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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. 1)

Filed by the Registrant ý

Filed by a Party other than the Registrant o

Check the appropriate box:

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Preliminary Proxy Statement

o
 
Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))

o
 
Definitive Proxy Statement

o
 
Definitive Additional Materials

o
 
Soliciting Material Pursuant to §240.14a-12

Quotesmith.com, Inc.
(Name of Registrant as Specified In Its Charter)

 
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
         
Payment of Filing Fee (Check the appropriate box):

o
 
No fee required.

o
 
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
    (1)   Title of each class of securities to which transaction applies:
        Common Stock, par value $0.003 per share, of Quotesmith.com, Inc.
    (2)   Aggregate number of securities to which transaction applies:
        2,363,636
    (3)   Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
        $5.30, which is the average of the bid and asked prices of Quotesmith.com, Inc. common stock on March 2, 2004, as reported on the Nasdaq SmallCap Market
    (4)   Proposed maximum aggregate value of transaction:
        $13,000,000
    (5)   Total fee paid:
        $1,647

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Fee paid previously with preliminary materials.

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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing.

 
 
(1)
 
Amount Previously Paid:
        
    (2)   Form, Schedule or Registration Statement No.:
        
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Insure.com

Quotesmith.com, Inc.
8205 South Cass Avenue, Suite 102
Darien, Illinois 60561

Dear Stockholders of Quotesmith.com, Inc.:

        We are proposing to acquire substantially all of the assets of Life Quotes, Inc., or Life Quotes, a domestic insurance agency operating in all 50 states, together with certain real estate owned by an affiliate of the sole stockholder of Life Quotes. We intend to fund this acquisition through the issuance of 2,363,636 shares of our common stock to Zions Bancorporation, or Zions, resulting in $13,000,000 in gross proceeds. The proceeds of this stock issuance, together with cash on hand and/or borrowings under a loan agreement we may enter into, will be used to acquire the assets Life Quotes and the related real estate. Following the acquisition, the assets of Life Quotes and the related real estate will be owned by a wholly-owned subsidiary of Quotesmith.com.

        We entered into a stock purchase agreement with Zions on March 1, 2004. Under the terms of the stock purchase agreement, we have agreed to issue 2,363,636 shares of our common stock to Zions for $13,000,000 in gross proceeds. The common stock to be issued to Zions will not be registered, and will be restricted following the stock issuance. In connection with the issuance of stock to Zions, we have entered into an investor rights agreement with Zions, Robert S. Bland and William V. Thoms whereby we have agreed, among other things, to increase the size of our Board of Directors by one member and to nominate an individual designated by Zions to serve on the Board of Directors. Messrs. Bland and Thoms have agreed to vote all of their shares of common stock in favor of such individual. In accordance with the investor rights agreement, Zions has designated as its nominee, and we have nominated for election as director, John B. Hopkins.

        We have also entered into an asset purchase agreement with Life Quotes and a real property purchase agreement with an affiliate of the sole stockholder of Life Quotes dated as of January 31, 2004 (signed March 1, 2004). Under the terms of the asset purchase agreement, we have agreed to acquire substantially all of the assets of Life Quotes, and assume certain specified liabilities, for a payment of $13,395,000, subject to adjustment. Under the terms of the real property purchase agreement, we have agreed to acquire the real property currently used by Life Quotes for a payment of $5,000,000, subject to customary prorations at closing. We will use the proceeds of the stock issuance to Zions, together with cash on hand and/or borrowings under a loan agreement we may enter into, to consummate the acquisition.

        In connection with the acquisition of the assets of Life Quotes, we have agreed to establish the Quotesmith.com, Inc. 2004 Non-Qualified Stock Option Plan, or the Life Quotes employee stock option plan, pursuant to which options to purchase up to 300,000 shares of our common stock may be granted to certain employees of Life Quotes who agree to work for us.

        The enclosed proxy statement also contains annual meeting proposals for the election of two directors and the ratification of Ernst & Young LLP as our independent auditors for 2004.

        Our common stock is listed on the Nasdaq SmallCap Market under the ticker symbol "QUOT." In compliance with Nasdaq rules, we will seek stockholder approval of (i) the issuance of our common stock to Zions in connection with the acquisition of substantially all of the assets of Life Quotes and the related real estate and (ii) the establishment of the Life Quotes employee stock option plan at our annual meeting of stockholders on April [    •    ], 2004 to be held at our offices at 8205 South Cass Avenue, Suite 102, Darien, Illinois 60561, at 9:00 a.m., Chicago time. At our annual meeting of


stockholders we will also conduct an election for two directors to serve until the 2007 annual meeting and seek ratification of the appointment of Ernst & Young LLP as our independent auditors for 2004.

        Our Board of Directors has unanimously approved (i) the acquisition of substantially all of the assets of Life Quotes and the related real estate and the issuance of shares of our common stock to Zions and recommends that you vote in favor of the issuance of our shares of common stock to Zions in connection with the acquisition and (ii) the establishment of the Life Quotes employee stock option plan and recommends that you vote in favor of establishing the Life Quotes employee stock option plan. In addition, our Board of Directors recommends that you vote in favor of the nominees for election to the Board of Directors and in favor of ratifying Ernst & Young LLP as our independent auditors for 2004.

        You are not entitled to dissenter's or appraisal rights in connection with the issuance of our common stock to Zions. The holders of more than 60% of our common stock outstanding prior to the acquisition and stock issuance have agreed to vote in favor of the proposals. Following the stock issuance, Zions will own approximately 31.9% of our outstanding common stock, and approximately 29% of our common stock on a fully-diluted basis.

        We urge you to consider carefully all of the information provided in this proxy statement and its attachments, including a copy of Mystic Capital fairness opinion attached as Annex A-1, the asset purchase agreement attached as Annex A-2, the stock purchase agreement attached as Annex A-3, the real property purchase agreement attached as Annex A-4, the investor rights agreement attached as Annex A-5 and the Life Quotes employee stock option plan attached as Annex A-6. In particular, you should consider carefully the "Risk Factors" beginning on page 18 of this proxy statement.

        Your vote is important, regardless of the number of shares you own. If you are a stockholder of record, you may vote by mailing the enclosed proxy card in the envelope provided or by attending the annual meeting in person. To approve the proposals submitted to you, vote "FOR" the proposals by following the instructions in the proxy statement and on the enclosed proxy card. If your shares are held in "street name" (that is, held for your account by a broker or other nominee), you will receive instructions from the holder of record that you must follow for your shares to be voted.


 
 
Sincerely,

 
 
 

 
 
Robert S. Bland
Chairman of the Board, President and
Chief Executive Officer

        Neither the Securities and Exchange Commission nor any state securities regulator has approved or disapproved of this transaction or the securities to be issued or passed upon the adequacy or accuracy of this proxy statement. Any representation to the contrary is a criminal offense.

        This proxy statement is dated April [    •    ], 2004 and is first being mailed to Quotesmith.com stockholders on or about April [    •    ], 2004.


Quotesmith.com, Inc.
8205 South Cass Avenue, Suite 102
Darien, Illinois 60561


NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL [    •    ], 2004

        The 2004 Annual Meeting of Stockholders of Quotesmith.com, Inc., a Delaware corporation (the "Company"), will be held at our offices at 8205 South Cass Avenue, Suite 102, Darien, Illinois 60561, on April [    •    ], 2004 at 9:00 a.m., Chicago time, for the following purposes:

1.
To approve the issuance of 2,363,636 shares of our common stock to Zions Bancorporation, or Zions, for $13,000,000 in gross proceeds pursuant to the stock purchase agreement entered into on March 1, 2004, by and between Quotesmith.com and Zions and the related investor rights agreement entered into on March 1, 2004, by and among Quotesmith.com, Zions, Robert S. Bland and William V. Thomas. The proceeds of the stock issuance, together with cash on hand and/or borrowings under a loan agreement we may enter into, will be used to acquire substantially all of the assets Life Quotes, Inc., or Life Quotes, and certain real estate owned by an affiliate of the sole stockholder of Life Quotes as contemplated by the asset purchase agreement entered into on March 1, 2004 by and among Quotesmith.com, Life Quotes Acquisition, Inc., Kenneth L. Manley and Life Quotes and the real property purchase agreement entered into on March 1, 2004 by and among Life Quotes Acquisition, Inc. and The Kenneth L. Manley Revocable Trust dated as of June 10, 1987. Following the acquisition, the assets of Life Quotes and the related real estate will be owned and operated by Life Quotes Acquisition, Inc., our wholly-owned subsidiary;

2.
To approve the establishment of the Quotesmith.com, Inc. 2004 Non-Qualified Stock Option Plan, or Life Quotes employee stock option plan, pursuant to which options to purchase up to 300,000 shares of our common stock may be granted to certain employees of Life Quotes who agree to work for us;

3.
To elect two persons to our Board of Directors to serve until the 2007 Annual Meeting of Stockholders;

4.
To ratify the appointment of Ernst & Young LLP as our independent auditors for the year ending December 31, 2004; and

5.
To transact such other business as may properly come before the annual meeting or any adjournment thereof.

        The accompanying proxy statement describes the acquisition and the stock issuance in more detail. We encourage you to read the entire document and each of its attachments carefully.

        Our Board of Directors has unanimously approved (i) the acquisition of substantially all of the assets of Life Quotes and the related real estate and the issuance of shares of our common stock to Zions and recommends that you vote in favor of the issuance of our shares of common stock to Zions in connection with the acquisition and (ii) the establishment of the Life Quotes employee stock option plan and recommends that you vote in favor of establishing the Life Quotes employee stock option plan. In addition, our Board of Directors recommends that you vote in favor of the nominees for election to the Board of Directors and in favor of ratifying Ernst & Young LLP as our independent auditors for 2004.

        The affirmative vote of a majority of the shares that are present, in person or by proxy, at the annual meeting and entitled to vote will be sufficient to approve the stock issuance and the establishment of the Life Quotes employee stock option plan. The affirmative vote of a plurality of


such shares will be sufficient to elect each director. The affirmative vote of a majority of such shares will be sufficient to ratify the appointment of the independent auditors.

        Stockholders of record as of the close of business on March 23, 2004, the record date, will be entitled to notice of and to vote at the annual meeting or any adjournment thereof. A list of stockholders entitled to vote at the annual meeting will be available for inspection by stockholders for any purpose germane to the annual meeting at our offices for the ten days immediately preceding the annual meeting date. Our Annual Report for the year ended December 31, 2003 is being mailed to all stockholders of record on the record date and accompanies the enclosed proxy statement.

        Whether or not you plan to attend the annual meeting, please complete, sign and date the enclosed proxy card and return it promptly in the enclosed envelope. Your proxy may be revoked in the manner described in the proxy statement at any time before it has been voted at the annual meeting.


 
 
By Order of the Board of Directors,

 
 
 

 
 
Robert S. Bland
Chairman of the Board, President and
Chief Executive Officer

Darien, Illinois
April [•], 2004
 
 

YOUR VOTE IS IMPORTANT. PLEASE COMPLETE, SIGN, DATE AND RETURN YOUR
PROXY PROMPTLY WHETHER OR NOT YOU PLAN TO ATTEND.


TABLE OF CONTENTS

 
   Page
FORWARD LOOKING STATEMENTS   1

QUESTIONS AND ANSWERS ABOUT THE STOCK ISSUANCE
 
2

SUMMARY
 
4

SELECTED FINANCIAL AND OTHER DATA OF QUOTESMITH.COM
 
9
  Selected Quarterly Operating Results   10

SELECTED FINANCIAL DATA OF LIFE QUOTES
 
11

SELECTED UNAUDITED PRO FORMA FINANCIAL AND OTHER DATA
 
12

RISK FACTORS
 
18
  Risks Relating to the Proposed Stock Issuance   18
  Risks Relating to the Proposed Acquisition of Substantially all of the Assets of Life Quotes and the Related Real Estate   19
  Risks Related to Our Business   20
  Risks Related to the Insurance Industry   23
  Risks Related to Regulation   24
  Risks Related to the Internet and Electronic Commerce   25
  Risks Related to the Ownership of Our Common Stock   27

THE ANNUAL MEETING AND PROXY SOLICITATION
 
30
  When and Where the Annual Meeting will be Held   30
  What will be Voted on   30
  Who may Vote at the Annual Meeting   30
  How to Vote   30
  How to Change your Vote   31
  Quorum and Vote Required   31
  Abstentions and Broker Non-Votes   32
  Solicitations of Proxies and Expenses of Solicitation   32
  Appraisal Rights   32

MARKET PRICE INFORMATION
 
33

PROPOSAL 1. APPROVAL OF STOCK ISSUANCE TO ZIONS BANCORPORATION
 
34
  Background of the Transactions   34
  Reasons for the Transactions   35
  Opinion of Quotesmith.com's Financial Advisor   37
  Description of the Transaction   38
  Professional Undertaking   38
  Opinion of Mystic Capital Advisors   40

THE ASSET PURCHASE AGREEMENT
 
43
  Assets to be Acquired   43
  Assumed Liabilities   44
  Purchase Price   44
  Closing   45
  Representations and Warranties   45
  Conditions to Closing   47
  Covenants   47
     

i

  Employee Matters   48
  Agreements Regarding Kenneth L. Manley   48
  Expenses   48
  Indemnification   49
  Amendment   49

THE STOCK PURCHASE AGREEMENT
 
50
  Issuance   50
  Representations and Warranties   50
  Conditions to Closing   52
  Indemnification   53
  Termination   53
  Covenants   53
  Amendment   53

OTHER AGREEMENTS
 
54
  Real Property Purchase Agreement   54
  Investor Rights Agreement   54
  Non-Competition Agreement with Kenneth L. Manley   56
  Agency Agreement with Kenneth L. Manley   57

OUR BUSINESS
 
58
  Industry Background   58
  The Insure.com Solution   61
  Our Strategy   63
  Our Business Model   63
  Insurance Products   65
  Technology   66
  Marketing   66
  Material Strategic Relationships and Agreements   67
  Competition   67
  Regulation   68
  Employees   69
  Properties   69
  Legal Proceedings   69

QUOTESMITH.COM FINANCIAL INFORMATION
 
70

QUOTESMITH.COM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
70
  Quantitative and Qualitative Disclosures about Market Risk   74

INFORMATION ABOUT LIFE QUOTES
 
75

LIFE QUOTES FINANCIAL INFORMATION
 
75

LIFE QUOTES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
75
  Overview and Critical Accounting Policies   75
  Results of Operations   76
  Liquidity and Capital Resources   76
     

ii


PROPOSAL 2. ESTABLISHMENT OF LIFE QUOTES EMPLOYEE STOCK OPTION PLAN
 
78
  Purpose of the Plan   78
  General   78
  Administration of the Plan   78
  Eligibility to Receive Awards   78
  Options   78
  Adjustments Upon Changes in Capitalization   79
  Sale Events   79
  Amendment and Termination of the Plan   79
  Stock Options to be Granted to Participants   79
  Transferability of Stock Options   80
  U.S. Tax Aspects   80
  Life Quotes Employee Stock Option Plan Benefits   80
  Equity Compensation Plan Information   81

PROPOSAL 3. ELECTION OF DIRECTOR
 
82

MANAGEMENT
 
83
  Board Committees and Meetings   84
  Audit Committee Financial Expert   85
  Director Compensation   86
  Stockholder Communications   86
  Compensation Committee Interlocks and Insider Participation   86

PRINCIPAL SHAREHOLDERS
 
87

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
 
88

EXECUTIVE COMPENSATION
 
89
  Summary Compensation Table   89
  Option Grants in 2003   89
  2003 Year End Option Values   89
  Employment Agreements and Change of Control Agreements   90
  Stock Performance Graph   90

COMPENSATION COMMITTEE REPORT
 
91

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
 
92

REPORT OF THE AUDIT COMMITTEE
 
93

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
94

PROPOSAL 4. RATIFICATION OF INDEPENDENT AUDITORS
 
94
  Audit Fees   94
  Audit-Related Fees   94
  Tax Fees   94
  All Other Fees   94
  Pre-Approval Policies and Procedures   94

OTHER MATTERS
 
95

ADDITIONAL INFORMATION
 
95

2005 STOCKHOLDER PROPOSALS
 
95

FINANCIAL STATEMENTS OF QUOTESMITH.COM
 
F-1

FINANCIAL STATEMENTS OF LIFE QUOTES
 
F-17

iii

 
   Page

ANNEXES
 
 

Annex A-1—Mystic Capital Fairness Opinion
 
A-1-1
Annex A-2—Asset Purchase Agreement   A-2-1
Annex A-3—Stock Purchase Agreement   A-3-1
Annex A-4—Real Property Purchase Agreement   A-4-1
Annex A-5—Investor Rights Agreement   A-5-1
Annex A-6—Life Quotes Employee Stock Option Plan   A-6-1
Annex A-7—Audit Committee Charter   A-7-1

iv


FORWARD LOOKING STATEMENTS

        Because we want to provide you with more meaningful and useful information, this proxy statement includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements reflect our current expectations and projections about our future results, performance, prospects and opportunities. We have attempted to identify these forward-looking statements by using words such as "may," "will," "expects," "anticipates," "believes," "intends," "estimates," "could," or similar expressions. These forward-looking statements are based on information currently available to us and are subject to a number of risks in 2003 and beyond to differ materially from those expressed in, or implied by, these forward-looking statements. These risks, uncertainties, and other factors include, without limitation, the following:

        See the section of the proxy statement entitled "Risk Factors" beginning on page 18 for a description of these and other risks, uncertainties, and factors.

        You should not place undue reliance on any forward-looking statements. Except as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances, or any other reason after the date of this annual report. Unless otherwise expressly stated, all references to "we," "us," "our," "Quotesmith," and the "Company" refer to Quotesmith.com, Inc. and its subsidiary, prior to the consummation of the acquisition of substantially all of the assets of Life Quotes and the related real estate and the issuance of shares of Quotesmith.com common stock to Zions. The information contained on our Web sites, or Web sites that are linked to our Web sites, is not incorporated herein by reference.

1


QUESTIONS AND ANSWERS ABOUT THE STOCK ISSUANCE

Q:   What am I being asked to vote upon?

A:
 
You are being asked to approve the issuance of 2,363,636 shares of our common stock to Zions Bancorporation, or Zions, resulting in $13,000,000 in gross proceeds. The stock issuance will provide the majority of the funds necessary to acquire substantially all of the assets of Life Quotes, Inc., or Life Quotes, and the related real estate. Approval of the stock issuance requires the affirmative vote of a majority of the total votes cast on the proposal in person or by proxy at the annual meeting.

 
 
Our Board of Directors unanimously approved the stock issuance, and unanimously recommends voting for the approval of the stock issuance.

Q:
 
Why is Quotesmith.com acquiring substantially all of the assets of Life Quotes and the related real estate?

A:
 
During the last quarter of 2002 and the first quarter of 2003, we launched our proprietary online application technology for most of our term life sales. While providing a very efficient and cost effective method of fulfillment, it is our belief that not providing a personal, telephone based option for customers restricted the number of sales we could make to potential buyers. For this reason, we decided to acquire Life Quotes, a telephone-based life insurance brokerage, to provide these services to customers as a telephone-based complement to our online sales model for term life insurance.

 
 
To review the background and reasons for the acquisition in greater detail, see pages 34 through 37.

Q:
 
What is the purchase price for the acquisition?

A:
 
We will acquire substantially all of the assets of Life Quotes in exchange for the assumption of certain Life Quotes liabilities and payment of $13,395,000 in cash. We will acquire certain property in Evergreen, Colorado that is used by Life Quotes in its business for $5,000,000.

 
 
We have also agreed to establish the Life Quotes employee stock option plan pursuant to which options to purchase up to 300,000 shares of our common stock may be granted to certain employees of Life Quotes who agree to work for us.

Q:
 
What are the conditions to closing the acquisition?

A:
 
The acquisition is conditioned upon our having obtained the financing necessary to pay the purchase price. The stock issuance will provide the majority of the funds necessary to acquire substantially all of the assets of Life Quotes and the related real estate. Other closing conditions are described on page 47.

Q:
 
Are there risks you should consider in deciding whether to vote in favor of the stock issuance?

A:
 
Yes. You should carefully the matters discussed in the section of this proxy statement entitled "Risk Factors" beginning on page 18.

Q:
 
Where can you learn more about other important terms of the stock issuance to Zions and the acquisition of Life Quotes?

A:
 
To learn more about the other important terms of the stock issuance to Zions and the acquisition of Life Quotes, you should read carefully the sections of this proxy statement entitled "The Asset Purchase Agreement" beginning on page 43, "The Stock Purchase Agreement" beginning on page 50 and "Other Agreements" beginning on page 54. The text of these agreements are attached to this proxy statement as Annexes A-2 through A-5.
     

2


Q:
 
What are the tax consequences of the stock issuance to me?

A:
 
Your tax consequences will depend on your personal situation. You should consult your tax advisor for a full understanding of the tax consequences of the stock issuance to you.

Q:
 
Who is making this proxy solicitation?

A:
 
We are making the solicitation at the direction of our Board of Directors.

Q:
 
Do any directors or executive officers of Quotesmith.com have any direct or indirect interest in the stock issuance or the acquisition?

A:
 
Messrs. Bland and Thoms are party to the investor rights agreement and have been granted a right of first refusal with respect to Zions' shares under certain circumstances. See "Proposal 1. Approval of Stock Issuance to Zions Bancorporation—Other Agreements—Investor Rights Agreement."

Q:
 
Who has the right to vote at the annual meeting?

A:
 
Only holders of our common stock of record as of March 23, 2004 may vote at the annual meeting.

Q:
 
What should I do now?

A:
 
Just indicate on your proxy card how you want to vote, and sign, date and mail it in the enclosed envelope as soon as possible, so that your shares will be represented at the meeting.

Q:
 
When and where will the annual meeting take place?

 
 
The meeting will take place at 9:00 a.m. on April [    •    ], 2004 at our offices at 8205 South Cass Avenue, Suite 102, Darien, Illinois 60561. You may attend the meeting and vote your shares in person, rather than voting by proxy.

Q:
 
Are you entitled to dissenter's or appraisal rights?

A:
 
No. You are not entitled to dissenter's or appraisal rights in connection with the acquisition or the stock issuance.

Q:
 
If my shares are held in "street name" by my broker, will my broker vote my shares for me?

A:
 
No. Your broker will vote your shares of common stock only if you provide instructions on how to vote. You should instruct your broker how to vote your shares following the directions your broker provides you. If you do not provide instructions to your broker, your shares will not be voted.

Q:
 
Can you change your vote after you have mailed in your proxy?

A:
 
Yes. You may revoke a proxy at any time before the meeting is convened by filing with the secretary of Quotesmith.com an instrument of revocation or a duly executed proxy bearing a later date. You may also revoke a proxy by attending the annual meeting and voting in person, although attendance at the annual meeting will not, in and of itself, constitute a revocation of proxy.

Q:
 
When are the acquisition and the stock issuance expected to be completed?

A:
 
We anticipate completing the acquisition of Life Quotes and the stock issuance shortly after the annual meeting, subject to satisfaction of the closing conditions under the asset purchase agreement and the stock purchase agreement.

Q:
 
Who can help answer my questions?

A:
 
If you want additional copies of this document, or if you want to ask any questions about the acquisition, the stock issuance or any other matter set forth in this proxy statement, you should contact: Phillip Perillo, Chief Financial Officer, Quotesmith.com, Inc., (630) 515-0170.

3


SUMMARY

        This summary highlights the material information contained in the proxy statement, but may not contain all of the information that is important to you. You should read carefully this entire document, including the appendices and the other documents to which we refer you, for a more complete understanding of the transactions that are the subject of this proxy statement, as the discussion in this proxy statement is qualified in its entirety by reference to such appendices and other documents.

The Companies (Pages 58—77)

Quotesmith.com, Inc.
8205 South Cass Avenue, Suite 102
Darien, Illinois 60561
(630) 515-0170
 www.insure.com

        We are an insurance agency and brokerage headquartered in Darien, Illinois. We own and operate a comprehensive online consumer insurance information service, accessible at www.insure.com, which caters to the needs of self-directed insurance shoppers. Since our inception in 1984, we have been continuously developing a proprietary and comprehensive insurance price comparison and order-entry system that provides instant quotes from over 200 insurance companies for numerous life and health insurance products. We use this database to provide customers with a large array of comparative life and health insurance quotes online, over the phone or by mail, and we allow the customer to purchase insurance from the company of their choice either online or over the phone with our licensed insurance customer service staff. Our website also provides insurance information and decision-making tools, along with access to other forms of personal insurance, such as auto, homeowners, renters, long-term care and travel insurance through various partners. We generate revenues from the receipt of commissions and fees paid by various sources, that are tied directly to the volume of insurance sales or traffic that we produce. We conduct our insurance agency and brokerage operations primarily using salaried, non-commissioned personnel and we generate prospective customer interest using traditional direct response advertising methods conducted primarily offline.

        For the seven-year period ended December 31, 2003, we have spent a total of $57.3 million in direct-to-consumer advertising and have sold approximately 133,000 new policies.

        We previously acquired selected assets of Insurance News Network, LLC, including its content-rich consumer information Web site, www.insure.com, which was regularly among the top five most visited insurance sites on the Internet. Insure.com provided insurance-related information and decision-making tools, along with library of thousands of insurance articles that are well organized and served up in an easy-to-navigate format. This information has been integrated with our insurance quoting services.

        Shares of Quotesmith.com trade on the Nasdaq SmallCap Market under the symbol "QUOT." Information on Quotesmith.com's website does not constitute a part of this proxy statement. All common stock and per share information in this proxy statement have been retroactively adjusted to reflect a one-for-three reverse stock split that became effective on March 7, 2001.

Life Quotes, Inc.
32045 Castle Court
Evergreen, Colorado 80439
800-670-5433

        Life Quotes, Inc. was founded in 1979 as a traditional life insurance agency. Instead of meeting with customers face-to-face, Life Quotes sells insurance by phone, fax, email and/or mail. People who need life insurance find Life Quotes through radio, television and internet advertising. Life Quotes employs over 80 people.

4


The Transactions (Pages 34—37)

        We are proposing to acquire substantially all of the assets of Life Quotes, a domestic insurance agency operating in all 50 states, together with certain real estate owned by an affiliate of the sole stockholder of Life Quotes. We intend to fund this acquisition through the issuance of 2,363,636 shares of our common stock to Zions, resulting in $13,000,000 in gross proceeds. The proceeds of this stock issuance, together with cash on hand and/or borrowings under a loan agreement we may enter into, will be used to acquire substantially all of the assets of Life Quotes and the related real estate. Following the acquisition, the assets of Life Quotes and the related real estate will be owned by a wholly-owned subsidiary of Quotesmith.com.

        In connection with the acquisition of the assets of Life Quotes, we have agreed to establish the Life Quotes employee stock option plan, pursuant to which options to purchase up to 300,000 shares of our common stock may be granted to certain employees of Life Quotes who agree to work for us.

The Stock Issuance (Page 50)

        Pursuant to the stock purchase agreement we entered into with Zions on March 1, 2004, we have agreed to issue and sell to Zions, and Zions has agreed to purchase, 2,363,636 shares of our common stock, which includes an equal number of shares of our preferred share purchase rights, at an aggregate purchase price of $13,000,000, or approximately $5.50 per share. Subject to the satisfaction of the conditions set forth in the stock purchase agreement, the closing of the issuance and sale of such common stock will occur on the same date as the closing of the transactions under the asset purchase agreement with Life Quotes and the related real property purchase agreement. The common stock to be issued to Zions will not be registered, and will be restricted following the stock issuance. In connection with the issuance of stock to Zions, we have entered into an investor rights agreement with Zions, Robert S. Bland and William V. Thoms whereby we have agreed, among other things, to increase the size of our Board of Directors by one member and to nominate an individual designated by Zions to serve on the Board of Directors. Messrs. Bland and Thoms have agreed to vote all of their shares of common stock in favor of such individual. In accordance with the investor rights agreement, Zions has designated as its nominee, and we have nominated for election as director, John B. Hopkins.

Material Conditions to the Stock Issuance (Page 52)

        Zions' obligation to consummate the stock issuance is subject to the satisfaction or waiver of certain conditions, including the following:

5


Termination of the Stock Purchase Agreement (Page 53)

        The stock purchase agreement may be terminated at any time prior to the closing:

The Investor Rights Agreement (Pages 54—56)

        In connection with the stock purchase agreement, we entered into an investor rights agreement with Zions, Robert S. Bland and William V. Thoms. The investor rights agreement provides certain demand registration rights to the holders of 50% or more of the stock we are issuing to Zions, as well as piggyback registration rights. In addition, the investor rights agreement provides Zions with certain rights for so long as Zions holds 40% of the shares of stock it purchases under the stock purchase agreement, including that:

        We also agreed to maintain certain directors' and officers' liability insurance for the director nominated or appointed by Zions, and to indemnify and hold harmless such director to the same extent as all of our other directors.

        Zions has agreed that, without the consent of a majority of our Board of Directors, it and its affiliates will not, prior to the first anniversary of the closing date of the stock issuance:

6

        In addition, Messrs. Bland and Thoms agreed that, for so long as Zions holds 40% of the shares of stock it purchases under the stock purchase agreement, they will vote for the Zions nominee to our Board of Directors and, if either proposes to sell any of their Quotesmith.com common stock, subject to certain exceptions, they will afford Zions the right to participate proportionately in such sale.

        Messrs. Bland and Thoms also granted to Zions, and Zions granted to us, Mr. Bland and Mr. Thoms, a right of first refusal with respect to certain transfers of their shares of common stock.

The Life Quotes Acquisition (Pages 43—44)

        Pursuant to the asset purchase agreement we entered into with Life Quotes dated as of January 31, 2004 (signed March 1, 2004), we have agreed to acquire substantially all of the assets of Life Quotes and assume certain specified liabilities. Under the terms of the real property purchase agreement we entered into with an affiliate of the sole stockholder of Life Quotes dated as of January 31, 2004 (signed March 1, 2004), we have agreed to acquire the real property currently used by Life Quotes. We will use the proceeds of the stock issuance to Zions, together with cash on hand and/or borrowings under a loan agreement we may enter into, to consummate the acquisition.

Purchase Price (Page 44)

        We will acquire substantially all of the assets of Life Quotes in exchange for the assumption of certain Life Quotes liabilities and payment of $13,395,000 in cash. Of such cash, at closing, $13,045,000 will be paid to Life Quotes and $350,000 will be deposited with an escrow agent in accordance with an escrow agreement. Under the escrow agreement, within thirty days after the one year anniversary of the closing date, we will deliver to Life Quotes a statement setting forth the amount of accounts receivable arising out of the conduct of Life Quotes' business that we collected in such one year period. If the amount of accounts receivable exceeds $2,450,000, then the entire $350,000 placed in escrow will be paid to Life Quotes. However, if the amount of accounts receivable is less than $2,450,000, then the difference will be paid to us from the escrowed cash, and the remainder will be paid to Life Quotes. If the shortfall exceeds $350,000, we will be paid the entire escrowed amount but will not be able to recover any additional sums from Life Quotes or Kenneth L. Manley.

        We will acquire certain property in Evergreen, Colorado that is used by Life Quotes in its business for an additional $5,000,000, subject to customary prorations. We have also agreed to establish the Life Quotes employee stock option plan, pursuant to which options to purchase up to 300,000 shares of our common stock may be granted to certain employees of Life Quotes who agree to work for us.

Closing of the Acquisition (Page 45)

        The acquisition will close on a date to be designated by us and Life Quotes after the satisfaction or waiver of the conditions described below, but no later than April 1, 2004, unless extended. We may extend the closing date to no later than August 1, 2004, but will be required to pay Life Quotes interest

7


on $18,395,000 at the rate of 4.5% per annum for the period from April 1, 2004 to the date the closing occurs, and will also be required to pay Life Quotes $5,000 per week for the services of Kenneth L. Manley for the period from April 1, 2004 to the date the closing occurs. If the closing has not occurred by April 1, 2004 (or August 1, 2004, if we extend the closing date), then the agreement will terminate, subject to the survival of certain of the rights and obligations discussed below. We have agreed with Life Quotes to extend the closing to a date no later than August 1, 2004.

Material Conditions to the Consummation of the Acquisition (Page 47)

        Our and Life Quotes' respective obligations to close the proposed acquisitions are subject to the satisfaction or waiver of the following conditions:

        Our obligations to close the proposed acquisition are also subject to the satisfaction or waiver of certain conditions, including the following:

        Life Quotes' and Kenneth L. Manley's obligations to close the proposed acquisition are also subject to the satisfaction or waiver of certain conditions, including the following:

Information about the Annual Meeting (Pages 30—32)

        The annual meeting of Quotesmith.com will be held on April [    •    ], 2004, at our offices at 8205 South Cass Avenue, Suite 102, Darien, Illinois 60561, at 9:00 a.m., Chicago time. The meeting will be held for the following purposes:

8


SELECTED FINANCIAL AND OTHER DATA OF QUOTESMITH.COM

        The historical statement of operations data and balance sheet data in the table below is derived from our financial statements. This data should be read in conjunction with "Quotesmith.com Management's Discussion and Analysis of Financial Condition and Results of Operations" and with the financial statements, related notes, and other financial information included elsewhere in this proxy statement. The historical results presented below are not necessarily indicative of the results to be expected for any future period.

 
   Year Ended December 31,
  
 
   2003
   2002
   2001
   2000
   1999
  
 
   (in thousands, except per share data)

  
Statement of Operations Data:                                
Revenues   $ 9,737   $ 10,777   $ 8,851   $ 15,236   $ 8,408  
Expenses:                                
  Selling and marketing     4,735     2,912     7,052     24,201     14,397  
Operations     3,394     7,756     6,004     7,445     5,481  
  General and administrative     3,349     3,194     3,503     4,432     3,570  
   
 
 
 
 
 
    Total expenses     11,478     13,862     16,559     36,078     23,448  

Operating loss
 
 
(1,741
)
 
(3,085
)
 
(7,708
)
 
(20,842
)
 
(15,040
)
Interest income, net     368     359     1,075     2,220     1,220  
Realized gain on sale of securities     92     —     —     —     —  
   
 
 
 
 
 

Net loss
 
$
(1,281
)
$
(2,726
)
$
(6,633
)
$
(18,622
)
$
(13,820
)
   
 
 
 
 
 
Basic and diluted net loss per share   $ (0.26 ) $ (0.55 ) $ (1.22 ) $ (2.93 ) $ (2.64 )
   
 
 
 
 
 
Weighted average common shares and equivalents outstanding, basic and diluted     4,917     4,964     5,441     6,366     5,237  
 
   December 31,
 
   2003
   2002
   2001
   2000
   1999
 
   (in thousands, except per share data)
Balance Sheet Data:                              
Cash and equivalents   $ 677   $ 1,640   $ 4,033   $ 4,269   $ 8,990
Working capital     5,607     10,485     18,514     27,443     48,308
Total assets     17,526     19,559     23,000     32,643     55,178
Long-term liabilities     —     35     84     128     —
Total liabilities     760     1,464     1,085     2,976     5,982
Total stockholders' equity     16,766     18,095     21,915     29,667     49,196
 
   Year Ended December 31,
 
   2003
   2002
   2001
   2000
   1999
Selected Operating Statistics:                    
Completed quotes                    
  Term life   866,000   1,266,000   1,425,000   2,105,000   1,496,000
  Health and other   960,000   1,305,000   876,000   1,993,000   963,000
   
 
 
 
 
    Total completed quotes   1,826,000   2,571,000   2,328,000   4,098,000   2,459,000

Policies sold
 
 
 
 
 
 
 
 
 
 
  Term life   11,011   16,498   16,915   33,491   17,093
  Health and other   4,845   4,753   3,367   4,029   747
   
 
 
 
 
    Total policies sold   15,856   21,251   20,282   37,520   17,786

9

Selected Quarterly Operating Results

        The following tables set forth unaudited quarterly statements of operations data for 2003 and 2002. The information for each of these quarters has been prepared on substantially the same basis as the audited financial statements included elsewhere in this annual report, and, in our opinion, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the results of operations for these periods. Historical results are not necessarily indicative of the results to be expected in the future, and results of interim periods are not necessarily indicative of results for the entire year.

 
   Quarter Ended
  
2003
  
  Mar. 31,
   June 30,
   Sept. 30,
   Dec. 31,
  
 
   (in thousands, except per share data)

  
Revenues   $ 2,572   $ 2,510   $ 2,430   $ 2,225  
Expenses:                          
  Selling and marketing     1,303     1,356     1,076     1,001  
  Operations     972     837     835     749  
  General and administrative     801     816     929     803  
   
 
 
 
 
    Total expenses     3,076     3,009     2,840     2,553  
   
 
 
 
 
Operating loss     (504 )   (499 )   (410 )   (328 )
Interest income, net     91     98     91     88  
Realized gains (losses) on sale of securities     —     93     —     (1 )
   
 
 
 
 
Net loss   $ (413 ) $ (308 ) $ (319 ) $ (241 )
   
 
 
 
 
Net loss per share basic and diluted   $ (0.08 ) $ (0.06 ) $ (0.06 ) $ (0.05 )
 
   Quarter Ended
  
2002
  
  Mar. 31,
   June 30,
   Sept. 30,
   Dec. 31,
  
 
   (in thousands, except per share data)

  
Revenues   $ 2,572   $ 3,194   $ 2,667   $ 2,344  
Expenses:                          
  Selling and marketing     588     667     622     1,035  
  Operations     1,933     2,014     2,280     1,529  
  General and administrative     853     811     781     749  
   
 
 
 
 
    Total expenses     3,374     3,492     3,683     3,313  
   
 
 
 
 
Operating loss     (802 )   (298 )   (1,016 )   (969 )
Interest income, net     102     76     84     97  
   
 
 
 
 
Net loss   $ (700 ) $ (222 ) $ (932 ) $ (872 )
   
 
 
 
 
Net loss per share basic and diluted   $ (0.14 ) $ (0.04 ) $ (0.19 ) $ (0.18 )

10


SELECTED FINANCIAL DATA OF LIFE QUOTES

        The historical statement of income data and balance sheet data in the table below is derived from the audited financial statements of Life Quotes. The historical results presented below are not necessarily indicative of the results to be expected for any future period.

 
   Year Ended
December 31,
 
   2003
   2002
 
   (in thousands)
Statement of Income Data:            
Revenues   $ 10,407   $ 8,941
Expenses:            
  Salaries and wages     3,905     3,978
 
Advertising and promotion
 
 
3,557
 
 
2,166
   
 
    Total expenses     9,287     8,157

Net income
 
 
1,120
 
 
784
   
 
 
   December 31,
 
   2003
   2002
 
   (in thousands)
Balance Sheet Data:            
Cash and equivalents   $ (61 ) $ 37
Total assets     710     675
Total current liabilities     89     51
Total stockholders' equity     621     624

11


UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS

        The preliminary unaudited pro forma condensed combined balance sheet at December 31, 2003 combines the historical consolidated balance sheets of Quotesmith.com and Life Quotes, giving effect to the acquisition as if it had been consummated on December 31, 2003. The preliminary unaudited pro forma condensed combined statement of operations for the year ended December 31, 2003 combines the historical consolidated statements of operations of Quotesmith.com and Life Quotes giving effect to the acquisition as if it had occurred on January 1, 2003. We have adjusted the historical financial statements to give effect to pro forma events that are (1) directly attributable to the acquisition, (2) factually supportable, and (3) with respect to the statements of income, expected to have a continuing impact on the combined results. You should read this information in conjunction with the:

        The preliminary unaudited pro forma condensed combined financial statements have been prepared for informational purposes only. The preliminary unaudited pro forma condensed combined financial statements are not necessarily indicative of what the financial position or results of operations actually would have been had the acquisition been completed at the dates indicated. In addition, the preliminary unaudited pro forma condensed combined financial statements do not purport to project the future financial position or operating results of the combined company. The preliminary unaudited pro forma condensed combined financial statements do not give consideration to the impact of possible revenue enhancements, expense efficiencies, synergies or asset dispositions.

        The preliminary unaudited pro forma condensed combined financial statements have been prepared using the purchase method of accounting with Quotesmith.com treated as the accounting acquirer. Accordingly, our cost to acquire Life Quotes has been allocated to the acquired assets and liabilities based upon their estimated fair values at the date indicated. The allocation of the purchase price is preliminary and is dependent upon certain valuations and other studies that have not progressed to a stage where there is sufficient information to make a definitive allocation. Accordingly, the final purchase accounting adjustments may be materially different from the preliminary unaudited pro forma adjustments presented herein.

12



UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET

 
   At December 31, 2003
  
 
   Historical
Quotesmith.com
   Historical
Life Quotes
   Pro Forma
Adjustments
    
   Pro Forma
Combined
  
 
   (in thousands)

  
Assets                              
Cash equivalents   $ 677   $ (61 ) $ 61   (a)   $ 677  

Fixed maturity investments
 
 
4,204
 
 
—
 
 
—
 
 
 
 
4,204
 
Commission receivable     1,062     462     1,581   (b)     3,105  
Other current assets     424     86     (86 ) (c)     424  
   
 
 
     
 
Total current assets     6,367     487     1,556         8,410  
   
 
 
     
 

Fixed maturity investments
 
 
10,346
 
 
—
 
 
(5,395
)
(d)
 
 
4,951
 
Land     —     —     830   (e)     830  
Building     —     —     4,670   (e)     4,670  
Furniture, equipment and computer software     375     223     —         598  
Intangible assets     438     —     3,700   (f)     4,138  
Goodwill     —     —     6,929   (g)     6,929  
   
 
 
     
 
Total Assets   $ 17,526   $ 710   $ 12,290       $ 30,526  
   
 
 
     
 

Liabilities and Stockholders' Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities   $ 760   $ 89   $ (89 ) (h)   $ 760  
   
 
 
     
 
Total liabilities     760     89     (89 )       760  

Stockholders Equity:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Common Stock     22     —     7   (i)     29  
  Additional Paid-in Capital     64,076     —     12,993   (i)     77,069  
  Retained earnings (deficit)     (43,469 )   621     (621 ) (j)     (43,469 )
  Treasury stock     (3,794 )   —     —         (3,794 )
  Accumulated other comprehensive income     (69 )   —     —         (69 )
   
 
 
     
 
Total stockholders' equity     16,766     621     12,379         29,766  
   
 
 
     
 

Total liabilities and stockholders' equity
 
$
17,526
 
$
710
 
$
12,290
 
 
 
$
30,526
 
   
 
 
     
 

See accompanying notes.

13


UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS

 
   Year Ended December 31, 2003
  
 
   Historical
Quotesmith.com
   Historical
Life Quotes
   Pro Forma
Adjustments
    
   Pro Forma
Combined
  
 
   (in thousands, except per share data]

  
Revenues:                              
  Commissions and fees   $ 9,718   $ 10,369   $ 177   (k)   $ 20,264  
  Other     19     38     —         57  
   
 
 
     
 
Revenue     9,737     10,407     177         20,321  

Expenses:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Selling and marketing     4,735     3,557     —         8,292  
  Operations     3,395     4,087     —         7,482  
  General and administrative     3,349     1,643     188   (l)     5,180  
   
 
 
     
 
Total expenses     11,479     9,287     188         20,954  
   
 
 
     
 
Operating Income (Loss)     (1,742 )   1,120     (11 )       (633 )
Interest income, net     368     —     (138 ) (m)     230  
Realized gains on sale of securities     93     —     —         93  
   
 
 
     
 

Income (loss) before income taxes
 
 
(1,281
)
 
1,120
 
 
(149
)
 
 
 
(310
)
Income tax credit     —     —     —         —  
   
 
 
     
 
Net income (loss)   $ (1,281 ) $ 1,120   $ (149 )     $ (310 )
   
 
 
     
 

Net loss per common share, basic and diluted
 
$
(0.26
)
 
 
 
 
 
 
 
 
$
(0.04
)
Weighted average common shares and equivalents outstanding, basic and diluted     4,917,314           2,363,636         7,280,950  

See accompanying notes.

14


NOTES TO THE UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS

Note 1—Basis of Pro Forma Presentation

        On March 1, 2004 we entered into an asset purchase agreement with Life Quotes and a real property purchase agreement with an affiliate of the sole stockholder of Life Quotes (each dated as of January 31, 2004). Under the terms of the asset purchase agreement, we have agreed to acquire substantially all of the assets of Life Quotes, and assume certain specified liabilities, for a payment of $13,395,000, subject to adjustment. Under the terms of the real property purchase agreement, we have agreed to acquire the real property currently used by Life Quotes for a payment of $5,000,000, subject to customary prorations at closing.

        We also entered into a stock purchase agreement with Zions on March 1, 2004. Under the terms of the stock purchase agreement, we have agreed to issue 2,363,636 shares of our common stock to Zions for $13,000,000 in gross proceeds. We will use the proceeds of the stock issuance to Zions, together with cash on hand and/or borrowings under a loan agreement we may enter into, to consummate the acquisition.

        The preliminary unaudited pro forma condensed combined balance sheet as of December 31, 2003 reflects the acquisition as if it occurred on December 31, 2003. The preliminary unaudited pro forma condensed combined income statement for the year ended December 31, 2003 reflects the acquisition as if it occurred on January 1, 2003.

        The preliminary estimated purchase price has been allocated as follows based upon purchase accounting adjustments as of December 31, 2003 (in thousands):

Land and Building(1)   $ 5,500
Accounts Receivable(2)     2,042
Other tangible assets     224
Intangible Assets(3)     3,700
Goodwill     6,929
   
  Allocated purchase price   $ 18,395
   
(1)
Represents adjustments for fair value.

(2)
Represents adjustments to conform Life Quotes' accounting policy to that of Quotesmith.com.

(3)
Represents identified finite life intangible assets, primarily customer-related insurance intangibles and a non-compete contract

        The preliminary unaudited pro forma condensed combined financial statements presented herein are not necessarily indicative of the results of operations or the combined financial position that would have resulted had the acquisition been completed at the dates indicated, nor is it necessarily indicative of the results of operations in future periods or the future financial position of the combined company.

        The preliminary unaudited pro forma condensed combined financial statements have been prepared assuming that the acquisition is accounted for under the purchase method of accounting (purchase accounting) with Quotesmith.com as the acquiring entity. Accordingly, under purchase accounting, the assets and liabilities of Life Quotes are adjusted to their fair value. For purposes of these preliminary unaudited pro forma condensed combined financial statements, consideration has also been given to the impact of conforming Life Quotes' accounting policies to those of Quotesmith.com. Additionally, certain amounts in the historical consolidated financial statements of Life Quotes have been reclassified to conform to our financial statement presentation. The preliminary unaudited pro

15


forma condensed combined financial statements do not give consideration to the impact of possible revenue enhancements, expense efficiencies, synergies or asset dispositions.

        The preliminary unaudited pro forma adjustments represent management's estimates based on information available at this time. Actual adjustments to the combined balance sheet and income statements will differ, perhaps materially, from those reflected in these preliminary unaudited pro forma condensed combined financial statements because the assets and liabilities of Life Quotes will be recorded at their respective fair values on the date the acquisition is consummated, and the preliminary assumptions used to estimate these fair values may change between now and the completion of the acquisition. Estimated fair value adjustments to certain balance sheet amounts are preliminary and may change as a result of additional analysis. The final purchase accounting adjustments may be materially different from the preliminary unaudited pro forma adjustments presented herein.

        The preliminary unaudited pro forma adjustments included herein are subject to other updates as additional information becomes available and as additional analyses are performed. The final allocation of the purchase price will be determined after the acquisition is consummated and after completion of a thorough analysis to determine the fair values of Life Quotes' tangible and identifiable intangible assets and liabilities. Accordingly, the final purchase accounting adjustments, including conforming of Life Quotes' accounting policies to those of the Company, could be materially different from the preliminary unaudited pro forma adjustments presented herein. Any increase or decrease in the fair value of Life Quotes' assets, liabilities, commitments, contracts and other items as compared to the information shown herein will change the purchase price allocable to goodwill and may impact the combined income statements.

Note 2—Pro Forma Adjustments

        The pro forma adjustments related to the preliminary unaudited pro forma condensed combined balance sheet as of December 31, 2003 assume the acquisition took place on December 31, 2003. The pro forma adjustments to the preliminary unaudited pro forma condensed combined statement of operations for the year ended December 31, 2003 assumes the acquisition took place on January 1, 2003.

        The following pro forma adjustments result from the allocation of the purchase price for the acquisition based on the fair value of the assets, liabilities and commitments acquired from Life Quotes and to conform Life Quotes' accounting policies to ours. The amounts and descriptions related to the preliminary adjustments are as follows:

 
   Increase (Decrease)
As of December 31, 2003
  
 
   (in thousands)

  
Unaudited Pro Forma Condensed Combined Balance Sheet        
a) Elimination of Life Quotes asset not acquired   $ 61  
b) Adjustment to conform the accounting policy for receivable and revenue recognition     1,581  
c) Elimination of Life Quotes asset not acquired     (86 )
d) Invested assets to be used to complete the acquisition     (5,395 )
e) Acquisition of land and building at fair value     5,500  
f) Record the identifiable intangible assets related to this acquisition—See Note 3     3,700  
g) Record the goodwill associated with the acquisition     6,929  
h) Eliminate Life Quotes liabilities not assumed     (89 )
i) Record sale of common stock to Zions Bancorporation     13,000  
j) Eliminate Life Quotes retained earnings     (621 )

16


 
   Increase (Decrease)
Year Ended
December 31, 2003
  
 
   (in thousands)

  
Unaudited Pro Forma Condensed Combined Statement of Operations        
k) Adjustment to conform the accounting policy for receivable and revenue recognition   $ 177  
l) Adjustments to record depreciation and amortization of acquired assets, and to eliminate rent expense     188  
m) Adjustment to recognized reduction in investment income for invested assets used to complete the acquisition     (138 )

Note 3—Identified Intangible Assets

        A summary of the significant identifiable intangible assets and their respective estimated useful lives is as follows:

 
   Intangible Asset
Balance
   Estimated
Useful Life
   Amortization
Method
 
   (in thousands)

    
    
Insurance contract renewals   $ 3,500   10 years   Accelerated(a)
Non-compete agreement     200   6 years   Straight line
   
       
Total   $ 3,700        
   
       
(a)
Based on rates derived from expected lapse rates.

Note 4—Earnings Per Share

        The pro forma earnings per common share data has been computed based on the combined historical income of Life Quotes and Quotesmith.com and the impact of pro forma adjustments. Weighted average shares were calculated using our historical weighted average common shares outstanding and the shares to be issued to Zions.

17



RISK FACTORS

Risks Relating to the Proposed Stock Issuance

If the issuance of 2,363,636 shares of Quotesmith.com stock to Zions is approved and consummated, Zions, together with two of our officers and directors, will own a significant portion of our stock and control Quotemsith.com and their interests may not be the same as our public stockholders

        As of March 5, 2004, Robert S. Bland, our Chairman, President and Chief Executive Officer directly or indirectly controlled approximately 46.6% of our outstanding common stock, and William V. Thoms, our Executive Vice President and Chief Operating Officer, directly controlled approximately 14.3% of our outstanding common stock. Following the consummation of the issuance of 2,363,636 shares of our common stock to Zions, Messrs. Bland and Thoms would directly or indirectly control approximately 31.8% and 9.8%, respectively, of our common stock, and Zions will directly control approximately 31.9% of our common stock. As a result, if Zions, Messrs. Bland and Thoms act together, or if Zions and Mr. Bland act together, they will be able to take any of the following actions without the approval of additional public stockholders:

        In addition, the investor rights agreement we signed with Zions will also give Zions the right to nominate or appoint one member of our Board of Directors. We must also receive a vote of at least 75% of our directors for us to:

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        This control could discourage others from initiating a potential merger, takeover or another change of control transaction that could be beneficial to our public stockholders. As a result, the market price of our common stock could be harmed.

Risks Relating to the Proposed Acquisition of
Substantially all of the Assets of
Life Quotes and the Related Real Estate

The acquisition of substantially all of the assets of Life Quotes and the related real estate may not provide a successful and profitable complement to our sales efforts

        We have agreed to acquire substantially all of the assets of Life Quotes and the related real estate. Following the acquisition, the assets of Life Quotes and the related real estate will be owned and operated by Life Quotes Acquisition, Inc., our wholly-owned subsidiary. Life Quotes is an Evergreen, Colorado based term life insurance brokerage. Life Quotes sells insurance over the phone to customers who call for a quote in response to direct response advertising. In anticipation of this acquisition, we entered into an agreement with Life Quotes to direct calls from customers in response to a phone number placed in certain of our advertising to Life Quotes. We intend to continue directing these calls to the Life Quotes operation after the acquisition. While Life Quotes has operated profitably in the past, there can be no assurance that it will do so after the acquisition or that our company as a whole will be profitable. There can also be no assurance that this operation will form a successful complement to our present online sales and fulfillment model and generate the anticipated additional sales revenue from our present advertising.

We may not be successful at integrating and managing the Life Quotes operation

        Life Quotes uses a different business model than our own, using commission based telephone sales personnel to provide quotes and take applications, whereas we use primarily salaried insurance professionals to answer questions and process applications primarily filled out online by the customer. While our intent is to operate Life Quotes as a stand-alone sales organization in Evergreen, Colorado through our wholly-owned subsidiary, there can be no assurance that we will be able to operate these two different business models efficiently and effectively.

Kenneth L. Manley will have a limited ability to compete with us

        After the consummation of the acquisition of Life Quotes, Kenneth L. Manley, the current owner of Life Quotes, has informed us that he intends to, and the agreements we have and will sign with him permit him to, set up and sell life insurance. Any life insurance Mr. Manley sells must be sold by him as a general agent to us. He is also limited in the amount of life insurance he may sell to not more than $2.0 million a year commissionable previews. As a result, he has the limited ability to directly compete with us, which may harm us.

We may not be successful at integrating the operating systems at Life Quotes with our own systems

        Life Quotes has its own proprietary software that is used for quoting, preparation of applications and customer data base management. There can be no assurance that we will successfully integrate these systems with our own. If we are unable to do so, our business will be harmed.

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Risks Related to Our Business

Our insurance brokerage business has not been profitable and may not become profitable in the future, even with the new telephone sales and fulfillment facility

        Our first complete year of focusing on our Internet based insurance service was 1997. We incurred operating losses each year subsequent to 1997, through the year ended December 31, 2003. Because of our overhead structure, including the ongoing costs of employing highly-skilled technical personnel, we will need to generate higher revenues than we did in 2003 in order to achieve profitability. Even if we achieve profitability, we may not be able to maintain profitability in the future.

If the term life insurance industry declines, our business will suffer because 71% of our 2003 revenues were derived from the sale of term life insurance

        For the year ended December 31, 2003, approximately 71% of our revenue was derived from the sale of individual term life insurance (or approximately 86% if we had acquired Life Quotes as of such date). Because of this high concentration of revenue from one line of insurance, our current financial condition is largely dependent on the economic health of the term life insurance industry. If sales of term life insurance decline, for any reason, our business would be substantially harmed. In addition, in recent years, term life insurance premiums have been declining. If term life insurance premiums continue to decline, it will become even more difficult for us to become profitable.

If the purchase of insurance over the Internet or our service offerings do not achieve widespread consumer acceptance, our business will be harmed

        Our future success will depend in large part on widespread consumer acceptance of purchasing insurance via the Internet. The development of an online market for insurance has only recently begun, is rapidly evolving and likely will be characterized by an increasing number of market entrants. Therefore, there is significant uncertainty with respect to the viability and growth potential of this market. Our future growth, if any, will depend on the following critical factors:

        We cannot assure you that the market for our services will develop, that our services will be adopted or that consumers will significantly increase their use of the Internet for obtaining insurance. If the online market for insurance fails to develop or develops more slowly than we expect, or if our services do not achieve widespread market acceptance, our business would be significantly harmed.

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We may generate limited commission revenues because consumers can obtain free quotes and other information without purchasing insurance through our Web site

        We generate commission revenues only if a consumer purchases insurance through our service. Consumers can access our Web site and obtain quotes and other information free of charge without any obligation to purchase insurance through us. Because all of the insurance policies quoted at our Web site can be purchased through sources other than us, consumers may take the quotes and other information that we provide to them and purchase one of our quoted policies from the agent or broker of their choice. If consumers only use our Web site for insurance quote information purposes, we will not generate revenues and our business would be significantly harmed.

We expect to experience significant fluctuations in our quarterly results, which makes it difficult for investors to make reliable period to period comparisons and may contribute to volatility in our stock price

        Our quarterly revenues and operating results have fluctuated widely in the past and we expect them to continue to fluctuate widely in the future. Causes of these fluctuations could or have included, among other factors:

        In addition, we have a very long revenue cycle. As a result, substantial portions of our expenses, including selling and marketing expenses, are incurred well in advance of potential matching revenue generation. If revenues do not meet our expectations as a result of these selling and marketing expenses, our results of operations will be negatively affected.

        Any one or more of the above mentioned factors could harm our business and results of operations, which makes quarterly predictions difficult and often unreliable. As a result, we believe that quarter to quarter comparisons of our operating results are not necessarily meaningful and not good indicators of our future performance. Due to the above mentioned and other factors, it is possible that in one or more future quarters our operating results will fall below the expectations of securities analysts and investors. If this happens, the trading price of our common stock would likely decrease.

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We must further develop our brand recognition in order to remain competitive

        There are a number of other Web sites that offer services that are competitive with our services. Therefore, we believe that broader recognition and a favorable consumer perception of the Insure.com and the Life Quotes brands are essential to our future success. Accordingly, we intend to continue to pursue an aggressive brand enhancement strategy consisting of advertising, online marketing, and promotional efforts. If these expenditures do not result in a sufficient increase in revenues to cover these additional selling and marketing expenses, our business, results of operations and financial condition would be harmed.

We do not have agency contracts with all of the insurance companies we quote on our Web site and some insurance companies may refuse to participate in our database or refuse to do business with us

        While we obtain the information contained in our database directly from over 200 insurance companies being quoted and listed on our Web site, we currently only hold agency contracts with 180 of these insurance companies. In the past, a number of insurance companies quoted on our Web site have refused to appoint us as an agent or refused to permit us to publish their quotes for various reasons, including:

        We do not intentionally include in our database insurance companies who object to their inclusion. If a significant number of insurance companies object to the inclusion of their information in our database, the breadth of our database would be limited. If consumers purchase a material number of policies from insurance companies with whom we are not appointed as an agent, and these insurance companies refuse to enter into agency contracts with us, it could harm our business and results of operations.

        In addition, the insurance companies with which Life Quotes currently does business may refuse to continue to do business with Life Quotes after we acquire their business. Many of these insurance companies have the ability to terminate their agency relationship upon thirty days notice.

Our strategic relationships and agreements may not generate a material amount of revenues for us

        As part of our marketing strategy, we have entered into certain strategic relationships and agreements with third-party Web sites and companies in order to increase the realized revenue from visitors to our Web sites. During 2003, we generated fee revenues totaling $1.7 million from these sources. Most of these strategic agreements permit either party to terminate the agreement with short notice. As a result, we cannot assure you that any of these relationships or agreements will be profitable or generate any material amount of revenues in the future. If our strategic relationships and agreements do not meet our expectations regarding revenues and earnings, our business could be harmed.

If we do not manage our growth effectively, our business could be harmed

        We have expanded our operations significantly since May 1996 and anticipate that further expansion may be required to realize our growth strategy. Our operations growth has placed significant demands on our management and other resources, which is likely to continue. To manage our future

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growth, we will need to attract, hire and retain highly skilled and motivated officers, managers and employees and improve existing systems and/or implement new systems for:

        We may not be successful in managing or expanding our operations or maintaining adequate management, financial and operating systems and controls.

If we lose any of our key executive officers our business may suffer because we rely on their knowledge of our business

        We believe that our success is significantly dependent upon the continued employment and collective skills of our executive officers, including Founder and Chief Executive Officer, Robert S. Bland, and Executive Vice President and Chief Operating Officer, William V. Thoms. We maintain key man life insurance policies on Messrs. Bland and Thoms and both of these officers have entered into employment contracts with us. The loss of either of these two executives or any of our other key executive officers could harm us.

If our insurance quotes are inaccurate and we must pay out cash reward guarantees, our business could be harmed

        We offer consumers a $500 cash reward guarantee that we provide an accurate insurance quote. For the year ended December 31, 2001, we paid $7,500, for the year ended December 31, 2002, we paid $10,000 and for the year ended December 31, 2003, we paid $8,500 in such cash rewards. If our quotes or those of services with respect to which we have click through arrangements are inaccurate and we are required to pay a material number of cash reward guarantees, it could have a negative effect on our operation results.

Risks Related to the Insurance Industry

Our bonus commission revenues are highly unpredictable and may cause fluctuations in our operating results

        Our bonus commission revenues relate to the amount of premiums paid for new insurance policies to a single insurance company. In other words, if consumers purchase policies from a fewer number of insurance companies our bonus commissions may be higher than if the same policies were purchased from a larger number of insurance companies. The decision to purchase a policy from a particular insurance company typically relates to, among other factors, price of the policy and rating of the insurance company, both of which are factors over which we have no control. Insurance companies often change their prices in the middle of the year for competitive reasons. This may reduce the number of policies placed with that insurance company which may then reduce our potential bonus commissions. In addition, we have no control over the bonus commission rates that are set by each individual insurance company. As a result of these factors, we are unable to control the amount and timing of bonus commission revenues we receive in any particular quarter or year and these amounts may fluctuate significantly.

The insurance sales industry is intensely competitive, and if we fail to successfully compete in this industry our market share and business will be harmed

        The markets for the products and services offered on our site are intensely competitive and characterized by rapidly changing technology, evolving regulatory requirements and changing consumer

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demands. We compete with traditional insurance distribution channels, including insurance agents and brokers, new non-traditional channels such as commercial banks and savings and loan associations, and a growing number of direct distributors including other online services, such as InsWeb Corporation and SelectQuote.

        We also potentially face competition from a number of large online services that have expertise in developing online commerce and in facilitating a high volume of Internet traffic for or on behalf of our competitors. For instance, some of our competitors have relationships with major electronic commerce companies. Other large companies with strong brand recognition, technical expertise and experience in online commerce and direct marketing could also seek to compete in the online insurance market.

        There can be no assurance that we will be able to successfully compete with any of these current or potential insurance providers.

Insurance companies that have appointed us as agents may cancel those appointments

        Most of our agency contracts allow the insurance company to cancel our agency appointment at any time. Should any of the companies with which we place significant amounts of business decide to cancel our appointments, our business could be harmed.

Risks Related to Regulation

Our compliance with the strict regulatory environment applicable to the insurance industry is costly, and if we fail to comply with the numerous laws and regulations that govern the industry we could be subject to penalties

        We must comply with the complex rules and regulations of each jurisdiction's insurance department which impose strict and burdensome guidelines on us regarding our operations. Compliance with these rules and regulations imposes significant costs on our business. Each jurisdiction's insurance department typically has the power, among other things, to:


        Due to the complexity, periodic modification and differing statutory interpretations of these laws, we may not have always been and we may not always be in compliance with all these laws. In addition, Life Quotes has at times been subject to regulatory action for failing to comply with these laws. Failure to comply with these numerous laws in the future could result in fines, additional licensing requirements or the revocation of our license in the particular jurisdiction. These penalties could significantly increase our general operating expenses and harm our business. In addition, even if the allegations in any regulatory action against us turn out to be false, negative publicity relating to any allegations could result in a loss of consumer confidence and significant damage to our brand. We believe that because many consumers and insurance companies are not yet comfortable with the concept of purchasing insurance online, the publicity relating to any such regulatory or legal issues could harm our business.

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Regulation of the sale of insurance over the Internet and other electronic commerce is unsettled, and future regulations could force us to change the way we do business or make operating our business more costly

        As a company involved in the sale of insurance over the Internet, we are subject to additional regulatory risk as insurance regulations have not been fully modified to cover Internet transactions. Currently, many state insurance regulators are exploring the need for specific regulation of insurance sales over the Internet. Any new regulation could dampen the growth of the Internet as a means of providing insurance services. Moreover, the laws governing general commerce on the Internet remain largely unsettled, even in areas where there has been some legislative action. It may take years to determine whether and how existing laws such as those governing intellectual property, privacy and taxation apply to the Internet. In addition, the growth and development of the market for electronic commerce may prompt calls for more stringent consumer protection laws that may impose additional burdens on companies conducting business over the Internet. Any new laws or regulations or new interpretations of existing laws or regulations relating to the Internet could harm our business.

If we become subject to legal liability for the information we distribute on our Web site or communicate to our customers, our business could be harmed

        Our customers rely upon information we provide regarding insurance quotes, coverage, exclusions, limitations and ratings. To the extent that the information we provide is not accurate, we could be liable for damages from both consumers and insurance companies. These types of claims have been brought, sometimes successfully, against agents, online services and print publications in the past. These types of claims could be time consuming and expensive to defend, divert management's attention, and could cause consumers to lose confidence in our service. As a result, these types of claims, whether or not successful, could harm our business, financial condition and results of operations.

        In addition, because we are appointed as an agent for only 180 of the over 200 insurance companies quoted on our Web site, we do not have contractual authorization to publish information regarding the policies from insurance companies for whom we are not appointed. Several of these insurance companies have in the past demanded that we cease publishing their policy information and others may do so in the future. In some cases we have published information despite these demands. If we are required to stop publishing information regarding some of the insurance policies that we track in our database, it could harm us.

Risks Related to the Internet and Electronic Commerce

Any failures of, or capacity constraints in, our systems or the systems of third parties on which we rely could reduce or limit visitors to our Web site and harm our ability to generate revenue

        We use both internally developed and third party systems to operate our service. If the number of users of our service increases substantially, we will need to significantly expand and upgrade our technology, transaction processing systems and network infrastructure. We do not know whether we will be able to accurately project the rate or timing of any of these increases, or expand and upgrade our systems and infrastructure to accommodate these increases in a timely manner. Our ability to facilitate transactions successfully and provide high quality customer service also depends on the efficient and uninterrupted operation of our computer and communications hardware systems. Our service has experienced periodic system interruptions, and it is likely that these interruptions will continue to occur from time to time. Additionally, our systems and operations are vulnerable to damage or interruption from human error, natural disasters, power loss, telecommunication failures, break ins, sabotage, computer viruses, acts of vandalism and similar events. We may not carry sufficient business interruption insurance to compensate for losses that could occur. Any system failure that causes an

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interruption in service or decreases the responsiveness of our service would impair our revenue generating capabilities, and could damage our reputation and our brand name.

Our success depends, in part, on our ability to protect our proprietary technology

        We believe that our success depends, in part, on protecting our intellectual property. Other than our trademarks, most of our intellectual property consists of proprietary or confidential information that is not subject to patent or similar protection. Competitors may independently develop similar or superior products, software or business models.

        We cannot guarantee that we will be able to protect our intellectual property. Unauthorized third parties may try to copy our products or business model or use our confidential information to develop competing products. Legal standards relating to the validity, enforceability and scope of protection of proprietary rights in Internet related businesses are uncertain and still evolving. As a result, we cannot predict the future viability or value of our proprietary rights and those of other companies within the industry.

We may be subject to claims of infringement that may be costly to resolve and, if successful, could harm our business

        Our business activities and products may infringe upon the proprietary rights of others. Parties may assert valid or invalid infringement claims against us. Any infringement claims and resulting litigation, should it occur, could subject us to significant liability for damages and could result in invalidation of our proprietary rights. Even if we eventually won, any resulting litigation could be time consuming and expensive to defend and could divert our management's attention.

If we are unable to adapt to the rapid technological change in our industry, we will not remain competitive and our business will suffer

        Our market is characterized by rapidly changing technologies, frequent new product and service introductions, and evolving industry standards. The recent growth of the Internet and intense competition in our industry exacerbate these market characteristics. Our future success will depend on our ability to adapt to rapidly changing technologies by continually improving the features and reliability of our database and service. We may experience difficulties that could delay or prevent the successful introduction or marketing of new products and services. In addition, new enhancements must meet the requirements of our current and prospective customers and must achieve significant market acceptance. We could also incur substantial costs if we need to modify our service or infrastructures or adapt our technology to respond to these changes.

Demand for our services may be reduced if we are unable to safeguard the security and privacy of our customer's information

        A significant barrier to electronic commerce and online communications has been the need for secure transmission of confidential information over the Internet. Our ability to secure the transmission of confidential information over the Internet is essential in maintaining consumer and insurance company confidence in our service. In addition, because we handle confidential and sensitive information about our customers, any security breaches would damage our reputation and could expose us to litigation and liability. We cannot guarantee that our systems will prevent security breaches.

Our business assumes the continued dependability of the Internet infrastructure

        Our success will depend upon the development and maintenance of the Internet's infrastructure to cope with its significant growth and increased traffic. This will require a reliable network backbone with the necessary speed, data capacity and security, and the timely development of complementary

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products, such as high speed modems, for providing reliable Internet access and services. The Internet has experienced a variety of outages and other delays as a result of damage to portions of its infrastructure and could face outages and delays in the future. Outages and delays are likely to cause a loss of business by affecting the level of Internet usage and the processing of insurance quotes and applications requests made through our Web site. We are unlikely to make up for this loss of business.

Risks Related to the Ownership of Our Common Stock

Our stock could become delisted if we fail to meet the minimum financial requirements for continued listing on the Nasdaq SmallCap Market

        In March 2001, the staff of the Nasdaq Stock Market, or Nasdaq, notified us that Quotesmith.com was not in compliance with one of its maintenance standards, requiring at least $5.0 million in value of public float over the previous 30 consecutive trading days, defined as total shares outstanding less any shares held by officers, directors, or beneficial owners of 10 percent or more. In March, Nasdaq gave us 90 calendar days to comply with this standard. Although we were in compliance with all other Nasdaq National Market maintenance requirements, we were unable to sustain a public float value in excess of $5.0 million for 30 consecutive trading days, making our shares ineligible for continued Nasdaq National Market listing. Effective the opening of business on July 20, 2001, our stock listing was transferred from the Nasdaq National Market to the Nasdaq SmallCap Market, retaining its existing symbol, QUOT.

        The requirements for listing on the Nasdaq SmallCap Market include the following:

        We believe that the current per share price level of the common stock has reduced the effective marketability of our shares of common stock because of the reluctance of many leading brokerage firms to recommend low-priced stock to their clients. Certain investors view low-priced stock as speculative and unattractive, although certain other investors may be attracted to low-priced stock because of the greater trading volatility sometimes associated with such securities. In addition, a variety of brokerage house policies and practices tend to discourage individual brokers within those firms from dealing in low-priced stock. Such policies and practices pertain to the payment of brokers' commissions and to time-consuming procedures that function to make the handling of low-priced stocks unattractive to brokers from an economic standpoint.

        In addition, because brokerage commissions on low-priced stock generally represent a higher percentage of the stock price than commissions on higher-priced stock, the current share price of the common stock can result in individual stockholders paying transaction costs (commissions, markups or markdowns) that represent a higher percentage of their total share value than would be the case if the share price were substantially higher. This factor also may limit the willingness of institutions to purchase the common stock at its current low share price.

        Because our common stock is not listed on the Nasdaq National Market, if the trading price of our common stock were to fall below $1.00 per share, trading in our common stock would also be subject

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to the requirements of certain rules promulgated under the Exchange Act which require additional disclosures by broker-dealers in connection with any trades involving a stock defined as a "penny stock" (generally, a non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). In such event, the additional burdens imposed upon broker-dealers to effect transactions in our common stock could further limit the market liquidity of our common stock and the ability of investors to trade our common stock.

        There can be no assurance that we will continue to satisfy all of the listing requirements of the Nasdaq SmallCap Market. In the event that we do not qualify for listing on the Nasdaq SmallCap Market, sales of our common stock would likely be conducted only in the over-the-counter market or potentially in regional exchanges. This may have a negative impact on the liquidity and price of the common stock and investors may find it more difficult to purchase or dispose of, or to obtain accurate quotations as to the market value of, the common stock.

Our stock price may have wide fluctuations and Internet related stocks have been particularly volatile

        The market price of our common stock has been highly volatile and subject to wide fluctuations. The Nasdaq stock market has experienced significant price and volume fluctuations and the market prices of securities of technology companies, particularly Internet related companies, have been highly volatile. Market fluctuations, as well as general political and economic conditions, such as a recession or interest rate fluctuations, could adversely affect the market price of our common stock. In addition, the market prices for stocks of Internet related and technology companies, particularly following an initial public offering, frequently reach levels that bear no relationship to the operating performance of such companies. These market prices generally are not sustainable and are subject to wide variations. If our common stock trades to unsustainably high levels, it likely will thereafter experience a material decline.

        In the past, securities class action litigation has often been brought against a company following periods of volatility in the market price of their securities. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs, divert management's attention and resources, and harm our financial condition and results of operations.

Our charter documents and Delaware law contain provisions that may discourage takeover attempts, which could preclude our stockholders from receiving a change of control premium

        Our certificate of incorporation and bylaws and Delaware law contain anti takeover provisions that could have the effect of delaying or preventing changes in control that a stockholder may consider favorable. The provisions in our charter documents include the following:


        Our preferred stock purchase rights could cause substantial dilution to any person or group who attempts to acquire a significant interest in Quotesmith.com without advance approval of our Board of Directors. The stock purchase agreement we have entered into with Zions requires us to amend our rights plan to exempt acquisitions of shares of our common stock by Zions from the operation of the

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rights plan. In addition, our executive officers have employment agreements that may entitle them to substantial payments in the event of a change of control. We have entered into amendments to our employment agreements with Messrs. Bland and Thoms that exempt the issuance of stock to Zions from constituting a change of control under these employment agreements.

        The foregoing could have the effect of delaying, deferring or preventing a change in control of Quotemsith.com, discourage bids for our common stock at a premium over the market price, or harm the market price of, and the voting and other rights of the holders of, our common stock. We also are subject to Delaware laws that could have similar effects. One of these laws prohibits us from engaging in a business combination with any significant stockholder for a period of three years from the date the person became a significant stockholder unless specific conditions are met.

Continued terrorist attacks or war could lead to further economic instability and adversely affect our stock price, operations, and profitability

        The terrorist attacks that occurred in the United States on September 11, 2001 caused periodic major instability in the U.S. and other financial markets. Possible further acts of terrorism and current and future war risks could have a similar impact. The United States continues to take military action against terrorism and has recently taken military action in Iraq. Terrorist attacks and potential war in the Middle East may lead to additional armed hostilities or to further acts of terrorism and civil disturbance in the United States or elsewhere, which may further contribute to economic instability. Any such attacks could, among other things, cause further instability in financial markets and could directly, or indirectly through reduced demand, negatively affect our facilities and operations or those of its customers or suppliers.

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THE ANNUAL MEETING AND PROXY SOLICITATION

When and Where the Annual Meeting will be Held

        This proxy statement is being furnished to our stockholders in connection with the solicitation of proxies by our management, at the direction of our Board of Directors, for use at the annual meeting of Quotesmith.com stockholders to be held on April [    •    ], 2004 at 9:00 a.m., Chicago time, at our offices, located at 8205 South Cass Avenue, Suite 102, Darien, Illinois 60561, and any adjournments thereof. This proxy statement and the enclosed Notice of Annual Meeting and form of proxy are first being sent to stockholders on or about April [    •    ], 2004.

What will be Voted on

        At the annual meeting, you will be asked to consider and vote on:

        For the reasons set forth in more detail elsewhere in this proxy statement, our Board of Directors recommends a vote "FOR" the approval of each of the proposals set forth above.

Who may Vote at the Annual Meeting

        The Board of Directors has fixed the close of business on March 23, 2004 as the record date for the annual meeting. Stockholders of record as of the record date are entitled to notice of and to vote at the annual meeting. If you own shares of Quotesmith.com common stock that are registered in someone else's name (for example, a nominee), you need to direct that person to vote those shares or obtain an authorization from them and vote the shares yourself at the meeting. A list of stockholders entitled to vote at the annual meeting will be available for inspection by stockholders for any purpose germane to the annual meeting at our offices for the ten days immediately preceding the annual meeting date. At the close of business on the record date, 4,958,232 shares of common stock were outstanding held by approximately 1,800 stockholders of record. Each stockholder is entitled to one vote for each share of Quotesmith.com common stock held as of the record date on all matters to be considered at the annual meeting.

How to Vote

        You may vote in person or by proxy. The proxy card accompanying this proxy statement is solicited on behalf of our Board of Directors for use at the annual meeting. You are urged to complete, sign

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and date the accompanying form of proxy and return it as soon as possible in the envelope provided for that purpose. Returning a proxy card does not prevent you from attending the annual meeting or from changing your vote. If the enclosed proxy is properly executed and returned in time for voting with a choice specified thereon, and not properly revoked, the shares represented thereby will be voted as indicated on such proxy. Executed but unmarked proxies will be voted by the person(s) named thereon (i) for the approval of the issuance of 2,363,636 shares of Quotesmith.com common stock to Zions in connection with the acquisition of substantially all of the assets of Life Quotes and the related real estate, (ii) for the approval of the establishment of the Life Quotes employee stock option plan, (iii) for the election of the nominees named herein as directors (or a substitute therefor if the nominee is unable or refuses to serve), (iv) for the ratification of Ernst & Young LLP as our independent auditors for 2004 and (v) in the discretion of such person(s) upon such matters not presently known or determined that properly may come before the annual meeting. If you wish to designate a person or persons to act as your proxy at the annual meeting, other than the proxies designated by the Board of Directors, you may strike out the names appearing on the enclosed form of proxy, insert the name of any other such person or persons, sign the proxy and transmit it directly to such other designated person or persons for use at the annual meeting.

        Our Board of Directors knows of no other matters that may be brought before the meeting. However, if any other matters are properly presented for action, it is the intention of the named proxies to vote on them according to their best judgment.

How to Change your Vote

        You may revoke a proxy at any time before the meeting is convened by filing with the secretary of Quotesmith.com an instrument of revocation or a duly executed proxy bearing a later date. You may also revoke a proxy by attending the annual meeting and voting in person, although attendance at the annual meeting will not, in and of itself, constitute a revocation of a proxy.

Quorum and Vote Required

        Under our certificate of incorporation and by-laws and under Delaware law, a vote of stockholders is not required to approve the issuance of our common stock to Zions in connection with the acquisition of substantially all of the assets of Life Quotes and the related real estate. However, because the number of shares we will be issuing to Zions exceeds 20% of our common stock outstanding prior to the issuance, stockholder approval is required under the rules of the Nasdaq SmallCap Market. Similarly, although a vote of stockholders is not required to approve the establishment of the Life Quotes employee stock option plan under our certificate of incorporation or by-laws or under Delaware Law, stockholder approval is required under the rules of the Nasdaq SmallCap Market.

        Stockholders do not have the right to cumulate their votes in the election of directors. A majority of the shares entitled to vote at and present, in person or by proxy, at the annual meeting will constitute a quorum. If a quorum is present, the affirmative vote of a majority of the shares that are present, in person or by proxy, at the annual meeting and entitled to vote will be sufficient to approve the stock issuance to Zions and the establishment of the Life Quotes employee stock option plan. The affirmative vote of a plurality of such shares will be sufficient to elect each director. The affirmative vote of a majority of such shares will be sufficient to ratify the appointment of the independent auditors.

        The holders of over 60% of our common stock outstanding prior to the acquisition have indicated to us that they plan to vote in favor of (i) the proposal to issue 2,363,636 shares of our common stock to Zions, (ii) the proposal to establish the Life Quotes employee stock option plan, (iii) the proposal to

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elect the nominees named herein as directors and (iv) the ratification of Ernst & Young LLP as our independent auditors for 2004.

Abstentions and Broker Non-Votes

        Abstentions and broker non-votes will be treated as present at the annual meeting for purposes of reaching a quorum. Abstentions shall have no effect on the election of directors but shall be treated as a vote against the approval of the stock issuance to Zions, the establishment of the Life Quotes employee stock option plan and the ratification of the independent auditors. Broker non-votes will have no effect on the outcome of the vote on any of the proposals.

Solicitation of Proxies and Expenses of Solicitation

        The cost of soliciting proxies will be borne by Quotesmith.com. In addition to solicitation by mail, our directors, officers and employees may solicit proxies in person or by telephone. Brokers, nominees, fiduciaries and other custodians will be requested to forward soliciting materials to the beneficial owners of shares of Quotesmith.com common stock and will be reimbursed by us for their reasonable expenses in forwarding such materials.

Appraisal Rights

        Stockholders who do not vote in favor of the proposals described in this proxy statement will not be entitled to dissenter's or appraisal rights. Accordingly, we will not make special provisions for stockholders to enforce such rights.

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MARKET PRICE INFORMATION

        All common stock and per share information in this proxy statement have been retroactively adjusted to reflect a one-for-three reverse stock split that became effective on March 7, 2001.

        Market Information.    Our common stock began trading on the Nasdaq National Market under the symbol "QUOT" on August 3, 1999, the date of our initial public offering. Prior to this date, no established public trading market for our common equity existed. Effective the opening of business on July 20, 2001, our stock listing was transferred from the Nasdaq National Market to the Nasdaq SmallCap Market, retaining its existing symbol, QUOT. The last sale price of our common stock on March 2, 2004, the last day prior to the public announcement of the stock purchase agreement and the asset purchase agreement, was $5.30, which is the average of the bid and asked prices of Quotesmith.com, Inc. common stock, as reported on the Nasdaq SmallCap Market on March 2, 2004. The last sale price of our common stock on April [    •    ], 2004, the last practicable date for which results were available for inclusion in this proxy statement, was $ [    •    ], which is the average of the bid and asked prices of Quotesmith.com, Inc. common stock, as reported on the Nasdaq SmallCap Market on April [    •    ], 2004. As of April [    •    ], 2004 the approximate number of record holders of our common stock was 1,800. The following table sets forth, for the period indicated, the high and low last sale price (as adjusted for a one-for-three reverse stock split effective March 7, 2001) of our common stock as reported on the Nasdaq National Market and the Nasdaq SmallCap Market, as applicable.

 
   High
   Low
2004:            
  First quarter   $ 6.00   $ 4.92
2003:            
  First quarter   $ 4.60   $ 3.46
  Second quarter     5.12     3.55
  Third quarter     6.00     4.01
  Fourth quarter     4.92     3.84
2002:            
  First quarter   $ 3.20   $ 2.00
  Second quarter     3.08     2.60
  Third quarter     2.85     2.38
  Fourth quarter     4.23     2.41

        Dividends.    We have never declared or paid any cash dividends on our common stock and do not anticipate paying cash dividends on our common stock in the foreseeable future. The investor rights agreement prohibits us from paying cash dividends on our common stock unless certain conditions are met. We currently intend to retain all future earnings to finance the growth and development of our business. Any future determination as to the payment of dividends will be made by our Board of Directors and will depend on our results of operations, financial condition, capital requirements, and any other factors our Board of Directors considers relevant, including the restrictions contained in the investor rights agreement.

        Use of Initial Public Offering Proceeds.    On August 3, 1999, our registration statement on Form S-1 (File No. 333-79355), relating to the initial public offering of our common stock, was declared effective by the Securities and Exchange Commission. After payment of underwriting discounts and expenses of approximately $5.3 million, we received net proceeds of approximately $57.5 million from the offering. During the fiscal year ended December 31, 2003, we used approximately $770,000 of the proceeds of the initial public offering for operating activities and approximately $65,000 for the purchase of fixed assets.

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PROPOSAL 1. APPROVAL OF STOCK ISSUANCE TO ZIONS BANCORPORATION

        We plan to finance the majority of the purchase price for the acquisition of substantially all of the assets Life Quotes and the related real estate by selling 2,363,636 shares of our common stock, par value $0.003 per share, in a private placement to Zions Bancorporation, or Zions, for an aggregate price of $13,000,000, or approximately $5.50 per share. We plan to finance the remainder of the purchase price for the acquisition through cash on hand and/or borrowings under a loan agreement we may enter into.

        The acquisition of the Life Quotes business will be accounted for under the purchase method of accounting (purchase accounting) with Quotesmith.com as the acquiring entity. Accordingly, under purchase accounting, the assets and liabilities of Life Quotes will be adjusted to their fair value as of the date of the acquisition. Any excess of the purchase price over the fair value of the assets acquired is recorded as goodwill. For tax purposes, we assume that we will be able to deduct the value of any intangible assets and goodwill as provided in the Internal Revenue Code of 1986, as amended. We believe that there are no material federal or state regulatory requirements or approvals necessary to consummate the stock issuance or the acquisition of substantially all of the assets of Life Quotes and the related real estate. We believe we have the appropriate licenses to sell insurance in all fifty states.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL
OF THE STOCK ISSUANCE TO ZIONS.

Background of the Transactions

        During 2002 and 2003, Kenneth L. Manley, the Chief Executive Officer and sole stockholder of Life Quotes, and Robert L. Bland, our Chairman of the Board, President and Chief Executive Officer, had general, exploratory conversations regarding the possibility of Quotesmith.com acquiring the business of Life Quotes. In July 2003, Mr. Bland and Mr. Manley had a series of specific conversations about Quotesmith.com acquiring the business of Life Quotes. During July 2003, Phillip Perillo, our Chief Financial Officer, conducted a preliminary financial due diligence investigation of Life Quotes. In July 2003, we sent a draft asset purchase agreement to Mr. Manley, pursuant to which we would pay the purchase price in a combination of cash and stock. In August 2003, we sent to Life Quotes and their counsel, John Meck of Welborn, Sullivan, Meck & Tooley, P.C., a revised draft of a purchase agreement, this version reflecting the possibility of acquiring the stock of Life Quotes. During August 2003, we had discussions with a number of banks regarding their possible acquisition of our common stock in exchange for a cash infusion. On October 23, 2003, at a regularly scheduled meeting of our Board of Directors, the status of negotiations with Mr. Manley and possible funding sources was discussed. On October 27, 2003, Mr. Bland and Mr. Manley met and agreed to the terms of a proposed transaction whereby we would acquire substantially all of the assets and related real estate of Life Quotes. In November 2003, we entered into a marketing agreement with Life Quotes under which we would provide them with term life insurance leads in exchange for a share of the profits of any sales made. In early November 2003, we reached tentative agreement with Zions to sell $13,000,000 of our common stock to them, subject to documentation, and therefore changed our offer to Life Quotes to be an all cash offer for substantially all of the assets and real estate of Life Quotes. On November 20, 2003, we delivered a revised asset purchase agreement to Life Quotes which incorporated those terms.

        In December 2003, we hired Mystic Capital Advisors Group, LLC, or Mystic Capital, to assist us in evaluating the fairness of the acquisition of Life Quotes and in our due diligence efforts. On December 22, 2003, we received the first draft of an investor rights agreement and stock purchase agreement from Zions' counsel. Late in December 2003, Life Quotes and its counsel proposed signing a letter of intent. We rejected this suggestion and instead suggested that we concentrate our efforts on negotiating the draft asset purchase agreement. We received Mr. Meck's first comments on the asset purchase agreement on December 29, 2003. Messrs. Perillo, Bland, Meck and Manley, together with

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David Kaufman (a partner at Duane Morris LLP), met at Mr. Meck's offices in Denver, Colorado on January 9, 2004, to further negotiate the asset purchase agreement and related documents. With our legal advisors, we continued negotiating with Mr. Meck on the asset purchase agreement, real property purchase agreement and related documents. We, with our legal advisors, negotiated the terms of the stock purchase and investor rights agreement with Zions and their counsel. We and our advisors continued our legal, financial and business due diligence of Life Quotes during the months of January and February 2004.

        On January 29, 2004, we held a regularly scheduled meeting of our Board of Directors where the status of negotiations with Life Quotes and Zions was reviewed. At the meeting, Mystic Capital reviewed the fairness of the Life Quotes transaction from a financial point of view. They provided their oral opinion, which was subsequently confirmed in writing as of February 27, 2004, that based on and subject to the assumptions, qualifications and limitations contained in the opinion, the transactions contemplated by the asset purchase agreement and real property purchase agreement were fair to our stockholders from a financial point of view. Our Board of Directors also reviewed the potential stock sale to Zions. Mr. Kaufman reviewed the terms and conditions of the stock issuance to Zions, the acquisition of substantially all of the assets of Life Quotes and the related real estate and the related documentation. Our Board of Directors then reviewed and discussed the terms of the proposed transactions. Our Board of Directors unanimously adopted a resolution approving and adopting the stock issuance, the acquisition and the related transactions contemplated thereby and voted to recommend approval of the stock issuance to our stockholders, subject to final documentation. During the month of February, the parties continued to negotiate the terms of the asset purchase agreement, real property purchase agreement, stock purchase agreement, investor rights agreement and other related documentation. We continued to perform due diligence investigations of Life Quotes with Mystic Capital and Duane Morris LLP. Life Quotes also prepared financial statements.

        After the close of business on March 1, 2004, the parties executed and delivered the asset purchase agreement, the real property purchase agreement, the stock purchase agreement and the investor rights agreement. Prior to the opening of business on March 3, 2004, the transactions were publicly announced.

Reasons for the Transactions

        We are proposing to acquire substantially all of the assets of Life Quotes, a domestic insurance agency operating in all 50 states, together with certain real estate owned by an affiliate of the sole stockholder of Life Quotes. We intend to fund this acquisition through the issuance of 2,363,636 shares of our common stock to Zions resulting in $13,000,000 in gross proceeds. The proceeds of this stock issuance, together with cash on hand and/or borrowings under a loan agreement we may enter into, will be used to acquire the assets Life Quotes and the related real estate. Following the acquisition, the assets of Life Quotes and the related real estate will be owned by a wholly-owned subsidiary of Quotesmith.com.

        We entered into a stock purchase agreement with Zions on March 1, 2004. Under the terms of the stock purchase agreement, we have agreed to issue 2,363,636 shares of our common stock to Zions for $13,000,000 in gross proceeds. The common stock to be issued to Zions will not be registered, and will be restricted following the stock issuance. In connection with the issuance of stock to Zions, we have entered into an investor rights agreement with Zions, Robert S. Bland and William V. Thoms whereby we have agreed, among other things, to increase the size of our Board of Directors by one member and to nominate an individual designated by Zions to serve on the Board of Directors. Messrs. Bland and Thoms have agreed to vote all of their shares of common stock in favor of such individual. In accordance with the investor rights agreement, Zions has designated as its nominee, and we have nominated for election as director, John B. Hopkins.

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        We have also entered into an asset purchase agreement with Life Quotes and a real property purchase agreement with an affiliate of the sole stockholder of Life Quotes, each dated as of January 31, 2004 (signed March 1, 2004). Under the terms of the asset purchase agreement, we have agreed to acquire substantially all of the assets of Life Quotes, and assume certain specified liabilities, for a payment of $13,395,000, subject to adjustment. Under the terms of the real property purchase agreement, we have agreed to acquire the real property currently used by Life Quotes for a payment of $5,000,000, subject to customary prorations at closing. We will use the proceeds of the stock issuance to Zions, together with cash on hand and/or borrowings under a loan agreement we may enter into, to consummate the acquisition.

        In connection with the acquisition of the assets of Life Quotes, we have agreed to establish the Quotesmith.com, Inc. 2004 Non-Qualified Stock Option Plan, or the Life Quotes employee stock option plan, pursuant to which options to purchase up to 300,000 shares of our common stock may be granted to certain employees of Life Quotes who agree to work for us.

        At its January 29, 2004 meeting, the Board of Directors determined that the stock issuance and the acquisition are each in our best interest and the best interest of our stockholders and unanimously resolved to recommend to our stockholders to vote in favor of the stock issuance.

        In making its determination with respect to stock issuance and the acquisition, the Board considered a number of potential benefits, including those listed below:

        The Board of Directors also identified and considered several potentially negative factors relating to the stock issuance and the acquisition, including the following:

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        The Board of Directors concluded that the potentially negative factors were outweighed by the potential benefits to be gained by the stock issuance and the acquisition. The members of the Board of Directors evaluated all of the factors described above in view of their knowledge of the business and operation of Life Quotes and their business judgment. In light of the wide variety of factors considered in connection with its evaluation of the stock issuance and the acquisition, the Board of Directors did not find it practicable to, and did not, quantity or otherwise assign relative weights to the specific factors considered in reaching its determination. In addition, individual members of the Board of Directors may have given different weights to different factors.

Opinion of Quotesmith.com's Financial Advisor

        We engaged Mystic Capital to act as our financial advisor in connection with our Board of Directors' evaluation of the acquisition of substantially all of the assets of Life Quotes and the related real estate. Mystic Capital agreed to assist us in analyzing our acquisition of the Life Quotes business. Mystic Capital was also engaged to render a written opinion to our Board of Directors as to the fairness, from a financial point of view, of the consideration to be paid by us in connection with the acquisition. In requesting Mystic Capital's advice and opinion, no restrictions or limitations were imposed by us upon Mystic Capital with respect to the investigations made or the procedures followed by Mystic Capital in rendering its opinion.

        On January 29, 2004, Mystic Capital reviewed the financial aspects of the proposed acquisition and delivered its opinion, or the Mystic Capital Opinion, to our Board of Directors to the effect that, as of that date, and based upon and subject to the assumptions, limitations and qualifications set forth in the opinion, the consideration to be paid by us pursuant to the asset purchase agreement and the real property purchase agreement was fair to our stockholders from a financial point of view.

        The full text of the Mystic Capital Opinion, which describes, among other things, the assumptions made, matters considered, and the limitations on the review undertaken, is attached to this proxy statement as Annex A-1 and is incorporated in this proxy statement by reference. The description of the Mystic Capital Opinion set forth below is qualified in its entirety by reference to the full text of the Mystic Capital Opinion in Annex A-1. You should read the Mystic Capital Opinion carefully and in its entirety.

        The Mystic Capital Opinion is directed only to the fairness, from a financial point of view, of the consideration to be paid pursuant to the asset purchase agreement and the real property purchase agreement by us. Further, the Mystic Capital Opinion is not a recommendation to any stockholder as to how he or she should vote at our annual meeting. Mystic Capital was not retained as an advisor or agent to our stockholders or any other person, and it is acting only as an advisor to our Board of Directors.

        Mystic Capital is a national investment banking firm. As part of its investment banking business, Mystic Capital is regularly engaged in the valuation of businesses and securities in connection with mergers, acquisitions, sales and distributions of securities, private placements and valuations for estate, corporate and other purposes. Mystic Capital was selected by us to act as our financial advisor because of Mystic Capital's expertise in valuing and advising firms in the financial and insurance industry in merger and acquisition transactions.

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Description of the Transaction

        As part of the acquisition, Life Quotes will sell, transfer, convey and deliver to us certain assets of Life Quotes as well as a building and land owned by the Kenneth L. Manley Revocable Trust dated as of June 10, 1987, an affiliate of the sole stockholder of Life Quotes. In consideration for the sale and transfer of these assets to us, Kenneth L. Manley (as the sole stockholder of Life Quotes), Life Quotes and the Kenneth L. Manley Revocable Trust will receive a pro rata portion of the total consideration, as hereinafter defined, based upon their respective ownership in the assets conveyed. Total consideration to be paid the sellers is $18,395,000 and is equal to the sum of the following:

        The total consideration to be paid to the sellers in connection with the acquisition was determined by us, and Mystic Capital evaluated the amount of consideration as determined by us.

Professional Undertaking

        In arriving at its opinion, Mystic Capital, among other things:

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Comparable Public Company Analysis

        Mystic Capital tracks six publicly traded insurance brokers: Arthur J. Gallagher & Co. (NYSE: AJG), Brown & Brown (NYSE: BRO), Hilb, Rogal & Hobbs (NYSE: HRH), Hub International, Inc. (NYSE: HBG), USI Holdings Corporation (NASDAQ: USIH), and Willis Group Holdings, Ltd. (NYSE: WSH).

        The table below displays the market capitalization and adjusted market value metrics for these six insurance brokers. The adjusted market value is equal to the diluted market capitalization minus (plus) the tangible net worth (deficit) shown on the broker's balance sheet as of December 31, 2003. Mystic Capital believes that this adjusted market value provides a more comparable metric for assessing the acquisition of the Life Quotes business than market capitalization.

Valuation Metrics of Public Insurance Brokers(1)

Metric
   Low
   Mean
   Median
   High
Diluted Market Capitalization/ Revenues   1.74   2.71   2.43   4.64
Diluted Market Capitalization/EBITA   8.40   10.17   9.98   13.04
Adjusted Market Value/Revenues   1.90   2.74   2.73   4.59
Adjusted Market Value/EBITA   8.49   10.31   10.32   12.90

        The table below compares the mean of the indicated metrics for the publicly traded insurance brokers to the proposed Life Quotes transaction.

Metric
   Industry
Mean
   Life Quotes
Pro Forma
Deal Value/Revenues   2.71   1.30
Deal Value/EBITA   10.17   8.33
Adjusted Market Value/Revenues   2.73   1.00
Adjusted Market Value/EBITA   10.31   6.36
(1)
Fourth Quarter, 2003 Insurance Broker Report. Mystic Capital Advisors Group, LLC. February 23, 2004.

Comparable Transaction Analysis

        Due to the micro-cap nature of most of the insurance brokerage sector, very few comparable transactions are announced on an annual basis. Of those that are announced, very few buyers announce the details of the transaction and the financial condition of the seller at the time of closing. Of the comparable transactions that are announced, the typical transaction information released is price and

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revenues. Since income statement information is generally not released it is difficult to gauge true financial performance multiples. The table below displays the price/revenue value of the five insurance broker transactions announced during 2003 that involved operations with $5 to $15 million in annual revenue. The source of this information is SNL Financial.

Buyer
   Seller
   Date
   Price/Revenue
American Independence Corp.   Vorhees Risk Management   1/1/03   2.45
USI Holdings   Hastings, Tapley Insurance Agency   5/15/03   1.26
F.N.B. Corp.   Lupfer Frakes   12/31/03   1.56
Old National   Insurance & Risk Management   7/8/03   1.94
BancorpSouth   Ramsey, Krug, Farrell & Lensing   12/31/03   2.16

 
 
 
 
Low
 
1.26
        Mean   1.87
        Median   1.94
        High   2.45
        Life Quotes Transaction   1.30

Opinion of Mystic Capital Advisors

        In rendering its opinion, Mystic Capital assumed and relied upon the accuracy, completeness and fairness of all of the financial and other information that was available to it from public sources, that was provided to it by us and Life Quotes or their representatives, or that was otherwise reviewed by it. Mystic Capital did not attempt or assume any responsibility to independently verify any of the information reviewed by it. Mystic Capital did not review any individual policyholder files.

        Mystic Capital was not requested to make, and has not made, an independent evaluation or appraisal of the real property nor of the sellers' assets or liabilities (contingent or otherwise) or other data related to the physical condition of the real property. A third party real estate appraiser was retained by us to perform an appraisal on the subject property during February 2004. While Mystic Capital has retained a copy of the executive summary provided in conjunction with the appraisal report, Mystic Capital makes no representation as to the qualifications of the appraiser and does not provide an opinion as to the accuracy of the report.

        The Mystic Capital Opinion was just one of the many factors taken into consideration by our Board of Directors in determining to approve the acquisition of the Life Quotes business. See "—Reasons for the Transactions." The Mystic Capital Opinion does not address the relative merits of the acquisition as compared to any alternative business strategies that might exist for us, nor does it address the effect of any other business combination in which we might engage. The Mystic Capital Opinion was not an expression of an opinion as to the prices at which our shares of common stock would trade following the announcement of the acquisition.

        In connection with rendering its opinion, Mystic Capital performed a variety of financial analyses. The following is a summary of the material analyses presented to our Board of Directors at its January 29, 2004 meeting. The summary set forth below does not purport to be a complete description of the analyses performed by Mystic Capital, but describes, in summary form, the principal elements of the presentation made by Mystic Capital to our Board of Directors on January 29, 2004. The preparation of a fairness opinion involves various determinations as to the most appropriate and relevant methods of financial analysis and the application of these methods to the particular circumstances. Therefore, such an opinion is not readily susceptible to summary description. Each of the analyses conducted by Mystic Capital was carried out in order to provide a different perspective on

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the transaction and add to the total mix of information available. Mystic Capital did not form a conclusion as to whether any individual analysis, considered in isolation, supported or failed to support an opinion as to fairness from a financial point of view. Rather, in reaching its conclusion, Mystic Capital considered the results of the analyses in light of each other and ultimately reached its opinion based on the results of all analyses taken as a whole. Mystic Capital did not place particular reliance or weight on any individual analysis, but instead concluded that its analyses, taken as a whole, supported its determination. Accordingly, notwithstanding the separate factors summarized below, Mystic Capital believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by it, without considering all analyses and factors, could create an incomplete or misleading view of the evaluation process underlying its opinion.

        In performing its analyses, Mystic Capital made numerous assumptions with respect to industry performance, general business, economic and market conditions and other matters, many of which are beyond our control and the control of Life Quotes. The projections and other information used in the analyses performed by Mystic Capital are not necessarily indicative of actual values or future results, which may be significantly more or less favorable than suggested by the projections and other information used in the analyses, and the results of such analyses.

        Mystic Capital valued Life Quotes using three different valuation methodologies. The first two methods are commonly used to value business enterprises and include the price/earnings method and the capitalization of earnings method. A third method, which was developed specifically for valuing insurance agencies, was also used and is referred to as the combination method.

        In addition, a fourth valuation methodology, a Net Present Value Analysis, or NPV, was performed to confirm the results obtained pursuant to the three methodologies described aboves. The NPV was not used to determine the midpoint value, but rather as a comparative valuation method.

        The price/earnings method of valuation attempts to determine the value of an agency's book of business, as of the date of valuation, by multiplying sustainable, pre-tax profits by an average price/earnings ratio of comparable publicly held insurance brokers. The theory is that public brokers calculate what a potential acquisition may be worth to them based on this kind of analysis. This average P/E ratio is then usually discounted (rarely given a premium), as public brokers will normally not tolerate any potential dilution in their firm's stock values. This discount represents the degree of relative risk that a particular firm adds to the equation over and above the broker's own day-to-day risk of doing business.

        The straight capitalization of earnings before taxes method of valuation divides pro forma, pre-tax income by a rate of return requirement composed of an investor's "risk free" rate (that one could reasonably expect from such safe investments as U.S. Government Bonds) and an additional risk-adjusted rate of return for investing in the retail insurance industry, and specifically in Life Quotes, as compared to alternatives.

        The combination method of valuation rests on the basic premise of professional valuations for investors in agencies of this size, be they internal or external, where the option to buy a firm needs to be justified on an investment return within 5.0 to 7.0 years based upon comparable sized acquisitions in the same geographic territory. This method uses inherent risk in order to determine where, within this range, a particular agency is valued based upon a multiple of pro forma earnings.

        The Mystic Capital Opinion is based on business, economic, market, and other conditions as they existed on December 31, 2003, to the extent it was able to analyze such conditions. Based upon Mystic Capital's investigation and analysis, and subject to the foregoing qualifications, assumptions, and limitations, it is Mystic Capital's opinion as of December 31, 2003, that the acquisition and consideration to be paid by us is fair from a financial point of view to our stockholders. In rendering

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this opinion, Mystic Capital analyzed the amount to be paid to the sellers and the terms of such payments relative to a valuation of assets to be received by us.

Fees

        Pursuant to the terms of an engagement letter dated as of October 22, 2003 between us and Mystic Capital, we have paid Mystic Capital a cash fee of $12,000. Additionally, Mystic Capital earned $25,000 in conjunction with certain due diligence procedures that were performed in connection with the acquisition. We have also agreed to reimburse Mystic Capital for reasonable out-of-pocket expenses incurred in connection with its engagement and to indemnify Mystic Capital and certain related persons against certain liabilities in connection with its engagement, including liabilities under the federal securities laws. The terms of the fee arrangement with Mystic Capital, which we and Mystic Capital believe are customary in transactions of this nature, were negotiated at arm's length between us and Mystic Capital, and our Board of Directors was aware of such arrangement.

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THE ASSET PURCHASE AGREEMENT

        The following is a discussion of the material terms of the asset purchase agreement. The full text of the asset purchase agreement is attached as Annex A-2 hereto and is included as part of this proxy statement. You are encouraged to read the entire asset purchase agreement carefully.

Assets To Be Acquired

        The asset purchase agreement provides that we will purchase, free and clear of all liens, all right, title and interest in and to substantially all of the assets of Life Quotes, including the following assets:


We will not acquire, and Life Quotes will not transfer to us certain specified assets, including certain artwork and cash on hand.

        Income and revenues from Life Quotes' business will be allocated such that amounts earned prior to the effective date of the acquisition, January 31, 2004, will be allocated to Life Quotes, and amounts earned after the effective date will be allocated to us. For example, commissions paid on an insurance carrier's commission statements covering the period prior to the effective date belong to Life Quotes, even if payment is received after the effective date, and commissions paid on an insurance carrier's commission statements covering the period after the effective date belong to us regardless of when payment is actually received. Similarly, costs and expenses of Life Quotes' business will be allocated such that costs and expenses incurred prior to the effective date will be allocated to Life Quotes, and costs and expenses incurred after the effective date will be allocated to us. For example, expenses for advertising that is aired or run prior to the effective date will be borne by Life Quotes regardless of the date of the vendor's invoice or when payment is made, and expenses for advertising that is aired or run after the effective date will be borne by us regardless of the date of the vendor's invoice or when

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payment is made. In each case, amounts relating to periods that overlap the effective date will be pro rated based on the number of days in such period before and after the effective date. On the closing date, we or Life Quotes, as applicable, will make a payment to the other for a settlement of this allocation of income, revenue, costs, and expenses during the period between the effective date and the closing date.

Assumed Liabilities

        As partial consideration for the assets purchased, we will assume as of the effective date, but subject to the closing, the following liabilities of Life Quotes:

We will not assume any other liabilities of Life Quotes. In particular, we will not assume:


Purchase Price

        We will acquire substantially all of the assets of Life Quotes in exchange for the assumption of certain Life Quotes liabilities and payment of $13,395,000 in cash. Of such cash, at closing, $13,045,000 will be paid to Life Quotes and $350,000 will be deposited with an escrow agent in accordance with an escrow agreement. Under the escrow agreement, within thirty days after the one year anniversary of the closing date, we will deliver to Life Quotes a statement stating the amount of accounts receivable arising out of the conduct of Life Quotes' business that we collected in such one year period. If the amount of accounts receivable exceeds $2,450,000, then the entire $350,000 placed in escrow will be paid to Life Quotes. However, if the amount of accounts receivable is less than $2,450,000, then the difference will be paid to us from the escrowed cash, and the remainder will be paid to Life Quotes. If the shortfall exceeds $350,000, we will be paid the entire escrowed amount but will not be able to recover any additional sums from Life Quotes or Kenneth L. Manley.

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Closing

        The acquisition will close on a date to be designated by us and Life Quotes after the satisfaction or waiver of the conditions described below, but no later than April 1, 2004, unless extended. We may extend the closing date to no later than August 1, 2004, but will be required to pay Life Quotes interest on $18,395,000 at the rate of 4.5% per annum for the period from April 1, 2004 to the date the closing occurs, and will also be required to pay Life Quotes $5,000 per week for the services of Kenneth L. Manley for the period from April 1, 2004 to the date the closing occurs. If the closing has not occurred by April 1, 2004 (or August 1, 2004, if we extend the closing date), then the agreement will terminate, subject to the survival of certain of the rights and obligations discussed below. We have agreed with Life Quotes to extend the closing to a date no later than August 1, 2004.

Representations And Warranties

        The asset purchase agreement contains customary representations and warranties by Life Quotes and Kenneth L. Manley to us regarding aspects of Life Quotes' assets, business, and financial condition, including as to the following:

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        We also provided customary representations and warranties to Life Quotes and Kenneth L. Manley, including as to the following:

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Conditions To Closing

        Our and Life Quotes' respective obligations to close the proposed acquisition are subject to the satisfaction or waiver of the following conditions:

        Our obligations to close the proposed acquisition are also subject to the satisfaction or waiver of certain conditions, including the following:

        Life Quotes' and Kenneth L. Manley's obligations to close the proposed acquisition are also subject to the satisfaction or waiver of certain conditions, including the following:

        If any of the closing conditions are waived, we will consider the facts and circumstances at that time and make a determination as to whether a resolicitation of proxies from our stockholders is appropriate. No determination can be made at this time as to which, if any, of the closing conditions are likely to be waived by us or Life Quotes.

Covenants

        The asset purchase agreement also contains covenants by the parties. Prior to the closing, Life Quotes and Kenneth L. Manley must:

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Prior to the closing, we must complete our due diligence review as soon as reasonably practicable.

Employee Matters

        We may, but are under no obligation to, extend offers of employment to the employees of the Life Quotes business, on terms and conditions as we may determine. Employees who accept our employment offer will become our employees effective on the closing date. Life Quotes has agreed not to discourage any individuals who are offered such employment from accepting. In addition, we have agreed to use our reasonable best efforts, from and after the closing date, to offer certain employees of Life Quotes who we hire options to purchase an aggregate of 300,000 shares of our common stock. Such stock options will vest over a three-year period on terms similar to those terms offered to other of our employees.

Agreements Regarding Kenneth L. Manley

        Kenneth L. Manley has agreed to assist us with the day-to-day operation of the Life Quotes business for a period of one month after the closing. For an additional three months after such one month period, Mr. Manley will, if we request, consult with us regarding the Life Quotes business for such things as procuring licenses and making filings, and assisting with marketing and advertising. Mr. Manley will not be required to devote more than 20% of his time to such consulting, and Mr. Manley will not be entitled to any additional compensation for his assistance or consulting (however, we will reimburse him for expenses).

Expenses

        The costs and expenses of Life Quotes' audited financial statements will be borne equally by Life Quotes and us. We will bear the costs of preparing our own audited financial statements using the Life Quotes financial statements. We will bear any sales or use taxes arising in connection with the closing and our acquisition of the assets. Except for the foregoing, we and Life Quotes will each pay our own expenses.

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Indemnification

        Life Quotes and Kenneth L. Manley will indemnify and hold harmless us and our officers, shareholders, directors, employees, agents, representatives and affiliates from and against all losses that each incurs arising out of or resulting from:

        We are obligated to indemnify and hold harmless Life Quotes and its shareholders, directors, officers, employees, agents, and affiliates from and against all losses that each incurs arising out of or resulting from:

        The maximum obligation of Life Quotes and Kenneth L. Manley under these indemnification provisions is the aggregate purchase price we are paying under the asset purchase agreement and the real property purchase agreement. Indemnity obligations will be reduced for any insurance received and claims for indemnification may not be made until the aggregate amount of all such claims exceeds $5,000.

Amendment

        The asset purchase agreement may only be amended in a written document signed by all of the parties thereto.

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THE STOCK PURCHASE AGREEMENT

        The following is a discussion of the material terms of the stock purchase agreement. The full text of the stock purchase agreement is attached as Annex A-3 hereto, and is included as part of this proxy statement. You are encouraged to read the entire stock purchase agreement carefully.

Issuance

        We have agreed to issue and sell to Zions, and Zions has agreed to purchase, 2,363,636 shares of our common stock, which includes an equal number of shares of our preferred share purchase rights, at an aggregate purchase price of $13,000,000. The closing of the issuance and sale of such common stock will occur on the same date as the closing of the transactions under the asset purchase agreement and the real property purchase agreement.

Representations and Warranties

        We made customary representations and warranties to Zions in the stock purchase agreement, including as to the following:

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        Zions also made customary representations and warranties to us in the stock purchase agreement, including as to the following:

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Conditions To Closing

        Zions' obligations to purchase the stock it proposes to purchase are subject to the satisfaction or waiver of certain conditions, including the following:

        Our obligations to close the issuance of stock to Zions are also subject to the satisfaction or waiver of certain conditions, including the following:

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Indemnification

        In the event that Zions suffers any loss or claim as a result our breach of (or a third person alleging facts that, if true, would mean we have breached) any of our representations, warranties and covenants contained the stock purchase agreement or our actions or failure to act (including statements, actions or omissions made or information provided by us, our agents, employees, advisors, representatives or the Board of Directors) in connection with or relating to the stock purchase agreement or the investor rights agreement, then we will indemnify Zions from and against the loss or claim Zions may suffer through and after the date of such claim for indemnification.

        The maximum obligation of ours under the indemnification provisions is the purchase price for the stock we are issuing. Claims for indemnification may not be made until the aggregate amount of all such claims exceeds $25,000.

Termination

        The stock purchase agreement may be terminated at any time prior to the Closing:

Covenants

        We have agreed that, between the date of the stock purchase agreement and the closing, we:

Amendment

        The stock purchase agreement may be amended and the observance of any term of the stock purchase agreement may be waived only with the written consent of us and Zions.

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OTHER AGREEMENTS

Real Property Purchase Agreement

        The following is a discussion of the material terms of the real property purchase agreement. The full text of the real property purchase agreement is attached as Annex A-4 hereto, and is included as part of this proxy statement. You are encouraged to read the entire real property purchase agreement carefully.

        Under the real property purchase agreement, we have agreed to purchase from The Kenneth L. Manley Revocable Trust dated as of June 10, 1987, an affiliate of the sole stockholder of Life Quotes, certain property in Evergreen, Colorado that is used by Life Quotes in its business. The purchase price for this property is $5,000,000. The closing of such purchase will be simultaneous with the closing of the asset purchase agreement. We have thirty days from the date the real property purchase agreement was executed to conduct a due diligence evaluation of such property. If, during such period, we determine that our evaluation reveals any matters or any conditions for which the repair or remediation would cost, individually or in the aggregate, in excess of $50,000, we may terminate the real property purchase agreement. We and Mr. Manley each provided customary representations, warranties, and covenants with respect to a purchase of real estate under the real property purchase agreement, and we each have customary conditions to closing.

Investor Rights Agreement

        The following is a discussion of the material terms of the investor rights agreement. The full text of the investor rights agreement is attached as Annex A-5 hereto, and is included as part of this proxy statement. You are encouraged to read the entire investor rights agreement carefully.

        The holders of 50% or more of the stock we are issuing to Zions (including any shares issued as a dividend or distribution thereon), or the registrable securities, may make up to three requests for us to register such stock under the Securities Act of 1933, or the Securities Act. Upon the making of such a request, we will notify the other holders of registrable securities and will use our commercially reasonable efforts to effect as soon as practicable thereafter the registration of the shares initially requested to be so registered and such additional shares as such other holders may request within 30 days of our notice. Such registrations are subject to certain limitations on the number of shares to be included in an underwritten offering pursuant to such registrations and on the timing of such registrations. The holders of 50% or more of the registrable securities may also request that we effect up to three additional registrations on Form S-3. Upon such requests, we will also notify other holders of registrable securities, and we will effect as soon as practicable thereafter the registration of the shares initially requested to be so registered and such additional shares as such other holders may request within 30 days of our notice, again subject to certain limitations. In addition to such demand registrations, the holders of the stock we are issuing to Zions will be able to include their shares in certain registrations we may propose to make. We will pay the expenses (other than underwriting discounts and commissions) incurred in connection with all such registrations. These registration rights will expire when Zions and other holders of registrable securities are eligible to sell all of such registrable securities pursuant to Rule 144(k) under the Securities Act.

        We also agreed that, for so long as Zions holds 40% of the shares of stock it purchases under the stock purchase agreement:

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        We agreed to maintain certain directors' and officers' liability insurance for the director nominated or appointed by Zions, and to indemnify and hold harmless such director to the same extent as all of our other directors.

        Zions has agreed that, without the consent of a majority of our Board of Directors, it and its affiliates will not, prior to the first anniversary of the closing date:

        In addition, Robert S. Bland and William V. Thoms agreed that, for so long as Zions holds 40% of the shares of stock it purchases under the stock purchase agreement, they will vote for the Zions nominee to our Board of Directors and, if either proposes to sell any of their Quotesmith.com common stock, subject to certain exceptions, they will afford Zions the right to participate proportionately in such sale.

        Mr. Bland and Mr. Thoms also granted to Zions, and Zions granted to us, Mr. Bland and Mr. Thoms, a right of first refusal with respect to certain transfers of their shares of common stock.

Non-Competition Agreement with Kenneth L. Manley

        Under a proposed non-competition agreement between Kenneth L. Manley and us to be executed on closing of the acquisition of the Life Quotes assets, Mr. Manley will agree that, for three years, he will not:

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Agency Agreement with Kenneth L. Manley

        Notwithstanding the non-competition agreement, under the asset purchase agreement and a proposed agency agreement among us, our wholly-owned subsidiary and Kenneth L. Manley to be executed on closing of the acquisition of the Life Quotes assets, Mr. Manley, his spouse and children, and Life Quotes will be permitted to sell life insurance products, provided that they place such products through us as our agent and such placements do not exceed $2.0 million in annual first year commissionable premium (increased annually based on the rate of inflation). In addition, Mr. Manley, his spouse and children, and Life Quotes will agree in the proposed agency agreement to non-competition provisions substantially similar to those described above during the term of the agency agreement and, unless the proposed agency agreement is terminated by us other than for cause, the three-year period beginning on the later to occur of the end of the term of the non-competition agreement and termination of the proposed agency agreement. The term of the proposed agency agreement will initially be for three years and thereafter will automatically extend for additional one-year periods unless earlier terminated by us for cause, as defined in the agreement, or by any party after the initial three year term on thirty days' prior notice.

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OUR BUSINESS

        We are an insurance agency and brokerage headquartered in Darien, Illinois. We own and operate a comprehensive online consumer insurance information service, accessible at www.insure.com, which caters to the needs of self-directed insurance shoppers. Since our inception in 1984, we have been continuously developing a proprietary and comprehensive insurance price comparison and order-entry system that provides instant quotes from over 200 insurance companies for numerous life and health insurance products. We use this database to provide customers with a large array of comparative life and health insurance quotes online, over the phone or by mail, and we allow the customer to purchase insurance from the company of their choice either online or over the phone with our licensed insurance customer service staff. Our website also provides insurance information and decision-making tools, along with access to other forms of personal insurance, such as auto, homeowners, renters, long-term care and travel insurance through various partners. We generate revenues from the receipt of commissions and fees paid by various sources, that are tied directly to the volume of insurance sales or traffic that we produce. We conduct our insurance agency and brokerage operations primarily using salaried, non-commissioned personnel and we generate prospective customer interest using traditional direct response advertising methods conducted primarily offline.

        For the seven-year period ended December 31, 2003, we have spent a total of $57.3 million in direct-to-consumer advertising and have sold approximately 133,000 new policies.

        In December 2001, we acquired selected assets of Insurance News Network, LLC, including its content-rich consumer information Web site, www.insure.com, which was regularly among the top five most visited insurance sites on the Internet. Insure.com provides insurance-related information and decision-making tools, along with library of thousands of insurance articles that are well organized and served up in an easy-to-navigate format. This information has been integrated with our insurance quoting services.

Industry Background

        The insurance market in the United States represents over $1 trillion in annual paid premiums. Insurance products are widely held by households and businesses. The United States insurance market is broadly divided into two categories: life and health insurance and property and casualty insurance. Over 4,000 insurance companies distribute their products through a network of agents and brokers or sell directly to consumers. There are approximately one million individuals licensed as agents and brokers to sell insurance in the United States. A variety of distribution systems have evolved, including "captive" one-company agents and independent agents and brokers that typically represent only two to five insurance companies.

        There are numerous challenges to the informed purchase and delivery of insurance products. Some of these challenges are due to the specialized nature of insurance products and other challenges result from the way in which insurance has been traditionally distributed.

        These challenges include:

        Fragmented delivery.    Insurance products are available from captive agents, independent agents and direct distribution channels as well as new entrants, including banks and other financial institutions. Because of this fragmentation, there has been no single source of policy coverage and pricing information from which a consumer can obtain unbiased and complete information.

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        Quantity and variation of products.    Insurance policies vary by type of insurance product, underwriting guidelines, insurance company, jurisdiction and the particular characteristics and preferences of the consumer. This creates a complex pricing structure that is not readily understandable or comparable without the use of technology.

        Information-intensive underwriting process.    The underwriting process requires consumers to submit, and insurance companies to collect, large amounts of individualized and personal information. This process is difficult, time consuming and, if not accurately completed, will delay the approval of a policy.

        Negative consumer perception.    Consumers often believe that they paid too much for their insurance and were not properly informed by insurance agents. Face-to-face contact with an insurance agent may convey the sense of a high-pressure sales environment with a lack of unbiased information.

        Misalignment of interests between insurance agents and consumers.    Commission-based insurance agents represent only a limited number of insurance companies. Accordingly, they are compensated to promote and sell a limited range of products, which is in direct conflict with the consumer's need to obtain insurance at the lowest price.

        Inconvenient and time-consuming purchase.    Researching policy coverage, contacting competing insurance companies, collecting information and obtaining insurance quotes require large blocks of time usually during regular working hours. Consumers are often unable to shop for insurance on their own time and from the convenience of their own home.

        Distribution of insurance through traditional agent and broker sales forces is expensive and inefficient for insurance companies. Traditional agency distribution methods have high fixed costs associated with establishing and maintaining numerous branch and local offices, high commission structures, recurring training costs and high agent turnover. In addition, insurance companies often do not target all segments of the population because of the inability to profitably serve these segments through traditional distribution channels.

        The Internet has emerged as a global medium for communication, information and commerce. The Internet possesses a number of unique characteristics that differentiate it from traditional media and other methods of commerce, including:

        As a result of these unique characteristics and the Internet's growing adoption rate, businesses have an enormous opportunity to conduct commerce over the Internet. The Internet gives companies the opportunity to develop one-to-one relationships with consumers worldwide without having to make the significant investments to build and manage a local market presence or develop the printing and mailing capabilities associated with traditional direct marketing activities.

        A new category of Internet-based electronic service providers has emerged that offers a focused range of services with special emphasis on providing relevant content, information and transaction

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capabilities. Recent examples include companies operating as online providers of mortgages, online securities brokers and automobile referral services. These consumer-focused, one-stop, information-based destinations provide enhanced, high margin services by acting as independent intermediaries that facilitate interaction and transaction flow between buyers and sellers. Consumers benefit because they are able to obtain value-added information services and transaction capabilities on their own time schedule. Sellers benefit because they are able to deliver targeted offerings more effectively to consumers.

        The growing acceptance of the Internet and electronic commerce presents a significant opportunity for the insurance industry by allowing consumers to more efficiently and effectively research and transact with insurance companies. The fragmentation of the insurance industry and the significant price and product variation has led consumers to seek alternative means of purchase and insurance companies to seek alternative means of distribution. We believe that the vast information sharing and communications power of the Internet will significantly improve the insurance industry for both consumers and insurance companies.

        Characteristics of the insurance product that make it particularly well suited for delivery over the Internet include:


        Many companies are trying to address the online insurance opportunity. Some companies have created "lead referral" Web sites for the purpose of capturing consumer name and address information to be forwarded, as a prospective sales lead, to a specified insurance company or its traditional sales force. Many of these Web sites are paid up-front referral fees, are aligned with a limited number of insurance companies and often do not quote many of the lowest priced insurance policies. Consumers are often still required to complete their purchase through a commissioned salesperson. Additionally, these companies typically do not offer any personalized customer service or insurance fulfillment capabilities and, therefore, do not offer a complete quote-to-policy delivery insurance solution.

        Existing insurance companies and their agents and brokers have created Web sites to sell their insurance products online as an alternative to their traditional sales activities. Some companies have created Web sites with the primary purpose of creating an insurance sale online for a single insurance company or group of insurance companies with little or no comparative overview of prices. These companies perpetuate the fragmentation in the industry by not offering a comprehensive database of pricing and coverage information.

        As a result of the shortcomings inherent in the online lead referral and single company approaches, we believe there exists a significant market opportunity for the emergence of a large-scale, comprehensive and unbiased Internet-based insurance service. Self-directed consumers will be attracted

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to the broadest selection of insurance companies and a compelling value proposition based upon price, time and transaction fulfillment.

The Insure.com Solution

        We believe that Insure.com is the most comprehensive Internet-based insurance service available. Our service enables consumers and business owners to obtain instant quotes from over 200 insurance companies for several different life, health, auto and home insurance products, and we guarantee the accuracy of every quote. Customers who prefer an offline experience can receive comparative life and health insurance quotes from our licensed insurance professionals and can complete an insurance application over the phone. Our web site provides consumers and business owners with insurance-related information, and decision-making tools. Combining the reach and efficiency of the Internet with our proprietary database and industry expertise developed over the past 20 years, we provide a complete "quote to policy delivery" insurance solution.

        We have created a model that addresses the challenges faced by traditional insurance distribution methods in a manner that offers significant benefits to both consumers and insurance companies. The Insure.com model allows consumers to:

        The Insure.com solution provides the following principal advantages to both consumers and insurance companies:

        Comprehensive Source of Insurance Information and Products.    Using our easy-to-navigate web site, consumers can access insurance-related information, and decision-making tools, as well as a library of thousands of insurance articles. Our Web site also provides insurance quotes from over 200 insurance companies across several types of insurance including individual term life, private passenger automobile, dental, individual and family medical, long-term care, disability, small group medical, and "no exam" whole life. We believe we offer consumers access to the largest, most complete repository of comparative information on insurance products, insurance pricing and insurance providers. We empower consumers with relevant current pricing knowledge, coverage information and independent rating information so consumers can make informed buying decisions.

        Guaranteed-Accurate Instant Quotes.    Over the past 20 years, we have developed what we believe to be the most complete, regularly updated database used to determine insurance quotes. The ability to obtain instant quotes on the Internet is the first priority for consumers purchasing insurance online, according to a recent survey by an independent research group. We obtain and regularly update all of our pricing, underwriting and policy coverage information contained in our databases directly from the insurance company to ensure accuracy. We offer consumers a unique $500 cash reward guarantee that we provide an accurate quote. In addition, we also offer a $500 cash reward guarantee that we provide the lowest price quote available with respect to term life and automobile insurance policies. These Quotesmith.com guarantees are unmatched by any competitor.

        Consumer in Control.    We put consumers in control of their insurance purchase decisions by providing them with the ability to efficiently search, analyze and compare prices of insurance products from multiple insurance companies in complete privacy, on their own time and free from the pressure to buy associated with traditional salespeople. Consumers choose from what we believe is the largest selection of insurance companies using their own preferences regarding price and insurance company

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rating. Consumers are able to purchase insurance directly through us without ever speaking to a commissioned salesperson if they so choose.

        Convenience.    Consumers who use Insure.com no longer need to contact different insurance companies or salespeople, one by one, in order to gather information to make educated decisions. Unlike traditional agents who only recommend and promote a limited number of insurance companies' policies, we provide real time access to a large database of over 200 insurance companies' products. Our comparison service presents users with a comprehensive listing of insurance quotes, ranked by price. We believe that this large array of available insurance providers in a single destination saves consumers time and effort in searching for and obtaining the most suitable coverage.

        Quote to Policy Delivery Support.    Consumers purchase insurance directly through us. Unlike insurance lead referral services, at Quotesmith.com we do not abandon the consumer once the insurance company has been selected, but continue to provide value-added support and service throughout the insurance purchase process. We facilitate this process by:

        Focus on Customer Service.    Customer service is both our foundation and a strategic priority. We provide a high level of customer service throughout the application process and aim to eliminate consumer dissatisfaction and frustration. Our customer service staff has an average of approximately 10 years of experience in the insurance industry.

        We implement our customer service objectives by:

        Licensed National Insurance Agency.    Unlike traditional insurance agents who are often only licensed in one or a limited number of states, our company and/or certain of its employees are licensed to distribute insurance throughout the United States. This allows us to process and offer insurance policies to consumers nationwide. Over a 20 year period, we have established vital information-contributor relationships with over 200 insurance companies, of which we are currently appointed as an authorized agent by approximately 180 insurance companies.

        User Friendly System.    At our web site, www.insure.com, consumers can access our Internet-based services, research policy options and initiate purchase requests 24 hours a day, 7 days a week. Our easy to use web site is designed for fast viewing and general compatibility with all commonly used browsers. Callers to either the Insure.com or the Life Quotes call centers can receive quotes, discuss policy options with our licensed insurance agents and initiate purchase requests over the telephone.

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Our Strategy

        Our strategy is to be the leading service for all insurance needs of individuals. The key elements of our strategy include:

        Continue to Build the Insure.com Brand.    We intend to pursue a cost-effective marketing strategy designed to promote our Insure.com brand and consumer awareness of the benefits of researching and buying insurance through us.

        Broaden our service to provide the customer with the ability to receive quotes and buy either online or through a telephone based sales staff.    During the last quarter of 2002 and the first quarter of 2003, we launched our proprietary online application technology for most of our term life sales. While providing a very efficient and cost effective method of fulfillment, it is our belief that not providing a personal, telephone based option for customers restricted the number of sales we could make to potential buyers. During the fourth quarter of 2003, we opened a small quote-by phone facility along with the ability to fill out an application over the phone with a licensed insurance professional in our Darien, Illinois operations center. We also entered into an agreement with Life Quotes, a telephone based life insurance brokerage, to provide these services to customers responding to an 800 number in new advertising that we issued during the fourth quarter of 2003. We intend for our acquisition of substantially all of the assets of Life Quotes and the related real estate to provide a telephone based complement to our online sales model for term life insurance.

        Expand Number of Participating Insurance Companies.    We intend to increase the number of participating insurance companies in our service. A significant factor in our strategy has been our ability to demonstrate to an increasing number of leading insurance companies that we can generate incremental revenues for them within their existing pricing structures. We plan to extend this ability to broaden our relationships with major insurance companies based on reputation, quality and national presence in order to expand our insurance product offerings.

        Leverage Customer Base.    We have expanded our insurance product offerings and believe there is significant opportunity to leverage our existing customer base and provide new products to them without significant customer acquisition costs. We plan to tailor our marketing efforts based on consumer profiles contained in our database of existing customers. We also believe that the content acquired in the purchase of the Insure.com Web site will continue to provide us with a permanent new customer gateway, thereby allowing us to reduce our future customer acquisition costs and our reliance on direct-to-consumer advertising as our primary source of new customers.

        Strengthen and Pursue Strategic Relationships and Agreements.    We believe that strategic joint ventures and licensing arrangements are attractive methods of expansion, as they will enable us to combine our expertise in Internet-based insurance offerings with other brand names, complementary services or technology. We plan to pursue additional relationships and agreements in the future. In addition, we may seek to acquire additional complementary technologies or businesses.

        Continue to Focus on Customer Service.    We provide insurance products and services for consumers from initial evaluation through policy delivery. In order to provide the highest level of service throughout the insurance buying process, we will monitor feedback from consumers and add new features designed to increase customer usage and loyalty.

Our Business Model

        We have created a model that enables consumers to research, shop for and purchase insurance in a manner that we believe is simpler, faster and more convenient than traditional methods. Even if the customer prefers to transact this business by phone, our database provides almost instant quotes from our database of over 200 insurance companies, and our online application technology provides an

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efficient order entry platform. We provide a complete "quote to policy delivery" insurance solution. Our model:

        We employ a team approach to customer service. If a customer wishes to initiate an insurance application request or obtain information concerning an application already in process, each and every customer service representative is able to provide assistance.

        Our process is comprised of four primary stages.

        Initial Information Evaluation.    Consumers visit our user-friendly web site or speak with a licensed insurance professional to access our comprehensive database of insurance policy price rates, underwriting guidelines, policy coverage and exclusion information, and financial stability ratings of over 200 insurance companies. To help consumers understand the underwriting process, our web site provides information and helpful tips on how the underwriting process works.

        Search, Retrieval and Comparison.    Online consumers can quickly obtain a customized cost comparison report in a single search by completing a brief and anonymous questionnaire at the start of the online session. Customers who call in or request a quote by mail will receive the same information. Each anonymous consumer inquiry triggers a proprietary cost search and comparison algorithm that sorts through a database of thousands of insurance options that is updated daily. The search result, delivered in seconds, is a comprehensive comparison of insurance policies ranked by the lowest price that matches the consumer's criteria. Consumers can then click to view (or callers can discuss with a licensed insurance professional):

        Application Processing.    If a consumer desires to purchase a policy, the consumer selects an insurance company and policy, and then fills out an application while online or on the phone with a licensed insurance professional. We offer online applications to accelerate the underwriting process for the most popular of the insurance companies within our term life offerings and have expanded into other product lines. After the consumer completes, receives via download or mail and signs the completed online application, the consumer returns the application to us. We then submit the application to the insurance company for underwriting on behalf of the consumer. We provide toll-free support during business hours to assist the consumer in completing the application.

        Underwriting.    During the underwriting process, we regularly track the progress of the consumer's outstanding items. We also assist the insurance company by arranging for a paramedical examination

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and facilitate the collection of any other outside information needed. We obtain status reports from the insurance company at least every ten days regarding the application and regularly communicate this information to the consumer. We review all policies for accuracy prior to delivery to the consumer.

        If an insurance company declines to issue the policy or issues a counter offer at a higher premium, we send a letter to the consumer stating the reasons that the policy is not being issued as applied for. In this instance, we also assist the consumer in finding suitable alternative coverage wherever possible and whenever asked.

        Once a policy has been issued and been paid for by the consumer, we receive a commission from the insurance company. We do not charge consumers for using our Quotesmith.com technology and do not currently sell banner advertising at our Insure.com web site.

Insurance Products

        Quotesmith.com historically offered quote and policy-related information regarding term life insurance. We now also offer instant quotes and related information on additional insurance products for both individuals and small businesses. Our current product offerings include:

        Individual term life.    This is life insurance coverage that has no cash value and continues for a fixed period of time such as 15, 20 or 25 years. We have been offering instant quotes and delivering term life policies since 1993.

        Private passenger automobile.    This provides collision and liability insurance to individuals for private cars and vehicles. We provide a multi-company auto insurance price comparison service using third-party technology.

        Homeowner's.    This provides insurance against fire and other perils for personal residences. We provide this service using third-party technology.

        Dental.    This includes traditional indemnity insurance along with fixed discount plans. We provide this service using third-party technology.

        Individual and family medical.    This is also known as comprehensive major medical insurance. We have been offering instant medical insurance quotes since 1998. Our offerings include traditional plans, PPOs and HMOs from Blue Cross and Blue Shield plans and other carriers.

        International travel medical.    This provides medical insurance for U.S. citizens traveling abroad and for foreign citizens traveling in the United States, as well as other risks associated with international travel. We currently provide a multi-company international medical and travel insurance price comparison service using third-party technology.

        Small group medical.    Small group medical insurance are those comprehensive medical plans offered to firms that employ from 2 to 100 people. We began offering instant quotes from, and tracking traditional plans of, PPOs, HMOs and Blue Cross and Blue Shield plans in the second quarter of 1999.

        "No-exam" life.    This provides insurance for persons who want life insurance coverage without a paramedical examination. We offer instant quotes using third party technology.

        Renters Insurance.    This provides insurance against the perils of fire, theft and windstorm for renters. We provide instant quotes using third party technology.

        We constantly evaluate our offerings based on a number of factors, including market acceptance and profitability. We may decide to add or delete lines of coverage at any time.

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Technology

        Proprietary Insurance Information Databases.    We maintain a proprietary database of premium rates and policy coverage information from over 200 insurance companies. We do not rely upon state insurance departments or any other regulatory agencies to obtain any insurance pricing information. Instead, we obtain and regularly update all of the pricing, underwriting and policy coverage information contained in our databases directly from each quoted insurance company. We obtain financial stability ratings from A.M. Best, Fitch, Inc., Moody's, Standard & Poor's and Weiss Ratings, Inc. and hold licenses to distribute the copyrighted rating from each of these ratings services. Our dedicated staff of full-time market reporters regularly contacts the insurance companies quoted on our service and monitors and updates our databases as market conditions warrant. Each business day we make hundreds of changes to our insurance database.

        Technology Systems.    Our systems for processing quotes, purchase requests, application progress tracking, customer notification and revenue recognition are highly automated and integrated. Customer service representatives equipped with online computer terminals can access a customer's account information from our database on demand. Our core technology systems use a combination of our own proprietary technologies and commercially available, licensed technologies. We have internally developed and enhanced our proprietary programs over a period of 20 years using scalable tools and platforms to allow us to rapidly expand our network and computing capacity.

        An internal programming and system administration staff supports our technology. In addition to supporting the systems, our staff continually enhances our software and hardware and develops new systems and services to better service our customers and business objectives.

        Server Hosting and Backup.    Our Web sites are hosted by InterNap Network Services in Chicago, Illinois. This grade "A" telecommunications data center provides redundant communications lines to the Internet backbone, emergency power backup, and security, as well as 24-hour monitoring and engineering support. In addition, we have implemented load balancing systems and our own redundant servers to provide for fault tolerance. These redundancies permit us to perform scheduled maintenance without taking our Web sites offline. Finally, tape backups are performed nightly to prevent a loss of data.

Marketing

        We attract new consumers and communicate the availability of new products and services primarily through direct response marketing methods. We have established ourselves as a leading Internet-based insurance brand through an offline marketing campaign consisting primarily of magazine advertisements, radio and direct mail. We employ in-house volume media buying and other strategies to minimize the expenses of broad-based advertising. Using our proprietary information processing systems and consumer database as well as other resources, we employ statistical analyses to measure the effectiveness and efficiency of our marketing efforts. In the past, Life Quotes has also advertised using traditional direct response marketing methods, primarily radio and print media advertisements. We plan to take advantage of the combined firms' advertising spending to reach the maximum number of potential customers for the lowest possible cost. We anticipate that certain synergies will occur from this combining of advertising budgets, such as the sale of health, auto and homeowners products to customers of Life Quotes, and better tem life customer penetration from the Insure.com advertising by offering a quote by phone option.

        We intend to aggressively pursue a marketing strategy designed to promote our Insure.com brand and consumer awareness of the benefits of buying insurance through us. We intend to target households and small businesses.

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        Our marketing strategy is to promote our brands and attract self-directed consumers to our web sites. Our marketing initiatives include:

Material Strategic Relationships and Agreements

        We selectively pursue strategic relationships and agreements to expand our access to online consumers, to build our brand name recognition and to expand our products and services with a variety of companies. Revenue associated with our agreements with strategic partners comprised approximately 18% of total revenue for the year ended December 31, 2003.

Competition

        We compete with online and traditional providers of insurance products. The market for selling insurance products over the Internet is new, rapidly evolving and intensely competitive. Current and new competitors may be able to launch new sites at a relatively low cost. There are a number of companies that either sell insurance online or provide lead referral services online.

        We believe that we are the most comprehensive Internet-based insurance service because we provide consumers complete quote to policy delivery insurance services, instant quotes from over 200 insurance companies for several different insurance products and the ability to buy online or over the phone. Our Internet-based, lead-referral competitors generally capture consumer name and address information to be forwarded, as a prospective sales lead, to a specified insurance company, without personalized customer service or fulfillment capabilities. Other Internet-based competitors have created Web sites as alternatives to their traditional sales activities and offer products from a single insurance company or a relatively small group of insurance companies with little or no comparative overview of prices. While we believe that our complete quote to policy delivery service offers a more comprehensive Internet-based insurance service solution than these competitors, we nonetheless expect to face intense competition from these other types of insurance services.

        We also face competition from the traditional distributors of insurance such as captive agents, independent brokers and agents and direct distributors of insurance. Insurance companies and distributors of insurance products are increasingly competing with banks, securities firms and mutual fund companies that sell insurance or alternative products to similar consumers.

        We potentially face competition from unanticipated alternatives to our insurance service from a number of large Internet companies and services that have expertise in developing online commerce and in facilitating Internet traffic. These potential competitors could choose to compete with us directly or indirectly through affiliations with other electronic commerce companies, including direct competitors. Other large companies with strong brand recognition, technical expertise and experience in Internet commerce could also seek to compete with us. Competition from these and other sources could harm our business, results of operations and financial condition.

        We believe that the principal competitive factors in our markets are price, brand recognition, web site useability, ability to fulfill customer purchase requests, customer service, reliability of delivery, ease of use, and technical expertise and capabilities. Many of our current and potential competitors, including Internet directories and search engines and traditional insurance agents and brokers, have longer operating histories, larger consumer bases, greater brand recognition and significantly greater

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financial, marketing, technical and other resources than us. Several of these competitors may be able to secure products and services on more favorable terms than we can obtain. In addition, many of these competitors may be able to devote significantly greater resources than us for developing Web sites and systems, marketing and promotional campaigns, attracting traffic to their Web sites and attracting and retaining key employees.

        Increased competition may result in reduced operating margins, loss of market share and damage to our brand. We cannot assure you that we will be able to compete successfully against current and future competitors or that competition will not harm our business, results of operations and financial condition.

Regulation

        The insurance industry and the marketers of insurance products are subject to extensive regulation by state governments and by the District of Columbia. This regulation extends to the operations of insurance companies, insurance agents and to our service.

        Our products are sold throughout the United States through licenses held by us and/or one of our employees, as is required by each state's insurance department. In general, state insurance laws establish supervisory agencies with broad administrative and supervisory powers to:

        Moreover, existing state insurance regulations require that a firm, or individual within that firm, must be licensed 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—that are the subject 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 the application of these requirements to specific activities or transactions. We and/or many of our employees are currently licensed to sell insurance in every state and the District of Columbia. All interaction with customers is done through our licensed customer service staff. We do not permit any of our unlicensed personnel who occasionally have contact with customers to act as insurance agents. 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. However, we cannot assure you that a state insurance department will not make a determination that one or more of these activities constitute the

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solicitation of insurance and that personnel must be licensed. Such a determination could harm our business.

        We can give you no assurance that we would be deemed to be in compliance with all applicable insurance licensing requirements and marketing regulations of each jurisdiction in which we operate. Nor can we assure you that we do not need to obtain any additional licenses.

        The federal government 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 therefore the entities selling these products must be registered with the National Association of Securities Dealers, Inc. 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. We cannot assure you that we will be able to obtain these licenses.

        Further, we are subject to various federal laws and regulations affecting matters such as pensions, age and sex discrimination, financial services, securities and taxation. Congress recently passed legislation that provides for national licensing of insurance agents and brokers. The legislation provides an impetus for states to enact either uniform laws and regulations governing licensing of individuals and entities authorized to sell and solicit the purchase of insurance, as well as reciprocity laws and regulations governing the licensing of non resident individuals. This legislation and other future federal or state legislation could result in increased regulation of our business.

        The future regulation of insurance sales via the Internet as a part of the new and rapidly growing electronic commerce business sector is unclear. We believe that we are currently in compliance with all of these regulations. However, if additional state or federal regulations are adopted, they may have an adverse impact on us.

Employees

        As of December 31, 2003, we had 51 employees. We have never had a work stoppage. Our employees are not represented by a collective bargaining unit. We consider our relations with our employees to be good. Our future success will depend, in part, on our ability to continue to attract, integrate, retain and motivate highly qualified technical and managerial personnel, for whom competition is intense. Upon consummation of the acquisition of Life Quotes, we will add approximately 85 employees.

Properties

        Our executive, administrative and operating offices are located in approximately 19,000 square feet of leased office space in Darien, Illinois under a lease that expires on December 31, 2006. We believe that suitable office space will be available on commercially reasonable terms. The Life Quotes operation is based in a 43,000 square foot office building in Evergreen, Colorado, which is one the assets we would acquire at closing. There are no other tenants in the building, which has sufficient space to cover any anticipated expansion plans for the foreseeable future.

Legal Proceedings

        From time to time we have been, and expect to continue to be, subject to legal and regulatory proceedings and claims in the ordinary course of business. Legal and regulatory proceedings and claims may include claims of alleged infringement of third party intellectual property rights, notices from state regulators that we may have violated state regulations, and litigation instituted by dissatisfied policy holders. These claims, even if without merit, could result in the significant expenditure of our financial and managerial resources. We are not aware of any such claims that we believe will, individually or in the aggregate, materially affect our business, financial condition or results of operations.

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QUOTESMITH.COM FINANCIAL INFORMATION

        Included in this proxy statement are our audited financial statements as of December 31, 2003 and 2002 and for each of the three years in the period ended December 31, 2003.


QUOTESMITH.COM MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview and Critical Accounting Policies

        We generate revenues primarily from the receipt of commissions paid to us by insurance companies based upon the policies sold to consumers through our service. These revenues come in the form of first year, bonus and renewal commissions that vary by company and product. We recognize the full first year commission revenues on term life insurance after the insurance company approves the policy and accepts the initial premium payment. At the time revenue is recognized, an allowance is recorded based on historical information for estimated commissions that will not be received due to the non payment of installment first year premiums. We recognize commissions on all other lines of business after we receive notice that the insurance company has received payment of the related premium. First year commission revenues per policy can fluctuate due to changing premiums, commission rates, and types or amount of insurance sold. We receive bonuses based upon individual criteria set by insurance companies. We recognize bonus revenues when we receive notification from the insurance company of the bonus due to us. Bonus revenues are typically higher in the fourth quarter of our fiscal year due to the bonus system used by many life insurance companies. Revenues for renewal commissions are recognized after we receive notice that the insurance company has received payment for a renewal premium. Renewal commission rates are significantly less than first year commission rates and may not be offered by every insurance company. We also generate revenues from the receipt of fees paid by various sources that are tied directly to the volume of insurance sales or traffic that we produce for such third party entities. Our revenue recognition accounting policy has been applied to all periods presented in this proxy statement under the captions "Selected Financial and Other Data of Quotesmith.com" and "Unaudited Pro Forma Condensed Combined Financial Statements."

        The timing between when we submit a consumer's application for insurance to the insurance company and when we generate revenues has varied over time. The type of insurance product and the insurance company's backlog are the primary factors that impact the length of time between submitted applications and revenue recognition. Over the past three years, the time between application submission and revenue recognition has averaged approximately four months. Any changes in the amount of time between submitted application and revenue recognition, of which a significant part is not under our control, will create fluctuations in our operating results and could affect our business, operating results and financial condition.

        Operations expenses are comprised of both variable and semi variable expenses, including wages, benefits and expenses associated with processing insurance applications and maintaining our database and web sites. The historical lag between the time an application is submitted to the insurance companies and when we recognize revenues significantly impacts our operating results as most of our variable expenses are incurred prior to application submission.

        Selling and marketing expenses consist primarily of direct advertising costs. The costs of communicating the advertising are expensed in the period the advertising is communicated.

        We have established the 1997 Stock Option Plan, or the plan, to provide additional incentives to our employees, officers, and directors. Under the plan, an aggregate of 500,000 shares of Quotesmith.com common stock may be granted to participants in the plan. We account for stock option grants in accordance with Accounting Principles Board Opinion 25, "Accounting for Stock Issued to

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Employees" and related interpretations, and, accordingly, recognize no compensation expense for stock options granted to employees where the exercise price is equal to or greater than the market price at the date of the grant. Stock compensation accounting is discussed more fully in Notes 2 and 7 to the audited financial statements included elsewhere in this proxy statement.

        We previously acquired selected assets of Insurance News Network, LLC, including its Web site, www.insure.com. The Insure.com web site at that time comprised an insurance news organization consisting of consumer insurance news, information, and decision-making tools. The cost of the acquisition included $1.4 million in cash, the grant of 50,000 stock options with an estimated fair value of $82,000, and expenses of $79,000. The acquisition was recorded using the purchase method of accounting. Accordingly, the purchase price has been allocated to the assets acquired, intangible assets of $1,433,000 and furniture, equipment, and software of $128,000, based on the estimated fair values at the date of acquisition. Intangible assets are being amortized on a straight-line basis over three years.

        No income tax credits have been recognized relating to our tax loss carryforwards due to uncertainties relating to future taxable income.

Results of Operations

Comparison of Years Ended December 31, 2003 and 2002

Revenues

        Revenues decreased 10% to $9.7 million in 2003 from $10.8 million in 2002. This decrease is attributable to a 25% decrease in the number of policies sold, from 21,251 in 2002 to 15,856 in 2003. During the fourth quarter of 2002 and the first quarter of 2003, we implemented our online application technology for term life insurance business. While this technology streamlined the application process and eliminated the need to employ third party administrative firms to process applications on our behalf, leading to a significant reduction in operations expenses, we believe that many potential customers were unwilling to use this technology, possibly due in part to a reluctance to enter sensitive personal information online. We feel that this accounts for at least a significant portion of the decline in the number of policies sold in 2003, and has led us to provide quote and application facilities by phone. During the third quarter of 2003, we began calling some of our potential customers who started, but did not complete an on-line application. The result of these sample calls convinced us of the need for a call center that could call all customers with incomplete applications, as it became apparent that a significant number of them would buy a policy upon being called. It is our intention to have all of these potential customers called in the future. The decrease in policies sold was partially offset by a 21% increase in revenue per policy sold. In 2002, revenue per policy sold was $507. This figure increased to $614 in 2003, as we were able to obtain more favorable commission and bonus arrangements with some of our carriers. The additional life insurance revenue provided as a result of the Life Quotes acquisition may help us achieve higher production bonuses than some of our insurance carriers in the future, although the timing and amount of bonuses we receive are controlled by the amount of business we place with certain insurance carriers. There can be no assurance given that the Life Quotes acquisition will result in higher bonus revenues.

Expenses

        Selling and Marketing.    Selling and marketing expenses increased $1.8 million, or 63%, to $4.7 million in 2003 from $2.9 million in 2002. During 2003, we chose to increase marketing expenditures in order to support our new Insure.com brand name. As part of that increase, we placed advertisements on national radio in 2003, a strategy we had not employed in 2002. We were able to increase selling and marketing expenses because of the decrease in our operations expenses, described below. We also increased advertising spending during the year in an attempt to generate more leads and sales.

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        Operations.    Operations expense decreased 56% to $3.4 million in 2003 from $7.8 million in 2002, and decreased as a percentage of revenue from 72% in 2002 to 35% in 2003. As mentioned above, the development and launch of our online application and order fulfillment technology in late 2002 and early 2003 allowed us to discontinue the use of third party administrators to process and complete life insurance applications. Also, effective October 31, 2002, the separate Insure.com editorial office was closed and the positions were transferred to our headquarters location, resulting in cost savings. We were also able to staff our operations center in our Darien, Illinois headquarters facility with fewer people in 2003 than in 2002. In addition, as discussed in Note 9 to the audited financial statements included elsewhere in this proxy statement, expense in 2002 included $337,000 for the write off of computer software.

        General and Administrative.    General and administrative expenses increased 5% from $3.2 million in 2002 to $3.3 million in 2003, and increased from 30% of revenues in 2002 to 34% of revenues in 2003.

Interest Income, Net

        Interest income, net was $368,000 in 2003 compared to $359,000 in 2002. The components of interest income are as follows:

 
   Years ended December 31,
  
 
   2003
   2002
  
Interest income   $ 376,243   $ 372,677  
Interest expense     (8,290 )   (14,002 )
   
 
 
  Interest income, net   $ 367,953   $ 358,675  
   
 
 

        There were also net realized gains on the sale of securities of $93,000 in 2003. There were no securities sales in 2002.

Income Taxes (Credit)

        We had no income tax credit for 2003 and 2002 due to valuation allowances provided against net deferred tax assets.

Comparison of Years Ended December 31, 2002 and 2001

Revenues

        Revenues increased 22% to $10.8 million in 2002 from $8.9 million in 2001. This increase is attributable to a 5% increase in the number of policies sold, from 20,282 in 2001 to 21,251 in 2002, as well as a 16% increase in revenue per policy sold. In 2001, revenue per policy sold was $436. This figure increased to $507 in 2002.

Expenses

        Selling and Marketing.    Selling and marketing expenses decreased $4.1 million, or 59%, to $2.9 million in 2002 from $7.1 million in 2001. During 2002, we chose to continue the reduction in marketing expenditures that began in 2001, as we have been able to generate more revenue with less marketing expense. In 2002, we were able to reduce our marketing expense per policy sold (total selling and marketing costs divided by the number of new policy sales) by 61%, to $137 per policy sold in 2002 from $348 per policy sold in 2001.

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        Operations.    Operations expense increased 29% to $7.8 million in 2002 from $6.0 million in 2001, and increased as a percentage of revenue to 72% in 2002 from 68% in 2001. This increase resulted from the increased use of third party administrators to process and complete life insurance applications. There were also additional costs related to the maintenance and content development of the Insure.com website as a stand-alone operation for ten months in 2002 versus one month in 2001. Effective October 31, 2002, the Insure.com office was closed and the positions were transferred to our headquarters location. In addition, as discussed in Note 9 to the audited financial statements included elsewhere in this proxy statement, expense in 2002 included $337,000 for the write off of computer software.

        General and Administrative.    General and administrative expenses decreased 9% to $3.2 million in 2002 from $3.5 million in 2001, and decreased to 30% of revenues in 2002 from 40% of revenues in 2001. We reduced wages and payroll taxes by $858,000, but amortization of intangible assets increased $442,000 as a result of the acquisition of certain assets of Insurance News Network, LLC, on December 7, 2001.

Interest Income, Net

        Interest income, net was $359,000 in 2002 compared to $1.1 million in 2001. The components of interest income are as follows:

 
   Years ended December 31,
  
 
   2002
   2001
  
Interest income   $ 372,677   $ 1,094,747  
Interest expense     (14,002 )   (19,052 )
   
 
 
  Interest income, net   $ 358,675   $ 1,075,695  
   
 
 

        The decrease in net interest income is due primarily to a decrease in average invested assets in 2002, along with lower yields on fixed maturity investments.

Income Taxes (Credit)

        We had no income tax credit for 2002 and 2001 due to valuation allowances provided against net deferred tax assets.

Liquidity and Capital Resources

        We currently expect that the cash and fixed maturity investments of $15.2 million at December 31, 2003 will be sufficient to meet our anticipated cash requirements for at least the next 12 months, including the operations of the Life Quotes business subsequent to the effective date of the acquisition. However, the acquisition of substantially all of the assets of Life Quotes and the related real estate will be funded in large part by the proposed sale of approximately 2.4 million shares of our common stock to Zions, concurrent with the Life Quotes closing. The remainder of the acquisition will be funded from internal sources, although we may decide to obtain a mortgage loan on the building, depending on the terms and conditions available at the time.

        The timing and amounts of our working capital expenditures are difficult to predict, and if they vary materially, we may require additional financing. If we require additional equity financing for operations beyond the sale of shares to Zions, it may be dilutive to our stockholders and the equity securities issued in a subsequent offering may have rights or privileges senior to our common stock. If debt financing is available, it may require additional 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

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the scope of our marketing or operations, which could harm our business, results of operations and our financial condition.

        Our sources of funds will consist primarily from commissions and fee revenue generated from the sale of insurance products, investment income, and sales and maturity proceeds from our fixed maturity portfolio. The principal uses of funds are selling and marketing expenses, operations, general and administrative expenses, and acquisitions of furniture, equipment and software.

        Cash used in operating activities was approximately $770,000, $520,000 and $7.5 million in 2003, 2002 and 2001, respectively, as shown in our statements of cash flows contained in the audited financial statements elsewhere in this proxy statement. The decrease in cash used in 2003 and 2002, compared to the amount used in 2001, was primarily a result of lower operating losses.

        Cash used for investing activities totaling $247,000 in 2003 consisted of the purchase of fixed income investments in excess of investment maturities and sales of $182,000, and the purchase of fixed assets of $65,000. Cash used for investing activities totaling $658,000 in 2002 consisted of the purchase of fixed income investments in excess of maturities of $556,000 and the purchase of fixed assets of $102,000. Cash provided by investing activities totaling $8.5 million in 2001 consisted of net proceeds from the maturity and sale of investments totaling approximately $10.3 million, offset by purchases of fixed assets totaling $500,000 and purchases of intangibles in connection with the December 2001 Insurance News Network, LLC acquisition totaling $1.3 million.

        Cash provided by financing activities in 2003 resulted from the exercise of employee stock options totaling $103,000, partially offset by payments of a capital lease obligation of $49,000. Cash used in financing activities in 2002 and 2001, was primarily the result of our stock buy back. During 2002, we bought back approximately 446,000 shares at an average cost of $2.69 per share. During 2001, we bought back approximately 582,000 shares at an average cost of $2.12 per share. We did not buy back any shares of our common stock in 2003.

Cash Flow Obligations

        In the normal course of business, we enter into financing transactions, lease agreements, or other commitments. These commitments may obligate us to certain cash flows during future periods. The following table summarizes such obligations as of December 31, 2003.

 
   Payments due by Period
Contractual Obligations
   Total
   Less than 1
Year
   1-3 Years
   3-5 Years
   More than
5 Years
Long-term debt obligations     —     —     —   —   —
Capital lease obligations   $ 49,322   $ 49,322     —   —   —
Operating lease obligations   $ 835,212   $ 272,497   $ 562,715   —   —
Purchase obligations     —     —     —   —   —

Quantitative and Qualitative Disclosures about Market Risk

        The primary objective of our investment activities is to preserve principal while at the same time maximizing yields without significantly increasing risk. To achieve this objective, we maintain a portfolio of cash and equivalents and investments in a variety of marketable securities, including both government and corporate obligations.

        Substantially all of our investments are subject to interest rate risk. We consider all of our investments as available-for-sale. As of December 31, 2003, there were net unrealized losses of $69,184 on those investments. There were net unrealized gains on those investments totaling $82,494 at December 31, 2002.

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        We did not hold any derivative financial instruments as of December 31, 2003, and have never held such instruments in the past. Additionally, all our transactions have been denoted in U.S. currency and do not have any risk associated with foreign currency transactions.

        Due to the short term nature of our investments, a 1% increase in interest rates would not decrease the fair market value of our investments by a material amount.


INFORMATION ABOUT LIFE QUOTES

        Life Quotes, Inc. was founded in 1979 as a traditional life insurance agency. Instead of meeting with customers face-to-face, Life Quotes sells insurance by phone, fax, email and/or mail. People who need life insurance find Life Quotes through radio, television and internet advertising. Life Quotes employs over 80 people. An affiliate of the sole stockholder of Life Quotes owns a 43,000 square foot office building in Evergreen, Colorado where the Life Quotes operation is conducted. Life Quotes is a private company. All of the outstanding equity securities of Life Quotes are owned by Kenneth L. Manley. Life Quotes is an S-corporation under the Internal Revenue Code of 1986, as amended. Accordingly, for tax purposes, all of Life Quotes' net income flows through Life Quotes directly to its sole stockholder. Mr. Manley, as the sole stockholder of Life Quotes, has regularly caused Life Quotes to distribute its excess cash directly to him. Life Quotes has no equity compensation plans.

        During the last quarter of 2002 and the first quarter of 2003, we launched our proprietary online application technology for most of our term life sales. While providing a very efficient and cost effective method of fulfillment, it is our belief that not providing a personal, telephone based option for customers restricted the number of sales we could make to potential buyers. For this reason, we decided to acquire Life Quotes, a telephone based life insurance brokerage, to provide these services to customers as a telephone based complement to our online sales model for term life insurance.


LIFE QUOTES FINANCIAL INFORMATION

        Included in this proxy statement are Life Quotes' audited financial statements as of December 31, 2003 and 2002 and for each of the two years in the period ended December 31, 2003.


LIFE QUOTES MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview and Critical Accounting Policies

        Life Quotes operates as an insurance agency marketing primarily individual term life insurance. Life Quotes generates revenue from the receipt of commissions and fees paid by numerous life insurance companies based on new first year premium and renewal premium in force. For the years ended December 31, 2003 and 2002, Life Quotes had approximately $35,410,000 and $29,062,000 of premium in force, respectively. During the years ended December 31, 2003 and 2002, over 95% of these premiums were with four insurance companies. Life Quotes conducts its insurance agency business using a combination of commissioned marketing agents, and salaried or hourly support staff. After a short initiation period, marketing agents are paid entirely by commission. Life Quotes generates prospective customer interest through a combination of advertising methods, primarily radio, print, and through their web site.

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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        Life Quotes recognizes revenue, including first year commissions, renewal commissions and volume-based bonuses, when notified by the insurance company that the commissions have been earned. Receivables are recognized for revenues earned prior to the end of an accounting period, but not received until after the end of the period.

        Life Quotes recognizes advertising costs as incurred. Production costs are expensed in the first period that the advertising takes place. The costs of communicating the advertising are expensed in the period in which the advertising is communicated.

        Life Quotes maintains its available cash in demand checking accounts in federally insured banks.

        Furniture, equipment, and computer software are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives ranging from three to five years. Repair and maintenance costs are charged to expense as incurred.

        No provision for income taxes has been included in the accompanying financial statements as Life Quotes has elected to be treated as an S corporation for tax purposes. Consequently all items of income and expense are reflected in the income tax returns of the shareholder.

Results of Operations

Comparison of Years Ended December 31, 2003 and December 31, 2002

Revenues

        Revenues increased 16% to $10.4 million in 2003 from $8.9 million in 2002. This can be attributed to a 6% increase in policies sold, from 11,688 in 2002 to 12,391 in 2003, along with a 10% increase in revenue per policy sold, from $765 in 2002 to $840 in 2003. The increase in policies sold can be attributed to increased advertising expenditures, which resulted in more leads to Life Quotes' in house agents. The increase in revenue per policy can be attributed to increases in the face amounts of policies sold as well as higher commission rates.

Expenses

        Advertising and promotion expenses increased $1.4 million to $3.6 million in 2003 from $2.2 million in 2002, as additional funds were committed to advertising to increase lead flow to Life Quotes' in house agents, as mentioned above. Personnel costs remained fairly constant at approximately $4.4 million, as increased commission payments to in house agents, which resulted from the increased revenue, were offset by staff reductions resulting from the consolidation of support functions. All other expenses, totaling $1.3 million in 2003, declined $0.2 million from $1.5 million in 2002, due primarily to a reduction in rent expense. In total, expenses increased by $1.1 million to $9.3 million in 2003, from $8.2 million in 2002, primarily from the increase in advertising and promotional expenditures mentioned above.

Income Taxes

        Life Quotes has elected to be taxed as an S corporation. Consequently, all items of income and expense are reflected on the income tax returns of the shareholder. Accordingly, no provision for income taxes is made in the financial statements.

Liquidity and Capital Resources

        As mentioned above, Life Quotes has elected to be taxed as an S corporation. As a result, it has paid significant distributions to its shareholder, $1.1 million in 2003 and $0.6 million in 2002. These distributions have limited the amount of capital retained in Life Quotes. Life Quotes had a negative

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cash balance at December 31, 2003 of $0.06 million, which was represented by an overdraft facility, and has relied on its positive cash flow from operations to fund its activities.

        Sources of funds consist primarily of commissions generated from the sale of life insurance. The principal uses of funds are advertising and promotion expenses, other operating expenses, acquisitions of furniture and equipment and distributions to the shareholder.

        Cash provided by operations amounted to $1.1 million in 2003, up from $0.7 million in 2002. The increase is primarily attributable to the increase in net income of $0.3 million.

        Life Quotes leases its office space from its sole stockholder under an informal month-to-month lease. Lease payments made to the stockholder for the years ended December 31, 2003 and 2002, were $0.4 million and $0.6 million, respectively.

        Life Quotes maintains a contributory retirement plan under Internal Revenue Code Section 401(k) for all of its full time employees. Under the terms of the plan, employees may contribute a portion of their salary, with an annual limit as established by law. Life Quotes is obligated to contribute an amount equal to 15% of the employee's contribution. Employees vest in company contributions after three years of employment. Retirement expense for the years ended December 31, 2003 and 2002 was $0.02 million and $0.05 million, respectively.

        Life Quotes provides health insurance benefits to its full time employees under the terms of several plans. The employee may choose coverage levels and deductible amounts based on their personal and family situation. Life Quotes pays for the employee and withholds premium from the employee's wage for dependents. Life Quotes does not have any agreements to provide post retirement benefits.

        Life Quotes is subject to legal proceedings and claims in the ordinary course of business. Life Quotes is not aware of any legal proceedings or claims that are believed to have a material effect on its financial position.

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PROPOSAL 2. ESTABLISHMENT OF LIFE QUOTES EMPLOYEE STOCK OPTION PLAN

        In connection with the acquisition of substantially all of the assets of Life Quotes and the related real estate, we have agreed to establish an option plan for the benefit of former Life Quotes employees who agree to become employees of Life Quotes Acquisition, Inc., or the Life Quotes subsidiary, our wholly-owned subsidiary. The Board of Directors has approved the adoption of the Quotesmith.com, Inc. 2004 Non-Qualified Stock Option Plan, or the plan. Adoption of the plan is subject to the approval of the majority of the shares of our common stock which are present in person or by proxy and entitled to vote at the annual meeting. The following paragraphs provide a summary of the principal features of the plan and its operation. A copy of the plan in its entirety is attached as Annex A-6 to this proxy statement.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE
ESTABLISHMENT OF THE LIFE QUOTES EMPLOYEE STOCK OPTION PLAN.

Purpose of the Plan

        The plan is intended to provide for the award of stock options to certain former employees of Life Quotes who become employees of the Life Quotes subsidiary.

General

        The plan provides for the granting of non-qualified stock options to eligible participants. The maximum number of shares of our common stock available for stock options under the plan is 300,000. Until approved by our stockholders, no stock options may be exercised under the plan. The plan expires 10 years after April 1, 2004, the effective date of the plan.

Administration of the Plan

        The plan will be administered by a committee of our Board of Directors consisting solely of two or more Board members, each of whom shall qualify as a "Non-employee Director" within the meaning of Rule 16b-3 of the Exchange Act and also qualify as an "outside director" within the meaning of Section 162 of the Internal Revenue Code of 1986, as amended, or the Code. Subject to the terms of the plan, the committee has the discretion to determine the employees who shall be granted stock options, the size of such stock options, and the terms and conditions of such stock options.

Eligibility to Receive Awards

        Employees of the Life Quotes subsidiary are eligible to receive one or more stock options. The actual number of employees who will receive stock options under the plan cannot be determined because the grant of stock options is discretionary.

Options

        The committee may grant nonqualified stock options. The number of shares covered by each option will be determined by the committee.

        The price of the shares of our common stock subject to each stock option is set by the committee, subject to the following restrictions. The exercise price of an option shall be 100% of the fair market value (on the date of grant) of the shares covered by the option.

        The exercise price of each option must be paid in full at the time of exercise in cash, check, by the tender of shares of our common stock that are already owned by the participant, pursuant to a cashless exercise program, or by any combination of the foregoing. Any taxes required to be withheld must be paid by the participant at the time of exercise.

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        Options vest and become exercisable over a three year period from the date of grant to a participant. One-third of the option shares shall vest on the first anniversary of the grant date, an additional one-third of the option shares shall vest on the second anniversary of the grant date, and the remaining one-third on the third anniversary of the grant date. Options expire at the times established by the committee, but not later than 10 years after the date of grant.

        Section 162(m) of the Code places limits on the deductibility for federal income tax purposes of compensation paid to certain of our executive officers. In order to preserve our ability to deduct the compensation income associated with options granted to such persons, the plan provides that no employees may be granted, in any fiscal year, options to purchase more than 200,000 shares of our common stock.

Adjustments Upon Changes in Capitalization

        In the event of any change in the outstanding shares of our common stock by reason of a stock dividend, stock split, reverse stock split or distribution, recapitalization, merger, reorganization, reclassification, consolidation, split-up, spin-off, combination of shares, exchange of shares or other change in corporate structure affecting our common stock and not involving the receipt of consideration by us, the committee shall make appropriate adjustments in the aggregate number of shares of our common stock subject to the plan and the exercise price applicable to outstanding stock option awards or grants.

Sale Events

        In the event of a sale of substantially all of our the assets, a sale of our stock to a third party, or a consolidation or merger of Quotesmith.com in which we are not the survivor, each of which we refer to as a sale event, we may, at our option, give each participant in the plan at least ten business days written notice prior to the anticipated date of the consummation of a sale event. Upon receipt of such notice, and for a period of five business days thereafter, each participant in the plan will be permitted to exercise, in whole or in part, the unexercised portion of each stock option held by such participant in accordance with the terms and conditions of the plan and the award agreement relating such stock option. Upon the consummation of the sale event, all stock options will be canceled and forfeited to the extent they have not been exercised.

        In lieu of delivering notice of a sale event, we may, at our option, cause the successor or acquiring corporation in connection with any sale event or, if applicable, the corporate parent of any such corporation, which we refer to as the successor corporation, to assume in writing our obligations under the plan and the outstanding stock options awarded pursuant to the plan. In such event, the number and kind of shares acquirable upon the exercise of the stock options and the exercise price applicable thereto will be adjusted appropriately and the stock options as so adjusted will be deemed solely to represent rights to acquire shares of the successor corporation in the manner provided in the agreements between the successor corporation and Quotesmith.com.

Amendment and Termination of the Plan

        Our Board of Directors may amend or terminate the plan, or any part thereof, at any time. No such action by our Board of Directors may impair in any material way any award previously granted under the plan without the written consent of the participant.

Stock Options to be Granted to Participants

        As described above, the committee has discretion to determine the number of stock options (if any) to be granted to any participant under the plan. Accordingly, the actual number of stock options to be granted to any participant is not determinable.

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Transferability of Stock Options

        Unless determined otherwise by the committee, stock options may not be transferred or assigned other than by will or by the applicable laws of descent and distribution.

U.S. Tax Aspects

        A U.S. recipient of a stock option will not have taxable income upon the grant of the option. When exercising non-qualified stock options which are vested on the date of exercise, the participant will recognize ordinary income upon exercise in an amount equal to the excess of the fair market value of the shares over the exercise price on the date of exercise. Any gain or loss recognized upon any later disposition of the shares generally will be capital gain or loss.

        We will be entitled to a tax deduction in connection with a stock option under the plan only in an amount equal to the ordinary income realized by the participant and at the time the participant recognizes such income.

        The table set forth below sets forth the benefits that will be available to (i) our chief executive officer, (ii) our named executive officers, (iii) our executive officers as a group, (iv) our directors who are not executive officers as a group, (v) nominees for director, (vi) associates of directors, executive officers or director nominees and (vii) all employees, including all current officers who are not executive officers, as a group. Benefits will only be available to employees of the Life Quotes subsidiary.

Life Quotes Employee Stock Option Plan Benefits

Name and Position
   Dollar Value ($)
   Number of Options
Robert S. Bland
President, Chief Executive Officer		   0   0

William V. Thoms
Executive Vice President, Chief Operating Officer
 
0
 
0

Phillip A. Perillo
Senior Vice President, Chief Financial Officer
 
0
 
0

Executive Group
 
0
 
0

Non-Executive Director Group
 
0
 
0

Director Nominees
 
0
 
0

Associates of Directors, Executive Officers or Director Nominees
 
0
 
0

Non-Executive Officer Employee Group
 
*
 
300,000
*
The dollar value of benefits under the Life Quotes employee stock option plan available to the non-executive officer employee group cannot be determined since the value of any benefits will depend on the value of our common stock on the date of exercise relative to the value of our common stock on the date of grant.

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        The following table sets forth the following information as of December 31, 2003: (i) the number of shares of our common stock to be issued upon the exercise of outstanding options, warrants and rights, (ii) the weighted-average exercise price of such options, warrants and rights and (iii) the number of shares of our common stock remaining available for future issuance under our equity compensation plans, other than the outstanding options, warrants and rights described above.

Equity Compensation Plan Information

Plan category
   Number of securities to be issued upon exercise of outstanding options, warrants and rights
(a)
   Weighted-average exercise price of outstanding options, warrants and rights
(b)
   Number of securities remaining available for future issuance under equity compensation plans (exlcuding securities reflected in column (a))
Equity compensation plans approved by security holders   218,332   $ 7.34   208,489

Equity compensation plans not approved by security holders
 
—
 
 
—
 
—

Total
 
218,332
 
$
7.34
 
208,489

        Please see note 7 to the audited financial statements of Quotesmith.com included elsewhere in this proxy statement for a description of the material features of the Quotesmith.com, Inc. 1997 Stock Option Plan.

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 PROPOSAL 3. ELECTION OF DIRECTORS

        Our Board of Directors is currently comprised of six directors divided into three classes serving staggered three-year terms. Each year, the directors of one class will stand for election as their terms of office expire. Messrs. Gretsch and Rueben are designated as Class I directors, with their terms of office expiring in 2006, Admiral Jeremiah A. Denton, Jr. is designated as a Class II director with his term of office expiring in 2004, and Messrs. Bland, Shannon and Thoms are designated as Class III directors with their terms of office expiring in 2005. Pursuant to the investor rights agreement we entered into with Zions, Robert S. Bland and William V. Thoms, we have agreed to, among other things, increase the size of our Board of Directors by one member and to nominate an individual designated by Zions to serve on the Board of Directors. Messrs. Bland and Thoms have agreed to vote all of their shares of common stock in favor of such individual. In accordance with the investor rights agreement, Zions has designated as its nominee, and we have nominated for election as director, John B. Hopkins.

        The Board has nominated Admiral Denton for re-election to the Board at the annual meeting. Each nominee has indicated his willingness to serve if elected, except that Mr. Hopkins has indicated that he will not be willing to serve if the stock issuance is not consummated. In the event that Mr. Hopkins is unwilling to serve, we would not increase the size of the Board of Directors. In the event that a nominee should become unwilling or unable to serve as a director, all duly executed proxies shall be voted for the election of such other person as may be designated by the Board of Directors. Unless authority to vote for a nominee is withheld, all votes represented by a properly executed proxy will be cast in favor of the nominees.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR.

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MANAGEMENT

        The following table sets forth information regarding our Board of Directors, including the nominees to the Board, our executive officers and certain other key employees as of April 1, 2004:

NAME
   AGE
   POSITION
Robert S. Bland   50   Chairman of the Board, President, Chief Executive Officer
William V. Thoms   51   Executive Vice President, Chief Operating Officer, Director
Phillip A. Perillo   54   Senior Vice President, Chief Financial Officer
Richard C. Claahsen   39   Vice President, Corporate Secretary
Bruce J. Rueben   51   Director
Timothy F. Shannon   50   Director
Jeremiah A. Denton, Jr.*   78   Director
Richard F. Gretsch   50   Director
John B. Hopkins*   39   Director
*
Nominee for election.

        Robert S. Bland has served as our Chairman of the Board, President and Chief Executive Officer since he founded Quotesmith.com in 1984. From 1979 to 1984, Mr. Bland was president and sole stockholder of Security Funding Corporation, an insurance agency. In March 1984, Mr. Bland sold Security Funding Corporation in order to raise capital to found Quotesmith.com. Mr. Bland holds a B.S. in marketing from the University of Colorado.

        William V. Thoms has served as our Executive Vice President since 1994. From 1988 to 1993, Mr. Thoms was responsible for our operations and customer service departments. Mr. Thoms is a founding stockholder. Prior to joining us, Mr. Thoms was a sales manager for Western Dressing, Inc., a privately held salad dressing manufacturing company, from 1972 to 1987.

        Phillip A. Perillo has served as our Senior Vice President and Chief Financial Officer since May of 2002. Mr. Perillo has over twenty years of insurance industry experience, with companies such as the Zurich American Insurance Group and BCS Life Insurance Company. Mr. Perillo holds an MBA in Finance from DePaul University and a B.S. in Accounting from the University of Illinois at Chicago.

        Richard C. Claahsen has served as our Vice President of Regulatory Affairs since May 1999. From June 1997 to May 1999, Mr. Claahsen served as our Director of Regulatory Affairs. From October 1996 to June 1997, he was a special agent with Northwestern Mutual Life Insurance Company. From 1993 to 1996, Mr. Claahsen was a litigation paralegal at Templeton & Associates of Chicago, Illinois. In 1999, Mr. Claahsen received his Chartered Life Underwriter designation from The American College of Bryn Mawr, Pennsylvania. Mr. Claahsen holds a B.A. and an M.A. in philosophy from the Catholic University of America and a J.D. from ITT Chicago Kent College of Law.

        Bruce J. Rueben became a director of Quotesmith.com in January 1998. He has been president of the Minnesota Hospital and Health Care Partnership, Minnesota's hospital association, since November 1998. From January 1994 to November 1998, Mr. Rueben was president of the Maine Hospital Association. From 1989 to 1994, Mr. Rueben was senior vice president and assistant treasurer of the Virginia Hospital Association. Mr. Rueben holds a B.S. from the Virginia Commonwealth University School of Business and a M.B.A. from the University of South Carolina.

        Timothy F. Shannon became a director of Quotesmith.com in January 1998. Since 1991, he has been President of Bradner Smith & Company, a subsidiary of Bradner Central Company. In 1995, he was appointed to the Bradner Central Company Board of Directors. Bradner Central Company, headquartered in Elk Grove Village, Illinois, is a wholesale paper distribution company. Mr. Shannon holds a B.S. in Business Administration from the University of Illinois.

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        Admiral Jeremiah A. Denton, Jr. became a director of Quotesmith.com in August 1999. He currently serves as president of the National Forum Foundation. Admiral Denton was elected as a United States Senator from Alabama in 1980, and served from 1981 to 1987. From 1987 to 1989, Admiral Denton, after being appointed by President Reagan, served as chairman of the presidential Commission on Merchant Marine and Defense. Admiral Denton holds a B.S. from the United States Naval Academy and an M.A. in international affairs from George Washington University.

        Richard F. Gretsch became a director of Quotesmith.com in August 1999. He currently serves as global offering manager for AT&T Global Network Services and has held this position since AT&T purchased the IBM global network. Mr. Gretsch had been global offering manager for IBM Internet Connection Service since 1995. Mr. Gretsch holds a B.S. in finance and accounting from the University of Arizona and a M.B.A. from the University of Notre Dame.

        John B. Hopkins currently serves as Vice President, Finance of Zions Bancorporation, a position he has held since 2003. From 2001 to 2003, he was the Chief Financial Officer of the e-Commerce unit of Zions Bancorporation. From 1998 to 2000, he was Director, Financial Planning of Citrix Systems in Fort Lauderdale, Florida. Mr. Hopkins holds a B.S. in finance from the University of Utah and an M.B.A. from the University of Chicago. We believe that Mr. Hopkins will be independent within the meaning of the NASD marketplace rules.

Board Committees and Meetings

        Our Board of Directors met four times during 2003, pursuant to scheduled quarterly Board meetings. In accordance with the NASD marketplace rules, we have determined that Messrs. Gretsch, Shannon and Rueben and Admiral Denton are independent within the meaning of the NASD marketplace rules. In accordance with the NASD marketplace rules, the independent directors meet separately, without the non-independent directors present, following each regularly scheduled quarterly Board meeting. We do not have a policy regarding board members' attendance at the annual meeting. Four board members were in attendance at the annual meeting held on April 9, 2003.

        Our Board of Directors has an executive committee, an audit committee and a compensation committee. Our Board of Directors does not currently have a nominating committee. Rather, each member of our Board of Directors participates in the process of identifying and considering individuals for Board membership. Our Board of Directors believes its current process is effective since two members of the Board of Directors collectively holder over 60% of our currently outstanding common stock and the current members of the Board of Directors are seasoned executives from a variety of backgrounds. Each member of our Board of Directors satisfies the independence requirements established by the NASD marketplace rules, other than Messrs. Bland and Thoms. The Board of Directors will consider for recommendation to the Board nominations made by stockholders that comply with the procedures described below under the caption "2004 Stockholder Proposals."

        Once our Board of Directors has identified a possible nominee (whether through a recommendation from a shareholder or otherwise), the independent members of the Board of Directors make an initial determination as to whether to conduct a full evaluation of the candidate. This initial determination is based on the information provided to the Board of Directors when the candidate is recommended, the Board's own knowledge of the prospective candidate and information, if any, obtained by the Board's inquiries. The preliminary determination is based primarily on the need for additional Board members to fill vacancies, expand the size of the Board of Directors or obtain representation in market areas without Board representation and the likelihood that the candidate can satisfy the evaluation factors described below. If the independent members of the Board of Directors determines that additional consideration is warranted, it may gather additional information about the

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candidate's background and experience. The independent members of the Board of Directors then evaluate the prospective nominee against the following standards and qualifications:

        The independent members of the Board of Directors also consider such other relevant factors as they deem appropriate, including the current composition of the Board, the need for audit committee or other expertise and the evaluations of other candidates. In connection with this evaluation, the independent members of the Board of Directors determine whether to interview the candidate. If the independent members of the Board of Directors decide that an interview is warranted, one or more of those members, and others as appropriate, interviews the candidate in person or by telephone. After completing this evaluation and interview, the independent members of the Board of Directors make a recommendation to the full Board of Directors as to the persons who should be nominated by the Board, and the Board determines the nominees after considering the recommendation and report of the independent members of the Board of Directors.

        Our Board of Directors has adopted a resolution addressing the nominations process described above.

        Our executive committee consists of Messrs. Bland, Thoms and Rueben. The executive committee is authorized to exercise, between meetings of our Board of Directors, all of the powers and authority of our Board of Directors in the direction and management of Quotesmith.com, except to the extent prohibited by applicable law or our certificate of incorporation, or another committee shall have been accorded authority over the matter.

        Our audit committee consists of Messrs. Gretsch, Shannon and Rueben. The audit committee is composed of three independent directors. Information regarding the functions performed by the committee, its membership, and the number of meetings held during the year is set forth in this proxy statement under the caption "Report of the Audit Committee." The audit committee is governed by a written charter approved by the Board of Directors. The audit committee has reviewed and reassessed the adequacy of the formal written charter on an annual basis since its adoption. A copy of the audit committee's charter is attached as Annex A-7 to this proxy statement. The audit committee met four times during 2003. Each member of the audit committee satisfies the independence requirements established by the NASD marketplace rules.

        Our compensation committee consists of Messrs. Gretsch, Shannon and Rueben, each of whom is independent within the meaning of the NASD marketplace rules. The compensation committee makes recommendations to the Board of Directors concerning salaries and incentive compensation for our executive officers and administers our employee benefit plans. The compensation committee met one time during 2003.

        During 2003, all members of the Board of Directors attended at least 75% of the Board of Directors' meetings and their respective committee meetings.

Audit Committee Financial Expert

        The audit committee does not presently have a financial expert as a member. The Board of Directors is expected to look for and obtain a member of the Board of Directors who will qualify as the audit committee's financial expert.

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Director Compensation

        Directors who are also employees of Quotesmith.com receive no compensation for serving on our Board of Directors. Non-employee directors receive an annual stipend of $16,000 and $500 per committee meeting attended. In addition, we reimburse non-employee directors for all reasonable travel and other expenses incurred in connection with attending Board and committee meetings. Non-employee directors are also eligible to receive stock option grants under the Quotesmith.com, Inc. 1997 Stock Option Plan. No stock options were granted to non-employee directors in 2003.

Stockholder Communications

        Historically, Quotesmith.com has not adopted a formal process for stockholder communications with the Board of Directors. Nevertheless, every effort has been made to ensure that the views of stockholders are heard by the Board of Directors or individual directors, as applicable, and that appropriate responses are provided to stockholders in a timely manner. Stockholders are free to contact any director or executive officer directly by writing in care of Quotesmith.com or by sending an email to board@insure.com. Stockholders can contact the audit committee directly by sending an email to audit@insure.com. In the past, stockholders have contacted the executive officers if they have concerns. Two of our largest shareholders are members of the Board of Directors.

        Quotesmith.com believes its responsiveness to stockholder communications to the Board of Directors has been excellent. Nevertheless, during the upcoming year the Board of Directors will give full consideration to the adoption of a formal process for stockholder communications with the Board of Directors and, if adopted, publish it promptly and post it to our website.

Compensation Committee Interlocks and Insider Participation

        None of our compensation committee members is an officer or employee of Quotesmith.com. None of our executive officers serves as a member of the Board of Directors or compensation committee of any entity that has one or more of its executive officers serving on our compensation committee.

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PRINCIPAL STOCKHOLDERS

        The following table sets forth information with respect to beneficial ownership of our common stock as of April 1, 2004, both before and after giving effect to the sale of 2,363,636 shares of our common stock to Zions, by: (i) each stockholder that is known to us to beneficially own more than 5% of our common stock; (ii) each of our directors, including nominees; (iii) our chief executive officer and each of our named executive officers; and (iv) all of our executive officers and directors as a group.

        The mailing address for each of the below named individuals, other than Zions, is c/o Quotesmith.com, Inc., 8205 South Cass Avenue, Suite 102, Darien, Illinois 60561. The mailing address for Zions is One South Main Street, Suite 1134, Salt Lake City, Utah 84111.

        Applicable percentage ownership in the table below is based upon 4,958,232 shares of common stock outstanding as of April 1, 2004. Beneficial ownership is determined in accordance with the rules of the SEC. Shares of common stock subject to options presently exercisable or exercisable within 60 days of April 1, 2004, are deemed to be outstanding for the purpose of computing the percentage ownership of the person or entity holding options, but are not treated as outstanding for the purpose of computing the percentage ownership for any other person or entity.

 
   Prior to the Stock Issuance
   After the Stock Issuance
  
 
   Shares
Beneficially
Owned
   Percent
   Shares
Beneficially
Owned
   Percent
  
Our CEO, Named Executive Officers and Directors                  
Robert S. Bland(1)   2,359,778   46.6 % 2,359,778   31.8 %
William V. Thoms(2)   723,833   14.3 % 723,833   9.8 %
Phillip A. Perillo(3)   40,000   *   40,000   *  
Timothy F. Shannon(4)   17,777   *   17,777   *  
Bruce J. Rueben(4)   12,333   *   12,333   *  
Admiral Jeremiah A. Denton, Jr.(4)   13,333   *   13,333   *  
Richard F. Gretsch(4)   11,666   *   11,666   *  
Richard C. Claahsen(5)   2,594   *       *  
John B. Hopkins(6)   0   *   0   *  

All Executive Officers and Directors as a Group
(9 Persons)(7)
 
3,181,314
 
62.9
%
3,181,314
 
42.9
%

Other 5% Stockholders
 
 
 
 
 
 
 
 
 
Zions Bancorporation   —   —   2,363,636   31.9 %
*
Less than 1%.

(1)
Includes 1,137,390 shares owned by Mr. Bland as a tenant in common with his wife, Maureen A. Bland, and 1,219,055 shares owned by Southcote Partners, L.P., a limited partnership whose sole general partners are Mr. and Mrs. Bland. Also includes options to purchase 3,333 shares of common stock that are exercisable within 60 days of March 5, 2004.

(2)
Includes options to purchase 3,333 shares of common stock that are exercisable within 60 days of March 5, 2004.

(3)
Includes options to purchase 40,000 shares of common stock that are exercisable within 60 days of March 5, 2004.

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(4)
Includes options to purchase 11,666 shares of common stock that are exercisable within 60 days of March 5, 2004.

(5)
Includes options to purchase 2,594 shares of common stock that are exercisable within 60 days of March 5, 2004.

(6)
Mr. Hopkins is a Vice President of Zions.

(7)
Includes options to purchase 95,924 shares of common stock that are exercisable within 60 days of March 5, 2004.

SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE

        Section 16(a) of the Exchange Act requires directors, executive officers and beneficial owners of more than ten percent of our common stock to file initial reports of ownership and reports of changes in ownership with the Securities and Exchange Commission and to provide us with copies of such reports. Based solely on a review of the copies provided to us and written representations from such reporting persons, we believe that all applicable Section 16(a) filing requirements have been met for such reporting persons.

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EXECUTIVE COMPENSATION

Summary Compensation Table

        The following table sets forth all compensation paid for services rendered to Quotesmith.com during our last three years in all capacities by (i) our Chief Executive Officer, and (ii) our other highest paid executive officers during 2003 with cash compensation in excess of $100,000, who we refer to as the named executive officers.

 
    
    
    
   Long-Term
Compensation
Awards
    
 
    
   Annual Compensation
    
Name and Principal Position
    
   Securities
Underlying
Options
   All Other
Compensation
  Year
   Salary
   Bonus
Robert S. Bland
President, Chief Executive Officer		   2003
2002
2001		   $

 300,000
300,000
300,000		   $

 —
—
—		   —
—
—		   $

 31,854
—
—

William V. Thoms
Executive Vice President, Chief Operating Officer
 
2003
2002
2001
 
 
250,000
250,000
247,115
 
 
—
11,932
 
—
—
—
 
 
—
—

Phillip A. Perillo(1)
Senior Vice President and Chief Financial Officer
 
2003
2002
 
 
173,654
72,116
 
 
25,000
—
 
  
105,000
 
 
 

Hao Chang(2)
Senior Vice President, Chief Information Officer
 
2003
2002
2001
 
 
116,827
136,558
114,231
 
 
—
—
—
 
—
50,000
—
 
 
—
—
—
(1)
Mr. Perillo was hired as Senior Vice President and Chief Financial Officer in May 2002.

(2)
Mr. Chang terminated employment with Quotesmith.com on October 17, 2003.

Option Grants in 2003

        There were no grants of stock options to the named executive officers in 2003.

2003 Year End Option Values

        The following table sets forth certain information regarding the number and value of unexercised options held by the Named Executive Officers as of December 31, 2003. No stock options were exercised during 2003 by the named executive officers.

 
   Number of Securities Underlying Unexercised Options at December 31, 2003
    
    
 
   Value of Unexercised In-the-Money Options at December 31, 2003
Name
  Exercisable
   Unexercisable
   Exercisable
   Unexercisable
Robert S. Bland   3,333   —   $ —   $ —
William V. Thoms   3,333   —     —     —
Phillip A. Perillo   40,000   65,000     120,400     171,400
Hao Chang(1)   —   —     —     —
(1)
Mr. Chang terminated employment with Quotesmith.com on October 17, 2003.

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Employment Agreements and Change of Control Arrangements

        We have entered into employment agreements with Messrs. Bland, Thoms and Perillo. These agreements set forth each executive's base annual compensation level, eligibility for salary increases, bonuses and options and level of benefits. Mr. Chang left Quotesmith.com voluntarily on October 17, 2003 and was paid no severance.

        In addition, the agreements for Messrs. Bland and Thoms provide for separation benefits if one of these executives is terminated without cause or if the executive terminates his employment for good reason, including a change of control of Quotesmith.com. In the event of a termination without cause or for good reason, each of Messrs. Bland and Thoms is entitled to receive a lump sum payment equal to two times his base annual salary. In the event of a separation payment, Messrs. Bland and Thoms are entitled to gross up payments for any excise taxation incurred. Messrs. Bland and Thoms have waived these change of control provisions for the sale of common shares to Zions. In the event of a termination without cause or for good reason during the three months prior to or twelve months after a change of control, Mr. Perillo is entitled to receive two years of base pay and bonus at the targeted amount.

Stock Performance Graph

        The graph below compares the annual percentage changes in Quotesmith.com's cumulative total stockholder return from August 3, 1999 (the date of our initial public offering) through December 31, 2003, with the cumulative total return of the CRSP Total Return Index for the Nasdaq Stock Market and the CRSP Total Return Index for Nasdaq Insurance Stocks for the same period. The Insurance Stock Index includes insurance companies, brokers, agents, and related services. The graph assumes the investment of $100 and the reinvestment of all dividends. The stock price performance shown on the graph below is not necessarily indicative of future stock price performance.

GRAPHIC

 
   8/13/99
   12/31/99
   12/31/00
   12/31/01
   12/31/02
   12/31/03
Quotesmith.com, Inc.   $ 100.00   $ 103.409   $ 6.536   $ 6.455   $ 12.818   $ 14.909
Nasdaq Stock Market (U.S. Companies)     100.00     157.238     95.461     75.364     51.604   $ 77.410
Nasdaq (Insurance Index)     100.00     84.426     97.653     104.584     102.663   $ 124.668

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COMPENSATION COMMITTEE REPORT

        The compensation committee of the Board of Directors determined the compensation of our Chief Executive Officer and our other executives in 2004. To ensure that our executive compensation program is administered in an objective manner, the compensation committee is composed entirely of directors who are neither executive officers nor employees of Quotesmith.com, and each member of the compensation committee is independent within the meaning of Rule 4200(a)(15) of the NASD marketplace rules. In addition to determining the salary and bonus compensation for all of our executive officers, the compensation committee determines the nature, timing and amount of awards and grants under Quotesmith.com's stock option plans and makes recommendations as to the administration of other compensation plans and programs as they relate to executive officers.

        This report is intended to describe the philosophy that underlies the cash and equity-based components of our intended executive pay program in 2004. It also describes the details of each element of the program, as well as the rationale for compensation paid to our Chief Executive Officer and executive officers in general in 2003.

Compensation of Executive Officers Generally

        The compensation philosophy of Quotesmith.com is to (i) provide a competitive total compensation package that enables us to attract and retain key executive and employee talent needed to accomplish our goals and (ii) directly link compensation to improvements in our financial and operational performance.

        Our compensation program for all executive officers emphasizes variable compensation, primarily through performance-based grants of equity-based incentives in the form of stock options. Salaries of all executive officers are generally targeted at median market levels.

        The compensation committee will continue to monitor our compensation program in order to maintain the proper balance between cash compensation and equity-based incentives and may consider further revisions in the future.

Components of Compensation

        Salary.    The compensation committee will review each executive officer's salary annually. Objective and subjective performance goals are set each year for each executive officer, which will vary depending upon the specific position or role of the executive within Quotesmith.com. The compensation committee's review will take into consideration both our performance with respect to revenue growth and operating margins, together with the duties and performance of each executive. The compensation committee also considers provisions relating to salary set forth in employment agreements with certain of our executive officers.

        Bonus.    Certain of our employees who perform significant management and decision-making functions are eligible to receive a performance bonus. Messrs. Bland and Thoms did not receive a bonus in 2003. Awards to executives may be made by the compensation committee after considering the recommendation of our Chief Executive Officer (except for awards granted to the Chief Executive Officer) and the financial performance of Quotesmith.com as measured by revenue growth and operating margins, or any other factors that the compensation committee deems relevant. Bonuses for fiscal 2003 were awarded based on Quotesmith.com's financial performance, as measured by the factors listed above. The bonus component of the executive compensation package is designed to be less than industry averages.

        Stock Options.    The compensation committee believes that the granting of stock options is an important method of rewarding and motivating management by aligning management's interests with those of our stockholders on a long-term basis. In addition, the compensation committee recognizes

91


that we conduct our business in an increasingly competitive industry and that, in order for Quotesmith.com to remain highly competitive and at the same time pursue a high-growth strategy, it must employ the best and most talented executives and managers who possess demonstrated skills and experience. We believe that stock options can play an important role in attracting and retaining such employees. For these reasons, we previously adopted the Quotesmith.com, Inc. 1997 Stock Option Plan, or the stock option plan, as a stock-based incentive program for our employees, executive officers and directors. The compensation committee believes the stock option plan is an important feature of our executive compensation package. Under the stock option plan, the compensation committee may grant options to executive officers who are expected to contribute materially to Quotesmith.com's future success. In determining the size of stock option grants, the compensation committee will focus primarily on our performance and the perceived role of each executive in accomplishing such performance objectives, as well as the satisfaction of individual performance objectives. The value of the stock options is directly tied to the value of a share of our common stock.

        Compensation of the Chief Executive Officer.    Mr. Robert Bland currently serves as Chief Executive Officer and President. Mr. Bland was compensated during the 2003 fiscal year using the same general philosophy and criteria used for other executive officers as described above.

        Tax Considerations.    The compensation committee has determined that it is unlikely that Quotesmith.com would pay any amounts for 2003 that would result in a loss of the federal income tax deduction under Section 162(m) of the Internal Revenue Code of 1986, as amended, and, accordingly, has not recommended that any special actions be taken or that any plans or programs be revised at this time.

        The foregoing report has been approved by all of the members of the compensation committee.

The Compensation Committee

Richard F. Gretsch
Bruce J. Rueben
Timothy F. Shannon


COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

        Since the date of our initial public offering in August 1999, Richard F. Gretsch, Bruce J. Rueben and Timothy F. Shannon have served on the compensation committee of the Board of Directors. None of these individuals have been employees of Quotesmith.com.

92



REPORT OF THE AUDIT COMMITTEE

        THE FOLLOWING REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS SHALL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE INCORPORATED BY REFERENCE BY ANY GENERAL STATEMENT INCORPORATING BY REFERENCE THIS PROXY STATEMENT OR ANY PORTION HEREOF INTO ANY FILING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, EXCEPT TO THE EXTENT WE SPECIFICALLY INCORPORATE THIS REPORT THEREIN, AND SHALL NOT OTHERWISE BE DEEMED FILED UNDER SUCH ACTS.

        The audit committee oversees our financial reporting process on behalf of the Board of Directors. In 2000, the Board of Directors adopted a written charter of the audit committee. A copy of the Audit Committee Charter is attached as Annex A-7 to this proxy statement. Management has the primary responsibility for the financial statements and the reporting process including the systems of internal controls.

        In fulfilling its oversight responsibilities, the audit committee reviewed the audited financial statements included in our Annual Report on Form 10-K with management, including by having a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

        The audit committee reviewed with the independent auditors, who are responsible for expressing an opinion on the conformity of those audited financial statements with accounting principles generally accepted in the United States, their judgments as to the quality, not just the acceptability, of our accounting principles and such other matters as are required to be discussed by SAS 61 (Codification of Statements on Auditing Standards, AU §380), as may be modified or supplemented.

        The audit committee has received the written disclosures and the letter from the independent accountants required by Independence Standards Board Standard No. 1 (Independence Standards Board Standard No. 1, Independence Discussions with Audit Committees), as may be modified or supplemented. In addition, the audit committee has discussed with the independent auditors the auditors' independence from management and Quotesmith.com including the matters in the written disclosures required by the Independence Standards Board and considered the compatibility of nonaudit services with the auditors' independence.

        The audit committee discussed with the independent auditors the overall scope and plans for their audit. The audit committee meets with the auditors, with and without management present, to discuss the results of their examination, their evaluation of Quotesmith.com's internal controls, and the overall quality of Quotesmith.com's financial reporting. The audit committee held four meetings during 2003.

        In reliance on the reviews and discussions referred to above, the audit committee recommended to the Board of Directors (and the Board of Directors has approved) that the audited financial statements be included in our Annual Report on Form 10-K for the year ended December 31, 2003 for filing with the Securities and Exchange Commission. The audit committee and the Board of Directors have also recommended, subject to stockholder approval, the selection of Quotesmith.com's independent auditors for 2004.

The Audit Committee

Richard F. Gretsch
Bruce J. Rueben
Timothy F. Shannon

93


CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

        There are no related party transactions required to be included in this proxy statement.


PROPOSAL 4. RATIFICATION OF INDEPENDENT AUDITORS

        Subject to ratification by the stockholders, the Audit Committee and the Board of Directors have selected Ernst & Young LLP to continue as independent auditors to audit the financial statements of the Company for the year ended December 31, 2004. Representatives of the firm of Ernst & Young LLP will be present at the annual meeting and will have an opportunity to make a statement if they so desire and will be available to respond to appropriate questions.

Audit Fees

        The aggregate fees for each of the last two fiscal years for professional services rendered by Ernst & Young LLP for the audit of our annual financial statements and review of financial statements included in our Forms 10-Q were $200,901 in 2003 and $172,800 in 2002.

Audit-Related Fees

        The aggregate fees billed in each of the last two fiscal years for assurance and related services by Ernst & Young LLP that are reasonably related to the performance of the audit or review of our financial statements and are not reported above under the caption "Audit Fees" were $7,100 in 2003 and $10,800 in 2002. The audit-related fees for 2003 involved consulting regarding acquisition accounting issues, and the audit-related fees for 2002 involved accounting disclosure regarding the Insurance News Network acquisition and assistance for our temporary chief accountant.

Tax Fees

        For the last two fiscal years, there were no fees billed for professional services rendered by Ernst & Young LLP for tax compliance, tax advice and tax planning.

All Other Fees

        The aggregate fees billed in each of the last two fiscal years for products and services provided by Ernst & Young LLP, other than the services reported above, were $1,601 in 2003 and $1,500 in 2002. The fees were for use of Ernst & Young Online Service.

Pre-Approval Policies and Procedures

        The Audit Committee has adopted a policy that requires advance approval of all audit, audit-related, tax services, and other services performed by the independent auditor. The policy provides for pre-approval by the Audit Committee of specifically defined audit and non-audit services. Unless the specific service has been pre-approved with respect to that year, the Audit Committee must approve the permitted service before the independent auditor is engaged to perform it. The Audit Committee has delegated to the chair of the Audit Committee the authority to approve permitted services provided that the chair reports any decisions to the Audit Committee at its next scheduled meeting.

        The affirmative vote of the holders of a majority of the shares present in person or represented by proxy and entitled to vote at the annual meeting will be required to ratify the selection of Ernst & Young LLP. In the event stockholders fail to ratify the appointment of Ernst & Young LLP, the Board of Directors will reconsider its selection. Even if the selection is ratified, the Board of Directors, in its discretion, may direct the appointment of a different independent auditor at any time if the Board of Directors determines that such a change would be in our best interests.

THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION OF ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS.

94


OTHER MATTERS

        The Board of Directors is not aware of any matters to be presented at the annual meeting other than those listed in the notice of the meeting. If any other matters do come before the annual meeting, it is intended that the holders of proxies solicited by the Board of Directors will vote on such other matters in their discretion in accordance with their best judgment.


ADDITIONAL INFORMATION

        A copy of our Annual Report on Form 10-K, filed with the Securities and Exchange Commission, is available without charge upon written request addressed to the Secretary of Quotesmith.com, 8205 South Cass Avenue, Suite 102, Darien, Illinois 60561.


2005 STOCKHOLDER PROPOSALS

        You may submit proposals to be voted upon at the 2005 annual meeting of stockholders or nominate persons for election to the Board of Directors. Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, some stockholder proposals may be eligible for inclusion in our 2005 proxy statement. Any such stockholder proposals must be submitted in writing to the Secretary of Quotesmith.com no later than December 3, 2004. If you are interested in submitting such a proposal we advise you to review the detailed requirements of applicable securities laws. The submission of a stockholder proposal does not ensure that it will be included in our proxy statement.

        Alternatively, under our By-laws, a proposal or nomination that you do not seek to include in our 2005 proxy statement pursuant to Rule 14a-8 may be submitted in writing to the Secretary of the Company for the 2005 Annual Meeting of Stockholders not less than 120 days prior to the date on which we first mail our proxy materials for the 2004 annual meeting of stockholders, unless the date of the 2005 annual meeting of stockholders is advanced by more than 30 days or delayed by 30 days from the anniversary of the 2004 annual meeting. For our 2005 annual meeting of stockholders, any such proposal or nomination must be submitted no later than December 3, 2004. If the date of the 2005 annual meeting of stockholders is advanced by more than 30 days or delayed by more than 30 days from the anniversary of the 2004 annual meeting, the deadline for you to submit any such proposal or nomination is a reasonable time before we begin to print and mail our proxy materials for the 2005 annual meeting of stockholders. Your submission must include certain specified information concerning the proposal or nominee, as the case may be, and information as to your ownership of our common stock. Proposals or nominations not meeting these requirements will not be entertained at the 2005 annual meeting of stockholders. If you do not also comply with the requirements of Rule 14a-4 under the Securities Exchange Act of 1934, as amended, we may exercise discretionary voting authority under proxies we solicits to vote in accordance with our best judgment on any such proposal or nomination you submit. You should contact the Secretary of Quotesmith.com in writing at 8205 South Cass Avenue, Suite 102, Darien, Illinois 60561 to make any submission or to obtain additional information as to the proper form and content of submissions.

  By Order of the Board of Directors

 
    

 
Robert S. Bland

 
Chairman of the Board, President and Chief Executive Officer
Darien, Illinois
April [•], 2004		  

95


QUOTESMITH.COM, INC.

INDEX TO FINANCIAL STATEMENTS

 
   Page
Audited Financial Statements    
Report of Independent Auditors   F-2
Balance Sheets as of December 31, 2003 and 2002   F-3
Statements of Operations for the Years Ended December 31, 2003, 2002, and 2001   F-4
Statements of Stockholders' Equity for the Years Ended December 31, 2003, 2002, and 2001   F-5
Statements of Cash Flows for the Years Ended December 31, 2003, 2002, and 2001   F-6
Notes to Financial Statements   F-7

F-1


REPORT OF INDEPENDENT AUDITORS

Board of Directors
Quotesmith.com, Inc.

        We have audited the accompanying balance sheets of Quotesmith.com, Inc. as of December 31, 2003 and 2002, and the related statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2003. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Quotesmith.com, Inc. at December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2003 in conformity with accounting principles generally accepted in the United States.


 
/s/ ERNST & YOUNG LLP

 
 

Chicago, Illinois
 

January 16, 2004
Except Note 10, as to which the date is March 10, 2004

F-2


QUOTESMITH.COM, INC.

BALANCE SHEETS

 
   December 31,
  
 
   2003
   2002
  
ASSETS  
Cash and equivalents   $ 676,728   $ 1,639,909  
Fixed maturity investments—available for sale at fair value (Note 3)     4,204,150     8,823,890  
Commissions receivable, less allowances (2003—$176,000; 2002—$197,000)     1,062,534     1,125,544  
Other assets     423,715     324,686  
   
 
 
Total current assets     6,367,127     11,914,029  
Fixed maturity investments—available for sale at fair value (Note 3)     10,345,555     5,843,988  
Furniture, equipment, and computer software at cost, less accumulated depreciation (2003—$2,859,000; 2002—$2,284,000)     375,177     885,469  
Intangible assets at cost, less accumulated amortization (2003—$995,000; 2002—$517,000) (Note 2)     437,761     915,317  
   
 
 
Total assets   $ 17,525,620   $ 19,558,803  
   
 
 

LIABILITIES AND STOCKHOLDERS' EQUITY
 
Accounts payable and accrued liabilities   $ 760,005   $ 1,428,601  
   
 
 
Total current liabilities     760,005     1,428,601  
Long-term capital lease obligations (Note 5)     —     35,018  
   
 
 
Total liabilities     760,005     1,463,619  
Commitments and contingencies (Note 8)              
Stockholders' equity (Notes 6 and 7):              
  Common stock, $.003 par value; shares authorized:              
    60,000,000; shares issued:              
    2003—7,317,573; 2002—7,268,072     21,953     21,804  
  Additional paid-in capital     64,075,686     63,972,732  
  Retained-earnings deficit     (43,468,855 )   (42,187,861 )
  Treasury stock at cost: 2,359,341 shares     (3,793,985 )   (3,793,985 )
  Accumulated other comprehensive income (loss)     (69,184 )   82,494  
   
 
 
Total stockholders' equity     16,765,615     18,095,184  
   
 
 
Total liabilities and stockholders' equity   $ 17,525,620   $ 19,558,803  
   
 
 

See accompanying notes.

F-3


QUOTESMITH.COM, INC.

STATEMENTS OF OPERATIONS

 
   Years Ended December 31,
  
 
   2003
   2002
   2001
  
Revenues:                    
  Commissions and fees (Note 1)   $ 9,717,810   $ 10,631,467   $ 8,743,286  
  Other     19,034     145,327     107,249  
   
 
 
 
Total revenues     9,736,844     10,776,794     8,850,535  
Expenses:                    
  Selling and marketing (Note 2)     4,735,438     2,912,547     7,051,893  
  Operations (Notes 7 and 9)     3,393,936     7,755,693     6,004,239  
  General and administrative (Note 7)     3,348,968     3,193,797     3,503,173  
   
 
 
 
Total expenses     11,478,342     13,862,037     16,559,305  
   
 
 
 
Operating loss     (1,741,498 )   (3,085,243 )   (7,708,770 )
Interest income, net (Note 2)     367,953     358,675     1,075,695  
Realized gain on sale of securities     92,551     —     —  
   
 
 
 
Loss before income taxes     (1,280,994 )   (2,726,568 )   (6,633,075 )
Income tax credit (Note 4)     —     —     —  
   
 
 
 
Net loss   $ (1,280,994 ) $ (2,726,568 ) $ (6,633,075 )
   
 
 
 
Net loss per common share, basic and diluted   $ (0.26 ) $ (0.55 ) $ (1.22 )
   
 
 
 
Weighted average common shares and equivalents outstanding, basic and diluted     4,917,314     4,964,500     5,441,039  

See accompanying notes.

F-4


QUOTESMITH.COM, INC.

STATEMENTS OF STOCKHOLDERS' EQUITY

 
   Common Stock
    
    
    
    
    
  
 
    
    
    
   Accumulated
Other
Comprehensive
Income (Loss)
    
  
 
   Number of
Shares
Issued
   Par
Value
   Additional
Paid-In
Capital
   Retained-
Earnings
Deficit
   Treasury
Stock
   Total
Stockholders'
Equity
  
2001:                                          
  Balance at January 1   7,253,570     21,761     63,836,873     (32,828,218 )   (1,360,313 )   (2,798 )   29,667,305  
  Net loss   —     —     —     (6,633,075 )   —     —     (6,633,075 )
  Other comprehensive gain—unrealized gain on investments   —     —     —     —     —     22,894     22,894  
                                     
 
  Total comprehensive loss                                       (6,610,181 )
  Stock options issued in connection with acquisition (See Note 1)   —     —     82,250     —     —     —     82,250  
  Purchase of 581,624 treasury shares   —     —     —     —     (1,235,030 )   —     (1,235,030 )
  Employee stock compensation   —     —     10,938     —     —     —     10,938  
   
 
 
 
 
 
 
 
  Balance at December 31   7,253,570     21,761     63,930,061     (39,461,293 )   (2,595,343 )   20,096     21,915,282  
2002:                                          
  Net loss   —     —     —     (2,726,568 )   —     —     (2,726,568 )
  Other comprehensive gain—unrealized gain on investments   —     —     —     —     —     62,398     62,398  
                                     
 
  Total comprehensive loss                                       (2,664,170 )
  Purchase of 446,050 treasury shares   —     —     —     —     (1,198,642 )   —     (1,198,642 )
  Proceeds from sale of common stock:                                          
    —exercise of stock options   14,502     43     26,711     —     —     —     26,754  
  Employee stock compensation   —     —     15,960     —     —     —     15,960  
   
 
 
 
 
 
 
 
  Balance at December 31   7,268,072   $ 21,804   $ 63,972,732   $ (42,187,861 ) $ (3,793,985 ) $ 82,494   $ 18,095,184  
2003:                                          
  Net loss   —     —     —     (1,280,994 )   —     —     (1,280,994 )
  Other comprehensive loss—unrealized loss on investments   —     —     —     —     —     (151,678 )   (151,678 )
                                     
 
  Total comprehensive loss                                       (1,432,672 )
  Proceeds from sale of common stock:                                          
    —exercise of stock options   49,501     149     102,954     —     —     —     103,103  
   
 
 
 
 
 
 
 
    Balance at December 31   7,317,573   $ 21,953   $ 64,075,686   $ (43,468,855 ) $ (3,793,985 ) $ (69,184 ) $ 16,765,615  
   
 
 
 
 
 
 
 

See accompanying notes.

F-5


QUOTESMITH.COM, INC.

STATEMENTS OF CASH FLOWS

 
   Years Ended December 31,
  
 
   2003
   2002
   2001
  
Cash flows from operating activities:                    
Net loss   $ (1,280,994 ) $ (2,726,568 ) $ (6,633,075 )
  Adjustments to reconcile to net cash used by operating activities:                    
    Depreciation expense     575,171     924,700     760,136  
    Amortization     626,468     339,253     (157,759 )
    Impairment of computer software     —     336,582     —  
    Accounts payable and accrued liabilities     (654,292 )   422,654     (1,852,324 )
    Commissions receivable     63,010     225,958     189,013  
    Stock compensation     —     15,960     10,938  
    Other assets     (99,029 )   (58,267 )   232,745  
   
 
 
 
  Net cash used by operating activities     (769,666 )   (519,728 )   (7,450,326 )

Cash flows from investing activities:
 
 
 
 
 
 
 
 
 
 
  Purchase of investments     (14,199,621 )   (23,455,781 )   (21,263,056 )
  Proceeds from investment maturities     7,800,000     22,900,000     29,100,000  
  Proceeds from sales of investments     6,217,204     —     2,500,000  
  Purchase of intangible assets     —     —     (1,350,421 )
  Purchase of furniture, equipment and software     (64,879 )   (102,276 )   (498,557 )
   
 
 
 
  Net cash provided (used) by investing activities     (247,296 )   (658,057 )   8,487,966  

Cash flows from financing activities:
 
 
 
 
 
 
 
 
 
 
  Proceeds from issuance of common stock     103,103     26,754     —  
  Purchase of treasury stock     —     (1,198,642 )   (1,235,030 )
  Payment of capital lease obligation     (49,322 )   (43,610 )   (38,559 )
   
 
 
 
  Net cash provided (used) by financing activities     53,781     (1,215,498 )   (1,273,589 )
   
 
 
 
Net decrease in cash and equivalents     (963,181 )   (2,393,283 )   (235,949 )
Cash and equivalents at beginning of year     1,639,909     4,033,192     4,269,141  
   
 
 
 
Cash and equivalents at end of year   $ 676,728   $ 1,639,909   $ 4,033,192  
   
 
 
 

See accompanying notes.

F-6


QUOTESMITH.COM, INC.

NOTES TO FINANCIAL STATEMENTS

1.     Description of Business

        Quotesmith.com, Inc. (the Company) is an insurance agency and brokerage. The Company owns and operates a comprehensive online consumer insurance information service, accessible at www.Insure.com, which caters to the needs of self-directed insurance shoppers. Since its inception in 1984, the Company has been continuously developing a proprietary and comprehensive insurance price comparison and order-entry system that provides instant quotes from over 200 insurance companies for numerous life and health insurance products. The Company uses this database to provide customers with a large array of comparative life and health insurance quotes online, over the phone or by mail, and allows the customer to purchase insurance from the insurance company of their choice either online or over the phone with the Company's licensed insurance customer service staff. The Company's website also provides insurance information and decision-making tools, among with access to other forms of personal insurance, such as auto, homeowners, renters, long-term care and travel insurance through various partners. The Company generates revenues from the receipt of commissions and fees paid by various sources, that are tied directly to the volume of insurance sales or traffic that we produce. The Company conducts its insurance agency and brokerage operations primarily using salaried, non-commissioned personnel and generates prospective customer interest using traditional direct response advertising methods conducted primarily offline.

        On December 7, 2001, the Company acquired selected assets of Insurance News Network, LLC, including its Web site, www.insure.com. The insure.com Web site at that time comprised an insurance news organization consisting of consumer insurance news, information, and decision-making tools. The cost of the acquisition included $1.4 million in cash, 50,000 stock options with an estimated fair value of $82,000, and expenses of $79,000. The acquisition was recorded using the purchase method of accounting. Accordingly, the purchase price has been allocated to the assets acquired, intangible assets of $1,433,000 and furniture, equipment, and software of $128,000, based on the estimated fair values at the date of acquisition.

        The accompanying financial statements reflect the operations of Insurance News Network, LLC, from the date of acquisition. The following table presents unaudited pro forma results as if the acquisition had occurred at the beginning of 2001.

 
   2001
  
  Year Ended December 31, 2001
(in thousands, except per share data)		        
Total revenues   $ 10,179  
Net loss     (7,341 )
Net loss per common share, basic and diluted   $ (1.35 )

        The unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the results of operations which actually would have resulted had the acquisition occurred at the beginning of the respective years, nor is it necessarily indicative of future operating results.

        In the period covered in the accompanying financial statements, the Company's primary revenue source has been commissions derived from the sale of individual term life insurance. Applications are underwritten and commissions are received from numerous life insurance companies. Revenues from some of these companies have exceeded ten percent of the Company's total revenues. In 2001, these included two companies with revenues of $1.1 million and $975,000. In 2002 and 2003, there were no

F-7


companies that provided more than ten percent of the Company's total revenues. The Company's business represents one business segment.

2.     Summary of Significant Accounting Policies

Use of Estimates

        The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Such estimates and assumptions could change, as more information becomes known, which could impact the amounts reported and disclosed herein.

Revenue Recognition

        The Company recognizes annual first year commissions for term-life business as revenues when the policy has been approved by the underwriter and an initial premium payment (which may be annual, semi-annual, quarterly, or monthly) has been made by the customer. An allowance is provided for estimated commissions that will not be received due to the nonpayment of installment first year premiums.

        Revenues on all other lines of business, as well as for renewal and bonus commissions and other revenues, are recognized when the Company receives notification that such revenues have been earned.

Advertising Costs

        Selling and marketing expenses in the accompanying financial statements are comprised of advertising costs. The costs of producing advertising are expensed in the first period that the advertising takes place. The costs of communicating the advertising are expensed in the period the advertising is communicated.

Investments

        The Company classifies its fixed maturity investments as available-for-sale and, accordingly, such investments are carried at fair value. The cost of fixed maturity investments is adjusted for amortization of premiums and discounts and for declines in value that are other than temporary. Temporary changes in the fair values of investments are reflected directly in stockholders' equity as accumulated other comprehensive income or loss net of income taxes with no effect on net income or loss. Realized gains or losses are calculated using the specific identification method.

Cash and Equivalents

        Money market and certificate of deposit investments are included as part of cash and equivalents.

Stock Compensation

        The Company uses the intrinsic value method to measure compensation expense, if any, relating to stock options. Any compensation expense is determined at the date of grant, or the date of subsequent modification to option terms, based on any excess of the fair value of the related shares over the exercise price, and amortized over the options' vesting periods.

F-8


Furniture, Equipment, and Computer Software

        Furniture, equipment, and capitalized application development costs of internal-use computer software are depreciated over useful lives of three to five years using principally the straight-line method of depreciation. Repair and maintenance costs are charged to expense as incurred.

Intangible Assets

        Intangible assets represent the value assigned to the acquired insure.com Web site and are being amortized on a straight-line basis over three years. Amortization expense was $480,000 in 2002, $480,000 in 2003 and is expected to be $435,000 in 2004.

Assets Held under Capital Lease

        Assets held under capital leases are recorded at the net present value of the minimum lease payments at the inception of the lease. Amortization expense is computed using the straight-line method over the shorter of the estimated useful lives of the assets or the period of the related lease.

Treasury Stock

        The cost of reacquiring the Company's common stock is reported as a separate component of stockholders' equity.

Income Taxes

        Deferred income taxes are determined based on the temporary differences between financial reporting and tax bases of assets and liabilities and the effect of net operating loss carryforwards, and are measured using enacted tax rates.

Non-operating Income and Expense

        Interest income, net in the accompanying statements of operations includes the following:

 
   Years ended December 31,
  
 
   2003
   2002
   2001
  
Interest income   $ 376,243   $ 372,677   $ 1,094,747  
Interest expense     (8,290 )   (14,002 )   (19,052 )
   
 
 
 
  Interest income, net   $ 376,953   $ 358,675   $ 1,075,695  
   
 
 
 

        In 2003, the Company realized gains of $93,000 on the sale of fixed maturity investments.

Net Loss Per Share

        Basic and diluted net loss per share reflects net loss divided by the weighted average number of common shares outstanding. Diluted net loss per share does not include the effect of common share equivalents because the effect would be antidilutive.

F-9


Comprehensive Income or Loss

        Comprehensive loss includes net loss and unrealized gain or loss on investments, as follows:

 
   Years ended December 31,
 
   2003
   2002
   2001
Unrealized gain (loss) on investments   $ (59,127 ) $ 62,398   $ 22,894
Less: Reclassification adjustment for realized gains Included in income     (92,551 )   —     —
   
 
 
Other comprehensive gain (loss)   $ (151,678 ) $ 62,398   $ 22,894
   
 
 

Stock Options

        The Company accounts for stock option grants in accordance with Accounting Principles Board Opinion 25, "Accounting for Stock Issued to Employees" and related interpretations, and, accordingly, recognizes no compensation expense for stock options granted to employees where the exercise price is equal to or greater than the market price at the date of the grant. SFAS 123, "Accounting for Stock Based Compensation", requires disclosure of pro forma information regarding net income (loss) per share, using pricing models to estimate the fair value of stock option grants. Had compensation expense for the Company's stock option plans been determined based on the estimated fair value at the date of grant consistent with the methodology prescribed under SFAS 123, approximate net loss and net loss per share would have been as follows:

 
   Years Ended December 31,
  
 
   2003
   2002
   2001
  
 
   (in thousands, except per share data)

  
Net loss as reported   $ (1,281 ) $ (2,727 ) $ (6,633 )
Add back stock compensation, as reported     —     16     11  
Less pro forma stock compensation using fair value method     (147 )   (235 )   (374 )
   
 
 
 
Pro forma net loss   $ (1,428 ) $ (2,946 ) $ (6,996 )
   
 
 
 
Pro forma net loss per common share, basic and diluted   $ (0.29 ) $ (0.59 ) $ (1.29 )
   
 
 
 

F-10

3.     Investments

        Investments are classified as available-for-sale securities and are reported at fair value, as follows:

 
   Amortized Cost
   Gross Unrealized Gains
   Gross Unrealized Losses
   Fair Value
December 31, 2003:                        
U.S. Government agency bonds   $ 1,689,944   $ 8,095   $ —   $ 1,698,039
Corporate bonds and commercial paper     12,928,945     51,218     128,497     12,851,666
   
 
 
 
  Total   $ 14,618,889   $ 59,313   $ 128,497   $ 14,549,705
   
 
 
 

December 31, 2002:
 
 
 
 
 
 
 
 
 
 
 
 
U.S. Government agency bonds   $ 7,526,079   $ 21,821   $ 729   $ 7,547,171
Corporate commercial paper     7,059,305     66,571     5,169     7,120,707
   
 
 
 
  Total   $ 14,585,384   $ 88,392   $ 5,898   $ 14,667,878
   
 
 
 

        As of December 31, 2003, investments maturities are as follows:

 
   Amortized Cost
   Fair Value
Due in one year or less   $ 4,179,444   $ 4,204,150
Due in 1-2 years     5,306,106     5,330,641
Due in 2-4 years     5,133,339     5,014,914
   
 
  Total   $ 14,618,889   $ 14,549,705
   
 

4.     Income Taxes

        A reconciliation of income taxes (credit) based on the federal tax rate to amounts reported in the statements of operations is as follows:

 
   Years Ended December 31,
  
 
   2003
   2002
   2001
  
Pre-tax loss times federal rate   $ (436,000 ) $ (927,000 ) $ (2,255,200 )
State income tax credit     (61,000 )   (130,900 )   (318,400 )
Increase in valuation allowance     554,000     966,000     2,540,000  
Stock compensation     0     6,200     4,200  
Other     (57,000 )   85,700     29,400  
   
 
 
 
  Income tax credit   $ —   $ —   $ —  
   
 
 
 

        Deferred income taxes reflect the net tax effect of temporary differences between the amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and the effect of net operating loss carryforwards.

F-11


        Significant components of the Company's deferred tax assets and liabilities are as follows:

 
   December 31,
  
 
   2003
   2002
  
Deferred tax liabilities—other assets   $ 0   $ 32,000  
Deferred tax assets:              
  Net operating loss carryforwards     16,097,000     15,759,000  
  Unamortized cash to accrual adjustment     0     243,000  
  Depreciation and amortization     600,000     199,000  
  Other     138,000     112,000  
   
 
 
Total gross deferred tax assets     16,835,000     16,313,000  
Valuation allowance     (16,835,000 )   (16,281,000 )
   
 
 
Net deferred tax assets     0     32,000  
   
 
 
Net deferred tax amounts   $ —   $ —  
   
 
 

        As of December 31, 2003, the Company had net operating loss carryforwards of approximately $41,488,000 available to offset future taxable income, which expire in 2006 to 2023. There were no income taxes paid or recovered in 2001, 2002 or 2003.

5.     Obligations under Capital Lease

        Furniture, equipment and computer software at December 31, 2003 and 2002 includes gross assets acquired under capital lease of $196,000. Related amortization included in accumulated depreciation was $142,000 and $103,000 at December 31, 2003 and 2002, respectively. Amortization of assets under capital lease is included in depreciation expense.

        The future minimum lease payments required under the capital lease and the present value of the net minimum lease payments as of December 31, 2003 are as follows:

Year Ending December 31,
   Amount
  
2004   $ 37,040  
Imputed interest     (2,023 )
   
 
Present value of net minimum lease payments     35,017  
Current lease obligation     (35,017 )
   
 
Long-term lease obligations   $ —  
   
 

6.     Stockholders' Equity

Stock Split

        On March 5, 2001, the Board of Directors of the Company approved a one-for-three reverse stock split and a change of par value from $.001 to $.003, effective on March 7, 2001. In the accompanying financial statements and related notes, all share and per share amounts were retroactively adjusted to reflect the stock split. The components of stockholders' equity were not affected by these changes.

F-12


Treasury Stock

        As of December 31, 2003, the Company is authorized to repurchase 652,000 additional shares of its common stock.

Private Placement and Related Party Transactions

        In 1999, the Company sold 333,333 shares of its common stock to a company (the Investor) for proceeds of $3,000,000 in a private placement and sold 90,909 shares of its common stock to the Investor for proceeds totaling $3,000,000 in the initial public offering. In 2001, the Company repurchased its shares from the Investor.

Employee Stock Purchase Plan

        The Company has a plan under which employees could purchase shares of the Company's common stock through payroll deductions of up to 10% of each employee's compensation. Shares may be purchased at 85% of the lower of the fair value of the common stock on the first or the last day of each six-month offering period. The Company reserved 83,333 shares for purchase under the plan, of which 63,929 were available at December 31, 2003.

Preferred Stock

        The Company has 5,000,000 authorized shares of $0.001 par value preferred stock. No shares have been issued.

Stockholder Rights Plan

        One preferred stock purchase right is outstanding for each outstanding share of the Company's common stock, and the Company intends to issue those rights along with future issuances of common shares. The rights become exercisable only if a person or group acquires or announces the intent to acquire 15% or more of the Company's common stock. Prior to the rights becoming exercisable, the Company may redeem the rights for $0.03 per right. If the rights become exercisable, the Company may exchange each right for one share of common stock providing that 50% of the Company has not been acquired. The rights expire in 2009.

        If the rights become exercisable and they have not been exchanged, holders of each right, other than the acquiring person or group, would be entitled to acquire three hundredths of a share of the Company's preferred stock at an exercise price equal to five times the initial offering price of the Company's common stock. If issued, each preferred share would entitle the holder to cumulative quarterly dividends of the greater of $1.00 per share or 33.3 times the common share dividends. The preferred shareholders would receive 33 votes per share and have a liquidation preference of $0.333 per share over the common shares.

        In lieu of purchasing preferred shares, holders of each right, other than the acquiring person or group, on payment of the exercise price, would be entitled to acquire the number of shares of the Company's common stock or other assets with a value of two times the exercise price. In addition, if 50% of the Company is acquired, the holders of each right would be entitled to acquire the number of shares of the acquiring company's common stock having a value of two times the exercise price.

F-13


7.     Stock Options

        The Company has established a stock option plan (the Plan) to provide additional incentives to its employees, officers, and directors. Under the Plan, an aggregate of 500,000 shares of common stock may be granted to participants in the Plan.

        For purposes of the pro forma disclosures presented in Note 2, the estimated fair values of the option grants are amortized to expense over the options' vesting period. The fair value of options at the date of grant was estimated using the Black-Scholes option pricing model for grants made subsequent to the Company's initial public offering in August 1999, and the minimum value method in all prior periods, with the following weighted-average assumptions:

 
   Years Ended December 31,
  
 
   2003
   2002
   2001
  
Dividend yield   None Issued   0.0 % 0.0 %
Risk-free interest rate   —   2.5 % 4.5 %
Volatility   —   93.5 % 105.3 %
Expected life (years)   —   5.0   5.0 to 7.0  

        In 2002 and 2001, the Company recorded compensation expense of $15,960 and $10,938, respectively relating to stock options granted below the estimated fair value of the Company's common stock, with a corresponding credit to additional paid-in capital. There were no stock options granted below the estimated fair value of the Company's common stock in 2003.

        Transactions related to all stock options are as follows:

 
   Years Ended December 31,
 
   2003
   2002
   2001
 
   Shares Under Option
   Weighted Average Exercise Price
   Shares Under Option
   Weighted Average Exercise Price
   Shares Under Option
   Weighted Average Exercise Price
Beginning Balance   360,047   $ 6.28   712,131   $ 7.03   377,996   $ 19.86

Granted with exercise price equal to stock value
 
—
 
 
—
 
156,500
 
 
3.04
 
522,000
 
 
2.00
Exercised   (49,501 )   2.08   (14,502 )   1.84   —     —
Forfeited   (42,214 )   4.51   (494,082 )   6.41   (187,865 )   19.03
   
       
       
     
Outstanding   268,332   $ 7.34   360,047   $ 6.28   712,131   $ 7.03
   
       
       
     
  Exercisable at end of year   165,999         129,538         164,056      
   
       
       
     

        Of the options granted in 2001, 50,000 options, with an exercise price of $2.00 per share, were issued as part of the cost of the acquisition discussed in Note 1. Of the options outstanding at December 31, 2003, 25,000, with an exercise price of $2.00 per share, vest in 2007. All of the remaining unexercisable options vest in 2003 and 2004.

F-14


        Information regarding options outstanding and exercisable at December 31, 2003 is summarized as follows:

 
   Options Outstanding
   Options Exercisable
Exercise Price
   Number Outstanding
   Weighted Average Remaining Contractual Life (in years)
   Weighted Average Exercise Price
   Number Exercisable
   Weighted Average Exercisable Price
$  1.25   6,500   7.25   $ 1.25   2,000   $ 1.25
$  2.00 - $  2.78   62,833   7.92     2.13   30,000     2.13
$  2.99 - $  6.38   152,999   7.64     3.84   87,999     4.20
$  9.00 - $10.32   11,667   5.34     9.11   11,667     9.11
$33.00   34,333   5.59     33.00   34,333     33.00
   
           
     
    268,332   7.34   $ 7.34   165,999   $ 10.09
   
           
     

        The options have terms of ten years. Under the Company's Plan, 208,489 shares were available for grant as awards or options at December 31, 2003.

        The weighted average fair value per share of options granted were as follows:

2003
   2002
   2001
None Issued   $ 2.20   $ 1.64

8.     Commitments and Contingencies

        As of December 31, 2003, the Company leases office space in Darien, IL under an operating lease agreement in which the Company is committed to rent expense of approximately $272,000 in 2004, $278,000 in 2005 and $284,000 in 2006. In addition, the Company must pay its proportionate share of taxes and operating costs for the Darien lease site.

        Rent expense was $320,000 in 2001, $428,000 in 2002 and $286,000 in 2003.

        The Company has employment agreements with two of its executives under which the Company would be required to pay severance of one to two years of annual salary to terminate those agreements. The Company has an employment agreement with one additional executive under which the Company would be required to pay severance of one year of annual salary in the event of a change in control.

        The Company is subject to legal proceedings and claims in the ordinary course of business. The Company is not aware of any legal proceedings or claims that are believed to have a material effect on the Company's financial position.

9.     Computer Software

        In connection with its auto insurance brokerage business, the Company had developed an auto rating engine and order fulfillment technology that was launched in January 2002. However, the Company was unable to secure an adequate number of agency appointments and the handling costs of this business were higher than anticipated. Therefore, in the third quarter of 2002, the Company discontinued the use of this software in favor of using an outsourced technology solution. This decision resulted in an impairment of $337,000 representing the entire remaining amount of these computer software costs, included in operations expenses in 2002.

F-15


10.   Subsequent Events

        On March 1, 2004, the Company signed an agreement to acquire selected assets of Life Quotes, Inc. for $18,400,000, subject to closing conditions, which include approval of the transaction by the Company's shareholders. Life Quotes is an Evergreen, Colorado-based life insurance brokerage that markets term life insurance utilizing direct response marketing methods combined with a call center staffed with licensed agents. The Company believes that this acquisition provides an important capability that had been missing from its business model, that is, the ability to service customers by telephone in addition to its internet-based service. Allocation of the purchase price to the assets acquired has not yet been completed, pending an independent valuation of those assets. For the year ended December 31, 2003, Life Quotes had revenues of approximately $10 million and net income of approximately $1 million.

        On the same date, the Company signed an agreement to sell 2.36 million shares of its common stock to Zions Bancorporation for $5.50 net per share, thus raising $13 million in new capital to be used by the Company to fund part of the Life Quotes acquisition cost. This agreement is also subject to shareholder approval. Quotesmith.com intends to fund the remainder of the purchase price by using cash on hand and/or mortgage debt.

F-16



LIFE QUOTES, INC.

INDEX TO FINANCIAL STATEMENTS

 
   Page
Audited Financial Statements    

Report of Independent Auditors
 
F-18
Balance Sheets as of December 31, 2003 and 2002   F-19
Statements of Income and Retained Earnings for the Years Ended December 31, 2003 and 2002   F-20
Statements of Cash Flows for the Years Ended December 31, 2003 and 2002   F-21
Notes to Financial Statements   F-22

F-17


 Report of Independent Auditors

Stockholder
Life Quotes, Inc.

        We have audited the accompanying balance sheets of Life Quotes, Inc. (the Company) as of December 31, 2003 and 2002, and the related statements of income and retained earnings, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

        We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company at December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

                                                                                        /s/  ERNST & YOUNG LLP      

January 31, 2004

        Except Note 7, as to which the date is

        March 3, 2004

F-18


 Life Quotes, Inc.

Balance Sheets

 
   December 31,
 
   2003
   2002
Assets            
Current assets:            
  Cash (overdraft)   $ (61,358 ) $ 36,825
  Accounts receivable (Note 3)     462,319     332,629
  Prepaid expenses     86,010     59,900
Total current assets     486,971     429,354
   
 

Property, plant and equipment—at cost (Note 2):
 
 
 
 
 
 
  Furniture, fixtures and equipment     346,468     301,380
  Data processing equipment     214,713     174,960
  Software     93,633     69,977
   
 
      654,814     546,317
Less accumulated depreciation     431,201     300,765
   
 
      223,613     245,552
   
 
    $ 710,584   $ 674,906
   
 

Liabilities and stockholder's equity
 
 
 
 
 
 
Current liabilities:            
  Accounts payable   $ 49,793   $ 48,826
  Accrued payroll taxes     36,442     —
  Other current liabilities     2,962     1,627
   
 
Total current liabilities     89,197     50,453

Stockholder's equity:
 
 
 
 
 
 
  Common stock, $1 par value, 100 shares authorized, issued and outstanding     100     100
  Retained earnings     621,287     624,353
   
 
      621,387     624,453
Contingencies (Note 6)            
   
 
    $ 710,584   $ 674,906
   
 

See accompanying notes to financial statements

F-19


 Life Quotes, Inc.

Statements of Income and Retained Earnings

 
   Year ended December 31,
  
 
   2003
   2002
  
Revenues              
Commissions   $ 8,220,630   $ 6,546,762  
Bonuses     2,147,809     2,355,135  
Other income     38,469     39,416  
   
 
 
      10,406,908     8,941,313  

Expenses
 
 
 
 
 
 
 
Salaries and wages     3,904,971     3,977,923  
Payroll taxes     298,338     290,818  
Employee benefits     229,391     179,409  
Education and training     36,538     22,401  
Incentives expense     52,092     79,257  
Licensing expense     104,926     93,160  
Office rent     400,000     598,893  
Building expenses     45,941     47,080  
Insurance     33,688     31,264  
Advertising and promotion     3,556,851     2,165,988  
Telephone and utilities     158,938     153,005  
Postage and delivery     120,801     157,934  
Office supplies and expense     126,683     150,343  
Travel and entertainment     36,002     33,519  
Depreciation     130,435     129,568  
Other miscellaneous     51,548     46,370  
   
 
 
      9,287,143     8,156,932  

Net income
 
 
1,119,765
 
 
784,381
 
Retained earnings—beginning of year     624,353     420,484  
Stockholder distributions     (1,122,831 )   (580,512 )
   
 
 
Retained earnings—end of year   $ 621,287   $ 624,353  
   
 
 

See accompanying notes to financial statements

F-20


 Life Quotes, Inc.

Statements of Cash Flows

 
   Year ended December 31,
  
 
   2003
   2002
  
Operating activities              
Net income   $ 1,119,765   $ 784,381  
Adjustments to reconcile net income to net cash provided by operating activities:              
  Depreciation     130,435     129,568  
  Changes in assets and liabilities:              
    Increase in accounts receivable     (129,690 )   (71,153 )
    Increase in prepaid expenses     (26,110 )   (38,687 )
    Increase (decrease) in accounts payable     967     (58,859 )
    Increase in accrued payroll taxes     36,442     —  
    Increase (decrease) in other current liabilities     1,336     (36,575 )
   
 
 
Net cash provided by operating activities     1,133,145     708,675  

Investing activities
 
 
 
 
 
 
 
Capital expenditures     (108,497 )   (46,460 )
   
 
 
Net cash used in investing activities     (108,497 )   (46,460 )

Financing activities
 
 
 
 
 
 
 
Stockholder's distributions     (1,122,831 )   (580,512 )
   
 
 
Net cash used in financing activities     (1,122,831 )   (580,512 )
Net increase (decrease) in cash and cash equivalents     (98,183 )   81,703  
Cash (overdraft) at beginning of year     36,825     (44,878 )
   
 
 
Cash (overdraft) at end of year   $ (61,358 ) $ 36,825  
   
 
 

See accompanying notes to financial statements.

F-21


 Life Quotes, Inc.

Notes to Financial Statements

December 31, 2003 and 2002

1.     Nature of Operations

        Life Quotes, Inc. operates as an insurance agency marketing primarily individual term life insurance. The Company generates revenue from commissions and bonuses paid by numerous life insurance companies based on new first year premium and renewal premium in force. For the years ended December 31, 2003 and 2002, the Company had approximately $35,410,000 and $29,062,000 of premium in force, respectively. During the years ended December 31, 2003 and 2002, approximately 97% of these premiums were underwritten by four insurance companies. The Company conducts its insurance agency business using a combination of commissioned marketing agents, and salaried or hourly support staff. After a short initiation period, marketing agents are paid entirely by commission. The Company generates prospective customer interest through a combination of advertising methods, primarily radio, print, and through their web site.

2.     Summary of Significant Accounting Policies

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

        The Company recognizes revenue, including first year commissions, renewal commissions, and volume-based bonuses, when notified by the insurance company that the commissions and bonuses have been earned. Receivables are recognized for revenue earned prior to the end of an accounting period, but not received until after the end of the period.

Advertising Costs

        The Company recognizes advertising costs as incurred. Production costs are expensed in the first period that the advertising takes place. The costs of communicating the advertising are expensed in the period in which the advertising is communicated.

Cash

        The Company maintains its available cash in demand checking accounts in federally insured banks.

Furniture, Equipment, and Computer Software

        Furniture, equipment, and computer software are recorded at cost. Depreciation is computed using the straight-line method over estimated useful lives ranging from three to five years. Repair and maintenance costs are charged to expense as incurred.

F-22


Income Taxes

        No provision for income taxes has been included in the accompanying financial statements as the Company has elected to be treated as an S corporation for tax purposes. Consequently all items of income and expense are reflected in the income tax returns of the stockholder.

3.     Accounts Receivable

        Accounts receivable at December 31, 2003 and 2002 represent commissions earned prior to year end, but not received and deposited until the following period. No allowance for doubtful accounts has been included in the accompanying financial statements as all receivables were collected subsequent to their respective year end.

4.     Lease Obligations

        The Company leases its office space from the Company's sole stockholder under an informal month-to-month lease. Lease payments made to the stockholder for the years ended December 31, 2003 and 2002, was $400,000 and $599,000, respectively.

5.     Retirement Plan and Employee Benefits

        The Company maintains a contributory retirement plan under Internal Revenue Code Section 401(k) for all of its full time employees. Under the terms of the plan, employees may contribute a portion of their salary, with an annual limit as established by law, $12,000 and $11,000 for the years ended December 31, 2003 and 2002. The Company is obligated to contribute an amount equal to 15% of the employee's contribution. Employees vest in company contributions after three years of employment. Retirement expense for the years ended December 31, 2003 and 2002 was $23,000 and $48,000, respectively.

        The Company provides health insurance benefits to its full time employees under the terms of several plans. The employee may choose coverage levels and deductible amounts based on their personal and family situation. The Company pays for the employee and withholds premium from the employee's wage for dependents. The Company does not have any agreements to provide post retirement benefits.

6.     Commitments and Contingencies

        The Company is subject to legal proceedings and claims in the ordinary course of business. The Company is not aware of any legal proceedings or claims that are believed to have a material effect on the Company's financial position.

7.     Subsequent Event

        On March 1, 2004 the Company entered into an agreement to sell the majority of the Company's assets and liabilities to Quotesmith.com, Inc., an insurance agency and brokerage. This agreement is subject to shareholder and regulatory approval. The sale is expected to close in the first half of 2004. The accompanying financial statements do not reflect any adjustments that may be made in conjunction with the sale.

F-23



Annex A-1

GRAPHIC

February 27, 2004

Member of the
Board of Directors
Quotesmith.com, Inc.
8205 South Cass Avenue
Darien, IL 60561

Members of the Board:

        You have asked us to advise you with respect to the fairness to Quotesmith.com, Inc. (the "Company") from a financial point of view of the Company's acquisition of certain of the assets of Life Quotes, Inc. (the "Seller") pursuant to that certain Asset Purchase Agreement among the Company, Life Quotes Acquisition, Inc. ("Acquisition Co."), Seller and Kenneth L. Manley (the "Asset Agreement") and the purchase of certain real property pursuant to that certain real estate purchase agreement among the Company, Acquisition Co., Seller and The Kenneth L. Manley Revocable Trust dated as of June 10, 1987 (the "Real Estate Agreement") (collectively, the "Transaction").

        Mystic Capital Advisors Group, LLC as part of its investment banking services, is regularly engaged in consulting on structuring, financing and the valuation of businesses and their securities in connection with mergers and acquisitions, private placements and valuations for estate, corporate and other purposes. We have acted as financial advisor to the Board in connection with the Transaction and will receive a fee and indemnification for our services, none of which is contingent upon the consummation of the Transaction.

        In arriving at the opinion set forth below, we have reviewed certain private and publicly available business and financial information relating to the Company and Seller and drafts of the Asset Agreement and the Real Estate Agreement. We have also reviewed certain other information, including historical financial information, provided to us by the Seller, and have met with the management of the Company and the Seller to discuss the business and prospects of the Seller. We have also considered certain financial and market data of the Seller, and we have compared that data with other publicly available data for similar sales. The data was collected by contacting several third party sources and analyses were performed by us to compare the terms and structure of the Transaction to the terms for similar transactions. We also considered such other information, public filings, financial studies, analyses, and investigations and financial, economic and market criteria which we deemed relevant.

167 Madison Avenue #605, New York, NY 10016
Phone: 212.251.0972 • Fax: 212.545.9045
www.mysticcapital.com

A-1-1

        In connection with our review, we have not assumed any responsibility for independent verification of any of the foregoing information, have relied on its being complete and accurate in all material respects, and have further relied on assurances of the Company that they are not aware of any material facts or circumstances that would make such information misleading. We have also assumed that the Asset Agreement and the Real Estate Agreement will conform to the drafts reviewed by us in all respects material to our analysis. We have not been requested to make, and have not made, an independent evaluation or appraisal of the real property nor of the Seller's assets or liabilities (contingent or otherwise) or other data related to the physical condition of the real property. A third party real estate appraiser was retained by the Company to perform an appraisal on the subject property during February 2004. While we have retained a copy of the executive summary provided in conjunction with the appraisal report, we make no representation as to the qualifications of the appraiser and do not provide an opinion as to the accuracy of the report.

        Our opinion is necessarily based upon market, economic and other conditions as they exist and can be evaluated as of the date of this opinion and the information made available to us as of the date of this opinion. It should be understood that subsequent developments may affect this opinion and that we do not have any obligation to update, revise or reaffirm this opinion. We are not rendering any opinion regarding the future performance of the Seller.

        This letter is provided solely for the information of the directors and stockholders of the Company and may not be used for any other purpose, or reproduced, disseminated, quoted, referred to or disclosed or otherwise made available to, or relied upon by any other person or entity, nor may reference be made hereto or to our firm or our engagement without our prior written consent except that this letter may be included in any Securities and Exchange Commission filing of the Company.

        Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Transaction is fair to the Company and its stockholders from a financial point of view.

  Very truly yours,

 
GRAPHIC

 
Mystic Capital Advisors Group, LLC

A-1-2


Annex A-2

Execution Copy

ASSET PURCHASE AGREEMENT

dated as of January 31, 2004

by and among

Quotesmith.com Inc.

Life Quotes Acquisition, Inc.

Kenneth L. Manley

and

Life Quotes, Inc.



TABLE OF CONTENTS

 
    
   Page
ARTICLE I SALE OF ASSETS   A-2-1
 
1.1
 
Purchase and Sale of Assets
 
A-2-1
 
1.2
 
Liabilities
 
A-2-3
 
1.3
 
Purchase Price
 
A-2-4
 
1.4
 
The Closing Payment and Preliminary Settlement Statement
 
A-2-5
 
1.5
 
Further Assurances; Post-Execution Cooperation
 
A-2-6
 
1.6
 
Third-Party Consents
 
A-2-7

ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND MANLEY
 
A-2-7
 
2.1
 
Organization of the Company
 
A-2-7
 
2.2
 
Authority
 
A-2-7
 
2.3
 
No Conflicts
 
A-2-8
 
2.4
 
Governmental Approvals and Filings
 
A-2-8
 
2.5
 
Books and Records
 
A-2-8
 
2.6
 
Financial Statements; Expenses
 
A-2-8
 
2.7
 
Absence of Changes
 
A-2-8
 
2.8
 
No Undisclosed Liabilities
 
A-2-9
 
2.9
 
Taxes
 
A-2-9
 
2.10
 
Legal Proceedings
 
A-2-10
 
2.11
 
Compliance With Laws and Orders
 
A-2-10
 
2.12
 
Benefit Plans; ERISA
 
A-2-11
 
2.13
 
Real Property
 
A-2-11
 
2.14
 
Tangible Personal Property
 
A-2-11
 
2.15
 
Accounts Receivable
 
A-2-11
 
2.16
 
Work-in-Process
 
A-2-12
 
2.17
 
Renewals
 
A-2-12
 
2.18
 
Intellectual Property Rights
 
A-2-12
 
2.19
 
Contracts
 
A-2-12
 
2.20
 
Licenses
 
A-2-13
 
2.21
 
Insurance
 
A-2-14
 
2.22
 
Affiliate Transactions
 
A-2-14
 
2.23
 
Employees; Labor Relations
 
A-2-14
 
2.24
 
Environmental Matters
 
A-2-14
         

i

 
2.25
 
Business Forms and Policy Statements
 
A-2-15
 
2.26
 
No Guarantees
 
A-2-15
 
2.27
 
Entire Business
 
A-2-15
 
2.28
 
Brokers
 
A-2-15
 
2.29
 
Commissions
 
A-2-16
 
2.30
 
Disclosure
 
A-2-16

ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
 
A-2-16
 
3.1
 
Organization
 
A-2-16
 
3.2
 
Authority
 
A-2-16
 
3.3
 
No Conflicts
 
A-2-16
 
3.4
 
Brokers
 
A-2-16
 
3.5
 
Governmental Approvals and Filings
 
A-2-17

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PARENT
 
A-2-17
 
4.1
 
Organization
 
A-2-17
 
4.2
 
Authority
 
A-2-17
 
4.3
 
No Conflicts
 
A-2-17
 
4.4
 
Governmental Approvals and Filings
 
A-2-17

ARTICLE V CONDITIONS PRECEDENT
 
A-2-18
 
5.1
 
Conditions Precedent—General
 
A-2-18
 
5.2
 
Conditions Precedent—the Purchaser
 
A-2-18
 
5.3
 
Conditions Precedent—the Company and Manley
 
A-2-19

ARTICLE VI CLOSING
 
A-2-19
 
6.1
 
Closing and Closing Date
 
A-2-19
 
6.2
 
Closing Documents—General
 
A-2-20
 
6.3
 
Closing Documents—The Company and Manley
 
A-2-20
 
6.4
 
Closing Documents—Purchaser and Parent
 
A-2-20

ARTICLE VII COVENANTS
 
A-2-21
 
7.1
 
Pre-Closing Affirmative Covenants—Company and Manley
 
A-2-21
 
7.2
 
Pre-Closing Negative Covenants—Company and Manley
 
A-2-21
 
7.3
 
Pre-Closing Affirmative Covenants—Purchaser and Parent
 
A-2-22
 
7.4
 
Post-Closing Covenants
 
A-2-22
 
7.5
 
Due Diligence
 
A-2-23
 
7.6
 
Cost of Financial Statements
 
A-2-23
 
7.7
 
Sale and Use Taxes
 
A-2-23
         

ii

 
7.8
 
Confidentiality
 
A-2-23

ARTICLE VIII LIMITATIONS
 
A-2-24
 
8.1
 
Disclaimers Regarding Warranties
 
A-2-24
 
8.2
 
Reliance
 
A-2-24
 
8.3
 
Damages
 
A-2-24

ARTICLE IX SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS
 
A-2-25
 
9.1
 
Survival of Representations, Warranties, Covenants and Agreements
 
A-2-25

ARTICLE X INDEMNIFICATION
 
A-2-25
 
10.1
 
Indemnification
 
A-2-25
 
10.2
 
Method of Asserting Claims
 
A-2-26

ARTICLE XI DEFINITIONS
 
A-2-28
 
11.1
 
Definitions
 
A-2-28
 
11.2
 
Interpretation
 
A-2-33

ARTICLE XII MISCELLANEOUS
 
A-2-33
 
12.1
 
Notices
 
A-2-33
 
12.2
 
Entire Agreement
 
A-2-34
 
12.3
 
Expenses
 
A-2-34
 
12.4
 
Public Announcements
 
A-2-34
 
12.5
 
Confidentiality
 
A-2-35
 
12.6
 
Waiver
 
A-2-35
 
12.7
 
Amendment
 
A-2-35
 
12.8
 
No Third Party Beneficiary
 
A-2-35
 
12.9
 
No Assignment; Binding Effect
 
A-2-35
 
12.10
 
Headings
 
A-2-35
 
12.11
 
Invalid Provisions
 
A-2-35
 
12.12
 
Governing Law
 
A-2-35
 
12.13
 
WAIVER OF JURY TRIAL
 
A-2-36
 
12.14
 
Counterparts; Facsimile
 
A-2-36
 
12.15
 
Preparation and Review of Agreement
 
A-2-36

iii

EXHIBITS

Exhibit A   Real Estate Agreement
Exhibit A-1   Lease Agreement
Exhibit B   Non-Competition Agreement
Exhibit C   Escrow Agreement
Exhibit D   Bill of Sale and Assumption Agreement
Exhibit E   Opinion of Company's Counsel
Exhibit F   Officer's Certificate of the Company
Exhibit G   Opinion of Duane Morris LLP
Exhibit H   Officer's Certificate of Purchaser
Exhibit I   Form of Preliminary Settlement Statement
Exhibit J   Option Shares
Exhibit K   Agreement

SCHEDULES

1.1(a)(i)   Tangible Personal Property
1.1(a)(ii)   Personal Property Leases
1.1(a)(iii)   Assumed Contracts
1.1(a)(iv)   Prepaid Expenses
1.1(a)(v)   Intangible Personal Property
1.1(a)(vi)   Licenses
1.1(a)(viii)   Other Assets and Properties
1.1(a)(ix)   Accounts Receivable
1.1(a)(x)   Work-in-Process
1.1(a)(xi)   Renewals
1.1(b)   Excluded Assets
1.1(c)   Revenues/Expenses
1.2(a)(ii)   Accounts Payable
1.2(a)(iii)   Other Liabilities
1.2(b)   Excluded Liabilities
1.3(a)   Purchase Price Computation
2.3   No Conflicts
2.4   Governmental Approval and Filings
2.7   Absence of Changes
2.8   No Undisclosed Liabilities
2.10   Legal Proceedings
2.11   Compliance With Laws and Orders
2.12   Benefit Plans; ERISA
2.18   Intellectual Property Rights
2.19(a)   Contracts
2.19(c)   Termination Rights
2.20   Licenses
2.21   Insurance
2.22   Affiliate Transactions
2.23   Employees; Labor Relations
2.29   Commissions
3.5   Governmental Approvals and Filings
4.4   Governmental Approvals and Filings
10.1(a)   Other Matters

iv

ASSET PURCHASE AGREEMENT

        This ASSET PURCHASE AGREEMENT, dated as of January 31, 2004 (this "Agreement"), is made and entered into by and among Quotesmith.com Inc. (the "Parent"), a Delaware corporation, Life Quotes Acquisition, Inc. (the "Purchaser"), a Delaware corporation and a wholly-owned subsidiary of the Parent, Life Quotes, Inc. (the "Company"), a Michigan corporation, and Kenneth L. Manley ("Manley"). Capitalized terms not otherwise defined herein have the meanings set forth in Section 10.1.

RECITALS

        A.    The Company is a domestic insurance agency operating in all states throughout the United States of America (the "Business").

        B.    The Company desires to sell, transfer and assign to the Purchaser, and the Purchaser desires to purchase and acquire from the Company, certain of the assets of the Company relating to the operation of the Business, and in connection therewith, the Purchaser has agreed to assume certain specifically identified liabilities of the Company relating to the Business, all on the terms set forth herein.

        C.    Concurrently with the execution and delivery of this Agreement, The Kenneth L. Manley Revocable Trust dated as of June 10, 1987 (the "Trust") and the Purchaser will enter into that certain Real Estate Purchase Agreement of even date herewith (the "Real Estate Agreement") substantially in the form attached hereto as Exhibit A, pursuant to which the Trust will sell, transfer and assign to the Purchaser, and the Purchaser will purchase and acquire from the Trust, the Real Property (defined below), for a purchase price not to exceed $5,000,000 in cash, so long as the third party appraisal is equal to or greater than $5,000,000.

        D.    The Trust and Purchaser are also concurrently entering into a lease agreement of even date herewith, in the form attached hereto as Exhibit A-1, pursuant to which the Trust shall lease the Real Property to the Purchaser for $1 for the Interim Period (defined below).

        E.    Manley is the sole shareholder of the Company and therefore will receive substantial benefits (financial and otherwise) from the transactions contemplated by this Agreement.

        F.     On the Closing Date, Manley will enter into that certain Non-Competition Agreement dated as of the Closing Date (the "Non-Competition Agreement") by and among Manley, the Parent and the Purchaser substantially in the form attached hereto as Exhibit B.

        NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth in this Agreement, and for other good and valuable consideration the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows:

ARTICLE I
  
SALE OF ASSETS

        1.1    Purchase and Sale of Assets.    

A-2-1

A-2-2

        1.2    Liabilities.    

A-2-3

        1.3    Purchase Price.    

A-2-4

        1.4    The Closing Payment and Preliminary Settlement Statement.    

A-2-5

        1.5    Further Assurances; Post-Execution Cooperation.    

A-2-6

        1.6    Third-Party Consents.    To the extent that any Assumed Contract or License is not assignable without the consent of another party, each of the Company and Manley shall use its or his respective best efforts to obtain the consent of such other party to the assignment of any such Assumed Contract or License to the Purchaser in all cases in which such consent is or may be required for such assignment. If any such consent shall not be obtained, each of the Company and Manley shall cooperate with the Purchaser in any reasonable arrangement designed to provide for the Purchaser the benefits intended to be assigned to the Purchaser under the relevant Assumed Contract or License, including enforcement at the cost and for the account of the Purchaser of any and all rights of the Company against the other party thereto arising out of the breach or cancellation thereof by such other party or otherwise. If and to the extent that such arrangement cannot be made, the Purchaser shall have no obligation pursuant to Section 1.2 or otherwise with respect to any such Assumed Contract or License.

ARTICLE II

  
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND MANLEY

        The Company and Manley hereby jointly and severally represent and warrant to the Purchaser as follows:

        2.1    Organization of the Company.    The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Michigan and has full power and authority to conduct the Business as and to the extent now conducted and to own, use and lease the Assets.

        2.2    Authority.    The Company has full power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, including without limitation, to sell and transfer the Assets pursuant to this Agreement. The execution and delivery by the Company of this Agreement, and the performance by the Company of its obligations hereunder, have been duly and validly authorized by Manley as the sole shareholder of the Company and by the Board of Directors of the Company, no other action being necessary. This Agreement has been duly and validly executed and delivered by each of the Company and Manley and constitutes legal, valid and binding obligations of each of the Company and Manley enforceable against each of the Company and Manley in accordance with its terms. Upon payment of the Purchase Price to the Company, Purchaser will be vested with good and marketable title to the Assets, free and clear of all Liens.

A-2-7


        2.3    No Conflicts.    The execution, delivery and consummation by each of the Company and Manley of this Agreement does not, and the performance by each of the Company and Manley of their respective obligations under this Agreement will not:

        2.4    Governmental Approvals and Filings.    

        2.5    Books and Records.    The Business Books and Records and the Business Forms and Policy Statements, as recorded, stored, or otherwise maintained or held (whether by means of electronic, mechanical or photographic process, whether computerized or not), are under the exclusive ownership and direct control of the Company.

        2.6    Financial Statements; Expenses.    The Company has delivered to the Purchaser true and complete copies of audited balance sheets of the Company as of December 31, 2003 and December 31, 2002, and related audited consolidated statements of operations and cash flows, including all schedules and applicable notes thereto, for each of the fiscal years then ended, prepared by Cannon & Schleicher, C.P.A. (the "Company Financial Statements"), together with all letters from such accountants with respect to the results of such audits. Ernst & Young, the auditor of Parent, will use the Company Financial Statements to prepare audited financial statements for the Parent and the Purchaser (the "Annual Financial Statements"). Except as set forth in the notes thereto, the Company Financial Statements were prepared from the Business Books and Records of the Company in accordance with GAAP, are complete and accurate in all material respects and fairly present the consolidated financial condition and results of operations of the Company as of the respective dates thereof and for the respective periods covered thereby.

        2.7    Absence of Changes.    Except for the execution and delivery of this Agreement and the transactions to take place pursuant hereto on the date hereof, since the Annual Financial Statement Date there has not been any material adverse change, or any event or development which, individually or together with other such events, could reasonably be expected to result in a material adverse change, in the Condition of the Business or the Company or the Assets. Without limiting the foregoing, except as disclosed in Section 2.7 of the Disclosure Schedule, there has not occurred, between the Annual Financial Statement Date and the date hereof, any of the following:

A-2-8

        2.8    No Undisclosed Liabilities.    Except as disclosed in Section 2.8 of the Disclosure Schedule, there are no Liabilities against, relating to or affecting the Assets or the Business other than Liabilities incurred in the ordinary course of business consistent with past practice, which in the aggregate are not material to the Condition of the Business.

        2.9    Taxes.    

A-2-9

        2.10    Legal Proceedings.    Except as disclosed in Section 2.10 of the Disclosure Schedule (with paragraph references corresponding to those set forth below):

        2.11    Compliance with Laws and Orders.    Except as disclosed in Section 2.11 of the Disclosure Schedule, neither the Company nor Manley has at any time within the last five (5) years been, nor has either received any notice that either is or has at any time within the last five (5) years been, in violation of or in default under, in any respect, any Law or Order applicable to the Business or the Assets. In particular, except as set forth in Section 2.11 of the Disclosure Schedule, neither the Company nor Manley is, nor has either the Company nor Manley received any notice that either is in violation, not previously resolved without any ongoing liability, of the rules or regulations of any Governmental or Regulatory Authorities, with respect to the Business or the Assets. If any such notices

A-2-10

have been received and not resolved without ongoing liability, each of the Company and Manley has disclosed its receipt and disposition to the Purchaser in writing prior to the execution of this Agreement.

        2.12    Benefit Plans; Erisa.    Except as set forth in Section 2.12 of the Disclosure Schedule:

        2.13    Real Property.    The Real Property and the improvements thereon located at 32045 Castle Court, Evergreen, Colorado (the "Real Property") and to be purchased from the Trust concurrently with this Agreement pursuant to the Real Estate Agreement is the only real property used or held for use in the operation of the Business. The Company does not own any real property. The only real property leased by the Company is the Real Property. The Trust owns the Real Property. The Company leases the Real Property from the Trust from month to month under an oral lease, which lease is in full force and effect.

        2.14    Tangible Personal Property.    Section 1.1(a)(i) of the Disclosure Schedule sets forth all of the Tangible Personal Property as of the Effective Date. The Company is in possession of and has good title to, or has valid leasehold interests in or valid rights under Contract to use, all the Tangible Personal Property. The Tangible Personal Property is free and clear of all Liens, and is in good working order and condition, ordinary wear and tear excepted, and its use complies in all material respects with all applicable Laws.

        2.15    Accounts Receivable.    Subject to Section 1.1(b), Section 1.1(a)(ix) of the Disclosure Schedule sets forth all of the Accounts Receivable as of the Effective Date. The Company has all right, title and interest in the Accounts Receivable, free and clear of all Liens. The Accounts Receivable are and shall be valid receivables, and are and shall be subject to no valid counterclaims or setoffs in excess of any reserves therefor, as disclosed in the Company Financial Statements.

A-2-11


        2.16    Work-in-Process.    Section 1.1(a)(x) of the Disclosure Schedule sets forth all of the Work-in-Process as of the Effective Date. The Company has all right, title and interest in the Work-in-Process, free and clear of all Liens. All Work-in-Process are and shall be valid pending applications for life insurance policies in connection with the Business.

        2.17    Renewals.    Section 1.1(a)(xi) of the Disclosure Schedule sets forth all of the Renewals as of the Effective Date. The Company has all right, title and interest in the Renewals, free and clear of all Liens. The Renewals are and shall be valid rights to receive insurance payments and service fees under existing in-force life insurance policies in connection with the Business.

        2.18    Intellectual Property Rights.    

        2.19    Contracts.    

A-2-12

        2.20    Licenses.    Section 1.1(a)(vi) of the Disclosure Schedule contains a true and complete list of all Licenses used or held for use in the Business, setting forth the function and the effective and renewal date of each. The Company has delivered to the Purchaser true and complete copies of all such Licenses. Except as disclosed in Section 2.20 of the Disclosure Schedule:

A-2-13

        2.21    Insurance.    Section 2.21 of the Disclosure Schedule contains a true and complete list (including the names and addresses of the insurers, the expiration dates thereof, the annual premiums and a brief description of the interests insured thereby) of all liability, property, workers' compensation and other insurance policies currently in effect that insure the Business, the Employees or the Assets and Properties. Each such insurance policy is valid and binding and in full force and effect and the Company has not received any notice of cancellation, termination or non-renewal in respect of any such policy or is in default thereunder.

        2.22    Affiliate Transactions.    Except as listed in Section 2.22 of the Disclosure Schedule, no officer, director, Affiliate or Associate of the Company or any Associate of any such officer, director or Affiliate provides or causes to be provided any assets, services or facilities used or held for use in connection with the Company and the Company does not provide or cause to be provided any Assets, services or facilities to any such officer, director, Affiliate or Associate. There are no shared facilities or services, which are used in connection with any business or operation of any of the Company's Affiliates or Associates other than the Business.

        2.23    Employees; Labor Relations.    

        2.24    Environmental Matters.    

A-2-14

        2.25    Business Forms and Policy Statements.    The Company has delivered to the Purchaser true and complete copies of all Business Forms and Policy Statements. The Business has been conducted in accordance with the Business Forms and Policy Statements and all relevant standards imposed by applicable Governmental and Regulatory Authorities and other applicable Laws. The Company has submitted all reports, audits and other information, whether periodic in nature or pursuant to specific requests, for the Business to all Governmental or Regulatory Authorities, which were so requested. All forms and records of the Business have been prepared, completed, maintained and filed in all respects in accordance with all applicable Laws, and are true and correct in all respects.

        2.26    No Guarantees.    No Liability of the Business related to the Assets, or of the Company incurred in connection with the conduct of the Business, is guaranteed by or subject to a similar contingent obligation of any other Person, nor has the Company guaranteed or become subject to a similar contingent obligation in respect of the Liabilities of any Person with whom the Company or Manley has significant business relationships in the conduct of the Business.

        2.27    Entire Business.    The sale of the Assets by the Company to the Purchaser pursuant to this Agreement will effectively convey to the Purchaser all of the tangible and intangible property used or held by or necessary to the Company (whether owned, leased or held under license by the Company, by any of the Company's Affiliates or Associates or by others) in connection with the conduct of the Business as heretofore conducted by the Company (except for the Excluded Assets) including, without limitation, all tangible Assets and Properties of the Company reflected in the balance sheet included in the Company Financial Statements and Assets and Properties acquired since the Annual Financial Statement Date in the conduct of the Business, other than Assets and Properties disposed of since such date, consistent with Section 2.7 and the Excluded Assets. There are no shared facilities or services, which are used in connection with any business or other operations of any of the Company's Affiliates or Associates other than the Business.

        2.28    Brokers.    All negotiations relative to the consummation of this Agreement have been carried out by the Company or Manley directly with the Purchaser without the intervention of any Person on behalf of the Company in such manner as to give rise to any claim by any Person against the Purchaser for a finder's fee, brokerage commission or similar payment.

A-2-15


        2.29    Commissions.    The aggregate gross revenue received by the Company attributable to the Business and the identity of all insurance companies during calendar years 2001, 2002 and 2003 are listed in Section 2.29 of the Disclosure Schedule. Section 2.29 of the Disclosure Schedule also lists all commissions and insurance companies that owe such commissions that are outstanding under all insurance policies generated by the Company as of the Effective Date. All insurance brokerage or agency business placed by all employees, brokers, sub-brokers or agents of the Company have been placed by them through and in the name of the Company and all commissions on such business have been paid to and are the property of the Company. None of the insurance sales agents, brokers, sub-brokers or employees of the Company have indicated a desire to terminate their relationship with the Company.

        2.30    Disclosure.    No representation or warranty contained in this Agreement, and no statement contained in the Disclosure Schedule or in any certificate, list or other writing furnished to the Purchaser pursuant to any provision of this Agreement (including without limitation the Financial Statements), contains any untrue statement of a material fact or omits to state a material fact necessary in order to make the statements herein or therein, in the light of the circumstances under which they were made, not misleading.

ARTICLE III
   
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER

        The Purchaser hereby represents and warrants to Manley and the Company as follows:

        3.1    Organization.    The Purchaser is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Purchaser has full power and authority to enter into and consummate this Agreement and to perform its obligations hereunder.

        3.2    Authority.    The Purchaser has the full power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby, including without limitation, to purchase the Assets pursuant to this Agreement. The execution, delivery and consummation by the Purchaser of this Agreement, and the performance by the Purchaser of its obligations hereunder, have been duly and validly authorized by the board of directors of the Purchaser, no other action on the part of the Purchaser being necessary. This Agreement has been duly and validly executed and delivered by the Purchaser and constitutes legal, valid and binding obligations of the Purchaser enforceable against the Purchaser in accordance with its terms.

        3.3    No Conflicts.    The execution, delivery and consummation by the Purchaser of this Agreement, the performance by the Purchaser of its obligations under this Agreement will not:

        3.4    Brokers.    All negotiations relative to this Agreement and the transactions consummated hereby have been carried out by the Purchaser directly with the Company without the intervention of any Person on behalf of the Purchaser in such manner as to give rise to any claim by any Person against the Company for a finder's fee, brokerage commission or similar payment.

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        3.5    Governmental Approvals and Filings.    

ARTICLE IV
   
REPRESENTATIONS AND WARRANTIES OF THE PARENT

        The Parent hereby represents and warrants to Manley and the Company as follows:

        4.1    Organization.    The Parent is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Parent has full power and authority to enter into and consummate this Agreement and to perform its obligations hereunder.

        4.2    Authority.    The Parent has the full power and authority to execute and deliver this Agreement, to perform its obligations hereunder and to consummate the transactions contemplated hereby. The execution, delivery and consummation by the Parent of this Agreement, and the performance by the Parent of its obligations hereunder, have been duly and validly authorized by the board of directors of the Parent, no other action on the part of the Parent being necessary. This Agreement has been duly and validly executed and delivered by the Parent and constitutes legal, valid and binding obligations of the Parent enforceable against the Parent in accordance with its terms.

        4.3    No Conflicts.    The execution, delivery and consummation by the Parent of this Agreement, the performance by the Parent of its obligations under this Agreement will not:

        4.4    Governmental Approvals and Filings.    

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ARTICLE V
   
CONDITIONS PRECEDENT

        5.1    Conditions Precedent—General.    The obligations of each of the parties to close the transactions provided for under this Agreement are subject to the fulfillment of each of the following conditions (all or any of which may be waived in whole or in part by the parties, other than a party obligated with respect thereto, in their sole discretion):

        5.2    Conditions Precedent—The Purchaser.    The obligations of the Purchaser to close the transactions provided for under this Agreement are subject to the fulfillment of each of the following additional conditions (all or any of which may be waived in whole or in part by the Purchaser in its sole discretion):

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ARTICLE VI
   
CLOSING

        6.1    Closing and Closing Date.    The purchase and sale of the Assets under this Agreement shall be closed at a closing (the "Closing"), which shall be held on or before April 1, 2004 (the "Closing

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Date"), at 10:00 a.m., local time, at the offices of the Purchaser in Darien, Illinois, or on such other date, time and place as the Company and the Purchaser may otherwise agree to in writing. Notwithstanding the foregoing, Purchaser may by written notice to the Company and Manley, extend the Closing Date to a date no later than August 1, 2004. If Purchaser elects to extend the Closing Date, the Purchase Price shall be increased by an amount equal to the sum of (i) interest on $18,395,000 at the rate of 4.5% per annum from April 1, 2004 to the date Closing occurs, and (ii) $5,000 per week for Manley's services from April 1, 2004 to the date Closing occurs. If Closing has not occurred on or before April 1, 2004 (or on or before August 1, 2004 if the Closing Date has been extended by the Purchaser), then this Agreement shall terminate and be null and void and of no force and effect, provided however that the rights and obligations of the parties under Article X of this Agreement shall survive such termination with respect to any breach of a party's representations, warranties and covenants under this Agreement.

        6.2    Closing Documents—General.    At the Closing, the Company and the Purchaser shall execute and deliver, or cause to be executed and delivered, the following:

        6.3    Closing Documents—The Company and Manley.    At the Closing, the Company and Manley shall execute and deliver, or cause to be executed and delivered, the following:

        6.4    Closing Documents—Purchaser and Parent.    At the Closing, the Purchaser shall pay the Purchase Price under Section 1.3 to the Company or to the Company's account (at such bank as may be designated by the Company in a written notice delivered to the Purchaser not less than five (5) days prior to the Closing) in immediately available funds (wire transfer or certified check). In addition, the Purchaser and Parent shall execute and deliver, or cause to be executed and delivered at the Closing, the following:

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ARTICLE VII
  
COVENANTS

        7.1    Pre-Closing Affirmative Covenants—Company and Manley.    During the Interim Period, if a Closing shall have occurred, and subject to the terms and conditions of this Agreement, the Company and Manley shall operate the Business and utilize the Assets in their respective capacities for the benefit of the Purchaser, consistent with past practice. Further, during the Interim Period, the Company and Manley shall:

        7.2    Pre-Closing Negative Covenants—Company and Manley.    Prior to the Closing, without the prior written consent of the Purchaser, the Company and Manley shall not:

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        7.3    Pre-Closing Affirmative Covenants—Purchaser and Parent.    Prior to the Closing, the Purchaser and Parent shall:

The Purchaser and Parent shall keep the Company and Manley reasonably informed of the status of the conditions to Closing contained in subsections (f), (g) and (h) of Section 5.2. If any of the conditions to Closing contained in subsections (f) or (h) of Section 5.2 are not satisfied, and by reason thereof the Purchaser and Parent terminate this Agreement on or after March 1, 2004, then Parent and the Purchaser shall, jointly and severally, be liable for and shall pay to the Company immediately upon demand, an amount equal to the documented reasonable accounting and legal fees actually incurred by the Company related to the transactions contemplated under this Agreement and the Real Estate Agreement; provided, however, such amount shall not exceed $60,000. The payment obligation of Parent and the Purchaser under the preceding sentence is conditioned upon the Company and Manley having performed in all material respects (except that such representations, warranties or covenants that contain materiality qualifiers shall be true in all respects) their respective obligations under this Agreement and the Real Estate Agreement.

        7.4    Post-Closing Covenants    

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        7.5    Due Diligence.    The Purchaser and Purchaser's officers, employees, representatives, consultants and advisors, at their sole risk, cost and expense (a) shall have access at reasonable times to the Company's offices and, in a manner so as not to interfere unduly with the operation of the Business, to the Business Books and Records insofar as the Company may do so (i) without violating legal constraints or any legal obligation or waiving any attorney/client work product or like privilege, and (ii) subject to any required consent of any third person, and (b) may, at reasonable times and conduct an inspection of the Business and the Assets; provided however, the Purchaser and Parent, jointly and severally, shall be responsible for any material loss, damage or injury directly caused by Purchaser or Parent arising out of or in connection with such access and inspection.

        7.6    Cost of Financial Statements.    The parties agree that the costs and expenses of the Company's Financial Statements will be borne equally by the Company and the Purchaser. The costs and expenses of the Annual Financial Statement shall be borne by the Purchaser and Parent.

        7.7    Sale and Use Taxes.    The Purchaser shall bear any sales or use taxes arising in connection with the Closing and the purchase and sale of the Assets pursuant to this Agreement.

        7.8    Confidentiality.    The Purchaser and Parent agree to maintain all information made available to them pursuant to this Agreement confidential and to cause their respective officers, employees, representatives, consultants and advisors to maintain all information made available to them pursuant to this Agreement confidential.

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ARTICLE VIII
  
LIMITATIONS

        8.1    Disclaimers Regarding Warranties.    IT IS THE EXPLICIT INTENT OF EACH PARTY HERETO THAT NEITHER THE COMPANY NOR MANLEY IS MAKING ANY REPRESENTATION OR WARRANTY WHATSOEVER, EXPRESS, IMPLIED, STATUTORY OR OTHERWISE, BEYOND THOSE REPRESENTATIONS OR WARRANTIES EXPRESSLY GIVEN IN THIS AGREEMENT, THE REAL ESTATE AGREEMENT OR THE NON-COMPETITION AGREEMENT, AND IT IS UNDERSTOOD THAT, SUBJECT TO SUCH EXPRESS REPRESENTATIONS AND WARRANTIES, PURCHASER AND PARENT TAKE THE ASSETS "AS IS" AND "WHERE IS." WITHOUT LIMITING THE GENERALITY OF THE IMMEDIATELY PRECEDING SENTENCE, THE COMPANY AND MANLEY HEREBY (i) EXPRESSLY DISCLAIM AND NEGATE ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AT COMMON LAW, BY STATUTE OR OTHERWISE, RELATING TO (a) THE CONDITION OF THE ASSETS (INCLUDING, WITHOUT LIMITATION, ANY IMPLIED OR EXPRESS WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, OR OF CONFORMITY TO MODELS OR SAMPLES OF MATERIAL), (b) THE ACCURACY, COMPLETENESS OR MATERIALITY OF ANY DATA, INFORMATION OR RECORDS FURNISHED TO PURCHASER AND PARENT REGARDING THE ASSETS OR IN CONNECTION WITH THE DUE DILIGENCE REVIEW CONDUCTED BY PURCHASER AND PARENT UNDER THIS AGREEMENT; (c) THE PRESENT OR FUTURE VALUE OR THE ANTICIPATED INCOME, COSTS OR PROFITS, IF ANY, TO BE DERIVED FROM THE ASSETS; or (d) ANY PROJECTIONS AS TO EVENTS THAT COULD OR COULD NOT OCCUR WITH RESPECT TO THE ASSETS, and (ii) NEGATE ANY RIGHTS OF PURCHASER AND PARENT UNDER STATUTES TO CLAIM DIMINUTION OF CONSIDERATION AND CLAIMS BY PURCHASER AND PARENT FOR DAMAGES BECAUSE OF REDHIBITORY VICES OR DEFECTS, WHETHER KNOWN OR UNKNOWN, IT BEING THE INTENTION OF THE PARTIES THAT THE ASSETS ARE TO BE ACCEPTED BY PURCHASER AND PARENT IN THEIR PRESENT CONDITION AND STATE OF REPAIR.

        8.2    Reliance.    Notwithstanding the foregoing and notwithstanding any right of the Purchaser (whether or not exercised) to investigate the Business or any right of any party (whether or not exercised) to investigate the accuracy of the representations and warranties of the other party contained in this Agreement and the Real Estate Agreement, the Company and Manley, on the one hand, and the Purchaser and Parent, on the other hand, have the right to rely fully upon the representations, warranties, covenants and agreements of the other contained in this Agreement.

        8.3    Damages.    NOTWITHSTANDING ANYTHING CONTAINED TO THE CONTRARY IN ANY OTHER PROVISION OF THIS AGREEMENT, THE COMPANY AND MANLEY, ON THE ONE HAND, AND PURCHASER AND PARENT, ON THE OTHER HAND, AGREE THAT THE RECOVERY OF ANY DAMAGES SUFFERED OR INCURRED AS A RESULT OF ANY BREACH BY EITHER PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS UNDER THIS AGREEMENT SHALL BE LIMITED TO THE ACTUAL DAMAGES SUFFERED OR INCURRED AS A RESULT OF THE BREACH BY THE BREACHING PARTY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS HEREUNDER AND IN NO EVENT SHALL THE BREACHING PARTY BE LIABLE TO THE NON-BREACHING PARTY FOR ANY INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES (INCLUDING, WITHOUT LIMITATION, ANY DAMAGES ON ACCOUNT OF LOST PROFITS OR OPPORTUNITIES) SUFFERED OR INCURRED BY THE NON-BREACHING PARTY AS A RESULT OF THE BREACH BY THE BREACHING PARTY OF ANY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR

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AGREEMENTS HEREUNDER. PROVIDED, HOWEVER, IF AS A RESULT OF THE BREACH BY A PARTY OF ITS REPRESENTATIONS, WARRANTIES, COVENANTS OR AGREEMENTS HEREUNDER, INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES ARE AWARDED AGAINST OR PAID BY THE NON-BREACHING PARTY TO ANY THIRD PARTY, THEN IF OTHERWISE ENTITLED TO INDEMNITY HEREUNDER, SUCH NON-BREACHING PARTY SHALL BE ENTITLED TO BE INDEMNIFIED FOR ALL DAMAGES PAYABLE TO THE THIRD PARTY, INCLUDING ALL ACTUAL AND ANY INDIRECT, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES AWARDED AGAINST OR PAID BY THE NON-BREACHING PARTY.

ARTICLE IX
   
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS

        9.1    Survival of Representations, Warranties, Covenants and Agreements.    The representations, warranties, covenants and agreements of the Company and Manley, on the one hand, and the Purchaser and Parent, on the other hand, contained in this Agreement hereby survive the execution of this Agreement (a) indefinitely with respect to the representations and warranties contained in Sections 2.2, 2.13, 2.14, 2.18, 2.27, 2.30, 3.2, 3.4, and 4.2 of this Agreement, (b) until ninety (90) calendar days after the fourth anniversary of the Closing Date with respect to matters covered by Sections 2.9, 2.12, 2.22 and 2.24 of this Agreement, (c) until the second anniversary of the Closing Date in the case of all other representations and warranties and any covenant or agreement in this Agreement, except that any representation, warranty, covenant or agreement that would otherwise terminate in accordance with clause (b) or (c) above will continue to survive if a Claim Notice or Indemnity Notice (as applicable) shall have been timely given under Article X on or prior to such termination date, until the related claim for indemnification has been satisfied or otherwise resolved as provided in Article X.

ARTICLE X
   
INDEMNIFICATION

        10.1    Indemnification.    

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        10.2    Method of Asserting Claims.    All claims for indemnification by any Indemnified Party under Section 10.1 will be asserted and resolved as follows:

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ARTICLE XI
  
DEFINITIONS

        11.1    Definitions.    As used in this Agreement, the following defined terms shall have the meanings indicated below:

        "Accounts Receivable" has the meaning ascribed to it in Section 1.1(a)(ix).

        "Actions or Proceedings" means any action, suit, proceeding, arbitration, or investigation or audit performed by or to be filed with any Governmental or Regulatory Authority.

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        "Affiliate" means any Person that directly, or indirectly through one of more intermediaries, controls or is controlled by or is under common control with the Person specified.

        "Agreement" means this Asset Purchase Agreement and the Exhibits, the Disclosure Schedule and the Schedules hereto and any other documents delivered by the parties in connection with the transactions contemplated hereto, as the same shall be amended from time to time.

        "Annual Financial Statement Date" means December 31, 2003.

        "Annual Financial Statements" has the meaning ascribed to it in Section 2.6.

        "Arbitrating Accountant" has the meaning ascribed to it in Section 1.4(d).

        "Assets" has the meaning ascribed to it in Section 1.1(a).

        "Assets and Properties" of any Person means all assets and properties of every kind, nature, character and description (whether real, personal or mixed, whether tangible or intangible, whether absolute, accrued, contingent, fixed or otherwise and wherever situated), including the goodwill related thereto, operated, owned or leased by such Person, including without limitation cash, cash equivalents, accounts and notes receivable, chattel paper, documents, instruments, general intangibles, real estate, equipment, inventory, goods and Intellectual Property.

        "Associate" means, with respect to any Person, any corporation or other business organization of which such Person is an officer or partner or is the beneficial owner, directly or indirectly, of ten percent (10%) or more of any class of equity securities, any trust or estate in which such Person has a substantial beneficial interest or as to which such Person serves as a trustee or in a similar capacity and any relative or spouse of such Person, or any relative of such spouse, who has the same home as such Person.

        "Assumed Contracts" has the meaning ascribed to it in Section 1.1(a)(iii).

        "Assumed Liabilities" has the meaning ascribed to it in Section 1.2(a).

        "Benefit Plan" means any Plan established by the Company, or any predecessor or Affiliate of the Company, existing on the date hereof or prior thereto, to which the Company contributes or has contributed on behalf of any Employee, former Employee or trustee, or under which any Employee, former Employee or trustee of the Company or any beneficiary thereof is covered, is eligible for coverage or has benefit rights.

        "Books and Records" of any Person means all files, documents, instruments, papers, books and records relating to the business, operations, condition of (financial or other), results of operations and Assets and Properties of such Person, including without limitation financial statements, Tax Returns and related work papers and letters from accountants, budgets, pricing guidelines, ledgers, journals, deeds, title policies, minute books, stock certificates and books, stock transfer ledgers, Contracts, Licenses, customer lists, computer files and programs, retrieval programs, operating data and plans and environmental studies and plans.

        "Business" has the meaning ascribed to it in the forepart of this Agreement.

        "Business Books and Records" has the meaning ascribed to it in Section 1.1(a)(vii).

        "Business Forms and Policy Statements" means any forms used in the conduct of the Business as well as all written policy manuals and other written statements of regulatory compliance.

        "Cercla" means the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and the rules and regulations promulgated thereunder or any successor thereto.

        "Claim Notice" means written notification pursuant to Section 10.2(a) of a Third Party Claim as to which indemnity under Section 10.1 is sought by an Indemnified Party, enclosing a copy of all papers

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served, if any, and specifying the nature of and basis for such Third Party Claim and for the Indemnified Party's claim against the Indemnifying Party under Section 10.2, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith, of such Third Party Claim.

        "Closing" has the meaning ascribed to it in Section 6.1.

        "Closing Date" has the meaning ascribed to it in Section 6.1.

        "Closing Payment" has the meaning ascribed to it in Section 1.4.

        "Code" means the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

        "Collected Receivables" has the meaning ascribed to it in Section 1.3.

        "Condition of the Business" means the business, condition (financial or otherwise), results of operations, Assets and Properties, liabilities and prospects of the Business, taken as a whole.

        "Company" has the meaning ascribed to it in the forepart of this Agreement.

        "Company Financial Statements" has the meaning ascribed to it in Section 2.6.

        "Contract" means any agreement, lease, evidence of Indebtedness, mortgage, indenture, security agreement or other contract (whether written or oral), including, without limitation, any insurance policies issued by the Company to any third parties in connection with the Business.

        "Defined Benefit Plan" means each Plan, which is subject to Part 3 of Title 1 of ERISA, Section 412 of the Code or Title IV of ERISA.

        "Disclosure Schedule" means the record delivered to the Purchaser by the Company herewith and dated as of the date hereof, containing all lists, descriptions, exceptions and other information and materials as are required to be included therein by the Company pursuant to this Agreement.

        "Dispute Period" means the period ending thirty (30) calendar days following receipt by an Indemnifying Party of either a Claim Notice or an Indemnity Notice.

        "Effective Date" has the meaning ascribed to it in Section 1.1(a).

        "Employee" means each employee, officer or consultant of the Company engaged primarily in the conduct of the Business.

        "Environmental Law" means any Law relating to human health, safety or protection of the environment or to emissions, discharges, releases or threatened releases of pollutants, contaminants or Hazardous Materials in the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata), or otherwise relating to the treatment, storage, disposal, transport or handling of any Hazardous Material, as in effect from time to time.

        "ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and the rules and regulations promulgated thereunder.

        "Escrow Agent" means Zions Bank.

        "Escrow Agreement" means that certain Escrow Agreement dated as of the Effective Date by and among Manley, the Company, the Purchaser and the Escrow Agent.

        "Escrowed Amount" has the meaning ascribed to it in Section 1.3(a).

        "Excluded Assets" has the meaning ascribed to it in Section 1.1(b).

        "Excluded Liabilities" has the meaning ascribed to it in Section 1.2(b).

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        "Fairness Opinion" has the meaning ascribed to it in Section 7.3(a).

        "Final Settlement Statement" has the meaning ascribed to it in Section 1.4(d).

        "Financial Statements" means any and all of the financial statements delivered to the Purchaser pursuant to Section 2.6.

        "GAAP" means generally accepted accounting principles, consistently applied throughout the specified period and in the immediately prior comparable period.

        "Governmental or Regulatory Authority" means any court, tribunal, arbitrator, authority, agency, commission, official or other instrumentality of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision.

        "HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended and the rules and regulations thereunder.

        "Hazardous Material" means (a) any petroleum or petroleum products. radioactive materials, asbestos in any form that is or could become friable, urea formaldehyde foam insulation and transformers or other equipment that contain dielectric fluid containing levels of polychlorinated biphenyls (PCBs); (b) any chemicals, materials, substances or wastes which are now or hereafter become defined as or included in the definition of "hazardous substances,' "hazardous wastes," "hazardous materials," "extremely hazardous wastes,' "restricted hazardous wastes," "toxic substances," "toxic pollutants" or words of similar import, under any Environmental Law; and (c) any other chemical, material, substance or waste, exposure to which is now prohibited, limited or regulated by any Governmental or Regulatory Authority.

        "Indebtedness" of any Person means all obligations of such Person (a) for borrowed money, (b) evidenced by notes, bonds, debentures or similar instruments, (c) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (d) under capital leases and (e) in the nature of guarantees of the obligations described in clauses (a) through (d) above of any other Person.

        "Indemnified Party" means any Person claiming indemnification under any provision of Article X.

        "Indemnifying Party" means any Person against whom a claim for indemnification is being asserted under any provision of Article X.

        "Indemnity Notice" means written notification pursuant to Section 10.2(b) of a claim for indemnity under Article X by an Indemnified Party, specifying the nature of and basis for such claim, together with the amount or, if not then reasonably ascertainable, the estimated amount, determined in good faith of such claim.

        "Intellectual Property" means all patents and patent rights, trademarks and trademark rights, trade names and trade name rights, trade dress, service marks and service mark rights, service names and service name rights, brand names, inventions (whether or not patentable and whether or not reduced to practice), processes, formulae, copyrights and copyright rights (including, but not limited to the content of the "lifequotes.com" website), business and product names, corporate names (including, but not limited to the "lifequotes.com" name), logos, slogans, trade secrets, processes, designs, methodologies, computer programs (including all source codes) and related documentation, URLs, technical information, know-how and all pending applications for and registrations of patents, trademarks, service marks and copyrights.

        "Interim Period" has the meaning ascribed to it in Section 1.4.

        "IRS" means the United States Internal Revenue Service.

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        "Knowledge" shall mean the knowledge, after inquiry, of Kenneth L. Manley with respect to the Company.

        "Law" or "Laws" means all laws, statutes, rules, regulations, ordinances, standards and other pronouncements having the effect of law of the United States, any foreign country or any domestic or foreign state, county, city or other political subdivision or of any Governmental or Regulatory Authority.

        "Liabilities" means all Indebtedness, obligations and other liabilities of a Person (whether absolute, accrued, contingent, fixed or otherwise, or whether due or to become due).

        "Licenses" has the meaning ascribed to it in Section 1.1(a)(vi).

        "Liens" means any mortgage, pledge, assessment, security interest, lease, lien, adverse claim, levy, charge or other encumbrance of any kind, or any conditional sale Contract, title retention Contract or other Contract to give any of the foregoing.

        "Life Quotes Names" has the meaning ascribed to it in Section 5.2(c).

        "Loss" means any and all demands, claims, actions, causes of action, assessments, liabilities, damages, fines, fees, penalties, deficiencies, losses, Taxes and expenses (including without limitation interest, court costs, fees of attorneys, accountants and other expense or other expenses of litigation or other proceedings or of any claim, default or assessment).

        "Manley" means Kenneth L. Manley, the sole shareholder of the Company.

        "Notice of Disagreement" has the meaning ascribed to it in Section 1.4(d).

        "Order" means any writ, judgment, decree, injunction or similar order of any Governmental or Regulatory Authority (in each such case whether preliminary or final).

        "Parent" has the meaning ascribed to it in the forepart of this Agreement.

        "Person" means any natural person, corporation, general partnership, limited partnership, proprietorship, other business organization, trust, union, association or Governmental or Regulatory Authority.

        "Plan" means any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, accident, disability, workmen's compensation or other insurance, severance, separation or other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, including, but not limited to, any "employee benefit plan" within the meaning of Section 3(3) of ERISA.

        "Preliminary Settlement Statement" has the meaning ascribed to it in Section 1.4(d).

        "Purchase Price" has the meaning ascribed to it in Section 1.3(a).

        "Purchaser" has the meaning ascribed to it in the forepart of this Agreement.

        "Real Estate Agreement" has the meaning ascribed to it in the Recitals.

        "Real Property" has the meaning ascribed to it in Section 2.13.

        "Receivables Amount" has the meaning ascribed to it in Section 1.3.

        "Release" or "Released" has the meaning ascribed to it in Section 2.24(b).

        "Renewals" has the meaning ascribed to it in Section 1.1(a)(xi).

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        "Resolution Period" means the period ending thirty (30) calendar days following receipt by an Indemnified Party of a Dispute Notice.

        "Shortfall Amount" has the meaning ascribed to it in Section 1.3(c).

        "Statement Period" has the meaning ascribed to it in Section 1.4(b).

        "Tangible Personal Property" has the meaning ascribed to it in Section 1.1(a)(ii).

        "Tax Returns" means any returns, reports or statements (including any information returns) required to be filed for purposes of a particular Tax.

        "Tax or Taxes" means any and all federal, state, local or foreign taxes or assessments of any kind or nature whatsoever, including any and all net or gross income, franchise, gross receipts, sales, use, alternative or add-on, minimum, employment, real property, personal property, business, capital stock, occupancy, ad valorem, value added, transfer, license, excise, stamp, estimated, withholding, service, payroll, social security, excise, environmental, recording or other taxes, assessments, duties, fees, levies or other governmental charges of any nature whatever, whether disputed or not, together with any related penalties, charges, interest and other additions to tax or additional amounts with respect thereto.

        "Taxing Authority" means any and all federal, state, local or foreign authorities empowered to assess or collect Taxes.

        "Third Party Claim" has the meaning ascribed to it in Section 10.2(a).

        "Trust" has the meaning ascribed to it in the Recitals.

        "Work-in-Process" has the meaning ascribed to in Section 1.1(a)(x).

        11.2    Interpretation.    Unless the context of this Agreement otherwise requires, (a) words of any gender include each other gender; (b) words using the singular or plural number also include the plural or singular number, respectively; (c) the terms "hereof," "herein," "hereby" and derivative or similar words refer to this entire Agreement; (d) the terms "Article" or "Section" refer to the specified Article or Section of this Agreement; and (e) the phrases "ordinary course of business" and "ordinary course of business consistent with past practice" refer to the business and practice of the Company in connection with the Business. All accounting terms used herein and not expressly defined herein shall have the meanings given to them under GAAP.

ARTICLE XII
   
MISCELLANEOUS

        12.1    Notices.    All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or mailed (first class postage prepaid) or delivered by a recognized overnight courier service to the parties at the following addresses or facsimile numbers:

If to the Purchaser or Parent, to:

Quotesmith.com, Inc.
8205 South Cass Avenue, No. 102
Darien, Illinois 60561
Facsimile:   (630) 515-0276
Attention:   Robert S. Bland, Chairman,
Chief Executive Officer and President
     

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with a copy to:

Duane Morris LLP
227 West Monroe Street
Suite 3400
Chicago, Illinois 60606
Facsimile:   (312) 499-6701
Attention:   David J. Kaufman

If to the Company or Manley, to:

Kenneth L. Manley
758 Soda Creek Drive
Evergreen, Colorado 80439
Facsimile:   (800) 690-6550

with a copy to:

Welborn, Sullivan, Meck & Tooley, P.C.
821 17th Street
Suite 500
Denver, Colorado 80202
Facsimile:   (303) 832-2366
Attention:   John F. Meck

All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section (and followed by another method provided herein), be deemed given upon receipt, (iii) if delivered by mail in the manner described above to the address as provided in this Section, be deemed given upon receipt and (iv) if delivered by overnight courier to the address as provided in this Section, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section). Any party from time to time may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto.

        12.2    Entire Agreement.    This Agreement, the Real Estate Agreement and the Non-Compete Agreement supersede all prior discussions and agreements between the parties with respect to the subject matter hereof and thereof, and contain the sole and entire agreement between the parties hereto with respect to the subject matter hereof and thereof.

        12.3    Expenses.    Except as provided in Section 7.3 and Section 7.6, each party shall pay all of its expenses in connection with the preparation, negotiation and execution of this Agreement, the performance of its obligations hereunder and the consummation of the transactions contemplated by this Agreement.

        12.4    Public Announcements.    The Company, on the one hand, and the Purchaser, on the other hand, will not issue or make any reports, statements or releases to the public or generally to the employees, or other Persons to whom the Company provides services in connection with the Business or with whom the Company otherwise has business relationships in connection with the Business with respect to this Agreement or the transactions consummated hereby without the consent of the other; provided, however, that the Parent may make such public announcements as it deems reasonable in its sole discretion in order to comply with any applicable law, including securities laws. The Company, on

A-2-34


the one hand, and the Purchaser, on the other hand, will also use reasonable efforts to obtain the other party's prior approval of any press release to be issued immediately following the execution of the Agreement and the Real Estate Agreement.

        12.5    Confidentiality.    During the term of this Agreement, Purchaser and Parent shall maintain the confidentiality of all information and materials received by them, except for the approved press release referenced in Section 12.4 and any information required to be disclosed pursuant to applicable Law. During the term of this Agreement, the Company and Manley shall maintain the confidentiality of all information and materials regarding the transactions contemplated hereby and all information and materials regarding the Purchaser, Parent and their respective Affiliates except for any information required to be disclosed pursuant to applicable Law.

        12.6    Waiver.    Any term or condition of this Agreement may be waived at any time by the party that is entitled to the benefit thereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the party waiving such term or condition. No waiver by any party of any term or condition of this Agreement, in anyone or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any future occasion. All remedies, either under this Agreement or by Law or otherwise afforded, will be cumulative and not alternative.

        12.7    Amendment.    This Agreement may be amended, supplemented or modified only by a written instrument duly executed by or on behalf of each party hereto.

        12.8    No Third Party Beneficiary.    The terms and provisions of this Agreement are intended solely for the benefit of each party hereto and their respective successors or permitted assigns, and it is not the intention of the parties to confer third-party beneficiary rights upon any other Person other than any Person entitled to indemnity under Article X.

        12.9    No Assignment; Binding Effect.    Neither this Agreement nor any right, interest or obligation hereunder may be assigned by any party hereto without the prior written consent of the other party hereto and any attempt to do so will be void, except (a) for assignments and transfers by operation of Law and (b) that the Purchaser or Parent may assign any or all of its respective rights, interests and obligations hereunder (including without limitation its respective rights under Article X) to a wholly-owned subsidiary of Parent. Subject to the preceding sentence, this Agreement is binding upon, inures to the benefit of and is enforceable by the parties hereto and their respective legal heirs, beneficiaries, successors and permitted assigns.

        12.10    Headings.    The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

        12.11    Invalid Provisions.    If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future Law, and if the rights or obligations of any party hereto under this Agreement will not be materially and adversely affected thereby, (a) such provision will be fully severable, (b) this Agreement will be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement will remain in full force and effect and will not be affected by the illegal, invalid or unenforceable provision or by its severance herefrom and (d) in lieu of such illegal, invalid or unenforceable provision, there will be added automatically as a part of this Agreement a legal, valid and enforceable provision as similar in terms to such illegal, invalid or unenforceable provision as may be possible.

        12.12    Governing Law.    This Agreement shall be governed by and construed in accordance with the Laws of the State of Illinois applicable to a contract executed and performed in such State without giving effect to the conflicts of laws principles thereof.

A-2-35


        12.13    WAIVER OF JURY TRIAL.    EACH OF THE PARTIES HERETO WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON, ARISING OUT OF, UNDER OR IN CONNECTION WITH, THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, ORAL OR WRITTEN STATEMENT, OR OTHER ACTION OF ANY SUCH PARTY.

        12.14    Counterparts; Facsimile.    This Agreement may be executed in any number of counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. A signed facsimile copy of this Agreement shall be deemed an original for all purposes.

        12.15    Preparation and Review of Agreement.    Each of the parties hereto agree that this Agreement has been thoroughly reviewed by its respective choice of counsel and, in the event of an ambiguity or conflict in the terms hereof, there shall be no presumption against the Parent, Purchaser or their counsel as the drafters hereof.

[Signature page follows]

A-2-36

        WITNESS WHEREOF, this Agreement has been duly executed and delivered by a duly authorized officer or signatory of each party as of the date first above written.

  LIFE QUOTES, INC.

 
By:
 
/s/  KENNETH L. MANLEY      
Kenneth L. Manley, President

 
KENNETH L. MANLEY

 
/s/  KENNETH L. MANLEY      

 
LIFE QUOTES ACQUISITION, INC.

 
By:
 
/s/  ROBERT S. BLAND      
Robert S. Bland, President

 
QUOTESMITH.COM INC

 
By:
 
/s/  ROBERT S. BLAND      
Robert S. Bland, Chairman, Chief Executive
Officer and President

A-2-37


Annex A-3

EXECUTION COPY

STOCK PURCHASE AGREEMENT

BY AND BETWEEN

QUOTESMITH.COM, INC.

AND

ZIONS BANCORPORATION

Dated as of March 1, 2004


TABLE OF CONTENTS

1.    Purchase and Sale of the Shares   A-3-1
  1.1   Issuance and Sale of Common Stock   A-3-1
  1.2   Closing   A-3_1

2.    Representations and Warranties of the Company
 
A-3-1
  2.1   Organization, Good Standing and Qualification   A-3-1
  2.2   Corporate Authority   A-3-2
  2.3   Capitalization and Voting Rights   A-3-2
  2.4   Subsidiaries   A-3-3
  2.5   Authorization   A-3-3
  2.6   Valid Issuance of Common Stock   A-3-3
  2.7   Third Party Consents   A-3-3
  2.8   Offering   A-3-4
  2.9   Litigation   A-3-4
  2.10   Intellectual Property   A-3-4
  2.11   Compliance with Other Instruments and Laws   A-3-5
  2.12   Agreements; Actions   A-3-5
  2.13   Related-Party Transactions   A-3-6
  2.14   Permits   A-3-6
  2.15   Environmental and Safety Laws   A-3-6
  2.16   Disclosure   A-3-7
  2.17   Registration Rights   A-3-7
  2.18   Corporate Documents   A-3-7
  2.19   Title to Real Property and Assets   A-3-7
  2.20   Financial Reports   A-3-7
  2.21   Reports   A-3-8
  2.22   Changes   A-3-8
  2.23   Employee Benefit Plans   A-3-9
  2.24   Tax Returns, Payments and Elections   A-3-10
  2.25   Insurance   A-3-10
  2.26   Minute Books   A-3-10
  2.27   Labor Agreements and Actions   A-3-10
  2.28   Employees   A-3-11
  2.29   Use of Proceeds   A-3-11
  2.30   Proprietary Information and Inventions Assignment Agreements   A-3-11

3.    Representations and Warranties of the Investor
 
A-3-11
  3.1   Organization and Good Standing   A-3-11
  3.2   Corporate Authority   A-3-11
  3.3   Purchase Entirely for Own Account   A-3-11
  3.4   Investment Experience   A-3-12
  3.5   Accredited Investor   A-3-12
  3.6   Restricted Securities   A-3-12
  3.7   Legends   A-3-12

4.    Conditions of the Investor's Obligations at Closing
 
A-3-12
  4.1   Representations and Warranties   A-3-12
  4.2   Performance   A-3-12
  4.3   Absence of Changes   A-3-13
  4.4   Notices, Consents, Permits and Waivers   A-3-13
  4.5   Compliance Certificate   A-3-13
         

i

  4.6   Legal Investment; Orders   A-3-13
  4.7   Proceedings and Documents   A-3-13
  4.8   Board of Directors   A-3-13
  4.9   Opinion of Company Counsel   A-3-13
  4.10   Investor Rights Agreement   A-3-13
  4.11   Secretary's Certificate   A-3-13
  4.12   Employee Matters   A-3-14
  4.13   Due Diligence   A-3-14
  4.14   Bankruptcy, etc   A-3-14
  4.15   Absence of Liabilities   A-3-14
  4.16   Life Quotes, Inc. Acquisition   A-3-14
  4.17   Rights Plan   A-3-14
  4.18   Shareholder Approval   A-3-14
  4.19   Waivers to Employment Agreements   A-3-14

5.    Conditions of the Company's Obligations at Closing
 
A-3-15
  5.1   Representations and Warranties   A-3-15
  5.2   Legal Investment; Orders   A-3-15
  5.3   Notices, Consents, Permits and Waivers   A-3-15
  5.4   Shareholder Approval   A-3-15

6.    Miscellaneous
 
A-3-15
  6.1   Survival of Representations and Warranties   A-3-15
  6.2   Indemnification   A-3-15
  6.3   Successors and Assigns   A-3-17
  6.4   Governing Law and Venue; Waiver of Jury Trial   A-3-17
  6.5   Titles and Subtitles   A-3-18
  6.6   Notices   A-3-18
  6.7   Publicity   A-3-19
  6.8   Delay or Omissions   A-3-19
  6.9   Securities Laws   A-3-19
  6.10   Broker's Fees   A-3-19
  6.11   Expenses   A-3-19
  6.12   Attorney's Fees   A-3-19
  6.13   Specific Performance   A-3-20
  6.14   Termination and Effect   A-3-20
  6.15   Covenants of the Company   A-3-20
  6.16   Amendments and Waivers   A-3-20
  6.17   Severability   A-3-20
  6.18   Entire Agreement   A-3-20
  6.19   Counterparts   A-3-20

EXHIBITS AND SCHEDULES

DEFINITIONS ADDENDUM

EXHIBITS

EXHIBIT A   FORM OF COMMON STOCK CERTIFICATE
EXHIBIT B   FORM OF INVESTOR RIGHTS AGREEMENT
EXHIBIT C   IDENTIFIED STOCKHOLDERS
EXHIBIT D   OPINION OF DUANE MORRIS LLP, SPECIAL COUNSEL TO THE COMPANY
EXHIBIT E   OPINION OF RICHARD C. CLAAHSEN, GENERAL COUNSEL TO THE COMPANY
SCHEDULE OF EXCEPTIONS

ii

Section 2.3(d)   Pro Forma Capitalization
Section 2.7   Third Party Consents
Section 2.10   Intellectual Property
Section 2.12(f)   Agreements; Actions
Section 2.18   Corporate Documents
Section 2.22   Changes
Section 2.23   Employee Benefit Plans
Section 2.24   Tax Returns, Payments and Elections
Section 2.27   Labor Agreements and Action
Section 2.28   Employees
Section 4.12   Employee Matters

iii

QUOTESMITH.COM, INC.

STOCK PURCHASE AGREEMENT

        This STOCK PURCHASE AGREEMENT (as amended, restated, supplemented or otherwise modified from time to time and including all Exhibits and Schedules hereto, this "Agreement"), is made as of the 1st day of March, 2004, by and between QUOTESMITH.COM, INC., a Delaware corporation (the "Company"), and ZIONS BANCORPORATION, a Utah corporation (the "Investor"). The Company and the Investor are sometimes hereinafter referred to individually as a "Party" and collectively as the "Parties".

        Terms defined in the text of this Agreement shall have the meanings set forth therein. Other capitalized terms not otherwise defined herein shall have the meanings set forth in the Definitions Addendum, which is attached hereto and incorporated herein by this reference.

THE PARTIES HEREBY AGREE AS FOLLOWS:

        1.    Purchase and Sale of the Shares.    

        2.    Representations and Warranties of the Company.    The Company hereby represents and warrants to the Investor that, except as set forth on a Schedule of Exceptions (the "Schedule of Exceptions") attached hereto and made a part hereof, specifically identifying the relevant subparagraph hereof:

A-3-1

A-3-2

A-3-3

A-3-4

A-3-5

A-3-6

A-3-7

A-3-8

A-3-9

A-3-10

        3.    Representations and Warranties of the Investor.    The Investor hereby represents and warrants to the Company that:

A-3-11

        4.    Conditions of the Investor's Obligations at Closing.    The obligations of the Investor under Section 1.1 of this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against the Investor if it does not consent in writing thereto:

A-3-12

A-3-13

A-3-14

        5.    Conditions of the Company's Obligations at Closing.    The Company's obligation to sell the Shares at the Closing is subject to the satisfaction, on or prior to the Closing Date, of the following conditions:

        6.    Miscellaneous.    

A-3-15

A-3-16

A-3-17

If to the Investor:   Zions Bancorporation
One South Main Street, Suite 1138
Salt Lake City, Utah 84111
Attention: John B. Hopkins
Telephone No.: (801) 844-8587
Facsimile No.: (801) 524-2129

With a copy, which shall not constitute notice, to:
 
Sullivan & Cromwell LLP
1888 Century Park East, Suite 2100
Los Angeles, California 90067
Attention: Stanley F. Farrar
Telephone No.: (310) 712-6600
Facsimile No.: (310) 712-8800

If to the Company:
 
Quotesmith.com, Inc.
8205 South Cass Avenue
Darien, Illinois 60561
Attention: Bob Bland
Telephone No.: (630) 515-0170 ext. 101
Facsimile No.: (630) 515-0276

With a copy, which shall not constitute notice, to:
 
Duane Morris LLP
227 West Monroe, Suite 3400
Chicago, Illinois 60606
Attention: David J. Kaufman
Telephone No: (312) 499-6741
Facsimile No: (312) 499-6701

A-3-18

A-3-19

[Signature page follows]

A-3-20

        IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

  THE COMPANY:

 
QUOTESMITH.COM, INC.

 
By:
 
/s/  ROBERT S. BLAND      
      Name:   Robert S. Bland
      Title:   Chairman, President and Chief Executive Officer

 
INVESTOR:

 
ZIONS BANCORPORATION

 
By:
 
/s/  JOHN B. HOPKINS      
      Name:   John B. Hopkins
      Title:   Vice President of Finance

A-3-21

DEFINITIONS ADDENDUM

        This Definitions Addendum is an attachment to and part of that certain Stock Purchase Agreement, dated as of March 1, 2004 (the "Stock Purchase Agreement"), between Quotesmith.com, Inc. and Zions Bancorporation. Except as otherwise stated in the Stock Purchase Agreement, the following terms shall have the following meanings:

        "Adverse Consequences" means all actions, suits, proceedings, hearings, investigations, charges, complaints, claims, demands, injunctions, writs, judgments, orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid in settlement, Liabilities, obligations, Taxes, Liens, losses, expenses and fees, including court costs and reasonable attorneys' fees and expenses, including indirect, consequential and punitive damages.

        "Business Day" means any day other than (i) a Saturday, Sunday or legal holiday or (ii) a day on which commercial banks in the State of California, New York or Utah are authorized or required by law or executive order to close.

        "Closing Date" means the date of the Closing.

        "Contract" or "Contracts" means any mortgage, indenture, security agreement, evidence of Indebtedness, lease, license, agreement, understanding, instrument, undertaking or other contract.

        "GAAP" means generally accepted accounting principles as in effect from time to time in the United States applied on a consistent basis throughout the period involved.

        "Governmental Entity" means any governmental or regulatory authority, agency, commission, body, corporation, court, tribunal or other governmental entity or authority of any kind or nature.

        "Indebtedness" of any Person means all obligations of such Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of goods or services (other than trade payables or accruals incurred in the ordinary course of business), (iv) under capital leases and (v) in the nature of guarantees of the obligations described in clauses (i) through (iv) above of any other Person.

        "Knowledge" an individual will be deemed to have "knowledge" of a particular fact or other matter if (i) such individual is actually aware of such fact or other matter or (ii) a prudent individual could reasonably be expected to discover or otherwise become aware of such fact or other matter. 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 or employee of such Person (or in any similar capacity) has, or at any time had, knowledge of such fact or other matter.

        "Liability" or "Liabilities" means any liability (whether known or unknown, whether asserted or unasserted, whether absolute or contingent, whether accrued or unaccrued, whether liquidated or unliquidated and whether due or to become due), including any liability for Taxes.

        "Lien" or "Liens" means, with respect to any Person, any security interest, claim, pledge, mortgage, charge, option, assignment, hypothecation, encumbrance, attachment, garnishment, sequestration, forfeiture, execution or other voluntary or involuntary lien upon or affecting the revenues of such Person or any real or personal property in which such Person has or hereafter acquires any interest.

        "Material Adverse Effect" means a material adverse effect upon the condition (financial or otherwise), business, properties, assets, results of operations or prospects of the Company and its Subsidiaries, taken as a whole, or upon the validity or enforceability of this Agreement, the Investor Rights Agreement or the Shares, or upon the ability of the Company to perform its obligations hereunder or under the Investor Rights Agreement, or upon the rights of the Investor hereunder or thereunder.

A-3-22


        "Person" means any individual, corporation (including not-for-profit), general or limited partnership, limited liability company, joint venture, estate, trust, business trust, association, organization, Governmental Entity or other entity of any kind or nature.

        "SEC" means the Securities and Exchange Commission or any successor agency.

        "Subsidiary" means, with respect to any Person, any entity, whether incorporated or unincorporated, of which at least a majority of the securities or ownership interests having by their terms ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions is directly or indirectly owned or controlled by such Person or by one or more of its Subsidiaries or by such Person and one or more of its Subsidiaries.

        "Tax" and "Taxes" means all federal, state, local and foreign taxes, charges, fees, customs, duties, levies or other assessments, however denominated, including, without limitation, all net income, gross income, profits, gains, gross receipts, sales, use, value added, goods and services, capital, production, transfer, franchise, windfall profits, license, withholding, payroll, employment, disability, employer health, excise, estimated, severance, stamp, occupation, property, environmental, unemployment, capital stock or any other taxes, charges, fees, customs, duties, levies or other assessments of any nature whatsoever, together with all interest, penalties and additions imposed with respect to such amounts and any interest in respect of such penalties and additions.

        "Tax Returns" means any return, amended return or other report (including elections, declarations, forms, disclosures, schedules, estimates and information returns) required to be filed with any taxing authority with respect to any Taxes including, without limitation, any documentation required to be filed with any taxing authority or to be retained in respect of information reporting requirements imposed by the Code or any similar foreign, state or local law.

A-3-23



EXHIBIT A

FORM OF COMMON STOCK CERTIFICATE

A-1



EXHIBIT B

FORM OF INVESTOR RIGHTS AGREEMENT

B-1



EXHIBIT C

IDENTIFIED STOCKHOLDERS

 
   Number of shares of Common Stock beneficially owned
   Percent of Common Stock beneficially owned on a Fully Diluted Basis
  
Robert S. Bland   2,356,445   28.87 %
William V. Thoms   720,500   8.83 %

C-1


EXHIBIT D

OPINION OF DUANE MORRIS LLP, SPECIAL COUNSEL TO THE COMPANY

D-1



EXHIBIT E

OPINION OF RICHARD C. CLAAHSEN, GENERAL COUNSEL TO THE COMPANY

E-1



Annex A-4


   
REAL ESTATE PURCHASE AND SALE AGREEMENT

        This Real Estate Purchase and Sale Agreement (the "Agreement") is made and entered into as of January 31, 2004, by and between The Kenneth L. Manley Revocable Trust Dated as of June 10, 1987 (the "Seller"), and Life Quotes Acquisition, Inc., a Delaware corporation (the "Buyer").

        WHEREAS, the Seller desires to sell certain Property (as herein defined) and the Buyer desires to become the owner of the Property, on the terms and conditions set forth in this Agreement.

        WHEREAS, concurrently with the execution and delivery of this Agreement, the Buyer, the Seller and others will enter into the Asset Purchase Agreement (as hereinafter defined), and the Buyer and others will enter into the Non-Competition Agreement (as hereinafter defined).

        NOW, THEREFORE, in consideration of the recitals hereinabove set forth, and for other good and valuable consideration, the receipt and sufficiency thereof being hereby acknowledged, and intending to be legally bound, the Seller and the Buyer hereby agree as follows:

ARTICLE 1
CERTAIN DEFINITIONS

        1.1   The recitals set forth above are true and correct and are hereby incorporated herein by this reference.

        1.2   The following terms used in this Agreement shall have the meanings set forth below:

A-4-1

A-4-2

ARTICLE 2
SALE AND PURCHASE OF REAL PROPERTY

        2.1   Property. The Seller agrees to sell to the Buyer and the Buyer agrees to buy from the Seller the real property which is more particularly described on Exhibit A attached hereto, commonly known as 32045 Castle Court, Evergreen, Colorado, together with all easements, rights of way, servitudes, tenements, hereditaments, appurtenances, privileges and other rights with respect thereto owned by the Seller, and the Improvements (collectively the "Property").

        2.2   Purchase Price. The total purchase price for the Property shall be Five Million and No/100 Dollars ($5,000,000.00)] as adjusted for prorations pursuant to Section 2.3 hereof (the "Purchase Price").

        2.3   Purchase Price Adjustments. As of the Closing Date, the following items shall be prorated and applied as an adjustment to the Purchase Price to be paid by the Buyer for the Property: real estate taxes and assessments. The aforesaid prorations shall be made based upon the actual amounts assessed or becoming due during the current period, to the extent available on the Closing Date, or, if such actual amounts are not then available, upon the actual amounts paid for the most recent prior period for which actual amounts are available, multiplied by one hundred ten percent (110%). Prorations shall be based upon the actual number of days elapsed during the current period. All such prorations will be final.

ARTICLE 3
CLOSING

        3.1   Closing. The Closing shall occur on the Closing Date, concurrent with the closing under the Asset Purchase Agreement, at the offices of the Title Company, unless otherwise mutually agreed to in writing by the Buyer and the Seller. The Closing shall occur through a deed and money escrow to be held by the Title Company (the "Closing Escrow"). Upon the creation of the Closing Escrow, anything herein contained to the contrary notwithstanding, payment of the Purchase Price and delivery of the Deed and the other closing deliveries specified herein shall be made through the Closing Escrow.

        3.2   The Seller's Obligations at Closing. On the Closing Date, the Seller shall deliver or cause to be delivered to the Title Company the following (the "Seller's Closing Deliveries"):

A-4-3

        3.3   The Buyer's Obligations at Closing. On the Closing Date, the Buyer shall deliver or cause to be delivered to the Title Company the following (the "Buyer's Closing Deliveries"):

        3.4   Closing Obligations. On the Closing Date, the Seller and the Buyer shall jointly deliver or cause to be delivered to the Title Company the following (the "Joint Closing Deliveries"):

        3.5   Costs and Expenses. The Seller shall pay for the cost of the Survey and all title charges (including charges for extended coverage and endorsements reasonably required by the Buyer) incurred in connection with the Title Commitment and the Title Policy. The Buyer shall pay all of the costs and expenses of the recording of the Deed and all recording fees for all mortgages/deeds of trust and UCC-1's relating to any financing obtained by the Buyer to purchase the Property; provided, however, that the Buyer's obligations under this Agreement shall not be contingent upon The Buyer's obtaining any such financing. The Seller shall be responsible for the payment of all recording fees for all releases of mortgages, deeds of trust, UCC-3's and other monetary liens recorded against the Property necessary to convey title to the Property subject only to Permitted Encumbrances. The Seller shall be responsible for the payment of all sales, transfer, recording, stamp or similar taxes to the State of Colorado, Jefferson County and the City of Evergreen, if any, incurred in connection with the transfer of the Property.

ARTICLE 4
DUE DILIGENT AND ENVIRONMENTAL CONTINGENCIES

        4.1   Due Diligence Contingency Period. The Buyer shall have a period of thirty (30) days following the date the Seller executes this Agreement and delivers same to the Buyer (the "Due Diligence Contingency Period") to conduct all reasonable due diligence reviews, inspections, investigations, feasibility studies and tests (physical and otherwise) on the Property as the Buyer determines is necessary to evaluate the Property. All such due diligence shall be completed at the sole cost and expense of the Buyer. The Buyer shall indemnify, defend and hold harmless the Seller and its officers, directors and shareholders from any and all actual loss, costs, damages, and Liabilities caused solely by the Buyer and its agents, consultants, engineers, contractors, subcontractors and representatives arising out of or relating to the Buyer's due diligence review, inspection, investigation and testing of the Property and not relating to any pre-existing condition. No later than two (2) Business Days following the date of this Agreement, the Seller shall provide the Buyer with copies, to the extent that the same are in the possession or control of the Seller, of all existing site plans, surveys, engineering plans, environmental studies, licenses and permits, if any, relating to the Property. In addition, the Seller shall extend all reasonable property access and cooperation to the Buyer, its agents and employees, to facilitate the Buyer's evaluation of the Property.

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        If, during the Due Diligence Contingency Period, the Buyer shall determine that its evaluation of the Property reveals any matter(s) or any condition(s) for which the repair or remediation would cost, individually or in the aggregate, in excess of Fifty Thousand and No/100 Dollars ($50,000.00) (excluding from such amount any matter(s) or condition(s) for which the Buyer had actual knowledge thereof before the execution of this Agreement), the Buyer may, at its option, terminate this Agreement, after which this Agreement shall be null and void, and both parties shall be released from further liability hereunder. The failure of the Buyer to deliver to the Seller written notice of termination of this Agreement prior to the expiration of the Due Diligence Contingency Period shall be deemed to be a waiver of the Buyer's right to terminate this Agreement under Section 4.1.

        4.2   General Provisions Relating to Due Diligence Inspection and Testing of Property. The Buyer shall deliver or cause to be delivered to the Seller, at no cost or expense to the Seller, accurate and complete copies of any reports which the Buyer obtains from third parties relating to the Property, or any portion thereof. The Buyer agrees to hold and treat all information regarding the environmental condition of the Property in the strictest of confidence, and the Buyer will not disclose or permit any of its agents, consultants, engineers, contractors, subcontractors and representatives to disclose such confidential information to any Person or Governmental Entity without the Seller's prior written authorization, except to the extent required by applicable law, regulation or legal process. The Buyer shall not perform, permit or conduct any physically invasive testing of the Property (including, without limitation, soil borings or trenching), without giving reasonable advance written notice to the Seller. The Seller shall have the right to have its own consultant, engineer, representative or agent present during any such physically invasive testing of the Property. In the event the Buyer or the Buyer's agents, consultants, engineers, contractors or subcontractors shall damage the Property or any portion thereof in connection with or arising out of the Buyer's due diligence reviews, inspections, investigations, feasibility studies and tests (physical and otherwise) of the Property, the Buyer shall repair and/or restore the Property to the condition in which it existed before the Buyer's and the Buyer's agents, consultants, engineers, contractors and subcontractors entry upon the Property. The Buyer's obligations under this Section 4.2 shall survive any termination of this Agreement by the Buyer.

        4.3   As Is. The Buyer acknowledges and agrees that it has conducted its own independent reviews, inspections, investigations, feasibility studies and tests (physical and otherwise) of the Property as the Buyer determines is necessary to evaluate the Property, and that if the Buyer proceeds beyond the contingencies provided for herein, The Buyer is satisfied with the physical condition of the Property. Except to the extent expressly set forth in Section 5.1 hereof, the Seller is not making and hereby expressly disclaims any and all warranties and representations concerning the status of the maintenance, repair, condition, or design of the Property or any portion thereof, including, without limitation, any implied or express warranty of merchantability and any implied or express warranty of fitness for a particular purpose, it being the express intention of the Seller and the Buyer that, except as expressly set forth in Section 5.1 hereof, the Property will be conveyed and transferred to the Seller in its present condition and state of repair, "AS IS" and "WHERE IS" and WITH ALL FAULTS.

ARTICLE 5
THE SELLER REPRESENTATIONS AND WARRANTIES

        5.1   The Seller represents and warrants that:

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ARTICLE 6
THE BUYER'S REPRESENTATIONS AND WARRANTIES

        6.1   The Buyer represents and warrants that:

ARTICLE 7
COVENANTS

        7.1   Condition of Property. From and after the date hereof until the Closing Date, the Seller hereby covenants to maintain the Property in substantially the same condition as existed as of the date of this Agreement, except for normal wear and tear or damage or destruction caused by fire or other casualty and condemnation.

        7.2   Title Insurance. The Seller shall obtain and shall deliver to the Buyer within twenty (20) days from the date hereof, a commitment for an ALTA Owner's Policy of Title Insurance for the Property together with a copy of all documents referenced therein (the "Title Commitment"), issued by the Title Company in the amount of the Purchase Price, containing the agreement by the Title Company to insure fee simple title to the Property in the Buyer's name as of the Closing Date. The Seller shall cause the Title Company to issue to the Buyer a title insurance policy based upon the Title Commitment, subject only to the Permitted Encumbrances (the "Title Policy"), on the Closing Date. The Seller will deliver to the Title Company all affidavits, undertakings, and other title clearance documents reasonably necessary to cause the Title Company to issue the Title Policy. The Title Policy will be dated as of the Closing Date and insure title to the Property subject only to the Permitted Encumbrances. The Title Policy shall be in a form and substance reasonably satisfactory to the Buyer and shall include the following endorsements: (i) extended coverage endorsement (insuring over the general or standard exceptions); (ii) ALTA Form 3.1 zoning endorsement (with parking), (iii) a survey accuracy endorsement (insuring that the Property described therein is the real property shown on the Survey delivered with respect thereto and that such Survey is an accurate survey thereof); (iv) access endorsement (insuring that the Property described therein is adjacent to a public street and has direct and unencumbered pedestrian and vehicular access to and from such public street); (v) ALTA Form 9 owner's comprehensive endorsement; (vi) tax parcel number endorsement (insuring that the tax parcel number in the endorsement includes all of the Property insured thereunder and no other real property); (vii) if the Property insured therein consists of one or more adjacent parcels, a contiguity endorsement (insuring that all of such parcels are contiguous to one another without any gaps or gores); and (viii) utilities endorsement (insuring the availability of utilities to the Property). The Seller shall pay all costs and expenses of the Title Commitment, Title Policy, and all related work charges.

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        7.3   Survey. Within thirty (30) days of the execution of this Agreement, the Seller shall, at the Seller's sole expense, obtain a current ALTA survey of the Property (the "Survey") prepared by a licensed surveyor, which shall be in a form and substance reasonably satisfactory to the Buyer, certified to the Buyer, the Title Company, any lender of the Buyer and any other person to whom the Buyer reasonably requests: (i) confirming the legal description of the Property and determining the actual square footage of the Property; (ii) showing the location of all easements, zoning restrictions, set back lines or other space limitations, and all the other rights or matters located upon or affecting the land; (iii) showing adjoining public and private streets (if any); (iv) certifying that the improvements, if any, are entirely within the boundaries of the property and the existence of any encroachments upon the Property; and (v) indicating whether any part of the Property or improvements is located within a flood plain or flood hazard area as defined under the laws of the United States or the State of Illinois, or any subdivision thereof and if no part of the Property is within a flood plain, a certification to such effect, and (vi) showing such other matters as may reasonably be required by the Buyer, its lender or the Title Company as a condition for the removal of any survey exception from the Title Policy.

        7.4   Title and Survey Defects. If the Title Commitment or the Survey shall disclose any exceptions or other matters that are not acceptable to the Buyer in its reasonable discretion (the "Unpermitted Exceptions"), then the Buyer shall have ten (10) Business Days from the date of delivery to the Buyer of the Title Commitment and the Survey to deliver a written notice (the "Title/Survey Notice") to the Seller requesting removal of such Unpermitted Exceptions, whereupon the Seller shall have twenty (20) days thereafter (such period, the "Title Cure Period") during which it shall make all reasonable efforts to cause such Unpermitted Exceptions to be removed from the Title Commitment. If, despite all such reasonable efforts, the Seller fails to have any Unpermitted Exception removed, within the specified time, then the Buyer, as its sole and exclusive remedy therefor, may (i) terminate this Agreement upon notice to the Seller after expiration of the thirty (30) day period, and such failure to have such Unpermitted Exceptions removed from the title subject to any such Unpermitted Exception shall not be deemed a breach of this Agreement by the Seller, or (ii) elect to take title subject to any such Unpermitted Exception. If the Buyer elects to take title to the Property, all Unpermitted Exceptions not so removed or corrected by the Seller shall be deemed additional Permitted Encumbrances.

ARTICLE 8
CONDITIONS TO THE BUYER'S AND THE SELLER'S OBLIGATIONS TO CLOSE

        8.1   Conditions to Each Party's Obligations. Each party's respective obligations to effect the transactions contemplated by this Agreement shall be subject to the satisfaction at or prior to the Closing of the following conditions:

        8.2   Conditions to Obligations of the Buyer. The Buyer's obligation to effect the transactions contemplated by this Agreement shall be further subject to the satisfaction at or prior to the Closing of the following conditions:

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        8.3   Conditions to the Seller's Obligations. The Seller's obligations to effect the transactions contemplated by this Agreement shall be further subject to the satisfaction at or prior to the Closing of the following conditions:

ARTICLE 9
EVENTS OF DEFAULT

        9.1   Defaults by the Seller. In the event of the Seller's breach of any provision of this Agreement prior to the Closing Date, and the failure of the Seller to cure such default within ten (10) days after being given written notice thereof, the Buyer will have the right to terminate this Agreement and pursue all other rights and remedies in the Buyer's favor at law or in equity, including without limitation, any action for specific performance and/or injunctive or other equitable relief.

        9.2   Defaults by the Buyer. The Seller and the Buyer agree and acknowledge that as a result of the passage of time, fluctuating market conditions and other reasons, damages as a result of a breach of this Agreement by the Buyer would be difficult, if not impossible, to calculate. Therefore, in the event of the Buyer's breach of any provision of this Agreement prior to the Closing Date, and the failure of the Buyer to cure such default within ten (10) days after being given written notice thereof, the Seller will have the right at its option, to terminate this Agreement.

ARTICLE 10
MISCELLANEOUS

        10.1   Notices. All notices, requests and other communications hereunder must be in writing and will be deemed to have been duly given only if delivered personally or by facsimile transmission or

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mailed (first class postage prepaid) or delivered by a recognized overnight courier service to the parties at the following addresses or facsimile numbers:

If to the Buyer, to:

Life Quotes Acquisition, Inc.
8205 South Cass Avenue, No. 102
Darien, Illinois 60561
Facsimile: (630) 515-0276
Attention: Robert S. Bland

with a copy to:

Duane Morris LLP
227 West Monroe Street
Suite 3400
Chicago, Illinois 60606
Facsimile: (312) 499-6701
Attention: David J. Kaufman

If to the Seller, to:

The Kenneth L. Manley Revocable Trust
c/o Kenneth L. Manley
758 Soda Creek Drive
Evergreen, Colorado 80439
Facsimile: (800) 690-6550
with a copy to:
Welborn, Sullivan, Meck & Tooley, P.C.
821 17th Street
Suite 500
Denver, Colorado 80202
Facsimile: (303) 832-2366
Attention: John F. Meck

All such notices, requests and other communications will (i) if delivered personally to the address as provided in this Section, be deemed given upon delivery, (ii) if delivered by facsimile transmission to the facsimile number as provided in this Section (and followed by another method provided herein), be deemed given upon receipt, (iii) if delivered by mail in the manner described above to the address as provided in this Section, be deemed given upon receipt and (iv) if delivered by overnight courier to the address as provided in this Section, be deemed given upon receipt (in each case regardless of whether such notice, request or other communication is received by any other Person to whom a copy of such notice is to be delivered pursuant to this Section). Any party from time to rime may change its address, facsimile number or other information for the purpose of notices to that party by giving notice specifying such change to the other party hereto.

        10.2   Further Assurances. Each party to this Agreement agrees to use its best efforts to cause the conditions of its obligations hereunder to be satisfied on or prior to the Closing Date. Each party agrees to execute and deliver and provide access to any and all further agreements, documents and instruments reasonably necessary to effectuate this Agreement or the transactions referred to herein or which may reasonably be requested by the other party or parties to perfect or evidence its or their rights hereunder.

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        10.3   Expenses. Each of the parties hereto will bear its respective expenses incurred by and in connection with this Agreement and the transactions contemplated hereby, including, without limitation, attorney's and accountant's fees.

        10.4   Counterparts; Facsimile Execution. This Agreement may be executed in separate counterparts. It shall be fully executed when each party whose signature is required has signed at least one counterpart even though no one counterpart contains the signatures of all the parties. Counterparts of this Agreement may be executed and delivered via facsimile transmission, and any such signed counterparts delivered via facsimile transmission shall be deemed to be valid, effective and enforceable as if delivered in person.

        10.5   Successors and Assigns. Neither party hereto shall assign or transfer any rights or Liabilities hereunder. Notwithstanding the prior sentence, the rights and interests of the Buyer under this Agreement may be assigned by the Buyer to any affiliate of the Buyer, which shall include any entity or partnership of which the Buyer owns or controls, directly or indirectly. From and after any such assignment, said assignee shall be substituted for the Buyer under this Agreement and the Buyer shall have no further obligation with respect thereto.

        10.6   Entire Agreement; Governing Law. This Agreement sets forth the entire agreement of the Seller and the Buyer, and this Agreement shall not be changed or terminated orally; shall be binding on or inure to the benefit of the successors or assigns of the Seller and the Buyer; and shall be governed by the laws of the State of Illinois.

        10.7   Disclosure. Any information set forth in any Exhibit attached to this Agreement or incorporated in any Section of this Agreement shall be considered to have been set forth in each other Exhibit to this Agreement. The information contained in the Exhibits hereto is disclosed solely for the purposes of this Agreement, and no information contained therein shall be deemed to be an admission by any party hereto to any third party of any matter whatsoever, including of any violation of law or breach of any agreement.

        10.8   Brokers. The Buyer and the Seller each to the other warrants and represents that no brokers have been retained and that there are no claims for brokerage or other commissions or finder's or other similar fees in connection with this Agreement. The Buyer and the Seller hereby agree to hold harmless and indemnify the other party in the event any such claims or demands are made based on arrangements allegedly made on or on behalf of the party so representing.

        10.9   Tax Deferred Exchange. In the event the Seller desires to effectuate a tax deferred like kind exchange (an "Exchange") with respect to the sale of the Property, the Buyer agrees to cooperate with the Seller to allow the Seller to effectuate such Exchange, provided, however, that (i) the Buyer shall have no liability whatsoever to the Seller if the Seller is unable to effectuate an Exchange for any reason (except by reason of a default by the Buyer under this Agreement); (ii) the Seller's ability to effectuate an Exchange shall not be a condition precedent to the Seller's obligation to close the sale of the Property under this Agreement; and (iii) the Buyer shall not be obligated to incur any costs, expenses or liabilities with respect to the Exchange of the Seller; (iv) the Buyer shall not be obligated to take title or make available to the Seller any real property which the Seller desires to obtain in connection with such Exchange.

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        IN WITNESS WHEREOF, the Seller and the Buyer have executed this Real Estate Purchase and Sale Agreement as of the day and year first above written.

  SELLER

 
THE KENNETH L. MANLEY REVOCABLE
TRUST DATED JUNE 10, 1987

 
By:
 
/s/  KENNETH L. MANLEY      
  Name:   Kenneth L. Manley, Trustee

 
BUYER

 
LIFE QUOTES ACQUISITION, INC.

 
By:
 
/s/  ROBERT S. BLAND      
  Name:   Robert S. Bland
  Title:   President

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EXHIBIT A

        Lot 6C, The Village at Soda Creek, First Filing, Amendment No. 1, Exemption Survey No. 1, County of Jefferson, State of Colorado

Common Address:   32045 Castle Court
Evergreen, Colorado

EXHIBIT B

Form of Warranty Deed


Annex A-5


EXECUTION VERSION


INVESTOR RIGHTS AGREEMENT

        This INVESTOR RIGHTS AGREEMENT is made as of the 1st day of March, 2004, by and among QUOTESMITH.COM, INC., a Delaware corporation (the "Company"), ZIONS BANCORPORATION, a Utah corporation ("Zions"), and the individuals listed on the signature pages hereto, each of whom is herein referred to individually as an "Identified Stockholder". The Company, Zions and each of the Identified Stockholders are sometimes hereinafter referred to individually as a "Party" and collectively as the "Parties".


RECITALS

        WHEREAS, the Company and Zions are parties to a Stock Purchase Agreement, of even date herewith (the "Stock Purchase Agreement");

        WHEREAS, in order to induce the Zions to enter into the Stock Purchase Agreement and to invest funds in the Company pursuant to the Stock Purchase Agreement, each of the Identified Stockholders and the Company have agreed to enter into this Agreement with Zions.

        NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

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        5.     Rights of First Refusal.

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If to the Investor:   Zions Bancorporation
One South Main Street, Suite 1138
Salt Lake City, Utah 84111
Attention: John B. Hopkins
Telephone No.: (801) 844-8587
Facsimile No.: (801) 524-2129

With a copy, which shall
not constitute notice, to:
 
Sullivan & Cromwell LLP
1888 Century Park East, Suite 2100
Los Angeles, California 90067
Attention: Stanley F. Farrar
Telephone No.: (310) 712-6600
Facsimile No.: (310) 712-8800

If to the Company:
 
Quotesmith.com, Inc.
8205 South Cass Avenue
Darien, Illinois 60561
Attention: Bob Bland
Telephone No.: (630) 515-0170 ext. 101
Facsimile No.: (630) 515-0276

With a copy, which shall
not constitute notice, to:
 
Duane Morris LLP
227 West Monroe, Suite 3400
Chicago, Illinois 60606
Attention: David J. Kaufman
Telephone No: (312) 499-6741
Facsimile No: (312) 499-6701

If to any of the identified Stockholders:
 
To the address or facsimile number of such Identified Stockholder specified on the signature pages hereof.

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[Signature pages follow]

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        IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date first above written.

  THE COMPANY:

 
QUOTESMITH.COM, INC.

 
By:
 
/s/  PHILLIP A. PERILLO      
      Name:   Phillip A. Perillo
      Title:   Senior Vice President and Chief Financial Officer

 
THE INVESTOR:

 
ZIONS BANCORPORATION

 
By:
 
/s/  JOHN B. HOPKINS      
      Name:   John B. Hopkins
      Title:   Vice President of Finance

 
THE IDENTIFIED STOCKHOLDERS:

 
ROBERT S. BLAND

 
/s/  ROBERT S. BLAND      

 
Address for Notices:
1512 Willow Creek Lane
Darien, IL 60561

 
WILLIAM V. THOMS

 
/s/  WILLIAM V. THOMS      

 
Address for Notices:
630 North Edgewood
LaGrange Park, IL 60526

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SCHEDULE A

PROHIBITED TRANSFEREES

InsWeb Corporation
SelectQuote Insurance Services, Inc.
Byron Udell & Associates, Inc., dba AccuQuote
Answer Financial, Inc.

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Annex A-6

QUOTESMITH.COM, INC.
2004 LIFE QUOTES NON-QUALIFIED STOCK OPTION PLAN

1.     Purpose

        The purpose of the Quotesmith.com, Inc. 2004 Life Quotes Non-Qualified Stock Option Plan (the "Plan") is to foster and promote the long-term financial success of Quotesmith.com, Inc., a Delaware corporation, and its subsidiaries (the "Company"). The Plan provides for the award of stock options to certain former employees of Life Quotes who are now employees of a subsidiary of the Company.

2.     Definitions

        For purposes of this Plan, the following terms used herein shall have the following meanings, unless a different meaning is clearly required by the context.

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3.     Administration

        The Plan shall be administered by a committee of the Board (the "Committee") consisting solely of two or more members of the Board, each of whom shall qualify as a "Non-employee Director" within the meaning of Rule 16b-3 of the Exchange Act and also qualify as an "outside director" within the meaning of Section 162(m) of the Code and regulations pursuant thereto. The Committee shall have the power and authority to grant Stock Option awards to eligible persons pursuant to the terms of the Plan.

        The Committee shall have authority in its discretion to interpret the provisions of the Plan and to decide all questions of fact arising in its application. Except as otherwise expressly provided in the Plan, the Committee shall have authority to select the persons to whom Stock Option awards shall be awarded under the Plan; to determine the size of each such Stock Option award; to determine the time when the Stock Option awards shall be granted; to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as it shall from time to time deem advisable; and to make all other determinations necessary or advisable for the administration of the Plan. Notwithstanding anything in the Plan to the contrary, in the event that the Committee determines that it is advisable to grant awards which shall not qualify for the exception for performance-based compensation from the tax deductibility limitations of Section 162(m) of the Code, the Committee may make such grants or awards, or may amend the Plan to provide for such grants or awards, without satisfying the requirements of Section 162(m) of the Code.

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        The Committee also shall have authority, in its discretion, to vary the terms of the Plan to the extent necessary to comply with federal, state or local law.

        All decisions made by the Committee pursuant to the provisions of the Plan shall be final and binding on all persons who participate in the Plan.

        All expenses and liabilities incurred by the Committee in the administration of the Plan shall be borne by the Company. The Committee may employ attorneys, consultants, accountants or other persons in connection with the administration of the Plan. The Company, and its officers and directors, shall be entitled to rely upon the advice, opinions or valuations of any such persons.

4.     Common Stock Subject to the Plan

5.     Eligibility to Receive Stock Option

        Stock Option awards may be granted to any employee of the Company or any Subsidiary. The Committee shall have the sole authority to select the persons to whom an award of Stock Options is to be granted hereunder and to determine the award to be granted to each such person.

6.     Stock Options

        A Stock Option shall be subject to the following terms and conditions not inconsistent with the terms of the Plan, as the Committee shall deem desirable:

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7.     No Stock Option Re-Pricing

        Neither the Board nor the Committee shall re-price or adjust upward or downward the exercise price of any Stock Option, other than as provided for in Section 14.

8.     Rights of a Stockholder

        The recipient of any Stock Option award under the Plan shall have no rights as a stockholder with respect thereto unless and until shares of Common Stock are issued to the recipient.

9.     No Right to Continue Employment or Service

        Nothing in the Plan or any Stock Option award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or any Subsidiary in the capacity in effect at the time the award was granted or shall affect the right of the Company or any Subsidiary to terminate the employment of an employee with or without notice and with or without cause.

10.   Withholding

        The Company's obligation to deliver shares of Common Stock upon the exercise of any Stock Option shall be subject to applicable foreign, federal, state and local withholding tax requirements. Foreign, federal, state and local withholding tax due under the terms of the Plan shall be paid by the Participant.

11.   Indemnification

        No member of the Board or the Committee, nor any officer or employee of the Company or a Subsidiary acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made in good faith with respect to the Plan, and all members of the Board or the Committee and each and any officer or employee of the Company or any Subsidiary acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation.

12.   Non-Assignability

        No Stock Option award under the Plan shall be assignable or transferable by the recipient thereof except by will, by the laws of descent and distribution and by such other means as the Committee may approve from time to time. No right or benefit hereunder shall in any manner be subject to the debts, contracts, liabilities or torts of the person entitled to such right or benefit.

13.   Nonuniform Determinations

        The Committee's determinations under the Plan (including without limitation determinations of the persons to receive awards, the form, amount and timing of such awards, and the terms and

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provisions of such awards) need not be uniform and may be made by it selectively among persons who receive, or are eligible to receive, Stock Option awards under the Plan, whether or not such persons are similarly situated.

14.   Adjustments

        In the event of any change in the outstanding shares of Common Stock by reason of a stock dividend, stock split, reverse stock split or distribution, recapitalization, merger, reorganization, reclassification, consolidation, split-up, spin-off, combination of shares, exchange of shares or other change in corporate structure affecting the Common Stock and not involving the receipt of consideration by the Company, the Committee shall make appropriate adjustments in (A) the aggregate number of shares of Common Stock (i) reserved for issuance under the Plan, (ii) for which grants may be made to any Participant, and (iii) covered by outstanding unexercised grants denominated in shares or units of Common Stock; (B) the exercise price applicable to outstanding Stock Option awards or grants; and (C) shall make such other adjustments as may be appropriate under the circumstances; provided that the number of shares subject to any award or grant always shall be a whole number.

15.   Provisions Relating to Sale Events.

16.   Termination and Amendment

        The Board may terminate or amend the Plan or any portion thereof at any time and the Committee may amend the Plan to the extent provided in Section 3, without approval of the stockholders of the Company. No amendment, termination or modification of the Plan shall affect any Stock Option award theretofore granted in any material adverse way without the consent of the recipient.

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17.   Severability

        If any of the terms or provisions of this Plan, or awards made under this Plan, conflict with the requirements of Section 162(m) of the Code with respect to awards subject to, or governed by, Section 162(m) of the Code, then such terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Section 162(m) of the Code. If this Plan does not contain any provision required to be included herein under Section 162(m) of the Code (as the same shall be amended from time to time), such provision shall be deemed to be incorporated herein with the same force and effect as if such provision had been set out herein.

18.   Effect on Other Plans

        Participation in this Plan shall not affect a Participant's eligibility to participate in any other benefit or incentive plan of the Company or any Subsidiary and any Stock Option awards made pursuant to this Plan shall not be used in determining the benefits provided under any other plan of the Company or any Subsidiary.

19.   Effective Date of the Plan

        The Plan shall become effective on April 1, 2004, but no Stock Option shall be exercised unless and until the Plan has been approved by the stockholders of the Company at the next annual meeting to be held in 2004, or any adjournment thereof. If the Plan is not approved by the affirmative vote of the holders of a majority of the shares of Common Stock present, or represented at the meeting and entitled to vote thereon, the Plan shall not be, or become, effective and any Stock Options granted under the Plan prior thereto shall terminate and shall become null and void.

20.   Governing Law

        This Plan and all agreements executed in connection with the Plan shall be governed by, and construed in accordance with, the laws of the State of Delaware, without regard to its conflicts of law doctrine.

21.   Gender and Number

        Words denoting the masculine gender shall include the feminine gender, and words denoting the feminine gender shall include the masculine gender. Words in the plural shall include the singular, and the singular shall include the plural.

22.   No Strict Construction

        No rule of strict construction shall be applied against the Company, the Committee, or any other person in the interpretation of any of the terms of the Plan, any agreement executed in connection with the Plan, any award granted under the Plan, or any rule, regulation or procedure established by the Committee.

23.   Plan Provisions Control

        The terms of the Plan govern all awards granted under the Plan, and in no event will the Committee have the power to grant any award under the Plan which is contrary to any of the provisions of the Plan. In the event any provision of any award granted under the Plan shall conflict with any term in the Plan, the term in the Plan shall control.

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24.   Headings

        The headings used in the Plan are for convenience only, do not constitute a part of the Plan, and shall not be deemed to limit, characterize, or affect in any way any provisions of the Plan, and all provisions of the Plan shall be construed as if no captions had been used in the Plan.

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Annex A-7

Quotesmith.com, Inc.
Audit Committee Charter

Organization

        This charter governs the operations of the audit committee. The committee shall review and reassess the charter at least annually and obtain the approval of the board of directors. The committee shall be members of, and appointed by, the board of directors and shall comprise at least three directors, each of whom are independent of management and the Company. Members of the committee shall be considered independent as long as they do not accept any consulting, advisory, or other compensatory fee from the Company and are not an affiliated person of the Company or its subsidiaries, and meet the independence requirements of the Nasdaq Stock Market listing standards. At least annually the committee shall review the independence of its members and confirm that the members meet these requirements. All committee members shall be financially literate, and at least one member shall be a "financial expert," as defined by SEC regulations.

Purpose

        The audit committee shall provide assistance to the board of directors in fulfilling their oversight responsibility to the stockholders, potential stockholders, the investment community, and others relating to: the integrity and quality of the Company's financial statements; the financial reporting process; the systems of internal accounting and financial controls; the Company's system of disclosure controls; the performance of the Company's independent auditors; the independent auditor's qualifications and independence; independent auditor partner rotation; and the Company's compliance with ethics policies and legal and regulatory requirements. In so doing, it is the responsibility of the committee to maintain free and open communication between the committee, independent auditors, the internal auditors, and management of the Company.

        In discharging its oversight role, the committee is empowered to investigate any matter brought to its attention with full access to all books, records, facilities, and personnel of the Company and the authority to engage independent counsel and other advisers as it determines necessary to carry out its duties.

Duties and Responsibilities

        The primary responsibility of the audit committee is to oversee the Company's financial reporting process on behalf of the board and report the results of their activities to the board. While the audit committee has the responsibilities and powers set forth in this Charter, it is not the duty of the audit committee to plan or conduct audits or to determine that the Company's financial statements are complete and accurate and are in accordance with generally accepted accounting principles. Management is responsible for the preparation, presentation, and integrity of the Company's financial statements and for the appropriateness of the accounting principles and reporting policies that are used by the Company. The independent auditors are responsible for auditing the Company's financial statements and for reviewing the Company's unaudited interim financial statements. In meeting these responsibilities, the committee shall meet at least four times a year or more frequently as circumstances dictate.

        The committee, in carrying out its responsibilities, believes its policies and procedures should remain flexible, in order to best react to changing conditions and circumstances. The committee should take appropriate actions to set the overall corporate "tone" for quality financial reporting, sound business risk practices, and ethical behavior. The following shall be the principal duties and

A-7-1


responsibilities of the audit committee. These are set forth as a guide with the understanding that the committee may supplement them as appropriate.

        The committee shall be directly responsible for the appointment and termination (subject to stockholder ratification), compensation, and oversight of the work of the independent auditors, including resolution of disagreements between management and the auditor regarding financial reporting. The committee shall pre-approve all audit and non-audit services provided by the independent auditors and shall not engage the independent auditors to perform the specific non-audit services proscribed by law or regulation. The committee may delegate pre-approval authority to a member of the audit committee. The decisions of any audit committee member to whom pre-approval authority is delegated must be presented to the full audit committee at its next scheduled meeting.

        At least annually, the committee shall obtain and review a report by the independent auditors describing:

        In addition, the committee shall set clear hiring policies for employees or former employees of the independent auditors that meet the SEC regulations and Nasdaq Stock Market listing standards.

        The committee shall discuss with the independent auditors the overall scope and plans for their audit, including the adequacy of staffing and compensation. Also, the committee shall discuss with management and the independent auditors the adequacy and effectiveness of the accounting and financial controls, including the Company's policies and procedures to assess, monitor, and manage business risk, and legal and ethical compliance programs.

        The committee shall meet separately periodically with management and the independent auditors to discuss issues and concerns warranting committee attention. The committee shall provide sufficient opportunity for the independent auditors to meet privately with the members of the committee. The committee shall review with the independent auditor any audit problems or difficulties and management's response.

        The committee shall receive regular reports from the independent auditor on the critical policies and practices of the Company, and all alternative treatments of financial information within generally accepted accounting principles that have been discussed with management.

        The committee shall review management's assertion on its assessment of the effectiveness of internal controls as of the end of the most recent fiscal year and the independent auditors' report on management's assertion.

        The committee shall review and discuss earnings press releases, as well as financial information and earnings guidance provided to analysts and rating agencies.

        The committee shall review the interim financial statements and disclosures under Management's Discussion and Analysis of Financial Condition and Results of Operations with management and the independent auditors prior to the filing of the Company's Quarterly Report on Form 10-Q. Also, the committee shall discuss the results of the quarterly review and any other matters required to be communicated to the committee by the independent auditors under generally accepted auditing

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standards. The chair of the committee may represent the entire committee for the purposes of this review.

        The committee shall review with management and the independent auditors the financial statements and disclosures under Management's Discussion and Analysis of Financial Condition and Results of Operations to be included in the Company's Annual Report on Form 10-K, including their judgment about the quality, not just the acceptability, of accounting principles, the reasonableness of significant judgments, and the clarity of the disclosures in the financial statements. Also, the committee shall discuss the results of the annual audit and any other matters required to be communicated to the committee by the independent auditors under generally accepted auditing standards.

        The committee shall establish procedures for the receipt, retention, and treatment of complaints received by the issuer regarding accounting, internal accounting controls, or auditing matters, and the confidential, anonymous submission by employees of the issuer of concerns regarding questionable accounting or auditing matters.

        The committee shall review management's monitoring of the Company's compliance with the Company's ethical code.

        The committee shall receive corporate attorneys' reports of evidence of a material violation of securities laws or breaches of fiduciary duty.

        The committee also prepares its report to be included in the Company's annual proxy statement, as required by SEC regulations.

        The committee shall perform an evaluation of its performance at least annually to determine whether it is functioning effectively.

A-7-3


Quotesmith.com, Inc.

Annual Meeting Proxy Card

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

        The undersigned hereby appoints Robert S. Bland and William V. Thoms jointly and individually, as proxies, each with full power of substitution, and hereby authorizes them to represent and to vote, as directed below, all shares of Common Stock, par value $.03 per share, of Quotesmith.com, Inc., a Delaware corporation (the "Company"), that the undersigned would be entitled to vote if personally present at the Annual Meeting of Stockholders of the Company to be held on Thursday, April 22, 2004 or any adjournment or postponement thereof, as follows.

IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR THE PROPOSALS SET FORTH HEREIN.

YOUR VOTE IS IMPORTANT!

PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY CARD PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.

(CONTINUED AND TO BE SIGNED ON THE REVERSE SIDE)

A.   Election of Directors

 
 
1.
 
The Board of Directors recommends a vote FOR the listed nominees:

 
 
 
 
 
 
For
 
Withhold
 
 
        01—Admiral Jeremiah A. Denton   o   o    
        02—John B. Hopkins   o   o    

B.
 
Issues

 
 
The Board of Directors recommends a vote FOR the following proposals.

 
 
 
 
 
 
For
 
Against
 
Abstain
    2.   Approval of Stock Issuance to Zions Bancorporation   o   o   o

 
 
 
 
 
 
For
 
Against
 
Abstain
    3.   Establishment of Life Quotes Employee Stock Option Plan   o   o   o

 
 
 
 
 
 
For
 
Against
 
Abstain
    4.   Proposal to ratify Ernst & Young LLP as the Company's independent auditors for the 2004 year.   o   o   o

 
 
In accordance with their discretion upon such other matters as may properly come before the meeting and any adjournment thereof. When properly executed, this proxy will be voted in the manner directed by the undersigned stockholder.

C.
 
Authorized Signatures—Sign Here—This section must be completed for your instructions to be executed.    Please sign exactly as name appears on stock certificate. Where stock is registered jointly, all owners must sign. Corporate owners should sign full corporate name by an authorized person. Executors, administrators, trustees or guardians, should indicate their status when signing.

 
    
  
  
    
  
  
    Signature 1—Please keep signature within the box   Signature 2—Please keep signature within the box

 
 
[
    
]
 
[
    
]

 
 
Date
 
 
 
 
 
        (MM/DD/YYYY)          

 
 
[                    /                    /                     ]
 
 
 
 
 


QuickLinks

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON APRIL [ • ], 2004
TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS
QUESTIONS AND ANSWERS ABOUT THE STOCK ISSUANCE
SUMMARY
SELECTED FINANCIAL AND OTHER DATA OF QUOTESMITH.COM
SELECTED FINANCIAL DATA OF LIFE QUOTES
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
NOTES TO THE UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
RISK FACTORS
THE ANNUAL MEETING AND PROXY SOLICITATION
MARKET PRICE INFORMATION
PROPOSAL 1. APPROVAL OF STOCK ISSUANCE TO ZIONS BANCORPORATION
THE ASSET PURCHASE AGREEMENT
THE STOCK PURCHASE AGREEMENT
OTHER AGREEMENTS
OUR BUSINESS
QUOTESMITH.COM FINANCIAL INFORMATION
QUOTESMITH.COM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INFORMATION ABOUT LIFE QUOTES
LIFE QUOTES FINANCIAL INFORMATION
LIFE QUOTES MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
PROPOSAL 2. ESTABLISHMENT OF LIFE QUOTES EMPLOYEE STOCK OPTION PLAN
PROPOSAL 3. ELECTION OF DIRECTORS
MANAGEMENT
EXECUTIVE COMPENSATION
COMPENSATION COMMITTEE REPORT
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
REPORT OF THE AUDIT COMMITTEE
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PROPOSAL 4. RATIFICATION OF INDEPENDENT AUDITORS
OTHER MATTERS
ADDITIONAL INFORMATION
2005 STOCKHOLDER PROPOSALS
QUOTESMITH.COM, INC. INDEX TO FINANCIAL STATEMENTS
REPORT OF INDEPENDENT AUDITORS
QUOTESMITH.COM, INC. BALANCE SHEETS
QUOTESMITH.COM, INC. STATEMENTS OF OPERATIONS
QUOTESMITH.COM, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
QUOTESMITH.COM, INC. STATEMENTS OF CASH FLOWS
QUOTESMITH.COM, INC. NOTES TO FINANCIAL STATEMENTS
LIFE QUOTES, INC. INDEX TO FINANCIAL STATEMENTS
Report of Independent Auditors
Life Quotes, Inc. Balance Sheets
Life Quotes, Inc. Statements of Income and Retained Earnings
Life Quotes, Inc. Statements of Cash Flows
Life Quotes, Inc. Notes to Financial Statements
TABLE OF CONTENTS
TABLE OF CONTENTS
REAL ESTATE PURCHASE AND SALE AGREEMENT
INVESTOR RIGHTS AGREEMENT
RECITALS