| QUOTESMITH COM INC Item 1A Risk Factors Risks Related to Our Business Our insurance brokerage business has not been profitable and may not become profitable in the future Our first complete year of focusing on our Internet based insurance service was 1997 |
| We incurred operating losses each year subsequent to 1997, through the year ended December 31, 2005 |
| Because of our overhead structure, including the ongoing costs of employing highly-skilled technical personnel, we will need to generate higher revenues than we did in 2005 in order to achieve profitability |
| Even if we achieve profitability, we may not be able to maintain profitability in the future |
| 12 ______________________________________________________________________ If the term life insurance industry declines, our business will suffer because 85prca of our 2005 revenues were derived from the sale of term life insurance For the year ended December 31, 2005, approximately 85prca of our revenue was derived from the sale of individual term life insurance |
| Because of this high concentration of revenue from one line of insurance, our current financial condition is largely dependent on the economic health of the term life insurance industry |
| If sales of term life insurance decline, for any reason, our business would be substantially harmed |
| In addition, in recent years, term life insurance premiums have been declining |
| If term life insurance premiums continue to decline, it will become even more difficult for us to become profitable |
| We may generate limited commission revenues because consumers can obtain free quotes and other information without purchasing insurance through our Web site We generate commission revenues only if a consumer purchases insurance through our service |
| Consumers can access our Web site and obtain quotes and other information free of charge without any obligation to purchase insurance through us |
| Because all of the insurance policies quoted at our Web site can be purchased through sources other than us, consumers may take the quotes and other information that we provide to them and purchase one of our quoted policies from the agent or broker of their choice |
| If consumers only use our Web site for insurance quote information purposes, we will not generate revenues and our business would be significantly harmed |
| We expect to continue to experience significant fluctuations in our quarterly results, which makes it difficult for investors to make reliable period-to-period comparisons and may contribute to volatility in our stock price Our quarterly revenues and operating results have fluctuated widely in the past and may continue to fluctuate widely in the future |
| Causes of these fluctuations could or have included, among other factors: · changes in selling and marketing expenses, as well as other operating expenses; · the length of time it takes for an insurance company to verify that an applicant meets the specified underwriting criteria—this process can be lengthy, unpredictable and subject to delays over which we have little or no control, including underwriting backlogs of the insurance company and the accuracy of information provided by the applicant; we tend to place a significant number of policies with the most price-competitive insurance companies, who, due to volume, have longer and more unpredictable underwriting time frames; · volatility in bonus commissions paid to us by insurance companies which typically are highest in the fourth quarter; · volatility in renewal commission income; · the conversion and fulfillment rates of consumers’ applications; · new Web sites, services and products by our competitors; · price competition by insurance companies in the sale of insurance policies; and · the level of Internet usage for insurance products and services |
| In addition, we have a very long revenue cycle for term life insurance |
| The time from the date the application is requested by the customer until revenue is recorded averages over three months |
| As a result, substantial portions of our expenses, including selling and marketing expenses, are incurred and recorded in the financial statements well in advance of potential matching revenue generation |
| If revenues do not meet our expectations as a result of these selling and marketing expenses, our results of operations will be negatively affected |
| 13 ______________________________________________________________________ Any one or more of the above-mentioned factors could harm our business and results of operations, which makes quarterly predictions difficult and often unreliable |
| As a result, we believe that quarter-to-quarter comparisons of our operating results are not necessarily meaningful and not good indicators of our future performance |
| Due to the above-mentioned and other factors, it is possible that in one or more future quarters our operating results will fall below the expectations of securities analysts and investors |
| If this happens, the trading price of our common stock would likely decrease |
| We must further develop our brand recognition in order to remain competitive There are a many other insurance brokers, insurance carriers and Web sites that offer services that are competitive with our services |
| Therefore, we believe that broader recognition and a favorable consumer perception of the Insure |
| com brand is essential to our future success |
| Accordingly, we intend to continue to pursue an aggressive brand-enhancement strategy consisting of advertising, online marketing, and promotional efforts |
| If these expenditures do not result in a sufficient increase in revenues to cover these additional selling and marketing expenses, our business, results of operations and financial condition would be harmed |
| The sale of internet leads for lines of insurance other than life insurance may not generate a material amount of revenues for us As part of our marketing strategy, we sell internet traffic that comes to our Web site and indicates an interest in an insurance product other than life insurance to third party Web sites and others in order to increase the realized revenue from visitors to our Web site |
| We generated fee revenues totaling dlra2dtta0 and dlra1dtta6 million from these sources in 2005 and 2004, respectively |
| Most of the agreements with these third parties permit either party to terminate the agreement with short notice |
| As a result, we cannot assure you that any of these relationships or agreements will be profitable or generate any material amount of revenues in the future |
| If our sales of non-life insurance traffic do not meet our expectations regarding revenues and earnings, our business could be harmed |
| If we are unable to successfully and cost effectively consolidate our call center operation, our business could be harmed On February 1, 2006, we announced that we were consolidating our call center operations by closing our Colorado call center and performing all telephone sales and service activities in our Darien, Illinois home office call center |
| If we are unable to successfully provide these services or if the projected annual saving are not realized, our business could be harmed |
| If we are unable to sell our building in Colorado for a price at or above book value and within a reasonable period of time, our business could be harmed On February 1, 2006, in connection with our announced closing of our Colorado call center, we also announced our intention to sell the building that housed the Colorado call center |
| Located in Evergreen, Colorado, that building was acquired as part of the 2004 acquisition of certain assets of the former Life Quotes, Inc, and had a book value of dlra5dtta3 million as of December 31, 2005 |
| If we are unable to sell that property at a price at or above the book value within a reasonable period of time, our business could be harmed |
| If we lose any of our key executive officers our business may suffer because we rely on their knowledge of our business We believe that our success is significantly dependent upon the continued employment and collective skills of our executive officers, including founder and Chief Executive Officer, Robert S Bland, and Executive Vice President and Chief Operating Officer, William V Thoms |
| We maintain key man life 14 ______________________________________________________________________ insurance policies on Messrs |
| Bland and Thoms and both of these officers have entered into employment contracts with us |
| The loss of either of these two executives or any of our other key executive officers could harm us |
| If our insurance quotes are inaccurate and we must pay out cash reward guarantees, our business could be harmed We offer consumers a dlra500 cash reward guarantee that we provide an accurate insurance quote |
| For the year ended December 31, 2003, we paid dlra8cmam500, for the year ended December 31, 2004, we paid dlra3cmam500 and for the year ended December 31, 2005, we paid dlra1cmam000 in such cash rewards |
| If our quotes or those of services whose technology we utilize are inaccurate and we are required to pay a material number of cash reward guarantees, it could have a negative effect on our operation results |
| The former owner of Life Quotes has a limited non-competition agreement with us |
| Kenneth Manley, the former owner of Life Quotes, has a non-competition agreement with us that prevents him from competing with us for up to six years |
| However, the agreement allows Manley to form a life insurance agency with members of his family provided that he acts only as a general agent placing business through Quotesmith |
| com as managing general agent |
| He is limited to being able to produce a maximum of dlra2 million per year in commissionable premium, subject to annual inflationary adjustments |
| This arrangement could result in Manley obtaining business that we might otherwise have obtained directly |
| Risks Related to the Insurance Industry Our bonus commission revenues are highly unpredictable and may cause fluctuations in our operating results Our bonus commission revenues relate to the amount of premiums paid for new insurance policies to a single insurance company |
| In other words, if consumers purchase policies from a fewer number of insurance companies our bonus commissions may be higher than if the same policies were purchased from a larger number of insurance companies |
| The decision to purchase a policy from a particular insurance company typically relates to, among other factors, price of the policy and rating of the insurance company, both of which are factors over which we have no control |
| Insurance companies often change their prices in the middle of the year for competitive reasons |
| This may reduce the number of policies placed with that insurance company which may then reduce our potential bonus commissions |
| In addition, we have no control over the bonus commission rates that are set by each individual insurance company |
| As a result of these factors, we are unable to control the amount and timing of bonus commission revenues we receive in any particular quarter or year and these amounts may fluctuate significantly |
| Bonus commission revenues were dlra2dtta3 million for the year ended December 31, 2005, dlra2dtta9 million for the year ended December 31, 2004, and dlra0dtta8 million for the year ended December 31, 2003 |
| The insurance industry has come under a significant level of scrutiny by various regulatory bodies with respect to contingent commission arrangements and other matters |
| The New York Attorney General has issued subpoenas to numerous insurance brokers related to an inquiry into market service agreements and other similar agreements, which compensate brokers for distribution and other services provided to insurance carriers |
| Additionally, some state regulators are also investigating these types of agreements, and we have received a subpoena from the Illinois Department of Financial and Professional Regulation, Division of Insurance, seeking information regarding these types of arrangements |
| It appears that these investigations could have far-reaching consequences in the insurance industry |
| For example, Marsh & McLennan Companies, Inc, Willis Group Holdings Ltd, Aon Corporation and Arthur J Gallagher, four of the largest insurance brokerage firms in the industry, have each announced that they will no longer accept contingent commissions |
| Certain of these brokerage firms have entered into agreements with 15 ______________________________________________________________________ various regulators and attorneys general to resolve issues related to investigations of those firms |
| In addition, the departments of insurance for various states have proposed new regulations, and other state insurance departments have indicated that they will propose new regulations, that address contingent commission arrangements, including prohibitions involving the payment of money by insurance carriers in return for steering business and enhanced disclosure of contingent commission arrangements to insureds |
| On December 29, 2004, the National Association of Insurance Commissioners announced that it has proposed model legislation to implement new disclosure requirements related to broker compensation arrangements |
| We cannot predict how the outcome of this investigation will affect how insurance brokers will be compensated or contingent commissions in the insurance brokerage industry or what effect, if any, it will have on our operations |
| We will continue to monitor the situation |
| The insurance sales industry is intensely competitive, and if we fail to successfully compete in this industry our market share and business will be harmed The markets for the products and services we offer are intensely competitive and characterized by rapidly changing technology, evolving regulatory requirements and changing consumer demands |
| We compete with traditional insurance distribution channels, including insurance agents and brokers, new non-traditional channels such as commercial banks and savings and loan associations, and a growing number of direct distributors including other online services, such as InsWeb Corporation and SelectQuote |
| We also potentially face competition from a number of large online services that have expertise in developing online commerce and in facilitating a high volume of Internet traffic for or on behalf of our competitors |
| For instance, some of our competitors have relationships with major electronic commerce companies |
| Other large companies with strong brand recognition, technical expertise and experience in online commerce and direct marketing could also seek to compete in the online insurance market |
| There can be no assurance that we will be able to successfully compete with any of these current or potential insurance providers |
| Insurance companies that have appointed us as agents may cancel those appointments Most of our agency contracts allow the insurance company to cancel our agency appointment at any time |
| Should any of the companies with which we place significant amounts of business decide to cancel our appointments, our business could be harmed |
| Risks Related to Regulation Our compliance with the strict regulatory environment applicable to the insurance industry is costly, and if we fail to comply with the numerous laws and regulations that govern the industry we could be subject to penalties We must comply with the complex rules and regulations of each jurisdiction’s insurance department which impose strict and burdensome guidelines on us regarding our operations |
| Compliance with these rules and regulations imposes significant costs on our business |
| Each jurisdiction’s insurance department typically has the power, among other things, to: · authorize how, by which personnel and under what circumstances an insurance premium can be quoted and published; · approve which entities can be paid commissions from insurance companies; · license insurance agents and brokers; · monitor the activity of our non-licensed customer service representatives; and · approve policy forms and regulate some premium rates |
| 16 ______________________________________________________________________ Due to the complexity, periodic modification and differing statutory interpretations of these laws, we may not have always been and we may not always be in compliance with all these laws |
| In addition, we have at times been subject to regulatory action for failing to comply with these laws |
| Failure to comply with these numerous laws in the future could result in fines, additional licensing requirements or the revocation of our license in the particular jurisdiction |
| These penalties could significantly increase our general operating expenses and harm our business |
| In addition, even if the allegations in any regulatory action against us turn out to be false, negative publicity relating to any allegations could result in a loss of consumer confidence and significant damage to our brand |
| We believe that because many consumers and insurance companies are not yet comfortable with the concept of purchasing insurance online, the publicity relating to any such regulatory or legal issues could harm our business |
| Regulation of the sale of insurance over the Internet and other electronic commerce is unsettled, and future regulations could force us to change the way we do business or make operating our business more costly As a company involved in the sale of insurance over the Internet, we are subject to additional regulatory risk as insurance regulations have not been fully modified to cover Internet transactions |
| Currently, many state insurance regulators are exploring the need for specific regulation of insurance sales over the Internet |
| Any new regulation could dampen the growth of the Internet as a means of providing insurance services |
| Moreover, the laws governing general commerce on the Internet remain largely unsettled, even in areas where there has been some legislative action |
| It may take years to determine whether and how existing laws such as those governing intellectual property, privacy and taxation apply to the Internet |
| In addition, the growth and development of the market for electronic commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies conducting business over the Internet |
| Any new laws or regulations or new interpretations of existing laws or regulations relating to the Internet could harm our business |
| If we become subject to legal liability for the information we distribute on our Web site or communicate to our customers, our business could be harmed Our customers rely upon information we provide regarding insurance quotes, coverage, exclusions, limitations and ratings |
| These types of claims have been brought, sometimes successfully, against agents, online services and print publications in the past |
| These types of claims could be time-consuming and expensive to defend, divert management’s attention, and could cause consumers to lose confidence in our service |
| As a result, these types of claims, whether or not successful, could harm our business, financial condition and results of operations |
| In addition, because we are appointed as an agent for only 43 of the over 60 life insurance companies quoted on our Web site, we do not have contractual authorization to publish information regarding the policies from insurance companies for whom we are not appointed |
| Several of these insurance companies have in the past demanded that we cease publishing their policy information and others may do so in the future |
| If we are required to stop publishing information regarding some of the insurance policies that we track in our database, it could harm us |
| 17 ______________________________________________________________________ Risks Related to the Internet and Electronic Commerce Any failures of, or capacity constraints in, our systems or the systems of third parties on which we rely could reduce or limit visitors to our Web site and harm our ability to generate revenue We use both internally developed and third-party systems to operate our service |
| If the number of users of our service increases substantially, we will need to significantly expand and upgrade our technology, transaction processing systems and network infrastructure |
| We do not know whether we will be able to accurately project the rate or timing of any of these increases, or expand and upgrade our systems and infrastructure to accommodate these increases in a timely manner |
| Our ability to facilitate transactions successfully and provide high quality customer service also depends on the efficient and uninterrupted operation of our computer and communications hardware systems |
| Our service has experienced periodic system interruptions, and it is likely that these interruptions will continue to occur from time to time |
| Additionally, our systems and operations are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunication failures, break-ins, sabotage, computer viruses, acts of vandalism and similar events |
| We may not carry sufficient business interruption insurance to compensate for losses that could occur |
| Any system failure that causes an interruption in service or decreases the responsiveness of our service would impair our revenue-generating capabilities, and could damage our reputation and our brand name |
| Our success depends, in part, on our ability to protect our proprietary technology We believe that our success depends, in part, on protecting our intellectual property |
| Other than our trademarks, most of our intellectual property consists of proprietary or confidential information that is not subject to patent or similar protection |
| Competitors may independently develop similar or superior products, software or business models |
| We cannot guarantee that we will be able to protect our intellectual property |
| Unauthorized third parties may try to copy our products or business model or use our confidential information to develop competing products |
| Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet-related businesses are uncertain and still evolving |
| As a result, we cannot predict the future viability or value of our proprietary rights and those of other companies within the industry |
| We may be subject to claims of infringement that may be costly to resolve and, if successful, could harm our business Our business activities and products may infringe upon the proprietary rights of others |
| Parties may assert valid or invalid infringement claims against us |
| Any infringement claims and resulting litigation, should it occur, could subject us to significant liability for damages and could result in invalidation of our proprietary rights |
| Even if we eventually won, any resulting litigation could be time-consuming and expensive to defend and could divert our management’s attention |
| If we are unable to adapt to the rapid technological change in our industry, we will not remain competitive and our business will suffer Our market is characterized by rapidly changing technologies, frequent new product and service introductions, and evolving industry standards |
| The recent growth of the Internet and intense competition in our industry exacerbate these market characteristics |
| Our future success will depend on our ability to adapt to rapidly changing technologies by continually improving the features and reliability of our database and service |
| We may experience difficulties that could delay or prevent the successful introduction or marketing of new products and services |
| In addition, new enhancements must meet the requirements of our current and prospective customers and must achieve significant market acceptance |
| We could also 18 ______________________________________________________________________ incur substantial costs if we need to modify our service or infrastructures or adapt our technology to respond to these changes |
| Demand for our services may be reduced if we are unable to safeguard the security and privacy of our customer’s information A significant barrier to electronic commerce and online communications has been the need for secure transmission of confidential information over the Internet |
| Our ability to secure the transmission of confidential information over the Internet is essential in maintaining consumer and insurance company confidence in our service |
| In addition, because we handle confidential and sensitive information about our customers, any security breaches would damage our reputation and could expose us to litigation and liability |
| We cannot guarantee that our systems will prevent security breaches |
| Our business assumes the continued dependability of the Internet infrastructure Our success will depend upon the development and maintenance of the Internet’s infrastructure to cope with its significant growth and increased traffic |
| This will require a reliable network backbone with the necessary speed, data capacity and security, and the timely development of complementary products, such as high-speed modems, for providing reliable Internet access and services |
| The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure and could face outages and delays in the future |
| Outages and delays are likely to cause a loss of business by affecting the level of Internet usage and the processing of insurance quotes and applications requests made through our Web site |
| Risks Related to the Ownership of Our Common Stock Zions Bancorporation, together with two of our officers and directors, own a significant portion of our stock and control Quotemsith |
| com and their interests may not be the same as our public stockholders As of March 9, 2006, Robert Bland, our chairman, President and Chief Executive Officer directly or indirectly controlled 31dtta3prca of our outstanding common stock, William Thoms, our Executive Vice President and Chief Operating Officer, directly controlled 7dtta8prca of our outstanding common stock, and Zions Bancorporation controlled 32dtta3prca of our common stock |
| As a result, if Zions and Messrs |
| Bland and Thoms act together, or if Zions and Mr |
| Bland act together, they will be able to take any of the following actions without the approval of additional public stockholders: · elect our directors; · amend certain provisions of our certificate of incorporation, · approve a merger, sale of assets or other major corporate transaction; · defeat any takeover attempt, even if it would be beneficial to our public stockholders; and · otherwise control the outcome of all matters submitted for a stockholder vote |
| If these persons act together and take any of the actions described above, the interests of our other stockholders may be harmed |
| For example, these persons could discourage or prevent potential mergers, takeovers or other change of control transactions that could be beneficial to our public stockholders, which could adversely affect the market price of our common stock |
| They may also be able to prevent or frustrate attempts to replace or remove incumbent management through their ability to elect directors |
| Furthermore, they may choose to advance their own interests at the expense of other stockholders, such as by acting to entrench themselves in a management position or electing themselves as directors |
| 19 ______________________________________________________________________ The investor rights agreement we signed with Zions contains supermajority board voting provisions that could make it more difficult for stockholders to change the policies of our Board of Directors and elect new members to our Board of Directors So long as Zions holds 40prca of the shares issued to them, the investor rights agreement we signed with Zions gives Zions the right to nominate or appoint one member of our Board of Directors |
| We must also receive a vote of 75prca of our directors for us to: · authorize, issue or sell any equity security (including options), other than certain specified options or pursuant to our employee stock purchase plan (of which there are presently 277cmam260 options available for grant under our stock option plans and 63cmam929 shares available for purchase under our employee stock purchase plan): · increase the authorized number of shares of our stock; · enter into any registration rights agreement; · repurchase or redeem any of our securities other than on a pro rate basis; · (i) merge, combine or consolidate with, or agree to merge, combine or consolidate with any entity, (ii) purchase, or agree to purchase all or substantially all of the securities of, any entity, or (iii) purchase, or agree to purchase, all or substantially all of the assets and properties of, or otherwise acquire, or agree to acquire, all or any portion of, any entity, in each case, for consideration in an amount, which when combined with all other such transactions in a fiscal year, exceeds dlra5cmam000cmam000; · (i) merge, combine or consolidate with, or agree to merge, combine or consolidate with any entity in which it is not the surviving entity or (ii) sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its assets; · sell or dispose of business or assets in excess of dlra1cmam000cmam000; · alter or change materially and adversely the rights of holders of our common stock; · incur indebtedness or guarantees in excess of dlra2cmam500cmam000 individually or dlra5cmam000cmam000 in the aggregate; · amend or proposed to amend our charter or bylaws · liquidate, dissolve, recapitalize, or effect a stock split or reverse stock split, or obligate ourselves to do so; · engage in any other business other than the business we are currently engaged in; or · declare any dividends or distributions |
| The supermajority provision, combined with Zions’ right to nominate or appoint one member of our Board of Directors, could discourage others from initiating a potential merger, takeover or another change of control transaction that could be beneficial to our public stockholders |
| In addition this supermajority provision could make it more difficult for stockholders to change the members and policies of the Board of Directors because any of the actions described above would require the approval of six of our seven directors |
| If Zions chooses to exercise its registration rights and sell its stock, the market price of our common stock could decrease and our ability to raise capital in the public markets may be adversely affected The 2cmam363cmam636 shares we issued to Zions are not registered and are restricted securities |
| However, the holders of these shares have registration rights under the investor rights agreement |
| The investor rights 20 ______________________________________________________________________ agreement provides both demand registration rights and piggyback registration rights to the holders of these shares |
| Sales of significant amounts of these shares following registration in accordance with the investor rights agreement or the perception that such sales will occur could adversely affect the market price of our common stock or our future ability to raise capital through an offering of equity securities or debt securities convertible into equity securities |
| If our remaining goodwill becomes impaired, we will be required to write off some or all of it against earnings, which may negatively impact the price of our common stock We recorded goodwill in the amount of dlra6dtta9 million as a result of our 2004 purchase of assets of Life Quotes, Inc |
| While goodwill is not amortized, it is subject to periodic reviews for impairment (at least annually, or more frequently if impairment indicators arise) |
| We review goodwill for impairment periodically and whenever events or changes in business circumstances indicate that the carrying value of the assets may not be recoverable |
| Such impairment reviews are performed at the entity level with respect to goodwill, as we have one reporting unit |
| Under those circumstances, if the fair value were less than the carrying amount of the entity, an indicator of impairment would exist and further analysis would be required to determine whether or not a loss would need to be charged against current period earnings |
| We did take note of such indicators during the fourth quarter of 2005 |
| These indicators included declining revenues from life insurance sales and a drop in the market price of our common stock |
| An impairment review was conducted as of December 31, 2005, and it was determined that an impairment existed |
| The determinations of impairment indicators and fair value are based on estimates and assumptions related to the amount and timing of future cash flows and future interest rates |
| The use of different estimates or assumptions could produce different results |
| As a result of this impairment determination, the Company recorded an impairment charge against earnings in the fourth quarter of 2005 amounting to dlra3dtta75 million |
| During 2006, and for as long as we have goodwill on our balance sheet, we will continue to review for indicators of goodwill impairment |
| If it were determined that the fair value of the entity were less than the carrying amount of the entity, an additional impairment charge would be recorded |
| Recording such a charge would decrease earnings and could lead to a decline in the price of our common stock |
| Our common stock is currently trading at low prices, which could further reduce the liquidity of the market for, and the price of our common stock We believe that the current per share price level of the common stock has reduced the effective marketability of our shares of common stock because of the reluctance of many leading brokerage firms to recommend low-priced stock to their clients |
| Certain investors view low-priced stock as speculative and unattractive, although certain other investors may be attracted to low-priced stock because of the greater trading volatility sometimes associated with such securities |
| In addition, a variety of brokerage house policies and practices tend to discourage individual brokers within those firms from dealing in low-priced stock |
| Such policies and practices pertain to the payment of brokers’ commissions and to time-consuming procedures that function to make the handling of low-priced stocks unattractive to brokers from an economic standpoint |
| In addition, because brokerage commissions on low-priced stock generally represent a higher percentage of the stock price than commissions on higher-priced stock, the current share price of the common stock can result in individual stockholders paying transaction costs (commissions, markups or markdowns) that represent a higher percentage of their total share value than would be the case if the share price were substantially higher |
| This factor also may limit the willingness of institutions to purchase the common stock at its current low share price |
| 21 ______________________________________________________________________ We believe that the current price of our common stock may have a negative impact on the liquidity and price of our common stock and investors may find it more difficult to purchase or dispose of, or to obtain accurate quotations as to the market value of, our common stock |
| Our stock price may have wide fluctuations and Internet-related stocks have been particularly volatile The market price of our common stock has been highly volatile and subject to wide fluctuations |
| The Nasdaq stock market has experienced significant price and volume fluctuations and the market prices of securities of technology companies, particularly Internet-related companies, have been highly volatile |
| Market fluctuations, as well as general political and economic conditions, such as a recession or interest rate fluctuations, could adversely affect the market price of our common stock |
| In addition, the market prices for stocks of Internet-related and technology companies, particularly following an initial public offering, frequently reach levels that bear no relationship to the operating performance of such companies |
| These market prices generally are not sustainable and are subject to wide variations |
| If our common stock trades to unsustainably high levels, it likely will thereafter experience a material decline |
| In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of their securities |
| We may in the future be the target of similar litigation |
| Securities litigation could result in substantial costs, divert management’s attention and resources, and harm our financial condition and results of operations |
| Certain provisions in our charter documents and Delaware law, together with our concentration of stock ownership in a few persons, could discourage takeover attempts and lead to management entrenchment Our certificate of incorporation and bylaws and Delaware law contain anti-takeover provisions that could have the effect of delaying or preventing changes in control that a stockholder may consider favorable |
| The provisions in our charter documents include the following: · we have a classified Board of Directors with three-year staggered terms that will delay the ability of stockholders to change the membership on the Board of Directors; · our Board of Directors has the ability to issue shares of preferred stock and to determine the price and other terms, including preferences and voting rights, of those shares without stockholder approval; · stockholder action may be taken only at a special or regular meeting; and · we have advance notice procedures that must be complied with by stockholders for them to nominate candidates to our Board of Directors |
| Our preferred stock purchase rights could cause substantial dilution to any person or group who attempts to acquire a significant interest in Quotesmith |
| com without advance approval of our Board of Directors |
| We have amended our rights plan to exempt acquisitions of shares of our common stock by Zions from the operation of the rights plan |
| In addition, our executive officers have employment agreements that may entitle them to substantial payments in the event of a change of control |
| We entered into amendments to our employment agreements with Messrs |
| Bland and Thoms that exempted the issuance of stock to Zions from constituting a change of control under these employment agreements |
| Furthermore, as of March 9, 2006, Messrs |
| Bland and Thoms, together with Zions, directly or indirectly controlled approximately 71prca of our outstanding common stock |
| This high concentration of stock ownership, together with the anti-takeover measures described above, could prevent or frustrate attempts to remove or replace incumbent management, including Messrs |
| Bland and Thoms |
| These persons may act to further their interests as management rather than the interests of the public stockholders |
| 22 ______________________________________________________________________ The foregoing could have the effect of delaying, deferring or preventing a change in control of Quotesmith |
| com, discourage bids for our common stock at a premium over the market price, or harm the market price of, and the voting and other rights of the holders of, our common stock |
| We also are subject to Delaware laws that could have similar effects |
| One of these laws prohibits us from engaging in a business combination with any significant stockholder for a period of three years from the date the person became a significant stockholder unless specific conditions are met |
| Continued terrorist attacks or war could lead to further economic instability and adversely affect our stock price, operations, and profitability |
| The terrorist attacks that occurred in the United States on September 11, 2001 caused periodic major instability in the US and other financial markets |
| Possible further acts of terrorism and current and future war risks could have a similar impact |
| The United States continues to take military action against terrorism and has recently taken military action in Iraq |
| Terrorist attacks and potential war in the Middle East may lead to additional armed hostilities or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may further contribute to economic instability |
| Any such attacks could, among other things, cause further instability in financial markets and could directly, or indirectly through reduced demand, negatively affect our facilities and operations or those of its customers or suppliers |