or information), except as specified below, that comes to be known by reason of work under this Agreement is confidential information and trade secrets of the disclosing party and will not be disclosed to any unauthorized third parties. Each party will use the same standard of care, and will bind its employees, agents or representatives to such standard, to prevent disclosure or use of such information as it uses to protect its own confidential information or trade secrets. Information received by a party from the other under this Agreement will not be considered confidential if the information:
i. is lawfully known to the receiving party or is in the receiving party's possession at the time of executing this Agreement;
ii. is in the public domain at the time of disclosure or becomes part of the public domain by the action of the party with the proprietary interest in the Confidential Information;
iii. is independently developed by the receiving party; or
iv. is disclosed to the receiving party by a third party with the other party's written approval.
B. REQUIRED DISCLOSURE. In the event that a party is requested or required in a judicial. administrative or governmental proceeding to disclose any information, material. records or files of the other party which are obtained as a result of this Agreement, such party shall provide the other party with prompt notice of such request(s) so that the other party may seek an appropriate protective order or waive compliance with the provisions of this Agreement.
C. RETURN OF CONFIDENTIAL INFORMATION. Upon termination of this Agreement, each party and its employees shall return to the other party any information, materials products or data considered confidential or proprietary to that party (without the requirement of any notice or demand form the other party), whether partial or whole and regardless of form.
D. SURVIVAL. The obligation of the Parties pursuant to this Section shall survive the termination of this Agreement for a period of five (5) years.
10. RESTRICTIVE COVENANT.
In consideration of the payment to iiX of $50,000, for a period of five (5) years after closing, iiX agrees that during the term of this Agreement it will, subject to customer approval, refer to InsWeb all inquires from insurance companies or managing general agencies desiring to establish an interface with consumers on the Internet; provided, however, this shall not apply to or include insurance companies or managing general agencies who approach iiX or its affiliates for the purpose of establishing an intranet. In the event that iiX is engaged to develop an intranet, where possible, iiX will recommend InsWeb's solution for the consumer interface.
11. ASSIGNMENT.
Except by iiX to an affiliate of iiX, this Agreement is not assignable by either party without the prior written approval of the other party, any assignment of the rights or delegation of duties by a party with prior approval shall be void. Each party further agrees that it shall not subcontract to a third party to perform any of the obligations or responsibilities contemplated by this Agreement without prior written approval of the other party.
12. GENERAL.
A. All notices which are required or permitted to be given or submitted pursuant to this Agreement shall be in writing and shall be either delivered in person or sent certified mail, return receipt requested, or by a nationally known overnight delivery service to the
address set forth herein or to such other address as a party may from time to
time designate in writing for such purpose. Notices shall be deemed to have
been given at the time when personally delivered or if mailed in a certified
post-paid envelope, upon the fifth (5th) calendar day after the date such
notice shall be postmarked or if sent by delivery service upon the second
(2nd) calendar day after the date such notice shall have been sent. All
notices to the parties shall be addressed, if to iiX: 3001 East Bypass,
College Station, Texas 77845 with a copy to AMS Services, Inc., 900
Chelmsford Street, Tower 1, 10th Floor, Lowell, MA 01851, ATTN: General
Counsel; if to InsWeb: 1875 South Grant Street, Suite 800, San Mateo, CA
94402.
B. This Agreement and any Exhibits hereto: (i) constitute the entire agreement between the parties and supersede and merge any and all prior discussions, representations, demonstrations, negotiations, correspondence, writings and other agreements and together state the entire understanding and agreement between InsWeb and iiX respecting the marketing of products and services; (ii) may be amended or modified only in writing agreed to and signed by authorized officers of InsWeb and iiX; and (iii) shall be construed performed and enforced in all respects in accordance with the laws of the State of Texas. Should any section or any part of a section within this Agreement be rendered void, invalid or unenforceable by any court or law for any reason, such invalidity or unenforceability shall not void or render invalid or unenforceable any other section or part of a section to this Agreement.
C. The captions and section numbers appearing in this Agreement are inserted only as a matter of convenience and do not in any way define, limit, construe or describe the scope or intent of such sections or in any way affect this Agreement.
D. If any provision of this Agreement or the application thereof is hereafter held invalid or unenforceable, the remainder of this Agreement shall not be affected thereby, and to this end the provisions of this Agreement are declared severable.
E. No failure or delay on the part of a party in exercising any right hereunder will operate as a waiver of any such right. Pursuit of certain remedies with respect to all or some of the rights granted hereunder shall not bar other remedies with respect to the rights granted hereunder. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision, whether or not similar, nor shall any waiver constitute a continuing waiver.
F. NEITHER PARTY SHALL BE RESPONSIBLE FOR ANY INDIRECT OR CONSEQUENTIAL DAMAGES OR FOR ANY LOST PROFITS WHICH MAY RESULT FROM ITS PERFORMANCE OR FAILURE TO PERFORM HEREUNDER. WITH THE EXCEPTION OF RIGHTS EXPRESSLY ARISING UNDER THE TERMS OF THIS AGREEMENT, THE PARTIES' EXCLUSIVE REMEDY FOR BREACH OF THIS AGREEMENT SHALL BE TERMINATION OF THE AGREEMENT IN ACCORDANCE WITH THE TERM AND TERMINATION SECTION, AND COLLECTION OF FEES AND OTHER AMOUNTS EXPRESSLY PROVIDED FOR HEREIN WHICH ARE DUE ON OR BEFORE TERMINATION.
G. InsWeb and iiX hereby specifically agree and acknowledge that they are not creating a partnership or joint venture hereby and that neither party, nor any employee of either party, shall be deemed an employee or agent of the other party for any purpose.
H. In the event there are any disagreements between the parties under this Agreement, then each party shall designate one executive at a level of vice president or higher for purposes of discussing possible resolutions of such dispute. In the event the dispute is not resolved to both parties' satisfaction, then the matter shall be escalated to the president of both parties who shall then attempt to resolve the dispute. If the dispute remains unresolved then at the request of either party the dispute shall be submitted to binding arbitration according to the Commercial Arbitration Rules of the American Arbitration Association. In no event, however, shall any arbitration award include, or any arbitrator have the power to enforce, an award of any damages which are specifically excluded under the terms of this Agreement or otherwise not available from a court of competent jurisdiction.
The costs of arbitration shall be borne equally by the parties; provided however, that the arbitrator(s) may assess one party more than the other for these costs upon a finding that the party did not make a good faith effort to settle the dispute informally when it first arose. Each party shall be responsible for its own attorney fees.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the day and year first above written.
InsWeb Corporation Insurance Information Exchange, LLC
By: /s/ Darrell J. Ticehurst By: /s/ David Hunter
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(Authorized signature) (Authorized signature)
Name: Darrell J. Ticehurst Name: David Hunter
Title: Title: President
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EXHIBIT A
DESCRIPTION OF SOFTWARE AND DATA ENCOMPASSED BY THIS AGREEMENT:
- COMPARATIVE RATE SYSTEM PROVIDED BY IIX: This is intended to encompass all comparative rate data for which insurance company and other appropriate authorization to release has been obtained. It covers associated software sold or licensed by iiX or its affiliates (particularly AMS Services, Inc. ("AMS") Rating Services) to agents and insurance companies for the purpose of determining the rate a specific insurance company, or multiple companies on a comparative basis, would charge a given applicant. iiX will supply to InsWeb the software rating engine modified to an agreed upon API suitable for use by InsWeb's Internet interactive programs. iiX will maintain this comparative quotation software for the term of the agreement. InsWeb will be responsible for the Internet systems portion that includes consumer interactivity.
- INDIVIDUAL COMPANY RATERS: AMS and its subsidiaries have, over a period of many years, developed sophisticated rating engines that electronically produce quotes for various lines of business written by individual insurance companies. The term "Individual Company Raters" refers to all such rating engines as a group. InsWeb is currently duplicating those efforts in bringing its insurance company customers on-line in an Internet environment. InsWeb will use its best efforts to recommend iiX to its customers for the purpose of developing and maintaining the company's rating engines. iiX will work directly with InsWeb's customers to develop and maintain such rating engines.
- SILVER PLUME SEARCH ENGINE: Software developed by AMS and incorporated into its "Silver /Plume" family of products, allowing the user to search through databases.
- AGENT UPDATER: Software developed by InsWeb, allowing agents to electronically and remotely design and maintain their own Web pages.
- AGENT LOCATOR: Software developed by InsWeb, allowing Web users to locate agents in their neighborhoods by Name, City, State, Area Code, or Product.
EXHIBIT B
DESCRIPTION OF TRANSACTION TYPES
1. CONSUMER COMPARATIVE RATING. These transactions will occur when a consumer arrives at the InsWeb site, having found it by whatever means, and requests a comparative rate that will be provided by the iiX comparative rating process. iiX and InsWeb will split these fees 50% each.
2. LEAD REFERRALS TO AGENTS OF IIX AND INSWEB. These transactions will mostly occur when consumers contact an agent after filling out an application at either iiX or InsWeb. When a transaction originates from the InsWeb site the fees will be split, 75% going to iiX, with the remaining 25% going to InsWeb. When transactions of this type originate at the iiX site 100% of the fees go to iiX.
3. CONSUMER TO AGENT TO COMPANY transactions. These transactions will occur when consumers are referred to companies located at either iiX or InsWeb. iiX and InsWeb will split these fees 50% each.
4. LEAD REFERRALS TO AGENTS RESULTING FROM THE AMS COMPARATIVE RATING ENGINE. These transactions will occur when consumers contact an agent after using the AMS comparative rating engine at either iiX or InsWeb. iiX and InsWeb will split these fees 50% each.
5. LEAD REFERRALS TO COMPANIES RESULTING FROM THE AMS COMPARATIVE RATING ENGINE. These transactions will occur when consumers contact a company after using AMS's comparative rating engine at either iiX or InsWeb. iiX and InsWeb will split these fees 50% each.
6. LEAD REFERRALS TO AGENTS RESULTING FROM THE INSWEB QUOTATION APPLICATION ENGINE. These transactions will occur when consumers contact an agent after using the InsWeb quotation application engine at InsWeb. iiX and InsWeb will split these fees 50% each.
7. LEAD REFERRALS TO COMPANIES RESULTING FROM THE INSWEB QUOTATION APPLICATION ENGINE. These transactions will occur when consumers contact a company after using the InsWeb quotation application engine at InsWeb. When this process involves the use of rates provided by iiX, fees will be shared 50% each between iiX and InsWeb. When InsWeb provides the rating engine and the rate maintenance, 100% of these fees will go to InsWeb.
8. RATINGS EFFECTED OFF AN INDIVIDUAL COMPANY'S HOME PAGE. Neither iiX nor InsWeb currently has individualized rating engines connected to insurance company home pages. If and when either or both companies offer this service, when this process involves the use of rates provided by iiX, fees will be shared 50% each between iiX and InsWeb. When InsWeb or the company provides the rating engine and the rate maintenance, 100% of these fees will go to InsWeb. The rate that iiX will charge a company for this service will be subject to agreement with the company, but normally the set up and maintenance fees will be 100% to iiX.
9. RATINGS EFFECTED OFF AN INDIVIDUAL AGENT'S HOME PAGE. Neither iiX nor InsWeb currently has commercially available, individualized rating engines connected to agent home pages. If and when either or both companies offer this service, iiX will receive 100% of the transaction fees resulting from consumers receiving quotations directly from an agent's home page, except in the case where lead referrals for agents are generated from the agents home pages at InsWeb, in which case iiX receives 75% of the fees and InsWeb the remaining 25%.
10. CONSUMER TO COMPANY DIRECT TRANSACTIONS. These transactions will occur sometime in the future when consumers use either InsWeb or iiX to exchange information with insurance companies directly on-line. These types of transactions will include, but not be isolated to such things as claims requests, address changes, and direct on-line purchases of insurance. 100% of these fees will go to InsWeb, when the transaction involves an InsWeb business process.
11. COMPANY RATING ENGINE SET UP AND MAINTENANCE FEES. Where iiX provides the rating engine to the company, iiX will receive 100% of the fees for developing, setting up and maintaining rating engines for use at iiX and InsWeb.
12. SET UP FEES FOR RATING, INFORMATION, AND UNDERWRITING SUPPORT. Fees associated with establishing the services associated with these activities will be assigned 100% to iiX.
13. SET UP FEES FOR USER INTERFACE. InsWeb will receive 100% of the set up fees for its development of the software which is used at iiX and InsWeb to bring insurance company customers on-line in an Internet environment.
14. SET UP FEES FOR INSURANCE COMPANY INTERFACE. These fees will occur as a result of those activities which allow iiX and/or InsWeb to link their computer systems to those of insurance companies more directly. These fees will be determined on a case by case basis.
December 31, 1998
INSURANCE INFORMATION EXCHANGE, L.L.C.
3001 East Bypass
College Station, TX 77845
ATTN: Mr. Kenneth Benvenuto
RE: NONEXCLUSIVE JOINT MARKETING AND LICENSE AGREEMENT DATED AS OF NOVEMBER 22, 1996
Dear Ken:
This letter will modify the Nonexclusive Joint Marketing and License Agreement dated as of November 22, 1996 (the "Marketing Agreement") between Insurance Information Exchange, L.L.C. ("IIX") and InsWeb Corporation ("InsWeb"), effective as of December 31, 1998.
1. CONFIRMATION OF DELIVERY OF SOFTWARE. IIX acknowledges that InsWeb delivered to IIX the Software licensed by InsWeb to IIX under the Marketing Agreement (Agent Updater and Agent Locator) in March 1997. IIX acknowledges that InsWeb is under no obligation to delivery additional Software or documentation or to update or maintain any such licensed InsWeb's Software. InsWeb acknowledges that IIX delivered to InsWeb the Software licensed by IIX to InsWeb under the Marketing Agreement (Comparative Rate System, Individual Company Raters and Silver Plume Search Engine) in December 1998. IIX will provide updates and documentation, as required, for the delivered software (Comparative Rate system, Individual Company Rates and Silver Plume Rating Engine) through June 30, 1999.
2. PAYMENTS. The parties agree that, pursuant to Sections 5 D and 5 E of the Marketing Agreement, a Net License Fee of $4,500,000 is payable by InsWeb to IIX, calculated as follows:
INSURANCE INFORMATION EXCHANGE, L.L.C.
RE: NONEXCLUSIVE JOINT MARKETING AND LICENSE AGREEMENT DATED
AS OF NOVEMBER 22, 1996
License fees payable for IIX Software:
Comparative Rate System $ 4,000,000
Individual Company Raters 1,350,000
Silver Plume 100,000
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5,450,000
Less license fees payable for InsWeb Software:
Agent Updater (250,000)
Agent Locator (100,000)
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5,100,000
Less purchase price of Assets under
Asset Purchase Agreement dated
November 22, 1996: (650,000)
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4,450,000
Plus restrictive covenant fee under Section 10
of the Marketing Agreement: 50,000
-----------------
Net License Fee $ 4,500,000
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In lieu of the payment terms set forth in Sections 5 D and 5 E of the Marketing Agreement, the parties have agreed that such Net License Fee shall be payable by InsWeb to IIX, without interest, in equal quarterly installments of $1,125,000, payable on January 1, 1999, April 1, 1999, July 1, 1999 and October 1, 1999.
3. TERMINATION OF LICENSE SOFTWARE. The parties have agreed that the license granted to IIX by InsWeb for the use of the Agent Updater and Agent Locator Software and the license granted to InsWeb by IIX for use of the Comparative Rate System, Individual Company Raters and Silver Plume Search Engine are each fully paid up until and will each terminate on November 22, 2001.
4. TERMINATION OF CERTAIN OBLIGATIONS.
(a) The obligations of the parties to cooperate with one another in jointly developing and offering Internet solutions to the insurance industry, as set forth in Sections 1 and 3 of the Marketing Agreement, are terminated, effective December 31, 1998.
(b) The parties agree that no transaction fees are currently payable to either party pursuant to Sections 5 A, 5 B and 5 C of the Marketing Agreement. Pursuant to the review
(c) and renewal provisions of Section 5 C of the Marketing Agreement, the parties have agreed that no further transaction fees shall be payable by either party with respect to any future period. If the foregoing accurately reflects your understanding of our agreement, please execute a copy of this letter in the space provided and return it to the undersigned.
Yours very truly,
INSWEB CORPORATION
By: /s/ Hussein A. Enan
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Title: Chairman & CEO
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AGREED TO AND ACCEPTED
AS OF DECEMBER 31, 1998
INSURANCE INFORMATION EXCHANGE, LLC
By: /s/ Ken Benvenuto
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Title: President & CEO
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Exhibit 10.7
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), is made and entered into this 22nd day of November, 1996, by and between InsWeb Corporation, a California corporation ("Seller"), and Insurance Information Exchange, LLC, a Delaware limited liability corporation ("Buyer");
WITNESSETH:
WHEREAS, Seller is engaged in furnishing development and marketing services to the insurance industry and consumers relating to the Internet worldwide communications network and conducts several lines of business, including its Property & Casualty Agent Home Page Business (the "P&C Agent Business"); and,
WHEREAS, the P&C Agent Business includes certain computer programs developed and owned by Seller; and,
WHEREAS, Seller desires to sell to Buyer, and Buyer desires to buy from Seller, certain of the assets of Seller relating to the P&C Agent Business, and Seller desires to transfer, and Buyer desires to assume, certain liabilities of Seller arising in connection with the P&C Agent Business, all upon the terms and conditions and subject to the limited exceptions set forth herein; and,
WHEREAS, Seller conducts several other lines of business through other divisions to be retained by Seller (the "Other Divisions"), and such Other Divisions are and will be dependent on the products and services of the P&C Agent Business, and the P&C Agent Business will be dependent on the products and services of Seller, the parties desire to provide for certain transition procedures, as well as an ongoing relationship;
NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants, and agreements of the parties hereinafter set forth, the parties hereto, intending to be legally bound, do hereby agree as follows:
Article I
DEFINITIONS
As used herein, the following terms shall have the meanings set forth in this Article 1:
1.1 "Assets". The rights and property, tangible and intangible, including but not limited to the goodwill associated therewith, used exclusively in the P&C Agent Business, as owned and operated by Seller, and as listed and described in Article II hereof.
1.2 "InsWeb Site". Seller's World Wide Web site on the Internet communications network, accessible as "insweb.com".
1.3 "Affiliate". A corporation, company, or other entity in which a party hereto owns, directly or indirectly, a beneficial interest of fifty percent (50%) or more, or which, directly or indirectly, owns a beneficial interest of fifty percent (50%) or more in such party or which, directly or indirectly, controls such party, or is directly or indirectly controlled by, or under common control with, such party and/or the parent company of such party.
1.4 "P&C Agents". Property and casualty insurance agents and organizations of such a(rents , excluding Captive Agents and Managing General Agents.
1.5 "Captive Agents". Insurance agents, including property and casualty agents, that are affiliated exclusively with one insurance carrier.
1.6 "Managing General Agents". Insurance agents, including property and casualty agents, that maintain a managing general agency relationship with one or more insurance carriers by which they provide a full range of representation of such carriers in a certain state or territory in such matters as the solicitation of insurance business, the collection of premiums and the adjustment and settlement of claims.
1.7 "Transition Date". The date at which the information of the customers of the P&C Agent Business formerly posted on the InsWeb Site will be posted on Buyer's Internet site. The target Transition Date shall be the first end-of-the-month date occurring sixty (60) days following the Closing Date.
Article II
PURCHASE AND SALE OF ASSETS
2.1 PURCHASE AND SALE OF ASSETS. Upon the terms and subject to the conditions of this Agreement, Buyer agrees to purchase, accept, and acquire from Seller, and Seller agrees to sell, transfer, assign, convey, and deliver to Buyer, at the Closing, all right, title, and interest of Seller in and to the Assets. The Assets shall include the following:
(a) CUSTOMER CONTRACTS. All executed contracts, licenses, arrangements and permissions with P&C Agents regarding the presentation of P&C Agent information on the InsWeb Site and services related thereto, including all rights and future payments to be made pursuant to the terms of the executed contracts (the "Customer Contracts"), as well as a list of pending, transactions with all P&C Agents, all of which are listed in Schedule A attached hereto and incorporated herein.
(b) OTHER CONTRACTS. All contracts, agreements, licenses, commitments, arrangements, and permissions, other than the Customer Contracts, relating exclusively to the P&C Agent Business (the "General Contracts"), all of which are listed in Schedule B attached hereto and incorporated herein.
(c) BUSINESS RECORDS. All business and marketing records, including accounting and operating records, budgets, customer lists, supplier lists, files, correspondence and mailing lists, copies of advertising materials and brochures, and other business records used in the P&C Agent Business (the "Business Records").
(d) PREPAID ACCOUNTS. All sums prepaid by customers of the P&C Agent Business, for services to be rendered subsequent to the Transition Date (the "Prepaid Accounts).
2.2 EXCLUDED ASSETS. Seller shall not sell or assign to Buyer, and Buyer shall not purchase or accept assignment from Seller of, the assets identified in Schedule C (the "Excluded Assets").
Article III
ASSUMPTION OF LIABILITIES
3.1 ENUMERATION OF ASSUMED LIABILITIES. At and after the Closing, Buyer shall assume and agree to pay or perform only the liabilities and obligations of Seller that arise out of the P&C Agent Business or the Assets and that are expressly identified in this Section 3.1 and specifically listed on Schedule D(the "Assumed Liabilities"). All other liabilities of any description whatsoever, whether known or unknown, are specifically not assumed by Buyer. The Assumed Liabilities shall consist of the following:
Article IV
PRICE AND PAYMENT
4.1 PURCHASE PRICE. The purchase price for the Assets shall be $650,000.
4.2 PAYMENT. The Purchase Price shall be due and payable in a lump sum on the second anniversary of the date of this Agreement, at which time it shall be offset against sums payable by Seller to Buyer pursuant to that certain Nonexclusive Joint Marketing and License Agreement between the parties of even date herewith.
Article V
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as may be set forth in a list of exceptions in Schedule E hereto, Seller hereby represents and warrants to Buyer as follows:
5.1 ORGANIZATION. Seller is a corporation validly existing and in good standing under the laws of the State of Delaware with the corporate power and authority to conduct its business (including the P&C Agent Business) and to own and lease its properties and assets (including the Assets) and, as to the conduct of the P&C Agent Business and the use and ownership of the Assets.
5.2 POWER AND AUTHORITY. Seller has the power and authority to execute, deliver, and perform this Agreement and the other agreements and instruments to be executed and delivered by it in connection with the transactions contemplated hereby and thereby, has taken all necessary corporate action to authorize the execution and delivery of this Agreement and such other agreements and instruments and the consummation of the transactions contemplated hereby and thereby. This Agreement is, and the other agreements and instruments to be executed and delivered by Seller in connection with the transactions contemplated hereby shall be, the legal, valid, and binding obligations of Seller, enforceable in accordance with their terms.
5.3 NO CONFLICT. Neither the execution and delivery of this Agreement and the other agreements and instruments to be executed and delivered in connection with the transactions contemplated hereby or thereby, nor the consummation of the transactions contemplated hereby or thereby, will violate or conflict with (a) any federal, state, or local law, regulation, ordinance, zoning requirement, governmental restriction, order, judgment, or decree applicable to Seller, the P&C Agent Business, or the Assets, (b) any provision of any charter, bylaw or other governing or organizational instrument of Seller; or, (c) any mortgage, indenture, license, instrument, trust, contract, agreement, or other commitment or arrangement to which Seller is a party or by which Seller or any of the Assets is bound.
5.4 REQUIRED GOVERNMENT CONSENTS. Seller is aware of no approval, authorization, certification, consent, variance, permission, license, or permit to or from, or notice, filing, or recording to or with, federal, state, or local governmental authorities necessary for the execution and delivery of this Agreement and the other agreements and instruments to be executed and delivered in connection with the (a) transactions contemplated hereby, or (b) the ownership and use of the Assets or the conduct of the P&C Agent Business in the manner conducted by Seller.
5.5 REQUIRED CONTRACT CONSENTS. No approval, authorization, consent, permission, or waiver to or from, or notice, filing, or recording to or with, any person is necessary for (a) the execution and delivery of this Agreement and the other agreements and instruments to be executed and delivered in connection with the transactions contemplated hereby or thereby by Seller or the consummation by Seller of the transactions contemplated hereby; (b) the transfer and assignment to Buyer at Closing of the Customer Contracts, the General Contracts, or (c) the ownership and use of the Assets and the conduct of the P&C Agent Business (including by Buyer).
5.6 TITLE TO TANGIBLE PROPERTY. Buyer at Closing shall obtain good and marketable title to all of the Assets, free and clear of all title defects, liens, restrictions, claims, charges, security interests, or other encumbrances of any nature whatsoever.
5.7 CONTRACTS. The Customer Contracts and the General Contracts are valid, binding, and enforceable in accordance with their terms and are in full force and effect. There are no existing defaults by Seller under any such contracts and no act, event, or omission has occurred that, whether with or without notice, lapse of time, or both, would constitute a default thereunder.
5.8 LITIGATION. No claim, action, suit, proceeding, inquiry, hearing, arbitration, administrative proceeding, or investigation (collectively, "Litigation") is pending, or, to Seller's
best knowledge, threatened against Seller, its present or former directors, officers, or employees, affecting, involving, or relating to the P&C Agent Business or any of the Assets. No Litigation has been brought against Seller affecting, involving, or relating to the P&C Agent Business or any of the Assets. Seller knows of no facts that could reasonably be expected to serve as the basis for Litigation against itself (or the Buyer upon acquisition of the P&C Agent Business), its present or former directors, officers, or employees, affecting, involving, or relating to the P&C Agent Business or the Assets.
5.9 BROKER'S OR FINDER'S FEES. Seller has not authorized any person to act as broker or finder or in any other similar capacity in connection with the transactions contemplated by this Agreement in any manner that may or will impose liability on Buyer.
5.10 DISCLAIMER. Except as expressly set forth in this Agreement or in any document, certificate, agreement, or other instrument furnished or to be furnished to Buyer pursuant to this Agreement, SELLER MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO THE ASSETS OR TIM P&C AGENT BUSINESS, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Article VI
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
6.1 ORGANIZATION. Buyer is a limited liability corporation validly existing and in good standing under the laws of the State of Delaware, with the power and authority to conduct its business and to own and lease its properties and assets.
6.2 POWER AND AUTHORITY. Buyer has the power and authority to execute, deliver, and perform this Agreement and the other agreements and instruments to be executed and delivered by it in connection with the transactions contemplated hereby and thereby, and Buyer has taken all necessary action to authorize the execution and delivery of this Agreement and such other agreements and instruments and the consummation of the transactions contemplated hereby and thereby. This Agreement is, and, when such other agreements and instruments are executed and delivered, the other agreements and instruments to be executed and delivered by Buyer in connection with the transactions contemplated hereby and thereby shall be, the legal, valid, and binding obligation of Buyer, enforceable in accordance with their terms.
6.3 BROKER'S OR FINDER'S FEES. Buyers has not authorized any person to act as broker, finder, or in any other similar capacity in connection with the transactions contemplated by this Agreement.
6.4 NO CONFLICT. Neither the execution and delivery by Buyer of this Agreement and of the other agreements and instruments to be executed and delivered by Buyer in connection with the transactions contemplated hereby or thereby, nor the consummation by Buyer of the
transactions contemplated hereby or thereby will violate or conflict with (a) any federal, state, or local law, regulation, ordinance, governmental restriction, order, judgment, or decree applicable to Buyer, or (b) any provision of any charter, bylaw, or other governing or organizational instrument of Buyer.
Article VII
CONDITIONS TO SELLER'S OBLIGATIONS
Each of the obligations of Seller to be performed hereunder shall be subject to the satisfaction (or waiver by Seller) at or prior to the Closing Date of each of the following conditions:
7.1 REPRESENTATIONS AND WARRANTIES TRUE. Buyer's representations and warranties contained in this Agreement shall be true on and as of the Closing Date.
7.2 LITIGATION. No Litigation shall be threatened or pending against Buyer or Seller before any court or governmental agency that, in the reasonable opinion of counsel for Seller, could result in the restraint or prohibition of any such party, or the obtaining of damages or other relief from such party, in connection with this Agreement or the consummation of the transactions contemplated hereby.
7.3 DOCUMENTS SATISFACTORY IN FORM AND SUBSTANCE. All agreements and other documents delivered by Buyer to seller hereunder shall be in form and substance satisfactory to counsel for Seller, in the exercise of such counsel's reasonable judgment.
7.4 OTHER AGREEMENTS. The Seller and the Buyer shall have entered into contemporaneously herewith a Non Exclusive Joint Marketing and License Agreement and an Asset Purchase Agreement, the Seller shall have entered into a Letter of Credit Agreement with Buyer's affiliate, AMS Services, Inc. and shall have executed the promissory note referenced in such agreement, and an Employment Agreement with Mr. Hussein Enan and the Buyer shall have entered into an Option Agreement with Mr. Hussein Enan and a Stock Purchase Agreement with certain employees of the Company.
Article VIII
CONDITIONS TO BUYER'S OBLIGATIONS
Each of the obligations of Buyer to be performed hereunder shall be subject to the satisfaction (or the waiver by Buyer) at or prior to the Closing Date of each of the following conditions:
8.1 REPRESENTATIONS AND WARRANTIES TRUE. Seller's representations and warranties contained in this Agreement shall be true on and as of the Closing Date.
8.2 PERFORMANCE. Seller shall have performed and complied with all agreements, obligations, and conditions required by this Agreement to be performed or complied with by it on or prior to the Closing.
8.3 NO LITIGATION. No Litigation shall be threatened or pending against Buyer or Seller before any court or governmental agency that, in the reasonable opinion of counsel for Seller, could result in the restraint or prohibition of any such party, or the obtaining of damages or other relief from such party, in connection with this Agreement or the consummation of the transactions contemplated hereby.
8.4 OTHER AGREEMENTS. The Seller and the Buyer shall have entered into contemporaneously herewith a Non Exclusive Joint Marketing and License Agreement and an Asset Purchase Agreement, the Seller shall have entered into a Letter of Credit Agreement with Buyer's affiliate, AMS Services, Inc. and shall have executed the promissory note referenced in such agreement, and an Employment Agreement with Mr. Hussein Enan and the Buyer shall have entered into an Option Agreement with Mr. Hussein Enan and a Stock Purchase Agreement with certain employees of the Company.
Article IX
CLOSING
9.1 CLOSING. The closing of the purchase and sale of the Assets and the transfer and assumption of the Assumed Liabilities (the "Closing") shall take place on November 22, 1996 at the offices of Seller at 9:30 A.M. local time, or at such other time and place as the parties may agree.
9.2 ACTIONS AT CLOSING. At Closing, Buyer and Seller shall take the following actions, in addition to such other actions as may otherwise be required under this Agreement:
(a) Conveyance Instruments. Seller shall deliver to Buyer such, bills of sale, assignments, and other instruments of conveyance and transfer as Buyer may reasonably request to effect the assignment to Buyer of the Assets.
(b) Master Copy of P&C Software. Seller shall deliver to Buyer a master copy of each Software Program (in both source code and object code form).
9.3 FURTHER ASSURANCES. At and after the Closing, without further consideration, Seller shall take all such other action and shall procure or execute, acknowledge, and deliver all such further certificates, conveyance instruments, consents, and other documents as Buyer or its counsel may reasonably request (1) to vest in Buyer, and perfect and protect Buyer's fight, title, and interest in, and enjoyment of, the Assets and the P&C Agent Business, or (2) to ensure more effectively the compliance of Seller with its agreements, covenants, warranties, and representatives under this Agreement.
Article X
COVENANTS OF SELLER AND BUYER FOLLOWING CLOSING
10.1 ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated to the Assets and Assumed Liabilities as set forth in Schedule F and all tax returns and reports filed by Seller and Buyer with respect to the transactions contemplated by this Agreement shall be consistent with that allocation.
10.2 TRANSFER TAXES. Except as provided in Section 12.1 regarding tax claims based on transactions prior to the Closing, all sales, transfer, and similar taxes and fees (including all recording fees, if any) incurred in connection with this Agreement and the transactions contemplated hereby shall be borne by Buyer and Buyer shall file all necessary documentation with respect to such taxes.
10.3 NON-COMPETE. For a period of five (5) years after the Closing Date, Seller shall not engage in any business activity that competes with the P&C Agent Business, anywhere in the United States and Canada (the "Territory"), except as a customer or authorized distributor of Buyer or otherwise with Buyer's consent (which may be withheld in Buyer's sole discretion). Seller acknowledges and agrees that the current market for the P&C Agent Business can easily be extended throughout the entire Territory via the Internet, and it is therefore reasonable to prohibit Seller from competing with Buyer anywhere in such Territory. Seller shall not engage in any such activity, directly or indirectly, on its own behalf or in the service of or on behalf of others. Notwithstanding the foregoing, this Section 10.3 shall not restrict in any manner (i) the business activities of Seller's Other Divisions, as they are currently conducted, with respect to agents or organizations of agents that do not fall within the definition of P&C Agents; (ii) the ability of Seller to maintain links to and from Buyer's Internet site; or, (iii) the acquisition or use of any programming or materials by Seller solely for internal purposes or for purposes of its Other Divisions that do not compete with the P&C Agent Business.
10.4 NONSOLICITATION OF PERSONNEL. For a period of five (5) years after the Closing Date, neither party shall solicit, divert, or recruit, for its own benefit or for the benefit of any other person or entity, any managerial or executive employee of the other party.
Article XI
CERTAIN TRANSITION AND COOPERATION MATTERS
11.1 TRANSITION SERVICES PROVIDED BY BOTH PARTIES.
(a) COMMITMENT. For the period following the Closing until the Transition Date, the parties shall provide the following Transition Services:
(i) Establish and maintain a hot link between the InsWeb Site and Buyer's Internet server on which the P&C Agent Business services will be presented;
(ii) Maintain on the InsWeb Site references to P&C Agent Home Pages comparable to those currently in place.
(iii) Work together to effect a transition of the P&C Agent Business that is both effective and as transparent to customers as possible.
(b) MANNER AND TIME OF PERFORMANCE. Each party shall perform the Transition Services with the degree of care, skill, and diligence with which it previously performed, or may continue to perform, similar services for itself or others.
11.2 ONGOING COOPERATION. The continuing cooperative efforts of the par-ties shall be governed by that certain Nonexclusive Joint Marketing and License Agreement between the parties of even date herewith.
Article XII
INDEMNITY
12.1 INDEMNIFICATION BY SELLER. Seller shall indemnify, defend, and hold harmless Buyer and its respective successors and assigns and the directors, officers, employees, and agents of each (collectively, the "Buyer Group"), at, and at any time after, the Closing, from and against any and all demands, claims, actions, or causes of action, assessments, losses, damages, liabilities, costs, and expenses, including reasonable fees and expenses of counsel, other expenses of investigation, handling, and litigation, and settlement amounts, together with interest and penalties (collectively, a "Loss" or "Losses"), asserted against, resulting to, imposed upon, or incurred by the Buyer Group, directly or indirectly, by reason of, resulting from, or arising in connection with any of the following:
(a) BREACH OF OBLIGATION. Any breach of any representation, warranty, or agreement of Seller contained in or made pursuant to this Agreement, including the agreements and other instruments contemplated hereby.
(b) EXCLUDED LIABILITIES. Any liabilities or obligations of any kind or nature whatsoever, whether accrued, absolute, contingent, or otherwise, known or unknown, arising out of or in connection with the conduct of the P&C Agent Business or the ownership or use of the Assets prior to the Closing Date, except for the Assumed Liabilities.
(c) INCIDENTAL MATTERS. To the extent not covered by the foregoing, any and all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs, and expenses, including reasonable fees and expenses of counsel, other expenses of investigation, handling, and litigation, and settlement amounts, together with interest and penalties, incident to the foregoing.
12.2 INDEMNIFICATION BY BUYER. Buyer shall indemnify, defend, and hold harmless Seller and its successors and assigns and the directors, officers, employees, and agents of each (collectively, the "Seller Group"), at, and at any time after, the Closing, from and against any
and all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs, and expenses, including reasonable fees and expenses of counsel, other expenses of investigation, handling, and litigation, and settlement amounts and including any net income or sales tax amount associated with all such indemnification recoveries (collectively, a "Loss" or "Losses"), asserted against, resulting to, imposed upon, or incurred by the Seller Group, to the extent arising from any of the following:
(a) BREACH OF OBLIGATION. Any breach of any representation, warranty, or agreement of Buyer contained in or made pursuant to this Agreement, including the agreements and other instruments contemplated hereby.
(b) ASSUMED LIABILITIES. Any of the Assumed Liabilities, except insofar as such Loss represents an Excluded Liability.
(c) INCIDENTAL MATTERS. To the extent not covered by the foregoing, any and all demands, claims, actions or causes of action, assessments, losses, damages, liabilities, costs, and expenses, including reasonable fees and expenses of counsel, other expenses of investigation, handling, and litigation, and settlement amounts, together with interest and penalties, incident to the foregoing.
12.3 NOTICE OF CLAIM. The party entitled to indemnification hereunder (the "Claimant") shall promptly deliver to the party liable for such indemnification hereunder (the "Obligor") notice in writing (the "Required Notice") of any claim for recovery under Section 12.1 or Section 12.2, specifying in reasonable detail the nature of the Loss, and, if known, the amount, or an estimate of the amount, of the liability arising therefrom (the "Claim"). The Claimant shall provide to the Obligor as promptly as practicable thereafter information and documentation reasonably requested by the Obligor to support and verify the claim asserted, provided that, in so doing, it may restrict or condition any disclosure in the interest of preserving privileges of importance in any foreseeable litigation.
12.4 DEFENSE. If the facts pertaining to the Loss arise out of the claim of any third party (other than a member of the Buyer Group or Seller Group, whichever is entitled to indemnification for such matter) available by virtue of the circumstances of the Loss, the Obligor may assume the defense or the prosecution thereof, including the employment of counsel or accountants, at its cost and expense. The Claimant shall have the right to employ counsel separate from counsel employed by the Obligor in any such action and to participate therein, but the fees and expenses of such counsel employed by the Claimant shall be at its expense. The Claimant shall have the right to determine and adopt (or, in the case of a proposal by Obligor, to approve) a settlement of such matter in its reasonable discretion, except that Claimant need not consent to any settlement that (1) imposes any nonmonetary obligation or (2) Obligor does not agree to pay in full. The Obligor shall not be liable for any settlement of any such claim effected without its prior written consent, which shall not be unreasonably withheld. Whether or not the Obligor chooses to so defend or prosecute such claim, all the parties hereto shall cooperate in the defense or prosecution thereof and shall furnish such records, information, and testimony, and
attend such conferences, discovery proceedings, hearings, trials, and appeals, as may be reasonably requested in connection therewith.
12.5 LIMITATIONS. Notwithstanding anything in this Article XII to the contrary:
(a) THRESHOLD. No indemnification or any other claim for damages under this Agreement shall be payable by any party until (and then only to the extent that) the total of all Losses by the other party equals or exceeds $10,000; provided that such limitation shall not apply to Losses based on Excluded Liabilities.
(b) TIME OF ASSERTION. No indemnification shall be payable by either party with respect to matters as to which the other party has not received notice within twenty four (24) months after the Closing Date.
(c) MAXIMUM LIABILITY. A party's total liability for indemnification pursuant to Sections 12.1 and 12.2 shall not exceed the price paid hereunder.
(d) EXCLUSIVE REMEDY. The parties hereto acknowledge and agree that this Article XII is the exclusive remedy of the parties hereto for damages for breach or misrepresentation of or under this Agreement, other than a claim or interpleader based on Buyer's failure to discharge the Assumed Liabilities or Seller's failure to discharge the Excluded Liabilities.
Article XIII
CONFIDENTIALITY
13.1 NONDISCLOSURE AND USE. Each party shall, and shall use its best efforts to cause its personnel and agents to, hold in strict confidence, not disclose to any person without the prior written consent of the other party, and not to use for any purpose other than the limited purposes set forth herein, any confidential information of the other party disclosed prior to the Closing or during performance hereunder. Such confidential information specifically includes all source and object code, including any proposed design and specifications for future products and products in development, marketing plans, and all other technical and business information concerning the P&C Agent Business or the Other Divisions of Seller.
13.2 PERMITTED DISCLOSURES. Notwithstanding Section 13. 1, either party may disclose confidential information (1) where necessary to any regulatory authorities or governmental agencies pursuant to legal process or (2) if required by court order or decree.
13.3 SCOPE OF CONFIDENTIAL INFORMATION. For purposes of this Agreement,
information shall not be deemed confidential (1) if such information is
available in full from public sources; (2) if such information is received from
a third party not under an obligation to keep such information confidential; or
(3) if the recipient can conclusively demonstrate that such information was
independently developed by the recipient.
Article XIV
MISCELLANEOUS
14.1 ENTIRE AGREEMENT. This Agreement (including the Schedules), and the other certificates, agreements, and other instruments to be executed and delivered by the parties in connection with the transactions contemplated hereby, constitute the sole understanding of the parties with respect to the subject matter hereof. No amendment, modification, or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the parties hereto.
14.2 PARTIES BOUND BY AGREEMENT; SUCCESSORS AND ASSIGNS. The terms, conditions, and obligations of this Agreement shall inure to the benefit of and be binding upon the parties hereto and the respective successors and assigns thereof
14.3 COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument.
14.4 HEADINGS. The headings of the Sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof
14.5 MODIFICATION AND WAIVER. Any of the terms or conditions of this Agreement may be waived in writing at any time by the party that is entitled to the benefits thereof No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar).
14.6 EXPENSES. Seller and Buyer shall each pay all costs and expenses incurred by it or on its behalf in connection with this Agreement and the transactions contemplated hereby, including fees and expenses of its own financial consultants, accounts, and counsel.
14.7 NOTICES. Any notice, request, instruction, or other document to be given hereunder by any party hereto to any other party hereto shall be in writing and delivered personally or sent by registered or certified mail, postage prepaid, if to Seller to:
InsWeb Corporation
1875 S. Grant Street
San Mateo, CA 94402
Attention: Chief Executive Officer
with a copy to: Chief Financial Officer
if to Buyer to:
Insurance Information Exchange
3001 East By Pass
College Station, TX 77845
Attention: President
with a copy to:
AMS Services, Inc.
900 Chelmsford Street
Tower 1, Floor 10
Lowell, MA 01851
Attention: General Counsel
or at such other address for a party as shall be specified by like notice. Any notice that is delivered personally in the manner provided herein shall be deemed to have been duly given to the party to whom it is directed upon actual receipt by such party (or its agent for notices hereunder). Any notice that is addressed and mailed in the manner herein provided shall be conclusively presumed to have been duly given to the party to which it is addressed at the close of business, local time of the recipient, on the fourth business day after the day it is so placed in the mail.
14.8 BULK SALES LAW. The parties waive compliance with any bulk sales laws or similar laws relating to notices to creditors.
14.9 GOVERNING LAW. This Agreement shall be construed in accordance with and governed by the laws of the State of California without giving effect to the principles of conflicts of law thereof
14.10 PUBLIC ANNOUNCEMENTS. Seller and Buyer shall consult with each other before issuing any press releases or otherwise making any public statements with respect to this Agreement and the transactions contemplated hereby. Neither Seller nor Buyer shall issue any such press release or make any public statement without the agreement of the other party, except as such party's counsel advises in writing may be required by law.
14.11 THIRD-PARTY BENEFICIARIES. With the exception of the parties to this Agreement and their Affiliates, there shall exist no right of any person to claim a beneficial interest in this Agreement or any rights occurring by virtue of this Agreement.
14.12 "INCLUDING". Words of inclusion shall not be construed as terms of limitation herein, so that references to "included" matters shall be regarded as nonexclusive, noncharacterizing illustrations.
14.13 REFERENCES. Whenever reference is made in this Agreement to any Article, Section, or Schedule, such reference shall be deemed to apply to the specified Article or Section of this Agreement or the specified Schedule to this Agreement.
14.14 SURVIVAL OF AGREEMENTS. All Covenants, agreements, representations, and warranties made herein shall survive the execution and delivery of this Agreement and the Closing.
IN WITNESS WHEREOF, each of the par-ties hereto has caused this Agreement to be executed on its behalf on the date indicated.
INSURANCE INFORMATION EXCHANGE, L.L.C. INSWEB CORPORATION
Title: President Title: President
Date: Date:
SCHEDULE A
TO ASSET PURCHASE AGREEMENT
CUSTOMER CONTRACTS
1.) [To be listed]
SCHEDULE B
TO ASSET PURCHASE AGREEMENT
GENERAL CONTRACTS
SCHEDULE C
TO ASSET PURCHASE AGREEMENT
EXCLUDED ASSETS
1. All business and assets of the Other Divisions of InsWeb.
2. All business and assets of the P&C Division of InsWeb devoted to dealing with insurance companies and managing general agents ("MGA's").
3. That portion of the business and assets of the P&C Division of InsWeb devoted to dealing with Captive Agents, to the extent consistent with the understandings of the parties pursuant to the Nonexclusive Joint Marketing and License Agreement between the parties hereto.
SCHEDULE D
TO ASSET PURCHASE AGREEMENT
ASSUMED LIABILITIES
SCHEDULE E
TO ASSET PURCHASE AGREEMENT
EXCEPTIONS TO REPRESENTATIONS AND WARRANTIES
No exceptions taken.
SCHEDULE F
TO ASSET PURCHASE AGREEMENT
ALLOCATION OF PURCHASE PRICE
Exhibit 10.8
November 22, 1996
InsWeb Corporation
1875 South Grant Street
Suite 800
San Mateo, CA 94402
Ladies and Gentlemen:
I am pleased to advise you that AMS Services, Inc. ("AMS" or "we") has approved a letter of credit in the amount of $25,000,000 (the "Letter of Credit") which amount will, subject to the terms and conditions of this letter. be available to InsWeb Corporation (the "Company or you") through November 22, 2001.
1. AMOUNT AND TERMS OF CREDIT.
(a) The amount available for borrowing under the line of credit shall be $25,000,000. This Letter of Credit shall expire on November 22, 2001.
(b) All outstanding principal and interest is due and payable upon the expiration of this Letter of Credit. All borrowings under this Letter of Credit and any extensions and renewals of same granted by us shall be made against and evidenced by your promissory note in the form attached to this letter as Exhibit A (the "Note"). Upon your delivery to us of the Note, this Letter of Credit will be effective.
(c) Borrowings under this Letter of Credit shall bear interest at the rate of fifteen percent (15%) per annum. All loans made against the Note, the status of such loans, the rate of interest applicable to loans and the repayment of any principal of the Note shall be recorded by us on our books or at our option endorsed on the reverse side of the Note and the unpaid principal balance, status and interest rate at any time so recorded or endorsed shall be prima facie evidence in any court or other proceedings brought to enforce the Note of the amount remaining unpaid thereon, the interest rate applicable thereto and the status of loans evidenced thereby.
(d) Interest on all loans shall be computed on the basis of a year of 360 days and the actual number of days elapsed and shall be payable quarterly on the last day of each quarter (commencing December 31, 1996).
(e) If any principal of any loan is not paid when due, such principal shall bear interest (which you hereby promise to pay upon demand), as well after as before judgment, until
payment in full thereof at the rate equal to the sum of three percent (3%) plus the rate of interest in effect thereon at the time of such default until paid in full.
(f) You shall give notice to us (which notice shall be irrevocable once given, and shall be in writing) which must be received by us by no later than 11:00 a.m. (Houston, Texas time) on the date at least three (3) business days prior to the date of each loan which we are requested to make, continue or effect. You shall in any notice requesting a loan under this Letter of Credit specify the date of the loan requested, the amount of such loan or the amount to be continued, as the case may be.
2. PERSONS AUTHORIZED TO GIVE INSTRUCTIONS REGARDING BORROWINGS. The persons authorized to give us instructions to lend money and confirm such borrowings in accordance with the foregoing are the CEO and any one of the CFO or the President of the Company.
3. PAYMENT OF LOAN PROCEEDS AND PREPAYMENTS.
(a) The proceeds of each loan shall be made available to you by wire transfer to your account number 8561012306 at Comerica Bank-California (ABA Routing No. 121137522) unless the request for such loan directs otherwise, except to the extent such loan represents the continuation of conversion of a loan previously made to you, in which case we shall record such continuation on our books or records or on the schedule to the Note, as appropriate.
(b) All payments in respect of this Letter of Credit shall be made to us at the First American Bank in Bryan, Texas, account number 0010243 (ABA Routing No. 113102329), immediately available and freely transferable funds and shall be paid in full without setoff or counterclaim and without reduction for and free from any and all taxes, levies, imposts, duties, fees, charges, deductions, withholdings, restrictions or conditions of any nature imposed by any government or any political subdivision or taxing authority thereof.
4. CONDITIONS PRECEDENT. The obligation of AMS to issue the Letter of Credit hereunder or to extend any additional amounts under this Letter of Credit after the date hereof is subject as of the date hereof, and thereafter, to the satisfaction of the following condition: the condition and operating results of the Company shall be in accordance with the business plan approved by the Board of Directors of the Company, as determined by AMS.
5. AFFIRMATIVE COVENANTS. AMS and the Company hereby agree that as of the date that this Letter of Credit is effective and for so long as this Letter of Credit is in effect, and until the Note is paid in full, this Letter of Credit shall be used for the day-to-day working capital needs of the Company in the ordinary course of the Company's business as it exists on the date this Letter of Credit is issued.
6. NEGATIVE COVENANTS. AMS and the Company hereby covenant and agree that as of the date that this Letter of Credit is effective and for so long as the Letter of Credit is in effect, and until the Note is paid in full, the Company will not and will not permit its subsidiaries now or hereafter existing to declare or pay any dividends, return any capital, or make any
disbursements or distributions of any kind, including but not limited to asset sales or loans, to its shareholders or investors, or to employees outside the ordinary course of salary and commission payments.
7. PRIORITY. This Letter of Credit will have seniority and priority over all debt and equity of the Company issued or outstanding as of the date hereof and any other debt or equity of the Company that may be issued or incurred after the date hereof.
8. MISCELLANEOUS.
(a) It is understood and agreed that this Letter of Credit and any interest accrued thereon shall have a "first dollar out" priority in the event that the Company has a public offering of equity.
(b) The Company shall at all times take whatever actions are necessary to notify third parties of the restrictions and priorities set forth herein to secure the priorities of this Letter of Credit and to comply with the restrictions and priorities of this Facility Letter.
(c) This letter may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one agreement.
* * *
If you are in agreement with the terms set forth above, please sign this Facility Letter as evidenced below.
Very truly yours,
AMS SERVICES, INC.
By: /s/
-----------------------------------------
Its: President & Chief Financial Officer
|
Accepted and agreed to as of the
date first above written.
InsWeb Corporation
By: /s/ Hussein A. Enan
-------------------------------------
Its Chief Executive Officer
By: /s/ Beverly J. Steffen
-------------------------------------
Its Chief Financial Officer
|
NOTE
$25,000,000 Due Date: November 22, 2001 College Station, Texas
Upon the due date stated above, for value received, the undersigned, InsWeb Corporation, a Delaware corporation (the "Company"), promises to pay to the order of AMS SERVICES, INC., a Delaware corporation ("AMS"), at its office at 3001 East By Pass, College Station, Texas or at such other place as the holder hereof may from time to time specify, the principal sum of twenty-five million $25,000,000, or so much thereof as may be advanced to the Company hereon.
This Note evidences all loans as described in that certain letter agreement bearing even date herewith by and between the Company and AMS relating to a line of credit facility extended to the Company (the "Facility Letter") made and to be made to the Company by AMS under the Facility Letter as the same may from time to time be renewed or extended and the Company hereby promises to pay interest on each loan evidenced hereby at the rate and time specified therefor in the Facility Letter.
Each loan made under the Facility Letter by AMS to the Company, any repayment of principal hereon and the status of each such loan shall be endorsed by the holder hereof on the reverse side of this note or (so long as this note is held by AMS) recorded on the books and records of the holder hereof and the Company agrees that in any action or proceeding instituted to collect or enforce collection or this Notice, the amount so endorsed on the reverse side hereof or recorded on the books and records of AMS shall be prima facie evidence of the unpaid balance of this Note and the status of each loans as so endorsed or recorded shall be prima facie evidence of such status.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS
OF MASSACHUSETTS.
The Company hereby waives, presentment for payment and demand. The Company agrees to pay to the holder hereof all reasonable expenses incurred or paid by such holder, including reasonable attorneys' fees and court costs, in connection with the collection of this Note.
InsWeb Corporation
By: /s/ Hussein A. Enan
----------------------------------
Its Chief Executive Officer
By: /s/ Beverly J. Steffen
----------------------------------
Its Chief Financial Officer
|
Exhibit 10.9
Assignment and Assumption Agreement
This Assignment and Assumption Agreement ("Agreement") is made and entered into as of April 10, 1998 by and among AMS Services, Inc., a Delaware corporation ("AMS"), InsWeb Corporation, a Delaware corporation ("InsWeb") and Continental Casualty Company, an Illinois insurance company ("CNA").
WHEREAS, as of November 22, 1996 AMS and InsWeb entered into a letter of credit arrangement ("Letter of Credit") attached hereto as Exhibit A, wherein AMS undertook to provide to InsWeb a $25,000,000 letter of credit.
WHEREAS, in support of such Letter of Credit, InsWeb signed a note (the "Note") payable to AMS in the amount of $25,000,000. A copy of such Note is attached hereto as Exhibit B.
WHEREAS, AMS, CNA and InsWeb now desire to transfer from AMS to CNA AMS' rights and obligations to InsWeb pursuant to the Letter of Credit and Note, and CNA desires to accept such rights and assume such obligations, Letter of Credit and Note.
NOW THEREFORE, in consideration of the premises and the terms and conditions of this Agreement, the parties agree as follows:
1. AMS hereby assigns, transfers and conveys to CNA all of the AMS'
rights under the Letter of Credit and the Note, subject to CNA's assumption of
all of AMS' duties and obligations thereunder. AMS represents and warrants that
i) it has full title to the Note and its underlying obligations and AMS has not
pledged, sold, assigned any part of such Note except through this transaction;
ii) the sale of the Note does not violate any law or regulation applicable to
AMS or its business; and iii) this Agreement has been duly authorized and
constitutes the legal, valid and binding obligation of AMS enforceable in
accordance with its terms.
2. CNA hereby assumes and accepts any and all rights, duties and obligations of AMS under the Letter of Credit and the Note including but not limited to the obligations to make loans to InsWeb and the right to receive all future payments including any interest thereon due AMS under the Letter of Credit and Note. The repayment of $3,200,000 which was borrowed from AMS under the Letter of Credit and Note prior to this Agreement shall be paid by CNA to AMS within ten (10) business days of the date following this Agreement. CNA represents and warrants that i) this Agreement has been duly authorized and constitutes the legal, valid and binding obligation of CNA enforceable in accordance with its terms and ii) the sale of the Note does not violate any law or regulation applicable to CNA or its business.
3. InsWeb consents to the assignment and assumption of the Letter of Credit and the Note from AMS to CNA as provided in this Agreement.
4. InsWeb hereby releases AMS from any and all rights, duties or obligations it now has or may have under the terms of the Letter of Credit and the Note and agrees to pay any and
all amounts now or hereafter due under the Letter of Credit and Note to CNA, to the following account.
Continental Casualty Company
Account No. 000-432-5
Harris Trust and Savings Bank
ABA Routing No. 0710-0028-8
5. Upon receipt of the next scheduled interest payment from InsWeb, CNA will remit to AMS that portion of the payment relating to the period during which AMS was the lender.
6. Except as specifically provided in this Agreement the Letter of Credit and Note shall remain in full force and effect according to their original terms.
Accepted and Agreed:
AMS Services, Inc.
/s/ Paul Philp -------------------------------- signature |
InsWeb Corporation
/s/ Sheryl S. Dodsworth -------------------------------- signature |
Continental Casualty Company
/s/ -------------------------------- signature |
November 22, 1996
InsWeb Corporation
1875 South Grant Street
Suite 800
San Mateo, CA 94402
Ladies and Gentlemen:
I am pleased to advise you that AMS Services, Inc. ("AMS" or "we") has approved a letter of credit in the amount of $25,000,000 (the "Letter of Credit") which amount will, subject to the terms and conditions of this letter. be available to InsWeb Corporation (the "Company or you") through November 22, 2001.
1. AMOUNT AND TERMS OF CREDIT.
(a) The amount available for borrowing under the line of credit shall be $25,000,000. This Letter of Credit shall expire on November 22, 2001.
(b) All outstanding principal and interest is due and payable upon the expiration of this Letter of Credit. All borrowings under this Letter of Credit and any extensions and renewals of same granted by us shall be made against and evidenced by your promissory note in the form attached to this letter as Exhibit A (the "Note"). Upon your delivery to us of the Note, this Letter of Credit will be effective.
(c) Borrowings under this Letter of Credit shall bear interest at the rate of fifteen percent (15%) per annum. All loans made against the Note, the status of such loans, the rate of interest applicable to loans and the repayment of any principal of the Note shall be recorded by us on our books or at our option endorsed on the reverse side of the Note and the unpaid principal balance, status and interest rate at any time so recorded or endorsed shall be prima facie evidence in any court or other proceedings brought to enforce the Note of the amount remaining unpaid thereon, the interest rate applicable thereto and the status of loans evidenced thereby.
(d) Interest on all loans shall be computed on the basis of a year of 360 days and the actual number of days elapsed and shall be payable quarterly on the last day of each quarter (commencing December 31, 1996).
(e) If any principal of any loan is not paid when due, such principal shall bear interest (which you hereby promise to pay upon demand), as well after as before judgment, until payment in full thereof at the rate equal to the sum of three percent (3%) plus the rate of interest in effect thereon at the time of such default until paid in full.
(f) You shall give notice to us (which notice shall be irrevocable once given, and shall be in writing) which must be received by us by no later than 11:00 a.m. (Houston, Texas time) on the date at least three (3) business days prior to the date of each loan which we are requested to make, continue or effect. You shall in any notice requesting a loan under this Letter of Credit specify the date of the loan requested, the amount of such loan or the amount to be continued, as the case may be.
2. PERSONS AUTHORIZED TO GIVE INSTRUCTIONS REGARDING BORROWINGS. The persons authorized to give us instructions to lend money and confirm such borrowings in accordance with the foregoing are the CEO and any one of the CFO or the President of the Company.
3. PAYMENT OF LOAN PROCEEDS AND PREPAYMENTS.
(a) The proceeds of each loan shall be made available to you by wire transfer to your account number 8561012306 at Comerica Bank-California (ABA Routing No. 121137522) unless the request for such loan directs otherwise, except to the extent such loan represents the continuation of conversion of a loan previously made to you, in which case we shall record such continuation on our books or records or on the schedule to the Note, as appropriate.
(b) All payments in respect of this Letter of Credit shall be made to us at the First American Bank in Bryan, Texas, account number 0010243 (ABA Routing No. 113102329), immediately available and freely transferable funds and shall be paid in full without setoff or counterclaim and without reduction for and free from any and all taxes, levies, imposts, duties, fees, charges, deductions, withholdings, restrictions or conditions of any nature imposed by any government or any political subdivision or taxing authority thereof.
4. CONDITIONS PRECEDENT. The obligation of AMS to issue the Letter of Credit hereunder or to extend any additional amounts under this Letter of Credit after the date hereof is subject as of the date hereof, and thereafter, to the satisfaction of the following condition: the condition and operating results of the Company shall be in accordance with the business plan approved by the Board of Directors of the Company, as determined by AMS.
5. AFFIRMATIVE COVENANTS. AMS and the Company hereby agree that as of the date that this Letter of Credit is effective and for so long as this Letter of Credit is in effect, and until the Note is paid in full, this Letter of Credit shall be used for the day-to-day working capital needs of the Company in the ordinary course of the Company's business as it exists on the date this Letter of Credit is issued.
6. NEGATIVE COVENANTS. AMS and the Company hereby covenant and agree that as of the date that this Letter of Credit is effective and for so long as the Letter of Credit is in effect, and until the Note is paid in full, the Company will not and will not permit its subsidiaries now or hereafter existing to declare or pay any dividends, return any capital, or make any disbursements or distributions of any kind, including but not limited to asset sales or loans, to its shareholders or investors, or to employees outside the ordinary course of salary and commission payments.
7. PRIORITY. This Letter of Credit will have seniority and priority over all debt and equity of the Company issued or outstanding as of the date hereof and any other debt or equity of the Company that may be issued or incurred after the date hereof.
8. MISCELLANEOUS.
(a) It is understood and agreed that this Letter of Credit and any interest accrued thereon shall have a "first dollar out" priority in the event that the Company has a public offering of equity.
(b) The Company shall at all times take whatever actions are necessary to notify third parties of the restrictions and priorities set forth herein to secure the priorities of this Letter of Credit and to comply with the restrictions and priorities of this Facility Letter.
(c) This letter may be executed in counterparts, each of which shall be deemed to be an original but all of which together shall constitute one agreement.
* * *
If you are in agreement with the terms set forth above, please sign this Facility Letter as evidenced below.
Very truly yours,
AMS SERVICES, INC.
By: /s/
---------------------------------
Its:
|
Accepted and agreed to as of the
date first above written.
InsWeb Corporation
By: /s/ Hussein A. Enan
--------------------------------
Its Chief Executive Officer
By: /s/ Beverly J. Steffen
--------------------------------
Its Chief Financial Officer
|
NOTE
$25,000,000 Due Date: November 22, 2001 College Station, Texas
Upon the due date stated above, for value received, the undersigned, InsWeb Corporation, a Delaware corporation (the "Company"), promises to pay to the order of AMS SERVICES, INC., a Delaware corporation ("AMS"), at its office at 3001 East By Pass, College Station, Texas or at such other place as the holder hereof may from time to time specify, the principal sum of twenty-five million $25,000,000, or so much thereof as may be advanced to the Company hereon.
This Note evidences all loans as described in that certain letter agreement bearing even date herewith by and between the Company and AMS relating to a line of credit facility extended to the Company (the "Facility Letter") made and to be made to the Company by AMS under the Facility Letter as the same may from time to time be renewed or extended and the Company hereby promises to pay interest on each loan evidenced hereby at the rate and time specified therefor in the Facility Letter.
Each loan made under the Facility Letter by AMS to the Company, any repayment of principal hereon and the status of each such loan shall be endorsed by the holder hereof on the reverse side of this note or (so long as this note is held by AMS) recorded on the books and records of the holder hereof and the Company agrees that in any action or proceeding instituted to collect or enforce collection or this Notice, the amount so endorsed on the reverse side hereof or recorded on the books and records of AMS shall be prima facie evidence of the unpaid balance of this Note and the status of each loans as so endorsed or recorded shall be prima facie evidence of such status.
THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS
OF MASSACHUSETTS.
The Company hereby waives, presentment for payment and demand. The Company agrees to pay to the holder hereof all reasonable expenses incurred or paid by such holder, including reasonable attorneys' fees and court costs, in connection with the collection of this Note.
InsWeb Corporation
By: /s/ Hussein A. Enan
---------------------------------
Its Chief Executive Officer
By: /s/ Beverly J. Steffen
---------------------------------
Its Chief Financial Officer
|
Exhibit 10.10
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made this 22nd day of November, 1996, between InsWeb Corporation (the "Employer") and Hussein A. Enan (the "Employee").
WITNESSETH:
WHEREAS, the Employer desires to employ the Employee on the terms and conditions hereinafter set forth, and the Employee desires to be employed by the Employer on such terms and conditions,
NOW, THEREFORE, in consideration of the premises and mutual convenants contained herein, the parties hereto agree as follows:
1. EMPLOYMENT. This Agreement shall take effect on the Closing Date of that certain Stock Purchase Agreement, of even date herewith, by and among Employer and Insurance Information Exchange, L.L.C. ("iiX") (the "Stock Purchase Agreement"). Commencing on such date, the Employer shall employ, engage and hire the Employee as its Chief Executive Officer, to perform the duties and functions specified by the Bylaws of the Employer and as further set forth herein. During the period of employment, as hereinafter provided, and except as set forth herein, the Employee shall devote his best efforts on a full-time basis to the business of the Employer, and shall perform his duties consistent with the highest standards of one holding such position in similar businesses or enterprises. Employee shall not be required to perform duties which are inconsistent with his position as a senior executive officer of Employer.
The provisions of this Section 1 shall not be deemed to prohibit the Employee from devoting reasonable time to personal matters and from serving, with the prior written consent of the Board of Directors of the Employer, on the Boards of Directors of other companies.
2. TERM OF EMPLOYMENT. Subject to the provisions for termination set forth in Section 6 hereof, the term of this Agreement shall commence upon the date first above written and shall continue to and including the 30th day of November, 1999.
3. COMPENSATION. (a) For all services rendered by the Employee pursuant to this Agreement, the Employer shall pay the Employee a base salary at the annual rate of $180,000.
(b) The Employee shall be entitled to reimbursement of all reasonable, business-related travel and other expenses incurred by the Employee in the ordinary course of business on behalf of the Employer, so long a such expenses are incurred and documented pursuant to the Employer's expense reimbursement policies.
4. BENEFITS. The Employee shall be entitled to such benefits as are provided to senior executives of the Employer. Without limiting the generality of the foregoing, the Employee shall be covered by the Employer's long-term disability policy.
5. NO RELOCATION. The Employee shall provide his services in the San Francisco, California area. Notwithstanding the foregoing, the parties recognize and acknowledge that the Employee may be required to spend considerable business time in locations other than the San Francisco, California, area.
6. TERMINATION OF EMPLOYMENT. (a) The Employer may terminate the Employee's employment hereunder for cause, and shall have no further obligation or liability to the Employee (except as set forth in Section 6(b hereof), if (i) the Employee commits an act which is punishable as a felony, regardless of whether the Employee is actually convicted or not; (ii) the Employee materially breaches any provision in this Agreement; or (iii) the Employee voluntarily terminates his employment hereunder; provided, however, that if the Employee voluntarily terminates his employment hereunder because his responsibilities have been materially diminished, or because of a breach by Employer of this Agreement or the Stock Purchase Agreement, such termination by Employee shall constitute termination for good reason and not for cause.
(b) In the event of any termination by Employer for cause pursuant to subsection 6(a), the Employer shall be obligated to pay to the Employee only those portions of the annual salary provided for by Section 3 hereof which shall accrue to the Employee up to and
including the date upon which such termination becomes effective. The Employee shall be entitled to receive any benefits in which he is vested as of the date of termination.
(c) The Employer may terminate the Employee's employment pursuant to
Section 6(a) hereof if (i) the Employee becomes permanently disabled to the
extent that, in the determination of the Board of Directors, he is no longer
able to report to work and to carry on his duties on behalf of the Employer or
(ii) the Employee dies. Such termination shall be effective on the next
succeeding anniversary date of the commencement of the term of this Agreement.
(d) If the Employer terminates the Employee's employment hereunder without cause, or if Employee terminates his employment hereunder for good reason, as defined in subsection 6(a) hereof, all obligations of Employer hereunder shall continue for the term of this Agreement, but the obligations of Employee under Section 9 hereof shall terminate.
7. ASSIGNMENT. This Agreement may not be transferred or assigned by the Employee, but may be assigned by the Employer to any successor or affiliate.
8. NON-DISCLOSURE AGREEMENT. Employee shall execute a Confidential Disclosure Agreement in the form set forth in Attachment A hereto, provided, however, that the definition of Confidential Information in Attachment A shall specifically include any information of a non-public nature disclosed to Employee by iiX and its affiliates.
9. NON-SOLICITATION. Except as provided in Section 6(d) hereof, Employee shall not, during the term of this Agreement and for a period of one year after termination of his employment with Employer, either: (i) hire or offer to hire or entice away, either in an individual capacity or as an agent for another, any of Employer's officers, employees or agents to discontinue their relationship with Employer; or, (ii) divert or attempt to divert from the Employer any business whatsoever by influencing or attempting to influence or by solicitation of any clients or customers of Employer.
10. SCOPE OF EMPLOYEE'S RESPONSIBILITIES. During the term of this Agreement, Employee shall have, in addition to the normal prerogatives of the Chief Executive Officer, the right, subject only to such approvals by the Board of Directors and the shareholders of Employer
as may be required by the Articles of Incorporation and Bylaws of Employer or by the corporate laws of the State of Delaware, to make those decisions regarding the business of Employer, if and only to the extent they are not inconsistent with the business plan of Employer approved by the Board of Directors, that relate to:
(a) the hiring, evaluation, compensation and termination of
personnel of the Employer, including employees, consultants and independent
contractors. This shall include decisions relating to the granting of (i)
employee stock options according to Employer's existing stock option plans, and
(ii) other benefits made available by Employer, with the exception of those
relating to Employee or to Darrell Ticehurst or to any member of the Board of
Directors of Employer;
(b) the choice of products and services to be offered by Employer, provided that such products and services are related to both insurance and either the Internet or the "intranet" networks of individual companies, insurance or otherwise;
(c) the allocation of the human, technical and financial resources of the Employer, including the implementation of operating budgets and operating plans and objectives that have been approved by the Board of Directors;
(d) the selection of vendors of all types used by Employer, provided, however, that wherever possible, Employer will use iiX and its affiliates as preferred vendors;
(e) the facilities to be used by Employer, including office space, furniture, and computer hardware and software. This shall include the level and timing of expenditures for these items. Excluded will be capital expenditures involving real estate or leases over five (5) years in length;
(f) the technologies to be used by Employer in offering its products and services, except where any such technology would negatively impact the strategic alliance between employer and iiX as set forth in the Joint Marketing and License Agreement between them of even date herewith, provided, however, that wherever possible, Employer will use iiX and its affiliates as preferred technology vendors;
(g) the layout and content of Employer's Internet site or sites;
(h) the manner in which Employer markets its products and services;
(i) the manner in which Employer prices its products and services;
(j) which companies with which Employer chooses to form customer relationships;
(k) which companies with which Employer chooses to form strategic alliances;
(l) the selection of, as well as discussions and negotiations with prospective investment partners, provided that any proposed investment in the Employer shall be presented to the Board of Directors for its approval;
(m) the financing of Employer, including negotiations with banks and other capital providers, provided, however, that the results of such negotiations shall remain subject to the non-dilution and other provisions of the Stock Purchase Agreement and other documents entered into contemporaneously herewith between Employer and iiX and its affiliates.
(n) the selection of members for the Board of Directors, other than the two members representing the interests of iiX;
(o) the determination of whether and the time at which an initial public offering of the securities of the Employer shall take place, which determination shall be solely that of Employee and not subject to withdrawal or modification by the Board of Directors or by the vote of iiX as a shareholder of Employer;
(p) the selection of, as well as discussions and negotiations with underwriters to conduct a potential initial public offering, and the nature and organization of the information disclosed to the Securities and Exchange Commission and to prospective investors in connection with such an offering, subject to the review by the Board of Directors of any underwriting agreement and registration statement; and,
(q) potential changes in the corporate name of Employer or the creation of new and separate names for new related businesses of Employer.
11. SPECIFIC PERFORMANCE. The Employee expressly agrees that any breach of Sections 8 or 9 hereof shall constitute a material breach of this Agreement and may be enforced by injunction or other equitable relief or otherwise.
12. WAIVER. A waiver by the Employer or the Employee of a breach of any provision of this Agreement by the other shall not operate or be construed as a waiver of any subsequent breach.
13. AMENDMENT. This Agreement shall be amended only in writing, signed by both parties.
14. GOVERNING LAW. This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of California, without giving effect to principles of conflicts of law.
15. SEVERABILITY. If any portion or portions of this Agreement shall be, for any reason, invalid or unenforceable, the remaining portion or portions shall nevertheless be valid and enforceable.
16. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties with respect to the subject matter hereof. This Agreement supersedes all prior agreements between the parties hereto, which are of no further force or effect and null and void.
17. OBLIGATIONS AND BENEFITS. The obligations and benefits set forth in this Agreement shall be binding upon and inure to the benefit of the respective parties hereto and their personal representatives, successors and permitted assigns. This Agreement shall be binding upon any successor of the Employer. It shall be a condition precedent to any sale or transfer by the Employer of all or a substantial part of its assets or securities that such transferee assume this Agreement.
18. NOTICES. All Notices and other communications under this Agreement will be sufficient if written and sent by registered or certified mail, return receipt requested, in the case of the Employee, to his residence as shown on the Employer's records and, in the case of the
Employer, to its offices at 1875 South Grant Street, Suite 800, San Mateo California 94402; provided, however, that any notice of change of address shall be effective only upon receipt.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and year first above written.
INSWEB CORPORATION ("Employer")
By:
/s/ DARRELL J. TICEHURST
----------------------------------------
Its: PRESIDENT
------------------------------------
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Hussein A. Enan ("Employee"):
/s/ HUSSEIN A. ENAN ---------------------------------------- |
Exhibit 10.11
OPTION AGREEMENT
THIS AGREEMENT is made as of this 22nd day of November, 1996, by and between Insurance Information Exchange, L.L.C. a Delaware limited liability corporation ("Buyer"), and Hussein A. Enan individually and including his successors, assignees and heirs (referred to herein as "Shareholder"). Except as otherwise indicated, capitalized terms used herein are defined in Section 8 hereof.
W I T N E S S E T H:
WHEREAS, the Shareholder owns of record and beneficially 637,500 shares of issued and outstanding Class A Common stock of InsWeb Corporation, a Delaware corporation ("Company"); and
WHEREAS, Buyer desires to purchase from the Shareholder, and the Shareholder desires to sell to Buyer, an option to purchase 106,074 shares of the issued and outstanding Class A Common stock of the Company;
NOW, THEREFORE, in consideration of the premises and of the covenants, agreements, representations and warranties hereinafter set forth and other good and valuable consideration had and received by each of the parties hereto, the parties hereto hereby agree as follows:
Section 1 SALE AND PURCHASE OF OPTION
1A. SALE AND PURCHASE. Upon and subject to the terms and conditions set forth in this Agreement, at the "Closing" (as defined in Section 2A hereof) the Shareholder shall sell to Buyer, and Buyer shall purchase from the Shareholder, for the "Purchase Price" (as defined in Section 1B hereof), an option to purchase 106,074 shares of Class A Common stock of the Company (such shares obtained pursuant to the exercise of the Option are hereinafter called in the aggregate the "Shares" and singly a "Share").
1B. PURCHASE PRICE. The aggregate purchase price for the Option (the "Purchase Price") shall be $7.00 dollars per Share for an aggregate Purchase Price of $742,518 payable at Closing.
1C. IRREVOCABLE PROXY. As part of the purchase of the Option, Shareholder grants to Buyer an irrevocable proxy coupled with an interest entitling the Buyer to vote all of the Shares on all matters, which proxy shall be effective immediately upon Closing and continuing until the expiration of the Option.
Section 2 THE CLOSING AND EXERCISE RIGHT
2A. CLOSING. The "Closing" shall be and mean the time at which the Shareholder executes and delivers this Option Agreement, against payment of the Purchase Price as provided in Section 1B hereof. The Closing shall take place at the offices of the Company at
9:30 a.m. (local time) on November 22, 1996, or at such other time and place as the parties may agree.
2B. EXERCISE OF OPTIONS. Buyer shall have the irrevocable right to exercise the Option and acquire all right, title and interest in the Shares free and clear of any lien, encumbrance, charge or restriction by providing to Shareholder written notice of its desire to exercise the Option any time between January 5, 1997 and January 15, 1997 and tendering full payment to Shareholder for the Shares at the price of $39.75 per Share for an aggregate exercise price of $4,216,441.50 ("Exercise Price") on or before January 15, 1997. Shareholder shall deliver to Buyer immediately upon payment of the Exercise Price one or more stock certificates duly issued in the name of the Buyer representing in the aggregate the Shares, or in the name of Shareholder and fully endorsed to Insurance Information Exchange L.L.C., or bearing duly executed stock powers to Insurance Information Exchange L.L.C., accompanied by such supporting documents as may, in the sole determination of Buyer's counsel, be necessary to pass to Buyer and to evidence properly such passage to Buyer of, full right to the Shares, free and clear of any lien, encumbrance, charge, equity or restriction whatsoever.
Section 3 CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS
Unless at the Closing each of the following conditions is either satisfied, or waived by Buyer in writing, the Buyer shall not be obligated to purchase the Option:
3A. REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in Section 5 hereof will be true and correct except to the extent of changes caused by the transactions expressly contemplated herein.
3B. ABSENCE OF ADVERSE PROCEEDINGS. No claim, investigation, proceeding or litigation, either administrative or judicial, shall be pending or to the best knowledge or belief of the Shareholder threatened against the Buyer, the Shareholder, or the Company, for the purpose of enjoining or preventing the consummation of the Agreement or otherwise claiming that this Agreement, or the consummation thereof, is improper, or which might materially and adversely affect the right of Buyer to exercise the Option or retain the Shares.
3C. NO ADVERSE CHANGES. There shall have been no material adverse change in the operations of the business of the Company or material deterioration of or damage to the assets of the Company.
3D. THIRD PARTY CONSENTS. Any and all consents, approvals and authorizations that may be required from lenders and others for the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby shall have been obtained in form and substance satisfactory to Buyer in the exercise of its reasonable judgment.
3E. PROCEEDINGS. All corporate and other proceedings of the Company taken or required to be taken in connection with the transactions contemplated hereby to be consummated at or prior to the Closings and all documents incident thereto will be satisfactory in form and substance to the Buyer and its counsel in the exercise of their reasonable judgment.
Section 4 CONDITIONS PRECEDENT TO THE SHAREHOLDER'S OBLIGATIONS
Unless, at or before the Closing, each of the following conditions is either satisfied, or waived in writing by the Shareholder, the Shareholder shall not be obligated to sell the Option:
4A. REPRESENTATIONS AND WARRANTIES. The representations and warranties contained in Section 6 hereof will be true and correct except to the extent of changes caused by the transactions expressly contemplated herein.
4B. ABSENCE OF ADVERSE PROCEEDINGS. No claim, investigation, proceeding or litigation, either administrative or judicial, shall be pending or to the best knowledge and belief of the Buyer threatened against the Shareholder, the Company or the Buyer, for the purpose of enjoining or preventing the consummation of this Agreement or showing the consummation thereof is improper.
4C. PROCEEDINGS. All corporate or other proceedings of the Buyer taken or required to be taken in connection with the transactions contemplated hereby to be consummated at or prior to Closing and all documents incident thereto will be satisfactory in form and substance to the Shareholder and their counsel in the exercise of their reasonable judgment.
Section 5 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
The Shareholder represents and warrants to the Buyer, to the best of his knowledge and belief, as follows:
5A. CAPITALIZATION. The authorized capital stock of the Company consists of 5,000,000 shares of Common Stock, of which 969,500 shares are issued and outstanding, and 2,000,000 shares of Preferred Stock, 176,471 shares of which have been designated Series C Preferred Stock and are issued and outstanding. All issued and outstanding shares of the Company's capital stock will have been duly authorized and validly issued, will be fully paid and nonassessable and free of liens and encumbrances and will have been issued in compliance with all applicable federal and state securities laws. The Company has reserved 176,471 shares of Common Stock for issuance upon conversion of the Series A Preferred Shares. Except as set forth on SCHEDULE 5A, there are no preemptive rights, voting agreements, options or warrants or other conversion privileges or rights currently outstanding to purchase any of the authorized but unissued capital stock of the Company. There are 265,647 shares of Common Stock reserved for issuance under the Company's 1995 Stock Option Plan, pursuant to which options for the purchase of a total of 130,000 shares were outstanding on January 30, 1996.
5B. BROKERAGE. There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement to which the Shareholder is a party.
5C. OWNERSHIP OF SHARES. The Shareholder is the sole owner of record and sole beneficial owner of all the Shares; and the Shareholder has the full right, power and authority to
grant the Option and to sell and transfer the Shares hereto to Buyer upon exercise of the Option, free and clear of any lien, encumbrance, option, charge, equity or restriction whatsoever.
5H. VALID OBLIGATION. The execution and delivery of this Agreement and the consummation by the Shareholder of the transactions contemplated hereby constitute the valid and binding obligation of the Shareholder, enforceable in accordance with its terms except as may be limited by bankruptcy, other similar laws and by the general principles of equity.
Section 6 REPRESENTATIONS AND WARRANTIES OF BUYER
As a material inducement to the Shareholder to enter into this Agreement, the Buyer represents and warrants to the Shareholder that as of closing 6A through 6D are true and in the event that the Option is exercised, then 6F through 6J are true.
6A. NO BREACH OR CONFLICT. Neither the execution of this Agreement by Buyer nor the performance of its obligations hereunder, nor any action by it contemplated by this Agreement, conflicts with, constitutes grounds for termination of, or constitutes a default under or conflicts with the Buyer's certificate of incorporation or bylaws.
6B. CLOSING DATE. The representations and warranties of Buyer contained in this Section 6 and elsewhere in this Agreement and all information contained in any exhibit, schedule or attachment hereto or in any writing delivered by, or on behalf of Buyer to the Shareholder, his counsel or agent will be true and correct in all material respects on the date of the Closing as though then made.
6C. ORGANIZATION. The Buyer is a limited liability corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware and has the full corporate power and authority to own its properties and carry on its business.
6D. AUTHORIZATION. The execution, delivery and performance of this Agreement have been duly authorized by all requisite corporate action of the Buyer. The Buyer has all requisite corporate authority to perform all of its obligations under this Agreement. This Agreement constitutes valid and binding obligations of the Buyer, subject to the effect of bankruptcy, insolvency, reorganizations and other similar laws relating to or affecting the rights of creditors generally, the terms of this Agreement, as well as limitations imposed by general principles of equity.
6E. BROKERAGE. There are no claims for brokerage commissions, finders' fees or similar compensation in connection with the transactions contemplated by this Agreement based on any arrangement or agreement to which the Buyer is a party.
6F. EXPERIENCE. Buyer has substantial experience in evaluating and investing in private placement transactions so that Buyer is capable of evaluating the merits and risks of Buyer's investment in the Company. Buyer, by reason of its business or financial experience or the business or financial experience of its professional advisors who are unaffiliated with and who are not compensated by the Company or any affiliate or selling agent of the Company,
directly or indirectly, has the capacity to protect its own interests in conjunction with the purchase of the Shares hereunder, provided that the foregoing does not limit the right of the Buyer to rely upon the representations and warranties of the Company set forth in Section 5.
6G. INVESTMENT. Buyer is acquiring the Shares for investment for Buyer's own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. Buyer understands that the Shares have not been, and will not be, registered under the Securities Act by reason of specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Buyer's representations expressed herein. If Buyer is not an individual, Buyer has not been formed for the specific purpose of acquiring the Shares.
6H. RULE 144. Buyer acknowledges that the Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Buyer is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including (except as limited by Rule 144(k)), among other things, the existence of a public market for the Shares, the availability of certain current public information about the Company, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of Shares being sold during any three-month period not exceeding specified limitations.
6I. NO PUBLIC MARKET. Buyer understands that no public market now exists for any of the securities issued by the Company, that the Company has made no assurances that a public market will ever exist for the Shares, and that, even if such a public market exists at some future time, the Company may not then be satisfying the current public information requirements of Rule 144.
6J. ACCESS TO DATA. Buyer and its representatives have met with
representatives of the Company and thereby have had the opportunity to ask
questions of, and receive answers from, such representatives concerning the
Company and the terms and conditions of this transaction, as well as to obtain
any information requested by Buyer. Buyer believes that any questions raised by
Buyer or its representatives concerning the transaction have been answered to
the satisfaction of Buyer and its representatives. Buyer's decision to purchase
the Shares is based in part on the answers to such questions as Buyer and its
representatives have raised concerning the transaction and on its own evaluation
of the risks and merits of the purchase and the Company's proposed business
activities, provided that the foregoing does not limit the right of the Buyer to
rely upon the representations and warranties of the Company set forth in
Section 5.
Section 7 COVENANTS
7A. SHAREHOLDER'S RESTRICTIVE COVENANT. As an important and substantial value which Buyer will receive in exchange for the consideration paid to the Shareholder upon the exercise of the Option and as a necessary element of protection for the value of the ongoing business, goodwill and trade secrets of the Company for a period of five (5) years from the
exercise of the Option the Shareholder agrees that he shall not (i) directly or indirectly compete with the Company or develop or market any insurance information or insurance processing system or network, which may include but not be limited to insurance rating or insurance accounting functions, on the Internet or any intranet or local or wide area network or have an interest in or be associated with any entity which competes with the Company or develops or markets such software within any county of California or within any state in the United States or Canada in which the Company either currently does business or proposes to do business or (ii) solicit any customer of Company located in the United States or Canada to use services or products which are competing with those offered by the Company. The Shareholder agrees that a monetary remedy for a breach of the agreement set forth in this Section 7A will be inadequate, impracticable and extremely difficult to prove, and further agree that such a breach would cause Buyer irreparable harm, and that Buyer will be entitled to temporary and permanent injunctive relief without the necessity of proving actual damages upon a judicial determination that the Buyer has a reasonable likelihood of success on the merits of its claim. The Shareholder and the Company agree that Buyer shall be entitled to such injunctive relief, including temporary restraining orders, preliminary injunctions and permanent injunctions. If any provision of this Section 7A is invalid in part, it shall be curtailed, as to time, scope and location, to the minimum extent required for its validity under the laws of the State of Texas and shall be binding and enforceable with respect to the Shareholder as so curtailed. The Shareholder agrees, based upon his past experience in the insurance business that the restrictions imposed herein are reasonable as to duration, area and scope, are necessary for the protection of the value of the business of Company, of its market position, intellectual property, business and good will and are not unduly restrictive of the Shareholder's rights as an individual.
Section 8 MISCELLANEOUS
8A. REMEDIES. Each party to this Agreement will have the rights and remedies set forth in this Agreement, and all rights and remedies which such parties have been granted at any time under any other agreement or contract and all of the rights which such parties have under any law. Any Person having any rights under any provision of this Agreement will be entitled to enforce such rights specifically, to recover damages by reason of any breach of any provision of the Agreement and to exercise all other rights granted by law.
8B. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations, warranties and indemnity provisions contained herein or made in writing by any party in connection herewith shall survive the execution and delivery of this Agreement, regardless of any investigation made by the Buyer or the Shareholder or on their behalf.
8C. ENTIRE AGREEMENT. This Agreement (together with the exhibits and schedules hereto) contains all of the terms and conditions agreed upon by the parties hereto with reference to the subject matter hereof with regard to such subject matter. No other agreements not specifically referred to herein, oral or otherwise, shall be deemed to exist or to bind any of the parties hereto with regard to such subject matter. No officer or employee of any party has any authority to make any representation or promise not contained in this Agreement, and each of the
parties hereto agrees that it has not executed this Agreement in reliance upon any such representation or promise.
8D. SEVERABILITY. Whenever possible, each provision of this Agreement will be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement is held to be prohibited by or invalid under applicable law, such provision will be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of this Agreement.
8E. COUNTERPARTS. This Agreement may be executed simultaneously in two or more counterparts, any one of which need not contain the signatures of more than one party, but all such counterparts taken together will constitute one and the same Agreement.
8F. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are inserted for convenience only and do not constitute a part of this Agreement.
8G. GOVERNING LAW. With the exception of Section 7A where the parties have specifically chosen and intend to apply Texas Law, all questions concerning the construction, validity and interpretation of this Agreement and the exhibits and schedules hereto will be governed by the internal law, and not the law of conflicts, of California.
8H. NOTICE. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally or
mailed by certified or registered mail, return receipt requested and postage
prepaid, to the recipient. Such notices, demands, and other communications will
be sent to the Shareholder at:
and to the Buyer at the address indicated below:
Mr. Hussein A. Enan 320 Harcross Road Woodside, CA 94062
AMS Service, Inc. 900 Chelmsford Road Tower 1, 10th Floor Lowell, MA 01851 Attention: General Counsel
or to such other address or to the attention of such other person as the recipient party has specified by prior written notice to the sending party.
8I. ENFORCEMENT. In the event suit is brought to enforce or interpret any part of this Agreement or the rights or obligations of any party to this Agreement, the prevailing party shall be entitled to recover as an element of such party's costs of suit, and not as damages, a reasonable attorney's fee to be fixed by the court. The prevailing party shall be the party who is
entitled to recover his costs of suit whether or not the suit proceeds to final judgment. A party not entitled to cover his costs shall not recover attorney's fees.
8J. AMENDMENT. This Agreement may not be changed, amended, terminated or superseded orally, nor may any of the provisions hereof be waived orally, but only by an instrument in writing, signed in each case by Shareholder and an authorized officer of Buyer.
8K. CONFIDENTIALITY. It is understood and agreed between the parties hereto that the parties are best served by keeping the financial terms of this Agreement confidential and each party hereby agrees that it will use its reasonable efforts to not, through its agents, officers, directors, employees, or by any other means, disclose to any third parties the financial terms of this Agreement; excepting only to counsel, accountants or other agents necessary to consummate the transactions contemplated herein or with the written consent of the other party, for a period of thirty-six (36) months following the Closing except (A) to the extent that such information is required in response to any summons or subpoena or in connection with any litigation, (B) to the extent that such information is believed to be required in order to comply with any law, order, regulation or ruling applicable to such party disclosing such information, (C) to the extent that such information subsequently becomes known to the party disclosing such information through any Person other than a Person whom the disclosing party knows to be acting in violation of his or its obligations to the nondisclosing party and (D) to obtain additional financing or investment in the Company but only pursuant to a written confidentiality agreement with such third party.
8L. PRESS RELEASES AND PUBLIC ANNOUNCEMENTS. No party shall issue any press releases and public announcements relating to the subject matter of this Agreement without the prior written approval of the Buyer and the Shareholder; provided, however, that any party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case the disclosing party will use its best efforts to advise the other parties prior to making the disclosure).
8M. EXPENSES. Shareholder and the Buyer shall each bear its own costs and expenses (including legal fees and expenses) incurred in connection with this Agreement and the transactions contemplated hereby.
8N. CONSTRUCTION. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of interest or interpretation arises, 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 of the provisions of this Agreement. Any reference to any federal, state, local, or foreign statute or law shall be deemed also to refer to all rules and regulations promulgated thereunder, unless the context requires otherwise. The word "including" shall mean including without limitation.
IN WITNESS WHEREOF, the parties hereto have caused this Option Purchase Agreement to be duly executed and delivered on the date set forth below but intending for all purposes to evidence a formation agreed to and effective as of the date first written above.
BUYER:
Insurance Information Exchange, LLC
By: /s/ David Hunter
----------------------------
David Hunter, President
Date:
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SHAREHOLDER:
Hussein A. Enan
By: /s/ Hussein A. Enan
----------------------------
Signature
Date:
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Exhibit 10.12
INSWEB CORPORATION
1875 SOUTH GRANT STREET, SUITE 800
SAN MATEO, CALIFORNIA 94402
SERIES C PREFERRED
STOCK PURCHASE AGREEMENT
FEBRUARY 21, 1997
TABLE OF CONTENTS
Page
----
Section 1 Authorization and Sale of Series C Preferred Stock.............................................2
1.1. Authorization..................................................................................2
1.2. Sale of Series C Preferred Stock...............................................................2
Section 2 Closing Date; Delivery.........................................................................2
2.1. Closing Date...................................................................................2
2.2. Deliveries.....................................................................................2
Section 3 Representations and Warranties of the Company..................................................2
3.1. Organization and Standing; Certificate and Bylaws..............................................3
3.2. Corporate Power................................................................................3
3.3. Subsidiaries...................................................................................3
3.4. Capitalization.................................................................................3
3.5. Authorization..................................................................................4
3.6. Title to Properties and Assets; Liens, Etc.....................................................4
3.10. Litigation, Etc ...............................................................................5
3.11. Employees .....................................................................................6
3.12. Insurance .....................................................................................6
3.13. Registration Rights ...........................................................................6
3.14. Governmental Consent, Etc. ....................................................................6
3.15. Offering ......................................................................................6
3.16. Brokers or Finders; Other Offers ..............................................................6
3.17. Disclosure ....................................................................................7
3.18. Tax Returns and Payments ......................................................................7
3.19. No Conflict of Interest .......................................................................7
3.20. Corporate Records .............................................................................7
3.21. Financial Statements ..........................................................................7
3.22. Changes .......................................................................................8
3.23. Environmental Matters .........................................................................9
3.24. Employee Compensation Plans ...................................................................9
3.25. Voting Agreements; Shareholder Agreements ....................................................10
3.26. U.S. Real Property Holding Corporation .......................................................10
3.27. Private Offering .............................................................................10
3.28. Use of Proceeds ..............................................................................10
3.29. Margin Securities ............................................................................10
3.30. Absence of Foreign or Enemy Status ...........................................................10
Section 4 Representations and Warranties of the Purchaser...............................................10
4.1. Experience....................................................................................11
4.2. Investment....................................................................................11
4.3. Rule 144......................................................................................11
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TABLE OF CONTENTS
(continued)
Page
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4.4. No Public Market..............................................................................11
4.5. Access to Data................................................................................11
4.6. Authorization.................................................................................12
4.7. Brokers or Finders............................................................................12
4.8. Tax Consequences..............................................................................12
Section 5 Conditions to Closing of Purchaser............................................................12
5.1. Representations and Warranties Correct........................................................12
5.2. Covenants.....................................................................................12
5.3. Opinion of Company's Counsel..................................................................12
5.4. Compliance Certificate........................................................................12
5.5. Blue Sky......................................................................................13
5.6. Legal Matters.................................................................................13
Section 6 Conditions to Closing of Company..............................................................13
6.1. Representations...............................................................................13
6.2. Blue Sky......................................................................................13
6.3. Legal Matters.................................................................................13
Section 7 Affirmative Covenants of the Company..........................................................13
7.1. Financial Information.........................................................................13
7.2. Additional Information........................................................................14
7.3. Transfer of Information Rights................................................................15
7.4. Conflicts of Interest.........................................................................15
7.5. Termination of Covenants......................................................................15
7.6. Participation in Future Financings............................................................15
7.7. Registration Rights...........................................................................16
7.8. Observer Rights...............................................................................21
Section 8 Restrictions on Transferability of Securities: Compliance with Securities Laws...............22
8.1. Restrictions on Transferability...............................................................22
8.2. Restrictive Legend............................................................................22
8.3. California Corporate Securities Law...........................................................22
Section 9 Miscellaneous.................................................................................23
9.1. Governing Law.................................................................................23
9.2. Survival......................................................................................23
9.3. Successors and Assigns........................................................................23
9.4. Entire Agreement; Restated Certificate........................................................23
9.5. Notices, Etc..................................................................................23
9.6. Delays or Omissions...........................................................................24
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TABLE OF CONTENTS
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9.7. Expenses......................................................................................24
9.8. Counterparts..................................................................................24
9.9. Severability..................................................................................24
9.10. Titles and Subtitles .........................................................................24
9.11. Broker's or Finder's Fee .....................................................................24
9.12. Waiver of Conflict ...........................................................................24
9.13. Rights of Holders ............................................................................25
9.14. Third Parties ................................................................................25
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INSWEB CORPORATION
SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (the "Agreement") is made as of February 21, 1997 by and among InsWeb Corporation, a Delaware corporation (the "Company"), and Century Capital Partners, L.P., a Delaware limited partnership (the "Purchaser").
SECTION 1
AUTHORIZATION AND SALE OF SERIES C PREFERRED STOCK
1.1. AUTHORIZATION. The Company has authorized the sale and issuance of 100% of the authorized shares of its Series C Preferred Stock, being 53,476 shares of its Series C Preferred Stock (the "Shares") having the rights, preferences, privileges and restrictions set forth in the Third Restated Certificate of Incorporation (the "Restated Certificate").
1.2. SALE OF SERIES C PREFERRED STOCK. Subject to the terms and conditions hereof and the rights, preferences, privileges and restrictions set forth in the Restated Certificate, the Company will issue and sell to the Purchaser, and the Purchaser will buy from the Company, the Shares at a cash purchase price of $46.75 per Share.
SECTION 2
CLOSING DATE; DELIVERY
2.1. CLOSING DATE. The closing of the purchase and sale of the Shares hereunder (the "Closing") shall be held at the offices of the Company, 1440 Chapin Avenue, Suite 201, Burlingame, California at 9:00 a.m., on February 21, 1997 or at such other time and place upon which the Company and the Purchaser shall agree (the date of the Closing is hereinafter referred to as the "Closing Date").
2.2. DELIVERIES. At the Closing, the Company will deliver to the Purchaser a certificate or certificates, registered in the Purchaser's name, representing the Shares, against payment of the aggregate purchase price therefor by check or wire transfer payable to the Company in the amount determined in accordance with Section 1.2.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Schedule of Exceptions to Representations and Warranties attached hereto as EXHIBIT A, the Company represents and warrants to the Purchaser as follows:
3.1. ORGANIZATION AND STANDING; CERTIFICATE AND BYLAWS. The Company is a corporation duly organized and existing under, and by virtue of, the laws of the State of Delaware and is in good standing under such laws. The Company has requisite corporate power to own and operate its properties and assets, and to carry on its business as currently conducted and as proposed to be conducted. The Company is qualified to do business as a foreign corporation in each jurisdiction where the failure to be so qualified would have a material adverse effect on the Company's business. The Company has furnished the Purchaser copies of the Certificate and Bylaws, as presently in effect. Such copies are true, correct and complete and contain all amendments other than those reflected in the Restated Certificate through the Closing Date.
3.2. CORPORATE POWER. The Company will have at the Closing Date all requisite legal and corporate power to execute and deliver this Agreement, to sell and issue the Shares hereunder, to issue the Common Stock issuable upon conversion of the Shares (the "Conversion Shares") and to carry out and perform its obligations under the terms of this Agreement.
3.3. SUBSIDIARIES. The Company has no subsidiaries, other than Strategic Concepts Corp., a California corporation and wholly owned subsidiary, or affiliated companies and does not otherwise own or control, directly or indirectly, any equity interest in any corporation, association or business entity.
3.4. CAPITALIZATION. The authorized capital stock of the Company
will, upon the filing of the Restated Articles, consist of 5,000,000 shares of
Common Stock, of which 973,087 shares will be issued and outstanding, and
2,000,000 shares of Preferred Stock, 176,471 shares of which has been designated
Series A Preferred Stock (the "Series A Preferred"), all of which will be issued
and outstanding prior to the Closing; 204,335 shares of which has been
designated Series B Preferred Stock (the " Series B Preferred"), 176,47 shares
of which will be issued and outstanding prior to the Closing; and 61,920 shares
of which will have been designated Series C Preferred Stock (the "Series C
Preferred"), none of which will be issued and outstanding prior to the Closing.
All issued and outstanding shares of the Company's capital stock will have been
duly authorized and validly issued, will be fully paid and nonassessable and
free of liens and encumbrances created by the Company and will have been issued
in compliance with all applicable federal and state securities laws. The Company
will have reserved 61,920 shares of Common Stock for issuance upon conversion of
the Shares. Other than (i) the conversion rights of the Shares issued pursuant
to this Agreement, (ii) the preemptive and conversion rights of the Series A
Preferred, (iii) the preemptive and conversion rights of the Series B Preferred,
(iv) the rights set forth in the Shareholders' Agreement, dated as of September
30, 1995, between the Company, Hussein A. Enan and Darrell J. Ticehurst (the
"Founders' Agreement") and (v) options outstanding under the Company's 1995
Stock Option Plan, there are no preemptive rights, voting agreements, options or
warrants or other conversion privileges or rights currently outstanding to
purchase any of the authorized but unissued capital stock of the Company. There
are 265,647 shares of Common Stock reserved for issuance under the Company's
1995 Stock Option Plan, pursuant to which options for the purchase of a total of
41,852 shares were outstanding on January 1, 1997.
3.5. AUTHORIZATION. All corporate action on the part of the Company, its directors and stockholders necessary for the authorization, execution, delivery and performance of this Agreement by the Company, the authorization, sale, issuance and delivery of the Shares and the Conversion Shares (collectively, the "Securities") and the performance of all of the Company's obligations hereunder has been taken or will be taken prior to the Closing. This Agreement, when executed and delivered by the Company, shall constitute a valid and binding obligation of the Company, enforceable in accordance with its terms, except as the indemnification provisions set forth in Section 7.7 of this Agreement may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. The Shares, when issued in compliance with the provisions of this Agreement, will be validly issued and will be fully paid and nonassessable and will have the rights, preferences, privileges and restrictions described in the Restated Certificate. The Conversion Shares have been duly and validly reserved and, when issued in compliance with the provisions of this Agreement and the Restated Certificate, will be validly issued, fully paid and nonassessable. The Securities will be free of any liens or encumbrances other than those created by or imposed upon the holders thereof through no action of the Company; provided, however, that the Securities may be subject to restrictions on transfer under state and/or federal securities laws as set forth herein. Except as contemplated herein, in the Series A Preferred Stock Purchase Agreement, dated January 30, 1996 (the "Series A Stock Purchase Agreement"), between the Company and Nationwide Mutual Insurance Company ("Nationwide"), and the Series B Preferred Stock Purchase Agreement, dated November 22, 1996 (the "Series B Stock Purchase Agreement") between the Company and Insurance Information Exchange, L.L.C., the Securities are not subject to any preemptive rights or rights of first refusal.
3.6. TITLE TO PROPERTIES AND ASSETS; LIENS, ETC. The Company has good and marketable title to its properties and assets, and has good title to all its leasehold interests, in each case not subject to any mortgage, pledge, lien, lease, encumbrance or charge, other than (i) the lien of current taxes not yet due and payable (the amount of which has been established as a reserve in the Company's financial records to the extent required by generally accepted accounting principles), and (ii) possible minor liens and encumbrances which do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company, and which have not arisen otherwise than in the ordinary course of business.
3.7. MATERIAL CONTRACTS AND COMMITMENTS. Set forth on EXHIBIT A hereto is a list of all material contracts of the Company in effect on January 1, 1997 and a list of all material liabilities or obligations of the Company, absolute or contingent, that exceed $50,000 in any one case. All the material contracts, agreements and instruments to which the Company is a party are valid, binding and in full force and effect in all material respects, and are valid, binding and enforceable by the Company in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies. The Company, prior to the Closing, will have made available to the Purchaser or its counsel with true and complete copies of all such material contracts, agreements and instruments.
3.8. PATENTS AND OTHER INTANGIBLE ASSETS. All the patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes owned by the Company are listed on EXHIBIT A attached hereto. The Company has sufficient title and ownership of all patents, trademarks, service marks, trade names, copyrights, trade secrets, information, proprietary rights and processes necessary for its business as now conducted and as proposed to be conducted without any conflict with or infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, proprietary rights and processes of any other person or entity. The Company has not received any communications alleging that the Company has violated, or by conducting its business as proposed would violate, and, to the best of its knowledge, the Company is not violating, any of the patents, trademarks, service marks, trade names, copyrights or trade secrets or other proprietary rights of any other person or entity. The Company is not aware that any of its employees or consultants is obligated under any contract (including license covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order (except as imposed by laws of general application) of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Company, or that would conflict with the Company's business as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the carrying on of the Company's business by the employees or consultants of the Company, nor the conduct of the Company's business as proposed, will, to the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees or consultants is now obligated.
3.9. COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company is not in violation of any term of its Certificate or Bylaws, or in any material respect of any term or provision of any mortgage, indebtedness, indenture, contract, agreement or instrument to which it is a party, or any decree, order, statute, rule or regulation application to it. The execution, delivery and performance of and compliance with this Agreement, and the issuance of the Securities, will not result in any material violation of, or conflict with, or constitute a material default under, or result in the creation of, any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company; and there is no such violation or default which materially and adversely affects the business of the Company or any of the Company's properties or assets.
3.10. LITIGATION, ETC. The Company has not instituted nor is a party to any action, suit, proceeding or investigation against any party. There are to the Company's knowledge no actions, suits, proceedings or investigations pending against the Company or its properties (nor, to the best of the Company's knowledge, against directors, officers or employees of the Company) before any court or governmental agency (nor, to the best of the Company's knowledge, is there any reasonable basis therefor or threat thereof), which, either in any case or in the aggregate, is likely to result in any material adverse change in the business or financial condition of the Company or any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its business, or in any material liability on the part of
the Company, and none which questions the validity of this Agreement or any action taken or to be taken in connection herewith, including, without limitation, any such action involving the prior employment of any of the Company's employees or their obligations under any agreements with prior employers.
3.11. EMPLOYEES. To the best of the Company's knowledge, after reasonable investigation, no employee or consultant of the Company is in violation of any term of any employment contract, patent disclosure agreement or any other contract or agreement relating to the relationship of any such person with the Company or any other party because of the nature of the business conducted or proposed to be conducted by the Company. The Company has no collective bargaining agreements covering any of its employees. The Company is not aware of any key employee of the Company who has any plans to terminate his or her employment with the Company. All employees and consultants of the Company involved in the technical development of the Company's software have executed Proprietary Information Agreements, copies of which will have been made available to the Purchaser or its counsel prior to the Closing. The Company does not anticipate the necessity to acquire rights to any inventions of any employees, or people it currently intends to hire, made prior to their employment by the Company.
3.12. INSURANCE. The Company has fire, casualty and liability insurance policies in such amounts and with such coverage as are carried by companies similar to the Company.
3.13. REGISTRATION RIGHTS. Except as set forth in this Agreement, the Founders' Agreement, the Series B Preferred Stock Purchase Agreement and the Registration Rights Agreement, dated as of February 12, 1996, among the Company, the Founders and Nationwide, the Company is not under any contractual obligation to register any of its currently outstanding securities or of any of its securities which may hereafter be issued.
3.14. GOVERNMENTAL CONSENT, ETC. No consent, approval or
authorization of or designation, declaration or filing with any governmental
authority on the part of the Company is required in connection with the valid
execution and delivery of this Agreement, or the offer, sale or issuance of the
Securities, or the consummation of any other transaction contemplated hereby or
thereby, except for filing of the Restated Certificate in the office of the
Secretary of State of the State of Delaware, filing of notices required by
Section 25102(f) of the California Corporate Securities Law of 1968 and any
other filings required under applicable federal and state securities laws of
other states.
3.15. OFFERING. Subject to the accuracy of the Purchaser's representations in Section 4 hereof and in written responses to the Company's inquiries, the offer, sale and issuance of the Shares in conformity with the terms of this Agreement, and the issuance of the Conversion Shares, constitute transactions exempt from the registration requirements of Section 5 of the Securities Act of 1933, as amended (the "Securities Act").
3.16. BROKERS OR FINDERS; OTHER OFFERS. The Company has not incurred, and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for
brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement.
3.17. DISCLOSURE. The Company has fully provided the Purchaser with all the information which the Purchaser and its counsel have requested for deciding whether to purchase the Shares. No representation or warranty of the Company contained in this Agreement and the Exhibits attached hereto and any certificate furnished or to be furnished to the Purchaser at the Closing (when read together) contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.
3.18. TAX RETURNS AND PAYMENTS. The Company has filed all tax returns and reports as required by law. Such returns and reports are true and correct in all material respects and accurately reflect all tax liabilities of the Company with respect to all tax periods covered thereby. The Company has not received notice that the Company's income tax returns or any franchise tax return have been audited by any governmental authority. The Company has paid all taxes and other assessments due on or before the date hereof and such payments were made prior to the time penalties that would accrue therein. The Company knows of no new tax assessments. All taxes which should be reserved on the books of the Company in accordance with generally accepted accounting principles have been so reserved.
3.19. NO CONFLICT OF INTEREST. Except for indebtedness to Hussein A. Enan for funds advanced to the Company, the Company is not indebted, directly or indirectly, to any of its officers, directors or stockholders [(other than Insurance Information Exchange, L.L.C.)] or to their respective spouses or children, in any amount whatsoever. None of said officers, directors or, to the best of the Company's knowledge, stockholders [(other than Insurance Information Exchange, L.L.C.)], or any members of their immediate families, are indebted to the Company or have any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation which competes with the Company, except that officers, directors and/or stockholders of the Company may own up to five percent (5%) of the outstanding stock of publicly traded companies which may have a business relationship with or compete with the Company. Except as contemplated by the Founders' Agreement, no officer, director or stockholder [(other than Insurance Information Exchange, L.L.C.)], or any member of their immediate families, is, directly or indirectly, interested in any material contract with the Company. The Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.
3.20. CORPORATE RECORDS. A copy of the minutes of the proceedings of the stockholders and directors (the "Minutes") has been made available to counsel for the Purchaser. The Minutes are correct and complete and reflect all such proceedings to the date hereof.
3.21. FINANCIAL STATEMENTS. The Company has made available to Purchaser its audited financial statements for the fiscal year ended December 31, 1995 and its unaudited financial statements (balance sheet and profit and loss statement) for the nine-month period ended
September 30, 1996 (together, the "Financial Statements"). The Financial Statements are true, complete and correct in all material respects, subject to normal year-end adjustments, and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the period indicated. The Financial Statements accurately set out and describe the financial condition and operating results of the Company as of the date, and for the period, indicated therein, subject to normal year-end audit adjustments. Except as set forth in the Financial Statements, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to September 30, 1996, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, individually or in the aggregate, are not material to the financial condition or operating results of the Company. The Company maintains and will continue to maintain a system of accounting established and administered in accordance with generally accepted accounting principles.
3.22. CHANGES. Since September 30, 1996, the Company has not:
A. issued any notes, bonds or other debt securities [CNA loan?] or any equity securities (other than 176,741 shares of Series B Preferred Stock);
B. declared or made any payment or distribution of cash or other property to a stockholder with respect to its stock or otherwise, except for normal salaries and expense reimbursement, or purchased or redeemed any shares of its capital stock;
C. mortgaged or pledged any of its properties or assets or subjected them to any lien, security interest, charge or other encumbrance, except liens or current property taxes not yet due and payable;
D. experienced any change in the assets, liabilities, financial condition or operating results from that reflected in the Financial Statements, except changes in the ordinary course of business, which have not been, in the aggregate, materially adverse;
E. sold, assigned or transferred any patents, trademarks, service marks, trade names, copyrights, trade secrets or other intangible assets, or disclosed other than to employees of the Company, counsel for the Company, the Purchaser or Purchaser's representatives any proprietary confidential information;
F. experienced any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business (as such business is presently conducted and as it is proposed to be conducted);
G. waived a valuable right or a material debt;
H. discharged or satisfied any lien, claim or encumbrance or payment of any of their obligations, except in the ordinary course of business and which is not material to their
assets, properties, financial condition, operating results or business (as such business is presently conducted and as it is proposed to be conducted);
I. changed or amended any material contract or arrangement by which the Company or any of its assets or properties are bound or subject;
J. materially changed any compensation arrangement or agreement with any employee (other than entering into an employment agreement with Hussein A. Enan);
K. defaulted under any material contract or agreement or any indenture or debt;
L. entered into any other transaction other than in the ordinary course of business (other than for the sale of 176,741 shares of Series B Preferred Stock) or changed or amended or defaulted under any material transaction, contract or agreement;
M. made any loans or advances to, or guarantees for, the benefit of any person; or
N. to the Company's knowledge, experienced any other event or condition of any character which might materially and adversely affect the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted and as it is proposed to be conducted).
3.23. ENVIRONMENTAL MATTERS. The Company and the uses made by it of its properties and assets are in compliance in all material respects with all environmental laws, regulations, rules, orders and ordinances, and the Company, to the best of the Company's knowledge, holds all permits and licenses required to conduct its business thereunder. To the best of the Company's knowledge, all properties and assets leased or owned by the Company, including, without limitation, all structures, contents, soil, sub-soil and ground water, do not contain hazardous substances in quantities that could reasonably be expected to have a material adverse effect on the Company. To the best of the Company's knowledge, the Company has no liability or obligation, whether to any governmental authority or to any other person or entity, for damages, claims, penalties, forfeitures or otherwise, as a consequence of the generation, transportation or disposal of any such hazardous substance or any " hazardous waste," as defined in 42 U.S.C. 6901 ET SEQ.
3.24. EMPLOYEE COMPENSATION PLANS. The Company is not a party to or bound by any currently effective employment contracts, deferred compensation agreements, bonus plans, incentive plans, profit sharing plans, retirement agreements or other employee compensation agreements, except as provided by the Founders' Agreement and by that certain employment agreement with Hussein A. Enan. Subject to applicable law, the employment of each officer and employee of the Company is terminable at will of the Company, except as provided by the Founders' Agreement and by that certain employment agreement with Hussein A. Enan.
3.25. VOTING AGREEMENTS; SHAREHOLDER AGREEMENTS. The Company is not aware of any voting or other agreements by and between its stockholders concerning the manner in which shares of its capital stock shall be voted, other than as may be contemplated hereunder, set forth in the Series A Stock Purchase Agreement, set forth in the Series B Stock Purchase Agreement or set forth in the Founders' Agreement.
3.26. U.S. REAL PROPERTY HOLDING CORPORATION. The Company is not now and has never been a "United States real property holding corporation," as defined in Section 897(c)(2) of the Internal Revenue Code of the United States and Section 1.897-2(b) of the Treasury Regulations promulgated by the Internal Revenue Service thereunder, and the Company has filed with the Internal Revenue Service all statements, if any, with its United States income tax returns which are required under Section 1.897-2(h) of such Regulations.
3.27. PRIVATE OFFERING. The Company has not offered any of the Securities or any similar security of the Company for sale to, or solicited offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any prospective purchaser, other than the Purchaser and up to ten (10) other prospective purchasers who are "qualified institutional buyers" within the meaning of SEC Rule 144A.
3.28. USE OF PROCEEDS. The Company shall apply the net proceeds from the sale of the Securities for general corporate purposes.
3.29. MARGIN SECURITIES. None of the transactions contemplated herein and in the Securities (including, without limitation, the use of the proceeds from the sale of the Securities) violates, will violate or will result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations issued pursuant thereto, including, without limitation, Regulation G, Regulation T and Regulation X of the Board of Governors of the Federal Reserve System, 12 C.F.R. Chapter II. The Company does not own, or with the proceeds of the sale of the Securities intend to own, carry or purchase, or refinance borrowings that were used to own, carry or purchase, any margin security, including margin securities originally issued by the Company. The obligations of the Company under this Agreement and the Securities are not and will not be secured by any margin sold on the basis of any such collateral.
3.30. ABSENCE OF FOREIGN OR ENEMY STATUS. The Company is not in violation of, and neither the issue and sale of the Securities by the Company nor its use of the proceeds thereof as contemplated by this Agreement will violate the Trading with the Enemy Act, as amended, or any executive orders, proclamations or regulations issued pursuant thereto, including, without limitation, regulations administered by the Office of Foreign Asset Control of the Department of the Treasury (31 C.F.R., Subtitle B, Chapter V).
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
Purchaser hereby represents and warrants to the Company as follows:
4.1. EXPERIENCE. Purchaser has substantial experience in evaluating and investing in private placement transactions so that Purchaser is capable of evaluating the merits and risks of Purchaser's investment in the Company. Purchaser, by reason of its business or financial experience or the business or financial experience of its professional advisors who are unaffiliated with and who are not compensated by the Company or any affiliate or selling agent of the Company, directly or indirectly, has the capacity to protect its own interests in connection with the purchase of the Shares hereunder, provided that the foregoing does not limit the right of the Purchaser to rely upon the representations and warranties of the Company set forth in Section 3.
4.2. INVESTMENT. Purchaser is acquiring the Shares for investment for Purchaser's own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof. Purchaser understands that the Shares have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of Purchaser's representations as expressed herein. If Purchaser is not an individual, Purchaser has not been formed for the specific purpose of acquiring the Shares.
4.3. RULE 144. Purchaser acknowledges that the Shares must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Purchaser is aware of the provisions of Rule 144 promulgated under the Securities Act which permit limited resale of shares purchased in a private placement subject to the satisfaction of certain conditions, including (except as limited by Rule 144(k)), among other things, the existence of a public market for the Shares, the availability of certain current public information about the Company, the resale occurring not less than two years after a party has purchased and paid for the security to be sold, the sale being effected through a "broker's transaction" or in transactions directly with a "market maker" (as provided by Rule 144(f)) and the number of Shares being sold during any three-month period not exceeding specified limitations.
4.4. NO PUBLIC MARKET. Purchaser understands that no public market now exists for any of the securities issued by the Company, that the Company has made no assurances that a public market will ever exist for the Shares, and that, even if such a public market exists at some future time, the Company may not then be satisfying the current public information requirements of Rule 144.
4.5. ACCESS TO DATA. Purchaser and its representatives have met with representatives of the Company and thereby have had the opportunity to ask questions of, and receive answers from, such representatives concerning the Company and the terms and conditions of this transaction, as well as to obtain any information requested by Purchaser. Purchaser believes that any questions raised by Purchaser or its representatives concerning the transaction have been answered to the satisfaction of Purchaser and its representatives. Purchaser's decision to purchase the Shares is based in part on the answers to such questions as Purchaser and its representatives have raised concerning the transaction and on its own evaluation of the risks and merits of the purchase and the Company's proposed business activities, provided that the
foregoing does not limit the right of the Purchaser to rely upon the representations and warranties of the Company set forth in Section 3.
4.6. AUTHORIZATION. This Agreement, when executed and delivered by Purchaser, will constitute a valid and legally binding obligation of Purchaser, enforceable in accordance with its terms, except as the indemnification provisions set forth in Section 7.7 of this Agreement may be limited by principles of public policy, and subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies.
4.7. BROKERS OR FINDERS. The Company has not incurred, and will not incur, directly or indirectly, as a result of any action taken by Purchaser, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement.
4.8. TAX CONSEQUENCES. Purchaser shall be solely responsible for seeking advice on the federal, state, local and foreign tax consequences of this investment and the transactions contemplated by this Agreement. Purchaser is not relying on any statements or representations of the Company or any of its agents and understands that Purchaser (and not the Company) shall be responsible for Purchaser's own tax liability that may arise as a result of this investment or the transactions contemplated by this Agreement.
SECTION 5
CONDITIONS TO CLOSING OF PURCHASER
The Purchaser's obligations to purchase the Shares at the Closing are, at the option of the Purchaser, subject to and conditioned upon the fulfillment or waiver as of the Closing Date of the following conditions:
5.1. REPRESENTATIONS AND WARRANTIES CORRECT. The representations and warranties made by the Company in Section 3 hereof shall be true and correct in all material respects when made, and shall be true and correct in all material respects on the Closing Date with the same force and effect as if they had been made on and as of said date.
5.2. COVENANTS. All covenants, agreements and conditions contained in this Agreement to be performed by the Company on or prior to the Closing Date shall have been performed or complied with in all material respects.
5.3. OPINION OF COMPANY'S COUNSEL. The Purchaser shall have received from Morrison & Foerster LLP, counsel to the Company, an opinion addressed to it, dated the Closing Date, in substantially the form of EXHIBIT B attached hereto.
5.4. COMPLIANCE CERTIFICATE. The Company shall have delivered to the Purchaser a form of compliance certificate of the Company in the form of EXHIBIT C hereto, executed by the Chief Executive Officer of the Company, dated the Closing Date, and certifying to the fulfillment of the conditions specified in Sections 5.1, 5.2 and 5.5 of this Agreement.
5.5. BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured exemptions therefrom, required by any state for the offer and sale of the Securities.
5.6. LEGAL MATTERS. All material matters of a legal nature which pertain to this Agreement and the transactions contemplated hereby shall have been reasonably approved by counsel to the Purchaser.
SECTION 6
CONDITIONS TO CLOSING OF COMPANY
The Company's obligation to sell and issue the Shares at the Closing is, at the option of the Company, subject to and conditioned upon the fulfillment or waiver of the following conditions:
6.1. REPRESENTATIONS. The representations made by the Purchaser in
Section 4 hereof shall be true and correct when made, and shall be true and
correct on the Closing Date.
6.2. BLUE SKY. The Company shall have obtained all necessary Blue Sky law permits and qualifications, or secured exemptions therefrom, required by any state for the offer and sale of the Securities.
6.3. LEGAL MATTERS. All material matters of a legal nature which pertain to this Agreement and the transactions contemplated hereby shall have been reasonably approved by Morrison & Foerster LLP, counsel to the Company.
SECTION 7
AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
7.1. FINANCIAL INFORMATION. The Company will mail the following reports to Purchaser for so long as Purchaser is a holder of any Securities:
A. As soon as practicable after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), and in any event within forty-five (45) days thereafter, duplicate copies of (i) a consolidated balance sheet of the Company as at the end of such quarter, and (ii) statements of income, changes in stockholders' equity and cash flows of the Company for such quarter and in the case of the second and third quarters for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles applicable to quarterly financial statements generally, and certified as complete and
correct, subject to changes resulting from year-end adjustments, by a senior financial officer of the Company, and accompanied by the certificate required by this Agreement.
B. As soon as practicable after the end of each fiscal year of the Company, and in any event within ninety (90) days thereafter, duplicate copies of (i) a balance sheet of the Company as at the end of such year, and (ii) consolidated statements of income, changes in stockholders' equity and cash flows of the Company for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with generally accepted accounting principles and accompanied by (iii) an opinion thereon of independent certified public accountants of recognized national standing selected by the Company, which opinion shall, without qualification, state that such financial statements present fairly, in all material respects, the financial position of the Company being reported upon and its results of operations and cash flows and have been prepared in conformity with generally accepted accounting principles, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (iv) a certification by a senior financial officer of the Company that such financial statements are complete and correct.
C. Promptly, but in any event not more than five (5) business days after the receipt thereof, a copy of each other report submitted to the Company by independent certified public accountants in connection with any annual, interim or special audit made by them of the books of the Company.
D. Promptly upon their becoming available, one copy of each financial statement, report, notice or proxy statement sent by the Company to stockholders generally, and of each regular or periodic report and any registration statement, prospectus or written communication (other than transmittal letters), and each amendment thereto, in respect thereof filed by the Company with, or received the Company in connection therewith from, the National Association of Securities Dealers, any securities exchange or the Securities and Exchange Commission or any successor agency.
E. For so long as Purchaser is eligible to receive reports under this Section 7.1, it shall also have the right, at its expense, to visit and inspect any of the properties of the Company or any of its subsidiaries, to examine their books of account and records, to discuss their affairs, finances and accounts with their officers, employees and accountants and to consult with and advise their directors and officers on the management of the business, all at such reasonable times and as often as may be reasonable requested; provided, however, that the Company shall not be obligated to provide any information that it reasonably considers to be a trade secret or to be confidential information.
7.2. ADDITIONAL INFORMATION. As long as Purchaser (together with any affiliates) holds not less than 50,000 Shares (or an equivalent number consisting of the Shares and Conversion Shares, as adjusted for recapitalizations, stock splits, stock dividends and the like), the Company will mail the following reports to Purchaser:
A. Prior to the end of each fiscal quarter, a budget for the next fiscal quarter, and, as soon as prepared, any other budgets or revised budgets prepared by the Company.
B. As soon as practicable after the end of each fiscal month, and in any event within thirty (30) days thereafter, a monthly progress report against budget, explaining any material discrepancies.
7.3. TRANSFER OF INFORMATION RIGHTS. The information rights set forth
in Sections 7.1 and 7.2 may be transferred in any non-public transfer of
Securities, provided that the Company is given written notice of such transfer,
and provided further that the right to receive the information set forth in
Section 7.2 may only be transferred to a holder of, or affiliated holders who in
the aggregate hold, at least the amount of shares specified in Section 7.2. In
the event that the Company reasonably determines that provision of information
to a transferee pursuant to this Section 7.3 would materially adversely affect
its proprietary or competitive position, such information may be edited in the
manner necessary to avoid such affect.
7.4. CONFLICTS OF INTEREST. Unless the Company first obtains appropriate approval of its Board of Directors and, if necessary, stockholders in accordance with the Delaware General Corporation Code, the Company shall use its best efforts to ensure that (a) officers of the Company will not become indebted to the Company except in connection with stock purchases approved by the Board of Directors, travel advances and other transactions in the ordinary course of business, and (b) officers of the Company will not have any direct or indirect ownership interest in any firm or corporation with which the Company has a business relationship or with which it competes (except that officers may own up to five percent (5%) of the outstanding stock in publicly traded companies which may have a business relationship with or compete with the Company).
7.5. TERMINATION OF COVENANTS. The covenants set forth in Sections 7.1, 7.2, 7.4 and 7.8 shall terminate and be of no further force or effect at such time as the Company is required to file reports with the Securities and Exchange Commission (the "Commission") pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
7.6. PARTICIPATION IN FUTURE FINANCINGS. As used in this Section 7.6, the term "New Securities" means any class or series of stock of the Company whether or not presently authorized, and any warrants, options, or rights to acquire such stock, and any instrument convertible into or exchangeable for such stock.
A. Except as provided in paragraph C below, if the Company shall issue any New Securities, it shall offer to sell to Purchaser and to each assignee permitted under paragraph E below (Purchaser or such assignee being hereinafter called the "Holder") a Ratable Portion of such New Securities on the same terms and conditions and at the lowest price as such New Securities are issued to any person. "Ratable Portion" shall mean that portion of such New Securities that bears the same ratio to all such New Securities (including for this purpose all New Securities which may be purchased by all Holders pursuant to this Section 7.6) as the number of Shares and Conversion Shares held by the Holder bears to the Outstanding Common Shares. "Outstanding Common Shares" means all shares of Common Stock then outstanding and all
shares of Common Stock issuable upon conversion of all convertible securities then outstanding and upon exercise of warrants and options then outstanding.
B. The Company shall use reasonable efforts to notify the Holder a reasonable time prior to the initial issuance of the New Securities and to provide the Holder with an opportunity to participate in the issuance contemporaneously with the first purchaser of the New Securities; but in no event shall notice be given later than 30 days after the issuance. Such notice shall contain all material terms of the issuance and of the New Securities. The Holder may elect to exercise all or any portion of its rights under this Section 7.6 by giving written notice to the Company within 15 days of the Company's notice. If the consideration paid by others for the New Securities is not cash, and if the electing Holder cannot for any reason pay for the New Securities in the form of such non-cash consideration, the Holder may pay the cash equivalent thereof, as determined in good faith by the Board of Directors. All payments shall be delivered by the electing Holder to the Company not later than the date specified by the Company in its notice, but in no event earlier than 20 days after the Company's notice.
C. The provisions of this Section 7.6 shall not apply to shares of
Common Stock issued or issuable by the Company which shares are excluded from
the definition of "Additional Shares of Common Stock" for purposes of Article 4,
Section 2, of the Restated Certificate.
D. The rights of the Holder under this Section 7.6 shall terminate immediately prior to the closing of an underwritten public offering of securities by the Company which satisfies the requirements of the Restated Certificate (as in effect at such time) for the automatic conversion of the Series C Preferred Stock.
E. The Purchaser's rights under this Section 7.6 shall be assignable only to an assignee who acquires all of the Purchaser's Shares.
7.7. REGISTRATION RIGHTS.
A. As used in this Section 7.7, "Registrable Securities" shall mean:
(1) the Common Stock issued or issuable upon conversion of the Series C Preferred Stock issued pursuant to the Restated Certificate and this Agreement; and
(2) any Common Stock of the Company issued or issuable in respect of such Common Stock upon any stock split, stock dividend, recapitalization or similar event, or any Common Stock otherwise issued or issuable with respect to the Series C Preferred; provided, however, that Common Stock or other securities shall only be treated as Registrable Securities (i) if and so long as they have not been (A) sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction, (B) sold in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act under Section 4(1) thereof so that all transfer restrictions (including without limitation the standoff agreement imposed by Section 7.7(G) hereof), and restrictive legends with respect thereto, if any, are removed upon the consummation of such sale, or (ii) until the later of (A) two years after the initial public offering
of the Company's Common Stock or (B) such time as the Holder would be able to sell all of its Registrable Securities in a three-month period pursuant to Rule 144 under the Securities Act.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement.
B. COMPANY REGISTRATION.
(1) NOTICE OF REGISTRATION. If, at any time or from time to time, the Company shall determine to register any of its securities, the Company will:
(a) give prompt written notice to Holders of its intention to effect such a registration; and
(b) subject to Sections 7.7(B)(2) and 7.7(B)(3), include in such registration all Registrable Securities with respect to which the Company receives written requests for inclusion therein within fifteen (15) days after receipt of such written notice from the Company. Registrable Securities with respect to which such request for registration has been received will be registered by the Company and offered to the public on the same terms and conditions applicable to the stock to be sold by the Company or by the person selling under such proposed registration.
(2) UNDERWRITING. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Board of Directors of the Company shall have the right to select a managing underwriter or underwriters to administer the offering. The Company shall advise the Holders of the identity of the underwriters as a part of the written notice given pursuant to Section 7.7(B). In such event the right of any Holder to registration pursuant to Section 7.7(B) shall be conditioned upon such Holder's participation in such underwriting and the inclusion of Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the managing underwriter selected for such underwriting by the Company (or by the holders who have demanded such registration).
(3) PRIORITY REGISTRATION. Notwithstanding any other provision of this Section 7.7(B), if the managing underwriter determines that marketing factors require a limitation of the number of shares to be underwritten, the managing underwriter may limit the Registrable Securities to be included in such registration. The Company shall so advise all Holders and the other holders distributing their securities through such underwriting pursuant to piggyback registration rights similar to this Section 7.7(B), and the number of shares of Registrable Securities and other securities that may be included in the registration and underwriting shall be allocated among all Holders and other holders as follows: (1) the stock the Company proposes to sell, (2) the Registrable Securities requested to be included in such
registration, by the Holders which have requested their Registrable Securities to be included therein, and (3) other Shares requested to be included in such registration.
(4) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 7.7(B) prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration.
C. REGISTRATION ON FORM S-3.
(1) If any Holder requests that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public offering
of shares of the Registrable Securities, the reasonably anticipated aggregate
price to the public of which would exceed $1,000,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form; PROVIDED,
HOWEVER, that the Company shall not be required to effect more than two
registrations pursuant to this Section 7.7C(1) in the aggregate and one
registration in any twelve-month period. The Company will (i) promptly give
written notice of the proposed registration to all other Holders, and (ii) as
soon as practicable, use its best efforts to effect such registration
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under applicable blue sky
or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within thirty (30)
days after receipt of such written notice from the Company. If the registration
is for a public offering involving an underwriting, the substantive provisions
of Section 7.7B(3) shall be applicable to each registration initiated under this
Section 7.7C(1).
(2) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 7.7(C): (i) in any
particular jurisdiction in which the Company would be required to execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act; (ii)
during the period starting with the date sixty (60) days prior to the filing of,
and ending on a date six (6) months following the effective date of, a
registration statement (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of Registrable
Securities), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective; or
(iii) if the Company shall furnish to such Holder a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors it would be seriously detrimental to the Company or its shareholders
for registration statements to be filed in the near future, then the Company's
obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed ninety (90) days from the receipt of the request to file such registration by such Holder; PROVIDED, that the Company shall not exercise its right under this clause to defer such obligation more than once in any twelve (12) month period.
D. EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration pursuant to Section 7.7(B) and Section 7.7(C) and the reasonable cost of one special legal counsel to represent all of the Holders together shall be borne by the Company. Registration Expenses shall mean all expenses incurred by the Company in complying with Section 7.7(B) hereof, including, without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, and the expense of any special audits incident to or required by any such registration. Registration Expenses specifically does not include underwriters' commissions, brokerage fees, transfer taxes, compensation of regular employees of the Company (which shall be paid in any event by the Company), or the fees and expenses of any accountants or other representatives retained by the Holders except for the special legal counsel.
E. INDEMNIFICATION.
(1) The Company will indemnify, to the full extent permitted by law, the Holder, its officers, directors and partners, and each person controlling such Holder within the meaning of the Securities Act and the Exchange Act, against all losses, claims, damages, liabilities and expenses, including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue or alleged untrue statement of a material fact contained in any registration statement, prospectus or preliminary prospectus or any omission or alleged omission to state therein a material fact necessary to make the statements therein (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, except insofar as the same are caused by or contained in any information with respect to Holder furnished in writing to the Company by Holder expressly for use therein.
(2) In connection with any registration statement in which Holder is participating, Holder will furnish to the Company, in writing, such information and affidavits with respect to Holder as the Company requests for use in connection with any registration statement or prospectus and agrees to indemnify, to the full extent permitted by law, the Company (within the meaning of the Securities Act and the Exchange Act) against all claims, losses, damages, expenses and liabilities (or actions in respect thereof) arising out of or based on any untrue or alleged untrue statement of a material fact contained in any such registration statement, prospectus, offering circular or other document; or based on any omission or alleged omission to state therein a material fact necessary to make the statements in the registration statement or prospectus or preliminary prospectus (in the case of the prospectus or any preliminary prospectus, in light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information or affidavit with respect to Holder so furnished in writing by Holder. In no event shall the liability of any selling holder of Registrable Securities hereunder be
greater in amount than the dollar amount of the proceeds received by such holder upon the sale of the Registrable Securities giving rise to such indemnification obligation.
(3) Any person entitled to indemnification hereunder will give prompt written notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought unless, in such indemnified party's reasonable judgment, a conflict of interest may exist between such indemnified and indemnifying party to assume the defense of such claim with counsel reasonably satisfactory to the indemnified party. The failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 7.7 unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. An indemnifying party who is not entitled to, or elects not to, assume the defense of a claim will not be obligated to pay the fees and expenses of more than one counsel for all parties indemnified by such indemnifying party with respect to such claim, unless in the reasonable judgment of any indemnified party, a conflict of interest may exist between such indemnified party and any other such indemnified parties with respect to such claim, in which event the indemnifying party shall be obligated to pay the fees and expenses of such additional counsel.
(4) The indemnity agreements contained in Sections 7.7(D)(1) and 7.7(D)(2) shall not apply to amounts paid in settlement of any claim, loss, damage, liability or action if such settlement is effected without the consent of the Indemnifying Party.
(5) CONTRIBUTION. If for any reason the indemnification provided for in the preceding clauses (7.7(D)(1) and 7.7(D)(2)) is unavailable to an indemnified party or insufficient to hold it harmless as contemplated by the preceding clauses (7.7(D)(1) and 7.7(D)(2)), then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect not only the relative benefits received by the indemnified party and the indemnifying party, but also the relative fault of the indemnified party and the indemnifying party, as well as any other relevant equitable considerations, provided that Company shall be required to contribute an amount greater than the net proceeds from the sale of the Shares.
F. RULE 144 REPORTING
With a view to making available the benefits of certain rules and regulations of the Securities and Exchange Commission (the "Commission") which may at any time permit the sale of the Registrable Securities to the public without registration, after such time as a public market exists for the Common Stock of the Company, the Company agrees to use its best efforts to:
(1) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act, at all times after the effective date that the Company becomes subject to the reporting requirements of the Securities Act or the Exchange Act;
(2) 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 (at any time after it has become subject to such reporting requirements);
(3) So long as Purchaser owns any Registrable Securities, to furnish to Purchaser forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as Purchaser may reasonably request in availing itself of any rule or regulation of the Commission allowing Purchaser to sell any such securities without registration.
G. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted Purchaser under Section 7.7(B) and 7.7(C) may not be assigned without the written consent of the Company, provided that a transfer may be made to the corporate successor of Purchaser without the consent of the Company if: (a) such transfer may otherwise be effected in accordance with applicable securities laws and (b) the transferee shall agree to be bound by all of the provisions of this Section 7.7.
H. STANDOFF AGREEMENT. In connection with the public offering of the Company's securities and upon request of the Company or the underwriters managing any underwritten offering of the Company's securities, each Holder agrees not to sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any Registrable Securities (other than those included in the registration) without the prior written consent of the Company or such underwriters, as the case may be, for such period of time (not to exceed one hundred eighty (180) days) from the effective date of such registration as may be requested by the Company or such managing underwriters.
7.8. OBSERVER RIGHTS. Subject to Section 7.5, as long as Purchaser (together with any affiliates) holds not less than 50,000 Shares (or an equivalent number consisting of the Shares and Conversion Shares, as adjusted for recapitalizations, stock splits, stock dividends and the like), the Company shall give notice of all meetings of the Board of Directors to Purchaser and shall allow Purchaser to attend (at Purchaser's sole cost and expense) all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give Purchaser, whether or not present at such meetings, copies of all notices, minutes, consents and all other materials that it provides to its directors. The Company shall provide all such materials to Purchaser at the same time, and in the same manner, as such materials are provided to the members of its Board
of Directors. Purchaser agrees to hold in confidence and trust, and to act in a fiduciary manner with respect to, all information so provided.
SECTION 8
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES:
COMPLIANCE WITH SECURITIES LAWS
8.1. RESTRICTIONS ON TRANSFERABILITY. The Securities shall not be sold,
assigned, transferred or pledged except upon the conditions specified in this
Section 8. The Purchaser will cause any proposed purchaser, assignee,
transferee, or pledgee of the Securities held by the Purchaser to agree to take
and hold such securities subject to the provisions and upon the conditions
specified in Section 7.7 and this Section 8.
8.2. RESTRICTIVE LEGEND. Each certificate representing (i) the Securities and (ii) any other securities issued in respect of the Securities upon any stock split, stock dividend, recapitalization, merger, consolation or similar event, shall be stamped or otherwise imprinted with a legend in the following form (in addition to any legend required under applicable state securities laws):
THE SALE OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SERIES C PREFERRED STOCK PURCHASE AGREEMENT BY AND BETWEEN THE STOCKHOLDER AND THE CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
The Purchaser consents to the Company making a notation on its records and giving instructions to any transfer agent of the Securities in order to implement the restrictions on transfer established in this Section 8.
8.3. CALIFORNIA CORPORATE SECURITIES LAW. THE SALE OF THE SECURITIES WHICH ARE THE SUBJECT OF TIES AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
SECTION 9
MISCELLANEOUS
9.1. GOVERNING LAW. This Agreement shall be governed in all respects by the laws of the State of California.
9.2. SURVIVAL. The representations, warranties, covenants and agreements made herein shall survive any investigation made by the Purchaser and the closing of the transactions contemplated hereby.
9.3. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the permitted successors, assigns, heirs, executors and administrators of the parties hereto; provided, however, that the rights of the Purchaser to purchase the Shares shall not be assignable without the consent of the Company.
9.4. ENTIRE AGREEMENT; RESTATED CERTIFICATE. This Agreement constitutes the full and entire understanding and agreement between the parties with regard to the subjects 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. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed by the party against whom enforcement of any such amendment, waiver, discharge or termination is sought; provided, however, that holders of at least a majority of the Securities (other than shares of such Common Stock that are no longer Registrable Securities, as defined in Section 7.7) may, with the written consent of the Company, waive, modify or amend on behalf of all holders, any provisions hereof benefiting such holders, so long as the effect thereof will be that all such holders will be treated equally. In addition, the Company may waive performance of any obligation owing to it, as to some or all of the Holders of Registrable Securities, or agree to accept alternatives to such performance, without obtaining the consent of any Holder of Registrable Securities. In the event that an underwriting agreement is entered into between the Company and any Holder, and such underwriting agreement contains terms differing from this Agreement, as to any such Holder the terms of such underwriting agreement shall govern.
9.5. NOTICES, ETC. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by hand, messenger or telecopy, addressed (a) if to Purchaser, at PRESIDENT, CENTURY CAPITAL MANAGEMENT, INC., ONE LIBERTY SQUARE, BOSTON, MA 02109, or at such other address as Purchaser shall have furnished to the Company in writing, or (b) if to any other holder of any Securities, at such address as such holder shall have furnished the Company in writing, or, until any such holder so furnishes an address to the Company, then to and at the address of the last holder of such Securities who has so furnished an address to the Company, or (c) if to the Company, to its address set forth on the cover page of this Agreement and addressed to the attention of the Chief Executive Officer, or at such other address as the Company shall have furnished to the Purchaser. Each such notice or other communication shall for all purposes
of this Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or five
(5) business days after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, addressed and postage
prepaid as aforesaid.
9.6. DELAYS OR OMISSIONS. Except where a specific time period is defined in this Agreement for the exercise of a right, or as otherwise expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any holder of any Securities, upon any breach or default of the Company under this Agreement, shall impair any such right, power or remedy of such holder nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. All remedies, either under this Agreement or by law or otherwise afforded to any holder, shall be cumulative and not alternative.
9.7. EXPENSES. The Company and the Purchaser shall bear their own expenses incurred on its behalf with respect to this Agreement and the transactions contemplated hereby. In the event of an action to resolve a dispute regarding interpretation of this Agreement, the expenses of the prevailing party shall be paid by the party which does not prevail.
9.8. COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties actually executing such counterparts, and all of which together shall constitute one instrument.
9.9. SEVERABILITY. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision; provided that no such severability shall be effective if it materially changes the economic benefit of this Agreement to any party.
9.10. TITLES AND SUBTITLES. The titles and subtitles used in this Agreement are used for convenience only and are not considered in construing or interpreting this Agreement.
9.11. BROKER'S OR FINDER'S FEE. The Company and the Purchaser agree to indemnify and hold harmless the other from any liability for any commission or compensation in the nature of a brokerage or finder's fees or agents' commissions (and the costs and expenses of defending against such liability or asserted liability) for which the Company or the Purchaser or any of their respective officers, agents, employees or representatives is responsible in connection with this transaction.
9.12. WAIVER OF CONFLICT. Each party to this Agreement that has been or continues to be represented by Morrison & Foerster LLP hereby acknowledges that Rule 3-310 of the Rules of Professional Conduct promulgated by the State Bar of California requires an attorney to avoid representations in which the attorney has or had a relationship with another party interested in the representation without the informed written consent of all parties affected. By executing this Agreement, each such party gives its informed written consent to the representation of the
Company by Morrison & Foerster LLP in connection with this Agreement and the transactions contemplated hereby.
9.13. RIGHTS OF HOLDERS. Each Holder of Registrable Securities shall have the absolute right to exercise or refrain from exercising any right or rights that such Holder may have by reason of Section 7.7 of this Agreement, including, without limitation, the right to consent to the waiver or modification of any obligation under Section 7.7 of this Agreement, and such Holder shall not incur any liability to any other holder of any securities of the Company as a result of exercising or refraining from exercising any such right or rights.
9.14. THIRD PARTIES. Nothing in this Agreement, express or implied, is intended to confer upon any party, other than the parties hereto, and their respective successors and assigns, any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided herein.
The foregoing agreement is hereby executed as of the date first above written.
INSWEB CORPORATION,
a Delaware corporation
By: /s/ Hussein A. Enan
--------------------------------
Hussein A. Enan
Chief Executive Officer
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CENTURY CAPITAL PARTNERS, L.P.
a Delaware limited partnership
By: /s/ Richard J. Freeman
--------------------------------
Name: Richard J. Freeman
Title: Vice President
CCP Capital, Inc.
General Partner
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Exhibit 10.13
NATIONWIDE SUBSCRIPTION AGREEMENT
To: InsWeb Corporation
1875 South Grant Street, Suite 800
San Mateo, California 94402
Nationwide Mutual Insurance Company (the "Purchaser") does hereby subscribe for 27,864 shares of the Series A-1 Preferred Stock and 8,444 shares of the Series C Preferred Stock (collectively, the "Shares") of InsWeb Corporation, a Delaware Corporation (the "Company"), in an amount set forth on the signature page of this Subscription Agreement. Purchaser does hereby tender its check in the required amount as described herein.
1. SUBSCRIPTION FOR AND PURCHASE OF THE SHARES.
Purchaser hereby irrevocably subscribes for, and agrees to purchase, the Shares. Upon delivery of a check in the amount set forth on the signature page, Purchaser will become the owner of the amounts of the Shares listed on the signature page.
2. PURCHASER REPRESENTATIONS TO THE COMPANY.
Purchaser represents and warrants to the Company as follows:
(a) Purchaser is aware of the Company's business affairs and financial condition and has acquired sufficient information about the Company to reach an informed and knowledgeable decision to acquire the Shares.
(b) Purchaser understands that (i) there are risks incident to the purchase of the Shares; and (ii) no federal or state agency has passed upon this sale or made any finding or determination as to the fairness of this investment. Purchaser understands that the certificate evidencing the Shares will be imprinted with a legend which prohibits the transfer of the Shares unless they are registered or such registration is not required in the opinion of counsel satisfactory to the Company.
(c) Purchaser understands that an investment in the Company will be
illiquid. In particular, Purchaser recognizes that (i) Purchaser must bear the
economic risk of investment in the Company for an indefinite period of time,
since (a) the Shares are not registered under the Securities Act of 1933, as
amended (the "Securities Act"), and, therefore, cannot be sold unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available; and (b) the Shares cannot be sold unless they are
registered under applicable state securities laws or an exemption from such
registration is available; (ii) Except as set forth in the Registration Rights
Agreement between Purchaser and the Company dated January 30, 1996, as amended,
the Company is under no obligation to register the Shares; (iii) currently,
there is no established market for the Shares and it is possible that no public
market for the Shares will develop, and accordingly, it may not be possible for
Purchaser to liquidate its investment in the Shares in case of emergency; and
(iv) Purchaser's right to assign or transfer the Shares is restricted as
described by the restrictive legends on the share certificates representing the
Shares.
(d) Purchaser is able to bear the economic risk of such investment, can hold the Shares for an indefinite period of time, and can afford losing its entire investment in the Shares.
(e) Purchaser has been furnished any materials relating to the Company, the offering of Shares or anything which Purchaser has requested and has been afforded the opportunity to obtain any additional information necessary to verify the accuracy of any representations or information by the Company.
(f) Purchaser has such knowledge and experience in financial and business matters that it is capable of evaluating the risks and merits of an investment in the Company and of making an informed investment decision.
(g) Purchaser is an Insurance Company as defined in Section 2(13) of the Securities Act, and therefore is an "accredited investor" for purposes of Rule 501 of Regulation D of such Act.
(h) Purchaser is acquiring the Shares for its own account only, and not with a view to, or for resale in connection with, any "distribution" of all or any part of such Shares within the meaning of the Securities Act.
(i) Purchaser has been advised to consult with its own attorney regarding legal matters concerning the Company and to consult with independent tax advisers regarding the tax consequences of investing in the Company.
(j) Purchaser has read and understands the following restrictions on the resale of Shares:
THE SHARES OF THE COMPANY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT, OR WITH ANY STATE REGULATORY AGENCY. THE SHARES MUST BE ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND, EXCEPT AS SPECIFICALLY PROVIDED IN THIS SUBSCRIPTION AGREEMENT MAY NOT BE MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED OR OFFERED TO BE SO TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES ACT AND THE REGULATIONS PROMULGATED PURSUANT THERETO AND ANY APPLICABLE STATE SECURITIES LAW (UNLESS EXEMPT THEREFROM).
IN MAKING AN INVESTMENT DECISION PURCHASER MUST RELY ON ITS OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND RISKS INVOLVED. THE SHARES HAVE NOT BEEN RECOMMENDED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE SECURITIES ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
PURCHASER UNDERSTANDS THAT IT IS PURCHASING THE SHARES WITHOUT BEING FURNISHED ANY OFFERING LITERATURE OR PROSPECTUS, AND THAT THIS TRANSACTION HAS NOT BEEN SCRUTINIZED BY ANY REGULATORY AUTHORITY.
PURCHASER UNDERSTANDS THAT ALL DOCUMENTS, RECORDS AND BOOKS PERTAINING TO THE SHARES AND THE COMPANY HAVE BEEN MADE AVAILABLE FOR INSPECTION BY ITS ATTORNEY, ITS ACCOUNTANT OR ITS REPRESENTATIVE OR ITSELF, AND THE BOOKS AND RECORDS OF THE COMPANY WILL BE AVAILABLE UPON REASONABLE NOTICE, FOR INSPECTION BY PURCHASER AT REASONABLE HOURS AT THE COMPANY'S PRINCIPAL PLACE OF BUSINESS.
PURCHASER UNDERSTANDS THAT THIS IS NOT INTENDED TO BE AN EXHAUSTIVE LIST OF RESTRICTIONS ON THE RESALE OR TRANSFER OF THE SHARES, AND THAT ADDITIONAL RESTRICTIONS MAY APPLY.
3. CERTAIN UNDERSTANDINGS.
(a) Purchaser acknowledges that it understands the meaning and legal consequences of the representations and warranties contained in Section 2 hereof, and Purchaser hereby agrees to indemnify and hold harmless the Company from and against any and all loss, damage or liability due to or arising out of a breach of any representation, warranty or acknowledgment of the undersigned contained here.
(b) The sale of Series A-1 Preferred Stock hereunder is in lieu of, and Purchaser hereby waives any rights it may have arising under Section 7.6 of the Series A Stock Purchase Agreement dated January 30, 1996, between the Purchaser and the Company, Purchaser's right to purchase Series B Preferred Stock as a result of the issuance of such Stock to Insurance Information Exchange pursuant to a Stock Purchase Agreement dated November 22, 1996.
(c) Contemporaneously herewith, Purchaser and the Company shall execute an amendment to the Registration Rights Agreement between Purchaser and the Company dated January 30, 1996 in the form shown in Exhibit A hereto.
(d) The sale of the Series C Preferred Stock hereunder is in satisfaction of the Purchaser's rights arising under Section 7.6 of the Series A Stock Purchase Agreement dated January 30, 1996 between Purchaser and the Company to purchase Series C Preferred Stock as a result of the issuance of such Stock to Century Capital Partners, L.P. pursuant to a Stock Purchase Agreement dated February 21, 1997.
(e) Purchaser is delivering herewith a check drawn to the order of InsWeb Corporation in the amount set forth below;
Number of Series A-1 Preferred Shares: 27,864 Number of Series C Preferred Shares: 8,444 Funds Enclosed: $1,697,399 |
Dated: May 15, 1997 InsWeb Corporation Nationwide Mutual Insurance Company /s/ Darrell Ticehurst /s/ Robert J. Woodward, Jr. --------------------------------- ----------------------------------- By: Darrell Ticehurst By: Robert J. Woodward, Jr. Its: President Its: Executive Vice President |
Exhibit 10.14
INSWEB CORPORATION
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
dated December 15, 1998
TABLE OF CONTENTS
(continued)
Page
----
1. Authorization and Sale of Shares..........................................1
1.1 Authorization......................................................1
1.2 Sale of Shares.....................................................1
2. Closings..................................................................1
2.1 Delivery...........................................................1
3. Representations of the Company............................................2
3.1 Organization and Standing..........................................2
3.2 Capitalization.....................................................2
3.3 Subsidiaries.......................................................3
3.4 Issuance of Shares.................................................3
3.5 Authority for Agreement............................................3
3.6 Governmental Consents..............................................4
3.7 Litigation.........................................................4
3.8 Financial Statements...............................................4
3.9 Liabilities........................................................5
3.10 Changes............................................................5
3.11 Taxes..............................................................6
3.12 Property and Assets................................................7
3.13 Intellectual Property..............................................7
3.14 Insurance..........................................................8
3.15 Material Contracts and Obligations.................................9
3.16 Compliance.........................................................9
3.17 Employees..........................................................9
3.18 Books and Records.................................................10
3.19 Registration Rights...............................................10
3.20 Interested Party Transactions.....................................10
3.21 Offering Valid....................................................10
3.22 Disclosures.......................................................11
3.23 Operating Rights..................................................11
3.24 Brokers or Finders; Other Offers..................................11
3.25 Environmental Matters.............................................12
3.26 Section 83(b) Elections...........................................12
3.27 U.S. Real Property Holding Corporation............................12
3.28 Private Offering..................................................12
3.29 Use of Proceeds...................................................12
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TABLE OF CONTENTS
(continued)
Page
----
3.30 Margin Securities.................................................12
3.31 Absence of Foreign or Enemy Status; Sensitive Payments............13
4. Representations of the Purchaserss.......................................13
4.1 Representations and Warranties of the Purchasers..................13
4.2 Legend............................................................15
5. Conditions to the Obligations of the Purchaserss.........................15
5.1 Accuracy of Presentations and Warranties..........................15
5.2 Performance.......................................................15
5.3 Opinion of Counsel................................................15
5.4 Certificates and Documents........................................15
5.5 Amended Rights Agreement..........................................16
5.6 Joint Venture.....................................................16
5.7 Compliance Certificate............................................16
5.8 Third Party Consents..............................................16
5.9 No Adverse Changes................................................16
5.10 Other Matters.....................................................17
6. Condition of the Obligations of the Company..............................17
6.1 Accuracy of Representations and Warranties........................17
6.2 Amended Rights Agreement..........................................17
6.3 Joint Venture Agreement...........................................17
7. Covenants................................................................17
7.1 Commercially Reasonable Efforts...................................17
7.2 Notification; Updates to Disclosure Schedule......................17
7.3 Further Assurances................................................18
8. Termination..............................................................18
8.1 Right of Termination..............................................19
8.2 Effects of Termination............................................19
9. Miscellaneous............................................................19
9.1 Survival of Representations and Warranties........................19
9.2 Notices...........................................................19
9.3 Expenses..........................................................20
9.4 Entire Agreement..................................................20
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TABLE OF CONTENTS
(continued)
Page
----
9.5 Amendments and Waivers............................................20
9.6 Counterparts......................................................20
9.7 Section Headings..................................................20
9.8 Governing Law.....................................................20
9.9 Press Releases and Public Announcement............................21
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SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") dated as of December 15, 1998 is entered into by and among InsWeb Corporation, a Delaware corporation (the "Company"), and the entities listed on the Schedule of Purchasers attached hereto as Exhibit A (individually a "Purchaser" or collectively the "Purchasers").
RECITAL
The Company desires to sell and the Purchasers desire to purchase shares of the Company's Series D Preferred Stock, $0.001 par value per share (the "Series D Preferred"), on the terms set forth below.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
1.1 Authorization. The Company has, or before the Closing Date (as defined in Section 2) will have, duly authorized the sale and issuance, pursuant to the terms of this Agreement, of up to 190,621 shares of Series D Preferred having the rights, restrictions, privileges and preferences set forth in the form of Fourth Restated Certificate of Incorporation attached hereto as Exhibit B (the "Fourth Restated Certificate"). The Company has, or before the Closing Date will have, adopted and filed the Fourth Amended Certificate with the Secretary of State of the State of Delaware and will have taken all necessary corporate action for the purpose of authorizing the sale and issuance of 190,621 shares of Series D Preferred (the "Shares") pursuant hereto.
1.2 Issuance and Sale of Shares. Subject to the terms and conditions of this Agreement, at the Closing (as defined in Section 2) the Company will sell and issue to the Purchasers, and the Purchasers will severally buy from the Company, the total number of Shares specified opposite such Purchaser's name on the Schedule of Purchasers, at a purchase price of $162.875 per share, for the aggregate purchase price set forth on the Schedule of Purchasers.
2. Closing; Delivery. The closing of the sale and purchase of the Shares under this Agreement (the "Closing") shall take place at the offices of Gray Cary Ware & Freidenrich LLP, counsel to the Company ("GCW&F"), 400 Hamilton Avenue, Palo Alto, California at 10:00 a.m. on December __, 1998, or at such other time, date and place as are mutually agreeable to the Company and SOFTBANK Corp. ("SOFTBANK"). The date of the Closing is hereinafter referred to as the "Closing Date."
2.1 Delivery. Subject to the terms and conditions of this Agreement, at the Closing the Company shall deliver to each of the Purchasers a stock certificate representing the Shares to be purchased by such Purchaser (which shall be issued in the Purchaser's name) against payment of the purchase price therefor by check(s), payable to the order of the Company, or by wire transfer(s) of immediately available funds to the bank account of the Company.
3. Representations and Warranties of the Company. Subject to and except as fully and fairly disclosed by the Company in the Schedule of Exceptions attached hereto as Exhibit C, the Company hereby represents and warrants to the Purchasers as follows:
3.1 Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has full corporate power and authority to own and operate its properties and to conduct its business as presently conducted. The Company and each of its subsidiaries is duly qualified to do business as a foreign corporation and is in good standing in the State of California and in every other jurisdiction in which the failure to so qualify would have a material adverse effect on the operations or financial condition of the Company. The Company and each of its subsidiaries has made available to the Purchasers true and complete copies of its Certificate of Incorporation and Bylaws, each as amended to date and presently in effect.
3.2 Capitalization.
(a) The authorized capital stock of Company as of the Closing Date and immediately prior to the Closing will consist of (i) 50,000,000 shares of the Company's Common Stock, $0.001 par value (the "Common Stock"), of which 9,982,276 shares will be issued and outstanding, and (ii) 2,000,000 shares of the Company's Preferred Stock, $0.001 par value (the "Preferred Stock"), (A) 176,471 shares of which have been designated Series A Preferred Stock, all of which will be issued and outstanding and which are convertible, in the aggregate, into 1,764,710 shares of Common Stock, (B) 27,864 shares of which have been designated Series A-1 Preferred Stock, all of which will be issued and outstanding and which are convertible, in the aggregate, into 278,640 shares of Common Stock, (C) 176,471 shares of which have been designated Series B Preferred Stock, all of which will be issued and outstanding and which are convertible, in the aggregate, into 1,764,710 shares of Common Stock, (D) 61,920 shares of which have been designated Series C Preferred Stock, all of which will be issued and outstanding and which are convertible, in the aggregate, into 619,200 shares of Common Stock and (E) 190,621 shares of Series D Preferred, none of which will be issued or outstanding. All such outstanding shares have been duly authorized and validly issued, are fully paid and nonassessable and free of liens and encumbrances created by the Company, have been issued in accordance with all applicable state and federal securities laws, and are subject to no pre-emptive rights, rights of first refusal, proxies, voting agreements, shareholders agreements, registration rights agreements, or other restrictions on the incidents of ownership or transfer, created by statute, the charter documents of the Company or any agreement to which the Company is a party or by which it is bound. The Company will have reserved 1,906,210 shares of Common Stock for issuance upon conversion of the Shares. As of the date hereof, an aggregate of 1,724,364 shares of the Company's Common Stock are reserved for issuance under the Company's employee stock option plans (net of exercises prior to the date hereof), 1,442,714 of which are subject to outstanding options.
(b) Except as set forth in this Section 3.2 or Exhibit C, there are (i) no equity securities of any class of the Company, or any security exchangeable into or exercisable for such equity securities, issued, reserved for issuance or outstanding or authorized and (ii) no
authorized or outstanding subscriptions, options, warrants, puts, calls, rights or other commitments or agreements of any character to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell, repurchase or redeem or cause to be issued, delivered, sold, repurchased or redeemed any equity securities of the Company or obligating the Company to grant, extend, accelerate the vesting of, change the exercise price of or otherwise amend or enter into any such option, warrant, call, right
3.3 Subsidiaries. Except as set forth in Exhibit C, the Company has no subsidiaries and does not own, or control, directly or indirectly, any shares of capital stock of any other corporation or any interest in any partnership, joint venture or other non-corporate entity or business enterprise. Each subsidiary identified on Exhibit C (a "Subsidiary") is a wholly-owned corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to own and operate its properties and to conduct its business as presently conducted.
3.4 Issuance of Shares. The issuance, sale and delivery of the Shares in accordance with this Agreement, and the issuance and delivery of the shares of Common Stock issuable upon conversion of the Shares, have been duly authorized by all necessary corporate action on the part of the Company, and all such shares have been duly reserved for issuance. The Shares, when so issued, will have the rights, preferences, privileges, and restrictions described in the Fourth Restated Certificate. The Shares when so issued, sold and delivered against payment therefor in accordance with the provisions of this Agreement, and the shares of Common Stock issuable upon conversion of the Shares, when issued upon such conversion, will be duly and validly issued, fully paid and non-assessable.
3.5 Authority for Agreement. The execution, delivery and performance by the Company of this Agreement and the Amended and Restated Investor Rights Agreement in the form attached hereto as Exhibit D (the "Amended Rights Agreement"), and the consummation by the Company of the transactions contemplated hereby and thereby, have been duly authorized by all necessary corporate and stockholder action. This Agreement and the Amended Rights Agreement have been duly executed and delivered by the Company and constitute valid and binding obligations of the Company enforceable in accordance with their respective terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and rules or laws concerning equitable remedies and except as the indemnification provisions set forth in Section 3.6 of the Amended Rights Agreement may be limited by principles of public policy. The execution of and performance of the transactions contemplated by this Agreement and the Amended Rights Agreement and compliance with their provisions by the Company and the issuance of the Shares and the Common Stock issuable upon conversion of the Shares will not violate any provision of law, will not result in the creation of, any mortgage, pledge, lien, encumbrance, or charge upon any of the properties or assets of the Company or any Subsidiary, and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or require a consent or waiver under, the Certificate of Incorporation or Bylaws (each as amended to date) of the Company or any Subsidiary or any indenture, lease, agreement or other instrument to which the Company or any Subsidiary is a
party or by which it or any of its properties is bound, or any decree, judgment, order, statute, rule or regulation applicable to the Company or any Subsidiary.
3.6 Governmental Consent. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority is required on the part of the Company or any Subsidiary in connection with the execution and delivery of this Agreement and the Amended Rights Agreement, the offer, issuance, sale and delivery of the Shares, or the other transactions to be consummated at the Closing, as contemplated by this Agreement, except such filings as shall have been made prior to and shall be effective on and as of the Closing.
3.7 Litigation. There is no litigation, action, suit or proceeding, or governmental inquiry or investigation, pending, or, to the best of the Company's knowledge, any threat thereof, against the Company or any Subsidiary, which questions the validity of this Agreement or the Amended Rights Agreement or the right of the Company to enter into them, or to consummate the transactions contemplated hereby or thereby, or which could reasonably be expected to result, either individually or in the aggregate, in any material adverse change in the business, prospects, assets or condition, financial or otherwise, of the Company, or a change in the current equity ownership of the Company, nor has the Company or any Subsidiary instituted any such litigation, action, suit, proceeding or governmental inquiry or investigation. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality.
3.8 Financial Statements. The Company has delivered to the Purchasers copies of (i) its audited consolidated financial statements as of, and for the years ended, December 31, 1996 and 1997, and (ii) its unaudited consolidated financial statements as of, and for the nine-month period ended, September 30, 1998 (collectively, the "Company Financial Statements"). The Company Financial Statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved, except (in the case of the unaudited financial statements) for the absence of required footnotes. The Company Financial Statements present fairly in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates and the consolidated results of the Company's operations and cash flows for the periods indicated, except that the interim Company Financial Statements are subject to normal and recurring year-end audit adjustments which will not be material in amount. The Company maintains a standard system of accounting established and administered in accordance with GAAP. All accounts receivable are bona fide and arose out of transactions made in the ordinary course of business; are payable in accordance with their terms, and to the best of Company's knowledge, subject to no valid counterclaims or setoffs. Any reserve for bad debts stated in the Company Financial Statements is adequate in the light of the previous receivables collection history of the Company and its Subsidiaries.
3.9 Liabilities. The Company and its Subsidiaries do not have any liabilities, either accrued or contingent (whether or not required to be reflected in financial statements in accordance with GAAP), and whether due or to become due, which individually or in the
aggregate would be reasonably likely to have a material adverse effect on Company and its Subsidiaries taken as a whole, other than (i) liabilities reflected or provided for on Company's consolidated balance sheet as of September 30, 1998 (the "Company Balance Sheet"), (ii) liabilities specifically described in this Agreement, or in Exhibit C, and (iii) normal or recurring liabilities incurred since September 30, 1998 in the ordinary course of business consistent with past practices.
3.10 Changes. Since September 30, 1998, each of the Company and its Subsidiaries has conducted its business in the ordinary course and in a manner consistent with past practices and, since such date, except as disclosed in Exhibit C, there has not been:
(a) any material change in the accounting methods or practices it follows, whether for general financial or tax purposes, or any change in depreciation or amortization policies or rates;
(b) any material commitment or transaction (including without limitation any borrowing or capital expenditure) other than in the ordinary course of business;
(c) any material liability or transaction, except in the ordinary course of business and consistent with past practice;
(d) any change in the assets, liabilities, financial condition or operating results of the Company and its Subsidiaries from that reflected in the Company Financial Statements, except changes in the ordinary course of business which have not been in the aggregate materially adverse;
(e) any declaration or making of any payment or distribution of cash or other property to a stockholder with respect to its stock or otherwise, except for normal salaries and expense reimbursement, or any purchase or redemption of any shares of its capital stock;
(f) any mortgage or pledge of any of its properties or assets or any subjecting of them to any lien, security interest, charge, or other encumbrance, except liens or current property taxes not yet due and payable;
(g) any sale, assignment, or transfer of any patents, trademarks, service marks, trade names, copyrights, trade secrets, or other intangible assets or, to the best of the Company's knowledge, unauthorized disclosure of any proprietary confidential information;
(h) any damage, destruction, or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects, or business (as such business is presently conducted and as it is proposed to be conducted);
(i) any waiver of any valuable right or of any material debt;
(j) any discharge or satisfaction of any lien, claim, or encumbrance, or payment of any of its obligations, except in the ordinary course of business and which is not material to its assets, properties, financial condition, operating results, or business (as such business is presently conducted and as it is proposed to be conducted);
(k) any change or amendment of or default under any material contract or arrangement by which the Company or any Subsidiary or any of the assets or properties of the Company or any Subsidiary are bound or subject;
(l) any material change in any compensation arrangement or agreement with any executive officer or key employee;
(m) any default under any material contract or agreement or any indenture or debt;
(n) any loans or advances to, or guarantees for the benefit of, any person; or
(o) to the best of the Company's knowledge, any other event or condition of any character which could reasonably be expected to materially and adversely affect the assets, properties, financial condition, operating results, or business of the Company and its Subsidiaries, taken together (as such business is presently conducted and as it is proposed to be conducted).
3.11 Taxes.
(a) The Company and each of its Subsidiaries has accurately prepared and timely filed all returns, estimates, information statements and reports required to be filed by it with any taxing authority ("Company Returns") relating to any and all taxes concerning or attributable to the Company and each of its Subsidiaries or its, or their operations and such Company Returns are true and correct in all material respects and have been completed in all material respects in accordance with applicable law. There are no audits pending with respect to the Company or any of its Subsidiaries by any governmental authority. The Company and each of its Subsidiaries has paid all taxes and other assessments due on or before the date hereof, and such payments were made prior to the time that penalties would accrue thereon. The Company knows of no new tax assessments.
(b) There is no tax deficiency outstanding or assessed or, to the best of the Company's knowledge, proposed against the Company or any Subsidiary that is not reflected as a liability on the Company Balance Sheet nor has the Company or any Subsidiary executed any agreements or waivers extending any statute of limitations on or extending the period for the assessment or collection of any tax.
(c) Neither the Company nor any of its Subsidiaries has any material liabilities for unpaid taxes that have not been accrued for or reserved on the Company Balance Sheet, whether asserted or unasserted, contingent or otherwise.
(d) The Company is not a party to any tax-sharing agreement or similar arrangement with any other party, or any contractual obligation to pay any tax obligations of, or with respect to any transaction relating to, any other person or to indemnify any other person with respect to any tax.
(e) The Company has withheld or collected from each payment to each of its employees the amount of all taxes (including, but not limited to, federal income taxes and Federal Insurance Contribution Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories.
(f) Neither the Company nor any of its stockholders has ever
filed (a) an election pursuant to Section 1362 of the Internal Revenue Code of
1986, as amended (the "Code"), that the Company be taxed as an S Corporation or
(b) a consent pursuant to Section 341(f) of the Code relating to collapsible
corporations.
3.12 Properties and Assets. The Company has good and marketable title to all of its material properties and assets, and good title to its leasehold estates, and none of such properties or assets is subject to any mortgage, pledge, lien, security interest, lease, charge or encumbrance other than liens resulting from taxes which have not yet become delinquent, liens and encumbrances which have arisen in the ordinary course of business that do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company and those the material terms of which are described in Exhibit C. The tangible and intangible assets and properties owned or leased by the Company and its Subsidiaries include all properties, assets, and rights necessary to conduct the business of the Company and its Subsidiaries as currently conducted or as presently proposed to be conducted. All tangible assets and properties owned or leased by the Company and its Subsidiaries that are material or necessary to the Company's business as currently conducted are in good condition and repair, ordinary wear excepted.
3.13 Intellectual Property. Set forth on Exhibit C is a true and complete list of all patents, patent applications, trademarks and service marks, trademark and service mark applications, trade names, copyright registrations and applications and material licenses of third party software (other than licenses of "off the shelf" or standard software products) presently used by the Company or any of its Subsidiaries. To the best of the Company's knowledge, the Company and its Subsidiaries together own or possess sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, information and other proprietary rights and processes (collectively, "Intellectual Property Rights") necessary for the Company's business as now conducted or as presently proposed to be conducted without any known infringement of the right or others. There are no outstanding options, licenses or agreements of any kind relating to the Intellectual Property Rights, nor is the Company or any of its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the Intellectual Property Rights of any other person or entity other than such licenses or agreements arising from the purchase of "off the shelf" or standard products. Neither the Company nor any of its Subsidiaries has received any notice that it is infringing upon, violating or otherwise acting adversely to, or by conducting its business as proposed would infringe upon,
violate or otherwise act adversely to, and, to the best of the Company's knowledge, neither the Company nor any of its Subsidiaries is violating the right or claimed right of any person or entity under or with respect to any Intellectual Property Rights. Except as disclosed in Exhibit C, to the best of its knowledge, neither the Company nor any of its Subsidiaries is obligated or under any liability to make payments by way of royalties, fees or otherwise to any owner, licensor of, claimant to, or other party to any option, license or agreement of any kind with respect to, any Intellectual Property Rights, or other intangible assets material to the conduct of the Company's or any Subsidiary's business. The Company is not aware that any of its or its Subsidiaries' employees is obligated under any contract (including licenses, covenants or commitments of any nature) or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or any Subsidiary or that would conflict in any material respect with the Company's or any Subsidiary's business as currently conducted or as proposed to be conducted. Neither the execution nor delivery of the Agreement, nor the conduct of the Company's or any Subsidiary's business, as currently conducted or as proposed to be conducted, will, to the best of the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any employee is now obligated. The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any of its or any Subsidiaries' employees made prior to their employment by the Company or any Subsidiary, except for inventions, trade secrets or proprietary information that have been assigned to the Company or any Subsidiary.
3.14 Insurance. The Company and each of its Subsidiaries maintains valid policies of workers' compensation insurance and of insurance with respect to its properties and business of the kinds and in the amounts not less than are customarily obtained by corporations of established reputation engaged in the same or similar business and similarly situated, including, without limitation, insurance against loss, damage, fire, theft, public liability, products liability and other risks. The Company has in full force and effect term life insurance, payable to the Company, on the life of Hussein A. Enan in the amount of Two Million Dollars ($2,000,000). To the best knowledge of the Company, neither the Company nor any of its Subsidiaries is in default with respect to its obligations under any insurance policy maintained by it.
3.15 Material Contracts and Obligations. Exhibit C sets forth a list
of all material agreements or commitments of any nature to which the Company or
any Subsidiary is a party or by which it is bound, including without limitation
(a) each agreement which requires future expenditures by the Company in excess
of $100,000 in the aggregate or which might result in payments to the Company in
excess of $100,000 in the aggregate, (b) all employment and consulting
agreements, employee benefit, bonus, pension, profit-sharing, stock option,
stock purchase and similar plans and arrangements, and distributor and sales
representative agreements, and (c) any agreement with any stockholder, officer
or director of the Company, or any "affiliate" or "associate" of such persons
(as such terms are defined in the rules and regulations promulgated under the
Securities Act of 1933, as amended (the "Securities Act")), including without
limitation any agreement or other arrangement providing for the furnishing of
services by, rental of real or personal property from, or otherwise requiring
payments to, any
such person or entity. All the material agreements or commitments of any nature to which the Company or any Subsidiary is a party or by which it is bound are valid, binding, and in full force and effect in all material respects, and are valid, binding, and enforceable by the Company or such Subsidiary in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency, and the relief of debtors and the rules of law governing specific performance, injunctive relief, or other equitable remedies.
3.16 Compliance. The Company and each of its Subsidiaries has, in all material respects, complied with its Certificate of Incorporation and Bylaws, as amended, and all laws, regulations and orders applicable to its business. The Company and each of its Subsidiaries has complied with any term or provision of any mortgage, indebtedness, indenture, contract, agreement, or instrument to which it is a party where the failure to so comply would have a material adverse effect on the Company's business, prospects or results of operations.
3.17 Employees. The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company or any Subsidiary, nor does the Company or any Subsidiary have a present intention to terminate the employment of any officer, key employee or group of key employees. None of the employees of the Company or any Subsidiary is represented by any labor union or covered by any collective bargaining agreement, and there is no labor strike, organizational drive or other labor trouble pending, or to the best of the Company's knowledge threatened, with respect to the Company or any Subsidiary. To the Company's knowledge, the Company and each of its Subsidiaries has complied with all applicable state and federal equal employment opportunity and other laws related to employment. To the best of the Company's knowledge, no employee or consultant of the Company or any Subsidiary is in violation of any term of any employment contract, patent disclosure agreement, or any other contract or agreement relating to the relationship of any such person with the Company or any Subsidiary or any other party because of the nature of the business conducted or proposed to be conducted by the Company and its Subsidiaries. All employees and consultants of the Company and each of its Subsidiaries involved in the technical development of the Company's or any Subsidiary's software have executed proprietary information agreements, copies of which will have been made available to the Purchasers or its counsel prior to the Closing. The Company does not anticipate the necessity to acquire rights to any inventions of any employees, or people it currently intends to hire, made prior to their employment by the Company or any Subsidiary. Neither the Company nor any of its Subsidiaries is a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement, except as set forth on Exhibit C. Subject to applicable law, the employment of each officer and employee of the Company and of each of its Subsidiaries is terminable at will by the Company or such Subsidiaries, except as set forth on Exhibit C.
3.18 Books and Records. The minute books of the Company contain complete and accurate records of all meetings and other corporate actions of its stockholders and its Board of Directors and committees thereof. The stock ledger of the Company is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of the Company.
3.19 Registration Rights. Except as set forth on Exhibit C, the Company is not under any obligation, and has not granted any rights, to register (as defined in the Amended Rights Agreement) any of the Company's presently outstanding securities or any of its securities that may hereafter be issued.
3.20 Interested Party Transactions. To the best of the Company's knowledge, no director, officer or stockholder of the Company, or any member of his or her immediate family, has any interest in (i) any material equipment or other property or asset, real or personal, tangible or intangible, including, without limitation, any of the Intellectual Property Rights, used in connection with or pertaining to the business of the Company, (ii) any creditor, supplier, customer, manufacturer, agent, representative, or distributor of any of the Company's products, (iii) any entity that competes with the Company or with which the Company is affiliated or has a business relationship, or (iv) any agreement, obligation or commitment, written or oral, to which Company is a party; provided, however, that no such person shall be deemed to have such an interest solely by virtue of ownership of less than five percent (5%) of the outstanding stock or debt securities of any publicly held company, the stock or debt securities of which are traded on a recognized stock exchange or on the Nasdaq National Market. Neither the Company nor any of its Subsidiaries is a guarantor or indemnitor of any indebtedness of any other person or entity.
3.21 Offering Valid. Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 4 hereof, the offer, sale and issuance of the Shares and the shares of Common Stock issuable upon conversion of the Shares are and will be exempt from the registration requirements of the Securities Act and exempt from registration and qualification under the registration, permit or qualification requirements of all applicable state securities laws. Neither the Company nor any agent on its behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of the Shares to any person or persons so as to bring the sale of such Shares by the Company within the registration provisions of the Securities Act or any state securities law.
3.22 Disclosures. Neither this Agreement nor the Amended Rights Agreement nor any Exhibit hereto or thereto, nor any certificate or instrument furnished to the Purchasers in connection with the transactions contemplated by this Agreement, when read together, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Company has fully provided the Purchasers with all the information which the Purchasers have requested for deciding whether to purchase the Shares, including true and complete copies of all documentation affecting rights of any kind that exist or may have existed, to which the Company is a party or of which it is aware, with respect to holders of securities of the Company. All underlying documents incorporated or referred to in any exhibit hereto or to the Amended Rights Agreement, or in documents furnished to the Purchasers pursuant to this Agreement by the Company, are true and correct copies thereof, as the same have been or shall be amended or modified. All information relating to the Company and its Subsidiaries which, to the best of the Company's knowledge, could reasonably be anticipated to have a material adverse effect on the existing or expected
financial condition, indebtedness, operating results, customer relations, employee relations, business or properties of the Company has been disclosed to the Purchasers.
3.23 Operating Rights. To the best of the Company's knowledge, the Company and each of its Subsidiaries has all operating authority, licenses, franchises, permits, certificates, consents, rights, and privileges (collectively, the "Licenses") as are necessary to the operation of its business, as now conducted or as presently proposed to be conducted, the absence of which would have a material and adverse effect on the business of the Company and its Subsidiaries, taken as a whole. Such Licenses are in full force and effect, no material violations have been or are expected by the Company to have been recorded in respect of any such Licenses, and no proceeding is pending or, to the best knowledge of the Company, threatened that could result in the revocation or limitation of any of such Licenses. The Company and each of its Subsidiaries has conducted its business so as to comply in all material respects with all such material Licenses. The Company and each of its Subsidiaries has not granted rights or licenses to develop, produce, assemble, license, market, or sell its products to any person other than in the ordinary course of its business, and is not bound by any other agreement that affects the Company's or any Subsidiary's exclusive right to develop, produce, assemble, license, market, or sell its products.
3.24 Brokers or Finders. Neither the Company nor any of its Subsidiaries has incurred or will incur, directly or indirectly, as a result of any action taken by the Company or any Subsidiary, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement, except as described in Exhibit C (which liability shall be solely the liability of the Company).
3.25 Environmental Matters. The Company and each of its Subsidiaries, and the uses made by each of its properties and assets, are in compliance in all material respects with all environmental laws, regulations, rules, orders and ordinances, and the Company and each of its Subsidiaries, to the best of the Company's knowledge, holds all permits and licenses required to conduct its business thereunder. To the best of the Company's knowledge, all properties and assets leased or owned by the Company and each of its Subsidiaries, including, without limitation, all structures, contents, soil, sub-soil, and groundwater, do not contain hazardous substances in quantities that could reasonably be expected to have a material adverse effect on the Company and each of its Subsidiaries. To the best of the Company's knowledge, the Company and each of its Subsidiaries has no liability or obligation, whether to any governmental authority or to any other person or entity, for damages, claims, penalties, forfeitures, or otherwise, as a consequence of the generation, transportation, or disposal of any such hazardous substance or any "hazardous waste," as defined in 42 U.S.C. 6901, et seq.
3.26 Section 83(b) Elections. To the best of the Company's knowledge, all individuals who have purchased shares of the Company's Common Stock have timely filed elections under Section 83(b) of the Internal Revenue Code of the United States and any analogous provisions of applicable state tax laws.
3.27 U.S. Real Property Holding Corporation. Neither the Company nor
any of its Subsidiaries is now or has ever been a "United States Real Property
Holding Corporation," as defined in Section 897(c)(2) of the Internal Revenue
Code of the United States and Section 1.897-2(b) of the Treasury Regulations
promulgated by the Internal Revenue Service thereunder, and the Company and each
of its Subsidiaries has filed with the Internal Revenue Service all statements,
if any, with its United States income tax returns which are required under
Section 1.897-2(h) of such Regulations.
3.28 Private Offering. The Company has not offered any of the Shares or any similar security of the Company for sale to, or solicited offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any prospective purchasers, other than the Purchasers, persons who qualify as "accredited investors," as such term is defined in SEC Regulation D, and up to ten (10) other prospective purchasers who are "qualified institutional buyers" within the meaning of SEC Rule 144A.
3.29 Use of Proceeds. The Company intends to apply the net proceeds from the sale of Shares for general corporate purposes.
3.30 Margin Securities. None of the transactions contemplated herein
and in the Shares (including, without limitation, the use of the proceeds from
the sale of the Shares) violates, will violate, or will result in a violation of
Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations
issued pursuant thereto, including, without limitation, Regulation G, Regulation
T, and Regulation X of the Board of Governors of the Federal Reserve System, 12
C.F.R., Chapter II. Neither the Company nor any of its Subsidiaries owns, or
with the proceeds of the sale of the Shares intends to own, carry, or purchase,
or refinance borrowings that were used to own, carry, or purchase, any margin
security, including margin securities originally issued by the Company. The
obligations of the Company under this Agreement and the Shares are not and will
not be secured by any margin sold on the basis of any such collateral.
3.31 Absence of Foreign or Enemy Status; Sensitive Payments. Neither the Company nor any of its Subsidiaries is in violation of and neither the issue and sale of the Shares by the Company, nor its use of the proceeds thereof as contemplated by this Agreement, will violate the Trading With the Enemy Act, as amended, or any executive orders, proclamations, or regulations issued pursuant thereto, including without limitation, regulations administered by the Office of Foreign Asset Control of the Department of the Treasury (31 C.F.R., Subtitle B, Chapter V). To the best knowledge of the Company, none of the Company or any Subsidiary or any director, officer, agent, employee, or other person associated with or acting on behalf of the Company or any Subsidiary has used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity or otherwise; made any direct or indirect unlawful payment to government officials or employees from corporate funds, or has been reimbursed from corporate funds for any such payment theretofore made; established or maintained any unlawful or any unrecorded fund of corporate moneys or other asset; made any false or fictitious entries on the books or records of the Company or any Subsidiary; made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment; or made any material favor or gift which is not deductible for federal income tax purposes.
4. Representations of the Purchasers and Restrictions on Transfer.
4.1 Representations and Warranties of the Purchasers. Each of the Purchasers hereby severally represents and warrants to the Company as follows:
(a) The Shares, and the shares of Common Stock into which the Shares may be converted (collectively, the "Securities") are being acquired for such Purchaser's own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act or California law.
(b) Such Purchaser understands that the Securities have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act pursuant to Section 4(2) thereof, that the Company has no present intention of registering the Securities, that the Securities must be held by the Purchaser indefinitely, and that the Purchaser must therefore bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Securities Act or is exempt from registration. Such Purchaser further understands that the Securities have not been qualified under California law by reason of their issuance in a transaction exempt from the qualification requirements of California law pursuant to Section 25102(f), which exemption depends upon, among other things, the bona fide nature of the Purchasers' investment intent expressed above.
(c) During the negotiation of the transactions contemplated herein, such Purchaser and its representatives and legal counsel have been afforded full and free access to corporate books, financial statements, records, contracts, documents and other information concerning the Company and to its offices and facilities, have been afforded an opportunity to ask such questions of the Company's officers, employees, agents, accountants and representatives concerning the Company's business, operations, financial condition, assets, liabilities and other relevant matters as they have deemed necessary or desirable, and have been given all such information as has been requested in order to evaluate the merits and risks of the prospective investments contemplated herein. The foregoing does not limit or modify the right of each of the Purchasers to rely on the representations and warranties of the Company set forth in Section 3 hereof.
(d) Such Purchaser has such knowledge and experience in financial and business matters that such Purchaser is capable of evaluating the merits and risks of the purchase of the Securities pursuant to the terms of this Agreement and of protecting such Purchaser's interest in connection therewith. Such Purchaser and its representatives has been solely responsible for such Purchaser's own "due diligence" investigation of the Company and its management and business, for its own analysis of the merits and risks of this investment, and for its own analysis of the fairness and desirability of the terms of the investment. The foregoing does not limit or modify the right of each of the Purchasers to rely on the representations and warranties of the Company set forth in Section 3 hereof.
(e) Such Purchaser is an "Accredited Investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act. Such Purchaser is able to bear
the economic risk of the purchase of the Securities pursuant to the terms of this Agreement, including a complete loss of such Purchaser's investment in the Securities.
(f) Such Purchaser has the full right, power and authority to enter into and perform such Purchaser's obligations under this Agreement and the Amended Rights Agreement. This Agreement and the Amended Rights Agreement constitute the valid and binding obligations of such Purchaser, enforceable in accordance with their respective terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and rules or laws concerning equitable remedies and except as the indemnification provisions set forth in Section 3.6 of the Amended Rights Agreement may be limited by principles of public policy.
(g) No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of such Purchaser is required in connection with the valid execution and delivery of this Agreement.
4.2 Legend. Each certificate representing the Shares, or the Common Stock issuable upon conversion of the Shares, may be endorsed with legends in substantially the following form:
(i) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT."
(ii) Any other legends required by California law or other applicable state securities laws.
The Company need not register a transfer of any such securities and may also instruct its transfer agent not to register the transfer of any such securities, unless the conditions specified in the foregoing legends are satisfied.
5. Conditions to the Obligations of the Purchasers. The obligation of each of the Purchasers to purchase the Shares at the Closing is subject to the fulfillment, or the waiver by such Purchaser, of each of the following conditions on or before the Closing:
5.1 Accuracy of Representations and Warranties. Each representation and warranty of the Company contained in Section 3 hereof shall be true and correct when made, and
shall be true and correct on and as of the Closing Date with the same effect as though such representation and warranty had been made on and as of that date.
5.2 Performance. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by the Company prior to or at the Closing.
5.3 Opinion of Counsel. The Purchasers shall have received an opinion from GCW&F, dated the Closing Date, addressed to each of the Purchasers, in substantially the form attached hereto as Exhibit E.
5.4 Certificates and Documents. The Company shall have delivered to the Purchasers:
(a) The Fourth Amended Certificate of the Company, as in effect as of the Closing Date, certified by and filed with the Secretary of State of the State of Delaware;
(b) Certificates, as of the most recent practicable dates, as to the corporate good standing of the Company issued by the Secretary of State of the State of Delaware and the Secretary of State of the State of California;
(c) Bylaws of the Company, certified by its Secretary or Assistant Secretary as of the Closing Date; and
(d) Resolutions of the Board of Directors of the Company, authorizing and approving all matters in connection with this Agreement and the transactions contemplated hereby, certified by the Secretary or Assistant Secretary of the Company as of the Closing Date.
5.5 Amended Rights Agreement. The Company and the other parties to the Amended Rights Agreement (other than the Purchasers) shall have executed and delivered the Amended Rights Agreement.
5.6 Joint Venture Agreement. The Company shall have executed and delivered SOFTBANK the Joint Venture Agreement, in the form attached hereto as Exhibit F (the "Joint Venture Agreement") and shall not be in material default themselves.
5.7 Compliance Certificate. The Company shall have delivered to the Purchasers a certificate, executed by the President or Chief Executive Officer of the Company, dated the Closing Date, certifying to the fulfillment of the conditions specified in Sections 5.1 and 5.2 herein.
5.8 Third Party Consents. The Company shall have obtained all consents, approvals, permits and waivers necessary for consummation of the transactions contemplated by this Agreement which need to be obtained prior to the Closing Date.
5.9 No Adverse Changes. During the period from the date hereof to the Closing Date, (i) the business of the Company and its Subsidiaries shall have been conducted
only in, and the Company and its Subsidiaries shall not have taken any action except in, the ordinary course of business and in a manner consistent with past practice, (ii) there shall have been no material adverse change in the operations or the business of the Company and its Subsidiaries and no material deterioration of or damage to the assets of the Company and its Subsidiaries taken as a whole, and (iii) there shall have been no injunction, writ, preliminary restraining order or other order in effect of any nature issued by a court or governmental agency of competent jurisdiction prohibiting the consummation of the transactions contemplated by this Agreement or otherwise directing that the transactions contemplated by this Agreement not be consummated in the manner provided for in this Agreement..
5.10 Other Matters. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to each of the Purchasers, and each of the Purchasers shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request.
6. Conditions to Obligations of the Company. The obligations of the Company under Section 1.2 hereof are subject to the fulfillment, or the waiver, of the following conditions on or before the Closing:
6.1 Accuracy of Representations and Warranties Each representation and warranty of the Purchasers contained in Section 4 hereof shall be true and correct when made, and shall be true and correct on and as of the Closing Date with the same effect as though such representation and warranty had been made on and as of that date.
6.2 Amended Rights Agreement. The Purchasers and the other parties to the Amended Rights Agreement (other than the Company) shall have executed and delivered the Amended Rights Agreement.
6.3 Joint Venture Agreement. SOFTBANK shall have executed and delivered to the Company the Joint Venture Agreement and shall not be in material breach themselves.
7. Covenants.
7.1 Commercially Reasonable Efforts. Subject to the terms and conditions of this Agreement, during the period prior to Closing, each party agrees to use all commercially reasonable efforts to insure that the conditions to any of the other parties' obligations under Section 5 and 6, insofar as such matters are within the control of such party, are satisfied as promptly as practicable, and shall not take any action which would reasonably be expected to result in any of the representations and warranties of such party becoming untrue or in any of the conditions to Closing set forth in Sections 5 and 6 not being satisfied. Subject to the terms and conditions of this Agreement, each party will use commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. Notwithstanding anything herein to the contrary, the Purchasers shall in no event be
required to take any action with respect to obtaining the execution and delivery of any documents by the Company or its stockholders.
7.2 Notification; Updates to Disclosure Schedule.
(a) During the period prior to the Closing Date, the Company, on the one hand, and each of the Purchasers, on the other hand, shall promptly notify the other parties in writing of:
(i) the discovery by any of them of any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a breach of any representation or warranty made by them in this Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute a breach of any representation or warranty made by any of them in this Agreement if such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of any of them; or
(iv) any event, condition, fact or circumstance that may
make the timely satisfaction of any of the conditions set forth in Section 5 or
Section 6 impossible or unlikely.
(b) The Company may, no later than five (5) business days prior to the Closing, deliver to the Purchasers a written update to the Company's Schedule of Exceptions attached hereto as Exhibit C specifying a change to such Schedule of Exceptions arising as a result of developments occurring after the date of this Agreement. No later than one (1) business day prior to the Closing, the Purchasers shall provide written notice to the Company, which written notice shall specify whether the Purchasers have, in their sole discretion, accepted or rejected such update. In the event such update is accepted, such update shall be deemed to supplement and amend the Company's Schedule of Exceptions attached hereto as Exhibit C. Notwithstanding anything therein to the contrary, no such update that is not otherwise accepted by the Purchasers in the manner described above shall be deemed to supplement or amend the Company's Schedule of Exceptions attached hereto as Exhibit C for the purpose of (A) determining the accuracy of any of the representations and warranties made by the Company in this Agreement, or (B) determining whether any of the conditions set forth in Section 5 have been satisfied unless the parties agree to proceed with the Closing, in which case the update shall be deemed to supplement or amend the Company's Schedule of Exceptions attached hereto.
7.3 Further Assurances. Each party shall execute and deliver such additional instruments, documents or other writings as may be reasonably requested by any other party, before or after the Closing, in order to confirm and carry out and to effectuate fully the intent and purposes of this Agreement and the other transactions contemplated by this Agreement. Without limitation of the foregoing, the parties hereto hereby agree to use all reasonable efforts to prevent
any order or other action described in clause (iii) of Section 5.9 from becoming final and unappealable.
8. Termination.
8.1 Right of Termination. This Agreement may be terminated at any time prior to the Closing:
(a) by the written agreement of the Company and Purchasers who have agreed to purchase more than 50% of the Shares in the aggregate, as set forth on the Schedule of Purchasers;
(b) by the Company as to any Purchaser if such Purchaser breaches any material term or condition of this Agreement and there is no reasonable possibility of cure prior to the Closing;
(c) by any Purchaser, as to such Purchaser, if the Company breaches any material term or condition of this Agreement and there is no reasonable possibility of cure prior to the Closing;
(d) by the Company if the Closing has not taken place on or before February 15, 1999 (other than as a result of any failure on the part of the Company to comply with or perform its covenants and obligations under this Agreement);
(e) by any Purchaser, as to such Purchaser, if the Closing has not taken place on or before February 15, 1999 (other than as a result of any failure on the part of the Purchasers to comply with or perform its covenants and obligations under this Agreement); or
(f) by any of the Company or the Purchasers in the event any court or governmental authority of competent jurisdiction shall have issued any order or taken any other action restricting, enjoining or otherwise prohibiting the transactions contemplated by this Agreement and such order or other action shall have become final and unappealable.
8.2 Effects of Termination. If this Agreement shall be terminated pursuant to the preceding Section 8.1, all obligations of the parties hereto under this Agreement that relate to any Closing (or the transactions contemplated thereby or in connection therewith) that have not been consummated shall terminate, provided that nothing in this Section 8 shall relieve any party of liability for breach of any representation, warranty, covenant or agreement herein or in the other transactions contemplated by this Agreement.
9. Miscellaneous.
9.1 Survival of Representations and Warranties. All agreements, representations and warranties contained herein shall survive the execution and delivery of this Agreement and the closing of the transactions contemplated hereby, regardless of any investigation made by any party.
9.2 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via facsimile (with confirmation of receipt), addressed (a)
if to a Purchaser, at the address or addresses set forth on Exhibit A or at such
other address as such Purchaser shall have furnished the Company in writing, or
(b) if to the Company, at the address of its principal place of business, or at
such other address as the Company shall have furnished to the Purchaser in
writing, with a copy to Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue,
Palo Alto, California 94301, Fax 650-327-3699, Attn.: Dennis C. Sullivan, Esq.
9.3 Expenses. The Company and the Purchasers each shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement and the transactions contemplated hereby. In the event of an action to resolve a dispute regarding interpretation of this Agreement, the expenses of the prevailing party shall be paid by the party which does not prevail.
9.4 Entire Agreement. This Agreement, the exhibits to the Agreement and other documents delivered pursuant hereto embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter.
9.5 Amendments and Waivers. Except as otherwise expressly set forth in this Agreement, any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), with the written consent of the Company and the holders of more than a majority of the Shares and the shares of Common Stock issued upon conversion of any Shares. Any amendment or waiver effected in accordance with this Section 9.5 shall be binding upon each holder of any Shares (including shares of Common Stock into which such Shares have been converted), each future holder of all such securities and the Company. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.
9.6 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be one and the same document.
9.7 Section Headings. The Section headings in this Agreement are for the convenience of the parties and in no way alter, modify, amend, limit, or restrict the contractual obligations of the parties.
9.8 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, U.S.A., as such laws are applied to agreements between California residents entered into and to be performed entirely within California.
9.9 Press Releases and Public Announcement. No party shall issue any press release or public announcement relating to the subject matter of this Agreement without the prior written approval of the other parties hereto; provided, however, that any party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case, the disclosing party will use its best efforts to advise the other parties prior to making the disclosure).
[The remainder of this page is intentionally blank]
COUNTERPART SIGNATURE PAGE TO INSWEB SERIES D PREFERRED STOCK PURCHASE AGREEMENT
COMPANY: INSWEB CORPORATION
By: /s/ Hussein A. Enan
------------------------------------
Printed:
-------------------------------
Title:
---------------------------------
PURCHASERS: SOFTVEN NO. 2 INVESTMENT ENTERPRISE
PARTNERSHIP
By: /s/ Yoshitaka Kitao
------------------------------------
Printed:
-------------------------------
Title:
---------------------------------
SOFTBANK VENTURES, INC.
By: /s/ Yoshitaka Kitao
------------------------------------
Printed:
-------------------------------
Title:
---------------------------------
CENTURY CAPITAL PARTNERS, L.P.
By: /s/ Richard J. Freeman
------------------------------------
Printed: Richard J. Freeman
-------------------------------
|
EXHIBIT A
SCHEDULE OF PURCHASERS
Name and Address Number of Shares Purchase Price ---------------- ---------------- -------------- SOFTVEN No. 2 Investment Enterprise 141,213 $23,000,067.00 Partnership 1-16-8 Nihonbashi-Kakigaracho Chuo-ku, Tokyo 103 0014, Japan Attention: Mr. Yoshitaka Kitao and Hidetoshi Sasaki. Fax: 81-3-5642-0390 Tel: 81-3-5642-7213 with a copy to: Morrison & Foerster LLP AIG Building 7th Floor 1-1-3 Marunouchi, Chiyoda-Ku Tokyo 100 Japan Attention: Ken P. Siegel, Esq. Fax: 011-81-3-3214-6512 Tel: 011-81-3-3214-6522 SOFTBANK Ventures, Inc. 42,978 $7,000,041.80 1-16-8 Nihonbashi-Kakigaracho Chuo-ku, Tokyo 103 0014, Japan Attention: Mr. Yoshitaka Kitao and Hidetoshi Sasaki. Fax: 81-3-5642-0390 Tel: 81-3-5642-7213 with a copy to: Morrison & Foerster LLP AIG Building 7th Floor 1-1-3 Marunouchi, Chiyoda-Ku Tokyo 100 Japan Attention: Ken P. Siegel, Esq. Fax: 011-81-3-3214-6512 Tel: 011-81-3-3214-6522 |
Name and Address Number of Shares Purchase Price
---------------- ---------------- --------------
Century Capital Partners, L.P. 6,430 $1,047,286.30
c/o Century Capital Management, Inc.
One Liberty Square
Boston, MA 02109
TOTAL 190,621 $31,772,269.10
|
EXHIBIT B
FOURTH RESTATED CERTIFICATE OF INCORPORATION
EXHIBIT C
SCHEDULE OF EXCEPTIONS
EXHIBIT D
AMENDED RIGHTS AGREEMENT
EXHIBIT E
GCW&F LEGAL OPINION
EXHIBIT F
JOINT VENTURE AGREEMENT
AMENDMENT NO. 1
TO
SERIES D PREFERRED STOCK PURCHASE AGREEMENT
THIS AMENDMENT NO. 1 to SERIES D PREFERRED STOCK PURCHASE AGREEMENT (this "Amendment") dated as of December ___, 1998 is entered into by and among InsWeb Corporation, a Delaware corporation (the "Company"), and the other entities whose names appear on the signature page hereto (the "Purchasers").
RECITALS:
A. The Company and the Purchasers have entered into that certain Series D Preferred Stock Purchase Agreement dated December 15, 1998 (the "Agreement"); and
B. The Company and the Purchasers now wish to amend certain provisions of the Agreement and certain of the exhibits thereto as set forth below.
AGREEMENT:
NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows:
1. Amendment of Agreement.
1.1 Section 2 of the Agreement is hereby amended and restated to read in its entirety as follows:
"2. Closing Dates; Delivery.
2.1 Closings. The purchase and sale of the Shares hereunder shall take place at two closings (individually, a "Closing" and, collectively, the "Closings") at the offices of Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, California 94301-1825 at 2:00 p.m., California time, on the dates hereinafter provided.
2.2 First Closing. The Closing of the purchase and sale of the Shares designated for issuance at the first Closing as set forth on the Schedule of Purchasers (the "First Closing") shall be held on the later to occur of (i) December 30, 1998, (ii) the date on which the last to be fulfilled or waived of the conditions to closing set forth in Sections 5 and 6 hereof have been fulfilled or waived in accordance with this Agreement, or (iii) such other date as is mutually agreed to by the Company and SOFTBANK Corp. ("SOFTBANK"). The date of the First Closing is hereinafter referred to as the "First Closing Date."
2.3 Second Closing. The Closing of the purchase and sale of the Shares designated for issuance at the second Closing as set forth on the Schedule of Purchasers
(the "Second Closing") shall be held on the later to occur of (i) first business day following the date on which the last to be fulfilled or waived of the conditions to the Second Closing set forth in Sections 5 and 6 hereof have been fulfilled or waived in accordance with this Agreement, or (ii) such other date as is mutually agreed to by the Company and SOFTBANK. Should the Series D Preferred be converted automatically into shares of Common Stock pursuant to the terms of the Fourth Restated Certificate prior to the Second Closing, the Purchasers shall purchase, in lieu of the Shares specified on the Schedule of Purchasers, the number of shares of Common Stock into which such Shares would have been converted had they been issued and sold immediately prior to such automatic conversion. The date of the Second Closing is hereinafter referred to as the "Second Closing Date," and the First Closing Date and the Second Closing Date are hereinafter collectively referred to as the "Closing Dates."
2.4 Delivery. Subject to the terms and conditions of this Agreement, at each Closing the Company shall deliver to each of the Purchasers a stock certificate representing the Shares to be purchased by such Purchaser at such Closing (which shall be issued in such Purchaser's name) against payment of the purchase price therefor by check(s), payable to the order of the Company, or by wire transfer(s) of immediately available funds to the bank account of the Company."
1.2 Section 3.2 of the Agreement is hereby amended as follows:
(a) The words "Closing Date" and "Closing" in the first sentence of
Section 3.2(a) are changed to "First Closing Date" and "First Closing,"
respectively.
(b) A new Section 3.2(b) is hereby added to the Agreement, as follows:
"(b) The authorized capital stock of the Company as of the Second Closing Date and immediately prior to the Second Closing shall be as set forth in Section 3.2(a), subject, however, to (i) the prior sale and issuance of the Shares to be issued and sold at the First Closing, (ii) the issuance of shares of Common Stock and options to purchase Common Stock in connection with the Company's pending acquisition of Benelytics, Inc., as described in the Schedule of Exceptions, (iii) the grant of options to purchase shares of Common Stock under the Company's employee stock option plans and the exercise of options outstanding as of the date hereof and such additional options, (iv) the sale and issuance of Common Stock by the Company in an underwritten public offering pursuant to an effective registration under the Securities Act of 1933, as amended, at an aggregate public offering price of at least $20,000,000 and a per share price of at least $16.2875 (appropriately adjusted for stock splits, reverse stock splits and stock dividends from and after the date hereof), and (v) any other issuance of the Company's capital stock, or securities convertible into such capital stock, as may be approved by SOFTBANK."
(c) Current Section 3.2(b) is hereby re-designated Section 3.2(c).
1.3 Section 3.6 of the Agreement is hereby amended and restated to read in its entirety as follows:
"3.6 Governmental Consent. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority is required on the part of the Company or any Subsidiary in connection with the execution and delivery of this Agreement and the Amended Rights Agreement, the offer, issuance, sale and delivery of the Shares, or the other transactions to be consummated at the Closings, as contemplated by this Agreement, except pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended from time to time, and the rules promulgated thereunder (the "HSR Act"), and except such other filings as shall have been made prior to and shall be effective on and as of the applicable Closing."
1.4 Section 4.1(g) of the Agreement is hereby amended and restated to read in its entirety as follows:
"(g) No consent, approval, order or authorization of, or designation, declaration or filing with, any governmental authority is required on the part of such Purchaser in connection with the execution and delivery of this Agreement and the Amended Rights Agreement, the purchase of the Shares, or the other transactions to be consummated at the Closings, as contemplated by this Agreement, except (with respect to SOFTBANK Ventures, Inc. and SOFTVEN No. 2 Investment Enterprise Partnership) pursuant to the HSR Act."
1.5 Section 5.1 of the Agreement is hereby amended and restated to read in its entirety as follows:
"5.1 Accuracy of Representation and Warranties. Each representation and warranty of the Company contained in Section 3 hereof shall have been true and correct when made, and shall be true and correct on and as of each Closing Date, with the same effect as though such representation and warranty had been made on and as of such date, except to the extent that any such representation and warranty speaks specifically as of an earlier date and except for changes contemplated by this Agreement."
1.6 Section 5.8 of the Agreement is hereby amended and restated to read in its entirety as follows:
"5.8 Third Party Consents. The Company shall have obtained all consents, approvals, permits and waivers necessary for consummation of the transactions contemplated by this Agreement which need to be obtained prior to each Closing Date, including without limitation, if applicable, all required filings and the expiration or early termination of all applicable waiting periods under the HSR Act; provided, however, that such required filings and the expiration or early termination of all applicable waiting periods under the HSR Act shall only be a condition to the obligations of the Purchasers with respect to the Second Closing."
1.7 A new Section 6.4 is hereby added to the Agreement as follows:
"6.4 Third Party Consents. The Purchasers shall have obtained all consents, approvals, permits and waivers necessary for consummation of the transactions contemplated by this Agreement which need to be obtained prior to each Closing Date, including without limitation, if applicable, all required filings and the expiration or early termination of all applicable waiting periods under the HSR Act; provided, however, that such required filings and the expiration or early termination of all applicable waiting periods under the HSR Act shall only be a condition to the obligations of the Company with respect to the Second Closing."
1.8 A new Section 7.3 is hereby added to the Agreement as follows, and current Section 7.3 of the Agreement is hereby re-designated Section 7.4:
"7.3 Filings and Consents. To the extent applicable, the Company and the Purchasers shall make all filings required under the HSR Act relating to the transactions contemplated by this Agreement (and shall use their best efforts to cause their parent companies to make any such required filings) and shall each use their best efforts to cause any such required filings to be made as promptly as practicable after the date hereof. If a filing is required under the HSR Act, the Company and the Purchasers will each use commercially reasonable efforts to promptly furnish (and to cause their parent companies, as applicable, to promptly furnish) any information that may be required by the Federal Trade Commission (the "FTC") or the Department of Justice (the "DOJ") under the HSR Act in order for the requisite approvals for the purchase and sale of the Shares at the Second Closing, and the consummation of the related transactions contemplated by this Agreement, to be obtained or any applicable waiting periods to be terminated or expire; provided, however, that in the event the FTC or the DOJ issues a "second request" in connection with any such filing, the parties will consult with each other in good faith regarding appropriate further action, which shall be taken only to the extent agreed by the parties. Each party hereto will cooperate with each other with respect to obtaining, as promptly as practicable, all necessary consents, approvals, authorizations and agreements of, and the giving of all notices and making of all other filings with, any third parties, including governmental authorities, necessary to authorize, approve or permit the consummation of the transactions contemplated by this Agreement."
1.9 Section 8.1 of the Agreement is hereby amended and restated to read in its entirety as follows:
"8.1 Right of Termination. This Agreement may be terminated prior to the First Closing, and, as to the obligations of the parties at the Second Closing, prior to the Second Closing, in each case as follows:
(a) by the written agreement of the Company and Purchasers who have agreed to purchase more than 50% in aggregate of the Shares to be purchased and sold at
the First Closing or the Second Closing, as applicable, as set forth on the Schedule of Purchasers;
(b) by the Company, as to any Purchaser, if such Purchaser breaches any material term or condition of this Agreement and there is no reasonable possibility of cure prior to the First Closing or the Second Closing, as applicable;
(c) by any Purchaser, as to such Purchaser, if the Company breaches any material term or condition of this Agreement and there is no reasonable possibility of cure prior to the First Closing or the Second Closing, as applicable;
(d) by the Company if both Closings have not taken place on or before February 28, 1999 (other than as a result of any failure on the part of the Company to comply with or perform its covenants and obligations under this Agreement);
(e) by any Purchaser, as to such Purchaser, if both Closings have not taken place on or before February 28, 1999 (other than as a result of any failure on the part of the Purchasers to comply with or perform its covenants and obligations under this Agreement); or
(f) by any of the Company or the Purchasers in the event any court or governmental authority of competent jurisdiction shall have issued any order or taken any other action restricting, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order or other action shall have become final and unappealable."
1.10 Section 9.3 of the Agreement is hereby amended and restated in its entirety to read as follows:
"9.3 Expenses. The Company and the Purchasers each shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement and the transactions contemplated hereby, except that the Company and/or its parent company shall pay all of the filing fees (including those of the Purchasers and/or their parent companies, if applicable) required in connection with the applications under the HSR Act with respect to the transactions contemplated by this Agreement. In the event of an action to resolve a dispute regarding interpretation of this Agreement, the expenses of the prevailing party shall be paid by the party which does not prevail."
1.11 The term "Closing Date" as it appears in Sections 1.1 of the Agreement shall be deemed to refer to the "First Closing Date."
1.12 Except as specified herein, the conditions set forth in Section 5 and 6 of the Agreement shall apply to the obligations of the parties at each Closing with respect to the Shares to be purchased and sold at such Closing, and the terms "Closing" and "Closing Date" as
they appear in Sections 5 and 6 of the Agreement shall be deemed to refer either to the "First Closing" and the "First Closing Date," respectively, or the "Second Closing" and the "Second Closing Date," respectively, as the context requires.
1.13 Except as specified herein, the covenants set forth in Section 7 of the Agreement shall apply and remain in effect through and including the Second Closing, and, in the case of Section 7.3 ("Further Assurances"), shall apply after each of the First and Second Closing with respect to the transactions consummated at such Closing. The terms "Closing" and "Closing Date" as they appear in Section 7 of the Agreement shall be deemed to refer either to the "First Closing" and the "First Closing Date," respectively, or the "Second Closing" and the "Second Closing Date," respectively, as the context requires.
1.14 The Schedule of Purchasers attached to the Agreement as Exhibit A thereto is hereby replaced in its entirety by the Schedule of Purchasers attached hereto as Exhibit A (Revised).
1.15 The form of Fourth Restated Certificate of Incorporation attached to the Agreement as Exhibit B thereto is hereby replaced in its entirety by the form of the Fourth Restated Certificate of Incorporation attached hereto as Exhibit B (Revised).
1.16 The form of Amended and Restated Rights Agreement attached to the Agreement as Exhibit D thereto is hereby replaced in its entirety by the form of Amended and Restated Rights Agreement attached hereto as Exhibit D (Revised).
1.17 The form of legal opinion attached to the Agreement as Exhibit E thereto shall be modified for delivery in connection with each Closing as appropriate to reflect the provisions of this Amendment.
2. Miscellaneous.
2.1 Survival of Other Provisions of the Agreement. Except as specifically amended hereby, all provisions of the Agreement shall remain in full force and effect.
2.2 Expenses. Except as otherwise provided in the Agreement, as amended hereby, the Company and the Purchasers each shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Amendment and the transactions contemplated hereby. In the event of an action to resolve a dispute regarding interpretation of this Amendment, the expenses of the prevailing party shall be paid by the party which does not prevail.
2.3 Counterparts. This Amendment may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be one and the same document.
2.4 Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of California, U.S.A., as such laws are applied to
agreements between California residents entered into and to be performed entirely within California.
2.5 Waiver of Conflicts. The Company and the Purchasers affiliated with SOFTBANK acknowledge that each has been made aware that Morrison & Foerster LLP, counsel for SOFTBANK and its affiliates in connection with the transactions contemplated in the Agreement, has previously been retained by the Company in connection with certain of its transactions. The Company, on its own behalf and on behalf of its subsidiaries and affiliates, hereby agrees to waive any conflict of interest which may be deemed to arise or have arisen as a result of the current or future representation of Morrison & Foerster LLP of SOFTBANK or its subsidiaries and affiliates, and will not seek to disqualify Morrison & Foerster LLP from representing SOFTBANK or its subsidiaries and affiliates in connection with the transactions contemplated by this Agreement; provided, however, that such waiver shall not extend to any litigation or arbitration proceeding arising out of any such transaction. The Purchasers affiliated with SOFTBANK, on their own behalf and on behalf of their subsidiaries and affiliates, hereby agree to waive any conflict of interest which may be deemed to arise or have arisen as a result of the past representation of Morrison & Foerster LLP of InsWeb, and will not seek to disqualify Morrison & Foerster LLP from representing InsWeb or is subsidiaries and affiliates in connection with any matter substantially unrelated to the transactions contemplated in the Agreement.
[The remainder of this page is intentionally blank]
COUNTERPART SIGNATURE PAGE TO AMENDMENT NO. 1 to SERIES D
PREFERRED STOCK PURCHASE AGREEMENT
COMPANY: INSWEB CORPORATION
By: /s/ Marian C. Taylor
------------------------------------
Printed: Marian C. Taylor
-------------------------------
Title: Secretary
---------------------------------
PURCHASERS: SOFTVEN NO. 2 INVESTMENT ENTERPRISE
PARTNERSHIP
By: /s/ Yoshitaka Kitao
------------------------------------
Printed: Yoshitaka Kitao
-------------------------------
Title:
---------------------------------
SOFTBANK VENTURES, INC.
By: /s/ Yoshitaka Kitao
------------------------------------
Printed: Yoshitaka Kitao
-------------------------------
Title:
---------------------------------
CENTURY CAPITAL PARTNERS, L.P.
By: /s/ Richard J. Freeman
------------------------------------
Printed: Richard J. Freeman
-------------------------------
|
EXHIBIT A (REVISED)
SCHEDULE OF PURCHASERS
First Closing Second Closing Total
------------------------ ------------------------- -----------------------
Shares Purchase Shares Purchase Shares Purchase
Purchased Price Purchased Price Purchased Price
--------- ----- --------- ----- --------- -----
Name and Address
SOFTVEN No. 2 Investment -- -- 141,213 $23,000,067.37 141,213 $23,000,067.37
Enterprise Partnership
1-16-8 Nihonbashi-Kakigaracho
Chuo-ku, Tokyo 103 0014, Japan
Attention:
Messrs. Yoshitaka Kitao and
Hidetoshi Sasaki
Fax: 81-3-5642-0390
Tel: 81-3-5642-7213
with a copy to:
Morrison & Foerster LLP
AIG Building
7th Floor 1-1-3
Marunouchi, Chiyoda-Ku
Tokyo 100 Japan
Attention: Ken P. Siegel, Esq
Fax: 011-81-3-3214-6512
Tel: 011-81-3-3214-6522
SOFTBANK Ventures, Inc. 42,978 $7,000,041.75 -- -- 42,978 7,000,041.75
1-16-8 Nihonbashi-Kakigaracho
Chuo-ku, Tokyo 103 0014, Japan
Attention: Messrs. Yoshitaka
Kitao and Hidetoshi Sasaki
Fax: 81-3-5642-0390
Tel: 81-3-5642-7213
with a copy to:
Morrison & Foerster LLP
AIG Building
7th Floor 1-1-3
Marunouchi, Chiyoda-Ku
Tokyo 100 Japan
Attention: Ken P. Siegel, Esq
Fax: 011-81-3-3214-6512
Tel: 011-81-3-3214-6522
|
First Closing Second Closing Total
------------------------ ------------------------- -----------------------
Shares Purchase Shares Purchase Shares Purchase
Purchased Price Purchased Price Purchased Price
--------- ----- --------- ----- --------- -----
Name and Address
Century Capital Partners, L.P. 6,430 1,047,286.25 -- -- 6,430 $ 1,047,286.25
c/o Century Capital ------ ------------- ------- -------------- ------- --------------
Management, Inc.
One Liberty Square
Boston, MA 02109
TOTAL 49,408 $8,047,328.00 141,213 $23,000,067.37 190,621 $31,047,395.37
====== ============= ======= ============== ======= ==============
|
EXHIBIT B (REVISED)
FOURTH RESTATED CERTIFICATE OF INCORPORATION
EXHIBIT C (REVISED)
AMENDED AND RESTATED RIGHTS AGREEMENT
Exhibit 10.15
AGREEMENT AND PLAN OF REORGANIZATION
among
INSWEB CORPORATION,
a Delaware corporation
("InsWeb"),
BENELYTICS ACQUISITION CORPORATION,
a Delaware corporation and wholly-owned
subsidiary of InsWeb,
and
BENELYTICS, INC.,
a California corporation
("Benelytics")
Dated December 31, 1998
TABLE OF CONTENTS
Page
----
ARTICLE I THE MERGER..............................................1
Section 1.1 Effective Time of the Merger............................1
Section 1.2 Closing.................................................2
Section 1.3 Effects of the Merger...................................2
Section 1.4 Directors and Officers..................................2
ARTICLE II CONVERSION OF SECURITIES................................3
Section 2.1 Conversion of Capital Stock.............................3
Section 2.2 Exchange of Certificates................................4
Section 2.3 Escrow..................................................6
Section 2.4 Appraisal Rights........................................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF BENELYTICS............7
Section 3.1 Organization, Standing and Power........................7
Section 3.2 Benelytics Capital Structure............................7
Section 3.3 Authority; No Conflict; Required Filings and
Consents..............................................8
Section 3.4 Benelytics Financial Statements.........................9
Section 3.5 Absence of Undisclosed Liabilities......................9
Section 3.6 Accounts Receivable....................................10
Section 3.7 Absence of Certain Changes or Events...................10
Section 3.8 Taxes..................................................11
Section 3.9 Tangible Assets and Real Property......................13
Section 3.10 Intellectual Property..................................13
Section 3.11 Bank Accounts..........................................15
Section 3.12 Contracts..............................................15
Section 3.13 Labor Difficulties.....................................16
Section 3.14 Trade Regulation.......................................16
Section 3.15 Environmental Matters..................................16
Section 3.16 Employee Benefit Plans.................................17
Section 3.17 Compliance with Laws...................................19
Section 3.18 Employees and Consultants..............................19
Section 3.19 Litigation.............................................19
Section 3.20 Restrictions on Business Activities....................19
Section 3.21 Governmental Authorization.............................19
Section 3.22 Insurance..............................................19
Section 3.23 Interested Party Transactions..........................20
Section 3.24 Indemnification Claims.................................20
Section 3.25 No Existing Discussions................................20
Section 3.26 Payments Resulting from Merger.........................20
Section 3.27 Real Property Holding Corporation......................20
Section 3.28 Corporate Documents....................................21
Section 3.29 No Misrepresentation...................................21
|
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF INSWEB AND SUB.......21
Section 4.1 Organization...........................................21
Section 4.2 InsWeb Capital Structure...............................21
Section 4.3 Authority; No Conflict; Required Filings and
Consents.............................................22
Section 4.4 InsWeb Financial Statements............................23
Section 4.5 Absence of Undisclosed Liabilities.....................24
Section 4.6 Absence of Certain Changes or Events...................24
Section 4.7 Taxes..................................................25
Section 4.8 Tangible Assets........................................26
Section 4.9 Intellectual Property..................................26
Section 4.10 Labor Difficulties.....................................27
Section 4.11 Trade Regulation.......................................27
Section 4.12 Environmental Matters..................................28
Section 4.13 Agreements, Contracts and Commitments..................28
Section 4.14 Litigation.............................................28
Section 4.15 Compliance with Laws...................................29
Section 4.16 Restrictions on Business Activities....................29
Section 4.17 Governmental Authorization.............................29
Section 4.18 Insurance..............................................29
Section 4.19 Interested Party Transactions..........................29
Section 4.20 Interim Operations of Sub..............................29
Section 4.21 Corporate Documents....................................30
Section 4.22 No Misrepresentation...................................30
ARTICLE V CONDUCT OF BUSINESS....................................30
Section 5.1 Covenants of Benelytics................................30
Section 5.2 Covenants of InsWeb....................................32
Section 5.3 Cooperation............................................33
ARTICLE VI ADDITIONAL AGREEMENTS..................................33
Section 6.1 No Solicitation by Benelytics..........................33
Section 6.2 Approval of Shareholders...............................34
Section 6.3 Consents...............................................35
Section 6.4 Access to Information..................................35
Section 6.5 Legal Conditions to Merger.............................35
Section 6.6 Public Disclosure......................................35
Section 6.7 Tax-Free Reorganization................................35
Section 6.8 Brokers or Finders.....................................36
Section 6.9 Additional Agreements; Reasonable Efforts..............36
Section 6.10 Expenses...............................................36
Section 6.11 Employee Benefits......................................36
Section 6.12 Voting Agreements......................................37
|
TABLE OF CONTENTS
(continued)
Page
----
ARTICLE VII CONDITIONS TO MERGER...................................37
Section 7.1 Conditions to Each Party's Obligation to Effect
the Merger...........................................37
Section 7.2 Additional Conditions to Obligations of InsWeb
and Sub..............................................38
Section 7.3 Additional Conditions to Obligations of
Benelytics...........................................39
ARTICLE VIII TERMINATION AND AMENDMENT..............................40
Section 8.1 Termination............................................40
Section 8.2 Effect of Termination..................................41
Section 8.3 Amendment..............................................41
Section 8.4 Extension; Waiver......................................41
ARTICLE IX ESCROW AND INDEMNIFICATION.............................41
Section 9.1 Survival of Representations and Warranties.............41
Section 9.2 Indemnification by Benelytics Shareholders.............42
Section 9.3 Procedures for Indemnification.........................42
Section 9.4 Defense of Third Party Claims..........................43
Section 9.5 Settlement of Third Party Claims.......................44
Section 9.6 Manner of Indemnification..............................44
Section 9.7 Shareholder Representative.............................44
ARTICLE X GENERAL PROVISIONS.....................................45
Section 10.1 Notices................................................45
Section 10.2 Interpretation.........................................46
Section 10.3 Counterparts...........................................47
Section 10.4 Severability...........................................47
Section 10.5 Entire Agreement.......................................47
Section 10.6 Governing Law..........................................47
Section 10.7 Assignment.............................................47
Section 10.8 Third Party Beneficiary................................47
EXHIBITS
Exhibit A - Escrow Agreement
Exhibit B-1 - Form of Option Agreement - Young
Exhibit B-2 - Form of Option Agreement - Marshall
Exhibit C - Form of Voting Agreement
Exhibit D-1 - Form of Noncompetition Agreement - Marshall
Exhibit D-2 - Form of Noncompetition Agreement - Young
Exhibit E - Form of Opinion of Counsel to Benelytics
Exhibit F - Form of Stockholder Agreement
Exhibit G - Form of Noteholders' Agreement
Exhibit H - Form of Opinion of Counsel to InsWeb
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AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as of December 31, 1998, by and among InsWeb Corporation, a Delaware corporation ("InsWeb"), Benelytics Acquisition Corporation, a Delaware corporation and a wholly-owned subsidiary of InsWeb ("Sub"), and Benelytics, Inc., a California corporation ("Benelytics").
RECITALS
A. The Boards of Directors of InsWeb, Sub and Benelytics deem it advisable and in the best interests of each corporation and its respective stockholders that InsWeb and Benelytics combine in order to advance the long-term business interests of InsWeb and Benelytics;
B. The combination of InsWeb and Benelytics shall be effected by the terms of this Agreement through a transaction (the "Merger") in which Sub will merge with and into Benelytics, with Benelytics becoming a wholly-owned subsidiary of InsWeb and the shareholders of Benelytics becoming stockholders of InsWeb; and
C. The parties intend, by approving resolutions authorizing this Agreement, to adopt this Agreement as a plan of reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations thereunder, and to cause the Merger to qualify as a reorganization within the meaning of Section 368(a) of the Code.
NOW, THEREFORE, in consideration of the foregoing and the respective representations, warranties, covenants and agreements set forth below, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 Effective Time of the Merger. Subject to the provisions of this Agreement, an agreement of merger (the "Merger Agreement") containing the substantive provisions of this Article I and Article II and in such form as is required by the relevant provisions of the California General Corporation Law (the "GCL") shall be duly prepared, executed and acknowledged by Sub and by Benelytics as the Surviving Corporation (as defined in Section Section 1.3((a))) and thereafter delivered to the Secretary of State of the State of California for filing, along with certificates of officers ("Officers' Certificates") of the Constituent Corporations (as defined in Section Section 1.3((a))), as soon as practicable on or after the Closing Date (as defined in Section Section 1.2). The Merger shall become effective upon the filing of the Merger Agreement and the Officers' Certificates with the Secretary of State of the State of California and the filing of a certificate of merger (the "Certificate of Merger") with the Secretary of State of the State of Delaware in accordance with the Delaware General Corporation Law (the "DGCL") or at such time thereafter as is provided in the Merger Agreement (the "Effective Time").
Section 1.2 Closing. The closing of the Merger (the "Closing") will take place at 10:00 a.m., Pacific Time, on a date to be specified by InsWeb and Benelytics (the "Closing Date"), which shall be no later than the second business day after satisfaction of the latest to occur of the conditions set forth in Sections Section 7.1, Section 7.2((b)) (other than the delivery of the officers' certificate referred to therein) and Section 7.3((b)) (other than the delivery of the officers' certificate referred to therein) provided that the other closing conditions set forth in Article VII have been met or waived as provided in Article VII at or prior to the Closing, at the offices of Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, California 94301-1825, unless another date or place is agreed to in writing by InsWeb and Benelytics.
Section 1.3 Effects of the Merger.
(a) At the Effective Time (i) the separate existence of Sub
shall cease and Sub shall be merged with and into Benelytics (the "Surviving
Corporation"), (ii) the Articles of Incorporation of Benelytics shall be amended
so that (A) Article III of such Articles of Incorporation shall read as follows:
"The total number of shares of all classes which this corporation shall have
authority to issue shall be 1,000, all of which shall consist of Common Stock,
par value $.001 per share," and (B) Article IV of such Articles of Incorporation
shall be eliminated and the remaining Articles re-numbered accordingly, and, as
so amended, such Articles of Incorporation shall be the Articles of
Incorporation of the Surviving Corporation, and (iii) the Bylaws of Benelytics
as in effect immediately prior to the Effective Time shall be the Bylaws of the
Surviving Corporation. (Sub and Benelytics are sometimes referred to herein as
the "Constituent Corporations.")
(b) At and after 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 the Constituent Corporations; and all and singular rights, privileges, powers and franchises of each of the Constituent Corporations, and all property, real, personal and mixed, and all debts due to either of the Constituent Corporations on whatever account, as well as for stock subscriptions and 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 effectually the property of the Surviving Corporation as they were of the Constituent Corporations, and the title to any real estate vested by deed or otherwise, in either of the Constituent Corporations, shall not revert or be in any way impaired; but all rights of creditors and all liens upon any property of either of the Constituent Corporations shall be preserved unimpaired, and all debts, liabilities and duties of the Constituent Corporations shall thereafter attach to the Surviving Corporation, and may be enforced against it to the same extent as if such debts and liabilities had been incurred by it.
Section 1.4 Directors and Officers. The directors and officers of Sub immediately prior to the Effective Time shall be the initial directors and officers of the Surviving Corporation, each of whom will hold office in accordance with the Articles of Incorporation and Bylaws of the Surviving Corporation, in each case until their respective successors are duly elected or appointed.
ARTICLE II
CONVERSION OF SECURITIES
Section 2.1 Conversion of Capital Stock. As of the Effective Time, by virtue of the Merger and without any action on the part of InsWeb, Sub, Benelytics or the holder of any shares of Common Stock, no par value, of Benelytics ("Benelytics Common Stock"), Preferred Stock, no par value, of Benelytics ("Benelytics Preferred Stock") or capital stock of Sub:
(a) Capital Stock of Sub. Each issued and outstanding share of the capital stock of Sub shall be converted into and become one fully paid and nonassessable share of Common Stock, $.001 par value, of the Surviving Corporation.
(b) Exchange Ratio for Benelytics Capital Stock. Subject to
the provisions of Section Section 2.2, (i) each issued and outstanding share of
Benelytics Common Stock (other than Dissenting Shares as defined in Section
Section 2.4) shall be converted into the right to receive 0.1182993 fully paid
and nonassessable shares of Common Stock, $.001 par value, of InsWeb ("InsWeb
Common Stock"), and (ii) each issued and outstanding share of Benelytics Series
A Preferred Stock (other than Dissenting Shares) shall be converted into the
right to receive 0.1841621 fully paid and nonassessable shares of InsWeb Common
Stock, which amounts shall be subject to adjustment to reflect any stock split
or stock dividend effected between the date of this Agreement and the Effective
Time. All such shares of Benelytics Common Stock and Benelytics Preferred Stock
(collectively, "Benelytics Stock"), when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such shares shall cease
to have any rights with respect thereto, except the right to receive the shares
of InsWeb Common Stock to be issued in consideration therefor upon the surrender
of such certificate in accordance with this Article II.
(c) Benelytics Options and Warrants. At the Effective Time,
(i) no options then outstanding (the "Benelytics Options") to purchase
Benelytics Common Stock under the Benelytics 1996 Option Plan (the "Benelytics
Option Plan") will be assumed by InsWeb, (ii) the Benelytics Option Plan will be
terminated and (iii) all warrants then outstanding to purchase capital stock of
Benelytics (the "Benelytics Warrants") shall be assumed by InsWeb and converted
into options to purchase InsWeb Common Stock. Schedule Section 2.1((c)) hereto
sets forth a true and complete list of all Benelytics Warrants. The Benelytics
Warrants so assumed by InsWeb will maintain the same aggregate exercise price
(set forth on Schedule Section 2.1((c))) but shall become exercisable for InsWeb
Common Stock at an exercise price of $16.29 per share, rounded up the nearest
whole share. The number of shares of InsWeb Common Stock to be subject to each
assumed Benelytics Warrant is set forth on Schedule Section 2.1((c)).
(d) Benelytics Promissory Notes. Subject to satisfaction of the closing condition set forth in Section Section 7.2((m)), at the Effective Time, all outstanding convertible promissory notes of Benelytics, having an aggregate principal amount of $664,899 (the
"Benelytics Notes"), shall automatically be converted into the right to receive one share of InsWeb Common Stock for each $16.29 of principal amount. The Surviving Corporation shall pay the interest on such promissory notes accrued through the Effective Time. Schedule Section 2.1((d)) hereto sets forth a true and complete list of all Benelytics Notes, the holders thereof, the principal amount thereof and the number of shares of InsWeb Common Stock into which each Benelytics Notes is convertible.
(e) Certificate Legends. The shares of InsWeb Common Stock to be issued pursuant to this Article II shall not have been registered and shall be characterized as "restricted securities" under the federal securities laws, and under such laws such shares may be resold without registration under the Securities Act of 1933, as amended (the "Securities Act"), only in certain limited circumstances. Each certificate evidencing shares of InsWeb Common Stock to be issued pursuant to this Article II shall bear the following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
Section 2.2 Exchange of Certificates. The procedures for exchanging outstanding shares of Benelytics Stock and Benelytics Notes for InsWeb Common Stock pursuant to the Merger are as follows:
(a) Exchange Agent. As of the Effective Time, InsWeb shall
deposit with the Secretary of InsWeb, or such other exchange agent as may be
designated by InsWeb (the "Exchange Agent"), for the benefit of the holders of
the Benelytics Notes and shares of Benelytics Stock, for exchange in accordance
with this Section Section 2.2, through the Exchange Agent, certificates
representing the shares of InsWeb Common Stock issuable pursuant to Section
Section 2.1, less the Escrow Shares, as defined in Section Section 2.3 (such
shares of InsWeb Common Stock deposited with the Exchange Agent, together with
any dividends or distributions with respect thereto, being hereinafter referred
to as the "Exchange Fund").
(b) Exchange Procedures. As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a certificate or certificates which immediately prior to the Effective Time represented outstanding shares of Benelytics Stock (each a "Certificate," and collectively, the "Certificates") and to each holder of record of a Benelytics Note whose shares or note were converted pursuant to Section Section 2.1 and the Merger Agreement into the right to receive shares of InsWeb Common Stock (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Certificates or the Benelytics Notes shall pass, only upon delivery of the Certificates or the Benelytics Notes to the Exchange Agent and shall be in such form and have such other
provisions as InsWeb and Benelytics may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates or the
Benelytics Notes in exchange for certificates representing shares of InsWeb
Common Stock. Upon surrender of a Certificate or a Benelytics Note for
cancellation to the Exchange Agent, together with a duly executed letter of
transmittal, the holder of such Certificate or Benelytics Note shall be entitled
to receive in exchange therefor a certificate representing that number of whole
shares of InsWeb Common Stock which such holder has the right to receive
pursuant to the provisions of Section Section 2.1 less such holder's pro rata
portion of the Escrow Shares, and the Certificate or Benelytics Note so
surrendered shall immediately be canceled. In the event of a transfer of
ownership of Benelytics Stock or a Benelytics Note which is not registered in
the transfer records of Benelytics, a certificate representing the proper number
of shares of InsWeb Common Stock may be issued to a transferee if the
Certificate representing such Benelytics Stock or such Benelytics Note is
presented to the Exchange Agent, accompanied by all documents required to
evidence and effect such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as contemplated by this Section
Section 2.2, each Certificate and Benelytics Note shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the certificate representing shares of InsWeb Common Stock and cash in
payment of any interest due on such Benelytics Note through the Effective Time.
The instructions for effecting the surrender of the Certificates and the
Benelytics Notes shall set forth procedures that must be taken by the holder of
any Certificate or Benelytics Note that has been lost, destroyed or stolen. It
shall be a condition to the right of such holder to receive a certificate
representing shares of InsWeb Common Stock that the Exchange Agent shall have
received, along with the letter of transmittal, a duly executed lost certificate
affidavit or lost note affidavit, including an agreement to indemnify InsWeb,
signed exactly as the name or names of the registered holder or holders appeared
on the books of Benelytics immediately prior to the Effective Time, together
with such other documents as InsWeb or the Exchange Agent may reasonably require
in connection therewith.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other distributions declared or made after the Effective Time with respect to InsWeb Common Stock with a record date after the Effective Time shall be paid to the holder of any unsurrendered Certificate or Benelytics Note with respect to the shares of InsWeb Common Stock represented thereby until such holder shall surrender such Certificate or Benelytics Note. Subject to the effect of applicable laws, following surrender of any such Certificate or Benelytics Note, there shall be paid to the record holder of the certificates representing whole shares of InsWeb Common Stock issued in exchange therefor, without interest, (i) promptly following the Effective Time, a cash payment of any interest due on such Benelytics Note and the amount of dividends or other distributions with a record date after the Effective Time previously paid with respect to such whole shares of InsWeb Common Stock, and (ii) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to surrender and a payment date subsequent to surrender payable with respect to such whole shares of InsWeb Common Stock.
(d) No Further Ownership Rights in Benelytics Stock. All shares of InsWeb Common Stock issued upon the surrender for exchange of shares of Benelytics Stock
and the Benelytics Notes in accordance with the terms hereof (including any cash paid pursuant to subsection ((c)) of this Section Section 2.2 and the Escrow Shares) shall be deemed to have been issued in full satisfaction of all rights pertaining to such shares of Benelytics Stock and Benelytics Notes, and there shall be no further registration of transfers on the stock transfer books of the Surviving Corporation of Benelytics Notes or the shares of Benelytics Stock which were outstanding immediately prior to the Effective Time. If, after the Effective Time, Certificates or Benelytics Notes are presented to the Surviving Corporation for any reason, they shall be canceled and exchanged as provided in this Section Section 2.2.
(e) No Fractional Shares. No certificate or scrip representing fractional shares of InsWeb Common Stock shall be issued upon the surrender for exchange of Certificates or Benelytics Notes, and such fractional share interests shall be rounded to the nearest whole share of InsWeb Common Stock.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which remains undistributed for one year after the Effective Time shall be delivered to InsWeb, upon demand, and any shareholders of Benelytics or holders of Benelytics Notes who have not previously complied with this Section Section 2.2 shall thereafter look only to InsWeb for payment of their claim for InsWeb Common Stock, any cash payments of interest, and any dividends or distributions with respect to InsWeb Common Stock.
(g) No Liability. Neither InsWeb nor Benelytics shall be liable to any holder of shares of Benelytics Stock, Benelytics Notes or InsWeb Common Stock, as the case may be, for such shares (or dividends or distributions with respect thereto) delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
Section 2.3 Escrow. At the Closing, InsWeb will deduct from the number of shares of InsWeb Common Stock deliverable to the shareholders of Benelytics and the holders of Benelytics Notes pursuant to Section Section 2.1 and will deposit into escrow (the "Escrow") certificates representing ten percent (10%) of the shares of InsWeb Common Stock issuable to the shareholders of Benelytics and the holders of Benelytics Notes in the Merger, on a pro rata basis (the "Escrow Shares"). The Escrow Shares shall be held by U.S. Bank Trust, N.A. (or such other institution as shall be agreed upon by InsWeb and the Shareholder Representative (as defined in Section Section 9.7)), as escrow agent (the "Escrow Agent"), in accordance with and subject to the provisions of an Escrow Agreement substantially in the form of Exhibit A hereto (the "Escrow Agreement"). The Escrow Shares shall be held as collateral for the indemnification obligations of the persons who were shareholders of Benelytics and holders of Benelytics Notes immediately prior to the Effective Time under Article IX.
Section 2.4 Appraisal Rights. Any shares of Benelytics Stock held by shareholders of Benelytics who properly exercise and perfect the dissenters' appraisal rights set forth in Chapter 13 of the GCL ("Dissenting Shares") shall not be converted into the right to receive InsWeb Common Stock but shall instead be converted into the right to receive such consideration as may be determined to be due with respect to such Dissenting Shares pursuant to the provisions of the GCL. Benelytics shall give InsWeb prompt notice of any demand received
by Benelytics for appraisal of Benelytics Stock, and InsWeb shall have the right to control all negotiations and proceedings with respect to such demand. Benelytics agrees that, except with the prior written consent of InsWeb or as required under the GCL, it will not voluntarily make any payment with respect to, or settle or offer to settle, any such demand for appraisal. Each holder of Dissenting Shares (a "Dissenting Shareholder") who, pursuant to the provisions of the GCL, becomes entitled to payment of the value of shares of Benelytics Stock shall receive payment therefor (but only after the value therefor shall have been agreed upon or finally determined pursuant to the provisions of the GCL). In the event that any holder of shares of Benelytics Stock fails to make an effective demand for payment or otherwise loses his or her status as a Dissenting Shareholder, InsWeb shall, as of the later of the Effective Time or the occurrence of such event, issue and deliver, upon surrender by such Dissenting Shareholder of its Certificate or Certificates, the shares of InsWeb Common Stock, without interest thereon, to which such Dissenting Shareholder would have been entitled to under Section Section 2.1 and the Merger Agreement (less such Dissenting Shareholder's pro rata portion of the Escrow Shares).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF BENELYTICS
Benelytics represents and warrants to InsWeb that the statements contained in this Article III are true and correct, except as disclosed in the disclosure schedule delivered by Benelytics to InsWeb on or before the date of this Agreement and attached hereto (the "Benelytics Disclosure Schedule"). For purposes of this Agreement, any reference to a "Material Adverse Effect" with respect to any entity or group of entities means a material adverse effect on the business, assets (including intangible assets), financial condition, or results of operations of such entity and its subsidiaries, taken as a whole.
Section 3.1 Organization, Standing and Power. Benelytics is a corporation duly organized, validly existing and in good standing under the laws of the State of California, has all requisite corporate power to own, lease and operate its properties and to carry on its business as currently being conducted and as currently proposed to be conducted, and is duly qualified to do business and is in good standing in each jurisdiction in which the failure to be so qualified and in good standing would have a Material Adverse Effect on Benelytics. Benelytics has delivered true and correct copies of the Articles of Incorporation and Bylaws of Benelytics, each as amended to date, to InsWeb. Benelytics is not in violation of any of the provisions of its Articles of Incorporation, Bylaws or other charter documents. Benelytics does not directly or indirectly own any equity or similar interest in, or any interest convertible or exchangeable or exercisable for any equity or similar interest in, any corporation, partnership, joint venture or other business association or entity.
Section 3.2 Benelytics Capital Structure.
(a) The authorized capital stock of Benelytics consists of 10,000,000 shares of Benelytics Common Stock and 1,000,000 shares of Benelytics Preferred Stock. As of
the date hereof, 3,389,600 shares of Benelytics Common Stock and 890,000 shares
of Benelytics Preferred Stock are issued and outstanding, and held of record by
those persons set forth in Schedule Section 3.2((a)) of the Benelytics
Disclosure Schedule. All such outstanding shares of Benelytics Common Stock and
Benelytics Preferred Stock have been duly authorized, validly issued, fully paid
and are nonassessable, have been issued in compliance with all applicable
federal and state securities laws, and are subject to no preemptive rights or
rights of first refusal created by statute, the charter documents of Benelytics
or any agreement to which Benelytics is a party or by which it is bound. As of
the date hereof, (i) 1,333,333 shares of Benelytics Common Stock are reserved
for issuance under the Benelytics Option Plan, no shares are subject to
outstanding Benelytics Options, and 913,733 of which shares are reserved for
future option grants, (ii) Benelytics Notes with an aggregate principal amount
of $664,899 are outstanding and held by the persons set forth in Schedule
Section 2.1((d)) hereto, and (iii) the Benelytics Warrants set forth on Schedule
Section 2.1((c)) hereto are outstanding and held by the persons set forth on
such schedule.
(b) Except as set forth in this Section Section 3.2 or the Benelytics Disclosure Schedule, there are (i) no equity securities of any class of Benelytics, or any securities exchangeable into or exercisable for such equity securities, issued, reserved for issuance, or outstanding and (ii) no outstanding subscriptions, options, warrants, puts, calls, rights, or other commitments or agreements of any character to which Benelytics is a party or by which it is bound obligating Benelytics to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any equity securities of Benelytics or obligating Benelytics to grant, extend, accelerate the vesting of, change the exercise price of, or otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. There are no contracts, commitments or agreements relating to voting, purchase or sale of Benelytics' capital stock (i) between or among Benelytics and any of its shareholders or (ii) to the knowledge of Benelytics, between or among any of Benelytics' shareholders.
Section 3.3 Authority; No Conflict; Required Filings and Consents.
(a) Benelytics has all requisite corporate power and authority to enter into this Agreement and all other documents required to be executed and delivered by Benelytics hereunder, including the Merger Agreement (collectively, the "Transaction Documents"), and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents to which Benelytics is or will be a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Benelytics, subject only to the approval of the Merger by Benelytics' shareholders under the GCL. This Agreement and the other Transaction Documents to which Benelytics is or will be a party have been or will be duly executed and delivered by Benelytics and constitute or will constitute the valid and binding obligations of Benelytics, enforceable against Benelytics in accordance with their respective terms, except as such enforceability may be limited by (i) bankruptcy, insolvency, moratorium or other similar laws affecting or relating to creditors' rights generally, and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law.
(b) The execution and delivery by Benelytics of this Agreement and the other Transaction Documents to which it is or will be a party does not, and the consummation of the transactions contemplated hereby and thereby will not, (i) conflict with, or result in any violation or breach of any provision of, the Articles of Incorporation or Bylaws of Benelytics, (ii) result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default under, or give rise to a right of termination, cancellation or acceleration of any material obligation or loss of any material benefit under, any note, mortgage, indenture, lease, contract or other agreement or obligation to which Benelytics is a party or by which Benelytics or any of its properties or assets may be bound, or (iii) conflict with or violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Benelytics or any of its properties or assets, except in the case of clauses (ii) and (iii) above for any such conflicts, violations, defaults, terminations, cancellations or accelerations which would not be reasonably likely, either individually or in the aggregate, to have a Material Adverse Effect on Benelytics.
(c) No consent, approval, order or authorization of, or registration, declaration or filing with, any court, administrative agency or commission or other governmental authority or instrumentality ("Governmental Entity") is required by or with respect to Benelytics in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Merger Agreement and Officer's Certificates with the California Secretary of State in accordance with the GCL, (ii) the filing of a certificate of merger with the Delaware Secretary of State in accordance with the DGCL, (iii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws, and (iv) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not have a Material Adverse Effect on Benelytics and would not prevent or materially alter or delay any of the transactions contemplated by this Agreement.
Section 3.4 Benelytics Financial Statements. Benelytics has delivered to
InsWeb copies of (i) its unaudited balance sheet as of December 31, 1997, and
(ii) its unaudited balance sheet as of October 31, 1998 (collectively, the
"Benelytics Financial Statements"). The Benelytics Financial Statements were
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved, except for the
absence of required footnotes. The Benelytics Financial Statements present
fairly in all material respects the financial position of Benelytics as of the
respective dates indicated, except that the Benelytics Financial Statements are
subject to normal and recurring year-end audit adjustments which will not have a
Material Adverse Effect on Benelytics. Benelytics maintains and will continue to
maintain a standard system of accounting established and administered in
accordance with GAAP.
Section 3.5 Absence of Undisclosed Liabilities. Benelytics does not have any liabilities, either accrued or contingent (whether or not required to be reflected in financial statements in accordance with GAAP), and whether due or to become due, which individually or in the aggregate would be reasonably likely to have a Material Adverse Effect on Benelytics, other than (i) liabilities reflected or provided for on the balance sheet as of October 31, 1998 (the
"Benelytics Balance Sheet") contained in the Benelytics Financial Statements,
(ii) liabilities specifically described in this Agreement or the Benelytics
Disclosure Schedule, and (iii) normal or recurring liabilities incurred since
October 31, 1998 in the ordinary course of business consistent with past
practices.
Section 3.6 Accounts Receivable. The accounts receivable shown on the Benelytics Balance Sheet arose in the ordinary course of business and have been collected or are collectible in the book amounts thereof, less an amount not in excess of the allowance for doubtful accounts and returns provided for in the Benelytics Balance Sheet. The accounts receivable of Benelytics arising after the date of the Benelytics Balance Sheet and prior to the Closing Date arose, or will arise, in the ordinary course of business and have been collected or will be collectible in the book amounts thereof, less allowances for doubtful accounts and returns determined in accordance with the past practices of Benelytics. None of such accounts receivable is subject to any material claim of offset or recoupment or counterclaim, and Benelytics has no knowledge of any specific facts that would be likely to give rise to any such claim. No material amount of such accounts receivable is contingent upon the performance by Benelytics of any obligation and no agreement for deduction or discount has been made with respect to any such accounts receivable.
Section 3.7 Absence of Certain Changes or Events. Since October 31, 1998, Benelytics has conducted its business in the ordinary course and in a manner consistent with past practices and, since such date, Benelytics has not:
(a) suffered any event or occurrence that has had, or could reasonably be expected to have, a Material Adverse Effect on Benelytics;
(b) suffered any damage, destruction or loss, whether covered by insurance or not, materially and adversely affecting its properties or business;
(c) granted any increase in the compensation payable or to become payable by Benelytics to its officers or employees;
(d) declared, set aside or paid any dividend or made any other distribution on or in respect of the shares of its capital stock or declared any direct or indirect redemption, retirement, purchase or other acquisition of such shares;
(e) issued any shares of its capital stock or any warrants, rights, or options for, or entered into any commitment relating to such capital stock;
(f) made any change in the accounting methods or practices it follows, whether for general financial or tax purposes, or any change in depreciation or amortization policies or rates;
(g) sold, leased, abandoned or otherwise disposed of any real property or any material amounts of machinery, equipment or other operating property;
(h) sold, assigned, transferred, licensed or otherwise disposed of any patent, trademark, trade name, brand name, copyright (or pending application for any patent, trademark or copyright), invention, work of authorship, process, know-how, formula or trade secret or interest thereunder or other material intangible asset;
(i) entered into or committed to enter into any data or marketing agreement involving any revenue guarantees or revenue-sharing arrangements;
(j) entered into any material commitment or transaction (including without limitation any borrowing or capital expenditure);
(k) incurred any material liability, except in the ordinary course of business and consistent with past practice;
(l) permitted or allowed any of its property or assets to be subjected to any mortgage, deed of trust, pledge, lien, security interest or other encumbrance of any kind, except for liens for current taxes not yet due and purchase money security interests incurred in the ordinary course of business;
(m) made any capital expenditure or commitment for additions to property, plant or equipment individually in excess of $10,000, or in the aggregate, in excess of $50,000;
(n) paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets to, or entered into any agreement or arrangement with any of its officers, directors or shareholders or any affiliate of any of the foregoing, other than employee compensation and benefits and reimbursement of employment related business expenses incurred in the ordinary course of business;
(o) agreed to take any action described in this Section
Section 3.7 or which would constitute a breach of any of the representations or
warranties of Benelytics contained in this Agreement; or
(p) taken any other action that would have required the consent of InsWeb pursuant to Section Section 5.1 (and which has not been obtained) had such action occurred after the date of this Agreement.
Section 3.8 Taxes.
(a) For purposes of this Agreement, a "Tax" or, collectively, "Taxes," means any and all material federal, state and local taxes of any country, assessments and other governmental charges, duties, impositions and liabilities, including taxes based upon or measured by gross receipts, income, profits, sales, use and occupation, and value added, ad valorem, transfer, franchise, withholding, payroll, recapture, employment, excise and property taxes, together with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person with respect to such amounts and including any liability for taxes of a predecessor entity.
(b) Benelytics has timely filed or caused to be filed all returns, estimates, information statements and reports required to be filed with any taxing authority ("Benelytics Returns") relating to any and all Taxes concerning or attributable to Benelytics or its operations (or requests for extensions of time to file such returns have been filed, granted and have not expired) and such Benelytics Returns are true and correct in all material respects and have been completed in all material respects in accordance with applicable law.
(c) Benelytics, as of the Closing Date: (i) will have paid all Taxes it is required to pay prior to the Closing Date and (ii) will have withheld with respect to its employees all Taxes required to be withheld.
(d) There is no Tax deficiency outstanding or assessed or, to Benelytics' knowledge, proposed against Benelytics that is not reflected as a liability on the Benelytics Balance Sheet nor has Benelytics executed any agreements or waivers extending any statute of limitations on or extending the period for the assessment or collection of any Tax.
(e) Benelytics has no material liabilities for unpaid Taxes that have not been accrued for or reserved on the Benelytics Balance Sheet, whether asserted or unasserted, contingent or otherwise.
(f) Benelytics is not a party to any tax-sharing agreement or similar arrangement with any other party, or any contractual obligation to pay any Tax obligations of, or with respect to any transaction relating to, any other person or to indemnify any other person with respect to any Tax.
(g) There is no contract, agreement, plan or arrangement to which Benelytics is a party as of the date of this Agreement, including but not limited to the provisions of this Agreement or any transaction contemplated hereby, covering any employee or former employee of Benelytics that, individually or collectively, could give rise to the payment of any amount that would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
(h) Neither Benelytics, nor any person on behalf of Benelytics, has entered into or will enter into any agreement or consent pursuant to Section 341(f) of the Code.
(i) There are no liens for Taxes upon the assets of Benelytics except liens for current Taxes not yet due.
(j) Benelytics has not been and will not be required to include any adjustment in taxable income for any Tax period (or portion thereof) ending on or after the Closing Date pursuant to Sections 481 or 263A of the Code or any comparable provision under state or foreign Tax laws as a result of transactions, events or accounting methods employed prior to the Closing.
(k) Benelytics has provided or made available to InsWeb true and correct copies of all Benelytics Returns.
Section 3.9 Tangible Assets and Real Property.
(a) Benelytics owns or leases all tangible assets and properties which are necessary for the conduct of its business as currently conducted or which are reflected on the Benelytics Balance Sheet or acquired since the date of the Benelytics Balance Sheet (the "Benelytics Material Tangible Assets"). The Benelytics Material Tangible Assets are in good operating condition and repair, subject to reasonable wear and tear.
(b) Benelytics has good and marketable title to all Benelytics Material Tangible Assets that it owns, free and clear of all mortgages, liens, pledges, charges or encumbrances of any kind or character, except for liens for current taxes not yet due and payable.
(c) Assuming the due execution and delivery thereof by the other parties thereto, all leases of Benelytics Material Tangible Assets to which Benelytics is a party are in full force and effect and valid, binding and enforceable in accordance with their respective terms, except as such enforceability may be limited by (i) bankruptcy laws and other similar laws affecting creditors' rights generally and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law. Set forth in Schedule Section 3.9(c) to the Benelytics Disclosure Schedule is a true and correct list of all such leases, and true and correct copies of all such leases have been provided to InsWeb.
(d) Benelytics owns no real property. Set forth in Schedule
Section 3.9(d) of the Benelytics Disclosure Schedule is a true and complete list
of all real property leased by Benelytics. Assuming the due execution and
delivery thereof by the other parties thereto, all such real property leases are
in full force and effect and valid, binding and enforceable in accordance with
their respective terms, except as such enforceability may be limited by (i)
bankruptcy laws and other similar laws affecting creditors' rights generally and
(ii) general principles of equity, regardless of whether asserted in a
proceeding in equity or at law. True and correct copies of all such real
property leases have been provided to InsWeb.
Section 3.10 Intellectual Property.
(a) Benelytics owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights and any applications for and registrations of such patents, trademarks, trade names, service marks, copyrights and all processes, formulae, methods, schematics, technology, know-how, computer software programs or applications and tangible or intangible proprietary information or material that are necessary to conduct the business of Benelytics as currently conducted, the absence of which rights would be reasonably likely to have a Material Adverse Effect on Benelytics (all of which are hereinafter referred to as the "Benelytics Intellectual Property Rights"), free and clear of all liens, claims or encumbrances. The foregoing representation as it relates to Licensed Intellectual Property (as defined below) is limited to Benelytics' interest pursuant to licenses from third parties, each of which is in full force and effect, is valid, binding and enforceable and
grants Benelytics such rights to such intellectual property as are necessary to the business of Benelytics as currently conducted.
(b) Schedule Section 3.10((b)) to the Benelytics Disclosure Schedule contains an accurate and complete description of (i) all patents and patent applications and all trademarks, trade names, service marks and registered copyrights included in the Benelytics Intellectual Property Rights, including the jurisdictions in which each such Benelytics Intellectual Property Right has been issued or registered or in which any such application for such issuance and registration has been filed, (ii) all licenses, sublicenses, distribution agreements and other agreements to which Benelytics is a party and pursuant to which any person is authorized to use any Benelytics Intellectual Property Rights or has the right to manufacture, reproduce, market or exploit any product of Benelytics (a "Benelytics Product") or any adaptation, translation or derivative work based on any Benelytics Product or any portion thereof, (iii) all licenses, sublicenses and other agreements to which Benelytics is a party and pursuant to which Benelytics is authorized to use any third party technology, trade secret, know-how, process, patent, trademark or copyright, including software ("Licensed Intellectual Property"), which is used in the manufacture of, incorporated in or forms a part of any Benelytics Product, (iv) all joint development agreements to which Benelytics is a party, and (v) all agreements with Governmental Entities or other third parties pursuant to which Benelytics has obtained funding for research and development activities.
(c) Benelytics is not, nor will it be as a result of the execution and delivery of this Agreement or the performance of its obligations under this Agreement, in breach of any license, sublicense or other agreement relating to the Benelytics Intellectual Property Rights or Licensed Intellectual Property.
(d) To Benelytics' knowledge, all patents and registered trademarks, service marks and copyrights claimed by or issued to Benelytics which relate to any Benelytics Product are valid and subsisting. Benelytics (i) has not received notice that it has been sued in any suit, action or proceeding which involves a claim of infringement of any patent, trademark, service mark, copyright, trade secret or other proprietary right of any third party, (ii) has no knowledge that the manufacturing, marketing, licensing or sale of any Benelytics Product infringes any patent, trademark, service mark, copyright, trade secret or other proprietary right of any third party, and (iii) has no knowledge of any claim challenging or questioning the validity or effectiveness of any license or agreement relating to any Benelytics Intellectual Property Rights or Licensed Intellectual Property.
(e) All designs, drawings, specifications, source code, object code, documentation, flow charts and diagrams incorporating, embodying or reflecting any Benelytics Product at any stage of its development (the "Benelytics Components") were written, developed and created solely and exclusively by employees of Benelytics without the assistance of any third party or were created by third parties who assigned ownership of their rights with respect thereto to Benelytics by means of valid and enforceable agreements, which are listed and described in Schedule Section 3.10((e)) to the Benelytics Disclosure Schedule and copies of which have been provided to InsWeb. Benelytics has at all times used commercially reasonable efforts to treat the
Benelytics Products and Benelytics Components as containing trade secrets and has not disclosed or otherwise dealt with such items in such a manner as to cause the loss of such trade secrets by their release into the public domain.
(f) Each person currently or formerly employed by Benelytics (including independent contractors, if any) that has or had access to confidential information of Benelytics has executed and delivered to Benelytics a confidentiality and non-disclosure agreement in the form previously provided to InsWeb. To Benelytics' knowledge, neither the execution or delivery of any such agreement, nor the carrying on of Benelytics' business as currently conducted and as currently proposed to be conducted by any such person, as an employee or independent contractor, has or will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such persons is obligated.
Section 3.11 Bank Accounts. Schedule Section 3.11 to the Benelytics Disclosure Schedule sets forth the names and locations of all banks and other financial institutions at which Benelytics maintains accounts of any nature, the type of accounts maintained at each such institution and the names of all persons authorized to draw thereon or make withdrawals therefrom.
Section 3.12 Contracts.
(a) Except as set forth in Schedule Section 3.12 to the Benelytics Disclosure Schedule, Benelytics is not a party or subject to any agreement, obligation or commitment, written or oral:
(i) that calls for any fixed or contingent payment or expenditure or any related series of fixed or contingent payments or expenditures by or to Benelytics totaling more than $10,000 in any calendar year;
(ii) with employees, agents, advisors, salesmen, sales representatives, independent contractors or consultants that are not cancelable by it on no more than thirty (30) days' notice and without liability, penalty or premium;
(iii) that restricts Benelytics from carrying on anywhere in the world its business or any portion thereof as currently conducted;
(iv) to provide funds to or to make any investment in any other person or entity (in the form of a loan, capital contribution or otherwise);
(v) with respect to obligations as guarantor, surety, co-signer, endorser, co-maker, indemnitor or otherwise in respect of the obligation of any other person or entity;
(vi) for any line of credit, standby financing, revolving credit or other similar financing arrangement;
(vii) with any distributor, original equipment manufacturer, value added remarketer or other person for the distribution of any of the Benelytics Products; or
(viii) that is otherwise material to the business or financial results of operations of Benelytics.
(b) To Benelytics' knowledge, no party to any such contract, agreement or instrument has expressed its intention to cancel, withdraw, modify or amend such contract, agreement or instrument.
(c) Benelytics is not in default under or in breach or violation of, nor is there any valid basis for any claim of default by Benelytics under, or breach or violation by Benelytics of, any contract, commitment or restriction to which Benelytics is a party or by which Benelytics or any of its properties or assets is bound or affected, where such defaults, breaches, or violations would, in the aggregate, have a Material Adverse Effect on Benelytics. To Benelytics' knowledge, no other party is in default under or in breach or violation of, nor, to Benelytics' knowledge, is there any valid basis for any claim of default by any other party under, or any breach or violation by any other party of, any contract, commitment, or restriction to which Benelytics is a party or by which Benelytics or any of its properties or assets is bound or affected, where such defaults, breaches, or violations would, individually or in the aggregate, have a Material Adverse Effect on Benelytics.
Section 3.13 Labor Difficulties. Benelytics is not engaged in any unfair labor practice or in violation of any applicable laws respecting employment, employment practices or terms and conditions of employment. There is no unfair labor practice complaint against Benelytics pending, or to Benelytics' knowledge threatened, before any Governmental Entity. There is no strike, labor dispute, slowdown, or stoppage pending, or to Benelytics' knowledge threatened, against Benelytics. Benelytics is not now and has never been subject to any union organizing activities. Benelytics has not experienced any work stoppage or other labor difficulty. To Benelytics' knowledge, the consummation of the transactions contemplated by this Agreement will not have a Material Adverse Effect on its relations with Benelytics employees.
Section 3.14 Trade Regulation. Benelytics has not terminated its relationship with or refused to ship Benelytics Products to any dealer, distributor, third party marketing entity or customer which had theretofore paid or been obligated to pay Benelytics in excess of $10,000 over any consecutive twelve (12) month period. All of the prices charged by Benelytics in connection with the marketing or sale of any of their products or services have been in compliance with all applicable laws and regulations. No claims have been asserted or, to Benelytics' knowledge, threatened against Benelytics with respect to the wrongful termination of any dealer, distributor or any other marketing entity, discriminatory pricing, price fixing, unfair competition, false advertising, or any other material violation of any laws or regulations relating to anti-competitive practices or unfair trade practices of any kind, and, to Benelytics' knowledge, no specific situation, set of facts, or occurrence provides any basis for any such claim.
Section 3.15 Environmental Matters.
(a) As of the date hereof, except as set forth in Schedule
Section 3.15 to the Benelytics Disclosure Schedule, no material amount of any
substance that has been designated by applicable law or regulation to be
radioactive, toxic, hazardous or otherwise a danger to human health or the
environment, excluding office and janitorial supplies, and other similar
substances (a "Hazardous Material"), is present, as a result of the actions of
Benelytics or, to Benelytics' knowledge, as a result of any actions of any third
party or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water, that Benelytics has at any time
owned, operated, occupied or leased. To the knowledge of Benelytics, no
underground storage tanks are present under any property that Benelytics has at
any time owned, operated, occupied or leased.
(b) At no time has Benelytics transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials (collectively, "Hazardous Materials Activities") in violation of any law, rule, regulation or treaty promulgated by any Governmental Entity.
(c) Benelytics currently holds all environmental approvals, permits, licenses, clearances and consents (the "Environmental Permits") necessary for the conduct of its business as such business is currently being conducted.
(d) No action, proceeding, writ, injunction or claim is pending or, to the knowledge of Benelytics, threatened concerning any Environmental Permit or any Hazardous Materials Activity of Benelytics. Benelytics is not aware of any fact or circumstance which could reasonably be expected to involve Benelytics in any environmental litigation or impose upon Benelytics any liability concerning Hazardous Materials Activities.
Section 3.16 Employee Benefit Plans.
(a) Benelytics has set forth in Schedule Section 3.16 to the
Benelytics Disclosure Schedule (i) all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended)
("ERISA"), (ii) all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar employee
benefit plans, and (iii) all unexpired severance agreements, written or
otherwise, for the benefit of, or relating to, any current or former employee of
Benelytics (individually, a "Benelytics Employee Plan," and collectively, the
"Benelytics Employee Plans").
(b) With respect to each Benelytics Employee Plan, Benelytics has provided to InsWeb true and correct copies of (i) all documents embodying such Benelytics Employee Plan, including all amendments thereto, and (ii) each trust agreement, group annuity contract and other agreement, if any, relating to such Benelytics Employee Plan.
(c) With respect to the Benelytics Employee Plans, individually and in the aggregate, no event has occurred, and, to the knowledge of Benelytics, there exists no
condition or set of circumstances in connection with which Benelytics could be subject to any material liability.
(d) With respect to the Benelytics Employee Plans, individually and in the aggregate, there are no funded benefit obligations for which contributions have not been made or properly accrued and there are no unfunded benefit obligations which have not been accounted for by reserves, or otherwise properly footnoted in accordance with GAAP, on the financial statements or books of Benelytics.
(e) Benelytics is not a party to any oral or written (i) union
or collective bargaining agreement, (ii) agreement with any officer or other key
employee of Benelytics, the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
Benelytics of the nature contemplated by this Agreement, (iii) agreement with
any officer of Benelytics providing any term of employment or compensation
guarantee or for the payment of compensation in excess of $60,000 per annum, or
(iv) agreement or plan, including any stock option plan, stock appreciation
right plan, restricted stock plan or stock purchase plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
(f) Benelytics has performed in all material respects all obligations required to be performed by it under, is not in material default or violation of, and has no knowledge of any default or violation by any other party to, each Benelytics Employee Plan, and each Benelytics Employee Plan has been established and maintained in all respects in accordance with its terms and in compliance in all respects with all applicable laws, statutes, orders, rules and regulations, including but not limited to applicable provisions of ERISA and the Code. Each Benelytics Employee Plan intended to qualify under Section 401(a) of the Code and each trust intended to qualify under Section 501(a) of the Code has either received a favorable determination letter from the IRS with respect to such plan as to its qualified status under the Code, including all amendments to the Code effected by the Tax Reform Act of 1986 and subsequent legislation, or has remaining a period of time under applicable Treasury regulations or IRS pronouncements in which to apply for such a determination letter and make any amendments necessary to obtain a favorable determination. No "prohibited transaction," within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section 408 of ERISA, has occurred with respect to any Benelytics Employee Plan. There are no actions, suits or claims pending, or, to the knowledge of Benelytics, threatened or reasonably anticipated (other than routine claims for benefits) against any Benelytics Employee Plan or against the assets of any Benelytics Employee Plan. Each Benelytics Employee Plan can be amended, terminated or otherwise discontinued in accordance with its terms, without liability to InsWeb, Benelytics or any of its affiliates (other than ordinary administration expenses typically incurred in a termination event). There are no audits, inquiries or proceedings pending or, to the knowledge of Benelytics, threatened by the IRS or the U.S. Department of Labor with respect to any Benelytics Employee Plan. Neither Benelytics nor any affiliate of Benelytics is subject to any penalty or tax with respect to any Benelytics Employee
Plan under Section 402(i) of ERISA or Sections 4975 through 4980 of the Code. Each Benelytics Employee Plan which is a group health plan (within the meaning of Section 5000(b)(1) of the Code) and subject to the Consolidated Omnibus Reconciliation Act of 1985, as amended ("COBRA"), has been maintained in all respects in compliance with its terms and conditions and has complied in all respects with the Code and ERISA, including the continuation coverage requirements of COBRA, and such plan is not subject to any damages, penalties, or excise taxes arising out of or in connection with COBRA.
(g) Benelytics does not now, nor has it ever, maintained, established, sponsored, participated in, or contributed to, any pension plan within the meaning of Section 3(2) of ERISA which is subject to Title IV of ERISA or Section 412 of the Code. At no time has Benelytics contributed to or been requested to contribute to any multiemployer plan as defined in Section 3(37) of ERISA.
Section 3.17 Compliance with Laws. Benelytics has complied with, is not in violation of, and has not received any notices of violation with respect to, any federal, state or local statute, law or regulation applicable to the ownership or operation of its business, except for failures to comply or violations which would not be reasonably likely to have a Material Adverse Effect on Benelytics.
Section 3.18 Employees and Consultants. Schedule Section 3.18 to the Benelytics Disclosure Schedule contains a list of the names of all employees and consultants of Benelytics and their salaries or wages, other compensation, dates of employment and positions.
Section 3.19 Litigation. There is no action, suit, proceeding, claim, arbitration or investigation pending before any Governmental Entity or, to the knowledge of Benelytics, threatened against Benelytics or any of its properties or officers or directors (in their capacities as such). There is no judgment, decree or order against Benelytics or, to the knowledge of Benelytics, any of its directors or officers (in their capacities as such) that could prevent, enjoin or materially alter or delay any of the transactions contemplated by this Agreement, or that could reasonably be expected to have a Material Adverse Effect on Benelytics.
Section 3.20 Restrictions on Business Activities. There is no agreement, judgment, injunction, order or decree binding upon Benelytics which has or could reasonably be expected to have the effect of prohibiting or materially impairing any current or future (as disclosed to InsWeb) business practice of Benelytics, any acquisition of property by Benelytics, or the conduct of business by Benelytics as currently conducted or as currently proposed to be conducted and as disclosed to InsWeb.
Section 3.21 Governmental Authorization. Benelytics has obtained each governmental consent, license, permit, grant or other authorization of a Governmental Entity that is required for the operation of the business of Benelytics (collectively, the "Benelytics Authorizations"), and all of such Benelytics Authorizations are in full force and effect.
Section 3.22 Insurance. Benelytics has insurance policies of the type and in amounts customarily carried by persons conducting businesses or owning assets similar to those of
Benelytics. Schedule Section 3.22 to the Benelytics Disclosure Schedule contains a list and description of all such policies. There is no material claim pending under any of such policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies. All premiums due and payable under all such policies have been paid, and Benelytics is otherwise in compliance with the terms of such policies. Benelytics has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies.
Section 3.23 Interested Party Transactions. To the knowledge of Benelytics, no director, officer or shareholder of Benelytics has any interest in (i) any material equipment or other property or asset, real or personal, tangible or intangible, including, without limitation, any of the Benelytics Intellectual Property Rights, used in connection with or pertaining to the business of Benelytics, (ii) any creditor, supplier, customer, manufacturer, agent, representative, or distributor of any of the Benelytics Products, (iii) any entity that competes with Benelytics, or with which Benelytics is affiliated or has a business relationship, or (iv) any agreement, obligation or commitment, written or oral, to which Benelytics is a party; provided, however, that no such person shall be deemed to have such an interest solely by virtue of ownership of less than five percent (5%) of the outstanding stock or debt securities of any publicly held company, the stock or debt securities of which are traded on a recognized stock exchange or on the Nasdaq National Market.
Section 3.24 Indemnification Claims. Schedule Section 3.24 to the Benelytics Disclosure Schedule sets forth a list of all persons who are parties to director, officer and/or employee indemnification agreements with Benelytics (the "Indemnification Agreements"). Except as set forth in Schedule Section 3.24 to the Benelytics Disclosure Schedule, there are no outstanding claims under any of the Indemnification Agreements or under any indemnification rights granted pursuant to the Articles of Incorporation or Bylaws of Benelytics (as currently in effect); and to Benelytics` knowledge, there are no facts or circumstances that either now, or with the passage of time, could reasonably be expected to provide a basis for a claim under any such Indemnification Agreement or under any indemnification rights granted pursuant to the Articles of Incorporation or Bylaws of Benelytics.
Section 3.25 No Existing Discussions. As of the date hereof, Benelytics is
not engaged, directly or indirectly, in any discussions or negotiations with any
other party with respect to a Benelytics Acquisition Proposal (as defined in
Section Section 6.1).
Section 3.26 Payments Resulting from Merger. Neither the consummation nor announcement of any transaction contemplated by this Agreement will (either alone or upon the occurrence of any additional or further acts or events) result in any material payment (whether of severance pay or otherwise) becoming due from Benelytics to any director, officer, employee or former employee thereof under (i) any management, employment, deferred compensation, severance (including any payment, right or benefit resulting from a change in control), bonus or other contract for personal services with any officer, director or employee or any plan, agreement or understanding similar to any of the foregoing, or any "rabbi trust" or similar arrangement, or (ii) material benefit under any Benelytics Employee Plan being established or becoming accelerated, vested or payable.
Section 3.27 Real Property Holding Corporation. Benelytics is not a "United States real property holding corporation" within the meaning of Section 897(c)(2) of the Code.
Section 3.28 Corporate Documents. Benelytics has furnished to InsWeb, or its representatives, for its examination (i) its minute book containing all records required to be set forth of all proceedings, consents, actions, and meetings of the shareholders, the Board of Directors and any committees thereof and (ii) all permits, orders, and consents issued by any Governmental Entity with respect to Benelytics. The corporate minute books and other corporate records of Benelytics are complete and accurate in all material respects, and the signatures appearing on all documents contained therein are the true signatures of the persons purporting to have signed the same. All actions reflected in such books and records were duly and validly taken in compliance with the laws of the applicable jurisdiction. Benelytics has delivered or made available to InsWeb or its representatives true and complete copies of all documents which are referred to in this Article III or in the Benelytics Disclosure Schedule.
Section 3.29 No Misrepresentation. No representation or warranty by Benelytics in this Agreement, or any statement, certificate or schedule furnished or to be furnished by or on behalf of Benelytics pursuant to this Agreement, when taken together, contains or shall contain any untrue statement of a material fact or omits or shall omit to state a material fact required to be stated therein or necessary in order to make such statements, in light of the circumstances under which they were made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF INSWEB AND SUB
InsWeb and Sub represent and warrant to Benelytics that the statements contained in this Article IV are true and correct, except as set forth in the disclosure schedule delivered by InsWeb to Benelytics on or before the date of this Agreement and attached hereto (the "InsWeb Disclosure Schedule").
Section 4.1 Organization. Each of InsWeb, Sub and InsWeb's other subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation, has all requisite corporate power to own, lease and operate its property and to carry on its business as now being conducted and as proposed to be conducted, and is duly qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to be so qualified would have a Material Adverse Effect on InsWeb. InsWeb has delivered true and correct copies of the Certificate of Incorporation and Bylaws of InsWeb, each as amended to date, to Benelytics. InsWeb is not in violation of any of the provisions of its Certificate of Incorporation or Bylaws. Except as described in the InsWeb Disclosure Schedule, neither InsWeb nor any of its subsidiaries directly or indirectly owns any equity or similar interest in, or any interest convertible into or exchangeable or exercisable for, any corporation, partnership, joint venture or other business association or entity.
Section 4.2 InsWeb Capital Structure.
(a) The authorized capital stock of InsWeb consists of (i) 50,000,000 shares of InsWeb Common Stock, of which 9,982,276 shares are issued and outstanding, and (ii) 2,000,000 shares of InsWeb Preferred Stock, (A) 176,471 shares of which have been designated Series A Preferred Stock, all of which are issued and outstanding and which are convertible, in the aggregate, into 1,764,710 shares of Common Stock, (B) 27,864 shares of which have been designated Series A-1 Preferred Stock, all of which are issued and outstanding and which are convertible, in the aggregate, into 278,640 shares of Common Stock, (C) 176,471 shares of which have been designated Series B Preferred Stock, all of which are issued and outstanding and which are convertible, in the aggregate, into 1,764,710 shares of Common Stock, (D) 61,920 shares of which have been designated Series C Preferred Stock, all of which are issued and outstanding and which are convertible, in the aggregate, into 619,200 shares of Common Stock, and (E) 190,621 shares of which have been designated Series D Preferred Stock, 49,408 of which are issued and outstanding and convertible, in the aggregate, into 494,080 shares of Common Stock. All such outstanding shares of InsWeb capital stock have been duly authorized, validly issued, fully paid and are nonassessable, have been issued in accordance with all applicable state and federal securities laws, and are subject to no preemptive rights or rights of first refusal created by statute, the charter documents of InsWeb or any agreement to which InsWeb is a party or by which it is bound. As of the date hereof, an aggregate of 1,724,364 shares of InsWeb Common Stock are reserved for issuance under InsWeb's employee stock option plans (collectively, the "InsWeb Option Plans"), 1,442,714 of which shares are subject to outstanding options, and 281,650 of which shares are reserved for future option grants.
(b) All of the outstanding shares of capital stock of Sub are duly authorized, validly issued, fully paid and nonassessable, and all such shares are owned by InsWeb free and clear of all security interests, liens, claims, pledges, agreements, limitations on InsWeb's voting rights, charges or other encumbrances of any nature.
(c) Except as set forth in this Section Section 4.2 or the InsWeb Disclosure Schedule, there are (i) no equity securities of any class of InsWeb, or any securities exchangeable into or exercisable for such equity securities, issued, reserved for issuance or outstanding and (ii) no outstanding subscriptions, options, warrants, puts, calls, rights or other commitments or agreements of any character to which InsWeb is a party or by which it is bound obligating InsWeb to issue, deliver, sell, repurchase or redeem or cause to be issued, delivered, sold, repurchased or redeemed any equity securities of InsWeb or obligating InsWeb to grant, extend, accelerate the vesting of, change the exercise price of or otherwise amend or enter into any such option, warrant, call, right, commitment or agreement. To the knowledge of InsWeb, there are no voting trusts, proxies or other agreements or understandings with respect to the shares of capital stock of InsWeb.
(d) The shares of InsWeb Common Stock to be issued pursuant to the Merger, when issued, will be duly authorized, validly issued, fully paid, and nonassessable.
Section 4.3 Authority; No Conflict; Required Filings and Consents.
(a) InsWeb and Sub have all requisite corporate power and authority to enter into this Agreement and the other Transaction Documents to which they are or will be parties and to consummate the transactions contemplated hereby and thereby. The execution and delivery of this Agreement and the other Transaction Documents to which InsWeb or Sub is or will be a party and the consummation of the transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of InsWeb and Sub, respectively, subject only to the approval of the Merger by InsWeb's stockholders. This Agreement and the other Transaction Documents to which InsWeb and/or Sub are parties have been or will be duly executed and delivered by InsWeb and/or Sub and constitute or will constitute the valid and binding obligations of InsWeb and/or Sub, enforceable in accordance with their terms, except as such enforceability may be limited by (i) bankruptcy laws and other similar laws affecting creditors' rights generally and (ii) general principles of equity, regardless of whether asserted in a proceeding in equity or at law.
(b) The execution and delivery by InsWeb and Sub of this
Agreement and the other Transaction Documents to which they are or will be
parties does not, and the consummation of the transactions contemplated hereby
and thereby will not, (i) conflict with, or result in any violation or breach of
any provision of the Certificate of Incorporation or Bylaws of InsWeb or Sub,
(ii) result in any violation or breach of, or constitute (with or without notice
or lapse of time, or both) a default under, or give rise to a right of
termination, cancellation or acceleration of any material obligation or loss of
any material benefit under, any note, mortgage, indenture, lease, contract or
other agreement, instrument or obligation to which InsWeb or Sub is a party or
by which either of them or any of their properties or assets may be bound, or
(iii) conflict with or violate any permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to InsWeb or Sub or any of its or their properties or assets, except in the case
of clauses (ii) and (iii) above for any such conflicts, violations, defaults,
terminations, cancellations or accelerations which would not be reasonably
likely, either individually or in the aggregate, to have a Material Adverse
Effect on InsWeb.
(c) No consent, approval, order or authorization of, or registration, declaration or filing with, any Governmental Entity is required by or with respect to InsWeb or any of its subsidiaries in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby, except for (i) the filing of the Merger Agreement and the Officers' Certificates with the California Secretary of State in accordance with the GCL, (ii) the filing of a certificate of merger with the Delaware Secretary of State; (iii) such consents, approvals, orders, authorizations, registrations, declarations and filings as may be required under applicable federal and state securities laws and the laws of any foreign country and (iv) such other consents, authorizations, filings, approvals and registrations which, if not obtained or made, would not be reasonably likely to have a Material Adverse Effect on InsWeb and would not prevent or materially alter or delay any of the transactions contemplated by this Agreement.
Section 4.4 InsWeb Financial Statements. InsWeb has delivered to Benelytics copies of (i) its audited consolidated financial statements as of, and for the years ended, December 31, 1996 and 1997, and (ii) its unaudited financial statements as of, and for the nine-month period ended, September 30, 1998 (collectively, the "InsWeb Financial Statements"). The InsWeb Financial Statements have been, prepared in accordance with GAAP applied on a consistent basis throughout the periods involved, except (in the case of the unaudited interim financial statements) for the absence of required footnotes. The InsWeb Financial Statements present fairly in all material respects the financial position of InsWeb as of the respective dates and the consolidated results of InsWeb's operations and cash flows for the periods indicated, except that the interim InsWeb Financial Statements are subject to normal and recurring year-end audit adjustments which will not be material in amount. InsWeb maintains a standard system of accounting established and administered in accordance with GAAP.
Section 4.5 Absence of Undisclosed Liabilities. InsWeb and its Subsidiaries do not have any liabilities, either accrued or contingent (whether or not required to be reflected in financial statements in accordance with GAAP), and whether due or to become due, which individually or in the aggregate would be reasonably likely to have a Material Adverse Effect on InsWeb, other than (i) liabilities reflected or provided for on InsWeb's balance sheet as of September 30, 1998 (the "InsWeb Balance Sheet"), (ii) liabilities specifically described in this Agreement, or in the InsWeb Disclosure Schedule, and (iii) normal or recurring liabilities incurred since September 30, 1998 in the ordinary course of business consistent with past practices.
Section 4.6 Absence of Certain Changes or Events. Since September 30, 1998, InsWeb has conducted its business in the ordinary course and in a manner consistent with past practices and, since such date, InsWeb has not:
(a) suffered any event or occurrence that has had or could reasonably be expected to have a Material Adverse Effect on InsWeb;
(b) suffered any damage, destruction or loss, whether covered by insurance or not, materially and adversely affecting its properties or business;
(c) declared, set aside or paid any divided or made any other distribution on or in respect of the shares of its capital stock or declared any direct or indirect redemption, retirement, purchase or other acquisition or such shares;
(d) issued any shares of its capital stock or any warrants, rights, or options for, or entered into any commitment relating to such capital stock except for options and rights to purchase shares of InsWeb Common Stock granted under the InsWeb Option Plans in the ordinary course of business and consistent with past practices, and shares of InsWeb Common Stock issued upon the exercise of stock options and rights;
(e) made any material change in the accounting methods or practices it follows, whether for general financial or tax purposes, or any change in depreciation or amortization policies or rates;
(f) sold, leased, abandoned or otherwise disposed of any real property or any material amounts of machinery, equipment or other operating property;
(g) sold, assigned, transferred, licensed or otherwise disposed of any material patent, trademark, trade name, brand name, copyright (or pending application for any patent, trademark or copyright), invention, work of authorship, process, know-how, formula or trade secret or interest thereunder or other material intangible asset except for transactions entered into in the ordinary course of its business;
(h) entered into any material commitment or transaction (including without limitation any borrowing or capital expenditure) other than in the ordinary course of business;
(i) incurred any material liability, except in the ordinary course of business and consistent with past practice;
(j) permitted or allowed any of its property or assets to be subjected to any mortgage, deed of trust, pledge, lien, security interest or other encumbrance of any kind, except for liens for current taxes not yet due and purchase money security interests incurred in the ordinary course of business;
(k) paid, loaned or advanced any amount to, or sold, transferred or leased any properties or assets to, or entered into any agreement or arrangement with any of its officers, directors or shareholders or any affiliate of any of the foregoing, other than employee compensation and benefits and reimbursement of employment related business expenses incurred in the ordinary course of business;
(l) agreed to take any action described in this Section
Section 4.6 or which would constitute a breach of any of the representations or
warranties of InsWeb contained in this Agreement; or
(m) taken any other action that would have required the consent of Benelytics pursuant to Section Section 5.2 (and which has not been obtained) had such action occurred after the date of this Agreement.
Section 4.7 Taxes.
(a) InsWeb has timely filed or caused to be filed all returns, estimates, information statements and reports required to be filed with any taxing authority ("InsWeb Returns") relating to any and all Taxes concerning or attributable to InsWeb or its operations (or requests for extensions of time to file such returns have been filed, granted and have not expired) and such InsWeb Returns are true and correct in all material respects and have been completed in all material respects in accordance with applicable law.
(b) InsWeb, as of the Closing Date: (i) will have paid all Taxes it is required to pay prior to the Closing Date and (ii) will have withheld with respect to its employees all Taxes required to be withheld.
(c) There is no Tax deficiency outstanding or assessed or, to InsWeb's knowledge, proposed against InsWeb that is not reflected as a liability on the InsWeb Balance Sheet nor has InsWeb executed any agreements or waivers extending any statute of limitations on or extending the period for the assessment or collection of any Tax.
(d) InsWeb has no material liabilities for unpaid Taxes that have not been accrued for or reserved on the InsWeb Balance Sheet, whether asserted or unasserted, contingent or otherwise.
(e) InsWeb is not a party to any tax-sharing agreement or similar arrangement with any other party, or any contractual obligation to pay any Tax obligations of, or with respect to any transaction relating to, any other person or to indemnify any other person with respect to any Tax.
Section 4.8 Tangible Assets.
(a) InsWeb owns or leases all tangible assets and properties which are necessary for the conduct of its business as currently conducted or which are reflected on the InsWeb Balance Sheet or acquired since the date of the InsWeb Balance Sheet (the "InsWeb Material Tangible Assets"). The InsWeb Material Tangible Assets are in good operating condition and repair, subject to reasonable wear and tear.
(b) InsWeb has good and marketable title to all InsWeb Material Tangible Assets that it owns, free and clear of all mortgages, liens, pledges, charges or encumbrances of any kind or character, except for liens for current taxes not yet due and payable.
Section 4.9 Intellectual Property.
(a) InsWeb owns, or is licensed or otherwise possesses legally enforceable rights to use, all patents, trademarks, trade names, service marks, copyrights and any applications for and registrations of such patents, trademarks, trade names, service marks, copyrights and all processes, formulae, methods, schematics, technology, know-how, computer software programs or applications and tangible or intangible proprietary information or material that are necessary to conduct the business of InsWeb as currently conducted, or as currently proposed to be conducted and disclosed to Benelytics, the absence of which rights would be reasonably likely to have a Material Adverse Effect on InsWeb (all of which are referred to as the "InsWeb Intellectual Property Rights"), free and clear of all liens, claims or encumbrances.
(b) InsWeb is not, nor will it be as a result of the execution and delivery of this Agreement or the performance of its obligations under this Agreement, in breach of any license, sublicense or other agreement relating to the InsWeb Intellectual Property Rights, the breach of which would be likely to have a Material Adverse Effect on InsWeb.
(c) To InsWeb's knowledge, all patents and registered trademarks, service marks and copyrights claimed by or issued to InsWeb which relate to any product of InsWeb ("InsWeb Product") are valid and subsisting. InsWeb (i) has not received notice that it has been sued in any suit, action or proceeding which involves a claim of infringement of any patent, trademark, service mark, copyright, trade secret or other proprietary right of any third party, (ii) has no knowledge that the manufacturing, marketing, licensing or sale of any InsWeb Product infringes any patent, trademark, service mark, copyright, trade secret or other proprietary right of any third party, and (iii) has no knowledge of any claim challenging or questioning the validity or effectiveness of any license or agreement relating to any InsWeb Intellectual Property Rights.
(d) All designs, drawings, specifications, source code, object code, documentation, flow charts and diagrams incorporating, embodying or reflecting any InsWeb Product at any stage of its development (the "InsWeb Components") were written, developed and created solely and exclusively by employees of InsWeb without the assistance of any third party or were created by third parties who assigned ownership of their rights with respect thereto to InsWeb by means of valid and enforceable agreements. InsWeb has at all times used commercially reasonable efforts to treat the InsWeb Products and InsWeb Components as containing trade secrets and has not disclosed or otherwise dealt with such items in such a manner as to cause the loss of such trade secrets by their release into the public domain.
(e) Each person currently or formerly employed by InsWeb (including independent contractors, if any) that has or had access to confidential information of InsWeb has executed and delivered to InsWeb a confidentiality and non-disclosure agreement in the form previously provided to Benelytics. To InsWeb's knowledge, neither the execution or delivery of any such agreement, nor the carrying on of InsWeb's business as currently conducted and as currently proposed to be conducted by any such person, as an employee or independent contractor, has or will conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such persons is obligated.
Section 4.10 Labor Difficulties. InsWeb is not engaged in any unfair labor practice or in violation of any applicable laws respecting employment, employment practices or terms and conditions of employment. There is no unfair labor practice complaint against InsWeb pending, or to InsWeb's knowledge threatened, before any Governmental Entity. There is no strike, labor dispute, slowdown, or stoppage pending, or to InsWeb's knowledge threatened, against InsWeb. InsWeb is not now and has never been subject to any union organizing activities. InsWeb has not experienced any work stoppage or other labor difficulty. To InsWeb's knowledge, (i) the consummation of the transactions contemplated by this Agreement will not have a Material Adverse Effect on its relations with InsWeb employees, and (ii) none of the InsWeb employees intends to leave their employment, whether as a result of the transactions contemplated by this Agreement or otherwise.
Section 4.11 Trade Regulation. InsWeb has not terminated its relationship with or refused to ship InsWeb Products to any dealer, distributor, third party marketing entity or
customer which had theretofore paid or been obligated to pay InsWeb in excess of $10,000 over any consecutive twelve (12) month period. All of the prices charged by InsWeb in connection with the marketing or sale of any of their products or services have been in compliance with all applicable laws and regulations. No claims have been asserted or, to InsWeb's knowledge, threatened against InsWeb with respect to the wrongful termination of any dealer, distributor or any other marketing entity, discriminatory pricing, price fixing, unfair competition, false advertising, or any other material violation of any laws or regulations relating to anti-competitive practices or unfair trade practices of any kind, and, to InsWeb's knowledge, no specific situation, set of facts, or occurrence provides any basis for any such claim.
Section 4.12 Environmental Matters.
(a) As of the date hereof, except as set forth in Schedule
Section 4.12 to the InsWeb Disclosure Schedule, no material amount of any
substance that has been designated by applicable law or regulation to be
radioactive, toxic, hazardous or otherwise a danger to human health or the
environment, excluding office and janitorial supplies, and other similar
substances (a "Hazardous Material"), is present, as a result of the actions of
InsWeb or, to InsWeb's knowledge, as a result of any actions of any third party
or otherwise, in, on or under any property, including the land and the
improvements, ground water and surface water, that InsWeb has at any time owned,
operated, occupied or leased. To the knowledge of InsWeb, no underground storage
tanks are present under any property that InsWeb has at any time owned,
operated, occupied or leased.
(b) At no time has InsWeb transported, stored, used, manufactured, disposed of, released or exposed its employees or others to Hazardous Materials in violation of any law, rule, regulation or treaty promulgated by any Governmental Entity.
(c) InsWeb currently holds all Environmental Permits necessary for the conduct of its business as such businesses is currently being conducted.
(d) No action, proceeding, writ, injunction or claim is pending or, to the knowledge of InsWeb, threatened concerning any Environmental Permit or any Hazardous Materials Activity of InsWeb. InsWeb is not aware of any fact or circumstance which could reasonably be expected to involve InsWeb in any environmental litigation or impose upon InsWeb any liability concerning Hazardous Materials Activities.
Section 4.13 Agreements, Contracts and Commitments. InsWeb has not breached, or received in writing any claim or threat that it has breached, any of the terms or conditions of any material agreement, contract or commitment ("InsWeb Material Contracts") in such a manner as would permit any other party to cancel or terminate the same or would permit any other party to collect material damages from InsWeb under any InsWeb Material Contract. Each InsWeb Material Contract that has not expired or been terminated is in full force and effect and is not subject to any material default thereunder of which InsWeb is aware by any party obligated to InsWeb pursuant to such InsWeb Material Contract.
Section 4.14 Litigation. There is no action, suit, proceeding, claim, arbitration or investigation pending before any Governmental Entity or, to the knowledge of InsWeb, threatened against InsWeb or any of its properties or officers or directors (in their capacities as such) that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect on InsWeb. There is no judgment, decree or order against InsWeb or, to the knowledge of InsWeb, any of its directors or officers (in their capacities as such) that could prevent, enjoin or materially alter or delay any of the transactions contemplated by this Agreement, or that could reasonably be expected to have a Material Adverse Effect on InsWeb.
Section 4.15 Compliance with Laws. InsWeb has complied with, is not in violation of, and has not received any notices of violation with respect to, any federal, state or local statute, law or regulation applicable to the ownership or operation of its business, except for failures to comply or violations which would not be reasonably likely to have a Material Adverse Effect on InsWeb.
Section 4.16 Restrictions on Business Activities. There is no agreement, judgment, injunction, order or decree binding upon InsWeb which has or could reasonably be expected to have the effect of prohibiting or materially impairing any current or future (as disclosed to Benelytics) business practice of InsWeb, any acquisition of property by InsWeb, or the conduct of business by InsWeb as currently conducted or as currently proposed to be conducted and as disclosed to Benelytics.
Section 4.17 Governmental Authorization. InsWeb has obtained each governmental consent, license, permit, grant or other authorization of a Governmental Entity that is required for the operation of the business of InsWeb (collectively, the "InsWeb Authorizations"), and all of such InsWeb Authorizations are in full force and effect, except where the failure to obtain the same would not be reasonably likely to have a Material Adverse Effect on InsWeb.
Section 4.18 Insurance. InsWeb has insurance policies of the type and in amounts customarily carried by persons conducting businesses or owning assets similar to those of InsWeb. There is no material claim pending under any of such policies as to which coverage has been questioned, denied or disputed by the underwriters of such policies. All premiums due and payable under all such policies have been paid, and InsWeb is otherwise in compliance with the terms of such policies. InsWeb has no knowledge of any threatened termination of, or material premium increase with respect to, any of such policies.
Section 4.19 Interested Party Transactions. To the knowledge of InsWeb, no
director, officer or shareholder of InsWeb has any interest in (i) any material
equipment or other property or asset, real or personal, tangible or intangible,
including, without limitation, any of the InsWeb Intellectual Property Rights,
used in connection with or pertaining to the business of InsWeb, (ii) any
creditor, supplier, customer, manufacturer, agent, representative, or
distributor of any of the InsWeb Products, (iii) any entity that competes with
InsWeb, or with which InsWeb is affiliated or has a business relationship, or
(iv) any agreement, obligation or commitment, written or oral, to which InsWeb
is a party; provided, however, that no such person shall be deemed to have such
an interest solely by virtue of ownership of less than five percent (5%) of the
outstanding stock or debt securities of any publicly held company, the stock or debt securities of which are traded on a recognized stock exchange or on the Nasdaq National Market.
Section 4.20 Interim Operations of Sub. Sub was formed solely for the purpose of engaging in the transactions contemplated by this Agreement, has engaged in no other business activities and has conducted its operations only as contemplated by this Agreement.
Section 4.21 Corporate Documents. InsWeb has furnished or made available to Benelytics, or its representatives, for its examination its minute book containing all records required to be set forth of all proceedings, consents, actions, and meetings of the shareholders, the Board of Directors and any committees thereof. The corporate minute books and other corporate records of InsWeb are complete and accurate in all material respects, and the signatures appearing on all documents contained therein are the true signatures of the persons purporting to have signed the same. All actions reflected in such books and records were duly and validly taken in compliance with the laws of the applicable jurisdiction. InsWeb has delivered or made available to Benelytics or its representatives true and complete copies of all documents which are referred to in this Article IV or in the InsWeb Disclosure Schedule.
Section 4.22 No Misrepresentation. No representation or warranty by InsWeb or Sub in this Agreement, or any statement, certificate or schedule furnished or to be furnished by or on behalf of InsWeb or Sub pursuant to this Agreement, when taken together, contains or shall contain any untrue statement of a material fact or omits or shall omit to state a material fact required to be stated therein or necessary in order to make such statements, in light of the circumstances under which they were made, not misleading.
ARTICLE V
CONDUCT OF BUSINESS
Section 5.1 Covenants of Benelytics. During the period from the date of this Agreement and continuing until the earlier of the termination of this Agreement or the Effective Time, Benelytics agrees (except to the extent that InsWeb shall otherwise consent in writing), to carry on its business in the usual, regular and ordinary course in substantially the same manner as previously conducted, to pay its debts and Taxes when due, subject to good faith disputes over such debts or Taxes, to pay or perform its other obligations when due, and, to the extent consistent with such business, to use all reasonable efforts consistent with past practices and policies to (i) preserve intact its present business organization, (ii) keep available the services of its present officers and key employees and (iii) preserve its relationships with customers, suppliers, distributors, licensors, licensees and others having business dealings with it. Benelytics shall promptly notify InsWeb of any event or occurrence not in the ordinary course of business of Benelytics where such event or occurrence would result in a breach of any covenant of Benelytics set forth in this Agreement or cause any representation or warranty of Benelytics set forth in this Agreement to be untrue as of the date of, or giving effect to, such event or occurrence. Except as expressly contemplated by this Agreement, Benelytics shall not, without the prior written consent of InsWeb:
(a) Grant any options under any employee plan of Benelytics, accelerate, amend or change the period of exercisability under any outstanding options, or authorize cash payments in exchange for any options granted under any of such plans except as required by the terms of such plans or any related agreements in effect as of the date of this Agreement;
(b) Transfer or license to any person or entity or otherwise extend, amend or modify any rights to the Benelytics Intellectual Property Rights other than in the ordinary course of business consistent with past practices;
(c) Declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or purchase or otherwise acquire, directly or indirectly, any shares of its capital stock except from former employees, directors and consultants in accordance with agreements providing for the repurchase of shares in connection with any termination of service by such party;
(d) Issue, deliver or sell or authorize or propose the issuance, delivery or sale of, any shares of its capital stock or securities convertible into shares of its capital stock, or subscriptions, rights, warrants or options to acquire, or other agreements or commitments of any character obligating it to issue any such shares or other convertible securities, other than the issuance of shares of Benelytics Common Stock upon the exercise of Benelytics Options outstanding as of the date of this Agreement;
(e) Acquire or agree to acquire by merging or consolidating with, or by purchasing a substantial equity interest in or substantial portion of the assets of, or by any other manner, any business or any corporation, partnership or other business organization or division, or otherwise acquire or agree to acquire any assets other than acquisitions involving aggregate consideration of not more than $10,000;
(f) Sell, lease, license or otherwise dispose of any of its properties or assets which are material, individually or in the aggregate, to the business of Benelytics;
(g) Take any action to (i) increase or agree to increase the compensation payable or to become payable to its officers or employees, (ii) grant any additional severance or termination pay to, or enter into any employment or severance agreements with, officers, (iii) grant any severance or termination pay to, or enter into any employment or severance agreement, with any non-officer employee, except in accordance with past practices, (iv) enter into any collective bargaining agreement, or (v) establish, adopt, enter into or amend in any material respect any bonus, profit sharing, thrift, compensation, stock option, restricted stock, pension, retirement, deferred compensation, employment, termination, severance or other plan, trust, fund, policy or arrangement for the benefit of any directors, officers or employees;
(h) Revalue any of its assets, including writing down the value of inventory or writing off notes or accounts receivable other than in the ordinary course of business;
(i) Incur any indebtedness for borrowed money or guarantee any such indebtedness or issue or sell any debt securities or warrants or rights to acquire any debt securities or guarantee any debt securities of others, other than indebtedness incurred under outstanding lines of credit consistent with past practice;
(j) Amend or propose to amend its Articles of Incorporation or Bylaws, except as contemplated by this Agreement;
(k) Incur or commit to incur any individual capital expenditure other than the existing commitments set forth in the Benelytics Disclosure Schedule;
(l) Enter into or amend any agreements pursuant to which any third party is granted exclusive marketing or manufacturing rights with respect to any Benelytics product;
(m) Enter into or commit to enter into any data or marketing agreement involving any revenue guarantees or revenue-sharing arrangements;
(n) Amend or terminate any material contract, agreement or license to which it is a party except in the ordinary course of business;
(o) Waive or release any material right or claim, except in the ordinary course of business;
(p) Initiate any litigation or arbitration proceeding; or
(q) Take or agree to take, in writing or otherwise, any of the actions described in Sections ((a)) through ((p)) above, or any action which is reasonably likely to make any of Benelytics' representations or warranties contained in this Agreement untrue or incorrect in any material respect on the date made (to the extent so limited) or as of the Effective Time.
Section 5.2 Covenants of InsWeb. During the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
or the Effective Time, InsWeb agrees (except to the extent that Benelytics shall
otherwise consent in writing), to carry on its business in the usual, regular
and ordinary course in substantially the same manner as previously conducted, to
pay its debts and Taxes when due, subject to good faith disputes over such debts
or Taxes, to pay or perform its other obligations when due, and, to the extent
consistent with such business, use all reasonable efforts consistent with past
practices and policies to (i) preserve intact its present business organization,
(ii) keep available the services of its present officers and key employees and
(iii) preserve its relationships with customers, suppliers, distributors,
licensors, licensees and others having business dealings with it. InsWeb shall
promptly notify Benelytics of any event or occurrence not in the ordinary course
of
business of InsWeb where such event or occurrence would result in a breach of any covenant of InsWeb set forth in this Agreement or cause any representation or warranty of InsWeb set forth in this Agreement to be untrue as of the date of, or giving effect to, such event or occurrence. Except as expressly contemplated by this Agreement, InsWeb shall not, without the prior written consent of Benelytics:
(a) Grant any options under any employee plan of InsWeb (except for options and rights to purchase shares of InsWeb Common Stock granted under the InsWeb Option Plans, in the ordinary course of business and consistent with past practices), accelerate, amend or change the period of exercisability under any outstanding options, or authorize cash payments in exchange for any options granted under any of such plans except as required by the terms of such plans or any related agreements in effect as of the date of this Agreement;
(b) Declare or pay any dividends on or make any other distributions (whether in cash, stock or property) in respect of any of its capital stock, or split, combine or reclassify any of its capital stock or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for shares of its capital stock, or purchase or otherwise acquire, directly or indirectly, any shares of its capital stock except from former employees, directors and consultants in accordance with agreements providing for the repurchase of shares in connection with any termination of service by such party;
(c) Sell, lease, license or otherwise dispose of any of its properties or assets which are material, individually or in the aggregate, to the business of InsWeb, except for transactions entered into in the ordinary course of business;
(d) Amend or propose to amend its Certificate of Incorporation or Bylaws, in any manner that materially affects the rights, preferences or privileges of the holders of its capital stock, except as contemplated by this Agreement; or
(e) Take or agree to take, in writing or otherwise, any of the actions described in Sections (a) through (d) above, or any action which is reasonably likely to make any of Benelytics' representations or warranties contained in this Agreement untrue or incorrect in any material respect on the date made (to the extent so limited) or as of the Effective Time.
Section 5.3 Cooperation. Subject to compliance with applicable law, from the date hereof until the Effective Time, each of InsWeb and Benelytics shall confer on a regular and frequent basis with one or more representatives of the other party to report operational matters of materiality and the general status of ongoing operations and shall promptly provide the other party or its counsel with copies of all filings made by such party with any Governmental Entity in connection with this Agreement, the Merger and the transactions contemplated hereby.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 No Solicitation by Benelytics.
(a) During the period from the date of this Agreement until the earlier of the termination of this Agreement or the Effective Time, Benelytics shall not, directly or indirectly, through any officer, director, employee, representative or agent, (i) solicit, initiate, or encourage any inquiries or proposals that constitute, or could reasonably be expected to lead to, a proposal or offer for a merger, consolidation, business combination, sale of substantial assets, sale of shares of capital stock (including without limitation by way of a tender offer) or similar transactions involving Benelytics, other than the transactions contemplated by this Agreement (any of the foregoing inquiries or proposals being referred to in this Agreement as a "Benelytics Acquisition Proposal"), (ii) engage in negotiations or discussions concerning, or provide any non-public information to any person or entity relating to, any Benelytics Acquisition Proposal, or (iii) agree to, approve or recommend any Benelytics Acquisition Proposal; provided, however, that nothing contained in this Agreement shall prevent Benelytics or its Board of Directors from furnishing non-public information to, or entering in discussions or negotiations with, any person or entity in connection with an unsolicited bona fide written Benelytics Acquisition Proposal to the shareholders of Benelytics, if and only to the extent that the Board of Directors of Benelytics determines in good faith (after consultation with outside legal counsel) that such action is necessary for such Board of Directors to comply with its fiduciary duties to Benelytics' shareholders under applicable law.
(b) Benelytics shall notify InsWeb no later than twenty-four
(24) hours after receipt by Benelytics (or its advisors) of any Benelytics
Acquisition Proposal or any request for nonpublic information in connection with
a Benelytics Acquisition Proposal or for access to the properties, books or
records of Benelytics by any person or entity that informs Benelytics that it is
considering making, or has made, a Benelytics Acquisition Proposal. Such notice
shall be made orally and in writing and shall indicate in reasonable detail the
identity of the offeror and the terms and conditions of such proposal, inquiry
or contact.
Section 6.2 Approval of Shareholders. Benelytics shall promptly after the date hereof take all action necessary in accordance with the law of the State of California and its Articles of Incorporation to seek the approval of the Merger by Benelytics shareholders as soon as possible. As promptly as practicable after the execution of this Agreement, subject to the review and approval of InsWeb, Benelytics shall prepare and, after receiving the authorization of InsWeb, distribute an information statement (the "Information Statement") to its shareholders for the purpose of soliciting approval of the Merger by the Benelytics shareholders. The Information Statement shall include the unanimous recommendation of the Board of Directors of Benelytics in favor of the Merger and this Agreement. Benelytics and InsWeb represent and warrant to the other that the respective information supplied by Benelytics and InsWeb for inclusion in the Information Statement shall not, on the date the Information Statement is first mailed to the shareholders of Benelytics, or at the Effective Time, contain any statement which, at such time
and in light of the circumstances under which it was made, is false or misleading with respect to any material fact, or omit to state any material fact necessary in order to make the statements made in the Information Statement not false or misleading, or omit to state any material fact necessary to correct any statement in any earlier communication to the Benelytics shareholders which has become false or misleading. If at any time prior to the Effective Time any event relating to Benelytics or any of its Affiliates, officers or directors should be discovered by Benelytics which should be set forth in a supplement to the Information Statement, Benelytics shall promptly inform InsWeb. If at any time prior to the Effective Time any event relating to InsWeb or any of its officers or directors should be discovered by InsWeb which should be set forth in a supplement to the Information Statement, InsWeb shall promptly inform Benelytics. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Information Statement, Benelytics shall promptly inform InsWeb of such occurrence and cooperate in mailing to shareholders of Benelytics, such amendment or supplement. Benelytics shall take all other action necessary or advisable to secure the vote or consent of shareholders required to effect the Merger.
Section 6.3 Consents. Each of InsWeb and Benelytics shall use all reasonable efforts to obtain any and all necessary consents, waivers and approvals under any of InsWeb's or Benelytics' material agreements, contracts, licenses or leases as may be necessary or advisable to consummate the Merger and the other transactions contemplated by this Agreement.
Section 6.4 Access to Information. Upon reasonable notice, Benelytics and InsWeb shall each afford to the officers, employees, accountants, counsel and other representatives of the other, reasonable access, during normal business hours during the period prior to the Effective Time, to all its properties, books, contracts, commitments and records and, during such period, each of Benelytics and InsWeb shall furnish promptly to the other (i) a copy of each report, schedule, registration statement and other document filed or received by it during such period pursuant to the requirements of federal securities laws and (ii) all other information concerning its business, properties and personnel as such other party may reasonably request. Unless otherwise required by law, the parties will treat any such information which is nonpublic in confidence in accordance with the Joint Confidentiality Agreement dated December 1, 1997 (the "Confidentiality Agreement") between InsWeb and Benelytics, which Confidentiality Agreement shall continue in full force and effect in accordance with its terms. No information or knowledge obtained in any investigation pursuant to this Section Section 6.4 shall affect or be deemed to modify any representation or warranty contained in this Agreement or the conditions to the obligations of the parties to consummate the Merger.
Section 6.5 Legal Conditions to Merger. Each of InsWeb and Benelytics will take all reasonable actions necessary to comply promptly with all legal requirements which may be imposed on itself with respect to the Merger (which actions shall include, without limitation, furnishing all information in connection with approvals of or filings with any Governmental Entity) and will promptly cooperate with and furnish information to each other in connection with any such requirements imposed upon either of them or any of their Subsidiaries in connection with the Merger. Each of InsWeb and Benelytics will take all reasonable actions necessary to obtain (and will cooperate with each other in obtaining) any consent, authorization,
order or approval of, or any exemption by, any Governmental Entity or other third party, required to be obtained or made by Benelytics, InsWeb or any of their Subsidiaries in connection with the Merger or the taking of any action contemplated thereby or by this Agreement.
Section 6.6 Public Disclosure. InsWeb and Benelytics shall consult with each other before issuing any press release or otherwise making any public statement with respect to the Merger or this Agreement and shall not issue any such press release or make any such public statement prior to such consultation.
Section 6.7 Tax-Free Reorganization. InsWeb and Benelytics shall each use its best efforts to cause the Merger to be treated as a reorganization within the meaning of Section 368(a) of the Code. Neither InsWeb nor Benelytics has taken any action or knows of any fact, arrangement, or other circumstance that is reasonably likely to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Code.
Section 6.8 Brokers or Finders. Each of InsWeb and Benelytics represents, as to itself, its Subsidiaries and its Affiliates, that no agent, broker, investment banker, financial advisor or other firm or person is or will be entitled to any broker's or finder's fee or any other commission or similar fee in connection with any of the transactions contemplated by this Agreement, and each of InsWeb and Benelytics agrees to indemnify and hold the other harmless from and against any and all claims, liabilities or obligations with respect to any other fees, commissions or expenses asserted by any person on the basis of any act or statement alleged to have been made by such party or its Affiliate.
Section 6.9 Additional Agreements; Reasonable Efforts. Subject to the terms and conditions of this Agreement, each of the parties agrees to use all 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 cooperating fully with the other party, including by provision of information. In case at any time after the Effective Time any further action is necessary or desirable to carry out the purposes of this Agreement or to vest the Surviving Corporation with full title to all properties, assets, rights, approvals, immunities and franchises of either of the Constituent Corporations, the proper officers and directors of each party to this Agreement shall take all such necessary action.
Section 6.10 Expenses. The parties shall each pay their own legal, accounting and financial advisory fees and other out-of-pocket expenses related to the negotiation, preparation and carrying out of this Agreement and the transactions herein contemplated. In the event the Merger is consummated, legal, accounting and financial advisory fees and expenses and other out-of-pocket expenses incurred by Benelytics relating to the negotiation, preparation and carrying out of this Agreement and the transactions herein contemplated (the "Benelytics Transaction Expenses") shall be borne by the Surviving Corporation, subject to InsWeb's rights to indemnification under Section 9.2(a) with respect to Benelytics Transaction Expenses in excess of $60,000, in aggregate. A schedule of all Benelytics Transaction Expenses incurred or
to be incurred through the Closing shall be submitted to InsWeb not later than two (2) business days prior to the Closing.
Section 6.11 Employee Benefits.
(a) All Benelytics employees who remain employees of InsWeb, Benelytics or any other subsidiary of InsWeb following the Effective Time shall be entitled to participate in all employee benefit plans and programs (the "InsWeb Plans") that are available to other InsWeb employees holding comparable positions. The InsWeb Plans shall give full credit for each participant's period of continuous service with Benelytics prior to the Effective Time, to the extent permitted by such InsWeb Plans. In the case of medical and health insurance coverage, InsWeb shall cause the Surviving Corporation to continue to insure Benelytics employees under Benelytics' existing insurance plans or provide them with the opportunity to participate in InsWeb Plans providing generally comparable medical and health insurance coverage.
(b) Simultaneously with the Closing, InsWeb shall grant to Arthur J. Young ("Young") and Charles T. Marshall ("Marshall") options to purchase shares of InsWeb Common Stock pursuant to the Option Agreements in the form of Exhibit B-1 and B-2 hereto (the "Key Employee Options").
Section 6.12 Voting Agreements. Benelytics shall cause each of Young, Marshall and certain other shareholders to execute and deliver to InsWeb, on or before the date of this Agreement, voting agreements and irrevocable proxies in the form attached hereto as Exhibit C (the "Voting Agreements"), agreeing, among other things, to vote in favor of the Merger. Such persons will own, in the aggregate, no less than fifty percent (50%) of the voting power of each of the outstanding Benelytics Common Stock and Benelytics Preferred Stock as of the date of this Agreement.
ARTICLE VII
CONDITIONS TO MERGER
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger. The respective obligations of each party to this Agreement to effect the Merger shall be subject to the satisfaction prior to the Closing Date of the following conditions:
(a) This Agreement and the Merger shall have been approved and adopted by the requisite vote of the holders of the outstanding shares of Benelytics Common Stock and Benelytics Preferred Stock.
(b) All authorizations, consents, orders or approvals of, or declarations or filings with, or expirations of waiting periods imposed by, any Governmental Entity the failure of which to obtain or comply with would be reasonably likely to have a Material Adverse Effect on InsWeb or Benelytics shall have been filed, occurred or been obtained.
(c) No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal or regulatory restraint or prohibition preventing the consummation of the Merger or limiting or restricting InsWeb's conduct or operation of the business of InsWeb or Benelytics after the Merger shall have been issued, nor shall any proceeding brought by a domestic administrative agency or commission or other domestic Governmental Entity, seeking any of the foregoing be pending; nor shall there be any action taken, or any statute, rule, regulation or order enacted, entered, enforced or deemed applicable to the Merger which makes the consummation of the Merger illegal.
(d) InsWeb shall have received all permits and other authorizations required under applicable state blue sky laws for the issuance of shares of InsWeb Common Stock pursuant to the Merger.
Section 7.2 Additional Conditions to Obligations of InsWeb and Sub. The obligations of InsWeb and Sub to effect the Merger are subject to the satisfaction of each of the following conditions, any of which may be waived in writing exclusively by InsWeb and Sub:
(a) The representations and warranties of Benelytics set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations and warranties specifically speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, except for (i) changes contemplated by this Agreement and (ii) where the failure to be true and correct would not be reasonably likely to have a Material Adverse Effect on Benelytics, or a material adverse effect upon the consummation of the transactions contemplated hereby; and InsWeb shall have received a certificate to such effect signed on behalf of Benelytics by the chief executive officer and the chief financial officer of Benelytics.
(b) Benelytics shall have performed in all material respects all obligations required to be performed by it under this Agreement at or prior to the Closing, and InsWeb shall have received a certificate to such effect signed on behalf of Benelytics by the chief executive officer and the chief financial officer of Benelytics.
(c) InsWeb shall have received from Benelytics written evidence that the execution, delivery and performance of Benelytics' obligations under this Agreement have been duly and validly approved and authorized by the Board of Directors and the shareholders of Benelytics.
(d) InsWeb shall have received a written opinion from Gray Cary Ware & Freidenrich LLP, tax counsel to InsWeb, to the effect that the Merger will be treated for Federal income tax purposes as a tax-free reorganization within the meaning of Section 368(a) of the Code; provided, however, that if such firm does not render such opinion, this condition shall be deemed to be satisified if such opinion is rendered to InsWeb by Wilson Sonsini Goodrich & Rosati, tax counsel to Benelytics. InsWeb agrees to make reasonable representations as requested by such counsel for purposes of rendering this opinion.
(e) InsWeb shall have been furnished with evidence satisfactory to it of the consent or approval of those persons whose consent or approval shall be required in connection with the Merger under the material contracts of Benelytics, as set forth on Schedule Section 7.2((e)) hereto.
(f) InsWeb shall have received from each of the persons listed in Section Section 6.12 an executed Voting Agreement.
(g) Marshall and Young shall have executed and delivered Noncompetition Agreements in the form of Exhibits D-1 and D-2 hereto, respectively (the "Non-Competition Agreements").
(h) The Merger shall have been approved by the affirmative vote of the holders of not less than 95% of the outstanding shares of Benelytics Common Stock and not less than 95% of the outstanding shares of Benelytics Preferred Stock.
(i) InsWeb shall have received a legal opinion from Wilson Sonsini Goodrich & Rosati, corporate counsel to Benelytics, substantially in the form of Exhibit E hereto.
(j) Each of the shareholders of Benelytics and each of the holders of the Benelytics Notes shall have executed and delivered a Stockholder Agreement in the form of Exhibit F hereto (the "Stockholder Agreements").
(k) The Escrow Agreement shall have been executed and delivered by the Shareholder Representative (as defined in Section Section 9.7) and the Escrow Agent.
(l) All Benelytics Options shall have been exercised in full or terminated in a manner reasonably satisfactory to InsWeb and its counsel.
(m) Benelytics and the holders of each of the Benelytics Notes shall have executed and delivered the Noteholders' Agreement in the form of Exhibit G hereto.
Section 7.3 Additional Conditions to Obligations of Benelytics. The obligation of Benelytics to effect the Merger is subject to the satisfaction of each of the following conditions, any of which may be waived, in writing, exclusively by Benelytics:
(a) The representations and warranties of InsWeb and Sub set forth in this Agreement shall be true and correct in all material respects as of the date of this Agreement and (except to the extent such representations specifically speak as of an earlier date) as of the Closing Date as though made on and as of the Closing Date, except for (i) changes contemplated by this Agreement and (ii) where the failure to be true and correct would not be reasonably likely to have a Material Adverse Effect on InsWeb and its Subsidiaries, taken as a whole, or a material adverse effect upon the consummation of the transactions contemplated hereby; and Benelytics shall have received a certificate to such effect signed on behalf of InsWeb by the chief executive officer and the chief financial officer of InsWeb.
(b) InsWeb and Sub shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Closing, and Benelytics shall have received a certificate to such effect signed on behalf of InsWeb by the chief executive officer and the chief financial officer of InsWeb.
(c) Benelytics shall have received from InsWeb and Sub written evidence that the execution, delivery and performance of InsWeb's and Sub's obligations under this Agreement have been duly and validly approved and authorized by the Boards of Directors and stockholders of InsWeb and Sub.
(d) Benelytics' shareholders shall have received the opinion of Wilson Sonsini Goodrich & Rosati, tax counsel to Benelytics, to the effect that the Merger will be treated for Federal income tax purposes as a tax-free reorganization within the meaning of Section 368(a) of the Code; provided, however, that if such firm does not render such opinion, this condition shall be deemed to be satisified if such opinion is rendered to Benelytics by Gray Cary Ware & Freidenrich LLP, tax counsel to InsWeb. Benelytics agrees to make reasonable representations as requested by such counsel for purposes of rendering this opinion.
(e) InsWeb shall have executed and delivered the Noncompetition Agreements.
(f) InsWeb shall have executed and delivered the Stockholder Agreements.
(g) Benelytics shall have received a legal opinion from Gray Cary Ware & Freidenrich LLP, counsel to InsWeb, substantially in the form of Exhibit H hereto.
(h) The Escrow Agreement shall have been executed and delivered by InsWeb and the Escrow Agent.
(i) InsWeb shall have granted each of the Key Employee Options.
ARTICLE VIII
TERMINATION AND AMENDMENT
Section 8.1 Termination. This Agreement may be terminated at any time prior to the Effective Time (with respect to Sections Section 8.1((b)) through Section 8.1((e)), by written notice by the terminating party to the other party):
(a) by the mutual written consent of InsWeb and Benelytics;
(b) by either InsWeb or Benelytics if the Merger shall not have been consummated by January 8, 1999 (provided that the right to terminate this Agreement under this Section Section 8.1((b)) shall not be available to any party whose failure to fulfill any obligation
under this Agreement has been the cause of or resulted in the failure of the Merger to occur on or before such date);
(c) by either InsWeb or Benelytics if a court of competent jurisdiction or other Governmental Entity shall have issued a nonappealable final order, decree or ruling or taken any other action, in each case having the effect of permanently restraining, enjoining or otherwise prohibiting the Merger, except if the party relying on such order, decree or ruling or other action has not complied with its obligations under Section Section 6.9 of this Agreement;
(d) by InsWeb, if the Board of Directors of Benelytics shall have withdrawn or modified its recommendation of this Agreement or the Merger in a manner adverse to InsWeb or shall have publicly announced or disclosed to any third party its intention to do any of the foregoing; or
(e) by InsWeb or Benelytics, if there has been a material breach of any representation, warranty, covenant or agreement on the part of the other party set forth in this Agreement, which breach (i) causes the conditions set forth in Section Section 7.2((a)) or ((b)) (in the case of termination by InsWeb) or Section 7.3((a)) or ((b)) (in the case of termination by Benelytics) not to be satisfied and (ii) shall not have been cured within ten (10) business days following receipt by the breaching party of written notice of such breach from the other party.
Section 8.2 Effect of Termination. In the event of termination of this Agreement as provided in Section Section 8.1, there shall be no liability or obligation on the part of InsWeb, Benelytics, Sub or their respective officers, directors, shareholders or Affiliates, except to the extent that such termination results from the willful breach by a party of any of its representations, warranties or covenants set forth in this Agreement; provided that, the provisions of Sections Section 6.4 (second sentence), 6.8 and 6.10 of this Agreement shall remain in full force and effect and survive any termination of this Agreement.
Section 8.3 Amendment. This Agreement may be amended by the parties hereto, by action taken or authorized by their respective Boards of Directors, at any time before or after approval of the matters presented in connection with the Merger by the shareholders of Benelytics and the stockholders of InsWeb, but, after any such approval, no amendment shall be made which by law requires further approval by such shareholders or stockholders without such further approval. This Agreement may not be amended except by an instrument in writing signed on behalf of each of the parties hereto.
Section 8.4 Extension; Waiver. At any time prior to the Effective Time,
the parties hereto, by action taken or authorized by their respective Boards of
Directors, may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party.
ARTICLE IX
ESCROW AND INDEMNIFICATION
Section 9.1 Survival of Representations and Warranties. If the Merger occurs, all of the representations and warranties contained in this Agreement shall survive the Closing Date and shall continue in full force and effect until one year following the Effective Time (the "Termination Date"), except for the representations and warranties of Benelytics set forth in Section Section 3.8, which shall survive until the applicable statutes of limitations expire.
Section 9.2 Indemnification by Benelytics Shareholders.
(a) Subject to the terms and conditions contained herein, each of the shareholders of Benelytics and the holders of the Benelytics Notes shall indemnify, defend and hold harmless InsWeb, its officers, directors, employees and attorneys, all subsidiaries and affiliates of InsWeb, and the respective officers, directors, employees and attorneys of such entities (all such persons and entities being collectively referred to as the "InsWeb Group") from, against, for and in respect of any and all losses, damages, costs and expenses (including reasonable legal fees and expenses) which any member of the InsWeb Group may sustain or incur which are caused by or arise out of (i) any inaccuracy in or breach of any of the representations, warranties or covenants made by Benelytics in this Agreement, including the Benelytics Disclosure Schedule or (ii) any Benelytics Transaction Expenses in excess of $60,000 in aggregate (collectively, "InsWeb Losses"). References to shareholders of Benelytics, Benelytics shareholders, holders of Benelytics Notes or words of similar import in this Article IX shall be deemed to be references to the persons who were shareholders of Benelytics or holders of Benelytics Notes immediately prior to the Effective Time.
(b) No shareholder of Benelytics or holder of a Benelytics
Note shall be required to indemnify any member of the InsWeb Group for any
InsWeb Losses until the aggregate amount of all InsWeb Losses under all claims
shall exceed $50,000 (the "Floor") (except for claims pursuant to clause (ii) of
Section 9.2(a), which shall not be subject to the Floor); provided, however,
that if the aggregate amount of InsWeb Losses in respect of such claims exceeds
the Floor, the shareholders of Benelytics and the holders of the Benelytics
Notes shall indemnify such member or members of the InsWeb Group for all InsWeb
Losses (including the initial $50,000) in respect of such claims, subject to the
further limitations set forth herein; and provided, further, except as
specifically provided in Section Section 9.2((d)), the maximum aggregate
liability of the shareholders of Benelytics pursuant to Section Section 9.2((a))
shall in no event exceed the aggregate value of the Escrow Shares, as determined
pursuant to the Escrow Agreement.
(c) The obligation of the shareholders of Benelytics and the holders of the Benelytics Notes to indemnify members of the InsWeb Group for an InsWeb Loss under this Article IX is subject to the condition that the Shareholder Representative shall have received a claim for such InsWeb Loss on or before the Termination Date.
(d) The provisions of Sections Section 9.2((b)) and ((c)) and
Section 9.6 shall not limit, in any manner any remedy at law or in equity to
which any member of the InsWeb Group shall be entitled against Benelytics, any
shareholder of Benelytics, or any holder of a Benelytics Note as a result of
willful fraud or intentional misrepresentation by Benelytics, such shareholder,
such noteholder or any of their respective representatives.
Section 9.3 Procedures for Indemnification.
(a) As used in this Article IX, the term "Indemnitee" means the member or members of the InsWeb Group seeking indemnification hereunder.
(b) A claim for indemnification hereunder (an "Indemnification
Claim") shall be made by Indemnitee by delivery of a written notice to the
Shareholder Representative and the Escrow Agent requesting indemnification and
specifying the basis on which indemnification is sought in reasonable detail
(and shall include relevant documentation related to the Indemnification Claim),
the amount of the asserted InsWeb Losses and, in the case of a Third Party Claim
(as defined in Section Section 9.4), containing (by attachment or otherwise)
such other information as Indemnitee shall have concerning such Third Party
Claim.
(c) If the Indemnification Claim involves a Third Party Claim, the procedures set forth in Section Section 9.4 shall be observed by Indemnitee and the Shareholder Representative.
(d) The Escrow Agent will not release any Escrow Shares held in the Escrow Account pursuant to an Indemnification until such Indemnification Claim has been resolved in accordance with Section 9.6.
Section 9.4 Defense of Third Party Claims. Should any claim be made, or suit or proceeding be instituted against an Indemnitee which, if prosecuted successfully, would be a matter for which such Indemnitee is entitled to indemnification under this Article IX (a "Third Party Claim"), the obligations and liabilities of the parties hereunder with respect to such Third Party Claim shall be subject to the following terms and conditions:
(a) Indemnitee shall give the Shareholder Representative and
the Escrow Agent written notice of any such claim promptly after receipt by
Indemnitee of notice thereof, and the Shareholder Representative may undertake
control of the defense thereof by counsel of its own choosing reasonably
acceptable to Indemnitee. Indemnitee may participate in the defense through its
own counsel at its own expense. The assumption of the defense of any Third Party
Claim by the Shareholder Representative shall be an acknowledgment by the
Shareholder Representative that such Third Party Claim is subject to
indemnification under the provisions of this Article IX. If, however, the
Shareholder Representative fails or refuses to undertake the defense of such
Third Party Claim within fifteen (15) days after written notice of such claim
has been delivered to the Shareholder Representative by Indemnitee, Indemnitee
shall have the right to undertake the defense, compromise and, subject to
Section Section 9.5, settlement of such Third Party Claim with counsel of its
own choosing. In the circumstances described in the preceding sentence,
Indemnitee shall, promptly upon its assumption of the
defense of such Third Party Claim, make an Indemnification Claim as specified in
Section Section 9.3((b)), which shall be deemed an Indemnification Claim that is
not a Third Party Claim for the purposes of the procedures set forth herein.
Failure of Indemnitee to furnish written notice to the Shareholder
Representative or the Escrow Agent of a Third Party Claim shall not release the
shareholders of Benelytics from their obligations hereunder, except to the
extent they are prejudiced by such failure.
(b) Indemnitee and the Shareholder Representative shall cooperate with each other in all reasonable respects in connection with the defense of any Third Party Claim, including making available records relating to such claim and furnishing employees of Indemnitee as may be reasonably necessary for the preparation of the defense of any such Third Party Claim or for testimony as witness in any proceeding relating to such claim.
Section 9.5 Settlement of Third Party Claims. Unless the Shareholder
Representative has failed to fulfill its obligations under this Article IX, no
settlement by Indemnitee of a Third Party Claim shall be made without the prior
written consent by or on behalf of the Shareholder Representative, which consent
shall not be unreasonably withheld or delayed. If the Shareholder Representative
has assumed the defense of a Third Party Claim as contemplated by Section
Section 9.4, no settlement of such Third Party Claim may be made by the
Shareholder Representative without the prior written consent by or on behalf of
Indemnitee, which consent shall not be unreasonably withheld or delayed, unless
such settlement includes a complete release of all claims against Indemnitee.
Section 9.6 Manner of Indemnification.
(a) To provide a fund against which members of the InsWeb Group may assert Indemnification Claims under this Article IX, the Escrow Shares shall be withheld and deposited into Escrow pursuant to the Escrow Agreement in accordance with the provisions of Section Section 2.3 hereof. The Escrow Shares so deposited shall be held and distributed in accordance with the Escrow Agreement.
(b) Each Indemnification Claim asserted against the shareholders of Benelytics and the holders of the Benelytics Notes pursuant to this Article IX shall be made only in accordance with the Escrow Agreement, subject to the provisions of Section Section 9.2((d)) hereof.
Section 9.7 Shareholder Representative. For purposes of this Agreement the shareholders of Benelytics and the holders of the Benelytics Notes, without any further action on the part of any such person, shall be deemed to have consented to the appointment of Marshall as the representative of such persons (the "Shareholder Representative"), as the attorney-in-fact for and on behalf of each such person, and the taking by the Shareholder Representative of any and all actions and the making of any decisions required or permitted to be taken by him under this Agreement, including, without limitation, the exercise of the power to (i) execute the Escrow Agreement, (ii) authorize delivery to InsWeb of the Escrow Shares, or any portion thereof, in satisfaction of Indemnification Claims, (iii) agree to, negotiate, enter into settlements and compromises of, and demand arbitration and comply with orders of courts and awards of
arbitrators with respect to such Indemnification Claims, (iv) resolve any Indemnification Claims and (v) take all actions necessary in the judgment of the Shareholder Representative for the accomplishment of the foregoing and all of the other terms, conditions and limitations of this Agreement and the Escrow Agreement. Accordingly, the Shareholder Representative has unlimited authority and power to act on behalf of each shareholder of Benelytics and each holder of a Benelytics Note with respect to this Agreement and the Escrow Agreement and the disposition, settlement or other handling of all Indemnification Claims, rights or obligations arising from and taken pursuant to this Agreement. The shareholders of Benelytics and the holders of the Benelytics Notes will be bound by all actions taken by the Shareholder Representative in connection with this Agreement, and InsWeb shall be entitled to rely on any action or decision of the Shareholder Representative. The Shareholder Representative will incur no liability with respect to any action taken or suffered by him in reliance upon any notice, direction, instruction, consent, statement or other document believed by him to be genuine and to have been signed by the proper person (and shall have no responsibility to determine the authenticity thereof), nor for any other action or inaction, except his own willful misconduct, bad faith or gross negligence. In all questions arising under this Agreement or the Escrow Agreement, the Shareholder Representative may rely on the advice of counsel, and for anything done, omitted or suffered in good faith by the Shareholder Representative based on such advice, the Shareholder Representative will not be liable to anyone. The Shareholder Representative will not be required to take any action involving any expense unless the payment of such expense is made or provided for in a manner satisfactory to him. At any time during the term of the Escrow Agreement, holders of a majority of the Escrow Shares can appoint a new Shareholder Representative by written consent by sending notice and a copy of the written consent appointing such new Shareholder Representative signed by holders of a majority of the Escrow Shares to InsWeb and the Escrow Agent. Such appointment will be effective upon the later of the date indicated in the consent or the date such consent is received by InsWeb and the Escrow Agent.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with confirmation of receipt) to the parties at the following addresses (or at such other address for a party as shall be specified by like notice):
(a) if to InsWeb or Sub, to:
InsWeb Corporation 901 Marshall Street Redwood City, CA 94063 Attention: Marian C. Taylor, Esq.
Fax: (650) 817-0350
Tel: (650) 298-9100
with a copy to:
Gray Cary Ware & Freidenrich LLP 400 Hamilton Avenue Palo Alto, CA 94301-1825 Attention: Dennis C. Sullivan, Esq.
Fax: (650) 327-3699
Tel: (650) 328-6561
(b) if to Benelytics, to
Benelytics, Inc. 4320 Stevens Creek Boulevard, Suite 275 San Jose, CA 95129 Attention: Arthur Young Fax: (800) 924-4482 Tel: (408) 260-6931
with a copy to:
Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attention: Robert Brownell, Esq.
Fax: (650) 493-9300
Tel: (650) 493-6811
(c) if to the Shareholder Representative, to
Mr. Charles Marshall c/o Benelytics, Inc. 4320 Stevens Creek Boulevard, Suite 275 San Jose, CA 95129 Fax: (800) 924-4482 Tel: (408) 260-6931
with a copy to:
Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attention: Robert Brownell, Esq.
Fax: (650) 493-9300
Tel: (650) 493-6811
Section 10.2 Interpretation. When a reference is made in this Agreement to an Article or Section, such reference shall be to an Article or Section of this Agreement unless otherwise indicated. The words "include," "includes" and "including" when used herein shall be deemed in each case to be followed by the words "without limitation." The phrase "made available" in this Agreement shall mean that the information referred to has been made available if requested by the party to whom such information is to be made available. The phrases "the date of this Agreement," "the date hereof," and terms of similar import, unless the context otherwise requires, shall be deemed to refer to the date set forth in the first sentence of this Agreement. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement.
Section 10.3 Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties, it being understood that all parties need not sign the same counterpart.
Section 10.4 Severability. In the event that any provision of this Agreement, or the application thereof, becomes or is declared by a court of competent jurisdiction to be illegal, void or unenforceable, the remainder of this Agreement will continue in full force and effect and the application of such provision to other persons or circumstances will be interpreted so as reasonably to effect the intent of the parties hereto. The parties further agree to replace such void or unenforceable provision of this Agreement with a valid and enforceable provision that will achieve, to the extent possible, the economic, business and other purposes of such void or unenforceable provision.
Section 10.5 Entire Agreement. This Agreement (including the documents and the instruments referred to herein) constitutes the entire agreement and supersedes all prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof, other than the Confidentiality Agreement.
Section 10.6 Governing Law. This Agreement shall be governed and construed in accordance with the laws of the State of California without regard to any applicable conflicts of law.
Section 10.7 Assignment. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any of the parties hereto (whether by operation of law or otherwise) without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the parties and their respective successors and assigns.
Section 10.8 Third Party Beneficiary. Nothing contained in this Agreement is intended to confer upon any person other than the parties hereto and their respective successors and permitted assigns, any rights, remedies or obligations under, or by reason of this Agreement, except that (i) the Shareholder Representative (including any duly appointed successor Shareholder Representative) is an express intended third party beneficiary of Article IX, (ii) the
holders of Benelytics Warrants are expressly intended third party beneficiaries of Articles I and II, and (iii) the persons who are shareholders of Benelytics and holders of Benelytics Notes immediately prior to the Effective Time (and their successors and assigns) are express intended third party beneficiaries of Articles I, II, IV and IX and (iv) each of the foregoing persons is an express intended third party beneficiary of Section Section 6.7 and, to the extent relevant to any of the foregoing, Article X and as such are entitled to rely on the provisions hereof as if a party hereto.
IN WITNESS WHEREOF, InsWeb, Sub and Benelytics have caused this Agreement to be signed by their respective officers thereunto duly authorized, and the Shareholder Representative has signed this Agreement, as of the date first written above.
"BENELYTICS" "INSWEB"
BENELYTICS, INC. INSWEB CORPORATION
By: /s/ Arthur J. Young By: /s/ Darrell J. Ticehurst
------------------------------- --------------------------------
Printed: Arthur J. Young Printed: Darrell J. Ticehurst
-------------------------- ---------------------------
Title: President Title: President
---------------------------- -----------------------------
"SHAREHOLDER REPRESENTATIVE" "SUB"
/s/ Charles T. Marshall
----------------------------------
Charles T. Marshall BENELYTICS ACQUISITION CORPORATION
By: /s/ Marian C. Taylor
--------------------------------
Printed: Marian C. Taylor
---------------------------
|
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION]
Exhibit 10.16
JOINT VENTURE AGREEMENT
by and between
SOFTBANK CORP.
and
INSWEB CORPORATION
December 15, 1998
JOINT VENTURE AGREEMENT
This JOINT VENTURE AGREEMENT ("Agreement") is made as of December 15, 1998, by and between INSWEB CORPORATION, a Delaware corporation ("INSWEB'), and SOFTBANK CORP., a Japanese corporation ("SOFTBANK"). INSWEB and SOFTBANK are hereunder also referred to collectively as the "Parties" and individually as a "Party."
RECITALS
A. SOFTBANK is a leading provider of information and distribution services in Japan and worldwide as infrastructure for the digital information industry.
B. INSWEB is an electronic commerce company that serves consumers and the insurance industry by providing a comprehensive Internet insurance marketplace in which, by accessing an online site, consumers can identify appropriate insurance providers and insurance companies can identify interested consumers.
C. The Parties desire to form a joint venture to provide such an online marketplace for consumers in Japan and the Republic of South Korea on the terms and subject to the conditions set forth herein.
NOW THEREFORE, for valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:
AGREEMENT
1. DEFINITIONS
1.1 "ADDITIONAL PARTY" is defined in Section 3.5.
1.2 "AFFILIATE" means any Person: (a) that is controlled by, controls, or
is under common control with a Party (collectively, a "CONTROLLED PERSON"); or
(b) that is controlled by, controls, or is under common control with any such
Controlled Person, in each case for so long as such control continues; PROVIDED,
HOWEVER, that Affiliates of a Party shall include Persons in which such Party
owns, directly or indirectly, at least 30 percent (30%) of the outstanding
voting shares, regardless of whether such control actually exists. For purposes
of this definition and the definition of Fund in Section 1.21, "CONTROL" shall
mean the possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
other ownership interests, by contract or otherwise).
1.3 "ANNUAL PLAN" means a business operations plan detailing the Company's goals and procedures for personnel, technical, financial, administrative and marketing activities for the Company's next succeeding fiscal year, as approved each year and revised from time to time by the Board.
1.4 "APPLICABLE LAW" means, as to any Person, any statute law, rule, regulation, directive, treaty, judgment, order, decree or injunction of any Governmental Authority that is applicable to or binding upon such Person or any of its properties.
1.5 "ARTICLES" means the articles of incorporation of the Company in the form of attached Exhibit 1.5. as amended from time to time.
1.6 "BOARD" means the board of directors of the Company.
1.7 "BUSINESS" means the Company's business of providing an online insurance marketplace for consumers and the insurance industry in Japan and the Republic of South Korea.
1.8 "BUSINESS DAY" means a day on which commercial banks in California and Japan are generally open to conduct their regular banking business.
1.9 "CLOSING DATE" is defined in Section 3.2(a).
1.10 "COMMERCIAL CODE" means the Commercial Code of Japan, as amended and in effect from time to time.
1.11 "COMMON STOCK" means common stock of the Company as authorized by the Articles.
1.12 "COMPANY" is defined in Section 3.1.
1.13 "COMPANY INTEREST" means, as to any Person, the percentage interest represented by the Securities then held by such Person divided by all then outstanding Securities (on an as converted to Common Stock basis).
1.14 "CONFIDENTIAL INFORMATION" is defined in Section 5.2(a).
1.15 "CONSULTING SERVICES AGREEMENT" means the Consulting Services Agreement to be entered into between SOFTBANK and the Company on the Closing Date in the form of attached Exhibit 1.15, as amended from time to time.
1.16 "CORPORATE AUDITOR" means a corporate auditor (KANSA-YAKU) of the Company with the powers and duties as specified in the Commercial Code.
1.17 "DIRECTOR". means a director of the Company with the powers and duties as specified in the Commercial Code and the Articles.
1.18 "DISCLOSING PARTY" is defined in Section 5.2(a).
1.19 "EFFECTIVE DATE" means the date of this Agreement.
1.20 "ESTABLISHMENT DATE" is defined in Section 3.1.
1.21 "FUND" means any investment fund controlled by SOFTBANK or any SOFTBANK Affiliate.
1.22 "GOVERNMENTAL AUTHORITY" means any domestic or foreign govemment, governmental authority, court, tribunal, agency or other regulatory, administrative or judicial agency, commission or organization, and any subdivision branch or department of any of the foregoing.
1.23 "INTEL" is defined in Section 3.5.
1.24 "J&H" is defined in Section 3.5.
1.25 "LAUNCH DATE" is defined in Section 3.1.
1.26 "LICENSE AGREEMENT" means the License Agreement to be entered into between INSWEB and the Company on the Closing Date in the form of attached EXHIBIT 1.26, as amended from time to time.
1.27 "LOAN" is defined in Section 3.2(b).
1.28 "PARTNERS" means such Persons as SOFTBANK deems strategically important to the success of the Company and proposes to include in the SOFTBANK Group pursuant to Section 3.2(a).
1.29 "PARTY" and "PARTIES" are defined in the opening paragraph of this Agreement and shall include any Additional Party acquiring Securities pursuant to Section 3.5.
1.30 "PERSON" means a natural individual, Governmental Authority, partnership, firm, corporation, or other business association.
1.31 "PRESIDENT" means the president of the Company with the powers and duties as specified in the Articles and the Commercial Code.
1.32 "PROMISSORY NOTE" means the promissory note to be made by INSWEB in favor of SOFTBANK on the Closing Date in the form of attached EXHIBIT 1.32, as amended or replaced from time to time.
1.33 "RECEIVING PARTY" is defined in Section 5.2(a).
1.34 "SB FINANCE" means SOFTBANK Finance Corporation, a to-be-formed wholly-owned Japanese subsidiary of SOFTBANK.
1.35 "SECURITIES" means all outstanding shares of Common Stock, and any other equity securities of the Company or instruments exercisable for or convertible into Common Stock.
1.36 "SOFTBANK GROUP" is defined in Section 3.2(a).
1.37 "SPECIAL EXCEPTIONS LAW" means the law pertaining to Special Exceptions to the Commercial Code concerning Auditors of Companies (KABUSHIKI KAISHA).
1.38 "STOCK PURCHASE AGREEMENT" means a Series D Preferred Stock Purchase Agreement between SOFTBANK (or a SOFTBANK Affiliate) and INSWEB in the form of attached EXHIBIT 1.38, as amended from time to time.
1.39 "TERM"is defined in Section 7.1.
1.40 "TRANSACTION DOCUMENTS" means this Agreement, the Articles, the License Agreement, the Consulting Services Agreement and the Promissory Note.
1.41 "TRANSFERRED SHARES" is defined in Section 3.2(a).
2. PURPOSE OF JOINT VENTURE
The Parties hereby associate themselves in a joint venture relationship which shall have as its principal purpose the establishment and development of the Business, including, specifically, the development, implementation and marketing of an online marketplace in Japan where consumers may express an interest in purchasing particular types of insurance and the insurance companies may identify such interested consumers and provide such consumers with online pricing and other information, and all activities ancillary thereto. For the avoidance of doubt, such ancillary activities may include providing for third parties, under alternative "private label," joint-branding, or similar arrangements, some of all of the services provided as part of the online marketplace from time to time. The Parties acknowledge, however, their mutual intent to extend the Business to the Republic of South Korea subject to regulatory and strategic requirements.
3. ESTABLISHMENT AND CAPITALIZATION OF THE COMPANY
3.1 ESTABLISHMENT. The Parties agree that the joint venture contemplated by this Agreement shall be carried out exclusively through a newly-formed Japanese KABUSHIKI KAISHA initially established by SOFTBANK (the "COMPANY"). The Company's corporate name shall be "INSWEB KABUSHIKI KAISHA" in Japanese and "INSWEB Japan K.K." in English. The Parties shall use commercially reasonable efforts to cause (a) the Establishment Date to occur on or before December 31, 1998 and (b) the Launch Date to occur on or before March 31, 2000. For the purposes of this Agreement, "ESTABLISHMENT DATE" means the date on which the Company is established in accordance with the Commercial Code and "LAUNCH DATE" means the date on which the Company commences' commercial operations.
3.2 CAPITALIZATION.
(a) INITIAL CAPITALIZATION. The Company shall, as of the Establishment Date, have authorized capital stock consisting of one class of shares designated as Common Stock with the rights set forth in the Articles. The Articles shall initially provide for 48,000 authorized shares of Common Stock with par value of Y50,000 per share. At least six (6) Business Days
prior to the Closing Date, SOFTBANK shall notify INSWEB in writing of the SOFTBANK Affiliates, Funds and Partners which SOFTBANK proposes to include among the initial SOFTBANK shareholders of , the Company, and such Affiliates Funds and Partners to whom INSWEB does not reasonably object in writing at least three (3) Business Days prior to the Closing Date (the "SOFTBANK Group") shall become shareholders of the Company. The Company's initial equity shall be funded as follows:
(i) SOFTBANK INITIAL SUBSCRIPTION. On the Business Day immediately following the Establishment Date, SOFTBANK shall subscribe for 12,000 shares of Common Stock, representing a one hundred percent (100%) Company Interest, for an aggregate purchase price of Y600,000,000.
(ii) INSWEB AND SOFTBANK GROUP PURCHASES. On a date within fifteen (15) days after the Establishment Date mutually agreed by the Parties (the "Closing Date"), SOFTBANK shall (x) sell to INSWEB, and INSWEB shall purchase from SOFTBANK, 4,800 shares of Common Stock representing a forty-percent (40%) Company Interest (the "Transferred Shares") for an aggregate purchase price of Y240,000,000 and (y) sell to the members of the SOFTBANK Group (other than SOFTBANK) up to 7,200 shares of Common Stock, subject in each case to the SOFTBANK Group member agreeing in writing on or prior to the Closing Date to be bound by the terms hereof SOFTBANK covenants that at all times through the Closing Date, SOFTBANK shall own the Transferred Shares beneficially and of record, free and clear of all liens, encumbrances and other adverse claims.
(b) LOAN. In order to fund INSWEB's purchase of Common Stock pursuant to this Section 3.2, SOFTBANK hereby agrees to make a loan to INSWEB on the Closing Date in the amount of Y240,000,000 (the "LOAN"), and INSWEB hereby agrees to borrow from and repay to SOFTBANK the Loan. The Loan shall be subject to INSWEB's prior execution and delivery to SOFTBANK of the Promissory Note and the terms of INSWEB's repayment of the Loan shall be governed thereby. INSWEB hereby agrees that (i) the Loan shall be used solely to find INSWEB's purchase of Common Stock pursuant to this Section 3.2 and (ii) on the Closing Date, SOFTBANK may retain the proceeds of the Loan as payment for such purchase.
(c) CERTAIN DELIVERIES. On or before the Closing Date, and as a condition to the purchase and sale of the Transferred Shares and the funding of the Loan:
(i) the Establishment Date shall have occurred;
(ii) SOFTBANK shall have executed and delivered the Consulting Services Agreement to the Company;
(iii) SOFTBANK shall have caused the Company to (A) execute and deliver the license Agreement to INSWEB, (B) execute and deliver the Consulting Services Agreement to SOFTBANK and (C) execute and deliver to each Party its written acknowledgment of, and agreement to abide by the terms of, this Agreement;
(iv) INSWEB shall have (A) executed and delivered the License Agreement to the Company and (B) executed and delivered the Promissory Note to SOFTBANK;
(v) each Party shall have received one original of each of the fully executed Transaction Documents; and
(vi) INSWEB and SOFTBANK (or one of SOFTBANK's Affiliates) shall have executed and delivered the Stock Purchase Agreement and the "Closing" thereunder (and as defined therein) shall have occurred.
In connection with the foregoing, INSWEB and SOFTBANK shall use their best efforts to cause the Closing under the Stock Purchase Agreement to occur on, or within (30) days after, the Effective Date hereunder.
(d) DELIVERY OF SHARE CERTIFICATES. On or promptly after the Closing Date, SOFTBANK shall cause the Company to issue and deliver to the members of the SOFTBANK Group and to INSWEB share certificates representing the shares of Common Stock purchased pursuant to this Section 3.2.
3.3 PREEMPTIVE RIGHTS; FINANCIAL ASSISTANCE.
(a) PREEMPTIVE RIGHTS. Each Party shall at all times have a preemptive right to purchase a pro rata portion (equal to such Party's then current Company Interest) of any new issuances of Common Stock or other Securities (other than issuances pursuant to an incentive stock option plan established pursuant to Section 3.4 or an initial public offering of Securities). The Company agrees to notify each Party in writing of any proposed new issuance of Securities to which such preemptive rights apply. Each Party shall notify each other Party and the Company, within ten (10) Business Days after receipt of such notice, of its decision to participate in any proposed new issuance of Securities (failure to so respond during such period constituting an election not to participate). In the event that a Party elects not to subscribe for such Party's full pro rata share of any newly issued Securities, each other Party shall be entitled to purchase its pro rata portion of any unsubscribed Securities and the non-subscribing Party shall vote its Securities to effectuate the proposed issuance. All new issuances of shares of Common Stock pursuant to this Section 3.3 shall be made at a price equal to or greater than par. The preemptive rights granted pursuant to this Section 3.3(a) shall cease to be of any further force or effect upon the closing date of an initial public offering of securities of the Company.
(b) FINANCIAL ASSISTANCE. The Board may, by written notice to the Parties pursuant to the terms of this Agreement, call for the Parties to provide additional financial assistance to the Company, including in the form of credit support or loans, and, in such event, each Party shall make such financial assistance available to the Company pro rata in accordance with its respective Company Interest.
3.4 INCENTIVE STOCK OPTION PLAN. The Parties agree that an incentive stock option plan providing for reasonable grants of incentive stock options to the employees of the Company,
INSWEB and SOFTBANK would be beneficial to the Company, and agree to cooperate in good faith with a view towards establishing such a plan within twelve (12) months after the Closing Date on terms mutually agreed by the Parties. The Securities allocated to an incentive stock option plan shall not, initially, represent more than a ten percent (10%) Company Interest. Any Securities allocated to an incentive stock option plan shall be newly issued and, accordingly, shall dilute the Parties' respective Company Interests on a pro rata basis.
3.5 ADDITIONAL PARTIES. The Parties further agree that adding additional
strategic investors with expertise in the insurance industry or in technologies
relevant to INSWEB's business would be beneficial to the Company and therefore
agree that during the three (3) month period commencing on the Effective Date
(a) INSWEB may, at its option, invite J&H March & McLennan ("J&H") to acquire a
Company Interest of up to fifteen percent (15%) and (b) SOFTBANK may at its
option, invite Intel Corporation ("INTEL") to acquire a Company Interest of one
percent (1%) in each case at a price equal to Y50,000 per share (J&H and Intel,
each an "Additional Party," and, collectively, the "Additional Parties"). In
the case of J&H, the initial three percent (3%) of such Company Interest shall
be acquired from SOFTBANK (or, at SOFTBANK's election, another member of the
SOFTBANK Group) and the balance, if any, of such Company Interest shall be
acquired from INSWEB. In the case of Intel, the one percent (1%) Company
Interest shall be acquired from SOFTBANK (or, at SOFTBANK's election, another
member of the SOFTBANK Group). INSWEB or SOFTBANK may exercise such right with
respect to its Invited Additional Party by delivering written notice of such
election to the other Party and the Company, within three (3) months after the
Effective Date, (1) stating that such notice constitutes an election under this
Section 3.5, (2) setting forth the number of shares to be acquired by the
Additional Party up to the respective Company Interests set forth above, and
(3) duly executed by INSWEB or SOFTBANK, as applicable. Upon any such election,
the Parties shall cooperate in all actions necessary and appropriate to promptly
effect the purchases and sales described in the notice, including, without
limitation, the execution of all reasonably necessary or advisable documentation
and the acquisition of all required approvals and consents from, and the making
of all required applications, notifications and filings to or with, relevant
Governmental Authorities. Any sale of Securities hereunder shall be subject in
each case to each purchaser's prior written agreement to be bound by the terms
of this Agreement. In addition, INSWEB hereby agrees that, upon the closing of
any sale of Securities by INSWEB to an Additional Party hereunder, INSWEB shall
pay to SOFTBANK the entire amount of the proceeds to INSWEB of such sale as a
partial prepayment of the outstanding principal amount of the Promissory Note.
3.6 SOFTBANK GROUP COMPANY INTEREST. The Parties agree to implement the Company's capital structure and the terms of this Agreement so that the SOFTBANK Group's Company Interest (on a fully diluted basis taking into account any shares reserved for issuance pursuant to any incentive stock option plan) shall, at all times during the Term, including following the Company's initial public offering, be not less than forty percent (40%).
4. OPERATION AND MANAGEMENT OF THE COMPANY
4.1 OPERATION OF THE COMPANY. Each Party agrees to take all actions necessary to ensure that the Company shall be operated in accordance with the terms of this Agreement and the other Transaction Documents, including, without limitation to vote all Securities held by it (and to cause all Securities held by its permitted transferees under Section 8 (and in the case of SOFTBANK, all other members of the SOFTBANK Group) to be voted) to effect the terms hereof.
4.2 BOARD OF DIRECTORS. The Company will be managed by the Board in accordance with the terms of this Agreement and Applicable Law. The Board shall initially consist of five (5) Directors, three (3) of whom shall be appointed by SOFTBANK and two (2) of whom shall be appointed by INSWEB. If INSWEB's Company Interest at any time decreases to less than twenty-five percent (25%), the Parties shall cause the Board constituency to be adjusted within (30) Business Days of such d e so that only one (1) Director is appointed by INSWEB.
4.3 REMOVAL; REAPPOINTMENT OF DIRECTORS. Any Director may be removed for cause in accordance with Applicable Law. In addition, each Party having the right to appoint a Director pursuant to this Section 4 shall also have the right, in its sole discretion, to remove such Director at any time, effective upon delivery of witten notice to the Company, the Director to be removed and to the other Party. In the case of a vacancy in the office of a Director for any reason (including removal pursuant to the preceding sentence), the vacancy shall be filled by the Party that appointed the Director in question.
4.4 BOARD MEETINGS. The President shall have the authority to convene
Board meetings, including the authority to specify the time and place of such
meetings. Directors may attend Board meetings in person or by any other means
of attendance permitted under the Commercial Code, PROVIDED, HOWEVER, that
(a) the Board shall meet at least once during each semi-annual fiscal period and
(b) written notice of all Board meetings shall be given not less than seven (7)
calendar days in advance of each meeting (which seven (7) calendar day period
may be shortened by written waiver of Directors or actual attendance by
Directors, without objection, at a Board meeting). Board meetings shall be
conducted in English or Japanese (with English interpretation if requested by
INSWEB), and minutes of such meetings shall be prepared by the Company in
Japanese and distributed to each Director promptly following each meeting.
Proposals or reports brought before any Board meeting for information or action
(including without limitation the Company's annual and semi-annual financial
statements) shall be prepared in Japanese (with English translations, if
requested by INSWEB). The cost of attending Board meetings shall be borne, for
any Director, by the Party appointing the Director.
4.5 BOARD QUORUM; RESOLUTIONS. A quorum shall be deemed to exist for purposes of Board actionsso long as at least three (3) Directors are present. Any action, determination or resolution of the Board shall require the affirmative vote of a majority of Directors present at a meeting at which a valid quorum pursuant to this Section 4.5 is present.
4.6 INSWEB APPRAISAL RIGHTS. Notwithstanding any other provision of this Agreement, in addition to approval by the Board, INSWEB's prior written approval (either in the
form of a written consent or in the form of INSWEB's Director(s) voting in favor of such action at a duly held Board meeting) shall be required for any of the actions described in attached EXHIBIT 4.6. In the event the actions identified in EXHIBIT 4.6 or any other corporate actions are required by the Commercial Code to be approved by the Company's shareholders, then authorization shall require an affirmative vote of each of the Parties in their capacities as shareholders of the Company.
4.7 REPRESENTATIVE DIRECTOR. The Company's day-to-day operations will be managed by the President, who shall be the Representative Director of the Company in accordance with the Articles. The President shall be elected by the Board from among the Directors nominated by SOFTBANK pursuant to Section 4.2. SOFTBANK shall have the right, exercisablel in its sole discretion, to remove and replace the President at any time, effective upon the delivery of written notice to the Company, the President and INSWEB.
4.8 CORPORATE AUDITORS. The Company shall have three (3) Corporate Auditors, each of whom shall be appointed by SOFTBANK (one (1) of whom shall serve on a full-time basis). A Corporate Auditor may be removed for cause in accordance with Applicable Law. SOFTBANK shall also have the right, exercisable in its sole discretion, to remove and replace any Corporate Auditor at any time, effective upon the delivery of written notice to the Company, the Corporate Auditor to be removed and INSWEB.
4.9 SHAREHOLDERS' MEETINGS. Shareholders of the Company shall receive notice of each shareholders' meeting at least thirty (30) calendar days before the scheduled date of such meeting. The Company shall have at least one shareholders' meeting each calendar year. Such meeting will take place in Tokyo, Japan at such time and place as is determined by the Board. Meetings shall be conducted in Japanese (with English interpretation if requested by INSWEB), and minutes of such meetings shall be prepared by the Company in Japanese.
4.10 ANNUAL PLAN.
(a) The President shall prepare, and the Board shall approve, an
Annual Plan with respect to each fiscal year of the Company no later than thirty
(30) days prior to the commencement of the fiscal year, PROVIDED, HOWEVER that
the initial Annual Plan shall cover the period from the Establishment Date until
the end of the first fiscal year in which the Launch Date is scheduled to occur
and shall be prepared and approved promptly following the Effective Date. The
Board shall cause the Company to conduct its operations in accordance with the
Annual Plan, which shall be prepared in English and which shall set forth in
reasonable detail the Company's financial performance goals, including, without
limitation, with respect to revenues, operating expenses, profits, capital
expenditures, return on net assets and return on equity for the period subject
thereto.
(b) At least thirty (30) days prior to the Board's approval of any Annual Plan, the Company shall forward a draft of the proposed Annual Plan to INSWEB for its review. INSWEB shall have the right, within twenty (20) days thereafter to identify, by written notice to the Company and each other Party, any portion of the proposed Annual Plan that it reasonably and in good faith believes (1) will involve activities outside the scope of the Business, (2) will
require a material cash expenditure or a material commitment of personnel by INSWEB (other than in accordance with an existing agreement between the Company and INSWEB), (3) will result in a fundamental difference between INSWEB's basic business model and the business model of the Company, or (4) would reasonably be expected to have a material adverse effect on INSWEB's business or operations in the United States. On providing any such notice, INSWEB will explain the basis for its belief in reasonable detail and Will thereafter meet with the Company to address its concerns, but pending an agreement with INSWEB the Board shall not approve, and the Company shall not implement, the portions of the Plan giving rise to INSWEB's concerns.
4.11 FINANCIAL STATEMENTS AND ACCOUNTING RECORDS. Financial statements for the Company, including, without limitation, a balance sheet, income statement, statement of cash flows and statement of shareholders equity, shall be submitted by the Company to each of the Parties (a) within sixty (60) days after the end of the first six (6) months of each fiscal year for such six (6) month period, and (b) within ninety (90) days after the end of each fiscal year for such year. Each of the annual financial statements shall be audited and certified by an internationally. recognized accounting firm (which will act as an independent. auditor under the Special Exceptions Law) retained by the Company, selected by SOFTBANK and approved by INSWEB which approval shall not be unreasonably withheld. All financial statements shall be prepared in accordance with generally accepted accounting principles in Japan and in reasonable detail, and shall contain such financial data as SOFTBANK and INSWEB may deem necessary in order to keep the Parties advised of the Company's financial status (although semi-annual statements need not include footnotes and may be subject to year-end adjustments). If INSWEB proposes to effect an initial public offering or becomes subject to the reporting requirements of the U.S. Securities Exchange Act of 1934, as amended, SOFTBANK shall thereafter cause the Company to provide INSWEB with such information as INSWEB may reasonably request for purposes of preparing and filing a registration statement with respect to such offering and complying with its periodic reporting. obligations under U.S. securities law; PROVIDED, HOWEVER, that INSWEB shall bear any costs incurred in connection with preparing such materials or reconciling the Company's financial statements with U.S. generally accepted accounting principles for such purposes.
4.12 RIGHT OF INSPECTION. During the regular office hours of the Company,
and upon reasonable notice to the Company, each Party that maintains at least a
twenty-five percent (25%) Company Interest'shall have (a) full access to all
properties, books of account and records of the Company, and (b) the right to
make copies from such books and records at its own expense. Any information
obtained by the Parties through exercise of.rights granted under this
Section 4.12 shall, to the extent constituting Confidential Information
hereunder, be subject to the confidentiality provisions set forth in
Section 5.2.
4.13 TRANSLATIONS. At the request of INSWEB, the Company shall prepare English translations of any minutes of any Board or shareholder meetings initially prepared in Japanese. Such translations shall be prepared by either the Company's own staff, or an outside translation service, at the Company's election and expense.
5. ADDITIONAL COVENANTS
5.1 COOPERATION. In accordance with the License Agreement, INSWEB shall
(i) provide the Company with a license, under its intellectual property rights
to conduct the Business and (ii) make its personnel available to provide the
Company with technical support. In accordance with the Consulting Services
Agreement, SOFTBANK shall provide consulting services to the. Company regarding
(a) necessary Japanese regulatory. approvals required for the Business,
(b) strategic business opportunities relating to the Business and (c) the
staffing, management and operation of the Company. Except for reimbursement of
reasonable out-of-pocket expenses incurred in connection with the foregoing
services, the Company shall not be required to pay any royalties or other fees
under the License Agreement or the Consulting Services Agreement; PROVIDED,
HOWEVER, that if the Company fails to complete its initial public offering prior
to the fourth (4th) anniversary of the Effective Date, royalties shall be
payable under the License Agreement and consulting fees shall be payable under
the Consulting Services Agreement, in an equal amount, calculated as a
percentage of the Company's gross revenues agreed upon by the Parties, such
amounts to be payable quarterly from and after the fourth (4th) anniversary of
the Effective Date.
5.2 CONFIDENTIALITY.
(a) The Parties recognize that, in connection with the performance of
this Agreement, each Party (in such capacity, the "DISCLOSING PARTY") may
disclose "Confidential Information" (as defined below) to the other Party (the
"RECEIVING PARTY"). For purposes of this Agreement "CONFIDENTIAL INFORMATION"
means (i) proprietary information (whether owned by the Disclosing Party or a
third party to whom the Disclosing Party owes a non-disclosure obligation)
regarding the Disclosing Party's business or (ii) information which is marked as
confidential at the time of disclosure to the Receiving Party, or if in oral
form, is identified as confidential at the time of oral disclosure and reduced
to writing or other tangible (including electronic) form including A prominent
confidentiality notice and delivered to the Receiving Party within (30) days of
disclosure. "Confidential Information" shall NOT include information which:
(A) was known to the Receiving Party at the time of the disclosure by the
Disclosing Party; (B) has become publicly known through no wrongful act of the
Receiving Party; (C) has rightfully been received by the Receiving Party from a
third party; or (D) has been independently developed by the Receiving Party.
The Receiving Party agrees (X) not to use any such Confidential Information for
any purpose other than in the performance of its obligations under this
Agreement or any Transaction Document and (Y) not to disclose any such
Confidential Information, except (1) to its employees (and in the case of
SOFTBANK, employees of other members of the SOFTBANK Group) who are reasonably
required to have the Confidential Information in connection herewith or with any
of the other Transaction Documents, (2) to its agent, representatives, lawyers
and other advisers that have a need to know such Confidential Information and
(3) pursuant to, and to the extent of, a request or order by a Governmental
Authority, provided that the Receiving Party has first given the Disclosing
Party written notice of such request or order. The Receiving Party agrees to
take all reasonable measures to protect the secrecy and confidentiality of, and
avoid disclosure or unauthorized use of, the Disclosing Party's Confidential
Information.
(b) Each Party acknowledges and agrees that (i) its obligations under this Section 5.2 are necessary and reasonable to protect the other Party and its business, (ii) any violation of these provisions could cause irreparable injury to the other Party for which money damages would be inadequate, and (iii) as a result, the other Party shall be entitled to obtain injunctive relief against the threatened breach of the provisions of this Section 5.2 without the necessity of proving actual damages. The Parties agree that the remedies set forth in this Section 5.2 are in addition to and in no way preclude any other remedies or actions that may be available at law or under this Agreement.
5.3 CONFIDENTIALITY OF AGREEMENT; PUBLICITY. Each Party agrees that the terms and conditions of this Agreement and the Transaction Documents shall be treated as Confidential Information and that no reference thereto shall be made thereto without the prior written consent of the other Party (which consent shall not be unreasonably withheld) except (a) as required by Applicable Law including, without limitation, those of the U.S. Securities and Exchange Commission and Japanese Governmental Authorities, (b) to its accountants, banks, financing sources, lawyers and other professional advisors, provided that such parties undertake in writing (or are otherwise bound by rules of professional conduct) to keep such information strictly confidential, (c) in connection with the enforcement of this Agreement, (d) to a party to a merger, acquisition or proposed merger or acquisition involving such Party, provided that such Person shall have executed an agreement containing confidentiality terms and conditions no less restrictive than the confidentiality terms and conditions set forth herein, (e) to a potential Additional Party, provided that such Person shall have executed an agreement containing terms and conditions no less restrictive than the confidentiality terms and conditions set forth herein, or (f) pursuant to joint press releases prepared in good faith and agreed upon by the Parties. The Parties will consult with each other, in advance, with regard to the terms of all proposed press releases, public announcements and other public statements with respect to the transactions contemplated hereby.
5.4 NONCOMPETITION. During the Term, neither Party shall directly or
(other than through the Company) indirectly, offer an online insurance
marketplace which (i) is targeted principally at Persons residing in Japan, or
the Republic of South Korea, and (ii) is principally intended to permit
consumers to receive online insurance quotes; PROVIDED, HOWEVER, that nothing in
this Agreement or the other Transaction Documents shall be deemed to
(1) preclude or limit SOFTBANK or its Affiliates from holding any equity
interest in, or doing business with, third parties who, currently or in the
future, provide such services in Japan or elsewhere on an incidental basis,. as
part of a general online service or (2) preclude or limit the services that may
be provided through SOFTBANK's joint ventures with Yahoo!, OnSale, E*Trade, or
Sonnet. In the event that this Agreement is terminated due to a Party's breach
(including, without limitation, a breach by a Party under the License Agreement
or the Consulting Agreement), the breaching Party's obligations pursuant to this
Section 5.4 shall remain in effect for a period of twenty-four (24) months
following such termination.
5.5 REGULATORY APPROVALS. SOFTBANK shall be primarily responsible for assisting the Company to obtain such approvals, consents and similar actions from Governmental Authorities in Japan, and INSWEB shall be primarily responsible for assisting the Company to
obtain such approvals, consents and similar actions from Governmental Authorities in the United States, as may be necessary or appropriate in order to consummate the transactions contemplated under the Transaction Documents. Each Party shall provide such assistance as the other Party may reasonably request in connection with such consents and approvals.
5.6 TRADEMARK REGISTRATION. SOFTBANK shall not register or attempt to register "INSWEB" or any other trademark, service mark or trade name of INSWEB (collectively, the "INSWEB Marks"), or any mark confusingly similar to any INSWEB Mark, and shall prevent the Company, other members of the SOFTBANK Group and any other transferee of SOFTBANK's Securities from doing so.
6. WARRANTIES OF THE PARTIES
6.1 WARRANTIES OF SOFTBANK. SOFTBANK hereby represents and warrants to INSWEB that, as of the Effective Date and as of the Closing Date, the following statements are and shall be true and correct:
(a) ORGANIZATION. SOFTBANK is a corporation duly organized and validly existing under the laws of Japan, and has the corporate power and authority to enter into and perform this Agreement and the Consulting Services Agreement.
(b) AUTHORIZATION. All corporate action on the part of SOFTBANK necessary for the authorization, execution and delivery of this Agreement and the Consulting Services Agreement and for the performance of all of its obligations hereunder and thereunder has been taken, and this Agreement and the Consulting Services Agreement when fully executed and delivered, shall each constitute a valid, legally binding and enforceable obligation of SOFTBANK.
(c) GOVERNMENT AND OTHER CONSENTS. Other than any licenses, permits, certifications or authorizations which may be required in connection with the Business, as to which SOFTBANK makes no representation, no consent, authorization, license, permit, registration or approval of, or exemption or other action by, any Governmental Authority, or any other Person, is required in connection with SOFTBANK's execution, delivery and performance of this Agreement or the Consultant Services Agreements, or if any such consent is required, SOFTBANK has satisfied the applicable requirements.
(d) EFFECT OF AGREEMENT. SOFTBANK's execution, delivery and
performance of this Agreement and the Consulting Services Agreement will not
(i) violate the Articles of Incorporation of SOFTBANK or any provision of
Applicable Law, (ii) violate any judgment, order, writ, injunction or decree of
any court applicable to SOFTBANK, (iii) have any effect on the compliance of
SOFTBANK with any applicable licenses, permits or authorizations which would
materially and. adversely affect SOFTBANK, (iv) result in the breach of, give
rise to a right of termination, cancellation or acceleration of any obligation
with respect to (presently or with the passage of time), or otherwise be in
conflict with any term of, or affect the validity or enforceability of, any
agreement or other commitment to which SOFTBANK is a party and which would
materially and adversely effect SOFTBANK, or (v) result in the creation of any
lien, pledge, mortgage, claim, charge or encumbrance upon any assets of SOFTBANK; PROVIDED, HOWEVER, that regulatory approval may be required in connection with conducting the Business and SOFTBANK makes no representation with respect to any such approvals.
(e) LITIGATION. There are no actions, suits or proceedings pending or, to SOFTBANK's knowledge, threatened, against SOFTBANK before any Governmental Authority which question SOFTBANK's right to enter into or perform this Agreement or the Consulting Services Agreement, or which question the validity of this Agreement or any of the other Transaction Documents.
(f) DISCLOSURE. No representation or warranty by SOFTBANK contained in this Agreement or in the Consulting Services Agreement, and no exhibit, writing or other instrument required to be furnished by SOFTBANK pursuant hereto contains any untrue statement of a material fact or omits any material fact necessary in order to make the statements and information contained therein not misleading.
6.2 WARRANTIES OF INSWEB. INSWEB hereby represents and warrants to SOFTBANK that, as of the Effective Date and as of the Closing Date, the following statements are and shall be true and correct:
(a) ORGANIZATION. INSWEB is a corporation duly organized and validly existing under the laws of Delaware, and has the corporate power and authority to enter into and perform this Agreement, the Promissory Note and the License Agreement.
(b) PERMITS; APPROVALS. INSWEB holds all licenses, permits, certifications and other authorizations, the absence of which would have a material adverse effect on INSWEB's financial condition or business, and there has been no default or violation under any such authorization and there is no proceeding or investigation that is pending or, to INSWEB's knowledge, threatened under which any such authorization may be revoked, terminated or suspended.
(c) AUTHORIZATION. All corporate action on the part of INSWEB necessary for the authorization, execution and delivery of this Agreement, the Promissory Note and the License Agreement and for the performance of all of its obligations hereunder and thereunder has been taken, and this Agreement, the Promissory Note and the License Agreement, when fully executed and delivered, shall each constitute a valid, legally binding and enforceable obligation of INSWEB.
(d) GOVERNMENT AND OTHER CONSENTS. Other than any licenses, permits or authorizations which may be required in connection with the Business, as to which INSWEB makes no representation, no consent, authorization, license, permit, registration or approval of, or exemption or other action by, any Governmental Authority, or any other Person, is required in connection with INSWEB's execution, delivery and performance of this Agreement, the Promissory Note or the License Agreement, or if any such consent is required, INSWEB has satisfied any applicable requirements.
(e) EFFECT OF AGREEMENT. INSWEB's execution, delivery and performance of this Agreement, the Promissory Note and the License Agreement will not (i) violate the Certificate of Incorporation of INSWEB or any provision of Applicable Law, (ii) violate any judgment, order, writ injunction or decree of any court applicable to INSWEB, (iii) have any effect on the compliance of INSWEB with any applicable licenses, permits or authorizations which would materially and adversely affect INSWEB, (iv) result in the breach of, give rise to a right of termination, cancellation or acceleration of any obligation with respect to (presently or with the passage of time), or otherwise be in conflict with, any term of, or affect the. validity or enforceability of any agreement or other commitment to which INS WEB is a party and which would materially and adversely affect INSWEB, or (v) result in the creation of any lien, pledge, mortgage, claim charge or encumbrance upon any assets of INSWEB; PROVIDED, HOWEVER, that regulatory approvals may be required in connection with conducting the Business and INSWEB makes no representation with respect to any such approvals.
(f) LITIGATION. There are no actions, suits or proceedings pendin or, to INSWEB's knowledge, threatened, against INSWEB before any Governmental Authority which question INSWEB's right to enter into or perform this Agreement, the Promissory Note or the License Agreement, or which question the validity of this Agreement or any of the other Transaction Documents.
(g) DISCLOSURE. No representation or warranty by INSWEB contained in this Agreement, the Promissory Note or the License Agreement, and no exhibit, writing or other instrument required to be furnished pursuant hereto contains any untrue statement of a material fact or omits any material fact necessary in order to make the statements and information contained therein not misleading.
7. TERM AND TERMINATION
7.1 TERM. This Agreement shall be effective as of the Effective Date, and shall continue in effect until terminated pursuant to Section 7.2 (the "TERM").
7.2 TERMINATION. This Agreement may be terminated as follows:
(a) Upon the mutual written agreement of SOFTBANK and INSWEB.
(b) By either SOFTBANK or INSWEB, effective immediately upon written notice to the other Party, if the other Party breaches any material provision of this Agreement or of any of the other Transaction Documents (other than the Promissory Note), and such breach continues for a period of thirty (30) days after the delivery of, written notice of the default, describing the default in reasonable detail.
(c) By either INSWEB or SOFTBANK, effective immediately upon written notice to the other Party and the Company in the event that the other Party is dissolved, liquidated or declared bankrupt or a voluntary or involuntary bankruptcy filing is made by such Party.
(d) By SOFTBANK, effective immediately upon notice to INSWEB, upon the occurrence of an Event of Default under, and as defined in, the Promissory Note.
(e) By SOFTBANK, effective immediately upon written notice to INSWEB, in the event that the Company has elected to terminate the License Agreement in accordance with its terms.
(f) By INSWEB, effective immediately upon written notice to SOFTBANK, in the event that INSWEB has elected to terminate the License Agreement in accordance with its terms.
7.3 EFFECT. Upon termination of this Agreement, the Parties shall negotiate in good faith a possible purchase by one Party of all outstanding Securities held by the other Party(ies) or the sale of the Company to a third party. In the event that, notwithstanding their good faith negotiations, the Parties are unable to agree upon one Party's purchase of the other Party(ies)'s Securities or the sale of the Company to a third party within thirty. (30) days of the notice of termination, the Parties shall cooperate to cause the Company to be liquidated as Promptly as practical in accordance with Applicable Law. The rights and obligations of the' Parties under Section 5.2, 5.3, 5.4 (to the extent provided the rein), this Section 7.3, and Section 7.4, 7.5 and 9 shall survive any termination of this Agreement.
7.4 RETURN OF CONFIDENTIAL INFORMATION. Upon the termination of this Agreement, each Party, at its own cost, shall promptly e to the Disclosing Party any and all documents and materials constituting or containing Confidential Information of the Disclosing Party which are in its possession or control, and all copies and extracts thereof, or at its option, shall destroy such documents, materials, copies and extracts and certify such destruction in writing to the Disclosing Party.
7.5 CONTINUING LIABILITY. Termination of this Agreement for any reason shall not release any Party from any liability or obligation which has already accrued as of the effective date of such termination, and shall not constitute a waiver or release of, or otherwise be deemed to prejudice or adversely affect, any rights, remedies or claims, whether for damages or otherwise, which a Party may have hereunder, at law, equity or otherwise or which may arise out of or in connection with such termination.
8. TRANSFER RESTRICTIONS
8.1 GENERAL RESTRICTION. Subject to Section 3.5, 8.2, 8.3 and 8.4 each Party agrees to hold its Securities during the Term and, except as otherwise specifically provided in this Agreement or agreed to in writing by the other Party(ies), not to sell, after, assign, hypothecate or in any way alienate any of such Party's Securities or any right or interest therein except to an Affiliate of such Party; PROVIDED, HOWEVER, that notwithstanding the addition of any Additional Party, only the consent of SOFTBANK will be required for a proposed transfer by INSWEB and only the consent of INSWEB shall be required for a proposed transfer by SOFTBANK or another member of the SOFTBANK Group. In the case of any transfer permitted hereunder, the transferring Party shall deliver to each other Party (a) at least ten (10) Business Days prior to
such transfer, a written notice stating its intention to transfer the
Securities to be transferred, the name of the transferee, whether such
transferee is an Affiliate, the number of Securities to be transferred, and
the price and other material terms and conditions of the transfer, and (b)
except as otherwise specifically provided herein, on or prior to the
effective date of the transfer and in a form reasonably acceptable to each
other Party and its counsel, the transferee's written acknowledgment of and
agreement to be bound by, and to vote the transferred Securities at all times
in accordance with, the terms of this Agreement. INSWEB acknowledges that
SOFTBANK is in the process of fomiing SB Finance for the purpose among other
things, of holding certain of its investments in internet-related business
ventures. INSWEB agrees that upon the formation and qualification of SB
Finance, SOFTBANK may transfer its Securities to SB Finance, provided that
(1) SOFTBANK notifies, INSWEB of the proposed transfer and (2) SB Finance
agrees in writing to be bound by the terms hereof.
8.2 TRANSFERS TO PARTY EMPLOYEES. Notwithstanding the provisions of
Section 8.1, each Party shall, upon. written notice to the company and the other
Party, have the right to transfer to such Party's employees (and, in the case of
SOFTBANK, to any SOFTBANK Group member's employees), such number of its
Securities as it may elect from time to time; provided that such transferring
Party shall have entered into an agreement, in form acceptable to each other
Party, with each such employee pursuant to which such Party will reacquire such
Securities from any such employee upon the termination of such employee's
employment. Any such transfers shall not affect the transferring Party's
Company Interest for purposes of Section 4.2 for so long as the employees own
such Securities and remain employees.
8.3 TRANSFERS TO SUCCESSORS. Notwithstanding the provisions of Section 8.1, each Party shall, upon written notice to the Company and each other Party, have the right to transfer all of such Party's Securities to its successor in connection with sale or transfer of all or substantially all of its business pursuant to a merger, consolidation, sale of assets or otherwise, provided, that such Person is not engaged, directly or indirectly, in activities competitive with the Business or the business of the non-transferring Party.
8.4 INITIAL PUBLIC OFFERING. The foregoing restrictions shall cease to be of any further force or effect upon the closing date of an initial public offering of Securities.
9. GENERAL PROVISIONS
9.1 GOVERNING LAW; DISPUTE RESOLUTION. The validity, construction and enforceability of this Agreement shall be governed by and construed in accordance with the laws of Japan. All disputes between the Parties arising out of this Agreement shall be settled by the Parties amicably through good faith discussions upon the written request of either Party. In the event that any such dispute cannot be resolved thereby within a period of sixty (60) days after such notice has been given, such dispute shall be finally settled by arbitration in Tokyo, Japan, using the English language, and in accordance with the rules then in effect of the Japan Commercial Arbitration Association. The arbitrator(s) shall have the authority to grant specific performance, and to allocate between the Parties the costs of arbitration in such equitable manner as the arbitrator(s) may determine. The prevailing Party in the arbitration shall be entitled to
receive reimbursement of its reasonable expenses incurred in connection therewith. 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. Notwithstanding the foregoing, either Party shall have the right to institute a legal action in a court of proper jurisdiction for injunctive relief and/or a decree for specific performance pending final settlement by arbitration.
9.2 NOTICES AND OTHER COMMUNICATIONS. Any and all notices, requests,
demands and other communications required or otherwise contemplated to be made
under this Agreement shall be in writing and in English and shall be provided by
one or more of the following means and shall be deemed to have been duly given
(a) if delivered personally, when received, (b) if transmitted by facsimile
originating in Japan, on the date of transmission with receipt of a transmittal
confirmation, (c) if transmitted by facsimile originating in the United States,
on the first (1st) Business Day following receipt of a transmittal confirmation,
or (d) if by international courier service, on the fourth (4th) Business Day
following the date of deposit with such courier service, or such earlier
delivery date as may be confmned in writing to the sender by such courier
service. All such notices, requests, demands and other conununications shall be
addressed as follows:
If to SOFTBANK:
SOFTBANK CORP.
24-1 Nihonbashi-Hakozakicho
Chuo-ku, Tokyo 103-8501, Japan
Attention: Mr. Yoshitaka Kitao
Hitoshi Hasegawa, Esq.
Telephone: 81-3-5642-8376
Facsimile: 81-3-5641-3402
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with a copy (which shall not constitute notice) to:
Morrison & Foerster LLP
AIG Building, 7th Floor
1-1-3 Marunouchi,
Chiyoda-ku, Tokyo 100-0005, Japan
Attention: Ken A. Siegel, Esq. Telephone: 81-3-3214-6522 Facsimile: 81-3-3214-6512 |
If to INSWEB:
INSWEB Corporation
901 Marshall Street
Redwood City, CA 94063 U.S.A.
Attention: Mr. Hussein A. Enan
Marian C. Taylor, Esq.
Telephone: 1-650-817-0110
Facsimile: 1-650-817-0351
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with a copy (which shall not constitute notice) to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301 U.S.A.
Attention: Dennis C. Sullivan, Esq. Telephone: 1-650-833-2243 Facsimile: 1-650-327-3699 |
or to such other address or facsimile number as a Party may have specified to the other Party in writing delivered in accordance with this Section 9.2.
9.3 LANGUAGE. This Agreement is in the English language only, which language shall be controlling in all respects, and all versions hereof in any other language shall be for accommodation only and shall not be binding upon the Parties. All communications and notices to be made or given pursuant to this Agreement shall be in the English language.
9.4 SEVERABILITY. If any provision in this Agreement shall be found or be held to be invalid or unenforceable (including, without limitation, as a result of objections by the Japanese Fair Trade Commission) then the meaning of said provision shall be construed, to the extent feasible, so as to render the provision enforceable, and if no feasible interpretation would save such provision, it shall be severed from the remainder of this Agreement which shall remain in full force and effect unless the severed provision is essential and material to the rights or benefits received by any Party. In such event, the Parties shall use their best efforts to negotiate, in good faith, a substitute, valid and enforceable provision or agreement which most nearly affects the Parties' intent in entering into this Agreement.
9.5 REFERENCES; SUBJECT HEADINGS. Unless otherwise indicated, references to Sections and Exhibits herein are to Sections of, and Exhibits to, this Agreement. The subject headings of the Sections of this Agreement are included for the purpose of convenience of reference only, and shall not affect the construction or interpretation of any of its provisions.
9.6 FURTHER ASSURANCES. The Parties shall each perform such acts, execute and deliver such instruments and documents, and do all such other things as may be reasonably necessary to accomplish the transactions contemplated in this Agreement.
9.7 EXPENSES. Each of the Parties will bear its own costs and expenses, including, without limitation, fees and expenses of legal counsel, accountants, brokers, consultants and other representatives used or hired in connection with the negotiation and preparation of this Agreement and consummation of the transactions contemplated hereby. All such expenses incurred by the Company shall be borne by the Company to the maximum extent permitted by Applicable Law including, without limitation, expenses relating to the formation of the Company, any transfer taxes for transfer of the Company stock to the Parties, registration charges, taxes, fees and expenses relating to required governmental or regulatory approvals, notary fees and legal fees and expenses. All expenses incurred by SOFTBANK in connection with the transfer of Securities to other members of the SOFTBANK Group shall be borne by SOFTBANK. INSWEB shall reimburse SOFTBANK for one-half of the costs and expenses (including, without limitation, reasonable fees and expenses of legal counsel) incurred by SOFTBANK in connection with the transfer of Securities by SOFTBANK to any Additional Party pursuant to Section 3.5.
9.8 NO WAIVER. No waiver of any term or condition of this Agreement shall be valid or binding on a Party unless the same shall have been set forth in a written document, specifically referring to this Agreement and duly signed by the waiving Party. The failure of a Party to enforce at any time any of the provisions of this Agreement, or the failure to require at any time performance by one or both of the other Parties of any of the provisions of this Agreement, shall in no way be construed to be a present or future waiver of such provisions, nor in any way affect the ability of a Party to enforce each and every such provision thereafter.
9.9 ENTIRE AGREEMENT; AMENDMENTS. The terms and conditions contained in this Agreement (including the Exhibits hereto) and the Transaction Documents constitute the entire agreement between the Parties and supersede all previous agreements and understandings, whether oral or written, between the Parties with respect to the subject matter hereof. No agreement or understanding amending this Agreement shall be binding upon any Party unless set forth in a written document which expressly refers to this Agreement and which is signed and delivered b duly authorized representatives of each Party.
9.10 ASSIGNMENT. Neither Party shall assign this Agreement (a) without the other Party's prior written consent, and (b) only in such case if the assignee agrees to be bound by the terms hereof, PROVIDED, HOWEVER, that the assigning Party shall remain liable for the assignee's performance of its obligations hereunder. A merger or consolidation, or a similar transaction resulting in a change of control of a Party shall be deemed to be an assignment. Notwithstanding the foregoing, (i) SOFTBANK may assign all of its rights and obligations hereunder to SB Finance in connection with a transfer of its Securities to SB Finance in accordance with Section 8.1 and (ii) any Party may assign all of its rights and obligations hereunder to its successor in connection with a transfer of its Securities in accordance with Section 8.3. This Agreement shall inure to the benefit of, and shall be binding upon, the Parties and their respective permitted successors and assigns.
9.11 NO AGENCY. The Parties are independent contractors. Nothing contained herein or done in pursuance of this Agreement shall constitute any Party the agent of any other Party for any purpose or in any sense whatsoever.
9.12 NO BENEFICIARIES. Nothing herein express or implied, is intended to or shall be construed to confer upon or give to any person, firm, corporation or legal entity, other than the Parties and their Affiliates who hold Securities (and, in the case of SOFTBANK, any other member of the SOFTBANK Group), and their respective permitted successors and assigns, any interests, rights, remedies or other benefits with respect to or in connection with any agreement or provision contained herein or contemplated hereby.
9.13 EFFECTIVE DATE OF TRANSACTION DOCUMENTS. The Transaction Documents other than this Agreement shall become effective concurrently with consummation, on the Closing Date, of the transactions described in Section 3.2.
9.14 COUNTERPARTS. This Agreement may be executed in any number of counterparts, and each counterpart shall constitute an original instrument, but all such separate counterparts shall constitute only one and the same in instrument.
IN WITNESS WHEREOF, the Parties have caused their respective duly authorized representatives to execute this Agreement as of the Effective Date.
SOFTBANK CORP. INSWEB CORPORATION /s/ Yoshitaka Kitao /s/ Hussein A. Enan -------------------------------- -------------------------------- Yoshitaka Kitao Hussein A. Enan Executive Vice President and CFO Chairman and Chief Executive Offiver |
Exhibit 10.17
INSWEB CORPORATION
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
dated March 31, 1999
TABLE OF CONTENTS
Page
----
1. Authorization and Sale of Shares......................................1
1.1 Authorization..................................................1
1.2 Maintenance Rights.............................................1
1.2 Issuance and Sale of Shares....................................1
2. Closing Dates; Delivery...............................................2
2.1 Closings.......................................................2
2.2 First Closing..................................................2
2.3 Second Closing.................................................2
2.4 Delivery.......................................................2
3. Representations and Warranties of the Company.........................2
3.1 Organization and Standing......................................2
3.2 Capitalization.................................................3
3.3 Subsidiaries...................................................4
3.4 Issuance of Shares.............................................4
3.5 Authority for Agreement........................................4
3.6 Governmental Consent...........................................5
3.7 Litigation.....................................................5
3.8 Financial Statements...........................................5
3.9 Liabilities....................................................6
3.10 Changes........................................................6
3.11 Taxes..........................................................7
3.12 Properties and Assets..........................................8
3.13 Intellectual Property..........................................9
3.14 Insurance......................................................9
3.15 Material Contracts and Obligations............................10
3.16 Compliance....................................................10
3.17 Employees.....................................................10
3.18 Books and Records.............................................11
3.19 Registration Rights...........................................11
3.20 Interested Party Transactions.................................11
3.21 Offering Valid................................................11
3.22 Disclosures...................................................12
3.23 Operating Rights..............................................12
3.24 Brokers or Finders............................................12
3.25 Environmental Matters.........................................12
3.26 Section 83(b) Elections.......................................13
3.27 U.S. Real Property Holding Corporation........................13
3.28 Private Offering..............................................13
3.29 Use of Proceeds...............................................13
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TABLE OF CONTENTS
(continued)
Page
----
3.30 Margin Securities.............................................13
3.31 Absence of Foreign or Enemy Status; Sensitive Payments........13
4. Representations of the Purchasers and Restrictions on Transfer.......14
4.1 Representations and Warranties of the Purchasers..............14
4.2 Legend........................................................15
5. Conditions to the Obligations of the Purchasers......................16
5.1 Accuracy of Representations and Warranties....................16
5.2 Performance...................................................16
5.3 Opinion of Counsel............................................16
5.4 Certificates and Documents....................................16
5.5 Amended Rights Agreement......................................17
5.6 Compliance Certificate........................................17
5.7 Third Party Consents..........................................17
5.8 No Adverse Changes............................................17
5.9 Maintenance Rights............................................17
5.10 Other Matters.................................................17
6. Conditions to Obligations of the Company.............................17
6.1 Accuracy of Representations and Warranties....................18
6.2 Amended Rights Agreement......................................18
6.3 Third Party Consents..........................................18
7. Covenants............................................................18
7.1 Commercially Reasonable Efforts...............................18
7.2 Notification; Updates to Disclosure Schedule..................18
7.3 Filings and Consents..........................................19
7.4 Further Assurances............................................19
8. Termination..........................................................20
8.1 Right of Termination..........................................20
8.2 Effects of Termination........................................20
9. Miscellaneous........................................................20
9.1 Survival of Representations and Warranties....................20
9.2 Notices.......................................................21
9.3 Expenses......................................................21
9.4 Entire Agreement..............................................21
9.5 Amendments and Waivers........................................21
9.6 Counterparts..................................................21
9.7 Section Headings..............................................21
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TABLE OF CONTENTS
(continued)
Page
----
9.8 Governing Law.................................................21
9.9 Press Releases and Public Announcement........................22
|
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
THIS SERIES E PREFERRED STOCK PURCHASE AGREEMENT (this "Agreement") dated as of March 31, 1999 is entered into by and among InsWeb Corporation, a Delaware corporation (the "Company"), and the entities listed on the Schedule of Purchasers attached hereto as Exhibit A (individually, a "Purchaser" or, collectively, the "Purchasers").
RECITAL
The Company desires to sell and the Purchasers desire to purchase shares of the Company's Series E Preferred Stock, $0.001 par value per share (the "Series E Preferred"), on the terms set forth below.
NOW, THEREFORE, in consideration of the mutual promises and covenants contained in this Agreement, the parties hereto agree as follows:
1. Authorization and Sale of Shares.
1.1 Authorization. The Company has, or before the First Closing Date (as defined in Section 2.2 hereof) will have, duly authorized the sale and issuance, pursuant to the terms of this Agreement, of up to 185,775 shares of Series E Preferred plus such additional number of shares of Series E Preferred as shall be subscribed for by Purchasers pursuant to Section 1.2, hereof (collectively, the "Shares") having the rights, restrictions, privileges and preferences set forth in the form of Fifth Restated Certificate of Incorporation attached hereto as Exhibit B (the "Fifth Restated Certificate"). The Company has, or before the First Closing will have, adopted and filed with the Secretary of State of the State of Delaware the Fifth Restated Certificate and will have taken all necessary corporate action for the purpose of authorizing the sale and issuance of the Shares pursuant hereto.
1.2 Maintenance Rights. The Company shall offer to each holder of its outstanding Preferred Stock (a "Preferred Holder") the right to purchase Shares as required by the provisions of Section 5.1 of the Second Amended and Restated Investor Rights Agreement dated as of February 26, 1999 (the "Rights Agreement"). Any Preferred Holder that properly exercises such right and subscribes to purchase Shares shall execute this Agreement, shall become a Purchaser hereunder and shall purchase such Shares at the Second Closing (as defined in Section 2.3 hereof). The Schedule of Purchasers shall be amended as appropriate to reflect the addition of any such Purchasers after the date hereof. Prior to the Second Closing, the Company will adopt and file with the Secretary of State of the State of Delaware an amendment to the Fifth Restated Certificate for the purpose of authorizing any additional Shares to be sold pursuant to this Section 1.2.
1.3 Issuance and Sale of Shares. Subject to the terms and conditions of this Agreement, at the Closings (as defined in Section 2 hereof) the Company will sell and issue to the Purchasers, and the Purchasers will severally buy from the Company, the total number of Shares specified opposite the Purchasers' respective names on the Schedule of Purchasers, at a
purchase price of $188.40 per share, for the aggregate purchase price set forth on the Schedule of Purchasers.
2. Closing Dates; Delivery.
2.1 Closings. The purchase and sale of the Shares hereunder shall take place at two closings (individually, a "Closing" and, collectively, the "Closings") at the offices of Gray Cary Ware & Freidenrich LLP ("GCW&F"), 400 Hamilton Avenue, Palo Alto, California 94301-1825 at 2:00 p.m., California time, on the dates hereinafter specified.
2.2 First Closing. The Closing of the purchase and sale of the Shares designated for issuance at the first Closing as set forth on the Schedule of Purchasers (the "First Closing") shall be held on the later to occur of (i) March 31, 1999, (ii) the first business day following the date on which the last to be fulfilled or waived of the conditions to the First Closing set forth in Sections 5 and 6 hereof have been fulfilled or waived in accordance with this Agreement, or (iii) such other date as is mutually agreed to by the Company and SOFTBANK America, Inc. ("SOFTBANK"). The date of the First Closing is hereinafter referred to as the "First Closing Date."
2.3 Second Closing. The Closing of the purchase and sale of the Shares designated for issuance at the second Closing as set forth on the Schedule of Purchasers (the "Second Closing") shall be held on the later to occur of (i) the first business day following the date on which the last to be fulfilled or waived of the conditions to the Second Closing set forth in Sections 5 and 6 hereof have been fulfilled or waived in accordance with this Agreement, or (ii) such other date as is mutually agreed to by the Company and SOFTBANK. Should the Series E Preferred be converted automatically into shares of Common Stock pursuant to the terms of the Fifth Restated Certificate prior to the Second Closing, the Purchasers shall purchase, in lieu of the Shares specified on the Schedule of Purchasers, the number of shares of Common Stock into which such Shares would have been converted had they been issued and sold immediately prior to such automatic conversion. The date of the Second Closing is hereinafter referred to as the "Second Closing Date," and the First Closing Date and the Second Closing Date are hereinafter collectively referred to as the "Closing Dates."
2.4 Delivery. Subject to the terms and conditions of this Agreement, at each Closing the Company shall deliver to each of the Purchasers a stock certificate representing the Shares to be purchased by such Purchaser at such Closing (which shall be issued in such Purchaser's name) against payment of the purchase price therefor by check(s), payable to the order of the Company, or by wire transfer(s) of immediately available funds to the bank account of the Company designated by the Company.
3. Representations and Warranties of the Company. Subject to and except as fully and fairly disclosed by the Company in the Schedule of Exceptions attached hereto as Exhibit C, the Company hereby represents and warrants to the Purchasers as follows:
3.1 Organization and Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has
full corporate power and authority to own and operate its properties and to conduct its business as presently conducted. The Company and each of its Subsidiaries (as defined in Section 3.3 hereof) is duly qualified to do business as a foreign corporation and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on the operations or financial condition of the Company and its Subsidiaries, taken as a whole. The Company has made available to the Purchasers true and complete copies of the Certificate of Incorporation and Bylaws of the Company and each of its Subsidiaries, each as amended to date and presently in effect.
3.2 Capitalization.
(a) The authorized capital stock of Company as of the First Closing Date and immediately prior to the First Closing will consist of (i) 50,000,000 shares of the Company's Common Stock, $0.001 par value (the "Common Stock"), of which 10,662,915 shares will be issued and outstanding, and (ii) 2,000,000 shares of the Company's Preferred Stock, $0.001 par value (the "Preferred Stock"), (A) 176,471 shares of which have been designated Series A Preferred Stock, all of which will be issued and outstanding and which are convertible, in the aggregate, into 1,764,710 shares of Common Stock, (B) 27,864 shares of which have been designated Series A-1 Preferred Stock, all of which will be issued and outstanding and which are convertible, in the aggregate, into 278,640 shares of Common Stock, (C) 176,471 shares of which have been designated Series B Preferred Stock, all of which will be issued and outstanding and which are convertible, in the aggregate, into 1,764,710 shares of Common Stock, (D) 61,920 shares of which have been designated Series C Preferred Stock, all of which will be issued and outstanding and which are convertible, in the aggregate, into 619,200 shares of Common Stock, (E) 190,621 shares of which have been designated Series D Preferred Stock, all of which will be issued and outstanding and which are convertible, in the aggregate, into 1,906,210 shares of Common Stock and (F) 185,775 shares of which have been designated Series E Preferred Stock, none of which will be issued or outstanding and which, when outstanding, will be convertible, in the aggregate, into 1,857,750 shares of Common Stock. All such outstanding shares have been duly authorized and validly issued, are fully paid and nonassessable and free of liens and encumbrances created by the Company, have been issued in accordance with all applicable state and federal securities laws, and are subject to no pre-emptive rights, rights of first refusal, proxies, voting agreements, shareholders agreements, registration rights agreements, or other restrictions on the incidents of ownership or transfer, created by statute, the charter documents of the Company or any agreement to which the Company is a party or by which it is bound. The Company will have reserved a sufficient number of shares of Common Stock for issuance upon full conversion of the Shares. As of the date hereof, (A) an aggregate of 2,841,682 shares of Common Stock are reserved for issuance under the Company's employee stock option plans (net of exercises prior to the date hereof), 1,594,904 of which are subject to outstanding options and (B) an aggregate of 8,164 shares of Common Stock are reserved for issuance upon the exercise of outstanding warrants.
(b) The authorized capital stock of the Company as of the Second Closing Date and immediately prior to the Second Closing shall be as set forth in Section 3.2(a) hereof, subject, however, to (i) the prior sale and issuance of the Shares to be issued and sold at
the First Closing, (ii) the authorization of additional shares of Series E Preferred Stock for sale at the Second Closing pursuant to subscriptions received in accordance with Section 1.2 hereof, (iii) the grant of options to purchase shares of Common Stock under the Company's employee stock option plans and the exercise of options outstanding as of the date hereof and such additional options, (iv) the sale and issuance of Common Stock by the Company in an underwritten public offering pursuant to an effective registration under the Securities Act of 1933, as amended, at an aggregate public offering price of at least $20,000,000 and a per share price of at least $18.84 (appropriately adjusted for stock splits, reverse stock splits and stock dividends from and after the date hereof), and (iv) any other issuance of the Company's capital stock, or securities convertible into such capital stock, as may be approved by SOFTBANK.
(c) Except as set forth in this Section 3.2 or Exhibit C, there are (i) no equity securities of any class of the Company, or any securities exchangeable into or exercisable for such equity securities, issued, reserved for issuance or outstanding or authorized and (ii) no authorized or outstanding subscriptions, options, warrants, puts, calls, rights or other commitments or agreements of any character to which the Company is a party or by which it is bound obligating the Company to issue, deliver, sell, repurchase or redeem or cause to be issued, delivered, sold, repurchased or redeemed any equity securities of the Company or obligating the Company to grant, extend, accelerate the vesting of, change the exercise price of or otherwise amend or enter into any such option, warrant, call, right or other commitment or other agreement of any character.
3.3 Subsidiaries. Except as set forth in Exhibit C, the Company has no subsidiaries and does not own, or control, directly or indirectly, any shares of capital stock of any other corporation or any interest in any partnership, joint venture or other non-corporate entity or business enterprise. Each subsidiary identified on Exhibit C (a "Subsidiary") is a wholly-owned corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has full corporate power and authority to own and operate its properties and to conduct its business as presently conducted.
3.4 Issuance of Shares. The issuance, sale and delivery of the Shares in accordance with this Agreement, and the issuance and delivery of the shares of Common Stock issuable upon conversion of the Shares, have been duly authorized by all necessary corporate action on the part of the Company, and all such shares have been duly reserved for issuance. The Shares, when so issued, will have the rights, preferences, privileges, and restrictions described in the Fifth Restated Certificate. The Shares when so issued, sold and delivered against payment therefor in accordance with the provisions of this Agreement, and the shares of Common Stock issuable upon conversion of the Shares, when issued upon such conversion, will be duly and validly issued, fully paid and non-assessable.
3.5 Authority for Agreement. The execution, delivery and performance by the Company of this Agreement and the Third Amended and Restated Investor Rights Agreement in the form attached hereto as Exhibit D (the "Amended Rights Agreement"), and the consummation by the Company of the transactions contemplated hereby and thereby, have been, or prior to the First Closing will have been, duly authorized by all necessary corporate and
stockholder action. This Agreement and the Amended Rights Agreement have been duly executed and delivered by the Company and constitute valid and binding obligations of the Company enforceable in accordance with their respective terms, except as such enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and rules or laws concerning equitable remedies and except as the indemnification provisions set forth in Section 3.6 of the Amended Rights Agreement may be limited by principles of public policy. The execution and delivery of this Agreement and the Amended Rights Agreement, the compliance by the Company with their provisions and the issuance of the Shares and the Common Stock issuable upon conversion of the Shares will not violate any provision of law, will not result in the creation of any mortgage, pledge, lien, encumbrance, or charge upon any of the properties or assets of the Company or any of its Subsidiaries, and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or require a consent or waiver under, the Certificate of Incorporation or Bylaws (each as amended to date) of the Company or any of its Subsidiaries or any indenture, lease, agreement or other instrument to which the Company or any of its Subsidiaries is a party or by which it or any of its properties is bound, or any decree, judgment, order, statute, rule or regulation applicable to the Company or any of its Subsidiaries, except for such consents and waivers as shall have been duly obtained prior to the First Closing.
3.6 Governmental Consent. No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority is required on the part of the Company or any of its Subsidiaries in connection with the execution and delivery of this Agreement and the Amended Rights Agreement, the offer, issuance, sale and delivery of the Shares, or the other transactions to be consummated at the Closings, as contemplated by this Agreement, except pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules promulgated thereunder (the "HSR Act"), and except such other filings as shall have been made prior to and shall be effective as of the applicable Closing.
3.7 Litigation. There is no litigation, action, suit or proceeding, or governmental inquiry or investigation, pending or, to the best of the Company's knowledge, any threat thereof, against the Company or any of its Subsidiaries, which questions the validity of this Agreement or the Amended Rights Agreement or the right of the Company to enter into them, or to consummate the transactions contemplated hereby or thereby, or which could reasonably be expected to result, either individually or in the aggregate, in any material adverse change in the business, prospects, assets or condition, financial or otherwise, of the Company and its Subsidiaries, taken as a whole, or a change in the current equity ownership of the Company, nor has the Company or any of its Subsidiaries instituted any such litigation, action, suit, proceeding or governmental inquiry or investigation. The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality.
3.8 Financial Statements. The Company has delivered to the Purchasers copies of its audited consolidated financial statements as of, and for the years ended,
December 31, 1996, 1997 and 1998 (collectively, the "Company Financial Statements"). The Company Financial Statements have been prepared in accordance with United States generally accepted accounting principles ("GAAP") applied on a consistent basis throughout the periods involved. The Company Financial Statements present fairly in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates and the consolidated results of the Company's operations and cash flows for the periods indicated. The Company maintains a standard system of accounting established and administered in accordance with GAAP. All accounts receivable are bona fide and arose out of transactions made in the ordinary course of business, are payable in accordance with their terms and, to the best of the Company's knowledge, are subject to no valid counterclaims or setoffs. Any reserve for bad debts stated in the Company Financial Statements is adequate in the light of the previous receivables collection history of the Company and its Subsidiaries.
3.9 Liabilities. The Company and its Subsidiaries do not have any liabilities, either accrued or contingent (whether or not required to be reflected in financial statements in accordance with GAAP), and whether due or to become due, which individually or in the aggregate would be reasonably likely to have a material adverse effect on the Company and its Subsidiaries, taken as a whole, other than (i) liabilities reflected or provided for on the Company's consolidated balance sheet as of December 31, 1998 (the "Company Balance Sheet"), (ii) liabilities specifically described in this Agreement or in Exhibit C, and (iii) normal or recurring liabilities incurred since December 31, 1998 in the ordinary course of business consistent with past practices.
3.10 Changes. Since December 31, 1998, the Company and each of its Subsidiaries has conducted its business in the ordinary course and in a manner consistent with past practices and, since such date, except as disclosed in Exhibit C, there has not been:
(a) any material change in the accounting methods or practices it follows, whether for general financial or tax purposes, or any change in depreciation or amortization policies or rates;
(b) any material commitment or transaction (including without limitation any borrowing or capital expenditure) other than in the ordinary course of business;
(c) any material liability or transaction, except in the ordinary course of business and consistent with past practice;
(d) any change in the assets, liabilities, financial condition or operating results of the Company and its Subsidiaries from that reflected in the Company Financial Statements, except changes in the ordinary course of business which have not been in the aggregate materially adverse;
(e) any declaration or making of any payment or distribution of cash or other property to a stockholder with respect to its stock or otherwise, except for normal salaries and expense reimbursement, or any purchase or redemption of any shares of its capital stock;
(f) any mortgage or pledge of any of its properties or assets or any subjecting of them to any lien, security interest, charge, or other encumbrance, except liens or current property taxes not yet due and payable;
(g) any sale, assignment, or transfer of any patents, trademarks, service marks, trade names, copyrights, trade secrets, or other intangible assets or, to the best of the Company's knowledge, unauthorized disclosure of any proprietary confidential information;
(h) any damage, destruction, or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects, or business (as such business is presently conducted and as it is proposed to be conducted);
(i) any waiver of any valuable right or of any material debt;
(j) any discharge or satisfaction of any lien, claim, or encumbrance, or payment of any of its obligations, except in the ordinary course of business and which is not material to its assets, properties, financial condition, operating results, or business (as such business is presently conducted and as it is proposed to be conducted);
(k) any change or amendment of or default under any material contract or arrangement by which the Company or any of its Subsidiaries or any of the assets or properties of the Company or any of its Subsidiaries are bound or subject;
(l) any material change in any compensation arrangement or agreement with any executive officer or key employee;
(m) any default under any material contract or agreement or any indenture or debt;
(n) any loans or advances to, or guarantees for the benefit of, any person; or
(o) to the best of the Company's knowledge, any other event or condition of any character which could reasonably be expected to materially and adversely affect the assets, properties, financial condition, operating results or business of the Company and its Subsidiaries, taken as a whole (as such business is presently conducted and as it is proposed to be conducted).
3.11 Taxes.
(a) The Company and each of its Subsidiaries has accurately prepared and timely filed all returns, estimates, information statements and reports required to be filed by it with any taxing authority ("Company Returns") relating to any and all taxes concerning or attributable to the Company and each of its Subsidiaries or its or their operations, and such Company Returns are true and correct in all material respects and have been completed in all
material respects in accordance with applicable law. There are no audits pending with respect to the Company or any of its Subsidiaries by any governmental authority. The Company and each of its Subsidiaries has paid all taxes and other assessments due on or before the date hereof, and such payments were made prior to the time that penalties would accrue thereon. The Company knows of no new tax assessments.
(b) There is no tax deficiency outstanding or assessed or, to the best of the Company's knowledge, proposed against the Company or any of its Subsidiaries that is not reflected as a liability on the Company Balance Sheet nor has the Company or any Subsidiary executed any agreements or waivers extending any statute of limitations on or extending the period for the assessment or collection of any tax.
(c) Neither the Company nor any of its Subsidiaries has any material liabilities for unpaid taxes that have not been accrued for or reserved on the Company Balance Sheet, whether asserted or unasserted, contingent or otherwise.
(d) The Company is not a party to any tax-sharing agreement or similar arrangement with any other party, or any contractual obligation to pay any tax obligations of, or with respect to any transaction relating to, any other person or to indemnify any other person with respect to any tax.
(e) The Company has withheld or collected from each payment to each of its employees the amount of all taxes (including, but not limited to, federal income taxes and Federal Insurance Contribution Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories.
(f) Neither the Company nor any of its stockholders has ever
filed (a) an election pursuant to Section 1362 of the Internal Revenue Code of
1986, as amended (the "Code"), that the Company be taxed as an S Corporation or
(b) a consent pursuant to Section 341(f) of the Code relating to collapsible
corporations.
3.12 Properties and Assets. The Company and each of its Subsidiaries has good and marketable title to all of its material properties and assets, and good title to its leasehold estates, and none of such properties or assets is subject to any mortgage, pledge, lien, security interest, lease, charge or encumbrance other than liens resulting from taxes which have not yet become delinquent, liens and encumbrances which have arisen in the ordinary course of business that do not in any case materially detract from the value of the property subject thereto or materially impair the operations of the Company. The tangible and intangible assets and properties owned or leased by the Company and its Subsidiaries include all properties, assets, and rights necessary to conduct the business of the Company and its Subsidiaries as currently conducted or as presently proposed to be conducted. All tangible assets and properties owned or leased by the Company and its Subsidiaries that are material or necessary to the Company's business as currently conducted are in good condition and repair, ordinary wear excepted.
3.13 Intellectual Property. Set forth on Exhibit C is a true and complete list of all patents, patent applications, trademarks and service marks, trademark and service mark
applications, trade names, copyright registrations and applications and material licenses of third party software (other than licenses of "off the shelf" or standard software products) presently used by the Company or any of its Subsidiaries. To the best of the Company's knowledge, the Company and its Subsidiaries together own or possess sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, information and other proprietary rights and processes (collectively, "Intellectual Property Rights") necessary for the Company's business as now conducted or as presently proposed to be conducted without any known infringement of the rights of others. There are no outstanding options, licenses or agreements of any kind relating to the Intellectual Property Rights, nor is the Company or any of its Subsidiaries bound by or a party to any options, licenses or agreements of any kind with respect to the Intellectual Property Rights of any other person or entity other than such licenses or agreements arising from the purchase of "off the shelf" or standard products. Neither the Company nor any of its Subsidiaries has received any notice that it is infringing upon, violating or otherwise acting adversely to, or by conducting its business as proposed would infringe upon, violate or otherwise act adversely to, and, to the best of the Company's knowledge, neither the Company nor any of its Subsidiaries is violating the right or claimed right of any person or entity under or with respect to any Intellectual Property Rights. Except as disclosed in Exhibit C, to the best of its knowledge, neither the Company nor any of its Subsidiaries is obligated or under any liability to make payments by way of royalties, fees or otherwise to any owner, licensor of, claimant to, or other party to any option, license or agreement of any kind with respect to, any Intellectual Property Rights, or other intangible assets material to the conduct of the Company's or any Subsidiary's business. The Company is not aware that any of its or its Subsidiaries' employees is obligated under any contract (including licenses, covenants or commitments of any nature) or subject to any judgment, decree or order of any court or administrative agency, that would interfere with their duties to the Company or any of its Subsidiaries or that would conflict in any material respect with the business of the Company or any of its Subsidiaries, as currently conducted or as proposed to be conducted. Neither the execution nor delivery of this Agreement, nor the conduct of the business of the Company or any of its Subsidiaries, as currently conducted or as proposed to be conducted, will, to the best of the Company's knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any employee is now obligated. The Company does not believe it is or will be necessary to utilize any inventions, trade secrets or proprietary information of any employee of the Company or any of its Subsidiaries made prior to their employment by the Company or such Subsidiary, except for inventions, trade secrets or proprietary information that have been assigned to the Company or such Subsidiary.
3.14 The Company and each of its Subsidiaries maintains valid policies of workers' compensation insurance and of insurance with respect to its properties and business of the kinds and in the amounts not less than are customarily obtained by corporations of established reputation engaged in the same or similar business and similarly situated, including, without limitation, insurance against loss, damage, fire, theft, public liability, products liability and other risks. The Company has in full force and effect term life insurance, payable to the Company, on the life of Hussein A. Enan in the amount of $2,000,000. To the best knowledge of the Company, neither the Company nor any of its Subsidiaries is in default with respect to its obligations under any insurance policy maintained by it.
3.15 Material Contracts and Obligations. Exhibit C sets forth a list of all material agreements or commitments of any nature to which the Company or any of its Subsidiaries is a party or by which it is bound, including without limitation (a) each agreement which requires future expenditures by the Company in excess of $100,000 in the aggregate or which might result in payments to the Company in excess of $100,000 in the aggregate, (b) all employment and consulting agreements, employee benefit, bonus, pension, profit-sharing, stock option, stock purchase and similar plans and arrangements, and distributor and sales representative agreements, and (c) any agreement with any stockholder, officer or director of the Company, or any "affiliate" or "associate" of such persons (as such terms are defined in the rules and regulations promulgated under the Securities Act of 1933, as amended (the "Securities Act")), including without limitation any agreement or other arrangement providing for the furnishing of services by, rental of real or personal property from, or otherwise requiring payments to, any such person or entity. All the material agreements or commitments of any nature to which the Company or any of its Subsidiaries is a party or by which they are bound are valid, binding, and in full force and effect in all material respects and enforceable by the Company or such Subsidiary in accordance with their respective terms, subject to laws of general application relating to bankruptcy, insolvency, and the relief of debtors and the rules of law governing specific performance, injunctive relief, or other equitable remedies.
3.16 Compliance. The Company and each of its Subsidiaries has, in all material respects, complied with its Certificate of Incorporation and Bylaws, as amended, and all laws, regulations and orders applicable to its business. The Company and each of its Subsidiaries has complied with any term or provision of any mortgage, indebtedness, indenture, contract, agreement, or instrument to which it is a party where the failure to so comply would have a material adverse effect on the business, prospects or results of operations of the Company and its Subsidiaries, taken as a whole.
3.17 Employees. The Company is not aware that any officer or key employee, or any group of key employees, intends to terminate their employment with the Company or any of its Subsidiaries, nor does the Company have a present intention to terminate the employment of any officer, key employee or group of key employees of the Company or any of its Subsidiaries. None of the employees of the Company or any of its Subsidiaries is represented by any labor union or covered by any collective bargaining agreement, and there is no labor strike, organizational drive or other labor trouble pending, or to the best of the Company's knowledge threatened, with respect to the Company or any of its Subsidiaries. To the best of the Company's knowledge, the Company and each of its Subsidiaries has complied with all applicable state and federal equal employment opportunity and other laws related to employment. To the best of the Company's knowledge, no employee or consultant of the Company or any of its Subsidiaries is in violation of any term of any employment contract, patent disclosure agreement, or any other contract or agreement relating to the relationship of any such person with the Company or any of its Subsidiaries or any other party because of the nature of the business conducted or proposed to be conducted by the Company and its Subsidiaries. All employees and consultants of the Company and each of its Subsidiaries involved in the technical development of the Company's or any Subsidiary's software have executed proprietary information agreements, copies of which have been made available to the Purchasers or their counsel. The Company does not anticipate
the necessity to acquire rights to any inventions of any employees, or people it currently intends to hire, made prior to their employment by the Company or any Subsidiary. Neither the Company nor any of its Subsidiaries is a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement, except as set forth on Exhibit C. Subject to applicable law, the employment of each officer and employee of the Company and of each of its Subsidiaries is terminable at will by the Company or such Subsidiaries, except as set forth on Exhibit C.
3.18 Books and Records. The minute books of the Company contain complete and accurate records of all meetings and other corporate actions of its stockholders and its Board of Directors and committees thereof. The stock ledger of the Company is complete and reflects all issuances, transfers, repurchases and cancellations of shares of capital stock of the Company.
3.19 Registration Rights. Except as provided in the Rights Agreement and the Amended Rights Agreement, the Company is not under any obligation, and has not granted any rights, to register (as defined in the Amended Rights Agreement) any of the Company's presently outstanding securities or any of its securities that may hereafter be issued.
3.20 Interested Party Transactions. To the best of the Company's knowledge, no director, officer or stockholder of the Company, or any member of his or her immediate family, has any interest in (i) any material equipment or other property or asset, real or personal, tangible or intangible, including, without limitation, any of the Intellectual Property Rights, used in connection with or pertaining to the business of the Company, (ii) any creditor, supplier, customer, manufacturer, agent, representative, or distributor of any of the Company's products, (iii) any entity that competes with the Company or with which the Company is affiliated or has a business relationship, or (iv) any agreement, obligation or commitment, written or oral, to which the Company is a party; provided, however, that no such person shall be deemed to have such an interest solely by virtue of ownership of less than five percent of the outstanding stock or debt securities of any publicly held company, the stock or debt securities of which are traded on a recognized stock exchange or on the Nasdaq National Market. Neither the Company nor any of its Subsidiaries is a guarantor or indemnitor of any indebtedness of any other person or entity.
3.21 Offering Valid. Assuming the accuracy of the representations and warranties of the Purchasers contained in Section 4 hereof, the offer, sale and issuance of the Shares and the shares of Common Stock issuable upon conversion of the Shares are and will be exempt from the registration requirements of the Securities Act and exempt from registration and qualification under the registration, permit or qualification requirements of all applicable state securities laws. Neither the Company nor any agent on its behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of the Shares to any person or persons so as to bring the sale of such Shares by the Company within the registration provisions of the Securities Act or any state securities law.
3.22 Disclosures. Neither this Agreement nor the Amended Rights Agreement nor any Exhibit hereto or thereto, nor any certificate or instrument furnished to the Purchasers in
connection with the transactions contemplated by this Agreement, when read together, contains or will contain any untrue statement of a material fact or omits or will omit to state a material fact necessary in order to make the statements contained herein or therein, in light of the circumstances under which they were made, not misleading. The Company has fully provided the Purchasers with all the information which the Purchasers have requested for deciding whether to purchase the Shares, including true and complete copies of all documentation affecting rights of any kind that exist or may have existed, to which the Company is a party or of which it is aware, with respect to holders of securities of the Company. All underlying documents incorporated or referred to in any exhibit hereto or to the Amended Rights Agreement, or in documents furnished to the Purchasers pursuant to this Agreement by the Company, are true and correct copies thereof, as the same have been or shall be amended or modified. All information relating to the Company and its Subsidiaries which, to the best of the Company's knowledge, could reasonably be anticipated to have a material adverse effect on the existing or expected financial condition, indebtedness, operating results, customer relations, employee relations, business or properties of the Company and its Subsidiaries, taken as a whole, has been disclosed to the Purchasers.
3.23 Operating Rights. To the best of the Company's knowledge, the Company and each of its Subsidiaries has all operating authority, licenses, franchises, permits, certificates, consents, rights, and privileges (collectively, the "Licenses") as are necessary to the operation of its business, as now conducted or as presently proposed to be conducted, the absence of which would have a material and adverse effect on the business of the Company and its Subsidiaries, taken as a whole. Such Licenses are in full force and effect, no material violations have been or are expected by the Company to have been recorded in respect of any such Licenses, and no proceeding is pending or, to the best knowledge of the Company, threatened that could result in the revocation or limitation of any of such Licenses. The Company and each of its Subsidiaries has conducted its business so as to comply in all material respects with all such material Licenses. Neither the Company nor any of its Subsidiaries has granted rights or licenses to develop, produce, assemble, license, market, or sell its products to any person other than in the ordinary course of its business, and is not bound by any other agreement that affects the Company's or any Subsidiary's exclusive right to develop, produce, assemble, license, market, or sell its products.
3.24 Brokers or Finders. Neither the Company nor any of its Subsidiaries has incurred or will incur, directly or indirectly, as a result of any action taken by the Company or any Subsidiary, any liability for brokerage or finders' fees or agents' commissions or any similar charges in connection with this Agreement.
3.25 Environmental Matters. The Company and each of its Subsidiaries, and the uses made by each of its properties and assets, are in compliance in all material respects with all environmental laws, regulations, rules, orders and ordinances, and to the best of the Company's knowledge, the Company and each of its Subsidiaries, holds all permits and licenses required to conduct its business thereunder. To the best of the Company's knowledge, all properties and assets leased or owned by the Company and each of its Subsidiaries, including, without limitation, all structures, contents, soil, sub-soil, and groundwater, do not contain
hazardous substances in quantities that could reasonably be expected to have a material adverse effect on the Company and its Subsidiaries, taken as a whole. To the best of the Company's knowledge, neither the Company nor any of its Subsidiaries has any liability or obligation, whether to any governmental authority or to any other person or entity, for damages, claims, penalties, forfeitures, or otherwise, as a consequence of the generation, transportation, or disposal of any such hazardous substance or any "hazardous waste," as defined in 42 U.S.C. 6901, et seq.
3.26 Section 83(b) Elections. To the best of the Company's knowledge, all individuals who have purchased shares of the Company's Common Stock have timely filed elections under Section 83(b) of the Internal Revenue Code of the United States and any analogous provisions of applicable state tax laws.
3.27 U.S. Real Property Holding Corporation. Neither the Company nor
any of its Subsidiaries is now or has ever been a "United States Real Property
Holding Corporation," as defined in Section 897(c)(2) of the Code and Section
1.897-2(b) of the Treasury Regulations promulgated by the Internal Revenue
Service thereunder, and the Company and each of its Subsidiaries has filed with
its United States income tax returns any statements which are required under
Section 1.897-2(h) of such Regulations.
3.28 Private Offering. The Company has not offered any of the Shares or any similar securities of the Company for sale to, or solicited offers to buy any thereof from, or otherwise approached or negotiated with respect thereto with, any prospective purchasers, other than the Purchasers, persons who qualify as "accredited investors," as such term is defined in SEC Regulation D, and up to 10 other prospective purchasers who are "qualified institutional buyers" within the meaning of SEC Rule 144A.
3.29 Use of Proceeds. The Company intends to apply the net proceeds from the sale of Shares for general corporate purposes.
3.30 Margin Securities. None of the transactions contemplated herein
and in the Shares (including, without limitation, the use of the proceeds from
the sale of the Shares) violates, will violate, or will result in a violation of
Section 7 of the Securities Exchange Act of 1934, as amended, or any regulations
issued pursuant thereto, including, without limitation, Regulation G, Regulation
T and Regulation X of the Board of Governors of the Federal Reserve System, 12
C.F.R., Chapter II. Neither the Company nor any of its Subsidiaries owns, or
with the proceeds of the sale of the Shares intends to own, carry or purchase,
or refinance borrowings that were used to own, carry or purchase, any margin
security, including margin securities originally issued by the Company. The
obligations of the Company under this Agreement and the Shares are not and will
not be secured by any margin sold on the basis of any such collateral.
3.31 Absence of Foreign or Enemy Status; Sensitive Payments. Neither the Company nor any of its Subsidiaries is in violation of and neither the issue and sale of the Shares by the Company, nor its use of the proceeds thereof as contemplated by this Agreement, will violate the Trading With the Enemy Act, as amended, or any executive orders, proclamations, or regulations issued pursuant thereto, including without limitation, regulations administered by the Office of Foreign Asset Control of the Department of the Treasury (31 C.F.R., Subtitle B,
Chapter V). To the best knowledge of the Company, none of the Company or any Subsidiary or any director, officer, agent, employee, or other person associated with or acting on behalf of the Company or any Subsidiary has used any corporate funds for unlawful contributions, gifts, entertainment, or other unlawful expenses relating to political activity or otherwise; made any direct or indirect unlawful payment to government officials or employees from corporate funds, or has been reimbursed from corporate funds for any such payment theretofore made; established or maintained any unlawful or any unrecorded fund of corporate moneys or other asset; made any false or fictitious entries on the books or records of the Company or any Subsidiary; made any bribe, rebate, payoff, influence payment, kickback, or other unlawful payment; or made any material favor or gift which is not deductible for federal income tax purposes.
4. Representations of the Purchasers and Restrictions on Transfer.
4.1 Representations and Warranties of the Purchasers. Each of the Purchasers hereby severally represents and warrants to the Company as follows:
(a) The Shares, and the shares of Common Stock into which the Shares may be converted (collectively, the "Securities") are being acquired for such Purchaser's own account, for investment and not with a view to, or for resale in connection with, any distribution or public offering thereof within the meaning of the Securities Act or California law.
(b) Such Purchaser understands that the Securities have not been registered under the Securities Act by reason of their issuance in a transaction exempt from the registration and prospectus delivery requirements of the Securities Act pursuant to Section 4(2) thereof, that the Company has no present intention of registering the Securities, that the Securities must be held by the Purchaser indefinitely, and that the Purchaser must therefore bear the economic risk of such investment indefinitely, unless a subsequent disposition thereof is registered under the Securities Act or is exempt from registration. Such Purchaser further understands that the Securities have not been qualified under California law by reason of their issuance in a transaction exempt from the qualification requirements of California law pursuant to Section 25102(f) of the California Corporations Code, which exemption depends upon, among other things, the bona fide nature of the Purchasers' investment intent expressed above.
(c) During the negotiation of the transactions contemplated herein, such Purchaser and its representatives and legal counsel have been afforded full and free access to corporate books, financial statements, records, contracts, documents and other information concerning the Company and to its offices and facilities, have been afforded an opportunity to ask such questions of the Company's officers, employees, agents, accountants and representatives concerning the Company's business, operations, financial condition, assets, liabilities and other relevant matters as they have deemed necessary or desirable, and have been given all such information as has been requested in order to evaluate the merits and risks of the prospective investments contemplated herein. The foregoing does not limit or modify the right of each of the Purchasers to rely on the representations and warranties of the Company set forth in Section 3 hereof.
(d) Such Purchaser has such knowledge and experience in financial and business matters that such Purchaser is capable of evaluating the merits and risks of the purchase of the Securities pursuant to the terms of this Agreement and of protecting such Purchaser's interest in connection therewith. Such Purchaser and its representatives has been solely responsible for such Purchaser's own "due diligence" investigation of the Company and its management and business, for its own analysis of the merits and risks of this investment, and for its own analysis of the fairness and desirability of the terms of the investment. The foregoing does not limit or modify the right of each of the Purchasers to rely on the representations and warranties of the Company set forth in Section 3 hereof.
(e) Such Purchaser is an "Accredited Investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act. Such Purchaser is able to bear the economic risk of the purchase of the Securities pursuant to the terms of this Agreement, including a complete loss of such Purchaser's investment in the Securities.
(f) Such Purchaser has the full right, power and authority to enter into and perform such Purchaser's obligations under this Agreement and the Amended Rights Agreement. This Agreement and the Amended Rights Agreement constitute the valid and binding obligations of such Purchaser, enforceable in accordance with their respective terms except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights and rules or laws concerning equitable remedies and except as the indemnification provisions set forth in Section 3.6 of the Amended Rights Agreement may be limited by principles of public policy.
(g) No consent, approval, order or authorization of, or designation, declaration or filing with, any governmental authority is required on the part of such Purchaser in connection with the execution and delivery of this Agreement and the Amended Rights Agreement, the purchase of the Shares, or the other transactions to be consummated at the Closings, as contemplated by this Agreement, except (with respect to SOFTBANK) pursuant to the HSR Act.
4.2 Legend. Each certificate representing the Shares, or the Common Stock issuable upon conversion of the Shares, may be endorsed with legends in substantially the following form:
(i) "THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT."
(ii) Any other legends required by California law or other applicable state securities laws.
The Company need not register a transfer of any such securities and may also instruct its transfer agent not to register the transfer of any such securities, unless the conditions specified in the foregoing legends are satisfied.
5. Conditions to the Obligations of the Purchasers. The obligation of each of the Purchasers to purchase the Shares at a Closing is subject to the fulfillment, or the waiver by such Purchaser, of each of the following conditions on or before such Closing:
5.1 Accuracy of Representations and Warranties. Each representation and warranty of the Company contained in Section 3 hereof shall have been true and correct when made, and shall be true and correct on and as of the applicable Closing Date, with the same effect as though such representation and warranty had been made on and as of such date, except to the extent that any such representation and warranty speaks specifically as of an earlier date and except for changes contemplated by this Agreement.
5.2 Performance. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by the Company prior to or at the applicable Closing.
5.3 Opinion of Counsel. The Purchasers shall have received an opinion from GCW&F, dated the applicable Closing Date, addressed to each of the Purchasers purchasing shares at such Closing, in substantially the form attached hereto as Exhibit E.
5.4 Reservation of Conversion Stock. The shares of Common Stock issuable upon conversion of the Shares shall have been duly authorized and reserved for issuance upon such conversion.
5.5 Certificates and Documents. The Company shall have delivered to the Purchasers purchasing Shares at such Closing:
(a) The Fifth Restated Certificate of the Company, as in effect as of the applicable Closing Date, certified by and filed with the Secretary of State of the State of Delaware;
(b) Certificates, as of the most recent practicable dates, as to the corporate good standing of the Company issued by the Secretary of State of the State of Delaware and the Secretary of State of the State of California;
(c) Bylaws of the Company, certified by its Secretary or Assistant Secretary as of the applicable Closing Date; and
(d) Resolutions of the Board of Directors of the Company, authorizing and approving all matters in connection with this Agreement and the transactions contemplated hereby, certified by the Secretary or Assistant Secretary of the Company as of the applicable Closing Date. 5.6 Amended Rights Agreement. The Company and the requisite number of Investors (as defined in the Rights Agreement), other than the Purchasers, shall have executed and delivered the Amended Rights Agreement.
5.7 Compliance Certificate. The Company shall have delivered to the Purchasers a certificate, executed by the President or Chief Executive Officer of the Company, dated the applicable Closing Date, certifying to the fulfillment of the conditions specified in Sections 5.1 and 5.2 hereof.
5.8 Third Party Consents. The Company shall have obtained all consents, approvals, permits and waivers necessary for the consummation of the transactions contemplated by this Agreement which are required to be obtained prior to the applicable Closing Date, including, with respect to the sale of Shares to SOFTBANK at the Second Closing, all required filings, and the expiration or early termination of all applicable waiting periods, under the HSR Act.
5.9 No Adverse Changes. During the period from the date hereof to the applicable Closing Date, (i) the business of the Company and its Subsidiaries shall have been conducted only in, and the Company and its Subsidiaries shall not have taken any action except in, the ordinary course of business and in a manner consistent with past practice, (ii) there shall have been no material adverse change in the operations or the business of the Company and its Subsidiaries and no material deterioration of or damage to the assets of the Company and its Subsidiaries, taken as a whole, and (iii) there shall have been no injunction, writ, preliminary restraining order or other order in effect of any nature issued by a court or governmental agency of competent jurisdiction prohibiting the consummation of the transactions contemplated by this Agreement or otherwise directing that the transactions contemplated by this Agreement not be consummated in the manner provided for in this Agreement.
5.10 Maintenance Rights. The Company shall have complied with the provisions of Section 5.1 of the Rights Agreement, as specified in Section 1.2 hereof, to the extent applicable.
5.11 Other Matters. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to each of the Purchasers, and each of the Purchasers shall have received all such counterpart originals or certified or other copies of such documents as they may reasonably request.
6. Conditions to Obligations of the Company. The obligation of the Company under Section 1.3 hereof to issue and sell Shares at each Closing is subject to the fulfillment, or the waiver by the Company, of each of the following conditions on or before such Closing:
6.1 Accuracy of Representations and Warranties. Each representation and warranty of the Purchasers contained in Section 4 hereof shall be true and correct when made, and shall be true and correct on and as of the applicable Closing Date, with the same effect as though such representation and warranty had been made on and as of such date.
6.2 Amended Rights Agreement. The Purchasers and the requisite number of Investors under the Rights Agreement shall have executed and delivered the Amended Rights Agreement.
6.3 Third Party Consents. The Purchasers shall have obtained all consents, approvals, permits and waivers necessary for the consummation of the transactions contemplated by this Agreement which are required to be obtained prior to the applicable Closing Date, including, with respect to the sale of Shares to SOFTBANK at the Second Closing, all required filings, and the expiration or early termination of all applicable waiting periods, under the HSR Act.
7. Covenants.
7.1 Reservation of Common Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the conversion of the Shares, a sufficient number of shares of Common Stock to be isueable from time to time upon such conversion.
7.2 Commercially Reasonable Efforts. Subject to the terms and conditions of this Agreement, each party agrees to use all commercially reasonable efforts to ensure that the conditions to any of the other parties' obligations under Section 5 and 6, insofar as such matters are within the control of such party, are satisfied as promptly as practicable, and shall not take any action which would reasonably be expected to result in any of the representations and warranties of such party becoming untrue or in any of the conditions to Closing set forth in Sections 5 and 6 not being satisfied. Subject to the terms and conditions of this Agreement, each party will use all commercially reasonable efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary or desirable under applicable laws and regulations to consummate the transactions contemplated by this Agreement. Notwithstanding anything herein to the contrary, the Purchasers shall in no event be required to take any action with respect to obtaining the execution and delivery of any documents by the Company or its stockholders.
7.3 Notification; Updates to Disclosure Schedule.
(a) During the period prior to each Closing, the Company, on the one hand, and each of the Purchasers, on the other hand, shall promptly notify the other parties in writing of:
(i) the discovery by any of them of any event, condition, fact or circumstance that occurred or existed on or prior to the date of this Agreement and that caused or constitutes a breach of any representation or warranty made by them in this Agreement;
(ii) any event, condition, fact or circumstance that occurs, arises or exists after the date of this Agreement and that would cause or constitute a breach of any representation or warranty made by any of them in this Agreement if such event, condition, fact or circumstance had occurred, arisen or existed on or prior to the date of this Agreement;
(iii) any breach of any covenant or obligation of any of them; or
(iv) any event, condition, fact or circumstance that may
make the timely satisfaction of any of the conditions set forth in Section 5 or
Section 6 impossible or unlikely.
(b) The Company may, no later than five business days prior to a Closing, deliver to the Purchasers a written update to the Schedule of Exceptions attached hereto as Exhibit C specifying a change to such Schedule of Exceptions arising as a result of developments occurring after the date of this Agreement. No later than one business day prior to the applicable Closing, the Purchasers shall provide written notice to the Company, which written notice shall specify whether the Purchasers have, in their sole discretion, accepted or rejected such update. In the event such update is accepted, such update shall be deemed to supplement and amend the Schedule of Exceptions attached hereto as Exhibit C. Notwithstanding anything therein to the contrary, no such update that is not otherwise accepted by the Purchasers in the manner described above shall be deemed to supplement or amend the Schedule of Exceptions attached hereto as Exhibit C for the purpose of (A) determining the accuracy of any of the representations and warranties made by the Company in this Agreement, or (B) determining whether any of the conditions set forth in Section 5 hereof have been satisfied unless the parties agree to proceed with the Closing, in which case the update shall be deemed to supplement or amend the Schedule of Exceptions attached hereto.
7.4 Filings and Consents. To the extent applicable, the Company and SOFTBANK shall make all filings required under the HSR Act relating to the transactions contemplated by this Agreement (and shall use their best efforts to cause their parent companies to make any such required filings) and shall each use commercially reasonable efforts to cause any such required filings to be made as promptly as practicable after the date hereof. If a filing is required under the HSR Act, the Company and SOFTBANK will each use commercially reasonable efforts to promptly furnish (and to cause their parent companies, as applicable, to promptly furnish) any information that may be required by the Federal Trade Commission (the "FTC") or the Department of Justice (the "DOJ") under the HSR Act in order for the requisite approvals for the purchase and sale of the Shares at the Second Closing, and the consummation of the related transactions contemplated by this Agreement, to be obtained or any applicable waiting periods to be terminated or expire; provided, however, that in the event the FTC or the DOJ issues a "second request" in connection with any such filing, the Company and SOFTBANK will consult with each other in good faith regarding appropriate further action, which shall be taken only to the extent agreed upon by the parties. Each party hereto will cooperate with each other with respect to obtaining, as promptly as practicable, all necessary consents, approvals, authorizations and agreements of, and the giving of all notices and making of all other filings with, any third parties, including governmental authorities, necessary to
authorize, approve or permit the consummation of the transactions contemplated by this Agreement.
7.5 Further Assurances. Each party shall execute and deliver such additional instruments, documents or other writings as may be reasonably requested by any other party, before or after a Closing, in order to confirm and carry out and to effectuate fully the intent and purposes of this Agreement and the other transactions contemplated by this Agreement. Without limitation of the foregoing, the parties hereto hereby agree to use all reasonable efforts to prevent any order or other action described in clause (iii) of Section 5.8 hereof from becoming final and unappealable.
8. Termination.
8.1 Right of Termination. This Agreement may be terminated prior to the First Closing, and, as to the obligations of the parties at the Second Closing, prior to the Second Closing, in each case as follows:
(a) by the written agreement of the Company and SOFTBANK;
(b) by the Company, as to any Purchaser, if such Purchaser breaches any material term or condition of this Agreement and there is no reasonable possibility of cure prior to the First Closing or the Second Closing, as applicable;
(c) by any Purchaser, as to such Purchaser, if the Company breaches any material term or condition of this Agreement and there is no reasonable possibility of cure prior to the First Closing or the Second Closing, as applicable;
(d) by the Company if both Closings have not taken place on or before May 5, 1999 (other than as a result of any failure on the part of the Company to comply with or perform its covenants and obligations under this Agreement);
(e) by any Purchaser, as to such Purchaser, if both Closings have not taken place on or before May 5, 1999 (other than as a result of any failure on the part of such Purchaser to comply with or perform its covenants and obligations under this Agreement); or
(f) by the Company or any of the Purchasers (as to such Purchaser) in the event any court or governmental authority of competent jurisdiction shall have issued any order or taken any other action restricting, enjoining or otherwise prohibiting the transactions contemplated by this Agreement, and such order or other action shall have become final and unappealable.
8.2 Effects of Termination. If this Agreement shall be terminated pursuant to Section 8.1 hereof, all obligations of the parties hereto under this Agreement that relate to any Closing (or the transactions contemplated thereby or in connection therewith) that have not been consummated shall terminate; provided that nothing in this Section 8.2 shall relieve any party of liability for breach of any representation, warranty, covenant or agreement herein.
9. Miscellaneous.
9.1 Survival of Representations and Warranties. All covenants, agreements, representations and warranties contained herein shall survive the execution and delivery of this Agreement and the closing of the transactions contemplated hereby, regardless of any investigation made by any party.
9.2 Successors and Assigns. Except as expressly provided herein, the rights and obligations hereunder may not be assigned or delegated by a Purchaser or the Company without the prior written consent of the other; provided, however, that SOFTBANK may assign, in whole or in part, its rights and delegate its obligations hereunder, including, without limitation, the right to purchase any or all of the Shares and the obligation to pay all or any portion of the purchase price hereunder to any affiliate or affiliates of SOFTBANK or SOFTBANK Corp., a Japanese corporation, including, without limitation, any partnership or other entity of which any direct or indirect subsidiary of SOFTBANK Corp. is a general partner or has investment discretion (a "Permitted Assignee"); provided, further, that any such Permitted Assignee that acquires any Shares hereunder shall, as a condition to acquiring such Shares, agree to be bound by the provisions of this Agreement (subject to appropriate modifications in the case of the representations and warranties contained in Section 4 hereof) and the Amended Rights Agreement applicable to SOFTBANK. The provisions hereof shall inure to the benefit of, and be binding upon, the successors and permitted assigns of the parties hereto.
9.3 Notices. All notices and other communications hereunder shall be in writing and shall be deemed given if delivered personally or by commercial delivery service, or mailed by registered or certified mail (return receipt requested) or sent via facsimile (with confirmation of receipt), addressed (a) if to a Purchaser, at the address or addresses set forth on Exhibit A attached hereto, or at such other address as such Purchaser shall have furnished the Company in writing, or (b) if to the Company, at the address of its principal place of business, Attn.: General Counsel, or at such other address as the Company shall have furnished to the Purchaser in writing, with a copy to Gray Cary Ware & Freidenrich LLP, 400 Hamilton Avenue, Palo Alto, California 94301, Fax 650-327-3699, Attn.: Dennis C. Sullivan, Esq.
9.4 Expenses. The Company and the Purchasers each shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement and the transactions contemplated hereby. In the event of an action to resolve a dispute regarding interpretation of this Agreement, the expenses of the prevailing party shall be paid by the party which does not prevail.
9.5 Entire Agreement. This Agreement, the exhibits to the Agreement and other documents delivered pursuant hereto embody the entire agreement and understanding between the parties hereto with respect to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter.
9.6 Amendments and Waivers. Except as otherwise expressly set forth in this Agreement, any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of more than a majority of the Shares, and the shares of Common Stock issued upon conversion of any Shares. Any amendment or waiver effected in accordance with this Section 9.5 shall be binding upon each holder of any Shares (including shares of Common Stock into which such Shares have been converted), each future holder of all such securities and the Company. No waivers of or exceptions to any term, condition or provision of this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such term, condition or provision.
9.7 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed to be an original, but all of which shall be one and the same document.
9.8 Section Headings. The Section headings in this Agreement are for the convenience of the parties and in no way alter, modify, amend, limit, or restrict the contractual obligations of the parties.
9.9 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, U.S.A., as such laws are applied to agreements between California residents entered into and to be performed entirely within California.
9.10 Press Releases and Public Announcement. No party shall issue any press release or public announcement relating to the subject matter of this Agreement without the prior written approval of the other parties hereto; provided, however, that any party may make any public disclosure it believes in good faith is required by applicable law or any listing or trading agreement concerning its publicly-traded securities (in which case, the disclosing party will use its best efforts to advise the other parties prior to making the disclosure).
[The remainder of this page is intentionally blank]
COUNTERPART SIGNATURE PAGE TO INSWEB SERIES E PREFERRED STOCK
PURCHASE AGREEMENT
COMPANY: INSWEB CORPORATION
By: /s/ Hussein A. Enan
-----------------------------------------
Printed: Hussein A. Enan
-------------------------------------
Title: Executive Chairman & CEO
---------------------------------------
PURCHASERS: SOFTBANK AMERICA INC.
By: /s/ Ronald J. Fisher
-----------------------------------------
Printed: Ronald J. Fisher
-------------------------------------
|
EXHIBIT A
SCHEDULE OF PURCHASERS
First Closing Second Closing Total
------------------------ ------------------------- ---------------------------
Shares Purchase Shares Purchase Shares Purchase
Name and Address Purchased Price Purchased Price Purchased Price
---------------- --------- -------- --------- -------- --------- --------
SOFTBANK America Inc. 36,639 $6,902,787.60 149,136 $28,097,222.40 185,775 $35,000,010.00
300 Delaware Avenue
Suite 900
Wilmington, DE 19801
Attention:
Ronald D.
Fisher,
Francis Jacobs
Fax: (302) 552-3128
Tel: (302) 552-3104
with a copy to:
Sullivan & Cromwell
125 Broad Street
New York, NY 10004
Attention: Stephen Grant
Fax: (212) 558-3588
Tel: (212) 558-4000
|
EXHIBIT B
FIFTH RESTATED CERTIFICATE OF INCORPORATION
EXHIBIT C
SCHEDULE OF EXCEPTIONS
EXHIBIT D
THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
EXHIBIT E
GRAY CARY WARE & FREIDENRICH LLP LEGAL OPINION
Exhibit 21.1
Subsidiaries of Insweb Corporation
1. Strategic Concepts Corporation, a California corporation;
2. InsWeb Insurance Services, Inc., formerly known as Avatar Insurance Services, Inc., a California corporation; and
3. Benelytics, Inc., a California corporation.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our report dated January 15, 1999, except for Note 14, as to which the date is April 22, 1999, on our audits of the consolidated financial statements and financial statement schedules of InsWeb Corporation as of December 31, 1997 and 1998 and for the years ended December 31, 1996, 1997 and 1998. We also consent to the references to our firm under the captions "Experts" and "Selected Consolidated Financial Data."
/s/ PricewaterhouseCoopers LLP San Francisco, California May 7, 1999 |
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-1 of our report dated April 9, 1999 on our audits of the financial statements of Benelytics, Inc. as of December 31, 1997 and 1998 and for the years ended December 31, 1997 and 1998 and for the period from March 20, 1996 (inception) to December 31, 1998.
/s/ PricewaterhouseCoopers LLP San Francisco, California May 7, 1999 |
| ARTICLE 5 |
| MULTIPLIER: 1,000 |
| PERIOD TYPE | 12 MOS | 12 MOS | 12 MOS |
| FISCAL YEAR END | DEC 31 1997 | DEC 31 1998 | DEC 31 1999 |
| PERIOD START | JAN 01 1997 | JAN 01 1998 | JAN 01 1999 |
| PERIOD END | DEC 31 1997 | DEC 31 1998 | MAR 31 1999 |
| CASH | 2,360 | 8,337 | 9,657 |
| SECURITIES | 0 | 0 | 0 |
| RECEIVABLES | 117 | 1,192 | 2,549 |
| ALLOWANCES | 5 | 0 | 0 |
| INVENTORY | 0 | 0 | 0 |
| CURRENT ASSETS | 4,117 | 33,182 | 40,714 |
| PP&E | 999 | 3,998 | 4,431 |
| DEPRECIATION | 715 | 1,358 | 1,542 |
| TOTAL ASSETS | 5,140 | 49,357 | 56,533 |
| CURRENT LIABILITIES | 2,077 | 27,686 | 5,283 |
| BONDS | 0 | 0 | 0 |
| PREFERRED MANDATORY | 0 | 0 | 0 |
| PREFERRED | 1 | 1 | 1 |
| COMMON | 10 | 11 | 11 |
| OTHER SE | 22,152 | 61,225 | 96,534 |
| TOTAL LIABILITY AND EQUITY | 5,140 | 49,357 | 56,533 |
| SALES | 750 | 4,310 | 3,311 |
| TOTAL REVENUES | 750 | 4,310 | 3,311 |
| CGS | 3,210 | 4,627 | 1,551 |
| TOTAL COSTS | 10,106 | 26,212 | 8,740 |
| OTHER EXPENSES | 0 | 600 | 0 |
| LOSS PROVISION | 0 | 0 | 0 |
| INTEREST EXPENSE | (293) | 1,189 | 468 |
| INCOME PRETAX | (9,063) | (22,490) | (5,896) |
| INCOME TAX | 0 | 0 | 0 |
| INCOME CONTINUING | (9,063) | (22,490) | (5,896) |
| DISCONTINUED | 0 | 0 | 0 |
| EXTRAORDINARY | 0 | 0 | 0 |
| CHANGES | 0 | 0 | 0 |
| NET INCOME | (9,063) | (22,490) | (5,896) |
| EPS PRIMARY | (.93) | (2.28) | (.55) |
| EPS DILUTED | (.93) | (2.28) | (.55) |