<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 1, 2000
REGISTRATION STATEMENT NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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ZEBU
(Exact name of registrant as specified in its charter)
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<TABLE>
<S> <C> <C>
DELAWARE 7374 94-3339273
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
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595 MARKET STREET, 6TH FLOOR
SAN FRANCISCO, CA 94105
(415) 543-7338
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
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STEVEN H. GERBER
PRESIDENT
ZEBU
595 MARKET STREET, 6TH FLOOR
SAN FRANCISCO, CALIFORNIA 94105
(415) 543-7338
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
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COPIES TO:
<TABLE>
<S> <C>
ALAN B. KALIN MICHAEL J. HALLORAN
DANIEL D. MEYERS ROBERT E. SULLIVAN
MCCUTCHEN, DOYLE, BROWN & ENERSEN, LLP PILLSBURY MADISON & SUTRO LLP
3150 PORTER DRIVE 50 FREMONT STREET
PALO ALTO, CALIFORNIA 94304 SAN FRANCISCO, CALIFORNIA 94105
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE FOLLOWING THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
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If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, please check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AGGREGATE
BEING REGISTERED OFFERING PRICE(1) AMOUNT OF REGISTRATION FEE
<S> <C> <C>
Common stock, par value $0.01 per share.......... $64,000,000.00 $17,152.00
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee, pursuant
to Rule 457(o).
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and we are not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
Subject to Completion, Dated , 2000
[ZEBU LOGO]
ZEBU
Shares
Common Stock
This is the initial public offering of Zebu. We are offering [ ] shares of
common stock. We have applied to list our common stock on the Nasdaq National
Market under the symbol "ZEBU."
Investing in our common stock involves risk. See "Risk Factors" beginning on
page 8.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES, OR DETERMINED IF
THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Public offering price $ $
Underwriting discounts and commissions $ $
Proceeds, before expense, to Zebu
</TABLE>
We have granted the underwriters the right to purchase up to additional
shares of common stock to cover any over-allotments.
Deutsche Banc Alex. Brown
U.S. Bancorp Piper Jaffray
Cochran, Caronia & Co.
The date of this prospectus is , 2000
<PAGE>
[INSIDE FRONT COVER ARTWORK]
[to be added by amendment]
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY MAY NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD CAREFULLY READ THE
ENTIRE PROSPECTUS, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS, BEFORE
MAKING AN INVESTMENT DECISION. IN THIS PROSPECTUS, THE TERMS "ZEBU," "WE," "US,"
AND "OUR" REFER TO ZEBU, AND OUR WHOLLY OWNED SUBSIDIARY, SELECTQUOTE INSURANCE
SERVICES. THE TERM "SELECTQUOTE" REFERS TO OUR WHOLLY OWNED SUBSIDIARY,
SELECTQUOTE INSURANCE SERVICES, BY ITSELF. THE TERM "SELECTTECH" REFERS TO
SELECTTECH, WHICH WE RECENTLY ACQUIRED.
Our Business
We believe that we provide the most effective business-to-business
infrastructure solution to the application processing and
information-connectivity problems of the insurance industry.
We believe that our state-of-the-art technology provides significant time
and cost savings and other efficiencies to insurance carriers, data providers
and distributors in this increasingly competitive marketplace by using a common,
Internet-based platform that facilitates the standardization and transfer of
insurance application information. We use our technology solutions in our retail
business to further our position as one of the largest independent direct
marketers of term life insurance in the United States and to prove the efficacy
of our technology solutions prior to deploying them to the rest of the industry.
We intend to license our technology to as many insurance carriers, agents and
information providers as possible, thereby standardizing the sale and processing
of insurance. Through our business-to-business and business-to-consumer
services, we aspire to "touch" every life insurance policy, either by selling
products directly to consumers or by processing every insurance application.
Our Market Opportunity
Most insurance carriers utilize traditional paper- and labor-intensive
processing for both Internet-generated and traditional agency-sourced
applications at high cost and with substantial delays. We believe there are
significant competitive advantages to insurance marketers and carriers that
implement recent technological developments, including the Internet. To
capitalize on the benefits of Internet-based technology and compete effectively,
we believe that life insurance marketers and carriers must achieve --
- a faster, more efficient application and policy issuance process;
- lower origination and application processing costs;
- more opportunities for consumers to access and compare insurance product
information;
- more choices of insurance products and prices; and
- a consumer-friendly method for obtaining the best coverage at the lowest
possible price.
In attempting to achieve these objectives, insurance businesses face serious
data processing obstacles because their diverse computing environments and
legacy systems are unable to share information easily among insurance carriers,
information providers and general agencies.
Our Solution
Our automated insurance management, or AIM, system solution is based on a
unique, open database architecture that permits:
- improved management of information;
3
<PAGE>
- an advanced data synchronization process which allows data to be moved
between remote work sites faster, more efficiently and in real time; and
- advanced applications utilizing our data distribution process.
The core of our technology solution, our AIM Central Communications System,
or Hub, is a system of hardware, software and modern relational database
technology that facilitates and manages workflow between multiple remote users
in real time. Our AIMSuite software products connect insurance carriers, their
agents and other participants in the life insurance policy application,
underwriting and issuance process to the Hub. We believe that this technology
offers an end-to-end solution to the information processing problems facing life
insurance carriers and agents. We connected the first insurance carrier to our
Hub in April 1998. Today, over 1,000 general agencies and more than 30 insurance
carriers have adopted our technology. Each business day, they collectively
transmit more than 1,000,000 data transactions through our Hub. The number of
new policy applications processed using the Hub currently exceeds 30,000 per
month.
Our Strategy
We aspire to become the acknowledged agent of change for the entire
insurance industry by transforming the way insurance policies are sold,
processed and issued. We intend to become the dominant provider of technology
solutions to the insurance industry, and to strengthen our position as a leading
independent marketer of term life insurance. The key elements of our strategy
include --
- establishing the AIMSuite as the technology standard for the insurance
industry;
- streamlining our operations and increasing our sales efficiency;
- using our technology to process insurance policies for the insurance
industry;
- reducing policy acquisition costs;
- expanding brand awareness and presence;
- expanding our lines of business; and
- expanding the application of the Hub.
Our Company
SelectQuote began business in 1985 as an independent insurance agency, and
markets term life insurance products to consumers in most of the United States.
SelectTech was founded in September 1995 by SelectQuote and two of our current
officers, Steven Gerber and Michael Feroah, to develop data movement and
integration solutions to address insurance industry-wide infrastructure
inefficiencies in the processing of applications and issuance of policies. Zebu
was founded in August 1999. We did not conduct any operations until
December 23, 1999, on which date SelectQuote acquired SelectTech and Zebu
acquired SelectQuote through its merger with Zebu's wholly owned subsidiary. In
these transactions, the shareholders of SelectTech and SelectQuote exchanged
their stock for shares of Zebu stock, and Zebu replaced options and other
securities convertible into shares of SelectTech or SelectQuote stock with
options or convertible securities to acquire shares of Zebu stock.
4
<PAGE>
Our principal executive offices are located at 595 Market Street, 6th Floor,
San Francisco, California 94105, and our telephone number is (415) 543-7338. Our
web sites are located at WWW.AIMSUITE.COM AND WWW.SELECTQUOTE.COM. The
information contained on our web sites does not constitute a part of this
prospectus.
------------------------
UNLESS OTHERWISE INDICATED, THIS PROSPECTUS ASSUMES --
- THAT THE UNDERWRITERS HAVE NOT EXERCISED THEIR OPTION TO EXERCISE THEIR
OVERALLOTMENT OPTION; AND
- ALL SHARES OF PREFERRED STOCK HAVE BEEN CONVERTED INTO 3,139,961 SHARES OF
COMMON STOCK AND ALL CONVERTIBLE DEBENTURES HAVE BEEN CONVERTED INTO
731,420 SHARES OF COMMON STOCK UPON OR IMMEDIATELY PRIOR TO THE CLOSING OF
THIS OFFERING.
Zebu-TM-, SelectQuote-TM-, SelectTech-TM-, AIMSuite-TM-, AIM Quickview-TM-,
AIM GA-TM- and AIM ITS-TM- are our trademarks, service marks and trade names.
This prospectus also includes trademarks, service marks and trade names other
than those identified in this paragraph, each of which is the property of its
respective holder.
The Offering
<TABLE>
<S> <C>
Common stock offered by Zebu................ shares
Common stock to be outstanding after the
offering.................................. shares
Use of proceeds............................. We intend to use the proceeds of this
offering to expand our technology
installation efforts, to develop new
technology products and services, to expand
our sales and marketing efforts and for
general corporate purposes, including
working capital.
Proposed Nasdaq National Market symbol...... ZEBU
</TABLE>
The outstanding share information is based on our shares outstanding as of
December 31, 1999. This information excludes --
- 6,510,635 shares of common stock subject to outstanding options granted
under our 1999 Stock Option Plan as of December 31, 1999 at a weighted
average exercise price of $3.92 per share;
- 3,489,365 shares of common stock reserved for future issuance under our
1999 Stock Option Plan as of December 31, 1999;
- 1,000,000 additional shares of common stock reserved for issuance under
our 1999 Employee Stock Purchase Plan; and
- 2,041,845 shares of common stock issuable upon conversion of shares of
Series E preferred stock that we have agreed to issue in March 2000 under
the terms of an investment agreement dated February 29, 2000.
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<PAGE>
Summary and Pro Forma Condensed Combined Financial and Operating Data
<TABLE>
<CAPTION>
Six Months Ended December 31, 1999
-------------------------------------------------------
Zebu Pro Forma
Zebu SelectTech Zebu Pro Forma Combined As
Actual Actual Combined Adjusted
-------- ---------- -------------- --------------
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues................................................... $10,344 $ 1,444 $ 11,307 $
Total operating expenses................................... $11,331 $ 3,808 $ 25,272 $
Net loss................................................... $ (570) $(2,625) $(14,032) $
Basic and diluted net loss per share....................... $ (1.08) $ -- $ (1.35) $
Shares used in computation of basic and diluted net loss
per share................................................ 5,222 -- 10,498
Shares used in computation of basic and diluted net loss
per share assuming conversion of preferred stock and
convertible debentures into 3,139,961 shares and 731,420
shares of common stock, respectively..................... -- 14,369
Unaudited pro forma basic and diluted loss per share, as
converted................................................ -- $ (1.33)
Consolidated Balance Sheet Data:
Cash and cash equivalents.................................. $ 2,845 $ 56 $
Working capital (deficiency) 4,275 (6,222)
Goodwill and other intangible assets....................... 63,009 --
Total assets............................................... 75,130 946
Current liabilities........................................ 6,073 6,826
Long-term liabilities...................................... 845 1,016
Mandatorily redeemable convertible preferred............... 4,744 1,000
Total shareholders' equity (deficit)....................... $63,469 $(7,896) $
</TABLE>
<TABLE>
<CAPTION>
As of
December 31, 1999
-----------------
<S> <C>
Other Operating Data:
SELECTTECH
AIM QuickView software licenses--carriers................... 33
AIM QuickView software installations--general agencies...... 1,134
AIM GA software installations--general agencies............. 23
SELECTQUOTE
Cumulative policies sold.................................... 253,600
Licensed agents............................................. 39
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
December 31, 1999
------------------
<S> <C>
SELECTTECH
Applications submitted to the Hub........................... 204,044
SELECTQUOTE
Leads....................................................... 93,194
Applications................................................ 25,831
Policies sold............................................... 19,131
</TABLE>
See Notes 2 and 3 of Notes to Zebu Consolidated Financial Statements for an
explanation of the determination of the number of shares and share equivalents
used in computing pro forma per share amounts.
The Summary and Selected Financial and Operating Data for SelectTech
reflects actual results through December 23, 1999. The Summary Financial and
Operating Data for SelectQuote and the Pro Forma Combined Financial and
Operating Data set forth above includes all our operating results through
December 31, 1999, including the operating results of the acquired SelectTech
business for the last week of December 1999.
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<PAGE>
The foregoing information gives effect to the following:
- The pro forma combined operating data as of December 31, 1999 accounts for
SelectQuote's acquisition of SelectTech, completed on December 23, 1999,
using the purchase method of accounting and the conversion of preferred
stock as if it had occurred on December 31, 1999; and
- The as adjusted data above reflects the application of the net proceeds
from the sale of shares of common stock offered by us at an assumed
initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and offering expenses.
7
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS PROSPECTUS BEFORE
DECIDING TO INVEST IN OUR STOCK. ANY OF THE FOLLOWING RISKS COULD CAUSE THE
TRADING PRICE OF OUR COMMON STOCK TO DECLINE SUBSTANTIALLY.
On a combined basis, our operations have lost money and we expect to continue to
generate substantial operating losses for the next several years.
Although our retail insurance products and services business has been
profitable historically, we currently lose money on our operations overall and
expect to continue to incur substantial operating losses. As we continue to
incur costs to implement new technology in our insurance products and services
operations, increase our marketing expenses to promote market awareness of our
products and services and increase our expenditures for the development of new
software products and services, we expect to have substantial negative cash flow
and to sustain significant operating losses. We may never achieve profitability.
Even if we achieve profitability, we may not be able to sustain it.
SelectTech incurred net losses of $6.0 million from its inception through
June 30, 1999, $3.6 million for the year ended June 30, 1999 and $2.6 million
for the six months ended December 31, 1999. We expect that the recently acquired
SelectTech technology operations will continue to contribute net losses to our
results of operations for the foreseeable future and will generate negative cash
flow from operations for at least the next several years. We expect to incur
substantial expenses to promote the adoption of our Hub technology and AIMSuite
software and continue our development efforts to apply the same technology to
other insurance products and financial services businesses, which could
adversely affect our business, results of operations and financial condition.
In addition, charges for goodwill and other intangible assets resulting from
our acquisition of SelectTech, which total $63.5 million, will be amortized over
the next three years and will result in substantial net losses for us during
each of these years, regardless of other operating results.
We might fail to successfully integrate SelectTech.
We have recently combined SelectQuote and SelectTech. The success of the
combined company will depend, in part, on our ability to fully integrate the
operations and management of both companies. A successful integration will
require, among other things, the integration of SelectTech's technology products
and services into SelectQuote's operations and the coordination of their
research and development, sales and marketing and financial reporting efforts.
We cannot assure you that we will accomplish this integration smoothly or
successfully or that we will realize the anticipated benefits of the SelectTech
acquisition. The success of the integration will require the dedication of
management and other personnel resources which could temporarily distract their
attention from our day-to-day operations. This integration effort may result in
a substantial and unexpected increase in our operating expenses, which could
adversely affect our business, results of operations and financial condition.
A substantial part of our anticipated revenue and net income growth depends on
adoption of our technology by key insurance carriers.
We anticipate that we will earn a substantial amount of our future revenue
from license fees and transaction fees paid by insurance carriers and general
agents who license our AIMSuite software and use our Hub technology. This
strategy will succeed only if we induce the key insurance carriers and service
providers involved in the application process to transfer data using our system.
A failure to achieve widespread market acceptance and adoption of our technology
could
8
<PAGE>
have a material adverse effect on our business, financial condition and results
of operations, and cause the market price of our common stock to decline
substantially. We may fail to achieve widespread adoption of our technology for
a variety of reasons, including the following--
- our technologies may not provide reliable data movement;
- our products may not perform up to industry expectations;
- we may fail to develop, test and ship new software products quickly enough
to address our customers' changing needs;
- companies that view us as a competitor may refuse to license our software;
- other companies may offer superior products;
- our products may deliver an insufficient economic benefit to our
prospective customers; and
- the industry may continue to favor traditional methods of sales,
processing and issuance of insurance policies.
Our operating results might fluctuate significantly and remain uncertain, which
could negatively affect the value of your investment.
Our quarterly and annual operating results, particularly the historical
quarterly operating results from our technology products and services, have
varied greatly. As we increase our sales of insurance policies and our reliance
on technology products and services for significant revenue growth, our
operating results are likely to continue to vary as a result of a variety of
factors.
Many of our current and future costs are fixed. If our revenues fall short
of expectations, we may be unable to adjust our fixed expenses to compensate for
this shortfall on a timely basis, and our results of operations could be harmed.
Further, in order to remain competitive, we might have to make various pricing,
service or marketing decisions that could have a material adverse effect on our
business, results of operations and financial condition.
Because of the fluctuation in operating results that could occur as a result
of these and other factors, period-to-period comparisons of our revenues and
operating results are not necessarily meaningful. Therefore, you should not rely
on these types of comparisons as indicators of our future performance.
In addition, our operating results in future periods might be below the
expectations of securities analysts and investors. Each of these factors could
materially and adversely affect the market price of our common stock. For a
further discussion of the impact of these factors on our operating results,
please refer to "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Factors Affecting Operating Results."
To substantially increase revenues and profits from the sale of insurance
policies, we must implement new software and systems that are still in
development.
We intend to make our SelectQuote sales personnel and insurance products and
services operations more efficient through the implementation of automated rate
calculator, or ARC, software, and a new general agency management system that
will connect our insurance carrier clients and other insurance information
providers through our Hub. A failure to develop and successfully operate this
new software, or to obtain the desired efficiencies, could have a material
adverse effect on our business, financial condition and results of operations.
9
<PAGE>
A lack of quality leads may inhibit growth in commission-based revenues.
We believe that SelectQuote's advertising and marketing techniques for term
life insurance policies historically have generated quality leads, which have
enabled it to maintain a high rate of conversion of leads to policies sold. As
we attempt to substantially increase SelectQuote's sales of term life insurance
policies by implementing new technology and by using SelectQuote's web site as a
sales tool, the quality of leads may decline. Such a decline could inhibit the
growth of our commission-based revenues, reduce our efficiency and increase our
costs, and could have a material adverse effect on our business, financial
condition and results of operations.
Our commission-based revenues and our receivables are highly concentrated among
a small number of carriers, and our business will be harmed if we fail to
maintain or replace revenues from those carriers or fail to collect receivables
from them.
We generate a significant portion of our revenues from commissions paid to
SelectQuote on policies offered by a limited number of carriers. Based on
commissions received, the top five insurance carriers represented by SelectQuote
accounted for 77% of commission-based revenues during the six months ended
December 31, 1999 and 67% during the six months ended December 31, 1998. Of the
top five insurance carriers in the six months ended December 31, 1998, two were
not in the top five in the six months ended December 31, 1999. As we change the
ways in which SelectQuote processes applications and distributes insurance
policies, the number of policies sold on behalf of any of these carriers may
decline.
The identity of the five carriers who have accounted for a significant
portion of SelectQuote's revenues has varied in each of the last three years
based on factors that are beyond our control, such as policy price, terms and
underwriting criteria. To maintain or increase our commission-based revenues, we
must continue to represent a sufficient number of carriers who offer policies
that appeal to consumers and who will fulfill our application requests. As the
volume for any particular carrier declines, SelectQuote must increase the volume
of business for other carriers or we must increase revenues from other sources.
A failure to do so could have a material adverse effect on our business,
financial condition and results of operations.
Our credit risk for receivables collections is also concentrated among a few
carriers. As of December 31, 1999, four carriers accounted for 63% of total
receivables, including receivables acquired from SelectTech, each of whom
accounted for at least 10% of the total. As of June 30, 1999, three carriers
accounted for 51% of total commissions receivable at year end, each of whom
represented at least 10% of the total. Our failure to collect receivables from
any carrier that represents a large percentage of receivables on a timely basis,
or at all, could adversely affect our cash flow or results of operations and
might cause our stock price to fall. For more information, please refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--SelectQuote."
The unpredictability of our commission-based and bonus revenues could cause
fluctuations in our operating results.
We have no control over the commission or bonus rates paid to SelectQuote by
insurance carriers, which represent a significant portion of our revenues. Each
individual insurance carrier controls its own commission and bonus rates. The
mix of products offered by SelectQuote and the carriers that it represents may
vary from time to time. If these variations result in sales of products with
lower commission and bonus rates, our revenues could be adversely affected.
Furthermore, bonus rates increase with the number of premiums paid for new
insurance policies to each individual insurance carrier. In general, if
SelectQuote's customers purchase policies from a smaller number of insurance
carriers, SelectQuote's per policy bonus commissions will be
10
<PAGE>
higher than if its customers purchase the same number of policies from a larger
number of insurance carriers. A consumer's decision to purchase a policy from a
particular insurance carrier typically depends on factors over which we have no
control, including the price and terms of the policy and the rating of the
insurance carrier. Insurance companies change their prices often, for a variety
of reasons. Price increases by an insurance carrier may reduce the number of
policies we place for that carrier, which in turn may reduce the size of our
bonus commission from that carrier. As a result of these factors, we are unable
to control the amount of bonus commissions we receive in any particular quarter
or year. These amounts could fluctuate significantly.
We could experience a substantial drop in our revenues if quality insurance
companies marketing competitive products refuse to appoint us as their agent.
We conduct all of our commission-based business pursuant to agency contracts
with insurance carriers rated "A" or higher by A.M. Best. We cannot assure you
that the carriers with whom SelectQuote currently has agreements will continue
to appoint it as an agent to offer insurance, or that any other insurance
carriers will do so. In addition, agency contracts can be terminated by the
insurance carriers with or without cause and with little or no notice to us. The
loss of agency contracts with SelectQuote's insurance carriers could have a
material adverse effect on our business, financial condition and results of
operations.
We face intense competition in the insurance application processing industry and
the insurance sales industry.
The markets for our current and planned products and services are intensely
competitive and characterized by rapidly changing technology, regulatory
requirements and customer demands. We compete in the market for software and
services used for insurance application processing with companies providing
business-to-business information processing solutions aimed at the insurance
industry, such as ChannelPoint, Intuit and the CyberTech division of Policy
Management Systems, Inc., and will face competition from other information
processing and outsourcing services aimed at the insurance industry. The retail
term life insurance business of SelectQuote has thousands of insurance sales
competitors, both local and national. Some of our competitors and potential
competitors have longer operating histories, larger customer bases, greater
brand recognition and significantly greater financial, marketing, technical and
other resources than we do. These competitors might be able to devote greater
resources to marketing and promotional campaigns, adopt more aggressive pricing
policies and devote substantially more resources to technology and systems
development than we can. New technologies and the expansion of existing
technologies could also increase the competitive pressures on us by enabling our
competitors to offer lower-cost or superior products or service. Increased
competition could diminish the value of our products and services and result in
reduced operating margins and loss of market share. We cannot assure you that we
will be able to compete successfully against current or future competitors. For
more information, please refer to "Business--Competition."
We might be unable to manage rapid growth.
We have expanded our operations rapidly and intend to continue this
expansion after the completion of the offering. In addition to the effects of
the acquisition of SelectTech by SelectQuote, our anticipated growth rate will
place a significant demand on our managerial and operational resources. To
manage our anticipated expansion effectively, we must --
- implement and improve our operating systems, procedures and controls on a
timely basis;
- hire additional key management personnel;
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- expand, train and manage our workforce and, in particular, our software
development, sales, marketing and support organizations;
- open offices in other geographic areas;
- implement and manage new distribution channels to penetrate different and
broader markets; and
- manage an increasing number of complex relationships with consumers,
co-marketers and other third parties.
We cannot be certain that our systems, procedures or controls will be
adequate to support our current or future operations, or that our management
will be able to simultaneously manage the desired expansion of our business and
achieve the growth necessary to exploit fully the markets for our products and
services. Failure to manage our growth effectively could have a material adverse
effect on our business, financial condition and results of operations.
Our product and software development efforts are inherently difficult to manage
and keep on schedule, and development delays could increase our costs.
On occasion, we have experienced development delays and related cost
overruns. We cannot be certain that we will not encounter these problems in the
future. We may be unable to meet our new product development schedules if we
cannot readily obtain skilled programmers. A delay of this nature could slow the
growth of our revenues and increase our costs, which could have a material
adverse effect on our business, financial condition and results of operations.
In addition, we cannot be certain that we will successfully develop and market
new products or product enhancements that respond to changes in technology,
industry standards or consumer requirements, or that any product innovations
will achieve the market penetration or price stability necessary for
profitability.
We utilize substantial offshore contract software programming and development
services provided by related parties.
In developing our software products and the Hub, we procure substantial
software programming and testing services from a programmer-based business in
Eastern Europe. This corporation is controlled by two of our executive officers,
Steven H. Gerber and Michael Feroah. The programmers are not U.S. citizens or
residents. We do not own these corporations and cannot direct the activities of
these programmers. Their lack of legal residence status in the U.S. may prevent
us from obtaining critical development, debugging and maintenance services when
needed by us or our licensees. As a result, we may be exposed to revenue losses
and liability to our licensees or their customers.
We utilize substantial third-party contract software programming and development
services that we do not control.
In developing our software products and the Hub, we procure substantial
software programming and testing services from third-party contractors that we
do not control. Although these services are performed under contracts that
specify the required work product and delivery schedules, we cannot directly
control the quality or timing of these services. In addition, if any of these
third-party contractors ceases to provide services to us, we might not be able
to replace the contractor on the same terms, or at all. A failure of these
contractors to perform as expected, or our failure to replace these contractors
if they cease to provide services to us, could have a material adverse effect on
our business, financial condition and results of operations.
12
<PAGE>
If we fail to respond adequately to rapid technological changes, our existing
software products and services will become obsolete or unmarketable.
The market for our technology products and services is characterized by
rapid technological change, which leads to frequent new product and service
introductions and enhancements, uncertain product life cycles, changes in
consumer demands and evolving industry standards. New products and services
based on new technologies or new industry standards could render our existing
products obsolete and unmarketable. We believe that, in order to succeed, we
must continually enhance our current products and develop new products on a
timely basis to keep pace with technological developments and to satisfy the
ever-changing requirements of our customers. We cannot assure you that we will
be successful in meeting these requirements.
Our products might contain defects that could inhibit their market acceptance
and subject us to liability in excess of insurance limitations.
Our software products are complex and might contain undetected errors or
result in system failures. Despite extensive testing, errors might be found in
any of our current or future product offerings. Any errors in our software
products could result in loss of or delay in revenues, loss of market share,
failure to achieve market acceptance, diversion of development resources, injury
to our reputation or damage to our efforts to build brand awareness. Moreover,
we cannot be certain that limitations of liability contained in our customer
contracts will be enforceable, or that insurance coverage will continue to be
available on reasonable terms or in amounts sufficient to cover one or more
large claims, or that our insurer will not disclaim coverage as to any future
claim. Either the successful assertion of one or more large claims that exceed
available insurance coverage or changes in our insurance policies, including
premium increases or the imposition of large deductible or co-insurance
requirements, could cause our expenses to increase and could have a material
adverse effect on our business, results of operations and financial condition.
Revenues and gross margins from our consulting services business are uncertain.
Substantially all of SelectTech's historical revenues came from custom
software development and consulting services provided to insurance carriers.
SelectTech's provision of these services was not, and is not expected to be, the
focus of its business, but was undertaken to provide needed revenue to
SelectTech and to help build relationships with significant insurance carriers.
Due to the complex nature of these services and the present allocation of
skilled programmers and other technical services personnel to SelectQuote, we
cannot assure you that we will generate significant revenue from custom software
development and consulting services in the foreseeable future.
System failures could interrupt our business and cause revenue losses or
liability.
Our success depends, in part, on the efficient and uninterrupted operation
of computer and communications systems which make the Hub available to our
licensees and operate our management and sales systems. Any failure of these
systems could impede the processing of data, customer orders and the day-to-day
management of our business and permanently damage our business reputation and
goodwill. Such a failure could have a material adverse effect on our business,
financial condition and results of operations.
Our systems and operations are vulnerable to damage or interruption from--
- natural disasters, including earthquakes;
- telecommunication failures;
- power losses;
13
<PAGE>
- fires;
- physical and electronic break-ins; and
- sabotage, intentional acts of vandalism or similar events.
We do not presently have fully redundant systems. Despite any precautions we
take, a natural disaster or other unanticipated problem leading to the
corruption or loss of data at the facilities that house our systems could result
in interruptions in the services we provide. The occurrence of any such event
could also lead to systems failure or to a corruption of our data, either of
which could have a material adverse effect on our business, financial condition
and results of operations.
The loss of key personnel or the failure to hire additional personnel could harm
our business.
We depend on the continued services of our key personnel. We expect that we
will need to hire additional personnel in all areas of our operations. The
competition for personnel throughout our industry is intense, particularly in
the San Francisco area, where our headquarters are located. Any of our
personnel, including our management, could terminate their employment with us at
any time for any reason. Currently, we are substantially dependent upon the
services of Charan J. Singh, our Chief Executive Officer, Steven H. Gerber, our
President, David L. Paulsen, our Chief Financial Officer and Chief Operating
Officer-Insurance Products and Services, and Michael L. Feroah, our Chief
Operating Officer-Software Products and Services. The loss of the services of
any of these key executives would materially impede the operation and growth of
our business. Furthermore, our failure to attract new personnel or retain and
motivate our current personnel could have a material adverse effect on our
business, financial condition and results of operations.
We might not be able to protect and enforce our intellectual property rights.
We rely on a combination of copyright, trademark, service mark and trade
secret laws and contractual restrictions to establish and protect our
intellectual property rights. We cannot assure you that these contractual
arrangements or the various other steps we have taken will be sufficient to
protect our intellectual property from infringement or misappropriation. Due to
differences between the legal systems in the U.S. and in some foreign countries,
we may experience difficulties in enforcing our agreements and rights against
foreign contractors and employees of the third-party developers of much of our
software.
We believe that we have taken steps necessary to establish our ownership of
any intellectual property developed by these programmers and to protect our
intellectual property in the jurisdictions where they work. However, we cannot
assure you that the laws of these jurisdictions will provide adequate
protection, or that we will be able to enforce our rights adequately in any
jurisdiction.
We have sought and will continue to seek to obtain the registration of our
trademarks and service marks in the United States. We cannot assure you that
trademark registrations will be issued with respect to pending or future
applications or that our trademarks will be upheld if challenged. Effective
trademark, service mark, copyright and trade secret protection may not be
available in every country in which our services are offered.
Third parties might claim that our intellectual property rights infringe
their proprietary rights. We expect that the number of infringement claims in
our market will increase with further adoption of our software and Hub
technology. These claims, whether meritorious or not, could --
- be time consuming;
- result in costly litigation; or
- require that we enter into royalty or licensing agreements with the
claimants.
14
<PAGE>
Royalty or licensing agreements might not be available on terms we find
acceptable, or might not be available at all. Any infringement claim could have
a material adverse effect on our business, financial condition and results of
operations.
Due to our small size, limited operations and the difficulty of hiring personnel
in our industry, any further acquisitions could strain our managerial,
operational and financial resources.
In the future, we might make acquisitions of, or large investments in,
businesses that offer products, services and technologies that we believe would
help us better provide insurance policy distribution, processing and fulfillment
services. Although historically we have not made acquisitions of, or investments
in, other companies, other than the acquisition of SelectTech, which was an
affiliate of SelectQuote at the time, future acquisitions or investments could
become an important part of our strategy. Any future acquisitions or investments
would present risks, such as difficulty in integrating the technology,
operations or workforce of the acquired business with our own, disruption of our
ongoing businesses and difficulty in realizing the anticipated financial or
strategic benefits of the transaction.
In the event we were to make such an acquisition or large investment, we
might use cash, common stock or a combination of cash and common stock. Our use
of common stock in an acquisition could further dilute the equity interests of
existing stockholders. Amortization of goodwill or other intangible assets
resulting from an acquisition could materially impair our operating results and
financial condition. Furthermore, there can be no assurance that we would be
able to attain acquisition financing, or that any acquisition, if consummated,
would be smoothly integrated into our business. A failure to successfully manage
the risks associated with acquisitions or large investments could have a
material adverse effect on our business, financial condition and results of
operations.
Our success depends on the strength of the term life insurance market.
Because we currently derive nearly all of our revenues from commissions paid
to SelectQuote on consumer purchases of term life insurance and service fees for
transmitting policy application data, our business depends on the strength of
the term life insurance industry generally and consumer demand for term life
insurance policies in particular. If sales of term life insurance policies
decline, our business could be harmed substantially. Further, a decline in
premiums would reduce the size of our commissions. A failure to offset this
reduction by cutting our costs and/or substantially increasing the number of
policies sold by SelectQuote could have a material adverse effect on our
business, financial condition and results of operations.
If the purchase of insurance over the Internet achieves widespread consumer
acceptance and we are unable to develop further our Internet-based retail
capability, our business could be harmed.
We intend to implement a fully integrated, interactive web site for
SelectQuote that will allow consumers to provide biographical and health
information and complete policy applications on-line. The on-line marketing of
insurance policies is a recent phenomenon. The market revenue potential and
profitability of on-line sales of term life insurance policies are highly
uncertain. No firm yet processes term life insurance applications to policy
issuance entirely over the Internet, and we cannot assure you that our efforts
will succeed. However, if consumer demand for Internet-based sales and
distribution of term life insurance policies increases, our failure to develop
further our Internet-based retail capability to meet such demand could have a
material adverse effect on our business, financial condition and results of
operations.
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<PAGE>
If we become subject to legal liability for any inaccuracy in the information we
disseminate, our business could be harmed.
SelectQuote's retail insurance customers rely upon information we publish
regarding insurance quotes, coverages, exclusions, limitations and ratings. We
might face liability for information we supply to consumers if the information
is inaccurate. The information in SelectQuote's databases, like that in any
database, might contain inaccuracies. Any dissatisfaction by our retail
customers with SelectQuote's methodologies or databases could have a material
adverse effect on our ability to attract new and retain existing customers. To
the extent that any information we provide is inaccurate, we could be liable for
to from both consumers and insurance carriers. In the past, these types of
claims have been brought, sometimes successfully, against on-line services and
print publications. These types of claims also could be time-consuming and
expensive to defend, could divert management's attention and could cause
consumers to lose confidence in our services. As a result, these types of
claims, whether or not successful, could have a material adverse effect on our
business, financial condition and results of operations.
We operate in a heavily regulated industry.
We must comply with the complex rules and regulations of the insurance
department of each jurisdiction in which SelectQuote does business, many of
which impose strict and burdensome guidelines on us regarding our activities as
an insurance agency company and on SelectQuote's individually licensed agents.
Compliance with these rules and regulations can be very costly. 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 and an insurance policy may
be sold;
- approve which entities can be paid commissions from insurance companies;
- license insurance agents and brokers;
- approve policy forms and regulate some premium rates; and
- regulate advertising, including Internet website content.
Due to the complexity, periodic modification and differing statutory
interpretations of these laws, SelectQuote may not have been, and we might not
be in the future, in compliance with all of these laws at all times. Failure to
comply with these numerous laws could result in fines, additional licensing
requirements or the revocation of our license and/or the license of any of our
agents in any particular jurisdiction. An adverse disciplinary action in any one
jurisdiction generally is required to be reported by the licensee and the
National Association of Insurance Commissioners to the other jurisdictions and,
as a result, could lead to additional compliance investigations and further
disciplinary proceedings. These types of penalties could significantly increase
our general operating expenses, negatively impact our revenues and harm our
business. In addition, even if allegations against us and/or any of our agents
in a regulatory action are determined to be false, negative publicity relating
to the allegations could result in a loss of consumer confidence and significant
damage to our brand. For more information, please refer to
"Business--Regulation."
Authorities might impose limits on the use of personal information gathered
using the Internet.
The privacy of personal information has received much recent attention in
various legislative and regulatory arenas--
- The Financial Services Modernization Act of 1999 requires many federal
agencies to adopt regulations protecting the privacy of consumer data in
both the general business and Internet
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<PAGE>
context. The Federal Reserve Board has proposed Regulation P, which would
be applicable to a broad range of financial transactions by banks, brokers
and insurers. That proposed regulation could increase our costs of doing
business by requiring additional procedures in collecting and storing
customer data, including transmitting periodic privacy notices and
"opt-out" election documents to customers with respect to their personal
data. The Act also reinforces existing regulations that require on-line
services and web site owners to establish privacy policies. Other federal
agencies are in the process of preparing proposed regulations under the
Act that could impose even stricter substantive and procedural
requirements.
- The Federal Trade Commission has taken an aggressive position in
proceedings against several on-line services, alleging unfair or deceptive
practices in the manner in which these services collected personal
information from users and shared it with third parties. The FTC is
currently conducting studies which may lead to regulations on fair
information practices for Internet businesses, which could restrict the
flow of consumer data over the Internet and impact our business.
- At least 17 states have adopted insurance privacy protection legislation
based on the National Association of Insurance Commissioners Insurance
Information and Privacy Protection Model Act. The Model Act provides for a
fine for knowing violations of the act, and for damage claims by aggrieved
consumers.
Because all of SelectQuote's policy applicants consent to the retrieval of
their personal data, to date these existing regulations and proceedings have not
impacted our operations directly. We cannot assure you, however, that these
legislative and regulatory restrictions will not have a material adverse effect
on our business, financial condition and results of operations in the future.
Several states have proposed legislation that would limit the use of
personal information gathered using the Internet. Any additional changes in
existing laws or the passage of new laws intended to address these issues could,
among other effects--
- create uncertainty in the marketplace that could reduce demand for our
products and services;
- limit our ability to collect and use data from our applicants;
- increase the cost of doing business as a result of litigation costs or
increased service delivery costs; or
- decrease the efficacy of Internet commerce.
These and other potential effects of changes in the Internet's regulatory
framework could have a material adverse effect on our business, financial
condition and results of operations.
Legislation or judicial action relating to the Internet could have a negative
impact on our business.
Due to the increasing popularity and use of the Internet, laws or
regulations could be adopted in the United States or abroad with particular
applicability to the Internet. Governments may enact legislation applicable to
us in areas such as network security, encryption, the use of key escrow,
electronic authentication or digital signatures, illegal and harmful content,
access charges and retransmission activities. Moreover, the applicability to the
Internet of existing laws governing issues such as property ownership, content,
taxation, defamation and personal privacy is uncertain. Any new legislation,
regulation or governmental enforcement of existing regulations could limit the
growth of the Internet, increase our cost of doing business or increase our
legal exposure, any of which could have a material adverse effect on our
business, financial condition and results of operations.
17
<PAGE>
We face risks related to the storage of personal information about our insurance
policy applicants.
We obtain personal information regarding policy applicants, including family
history and medical information, which we retain and transmit via data
processing systems which are designed to be secure and confidential. If someone
penetrates our network security or otherwise misappropriates sensitive data
about our applicants, we could be subject to liability. This liability could
include claims for unauthorized purchases with credit card information,
impersonation or other similar fraud claims, libel, invasion of privacy, misuse
of personal information, such as unauthorized marketing, or other tort claims,
including claims based on injury to personal reputation. Any of these claims
could result in litigation and could have a material adverse effect on our
business, financial condition and results of operations. In addition, the
Financial Services Modernization Act of 1999, discussed above, could result in
the imposition of regulations regarding the storage of personal information.
Any new tax on the sale of our products, the licensing of our technology or our
provision of services could harm our financial condition.
We currently do not collect sales or similar taxes with respect to the sale
of products, the licensing of technology or the provision of services in states
and countries other than states in which we have offices. In October 1998, the
Internet Tax Freedom Act, or ITFA, was signed into law. Among other things, ITFA
imposes a three-year moratorium on discriminatory taxes on e-commerce.
Nonetheless, following the moratorium, one or more states might seek to impose
sales or other tax obligations on companies that engage in on-line commerce
within their jurisdictions. Legislation by one or more states requiring us to
collect sales or other taxes on the sale of products, the licensing of
technology or the provision of services, or requiring that we remit payment of
sales or other taxes for prior periods, could have a material adverse effect on
our business, financial condition and results of operations.
Our stock price might experience wide fluctuations.
The market price of our common stock is likely to be highly volatile and
could be subject to wide fluctuations. Recently, the stock market has
experienced significant price and volume fluctuations, and the market prices of
securities of technology companies, particularly Internet-related companies,
have been highly volatile. Market prices for stocks of Internet-related and
technology companies, particularly following an initial public offering,
frequently reach levels that bear no relationship to the operating performance
of such companies. These market prices generally are not sustainable and are
subject to wide variations. If our common stock trades to unsustainably high
levels following this offering, it is likely that the market price of our common
stock 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 its
securities. We could be the target of similar litigation in the future.
Securities litigation could cause us to incur substantial costs, divert
management's attention and resources and harm our financial condition and
results of operations.
The future sale of common stock could negatively affect our stock price.
If our stockholders sell substantial amounts of our stock in the public
market following the offering, including shares issued upon the exercise of
outstanding options and warrants, the market price of our stock could decline.
These sales also might make it more difficult for us to sell equity securities
in the future at a time and price that we deem appropriate. After the offering,
shares of our common stock will be outstanding, assuming no
exercise of the underwriters' over-allotment option and no exercise of
outstanding options or warrants. Of those
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<PAGE>
shares, the shares sold in the offering will be freely tradable.
The remaining shares are "restricted securities," as that term is
defined in Rule 144, and may be sold in the public market only if registered or
if they qualify for an exemption from registration under Rule 144 or Rule 701
under the Securities Act. All officers, directors and all of our stockholders
owning 1% or more of our common stock have agreed not to sell any shares of
common stock, or any securities convertible into or exercisable or exchangeable
for common stock, for 180 days after the offering without the prior written
consent of Deutsche Bank Securities Inc. Deutsche Bank Securities Inc. may, in
its sole discretion, release all or any portion of the shares subject to these
lockup agreements. For a more detailed description of shares that could be sold
following the offering, please refer to "Shares Eligible for Future Sale."
Investors in the offering will suffer immediate and substantial dilution.
Investors purchasing shares in the offering will incur immediate and
substantial dilution in net tangible book value per share. To the extent
outstanding options to purchase common stock are exercised, there will be
further dilution. For a more detailed description of this dilution, please see
"Dilution."
Our principal stockholders, executive officers and directors have substantial
control over our affairs.
Our executive officers and directors and entities affiliated with them will,
in the aggregate, beneficially own approximately % of our common stock
following this offering. These stockholders acting together will have the
ability to exert substantial influence over all matters requiring approval by
our stockholders, including the election and removal of directors and any
proposed acquisition, consolidation or sale of all or substantially all of our
assets. In addition, they could dictate the management of our business and
affairs. This concentration of ownership could have the effect of delaying,
deferring or preventing a change in control, or impeding an acquisition or
consolidation, takeover or other business combination.
We might spend a substantial portion of the net proceeds in ways with which you
might not agree.
We have not designated any specific use for a significant amount of net
proceeds from the sale of the common stock offered under this prospectus. We
intend to use the proceeds of this offering to expand our technology
installation efforts, develop new technology products and services, expand our
sales and marketing efforts and for general corporate purposes, including
working capital. Accordingly, management will have significant flexibility in
applying the remaining net proceeds of the offering. The failure of management
to apply the remaining net proceeds effectively could have a material adverse
effect on our business, financial condition and results of operations.
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<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS AND INDUSTRY DATA
This prospectus contains "forward-looking statements." These forward-looking
statements include, without limitation, statements about the market opportunity
for sales of term life insurance policies and providing processing and
fulfillment services to insurance carriers, our strategy, competition, expected
expense levels and the adequacy of our available cash resources. Our actual
results could differ materially from those expressed or implied by these
forward-looking statements as a result of various factors, including the risk
factors described above and elsewhere in this prospectus. We undertake no
obligation to update publicly any forward-looking statements for any reason,
even if new information becomes available or other events occur in the future.
This prospectus contains statistical data regarding insurance industry and
Internet usage that we obtained from industry publications, including reports
generated by Life Industry Market Research Association and Forrester Research.
These industry publications generally indicate that they have obtained their
information from sources believed to be reliable, but do not guarantee the
accuracy and completeness of their information. Although we believe that the
publications are reliable, we have not independently verified their data.
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the shares
of common stock in the offering will be approximately $ million, after
deducting estimated underwriting discounts and commissions and other offering
expenses. If the underwriters' over-allotment option is exercised in full, our
net proceeds will be approximately $ million.
We intend to use the proceeds of this offering to expand our technology
installation efforts, develop new technology products and services, expand our
sales and marketing efforts and for general corporate purposes, including
working capital. We also might use a portion of the net proceeds, currently
intended for general corporate purposes, to acquire, invest in or enter into
strategic alliances with complementary businesses, technologies, products or
services. We have no present understandings, commitments or agreements with
respect to any material acquisition of, investment in or strategic alliance with
third parties. Pending use of the net proceeds for the above purposes, we intend
to invest the net proceeds in interest bearing, investment grade securities.
DIVIDEND POLICY
Following the completion of this offering, we intend to retain any future
earnings for the development and operations of our business. Accordingly, we do
not anticipate paying cash dividends on our capital stock in the foreseeable
future. SelectQuote paid dividends on its common stock in the amounts of
$378,922, or $0.25 per share, during fiscal 1997, $285,502, or $0.19 per share,
during fiscal 1998, $378,917, or $0.25 per share, during fiscal 1999 and
$94,703, or $0.0625 per share, during the six months ended December 31, 1999.
SelectQuote paid dividends on its preferred stock in the amounts of $199,805
during fiscal 1997, $161,225 during fiscal 1998, $199,805 during fiscal 1999 and
$84,066 during the six months ended December 31, 1999. SelectQuote's existing
line of credit with LaSalle Bank prohibits the payment of dividends to us,
except under certain circumstances. We have not drawn on this line of credit and
expect to terminate it as soon as possible following completion of this
offering. In the event this line of credit is not terminated, the restriction on
the payment of SelectQuote dividends to us effectively limits our ability to pay
dividends.
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<PAGE>
CAPITALIZATION
The following table sets forth our capitalization:
- On an actual basis as of December 31, 1999;
- On a pro forma basis to reflect the conversion of all outstanding shares
of convertible preferred stock into 3,139,961 shares of our common stock,
and the conversion of all convertible debentures into 731,420 shares of
our common stock; and
- On an as adjusted pro forma basis to reflect the sale of shares of
common stock in this offering at an assumed initial public offering price
of $ per share, less underwriting discounts and commissions and our
estimated offering expenses.
<TABLE>
<CAPTION>
Pro Forma
Actual Pro Forma As Adjusted
-------- --------- -----------
<S> <C> <C> <C>
Long-term convertible debt, including current
portion........................................... $ 1,900 $ -- $ --
------- ------- -------
Mandatorily redeemable convertible preferred stock,
$0.01 par value, 50,000 shares issued and
outstanding (actual); no shares issued and
outstanding (pro forma and pro forma as
adjusted)......................................... 4,744 --
Stockholders' equity:
Preferred stock, $0.01 par value, 10,000,000
shares authorized; 2,028,850 issued and
outstanding, (actual); no shares issued and
outstanding (pro forma and pro forma as
adjusted)........................................ 20
Common stock, $0.01 par value, 50,000,000 shares
authorized; 10,497,974 issued and outstanding,
(actual); 14,369,355 shares issued and
outstanding, (pro forma and pro forma as
adjusted)........................................ 105 144
Additional capital.................................. 64,650 71,275
Deferred stock compensation......................... (862) (862)
Retained earnings (deficit)......................... (444) (444)
------- ------- -------
Total stockholders' equity.......................... 63,469 70,113
------- ------- -------
Total capitalization................................ $70,113 $70,113 $
======= ======= =======
</TABLE>
The outstanding share information in this table, and in the table set forth
under "Dilution" below, is based on our shares outstanding as of December 31,
1999 and excludes:
- 6,510,635 shares of common stock subject to outstanding options granted
under our 1999 Stock Option Plan and outstanding as of December 31, 1999
at a weighted average exercise price of $3.92 per share;
- 3,489,365 shares of common stock reserved for future issuance under our
1999 Stock Option Plan as of December 31, 1999;
- 1,000,000 additional shares of common stock reserved for issuance under
our 1999 Employee Stock Purchase Plan; and
- 2,041,845 shares of common stock issuable upon conversion of shares of
Series E preferred stock that we have agreed to issue in March 2000 under
the terms of an investment agreement dated February 29, 2000.
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<PAGE>
DILUTION
Our pro forma net tangible book value as of December 31, 1999, was
approximately $7.1 million, or $0.49 per share of common stock. Pro forma net
tangible book value per share is equal to our tangible net assets, less total
liabilities, divided by the number of shares of common stock outstanding, after
giving effect to the conversion of all outstanding shares of preferred stock and
convertible debentures into common stock. Net tangible book value dilution per
share to new investors represents the difference between the amount per share
paid by purchasers of shares of common stock in this offering and the net
tangible book value per share of common stock immediately after completion of
this offering. After giving effect to the sale of shares at the initial
offering price of $ per share and the application of the net proceeds from
this offering, our pro forma net tangible adjusted book value at December 31,
1999 would have been approximately $ million, or $ per share of common
stock. This amount represents an immediate increase in net tangible book value
of $ per share to existing stockholders and an immediate dilution in net
tangible book value of $ per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share at
December 31, 1999........................................ $
Increase per share attributable to new investors.......... $
Pro forma adjusted net tangible book value per share after
the offering..............................................
-------
Dilution per share to new investors......................... $
</TABLE>
The following table summarizes, on a pro forma basis as of December 31,
1999, the total number of shares of common stock purchased from us, assuming the
conversion of all shares of preferred stock and all convertible debentures into
shares of common stock, the total cash consideration paid to us, and the average
price per share paid by our existing stockholders and to be paid by new
investors purchasing shares from us in this offering, before deducting
underwriting discounts and commissions and the estimated offering expenses
payable by us:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------------- ---------------------- Average Price
Number Percent Amount Percent per Share
------------ -------- ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 14,369,355 % $9,154,497 % $0.637
New investors.............
----------- ------- ---------- ------- ------
Total................... % $ % $
</TABLE>
If the underwriters exercise their over-allotment option in full, the number
of shares of common stock held by existing stockholders will be reduced to
% of the total number of shares of common stock to be outstanding after
this offering. In addition, the number of shares of common stock held by the new
investors will be increased to , or % of the total number of
shares of common stock to be outstanding immediately after this offering.
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<PAGE>
SELECTED FINANCIAL AND OPERATING DATA
(in thousands, except per share amounts)
Zebu
The summary and selected Zebu (formerly SelectQuote) historical financial
data as of June 30, 1998 and 1999 and for the years ended June 30, 1997, 1998
and 1999 are calculated from Zebu's audited financial statements, which are
included in this prospectus. The Zebu summary and selected financial data as of
December 31, 1999 and for the six months ended December 31, 1998 and 1999 are
calculated from unaudited financial statements that are included in this
prospectus. The summary and selected Zebu financial data as of June 30, 1995,
1996 and 1997 and for the years ended June 30, 1995 and 1996 are calculated from
unaudited financial statements, that are not included in this prospectus. The
unaudited financial statements have been prepared by us on a basis consistent
with the audited financial statements and include, in the opinion of our
management, all adjustments consisting only of normal recurring adjustments
necessary for a fair presentation of our results of operations and financial
position for those years.
You should read the following data with the more detailed information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and the notes to the
financial statements, each of which is included in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
------------------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations Data:
Revenues:
Commissions................... $ 10,330 $ 12,482 $ 14,821 $ 18,992 $ 19,941 $ 9,347 $ 10,311
Other revenues................ -- -- -- -- -- -- 33
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues.................. 10,330 12,482 14,821 18,992 19,941 9,347 10,344
---------- ---------- ---------- ---------- ---------- ---------- ----------
Expenses:
Marketing and sales........... 7,027 9,188 13,484 12,709 13,867 7,041 8,151
General and administrative.... 1,242 1,407 1,715 1,650 1,908 1,003 1,260
Software development and
consulting services.......... -- -- -- -- -- -- 108
Amortization of goodwill and
other intangible assets...... -- -- -- -- -- -- 487
Stock-based compensation(*)... -- -- -- -- -- -- 1,325
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses........ 8,269 10,595 15,199 14,359 15,775 8,044 11,331
---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss)......... 2,061 1,887 (378) 4,633 4,166 1,303 (987)
Interest income (expense)....... (15) 52 15 12 42 20 40
Other income (expense).......... 11 115 (28) 36 5 5 1
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income
tax........................... 2,057 2,054 (391) 4,681 4,213 1,328 (946)
Income tax (benefit)............ 830 803 (162) 1,863 1,685 552 (376)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income (loss)............... $ 1,227 $ 1,251 $ (229) $ 2,818 $ 2,528 $ 776 $ (570)
========== ========== ========== ========== ========== ========== ==========
Income (loss) attributable to
common stockholders........... $ 1,182 $ 1,206 $ (429) $ 2,657 $ 2,328 $ 653 $ (5,654)
========== ========== ========== ========== ========== ========== ==========
Net income (loss) per common
share:
Basic......................... $ 0.24 0.21 (0.09) 0.53 0.47 0.13 (1.08)
Diluted....................... $ 0.18 0.18 (0.09) 0.40 0.36 0.11 (1.08)
Weighted average common shares
outstanding:
Basic......................... 4,982 4,982 4,982 4,982 4,982 4,982 5,222
Diluted....................... 7,011 7,011 4,982 7,011 7,011 7,011 5,222
(*) Stock-based compensation:
Marketing and sales....... $ -- $ -- $ -- $ -- $ -- $ -- $ 681
General and
administrative........... -- -- -- -- -- -- 644
---------- ---------- ---------- ---------- ---------- ---------- ----------
$ -- $ -- $ -- $ -- $ -- $ -- $ 1,325
========== ========== ========== ========== ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
As of
As of June 30, December 31,
---------------------------------------------------- --------------
1995 1996 1997 1998 1999 1999
-------- -------- -------- -------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents................................. $ 818 $ 689 $ 439 $1,267 $ 790 $ 2,845
Working capital........................................... 2,397 2,664 1,656 3,860 5,981 4,275
Goodwill and other intangible assets...................... -- -- -- -- -- 63,009
Total assets.............................................. 4,797 6,192 6,407 8,255 10,208 75,130
Current liabilities....................................... 1,818 2,091 3,197 2,823 2,848 6,073
Long-term liabilities..................................... 240 472 390 239 218 845
Mandatorily redeemable convertible preferred stock........ -- -- -- -- -- 4,744
Stockholders' equity...................................... 2,739 3,629 2,820 5,192 7,142 63,469
</TABLE>
23
<PAGE>
SelectTech
The SelectTech summary and selected financial data as of June 30, 1998 and
1999 and for the years ended June 30, 1997, 1998 and 1999 are calculated from
SelectTech's audited financial statements, which are included in this
prospectus. The SelectTech summary and selected data as of December 31, 1999 and
for the six months ended December 31, 1998 and 1999 are calculated from
unaudited financial statements, which are included in this prospectus. The
summary and selected financial data as of June 30, 1997 is calculated from
SelectTech's unaudited balance sheet, which is not included in this prospectus.
The unaudited financial statements have been prepared by us on a basis
consistent with our audited financial statements and include, in the opinion of
our management, all adjustments consisting only of normal recurring adjustments
necessary for a fair presentation of our financial position as of June 30, 1997.
You should read the following data with the more detailed information
contained in "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and our financial statements and the notes to the
financial statements, each of which is included in this prospectus.
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
------------------------------ -------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Consulting services................................... $1,427 $ 1,361 $ 2,376 $ 1,208 $ 936
License and maintenance............................... -- 16 299 27 142
Transactional services................................ -- 55 297 69 366
------ ------- ------- ------- -------
Total revenues.......................................... 1,427 1,432 2,972 1,304 1,444
------ ------- ------- ------- -------
Expenses:
Software development and consulting services.......... 1,350 2,344 4,759 2,164 3,076
Marketing and sales................................... 138 223 496 250 240
General and administrative............................ 509 850 1,036 465 492
------ ------- ------- ------- -------
Total operating expenses................................ 1,997 3,417 6,291 2,879 3,808
------ ------- ------- ------- -------
Operating loss.......................................... (570) (1,985) (3,319) (1,575) (2,364)
Interest expense........................................ (9) (20) (259) (71) (261)
------ ------- ------- ------- -------
Loss before income tax.................................. (579) (2,005) (3,578) (1,646) (2,625)
Income tax.............................................. 3 -- 1 1 --
------ ------- ------- ------- -------
Net loss................................................ $ (582) $(2,005) $(3,579) $(1,647) $(2,625)
====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
As of June 30, As of December 31,
------------------------------ -------------------
1997 1998 1999 1999
-------- -------- -------- -------------------
<S> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................... $ 7 $ 106 $ 36 $ 56
Working capital......................................... (520) (1,103) (3,569) (6,222)
Total assets............................................ 363 798 1,238 946
Current liabilities..................................... 758 1,732 4,526 6,826
Long-term liabilities................................... 11 477 983 1,016
Mandatorily redeemable convertible preferred stock...... -- 1,000 1,000 1,000
Shareholders' equity (deficit).......................... $(406) $(2,411) $(5,271) $(7,896)
</TABLE>
24
<PAGE>
PRO FORMA CONDENSED COMBINED AND ACTUAL DATA
The following unaudited pro forma condensed combined statement of operations
of Zebu reflect SelectQuote's acquisition of SelectTech on December 23, 1999,
and Zebu's acquisition of SelectQuote in a simultaneous transaction, as if both
acquisitions had occurred on July 1, 1998. The SelectTech acquisition was
accounted for using the purchase method of accounting, and the acquired assets
and liabilities of SelectTech were recorded at their fair values. Accordingly,
the pro forma combined statement of operations has been prepared assuming the
following:
- The total purchase price, including assumed liabilities of approximately
$7.2 million, is $63.5 million;
- The purchase price has been allocated to the tangible and intangible
assets acquired and liabilities assumed based on their respective fair
values as follows (in thousands):
<TABLE>
<S> <C>
Goodwill.................................................. $56,387
Purchased software........................................ 6,170
Assembled work force...................................... 864
Customer list............................................. 75
Liabilities............................................... (7,209)
Value of SelectTech stock options assumed................. 5,744
</TABLE>
- Intercompany transactions for consulting services of $90,000 for the year
ended June 30, 1999 and $481,000 for the six months ended December 31,
1999 have been eliminated.
- Intercompany transactions for other revenue of $39,000 for the year ended
June 30, 1999 and $0 for the six months ended December 31, 1999 have been
eliminated.
- Amortization of goodwill and other intangible assets totaling
$22.2 million for the year ended June 30, 1999 and $10.6 million for the
six months ended December 31, 1999 has been reflected as a result of the
acquisition of SelectTech.
- Income tax benefits of $1.4 million for the year ended June 30, 1999 and
$223,000 for the six months ended December 31, 1999, reflect the offset of
SelectQuote's income with SelectTech losses.
- The pro forma diluted net loss per share for the year ended June 30, 1999
and the six months ended December 31, 1999 were computed using the
weighted average number of common shares outstanding, including shares
issued in conjunction with the acquisition as if these shares were
outstanding from July 1, 1998.
- The pro forma operating data include the conversion of preferred stock and
exclude the conversion of convertible debentures.
The pro forma statements of operations are not necessarily indicative of
what the actual financial results would have been had the acquisition taken
place on July 1, 1998 and do not purport to indicate the results of future
operations.
25
<PAGE>
The actual as adjusted data below reflect the application of the net
proceeds from the sale of shares of common stock offered by us at
an assumed initial public offering price of $ per share, after deducting
estimated underwriting discounts and commissions and offering expenses.
<TABLE>
<CAPTION>
Six Months Ended December 31, 1999
--------------------------------------------------------------
Zebu SelectTech
Actual Actual Adjustments Pro Forma Combined
-------- ----------- ------------- ---------------------
(in thousands)
--------------------------------------------------------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Commissions............................................... $10,311 $ -- $ -- $ 10,311
Other revenues............................................ 33 1,444 (481) 996
------- ------- -------- --------
Total revenues.............................................. 10,344 1,444 (481) 11,307
------- ------- -------- --------
Expenses:
Marketing and sales....................................... 8,151 240 (226) 8,165
General and administrative................................ 1,260 492 -- 1,752
Software development and consulting services.............. 108 3,076 (255) 2,929
Amortization of goodwill and other intangible assets...... 487 -- 10,614 11,101
Stock-based compensation.................................. 1,325 -- -- 1,325
------- ------- -------- --------
Total operating expenses.................................... 11,331 3,808 10,133 25,272
------- ------- -------- --------
Operating loss.............................................. (987) (2,364) (10,614) (13,965)
Interest income (expense)................................... 40 (261) -- (221)
Other income (expense)...................................... 1 -- -- 1
------- ------- -------- --------
Loss before income tax...................................... (946) (2,625) (10,614) (14,185)
Income tax (benefit)........................................ (376) -- 223 (153)
------- ------- -------- --------
Net loss.................................................... $ (570) $(2,625) $(10,837) $(14,032)
======= ======= ======== ========
Pro forma diluted net loss per share........................ $ (1.12)
========
Shares used to compute pro forma diluted net loss per common
share..................................................... 12,575
========
</TABLE>
<TABLE>
<CAPTION>
As of December 31, 1999
------------------------------
Actual Actual, As Adjusted
-------- -------------------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $ 2,845 $
Working capital............................................. 4,275
Goodwill and other intangible assets........................ 63,009
Total assets................................................ 75,130
Current liabilities......................................... 6,073
Long-term liabilities....................................... 845
Mandatorily redeemable convertible preferred stock.......... 4,744
Stockholders' equity........................................ $63,469 $
</TABLE>
<TABLE>
<CAPTION>
Year Ended June 30, 1999
------------------------------------------------------------------
Zebu SelectTech
Actual Actual Adjustments Pro Forma Combined
-------- ----------- ------------- -------------------------
(in thousands)
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Statement of Operations Data:
Revenues:
Commissions............................................. $19,941 $ -- $ -- $ 19,941
Other revenues.......................................... -- 2,972 (90) 2,882
------- ------- -------- --------
Total revenues............................................ 19,941 2,972 (90) 22,823
------- ------- -------- --------
Expenses:
Marketing and sales..................................... 13,867 496 (80) 14,283
General and administrative.............................. 1,908 1,036 (10) 2,934
Software development and consulting services............ -- 4,759 -- 4,759
Amortization of goodwill and other intangible assets.... -- -- 22,202 22,202
Stock-based compensation................................ -- -- -- --
------- ------- -------- --------
Total operating expenses.................................. 15,775 6,291 22,112 44,178
------- ------- -------- --------
Operating income (loss)................................... 4,166 (3,319) (22,202) (21,355)
Interest income (expense)................................. 42 (259) -- (217)
Other income.............................................. 5 -- -- 5
------- ------- -------- --------
Income (loss) before income tax........................... 4,213 (3,578) (22,202) (21,567)
Income tax................................................ 1,685 1 (1,426) 260
------- ------- -------- --------
Net income (loss)......................................... $ 2,528 $(3,579) $(20,776) $(21,827)
======= ======= ======== ========
Pro forma diluted net loss per share...................... $ (1.74)
========
Shares used to compute pro forma diluted net loss per
common share............................................ 12,527
========
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Six Months
Ended
Year Ended June 30, December 31,
--------------------------------------------------------- --------------
1995 1996 1997 1998 1999 1999
--------- --------- --------- --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Other Operating Data:
SELECTQUOTE
Leads............................................ 232,228 206,199 296,254 212,045 170,704 93,194
Applications..................................... 27,448 28,862 40,517 47,239 42,470 25,831
Policies sold.................................... 23,127 25,297 33,175 39,875 35,132 19,131
Licensed agents (average)........................ 12 17 16 21 27 35
SELECTTECH
Applications submitted to the Hub:
Variable fee contracts......................... 23,951 137,704 163,010
Fixed fee contract............................. 9,256 35,955 41,034
-------- -------- --------
Total.......................................... 33,207 173,659 204,044
</TABLE>
<TABLE>
<CAPTION>
As of
------------------------------------
June 30, December 31,
------------------- --------------
1998 1999 1999
-------- -------- --------------
<S> <C> <C> <C> <C> <C> <C>
SELECTQUOTE
Cumulative policies sold..................... 100,990 126,287 159,462 199,337 234,469 253,600
SELECTTECH
AIM QuickView software licenses--carriers.... -- -- -- 17 28 33
AIM QuickView software installations--general
agencies.................................... -- -- -- 180 418 1,134
AIM GA software installations--general
agencies.................................... -- -- -- -- -- 23
</TABLE>
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR FINANCIAL CONDITION AND RESULTS
OF OPERATIONS SHOULD BE READ TOGETHER WITH "SELECTED FINANCIAL AND OPERATING
DATA" AND "PRO FORMA CONDENSED COMBINED AND ACTUAL DATA" AND OUR FINANCIAL
STATEMENTS AND RELATED NOTES APPEARING ELSEWHERE IN THIS PROSPECTUS. THIS
DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS,
UNCERTAINTIES AND ASSUMPTIONS. OUR ACTUAL RESULTS MAY DIFFER MATERIALLY AS A
RESULT OF MANY FACTORS, INCLUDING BUT NOT LIMITED TO THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
Overview
Zebu was formed as a holding company for SelectQuote and SelectTech, which
merged on December 23, 1999. We are accounting for the acquisition of SelectTech
by SelectQuote as a purchase for financial accounting purposes. We are the
successor to SelectQuote, on a consolidated basis, for financial accounting
purposes. Prior to December 23, 1999, Zebu did not have business operations or
activities, and our historical financial data and operating results are those of
SelectQuote and SelectTech on a separate-company basis for all prior periods.
SelectTech has been an early-growth stage company, and accordingly this
discussion and analysis emphasizes the historical results of our retail
insurance operation.
SELECTQUOTE
SelectQuote began business in 1985 as an independent insurance agency, and
is one of the largest independent marketers of term life insurance products sold
to consumers in the United States. SelectQuote sells term life insurance through
direct-response marketing and the Internet. Growth and profitability in
SelectQuote's retail insurance agency business depends primarily on
cost-effectively generating leads and hiring and training qualified sales agents
to convert the leads to applications and process those applications efficiently
to policy issuance. The growth and profitability of this business also depend on
insurance carriers' ability to process large numbers of applications on a timely
basis.
From inception through fiscal 1997, SelectQuote's policies sold and revenues
grew steadily as it built the foundation of its retail business. In fiscal 1997,
SelectQuote substantially increased its operating expenses in order to grow the
business more rapidly. SelectQuote's profits did not increase as expected,
however, because its sales process could not convert the additional leads in a
cost-effective manner. In addition, the carriers' policy applications processing
capacity did not expand adequately to meet the increased volume of applications
that SelectQuote generated. As a result of this experience, SelectQuote changed
its sales process and applied technology provided by SelectTech to enhance its
operating efficiency.
The SelectQuote retail term life insurance business generates revenue in the
form of commissions. Commissions, which are based on the size of policy
premiums, consist of first-year, bonus and renewal commissions that vary by
carrier and product. SelectQuote recognizes full first-year commission revenues
after an insurance carrier's underwriter approves the policy and the customer
has made an initial premium payment. At the time SelectQuote recognizes revenue,
it estimates an allowance, based on historical information, for uncollectible
commissions. SelectQuote can earn annual production bonuses by exceeding targets
for new business premiums and existing-business retention, based on individual
criteria set by each carrier. Production bonuses are paid by the carriers based
on premiums generated during the calendar year and are generally greater in the
fourth calendar quarter. SelectQuote recognizes these bonus revenues when it
receives notification from insurance carriers. SelectQuote recognizes revenue
for renewal commissions when the
28
<PAGE>
insurance carrier notifies SelectQuote that it has received payment for a
renewal premium. Renewal commission rates are significantly less than first-year
commission rates and are not offered by every insurance carrier.
Variations in the amount of time between the submission of a new policy
application and SelectQuote's recognition of commission revenue can
significantly impact our quarterly and annual operating results. The amount of
time between the submission of the consumer's application to the insurance
carrier and underwriting approval has varied, and currently ranges from 29 to
78 days, and currently averages 48 days. The premium amount of insurance sold
and a particular insurance carrier's backlog and processing procedures impact
this time lag significantly and directly.
Also, consumers' policy purchases vary by season. By strategically managing
our advertising expenditures, we endeavor to maintain a level volume of sales
activity per sales agent throughout the year. Nevertheless, our commission
revenues will vary with the number of policies sold from quarter to quarter.
SelectQuote currently offers products from 19 carriers rated in the "A"
categories by A.M. Best Company, that we believe provide the best combination of
price, products and service. The number and composition of these carriers can
vary from period to period. Based on commissions received, the top five
insurance carriers accounted for 77% of commission-based revenues during the six
months ended December 31, 1999 and 67% during the six months ended December 31,
1998. Of the top five insurance carriers in the six months ended December 31,
1998, two were not in the top five in the six months ended December 31, 1999.
The top insurance carrier for the six months ended December 31, 1999 accounted
for 23% of the policies SelectQuote delivered that year, but only accounted for
5% in the six months ended December 31, 1998. For more information, please refer
to "Risk Factors--Our commission-based revenues and receivables are highly
concentrated among a small number of carriers, and our business will be harmed
if we fail to maintain or replace revenues from those carriers or fail to
collect receivables from them."
Operating expenses for SelectQuote's retail term life insurance sales
business consist of both variable and semi-variable expenses, including wages,
benefits and expenses associated with generating leads, selling insurance and
processing insurance applications and maintaining our database and web site.
SelectQuote incurs most of its variable expenses prior to a carrier's approval
of an application and its receipt of any premium on a policy. Selling and
marketing expenses consist primarily of direct advertising and payroll costs to
sell and process life insurance policies. During the past three fiscal years,
SelectQuote's operating expenses also included payments to SelectTech for
software development and computer management services. For more information,
please refer to "Related Party Transactions."
General and administrative expenses for SelectQuote's retail term life
insurance sales business consist primarily of executive and employee
compensation and benefits, professional fees and office expenses, principally
for rent, utilities and equipment. We are expanding our facilities to prepare
for projected growth, and anticipate an increase in rental expense of
approximately 256% in fiscal 2000 compared with fiscal 1999.
SELECTTECH
SelectTech was founded in September 1995 by SelectQuote, Steven H. Gerber
and Michael L. Feroah to develop data movement and integration solutions to
address insurance industry-wide infrastructure inefficiencies in the processing
of applications and issuance of policies. These inefficiencies impeded the
growth of SelectQuote's business and have plagued the life insurance industry in
general.
29
<PAGE>
For all periods prior to the SelectTech acquisition, SelectQuote provided
substantial services and overhead to SelectTech, which was obligated to
reimburse SelectQuote at cost. At the same time, SelectTech provided software
development and consulting services at hourly rates to SelectQuote. For more
information, please refer to "Related Party Transactions--Shared Operations and
Ownership."
In prior periods, SelectTech earned revenues from three sources: software
licenses, Hub transactions processing and custom software development,
consulting and maintenance services. We anticipate that SelectTech's revenues
from Hub processing transactions will continue to grow and will constitute a
substantial part of our revenues in the future. We also anticipate that we will
earn service revenues associated with the installation and maintenance of
AIMSuite software products and from contract projects in which we will assist
insurance carriers and general agents in modifying their data processing systems
to more efficiently process applications and issue policies. We intend to deploy
a substantial percentage of our technical and engineering personnel in the
development of our internal general agency management and new policy application
processing systems, as well as our website. Accordingly, we do not expect that
revenues from custom software development and consulting services will generate
significant revenue in the foreseeable future.
We recognize revenues from software licenses when software revenue
recognition criteria have been met in accordance with American Institute of
Certified Public Accountants Statement of Position, or SOP, 97-2, SOFTWARE
REVENUE RECOGNITION. Under SOP 97-2, software revenue is recognized when a
non-cancelable license agreement has been signed, the product has been shipped,
there are no uncertainties surrounding product acceptance, the fees are fixed
and determinable and collection is probable. The portion of revenues from new
license agreements that relate to our obligations to provide customer support
are deferred and recognized ratably over the contract support period, which is
generally one to four years. Our software maintenance contracts are renewable on
an annual basis. Revenues from maintenance contract renewals are deferred and
recognized ratably over the terms of the agreements. Revenues from software
usage, consulting and other services are recognized as the related services are
provided or as the milestones are completed.
SelectTech's historical expenses have consisted primarily of personnel
expenses and contract services to develop software for SelectQuote and for
SelectTech's insurance carrier customers. During the last three fiscal years,
SelectTech paid a total of $5.8 million to third-party software developers, of
which SelectTech paid $1.8 million to Innovative Information Group, Inc., or
IIG, a firm owned by Steven H. Gerber and Michael L. Feroah, two of our
executive officers and directors. For the same period, SelectTech also paid a
total of $266,740 to Mr. Gerber's consulting company and a total of $500,500 to
Mr. Feroah's consulting company for software development and marketing and
administrative services. SelectTech did not pay wages to Messrs. Gerber and
Feroah until August 1999. As part of our expansion, we expect to continue to
contract with third-party providers, including IIG, for software development
services at a similar level for the foreseeable future.
Over the past three fiscal years, SelectTech paid $1.6 million to
SelectQuote as reimbursement for management services and overhead. For more
information, please refer to "Related Party Transactions--Shared Operations and
Overhead."
Since its inception, SelectTech has incurred significant losses, and as of
June 30, 1999, had an accumulated deficit of $6.0 million. These losses and this
accumulated deficit have resulted primarily from the costs incurred in the
development of the AIMSuite software and the Hub. We intend to continue to
invest heavily in product development, sales and marketing of AIMSuite software
products and believe that our technology business will continue to contribute
net losses to
30
<PAGE>
our results of operations for the foreseeable future. We also expect this
portion of our technology business to generate negative cash flow from
operations for at least the next several years. In addition, charges for
goodwill and other intangible assets resulting from our acquisition of
SelectTech, which total $57.3 million, will be amortized over the next three
years and charges for other identifiable intangible assets, which total $6.2
million, will be amortized over the next two years. These charges will result in
substantial net losses for us during each of these years.
Factors Affecting Operating Results
Our total revenues will fluctuate from quarter to quarter due to many
factors. We expect that revenues from SelectQuote's retail term life insurance
sales will vary with conversion rates from consumers' life insurance
applications, insurance carriers' ability to process applications in a timely
manner and the number of licensed agents that we employ.
We have a limited operating history in the business of providing consulting
services and licensing software and transaction services to life insurance
carriers and their agents, and the markets for these services and software
products evolve rapidly. As a result, we are unable to forecast our revenues
accurately. Revenues from the technology products and services business that we
recently acquired from SelectTech have resulted primarily from insurance
carriers' requests for custom software development and information technology
consulting services. We anticipate a substantial decline in consulting services
revenues for the foreseeable future, as most of our technical personnel
currently are focused on the development and implementation of our general
agency sales and plan administration software and on the integration of
SelectTech's historical operations with our own. Our failure to complete this
development, implementation and integration would have a material adverse effect
on our future revenue growth, business and financial condition. In addition,
continued growth will require that we develop new software products and offer
insurance processing services to the industry. Although our license and
maintenance fees and transaction service fees have grown rapidly, total revenues
from these sources have been insubstantial to date.
We also must further increase the efficiency and scope of our retail
insurance sales business, hire and train more agents and attract more insurance
carrier clients to the AIMSuite software. Failure to do so will materially
affect the amount and timing of our future revenues and could have a material
adverse effect on our business, results of operations and financial condition,
and may cause the market price of our common stock to decline substantially.
Although our expense levels are based in part on our expectations with
regard to future revenues, a substantial portion of our current and future costs
is fixed. We might be unable to adjust spending in a timely manner to compensate
for any unexpected shortfall in revenues. As a result, any significant shortfall
in demand for our products and services relative to our expectations would harm
our business and cause our revenues to decrease. Further, in order to remain
competitive, we might have to make various pricing, service or marketing
decisions that could have a material adverse effect on our business, results of
operations and financial condition. See "Risk Factors--Our operating results
might fluctuate significantly and remain uncertain, which could negatively
affect the value of your investment."
After the offering, we expect to experience significant fluctuations in our
future quarterly operating results due to a variety of factors, many of which
are outside our control, including--
- the number of transactions processed through our Hub;
- technical difficulties or service interruptions;
- our ability to hire or obtain the services of skilled programmers and
consultants;
31
<PAGE>
- our ability to implement technology to improve our application processing
and accommodate our growth;
- the number of insurance policies we sell;
- the ability of insurance companies to process applications and issue
policies on a timely basis;
- the conversion and policy issuance rates of consumers' applications;
- our ability to renew and maintain policies in force;
- our ability to attract and retain a sufficient number of qualified
insurance agents;
- the amount and timing of operating costs, capital expenditures and
possible acquisitions relating to expansion of our business;
- our ability to retain our current executive officers;
- the announcement or introduction of new products and services by us or our
competitors;
- price competition; and
- the timing, cost and availability of advertising.
Based on the foregoing, we believe that our quarterly revenues, expenses and
operating results could vary significantly in the future, and that
period-to-period comparisons should not be relied upon as indications of future
performance.
Due to these and other factors, it is likely that in some future quarters
our operating results will fall below the expectations of securities analysts
and investors, which would cause our stock price to decline. See "Risk
Factors--Our operating results might fluctuate significantly and remain
uncertain, which could negatively affect the value of your investment."
32
<PAGE>
Results of Operations
SELECTQUOTE
The following table sets forth SelectQuote's historical results of
operations expressed as a percentage of revenues:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
------------------------------------ ----------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Commissions............................. 100.0 % 100.0% 100.0% 100.0% 99.7 %
Other revenues.......................... -- -- -- 0.0 0.3
------ ------ ------ ------ ------
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------
Expenses:
Marketing and sales..................... 91.0 66.9 69.5 75.3 78.8
General and administrative.............. 11.5 8.7 9.6 10.7 12.2
Software development and consulting
services............................... -- -- -- -- 1.0
Amortization of goodwill and other
intangibles............................ -- -- -- -- 4.7
Stock-based compensation................ -- -- -- -- 12.8
------ ------ ------ ------ ------
Total operating expenses.................. 102.5 75.6 79.1 86.0 109.5
------ ------ ------ ------ ------
Operating income (loss)................... (2.5) 24.4 20.9 14.0 (9.5)
Interest income........................... 0.1 0.1 0.2 0.2 0.4
Other income (expense).................... (0.2) 0.2 -- -- --
------ ------ ------ ------ ------
Income (loss) before income tax........... (2.6) 24.7 21.1 14.2 (9.1)
Income tax (benefit)...................... (1.1) 9.9 8.4 5.9 (3.6)
------ ------ ------ ------ ------
Net income (loss)......................... (1.5)% 14.8% 12.7% 8.3% (5.5)%
====== ====== ====== ====== ======
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
REVENUES. Revenues increased 11% from $9.3 million in the first half of
fiscal 1999 to $10.3 million in the first half of fiscal 2000 primarily
reflecting increases in first-year commissions, renewal commissions and
production bonuses. First-year commissions rose in proportion to an increase in
new policies sold. Renewal commissions increased modestly while production
bonuses rose 19%, faster than SelectQuote's growth in new policies added
reflecting SelectQuote's insurance carriers' preferences for production bonuses
over long-term renewal commissions.
Policies sold increased almost 11% while new leads declined from 94,300
during the six months ended December 31, 1998 to 93,200 in the six-months ended
December 31, 1999. The improved relationship between leads generated and
policies sold reflects the benefit of using sales agents to handle most initial
customer telephone and Internet inquiries under SelectQuote's new sales
approach, which was fully implemented by November 1999.
We anticipate that revenues will be higher than usual during the rest of
fiscal 2000 because consumers applied to purchase a greater number of additional
policies in the six months ended December 31, 1999 compared to the six months
ended December 31, 1998. We believe that this increase in applications resulted
from consumers' motivation to avoid the effects of new insurance regulations,
known as "Triple X," that raised longer-guarantee life insurance prices of many
policies issued after January 1, 2000.
33
<PAGE>
MARKETING AND SALES EXPENSES. Marketing and sales expenses rose 16% from
$7.0 million in the six months ended December 31, 1998 to $8.2 million in the
six months ended December 31, 1999. Although advertising expense remained almost
flat during the latter period, other marketing and sales expenses increased
$1.2 million primarily because of increased personnel costs to manage
significantly increased application and sales volumes and because of increased
emphasis on SelectQuote's website and internal technology. New policies in
process rose 35% in response to better conversions of leads to applications and
consumer response to the Triple X deadline.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
increased 26% from $1.0 million in the first half of fiscal 1999 to
$1.3 million in the first half of fiscal 2000 primarily because of increased
payroll costs.
SOFTWARE DEVELOPMENT AND CONSULTING SERVICES EXPENSES. These expenses
increased because of the acquisition of SelectTech by SelectQuote in late
December 1999.
STOCK-BASED COMPENSATION EXPENSE. In connection with the grant of stock
options during the six months ended December 31, 1999, SelectQuote recorded an
aggregate deferred compensation expense of $2.2 million, representing the
difference between the estimated fair market value of the common stock and the
option exercise price at the date of grant. This amount is presented as a
reduction of stockholder's equity and is amortized over the vesting period of
the applicable options. These valuations resulted in a charge to operations of
$1.3 million for the six months ended December 31, 1999 and will result in
charges of the remaining $900,000 over the next three years.
YEARS ENDED JUNE 30, 1997, 1998, AND 1999
REVENUES. Commission revenues increased from $14.8 million in fiscal 1997
to $19.0 million in fiscal 1998, and to $19.9 million in fiscal 1999. During
1997, first-year commissions increased substantially in response to
significantly increased advertising. The increased advertising expense also led
to an increase in new policy sales of 31% in 1997, although average commissions
per policy declined and cost per lead increased significantly. Production bonus
revenues were flat in fiscal 1997 due to lower policy production in calendar
1996 compared to calendar 1997.
SelectQuote's total commission revenues increased 28% in fiscal 1998 because
of increases in commission and production bonus revenues. A significant
percentage of the first-year commissions resulted from new leads generated by
increased advertising during the second half of fiscal 1997. Total first-year
commissions increased substantially during fiscal 1998 because of an increase in
new policies approved and an increase in average commissions resulting from
better targeting of advertising. Production bonuses also increased significantly
because of the trailing effects of record premium production in calendar 1997 in
response to the substantially increased advertising in the last half of fiscal
1997.
Revenues increased 5% from fiscal 1998 to fiscal 1999, reflecting an
increase in all three of SelectQuote's commission components: first-year
commissions, renewal commissions and production bonuses. First-year and renewal
commissions increased slightly during the year. Production bonuses increased
significantly from fiscal 1998 to fiscal 1999 because of record sales during the
first six months of calendar 1998. The total number of policies sold during
fiscal 1999 declined, while the average commission earned per policy increased
from the prior year. Leads declined from 212,000 in fiscal 1998 to 170,700 in
fiscal 1999, as SelectQuote reduced its advertising expenditures and increased
the percentage of licensed agents taking prospective customers' initial calls.
Notwithstanding fewer leads and policies sold in fiscal 1999, SelectQuote
maintained its first-year commission revenues at the same level as fiscal 1998.
MARKETING AND SALES EXPENSES. SelectQuote's marketing and sales expenses
declined from $13.5 million in fiscal 1997 to $12.7 million in fiscal 1998, and
increased to $13.9 million in 1999.
34
<PAGE>
Marketing and sales expenses decreased 6% in fiscal 1998 primarily because of a
$2.4 million reduction in advertising expense. This reduction was offset by an
increase in other selling and marketing expenses of $1.6 million from fiscal
1997 to fiscal 1998, primarily as SelectQuote increased staff in response to
record activity levels and added higher-paid licensed sales agents as
SelectQuote began changing its sales process.
Marketing and sales expenses increased 9% in fiscal 1999. Although
advertising expense decreased by $200,000 for the year, other marketing and
sales expenses rose $1.4 million, primarily because of increased costs
attributable to adding licensed agents and support staff in connection with the
change in SelectQuote's sales approach.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
were $1.7 million in fiscal 1997, $1.7 million in fiscal 1998 and $1.9 million
in fiscal 1999 and represented 11.3%, 11.5% and 12.1% of total operating
expenses in fiscal 1997, 1998 and 1999, respectively. Generally, these expenses
have fluctuated in proportion to SelectQuote's total operating expenses.
SELECTTECH
The following table sets forth SelectTech's historical results of operations
expressed as a percentage of revenues:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
------------------------------------ ----------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Consulting services..................... 100.0 % 95.0 % 80.0 % 92.6 % 64.8 %
License and maintenance................. -- 1.1 10.0 2.1 9.9
Transactional services.................. -- 3.9 10.0 5.3 25.3
------ ------ ------ ------ ------
Total revenues............................ 100.0 100.0 100.0 100.0 100.0
------ ------ ------ ------ ------
Expenses:
Software development and consulting
services............................... 94.6 163.6 160.1 166.0 213.0
Marketing and sales..................... 9.7 15.6 16.7 19.2 16.6
General and administrative.............. 35.6 59.4 34.9 35.7 34.1
------ ------ ------ ------ ------
Total operating expenses.................. 139.9 238.6 211.7 220.9 263.7
------ ------ ------ ------ ------
Operating loss............................ (39.9) (138.6) (111.7) (120.9) (163.7)
Interest expense.......................... (0.7) (1.4) (8.7) (5.4) (18.1)
------ ------ ------ ------ ------
Loss before income tax.................... (40.6) (140.0) (120.4) (126.3) (181.8)
------ ------ ------ ------ ------
Income tax................................ 0.2 -- -- 0.1 --
------ ------ ------ ------ ------
Net loss.................................. (40.8)% (140.0)% (120.4)% (126.4)% (181.8)%
====== ====== ====== ====== ======
</TABLE>
SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999
REVENUES. SelectTech's revenues increased 11% from $1.3 million in the six
months ended December 31, 1998 to $1.4 million in the six months ended
December 31, 1999. Revenues from consulting services dropped from $1.2 million
to $936,000 reflecting a shift away from providing consulting and installation
and integration services to outside parties to enhancing SelectQuote's internal
systems to improve processing and sales techniques. During the six months ended
December 31, 1999, SelectQuote accounted for $481,000 of consulting-services
revenues. License and maintenance revenues increased from $27,000 in the
half-year ended December 31, 1998 to
35
<PAGE>
$142,000 indicating increased usage of SelectTech's AIM Suite software products.
These revenues reflect the amortization of deferred licensing fees that are
amortized ratably over the expected term of the license once the software has
been accepted by the licensee. Transaction service revenues increased from
$69,000 in the earlier period to $366,000 in the latter period. This increase
represents a 433% increase in revenues and a 199% increase in transactions
processed through the Hub.
SOFTWARE DEVELOPMENT AND CONSULTING SERVICES EXPENSES. Software development
and consulting services expenses increased from $2.2 million during the six
months ended December 31, 1998 to $3.1 million during the six months ended
December 31, 1999, including $1.4 million and $920,000 paid to third-party
developers in the six months ended December 31, 1998 and 1999, respectively, of
which $580,000 and $365,000 was paid to IIG, Mr. Gerber's consulting company and
Mr. Feroah's consulting company. The decline in amounts paid to related parties
during the first six months of the current fiscal year resulted from Messrs.
Gerber and Feroah becoming full-time employees. For more information, please
refer to "Related Party Transactions--Research and Development Arrangements."
This increase reflects increased AIMSuite software development, AIMSuite
software installation and integration efforts, and the provision of software
development and management services to SelectQuote.
MARKETING AND SALES EXPENSES. Marketing and sales expenses remained
relatively constant for the six months ended December 31, 1998 and the six
months ended December 31, 1999 because of a limited marketing budget. SelectTech
continued to focus its marketing efforts on attending and participating in
important industry trade shows and on developing marketing and advertising
materials.
GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expense
increased 6% from $465,000 in the six months ended December 31, 1998 to $492,000
in the six months ended December 31, 1999, due to higher personnel costs.
INTEREST EXPENSE. Net interest expense increased from $71,000 in the six
months ended December 31, 1998 to $261,000 in the six months ended December 31,
1999, reflecting a substantial increase in total debt under 12% senior secured
convertible debentures, notes and bridge loans subsequent to December 31, 1998.
YEARS ENDED JUNE 30, 1997, 1998, AND 1999
REVENUES. SelectTech's revenues were $1.4 million in both fiscal 1997 and
fiscal 1998 and increased to $3.0 million in fiscal 1999 as SelectTech's
business expanded from developing custom software and providing consulting
services to developing and licensing AIM Suite software products. Fiscal 1997
revenues and the bulk of fiscal 1998 revenues came from custom software
development and consulting projects for a few large insurance carriers. During
fiscal 1999, SelectTech's consulting services revenues shifted from custom and
consulting work to installing and integrating AIMSuite products.
License and maintenance fees increased from $16,000 in fiscal 1998 to
$299,000 in fiscal 1999 and related primarily to SelectTech's obligations to
provide customer support during contract periods. License fees are initially
deferred and then amortized ratably over the expected term of the license
agreement. Transactional services revenues increased substantially from $55,000
in fiscal 1998 to $297,000 in fiscal 1999, as more insurance carriers and
existing customers expanded their use of the Hub.
SOFTWARE DEVELOPMENT AND CONSULTING SERVICES EXPENSES. Software development
and consulting services, expenses more than doubled from $2.3 million during
fiscal 1998 to $4.8 million during fiscal 1999, including $1.3 million and
$2.5 million paid to third-party developers in fiscal 1998
36
<PAGE>
and 1999, respectively, of which $639,000 and $1.1 million was paid in fiscal
1998 and 1999, respectively, to IIG, Mr. Gerber's consulting company and
Mr. Feroah's consulting company. This increase reflected an effort by SelectTech
to launch the full line of AIMSuite products and to install and integrate those
products in the customer's existing computing environments.
MARKETING AND SALES EXPENSES. SelectTech's marketing and sales expenses
increased from $138,000 in fiscal 1997 to $223,000 in fiscal 1998 and to
$496,000 in fiscal 1999, due primarily to SelectTech's increased emphasis on
marketing its AIMSuite products, including adding marketing staff, attending
important industry trade shows and developing marketing and advertising
materials.
GENERAL AND ADMINISTRATIVE EXPENSES. SelectTech's general and
administrative expenses increased during the preceding three fiscal years
commensurate with its growth from a staff of eight at the beginning of fiscal
1997 to 44 at the end of fiscal 1999.
INTEREST EXPENSE. Net interest expense increased from $9,000 in fiscal 1997
to $20,000 in fiscal 1998 and to $259,000 in fiscal 1999. Most of the increase
for fiscal 1999 arose from the issuance of $2.5 million of convertible
debentures.
Liquidity and Capital Resources
Upon the acquisition of SelectTech by SelectQuote on December 23, 1999, all
intercompany investments were canceled and all intercompany receivables and
loans were forgiven. As part of the transaction, Zebu issued $2.5 million of
debentures in exchange for the 12% senior secured convertible debentures issued
by SelectTech in October 1998, repaid one of the three outstanding debentures in
the face amount of $600,000, and modified the terms of the two remaining
debentures in the face amount of $950,000 each. These debentures are convertible
into an aggregate of 731,420 shares of our common stock. After the earlier of
July 1, 2000 or the completion of the offering, we may prepay these debentures
in full on 30 days' notice. After the acquisition, Zebu also repaid $750,000 of
12% promissory notes owed by SelectTech.
On December 27, 1999, Zebu sold 50,000 shares of Series D mandatorily
redeemable convertible preferred stock at $100.00 per share, which provided
proceeds of $4.7 million to us, net of a fee paid to Cochran, Caronia & Co. and
legal expenses. These shares will automatically convert into 1,111,111 shares of
our common stock at the closing of this offering.
SELECTQUOTE
Since SelectQuote's formation in 1984, its primary sources of operating
funds have been commissions and bonus revenues and bank and private borrowings.
Through private placements of preferred stock and common stock to individual
investors and conversion of convertible debt, SelectQuote raised $1.8 million.
Net cash provided by operations was $1.3 million in fiscal 1999 and
$2.4 million in fiscal 1998. In each period, cash provided by net income was
partially offset by increases in commissions and other receivables. Net cash
used in operations was $625,000 in fiscal 1997, as SelectQuote had a net
operating loss.
Net cash used in investing activities was $1.1 million in fiscal 1999 and
$777,000 in fiscal 1998. Investment activity consisted primarily of the purchase
of equipment and marketable securities, leasehold improvements, and investments
in SelectTech. Net cash provided by investing activities was $746,000 in fiscal
1997, primarily due to the sale of marketable securities.
37
<PAGE>
Net cash used in financing activities was $686,000 in fiscal 1999, $839,000
in fiscal 1998 and $372,000 in fiscal 1997. SelectQuote paid dividends on its
preferred and common stock of $579,000 in fiscal 1999, $447,000 in fiscal 1998,
and $579,000 in fiscal 1997. SelectQuote also borrowed $300,000 from an
insurance carrier in fiscal 1997 and repaid that amount in fiscal 1998.
SELECTTECH
SelectTech has received all of its funding through the sale of securities to
insurance carrier investors and from SelectQuote--
- In February 1997, SelectQuote provided SelectTech a $200,000 line of
credit bearing 10% annual interest, which was secured by future revenues
earned on existing consulting contracts, rights to any software developed
and a maintenance contract with one insurance carrier. The outstanding
loan balance and the line of credit were canceled in connection with
SelectQuote's acquisition of SelectTech.
- In August and November 1997, SelectTech issued 450,000 shares of
mandatorily redeemable convertible Series A preferred stock for $750,000
to three insurance carriers that also have licensed the AIMSuite software.
In April 1998, SelectQuote purchased 150,000 shares of Series A preferred
stock for $250,000. Each share of the Series A preferred stock other than
SelectQuote's shares, which were canceled, was exchanged for .703455
shares of our common stock in SelectQuote's acquisition of SelectTech.
- During 1998, SelectTech issued promissory notes totaling $425,000 to four
insurance carriers at annual interest rates ranging from 10.0% to 15.0%.
These promissory notes were repaid in October 1998.
- In October 1998, SelectTech entered into a debenture purchase agreement
with three insurance carriers which enabled SelectTech to borrow up to
$2.5 million upon the issuance of 12% senior secured convertible
debentures. The debentures were secured by all of SelectTech's assets and
were convertible into shares of SelectTech common stock. By June 30, 1999,
SelectTech had issued the full $2.5 million of the debentures. In
addition, the debenture holders received warrants to purchase common stock
at $.01 per share for 5.0% of SelectTech's fully diluted capital. In
SelectQuote's acquisition of SelectTech, Zebu issued 498,142 shares of our
common stock in exchange for shares of SelectTech common stock issued upon
exercise of these warrants. On December 27, 1999, we paid off one
debenture holder in full with $600,000. We believe that the debenture
holders will convert their debentures, which represent the right to
acquire 731,420 shares of our common stock, upon the completion of this
offering.
- In June, October and November of 1999, SelectQuote loaned an aggregate of
$750,000 to SelectTech under three promissory notes of $250,000 each
bearing interest at 9.0% annually. All three notes were canceled upon
SelectQuote's acquisition of SelectTech.
- In July 1999, SelectQuote loaned $50,000 to SelectTech, which was repaid
in August 1999.
- In July and August 1999, SelectTech borrowed $750,000 from the three
debenture holders under new notes at a 12.0% annual interest rate.
Net cash used in SelectTech's operations was $2.4 million in fiscal 1999,
$895,000 in fiscal 1998, and $136,000 in fiscal 1997. SelectTech incurred
operating losses with substantial non-cash charges for depreciation and
amortization. Accounts payable and accrued expenses, including payables to
SelectQuote and other related parties, increased in each year, as did software
license fees classified as deferred revenues. Net cash used in investing
activities was applied to capital
38
<PAGE>
expenditures in all three fiscal years. Net cash provided by financing
activities was $2.5 million in fiscal 1999, $1.1 million in fiscal 1998 and
$190,000 in fiscal 1997 from the issuance of our 12% senior secured convertible
debentures and Series A preferred stock.
Anticipated Cash Requirements
We currently expect that the cash proceeds we receive from this offering,
together with our existing cash balances and projected revenues, will be
sufficient to meet our anticipated cash requirements at least until the end of
our 2001 fiscal year. We may need to raise additional capital in order to meet
competitive pressures, support more rapid expansion, develop new lines of
business, acquire related or complementary businesses or technologies and/or
take advantage of unforeseen opportunities. The timing and amounts of working
capital expenditures are difficult to predict, and if they vary materially, we
may require additional financing sooner than anticipated. If we require
additional equity financing, it may be dilutive to our stockholders, and the
equity securities issued in a subsequent offering may have rights or privileges
senior to the holders of our common stock. If debt financing is available, it
may require, as is the case with SelectQuote's existing line of credit,
restrictive covenants with respect to dividends, raising capital and other
financial and operational matters, which could impact or restrict our
operations. If we cannot obtain adequate financing on acceptable terms, we may
be required to reduce the scope of our marketing or operations, which could harm
our business, results of operations and our financial condition.
Market Risk
We do not believe that we have any significant exposure to market risk
related to changes in interest rates, foreign currency exchange rates and equity
prices.
Recent Developments
In February 2000, SelectQuote, our wholly owned subsidiary, obtained a
one-year, $3.0 million line of credit from LaSalle Bank. SelectQuote may borrow
against that line, provided it meets certain financial and other covenants and
conditions. Any borrowings under the line of credit will bear interest at
SelectQuote's election at LaSalle Bank's prime rate or at an interest rate
determined by a formula based upon LIBOR. The line of credit is secured by a
pledge of all of the assets of SelectQuote, including intellectual property
rights, which is senior to the security interest of the holders of our
convertible debentures. It is also guaranteed by four of our principal
stockholders, and that guaranty is secured by a pledge of their Zebu stock,
which represents 35% of Zebu's outstanding stock. We have not drawn on this line
of credit and expect to terminate it as soon as possible after the completion of
the offering. SelectQuote does not currently intend to borrow against the line
before the offering.
In February 2000, we entered into an agreement for the sale of 2,041,845
shares of Series E mandatorily redeemable convertible preferred stock at $5.15
per share a group of accredited investors, including to High Ridge Capital
Partners II, L.P. and several entities controlled by Marsh & McLennan GP
I, Inc. and Marsh & McLennan GP II, Inc. These investors have committed
irrevocably to purchase these shares, subject only to the satisfaction of
closing conditions outside their control. The sale of these shares will provide
proceeds of approximately $10.0 million to us, net of a fee paid to Cochran,
Caronia & Co. and legal expenses. Each share of Series E preferred stock will
convert automatically into one share of our common stock upon the completion of
this offering.
39
<PAGE>
Year 2000 Matters
Many existing software programs are coded to accept only two digit entries
in their date fields. As a result, these programs are unable to distinguish
whether "00" means the year 1900 or the year 2000, which could result in system
failures or miscalculations causing disruptions to operations. Because our
AIMSuite software may interact with external databases for purposes of data
storage, the ability of applications integrated with the AIMSuite software to
comply with Year 2000 requirements is largely dependent on whether any databases
underlying the application are Year 2000 ready. To date, neither Zebu,
SelectQuote nor SelectTech has incurred significant costs in identifying or
evaluating Year 2000 compliance issues. Most of our expenses have related to the
indirect operating costs associated with time spent by employees in the
evaluation process and Year 2000 compliance matters generally. Although we do
not anticipate that these expenses will be material, these expenses, if higher
than anticipated, could adversely affect out operating results. We are not
currently aware of any significant Year 2000 compliance problems relating to our
software for our product offerings or our information technology or
non-information technology systems. Although we consider Year 2000 problems with
our software and systems to be unlikely to occur at this stage, there can be no
assurance that we will not discover Year 2000 compliance problems in our
software for our product offerings that will require substantial revisions or
replacements which could be time-consuming and expensive.
Recently Issued Accounting Pronouncement
SFAS No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts and for
hedging activities. Under SFAS No. 133, certain contracts that were not formerly
considered derivatives may now meet the definition of a derivative. This
Statement, as amended, is effective for fiscal years beginning after June 15,
2000. The Company has not fully evaluated the impact of this Statement, but does
not expect it to have a material impact on the Company's net operating results.
40
<PAGE>
BUSINESS
Overview
We believe that we provide the most effective business-to-business
infrastructure solution to the application processing and
information-connectivity problems of the insurance industry. Using our
Internet-based technology, insurance carriers, general agencies, financial
institutions, marketing organizations, medical service and data providers, and
others involved in processing insurance applications and policies, can connect
to our single site and exchange all relevant information for the insurance
application process in real time. Our unique solution creates a common platform
that interconnects the computer systems of all of these users, including their
legacy systems, and simultaneously updates each user's database. This real-time
data synchronization occurs regardless of the number of remote locations
involved in the process. We connected the first insurance carrier to our Hub in
April 1998. Today, over 1,000 general agencies and over 30 insurance carriers
have adopted our technology. Each day, they collectively transmit more than
1,000,000 data transactions through our Hub. The number of new policy
applications processed using the Hub currently exceeds 30,000 per month.
Insurance carriers face an increasingly price competitive marketplace and
continually seek data processing solutions that help to reduce customer
acquisition cost and improve processing efficiency. We believe that our
state-of-the-art technology provides significant time and cost savings and other
efficiencies to insurance carriers in this increasingly competitive marketplace
by using a common, Internet-based platform that facilitates the standardization
and transfer of insurance application information. We intend to license our
technology to as many insurance carriers, agents and information providers as
possible, thereby standardizing the sale and processing of insurance. Our
customers include AIG Life Insurance Company, Allstate Insurance Company,
GE Financial Assurance Holdings Inc. and American General Corporation. For a
complete list of our customers, please refer to "--Technology Products and
Services." By licensing our software, we also enable our business clients,
including insurance carriers, general agencies, financial institutions,
marketing organizations, medical service and data providers, to improve the
effectiveness of their insurance operations and to reduce their customer
acquisition and policy processing costs. We believe that this platform is
extendable into other segments of the insurance industry, such as healthcare and
property and casualty, as well as other industries.
We use our technology solutions in our retail business to further our
position as one of the largest independent direct marketers of term life
insurance in the United States. Our technology, in addition to our Internet- and
telephone-based insurance sales techniques, enables us to offer consumers a
faster, more convenient and less expensive way to purchase life insurance than
traditional methods. Our retail insurance business also provides us the
opportunity to prove the efficacy of our technology solutions prior to deploying
them to the rest of the industry. We are able to build upon our fifteen years
experience in the term life insurance industry to promote our insurance industry
technology solutions.
We offer the insurance industry the opportunity to reduce significantly the
processing time between application submission and policy issuance, which we
believe will provide increased satisfaction and better prices for consumers as
well as improved profitability for our business clients. We believe that the
unique combination of our national general agency appointments, our licensed
agents and our technology provides our customers with a high level of service
and the lowest cost products available from the insurance carriers that we
represent.
Through our business-to-business and business-to-consumer services, we
aspire to "touch" every life insurance policy, either by selling products
directly to consumers or by processing every insurance application.
41
<PAGE>
Industry Background
THE UNITED STATES LIFE INSURANCE MARKET
According to Life Industry Marketing Research Association, or LIMRA, U.S.
consumers paid an estimated $10.3 billion in new individual life insurance
premiums in 1998. New individual term life insurance premiums during the same
period were approximately $2.1 billion, or 20% of the total, up from 13% in
1993. Based on data provided by LIMRA, of the approximately 11.5 million new
individual life insurance policies issued during 1998, we estimate that
approximately 4.1 million were term life policies, up 17% from 1997.
The structure of the traditional life insurance market presents significant
challenges to insurance carriers and consumers:
CHALLENGES TO THE INSURANCE CARRIER. Traditionally, insurance carriers
incur substantial costs in acquiring new policyholders, supporting general
agencies, processing applications and issuing and administering policies. Each
of these steps currently involves inefficiencies and delays related to the
manual and often repetitive collection and transfer of application information
from multiple independent parties. The insurance industry lacks standard
underwriting data requirements and standard formats for the collection and
submission of data, making the traditional application process inefficient.
Insurance underwriting usually involves input from multiple independent parties,
which often results in significant costs, many inefficiencies and delays. In
addition, many applicants fail to complete the underwriting process, which often
results in the insurance carriers incurring significant expense without
receiving any revenue. We believe that the combination of these costs and
inefficiencies make term life insurance a high-cost, low-margin product for the
insurance carrier.
CHALLENGES TO THE CONSUMER. The purchase of insurance is often a difficult
and frustrating process for consumers. The fragmentation of the insurance
industry, which includes more than 1,000,000 licensed agents and numerous
distribution channels, including captive agents, independent agents, banks and
brokerage firms, direct marketers and, more recently, web site operators, has
historically made comparison shopping across a broad range of insurance carriers
extremely difficult and time consuming. The process is further complicated by
the participation of more than 1,700 insurance carriers offering life insurance
products, each with its own policy features, prices and qualifying criteria. The
purchase of life insurance can also involve dealing with unfamiliar information
or high-pressure sales tactics. Additionally, the process requires the consumer
to provide sensitive personal health and family medical history information,
which in the traditional process is provided in a face-to-face meeting. Finally,
applying for life insurance is a time-consuming, paper-and labor-intensive
process, resulting in consumer frustration. Because of these factors, consumers
often regard the purchase of insurance as a negative experience, and many fail
to complete the process.
OUR MARKET OPPORTUNITY
Most insurance carriers utilize traditional paper- and labor-intensive
processing for both Internet-generated and traditional agency-sourced
applications at high cost and with substantial delays. Without broadly based
technology that allows low-cost and efficient data sharing solutions, insurance
carriers, agents, banks and other financial institutions cannot compete
effectively in the insurance marketplace.
We believe that there are significant competitive advantages to insurance
marketers and carriers who take advantage of recent technological developments,
including the Internet. To capitalize on the benefits of Internet-based
technology and compete effectively, we believe that life insurance marketers and
carriers must achieve--
- a faster, more efficient application and policy issuance process;
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- lower origination and application processing costs;
- more opportunities for consumers to access and compare insurance product
information;
- more choices of insurance products and prices; and
- a consumer-friendly method for obtaining the best coverage at the lowest
possible price.
In attempting to achieve these objectives, insurance businesses face serious
data processing obstacles. Diverse computing environments are unable to share
existing information easily among insurance carriers, information providers and
general agencies. Differences among computer systems have been a major
impediment to business-to-business data movement and integration among these
parties. Most existing applications were not designed to communicate outside of
the enterprise. Older data movement and integration approaches have been costly,
ineffective and unable to share information. Traditional electronic data
interchange, or EDI, is inflexible, based on pre-defined, fixed data formats
that are not easily adjusted, and often requires difficult point-to-point
integration. EDI is also batch processed, cumbersome, requires expensive private
networks and does not offer real time processing. First-generation Web sites
based on hypertext mark-up language, or HTML, also do not address the
requirements of business-to-business data movement and integration. HTML is
designed chiefly for presentation of data and does not directly support data
exchange between applications. Because these Web sites were designed primarily
for human-to-system communication, they are difficult to incorporate into shared
multi-company business processes that require system-to-system communication.
HTML-based Web systems typically require that data be re-keyed to each new
system. Newer processes, such as extensible mark-up language, or XML, provide a
universal communications mechanism, but require the transmission of large
amounts of unnecessary data because they fail to extract and transmit only the
relevant data. Thus, these processes require substantial customization at each
site and have a high initial cost and maintenance expense. These packages
integrate systems within a single trading partner group, but typically cannot
provide the open-ended, scalable inter-company integration that is critical to
business-to-business data processing among the myriad, diverse and disparate
users engaged in processing insurance policies.
We believe that in order for a system to be effective, it must not only
allow a variety of systems to exchange data, it must interface with legacy
systems, and provide bi-directional data communication without requiring the
information providers to standardize their data. To accomplish these objectives,
the system must--
- be usable by trading partners and business competitors alike;
- be compatible with any data format;
- be fully scalable;
- interconnect a large number of users simultaneously; and
- enable process automation.
Such a system would allow for wide industry acceptance, provide a common
format for data to be exchanged without substantial point-to-point engineering,
be sufficiently flexible to allow the expansion or changing of distribution
channels easily and provide the basis to solve the processing problems of the
insurance industry.
Our Solution
We believe that we provide the most effective business-to-business solution
to the application processing problems of the insurance industry. Our automated
insurance management, or AIM, system solution is based on a unique, open
database architecture that permits improved
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management of information, an advanced data synchronization process which allows
data to be moved between remote work sites faster, more efficiently and in real
time, and advanced applications utilizing our data distribution process. Our
system can transfer electronic data generated by any user's data processing
system, regardless of hardware configuration, operating system, database
management software or system protocols. It does not require substantial
conversion cost or effort on the part of insurance carriers to adopt this
system, allowing for the carrier and consumer to benefit immediately. For the
sales distribution process, electronic application data can be transmitted to
the insurance carrier or other information providers in a matter of seconds
instead of days. Application status information moves just as quickly. Our
solution eliminates the need to reduce information to paper again and again in
the application process. There is no practical limit to the number or size of
sites that can send or receive information because the Internet can be used in
all cases. Our system can be connected to any information provider's system for
most insurance applications. It can be modified to provide similar standardized
data transfer and communications connections for most industries.
Our technology, experience and expertise position us to change dramatically
the way insurance is sold and processed. In our 15 years of term life insurance
sales experience with SelectQuote, we have searched for ways to respond to the
significant challenges posed by our growth and by the inefficiencies of the term
life insurance industry in general. In particular, we have witnessed and
experienced the significant information management and paper processing problems
faced by the insurance industry. As a result, we have developed effective
marketing and processing techniques from which we have seen substantial
benefits. In addition, we have become a leader in the application of technology
to the term life insurance industry. In response to the inefficiencies inherent
in the paper- and labor-intensive application processing methods that pervade
the insurance industry, we have developed a comprehensive, integrated,
Internet-based solution to the substantial information management problems faced
both by us and by the life insurance industry generally.
Our Strategy
We aspire to become the acknowledged agent of change for the entire
insurance industry by transforming the way insurance policies are sold,
processed and issued. We intend to become the dominant provider of technology
solutions to the insurance industry, and to strengthen our position as a leading
independent marketer of term life insurance. The key elements of our strategy
include--
- ESTABLISH THE AIMSUITE AS THE TECHNOLOGY STANDARD FOR THE INSURANCE
INDUSTRY. Our AIMSuite, with a flexible, open and scalable architecture,
makes the benefits of our key technology available to insurance carriers
and their general agencies, regardless of their internal legacy systems.
Furthermore, we intend for our AIMSuite brand to become synonymous with
the standard for processing technologies in the life insurance industry.
Our technology is platform independent and can be applied to most business
data movement and connectivity needs.
- STREAMLINE OPERATIONS AND INCREASE OUR SALES EFFICIENCY. We believe that
our technology will streamline quotation and application processing and
enable our agents to sell a greater number of policies more profitably,
matching the lead generation capability of our direct marketing expertise.
- USE OUR TECHNOLOGY TO PROCESS INSURANCE POLICIES FOR THE INSURANCE
INDUSTRY. Our goal is to offer insurance carriers and other financial
institutions a compelling alternative to in-house processing of life
insurance marketing, sales, processing and policy delivery by giving them
the opportunity to outsource to us all of their new business processing,
reporting requests and policy updating. This is possible using our system
and technology as they exist today. Our goal is to have our technology
used to process every life insurance policy.
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- REDUCE POLICY ACQUISITION COSTS. We believe the insurance carriers whose
policies we sell can continue to reduce their policy acquisition costs
through the use of our technology. We believe this cost reduction will
enable us to offer a competitive product at a lower price.
- EXPAND BRAND AWARENESS AND PRESENCE. We have established ourselves as a
leading independent distributor of term life insurance products. We will
continue to use our direct-response advertising techniques to enhance
consumer recognition of our SelectQuote brand name. We also intend to make
strategic use of Internet advertising and establish relationships with
on-line companies that are a likely source of consumers for our products.
- EXPAND OUR LINES OF RETAIL BUSINESS. Our sales experience and technology
is readily applicable to other forms of insurance and other financial
products. To date, we have focused exclusively on term life insurance
products, but we believe that our processes, technology and ability to
hire appropriately licensed agents will allow us to offer a variety of
insurance products to new and existing consumers.
- EXPAND THE SCOPE OF USE OF THE HUB. We believe that the Hub technology is
adaptable to other segments of the insurance industry, such as healthcare
or property and casualty, as well as other industries that require complex
data movement solutions.
Our Products and Services
The core of our technology solution, our Hub, is a system that facilitates
and manages workflow between remote users in real time. Our AIMSuite software
products connect insurance carriers, their agents and other participants in the
life insurance policy application, underwriting and issuance process to the Hub.
The Hub is an application of hardware, software and modern relational database
technology. Insurance carriers, agents or service providers can send or receive
data in seconds, as opposed to the days required by the traditional, paper-based
process. Required application information is entered only once and then made
available to the other participants in the application process as needed,
thereby reducing duplicate entries and mistakes, saving processing time and
providing better service to the consumer.
We also have developed the Insurance Tele-Information System, or ITS, that
makes information gathered through telephone interviews with prospective
insurance purchasers available to AIMSuite licensees. We offer ITS licenses to
insurance carriers directly, as well as through our strategic alliance with
Intellisys, Inc., a ChoicePoint subsidiary. We also offer our licensees
consulting services to assist them in integrating the AIMSuite software or to
provide custom features. We provide installation, maintenance and support
services to users of AIM QuickView and AIM GA.
To individual consumers, we offer a full range of high quality term life
insurance products. Through our consultative sales process, which we are
enhancing through the development of our automated rate calculation, or ARC,
software, we help the consumer to comparison shop and select the appropriate
policy. We are developing new features to enable applicants to track the status
of their applications with any carrier that has installed the AIMSuite software.
TECHNOLOGY PRODUCTS AND SERVICES
The AIMSuite consists of integrated software programs that enable insurance
carriers, agencies, agents and information providers to process insurance policy
applications, transfer critical applicant data, facilitate policy issuance,
service policies, manage the carrier-agent relationship and manage general
agency operations. All users of AIMSuite software can connect to our Hub data
processing service via the public Internet or virtual private networks, or VPNs.
Our Hub servers run
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our Hub software, which converts data transmitted to the Hub into standard
transfer protocols, stores the data and identifies their proper destination. The
Hub is located at our San Francisco, California headquarters.
Only the AIMSuite software can utilize the Hub's real-time data
synchronization capability for application processing and policy issuance and
administration. We license the AIMSuite software to insurance carriers and
authorize them to distribute general agency software components to their
authorized agents. We currently offer new licenses for an AIMSuite system
consisting of the following basic components--
- AIM QuickView, the primary application for data movement via the Hub;
- AIM GA, a full-featured contact management general agency management
system; and
- AIM ITS, a tele-interviewing system that can send and receive data from
the Hub.
Once the carrier and associated information providers have installed the
essential AIMSuite components, utilities convert all data entered into the Hub's
secure storage databases from each information provider's computer systems and
other non-AIMSuite applications into the same life insurance industry standard
NAILBA format. The AIM-standard NAILBA-compliant data allows for the automation
of the application process without the need for modifying legacy systems or
rewriting existing "expert" underwriting systems. The standardized data can then
be distributed securely through the Hub to any site that has been approved for
access to the data.
AIM ITS is a critical part of the AIM Suite processing solution. After the
initial insurance application is submitted to a general agency or insurance
company, the medical information section of every life insurance application
form must be completed for the applicant. AIM ITS provides a platform for the
collection of this information through a telephone interview process. This
information can be combined with all other application information, which is
sent to the telephone interviewing site electronically, and relayed to an
insurance carrier or underwriter for review and approval. An applicant's
disclosure of a health condition will prompt follow-up questions designed to
elicit additional information that the insurance carrier will require to process
the application. This feature reduces the need for additional requests for
information and attending physicians' statements, thus saving time and expense
for all parties.
We have licensed AIM ITS to IntelliSys, which specializes in gathering
information to support life and health insurance underwriting decisions through
telephone call-in centers. IntelliSys makes AIM ITS service available to
carriers who have licensed the complete AIMSuite of software. We receive a fee
from IntelliSys for each new policy application containing AIM ITS data that is
transferred through the Hub.
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The following diagram shows how the AIM/Hub solution connects the parties
involved in the life insurance sales cycle:
AIM Hub Internet-based Data Distribution Process
[graphic depicting the parties and software applications that can access the
Hub, and the intelligent distribution of data through the Hub and among these
parties]
We license the AIMSuite software products to insurance carriers that pay us
a license fee payable in two installments: upon execution of the agreement and
upon the customer's acceptance of the software. We also receive a transaction
fee for each life insurance application submitted for processing through the
Hub. Generally, the transaction fee becomes payable when the licensed carrier's
agent connects to the Hub and initially receives the application or submits data
to the Hub. A single fee covers all data processed through the Hub for that
application. We charge our customers an additional fee for each application for
which data is transmitted using AIM ITS, and intend to charge a fee for other
data services that we might provide to the carrier or its agents and agencies.
Our license terms grant the carrier a perpetual, non-exclusive right to use the
software and allow the carriers to distribute copies of the software components
to agents and agencies who are licensed and appointed to sell its life insurance
products. With one exception, we have never licensed the Hub software to any
insurance carrier. We have licensed one complete AIMSuite system, including a
version of the Hub software in executable form, to Allstate Insurance Company
solely for use with its captive agency system, which helped us demonstrate the
feasibility of the Hub technology in external environments.
To date, we have licensed the AIMSuite software to over 30 insurance
carriers that, in turn, have authorized a total of more than 1,000 general
agents and information providers to install the AIM Agency QuickView software
component. We have installed the AIM General Agency software component for 23
general agents. We have current AIMSuite license agreements with the 16
individual carriers identified in the table below. Under some of these license
agreements, we also process transactions for the subsidiaries of the carrier
licensee.
These carriers and their subsidiaries are listed below.
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<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------
AIMSuite
Products
Carriers Covered Under License Covered(1)
- ----------------------------------------------------------------- -----------------
<S> <C> <C>
AIG Life Insurance Company GA, QV
Allstate Insurance Company GA, QV
- Allstate New York
- Glenbrook Life
- Lincoln Benefit Life
- Northbrook Life
- Surety Life
American Express Financial Corporation: QV
- American Enterprise Life
American General Corporation GA, QV
- US Life Corporation
- All American Life
- American General Life Brokerage Group
- Old Line Life
American National Insurance Company QV
Federal Kemper Life Assurance Company GA, QV
First-Penn Pacific Life Insurance GA, QV
GE Financial Assurance Holdings, Inc. QV
- American Mayflower
- First Colony Life of Virginia
Legal & General America, Inc. QV
- Banner Life
Lincoln National QV
The Midland Life Insurance Company GA, QV
North American Company for Life and Health Insurance GA, QV
- North American Company for Life and Health Insurance
New York
Protective Life Insurance Corporation GA, QV
- Empire General Life Assurance Corporation
- West Coast Life Insurance Company
Prudential Insurance Company of America QV
Security-Connecticut Life Insurance Company GA, QV
United of Omaha Life Insurance Company GA, QV
- Companion Life
- Mutual of Omaha
</TABLE>
- ---------------
(1) GA--AIM General Agency
QV--AIM QuickView
Once a carrier and its agents have installed the QuickView software
component, they can instantly begin sharing data through the Hub. Our objective
is to disseminate the AIMSuite software as widely as possible. For this reason,
we have been licensing this software and providing related services for fees
that we consider low by comparison to other business-to-business applications.
As the number of licenses and installed AIM GA and QuickView sites increase, we
expect our Hub
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processing fees to increase significantly. We further believe that, once
carriers and agents begin processing their policy data through the Hub, they
will require additional services from us, including fee-based outsourcing
services that we intend to provide at a price significantly lower than their
current processing costs.
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The components of the AIMSuite, which are briefly described in the following
table, offer a wide array of standard and premium, or additional cost, features
and benefits to insurance carriers and their appointed agencies.
<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Product Features Benefits
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
AIM QUICKVIEW Automates and integrates the seamless Eliminates redundant data entry,
- AIM WEB QUICKVIEW movement of application, case and agent speeds up data movement, increases
- AIM AGENCY QUICKVIEW data throughout the insurance data accuracy and reduces paper.
- AIM CARRIER QUICKVIEW application process.
- Displays all pending case data for - Dramatically reduces case status
numerous carriers. calls from agencies to carriers,
as well as from agents to
agencies.
- Creates one source for all
carriers' pending information,
eliminating the need to access
multiple web sites
- Reduces paper, mailing costs and
reduces delivery time.
- Tracks pending application cases - Eliminates most status calls;
provides real time case updates
and links field offices to tele-
interviewers and paramedical
firms
- Prints policies on-site - Eliminates 2-5 days of policy
issuance time, reduces shipping
costs and shipping delays
- Develops on-line commission reports - Enables instant access to
using open SQL database commission reports; reduces data
entry and improves accuracy
- Substantially improves analysis
of sales data and review of
existing policy data for
additional sales
- Retains policy data on-site - Offers data accessibility 24
hours a day and makes its data
available for use with other
software packages
- Integrates with AIM GA, AIM ITS and - Eliminates duplicate data entry
AIM Carrier QuickView and automates data movement
- Links all carrier new business, - Allows carriers to access their
policy issue and commission systems data in an open environment for
to open SQL database better data review and
statistical analysis
- Standardizes policy data - Consolidates data from multiple
legacy systems into an insurance
industry standard for easier
export to web sites, and provides
field office integration
- Prepares custom reports - Serves as an executive management
report system with enhanced
analytical and graphical
capabilities
- Displays pending data by carrier - Allows management to view pending
data on a single system
- Generates error report - Catches improper data before it
is sent to the field
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Product Features Benefits
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
AIM GA Completely integrated and scalable Allows general agency to store all
agency management system, including agency data in one database for
plan administration and system reporting and tracking new
administration integrated with a business, in-force policies,
contact management system licensing and commissions
administration.
- Manages data for unlimited carriers - Allows agencies to contract with
and policies multiple carriers, as well as
market and sell multiple product
lines.
- Cross checks carrier limits during - Improves accuracy of
application entry process applications, reduces returns and
rejections
- Updates policies electronically - Streamlines policy administration
- Automatically stores and checks all - Speeds policy issuance by showing
company policy requirements during exact requirements needed to
application entry process process a case.
- Improves placement ratio with
carriers due to thoroughness of
application at receipt
- Customizes activities - Automates work flows; reduces
overhead
- Integrates word processing, - Reduces typing and allows faster
automatically inserts data into form communication through automation
letters and reports
- Reduces redundant data entry by field - Increases accuracy and office
offices productivity
- Tracks applications through entire - Allows access to policy status
process and information on demand
- Tracks agent leads, contracts, - Increases efficiency of agency
commissions, cases, appointments, operations and legal compliance
licenses and NASD requirements
- Assigns a unique code to every agent - Increases ability to target
and every marketing program provided market, and use advertising and
to the agent sales dollars more efficiently.
- Moves data from the agency's web page - Enables agencies to share data
or other software to an open SQL created by other applications
database
- Reduces multiple data entry
- -----------------------------------------------------------------------------------------------------------------
AIM ITS Insurance application tele-interview Improves interview results and
software with customizable interview accelerates application process
templates; integrated with AIM
QuickView
- Allows carrier-specific application - Improves data entry by following
data entry and processing. forms exactly as written
- Facilitates detailed interviews - Substantially reduces the need
for attending physician statements
- Prompts follow up automatically - Accelerates underwriting process
</TABLE>
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SALES AND MARKETING
We currently market our technology products and services through our Vice
President of Software Sales and Marketing. Following the offering, we intend to
expand our sales and marketing efforts by hiring sales representatives, account
managers, product managers and marketing managers. We expect that this
additional marketing and sales staff will allow us to expand our current
business to meet our sales objectives.
SERVICE, MAINTENANCE AND CUSTOMER PROJECTS
We provide consulting services and support services performed under
maintenance and support agreements with clients who have custom or standard
products. We provide free maintenance for software defects and charge our
carrier licensees for other services, such as installing AIM GA Software
components at the general agencies. We also can provide our customers with
documentation, training facilities and help desks. In the past, SelectTech has
provided custom software development services to insurance carriers pursuant to
project development contracts. We may offer such services in the future after we
have completed the development and implementation of new technology at
SelectQuote, and if we have additional engineering capacity that is not needed
for continued development, installation, service and support of our AIMSuite
software. We do not expect, however, that revenues from custom software
development and consulting services will generate significant revenue in the
future.
RETAIL INSURANCE SALES
SelectQuote is one of the largest independent marketers of term life
insurance products sold to individuals in the United States. Since 1985, we have
sold more than 250,000 term life insurance policies. SelectQuote's operating
philosophy and strategy from the outset have been to provide the best service
and the lowest cost term life insurance in the shortest possible time from among
America's top life insurance companies. Approximately 80% of the applications
that we have submitted have resulted in the issuance of a policy. We believe
that our conversion rate is higher than that generally applicable to the term
life insurance industry.
SelectQuote has long-standing agency relationships with the 19 insurance
companies it currently represents, each of which has an A.M. Best Company "A"
category rating or better. We have carefully selected these 19 carriers based on
our belief that these companies have consistently offered the best combination
of competitive pricing, product innovation, breadth of products, high-quality
service and reliability. Each of these carriers has appointed us as its general
agent on a national basis. The companies we currently represent include--
- American Mayflower Life Insurance Company of New York (a GE Financial
Assurance company)
- Banner Life Insurance Co. (a Legal & General America company)
- Companion Life (a United of Omaha Life Insurance Company company)
- Continental Assurance Company (a CNA Life company)
- Federal Kemper Life Assurance Company (a CNA Life company)
- Fidelity Life Association, a Mutual Legal Reserve Company (a Zurich Kemper
Life company)
- First Colony Life Insurance Company (a GE Financial Assurance company)
- First Penn-Pacific Life Insurance Company (a Lincoln National Corporation
company)
- Jackson National Life Insurance Company (a Prudential plc company)
- Jackson National of New York
- The Midland Life Insurance Company
- North American Company for Life and Health
- North American Company for Life and Health of New York (a Sammons Group
company)
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- Protective Life Insurance Company
- The Travelers Insurance Company
- Travelers Life & Annuity (a member of CitiGroup)
- United of Omaha Life Insurance Company (a Mutual of Omaha company)
- Valley Forge Life Insurance Company (a CNA Life company)
- William Penn Life Insurance Company of New York (a Legal and General
America company)
We sell policies in 48 states and the District of Columbia through licenses
held by our company, an associated corporation or one or more of our employees
in accordance with the requirements of each jurisdiction's insurance department.
We help the consumer comparison shop and then select the appropriate policy. We
have developed or acquired computer software that we employ in generating
comparative quotations for term life insurance. This software also comprises
part of the systems which we have used to gather and transmit applicant data,
track application status and service term life insurance policies for our
consumers. We have installed AIM QuickView internally to facilitate data
transmission and communications during the application process.
We are developing technology designed to allow us to increase our sales
efficiency and lead-to-policy conversion rates, improve our services to
consumers and reduce policy application processing time. We are developing an
agency management system similar to the AIM General Agency management system.
With this system, data from web leads will be entered automatically into the
SelectQuote production database, and applications will be uploaded
electronically to insurance companies or tele-interviewing centers. This new
system will move pending, tracking, commission and other business information
downloaded from insurance carriers or other sites to the SelectQuote production
database and provide application status information directly to the consumer
through the Internet. We intend to implement this new agency management system
in stages during the first nine months of calendar year 2000.
LEAD GENERATION. To operate efficiently, we try to achieve the highest
attainable ratio of commission revenues to advertising and other new business
expenses. Our leads are generated by national radio and television advertising,
the Internet and "word of mouth" referrals. In the year ended June 30, 1999,
SelectQuote generated 170,700 leads, of which 61% came from advertising, 10%
came from the Internet and 29% came from other sources, mainly word of mouth. In
SelectQuote's two most recent quarters, Internet leads increased to 23% and 30%,
respectively, of total leads. Controlling lead costs is a significant factor in
achieving profitability, and controlling lead volumes allows us to match leads
to internal and external processing capacities. In the past, SelectQuote
experienced periods of rapid growth when it could not process all leads
profitably. With the integration of new technology solutions, we expect to
increase our capacity for profitable growth.
LEAD PROCESSING. We receive our leads by telephone or e-mail through our
website. We use an automated call distribution system to route our calls.
Whenever possible, calls or e-mails are routed to one of our insurance agents
who is licensed in the jurisdiction of the caller. That agent will obtain from
the consumer the more detailed information that the insurance carrier will need
in order to determine whether or not to issue a policy. Using our database and
the agent's knowledge of the underwriting criteria of the insurance carriers we
represent, the agent is able to determine the lowest cost policy available from
the carriers we represent to meet the consumer's needs. During this process, the
agent, with the consumer's assistance, completes as much of an application form
as possible. The application is then mailed to the consumer for review,
correction, completion and signature. The completed application is then returned
to us.
If no agent is initially available, calls are routed to an unlicensed
telephone representative, who collects basic data such as name, date of birth,
address and coverage requirements. Overflow calls or calls received outside of
normal business hours are routed to an outside service center, which
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collects the same basic data from the consumer. That data is entered into our
computer system. Our software will match the consumer's requirements to the
lowest cost policies offered by the carriers we represent. A computer-generated
report is then mailed to the consumer, and is usually accompanied by an
informational videotape. During this process, we maintain contact with the
consumer through a series of customized letters. Calls received from consumers
who have received a quotation package are connected to a licensed agent.
In response to the dramatic increase in Internet leads, we have established
a group of agents who specialize in responding to these leads. We also have
developed and are continuing to expand our technology to assist these agents.
POLICY ISSUANCE. After review, we send the application to the insurance
carrier, which will gather whatever additional information, such as medical
records and blood tests, is necessary for it to complete its review process. We
assist the insurance carrier in this process by scheduling paramedical
appointments and following up on requests for attending physicians' statements.
We use AIM QuickView to expedite this process. After receipt of all necessary
information, the carrier then determines whether to issue a policy to the
consumer. If the insurance carrier decides not to issue a policy as requested,
the agent will work with the consumer to obtain a different policy from the same
or a different insurance carrier. The agent's goal is again to obtain the lowest
cost and most suitable policy available.
Technology and Development
We believe that we have been able to leverage our understanding of the
insurance market as well as our staff and software development processes to
build robust, open solutions for the insurance industry. The Hub is a
configuration of software, primary and back-up servers, uninterruptible power
supplies, redundant data storage equipment, security firewalls, network products
and standard Internet and VPN connections. Our technology operates in a Windows
environment with most standard client server operating systems, including
Novell, NT, Unix or Linux. The applications software has been written in 32 bit
C++ program language using ODBC to Sybase, Oracle or Microsoft SQL servers.
Users of our technology must obtain licenses from Microsoft for some or all of
the following products: Microsoft Windows NT 4.0, Windows 95 or Windows 98,
Microsoft Exchange, Microsoft Word, Microsoft NT Server, Microsoft SQL Server or
Microsoft Access.
We devote substantial resources to the development of innovative software
products for the insurance market. We invested approximately $390,000 in fiscal
1997, $780,000 in fiscal 1998, $2.6 million in fiscal 1999 and $1.6 million in
the six months ended December 31, 1999 on research and development activities.
This investment included approximately $6,000, $200,000 and $1.1 million in
fiscal 1997, 1998 and 1999, respectively, and $486,000 and $987,000 in the six
months ended December 31, 1998 and 1999, respectively, for customer-sponsored
research and development activities related to the development of new products
or services, or the improvement of existing products or services for the
customer. We intend to continue to devote substantial resources to research and
development for the foreseeable future.
In developing our software products and the Hub, our technology products and
services business has relied extensively on third-party developers, including
operations conducted in Eastern Europe by corporations directly or indirectly
controlled by two of our executive officers and directors, Steve Gerber and
Michael Feroah. Under written software development agreements, all of these
third-party developers, including our related parties, have provided these
services on a project-by-project basis and have been paid for their time and
materials at agreed rates that we consider arm's length. All intellectual
property developed for us by these third-party developers, including our related
parties, and their employees or consultants is assigned to us under these
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agreements. The corporations controlled by Messrs. Gerber and Feroah employ and
have employed programmers who are not U.S. citizens or residents, however. See
"Risk Factors--We utilize substantial offshore contract programming and
development services that we do not control." Most of our technical and research
and development engineers who are focused on our core products currently are
based at our San Francisco offices. We rely more on our own staff engineers and
local consultants than on these foreign corporations for our development
outsourcing needs.
Intellectual Property
Our success and ability to compete are substantially dependent upon our
technology and intellectual property. While we rely on copyright, trade secret
and trademark law to protect our technology and intellectual property, we
believe that factors such as the technological and creative skills of our
personnel, new product and service developments, frequent product and service
enhancements and reliable product and service maintenance are more essential to
establishing and maintaining an intellectual property leadership position. We
have no patents or patent applications pending. Others may develop products and
services that are similar or superior to ours.
We generally enter into confidentiality or license agreements with our
employees, consultants and corporate partners and generally control access to
and distribution of our products, documentation and other proprietary
information. Despite our efforts to protect our proprietary rights, unauthorized
parties may attempt to copy or otherwise obtain and use our products, services
or technology. Policing unauthorized use of our proprietary information is
difficult, and the steps we have taken might not prevent misappropriation of our
technology, particularly in foreign countries where the laws may not protect our
proprietary rights as fully as do the laws of the United States.
Substantial litigation regarding intellectual property rights exists in the
technology industry. From time to time, third parties may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies and related standards that are important to us. We expect that we
may increasingly be subject to infringement claims as the number of competitors
in our industry segments grows and the functionality of products in different
industry segments overlaps. In addition, we believe that many of our competitors
have filed or intend to file patent applications covering aspects of their
technology that they may claim our intellectual property infringes. Although we
have not been party to any litigation asserting claims that allege infringement
of intellectual property rights, we cannot assure you that we will not be a
party to litigation in the future. Any third party claims, with or without
merit, could be time-consuming to defend, result in costly litigation, divert
management's attention and resources, cause product shipment delays or require
us to enter into royalty or licensing agreements. Such royalty or licensing
agreements, if required, may not be available on terms acceptable to us, if at
all.
Competition
The market for our current and planned products and services is intensely
competitive. We compete with companies providing business-to-business
information processing solutions aimed at the insurance industry, such as
ChannelPoint, Intuit and the CyberTek division of Policy Management
Systems, Inc. We believe that the principal competitive factors include--
- real-time data synchronization;
- completeness of the software solution;
- ease of integration and connectivity with existing and legacy computer
systems;
- data standardization;
- pricing;
- scalability;
- service and support;
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- ease of use;
- time to market; and
- acceptance by insurance carriers and their agents and general agencies.
Considering these factors, we believe that we compete favorably with our
competitors. Some of our competitors have substantially greater financial and
marketing resources, and their products have better known brands. In addition to
pressure from our competitors, other barriers to the success and growth of our
business-to-business processing solution for the insurance industry are the
reluctance of carriers, their agents and other information providers to alter
their present ways of doing business, the resistance of technology and
information officers to implementing our complete solution, and the perception
of some carriers and agencies that we are or may become a competitor that they
are unwilling to support. If we are unable to successfully surmount these
barriers and establish the AIMSuite system as the dominant approach to
business-to-business data movement and integration for the insurance industry,
our business, operations and financial condition will be affected adversely and
the market price of our stock is likely to decline substantially.
In SelectQuote's retail business, we compete with traditional insurance
distribution channels, including thousands of insurance agency companies, agents
and brokers, new non-traditional channels, such as commercial banks and savings
and loan associations, and a growing number of direct distributors, including
on-line services such as Quicken InsureMarket, InsWeb Corporation and
Quotesmith.com. Some of our competitors have substantially greater financial and
marketing resources, and their products have better known brands. We believe
that the principal competitive factors in the insurance sales business are
customer service, breadth and geographical penetration of products and service
offerings, efficiency of operations, agent quality and training and the
effectiveness of marketing efforts. We believe that we presently compare
favorably with our competitors in these areas. However, the markets for
insurance sales and information processing are evolving, and we cannot be
certain that we will compete successfully in the future. We anticipate
additional competition in both businesses from other established insurance and
technology enterprises, as well as emerging companies. See "Risk Factors--We
face intense competition in the insurance sales industry."
Regulation
The future regulation of insurance sales via the Internet as a part of the
new and rapidly growing electronic e-commerce business sector is unclear. We
believe that SelectQuote is currently in compliance with all applicable laws and
regulations. We are currently in the process of evaluating whether our
acquisition of SelectQuote requires us to be licensed in any state and, if so,
to obtain such licenses. However, state or federal regulators may interpret
aspects of our business to be in violation of current laws or regulations. Also,
additional state or federal regulations may be adopted, which could have an
adverse impact on us.
The U.S. insurance industry and the marketers of insurance products are
subject to extensive regulation by state and federal governments and by the
District of Columbia. This regulation extends to the operations of insurance
companies, agency companies, agents and brokers and to our service.
We sell policies in 48 states and the District of Columbia through licenses
held by our company, an associated corporation or one or more of our employees
in accordance with the requirements of each jurisdiction's insurance department.
In general, state insurance laws establish supervisory agencies with broad
administrative and supervisory powers to--
- grant and revoke licenses to transact insurance business;
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- impose continuing education requirements;
- regulate trade practices;
- require statutory financial statements of insurance companies;
- approve individuals and entities to whom commissions can be paid;
- regulate methods of transacting business and advertising; and
- approve policy forms, and regulate premium rates for some forms of
insurance.
Moreover, existing state insurance laws and regulations require that an
agency company, or an individual within that company, be licensed in the
applicable state in order to quote an insurance premium. State insurance
regulatory authorities regularly make inquiries, hold investigations and
administer market conduct examinations with respect to compliance with
applicable insurance laws and regulations by insurance companies and their
agents. In recent years, a number of insurance agents and the life insurance
companies they represent have been the subject of regulatory proceedings and
litigation relating to alleged improper life insurance pricing and sales
practices. Some of these agents and insurance companies have incurred or paid
substantial amounts in connection with the resolution of these matters. We do
not currently sell the types of life insurance--primarily cash value life
insurance policies such as universal life--which are the usual subjects of these
actions.
In addition, licensing laws applicable to insurance marketing activities and
the receipt of commissions vary by jurisdiction and are subject to
interpretation as to their application to specific activities or transactions.
Our company, an associated corporation, or one or more of our employees is
currently licensed to sell insurance in each of 48 states and the District of
Columbia. We do not permit any of our other, unlicensed employees who have
contact with consumers to provide services which we understand to require an
agent's license. We monitor the regulatory compliance of our sales, marketing
and advertising practices and the related activities of our employees. We also
provide continuing education and training to our staff in an effort to ensure
compliance with applicable insurance laws and regulations. We cannot assure you,
however, that a state insurance department will not make a determination that
one or more of the activities performed by an unlicensed employee constitutes
the transaction of insurance and, thus determine that these activities must be
performed only by licensed personnel, that the company or any of its agents are
liable for fines or penalties, or that we or any of our agents should have our
licenses suspended or revoked. See "Risk Factors--We operate in a heavily
regulated industry."
The federal government currently does not directly regulate the marketing of
most insurance products. However, some products, such as variable life
insurance, must be registered under federal securities laws and the entities
selling these products must be registered with the NASD. We do not currently
sell any federally regulated insurance products. If we elect to sell these
federally regulated products in the future, we would be required to qualify for
and obtain the required licenses and registrations.
Further, we are subject to various federal laws and regulations affecting
matters such as pensions, age and sex discrimination, financial services,
securities and taxation. Recently, the Office of the Comptroller of the Currency
has issued a number of rulings that have expanded the ability of banks to issue
insurance products. The recently enacted Financial Services Modernization Act of
1999 eliminates many restrictions on the affiliation of insurance companies,
banks and securities firms and addresses various consumer protection and privacy
matters. This legislation and other future federal or state legislation, if
enacted, could result in increased regulation of our business.
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Employees
As of January 31, 2000, we had 226 full-time employees, including 39
licensed insurance agents. None of our employees is subject to a collective
bargaining agreement, and we believe that our relations with our employees are
good. We believe that our future success will depend in part on our continued
ability to attract, integrate, retain and motivate highly qualified sales,
technical, professional services and managerial personnel, and upon the
continued service of our current personnel. We also use independent contractors
to supplement our work force. None of our personnel is bound by an employment
agreement that prevents the person from terminating his or her relationship with
us at any time for any reason.
Properties
Our executive offices are located in San Francisco, California, in an office
building in which, as of January 31, 2000, we lease an aggregate of
approximately 64,600 square feet. Our lease for approximately 5,300 square feet
expires on April 5, 2000; our lease for approximately 27,600 square feet expires
on November 30, 2002; and our lease for approximately 31,700 square feet expires
on March 31, 2005. In addition, we lease approximately 3,800 square feet of
storage space in a nearby building, under a lease that expires on December 31,
2002.
Legal Proceedings
From time to time, we are subject to legal proceedings and claims in the
ordinary course of business, including claims of alleged infringement of
third-party trademarks and other intellectual property rights by us and our
licensees and claims related to insurance sales and claims. These claims, even
if not meritorious, could result in the expenditure of significant financial and
managerial resources. We are not aware of any legal proceedings or claims that
we believe would materially harm our business or cause our revenues or stock
price to fall.
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MANAGEMENT
Directors and Executive Officers
Each of the current executive officers of Zebu named below began active
service on December 23, 1999.
<TABLE>
<CAPTION>
Name Age Position
- ---- -------- --------
<S> <C> <C>
Charan J. Singh...................... 51 Chairman of the Board of Directors, Chief Executive
Officer
Steven H. Gerber..................... 53 President, Director
David L. Paulsen..................... 55 Chief Operating Officer--Insurance Products and
Services, Chief Financial Officer, Director
Michael L. Feroah.................... 53 Chief Operating Officer--Software Products and
Services, Chief Technical Officer, Director
Hernan E. Reyes...................... 65 Vice President, Operations--Software Products and
Services
Steven J. Tynan (1), (2)............. 46 Director
Randall J. Wolf (3).................. Director
</TABLE>
- ------------------------
(1) Compensation committee member.
(2) Audit committee member.
(3) Director nominee.
CHARAN J. SINGH founded SelectQuote in 1984 and has been Chief Executive
Officer, President and director since its inception. Before founding
SelectQuote, Mr. Singh worked at Charles Schwab & Company. Mr. Singh also served
as the Chairman of the Board of Directors of SelectTech until the recent
acquisition.
STEVEN H. GERBER co-founded SelectTech and served as its President and Chief
Executive Officer and as a director until its acquisition by SelectQuote.
Mr. Gerber has acted as SelectQuote's Chief Information Officer since 1993.
Mr. Gerber is President of Innovative Information Systems, a technology
consulting company and has 25 years of experience in the information systems and
strategic technology consulting industry.
DAVID L. PAULSEN has been SelectQuote's Executive Vice President and Chief
Operating Officer and has served as Chief Financial Officer for both SelectQuote
and SelectTech and a director of SelectTech. Since 1986, he has managed all
phases of SelectQuote's financial, administrative, advertising, human resources,
shareholder relations and other non-sales operations. Mr. Paulsen was employed
from 1973 to 1984 by the accounting firm of Deloitte & Touche in audit and human
resources.
MICHAEL L. FEROAH co-founded SelectTech and has served as its Executive Vice
President, Chief Technology Officer and director until its acquisition by
SelectQuote. From 1992 until his co-founding of SelectTech, Mr. Feroah served as
a software development and technology consultant through his wholly owned
corporation, Zebu International.
HERNAN E. REYES joined SelectTech in 1996 as Vice President of Operations.
From 1994 to 1996, he worked as a consultant and information technology director
at Cirrus Logic. Mr. Reyes has over 38 years of experience in the information
technology business, including more than 20 years at IBM.
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STEVEN J. TYNAN was elected a director of Zebu on January 16, 2000.
Mr. Tynan has been a managing member of High Ridge Capital LLC, an investment
advisory firm that manages several private equity funds that invest in insurance
companies and related financial services businesses, since 1999.
RANDALL J. WOLF will become a director of Zebu on completion of the
offering. Mr. Wolf has been a principal of Marsh & McLennan Capital, Inc., an
investment advisory firm that manages private equity funds that invest in
financial services companies and related financial services businesses. From
1993 to 1998, Mr. Wolf served in various positions in the Investment Banking
Division of Goldman, Sachs & Co., most recently as Vice President in the High
Technology Group.
Number, Term, Election and Compensation of Directors
Our bylaws provide that the board of directors will consist of between three
and seven directors, and currently fixes the number of directors at six until
changed by approval of our stockholders or a majority of the directors. Each
director is elected to serve until the next annual meeting of stockholders and
until the election and qualification of his or her successor or his or her
earlier resignation or removal. Our directors do not receive cash compensation
for their services as directors or members of committees of the board of
directors.
Board Committees
We have established an audit committee and a compensation committee
effective as of the closing of this offering. The audit committee will consist
of Messrs. Tynan and Wolf. The functions of the audit committee are to make
recommendations to the board of directors regarding the selection of independent
auditors, review the results and scope of the audit and other services provided
by our independent auditors and evaluate our internal controls. The compensation
committee will consist of Messrs. Tynan, Wolf and a third director to be
appointed to this committee prior to the closing of this offering. The functions
of the compensation committee are to review and approve the compensation and
benefits for our executive officers, administer our stock option and employee
stock purchase plans and make recommendations to the board of directors
regarding these matters.
Compensation Committee Interlocks and Insider Participation
As of the end of our last fiscal year, we did not have a compensation
committee, and all decisions regarding compensation of our executive officers
were made by the board of directors. No executive officer currently serves as a
member of the board of directors or compensation committee of any entity that
has one or more executive officers serving as a member of our board of directors
or our compensation committee, which was established during fiscal year 2000.
Executive Compensation and Management Changes
The following table sets forth information concerning all cash and non-cash
compensation awarded to, earned by or paid to the Chief Executive Officer and
the next most highly compensated executive officer who earned at least $100,000
for services rendered to our predecessor, SelectQuote, during the fiscal year
ended June 30, 1999.
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Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation
------------------------
Name and Principal Position Salary Bonus
- --------------------------- --------- ---------
<S> <C> <C>
Charan J. Singh
Chief Executive Officer................................... $180,000 --
David L. Paulsen
Chief Financial Officer................................... 202,500 --
</TABLE>
Compensation of Officers and Management Bonus Plan
In January 1998, we entered into an at-will employment agreement with Hernan
E. Reyes. In February 2000, we entered into at-will employment agreements with
Charan J. Singh, Steven H. Gerber, David L. Paulsen and Michael L. Feroah. These
agreements are automatically renewed for successive one-year periods unless
terminated by either party upon ninety days written notice. The agreements
provide for the minimum salaries and initial bonuses described below and set out
participation in benefit plans available to our executives. Upon termination of
employment without cause or after a change of control, except for a termination
for cause, the executives will receive a severance benefit equal to three years
salary, bonus earned for the position of the portion of the year before
termination, employee benefits for two years and full vesting of all options. No
severance is payable after termination for cause or upon death or disability,
but employee benefits are payable and all options fully vest upon a termination
upon death or disability. The minimum salaries and bonuses for each of these
employees for the fiscal year ending June 30, 2000, the aggregate number of
shares of common stock subject to options held by each of these employees and
the weighted average exercise prices of these options are listed below:
<TABLE>
<CAPTION>
Shares of
Common Weighted Average
Stock Subject to Exercise Price
Base Salary Guaranteed Bonus Options of Options
------------ ----------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Mr. Singh..................... $275,000 $100,000 731,080 $3.3865
Mr. Gerber.................... 275,000 100,000 699,060 5.3693
Mr. Paulsen................... 250,000 75,000 1,547,262 3.3610
Mr. Feroah.................... 250,000 75,000 716,807 5.5019
Mr. Reyes..................... 225,000 25,000 800,000 4.0531
--------- -------
Total....................... 4,494,209 $4.1422
========= =======
</TABLE>
Limitation of Liability and Indemnification Matters
Our restated certificate of incorporation and bylaws limit the liability of
directors to the maximum extent permitted by Delaware law. Delaware law provides
that directors of a corporation will not be personally liable for monetary
damages for breach of their fiduciary duties as directors, except liability for
any breach of their duty of loyalty to the corporation or its stockholders, acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, unlawful payments of dividends or unlawful stock
repurchases or redemptions, or any transaction from which the director derived
an improper personal benefit. This limitation of liability does not apply to
liabilities arising under the federal securities laws and does not affect the
availability of equitable remedies such as injunctive relief or rescission.
Our bylaws provide that we will indemnify our directors and officers and may
indemnify our employees and other agents to the fullest extent permitted by law.
The bylaws also permit us to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising
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out of his or her actions in that capacity, regardless of whether the bylaws
would permit indemnification. We have obtained officer and director liability
insurance with respect to liabilities arising out of specific matters, including
matters arising under the Securities Act.
We have entered into agreements with our directors and executive officers
that, among other things, will indemnify them for specific expenses, including
attorneys' fees, judgments, fines and approved settlement amounts incurred by
them in any action or proceeding, including any action by us or on our behalf,
arising out of the person's services as a director or officer of us or any of
our subsidiaries or any other company or enterprise to which the person provides
services at our request. We are obligated to advance expenses incurred by the
indemnified person prior to the conclusion of any such action or proceeding, in
the absence of a determination, as provided in the agreement, that
indemnification would not be permitted under applicable law. We believe that
these provisions and agreements are necessary, to attract and retain qualified
directors and officers. These agreements also provide officers with the same
limitation of liability for monetary damages that Delaware corporate law and our
restated certificate of incorporation provide to directors.
Benefit Plans
1999 STOCK OPTION PLAN
Our 1999 Stock Option Plan, or the 1999 Plan, which was approved by our
board of directors and stockholder in August 1999, provides for the issuance of
incentive stock options under the Internal Revenue Code of 1986 and nonstatutory
stock options to purchase common stock to employees, non-employee directors or
consultants. A total of 10,000,000 shares of common stock has been authorized
for issuance under the 1999 Plan. The fair market value of the common stock for
purposes of option grants is the closing price of the common stock on the
national securities exchange or market on which it is traded or quoted, or if it
is not traded or quoted on a national securities exchange or market, is
determined by the board of directors. In connection with the transactions in
which SelectTech was acquired by SelectQuote and SelectQuote became Zebu's
wholly owned subsidiary, we assumed all options outstanding under the SelectTech
1997 Stock Option Plan and the SelectQuote 1999 Stock Option Plan. The exercise
price of each assumed option and the number of shares subject to the Option Plan
were adjusted in accordance with the terms of the amended and restated agreement
and plan of reorganization. However, the vesting schedules of all assumed
options remained unchanged. Options currently outstanding generally vest
one-third at the end of the first year and then monthly on a pro rata basis over
the next two years. At January 31, 2000, 6,510,635 shares of common stock were
subject to outstanding options, and 3,489,365 shares of common stock were
available for future option grants, under the 1999 Plan.
1999 EMPLOYEE STOCK PURCHASE PLAN
Our 1999 Employee Stock Purchase Plan, or ESPP, was adopted by our board of
directors and our stockholder in August 1999 and will take effect upon the
closing of this offering. We have reserved 1,000,000 shares of common stock for
issuance under the ESPP. The ESPP is intended to qualify for favorable tax
treatment under Section 423 of the Internal Revenue Code. Generally, the ESPP
will be implemented through a series of offering periods of six months'
duration, with new offering periods commencing on the first trading day after
January 1 and July 1 of each year. However, the first offering period will
commence on the first trading day after the closing of the offering and will
expire on December 31, 2000. Generally, shares may be purchased at the end of
each offering period.
The ESPP will be administered by the compensation committee of our board of
directors. Each of our employees and each employee of any majority-owned
subsidiary of ours who has been employed continuously by us or a majority-owned
subsidiary for at least 5 days prior to commencement of the offering period and
who is customarily employed for more than 20 hours per week and more than five
months per year will be eligible to participate in the ESPP. The ESPP
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permits an eligible employee to purchase common stock through payroll
deductions, which may not exceed 10% of his or her compensation, at a price
equal to 85% of the lesser of the fair market value of the common stock on the
first business day of the offering period and the fair market value of the
common stock on the last business day of the purchase period. Employees may
terminate their participation in the ESPP at any time during the offering
period, but they may not change their level of participation in the ESPP at any
time during the offering period. Participation in the ESPP terminates
automatically on the participant's termination of employment with us.
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RELATED PARTY TRANSACTIONS
Shared Operations and Ownership
Prior to the acquisition of SelectTech by SelectQuote on December 23, 1999,
SelectQuote shared with SelectTech significant common management interests.
Charan J. Singh, SelectQuote's president and a director, also was chairman of
the board of directors of SelectTech. David L. Paulsen, SelectQuote's executive
vice president, was a director of SelectTech and served as its Chief Financial
Officer and Secretary. Immediately prior to SelectQuote's acquisition of
SelectTech, the directors and executive officers of SelectQuote collectively
owned 18% of SelectTech's outstanding equity securities, taking into account all
rights to acquire capital stock. Furthermore, SelectQuote shareholders held
approximately 64% of the issued and outstanding capital stock of SelectTech
prior to the acquisition. In addition, SelectQuote directly held 150,000 shares
of SelectTech Series A preferred stock, 67 shares of SelectTech common stock and
a promissory note convertible into approximately 120,000 shares of SelectTech
common stock.
In connection with the acquisition of SelectTech by SelectQuote, and the
related merger of SelectQuote with Zebu's wholly owned subsidiary, we issued
5,516,125 shares of our common stock in exchange for all of the outstanding
shares of capital stock of SelectTech, options under our 1999 Stock Option Plan
to purchase 3,388,822 shares of our common stock in substitution for outstanding
options to purchase SelectTech common stock, and $2.5 million principal of 12%
senior secured convertible debentures in exchange for like debentures issued by
SelectTech. We also issued 5,031,805 shares of our common stock and 2,028,850
shares of our convertible preferred stock in exchange for outstanding shares of
common stock and preferred stock of SelectQuote, and issued options under our
1999 Stock Option Plan to purchase 3,121,813 shares of our common stock in
substitution for outstanding options to purchase common stock of SelectQuote.
From SelectTech's formation in September 1995 until December 23, 1999,
SelectQuote provided SelectTech with operating support, including management and
administrative services (such as the services of Messrs. Singh and Paulsen),
telephone and office facilities and other miscellaneous items. SelectQuote
leased $38,000 of computer equipment to SelectTech under a 36-month capital
lease that expired in March 1999 at an implicit interest rate of 9.0%.
SelectQuote also charged SelectTech for services on a cost reimbursement basis.
Total fees for the services provided by SelectQuote were $338,393 in fiscal
1997, $527,009 in fiscal 1998, $708,132 in fiscal 1999, and $903,526 for the six
months ended December 31, 1999. These fees included sublease rental income of
$24,214 in fiscal 1997, $85,302 in fiscal 1998, $134,892 in fiscal 1999, and
$171,348 in the six months ended December 31, 1999. SelectQuote also provided a
substantial portion of SelectTech's working capital through equity investments,
loans and guaranties. See "Management's Discussion and Analysis of Financial
Condition--Liquidity and Capital Resources." All outstanding amounts due to
SelectQuote by SelectTech were forgiven and all equity interests of SelectTech
owned by SelectQuote were canceled in the merger in which SelectQuote acquired
SelectTech.
Research and Development Arrangements
Steven H. Gerber and Michael L. Feroah, two of our executive officers and
directors and former directors and executive officers of SelectTech, are the
sole shareholders of IIG. Effective as of June 1997, SelectTech entered into a
contracting relationship with IIG pursuant to which IIG performed substantially
all of the research and development and consulting work on behalf of SelectTech
until December 23, 1999. IIG utilizes a network of other companies as
subcontractors for the work. Messrs. Gerber and Feroah have an equity interest
in several of these subcontracting companies as well. Under these contracts, IIG
billed SelectTech $285,100, $544,700 and $1,010,300
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for fiscal years 1997, 1998 and 1999, respectively. We have assumed SelectTech's
contracts with IIG and outstanding payables of $779,044 at December 31, 1999 on
the acquisition of SelectTech. See "Business--Technology and Development."
Under written agreements with IIG, the various subcontracting companies and
their employees and consultants who performed work for SelectTech assigned all
of the work product and associated intellectual property to SelectTech. We
acquired these rights in the acquisition. However, we cannot assure you that we
will be able to enforce these assignments and our rights to the intellectual
property. In addition, some of the subcontracting companies, employees and
consultants are not U.S. residents and performed the work abroad. Enforcing our
rights against non-U.S. persons could be expensive and difficult. For more
information, please refer to "Risk Factors--We utilize substantial offshore
contract software programming and development services that we do not control."
Employment and Consulting Agreements
During fiscal years 1997, 1998 and 1999, IIG provided software programming
and technical services to SelectQuote to develop new software and modify
existing systems and databases. The amounts paid to IIG were $265,000, $327,000
and $116,000 in fiscal 1997, 1998 and 1999, respectively. During the same three
fiscal years, Mr. Gerber provided consulting services to SelectQuote as its
chief information officer through his personal consulting company and was paid
$130,000 in each of those years.
Equity Investments
On December 27, 1999, we sold 50,000 shares of Series D mandatorily
redeemable convertible preferred stock to High Ridge Capital Partners II, L.P.
for $5.0 million. In connection with this private placement, Steven J. Tynan, a
member of High Ridge, became a member of our board of directors.
In February 2000, we agreed to sell 2,041,845 shares of Series E mandatorily
redeemable convertible preferred stock to a group of accredited investors,
including High Ridge Capital Partners II, L.P. and several entities controlled
by Marsh & McLennan GP I, Inc. and Marsh & McLennan GP II, Inc., for an
aggregate purchase price of approximately $10.5 million. In connection with this
private placement, Randall J. Wolf, a member of Marsh & McLennan Capital, Inc.,
has agreed to become a member of our board of directors following the completion
of this offering.
We believe that the foregoing transactions were in our best interests. These
transactions were negotiated on an arm's length basis and entered into on terms
no less favorable to us than could have been obtained from unaffiliated third
parties and in connection with our bona fide business purposes. As a matter of
policy, all future transactions with related parties will be approved by a
majority of the independent and disinterested members of our Board of Directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 31, 2000, by: (1) each person known
to beneficially own more than 5% of our common stock; (2) each of our directors;
(3) each executive officer named in the summary compensation table; and (4) all
executive officers and directors as a group. All persons listed have sole voting
and investment power with respect to their shares unless otherwise indicated.
Unless indicated otherwise, the address of each person listed in the table is
c/o Zebu, 595 Market Street, 6th floor, San Francisco, California 94105.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to the securities. Shares of common stock issuable pursuant
to options, to the extent those options are currently exercisable or convertible
within 60 days of January 31, 2000, are treated as outstanding for computing the
percentage of the person holding those securities, but are not treated as
outstanding for computing the percentage of any other person. Unless otherwise
noted, each person or group identified possesses sole voting and investment
power with respect to shares, subject to applicable community property laws.
This table does not give effect to the pending sale of 2,032,136 shares of our
Series E preferred stock to High Ridge Capital Partners II, L.P. and several
entities controlled by Marsh & McLennan GP I, Inc. and Marsh & McLennan GP
II, Inc., which will close in March 2000.
<TABLE>
<CAPTION>
Common Stock
-----------------------------------------------------
Percent Ownership
Number of Shares --------------------------------
Name Beneficially Owned Before Offering After Offering
- ---- ------------------ --------------- --------------
<S> <C> <C> <C>
Five-Percent Stockholders
Edward and Rose Gamrin(1)............................ 1,817,271 13.3% %
High Ridge Capital Partners II, L.P.................. 1,111,111 8.2
20 Liberty Street
Chester, Connecticut 06412
Burton Petersen...................................... 704,256 5.2
340 Sundance Circle
Palm Desert, California 92211
Directors and Executive Officers
Charan J. Singh(2)................................... 2,149,997 15.6
Steven H. Gerber(3).................................. 1,302,867 9.5
Michael L. Feroah(4)................................. 1,291,699 9.5
Steven J. Tynan(5)................................... 1,111,111 8.2
c/o High Ridge Capital Partners II, L.P.
20 Liberty Street
Chester, Connecticut 06412
David L. Paulsen(6).................................. 931,352 6.6
All directors and executive officers as a group
(seven persons)(7)................................. 7,014,669 47.8
</TABLE>
- --------------------------
(1) Includes 4,000 shares held by the 1999 Irrevocable Trust for the Benefit of
Thomas Elias Gamrin, for which Edward and Rose Gamrin disclaim beneficial
ownership.
(2) Includes 97,826 shares held by Sylvia Hajek Singh and options to purchase
281,076 shares of our common stock which are exercisable within 60 days of
January 31, 2000.
(3) Includes 3,207 shares held by Brian Scott Gerber and 9,621 shares held by
Gerber minor children, for which Steven H. Gerber disclaims beneficial
ownership. Includes 8,505 shares of common stock held by Innovative
Information Group, Inc., of which Mr. Gerber is a director and shareholder.
Mr. Gerber disclaims beneficial ownership of the shares of common stock held
by IIG, except to the extent of his pecuniary interest therein. Also
includes options to purchase 20,452 shares of our common stock which are
exercisable within 60 days of January 31, 2000.
(4) Includes 8,505 shares of common stock held by Innovative Information
Group, Inc. of which Mr. Feroah is a director and shareholder. Mr. Feroah
disclaims beneficial ownership of the shares of common stock held by IIG
except to the extent of his pecuniary interest therein.
(5) All shares are owned by High Ridge Capital Partners II, L.P. Mr. Tynan is
president of the corporation that controls the general partner of High Ridge
Capital Partners II, L.P., and could be deemed to be the beneficial owner of
all of its shares. Mr. Tynan disclaims beneficial ownership of the shares of
common stock that it holds except to the extent of his pecuniary interest
therein.
(6) Includes options to purchase 478,615 shares of our common stock which are
exercisable within 60 days of January 31, 2000.
(7) Includes options to purchase 1,016,290 shares of our common stock which are
exercisable within 60 days of January 31, 2000.
66
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following description of our capital stock and provisions of our
restated certificate of incorporation and bylaws is a summary only and is not a
complete description. The descriptions of the common stock and preferred stock
reflect changes to our capital structure that will occur on or immediately prior
to the closing of the offering under the terms of our restated certificate of
incorporation, including the automatic conversion of all outstanding preferred
stock into common stock, assuming the conversion of all convertible debentures
into common stock, and including the deletion of references to Series A,
Series B, Series C, Series D and Series E preferred stock from our certificate
of incorporation.
Upon completion of the offering, our authorized capital stock will consist
of 100,000,000 shares of common stock, par value $0.01 per share, and 10,000,000
shares of preferred stock, par value $0.01 per share.
Common Stock
As of January 31, 2000, 10,497,974 shares of our common stock were
outstanding and held of record by 136 stockholders. Each holder of our common
stock is entitled to--
- one vote per share;
- dividends as may be declared by our board of directors out of funds
legally available for that purpose, subject to the rights of any preferred
stock that may be outstanding; and
- his, her or its pro rata share in any distribution of our assets after
payment or providing for the payment of liabilities and the liquidation
preference of any outstanding preferred stock in the event of liquidation.
Holders of common stock have no cumulative voting rights, preemptive rights
or redemption rights to purchase or subscribe for any shares of our common stock
or other securities. All the outstanding shares of common stock are fully paid
and nonassessable. As of January 31, 2000, options to purchase 6,510,635 shares
of common stock were outstanding, at a weighted average exercise price of $3.92
per share.
Preferred Stock
Our board of directors has the authority, subject to any limitations
prescribed by Delaware law, to issue shares of preferred stock in one or more
series and to fix and determine the relative rights and preferences of the
shares constituting any series to be established without any further vote or
action by the stockholders. Any shares of preferred stock so issued may have
priority over the common stock with respect to dividend, liquidation and other
rights. On the closing of the offering, no shares of preferred stock will be
outstanding. We have no current intention to issue any shares of preferred
stock.
The board of directors may authorize the issuance of preferred stock with
voting or conversion rights that could adversely affect the voting power or
other rights of the holders of common stock. Although the issuance of preferred
stock could provide flexibility in connection with possible acquisitions and
other corporate purposes, it could also, under some circumstances, have the
effect of delaying, deferring or preventing a change of control.
Antitakeover Effects of Provisions of our Restated Certificate of Incorporation
and Bylaws
Special meetings of the stockholders may be called only by a majority of the
entire board of directors, the Chairman of the board of directors, the Chief
Executive Officer or any individual holder of at least 25% of our outstanding
common stock. The bylaws provide that stockholders seeking to
67
<PAGE>
bring business before, or to nominate directors at, an annual meeting of
stockholders must provide timely notice in writing. To be timely, a
stockholder's notice must be received by our Secretary not less than 120
calendar days nor more than 150 calendar days before the date of our proxy
statement sent to stockholders for the prior year's annual meeting. The bylaws
also contain specific requirements for the form of a stockholder's notice. These
provisions may preclude or deter some stockholders from bringing matters before
the annual meeting or from making nominations of directors, and may have the
effect of delaying, deferring or preventing a change in control of our company.
Waiver of Delaware Antitakeover Statute
Section 203 of the DGCL generally prohibits a publicly held Delaware
corporation from engaging in an acquisition, asset sale or other transaction
resulting in a financial benefit to any person who, together with affiliates and
association, owns, or within three years, did own, 15% or more of a
corporation's voting stock. The prohibition continues for a period of three
years after the date of the transaction in which the person became an owner of
15% or more of the corporation's voting stock unless the business combination is
approved in a prescribed manner. The statute could prohibit or delay, defer or
prevent a change in control of our company. We have waived the provisions of
Section 203 in our certificate of incorporation.
Registration Rights
The registration rights agreement we have entered into with several of our
security holders, including High Ridge Capital Partners II, L.P. and, upon the
closing of the sale of Series E preferred stock, entities controlled by Marsh &
McLennan GP I, Inc. and Marsh & McLennan GP II, Inc., provides the security
holders with conditional rights to cause us to register the security holders'
shares of our common stock under the Securities Act. Under the terms of this
agreement, the security holders acting as a group, or High Ridge or the Marsh &
McLennan parties acting alone, may require us to use our diligent best efforts
to file a registration statement under the Securities Act, at our expense, with
respect to shares of common stock held by such security holders, High Ridge or
the Marsh & McLennan parties, as applicable. We are not required to effect more
than two demand registrations requested by the security holders or one demand
registration requested by High Ridge or the Marsh & McLennan parties. Also, if
we propose to register any of our securities under the Securities Act in a
secondary registration, the security holders, including High Ridge and the
Marsh & McLennan parties, may require us to include their shares of our common
stock in the registration, subject to any limitation set by the underwriters on
the number of shares included in the registration. The agreement also provides
that, following this offering, the security holders may require us to use our
best efforts to file registration statements on Form S-3, at their expense,
provided that the aggregate price to the public for each registration is not
less than $500,000. Such stockholders may assign their registration rights to
any person to whom it transfers at least 32,000 shares of our common stock. The
foregoing registration rights will terminate as to a specific stockholder if,
after the offering, the stockholder will own less than 2% of the shares of our
capital stock, on a fully diluted basis, and can sell all of its shares under
Rule 144 of the Securities Act of 1933, as amended, within a period 90 days. It
appears that few, if any, of the stockholders party to the agreement will retain
registration rights after the offering.
Pursuant to lockup agreements delivered to us by each of the security
holders, these security holders may make no demand for registration of the
shares subject to the registration rights agreement for 180 days following the
closing of this offering.
68
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
If our stockholders sell substantial amounts of our stock in the public
market following the offering, then the market price of our stock could fall.
After the offering, shares of our common stock will be outstanding,
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options or warrants. Of those shares, the shares
sold in the offering will be freely tradable, except for any shares purchased by
our "affiliates," as defined in Rule 144 under the Securities Act. The remaining
shares are "restricted securities," as that term is defined in Rule 144, and may
be sold in the public market only if registered or if they qualify for an
exemption from registration under Rule 144 or Rule 701, which rules are
summarized below. All of our officers and directors and almost all of our
stockholders owning more than 1% of outstanding securities prior to the offering
have signed lockup agreements pursuant to which they have agreed not to sell any
shares of common stock, or any securities convertible into or exercisable or
exchangeable for common stock, for 180 days after the offering without the prior
written consent of Deutsche Banc Securities Inc. Deutsche Banc Securities Inc.
may, in its sole discretion, release all or any portion of the shares subject to
the lockup agreements.
The following table depicts securities eligible for future sale:
<TABLE>
<CAPTION>
<S> <C>
Total shares outstanding....................................
Total restricted securities.................................
Shares that are freely tradable after the date of this
prospectus under Rule 144(k), subject to the 180-day
lockup agreement..........................................
Shares that are freely tradable 90 days after the date of
this prospectus under Rule 144 or Rule 701, subject to the
180-day lockup agreement..................................
Shares that are freely tradable 180 days after the date of
this prospectus under Rule 144 (subject, in some cases, to
volume limitations), under Rule 144(k) or pursuant to a
registration statement to register for resale shares of
common stock issued on exercise of stock options..........
</TABLE>
Following the offering, we intend to file a registration statement under the
Securities Act covering shares of common stock reserved for
issuance under our 1999 stock option plan and our employee stock purchase plan.
Upon expiration of the lockup agreements, at least shares of common
stock will be subject to vested options, based on options outstanding as of
January 31, 2000. The registration statement is expected to be filed and become
effective prior to expiration of the lockup agreements; accordingly, shares
registered under the registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market
immediately after the lockup agreements expire.
In general, Rule 144 provides that any person who has beneficially owned
shares for at least one year, including an affiliate, is generally entitled to
sell, within any three-month period, a number of shares that does not exceed the
greater of 1% of the shares of common stock then outstanding, which will be
approximately shares immediately after the offering, or the
reported average weekly trading volume of the common stock during the four
calendar weeks immediately preceding the date on which notice of the sale is
sent to the Commission. Sales under Rule 144 are subject to manner of sale
restrictions, notice requirements and availability of current public information
concerning us. A person who is not our affiliate and who has not been our
affiliate within three months prior to the sale generally may sell shares
without regard to the limitations of Rule 144, provided that the person has held
the shares for at least one year. Under Rule 144(k), a person who is not deemed
to have been our affiliate at any time during the 90 days preceding a
69
<PAGE>
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.
Any of our employees, directors, officers or consultants holding shares
purchased pursuant to a written compensatory plan or contract, including
options, entered into prior to the offering is entitled to rely on the resale
provisions of Rule 701, which permit nonaffiliates to sell shares without having
to comply with the public information, holding period, volume limitation or
notice requirements of Rule 144 and permit affiliates to sell their Rule 701
shares without having to comply with the holding period restrictions of
Rule 144, in each case beginning 90 days after the date of this prospectus.
REGISTRATION RIGHTS
After this offering, the holders of shares of our common stock,
or their transferees, will be entitled to certain rights with respect to the
registration of those shares under the Securities Act. See "Description of
Capital Stock--Registration Rights." After any registration of these shares,
these shares will become freely tradable without restriction under the
Securities Act. These sales could have a material adverse effect on the trading
price of our common stock.
70
<PAGE>
UNDERWRITING
Under the underwriting agreement dated the date of this prospectus, the
underwriters named below, through their representatives Deutsche Bank
Securities Inc., U.S. Bancorp Piper Jaffray Inc. and Cochran, Caronia Securities
LLC have severally agreed to purchase from us the following respective numbers
of shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus.
<TABLE>
<CAPTION>
Number
Underwriter of Shares
- ----------- ---------------
<S> <C>
Deutsche Bank Securities Inc...............................
U.S. Bancorp Piper Jaffray Inc.............................
Cochran, Caronia Securities LLC............................
-------
Total..................................................
=======
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the shares of common stock offered hereby are subject
to the terms and conditions set forth in the underwriting agreement. The
underwriters are obligated to purchase all of the shares of common stock offered
hereby, other than those covered by the over-allotment option described below,
if any of these shares are purchased.
We have been advised that the underwriters propose to offer the shares of
common stock to the public at the initial public offering price set forth on the
cover page of this prospectus and to dealers at a price that represents a
concession not in excess of $ per share under the public offering price. The
underwriters may allow, and these dealers may re-allow, a concession not in
excess of $ per share to other dealers. After the initial public offering, the
offering price and other selling terms may be changed by the representatives of
the underwriters.
We have granted to the underwriters an option, exercisable not later than
30 days after the date of this prospectus, to purchase up to additional
shares of common stock at the public offering price less the underwriting
discounts and commissions set forth on the cover page of this prospectus. The
underwriters may exercise this option only to cover over-allotments made in
connection with the sale of the common stock that we are offering in this
prospectus. To the extent that the underwriters exercise the option, each of the
underwriters will become obligated, subject to conditions, to purchase
approximately the same percentage of additional shares of common stock as the
number of shares of common stock to be purchased by it in the above table bears
to.
We will be obligated, under the option, to sell these shares to the
underwriters to the extent the option is exercised. If any additional shares of
common stock are purchased, the underwriters will offer additional shares on the
same terms as those on which the shares are being offered.
We have agreed to indemnify the underwriters with respect to certain
liabilities, including liabilities under the Securities Act.
Each of our officers and directors and certain of our stockholders has
agreed not to offer, sell, contract to sell or otherwise dispose of, or enter
into any transaction that is designed to, or could be expected to, result in the
disposition of any portion of, any common stock for a period of 180 days after
the date of this prospectus without the prior written consent of Deutsche Bank
Securities Inc. This consent may be given at any time without public notice. We
have entered into a similar agreement. When determining whether to consent to
any release of shares from these lockup agreements, Deutsche Bank
Securities Inc. will consider the reason for requesting the release, the number
of shares for which the release is being requested and the market conditions
prevailing at the time.
71
<PAGE>
The representatives of the underwriters have advised us that the
underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
In order to facilitate the offering of the common stock, the underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
market price of the common stock. Specifically, the underwriters may over-allot
shares of the common stock in connection with this offering, thus creating a
short position in the common stock for their own account. Additionally, to cover
these over-allotments or to stabilize the market price of the common stock, the
underwriters may bid for, and purchase, shares of the common stock in the open
market. Finally, the representatives, on behalf of the underwriters, also may
reclaim selling concessions allowed to an underwriter or dealer if the
underwriting syndicate repurchases shares distributed by that underwriter or
dealer. Any of these activities may maintain the market price of the common
stock at a level above that which might otherwise prevail in the open market.
The underwriters are not required to engage in these activities and, if
commenced, may end any of these activities at any time.
Cochran, Caronia Securities LLC, one of the representatives of the
underwriters, was organized and registered as a broker-dealer in July 1998.
Since July 1998, Cochran Caronia has acted as a syndicate member in several
public offerings of equity securities; however, it has not acted as a lead or
co-manager prior to this offering. Cochran Caronia does not have any material
relationship with us or any of our officers, directors or other controlling
persons, except with respect to (1) investment banking services it rendered to
SelectTech in connection with the acquisition and a subsequent sale of our
preferred stock, (2) investment banking services rendered to us in connection
with the sale of Series D preferred stock to High Ridge Capital Partners II,
L.P. and Series E preferred stock sold to High Ridge Capital Partners II, L.P.
and certain limited partnerships of which Marsh & McLennan GP I, Inc. and
Marsh & McLennan GP II, Inc. are general partner, and (3) its contractual
relationship with us under the underwriting agreement entered into in connection
with this offering.
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to shares for our employees, family members of
employees and other third parties. The number of shares of common stock
available for sale to the general public will be reduced to the extent these
reserved shares are purchased. Any reserved shares that are not purchased will
be offered by the underwriters to the general public on the same basis as the
other shares offered by this prospectus.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $ .
Pricing of this Offering
Prior to this offering, there has been no public market for our common
stock. Consequently, the initial public offering price for our common stock will
be determined by negotiation among us and the representatives of the
underwriters. Among the factors to be considered in determining the public
offering price will be:
- prevailing market conditions;
- our results of operations in recent periods;
- the present stage of our development;
- the market capitalizations and stages of development of other companies
that we and the representatives of the underwriters believe to be
comparable to us; and
- estimates of our business potential.
The estimated initial public offering price range set forth on the cover of
this preliminary prospectus is subject to change as a result of market
conditions and other factors.
72
<PAGE>
LEGAL MATTERS
The validity of the common stock being offered hereby will be passed upon
for Zebu by McCutchen, Doyle, Brown & Enersen, LLP, Palo Alto, California.
McCutchen, Doyle, Brown & Enersen, LLP has irrevocably committed to purchase
9,708 shares of our Series E preferred stock in March 2000. Pillsbury Madison &
Sutro LLP, San Francisco, California, is acting as counsel for the underwriters
in connection with certain legal matters relating to the shares of common stock
offered by this prospectus. Chapin Shea McNitt & Carter advises us with respect
to insurance licensing and regulatory matters and has reviewed such statements
in this prospectus.
EXPERTS
The consolidated financial statements of Zebu included in this prospectus
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report appearing herein, and are included in reliance upon the report of
such firm given upon their authority as experts in accounting and auditing.
The financial statements of SelectTech included in this prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the reports of such
firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We have filed with the SEC a registration statement on Form S-1 with respect
to the common stock in this offering. This prospectus, which constitutes a part
of the registration statement, does not contain all the information set forth in
the registration statement. For further information about us and the shares of
common stock to be sold in the offering, please refer to the registration
statement and the exhibits and schedules thereto.
The registration statement and exhibits may be inspected, without charge,
and copies may be obtained at prescribed rates, at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The registration statement and other information filed with the
SEC is also available at the web site maintained by the SEC at
http://www.sec.gov.
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<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
Zebu Consolidated Financial Statements (formerly SelectQuote
Insurance Services)
Independent Auditors' Report................................ 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-7
SelectTech Financial Statements
Independent Auditors' Report................................ F-25
Balance Sheets.............................................. F-26
Statements of Operations.................................... F-27
Statements of Shareholders' Equity (Deficit)................ F-28
Statements of Cash Flows.................................... F-29
Notes to Financial Statements............................... F-30
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors
of Zebu:
We have audited the accompanying consolidated balance sheets of Zebu and its
subsidiary, SelectQuote Insurance Services, as of June 30, 1998 and 1999, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1999. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Zebu and its subsidiary as of
June 30, 1998 and 1999, and the results of their operations and their cash flows
for each of the three years in the period ended June 30, 1999 in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
February 29, 2000
F-2
<PAGE>
ZEBU
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
Stockholders'
June 30, Equity as of
-------------------------- December 31, December 31,
1998 1999 1999 1999
----------- ------------ ------------- -------------
(Unaudited)
<S> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $1,266,929 $ 789,920 $ 2,845,477
Investments available for sale at fair value.............. 300,000 900,000 --
Commissions and accounts receivable--net of allowance of
$481,585, $542,412 and $635,214, respectively............ 4,231,821 5,325,855 6,016,001
Notes receivable from SelectTech.......................... 200,000 450,000 --
Other receivables from SelectTech......................... 370,174 808,109 --
Other current assets...................................... 314,050 555,181 1,486,443
---------- ----------- -----------
Total current assets.................................... 6,682,974 8,829,065 10,347,921
---------- ----------- -----------
LONG-TERM ASSETS:
Property and equipment, net............................... 1,321,760 1,128,872 1,772,995
Investment in SelectTech.................................. 250,000 250,000 --
Goodwill and other intangible assets...................... -- -- 63,009,377
---------- ----------- -----------
Total long-term assets.................................. 1,571,760 1,378,872 64,782,372
---------- ----------- -----------
TOTAL ASSETS................................................ $8,254,734 $10,207,937 $75,130,293
========== =========== ===========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $1,344,022 $ 912,470 $ 1,793,527
Accrued compensation and benefits......................... 388,070 506,650 690,391
Deferred tax liability.................................... 953,747 1,301,804 497,097
Current portion of deferred rent.......................... 40,050 -- --
Current portion of capital lease obligations.............. 97,526 127,080 125,542
Payables to related party................................. -- -- 779,044
Current portion of deferred liability..................... -- -- 287,189
Senior secured convertible debentures..................... -- -- 1,900,000
---------- ----------- -----------
Total current liabilities............................... 2,823,415 2,848,004 6,072,790
---------- ----------- -----------
LONG-TERM LIABILITIES:
Deferred compensation..................................... 82,195 64,195 40,195
Deferred rent, less current............................... -- 8,404 17,988
Capital lease obligations, less current................... 157,146 145,826 90,589
Deferred liability, less current.......................... -- -- 695,868
---------- ----------- -----------
Total long-term liabilities............................. 239,341 218,425 844,640
---------- ----------- -----------
Total liabilities....................................... 3,062,756 3,066,429 6,917,430
---------- ----------- -----------
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK, Series
D, $0.01 par value, 50,000 shares authorized, issued and
outstanding (aggregate liquidation preference $5,000,000)
(None pro forma).......................................... -- -- 4,743,776 --
---------- ----------- ----------- -----------
COMMITMENTS AND CONTINGENCIES (Note 10)
STOCKHOLDERS' EQUITY:
Convertible Series A preferred stock, $.01 par value,
2,500,000 shares authorized, 1,137,235 shares issued and
outstanding at June 30, 1998 and 1999 and December 31,
1999 (aggregate liquidation preference $170,585) (None
pro forma)............................................... 11,372 11,372 11,372 --
Convertible Series B preferred stock, $.01 par value,
1,250,000 shares authorized, 821,690 shares issued and
outstanding at June 30, 1998 and 1999 and December 31,
1999 (aggregate liquidation preference $501,231) (None
pro forma)............................................... 8,217 8,217 8,217 --
Convertible Series C preferred stock, $.01 par value,
750,000 shares authorized, 69,925 shares issued and
outstanding at June 30, 1998 and 1999 and December 31,
1999 (aggregate liquidation preference $85,309) (None pro
forma)................................................... 699 699 699 --
Preferred stock, $.01 par value, 5,450,000 shares
authorized, no shares issued and outstanding............. -- -- -- --
Common stock, $.01 par value: 50,000,000 shares
authorized; issued and outstanding: 4,981,849 (June 30,
1998 and 1999), 10,497,974 (December 31,
1999--unaudited), 13,637,935 (pro forma)................. 49,818 49,818 104,980 136,379
Additional capital........................................ 1,766,585 1,766,585 64,649,491 69,382,156
Deferred stock compensation............................... -- -- (861,772) (861,772)
Retained earnings (deficit)............................... 3,355,287 5,304,817 (443,900) (443,900)
---------- ----------- ----------- -----------
Total stockholders' equity.............................. 5,191,978 7,141,508 63,469,087 68,212,863
---------- ----------- ----------- -----------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK AND STOCKHOLDERS' EQUITY.................. $8,254,734 $10,207,937 $75,130,293 $75,130,293
========== =========== =========== ===========
</TABLE>
See notes to the consolidated financial statements.
F-3
<PAGE>
ZEBU
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Six Months Ended
For the Years Ended June 30, December 31,
------------------------------------------ ---------------------------
1997 1998 1999 1998 1999
------------ ------------ ------------ ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUE:
Commission revenue, net.......................... $11,821,938 $15,306,106 $15,559,257 $7,151,136 $ 7,702,819
Production bonuses............................... 2,999,533 3,686,287 4,381,300 2,196,070 2,608,278
Transactional services........................... -- -- -- -- 16,969
Consulting services.............................. -- -- -- -- 10,786
License and maintenance.......................... -- -- -- -- 4,818
----------- ----------- ----------- ---------- -----------
Total revenue.................................. 14,821,471 18,992,393 19,940,557 9,347,206 10,343,670
----------- ----------- ----------- ---------- -----------
OPERATING EXPENSES:
Marketing and sales.............................. 13,483,732 12,709,450 13,866,680 7,040,905 8,151,458
General and administrative....................... 2,054,056 2,176,728 2,615,852 1,297,110 2,163,299
General and administrative expense reimbursement
from SelectTech................................. (338,393) (527,009) (708,132) (294,145) (903,526)
Software development and consulting services..... -- -- -- -- 107,744
Amortization of goodwill and other intangible
assets.......................................... -- -- -- -- 486,623
Stock-based compensation(*)...................... -- -- -- -- 1,324,951
----------- ----------- ----------- ---------- -----------
Total operating expenses....................... 15,199,395 14,359,169 15,774,400 8,043,870 11,330,549
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) FROM OPERATIONS...................... (377,924) 4,633,224 4,166,157 1,303,336 (986,879)
INTEREST INCOME, NET............................... 14,580 11,563 42,246 20,144 39,839
OTHER INCOME (EXPENSE), NET........................ (28,434) 36,469 4,962 4,441 1,230
----------- ----------- ----------- ---------- -----------
INCOME (LOSS) BEFORE INCOME TAXES.................. (391,778) 4,681,256 4,213,365 1,327,921 (945,810)
INCOME TAX EXPENSE (BENEFIT)....................... (162,410) 1,863,003 1,685,113 552,277 (375,862)
----------- ----------- ----------- ---------- -----------
NET INCOME (LOSS).................................. $ (229,368) $ 2,818,253 $ 2,528,252 $ 775,644 $ (569,948)
=========== =========== =========== ========== ===========
INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS
(Note 14)........................................ $ (429,173) $ 2,657,028 $ 2,328,447 $ 652,998 $(5,654,014)
=========== =========== =========== ========== ===========
NET INCOME (LOSS) PER COMMON SHARE:................
Basic............................................ $ (0.09) $ 0.53 $ 0.47 $ 0.13 $ (1.08)
Diluted.......................................... $ (0.09) $ 0.40 $ 0.36 $ 0.11 $ (1.08)
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:........
Basic............................................ 4,981,849 4,981,849 4,981,849 4,981,849 5,221,681
Diluted.......................................... 4,981,849 7,010,699 7,010,699 7,010,699 5,221,681
PRO FORMA DILUTED NET INCOME (LOSS) PER COMMON
SHARE (UNAUDITED)................................ $ (1.74) $ (1.12)
=========== ===========
SHARES USED TO COMPUTE PRO FORMA DILUTED NET INCOME
(LOSS) PER COMMON SHARE (UNAUDITED).............. 12,526,824 12,575,133
=========== ===========
</TABLE>
(*) Stock-based compensation:
<TABLE>
<S> <C> <C> <C> <C> <C>
Marketing and sales.............................. -- -- -- -- $ 680,483
General and administrative....................... -- -- -- -- 644,468
----------- ----------- ----------- ---------- -----------
$ -- $ -- $ -- $ -- $ 1,324,951
=========== =========== =========== ========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ZEBU
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Common Stock
------------------------- Preferred Stock
--------------------- Deferred Retained
Par Value Par Value Additional Stock Earnings
Shares Amount Shares Amount Capital Compensation (Deficit)
----------- ----------- --------- --------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 1, 1996.... 4,981,849 $ 49,818 2,028,892 $ 20,288 $ 1,766,585 $ -- $ 1,791,856
NET LOSS................. (229,368)
CASH DIVIDENDS PAID...... (578,727)
---------- ---------- --------- -------- ----------- --------- -----------
BALANCE, JUNE 30, 1997... 4,981,849 49,818 2,028,892 20,288 1,766,585 -- 983,761
NET INCOME............... 2,818,253
CASH DIVIDENDS PAID...... (446,727)
---------- ---------- --------- -------- ----------- --------- -----------
BALANCE, JUNE 30, 1998... 4,981,849 49,818 2,028,892 20,288 1,766,585 -- 3,355,287
NET INCOME............... 2,528,252
CASH DIVIDENDS PAID...... (578,722)
---------- ---------- --------- -------- ----------- --------- -----------
BALANCE, JUNE 30, 1999... 4,981,849 49,818 2,028,892 20,288 1,766,585 -- 5,304,817
SHARES AND OPTIONS ISSUED
IN CONNECTION WITH
SELECTTECH ACQUISITION
(Unaudited)............ 5,516,125 55,162 57,882,906
NET LOSS (Unaudited)..... (569,948)
DEFERRED STOCK
COMPENSATION
(Unaudited)............ (861,772)
VALUE OF PREFERRED STOCK
BENEFICIAL CONVERSION
FEATURE (unaudited).... 5,000,000 (5,000,000)
CASH DIVIDENDS PAID
(Unaudited)............ (178,769)
---------- ---------- --------- -------- ----------- --------- -----------
BALANCE, DECEMBER 31,
1999 (Unaudited)....... 10,497,974 $ 104,980 2,028,892 $ 20,288 $64,649,491 $(861,772) $ (443,900)
========== ========== ========= ======== =========== ========= ===========
<CAPTION>
Total
Stockholders'
Equity
-------------
<S> <C>
BALANCE, JULY 1, 1996.... $ 3,628,547
NET LOSS................. (229,368)
CASH DIVIDENDS PAID...... (578,727)
-----------
BALANCE, JUNE 30, 1997... 2,820,452
NET INCOME............... 2,818,253
CASH DIVIDENDS PAID...... (446,727)
-----------
BALANCE, JUNE 30, 1998... 5,191,978
NET INCOME............... 2,528,252
CASH DIVIDENDS PAID...... (578,722)
-----------
BALANCE, JUNE 30, 1999... 7,141,508
SHARES AND OPTIONS ISSUED
IN CONNECTION WITH
SELECTTECH ACQUISITION
(Unaudited)............ 57,938,068
NET LOSS (Unaudited)..... (569,948)
DEFERRED STOCK
COMPENSATION
(Unaudited)............ (861,772)
VALUE OF PREFERRED STOCK
BENEFICIAL CONVERSION
FEATURE (unaudited).... --
CASH DIVIDENDS PAID
(Unaudited)............ (178,769)
-----------
BALANCE, DECEMBER 31,
1999 (Unaudited)....... $63,469,087
===========
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ZEBU
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
For the Years Ended June 30, December 31,
--------------------------------------- --------------------------
1997 1998 1999 1998 1999
----------- ----------- ----------- ----------- ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ (229,368) $2,818,253 $2,528,252 $ 775,644 $ (569,948)
Adjustments to reconcile net income (loss) to cash
provided by (used in) operating activities:
Depreciation....................................... 501,535 559,101 590,553 292,602 308,410
Amortization of goodwill and intangibles........... -- -- -- -- 486,623
Non-cash stock compensation........................ -- -- -- -- 1,324,951
Loss from SelectTech stock......................... 87,132 -- -- -- --
Deferred tax liability............................. 169,961 (31,556) 348,057 59,888 (804,707)
Changes in operating assets and liabilities:
Commissions and accounts receivable (net).......... (1,529,073) (544,983) (1,094,034) (245,037) (151,526)
Other receivables from SelectTech.................. (119,109) (251,065) (437,935) (249,539) (865,843)
Other.............................................. (100,361) (5,790) (241,131) (69,053) (1,207,399)
Accounts payable and accrued expenses.............. 509,986 (175,717) (431,552) (211,849) 367,723
Accrued compensation and benefits.................. 101,796 116,828 118,580 (17,648) 183,741
Deferred compensation.............................. (4,000) (12,000) (18,000) 6,000 (24,000)
Deferred rent...................................... (13,353) (28,446) (31,646) (19,256) 9,584
----------- ---------- ---------- ---------- -----------
Net cash flow provided by (used in) operating
activities...................................... (624,854) 2,444,625 1,331,144 321,752 (942,391)
----------- ---------- ---------- ---------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Property and equipment purchased................... (653,866) (327,074) (271,811) (156,490) (610,186)
Purchases of investments........................... (300,000) (800,000) (1,100,000) -- --
Sales of investments............................... 1,900,000 600,000 500,000 -- 900,000
Investment in SelectTech........................... -- (250,000) -- -- --
Cash acquired in SelectTech acquisition............ -- -- -- -- 56,266
Loans to SelectTech................................ (200,000) -- (250,000) -- (500,000)
----------- ---------- ---------- ---------- -----------
Net cash flow provided by (used in) investing
activities...................................... 746,134 (777,074) (1,121,811) (156,490) (153,920)
----------- ---------- ---------- ---------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds (repayments) of note payable to insurance
company............................................. 300,000 (300,000) -- -- --
Repayment of senior secured convertible debentures... -- -- -- -- (1,350,000)
Capital lease obligations repaid..................... (93,496) (92,442) (107,620) (48,050) (63,139)
Issuance of Series D preferred stock (net of issuance
costs).............................................. -- -- -- -- 4,743,776
Dividends paid....................................... (578,727) (446,727) (578,722) (312,102) (178,769)
----------- ---------- ---------- ---------- -----------
Net cash flow provided by (used in) financing
activities...................................... (372,223) (839,169) (686,342) (360,152) 3,151,868
----------- ---------- ---------- ---------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . (250,943) 828,382 (477,009) (194,890) 2,055,557
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR........... 689,490 438,547 1,266,929 1,266,929 789,920
----------- ---------- ---------- ---------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR................. $ 438,547 $1,266,929 $ 789,920 $1,072,039 $ 2,845,477
=========== ========== ========== ========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:......
Cash paid for interest expense....................... $ 62,472 $ 63,589 $ 33,806 $ 25,675 $ 6,974
Cash paid for income taxes........................... $ 499,182 $1,737,445 $1,387,850 $ 257,800 $ 800
NONCASH INVESTING AND FINANCING ACTIVITY:
Purchase of equipment under capital leases........... $ 51,737 $ -- $ 125,854 $ -- $ --
Issuance of common stock in SelectTech acquisition... $50,000,000
Value of SelectTech options assumed.................. $ 5,744,000
Assumption of liabilities of SelectTech.............. $ 7,209,000
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
1. DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS--Zebu (the "Company"), was incorporated in Delaware
on August 18, 1999 as a holding company for SelectQuote Insurance Services
("SelectQuote"). SelectQuote commenced its activities in July 1984 as an
independent insurance agency. Select Quote sells term life insurance through the
use of direct-response advertising, the internet, mail techniques and toll-free
telephone lines. Customers are provided with a free quote comparing rates from a
variety of insurance companies. SelectQuote relies on a combination of
proprietary and commercially available software to perform its quote service and
to assist in all phases of policy issuance and service.
On August 17, 1999, SelectQuote signed a definitive agreement to acquire
SelectTech, a company that develops software for the insurance industry and
provides related computer consulting. On December 23, 1999, SelectQuote acquired
and merged with SelectTech. Subsequent to the merger, the Company continues to
operate under the tradenames "SelectQuote Insurance Services" and "SelectTech."
The Company's board of directors approved an exchange of 3.286852 Company
shares for each common and preferred share of SelectQuote. Accordingly, all
historical financial information has been restated as if the exchange had been
in effect for all periods presented.
The accompanying consolidated financial statements reflect the combination
of Zebu and SelectQuote at the historical cost of SelectQuote. The combination
is shown retroactively as if it had occurred at the beginning of the earliest
period presented. The consolidated financial statements reflect the operating
results of SelectQuote for all periods presented and the operating results of
SelectTech for the period from December 23, 1999 through December 31, 1999.
2. SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION--All material intercompany transactions and balances have been
eliminated in consolidation.
CASH AND CASH EQUIVALENTS--The Company considers all highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents.
INVESTMENTS--The Company accounts for its short-term investments under
Statement of Financial Accounting Standards ("SFAS") No. 115, ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES. SFAS No. 115 requires the
classification of investments in debt and equity securities with readily
determined fair values as "held-to-maturity," "available-for-sale," or
"trading." Management determines the appropriate classification of its debt
securities at the time of purchase and reevaluates such designation as of each
balance sheet date. The Company's debt securities are classified as
available-for-sale and are carried at fair value based on quoted market prices,
with unrealized gains and losses, if material, reported as a component of other
comprehensive income (loss) in stockholders' equity. The difference between cost
and fair value of the Company's debt securities was not material at June 30,
1999 and 1998. The cost of securities sold is based on the specific
identification method.
F-7
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
PROPERTY AND EQUIPMENT are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
range generally from three to ten years. Amortization of leasehold improvements
is computed using the straight-line method over the shorter of their estimated
useful life or the term of the lease.
INVESTMENT IN SELECTTECH represents investment in SelectTech's mandatorily
redeemable convertible Series A preferred stock purchased in April 1998, and is
accounted for by the cost method.
Prior to April 1997, the Company owned 50% of SelectTech. In April 1997,
SelectTech changed its status from a limited liability company to a C
corporation. The Board of Directors subsequently approved the payment of a
dividend-in-kind of all the Company's shares of SelectTech stock, which were
written down to an estimated fair value of $0. Consequently, the Company
recorded a realized loss of $87,132. See Note 3 regarding the SelectTech
acquisition.
SOFTWARE DEVELOPMENT COSTS--Costs for the development of new SelectTech
software products and substantial enhancements to existing software products are
expensed as incurred until technological feasibility has been established, at
which time any additional costs would be capitalized in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 86, COMPUTER SOFTWARE
TO BE SOLD, LEASED OR OTHERWISE MARKETED. The costs to develop such software
have not been capitalized as SelectTech generally releases the software once
technological feasibility has been established, and subsequent improvement costs
have not been significant.
Software development costs for SelectQuote software are reported in
accordance with American Institute of Certified Public Accountants ("AICPA")
Statement of Position ("SOP") 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER
SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE.
REVENUE RECOGNITION--The Company's primary revenue source is commissions
from the sale of term life insurance. Such commissions, which are based on a
percentage of the premiums, are significantly higher in the first year of a
policy compared with subsequent periods. In addition, the Company receives
production bonuses from certain insurance companies for exceeding certain target
levels during a specified bonus period.
The Company recognizes annual first-year commissions as revenues when the
policies have been approved by an insurance company underwriter and an initial
premium payment (which may be annual, semiannual, quarterly or monthly) has been
made by the policyholder. Revenues for renewal commissions and production
bonuses are recognized when SelectQuote receives notification from the insurance
companies that such commissions have been earned. An allowance is provided for
estimated first-year and renewal commissions that will not be received due to
nonpayment of premiums and policy cancellations by the policyholder (see
Note 4).
With the acquisition of SelectTech, the Company recognizes software related
revenue in accordance with SOP 97-2, SOFTWARE REVENUE RECOGNITION as amended by
Statement of Position 98-4 ("SOP 98-4"). Additionally, the AICPA issued SOP 98-9
in December 1998, which provides
F-8
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
certain amendments to SOP 97-2, and was effective for transactions entered into
by SelectTech beginning July 1, 1999. Adoption of these amendments did not have
a material impact on financial position, results of operations or cash flows.
Software license revenue is recognized upon meeting each of the following
criteria: execution of a written license agreement or contract; delivery and
implementation of software; the license fee is fixed and determinable;
collectibility of the proceeds is assessed as being probable; and vendor
specific objective evidence exists to allocate the total fee to elements of the
arrangement. Vendor-specific objective evidence is based on the price generally
charged when an element is sold separately, or if not yet sold separately, is
established by authorized management. All elements of each order are valued at
the time of revenue recognition.
The portion of revenues from new license agreements which relate to
SelectTech's obligations to provide customer support are deferred and recognized
ratably over the contract support period, which is generally one to four years.
Software maintenance contracts are renewable on an annual basis. Revenues from
maintenance contract renewals are deferred and recognized ratably over the terms
of the agreements.
Revenues from transactional services, consulting and other services are
recognized as the related services are provided or as the milestones are
completed.
CONCENTRATIONS OF CREDIT RISK--As of June 30, 1998, four insurance carriers
accounted for 16%, 15%, 13%, and 13%, respectively, of total commissions and
accounts receivable. As of June 30, 1999, three insurance carriers accounted for
28%, 13%, and 10%, respectively, of total commissions receivable. As of
December 31, 1999, four insurance carriers accounted for 21%, 20%, 11% and 11%,
respectively, of total commissions and accounts receivable.
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of investments in fixed income
securities and commissions receivable. The Company sells its products and
services to companies in the insurance industry and generally does not require
its customers to provide collateral to support accounts receivable.
IMPAIRMENT OF 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.
ADVERTISING EXPENSES--Direct costs related to marketing and advertising the
Company's product are expensed in the periods incurred. Advertising expenses
were $5,672,556, $3,310,103 and $3,099,351 for 1997, 1998 and 1999,
respectively, and $1,793,424 and $1,849,214 for the six months ended
December 31, 1998 and 1999, respectively.
NET INCOME (LOSS) PER COMMON SHARE--Basic income (loss) per share excludes
dilution and is computed by dividing net income (loss) less preferred dividends
by the weighted-average number
F-9
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
of common shares outstanding for the period. Diluted income (loss) per share
reflects the potential dilution that could occur if the outstanding stock
options, preferred stock and convertible debentures are converted into common
stock. Common share equivalents are excluded from the computation in loss
periods as their effect would be antidilutive.
PRO FORMA NET INCOME (LOSS) PER COMMON SHARE (UNAUDITED)--Unaudited pro
forma net loss per common share for the year ended June 30, 1999 and six months
ended December 31, 1999 included in the statement of operations is computed
using the weighted average number of common shares outstanding, adjusted to
include the pro forma effects of the SelectTech acquisition and the conversion
of Series A, B, C and D convertible preferred stock into common stock as if such
conversion had occurred on July 1, 1998 for the year ended June 30, 1999 and on
July 1, 1999 for the six months ended December 31, 1999, or at the date of
original issuance, if later.
PRO FORMA STOCKHOLDERS' EQUITY (UNAUDITED)--Effective upon the closing of
the Company's proposed initial public offering, subject to certain conditions as
described in Note 11, the outstanding shares of all series of convertible
preferred stock will automatically convert into 3,139,961 shares of common
stock. The unaudited pro forma amounts included on the balance sheet reflect
these conversions as if they had occurred on December 31, 1999.
STOCK-BASED COMPENSATION--The Company accounts for stock-based employee
compensation using the intrinsic value method prescribed in Accounting
Principles Board Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO
EMPLOYEES. The Company reports non-employee stock-based compensation in
accordance with SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION.
COMPREHENSIVE INCOME--There are no differences between comprehensive income
and net income as reported in the Company's statements of operations.
FINANCIAL INSTRUMENTS--The fair value of financial instruments, principally
cash, receivables and accounts payable approximate their June 30, 1998 and 1999
carrying values because such items are primarily short-term in nature.
INCOME TAXES--The Company records income taxes using the asset and liability
method which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating future tax
consequences, generally all expected future events other than enactments or
changes in the tax law or rates are considered.
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES--SelectTech operates in the
software industry, and accordingly, can be affected by a variety of factors. For
example, management of the Company believes that changes in any of the following
areas could have a significant negative effect on the Company's future financial
position, results of operations and cash flows: demand for performance
availability and management software solutions; new product introductions by
competitors; development of distribution channels; ability to implement and
expand operational customer support and financial control systems to manage
rapid growth, both domestically and internationally; the hiring, training and
retention of key employees; fundamental changes in technology underlying
software products; litigation or other claims against the Company.
F-10
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
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
disclosures 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 amounts could differ from those estimates.
SEGMENT INFORMATION--The Company has adopted the provisions of SFAS
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION.
SFAS No. 131 establishes standards for the reporting by public business
enterprises of information about operating segments, products and services,
geographic areas, and major customers.
Prior to the merger the Company operated in a single industry segment, sales
of term life insurance policies. Subsequent to the merger, the Company may
operate in more than one segment. The operations, tangible assets and capital
expenditures of SelectTech are not significant from the date of acquisition to
December 31, 1999. All of the Company's revenues are received from customers
based primarily in the United States. See Note 15 for information on major
customers.
NEW ACCOUNTING PRONOUNCEMENT--SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. Under SFAS No. 133,
certain contracts that were not formerly considered derivatives may now meet the
definition of a derivative. This Statement, as amended, is effective for fiscal
years beginning after June 15, 2000. The Company has not yet evaluated the
impact of this Statement.
3. SELECTTECH ACQUISITION (UNAUDITED)
On December 23, 1999, SelectQuote acquired all of the outstanding shares and
options of SelectTech in exchange for 5,516,125 shares of the Company's common
stock. The acquisition has been accounted for under the purchase method of
accounting.
Acquisition costs and the preliminary determination of the unallocated
excess of acquisition costs over net assets acquired are set forth below:
<TABLE>
<S> <C>
Value of SelectTech stock acquired in the acquisition....... $50,000,000
Value of SelectTech options assumed......................... 5,744,000
Transaction costs........................................... 543,000
-----------
Purchase price.............................................. 56,287,000
Estimated fair value of net liabilities acquired............ 7,209,000
-----------
Purchase price including net liabilities acquired........... $63,496,000
===========
</TABLE>
The fair value of SelectTech acquired in the transaction consists of
$7,209,000 in net liabilities assumed and $63,496,000 in intangible assets,
including purchased software of $6,170,000,
F-11
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
3. SELECTTECH ACQUISITION (UNAUDITED) (Continued)
assembled workforce of $864,000, customer list of $75,000, and goodwill of
$56,387,000. The acquired intangible assets are being amortized over their
estimated useful lives of two to three years.
The preliminary allocation of the purchase price is based on current
information and should not materially differ from the final determination.
The following pro forma results of operations reflect the combined results
of the Company and SelectTech for the year ended June 30, 1999 and for the six
months ended December 31, 1999 and have been prepared as though the entities had
been combined as of July 1, 1998. All intercompany accounts and balances have
been eliminated.
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
June 30, December 31,
1999 1999
------------ -------------
(unaudited)
<S> <C> <C>
Revenues........................................ $ 22,823,334 $ 11,307,134
Net loss........................................ $(21,827,422) $(14,032,294)
Net loss per share.............................. $ (2.10) $ (1.82)
Shares used in computing net loss per share..... 10,497,974 10,497,974
</TABLE>
4. COMMISSIONS AND ACCOUNTS RECEIVABLE, NET
Commissions and accounts receivable, net, consists of the following:
<TABLE>
<CAPTION>
June 30,
------------------------- December 31,
1998 1999 1999
----------- ----------- -------------
<S> <C> <C> <C>
Commissions receivable................ $4,297,992 $5,503,267 $5,321,727
Production bonus commissions
receivable.......................... 415,414 365,000 690,000
Other accounts receivable............. -- -- 639,488
---------- ---------- ----------
Total............................. 4,713,406 5,868,267 6,651,215
Less allowance........................ (481,585) (542,412) (635,214)
---------- ---------- ----------
Commissions and accounts receivable,
net................................. $4,231,821 $5,325,855 $6,016,001
========== ========== ==========
</TABLE>
The Company estimates an allowance for receivables that will not be
collected due to nonpayment of commissions and policy cancellations by the
policy holder and nonpayment of accounts by insurance carriers. Such allowance
is established based on management's evaluation of various factors, including
historical write-off experience and industry trends. While management uses the
information available to make evaluations, future adjustments to the allowances
may be
F-12
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
4. COMMISSIONS AND ACCOUNTS RECEIVABLE, NET (Continued)
necessary. Any such adjustments are reflected in current operations. Additions
to the allowance are charged against revenue. Commissions receivable are written
off against the allowance when commissions are deemed uncollectible. Changes in
the allowance were as follows:
<TABLE>
<CAPTION>
Six Months Ended
Year Ended June 30, December 31,
--------------------------------- ---------------------
1997 1998 1999 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance, beginning of
period............. $ 508,264 $ 521,234 $ 481,585 $ 481,585 $ 542,412
Additions............ 385,332 620,463 875,656 418,251 675,988
Write-offs........... (372,362) (660,112) (814,829) (386,130) (583,186)
--------- --------- --------- --------- ---------
Balance, end of
period............. $ 521,234 $ 481,585 $ 542,412 $ 513,706 $ 635,214
========= ========= ========= ========= =========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
June 30,
------------------------- December 31,
1998 1999 1999
----------- ----------- -------------
<S> <C> <C> <C>
Computers............................ $ 1,653,326 $ 1,782,276 $ 2,519,909
Equipment............................ 683,904 850,587 915,901
Furniture and fixtures............... 485,782 497,077 563,173
Leasehold improvements............... 416,467 419,654 459,162
Capitalized software................. -- -- 305,562
----------- ----------- -----------
Total............................ 3,239,479 3,549,594 4,763,707
Less accumulated depreciation........ (1,917,719) (2,420,722) (2,990,712)
----------- ----------- -----------
Property and equipment, net.......... $ 1,321,760 $ 1,128,872 $ 1,772,995
=========== =========== ===========
</TABLE>
Included in property and equipment at June 30, 1998 and 1999 and
December 31, 1999 is equipment acquired under capital leases with a cost of
$471,479, $597,333 and $650,309 and accumulated depreciation of $240,648,
$358,904 and $476,321, respectively.
Depreciation expense was $501,535, $559,101 and $590,553 during the years
ended June 30, 1997, 1998 and 1999, respectively, and $292,602 and $308,410 for
the six months ended December 31, 1998 and 1999, respectively.
6. TRANSACTIONS WITH SELECTTECH AND OTHER RELATED PARTIES
Prior to the acquisition, certain shareholders of the Company were
shareholders of SelectTech, and two officers of the Company participated in the
management and direction of SelectTech, including serving on SelectTech's Board
of Directors. The Company provided SelectTech with certain operating support,
which included management and administrative services, telephone and office
F-13
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
6. TRANSACTIONS WITH SELECTTECH AND OTHER RELATED PARTIES (Continued)
facilities, and other miscellaneous items and charged SelectTech for these
benefits on a cost reimbursement basis. Receivables from SelectTech for such
services were $344,074 and $761,084 at June 30, 1998 and 1999, respectively.
Total fees for these services provided by the Company were approximately
$338,393, $527,009 and $708,132 in fiscal 1997, 1998 and 1999, respectively, and
$294,145 and $903,526 for the six months ended December 31, 1998 and 1999,
respectively. Included in the total fees was sublease rental income (see
Note 10).
In February 1997, the Company loaned SelectTech $200,000 at an interest rate
of 10% per annum due on July 31, 1998. However, payment on the note and related
interest were deferred due to SelectTech's refinancing discussed in the
following paragraph. Interest income recognized by the Company related to the
note was $6,100, $20,000 and $20,000 in fiscal 1997, 1998 and 1999,
respectively, and $10,000 and $10,000 for the six months ended December 31, 1998
and 1999, respectively. Receivables from SelectTech for accrued interest income
were $26,100 and $46,100 at June 30, 1998 and 1999, respectively.
On October 15, 1998, SelectTech entered into a Debenture Purchase Agreement
(the "Agreement") which required the Company to agree to subordination of both
the Company's $200,000 note receivable from SelectTech and $453,300 of the
outstanding receivable for operating services from SelectTech. As a condition of
the subordination, the note receivable from SelectTech was made convertible into
shares of SelectTech's common stock at $1.67 per share. The Agreement also
allowed SelectTech to repay the $453,300 other receivable balance in twelve
monthly installments of $37,800 commencing in October 1998 and that subsequent
charges for operating services be paid on a current basis. However, none of
these installment payments were made, although certain operating costs charged
by the Company to SelectTech were reimbursed subsequent to the Agreement date.
All amounts due at December 23, 1999 were canceled concurrent with the merger.
In June 1999, the Company loaned SelectTech an additional $250,000 in the
form of a promissory note bearing interest at 9% per annum and due on
December 31, 1999. The Company made two additional loans to SelectTech of
$250,000 each in October and November 1999 under similar terms. All of these
loans were canceled concurrent with the merger.
During 1997, 1998 and 1999, two members of the Company's Board of Directors
worked as consultants to the Company and provided software development, computer
system management, and marketing and advertising assistance. The fees included
in general and administrative expenses for these services were $179,850,
$181,013 and $181,013 in 1997, 1998, and 1999, respectively. For the six months
ended December 31, 1998 and 1999, such general and administrative expenses were
$90,506 in each period.
While working as a consultant for the Company, a current officer of the
Company had a compensation agreement with the Company whereby he deferred a
portion of his consulting fees until the Company reached and exceeded cash
break-even from operations for three consecutive months and more senior
obligations had been repaid. The balance was $82,195, $64,195 and $40,195 as of
June 30, 1998 and 1999 and December 31, 1999, respectively.
F-14
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
7. INCOME TAXES
Income tax expense (benefit) consists of the following components:
<TABLE>
<CAPTION>
Six Months Ended
Years Ended June 30, December 31,
------------------------------------- ---------------------
1997 1998 1999 1998 1999
--------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
Current income taxes:
Federal............. $(501,837) $1,447,782 $1,035,246 $367,805 $ 318,327
State............... (123,730) 383,245 301,759 124,584 110,468
--------- ---------- ---------- -------- ---------
Total............. (625,567) 1,831,027 1,337,005 492,389 428,795
--------- ---------- ---------- -------- ---------
Deferred income taxes:
Federal............. 375,126 652 274,710 61,319 (611,694)
State............... 88,031 31,324 73,398 (1,431) (192,963)
--------- ---------- ---------- -------- ---------
Total............. 463,157 31,976 348,108 59,888 (804,657)
--------- ---------- ---------- -------- ---------
Income tax expense
(benefit)........... $(162,410) $1,863,003 $1,685,113 $552,277 $(375,862)
========= ========== ========== ======== =========
</TABLE>
The difference between income tax expense (benefit) based on the federal tax
rate and amounts reported in the statements of operations is as follows:
<TABLE>
<CAPTION>
Six Months
Ended
Years Ended June 30, December 31,
------------------------------------ ----------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Federal tax (benefit) at statutory
rate................................... (34)% 34% 34% 34% 34%
State taxes, net of federal benefit...... (6) 6 6 6 6
Other.................................... (2) -- -- 2 --
--- -- -- -- --
Income tax expense (benefit)............. (42)% 40% 40% 42% 40%
=== == == == ==
</TABLE>
F-15
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
7. INCOME TAXES (Continued)
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities used for financial
reporting and the amounts used for income tax purposes. The items comprising the
Company's net deferred tax liability at June 30, 1998 and 1999 and December 31,
1999 are as follows:
<TABLE>
<CAPTION>
June 30,
------------------------- December 31,
1998 1999 1999
----------- ----------- -------------
<S> <C> <C> <C>
Deferred tax assets:
Revenue recognized for tax......... $ 294,947 $ 391,837 $ 431,672
Allowance for policy
cancellations..................... 247,462 214,122 237,062
Accrued liabilities................ 107,965 140,139 151,293
Deferred stock compensation........ -- -- 527,786
Goodwill and other intangibles..... -- -- 193,843
Other.............................. 163,584 142,347 81,125
----------- ----------- -----------
Total deferred tax assets........ 813,958 888,445 1,622,781
Deferred tax liability--commissions
receivable......................... (1,767,705) (2,190,249) (2,119,878)
----------- ----------- -----------
Net deferred tax liability........... $ (953,747) $(1,301,804) $ (497,097)
=========== =========== ===========
</TABLE>
8. SENIOR SECURED CONVERTIBLE DEBENTURES
As a result of the acquisition of SelectTech, the Company assumed SelectTech
debentures issued under a Debenture Purchase Agreement with three insurance
carriers that provided $2,500,000 at 12% interest. The Company also assumed
$750,000 of short-term loans from the insurance carriers to SelectTech. On
December 27, 1999, the $750,000 of short-term loans was repaid to the carriers.
In addition, the Company repaid in full $600,000 to one debenture holder. The
terms of the remaining $1,900,000 in debentures were modified to transfer the
holders a security interest in the Company's assets and alter the prepayment
terms.
The principal amount of the debentures are convertible into common stock at
approximately $2.60 per share.
The Debenture Purchase Agreement requires quarterly interest-only payments
through September 30, 2000; thereafter, outstanding principal shall be repaid in
twelve equal quarterly installments, plus interest, from December 31, 2000
through September 30, 2003.
9. MANDATORILY REDEEMABLE CONVERTIBLE SERIES D PREFERRED STOCK (UNAUDITED)
On December 23, 1999, the Company issued 50,000 shares of Mandatorily
Redeemable Convertible Series D Preferred Stock for $5,000,000. Issuance costs
were $256,224.
Each share of the Mandatorily Redeemable Convertible Series D Preferred
Stock is convertible at the option of the holder at any time into 22.2222 shares
of common stock, subject to adjustment
F-16
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
9. MANDATORILY REDEEMABLE CONVERTIBLE SERIES D PREFERRED STOCK (UNAUDITED)
(Continued)
for certain anti-dilution provisions, and is automatically convertible into
common stock upon a public offering of the Company's shares at a per share price
which is at least $4.50 (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares) and the
gross cash proceeds to the Company (before underwriting discounts, commissions
and fees) are at least $25,000,000 or upon the consent of the holders of a
majority of the shares outstanding. The Mandatorily Redeemable Convertible
Series D Preferred Stock has voting rights equivalent to the number of common
shares into which each share is convertible and has a liquidation preference of
the original purchase price plus interest at 25% per annum, compounded annually.
Additionally, on December 17, 2004 the Company must redeem all of the
outstanding Mandatorily Redeemable Convertible Series D Preferred Stock at the
greater of fair value (as defined) or the liquidation preference.
The Mandatorily Redeemable Convertible Series D Preferred Stock has a
beneficial conversion feature totaling $5,000,000, measured as the difference
between the conversion price of $4.50 per share and the fair value of the
underlying common stock at the time of issuance, limited to the amount of the
proceeds received, and was accounted for as a Preferred dividend which was a
reduction to income applicable to common shareholders at issuance.
10. COMMITMENTS AND CONTINGENCIES
LEASES--The Company leases various office and computer equipment under
capital leases that expire at various dates prior to June 2004. The leases also
include noncancelable maintenance agreements for the office equipment. The
Company also leases office facilities under operating leases that expire at
various dates through March 2005 with options to renew. As of December 31, 1999,
the minimum lease obligations are as follows:
<TABLE>
<CAPTION>
Operating Capital
----------- ---------
<S> <C> <C>
Six months ending June 30:
2000.............................................. $ 990,137 $ 82,822
Year ending June 30:
2001.............................................. 1,938,593 81,718
2002.............................................. 1,997,917 33,104
2003.............................................. 1,568,845 29,052
2004.............................................. 1,359,602 16,947
2005.............................................. 1,033,058 --
---------- ---------
Total lease obligations............................. $8,888,152 243,643
==========
Less amount representing interest................... (27,512)
---------
Present value of minimum lease payments............. 216,131
Less current obligation under capital leases........ (125,542)
---------
Long-term obligation under capital leases........... $ 90,589
=========
</TABLE>
F-17
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
10. COMMITMENTS AND CONTINGENCIES (Continued)
Up until the acquisition, the Company subleased a portion of its office
facilities to SelectTech. Monthly rental income varied based on usage and costs
per square foot over the term of the lease. Rental income was $24,214, $85,302
and $134,892 during the years ended June 30, 1997, 1998 and 1999, respectively,
and $50,563 and $171,348 for the six months ended December 31, 1998 and 1999,
respectively.
Rent expense was $433,545, $558,343 and $616,241 during the years ended
June 30, 1997, 1998 and 1999, respectively, and $292,232 and $594,663 for the
six months ended December 31, 1998 and 1999, respectively.
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, consolidated financial condition and operating results.
11. STOCKHOLDERS' EQUITY
Shares of common stock have been reserved for future issuance in connection
with the conversion or exercise of the following securities as of December 31,
1999:
<TABLE>
<CAPTION>
Common Shares
Reserved
-------------
<S> <C>
Senior secured convertible debentures....................... 731,420
Series A Preferred Stock.................................... 1,137,235
Series B Preferred Stock.................................... 821,690
Series C Preferred Stock.................................... 69,925
Series D Preferred Stock.................................... 1,111,111
Stock options granted under the 1999 Stock Option Plan...... 6,510,635
Stock options available for issuance under the 1999 Stock
Option Plan............................................... 3,489,365
1999 employee stock purchase plan........................... 1,000,000
----------
Total....................................................... 14,871,381
==========
</TABLE>
CONVERTIBLE PREFERRED STOCK--In contemplation of the acquisition of
SelectTech, the Company restated its Articles of Incorporation in August 1999 to
increase the number of shares of preferred stock authorized from 5,000,000 to
10,000,000 and changed the par value from no par to $0.01 per share.
F-18
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
11. STOCKHOLDERS' EQUITY (Continued)
Preferred Stock Series A, B and C information as of December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Liquidation Value
Authorized Shares ---------------------
Series Shares Outstanding Amount Per Share
- ------ ---------- ----------- --------- ---------
<S> <C> <C> <C> <C>
A............................... 2,500,000 1,137,235 $170,585 $0.15
B............................... 1,250,000 821,690 501,231 0.61
C............................... 750,000 69,925 85,309 1.22
--------- --------- --------
Total........................... 4,500,000 2,028,850 $757,125
========= ========= ========
</TABLE>
CONVERSION--Each share of preferred stock may be converted into shares of
common stock on a one-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.
DIVIDENDS--The holders of the Series A, B and C preferred stock are entitled
to receive in any fiscal year noncumulative dividends of $0.00913 per share,
$0.0365 per share and $0.073 per share, respectively, when, and if, declared by
the Company's Board of Directors. Such dividends, whether undeclared or unpaid,
shall not bear or accrue interest. Preferred stock dividends declared and paid
were $199,805, $161,225 and $199,805 during the years ended June 30, 1997, 1998
and 1999, respectively, and $122,646 and $84,066 for the six months ended
December 31, 1998 and 1999, respectively.
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) $0.15 per outstanding share of
Series A, (ii) $0.61 per outstanding share of Series B and (iii) $1.22 per
outstanding share of Series C. If the assets of the Company available for
distribution are not sufficient to pay the full amount of this distribution,
plus any dividends thereon declared but unpaid, 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.
REDEMPTION--The Company may at any time, at the option of the Board of
Directors, redeem all or part (selected pro rata among all of the preferred
shares) of the outstanding shares of Series A preferred stock at $0.15 per
share. Series B and C preferred stock is not redeemable.
VOTING RIGHTS--Each share of Series A, B and C preferred stock has voting
rights equal to the number of common stock shares into which shares of preferred
stock are convertible.
COMMON STOCK--In anticipation of the acquisition of SelectTech, the Company
changed the par value of common stock from no par to $0.01 per share.
Through August 17, 1999, the Company had a "phantom stock" employee
compensation plan where each unit of phantom stock entitled the record holder to
receive the same cash dividends per
F-19
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
11. STOCKHOLDERS' EQUITY (Continued)
unit as a share of the Company's common stock. Phantom stock units terminate
when the employee ceases to be an employee due to resignation, termination,
retirement, or death. Phantom stock units:
(a) have no voting rights
(b) are not transferable or saleable to other parties
(c) have no monetary value other than the right to receive payments equal to
dividends earned on an equivalent number of shares of the Company's
common stock as of the date of record of each dividend, provided that the
record holder is an employee as of that date
(d) are fully vested when granted.
Prior to fiscal 1997, 24,500 phantom stock units had been granted. In fiscal
1998 and 1999 an additional 53,500 units and 163,557 units, respectively, were
granted. No forfeitures of any units occurred. Compensation expense has been
recognized by the Company with respect to cash dividends paid under the phantom
stock plan.
On August 17, 1999, all phantom stock units were converted into the Company
stock option plan described in Note 13.
12. EMPLOYEE BENEFIT PLAN
The Company has a pretax savings plan covering nearly all its employees that
is intended to qualify under Section 401(k) of the Internal Revenue Code.
Eligible employees may contribute up to 15 percent of their pretax salary,
subject to certain limitations. The Company makes a discretionary profit sharing
contribution and matches each employee's contributions up to $300 per plan year.
The Company contributions were $21,450, $27,672 and $27,863 during the years
ended June 30, 1997, 1998 and 1999, respectively, and $22,092 and $28,906 for
the six months ended December 31, 1998 and 1999, respectively.
13. STOCK OPTION PLAN (UNAUDITED)
On August 17, 1999, the Company authorized the 1999 Stock Option Plan (the
"1999 Plan") under which the Board of Directors may grant options to purchase
shares of common stock to employees, non-employee directors, and consultants. A
total of 10,000,000 shares of common stock have been reserved for issuance under
the 1999 Plan. Options generally vest one-third at the end of the first year and
then monthly on a pro rata basis over the next two years. The options expire ten
years from the date of grant.
F-20
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
13. STOCK OPTION PLAN (UNAUDITED) (Continued)
In the period from August 17, 1999 through the date of acquisition of
SelectTech, the Company granted options which were converted at the time of the
merger based on a conversion formula. Options issued by SelectTech prior to the
acquisition were also converted to Company options. The following table
summarizes option activity using post-merger amounts.
<TABLE>
<CAPTION>
Number Average
of Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance at July 1, 1999............................ -- $ --
Grants:
SelectQuote plan................................. 3,121,813 4.350
SelectTech plan.................................. 3,388,822 3.521
--------- ------
Balance at December 31, 1999 (1,081,352 shares
vested at a weighted average exercise price
of $0.36)........................................ 6,510,635 $3.918
========= ======
</TABLE>
Options outstanding and currently exercisable by exercise price at
December 31, 1999 are as follows:
<TABLE>
<CAPTION>
Options Outstanding
- -------------------------------------------------
Weighted Options Currently
Average Exercisable --
Exercise Number Remaining Number
Price Outstanding Contractual Life (Years) Outstanding
- -------- ----------- ------------------------ -----------------
<S> <C> <C> <C>
$0.0016 627,318 7.5 554,560
$ 0.26 513,278 8.2 325,339
$ 0.76 80,528 9.6 80,528
$ 1.98 175,847 9.6 120,925
$ 2.43 537,588 9.6 --
$ 2.60 60,952 9.2 --
$ 4.99 1,877,848 9.9 --
$ 5.00 797,703 9.6 --
$ 5.50 1,839,573 9.6 --
--------- --- ---------
6,510,635 9.3 1,081,352
========= === =========
</TABLE>
The Company accounts for employee and board of director stock options in
accordance with APB 25. Under APB 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 fair market value on the
date of grant of certain employee stock options associated with the conversion
of the phantom stock compensation plan was in excess of the exercise price of
the options. Such excess is recorded as deferred stock compensation and
classified as a reduction of stockholders' equity, with a charge to
F-21
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
13. STOCK OPTION PLAN (UNAUDITED) (Continued)
operations over the vesting period of the applicable options. Consequently, the
Company recorded deferred stock compensation of $1,643,806 in the six-month
period ended December 31, 1999 and amortized $1,240,403 during the same period.
The fair value of stock options granted to consultants for future services
to be performed for the Company was $542,917 for the six months ended
December 31, 1999. This amount has been recorded as deferred stock compensation.
Of this amount, $84,548 was amortized during the six months ended December 31,
1999.
The weighted average fair value for options granted during the six months
ended December 31, 1999 was $1.75.
ADDITIONAL STOCK PLAN INFORMATION--SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, requires the disclosure of pro-forma net loss and loss per share
had the Company adopted the fair value method since the Company's inception.
Under SFAS No. 123, the fair value of stock-based awards to employees is
calculated through the use of option pricing models, even though such models
were developed to estimate the fair value of freely tradable, fully transferable
options without vesting restrictions, which significantly differ from the
Company's stock option awards. These models also require subjective assumptions,
including expected time to exercise, which greatly affect the calculated values.
The weighted average fair value of the Company's stock-based awards to
employees was estimated using the minimum option pricing model with the
following assumptions:
Dividend yield--none
Risk free interest rate--6%
Expected term--3 years
If the computed minimum values of the Company's stock-based awards to
employees had been amortized to expense over the vesting period of the awards as
specified under SFAS No. 123, net loss and basic and diluted loss per common
share on a pro forma basis (as compared to such items as reported) would have
been as follows for the six months ended December 31, 1999:
<TABLE>
<S> <C>
Net loss:
As reported............................................... $(569,948)
Pro forma................................................. (896,285)
Basic and diluted net loss per common share:
As reported............................................... $ (1.08)
Pro forma (1.14)
</TABLE>
F-22
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
14. NET INCOME (LOSS) PER COMMON SHARE
The following is a reconciliation of the numerators and denominators used in
computing basic and diluted net income (loss) per share:
<TABLE>
<CAPTION>
Six Months Ended
Years Ended June 30, December 31,
------------------------------------- -----------------------
1997 1998 1999 1998 1999
--------- ----------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
Income (loss)
attributable to
common
stockholders:
Net income
(loss)............ $(229,368) $2,818,253 $2,528,252 $ 775,644 $ (569,948)
Preferred
dividends......... (199,805) (161,225) (199,805) (122,646) (84,066)
Value of preferred
stock beneficial
conversion........ -- -- -- -- (5,000,000)
--------- ---------- ---------- --------- -----------
Income (loss)
attributable to
common
stockholders...... $(429,173) $2,657,028 $2,328,447 $ 652,998 $(5,654,014)
========= ========== ========== ========= ===========
Shares:
Shares used in the
computation of
Basic EPS......... 4,981,849 4,981,849 4,981,849 4,981,849 5,221,681
Effect of
conversion of
preferred stock... -- 2,028,850 2,028,850 2,028,850 --
--------- ---------- ---------- --------- -----------
Shares used in the
computation of
Diluted EPS....... 4,981,849 7,010,699 7,010,699 7,010,699 5,221,681
========= ========== ========== ========= ===========
</TABLE>
For fiscal 1997 and the six months ended December 31, 1999, the Company had
securities outstanding which could potentially dilute basic earnings per share
in the future, but were excluded in the computation of diluted net loss per
share in the periods presented, as their effect would have been antidilutive.
Such outstanding securities consist of the following:
<TABLE>
<CAPTION>
Year Ended Six Months Ended
June 30, 1997 December 31, 1999
-------------- ------------------
<S> <C> <C>
Convertible debentures -- 731,420
Redeemable convertible preferred stock........ 2,028,850 3,139,961
Stock options................................. -- 447,352
--------- ---------
Total..................................... 2,028,850 4,318,733
========= =========
</TABLE>
F-23
<PAGE>
ZEBU
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
15. MAJOR CUSTOMERS
Revenue attributable to significant insurance carrier customers,
representing approximately 10% or more of total revenue for at least one of the
respective periods, is summarized as follows:
<TABLE>
<CAPTION>
Six Months
Ended
Years Ended June 30, December 31,
------------------------------------ ----------------------
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Carrier A................................ --% --% 10% --% 22%
Carrier B................................ 23 18 -- 13 --
Carrier C................................ 15 12 15 14 --
Carrier D................................ -- -- 12 -- 20
Carrier E................................ -- 17 13 16 10
Carrier F................................ 13 -- -- -- --
Carrier G................................ -- -- -- 13 15
Carrier H................................ -- -- -- 11 10
</TABLE>
16. SUBSEQUENT EVENTS (UNAUDITED)
During February 2000, SelectQuote obtained a one-year line of credit from
LaSalle Bank. SelectQuote may borrow against that line, provided it meets
certain financial and other covenants and conditions. Any borrowings under the
line of credit will bear interest at a rate determined by reference to the prime
rate or to LIBOR. The line of credit is secured by a pledge of all of the assets
of SelectQuote, which is senior to the security interest of the holders of the
convertible debentures. It is also guaranteed by four of the Company's principal
stockholders, and that guaranty is secured by a pledge of their Company stock.
On February 29, 2000, the Company increased the authorized number of shares
of common stock to 100,000,000.
On February 29, 2000, the Company and investors entered into a binding
agreement for the purchase and sale of 2,041,845 shares of Mandatorily
Redeemable Convertible Series E Preferred Stock for $10,515,502. The terms of
this issuance are similar to the terms of the Series D issuance discussed in
Note 9.
F-24
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of SelectTech:
We have audited the accompanying balance sheets of SelectTech as of
June 30, 1998 and 1999, and the related statements of operations and
shareholders' equity (deficit) and cash flows for each of the three years in the
period ended June 30, 1999. These financial statements are the responsibility of
SelectTech's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of SelectTech as of June 30, 1998 and 1999, and
the results of its operations and its cash flows for each of the three years in
the period ended June 30, 1999 in conformity with generally accepted accounting
principles.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
February 29, 2000
F-25
<PAGE>
SELECTTECH
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30,
------------------------- December 23,
1998 1999 1999
----------- ----------- -------------
(Unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents................................. $ 105,823 $ 35,596 $ 56,266
Accounts receivable, net of allowance for doubtful
accounts of $0, $40,095 and $40,095, respectively........ 507,815 886,346 538,620
Other..................................................... 14,905 35,898 9,096
---------- ----------- -----------
Total current assets.................................... 628,543 957,840 603,982
PROPERTY AND EQUIPMENT, NET................................. 169,677 280,246 342,347
---------- ----------- -----------
TOTAL ASSETS................................................ $ 798,220 $ 1,238,086 $ 946,329
========== =========== ===========
LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK, AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable and accrued expenses..................... $ 379,493 $ 467,898 $ 513,333
Payables to SelectQuote................................... 370,174 808,109 1,673,952
Payables to other related parties......................... 608,817 794,679 779,044
Deferred revenue.......................................... 56,096 231,131 327,295
Current portion of capital lease obligations.............. 17,370 5,146 5,409
Notes payable to SelectQuote.............................. 200,000 450,000 950,000
Promissory notes.......................................... 100,000 -- --
Senior secured convertible debentures..................... -- 1,769,398 2,576,860
---------- ----------- -----------
Total current liabilities............................... 1,731,950 4,526,361 6,825,893
DEFERRED REVENUE............................................ 468,279 979,356 1,015,185
LONG-TERM PORTION OF CAPITAL LEASE OBLIGATIONS.............. 8,873 3,727 955
---------- ----------- -----------
Total liabilities....................................... 2,209,102 5,509,444 7,842,033
---------- ----------- -----------
MANDATORILY REDEEMABLE CONVERTIBLE PREFERRED STOCK, Series
A, $0.001 par value: 750,000 shares authorized; 600,000
shares issued and outstanding (aggregate liquidation
preference $1,000,000).................................... 1,000,000 1,000,000 1,000,000
---------- ----------- -----------
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock, $0.001 par value: 750,000 shares
authorized; no shares issued and outstanding............. -- -- --
Common stock, $0.001 par value: 8,500,000 shares and
18,500,000 shares authorized, respectively; 6,500,000
shares issued and outstanding (June 30, 1998 and 1999)
and 7,250,000 (December 23, 1999, unaudited)............. -- 718,294 719,044
Accumulated deficit....................................... (2,410,882) (5,989,652) (8,614,748)
---------- ----------- -----------
Total shareholders' equity (deficit).................... (2,410,882) (5,271,358) (7,895,704)
---------- ----------- -----------
TOTAL LIABILITIES, MANDATORILY REDEEMABLE CONVERTIBLE
PREFERRED STOCK, AND SHAREHOLDERS' EQUITY (DEFICIT)....... $ 798,220 $ 1,238,086 $ 946,329
========== =========== ===========
</TABLE>
See notes to financial statements.
F-26
<PAGE>
SELECTTECH
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the
Period
Six Months July 1, 1999
For the Years Ended June 30, Ended Through
--------------------------------------- December 31, December 23,
1997 1998 1999 1998 1999
----------- ----------- ----------- ------------ -------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES:
Consulting services............... $1,426,661 $1,361,412 $2,375,791 $1,207,539 $ 936,132
License and maintenance........... -- 15,625 299,183 27,337 142,247
Transactional services............ -- 55,211 296,893 68,651 365,610
---------- ---------- ---------- ---------- ----------
Total revenue................... 1,426,661 1,432,248 2,971,867 1,303,527 1,443,989
---------- ---------- ---------- ---------- ----------
OPERATING EXPENSES:
Software development and
consulting services.............. 1,350,236 2,343,512 4,759,127 2,163,884 3,076,293
Marketing and sales............... 138,136 222,764 496,257 250,232 239,809
General and administrative........ 508,619 850,337 1,035,524 464,772 491,770
---------- ---------- ---------- ---------- ----------
Total operating expenses........ 1,996,991 3,416,613 6,290,908 2,878,888 3,807,872
---------- ---------- ---------- ---------- ----------
LOSS FROM OPERATIONS................ 570,330 1,984,365 3,319,041 1,575,361 2,363,883
INTEREST EXPENSE, NET............... 9,126 20,213 258,929 71,286 261,213
---------- ---------- ---------- ---------- ----------
LOSS BEFORE INCOME TAXES............ 579,456 2,004,578 3,577,970 1,646,647 2,625,096
INCOME TAX EXPENSE.................. 3,100 800 800 800 --
---------- ---------- ---------- ---------- ----------
NET LOSS............................ $ 582,556 $2,005,378 $3,578,770 $1,647,447 $2,625,096
========== ========== ========== ========== ==========
</TABLE>
See notes to financial statements.
F-27
<PAGE>
SELECTTECH
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Retained
Common Stock Earnings Total
--------------------- (Accumulated Shareholders'
Shares Amount Deficit) Equity (Deficit)
--------- --------- ------------ ----------------
<S> <C> <C> <C> <C>
BALANCE, JULY 1, 1996...................... 6,500,000 $ -- $ 177,052 $ 177,052
NET LOSS................................... (582,556) (582,556)
--------- -------- ----------- -----------
BALANCE, JUNE 30, 1997..................... 6,500,000 -- (405,504) (405,504)
NET LOSS................................... (2,005,378) (2,005,378)
--------- -------- ----------- -----------
BALANCE, JUNE 30, 1998..................... 6,500,000 -- (2,410,882) (2,410,882)
WARRANTS ISSUED............................ 718,294 718,294
NET LOSS................................... (3,578,770) (3,578,770)
--------- -------- ----------- -----------
BALANCE, JUNE 30, 1999..................... 6,500,000 718,294 (5,989,652) (5,271,358)
OPTIONS EXERCISED (Unaudited).............. 750,000 750 750
NET LOSS (Unaudited)....................... (2,625,096) (2,625,096)
--------- -------- ----------- -----------
BALANCE, DECEMBER 23, 1999 (Unaudited)..... 7,250,000 $719,044 $(8,614,748) $(7,895,704)
========= ======== =========== ===========
</TABLE>
See notes to financial statements.
F-28
<PAGE>
SELECTTECH
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period
Six Months July 1, 1999
For the Years Ended June 30, Ended Through
------------------------------------- December 31, December 23,
1997 1998 1999 1998 1999
--------- ----------- ----------- -------------- --------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $(582,556) $(2,005,378) $(3,578,770) $(1,647,447) $(2,625,096)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of debt discount................ -- -- 82,253 24,192 57,462
Depreciation and amortization................ 26,386 62,600 122,954 54,022 84,591
Changes in assets and liabilities:
Accounts receivable........................ 69,270 (241,008) (378,531) (458,460) 347,726
Other...................................... (10,582) (436) (19,015) (4,717) 26,802
Accounts payable and accrued expenses...... 88,383 216,806 88,405 197,636 45,435
Payables to SelectQuote and other related
parties................................... 223,313 598,205 623,797 237,668 850,208
Deferred revenue........................... 50,000 474,375 686,112 590,201 131,993
--------- ----------- ----------- ----------- -----------
Net cash used in operating activities.... (135,786) (894,836) (2,372,795) (1,006,905) (1,080,879)
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Property and equipment purchased............... (108,850) (92,376) (235,501) (163,636) (146,692)
--------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of mandatorily
redeemable convertible Series A preferred
stock......................................... -- 1,000,000 -- -- --
Proceeds from promissory notes................. -- 100,000 325,000 -- --
Repayments of promissory notes................. -- -- (425,000) (100,000) --
Net proceeds from issuance of senior secured
convertible debentures and warrants to
purchase common stock (net of issuance
costs)........................................ -- -- 2,405,439 1,330,439 750,000
Capital lease obligations repaid............... (9,766) (14,177) (17,370) (10,240) (2,509)
Proceeds from exercise of options.............. -- -- -- -- 750
Proceeds from notes payable to related party... 200,000 -- 250,000 -- 500,000
--------- ----------- ----------- ----------- -----------
Net cash provided by financing
activities.............................. 190,234 1,085,823 2,538,069 1,220,199 1,248,241
--------- ----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS.................................... (54,402) 98,611 (70,227) 49,658 20,670
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..... 61,614 7,212 105,823 105,823 35,596
--------- ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR........... $ 7,212 $ 105,823 $ 35,596 $ 155,481 $ 56,266
========= =========== =========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid for interest expense................. $ 2,315 $ 1,812 $ 164,948 $ 41,441 $ 186,050
Cash paid for income taxes..................... $ 2,300 $ 2,300 $ 1,600 $ 800 $ --
NONCASH INVESTING AND FINANCING ACTIVITIES:
Purchase of equipment under capital leases..... $ -- $ 14,984 $ -- $ -- $ --
</TABLE>
See notes to financial statements.
F-29
<PAGE>
SELECTTECH
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997, 1998 AND 1999, SIX MONTHS ENDED
DECEMBER 31, 1998 (Unaudited) AND PERIOD FROM JULY 1, 1999
THROUGH DECEMBER 23, 1999 (Unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS--SelectTech ("SelectTech"), a Nevada Corporation,
was established to develop custom software and to provide computer consulting
services to the insurance industry. SelectTech derives its revenues from
software licenses, software maintenance, software usage fees, custom software
development and professional consulting services.
Effective April 30, 1997, SelectTech changed its tax status from a limited
liability company to a C corporation. Prior to the change in status, taxable
income and losses of SelectTech were generally reportable on the income tax
returns of the respective owners.
Prior to the change in status, SelectQuote Insurance Services
("SelectQuote") owned 50% of SelectTech. Subsequent to April 30, 1997,
SelectQuote distributed all of its shares to its shareholders.
In October 1998, SelectTech increased authorized common stock to 18,500,000
shares.
On December 23, 1999, SelectQuote acquired all the outstanding common and
preferred stock (other than preferred stock which was converted concurrent with
the transaction) of SelectTech. These financial statements reflect SelectTech's
financial position immediately prior to the acquisition.
CASH AND CASH EQUIVALENTS--SelectTech considers all highly liquid
instruments purchased with an original maturity of three months or less to be
cash equivalents.
PROPERTY AND EQUIPMENT are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets, which
range from three years for computer equipment to five to ten years for other
assets.
SOFTWARE DEVELOPMENT COSTS--Costs for the development of new software
products and substantial enhancements to existing software products are expensed
as incurred until technological feasibility has been established, at which time
any additional costs would be capitalized in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 86, COMPUTER SOFTWARE TO BE SOLD,
LEASED OR OTHERWISE MARKETED. The costs to develop such software have not been
capitalized as SelectTech generally releases the software once technological
feasibility has been established, and subsequent improvement costs have not been
significant.
REVENUE RECOGNITION--Statement of Position 97-2, SOFTWARE REVENUE
RECOGNITION ("SOP 97-2"), was issued in October 1997 by the American Institute
of Certified Public Accountants ("AICPA") and was amended by Statement of
Position 98-4 ("SOP 98-4"). SelectTech adopted SOP 97-2 effective July 1, 1997
and SOP 98-4 effective March 31, 1998. SelectTech believes its current revenue
recognition policies and practices are consistent with SOP 97-2 and SOP 98-4.
Additionally, the AICPA issued SOP 98-9 in December 1998, which provides certain
amendments to SOP 97-2, and is effective for transactions entered into by
SelectTech beginning July 1, 1999. Adoption of these amendments did not have a
material impact on SelectTech's financial position, results of operations or
cash flows.
Software license revenue is recognized upon meeting each of the following
criteria: execution of a written license agreement or contract; delivery and
implementation of software; the license fee
F-30
<PAGE>
SELECTTECH
NOTES TO FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999, SIX MONTHS ENDED
DECEMBER 31, 1998 (Unaudited) AND PERIOD FROM JULY 1, 1999
THROUGH DECEMBER 23, 1999 (Unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
is fixed and determinable; collectibility of the proceeds is assessed as being
probable; and vendor specific objective evidence exists to allocate the total
fee to elements of the arrangement. Vendor-specific objective evidence is based
on the price generally charged when an element is sold separately, or if not yet
sold separately, is established by authorized management. All elements of each
order are valued at the time of revenue recognition.
The portion of revenues from new license agreements which relate to
SelectTech's obligations to provide customer support is deferred and recognized
ratably over the contract support period, which is generally one to four years.
Software maintenance contracts are renewable on an annual basis. Revenues from
maintenance contract renewals are deferred and recognized ratably over the terms
of the agreements.
Revenues from transactional services, consulting and other services are
recognized as the related services are provided or as the milestones are
completed.
CONCENTRATION OF CREDIT RISK--Financial instruments which potentially
subject SelectTech to concentrations of credit risk consist principally of
accounts receivable. SelectTech sells its products and services to companies in
the insurance industry and generally does not require its customers to provide
collateral to support accounts receivable. SelectTech maintains allowances for
potential credit losses.
DEBT WITH STOCK PURCHASE WARRANTS--SelectTech 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. The discount on debt is amortized, as interest expense, over the
period that the debt is outstanding.
ADVERTISING EXPENSES--Direct costs related to marketing and advertising
SelectTech's product are expensed in the periods incurred. Advertising expenses
were $6,490, $8,630 and $42,774 for fiscal 1997, 1998 and 1999, respectively,
$43,798 for the six months ended December 31, 1998, and $20,559 for the period
from July 1, 1999 through December 23, 1999.
IMPAIRMENT OF LONG-LIVED ASSETS--SelectTech evaluates its long-lived assets
for impairment whenever events or changes in circumstances indicate that the
carrying amount of such assets may not be recoverable. Recoverability of assets
to be held and used is measured by a comparison of the carrying amount of an
asset to future undiscounted net cash flows expected to be generated by the
asset. If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported at
the lower of the carrying amount or fair value less costs to sell.
FINANCIAL INSTRUMENTS--The fair value of financial instruments, principally
cash, accounts receivable, accounts payable, notes payable and debentures
approximate their June 30, 1998 and 1999 and December 23, 1999 carrying values
because such items are primarily short-term in nature.
F-31
<PAGE>
SELECTTECH
NOTES TO FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999, SIX MONTHS ENDED
DECEMBER 31, 1998 (Unaudited) AND PERIOD FROM JULY 1, 1999
THROUGH DECEMBER 23, 1999 (Unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
CERTAIN SIGNIFICANT RISKS AND UNCERTAINTIES--SelectTech operates in the
software industry, and accordingly, can be affected by a variety of factors. For
example, management of SelectTech believes that changes in any of the following
areas could have a significant negative effect on SelectTech's future financial
position, results of operations and cash flows: demand for performance
availability and management software solutions, including any adverse purchasing
patterns caused by Year 2000 related concerns; new product introductions by
competitors; development of distribution channels; ability to implement and
expand operational customer support and financial control systems to manage
rapid growth, both domestically and internationally; the hiring, training and
retention of key employees; fundamental changes in technology underlying
software products; litigation or other claims against SelectTech.
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
disclosures 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--SelectTech records income taxes using the asset and liability
method which requires the recognition of deferred tax assets and liabilities for
the expected future tax consequences of events that have been recognized in
SelectTech's financial statements or tax returns. In estimating future tax
consequences, generally all expected future events other than enactments or
changes in the tax law or rates are considered.
STOCK-BASED COMPENSATION--SelectTech accounts for stock-based compensation
using the intrinsic value method prescribed in Accounting Principles Board
Opinion No. 25 ("APB 25"), ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES.
COMPREHENSIVE INCOME--There are no differences between comprehensive income
and net income as reported in SelectTech's statements of operations.
SEGMENT INFORMATION--SelectTech has adopted the provisions of SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS
No. 131 establishes standards for the reporting by public business enterprises
of information about operating segments, products and services, geographic
areas, and major customers.
SelectTech operates in a single industry segment encompassing application
system software and the accompanying integration and solution consulting
services applicable to the insurance industry. All of SelectTech's revenues are
received from customers based primarily in the United States. See Note 12 for
information on major customers.
NEW ACCOUNTING PRONOUNCEMENT--SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts for hedging activities. Under SFAS No. 133, certain
contracts that were not formerly considered derivatives may now meet the
F-32
<PAGE>
SELECTTECH
NOTES TO FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999, SIX MONTHS ENDED
DECEMBER 31, 1998 (Unaudited) AND PERIOD FROM JULY 1, 1999
THROUGH DECEMBER 23, 1999 (Unaudited)
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
definition of a derivative. As amended in June 1999 by SFAS No. 137, this
Statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 2000. SelectTech has not yet evaluated the impact of this
Statement.
2. ALLOWANCE FOR DOUBTFUL ACCOUNTS
Allowances for doubtful accounts are estimated and established based on
historical experience and specific circumstances of each customer. Additions to
the allowance are charged to general and administrative expenses. Accounts
receivable are written off against the allowance for doubtful accounts when an
account is deemed uncollectible. Recoveries on accounts receivable previously
charged off as uncollectible are credited to the allowance for doubtful
accounts. SelectTech provided $124,291 to the allowance for doubtful accounts
and wrote off accounts receivable of $84,196 during 1999.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
June 30,
--------------------- December 23,
1998 1999 1999
--------- --------- ------------
<S> <C> <C> <C>
Computer equipment....................... $238,170 $ 439,999 $ 532,746
Furniture and equipment.................. 14,984 45,465 83,927
Leasehold improvements................... 8,320 8,320 23,803
-------- --------- ---------
Total................................ 261,474 493,784 640,476
Less accumulated depreciation............ (91,797) (213,538) (298,129)
-------- --------- ---------
Property and equipment, net.............. $169,677 $ 280,246 $ 342,347
======== ========= =========
</TABLE>
Included in property and equipment at June 30, 1998 and 1999 and
December 23, 1999 is equipment acquired under capital leases with a cost of
$52,976. Accumulated depreciation at June 30, 1998 and 1999 and December 23,
1999 was $29,102, $44,233 and $46,886, respectively, related to such equipment.
4. MANDATORILY REDEEMABLE CONVERTIBLE SERIES A PREFERRED STOCK
In August and November 1997, SelectTech issued a total of 450,000 shares of
Mandatorily Redeemable Convertible Series A Preferred Stock for $750,000 to
three insurance companies under a Stock Purchase Agreement. In addition in
April 1998 SelectTech issued 150,000 shares of Mandatorily Redeemable
Convertible Series A Preferred Stock to SelectQuote for $250,000 under
F-33
<PAGE>
SELECTTECH
NOTES TO FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999, SIX MONTHS ENDED
DECEMBER 31, 1998 (Unaudited) AND PERIOD FROM JULY 1, 1999
THROUGH DECEMBER 23, 1999 (Unaudited)
4. MANDATORILY REDEEMABLE CONVERTIBLE SERIES A PREFERRED STOCK (Continued)
the same agreement. This agreement provides stock registration rights,
representation on SelectTech's steering committee to provide advice about
product development, and priority access to SelectTech's development resources.
Each share of the Mandatorily Redeemable Convertible Series A Preferred
Stock is convertible at any time into one share of common stock, subject to
adjustment for certain anti-dilution provisions, and is automatically
convertible into common stock upon a public offering of SelectTech's share at a
per share price which is at least $5.00 (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to such
shares) and the gross cash proceeds to SelectTech (before underwriting
discounts, commissions and fees) are at least $7,500,000 or upon the consent of
the holders of a majority of the shares outstanding. The Mandatorily Redeemable
Convertible Series A Preferred Stock has voting rights equivalent to the number
of common shares into which each share is convertible, has a liquidation
preference of the original purchase price plus any declared but unpaid
dividends, and has a noncumulative annual dividend preference of $0.10 per
share. Additionally, any time after August 2000 holders of at least 50% of the
then outstanding Mandatorily Redeemable Convertible Series A Preferred Stock
have the right to redeem all of the outstanding Mandatorily Redeemable
Convertible Series A Preferred Stock at the liquidation preference.
5. TRANSACTIONS WITH SELECTQUOTE AND OTHER RELATED PARTIES
Certain shareholders of SelectTech are shareholders of SelectQuote, and two
officers of SelectQuote participate in the management and direction of
SelectTech, including serving on SelectTech's Board of Directors. SelectQuote
provides SelectTech with certain operating support, which includes management
and administrative services, telephone and office facilities, and other
miscellaneous items and charges SelectTech for these benefits on a cost
reimbursement basis. Payables to SelectQuote for such services are $344,074 and
$761,084 at June 30, 1998 and 1999, respectively, and $1,599,270 at
December 23, 1999. Total fees for these services provided by SelectQuote were
approximately $338,393, $527,009 and $708,132 in fiscal 1997, 1998 and 1999,
respectively, $294,145 for the six months ended December 31, 1998, and $903,526
for the period from July 1, 1999 through December 23, 1999. Included in the
total fees was sublease rental expense of $24,214, $85,302 and $134,892 during
fiscal 1997, 1998 and 1999, respectively, $50,563 for the six months ended
December 31, 1998, and $171,348 for the period from July 1, 1999 through
December 23, 1999.
In February 1997, SelectQuote loaned SelectTech $200,000 at an interest rate
of 10% per annum due on July 31, 1998. However, payment on the note and related
interest were deferred due to SelectTech's refinancing discussed in the
following paragraph. The note is secured by consulting contracts, rights to any
software that has been developed, and a maintenance contract with one insurance
company. Interest expense recognized by SelectTech related to the note was
$6,100, $20,000 and $20,000 in fiscal 1997, 1998 and 1999, respectively, $10,000
for the six months ended
F-34
<PAGE>
SELECTTECH
NOTES TO FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999, SIX MONTHS ENDED
DECEMBER 31, 1998 (Unaudited) AND PERIOD FROM JULY 1, 1999
THROUGH DECEMBER 23, 1999 (Unaudited)
5. TRANSACTIONS WITH SELECTQUOTE AND OTHER RELATED PARTIES (Continued)
December 31, 1998, and $10,000 for the period from July 1, 1999 through
December 23, 1999. Payables to SelectQuote for accrued interest expense are
$26,100 and $46,100 at June 30, 1998 and 1999, respectively, and $56,100 at
December 23, 1999.
On October 15, 1998, SelectTech entered into a Debenture Purchase Agreement
(the "Agreement") (see Note 7) which required SelectQuote to agree to
subordination of both its $200,000 note receivable from SelectTech and $453,300
of the outstanding receivable for operating services from SelectTech. As a
condition of the subordination, the note payable to SelectQuote was made
convertible into shares of SelectTech's common stock at $1.67 per share. The
Agreement also allows SelectTech to repay the $453,300 other payables balance in
twelve monthly installments of $37,800 commencing in October 1998 and that
subsequent charges for operating services be paid on a current basis. However,
none of these installment payments have been made, although certain operating
costs charged by SelectQuote to SelectTech have been reimbursed subsequent to
the Agreement date.
In June 1999, SelectTech borrowed from SelectQuote an additional $250,000 in
the form of a promissory note bearing interest at 9% per annum and due on
December 31, 1999. SelectQuote made two additional loans to SelectTech of
$250,000 each in October and November 1999 under similar terms.
SelectTech leased $38,000 of computer equipment from SelectQuote under a
36-month capital lease that expired in March 1999. The rate of interest on this
lease was 9.0%.
In April 1998, SelectQuote purchased 150,000 shares of Mandatorily
Redeemable Convertible Series A Preferred Stock for $250,000.
During fiscal 1997, 1998 and 1999, two members of SelectTech's Board of
Directors worked as officers and consultants for SelectTech. The consulting
expenses related to these directors totaled $176,440, $307,900 and $282,900 in
fiscal 1997, 1998 and 1999, respectively, and $137,700 for the six months ended
December 31, 1998, and $16,700 for the period from July 1, 1999 through
December 23, 1999. Total payable was $55,546 and $46,425 at June 30, 1998 and
1999, respectively, and $0 at December 23, 1999. Additionally, a corporation
owned by these individuals provided programming resources. Total programming
expense was $285,145, $544,700 and $1,010,269 in fiscal 1997, 1998 and 1999,
respectively, and $552,940 for the six months ended December 31, 1998 and
$367,052 for the period from July 1, 1999 through December 23, 1999. Total
payable was $553,271 and $748,254 at June 30, 1998 and 1999, respectively, and
$779,044 at December 23, 1999.
6. PROMISSORY NOTES
During fiscal 1998 and 1999, SelectTech entered into promissory notes
totaling $425,000 with four insurance companies. These promissory notes bore
interest at rates ranging from 10% to 15% with principal and interest due on
October 12, 1998. The notes were repaid with the proceeds from the sale of the
Senior Secured Convertible Debentures (see Note 7).
F-35
<PAGE>
SELECTTECH
NOTES TO FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999, SIX MONTHS ENDED
DECEMBER 31, 1998 (Unaudited) AND PERIOD FROM JULY 1, 1999
THROUGH DECEMBER 23, 1999 (Unaudited)
7. SENIOR SECURED CONVERTIBLE DEBENTURES
In October 1998 SelectTech entered into a Debenture Purchase Agreement with
three insurance carriers that provides up to $2,500,000 at 12% interest. As of
June 30, 1999, $2,500,000 had been borrowed under this agreement.
Debentures are convertible to common stock at a rate of $1.67 per share. In
addition, debenture holders receive warrants to purchase common stock at $.01
per share for 5% of SelectTech's fully diluted capital exercisable at the
earlier of an initial public offering of common stock, sale, transfer, or
disposition of substantially all assets, or October 15, 2005. The proceeds from
the issuance of Senior Secured Convertible Debentures were allocated to the debt
and the warrants based on their relative fair value. The resulting debt discount
of $718,294 and financing costs of $94,561 are being recognized as interest
expense over the life of the debentures.
The Debenture Purchase Agreement requires eight quarterly interest-only
payments from December 31, 1998 through September 30, 2000; thereafter,
outstanding principal shall be repaid in twelve equal quarterly installments,
plus interest, from December 31, 2000 through September 30, 2003. The agreement
provides for stock registration rights, requires 20% representation by
purchasers on SelectTech's Board of Directors, requires subordination of the
Note Payable to SelectQuote and past-due payables to related parties, and grants
security interests in SelectTech's assets, including source code, to all
existing and future software while the debentures are outstanding.
From July 22, 1999 through August 13, 1999, SelectTech received additional
loans totalling $750,000 from the three insurance carriers. These loans were to
be repaid in full on December 15, 1999 at 12% per annum interest; however, the
insurance carriers extended the due date to the earlier of: (i) the date funds
are received from a $5,000,000 preferred stock investment in SelectQuote or
(ii) December 29, 1999.
8. INCOME TAXES
Income tax expense for the years ended June 30, 1997, 1998 and 1999 and for
the period July 1, 1999 through December 23, 1999 consisted solely of state
franchise taxes.
F-36
<PAGE>
SELECTTECH
NOTES TO FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999, SIX MONTHS ENDED
DECEMBER 31, 1998 (Unaudited) AND PERIOD FROM JULY 1, 1999
THROUGH DECEMBER 23, 1999 (Unaudited)
8. INCOME TAXES (Continued)
Deferred income taxes reflect the tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax reporting purposes, as well as
operating losses and tax credit carryforwards. Significant components of
SelectTech's deferred tax assets for federal and state income taxes are as
follows:
<TABLE>
<CAPTION>
June 30,
------------------------- December 23,
1998 1999 1999
----------- ----------- ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards... $ 753,531 $ 1,898,781 $ 2,486,752
Other--net......................... 261,720 547,876 1,018,733
----------- ----------- -----------
Total............................ 1,015,251 2,446,657 3,505,485
Valuation allowance.................. (1,015,251) (2,446,657) (3,505,485)
----------- ----------- -----------
Net deferred tax asset............... $ -- $ -- $ --
=========== =========== ===========
</TABLE>
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. SelectTech established a
100% valuation allowance at June 30, 1998 and 1999 and December 23, 1999 due to
the uncertainty of realizing future tax benefits from its net operating loss
carryforwards and other deferred tax assets. Federal and state net operating
losses for tax purposes of approximately $4,700,000 and $2,900,000,
respectively, begin to expire in the years 2012 and 2003 for federal and state
purposes, respectively.
Internal Revenue Code Section 382 places a limitation (the "Section 382
Limitation") on the amount of taxable income which can be offset by net
operating loss ("NOL") carryforwards after a change in control (generally
greater than 50% change in ownership) of a loss corporation. California has
similar rules. Generally, after a control change, a loss corporation cannot
deduct NOL carryforwards in excess of the Section 382 Limitation. Due to these
"change in ownership" provisions, utilization of the NOL and tax credit
carryforwards may be subject to an annual limitation regarding their utilization
against taxable income in future periods.
9. CAPITAL LEASES
SelectTech leased computer equipment from SelectQuote under a capital lease
agreement that expired March 1999 (see Note 5). In addition, during 1998
SelectTech entered into another capital lease which expires in March 2001.
F-37
<PAGE>
SELECTTECH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
9. CAPITAL LEASES (Continued)
Minimum lease payments under this lease for future years ending June 30 are
as follows:
<TABLE>
<S> <C>
2000........................................................ $ 5,802
2001........................................................ 3,868
-------
Total minimum lease payments............................ 9,670
Less amount representing interest........................... 797
-------
Present value of minimum lease payments..................... 8,873
Less current portion of obligation under capital lease...... (5,146)
-------
Long-term portion of obligation under capital lease......... $ 3,727
=======
</TABLE>
10. STOCK OPTION PLAN
SelectTech's 1997 Stock Option Plan (the "Plan") allows the Board of
Directors to grant options to employees, directors and consultants of SelectTech
to purchase shares of common stock either as incentive stock options ("ISO") or
as nonqualified stock options ("NSO"). The Board of Directors has authorized
6,200,000 shares of common stock for the Plan, as amended in February 1998 and
August 1999. The term of each option may not exceed ten years and ten years and
one month for ISOs and NSOs, respectively. Options vest ratably over three years
from the date of grant.
Stock option activity was as follows:
<TABLE>
<CAPTION>
Weighted
Number Average
of Shares Exercise Price
--------- --------------
<S> <C> <C>
Balance at July 1, 1996............................ -- $ --
Granted............................................ 1,727,744 0.001
--------- ------
Balance at June 30, 1997 (no shares vested)........ 1,727,744 0.001
Granted............................................ 900,000 0.170
--------- ------
Balance at June 30, 1998 (671,900 shares vested at
a weighted average exercise price of $0.001)..... 2,627,744 0.060
Granted............................................ 124,500 1.670
Canceled........................................... (2,500) 1.670
--------- ------
Balance at June 30, 1999........................... 2,749,744 0.130
Granted (unaudited)................................ 3,409,111 3.413
Exercised (unaudited).............................. (750,000) 0.001
Canceled (unaudited)............................... (117,000) 0.520
--------- ------
Balance at December 23, 1999 (unaudited)........... 5,291,855 $2.255
========= ======
Available for grant at December 23, 1999
(unaudited)...................................... 908,145
=========
</TABLE>
F-38
<PAGE>
SELECTTECH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
10. STOCK OPTION PLAN (Continued)
The weighted average minimum value per option as of the date of grant for
options granted during 1997, 1998 and 1999 was $0.00, $0.04 and $0.41,
respectively. Total exercisable shares were 671,900 and 1,676,982 at June 30,
1998 and 1999, respectively, and 1,850,974 at December 23, 1999.
The following table summarizes information about outstanding and vested
stock options at December 23, 1999:
<TABLE>
<CAPTION>
Options Outstanding
- ----------------------------------------------
Weighted Options
Outstanding Average Vested at
Exercise at December 23, Remaining December 23,
Price 1999 Contractual Life 1999
- -------- ---------------- ---------------- -------------
<S> <C> <C> <C>
$0.001 977,744 7.47 864,344
0.170 800,000 8.16 507,078
1.670 105,000 9.20 28,116
3.210 1,243,309 9.65 164,640
3.530 2,165,802 9.65 286,796
--------- ---------
5,291,855 9.01 1,850,974
========= =========
</TABLE>
ADDITIONAL STOCK PLAN INFORMATION--As discussed in Note 1, SelectTech
accounts for its stock-based awards to employees using the intrinsic value
method in accordance with APB No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,
and its related interpretations.
SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, requires the
disclosure of pro-forma net loss and loss per share had SelectTech adopted the
fair value method since SelectTech's inception. Under SFAS No. 123, the fair
value of stock-based awards to employees is calculated through the use of option
pricing models, even though such models were developed to estimate the fair
value of freely tradable, fully transferable options without vesting
restrictions, which significantly differ from SelectTech's stock option awards.
These models also require subjective assumptions, including future stock price
volatility and expected time to exercise, which greatly affect the calculated
values.
The weighted average fair value of SelectTech's stock-based awards to
employees was estimated using the minimum option pricing model with the
following assumptions:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Dividend yield........................................ None None None
Risk free interest rate............................... 5.6% 5.6% 5.6%
Expected term, in years............................... 2 2 2
</TABLE>
F-39
<PAGE>
SELECTTECH
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
YEARS ENDED JUNE 30, 1997, 1998 AND 1999
AND SIX MONTHS ENDED DECEMBER 31, 1998 AND 1999 (UNAUDITED)
10. STOCK OPTION PLAN (Continued)
If the computed minimum values of SelectTech's stock-based awards to
employees had been amortized to expense over the vesting period of the awards as
specified under SFAS No. 123, net loss on a pro forma basis (as compared to such
items as reported) would have been:
<TABLE>
<CAPTION>
Years Ended June 30,
-------------------------------------
1997 1998 1999
--------- ----------- -----------
<S> <C> <C> <C>
Net loss:
As reported........................... $582,556 $2,005,378 $3,578,770
Pro forma............................. $582,563 $2,009,966 $3,595,629
</TABLE>
11. EMPLOYEE BENEFIT PLAN
SelectTech has a pretax savings plan covering nearly all its employees that
is intended to qualify under Section 401(k) of the Internal Revenue Code.
Eligible employees may contribute up to 15 percent of their pretax salary,
subject to certain limitations. SelectTech makes a discretionary profit sharing
contribution and matches each employee's contributions up to $300 per plan year.
SelectTech's contributions were zero, $203 and $2,029 during the years ended
June 30, 1997, 1998 and 1999, respectively.
12. MAJOR CUSTOMERS
Revenue attributable to significant customers, representing approximately
10% or more of total revenue for at least one of the respective periods, is
summarized as follows:
<TABLE>
<CAPTION>
Years Ended June 30,
------------------------------------
Sales 1997 1998 1999
- ----- -------- -------- --------
<S> <C> <C> <C>
Company A.............................................. 59% 4% --%
Company B.............................................. 40 23 --
Company C.............................................. -- 19 24
Company D.............................................. -- 19 2
Company E.............................................. -- 27 6
Company F.............................................. -- -- 30
</TABLE>
At June 30, 1998, Company B, C, E and F accounted for 17%, 33%, 24% and 14%,
respectively, of accounts receivable. At June 30, 1999, Company C and F
accounted for 27% and 22%, respectively, of accounts receivable.
F-40
<PAGE>
You should rely only on the information contained in this Prospectus. We
have not authorized anyone to provide information different from that contained
in this Prospectus. We are offering to sell, and seeking offers to buy, shares
of common stock only in jurisdictions where offers and sales are permitted. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or of any sale
of our common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
--------
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Special Note Re Forward-Looking
Statements and Industry Data........ 20
Use of Proceeds....................... 20
Dividend Policy....................... 20
Capitalization........................ 21
Dilution.............................. 22
Selected Financial and Operating
Data................................ 23
Pro Forma Condensed Combined and
Actual Data......................... 25
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 28
Business.............................. 41
Management............................ 59
Related Party Transactions............ 64
Principal Stockholders................ 66
Description of Capital Stock.......... 67
Shares Eligible for Future Sale....... 69
Underwriting.......................... 71
Legal Matters......................... 73
Experts............................... 73
Where You Can Find Additional
Information......................... 73
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
Dealer Prospectus Delivery Obligation:
Until , 2000 (25 days after the date of this prospectus), all
dealers that buy, sell or trade in these shares of common stock, whether or not
participating in this offering, may be required to deliver a prospectus. Dealers
are also obligated to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
[LOGO]
Shares
Common Stock
Deutsche Banc Alex. Brown
U.S. Bancorp Piper Jaffray
Cochran, Caronia & Co.
Prospectus
, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses payable by the Company (the
"registrant") in connection with the offering of the securities being
registered, other than the underwriting discounts and commissions. All of the
amounts are estimates except for the SEC registration fee, the NASD filing fee
and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
SEC registration fee........................................ $17,152
NASD filing fee.............................................
Nasdaq National Market filing fee*..........................
Blue Sky fees and expenses.................................. 1,000
Printing and engraving expenses*............................
Legal fees and expenses*....................................
Accounting fees and expenses*...............................
Transfer agent and registrar fees and expenses*.............
Directors' and Officers' insurance premiums*................
Miscellaneous expenses*.....................................
-------
Total..................................................... $
=======
</TABLE>
- ------------------------
* To be added by amendment
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law (the DGCL) 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 such
indemnification under certain circumstances for liabilities (including
reimbursement for expenses incurred) arising under the Securities Act of 1933,
as amended (the "Securities Act").
As permitted by the DGCL, the registrant's bylaws provide that the
registrant shall indemnify its directors and officers, and may indemnify its
employees and other agents, to the fullest extent permitted by law. The bylaws
also permit the registrant to secure insurance on behalf of any officer,
director, employee or other agent for any liability arising out of his or her
actions in such capacity, regardless of whether the bylaws would permit
indemnification. The registrant intends to obtain officer and director liability
insurance with respect to liabilities arising out of certain matters, including
matters arising under the Securities Act.
The registrant also has entered into agreements with certain of its
directors and executive officers and intends to enter into agreements with its
remaining officers and directors that, among other things, indemnify them for
certain expenses (including attorneys' fees), judgments, fines and settlement
amounts incurred by them in any action or proceeding, including any action by or
in the right of the registrant, arising out of such person's services as a
director or officer of the registrant, any subsidiary of the registrant or any
other company or enterprise to which the person provides services at the request
of the registrant.
Reference is made to Section 8 of the Underwriting Agreement, a copy of
which is filed as Exhibit 1.1 hereto, which provides for indemnification by the
Underwriters of the directors and officers of the registrant who sign the
registration statement against certain liabilities, including those arising
under the Securities Act, in certain circumstances.
II-1
<PAGE>
Item 15. RECENT SALES OF UNREGISTERED SECURITIES.
(1) In December 1999, the registrant acquired SelectQuote as its wholly owned
subsidiary in a merger transaction and simultaneously acquired SelectTech
which merged into SelectQuote pursuant to the terms of an amended and
restated agreement and plan of reorganization dated as of August 17, 1999.
In connection with these two merger transactions, the registrant appeared at
a fairness hearing conducted by the California Corporations Commissioner,
which issued a permit for the offer and sale of securities in the merger.
Pursuant to the permit the registrant issued the following securities to the
shareholders and other security holders of SelectQuote and SelectTech which
were exempt from registration under the Securities Act by reason of
Section 3(a)(10) thereof: 10,497,974 shares of common stock; 1,137,235
shares of Series A preferred stock; 821,690 shares of Series B preferred
stock; 69,925 shares of Series C preferred stock. In addition, the
registrant issued debentures in the principal amount of $1.9 million
convertible into 731,420 shares of common stock at $2.60 per share and
options for the purchase of 6,510,635 shares of common stock, which were
issued to the former holders of SelectQuote and SelectTech stock options. No
underwriters were engaged in connection with these issuances and sales.
(2) The registrant issued a total of 50,000 shares of Series D preferred stock
in a private placement on December 27, 1999 to an accredited investor. These
shares are convertible into 1,111,111 shares of Series D preferred stock.
The total consideration received was $5.0 million. The exemption from
registration relied upon for this transaction was Section 4(2). Cochran,
Caronia Securities LLC provided investment banking services to the
registrant in connection with this private placement.
(3) The registrant entered into a binding agreement for the sale of 2,041,845
shares of Series E preferred stock in a private placement on February 29,
2000 to a group of accredited investors. These shares are convertible into
2,041,845 shares of common stock. The sale of these securities will be
exempt from registration relied upon for this transaction was Section 4(2).
Cochran, Caronia Securities LLC provided investment banking services to the
registrant in connection with this private placement.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<C> <S>
1.1 Form of Equity Underwriting Agreement.
2.1 Amended and Restated Agreement and Plan of Reorganization
2.1.1 Amendment to Amended and Restated Agreement and Plan of
Reorganization
2.2 Merger Agreement
3.1 Restated Certificate of Incorporation of the Registrant in
effect upon the date of this filing
3.2 Bylaws of the registrant in effect upon the date of this
filing
4.1 * Specimen Stock Certificate
4.2 Amended and Restated Registration Rights Agreement
4.3 Amended and Restated Debenture Purchase Agreement
5.1 * Opinion of McCutchen, Doyle, Brown & Enersen, LLP
5.2 * Opinion of Chapin McNitt Fleming Shea & Carter
10.1 SelectQuote, Inc. 1999 Stock Option Plan
10.2 Form of Option Agreement
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<C> <S>
10.3 SelectQuote, Inc. 1999 Employee Stock Purchase Plan
10.4 * Software License Agreement--Intellisys
10.5 Software Development Agreement with Innovative Information
Group, Inc.
10.6 Software Development Agreement between Software Technology,
Inc. and Innovative Information Group, Inc.
10.7 Software Development Agreement between Software Technology,
Inc. and Client Server Programs, Inc.
10.8 Lease Agreement for 657 Mission Street, San Francisco,
California
10.9 Lease Agreement for 595 Market Street, San Francisco,
California (6th and 7th Floors)
10.10 Lease Agreement for 595 Market Street, San Francisco,
California (7th, 9th and 10th Floors)
10.11 Form of Employment Agreement with executive officers
10.12 Form of Indemnity Agreement
10.13 Form of Affiliates Agreement
10.14 * Credit Agreement with LaSalle Bank National Association
21.1 * Subsidiaries of the Registrant
23.1 * Consent of McCutchen, Doyle, Brown & Enersen LLP (included
in Exhibit 5.1 hereto)
23.2 Consent of Deloitte & Touche LLP
23.3 * Consent of Chapin Fleming McNitt Shea & Carter
23.4 Consent of Randall J. Wolf
24.1 Power of Attorney (contained on the signature page to this
registration statement).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment
Item 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For the purpose of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 297(h) under the Securities Act shall be deemed to be part of this
registration statement at the time it was declared effective.
II-3
<PAGE>
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial BONA FIDE offering thereof.
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.
[Remainder of page intentionally left blank.]
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment to the registration statement to be
signed on its behalf of the undersigned, thereunto duly authorized, in the city
of San Francisco, state of California on March 1, 2000.
<TABLE>
<S> <C> <C>
ZEBU
By: /s/ CHARAN J. SINGH
-----------------------------------------
Charan J. Singh
CHIEF EXECUTIVE OFFICER
</TABLE>
Power of Attorney
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Steven H. Gerber and David L. Paulsen, or
either one of them, his true and lawful attorney-in-fact and agent for him and
on his behalf and in his name, place and stead, and in any and all capacities,
to sign any and all amendments (including post-effective amendments) to this
registration statement and any registration statement for the same offering that
is to be effective upon filing pursuant to Rule 462(b) under the Securities Act
of 1933 (and any amendments thereto), and to file the same, with exhibits and
any and all other documents filed with respect thereto, with the Securities and
Exchange Commission (or any other governmental or regulatory authority),
granting unto said attorney full power and authority to do and to perform each
and every act and thing requisite and necessary to be done in and about the
premises in order to effectuate the same as fully to all intents and purposes as
he himself might or could do if personally present, hereby ratifying and
confirming all that said attorney-in-fact and agent may lawfully do or cause to
be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<C> <S> <C>
/s/ CHARAN J. SINGH Chairman of the Board of Directors and
--------------------------------- Chief Executive Officer (Principal March 1, 2000
Charan J. Singh Executive Officer)
/s/ STEVEN H. GERBER
--------------------------------- President and Director March 1, 2000
Steven H. Gerber
Chief Operating Officer, Insurance
/s/ DAVID L. PAULSEN Products and Services, Chief Financial
--------------------------------- Officer (Principal Financial Officer March 1, 2000
David L. Paulsen and Principal Accounting Officer), and
Director
/s/ MICHAEL L. FEROAH
--------------------------------- Director March 1, 2000
Michael L. Feroah
/s/ STEVEN J. TYNAN
--------------------------------- Director March 1, 2000
Steven J. Tynan
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
- ------- -----------------------
<C> <S>
1.1 Form of Equity Underwriting Agreement.
2.1 Amended and Restated Agreement and Plan of Reorganization
2.1.1 Amendment to Amended and Restated Agreement and Plan of
Reorganization
2.2 Merger Agreement
3.1 Restated Certificate of Incorporation of the Registrant in
effect upon the date of this filing
3.2 Bylaws of the registrant in effect upon the date of this
filing
4.1 * Specimen Stock Certificate
4.2 Amended and Restated Registration Rights Agreement
4.3 Amended and Restated Debenture Purchase Agreement
5.1 * Opinion of McCutchen, Doyle, Brown & Enersen, LLP
5.2 * Opinion of Chapin McNitt Fleming Shea & Carter
10.1 SelectQuote, Inc. 1999 Stock Option Plan
10.2 Form of Option Agreement
10.3 SelectQuote, Inc. 1999 Employee Stock Purchase Plan
10.4 * Software License Agreement--Intellisys
10.5 Software Development Agreement with Innovative Information
Group, Inc.
10.6 Software Development Agreement between Software Technology,
Inc. and Innovative Information Group, Inc.
10.7 Software Development Agreement between Software Technology,
Inc. and Client Server Programs, Inc.
10.8 Lease Agreement for 657 Mission Street, San Francisco,
California
10.9 Lease Agreement for 595 Market Street, San Francisco,
California (6th and 7th Floors)
10.10 Lease Agreement for 595 Market Street, San Francisco,
California (7th, 9th and 10th Floors)
10.11 Form of Employment Agreement with executive officers
10.12 Form of Indemnity Agreement
10.13 Form of Affiliates Agreement
10.14 * Credit Agreement with LaSalle Bank National Association
21.1 * Subsidiaries of the Registrant
23.1 * Consent of McCutchen, Doyle, Brown & Enersen LLP (included
in Exhibit 5.1 hereto)
23.2 Consent of Deloitte & Touche LLP
23.3 * Consent of Chapin Fleming McNitt Shea & Carter
23.4 Consent of Randall J. Wolf
24.1 Power of Attorney (contained on the signature page to this
registration statement).
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment
<PAGE>
_______________ SHARES
ZEBU, INC.
COMMON STOCK
($0.01 PAR VALUE)
EQUITY UNDERWRITING AGREEMENT
_______________, 2000
Deutsche Banc Securities Inc.
U.S. Bancorp Piper Jaffray Inc.
Cochran, Caronia Securities LLC
As Representatives of the
Several Underwriters
c/o Deutsche Banc Securities Inc.
One South Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Zebu, Inc., a Delaware corporation (the "Company"), proposes to sell
to the several underwriters (the "Underwriters") named in Schedule I hereto
for whom you are acting as representatives (the "Representatives") an
aggregate of __________ shares of the Company's common stock, $0.01 par value
(the "Firm Shares"). The respective numbers of Firm Shares to be purchased by
the several Underwriters are set forth opposite their names in Schedule I
hereto. The Company also proposes to sell at the Underwriters' option an
aggregate of up to __________ additional shares of the Company's common stock
(the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you
are authorized to enter into this Agreement on behalf of the several
Underwriters, and (b) that the several Underwriters are willing, acting
severally and not jointly, to purchase the numbers of Firm Shares set forth
opposite their respective names in Schedule I, plus their pro rata portion of
the Option Shares if you elect to exercise the over-allotment option in whole
or in part for the accounts of the several Underwriters. The Firm Shares and
the Option Shares (to the extent the aforementioned option is exercised) are
herein collectively called the "Shares."
<PAGE>
Deutsche Banc Securities Inc. ("Deutsche Banc") has agreed to
reserve a portion of the Shares to be purchased by it under this Agreement
for sale to the Company's directors, officers, employees and business
associates and other parties related to the Company (collectively,
"Participants"), as set forth in the Prospectus under the heading
"Underwriters" (the "Directed Share Program"). The Shares to be sold by
Deutsche Banc pursuant to the Directed Share Program are hereinafter referred
to as the "Directed Shares." Any Directed Shares not orally confirmed for
purchase by any Participants by the end of the business day on which this
Agreement is executed will be offered to the public by the Underwriters as
set forth in the Prospectus.
In consideration of the mutual agreements contained herein and of
the interests of the parties in the transactions contemplated hereby, the
parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters as
follows:
(a) A registration statement on Form S-1 (File No. 333-______) with
respect to the Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the Rules and Regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "Commission") thereunder and has been
filed with the Commission. The Company has complied with the conditions for
the use of Form S-1. Copies of such registration statement, including any
amendments thereto, the preliminary prospectuses (meeting the requirements of
the Rules and Regulations) contained therein and the exhibits, financial
statements and schedules, as finally amended and revised, have heretofore
been delivered by the Company to you. Such registration statement, together
with any registration statement filed by the Company pursuant to Rule 462(b)
of the Securities Act, herein referred to as the "Registration Statement,"
which shall be deemed to include all information omitted therefrom in
reliance upon Rule 430A and contained in the Prospectus referred to below,
has become effective under the Securities Act and no post-effective amendment
to the Registration Statement has been filed as of the date of this
Agreement. "Prospectus" means the form of prospectus first filed with the
Commission pursuant to Rule 424(b). Each preliminary prospectus included in
the Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus." Any reference herein to the
Registration Statement, any Preliminary Prospectus or to the Prospectus shall
be deemed to refer to and include any documents incorporated by reference
therein, and, in the case of any reference herein to any Prospectus, also
shall be deemed to include any documents incorporated by reference therein,
and any supplements or amendments thereto, filed with the Commission after
the date of filing of the Prospectus under Rules 424(b) or 430A, and prior to
the termination of the offering of the Shares by the Underwriters.
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement. SelectQuote Insurance
Services, a California corporation and
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<PAGE>
wholly-owned subsidiary of the Company ("SQIS"), has been duly organized and
is validly existing as a corporation in good standing under the laws of the
State of California, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement. SQIS is the only subsidiary, direct or indirect, of the Company.
The Company and SQIS are duly qualified to transact business in all
jurisdictions in which the conduct of their business requires such
qualification. All of the outstanding shares of capital stock of SQIS have
been duly authorized and validly issued, are fully paid and non-assessable
and are owned by the Company free and clear of all liens, encumbrances and
equities and claims; and no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in SQIS are
outstanding.
(c) The outstanding shares of common stock of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
Shares to be issued and sold by the Company have been duly authorized and
when issued and paid for as contemplated hereby will be validly issued, fully
paid and non-assessable; and no preemptive rights of stockholders exist with
respect to any of the Shares or the issue and sale thereof. Neither the
filing of the Registration Statement nor the offering or sale of the Shares
as contemplated by this Agreement gives rise to any rights, other than those
which have been waived or satisfied, for or relating to the registration of
any shares of common stock.
(d) The Agreement and Plan of Merger, dated December 23, 1999, and
the Agreement and Plan of Reorganization, dated August 17, 1999
(collectively, the "Merger Agreements"), by and among SQIS, SelectTech, Inc.,
a Nevada corporation ("SelectTech"), the Company and SelectQuote Acquisition
Sub, a California corporation ("SQAS"), have been duly authorized by all
necessary action by the board of directors and stockholders of each of the
parties thereto and have been duly executed and delivered by each of the
parties thereto. The execution and delivery of the Merger Agreements and the
consummation of the merger contemplated thereby (the "Merger") did not
contravene (i) any provision of applicable law, (ii) the Articles of
Incorporation or By-laws of SQIS, (iii) the Articles of Incorporation or
By-laws of SelectTech, (iv) the Certificate of Incorporation or By-laws of
the Company, (v) the Articles of Incorporation or By-laws of SQAS (vi) any
agreement or other instrument binding upon the Company, SelectTech or SQIS
that is material to the Company, SelectTech or SQIS and that is set forth as
an exhibit to the Registration Statement (vii) any judgment or decree of any
governmental body, agency or court having jurisdiction over the Company,
SelectTech or SQIS, except for any such contravention that would not have a
material adverse effect on the condition (financial or otherwise), business,
results of operation or prospects of the Company and SQIS, taken as a whole.
No consent, approval, authorization or order of qualification with any
governmental body or agency was required for the performance by the Company,
SelectTech or SQIS of its obligations under the Merger Agreements except such
as were obtained. The Merger is effective under the laws of the State of
California, the State of Delaware and the State of Nevada. Pursuant to the
Merger Agreements, SQIS succeeded to all rights, privileges and obligations
of SelectTech. The offer and sale of the securities issued in connection with
the Merger were in compliance with the applicable federal and state
securities laws. Neither the Merger Agreements nor the exchange of shares
consummated in connection therewith
-3-
<PAGE>
(i) contravened, conflicted with or resulted in a material violation or
breach of, or resulted in a default under, any provisions of any agreement or
contract of SQIS, SelectTech, the Company or SQAS, except for any
contravention, conflict, violation, breach or default which could not
reasonably be expected to result in a material adverse effect on the Company
and SQIS, taken as a whole; (ii) gave any person the right to (a) declare a
default or exercise any remedy under any such agreement or contract, except
where any such default or exercise of a remedy could not reasonably be
expected to result in a material adverse effect on the Company and SQIS,
taken as a whole, (b) accelerate the maturity or performance of any such
agreement or contract, except where such acceleration could not reasonably be
expected to result in a material adverse effect on the Company and SQIS,
taken as a whole, or (c) cancel, terminate or modify any such contract,
except where any such cancellation, termination or modification could not
reasonably be expected to result in a material adverse effect on the Company
and SQIS, taken as a whole; or (iii) resulted in the imposition or creation
of any encumbrance upon or with respect to any of the shares of capital stock
or the assets of the Company, except where such encumbrance would not result
in a material adverse effect on the Company and SQIS, taken as a whole.
(e) The information set forth under the caption "Capitalization" in
the Prospectus is true and correct. All of the Shares conform to the
description thereof contained in the Registration Statement. The form of
certificates for the Shares conforms to the corporate law of the jurisdiction
of the Company's incorporation.
(f) The Commission has not issued an order preventing or suspending
the use of any Prospectus relating to the proposed offering of the Shares nor
instituted proceedings for that purpose. The Registration Statement contains,
and the Prospectus and any amendments or supplements thereto will contain,
all statements which are required to be stated therein by, and will conform
to, the requirements of the Securities Act and the Rules and Regulations. The
Registration Statement and any amendment thereto do not contain, and will not
contain, any untrue statement of a material fact and do not omit, and will
not omit, to state any material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus and
any amendments and supplements thereto do not contain, and will not contain,
any untrue statement of material fact and do not omit, and will not omit, to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from
the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof.
(g) The consolidated financial statements of each of SQIS and
SelectTech, together with related notes and schedules as set forth in the
Registration Statement, present fairly the financial position and the results
of operations and cash flows of each of SQIS and SelectTech, at the indicated
dates and for the indicated periods. Such financial statements and related
schedules have been prepared in accordance with generally accepted principles
of accounting, consistently applied throughout the periods involved, except
as disclosed therein, and all adjustments necessary for a fair presentation
of results
-4-
<PAGE>
for such periods have been made. The summary financial, operating and other
statistical data included in the Registration Statement presents fairly the
information shown therein and such data has been compiled on a basis
consistent with the financial statements presented therein and the books and
records of each of SQIS and SelectTech. The pro forma financial statements
and other pro forma financial information included in the Registration
Statement and the Prospectus present fairly the information shown therein,
have been prepared in accordance with the Commission's rules and guidelines
with respect to pro forma financial statements, have been properly compiled
on the pro forma bases described therein, and, in the opinion of the Company,
the assumptions used in the preparation thereof are reasonable and the
adjustments used therein are appropriate to give effect to the transactions
or circumstances referred to therein.
(h) Deloitte & Touche LLP, who have certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Securities
Act and the Rules and Regulations.
(i) There is no action, suit, claim or proceeding pending or, to the
knowledge of the Company, threatened against the Company or SQIS before any
court or administrative agency or otherwise which if determined adversely to
the Company or SQIS might result in any material adverse change in the
earnings, business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and of SQIS
taken as a whole or to prevent the consummation of the transactions
contemplated hereby, except as set forth in the Registration Statement.
(j) Each of the Company and SQIS has good and marketable title to
all of the properties and assets reflected in the financial statements (or as
described in the Registration Statement) hereinabove described, subject to no
lien, mortgage, pledge, charge or encumbrance of any kind except those
reflected in such financial statements (or as described in the Registration
Statement) or which are not material in amount. Each of the Company and SQIS
occupies its leased properties under valid and binding leases conforming in
all material respects to the description thereof set forth in the
Registration Statement.
(k) Each of the Company, SQIS and SelectTech has filed all federal,
state, local and foreign tax returns which have been required to be filed and
have paid all taxes indicated by said returns and all assessments received by
them or any of them to the extent that such taxes have become due. All tax
liabilities have been adequately provided for in the financial statements of
the Company, SQIS and SelectTech, and the Company does not know of any actual
or proposed additional material tax assessments.
(l) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, (i) there
has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company and SQIS taken as a whole, whether or
not occurring in the ordinary course of business, (ii) there
-5-
<PAGE>
has not been any material transaction entered into or any material
transaction that is probable of being entered into by the Company or SQIS,
other than transactions in the ordinary course of business and changes and
transactions described in the Registration Statement, as it may be amended or
supplemented, (iii) there has not been any material adverse change or any
development involving a prospective material adverse change in the capital
stock or in the long-term debt of the Company or SQIS, and (iv) neither the
Company nor SQIS has purchased any of its outstanding capital stock nor
declared, paid or made any dividend or other distribution on its capital
stock of any class or series. The Company and SQIS have no material
contingent obligations which are not disclosed in the financial statements of
SQIS and SelectTech which are included in the Registration Statement.
(m) Neither the Company nor SQIS is or with the giving of notice or
lapse of time or both, will be, in violation of or in default under its
Certificate of Incorporation or Articles of Incorporation, as applicable, or
its By-Laws or under any agreement, lease, contract, indenture or other
instrument or obligation to which it is a party or by which it, or any of its
properties, is bound and which default is of material significance in respect
of the condition, financial or otherwise of the Company and SQIS, taken as a
whole or the business, management, properties, assets, rights, operations,
condition (financial or otherwise) or prospects of the Company and SQIS taken
as a whole. The execution, delivery and performance of this Agreement and the
consummation of the transactions herein contemplated and the fulfillment of
the terms hereof do not and will not conflict with or result in a breach of
any of the terms or provisions of, or constitute a default under, any
indenture, mortgage, deed of trust or other agreement or instrument to which
the Company or SQIS is a party, or of the Certificate of Incorporation or
Articles of Incorporation, as applicable, or the By-Laws of the Company or
SQIS, or any order, rule or regulation applicable to the Company or SQIS of
any court or of any regulatory body or administrative agency or other
governmental body having jurisdiction over the Company or SQIS.
(n) Each approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body necessary in connection with the execution and delivery by
the Company of this Agreement and the consummation of the transactions herein
contemplated (except such additional steps as may be required by the
Commission, the National Association of Securities Dealers, Inc. (the "NASD")
or such additional steps as may be necessary to qualify the Shares for public
offering by the Underwriters under state securities or Blue Sky laws) has
been obtained or made and is in full force and effect.
(o) Each of the Company and SQIS holds all material licenses,
certificates and permits from governmental authorities which are necessary to
own or lease, as the case may be, and to operate its properties and to
conduct its business as described in the Registration Statement; and, except
as described in the Registration Statement (and any amendment or supplement
thereto), neither the Company nor SQIS has to its knowledge infringed any
patents issued prior to the Closing Date, trade names, trademarks or
copyrights, which infringement is material to the business of the Company and
SQIS, taken as a whole, as described in the Registration Statement. The
Company knows of no material infringement by others of patents,
-6-
<PAGE>
patent rights, trade names, trademarks or copyrights owned by or licensed to
the Company or SQIS. Each of the Company and SQIS owns, or possesses adequate
rights to use, all patents, patent rights, inventions, trade secrets,
licenses, know-how, proprietary techniques, including processes and
substances, trademarks, service marks, trade names and copyrights described
or referred to in the Registration Statement as owned or used by it or which
are necessary for the conduct of its business as described in the
Registration Statement, except as otherwise disclosed in the Registration
Statement. To the best knowledge of the Company, except as disclosed in the
Registration Statement, all such patents, patent rights, licenses,
trademarks, service marks and copyrights are (i) valid and enforceable and
(ii) not being infringed by any third parties which infringement could,
whether singly or in the aggregate, materially and adversely affect the
business, properties, operations, condition (financial or otherwise), income,
business prospects or results of operations of the Company and SQIS, taken as
a whole, as presently being conducted or as proposed to be conducted in the
Registration Statement. Except as disclosed in the Registration Statement,
the Company has no knowledge of, nor has it received any notice of,
infringement of or conflict with, asserted rights of others with respect to
any patents issued prior to the Closing Date, inventions, trade secrets,
licenses, know-how, proprietary techniques, including processes and
substances, trademarks, service marks, trade names or copyrights which,
singly or in the aggregate, if the subject of an unfavorable decision, ruling
or finding could materially and adversely affect the business, properties,
operations, condition (financial or otherwise), income, business prospects or
results of operations of the Company and SQIS, taken as a whole, as presently
being conducted or as proposed to be conducted in the Registration Statement.
(p) Neither the Company, nor to the Company's knowledge, any of its
affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of common stock to facilitate the sale or resale of
the Shares. The Company acknowledges that the Underwriters may engage in
passive market making transactions in the Shares on the Nasdaq National
Market in accordance with Rule 10b-6A under the Exchange Act.
(q) The Company has been advised concerning the Investment Company
Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder; neither the Company nor SQIS is and, after giving effect to the
offering and sale of the Shares and the application of the proceeds thereof
as described in the Registration Statement, neither the Company nor SQIS will
be, an "investment company" as such term is defined in the 1940 Act; and each
of the Company, SQIS and SelectTech has in the past conducted, and each of
the Company and SQIS intends in the future to conduct, its affairs in such a
manner as to ensure that it will not become an "investment company" or a
company "controlled" by an "investment company" within the meaning of the
1940 Act and the rules and regulations thereunder.
(r) Each of the Company and SQIS maintains a system of internal
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii)
-7-
<PAGE>
access to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(s) Each of the Company and SQIS carries, or is covered by,
insurance in such amounts and covering such risks as is adequate for the
conduct of their respective businesses and the value of their respective
properties and as is customary for companies engaged in similar business.
(t) Each of the Company and SQIS is in compliance in all material
respects with all presently applicable provisions of the Employee Retirement
Income Security Act of 1974, as amended, including the regulations and
published interpretations thereunder ("ERISA"); no "reportable event" (as
defined in ERISA) has occurred with respect to any "pension plan" (as defined
in ERISA) for which the Company or SQIS would have any liability; neither the
Company nor SQIS has incurred nor expects to incur liability under (i) Title
IV of ERISA with respect to termination of, or withdrawal from, any "pension
plan" or (ii) Sections 412 or 4971 of the Internal Revenue Code of 1986, as
amended, including the regulations and published interpretations thereunder
(the "Code"); and each "pension plan" for which the Company or SQIS would
have any liability that is intended to be qualified under Section 401(a) of
the Code is so qualified in all material respects and nothing has occurred,
whether by action or by failure to act, which would cause the loss of such
qualification.
(u) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's or
SQIS's officers, directors or securityholders, except as set forth in the
Registration Statement or previously disclosed on NASD questionnaires
provided to counsel for the Representatives.
(v) Neither the Company, SQIS nor SelectTech has violated any
foreign, federal, state or local law or regulation relating to the protection
of human health and safety, the environment or hazardous or toxic substances
or wastes, pollutants or contaminants ("Environmental Laws"), any provisions
of the Employee Retirement Income Security Act of 1974, as amended, or any
provisions of the Foreign Corrupt Practices Act, or the rules and regulations
promulgated thereunder, except for such violations which, singly or in the
aggregate, would not have a material adverse effect on the business,
prospects, financial condition or results of operation of the Company and
SQIS, taken as a whole.
(w) Each of the Company and SQIS has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each,
an "Authorization") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and
all courts and other tribunals, including, without limitation, under any
applicable Environmental Laws, as are necessary to own, lease, license and
operate its properties and to conduct its business, except where the failure
to have any such Authorization or to make any such filing or notice would
not, singly or in
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<PAGE>
the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and SQIS, taken
as a whole. Each such Authorization is valid and in full force and effect and
each of the Company and SQIS is in compliance with all the terms and
conditions thereof and with the rules and regulations of the authorities and
governing bodies having jurisdiction with respect thereto; and no event has
occurred (including, without limitation, the receipt of any notice from any
authority or governing body) which allows or, after notice or lapse of time
or both, would allow, revocation, suspension or termination of any such
Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or SQIS; except where such failure to be valid and
in full force and effect or to be in compliance, the occurrence of any such
event or the presence of any such restriction would not, singly or in the
aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and SQIS, taken
as a whole.
(x) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any Authorization, any related constraints on operating activities
and any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and SQIS, taken
as a whole.
(y) This Agreement has been duly authorized, executed and delivered
by the Company.
(z) No relationship, direct or indirect, exists between or among the
Company or SQIS on the one hand, and the directors, officers, stockholders,
customers or suppliers of the Company or SQIS on the other hand, which is
required by the Securities Act to be described in the Registration Statement
or the Prospectus which is not so described. The statements in the
Registration Statement describing any such relationship, including without
limitation any description of Innovative Information Group, Inc., a
California corporation, and any other entity controlled by any director,
officer, stockholder, customer or supplier of the Company, are accurate,
complete and fair.
(aa) There is no (i) significant unfair labor practice complaint,
grievance or arbitration proceeding pending or threatened against the Company
or SQIS before the National Labor Relations Board or any state or local labor
relations board, (ii) strike, labor dispute, slowdown or stoppage pending or
threatened against the Company or SQIS, or (iii) union representation
question existing with respect to the employees of the Company or SQIS,
except for such actions specified in clause (i), (ii) or (iii) above which,
singly or in the aggregate, would not have a material adverse effect on the
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company or SQIS, taken as a
whole. To the best of the Company's knowledge, no collective bargaining
organizing activities are taking place with respect to the Company or SQIS.
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(ab) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company, SQIS or SelectTech to or for the
benefit of any of the officers or directors of the Company or SQIS, or any of
the members of the families of any of them, except as disclosed in the
Registration Statement and the Prospectus.
(ac) There are no issues related to the Company's or SQIS's
preparedness for the Year 2000 that (i) are of a character required to be
described or referred to in the Registration Statement or Prospectus by the
Securities Act which have not been accurately described in the Registration
Statement or Prospectus or (ii) might reasonably be expected to result in any
material adverse change in the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company and SQIS, taken as
a whole, or that might materially affect their properties, assets or rights.
All internal computer systems and each Constituent Component (as defined
below) of those systems and all computer-related products and each
Constituent Component of those products of the Company and SQIS, by December
31, 1999, fully complied with the Year 2000 Qualification Requirements. "Year
2000 Qualification Requirements" means that the internal computer systems and
each Constituent Component (as defined below) of those systems and all
computer-related products of each Constituent Component (as defined below) of
those products of the Company and SQIS (i) have been reviewed to confirm that
they store, process (including sorting and performing mathematical
operations, calculations and computations), input and output data containing
date and information correctly regardless of whether the date contains dates
and times before, on or after January 1, 2000, (ii) have been designated to
ensure date and time entry recognition and calculations, and date data
interface values that reflect the century, (iii) accurately manage and
manipulate data involving dates and times, including single century formulas
and multi-century formulas, and will not cause an abnormal ending scenario
within the application or generate incorrect values or invalid results
involving such dates, (iv) accurately process any date rollover, and (v)
accept and respond to two-digit year date input in a manner that resolves any
ambiguities as to the century. "Constituent Component" means all software
(including operating systems, programs, packages and utilities), firmware,
hardware, networking components and peripherals provided as part of the
configuration. Each of the Company and SQIS has inquired of material vendors
as to their preparedness for the Year 2000 and has disclosed in the
Registration Statement or Prospectus any issues that might reasonably be
expected to result in any material adverse change.
(ad) The Company's common stock has been approved for quotation on
the Nasdaq National Market, subject to official notice of issuance.
(ae) The Company has not distributed and will not distribute prior
to the later of (i) the Closing Date, or any date on which Option Shares are
to be purchased, as the case may be, and (ii) completion of the distribution
of the Shares, any offering material in connection with the offering and sale
of the Shares other than any preliminary prospectuses, the Prospectus, the
Registration Statement and other materials, if any, permitted by the
Securities Act.
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(af) Each officer and director of the Company and SQIS and each
beneficial owner of common stock of the Company listed on Schedule II hereto
has agreed in writing that such person will not make any offering, sale,
short sale or other disposition of any shares of common stock of the Company
or other capital stock of the Company or other securities convertible,
exchangeable or exercisable for common stock or derivative of common stock of
the Company owned or hereafter acquired by such person or request the
registration for the offer or sale of any of such shares of common stock (or
as to which such person has the right to direct the disposition of), directly
or indirectly, for a period of 180 days following the effective date of the
Registration Statement, otherwise than (i) with the prior written consent of
Deutsche Banc or (ii) in a distribution of shares of common stock to its
respective partners, if a partnership, or by transfer to any affiliate of
such person, including any trust, or to any other transferee in a private
transaction not requiring registration under the Securities Act, or by any
bona fide gift or pledge of such shares of common stock, provided that such
partner, affiliate, trustee, donee or other transferee and/or lender or
creditor acknowledges in writing that it is bound by these terms.
Furthermore, each such person has also authorized the Company to cause the
Company's transfer agent to decline to transfer and/or to note stop transfer
restrictions on the transfer books and records of the Company with respect to
any shares of common stock and any securities convertible into or exercisable
or exchangeable for common stock for which such person is the record holder
and, in the case of any such shares or securities for which such person is
the beneficial but not the record holder, agrees to cause the record holder
to cause the transfer agent to decline to transfer and/or to note stop
transfer restrictions on such books and records with respect to such shares
or securities. The Company has provided to counsel for the Underwriters a
complete and accurate list of all securityholders of the Company, and of each
of SQIS and SelectTech prior to the closing of the Merger, and the number and
type of securities held by each securityholder. The Company has provided to
counsel for the Underwriters true, accurate and complete copies of all of the
agreements pursuant to which its officers, directors and the stockholders
listed on Schedule II hereto have agreed to such or similar restrictions (the
"Lock-up Agreements") presently in effect or effected hereby. The Company
hereby represents and warrants that it will not release any of its officers,
directors or stockholders from any Lock-up Agreements currently existing or
hereafter effected without the prior written consent of Deutsche Banc.
(ag) Each certificate signed by any officer of the Company and
delivered to the Underwriters or counsel for the Underwriters shall be deemed
to be a representation and warranty by the Company to the Underwriters as to
the matters covered thereby.
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $_____ per share, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof.
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(b) Payment for the Firm Shares to be sold hereunder is to be made
in New York Clearing House funds by federal (same day) funds against delivery
of certificates therefor to the Representatives for the several accounts of
the Underwriters. Such payment and delivery are to be made through the
facilities of the Depository Trust Company, New York, New York at 10:00 a.m.,
New York time, on the third business day after the date of this Agreement or
at such other time and date not later than five business days thereafter as
you and the Company shall agree upon, such time and date being herein
referred to as the "Closing Date." (As used herein, "business day" means a
day on which the New York Stock Exchange is open for trading and on which
banks in New York are open for business and are not permitted by law or
executive order to be closed.)
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth,
the Company hereby grants an option to the several Underwriters to purchase
the Option Shares at the price per share set forth in the first paragraph of
this Section 2. The option granted hereby may be exercised in whole or in
part by giving written notice (i) at any time before the Closing Date and
(ii) only once thereafter within 30 days after the date of this Agreement, by
you, as Representatives of the several Underwriters, to the Company setting
forth the number of Option Shares as to which the several Underwriters are
exercising the option, the names and denominations in which the Option Shares
are to be registered and the time and date at which such certificates are to
be delivered. The time and date at which certificates for Option Shares are
to be delivered shall be determined by the Representatives but shall not be
earlier than 3 nor later than 10 full business days after the exercise of
such option, nor in any event prior to the Closing Date (such time and date
being herein referred to as the "Option Closing Date"). If the date of
exercise of the option is three or more days before the Closing Date, the
notice of exercise shall set the Closing Date as the Option Closing Date. The
number of Option Shares to be purchased by each Underwriter shall be in the
same proportion to the total number of Option Shares being purchased as the
number of Firm Shares being purchased by such Underwriter bears to
__________, adjusted by you in such manner as to avoid fractional shares. The
option with respect to the Option Shares granted hereunder may be exercised
only to cover over-allotments in the sale of the Firm Shares by the
Underwriters. You, as Representatives of the several Underwriters, may cancel
such option at any time prior to its expiration by giving written notice of
such cancellation to the Company. To the extent, if any, that the option is
exercised, payment for the Option Shares shall be made on the Option Closing
Date in federal (same day) funds through the facilities of the Depository
Trust Company in New York, New York.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a public
offering of the Firm Shares as soon as the Representatives deem it advisable
to do so. The Firm Shares are to be initially offered to the public at the
initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option
Shares are purchased pursuant to Section 2 hereof, the Underwriters will
offer them to the public on the foregoing terms.
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It is further understood that you will act as the Representatives
for the Underwriters in the offering and sale of the Shares in accordance
with a Master Agreement Among Underwriters entered into by you and the
several other Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A
of the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a
form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Rules and Regulations, (B) not file any
amendment to the Registration Statement or supplement to the Prospectus of
which the Representatives shall not previously have been advised and
furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Rules and
Regulations and (C) file on a timely basis all reports and any definitive
proxy or information statements required to be filed by the Company with the
Commission subsequent to the date of the Prospectus and prior to the
termination of the offering of the Shares by the Underwriters.
(b) The Company will advise the Representatives promptly (A) when
the Registration Statement or any post-effective amendment thereto shall have
become effective, (B) of receipt of any comments from the Commission, (C) of
any request of the Commission for amendment of the Registration Statement or
for supplement to the Prospectus or for any additional information, and (D)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the use of the Prospectus or
of the institution of any proceedings for that purpose. The Company will use
its best efforts to prevent the issuance of any such stop order preventing or
suspending the use of the Prospectus and to obtain as soon as possible the
lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in
writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any jurisdiction where it is not
now so qualified or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports, and other documents,
as are or may be required to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for distribution
of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the
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Representatives during the period when delivery of a Prospectus is required
under the Securities Act, as many copies of the Prospectus in final form, or
as thereafter amended or supplemented, as the Representatives may reasonably
request. The Company will deliver to the Representatives at or before the
Closing Date, four signed copies of the Registration Statement and all
amendments thereto including all exhibits filed therewith, and will deliver
to the Representatives such number of copies of the Registration Statement
(including such number of copies of the exhibits filed therewith that may
reasonably be requested), and of all amendments thereto, as the
Representatives may reasonably request.
(e) The Company will comply with the Securities Act and the Rules
and Regulations, and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder,
so as to permit the completion of the distribution of the Shares as
contemplated in this Agreement and the Prospectus. If during the period in
which a prospectus is required by law to be delivered by an Underwriter or
dealer, any event shall occur as a result of which, in the judgment of the
Company or in the reasonable opinion of the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time
the Prospectus is delivered to a purchaser, not misleading, or, if it is
necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in
the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with the law.
(f) The Company will make generally available to its security
holders, as soon as it is practicable to do so, but in any event not later
than 15 months after the effective date of the Registration Statement, an
earning statement (which need not be audited) in reasonable detail, covering
a period of at least 12 consecutive months beginning after the effective date
of the Registration Statement, which earning statement shall satisfy the
requirements of Section 11(a) of the Securities Act and Rule 158 of the Rules
and Regulations and will advise you in writing when such statement has been
so made available.
(g) Prior to the Closing Date, the Company will furnish to the
Underwriters, as soon as they have been prepared by or are available to the
Company, a copy of any unaudited interim financial statements of the Company
for any period subsequent to the period covered by the most recent financial
statements appearing in the Registration Statement and the Prospectus.
(h) No offering, sale, short sale or other disposition of any shares
of common stock of the Company or other securities convertible into or
exchangeable or exercisable for shares of or derivative of common stock of
the Company (or agreement for such) will be made for a period of 180 days
after the date of this Agreement, directly or indirectly, by the Company
otherwise than hereunder or with the prior written consent of Deutsche Banc.
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(i) The Company will use its best efforts to list, subject to notice
of issuance, the Shares on the Nasdaq National Market.
(j) The Company has caused each officer and director of the Company
and each stockholder of the Company listed on Schedule II hereto to furnish
to you, on or prior to the date of this Agreement, a letter or letters (a
"Lockup Agreement"), in form and substance satisfactory to the Underwriters,
pursuant to which each such person shall agree not to offer, sell, sell short
or otherwise dispose of any shares of common stock of the Company or other
capital stock of the Company, or any other securities convertible,
exchangeable or exercisable for or derivative of the Company's common stock
owned by such person (or as to which such person has the right to direct the
disposition of) or request the registration for the offer or sale of any of
the foregoing for a period of 180 days after the date of this Agreement,
directly or indirectly, except with the prior written consent of Deutsche
Banc.
(k) The Company shall apply the net proceeds of its sale of the
Shares as set forth in the Prospectus and shall file such reports with the
Commission with respect to the sale of the Shares and the application of the
proceeds therefrom as may be required in accordance with Rule 463 under the
Securities Act.
(l) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Shares in such a manner as would
require the Company to register as an investment company under the 1940 Act.
(m) The Company will maintain a transfer agent and, if necessary
under the laws of the State of Delaware, a registrar for the Common Stock.
(n) The Company will not take, directly or indirectly, any action
designed to cause or result in, or that has constituted or might reasonably
be expected to constitute, the stabilization or manipulation of the price of
any securities of the Company.
(o) The Company will not take, directly or indirectly, any action
designated to cause or result in the filing of a registration statement on
Form S-8 under the Securities Act relating to shares of its common stock
reserved for issuance under the Company's employee benefit plans for a period
of 180 days after the date of this Agreement.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to the
performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as requested by, the
Underwriters copies of the Registration Statement, Preliminary Prospectuses,
the Prospectus, this Agreement, the Underwriters' Invitation Letter, the
Listing Application, the Blue Sky Survey and any supplements or amendments
thereto; the filing fees of the Commission; the filing fees and expenses
(including legal fees and disbursements) incident to securing any required
review by the National Association of Securities Dealers, Inc. (the "NASD")
of the terms of the sale of the Shares; the Listing Fee of The Nasdaq Stock
Market; and the expenses, including the fees
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and disbursements of counsel for the Underwriters, incurred in connection
with the qualification of the Shares under State securities or Blue Sky laws.
The Company agrees to pay all costs and expenses of the Underwriters,
including the fees and disbursements of counsel for the Underwriters,
incident to the offer and sale of the Directed Shares. The Company shall not,
however, be required to pay for any of the Underwriters' expenses (other than
those related to qualification under NASD regulation and State securities or
Blue Sky laws) except that, if this Agreement shall not be consummated
because the conditions in Section 6 hereof are not satisfied, or because this
Agreement is terminated by the Representatives pursuant to Section 11 hereof,
or by reason of any failure, refusal or inability on the part of the Company
to perform any undertaking or satisfy any condition of this Agreement or to
comply with any of the terms hereof on its part to be performed, unless such
failure to satisfy said condition or to comply with said terms be due to the
default or omission of any Underwriter, then the Company shall reimburse the
several Underwriters for reasonable out-of-pocket expenses, including fees
and disbursements of counsel, reasonably incurred in connection with
investigating, marketing and proposing to market the Shares or in
contemplation of performing their obligations hereunder; but the Company
shall not in any event be liable to any of the several Underwriters for
damages on account of loss of anticipated profits from the sale by them of
the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the Firm
Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the
Option Closing Date, as the case may be, of the representations and
warranties of the Company contained herein, and to the performance by the
Company of its covenants and obligations hereunder and to the following
additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule
424 and Rule 430A of the Rules and Regulations shall have been made, and any
request of the Commission for additional information (to be included in the
Registration Statement or otherwise) shall have been disclosed to the
Representatives and complied with to their reasonable satisfaction. No stop
order suspending the effectiveness of the Registration Statement, as amended
from time to time, shall have been issued and no proceedings for that purpose
shall have been taken or, to the knowledge of the Company, shall be
contemplated by the Commission and no injunction, restraining order, or order
of any nature by a federal or state court of competent jurisdiction shall
have been issued as of the Closing Date which would prevent the issuance of
the Shares.
(b) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, the opinion of McCutchen, Doyle,
Brown & Enersen, LLP ("McCutchen"), counsel for the Company, dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters (and stating that it may be relied upon by counsel to the
Underwriters) to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware, with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement; SQIS has
been duly organized and is validly existing as a
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corporation in good standing under the laws of the State of California, with
corporate power and authority to own or lease its properties and conduct its
business as described in the Registration Statement; each of the Company and
SQIS is duly qualified to transact business in all jurisdictions in which the
conduct of its business requires such qualification, or in which the failure
to qualify would have a materially adverse effect upon the business of the
Company and SQIS, taken as a whole; and all of the outstanding shares of
capital stock of SQIS have been duly authorized and validly issued and are
fully paid and non-assessable and are owned by the Company; and, to the best
of such counsel's knowledge, all of the outstanding shares of capital stock
of SQIS are owned by the Company free and clear of all liens, encumbrances
and equities and claims, and no options, warrants or other rights to
purchase, agreements or other obligations to issue or other rights to convert
any obligations into any shares of capital stock or of ownership interests in
SQIS are outstanding.
(ii) The Company has authorized and outstanding capital
stock as set forth under the caption "Capitalization" in the Prospectus; the
authorized shares of the Company's common stock have been duly authorized;
the outstanding shares of the Company's common stock have been duly
authorized and validly issued and are fully paid and non-assessable; the
outstanding shares of the Company's common stock have been issued in
compliance with all applicable federal and state securities laws; the
authorized capital stock of the Company and all of the Shares conform to the
description thereof contained in the Prospectus; the certificates for the
Shares, assuming they are in the form filed with the Commission, are in due
and proper form; the shares of common stock, including the Option Shares, if
any, to be sold by the Company pursuant to this Agreement have been duly
authorized and will be validly issued, fully paid and non-assessable when
issued and paid for as contemplated by this Agreement; and no preemptive
rights of stockholders exist with respect to any of the Shares or the issue
or sale thereof.
(iii) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company, SQIS or SelectTech convertible or exchangeable
into or evidencing the right to purchase or subscribe for any shares of
capital stock of the Company, SQIS or SelectTech and there are no outstanding
or authorized options, warrants or rights of any character obligating any of
the Company, SQIS or SelectTech to issue any shares of its capital stock or
any securities convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of such stock; and except as described
in the Prospectus, to the knowledge of such counsel, no holder of any
securities of the Company, SQIS or SelectTech or any other person has the
right, contractual or otherwise, which has not been satisfied or effectively
waived, to cause the Company, SQIS or SelectTech to sell or otherwise issue
to them, or to permit them to underwrite the sale of, any of the Shares or
the right to have any common stock or other securities of the Company, SQIS
or SelectTech included in the Registration Statement or the right, as a
result of the filing of the Registration Statement, to require registration
under the Securities Act of any shares of common stock or other securities of
the Company, SQIS or SelectTech.
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(iv) The Registration Statement has become effective under
the Securities Act and, to the best of the knowledge of such counsel, no stop
order proceedings with respect thereto have been instituted or are pending or
threatened under the Securities Act.
(v) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material respects
with the requirements of the Securities Act and the applicable Rules and
Regulations thereunder (except that such counsel need express no opinion as
to the financial statements and related schedules therein).
(vi) The statements under the captions "Description of
Capital Stock," "Shares Eligible for Future Sale," "Management," "Certain
Transactions," and "Underwriting" in the Prospectus, and Items 14 and 15 of
Part II to the Registration Statement insofar as such statements constitute a
summary of documents referred to therein or matters of law, accurately and
fairly summarize in all material respects the information called for with
respect to such documents and matters.
(vii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are no so
filed or described as required, and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are accurately and
fairly summarized in all material respects.
(viii) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the Company or SQIS
except as set forth in the Prospectus.
(ix) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated and
the fulfillment of the terms hereof do not and will not conflict with or
result in a breach of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or SQIS is a party, or of the Certificate of
Incorporation or Articles of Incorporation, as applicable, or By-Laws of the
Company or SQIS or any order, rule or regulation applicable to the Company or
SQIS of any court or of any regulatory body or administrative agency or other
governmental body having jurisdiction over the Company or SQIS.
(x) This Agreement has been duly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative
or other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by
State securities and Blue Sky laws as to which such counsel
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need express no opinion) except such as have been obtained or made,
specifying the same.
(xii) Neither the Company nor SQIS is, and neither will
become, as a result of the consummation of the transactions contemplated by
this Agreement and application of the net proceeds therefrom as described in
the Prospectus, required to register as an investment company under the 1940
Act.
(xiii) The Merger Agreements have been duly authorized by
all necessary action by the board of directors and stockholders of each of
the parties thereto and have been duly executed and delivered by each of the
parties thereto. The execution and delivery of the Merger Agreements and the
consummation of the Merger did not contravene (i) any provision of applicable
law, (ii) the Articles of Incorporation or By-laws of SQIS, (iii) the
Articles of Incorporation or By-laws of SelectTech, (iv) the Certificate of
Incorporation or By-laws of the Company, (v) the Articles of Incorporation or
By-laws of SQAS (vi) any agreement or other instrument binding upon the
Company, SelectTech or SQIS that is material to the Company, SelectTech or
SQIS and that is set forth as an exhibit to the Registration Statement (vii)
any judgment or decree of any governmental body, agency or court having
jurisdiction over the Company, SelectTech or SQIS that is known to such
counsel, except for any such contravention that would not have a material
adverse effect on the condition (financial or otherwise), business, results
of operation or prospects of the Company. No consent, approval, authorization
or order of qualification with any governmental body or agency was required
for the performance by the Company, SelectTech or SQIS of its obligations
under the Merger Agreements except such as were obtained and except such
consents, approvals, authorizations, orders or qualifications, which if not
obtained, would not have a material adverse effect on the condition
(financial or otherwise), business, results of operation or prospects of the
Company and SQIS, taken as a whole. The Merger is effective under the laws of
the State of California, the State of Delaware and the State of Nevada.
Pursuant to the Merger Agreements, SQIS succeeded to all rights, privileges
and obligations of SelectTech. The offer and sale of the securities issued in
connection with the Merger were in compliance with the applicable federal and
state securities laws. Neither the Merger Agreements nor the exchange of
shares consummated in connection therewith (i) contravened, conflicted with
or resulted in a material violation or breach of, or resulted in a default
under, any provisions of any agreement or contract of SQIS, SelectTech, the
Company or SQAS, except for any contravention, conflict, violation, breach or
default which could not reasonably be expected to result in a material
adverse effect on the Company and SQIS, taken as a whole; (ii) gave any
person the right to (a) declare a default or exercise any remedy under any
such agreement or contract, except where any such default or exercise of a
remedy could not reasonably be expected to result in a material adverse
effect on the Company and SQIS, taken as a whole, (b) accelerate the maturity
or performance of any such agreement or contract, except where such
acceleration could not reasonably be expected to result in a material adverse
effect on the Company and SQIS, taken as a whole, or (c) cancel, terminate or
modify any such contract, except where any such cancellation, termination or
modification could not reasonably be expected to result in a material adverse
effect on the Company and SQIS, taken as a whole; or (iii) resulted in the
imposition or creation of any encumbrance upon or with respect to any of the
shares of capital stock or the assets of the Company, SQIS or SelectTech,
except where such encumbrance would not result in a material adverse effect
on the Company and SQIS, taken as a whole.
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In rendering such opinion, McCutchen may rely as to matters governed
other than by the laws of the State of California or the State of Delaware,
or federal law, on local counsel in such jurisdictions, provided that in each
case McCutchen shall state that it believes that it and the Underwriters are
justified in relying on such other counsel. In addition to the matters set
forth above, such opinion shall also include a statement to the effect that
nothing has come to the attention of such counsel which leads it to believe
that (i) the Registration Statement, at the time it became effective under
the Securities Act (but after giving effect to any modifications incorporated
therein pursuant to Rule 430A under the Securities Act) and as of the Closing
Date or the Option Closing Date, as the case may be, contained an untrue
statement of a material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and (ii) the Prospectus, or any supplement thereto, on the date it was filed
pursuant to the Rules and Regulations and as of the Closing Date or the
Option Closing Date, as the case may be, contained an untrue statement of a
material fact or omitted to state a material fact necessary in order to make
the statements, in the light of the circumstances under which they are made,
not misleading (except that such counsel need express no view as to financial
statements, schedules and statistical information therein). With respect to
such statement, McCutchen may state that its belief is based upon the
procedures set forth therein, but is without independent check and
verification.
(c) The Representatives shall have received from Chapin Fleming
McNitt Shea & Carter, special regulatory counsel to the Company, an opinion
dated the Closing Date or the Option Closing Date, as the case may be, to the
effect that: (i) the Company and SQIS have all necessary authorizations,
approvals, orders, consents, licenses, certificates, permits, registrations
or qualifications of and from all insurance regulatory authorities to conduct
their businesses as described in the Registration Statement, or are subject
to no material liability or disability by reason of the failure to have
authorizations, approvals, orders, consents, licenses, certificates, permits,
registrations or qualifications; and neither the Company nor SQIS has
received any notification from any insurance regulatory authority to the
effect that any additional authorization, approval, order, consent, license,
certificate, permit, registration or qualification is needed to be obtained
by the Company or SQIS in any case where it could be reasonably expected that
the failure to obtain such authorization, approval, order, consent, license,
certificate, permit, registration or qualification or the limiting of such
business would have a material adverse effect on the Company and SQIS, taken
as a whole; (ii) to the best of such counsel's knowledge, each of the Company
and SQIS is in compliance with the requirements of the insurance laws and
regulations of its state of incorporation and the insurance laws and
regulations of other jurisdictions which are applicable to the Company or
SQIS, and has filed all notices, reports, documents or other information
required to be filed thereunder (such counsel being entitled to rely in
respect of the opinion in this clause upon opinions of local counsel and in
respect of matters of fact upon certificates of officers of the Company,
provided that such counsel shall state that it believes that both you and it
are justified in relying upon such opinions and certificates); and (iii) the
statements set forth in the Registration Statement addressing insurance
licensing and regulatory issues, including without limitation, those under
the caption ["Regulation"] and under the caption ["Risk Factors"], insofar as
they purport to describe the laws and documents referred to therein, are
accurate, complete and fair. Such counsel shall also state that although it
does not assume any responsibility for the accuracy, completeness or fairness
of the statements contained in the Registration Statement or the Prospectus,
except for
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those referred to in the opinion in subsection (iii) of this Section 6(c), it
has no reason to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior to the
Closing Date or the Option Closing Date, as the case may be (other than the
financial statements and related schedules therein, as to which such counsel
need express no opinion), contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that, as of its date, the
Prospectus or any further amendment or supplement thereto made by the Company
prior to such Closing Date or Option Closing Date, as the case may be (other
than the financial statements and related schedules therein, as to which such
counsel need express no opinion), contained an untrue statement of a material
fact or omitted to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading or that, as of such Closing Date or Option Closing Date, as the
case may be, either the Registration Statement or the Prospectus or any
further amendment or supplement thereto made by the Company prior to such
Closing Date or Option Closing Date (other than the financial statements and
related schedules therein, as to which such counsel need express no opinion)
contains an untrue statement of a material fact or omits to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and it does not
know of any amendment to the Registration Statement required to be filed or
of any contracts or other documents of a character required to be filed as an
exhibit to the Registration Statement or required to be described in the
Registration Statement or the Prospectus which are not filed or described as
required.
(d) The Representatives shall have received from Pillsbury Madison &
Sutro LLP ("PM&S"), counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, with respect to
the incorporation of the Company, the validity of the Shares, the
Registration Statement and the Prospectus and such other related matters as
it may reasonably request, and the Company shall have furnished to such
counsel such documents as it may reasonably request for the purposes of
enabling it to pass upon such matters. In rendering such opinion PM&S may
rely as to all matters governed other than by the laws of the State of
California or the State of Delaware, or federal law, on the opinion of
counsel referred to in Paragraph (b) of this Section 6. In addition to the
matters set forth above, such opinion shall also include a statement to the
effect that nothing has come to the attention of such counsel which leads it
to believe that (i) the Registration Statement, or any amendment thereto, as
of the time it became effective under the Securities Act (but after giving
effect to any modifications incorporated therein pursuant to Rule 430A under
the Securities Act) as of the Closing Date or the Option Closing Date, as the
case may be, contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, and (ii) the Prospectus, or any supplement
thereto, on the date it was filed pursuant to the Rules and Regulations and
as of the Closing Date or the Option Closing Date, as the case may be,
contained an untrue statement of a material fact or omitted to state a
material fact, necessary in order to make the statements, in the light of the
circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, PM&S may
state that its belief is based upon the procedures set forth therein, but is
without independent check and verification.
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(e) The Representatives shall have received at or prior to the
Closing Date from PM&S a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Shares under the state
securities laws or Blue Sky laws of such jurisdictions as the Representatives
may reasonably have designated to the Company.
(f) You shall have received, on each of the dates hereof, the
Closing Date and the Option Closing Date, as the case may be, a letter dated
the date hereof, the Closing Date or the Option Closing Date, as the case may
be, in form and substance satisfactory to you, of Deloitte & Touche LLP
confirming that they are independent public accountants within the meaning of
the Securities Act and the applicable Rules and Regulations and stating that
in their opinion the financial statements and schedules examined by them and
included in the Registration Statement comply in form in all material
respects with the applicable accounting requirements of the Securities Act
and the related published Rules and Regulations; and containing such other
statements and information as is ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus.
(g) The Representatives shall have received on the Closing Date or
the Option Closing Date, as the case may be, a certificate or certificates of
the Chief Executive Officer and the Chief Financial Officer of the Company to
the effect that, as of the Closing Date or the Option Closing Date, as the
case may be, each of them severally represents as follows:
(i) The Registration Statement has become effective under
the Securities Act and no stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for such purpose
have been taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or
the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant to
Rules 424 or 430A under the Securities Act have been made;
(iv) He has carefully examined the Registration Statement
and the Prospectus and, in his or her opinion, as of the effective date of
the Registration Statement, the statements contained in the Registration
Statement were true and correct, and such Registration Statement and
Prospectus did not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading,
and since the effective date of the Registration Statement, no event has
occurred which should have been set forth in a supplement to or an amendment
of the Prospectus which has not been so set forth in such supplement or
amendment; and
(v) Since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has not been any
material adverse change or any development involving a prospective material
adverse change in or affecting the
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condition, financial or otherwise, of the Company and SQIS, taken as a whole,
or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company
and SQIS, taken as a whole, whether or not arising in the ordinary course of
business.
(h) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as
the Representatives may reasonably have requested.
(i) The Firm Shares and Option Shares, if any, have been approved
for designation upon notice of issuance on the Nasdaq National Market.
(j) The Lockup Agreements described in Section 4(j) are in full
force and effect.
The opinions and certificates mentioned in this Agreement shall be
deemed to be in compliance with the provisions hereof only if they are in all
material respects satisfactory to the Representatives and to PM&S, counsel
for the Underwriters.
If any of the conditions hereinabove provided for in this Section 6
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company of such termination in writing
or by telegram at or prior to the Closing Date or the Option Closing Date, as
the case may be. In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections
5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion of
the Shares required to be delivered as and when specified in this Agreement
are subject to the conditions that at the Closing Date or the Option Closing
Date, as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees:
(i) To indemnify and hold harmless each Underwriter and each
person, if any, who controls any Underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act,
against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the
Securities Act , the Exchange Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, or (iii)
any alleged act or failure to act by any Underwriter in connection
with, or relating
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<PAGE>
in any manner to, the Shares or the offering contemplated hereby,
and which is included as part of or referred to in any loss, claim,
damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (PROVIDED, that the Company
shall not be liable under this clause (iii) to the extent that it is
determined in a final judgment by a court of competent jurisdiction
that such loss, claim, damage, liability or action resulted directly
from any such acts or failures to act undertaken or omitted to be
taken by such Underwriter through its gross negligence or willful
misconduct); provided, however, that the Company will not be liable
in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or
alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the
Prospectus, or such amendment or supplement, in reliance upon and in
conformity with written information furnished to the Company by or
through the Representatives specifically for use in the preparation
thereof.
(ii) To reimburse each Underwriter and each such
controlling person upon demand for any legal or other out-of-pocket
expenses reasonably incurred by such Underwriter or such controlling
person in connection with investigating or defending any such loss,
claim, damage or liability, action or proceeding or in responding to
a subpoena or governmental inquiry related to the offering of the
Shares, whether or not such Underwriter or controlling person is a
party to any action or proceeding. In the event that it is finally
judicially determined that the Underwriters were not entitled to
receive payments for legal and other expenses pursuant to this
subparagraph, the Underwriters will promptly return all sums that
had been advanced pursuant hereto.
(iii) To indemnify and hold harmless Deutsche Banc, and
each person, if any, who controls Deutsche Banc within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange
Act (a "Deutsche Banc Entity"), against any losses, claims, damages
or liabilities to which Deutsche Banc or any Deutsche Banc Entity
may become subject under the Securities Act or the Exchange Act or
otherwise, insofar as such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of
any material fact contained in any material prepared by or with the
consent of the Company for distribution to Participants in
connection with the Directed Share Program, (ii) the omission or
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, (iii) any act or failure to act caused by the failure of
any Participant to pay for and accept delivery of Directed Shares
that the Participant agreed to purchase or (iv) any alleged act or
failure to act by Deutsche Banc or any Deutsche Banc Entity in
connection with, or relating in any manner to, the Directed Share
Program, other than any loss, claim, damage, liability or action
that are finally judicially determined to have resulted from the bad
faith or gross negligence of Deutsche Banc or a Deutsche Banc Entity.
(iv) To reimburse Deutsche Banc and each Deutsche Banc
Entity upon demand for any legal or other out-of-pocket expenses
reasonably incurred by Deutsche Banc or such Deutsche Banc Entity in
connection with investigating or defending any such loss, claim,
damage or liability, action or proceeding or in responding to a
subpoena or governmental inquiry related to the offering of the
Directed Shares, whether or not
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<PAGE>
Deutsche Banc or such Deutsche Banc Entity is a party to any action
or proceeding. In the event that it is finally judicially determined
that Deutsche Banc or any Deutsche Banc Entity was not entitled to
receive payments for legal and other expenses pursuant to this
subparagraph, Deutsche Banc or any such Deutsche Banc Entity will
promptly return all sums that had been advanced pursuant hereto.
(b) Each Underwriter severally and not jointly will indemnify and
hold harmless the Company, each of its directors, each of its officers who
have signed the Registration Statement and each person, if any, who controls
the Company within the meaning of the Securities Act, against any losses,
claims, damages or liabilities to which the Company or any such director,
officer, or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions
or proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal or
other expenses reasonably incurred by the Company or any such director,
officer, or controlling person in connection with investigating or defending
any such loss, claim, damage, liability, action or proceeding; provided,
however, that each Underwriter will be liable in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission has been made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or 8(b) shall be available to
any party who shall fail to give notice as provided in this Section 8(c) if
the party to whom notice was not given was unaware of the proceeding to which
such notice would have related and was materially prejudiced by the failure
to give such notice, but the failure to give such notice shall not relieve
the indemnifying party or parties from any liability which it or they may
have to the indemnified party for contribution or otherwise than on account
of the provisions of Section 8(a) or (b). In case any such proceeding shall
be brought against any indemnified party and it shall notify the indemnifying
party of the commencement thereof, the indemnifying party shall be entitled
to participate therein and, to the extent that it shall wish, jointly with
any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the
right to retain its own counsel at its own expense. Notwithstanding the
foregoing, the indemnifying party shall pay as incurred (or within 30 days of
presentation) the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel, (ii) the
named parties to any such proceeding (including any
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<PAGE>
impleaded parties) include both the indemnifying party and the indemnified
party and representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them or
(iii) the indemnifying party shall have failed to assume the defense and
employ counsel acceptable to the indemnified party within a reasonable period
of time after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties.
Such firm shall be designated in writing by Deutsche Banc in the case of
parties indemnified pursuant to Section 8(a) and by the Company in the case
of parties indemnified pursuant to Section 8(b). The indemnifying party shall
not be liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there be a final
judgment for the plaintiff, the indemnifying party agrees to indemnify the
indemnified party from and against any loss or liability by reason of such
settlement or judgment. In addition, the indemnifying party will not, without
the prior written consent of the indemnified party, settle or compromise or
consent to the entry of any judgment in any pending or threatened claim,
action or proceeding of which indemnification may be sought hereunder
(whether or not any indemnified party is an actual or potential party to such
claim, action or proceeding) unless such settlement, compromise or consent
includes an unconditional release of each indemnified party from all
liability arising out of such claim, action or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a)(1), 8(a)(2) or 8(b) above in respect of any losses, claims,
damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other
from the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by
pro rata allocation (even if the Underwriters were treated as one entity for
such purpose) or by any other method of allocation
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<PAGE>
which does not take account of the equitable considerations referred to above
in this Section 8(d). The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) referred to above in this Section 8(d) shall
be deemed to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), (i)
no Underwriter shall be required to contribute any amount in excess of the
underwriting discounts and commissions applicable to the Shares purchased by
such Underwriter, and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless Deutsche Banc or a Deutsche
Banc Entity under Section 8(a)(3) or (a)(4) above in respect of any losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to therein, then the Company shall contribute to the amount paid or
payable by Deutsche Banc or such Deutsche Banc Entity as a result of such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and Deutsche Banc or the
Deutsche Banc Entity on the other from the offering of the Directed Shares.
If, however, the allocation provided by the immediately preceding sentence is
not permitted by applicable law then the Company shall contribute to such
amount in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company on the one hand and
Deutsche Banc or the Deutsche Banc Entity on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by
the Company on the one hand and Deutsche Banc or any Deutsche Banc Entity on
the other shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Directed Shares (before deducting expenses)
received by the Company bear to the total underwriting discounts and
commissions received by Deutsche Banc or the Deutsche Banc Entity in
connection therewith. The relative fault shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company on the one hand or Deutsche
Banc or the Deutsche Banc Entity on the other and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company, Deutsche Banc and each Deutsche Banc Entity agrees that
it would not be just and equitable if contributions pursuant to this Section
8(e) were determined by pro rata allocation (even if Deutsche Banc and the
Deutsche Banc Entities were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 8(e). The amount paid or
payable by Deutsche Banc or a Deutsche Banc Entity as a result of the losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
referred to above in this Section 8(e) shall be deemed to include any legal
or other expenses reasonably incurred by Deutsche Banc or such Deutsche Banc
Entity in connection with investigating or defending any such action or
claim.
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<PAGE>
Notwithstanding the provisions of this subsection (e), (i) neither Deutsche
Banc nor any Deutsche Banc Entity shall be required to contribute any amount
in excess of the underwriting discounts and commissions applicable to the
Directed Shares purchased by Deutsche Banc or such Deutsche Banc Entity, and
(ii) neither Deutsche Banc nor any Deutsche Banc Entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
(f) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment
thereto, each party against whom contribution may be sought under this
Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process issuing
from such court may be served upon him or it by any other contributing party
and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any such
proceeding in which such other contributing party is a party.
(g) Any losses, claims, damages, liabilities or expenses for which
an indemnified party is entitled to indemnification or contribution under
this Section 8 shall be paid by the indemnifying party to the indemnified
party as such losses, claims, damages, liabilities or expenses are incurred.
The indemnity and contribution agreements contained in this Section 8 and the
representations and warranties of the Company set forth in this Agreement
shall remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, the Company, its directors or officers or any
persons controlling the Company, (ii) acceptance of any Shares and payment
therefor hereunder, and (iii) any termination of this Agreement. A successor
to any Underwriter, or to the Company, its directors or officers, or any
person controlling the Company, shall be entitled to the benefits of the
indemnity, contribution and reimbursement agreements contained in this
Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case may
be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company) you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or
any others, to purchase from the Company such amounts as may be agreed upon
and upon the terms set forth herein, the Firm Shares or Option Shares, as the
case may be, which the defaulting Underwriter or Underwriters failed to
purchase. If during such 36 hours you, as such Representatives, shall not
have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of
the Firm Shares or Option Shares, as the case may be, covered hereby, the
other Underwriters shall be obligated, severally, in proportion to the
respective numbers of Firm Shares or Option Shares, as the case may be, which
they are obligated to purchase hereunder, to purchase the Firm Shares or
Option Shares, as the case may be, which such defaulting Underwriter or
Underwriters failed to purchase, or (b) if the aggregate number of
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<PAGE>
shares of Firm Shares or Option Shares, as the case may be, with respect to
which such default shall occur exceeds 10% of the Firm Shares or Option
Shares, as the case may be, covered hereby, the Company or you as the
Representatives of the Underwriters will have the right, by written notice
given within the next 36-hour period to the parties to this Agreement, to
terminate this Agreement without liability on the part of the non-defaulting
Underwriters or of the Company except to the extent provided in Section 8
hereof. In the event of a default by any Underwriter or Underwriters, as set
forth in this Section 9, the Closing Date or Option Closing Date, as the case
may be, may be postponed for such period, not exceeding seven days, as you,
as Representatives, may determine in order that the required changes in the
Registration Statement or in the Prospectus or in any other documents or
arrangements may be effected. The term "Underwriter" includes any person
substituted for a defaulting Underwriter. Any action taken under this Section
9 shall not relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to Deutsche
Banc Alex. Brown, One South Street, Baltimore, Maryland 21202, Attention:
Thomas W. Johnson; [with a copy to Deutsche Banc Incorporated, One Bankers
Trust Plaza, 130 Liberty Street, New York, New York 10006, Attention: General
Counsel; and] with a copy to Pillsbury Madison & Sutro LLP, 50 Fremont
Street, San Francisco, California 94105, Attention: Michael J. Halloran, Esq.
11. TERMINATION.
(a) This Agreement may be terminated by you by notice to the Company
at any time prior to the Closing Date if any of the following has occurred:
(i) since the respective dates as of which information is given in the
Registration Statement and the Prospectus, any material adverse change or any
development involving a prospective material adverse change in or affecting
the condition, financial or otherwise, of the Company and SQIS taken as a
whole or the earnings, business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company
and SQIS taken as a whole, whether or not arising in the ordinary course of
business, (ii) any outbreak or escalation of hostilities or declaration of
war or national emergency or other national or international calamity or
crisis or change in economic or political conditions if the effect of such
outbreak, escalation, declaration, emergency, calamity, crisis or change on
the financial markets of the United States would, in your reasonable
judgment, make it impracticable or inadvisable to market the Shares or to
enforce contracts for the sale of the Shares, or (iii) suspension of trading
in securities generally on the New York Stock Exchange or the American Stock
Exchange or limitation on prices (other than limitations on hours or numbers
of days of trading) for securities on either such Exchange, (iv) the
enactment, publication, decree or other promulgation of any statute,
regulation, rule or order of any court or other governmental authority which
in your opinion materially and adversely affects or may materially and
adversely affect the business or operations of the Company, (v) declaration
of a banking moratorium by United States or New York State authorities, (vi)
any downgrading, or placement on any watch list for possible downgrading, in
the rating of the Company's debt securities by any "nationally recognized
statistical rating organization" (as
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<PAGE>
defined for purposes of Rule 436(g) under the Exchange Act); (vii) the
suspension of trading of the Company's common stock by the Nasdaq Stock
Market, the Commission, or any other governmental authority or (viii) the
taking of any action by any governmental body or agency in respect of its
monetary or fiscal affairs which in your reasonable opinion has a material
adverse effect on the securities markets in the United States; or
(b) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of the
Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any
right or obligation hereunder. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign merely because of such
purchase.
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company
for inclusion in any Prospectus or the Registration Statement consists of the
information set forth in the last paragraph on the front cover page (insofar
as such information relates to the Underwriters), legends required by Item
502(d) of Regulation S-K under the Securities Act and the information under
the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants
in this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or by or on behalf of the
Company or its directors or officers and (c) delivery of and payment for the
Shares under this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York.
If the foregoing letter is in accordance with your understanding of
our agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the
several Underwriters in accordance with its terms.
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<PAGE>
Very truly yours,
ZEBU, INC.
By
------------------------------
Name
----------------------------
Title
---------------------------
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<PAGE>
The foregoing Equity Underwriting
Agreement is hereby confirmed and
accepted as of the date first above
written.
DEUTSCHE BANC SECURITIES INC.
U.S. BANCORP PIPER JAFFRAY INC.
COCHRAN, CARONIA SECURITIES LLC
- ------------------------------------
As Representatives of the several
Underwriters listed on Schedule I
By: Deutsche Banc Securities Inc.
By:
---------------------------------
Authorized Officer
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<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares to
Underwriter be Purchased
- ------------ -------------
<S> <C>
Deutsche Banc Securities Inc.
---------------------------
U.S. Bancorp Piper Jaffray Inc.
---------------------------
Cochran, Caronia Securities LLC
---------------------------
Total ---------------------------
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
SCHEDULE OF STOCKHOLDERS SUBJECT TO LOCK-UP AGREEMENTS
- ---------------------------------------- -------------------------------------
Name Number of Shares
---- ----------------
<S> <C>
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
</TABLE>
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<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
This Amended and Restated Agreement and Plan of Reorganization (this
"AGREEMENT") is effective as of August 17, 1999 by and among SelectQuote
Insurance Services, a California corporation ("SQIS"), SelectTech, a Nevada
corporation ("SELECTTECH"), SelectQuote, Inc., a Delaware corporation
("HOLDING COMPANY"), and SelectQuote Acquisition Sub, a California
corporation and a wholly owned subsidiary of Holding Company ("SUB").
RECITALS
A. The Boards of Directors of SQIS, SelectTech, Holding Company
and Sub have approved the proposed merger of SelectTech and Sub with and into
SQIS (the "MERGER") in accordance with the California General Corporation Law
(the "CGCL") and pursuant to and subject to the terms of the Merger Agreement
in the form attached hereto as EXHIBIT A and incorporated herein by reference
(the "MERGER AGREEMENT") to be executed by SQIS, SelectTech, Holding Company
and Sub prior to the Effective Time (as defined below) and which states,
among other things, the manner and basis of converting (i) the shares of
Common Stock of SelectTech outstanding at the Effective Time ("SELECTTECH
COMMON"), the shares of Preferred Stock of SelectTech outstanding at the
Effective Time ("SELECTTECH PREFERRED"), and the shares of Common Stock of
SQIS outstanding at the Effective Time ("SQIS COMMON") into shares of Common
Stock of Holding Company ("HOLDING COMPANY COMMON"); (ii) the shares of
Preferred Stock of SQIS outstanding at the Effective Time ("SQIS PREFERRED")
into shares of Preferred Stock of Holding Company ("HOLDING COMPANY
PREFERRED"); and (iii) the shares of Common Stock of Sub outstanding at the
Effective Time ("SUB COMMON") into shares of Common Stock of SQIS, as the
surviving entity of the Merger (the "SURVIVING CORPORATION") (the "SURVIVING
CORPORATION COMMON"), all as set forth in this Agreement.
B. On August 17, 1999, the parties executed an Agreement and Plan
of Reorganization (the "Original Agreement"), which is amended by this
Agreement and restated in its entirety as set forth in this Agreement.
C. The parties desire to enter into this Agreement for the purpose
of setting forth certain representations, warranties and agreements in
connection with the Merger, and also desire to prescribe various conditions
precedent to the Merger not specifically set forth in the Merger Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the
representations, warranties and agreements contained in this Agreement, the
parties agree as follows:
ARTICLE I
DEFINITIONS
"1933 ACT" means the Securities Act of 1933, as amended.
"ADJUSTMENT EVENT" is defined in Section 2.10.
"ADJUSTMENT RATIO" means the quotient of (a) the SQIS Deemed Owned
Shares divided by (b) the sum of (i) the SelectTech Fully Diluted Shares plus
(ii) the SQIS Deemed Owned Shares.
"AFFILIATES" means "affiliates" of a person or entity within the
meaning of Rule 144 under the 1933 Act.
<PAGE>
"AGGREGATE SELECTTECH MERGER SHARES" means the number of shares of
Holding Company Common issuable in the Merger in exchange for the SelectTech
Fully Diluted Shares, which is equal to difference between (a) 10,000,000,
minus (b) the product of (i) 10,000,000 multiplied by (ii) the Adjustment
Ratio.
"AGGREGATE SQIS MERGER SHARES" means the aggregate number of shares
of Holding Company Common and Holding Company Preferred issuable in the
Merger in exchange for the SQIS Fully Diluted Shares, which is equal to the
sum of (a) 10,000,000, plus (b) the product of (i) 10,000,000 multiplied by
(ii) the Adjustment Ratio.
"EFFECTIVE TIME" means the time and date on which the Merger
Agreement and officers' certificates are filed as required in Sections 2.01
and 2.02.
"HOLDING COMPANY OPTION PLAN" means the SelectQuote, Inc. 1999 Stock
Option Plan.
"HSR ACT" means the Act Hart Scott Rodino Antitrust Improvements Act
of 1976.
"INTELLECTUAL PROPERTY" means any or all of the following and all
rights associated therewith: (i) all domestic and foreign patents and
applications therefor and all reissues, divisions, renewals, extensions,
continuations and continuations-in-part thereof; (ii) all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, proprietary rights and processes, know how,
technology rights and licenses, research and development in progress,
technical data and customer lists, and all documentation relating to any of
the foregoing; (iii) all copyrights, copyrights registration and applications
therefor, and all other rights corresponding thereto throughout the world;
(iv) all mask works, mask work registrations and applications therefore; (v)
all industrial designs and any registrations and applications therefor; (vi)
all trade names, logos, common law trademarks and service marks; trademark
and service mark registrations and applications therefor and all goodwill
associated therewith; and (vii) all computer software including all source
code, object code, firmware, development tools, files, records and data, all
media on which any of the foregoing is recorded, all documentation related to
any of the foregoing.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended.
"JOINT SOLICITATION STATEMENT" means the joint solicitation
statement of SelectTech and SQIS relating to the solicitation of approval by
written consent of the shareholders of each of SQIS and SelectTech of this
Agreement, the Merger and the transactions contemplated by this Agreement.
"NGCL" means the Nevada General Corporation Law.
"REFERENCE DATE" means August 18, 1999.
"SELECTTECH ANTI-DILUTION ADJUSTMENT NUMBER" means the sum of (a)
6,500,000 (the number of shares of SelectTech Common outstanding on the date
of the issuance of the SelectTech Warrants), plus (b) the SelectTech Warrant
Number, plus (c) the SelectTech Debenture Number.
"SELECTTECH CONVERSION NUMBER" means the quotient of (a) the
Aggregate SelectTech Merger Shares divided by (b) the number of SelectTech
Fully Diluted Shares.
"SELECTTECH DEBENTURE AMOUNT" means the aggregate principal dollar
amount of the SelectTech Debentures.
"SELECTTECH DEBENTURE CONVERSION PRICE" means the quotient of (a)
$1.67, divided by (b) the SelectTech Conversion Number.
-2-
<PAGE>
"SELECTTECH DEBENTURE NUMBER" means the quotient of (a) the
SelectTech Debenture Amount, divided by (b) $1.67.
"SELECTTECH DEBENTURES" means the debentures issued by SelectTech on
October 15, 1998.
"SELECTTECH EXCHANGED OPTIONS" means SelectTech Options exchanged
for options to purchase Holding Company Common, as provided in Section
2.03(c).
"SELECTTECH FULLY DILUTED SHARES" means the sum of (a) the number of
outstanding shares of SelectTech Common, plus (b) the SelectTech Preferred
Adjusted Number, plus (c) the number of shares of SelectTech Common for which
outstanding SelectTech Options are exercisable, plus (d) the SelectTech
Debenture Number, plus (e) the SelectTech Warrant Number, minus (f) the SQIS
Adjusted Share Ownership Number.
"SELECTTECH PREFERRED ADJUSTED CONVERSION PRICE" means the product
of (a) $1.67, multiplied by (b) the quotient of (i) the sum of (A) 6,500,000
(the number of shares of SelectTech Common outstanding on the date of the
issuance of the SelectTech Warrants), plus (B) the SelectTech Warrant Price
Adjustment Number, divided by (ii) the SelectTech Anti-Dilution Adjustment
Number.
"SELECTTECH PREFERRED ADJUSTED CONVERSION RATIO" means the quotient
of (a) $1.67 divided by (b) the SelectTech Preferred Adjusted Conversion
Price.
"SELECTTECH PREFERRED ADJUSTED NUMBER" means the product of (a) the
SelectTech Preferred Adjusted Conversion Ratio multiplied by (b) the number
of outstanding shares of SelectTech Preferred.
"SELECTTECH PREFERRED CONVERSION NUMBER" means the product of (a)
the SelectTech Preferred Adjusted Conversion Ratio, multiplied by (b) the
SelectTech Conversion Number.
"SELECTTECH WARRANT NUMBER" means the product of (a) the quotient of
(i) the sum of (A) the number of outstanding shares of SelectTech Common,
plus (B) the number of outstanding shares of SelectTech Preferred, plus (C)
the number of shares of SelectTech Common into which outstanding SelectTech
Options are exercisable, plus (D) the SelectTech Debenture Number, plus (E)
the number of shares of SelectTech Common obtainable by SQIS on conversion of
the SQIS Convertible Note, divided by (ii) .95, multiplied by (b) .05.
"SELECTTECH WARRANT PRICE ADJUSTMENT NUMBER" means the quotient of
(a) the sum of (i) the aggregate dollar amount payable upon exercise of the
SelectTech Warrants, plus (ii) the SelectTech Debenture Amount, divided by
(b) $1.67.
"SELECTTECH WARRANTS" means the warrants to purchase SelectTech
Common issued by SelectTech in connection with the issuance and sale of the
SelectTech Debentures.
"SQIS ADJUSTED SHARE OWNERSHIP NUMBER" means the sum of (a) the
number of shares of SelectTech Common owned by SQIS, plus (b) the product of
(i) the number of shares of SelectTech Preferred owned by SQIS, multiplied by
(ii) the SelectTech Preferred Adjusted Conversion Ratio.
"SQIS CONVERSION NUMBER" means the quotient of (a) the Aggregate
SQIS Merger Shares divided by (b) the number of SQIS Fully Diluted Shares.
"SQIS CONVERTIBLE NOTE" means that certain convertible note, dated
as of February 1, 1997 and as amended on October 15, 1998, issued by
SelectTech to SQIS, in the principal amount of $200,000.
-3-
<PAGE>
"SQIS DEEMED OWNED SHARES" means the sum of (a) the SQIS Adjusted
Share Ownership Number, plus (b) the number of shares of SelectTech Common
obtainable by SQIS on conversion of the SQIS Convertible Note.
"SQIS EXCHANGED OPTIONS" means SQIS Options exchanged for options to
purchase Holding Company Common, as provided in Section 2.04(e).
"SQIS FULLY DILUTED SHARES" means the sum of (a) the number of
outstanding shares of SQIS Common, plus (b) the number of outstanding shares
of SQIS Preferred, plus (c) the number of shares of SQIS Common into which
outstanding SQIS Options are exercisable
"SQIS OPTIONS" means (a) options to purchase SQIS Common, issued
pursuant to the SelectQuote Insurance Services 1999 Stock Option Plan and (b)
options to purchase SQIS common granted in exchange for phantom stock rights
issued by SQIS, which options were not granted pursuant to the SelectQuote
Insurance Services 1999 Stock Option Plan.
"SQIS PREFERRED" means the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock of SQIS, collectively.
"SQIS SUBSIDIARIES" is defined in Section 3.03.
"SURVIVING CORPORATION" means SQIS.
ARTICLE II
THE MERGER AND REORGANIZATION
2.01 MERGER OF SELECTTECH INTO SQIS. Subject to the terms and
conditions of this Agreement and the Merger Agreement, SelectTech shall be
merged with and into SQIS, the separate existence of SelectTech shall cease
and SQIS shall be the Surviving Corporation in the Merger. The Merger shall
be consummated when a properly executed and certified copy of the Merger
Agreement, together with required officers' certificates, are filed with the
Secretary of State of California and the Secretary of State of Nevada.
2.02 MERGER OF SUB INTO SQIS. Subject to the terms and conditions of
this Agreement and the Merger Agreement, Sub shall be merged with and into
SQIS, the separate existence of Sub shall cease and SQIS shall be the
Surviving Corporation in the Merger. The Merger shall be consummated when a
properly executed and certified copy of the Merger Agreement, together with
required officers' certificates, are filed with the Secretary of State of
California.
2.03 EFFECT OF THE MERGER ON SELECTTECH CAPITAL STOCK AND
CONVERTIBLE INTERESTS.
(a) SELECTTECH COMMON. At the Effective Time, each then
outstanding share of SelectTech Common (other than shares held by
shareholders who properly exercise any dissenters' rights available under
applicable law), shall be converted into the right to receive the SelectTech
Conversion Number of shares of Holding Company Common. Notwithstanding the
foregoing, outstanding shares of SelectTech Common which are held by SQIS
will not be so converted, but will be cancelled at the Effective Time.
(b) SELECTTECH PREFERRED. At the Effective Time, each then
outstanding share of SelectTech Preferred (other than shares held by
shareholders who properly exercise any dissenters' rights available under
applicable law), shall be converted into the right to receive the SelectTech
Preferred Conversion Number of
-4-
<PAGE>
shares of Holding Company Common. Notwithstanding the foregoing, outstanding
shares of SelectTech Preferred which are held by SQIS will not be so
converted, but will be cancelled at the Effective Time.
(c) SELECTTECH OPTIONS. At the Effective Time, each
outstanding SelectTech Option shall be exchanged for an option to purchase,
in place of the purchase of each share of SelectTech Common previously
covered by such SelectTech Option, the SelectTech Conversion Number of shares
of Holding Company Common, at an exercise price for each such share of
Holding Company Common equal to the previous option exercise price for each
share of SelectTech Common divided by the SelectTech Conversion Number. Each
such SelectTech Exchanged Option shall be granted under the Holding Company
Option Plan and shall be subject to the terms and conditions of that plan,
but shall continue to vest according to the vesting schedule applicable to
the SelectTech Option. It is intended that the substitution of options
pursuant to this paragraph be a tax-free transaction under Section 424 of the
Internal Revenue Code.
(d) SELECTTECH DEBENTURES. At the Effective Time, all
outstanding SelectTech Debentures shall be assumed by Holding Company. The
SelectTech Debentures shall be convertible into shares of Holding Company
Common at a price per share of Holding Company Common equal to the SelectTech
Debenture Conversion Price.
(e) SELECTTECH WARRANTS. At the Effective Time, all
SelectTech Warrants that remain unexercised shall terminate.
2.04 EFFECT OF THE MERGER ON SQIS CAPITAL STOCK AND CONVERTIBLE
INTERESTS.
(a) SQIS COMMON. At the Effective Time, each outstanding
share of SQIS Common (other than shares held by shareholders who properly
exercise any dissenters' rights available under applicable law), shall be
converted into the right to receive the SQIS Conversion Number of shares of
Holding Company Common.
(b) SQIS SERIES A PREFERRED STOCK. At the Effective Time,
each outstanding share of SQIS Series A Preferred Stock (other than shares
held by shareholders who properly exercise any dissenters' rights available
under applicable law) shall be converted into the right to receive the SQIS
Conversion Number of shares of Holding Company Series A Preferred Stock.
(c) SQIS SERIES B PREFERRED STOCK. At the Effective Time,
each outstanding share of SQIS Series B Preferred Stock (other than shares
held by shareholders who properly exercise any dissenters' rights available
under applicable law) shall be converted into the right to receive the SQIS
Conversion Number of shares of Holding Company Series B Preferred Stock.
(d) SQIS SERIES C PREFERRED STOCK. At the Effective Time,
each outstanding share of SQIS Series C Preferred Stock (other than shares
held by shareholders who properly exercise any dissenters' rights available
under applicable law) shall be converted into the right to receive the SQIS
Conversion Number of shares of Holding Company Series C Preferred Stock.
(e) SQIS OPTIONS. At the Effective Time, each outstanding
SQIS Option shall be exchanged for an option to purchase, in place of the
purchase of each share of SQIS Common previously covered by such SQIS Option,
the SQIS Conversion Number of shares of Holding Company Common, at an
exercise price for each such share of Holding Company Common equal to the
previous option exercise price for each share of SQIS Common divided by the
SQIS Conversion Number. Each such SQIS Exchanged Option shall be granted
under the Holding Company Option Plan and shall be subject to the terms and
conditions of that plan, but shall continue to vest according to the vesting
schedule applicable to the SQIS Option. Notwithstanding the foregoing, it is
intended that the substitution of options pursuant to this paragraph shall
qualify as incentive stock options as defined in Section 422 of the Internal
Revenue Code.
-5-
<PAGE>
(f) SQIS CONVERTIBLE NOTE. At the Effective Time, all
amounts due from SelectTech to SQIS pursuant to the SQIS Convertible Note
shall be deemed to have been converted into shares of SelectTech Common,
which shares will be cancelled in the Merger at the Effective Time.
2.05 EFFECT OF THE MERGER ON SUB COMMON. At the Effective Time, each
then outstanding share of Sub Common shall be converted into the right to
receive one share of Surviving Corporation Common. After the Effective Time,
the shares of Surviving Corporation Common into which the Sub Common is
converted shall be the only shares of capital stock of the Surviving
Corporation outstanding.
2.06 EFFECT OF THE MERGER ON HOLDING COMPANY COMMON. At the
Effective Time, each then outstanding share of common stock of Holding
Company shall be cancelled.
2.07 FEDERAL INCOME TAX CONSEQUENCES. The parties intend that, for
federal income tax purposes, the Merger shall constitute a tax-free
reorganization within the meaning of Section 368 of the Internal Revenue Code.
2.08 ACCOUNTING TREATMENT. The parties intend that the Merger will
be treated by SQIS as a purchase for accounting purposes.
2.09 EFFECTS OF THE MERGER. At the Effective Time of the Merger:
(a) the Articles of Incorporation of the Surviving
Corporation shall be the Articles of Incorporation attached as EXHIBIT B,
which is the form of the Articles of Incorporation in effect immediately
prior to the Effective Date as amended to reflect the change of the name of
the Surviving Corporation to "Select Quote";
(b) the Bylaws of the Surviving Corporation shall be the
Bylaws in effect immediately prior to the Effective Date;
(c) the Board of Directors of SQIS shall consist of the
following four (4) members at the Effective Time, in each case until their
successors shall have been elected and qualified or until otherwise provided
by law:
Charan J. Singh
Steven H. Gerber
David L. Paulsen
Michael L. Feroah
(d) the Officers of SQIS shall be as follows:
Charan J. Singh Chairman of the Board of Directors,
Chief Executive Officer
Steven H. Gerber President
David L. Paulsen Chief Operating Officer
- Insurance Products and Services,
Chief Financial Officer,
Assistant Secretary
Michael L. Feroah Chief Operating Officer
- Technology Products and Services
Hernan E. Reyes Vice President of Operations
- Technology Products and Services
Duval McDaniel Vice President of Sales & Marketing
- Technology Products and Services
Nancy Malik Secretary
-6-
<PAGE>
(e) the Surviving Corporation shall assume the obligations
of SelectTech pursuant to the existing Registration Rights Agreement and
Investor Rights Agreement among SelectTech and certain of its shareholders;
and
(f) the Merger shall, from and after the Effective Time,
have all the effects provided by applicable law.
2.10 ADJUSTMENTS. If, between the date of this Agreement and the
Effective Time, the outstanding shares of Holding Company Common, SelectTech
Common, SelectTech Preferred, SQIS Common or SQIS Preferred shall have been
changed into a different number of shares or a different class by reason of
any reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment or a stock dividend thereon shall have been declared
with a record date within such period (each, an "ADJUSTMENT EVENT"), the
shares of Holding Company Common and Holding Company Preferred to be issued
and delivered in the Merger in exchange for each outstanding share of
SelectTech Common, SelectTech Preferred, SQIS Common and/or SQIS Preferred,
as applicable, and the shares of Holding Company Common issuable on exercise
of SelectTech Exchanged Options and the SQIS Exchanged Options as provided in
this Agreement and the Merger Agreement, shall be appropriately adjusted to
reflect such Adjustment Event.
2.11 AFFILIATE STOCK. All shares of Holding Company Common or
Holding Company Preferred to be received by any SelectTech Affiliate or any
SQIS Affiliate shall be subject to the restrictions imposed by the Securities
Act of 1933, as amended, and Rule 145 promulgated thereunder, and the
certificates evidencing such shares shall bear legends reflecting such
restrictions.
2.12 FRACTIONAL SHARES. No fractional shares of Holding Company
Common shall be issued pursuant to the Merger. In lieu of the issuance of any
fractional share of Holding Company Common, cash adjustments will be paid to
holders in respect of any fractional share of Holding Company Common that
would otherwise be issuable, calculated at $5.00 per share.
2.13 EXCHANGE CERTIFICATES. As soon as practicable after the
Effective Time, and after surrender to the Holding Company of any certificate
which prior to the Effective Time represented shares of SelectTech Common
Stock, SelectTech Preferred Stock, SQIS Common Stock or SQIS Preferred Stock,
as applicable (the "CONVERTED SHARES"), the Holding Company shall cause to be
distributed to the person in whose name such certificate is registered a
certificate or certificates representing the Merger Consideration. Until
surrendered as contemplated by the preceding sentence, each certificate which
immediately prior to the Effective Time represented any Converted Shares,
shall be deemed at and after the Effective Time to represent only the right
to receive the Merger Consideration. If any certificate representing the
Merger Consideration is to be issued to a person or entity ("PERSON") other
than the Person in whose name the certificate representing Converted Shares
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly
endorsed and accompanied by all documents reasonably required by the Holding
Company to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid. If any certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact
by the Person claiming such certificate to be lost, stolen or destroyed and,
if required by the Holding Company, the posting by such Person of a bond in
such reasonable amount as the Holding Company may direct as indemnity against
any claim that may be made against it with respect to such certificate, the
Holding Company will cause the Merger Consideration to be issued in exchange
for such lost, stolen or destroyed certificate.
2.14 DISSENTING SHARES.
(a) Any shares of SQIS Common or SQIS Preferred issued and
outstanding immediately prior to the Effective Time that are held by a
shareholder who has exercised and perfected dissenters' rights for such
shares in accordance with the CGCL and who as of the Effective Time has not
effectively withdrawn or
-7-
<PAGE>
lost such dissenters' rights shall not be converted into shares of Holding
Company Common or SQIS Preferred at the Effective Time, and the holder
thereof shall only be entitled to such rights as are granted to dissenting
shareholders by the CGCL.
(b) Any shares of SelectTech Common or SelectTech Preferred
issued and outstanding immediately prior to the Effective Time that are held
by a shareholder who has exercised and perfected dissenters' rights for such
shares in accordance with the NGCL and who as of the Effective Time has not
effectively withdrawn or lost such dissenters' rights shall not be converted
into a right to receive Holding Company Common at the Effective Time, and the
holder thereof shall only be entitled to such rights as are granted to
dissenting shareholders by the NGCL.
(c) Each of SQIS and SelectTech shall give all parties to
this Agreement prompt notice of any demand for dissenters' rights received by
it pursuant to the applicable provisions of the CGCL or the NGCL, as
applicable, and shall give the other parties to this Agreement the
opportunity to participate in all negotiations and proceedings with respect
to such demand.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SQIS
Except as disclosed or excepted on a schedule delivered by SQIS to
the other parties to this Agreement prior to the execution of this Agreement
(the "SQIS SCHEDULE"), SQIS represents and warrants to the other parties to
this Agreement as follows:
3.01 ORGANIZATION. SQIS is a corporation duly organized, validly
existing and in good standing under the laws of the State of California and
has the corporate power and authority to carry on its business as it is now
being conducted. SQIS is duly qualified to do business and is in good
standing in each jurisdiction in which the nature of its business or
properties make such qualification necessary, except where the failure to be
qualified will not have a material adverse effect on SQIS.
3.02 CAPITALIZATION. The authorized capital stock of SQIS consists
of 5,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock.
At the close of business on the Reference Date, there were outstanding:
1,515,690 shares of SQIS Common, 346,000 shares of Series A Preferred Stock,
250,000 shares of Series B Preferred Stock and 21,275 shares of Series C
Preferred Stock. There are 965,000 shares of SQIS Common subject to SQIS
Options.
All outstanding shares of SQIS Common and SQIS Preferred are validly
issued, fully paid and nonassessable and not subject to preemptive rights
created by statute, SQIS's Articles of Incorporation or Bylaws or any
agreement to which SQIS is a party or by which it is bound. Except as set
forth above, there are no options, warrants, calls, rights, commitments or
agreements of any character to which SQIS is a party or by which it is bound
obligating SQIS to issue, deliver or sell or cause to be issued, delivered or
sold, additional shares of its capital stock or obligating SQIS to grant,
extend or enter into any such option, warrant, call, right, commitment or
agreement. SQIS Phantom Shares have no rights of shares of stock, but only
rights to certain income distributions, if available.
3.03 SQIS SUBSIDIARIES. The SQIS Schedule sets forth a true and
complete list of all of the corporations, partnerships and joint ventures in
which SQIS owns, directly or indirectly, any shares of capital stock or any
partnership or joint venture interest (all of such entities being hereinafter
referred to as the "SQIS SUBSIDIARIES"), together with a listing, as to each
SQIS Subsidiary, of the nature and ownership of its capital stock or
partnership or joint venture interests and of the other equity holders in
such entities. All of the capital stock or partnership or joint venture
interests of each SQIS Subsidiary owned by SQIS is owned by it free and clear
of any liens, encumbrances, security agreements, options, claims, charges or
restrictions of any
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nature whatsoever. Each SQIS Subsidiary is duly organized, validly existing
and in good standing under the laws of the jurisdiction of its organization,
has the corporate or partnership power and authority to carry on its business
as it is now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of its business or
properties make such qualification necessary, except where the failure to be
qualified will not have a material adverse effect on the business of SQIS and
the SQIS Subsidiaries, taken as a whole.
3.04 AUTHORITY RELATIVE TO THIS AGREEMENT. SQIS has the corporate
power and authority to enter into and deliver this Agreement and the Merger
Agreement and to carry out its obligations hereunder and thereunder. The
execution and delivery of this Agreement and the Merger Agreement and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by the Board of Directors of SQIS and, except for the
approval of its shareholders, no other corporate proceedings on the part of
SQIS are necessary to authorize this Agreement, the Merger Agreement and the
transactions contemplated hereby. Neither SQIS, nor any SQIS Subsidiary, nor
any of their respective material assets is subject to or obligated under any
charter or bylaw, or under any material contract, lease or other instrument
or any license, franchise or permit, which would be defaulted, breached or
terminated by or in conflict (or upon the failure to give notice or the lapse
of time, or both, would result in a default, breach, termination or conflict)
with its execution and performance of this Agreement and the Merger Agreement
and the transactions contemplated hereby. Except as contemplated by this
Agreement, no consent of any person not a party to this Agreement, and no
consent of or filing with (including any waiting period) any governmental
authority, is required to be obtained on the part of SQIS to permit the
Merger or to permit the continuation by the Surviving Corporation following
the Effective Time of the business activities of SQIS and the SQIS
Subsidiaries as previously conducted, without material adverse change. This
Agreement is, and the Agreement of Merger when executed and delivered will
be, valid and binding obligations of SQIS, enforceable against it in
accordance with their respective terms.
3.05 FINANCIAL STATEMENTS. The audited financial statements of SQIS
and the SQIS Subsidiaries, on a consolidated basis, as of June 30, 1999 (the
"SQIS FINANCIAL STATEMENTS") have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the financial position of SQIS and the SQIS Subsidiaries as at the
dates thereof and the results of its operations and changes in financial
position for the periods then ended (subject, in the case of unaudited
statements, to normal recurring audit adjustments, provided that the notes
and accounts receivable are collectible in the amounts shown less any reserve
shown thereon and inventories are not subject to write-down, except in either
case in an amount not material). Except as contemplated by this Agreement or
on account of the transactions contemplated hereby, since June 30, 1999,
there has not been any material adverse change in the results of operations,
financial condition, assets or business of SQIS and the SQIS Subsidiaries,
taken as a whole, other than on account of matters which affect generally the
economy or the industries in which SQIS and the SQIS Subsidiaries are engaged.
3.06 LIABILITIES. SQIS and the SQIS Subsidiaries, taken as a whole,
have no material liabilities, obligations or loss contingencies that are
required to be reflected in SQIS Financial Statements under generally
accepted accounting principles, other than: (i) liabilities disclosed or
provided for in SQIS Financial Statements including the notes thereto; and
(ii) liabilities incurred in the ordinary course of business since June 30,
1999.
3.07 LITIGATION. There is no private or governmental litigation or
proceeding or, to the knowledge of SQIS, investigation or claim against SQIS
or any SQIS Subsidiary pending or, to the knowledge of SQIS, threatened
which, if determined adversely, may reasonably be expected to have a material
adverse effect on its business, nor are there any judgments, decrees or
orders enjoining SQIS or any SQIS Subsidiary in respect of, or the effect of
which is to prohibit, any business practice or the acquisition of any
property or the conduct of business in any area which is material to its
business.
3.08 TAXES. Each of SQIS and each SQIS Subsidiary has filed all
Federal and California tax returns and, to the best of SQIS's knowledge, all
other state and foreign tax returns required to be filed, and has paid, or
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has made adequate provision or set up an adequate accrual or reserve for the
payment of all taxes required to be paid and has no material liability for
taxes in excess of the amount so paid or accruals or reserves so established.
Neither SQIS nor any SQIS Subsidiary is delinquent in the payment of any
material tax, assessment or governmental charge and is not delinquent in the
filing of any tax returns, and no material deficiencies for any tax
assessment or governmental charge have been threatened, claimed, proposed or
assessed against it.
3.09 ABSENCE OF VIOLATIONS. Neither SQIS nor any of the SQIS
Subsidiaries is in violation of any applicable provision of United States,
state, local or foreign laws, regulations, judgments or decrees, which
violation may reasonably be expected to have a material adverse effect on
SQIS.
3.10 INTELLECTUAL PROPERTY.
(a) No person or entity has any rights to use any of the
Intellectual Property of SQIS.
(b) SQIS owns, or has the right pursuant to a valid
contract to use or operate under, all Intellectual Property of SQIS.
(c) The operation of the business of SQIS as it is
currently conducted does not infringe the Intellectual Property of any other
person or entity, and SQIS has not received notice of any claim concerning
such infringement.
(d) To the knowledge of SQIS, no person is infringing or
misappropriating any of the Intellectual Property of SQIS and there are no
claims asserted against SQIS related to any Intellectual Property of SQIS.
3.11 PROPERTIES, LIENS, ETC. Except as reflected in SQIS Financial
Statements or in the notes thereto, and except for statutory mechanics and
materialmen's liens, liens for current taxes not yet delinquent and liens or
encumbrances which do not confer upon secured parties any rights to property
which are material to SQIS and the SQIS Subsidiaries, on a consolidated
basis, SQIS or one of the SQIS Subsidiaries owns, free and clear of any liens
or other encumbrances, all of its tangible and intangible property, real and
personal.
3.12 INSURANCE AGENCY LICENSES. SQIS possesses all licenses and
permits in all jurisdictions which are required in order for SQIS to conduct
its business as and where presently conducted ("PERMITS"), including without
limitation all licenses and permits from all state insurance regulatory
agencies. Neither the execution and delivery of this Agreement nor the
consummation of the Merger will result in the termination or other loss of
any Permit.
3.13 HART SCOTT RODINO. To the knowledge of SQIS, no filing will be
required under the HSR in order to consummate the Merger.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELECTTECH
Except as disclosed or excepted on a schedule delivered by
SelectTech to the other parties to this Agreement prior to the execution of
this Agreement (the "SELECTTECH SCHEDULE"), SelectTech represents and
warrants to the other parties to this Agreement as follows:
4.01 ORGANIZATION. SelectTech is a corporation duly organized,
validly existing and in good standing under the laws of the State of Nevada
and has the corporate power and authority to carry on its business as it is
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now being conducted. SelectTech is duly qualified to do business and is in
good standing in each jurisdiction in which the nature of its business or
properties make such qualification necessary, except where the failure to be
qualified will not have a material adverse effect on SelectTech.
4.02 CAPITALIZATION. The authorized capital stock of SelectTech
consists of 18,500,000 shares of Common Stock, $0.001 par value, and
1,500,000 shares of Preferred Stock, $0.001 par value, of which 750,000 are
designated Series A Preferred Stock. At the close of business on the
Reference Date, there were outstanding 6,500,000 shares of SelectTech Common
and 600,000 shares of Series A Preferred Stock, convertible into 657,848
shares of SelectTech Common. In addition, at the Reference Date, SelectTech
had granted options to purchase 6,031,855 shares of SelectTech Common. At the
Reference Date, SelectTech had sold Debentures in the aggregate principal
amount of $2,500,000. The aggregate amount of principal of the Debentures is
convertible into 1,500,000 shares of SelectTech Common. SelectTech has also
issued to the debenture holders warrants to purchase SelectTech Common in an
amount up to 5% of the shares of capital stock of SelectTech, calculated on a
fully diluted basis, at an exercise price of $0.01 per share. Additionally,
at the Reference Date, SelectTech has issued to SQIS a SQIS Convertible Note
dated February 1, 1997, as amended on October 15, 1998, in the principal
amount of $200,000; the aggregate amount of principal and interest of the
SQIS Convertible Note is convertible into 120,00 shares of SelectTech Common.
All outstanding shares of SelectTech Common and SelectTech Preferred
are validly issued, fully paid and nonassessable and not subject to
preemptive rights created by statute, SelectTech's Articles of Incorporation
or Bylaws or any agreement to which SelectTech is a party or by which it is
bound. Except as set forth above, there are no options, warrants, calls,
rights, commitments or agreements of any character to which SelectTech is a
party or by which it is bound obligating SelectTech to issue, deliver or
sell, or cause to be issued, delivered or sold additional shares of its
capital stock or obligating SelectTech to grant, extend or enter into any
such option, warrant, call, right, commitment or agreement.
4.03 SELECTTECH SUBSIDIARIES. SelectTech has no direct or indirect
equity interest in any corporation, partnership or other business entity.
4.04 AUTHORITY RELATIVE TO THIS AGREEMENT. SelectTech has the
corporate power and authority to enter into and deliver this Agreement and
the Merger Agreement and to carry out its obligations hereunder and
thereunder. The execution and delivery of this Agreement and the Merger
Agreement and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Board of Directors of SelectTech
and, except for the approval of its shareholders, no other corporate
proceedings on the part of SelectTech are necessary to authorize this
Agreement, the Merger Agreement and the transactions contemplated hereby.
Neither SelectTech nor any of its material assets is subject to or obligated
under any charter or bylaw, or under any material contract, lease or other
instrument or any license, franchise or permit, which would be defaulted,
breached or terminated by or in conflict (or upon the failure to give notice
or the lapse of time, or both, would result in a default, breach, termination
or conflict) with its execution and performance of this Agreement and the
Merger Agreement and the transactions contemplated hereby. Except as
contemplated by this Agreement, no consent of any person not a party to this
Agreement, and no consent of or filing with (including any waiting period)
any governmental authority, is required to be obtained on the part of
SelectTech to permit the Merger or to permit the continuation by the
Surviving Corporation following the Effective Time of the business activities
of SelectTech as previously conducted, without material adverse change. This
Agreement is, and the Agreement of Merger when executed and delivered will
be, valid and binding obligations of SelectTech, enforceable against it in
accordance with their respective terms.
4.05 FINANCIAL STATEMENTS. The audited financial statements of
SelectTech as of June 30, 1999 (the "SELECTTECH FINANCIAL STATEMENTS") have
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present the consolidated financial
position of SelectTech as at the dates thereof and the results of its
operations and changes in financial position for the periods then ended
(subject, in the case of
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unaudited statements, to normal recurring audit adjustments, provided that
the notes and accounts receivable are collectible in the amounts shown less
any reserve shown thereon and inventories are not subject to write-down,
except in either case in an amount not material). Except as contemplated by
this Agreement or on account of the transactions contemplated hereby, since
June 30, 1999, there has not been any material adverse change in the results
of operations, financial condition, assets or business of SelectTech, other
than on account of matters which affect generally the economy or the
industries in which SelectTech is engaged.
4.06 LIABILITIES. SelectTech has no material liabilities,
obligations or loss contingencies that are required to be reflected in
SelectTech Financial Statements under generally accepted accounting
principles, other than: (i) liabilities disclosed or provided for in
SelectTech Financial Statements including the notes thereto; and (ii)
liabilities incurred in the ordinary course of business since June 30, 1999.
4.07 LITIGATION. There is no private or governmental litigation or
proceeding or, to the knowledge of SelectTech, investigation or claim against
SelectTech pending or, to the knowledge of SelectTech, threatened which, if
determined adversely, may reasonably be expected to have a material adverse
effect on its consolidated business, nor are there any judgments, decrees or
orders enjoining SelectTech in respect of, or the effect of which is to
prohibit, any business practice or the acquisition of any property or the
conduct of business in any area which is material to its business on a
consolidated basis.
4.08 TAXES. SelectTech has filed all Federal and Nevada tax returns
and, to the best of SelectTech's knowledge, all other state and foreign tax
returns required to be filed, and has paid, or has made adequate provision or
set up an adequate accrual or reserve for the payment of all taxes required
to be paid and has no material liability for taxes in excess of the amount so
paid or accruals or reserves so established. SelectTech is not delinquent in
the payment of any material tax, assessment or governmental charge or in the
filing of any tax returns, and no material deficiencies for any tax
assessment or governmental charge have been threatened, claimed, proposed or
assessed against it.
4.09 ABSENCE OF VIOLATIONS. SelectTech is not in violation of any
applicable provision of United States, state, local or foreign laws,
regulations, judgments or decrees, which violation may reasonably be expected
to have a material adverse effect on SelectTech.
4.10 INTELLECTUAL PROPERTY.
(a) No person or entity has any rights to use any of the
Intellectual Property of SelectTech.
(b) SelectTech owns, or has the right pursuant to a valid
contract to use or operate under, all Intellectual Property of SelectTech.
(c) The operation of the business of SelectTech as it is
currently conducted does not infringe the Intellectual Property of any other
person or entity, and SelectTech has not received notice of any claim
concerning such infringement.
(d) To the knowledge of SelectTech, no person is infringing
or misappropriating any of the Intellectual Property of SelectTech and there
are no claims asserted against SelectTech related to any Intellectual
Property of SelectTech.
4.11 PROPERTIES, LIENS, ETC. Except as reflected in SelectTech
Financial Statements or in the notes thereto, and except for statutory
mechanics and materialmen's liens, liens for current taxes not yet delinquent
and liens or encumbrances which do not confer upon secured parties any rights
to property which are material to SelectTech, SelectTech owns, free and clear
of any liens or other encumbrances, all of its tangible and intangible
property, real and personal.
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4.12 HART SCOTT RODINO. To the knowledge of SelectTech, no filing
will be required under the HSR Act in order to consummate the Merger.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF HOLDING COMPANY AND SUB
Except as disclosed or excepted on a schedule delivered by Holding
Company and Sub to the other parties to this Agreement prior to the execution
of this Agreement (the "HOLDING COMPANY SCHEDULE"), each of Holding Company
and Sub represents and warrants to the other parties to this Agreement as
follows:
5.01 ORGANIZATION OF HOLDING COMPANY. Holding Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware. Holding Company has conducted no business
prior to the execution and delivery of this Agreement.
5.02 ORGANIZATION OF SUB. Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California. Sub has conducted no business prior to the execution and delivery
of this Agreement.
5.03 CAPITALIZATION. The authorized capital stock of Holding Company
consists of 40,000,000 shares of Common Stock and 10,000,000 shares of
Preferred Stock. At the close of business on the Reference Date, there were
outstanding 100 shares of Holding Company Common. The authorized capital
stock of Sub consists of 100 shares of Common Stock. At the close of business
on the Reference Date, there were outstanding 100 shares of Sub Common.
5.04 HOLDING COMPANY SUBSIDIARIES. Other than Sub, Holding Company
has no direct or indirect equity interest in any corporation, partnership or
other business entity. Sub has no direct or indirect equity interest in any
corporation, partnership or other business entity.
5.05 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Holding Company
and Sub has the corporate power and authority to enter into and deliver this
Agreement and the Merger Agreement and to carry out its respective
obligations hereunder and thereunder. The execution and delivery of this
Agreement and the Merger Agreement and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the respective
Boards of Directors of Holding Company and Sub and, except for the approval
of their shareholders, no other corporate proceedings on the part of Holding
Company or Sub are necessary to authorize this Agreement, the Merger
Agreement and the transactions contemplated hereby. Neither Holding Company
nor Sub is subject to or obligated under any charter or bylaw, or under any
material contract, lease or other instrument or any license, franchise or
permit, which would be defaulted, breached or terminated by or in conflict
(or upon the failure to give notice or the lapse of time, or both, would
result in a default, breach, termination or conflict) with its execution and
performance of this Agreement and the Merger Agreement and the transactions
contemplated hereby. Except as contemplated by this Agreement, no consent of
any person not a party to this Agreement, and no consent of or filing with
(including any waiting period) any governmental authority, is required to be
obtained on the part of Holding Company or Sub to permit the Merger. This
Agreement is, and the Agreement of Merger when executed and delivered will
be, valid and binding obligations of Holding Company and Sub, enforceable
against them in accordance with their respective terms.
5.06 LITIGATION. There is no private or governmental litigation or
proceeding or, to the knowledge of Holding Company or Sub, investigation or
claim against Holding Company or Sub pending or, to the knowledge of Holding
Company or Sub, threatened which, if determined adversely, may reasonably be
expected to have a material adverse effect on Holding Company or Sub, nor are
there any judgments, decrees or
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orders enjoining Holding Company or Sub in respect of, or the effect of which
is to prohibit, any business practice or the acquisition of any property or
the conduct of business in any area which is material to its business.
5.07 ABSENCE OF VIOLATIONS. Neither Holding Company nor Sub is in
violation of any applicable provision of United States, state, local or
foreign laws, regulations, judgments or decrees, which violation may
reasonably be expected to have a material adverse effect on Holding Company
or Sub.
5.08 HART SCOTT RODINO. To the knowledge of Holding Company and Sub,
no filing will be required under the HSR Act in order to consummate the
Merger.
5.09 SHARES OF HOLDING COMPANY COMMON. The shares of Holding Company
Common to be issued pursuant to this Agreement and the Merger Agreement, when
issued and delivered in accordance with the Merger Agreement, will be duly
and validly authorized and issued, fully paid and nonassessable and issued in
accordance with all applicable state and federal securities laws.
5.10 CERTIFICATE OF INCORPORATION AND BYLAWS OF HOLDING COMPANY.
Attached as EXHIBIT C is a true and correct copy of the First Amended and
Restated Certificate of Incorporation of Holding Company in effect on the
date hereof. Attached as EXHIBIT D is a true and correct copy of the Bylaws
of Holding Company in effect on the date hereof.
ARTICLE VI
CONDUCT OF BUSINESS PRIOR TO EFFECTIVE DATE
6.01 CONDUCT OF BUSINESS OF SELECTTECH AND SQIS. During the period
from the date of this Agreement to the Effective Time, each of SelectTech and
SQIS shall use reasonable efforts to maintain satisfactory relationships with
licensors, suppliers, distributors and customers, all in accordance with its
ordinary and usual course of business. Prior to the Effective Time, neither
SelectTech nor SQIS shall, without the prior written consent of the other
parties to this Agreement or except as specifically contemplated by this
Agreement:
(a) amend its Articles of Incorporation or Bylaws;
(b) authorize for issuance, issue, deliver or sell any additional
shares of its capital stock of any class, or securities convertible into
shares of such stock, or issue or grant any rights, options or other
commitments for the issuance of shares of such stock or such convertible
securities (other than the issuance of shares of SelectTech Common upon (i)
the exercise of SelectTech Options or SelectTech Warrants, (ii) the
conversion of the Debentures or (iii) the conversion of SelectTech Preferred;
and other than the issuance of shares of SQIS Common upon (x) the exercise of
SQIS Options or (y) the conversion of SQIS Preferred);
(c) split, combine or reclassify any shares of its capital stock or
declare, set aside or pay any dividend (whether in cash, stock or property)
in respect of its capital stock or redeem or otherwise acquire any of its
capital stock other than the repurchase, at cost, of shares issued to
employees pursuant to the terms of employee restricted stock purchase
agreements;
(d) dispose of or acquire any material properties or assets except
in the ordinary course of business;
(e) engage in any activities or transactions that are outside the
ordinary course of SelectTech's business; or
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(f) incur any indebtedness for borrowed money, other than amounts
borrowed pursuant to and in accordance with the terms and conditions of its
existing lines of credit.
6.02 CONDUCT OF BUSINESS OF HOLDING COMPANY AND SUB. During the
period from the date of this Agreement to the Effective Time, neither Holding
Company nor Sub shall conduct any business, other than as reasonably
necessary to carry out the Merger and the transactions related thereto. Prior
to the Effective Time, neither Holding Company nor Sub shall, without the
prior written consent of the other parties to this Agreement or except as
specifically contemplated by this Agreement:
(a) amend its Certificate of Incorporation or Articles of
Incorporation, as applicable, or Bylaws; or
(b) authorize for issuance, issue, deliver or sell any additional
shares of its capital stock of any class, or securities convertible into
shares of such stock, or issue or grant any rights, options or other
commitments for the issuance of shares of such stock or such convertible
securities.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.01 ACCESS AND INFORMATION.
(a) SelectTech has previously afforded, and will afford, to SQIS and
to its accountants, counsel and other representatives full access during
normal business hours throughout the period prior to the Effective Time to
all of its properties, books, contracts and records, and has furnished, and
will furnish, to SQIS all information concerning its business, properties and
personnel as SQIS has requested or might reasonably request, including
proprietary and confidential information of SelectTech.
(b) SQIS has previously afforded, and will afford, to SelectTech and
to its accountants, counsel and other representatives full access during
normal business hours throughout the period prior to the Effective Time to
all of its properties, books, contracts and records, and has furnished, and
will furnish, to SelectTech all information concerning its business,
properties and personnel as SelectTech has requested or might reasonably
request, including proprietary and confidential information of SQIS.
(c) Neither SQIS nor SelectTech shall be obligated to disclose to
the other any information which is subject to an obligation of
confidentiality which would be breached by such disclosure; provided,
however, that no refusal to make disclosure under this Section shall relieve
the nondisclosing party of any obligation arising under any other
representations or warranties contained herein.
7.02 SHAREHOLDERS' APPROVAL. SQIS and SelectTech shall each solicit
the consent of their respective shareholders to approve the Merger as soon as
reasonably possible. The Boards of Directors of SQIS and SelectTech (subject
to their fiduciary responsibilities and obligations) shall recommend to their
respective shareholders that the Merger be approved.
7.03 ISSUANCE OF SHARES. Holding Company shall, as and when required
by the provisions of the Merger Agreement, issue and deliver certificates
representing the number of shares of Holding Company Common for which
SelectTech Common, SelectTech Preferred, SQIS Common and SQIS Preferred
outstanding at the Effective Time shall be converted under the Merger
Agreement.
7.04 CONSENTS AND APPROVALS. SelectTech shall use its best efforts
to obtain any and all consents from other parties to contracts, leases and
other instruments material to SelectTech's business, if necessary or
appropriate to allow the consummation of the Merger and the continuance of
SelectTech's business by SQIS after consummation of the Merger. Each party
hereto shall use its best efforts to obtain any and all permits or
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approvals of any governmental body or agency required by such party for the
lawful consummation of the Merger.
7.05 EXPENSES. Each party to this Agreement will each pay all of
their own costs and expenses incurred in connection with the transactions
contemplated hereby including, without limitation, all fees and expenses of
attorneys, accountants and financial advisors.
7.06 ACTIONS CONTRARY TO STATED INTENT. No party to this Agreement
will, either before or after the consummation of the Merger, take any action
which would prevent the Merger from qualifying as a tax-free reorganization
under Section 368(a)(1)(A) of the Internal Revenue Code or from being
eligible for pooling of interests accounting treatment.
7.07 NO NEGOTIATION. From the date hereof until the consummation or
termination of this Agreement, no party to this Agreement will discuss or
negotiate, or authorize any person or entity to discuss or negotiate on its
behalf, with any other party, or entertain or consider any inquiries or
proposals received from any other party, concerning the possible disposition
of its business, assets or capital stock.
7.08 BEST EFFORTS. Each party to this Agreement shall use its best
efforts to cause all conditions to closing to be satisfied, including without
limitation the execution and delivery of such other instruments as may be
reasonably necessary or convenient to consummate the Merger and the other
transactions contemplated hereby.
7.09 FAIRNESS HEARING. Each party to this Agreement will use
commercially reasonable efforts to qualify the issuance of Holding Company
Common, Holding Company Preferred, options and debentures in the Merger under
the exemption provided by Section 3(a)(10) of the Securities Act. The parties
to this Agreement agree to cooperate with one another to prepare and file
with the Commissioner of Corporations of the State of California an
application for qualification of the Holding Company Common in the Merger
pursuant to a "fairness hearing" procedure, and to take such other actions as
may be reasonably necessary to perfect such exemption.
7.10 JOINT SOLICITATION STATEMENT. SQIS and SelectTech will jointly
prepare the Joint Solicitation Statement.
7.11 INFORMATION SUPPLIED. Each party to this Agreement will
promptly inform the other of the occurrence of any event which should be
included in an amendment or supplement to the Joint Solicitation Statement or
any other such filing, agreement or document and of any discovery that any
information supplied as described in this Section 7.11 no longer conforms
with the requirements of this Section 7.11.
7.12 RESTRICTIONS ON SALES BY AFFILIATES. SelectTech will use its
best efforts to cause those shareholders of SelectTech identified on a list
delivered to SQIS on or prior to the date of this Agreement, together with
any other shareholders of SelectTech who in the opinion of counsel for
SelectTech are or may be Affiliates to execute and deliver to SQIS the form
of Affiliates Agreement attached hereto as EXHIBIT E. SQIS will use its best
efforts to cause those shareholders of SQIS identified on a list delivered to
SelectTech on or prior to the date of this Agreement, together with any other
shareholders of SQIS who in the opinion of counsel for SQIS are or may be
Affiliates to execute and deliver to SelectTech the form of Affiliates
Agreement attached hereto as EXHIBIT E.
7.13 INVENTION ASSIGNMENT AND NONDISCLOSURE AGREEMENTS. SelectTech
will use its best efforts to cause each of its employees and consultants to
execute and deliver to the Surviving Corporation an Invention Assignment and
Nondisclosure Agreement substantially in the form attached as EXHIBIT F.
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<PAGE>
7.14 LOCK-UP AGREEMENTS. Each of SQIS and SelectTech will use its
best efforts to cause each of their respective shareholders who will own one
percent or more of the shares of Holding Company Common Stock after the
Effective Time, calculated on a fully diluted, as-converted basis, to execute
and deliver to SQIS, at or before the Effective Time, a Lockup Agreement
substantially in the form attached as EXHIBIT G.
7.15 CONFIRMATION AGREEMENTS. SelectTech will use its best efforts
to cause each of its officers and key employees and all technical personnel
who hold SelectTech Common, SelectTech Preferred or SelectTech Options prior
to the Effective Time of the Merger to execute and deliver to SQIS, at or
before the Effective Time, a Confirmation Agreement and Assignment of Rights
substantially in the form attached as EXHIBIT H.
7.16 COVENANT OF THE BOARDS OF DIRECTORS. The respective Boards of
Directors of SQIS, SelectTech, Sub and Holding Company have each approved the
Merger, and will each use its best efforts to cause the shareholders of SQIS
and SelectTech, as applicable, to approve the Merger, this Agreement and the
transactions contemplated hereby, subject to the satisfaction or waiver of
the conditions precedent to the Merger and subject to the discharge of the
directors' fiduciary responsibilities.
ARTICLE VIII
CONDITIONS PRECEDENT
The respective obligation of each party to effect the Merger shall
be, at the election of such party, subject to the fulfillment at or prior to
the Effective Time of the following conditions:
(a) This Agreement and the Merger Agreement shall have been approved
and adopted by the shareholders of each party to this Agreement in the manner
required under applicable law, and neither SQIS nor SelectTech shall have
received demands for payment in accordance with Section 1301 of the
California General Corporation Law or Section 92A.380 of the Nevada General
Corporation Law, as applicable, from their respective shareholders with
respect to 5% or more of the outstanding shares of Common Stock of SQIS or
SelectTech, as the case may be.
(b) No order shall have been entered, and not vacated, by a court or
administrative agency of competent jurisdiction, in any action or proceeding
which enjoins, restrains or prohibits consummation of the Merger.
(c) SQIS and SelectTech shall have received a permit for the
qualification of securities to be issued in the Merger from the Department of
Corporations of California, or the transaction shall be exempt from
registration or qualification under applicable securities laws in the opinion
of legal counsel to the parties.
(d) SQIS and SelectTech shall have received all permits,
authorizations and qualifications from federal, state and local governmental
agencies that are required for the consummation of the Merger.
(e) SQIS shall have received an executed Confirmation Agreement and
Assignment of Rights from each of SelectTech's officers and key employees and
all technical personnel who hold SelectTech Common, SelectTech Preferred or
SelectTech Options prior to the Effective Time of the Merger.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.01 TERMINATION. This Agreement may be terminated at any time prior
to the Effective Time, whether before or after approval by the shareholders
of SQIS or SelectTech:
-17-
<PAGE>
(a) by mutual agreement of the Boards of Directors of SQIS and
SelectTech;
(b) by the Board of Directors of SelectTech if at the Effective Time
any of the conditions specified in Article VIII has not been satisfied or
waived by SelectTech on or prior to December 31, 1999;
(c) by the Board of Directors of SQIS if at the Effective Time any
of the conditions specified in Article VIII has not been satisfied or waived
by SQIS on or prior to December 31, 1999; or
(d) by the Board of Directors of either SQIS or SelectTech if (i)
there shall be a nonappealable order of a federal or state court in effect
preventing consummation of the Merger or (ii) there shall be any action
taken, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Merger by any governmental entity that
would make consummation of the Merger illegal.
9.02 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either SQIS or SelectTech, as provided in Section 9.01, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of either SQIS or SelectTech or their respective
officers or directors and except to the extent that such termination results
from the willful breach by a party hereto of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
9.03 AMENDMENT. This Agreement may be amended by the parties hereto
at any time before or after approval hereof by the shareholders of SQIS or
SelectTech, but, after any such shareholder approval, no amendment shall be
made which by law requires the further approval of shareholders without such
further approval having been obtained. This Agreement may not be amended
except by an instrument in writing signed on behalf of each of the parties
hereto.
9.04 EXTENSION; WAIVER. At any time prior to the Effective Time,
either party hereto may, to the extent allowed by law, (a) extend the time
for the performance of any of the obligations or other acts of the other
party, (b) waive any inaccuracies in the representations and warranties of
the other party contained herein or in any document delivered pursuant hereto
or (c) 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 if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE X
GENERAL PROVISIONS
10.01 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. The
agreements contained in Article I and Sections 7.05, 7.06, and 7.11 shall
survive the consummation of the Merger. All other representations, warranties
and agreements in this Agreement or in any instrument delivered pursuant to
this Agreement shall be deemed to be conditions to the Merger and shall not
survive the Merger.
10.02 CLOSING. The closing (the "CLOSING") of the transactions
contemplated by this Agreement and the Merger Agreement shall take place at
the offices of SQIS, on the day on which the last of the conditions set forth
in Article VII are fulfilled or waived (the "CLOSING DATE"). Subject to the
provisions of the Merger Agreement, as promptly as possible following the
Closing, a fully executed copy of the Merger Agreement, along with
certificates of SQIS and SelectTech meeting the requirements of Section 1103
of the California General Corporation Law and Section 92A.200 of the Nevada
General Corporation Law, shall be filed with the Secretary of State of
California and the Secretary of State of Nevada, in accordance with the
provisions of the Merger Agreement.
10.03 NOTICES. All notices and other communications required or
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or on the day sent by facsimile
-18-
<PAGE>
transmission if a true and correct copy is sent the same day by first class
mail, postage prepaid, or by dispatch by an internationally recognized
express courier service, and in each case addressed as follows:
if to SQIS, Holding Company 595 Market Street, 6th Floor
or Sub: San Francisco, CA 94105
Attn: President
if to SelectTech: 595 Market Street, 6th Floor
San Francisco, CA 94105
Attn: President
10.04 COUNTERPARTS. This Agreement may be executed in one or more
counterparts. Delivery of executed signature pages by facsimile will be
deemed valid execution and delivery of this Agreement for all purposes.
10.05 MISCELLANEOUS. This Agreement, including the Exhibits, (a)
constitutes the entire agreement among the parties with respect to the
subject matter hereof and supersedes all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, (b) is not intended to confer upon any other person any rights or
remedies hereunder, and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided herein.
10.06 GOVERNING LAW. This Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of California.
10.07 EXHIBITS. The following Exhibits are attached to this
Agreement and made a part of this Agreement by this reference:
EXHIBIT A Form of Merger Agreement
EXHIBIT B Articles of Incorporation of SelectQuote
EXHIBIT C Restated Certificate of Incorporation of SelectQuote, Inc.
EXHIBIT D Bylaws of SelectQuote, Inc.
EXHIBIT E Form of Affiliates Agreement
EXHIBIT F Form of Invention Assignment and Nondisclosure Agreement
EXHIBIT G Form of Lockup Agreement
EXHIBIT H Form of Confirmation Agreement and Assignment of Rights
* * *
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<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement
and Plan of Reorganization as of the date first written above.
SELECTQUOTE INSURANCE SERVICES SELECTTECH
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
By: Charan J. Singh By: Steven H. Gerber
Title: President Title: President
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
By: Nancy Malik By: David L. Paulsen
Title: Secretary Title: Secretary
SELECTQUOTE, INC. SELECTQUOTE ACQUISITION SUB
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
By: Steven H. Gerber By: Charan J. Singh
Title: President Title: President
- ---------------------------------- ---------------------------------
- ---------------------------------- ---------------------------------
By: David L. Paulsen By: David L. Paulsen
Title: Assistant Secretary Title: Secretary
-20-
AMENDMENT TO
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
This Amendment to Amended and Restated Agreement and Plan of
Reorganization (this "AMENDMENT") is effective as of December 17, 1999 by and
among SelectQuote Insurance Services, a California corporation ("SQIS"),
SelectTech, a Nevada corporation ("SELECTTECH"), SelectQuote, Inc., a Delaware
corporation ("HOLDING COMPANY"), and SelectQuote Acquisition Sub, a California
corporation and a wholly owned subsidiary of Holding Company ("SUB").
RECITALS
A. The Boards of Directors of SQIS, SelectTech, Holding Company and Sub
have approved the proposed merger of SelectTech and Sub with and into SQIS (the
"MERGER") in accordance with the California General Corporation Law (the "CGCL")
and pursuant to and subject to the terms of the Merger Agreement (the "MERGER
AGREEMENT") to be executed by SQIS, SelectTech, Holding Company and Sub prior to
the effective time of the Merger.
B. On August 17, 1999, the parties executed an Agreement and Plan of
Reorganization, which was amended by an Amended and Restated Agreement and Plan
of Reorganization (the "ORIGINAL AGREEMENT") dated as of August 17, 1999.
C. The parties desire to enter into this Amendment for the purpose of
setting forth changes regarding the assumption of certain agreements.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the
representations, warranties and agreements contained in this Agreement, the
parties agree as follows:
1. Section 2.09(e) shall be amended and restated to read in its
entirety as follows:
"(e) Holding Company shall assume the obligations of SelectTech
pursuant to the existing Investor Rights Agreement among SelectTech and certain
of its shareholders, and shall enter into a SelectQuote, Inc. Registration
Rights Agreement with certain of the SelectTech shareholders and certain other
stockholders of Holding Company, which agreement will supersede the existing
Registration Rights Agreement among SelectTech and certain of its shareholders."
2. The General Provisions of Sections 10.01 through 10.06 of the
Original Agreement are hereby incorporated into this Amendment by this
reference.
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Amendment to
Agreement and Plan of Reorganization as of the date first written above.
SELECTQUOTE INSURANCE SERVICES SELECTTECH
By: Charan J. Singh By: Steven H. Gerber
Title: President Title: President
By: Nancy Malik By: David L. Paulsen
Title: Secretary Title: Secretary
SELECTQUOTE, INC. SELECTQUOTE ACQUISITION SUB
By: Steven H. Gerber By: Charan J. Singh
Title: President Title: President
By: David L. Paulsen By: David L. Paulsen
Title: Assistant Secretary Title: Secretary
<PAGE>
MERGER AGREEMENT
This Merger Agreement (the "MERGER AGREEMENT") is entered into as of
December 21, 1999 by and among SelectQuote Insurance Services, a California
corporation ("SQIS"), SelectTech, a Nevada corporation ("SELECTTECH"),
SelectQuote, Inc., a Delaware corporation ("HOLDING COMPANY"), and
SelectQuote Acquisition Sub, a California corporation and a wholly-owned
subsidiary of Holding Company ("SUB;" together with SQIS, SelectTech and
Holding Company, the "PARTIES").
RECITALS
A. The Boards of Directors of the Parties deem it advisable and in
the best interests of the Parties and their respective shareholders that
SelectTech and Sub merge with and into SQIS (the "MERGER").
B. The Parties previously have entered into an Agreement and Plan of
Reorganization dated as of August 17, 1999 as amended by an Amendment to
Agreement and Plan of Reorganization dated as of December 17, 1999 (the "PLAN
OF REORGANIZATION") setting forth certain representations, warranties and
agreements in connection with the Merger and the transactions associated
therewith.
AGREEMENT
NOW, THEREFORE, the parties do hereby agree as follows:
ARTICLE I
THE CONSTITUENT CORPORATIONS
1.1 SQIS. SQIS is incorporated under the laws of the State of
California and will be the surviving corporation in the Merger. SQIS is
authorized to issue an aggregate of 5,000,000 shares of Common Stock ("SQIS
COMMON STOCK") and 5,000,000 shares of Preferred Stock, of which 600,000
shares are designated Series A Preferred Stock, 300,000 shares are designated
Series B Preferred Stock and 200,000 shares are designated Series C Preferred
Stock (the Series A Preferred Stock, Series B Preferred Stock and Series C
Preferred Stock, collectively, the "SQIS PREFERRED STOCK").
1.2 SELECTTECH. SelectTech was incorporated under the laws of the
State of Nevada on April 30, 1997. SelectTech is authorized to issue an
aggregate of 18,500,000 shares of Common Stock, $0.001 par value ("SELECTTECH
COMMON STOCK"), and 1,500,000 shares of Preferred Stock, $0.001 par value, of
which 750,000 shares are designated Series A Preferred Stock ("SELECTTECH
PREFERRED STOCK").
<PAGE>
1.3 HOLDING COMPANY. Holding Company was incorporated under the
laws of the State of Delaware on August 19, 1999. Holding Company is
authorized to issue an aggregate of 50,000,000 shares of Common Stock, $0.01
par value ("HOLDING COMPANY COMMON STOCK"), and 10,000,000 shares of
Preferred Stock, $0.01 par value.
1.4 SUB. Sub was incorporated under the laws of the State of
California on August 18, 1999. Sub is authorized to issue an aggregate of 100
shares of Common Stock, ("SUB COMMON STOCK").
ARTICLE II
THE MERGER
2.1 CLOSING OF MERGER. After all conditions to the Merger have been
satisfied, this Merger Agreement, along with certificates meeting the
requirements of the California General Corporation Law and the Nevada General
Corporation Law, shall be filed with the Secretary of State of California and
the Secretary of State of Nevada. At the time such filings are both effected,
the Merger shall become effective ("EFFECTIVE TIME").
2.2 EFFECT OF MERGER.
(a) At the Effective Time, SelectTech shall be merged into
SQIS and the separate corporate existence of SelectTech shall thereupon
cease. SQIS shall be the surviving corporation in the Merger and the separate
corporate existence of SQIS, with all its purposes, objects, rights,
privileges, powers, immunities and franchises, shall continue unaffected and
unimpaired by the Merger.
(b) At the Effective Time, Sub shall be merged into SQIS
and the separate corporate existence of Sub shall thereupon cease. SQIS shall
be the surviving corporation in the Merger (the "SURVIVING CORPORATION") and
the separate corporate existence of SQIS, with all its purposes, objects,
rights, privileges, powers, immunities and franchises, shall continue
unaffected and unimpaired by the Merger.
(c) SQIS, as the Surviving Corporation (the "Surviving
Corporation"), shall succeed to all of the rights, privileges, powers,
immunities and franchises of SelectTech and Sub, all of the properties and
assets of SelectTech and Sub and all of the debts, choses in action and other
interests due or belonging to SelectTech and Sub and shall be subject to, and
responsible for, all of the debts, liabilities and obligations of SelectTech
and Sub with the effect set forth in the California General Corporation Law
and the Nevada General Corporation Law, as applicable.
2
<PAGE>
ARTICLE III
ARTICLES OF INCORPORATION AND BYLAWS
OF THE SURVIVING CORPORATION
3.1 ARTICLES OF INCORPORATION. At the Effective Time, the Articles
of Incorporation of the Surviving Corporation shall continue in the form in
effect immediately prior to the Effective Time.
3.2 BYLAWS. At the Effective Time, the Bylaws of the Surviving
Corporation shall continue in the form in effect immediately prior to the
Effective Time.
ARTICLE IV
MANNER AND BASIS OF CONVERTING CAPITAL STOCK AND SECURITIES
4.1 CONVERSION OF STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of the holders of any shares of
stock of the Parties:
(a) Each full share of SelectTech Common Stock which is
outstanding immediately prior to the Effective Time shall be canceled and
extinguished and will be converted into 0.641597 shares of Holding Company
Common Stock upon surrender of the certificate representing such share of
SelectTech Common Stock.
(b) Each full share of SelectTech Preferred Stock which is
outstanding immediately prior to the Effective Time shall be canceled and
extinguished and will be converted into 0.703455 shares of Holding Company
Common Stock upon surrender of the certificate representing such share of
SelectTech Preferred Stock.
(c) Each option for SelectTech Common Stock which is
outstanding immediately prior to the Effective Time shall be canceled and
extinguished and will be converted into an option to purchase 0.641597 shares
of Holding Company Common Stock at an exercise price for each such share of
Holding Company Common Stock equal to the previous option exercise price for
each share of SelectTech Common Stock divided by 0.641597 ("SELECTTECH
CONVERTED OPTIONS"). Each SelectTech Converted Option will be granted under
the SelectQuote, Inc. 1999 Stock Option Plan and subject to the terms and
conditions thereof.
(d) Each debenture of SelectTech, convertible into shares
of SelectTech Common Stock, which is outstanding immediately prior to the
Effective Time shall be canceled and extinguished and will be converted into
debentures of Holding Company, convertible into shares of Holding Company
Common Stock at a conversion price equal to the previous debenture conversion
price for each share of SelectTech Common Stock divided by 0.641597.
(e) Each full share of SQIS Common Stock which is
outstanding immediately prior to the Effective Time shall be canceled and
extinguished and will be converted into
3
<PAGE>
3.286852 shares of Holding Company Common Stock upon surrender of the
certificate representing such share of SQIS Common Stock.
(f) Each full share of SQIS Series A Preferred Stock which
is outstanding immediately prior to the Effective Time shall be canceled and
extinguished and will be converted into 3.286852 shares of Holding Company
Series A Preferred Stock upon surrender of the certificate representing such
share of SQIS Preferred Stock.
(g) Each full share of SQIS Series B Preferred Stock which
is outstanding immediately prior to the Effective Time shall be canceled and
extinguished and will be converted into 3.286852 shares of Holding Company
Series B Preferred Stock upon surrender of the certificate representing such
share of SQIS Preferred Stock.
(h) Each full share of SQIS Series C Preferred Stock which
is outstanding immediately prior to the Effective Time shall be canceled and
extinguished and will be converted into 3.286852 shares of Holding Company
Series C Preferred Stock upon surrender of the certificate representing such
share of SQIS Preferred Stock (the shares of Holding Company Common Stock
into which shares described in clauses (a) through (g) are converted, the
"MERGER CONSIDERATION").
(i) Each option for SQIS Common Stock which is outstanding
immediately prior to the Effective Time shall be canceled and extinguished
and will be converted into an option to purchase 3.286852 shares of Holding
Company Common Stock at an exercise price for each such share of Holding
Company Common Stock equal to the previous option exercise price for each
share of SelectTech Common Stock divided by 3.286852 ("SQIS CONVERTED
OPTIONS"). Each SQIS Converted Option will be granted under the SelectQuote,
Inc. 1999 Stock Option Plan and subject to the terms and conditions thereof.
(j) Each full share of Sub Common Stock which is
outstanding immediately prior to the Effective Time shall be canceled and
extinguished and will be converted into one share of SQIS Common Stock.
(k) Each full share of Holding Company common which is
outstanding immediately prior to the Effective Time shall be canceled and
extinguished.
(l) Notwithstanding the foregoing, any shares of SelectTech
Common Stock, SelectTech Preferred Stock, SQIS Common Stock or SQIS Preferred
Stock, as applicable (the "CONVERTED SHARES"), owned by Holding Company or
SQIS shall not be converted as provided above but shall be cancelled.
4.2 DISSENTING SHARES. Notwithstanding the other provisions of this
Article IV, no shares owned by any shareholder who dissents from the Merger
pursuant to Section 92A.380 of the Nevada General Corporation Law or Section
1300 of the California General Corporation Law, as applicable, shall be
converted into the Merger Consideration, but shall be converted into the
right to receive such consideration as may be determined to be due with
respect to such
4
<PAGE>
dissenting shares pursuant to the law of the State of Nevada or the State of
California, as applicable.
4.3 EXCHANGE CERTIFICATES. As soon as practicable after the
Effective Time, and after surrender to the Holding Company of any certificate
which prior to the Effective Time represented Converted Shares the Holding
Company shall cause to be distributed to the person in whose name such
certificate is registered a certificate or certificates representing the
Merger Consideration. Until surrendered as contemplated by the preceding
sentence, each certificate which immediately prior to the Effective Time
represented any Converted Shares, shall be deemed at and after the Effective
Time to represent only the right to receive the Merger Consideration. If any
certificate representing the Merger Consideration is to be issued to a person
or entity ("PERSON") other than the Person in whose name the certificate
representing Converted Shares surrendered in exchange therefor is registered,
it will be a condition of the issuance thereof that the certificate so
surrendered will be properly endorsed and accompanied by all documents
reasonably required by the Holding Company to evidence and effect such
transfer and to evidence that any applicable stock transfer taxes have been
paid. If any certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the Person claiming such certificate
to be lost, stolen or destroyed and, if required by the Holding Company, the
posting by such Person of a bond in such reasonable amount as the Holding
Company may direct as indemnity against any claim that may be made against it
with respect to such certificate, the Holding Company will cause the Merger
Consideration to be issued in exchange for such lost, stolen or destroyed
certificate.
ARTICLE V
TERMINATION AND AMENDMENT
5.1 TERMINATION. This Merger Agreement shall terminate forthwith in
the event that the Plan of Reorganization shall be terminated as therein
provided.
5.2 AMENDMENT. This Merger Agreement may be amended by the Parties
at any time before or after approval hereof by the shareholders of
SelectTech, SQIS, Sub and or Holding Company, but, after any such approval,
no amendment which by law requires the further approval of the shareholders
of any of SelectTech, SQIS, Sub and/or Holding Company may be made without
such approval having first been obtained. This Merger Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
Parties.
* * *
5
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Merger
Agreement as of the date first written above.
SELECTQUOTE INSURANCE SERVICES SELECTTECH
- -------------------------------- -------------------------------
By: Charan J. Singh By: Steven H. Gerber
Title: President Title: President
- -------------------------------- -------------------------------
By: Nancy Malik By: David L. Paulsen
Title: Secretary Title: Secretary
SELECTQUOTE, INC. SELECTQUOTE ACQUISITION SUB
- -------------------------------- -------------------------------
By: Steven H. Gerber By: Charan J. Singh
Title: President Title: President
- -------------------------------- -------------------------------
By: David L. Paulsen By: David L. Paulsen
Title: Assistant Secretary Title: Secretary
6
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
ZEBU
ARTICLE I
The name of the corporation is Zebu (the "CORPORATION").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is: 1209 Orange Street, City of Wilmington, County of New Castle. The
name of its registered agent at such address is The Corporate Trust Company.
ARTICLE III
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
ARTICLE IV
SECTION 1. The total number of shares of all classes of stock which
the Corporation has authority to issue is One Hundred Ten Million (110,000,000)
shares, consisting of two classes: One Hundred Million (100,000,000) shares of
Common Stock, $0.01 par value per share, and Ten Million (10,000,000) shares of
Preferred Stock, $0.01 par value per share, 2,500,000 shares of which are
designated Series A Preferred Stock ("SERIES A PREFERRED"), 1,250,000 shares of
which are designated Series B Preferred Stock ("SERIES B PREFERRED"), 750,000
shares of which are designated Series C Preferred Stock ("SERIES C PREFERRED"),
50,000 shares of which are designated Series D Preferred Stock ("SERIES D
PREFERRED") and 2,041,845 shares of which are designated Series E Preferred
Stock ("SERIES E PREFERRED"). The Series A Preferred, Series B Preferred,
Series C Preferred, Series D Preferred and Series E Preferred shall be known
collectively as the "ORIGINAL PREFERRED STOCK."
SECTION 2. The board of directors of the corporation ("BOARD OF
DIRECTORS") is authorized, subject to any limitations prescribed by the law of
the State of Delaware, to provide for the issuance of additional shares of
Preferred Stock in one or more series by filing a certificate of designations
pursuant to the applicable law of the State of Delaware, to establish from time
to time the number of shares to be included in each such series, to fix the
designations, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof, and to increase or
decrease the number of shares of any such series (but not below the number of
shares of such series then outstanding). The number of authorized shares of
Preferred Stock may also be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the stock of the Corporation entitled to vote, unless a vote of any
other holders is required pursuant to a certificate or certificates establishing
a series of Preferred Stock.
3
<PAGE>
Except as otherwise expressly provided in any certificate of designations
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Section 2 or by the General Corporation Law of Delaware, any new series
of Preferred Stock may be designated, fixed and determined as provided herein by
the Board of Directors without approval of the holders of Common Stock or the
holders of Preferred Stock, or any series thereof, and any such new series may
have powers, preferences and rights, including, without limitation, voting
rights, dividend rights, liquidation rights, redemption rights and conversion
rights, senior to, junior to or pari passu with the rights of the Common Stock,
the existing classes of Preferred Stock or any future class or series of
Preferred Stock or Common Stock.
SECTION 3. The powers, preferences and rights of the Original
Preferred Stock shall be as follows:
3.1 DIVIDEND RIGHTS.
(a) SERIES A PREFERRED. The holders of the Series A
Preferred shall be entitled to receive in any fiscal year, when and as declared
by the Board of Directors, out of any assets at the time legally available
therefor, dividends in cash at the rate of $0.00913 per share of Series A
Preferred per annum, before any dividend is paid on shares of Common Stock,
Series B Preferred, Series C Preferred, Series D Preferred or Series E
Preferred.
(b) SERIES B PREFERRED. The holders of the Series B
Preferred shall be entitled to receive in any fiscal year, when and as declared
by the Board of Directors, out of any assets at the time legally available
therefor, dividends in cash at the rate of $0.0365 per share of Series B
Preferred per annum, before any dividend is paid on shares of Common Stock,
Series C Preferred, Series D Preferred or Series E Preferred.
(c) SERIES C PREFERRED. The holders of Series C
Preferred shall be entitled to receive in any fiscal year, when and as declared
by the Board of Directors, out of any assets at the time legally available
therefor, dividends in cash at the rate of $0.073 per share of Series C
Preferred per annum, before any dividend is paid on shares of Common Stock,
Series D Preferred or Series E Preferred.
(d) SERIES D PREFERRED. The holders of Series D
Preferred shall be entitled to receive in any fiscal year, when and as declared
by the Board of Directors, out of any assets at the time legally available
therefor, dividends payable in cash, for each share of Common Stock into which
the holders' shares of Series D Preferred are then convertible pursuant to
Section 3.5, equal to the quotient of (i) the aggregate amount of cash dividends
declared and paid on the Series A Preferred, the Series B Preferred and the
Series C Preferred (the "SENIOR PREFERRED") and any other class or series of
stock, divided by (ii) the number of shares of Senior Preferred on which such
dividends are declared and paid (calculated on an as-converted basis) per annum,
before any dividend is paid on shares of Common Stock.
(e) SERIES E PREFERRED. The holders of Series E
Preferred shall be entitled to receive in any fiscal year, when and as declared
by the Board of Directors, out of any assets at the time legally available
therefor, dividends payable in cash, for each share of Common Stock into which
the holders' shares of Series E Preferred are then convertible pursuant to
Section 3.5, equal to the quotient of (i) the aggregate amount of cash dividends
declared and paid on the Senior Preferred
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and any other class or series of stock, divided by (ii) the number of shares
of Senior Preferred on which such dividends are declared and paid (calculated
on an as-converted basis) per annum, before any dividend is paid on shares of
Common Stock.
(f) TIMING OF DIVIDENDS. Dividends may be payable
quarterly or otherwise as the Board of Directors may from time to time
determine. The Board of Directors shall make no distributions to the holders of
Common Stock in any fiscal year unless and until dividends have been paid to or
declared and set apart upon all Original Preferred Stock at the rates set forth
above for such fiscal year.
(g) NO CUMULATIVE RIGHTS. The right to such dividends on
Original Preferred Stock shall not be cumulative, and no rights shall accrue to
the holder of the Original Preferred Stock by reason of the fact that dividends
on said shares are not declared in any prior year, nor shall any undeclared or
unpaid dividends bear or accrue interest.
(h) SERIES D AND SERIES E DIVIDENDS. No dividends shall
be declared with respect to either the Series D Preferred or the Series E
Preferred (each series, individually and collectively, the "JUNIOR PREFERRED")
unless an equivalent dividend is declared on each series of Junior Preferred.
If dividends are declared on Junior Preferred in an amount less than that to
which the holders thereof are entitled pursuant to this Section 3.1, then the
holders of Junior Preferred shall share ratably in such dividends according to
the respective amounts to which such holders are entitled.
3.2 REDEMPTION RIGHTS.
(a) OPTIONAL REDEMPTION OF SERIES A PREFERRED. The
Corporation may at any time at the option of the Board of Directors redeem all
or part (selected pro rata among all shares of Series A Preferred) of the
outstanding shares of the Series A Preferred at the Redemption Price set forth
below, provided that the Corporation shall give written notice to the holders of
the Series A Preferred to be redeemed at least sixty (60) days prior to the date
specified for redemption ("REDEMPTION DATE"). During the period between the
date of the notice and the Redemption Date, the rights under Section 3.5 shall
continue to exist.
(i) Subject to the terms of Section 3.2(a), the
Series A Preferred may be redeemed at a cash price equal to $0.1377 per
share, together with all declared and unpaid dividends to and including
the redemption date ("REDEMPTION PRICE"); provided, however, that payment
of the Redemption Price shall be made from any funds of the Corporation
legally available therefor.
(ii) From and after the Redemption Date (unless
default shall be made by the Corporation in duly paying the Redemption
Price) the holders of the shares of Series A Preferred called for
redemption shall cease to have any rights as stockholders of the
Corporation except the right to receive, without interest, the Redemption
Price thereof upon surrender of Certificates representing the shares of
the Series A Preferred, and such shares shall not thereafter be
transferred (except with the consent of the Corporation) on the books of
the Corporation and shall not be deemed outstanding for any purpose
whatsoever.
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(iii) There shall be no redemption of any shares of
Series A Preferred where such action would be in violation of applicable
law.
(b) NO REDEMPTION OF SERIES B PREFERRED OR SERIES C
PREFERRED. There shall be no mandatory or optional redemption of any
shares of Series B Preferred or Series C Preferred.
(c) MANDATORY REDEMPTION OF SERIES D PREFERRED AND
SERIES E PREFERRED. On December 27, 2004 (the "MANDATORY REDEMPTION DATE"), the
Corporation shall (unless otherwise prevented by law) redeem all of the shares
of Series D Preferred and Series E Preferred then outstanding for a cash amount
per share equal to the greater of (i) the fair market value of one share of
Series D Preferred or Series E Preferred, as applicable, as determined pursuant
to the valuation method set forth in Section 3.3(e), and (ii) the applicable
Liquidation Amount calculated as of the Mandatory Redemption Date (the
"MANDATORY REDEMPTION PRICE").
(i) At any time on or after the Mandatory
Redemption Date, the holders of Series D Preferred and Series E Preferred
shall be entitled to receive the Mandatory Redemption Price for each such
share owned by such holder upon actual delivery to the Corporation or its
transfer agent of the certificates representing such shares.
(ii) If on the Mandatory Redemption Date less than
all of the shares of Series D Preferred and Series E Preferred then
outstanding may be legally redeemed by the Corporation, the Mandatory
Redemption shall be made to the respective holders, PRO RATA based upon
the respective amounts which would be payable on or with respect to such
shares if all amounts payable on or with respect to such shares were paid
in full. On or after the Mandatory Redemption Date, all rights in
respect of the shares of Series D Preferred and Series E Preferred,
except the right to receive the Mandatory Redemption Price as herein
provided, shall cease and terminate (unless default shall be made by the
Corporation in the payment of the Mandatory Redemption Price as herein
provided, in which event such rights shall be exercisable until such
default is cured), and such shares shall no longer be deemed to be
outstanding, whether or not the certificates representing such shares
have been received by the Corporation.
(iii) Anything contained herein to the contrary
notwithstanding, the holders of Series D Preferred and Series E Preferred
shall have the right, exercisable at any time up to the close of business
on the business day immediately preceding the Mandatory Redemption Date,
to convert all or any part of such shares into shares of Common Stock.
(d) OPTIONAL REDEMPTION OF SERIES D PREFERRED AND SERIES
E PREFERRED. The Corporation (unless otherwise prevented by law) shall have the
right (the "CALL RIGHT"), exercisable at any time on or after December 27, 2001
and prior to December 27, 2004 (the "OPTIONAL REDEMPTION DATE" of such series),
to redeem all or any part of the shares of Series D Preferred and Series E
Preferred then outstanding for a cash amount per share of Series D Preferred or
Series E Preferred, as applicable, equal to the Liquidation Amount of such
series, calculated as of the date on which the Corporation shall redeem such
shares (as applicable, the "REDEMPTION AMOUNT" of such series).
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(i) The Corporation shall exercise the Call Right
by providing written notice of such exercise (the "CALL NOTICE") to the
holders of Series D Preferred and Series E Preferred at least 30 days
prior to the applicable Optional Redemption Date. The Call Notice shall
set forth the Option Redemption Date, the Redemption Amount applicable to
the Optional Redemption Date and the number of shares of Series D
Preferred and Series E Preferred to be redeemed.
(ii) At any time on or after the applicable
Optional Redemption Date, the holders of Series D Preferred and Series E
Preferred to be redeemed shall be entitled to receive the applicable
Redemption Amount upon actual delivery to the Corporation or its transfer
agent of the certificates representing such shares.
(iii) If the Corporation elects to exercise the
Call Right as to less than all shares of Series D Preferred and Series E
Preferred then outstanding, the Corporation shall redeem such shares
pursuant to the Call Right PRO RATA based upon the respective amounts
which would be payable on or with respect to such shares if all shares of
Series D Preferred and Series E Preferred were redeemed in full. On or
after the Optional Redemption Date, all rights in respect of the shares
which are the subject of the Call Notice, except the right to receive the
applicable Redemption Amount as herein provided, shall cease and
terminate (unless default shall be made by the Corporation in the payment
of the Redemption Amount as herein provided, in which event such rights
shall be exercisable until such default is cured), and such shares shall
no longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Corporation.
(iv) Anything contained herein to the contrary
notwithstanding, the holders of Series D Preferred and Series E Preferred
shall have the right, exercisable at any time up to the close of business
on the business day immediately preceding the applicable Optional
Redemption Date, to convert all or any part of such shares which are the
subject of the Call Notice into shares of Common Stock.
3.3 LIQUIDATION PREFERENCES.
(a) RIGHTS AND PREFERENCES. In the event of any
liquidation, dissolution or winding up of the Corporation;
(i) The holders of Senior Preferred shall be
entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any payment shall be made in respect of the Common Stock, the Series D
Preferred or the Series E Preferred, an amount equal to $0.15 per share of
Series A Preferred, $0.61 per share of Series B Preferred and $1.22 per share of
Series C Preferred, plus any dividends thereon declared but unpaid.
(ii) The holders of the Series D Preferred shall
be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any payment shall be made in respect of the Common Stock or any class or
series of the Corporation's stock with liquidation rights junior to the Series D
Preferred, an amount equal to the sum of (A) the original purchase price of the
Series D Preferred, and (B)
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interest on the daily weighted average of the excess of the purchase price of
the Series D Preferred, over all dividends, distributions, and amounts paid
in redemption of the Series D Preferred, whether in cash or in kind, at a
rate of 25% per annum, compounded annually, from the original issue date of
such shares until the date of such event.
(iii) The holders of the Series E Preferred shall
be entitled to be paid out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus or earnings,
before any payment shall be made in respect of the Common Stock or any class or
series of the Corporation's stock with liquidation rights junior to the Series E
Preferred, an amount equal to the sum of (A) the original purchase price of the
Series E Preferred, and (B) interest on the daily weighted average of the excess
of the purchase price of the Series E Preferred, over all dividends,
distributions, and amounts paid in redemption of the Series E Preferred, whether
in cash or in kind, at a rate of 25% per annum, compounded annually, from the
original issue date of such shares until the date of such event.
(iv) The amount specified in this Section 3.3(a),
as of the date of determination, as applicable to each series of Original
Preferred Stock, shall be referred to as the "LIQUIDATION AMOUNT" of such
series. If upon liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation available for distribution to its shareholders as set
forth in this Section 3.3(a) shall be insufficient to pay in full the holders of
shares of the same rank with respect to the right to receive payments in the
event of any liquidation, dissolution or winding up of the Corporation as set
forth above, then the holders of such shares shall share ratably in any
distribution of assets according to the respective amounts which would be
payable in respect of such shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full. With
respect to the right to receive payments in the event of any liquidation,
dissolution or winding up of the Corporation under this Section 3.3(a), the
shares of Series D Preferred and the shares of Series E Preferred shall be
considered shares of the same rank.
(b) DEEMED LIQUIDATION EVENT.
(i) With respect to the Senior Preferred, a
Deemed Liquidation Event (as defined below) shall not be deemed a liquidation,
dissolution or winding up of the Corporation as those terms are used in Section
3.3(a).
(ii) With respect to the Series D Preferred or the
Series E Preferred, unless otherwise agreed by the holders of a majority of the
shares of such series, as applicable, a Deemed Liquidation Event (as defined
below) shall be deemed a liquidation, dissolution or winding up of the
Corporation as those terms are used in Section 3.3(a).
(iii) For the purposes of this Section 3.3(b), a
"DEEMED LIQUIDATION EVENT" shall mean: (A) the Corporation's sale of all or
substantially all of its assets, or (B) the acquisition of the Corporation by
another entity by way of merger or consolidation (other than a merger or
consolidation in which the holders of voting securities of the Corporation or
their affiliates immediately before the merger or consolidation own, immediately
after the merger or consolidation, voting securities of the surviving or
acquiring corporation or of a parent party of such surviving or acquiring
corporation, possessing more than fifty percent (50%) of the voting power of the
surviving or acquiring corporation or parent party) resulting in the exchange of
the outstanding
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shares of capital stock of the Corporation for securities or consideration
issued, or caused to be issued, by the acquiring corporation or its
subsidiary.
(c) NOTICE. In the event the Corporation shall propose
to take any action of the types described in Sections 3.3(a) or 3.3(b)(iii), the
Corporation shall, within ten (10) days after the date the Board of Directors of
the Corporation approves such action or twenty (20) days prior to any
shareholders' meeting called to approve such action, whichever is earlier, give
each holder of Original Preferred Stock initial written notice of the proposed
action. Such initial written notice shall describe the material terms and
conditions of such proposed action, including a description of the stock, cash
and property to be received by such holders upon consummation of the proposed
action and the date of delivery thereof. If any material change in the facts
set forth in the initial notice shall occur, the Corporation shall promptly give
written notice to each holder of Original Preferred Stock of such material
change.
(d) WAITING PERIOD. The Corporation shall not
consummate any proposed action of the type described in Sections 3.3(a) or
3.3(b)(iii) before the expiration of thirty (30) days after the mailing of the
initial notice or ten (10) days after the mailing of any subsequent written
notice, whichever is later; provided that any such 30-day or 10-day period may
be shortened upon the written consent of all holders of Original Preferred
Stock.
(e) FAIR MARKET VALUE. In the event the Corporation
shall propose to take any action of the types described in Section 3.3(a) or
3.3(b)(iii) which will involve the distribution of assets other than cash, the
value of such assets will be deemed to be their fair market value. In the case
of publicly traded securities, fair market value shall mean the closing market
price for such securities on the date such event is consummated or the most
recent closing market price if there was no closing market price on such date.
If the consideration is in a form other than cash or publicly traded securities,
its value will be determined by an independent investment banker or qualified
appraiser promptly selected in good faith by the Board of Directors of the
Corporation, which determination shall be binding on the Corporation and the
holders of Original Preferred Stock.
3.4 VOTING RIGHTS. The holders of Original Preferred Stock
shall have the following voting rights:
(a) GENERAL. Except as otherwise required by law or as
otherwise explicitly provided in Section 3.4(b) or (c), the shares of Original
Preferred Stock shall be voted together with the Common Stock as a single class
at any annual or special meeting of the shareholders of the Corporation, or may
act by written consent in the same manner as the Common Stock and the other
series of Original Preferred Stock. Each holder of Original Preferred Stock
shall be entitled to such number of votes for the Original Preferred Stock held
by him on the record date fixed for such meeting or on the effective date of
such written consent as shall be equal to the whole number of shares of Common
Stock into which his shares of Original Preferred Stock are convertible
immediately after the close of business on the record date fixed for such
meeting or on the effective date of such written consent.
(b) SERIES D PREFERRED. The vote or written consent of
the holders of not less than 67% of all shares of Series D Preferred then
outstanding shall be required in order for the Corporation to undertake any
action which (a) alters or changes the rights, preferences or privileges
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of the Series D Preferred, (b) increases or decreases (other than by
redemption pursuant to Section 3.2 or conversion pursuant to Section 3.5) the
outstanding number of shares of Series D Preferred or Series E Preferred, (c)
increases the number of shares of Senior Preferred or Series E Preferred
outstanding, or (d) creates any new class of equity security having rights
preferential to or PARI PASSU with the rights of the Series D Preferred with
respect to voting, dividends, redemption or liquidation preference, or which
amends the terms of any existing series of Preferred Stock with the same
effect.
(c) SERIES E PREFERRED. The vote or written consent of
the holders of not less than 80% of all shares of Series E Preferred then
outstanding shall be required in order for the Corporation to undertake any
action which alters or changes the rights, preferences or privileges of the
Series E Preferred. The vote or written consent of the holders of not less than
67% of all shares of Series E Preferred then outstanding shall be required in
order for the Corporation to undertake any action which (a) increases or
decreases (other than by redemption pursuant to Section 3.2 or conversion
pursuant to Section 3.5) the outstanding number of shares of Series E Preferred,
(b) increases the number of shares of Senior Preferred or Series D Preferred
outstanding, or (c) creates any new class of equity security having rights
preferential to or PARI PASSU with the rights of the Series E Preferred with
respect to voting, dividends, redemption or liquidation preference, or which
amends the terms of any existing series of Preferred Stock with the same effect.
3.5 CONVERSION RIGHTS. The holders of Original Preferred Stock
shall have conversion rights as follows:
(a) CONVERSION RATIOS.
(i) Each holder of Senior Preferred may, at any
time after the date of issuance, upon surrender of the certificates therefor at
the principal office of the Corporation or the office of any transfer agent for
the Senior Preferred, convert any or all of such holder's Senior Preferred into
fully paid and non-assessable shares of Common Stock, at the rate of one (1)
share of Common Stock for each share of Senior Preferred so surrendered (the
"SENIOR PREFERRED CONVERSION RATIO").
(ii) Each share of Series D Preferred shall be
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time, at the office of
the Corporation or any transfer agent for such share, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing One
Hundred Dollars ($100.00) by the Series D Conversion Price (the "SERIES D
CONVERSION RATIO"). The price at which shares of Common Stock will be
deliverable upon conversion of Series D Preferred (the "SERIES D CONVERSION
PRICE") shall initially be Four Dollars and Fifty Cents ($4.50) per share of
Common Stock. The initial Series D Conversion Price shall be subject to
adjustment as hereinafter provided.
(iii) Each share of Series E Preferred shall be
convertible, without the payment of any additional consideration by the holder
thereof and at the option of the holder thereof, at any time, at the office of
the Corporation or any transfer agent for such share, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing Five
Dollars and Fifteen Cents ($5.15) by the Series E Conversion Price (the "SERIES
E CONVERSION
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RATIO;" each of the Senior Preferred Conversion Ratio, the Series D
Conversion Ratio and the Series E Conversion Ratio, the "CONVERSION RATIO" of
such series). The price at which shares of Common Stock will be deliverable
upon conversion of Series E Preferred (the "SERIES E CONVERSION PRICE") shall
initially be Five Dollars and Fifteen Cents ($5.15). The initial Series E
Conversion Price shall be subject to adjustment as hereinafter provided.
(b) AUTOMATIC CONVERSION.
(i) Each share of Senior Preferred Stock shall
automatically be converted into shares of Common Stock at the Senior Preferred
Conversion Ratio immediately upon the closing of any public offering of shares
of the corporation pursuant to a registration statement filed under the
Securities Act of 1933, as amended.
(ii) Each share of Series D Preferred and Series E
Preferred shall automatically be converted into shares of Common Stock at the
then effective Series D Conversion Ratio or Series E Conversion Ratio, as
applicable, immediately upon the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act of 1933, as amended, covering the offer and sale on or before
December 31, 2000 of Common Stock for the account of the Corporation to the
public at a price of at least Ten Dollars ($10.00) per share (as adjusted for
stock splits, reverse stock splits, stock dividends and the like), and resulting
in gross proceeds to the Company of at least Twenty-Five Million Dollars
($25,000,000).
(iii) In the event of the automatic conversion of
the Original Preferred Stock as provided in clauses (i) or (ii) above, the
person(s) entitled to receive the Common Stock issuable upon such conversion
shall not be deemed to have converted such Original Preferred Stock until
immediately prior to the closing of such sale of securities. All of the
outstanding shares of Original Preferred Stock shall be automatically converted
(without any action by the holder thereof) into fully paid and nonassessable
shares of Common Stock. Any authorized and unissued shares of Original
Preferred Stock shall be converted, without further action by the Corporation,
into authorized and unissued shares of Preferred Stock subject to the provisions
of Article IV, Section 2 hereof, and the provisions of Article IV, Section 3
shall expire and cease to have any force or effect thereafter.
(c) NO FRACTIONAL SHARES. No fractional shares of
Common Stock shall be issued upon conversion of the Original Preferred Stock.
In lieu of any fractional shares to which the holder of Original Preferred Stock
would otherwise be entitled (computing the number of shares of Common Stock to
which such holder is entitled on an aggregate basis with respect to all shares
to be converted by such holder at the time of such conversion), the corporation
shall pay cash equal to such fraction multiplied by the fair market value of the
Common Stock, determined by the Board of Directors in good faith. Before any
holder of Original Preferred Stock shall be entitled to convert the same into
Common Stock pursuant to Section 3.5(a), such holder shall surrender the
certificate or certificates therefor, duly endorsed in blank or accompanied by
proper instruments of transfer, at the office of the Corporation or of any
transfer agent for the Original Preferred Stock, and, in the case of a
conversion pursuant to Section 3.5(a), shall give written notice to the
Corporation at such office that such holder elects to convert the same and shall
state therein the name or names in which such holder wishes the certificate or
certificates for Common Stock to be issued. The Corporation, as soon as
practicable thereafter, shall issue and deliver to such holder or to such
holder's nominee
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or nominees, a certificate or certificates for the number of full shares of
Common Stock to which such holder or nominees shall be entitled, together
with cash in lieu of any fraction of a share as provided above. Such
conversion shall be deemed to have been made as of the date of such surrender
of the Original 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
Common Stock on said date.
(d) ADJUSTMENTS FOR STOCK SPLITS, DIVIDENDS AND
COMBINATIONS. In case the Corporation shall at any time effect a subdivision of
the outstanding Common Stock, or shall fix a record date for determination of
holders entitled to receive a dividend of Common Stock on its outstanding Common
Stock, the conversion price for the Senior Preferred, the Series D Conversion
Price or the Series E Conversion Price, as applicable (each a "CONVERSION PRICE"
and, collectively, the "CONVERSION PRICES") then in effect immediately before
such subdivision or as of such record date shall be proportionately reduced, and
if the Corporation shall combine the outstanding shares of Common Stock, the
respective Conversion Prices then in effect immediately before the combination
shall be proportionately increased. Any adjustment under this Section 3.5(d)
shall become effective at the close of business on the date the subdivision or
combination becomes effective or on the record date for determining holders of
any class of securities entitled to receive the dividend, provided that if such
record date shall have been fixed and such dividend shall not have been fully
paid on the date fixed therefor, the adjustment previously made in the
respective Conversion Prices that became effective on such record date shall be
canceled as of the close of business on such record date, and thereafter the
respective Conversion Prices shall be adjusted pursuant to this Section 3.5(d)
as of the date of the payment of such dividend.
(e) ADJUSTMENTS FOR DIVIDENDS AND DISTRIBUTIONS. In the
event the Corporation at any time or from time to time shall make or issue, or
fix a record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of shares of Original Preferred
Stock shall receive upon conversion thereof, in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities of the
Corporation that they would have received had their shares of Original Preferred
Stock been converted into shares of Common Stock on the date of such event,
giving effect to all adjustments called for with respect to such securities
during the period from the date of such event to and including the conversion
date.
(f) ADJUSTMENTS FOR RECLASSIFICATIONS, EXCHANGES OR
SUBSTITUTIONS. If the Common Stock issuable upon the conversion of the shares
of Original Preferred Stock shall be changed into the same or a different number
of shares of any class or series of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for in Sections 3.5(d) or 3.5(e), or a merger,
consolidation, sale of assets or other transaction provided for in Section
3.5(g)), then and in each such event the holder of each share of Original
Preferred Stock shall have the right thereafter to convert such share into the
kind and amount of shares of stock and other securities and property receivable
upon such reorganization, reclassification or other change by holders of the
number of shares of Common Stock into which such share of Original Preferred
Stock might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
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(g) ADJUSTMENTS FOR MERGERS OR REORGANIZATIONS. In the
event of any merger or consolidation of the Corporation with or into another
corporation or the conveyance of all or substantially all of the assets of the
Corporation to another corporation in a transaction not deemed to be a
liquidation pursuant to Section 3.3, each share of Original 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 Original 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 interests thereafter of the holders of Original Preferred Stock, to the end
that the provisions set forth herein (including provisions with respect to
changes in and other adjustments of the respective Conversion Prices) shall
thereafter be applicable, as nearly as reasonably may be, in relation to any
share of stock or other property thereafter deliverable upon the conversion of
Original Preferred Stock.
(h) NO IMPAIRMENT. The Corporation will not, by
amendment of its Restated 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 3.5 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 Original Preferred Stock pursuant to this
Section 3.5 against impairment.
(i) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence
of each adjustment or readjustment of any Conversion Price pursuant to this
Section 3.5 or Section 3.6, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Original Preferred Stock, as the case may be, a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Original Preferred
Stock, furnish or cause to be furnished to such holder a like certificate
setting forth (a) such adjustments and readjustments, (b) the applicable
Conversion Price for the applicable Original Preferred Stock at the time in
effect, and (c) 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 such
holder's shares of Original Preferred Stock.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available, out of its authorized
but unissued Common Stock, solely for the purpose of effecting the conversion of
the Original Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all Original Preferred Stock from time to
time outstanding. The Corporation shall from time to time take such corporate
action as may be necessary, in the opinion of its counsel (including all
necessary director and shareholder action) and in accordance with the laws of
the State of Delaware, to increase the authorized amount of its Common Stock if
at any time the authorized number of shares of Common Stock remaining unissued
shall not be sufficient to permit the conversion of all of the shares of
Original Preferred Stock at the time outstanding.
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(k) REISSUANCE OF PREFERRED STOCK. Subject to the
provisions of Section 3.4 hereof, upon any conversion of Original Preferred
Stock pursuant to this Section 3.5, the shares of Original Preferred Stock which
are converted can be reissued at the discretion of the Board of Directors as
shares of the same or different series of Original Preferred Stock.
3.6 ADJUSTMENTS TO CONVERSION PRICE FOR DILUTIVE ISSUANCES.
(a) SPECIAL DEFINITIONS. For purposes of this Section
3.6, the following definitions shall apply with respect to the Original
Preferred Stock:
(i) "OPTIONS" shall mean rights, options or
warrants to subscribe for, purchase or otherwise acquire either
Common Stock or Convertible Securities (as hereinafter defined);
(ii) "CONVERTIBLE SECURITIES" shall mean any
evidences of indebtedness, shares or other securities directly or
indirectly convertible into or exchangeable for Common Stock; and
(iii) "ADDITIONAL SHARES OF COMMON STOCK" shall
mean all shares of Common Stock issued (or, pursuant to Section
3.6(c), deemed to be issued) by the Corporation after the original
issue date of the applicable series of Original Preferred Stock,
other than shares of Common Stock issued or issuable:
(A) upon conversion of shares of any then
outstanding series of Preferred Stock;
(B) to officers, directors or employees of
the Corporation in connection with, or as compensation for,
their duties to or services for the Corporation, as
approved by the Board;
(C) as a dividend or distribution on the
Original Preferred Stock;
(D) in any event for which adjustment is
made as provided in Section 3.5 hereof; or
(E) by way of dividend or other
distribution on shares of Common Stock excluded from the
definition of Additional Shares of Common Stock by the
foregoing clauses (A), (B), (C) or (D), or on shares of
Common Stock so excluded.
(b) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in
the number of shares of Common Stock into which the Series D Preferred Stock or
the Series E Preferred Stock is convertible shall be made, by adjustment in the
applicable Conversion Price, in respect of the issuance or deemed issuance of
Additional Shares of Common Stock, unless the consideration per share for
Additional Shares of Common Stock issued or deemed to be issued by the
Corporation is less than the Series D Conversion Price or Series E Conversion
Price, as applicable, in effect on the date of, and immediately prior to, the
issue of such Additional Shares of Common Stock.
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(c) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK.
In the event the Corporation at any time or from time to time 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 of Options or Convertible Securities 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:
(i) no further adjustment in the Conversion Price
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;
(ii) if such Options or Convertible Securities by
their terms provide, with the passage of time or otherwise, for
any increase or decrease in the consideration payable to the
Corporation, or any increase or decrease in the number of shares
of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price 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 equal the lesser of (A) a price that reflects such
increase or decrease insofar as it affects such Options or the
rights of conversion or exchange under such Convertible Securities
or (B) a price calculated as if such Options or Convertible
Securities were excluded from the definition of "Additional Shares
of Common Stock," such that the issuance of such Options or
Convertible Securities, together with the foregoing adjustments in
their terms, will not have the net effect of increasing the
Conversion Price for the Original Preferred Stock;
(iii) upon the expiration of any such Options or
any rights of conversion or exchange under such Convertible
Securities that shall not have been exercised, the Conversion
Price 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 the shares of Common Stock, if
any, actually issued upon the exercise of such Options or
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 that were actually converted or exchanged, plus
the additional consideration, if any, actually received by
the Corporation upon such conversion or exchange, and
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(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 deemed to have been received by the
Corporation (determined pursuant to Section 3.6(e)) upon
the issue of the Convertible Securities with respect to
which such Options were actually exercised;
(iv) in the case of any Options that expire by
their terms not more than 30 days after the date of issue thereof,
no adjustment of the Conversion Price shall be made until the
expiration or exercise of all such Options, whereupon such
adjustment shall be made in the same manner provided in clause
(iii) above; and
(v) if such record date shall have been fixed and
such Options or Convertible Securities are not issued on the date
fixed therefor, the adjustment previously made in the Conversion
Price that became effective on such record date shall be canceled
as of the close of business on such record date, and thereafter
the Conversion Price shall be adjusted pursuant to this Section
3.6(c) as of the actual date of their issuance.
(d) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON STOCK. In the event the Corporation shall issue
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 3.6(c)) without consideration or for a
consideration per share less than the Series D Conversion Price or Series E
Conversion Price, as applicable, in effect on the date of and immediately prior
to such issue, then and in such event, the Series D Conversion Price and/or the
Series E Conversion Price, as applicable, shall be reduced, concurrently with
such issue, to a price (calculated to the nearest cent) determined by dividing:
(i) an amount equal to the sum of (A) the number
of shares of Common Stock outstanding immediately prior to such
issue multiplied by the applicable Conversion Price in effect
immediately prior to such issue, plus (B) the aggregate
consideration, if any, received by the Corporation for the
issuance and sale of such Additional Shares of Common Stock by
(ii) the sum of 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;
provided that, for the purposes of this Section 3.6(d), all shares of Common
Stock issuable upon conversion of outstanding Options and Convertible Securities
(including the Original Preferred Stock) shall be deemed to be outstanding, and
immediately after any Additional Shares of Common Stock are deemed issued
pursuant to Section 3.6(c), such Additional Shares of Common Stock shall be
deemed to be outstanding.
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(e) DETERMINATION OF CONSIDERATION. For purposes of
this Section 3.6, the consideration received by the Corporation for the issue of
any Additional Shares of Common Stock shall be computed as follows:
(i) Such consideration shall:
(A) 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;
(B) insofar as it consists of (1) property
other than cash, or (2) services rendered, be computed at the fair
value thereof at the time of such issue as determined in good
faith by the Board of Directors; and
(C) 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 (A) and (B) above.
(ii) The consideration per share received by the
Corporation for Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3.6(c), relating to Options and Convertible
Securities, shall be determined by dividing:
(A) 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 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
(B) 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.
3.7 Any notice required by the provisions of this Section 3 to
be given to the Holders of Original Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
Holder of record at its address appearing on the books of the Corporation.
SECTION 4. All rights accruing to the outstanding shares of capital
stock of the Corporation not expressly provided for to the contrary herein shall
be vested in the Common Stock.
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ARTICLE V
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the bylaws of the Corporation.
ARTICLE VI
SECTION 1. To the fullest extent permitted by the General Corporation
Law of Delaware as the same exists or as may hereafter be amended, no director
of the Corporation shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director.
SECTION 2. The Corporation shall, to the fullest extent permitted by
Section 145 of the General Corporation Law of the State of Delaware, indemnify
and hold harmless all directors of the Corporation. To the extent permitted by
applicable law, this Corporation is also authorized to provide indemnification
of (and advancement of expenses to) agents (and any other persons to which
Delaware law permits this Corporation to provide indemnification) through bylaw
provisions, agreements with such agents or other persons, 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 non-statutory) with respect to actions for breach of duty to the
Corporation, its stockholders, and others.
SECTION 3. Neither any amendment nor repeal of any of the foregoing
provisions of this Article VI, nor the adoption of any provision of this
Certificate of Incorporation inconsistent with this Article VI, shall eliminate,
reduce or otherwise adversely affect any limitation on the personal liability of
a director of the Corporation existing at the time of such amendment, repeal or
adoption of such an inconsistent provision.
ARTICLE VII
The Corporation shall not be subject to or governed by the provisions of
Section 203 of the General Corporation Law of Delaware, or any amendment or
successor provisions thereto, with respect to business combinations between the
Corporation and interested stockholders.
ARTICLE VIII
The Corporation reserves the right at any time, and from time to time, to
amend, alter, change or repeal any provision contained in this Restated
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at the time in force may be added or inserted, in the manner
now or hereafter prescribed by law; and all rights, preferences and privileges
of whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Restated Certificate of Incorporation in its
present form or as hereafter amended are granted subject to the rights reserved
in this article.
ARTICLE IX
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The election of directors under the terms of the bylaws of the
Corporation is not required to occur by written ballot.
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BYLAWS
OF
SELECTQUOTE, INC.
A DELAWARE CORPORATION
ADOPTED EFFECTIVE AS OF AUGUST 19, 1999
<PAGE>
BYLAWS
OF
SELECTQUOTE, INC.
A DELAWARE CORPORATION
ARTICLE I
CORPORATE OFFICES
1.1 REGISTERED OFFICE. The registered office of the Corporation shall
be: 1209 Orange Street, City of Wilmington, County of Newcastle, State of
Delaware. The name of the registered agent of the Corporation at such location
is The Corporate Trust Company.
1.2 OTHER OFFICES. The Board of Directors may at any time establish
other offices at any place or places where the Corporation is qualified to do
business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 PLACE OF MEETINGS. Meetings of stockholders shall be held at any
place, within or outside the State of Delaware, designated by the Board of
Directors. In the absence of any such designation, stockholders' meetings shall
be held at the registered office of the Corporation.
2.2 ANNUAL MEETINGS. The annual meeting of stockholders shall be held
each year on a date and at a time designated by the Board of Directors. At the
meeting, directors shall be elected and any other proper business may be
transacted. Notwithstanding the preceding sentence to the contrary, stockholders
may act by written consent to elect directors; provided, however, that, if such
consent is less than unanimous, such action by written consent may be in lieu of
holding an annual meeting only if all of the directorships to which directors
could be elected at an annual meeting held at the effective time of such action
are vacant and are filled by such action.
2.3 SPECIAL MEETINGS. Special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of authorized directors,
the Chairman of the Board of Directors, the Chief Executive Officer or any
individual holder of twenty five percent (25%) of the outstanding shares of
common stock of the Corporation.
If a special meeting is called by any person or persons other than the
Board of Directors, the request shall be in writing, specifying the time of such
meeting and the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
facsimile telecommunication to the Chairman of the Board, the President or the
Secretary of the Corporation. No business may be transacted at such special
meeting otherwise than specified in such notice. The officer receiving the
request shall cause notice to be promptly given to
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the stockholders entitled to vote, in accordance with the provisions of Sections
2.4 and 2.5 of this Article II, that a meeting will be held at the time
requested by the person or persons who called the meeting, not less than 60 nor
more than 90 days after the receipt of the request. If the notice is not given
within 20 days after the receipt of the request, the person or persons
requesting the meeting may give the notice. Nothing contained in this paragraph
of this Section 2.3 shall be construed as limiting, fixing, or affecting the
time when a meeting of stockholders called by action of the Board of Directors
may be held.
2.4 NOTICE OF STOCKHOLDERS' MEETINGS. All notices of meetings of
stockholders shall be in writing and shall be sent or otherwise given in
accordance with Section 2.5 of these Bylaws not less than 10 nor more than 60
days before the date of the meeting to each stockholder entitled to vote at such
meeting. The notice shall specify the place, date, and hour of the meeting, and
in the case of a special meeting, the purpose or purposes for which the meeting
is called.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE. Written notice of any
meeting of stockholders, if mailed, is given when deposited in the United States
mail, postage prepaid, directed to the stockholder at his address as it appears
on the records of the Corporation. Written notice may also be given by facsimile
telecommunication, in which case notice shall be deemed given upon the earlier
of receipt or 24 hours after transmission. Notice may also be given by such
other means as may be authorized from time to time under the General Corporation
Law of the State of Delaware. An affidavit of the Secretary or an Assistant
Secretary or of the transfer agent of the Corporation that the notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein.
2.6 ITEMS OF BUSINESS AT MEETINGS. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
business. Items of business at all meetings of the stockholders shall be,
insofar as applicable, as follows:
- Call to order;
- Proof of notice of meeting or waiver thereof;
- Appointment of inspectors of election, if necessary;
- A quorum being present;
- Reports;
- Election of directors;
- Other business specified in the notice of the meeting;
- Voting; and
- Adjournment.
Any items of business not referred to in the foregoing may be taken up
at the meeting as the chairman of the meeting shall determine.
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No other business shall be transacted at any annual meeting of
stockholders, except such business as may be: (i) specified in the notice of
meeting (including stockholder proposals included in the Corporation's proxy
materials under Rule 14a-8 of Regulation 14A under the Securities Exchange Act
of 1934), (ii) otherwise brought before the meeting by or at the direction of
the Board of Directors, or (iii) a proper subject for the meeting which is
timely submitted by a stockholder of the Corporation entitled to vote at such
meeting who complies with the notice requirements set forth below. For business
to be properly submitted by a stockholder before any annual meeting under
section (iii) of the preceding sentence, a stockholder must give timely notice
in writing of such business to the Secretary of the Corporation. To be
considered timely with respect to an annual meeting, a stockholder's notice must
be received by the Secretary at the principal executive offices of the
Corporation not less than 120 calendar days nor more than 150 calendar days
before the date of the Corporation's proxy statement released to stockholders in
connection with the prior year's annual meeting. However, if no annual meeting
was held in the previous year, or if the date of the applicable annual meeting
has been changed by more than 30 days from the date contemplated at the time of
the previous year's proxy statement, a stockholder's notice must be received by
the Secretary not later than 60 days before the date the Corporation commences
mailing of its proxy materials in connection with the applicable annual meeting.
A stockholder's notice to the Secretary to submit business to an annual
meeting of stockholders shall set forth: (i) the name and address of the
stockholder, (ii) the number of shares of stock held of record and beneficially
by such stockholder, (iii) the name in which all such shares of stock are
registered on the stock transfer books of the Corporation, (iv) a representation
that the stockholder intends to appear at the meeting in person or by proxy to
submit the business specified in such notice, (v) a brief description of the
business desired to be submitted to the annual meeting, including the complete
text of any resolutions intended to be presented at the annual meeting, and the
reasons for conducting such business at the annual meeting, (vi) any personal or
other material interest of the stockholder in the business to be submitted, and
(vii) all other information relating to the proposed business which may be
required to be disclosed under applicable law. In addition, a stockholder
seeking to submit such business at the meeting shall promptly provide any other
information reasonably requested by the Corporation.
The chairman of the meeting shall determine all matters relating to the
efficient conduct of the meeting, including, but not limited to, the items of
business, as well as the maintenance of order and decorum. The chairman shall
determine and declare that any putative business was not properly brought before
the meeting in accordance with the procedures described by this Section 2.6, in
which case such business shall not be transacted.
Notwithstanding the foregoing provisions of this Section 2.6, a
stockholder who seeks to have any proposal included in the Corporation's proxy
materials shall comply with the requirements of Rule 14a-8 under Regulation 14A
of the Securities Exchange Act of 1934, as amended.
2.7 QUORUM. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business, except as otherwise provided by statute. If, however,
such quorum is not present or represented at any meeting of the stockholders,
then either (i) the chairman of the meeting or (ii) the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without
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notice other than announcement at the meeting, until a quorum is present or
represented. At such adjourned meeting at which a quorum is present or
represented, any business may be transacted that might have been transacted at
the meeting as originally noticed.
2.8 ADJOURNED MEETING; NOTICE. 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. At
the adjourned meeting the Corporation may transact any business that might have
been transacted at the original meeting. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
2.9 VOTING. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgors and joint owners of stock and to voting trusts and other voting
agreements). Except as provided in the preceding sentence, each stockholder
shall be entitled to one vote for each share of capital stock held by such
stockholder.
2.10 WAIVER OF NOTICE. Whenever notice regarding a stockholder meeting
is required to be given under any provision of the General Corporation Law of
Delaware or of the Certificate of Incorporation or these Bylaws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. Neither the business to be transacted at,
nor the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice.
2.11 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING. Any
action required by this article to be taken at any annual or special meeting of
stockholders of the Corporation, or any action that 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 in writing, setting forth the
action so taken, is 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.
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. If the action which is consented to is such as
would have required the filing of a certificate under any section of the General
Corporation Law of Delaware if such action had been voted on by stockholders at
a meeting thereof, then the certificate filed under such section shall state, in
lieu of any statement required by such section concerning any vote of
stockholders, that written notice and written consent have been given as
provided in Section 228 of the General Corporation Law of Delaware.
2.12 RECORD DATE FOR STOCKHOLDER NOTICE; VOTING; GIVING CONSENTS. In
order that the Corporation may determine the stockholders entitled to notice of
or
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to vote at any meeting of stockholders or any adjournment thereof, or entitled
to express consent to corporate action in writing without a meeting, or entitled
to receive payment of any dividend or other distribution or allotment of any
rights, or 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, in advance, a record date, which shall not be more than 60
nor less than 10 days before the date of such meeting.
If the Board of Directors does not so fix a record date:
(i) 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 day on which the meeting is held;
(ii) The record date for determining stockholders entitled to
express consent to corporate action in writing without a meeting, when
no prior action by the Board of Directors is necessary, shall be the
day on which the first written consent is expressed; and
(iii) The record date for determining stockholders for any
other purpose shall be at the close of business on the day on which the
Board of Directors adopts the resolution relating thereto.
A determination of stockholders of record entitled to 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.
2.13 PROXIES. Each stockholder entitled to vote at a meeting of
stockholders (or to express consent or dissent to corporate action in writing
without a meeting) may authorize another person or persons to act for him by a
written proxy, signed by the stockholder and filed with the Secretary of the
Corporation, but no such proxy shall be voted or acted upon after three years
from its date, unless the proxy provides for a longer period. A proxy shall be
deemed signed if the stockholder's name is placed on the proxy (whether by
manual signature, typewriting, facsimile telecommunication or other means) by
the stockholder or the stockholder's attorney-in-fact. Furthermore, the
Secretary of the Corporation may determine in the interests of the Corporation
to accept proxies granting authority by the methods approved by Section 212(c)
of the General Corporation Law of Delaware. The revocability of a proxy that
states on its face that it is irrevocable shall be governed by the provisions of
Section 212(e) of the General Corporation Law of Delaware.
2.14 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The officer who has charge
of the stock ledger of the Corporation shall prepare and make, at least 10 days
before every meeting of stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order, and showing the
address of each stockholder 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 10 days prior to the meeting, either at a place within the
city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where
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the meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present. Such list shall presumptively determine the
identify of the stockholders entitled to vote at the meeting and the number of
shares held by each of them.
ARTICLE III
DIRECTORS
3.1 POWERS. Subject to the provisions of the General Corporation Law of
Delaware and any limitation in the Certificate of Incorporation or these Bylaws
relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the Corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
Board of Directors.
3.2 NUMBER, ELECTION. The Board of Directors shall consist of not less
than three (3) nor more than seven (7) persons until changed by a proper
amendment of this section. The exact number of directors shall initially be
five, until changed by a resolution of the boards of directors or by an
amendment to this Bylaw. All of the directors shall be of legal age. Directors
need not be stockholders. Except as otherwise provided by statute or these
Bylaws, the directors shall be elected at the annual meeting of the stockholders
for the election of directors at which a quorum is present, and the persons
receiving a plurality of the votes cast at such election shall be elected. Each
director shall hold office until the next annual meeting of the stockholders and
until his successor shall have been duly elected and qualified or until his
death, or until he shall have resigned, or until he shall have been removed, as
hereinafter provided in these Bylaws, or as otherwise provided by statute or the
Certificate of Incorporation.
3.3 QUALIFICATION AND TERM OF OFFICE OF DIRECTORS. All of the directors
shall be of legal age. Directors need not be stockholders. Each director,
including a director elected to fill a vacancy, shall hold office until his
successor is elected and qualified or until his earlier resignation or removal.
3.4 RESIGNATION AND VACANCIES. Any director may resign at any time upon
written notice to the attention of the Secretary of the Corporation. When one or
more directors so resigns and the resignation is 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 as provided in this section in the filling
of other vacancies.
Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the stockholders having
the right to vote as a single class may be filled by a majority of the directors
then in office, although less than a quorum, or by a sole remaining director.
Whenever the holders of any class or classes of stock or series thereof
are entitled to elect one or more directors by the provisions of the Certificate
of Incorporation, vacancies and newly created directorships of such class or
classes or series may be filled by a majority of the directors
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elected by such class or classes or series thereof then in office, or by a sole
remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
Corporation should have no directors in office, then any officer or any
stockholder or any executor, administrator, trust or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders in accordance with
the provisions of the Certificate of Incorporation or these Bylaws, or may apply
to the Court of Chancery for a decree summarily ordering an election as provided
in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created
directorship, the directors then in office constitute less than a majority of
the whole board (as constituted immediately prior to any such increase), then
the Court of Chancery may, upon application of any stockholder or stockholders
holding at least twenty-five percent (25%) of the total number of the shares at
the time outstanding having the right to vote for such directors, summarily
order an election to be held to fill any such vacancies or newly created
directorships, or to replace the directors chosen by the directors then in
office as aforesaid, which election shall be governed by the provisions of
Section 211 of the General Corporation Law of Delaware as far as applicable.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE. The Board of Directors of
the Corporation may hold meetings, both regular and special, either within or
outside the State of Delaware. Members of the Board of Directors, or any
committee designated by the Board of Directors, may participate in a meeting of
the Board of Directors, or any committee, by means of conference telephone or
similar communications equipment by means of which all persons participating in
the meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.6 REGULAR MEETINGS. Regular meetings of the Board of Directors may be
held without notice at such time and at such place as shall from time to time be
determined by the board.
3.7 SPECIAL MEETINGS; NOTICE. Special meetings of the Board of
Directors for any purpose or purposes may be called at any time by the Chairman
of the Board, the president or any two directors. Notice of the time and place
of special meetings shall be delivered personally or by telephone to each
director or sent by first-class mail or telecommunications facsimile, charges
prepaid, addressed to each director at that director's address as it is shown on
the records of the Corporation. If the notice is mailed, it shall be deposited
in the United States mail at least four days before the time of the holding of
the meeting. If the notice is delivered personally or by telephone or by
facsimile, it shall be delivered personally or by telephone or to the
telecommunications facsimile telephone number at least 48 hours before the time
of the holding of the meeting. Any oral notice given personally or by telephone
may be communicated either to the director or to a person at the office of the
director who the person giving the notice has reason to believe will promptly
communicate it to the director. The notice need not specify the purpose or the
place of the meeting, if the meeting is to be held at the principal executive
office of the Corporation. Notice also may be given by any other means
authorized from time to time under the General Corporation Laws of Delaware.
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3.8 QUORUM. At all meetings of the Board of Directors, a majority of
the authorized number of directors shall constitute a quorum for the transaction
of business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by statute or by the Certificate of
Incorporation. If a quorum is not present at any meeting of the Board of
Directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE. Whenever notice regarding a meeting of the Board
of Directors is required to be given under any provision of the General
Corporation Law of Delaware or of the Certificate of Incorporation or these
Bylaws, a written waiver thereof, signed by the person entitled to notice,
whether before or after the time stated therein, shall be deemed equivalent to
notice. Attendance of a person at a meeting shall constitute a waiver of notice
of such meeting, except when the person attends a meeting for the express
purpose of objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at, nor other purpose of, any regular or special
meeting of the directors, or members of a committee of directors, need be
specified in any written waiver of notice.
3.10 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING. 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 committee, as the case may be, consent thereto in writing and the
writing or writings are filed with the minutes of proceedings of the board or
committee.
3.11 FEES AND COMPENSATION OF DIRECTORS. The Board of Directors shall
have the authority to fix the compensation of directors.
3.12 APPROVAL OF LOANS TO OFFICERS. The Corporation may lend money to,
or guarantee any obligation of, or otherwise assist any officer or other
employee of the Corporation or of its subsidiaries, including any officer or
employee who is a director of the Corporation or its subsidiaries, whenever, in
the judgment of the directors, such loan, guaranty or assistance may reasonably
be expected to benefit the Corporation. The loan, guaranty or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the Corporation. Nothing contained in this section shall
be deemed to deny, limit or restrict the powers of guaranty or warranty of the
Corporation at common law or under any statute.
3.13 REMOVAL OF DIRECTORS. Unless otherwise restricted by statute, any
director or the entire Board of Directors may be removed, with or without cause,
by the holders of a majority of the shares then entitled to elect such director.
ARTICLE IV
COMMITTEES
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4.1 COMMITTEES OF DIRECTORS. The Board of Directors may, by resolution
passed by a majority of the whole board, designate one or more committees, with
each committee to consist of one or more of the directors of the Corporation.
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. In the absence or disqualification of a 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. Any such
committee, to the extent provided in the resolution of the Board of Directors or
in the Bylaws of the Corporation, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers that may require it; but no such committee shall have the
power or authority to (i) approve or adopt, or recommend to the stockholders,
any action or matter expressly required by this chapter to be submitted to
stockholders for approval or (ii) adopt, amend or repeal any bylaw of the
corporation.
4.2 COMMITTEE MINUTES. Each committee shall keep regular minutes of its
meetings and report the same to the Board of Directors when required.
4.3 MEETINGS AND ACTION OF COMMITTEES. Meetings and actions of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these Bylaws, Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting), with such changes in the context of
those Bylaws as are necessary to substitute the committee and its members for
the Board of Directors and its members; provided, however, that the time of
regular meetings of committees may be determined either by resolution of the
Board of Directors or by resolution of the committee, that special meetings of
committees may also be called by resolution of the Board of Directors and that
notice of special meetings of committees shall also be given to all alternate
members, who shall have the right to attend all meetings of the committee. The
Board of Directors may adopt rules for the government of any committee not
inconsistent with the provisions of these Bylaws.
ARTICLE V
OFFICERS
5.1 OFFICERS. The officers of the Corporation shall be a Chief
Executive Officer, a President, a Secretary, and a Chief Financial Officer. The
Corporation may also have, at the discretion of the Board of Directors, a
Chairman of the Board, one or more Vice Presidents, one or more assistant vice
presidents, one or more assistant secretaries, and one or more Assistant
Treasurers, and any such other officers as may be appointed in accordance with
the provisions of Section 5.3 of these Bylaws. Any number of offices may be held
by the same person.
5.2 APPOINTMENT OF OFFICERS. The officers of the Corporation, except
such officers as may be appointed in accordance with the provisions of Sections
5.3 or 5.5 of these Bylaws, shall be appointed by the Board of Directors,
subject to the rights, if any, of an officer under any contract of employment.
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5.3 SUBORDINATE OFFICERS. The Board of Directors may appoint, or
empower the President to appoint, such other officers as the business of the
Corporation may require, each of whom shall hold office for such period, have
such authority, and perform such duties as are provided in these Bylaws or as
the Board of Directors may from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights, if any,
of an officer under any contract of employment, any officer may be removed,
either with or without cause, by an affirmative vote of the majority of the
Board of Directors at any regular or special meeting of the board or, except in
the case of an officer chosen by the Board of Directors, by any officer upon
whom such power of removal may be conferred by the Board of Directors.
Any officer may resign at any time by giving written notice to the
Corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the Corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
5.6 CHAIRMAN OF THE BOARD. The Chairman of the Board, if such an
officer be elected, shall, if present, preside at meetings of the Board of
Directors and exercise and perform such other powers and duties as may from time
to time be assigned to him by the Board of Directors or as may be prescribed by
these Bylaws. If there is no President, then the Chairman of the Board shall
also be the chief executive officer of the Corporation and shall have the powers
and duties prescribed in Section 5.7 of these Bylaws.
5.7 CHIEF EXECUTIVE OFFICER. Subject to such supervisory powers, if
any, as may be given by the Board of Directors to the Chairman of the Board, if
there be such an officer, the Chief Executive Officer, or CEO, shall, subject to
the control of the Board of Directors, have general supervision, direction, and
control of the business and the officers of the Corporation. He shall preside at
all meetings of the stockholders and, in the absence or nonexistence of a
Chairman of the Board, at all meetings of the Board of Directors.
5.8 PRESIDENT. In the absence or disability of the CEO, the President
shall (a) act as the Chief Executive Officer of the corporation, subject to the
control of the Board of Directors, and have general supervision, direction and
control of the business and affairs of the corporation, (b) preside at all
meetings of the shareholders and, in the absence of the Chairman of the Board
and the Chief Executive Officer, at all meetings of the Board of Directors, and
(c) call meetings of the shareholders and also the Board of Directors to be
held, subject to limitations prescribed by law or by these Bylaws, at such times
and at such places as the President shall deem proper and shall have such other
powers and duties as may be prescribed by the Board of Directors or these
Bylaws. The President shall also affix the signature of the Corporation to all
deeds, conveyances, mortgages, leases, obligations, bonds, certificates, and
other papers and instruments in writing which have been authorized by the Board
of Directors or which, in the judgment of the President, are to be executed on
behalf of the Corporation, the signed certificates for shares of stock of the
Corporation and,
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subject to the direction of the Board of Directors, have general charge of the
property of the Corporation and to supervise and control all officers, agents
and employees of the Corporation.
5.9 VICE PRESIDENTS. In the absence or disability of the President, the
Vice Presidents, if any, in order of their rank as fixed by the Board of
Directors or, if not ranked, a Vice President designated by the Board of
Directors, shall perform all the duties of the President and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
President. The Vice Presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
Board of Directors, these Bylaws, the President or the Chairman of the Board.
5.10 SECRETARY. The Secretary shall keep or cause to be kept, at the
principal executive office of the Corporation or such other place as the Board
of Directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors, and stockholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the notice given), the names of those present at directors'
meetings or committee meetings, the number of shares present or represented at
stockholders' meetings, and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal
executive office of the Corporation or at the office of the Corporation's
transfer agent or registrar, as determined by resolution of the Board of
Directors, a share register, or a duplicate share register, showing the names of
all stockholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the stockholders and of the Board of Directors required to be given by law or
by these Bylaws. He shall keep the seal of the Corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or by these Bylaws.
5.11 CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep
and maintain, or cause to be kept and maintained, adequate and correct books and
records of accounts of the properties and business transactions of the
Corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital retained earnings, and shares. The books
of account shall at all reasonable times be open to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors, shall
render to the Chief Executive Officer, President and directors, whenever they
request it, an account of all his transactions as Chief Financial Officer and of
the financial condition of the Corporation, and shall have other powers and
perform such other duties as may be prescribed by the Board of Directors or
these Bylaws.
The Chief Financial Officer shall be the treasurer of the Corporation,
unless otherwise determined by the Board of Directors.
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5.12 ASSISTANT SECRETARY. The Assistant Secretary, or, if there is more
than one, the assistant secretaries in the order determined by the stockholders
or Board of Directors (or if there be no such determination, then in the order
of their election) shall, in the absence of the Secretary or in the event of his
or her inability or refusal to act, perform the duties and exercise the powers
of the Secretary and shall perform such other duties and have such other powers
as may be prescribed by the Board of Directors or these Bylaws.
5.13 ASSISTANT TREASURER. The Assistant Treasurer, or, if there is more
than one, the Assistant Treasurers, in the order determined by the stockholders
or Board of Directors (or if there be no such determination, then in the order
of their election), shall, in the absence of the Chief Financial Officer or in
the event of his or her inability or refusal to act, perform the duties and
exercise the powers of the Chief Financial Officer and shall perform such other
duties and have such other powers as may be prescribed by the Board of Directors
or these Bylaws.
5.14 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of
the Board, the CEO, the President, any Vice President, the Chief Financial
Officer, the Secretary or Assistant Secretary of the Corporation, or any other
person authorized by the Board of Directors or the President or a Vice
President, is authorized to vote, represent, and exercise on behalf of the
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of the Corporation. The authority granted
herein may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
5.15 AUTHORITY AND DUTIES OF OFFICERS. In addition to the foregoing
authority and duties, all officers of the Corporation shall respectively have
such authority and perform such duties in the management of the business of the
Corporation as may be designated from time to time by the Board of Directors or
the stockholders.
ARTICLE VI
INDEMNITY
6.1 THIRD PARTY ACTIONS. Subject to the provisions of this Article VI,
the Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending, or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Corporation) by reason of the
fact that he is or was a director or officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer or employee of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement (if such settlement is approved in advance by the Corporation,
which approval shall not be unreasonably withheld) actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests
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of the Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
6.2 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. Subject to the
provisions of this Article VI, the Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that he is or was a director,
officer or employee of the Corporation, or is or was serving at the request of
the Corporation as a director, officer or employee of another Corporation,
partnership, joint venture, trust or other enterprise against expenses
(including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit, if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper. Notwithstanding any other
provision of this Article VI, no person shall be indemnified hereunder for any
expenses or amounts paid in settlement with respect to any action to recover
short-swing profits under Section 16(b) of the Securities Exchange Act of 1934,
as amended.
6.3 SUCCESSFUL DEFENSE. To the extent that a director, officer or
employee of the Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in Sections 6.1 and 6.2,
or in defense of any claim, issue or matter therein, he shall be indemnified
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection therewith.
6.4 DETERMINATION OF CONDUCT. Any indemnification under Sections 6.1
and 6.2 (unless ordered by a court) shall be made by the Corporation only as
authorized in the specific case upon a determination that the indemnification of
the director, officer or employee is proper in the circumstances because he has
met the applicable standard of conduct set forth in Sections 6.1 and 6.2. Such
determination shall be made (i) by the Board of Directors by a majority vote of
a quorum consisting of directors who were not parties to such action, suit or
proceeding or (ii) if such quorum is not obtainable or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, or (iii) by the stockholders. Notwithstanding the foregoing, a
director, officer or employee of the Corporation shall be entitled to contest
any determination that the director, officer or employee has not met the
applicable standard of conduct set forth in Sections 6.1 and 6.2 by petitioning
a court of competent jurisdiction.
6.5 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending a
civil or criminal action, suit or proceeding, by an individual who may be
entitled to indemnification pursuant to Section 6.1 or 6.2, shall be paid by the
Corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director,
officer or employee 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 VI.
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6.6 INDEMNITY NOT EXCLUSIVE; EFFECT OF INDEMNIFICATION AGREEMENTS. The
provisions of a written indemnification agreement between the Corporation and
any person subject to indemnity under this Article VI shall control over the
provisions of this Article VI, which shall not apply to the Corporation and the
person subject to indemnity under the written agreement. The indemnification and
advancement of expenses provided by or granted pursuant to the other sections of
this Article VI shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
bylaw, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
6.7 INSURANCE. The Corporation shall have the power to purchase and
maintain insurance on behalf of any person who is or was a director, officer or
employee of the Corporation, or is or was serving at the request of the
Corporation, as a director, officer or employee of another corporation,
partnership, joint venture, trust or other enterprise, against any liability
asserted against him and incurred by him in any such capacity or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VI.
6.8 THE CORPORATION. For purposes of this Article VI, references to the
"Corporation" shall include, in addition to the resulting Corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger which, if its separate existence had continued, would
have had power and authority to indemnify its directors and officers, so that
any person who is or was a director, officer or employee of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise, shall stand in the same position under and
subject to the provisions of this Article VI (including, without limitation, the
provisions of Section 6.4) with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
6.9 EMPLOYEE BENEFIT PLANS. For purposes of this Article VI, references
to "other enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer or employee of the
Corporation which imposes duties on, or involves services by, such director,
officer or employee with respect to an employee benefit plan, its participants,
or beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this Article
VI.
6.10 INDEMNITY FUND. Upon resolution passed by the Board, the
Corporation may establish a trust or other designated account, grant a security
interest or use other means (including, without limitation, a letter of credit),
to ensure the payment of certain of its obligations arising under this Article
VI and/or agreements which may be entered into between the Corporation and its
officers and directors from time to time.
6.11 INDEMNIFICATION OF OTHER PERSONS. The provisions of this Article
VI shall not be deemed to preclude the indemnification of any person who is not
a director or officer of
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the Corporation or is not serving at the request of the Corporation as a
director, officer or employee of another corporation, partnership, joint
venture, trust or other enterprise, but whom the Corporation has the power or
obligation to indemnify under the provisions of the General Corporation Law of
the State of Delaware or otherwise. The Corporation may, in its sole discretion,
indemnify an employee, trustee or other agent as permitted by the General
Corporation Law of the State of Delaware. The Corporation shall indemnify an
employee, trustee or other agent where required by law.
6.12 SAVINGS CLAUSE. If this Article VI or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each person entitled to indemnification
hereunder against expenses (including attorney's fees), judgments, fines and
amounts paid in settlement with respect to any action, suit, proceeding or
investigation, whether civil, criminal or administrative, and whether internal
or external, including a grand jury proceeding and an action or suit brought by
or in the right of the Corporation, to the full extent permitted by any
applicable portion of this Article that shall not have been invalidated, or by
any other applicable law.
6.13 CONTINUATION OF INDEMNIFICATION AND ADVANCEMENT OF EXPENSES. The
indemnification and advancement of expenses provided by, or granted pursuant to,
this Article VI shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a director, officer or employee and
shall inure to the benefit of the heirs, executors and administrators of such a
person.
ARTICLE VII
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF RECORDS. The Corporation shall,
either at its principal executive office or at such place or places as
designated by the Board of Directors, keep a record of its stockholders listing
their names and addresses and the number and class of shares held by each
stockholder, a copy of these Bylaws as amended to date, accounting books, and
other records. A stockholder of record shall have such rights to inspect such
records of the Corporation as are provided by the General Corporation Law of the
State of Delaware, subject to such conditions and restrictions on inspection
rights as are provided by law.
7.2 INSPECTION BY DIRECTORS. Any director shall have the right to
examine the Corporation's stock ledger, a list of its stockholders, and its
other books and records for a purpose reasonably related to his position as a
director. The Court of Chancery is hereby vested with the exclusive jurisdiction
to determine whether a director is entitled to the inspection sought. The Court
may summarily order the Corporation to permit the director to inspect any and
all books and records, the stock ledger, and the stock list and to make copies
or extracts therefrom. The Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or award such other
and further relief as the Court may deem just and proper.
ARTICLE VIII
GENERAL MATTERS
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8.1 CHECKS. From time to time, the Board of Directors shall determine
by resolution which person or persons may sign or endorse all checks, drafts,
other orders for payment of money, notes or other evidences of indebtedness that
are issued in the name of or payable to the Corporation, and only the persons so
authorized shall sign or endorse those instruments.
8.2 EXECUTION OF CORPORATE CONTRACTS AND INSTRUMENTS. The Board of
Directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, to enter into any contract or execute any instrument in the
name of and on behalf of the Corporation; such authority may be general or
confined to specific instances. Unless so authorized or ratified by the Board of
Directors or within the agency power of an officer, no officer employee shall
have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or for
any amount.
8.3 STOCK CERTIFICATES; PARTLY PAID SHARES. The shares of the
Corporation shall be represented by certificates, provided that the Board of
Directors of the Corporation may provide by resolution or resolutions that some
or all of any or all classes or series of its stock shall be uncertificated
shares. Any such resolution shall not apply to shares represented by a
certificate until such certificate is surrendered to the Corporation.
Notwithstanding the adoption of such a resolution by the Board of Directors,
every holder of stock represented by certificates and upon request every holder
of uncertificated shares shall be entitled to have a certificate signed by, or
in the name of the Corporation by the Chairman or Vice-Chairman of the Board of
Directors, or the President or Vice President, and by the Chief Financial
Officer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of
the Corporation representing the number of shares registered in certificate
form. 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 has ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
The Corporation may issue the whole or any part of its shares as partly
paid and subject to call for the remainder of the consideration to be paid
therefor. Upon the face or back of each stock certificate issued to represent
any such partly paid shares, upon the books and records of the Corporation in
the case of uncertificated partly paid shares, the total amount of the
consideration to be paid therefor and the amount paid thereon shall be stated.
Upon the declaration of any dividend on fully paid shares, the Corporation shall
declare a dividend upon partly paid shares of the same class, but only upon the
basis of the percentage of the consideration actually paid thereon.
8.4 SPECIAL DESIGNATION ON CERTIFICATES. If the Corporation is
authorized to issue more than one class of stock or more than one series of any
class, then the powers, the designations, the preferences, and the 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 of back of
the certificate that the Corporation shall issue to represent such class or
series of stock; provided, however, that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
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, the designations, the
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preferences, and the 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.
8.5 LOST CERTIFICATES. Except as provided in this Section 8.5, no new
certificates for shares shall be issued to replace a previously issued
certificate unless the latter is surrendered to the Corporation and canceled at
the same time. The Corporation may issue a new certificate of stock or
uncertificated shares in the place of any certificate theretofore issued by it,
alleged to have been lost, stolen or destroyed, and the Corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative, to give the Corporation a bond sufficient to indemnify it
against any claim that may be made against it on account of the alleged loss,
theft or destruction of any such certificate or the issuance of such new
certificate or uncertificated shares.
8.6 CONSTRUCTION; DEFINITIONS. Unless the context requires otherwise,
the general provisions, rules of construction, and definitions in the Delaware
General Corporation Law shall govern the construction of these Bylaws. Without
limiting the generality of this provision, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both a corporation and a natural person.
8.7 DIVIDENDS. The directors of the Corporation, subject to any
restrictions contained in the General Corporation Law of Delaware, may declare
and pay dividends upon the shares of its capital stock. Dividends may be paid in
cash, in property, or in shares of the Corporation's capital stock. The
directors of the Corporation may set apart out of any of the funds of the
Corporation available for dividends a reserve or reserves for any proper purpose
and may abolish any such reserve. Such purposes shall include but not be limited
to equalizing dividends, repairing or maintaining any property of the
Corporation, and meeting contingencies.
8.8 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors and may be changed by the Board of
Directors.
8.9 SEAL. The Corporation may adopt a corporate seal, which shall be
adopted and which may be altered by the Board of Directors, and may use the same
by causing it or a facsimile thereof to be impressed or affixed or in any other
manner reproduced.
8.10 TRANSFER OF STOCK. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignation or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction in its books.
8.11 STOCK TRANSFER AGREEMENTS. The Corporation shall have power to
enter into and perform any agreement with any number of stockholders of any one
or more classes of stock of the Corporation to restrict the transfer of shares
of stock of the Corporation of any one or more classes owned by such
stockholders in any manner not prohibited by the General Corporation Law of
Delaware.
8.12 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, shall be entitled to
hold liable for calls and assessments the
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person registered on its books as the owner of shares, and shall not be bound to
recognize any equitable or other claim to or interest in such share or shares on
the part of another person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
8.13 DEEMED CALIFORNIA CORPORATION. If Section 2115 of the California
General Corporation Law ("CGCL") applies to the Corporation, then the
Corporation and these Bylaws shall be governed by the CGCL to the extent (and
only to the extent) that Section 2115 applies and only until such time as
Section 2115 no longer applies to the Corporation.
ARTICLE IX
AMENDMENTS
The Bylaws of the Corporation may be adopted, amended or repealed by a
vote of [60%] of the Board of Directors or by an affirmative vote of the holders
of a majority of the outstanding shares of stock having voting rights, voting as
a single class.
* * *
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CERTIFICATE OF ADOPTION OF BYLAWS
OF
SELECTQUOTE, INC.
A DELAWARE CORPORATION
Certificate by Secretary of Bylaws:
The undersigned hereby certifies that he is the duly elected,
qualified, and acting Secretary of SelectQuote, Inc., a Delaware corporation and
that the foregoing Bylaws were adopted as the Bylaws of the Corporation to be
effective as of August 19, 1999 by the stockholders of the Corporation.
IN WITNESS WHEREOF, the undersigned has hereunto set her hand as of
August 19, 1999.
------------------------------------
Nancy Malik, Secretary
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SELECTQUOTE, INC.
AMENDED AND RESTATED
REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT")
is entered into as of February __, 2000, by and among SelectQuote, Inc., a
Delaware corporation (the "COMPANY"), Marsh & McLennan Capital Technology
Venture Fund, L.P., a Delaware limited partnership, Marsh & McLennan Capital
Technology Professionals Venture Fund, L.P., a Delaware limited partnership,
Trident II, L.P., a Cayman Islands exempted limited partnership, Marsh &
McLennan Employees', Securities Company, L.P., a Cayman Islands exempted limited
partnership, Marsh & McLennan Capital Professionals Fund, L.P., a Cayman Islands
exempted limited partnership (collectively, the "MARSH PARTIES"); High Ridge
Capital Partners II, L.P., a Delaware limited partnership ("HIGH RIDGE");
McCutchen, Doyle, Brown & Enersen, LLP ("MDBE") and each of the additional
stockholders listed on Exhibit A (each, including the Marsh Parties and High
Ridge, an "INVESTOR" and collectively with the Marsh Parties and High Ridge, the
"INVESTORS"). This Agreement amends and restates, in its entirety, and
replaces, the Registration Rights Agreement dated December 23, 1999, by and
among the Company and the parties named therein (the "RIGHTS AGREEMENT").
RECITALS
WHEREAS, the Investors own shares of Series D Preferred Stock and shares
of Series E Preferred Stock of the Company (the "SHARES"); and
WHEREAS, the Company, the Marsh Parties and High Ridge are parties to an
Investment Agreement dated February ___, 2000 (the "INVESTMENT AGREEMENT"); and
WHEREAS, as a condition of entering into the Investment Agreement, High
Ridge and the Marsh Parties have requested that the Company extend to them
registration rights and other rights as set forth below; and
WHEREAS, the parties wish to provide the Investors with such registration
rights with respect to the Series E Preferred Stock.
NOW THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants and conditions set forth in this Agreement, the parties
mutually agree that the Rights Agreement is hereby amended and restated in its
entirety as follows:
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1. GENERAL
1.1 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"HOLDER" means any party hereto (other than the Company) owning of record
Registrable Securities that have not been sold to the public or any assignee of
record of such Registrable Securities in accordance with SECTION 2.10 hereof.
"INITIAL OFFERING" means the Company's first firm commitment underwritten
public offering registered under the Securities Act covering the offer and sale
of its Common Stock for the account of the Company in which (i) the per share
price is at least $5.00 (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares) and (ii) the
gross cash proceeds to the Company (before underwriting discounts, commissions
and fees) are at least $7,500,000.
"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 effectiveness of such
registration statement or document.
"REGISTRABLE SECURITIES" means (i) Common Stock of the Company owned of
record by the parties hereto; (ii) Common Stock of the Company issued or
issuable upon conversion of the Shares; (iii) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right, or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for, or in replacement of, such above-described securities;
and (iv) any Common Stock of the Company issued or issuable upon conversion of
the Debentures (as that term is defined in the Debenture Agreement).
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction in which the transferor's
rights under SECTION 2 of this Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (l) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" shall mean all expenses incurred by the Company
in complying with SECTIONS 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements of a
single special counsel for the Holders, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
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"SELLING EXPENSES" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
"FORM S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "COMMISSION" means the Securities and Exchange Commission.
2. REGISTRATION; RESTRICTION ON TRANSFER
2.1 RESTRICTIONS ON TRANSFER.
2.1.1. Each Holder agrees not to make any disposition of all or
any portion of the Shares or Registrable Securities unless and until:
1. There is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
2. (A) The transferee has agreed in writing to be bound
by this SECTION 2.1 and Articles VI and VII of the Investment Agreement, (B)
such Holder shall have notified the Company of the proposed disposition and
shall have furnished the Company with a detailed statement of the circumstances
surrounding the proposed disposition, and (C) such Holder shall have furnished
the Company with an opinion of outside or in-house counsel, reasonably
satisfactory to the Company, that such transfer or disposition without
registration of such shares under the Securities Act will not constitute a
violation of the Securities Act or any applicable state laws. It is agreed that
the Company will not require opinions of counsel for transactions made pursuant
to Rule 144 except in unusual circumstances.
3. Notwithstanding the provisions of paragraphs (1) and
(2) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its partners
or former partners in accordance with partnership interests, (B) a corporation
to its shareholders in accordance with their interests in the corporation, (C) a
limited liability company to its members or former members in accordance with
their interests in the limited liability company, (D) to the Holder's family
member or trust for the benefit of an individual Holder, or (E) to an affiliate
of the Holder, provided the transferee will be subject to the terms of this
SECTION 2.1 to the same extent as if he were an original Holder hereunder.
2.1.2. Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws, the Company's bylaws, or as provided elsewhere in this Agreement):
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
2.1.3. The Company shall be obligated to reissue promptly
unlegended certificates at the request of any Holder thereof if the Holder shall
have obtained an opinion of outside or in-house counsel (which outside counsel
may be counsel to the Company), reasonably acceptable to the Company to the
effect that the securities proposed to be disposed of may lawfully be so
disposed of without registration, qualification or legend.
2.1.4. Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate state securities authority authorizing such removal.
2.2 DEMAND REGISTRATION.
2.2.1. Subject to the conditions of this SECTION 2.2, if the
Company shall receive a written request from (1) the Holders of more than fifty
percent (50%) of the Registrable Securities then outstanding (the "INITIATING
HOLDERS;" such request, the "GENERAL DEMAND"), (2) High Ridge (such request, the
"HIGH RIDGE DEMAND"), or (3) the Marsh Parties (such request, the "MARSH PARTIES
DEMAND") that the Company file a registration statement under the Securities Act
covering the registration of Registrable Securities having an anticipated
aggregate offering price (before any underwriting discounts and commissions) to
the public in excess of $5,000,000 (or $7,500,000 if such requested registration
is the initial public offering of securities of the Company made pursuant to a
registration statement), then the Company shall promptly give written notice of
such request to all Holders of Registrable Securities, and subject to the
limitations of this SECTION 2.2, use its diligent best efforts to effect, as
soon as practicable, the registration under the Securities Act of all
Registrable Securities that the Holders request to be registered.
2.2.2. Unless the request under this Section 2.2 is made after the
Company's Initial Offering, the Registrable Securities shall be distributed only
by means of a firm commitment underwriting. If the Initiating Holders, the Marsh
Parties or High Ridge, as appropriate, intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
and the Company shall include such information in the written notice referred to
in Section 2.2.1. In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the Initiating Holders, the Marsh Parties or High
Ridge, as appropriate, and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by a majority in interest of the
Initiating Holders, the Marsh Parties or High Ridge, as appropriate, (which
underwriter or underwriters shall be reasonably acceptable to the
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Company). Notwithstanding any other provision of this Section 2.2, if the
underwriter advises the Company that marketing factors require a limitation of
the number of securities to be underwritten (including Registrable Securities)
pursuant to a General Demand, then the Company shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities on a pro rata basis
based on the number of Registrable Securities held by all such Holders
(including the Initiating Holders, High Ridge and the Marsh Parties).
Notwithstanding any other provision of this Section 2.2, if the required
limitation of the number of securities to be underwritten is in connection with
a High Ridge Demand or a Marsh Parties Demand, then none of the Registrable
Securities held by High Ridge or the Marsh Parties shall be excluded from such
registration until the number of shares that may be included in the underwriting
by the other Holders, excluding High Ridge and the Marsh Parties, has been
reduced to zero, and the number of shares of such other Holders to be included
in the underwriting shall be determined on a pro rata basis, as provided above.
If the required limitation of the number of securities to be underwritten in
connection with a High Ridge Demand or a Marsh Demand is such that all
Registrable Securities held by High Ridge and the Marsh Parties may not be
included in the underwriting, then the number of shares that may be included in
the underwriting shall be allocated to High Ridge and the Marsh Parties on a pro
rata basis based upon the number of Registrable Securities held by each of them.
Any Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
2.2.3. The Company shall not be required to effect a registration
pursuant to this Section 2.2:
1. prior to (A) August 26, 2000, or (B) six (6) months after
the date of the Company's Initial Offering, whichever is earlier; or
2. pursuant to a General Demand, after the Company has
effected two (2) registrations pursuant to General Demands, pursuant to a High
Ridge Demand after the Company has effected one (1) registration pursuant to a
High Ridge Demand and pursuant to a Marsh Parties Demand after the Company has
effected one (1) registration pursuant to a Marsh Parties Demand as set forth in
this Section 2.2, and such registrations have been declared or ordered
effective; or
3. during the period starting with the date of filing of, and
ending on the date ninety (90) days following the effective date of the
registration statement pertaining to the Initial Offering, provided that the
Company is making reasonable and good faith efforts to cause such registration
statement to become effective; or
4. if within thirty (30) days of receipt of a written request
from Initiating Holders, High Ridge or the Marsh Parties, as appropriate,
pursuant to Section 2.2.1, the Company gives notice to the Holders of the
Company's intention to make its Initial Offering within ninety (90) days; or
5. if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such registration statement to be effected at such time, in
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which event the Company shall have the right to defer such filing for a period
of not more than ninety (90) days after receipt of the request of the Initiating
Holders, High Ridge or the Marsh Parties, as appropriate; provided that such
right to delay a request shall be exercised by the Company no more than twice in
any one-year period.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any registration
statement thereafter filed by the Company, such Holder shall nevertheless
continue to have the right to include any Registrable Securities in any
subsequent such registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein.
2.3.1. UNDERWRITING. If the registration statement under which
the Company gives notice under this SECTION 2.3 is for an underwritten offering,
the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder to be included in a registration pursuant to
this SECTION 2.3 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 Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated, first, to the Company; second, to the Holders on a pro rata
basis based on the total number of Registrable Securities held by the Holders;
and third, to any stockholder of the Company (other than a Holder) on a pro rata
basis. No such reduction shall reduce the securities being offered by the
Company for its own account to be included in the registration and underwriting,
and in no event shall the amount of securities of the selling Holders included
in the registration be reduced below twenty-five percent (25%) of the total
amount of securities included in such registration, unless such offering is the
Initial Offering and such registration does not include shares of any other
selling stockholders, in which event any or all of the Registrable Securities of
the Holders may be excluded in accordance with the immediately preceding
sentence. In no event will shares of any other selling stockholder be included
in such registration where inclusion of such shares would reduce the number of
shares which may be included by the Holders, without the written consent of
Holders of more than fifty percent (50%) of the Registrable Securities proposed
to be sold in the offering.
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2.3.2 RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated or withdraw any
registration initiated by it under this SECTION 2.3 prior to the effectiveness
of such registration, whether or not any Holder has elected to include
securities in such registration. The Registration Expenses of such withdrawn
registration shall be borne by the Company in accordance with SECTION 2.5
hereof.
2.4 FORM S-3 REGISTRATION. Following the Initial Offering, the
Company shall use its best efforts to qualify for registration on Form S-3 for
secondary sales. In case the Company shall receive from any Holder or Holders of
Registrable Securities a written request or requests that the Company effect a
registration on Form S-3 (or any successor to Form S-3) or any similar
short-form registration statement and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, the Company will:
2.4.1. promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
2.4.2. as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this SECTION 2.4:
1. if Form S-3 (or any successor or similar form) is not
available for such offering by the Holders; or
2. if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than $500,000; or
3. if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board of Directors of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than ninety (90) days after receipt of the request of the
Holder or Holders under this SECTION 2.4; provided, that such right to delay a
request shall be exercised by the Company no more than twice in any one-year
period; or
4. in any particular jurisdiction in which the Company would
be required to qualify to do business or to execute a general consent to service
of process in effecting such registration, qualification or compliance.
2.4.3. Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All Selling Expenses
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incurred in connection with registrations requested pursuant to this SECTION 2.4
shall be paid by the selling Holders pro rata in proportion to the number of
shares sold by each.
2.4.4. The rights of holders to require registration pursuant to
this Section 2.4 shall be in addition to the rights granted under Section 2.2
hereof and no request made pursuant to this Section 2.4 shall be deemed a
request under Section 2.2 hereof.
2.5 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to this SECTION 2 shall be borne by the
Company. All Selling Expenses incurred in connection with any registrations
hereunder, shall be borne by the holders of the securities so registered pro
rata on the basis of the number of shares so registered. The Company shall not,
however, be required to pay for expenses of any registration proceeding begun
pursuant to SECTION 2.2, the request of which has been subsequently withdrawn by
the Initiating Holders, High Ridge or the Marsh Parties, as appropriate, unless
(a) the withdrawal is based upon material adverse information concerning the
Company of which the Initiating Holders, High Ridge or the Marsh Parties, as
appropriate, were not aware at the time of such request, or (b) the Holders of a
majority of Registrable Securities, High Ridge or the Marsh Parties, as
appropriate, agree to forfeit their right to one General Demand, one High Ridge
Demand or one Marsh Parties Demand, as appropriate, pursuant to SECTION 2.2 in
which event such right shall be forfeited by all Holders, High Ridge or the
Marsh Parties, as appropriate. If the Holders are required to pay the
Registration Expenses, such expenses shall be borne by the holders of securities
(including Registrable Securities) requesting such registration in proportion to
the number of shares for which registration was requested. If the Company is
required to pay the Registration Expenses of a withdrawn offering pursuant to
clause (a) above, then the Holders shall not forfeit their rights pursuant to
SECTION 2.2 to a General Demand, a High Ridge Demand or a Marsh Parties Demand,
as appropriate.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
2.6.1. Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to ninety (90) days or, if earlier,
until the Holder or Holders have completed the distribution related thereto.
2.6.2. 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.
2.6.3. Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
2.6.4. Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be
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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.
2.6.5. 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.
2.6.6. 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.
2.6.7. Furnish, at the request of a majority in interest of the
Holders participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities, and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
2.7 TERMINATION OF REGISTRATION RIGHTS. A Holder's registration
rights shall expire if (i) the Company has completed its Initial Offering and
has a class of securities registered under the Exchange Act, (ii) such Holder
(together with its affiliates, partners or members and former partners or
members) holds less than 2% of the Company's outstanding Common Stock (treating
all shares of convertible Preferred Stock on an as-if converted to Common Stock
basis), and (iii) all Registrable Securities held by such Holder (and all
affiliates, partners or members and former partners or members) may be sold
under Rule 144 during any ninety (90) day period (without giving effect to the
provisions of Rule 144(e)).
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
2.8.1. No Holder shall have any right to obtain or seek an
injunction restraining or otherwise delaying any such registration as the result
of any controversy that might arise with respect to the interpretation or
implementation of this SECTION 2.
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2.8.2. It shall be a condition precedent to the obligations of the
Company to take any action pursuant to SECTION 2.2, 2.3 or 2.4 that the selling
Holders shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under SECTIONS 2.2, 2.3 or 2.4:
2.9.1. To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, members, officers, directors and
legal counsel (including Holder's own in-house counsel) of each Holder, any
underwriter (as defined in the Securities Act) for such Holder and each person,
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively a "VIOLATION") by the Company: (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will reimburse each such
Holder, partner, member, officer or director, underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this SECTION 2.9.1
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld, nor shall the Company
be liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, member,
officer, director, underwriter or controlling person of such Holder.
2.9.2. To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, members, directors or officers or any person who controls such Holder,
against any losses, claims, damages or liabilities (joint or several) to which
the Company or any such director, officer, controlling person, underwriter or
other such Holder, or partner, member, director, officer or controlling person
of such other Holder may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
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Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder under an instrument duly executed by such Holder and
stated to be specifically for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably incurred by
the Company or any such director, officer, controlling person, underwriter or
other Holder, or partner, member, officer, director or controlling person of
such other Holder in connection with investigating or defending any such loss,
claim, damage, liability or action if it is judicially determined that there was
such a Violation; provided, however, that the indemnity agreement contained in
this SECTION 2.9.2 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this SECTION 2.9
exceed the net proceeds from the offering received by such Holder.
2.9.3. Promptly after receipt by an indemnified party under this
SECTION 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this SECTION 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party if the indemnified party shall have reasonably
concluded that representation of such indemnified party by the counsel retained
by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding, in which case the fees and
expenses of counsel shall be at the expense of the indemnifying party. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if materially prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this SECTION 2.9 to the extent that
such indemnified party is damaged by such failure. Any failure so to deliver
such notice to the indemnifying party will not relieve such indemnifying party
of any liability that it may have to any indemnified party otherwise than under
this SECTION 2.9.
2.9.4. If the indemnification provided for in this SECTION 2.9 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 Violation(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.
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<PAGE>
2.9.5. The obligations of the Company and Holders under this
SECTION 2.9 shall survive completion of any offering of Registrable Securities
in a registration statement and the termination of this Agreement. 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. In the
event any offering of Registrable Securities is underwritten, and the
underwriting agreement provides for indemnification and/or contribution by the
Company and the Holders offering securities thereunder, the indemnification
and/or contribution obligations of the Company and the Holders hereunder shall
in no event exceed the obligations of the parties set forth in such underwriting
agreement.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this SECTION 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities that
acquires at least thirty-two thousand (32,000) shares of Registrable Securities
(as adjusted for stock splits and combinations); provided, however, (A) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (B) such transferee shall agree to be subject to all restrictions
set forth in this Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this SECTION 2
may be amended and the observance thereof may be waived (either generally or in
a particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Holders of more than fifty percent (50%)
of the outstanding Registrable Securities; provided, however, that any amendment
or waiver which would discriminate among, or treat differently, Holders of the
same class of Registrable Securities or affect the rights of High Ridge in
connection with a High Ridge Demand or affect the rights of the Marsh Parties in
connection with a Marsh Parties Demand, shall require the written consent of the
parties so affected. Subject to the provisions of Section 2.12 hereof, the
Company may include purchasers of other series of preferred stock of the Company
as Investors hereunder, without the prior consent of the Investors. Any
amendment or waiver effected in accordance with this SECTION 2.11 shall be
binding upon each Holder and the Company. By acceptance of any benefits under
this SECTION 2, Holders of Registrable Securities hereby agree to be bound by
the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of more than fifty percent (50%) of the Registrable Securities, High
Ridge or the Marsh Parties, as appropriate, enter into any agreement with any
holder or prospective holder of any securities of the Company that would grant
such holder registration rights that are not subordinate to those granted to the
Holders, High Ridge or the Marsh Parties, as appropriate, hereunder.
2.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and the
representative of the underwriters of Common Stock (or other securities) of the
Company, each Holder shall not sell or otherwise transfer or dispose of any
shares of Common Stock (or other securities) of the Company held by such Holder
(other than those included in the registration) for a period specified by the
representative of the underwriters not to exceed one hundred eighty (180)
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days following the effective date of a registration statement of the Company
filed under the Securities Act, provided that:
1. such agreement shall apply only to the Company's Initial
Offering; and
2. all officers and directors of the Company and holders of at
least one percent (1%) of the Company's voting securities enter into similar
agreements.
The obligations described in this SECTION 2.13 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a Commission Rule 145 transaction on Form S-4 or similar
forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
2.14 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 or any similar or analogous rule
promulgated under the Securities Act, 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 Exchange Act;
C. So long as a Holder owns any Registrable Securities, furnish to such
Holder forthwith upon request: a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 of the Securities
Act, and of 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 as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
3. MISCELLANEOUS
3.1 GOVERNING LAW. This Agreement is to be construed in accordance
with and governed by the internal laws of the State of California (as permitted
by Section 1646.5 of the California Civil Code or any similar successor
provision) without giving effect to any choice of law rule that would cause the
application of the laws of any jurisdiction other than the internal laws of the
State of California to the rights and duties of the parties, except to the
extent that United States federal law preempts California law, in which case
United States federal law shall apply, without reference to conflict of law
principles.
3.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument
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<PAGE>
delivered by or on behalf of the Company pursuant hereto in connection with the
transactions contemplated hereby shall be deemed to be representations and
warranties by the Company hereunder solely as of the date of such certificate or
instrument.
3.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, including without limitation Sections 2.10 and 3.6.3, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors, and administrators of the parties hereto and shall
inure to the benefit of and be enforceable by each person who shall be a holder
of Registrable Securities from time to time; provided, however, that prior to
the receipt by the Company of adequate written notice of the transfer of any
Registrable Securities specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such shares in
its records as the absolute owner and holder of such shares for all purposes,
including the payment of dividends or any redemption price.
3.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, and the other documents delivered pursuant hereto constitute 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 in any manner
by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
3.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
3.6 AMENDMENT AND WAIVER.
3.6.1. Except as otherwise expressly provided, this Agreement may
be amended or modified only upon the written consent of the Company and the
holders of more than fifty percent (50%) of the Registrable Securities.
3.6.2. Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be waived
only with the written consent of the holders of more than fifty percent (50%) of
the Registrable Securities.
3.6.3. Notwithstanding the foregoing, this Agreement may be
amended only with the written consent of the Company to include additional
purchasers of Shares as "Investors," "Holders" and parties hereto.
3.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, 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
any Holder's part of any breach, default, or noncompliance under the Agreement
or any waiver on such Holder'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. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
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<PAGE>
3.8 NOTICES. All notices required or pertained hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature page hereof or
at such other address as such party may designate by ten (10) days advance
written notice to the other parties hereto.
3.9 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
3.10 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.
3.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
* * *
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Registration Rights Agreement as of the date set forth in the first
paragraph hereof.
COMPANY:
SELECTQUOTE, a Delaware corporation
By:
------------------------------
Steven H. Gerber, President
INVESTORS:
AIG LIFE INSURANCE COMPANY, a ALLSTATE LIFE INSURANCE COMPANY, an
Delaware corporation Illinois insurance company
By: By:
------------------------------ ------------------------------
Title: Title:
---------------------------- ----------------------------
SECURITY CONNECTICUT LIFE INSURANCE NORTH AMERICAN COMPANY FOR LIFE AND
COMPANY, a Connecticut corporation HEALTH INSURANCE, an Illinois
corporation
By: By:
------------------------------ ------------------------------
Title: Title:
---------------------------- ----------------------------
HIGH RIDGE CAPITAL PARTNERS II, L.P. PROTECTIVE LIFE INSURANCE COMPANY
By: By:
------------------------------ ------------------------------
Title: Title:
---------------------------- ----------------------------
PROTECTIVE LIFE CORPORATION MARSH & MCLENNAN CAPITAL TECHNOLOGY
VENTURE FUND, L.P.
By: By:
------------------------------ ------------------------------
Title: Title:
---------------------------- ----------------------------
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MARSH & MCLENNAN CAPITAL TECHNOLOGY TRIDENT II, L.P.
PROFESSIONALS VENTURE FUND, L.P.
By: By:
------------------------------ ------------------------------
Title: Title:
---------------------------- ----------------------------
MARSH & MCLENNAN EMPLOYEES' MARSH & MCLENNAN CAPITAL PROFESSIONALS
SECURITIES COMPANY, L.P. FUND, L.P.
By: By:
------------------------------ ------------------------------
Title: Title:
---------------------------- ----------------------------
MCCUTCHEN, DOYLE, BROWN &ENERSEN,
LLP
By:
------------------------------
Title:
----------------------------
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EXHIBIT A
INVESTORS
AIG Life Insurance Company
Allstate Life Insurance Company
High Ridge Capital Partners II, L.P.
Marsh & McLennan Capital Professionals Fund, L.P.
Marsh & McLennan Capital Technology Professionals Venture Fund, L.P.
Marsh & McLennan Capital Technology Venture Fund, L.P.
Marsh & McLennan Employees' Securities Company, L.P.
McCutchen, Doyle, Brown & Enersen, LLP
North American Company for Life and Health Insurance
Protective Life Insurance Company
Protective Life Corporation
Security Connecticut Life Insurance Company
Trident II, L.P.
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<PAGE>
[EXECUTION COPY]
AMENDED AND RESTATED
DEBENTURE PURCHASE AGREEMENT
(12% SENIOR SECURED CONVERTIBLE DEBENTURES)
THIS AMENDED AND RESTATED DEBENTURE PURCHASE AGREEMENT (this
"Agreement") is made and entered into as of December 27, 1999 by and among
SECURITY CONNECTICUT LIFE INSURANCE COMPANY, a Connecticut corporation
("Security Connecticut"), PROTECTIVE LIFE INSURANCE COMPANY, a Tennessee
corporation ("Protective"), NORTH AMERICAN COMPANY FOR LIFE AND HEALTH
INSURANCE, an Illinois corporation ("North American", and together with
Security Connecticut and Protective, collectively, the "Purchasers" and
individually, a "Purchaser"), and SELECTQUOTE INC., a Delaware corporation
("SelectQuote").
RECITALS
WHEREAS, Purchasers, have heretofore purchased from SelectTech, a
Nevada corporation ("SelectTech"), 12% Senior Secured Convertible Debentures
(the "Debentures") in the aggregate principal amount of Two Million Five
Hundred Thousand Dollars ($2,500,000), pursuant to that certain Debenture
Purchase Agreement between the Purchasers, Protective and SelectTech, dated
October 15, 1998 (the "Debenture Purchase Agreement"); and
WHEREAS, each of Security Connecticut and North American hold
Debentures with an outstanding principal balance of $950,000, and Protective
holds Debentures with an Outstanding principal balance of $600,000, or
$2,500,000 in the aggregate; and .
WHEREAS, pursuant to the terms and conditions of that certain
Amended and Restated Agreement and Restated Plan of Reorganization (the "Plan
of Reorganization"), by and among SelectQuote Insurance Services, a
California corporation ("SQIS"), SelectTech, SelectQuote, and SelectQuote
Acquisition Sub, a California corporation and wholly owned subsidiary of
SelectQuote ("Sub"), SelectTech has merged with and into SQIS, with SQIS
assuming, by operation of law, the obligations of SelectTech with respect to
the Debentures and the other documents and agreements delivered in connection
therewith (the "Debenture Documents"); and
WHEREAS, pursuant to the terms and conditions of the Plan of
Reorganization, Sub has merged with and into SQIS, with the result being that
SQIS is now a wholly owned subsidiary of SelectQuote; and
WHEREAS, pursuant to the terms and conditions of the Plan of
Reorganization, the obligations of SQIS with respect to the Debentures and
the Debenture Documents have been assigned to, and assumed by, SelectQuote;
and
<PAGE>
WHEREAS, SelectQuote and Purchasers have agreed to amend and restate
the Debenture Purchase Agreement as set forth in this Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and of
the mutual covenants, agreements, undertakings, representations and
warranties contained herein, each of the Purchasers and SelectQuote hereby
agree to amend and restate the Debenture Purchase Agreement in its entirety
as follows:
ARTICLE 1
RULES OF CONSTRUCTION; DEFINITIONS
SECTION 1.1 RULES OF CONSTRUCTION. For all purposes of this
Agreement, except as otherwise expressly provided herein:
(a) The terms defined in this Article, whenever used in this
Agreement (including in the Schedules), shall have the respective meanings
indicated below for all purposes of this Agreement. Singular terms shall
include the plural, as well as the singular, and vice versa.
(b) All accounting terms not otherwise defined in this Article have
the meaning assigned to them, and all computations herein provided for shall
be made, in accordance with generally accepted accounting principles. All
references to generally accepted accounting principles refer to such
principles as they exist at the date thereof.
(c) All references herein to a Section, Article or Schedule are to a
Section, Article or Schedule of or to this Agreement, unless otherwise
indicated.
(d) The terms "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
article, section or other subdivision.
SECTION 1.2 DEFINITIONS . The following terms shall have the
following meanings for all purposes of this Agreement:
AFFILIATE: of a Person means a Person that directly or through one
or more intermediaries controls, is controlled by or is under common control
with, the first Person. "Control" (including the terms "controlled by" and
"under common control with") means the possession, directly or indirectly, of
the power to direct or cause the direction of the management policies of a
Person, whether through the ownership of voting securities, by contract or
credit arrangement, by trustee or executor, or otherwise.
<PAGE>
APPLICABLE LAW: all applicable provisions of all (i) constitutions,
treaties, statutes, laws (including the common law), rules, regulations,
ordinances, codes or orders of any Governmental Body, (ii) Governmental
Approvals and (iii) orders, decisions, injunctions, judgments, awards and
decrees of or agreements with any Governmental Body.
AUTHORIZED REPRESENTATIVE: with respect to SelectQuote, its
President, or such other officer of SelectQuote as may be designated in
writing to each of the Purchasers by the Board of Directors of SelectQuote.
COMMON STOCK: the common stock, $.01 par value, of SelectQuote.
CONSENT: any consent, approval, authorization, waiver, permit,
grant, franchise, concession, agreement, license, exemption or order of,
registration, certificate, declaration or filing with, or report or notice
to, any Person, including but not limited to any Governmental Body.
CONTRACT: any agreement, contract, obligation, promise or
undertaking (whether written or oral and whether express or implied) that is
legally binding.
CONVERSION PRICE: as defined in SECTION 7.1.
CONVERTIBLE SECURITIES: as defined in SECTION 9.1.
CORPORATE TRANSACTION: (a) sale, transfer or disposition of all or
substantially all of SelectQuote's properties or assets; (b) a merger or
consolidation in which SelectQuote is not the surviving entity, except for a
transaction the principal purpose of which is to change the state of
SelectQuote's incorporation; or (c) any reverse merger in which SelectQuote
is the surviving entity and in which securities possessing more than fifty
percent (50%) of the total combined voting power of SelectQuote's outstanding
securities are transferred to a holder or holders different from those who
held such securities immediately prior to such merger.
DEBENTURES: as defined in the Recitals of this Agreement.
DEBENTURE BALANCE: as defined in SECTION 2.1.
EVENT: as defined in SECTION 7.5.
EVENT NOTICE: as defined in SECTION 7.5.
EVENT OF DEFAULT or EVENTS OF DEFAULT: as defined in SECTION 5.1.
FINANCIAL STATEMENTS: as defined in SECTION 3.3.
GAAP: generally accepted accounting principles as in effect in the
United States.
GOVERNMENTAL APPROVAL: any Consent of, with or to any Governmental
Body.
<PAGE>
GOVERNMENTAL BODY: any nation or government, any state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to
government, including without limitation any governmental authority, agency,
department, board, commission or instrumentality of the United States, any
State of the United States or any political subdivision thereof, and any
tribunal or arbitrator(s) of competent jurisdiction, and any self-regulatory
organization.
INITIAL OFFERING: as defined in SECTION 6.2.
KEY EMPLOYEES: shall include Steve Gerber, Charan Singh, David
Paulsen and Mike Feroah.
Knowledge or knowledge: an individual will be deemed to have
knowledge of a particular fact or other matter if:
(a) such individual is actually aware of such fact or other
matter; or
(b) a prudent individual could be expected to discover or otherwise
become aware of such fact or other matter in the course of conducting a
reasonably comprehensive investigation concerning the existence of such fact
or other matter; PROVIDED, HOWEVER, such reasonably comprehensive
investigation shall not require a patent search.
A Person (other than an individual) will be deemed to have Knowledge
of a particular fact or other matter if any individual who is serving, or who
has at any time served, as a director, officer, partner, executor or trustee
of such Persons (or in any similar capacity) has, or at any time had,
Knowledge of such fact or other matter.
LIEN: any mortgage, pledge, hypothecation, right of others, claim,
security interest, encumbrance, lease, sublease, license, occupancy
agreement, adverse claim or interest, easement, covenant, encroachment,
burden, title defect, title retention agreement, voting trust agreement,
interest, equity, option, lien, right of first refusal, charge or other
restrictions or limitations of any nature whatsoever, including but not
limited to such as may arise under any Contracts.
MAJORITY-IN-INTEREST OF PURCHASERS: the Purchasers holding a
majority-in-interest of the value of the outstanding Debenture Balances.
MATURITY DATE: as defined in SECTION 2.1.
NOTICE OF CONVERSION: as defined in Section 7.2.
PERSON: any natural person, firm, partnership, association,
corporation, company, trust, business trust, Governmental Body or other
entity.
PLEDGE AGREEMENT: as defined in SECTION 2.2.
<PAGE>
REGISTRABLE SECURITIES: all shares of Common Stock or shares of
Common Stock issuable upon conversion of convertible securities held by
Purchasers from time to time.
REGISTRATION NOTICE: as defined in SECTION 7.2.
REGISTRATION STATEMENT: shall mean any registration statement under
the Securities Act which covers Common Stock, including the Prospectus,
amendments and supplements to such Registration Statement post-effective
amendments, and all exhibits and all material incorporated by reference in
such Registration Statement.
RESTRICTED STOCK: as defined in SECTION 8.1.
SALE NOTICE: as defined in SECTION 9.1.
SEC: the Securities and Exchange Commission.
SECURITIES: as defined in SECTION 4.3.
SECURITIES ACT: the Securities Act of 1933, as amended.
SELLING STOCKHOLDER: as defined in SECTION 9.1.
SUBSIDIARY: with respect to SelectQuote, any corporation or other
Person of which securities or other interests are held by SelectQuote or one
or more of its Subsidiaries, which securities or other interests (a) provide
SelectQuote sufficient power to elect a majority of that corporation's or
other Person's board of directors or similar governing body, or (b) otherwise
provide SelectQuote sufficient power to direct the business and policies of
that corporation or other Person (other than securities or other interests
having such power only upon the happening of a contingency that has not
occurred).
TAKE-ALONG NOTICE: as defined in SECTION 9.1.
TAX: any federal, state, provincial, local, foreign or other income,
alternative, minimum, accumulated earnings, personal holding company,
franchise, capital stock, net worth, capital, profits, windfall profits,
gross receipts, value added, sales, use, goods and services, excise, customs,
duties, transfer, conveyance, mortgage, registration, stamp, documentary,
recording, premium, severance, environmental (including taxes under Section
59A of the Code), real property, personal property, ad valorem, intangibles,
rent, occupancy, license, occupational, employment, unemployment, insurance,
social security, disability, workers' compensation, payroll, health care,
withholding, estimated or other similar tax, duty or other governmental
charge or assessment or deficiencies thereof (including all interest and
penalties thereon and additions thereto whether disputed or not).
<PAGE>
ARTICLE 2
DEBENTURES
SECTION 2.1 INTEREST ON DEBENTURES; CONVERSION; REPAYMENT .
(a) Interest on the outstanding principal balance of the Debentures
and all accrued and unpaid interest thereon shall accrue from the original
issue date at a rate of twelve percent (12%) per annum until payment in full
of all amounts due under the Debentures.
(b) From and after the date hereof and continuing so long as any of
the Debentures remain outstanding, each Purchaser shall have the right, in
its sole discretion, to convert any or all of the outstanding Debentures
owned by it into shares of Common Stock in accordance with the provisions of
ARTICLE 7 hereof.
(c) Subject to each Purchaser's conversion rights set forth in
SECTION 2.1(b) above, the outstanding principal balance of the Debentures,
all accrued and unpaid interest thereon and any other fees or charges with
respect thereto (collectively, the "Debenture Balance"), shall be repaid to
Purchasers in twenty (20) consecutive quarterly installments, payable in
arrears on the last day of each December, March, June and September in each
year, beginning on December 31, 1998,1 and continuing to and including
September 30, 2003 (the "Maturity Date") as follows:
(i) payments for the first eight (8) quarterly installments,
beginning December 31, 1998 and continuing to and including September
30, 2000, shall be interest only; and
(ii) payments for the remaining twelve (12) quarterly
installments shall include principal and interest, as follows:
(A) principal shall be payable in eleven (11)
consecutive quarterly principal installments in an amount
equal to the Debenture Balance as of October 1, 2000 divided
by twelve (12), plus
(B) interest on the outstanding Debenture Balance,
beginning December 31, 2000 and continuing to and including
the Maturity Date.
The last installment shall be in the amount of the entire Debenture
Balance then remaining unpaid, and shall be due and payable on the
Maturity Date.
- --------------------
1 SelectTech has made each quarterly payment due on the outstanding
Debentures held by the Purchasers through September 30, 1999, with the next
quarterly payment date being December 31, 1999.
<PAGE>
(iii) Three (3) business days prior to the date of any payment
due pursuant to this Section 2.1, SelectQuote shall transmit a
facsimile to each Purchaser setting forth the amount of principal and
interest, including the computations related thereto, to be included in
such payments.
SECTION 2.2 SECURITY AGREEMENT. As security for the full and prompt
payment when due of each and every liability of SelectQuote to pay amounts
owed under the Debentures and the fulfillment of all other obligations of
SelectQuote to Purchasers under this Agreement, SelectQuote shall cause SQIS
to affirm the Security Agreement between SelectTech and the Purchasers dated
October 15, 1998 (the "Security Agreement") and hereby agrees that it shall
be collateralized by all of the assets of SQIS, subject to the Purchasers
agreement to subordinate their lien and rights to repayment to the liens and
obligations of SQIS to LaSalle Bank National Association ("LaSalle") upon
such terms and conditions as shall be mutually agreed upon by LaSalle and
Purchasers at such time as it extends a loan to SQIS.
SECTION 2.3 DELIVERIES BY SELECTQUOTE. As a condition precedent to
the effectiveness of this Agreement, SelectQuote shall deliver or cause to be
delivered to Purchaser the following documents:
(a) copies of minutes of the board of directors of
SelectQuote authorizing this Agreement and the transactions provided
for herein;
(b) duly executed replacement certificates in the Form of
EXHIBIT B attached hereto, in the name of SelectQuote evidencing the
Debentures heretofore issued to Purchasers;
(c) certified copy of SelectQuote's Articles of
Incorporation;
(d) an Officer's Certificate, duly executed by the President
of SelectQuote, certifying that (A) SelectQuote has performed
all agreements on its part required to be performed under this
Agreement, and no breaches or defaults thereunder have
occurred; (B) all representations and warranties contained in
Article 3 shall (except as affected by the transactions
provided for herein) are true on and as of the date hereof;
and (C) no Event of Default or Default shall have occurred and
be continuing.
(e) good standing certificates for SelectQuote from the
Secretary of State of Delaware; and
(f) such other instruments as may be reasonably required to
effect the purposes hereof.
<PAGE>
SECTION 2.4 TRANSFER TAXES. All transfer taxes (if any) arising in
connection with the consummation of the transactions referred to in SECTIONS
2.1 THROUGH 2.3 above shall be paid by SelectQuote.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SELECTQUOTE
SelectQuote and SQIS hereby represent and warrant to Purchasers as
follows:
SECTION 3.1 ORGANIZATION AND AUTHORITY; CAPITALIZATION.
(a) SelectQuote is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware, and it has all
requisite power and authority to own or hold under lease the property it
purports to own or hold under lease, to transact the business it currently
transacts and as currently proposed to be transacted, to execute and deliver
this Agreement, and to perform the provisions hereof and thereof; and
SelectQuote has all requisite power and authority to deliver the Debentures
in accordance with the provisions of this Agreement. SelectQuote is duly
qualified as a foreign corporation and is in good standing in each
jurisdiction in which the character of the properties owned or held under
lease by it or the nature of the business transacted by it requires such
qualification and where the failure to qualify as a foreign corporation would
have a material adverse impact on it.
(b) The authorized, issued and outstanding shares of capital stock
of SelectQuote are set forth on SCHEDULE 3.1(b). Except as set forth on
SCHEDULE 3.1(b), no options, warrants or other rights to purchase or
otherwise acquire any unissued shares of Common Stock are outstanding on the
date of this Agreement or will be outstanding on the date hereof. SCHEDULE
3.1(b) also contains a list of all of the stockholders of SelectQuote,
showing the number of shares owned by each such holder.
SECTION 3.2 SUBSIDIARIES. SCHEDULE 3.2 hereto sets forth a complete
list of the Subsidiaries of SelectQuote, together with a list of the
stockholders of each Subsidiary and their respective ownership interest
therein.
SECTION 3.3 FINANCIAL STATEMENTS. Attached as SCHEDULE 3.3 are
copies of SelectTech's and SQIS's unaudited balance sheets as of June 30,
1999 and the related consolidated statements of income, changes in
shareholders' equity and cash flow for the year then ended, and an interim
balance sheet as of June 30, 1999 and the related consolidated statements of
income, changes in shareholders' equity and cash flow for the three month
period beginning July 1, 1999 and ending September 30, 1999, and the balance
sheet of SelectQuote as of September 30, 1999, certified by the respective
Presidents and Chief Financial Officers of SelectTech, SQIS and SelectQuote
(the "Financial Statements"). The Financial Statements fairly present the
respective financial positions of SelectTech, SQIS and SelectQuote as of
September 30, 1999 and the results of their operations for the periods
covered by said statements of income, changes in shareholders' equity
<PAGE>
and changes in cash flow, and have been prepared in accordance with GAAP
consistently applied throughout the periods involved. There are no material
liabilities, contingent or otherwise, of SelectTech, SQIS or SelectQuote as
of September 30, 1999 not reflected in said balance sheets as of said date.
Since September 30, 1999, there have been no changes in the assets,
liabilities or financial positions of SelectTech, SQIS or SelectQuote from
that set forth in said balance sheets as of said date, other than changes in
the ordinary course of business which have not, either individually or in the
aggregate, been materially adverse.
SECTION 3.4 COMPLIANCE WITH OTHER INSTRUMENTS. The consummation of
the transactions provided for in this Agreement and the performance of the
terms and provisions of this Agreement will not result in any breach of, or
constitute a default under, or result in the creation of any lien in respect
of any property of SelectQuote or any Subsidiary under any indenture,
mortgage, deed of trust, bank loan or credit agreement or other financing
agreement, corporate charter, by-laws or other agreement or instrument to
which SelectQuote or its Subsidiaries are a party or by which SelectQuote or
its Subsidiaries or any of their properties may be bound or affected.
SECTION 3.5 GOVERNMENTAL AUTHORIZATIONS, ETC. No consent, approval
or authorization of, or registration, filing or declaration with, any
Governmental Body is required for the validity of the execution and delivery
or for the performance by SelectQuote or its Subsidiaries of any of the
transactions provided for in this Agreement, except as may be required by
state blue sky laws.
SECTION 3.6 LITIGATION; OBSERVANCE OF STATUTES, REGULATIONS AND
ORDERS. There are no actions, suits or proceedings pending or, to the
Knowledge of SelectQuote or its Subsidiaries, threatened against or affecting
SelectQuote or its Subsidiaries or any of their properties in any court or
before any arbitrator of any kind or before or by any Governmental Body.
Neither SelectQuote nor its Subsidiaries are in default under any order,
writ, injunction, decree or judgment of any court, arbitrator or Governmental
Body. To SelectQuote's Knowledge, neither SelectQuote nor its Subsidiaries
are in violation of any Applicable Law.
SECTION 3.7 NO MISLEADING INFORMATION. To the Knowledge of
SelectQuote, neither this Agreement nor any other document, certificate or
written statement furnished to Purchasers by or on behalf of SelectQuote in
connection with the transactions contemplated hereby 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; and
there is no fact known to SelectQuote that SelectQuote has not disclosed to
Purchasers that materially adversely affects or, so far as SelectQuote can
reasonably foresee, will materially adversely affect the properties, or
financial or other condition of SelectQuote or the ability of SelectQuote to
perform its obligations hereunder and under the other documents delivered in
connection herewith. This representation does not apply to any draft
registration statements provided to the Purchasers at their request; all of
the contents of which are disclaimed by SelectQuote for purposes of this
Agreement.
<PAGE>
ARTICLE 4COVENANTS
Unless otherwise approved in writing by a Majority-in-Interest of
the Purchasers, SelectQuote and SQIS covenant and agree that so long as any
Debentures shall be outstanding:
SECTION 4.1 PAYMENT OF PRINCIPAL AND INTEREST. SelectQuote will duly
and punctually pay the principal and interest on the Debentures in accordance
with the terms thereof and in this Agreement.
SECTION 4.2 BOOKS AND RECORDS. SelectQuote and its Subsidiaries
will keep proper books of record and account and set aside appropriate
reserves, all in accordance with GAAP.
SECTION 4.3 PAYMENT OF TAXES; CORPORATE EXISTENCE; MAINTENANCE OF
PROPERTIES; COMPLIANCE WITH LAWS. SelectQuote and each of its Subsidiaries
shall:
(a) pay and discharge or cause to be paid and discharged all Taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits or upon any of its property when due, as well as all lawful
claims for labor, materials and supplies which, if unpaid, might by
Applicable Law become a Lien upon its property; PROVIDED, HOWEVER, that
SelectQuote and its Subsidiaries shall not be required to pay any such Tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate
proceedings, and if a reserve or other appropriate provision (if any), as
shall be required by GAAP, shall have been made and reflected on the
appropriate SelectQuote financial statements;
(b) do or cause to be done all things necessary to preserve and keep
in full force and effect its existence, licenses, appointments, rights and
franchises; and
(c) maintain and keep, or cause to be maintained and kept, its
properties and those of its Subsidiaries in good repair, working order and
condition, and from time to time make or cause to be made all needful and
proper repairs, renewals, replacements and improvements so that the business
carried on in connection therewith may be conducted effectively in all
material respect, at all times.
SECTION 4.4 FINANCIAL STATEMENTS AND INFORMATIONSECTION. SelectQuote
will furnish to each Purchaser:
(a) as soon as available and in any event within 60 days after the
end of each calendar quarter, copies of a consolidated balance sheet of
SelectQuote as of the end of such quarter and of the related consolidated
statements of income, stockholders' equity and changes in cash flow of
SelectQuote for the portion of the fiscal year ended with the last day of
such quarter, all in reasonable detail and stating in comparative form the
respective consolidated figures for the corresponding date and period in the
previous fiscal year and all certified by the President and
<PAGE>
Chief Financial Officer of SelectQuote to present fairly the information
contained therein, subject to year-end and audit adjustments; and
(b) as soon as available and in any event within 60 days after the
end of each fiscal year for SelectQuote, unaudited copies of a consolidated
balance sheet of SelectQuote as of the end of such fiscal year and of the
related consolidated statements of income and stockholders' equity and
statement of changes in cash flow of SelectQuote for such fiscal year, all in
reasonable detail and stating in comparative form the respective consolidated
figures as of the end of and for the previous fiscal year; and
(c) as soon as available and in any event within 90 days after the
end of each fiscal year for SelectQuote, audited copies of a consolidated
balance sheet of SelectQuote as of the end of such fiscal year and of the
related consolidated statements of income and stockholders' equity and
statement of changes in cash flow of SelectQuote for such fiscal year, all in
reasonable detail and stating in comparative form the respective consolidated
figures as of the end of and for the previous fiscal year and all accompanied
by a report thereon of independent public accountants of recognized standing
reasonably acceptable to Purchasers; and
(d) with the financial statements submitted under Sections 5.4(a),
5.4(b) and 5.4(c), a certificate signed by the party certifying said
statement to the effect that no Event of Default, nor any event that, upon
notice or lapse of time or both, would constitute an Event of Default, exists
or, if any such Event of Default or event exists, specifying the nature and
extent thereof; and
(e) promptly upon receipt thereof, copies of all other reports,
management letters and other documents submitted to it by independent
accountants in connection with any annual or interim audit of its books made
by such accountants; subject to Purchasers agreement to hold such information
in confidence and to execute confidentiality agreements as may be reasonably
requested; and
(f) as soon as practical, from time to time, such other information
regarding its operations, business affairs and financial condition as any
Purchaser may reasonably request; subject to Purchasers agreement to hold
such information in confidence and to execute confidentiality agreements as
may be reasonably requested.
SECTION 4.5 INSPECTION OF PROPERTIES AND BOOKS. Until the later of
(i) such time as SelectQuote has discharged all obligations to Purchasers
pursuant to this Agreement, including without limitation the payment in full
of all outstanding Debentures, or (ii) such time as SelectQuote shall
successfully consummate an Initial Offering of its Common Stock, each
Purchaser shall have the right to visit and inspect any of the properties of
SelectQuote, upon reasonable notice and during regular business hours and so
long as such visits or inspections do not unduly interfere with SelectQuote's
business operations, to examine the books of account and records of
SelectQuote, to make copies and extracts therefrom, to discuss the affairs,
finances and accounts of SelectQuote with, and to be advised as to the same
by, its and their officers, and its and their independent public accountants
(whose fees and expenses arising directly from such
<PAGE>
advice shall be paid by such Purchaser, except in such cases where such
Purchaser's inspection discloses a variance from SelectQuote's reported
results of ten percent (10%) or greater, in which case all fees and expenses
shall be paid by SelectQuote), all at such reasonable intervals as each
Purchaser may desire, subject to Purchasers agreements to hold such
information in confidence and to execute confidentiality agreements as may be
reasonably requested.
SECTION 4.6 INSURANCE. SelectQuote and its Subsidiaries will insure
and keep insured, with financially sound and reputable insurers, their
respective properties, and such insurance shall be in such amounts (and with
such deductibles), as companies engaged in a similar business in accordance
with good business practice customarily insure properties of a similar
character against loss by fire and from other causes. In addition,
SelectQuote and its Subsidiaries will maintain with financially sound and
reputable insurers public liability insurance against claims for personal
injury, death or property damage suffered by others upon or in or about any
premises occupied by it or occurring as a result of its ownership,
maintenance or operation of any automobiles, trucks or other vehicles,
aircraft or other facilities or as a result of the use of products
manufactured, constructed or sold by it or services rendered by it, in such
amounts (and with such deductibles) as such insurance is usually carried by
companies engaged in a similar business and as is in accordance with good
business practice. During the term of this Agreement, SelectQuote covenants
and agrees to maintain not less than One Million Dollars ($1,000,000) in key
man life insurance on the lives of each of the Key Employees, the sole
beneficiary of which policies shall be SelectQuote.
SECTION 4.7 TRANSACTIONS WITH AFFILIATES. Neither SelectQuote nor
any of its Subsidiaries will engage in any transaction with an Affiliate on
terms more favorable to the Affiliate than would have been obtainable in an
arms' length dealing.
SECTION 4.8 NOTICE OF DEFAULT. Immediately upon SelectQuote or any
of its Subsidiaries obtaining Knowledge of any Event of Default under this
Agreement, it shall notify Purchasers of such Event of Default.
SECTION 4.9 ISSUANCE OF STOCK; RESERVES. Except as provided in
Schedule 4.9 and the issuance of Common Stock at a price of not less than
$4.00 per share, until July 1, 2000, SelectQuote shall not authorize or issue
shares of any class of stock or any securities convertible into any class of
stock without the prior written consent of each of the Purchasers, in its
sole discretion. SelectQuote shall reserve for issuance an amount of shares
of Common Stock sufficient to satisfy the number of shares due to Purchasers
upon conversion of the Debentures.
SECTION 4.10 OTHER INDEBTEDNESS. Neither SelectQuote nor SQIS shall
create, assume, or permit to exist any indebtedness, except:
(a) The Debentures;
(b) the indebtedness described on SCHEDULE 4.10 hereto; and
<PAGE>
(c) subordinated indebtedness to any commercial bank(s), provided
that such subordinated indebtedness shall not exceed an aggregate of One
Million Dollars ($1,000,000) at any one time outstanding on terms acceptable
to Purchasers and, provided further, that SelectQuote and SQIS and any such
lender shall have executed a Subordination Agreement in the form attached
hereto as EXHIBIT C;
(d) trade indebtedness incurred in the ordinary course of business;
and
(e) equipment lease financing.
SECTION 4.11 CONTINUATION OF CURRENT BUSINESS, OFFICES, NAME, ETC..
Neither SelectQuote nor its Subsidiaries shall (a) engage in any business
other than the business now being conducted by it and other businesses
directly related thereto; (b) remove its principal place of business or
business records from the State of California, unless the removal is pursuant
to a merger, consolidation or transfer of assets approved by the Purchasers;
(c) change its name or conduct its business in any name other than its
current name; or (d) enter into (1) any agreement whereby the management,
supervision or control of its business is delegated to or placed in any
person other than its current governing body and officers or (2) any contract
or agreement whereby any of its principal functions are delegated to or
placed in any agent or independent contractor.
SECTION 4.12 SALE OF ASSETS, CONSOLIDATION, MERGER. SelectQuote
shall not (a) sell, lease, transfer or otherwise dispose of all or a
substantial part of its properties or assets to any Person; (b) permit any of
its Subsidiaries to sell, lease, transfer or otherwise dispose of greater
than 50% of the fair value of their properties or assets to any Person; or
(c) consolidate with, merge into or participate in a statutory share exchange
with any other Person, or permit another Person to merge into it, acquire all
or substantially all the properties or assets of any other Person, or acquire
all or substantially all the properties or assets relating to a line of
business or a division of any other Person.
SECTION 4.13 LITIGATION NOTICE. SelectQuote shall immediately notify
Purchasers of any action, suit or proceeding at law or in equity or by or
before any Governmental Body that, if adversely determined, might reasonably
be expected to impair its ability to perform any of its obligations under
this Agreement or any agreement delivered in connection herewith to
Purchasers, might reasonably be expected to impair its right to carry on its
business substantially as now conducted, or might reasonably be expected to
materially and adversely affect its business, operations, properties or
condition, financial or otherwise.
SECTION 4.14 LIENSSECTION. Neither SelectQuote nor its Subsidiaries
shall incur, create, assume or permit to exist any Lien on any of its
properties, now or hereafter owned, other than:
(a) Liens securing the payment of obligations to LaSalle and to
Purchasers pursuant to this Agreement;
<PAGE>
(b) deposits under workmen's compensation, unemployment insurance
and Social Security laws, or to secure the performance of bids, tenders,
contracts (other than for the repayment of borrowed money) or leases or to
secure statutory obligations or surety or appeal bonds, or to secure
indemnity, performance or other similar bonds in the ordinary course of
business;
(c) Liens imposed by law, such as carriers', warehousemen's or
mechanics' liens, incurred in good faith in the ordinary course of business
and that are not delinquent or that are actively being contested in good
faith by SelectQuote, and any Lien arising out of a judgment or award not
exceeding $10,000 with respect to which an appeal is being prosecuted, a stay
of execution pending such appeal having been secured; and
(d) Liens for taxes, assessments or other governmental charges or
levies that are not delinquent or that are being contested in good faith by
SelectQuote.
(e) purchase money Liens on equipment (arising substantially
contemporaneously with the purchase of such equipment) acquired in the
ordinary course of business to secure the purchase the acquisition of such
equipment or to secure indebtedness incurred solely for the purpose of
financing the acquisition of such equipment, or any Lien existing on the
equipment at the time of its acquisition, provided that (A) the indebtedness
secured by such Lien does not exceed the purchase price or fair market value,
whichever is less, or the equipment so acquired at the time of its
acquisition, (B) the equipment is used for useful in the ordinary course of
business of the acquiring person, and (C) the Lien dose not cover and
property other than the equipment so acquired; PROVIDED, HOWEVER, the
aggregate principal amount secured by Liens described in this Section 4.14(e)
shall not exceed Five Hundred Thousand Dollars ($500,000).
SECTION 4.15 GUARANTIES. Neither SelectQuote nor its Subsidiaries
shall guarantee, endorse, become surety for or otherwise in any way become or
be responsible for the indebtedness, liabilities or obligations of any other
Person, whether by agreement to purchase the indebtedness or obligations of
any other Person, or agreement for the furnishing of funds to any other
Person (directly or indirectly, through the purchase of goods, supplies or
services or by way of stock purchase, capital contribution, working capital
maintenance agreement, advance or loan) or for the purpose of paying or
discharging the indebtedness or obligations of any other Person, or
otherwise, except for the endorsement of negotiable instruments in the
ordinary course of business for collection.
SECTION 4.16 INVESTMENTS. Except for wholly-owned subsidiaries of
SelectQuote, neither SelectQuote nor its Subsidiaries shall purchase or hold
beneficially any stock, other securities or evidences of indebtedness of,
make or permit to exist any loans or advances to, or make any investment or
acquire any interest whatsoever in, any other Person; provided, however, that
they may invest in (1) direct obligations of, or obligations unconditionally
guaranteed by, the United States of America or any agency thereof maturing in
less than one year from the date of purchase; (2) commercial paper issued by
any Person organized and doing business under the laws of the United States
of America or any state thereof rated in the highest category by
<PAGE>
Moody's Investors Services, Inc. or by Standard & Poor's Corporation and
maturing in less than one year from the date of purchase; and (3)
certificates of deposit maturing within one year of the date of acquisition
thereof issued by any commercial bank, organized and doing business under the
laws of the United States of America or any state thereof whose deposits are
insured by the Federal Deposit Insurance Corporation, if the face amount of
said certificate of deposit, when added to all other deposits of SelectQuote
or such Subsidiary at such commercial bank, does not exceed the
then-applicable limitation on the amount of federally insured deposits; and
further provided that it may hold the stock of any subsidiaries to which the
Purchasers have consented in writing.
SECTION 4.17 FURTHER ASSURANCES. SelectQuote and its Subsidiaries
shall at its expense, at any time and from time to time, promptly execute and
deliver all further instruments and documents and take all further action
that may be necessary or in accordance with good practice or that Purchasers
may reasonably request in connection with this Agreement or the other
transactions provided for herein.
ARTICLE 5
EVENTS OF DEFAULT; REMEDIES
SECTION 5.1 EVENTS OF DEFAULT DEFINED; ACCELERATION OF MATURITY. If
any of the following events (individually an "Event of Default" and
collectively "Events of Default") shall have occurred and be continuing:
(a) any two (2) Key Employees cease to be actively involved in the
day-to-day management of SelectQuote in accordance with their current level of
participation therein PROVIDED, HOWEVER, the happening of the events described
in this subsection (a) after the closing of an Initial Offering shall not
constitute an Event of Default; or
(b) any default or event of default shall occur under any document
or agreement delivered in connection with the transactions provided for in
this Agreement (after giving effect to any applicable notice, grace or cure
period specified therein); or
(c) any representation or warranty made in this Agreement shall
prove to be false or misleading in any material respect as of the time made;
or
(d) any closing certificate or financial statement furnished in
connection with this Agreement shall prove to be false or misleading in any
material respect as of the time furnished; or
(e) immediately upon a breach of Section 4.12 by SelectQuote or any
of its Subsidiaries; or
<PAGE>
(f) default shall be made in the due observance or performance of
any material covenant, condition or agreement on the part of SelectQuote or
its Subsidiaries to be observed or performed pursuant to the terms of this
Agreement (other than any covenant, condition or agreement, default in the
observance or performance of which is elsewhere in this SECTION 5.1
specifically dealt with) or the Security Agreement and such default shall
continue unremedied for a period of thirty (30) days; or
(g) any default or event of default (including, but not limited to,
the failure to make any payment of principal or interest thereunder when due)
shall occur under the Debentures (after giving effect to any applicable
notice, grace or cure period specified therein); or
(h) any event shall occur or any condition shall exist in respect of
any debt or obligation of SelectQuote or its Subsidiaries (other than under
the Debentures), or under any agreement securing or relating to any of such
debts or obligations, the effect of which is to cause the acceleration of the
maturity of such debt or obligation, or any such debt shall not have been
paid at the final maturity date thereof (as renewed or extended if it shall
have been renewed or extended) and any applicable grace period shall have
expired; or
(i) either SelectQuote or any of its Subsidiaries shall (i) apply
for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a
substantial part of its property, (ii) be generally unable to pay its debts
as such debts become due, (iii) make a general assignment for the benefit of
its creditors, (iv) commence a voluntary case under the Federal Bankruptcy
Code (as now or hereafter in effect), (v) file a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi) fail to
controvert in a timely or appropriate manner, or acquiesce in writing to, any
petition filed against it in an involuntary case under such Bankruptcy Code,
(vii) take any action under the laws of its jurisdiction of incorporation
analogous to any of the foregoing, or (viii) take any corporate action for
the purpose of effecting any of the foregoing; or
(j) with respect to SelectQuote or any of its Subsidiaries, a
proceeding or case shall be commenced, without the application or consent of
SelectQuote or such Subsidiaries in any court of competent jurisdiction,
seeking (i) the liquidation, reorganization, dissolution, winding up, or
composition or readjustment of its debts, (ii) the appointment of a trustee,
receiver, custodian, liquidator or the like for all or any substantial part
of its assets, or (iii) similar relief in respect of it, under any law
providing for the relief of debtors, and such proceeding or case shall
continue undismissed, or unstayed and in effect, for a period of sixty (60)
days; or an order for relief shall be entered in an involuntary case under
such Bankruptcy Code, against SelectQuote or any of its Subsidiaries; or
action under the laws of the jurisdiction of incorporation of SelectQuote or
any of its Subsidiaries analogous to any of the foregoing shall be taken with
respect to SelectQuote or any of its Subsidiaries and shall continue unstayed
and in effect for any period of sixty (60) consecutive days; or
(k) final judgment for the payment of money shall be rendered by a
court of competent jurisdiction against SelectQuote or any of its
Subsidiaries and SelectQuote or such Subsidiary shall not discharge the same
or provide for its discharge in accordance with its terms,
<PAGE>
or procure a stay of execution thereof within thirty (30) days from the date
of entry thereof and within said period of thirty (30) days, or such longer
period during which execution of such judgment shall have been stayed, appeal
therefrom and cause the execution thereof to be stayed during such appeal,
and such judgment together with all other such judgments shall exceed in the
aggregate an amount equal to or greater than five percent (5%) of
SelectQuote's consolidated revenues for its previous fiscal year-end, or in
any case where such judgment together with all other such judgments may
materially adversely affect the business, prospects, financial condition or
results of operations of SelectQuote;
(l) if, at any time, SelectQuote or any of its Subsidiaries shall
fail to own sufficient title and ownership of all intellectual property
assets whereby such failure would be reasonably likely to have a material
adverse effect on the business or operations of SelectQuote or such
Subsidiary.
(m) If the Bylaws or Articles of Incorporation of SelectQuote be
altered or amended in any manner which results in restrictions on
transferability of the securities owned by the Purchasers which are more
restrictive than those existing as of the date hereof.
(n) If the funding of the equity investment by High Ridge Capital
Partners II, L.P. in SelectQuote (as described in that certain Consent to
Merger dated December 16, 1999 by and between the Purchasers, SelectTech,
SQIS and SelectQuote) shall not have occurred within five (5) business days
subsequent to the merger of SelectTech with and into SQIS.
(o) If all of the Debentures held by Protective have not been
prepaid in full, including any and all interest and other charges accrued
through the date of prepayment within five (5) business days subsequent to
the merger of SelectTech with and into SQIS.
Upon the occurrence of any Event of Default described in subsections
(a), (b), (h) or (i) above, the unpaid principal amount of the Debentures
together with any accrued and unpaid interest thereon, shall, at the election
of the Purchaser, become immediately due and payable, without presentment,
demand, protest or other requirements of any kind, all of which are hereby
expressly waived by SelectQuote; or upon the occurrence of any other Event of
Default, Purchasers may, by written notice to SelectQuote, declare the unpaid
principal amount of the Debentures to be, and the same shall forthwith
become, due and payable, together with any interest accrued on the Debentures.
SECTION 5.2 SUITS FOR ENFORCEMENT. In addition to the remedies set
forth above, if any Event of Default shall have occurred and be continuing,
the holder of any Debentures may proceed to protect and enforce its rights,
pursuant to Section 13.8, whether for the specific performance of any
covenant or agreement contained in this Agreement or in aid of the exercise
of any power granted in this Agreement, or the holder of any Debentures may
proceed to enforce the payment of all sums due upon such Debentures or to
enforce any other legal or equitable right of the holder of such Debentures.
If SelectQuote shall default in the making of any payment due under any
Debentures or in the performance or observance of any agreement
<PAGE>
contained in this Agreement, SelectQuote will pay to the holder thereof such
further amounts, to the extent lawful, as shall be sufficient to pay the
costs and expenses of collection or of otherwise enforcing such holder's
rights, including reasonable counsel fees.
SECTION 5.3 REMEDIES CUMULATIVE. No remedy herein conferred upon the
holder of any Debenture is intended to be exclusive of any other remedy and
each and every such remedy shall be cumulative and shall be in addition to
every other remedy given hereunder or now or hereafter existing at law or in
equity or by statute or otherwise.
SECTION 5.4 REMEDIES NOT WAIVED. No course of dealing between
SelectQuote and the holder of any Debenture and no delay or failure in
exercising any rights hereunder or under any Debenture in respect thereof
shall operate as a waiver of any Purchaser's rights or the rights of any
holder of such Debentures.
ARTICLE 6
PREPAYMENT
SECTION 6.1 PREPAYMENT. SelectQuote shall have no right to prepay
any or all of the Debentures prior to July 1, 2000. Subject to each
Purchaser's right of conversion as set forth in ARTICLE 7, at any time on or
after July 1, 2000, SelectQuote shall have the right to prepay any or all of
the Debentures, in principal amounts of not less than Five Hundred Thousand
Dollars ($500,000), by giving notice of its intent to prepay specifying the
date fixed for such prepayment, not less than thirty (30) days prior to the
date of such intended prepayment; PROVIDED, HOWEVER, if at the time such
prepayment notice is given, the Debentures are held by more than one Person
and the intended prepayment is for less than all of the Debentures, such
prepayment shall be made to all Debenture holders on a pro rata basis based
on the total principal amount of Debentures held at the time by such holder.
SECTION 6.2 INITIAL PUBLIC OFFERING. Upon the closing of an initial
offering of its shares of Common Stock to the public pursuant to an
underwritten offering registered with the SEC on Form S-1 or on a similar
form (an "Initial Offering"), any holder that has not elected to convert the
Debentures held by such holder pursuant to the provisions of SECTION 7.2
hereof prior to the completion of such Initial Offering, may be prepaid in
full by SelectQuote, at its option, on the date of the closing of such
offering. SelectQuote shall give the Debenture holders not less than fifteen
(15) days notice prior to the date of the closing of the offering.
SECTION 6.3 SURRENDER OF SECURITIES; NOTATION THEREON. SelectQuote
may, as a condition of payment of the Debentures, require the holder to
present such Debenture for notation of such payment and, if such Debenture be
paid in full, require the surrender thereof.
ARTICLE 7
CONVERSION
<PAGE>
The Debentures shall be convertible into shares of Common Stock as
hereinafter set forth:
SECTION 7.1 RIGHT OF CONVERSION; CONVERSION PRICE. The holder of any
Debenture shall have the right, in its sole discretion, at any time, and from
time to time, and prior to the Maturity Date, to convert any or all of the
principal balance of such Debenture then outstanding in increments of
$100,000 (unless the principal balance then outstanding is less than
$100,000, in which case a Purchaser must convert the remaining principal
balance) into such number of shares of Common Stock as is obtained by
dividing (a) the principal balance to be converted, by (b) $1.67/.641597 (the
"Conversion Price"). The holder of any Debenture shall exercise its right of
conversion hereunder by delivering to SelectQuote the Notice of Conversion
attached to the Debenture certificate before the earlier of (i) the date of
prepayment or (ii) the Maturity Date. If SelectQuote subdivides or combines a
larger or smaller number of shares of its outstanding shares of Common Stock,
then the Conversion Price shall be proportionally decreased in the case of a
subdivision and increased in the case of a combination, effective in either
case at the close of business on the date that the subdivision or combination
becomes effective.
SECTION 7.2 INITIAL OFFERING; RIGHT OF CONVERSION. Notwithstanding
anything contained in this Agreement to the contrary, if SelectQuote selects
underwriters to prepare an Initial Offering, SelectQuote shall promptly, but
in any case, not more than thirty (30) days after such selection, notify the
holders of all Debentures of such proposed offering, which notice shall set
forth the terms of such agreement and, to the extent then known, the terms of
the Initial Offering (the "Registration Notice"), and such holders shall have
the right, exercisable in their sole discretion, to convert any or all of the
Debenture Balance into Common Stock as set forth in SECTION 7.1 above. The
holder of any Debenture shall exercise its right of conversion hereunder by
delivering to SelectQuote the Notice of Conversion attached to the Debenture
certificate (the "Notice of Conversion") not later than 5:00 P.M. Central
Standard Time, on the second business day immediately preceding the closing
of the offering.
SECTION 7.3 ISSUANCE OF SHARES OF COMMON STOCK ON CONVERSION. As
promptly as practicable after the surrender of any Debenture for conversion,
SelectQuote shall deliver or cause to be delivered to the Debenture holder
certificates representing the number of fully paid and nonassessable shares
of Common Stock into which such Debenture may be converted in whole or in
part and a new Debenture for any unconverted portion of the surrendered
Debenture. Such Conversion shall be deemed to have been made at the close of
business on the date that such Debenture is surrendered for conversion.
SECTION 7.4 FRACTIONAL SHARES. No fractional shares shall be issued
upon the conversion of any Debenture. If the conversion of any Debenture
results in a fraction, an amount equal to such fraction multiplied by the
fair value of a share of Common Stock as determined by the Board in good
faith on the day of conversion shall be paid in cash by SelectQuote to such
holder.
SECTION 7.5 RECLASSIFICATION OR CHANGE OF COMMON STOCK OR
SELECTQUOTE'S CONSOLIDATION, MERGER OR SALE OF PROPERTY AS AN ENTIRETY. In
the case of any proposed
<PAGE>
reclassification or change of outstanding shares of Common Stock, or any
proposed consolidation of SelectQuote with or into another corporation (other
than a merger with a Subsidiary in which merger SelectQuote is the continuing
corporation and which does not result in any reclassification of or change in
the number of outstanding shares of Common Stock) or any proposed sale or
conveyance to another corporation of the assets of SelectQuote as an entirety
or substantially as an entirety or any similar event (collectively, an
"Event"), SelectQuote shall promptly, but in any case, not less than
forty-five (45) days prior to the effective date of such Event, notify the
holders of all Debentures of such proposed Event (the "Event Notice") and
such holders shall have the right, exercisable in their sole discretion, to
convert any or all of the Debentures into Common Stock in accordance with the
ratio set forth in SECTION 7.1 above. The holder of any Debenture shall
exercise its right of conversion hereunder by delivering to SelectQuote the
Notice of Conversion attached to the Debenture certificate not later than
5:00 P.M. Central Standard Time, within thirty (30) days after the Debenture
holder's receipt of the Event Notice. In the event that the holder of any
Debenture does not elect to convert such Debenture in accordance with this
SECTION 7.5, such holder shall have the right, exercisable in its sole
discretion, to require SelectQuote to prepay in full all such Debentures
immediately upon the consummation of such proposed Event.
SECTION 7.6 RESERVATION OF SHARES OF COMMON STOCK FOR ISSUANCE ON
CONVERSION. SelectQuote covenants that it will at all times reserve and keep
available out of its authorized Common Stock, solely for the purpose of
issuing upon conversion of the Debentures as herein provided, such number of
shares of Common Stock as shall then be issuable upon the conversion of all
outstanding Debentures. SelectQuote covenants that all shares of Common Stock
which shall be so issuable shall, when issued, be duly and validly issued and
fully paid and nonassessable.
SECTION 7.7 TAXES ON CONVERSION. The issuance of certificates for
shares of Common Stock upon the conversion of Debentures shall be made
without charge to the converting holders of such Debentures for any tax in
respect of the issuance of such certificates, and such certificates shall be
issued in the respective names of, or in such names as may be directed by,
the holders of the Debentures converted; PROVIDED, HOWEVER, SelectQuote shall
not be liable for any income tax liabilities of any Purchaser arising from
the conversion of the Debentures or the issuance of shares of stock in
connection therewith.
ARTICLE 8
COMPLIANCE WITH SECURITIES ACT; REGISTRATION
None of the Debentures or the shares of Common Stock issuable upon
conversion of the Debentures are transferable except upon the conditions
specified in the following Sections.
SECTION 8.1 RESTRICTIVE LEGEND. Each Debenture and each certificate
for Common Stock issued on conversion shall (unless otherwise permitted by
the provisions of this Article 8
<PAGE>
be stamped or otherwise imprinted with a legend in substantially the
following form (any such shares of Common Stock represented by a certificate
so legended are referred to as "Restricted Stock"):
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE CONDITIONS SPECIFIED IN THAT CERTAIN AMENDED AND
RESTATED DEBENTURE PURCHASE AGREEMENT DATED AS OF [ ], PROVIDING FOR
THE ISSUE AND SALE OF THE 12% SENIOR SECURED CONVERTIBLE DEBENTURES OF
SELECTQUOTE (THE "COMPANY"), AND NO TRANSFER OF SUCH SECURITIES SHALL
BE VALID OR EFFECTIVE UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
WITH THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
REGULATOR AND, THEREFORE, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR AN OPINION OF COUNSEL THAT AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933 IS
AVAILABLE.
In addition, each such Debenture or certificate for Common Stock
issued on conversion shall contain such legends as may be required by
SelectQuote's Bylaws.
SECTION 8.2 OPINION OF COUNSEL. No holder of any Debentures or
Restricted Stock shall transfer such Debentures or Restricted Stock, unless
(a) such Debentures or Restricted Stock have been registered with the SEC
under the Securities Act for the purpose of such transfer or (b) such holder
shall have caused to have been delivered to SelectQuote, prior to such
transfer, an opinion of counsel satisfactory to SelectQuote to the effect
that such transfer may be effected without registration. Upon delivery to
SelectQuote of such opinion, the Debentures or Restricted Stock may be
transferred in the manner contemplated by such opinion.
SECTION 8.3 ACKNOWLEDGMENT OF REGISTRATION RIGHTS. Purchasers and
Protective are parties to that certain Registration Rights Agreement, dated
October 15, 1998. SelectQuote, Purchasers and Protective hereby acknowledge
and affirm the terms, conditions and agreements set forth in the Registration
Rights Agreement and agree that the Registration Rights Agreement shall be
binding upon them in full upon its assumption by SelectQuote pursuant to the
Plan of Reorganization. SelectQuote, Purchasers and Protective further
acknowledge and agree that any and all references to "Company" (as that term
is defined in the Registration Rights Agreement) shall mean SelectQuote and
its successors and assigns.
ARTICLE 9
TAKE-ALONG RIGHTS
<PAGE>
SECTION 9.1 TAKE-ALONG RIGHTS. If any of Steve Gerber, Charan Singh,
Dave Paulsen or Mike Feroah (a "Selling Stockholder") proposes any sale (a
"Sale") of Common Stock (or any securities, including without limitation
option, warrants or other similar rights, convertible into or exercisable or
exchangeable for Common Stock (collectively, the "Convertible Securities"))
owned by him, then each Purchaser and Protective shall have the right (but
not the obligation) to participate as a seller in such transaction such that
Purchasers and Protective shall be entitled to sell the number of shares of
Common Stock as calculated in subsection (c) below.
(a) the Selling Stockholder shall give Purchasers and Protective
written notice of the proposed Sale of Common Stock not less than thirty (30)
Business Days before such sale is to take place. The notice ("Sale Notice")
shall set forth:
(i) the name and address of the proposed purchaser,
(ii) the number of shares of Common Stock proposed to be
transferred and the number of shares issuable upon conversion, exercise
or exchange of any other Convertible Securities to be transferred by
the Selling Stockholder(s),
(iii) the proposed amount and form of consideration and terms
and conditions of payment offered by such proposed purchaser, and
(iv) the signed agreement of the proposed purchaser
acknowledging that he or it has been informed of the terms and
conditions of this Article 9 and (A) has agreed to purchase Common
Stock in accordance with the terms hereof and (B) has agreed to be
bound by the terms contained in this Article 9 of this Agreement as if
he or it were an original signatory hereto.
(b) The take-along rights provided in this Agreement may be
exercised by any Purchaser and/or Protective by delivery of a written notice
(the "Take-Along Notice") to the Selling Stockholder(s) within ten (10)
business days after receipt of the Sale Notice. The Take-Along Notice shall
state the amount of Common Stock which said Purchaser or Protective wishes to
include in such sale to the proposed purchaser.
(c) The proposed purchaser shall purchase from Purchasers and/or
Protective the number of shares of Common Stock which shall be equal to the
lesser of (i) the number of shares designated by Purchasers and/or Protective
pursuant to SECTION 9.1(b) above or (ii) the number of shares of Common Stock
derived by multiplying (A) the number of shares of Common Stock plus the
number of shares issuable upon conversion, exercise or exchange of any other
Convertible Securities to be purchased by the proposed purchaser by (B) a
fraction, the numerator of which is the number of shares of Common Stock
owned by Purchasers and Protective, and the denominator of which is the total
number of all outstanding shares of Common Stock (assuming for purposes
hereof full exercise or conversion of all Convertible Securities) owned by
Purchasers, Protective and the Selling Stockholder.
<PAGE>
(d) Any shares purchased from Purchasers and/or Protective pursuant
to this Article 9 shall be purchased at the same price per share and
otherwise on the same terms and conditions as the proposed Sale (it being
understood and agreed that such terms and conditions do not include the
making of any representations and warranties, indemnities or other similar
Agreements other than representations, warranties and indemnities as to the
ownership of such shares and the due authority to sell such shares).
SECTION 9.2 EXCEPTIONS. The restrictions set forth in Section 9.1
shall not apply in the following cases:
(a) Each Selling Stockholder may transfer any shares to SelectQuote
pursuant to the exercise of any right of first refusal to such shares held by
SelectQuote or in connection with the repurchase by SelectQuote of any such
shares at the original purchase price paid therefor.
(b) Each Selling Stockholder may transfer any shares to a Permitted
Transferee provided that such Permitted Transferee agrees to be bound by this
Agreement.
SECTION 9.3 PERMITTED TRANSFEREE. For purposes of this Section 9,
Permitted Transferee shall mean a Selling Stockholder's spouse, siblings,
ancestors and descendants (whether natural or adopted), any spouses of such
siblings, ancestors or descendants, or any trust for the benefit of the
Selling Stockholder or any of the foregoing, provided that such Permitted
Transferee agrees to be bound by the terms of this Agreement.
SECTION 9.4 TERMINATION OF TAKE-ALONG RIGHTS. The provisions of this
Article 9 shall terminate upon the closing of an Initial Offering.
ARTICLE 10
LOST, ETC., INSTRUMENTS
Upon receipt by SelectQuote of an affidavit of an authorized officer
of any Purchaser that any Debenture has been lost, stolen, destroyed or
mutilated and the written agreement of such Purchaser to indemnify
SelectQuote in the event of any loss caused by a lost or stolen instrument,
and upon reimbursement to SelectQuote of all reasonable expenses incidental
thereto and upon surrender and cancellation of such Debenture, if mutilated,
SelectQuote will deliver in lieu of such Debenture a new Debenture in a like
unpaid principal amount, dated as of the date to which interest has been paid
thereon.
ARTICLE 11
AMENDMENT AND WAIVER
<PAGE>
Any term, covenant, agreement or condition of this Agreement or of
the Debentures may be amended, or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), by one or more substantially concurrent written instruments
executed by each of the parties hereto.
ARTICLE 12
TAXES AND EXPENSES
SelectQuote will pay all taxes, other than income taxes, (including
interest and penalties) which may be payable in respect of the execution and
delivery of this Agreement or of the execution and delivery of any of the
Debentures or of any amendment of, or waiver or consent under or with respect
to, this Agreement or of any of the Debentures.
ARTICLE 13
MISCELLANEOUS
SECTION 13.1 RELIANCE ON AND SURVIVAL OF REPRESENTATIVES. All
agreements, representations and warranties of SelectQuote herein and in any
certificates or other instruments delivered pursuant to this Agreement shall
(a) be deemed to be material and to have been relied upon by Purchasers,
notwithstanding any investigation heretofore or hereafter made by Purchasers
or on their behalf, and (b) survive the execution and delivery of this
Agreement and the delivery of the Debentures to Purchaser, and shall continue
in effect so long as any Debenture is outstanding.
SECTION 13.2 EXPENSES.
(a) SelectQuote hereby agrees to pay the costs and expenses for the
preparation of this Agreement and in connection with the transactions
provided for herein; and
(b) SelectQuote and Purchasers respectively agree to pay the costs
and expenses (including reasonable attorney's fees) incurred by the other
party or parties in successfully (i) enforcing any of the terms of this
Agreement or (ii) proving that the other party breached any of the terms of
this Agreement.
SECTION 13.3 SUCCESSOR AND ASSIGNS. All covenants and agreements in
this Agreement by or on behalf of the respective parties hereto shall bind
and inure to the benefit of their respective successors and assigns.
SECTION 13.4 PARTIES IN INTEREST. This Agreement is made solely for
the benefit of SelectQuote and Purchasers, and where applicable, Protective,
and no other person, partnership, trust association or corporation shall
acquire or have any right under or by virtue of this Agreement.
<PAGE>
SECTION 13.5 PRESS RELEASES. SelectQuote and each of the Purchasers
shall obtain the prior consent of the other Parties as to the form and
substance of any press release or other public disclosure materially related
to this Agreement or any other transaction provided for herein; provided,
however, that nothing in this Section 13.5 shall be deemed to prohibit any
party from making any disclosure which it deems necessary or advisable, with
the advice of counsel, in order to satisfy such party's disclosure
obligations imposed by law.
SECTION 13.6 ENTIRE AGREEMENT. This Agreement, including Exhibits
and Schedules attached hereto, constitutes the entire agreement among the
parties with respect to the Debentures and supersedes all prior agreements
and understandings of the parties in connection therewith. No covenant or
condition not expressed in this Agreement shall affect or be effective to
interpret, change or restrict this Agreement. The provisions of this
Agreement may not be changed, modified or amended except in writing duly
executed by each party hereto. In the event of any conflict between the terms
of this Agreement and the Security Agreement the provisions of this Agreement
shall control.
SECTION 13.7 NOTICES. All notices, opinions and other communications
provided for in this Agreement shall be in writing and delivered by hand or
mailed certified mail, return receipt requested, or by overnight courier such
as Federal Express:
(a) if to Protective, addressed to:
(I) Mr. Edmund P. Perry
Protective Life Insurance Company
P. O. Box 2606
Birmingham, Alabama 35202-2606
Telephone: 205/868-3040
Facsimile: 205/868-3023
(b) if to Purchasers, addressed to:
(i) Jim Tobin
Security Connecticut Life Insurance Company
c/o ReliaStar Investment Research, Inc.
100 Washington Avenue South
Suite 800
Minneapolis, MN 55401-2121
Telephone: (612)/342-3204
Facsimile: (612)/372-5368
(ii) John Fromelt
North American Company for Life and Health Insurance
1 Midland Plaza
<PAGE>
Sioux Falls, South Dakota 57193
Telephone: (605) 373-8600
Facsimile: (605) 335-1429
(c) if to SelectQuote, addressed to:
David Paulsen
SelectQuote
595 Market Street, 6th Floor
San Francisco, CA 94105
Telephone: (800) 343-1985 ext. 2220
Facsimile: (415) 546-7154
All notices sent by Federal Express or other overnight courier shall be
deemed received two (2) business days after delivery to such courier postage
prepaid or four (4) business days after being mailed, postage prepaid by
certified mail. Notices delivered otherwise shall be deemed received when
actually received by the addressee thereof.
SECTION 13.8 DISPUTE RESOLUTION; ARBITRATION.
(a) BASIS FOR ARBITRATION. The parties hereto agree that the subject
matter of this Agreement and any agreement that may be entered in connection
herewith both involve and affect interstate commerce within the meaning of
the commerce clause of the United States Constitution. This Agreement shall
be irrevocable and is binding upon the parties and is subject to being
specifically enforced.
(b) MANDATORY ARBITRATION OF DISPUTES. Any action, dispute, claim,
counterclaim or controversy ("Dispute" or "Disputes"), between or among the
parties, including, without limitation, any claim based on, or arising from,
an alleged tort or contract, shall be resolved by arbitration as set forth
below. As used herein, Disputes shall include all actions, disputes, claims,
counterclaims or controversies arising in connection with any extension of or
commitment set forth in this Agreement or in any other agreement entered by
the parties in connection with this Agreement, any action taken (or any
omission to take any action) in connection with any of the foregoing, any
past, present and future agreements between or among the parties, including,
without limitation, this Agreement, or any agreement entered in connection
with this Agreement. All Disputes shall be resolved by binding arbitration in
accordance with Title 9 of the U.S. Code and the Commercial Arbitration Rules
of the American Arbitration Association ("AAA"). Defenses based on statutes
of limitation, estoppel, waiver, laches and similar doctrines, that would
otherwise be applicable to an action brought by a party, shall be applicable
in any such arbitration proceeding, and the commencement of an arbitration
proceeding with respect to this Agreement shall be deemed the commencement of
an action for such purposes.
<PAGE>
(c) SELECTION OF ARBITRATOR. Whenever an arbitration is required
under subsection (b), the arbitrators shall be selected, except as otherwise
provided, in accordance with the Commercial Arbitration rules of the AAA. The
panel of arbitrators shall determine the resolution of the Dispute.
(d) PLACE OF ARBITRATION. Whenever an arbitration is required under
subsection (b), such arbitration shall be conducted in Denver, Colorado.
(e) MISCELLANEOUS. Any arbitration questions arising under this
Agreement shall be governed in accordance with Title 9 of the U.S. Code. This
section constitutes the entire agreement of the parties with respect to its
subject matter and supersedes all prior discussions, arrangements,
negotiations and other communications on dispute resolutions. The provisions
of this section shall survive any termination, amendment or expiration of the
Agreement in which this section is contained, unless the parties otherwise
expressly agree in writing. In the event of any Dispute governed by this
section, each of the parties shall pay all of its own expenses, and, subject
to the award of the arbitrator, shall pay an equal share of the arbitrators'
fees. The arbitrator shall have the power to award recovery of all costs and
fees (including attorneys' fees, administrative fees, arbitrators' fees and
court costs) to the prevailing party. This section may be amended, changed or
modified only by the express provisions of a writing which specifically
refers to this section and which is signed by all the parties hereto.
SECTION 13.9 LAW GOVERNING. This Agreement and the Debentures shall
be governed by and construed in accordance with the laws of the State of
Alabama.
SECTION 13.10 HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect any of
the terms hereof.
SECTION 13.11 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 considered one and the same instrument.
SECTION 13.12 CONSENT TO ASSIGNMENT AND ASSUMPTION. Purchasers and
Protective hereby consent to the assignment to, and the assumption by,
SelectQuote of the obligations of SQIS, as the surviving entity of the merger
between SelectTech and SQIS, set forth in the Debenture Documents.
SelectQuote hereby acknowledges and affirms the terms, conditions and
agreements set forth in the Debenture Documents and assumes the obligations
of SQIS with respect to the Debenture Documents.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date and year first above written.
SELECTQUOTE
<PAGE>
Attest:
By: By:
------------------------------- -------------------------------
Its: Its:
---------------------------- -------------------------
SELECTQUOTE INSURANCE SERVICES
Attest:
By: By:
------------------------------- -------------------------------
Its: Its:
---------------------------- -------------------------
SECURITY CONNECTICUT LIFE INSURANCE
COMPANY
Attest:
By: By:
------------------------------- -------------------------------
Its: Its:
---------------------------- -------------------------
NORTH AMERICAN COMPANY FOR
LIFE AND HEALTH INSURANCE
Attest:
By: By:
------------------------------- -------------------------------
Its: Its:
---------------------------- -------------------------
PROTECTIVE LIFE INSURANCE COMPANY
Attest:
By: By:
------------------------------- -------------------------------
Its: Its:
---------------------------- -------------------------
(Signature Page to Amended and Restated Debenture Purchase Agreement)
2
<PAGE>
AS TO ARTICLE 9 OF THE AGREEMENT:
----------------------------------
Steve Gerber
----------------------------------
Charan Singh
----------------------------------
Mike Feroah
----------------------------------
Dave Paulsen
3
<PAGE>
EXHIBIT B
FORM OF DEBENTURES
THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
THE CONDITIONS SPECIFIED IN THAT CERTAIN AMENDED AND RESTATED DEBENTURE
PURCHASE AGREEMENT DATED AS OF DECEMBER __, 1999, PROVIDING FOR THE ISSUE AND
SALE OF THE 12% SENIOR SECURED CONVERTIBLE DEBENTURES OF SELECTQUOTE, INC.
(THE "COMPANY"), NO TRANSFER OF SUCH SECURITIES SHALL BE VALID OR EFFECTIVE
UNTIL SUCH CONDITIONS HAVE BEEN FULFILLED.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED IN EXCHANGE
FOR A 12% SENIOR SECURED CONVERTIBLE DEBENTURE OF SELECTTECH DATED OCTOBER
15, 1998 PURSUANT TO THE EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") PROVIDED BY SECTION
3(a)(10) OF THE ACT AND HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES REGULATOR AND, THEREFORE, MAY NOT
BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT OR
AN OPINION OF COUNSEL THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS
AVAILABLE.
SELECTQUOTE, INC.
12% SENIOR SECURED CONVERTIBLE DEBENTURE
San Francisco, California December __, 1999
FOR VALUE RECEIVED, the undersigned, SelectQuote, Inc., a Delaware
corporation (SelectQuote), hereby promises to pay to SECURITY CONNECTICUT
LIFE INSURANCE COMPANY, a Connecticut corporation (the "holder"), or its
registered assigns, the principal sum of Nine Hundred Fifty Thousand Dollars
($950,000.00) together with interest (computed on the basis of a 360-day year
of twelve 30-day months) from the date hereof on the unpaid principal balance
at an annual rate of 12% in accordance with the terms and conditions of that
certain Amended and Restated Debenture Purchase Agreement, dated as of
December __, 1999, among SelectQuote, Security Connecticut Life Insurance
Company, Protective Life Insurance Company and North American Company for
Life and Health Insurance (hereinafter the "Purchase Agreement"). This
Debenture is to be governed by an entitled to the benefits of the Purchase
Agreement.
Payments of principal and interest are to be made at the registered address
of the holder in lawful money of the United States of America.
As provided in the Purchase Agreement, this Debenture is subject to
prepayment in whole or in part, as specified in the Purchase Agreement.
1
<PAGE>
Upon surrender of this Debenture for registration or transfer, duly endorsed,
or accompanied by a written instrument of transfer duly executed, by the
registered holder thereof or such holder's attorney duly authorized in
writing, a new Debenture for alike principal amount will be issued to, and,
at the option of the holder, registered in the name of, the transferee.
SelectQuote may deem and treat the person in whose name this Debenture is
registered as the holder and owner hereof for the purpose of receiving
payments and for all other purposes whatsoever, and SelectQuote shall not be
affected by any notice to the contrary.
In case an Event of Default (as defined in said Purchase Agreement) shall
occur and be continuing, the principal of this Debenture may become or be
declared due and payable in the manner and with the effect provided in said
Purchase Agreement.
This Debenture is convertible at the option of the holder hereof into Common
Stock of SelectQuote upon the terms provided in said Purchase Agreement. Each
holder hereof, whether upon original issue or upon transfer or assignment
hereof, accepts and agrees to be bound by such provisions.
Said Purchase Agreement contains conditions restricting and limiting the
transfer of the shares of Common Stock issuable upon the conversion of this
Debenture, all relating to compliance with the Securities Act of 1933 or any
similar Federal statute or state securities laws at the time in effect.
SELECTQUOTE, INC.
By:
--------------------------
Its:
-------------------------
ATTEST:
By:
----------------------------
Its:
---------------------------
2
<PAGE>
NOTICE OF CONVERSION
[Letterhead of Debenture Holder]
[date]
SelectQuote, Inc.
- -----------------------------------
- -----------------------------------
Re: Election to Convert Debenture
Ladies and Gentlemen:
Reference is hereby made to that certain Amended and Restated Debenture
Purchase Agreement dated [___________, 1999], by and among SelectQuote, Inc.
(the "Company"), Security Connecticut Life Insurance Company and North
American Company for Life and Health Insurance (the "Purchase Agreement").
Capitalized terms not defined herein shall have the meaning given them in the
Purchase Agreement.
The undersigned hereby irrevocably elects to exercise the right of conversion
represented by the within Debenture Certificate as provided for in Section
7.1 (2.1 or 7.2) of the Purchase Agreement. If such election is being made
pursuant to Section 2.1 of the Purchase Agreement, the undersigned elects to
convert $_______________ of the outstanding principal of the Debenture into
shares of Common Stock in accordance with the terms of the Purchase
Agreement. If such election is being made pursuant to Section 7.2 of the
Purchase Agreement, the undersigned elects to convert $_______________ of the
outstanding principal of the Debenture into shares of Common Stock in
accordance with the terms of the Purchase Agreement.
Please issue a certificate or certificates for such shares of Common Stock in
the name of, and pay any cash for any fractional shares to:
Name:
------------------------------------------
Address:
---------------------------------------
Taxpayer ID No.:
-------------------------------
(Please print Name, Address and Taxpayer ID No.)
---------------------------------------
By:
----------------------------
Its:
---------------------
3
<PAGE>
SELECTQUOTE, INC.
1999 STOCK OPTION PLAN
1. PURPOSES OF THE PLAN. The purposes of this Stock Option Plan are
to attract and retain the best available personnel for positions of
substantial responsibility, to provide additional incentives to Employees,
Directors and Consultants of the Company and its Subsidiaries, and to promote
the success of the Company's business. Options granted hereunder may be
either Incentive Stock Options or Nonstatutory Stock Options at the
discretion of the Committee.
2. DEFINITIONS. As used herein, and in any Option granted hereunder,
the following definitions shall apply:
"AFFILIATE" shall mean any corporation or other entity
(including, but not limited to, partnerships and joint ventures) controlling,
controlled by, or under common control with, the Company.
"BOARD" shall mean the Board of Directors of the Company.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended.
"COMMON STOCK" shall mean the Common Stock of the Company.
"COMMITTEE" shall mean the Committee appointed by the Board in
accordance with Section 4(a) of the Plan. If the Board does not appoint or
ceases to maintain a Committee, the term "COMMITTEE" shall refer to the Board.
"COMPANY" shall mean SelectQuote Insurance Services.
"CONSULTANT" shall mean any independent contractor retained to
perform services for the Company.
"CONTINUOUS EMPLOYMENT" shall mean the absence of any
interruption or termination of service as an Employee, Director or Consultant
by the Company or any Subsidiary. Continuous Employment shall not be
considered interrupted during any period of (i) any leave of absence approved
by the Company or (ii) transfers between locations of the Company or between
the Company and any Parent, Subsidiary or successor of the Company. A leave
of absence approved by the Company shall include sick leave, military leave
or any other personal leave approved by an authorized representative of the
Company. For purposes of Incentive Stock Options, no such leave may exceed
ninety (90) days, unless reemployment upon expiration of such leave is
guaranteed by statute or contract.
<PAGE>
"CORPORATE TRANSACTION" shall mean any of the following
stockholder-approved transactions to which the Company is a party:
(i) a merger or consolidation in which the Company is not
the surviving entity, except for a transaction the principal purpose of which
is to change the state in which the Company is incorporated;
(ii) the sale, transfer or other disposition of all or
substantially all of the assets of the Company (including the capital stock
of the Company's subsidiary corporations) in connection with the complete
liquidation or dissolution of the Company; or
(iii) any reverse merger in which the Company is the
surviving entity but in which securities possessing fifty percent (50%) or
more of the total combined voting power of the Company's outstanding
securities are transferred to a person or persons different from those who
held such securities immediately prior to such merger.
"COVERED EMPLOYEE" shall mean any individual whose
compensation is subject to the limitations on tax deductibility provided by
Section 162(m) of the Code and any Treasury Regulations promulgated
thereunder in effect at the close of the taxable year of the Company in which
an Option has been granted to such individual.
"DIRECTOR" shall mean a director of the Company.
"EFFECTIVE DATE" shall mean the date on which the Plan is
initially approved by the stockholders in accordance with Section 19 of the
Plan.
"EMPLOYEE" shall mean any person, including officers (whether
or not they are directors), employed by the Company or any Subsidiary.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended.
"FAIR MARKET VALUE" shall mean (i) the closing price of a
Share on the national securities exchange on which the Shares are traded, or
(ii) if the Shares are not traded on a national securities exchange but are
quoted on a Market, the closing price on such Market, or (iii) if the Shares
are not traded on a national securities exchange or quoted on a Market, the
fair market value of a Share as determined by the Company's Board of
Directors in good faith, based upon such factors as they deem relevant.
Notwithstanding the preceding, for federal, state, and local income tax
reporting purposes, fair market value shall be determined by the Committee in
accordance with uniform and nondiscriminatory standards adopted by it from
time to time. Such determination shall be conclusive and binding on all
persons.
"GRANT DATE" shall mean, with respect to an Option, the date
that the Option is granted by the Committee.
"INCENTIVE STOCK OPTION" shall mean any option granted under
this Plan and any other option granted to an Employee in accordance with the
provisions of Section 422 of the Code and the Treasury Regulations
promulgated thereunder.
2
<PAGE>
"MARKET" shall mean the NASDAQ SmallCap Market or a regional
stock exchange or an automated quotation system or over-the-counter market.
"NON-EMPLOYEE DIRECTOR" shall mean a director of the Company
who qualifies as a Non-Employee Director as such term is defined in Section
240.16b-3(b)(3) of the General Rules and Regulations promulgated under the
Exchange Act (the "GENERAL RULES AND REGULATIONS").
"NONSTATUTORY STOCK OPTION" shall mean an Option granted under
the Plan that is subject to the provisions of Section 1.83-7 of the Treasury
Regulations promulgated under Section 83 of the Code.
"OPTION" shall mean a stock option granted pursuant to the
Plan.
"OPTION AGREEMENT" shall mean a written agreement between the
Company and the Optionee regarding the grant and exercise of Options to
purchase Shares and the terms and conditions thereof as determined by the
Committee pursuant to the Plan.
"OPTIONED SHARES" shall mean the shares of Common Stock
subject to an Option.
"OPTIONEE" shall mean an Employee, Non-Employee Director or
Consultant who receives an Option.
"OUTSIDE DIRECTOR" shall mean a director of the Company who
qualifies as an Outside Director as such term is used in Section 162(m) of
the Code and defined in any applicable Treasury Regulations promulgated
thereunder.
"PARENT" shall mean a parent corporation of the Company,
whether now or hereafter existing, as defined by Section 424(e) of the Code.
"PLAN" shall mean this 1999 Stock Option Plan.
"REGISTRATION DATE" shall mean the effective date of the first
registration of any class of the Company's equity securities pursuant to
Section 12 of the Exchange Act.
"SECTION 162(m) EFFECTIVE DATE" shall mean the first date as
of which the limitations on the tax deductibility of certain compensation
provided by Section 162(m) of the Code and any Treasury Regulations
promulgated thereunder are applicable to Options granted under the Plan.
"SECURITIES ACT" shall mean the Securities Act of 1933, as
amended.
"SECTION 16 PERSON" shall mean a person who, with respect to
the Shares, is subject to Section 16 of the Exchange Act.
"SHARE" shall mean a share of the Common Stock subject to an
Option, as adjusted in accordance with Section 12 of the Plan.
"SUBSIDIARY" shall mean a subsidiary corporation of the
Company, whether now or hereafter existing, as defined in Section 424(f) of
the Code.
3
<PAGE>
"TERMINATION OF SERVICE" shall mean (a) in the case of an
Employee, a cessation of the employee-employer relationship between the
Employee and the Company or a Parent or Subsidiary for any reason, including,
but not by way of limitation, a termination by resignation, discharge, death,
disability, or the disaffiliation of a Parent or Subsidiary, but excluding
any such termination where there is a simultaneous reemployment by the
Company or a Parent or Subsidiary; (b) in the case of a Consultant, a
cessation of the service relationship between the Consultant and the Company
or a Parent or Subsidiary for any reason, including, but not by way of
limitation, a termination by resignation, discharge, death, disability, or
the disaffiliation of a Parent or Subsidiary, but excluding any such
termination where there is a simultaneous re-engagement of the Consultant by
the Company or a Parent or Subsidiary; and (c) in the case of a Director, a
cessation of the Director's service on the Board or on the board of directors
of a Parent or Subsidiary for any reason, including, but not by way of
limitation, a termination by resignation, removal, death, disability,
expiration of the term of directorship, or the disaffiliation of a Parent or
Subsidiary, but excluding any such termination where there is a simultaneous
reemployment by the Company or a Parent or Subsidiary.
"VESTING COMMENCEMENT DATE" shall mean, with respect to an
Option, the date, determined by the Board, on which the vesting of the Option
shall commence, which may be the Grant Date or a date prior to or after the
Grant Date.
3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section
12 of the Plan, the maximum aggregate number of Shares which may be optioned
and sold under the Plan is 10,000,000 Shares. The Shares may be authorized
but unissued or reacquired shares of Common Stock. If an Option expires or
becomes unexercisable for any reason without having been exercised in full,
or is surrendered pursuant to an Option exchange program, or if any unissued
Shares are retained by the Company upon exercise of an Option in order to
satisfy the exercise price for such Option or any withholding taxes due with
respect to such Option, such unissued or retained Shares shall become
available for other Option grants under the Plan, unless the Plan shall have
been terminated.
4. ADMINISTRATION OF THE PLAN.
(a) PROCEDURE. The Plan shall be administered by the Board.
The Board may appoint a Committee consisting of not less than two (2) members
of the Board to administer the Plan, subject to such terms and conditions as
the Board may prescribe. Once appointed, the Committee shall continue to
serve until otherwise directed by the Board. From time to time, the Board may
increase the size of the Committee and appoint additional members thereof,
remove members (with or without cause) and appoint new members in
substitution therefor, fill vacancies, however caused, and remove all members
of the Committee and, thereafter, directly administer the Plan. Members of
the Board or Committee who are either eligible for Options or have been
granted Options may vote on any matters affecting the administration of the
Plan or the grant of Options pursuant to the Plan, except that no such member
shall act upon the granting of an Option to himself, but any such member may
be counted in determining the existence of a quorum at any meeting of the
Board or the Committee during which action is taken with respect to the
granting of an Option to him or her.
The Committee shall meet at such times and places and upon
such notice as the chairperson determines. A majority of the Committee shall
constitute a quorum. Any acts by the
4
<PAGE>
Committee may be taken at any meeting at which a quorum is present and shall
be by majority vote of those members entitled to vote. Additionally, any acts
reduced to writing or approved in writing by all of the members of the
Committee shall be valid acts of the Committee.
(b) PROCEDURE AFTER REGISTRATION DATE. Notwithstanding
subsection (a) above, after the Registration Date, (i) the Plan shall be
administered by either: (A) the full Board; (B) a Committee of two (2) or
more directors, each of whom is a Non-Employee Director; or (ii) all Options
granted to Optionees who are officers or directors for purposes of Section
16(a) of the Exchange Act shall prohibit the sale of the underlying Optioned
Shares within six (6) months of the date of grant. After such date, the Board
shall take all action necessary to administer the Plan so that all
transactions involving Options and Shares issued pursuant to the Plan shall
be exempt from Section 16(b) of the Exchange Act in accordance with the then
effective provisions of Section 240.16b-3 et. seq. of the General Rules and
Regulations; provided that any amendment to the Plan required for compliance
with such provisions shall be made consistent with the provisions of Section
14 of the Plan and the General Rules and Regulations.
(c) PROCEDURE AFTER SECTION 162(m) EFFECTIVE DATE.
Notwithstanding subsections (a) and (b) above, after the Section 162(m)
Effective Date, the Plan and all Option grants shall be administered and
approved by a Committee comprised solely of two or more Outside Directors; or
if the Committee consists of members in addition to the Outside Directors,
such additional members must abstain from voting on or recuse themselves with
respect to all option grants and other compensation matters submitted to the
Committee with respect to any Covered Employee.
(d) POWERS OF THE COMMITTEE. Subject to the provisions of
the Plan, and except as otherwise provided by the Board, the Committee shall
have the authority: (i) to select the Employees, Directors and Consultants to
whom Options may be granted from time to time hereunder; (ii) to determine
whether and to what extent Options are granted hereunder; (iii) determine,
upon review of relevant information, the Fair Market Value of the Common
Stock; (iv) to determine the exercise price of Options to be granted, the
number of Shares to be represented by each Option and the vesting schedule
for such Option; (v) to approve Option Agreements for use under the Plan, and
to authorize the execution and delivery of Option Agreements on behalf of the
Company; (vi) to interpret the Plan; (vii) to prescribe, amend, add and
rescind rules and regulations relating to the Plan; (viii) to determine the
terms and provisions of each Option granted under the Plan (which need not be
identical) and, with the consent of the holder thereof, to modify or amend
any Option; (ix) to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option previously
granted by the Committee; (x) to accelerate or (with the consent of the
Optionee) defer an exercise date of any Option, subject to the provisions of
Section 9(a) of the Plan; (xi) to determine whether Options granted under the
Plan will be Incentive Stock Options or Nonstatutory Stock Options; and (xii)
to make all other determinations deemed necessary or advisable for the
administration of the Plan and take such other action not inconsistent with
the terms of the Plan as the Committee deems appropriate.
(e) EFFECT OF COMMITTEE'S DECISION. All decisions,
determinations and interpretations of the Committee shall be final and
binding on all persons.
5. ELIGIBILITY.
5
<PAGE>
(a) PERSONS ELIGIBLE FOR OPTIONS. Nonstatutory Stock
Options under the Plan may be granted to Employees, Directors or Consultants
whom the Committee, in its sole discretion, may designate from time to time.
Incentive Stock Options may be granted only to Employees. An Employee,
Director or Consultant who has been granted an Option, if he or she is
otherwise eligible, may be granted an additional Option or Options. However,
the aggregate Fair Market Value of the Shares subject to one or more
Incentive Stock Options that are exercisable for the first time by an
Optionee during any calendar year (under all stock option plans of the
Company and its Parents and Subsidiaries) shall not exceed $100,000
(determined as of the grant date). As of the Section 162(m) Effective Date,
Options under the Plan shall be granted to Covered Employees upon
satisfaction of the conditions to such grants provided pursuant to Section
162(m) and any Treasury Regulations promulgated thereunder. In addition,
after the Section 162(m) Effective Date, the maximum number of Shares with
respect to which Options may be granted during any [YEAR] to any Employee
shall not exceed 750,000 Shares.
(b) NO RIGHT TO CONTINUING EMPLOYMENT, CONSULTING OR
DIRECTOR RELATIONSHIP. Neither the establishment nor the operation of the
Plan shall confer upon any Optionee or any other person any right with
respect to continuation of employment or other service with the Company or
any Parent or Subsidiary, nor shall the Plan interfere in any way with the
right of the Optionee or the right of the Company (or any Parent or
Subsidiary) to terminate such employment or service at any time.
6. TERM OF PLAN. The Plan shall become effective upon its adoption
by the Board and its approval by vote of the holders of the outstanding
shares of the Company entitled to vote on the adoption of the Plan (in
accordance with the provisions of Section 19 hereof). It shall continue in
effect for a term of ten (10) years unless sooner terminated under Section 14
of the Plan.
7. TERM OF OPTION. Unless the Committee determines otherwise, the
term of each Option granted under the Plan shall be ten (10) years from the
Grant Date. The term of the Option shall be set forth in the Option
Agreement. In any event, no Option shall be exercisable after the expiration
of ten (10) years from the Grant Date, and no Incentive Stock Option granted
to any Employee who, at the date such Option is granted, owns (within the
meaning of Section 424(d) of the Code) more than ten percent (10%) of the
total combined voting power of all classes of the stock of the Company or any
Parent or Subsidiary shall be exercisable after the expiration of five (5)
years from the Grant Date.
8. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) OPTION PRICE. Except as provided in subsections (b) and
(c) below, the exercise price for the Shares to be issued pursuant to any
Option shall be such price as is determined by the Committee, which shall in
no event be less than: (i) in the case of Incentive Stock Options, the Fair
Market Value of such Shares on the Grant Date; or (ii) in the case of
Nonstatutory Stock Options, 85% of such Fair Market Value.
(b) TEN PERCENT STOCKHOLDERS. No Incentive Stock Option
shall be granted to any Employee who, at the date such Option is granted,
owns (within the meaning of Section 424(d) of the Code) more than ten percent
(10%) of the total combined voting power of all classes of stock of the
Company or any Parent or Subsidiary, unless the exercise price for the Shares
to be issued
6
<PAGE>
pursuant to such Option is at least equal to 110% of the Fair Market Value of
such Shares on the Grant Date.
(c) SECTION 162(m) LIMITATIONS. After the Section 162(m)
Effective Date, the exercise price of any Option granted to a Covered
Employee shall be at least equal to the Fair Market Value of the Shares on
the Grant Date.
(d) CONSIDERATION. The consideration to be paid for the
Optioned Shares shall be payment in cash or by check, cashier's check,
certified check, or wire transfer, unless payment in some other manner,
including by promissory note, other shares of the Company's Common Stock or
such other consideration and method of payment for the issuance of Optioned
Shares as may be permitted under Section 153 of the Delaware General
Corporation Law, is authorized by the Committee at the time of the grant of
the Option. Any cash or other property received by the Company from the sale
of Shares pursuant to the Plan shall constitute part of the general assets of
the Company.
(e) RELOAD OPTIONS. In the event the exercise price or tax
withholding of an Option is satisfied by the withholding by the Company or
the Optionee's employer of Shares otherwise deliverable to the Optionee, the
Committee may issue the Optionee an additional Option, with terms identical
to the Option Agreement under which the Option was exercised, but at an
exercise price as determined by the Committee in accordance with the Plan.
9. EXERCISE OF OPTION.
(a) VESTING PERIOD. Any Option granted hereunder shall be
exercisable at such times and under such conditions as determined by the
Committee and as shall be permissible under the terms of the Plan, which
shall be specified in the Option Agreement evidencing the Option. Unless the
Committee specifically determines otherwise at the time of the grant of the
Option, each Option shall vest and become exercisable, cumulatively, as to
one-third of the Optioned Shares at the first anniversary of the Vesting
Commencement Date and as to one twenty-fourth (1/24) of the remaining
Optioned Shares at the end of each of the following twenty-four (24) months
until all of the Optioned Shares have vested, subject to the Optionee's
Continuous Employment, but in no event will the Option vest at a rate of less
than 20% per year over five (5) years from the date the Option is granted. An
Option may not be exercised for fractional shares or for less than [TEN (10)]
Shares.
(b) EXERCISE PROCEDURES. An Option shall be deemed to be
exercised when written notice of such exercise has been given to the Company
in accordance with the terms of the Option by the person entitled to exercise
the Option and full payment for the Shares with respect to which the Option
is exercised has been received by the Company. As soon as practicable
following the exercise of an Option in the manner set forth above, the
Company shall issue or cause its transfer agent to issue stock certificates
representing the Shares purchased. Until the issuance of such stock
certificates (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Shares notwithstanding the exercise of the
Option. No adjustment will be made for a dividend or other rights for which
the record date is prior to the date of the transfer by the Optionee of the
consideration for the purchase of the Shares, except as provided in Section
12 of the Plan.
7
<PAGE>
(c) EXERCISE OF OPTION WITH STOCK. If an Optionee is
permitted to exercise an Option by delivering shares of the Company's Common
Stock, the Option Agreement covering such Option may include provisions
authorizing the Optionee to exercise the Option, in whole or in part, by (i)
delivering whole shares of the Company's Common Stock previously owned by
such Optionee (whether or not acquired through the prior exercise of a stock
option) having a Fair Market Value equal to the Option price; or (ii)
directing the Company to withhold from the Shares that would otherwise be
issued upon exercise of the Option that number of whole Shares having a Fair
Market Value equal to the Option price. Shares of the Company's Common Stock
so delivered or withheld shall be valued at their Fair Market Value at the
close of the last business day immediately preceding the date of exercise of
the Option, as determined by the Committee. Any balance of the Option price
shall be paid in cash. Any Shares delivered or withheld in accordance with
this provision shall again become available for purposes of the Plan and for
Options subsequently granted thereunder. After the Registration Date, any
exercise of an Option under Section 9(c)(i) or 9(c)(ii) above by a Section 16
Person shall comply with the relevant requirements of Section 240.16b-1 et.
seq. of the General Rules and Regulations.
(d) TERMINATION OF STATUS AS EMPLOYEE, DIRECTOR OR
CONSULTANT. If an Optionee shall cease to be an Employee, Director or
Consultant for any reason other than permanent and total disability or death,
he or she may, but only within thirty (30) days (or such other period of time
as is determined by the Committee) after the date of Termination of Service,
exercise his or her Option to the extent that he or she was entitled to
exercise it at the date of Termination of Service, subject to the condition
that no Option shall be exercised after the expiration of the Option period.
(e) DISABILITY OF OPTIONEE. If an Optionee shall cease to
be an Employee, Director or Consultant due to disability, and such Optionee
was in Continuous Employment as an Employee, Director or Consultant from the
Grant Date until the date of Termination of Service, the Option may be
exercised at any time within six (6) months following the date of Termination
of Service, but only to the extent of the accrued right to exercise at the
time of Termination of Service, subject to the condition that no option shall
be exercised after the expiration of the Option period.
(f) DEATH OF OPTIONEE. In the event of the death during the
Option period of an Optionee who is at the time of his or her death an
Employee, Non- Employee Director or Consultant and who was in Continuous
Employment as such from the Grant Date until the date of death, the Option
may be exercised at any time within six (6) months following the date of
death by the Optionee's estate or by a person who acquired the right to
exercise the Option by bequest, inheritance or otherwise as a result of the
Optionee's death, but only to the extent of the accrued right to exercise at
the time of death, subject to the condition that no option shall be exercised
after the expiration of the Option period.
(g) TAX WITHHOLDING. After the Registration Date, when an
Optionee is required to pay to the Company an amount with respect to tax
withholding obligations in connection with the exercise of an Option granted
under the Plan, the Optionee may elect prior to the date the amount of such
withholding tax is determined (the "TAX DATE") to make such payment, or such
increased payment as the Optionee elects to make up to the maximum federal,
state and local marginal tax rates, including any related FICA obligation,
applicable to the Optionee and the particular transaction, by: (i) delivering
cash; (ii) delivering part or all of the payment in previously owned shares
of Common Stock (whether or not acquired through the prior exercise of an
Option); and/or
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<PAGE>
(iii) irrevocably directing the Company to withhold from the Shares that
would otherwise be issued upon exercise of the Option that number of whole
Shares having a fair market value equal to the amount of tax required or
elected to be withheld (a "WITHHOLDING ELECTION"). If an Optionee's Tax Date
is deferred beyond the date of exercise and the Optionee makes a Withholding
Election, the Optionee will initially receive the full amount of Optioned
Shares otherwise issuable upon exercise of the Option, but will be
unconditionally obligated to surrender to the Company on the Tax Date the
number of Shares necessary to satisfy his or her minimum withholding
requirements, or such higher payment as he or she may have elected to make,
with adjustments to be made in cash after the Tax Date.
After the Registration Date, notwithstanding anything in the
preceding paragraph to the contrary, any withholding of Shares with respect
to taxes arising in connection with the exercise of an Option by any Section
16 Person shall satisfy the conditions for exemption therefrom set forth in
Section 240.16b-1 et. seq. of the General Rules and Regulations.
Any adverse consequences incurred by the Optionee with respect to
the use of shares of Common Stock to pay any part of the Option Price or of
any tax in connection with the exercise of an Option, including, without
limitation, any adverse tax consequences arising as a result of a
disqualifying disposition within the meaning of Section 422 of the Code,
shall be the sole responsibility of the Optionee.
10. TRANSFER OF OPTIONS. An Option may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than
by will or by the laws of descent and distribution and may be exercised,
during the lifetime of the Optionee, only by the Optionee; provided that upon
approval by the Committee an Option Agreement with respect to a Nonstatutory
Stock Option may permit the Optionee to transfer vested options through a
gift or domestic relations order in settlement of marital property rights to
any of the following donees or transferees:
(i) any "family member," which includes any child, stepchild,
grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling,
niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, sister-in-law, including adoptive relations, and any person
sharing the employee's household (other than a tenant or employee);
(ii) a trust in which "family members" have more than 50% of
the beneficial interest;
(iii) a foundation in which "family members" or the employee
control the management of assets; and
(iv) any other entity in which the "family members" (or the
employee) own more than 50% of the voting interests;
provided that (x) there may be no consideration for any such transfer, (y)
the Option Agreement pursuant to which such Options are granted, and any
amendment thereto, must be approved by the Committee, and must expressly
provide for transferability in a manner consistent with this Section 10, and
(z) subsequent transfers of transferred Options shall be prohibited except
those in accordance with this Section 10. Following transfer, any such
Options shall continue to be subject to the same
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terms and conditions as were applicable immediately prior to transfer,
provided that the term Optionee shall be deemed to refer to the Transferee.
The events of termination of service of Section 9 hereof or in the Option
Agreement shall continue to be applied with respect to the original Optionee,
following which the Options shall be exercisable by the transferee only to
the extent, and for the periods specified in the Option Agreement or Section
9, as applicable. Except as specifically provided above, an Option may not be
sold, pledged, assigned, hypothecated, transferred or disposed of in any
manner other than by will or by the laws of descent and distribution and may
be exercised, during the lifetime of the Optionee, only by the Optionee.
11. EXERCISE OF UNVESTED OPTIONS. The Committee may grant any
Optionee the right to exercise any Option prior to the complete vesting of
such Option. Without limiting the generality of the foregoing, the Committee
may provide that, if an Option is exercised prior to having completely
vested, the Shares issued upon such exercise shall remain subject to vesting
at the same rate as under the Option so exercised and shall be subject to a
right, but not an obligation, of repurchase by the Company with respect to
all unvested Shares if the Optionee ceases to be an Employee for any reason.
For the purposes of facilitating the enforcement of any such right of
repurchase, at the request of the Committee, the Optionee shall enter into
Joint Escrow Instructions with the Company and deliver every certificate for
his or her unvested Shares, together with two Assignments Separate from
Certificate, duly endorsed in blank by the Optionee and by the Optionee's
spouse, if required for transfer.
12. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION.
(a) RECAPITALIZATION. Subject to any required action by the
stockholders of the Company, the number of Optioned Shares covered by each
outstanding Option, and the number of Shares which have been authorized for
issuance under the Plan but as to which no Options have yet been granted or
which have been returned to the Plan, and the per share exercise price of
each such Option, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a
stock split, reverse stock split, combination, reclassification, the payment
of a stock dividend on the Common Stock or any other increase or decrease in
the number of such shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been
effected without receipt of consideration. Such adjustment shall be made by
the Committee, whose determination in that respect shall be final, binding
and conclusive. Except as expressly provided herein, no issue by the Company
of shares of stock of any class, or securities convertible into shares of
stock of any class, shall affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Common Stock
subject to an Option.
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(b) CORPORATE TRANSACTION. In the event of a proposed
Corporate Transaction, the Committee shall notify the Optionee at least
fifteen (15) days prior to such proposed Corporate Transaction. Except as
provided otherwise in individual Option Agreements, to the extent it has not
been previously exercised, the Option will terminate immediately prior to the
consummation of such proposed Corporate Transaction, unless the Option is
assumed or an equivalent Option is substituted by the successor corporation
or a parent or subsidiary of such successor corporation. For the purposes of
this subsection, the Option shall be considered assumed if, following the
Corporate Transaction, the Option confers the right to purchase, for each
Share subject to the Option immediately prior to the Corporate Transaction,
the consideration (whether stock, cash, or other securities or property)
received in the Corporate Transaction by holders of Common Stock for each
Share subject to the Option held on the effective date of the Corporate
Transaction (and if holders were offered a choice of consideration, the type
of consideration chosen by the holders of a majority of the outstanding
Shares); provided, however, that if such consideration received in the
Corporate Transaction was not solely common stock of the successor
corporation or its parent or subsidiary, the Committee may, with the consent
of the successor corporation, provide for the consideration to be received
upon the exercise of the Option for each Share subject to the Option to be
solely common stock of the successor corporation or its parent or subsidiary
equal in fair market value to the per share consideration received by holders
of Common Stock in the Corporate Transaction.
13. TIME OF GRANTING OPTIONS. Unless otherwise specified by the
Committee, the date of grant of an Option under the Plan shall be the Grant
Date. Notice of the determination shall be given to each Optionee to whom an
Option is so granted within a reasonable time after the date of such grant.
14. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or
terminate the Plan from time to time in such respects as the Board may deem
advisable; provided, however, that any such amendment (a) shall comply with
all applicable laws and stock exchange listing requirements, and (b) with
respect to Incentive Stock Options granted or to be granted under the Plan,
shall be subject to any approval by stockholders of the Company required
under the Code. Any such amendment or termination of the Plan shall not affect
Options already granted, and such Options shall remain in full force and
effect as if the Plan had not been amended or terminated.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
with respect to an Option granted under the Plan unless the exercise of such
Option and the issuance and delivery of such Shares pursuant thereto shall
comply with all relevant provisions of law, including, without limitation,
the Securities Act, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange or Market upon which
the Shares may then be listed, and shall be further subject to the approval
of counsel for the Company with respect to such compliance. As a condition to
the exercise of an Option, the Company may require the person exercising such
Option to represent and warrant at the time of any such exercise that the
Shares are being purchased only for investment and without any present
intention to sell or distribute such Shares if, in the opinion of counsel for
the Company, such a representation is required by any of the aforementioned
relevant provisions of law.
16. RESERVATION OF SHARES. During the term of this Plan, the Company
will at all times reserve and keep available such number of Shares as shall
be sufficient to satisfy the requirements of the Plan. The inability of the
Company to obtain authority from any regulatory body having
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<PAGE>
jurisdiction, which authority is deemed by the Company's 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 nonissuance or sale of
such Shares as to which such requisite authority shall not have been obtained.
17. INFORMATION TO OPTIONEE. During the term of any Option granted
under the Plan, the Company shall provide or otherwise make available to each
Optionee a copy of its annual financial statement and any other financial
information provided to its stockholders in accordance with the provisions of
the Company's Bylaws and applicable law.
18. OPTION AGREEMENT. Options granted under the Plan shall be
evidenced by Option Agreements.
19. STOCKHOLDER APPROVAL. The Plan shall be subject to approval by
the stockholders of the Company within twelve (12) months before or after the
Plan is adopted by the Board. Except as provided otherwise in Section 3, any
amendments to the Plan requiring stockholder approval must be approved by the
affirmative vote of the holders of a majority of the outstanding shares of
voting stock present or represented and entitled to vote at a duly held
meeting at which a quorum is present, or by the written consent of the
stockholders in the manner provided by Delaware law.
* * *
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SELECTQUOTE, INC.
STOCK OPTION AGREEMENT
FOR
1999 STOCK OPTION PLAN
I. NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
--------------------------------------
--------------------------------------
--------------------------------------
Social Security Number/Tax ID
--------------------------------------
You have been granted an option to purchase shares of Common Stock of
the Company, subject to the terms and conditions of the Plan and this Option
Agreement, as follows:
Grant Number
--------------------------------------
Date of Grant
--------------------------------------
Vesting Commencement Date
--------------------------------------
Exercise Price per Share $
-------------------------------------
Total Number of Shares Granted
--------------------------------------
Total Exercise Price $
-------------------------------------
Type of Option:
--------- Incentive Stock Option
--------- Non-Qualified Stock Option
Term/Expiration Date:
-------------------------------------
Termination Period
-------------------------------------
VESTING SCHEDULE:
Subject to other limitations set forth in this Agreement, this
Option may be exercised, in whole or in part, in accordance with the
following schedule:
One-third (1/3) of the Shares subject to the Option shall vest
twelve months after the Vesting Commencement Date, and 1/24 of the remaining
Shares subject to the Option shall vest each month thereafter.
<PAGE>
TERMINATION PERIOD:
This Option may be exercised for thirty (30) days after termination
of Optionee's employment or consulting relationship, or such longer period as
may be applicable upon the death or disability of Optionee as provided in the
Agreement. In the event of Optionee's change in status from Employee to
Consultant or Consultant to Employee, this Option Agreement shall remain in
effect; provided, however, that in the event of a change in status from
Employee to Consultant, Optionee's Incentive Stock Option shall cease to be
treated as an Incentive Stock Option and shall be treated as a Non-Qualified
Stock Option on the thirty-first (31st) day following such change in status.
In no event shall this Option be exercised later than the Term/Expiration
Date as provided above.
II. AGREEMENT
1. GRANT OF OPTION. SelectQuote, Inc., a Delaware
corporation (the "Company"), hereby grants to Optionee named in the Notice of
Stock Option Grant (the "Optionee"), an option (the "Option") to purchase the
total number of shares of Common Stock (the "Shares") set forth in the Notice
of Stock Option Grant, at the exercise price per share set forth in the
Notice of Stock Option Grant (the "Exercise Price") subject to the terms,
definitions and provisions of the Company's 1999 Stock Option Plan (the
"Plan") adopted by the Company, which is incorporated herein by reference.
Unless otherwise defined herein, the terms defined in the Plan shall have the
same defined meanings in this Option Agreement.
If designated in the Notice of Stock Option Grant as an
Incentive Stock Option, this Option is intended to qualify as an Incentive
Stock Option within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"). To the extent that the Option, or any
portion thereof, does not qualify as an incentive stock option under the Code
because the aggregate fair market value (as described below) exceeds
$100,000, the Option or portion thereof shall constitute an incentive stock
option under the Plan in such calendar year only to the extent of such
$100,000 limitation. The "aggregate fair market value," as used above, shall
include the fair market value (determined at the grant date) of the Shares
for which the Option or portion thereof first becomes exercisable hereunder
PLUS the aggregate fair market value (determined as of the respective date or
dates of grant) of the Shares or other securities for which the Option or one
or more other incentive stock options granted to Optionee prior to the grant
date (whether under the Plan or any other option plan of the Corporation or
any Parent or Subsidiary) first becomes exercisable during the calendar year.
To the extent that the fair market value of the Shares for which the Option
first becomes exercisable in any calendar year exceeds such $100,000
limitation, the Option may nevertheless be exercised for those excess Shares
in such calendar year as a Non-Qualified Stock Option.
2. EXERCISE OF OPTION.
(a) RIGHT TO EXERCISE. This Option shall be exercisable
during its term in accordance with the Vesting Schedule set out in the Notice
of Stock Option Grant and with the applicable provisions of the Plan and this
Option Agreement. In the event of Optionee's Termination of Service, this
Option shall be exercisable in accordance with the applicable provisions of
the Plan and this Option Agreement. This Option shall be subject to the
provisions of Section 14(b) of the Plan relating to the exercisability or
termination of the Option in the event of a Corporate Transaction.
Notwithstanding the foregoing, this Option will not be exercisable until the
Corporation has furnished to Optionee the information required pursuant to
Rule 701(e) under the Securities Act of 1933, as amended.
(b) METHOD OF EXERCISE. This Option shall be exercisable
only by delivery of an Exercise Notice (attached as Exhibit A) which shall
state the election to exercise the Option, the whole number of Shares in
respect of which the Option is being exercised, and such other provisions as
may be required by
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the Committee. Such Exercise Notice shall be signed by Optionee and shall be
delivered in person or by certified mail to the Secretary of the Company
accompanied by payment of the Exercise Price. The Option shall be deemed to
be exercised upon receipt by the Company of such written notice accompanied
by the Exercise Price.
No Shares will be issued pursuant to the exercise of the
Option unless such issuance and such exercise shall comply with all
applicable laws. Assuming such compliance, for income tax purposes, the
Shares shall be considered transferred to Optionee on the date on which the
Option is exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares
purchasable pursuant to the exercise of the Option have not been registered
under the Securities Act of 1933, as amended, at the time the Option is
exercised, Optionee shall, if required by the Company, concurrently with the
exercise or all or any portion the Option, deliver to the Company his or her
Investment Representation Statement in the form attached hereto as Exhibit B.
4. TAXES. No Shares will be issued to Optionee or other
person pursuant to the exercise of the Option until Optionee or other person
has made arrangements acceptable to the Committee for the satisfaction of
foreign, federal, state and local income and employment tax withholding
obligations.
5. METHOD OF PAYMENT. Payment of the exercise price shall
be by any of the following, or a combination thereof, at the election of
Optionee:
(a) cash;
(b) certified or bank cashier's check; or
(c) for as long as there exists a public market for the
Company's Common Stock on the date of exercise, by surrender of shares of the
Company's Common Stock, provided that if such shares were acquired upon
exercise of an incentive stock option, Optionee must have first satisfied the
holding period requirements under Section 422(a)(1) of the Code. In this case
payment shall be made as follows:
(i) In addition to the execution and delivery of the
Exercise Notice attached as EXHIBIT A, Optionee shall deliver to the
Secretary of the Company a written notice which shall set forth the portion
of the purchase price Optionee wishes to pay with Common Stock, and the
number of shares of such Common Stock Optionee intends to surrender pursuant
to the exercise of this Option, which shall be determined by dividing the
aforementioned portion of the purchase price by the average of the last
reported bid and asked prices per share of Common Stock of the Company, as
reported in THE WALL STREET JOURNAL (or, if not so reported, as otherwise
reported by Nasdaq or, in the event the Common Stock is listed on a national
securities exchange, or on the Nasdaq National Market (or any successor
national market system), the closing price of Common Stock of the Company on
such exchange as reported in THE WALL STREET JOURNAL, for the day on which
the notice of exercise is sent or delivered);
(ii) Fractional shares shall be disregarded and
Optionee shall pay in cash an amount equal to such fraction multiplied by the
price determined under subparagraph (i) above;
(iii) The written notice shall be accompanied by a
duly endorsed blank stock power with respect to the number of Shares set
forth in the notice, and the certificate(s) representing said Shares shall be
delivered to the Company at its principal offices within three (3) working
days from the date of the notice of exercise;
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<PAGE>
(iv) The Optionee hereby authorizes and directs the
Secretary of the Company to transfer so many of the Shares represented by
such certificate(s) as are necessary to pay the purchase price in accordance
with the provisions herein; and
(v) Notwithstanding any other provision herein,
Optionee shall only be permitted to pay the purchase price with Shares of the
Company's Common Stock owned by him as of the exercise date in the manner and
within the time periods allowed under 17 CFR Section 240.16b-3 promulgated
under the Securities Exchange Act of 1934 as such regulation is presently
constituted, as it is amended from time to time, and as it is interpreted now
or hereafter by the Securities and Exchange Commission.
The Optionee may elect to pay the exercise price by
authorizing a third party to sell Shares subject to the Option and remit to
the Company a sufficient portion of the sale proceeds to pay the entire
exercise price and any tax withholding resulting from such exercise.
6. RESTRICTIONS ON EXERCISE. This Option may be exercised
prior to the time that the Plan has been approved by the shareholders of the
Company; provided, however, that all Shares issued upon any such exercise
shall be rescinded if shareholder approval is not obtained within the time
prescribed, and Shares issued on any such exercise shall not be counted in
determining whether shareholder approval is obtained. In addition, this
Option may not be exercised if the issuance of the Shares subject to the
Option upon such exercise would constitute a violation of any applicable laws.
7. TERMINATION OF RELATIONSHIP. In the event of Optionee's
Termination of Service, Optionee may, to the extent otherwise so entitled at
the date of such termination (the "Termination Date"), exercise this Option
during the Termination Period set out in the Notice of Stock Option Grant.
Except as provided in Sections 8 and 9, below, to the extent that Optionee
was not entitled to exercise this Option on the Termination Date, or if
Optionee does not exercise this Option within the Termination Period, the
Option shall terminate.
8. DISABILITY OF OPTIONEE. In the event of Optionee's
Termination of Service as a result of his or her disability, Optionee may,
but only within six (6) months from the Termination Date (and in no event
later than the Term/Expiration Date), exercise the Option to the extent
otherwise entitled to exercise it on the Termination Date; provided, however,
that if such disability is not a "disability" as such term is defined in
Section 22(e)(3) of the Code and the Option is an Incentive Stock Option,
such Incentive Stock Option shall cease to be treated as an Incentive Stock
Option and shall be treated as a Non-Qualified Stock Option on the
ninety-first (91st) day following the Termination Date. To the extent that
Optionee was not entitled to exercise the Option on the Termination Date, or
if Optionee does not exercise such Option to the extent so entitled within
the time specified herein, the Option shall terminate.
9. DEATH OF OPTIONEE. In the event of Optionee's death, the
Option may be exercised at any time within six (6) months following the date
of death (and in no event later than the Term/Expiration Date) by Optionee's
estate or by a person who acquired the right to exercise the Option by
bequest or inheritance, but only to the extent Optionee could exercise the
Option at the date of death.
10. NON-TRANSFERABILITY OF OPTION. This Option may not be
transferred in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
Optionee. The terms of this Option shall be binding upon the executors,
administrators, heirs and successors of Optionee.
11. TERM OF OPTION. This Option may be exercised only
within the term set out in the Notice of Stock Option Grant, and may be
exercised during such term only in accordance with the Plan and the terms of
this Option Assignment.
4
<PAGE>
12. TAX CONSEQUENCES. Set forth below is a brief summary as
of the date of this Option Agreement of some of the federal and California
tax consequences of exercise of this Option and disposition of the Shares.
THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE
SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING
THIS OPTION OR DISPOSING OF THE SHARES.
(a) EXERCISE OF INCENTIVE STOCK OPTION. If this Option
qualifies as an Incentive Stock Option, there will be no regular federal
income tax liability or California income tax liability upon the exercise of
the Option, although the excess, if any, of the Fair Market Value of the
Shares on the date of exercise over the Exercise Price will be treated as an
adjustment to the alternative minimum tax for federal tax purposes and may
subject Optionee to the alternative minimum tax in the year of exercise.
(b) EXERCISE OF INCENTIVE STOCK OPTION FOLLOWING
DISABILITY. If Optionee's Termination of Service occurs as a result of
disability that is not total and permanent disability as defined in Section
22(e)(3) of the Code, to the extent permitted on the date of termination,
Optionee must exercise an Incentive Stock Option within 30 days of such
termination for the Incentive Stock Option to be qualified as an Incentive
Stock Option.
(c) EXERCISE OF NON-QUALIFIED STOCK OPTION. There may be a
regular federal income tax liability and California income tax liability upon
the exercise of a Non-Qualified Stock Option. The Optionee will be treated as
having received compensation income (taxable at ordinary income tax rates)
equal to the excess, if any, of the Fair Market Value of the Shares on the
date of exercise over the Exercise Price. If Optionee is an Employee or a
former Employee, the Company will be required to withhold from Optionee's
compensation or collect from Optionee and pay to the applicable taxing
authorities an amount in cash equal to a percentage of this compensation
income at the time of exercise, and may refuse to honor the exercise and
refuse to deliver Shares if such withholding amounts are not delivered at the
time of exercise.
(d) DISPOSITION OF SHARES. In the case of a Non-Qualified
Stock Option, if Shares are held for at least one year, any gain realized on
disposition of the Shares will be treated as long-term capital gain for
federal and California income tax purposes. In the case of an Incentive Stock
Option, if Shares transferred pursuant to the Option are held for at least
one year after receipt of the Shares and are disposed of at least two years
after the Date of Grant, any gain realized on disposition of the Shares also
will be treated as long-term capital gain for federal and California income
tax purposes. If Shares purchased under an Incentive Stock Option are
disposed of within such one-year or two-year periods, any gain realized on
such disposition will be treated as compensation income (taxable at ordinary
income rates) to the extent of the difference between the Exercise Price and
the lesser of (i) the Fair Market Value of the Shares on the date of
exercise, or (ii) the sale price of the Shares.
13. LOCK-UP AGREEMENT.
(a) AGREEMENT. Optionee, if requested by the Company and
the lead underwriter of any public offering of the Common Stock or other
securities of the Company (the "Lead Underwriter"), hereby irrevocably agrees
not to sell, contract to sell, grant any option to purchase, transfer the
economic risk of ownership in, make any short sale of, pledge or otherwise
transfer or dispose of any interest in any Common Stock or any securities
convertible into or exchangeable or exercisable for or any other rights to
purchase or acquire Common Stock (except Common Stock included in such public
offering or acquired on the public market after such offering) during the
180-day period following the effective date of a registration statement of
the Company filed under the Securities Act of 1933, as amended, or such
shorter period of time as the Lead Underwriter shall specify. Optionee
further agrees to sign such documents as may be requested by the Lead
Underwriter to effect the foregoing and agrees that the Company may impose
stop-transfer instructions with respect to such Common Stock subject until
the end of such period. The Company and Optionee acknowledge
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that each Lead Underwriter of a public offering of the Company's stock,
during the period of such offering and for the 180-day period thereafter, is
an intended beneficiary of this Section 16.
(b) PERMITTED TRANSFERS. Notwithstanding the foregoing,
Section 16(a) shall not prohibit Optionee from transferring any shares of
Common Stock or securities convertible into or exchangeable or exercisable
for the Company's Common Stock to the extent such transfer is not otherwise
prohibited by this Agreement, either during Optionee's lifetime or on death
by will or intestacy to Optionee's immediate family or to a trust the
beneficiaries of which are exclusively Optionee and/or a member or members of
Optionee's immediate family; provided, however, that prior to any such
transfer, each transferee shall execute an agreement pursuant to which each
transferee shall agree to receive and hold such securities subject to the
provisions of Section 16 hereof. For the purposes of this subsection, the
term "immediate family" shall mean spouse, lineal descendant, father, mother,
brother or sister of the transferor.
(c) NO AMENDMENT WITHOUT CONSENT OF UNDERWRITER. During the
period from identification as a Lead Underwriter in connection with any
public offering of the Company's Common Stock until the earlier of (i) the
expiration of the lock-up period specified in Section 16(a) in connection
with such offering or (ii) the abandonment of such offering by the Company
and the Lead Underwriter, the provisions of this Section 16 may not be
amended or waived except with the consent of the Lead Underwriter.
14. ENTIRE AGREEMENT: GOVERNING LAW. The Plan is
incorporated herein by reference. The Plan and this Option Agreement
constitute the entire agreement of the parties with respect to the subject
matter hereof and supersede in their entirety all prior undertakings and
agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to Optionee's interest except by
means of a writing signed by the Company and Optionee. This agreement is
governed by California law except for that body of law pertaining to conflict
of laws.
15. HEADINGS. The captions used in this Agreement are
inserted for convenience and shall not be deemed a part of this Agreement for
construction or interpretation.
16. INTERPRETATION. Any dispute regarding the
interpretation of this Option Agreement shall be submitted by Optionee or by
the Company forthwith to the Board or the Committee that administers the
Plan, which shall review such dispute at its next regular meeting. The
resolution of such dispute by the Board or the Committee shall be final and
binding on all persons.
SELECTQUOTE, INC., a Delaware corporation
By:
-------------------------------------
Its:
-------------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING CONSULTANCY OR
EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S
1999 STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL
CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR
CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH OPTIONEE'S
RIGHT OR THE COMPANY'S RIGHT TO TERMINATE OPTIONEE'S EMPLOYMENT OR
CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
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Optionee acknowledges receipt of a copy of the Plan and
represents that he is familiar with the terms and provisions thereof, and
hereby accepts this Option Agreement subject to all of the terms and
provisions thereof. Optionee has reviewed the Plan and this Option Agreement
in their entirety, has had an opportunity to obtain the advice of counsel
prior to executing this Option Agreement and fully understands all provisions
of the Option Agreement. Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Committee upon
any questions arising under the Plan or this Option Agreement. Optionee
further agrees to notify the Company upon any change in the residence address
indicated below.
Dated: Signed:
--------------------------- ----------------------------
Optionee
Residence Address:
-------------------------------------
-------------------------------------
-------------------------------------
7
<PAGE>
EXHIBIT A
1999 STOCK OPTION PLAN
EXERCISE NOTICE
SELECTQUOTE, INC.
595 Market Street, 6th Floor
San Francisco, CA 94105
Attention: Secretary
1. EXERCISE OF OPTION. Effective as of today,
______________, ________________ ________________, the undersigned
("Optionee") hereby elects to exercise Optionee's option to purchase
___________ shares of the Common Stock (the "Shares") of SelectQuote, Inc.
(the "Company") under and pursuant to the Company's 1999 Stock Option Plan
(the "Plan") and the [ ] Incentive [ ]Non-Qualified Stock Option Agreement
dated ______________, ________ (the "Option Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that
Optionee has received, read and understood the Plan and the Option Agreement
and agrees to abide by and be bound by their terms and conditions.
3. RIGHTS AS SHAREHOLDER. Until the stock certificate
evidencing such Shares is issued (as evidenced by the appropriate entry on
the books of the Company or of a duly authorized transfer agent of the
Company), no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Stock, notwithstanding
the exercise of the Option. The Company shall issue (or cause to be issued)
such stock certificate promptly after the Option is exercised. No adjustment
will be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10
of the Plan. Optionee shall enjoy rights as a shareholder until such time as
Optionee disposes of the Shares or the Company.
4. DELIVERY OF PAYMENT. Optionee herewith delivers to the
Company the full Exercise Price for the Shares.
5. TAX CONSULTATION. Optionee understands that Optionee may
suffer adverse tax consequences as a result of Optionee's purchase or
disposition of the Shares. Optionee represents that Optionee has consulted
with any tax consultants Optionee deems advisable in connection with the
purchase or disposition of the Shares and that Optionee is not relying on the
Company for any tax advice.
6. TAXES. Optionee agrees to satisfy all applicable
federal, state and local income and employment tax withholding obligations
and has made arrangements acceptable to the Company to satisfy such
obligations. Optionee also agrees, as partial consideration for the
designation of the Option as an Incentive Stock Option, to notify the Company
in writing within thirty (30) days of any disposition of any shares acquired
by exercise of the Option if such disposition occurs within two (2) years
from the Grant Date or within one (1) year from the date the Shares were
transferred to Optionee. If the Company is required to satisfy any federal,
state or local income or employment tax withholding obligations as a result
of such an early disposition, Optionee agrees to satisfy the amount of such
withholding in a manner that the Committee prescribes.
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<PAGE>
7. RESTRICTIVE LEGENDS. Optionee understands and agrees
that the Company shall cause the legends set forth below or legends
substantially equivalent thereto, to be placed upon any certificate(s)
evidencing ownership of the Shares together with any other legends that may
be required by the Company or by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED
UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF
THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN
COMPLIANCE THEREWITH.
8. SUCCESSORS AND ASSIGNS. The Company may assign any of
its rights under this Exercise Notice to single or multiple assignees, and
this Agreement shall inure to the benefit of the successors and assigns of
the Company. Subject to the restrictions on transfer herein set forth, this
Exercise Notice shall be binding upon Optionee and his or her heirs,
executors, administrators, successors and assigns.
9. INTERPRETATION. Any dispute regarding the interpretation
of this Exercise Notice shall be submitted by Optionee or by the Company
forthwith to the Company's Board of Directors or the Committee that
administers the Plan, which shall review such dispute at its next regular
meeting. The resolution of such a dispute by the Board or Committee shall be
final and binding on all persons.
10. GOVERNING LAW; SEVERABILITY. This Agreement shall be
governed by and construed in accordance with the laws of the State of
California excluding that body of law pertaining to conflicts of law. Should
any provision of this Agreement be determined by a court of law to be illegal
or unenforceable, the other provisions shall nevertheless remain effective
and shall remain enforceable.
11. NOTICES. Any notice required or permitted hereunder
shall be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit in the United States mail by certified mail, with
postage and fees prepaid, addressed to the other party at its address as
shown below beneath its signature, or to such other address as such party may
designate in writing from time to time to the other party.
12. FURTHER INSTRUMENTS. The parties agree to execute such
further instruments and to take such further action as may be reasonably
necessary to carry out the purposes and intent of this agreement.
13. ENTIRE AGREEMENT. The Plan and the Option Agreement are
incorporated herein by reference. This Exercise Notice, the Plan, the Option
Agreement and the Investment Representation Statement constitute the entire
agreement of the parties with respect to the subject matter hereof and
supersede in their entirety all prior undertakings and agreements of the
Company and Optionee with respect to the subject matter hereof, and may not
be modified adversely to Optionee's interest except by means of a writing
signed by the Company and Optionee.
Submitted by: Accepted by:
OPTIONEE: SELECTQUOTE, INC.
By:
-----------------------------
Its:
- ---------------------------------- ----------------------------
(Signature)
9
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Address: Address:
- -------- --------
- ------------------------------ 595 Market Street, 6th Floor
- ------------------------------ San Francisco, CA 94105
10
<PAGE>
EXHIBIT B
1998 STOCK OPTION PLAN
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
-----------------------------------
COMPANY : SELECTQUOTE, INC.
SECURITY : COMMON STOCK
AMOUNT :
-----------------------------------
DATE :
-----------------------------------
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee 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 Securities.
Optionee is acquiring these Securities for investment for Optionee's own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(b) Optionee acknowledges and understands that the
Securities constitute "restricted securities" under the Securities Act and
have not been registered under the Securities Act in reliance upon a specific
exemption therefrom, which exemption depends upon among other things, the
bona fide nature of Optionee's investment intent as expressed herein. In this
connection, Optionee understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be
unavailable if Optionee's representation was predicated solely upon a present
intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase
or decrease in the market price of the Securities, or for a period of one
year or any other fixed period in the future. Optionee further understands
that the Securities must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Optionee further acknowledges and understands that the Company is
under no obligation to register the Securities. Optionee understands that the
certificate evidencing the Securities will be imprinted with a legend which
prohibits the transfer of the Securities unless they are registered or such
registration is not required in the opinion of counsel satisfactory to the
Company.
(c) Optionee is familiar with the provisions of Rule 701
and Rule 144, each promulgated under the Securities Act, which, in substance,
permit limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a non-public offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of the grant of the Option to Optionee,
the exercise will be exempt from registration under the Securities Act. In
the event the Company becomes subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days
thereafter (or such longer period as any market stand-off agreement may
require) the Securities exempt under Rule 701 may be resold, subject to the
satisfaction of certain of the conditions specified by Rule 144, including:
(1) the resale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and, in the case of an
affiliate, (2) the availability of certain public information about
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<PAGE>
the Company, (3) the amount of Securities being sold during any three month
period not exceeding the limitations specified in Rule 144(e), and (4) the
timely filing of a Form 144, if applicable.
In the event that the Company does not qualify under Rule
701 at the time of grant of the Option, then the Securities may be resold in
certain limited circumstances subject to the provisions of Rule 144, which
requires the resale to occur not less than one year after the later of the
date the Securities were sold by the Company or the date the Securities were
sold by an affiliate of the Company, within the meaning of Rule 144; and, in
the case of acquisition of the Securities by an affiliate, or by a
non-affiliate who subsequently holds the Securities less than two years, the
satisfaction of the conditions set forth in sections (1), (2), (3) and (4) of
the paragraph immediately above.
(d) Optionee hereby agrees that if so requested by the
Company or any representative of the underwriters in connection with any
registration of the offering of any securities of the Company under the
Securities Act, Optionee shall not sell or otherwise transfer any Shares or
other securities of the Company during the 180-day period following the
effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that such restriction shall only apply to
public offerings which include securities to be sold on behalf of the Company
to the public in an underwritten public offering under the Securities Act.
The Company may impose stop-transfer instructions with respect to securities
subject to the foregoing restrictions until the end of such 180-day period.
(e) Optionee further understands that in the event all of
the applicable requirements of Rule 701 or 144 are not satisfied,
registration under the Securities Act, compliance with Regulation A, or some
other registration exemption will be required; and that, notwithstanding the
fact that Rules 144 and 701 are not exclusive, the Staff of the Securities
and Exchange Commission has expressed its opinion that persons proposing to
sell private placement securities other than in a registered offering and
otherwise than pursuant to Rules 144 or 701 will have a substantial burden of
proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk. Optionee
understands that no assurances can be given that any such other registration
exemption will be available in such event.
Signature of Optionee:
-----------------------------------
Date:
---------------------------
12
<PAGE>
SELECTQUOTE, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
SelectQuote, Inc., a Delaware corporation (the "Company"), hereby
establishes this 1999 Employee Stock Purchase Plan (the "Plan").
1. PURPOSE OF PLAN. The purpose of the Plan is to enable Eligible
Employees (as defined in Section 3) who wish to become shareholders of the
Company a convenient and favorable method of doing so. The Plan is intended
to constitute an "employee stock purchase plan," as defined in Section 423(b)
of the Internal Revenue Code of 1986, as amended (the "Code"), and shall be
interpreted and administered to further that intent.
2. ADMINISTRATION OF THE PLAN. The Plan will be administered by the
Compensation Committee (the "Committee") of the Board of Directors of the
Company (the "Board"). Subject to the provisions of the Plan, the Committee
will have the complete authority to interpret the Plan, to adopt, amend and
rescind rules and procedures relating to the Plan, and to make all of the
determinations necessary or advisable for the administration of the Plan. All
such interpretations, rules, procedures and determinations will, in the
absence of fraud or patent mistake, be conclusive and binding on all persons
with any interest in the Plan.
3. ELIGIBLE EMPLOYEES. The term "Eligible Employees" means all
common law employees of the Company and each other corporation designated by
the Committee that hereafter becomes a majority-owned subsidiary of the
Company as of the beginning of each Offering Period (as defined in Section
5), except the following: (a) employees who have been continuously employed
for less than five days prior to the commencement of the Offering Period (as
defined in Section 5); (b) employees whose customary employment is 20 hours
or less per week; and (c) employees whose customary employment is for not
more than five months in any calendar year. The employment of an employee
shall be treated as continuing intact while the employee is on sick leave or
other leave of absence approved by the Company. Except as otherwise expressly
provided in the Plan and permitted by Section 423 of the Code, all Eligible
Employees shall have the same rights and obligations under the Plan.
4. STOCK SUBJECT TO THE PLAN. The stock subject to the Plan shall be
shares of the Company's authorized but unissued Common Stock (the "Common
Stock"). The aggregate number of shares of Common Stock that may be purchased
by Eligible Employees pursuant to the Plan is 1,000,000, subject to
adjustment as provided in Section 13.
5. OFFERING PERIODS. The Common Stock shall be offered under the
Plan during consecutive offering periods (the "Offering Periods"). The first
Offering Period shall begin upon the issuance and sale shares of Common Stock
in a public offering on an underwritten firm commitment basis pursuant to a
registration statement filed with and declared effective by the Securities
and Exchange Commission, pursuant to the Securities Act of 1933, as amended,
and end on December 31, 2000 (the "Initial Offering Period").
<PAGE>
All subsequent Offering Periods will begin on the first day and end on the
last day of each subsequent six-month period spanning January 1 to June 30
and July 1 to December 31 until the Plan termination date, as provided in
Section 16.1.
6. PARTICIPANTS; PAYROLL DEDUCTIONS
6.1 A person who is an Eligible Employee at the beginning
of an Offering Period may elect to have the Company make deductions from the
person's Compensation (as defined in Section 6.4), at a specified percentage
rate, to be used to purchase shares of Common Stock pursuant to the Plan
during each purchase period ("Purchase Period), which shall be coterminous
with the Initial Offering Period or the Offering Period as the case may be.
This election must be made prior to the beginning of the Offering Period in
accordance with such procedures as the Committee may adopt (each Eligible
Employee who so elects to have such deductions made will be referred to as a
"Participant").
6.2 The maximum rate of deduction that a Participant may
elect for any Offering Period is 10%. An amount equal to the elected
percentage shall be deducted from the Participant's pay each time during the
Purchase Period that any Compensation is paid to the Participant. The
Committee may set such minimum level of payroll deductions as the Committee
determines to be appropriate. Any minimum level of deductions set by the
Committee shall apply equally to all Eligible Employees. A Participant's
accumulated payroll deductions shall remain the property of the Participant
until applied toward the purchase of shares of Common Stock under the Plan,
but may be commingled with the general funds of the Company. No interest will
be paid on payroll deductions accumulated under the Plan.
6.3 A Participant in the Plan on the last day of a Purchase
Period shall automatically continue to participate in the Plan during the
next Purchase Period unless he or she withdraws in the manner described in
Section 11 or is no longer an Eligible Employee.
6.4 The term "Compensation" means all base salary, straight
time wages and commissions paid to or on behalf of a Participant for services
performed or on account of holidays, vacation, sick leave or other similar
events (including any amounts by which such earnings are reduced, at the
election of a Participant, pursuant to a cafeteria plan described in Section
125 of the Code, a dependent care assistance program described in Section 129
of the Code, a cash or deferred arrangement described in Section 401(k) of
the Code, or any similar plan, program or arrangement), and excluding any
overtime, shift premium, bonuses and other incentive compensation, the value
of any noncash benefits under any employee benefit plans, and any other
amounts paid to the Participant that are specifically excluded by the
Committee.
7. PURCHASE OF SHARES
7.1 At the end of the Purchase Period, a Participant's
accumulated payroll deductions for the Purchase Period will, subject to the
limitations in Section 9 and the
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<PAGE>
withdrawal provisions of Section 11, be applied toward the purchase of shares
of Common Stock at a purchase price (the "Purchase Price") equal to the
lesser of:
(a) 85% of the Market Price (as defined in Section
8.1) of the Common Stock on the first Business Day (as defined in Section
8.2) of the Offering Period; or
(b) 85% of the Market Price of the Common Stock on
the last Business Day of the Purchase Period,
in either event rounded to the nearest whole cent.
7.2 Shares of Common Stock may be purchased under the Plan
only with a Participant's accumulated payroll deductions. Fractional shares
cannot be purchased. Any portion of a Participant's accumulated payroll
deductions for an Offering Period not used for the purchase of Common Stock
shall be applied to the purchase of Common Stock in the next Purchase Period,
if the Participant is participating in the Plan during that Purchase Period,
or returned to the Participant.
7.3 Each Participant who purchases shares of Common Stock
under the Plan shall thereby be deemed to have agreed that the Company or the
subsidiary of the Company that employs the Participant shall be entitled to
withhold, from any other amounts that may be payable to the Participant at or
around the time of the purchase, such federal, state, local and foreign
income, employment and other taxes which may be required to be withheld under
applicable laws. In lieu of such withholding, the Company or such subsidiary
may require the Participant to remit such taxes to the Company or such
subsidiary as a condition of the purchase.
8. MARKET PRICE
8.1 For purposes of the Plan, the term "Market Price" on
any day means, if the Common Stock is publicly traded, the last sales price
(or, if no last sales price is reported, the average of the high bid and low
asked prices) for a share of Common Stock on that day as reported by the
principal exchange on which the Common Stock is listed, or, if the Common
Stock is publicly traded but not listed on an exchange, as reported by The
Nasdaq Stock Market, or, if such prices or quotations are not reported by The
Nasdaq Stock Market, as reported by any other available source of prices or
quotations selected by the Committee.
8.2 For purposes of the Plan, the term "Business Day" means
a day on which prices or quotations for the Common Stock are reported by a
national securities exchange, The Nasdaq Stock Market, or any other available
source of prices or quotations selected by the Committee, whichever is
applicable pursuant to the preceding paragraph.
8.3 If the Market Price of the Common Stock must be
determined for purposes of the Plan at a time when the Common Stock is not
publicly traded, then the term "Market Price" shall mean the fair market
value of the Common Stock as determined by the Committee, after taking into
consideration all the factors it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's
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<PAGE>
length.
9. LIMITATIONS ON SHARE PURCHASES
9.1 Notwithstanding Section 3, an employee will not be an
Eligible Employee for purposes of the Plan if the employee owns stock
possessing 5% or more of the total combined voting power or value of all
classes of stock of the Company. For purposes of this 5% limitation, an
employee shall be treated as owning any stock the ownership of which is
attributed to him or her under the rules of Section 424(d) of the Code, as
well as any stock that, in the absence of this paragraph, the employee could
purchase under the Plan with his or her payroll deductions held pursuant to
Section 6 but not yet applied to the purchase of shares of Common Stock under
the Plan.
9.2 During any calendar year, the maximum value of the
Common Stock that may be purchased by a Participant under the Plan and all
such plans of Company, any Subsidiary of the Company, and any parent
corporation (as defined in Section 424(e) of the Code) is $25,000, said value
to be determined on the basis of the Market Price of the Common Stock on the
first Business Day of each Offering Period that ends in the calendar year.
Notwithstanding any other provision of the Plan to the contrary, the rights
of a Participant to purchase shares of capital stock under the Plan and all
such other plans shall not accrue at a rate which exceeds $25,000 annualized
at any time during the calendar year.
9.3 The limitations in Section 9.1 and Section 9.2 are
intended to and shall be interpreted in such a manner as will comply with
Section 423(b)(3) and Section 423(b)(8) of the Code, respectively.
10. CHANGES IN PAYROLL DEDUCTIONS. The rate of payroll deductions
for an Offering Period may not be increased or decreased by a Participant
during the Purchase Period. However, the Participant may change the rate of
payroll deduction for a subsequent Purchase Period. In addition, a
Participant may withdraw in full from the Plan in the manner described in
Section 11.
11. WITHDRAWAL FROM THE PLAN
11.1 A Participant may elect to withdraw from the Plan,
effective for the Offering Period in progress, by delivering to the Committee
written notice thereof prior to the end of the Offering Period.
11.2 If a Participant ceases for any reason (including
death, disability or voluntary or involuntary termination of employment) to
be an employee of the Company or one of its subsidiaries, the Participant
will be deemed to have elected to withdraw from the Plan for the Offering
Period and Purchase Period in progress when the Participant's employment
ceases.
11.3 If a Participant's payroll deductions are interrupted
by any legal process, the Participant will be deemed to have elected to
withdraw from the Plan for the Purchase Period in progress when the
interruption occurs.
4
<PAGE>
11.4 If a Participant elects or is deemed to have elected
to withdraw for a Purchase Period in progress, all of the Participant's
payroll deductions for that Purchase Period, will be promptly returned to the
Participant.
11.5 A Participant may elect to withdraw from the Plan,
effective for a Purchase Period that has not yet commenced, by delivering to
the Committee written notice thereof prior to the first day of the Purchase
Period.
11.6 Following withdrawal from the Plan, in order to
participate in the Plan for any subsequent Offering Period, the Participant
must again elect to participate in the manner described in Section 6.1.
12. ISSUANCE OF COMMON STOCK
12.1 Certificates for the shares of Common Stock purchased
by Participants will be delivered by the Company's transfer agent as soon as
practicable after each Purchase Period. In lieu of issuing certificates for
such shares directly to Participants, the Company shall be entitled to issue
such shares to a bank, broker-dealer or similar custodian (the "Custodian")
that has agreed to hold such shares for the accounts of the respective
Participants. Fees and expenses of the Custodian shall be paid by the Company
or allocated among the respective Participants in such manner as the
Committee determines.
12.2 A Participant may direct, in accordance with such
procedures as the Committee may adopt, that shares purchased by the
Participant shall be issued (or, if such shares are issued to the Custodian,
that the account for such shares be held) in the names of the Participant and
one other person designated by the Participant, as joint tenants with right
of survivorship, tenants in common, or community property, to the extent and
in the manner permitted by applicable law.
12.3 A Participant may at any time, in the manner described
in Section 17, undertake a disposition (as that term is defined in Section
424(c) of the Code), whether by sale, exchange, gift or other transfer of
legal title, of any or all of the shares held for the Participant by the
Custodian. In the absence of such a disposition of the shares, the shares
shall continue to be held by the Custodian until the holding period set forth
in Section 423(a) of the Code has been satisfied. If a Participant so
requests, shares for which such holding period has been satisfied will be
transferred to another brokerage account specified by the Participant, or a
stock certificate for such shares will be issued and delivered to the
Participant or his or her designee.
13. CHANGES IN CAPITALIZATION
13.1 Upon the happening of any of the following described
events, a Participant's right to purchase shares of Common Stock under the
Plan shall be adjusted as hereinafter provided:
(a) If the shares of Common Stock are subdivided or
combined into a greater or smaller number of shares of Common Stock or if,
upon a recapitalization, split-up or
5
<PAGE>
other reorganization of the Company, the shares of Common Stock are exchanged
for other securities of the Company, the rights of each Participant shall be
modified so that the Participant is entitled to purchase, in lieu of the
shares of Common Stock that the Participant would otherwise have been
entitled to purchase for the Purchase Period in progress at the time of such
subdivision, combination or exchange (the "Offering Period Shares"), such
number of shares of Common Stock or such number and type of other securities
as the Participant would have received if such Offering Period Shares had
been issued and outstanding at the time of such subdivision, combination or
exchange (unless in the case of an exchange the Committee determines that the
nature of the exchange is such that it is not feasible or advisable that the
rights of Participants be so modified, in which event the exchange shall be
deemed a Terminating Event under Section 14); and
(b) If the Company issues any of its shares as a
stock dividend upon or with respect to the Common Stock, each Participant who
purchases shares of Common Stock under the Plan at the end of the Purchase
Period in progress on the record date for the stock dividend shall be
entitled to receive the shares so purchased (the "Purchased Shares") and
shall also be entitled to receive at no additional cost, but only if the
Purchase Price for the Purchased Shares was determined with reference to the
Market Price of the Common Stock on the first Business Day of the Offering
Period, the number of shares of the class of stock issued as a stock
dividend, and the amount of cash in lieu of fractional shares, that the
Participant would have received if he or she had been the holder of the
Purchased Shares on the record date for the stock dividend.
13.2 Upon the happening of an event specified in clause (a)
or (b) above, the class and aggregate number of shares available under the
Plan, as set forth in Section 4, shall be appropriately adjusted to reflect
the event. Notwithstanding the foregoing, such adjustments shall be made only
to the extent that the Committee, based on advice of counsel for the Company,
determines that such adjustments will not constitute a change requiring
shareholder approval under Section 423(b)(2) of the Code.
14. TERMINATING EVENTS
14.1 Upon (a) the dissolution or liquidation of the
Company, (b) a merger or other reorganization of the Company with one or more
corporations as a result of which the Company will not be a surviving
corporation, (c) the sale of all or substantially all of the assets of the
Company or a material division of the Company, (d) a sale or other transfer,
pursuant to a tender offer or otherwise, of more than fifty percent (50%) of
the then outstanding shares of Common Stock of the Company, (e) an
acquisition by the Company resulting in an extraordinary expansion of the
Company's business or the addition of a material new line of business, or (f)
any exchange that is subject to this Section 14 in accordance with the
provisions of Section 13 (any of such events is herein referred to as a
"Terminating Event"), the Committee may but shall not be required to:
(a) make provision for the continuation of the
Participants' rights under the Plan on such terms and conditions as the
Committee determines to be appropriate and
6
<PAGE>
equitable, including where applicable, but not limited to, an arrangement for
the substitution on an equitable basis, for each share of Common Stock that
could otherwise be purchased at the end of the Purchase Period in progress at
the time of the Terminating Event, of any consideration payable with respect
to each then outstanding share of Common Stock in connection with the
Terminating Event; or
(b) terminate all rights of Participants under the
Plan for such Purchase Period and:
(i) return to the Participants all of their
payroll deductions for such Purchase Period (if shorter); and
(ii) for each share of Common Stock, if any,
that otherwise could have been purchased under the Plan by a Participant at
the end of such Purchase Period (if shorter) (determined by assuming that
payroll deductions at the rate elected by the Participant were continued to
the end of the payroll period and used to purchase shares based on the Market
Price of the Common Stock on the first Business Day of the Offering Period)
and with respect to which (A) the Purchase Price at which such share could be
purchased (determined with reference only to the Market Price of the Common
Stock on the first Business Day of the Offering Period) is exceeded by (B)
the Market Price on the date of the Terminating Event of a share of Common
Stock, as determined by the Committee, pay to the Participant an amount equal
to such excess.
14.2 The Committee shall make all determinations necessary
or advisable in connection with Terminating Events, and its determinations
shall, in the absent of fraud or patent mistake, be conclusive and binding on
all persons with any interest in the Plan.
15. NO TRANSFER OR ASSIGNMENT OF EMPLOYEE'S RIGHTS. An Eligible
Employee's rights under the Plan are the Eligible Employee's alone and may
not be voluntarily or involuntarily transferred or assigned to, or availed of
by, any other person other than by will or the laws of descent and
distribution. An Eligible Employee's rights under the Plan are exercisable
during his or her lifetime by the Eligible Employee alone.
16. TERMINATION AND AMENDMENT OF PLAN
16.1 The Plan shall terminate on June 30, 2004. The Plan
may be terminated at any earlier time by the Board, but, except as provided
in Section 14, such termination shall not affect the rights of Participants
under the Plan for the Offering Period in progress at the time of
termination. The Plan will also terminate in any case when all or
substantially all of the unissued shares of Common Stock reserved for the
purposes of the Plan have been purchased. If at any time shares of Common
Stock reserved for the purpose of the Plan remain available for purchase but
not in sufficient number to satisfy all then unfilled purchase requirements,
the available shares shall be apportioned among Participants in proportion to
the respective amounts of their accumulated payroll deductions, and the Plan
shall terminate. Upon such termination or any other termination of the Plan,
all payroll deductions not used to purchase shares of Common Stock will be
refunded to the Participants entitled thereto.
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16.2 The Committee or the Board may from time to time adopt
amendments to the Plan; provided, however, that, without the approval of the
shareholders of the Company, no amendment may increase the number of shares
that may be issued under the Plan or make any other change for which
shareholder approval is required by Section 423 of the Code or the
regulations thereunder.
17. DISPOSITION OF SHARES. Subject to compliance with any applicable
federal and state securities and other laws and any policy of the Company in
effect from time to time with respect to trading in its shares, a Participant
may effect a disposition (as that term is defined in Section 424(c) of the
Code) of Common Stock purchased under the Plan at any time the Participant
chooses; provided, however, each Participant agrees, by purchasing shares of
Common Stock under the Plan, that (a) the Company shall be entitled to
withhold from any other amounts that may be payable to the Participant by the
Company at or around the time of such disposition such federal, state, local
and foreign income, employment and other taxes as the Company may be required
to withhold under applicable law; and (b) in lieu of such withholding, the
Participant will, upon request of the Company, promptly remit such taxes to
the Company. EACH EMPLOYEE PURCHASING SHARES OF COMMON STOCK UNDER THE PLAN
ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE THEREOF.
18. NO SHAREHOLDER RIGHTS; INFORMATION TO PARTICIPANTS. A
Participant shall not have any rights as a shareholder of the Company (other
than the right potentially to receive stock dividends under Section 13) on
account of shares of Common Stock that may be purchased under the Plan prior
to the time such shares are actually purchased by and issued to the
Participant. Notwithstanding the foregoing, the Company shall deliver to each
Participant under the Plan who does not otherwise receive such materials (a)
a copy of the Company's annual financial statements (which shall be delivered
annually as promptly as practical following each fiscal year of the Company
and review or audit of such statements by the Company's auditors), together
with management's discussion and analysis of financial condition and results
of operations for the fiscal year, and (b) a copy of all reports, proxy
statements and other communications distributed to the Company's security
holders generally.
19. USE OF PROCEEDS. The proceeds received by the Company from the
sale of shares of Common Stock under the Plan will be used for general
corporate purposes.
20. GOVERNMENTAL REGULATIONS. The Company's obligation to sell and
deliver shares of the Common Stock under the Plan is subject to the approval
of any governmental authority required in connection with the authorization,
issuance or sale of such shares, including the Securities and Exchange
Commission, the securities administrators of the states in which Participants
reside, and the Internal Revenue Service.
21. MISCELLANEOUS PROVISIONS
21.1 Nothing contained in the Plan shall obligate the
Company or any of its subsidiaries to employ a Participant for any period,
nor shall the Plan interfere in any way with the right of the Company or any
of its subsidiaries to reduce a Participant's compensation.
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21.2 The provisions of the Plan shall be binding upon each
Participant and, subject to the provisions of Section 15, the heirs,
successors and assigns of each Participant.
21.3 Where the context so requires, references in the Plan
to the singular shall include the plural, and vice versa, and references to a
particular gender shall include either or both genders.
21.4 The Plan shall be construed, administered and enforced
in accordance with the laws of the United States, to the extent applicable
thereto, as well as the laws of the State of California.
22. APPROVAL OF SHAREHOLDERS. The Plan shall be effective September 1,
1999, subject to approval by the shareholders of the Company in a manner that
complies with Section 423(b)(2) of the Code. If such approval does not occur
prior to June 30, 2000, the Plan shall be void and of no effect.
9
<PAGE>
SOFTWARE DEVELOPMENT AGREEMENT
This Software Development Agreement (this "AGREEMENT") is entered
into as of April 30, 1997 between Innovative Information Group, Inc. ("IIG"),
with its corporate office at 6481 Oneida Court, Sun Valley, Nevada
89433-6654, and SelectTech, with its principal office at 595 Market Street,
6th Floor, San Francisco, California 94105.
RECITALS
A. IIG engages in research, development and consulting activities in
the field of software engineering;
B. SelectTech engages in the development of software products for
the management and transmission of data in the insurance industry; and
C. SelectTech has ongoing research, development and software
engineering projects for which it would like IIG to provide software
consulting services (the "PROJECTS"; each a "PROJECT"), which are or shall be
described in Exhibit A, as attached hereto and as amended by the parties from
time to time.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS. As used herein:
(a) The term "SOFTWARE" shall mean the results and products (interim
and/or final) of the consulting services performed by IIG, its employees or
representatives, for SelectTech, whether pursuant to this Agreement or
otherwise, whether tangible or intangible, including, without limitation,
each and every invention, discovery, formula, trade secret, software program
(including without limitation, object source code, flow charts, algorithms
and related documentation), listing, routine, manual, specification,
technique, product, concept, know-how, or similar property, whether or not
patentable or copyrightable and whether or not embodied in any products, that
are made, developed, perfected, designed, conceived or first reduced to
practice by IIG, either solely or jointly with others, in the course and
scope of the consulting services performed under this Agreement or otherwise,
including all of the above that has come into being prior to the date of this
Agreement.
(b) The term "CONFIDENTIAL INFORMATION" shall mean all information
developed by or disclosed or made available to IIG, its employees or
representatives, whether in connection with this Agreement or prior to the
date of this Agreement, which SelectTech protects against unrestricted
disclosure to others and information which is developed by or for IIG
specifically for SelectTech under this Agreement, including all Proprietary
Information.
<PAGE>
(c) The term "PROPRIETARY INFORMATION" shall refer to any and all
information or material of a confidential, proprietary or secret nature which
is or may be applicable to, or related in any way to: (i) the past, present
or future business of SelectTech or of any corporation in control of
SelectTech (a "PARENT") or any majority-owned subsidiary (a "SUBSIDIARY") of
SelectTech; (ii) the research and development or investigations of SelectTech
or any Parent or any Subsidiary; or (iii) the business of any client,
supplier or customer of SelectTech or of any Parent or Subsidiary.
Proprietary Information shall include, without limitation, trade secrets,
processes, formulas, data, know-how, improvements, inventions and techniques
relating to the Projects and information pertaining to customer lists,
marketing plans and strategies, personnel directories and files and
information concerning customers or vendors of SelectTech or any Parent or
Subsidiary.
2. ENGAGEMENT AND PERFORMANCE OF SERVICES.
(a) ENGAGEMENT. SelectTech hereby engages IIG to perform software
engineering consulting services (the "SERVICES") in accordance with the terms
and conditions of this Agreement. This Agreement will govern all services
performed by IIG for SelectTech, whether or not such services are Services as
defined in this Agreement.
(b) IDENTIFICATION OF PROJECTS AND SERVICES. EXHIBIT A contains a
description of the Projects for which IIG initially may perform Services
under this Agreement. In addition, SelectTech may request specific consulting
services from IIG for individual tasks relative to these projects or for
tasks which are not related to any specific project. SelectTech may also
request that IIG participate in or undertake other Projects. Project work or
specific consulting services will be done by providing IIG with a detailed
project specification and Project/Work Approval Form that has been signed by
an authorized representative of SelectTech. The Project/ Work Approval Forms
and the list of those who are authorized to approve projects are set forth as
Exhibit B (the "PROJECT/WORK APPROVAL FORM"). IIG may accept or decline each
additional Project or assignment at its discretion. Compensation for
additional Projects shall be on the terms set forth in Section 3, unless the
parties agree otherwise.
(c) PERFORMANCE STANDARDS. IIG shall perform the Services in
accordance with the specifications and project timetables and under the
direction of the SelectTech Project Manager. The SelectTech Project Manger
will be responsible for assigning tasks for each Project and will be the
ultimate evaluator of performance by a contract resource. Performance will be
governed by the terms and conditions set forth in Exhibit C.
(d) DELIVERY. IIG or its designates will deliver all interim and
final software products, including source code and other related materials
developed under this Agreement (the "SOFTWARE"), by ensuring that all current
and active project sources and materials are available from the Source Code
Repository Site (Star Team) on no less than a weekly basis. When the Source
Code Repository Site (Star Team) is not available, source code may also be
delivered to SelectTech or its designees in a standard medium (disk, Zip
Disk, CD, etc.).
(e) ACCESS SECURITY. IIG will comply with SelectTech's security
procedures for control and management of source code or proprietary
information and access to SelectTech's installation sites and computer
equipment, as set forth in Exhibit D, but shall not be responsible for any
delays resulting from delays in obtaining access.
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<PAGE>
(f) SUBCONTRACTING. With SelectTech's consent, IIG may subcontract
all or part of the Services to be performed by IIG for SelectTech, provided
that all such subcontractors must agree to and abide by terms and conditions
substantially similar to those contained in this Agreement. Further, IIG
shall require all such subcontractors to agree that all of the work they
perform for IIG shall be owned by SelectTech in accordance with the
provisions of Section 6.
3. PAYMENT.
(a) COMPENSATION FOR SERVICES; PAYMENT. IIG will be paid for the
Services on an hourly-rate basis, as specified in Exhibit E and any
Project/Work Approval Form. Hourly and other charges regarding a specific
Project may be changed by agreement of the parties upon 30 days notice. IIG
will submit invoices for Services performed on a monthly basis, within 10
days of the end of each month. SelectTech will pay the amounts invoiced
within 15 days of receipt of the invoice. In no event will SelectTech be
obligated to pay IIG for any Services not specifically identified in Exhibit
A or a Project/Work Approval Form.
(b) REIMBURSEMENT OF EXPENSES. SelectTech will not be obligated to
pay to IIG the amounts of any expenses incurred in connection with the
Services or otherwise unless such expenses are approved by SelectTech in
advance. IIG shall report such agreed-upon expenses separately on an IIG
invoice to SelectTech.
(c) PURCHASES OF HARDWARE AND SOFTWARE. SelectTech may request that
IIG purchase specific hardware or software necessary to perform the Services
under this Agreement. The cost of such purchase will be agreed upon in
advance by SelectTech and reported separately on an IIG invoice to
SelectTech. SelectTech will reimburse IIG the agreed-upon cost of any such
purchase.
4. TERM AND TERMINATION. This Agreement will continue in effect
until terminated by either party in writing; provided that such termination
will be effective on the last day of the sixth full calendar month following
the date on which the terminating party gives the other party written notice
of its intent to terminate this Agreement. If termination is initiated by
IIG, IIG will continue to perform the Services under this Agreement until the
date of the effectiveness of the termination.
5. WARRANTIES. IIG warrants to SelectTech as follows:
(a) IIG will provide highly skilled programming staff which is
experienced in programming for the Microsoft Windows operating systems and
major Database Management systems using different programming languages, and
possesses the additional expertise needed to perform the Services. IIG
acknowledges that SelectTech is relying upon the skill and expertise of IIG
for the performance of the Services.
(b) The Software will be of original development by IIG and will not
infringe upon or violate any patent, copyright, trade secret or other
property right of any third party. Third-party software will not be
incorporated in the Software without SelectTech's prior written consent. If
SelectTech so consents, it shall be SelectTech's responsibility to secure any
necessary licenses for such third-party software.
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<PAGE>
(c) IIG will use its best efforts to make such additions,
modifications or adjustments to the Software as may be necessary to correct
in the shortest possible time any problems or defects in the Software or
related documentation discovered by IIG or reported to IIG by SelectTech.
This warranty shall be null and void in the event that SelectTech modifies
any part of the Software without the prior approval of IIG. IIG disclaims any
warranties of merchantability and fitness for a particular purpose.
6. PROPERTY RIGHTS. All right, title and interest in and to the
Software, and all products derived from the Software, shall at all times be
and remain the sole and exclusive property of SelectTech. The Software and
all products developed by or for IIG for SelectTech or derived therefrom, in
the past or under this Agreement, shall be deemed to be works made for hire.
Any patents, trademarks, copyrights or other intellectual property rights
that may arise in connection with any products developed by or for IIG for
SelectTech or derived therefrom, in the past or under this Agreement, and all
of the Software, shall be in the name of, and, if necessary, will be assigned
by or for IIG and its employees and contractors to, SelectTech. SelectTech
shall own all Proprietary Information related to all of the Projects, and all
Proprietary Information created by or for IIG for or on behalf of SelectTech
prior to the effective date hereof.
(a) IIG agrees to disclose promptly to SelectTech any and all
Software and Proprietary Information, whether or not patentable and whether
or not reduced to practice, conceived or learned by IIG, its employees,
contractors and other agents, either alone or jointly with others, which
relate in any manner to the past, present or anticipated business, work,
research or investigations of IIG on behalf of SelectTech or any Parent or
Subsidiary.
(b) IIG further agrees to assist SelectTech in every way (at
SelectTech's expense) to obtain and, from time to time, enforce patents on
and other intellectual property rights in the Software in any and all
countries. To that end, by way of illustration, but not limitation, IIG shall
cause its employees, contractors and other agents to testify in any suit or
other proceeding involving any of the Software, execute all documents which
SelectTech reasonably determines to be necessary or convenient for use in
applying for and obtaining patents thereon and enforcing the same, and
execute all necessary assignments thereof to SelectTech or persons designated
by it. IIG's obligation to assist SelectTech in obtaining and enforcing
patents for the Software in any and all countries shall continue beyond the
termination of this Agreement.
(c) The parties acknowledge that all Software developed by or for
IIG in connection with each Project is being created at the instance of
SelectTech, and further agree that such Software shall be deemed a work made
for hire under the United States copyright laws and that SelectTech shall
have the unlimited right to supervise and control IIG and to direct IIG as to
all aspects of the creation of such software. SelectTech may alter such
Software, add to it, or combine it with any other work or works, in its sole
discretion. All original materials submitted by IIG to SelectTech as part of
the Software or as part of the process of creating the Software, including,
but not limited to, source code, object code, listings, printouts,
documentation, notes, flow charts and programming aides, shall be the
property of SelectTech, whether or not SelectTech uses such material. No
rights in any of the foregoing are reserved to IIG. In the event that any
such Software is determined by a court of competent jurisdiction not to be a
work made for hire under the United States copyright laws, this Agreement
shall operate as an irrevocable assignment of all original materials produced
by IIG for SelectTech under this Agreement and of all copyrights of every
kind in such materials for the entire duration of the copyrights. No rights
are reserved to IIG under this assignment. The parties agree that this
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<PAGE>
assignment and any acts of SelectTech undertaken for the purpose of securing,
maintaining, or preserving the copyright in such software pursuant to this
assignment, including recordation of this Agreement with the United States
Copyright Office, are only precautionary and shall not be considered in
determining the character of the software. IIG further agrees to forebear
from asserting all moral rights or comparable rights that IIG may have in
such materials, including without limitation, any right to prevent
modification of the materials, any rights to receive attribution of
authorship, or any right to control the materials.
(d) IIG agrees to keep and maintain adequate and current records of
all Software and Proprietary Information made, conceived, developed or
perfected relating to the Projects, and that such records shall be available
to, and remain the sole property of, SelectTech at all times.
7. PROTECTION OF CONFIDENTIAL INFORMATION.
(a) CONFIDENTIALITY. IIG agrees with respect to any Confidential
Information developed by or disclosed to it hereunder:
(i) to use such Confidential Information only for the
purposes contemplated by this Agreement;
(ii) to use the same methods and degree of care to prevent
disclosure of such Confidential Information as it uses to prevent disclosure
of its own proprietary and confidential information, including marking all
confidential information in written or tangible form as "Confidential" and
reducing all confidential oral communications to writing and so marking each
such writing; and
(iii) to return any Confidential Information in tangible
form to SelectTech at the request of SelectTech and to retain no copies or
reproductions thereof.
(b) LIMITATIONS. IIG shall not be obligated to treat information as
Confidential Information if such information:
(i) is or becomes public knowledge without the
fault of IIG; or
(ii) is or becomes rightfully available to IIG without
confidential restriction from, or pursuant to a distinct development contract
with, a source not under SelectTech's control; or
(iii) is independently developed by IIG without use of the
Confidential Information developed by or disclosed to IIG hereunder;
provided, however, that the burden of proof of such independent development
shall be upon IIG; or
(iv) is disclosed pursuant to court or government action;
provided, however, that IIG gives SelectTech reasonable prior notice of
disclosure pursuant to such court or government action.
8. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE
TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES,
HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS AGREEMENT,
WHETHER OR NOT SUCH PARTY IS ADVISED OF THE
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<PAGE>
POSSIBILITY OF SUCH DAMAGES, AND NOTWITHSTANDING ANY FAILURE OF ESSENTIAL
PURPOSE OF ANY LIMITED REMEDY.
9. NON-HIRE. Neither party, nor any of their successors and
assignees, will hire or enter into any contract with an employee or agent of
the other party without the prior consent of the other party. This provision
will remain in effect for one (1) year after the cancellation date of this
Agreement.
10. ASSIGNMENT. This Agreement shall bind and inure to the benefit
of the parties' respective successors and assigns.
11. MISCELLANEOUS PROVISIONS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California without regard to conflict of laws
principles. In any action or proceeding to enforce rights under this
Agreement, the prevailing party shall be entitled to recover costs and
attorneys' fees.
(b) NOTICES. All notices under this Agreement shall be in writing
and delivered personally or by facsimile, commercial overnight courier, or
certified or registered mail, return receipt requested, to a party at its
respective address set forth below:
SelectTech:
SelectTech
595 Market St., 6th Floor
San Francisco, California 94105
IIG:
Innovative Information Group, Inc.
6481 Oneida Court,
Sun Valley, Nevada 89433-6654
(c) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter herein and
merges and supersedes all prior discussions between them. No modification of
or amendment to this Agreement, nor any waiver of any rights under this
Agreement, shall be effective unless in writing signed by the party against
whom it is to be enforced. Nothing express or implied in this Agreement is
intended to confer, nor shall anything herein confer, upon any person other
than the parties and the respective successors or permitted assigns of the
parties, any rights, remedies, obligations or liabilities whatsoever.
(d) SEVERABILITY. If the application of any provision or provisions
of this Agreement to any particular facts or circumstances shall be held to
be invalid or unenforceable by any court of competent jurisdiction, then: (i)
the validity and enforceability of such provision or provisions as applied to
any other particular facts or circumstances and the validity of other
provisions of this Agreement shall not in any way be affected or impaired
thereby; and (ii) such provision or provisions shall be reformed without
further action by the parties hereto and only to the extent
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<PAGE>
necessary to make such provision or provisions valid and enforceable when
applied to such particular facts and circumstances.
(e) INDEPENDENT CONTRACTORS. The parties are independent
contractors, and nothing in this Agreement shall be construed to create a
joint venture or partnership.
(f) FORCE MAJEURE. A party will not be deemed to have materially
breached this Agreement to the extent that performance of its obligations or
attempts to cure any breach are delayed or prevented by reason of an act of
God, fire, natural disaster, accident, act of government, shortage of
equipment, materials or supplies beyond the reasonable control of such party,
or any other cause beyond the reasonable control of that party (a "FORCE
MAJEURE EVENT"); provided that the party whose performance is delayed or
prevented promptly notifies the other party of the nature and duration of the
force majeure event.
(g) COMPLIANCE WITH LAWS. Each party shall comply with all laws and
regulations applicable to it.
(h) DISPUTES AND REMEDIES. The parties agree to use their best
efforts to resolve any dispute that may arise under the Agreement through
good faith negotiations. No party shall commence any arbitration or
litigation in relation to this Agreement unless it has first invited the
chief executive or other responsible executive officer of the other party to
meet with its own chief executive or other responsible executive officer for
the purpose of endeavoring to resolve the dispute on mutually acceptable
terms.
Any dispute arising under the Agreement that cannot be settled by
negotiation between the parties shall be submitted to arbitration under the
rules of the [American Arbitration Association]. The decision of the
arbitrator shall be final. The parties shall continue to perform their
obligations under the Agreement as far as possible as if no dispute had
arisen pending the final settlement of any matter referred to arbitration.
Nothing in this clause shall preclude either party from taking steps
to seek immediate equitable relief before any court of competent
jurisdiction, if required.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one and the same
instrument. For purposes hereof, a facsimile copy of this Agreement,
including the signature pages hereto, shall be deemed to be an original.
* * *
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IN WITNESS WHEREOF, the parties have executed and delivered this
Software Development Agreement as of the date first set forth above.
SELECTTECH INNOVATIVE INFORMATION GROUP, INC.
- ----------------------------- ----------------------------
Charan Singh Steven H. Gerber
Chairman President
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EXHIBIT A
INITIAL PROJECTS
1. AIM ACCS - AIM CENTRAL COMMUNICATION SERVER - THIS SOFTWARE PROJECT WILL
PROVIDE A MECHANISM TO MOVE DATA BETWEEN ANY NUMBER OF SITES USING AN
INSURANCE DATA WORKFLOW MODEL. THE SELECTTECH PROJECT MANAGERS WILL PROVIDE
THE CONSULTING PROGRAMMING STAFF ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS
THAT WOULD COMPOSE A SPECIFICATION ON AN AS NEEDED BASIS.
2. AIM QV - QUICKVIEW - THIS PRODUCT WILL BE A REPLACEMENT FOR MULTIDATA
ACCESS. THIS PRODUCT WILL MOVE PENDING DATA, COMMISSION DATA, INFORCE
DATA, POLICIES, ELECTRONIC APPLICATIONS AND OTHER INFORMATION, FROM A
CREATING SITE (PRIMARILY INSURANCE CARRIER FOR ALL EXCEPT THE ELECTRONIC
APPLICATION) TO ANY NUMBER OF OTHER SITES. THE MOVEMENT OF DATA WILL BE
MANAGED AND CONTROLLED BY THE ACCS. WITHIN THIS PROJECT THERE WILL BE
THREE FORMS OF THE QUICKVIEW SYSTEM. THESE ARE AGENCY QV, CARRIER QV AND
WEB QV. THE SELECTTECH PROJECT MANAGERS WILL PROVIDE THE CONSULTING
PROGRAMMING STAFF ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS THAT WOULD
COMPOSE A SPECIFICATION ON AN AS NEEDED BASIS.
3. AIM GA - GENERAL AGENCY SYSTEM - THE AIM GENERAL AGENCY SYSTEM WILL BE
BUILT TO BE A REPLACEMENT FOR THE MULTIDATA AMS SYSTEM. THIS SYSTEM WILL
RETAIN ALL THE FUNCTIONALITY OF THE AMS SYSTEM PLUS HAVE THE FEATURE
ADVANTAGES OF BUILDING THIS SYSTEM IN THE WINDOWS OPERATING ENVIRONMENT.
THE SELECTTECH PROJECT MANAGERS WILL PROVIDE THE CONSULTING PROGRAMMING
STAFF ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS THAT WOULD COMPOSE A
SPECIFICATION ON AN AS NEEDED BASIS.
4. AIM ITS - INSURANCE TELE-INTERVIEW SYSTEM -AIM ITS WILL BE A UNIQUE SYSTEM
THAT IS DESIGNED FOR CONDUCTING PART 1 AND PART 2 INSURANCE INTERVIEWS
THOUGHT A TELEMARKETING SERVICE. THE SELECTTECH PROJECT MANAGERS WILL
PROVIDE THE CONSULTING PROGRAMMING STAFF ADDITIONAL PRODUCT DESCRIPTIONS
AND ITEMS THAT WOULD COMPOSE A SPECIFICATION ON AN AS NEEDED BASIS.
5. AIM DMS - DIRECT MARKETING SYSTEM -AIM DMS IS A SYSTEM DESIGNED TO BE A
PLATFORM FROM WHICH TO CONDUCT TELEPHONE BASED SALES AND MARKETING OF
INSURANCE. THIS PRODUCT IS BASED ON EXISTING SELECTTECH DESIGNS. THE
SELECTTECH PROJECT MANAGERS WILL PROVIDE THE CONSULTING PROGRAMMING STAFF
ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS THAT WOULD COMPOSE A
SPECIFICATION ON AN AS NEEDED BASIS.
6. GENERAL WORK - IN ADDITION TO THE PROJECTS DESCRIBED ABOVE, IIG WILL ALSO
BE REQUESTED TO PROVIDE ADDITIONAL PROGRAMMING AND CONSULTING SERVICES FOR
THE CREATING OF UTILITIES AND OTHER PRODUCTS NECESSARY TO SUPPORT THE
AIMSUITE OF SOFTWARE PROJECTS. IN EACH CASE, A SELECTTECH PROJECT MANAGER
WILL PROVIDE THE CONSULTING PROGRAMMING STAFF ADDITIONAL PRODUCT
DESCRIPTIONS AND ITEMS THAT WOULD COMPOSE A SPECIFICATION ON AN AS NEEDED
BASIS.
<PAGE>
EXHIBIT B
PROJECT AND WORK APPROVAL FORM
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------------------
DATE: REQUESTOR:
<S> <C>
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
CHANGE REQUEST BY: DEPARTMENT:
- ------------------------------------------------------- -----------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
PROJECT/TASK NAME:
- -------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
CHANGE IMPACT:
LOW / / NORMAL / / HIGH / /
- ------------------------------------------------------- -----------------------------------------------------
DESCRIPTION OF PROJECT/WORK:
- -------------------------------------------------------------------------------------------------------------
PRODUCT / / SYSTEM SOFTWARE / / DATABASE / / OTHER / /
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
REASON FOR PROJECT/WORK:
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
EXPECTED START DATE: EXPECTED COMPLETION DATE:
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
NUMBER OF TOTAL STAFF REQUIRED:
- ------------------------------------------------------- -----------------------------------------------------
TYPE OF STAFF REQUIRED (TYPE/HOW MANY)
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- -------------------------------------------------------------------------------- ----------------------------
ACCOUNTING APPROVAL: DATE:
- -------------------------------------------------------------------------------- ----------------------------
- -------------------------------------------------------------------------------- ----------------------------
MANAGEMENT APPROVAL: DATE:
- -------------------------------------------------------------------------------- ----------------------------
</TABLE>
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MANAGEMENT APPROVAL DESIGNEES
1. MICHAEL L. FEROAH - EXECUTIVE VICE PRESIDENT
2. HERNAN E. REYES - VICE PRESIDENT OF OPERATIONS
3. STEVEN H. GERBER - PRESIDENT
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EXHIBIT C
PERFORMANCE TERMS AND CONDITIONS
By 10th day of each month, IIG shall prepare and e-mail to
SelectTech or its designee, the list of dedicated resources - managers,
programmers, designers, technical writes and other specialists - available
for SelectTech in the next three (3) months. The schedule of available
specialists shall to be sent by IIG for on-site support of installations and
integration. By the 20th day of the month, SelectTech shall review and e-mail
to IIG the schedule with necessary corrections in quantity of resources and
their assignments. If SelectTech does not provide any comments, the original
IIG's list will be deemed accepted.
If SelectTech requires more resources than IIG has proposed,
SelectTech shall specify the skills of necessary specialists and IIG shall
use best efforts to find, hire and train them. [SelectTech guarantees the use
of new hired specialists during at least six (6) months.]
If SelectTech overestimates necessary resources and does not provide
workload for them, IIG will charge SelectTech for these resources as if they
had been fully utilized.
Both parties will use best efforts to resolve resource problem in
shorter than the three (3) month notification term provided above in the case
of urgent need.
2) IIG will provide on-site specialists based on the following conditions:
- SelectTech will cover expenses on round-trip transportation to
the USA, per-diems, visa fees and any reasonable expenses. These
expenses will be invoiced separately.
- IIG will buy travel medical insurance for technical resources while
these resources are traveling in the US on assignment for
SelectTech or its assignees. Medical expenses during assignments in
the US will be billed to SelectTech with supporting documentation,
and SelectTech will pay up to $100 per month for medical insurance.
- SelectTech will cover expenses for accommodations in the USA,
transportation within the USA and telephone charges which are not
to exceed an agreed upon amount.
- SelectTech will provide accommodations, assuring that the residence
is in a safe place as determined by reasonable standards, with a
separate room for each specialist and access to an equipped kitchen
whenever possible.
- Should it be determined that the planned stay of any IIG specialist
be extended for business purposes, SelectTech will be responsible
for reasonable additional expenses which may occur as a result of
the extension.
- SelectTech will provide one free day and rental car with insurance,
if requested, one time per two (2) months for an on-site specialist
who has a valid drivers license and is legally able to drive in the
US. The on-site specialist will be responsible for gas and any
other costs associated with the rental (except rent and insurance
fees).
- SelectTech in no event may make any direct payments to IIG's
representatives visiting the USA, except as specified above.
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EXHIBIT D
SECURITY PROCEDURES
13
<PAGE>
EXHIBIT E
HOURLY RATES AND TERMS
Hourly rates for IIG's Specialists or services will be agreed to in
separate agreements.
1. IIG will provide SelectTech with Resource Tracking Sheets that
account for the tasks accomplished, hours worked, supervisor
sign-off and project assignment for each technical resource prior
to the acceptance of any invoicing by SelectTech.
2. For the purposes of this contract, a working month is considered
as 160 working hours. IIG will not charge SelectTech for IIG's
specialists on vacation or sickness.
3. Per Diems for IIG's representatives staying in the USA are fifty
($50) US dollars per each calendar day including any travel days
so long as those days are business related or travel to and from
sites. No Per Diem will be paid for personal vacations taken while
in the USA.
4. SelectTech will provide either a phone call or an allotment in
the amount of $100 per month which is to be used for each
specialist personal phone calls. SelectTech assumes no other
responsibility for personal phone charges and any amount spent
over the allotted amount is the responsibility of the
individual. Phone charges in excess of the allotted amount
which are not directly paid by the individual but charged to
SelectTech in any way, may be deducted from the amounts owed to
the individual in per diem or deducted from the amounts owed to
IIG. Should such charges occur, prior notice will be given to
IIG and a separate invoice presented.
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SOFTWARE DEVELOPMENT AGREEMENT
This Software Development Agreement (this "AGREEMENT") is entered
into as of ___________, 199__ between Software Technology International
("STI") and Innovative Information Group ("IIG").
RECITALS
A. Each party engages in research, development and consulting
activities in the field of software engineering;
B. STI has ongoing research, development and software engineering
projects for which it would like STI to provide software consulting services
(the "PROJECTS"; each a "PROJECT"), which are or shall be described in
Exhibit A, as attached hereto and as amended by the parties from time to time.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS. As used herein:
(a) The term "SOFTWARE" shall mean the results and products (interim
and/or final) of the consulting services performed by STI, its employees or
representatives, for IIG, whether pursuant to this Agreement or otherwise,
whether tangible or intangible, including, without limitation, each and every
invention, discovery, formula, trade secret, software program (including
without limitation, object source code, flow charts, algorithms and related
documentation), listing, routine, manual, specification, technique, product,
concept, know-how, or similar property, whether or not patentable or
copyrightable and whether or not embodied in any products, that are made,
developed, perfected, designed, conceived or first reduced to practice by
STI, either solely or jointly with others, in the course and scope of the
consulting services performed under this Agreement or otherwise, including
all of the above that has come into being prior to the date of this Agreement.
(b) The term "CONFIDENTIAL INFORMATION" shall mean all information
developed by or disclosed or made available to STI, its employees or
representatives, whether in connection with this Agreement or prior to the
date of this Agreement, which IIG protects against unrestricted disclosure to
others and information which is developed by or for STI specifically for IIG
under this Agreement, including all Proprietary Information.
(c) The term "PROPRIETARY INFORMATION" shall refer to any and all
information or material of a confidential, proprietary or secret nature which
is or may be applicable to, or related in any way to: (i) the past, present
or future business of IIG or of any corporation in control of IIG (a
"PARENT") or any majority-owned subsidiary (a "SUBSIDIARY") of IIG; (ii) the
research and development or investigations of IIG or any Parent or any
Subsidiary; or (iii) the business of any
<PAGE>
client, supplier or customer of IIG or of any Parent or Subsidiary.
Proprietary Information shall include, without limitation, trade secrets,
processes, formulas, data, know-how, improvements, inventions and techniques
relating to the Projects and information pertaining to customer lists,
marketing plans and strategies, personnel directories and files and
information concerning customers or vendors of IIG or any Parent or
Subsidiary.
2. ENGAGEMENT AND PERFORMANCE OF SERVICES.
(a) ENGAGEMENT. IIG hereby engages STI to perform software
engineering consulting services (the "SERVICES") in accordance with the terms
and conditions of this Agreement. This Agreement will govern all services
performed by STI for IIG, whether or not such services are Services as
defined in this Agreement.
(b) IDENTIFICATION OF PROJECTS AND SERVICES. EXHIBIT A contains a
description of the Projects for which STI initially may perform Services
under this Agreement. In addition, IIG may request specific consulting
services from STI for individual tasks relative to these projects or for
tasks which are not related to any specific project. IIG may also request
that STI participate or undertake other Projects. Project work or specific
consulting services will be done by providing STI with a detailed project
specification and Project/Work Approval Form that has been signed by an
authorized company representative. The Project/ Work Approval Forms and the
list of those who are authorized to approve projects are set forth as Exhibit
B (the "PROJECT/WORK APPROVAL FORM"). STI may accept or decline each
additional Project or assignment at its discretion. Compensation for
additional Projects shall be on the terms set forth in Section 3, unless the
parties agree otherwise.
(c) PERFORMANCE STANDARDS. STI shall perform the Services in
accordance with the specifications and project timetables and under the
direction of the IIG Project Manager. The IIG Project Manger will be
responsible for assigning tasks for each Project and will be the ultimate
evaluator of performance by a contract resource. Performance will be governed
by the terms and conditions set forth in Exhibit C.
(d) DELIVERY. STI or its designates will deliver all interim and
final software products, including source code and other related materials
developed under this Agreement (the "SOFTWARE"), by ensuring that all current
and active project sources and materials are available from the Source Code
Repository Site (Star Team) on no less than a weekly basis. When the Source
Code Repository Site (Star Team) is not available, source code may also be
delivered to IIG or its designees in a standard medium (disk, Zip Disk, CD,
etc.).
(e) ACCESS SECURITY. STI will comply with IIG's security procedures
for control and management of source code or proprietary information and
access to IIG's installation sites and computer equipment, as set forth in
Exhibit D, but shall not be responsible for any delays resulting from delays
in obtaining access.
(f) SUBCONTRACTING. With IIG's consent, STI may subcontract all or
part of the Services to be performed by STI for IIG, provided that all such
subcontractors must agree to and abide by terms and conditions substantially
similar to those contained in this Agreement. Further, STI shall require all
such subcontractors to agree that all of the work they perform for STI shall
be owned by IIG in accordance with the provisions of Section 6.
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<PAGE>
3. PAYMENT.
(a) COMPENSATION FOR SERVICES; PAYMENT. STI will be paid for the
Services on an hourly-rate basis, as specified in Exhibit E and any
Project/Work Approval Form. Hourly and other charges regarding a specific
Project may be changed by agreement of the parties upon 30 days notice. STI
will submit invoices for Services performed on a monthly basis, within 10
days of the end of each month. IIG will pay the amounts invoiced within 15
days of receipt of the invoice. In no event will IIG be obligated to pay STI
for any Services not specifically identified in Exhibit A or a Project/Work
Approval Form.
(b) REIMBURSEMENT OF EXPENSES. IIG will not be obligated to pay to
STI the amounts of any expenses incurred in connection with the Services or
otherwise unless such expenses are approved by IIG in advance. STI shall
report such agreed-upon expenses separately on an STI invoice to IIG.
(c) PURCHASES OF HARDWARE AND SOFTWARE. IIG may request that STI
purchase specific hardware or software necessary to perform the Services
under this Agreement. The cost of such purchase will be agreed upon in
advance by IIG and reported separately on an STI invoice to IIG. IIG will
reimburse STI the agreed-upon cost of any such purchase.
4. TERM AND TERMINATION. This Agreement will continue in effect
until terminated by either party in writing; provided that such termination
will be effective on the last day of the sixth full calendar month following
the date on which the terminating party gives the other party written notice
of its intent to terminate this Agreement. If termination is initiated by
STI, STI will continue to perform the Services under this Agreement until the
date of the effectiveness of the termination.
5. WARRANTIES. STI warrants to IIG as follows:
(a) STI will provide highly skilled programming staff which is
experienced in programming for the Microsoft Windows operating systems and
major Database Management systems using different programming languages, and
possesses the additional expertise needed to perform the Services. STI
acknowledges that IIG is relying upon the skill and expertise of STI for the
performance of the Services.
(b) The Software will be of original development by STI and will not
infringe upon or violate any patent, copyright, trade secret or other
property right of any third party. Third-party software will not be
incorporated in the Software without IIG's prior written consent. If IIG so
consents, it shall be IIG's responsibility to secure any necessary licenses
for such third-party software.
(c) STI will use its best efforts to make such additions,
modifications or adjustments to the Software as may be necessary to correct
in the shortest possible time any problems or defects in the Software or
related documentation discovered by STI or reported to STI by IIG. This
warranty shall be null and void in the event that IIG modifies any part of
the Software without the prior approval of STI. STI disclaims any warranties
of merchantability and fitness for a particular purpose.
3
<PAGE>
6. PROPERTY RIGHTS. All right, title and interest in and to the
Software, and all products derived from the Software, shall at all times be
and remain the sole and exclusive property of IIG. The Software and all
products developed by or for STI for IIG or derived therefrom, in the past or
under this Agreement, shall be deemed to be works made for hire. Any patents,
trademarks, copyrights or other intellectual property rights that may arise
in connection with any products developed by or for STI for IIG or derived
therefrom, in the past or under this Agreement, and all of the Software,
shall be in the name of, and, if necessary, will be assigned by or for STI
and its employees and contractors to, IIG. IIG shall own all Proprietary
Information related to all of the Projects, and all Proprietary Information
created by or for STI for or on behalf of IIG prior to the effective date
hereof.
(a) STI agrees to disclose promptly to IIG any and all Software and
Proprietary Information, whether or not patentable and whether or not reduced
to practice, conceived or learned by STI, its employees, contractors and
other agents, either alone or jointly with others, which relate in any manner
to the past, present or anticipated business, work, research or
investigations of STI on behalf of IIG or any Parent or Subsidiary.
(b) STI further agrees to assist IIG in every way (at IIG's expense)
to obtain and, from time to time, enforce patents on and other intellectual
property rights in the Software in any and all countries. To that end, by way
of illustration, but not limitation, STI shall cause its employees,
contractors and other agents to testify in any suit or other proceeding
involving any of the Software, execute all documents which IIG reasonably
determines to be necessary or convenient for use in applying for and
obtaining patents thereon and enforcing the same, and execute all necessary
assignments thereof to IIG or persons designated by it. STI's obligation to
assist IIG in obtaining and enforcing patents for the Software in any and all
countries shall continue beyond the termination of this Agreement.
(c) The parties acknowledge that all Software developed by or for
STI in connection with each Project is being created at the instance of IIG,
and further agree that such Software shall be deemed a work made for hire
under the United States copyright laws and that IIG shall have the unlimited
right to supervise and control STI and to direct STI as to all aspects of the
creation of such software. IIG may alter such Software, add to it, or combine
it with any other work or works, in its sole discretion. All original
materials submitted by STI to IIG as part of the Software or as part of the
process of creating the Software, including, but not limited to, source code,
object code, listings, printouts, documentation, notes, flow charts and
programming aides, shall be the property of IIG, whether or not IIG uses such
material. No rights in any of the foregoing are reserved to STI. In the event
that any such Software is determined by a court of competent jurisdiction not
to be a work made for hire under the United States copyright laws, this
Agreement shall operate as an irrevocable assignment of all original
materials produced by STI for IIG under this Agreement and of all copyrights
of every kind in such materials for the entire duration of the copyrights. No
rights are reserved to STI under this assignment. The parties agree that this
assignment and any acts of IIG undertaken for the purpose of securing,
maintaining, or preserving the copyright in such software pursuant to this
assignment, including recordation of this Agreement with the United States
Copyright Office, are only precautionary and shall not be considered in
determining the character of the software. STI further agrees to forebear
from asserting all moral rights or comparable rights that STI may have in
such materials, including without limitation, any right to prevent
modification of the materials, any rights to receive attribution of
authorship, or any right to control the materials.
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<PAGE>
(d) STI agrees to keep and maintain adequate and current records of
all Software and Proprietary Information made, conceived, developed or
perfected relating to the Projects, and that such records shall be available
to, and remain the sole property of, IIG at all times.
7. PROTECTION OF CONFIDENTIAL INFORMATION.
(a) CONFIDENTIALITY. STI agrees with respect to any Confidential
Information developed by or disclosed to it hereunder:
(i) to use such Confidential Information only for the
purposes contemplated by this Agreement;
(ii) to use the same methods and degree of care to prevent
disclosure of such Confidential Information as it uses to prevent disclosure
of its own proprietary and confidential information, including marking all
confidential information in written or tangible form as "Confidential" and
reducing all confidential oral communications to writing and so marking each
such writing; and
(iii) to return any Confidential Information in tangible
form to IIG at the request of IIG and to retain no copies or reproductions
thereof.
(b) LIMITATIONS. STI shall not be obligated to treat information as
Confidential Information if such information:
(i) is or becomes public knowledge without the fault of
STI; or
(ii) is or becomes rightfully available to STI without
confidential restriction from, or pursuant to a distinct development contract
with, a source not under IIG's control; or
(iii) is independently developed by STI without use of the
Confidential Information developed by or disclosed to STI hereunder;
provided, however, that the burden of proof of such independent development
shall be upon STI; or
(iv) is disclosed pursuant to court or government action;
provided, however, that STI gives IIG reasonable prior notice of disclosure
pursuant to such court or government action.
8. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE
TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES,
HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS AGREEMENT,
WHETHER OR NOT SUCH PARTY IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
9. NON-HIRE. Neither party, nor any of their successors and
assignees, will hire or enter into any contract with an employee or agent of
the other party without the prior consent of the other party. This provision
will remain in effect for one (1) year after the cancellation date of this
Agreement.
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10. ASSIGNMENT. This Agreement shall bind and inure to the benefit
of the parties' respective successors and assigns.
11. MISCELLANEOUS PROVISIONS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California without regard to conflict of laws
principles. In any action or proceeding to enforce rights under this
Agreement, the prevailing party shall be entitled to recover costs and
attorneys' fees.
(b) NOTICES. All notices under this Agreement shall be in writing
and delivered personally or by facsimile, commercial overnight courier, or
certified or registered mail, return receipt requested, to a party at its
respective address set forth below:
IIG:
IIG
595 Market St., 6th Floor
San Francisco, California 94105
STI:
Innovative Information Group, Inc.
6481 Oneida Court,
Sun Valley, Nevada 89433-6654
(c) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter herein and
merges and supersedes all prior discussions between them. No modification of
or amendment to this Agreement, nor any waiver of any rights under this
Agreement, shall be effective unless in writing signed by the party against
whom it is to be enforced. Nothing express or implied in this Agreement is
intended to confer, nor shall anything herein confer, upon any person other
than the parties and the respective successors or permitted assigns of the
parties, any rights, remedies, obligations or liabilities whatsoever.
(d) SEVERABILITY. If the application of any provision or provisions
of this Agreement to any particular facts or circumstances shall be held to
be invalid or unenforceable by any court of competent jurisdiction, then: (i)
the validity and enforceability of such provision or provisions as applied to
any other particular facts or circumstances and the validity of other
provisions of this Agreement shall not in any way be affected or impaired
thereby; and (ii) such provision or provisions shall be reformed without
further action by the parties hereto and only to the extent necessary to make
such provision or provisions valid and enforceable when applied to such
particular facts and circumstances.
(e) INDEPENDENT CONTRACTORS. The parties are independent
contractors, and nothing in this Agreement shall be construed to create a
joint venture or partnership.
(f) FORCE MAJEURE. A party will not be deemed to have materially
breached this Agreement to the extent that performance of its obligations or
attempts to cure any breach are delayed or prevented by reason of an act of
God, fire, natural disaster, accident, act of
6
<PAGE>
government, shortage of equipment, materials or supplies beyond the
reasonable control of such party, or any other cause beyond the reasonable
control of that party (a "FORCE MAJEURE EVENT"); provided that the party
whose performance is delayed or prevented promptly notifies the other party
of the nature and duration of the force majeure event.
(g) COMPLIANCE WITH LAWS. Each party shall comply with all laws and
regulations applicable to it.
(h) DISPUTES AND REMEDIES. The parties agree to use their best
efforts to resolve any dispute that may arise under the Agreement through
good faith negotiations. No party shall commence any arbitration or
litigation in relation to this Agreement unless it has first invited the
chief executive or other responsible executive officer of the other party to
meet with its own chief executive or other responsible executive officer for
the purpose of endeavoring to resolve the dispute on mutually acceptable
terms.
Any dispute arising under the Agreement that cannot be settled by
negotiation between the parties shall be submitted to arbitration under the
rules of the [American Arbitration Association]. The decision of the
arbitrator shall be final. The parties shall continue to perform their
obligations under the Agreement as far as possible as if no dispute had
arisen pending the final settlement of any matter referred to arbitration.
Nothing in this clause shall preclude either party from taking steps
to seek immediate equitable relief before any court of competent
jurisdiction, if required.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one and the same
instrument. For purposes hereof, a facsimile copy of this Agreement,
including the signature pages hereto, shall be deemed to be an original.
* * *
7
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IN WITNESS WHEREOF, the parties have executed and delivered this
Software Development Agreement as of the date first set forth above.
INNOVATIVE INFORMATION GROUP, INC. SOFTWARE TECHNOLOGY INTERNATIONAL
- ------------------------------- ----------------------------
Steven H. Gerber Ivan Kraus Ko
President Director
Date: Date:
------------------------- ----------------------
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EXHIBIT A
INITIAL PROJECTS
1. AIM ACCS - AIM CENTRAL COMMUNICATION SERVER - THIS SOFTWARE PROJECT WILL
PROVIDE A MECHANISM TO MOVE DATA BETWEEN ANY NUMBER OF SITES USING AN
INSURANCE DATA WORKFLOW MODEL. THE IIG PROJECT MANAGERS WILL PROVIDE THE
CONSULTING PROGRAMMING STAFF ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS THAT
WOULD COMPOSE A SPECIFICATION ON AN AS NEEDED BASIS.
2. AIM QV - QUICKVIEW - THIS PRODUCT WILL BE A REPLACEMENT FOR MULTIDATA
ACCESS. THIS PRODUCT WILL MOVE PENDING DATA, COMMISSION DATA, INFORCE
DATA, POLICIES, ELECTRONIC APPLICATIONS AND OTHER INFORMATION, FROM A
CREATING SITE (PRIMARILY INSURANCE CARRIER FOR ALL EXCEPT THE ELECTRONIC
APPLICATION) TO ANY NUMBER OF OTHER SITES. THE MOVEMENT OF DATA WILL BE
MANAGED AND CONTROLLED BY THE ACCS. WITHIN THIS PROJECT THERE WILL BE
THREE FORMS OF THE QUICKVIEW SYSTEM. THESE ARE AGENCY QV, CARRIER QV AND
WEB QV. THE IIG PROJECT MANAGERS WILL PROVIDE THE CONSULTING PROGRAMMING
STAFF ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS THAT WOULD COMPOSE A
SPECIFICATION ON AN AS NEEDED BASIS.
3. AIM GA - GENERAL AGENCY SYSTEM - THE AIM GENERAL AGENCY SYSTEM WILL BE
BUILT TO BE A REPLACEMENT FOR THE MULTIDATA AMS SYSTEM. THIS SYSTEM WILL
RETAIN ALL THE FUNCTIONALITY OF THE AMS SYSTEM PLUS HAVE THE FEATURE
ADVANTAGES OF BUILDING THIS SYSTEM IN THE WINDOWS OPERATING ENVIRONMENT.
THE IIG PROJECT MANAGERS WILL PROVIDE THE CONSULTING PROGRAMMING STAFF
ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS THAT WOULD COMPOSE A
SPECIFICATION ON AN AS NEEDED BASIS.
4. AIM ITS - INSURANCE TELE-INTERVIEW SYSTEM -AIM ITS WILL BE A UNIQUE SYSTEM
THAT IS DESIGNED FOR CONDUCTING PART 1 AND PART 2 INSURANCE INTERVIEWS
THOUGHT A TELEMARKETING SERVICE. THE IIG PROJECT MANAGERS WILL PROVIDE THE
CONSULTING PROGRAMMING STAFF ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS THAT
WOULD COMPOSE A SPECIFICATION ON AN AS NEEDED BASIS.
5. AIM DMS - DIRECT MARKETING SYSTEM -AIM DMS IS A SYSTEM DESIGNED TO BE A
PLATFORM FROM WHICH TO CONDUCT TELEPHONE BASED SALES AND MARKETING OF
INSURANCE. THIS PRODUCT IS BASED ON EXISTING IIG DESIGNS. THE IIG PROJECT
MANAGERS WILL PROVIDE THE CONSULTING PROGRAMMING STAFF ADDITIONAL PRODUCT
DESCRIPTIONS AND ITEMS THAT WOULD COMPOSE A SPECIFICATION ON AN AS NEEDED
BASIS.
6. GENERAL WORK - IN ADDITION TO THE PROJECTS DESCRIBED ABOVE, STI WILL ALSO
BE REQUESTED TO PROVIDE ADDITIONAL PROGRAMMING AND CONSULTING SERVICES FOR
THE CREATING OF UTILITIES AND OTHER PRODUCTS NECESSARY TO SUPPORT THE
AIMSUITE OF SOFTWARE PROJECTS. IN EACH CASE, A IIG PROJECT MANAGER WILL
PROVIDE THE CONSULTING PROGRAMMING STAFF ADDITIONAL PRODUCT DESCRIPTIONS
AND ITEMS THAT WOULD COMPOSE A SPECIFICATION ON AN AS NEEDED BASIS.
<PAGE>
EXHIBIT B
PROJECT AND WORK APPROVAL FORM
<TABLE>
<CAPTION>
- ------------------------------------------------------- -----------------------------------------------------
DATE: REQUESTOR:
<S> <C>
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
CHANGE REQUEST BY: DEPARTMENT:
- ------------------------------------------------------- -----------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
PROJECT/TASK NAME:
- -------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
CHANGE IMPACT:
LOW / / NORMAL / / HIGH / /
- ------------------------------------------------------- -----------------------------------------------------
DESCRIPTION OF PROJECT/WORK:
- -------------------------------------------------------------------------------------------------------------
PRODUCT / / SYSTEM SOFTWARE / / DATABASE / / OTHER / /
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
REASON FOR PROJECT/WORK:
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
EXPECTED START DATE: EXPECTED COMPLETION DATE:
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
NUMBER OF TOTAL STAFF REQUIRED:
- ------------------------------------------------------- -----------------------------------------------------
TYPE OF STAFF REQUIRED (TYPE/HOW MANY)
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- -------------------------------------------------------------------------------- ----------------------------
ACCOUNTING APPROVAL: DATE:
- -------------------------------------------------------------------------------- ----------------------------
- -------------------------------------------------------------------------------- ----------------------------
MANAGEMENT APPROVAL: DATE:
- -------------------------------------------------------------------------------- ----------------------------
</TABLE>
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EXHIBIT C
PERFORMANCE TERMS AND CONDITIONS
By 10th day of each month, STI shall prepare and e-mail to IIG or
its designee, the list of dedicated resources - managers, programmers,
designers, technical writes and other specialists - available for IIG in the
next three (3) months. The schedule of available specialists shall to be sent
by STI for on-site support of installations and integration. By the 20th day
of the month, IIG shall review and e-mail to STI the schedule with necessary
corrections in quantity of resources and their assignments. If IIG does not
provide any comments, the original STI's list will be deemed accepted.
If IIG requires more resources than STI has proposed, IIG shall
specify the skills of necessary specialists and STI shall use best efforts to
find, hire and train them. [IIG guarantees the use of new hired specialists
during at least six (6) months.]
If IIG overestimates necessary resources and does not provide
workload for them, STI will charge IIG for these resources as if they had
been fully utilized.
Both parties will use best efforts to resolve resource problem in
shorter than the three (3) month notification term provided above in the case
of urgent need.
2) STI will provide on-site specialists based on the following
conditions:
- IIG will cover expenses on round-trip transportation to the USA,
per-diems, visa fees and any reasonable expenses. These expenses
will be invoiced separately.
- STI will buy travel medical insurance for technical resources while
these resources are traveling in the US on assignment for IIG or
its assignees. Medical expenses during assignments in the US will
be billed to IIG with supporting documentation, and IIG will pay up
to $100 per month for medical insurance.
- IIG will cover expenses for accommodations in the USA,
transportation within the USA and telephone charges which are not
to exceed an agreed upon amount.
- IIG will provide accommodations, assuring that the residence is in
a safe place as determined by reasonable standards, with a separate
room for each specialist and access to an equipped kitchen whenever
possible.
- Should it be determined that the planned stay of any STI specialist
be extended for business purposes, IIG will be responsible for
reasonable additional expenses which may occur as a result of the
extension.
- IIG will provide one free day and rental car with insurance, if
requested, one time per two (2) months for an on-site specialist
who has a valid drivers license and is legally able to drive in the
US. The on-site specialist will be responsible for gas and any
other costs associated with the rental (except rent and insurance
fees).
- IIG in no event may make any direct payments to STI's
representatives visiting the USA, except as specified above.
11
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EXHIBIT D
SECURITY PROCEDURES
12
<PAGE>
EXHIBIT E
HOURLY RATES AND TERMS
Hourly rates for STI's Specialists or services will be agreed to in
separate agreements.
1. STI will provide IIG with Resource Tracking Sheets that account
for the tasks accomplished, hours worked, supervisor sign-off and
project assignment for each technical resource prior to the
acceptance of any invoicing by IIG.
2. For the purposes of this contract, a working month is considered
as 160 working hours. STI will not charge IIG for STI's
specialists on vacation or sickness.
3. Per Diems for STI's representatives staying in the USA are fifty
($50) US dollars per each calendar day including any travel days
so long as those days are business related or travel to and from
sites. No Per Diem will be paid for personal vacations taken while
in the USA.
4. IIG will provide either a phone call or an allotment in the
amount of $100 per month which is to be used for each specialist
personal phone calls. IIG assumes no other responsibility for
personal phone charges and any amount spent over the allotted
amount is the responsibility of the individual. Phone charges
in excess of the allotted amount which are not directly paid by
the individual but charged to IIG in any way, may be deducted
from the amounts owed to the individual in per diem or deducted
from the amounts owed to STI. Should such charges occur, prior
notice will be given to STI and a separate invoice presented.
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SOFTWARE DEVELOPMENT AGREEMENT
This Software Development Agreement (this "AGREEMENT") is entered
into as of February 24, 1997 between Software Technology International
("STI") and Client Server Programs Ltd. ("CSP").
RECITALS
A. Each party engages in research, development and consulting
activities in the field of software engineering.
B. STI has ongoing research, development and software engineering
projects for which it would like CSP to provide software consulting services
(the "PROJECTS"; each a "PROJECT"), which are or shall be described in
Exhibit A, as attached hereto and as amended by the parties from time to time.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS. As used herein:
(a) The term "SOFTWARE" shall mean the results and products (interim
and/or final) of the consulting services performed by CSP, its employees or
representatives, for STI, whether pursuant to this Agreement or otherwise,
whether tangible or intangible, including, without limitation, each and every
invention, discovery, formula, trade secret, software program (including
without limitation, object source code, flow charts, algorithms and related
documentation), listing, routine, manual, specification, technique, product,
concept, know-how, or similar property, whether or not patentable or
copyrightable and whether or not embodied in any products, that are made,
developed, perfected, designed, conceived or first reduced to practice by
CSP, either solely or jointly with others, in the course and scope of the
consulting services performed under this Agreement or otherwise, including
all of the above that has come into being prior to the date of this Agreement.
(b) The term "CONFIDENTIAL INFORMATION" shall mean all information
developed by or disclosed or made available to CSP, its employees or
representatives, whether in connection with this Agreement or prior to the
date of this Agreement, which STI protects against unrestricted disclosure to
others and information which is developed by or for CSP specifically for STI
under this Agreement, including all Proprietary Information.
(c) The term "PROPRIETARY INFORMATION" shall refer to any and all
information or material of a confidential, proprietary or secret nature which
is or may be applicable to, or related in any way to: (i) the past, present
or future business of STI or of any corporation in control of STI (a
"PARENT") or any majority-owned subsidiary (a "SUBSIDIARY") of STI; (ii) the
research and development or investigations of STI or any Parent or any
Subsidiary; or (iii) the business of any client, supplier or customer of STI
or of any Parent or Subsidiary. Proprietary Information shall include,
without limitation, trade secrets, processes, formulas, data, know-how,
improvements,
<PAGE>
inventions and techniques relating to the Projects and information pertaining
to customer lists, marketing plans and strategies, personnel directories and
files and information concerning customers or vendors of STI or any Parent or
Subsidiary.
2. ENGAGEMENT AND PERFORMANCE OF SERVICES.
(a) ENGAGEMENT. STI hereby engages CSP to perform software
engineering consulting services (the "SERVICES") in accordance with the terms
and conditions of this Agreement. This Agreement will govern all services
performed by CSP for STI, whether or not such services are Services as
defined in this Agreement.
(b) IDENTIFICATION OF PROJECTS AND SERVICES. EXHIBIT A contains a
description of the Projects for which CSP initially may perform Services
under this Agreement. In addition, STI may request specific consulting
services from CSP for individual tasks relative to these projects or for
tasks which are not related to any specific project. STI may also request
that CSP participate or undertake other Projects. Project work or specific
consulting services will be done by providing CSP with a detailed project
specification and Project/Work Approval Form that has been signed by an
authorized company representative. The Project/ Work Approval Forms and the
list of those who are authorized to approve projects are set forth as Exhibit
B (the "PROJECT/WORK APPROVAL FORM"). CSP may accept or decline each
additional Project or assignment at its discretion. Compensation for
additional Projects shall be on the terms set forth in Section 3, unless the
parties agree otherwise.
(c) PERFORMANCE STANDARDS. CSP shall perform the Services in
accordance with the specifications and project timetables and under the
direction of the STI Project Manager. The STI Project Manger will be
responsible for assigning tasks for each Project and will be the ultimate
evaluator of performance by a contract resource. Performance will be governed
by the terms and conditions set forth in Exhibit C.
(d) DELIVERY. CSP or its designates will deliver all interim and
final software products, including source code and other related materials
developed under this Agreement (the "SOFTWARE"), by ensuring that all current
and active project sources and materials are available from the Source Code
Repository Site (Star Team) on no less than a weekly basis. When the Source
Code Repository Site (Star Team) is not available, or otherwise at STI's
request, source code shall be delivered to STI or its designees in a standard
medium (disk, Zip Disk, CD, etc.).
(e) ACCESS SECURITY. CSP will, and will ensure that each of its
employees, contractors and agent will, comply with STI's security procedures
for control and management of source code or proprietary information and
access to STI's installation sites and computer equipment, as set forth in
Exhibit D, but shall not be responsible for any delays resulting from delays
in obtaining access.
(f) SUBCONTRACTING. With STI's consent, CSP may subcontract all or
part of the Services to be performed by CSP for STI, provided that all such
subcontractors must agree to and abide by terms and conditions substantially
similar to those contained in this Agreement. Further, CSP shall require all
such subcontractors to agree in writing that all of the work they perform for
CSP shall be owned by STI in accordance with the provisions of Section 6.
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(g) ACKNOWLEDGMENT OF PROPERTY RIGHTS. CSP shall require each of its
employees, contractors and agents who perform any part of the Services to
agree in writing that all of the Services he, she or it performs for CSP
shall be owned by STI in accordance with the provisions of Section 6.
3. PAYMENT.
(a) COMPENSATION FOR SERVICES; PAYMENT.
(i) CSP will be paid for the Services on an hourly-rate
basis, as specified in Exhibit E and any Project/Work Approval Form. Hourly
and other charges regarding a specific Project may be changed by agreement of
the parties upon 30 days notice. In no event will STI be obligated to pay CSP
for any Services not specifically identified in Exhibit A or a Project/Work
Approval Form.
(ii) CSP will submit invoices for Services performed on a
monthly basis, within 10 days of the end of each month. STI must notify CSP
within 5 (five) working days after the date it receives the invoice of any
disagreement with regard to the amount invoiced. If no notification of such
disagreement is received from STI during such period, the invoice will be
deemed accepted and shall be paid. STI will pay the amounts invoiced within
15 days of its receipt of the invoice. If an invoice is not paid on time, STI
will pay to CSP a late payment fee of 0.1% of the invoiced amount per day.
CSP will separately state the amount of any late payment fee on its next
invoice.
(b) REIMBURSEMENT OF EXPENSES. STI will not be obligated to pay to
CSP the amounts of any expenses incurred in connection with the Services or
otherwise unless such expenses are approved by STI in advance. CSP shall
report such agreed-upon expenses separately on a CSP invoice to STI.
(c) PURCHASES OF HARDWARE AND SOFTWARE. STI may request that CSP
purchase specific hardware or software necessary to perform the Services
under this Agreement. The cost of such purchase will be agreed upon in
advance by STI and reported separately on an CSP invoice to STI. STI will
reimburse CSP the agreed-upon cost of any such purchase.
4. TERM AND TERMINATION. This Agreement will continue in effect
until terminated by either party in writing; provided that such termination
will be effective on the last day of the sixth full calendar month following
the date on which the terminating party gives the other party written notice
of its intent to terminate this Agreement. If termination is initiated by
CSP, CSP will continue to perform the Services under this Agreement until the
date of the effectiveness of the termination, but monthly payments to CSP
will not be less than 50% of average amount paid for each of the three months
prior to CSP's notification of cancellation.
5. WARRANTIES. CSP warrants to STI as follows:
(a) CSP will provide highly skilled programming staff which is
experienced in programming for the Microsoft Windows operating systems and
major Database Management systems using different programming languages, and
possesses the additional expertise needed to perform the Services. CSP
acknowledges that STI is relying upon the skill and expertise of CSP for the
performance of the Services.
3
<PAGE>
(b) The Software will be of original development by CSP and will not
infringe upon or violate any patent, copyright, trade secret or other
property right of any third party. Third-party software will not be
incorporated in the Software without STI's prior written consent. If STI so
consents, it shall be STI's responsibility to secure any necessary licenses
for such third-party software.
(c) CSP will use its best efforts to make such additions,
modifications or adjustments to the Software as may be necessary to correct
in the shortest possible time any problems or defects in the Software or
related documentation discovered by CSP or reported to CSP by STI. This
warranty shall be null and void in the event that STI modifies any part of
the Software without the prior approval of CSP. CSP disclaims any warranties
of merchantability and fitness for a particular purpose.
6. PROPERTY RIGHTS. All right, title and interest in and to the
Software, and all products derived from the Software, shall at all times be
and remain the sole and exclusive property of STI. The Software and all
products developed by or for CSP for STI or derived therefrom, in the past or
under this Agreement, shall be deemed to be works made for hire. Any patents,
trademarks, copyrights or other intellectual property rights that may arise
in connection with any products developed by or for CSP for STI or derived
therefrom, in the past or under this Agreement, and all of the Software,
shall be in the name of, and, if necessary, will be assigned by or for CSP
and its employees and contractors to, STI. STI shall own all Proprietary
Information related to all of the Projects, and all Proprietary Information
created by or for CSP for or on behalf of STI prior to the effective date
hereof.
(a) CSP agrees to disclose promptly to STI any and all Software and
Proprietary Information, whether or not patentable and whether or not reduced
to practice, conceived or learned by CSP, its employees, contractors and
other agents, either alone or jointly with others, which relate in any manner
to the past, present or anticipated business, work, research or
investigations of CSP on behalf of STI or any Parent or Subsidiary.
(b) CSP further agrees to assist STI in every way (at STI's expense)
to obtain and, from time to time, enforce patents on and other intellectual
property rights in the Software in any and all countries. To that end, by way
of illustration, but not limitation, CSP shall cause its employees,
contractors and other agents to testify in any suit or other proceeding
involving any of the Software, execute all documents which STI reasonably
determines to be necessary or convenient for use in applying for and
obtaining patents thereon and enforcing the same, and execute all necessary
assignments thereof to STI or persons designated by it. CSP's obligation to
assist STI in obtaining and enforcing patents for the Software in any and all
countries shall continue beyond the termination of this Agreement.
(c) The parties acknowledge that all Software developed by or for
CSP in connection with each Project has been or is being created at the
instance of STI, and further agree that such Software shall be deemed a work
made for hire under the United States copyright laws and that STI shall have
the unlimited right to supervise and control CSP and to direct CSP as to all
aspects of the creation of such software. STI may alter such Software, add to
it, or combine it with any other work or works, in its sole discretion. All
original materials submitted by CSP to STI as part of the Software or as part
of the process of creating the Software, including, but not limited to,
source code, object code, listings, printouts, documentation, notes, flow
charts and programming aides, shall be the property of STI, whether or not
STI uses such material. No
4
<PAGE>
rights in any of the foregoing are reserved to CSP. In the event that any
such Software is determined by a court of competent jurisdiction not to be a
work made for hire under the United States copyright laws, this Agreement
shall operate as an irrevocable assignment of all original materials produced
by CSP for STI under this Agreement and of all copyrights of every kind in
such materials for the entire duration of the copyrights. No rights are
reserved to CSP under this assignment. The parties agree that this assignment
and any acts of STI undertaken for the purpose of securing, maintaining, or
preserving the copyright in such software pursuant to this assignment,
including recordation of this Agreement with the United States Copyright
Office, are only precautionary and shall not be considered in determining the
character of the software. CSP further agrees to forebear from asserting all
moral rights or comparable rights that CSP may have in such materials,
including without limitation, any right to prevent modification of the
materials, any rights to receive attribution of authorship, or any right to
control the materials.
(d) CSP agrees to keep and maintain adequate and current records of
all Software and Proprietary Information made, conceived, developed or
perfected relating to the Projects, and that such records shall be available
to, and remain the sole property of, STI at all times.
7. PROTECTION OF CONFIDENTIAL INFORMATION.
(a) CONFIDENTIALITY. CSP agrees with respect to any Confidential
Information developed by or disclosed to it hereunder:
(i) to use such Confidential Information only for the
purposes contemplated by this Agreement;
(ii) to use the same methods and degree of care to prevent
disclosure of such Confidential Information as it uses to prevent disclosure
of its own proprietary and confidential information, including marking all
confidential information in written or tangible form as "Confidential" and
reducing all confidential oral communications to writing and so marking each
such writing; and
(iii) to return any Confidential Information in tangible
form to STI at the request of STI and to retain no copies or reproductions
thereof.
(b) LIMITATIONS. CSP shall not be obligated to treat information as
Confidential Information if such information:
(i) is or becomes public knowledge without the fault of
CSP; or
(ii) is or becomes rightfully available to CSP without
confidential restriction from, or pursuant to a distinct development contract
with, a source not under STI's control; or
(iii) is independently developed by CSP without use of the
Confidential Information developed by or disclosed to CSP hereunder;
provided, however, that the burden of proof of such independent development
shall be upon CSP; or
(iv) is disclosed pursuant to court or government action;
provided, however, that CSP gives STI reasonable prior notice of disclosure
pursuant to such court or government action.
5
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8. LIMITATION OF LIABILITY. IN NO EVENT SHALL EITHER PARTY BE LIABLE
TO THE OTHER FOR ANY SPECIAL, CONSEQUENTIAL, INCIDENTAL, OR INDIRECT DAMAGES,
HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY, ARISING OUT OF THIS AGREEMENT,
WHETHER OR NOT SUCH PARTY IS ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, AND
NOTWITHSTANDING ANY FAILURE OF ESSENTIAL PURPOSE OF ANY LIMITED REMEDY.
9. EMPLOYMENT ISSUES.
(a) NON-HIRE. Neither party, nor any of their successors
and assignees, will hire or enter into any contract with an employee or agent
of the other party without the prior consent of the other party. This
provision will remain in effect for one (1) year after the cancellation date
of this Agreement.
(b) FINDER'S FEE. CSP will provide STI with assistance in
finding and training specialists in Belarus for employment by STI or its
associates. For each specialist that CSP finds and trains, STI will pay to
CSP $5,000, in two equal payments: $2,500 upon STI's hiring the specialist,
and $2,500 180 days after the date of such hiring. [PLEASE VERIFY THAT THIS
PROVISION IS CORRECT AS DRAFTED.] CSP will provide STI with all materials
proving the qualification and education of a specialist. At STI's request,
CSP will arrange for an interview of the specialist candidate with STI, at
STI's expense.
10. ASSIGNMENT. This Agreement shall bind and inure to the benefit
of the parties' respective successors and assigns.
11. MISCELLANEOUS PROVISIONS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California without regard to conflict of laws
principles. In any action or proceeding to enforce rights under this
Agreement, the prevailing party shall be entitled to recover costs and
attorneys' fees.
(b) NOTICES. All notices under this Agreement shall be in writing
and delivered personally or by facsimile, commercial overnight courier, or
certified or registered mail, return receipt requested, to a party at its
respective address set forth below:
STI:
STI
Prague, Czech Republic
CSP:
-------------------------
-------------------------
-------------------------
(c) ENTIRE AGREEMENT. This Agreement sets forth the entire agreement
and understanding of the parties relating to the subject matter herein and
merges and supersedes all prior discussions between them. No modification of
or amendment to this Agreement, nor any waiver of any rights under this
Agreement, shall be effective unless in writing signed by the party
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against whom it is to be enforced. Nothing express or implied in this
Agreement is intended to confer, nor shall anything herein confer, upon any
person other than the parties and the respective successors or permitted
assigns of the parties, any rights, remedies, obligations or liabilities
whatsoever.
(d) SEVERABILITY. If the application of any provision or provisions
of this Agreement to any particular facts or circumstances shall be held to
be invalid or unenforceable by any court of competent jurisdiction, then: (i)
the validity and enforceability of such provision or provisions as applied to
any other particular facts or circumstances and the validity of other
provisions of this Agreement shall not in any way be affected or impaired
thereby; and (ii) such provision or provisions shall be reformed without
further action by the parties hereto and only to the extent necessary to make
such provision or provisions valid and enforceable when applied to such
particular facts and circumstances.
(e) INDEPENDENT CONTRACTORS. The parties are independent
contractors, and nothing in this Agreement shall be construed to create a
joint venture or partnership.
(f) FORCE MAJEURE. A party will not be deemed to have materially
breached this Agreement to the extent that performance of its obligations or
attempts to cure any breach are delayed or prevented by reason of an act of
God, fire, natural disaster, accident, act of government, shortage of
equipment, materials or supplies beyond the reasonable control of such party,
or any other cause beyond the reasonable control of that party (a "FORCE
MAJEURE EVENT"); provided that the party whose performance is delayed or
prevented promptly notifies the other party of the nature and duration of the
force majeure event.
(g) COMPLIANCE WITH LAWS. Each party shall comply with all laws and
regulations applicable to it.
(h) DISPUTES AND REMEDIES. The parties agree to use their best
efforts to resolve any dispute that may arise under the Agreement through
good faith negotiations. No party shall commence any arbitration or
litigation in relation to this Agreement unless it has first invited the
chief executive or other responsible executive officer of the other party to
meet with its own chief executive or other responsible executive officer for
the purpose of endeavoring to resolve the dispute on mutually acceptable
terms.
Any dispute arising under the Agreement that cannot be settled by
negotiation between the parties shall be submitted to arbitration under the
rules of the [American Arbitration Association]. The decision of the
arbitrator shall be final. The parties shall continue to perform their
obligations under the Agreement as far as possible as if no dispute had
arisen pending the final settlement of any matter referred to arbitration.
Nothing in this clause shall preclude either party from taking steps
to seek immediate equitable relief before any court of competent
jurisdiction, if required.
(i) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one and the same
instrument. For purposes hereof, a facsimile copy of this Agreement,
including the signature pages hereto, shall be deemed to be an original.
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* * *
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IN WITNESS WHEREOF, the parties have executed and delivered this
Software Development Agreement as of the date first set forth above.
CLIENT SERVER PROGRAMS LTD. SOFTWARE TECHNOLOGY INTERNATIONAL
- ----------------------------- ----------------------------
Ivan Kraus Ko
Director
Date: Date:
----------------------- -----------------------
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EXHIBIT A
INITIAL PROJECTS
1. AIM ACCS - AIM CENTRAL COMMUNICATION SERVER - THIS SOFTWARE PROJECT WILL
PROVIDE A MECHANISM TO MOVE DATA BETWEEN ANY NUMBER OF SITES USING AN
INSURANCE DATA WORKFLOW MODEL. THE STI PROJECT MANAGERS WILL PROVIDE THE
CONSULTING PROGRAMMING STAFF ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS THAT
WOULD COMPOSE A SPECIFICATION ON AN AS NEEDED BASIS.
2. AIM QV - QUICKVIEW - THIS PRODUCT WILL BE A REPLACEMENT FOR MULTIDATA
ACCESS. THIS PRODUCT WILL MOVE PENDING DATA, COMMISSION DATA, INFORCE
DATA, POLICIES, ELECTRONIC APPLICATIONS AND OTHER INFORMATION, FROM A
CREATING SITE (PRIMARILY INSURANCE CARRIER FOR ALL EXCEPT THE ELECTRONIC
APPLICATION) TO ANY NUMBER OF OTHER SITES. THE MOVEMENT OF DATA WILL BE
MANAGED AND CONTROLLED BY THE ACCS. WITHIN THIS PROJECT THERE WILL BE
THREE FORMS OF THE QUICKVIEW SYSTEM. THESE ARE AGENCY QV, CARRIER QV AND
WEB QV. THE STI PROJECT MANAGERS WILL PROVIDE THE CONSULTING PROGRAMMING
STAFF ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS THAT WOULD COMPOSE A
SPECIFICATION ON AN AS NEEDED BASIS.
3. AIM GA - GENERAL AGENCY SYSTEM - THE AIM GENERAL AGENCY SYSTEM WILL BE
BUILT TO BE A REPLACEMENT FOR THE MULTIDATA AMS SYSTEM. THIS SYSTEM WILL
RETAIN ALL THE FUNCTIONALITY OF THE AMS SYSTEM PLUS HAVE THE FEATURE
ADVANTAGES OF BUILDING THIS SYSTEM IN THE WINDOWS OPERATING ENVIRONMENT.
THE STI PROJECT MANAGERS WILL PROVIDE THE CONSULTING PROGRAMMING STAFF
ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS THAT WOULD COMPOSE A
SPECIFICATION ON AN AS NEEDED BASIS.
4. AIM ITS - INSURANCE TELE-INTERVIEW SYSTEM -AIM ITS WILL BE A UNIQUE SYSTEM
THAT IS DESIGNED FOR CONDUCTING PART 1 AND PART 2 INSURANCE INTERVIEWS
THOUGHT A TELEMARKETING SERVICE. THE STI PROJECT MANAGERS WILL PROVIDE THE
CONSULTING PROGRAMMING STAFF ADDITIONAL PRODUCT DESCRIPTIONS AND ITEMS THAT
WOULD COMPOSE A SPECIFICATION ON AN AS NEEDED BASIS.
5. AIM DMS - DIRECT MARKETING SYSTEM -AIM DMS IS A SYSTEM DESIGNED TO BE A
PLATFORM FROM WHICH TO CONDUCT TELEPHONE BASED SALES AND MARKETING OF
INSURANCE. THIS PRODUCT IS BASED ON EXISTING STI DESIGNS. THE STI PROJECT
MANAGERS WILL PROVIDE THE CONSULTING PROGRAMMING STAFF ADDITIONAL PRODUCT
DESCRIPTIONS AND ITEMS THAT WOULD COMPOSE A SPECIFICATION ON AN AS NEEDED
BASIS.
6. GENERAL WORK - IN ADDITION TO THE PROJECTS DESCRIBED ABOVE, CSP WILL ALSO
BE REQUESTED TO PROVIDE ADDITIONAL PROGRAMMING AND CONSULTING SERVICES FOR
THE CREATING OF UTILITIES AND OTHER PRODUCTS NECESSARY TO SUPPORT THE
AIMSUITE OF SOFTWARE PROJECTS. IN EACH CASE, A STI PROJECT MANAGER WILL
PROVIDE THE CONSULTING PROGRAMMING STAFF ADDITIONAL PRODUCT DESCRIPTIONS
AND ITEMS THAT WOULD COMPOSE A SPECIFICATION ON AN AS NEEDED BASIS.
<PAGE>
EXHIBIT B
PROJECT AND WORK APPROVAL FORM
<TABLE>
<CAPTION>
<S> <C>
- ------------------------------------------------------- -----------------------------------------------------
DATE: REQUESTER:
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
CHANGE REQUEST BY: DEPARTMENT:
- ------------------------------------------------------- -----------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
PROJECT/TASK NAME:
- -------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
CHANGE IMPACT:
LOW / / NORMAL / / HIGH / /
- ------------------------------------------------------- -----------------------------------------------------
DESCRIPTION OF PROJECT/WORK:
- -------------------------------------------------------------------------------------------------------------
PRODUCT / / SYSTEM SOFTWARE / / DATABASE / / OTHER / /
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
REASON FOR PROJECT/WORK:
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
EXPECTED START DATE: EXPECTED COMPLETION DATE:
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
NUMBER OF TOTAL STAFF REQUIRED:
- ------------------------------------------------------- -----------------------------------------------------
TYPE OF STAFF REQUIRED (TYPE/HOW MANY)
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- ------------------------------------------------------- -----------------------------------------------------
- -------------------------------------------------------------------------------- ----------------------------
ACCOUNTING APPROVAL: DATE:
- -------------------------------------------------------------------------------- ----------------------------
- -------------------------------------------------------------------------------- ----------------------------
MANAGEMENT APPROVAL: DATE:
- -------------------------------------------------------------------------------- ----------------------------
</TABLE>
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EXHIBIT C
PERFORMANCE TERMS AND CONDITIONS
By 10th day of each month, CSP shall prepare and e-mail to STI or
its designee, the list of dedicated resources - managers, programmers,
designers, technical writes and other specialists - available for STI in the
next three (3) months. The schedule of available specialists shall to be sent
by CSP for on-site support of installations and integration. By the 20th day
of the month, STI shall review and e-mail to CSP the schedule with necessary
corrections in quantity of resources and their assignments. If STI does not
provide any comments, the original CSP's list will be deemed accepted.
If STI requires more resources than CSP has proposed, STI shall
specify the skills of necessary specialists and CSP shall use best efforts to
find, hire and train them. [STI guarantees the use of new hired specialists
during at least six (6) months.]
If STI overestimates necessary resources and does not provide
workload for them, CSP will charge STI for these resources as if they had
been fully utilized.
Both parties will use best efforts to resolve resource problem in
shorter than the three (3) month notification term provided above in the case
of urgent need.
2) CSP will provide on-site specialists based on the following
conditions:
- STI will cover expenses on round-trip transportation to the USA,
per-diems, visa fees and any reasonable expenses. These expenses
will be invoiced separately.
- CSP will buy travel medical insurance for technical resources while
these resources are traveling in the US on assignment for STI or
its assignees. Medical expenses during assignments in the US will
be billed to STI with supporting documentation, and STI will pay up
to $100 per month for medical insurance.
- STI will cover expenses for accommodations in the USA,
transportation within the USA and telephone charges which are not
to exceed an agreed upon amount.
- STI will provide accommodations, assuring that the residence is in
a safe place as determined by reasonable standards, with a separate
room for each specialist and access to an equipped kitchen whenever
possible.
- Should it be determined that the planned stay of any CSP specialist
be extended for business purposes, STI will be responsible for
reasonable additional expenses which may occur as a result of the
extension.
- STI will provide one free day and rental car with insurance, if
requested, one time per two (2) months for an on-site specialist
who has a valid drivers license and is legally able to drive in the
US. The on-site specialist will be responsible for gas and any
other costs associated with the rental (except rent and insurance
fees).
- STI in no event may make any direct payments to CSP's
representatives visiting the USA, except as specified above.
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EXHIBIT D
SECURITY PROCEDURES
4
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EXHIBIT E
HOURLY RATES AND TERMS
1. Hourly Rates of CSP's specialists are:
<TABLE>
<CAPTION>
SPECIALIST RATE, USD PER HOUR
<S> <C>
Any CSP's specialist when on-site at STI or its associates $20.00
Project Manager $15.00
Lead Programmer $15.00
Programmer $15.00
Technical Writer $10.00
Testers $10.00
Designer $10.00
Testing Laboratory Staff $4.50
Data Entry $4.50
</TABLE>
2. Together with each monthly invoice, CSP will provide STI with Labor
Accounting Sheets identifying each project assignment and listing tasks
accomplished and working hours spent on each task for each specialist
named in the invoice.
3. For the purpose of this agreement, a working month is considered as 160
working hours. CSP will not charge STI for CSP's specialists on vacation
or otherwise absent.
4. CSP will provide specialists on-site in the USA or the Czech Republic on
the following conditions:
- A specialist's stay in the USA will not exceed ninety (60) calendar
days, absent a written agreement between CSP and STI to the contrary.
A specialist's stay in the USA will not exceed one hundred eighty
calendar days during one calendar year.
- STI will pay for round-trip transportation of each on-site specialist
to the USA or the Czech Republic, as applicable, per-diems, visa fees
and any other reasonable charges associated with traveling. These
expenses will be invoiced separately.
- STI will pay for accommodations in the USA or the Czech Republic, as
applicable, transportation within the USA or the Czech Republic, as
applicable, and telephone charges for each specialist's personal phone
calls in the amount of $100 for each month the specialist is on-site.
Any amount spent over this limit will be the responsibility of the
individual. STI will assure that the accommodations are in a safe
place as determined by reasonable standards, with a separate room for
each specialist and access to an equipped kitchen whenever possible.
- STI will pay a per diem for each on-site specialist staying in the USA
in the amount of fifty ($50) US dollars per calendar day, including
travel days that are business related or are spent traveling to and
from sites. No per diem will be paid for personal vacations taken
while in the USA . Per Diems for CSP's representatives staying in
Czech Republic are determined by Czech legislation and shall be paid
in Czech currency. [QUESTION: DO WE KNOW WHAT AMOUNTS ARE REQUIRED BY
CZECH LAW?]
- Should it be determined that the planned stay of any CSP specialist
should be extended for business purposes, STI will be responsible for
reasonable additional expenses which may occur as a result of the
extension.
- STI will provide one free day per month and will pay for the rental of
a car, including insurance, if requested, for an on-site specialist
who has a valid driver license and is legally able to drive in
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the US or the Czech Republic, as applicable. The on-site specialist
will be responsible for gas and any other costs associated with the
rental (except the rent and insurance fees).
- In no event will STI or its associates make any direct payments to any
specialist on-site in the USA or the Czech Republic, except as
specified above.
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OFFICE LEASE
OF THE BUILDING OWNERS AND MANAGERS ASSOCIATION OF SAN FRANCISCO
THIS LEASE, MADE THIS 19 DAY OF MAY 1997 BETWEEN COAST COUNTIES PROPERTY
MANAGEMENT INC. LANDLORD, AND SELECTQUOTE INSURANCE SERVICES AS TENANT.
W I T N E S S E T H
SECTION 1. PREMISES
Landlord hereby leases to Tenant and Tenant hereby hires from
Landlord those certain premises (hereinafter called "PREMISES") commonly
known as SUITE 304 consisting of approximately 3,846 rentable square feet and
highlighted on EXHIBIT A, attached hereto and by this reference made a part
hereof, said premises being situated on the 3rd. floor that certain building
(hereinafter called "BUILDING") known as 657 MISSION ST., SAN FRANCISCO,
CALIFORNIA, 94105.
Said letting and hiring is upon and subject to the terms, covenants
and conditions herein set forth and Tenant covenant as material part of the
consideration for this Lease to keep and perform each and all of said terms,
covenants and conditions by it to be kept and performed and that this Lease
is made upon the condition of such performance.
SECTION 2. PURPOSE
The premises shall be used for general office purposes and for no
other use or purpose without the prior written consent of Landlord.
SECTION 3. TERM
The term of this Lease shall be for 5 YEARS and 4 MONTHS, commencing
on the 1ST day of AUGUST 1997, or upon Tenant's moving files into the
premises and ending on the 31ST day of DECEMBER, 2002 (the "LEASE TERM").
SECTION 4. POSSESSION
If Landlord, for any reason whatsoever, cannot deliver possession of
the said premises to Tenant on JUNE 21, 1997, this Lease shall not be void or
voidable, nor shall Landlord be liable to Tenant for any loss or damage
resulting therefrom, but in that event there shall be a proportionate
reduction of rent covering the period between the commencement of the said
term and the time when Landlord can deliver possession. If possession of the
premises is not delivered to Tenant within six months from the scheduled
commencement date, this Lease will terminate. Should Landlord tender
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possession of the premises to Tenant prior to the date specified for the
commencement of the term, and Tenant accept such prior tender, such prior
occupancy shall be subject to all terms, covenants, and conditions of this
Lease, including the payment of rent. No delay in delivery of possession
shall operate to extend the term hereof. Within 10 days after written request
from Landlord, Tenant shall execute and return to Landlord an acknowledgment
of the commencement date of the term of this lease.
SECTION 5. RENT
5(a) On or before the first day of each calendar month and ADJUSTED
PER PARAGRAPH 45 ITEM 5. During the term hereof Tenant shall pay to Landlord,
as minimum monthly rent for the premises, the sum of THREE THOUSAND EIGHT
HUNDRED FORTY SIX AND NO/100 DOLLARS ($3,846.00). The minimum monthly rent
for any partial month shall be prorated at the rate of 1/30 of the minimum
monthly rent per day. Said rent shall be paid by Tenant to Landlord, in
advance without deduction or offset, in lawful money of the United States of
America at COAST COUNTIES PROPERTY MANAGEMENT, 55 NEW MONTGOMERY ST., SUITE
200, SAN FRANCISCO, CA 94105, or to such other person or at such other place
as Landlord may from time to time designate in writing. (ALL CHECKS ARE TO BE
MADE OUT TO COAST COUNTIES PROPERTY MANAGEMENT.) Landlord, at Landlord's
option, may demand by written notice to Tenant that all future payments be
made by Tenant hereunder shall be in the form of either a money order,
certified bank check or cashier's check.
5(b) All charges and other amounts of any kind payable by Tenant to
Landlord pursuant to this Lease shall be deemed additional rent. Landlord
shall have the same remedies for default in the payment of additional rent as
for default in the payment of basic rent and additional rent are collectively
sometimes hereinafter referred to as rent.
5(c) All rent payable by Tenant to Landlord hereunder, if not
received by Landlord when due, shall bear interest from the due date until
paid at the publicly announced prime rate or reference charged on such due
date by the San Francisco Main Office of Bank of America, N.T. & S.A. (or any
successor bank) for a short term, unsecured loans to its most creditworthy
borrowers, plus four percent (4%) per annum, but in no event shall such
interest exceed the maximum rate permitted by law. Landlord's acceptance of
any interest payments shall not constitute a waiver of Tenant's default with
respect to the overdue amount or prevent Landlord from exercising any of the
rights and remedies available to Landlord under Lease or by law.
RENTAL ADJUSTMENT
5(d)The minimum rent provided for in Paragraph (5) above shall be
adjusted on AUGUST 1, 1998 and annually thereafter of the Lease term by
multiplying the same by the percentage of increase in the Consumer Price
Index published by the United States Department of Labor Bureau of Labor
Statistics (All Urban Consumers, San Francisco, Oakland - All Items),
occurring during the preceding year and the amount thereby determined shall
be added to the minimum rent payable during the preceding year. No failure by
Landlord to notify Tenant of the adjustment of minimum rent provided for
herein shall be construed as a waiver of the right of the Landlord to require
such adjustment as of the date or dates when it should have been made, nor
shall any such failure be held to estop Landlord from requiring such
adjustment and Tenant does hereby knowingly waive the
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provisions of any statute of limitations barring collection of any sum due to
pursuant to any such adjustment because of the passage of time between the
date such adjustments to the minimum annual rent ought to have been made and
the date suit is brought to collect any sum due as a result thereof. Should
the Bureau of Labor Statistics discontinue the publication of the above
Index, or publish the same less frequently, or alter the same in some other
manner, then Landlord shall adopt a substitute index or substitute procedure
which reasonably reflects and monitors consumer prices. CPI SHALL NOT EXCEED
4% ANNUALLY.
SECTION 6. RENTAL ADJUSTMENT
6(a) In addition to the monthly rent provided for in paragraph 5
hereof, Tenant shall pay to Landlord the sums set forth in the following
subparagraphs. Tenant's percentage share as set forth below has been
calculated by dividing the number of square feet of rentable area in the
premises by the number of square feet of rentable area in the building. In
the event the rentable area of the building is changed, the Tenant's
percentage share shall be appropriately adjusted. Rentable area shall be
based upon the Building Owners and Managers Association International (BOMA)
standard method of floor measurement for office buildings. Tenant hereby
approves and accepts Landlord's calculation of Tenant's current percentage
share as set forth below.
TAX INCREASES AND ASSESSMENTS
OPERATING EXPENSE INCREASES
SECTION 7. SECURITY
Simultaneously with the execution of the lease, Tenant shall deposit
with Landlord the sum of, SEVEN THOUSAND SIX HUNDRED NINETY TWO AND NO/100
DOLLARS ($7,692.00) of which sum THREE THOUSAND EIGHT HUNDRED FORTY SIX AND
NO/100 DOLLARS ($3,846.00), shall be payment of the first month's rent and
the balance thereof, namely, THREE THOUSAND EIGHT HUNDRED FORTY SIX AND
NO/100 DOLLARS ($3,846.00), shall be held by Landlord as security for the
faithful performance by Tenant of all the terms, covenants and conditions of
this lease. Provided that at the end of the term Tenant shall have delivered
up the Premises to Landlord, broom clean, and in the same condition as at the
commencement date, reasonable wear excepted, said sum held as security shall
be returned to Tenant. No interest shall be payable thereon and Landlord
shall not be required to keep said sum in a separate account. If Tenant fails
to pay any Rent or other charges due hereunder, or otherwise defaults with
respect to any provision of this Lease, Landlord may at its option apply or
retain all or any portion of the deposit for the payment of any Rent or other
charge in default or the payment of any other sum to which Landlord may
become obligated by Tenant's default, or to compensate Landlord for any loss
damage which Landlord may suffer thereby. If Landlord so uses or applies all
or any portion of the deposit, then within 10 days after demand therefor
Tenant shall deposit cash with Landlord in an amount sufficient to restore
the deposit to the full amount thereof, and Tenant's failure to do so shall
be a material breach of this Lease. Landlord's application or retention of
the deposit shall not constitute a waiver of Tenant's default to the extent
that the deposit does not fully compensate Landlord for all losses or damages
incurred by Landlord in connection with such default and shall not prejudice
any other rights or remedies available to Landlord under this Lease or by law.
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No security or guaranty which may now or hereafter be furnished
Landlord for payment of the rent herein reserved or for performance by Tenant
of the other covenants or conditions of this Lease shall in any way be a bar
or defense to any action in unlawful detainer, or for the recovery of the
premises, or to any action which Landlord may at any time commence for a
breach of any of the covenants or conditions of this lease.
SECTION 8. USES PROHIBITED
Tenant shall not do or permit anything to be done in or about the
premises nor bring or keep anything therein which in any way will increase
the rate of or affect any fire or other insurance upon the building or any of
its contents or cause a cancellation of any insurance policy covering said
building or contents. Tenant shall not do or permit anything to be done in or
about the premises which will in any way obstruct or interfere with the
rights of other tenants or occupants of the building or injure or annoy them,
or use or allow the premises to be used for any residential, immoral,
unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit
any nuisance in, on or about the premises. No cooking devices or other odor
causing devices, loudspeakers or other similar device, system or apparatus
which can be heard or experienced outside the premises shall, without the
prior written approval of Landlord, be used in or at the premises. Tenant
shall not commit or suffer to be committed any waste in our upon the
premises. "STANDARD MICROWAVING IS PERMITTED."
SECTION 9. COMPLIANCE WITH LAW "SEE ATTACHED ADDENDUM"
Tenant shall not use or permit anything to be done in or about the
premises which will in any way conflict with any law, statute, ordinance or
governmental rule, regulation or requirement now in force or which may
hereafter be enacted or promulgated. Tenant, at its sole cost and expense,
shall promptly comply with all laws, statutes, ordinances and governmental
rules, regulations or requirements now in force or which may hereafter be in
force and with the requirements of any board of fire underwriters or other
similar body now or hereafter constituted relating to or affecting the
condition, use of occupancy of the premises, excluding structural changes not
related to or affected by Tenants improvements or acts. The judgment of any
court of competent jurisdiction or the admission of Tenant in an action
against Tenant, whether Landlord be a party thereto or not, that Tenant has
violated any law, statue, ordinance or governmental rule, regulation or
requirement shall be conclusive of that fact as between Landlord and Tenant.
Further, Tenant shall at all times and in all respects comply with all
federal, state and local laws, ordinances and regulations ("Hazardous
Material Laws") relating to hygiene, environmental protection, or the
presence, use generation, storage, transportation or disposal of any toxic or
hazardous substances, as the same may be amended from time to time, including
without limitation, obtaining any required permits or licenses, and Tenant
shall handle, treat, manage and dispose of any and all toxic or hazardous
substances in strict conformity with all manufacturers' instructions and
prudent business practices.
SECTION 10. ALTERATIONS "SEE ATTACHED ADDENDUM"
Tenant shall not make or suffer to be made any alterations,
additions or improvements to or of the premises or any part thereof without
the written consent of Landlord first had and obtained. Any alterations,
additions, or improvements to or of said premises, including without
limitation any partitions, movable or otherwise, and all carpeting, shall at
once become a part of the realty and
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belong to Landlord. Movable furniture, equipment and trade fixtures shall
remain the property of Tenant. If Landlord consents to the making of any
alterations, additions or improvements to the premises by Tenant, the same
shall be made by Tenant at Tenant's sole cost and expense and any contractor
or person selected by Tenant to make the same must first be approved of in
writing by Landlord. Upon the expiration or sooner termination of the term
Tenant, upon demand by Landlord, at Tenant's sole cost and expense, forthwith
and with all due diligence shall remove any alterations, additions or
improvements made by Tenant designated by Landlord to be removed, and Tenant,
forthwith and with all due diligence, at its sole cost and expense, shall
repair any damage to the premises caused by such removal. Tenant's obligation
to remove any alterations, additions, improvements, fixtures and/or personal
property and to repair any damage from such removal shall survive the
termination of this Lease.
Construction of the alterations, additions, or improvements shall be
completed in accordance with drawings and specifications approved in advance
in writing by Landlord, shall be carried out in a good and workmanlike
manner, and shall comply with all applicable requirements of governmental
authorities and such additional conditions as Landlord may reasonably impose.
SECTION 11. REPAIR "SEE ATTACHED ADDENDUM"
By entry hereunder upon the commencement of the term hereof, Tenant
accepts the premises as being in good, sanitary order, condition and repair.
Tenant, at Tenant's sole cost and expense, shall keep the premises and every
part hereof in good condition and repair, damage thereto by fire, earthquake,
act of God or the elements not caused by Tenant's negligent or willful act
excepted, Tenant hereby waiving all rights to make repairs at the expense of
the Landlord as provided by law, statute or ordinance now or hereafter in
effect. Upon the expiration or sooner termination of the term hereof, Tenant
shall surrender the premises to Landlord in the same condition as when
received ordinary wear and tear and damage by fire, earthquake, act of God or
the elements excepted, unless caused by Tenants negligent or willful act. It
is specifically understood and agreed that Landlord has no obligation and has
made no promises to alter, remodel, improve, repair, decorate or paint the
premises or any part hereof and that no representations respecting the
condition of the premises or the building have been made by Landlord to
Tenant except as specifically set forth in EXHIBIT A Plans & Specifications
attached hereto. There shall be no abatement of Rent and no liability to
Landlord by reason of any injury or to interference with Tenant's business
arising from the making of any repairs or performance of any maintenance
obligations by the Landlord.
SECTION 12. ABANDONMENT "SEE ATTACHED ADDENDUM"
Tenant shall not vacate or abandon the premises at any time during
the term hereof, and if Tenant shall abandon, vacate or surrender the
premises or be dispossessed by process of law, or otherwise, any personal
property belonging to Tenant and left on the premises shall be deemed to be
abandoned, at the option of Landlord.
SECTION 13. LIENS "SEE ATTACHED ADDENDUM"
Tenant shall keep the premises and the building and the land upon
which the building is situated free from any liens arising out of any work
performed, materials furnished or obligations incurred by Tenant. Tenant
shall in the event of the filing of any such lien, post any bond required to
release the premises therefrom. Should Tenant fail to remove any such lien
within (5) business days
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after notice to do so from Landlord, Landlord may, in addition to any other
remedies, record a bond pursuant to California Civil Code Section 3143 and
all amounts incurred by Landlord shall have the right to post and keep posted
on the Premises any notices that may be provided by law or which Landlord may
deem to be proper for the protection of Landlord, the Premises and the
building from such liens.
SECTION 14. ASSIGNMENT AND SUBLETTING "SEE ATTACHED ADDENDUM"
14(a) Tenant shall not mortgage, pledge, hypothecate or encumber
this Lease or any interest therein. Tenant shall not assign this Lease or
sublet or suffer any other person (the agents and servants of Tenant
excepted) to occupy or use the premises, or any part thereof, or any right or
privilege appurtenant thereto without the prior written consent of Landlord
first had and obtained, which consent shall not be unreasonably withheld.
Landlord's consent to one assignment, subleasing or occupancy shall not be
deemed to be a consent to any subsequent assignment, subleasing or occupancy.
14(b) Provided further and notwithstanding anything hereinbefore set
forth In the event that at any time or from time to time during the term of
this lease, Tenant desires to sublet all or any part of the Premises, Tenant
shall notify the Landlord in writing (the "SUBLET NOTICE") of the terms of
the proposed subletting, and the area so proposed to be sublet and shall give
Landlord the right to sublet from Tenant such space (the "Sublet Space") on
the same terms as those contained in the Sublet Notice. Such option shall be
exercisable by Landlord in writing for a period of 20 days after receipt of
the Sublet Notice.
If Landlord fails to exercise its option and Tenant desires to
complete the proposed sublease, Tenant shall deliver an executed copy of such
sublease to Landlord in order to obtain its consent as required in paragraph
14(a) above. If Landlord consents to sublease, then such sublease shall be
subject to and made upon the following terms:
(i) any such sublease shall be subject to the terms of this
Lease and the term thereof may not extend beyond the expiration of the
term of this Lease;
(ii) 50% of the difference between all sums payable by
subtenant and all rent due hereunder for the sublease premises during
the term of the sublease, less Tenant's reasonable costs of subletting,
shall be payable to Landlord as additional rent hereunder.
(iii) no subtenant shall have a right to further sublease its
premises. If Landlord fails to exercise such option, and Tenant fails
to consummate a sublease with a third party within 60 days after the
expiration of Landlord's option period on the same terms and conditions
contained in the Sublet Notice, Tenant shall be required to deliver a
new Sublet Notice to Landlord and comply with the terms and conditions
set forth above before any further subletting shall be permitted.
14(c) Regardless of Landlord's consent, no subletting nor assignment
shall release Tenant of Tenant's obligation or alter the primary liability of
Tenant to pay rent and perform other obligations of tenant under this lease.
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14(d) In no event shall Tenant assign this Lease or sublet the
premises or any portion thereof to any then, existing or prospective tenant
of said building.
14(e) Tenant shall pay Landlord's reasonable costs incurred in
connection with Tenant's request to assign this lease or sublet the premises,
regardless whether or not the Landlord consents to the proposed transfer.
SECTION 15. INDEMNIFICATION OF LANDLORD
Tenant agrees to indemnify and defend Landlord against and save
Landlord harmless from any and all loss, cost, liability, damage and expense,
including without limitation, penalties, fines and reasonable attorneys fees
and costs, incurred in connection with or arising from any cause whatsoever
in, on or about the Premises, including without limiting the generality of
the foregoing: (1) any default by Tenant in the observance or performance of
any of the terms, covenants or conditions of this Lease on Tenant's part to
be observed or performed, or (2) the use of occupancy or manner of the use or
occupancy of the Premises by Tenant or any other person or entity claiming
through or under Tenant, including without limitation, the presence, use,
generation, storage, transportation or disposal of any toxic or hazardous
substances, or (3) the condition of the Premises or any occurrence or
happening on the Premises from any cause whatsoever, or (4) any acts,
omissions or negligence of Tenant or of Tenant's agents, contractors,
employees, subtenants, licensees, invitees or visitors or any such person or
entity, in, on or about the Premises or the Building, either prior to the
commencement of, during, or after the expiration of the term, including
without limitation any acts, omissions or negligence in the making or
performing of any alterations. Tenant further agrees to indemnify, defend and
save harmless Landlord, Landlord's agents and the lessors under any ground or
underlying leases, from and against any and all loss, cost, liability, damage
and expense, incurred in connection with or arising from any claims by any
persons by reason of injury to persons or damage to property occasioned by
any use, occupancy condition, occurrence, happening, act, omission or
negligence referred to in the preceding sentence. In the event any action or
proceeding is brought against Landlord for any claim against which Tenant is
obligated to indemnify Landlord hereunder, Tenant upon notice from Landlord
shall defend such action or proceeding at Tenant's sole expense by counsel
approved by Landlord, which approval shall not be unreasonably withheld. The
provisions of this paragraph 15 shall survive the expiration or earlier
termination of this lease.
SECTION 16. INSURANCE "SEE ATTACHED ADDENDUM"
Tenant agrees to keep in force during the term hereof, at Tenant's
expense, public liability and property damage insurance. Said policy shall
name COAST COUNTIES PROPERTY MANAGEMENT INC. AND THE BERNHEIM FAMILY TRUST
LANDLORD as a additional insured, and shall insure Landlord's contingent
liability as respects acts, or omissions of Tenant, shall be issued by an
insurance company licensed to do business in the state where the premises are
located; and shall provide that said insurance shall not be canceled or
amended unless thirty (30) days prior written notice to Landlord is first
given. Said policy or a certificate thereof shall be delivered to Landlord by
Tenant prior to the commencement of the term and each renewal of such
insurance. Tenant hereby waives all rights of subrogation against Landlord to
which any insurance carrier may at any time become entitled under any policy
of insurance carried by Tenant.
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SECTION 17. UTILITIES
Landlord shall furnish to the premises, during reasonable hours of
generally recognized business days, to be determined by Landlord, and subject
to the rules and regulations of the building, water and heat required in
Landlord's judgment for the comfortable use and occupation of the premises
for such purposes, and elevator service. Landlord shall not be liable or
responsible for janitorial or garbage service. Tenant shall not be entitled
to any abatement or reduction of rent by reason of Landlord's failure to
furnish any of the foregoing when such failure or delay is caused by
accident, breakage, repairs, strikes, lockouts or other labor disturbances or
labor disputes of any character, or is caused directly or indirectly by the
limitation, curtailment, rationing or restrictions, on use of water,
electricity, gas or any other form of energy serving the premises or the
building, or by any other cause, similar or dissimilar, beyond the reasonable
control of Landlord.
Landlord shall not be liable under any circumstances for loss of
business or injury to property, however occurring, through or in connection
with or incidental to failure to furnish any of the foregoing. TENANT SHALL
PAY AND PROVIDE FOR ALL SERVICES AND UTILITIES NOT FURNISHED BY LANDLORD.
SAID SPACE IS SEPARATELY METERED FOR ELECTRICITY AND WILL BE READ BY
MANAGEMENT COMPANY AND INVOICED MONTHLY.
Tenant will not, without the written consent of Landlord, use any
apparatus or device in the premises which will in any way increase the amount
of electricity, cooking capacity or water usually furnished or supplied for
use of the premises for general office purposes or connect with electric
current, except through existing electrical outlet in the premises, or water
pipes, any apparatus or device for the purpose of using electric current or
water. If Tenant shall require water or electric current in excess of that
customarily furnished or supplied to their tenants of the building for use of
their premises for general office purposes, Tenant shall first procure the
consent of landlord, which Landlord may refuse, to the use thereof and
Landlord may cause an electric current or water meter to be installed in the
premises so as to measure the amount of excess electric current consumed, as
shown by said meters, at the rates charged for such services by the local
public utility furnishing the same, plus any additional expense incurred in
keeping account of the excess electric current or water so consumed.
SECTION 18. PERSONAL PROPERTY AND OTHER TAXES
Tenant shall pay, before delinquency, any and all taxes levied or
assessed and which become payable during the term hereof upon Tenant's
equipment, furniture, fixtures and other personal property located in the
premises, including carpeting installed by Tenant even though said carpeting
has become a part of the lease premises; and any and all taxes or increases
therein levied or assessed on Landlord or Tenant by virtue of alterations,
additions or improvements to the premises made by Tenant or Landlord at
Tenant's request. In the event said taxes are charged to or paid or payable
by Landlord, Tenant, forthwith upon demand therefore, shall reimburse
landlord of all such taxes paid by Landlord.
SECTION 19. RULES AND REGULATIONS
Tenant shall faithfully observe and comply with the rules and
regulations printed on or annexed to this Lease and all modifications of and
additions thereto applicable to all tenants of the
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building from time to time put into effect by Landlord of which Tenant shall
have notice. Landlord shall not be responsible to Tenant for rite
nonperformance by any other tenant or occupant of the building of any of said
rules and regulations.
SECTION 20. HOLDING OVER
If Tenant holds possession of the premises after the term of this
lease, Tenant shall, (at option of Landlord to be exercised by Landlord's
giving written notice to Tenant and not otherwise) become a Tenant from month
to month upon the terms and conditions herein specified, so far as
applicable, at a monthly rental of ONE HUNDRED FIFTEEN PERCENT (115%) OF THE
LAST MONTHLY RENT payable in advance, in lawful money, and shall continue to
be such Tenant until thirty (30) days after Tenant shall have given to
Landlord or Landlord shall have given to Tenant a written notice of intent to
terminate such monthly tenancy. Unless landlord shall exercise the option
hereby given him, Tenant shall be Tenant at sufferance only, whether or not
Landlord shall accept any rent from Tenant while Tenant is so holding over.
SECTION 21. SUBORDINATION "SEE ATTACHED ADDENDUM"
This Lease shall be subject and subordinate at all times to all
ground or underlying leases which may now exist or hereafter be executed
affecting the building and/or the land upon which the building is situated
and to the lien of any mortgages or deeds of trust in any amount or amounts
whatsoever now or hereafter placed on or against said building and/or land or
on or against the Landlord's interest or estate therein or on or against any
ground or underlying lease without the necessity of having further
instruments on the part of Tenant to effectuate such subordination.
Notwithstanding the foregoing, Tenant covenants and agrees to execute and
deliver, upon demand, such further instruments evidencing such subordination
of the Lease to such ground or underlying leases and to the lien of any such
mortgages or deeds of trust as may be required by Landlord. Tenant hereby
irrevocably appoints Landlord the attorney in fact of Tenant to execute and
deliver any such instrument or instruments for or in the name of Tenant. In
the event of termination any ground or underlying lease, or in the event of
foreclosure or exercise of any power of sale under any mortgage or deed of
trust superior to this Lease or to which this Lease is subject or
subordinate, upon Tenant's attornment to the Lessor under such ground or
underlying lease or to the purchaser at any foreclosure sale or sale pursuant
to the exercise of any power of sale under any mortgage or deed of trust,
this Lease shall not terminate and Tenant shall automatically be and become
the Tenant of said Lessor under such ground or underlying lease or to said
purchaser, whichever shall make demand therefore.
SECTION 22. ENTRY BY LANDLORD "SEE ATTACHED ADDENDUM"
Landlord reserves and shall at any and all reasonable times have the
right to enter the premises to inspect the same, and any other service to be
provided by Landlord to Tenant hereunder, to submit the premises to
prospective purchasers or tenants, to post notices of non-responsibility, and
to alter, improve or repair the premises and any portion of the building
without abatement of rent and may for the purpose erect scaffolding and other
necessary structures where reasonably required by the character of the work
to be performed, always providing the entrance to the premises shall not be
blocked thereby and further providing that the business of tenant shall not
be interfered with unreasonably. Tenant hereby waives any claim for damages
for any injury or inconveniences to or
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interference with Tenant's business, any loss of occupancy of quiet enjoyment
of the premises and other loss occasioned by such entry.
For each of the aforesaid purposes, Landlord shall at all times have
and retain a key with which to unlock all of the doors in, upon and about the
premises excluding Tenant's vaults and safes, and Landlord shall have the
right to use any and all means which Landlord may deem proper to open said
doors in an emergency in order to obtain entry to the premises and any entry
to the premises obtained by Landlord by any of said means, or otherwise shall
not under any circumstances be construed or deemed to be a forcible or
unlawful entry into or a detainer of the premises or an eviction of tenant
from the premises or any portion thereof.
SECTION 23. INSOLVENCY OR BANKRUPTCY
Either (a) the appointment of a receiver to take possession of all
of the assets of Tenant, (b) an assignment by Tenant for the benefit of
creditors, or (c) any action taken or suffered by Tenant under any
insolvency, bankruptcy or reorganization act shall constitute a breach of
this Lease by Tenant. Upon the happening of any such event this Lease shall
terminate five (5) days after written notice of termination from Landlord to
Tenant. In no event shall this Lease be assigned or assignable by reason of
any voluntary or involuntary bankruptcy proceedings nor shall any rights or
privileges hereunder be an asset of Tenant in any bankruptcy, insolvency or
reorganization proceedings.
SECTION 24. DEFAULT "SEE ATTACHED ADDENDUM"
In the event of any breach or default of Lease by Tenant then
Landlord, besides any other rights and remedies of Landlord at law or equity,
shall have the right either to terminate Tenant's right to possession of the
premises and thereby terminate this Lease or to have this Lease continue in
full force and effect with Tenant at all times having the right to possession
of the premises. Should Landlord elect to terminate Tenant's right to
possession of the premises and terminate this Lease, the Landlord shall have
the immediate right of entry and may remove all persons and property from the
premises. Such property so removed may be stored in a public warehouse or
elsewhere at the cost and for the account of Tenant. Upon such termination
Landlord, in addition to any other rights and remedies (including rights and
remedies under Subparagraphs (1), (2) and (4) of Subdivision (a) of Section
1951.2 of the California Civil Code of any amendment thereto), shall be
entitled to recover from Tenant the worth at the time of award of the amount
by which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Tenant proves could be
reasonably avoided The worth at the time of award of the amount referred to
in subparagraphs (1) and (2) of Subdivision (a) of Section 1951.2 of the
California Civil Code shall be computed by allowing interest at the maximum
rate allowed by law. The worth at the time of the award of the amount
referred to in subparagraph (3) of Subdivision (a) Section 1951.2 of the
California Civil Code shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of the
award plus 1%.
Any proof by Tenant of the amount of rental loss that could be
reasonably avoided shall be made in the following manner: Landlord and Tenant
shall each select a licensed real estate broker in the business of renting
property of the same type and use as the premises and in the same geographic
vicinity and such two real estate brokers shall select a third licensed real
estate broker and the three
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licensed real estate brokers so selected shall determine the amount of rental
loss that could be reasonably avoided for the balance of the term of this
Lease after the time of award. The decision of the majority of said licensed
real estate brokers shall be final and binding upon the parties hereto.
Should Landlord, following any breach or default of this Lease by
Tenant, elect to keep this Lease in full force and effect, with Tenant
retaining the right to possession of the premises (notwithstanding the fact
the Tenant may have abandoned the leased premises), then Landlord, besides
the rights and remedies specified in Section 1951.4 of the California Civil
Code and all other rights and remedies Landlord may have at law or equity,
shall have the right to enforce all of Landlord's rights and remedies under
this Lease, including but not limited to the right to recover the
installments of rent as they become due under this Lease. Notwithstanding any
such election to have this Lease remain in full force and effect, Landlord
may at any time thereafter elect terminate Tenant's right to possession of
said premises and thereby terminate this Lease for any previous breach or
default which remains uncured, or for any subsequent breach or default.
SECTION 25. DESTRUCTION OR DAMAGE
25(a) In the event the Premises or a portion of the Building is
damaged by fire or other insured casualty, Landlord shall diligently repair
the same to the extent possible with the insurance proceeds received by
Landlord, subject to the provisions of this Section hereinafter set forth, if
such repairs can in Landlord's opinion be made within 90 days after issuance
of a building permit therefor under the laws and regulations of federal,
state and local governmental authorities having jurisdiction thereof. In such
event this Lease shall remain in full force and effect except that if such
damage is not the result of the negligence or willful misconduct of Tenant or
Tenant's agents, contractors, employees, subtenants, licensees, invitees or
visitors, an abatement of basic rent shall be allowed Tenant for such part of
the Premises as shall be rendered unusable by Tenant in the conduct of its
business during the time such part is so unusable. Notwithstanding the
foregoing, if such damage shall occur during the final year of the term of
this Lease, Landlord shall not be obligated to repair such damage, but may
instead elect to terminate this Lease upon written notice given to Tenant
within 30 days after the date of such fire or other casualty, in which event
this Lease shall terminate as of the termination date specified in Landlord's
notice.
25(b) If such repairs cannot in Landlord's opinion be made within 90
days after issuance of a building permit therefor or if such damage is
uninsured, Landlord may elect upon notice to Tenant given 60 days after the
date of such fire or other casualty to (i) repair or restore such damage, in
which event this Lease shall continue in full force and effect, but basic
rent shall be partially abated as hereinabove in this Section provided or
(ii) terminate this Lease in which event this Lease shall terminate as of the
termination date specified in Landlord's notice.
25(c) A total destruction of the Building automatically shall
terminate this lease. Landlord and Tenant acknowledge that this Lease
constitutes the entire agreement of the parties regarding events of damage or
destruction, and Tenant waives the provisions of California Civil Code
Sections 1932(2) and 1933(4) and any similar statute now or hereafter in
force.
25(d) If the Premises are to be repaired under this Section,
Landlord shall repair at its cost any injury or damage to the Building itself
and the initial improvements made by Landlord pursuant
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to EXHIBIT A Tenant shall pay the cost of repairing or replacing all other
improvements in the Premises and Tenant's trade fixtures, furnishings,
equipment and other personal property.
SECTION 26. EMINENT DOMAIN
If all or any part of the premises shall be taken or appropriated by
any public or quasi-public authority under the power of eminent domain, and
such taking will substantially impair Tenant's use of the premises for more
than 90 days, either party hereto shall have the right, at its option, to
terminate this Lease. If all or any part of the building of which the
premises are a part shall be taken or appropriated by any public or
quasi-public authority under the power of eminent domain, Landlord may
terminate this Lease. In either of such events, Landlord shall be entitled to
and Tenant upon demand of Landlord shall assign to Landlord any rights of
Tenant to any and all income, rent, award, or any interest therein whatsoever
which may be paid or made in connection with such public or quasi-public use
or purposes, and Tenant shall have no claim against Landlord or the condemnor
for the value of any unexpired term of this Lease. If a part of the premises
shall be so taken or appropriated and neither party hereto shall elect to
terminate this Lease, the rent thereafter to be paid shall be equitably
reduced.
SECTION 27. PLATS AND RIDERS
Clauses, plats and riders, if any, signed by Landlord and Tenant and
endorsed on or affixed to this Lease are a part hereof, and in the event of
variation or discrepancy the duplicate original hereof, including such
clauses, plats and riders, if any, held by Landlord shall control.
SECTION 28. SALE BY LANDLORD "SEE ATTACHED ADDENDUM"
In the event the original Landlord hereunder, or any successor owner
of the building, shall sell or convey the Building, all liabilities and
obligations on the part of the original Landlord, or such successor owner,
under this Lease, accruing thereafter shall terminate, and thereupon all such
liabilities and obligations shall be binding upon the new owner. Tenant
agrees to attorn to such new owner. If any security be given by Tenant to
secure the faithful performance of all or any of the covenants of this Lease
on the part of tenant, Landlord may transfer and/or deliver the security, to
the successor in interest of Landlord, and thereupon Landlord shall be
discharged from any further liability in reference thereto. Except as set
forth in this Paragraph 28, this Lease shall not be affected by any such sale
or conveyance. "TENANT SHALL BE EXEMPTED FROM ANY TAX INCREASE FROM SALE OR
TRANSFER OF THE PROPERTY DURING THE TERM OF THIS LEASE."
SECTION 29. ESTOPPEL CERTIFICATES
At any time and from time to time, upon not more than ten (10) days
prior request by Landlord, Tenant shall execute, acknowledge and deliver to
Landlord a statement certifying the date of commencement of this Lease,
stating that this Lease is unmodified and in full force and effect (or if
there have been modifications, that this Lease is in full force and effect as
modified and the date and nature of such modifications) and the dates to
which the rent has been paid, and setting forth such other as may reasonably
be requested by Landlord. Landlord and Tenant intend that any such statement
delivered pursuant to this paragraph may be relied upon by any mortgagee or
the beneficiary of any Deed of Trust or by any purchaser or prospective
purchaser of the building. Tenant hereby irrevocably appoints Landlord as its
agent and attorney-in-fact to execute,
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acknowledge and deliver any such certificate in the name of and on behalf of
Tenant, in the event that Tenant fails to so execute, acknowledge and deliver
any such certificate within 10 days after receipt thereof. Failure to comply
with this provision shall be a material breach of this Lease by tenant giving
Landlord all rights and remedies under paragraph 24 hereof, as well as a
right to damages caused by the loss of a loan or sale, which may result from
such failure by Tenant.
SECTION 30. RIGHT OF LANDLORD TO PERFORM
All covenants and agreements to be kept or performed by tenant under
any of the terms of this Lease shall be performed by Tenant at Tenant's sole
cost and expense and without any abatement of rent. If Tenant shall fail to
pay any sum of money, other than rent required to be paid by it hereunder, or
shall fail to perform any other act on its part be performed hereunder, and
such failure shall continue for ten (10) days after written notice thereof of
by Landlord, Landlord may, but shall not be obligated to, and without waiving
and default of Tenant or releasing Tenant from any obligations of Tenant
hereunder, make any such payment or perform any such other act on Tenant's
part to be made or performed as in this Lease provided. All sums so paid by
the Landlord and all necessary incidental costs, together with interest
thereon at the rate of ten percent (10%) per annum from the day of such
payment by the Landlord, shall be paid to Landlord forthwith on demand, and
Landlord shall have (in addition to any other right or remedy of Landlord)
the same rights and remedies in the event of nonpayment thereof by Tenant as
in the case of default by Tenant in payment of rent.
SECTION 31. ATTORNEY FEES
If as a result of any breach or default on the part of Tenant under
this Lease, Landlord uses the services of any attorney in order to secure
compliance with this Lease, Tenant shall reimburse Landlord upon demand as
additional rent for any and all attorneys' fees and expenses incurred by
Landlord, whether or not formal legal proceedings are instituted.
Should either party bring action against the other party, by reason
of or alleging the failure of the other party to comply with any or all of
its obligations hereunder, whether for declaratory or other relief, then the
party which prevails in such action shall be entitled to its reasonable
attorneys' fees and expenses related to such action, in addition to all other
recovery or relief. A party shall be deemed to have prevailed in any such
action (without limiting the generality of the foregoing ) if such action is
dismissed upon the payment by the other party of the sums allegedly due or
the performance of obligations allegedly not complied with, or if such party
obtains substantially the relief sought by it in the action, irrespective of
whether such action is prosecuted to judgment. In addition, if either party
to this Lease becomes a party to or is involved in any way in any action
concerning this Lease or the Premises by reason in whole or in part of any
act, neglect, fault or omission of any duty by the other party, its employees
or contractors, the party subjected to said involvement shall be entitled to
reimbursement for any and all reasonable attorneys' fees and costs.
SECTION 32. SURRENDER OF PREMISES
The voluntary or other surrender of this Lease by Tenant or mutual
cancellation thereof shall not work a merger and, at the option of Landlord,
shall terminate all or any existing subleases or subtenancies, or at the
option of Landlord, may operate as an assignment to Landlord of any or all
such subleases or subtenancies.
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SECTION 33. WAIVER
The waiver by Landlord or Tenant of performance of any term,
covenant or condition herein contained shall not be deemed to be a waiver of
such term, covenant or condition or any subsequent breach of the same or any
other term, covenant or condition herein contained. The subsequent acceptance
of rent hereunder by Landlord shall not be deemed to be a waiver of any
preceding breach by Tenant of any term, covenant or condition of this Lease,
other than the failure of Tenant to pay the particular rent so accepted,
regardless of Landlord's knowledge of such preceding breach at the time of
acceptance of such rent.
SECTION 34. NOTICES
All notices and demands which may or are required to be given by
either party to the other hereunder shall be in writing. All notices and
demands by Landlord to Tenant shall be delivered personally or sent by United
States certified or registered mail, postage prepaid, addressed to Tenant at
the premises, or to such other place as Tenant may from time to time by like
notice designate. All notices and demands by Tenant to Landlord shall be
delivered personally or sent by a nationally recognized Express mail carrier
or United States certified or registered mail, postage prepaid, addressed to
Landlord at COAST COUNTIES PROPERTY MANAGEMENT, 55 NEW MONTGOMERY ST., SUITE
200, SAN FRANCISCO, CA 94105 or such other place as Landlord may from time to
time by like notice designate.
SECTION 35. NOTICE TO SURRENDER
At least ninety (90) days before the last day of the term hereof,
Tenant shall give to Landlord a written notice of intention to surrender the
premises on that date, but nothing contained herein or any failure to give
such notice shall be construed as an extension of the term hereof or as
consent of Landlord to any holding over by Tenant.
SECTION 36. DEFINED TERMS AND MARGINAL HEADINGS
The words "LANDLORD" and "TENANT", as used herein shall include the
plural as well as the singular. Words used in masculine gender include the
feminine and neuter. If there be more than one Tenant, the obligations
hereunder imposed upon Tenant shall be joint and several. The marginal
headings and titles to the paragraphs of the Lease are not a part of this
Lease and shall have no effect upon the construction or interpretation of any
part hereof.
SECTION 37. AUTHORITY OF PARTIES
CORPORATE AUTHORITY. If Tenant is a corporation, each individual
executing this Lease on behalf of said corporation represents and warrants
that he is duly authorized to execute and deliver this Lease on behalf of
said corporation, in accordance with a duly adopted resolution of the board
of directors of said corporation or in accordance with the by-laws of said
corporation, and that this Lease is binding upon said corporation in
accordance with its terms.
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SECTION 38. TIME AND APPLICABLE LAW
Time is of the essence of this Lease and each and all of its
provisions. This Lease shall in all respects be governed by the laws of the
state in which the premises are located.
SECTION 39. SUCCESSORS
Subject to the provisions of Paragraph 14 hereof, the covenants and
conditions herein contained shall be binding upon and inure to the benefits
of the heirs, successors, executors, administrators and assigns of the
parties hereto.
SECTION 40. ENTIRE AGREEMENT
This Lease constitutes the entire agreement between Landlord and
Tenant and no promises or representations, express or implied, either written
or oral, not herein set forth shall be binding upon or inure to the benefit
of Landlord or Tenant. This Lease shall not be modified by any oral
agreement, either express or implied, and all modifications hereof shall be
in writing and signed by both Landlord and Tenant.
SECTION 41. LATE CHARGE
In the event Tenant shall fail to pay any rents or sums due within
(10) days from the date such sums are hereunder on or before the due date
herein provided, then and in that event the amount so due and unpaid shall
bear a late charge equal to five percent (5%) of the amount due together with
interest accruing from the date due at the maximum interest rate permitted by
law, which late charge and interest shall be payable forthwith upon demand.
(The foregoing shall be in addition to any other right or remedy of
Landlord.) RETURNED CHECK CHARGE IS $25.00. If Tenant shall fail to timely
pay the monthly rent, returned check charges, late charges or any other
charges to be paid by Tenant hereunder promptly, when due, on three occasions
in any twelve month period or if Tenant shall be assessed or become subject
to late charge or returned check charge on three or more occasions in any
continuous twelve month period, then Tenant shall be deemed to have committed
an incurable breach of this lease agreement. As a result of such breach,
Tenant shall be deemed to have forfeited all rights under this lease
agreement and Landlord, at Landlord's option may terminate this agreement
immediately upon the occurrence of such breach.
SECTION 42. JOINT AND SEVERAL LIABILITY
Should Tenant consist of more than one person or entity, they shall
be jointly and severally liable on this Lease.
SECTION 43. LIGHT, AIR AND VIEW
The diminution of light, air or view by any structure which
hereafter be erected whether or not by Landlord) shall not entitle Tenant to
any reduction of rent, result in any liability of Landlord to Tenant, or in
any other way effect this Lease or Tenant's obligation hereunder.
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SECTION 44. SUBSTITUTED PREMISES
In the event the Leased premises consist of less than five thousand
(5,000) square feet, Landlord shall have the right, at any time during the
Term hereof, upon not less than ninety (90) days prior written notice to
Tenant, to substitute for the Leased Premises such other space in the
building as shall be substantially the same size as the Leased Premises ("THE
SUBSTITUTED PREMISES"), provided that Landlord shall pay all expenses of
tenant incidental to Tenant's relocation to the Substituted Premises and that
Landlord shall improve the Substituted Premises for Tenant's use and
occupancy at least to the same extent as the Leased Premises occupied by
Tenant prior to such relocation. If Tenant does not agree to such relocation
then Tenant shall give notice of termination of this Lease to Landlord within
fifteen (15) days of the notice of relocation. Upon receipt of such notice to
termination, Landlord shall have fifteen (15) days to rescind notice of
relocation. If landlord does not rescind the notice of relocation in writing
to Tenant within such fifteen (15) day period, then the Lease will terminate
on the date specified in notice of relocation.
If tenant does not agree to such relocation then Tenant shall give
notice of termination of this Lease to Landlord within fifteen (15) days of
the notice of relocation. Upon receipt of such notice to termination,
Landlord shall have fifteen (15) days to rescind notice of relocation. If
Landlord does not rescind the notice of relocation in writing to Tenant
within such fifteen (15) day period, then Lease will terminate on the date
specified in notice of relocation.
SECTION 45. BROKERAGE COMMISSION
Tenant and Landlord each represents and warrants that it has dealt
with no broker, agent, or finder on account of this Lease, other than the
following broker, TRAMMELL CROW COMPANY & BELVEDERE ASSOCIATES (the
"BROKERS"). Landlord and Tenant each agree to defend, indemnify, and hold
harmless the other from and against any and all claims, damages, and costs,
including attorneys' fee, in connection with any claim for brokerage,
finder's, or similar fees, or compensation related to this Lease other than
the Broker, which may be made or alleged as a result of acts or commissions
of that party.
SECTION 46. ADDITIONAL PROVISIONS
The exhibits and addenda listed below are incorporated in this lease:
1. Rules and Regulations.
2. EXHIBIT "A" Description of Premises.
3. Tenant will have One Option to Extend the term for a period of
five (5) years at the then-existing fair market value plus CPI.
4. Landlord will remove existing carpeting, paint the floor and touch
up the paint in the remainder of the premises.
5. Rent for said premises will be as follows: YEAR (1) $1.00 per rsf,
YEAR (2) $1.03 per rsf, YEAR (3) $1.06 per rsf YEAR (4) $1.09 per
rsf and YEAR (5) at $1.12 per rsf.
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THE PARTIES HERETO HAVE EXECUTED THIS LEASE ON THE DATE SPECIFIED
IMMEDIATELY ADJACENT TO THEIR RESPECTIVE SIGNATURES.
"LANDLORD"
COAST COUNTIES PROPERTY MGMT INC
55 NEW MONTGOMERY #200
SAN FRANCISCO, CA 94105
By:
--------------------------------
By: Robert Bernheim
Title: President Dated: 5/19/97
"TENANT"
SELECT QUOTE INSURANCE SERVICES
By:
--------------------------------
Title: Executive Vice President Dated: 5/14/97
By:
--------------------------------
Title: Chairman Dated: 5/14/97
CERTIFICATE
(If Tenant is a Corporation)
I, Nancy Malik, Secretary of, Tenant, hereby certify that the
officer(s) executing the foregoing Lease on behalf of Tenant was/were duly
authorized to act in his/their capacities as EVP and Chairman, and his/their
action(s) are the action of Tenant.
(Corporate Seal)
---------------------------------
Secretary
SEE YOUR ATTORNEY
- ------------------------------------------------------------------------------
THIS LEASE SHOULD BE GIVEN TO YOUR ATTORNEY FOR REVIEW AND APPROVAL BEFORE
YOU SIGN IT. BOMA MAKES NO REPRESENTATION OR RECOMMENDATION CONCERNING THE
LEGAL EFFECT, LEGAL SUFFICIENCY, OR TAX CONSEQUENCES OF THIS LEASE. THESE ARE
QUESTIONS FOR YOUR ATTORNEY
- ------------------------------------------------------------------------------
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EXHIBIT A
[DRAWING NOT INCLUDED IN SCAN]
<PAGE>
RULES AND REGULATIONS FOR 657 MISSION STREET
ATTACHED TO AND MADE A PART OF THIS LEASE
Lease Agreement made this 15 day of May, 1997 between COAST COUNTIES
PROPERTY MANAGEMENT LNC, Landlord and SELECTQUOTE INSURANCE SERVICES., as
Tenant
1. Except as provided or required by Landlord in accordance with buildings
standards, no sign, placard, picture advertisement, name or notice shall
be inscribed, displayed, printed, painted or affixed by Tenant on or to
any part of the building or exterior of the premises leased to tenants
or to the door or doors thereof without the written consent of Landlord
first obtained and Landlord shall have the right to remove any such
sign, placard, picture, advertisement, name or notice to and at the
expense of Tenant.
2. Except as provided or required by Landlord in accordance with building
standards, no draperies, curtains, blinds, shades, screens or other
devices shall be hung at or used in connection with any window or exterior
door or doors of the premises.
3. The bulletin board or directory of the building shall be used primarily
for display of the name and location of Tenants and Landlord reserves the
right to exclude any other names therefrom, to limit the number of names
associated with tenants to be placed thereon and to charge for names
associated with tenants to be placed thereon at rates applicable to all
tenants.
4. The sidewalks, halls, passages, exits, entrances, elevators and
stairways of the building shall not be obstructed by tenants or used by
them for any purpose other than for ingress to and egress from their
respective premises. The halls, passages, exits, entrances, elevators,
stairways, balconies and roof of the building are not for the use of the
general public and Landlord in all cases reserves the right to control
the same and prevent access thereto by all persons whose presence, in
the judgment of the Landlord, is or may be prejudicial to the safety,
character, reputation or interests of the building and its tenants;
provided however, that Landlord shall not prevent such access to persons
with whom tenants deal in the ordinary course of business unless such
persons are engaged in illegal activities. No person shall go upon the
roof of the building unless expressly so authorized by Landlord.
5. Tenants shall not alter any lock nor install any new or additional locks
or any bolts on any interior or exterior door of any premises leased to
tenant. Keys and access cards to premises are the exclusive property of
Owner. There shall be a minimum charge of $15.00 for replacement of
each lost key and $25.00 charge for each lost access card. In the event
that any keys to premises are lost, Tenant shall be liable for entire
cost of all key and lock replacement, at Owner's discretion, as required
for the security of premises and building. LANDLORD RESERVES THE RIGHT
TO LIMIT THE NUMBER OF ACCESS CARDS ASSOCIATED WITH TENANTS LEASED
PREMISES.
6. The doors, windows, light fixtures and any lights or skylights that
reflect or admit light into halls or other places of the building shall
not be covered or obstructed. The toilet rooms, toilets, urinals, wash
bowls and other apparatus shall not be used for any purpose other than
that for which they were constructed and no foreign substance of any
kind whatsoever shall be thrown or placed therein. The expense of any
breakage, stoppage or damage resulting from the
<PAGE>
violation of this rule shall be borne by the Tenant who, or whose
employees or invitees, cause such expense.
7. Tenants shall not mark, drive nails, screw or drill into the walls,
woodwork or plaster or in any way deface the building or any premises
leased to supporting partitions. Pictures paintings and other similar
solely decorative items can be hung with the approval of management.
8. Furniture, freight or equipment of every kind shall be moved into or out
of the building only at such times and in such manner as Landlord shall
designate. Landlord may prescribe and limit the weight, size and
position of all equipment to be used by tenants, other than standard
office desks, chairs and tables and portable office machines. Safes and
other heavy equipment shall, if considered necessary by landlord, stand
on wood strips of such thickness as Landlord deems necessary to
distribute properly the weight thereof. All damage to the building or
premises occupied by tenants caused by moving or maintaining any
property of a tenant shall be repaired at the expense of such tenant.
9. No tenant shall sweep or throw or permit to be swept or thrown any dirt
or other substance into any of the corridors halls or elevators or out
of the doors or stairways of the building; use or keep or permit to be
used or kept any foul or noxious gas or substance; permit or suffer the
premises occupied by such tenant to be occupied or used in a manner
offensive or objectionable to Landlord or other tenants by reason of
noise, odors or vibrations; interfere in any way with other tenants or
persons having business in the building; or bring or keep or permit to
be brought or kept in the building any animal life form, other than
human, except seeing-eye dogs when in the company of their masters.
10. No cooking shall be done or permitted by tenants in their respective
premises, nor shall premises occupied by tenants be used for the storage
or merchandise, washing clothes, lodging, or any improper, objectionable
or immoral purposes. "STANDARD MICROWAVE IS PERMITTED."
11. No tenant shall use or keep in the building any kerosene, gasoline or
inflammable or combustible fluid or material or use any method of heating
or air-conditioning other than such as supplied by Landlord.
12. No boring or cutting for telephone or electric wires shall be allowed
without the consent of Landlord and such wires permitted shall be
introduced at the place and in the manner described by Landlord. The
location of telephones, speakers, fire extinguisher and all other office
equipment affixed to premises occupied by tenants shall be subject to
the approval of Landlord. Each tenant shall pay all expenses incurred
in connection with the installation of its equipment, including any
telephone and electricity distribution equipment.
13. Upon termination of occupancy of the building, each tenant shall deliver
to Landlord all keys furnished by Landlord, and any reproductions thereof
made by or at the direction of such tenant, and in the event of loss of
any keys, Tenant shall pay Landlord therefor.
14. No tenant shall affix any floor covering in any manner except as approved
by the Landlord. The expense of repairing any damage caused by removal of
any such floor covering shall be borne by the tenant by whom, or by whose
contractors, employees or invitees, the damage was caused.
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<PAGE>
15. No mail, furniture, packages, supplies, equipment, merchandise or
deliveries of any kind will be received in the building or carried up or
down in the elevators except between such hours and in such elevators as
shall be designated by Landlord.
16. On Saturdays, Sundays and legal holidays access to the building shall be
by access cards. Anyone without an access card or proper identification
may be refused entry into the building. This is for the safety and
protection of the building. In no case shall Landlord be liable for any
loss or damage for any error with respect to the admission to or
exclusion from the building of any person. In case of invasion, mob,
riot, public excitement or other commotion and at such times as Landlord
deems necessary for the safety and protection of the building, its
tenants and all property located therein, Landlord may prohibit and
prevent access to the building by any and all persons by any means
Landlord deems appropriate.
17. Each tenant shall see that the exterior doors of its premises are closed
and securely locked on Sundays and legal holidays and not later than 6:00
pm of each other day. Each tenant shall exercise extraordinary care and
caution that all water faucets or water apparatus are entirely shut off
each day before its premises are left unoccupied and that all electricity
or gas shall likewise be carefully shut off so as to prevent waste or
damage to Landlord or to other tenants of the building.
18. Landlord may exclude or expel from the building any person who, in the
judgment of Landlord, is intoxicated or under the influence of liquor or
drugs, or who shall in any manner do any act in violation of any of the
rules and regulations of the building.
19. The requirements of tenants will be attended to only upon application to
Landlord at the office of the building. Employees of Landlord shall not
perform any work outside of their regular duties unless under special
instructions from Landlord, and no employee of Landlord shall be required
to admit any person (Tenant or otherwise) to any premises in the building.
20. No vending or food or beverage dispensing machine or machines of any
description shall be installed, maintained or operated upon any premise in
the building without the written permission of the Landlord.
21. Landlord, without notice and without liability to any tenant, at any time
may change the name or the street address of the building.
22. The word "BUILDING" as used in these rules and regulations means the
building of which a part of the premises are pursuant to the Lease to
which these rules and regulations are attached. Each tenant shall be
liable to Landlord and to each other tenant of the building for any
loss, cost, expense, damage or liability, including attorneys fees,
caused or occasioned by the failure of such first named tenant to comply
with these rules, but Landlord shall have no liability for such failure
or for failing or being unable to enforce compliance therewith by any
tenant and such failure by Landlord or non-compliance by any other
tenant shall not be a ground for termination of the Lease to which these
rules and regulations are attached by the Tenant thereunder.
23. Carpet protector pads or chairs with carpet approved casters shall be used
by all desk stations.
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<PAGE>
24. Each Tenant shall maintain the portions of its premises which are visible
from the outside of the Building or from hallways or other public areas of
the Building, in a neat, clean and orderly condition.
25. No Tenant shall tamper with or attempt to adjust the temperature control
thermostats in its premises. Landlord shall adjust such thermostats as
required to maintain heat and air-conditioning at the Building standard
temperature.
26. No Tenant shall place any items whatsoever on the roof or balcony areas of
the building without prior written consent of Landlord.
27. No curtains, draperies, blinds, shutters, shades, screens or other
coverings, hangings or decorations shall be attached to, hung or placed
in, or used in connection with any window or the Building without prior
written consent of Landlord. In any event, with the prior written consent
of Landlord, such items shall be installed on the office side of the
Landlord's standard window covering and shall in no way be visible from
the exterior of the Building.
28. No Tenant shall obtain or use in the premises ice, drinking water, food,
beverage, towel or other similar services, except at such reasonable hours
and under reasonable regulations as may be fixed by the Landlord.
29. Except with the prior written consent of Landlord, no Tenant shall sell,
or permit the sale at retail, of newspapers, magazines, periodicals,
tickets or any other goods or merchandise to the general public in or on
the premises, nor shall any Tenant carry on, or permit or allow any
employee or other person to carry on, the business of stenography,
notary, typewriting or similar business in or from the premises for the
service or accommodation of occupants of any other portion of the
Building, nor shall the premises of any Tenant be used for manufacturing
of any kind, or any business or activity other than that specifically
provided or in such Tenant's lease.
30. No Tenant shall install any radio or television antenna, loudspeaker or
other device on the roof or exterior walls of the Building.
31. There shall not be used in any space, or in the public halls of the
Building, either by any Tenant or others, any hand trucks except those
equipped with rubber tires and side guards or such other material handling
equipment as Landlord may approve. No other vehicles of any kind shall be
brought by any Tenant into the Building or kept in or about the premises.
32. Each Tenant shall store all its trash and garbage within its premises.
No material shall be placed in the trash boxes or receptacles if such
material is of such nature that it may not be disposed of in the
ordinary and customary manner of removing and disposing of trash and
garbage in the City of San Francisco without being in violation of any
law or ordinance governing such disposal. All garbage and refuse
disposal shall be made only through entryways and elevators provided for
such purpose and at such times as landlord shall designate
33. Canvassing, peddling, soliciting, and distribution of handbills or any
other written materials in or about the Building are prohibited, and each
Tenant shall cooperate to prevent same.
4
<PAGE>
34. While in the Building, Tenant's contractors shall be subject to and under
the control and direction of the manager of the Building or the Building
Engineer (but not as an agent or employee of Landlord or said manager or
engineer).
35. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular Tenant or Tenants, but no such waiver by
Landlord shall be construed as waiver of such Rules and Regulations
against any or all of the Tenants of the Building.
36. These Rules and Regulations are in addition to, and shall not be construed
to in any way modify or amend, in whole or in part, the terms, covenants,
agreements and conditions of any lease of premises in the Building.
37. Smoking is prohibited within 10 feet of the building entry.
38. NO pets, dogs, cats, birds, or other animals are allowed on or about the
premises, not even visiting animals are allowed, excepting guide, service,
or signal dogs pursuant to California Civil Code Sections 54.1 and 54.2.
39. Landlord reserves the right to make such other reasonable rules and
regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building and for the preservation of
good order therein.
5
<PAGE>
- --------------------------------------------------------------------------------
657 MISSION STREET
- --------------------------------------------------------------------------------
LEASE
BUILDING LEASE AGREEMENT
WITH
SELECT QUOTE INSURANCE SERVICES
657 MISSION STREET SUITE 304
COMMENCEMENT DATE: AUGUST 1, 1997
EXPIRATION DATE: DECEMBER 31, 2002
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 1. Premises.......................................................1
Section 2. Purpose........................................................1
Section 3. Term...........................................................1
Section 4. Possession.....................................................1
Section 5. Rent...........................................................2
Section 6. Rental Adjustment..............................................3
Section 7. Security.......................................................3
Section 8. Uses Prohibited................................................4
Section 9. Compliance with Law............................................4
Section 10. Alterations....................................................4
Section 11. Repair.........................................................5
Section 12. Abandonment....................................................5
Section 13. Liens..........................................................5
Section 14. Assignment and Subletting......................................6
Section 15. Indemnification of Landlord....................................7
Section 16. Insurance......................................................7
Section 17. Utilities......................................................8
Section 18. Personal Property and Other Taxes..............................8
Section 19. Rules and Regulations..........................................8
Section 20. Holding Over...................................................9
Section 21. Subordination..................................................9
Section 22. Entry by Landlord..............................................9
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
Section 23. Insolvency or Bankruptcy......................................10
Section 24. Default.......................................................10
Section 25. Destruction or Damage.........................................11
Section 26. Eminent Domain................................................12
Section 27. Plats and Riders..............................................12
Section 28. Sale by Landlord..............................................12
Section 29. Estoppel Certificates.........................................12
Section 30. Right of Landlord To Perform..................................13
Section 31. Attorney Fees.................................................13
Section 32. Surrender of Premises.........................................13
Section 33. Waiver........................................................14
Section 34. Notices.......................................................14
Section 35. Notice to Surrender...........................................14
Section 36. Defined Terms and Marginal Headings...........................14
Section 37. Authority of Parties..........................................14
Section 38. Time and Applicable Law.......................................15
Section 39. Successors....................................................15
Section 40. Entire Agreement..............................................15
Section 41. Late Charge...................................................15
Section 42. Joint and Several Liability...................................15
Section 43. Light, Air and View...........................................15
Section 44. Substituted Premises..........................................16
Section 45. Brokerage Commission..........................................16
Section 46. Additional Provisions.........................................16
</TABLE>
ii
<PAGE>
FIRST ADDENDUM TO THE LEASE AGREEMENT
The First Addendum is made part of the Lease Agreement made this
14th day of May, 1997 between Coast Counties Property Management Inc.,
Landlord, and SelectQuote as Tenant.
PAGE 4 ITEM-(9)
COMPLIANCE WITH LAW. Landlord warrants, that on the commencement
date, the Premises comply with all applicable laws, ordinances rules and
regulations of governmental authorities and that, during the term of the
lease, Landlord will comply with all applicable laws regarding the Premises
and the building except to the extent Tenant must comply.
Relative to Hazardous Materials, to Landlord's best knowledge,
Landlord represents, warrants and covenants to Tenant as follows:
(i) the Premises and the Building are, as of the Commencement
Date, in compliance with all Laws regarding the handling, transportation,
storage, treatment, use and disposition of Hazardous Material;
(ii) Landlord shall be responsible for all costs (which costs shall
not be included in Common Area expense) incurred in complying with any order,
ruling or other requirement of any court or governmental body or agency
having Jurisdiction over the Building requirements. Landlord to comply with
any federal, state and local laws, regulations, guidelines, codes and
ordinances (individually and collectively, "LAWS") which relate to Hazardous
Material in, on or about the Building and the Premises including, without
limitation, the cost of any required or necessary repair, cleanup or
detoxification in the preparation of any closure or other required plans
excluding, however, any such cost relating to Hazardous Material on the
Premises established to have been caused directly by Tenant's use of the
Premises;
(iii) to the extent commercially practical, Landlord shall take such
action as is necessary to enforce the requirements contained in any leases or
occupancy agreements with other tenants or occupancy in the Center which
relate to the handling, transportation, storage, treatment, use or
disposition of Hazardous Material by such other tenants or Occupants;
(iv) Landlord shall indemnify, defend and hold Tenant, its
directors, officers, employees and agents, and any successor to Tenant's
interest in the Premises, harmless from and against any and all claims,
judgments, damages, penalties, fines, costs, liabilities or losses (including
without limitation sums paid in settlement of claims, attorneys' fees,
consultant fees and expert fees) caused by, arising out of, or related to (A)
the breach of any representation, warrant or covenant of Landlord contained
herein, or (B) Hazardous Material in, on or about the Building or the
Premises which was created, handled, placed, stored, used, transported or
disposed of by Landlord, or (C) any such Hazardous Material with respect to
which any court or governmental body or agency having jurisdiction over the
Building holds Landlord responsible for or otherwise requires Landlord to
undertake any repair,
<PAGE>
cleanup, detoxification or other remedial action, excluding, however,
hazardous Material on the Premises established to have been caused directly
by Tenant's use of the Premises.
PAGE 5 ITEM-(10)
Minor decorations and any improvements Landlord makes prior to
commencement will be excluded. Landlord's consent to alterations shall not be
unreasonably withheld, conditioned or unduly delayed. At the time of consent
to alterations, Landlord shall be required at that time to indicate whether
or not Tenant is going to be required to remove them upon surrender of the
Lease.
PAGE 5 ITEM-(11)
Except for repairs that must be made by Tenant, landlord shall be
required to pay for and make all other repairs and replacements to the
Premises, Common Areas, and Building to maintain the property in a condition
comparable to other office buildings of similar quality in the San Francisco
area, including the roof, foundations, exterior walls, interior structural
walls, all structural components, and all systems such as mechanical,
electrical and plumbing.
PAGE 5 ITEM-(12)
Abandonment shall not have occurred so long as Rent and Additional
Rent are current.
PAGE 5 ITEM-(13)
Tenant shall have twenty (20) days after receiving notice of any
lien to either (a) discharge the lien, or (b) post a bond equal to the amount
of the disputed claim.
PAGE 5 ITEM-(14)
(a) Landlord's consent shall not be unreasonably withheld,
conditioned or unduly delayed.
(b)(i) Landlord shall have only twenty (20) days after notice from
Tenant to decide whether it wants to exercise its right to sublet the space,
not thirty (30) days.
(ii) Tenant's "reasonable costs" should include, but not be
limited to, brokerage fees, legal fees, cash concessions and tenant
improvement costs.
(d) "Prospective Tenant" is defined to mean a Tenant with whom
Landlord has already initiated negotiations.
(e) Landlord's "reasonable costs" are limited to legal fees and
staff costs not to exceed $1,500.00 for any single sublease or assignment
situation.
PAGE 6 ITEM-(15)
Tenant's indemnification of Landlord shall be limited to claims: (i)
for personal injury, death or property damage; (ii) for incidents occurring
in or about the premises or Building; and (iii) caused by the negligence or
willful misconduct of Tenant, its agents, employees or invitees.
Additionally, Landlord indemnifies, defends and holds Tenant harmless from
claims for the same
2
<PAGE>
limited causes. Also, notwithstanding the above indemnification, the parties
release each other from any claims either party has against the other to the
extent the claim is covered by the injured party's insurance or the insurance
the injured party is required to carry under the terms of the Lease,
whichever is greater.
PAGE 6 ITEM-(16)
In addition to insurance requirements of Tenant, Landlord shall be
required to keep the Building, including improvements, insured against damage
and destruction, fire, vandalism and other perils in the amount of the full
replacement value. The insurance shall include an extended coverage
endorsement of the kind required by an institutional lender to repair and
restore the Building. both parties are required to carry public liability and
property damage insurance, and both parties are required to waive all rights
of subrogation against the other.
PAGE 7 ITEM-(21)
Upon Landlord's demand, Tenant shall have ten (10) days within which
to deliver to Landlord instruments evidencing subordination of the Lease.
Additionally, Landlord shall warrant that it owns the Building and, that if
Tenant is not in default, warrant that Tenant's peaceable and quiet enjoyment
of the Premises shall not be disturbed by anyone.
PAGE 7 ITEM-(22)
Landlord's entry is conditioned upon: (i) giving Tenant at least
twenty-four (24) hours advance notice, except in an emergency; (ii) promptly
finishing any work for which it entered; and (iii) causing the least
practical interference to Tenant's business.
PAGE 8 ITEM-(24)
Landlord shall be required to mitigate its damage by making
reasonable efforts to relet the Premises on reasonable terms.
IN WITNESS WHEREOF, the parties hereto have executed or caused this
instrument to be executed the day and year first written above.
COAST COUNTIES PROPERTY SELECTQUOTE
MANAGEMENT
BY: BY:
------------------------------------ ---------------------------
Robert Bernheim
DATE: DATE:
--------------------------------- ------------------------
3
<PAGE>
595 MARKET STREET
OFFICE LEASE
BASIC LEASE INFORMATION
LANDLORD: THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE UNITED STATES
TENANT: SELECTQUOTE INSURANCE SERVICES
FLOORS: 6th and 7th (Entire Term)
5th (May 1, 1999 - November 30, 2002)
SUITES: 600 and 740 (Entire Term)
500 (May 1, 1999 - November 30, 2002)
SQUARE FOOTAGE: 15,093 (Commencement Date - April 30, 1999)
28,913 (May 1, 1999 - November 30, 2002)
MONTHLY
BASE RENT: Commencement Date - October 31, 1996 -- $22,639.50
November 1, 1996 - October 31, 1997 -- $23,897.25
November 1, 1997 - October 31, 1998 -- $25,155.00
November 1, 1998 - April 30, 1999 -- $26,412.75
May 1, 1999 - October 31, 1999 -- $50,597.75
November 1, 1999 - October 31, 2000 -- $53,007.17
November 1, 2000 - October 31, 2001 -- $55,416.58
November 1, 2001 - November 30, 2002 -- $57,826.00
TENANT'S PERCENTAGE SHARE OF
EXPENSES AND TAXES: 3.794% (Commencement Date - April 30, 1999)
7.267% (May 1, 1999 - November 30, 2002)
BASE YEAR: 1996
TERM: Approximately 7 Years, ending November 30, 2002 (with one
option for an additional term of 42 months)
SECURITY DEPOSIT: $26,413.00 (increased to $57,826 on May 1, 1999)
SCHEDULED COMMENCEMENT DATE: November 15, 1995
TERMINATION DATE: November 30, 2002
TENANT'S BROKER: Belvedere Associates
Dated as of
, 1995
----------------
San Francisco, California
<PAGE>
595 MARKET STREET
OFFICE LEASE
THIS 595 MARKET STREET OFFICE LEASE (this "LEASE"), made as of
August 16, 1995, between THE EQUITABLE LIFE INSURANCE SOCIETY OF THE UNITED
STATES, a New York corporation ("LANDLORD"), and SELECTQUOTE INSURANCE
SERVICES, a California corporation ("TENANT"),
W I T N E S S E T H:
1. PREMISES.
(a) Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord, for the term and subject to the agreements, covenants, conditions
and provisions hereinafter set forth, to each and all of which Landlord and
Tenant hereby mutually agree, the space (the "INITIAL PREMISES") shown
outlined in red on the floor plan(s) attached hereto as EXHIBIT A-1 and
situated on the sixth and seventh (6th and 7th) floors of the building (the
"BUILDING") constructed by Landlord at 595 Market Street, in the City and
County of San Francisco, California and the space (the "FUTURE PREMISES")
shown outlined in red on the floor plan(s) attached hereto as EXHIBIT A-2 and
situated on the fifth (5th) floor of the Building. (The Initial Premises and
the Future Premises are referred to collectively herein as the "PREMISES.")
As used in this Lease, the Building shall include all the land thereunder and
all appurtenances thereto. The Premises shall include the right to the use,
in common with others, of lobbies, entrances, stairs, elevators and other
public portions of the Building. All the windows and outside walls of the
Premises, and terraces adjacent to the Premises, and Any space in the
Premises used for shafts, stacks, pipes, conduits, ducts, electric or other
utilities, sinks or other Building facilities, and the use thereof and access
thereto through the Premises for the purposes of operation, maintenance and
repairs, are reserved to Landlord.
(b) Landlord and Tenant acknowledge and agree that as of the date
hereof the rentable square footage of the Initial Premises is fifteen
thousand ninety-three (15,093) square feet, the rentable square footage of
the Future Premises is thirteen thousand eight hundred and twenty (13,820)
square feet, and such figures shall be final and binding on Landlord and
Tenant for purposes of this Lease.
2. TERM. The term of this Lease with respect to the Initial
Premises shall commence (the "COMMENCEMENT DATE") on the earlier to occur of
(i) November 15, 1995 (the "SCHEDULED COMMENCEMENT DATE") or (ii) the date of
Tenant's occupancy of the Initial Premises and, unless sooner terminated as
hereinafter provided, shall end on November 30, 2002 (the "EXPIRATION DATE").
Tenant is currently in possession of the Future Premises under the terms of
that certain Sublease (the "SUBLEASE"), dated May 4, 1993, by and between
Royal Indemnity Company, a Delaware corporation, as sublessor ("SUBLESSOR"),
and Tenant, as sublessee. Sublessor is the tenant under that certain 595
Market Street Office Lease (as amended, the "MASTER LEASE"), dated February
14, 1979, by and between Sublessor and Landlord. The term of both the
Sublease and the Master Lease shall end on April 30, 1999. Tenant hereby
agrees not to exercise any right Tenant may have to hold possession of the
Future Premises under the Sublease or Master Lease after April 30, 1999, and
that, as of May 1, 1999, Tenant's occupancy of the Future Premises shall be
governed solely by this
1
<PAGE>
Lease. The term of this Lease with respect to the Future Premises shall
commence on May 1, 1999 and, unless sooner terminated as hereinafter
provided, shall end on the Expiration Date.
3. BASE RENT.
(a) Tenant shall pay to Landlord as base rent for the Premises the
sum of:
(i) Twenty-Two Thousand Six Hundred Thirty-Nine and Fifty
Hundredths Dollars ($22,639.50) per month for the period from the
Commencement Date through October 31, 1996;
(ii) Twenty-Three Thousand Eight Hundred Ninety-Seven and
Twenty-Five Hundredths Dollars ($23,897.25) per month for the period
from November 1, 1996 through October 31, 1997;
(iii) Twenty-Five Thousand One Hundred Fifty-Five Dollars
($25,155.00) per month for the period from November 1, 1997 through
October 31, 1998;
(iv) Twenty-Six Thousand Four Hundred Twelve and Seventy-Five
Hundredths Dollars ($26,412.75) per month for the period from November
1, 1998 through April 30, 1999;
(v) Fifty Thousand Five Hundred Ninety-Seven and Seventy-Five
Hundredths Dollars ($50,597.75) per month for the period from May 1,
1999 through October 31, 1999;
(vi) Fifty-Three Thousand Seven and Seventeen Hundredths Dollars
($53,007.17) per month for the period from November 1, 1999 through
October 31, 2000;
(vii) Fifty-Five Thousand Four Hundred Sixteen and Fifty-Eight
Hundredths Dollars ($55,416.58) per month for the period from November
1, 2000 through October 31, 2001; and
(viii) Fifty-Seven Thousand Eight Hundred Twenty-Six Dollars
($57,826.00) per month for the period from November 1, 2001 through the
Expiration Date.
Base rent shall be payable in advance, on or before the first day of
each and every calendar month; provided, however, that base rent for the
first full calendar month of the term of this Lease shall be paid upon
execution of this Lease. If the Commencement Date falls on a day other than
the first day of a calendar month Tenant shall pay an appropriately prorated
base rent for the fractional first month of the term of this Lease on the
Commencement Date and the base rent payment made upon execution of this lease
shall be applied to the first full calendar month of the term of this Lease.
Rent shall be paid to Landlord, without deduction or offset, in lawful money
of the United States of America at 595 Market Street, Suite 2430, San
Francisco, California 94105, or to such other person or at such other place
as Landlord may from time to time designate in writing.
(b) Notwithstanding the provisions of Subparagraph 3(a) above, provided
no Event of Default shall occur under this Lease at any time during the term
hereof, Landlord hereby waives the
2
<PAGE>
payment by Tenant of the base rent for the portion of the Initial Premises
located on the sixth (6th) floor of the Building for the period from November
15, 1995 through and including February 14, 1996, and agrees that the base
rent for the period from November 15, 1995 through and including February 14,
1996 shall be One Thousand Nine Hundred Nine and Fifty Hundredths Dollars
($1,909.50) per month. The foregoing waiver shall be deemed revoked
automatically and shall be of no further force and effect (if and to the
extent any period remains for which Landlord has agreed to waive payment of
any portion of the base rent), and any and all amounts of base rent, payment
of which has theretofore been deemed waived by Landlord pursuant to this
Subparagraph 3(b) shall become immediately due and payable upon demand by
Landlord, upon the occurrence at any time during the term of this Lease of an
Event of Default under this Lease. The foregoing concession of Landlord is
personal to the named Tenant under this Lease and shall be deemed revoked
prospectively (if and to the extent any period remains for which Landlord has
agreed to waive payment of any portion of the base rent) upon any subletting
of all or any portion of the Premises or assignment of this Lease by the
named Tenant under this Lease and the concession granted in this Paragraph
shall not inure to the benefit of any subtenant or assignee of the named
Tenant hereunder.
4. OPERATING COSTS ADJUSTMENTS.
(a) Tenant shall pay to Landlord as additional rent during each
calendar year or part thereof following the calendar year 1996 (the "BASE
Year") through April 30, 1999 three and seven hundred ninety-four thousandths
percent (3.794%) (the "INITIAL PERCENTAGE") of the total dollar increase, if
any, in Operating Expenses (as hereinafter defined) paid or incurred by
Landlord in each such year over Operating Expenses paid or incurred by
Landlord in the Base Year and during each calendar year or part thereof
during the period from May 1, 1999 through the Expiration Date seven and two
hundred sixty-seven thousands percent (7.267%) (the "FUTURE PERCENTAGE") of
the total dollar increase, if any, in Operating Expenses paid or incurred by
Landlord in such year over Operating Expenses paid or incurred by Landlord in
the Base Year. As used in this Lease, "OPERATING EXPENSES" means (i) all
commercially reasonable costs and expenses incurred or paid by Landlord in
connection with the management, operation, maintenance and repair of the
Building in accordance with generally accepted accounting principles and
commensurate with other Class-A office buildings in San Francisco,
California, including, without limitation, water and sewer charges, garbage
and waste disposal; license, permit and inspection fees; heat, light, power
and other utilities; air conditioning and ventilation; elevator and escalator
service; plumbing service; janitorial and cleaning service; maintenance,
repair and service contracts; equipment lease payments; watchmen, lobby
attendants and personnel engaged in the management, operation, maintenance,
repair and protection of the Building, together with wages, salaries, payroll
burden, taxes and employee benefits applicable thereto; insurance, including,
without limitation, fire and extended coverage, personal injury and property
damage liability and rental income insurance; furniture, artwork, landscaping
and other customary items provided in the common areas of the Building; the
cost of maintaining the sidewalks surrounding the Building; supplies,
telephone, delivery, postage and stationery expenses; tools and equipment;
the cost to maintain and repair intra-building telecommunications network
cabling; all costs and expenses of contesting by appropriate legal
proceedings any matter concerning operating or managing the Building or the
amount or validity of any "Building Taxes," as defined in Subparagraph 4(b)
hereof (except that such costs and expenses shall in no event be included in
the Base Year); (ii) a management fee payable at a rate of compensation
determined from time to time by Landlord following written notice to Tenant;
Building office rent or rental value; (iii) depreciation of all personal
property, fixtures and equipment
3
<PAGE>
(including window washing machinery) used in the management, operation,
maintenance and repair of the Building and depreciation on exterior window
coverings provided by Landlord and carpeting in public corridors and common
areas; and (iv) the cost of capital improvements or capital assets
constructed or acquired after the Base Year which reduce any item of
Operating Expenses or are reasonably necessary to comply with any
governmental law or regulation or are reasonably necessary for the health and
safety of the occupants of the Building, amortized over such reasonable
period as Landlord shall determine, together with interest on the unamortized
balance at a rate per annum equal to the rate then payable by Landlord on
funds borrowed for the purpose of constructing or acquiring such capital
improvements or capital assets. Notwithstanding the foregoing, Operating
Expenses shall not include "Building Taxes," as defined in Subparagraph 4(b)
hereof, or the taxes covered under Paragraph 5 hereof, depreciation on the
Building (except as specified above), costs of tenant improvements (including
the costs of those permits, licenses and inspections required in connection
with the construction of such tenant improvements), real estate brokers,
commissions, attorneys, fees and expenses incurred in connection with
negotiations or disputes with Building tenants or prospective Building
tenants, interest and capital items, except the cost together with interest,
of capital improvements and capital assets as specified above. The
determination of Operating Expenses and their allocation shall be in
accordance with generally accepted accounting principles applied on a
consistent basis. Actual Operating Expenses for the Base Year and each
subsequent calendar year shall be adjusted, if necessary, to equal Landlord's
reasonable estimate of Operating Expenses for a full calendar year and, if
the total square footage of the Building occupied during such full calendar
year is less than ninety-five percent (95%), to reflect a ninety-five percent
(95%) occupancy level of the Building.
(b) Tenant shall pay to Landlord as additional rent during each
calendar year or part thereof following the Base Year through April 30, 1999
the Initial Percentage of the total dollar increase, if any, in "Building
Taxes," as hereinafter defined, for each such calendar year over Building
Taxes for the Base Year and during each calendar year or part thereof during
the period from May 1, 1999 through the Expiration Date the Future Percentage
of the total dollar increase, if any, in "Building Taxes" for each such
calendar year over Building Taxes for the Base Year. As used in this Lease,
the term "BUILDING TAXES" means all taxes, service payments in lieu of taxes,
assessments, general or special, excises, exactions, transit charges, housing
fund assessments or other housing charges, child care assessments or levies,
fees or charges, general or special, ordinary or extraordinary, unforeseen as
well as foreseen, of any kind which are assessed, levied, charged, confirmed
or imposed by any public authority upon the Building, or its use, occupancy
or operations, or upon any personal property used in the operation of the
Building, or with respect to services or utilities consumed in the use,
occupancy or operations of the Building, or upon Landlord with respect-to the
Building, or upon the act of leasing any space within the Building, or in
connection with the business of renting space within the Building or with
respect to the possession, leasing, operation, use or occupancy by Tenant of
the Premises or any portion thereof, or upon or measured by the gross rentals
received by Landlord from the Building. Building Taxes shall also include any
tax, fee or other excise, however described, which may be levied or assessed
in lieu of, or as a substitute, in whole or in part, for, or as an addition
to, any other Building Taxes. Building Taxes shall not include (i) federal,
state and local corporate income or franchise taxes, (ii) inheritance or
estate taxes imposed upon or assessed against the Building or any part
thereof or interest therein, including franchise, gift, transfer, excise,
capital stock, or succession taxes, (iii) taxes computed upon the basis of
the net income derived from the Building by Landlord or the owner of any
interest therein, unless, due to a change in the method of taxation, any of
such taxes is levied or assessed
4
<PAGE>
against Landlord in lieu of, or as a substitute, in whole or in part, for, or
as an addition to, any other charge which would otherwise constitute a
Building Tax, and (iv) penalties or interest resulting directly from late
payments of real estate taxes. To the extent the Building Taxes are reduced
as a result of the legal proceedings described in Paragraph 4(a)(i) and to
the extent such reduction does not reduce the Building Taxes to an amount
less than the Building Taxes of the Base Year, Tenant's pro-rata share of the
Building Taxes shall reflect Tenant's pro-rata share of such reduction.
(c) During December of each calendar year or as soon thereafter as
practicable, Landlord shall give Tenant written notice of Landlord's estimate
of the additional rent payable under Subparagraphs 4(a) and 4(b) hereof for
the next calendar year. On or before the first day of each month during the
next calendar year, Tenant shall pay to Landlord one-twelfth (1/12) of such
estimated additional rent, provided that if such notice is not given in
December, Tenant shall continue to pay on the basis of the prior year's
estimate until the month after such notice is given. Notwithstanding the
foregoing, during December 1998 or as soon thereafter as practicable,
Landlord shall give Tenant written notice of Landlord's estimate (the
"INITIAL ESTIMATE") of the additional rent payable under Subparagraphs 4(a)
and 4(b) hereof for the calendar year 1999 based on the Initial Percentage
and Landlord's estimate (the "FUTURE ESTIMATE") of the- additional rent
payable under Subparagraphs 4(a) and 4(b) hereof for the calendar year 1999
based on the Future Percentage. On or before the first day of each month
during the period from January 1999 through April 1999, Tenant shall pay to
Landlord one-twelfth (1/12) of the Initial Estimate. On or before the first
day of each month during the period from May 1999 through December 1999,
Tenant shall pay to Landlord one-twelfth (1/12) of the Future Estimate. If at
any time it appears to Landlord that the additional rent payable under either
Subparagraph 4(a) or 4(b) hereof for the current calendar year will vary from
its estimate by more than five percent (5%), Landlord may, by written notice
to Tenant, revise its estimate for such year, and subsequent payments by
Tenant for such year shall be based upon such revised estimate.
(d) Within ninety (`90) days after the close of each calendar year
or as soon after such ninety (90) day period as practicable, Landlord shall
deliver to Tenant a statement (the "ADDITIONAL RENT STATEMENT") of additional
rent payable under Subparagraphs 4(a) and 4(b) hereof for such calendar year
prepared by a certified public accountant designated by Landlord, and such
statement shall be final and binding upon Landlord and Tenant. If such
statement shows ` an amount owing by Tenant that is less than the estimated
payments for such calendar year previously made by Tenant, Landlord shall
credit the excess to the next succeeding monthly installments of rent. If
such statement shows an amount owing by Tenant that is more than the
estimated payments for such calendar year previously made by Tenant, Tenant
shall pay the deficiency to Landlord within thirty (30) days after delivery
of such statement.
(e) The termination of this Lease shall not affect the subsequent
obligations of the parties hereto to comply with the foregoing provisions,
except that, if for any reason other than the default of Tenant, this Lease
shall terminate on a day other than the last day of a calendar year, the
additional rent payable by Tenant applicable to the calendar year in which
such termination shall occur shall be prorated on the basis which the number
of days from the commencement of such calendar year to and including such
termination date bears to three hundred sixty-five (365).
5. TAXES PAYABLE BY TENANT. In addition to the base rent and additional
rent payable as a result of increases in Building Taxes and Operating Expenses
and other charges to be paid by
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Tenant hereunder, Tenant shall reimburse Landlord upon demand for any and all
taxes payable by Landlord (other than net income taxes) whether or not now
customary or within the contemplation of the parties hereto (i) upon,
measured by or reasonably attributable to the cost or value of Tenant's
equipment, furniture, fixtures and other personal property located in the
Premises or by the cost or value of any alterations, additions, fixtures or
improvements made in or to the Premises by or for Tenant, regardless of
whether title to such alterations, additions, fixtures or improvements shall
be in Tenant or Landlord, and (ii) upon this transaction or any document to
which Tenant is a party creating or transferring an interest or an estate -in
the Premises. All taxes payable by Tenant under this Paragraph 5 shall be
deemed to be, and shall be paid as, additional rent.
6. USE.
(a) The Premises shall be used for general office purposes and for
no other purpose. General office purposes assumes the presence and use in the
Premises of customary desk-top personal computers, telecopy machines and
other desk-top telecommunications equipment, mailing equipment and
duplicating/photocopy equipment as well as the use of refrigerators and
microwave ovens for the use of Tenant's personnel in the existing kitchen
area. The use of so called mainframe computers or high speed duplicating
equipment requiring the maintenance of special or dedicated electrical or
ventilation Building services or requiring the strengthening of or the
addition of structural supports to the load bearing capacity of the Premises
is not a permitted use within the scope of the term general office purposes.
Tenant shall not do or permit to be done in or about the Premises, nor bring
or keep or permit to be brought or kept therein, anything which is prohibited
by or will in any way conflict with any law, statute., ordinance or
governmental rule or regulation now in force or which may hereafter be
enacted. Tenant shall, in its use and occupancy of the Premises, comply with
the requests of Landlord's insurers with respect to Tenant's business
operations in the Premises, and Tenant shall not do or permit to be done in
or about the Premises anything which is prohibited by Landlord's fire
insurance policy for the Building, or will in any way increase the existing
rate of or affect any insurance carried by Landlord upon the Building or any
part thereof or any of its contents. Tenant shall not bring or keep, or
permit to be brought or kept, in the Premises or in the Building any toxic or
hazardous substance, material or waste or other contaminant or pollutant,
other than nonreportable quantities of such substances when found in commonly
used household cleansers, office supplies and general office equipment, and
any such substances shall be used, kept, stored and disposed of in strict
accordance with applicable laws. Tenant shall not do or permit anything to be
done in or about the Premises which will in any way obstruct or interfere
with the- rights of other tenants of the Building, or injure or annoy them,
or maintain or permit any nuisance-in, on or about the Premises or commit or
suffer to be committed any waste in, on or about the Premises. Tenant shall
not bring into the Building any furniture, equipment, materials or other
objects which, in the sole discretion of Landlord, exceed the load bearing
capacity of the Building or any portion thereof.
(b) Upon the written request of Landlord, Tenant shall provide
periodic written reports of the type and quantities of hazardous substances,
materials, waste and contaminants used, stored or being disposed of by Tenant
in the Premises and if Landlord in good faith determines that such substances
create a risk to the health and safety of Tenant's employees and invitees or
to other tenants in the Buildings, Tenant shall, upon demand by Landlord,
take such remedial action, at the sole cost and expense of Tenant (including,
without limitation, elimination or removal of any hazardous substances from
the Premises), as Landlord deems necessary or advisable.
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7. SERVICES.
(a) Landlord shall maintain the public and common areas of the
Building, such as lobbies, stairs, corridors and restrooms, in reasonably
good order and condition (except for damage occasioned by the act of Tenant
or employees, licensees or invitees of Tenant, which damage shall be repaired
by Landlord at Tenant's expense).
(b) Landlord shall supply the Premises during reasonable and usual
business hours (exclusive of Saturdays, Sundays and holidays) as determined
by Landlord and subject to the Rules and Regulations of the Building
(attached hereto as EXHIBIT B) as established from time to time by Landlord,
with (i) electricity for lighting and operation of desk-top office machines,
(ii) heating, ventilation and cooling reasonably required for the comfortable
occupation of the Premises, (iii) elevator service, either automatic or with
attendants, as Landlord elects, (iv) lighting replacement, including tubes,
ballasts and lamps (for Landlord's designated Building standard lights), (v)
rest room supplies, and (vi) window washing. If Tenant requests electricity
or heat or air conditioning at any other time, and if Landlord is able to
provide the same, Tenant shall pay Landlord such charge as Landlord shall
establish from time to time for providing such services during such hours.
Any such charges which Tenant is so obligated to pay shall be deemed to be
additional rent under this Lease, and should Tenant fail to pay the same
within five (5) days after demand, such failure shall be a default by Tenant
under this Lease. Landlord shall also furnish janitor service during the
times and in the manner that such services are customarily furnished in
comparable office buildings in the area. Landlord makes no representation
with respect to the adequacy or fitness of the heating, air conditioning or
ventilation equipment in the Building to maintain temperatures which may be
required for, or because of, any equipment of Tenant other than normal
fractional horsepower office equipment, or with respect to the continuousness
or variability of the electric current supplied to the Premises, and Landlord
shall have no liability for loss or damage suffered by Tenant or others in
connection therewith. Landlord shall not be in default hereunder or be liable
for any loss of business, right of access or any damages directly or
indirectly resulting from, nor shall the rent herein reserved be abated by
reason of (i) the installation, use or interruption of use of any equipment
in connection with the furnishing of any of the foregoing services, (ii)
failure to furnish or delay in furnishing any of the foregoing services when
such failure or delay is caused by accident or any condition beyond the
reasonable control of Landlord or by the making of necessary repairs or
improvements to the Premises or to the Building, or (iii) the limitation,
curtailment, rationing or restrictions on use of water, electricity, gas or
any form of energy serving the Premises or the Building, whether such results
from mandatory governmental restrictions or voluntary compliance with
governmental guidelines, nor shall the occurrence of any of the foregoing
constitute or be construed as a constructive or other eviction of Tenant.
Landlord shall use reasonable efforts diligently to remedy any interruption
in the furnishing of such services. If Landlord, solely as a result of its
negligence or willful misconduct, fails to furnish any of the foregoing
services, and the interruption of such services renders the entire Premises
untenantable for at least five (5) consecutive days, then the base rent
allocable to those consecutive days, immediately following such five (5) day
period, on which the entire Premises are rendered untenantable as a result of
such interruption of services shall be abated.
(c) Tenant shall not, without Landlord's prior written consent, use
heat generating machines or equipment or lighting other than Landlord's
designated Building standard lights in the Premises which affect the
temperature otherwise maintained by the air conditioning system. If such
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consent is given, Landlord shall have the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the costs
of installation, operation and maintenance thereof, shall be paid by Tenant
to Landlord upon billing by Landlord. Tenant shall not, without Landlord's
prior written consent, install any lighting or equipment in the Premises that
would cause the connected electrical load in the Premises to exceed one and
one-half (1.5) watts per square foot. If such consent is given, Tenant shall
pay Landlord upon billing for the cost of such excess. All costs payable by
Tenant under this Subparagraph 7(c) shall be deemed to be, and shall be paid
- -as, additional rent.
8. TENANT'S PERSONAL PROPERTY/ALTERATIONS.
(a) All of Tenant's trade fixtures, movable furniture, furnishings,
office equipment and other easily movable personal property not permanently
affixed to the Premises shall, subject to the provisions hereof, remain the
property of Tenant.
(b) Tenant shall not make or suffer to be made any alterations,
additions or improvements to or of the Premises or any part thereof, or
attach any fixtures or equipment thereto, without Landlord's prior written
consent. With respect to NON-STRUCTURAL alterations, additions and
improvements, Landlord's consent shall not be unreasonably withheld nor
unduly delayed. Any alterations, additions or improvements to the Premises
consented to by Landlord shall be made at Tenant's sole cost and expense by a
duly licensed and reputable contractor approved by Landlord. All such work
shall be done strictly in accordance with the plans approved by Landlord and
otherwise in conformity with a valid building permit and/or all other permits
or licenses when and where required, copies of which shall be furnished to
Landlord before the work is commenced, and with any work not acceptable to
any governmental authority or agency having or exercising jurisdiction over
such work, or not reasonably satisfactory to Landlord, being promptly
replaced and corrected at Tenant's expense. Landlord's approval or consent to
any such work shall not impose any liability upon the Landlord. The
contractor or person selected to make such alterations, additions or
improvements shall at all times be subject to Landlord's control while in the
Building. Landlord shall have the right to require that any such contractor
hired shall, prior to commencing work in the Premises, provide Landlord with
a performance bond and a labor and materials payment bond in the amount of
the contract price for the work naming Landlord and Tenant (and any other
person designated by Landlord) as co-obligees. Tenant shall be responsible
for any additional alterations and improvements required by law to be made by
Landlord to or in the Building as a result of any alterations, additions or
improvements to the Premises made by or for Tenant. Tenant shall pay Landlord
prior to commencement of the work an administration fee equal to ten percent
(10%) of the cost of the work to compensate Landlord for the administrative
costs incurred and the Building services provided by Landlord in the
supervision and coordination of the work. (This administration fee shall not
be applicable to those Tenant Improvements (as defined in EXHIBIT C)
substantially completed prior to February 1, 1996 or those Fifth Floor
- -Improvements (as defined in EXHIBIT C) substantially completed prior to June
1, 1996.) All alterations, additions, fixtures (other than trade fixtures)
and improvements, including, but not limited to carpeting, other floor
coverings, built-in shelving, bookcases, paneling and built-in security
systems made in or upon the Premises either by or for Tenant and affixed to
or forming a part of the Premises, shall immediately upon installation become
Landlord's property free and clear of all liens and encumbrances.
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(c) Upon the expiration or any sooner termination of this Lease,
Tenant shall remove or cause to be removed at its expense (i) all of Tenant's
personal property described in Subparagraph 8(a) above, (ii) all telephone,
data processing, audio and video, security and electrical (other than
Building standard) cables, wires, lines, duct work, sensors, switching
equipment, control boxes and related improvements, and (iii) any and all
alterations, additions, fixtures and improvements made in or upon the
Premises during the term of this Lease by or for Tenant, unless Landlord, at
the time of its approval of such work in accordance with this Paragraph 8
shall have expressly waived such requirement in writing. Landlord hereby
expressly waives such requirement with respect to the improvements (excluding
any of Tenant's personal property described in Subparagraph 8(a) above, or
any telephone, data processing, audio and video, security and electrical
(other than Building Standard) cables, wires, lines, duct work, sensors,
switching equipment, control boxes and related improvements) that already
have been made to the Future Premises as of August 1, 1995 and with respect
to the Tenant Improvements and Fifth Floor Improvements, as those terms are
defined in EXHIBIT C, to the extent the Tenant Improvements and Fifth Floor
Improvements are completed prior to December 31, 1995. Tenant shall repair at
its expense all damage to the Premises and the Building caused by the removal
of any of the items provided in this Subparagraph 8(c). Any personal property
described in this Subparagraph 8(c) not removed from the Premises by Tenant
upon the expiration or sooner termination of this Lease shall, at Landlord's
option, become the property of Landlord, or Landlord may remove or cause to
be removed such property for Tenant's account, and Tenant shall reimburse
Landlord for the cost of removal (including the cost of repairing any damage
to the Premises or the Building caused by removal) and storage and a
reasonable charge for Landlord's overhead, within ten (10) days after receipt
of a statement therefor. Tenant's obligations under this Subparagraph 8(c)
shall survive the termination of this Lease.
9. LIENS. Tenant shall keep the Premises and the Building free from
any and all liens arising out of any work performed, materials furnished or
obligations incurred by Tenant. Tenant shall promptly and fully pay and
discharge all claims on which any such lien could be based. Notwithstanding
the foregoing, Tenant shall have the right, exercisable during the first
twenty days after the earlier of the date Landlord receives notice of a
mechanic's lien or Tenant receives notice of such lien, to contest-such lien,
provided Tenant posts a bond in a form satisfactory to Landlord. Landlord
shall have the right to post and keep posted on the Premises any notices that
may be provided by law or which Landlord may deem to be proper for the
protection of Landlord, the-Premises and the Building from such liens, or to
take any other action Landlord deems necessary to remove or discharge liens
or encumbrances at the expense of Tenant. To the extent that it is reasonably
feasible, Landlord shall give Tenant written notice prior to taking such
action.
10. REPAIRS/CONDITION UPON SURRENDER. Landlord shall deliver
possession of the Initial Premises to Tenant in accordance with Paragraph 44
of EXHIBIT C to this Lease. The Future Premises shall be deemed delivered to
Tenant as of May 1, 1999. Tenant shall accept such delivery of the Premises
in their then "AS IS" condition, which acceptance shall constitute the
agreement of Tenant that the Premises are in the condition required by this
Lease and that Tenant waives any and all defects therein. Tenant shall, at
all times during the term hereof and at Tenant's sole cost and expense, keep
the Premises and every part thereof in good condition and repair, ordinary
wear and tear and damage thereto by fire, earthquake, act of God or the
elements excepted, Tenant hereby waiving all rights to make repairs at the
expense of Landlord as provided by any law, statute or ordinance now or
hereafter in effect. All repairs and replacements made by or on behalf of
Tenant shall be made and performed at Tenant's cost and expense and at such
time and in such manner as
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Landlord may reasonably designate, by contractors or mechanics reasonably
approved by Landlord and so that the same shall be at least equal in quality,
value, character and utility to the original work or installation being
repaired or replaced. Tenant shall upon the expiration or sooner termination
of the term hereof surrender the Premises to Landlord in the condition
required by Subparagraph 8(c) hereof, and otherwise broom clean in the same
condition as when received, ordinary wear and tear and damage from causes
beyond the reasonable control of Tenant excepted. Tenant hereby waives all
rights under, and benefits of, subsection I of section 1932 and sections 1941
and 1942 of the California Civil Code and any similar law, statute or
ordinance now or hereafter in effect. No representations respecting the
condition of the Premises or the Building have been made to Tenant either by
Landlord or by any real estate broker, except as specifically herein set
forth. Tenant's obligation to keep the Premises and every part thereof in
good condition and repair is part of the consideration for Landlord's leasing
the Premises to Tenant.
11. DESTRUCTION OR DAMAGE. If the Premises or the Building are
damaged by fire or other casualty, Landlord shall repair the same, subject to
the provisions of this Paragraph 11 hereinafter set forth, provided such
repairs can, in Landlord's opinion, be made within sixty (60) days, and this
Lease shall remain in full force and effect. If such repairs cannot, in
Landlord's opinion, be made within sixty (60) days, Landlord at its option
shall by written notice to Tenant given within thirty (30) days after the
date of such fire or other casualty either (i) elect to repair or restore
such damage, this Lease continuing in full force and effect, or (ii)
terminate this Lease as of a date specified in such notice, which date shall
not be less than thirty (30) nor more than (60) days after the date such
notice is given. If such fire or other casualty shall have damaged the
Premises or common areas necessary to Tenant's occupancy, and if such damage
is not the result of the negligence or willful misconduct of Tenant or
Tenant's employees, contractors, licensees or invitees, then during the
period the Premises are rendered unusable by such damage Tenant shall be
entitled to a reduction in rent in the proportion that the area of the
Premises rendered unusable by such damage bears to the total area of the
Premises. Landlord shall not be required to repair any injury or damage or to
make any repairs or replacements of any improvements installed in the
Premises by or for Tenant, and Tenant shall, at Tenant's sole cost and
expense, repair and restore all such improvements, including, without
limitation, the Tenant Improvements, if any. A total destruction of the
Building shall automatically terminate this Lease. Tenant hereby waives
California Civil Code sections 1932(2) and 1933(4) providing for termination
of hiring upon destruction of-the thing hired.
12. SUBROGATION. Landlord and Tenant shall each have included in all
policies of fire, extended coverage, business interruption and other
insurance respectively obtained by them covering the Premises, the Building
and contents therein, a waiver by the insurer of all right of subrogation
against the other in connection with any loss or damage thereby insured
against. Any additional premium for such waiver shall be paid by the primary
insured. To the full extent permitted by law, Landlord and Tenant each waives
all right of recovery against the other for, and agrees to release the other
from liability for, loss or damage to the extent such loss or damage is
covered by valid and collectible INSURANCE IN effect at the time of such loss
or damage or would be covered by the insurance required to be maintained
under this Lease by the party seeking recovery.
13. EXCULPATION, INDEMNIFICATION AND INSURANCE.
(a) Tenant hereby waives as against Landlord, and releases Landlord
from, all claims for damage to any property or injury, illness or death of any
person in, upon or about the Premises
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and/or the Building arising at any time and from any cause whatsoever
(including, without limitation, when such damage, injury, illness or death
shall have been caused in whole or in part by the act, omission, or active or
passive negligence of Landlord, its employees, agents or contractors), other
than solely by reason of the gross negligence or willful act of Landlord, its
employees, agents or contractors. Notwithstanding anything in the foregoing
to the contrary, in no event shall Landlord be responsible to Tenant for
claims for damages arising from or in connection with the acts or omissions
of any other tenant or occupant of the Building, or for consequential or
punitive damages.
(b) Tenant shall indemnify, protect, defend and hold Landlord
harmless from and against any and all claims, loss, damages, causes of
action, liability, cost and expense (including, without limitation,
attorneys, fees) arising from or in connection with:
(i) the use, storage and disposal by Tenant of any
hazardous substances, materials or waste in the Premises; and
(ii) any damage to any property or injury, illness or death of
any person (A) occurring in or on the Premises or any part thereof
arising at any time and from any cause whatsoever other than by reason,
and only to the extent, of the negligence or willful act of Landlord,
its employees, agents or contractors, and (B) occurring in, on,
or-about any part of the Building other than the Premises when such
damage, injury, illness or death shall be caused in whole or in part by
the act, neglect, omission or fault of Tenant, its agents, servants,
employees, invitees or licensees, other than by reason, and only to the
extent, of the negligence or willful act of Landlord, its employees,
agents or contractors.
(c) Tenant shall, at its sole cost and expense, obtain and keep in
force during the term of this Lease fire and extended coverage insurance on
Tenant's improvements, including, without limitation, the Tenant
Improvements, fixtures, furnishings and equipment in and upon the Premises in
an amount not less than eighty percent (80%) of the full replacement cost
thereof (without deduction for depreciation). All amounts that shall be
received under the insurance specified in this Subparagraph 13(c) shall first
be applied to the payment of the cost of repair or replacement of-any of
Tenant's improvements, fixtures, furnishings and equipment that were damaged
or destroyed, or, if this Lease terminates, prior to such repair or
replacement being made, paid over to Landlord to the extent that the
improvements or fixtures damaged or destroyed have become Landlord's property
pursuant to Paragraph 8 hereof.
(d) Tenant shall, at its sole cost and expense, obtain and keep in
force during the term of this Lease comprehensive general liability insurance
including contractual and fire legal liability coverage, with a minimum
combined single limit of liability of Three Million Dollars ($3,000,000) per
occurrence for injury to, illness of, or death of persons and damage to
property occurring in, upon or about the Premises or the Building. Landlord
reserves the right to increase the foregoing amount from time to time as
Landlord determines is required adequately to protect Landlord from the
matters insured against. The foregoing insurance shall insure the performance
by Tenant of the indemnity agreement set forth in Subparagraph 13(a) hereof.
(e) All insurance required under this Paragraph 13 and all renewals
thereof shall be issued by such good and responsible companies qualified to
do and doing business in the State of California
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as may be approved by Landlord, which approval shall not be unreasonably
withheld, with a designation in the current "Bests Insurance Reports" as
issued from time to time as follows: policyholders' rating of not less than
B+, financial rating of not less than X. Each policy shall expressly provide
that the policy shall not be cancelled or altered without thirty (30) days'
prior written notice to Landlord and shall remain in effect notwithstanding
any such cancellation or alteration until such notice shall have been given
to Landlord and such thirty (30) day period shall have expired. All insurance
under this Paragraph 13 shall name Landlord as an additional insured, shall
be primary and noncontributing with any insurance which may be carried by
Landlord, and shall expressly provide that Landlord, although named as an
insured, shall nevertheless be entitled to recover under the policy for any
loss, injury or damage to Landlord, its employees and contractors (i.e.,
severability of interests endorsement). Upon the issuance thereof, each such
policy or a duplicate or certificate thereof shall be delivered to Landlord
for retention by it. In the event that Tenant shall fail to insure or shall
fail to furnish to Landlord upon notice to do so any such policy, duplicate
policy or certificate as herein required, Landlord may, but shall not be
obligated so to do, effect such insurance for the benefit of Tenant or
Landlord or both of them for a period not exceeding one year, and any premium
paid by Landlord shall be recoverable from Tenant as additional rent on
demand.
(f) The provisions of this Paragraph 13 shall survive the
termination of this Lease with respect to any damage, injury, illness or
death occurring prior to such termination.
14. COMPLIANCE WITH LEGAL REQUIREMENTS. Tenant shall, at its sole
cost and expense, promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force, including, without limitation, the Americans with
Disabilities Act, 42 U.S.C. Sections 12101 ET. SEQ., laws regarding the use,
storage and disposal of hazardous substances, with the requirements of any
board of fire underwriters or other similar body now or hereafter
constituted, with any direction or occupancy certificate issued pursuant to
any law by any public agencies or officers, as well as the provisions of all
recorded documents affecting the Premises of which Tenant has received actual
notice, insofar as any thereof relate to or affect the condition, use or
occupancy of the Premises, excluding requirements of structural changes not
related to or necessitated or affected by Tenant's acts or by improvements
made by or for Tenant.
15. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not, directly or indirectly, without the prior written
consent of Landlord (which consent shall not be unreasonably withheld), and
otherwise in strict accordance with the provisions of this Paragraph 15, assign
this Lease or any interest herein or sublease the Premises or any part thereof,
or permit the use or occupancy of the Premises by any person or entity other
than Tenant. Tenant shall not, directly or indirectly, without the prior written
consent of Landlord, pledge, mortgage or hypothecate this Lease or any interest
herein. Any sale or transfer (including, without limitation, by consolidation,
merger or reorganization) of a controlling interest in the voting stock of
Tenant, if Tenant is a corporation, or of a controlling partnership interest of
Tenant, if Tenant is a partnership, in one or a series of transactions, shall be
deemed an assignment for purposes of this Subparagraph 15(a). The term
"CONTROLLING" as used in the immediately preceding sentence shall mean the right
to exercise, directly or indirectly, forty-nine percent (49%) or more of the
voting or equity rights attributable to the interest of the controlled entity.
This Lease shall not,
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nor shall any interest herein, be assignable as to the interest of Tenant
involuntarily or by operation of law without the prior written consent of
Landlord. Any of the foregoing acts without such prior written consent of
Landlord shall be void and shall, at the option of Landlord, constitute a
default that entitles Landlord to terminate this Lease. Without limiting or
excluding other reasons for withholding Landlord's consent, Landlord shall
have the right to withhold consent if the proposed assignee or subtenant or
the use of the Premises to be made by the proposed assignee or subtenant is
not consistent with the character and nature of other tenants and uses
permitted in the Building or on the particular floor(s) of the Building on
which the Premises are located, or is prohibited by this Lease, or if the
proposed assignee or subtenant is currently a tenant or other occupant of the
Building, or it is not demonstrated to the satisfaction of Landlord that the
proposed assignee or subtenant has good business and moral character and
reputation and that the financial condition of the proposed assignee or
subtenant equals or exceeds that required by Landlord of other tenants
leasing comparable space in the Building. Tenant agrees that the instrument
by which any assignment or sublease to which Landlord consents is
accomplished shall expressly provide that the assignee or subtenant will
perform all of the covenants to be performed by Tenant under this Lease (in
the case of a sublease, only insofar as such covenants relate to the portion
of the Premises subject to such sublease) as and when performance is due
after the effective date of the assignment or sublease, that Landlord will
have the right to enforce such covenants directly against-such assignee or
subtenant and that upon written notice to such assignee or subtenant from
Landlord of a default by Tenant under the terms of this Lease, the assignee
or subtenant shall pay any sublease rental or other compensation otherwise
payable under any agreement with Tenant, as and when due, directly to
Landlord. Any purported assignment or sublease without an instrument
containing the foregoing provisions shall be void.
(b) If Tenant wishes to assign this Lease or sublease all or any
part of the Premises, Tenant shall give written notice to Landlord
identifying the intended assignee or subtenant by name and address and
specifying all of the terms of the intended assignment or sublease. Tenant
shall give Landlord such additional information concerning the intended
assignee or subtenant (including complete financial statements and a business
history) or the intended assignment or sublease (including true copies
thereof) as Landlord requests. For a period of twenty (20) days after such
written notice is given by Tenant, Landlord shall have the right, by giving
written notice to Tenant, to (i) consent in writing to the intended
assignment or sublease, (ii) withhold and decline to consent to the intended
assignment or sublease, or (iii) in the case of an assignment of this Lease
or a sublease of substantially the entire Premises for substantially the
balance of the term of this Lease, terminate this Lease by written notice to
Tenant, which termination shall be effective as of the date on which the
intended assignment or sublease would have been effective if Landlord had not
exercised such termination right. If Landlord elects to terminate this Lease,
then from and after the date of such termination, Landlord and Tenant each
shall have no further obligation to the other under this Lease with respect
to the Premises except for matters occurring or obligations arising hereunder
prior to the date of such termination. If Landlord elects to terminate this
Lease, Tenant shall have the right, by giving written notice to Landlord
within five (5) days of Landlord's exercise of its right under clause (iii)
above, to rescind its request to Landlord to consent to the proposed
assignment or subletting, in which event this Lease shall not terminate and
this Lease shall remain in full force and effect. If Landlord does not
exercise any of the rights set forth in clause (i), (ii) or (iii) above by
giving written notice to Tenant within such period of twenty (20) days,
Landlord shall be deemed to consent in writing to the intended assignment or
sublease pursuant to clause (i) of the preceding sentence. Tenant
acknowledges and agrees that this Paragraph 15 is an economic
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provision, like rent, and that Landlord's right to terminate this Lease and
to recapture possession of the Premises, in the event Landlord exercises its
right under clause (iii) above, or to share in the excess rent (as that term
is hereinafter defined), in the event Landlord exercises its right under
clause (i) above, was granted by Tenant to Landlord in consideration of
certain other economic concessions granted by Landlord to Tenant.
(c) If Landlord consents in writing (or Landlord is deemed to
consent in writing in accordance with Subparagraph (b) hereof) or the
assignment or sublease is otherwise permitted under this Lease, Tenant may
complete the intended assignment or sublease subject to the following
covenants: (i) the assignment or sublease shall be on the same terms as set
forth in the written notice given by TENANT TO Landlord, (ii) no assignment
or sublease shall be valid and no assignee or ` subtenant shall take
possession of the Premises or any part thereof until an executed duplicate
original of such assignment or sublease, in compliance with Subparagraph
15(a) hereof, has been delivered to Landlord, (iii) no assignee or subtenant
shall have a right further to assign or sublease, and (iv) fifty percent
(50%) of the excess rent (as hereinafter defined) derived from such
assignment or sublease shall-be paid to Landlord. Such excess rent shall be
deemed to be, and shall be paid by Tenant to Landlord as, additional rent.
Tenant shall pay such excess rent to Landlord immediately as and when such
excess rent becomes due and payable to Tenant. As used in this Paragraph,
"excess rent" shall mean the amount by which the total money and other
economic consideration to be paid by the assignee or subtenant as a result of
an assignment or sublease, whether denominated rent or otherwise, exceeds, in
the aggregate, the total amount of rent which Tenant is obligated to pay to
Landlord under this Lease (prorated to reflect the rent allocable to the
portion of the Premises subject to such assignment or sublease), less only
the reasonable costs paid by Tenant for additional improvements installed in
the portion of the Premises subject to such assignment or sublease at
Tenant's sole cost and expense for the specific assignee or subtenant in
question and approved by Landlord in accordance with the provisions of
Paragraph 8 hereof, and reasonable leasing commissions paid by Tenant in
connection with such assignment or sublease, without deduction for carrying
costs due to vacancy or otherwise. Such costs of additional improvements and
leasing commissions shall be amortized without interest over the term of such
assignment or sublease unless, with respect to such additional improvements,
such additional improvements have a useful life greater than the term of such
assignment or sublease, in which case such additional improvements shall be
amortized without interest over their useful life.
(d) No assignment or sublease whatsoever shall release Tenant from
Tenant's obligations and liabilities under this Lease or alter the primary
liability of Tenant to pay all rent and to perform all obligations to be paid
and performed by Tenant. The acceptance of rent by Landlord from any other
person or entity shall not be deemed to be a waiver by Landlord of any
provision of this Lease. Consent to one assignment or sublease shall not be
deemed consent to any subsequent assignment or sublease. If any assignee,
subtenant or successor of Tenant defaults in the performance of any
obligation to be performed by Tenant under this Lease, Landlord may proceed
directly against Tenant without the necessity of exhausting remedies against
such assignee, subtenant or successor. Landlord may consent to subsequent
assignments or subleases or amendments or modifications to this Lease with
assignees, subtenants or successors of Tenant, without obtaining any consent
thereto from Tenant or any successor of Tenant, provided that Landlord shall
have given Tenant written notice thereof, and such action shall not release
Tenant from liability under this Lease.
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(e) Tenant shall reimburse Landlord, as additional rent, (i)
Landlord's reasonable costs and attorneys' fees incurred in conjunction with
the processing and documentation of any requested or permitted assignment,
subletting, hypothecation or transfer of Tenant's interest in this Lease or
the Premises (whether or not said transaction is consummated), and (ii) all
costs incurred by Landlord in connection with moving the new subtenant or
assignee into the Premises (including, without limitation, freight elevator
and security guard services). Notwithstanding anything to the contrary in
this Lease, if Tenant or any proposed assignee, subtenant or other transferee
of Tenant claims that Landlord has unreasonably withheld or delayed its
consent under Subparagraph 15(b) hereof, or otherwise has breached or acted
unreasonably under this Paragraph 15, their sole remedy shall be a
declaratory judgment and an injunction for the relief sought without any
monetary damages, and Tenant waives all other remedies on its own behalf and
to the extent permitted under by law, on behalf of Tenant's proposed
assignee, subtenant or other transferee.
(f) Notwithstanding the provisions of Subparagraph 15(a) hereof,
Tenant shall have the right to sublease the entire Premises to an affiliate
or subsidiary of Tenant, provided that Tenant has submitted sufficient
information to Landlord to enable Landlord to determine, and Landlord has
notified Tenant in writing that it has determined, in its sole discretion,
that the following conditions with respect to-the proposed sublease have been
.satisfied:
(i) The total-net worth of the proposed sublessee is greater
than or equal to the total net worth of Tenant on the date of this
Lease;
(ii) The use of the Premises to be made by the proposed
subtenant is permitted by this Lease and is consistent with the
character and nature of other tenants and uses permitted in the
Building and on the particular floors on which the Premises are
located;
(iii) The proposed subtenant has a good business and moral
character and reputation; and
(iv) The electrical, HVAC and weight load to be imposed by the
proposed subtenant on the Premises will not exceed the design load
capacities and performance criteria of the Building.
(g) Notwithstanding the provisions of Subparagraph 15(a) hereof,
Tenant may sell or transfer a controlling interest in the voting stock of
Tenant, provided that Tenant has submitted sufficient information to Landlord
to enable Landlord to determine, and Landlord has notified Tenant in writing
that it has determined, in its sole discretion, that the following conditions
with respect to the proposed sale or transfer have been satisfied:
(i) The total net worth of the proposed purchaser is greater
than or equal to the greater of (1) the total net worth of Tenant on
the date of this Lease and (2) the total net worth of Tenant
immediately prior to such sale or transfer;
(ii) The use of the Premises to be made by the proposed
purchaser is permitted by this Lease and is consistent with the
character and nature of other tenants and uses permitted in the
Building and on the particular floors on which the Premises are
located;
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(iii) The proposed purchaser has a good business and moral
character and reputation; and
(iv) The electrical, HVAC and weight load to be imposed by the
proposed purchaser on the Premises will not exceed the design load
capacities and performance criteria of the Building.
16. RULES AND REGULATIONS. Tenant shall faithfully observe and
comply with the Rules and Regulations attached as EXHIBIT B to this Lease
and, after notice thereof, all reasonable modifications thereof and additions
thereto from time to time promulgated in writing by Landlord. Landlord shall
not-be responsible to Tenant for the nonperformance by any other tenant or
occupant of the Building of any of said Rules and Regulations.
17. ENTRY BY LANDLORD. Landlord reserves and shall have the right
from time to time and upon twenty-four (24) hours notice (other than for
services provided by Landlord on a regular basis or in the event of an
emergency, as to which no notice shall be required), to enter the Premises to
(a) inspect the Premises, (b) exhibit the Premises to prospective purchasers,
lenders or tenants, (c) determine whether Tenant is complying with all its
obligations hereunder, (d) supply janitor service and any other service to be
provided by Landlord to Tenant hereunder, (e) post notices of
nonresponsibility, and (f) make repairs required of Landlord hereunder or
repairs to any adjoining space or utility services or make repairs,
alterations or improvements to any other portion of the Building; provided,
however, that all such work shall be done as promptly as reasonably possible
and so as to cause as little interference to Tenant as reasonably possible.
Subject to Paragraph 13 hereof, Tenant hereby waives any claim for damages
for any injury or inconvenience to or interference with Tenant's business,
any loss of occupancy or quiet enjoyment of the Premises or any other loss or
claim for abatement of rent occasioned by such entry. Landlord shall at all
times have and retain a key with which to unlock all of the doors in, upon or
about the Premises (excluding Tenant's vaults, safes and similar areas
designated in writing by Tenant in advance), and Landlord shall have the
right to use any and all means which Landlord may deem reasonable under the
circumstances to open said doors in an emergency in order to obtain entry to
the Premises, and any entry to the Premises obtained by Landlord by any
reasonable means, or otherwise, shall not under any circumstances be
construed or deemed to be a forcible or unlawful entry into or a detainer of
the Premises or an eviction, actual or constructive, of Tenant from the
Premises, or any portion thereof.
18. EVENTS OF DEFAULT. The occurrence of any one or more of the
following events ("EVENT OF DEFAULT") shall constitute a breach of this Lease
by Tenant:
(a) If Tenant shall fail to pay any monthly base rent or additional
rent when and as the same becomes due and payable and such failure continues
for more than three (3) business days after Landlord gives written notice
thereof to Tenant; provided, that after the second such failure in any
calendar year, the failure to pay monthly base rent or additional rent as and
when the same becomes due and payable shall be an immediate default without
further notice; or
(b) If Tenant shall fail to pay any other sum or charge payable by
Tenant hereunder when and as the same becomes due and payable and such
failure shall continue for more than five (5) days following written notice
thereof from Landlord; or
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(c) If Tenant shall fail to perform or observe any other agreement,
covenant, condition or provision hereof or of the Rules and Regulations
specified in Paragraph 16 hereof to be performed or observed by Tenant when
and as performance or observance is due, such failure shall continue for more
than twenty (20) days following written notice thereof from Landlord and
Tenant shall not within such period commence with due diligence and dispatch
the curing of such default or, havling so commenced, shall thereafter fail or
neglect to prosecute or complete with due diligence and dispatch the curing
of such default; provided, however, that notwithstanding the foregoing, a
change in use of the Premises in violation of Subparagraph 6(a) hereof, or
the failure to observe the provisions of this Lease concerning the use,
storage or disposal of hazardous substances in the Premises, or a transfer or
encumbrance of this Lease or Tenant's interest in the Premises in violation
of Paragraph 15 hereof shall be an immediate, noncurable default hereunder; or
(d) If Tenant shall make a general assignment for the benefit of
creditors, or shall admit in writing its inability to pay its debts as they
become due, or shall file a petition in bankruptcy, or shall be adjudicated
as bankruptcy or insolvent, or shall file a petition seeking any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future statute, law or
regulation, or shall file an answer admitting or shall fail timely to contest
the material allegations of a petition filed against it in any such
proceeding, or shall seek or consent to or acquiesce in the appointment of
any trustee, receiver or liquidator of Tenant or any material part of its
properties; or
(e) If within sixty (60) days after the commencement of any
proceeding against Tenant seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under
any present or future statute, law or regulation, such proceeding shall not
have been dismissed or if, within sixty (60) days after the appointment
without the consent or acquiescence of Tenant of any trustee, receiver or
liquidator of Tenant or of any material part of its properties, such
appointment shall not have been vacated; or
(f) the taking of any action leading to, or the actual dissolution
or liquidation of Tenant, if Tenant is other than an individual; or
(g) If this Lease or any estate of Tenant hereunder shall be levied
upon under any attachment or execution and such attachment or execution is
not vacated within ten (10) days; or
(h) If Tenant shall vacate or abandon the Premises or any part
thereof at any time during the term of this Lease, unless Tenant continues to
pay rent, additional rent and any other sums payable under this Lease.
19. TERMINATION UPON DEFAULT. If an Event of Default shall occur,
Landlord at any time thereafter may give a written termination notice to
Tenant and on the date specified in such notice, Tenant's right to possession
shall terminate and this Lease shall terminate. Upon such termination,
Landlord may recover from Tenant:
(a) The worth at the time of award of the unpaid rent which had been
earned at the time of termination;
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(b) The worth at the time of award of the amount by which the unpaid
rent which would have been earned after termination until the time of award
exceeds the amount of such rental loss that Tenant proves could have been
reasonably avoided;
(c) The worth at the time of award of the amount by which the unpaid
rent for the balance of the term of this Lease after the time of award
exceeds the amount of such rental loss that Tenant proves could be reasonably
avoided; and
(d) Any other amount necessary to compensate Landlord for all the
detriment proximately caused by Tenant's failure to perform its obligations
under this Lease or which in the ordinary course of things would be likely to
result therefrom. The "worth at the time of award" of the amounts referred to
in Subparagraphs (a) and (b) above shall be computed by allowing interest at
the maximum annual interest rate allowed by law on the date of termination
for business loans (not primarily for personal, family or household purposes)
not exempt from the usury law, or, if there is no such maximum annual
interest rate, at the "Prime Rate" (as defined below) charged on such
termination date plus five (5) percentage points (the Prime Rate plus five
(5) percentage points). As used in this Lease, the term "PRIME RATE" shall
mean the rate of interest announced from time to time by the San Francisco
Main Office of Bank of America NT & SA (or any successor bank thereto) as its
"reference rate, (or, if there is no such "reference rate" announced, the
rate announced by such bank on which such bank prices its commercial loans to
its most creditworthy customers). The "worth at the time of award" of the
amount referred to in Subparagraph (c) above shall be computed by discounting
such amount at the discount rate of the Federal Reserve Bank of San Francisco
at the time of award plus one percent (1%). For the purpose of determining
unpaid rent under Subparagraphs (a)-(c) above, the monthly rent reserved in
this Lease shall be deemed to be the sum of the base rent due under Paragraph
3 hereof and the additional rent last payable by Tenant under Paragraph 4
hereof. Tenant hereby waives all rights under California Code of Civil
Procedure section 1179 and Civil Code section 3275 providing for relief from
forfeiture and any other right of reinstatement following termination of this
Lease. The foregoing waiver shall survive the termination of this Lease.
20. CONTINUATION AFTER DEFAULT. Even though Tenant has breached this
Lease, this Lease shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession, and Landlord may enforce all its
rights and remedies under this Lease, including the right to recover the rent
as it becomes due under this Lease. Without limiting the generality of the
foregoing, Landlord has the remedy described in California Civil Code Section
1951.4 (lessor may continue lease in effect after lessee's breach and
abandonment and recover rent as it becomes due, if lessee has right to sublet
or assign, subject only to reasonable limitations). Acts of maintenance or
preservation or efforts to relet the Premises or the appointment of a
receiver upon initiative of Landlord to protect Landlord's interest under
this Lease, or the withholding of consent to a subletting or assignment or
terminating a subletting or assignment shall not constitute a termination of
Tenant's right to possession unless written notice of termination is given by
Landlord to Tenant.
21. LANDLORD'S RIGHT TO CURE DEFAULTS. All agreements, covenants,
conditions and provisions to be performed or observed by Tenant under this Lease
shall be at its sole cost and expense and without any abatement of rent. If
Tenant shall fail to pay any sum of money, other than rent, required to be paid
by it hereunder or shall fail to perform-any other act on its part to be
performed hereunder, Landlord may, but shall not be obligated so to do, and
without waiving or
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releasing Tenant from any obligations of Tenant, make any such payment-or
perform any such other act on Tenant's part to be made or performed as in
this Lease provided. To the extent that it is reasonably feasible, Landlord
shall give Tenant written notice prior to making such a payment or performing
such an act on Tenant's part. All sums so paid by Landlord and all necessary
incidental costs shall be deemed additional rent hereunder and shall be
payable to Landlord on demand, together with interest thereon at the maximum
annual interest rate allowed by law on the date of expenditure by Landlord
for business loans (not primarily for personal, family or household purposes)
not exempt from the usury law, or, if there is no such maximum annual
interest, at the Prime Rate (as defined in Subparagraph 19(d) hereof) charged
on the date of expenditure by Landlord plus five (5) percentage points (the
Prime Rate plus five (5) percentage points), from the date of expenditure by
Landlord to the date of repayment by Tenant and Landlord shall have (in
addition to any other right or remedy of Landlord) the same rights and
remedies in the event of the nonpayment thereof by Tenant as in the case of
default by Tenant in the payment of rent.
22. LATE CHARGE/DEFAULT INTEREST. Tenant acknowledges that the late
payment by Tenant of any monthly installment of base rent or additional rent
will cause Landlord to incur costs and expenses, the exact amount of which is
extremely difficult and impractical to fix. Such costs and expenses will
include administration and collection costs, loss of use of available funds,
and processing and accounting expenses. Therefore, if any monthly installment
of base rent or additional rent is not received by Landlord within five (5)
days after such installment is due, Tenant shall immediately pay to Landlord
a late charge equal to four percent (4%) of such delinquent installment.
Landlord and Tenant agree that such late charge represents a reasonable
estimate of such costs and expenses and is fair compensation to Landlord for
the loss suffered by Tenant's failure to make timely payment. In no event
shall such late charge be deemed to grant to Tenant a grace period of
extension of time within which to pay any monthly rent or be deemed an
election of remedies by Landlord preventing it from exercising any right or
enforcing any remedy available to Landlord upon Tenant's failure to pay each
installment of monthly rent due under this Lease in a timely fashion,
including the right to terminate this Lease. All amounts of money payable by
Tenant to Landlord hereunder, if not paid when due (and as to monthly
installments of base rent and additional rent if not paid prior to imposition
of the late charge provided above), shall bear interest from the due date (or
from the date of imposition of the late charge, as the case may be) until
paid at the maximum annual interest rate allowed by law for business loans
(not primarily for personal, family or household purposes) not exempt from
the usury law at such due date or, if there is no such maximum annual
interest rate, at the Prime Rate (as defined in Subparagraph 19(d) hereof)
charged on such due date plus five (5) percentage points.
23. OTHER RELIEF. The remedies provided for in this Lease are in
addition to any other remedies available to Landlord at law or in equity by
statute or otherwise.
24. ATTORNEYS' FEES. In the event of any action or proceeding at law or
in equity between Landlord and Tenant to enforce any provision of this Lease or
to protect or establish any right or remedy of either Landlord or Tenant
hereunder, the unsuccessful party to such action or proceeding shall pay to the
prevailing party all costs and expenses, including reasonable attorneys, fees,
incurred by such prevailing party in such action or proceeding and in any appeal
in connection therewith, and, if such prevailing party shall recover judgment in
any such action, proceeding or appeal, such costs, expenses and attorneys' fees
shall be included in and as a part of such judgment. For the purposes of this
paragraph the "PREVAILING PARTY" shall be the: (i) party prosecuting such
proceeding or action, if
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any relief is granted to such party, or (ii) the other party to the
proceeding, if no relief is granted to the party prosecuting such proceeding;
provided, that if both parties prosecute claims in the same proceeding and
relief is granted to both parties or no relief is granted to either party in
such proceeding, neither party shall be deemed the "prevailing party" and
each party shall bear its own costs and expenses and all other costs of such
proceeding or action shall be divided equally between the parties.
25. EMINENT DOMAIN. If all or any part of the Premises shall be
taken, or any part of the Building that is necessary for Tenant's access to
or use of the Premises, as a result of the exercise of the power of eminent
domain or agreement in lieu thereof, this Lease shall terminate as to the
part so taken as of the date of taking, and, in the case of a partial taking,
either Landlord or Tenant shall have the right to terminate this Lease as to
the balance of the Premises by giving written notice to the other within
thirty (30) days after such date; provided, however, that a condition to the
exercise by Tenant of such right to terminate shall be that the portion of
the Premises taken shall be of such extent and nature as substantially to
handicap, impede or impair Tenant's use of the balance of the Premises. In
the event of any taking, Landlord shall be entitled to any and all
compensation, damages, income, rent, awards or interest therein whatsoever
which may be paid or made in connection therewith, and Tenant shall have no
claim against Landlord for the value of any unexpired term of this Lease or
otherwise. Notwithstanding the foregoing, Tenant shall have the right to
claim and recover from the condemning authority a separate award for Tenant's
moving expenses, business dislocation damages, personal property and
fixtures, unamortized costs of leasehold improvements paid for by Tenant,
provided that neither the making of such a claim nor the recovery of such an
award would in any way reduce the amount or adversely affect the terms of
Landlord's award arising out of such taking. In the event of a partial taking
of the Premises which does not result in a termination of this Lease, the
monthly rent thereafter to be paid shall be equitably reduced. If all or any
part of the Building shall be taken as a result of the exercise of the power
of eminent domain, Landlord shall have the right to terminate this Lease by
giving written notice to Tenant within thirty (30) days after the date of
taking.
26. SUBORDINATION TO MORTGAGES. This Lease shall be subject and
subordinated at all times to the lien of all mortgages and deeds of trust in
any amount or amounts whatsoever which may now exist or hereafter be placed
on or against the Building or on or against Landlord's interest or estate
therein, all without the necessity of having further instruments executed on
the part of Tenant to effectuate such subordination. Notwithstanding the
foregoing in the event of a foreclosure of any such mortgage or deed of trust
or of any other action or proceeding for the enforcement thereof, or of any
sale thereunder, this Lease will not be barred, terminated, cut off or
foreclosed, nor will the rights and possession of Tenant hereunder be
disturbed, if Tenant shall not then be in default in the payment of rent or
other sums or be otherwise in default under this Lease, and Tenant shall
attorn to the purchaser at such foreclosure, sale or other action or
proceeding. Tenant agrees to execute, acknowledge and deliver upon demand
such further instruments evidencing such subordination of this Lease to the
lien of any such mortgages or deeds of trust as may reasonably be required by
Landlord; provided, however, that Tenant's covenant to subordinate this Lease
to mortgages or deeds of trust hereafter executed is conditioned upon each
such senior instrument-containing the commitments specified in the preceding
sentence.
27. NO MERGER. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger and shall, at
the option of Landlord, terminate all or
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any existing subleases or subtenancies, or operate as an assignment to
Landlord of any or all such subleases or subtenancies.
28. SALE. In the event the original Landlord hereunder, or any
successor owner of the Building, shall sell or convey the Building, all
liabilities and obligations on the part of the original Landlord, or such
successor owner, under this Lease accruing thereafter shall terminate, and
thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner, provided such new owner
assumes and agrees to perform Landlord's obligations under this Lease.
29. ESTOPPEL CERTIFICATE. At any time and from time to time but on
not less than ten (10) days, prior written request by Landlord, Tenant shall
execute, acknowledge and deliver to Landlord, promptly upon request, a
certificate certifying:
(a) That this Lease is unmodified and in full force and effect (or,
if there have been modifications, that this Lease is in full force and effect
as modified, and stating the date and nature of each modification);
(b) The date, if any, to which rent and other sums payable hereunder
have been paid;
(c) That no notice has been received by Tenant of any default which
has not been cured, except as to defaults specified in such certificate;
(d) That Landlord is not in default hereunder, except as to defaults
specified in such certificate; and
(e) Such other matters as may be reasonably requested by Landlord or
any actual or prospective purchaser or mortgage lender. Any such certificate
may be relied upon by any actual or prospective purchaser, mortgagee or
beneficiary under any deed of trust of the Building or any part thereof.
30. NO LIGHT, AIR OR VIEW EASEMENT. Any diminution or shutting off
of light, air or view by any structure which may be erected on lands adjacent
to the Building shall in no way affect this Lease or impose any liability on
Landlord.
31. HOLDING OVER. If, without objection by Landlord, Tenant holds
possession of the Premises after expiration of the term of this Lease.,
Tenant shall become a tenant from month to month upon the terms herein
specified but at a monthly rent equal to 200% of the then prevailing monthly
rent paid by Tenant at the expiration of the term of this Lease pursuant to
all the provisions of Paragraphs 3 and 4 hereof, payable in advance on or
before the first day of each month. Each party shall give the other written
notice at least one month prior to the date of termination of such monthly
tenancy of its intention to terminate such tenancy.
32. ABANDONMENT. Tenant's vacation, surrender or abandonment of the
Premises or any part thereof at any time during the term hereof shall
constitute a material breach of this Lease, unless Tenant continues to pay
rent and additional rent under this Lease and continues to comply with all
other terms and provisions of this Lease. If Tenant shall vacate, abandon or
surrender the Premises and not continue to pay rent and additional rent under
this Lease or not continue to comply with all
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of the other terms and provisions of this Lease, or shall be dispossessed by
process of law or otherwise, whether or not Tenant continues to pay rent and
additional rent under this Lease and continues to comply with all other terms
and provisions of this Lease any personal property belonging to Tenant and
left on the Premises shall be deemed to be abandoned, at the option of
Landlord, and Landlord may sell or otherwise dispose of such personal
property in any commercially reasonable manner.
33. SECURITY DEPOSIT. Tenant deposited with Landlord Two Thousand
Three Hundred Dollars ($2,300) (the "FIRST DEPOSIT") in connection with the
Seventh Floor Lease (as defined in EXHIBIT C). Tenant has also deposited with
Landlord the sum of Twenty-Four Thousand One Hundred Thirteen Dollars
($24,113.00) (the "SECOND DEPOSIT") in connection with the execution of this
Lease. On-May 1, 1999, Tenant shall deposit with Landlord the additional sum
of Thirty-One Thousand Four-Hundred Thirteen Dollars (the "THIRD DEPOSIT") in
connection with the termination of the Master Lease. Because the Seventh
Floor Lease is being terminated concurrently with the execution of this Lease
and the Seventh Floor Space (as defined in EXHIBIT C) is included in the
Initial Premises, Landlord shall hold the First Deposit, the Second Deposit
and, as of May 1, 1999, the Third Deposit (collectively and individually, the
"DEPOSIT") as security for the faithful performance and observance by Tenant
of all of the agreements, covenants, conditions and provisions of this Lease
to be performed or observed by Tenant, and Tenant shall not be entitled to
interest thereon. Landlord shall not be required to segregate the Deposit
from its other funds. In the event Tenant fails to perform or observe any of
the agreements, covenants, conditions and provisions of this Lease to be
performed or observed by it, including, without limitation, defaults by
Tenant in the payment of rent, the repair of damage to the Premises caused by
Tenant, and the cleaning of the Premises upon termination of the tenancy
created hereby, then, at Landlord's option, Landlord may, but shall not be
obligated to, apply the Deposit, or so much thereof as may be necessary, to
remedy any such failure by Tenant. If Landlord applies the Deposit or any
part thereof to remedy any such failure by Tenant, then Tenant shall
immediately pay to Landlord the sum necessary to restore the Deposit to the
full amount specified in this Paragraph 33. Any remaining portion of the
Deposit shall be returned to Tenant upon termination of this Lease. Upon
termination of the original Landlord's or any successor landlord's interest
in the Premises or the Building, the original Landlord or such successor
landlord shall be relieved of further liability with respect to the Deposit
upon the original Landlord's or such successor landlord's complying with
California Civil Code section 1950.7.
34. WAIVER. The waiver by Landlord or Tenant of any breach of any
agreement, covenant, condition or provision herein contained shall not be
deemed to be a waiver of any subsequent breach of the same or any other
agreement, covenant, condition or provision herein contained, nor shall any
custom or practice which may grow up between Landlord and Tenant in the
administration of this Lease be construed to waive or to lessen the right of
Landlord or Tenant to insist upon the performance by Landlord or Tenant in
strict accordance with this Lease. The subsequent acceptance of rent
hereunder by Landlord or the payment of rent by Tenant shall not be deemed to
be a waiver of any preceding breach by Landlord or Tenant of any agreement,
covenant, condition or provision of this Lease, other than the failure of
Tenant to pay the particular rent so accepted, regardless of Landlord's or
Tenant's knowledge of such preceding breach at the time of acceptance or
payment of such rent.
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35. NOTICES. All notices, communications and demands which may or
are required to be given by either Landlord or Tenant to the other hereunder
shall be deemed to have been fully given when made in writing and either
personally delivered (by hand or overnight air courier service), deposited in
the United States mail, certified or registered, postage prepaid, and
addressed as follows: to Tenant at its address specified beneath its
signature below, or to such other place as Tenant may from time to time
designate in a notice to Landlord, or delivered to Tenant at the Premises; to
Landlord at its address specified beneath its signature below, or to such
other place as Landlord may from time to time designate in a notice to
Tenant. All notices, communications and demands shall be effective on the
date of receipt or attempted delivery (evidenced by the registered mail
receipt if mailed) or on the date of delivery, if hand delivered or delivered
by overnight air courier service. Tenant hereby appoints as its agent to
receive the service of all default notices and notice of commencement of
unlawful detainer proceedings the person in charge of or apparently in charge
of or occupying the Premises at the time, and, if there is no such person,
then such service may be made by attaching the same to the main entrance of
the Premises and such service shall be effective for all purposes under this
Lease.
36. COMPLETE AGREEMENT. There are no oral agreements between
Landlord and Tenant affecting this Lease, and this Lease supersedes and
cancels any and all previous negotiations, arrangements, brochures,
agreements (except for the Sublease, as consented to by Landlord) and
understandings, oral or written, if any, between Landlord and Tenant or
displayed by Landlord to Tenant with respect to the subject matter of this
Lease or the Building. There are no representations between Landlord and
Tenant or between any real estate broker and Tenant other than those
contained in this Lease and all reliance with respect to any representations
is solely upon representations contained in this Lease. This Lease may not be
amended or modified in any respect whatsoever except by an instrument in
writing signed by Landlord and Tenant.
37. SIGNAGE. Landlord shall provide identification of Tenant's name
and suite numerals at the main entrance door to the Premises with one space
on the Building lobby directory. All signs, notices and graphics of every
kind or character, visible in or from public corridors, the common Areas or
the exterior of the Premises, shall be subject to Landlord's prior written
approval.
38. REAL ESTATE BROKERS. Tenant warrants and represents that it has
negotiated this Lease through its broker, Belvedere Associates ("TENANT'S
BROKER"), and has not authorized or employed, or acted by implication to
authorize or to employ, any other real estate broker or salesman to act for
Tenant in connection with this Lease. Tenant shall hold Landlord harmless
from and indemnify and defend Landlord against any and all claims by any real
estate broker or salesman other than Tenant's Broker for a commission or
finder's fee as a result of Tenant's entering into this Lease. Landlord
warrants that it shall pay the standard fees and commissions-due Tenant's
Broker, as set forth in Landlord's letter to Tenant's Broker dated May 11,
1995, in connection with the negotiation of this Lease.
39. CORPORATE AUTHORITY. If Tenant is a corporation, each person
executing this Lease on behalf of Tenant does hereby covenant and warrant
that (a) Tenant is duly incorporated and validly existing under the laws of
its state of incorporation, (b) Tenant has and is qualified to do business in
California, (c) Tenant has full corporate right and authority to enter into
this Lease and to perform all Tenant's obligations hereunder, and (d) each
person (and all of the persons if more than one signs) signing this Lease on
behalf of the corporation is duly and validly authorized to do so.
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40. MISCELLANEOUS. The words "LANDLORD" and "TENANT" as used herein
shall include the plural as well as the singular. If there is more than one
Tenant, the obligations hereunder imposed upon Tenant shall be joint and
several. Time-is of the essence of this Lease and each and all of its
provisions. Submission of this instrument for examination or signature by
Tenant does not constitute a reservation of or option for lease, and it is
not effective as a lease or otherwise until execution and delivery by both
Landlord and Tenant. The agreements, covenants, conditions and provisions
herein contained shall, subject to the provisions as to assignment, apply to
and bind the heirs, executors, administrators, successors and assigns of the
parties hereto. Tenant shall not record this Lease or a short form memorandum
hereof without the prior consent of Landlord. Tenant shall not, without the
prior written consent of Landlord, use the name of the Building for any
purpose other than as the address of the business to be conducted by Tenant
in the Premises. If any provision of this Lease shall be determined to be
illegal or unenforceable, such determination shall not affect any other
provision of this Lease and all such other provisions shall remain in full
force and effect. This Lease shall be governed by and construed in accordance
with the laws of the State of California.
41. EXHIBITS. The following items, EXHIBIT A (Plan Outlining
Premises), EXHIBIT B (Rules and Regulations) and EXHIBIT C (Addendum) are
attached to this Lease and by this reference made a part hereof.
42. QUIET ENJOYMENT. So long as Tenant pays all rent and performs
all of its other obligations as required under this Lease, Tenant shall
quietly enjoy the Premises without hindrance or molestation by Landlord or
any person lawfully claiming through or under Landlord, subject to the terms
of this Lease and the terms of any and all present and future ground leases,
underlying leases, mortgages, deeds of trust or other encumbrances, and all
renewals, modifications, consolidations, replacements or extensions thereof
or advances made thereunder, affecting all or any portion of the Premises,
the Building or the real property on which they are situated, and all other
agreements or matters to which this Lease is subordinate.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as
of the day and year first hereinabove written.
Tenant Landlord:
SELECTQUOTE INSURANCE THE EQUITABLE LIFE ASSURANCE
SERVICES, a California SOCIETY OF THE UNITED STATUS, a New
York corporation
By: By:
--------------------------- ---------------------------
Name Name
--------------------- -----------------------
Title Title
--------------------- ----------------------
By:
------------------------
Name
--------------------
Title
-------------------
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EXHIBIT B
595 MARKET STREET
RULES AND REGULATIONS
1. The sidewalks, halls, passages, exits, entrances, shopping malls,
elevators, escalators and stairways of the Building shall not be obstructed
by any of the tenants or used by them for any purpose other than for ingress
to and egress from their respective premises. The halls, passages, exits,
entrances, shopping malls, elevators, escalators and stairways are not for
the general public and Landlord shall in all cases retain the right to
control and prevent access thereto of all persons whose presence in the
judgment of Landlord would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that
nothing herein contained shall be construed to prevent such access to persons
with whom any tenant normally deals in the ordinary course of its business,
unless such persons are engaged in illegal activities. No tenant and no
employee or invitee of any tenant shall go upon the roof of the Building.
Landlord shall have the right at any time without the same constituting an
actual or constructive eviction and without incurring any liability to Tenant
therefor to change the arrangement and/or location of entrances or
passageways, doors or doorways, corridors, elevators, stairs, toilets or
other common areas of the Building.
2. No sign, placard, picture, name, advertisement or notice visible
from the exterior of any tenant's premises shall be inscribed, painted,
affixed or otherwise displayed by any tenant on any part of the Building
without the prior written consent of Landlord. Landlord will adopt and
furnish to tenants general guidelines relating to signs inside the Building.
Tenant agrees to conform to such guidelines. All approved signs or lettering
on doors shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person approved by Landlord. Material visible from outside the
Building will not be permitted.
3. The Premises shall not be used for the storage of merchandise
held for sale to the general public or for lodging. No cooking shall be done
or permitted on the Premises, except that private use by Tenant of a
microwave oven and Underwriters' Laboratory approved equipment for brewing
coffee, tea, hot chocolate and similar beverages shall be permitted, provided
that such use is in accordance with all applicable federal, state and
municipal laws, codes, ordinances, rules and regulations.
4. No tenant shall employ any person or persons other than the
janitor of Landlord for the purpose of cleaning its premises unless otherwise
agreed to by Landlord in writing. Except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall be
permitted to enter the Building for the purpose of cleaning the same. No
tenant shall cause any unnecessary labor by reason of such tenant's
carelessness or indifference in the preservation of good order and
cleanliness. Landlord shall not be responsible to any tenant for any loss of
property on the Premises, however occurring, or for any damage done to the
effects of any tenant by the janitor or any other employee or any other
person. Janitor service will not be furnished on nights when rooms are
occupied after 6 p.m. unless, by agreement in writing, service is extended to
a later hour for specifically designated rooms.
<PAGE>
5. Landlord will furnish each tenant free of charge with two keys to
each door lock provided in the Premises by Landlord. Landlord may make a
reasonable charge for any additional keys. No tenant shall have any such keys
copied or any keys made. No tenant shall alter any lock or install a new or
additional lock or any bolt on any door of its premises. Each tenant, upon
the termination of its lease, shall deliver to Landlord all keys to doors in
the Building.
6. Landlord shall designate appropriate entrances and a "Freight"
elevator for deliveries or other movement to or from the Premises of
equipment, materials, supplies, furniture or other property, and Tenant shall
not use any other entrances or elevators for such purposes. The Freight
elevator shall be available for use by all tenants in the Building, subject
to such reasonable scheduling as Landlord in its discretion shall deem
appropriate. All persons employed and means or methods used to move
equipment, materials, supplies, furniture or other property in or out of the
Building must be approved by Landlord prior to any such movement. The
scheduling and manner of all move-ins and move-outs shall be coordinated
through the Building office and shall only take place after 6 p.m. on
weekdays, on weekends (subject to additional charges), or at such other times
as Landlord may designate. Landlord shall have the right to prescribe the
maximum weight, size and position of all equipment, materials, furniture or
other property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on a platform of such thickness as is necessary
to properly distribute the weight. Landlord will not be responsible for loss
of or damage to any such property from any cause, and All damage done to the
Building by moving or maintaining such property shall be repaired at the
expense of Tenant.
7. No tenant shall use any method of heating or air conditioning
other than that supplied by Landlord, No tenant shall use or keep or permit
to be used or kept any foul or noxious gas or substance in the Premises, or
permit or suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of
noise, odors or vibrations, or interfere in any way with other tenants or
those having business in the Building, nor shall any animals or birds be
brought or kept in the Premises or the Building.
8. Landlord shall have the right, exercisable without notice and
without liability to any tenant, to change the name or street address of the
Building.
9. Landlord establishes the hours of 7 a.m. to 6 p.m. of each day
other than Saturdays, Sundays and legal holidays as reasonable and usual
business hours for the purposes of Subparagraph 7(b) of the lease. If Tenant
requests electricity or heat or air conditioning during any hours on
Saturdays, Sundays or legal holidays, or during the hours of 6 p.m. to 7 a.m.
on any other day, and if Landlord is able to provide the same, Tenant shall
pay Landlord such charge as Landlord shall establish from time to time for
providing such services during such hours. Any such charges which Tenant is
obligated to pay shall be deemed to be additional rent under the Lease, and
should Tenant fail to pay the same within five (5) days after demand, such
failure shall be a default by Tenant under the Lease.
10. Landlord reserves the right to exclude from the Building between
the hours of 6 p.m. and 7 a.m., and at all hours on Saturdays, Sundays and
legal holidays, all persons who do not present identification acceptable to
Landlord. All persons entering the Building during said hours shall comply
with Landlord's sign-in and sign-out procedures. Each tenant shall provide
Landlord with a list of all persons authorized by Tenant to enter its
premises and shall be liable to Landlord for all
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acts of such persons. Landlord shall in no case be liable for damages for any
error with regard to the admission to or exclusion from the Building of any
person. In the case of invasion, mob, riot, public excitement or other
circumstances rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access to the Building during the continuance
of the same by such action as Landlord may deem appropriate, including
closing doors.
11. The directory of the Building will be provided exclusively for
the display of the name and location of tenants of the Building and Landlord
reserves the right to exclude any other names therefrom. Additional names
which Tenant may decide to have placed on the Building directory must first
be approved by Landlord and shall be at such charges as may be established by
Landlord. Landlord reserves the right to restrict the amount of directory
space utilized by any tenant.
12. No curtains, draperies, blinds, shutters, shades,. screens or
other coverings, hangings or decorations shall be attached to, hung or placed
in, or used in connection with any window of the Building without the prior
written consent of Landlord. In any event, with the prior written consent of
Landlord, such items shall be installed on the office side of Landlord's
standard window covering and shall in no way be visible from the exterior of
the Building. Tenant shall keep window coverings closed when the effect of
sunlight (or the lack thereof) would impose unnecessary loads on the
Building's heating or air conditioning systems.
13. No tenant shall obtain for use in the Premises ice, drinking
water, food, beverage, towel or other similar services, except at such
reasonable hours and under such reasonable regulations as may be fixed by
Landlord.
14. Each tenant shall ensure that the doors of its premises are
closed and locked and that all water faucets, water apparatus and utilities
are shut off before Tenant or Tenant's employees leave the Premises so as to
prevent waste or damage, and for any default or carelessness in this regard,
Tenant shall make good all injuries sustained by other tenants or occupants
of the Building or Landlord. On multiple-tenancy floors, all tenants shall
keep the doors to the Building corridors closed at all times except for
ingress and egress.
15. The toilet rooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which they
were construed, no foreign substance of any kind whatsoever shall be thrown
therein and the expense of any breakage, stoppage or damage resulting from
the violation of this rule shall be borne by the tenant who, or whose
employees or invitees, shall have caused it.
16. Except with the prior written consent of Landlord, no tenant
shall sell any newspapers, magazines, periodicals, theater or travel tickets
or any other goods or merchandise to the general public in or on the
Premises, nor shall any tenant carry on or permit or allow any employee or
other person to carry on the business of stenography, typewriting, printing
or photocopying or any similar business in or from the Premises for the
service or accommodation of occupants of any other portion of the Building,
nor shall the premises of any tenant be used for manufacturing of any kind,
or any business or activity other than that specifically provided for in such
tenant's lease.
17. No tenant shall install any radio or television antenna,
loudspeaker or other device on the roof or exterior walls of the Building. No
television, radio or recorder shall be played in such a manner as to cause a
nuisance to any other tenant.
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18. There shall not be used in any space, or in the public halls of
the Building, either by any tenant or others, any hand trucks except those
equipped with rubber tires and side guards or such other material handling
equipment as Landlord may approve. No other vehicles of any kind shall be
brought by any tenant into the Building or kept in or about its premises.
19. Each tenant shall store all its trash and garbage within its
premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the
ordinary and customary manner of removing and disposing of office Building
trash and garbage in the City of San Francisco without being in violation of
any law or ordinance governing such disposal. All garbage and refuse disposal
shall be made only through entryways and elevators provided for such purposes
and at such times as Landlord shall designate.
20. Canvassing, soliciting, distribution of handbills or any other
written material and peddling in the Building are prohibited, and each tenant
shall cooperate to prevent the same.
21. The requirements of tenants will be attended to only upon
application in writing at the office of the Building. Employees of Landlord
shall not perform any work or do anything outside of their regular duties
unless under special instructions from Landlord.
22. Landlord may waive any one or more of these Rules and
Regulations for the benefit of any particular tenant or tenants, but no such
waiver by Landlord shall be construed as a waiver of such Rules and
Regulations in favor of any other tenant or tenants, nor prevent Landlord
from thereafter enforcing any such Rules and Regulations against any or all
of the tenants of .the Building.
23. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the agreements,
covenants, conditions and provisions of any lease of premises in the Building.
24. Landlord reserves the right to make such other rules and
regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building and for the preservation of good
order therein.
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EXHIBIT C
Addendum
to
595 Market Street Office Lease
The following Paragraphs are added to and incorporated into the 595
Market Street Office Lease attached hereto (the "LEASE"). Except as otherwise
defined in this Addendum, capitalized terms used herein shall have the same
meaning as given the terms in the Lease.
43. TERMINATION OF SEVENTH FLOOR LEASE. Landlord and Tenant entered
into that certain 595 Market Street Office Lease (the "SEVENTH FLOOR LEASE"),
dated as of March 24, 1995, with respect to certain premises located on the
seventh (7th) floor of the Building and identified as Suite 740 (the "SEVENTH
FLOOR SPACE"). The term of the Seventh Floor Lease is month-to-month. Because
the Seventh Floor Space is included in the Initial Premises, Landlord and
Tenant agree that, as of the Commencement Date, the Seventh Floor Lease shall
terminate and be of no further force and effect.
44. CONSTRUCTION OF TENANT IMPROVEMENTS.
(a) Landlord shall deliver possession of the Initial Premises to
Tenant upon execution of the Lease for the purpose of constructing the Tenant
Improvements (as hereinafter defined), and Tenant shall accept possession of
the Initial Premises in its "AS IS" condition. The Lease, with the exception
of Paragraphs 1 through 5, 7 and 8 of the Lease, shall become effective with
respect to the Initial Premises upon delivery of the Initial Premises to
Tenant. Except as provided below, Landlord has no obligation and has made no
promise to alter, remodel, improve, repair, decorate or paint the Initial
Premises or any part of the Initial Premises, or to pay for any such work,
and neither Landlord nor Landlord's agents have made any representations to
Tenant with respect to the condition of the Initial Premises.
(b) Tenant shall substantially complete any and all alterations of,
or improvements to, the Initial Premises (the "TENANT IMPROVEMENTS"), in
accordance with the Final Plans (as defined below) submitted to and approved
by Landlord, prior to Tenant's occupancy of the Initial Premises. The Tenant
Improvements shall be made and performed in a safe and workmanlike manner,
using only first-class materials, in compliance with the minimum Building
standard specifications for interior tenant improvements developed by
Landlord for uniform application in the Building, and in accordance with the
provisions of the following Subparagraphs (b)(i) through (b)(ix) of this
Paragraph 44.
(i) No work with respect to the Tenant Improvements shall proceed
without Landlord's prior written approval of:
(1) Tenant's contractor(s) and subcontractor(s);
(2) certificates of insurance furnished to Landlord from a
company or companies approved by Landlord (A) by Tenant's general
contractor, evidencing comprehensive
<PAGE>
general liability insurance (with contractual liability and products
and completed operations coverages) with a minimum combined single
limit for bodily injury and property damage in an amount not less
than Two Million Five Hundred Thousand Dollars ($2,500,000) per
occurrence, endorsed to show Landlord as an additional insured and
endorsed to show a waiver of subrogation by the insurer to any
claims the insurer may have against Landlord, (B) by any and all
subcontractors, evidencing comprehensive general liability insurance
(with contractual liability and products and completed operations
coverages) with a minimum combined single limit for bodily injury
and property damage in an amount not less than One Million Dollars
($1,000,000) per occurrence, endorsed to show Landlord as an
additional insured and endorsed to show a waiver of subrogation by
the insurer to any claims the insurer may have against Landlord, and
(C) by Tenant evidencing builder's risk insurance with respect to
the Tenant Improvements, in such amounts as are deemed reasonable by
Landlord, and workers, compensation insurance, as required by law;
and
(3) detailed plans and specifications for such work, prepared
by a licensed architect approved in writing by Landlord (the "TENANT'S
ARCHITECT"), which indicate that such work will not exceed the design
load capacities and performance criteria of the Building, including its
electrical, HVAC and weight capacities (unless Landlord has consented
to such excess in accordance with Paragraph 7(c) of the Lease), and
construction means and methods (which approval shall not be
unreasonably withheld or delayed).
(ii) Except as otherwise expressly provided herein, the Tenant
Improvements shall be undertaken ` at Tenant's sole cost and expense and in
strict conformance with all applicable laws, regulations, building codes and
the requirements of any building permit and all other applicable permits or
licenses issued with respect to such work. Tenant shall be solely responsible
for obtaining all such permits and licenses from the appropriate governmental
authorities, and any delay in obtaining such permits or licenses shall not be
deemed to extend the Commencement Date or the Expiration Date or to waive or
toll Tenant's rental obligations with respect to the Premises. Copies of all
permits and licenses shall be furnished to Landlord before any work is
commenced, and any work not acceptable to any governmental authority or
agency having or exercising jurisdiction over such work, or not reasonably
satisfactory to Landlord, shall be promptly replaced and corrected at
Tenant's expense.
(iii) Tenant shall pay to Landlord an administration fee (the
"ADMINISTRATION FEEL") equal to five percent (5%) of the total cost of
constructing the Tenant Improvements and the Fifth Floor Improvements (as
defined below). Notwithstanding the foregoing, if Tenant selects Charles
Pankow Builders as general contractor for all of the Tenant Improvements, the
Administration Fee shall be two percent (2%) of the total cost of
constructing the Tenant Improvements and the Fifth Floor Improvements. In
addition, Tenant shall reimburse Landlord for all costs and fees, including,
without limitation, architect's and engineer's fees, incurred by Landlord in
connection with its review and approval of the Final Plans (as defined below).
(iv) All work by Tenant shall be scheduled through Landlord and
shall be diligently and continuously pursued from the date of its
commencement through its completion. Landlord hereby agrees to use its best
efforts-to facilitate such work and to ensure access by Tenant and
availability to Tenant of all freight elevators and all similar facilities
necessary to facilitate such work, subject, however, to the uniform rules and
regulations established by Landlord for construction work in the
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Building. All work shall be conducted in a manner that maintains harmonious
labor relations and does not unreasonably interfere with or delay any other
work or activities being carried out by Landlord in the Building. Landlord or
Landlord's agent shall have the right to enter the Initial Premises and
inspect the Initial Premises and the Tenant Improvements at all reasonable
times during the construction of the Tenant Improvements.
(v) Tenant shall cause the Tenant's Architect to prepare and submit
to Landlord for its approval (which approval shall not be unreasonably
withheld or delayed) substantially complete architectural plans, drawings and
specifications for all Tenant Improvements, including complete engineered
mechanical and electrical working drawings for the Initial Premises, showing
the subdivision, layout, finish and decoration work desired by Tenant
therefor, and any internal or external communications or special utility
facilities which will require installation of conduits or other improvements
within common areas, all in such form and in such detail as may be reasonably
required by Landlord. Tenant agrees to engage Takahashi ` Consulting
Engineers for the design and preparation of mechanical drawings for the for
the mechanical systems serving the Initial Premises, Camisa & Wipf for the
design and preparation of electrical drawings for-the design and preparation
of the electrical systems serving the Initial Premises, and Castle Sprinklers
for the design and preparation of sprinkler drawings for the sprinkler
systems serving the Initial Premises. Landlord hereby approves of such
engagement of Takahashi Consulting Engineers, Camisa Wipf, and Castle
Sprinklers. Such complete plans, drawings and specifications are referred to
herein as "FINAL PLANS." Tenant shall submit the Final Plans for the approval
of Landlord. Within five (5) business days after Landlord receives the Final
Plans for approval, Landlord shall give its written approval to the Final
Plans, or provide Tenant with specific written objections to the Final Plans.
If Landlord objects to the Final Plans, Landlord shall make itself available
to meet with Tenant and the Tenant's Architect within three (3) business days
after said objection to resolve the objections and to deliver to the Tenant's
Architect such information as may be necessary to enable the Tenant's
Architect to cause the Final Plans to be revised consistent with Landlord's
objections. No delay in the scheduling of completion of the Tenant
Improvements resulting from Landlord's review, revision and approval of the
Final Plans consistent with the foregoing time schedule shall be deemed to
extend the Commencement Date or Expiration Date or waive or toll Tenant's
rental obligations with respect to the Premises. In the event that Tenant
and/or its contractors and subcontractors desire to change the Final Plans
subsequent to approval by Landlord, Tenant shall provide notice of such
proposed change to Landlord for Landlord's written approval, which approval
shall be required prior to the implementation of such proposed change. At the
conclusion of construction, Tenant shall cause the Tenant's Architect to
provide two (2) complete sets of record drawings of the Tenant Improvements,
as constructed, which shall not materially deviate from the Final Plans, and
Tenant shall also cause to be provided a project closeout package, including
a punchlist signoff, project team list, permit cards, contractor's payroll
certification, unconditional lien releases and final construction costs
itemized by trade.
(vi) Landlord shall approve the list of bidding general contractors,
which shall include Charles Rankow Builders. Tenant, with the prior written
consent of Landlord, shall enter into a contract (the "GENERAL CONTRACT")
with one of the Bidding Contractors ("TENANT'S CONTRACTOR") for the
construction of the Tenant Improvements.
(vii) Tenant shall-cause Tenant's Contractor to enter into a
subcontract with Castle Sprinklers for the sprinkler systems work required
under the General Contract. With respect to all
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mechanical systems work required under the General Contract, Tenant shall
cause Tenant's Contractor to solicit and review bids from three (3)
subcontractors (the "MECHANICAL BIDDERS"), which shall be approved by
Landlord, and, with the prior written consent of Landlord, to enter into a
subcontract with one of the Mechanical Bidders. With respect to all
electrical systems work required under the General Contract, Tenant shall
cause Tenant's Contractor to solicit and review bids from three (3)
subcontractors for all such work (the "ELECTRICAL BIDDERS"), which shall be
approved by Landlord, and, with the prior written consent of Landlord, to
enter into a subcontract with one of the Electrical Bidders. To the extent
Tenant's Contractor desires to subcontract other work required under the
General Contract, Tenant shall cause Tenant's Contractor to solicit bids for
such proposed subcontract (the "OTHER WORK BIDDERS"), at least one (1) of
which, if Landlord so elects, shall be a subcontractor designated by
Landlord, and, with the prior written consent of Landlord, to enter into such
subcontract with one of the Other Work Bidders. Tenant's Contractor may
engage such laborers and suppliers as it deems appropriate.
(viii) All payments by Tenant for work done by a subcontractor in
connection with the Tenant Improvements shall be made by joint check issued
to Tenant's Contractor and such subcontractor and shall be conditioned upon
Tenant's receipt of (1) conditional lien waivers and releases upon progress
payments, executed by Tenant's Contractor and such subcontractor covering the
full amount disbursed through the date of the disbursement, and (2) a
conditional lien waiver and release upon final payment covering the final
payment amount, executed by Tenant's Contractor and such subcontractor.
(ix) Although Landlord has the right to review, request revisions to
and approve the Final Plans, Landlord's sole interest in doing so is to
protect the Building and Landlord's interest in the Building. Accordingly,
Tenant shall not rely upon Landlord's approval for any purpose other than for
the purpose of .acknowledging the consent of Landlord to proceed with the
requested action and Landlord shall incur no liability of any kind by reason
of the granting of such approvals.
(c) Landlord shall reimburse Tenant up to Four Hundred Ninety-Six
Thousand Four Hundred Thirty Dollars ($496,430) (the "TENANT IMPROVEMENT
ALLOWANCE") for the construction of the Tenant Improvements, including all
architectural and engineering fees incurred in connection therewith, any sums
payable to Landlord in connection therewith, and any improvements Tenant
desires to make to the Future Premises (the "FIFTH FLOOR IMPROVEMENTS"),
provided that the Fifth Floor Improvements are done in accordance with the
terms and provisions of the Master Lease, the Sublease and that certain
Landlord's Consent to Sublease, dated May 17, 1993, executed by Landlord and
acknowledged and agreed to by Tenant and Sublessor, and provided further that
Tenant shall, at its sole expense, bear all costs of any additional
alterations and improvements required by law to be made to or in the Building
as a result of the Fifth Floor Improvements. Provided no Event of Default, or
event described in Paragraph 18 of the Lease that with the passage of time or
the giving of notice or both would result in an Event of Default (a
"POTENTIAL DEFAULT"), shall then exist under the Lease and provided that
Tenant has directed Landlord to disburse the Administration Fee to Landlord
from the Tenant Improvement Allowance and such disbursement has been made,
from and after the date hereof Landlord shall make advances to Tenant of the
Tenant Improvement Allowance upon presentation of invoices from Tenant or the
person performing the work or rendering the service and such reasonable
supporting documentation as Landlord may request, including, without
limitation, conditional mechanics' lien releases and certificates of payment
issued by the Tenant's Architect and, if applicable, Tenant's designated
representative.
4
<PAGE>
Invoices that are submitted and approved by Landlord shall be paid on or
before the fifteen (15th) day of the following month. If, on the earlier of
February 1, 1996 or the substantial completion of the Tenant Improvements,
Landlord has not advanced the entire Tenant Improvement Allowance to Tenant,
Landlord shall have no further obligation to disburse any additional monies
to Tenant, with respect to the Tenant Improvements, under this Paragraph 44.
If, on the earlier of June 30, 1996 or the substantial completion of the
Fifth Floor Improvements, Landlord has not advanced the entire Tenant
Improvement Allowance to Tenant, Tenant shall forfeit any remaining amount
and Landlord shall have no further obligation to disburse any additional
monies to Tenant under this Paragraph 44.
(d) Landlord, at its sole cost and expense, shall renovate the men's
and women's rest rooms on the sixth (6th) floor of the Building in accordance
with standard Building plans and current building codes. The quality and
appearance of the rest rooms as so renovated shall be equivalent to the rest
rooms located on the twenty-fourth (24th) floor. Such renovation shall be
completed no later than November 15, 1995.
(e) Tenant shall indemnify, defend and hold Landlord harmless from
and against any and all expenses, costs, losses, fines, liabilities and/or
damages (including, without limitation, attorneys, fees) arising out of or
pertaining to the construction by Tenant of the Tenant Improvements, unless
caused by or arising out of the negligence or willful misconduct of Landlord
or its employees, contractors, agents or representatives.
45. RIGHT OF FIRST REFUSAL. (a)If at any time prior to the
Expiration Date, any portion of the seventh (7th) floor of the Building
becomes available (the "AVAILABLE SPACE"), whether through Landlord's
exercise of its relocation rights, if any, with respect to such space or
otherwise, provided no Event of Default or Potential Default shall then exist
under the Lease, Landlord shall give Tenant written notice of the
availability of the Available Space and the terms and conditions (including,
without limitation, rent, which shall be the prevailing fair market rent for
leases commencing as of the date the Available Space shall become available,
as reasonably determined by Landlord, for the Available Space, and, if
applicable, reimbursement of Landlord's costs incurred in relocating any
seventh (7th) floor tenants) (the "OFFER") that Landlord is willing to offer
to prospective tenants for the Available Space for a period of time equal to
the remainder of the original term of the Lease. Tenant shall have ten (10)
days following receipt of the Offer to elect to lease all of the Available
Space upon the terms of the Offer.
(b) If Tenant does not timely elect to lease all of the Available
Space on the terms of the Offer or if Landlord and Tenant do not execute a
lease amendment with respect to all of the Available Space within ten (10)
business days following Tenant's election to lease all of the Available
Space, Tenant's right to lease the Available Space shall lapse and Landlord
may lease the Available Space or any part of the Available Space to any other
prospective tenant on such terms as Landlord and such prospective tenant may
agree.
(c) If Tenant does timely accept the Offer, all of the Available
Space shall be added to and be deemed a part of the Premises for all purposes
of the Lease, on the terms and conditions of the Offer.
5
<PAGE>
(d) The right contained in this Paragraph 45 is personal to the
named Tenant hereunder, its affiliates, and the surviving entity resulting
from a merger with or acquisition of Tenant, and such right shall not inure
to the benefit of any assignee or subtenant of the named Tenant hereunder.
46. EXPANSION OPTION.
(a) Subject to the terms and conditions of this Paragraph 46, Tenant
shall have the option (the "EXPANSION OPTION") to expand the Premises on May
1, 1999 to include the entire fourth (4th) floor of the Building on the terms
and conditions (including rent, which shall be the rent then being offered by
Landlord to prospective tenants for space similar to the fourth floor space
for leases commencing May 1, 1999 and ending on or near the Expiration Date
(the "FOURTH FLOOR FAIR MARKET RENT") that Landlord is willing to offer to
prospective tenants for the Fourth Floor Space for a period of time equal to
the remainder of the original term of the Lease, provided that no Event of
Default or Potential Default shall exist under the Lease when Tenant
exercises such right or on May 1, 1999. Tenant may exercise such right only
by giving Landlord written notice of Tenant's exercise of such right (the
"EXPANSION ELECTION NOTICE") no later than May 1, 1998. If Tenant fails (or
is unable due to an Event of Default) to timely exercise such right in
accordance herewith, such right shall terminate.
(b) If Tenant disagrees with Landlord's determination of Fourth
Floor Fair Market Base Rent, Tenant, as its sole and exclusive remedy, shall
have the right, within ten (10) business days of written notification of
Landlord's determination of Fourth Floor Fair Market Base Rent, to rescind
and revoke its election to exercise the Expansion option, in which case
Landlord may lease the Fourth Floor Space or any part thereof to any other
prospective tenant on such terms as Landlord and such prospective tenant may
agree. The failure of Tenant to timely exercise the rescission right granted
it hereunder shall constitute Tenant's acceptance of Landlord's determination
of the Fourth Floor Fair Market Base Rent.
47. OPTION TO EXTEND.
(a) Subject to the terms and conditions of this Paragraph 47, Tenant
shall have the option (the "EXTENSION OPTION") to extend the term of the
Lease for one additional forty-two (42) month term (the "OPTION TERM"), on
all of the same terms and conditions of the Lease except for monthly base
rent, provided that no Event of Default or Potential Default shall exist
under the Lease when Tenant exercises such right or on the commencement of
the Option Term. Tenant may exercise such right only by giving Landlord
written notice of Tenant's exercise of such right no later than April 30,
2001. If Tenant fails (or is unable due to an Event of Default) to timely
exercise such right in accordance herewith, such right shall terminate.
(b) Base rent for the Option Term shall be determined by Landlord on
or before January 31, 2002. Base rent for the Option Term shall be an amount
equal to the base rent then being offered by Landlord to prospective tenants
for space similar to the Premises, as such space may have been expanded under
the terms of this Lease, for a term equivalent to the Option Term for leases
commencing as of December 1, 2002 ("EXTENSION FAIR MARKET BASE RENT");
provided that in no event shall monthly base rent for an Option Term be less
than the monthly base rent and any additional rent payable during the last
twelve months of the initial term of the Lease.
6
<PAGE>
(c) If Tenant disagrees with Landlord's determination of Extension
Fair Market Base Rent, Tenant, as its sole and exclusive remedy, shall have
the right, within ten (10) business days of written notification of
Landlord's determination of Extension Fair Market Base Rent, to rescind and
revoke its election to exercise the extension right under Subparagraph 46(a)
above, in which case the term of the Lease shall expire on November 30, 2002.
The failure of Tenant to timely exercise the rescission right granted it
hereunder shall constitute Tenant's acceptance of Landlord's determination of
the Extension Fair Market Base Rent.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Addendum
concurrently with the execution of the Lease.
SELECTQUOTE INSURANCE THE EQUITABLE LIFE ASSURANCE
SERVICES, a California SOCIETY OF THE UNITED STATES, a New
York corporation
By: By:
------------------------- -----------------------------
Name Name
-------------------- -------------------------
Title Title
-------------------- -----------------------
7
<PAGE>
FIRST AMENDMENT TO
595 MARKET STREET OFFICE LEASE
EXPANSION OF PREMISES
This First Amendment to Lease ("Amendment") is made this 20th day of January
1997 by and between MARKET & SECOND, INC., a Delaware Corporation, successor
in interest to The Equitable Life Assurance Society of the United States,
Inc., ("Landlord") and SELECTQUOTE INSURANCE SERVICES, Inc., a California
Corporation ("Tenant").
WITNESSETH:
WHEREAS, the parties hereto have entered into a certain Lease (the
"Lease") dated August 16, 1995, demising certain premises located at 595
Market Street, San Francisco, CA ("The Building"), as more fully described
therein as Suites 600 and 740 (collectively referred to as the "Premises").
WHEREAS, Landlord and Tenant desire to expand the rentable area of
the Premises and provide certain improvements to the Premises.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Landlord and Tenant agree as follows:
1. EXPANSION OF PREMISES: Effective February 15, 1997, Section 1 of
the Lease shall be amended by adding to the Premises Suite 710 consisting of
approximately 1,034 rentable square feet located on the seventh (7th) floor
of the Building (hereinafter referred to as the "Expansion Space"), further
described on Exhibit A of this Amendment attached hereto.
2. IMPROVEMENTS: Tenant shall accept the Expansion Space in its "As
Is" condition. However, prior to Landlord's delivery of the Expansion Space
to Tenant, Landlord shall recarpet and repaint the Expansion Space utilizing
building standard finishes, with color selections to be chosen by Tenant.
3. RENT: Section 3 of the Lease is hereby amended to provide that,
commencing as of February 15, 1997 and expiring as of November 30, 2002, the
Base Rent due and payable by Tenant in connection with the Expansion Space
shall be Twenty Eight Thousand Nine Hundred and Fifty Two 00/100 Dollars
($28,952.00) per annum, payable in equal monthly installments of Two Thousand
Four Hundred twelve and 67/100 Dollars ($2,412.67). The Base Year shall for
the Expansion Space shall be 1997 and Tenant's Percentage Share for the
Expansion Space shall be .26%.
<PAGE>
4. Tenant hereby represents and certifies to Landlord that there
exist no defenses or offsets to enforcement of the Lease by Landlord, and
Landlord is not, as of the date hereof, in default in the performance of any
obligation or covenant of Landlord under the Lease.
5. It is understood and agreed between the parties hereto that said
Lease, as amended, shall have the same effect and all covenants, conditions,
remedies, and terms of the original Lease including the security payment
provision, if any, shall remain in full force and effect, except as aforesaid.
6. Each capitalized term used herein, unless otherwise defined,
shall have the meaning ascribed to such term in the Lease.
IN WITNESS WHEREOF, the undersigned have executed this Amendment
effective as of the day and year first above written.
TENANT: LANDLORD:
SELECTQUOTE INSURANCE SERVICES, Inc. MARKET & SECOND, INC.
a California Corporation a Delaware Corporation
By: By:
------------------------ -------------------------
Its: Its:
----------------------- ------------------------
Date: Date:
---------------------- ------------------------
By:
------------------------
Its:
-----------------------
Date:
----------------------
2
<PAGE>
SECOND AMENDMENT TO
595 MARKET STREET OFFICE LEASE
EXPANSION OF PREMISES
This Second Amendment to Lease ("Amendment") is made this 30th day of May
1997 by and between MARKET & SECOND, INC., a Delaware Corporation, successor
in interest to The Equitable Life Assurance Society of the United States,
Inc., ("Landlord") and SELECTQUOTE INSURANCE SERVICES, Inc., a California
Corporation ("Tenant").
WITNESSETH:
WHEREAS, the parties hereto have entered into a certain Lease (the
"Lease") dated August 16, 1995 and amended as of January 20, 1997 ("First
Amendment to 595 Market Street Office Lease"), demising certain premises
located at 595 Market Street, San Francisco, CA ("the Building"), as more
fully described therein as Suites 600, 710 and 740 (collectively referred to
as the "Premises").
WHEREAS, Landlord and Tenant desire to expand the rentable area of
the Premises and provide certain improvements to the Premises.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, Landlord and Tenant agree as follows:
1. EXPANSION OF PREMISES: Effective August 1, 1997, the Premises as
defined in Section 1 of the Lease shall be amended by adding Suite 720
consisting of approximately 1,304 rentable square feet located on the seventh
(7th) floor of the Building (hereinafter referred to as the "Expansion
Space"), further described on Exhibit A of this Amendment attached hereto.
2. IMPROVEMENTS: Tenant shall accept the Expansion Space in its "As
Is" condition. Landlord shall provide Tenant up to an amount of Nine Thousand
Seven Hundred Eighty and 00/100 Dollars (9,780.00) for any alterations
requested by Tenant to be made to the Expansion Space. Any alterations
requested by Tenant shall be made in accordance with the provisions of
Section 8 of the Lease.
3. RENT: Section 3 of the Lease is hereby amended to provide that,
commencing as of August 1, 1997 and expiring as of November 30, 2002, the
Base Rent due and payable by Tenant in connection with the Expansion Space
shall be Thirty Six Thousand Five Hundred Twelve and 00/100 Dollars
($36,512.00) per annum, payable in equal monthly installments of Three
Thousand Forty Two and 67/100 Dollars ($3,042.67). The Base Year shall for
the Expansion Space shall be 1997 and Tenant's Percentage Share for the
Expansion Space shall be .328%.
<PAGE>
4. Tenant hereby represents and certifies to Landlord that there
exist no defenses or offsets to enforcement of the Lease by Landlord, and
Landlord is not, as of the date hereof, in default in the performance of any
obligation or covenant of Landlord under the Lease.
5. It is understood and agreed between the parties hereto that said
Lease, as amended, shall have the same effect and all covenants, conditions,
remedies, and terms of the original Lease including the security payment
provision, if any, shall remain in full force and effect, except as aforesaid.
6. Each capitalized term used herein, unless otherwise defined, shall
have the meaning ascribed to such term in the Lease.
IN WITNESS WHEREOF, the undersigned have executed this Amendment
effective as of the day and year first above written.
TENANT: LANDLORD:
SELECTQUOTE INSURANCE SERVICES, Inc. MARKET & SECOND, INC.
a California Corporation a Delaware Corporation
By: By:
------------------------ -------------------------
Its: Its:
----------------------- ------------------------
Date: Date:
---------------------- ------------------------
By:
------------------------
Its:
-----------------------
Date:
----------------------
2
<PAGE>
THIRD AMENDMENT TO 595 MARKET STREET OFFICE LEASE
THIS THIRD AMENDMENT TO 595 MARKET STREET OFFICE LEASE ("Amendment")
is made and entered into as of August ___, 1999, by and between MARKET &
SECOND, INC., a Delaware corporation, successor in interest to The Equitable
Life Assurance Society of the United States ("Landlord"), and SELECTQUOTE
INSURANCE SERVICES, INC., a California corporation ("Tenant").
A. Landlord and Tenant have heretofore entered into that certain 595
Market Street Office Lease (the "Office Lease") dated August 16, 1995, for
certain premises in the building commonly known as 595 Market Street, San
Francisco, California (the "Building"). The Office Lease was amended by that
certain First Amendment to 595 Market Street Office Lease dated January 20,
1997 (the "First Amendment"), and by that certain Second Amendment to 595
Market Street Office Lease dated May 30, 1997 (the "Second Amendment")
(collectively, the "Prior Amendments"). The Office Lease and the Prior
Amendments are collectively referred to herein as the "Lease".
B. Pursuant to the terms of the Lease, Tenant leased from Landlord
certain premises located on the entire fifth floor of the Building (the "5th
Floor Premises"), the entire sixth floor of the Building (the "6th Floor
Premises") and a portion of the seventh floor of the Building containing
approximately 3,611 rentable square feet of space, as more particularly shown
on EXHIBIT A attached hereto (the "Surrender Premises").
C. Landlord and Tenant desire to amend the Lease to provide for the
termination of the Lease with respect to the Surrender Premises only.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties do
hereby agree as follows:
1. PARTIAL TERMINATION.
(a) Effective as of September 30, 1999 (the "Surrender Date"),
the Lease shall be terminated with respect to the Surrender Premises only,
and such termination shall have the same force and effect as if the term of
the Lease with respect to the Surrender Premises were by the provisions
thereof fixed to expire as of the Surrender Date. From and after the
Surrender Date, the term "Premises" appearing in the Lease shall refer to the
5th Floor Premises and the 6th Floor Premises only. Tenant acknowledges and
agrees that, as of the date hereof, any remaining obligations of Landlord
pursuant to Paragraph 2 of the First Amendment and/or Paragraph 2 of the
Second Amendment with respect to improvements to the Surrender Space are
hereby terminated and are of no further force or effect.
<PAGE>
(b) On or before the Surrender Date, Tenant shall vacate the
Surrender Premises and leave the same in the condition required pursuant to
the provisions of Paragraphs 8(c) and 10 of the Lease. In the event Tenant
fails to vacate the Surrender Premises on or before the Surrender Date in
accordance with the provisions of this Amendment, in addition to all other
remedies Landlord may have under the Lease, Tenant shall indemnify, protect
and hold Landlord harmless from and against any and all loss, cost, damage or
liability (including attorneys' fees and costs) arising out of such failure,
including, without limitation, any claims for delay may by any successor
tenant to the Surrender Premises. In addition, any such failure to timely
surrender the Surrender Premises in the condition required pursuant to the
provisions of Paragraphs 8(c) and 10 of the Lease shall constitute a default
by Tenant under the Lease and entitle Landlord to exercise any or all of its
remedies provided in Articles 19 and 20 of the Lease, notwithstanding that
Landlord may elect to accept one or more payments of Base Rent and/or
additional rent with respect to the Surrender Premises following the
Surrender Date.
2. BASE RENT. The Basic Lease Information and Article 3 of the
Lease are hereby amended to provide that, from and after the Surrender Date,
Tenant shall pay monthly base rent for the Premises as follows:
October 1, 1999 - October 31, 1999: $48,370.00 per month
November 1, 1999 - October 31, 2000 $50,673.33 per month
November 1, 2000 - October 31, 2001 $52, 976.67 per month
November 1, 2001 - November 30, 2002 $55,280.00 per month
3. TENANT'S PERCENTAGE SHARE. The Basic Lease Information and
Article 4 of the Lease are hereby amended to provide that, from and after the
Surrender Date, Tenant's percentage share of Operating Expenses and Building
Taxes with respect to the Premises shall be 6.95%.
4. 5TH FLOOR ELEVATOR LOBBY. Landlord, at Landlord's cost, shall
re-carpet the elevator lobby of the 5th Floor Premises using Building
standard carpet. Such work shall be performed on a date or dates mutually
agreed upon by Landlord and Tenant, but in any event on or prior to December
1, 1999 (subject to delays outside the reasonable control of Landlord
including, without limitation, delays caused by Tenant). Tenant agrees to
cooperate with Landlord in the performance of such work, and Tenant
acknowledges that such work may, at Landlord's election, be performed during
normal business hours. Tenant hereby waives any claims against Landlord for
the interruption of Tenant's business operations as a result of such work.
5. CAPITALIZED TERMS. All capitalized terms not defined
herein shall have the meaning given to them in the Lease.
6. EFFECTIVENESS. Except as expressly modified herein, the
terms, covenants and conditions of the Lease shall remain in full force and
effect.
7. RATIFICATION. Landlord and Tenant hereby ratify and confirm
all of the provisions of the Lease as amended by Paragraphs 1 through 6
hereof.
2
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have executed this
Amendment as of the day and year first above written.
TENANT: LANDLORD:
SELECTQUOTE INSURANCE SERVICES, Inc. MARKET & SECOND, INC.
a California Corporation a Delaware Corporation
By: By:
------------------------ -------------------------
Its: Its:
----------------------- ------------------------
By: By:
------------------------ -------------------------
Its: Its:
----------------------- ------------------------
CERTIFICATE
I, __________________, as Secretary of the aforesaid Tenant,
hereby certify that the individual(s) executing the foregoing Amendment on
behalf of Tenant was/were duly authorized to act in his/their
capacity/capacities as set forth above, and his/their action(s) is/are the
action of Tenant.
------------------------
------------------------
[Print Name and Title]
3
<PAGE>
OFFICE LEASE
between
MARKET & SECOND, INC.,
a Delaware corporation
as Landlaord
and
SELECTQUOTE INSURANCE SERVICES, INC.,
a California corporation
as Tenant
Dated as of August 31, 1999
San Francisco, California
<PAGE>
OFFICE LEASE
BASIC LEASE INFORMATION
Date: August 31, 1999
Landlord: MARKET & SECOND, INC.,
a Delaware corporation
Tenant: SELECTQUOTE INSURANCE SERVICES, INC.
a California corporation
Building (Paragraph 1(a)): 595 Market Street
San Francisco, California 94105
Premises (Paragraph 1(b)): Approximately 13,820 rentable square
feet located on the 7th floor of the
Building, more commonly known as Suite
700 (the "7th Floor Premises"),
approximately 4,044 rentable square feet
located on the 9th floor of the
Building, more commonly known as Suite
950 (the "9th floor Premises"), and
approximately 13,820 renewable square
feet located on the 10th floor of the
Building, more commonly known as Suite
1000 (the "10th Floor Premises"); the
7th Floor Premises, the 9th Floor
Premises and the 10th Floor Premises are
collectively referred to herein as the
"Premises").
Term Commencement (Paragraph 2): With respect to the 7th Floor Premises:
the earlier of (a) "substantial
completion" of the 7th Floor Premises (as
defined in the Work Letter), and (b)
December 1, 1999.
With respect to the 9th Floor Premises:
October 1, 1999.
With respect to the 10th Floor Premises:
the earlier of (a) "substantial
completion" of the 10th Floor Premises
(as defined in the Work Letter), and (b)
April 1, 2000.
Term Expiration (Paragraph 2): March 31, 2005
Rental Commencement (Paragraph 3(a)): Upon Term Commencement
<PAGE>
Base Rent (Paragraph 3(a)):
With respect to the 7th Floor Premises:
---------------------------------------
Term Commencement - Nov. 30, 2000: $43,187.50 per month
Dec. 1, 2000 - Nov. 30, 2001 $44,339.17 per month
Dec. 1, 2001 - Nov. 30, 2002 $45,490.83 per month
Dec. 1, 2002 - Nov. 30, 2003 $46,642.50 per month
Dec. 1, 2003 - Nov. 30, 2004 $47,794.17 per month
With respect to the 9th Floor Premises:
---------------------------------------
Term Commencement - Mar. 31, 2001 $13,817.00 per month
Apr. 1, 2001 - Mar. 31, 2002 $14,154.00 per month
Apr. 1, 2002 - Mar. 31, 2003 $14,491.00 per month
Apr. 1, 2003- Mar. 31, 2004 $14,828.00 per month
Apr. 1, 2004- Mar. 31, 2005 $15,165.00 per month
With respect to the 10th Floor Premises:
----------------------------------------
Term Commencement - Mar. 31, 2001: $47,218.33 per month
Apr. 1, 2001 - Mar. 30, 2002 $48,370.00 per month
Apr. 1, 2002 - Mar. 30, 2003 $49,512.67 per month
Apr. 1, 2003 - Mar. 30, 2004 $50,673.33 per month
Apr. 1, 2004 - Mar. 30, 2005 $51,825.00 per month
Base Year (Paragraph 1(c)): 2000
Tenant's Percentage Share (Paragraph 1(h)): 7.96%
Security Deposit (Paragraph 33): $344,352.51; provided,
however, in the event that
Tenant performs all of the
terms and conditions of the
Lease during the entire Term
hereof, and
2
<PAGE>
provided that no Event of
Default (or any event which
with the passage of time or
giving of notice would
constitute an event of
Default) has occurred or is
then occurring under the
Lease, the Security Deposit
shall be reduced to the
following amounts at the
following intervals: (1)
$229,568.34 after eighteen
(18) months from the Term
Commencement, and (2)
$114,784.17 after
thirty-six (36) months from
the Term Commencement.
Tenant's Address for Notices (Paragraph 35): SelectQuote Insurance
Services, Inc.
595 Market Street, Suite 600
San Francisco, CA 94105
Attn: Ed Gamrin, Chairman
Landlord's Address for Notices (Paragraph 35): Market & Second, Inc.
c/o GIC Real Estate, Inc.
255 Shoreline Drive, Suite 600
Redwood City, California 94065
With a copy to: Tower Realty Management
Corporation
595 Market Street, Suite 2210
San Francisco, California 94105
Address for Rent Payments (Paratgraph 3(f)): Rent shall be paid to
"Market & Second, Inc." at 75
Remittance Drive, Suite 1170,
Chicago, Illinois 60675-1170
Brokers (Paragraph 40): Jones Lang LaSalle for
Landlord;
Belvedere Associates for
Tenant.
Exhibits (Paragraph 46): Exhibit A - Plan Outlining the
Premises
Exhibit A-1 - Temporary Space
Exhibit B - Rules and
Regulatons
Exhibit C - Work Letter
The provisions of the Lease identified above in parentheses are those
provisions where references to particular Basic Lease Information appear.
Each such reference shall incorporate the applicable Basic Lease Information.
In the event of any conflict between any Basic Lease Information and the
Lease, the latter shall control.
TENANT: LANDLORD:
SELECTQUOTE INSURANCE SERVICES, INC. MARKET & SECOND, INC.
a California corporation a Delaware corporation
By: /s/ Edward Gamrin By:
Its: Chairman Its:
3
<PAGE>
By: /s/ David L. Paulsen By:
Its: Executive Vice President Its:
4
<PAGE>
OFFICE LEASE
THIS LEASE, dated August 31, 1999, for purposes of reference only,
is made and entered into by MARKET & SECOND, INC., a Delaware corporation
("LANDLORD"), and SELECTQUOTE INSURANCE SERVICES, INC., a California
corporation ("TENANT").
WITNESSETH:
Landlord hereby leases to Tenant, and Tenant hereby leases from
Landlord the premises described in subparagraph 1(b) below for the term and
subject to the terms, covenants, agreements and conditions hereinafter set
forth, to each and all of which Landlord and Tenant hereby mutually agree.
1. DEFINITIONS. Unless the context otherwise specifies or requires,
the following terms shall have the meanings herein specified:
(a) The term "BUILDING" shall mean the land and other
real-property described in the Basic Lease Information, as well as any
property interest in the area or the streets bounding the parcel described in
the Basic Lease Information, and all other improvements on or appurtenances
to said parcel or said streets.
(b) The term "PREMISES" shall mean the portion of the
Building located on the floor(s) specified in the Basic Lease Information
which is crosshatched on the floor plan(s) attached to this Lease as Exhibit
A.
(c) The term "BASE YEAR" shall mean the calendar year
specified in the Basic Lease Information as the Base Year.
(d) The term "OPERATING EXPENSES" shall mean (1) all costs of
management, operation and maintenance of the Building, including, without
limitation: wages, salaries and payroll burden of employees; property management
fees; janitorial, maintenance, lobby attendant and other services; Building
office rent or rental value; power, water, waste disposal and other utilities;
materials and supplies; maintenance, replacements and repairs; license costs;
insurance premiums and the deductible portion of any insured loss; and
depreciation of all personal property, fixtures and equipment (including window
washing machinery) used in the management, operation, maintenance and repair of
the Building and depreciation on exterior window coverings provided by Landlord
and carpeting in public corridors and common areas; and (2) the cost or any
capital improvements made to the Building by Landlord after the Base Year that
am reasonably anticipated to reduce other Operating Expenses or are required for
the health and safety of tenants, or made to the Building by Landlord after the
date of this Lease that are required under any governmental law or regulation
that was not applicable to the Building at the time it was constructed, such
cost or allocable portion
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thereof to be amortized over such reasonable period as Landlord shall
determine together with interest on the unamortized balance at the rate of
10% per annum or such higher rate as may have been paid by Landlord on funds
borrowed for the purpose of constructing or acquiring such capital
improvements. Operating Expenses shall not include: Property Taxes;
depreciation on the Building other than depreciation on exterior window
coverings provided by Landlord and carpeting in public corridors and common
areas; costs of tenants' improvements; real estate brokers' commissions;
interest (except as stated in clause (2) above); and capital items other than
those referred to in clause (2) above. Landlord shall exclude from Base Year
Operating Expenses any non-recurring items, including capital expenditures
otherwise permitted under clause (2) above (and shall only include
amortization of such expenditures in subsequent year Operating Expenses to
the extent permitted under clause (2) above, including any remaining
amortization of permitted capital expenditures made prior to or after Term
Commencement). If Landlord eliminates from any subsequent year Operating
Expenses a recurring category of expenses previously included in Base Year
Operating Expenses, Landlord may subtract such category from Base Year
Operating Expenses commencing with such subsequent year. Operating Expenses
from the Base Year and each subsequent calendar year shall be adjusted, if
necessary, to equal Landlord's reasonable estimate of Operating Expenses for
a full calendar year and, if the total square footage of the Building
occupied during such full calendar year is less than ninety-five percent
(95%), to reflect a ninety-five percent (95%) occupancy level of the
Building. Landlord and Tenant acknowledge that certain of the costs of
management, operation and maintenance of the Building and certain of the
costs of the capital improvements referred to in clause (2) above may be
allocated exclusively to a single component of the Building (E.G., to an
office area, a retail area or a parking facility) and certain of such costs
may be allocated among such components. The determination of such costs and
their allocation shall be in accordance with sound accounting and management
practices applied on a consistent basis.
(e) The term "BASE OPERATING EXPENSES" shall mean the
Operating Expenses paid or incurred by Landlord in the Base Year.
(f) The term "PROPERTY TAXES" shall mean, unless required
to be paid by Tenant under Paragraph 7, all taxes, service payments in lieu
of taxes, assessments, general or special, excises, exactions, transit
charges, housing fund assessments or other housing charges, child care
assessments or levies, fees or charges general or special, ordinary or
extraordinary, unforeseen as well as foreseen, of any kind which are
assessed, levied, charged, confirmed or imposed by any public authority upon
the Building, or its use, occupancy or operation, or upon any personal
property used in the operation of the Building, or with respect to services
or utilities consumed in the use, occupancy or operation of the Building, or
upon Landlord with respect to the Building, or upon the act of leasing any
space within the Building, or in connection with the business of renting
space within the Building or with respect to the possession, leasing,
operation, use or occupancy by Tenant of the Premises or any portion thereof,
or upon or measured by the gross rentals received by Landlord from the
Building. Property Taxes shall also include (i) any tax, fee or other excise,
however described, which may be levied or assessed in lieu of, or as a
substitute, in whole or in part, for, or as an addition to, any other
Property Taxes, and (ii) any interest or penalties charged on account of any
such Property Taxes. Property Taxes shall not include (x) corporate income or
franchise taxes, (y) inheritance or estate taxes imposed upon or assessed
against the Building or any part thereof interest therein, and (z) taxes
computed upon the basis of the net income derived from the Building by
Landlord or the owner of any interest therein, unless, due to a change in the
method of taxation, any of such taxes is levied or assessed against Landlord
in lieu of, or as a substitute, in
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whole or in part, for, or as in addition to, any other charge which would
otherwise constitute a Property Tax. If Property Taxes for the Base Year are
reduced as the result of protest, or by means of agreement, or as the result
of legal proceedings or otherwise, Landlord shall adjust Tenant's obligations
for Property Taxes in all years following the Base Year, and Tenant shall pay
Landlord within 30 days after notice any additional amount required by such
adjustment for any such years or portions thereof that have theretofore
occurred.
(g) The term "BASE PROPERTY TAXES" shall mean the amount of
Property Taxes paid by Landlord allocable to the Base Year.
(h) The term "TENANT'S PERCENTAGE" share shall mean the
percentage figure specified in the Basic Lease Information.
2. TERM; CONDITION OF PREMISES.
(a) The term of this Lease shall commence and, unless
sooner terminated as hereinafter provided, shall end on the dates
respectively specified in the Basic Lease Information as the "TERM
COMMENCEMENT" and the "TERM EXPIRATION." Except as otherwise set forth in the
Work Letter attached to this Lease as EXHIBIT C, Landlord shall deliver the
7th Floor Premises, the 9th Floor Premises and the 10th Floor Premises to
Tenant on the commencement of the respective term of each in their then
existing condition with no alterations being made by Landlord. If Landlord,
for any reason whatsoever, cannot deliver the 7th Floor Premises, the 9th
Floor Premises or the 10th Floor Premises to Tenant at the commencement of
the respective terms thereof, this Lease shall not be void or voidable nor
modified in any manner, nor shall Landlord be liable to Tenant for any loss
or damage resulting therefrom. No delay in delivery of the 7th Floor
Premises, the 9th Floor Premises or the 10th Floor Premises shall operate to
extend the term hereof, and any early commencement of the term shall not
operate to advance the Term Expiration, unless, in either case, Landlord so
elects by notice to Tenant. Tenant shall execute a confirmation of the Term
Commencement, Term Expiration and other matters, in such form as Landlord may
reasonably request, within ten (10) days after requested.
(b) Notwithstanding anything to the contrary contained in
this Lease, Landlord hereby agrees to lease to Tenant, on a temporary basis,
certain space on the twenty-eighth (28th) floor of the Building, commonly
known as Suite 2800, and containing approximately 5,316 rentable square feet
of space, as such space is more particularly shown on EXHIBIT A-1 attached
hereto and incorporated herein (the "TEMPORARY SPACE"). Tenant's lease of the
Temporary Space shall be on and subject to all of the terms and provisions of
this Lease, except as expressly set forth in this Paragraph 2(b). The term of
this Lease with respect to the Temporary Space only (the "TEMPORARY SPACE
TERM") shall commence on September 15, 1999 (the "TEMPORARY SPACE
COMMENCEMENT DATE") and shall terminate on that date (the "TEMPORARY SPACE
EXPIRATION DATE") which is the earlier to occur of (i) five (5) business days
following the Term Commencement with respect to the 10th Floor Premises, or
(ii) five (5) business days following written notice from Tenant to Landlord
terminating Tenant's lease of the Temporary Space. Base Rent for the
Temporary Space shall be an amount equal to Nineteen Thousand Nine Hundred
Thirty-Five Dollars ($19,935.00) per month. Base Rent for any fractional
month during the Temporary Space Term shall be equitably prorated based upon
the actual number of days in such month. No Escalation Rent shall be due with
respect to the Temporary Space. Tenant shall accept possession of the
Temporary Space in its "as is"
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condition, without any agreements, representations, understandings or
obligations on the part of Landlord to perform any alterations, repairs or
improvements thereto. Tenant hereby acknowledges and agrees that Landlord
shall at all times have access to the Temporary Space for the purpose of
showing the Temporary Space to prospective tenants and/or to real estate
brokers. On or prior to the Temporary Space Expiration Date, Tenant shall
surrender the Temporary Space and deliver possession of the same to Landlord
in a vacant and broom clean condition, free of all of Tenant's personal
property, and otherwise in the condition required pursuant to the terms of
this Lease. Any failure by Tenant to timely surrender possession of the
Temporary Space in the condition required hereunder shall be a material
breach of this Lease and, in addition, shall be subject to the provisions of
Section 31 below.
3. RENTAL.
(a) Tenant shall pay to Landlord throughout the term of
this Lease as rental for the Premises the sum specified in the Basic Lease
Information as the Base Rent, provided that the rental payable during each
calendar year subsequent to the Base Year shall be the Base Rent, increased
by Tenant's Percentage Share of the total dollar increase, if any, in
Operating Expenses paid or incurred by Landlord in such year over the Base
Operating Expenses, and also increased by Tenant's Percentage Share of the
total dollar increase, if any, in Property Taxes paid by Landlord in such
year over the Base Property Taxes. Tenant acknowledges that the Basic Lease
Information may set forth different Percentage Shares of Operating Expenses
and Property Taxes or a single percentage share applicable to both. The
increased rental due pursuant to this subparagraph (a) is hereinafter
referred to as "ESCALATION RENT." In no event shall a decrease in Property
Taxes below the amount of Base Property Taxes, or a decrease in Operating
Expenses below the amount of Base Operating Expenses, cause the Base Rent set
forth in the Basic Lease Information to be reduced.
(b) Rental shall be paid to Landlord on or before the first
day of the term hereof and on or before the first day of each and every
successive calendar month thereafter during the term hereof. In the event the
term of this Lease commences on a day other than the first day of a calendar
month or ends on a day other than the last day of a calendar month, the
monthly rental for the first and last fractional months of the term hereof
shall be appropriately prorated. The first full calendar month's rental shall
be paid concurrently with Tenant's execution of this Lease.
(c) All sums of money due from Tenant hereunder not
specifically characterized as rental shall constitute additional rent, and if
any such sum is not paid when due it shall nonetheless be collectible as
additional rent with the next installment of rental thereafter falling due,
but nothing contained herein shall be deemed to suspend or delay the payment
of any sum of money at the time it becomes due and payable hereunder, or to
limit any other remedy of Landlord.
(d) Tenant hereby acknowledges that late payment by Tenant
to Landlord of rent and other sums due hereunder after the expiration of any
applicable grace period described in subparagraph 19(a) will cause Landlord
to incur costs not contemplated by this Lease, the exact amount of which will
be difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed on
Landlord by the terms of any encumbrances covering the Building and the
Premises. Accordingly, if any installment of rent or any other sums due from
Tenant shall not be received by Landlord prior to the expiration of any
applicable grace period described in subparagraph 19(a), Tenant shall pay to
Landlord a late charge
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equal to 5% of such overdue amount. The parties hereby agree that such late
charge represents a fair and reasonable estimate of the costs Landlord will
incur by reason of late payment by Tenant based on the circumstances existing
as of the date of this Lease. Acceptance of such late charge by Landlord
shall in no event constitute a waiver of Tenant's default with respect to
such overdue amount, nor prevent Landlord from exercising any of the other
rights and remedies granted hereunder.
(e) Any amount due from Tenant, if not paid when first due,
shall bear interest from the date due until paid at an annual rate equal to
4% over the annual prime rate of interest announced publicly by Citibank,
N.A. in New York, New York from time to time (but in no event in excess of
the maximum rate of interest permitted by law), provided that interest shall
not be payable on late charges incurred by Tenant nor on any amounts upon
which late charges are paid by Tenant to the extent such interest would cause
the total interest to be in excess of that legally permitted. Payment of
interest shall not excuse or cure any default hereunder by Tenant.
(f) All payments due from Tenant shall be paid to Landlord,
without deduction or offset, in lawful money of the United States of America
at the address for payment of rent set forth in the Basic Lease Information,
or to such other person or at such other place as Landlord may from time to
time designate by notice to Tenant.
4. ESCALATION RENT PAYMENTS.
(a) With respect to each calendar year during the term of
this Lease subsequent to the Base Year, Tenant shall pay to Landlord as
additional rent, at the times hereinafter set forth, an amount equal to the
Escalation Rent. Prior to or at any time after the commencement of any
calendar year subsequent to the Base Year Landlord may, but shall not be
required to, notify Tenant of Landlord's estimate of the amount, if any, of
the Escalation Rent for such current calendar year. Tenant shall pay to
Landlord on the first day of each calendar month during such current calendar
year one-twelfth (1/12) of the amount of any such estimated Escalation Rent
for such current calendar year payable by Tenant hereunder. If at any time or
times Landlord determines that the amount of any Escalation Rent payable by
Tenant for the current year will vary from its estimate by more than 5%,
Landlord may, by notice to Tenant, revise Landlord's estimate for such year,
and subsequent payments by Tenant for such year shall be based on such
revised estimate. Following the close of each calendar year, Landlord shall
deliver to Tenant a statement of the actual amount of Escalation Rent for the
immediately preceding year, accompanied by a statement made by an accounting
or auditing officer designated by Landlord showing the Operating Expenses and
Property Taxes on the basis of which Escalation Rent was determined. The
statement of said accounting or auditing officer shall be final and binding
upon Landlord and Tenant. All amounts payable by Tenant as shown on said
statement, less any amounts theretofore paid by Tenant on account of
Landlord's earlier estimate of Escalation Rent for such calendar year made
pursuant to this Paragraph 4, shall be paid by or, if Tenant theretofore
shall have paid more than such amounts, reimbursed to Tenant within ten (10)
days after delivery of said statement to Tenant.
(b) If this Lease shall terminate on a day other than the last
day of a calendar year, the amount of any Escalation Rent payable by Tenant for
the calendar year in which this Lease terminates shall be prorated on the basis
by which the number of days from the commencement of said calendar year to and
including said date on which this Lease terminates bears to 365 and shall
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be due and payable when rendered notwithstanding termination of this Lease.
Escalation Rent allocable to the calendar year in which this Lease terminates
shall be deemed to have been incurred evenly over the entire twelve-month
period of the calendar year.
5. USE. The Premises shall be used for general office purposes
(including uses related or incidental thereto, such as copy/mail room
facilities, kitchen area and other legally permitted office-related uses
compatible with comparable buildings in the San Francisco financial district)
and for no other use or purpose without the prior written consent of
Landlord, which may be granted or denied in Landlord's absolute discretion.
Tenant shall not do or permit to be done in or about the Premises, nor bring
or keep or permit to be brought or kept therein, anything which is prohibited
by or would in any way conflict with any law, statute, ordinance or
governmental rule or regulation now in force or which may hereafter be
enacted or promulgated, or which is prohibited by the standard form of fire
insurance policy, or would in any way increase the existing rate of or affect
any fire or other insurance upon the Building or any of its contents, or
cause a cancellation of any insurance policy covering the Building or any
part thereof or any of its contents. Without limiting the generality of the
foregoing or of Paragraph 15 below, Tenant shall not bring, or permit to be
brought, upon the Premises, any hazardous or toxic materials or chemicals,
except for ordinary and customary office products and cleaning supplies which
are used, stored, and removed in compliance with all applicable laws,
statutes, ordinances and governmental rules, regulations or requirements, in
small quantities reasonably necessary for Tenant's office use of the
Premises. Tenant shall promptly notify Landlord of all hazardous or toxic
substances maintained in the Premises. Tenant shall not do or permit anything
to be done in or about the Premises which would in any way obstruct or
interfere with the rights of other tenants of the Building, or injure or
annoy them, or use or allow the Premises to be used for any improper,
immoral, unlawful or objectionable purposes, nor shall Tenant cause, maintain
or permit any nuisance or waste in, on or about the Premises.
6. SERVICES.
(a) Landlord shall maintain the public and common areas of
the Building, including lobbies, stairs, elevators, corridors and restrooms,
windows, mechanical, plumbing and electrical equipment therein, and the
structure itself in reasonably good order and condition, comparable in
quality to that of comparable office buildings in the San Francisco financial
district, except for damage occasioned by the acts of Tenant, its employees,
agents, contractors or invitees, which damage shall be repaired by Landlord
at Tenant's expense.
(b) Landlord shall furnish the Premises with (1)
electricity for lighting and the operation of customary office machines, (2)
heat and air conditioning to the extent reasonably required for the
comfortable occupancy by Tenant in its use of the Premises during reasonable
and usual business hours (exclusive of Saturdays, Sundays and holidays) as
determined by Landlord and subject to the Rules and Regulations of the
Building attached hereto as EXHIBIT B, as established from time to time by
Landlord (the "RULES AND REGULATIONS"), or such shorter period as may be
prescribed by any applicable policies or regulations adopted by any utility
or governmental agency, (3) elevator service, (4) lighting replacement (for
Building standard lights, ballasts, bulbs and lighting tubes), (5) restroom
supplies, (6) window washing with reasonable frequency, and (7) lobby
attendant services and janitor service during the times and in the manner
that such services are customarily finished in comparable office buildings in
the area. Landlord may establish reasonable measures to conserve energy,
including but not limited to, automatic switching of lights after hours,
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so long as such measures do not unreasonably interfere with Tenant's use of
the Premises. Landlord shall not be in default hereunder or be liable for any
damages directly or indirectly resulting from, nor shall the rental herein
reserved be abated by reason of (i) the installation, use or interruption of
use of any equipment in connection with the furnishing of any of the
foregoing services, (ii) failure to furnish or delay in furnishing any such
services when such failure or delay is caused by accident or any condition
beyond the actual or reasonable control of Landlord or by the making of
necessary repairs or improvements to the Premises or to the building, or
(iii) the limitation, curtailment, rationing or restrictions of use of water,
electricity, gas or any other forth of energy serving the Premises or the
Building. Landlord shall use reasonable efforts diligently to remedy any
interruption in the furnishing of such services.
(c) Tenant shall not, without Landlord's prior written
consent, use heat generating machines or equipment or lighting other than
Landlord's designated Building standard lights in the Premises which affect
the temperature otherwise maintained by the air conditioning system. If such
consent is given, Landlord shall have the right to install supplementary air
conditioning units in the Premises and the cost thereof, including the costs
of installation, operation and maintenance thereof, shall be paid by Tenant
to Landlord upon billing by Landlord. Tenant shall not, without Landlord's
prior written consent, install lighting or equipment in the Premises that
would cause the connected electrical load in the Premises to exceed three
(3.0) watts per rentable square foot. If such consent is given, Tenant shall
pay Landlord upon billing for the cost of such excess. All costs payable by
Tenant under this subparagraph 6(c) shall be deemed to be, and shall be paid
as, additional rent.
(d) In the event that Landlord, at Tenant's request,
provides services to Tenant that are not otherwise provided for in this
Lease, Tenant shall pay Landlord's reasonable charges for such services upon
billing therefor.
7. IMPOSITIONS PAYABLE BY TENANT. In addition to the monthly rental
and other charges to be paid by Tenant hereunder, Tenant shall pay or
reimburse Landlord for any and all of the following items (hereinafter
collectively referred to as "IMPOSITIONS"), whether or not now customary or
in the contemplation of the parties hereto: taxes (other than local, state
and federal personal or corporate income taxes measured by the net income of
Landlord from all sources), assessments (including, without limitation, all
assessments for public improvements, services or benefits, irrespective of
when commenced or completed), excises, levies, business taxes, license,
permit, inspection and other authorization fees, transit development fees,
assessments or charges for housing funds, service payments in lieu of taxes
and any other fees or charges of any kind, which are levied, assessed,
confirmed or imposed by any public authority, but only to the extent the
Impositions are (a) upon, measured by or reasonably attributable to the cost
or value of Tenant's equipment, furniture, fixtures and other personal
properly located in the Premises, or the cost or value of any leasehold
improvements made in or to the Premises by or for Tenant, regardless of
whether title to such improvements shall be in Tenant or Landlord; (b) upon
or measured by the monthly rental or other charges payable hereunder,
including, without limitation, any gross receipts tax levied by the City and
County of San Francisco, the State of California, the Federal Government or
any other governmental body with respect to the receipt of such rental; (c)
upon, with respect to or by reason of the development, possession, leasing,
operation, management, maintenance, alteration, repair, use or occupancy by
Tenant of the Premises or any portion thereof; or (d) upon this transaction
or any document to which Tenant is a party creating or transferring an
interest or an
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estate in the Premises. In the event that it shall not be lawful for Tenant
to reimburse Landlord for the Impositions but it is lawful to increase the
monthly rental to take into account Landlord's payment of the Impositions,
the monthly rental payable to Landlord shall be revised to net Landlord the
same net return without reimbursement of the Impositions as would have been
received by Landlord with reimbursement of the Impositions.
8. ALTERATIONS.
(a) Tenant shall make no alterations, additions or
improvements to the Premises or install fixtures in the Premises without
first obtaining Landlord's consent, which consent shall not be unreasonably
withheld or delayed. In no event, however, may the Tenant make any
alterations, additions or improvements or install fixtures which in
Landlord's reasonable judgment might adversely affect the structural
components of the Building or Building mechanical, utility or life safety
systems. At the time such consent is requested, Tenant shall furnish to
Landlord a description of the proposed work, an estimate of the cost thereof
and such information as shall reasonably be requested by Landlord
substantiating Tenant's ability to pay for such work. Landlord, at its sole
option, may require as a condition to the granting of such consent to any
work costing in excess of $10,000, that Tenant provide to Landlord, at
Tenant's sole, cost and expense, a lien and completion bond in an amount
equal to one and one-half (1.5) times any and all estimated costs of the
proposed work, to insure Landlord against any liability from mechanics' and
materialmen's liens and to insure completion of the work. Before commencing
any work, Tenant shall give Landlord at least five (5) days written notice of
the proposed commencement of such work in order to give Landlord an
opportunity to prepare, post and record such notice as may be permitted by
law to protect Landlord's interest in the Premises and the Building from
mechanics' and materialmen's liens. Tenant shall pay Landlord prior to
commencement of the work an administration fee equal to eight percent (8%) of
the cost of the work to compensate Landlord for the administrative costs
incurred and the Building services provided by Landlord the supervisor and
coordination of the work. Within a reasonable period following completion of
any work for which plans and specifications were required to obtain a
building permit for such work, Tenant shall furnish to Landlord "as built"
plans showing the changes made to the Premises.
(b) Any alterations, additions or improvements to the Premises
shall be made by Tenant at Tenant's sole cost and expense, and any contractor or
other person selected by Tenant to make the same shall be subject to Landlord's
prior approval, which approval shall not be unreasonably withheld or delayed.
Tenant's contractor and its subcontractors shall employ union labor to the
extent necessary to insure, so far as may be possible, the progress of the
alterations, additions or improvements and the performance of any other work or
the provision of any services in the Building without interruption on account of
strikes, work stoppage or similar causes of delay. All work performed by Tenant
shall comply with the laws, rules, orders, directions, regulations and
requirements of all governmental entities having jurisdiction over such work and
shall comply with the rules, orders, directions, regulations and requirements of
any nationally recognized board of insurance underwriters. All alterations,
additions and improvements shall immediately become Landlord's property and, at
the end of the term hereof, shall remain on the Premises without compensation to
Tenant; provided, however, that if Landlord at the time of consenting to the
making of any such alterations, additions and improvements, Tenant shall, prior
to the end of the term, at its sole cost and expense, remove such alterations,
additions and improvements and repair and restore the Premises to their
condition at the commencement of the term. If Landlord consents to, inspects
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the work of, supervises, recommends or designates any architects, engineers,
contractors, subcontractors, or suppliers, the same shall not be deemed a
warranty as to the adequacy of the design, workmanship or quality of
materials of the work, or as to the compliance of the work with the plans and
specifications or any legal requirements.
9. LIENS. Tenant shall keep the Premises and the Building free from
any liens (and claims thereof) arising out of any work performed, materials
furnished or obligations incurred by or for Tenant. Landlord shall have the
right to post and keep posted on the Premises any notices that may be
provided by law or which Landlord may deem to be proper for the protection of
Landlord, the Premises and the Building from such liens and claims.
10. REPAIRS. By entry hereunder Tenant accepts the Premises as being
in the condition in which Landlord is obligated to deliver the Premises,
provided that such acceptance shall not extend to latent defects which are
not discoverable through a diligent inspection of the Premises. Tenant shall,
at all times during the term hereof and at Tenant's sole cost and expense,
keep the Premises in good condition and repair, ordinary wear and tear and
damage thereto by fire, earthquake, act of God or the elements excepted.
Tenant hereby waives all rights to make repairs at the expense of Landlord or
in lieu thereof to vacate the Premises. Tenant shall at the end of the term
hereof surrender to Landlord the Premises and all alterations, additions and
improvements thereto (except to the extent Tenant is required to remove any
such alterations, additions or improvements pursuant to subparagraph 8(b)
above) in the same condition as when received, ordinary wear and tear and
damage by fire, earthquake, act of God or the elements excepted. Landlord has
no obligation and has made no promise to alter, remodel, improve, repair,
decorate or paint the Premises or any part thereof, except as specifically
herein set forth. No representations respecting the condition of the Premises
or the Building have been made by Landlord to Tenant, except as specifically
herein set forth.
11. DESTRUCTION OR DAMAGE.
(a) In the event the Premises or the portion of the
Building necessary for Tenant's use and enjoyment of the Premises are damaged
by fire, earthquake, act of God, the elements or other casualty, Landlord
shall repair the same, subject to the provisions of this Paragraph
hereinafter set forth, if (i) such repairs can, in Landlord's opinion, be
made within a period of 180 days after commencement of the repair work, (ii)
the cost of repairing damage for which Landlord is not insured shall be less
than ten percent (10%) of the then full insurable value of the Premises with
respect to repairing any damage to the Premises or five percent (5%) of the
then full insurable value of the Building with respect to repairing any
damage to other areas of the Building, and (iii) the damage or destruction
does not occur during the twelve (12) months of the term of this Lease or any
extension thereof. This Lease shall remain in full force and effect except
that so long as the damage or destruction is not caused by the fault or
negligence of Tenant, its contractors, agents, employees or invitees, an
abatement of rental shall be allowed Tenant for such part of the Premises as
shall be rendered unusable by Tenant in the conduct of its business during
the time such part is so unusable.
(b) As soon as is reasonably possible following the
occurrence of any damage, Landlord shall notify Tenant of the estimated time
and cost required for the repair or restoration of the Premises or the
portion of the Building necessary for Tenant's occupancy. If, in Landlord's
opinion, such repairs cannot be made within 180 days as set forth in
subparagraph (a)(i) above,
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Landlord or Tenant may elect by written notice to the other within 30 days
after Landlord's notice of estimated time and cost is given, to terminate
this Lease effective as of the date of such damage or destruction. If
Landlord is not obligated to effect the repair based upon the circumstances
set forth in subparagraphs (a)(ii) or (a)(iii) above, Landlord shall have the
right to terminate this Lease, by written notice to Tenant within 30 days
after Landlord's notice of time and cost is given, effective as of the date
of such damage or destruction. If neither party so elects to terminate this
Lease, this Lease shall continue in full force and effect, but the rent shall
be partially abated as hereinabove in this Paragraph provided, and Landlord
shall proceed diligently to repair such damage.
(c) A total destruction of the Building shall automatically
terminate this Lease. Tenant waives California Civil Code Section 1932, 1933,
1941 and 1942 providing for (among other things) termination of hiring upon
destruction of the thing hired and the right to make repairs and to vacate
the Premises under certain conditions.
(d) In no event shall Tenant be entitled to any
compensation or damages from Landlord, specifically including, but not
limited to, any compensation or damages for (i) loss of the use of the whole
or any part of the Premises, (ii) damage to Tenant's personal property in or
improvements to the Premises, or (iii) any inconvenience, annoyance or
expense occasioned by such damage or repair (including moving expenses and
the expense of establishing and maintaining any temporary facilities).
(e) Landlord, in repairing the Premises, shall not be
required to repair any injury or damage to the personal property of Tenant,
or to make any repairs to or replacement of any alterations, additions,
improvements or fixtures installed on the Premises by or for Tenant.
12. INSURANCE.
(a) Tenant agrees to procure and maintain in force during
the term hereof, at Tenant's sole cost and expense, Commercial General
Liability insurance in an amount not less than two million dollars
($2,000,000) combined single limit for bodily injury and property damage for
injuries to or death of persons and property damage occurring in, on or about
the Premises or the Building. Such policy shall name Landlord, Landlord's
manager or managing agent and any other party designated by Landlord as
additional insureds, shall insure Landlord's and Landlord's managing agent's
contingent liability as respects acts or omissions of Tenant, shall be issued
by a company licensed to do business in the State of California and otherwise
reasonably acceptable to Landlord, and shall provide that the policy may not
be canceled nor amended without thirty (30) days prior written notice to
Landlord. Tenant shall also procure and maintain in force during the term
hereof full replacement cost "all risk" insurance on its personal property
and trade fixtures in the Premises. Tenant may carry said insurance under a
blanket policy, provided however, said insurance by Tenant shall include an
endorsement confirming application to and coverage of Landlord. Said
insurance shall be primary insurance to any other insurance that may be
available to Landlord. Any other insurance available to Landlord shall be
non-contributing with and excess to the insurance required to be carried by
Tenant hereunder.
(b) A Certificate of Insurance shall be delivered to
Landlord by Tenant prior to commencement of the term of this Lease and upon
each renewal of such insurance.
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(c) Tenant shall, prior to and throughout the term of this
Lease, procure from each of its insurers under all policies of fire, theft,
public liability, workers' compensation and any other insurance policies of
Tenant now or hereafter existing, pertaining in any way to the Premises or
the Building or any operation therein, a waiver, as set forth in Paragraph 13
of this Lease, of all rights of subrogation which the insurer might
otherwise, if at all, have against the Landlord or any officer, agent or
employee of Landlord (including Landlord's managing agent).
(d) Landlord shall procure and maintain with respect to
Landlord's interest in the Building such types of insurance and in such
amounts as reasonably prudent landlords of comparable buildings in the San
Francisco Financial District generally procure and maintain.
13. SUBROGATION. Landlord and Tenant hereby release each other, and
their respective officers, directors, trustees, beneficiaries, partners,
members, managers, agents and employees, from, and waive their entire claim
of recovery for, any claims for damage to the Premises and the Building and
to Tenant's alterations, trade fixtures, equipment and personal property that
are caused by or result from fire, lightning or any other perils normally
included in an "all risk" property insurance policy, whether or not such loss
or damage is due to the negligence of Landlord, or its officers, directors,
trustees, beneficiaries, partners, members, managers, agents or employees, or
of Tenant, or its officers, directors, trustees, beneficiaries, partners,
members, managers, agents, or employees. Landlord and Tenant shall cause each
such insurance policy obtained by it to provide that the insurance company
waives all right of recovery by way of subrogation against the other party in
connection with any damage covered by such insurance policy. Landlord and
Tenant shall each indemnify the other against and reimburse the other for any
and all loss or expense, including reasonable attorneys' fees, resulting from
the failure to obtain such waiver.
14. INDEMNIFICATION. Tenant hereby waives all claims against
Landlord for damage to any property or injury or death of any person in, upon
or about the Premises arising at any time and from any cause other than
solely by reason of the gross negligence or willful misconduct of Landlord,
its employees or contractors, and Tenant shall defend Landlord against, hold
Landlord harmless from, and reimburse Landlord for any and all claims,
liability, damage and loss arising out of (a) injury to or death of any
person, and (b) damage to or destruction of any property, attributable to or
resulting from the condition, use or occupancy of the Premises by Tenant or
Tenant's failure to perform its obligations under this Lease, except such as
is caused solely by the gross negligence or willful misconduct of Landlord,
its contractors or employees. The foregoing indemnity obligation of Tenant
shall include reasonable attorneys' fees, investigation costs and all other
reasonable costs and expenses incurred by Landlord from the first notice that
injury, death or damage has occurred or that any claim or demand is to be
made or may be made. The provisions of this Paragraph shall survive the
termination of this Lease with respect to any damage, injury or death
occurring prior to such termination.
15. COMPLIANCE WITH LEGAL REQUIREMENTS. Tenant, at its sole cost and
expense, shall promptly comply with all laws, statutes, ordinances and
governmental rules, regulations or requirements now in force or which may
hereafter be in force, with the requirements of any board of fire
underwriters or other similar body now or hereafter constituted, with any
direction or occupancy certificate issued pursuant to any law by any public
officer or officers, as well as the provisions of all recorded documents
affecting the Premises (including, without limitation, any ground lease,
mortgage or covenants, conditions and restrictions), insofar as any thereof
relate to or affect the
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condition, use or occupancy of the Premises, including structural utility
system and life safety system changes necessitated by Tenant's acts, use of
the Premises or by improvements made by or for Tenant.
16. ASSIGNMENT AND SUBLETTING.
(a) Tenant shall not hypothecate or encumber this Lease or
any interest herein without the prior written consent of Landlord, which may
be granted or denied in Landlord's absolute discretion. Tenant shall not,
without the prior written consent of Landlord, which consent shall not be
unreasonably withheld or delayed by Landlord, transfer or assign this Lease
or any interest herein, sublet the Premises or any part thereof, or permit
the use of the Premises by any party other than Tenant. This Lease shall not,
nor shall any interest herein, be assignable as to the interest of Tenant by
operation of law without the consent of Landlord, which consent shall not be
unreasonably withheld. Any of the foregoing acts without such consent shall
be void and shall, at the option of Landlord, terminate this Lease. In
connection with each consent requested by Tenant, Tenant shall submit to
Landlord the terms of the proposed transaction, the identity of the parties
to the transaction, the proposed documentation for the transaction, and all
other information reasonably requested by Landlord concerning the proposed
transaction and the parties involved.
(b) If the Tenant is a privately held corporation, or is an
unincorporated association, limited liability company or partnership, the
transfer, assignment, or hypothecation of any stock or interest in such
corporation, association, limited liability company or partnership in excess
of fifty percent (50%) in the aggregate shall be deemed an assignment or
transfer within the meaning and provisions of this Paragraph 16. If Tenant is
a publicly held corporation, the public trading of stock in Tenant shall not
be deemed an assignment or transfer within the meaning of this Paragraph.
(c) Without limiting the other instances in which it may be
reasonable for Landlord to withhold its consent to an assignment or
subletting, Landlord and Tenant acknowledge that it shall be reasonable for
Landlord to withhold its consent in the following instances:
(1) if at the time consent is requested or at any
time prior to the granting of consent, Tenant is in default under this Lease
or would be in default under this Lease but for the pendency of any grace or
cure period under Paragraph 19 below;
(2) if the proposed assignee or sublease is a
governmental agency;
(3) if, in Landlord's reasonable judgment, the use of
the Premises by the proposed assignee or sublessee would not be comparable to
the types of office use by other tenants in the building, would entail any
alterations which would lessen the value of the leasehold improvements in the
Premises, or would conflict with any so-called "exclusive" or percentage
lease then in favor of another tenant of the Building;
(4) if, in Landlord's reasonable judgment, the
financial worth of the proposed assignee or sublessee does not meet the
credit standards applied by Landlord for other tenants under leases with
comparable terms, or the character, reputation, or business of the proposed
assignee or sublessee is not consistent with the quality of the other
tenancies in the Building;
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(5) if in case of subletting involving either or both
the 7th Floor Premises and the 10th Floor Premises, such subletting is of
less than the entire 7th Floor Premises and/or the entire 10th Floor
Premises, as applicable; and
(6) if the proposed assignee or sublessee is an
existing tenant of the Building.
(d) If at any time during the term of this Lease Tenant
desires to assign its interest in this Lease or sublet all or any part of the
Premises, Tenant shall give notice to Landlord setting forth the terms of the
proposed assignment or subletting ("Tenant's Notice"). Landlord shall have
the option, exercisable by notice given to Tenant within fifteen (15)
business days after Tenant's Notice is given ("Landlord's Option Period"),
either (1) to consent to the assignment in which event the provisions of
subparagraph (g) shall be applicable, or to consent to the subletting in
which event the provisions of subparagraph (h) shall be applicable; (2) to
become the assignee or sublessee of Tenant (instead of the entity specified
in Tenant's Notice) upon the terms set forth in Tenant's Notice; (3) in the
event of a proposed assignment, to terminate this Lease and to retake
possession of the Premises; or (4) in the event of a proposed subletting of
the entire Premises, or a portion of the Premises for all or substantially
all of the remainder of the term, to terminate this Lease with respect to,
and to retake possession of, the space in question, together with, if only a
portion of the Premises is involved, such rights of access to and from such
portion as may be reasonably required for its use and enjoyment.
(e) The provisions of subparagraphs (a) and (b) above
notwithstanding, Tenant may assign this Lease or sublet the Premises or any
portion thereof, with prior notice to Landlord but without the necessity of
Landlord's consent and without extending any option to Landlord pursuant to
subparagraph (d) above, to any corporation which controls, is controlled by
or is under common control with Tenant, to any corporation or other entity
resulting from the merger or consolidation with Tenant, or to any person or
entity which acquires all the assets of Tenant as a going concern of the
business that is being conducted on the Premises.
(f) No sublessee (other than Landlord if it exercises its
option pursuant to subparagraph (d) above) shall have a right further to
sublet without Landlord's prior consent, which Tenant acknowledges may be
withheld in Landlord's absolute discretion, and any assignment by a sublessee
of its sublease shall be subject to Landlord's prior consent in the same
manner as if Tenant were entering into a new sublease. No sublease, once
consented to be Landlord, shall be modified or terminated by Tenant without
Landlord's prior consent, which consent shall not be unreasonably withheld.
(g) In the case of an assignment to an entity other than
Landlord, 50% of any sums or other economic consideration received by Tenant
as a result of such assignment shall be paid to Landlord after first
deducting the unamortized cost of leasehold improvements paid for by Tenant,
and the cost of any reasonable real estate commissions and reasonable
attorneys' fees incurred by Tenant in connection with such assignment.
(h) In the case of a subletting to an entity other than
Landlord, 50% of any sums or economic consideration received by Tenant as a
result of such subletting shall be paid to Landlord after first deducting (1)
the rental due hereunder, prorated to reflect only rental allocable to the
sublet
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portion of the Premises, (2) the cost of leasehold improvements made to the
sublet portion of the Premises at Tenant's cost, amortized over the term of
this Lease except for leasehold improvements made for the specific benefit of
the sublessee, which shall be amortized over the term of the sublease, and
(3) the cost of any reasonable real estate commissions and reasonable
attorneys' fees incurred by Tenant in connection with such subletting,
amortized over the term of the sublease.
(i) Regardless of Landlord's consent, no subletting or
assignment (except to Landlord) shall release Tenant of Tenant's obligation
or alter the primary liability of Tenant to pay the rental and to perform all
other obligations to be performed by Tenant hereunder. The acceptance of
rental by Landlord from any other person shall not be deemed to be a waiver
by Landlord of any provision hereof. Consent to one assignment or subletting
shall not be deemed consent to any subsequent assignment or subletting. In
the event of default by any assignee of Tenant or any successor of Tenant in
the performance of any of the terms hereof, Landlord may proceed directly
against Tenant without the necessity of exhausting remedies against such
assignee or successor. Landlord may consent to subsequent assignments or
subletting of this Lease or amendments or modifications to this Lease with
assignees of Tenant, without notifying Tenant, or any successor of Tenant,
and without obtaining its or their consent thereto, and such action shall not
relieve Tenant of liability under this Lease.
(j) In the event Tenant shall assign this Lease or sublet
the Premises or request the consent of Landlord to any assignment,
subletting, hypothecation or other action requiring Landlord's consent
hereunder (and provided that Landlord does not elect to proceed pursuant to
clause (2), (3) or (4) of Paragraph 16(d) above), then Tenant shall pay
Landlord's then reasonable and standard processing fee and Landlord's
reasonable attorneys' fees incurred in connection therewith.
(k) Any sublease hereunder shall be subordinate and subject
to the provisions of this Lease, and if this Lease shall be terminated during
the term of any sublease, Landlord shall have the right to: (a) deem such
sublease as merged and canceled and repossess the subject space by any lawful
means, or (b) deem such termination as an assignment of such sublease to
Landlord and not as a merger, and require that such subtenant attorn to and
recognize Landlord as its landlord under any such sublease. If an Event of
Default shall occur under this Lease, Landlord is hereby irrevocably
authorized, as Tenant's agent and attorney-in-fact, to direct any subtenants
and assignees to make all payments under or in connection with the sublease
or assignment directly to Landlord (which Landlord shall apply towards
Tenant's obligations under this Lease)."
17. RULES: NO DISCRIMINATION. Tenant shall faithfully observe and
comply with the Rules and Regulations, and after notice thereof, all
reasonable modifications thereof and additions thereto from time to time
promulgated in writing by Landlord. In the event of any conflict between the
Rules and Regulations and the express provisions of this Lease, the express
provisions of this Lease shall govern. Landlord shall not be responsible to
Tenant for the nonperformance by any other tenant or occupant of the Building
of any of said Rules and Regulations. Tenant specifically covenants and
agrees that Tenant shall not discriminate against or segregate any person or
group of persons on account of race, sex, creed, color, national origin, or
ancestry or other legally protected classification, in the occupancy, use,
sublease, tenure or enjoyment of the Premises.
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18. ENTRY BY LANDLORD. Landlord may enter the Premises at reasonable
hours and, if practicable, upon twenty-four (24) hours' written or verbal
notice to Tenant (except that no such notice shall be required in the event
of an emergency) to (a) inspect the same; (b) exhibit the same to prospective
purchasers, lenders or tenants, provided, however, that Landlord shall only
exhibit the Premises to prospective tenants during the final 90 days of
Tenant's occupancy of the Premises; (c) determine whether Tenant is complying
with all its obligations hereunder; (d) supply janitor service and any other
service to be provided by landlord to Tenant hereunder; (e) post notices of
nonresponsibility; and (f) make repairs or perform maintenance required of
Landlord under the terms hereof or repairs to any adjoining space or utility
services or make repairs, alterations or improvements to any other portion of
the Building; provided, however, that all such work shall be done as promptly
as reasonably possible and so as to cause as little interference to Tenant as
reasonably possible. Tenant hereby waives any claim for damages for any
inconvenience to or interference with Tenant's business or any loss of
occupancy or quiet enjoyment of the Premises occasioned by such entry.
Landlord shall at all times have and retain a key with which to unlock all of
the doors in, on or about the Premises (excluding Tenant's vaults, safes and
similar areas designated in writing by Tenant in advance); and Landlord shall
have the right to use any and all means which Landlord may deem proper to
open Tenant's doors in an emergency in order to obtain entry to the Premises,
and any entry to the Premises obtained by Landlord in an emergency shall not
be construed or deemed to be forcible or unlawful entry into or be a detainer
of the Premises or of Tenant from the Premises or an eviction, actual or
constructive, of Tenant from the Premises or any portion thereof.
19. EVENTS OF DEFAULT. The following events shall constitute Events
of Default under this Lease.
(a) A default by Tenant in the payment when due of any rent
or other sum payable hereunder and the continuation of such default for a
period of five (5) days after the same is due;
(b) A default by Tenant in the performance of any of the
other terms, covenants, agreements or conditions contained herein and, if the
default is curable, the continuation of such default for a period of 20 days
after notice by Landlord or beyond the time reasonably necessary for cure if
the default is of a nature to require more than 20 days to remedy;
(c) The bankruptcy or insolvency of Tenant, transfer by
Tenant in fraud of creditors, an assignment by Tenant for the benefit of
creditors, or the commencement of any proceedings of any kind by or against
Tenant under any provision of the Federal Bankruptcy Act or under any other
insolvency, bankruptcy or reorganization act unless, in the event any such
proceedings are involuntary, Tenant is discharged from the same within 60
days thereafter;
(d) The appointment of a receiver for a substantial part of
the assets of Tenant;
(e) The abandonment of the Premises;
(f) The levy upon this Lease or any estate of Tenant
hereunder by any attachment or execution and the failure to have such
attachment or execution vacated within 20 days thereafter;
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(g) A violation by Tenant or any affiliate of Tenant under
any other lease or agreement with Landlord which is not cured within the time
permitted for cure thereunder; and
(h) If Tenant violates the same term or condition of this
Lease on two (2) occasions during any twelve (12) month period, Landlord
shall have the right to exercise all remedies for any violations of the same
term or condition during the next twelve (12) months without providing
further notice or an opportunity to cure.
20. TERMINATION UPON DEFAULT. Upon the occurrence of any Event of
Default by Tenant hereunder, Landlord may, at its option and without any
further notice or demand, in addition to any other rights and remedies given
hereunder or by law, terminate this Lease and exercise its remedies relating
thereto in accordance with the following provisions:
(a) Landlord shall have the right, so long as the Event of
Default remains uncured, to give notice of termination to Tenant, and on the
date specified in such notice this Lease shall terminate.
(b) In the event of any such termination of this Lease,
landlord may then or any time thereafter by judicial process, re-enter the
Premises and remove therefrom all persons and property and again repossess
and enjoy the Premises, without prejudice to any other remedies that Landlord
may have by reason of Tenant's default or of such termination.
(c) In the event of any such termination of this Lease, and
in addition to any other rights and remedies Landlord may have, Landlord
shall have all of the rights and remedies of a landlord provided by Section
1951.2 of the California Civil Code. The amount of damages which Landlord may
recover in event of such termination shall include, without limitation: (1)
the worth at the time of award of the unpaid rent which had been earned at
the time of termination; (2) the worth at the time of award of the amount by
which the unpaid rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that Tenant proves
could have been reasonably avoided; (3) the worth at the time of award
(computed by discounting such amount at the discount rate of the Federal
Reserve Bank of San Francisco at the time of award plus one percent) of the
amount by which the unpaid rent for the balance of the term after the time of
award plus one percent) of the amount by which the unpaid rent for the
balance of the term after the time of award exceeds the amount of rental loss
that Tenant proves could be reasonably avoided; (4) all legal expenses and
other related costs incurred by Landlord following Tenant's default; (5) all
costs incurred by Landlord in restoring the Premises to good order and
condition, or in remodeling, renovating or otherwise preparing the Premises
for reletting; and (6) all costs (including, without limitation, any
brokerage commissions) incurred by Landlord in reletting the premises.
(d) After terminating this Lease, Landlord may remove any
and all personal property located in the Premises and place such property in
a public or private warehouse or elsewhere at the sole cost and expense of
Tenant. In the event that Tenant shall not immediately pay the cost of
storage of such property after the same has been stored for a period of
thirty (30) days or more, Landlord may sell any or all thereof at a public or
private sale in such manner and at such times and places as Landlord in its
sole discretion may deem proper, without notice to or demand upon Tenant.
Tenant waives all claims for damages that may be caused by Landlord's
removing or storing or selling the property as herein provided, and Tenant
shall indemnify and hold Landlord free
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and harmless from and against any and all losses, costs and damages,
including without limitation all costs of court and attorneys' fees of
Landlord occasioned thereby.
(e) In the event of the occurrence of any of the events
specified in Paragraph 19(c) of this Lease, if Landlord shall not choose to
exercise, or by law shall not be able to exercise, its rights hereunder to
terminate this Lease, then, in addition to any other rights of Landlord
hereunder or by law, neither Tenant, as debtor-in-possession, nor any trustee
or other person (collectively, the "Assuming Tenant") shall be entitled to
assume this Lease unless on or before the date of such assumption, the
Assuming Tenant (a) cures, or provides adequate assurance that the Assuming
Tenant will promptly cure, any existing default under this Lease, (b)
compensates, or provides adequate assurance that the Assuming Tenant will
promptly compensate, Landlord for any pecuniary loss (including, without
limitation, attorneys' fees and disbursements) resulting from such default,
and (c) provides adequate assurance of future performance under this Lease.
For purposes of this subparagraph (e) "adequate assurance" of such cure,
compensation or future performance shall be effected by the establishment of
an escrow fund for the amount at issue or by bonding.
21. CONTINUATION AFTER DEFAULT. Landlord shall have the remedy
described in California Civil Code Section 1951.4 (i.e., Landlord may
continue this Lease in effect after Tenant's breach and abandonment and
recover rental as it becomes due, because Tenant has the right to sublet or
assign, subject only to reasonable limitations). Even though Tenant has
breached this Lease and abandoned the Premises, this Lease shall continue in
effect for so long as Landlord does not terminate Tenant's right to
possession, and Landlord may enforce all its rights and remedies under this
Lease, including the right to recover the rental as it becomes due under this
Lease. Acts of maintenance or preservation or efforts to relet the Premises
or the appointment of a receiver upon initiative of Landlord to protect
Landlord's interest under this Lease shall not constitute a termination of
Tenant's right to possession.
22. OTHER RELIEF. The remedies provided for in this Lease are in
addition to any other remedies available to Landlord at law or in equity by
statute or otherwise.
23. LANDLORD'S RIGHT TO CURE DEFAULTS. All agreements and provisions
to be performed by Tenant under any of the terms of this Lease shall be at
its sole cost and expense and without any abatement of rental. If Tenant
shall fail to pay any sum of money, other than rental, required to be paid by
it hereunder or shall fail to perform any other act on its part to be
performed hereunder and such failure shall continue for 20 days after notice
thereof by Landlord, or such longer period as may be allowed hereunder, or
such shorter period as may be appropriate in emergencies, Landlord may, but
shall not be obligated so to do, and without waiving or releasing Tenant from
any obligations of Tenant, make any such payment or perform any such other
act on Tenant's part to be made or performed as in this Lease provided to the
extent Landlord may deem desirable, with full right of offset. All sums so
paid by Landlord (with interest at an annual rate equal to four percent (4%)
over the annual prime rate of interest announced publicly by Citibank, N.A.,
in New York, New York from time to time, but in no event in excess of the
maximum interest rate permitted by law) and all necessary incidental costs
shall be payable to Landlord on demand.
24. ATTORNEYS' FEES. If any action arising out of this Lease is
brought by either party hereto against the other, then and in that event the
unsuccessful party to such action shall pay to the prevailing party all costs
and expenses, including reasonable attorneys' fees, incurred by such
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prevailing party, and if the prevailing party shall recover judgment in such
action, such costs, expenses and attorneys' fees shall be included in and as
part of such judgment.
25. EMINENT DOMAIN. If all or any part of the Premises shall be
taken as a result of the exercise of the power of eminent domain, this Lease
shall terminate as to the part so taken as of the date of taking, and, in the
case of a partial taking, either Landlord or Tenant shall have the right to
terminate this Lease as to the balance of the Premises by notice to the other
within 30 days after such date; provided, however, that a condition to the
exercise by Tenant of such right to terminate shall be that the portion of
the Premises taken shall be of such extent and nature as substantially to
handicap, impede or impair Tenant's use of the balance of the Premises. In
the event of any taking, Landlord shall be entitled to any and all
compensation, damages, income, rent, awards, or any interest therein
whatsoever which may be paid or made in connection therewith, and Tenant
shall have no claim against Landlord for the value of any unexpired term of
this Lease or otherwise. In the event of a partial taking of the Premises
which does not result in a termination of this Lease, the monthly rental
thereafter to be paid shall be equitably reduced.
26. SUBORDINATION.
(a) This Lease shall be subject and subordinate to any
ground lease, mortgage, deed of trust, or any other hypothecation for
security now or hereafter placed upon the Building and to any and all
advances made on the security thereof or Landlord's interest therein, and to
all renewals, modifications, consolidations, replacements and extensions
thereof. In the event any mortgage or deed of trust to which this Lease is
subordinate is foreclosed or a deed in lieu of foreclosure is given to the
mortgagee or beneficiary, Tenant shall attorn to the purchaser at the
foreclosure sale or to the grantee under the deed in lieu of foreclosure; in
the event any ground lease to which this Lease is subordinate is terminated,
Tenant shall attorn to the ground lessor. Tenant agrees to execute any
documents required to effectuate such subordination, to make this Lease prior
to the lien of any mortgage or deed of trust or ground lease, or to evidence
such attornment.
(b) In the event any mortgage or deed of trust to which
this Lease is subordinate is foreclosed or a deed in lieu of foreclosure is
given to the mortgagee or beneficiary, or in the event any ground lease to
which this Lease is subordinate is terminated, this Lease shall not be
barred, terminated, cut off or foreclosed nor shall the rights and possession
of Tenant hereunder be disturbed if Tenant shall not then be in default in
the payment of rental and other sums due hereunder or otherwise be in default
under the terms of this Lease, and if Tenant shall attorn to the purchaser,
grantee, or ground lessor as provided in subparagraph (a) above or, if
requested, enter into a new lease for the balance of the term hereof upon the
same terms and provisions as are contained in this Lease. Tenant's covenant
under subparagraph (a) above to subordinate this Lease to any ground lease,
mortgage, deed of trust or other hypothecation hereafter executed is
conditioned upon each such senior instrument containing the commitments
specified in this subparagraph (b).
27. NO MERGER. The voluntary or other surrender of this Lease by
Tenant, or a mutual cancellation thereof, shall not work a merger, and shall,
at the option of Landlord, terminate all or any existing subleases or
subtenancies, or operate as an assignment to it of any or all such subleases
or subtenancies.
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28. SALE. In the event the original Landlord hereunder or any
successor owner of the Building, shall sell or convey the Building, all
liabilities and obligations on the part of the original Landlord, or such
successor owner, under this Lease accruing thereafter shall terminate, and
thereupon all such liabilities and obligations shall be binding upon the new
owner. Tenant agrees to attorn to such new owner, and Landlord agrees to
remit to such new owner (or, at Landlord's election, credit such new owner
with the amount of) Tenant's security deposit held by Landlord pursuant to
Paragraph 33 below.
29. ESTOPPEL CERTIFICATE. At any time and from time to time but on
not less than ten (10) business days' prior notice by Landlord or Tenant, the
other party hereto shall execute, acknowledge, and deliver to the requesting
party, promptly upon request, a certificate certifying (a) that this Lease is
unmodified and in full force and effect (or, if there have been
modifications, that this Lease is in full force and effect, as modified, and
stating the date and nature of each modification), (b) the date, if any, to
which rental and other sums payable hereunder have been paid, (c) that no
notice has been received by the responding party of any default which has not
been cured, except as to defaults specified in the certificate, (d) whether
there is then existing any claim by the responding party of default hereunder
by the requesting party, and, if so, specifying the nature thereof, and (e)
such other matters as may be reasonably requested by Landlord or Tenant. Any
such certificate may be relied upon by any prospective purchaser, mortgagee
or beneficiary under any deed of trust on the Building or any part thereof.
30. NO LIGHT, AIR, OR VIEW EASEMENT. Any diminution or shutting off
of light, air or view by any structure which may be erected on lands adjacent
to the Building shall in no way affect this Lease or impose any liability on
Landlord.
31. HOLDING OVER. Unless Landlord expressly agrees otherwise in
writing, Tenant shall pay Landlord 200% of the amount of rent and additional
rent then in effect immediately prior to expiration or earlier termination of
this Lease, computed on a monthly basis, for each month or portion thereof
that Tenant shall fail to vacate or surrender possession of the Premises or
any part thereof after expiration or earlier termination of this Lease in the
condition required under this Lease, together with all damages (direct and
consequential) sustained by Landlord on account thereof. Tenant shall pay
such amounts on demand, and, in the absence of demand, monthly in advance.
The foregoing provisions, and Landlord's acceptance of any such amounts,
shall not serve as permission for Tenant to hold-over, nor serve to extend
the term (although Tenant shall remain a tenant-at-sufferance bound to comply
with all provisions of this Lease until Tenant properly vacates the
Premises). Landlord shall have the right at any time after expiration or
earlier termination of this Lease to reenter and possess the Premises and
remove all property and persons therefrom, and Landlord shall have such other
remedies for holdover as may be available to Landlord under other provisions
of this Lease or applicable laws.
32. ABANDONMENT. Tenant shall not abandon the Premises or any part
thereof at any time during the term hereof. If Tenant shall abandon or
surrender the Premises, or be dispossessed by process of law or otherwise,
any personal property belonging to Tenant and left on the Premises shall be
deemed to be abandoned, at the option of Landlord, and Landlord may sell or
otherwise dispose of such personal property in any commercially reasonable
manner.
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33. SECURITY DEPOSIT. Tenant shall, upon execution of this Lease,
deposit with Landlord the sum specified in the Basic Lease Information (the
"deposit"). The deposit shall be held by Landlord as security for the
faithful performance by Tenant of all the provisions of this Lease to be
performed or observed by Tenant. If Tenant fails to pay rent or other sums
due hereunder, or otherwise defaults with respect to any provision of this
Lease, Landlord may use, apply or retain all or any portion of the deposit
for the payment of any rent or other sum in default or for the payment of any
other sum to which Landlord may become obligated by reason of Tenant's
default, or to compensate Landlord for any loss or damage which Landlord may
suffer thereby. If Landlord so uses or applies all or any portion of the
deposit, Tenant shall within 10 days after demand therefor deposit cash with
Landlord in an amount sufficient to restore the deposit to the full amount
thereof and Tenant's failure to do so shall be a material breach of this
Lease. Landlord shall not be required to keep the deposit separate from its
general accounts, and Tenant shall not be entitled to interest on the
deposit. Within thirty (30) days following the Term Expiration, Landlord
shall return to Tenant any portion of the deposit due to Tenant.
34. WAIVER. The waiver by Landlord of any agreement, condition or
provision herein contained shall not be deemed to be a waiver of any
subsequent breach of the same or any other agreement, condition or provision
herein contained, nor shall any custom or practice which may grow up between
the parties in the administration of the terms hereof be construed to waive
or to lessen the right of Landlord to insist upon the performance by Tenant
in strict accordance with such terms. The subsequent acceptance of rental
hereunder by Landlord shall not be deemed to be a waiver of any preceding
breach by Tenant of any agreement, condition or provision of this Lease,
other than the failure of Tenant to pay the particular rental so accepted,
regardless of Landlord's knowledge of the preceding breach at the time of
acceptance of the rental.
35. NOTICES AND CONSENTS. Except as expressly provided to the
contrary in this Lease, all notices, consents, demands and other
communications from one party to the other that are given with respect to
this Lease, the Premises or the Building shall be in writing and shall not be
effective for any purpose unless the same shall be served personally or by
national air courier service, or by United States certified mail, return
receipt requested, postage prepaid, and addressed as follows: to Tenant at
the address specified in the Basic Lease Information, or to such other place
as Tenant may from time to time designate in a notice to Landlord; to
Landlord at the address specified in the Basic Lease Information, or to such
other place as Landlord may from time to time designate in a notice to
Tenant; or, in the case of Tenant, delivered to Tenant at the Premises. Each
notice, consent, demand or other communication hereunder shall be deemed to
have been given as of the third (3rd) business day following the date of such
mailing (or as of any earlier date evidenced by a receipt from such national
air courier service or the United States Postal Service) or immediately if
personally delivered. Notices not sent in accordance with the foregoing shall
be of no force or effect until received by the party to which the notice is
sent at the address for such party specified herein.
36. COMPLETE AGREEMENT. There are no oral agreements between
Landlord and Tenant affecting this Lease, and this Lease supersedes and
cancels any and all previous negotiations, arrangements, brochures,
agreements, letters of intent and understandings if any, between Landlord and
Tenant or displayed by Landlord to Tenant with respect to the subject matter
of this Lease, the Premises, the Building or related facilities, with the
exception of that certain 595 Market Street Office Lease dated August 16,
1995, by and between Tenant and Landlord's predecessor-in-interest, as
amended from time to time.
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37. CORPORATE AUTHORITY. If Tenant signs as a corporation, each of
the persons executing this Lease on behalf of Tenant warrants that Tenant is
a duly authorized and existing corporation and that Tenant has and is
qualified to do business in California, that the corporation has full right
and authority to enter into this Lease and that each and both of the persons
signing on behalf of the corporation were authorized to do so.
38. PARTNERSHIP AUTHORITY. If Tenant is a partnership, joint
venture, or other unincorporated association, each individual executing this
Lease on behalf of Tenant warrants that this Lease is binding on Tenant and
that each and both of the persons signing on behalf of Tenant were authorized
to do so.
39. LIMITATION OF LIABILITY TO BUILDING. The liability of Landlord
to Tenant for any default by Landlord under this Lease or arising in
connection with Landlord's operation, management, leasing, repair,
renovation, alteration, or any other matter relating to the Building or the
Premises, shall be limited to the interest of Landlord in the Building.
Tenant agrees to look solely to Landlord's interest in the Building for the
recovery of any judgment against Landlord, and Landlord shall not be
personally liable for any such judgment or deficiency after execution
thereon. The limitations of liability contained in this Paragraph 39 shall
apply equally and inure to the benefit of Landlord, its successors and their
respective, present and future partners of all tiers, beneficiaries,
officers, directors, trustees, shareholders, agents and employees, and their
respective heirs, successors and assigns. Under no circumstances shall any
present or future general partner of Landlord (if Landlord is a partnership)
or individual trustee or beneficiary (if Landlord or any partner of Landlord
is a trust) have any liability for the performance of Landlord's obligations
under this Lease.
40. BROKERS. Tenant confirms and represent that Tenant has contacted
and dealt with solely the brokers identified in the Basic Lease Information
and that no other broker has participated in the negotiation of this Lease or
is entitled to any commission in connection with this Lease.
41. SUBSTITUTION OF PREMISES. Landlord hereby reserves the right to
substitute for the 9th Floor Premises any other premises (herein referred to
as the "new premises") in the Building provided: (i) the new premises shall
be similar to the 9th Floor Premises in size (up to 10% larger or smaller
with the Rent and any other rights and obligations of the parties based on
the square footage of the 9th Floor Premises adjusted proportionately to
reflect the increase or decrease); (ii) Landlord shall provide the new
premises in a condition substantially comparable to the 9th Floor Premises at
the time of the substitution (and Tenant shall diligently cooperate in the
preparation or approval of any plans or specifications for the new premises
as requested by Landlord or Landlord's representatives); (iii) the parties
shall execute an appropriate amendment to this Lease confirming the change
within thirty (30) days after Landlord requests; and (iv) if Tenant shall
already have taken possession of the 9th Floor Premises: (a) Landlord shall
pay the direct, out-of-pocket, reasonable expenses of Tenant in moving from
the 9th Floor Premises to the new premises, and (b) Landlord shall give
Tenant at least thirty (30) days' notice before making such change, and such
move shall be made during evenings, weekends, or otherwise so as to incur the
least inconvenience to Tenant. Tenant shall surrender and vacate the 9th
Floor Premises on the date required in Landlord's notice of substitution, in
the condition and as required under this Lease upon expiration, and any
failure to do so shall be subject to Article 31.
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42. TELECOMMUNICATION LINES.
(a) LINES. Subject to Landlord's continuing right of supervision and
approval, and the other provisions hereof, Tenant may: (i) install
telecommunication lines ("LINES") connecting the Premises to Landlord's
terminal block on the floor or floors on which the Premises are located, or
(ii) use such Lines as may currently exist and already connect the Premises
to such terminal block. Landlord's predecessor or independent contractor has
heretofore connected such terminal block through riser system Lines to
Landlord's main distribution frame ("MDF") for the Building. Landlord
disclaims any representations, warranties or understandings concerning the
capacity, design or suitability of Landlord's riser Lines, MDF or related
equipment. If there is, or will be, more than one tenant on any floor, at any
time, Landlord may allocate, and periodically reallocate, connections to the
terminal block based on the proportion of square feet each tenant occupies on
such floor, or the type of business operations or requirements of such
tenants, in Landlord's reasonable discretion. Landlord may arrange for an
independent contractor to review Tenant's requests for approval hereunder,
monitor or supervise Tenant's installation, connection and disconnection of
Lines, and provide other such services, or Landlord may provide the same. In
each case, Tenant shall pay Landlord's fees and costs therefor as provided in
Paragraph 8 of this Lease.
(b) INSTALLATION. Tenant may install and use Tenant's Lines and make
connections and disconnections at the terminal blocks as described above,
provided Tenant shall: (i) obtain Landlord's prior written approval of all
aspects thereof, (ii) use an experienced and qualified contractor designated
or approved in writing in advance by Landlord (whom Landlord may require to
enter an access and indemnity agreement on Landlord's then standard form of
agreement therefor), (iii) comply with such inside wire standards as Landlord
may adopt from time to time, and all other provisions of this Lease,
including Paragraph 8 respecting alterations, and the Building rules
respecting access to the wire closets, (iv) not install Lines in the same
sleeve, chaseway or other enclosure in close proximity with electrical wire,
and not install PVC-coated Lines under any circumstances, (v) thoroughly test
any riser Lines to which Tenant intends to connect any Lines to ensure that
such riser Lines are available and are not then connected to or used for
telephone, data transmission or any other purpose by any other party (whether
or not Landlord has previously approved such connections), and not connect to
any such unavailable or connected riser Lines, and (vi) not connect any
equipment to the Lines which may create an electromagnetic field exceeding
the normal insulation ratings of ordinary twisted pair riser cable or cause
radiation higher than normal background radiation, unless the Lines therefor
(including riser Lines) are appropriately insulated to prevent such excessive
electromagnetic fields or radiation (and such insulation shall not be
provided by the use of additional unused twisted pair Lines). As a condition
to permitting installation of new Lines, Landlord may require that Tenant
remove any existing Lines located in or serving the Premises.
(c) LIMITATION OF LIABILITY. Unless due solely to Landlord's
intentional misconduct or grossly negligent acts, Landlord shall have no
liability for damages arising, and Landlord does not warrant that Tenant's
use of the Lines will be free, from the following (collectively called "LINE
PROBLEMS"): (i) any eavesdropping, wire-tapping or theft of long distance
access codes by unauthorized parties, (ii) any failure of the Lines to
satisfy Tenant's requirements, (iii) any capacitance, attenuation, cross-talk
or other problems with the Lines, any misdesignation of the Lines in the MDF
room or wire closets, or any shortages, failures, variations, interruptions,
disconnections, loss or damage caused by or in connection with the
installation, maintenance,
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replacement, use or removal of any other Lines or equipment at the Building
by or for other tenants at the Building or by any failure of the
environmental conditions at or the power supply for the Building to conform
to any requirements of the Lines, or (iv) any other problems associated with
any Lines by any cause whatsoever. Under no circumstances shall any Line
Problems be deemed an actual or constructive eviction of Tenant, render
Landlord liable to Tenant for abatement of any rent or other charges under
this Lease, or relieve Tenant from performance of Tenant's obligations under
this Lease. Landlord in no event shall be liable for damages by reason of
loss of profits, business interruption or other consequential damage arising
from any Line Problems.
43. DISABILITIES ACT. The parties acknowledge that the Americans
With Disabilities Act of 1990 (42 U.S.C. ss. 12101 et seq.) and regulations
and guidelines promulgated thereunder ("ADA"), and any similarly motivated
state and local laws ("LOCAL BARRIERS ACTS"), as the same may be amended and
supplemented from time to time (collectively referred to herein as the
"DISABILITIES ACTS") establish requirements for business operations,
accessibility and barrier removal, and that such requirements may or may not
apply to the Premises and Building depending on, among other things: (i)
whether Tenant's business is deemed a "public accommodation" or "commercial
facility," (ii) whether such requirements are "readily achievable," and (iii)
whether a given alteration affects a "primary function area" or triggers
"path of travel" requirements. The parties hereby agree that: (a) Landlord
shall perform any required ADA Title III and related Local Barriers Acts
compliance in the common areas, except as provided below (the cost of which
shall be included in Operating Expenses, other than Base Operating Expenses),
(b) Tenant shall perform any required ADA Title III and related Local
Barriers Acts compliance in the Premises, and (c) Landlord may perform, or
require that Tenant perform, and Tenant shall be responsible for the costs
of, ADA Title III and related Local Barriers Acts "path of travel" and other
requirements triggered by any public accommodation or other use of, or
alteration in, the Premises. Tenant shall be responsible for ADA Title I and
related Local Barriers Acts requirements relating to Tenant's employees, and
Landlord shall be responsible for ADA Title I and related Local Barriers Acts
requirements relating to Landlord's employees."
44. CONFIDENTIALITY. Tenant shall keep the content and all copies of
this Lease, related documents or amendments now or hereafter entered, and all
proposals, materials, information and matters relating thereto strictly
confidential, and shall not disclose, disseminate or distribute any of the
same, or permit the same to occur, except to the extent reasonably required
for proper business purposes by Tenant's employees, attorneys, insurers,
auditors, lenders and subtenants or assignees (and Tenant shall obligate any
such parties to whom disclosure is permitted to honor the confidentiality
provisions hereof), and except as may be required by law or court proceedings.
45. MISCELLANEOUS. The words "LANDLORD" and "TENANT" as used herein
shall include the plural as well as the singular. If there be more than one
Tenant, the obligations hereunder imposed upon Tenant shall be joint and
several. Time is of the essence of this Lease and each and all of its
provisions. Submission of this instrument for examination or signature by
Tenant does not constitute a reservation of or option for lease, and it is
not effective as a lease or otherwise until execution and delivery by both
Landlord and Tenant. The agreements, conditions and provisions herein
contained shall, subject to the provisions as to assignment, apply to and
bind the heirs, executors, administrators, successors and assigns of the
parties hereto. Tenant shall not, without the consent of Landlord, use the
name of the Building for any purpose other than as the address of the
business to be conducted by Tenant in the Premises. Upon the request of
Landlord, Tenant shall
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provide to Landlord from time to time, at no expense to Landlord, copies of
such financial statements with respect to Tenant as may have been prepared by
or for Tenant. Landlord's acceptance of a partial rent payment shall not
constitute a waiver of any rights of Tenant or Landlord, including, without
limitation, any right Landlord may have to recover possession of the
Premises, in unlawful detainer, or otherwise. If any provision of this Lease
shall be determined to be illegal or unenforceable, such determination shall
not affect any other provision of this Lease and all such other provisions
shall remain in full force and effect. This Lease shall be governed by and
construed pursuant to the laws of the State of California.
46. YEAR 2000 PERFORMANCE. Landlord is in the process of performing
a readiness audit with respect to Year 2000 Performance. As used herein, the
term "YEAR 2000 PERFORMANCE" means that Building-related systems and
equipment under Landlord's control which are material to proper Building
operations can reasonably be expected to perform without material adverse
effect despite the change of century from 1999 to 2000 and the leap year. The
parties acknowledge that the process of auditing, assess and implementing
Year 2000 Performance solutions is time consuming and uncertain, and
dependent in part on the performance of third parties not under Landlord's
control Thus, Landlord makes no representations or warranties with respect to
Year 2000 Performance of Building-related systems and equipment, and
interruptions of services as a result of Year 2000 Performance problems will
be deemed to be interruptions out of Landlord's reasonable control. Landlord
will inform Tenant promptly after Landlord gains actual knowledge of any
significant Year 2000 Performance problem which Landlord reasonably believes
may adversely impact Building operations, and will use commercially
reasonable efforts to audit, asses and implement programs to meet the goal of
Year 2000 Performance. The cost of such efforts shall be included as an
Operating Expense in the year incurred, provided, however, that capital
replacement costs, if any, shall be amortized over the useful life of the
replacement. Some information may be obtained from third parties, and may not
have been independently verified. Any information which Landlord provides
will be subject to and made in reliance on the Year 2000 Information
Readiness and Disclosure Act.
47. QUIET ENJOYMENT. Landlord covenants and warrants to Tenant that
upon Tenant's paying the rental and all other charges and payments under this
Lease and performing the covenants required to be performed by Tenant under
this Lease, Tenant shall and may peaceably and quietly enjoy the Premises,
subject to the terms, covenants, conditions, provisions and agreements of
this Lease, without interference by Landlord or any person lawfully claiming
by, through or under Landlord. The foregoing covenant is in lieu of any other
covenant express or implied.
48. EXHIBITS. The exhibit(s) and addendum, if any, specified
in the Basic Lease Information are attached to this Lease and by this
reference made a part hereof.
IN WITNESS WHEREOF, the parties have executed this Lease as of the
date first set forth above.
TENANT: LANDLORD:
SELECTQUOTE INSURANCE SERVICES, INC., MARKET & SECOND, INC.,
a California corporation A Delaware corporation
By: By:
-------------------------------- --------------------------
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Its: Chairman Its: Authorized Signatory
By: By:
-------------------------------- --------------------------
Its: Executive Vice President Its: Authorized Signatory
CERTIFICATE
I, Nancy Malik, as Secretary of the aforesaid Tenant, hereby certify
that the individual(s) executing the foregoing Lease on behalf of Tenants
was/were duly authorized to act in his/their capacity/capacities as set forth
above, and his/their action(s) is/are the action of tenant.
------------------------------------
Secretary - Nancy Malik
[Printed Name and Title]
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EXHIBIT B
595 MARKET STREET
RULES AND REGULATIONS
1. The sidewalks, halls, passages, exits, entrances, shopping malls,
elevators, escalators and stairways of the Building shall not be obstructed
by any of the tenants or used by them for any purpose other than for ingress
to and egress from their respective premises. The halls, passages, exits,
entrances, shopping malls, elevators, escalators and stairways are not for
the general public and Landlord shall in all cases retain the right to
control and prevent access thereto of all persons whose presence in the
judgment of Landlord would be prejudicial to the safety, character,
reputation and interests of the Building and its tenants, provided that
nothing herein contained shall be construed to prevent such access to persons
with whom any tenant normally deals in the ordinary course of its business,
unless such persons are engaged in illegal activities. No tenant and no
employee or invitee of any tenant shall go up on the roof of the Building.
Landlord shall have the right at any time without the same constituting an
actual or constructive eviction and without incurring any liability to Tenant
therefor to change the arrangement and/or location of entrances or
passageway, doors or doorways, corridor, elevators, stairs, toilets or other
common areas of the Building.
2. No sign, placard, picture, name, advertisement or notice visible
from the exterior of any tenant's premises shall be inscribed, painted,
affixed or otherwise displayed by any tenant on any part of the Building
without the prior written consent of Landlord. Landlord will adopt and
furnish to tenants general guidelines relating to signs inside the Building.
Tenant agrees to conform to such guidelines. All approved signs or lettering
on doors shall be printed, painted, affixed or inscribed at the expense of
Tenant by a person approved by landlord. Material visible from outside the
Building will not be permitted.
3. The Premises shall not be used for the storage of merchandise
held for sale to the general public or for lodging. No cooking shall be done
or permitted on the Premises, except that private use by Tenant of
Underwriters' Laboratory approved equipment for brewing coffee, tea, hot
chocolate and similar beverages shall be permitted, provided that such use is
in accordance with all applicable federal, state and municipal laws, codes,
ordinances, rules and regulations.
4. No tenant shall employ any person or persons other than the
janitor of Landlord for the purpose of cleaning its premises unless otherwise
agreed to by Landlord in writing. Except with the written consent of
Landlord, no person or persons other than those approved by Landlord shall be
permitted to enter the Building for the purpose of cleaning the same. No
tenant shall cause any unnecessary labor by reason of such tenant's
carelessness or indifference in the preservation of good order and
cleanliness. Landlord shall not be responsible to any tenant for any loss of
property on the Premises, however occurring, or for any damage done to the
effects of any tenant by the janitor or any other employee or any other
person. Janitor service will not be furnished on nights when rooms are
occupied after 6 p.m. unless, by agreement in writing, service is extended to
a later hour for specifically designated rooms.
<PAGE>
5. Landlord will furnish each tenant free of charge with two keys to
each door lock provided in the Premises by Landlord. Landlord may make a
reasonable charge for any additional keys. No tenant shall have any such keys
copied or any keys made. No tenant shall alter any lock or install a new or
additional lock or any bolt on any door of its premises. Each tenant, upon
the termination of its lease, shall deliver to Landlord all keys to doors in
the Building.
6. Landlord shall designate appropriate entrances and a "Freight"
elevator for deliveries or other movement to or from the Premises of
equipment, materials, supplies, furniture of other property, and Tenant shall
not use any other entrances or elevators for such purposes. The Freight
elevator shall be available for use by all tenants in the Building, subject
to such reasonable scheduling as Landlord in its discretion shall deem
appropriate. All persons employed and means or methods used to move
equipment, materials, supplies, furniture or other property in or out of the
Building must be approved by Landlord prior to any such movement. The
scheduling and manner of all move-ins and move-outs shall be coordinated
through the Building office and shall only take place after 6 p.m. on
weekdays, on weekends (subject to additional charges), or at such other times
as Landlord may designate. Landlord shall have the right to prescribe the
maximum weight, size and position of all equipment, materials, furniture or
other property brought into the Building. Heavy objects shall, if considered
necessary by Landlord, stand on a platform of such thickness as is necessary
to properly distribute the weight. Landlord will not be responsible for loss
of or damage to any such property from any cause, and all damage done to the
Building by moving or maintaining such property shall be repaired at the
expense of Tenant.
7. No tenant shall use any method of heating or air conditioning
other than that supplied by Landlord. No tenant shall use or keep or permit
to be used or kept any foul or noxious gas or substance in the Premises, or
permit or suffer the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by reason of
noise, odors or vibrations, or interfere in any way with other tenants or
those having business in the Building, nor shall any animals or birds be
brought or kept in the Premises or the Building.
8. Landlord shall have the right, exercisable without notice and
without liability to any tenant, to change the name or street address of the
Building.
9. Landlord establishes the hours of 7 a.m. to 6 p.m. of each day
other than Saturdays, Sundays and legal holidays as reasonable and usual
business hours for the purposes of subparagraph 6(b) of the Lease. If Tenant
requests electricity or heat or air conditioning during any hours on
Saturdays, Sundays or legal holidays, or during the hours of 6 p.m. to 7 a.m.
on any other day, and if Landlord is able to provide the same, Tenant shall
pay Landlord such charge as Landlord shall establish from time to time for
providing such services during such hours. Any such charges which Tenant is
obligated to pay shall be deemed to be additional rent under the Lease, and
should Tenant fail to pay the same within five (5) days after demand, such
failure shall be a default by Tenant under the Lease.
10. Landlord reserves the right to exclude from the Building between
the hours of 6 p.m. and 7 a.m., and at all hours on Saturdays, Sundays and
legal holidays, all persons who do not present identification acceptable to
Landlord. All persons entering the Building during said hours shall comply
with Landlord's sign-in and sign-out procedures. Each tenant shall provide
Landlord with a list of all persons authorized by Tenant to enter its
premises and shall be liable to Landlord for all
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acts of such persons. Landlord shall in no case be liable for damages for any
error with regard to the admission to or exclusion from the Building of any
person. In the case of invasion, mob, riot, public excitement or other
circumstances rendering such action advisable in Landlord's opinion, Landlord
reserves the right to prevent access to the Building during the continuance
of the same by such action as Landlord may deem appropriate, including
closing doors.
11. The directory of the Building will be provided exclusively for
the display of the name and location of tenants of the Building and Landlord
reserves the right to exclude any other names therefrom. Additional names
which Tenant may decide to have placed on the Building directory must first
be approved by Landlord and shall be at such charges as may be established by
Landlord. Landlord reserves the right to restrict the amount of directory
space utilized by any tenant.
12. No curtains, draperies, blinds, shutters, shades, screens or
other coverings, hangings or decorations shall be attached to, hung or placed
in, or used in connection with any window of the Building without the prior
written consent of Landlord. In any event, with the prior written consent of
Landlord, such items shall be installed on the office side of Landlord's
standard window covering and shall in no way be visible from the exterior of
the Building. Tenant shall keep window coverings closed when the effect of
sunlight (or the lack thereof) would impose unnecessary loads on the
Building's heating or air conditioning systems.
13. No tenant shall obtain for use in the Premises ice, drinking
water, food, beverage, towel or other similar services, except at such
reasonable hours and under such reasonable regulations as may be fixed by
Landlord.
14. Each tenant shall ensure that the doors of its premises are
closed and locked and that all water faucets, water apparatus and utilities
are shut off before Tenant or Tenant's employees leave the Premises so as to
prevent waste or damage, and for any default or carelessness in this regard,
Tenant shall make good all injuries sustained by other tenants or occupants
of the Building or Landlord. On multiple-tenancy floors, all tenants shall
keep the doors to the Building corridors closed at all times except for
ingress and egress.
15. The toilet rooms, toilets, urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for which they
were construed, no foreign substance of any kind whatsoever shall be thrown
therein and the expense of any breakage, stoppage or damage resulting from
the violation of this rule shall be borne by the tenant who, or whose
employees or invitees, shall have caused it.
16. Except with the prior written consent of Landlord, no tenant
shall sell any newspapers, magazines, periodicals, theater or travel tickets
or any other goods or merchandise to the general public in or on its
premises, nor shall any tenant carry on or permit or allow any employee or
other person to carry on the business of stenography, typewriting, printing
or photocopying or any similar business in or from its premises for the
service or accommodation of occupants of any other portion of the Building,
nor shall the premises of any tenant be used for manufacturing of any kind,
or any business or activity other than that specifically provided for in such
tenant's lease.
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17. No tenant shall install any radio or television antenna,
loudspeaker or other device on the roof or exterior walls of the Building. No
television or radio or recorder shall be played in such a manner as to cause
a nuisance to any other tenant.
18. There shall not be used in any space, or in the public halls of
the Building, either by any tenant or others, any hand trucks except those
equipped with rubber tires and side guards or such other material handling
equipment as Landlord may approve. No other vehicles of any kind shall be
brought by any tenant into the Building or kept in or about its premises.
19. Each tenant shall store all its trash and garbage within its
premises. No material shall be placed in the trash boxes or receptacles if
such material is of such nature that it may not be disposed of in the
ordinary and customary manner of removing and disposing of office building
trash and garbage in the City of San Francisco without being in violation of
any law or ordinance governing such disposal. All garbage and refuse disposal
shall be made only through entryways and elevators provided for such purposes
and at such times as Landlord shall designate.
20. Canvassing, soliciting, distribution of handbills or any other
written material and peddling in the Building are prohibited, and each tenant
shall cooperate to prevent the same.
21. The requirements of tenants will be attended to only upon
application in writing at the office of the Building. Employees of Landlord
shall not perform any work or do anything outside of their regular duties
unless under special instructions from Landlord.
22. Landlord may waive any one or more of these Rules and
Regulations for the benefit of any particular tenant or tenants, but no such
waiver by Landlord shall be construed as a waiver of such Rules and
Regulations in favor of any other tenant or tenants, nor prevent Landlord
from thereafter enforcing any such Rules and Regulations against any or all
of the tenants of the Building.
23. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify or amend, in whole or in part, the agreements,
covenants, conditions and provisions of any lease of premises in the Building.
24. Landlord reserves the right to make such other rules and
regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building and for the preservation of good
order therein.
4
<PAGE>
EXHIBIT C
WORK LETTER
This Work Letter ("WORK LETTER") is an Exhibit to that certain document
captioned Office Lease (referred to herein for convenience as the "LEASE")
between MARKET & SECOND, INC., a Delaware corporation ("LANDLORD"), and
SELECTQUOTE INSURANCE SERVICES, INC., a California corporation ("TENANT"), dated
August ___, 1999.
I. DATES AND ALLOWANCE.
7TH FLOOR PREMISES.
SPACE PLAN DATE: September 1, 1999.
CONSTRUCTION DRAWINGS DATE: September 15, 1999.
ALLOWANCE: Up to Thirty Dollars
($30.00) per
rentable square feet
of space in the 7th
Floor Premises
(i.e., $414,600.00),
as further described
in Section IV(b).
9TH FLOOR PREMISES.
SPACE PLAN DATE: December 1, 1999.
CONSTRUCTION DRAWINGS DATE: December 15, 1999.
ALLOWANCE: Up to Thirty-Five
Dollars ($35.00) per
rentable square feet
of space in the 9th
Floor Premises
(i.e., $141,540.00),
as further described
in Section IV(b).
10TH FLOOR PREMISES.
SPACE PLAN DATE: December 1, 1999.
CONSTRUCTION DRAWINGS DATE: December 15, 1999.
ALLOWANCE: Up to Thirty-Five
Dollars ($35.00) per
rentable square feet
of space in the 10th
Floor Premises
(i.e., $483,700.00),
as further described
in Section IV(b).
II. CONSTRUCTION REPRESENTATIVES, SPACE PLANNER, ARCHITECT AND
ENGINEER. Landlord's and Tenant's construction representatives for coordination
of planning, construction, approval of change orders, substantial and final
completion, and other such matters (unless either
<PAGE>
party changes its representative upon written notice to the other), and the
other parties involved in planning the Work, are:
LANDLORD'S REPRESENTATIVE: Jeffrey Brueckner
Tower Realty
Management
Corporation
ADDRESS: 595 Market Street,
Suite 2210
San Francisco, CA
94105
TELEPHONE: (415) 512-6801
FAX: (415) 512-6809
TENANT'S REPRESENTATIVE: Mary Ann Pacula
ADDRESS: 595 Market Street,
Suite 600
San Francisco,
California 94105
TELEPHONE: (415) 543-7338
FAX: (415) 882-4672
SPACE PLANNER: Forum Design.
ARCHITECT: Forum Design.
ENGINEER: One or more
California licensed
engineers approved or
designated by Landlord
in writing.
III. PLANS. The term "PLANS" shall refer to the Space Plan and
Construction Drawings collectively. The term "PLANNER" herein shall refer to the
Space Planner, Architect or Engineer, as appropriate, each of whom shall be
retained by landlord. Tenant has sole responsibility to provide all information
concerning its space planning requirements to the Planner, to cause the Planner
to prepare the Plans, and to obtain Landlord's final approval thereof (including
all revisions) by the dates set forth above. Such dates are critical and of the
essence hereof with respect to contracting out the Work, obtaining permits, and
achieving substantial completion in a timely manner. The Plans shall be signed
or initialed by Tenant, if requested by Landlord, and shall be prepared and
approved in accordance with the following provisions:
(a) SPACE PLAN. By the Space Plan Date, Tenant shall: (1)
provide Space Planner with all information concerning Tenant's requirements in
order for Space Planner to prepare the Space Plan, (2) cause Space Planner to
complete Tenant's Space Plan, (3) obtain Landlord's
2
<PAGE>
written approval thereof, and (4) provide three (3) copies thereof to
Architect. "SPACE PLAN" herein means a floor plan, drawn to scale, showing
(i) demising walls, interior walls and other partitions, including type of
wall or partition and height, (ii) doors and other openings in such walls or
partitions, including type of door and hardware, (iii) any floor or ceiling
openings, and any variations to building standard floor or ceiling heights,
(iv) electrical outlets, and any restrooms, kitchens, computer rooms, file
cabinets, file rooms and other special purpose rooms, and any sinks or other
plumbing facilities, or other special electrical, HVAC, plumbing or other
facilities or equipment, including all special loading, (v) communications
system, including location and dimensions of equipment rooms, and telephone
and computer outlet locations, (vi) special cabinet work or other millwork
items, (vii) any space planning considerations under the Disabilities Acts,
(viii) finish selections (i.e., color selection of painted areas, and
selection of floor and any special wall coverings from Landlord's available
building standard selections) (which selections Tenant may defer until the
Construction Drawings Date), and (ix) any other details or features
reasonably required in order to obtain a preliminary cost estimate as
described in Section IV or otherwise reasonably requested by Architect,
Engineer or Landlord in order for the Space Plan to serve as a basis for
preparing the Construction Drawings.
(b) CONSTRUCTION DRAWINGS. By the Construction Drawings Date,
Tenant shall: (1) provide all information concerning Tenant's requirements in
order for Architect and Engineer to prepare the Construction Drawings, (2) cause
Architect and Engineer to complete the Construction Drawings (which shall
include at least three (3) mylar sepias, or such other quantity as Landlord may
reasonably require), and (3) obtain Landlord's written approval thereof.
`Construction Drawings" herein means fully dimensioned architectural
construction drawings and specifications, and any required engineering drawings
(including mechanical, electrical, plumbing, air-conditioning, ventilation and
heating), and shall include any applicable items described above for the Space
Plan, and to the extent applicable: (i) electrical outlet locations, circuits
and anticipated usage therefor, (ii) reflected ceiling plan, including lighting,
switching, and any special ceiling specifications, (iii) duct locations for
heating, ventilating and air-conditioning equipment, (iv) details of all
millwork, (v) dimensions of all equipment and cabinets to be built in, (vi)
furniture plan showing details of space occupancy, (vii) keying schedule, (viii)
lighting arrangement, (ix) location of print machines, equipment in lunch rooms,
concentrated file and library loadings and any other equipment or systems (with
brand names wherever possible) which require special consideration relative to
air-conditioning, ventilation, electrical, plumbing, structural, fire
protection, life-fire-safety system, or mechanical systems, (x) special heating,
ventilating and air conditioning equipment and requirements, (xi) weight and
location of heavy equipment, and anticipated loads for special usage rooms,
(xii) demolition plan, (xiii) partition construction plan, (xiv) all
requirements under the Disabilities Acts and other governmental requirements,
and (xv) final finish selections, and any other details or features reasonably
required in order to obtain a final cost estimate as described in Section IV or
otherwise reasonably requested by Architect, Engineer or Landlord in order for
the Construction Drawings to serve as a basis for contracting the Work.
(c) LANDLORD'S APPROVAL OF PLANS. Landlord shall either
approve any Plans or revisions submitted pursuant hereto or disapprove of the
same with suggestions for making the same acceptable. Landlord shall not
unreasonably withhold approval if the Plans provide for a customary office
layout, with finishes and materials generally conforming to building standard
finishes and materials currently being used by Landlord at the Building, are
compatible with the Building's shell and core construction, and if no
modifications will be required for the Building electrical, heating,
3
<PAGE>
air-conditioning, ventilation, plumbing, fire protection, life-fire-safety, or
other systems or equipment, and will not require any structural modifications to
the Building, whether required by heavy loads or otherwise. Notwithstanding the
foregoing to the contrary, the Plans must include a Building Standard ceiling
system comparable in all material respects to the ceiling system located on the
sixth (6th) floor of the Building as of the date of the Lease. Landlord may
request that Tenant approve Landlord's suggested changes in writing (such
approval shall not be unreasonably withheld), or Landlord may arrange directly
with the Planner for revised Plans to be prepared incorporating such suggestions
(in which case, Tenant shall sign or initial the revised Plans and/or Landlord's
notice concerning the suggested changes, if requested by Landlord). Landlord's
approval of the Plans shall not be deemed a warranty as to the adequacy or
legality of the design, and Landlord hereby disclaims any responsibility or
liability for the same.
(d) GOVERNMENTAL APPROVAL OF PLANS. Landlord shall cause its
contractor to apply, as soon as practicable, for any normal building permits
required for the Work which are issued pursuant to a local building code as a
ministerial matter. If the Plans must be revised in order to obtain such
building permits, Landlord shall promptly notify Tenant. In such case, Tenant
shall promptly arrange for the Plans to be revised to satisfy the building
permit requirements and shall submit the revised Plans to Landlord for approval
as a Change Order under Section III(e). Landlord shall have no obligation to
apply for any zoning, parking or sign code amendments, approvals, permits or
variances, or any other governmental approval, permit or action (except normal
building permits as described above). If any such other matters are required,
Tenant shall promptly seek to satisfy such requirements or revise the Plans to
eliminate such requirements.
(e) CHANGES AFTER PLANS ARE APPROVED. If Tenant shall desire
any changes, alterations, or additions to the Plans after they have been
approved by Landlord, Tenant shall submit a detailed written request or revised
Plans (the "CHANGE ORDER") to Landlord for approval. If reasonable and
practicable and generally consistent with the Plans theretofore approved,
Landlord shall not unreasonably withhold approval, but all costs in connection
therewith, including, without limitation, construction costs, permit fees, and
any additional plans, drawings and engineering reports or other studies or
tests, or revisions of such existing items, shall be paid for by Tenant as a
Tenant's Cost under Section IV. The cost of any corrections for errors or
omissions made by any space planner, architect, engineer or contractor
recommended or engaged by Tenant, including corrections for unforeseen or
concealed conditions, shall be borne by Tenant.
(f) PLANNING FOR DISABILITIES ACTS. Tenant shall be
responsible for matters under the Disabilities Acts relating to the Premises or
improvements thereto. Without limiting the generality of the forgoing, Tenant
shall: (a) provide complete and accurate information such that the Plans will
comply with the Disabilities Acts, and update such information as needed, and
(b) be responsible for any changes to the Work or Premises resulting from
changes in Tenant's employees, business operations or the Disabilities Acts.
Without limitation as to the other provisions, Tenant hereby expressly
acknowledges that Tenant's indemnity and related obligations under the Lease
shall apply to violations of this provision.
4
<PAGE>
IV. COST OF THE WORK, ALLOWANCE AND TENANT'S COST.
(a) COST OF THE WORK. Except for the Allowance to be provided
by Landlord hereunder, Tenant shall pay the entire cost (herein referred to as
the "COST OF THE WORK") for or related to: (1) the Work, including, without
limitation, costs of labor, hardware, equipment and materials, contractors'
charges for overhead and fees, and so-called "general conditions" (including
rubbish removal, utilities, freight elevators, hoisting, field supervision,
building permits, occupancy certificates, inspection fees, utility connections,
bonds, insurance, sales taxes, and the like), (2) the Plans, including, without
limitation, all revisions thereto, and engineering reports, or other studies,
reports or tests, air balancing or related work in connection therewith, and (3)
Landlord's costs and administrative fee described below. "WORK" herein means:
(i) the improvements and items of work shown on the final approved Plans
(including changes thereto approved by Landlord), and (ii) any demolition,
preparation or other work required in connection therewith, including without
limitation, structural or mechanical work, additional HVAC equipment or
sprinkler heads, or modifications to any building mechanical, electrical,
plumbing or other systems and equipment or relocation of any existing sprinkler
heads, either within or outside the Premises required as a result of the layout,
design, or construction of the Work or in order to extend any mechanical
distribution, fire protection or other systems from existing points of
distribution or connection, or in order to obtain building permits for the work
to be performed within the Premises (unless Landlord requires that the Plans be
revised to eliminate the necessity for such work). The Cost of the Work shall
include a Landlord administrative fee equal to ten percent (10%) of all other
amounts included in the Cost of the Work.
(b) ALLOWANCE. Landlord shall provide a construction allowance
(the "Allowance') as set forth in Section I above. Landlord shall make the
Allowance available towards: (1) costs of permanent leasehold improvements
included in the Work, including labor, hardware, equipment and materials,
contractors' charges for overhead and fees, and general conditions, (2) costs of
the Space Plan and Construction Drawings, provided such costs, as a share of the
Allowance, shall not exceed Two and 50/100 Dollars ($2.50) per rentable square
feet of space in the Premises (i.e., $34,550.00 for each the 7th Floor Premises
and the 10th Floor Premises, and $10,110 for the 9th Floor Premises) (and which
shall exclude planning for furniture, fixtures and equipment), (3) costs
incurred by Tenant for real estate consulting fees payable to Tenant's broker
identified in the Basic Lease Information ("TENANT'S BROKER") in connection with
the Lease, provided such costs, as a share of the Allowance, shall not exceed,
in the aggregate, Four Dollars ($4.00) per rentable square feet of space in the
7th Floor Premises (i.e., $55,280.00) (the "PERMITTED REAL ESTATE CONSULTING
FEE"), and (4) Landlord's costs and administrative fee, as described above.
Landlord shall pay the Permitted Real Estate Consulting Fee directly to Tenant's
Broker upon receipt of an invoice from Tenant's Broker setting forth in detail
reasonably satisfactory to Landlord the amount of the real estate consulting
fees owed by Tenant to Tenant's Broker, which invoice shall be accompanied by
written authorization from Tenant to remit the Permitted Real Estate Consulting
Fee to Tenant's Broker. If all or any portion of the Allowance shall not be
used, Landlord shall be entitled to the savings and Tenant shall receive no
credit therefor.
(c) TENANT'S COST; ESTIMATES AND PAYMENTS. Any portion of
the Cost of the Work exceeding the Allowance is referred to herein as
"TENANT'S COST." Landlord may at any time estimate Tenant's Cost in advance,
or revise any such estimate, in which case Tenant shall deposit the estimated
amount (or the increase reflected in any revised estimate) with Landlord
within three (3) days after Landlord so requests; provided, however, any
initial estimate of Tenant's Cost shall be
5
<PAGE>
an amount equal to (i) the bid of the contractor selected pursuant to Section
IV(d) below, less (ii) the Allowance. If the Work involves progress payments,
Landlord shall apply the amounts deposited by Tenant first. If, after final
completion and payment for the Work, the actual amount of Tenant's Cost
exceeds the estimated amount, Tenant shall pay the difference to Landlord
within three (3) days after Landlord so requests. If such estimated amount
exceeds the actual amount of Tenant's Cost, Landlord shall provide a refund
of the difference. Tenant's Cost shall be deemed "rent" under the Lease (and
all remedies for the non-payment of rent shall be available to Landlord
therefor), and Tenant's obligations under the Lease to keep the Premises and
Building free of liens shall apply to any liens arising from any failure to
pay Tenant's Cost hereunder.
(d) SELECTION OF CONTRACTOR. Landlord's contractor shall be
the contractor selected pursuant to a procedure whereby the approved
Construction Drawings are submitted to three (3) general contractors, selected
by Landlord and reasonably approved by Tenant, who are each requested to submit
a bid price for performance of the Work to Landlord and Tenant, who shall
jointly open and review the bids. Landlord and Tenant, after adjusting the bids
to compensate for any inconsistent assumptions, shall select the lowest priced
responsible and responsive bidder as Landlord's contractor to perform the Work.
Tenant acknowledges and agrees that the bid price submitted by the contractor
chosen to perform the Work shall not constitute a price guaranty, and is subject
to increases, including, but not limited to, increases based on: (a) changes in
the Construction Drawings or the Work, (b) increases in costs of labor or
materials or the delivery thereof, (c) concealed conditions encountered on the
job site, (d) new legal requirements becoming effective following preparation of
the bid, or (e) strikes, acts of God, shortages of materials or labor, or other
causes beyond Landlord's reasonable control.
V. CONSTRUCTION.
(a) LANDLORD TO ARRANGE WORK. Provided Tenant completes the
Plans on time and deposits with Landlord an amount equal to the estimate of
Tenant's Cost as provided above, and is not then in violation of the Lease
(including this exhibit), Landlord shall use reasonable efforts to cause
Landlord's contractor to substantially complete the Work by December 1, 1999,
with respect to the 7th Floor Premises, and by April 1, 2000, with respect to
the 10th Floor Premises. Landlord reserves the right to substitute comparable or
better materials and items for those shown in the Plans, so long as they do not
materially and adversely affect the appearance of the Premises.
(b) LANDLORD'S WORK. Landlord shall, at Landlord's sole
expense, prior to Tenant's taking occupancy of the Premises, complete any work
in the restrooms located in the Premises necessary to cause such restrooms to
comply with applicable building codes including, without limitations, the
Disabilities Acts.
(c) SUBSTANTIAL COMPLETION AND WALK-THROUGH. Landlord shall be
deemed to have "substantially completed" the Work for purposes hereof if
Landlord has caused the Work to be sufficiently completed such that Tenant can
reasonably use the Premises or complete any improvements or changes to the
Premises to be made by Tenant. When Landlord notifies Tenant that the Work has
been substantially completed, either party may request a joint walk-through
inspection in order for Tenant to identify any necessary final completion or
other "punchlist" items. Neither party shall unreasonably withhold approval
concerning such items. If Tenant fails to participate in a walk-through as
provided above, or otherwise fails to object to Landlord's notice of
6
<PAGE>
substantial completion in writing within three (3) business days thereafter
specifying in detail the items of work needed to be performed in order for
substantial completion, Tenant shall be deemed conclusively to have agreed
that the Work is substantially completed for purposes of the Commencement
Date and commencement of Rent under the Lease as of the date set forth in
Landlord's notice. If there is any dispute as to whether Landlord has
substantially completed the Work, Landlord may request a good faith decision
by Landlord's architect which shall be final and binding on the parties.
(d) FINAL COMPLETION.Substantial completion shall not
prejudice Tenant's rights to require full completion of any remaining items of
Work, which Landlord shall use reasonable efforts to complete promptly after
substantial completion has occurred. If Landlord notifies Tenant in writing that
the Work is fully completed, and Tenant fails to object thereto in writing
within five (5) business days thereafter specifying in detail the items of work
needed to be completed and the nature of work needed to complete said items,
Tenant shall be deemed conclusively to have accepted the Work as fully completed
(or such portions thereof as to which Tenant has not so objected). In connection
with the Work, Landlord: (1) shall cause building standard suite identification
signage, and building standard window blinds, to be installed (to the extent not
already existing), and (2) may cause a contractor to perform air balancing tests
on the Premises and adjust the HVAC system as a result thereof. The costs of
such items may be charged against the Allowance, and if the Allowance shall be
insufficient, Tenant shall pay Landlord for such costs as additional rent within
five (5) days after billed.
(e) LANDLORD'S ROLE. The parties acknowledge that neither
Landlord nor its managing agent is an architect or engineer, and that the Work
will be designed and performed by independent architects, engineers and
contractors. Landlord and its managing agent shall have no responsibility for
construction means, methods or techniques or safety precautions in connection
with the Work, and do not guarantee that the Plans or Work will be free from
errors, omissions or defects, and shall have no liability therefor. In the event
of such errors, omissions or defects, Landlord shall cooperate in any action
Tenant desires to bring against such parties.
VI. WORK PERFORMED BY TENANT. Landlord, at Landlord's discretion, may
permit Tenant and any of Tenant's space planners, architects, engineers,
contractors, suppliers, employees, agents and other such parties (collectively,
"TENANT'S CONTRACTORS") to enter the Premises prior to completion of the Work in
order to make the Premises ready for Tenant's use and occupancy. If Landlord
permits such entry prior to completion of the Work, then such permission shall
be deemed a license only and not a lease, and is conditioned upon: (a) Tenant
obtaining Landlord's prior written approval of such entry, Tenant's Contractors
and the work they will perform, and complying with all of the other requirements
of the Lease pertaining to work performed by Tenant in the Premises, all
insurance requirements under the Lease, and all other conditions imposed by
Landlord for the prior submission of security, affidavits and lien waivers or
otherwise in connection therewith, (b) Tenant and Tenant's Contractors working
in harmony and not interfering with Landlord and Landlord's space planners,
architects, engineers, contractors, suppliers, employees, agents and other such
parties (collectively, "LANDLORD'S CONTRACTORS") in doing the Work or with other
tenants and occupants of the Building, and (c) Tenant paying for any utilities
and services consumed in connection with such work. If at any time such entry
shall cause or threaten to cause such disharmony or interference, or violate any
of the other foregoing requirements, in Landlord's sole opinion, Landlord shall
have the right to revoke such license immediately upon oral or written notice
7
<PAGE>
to Tenant. Landlord shall not be liable in any way for any injury, loss or
damage which may occur to any decorations, fixtures, personal property,
installations or other improvements or items of work installed, constructed
or brought upon the Premises by or for Tenant or Tenant Contractors prior to
completion of the Work, all of the same being at Tenant's sole risk, and
Tenant hereby agrees to protect, defend, indemnify and hold Landlord and its
employees, agents, and affiliates harmless from all liabilities, losses,
damages, claims, demands, and expenses (including attorneys' fees) arising
from early entry to the Premises pursuant hereto.
VII. MISCELLANEOUS.
(a) INTERPRETATION. The terms of this Work Letter shall govern
the initial build-out of the 7th Floor Premises, the 9th Floor Premises and the
10th Floor Premises, individually. As used herein, all defined terms (including,
without limitation, "PREMISES," "PLANS," "WORK," "COST OF THE WORK," "TENANT'S
COST," AND "ALLOWANCE") shall refer individually, not collectively, to each of
the 7th Floor Premises, the 9th Floor Premises and the 10th Floor Premise.
Without limiting the generality of the foregoing, (1) no portion of the
Allowance allocated to the 7th Floor Premises shall be used in connection with
the 9th Floor Premises or the 10th Floor Premises, (2) no portion of the
Allowance allocated to the 9th Floor Premises shall be used in connection with
the 7th Floor Premises or the 10th Floor Premises, and (3) no portion of the
Allowance allocated to the 10th Floor Premises shall be used in connection with
the 7th Floor Premises or the 9th Floor Premises, without the prior written
approval of Landlord, which approval may be granted or withheld in Landlord's
sole discretion. Tenant acknowledges and agrees that in no event shall the
initial build-out of the 9th Floor Premises or the 10th Floor Premises commence
prior to December 1, 1999, unless Landlord, in Landlord's sole discretion,
elects to commence such construction prior to December 1, 1999. Notwithstanding
anything herein to the contrary, upon mutual agreement of Landlord and Tenant,
the Plans may reflect the improvements to be constructed in the 7th Floor
Premises, the 9th Floor Premises and the 10th Floor Premises, as a whole, and
Landlord may then bid simultaneously, pursuant to Section IV(d) above, the Work
to be constructed in the 7th Floor Premises, the 9th Floor Premises and the 10th
Floor Premises. Capitalized terms not otherwise defined herein shall have the
meanings ascribed thereto in the Lease.
(b) APPLICATION. This Exhibit shall not apply to any
additional space added to the Premise at any time, whether by any options or
rights under the Lease or otherwise, or to any portion of the Premises in the
event of a renewal or extension of the Term of the Lease, whether by any options
or rights under the Lease or otherwise, unless expressly so provided in the
Lease or any amendment or supplement thereto.
(c) LEASE PROVISIONS AND MODIFICATION. This Exhibit is
intended to supplement and be subject to the provisions of the Lease, including,
without limitation, those provisions requiring that any modification or
amendment be in writing and signed by authorized representatives of both
parties.
IN WITNESS WHEREOF, the parties have executed this Work Letter
as of the date first set forth above.
TENANT: LANDLORD:
8
<PAGE>
SELECTQUOTE INSURANCE SERVICES, INC., MARKET & SECOND, INC.,
a California corporation a Delaware corporation
By: By:
------------------------------- -------------------------------
Its: Its: Authorized Signatory
-------------------------------
By: By:
------------------------------- -------------------------------
Its: Its: Authorized Signatory
-------------------------------
9
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Definitions..................................................1
2. Term; Condition of Premises..................................3
3. Rental.......................................................4
4. Escalation Rent Payments.....................................5
5. Use..........................................................6
6. Services.....................................................6
7. Impositions Payable by Tenant................................7
8. Alterations..................................................8
9. Liens........................................................9
10. Repairs......................................................9
11. Destruction or Damage........................................9
12. Insurance...................................................10
13. Subrogation.................................................11
14. Indemnification.............................................11
15. Compliance with Legal Requirements..........................11
16. Assignment and Subletting...................................12
17. Rules: No Discrimination...................................14
18. Entry by Landlord...........................................15
19. Events of Default...........................................15
20. Termination Upon Default....................................16
21. Continuation after Default..................................17
22. Other Relief................................................17
23. Landlord's Right to Cure Defaults...........................17
24. Attorneys' Fees.............................................17
25. Eminent Domain..............................................18
26. Subordination...............................................18
27. No Merger...................................................18
28. Sale........................................................19
29. Estoppel Certificate........................................19
30. No Light, Air, or View Easement.............................19
</TABLE>
i
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
PAGE
<S> <C>
31. Holding Over...............................................19
32. Abandonment................................................19
33. Security Deposit...........................................20
34. Waiver.....................................................20
35. Notices and Consents.......................................20
36. Complete Agreement.........................................20
37. Corporate Authority........................................21
38. Partnership Authority......................................21
39. Limitationof Liability to Building.........................21
40. Brokers....................................................21
41. Substitution of Premises...................................21
42. Telecommunication Lines....................................22
(a) Lines................................................22
(b) Installation.........................................22
(c) Limitation of Liability..............................22
43. Disabilities Act...........................................23
44. Confidentiality............................................23
45. Miscellaneous..............................................23
46. Year 2000 Performance......................................24
47. Quiet Enjoyment............................................24
48. Exhibits...................................................24
</TABLE>
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<PAGE>
FORM OF
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("AGREEMENT") is entered into as of
___________, 1999 between SELECTQUOTE, INC., a Delaware corporation (hereinafter
referred to as the "COMPANY"), and ____________________ (hereinafter referred to
as the "EXECUTIVE").
R E C I T A L S:
A. The Company wishes to engage the Executive as the __________ of
the Company on the terms and conditions set forth in this Agreement.
B. The Executive is willing to accept employment as the ___________
of the Company on the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the promises and the mutual
covenants set forth in this Agreement, the Company and the Executive agree as
follows:
1. POSITION AND RESPONSIBILITIES.
(a) POSITION. The Executive shall have the title and position of
____________________ of the Company. The Executive shall report directly to
[the Chairman of the Board and the Board of Directors].
(b) DUTIES AND RESPONSIBILITIES. The duties and responsibilities of
the Executive are further described in EXHIBIT A hereto. The Executive will
use his best efforts to perform those duties and discharge his
responsibilities pursuant to this Agreement competently, carefully and
faithfully.
2. TERMS AND CONDITIONS OF EMPLOYMENT.
(a) PERIOD OF EMPLOYMENT. The Company will employ the Executive, and
the Executive accepts employment with the Company, for a period of ________
years commencing on _______________, subject to Section 3.
(b) DEVOTION OF TIME. The Executive will devote his full time,
attention and energies (exclusive of any periods of sickness and disability
and of such normal holiday and vacation periods as have been established by
the Company) to the affairs of the Company to fulfill the responsibilities of
his office. [The Executive will not enter the employ of or serve as a
consultant to, or in any way perform any services with or without compensation
for, any other person, business or organization without the prior written
consent of the Board of Directors.]
(c) BASE SALARY. The Executive shall be paid a base salary ("BASE
SALARY") of no less than $__________ on an annualized basis. Base salary will
be paid in equal semi-monthly installments. Any increases in this Base Salary
will be granted in accordance with the Company's policies and procedures.
(d) CASH INCENTIVES. The Executive shall be eligible to participate
in the Company's [Executive Bonus Program]. The Executive shall be eligible
to receive a bonus ("BONUS") of up to
<PAGE>
[___% of his Base Salary] [__________ Dollars ($________)] annually as
provided in the [Executive Bonus Program] during the term of this Agreement.
(e) EQUITY INCENTIVES. [The Executive shall be eligible to participate
in the Company's 1999 Employee Stock Option Plan (the "OPTION PLAN"). The
minimum grant of options to the Executive under this plan shall be __________
per year.] [The Executive has received a grant of stock options pursuant to
existing Option Agreements with Company. . . .]
(f) BENEFITS. The Executive shall be entitled to participate in any
pension, insurance or other benefit plan that may be maintained by the Company
for its employees from time to time, including but not limited to programs of
life and medical insurance, long term disability insurance, the Company's 401K
plan, and paid vacation and holiday benefits. [In addition to these standard
benefits, the Company will provide [list other perqs].]
(g) BUSINESS EXPENSES. The Company will reimburse the Executive for all
reasonable travel, entertainment and other expenses the Executive shall incur in
connection with the performance of his duties under this Agreement, provided
that the Executive properly accounts for such expenses in accordance with the
Company's policies and practices. [You may add more detailed expense policy
covering mobile phone, frequent flyer miles, travel per diems, automobile, etc.]
(h) COMPANY PROPERTY. The Executive agrees that all notes,
memoranda, reports, manuals, materials, data and other papers and records of
every kind relating to the business or finances of the Company which shall
come into his possession during the term of this Agreement shall be the sole
and exclusive property of the Company. This property shall be surrendered to
the Company upon the termination of the Executive's employment with the
Company, or otherwise upon request of the Board of Directors.
(i) PROPRIETARY INFORMATION AGREEMENT. The Executive has executed
and delivered to the Company a Proprietary Information and Assignment of
Inventions Agreement. The Executive's obligations under that agreement are
incorporated into this Agreement by this reference.
3. TERMINATION AND SEVERANCE.
(a) TERMINATION BY THE COMPANY FOR THE COMPANY'S CONVENIENCE. The
Company may terminate the Executive's employment under this Agreement without
cause at any time by giving notice to the Executive. Such termination will
become effective upon the date specified in such notice. A termination of the
Executive's employment by the Executive for good reason (as defined below)
will also be deemed to be a termination by the Company without cause. Any
such termination shall have the following consequences:
(i) the Company shall pay to the Executive the Executive's Base
Salary for a period of ______ [years/months] following such
termination,
(ii) [the Company shall pay to the Executive the pro rata portion
of the Executive's annual Bonus that the Executive would have received
had the Executive been employed by the Company on the date on which
annual bonuses are determined pursuant to the Company's [Executive
Bonus Program] for the year of termination, calculated based on
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that portion of the year during which the Executive was employed by
the Company] [$________, which amount is agreed to approximate the
amount of the Bonus to which Executive would have been entitled but
for such termination];
(iii) the Company shall reimburse the Executive for all business
expenses incurred by the Executive prior to the date of such
termination and otherwise payable pursuant to this Agreement;
(iv) [[all] [one-half] of the Executive's unvested options to
purchase Common Stock of the Company will immediately vest upon such
termination, and the vesting of the Executive's remaining unvested
options to purchase Common Stock of the Company shall cease upon the
date of such termination; and
(v) [for a period of [six months] following such termination, the
Company will continue to provide the Executive with medical, dental
and other insurance benefits on terms at least equivalent to the
benefits provided to the Executive prior to such termination.]
Other than the foregoing, the Company will not be obligated to make
any other payment or provide any other benefit to the Executive.
For the purposes of this section, the term "FOR GOOD REASON" shall
mean the establishment by the Executive in written notice to the Company that
any of the following has occurred:
(A) a material reduction in the Executive's Base Salary;
(B) a change of the Company's [Executive Bonus Program] that is
materially adverse to the Executive;
(C) a material reduction in the Executive's responsibilities;
(D) a change in the fundamental business of the Company [which
materially and adversely affects the Executive's compensation
potential with the Company]; or
(E) a material breach of this Agreement by the Company.
(b) TERMINATION BY THE COMPANY FOR CAUSE. The Company may terminate
the Executive's employment at any time for cause by giving written notice to
the Executive. Unless otherwise specified in the Company's notice, such
termination will become effective immediately upon giving of such notice. Any
such termination shall have the following consequences:
(i) the Company shall pay to the Executive such amount of the
Executive's Base Salary earned by the Executive prior to the date of
such termination but unpaid by the Company;
(ii) [the Company shall pay to the Executive that portion of
the Executive's annual Bonus that the Executive would have received had
the Executive been employed by the Company at the date on which annual
bonuses are determined pursuant to the Company's
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[Executive Bonus Program] that is attributable to that portion of the
year during which the Executive was employed by the Company];
(iii) the Company shall reimburse the Executive for all
business expenses incurred by the Executive prior to the date of such
termination and otherwise payable pursuant to this Agreement; and
(iv) the vesting of the Executive's options to purchase Common
Stock of the Company shall cease upon the date of such termination.
Other than the foregoing, the Company will not be obligated to make
any other payment or provide any other benefit to the Executive.
For the purposes of this section, "CAUSE" shall mean:
(A) fraud, theft or embezzlement by the Executive against the
Company or any of its affiliates, business partners or customers;
(B) gross dishonesty materially affecting the Company's
interests;
(C) final conviction for a felony or a breach of a law involving
moral turpitude or which breach is materially injurious to the Company
or its reputation;
(D) the Executive's willful and continued failure to perform
substantially his duties for the Company or any entity in control of,
controlled by or in common control with the Company (other than
failure resulting from the Executive's incapacity due to illness), as
determined by the Board of Directors in good faith following notice to
the Executive and a reasonable opportunity, not to exceed 30 days, for
the Executive to bring his performance into compliance with the
Board's requirements;
(E) the Executive's appropriation of a Company corporate
opportunity, other than as approved by the Board of Directors after
full disclosure;
(F) the Executive's material breach of this Agreement.
The existence of cause for termination of this Agreement shall be
conclusively determined for all purposes by a majority vote of a quorum of
the Board of Directors, excluding the Executive for both purposes if he is a
director, in good faith.
(c) TERMINATION BY THE EXECUTIVE FOR THE EXECUTIVE'S CONVENIENCE.
The Executive may terminate his employment without cause at any time by
giving written notice to the Company. Such termination become effective upon
the date specified in such notice, or at such earlier time as the Company may
elect, in its discretion. Any such termination will have the following
consequences:
(i) the Company shall pay to the Executive such amount of the
Executive's Base Salary earned by the Executive prior to the date of
such termination but unpaid by the Company;
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(ii) [the Company shall pay to the Executive the pro rata
portion of the Executive's annual Bonus that the Executive would have
received had the Executive been employed by the Company on the date on
which annual bonuses are determined pursuant to the Company's
[Executive Bonus Program] for the year of termination, calculated based
on that portion of the year during which the Executive was employed by
the Company];
(iii) the Company shall reimburse the Executive for all
business expenses incurred by the Executive prior to the date of such
termination and otherwise payable pursuant to this Agreement; and
(iv) the vesting of the Executive's remaining unvested options
to purchase Common Stock of the Company shall cease upon the date of
such termination.
Other than the foregoing, the Company will not be obligated to make
any other payment or provide any other benefit to the Executive.
(d) TERMINATION UPON A CHANGE OF CONTROL. Upon any termination of
the Executive's employment within ___ months of the occurrence of a change of
control (as defined below), other than a termination described under Section
3(c), the Executive shall be entitled to receive the benefits set forth in
Section 3(a), provided that
(i) all unvested options shall fully vest upon the change of
control, and
(ii) the Executive shall receive a severance payment equal to
[___ times Base Salary], payable within [60] days following the change
of control.
For the purposes of this section, "CHANGE OF CONTROL" means [(i) the
acquisition of shares of capital stock of the Company by a person or entity or a
group of related persons or entities in one or a series of transactions that
causes the stockholders of the Company immediately prior to the transaction or
series of transactions to own less than 50% of the outstanding shares of capital
stock of the Company immediately after the transaction or series of
transactions]; [(ii) the acquisition of shares of capital stock of the Company
by a person or entity or a group of related persons or entities in one or a
series of transactions equaling 20% or more of the outstanding capital stock of
the Company in combination with a change in the composition of the Board of
Directors of the Company of more than 50% of the directors immediately prior to
the transaction or series of transactions that occurs within 12 months of such
transaction or series of transactions]; (iii) a merger or other reorganization
of the Company whereby the stockholders of the Company immediately prior to the
transaction own less than 50% of the outstanding shares of capital stock of the
surviving corporation immediately after the transaction; or (iv) a sale of all
or substantially all of the assets of the Company.
(e) TERMINATION BY DEATH OR DISABILITY. This Agreement shall terminate
upon the death or disability of the Executive. The Executive shall be considered
disabled if he is physically, emotionally or mentally unable to perform and does
not perform substantially the essential functions of his position for more than
[180] consecutive days. Any such termination shall have the following
consequences:
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(i) the Company shall pay the Executive the Executive's Base
Salary for a period of [___ year/months] following such termination;
(ii) [the Company shall pay the Executive that portion of the
Executive's annual Bonus that the Executive would have received had
the Executive been employed by the Company at the date on which annual
bonuses are determined pursuant to the Company's [Executive Bonus
Program] that is attributable to that portion of the year during which
the Executive was employed by the Company] [$________, which amount is
agreed to approximate the amount of the Bonus that Executive would
have been entitled but for such termination];
(iii) the Company shall reimburse the Executive for all business
expenses incurred by the Executive prior to the date of such
termination and otherwise payable pursuant to this Agreement;
(iv) [[all] [one-half] of the Executive's unvested options to
purchase Common Stock of the Company will immediately vest, and the
vesting of the Executive's remaining unvested options to purchase
Common Stock of the Company shall cease upon the date of such
termination;] and
(v) [for a period of [six] months following a termination upon
the disability of the Executive, the Company will continue to provide
the Executive with medical, dental and other insurance benefits on
terms at least equivalent to the benefits provided to the Executive
prior to such termination.]
(f) DATES OF PAYMENTS. The payment of Base Salary due the Executive
upon a termination under Section (b) shall be made on the date of such
termination. The payment of Base Salary due the Executive upon a termination
under Section 3(c) shall be made on the date of the effectiveness of such
termination. All payments due the Executive upon a termination under Section
3(a) for Base Salary attributable to services performed by the Executive
prior to the date of termination shall be made on the date of the
effectiveness of such termination. All payments of Base Salary due the
Executive after the termination of his employment shall be made to Executive
in approximately equal installments not less frequently than monthly, in
accordance with the Company's normal payroll practice. All Bonus payments due
the Executive after the termination of his employment shall be made to
Executive on the date on which bonus payments are made generally under the
[Executive Bonus Program]. All reimbursements of expenses due the Executive
after the termination of his employment shall be made as soon as reasonably
possible after the Company receives all documentation necessary to verify
such expenses.
4. EXCESS PARACHUTE PAYMENT. Notwithstanding any other provision of
this Agreement, if any payment to be made or benefit to be provided to the
Executive pursuant to this Agreement, after taking into account all other
payments or benefits provided by the Company to the Executive, would
constitute a "parachute payment" as defined in Section 280G of the Code, then
the payments to be made or benefits to be provided to the Executive shall be
reduced so that the aggregate present value of all parachute payments does
not exceed 299% of the Executive's "annualized includible compensation for
the base period" (as such term is defined in Section 280(d)(1) of the Code).
The determination of any reduction in the payments or benefits to be provided
to the Executive shall be
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made by the Board of Directors in good faith, and such determination shall be
conclusive and binding on the Executive.
5. NOTICE. Notices given pursuant to the provisions of this
Agreement must be in writing and shall be sent by certified mail, postage
pre-paid, or by overnight courier, or by telex, telecopier or telegraph,
charges prepaid, to the following addresses:
To the Company:
595 Market Street, 6th Floor
San Francisco, CA 94105
Attention: President
Facsimile:
------------------------
Telephone:
------------------------
To the Executive:
-----------------------------------
-----------------------------------
Facsimile:
------------------------
Telephone:
------------------------
Any party may, from time to time, designate any other address to
which any such notice to it or him shall be sent. Any such notice shall be
deemed to have been delivered upon receipt.
6. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with laws of the State of California without
regard to its conflict of laws provisions.
(b) WAIVER; AMENDMENT. The waiver by any party to this Agreement of
a breach of any provision by the other party or the occurrence of an event
constituting "cause" shall not be construed as a waiver of any subsequent
breach or event. No provision of this agreement may be terminated, amended,
supplemented, waived or modified other than by an instrument in writing,
signed by the party against whom the enforcement of the termination,
amendment, supplement, waiver or modification is sought.
(c) ENTIRE DOCUMENT. This Agreement, including its Exhibits,
represents the entire agreement between the parties with respect to the
subject matter of this Agreement and supersedes any previous agreement or
understanding.
(d) ASSIGNABILITY. The rights and obligations of the parties under
this Agreement shall inure to the benefit of and be binding upon their
respective successors and assigns. The Executive may not assign his rights
and obligations hereunder without the express, written consent of the
Company. The Company may assign its rights and obligations to any successor
in interest to the Company's business, subject to the provisions of Section
3(d).
(e) SEVERABILITY. If any provision of this Agreement is deemed to be
invalid or unenforceable, this remainder of the Agreement shall remain valid
and binding and of like effect as though such provision were not included.
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<PAGE>
[(f) DISPUTE RESOLUTION. If there is a dispute between the parties
arising out of or relating to this Agreement, including but not limited to its
alleged breach or termination, the parties shall first attempt in good faith to
settle this dispute by mediation, either under the rules of the American
Arbitration Association or with the assistance of another organization
established to provide mediation services. If mediation is unsuccessful, any
remaining unresolved controversy or claim arising out of or relating to this
contract, its alleged breach or termination, shall be resolved by arbitration in
accordance with the commercial arbitration rules of the American Arbitration
Association and the laws of the State of California. The arbitration shall occur
in San Francisco, California.
There shall be a single arbitrator agreed upon mutually by the
parties. If the parties cannot agree upon the selection of an arbitrator
within 30 days after the demand for arbitration given by one party to the
other, the selection of the arbitrator shall be made by obtaining a list of
seven arbitrators from the San Francisco office of the American Arbitration
Association. After obtaining this list, the parties shall alternately strike
names from the list, with the Employee to be the party striking first. After
each party has stricken three names from the list, the remaining name shall
be the single arbitrator for this proceeding. Alternatively, the parties may
agree, by written stipulation, to appoint a single arbitrator whose name is
not on a list supplied by the American Arbitration Association,
The arbitrator will have the power to award contract damages to either
party. Each party shall be responsible for paying one half of the arbitrator's
fees, and its own costs and attorneys fees, except that the arbitrator shall be
empowered to award costs and attorneys fees to the prevailing party, should he
or she find that the position of the other party is without substantial merit.
The arbitrator's award shall be in writing and shall be accompanied by a written
opinion explaining the reasons for the arbitrator's decision.]
* * *
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<PAGE>
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date first set forth above.
THE COMPANY THE EXECUTIVE
By:
-------------------------------- -----------------------------------
Name:
-------------------------
Title:
-------------------------
Date: , 2000 Date: , 2000
------------------------- ------------------------
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EXHIBIT A
DUTIES AND RESPONSIBILITIES
OF
---------------------------
10
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FORM OF
INDEMNITY AGREEMENT
This Indemnification Agreement (the "AGREEMENT") is made as of _______
___, 2000, by and between SelectQuote, Inc., a Delaware corporation (the
"COMPANY"), and _____________ ("INDEMNITEE").
RECITALS
The Company and Indemnitee recognize the increasing difficulty in
obtaining liability insurance for directors, officers and key employees, the
significant increases in the cost of such insurance and the general reductions
in the coverage of such insurance. The Company and Indemnitee further recognize
the substantial increase in corporate litigation in general, subjecting
directors, officers and key employees to expensive litigation risks at the same
time as the availability and coverage of liability insurance has been severely
limited. Indemnitee does not regard the current protection available as adequate
under the present circumstances, and Indemnitee and agents of the Company may
not be willing to continue to serve as agents of the Company without additional
protection. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, and to indemnify its directors,
officers and key employees so as to provide them with the maximum protection
permitted by law.
AGREEMENT
In consideration of the mutual promises made in this Agreement, and for
other good and valuable consideration, receipt of which is hereby acknowledged,
the Company and Indemnitee hereby agree as follows:
1. CERTAIN DEFINITIONS; CONSTRUCTION OF PHRASES.
(a) "Change in Control" shall mean, and shall be deemed to
have occurred if, on or after the date of this Agreement, (i) any "person" (as
such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of
1934, as amended), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company acting in such capacity or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing more than 50%
of the total voting power represented by the then outstanding securities of the
Company that vote generally at elections ("VOTING SECURITIES"), (ii) during any
period of two consecutive years, individuals who at the beginning of such period
constitute the Board of Directors of the Company and any new director whose
election by the Board of Directors or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds (2/3) of the
directors then still in office who either were directors at the beginning of the
period or whose election or nomination for election was previously so approved,
cease for any reason to constitute a majority thereof, or (iii) the stockholders
of the Company approve a merger or consolidation of the Company with any other
corporation other than a merger or consolidation which would result in the
Voting
<PAGE>
Securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into Voting
Securities of the surviving entity) at least 80% of the total voting power
represented by the Voting Securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or the
stockholders of the Company approve a plan of complete liquidation of the
Company or an agreement for the sale or disposition by the Company of (in one
transaction or a series of related transactions) all or substantially all of
the Company's assets.
(b) References to the "Company" shall include, in addition to
SelectQuote, Inc., any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger to which SelectQuote, Inc.
(or any of its wholly owned subsidiaries) is a party which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees, agents or fiduciaries, so that if Indemnitee is
or was a director, officer, employee, agent or fiduciary of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee, agent or fiduciary of another corporation,
partnership, joint venture, employee benefit plan, trust or other enterprise,
Indemnitee shall stand in the same position under the provisions of this
Agreement with respect to the resulting or surviving corporation as Indemnitee
would have with respect to such constituent corporation if its separate
existence had continued.
(c) "Independent Legal Counsel" shall mean an attorney or firm
of attorneys, selected in accordance with the provisions of Section 2(d) hereof,
who shall not have otherwise performed services for the Company or Indemnitee
within the last three years (other than with respect to matters concerning the
rights of Indemnitee under this Agreement, or of other indemnitees under similar
indemnity agreements).
(d) For purposes of this Agreement, references to "other
enterprises" shall include employee benefit plans; references to "fines" shall
include any excise taxes assessed on Indemnitee with respect to an employee
benefit plan; and references to "serving at the request of the Company" shall
include any service as a director, officer, employee or agent of the Company
which imposes duties on, or involves services by, such director, officer,
employee or agent with respect to an employee benefit plan, its participants, or
beneficiaries; and if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, Indemnitee shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Agreement.
(e) "Reviewing Party" shall mean a majority of the Company's
Board of Directors who are not parties to the particular Claim (even if less
than a quorum) for which Indemnitee is seeking indemnification, or Independent
Legal Counsel.
2. INDEMNIFICATION.
(a) THIRD PARTY PROCEEDINGS. The Company shall indemnify
Indemnitee if Indemnitee is or was a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of the Company) by reason of the fact that Indemnitee is or was a
director, officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of
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any action or inaction on the part of Indemnitee while an officer or director
or by reason of the fact that Indemnitee is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
(if such settlement is approved in advance by the Company, which approval
shall not be unreasonably withheld) and other amounts actually and reasonably
incurred by Indemnitee in connection with such action, suit or proceeding if
Indemnitee acted in good faith and in a manner Indemnitee reasonably believed
to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe Indemnitee's conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a plea
of nolo contendere or its equivalent shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interests
of the Company, or, with respect to any criminal action or proceeding, that
Indemnitee had reasonable cause to believe that Indemnitee's conduct was
unlawful.
(b) PROCEEDINGS BY OR IN THE RIGHT OF THE COMPANY. The Company
shall indemnify Indemnitee if Indemnitee was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Company or any subsidiary of the Company to procure a judgment
in its favor by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the Company, by
reason of any action or inaction on the part of Indemnitee while an officer or
director or by reason of the fact that Indemnitee is or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees) and, to the fullest extent permitted by
law, amounts paid in settlement (if such settlement is approved in advance by
the Company, which approval shall not be unreasonably withheld), in each case to
the extent actually and reasonably incurred by Indemnitee in connection with the
defense or settlement of such action or suit if Indemnitee acted in good faith
and in a manner Indemnitee reasonably believed to be in or not opposed to the
best interests of the Company and its stockholders. Termination of any action,
suit or proceeding by judgment or settlement shall not, of itself, create a
presumption that Indemnitee did not act in good faith and in a manner which
Indemnitee reasonably believed to be in or not opposed to the best interest of
the Company. Notwithstanding the foregoing, no indemnification under this
Section 2(b) shall be made in respect of any claim, issue or matter as to which
Indemnitee shall have been finally adjudicated by court order or judgment to be
liable to the Company in the performance of Indemnitee's duty to the Company and
its stockholders unless and only to the extent that the court in which such
action or proceeding is or was pending shall determine upon application that, in
view of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses which such court shall determine.
(c) REVIEW OF INDEMNIFICATION. Notwithstanding the foregoing,
(i) the obligations of the Company under Sections 2(a) and 2(b) (unless ordered
by a court) shall be subject to the condition that the Reviewing Party shall
authorize (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 2(d) hereof is involved) indemnification in the
specific case, upon a determination that indemnification of Indemnitee is proper
in the circumstances because Indemnitee has met the applicable standard of
conduct set forth in Sections 2(a) and 2(b), (ii) the obligation of the Company
to make an advance of expenses pursuant to Section 4(a) shall be subject to the
condition that, if, when and to the extent that the Reviewing Party determines
that
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Indemnitee would not be permitted to be so indemnified under applicable law,
the Company shall be entitled to be reimbursed by Indemnitee (who hereby
agrees to reimburse the Company) for all such amounts theretofore paid;
provided, however, that if Indemnitee has commenced or thereafter commences
legal proceedings in a court of competent jurisdiction to secure a
determination that Indemnitee should be indemnified under applicable law, any
determination made by the Reviewing Party that Indemnitee would not be
permitted to be indemnified under applicable law shall not be binding and
Indemnitee shall not be required to reimburse the Company for any advance of
expenses until a final judicial determination is made with respect thereto
(as to which all rights of appeal therefrom have been exhausted or lapsed).
Indemnitee's obligation to reimburse the Company for any advance of expenses
shall be unsecured and no interest shall be charged thereon. If there has not
been a Change in Control, the Reviewing Party shall be selected by the Board
of Directors, and if there has been such a Change in Control (other than a
Change in Control which has been approved by a majority of the Company's
Board of Directors who were directors immediately prior to such Change in
Control), the Reviewing Party shall be the Independent Legal Counsel. If
there has been no determination by the Reviewing Party or if the Reviewing
Party determines that Indemnitee substantively would not be permitted to be
indemnified in whole or in part under applicable law, Indemnitee shall have
the right to commence litigation seeking an initial determination by the
court or challenging any such determination by the Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and the
Company hereby consents to service of process and to appear in any such
proceeding. Absent such litigation, any determination by the Reviewing Party
shall be conclusive and binding on the Company and Indemnitee.
(d) CHANGE IN CONTROL. The Company agrees that if there is a
Change in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), then, with respect to all matters
arising prior to the Change in Control, the rights of Indemnitee to payments of
expenses and advances of expenses under this Agreement or any other agreement or
under the Company's Certificate of Incorporation or Bylaws as now or hereafter
in effect, Independent Legal Counsel, if desired by Indemnitee, shall be
selected by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to
indemnify fully such counsel against any and all expenses (including attorneys'
fees), claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto. Notwithstanding any other provision
of this Agreement, the Company shall not be required to pay expenses of more
than one Independent Legal Counsel in connection with all matters concerning a
single Indemnitee, and such Independent Legal Counsel shall be the Independent
Legal Counsel for any or all other Indemnitees unless (i) the Company otherwise
determines or (ii) any Indemnitee shall provide a written statement setting
forth in detail a reasonable objection to such Independent Legal Counsel
representing other Indemnitees.
(e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding the other
provisions of this Section 2, to the extent that Indemnitee has been successful
on the merits or otherwise in defense of any action, suit or proceeding referred
to in Section 2(a) or Section 2(b) or the defense of any claim, issue or matter
therein, Indemnitee shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by Indemnitee in connection therewith.
4
<PAGE>
3. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is
intended to create in Indemnitee any right to continued employment.
4. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. Except as otherwise determined
pursuant to Section 2(c), the Company shall advance all expenses incurred by
Indemnitee in connection with the investigation, defense, settlement or appeal
of any civil or criminal action, suit or proceeding referred to in Section 2(a)
or Section 2(b) (including amounts actually paid in settlement of any such
action, suit or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to his or her right to be indemnified under this Agreement,
give the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company and shall be given in accordance with the provisions of
Section 12(d) below. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) PROCEDURE. If a claim under this Agreement, under any
statute, or under any provision of the Company's Certificate of Incorporation or
Bylaws providing for indemnification, is not paid in full by the Company within
thirty (30) days after a written request for payment thereof has first been
received by the Company, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subject to Section 11 of this Agreement, Indemnitee shall also be entitled
to be paid for the expenses (including attorneys' fees) of bringing such action.
It shall be a defense to any such action (other than an action brought to
enforce a claim for expenses incurred in connection with any action, suit or
proceeding in advance of its final disposition) that Indemnitee has not met the
standards of conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed. It is the parties'
intention that, if the Company contests Indemnitee's right to indemnification,
the question of Indemnitee's right to indemnification shall be for the court to
decide, and neither the failure of the Company (including its Board of
Directors, any committee or subgroup of the Board of Directors, independent
legal counsel, or its stockholders) to have made a determination that
indemnification of Indemnitee is proper in the circumstances because Indemnitee
has met the applicable standard of conduct required by applicable law, nor an
actual determination by the Company (including its Board of Directors, any
committee or subgroup of the Board of Directors, independent legal counsel, or
its stockholders) that Indemnitee has not met such applicable standard of
conduct, shall create a presumption that Indemnitee has or has not met the
applicable standard of conduct.
(d) NOTICE OF INSURERS. If, at the time of the receipt of a
notice of a claim pursuant to Section 4(b) hereof, the Company has director and
officer liability insurance in effect, the Company shall give prompt notice of
the commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
5
<PAGE>
take all necessary or desirable action to cause such insurers to pay all amounts
payable as a result of such proceeding in accordance with the terms of such
policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated under Section 4(a) hereof to pay the expenses of any proceeding
against Indemnitee, the Company shall be entitled to assume the defense of such
proceeding, with counsel reasonably acceptable to Indemnitee, upon the delivery
to Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same proceeding, provided that (i) Indemnitee shall have the
right to employ counsel in any such proceeding at Indemnitee's expense; and (ii)
if (A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
5. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this
Agreement, the Company hereby agrees to indemnify Indemnitee to the fullest
extent permitted by law, notwithstanding that such indemnification is not
specifically authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the event
of any change, after the date of this Agreement, in any applicable law, statute,
or rule which expands the right of a Delaware corporation to indemnify a member
of its board of directors or an officer, such changes shall be deemed to be
within the purview of Indemnitee's rights and the Company's obligations under
this Agreement. In the event of any change in any applicable law, statute or
rule which narrows the right of a Delaware corporation to indemnify a member of
its board of directors or an officer, such changes, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement shall have
no effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this
Agreement shall not be deemed exclusive of any additional rights to
indemnification to which Indemnitee may be entitled under the Company's
Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested members of the Company's Board of Directors, the
General Corporation Law of the State of Delaware, or otherwise, both as to
action in Indemnitee's official capacity and as to action in another capacity
while holding such office. The indemnification provided under this Agreement
shall continue as to Indemnitee for any action taken or not taken while serving
in an indemnified capacity even though he or she may have ceased to serve in any
such capacity at the time of any action, suit or other covered proceeding.
6. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for some or a
portion of the expenses, judgments, fines or penalties actually or reasonably
incurred in the investigation, defense, appeal or settlement of any civil or
criminal action, suit or proceeding, but not, however, for the total amount
thereof, the
6
<PAGE>
Company shall nevertheless indemnify Indemnitee for the portion of such
expenses, judgments, fines or penalties to which Indemnitee is entitled.
7. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge
that in certain instances, federal law or public policy may override applicable
state law and prohibit the Company from indemnifying its directors and officers
under this Agreement or otherwise. For example, the Company and Indemnitee
acknowledge that the Securities and Exchange Commission (the "SEC") has taken
the position that indemnification is not permissible for liabilities arising
under certain federal securities laws, and federal legislation prohibits
indemnification for certain ERISA violations. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the SEC to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 9. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance
expenses to Indemnitee with respect to proceedings or claims initiated or
brought voluntarily by Indemnitee and not by way of defense, except with respect
to proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other statute or law, but such indemnification or
advancement of expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any
expenses incurred by Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by Indemnitee
in such proceeding was not made in good faith or was frivolous;
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) to the
extent such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability insurance
maintained by the Company; or
(d) CLAIMS UNDER SECTION 16(b). To indemnify Indemnitee for
expenses or the payment of profits arising from the purchase and sale by
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended, or any similar successor statute.
7
<PAGE>
10. ATTORNEYS' FEES. In the event that any action is instituted by
either Indemnitee or by or in the name of the Company under this Agreement, the
prevailing party shall be entitled to such party's costs of suit and reasonable
attorneys' fees, which shall be payable whether or not such action or proceeding
is prosecuted to judgment.
11. MISCELLANEOUS.
(a) GOVERNING LAW. This Agreement and all acts and
transactions pursuant hereto and the rights and obligations of the parties
hereto shall be governed, construed and interpreted in accordance with the laws
of the State of Delaware, without giving effect to principles of conflict of
law.
(b) ENTIRE AGREEMENT; ENFORCEMENT OF RIGHTS. This Agreement
sets forth the entire agreement and understanding of the parties relating to the
subject matter herein and merges all prior discussions between them. No
modification of or amendment to this Agreement, nor any waiver of any rights
under this Agreement, shall be effective unless in writing signed by the parties
to this Agreement. The failure by either party to enforce any rights under this
Agreement shall not be construed as a waiver of any rights of such party.
(c) CONSTRUCTION. This Agreement is the result of negotiations
between and has been reviewed by each of the parties hereto and their respective
counsel, if any; accordingly, this Agreement shall be deemed to be the product
of all of the parties hereto, and no ambiguity shall be construed in favor of or
against any one of the parties hereto.
(d) NOTICES. Any notice, demand or request required or
permitted to be given under this Agreement shall be in writing and shall be
deemed sufficient when delivered personally or sent by confirmed facsimile or
twenty-four (24) hours after being deposited with a nationally recognized
overnight courier or forty-eight (48) hours after being deposited in the U.S.
mail, as certified or registered mail, with postage prepaid, and addressed to
the party to be notified at such party's address or facsimile number as set
forth below or as subsequently modified by written notice.
(e) COUNTERPARTS. This Agreement may be executed in two or
more counterparts, and delivery of a signed counterpart by facsimile
transmission will constitute due execution and delivery of this Agreement.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon the Company and its successors and assigns, and inure to the benefit of
Indemnitee and Indemnitee's heirs and legal representatives.
(g) SUBROGATION. In the event of payment under this Agreement,
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of Indemnitee, who shall execute all documents required and
shall do all acts that may be necessary to secure such rights and to enable the
Company to effectively bring suit to enforce such rights.
The parties hereto have executed this Agreement as of the day and year
set forth on the first page of this Agreement.
SELECTQUOTE, INC.
8
<PAGE>
A Delaware Corporation
By:
--------------------------------
Title:
------------------------------
595 Market Street, 6th Floor
San Francisco, CA 94105
Facsimile Number: (415) 546-7154
AGREED TO AND ACCEPTED:
- ---------------------------------
(Signature)
9
<PAGE>
FORM OF
AFFILIATE AGREEMENT
This Agreement (the "Affiliate Agreement") is delivered as of December
___, 1999, to SelectQuote, Inc., a Delaware corporation ("HOLDING COMPANY") by
the undersigned stockholder (the "STOCKHOLDER") of SelectTech, a Nevada
corporation ("SELECTTECH"), or SelectQuote Insurance Services, a
California corporation ("SQIS").
W I T N E S S E T H:
WHEREAS, SelectTech and SelectQuote Acquisition Sub, a California
corporation and a wholly owned subsidiary of Holding Company ("SUB"), and SQIS
have entered into an Amended and Restated Agreement and Plan of Reorganization
dated as of August 17, 1999 (the "MERGER AGREEMENT"), pursuant to which
SelectTech and Sub each will be merged with and into SQIS (the "MERGER"),
whereby SQIS will be the surviving corporation and will become a wholly owned
subsidiary of Holding Company; and
WHEREAS, the Stockholder is currently the owner of shares of the
capital stock of SelectTech (the "SELECTTECH SHARES") or SQIS (the "SQIS
SHARES") and, upon consummation of the Merger, the Stockholder will become the
owner of shares of the capital stock of Holding Company (the "HOLDING COMPANY
SHARES");
NOW, THEREFORE, in consideration of the premises, provisions, mutual
agreements and covenants set forth in the Merger Agreement and this Affiliate
Agreement, it is agreed as follows:
1. STOCKHOLDER OBLIGATIONS. The Stockholder acknowledges and agrees
that:
(a) He may be deemed to be an "affiliate" of SelectTech or
SQIS within the meaning of Rule 145 under the Securities Act of 1933, as amended
(the "SECURITIES ACT").
(b) All certificates representing the Holding Company Shares
deliverable to the Stockholder in connection with the Merger and any
certificates subsequently issued with respect thereto or in substitution
therefor shall, in addition to any other legend required by the Merger Agreement
or applicable federal or state securities laws, bear a legend substantially as
follows:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY ONLY BE TRANSFERRED IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF
PARAGRAPHS (c), (e), (f) AND (g) OF RULE 144 UNDER THE SECURITIES ACT.
<PAGE>
Holding Company, at its discretion, may cause stop transfer orders to be placed
with its transfer agent with respect to the certificates for the Holding Company
Shares.
(c) The Stockholder will observe and comply with the
Securities Act and the General Rules and Regulations thereunder, as now in
effect and as from time to time amended, and including those hereafter enacted,
regarding the Holding Company Shares.
2. REMOVAL OF LEGEND. Upon the written request of the Stockholder,
Holding Company will request that its transfer agent remove the legend set forth
in Section 1(b) above affixed to the Stockholder's certificates representing
Holding Company Shares, provided that, as of the date of such request, the
Stockholder is not, and has not been for at least three months, an affiliate of
Holding Company and a period of at least two years, as determined in accordance
with paragraph (d) of Rule 144, has elapsed since the date the Holding Company
Shares were acquired from Holding Company in the Merger.
3. MISCELLANEOUS.
(a) No waiver by any party hereto of any condition or of any
breach of any provision of this Affiliate Agreement shall be effective unless in
writing.
(b) All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery or on the day sent by facsimile transmission if a true and
correct copy is sent the same day by first class mail, postage prepaid, or by
dispatch by an internationally recognized express courier service, and in each
case addressed as follows:
SelectQuote, Inc.
595 Market Street, 6th Floor
San Francisco, CA 94105
Attn: Secretary
or to such other address as any party hereto may designate for itself by notice
given as herein provided.
(c) This Affiliate Agreement shall be enforceable by, and
shall inure to the benefit of and be binding upon, the parties hereto and their
respective successors and assigns. As used herein, the term "successors and
assigns" shall mean, where the context so permits, heirs, executors,
administrators, trustees and successor trustees, and personal and other
representatives.
(d) This Affiliate Agreement shall be governed by and
construed, interpreted, and enforced in accordance with the laws of the State of
California.
2
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Affiliate Agreement
as of the date first above written.
SELECTQUOTE, INC.
By:
----------------------------
Name:
-------------------------
Title:
-------------------------
--------------------------------
(Stockholder's signature)
--------------------------------
Stockholder's name
--------------------------------
--------------------------------
--------------------------------
Stockholder's address
3
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Zebu on Form S-1 of
our report dated February 29, 2000 on the consolidated financial statements
of Zebu and our report dated February 29, 2000 on the financial statements of
SelectTech, both reports appearing in the Prospectus, which is part of this
Registration statement .
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
February 29, 2000
<PAGE>
Exhibit 23.4
CONSENT OF PERSON ABOUT TO BECOME DIRECTOR
I consent to become a director of Zebu on or before the closing of its
initial public offering. I also consent to the use of my name and information I
provided about myself in the registration statement on Form S-1 for the initial
public offering.
<TABLE>
<S> <C> <C>
Date: February 29, 2000 Signature: /s/ RANDALL J. WOLF
------------------------------------
Printed Name: Randall J. Wolf
------------------------------------
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,845
<SECURITIES> 0
<RECEIVABLES> 6,651
<ALLOWANCES> (635)
<INVENTORY> 0
<CURRENT-ASSETS> 10,348
<PP&E> 4,764
<DEPRECIATION> (2,991)
<TOTAL-ASSETS> 75,130
<CURRENT-LIABILITIES> 6,073
<BONDS> 1,900
4,744
20
<COMMON> 105
<OTHER-SE> 63,344
<TOTAL-LIABILITY-AND-EQUITY> 75,130
<SALES> 0
<TOTAL-REVENUES> 10,344
<CGS> 0
<TOTAL-COSTS> (11,331)
<OTHER-EXPENSES> 1
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 40
<INCOME-PRETAX> (946)
<INCOME-TAX> 376
<INCOME-CONTINUING> (570)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (570)
<EPS-BASIC> (1.08)
<EPS-DILUTED> (1.08)
</TABLE>
