Filed under SEC
Rule 424 (b)(2)
Registration No. 33-44271
HILB, ROGAL AND HAMILTON COMPANY
SUPPLEMENT TO
PROSPECTUS DATED FEBRUARY 12, 1992
RELATING TO ACQUISITION OF
R. E. LIPMAN INSURANCE BROKERS, INC.
The following information is furnished to supplement and complete the
information contained in the Prospectus dated February 12, 1992
("Prospectus"), relating to the offering of shares of the Common Stock of
Hilb, Rogal and Hamilton Company ("Company") to the sole shareholder of
R. E. Lipman Insurance Brokers, Inc. ("Lipman") of Benicia, California
to consummate the merger of Lipman and the Company.
Terms of the Transaction
(a) (1) Effective on or about May 1, 1995, a subsidiary of the Company
will consummate an Agreement of Merger with Lipman whereby the sole
shareholder of Lipman will receive 37,000 shares of Common Stock of the
Company ("Shares") subject to (i) all necessary corporate approvals of each
corporation, (ii) all authorizations, consents and approvals of all federal,
state, local and foreign governmental agencies and authorities required to
be obtained, and (iii) all other conditions precedent as outlined in the
Agreement of Merger and amendment thereto, (see Exhibit 2.19). The number
of shares distributed to the sole shareholder of Lipman will be adjusted
based upon the final determination of net worth as defined in the Agreement of
Merger.
R. E. Lipman Insurance Brokers, Inc. will merge into HRH Insurance
Services of Northern California, Inc., a wholly-owned subsidiary of the
Company.
(2) The merger with Lipman by the Company has been agreed upon
because the Company is engaged in the business of owning insurance agencies
and because the sole shareholder of Lipman has determined that a merger with
the Company is beneficial to the growth of Lipman's insurance operations.
Lipman's operations will add approximately two employees and $350,000
of revenues to the Company.
(3) Lipman was incorporated in 1979 in the state of California,
and has 5,000 authorized shares of common stock, $10 par value. There
are 100 shares issued and outstanding.
(4) There are no material differences between the rights of the
security holders of Lipman and the rights of security holders of the
Company.
Total number of pages in this filing:
(5) The acquisition will be treated using the pooling-of-interests
method of accounting for acquisitions under generally accepted accounting
principles.
(6) Lipman will be included in the consolidated return of the
Company as of the effective date. The acquisition will be recorded as a tax
free exchange under the rules of I.R.C. Sections 368(a)(1)(A) and
368(a)(2)(D). The acquisition agreement and amendment thereto is
incorporated into this supplement as Exhibit 2.19.
Pro Forma Financial Information
See attached - Schedule A
Material Contracts with Seller
There have been no material contracts between the Company and Lipman
prior to the proposed effective date of the Agreement of Merger.
Information with Respect to
R. E. Lipman Insurance Brokers, Inc.
Lipman was formed in 1979 and operates from an office in Benicia,
California.
Lipman provides insurance brokerage services for personal and commercial
and industrial accounts. Services provided include personal and commercial
property and casualty insurance (approximately 80% of revenues) and group and
individual life and health insurance products (approximately 20% of revenues).
Common Stock and Dividend Data
There is no established public trading market for the stock of Lipman.
There is one shareholder of the corporation. See Shareholder Information
below for information regarding shares held and information regarding
authorized and issued shares.
There have been no common stock dividend distributions during the years
ended December 31, 1994, 1993 and 1992.
Shareholder Information
(a) (1) WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT
TO SEND US A PROXY.
(2) & (3) Lipman has agreed to submit the Agreement of Merger to
its sole shareholder for adoption by unanimous written consent after
receipt and review of this supplement to the Prospectus. Since the Agreement of
Merger requires that the merger can be completed only with the unanimous
consent of the sole shareholder of the company being acquired (Lipman),
notice requirements shall have been met and there shall be no dissenters.
(4) & (5) There are no material interests, direct or indirect of
affiliates, officers or directors of the registrant or of the company being
acquired (Lipman) in the proposed transaction.
(6) Lipman has 5,000 authorized shares of common stock, $10 par.
Shares issued and outstanding are as follows:
Number of
Shareholder Common Shares Percentage
R. E. Lipman 1990 Trust 100 100%
=== ====
(7) Upon completion of the proposed acquisition, no
shareholder of Lipman will be serving as a director or executive officer of
the registrant.
Experts
The financial statements as of and for the year ended December 31, 1994
of R. E. Lipman Insurance Brokers, Inc. included in this supplement to the
Amended Prospectus dated February 12, 1992, and in the Registration Statement
have been audited by Blanding, Boyer & Rockwell, independent auditors, for the
periods indicated in their report thereon which appears elsewhere herein.
The financial statements audited by Blanding, Boyer & Rockwell have been
included in reliance on their report given on their authority as experts
in accounting and auditing.
Hilb, Rogal and Hamilton Company
Date of this Supplement: April 21, 1995
<PAGE>
SCHEDULE A - PRO FORMA CONDENSED
FINANCIAL STATEMENTS (UNAUDITED)
The following pro forma condensed consolidated balance sheet as of
December 31, 1994 and the pro forma consolidated income statements for the
years ended December 31, 1994, 1993 and 1992 give effect to the proposed
pooling-of-interests merger with R. E. Lipman Insurance Brokers, Inc. ("Lipman,"
expected to be effective on or about May 1, 1995); the proposed acquisition of
Reichart-Silversmith Life, Inc. ("R-S Life," expected to be effective on May
1, 1995); and the acquisition of certain assets and liabilities of one
insurance agency purchased in 1995 and four insurance agencies purchased in
1994. The pro forma information is based on the historical financial
statements of Hilb, Rogal and Hamilton Company and the acquired agencies,
giving effect to the transactions under the purchase method or pooling-of-
interests method of accounting and the assumptions anddjustments in the
accompanying notes to the pro forma financial statements. The pro forma
consolidated income statements give effect to the purchase method
acquisitions and proposed purchase method acquisitions as if they had
occurred on January 1, 1994, and the proposed pooling-of-interest
as if it had occurred prior to all periods presented. The pro forma condensed
consolidated balance sheet gives effect to the business combinations which
occurred or are probable of occurring subsequent to December 31, 1994, as if
they had occurred before December 31, 1994.
The pro forma statements have been prepared by management based upon the
historical financial statements of Hilb, Rogal and Hamilton Company,
Lipman, R-S Life and other acquired agencies. These pro forma statements may
not be indicative of the results that actually would have occurred if the
combination had been in effect on the dates indicated or which may be obtained
in the future. The pro forma financial statements should be read in
conjunction with the audited financial statements and notes of the Company
included in the Company's 1994 Annual Report to Shareholders which is
incorporated by reference in the Company's Annual Report on Form 10-K, which
is incorporated herein by reference.
<PAGE>
HILB, ROGAL & HAMILTON COMPANY
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
DECEMBER 31, 1994
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
HILB, ROGAL POOLING-OF- PRO FORMA ACQUISITIONS PRO FORMA ADJUSTMENTS PRO FORMA
AND HAMILTON INTERESTS COMBINED (PURCHASES) FOR PURCHASE ACQUISITIONS CONSOLIDATED
COMPANY MERGER POOLED
TOTAL
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $ 12,615,132 $323,110 $ 12,938,242 $ 964,833 $(226,446)(1) $ 30,000 (3) $ 13,706,629
INVESTMENTS 23,131,550 0 23,131,550 23,131,550
RECEIVABLES & OTHER 49,160,330 149,200 49,309,530 912,661 0 207,227 (3) 50,429,418
-----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 84,907,012 472,310 85,379,322 1,877,494 N/A 10,781 87,267,597
-----------------------------------------------------------------------------------------------------------
INVESTMENTS 9,470,000 9,470,000 9,470,000
PROPERTY & EQUIPMENT 12,426,949 46,103 12,473,052 85,034 (85,034)(1) 37,773 (3) 12,510,825
INTANGIBLE ASSETS 48,729,409 0 48,729,409 166,212 (166,212)(1) 3,107,287 (3) 51,836,696
OTHER ASSETS 3,361,425 0 3,361,425 3,376 0 0 3,364,801
-----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $158,894,795 $518,413 $159,413,208 $2,132,116 N/A $2,904,595 $164,449,919
===========================================================================================================
LIABILITIES & EQUITY:
PREMIUMS PAYABLE-INS CO 65,361,846 378,188 $65,740,034 1,365,353 0 $67,105,387
OTHER ACCRUED LIABILITIES 21,785,184 20,129 21,805,313 282,268 0 22,087,581
-----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 87,147,030 398,317 87,545,347 1,647,621 N/A 0 89,192,968
LONG-TERM DEBT 3,173,405 3,173,405 0 440,412 (2) 3,613,817
OTHER LONG-TERM LIAB. 2,144,204 2,144,204 6,803 920,000 (3) 3,071,007
SHAREHOLDERS' EQUITY
COMMON STOCK 43,426,295 1,000 43,427,295 43,844 (43,844)(4) 2,021,875 (2) 45,449,170
RETAINED EARNINGS 23,003,861 119,096 23,122,957 433,848 (433,848)(4) 23,122,957
-----------------------------------------------------------------------------------------------------------
66,430,156 120,096 66,550,252 477,692 N/A 1,544,183 68,572,127
-----------------------------------------------------------------------------------------------------------
$158,894,795 $518,413 $159,413,208 $2,132,116 N/A $2,904,595 $164,449,919
===========================================================================================================
</TABLE>
(1) TO ADJUST FOR ASSETS AND LIABILITIES NOT ACQUIRED.
(2) TO REFLECT PURCHASE PRICE OF ASSETS AND LIABILITIES ACQUIRED SUBSEQUENT
TO DECEMBER 31, 1994 IN PURCHASE TRANSACTIONS.
(3) TO ADJUST FOR ASSET VALUATIONS UNDER PURCHASE ACCOUNTING.
(4) TO ELIMINATE SHAREHOLDERS' EQUITY OF ACQUIRED ENTITIES.
<PAGE>
HILB, ROGAL & HAMILTON COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
HILB, ROGAL POOLING-OF- PRO FORMA ACQUISITIONS PRO FORMA ADJUSTMENTS PRO FORMA
& HAMILTON CO. INTERESTS COMBINED (PURCHASES) FOR PURCHASE CONSOLIDATED
MERGER POOLED ACQUISITIONS
TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES:
COMMISSIONS & FEES $132,914,113 $339,483 $133,253,596 $9,057,074 $142,310,670
INTEREST INCOME 1,899,803 9,147 1,908,950 165,574 ($279,375) (1) 1,795,149
OTHER 5,995,698 2,084 5,997,782 27,037 6,024,819
----------------------------------------------------------------------------------------------
TOTAL REVENUES 140,809,614 350,714 141,160,328 9,249,685 (279,375) 150,130,638
----------------------------------------------------------------------------------------------
OPERATING EXPENSES:
COMPENSATION AND BENEFITS 78,310,999 240,592 78,551,591 5,870,006 84,421,597
OTHER OPERATING EXPENSES 35,975,715 134,437 36,110,152 2,350,223 (234,445) (2) 38,225,930
AMORTIZATION OF INTANGIBLES 6,436,119 6,436,119 681,316 122,928 (3) 7,240,363
INTEREST EXPENSE 812,216 812,216 378,042 (171,690) (4) 1,018,568
POOLING-OF-INTERESTS EXPENSE 487,986 487,986 487,986
----------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 122,023,035 375,029 122,398,064 9,279,587 (283,207) 131,394,444
----------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 18,786,579 (24,315) 18,762,264 (29,902) 3,832 18,736,194
INCOME TAXES 7,394,296 (6,350) 7,387,946 (10,428) (5) 7,377,518
----------------------------------------------------------------------------------------------
NET INCOME $11,392,283 ($17,965) $11,374,318 ($29,902) $14,260 $11,358,676
==============================================================================================
NET INCOME PER COMMON SHARE $0.77 $0.77 $0.76
==============================================================================================
SHARES ISSUED AND OUTSTANDING 14,679,464 37,000 14,716,464 175,000 14,891,464
----------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING 14,778,304 37,000 14,815,304 184,375 14,999,679
----------------------------------------------------------------------------------------------
</TABLE>
(1) TO ADJUST HISTORICAL INTEREST AND TO ADJUST FOR LOST INTEREST
EARNED FROM CASH PAID FOR ACQUIRED AGENCIES.
(2) TO REFLECT ADJUSTMENTS TO OTHER OPERATING EXPENSES TO
REFLECT ADJUSTED DEPRECIATION EXPENSE, RENT EXPENSE, ETC.
(3) TO REFLECT ADJUSTMENTS TO AMORTIZATION OF INTANGIBLES DUE
TO VALUATION OF AGENCY ASSETS ON THE PURCHASE BASIS OF
ACCOUNTING. INTANGIBLE ASSETS REPRESENT EXPIRATION RIGHTS,
THE EXCESS OF COSTS OVER THE FAIR VALUE OF NET ASSETS
ACQUIRED AND NONCOMPETITION AGREEMENTS.
(4) TO REFLECT INTEREST ON ACQUISITION DEBT AND TO ADJUST
HISTORICAL INTEREST FOR DEBT NOT ASSUMED.
(5) TO REFLECT ESTIMATED TAXES AND THE TAX EFFECT OF PROFORMA
ADJUSTMENTS ON NET INCOME.
<PAGE>
HILB, ROGAL & HAMILTON COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------
HILB, ROGAL POOLING-OF- PRO FORMA
& HAMILTON CO. INTERESTS COMBINED
MERGERS POOLED
TOTAL
- -----------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
COMMISSIONS & FEES $137,662,048 $403,680 $138,065,728
INTEREST INCOME 1,558,982 9,678 1,568,660
OTHER 2,435,150 1,978 2,437,128
----------------------------------------
TOTAL REVENUES 141,656,180 415,336 142,071,516
----------------------------------------
OPERATING EXPENSES:
COMPENSATION AND BENEFITS 82,469,714 286,526 82,756,240
OTHER OPERATING EXPENSES 37,773,552 139,098 37,912,650
AMORTIZATION OF INTANGIBLES 6,581,550 0 6,581,550
INTEREST EXPENSE 1,270,268 0 1,270,268
POOLING-OF-INTERESTS EXPENSE 503,207 503,207
----------------------------------------
TOTAL OPERATING EXPENSES 128,598,291 425,624 129,023,915
----------------------------------------
INCOME BEFORE INCOME TAXES 13,057,889 (10,288) 13,047,601
INCOME TAXES 4,764,496 (3,672) 4,760,824
----------------------------------------
NET INCOME $8,293,393 ($6,616) $8,286,777
========================================
NET INCOME PER COMMON SHARE $0.57 $0.57
========================================
SHARES ISSUED AND OUTSTANDING 14,800,904 37,000 14,837,904
----------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING 14,456,055 37,000 14,493,055
----------------------------------------
</TABLE>
<PAGE>
HILB, ROGAL & HAMILTON COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
HILB, ROGAL POOLING-OF- PRO FORMA
& HAMILTON CO. INTERESTS COMBINED
MERGERS POOLED
TOTAL
- ------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
COMMISSIONS & FEES $137,296,081 $423,032 $137,719,113
INTEREST INCOME 1,374,949 12,097 1,387,046
OTHER 1,789,925 677 1,790,602
----------------------------------------
TOTAL REVENUES 140,460,955 435,806 140,896,761
----------------------------------------
OPERATING EXPENSES:
COMPENSATION AND BENEFITS 81,939,724 277,357 82,217,081
OTHER OPERATING EXPENSES 36,208,784 142,421 36,351,205
AMORTIZATION OF INTANGIBLES 6,557,924 0 6,557,924
INTEREST EXPENSE 1,820,819 0 1,820,819
POOLING-OF-INTERESTS EXPENSE 532,960 532,960
----------------------------------------
TOTAL OPERATING EXPENSES 127,060,211 419,778 127,479,989
----------------------------------------
INCOME BEFORE INCOME TAXES 13,400,744 16,028 13,416,772
INCOME TAXES 4,809,342 10,141 4,819,483
----------------------------------------
NET INCOME $8,591,402 $5,887 $8,597,289
========================================
NET INCOME PER COMMON SHARE $0.65 $0.65
=========================================
SHARES ISSUED AND OUTSTANDING 13,242,808 37,000 13,279,808
----------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING 13,241,030 37,000 13,278,030
----------------------------------------
</TABLE>
<PAGE>
R.E. LIPMAN INSURANCE BROKERS, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1994
AND INDEPENDENT AUDITORS' REPORT
INDEPENDENT AUDITORS' REPORT
To the Stockholder
R.E. Lipman Insurance Brokers, Inc.
We have audited the accompanying balance sheet of R.E. Lipman
Insurance Brokers, Inc. as of December 31, 1994, and the related
statements of operations and retained earnings, and cash flows
for the year 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 audit. We conducted our audit in
accordance with generally accepted auditing standards. Those standards
require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of R.E. Lipman
Insurance Brokers, Inc. at December 31, 1994, and the results of its
operations and its cash flows for the year then ended in conformity
with generally accepted accounting principles.
Blanding, Boyer & Rockwell
Walnut Creek, California
February 22, 1995
R.E. LIPMAN INSURANCE BROKERS, INC.
BALANCE SHEET
DECEMBER 31, 1994
(See independent auditors' report.)
ASSETS
CURRENT ASSETS
Cash and equivalents, including $244,744
held in trust $ 323,110
Premiums receivables (Note 1) 149,200
----------
Total current assets 472,310
----------
PROPERTY AND EQUIPMENT (Note 1)
Office equipment 41,225
Leasehold improvements 78,018
Allowance for depreciation (73,140)
----------
Total property and equipment 46,103
----------
$ 518,413
==========
LIABILITIES AND STOCKHOLDER EQUITY
CURRENT LIABILITIES
Premiums payable to insurance companies $ 378,188
Accounts payable 3,226
Accrued liabilities 11,453
Accrued taxes on income (Note 2) 850
Deferred taxes on income (Note 2) 4,600
----------
Total current liabilities 398,317
----------
STOCKHOLDER'S EQUITY
Common stock
Par value $10, authorized 5,000
issued and outstanding 100 shares 1,000
Retained earnings 119,096
----------
120,096
----------
$ 518,413
==========
See notes to financial statements.
R.E. LIPMAN INSURANCE BROKERS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1994
(See independent auditors' report.)
REVENUES
Commissions and fees $ 339,483
Interest income 9,147
Miscellaneous 2,084
---------
350,714
---------
EXPENSES
Compensation and related 240,592
General and administrative 74,301
Rentals 30,300
Marketing 25,621
Depreciation 4,215
---------
375,029
---------
Loss before income tax provision (24,315)
Income tax benefit (Note 2) (6,350)
---------
Net loss (17,965)
RETAINED EARNINGS
Beginning of year 137,061
---------
End of year $ 119,096
=========
Net loss per common share $ (180)
==========
See notes to financial statements.
R.E. LIPMAN INSURANCE BROKERS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
(See independent auditors' report.)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (17,965)
Charges not requiring cash currently:
Depreciation 4,215
Deferred taxes (8,000)
Changes in operating working capital
requirements:
Net premiums in trust 9,688
Accounts payable and accrued expenses 10,881
Accrued taxes on income 850
---------
Cash used for operations (331)
CASH AND EQUIVALENTS AT
Beginning of year 323,441
---------
End of year $ 323,110
=========
There was no interest paid in 1994.
See notes to financial statements.
R.E. LIPMAN INSURANCE BROKERS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1994
(See independent auditors' report.)
NOTE 1 - OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
R.E. Lipman Insurance Brokers, Inc., located in Benicia, California,
was incorporated August 22, 1979. The Company is primarily involved in
selling commercial property and liability insurance coverage, and also
provides counsel and claims services.
The Company's significant accounting policies include the following:
Basis of accounting - Commission income as well as the related premiums
receivable from customers and premiums payable to insurance companies are
recorded as of the effective date of insurance coverage or the billing date,
whichever is later. Premium adjustments, including policy cancellations, are
recorded as they occur. Contingent commissions and commissions on premium
billed and collected directly by insurance companies are recorded as revenue
when received. Fees for services rendered and override commissions are
ecorded as earned. These policies are in accordance with predominant
industry practice. Expenses are recognized as incurred.
Cash and equivalents - The Company considers all funds and highly
liquid debt instruments purchased with maturities of three months or less
to be cash equivalents. Cash balances usually exceed federally insured
limits.
Property and equipment - Major additions to equipment and leasehold
improvements are capitalized and recorded at cost. Replacements, maintenance
and repairs which do not improve or extend the life of the respective assets
are expensed as incurred.
Depreciation is provided using primarily declining balance methods
for financial reporting, and conforms to depreciation reported on federal
tax returns. The Company utilized accelerated methods for both
state and federal income tax reporting.
NOTE 2 - INCOME TAX PROVISION:
The Company computes and records federal income tax and California
franchise tax currently payable based on taxable income, which may
differ from financial statement income. Some differences may arise
from the reporting of financial statement amounts in different periods
than for tax purposes. Deferred income taxes are provided for the
income tax effects of these differences.
Income tax expense at December 31, 1994 consists of the following
elements.
Federal State Total
Currently payable 850 $ 800 $ 1,650
Deferred (benefit) to the
future $(5,200) $(2,800) $(8,000)
------- ------- -------
$(4,350) $(2,000) $(6,350)
======= ======= =======
Cash payments for state taxes were $800. There were no federal
tax payments.
NOTE 3 - RELATED PARTY TRANSACTIONS:
Related party transactions during 1994 included $30,300 paid to
the owner for rent on the office building. Commencing February 1991,
the term of the lease agreement is five years.
NOTE 4 - SUBSEQUENT EVENTS:
The Company's shareholder is currently negotiating the exchange
of the Company's stock for the stock in another company who operates
a similar business. The exchange will be treated as a pooling-of-interest.
<PAGE>
R.E. LIPMAN INSURANCE BROKERS, INC.
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1993 AND 1992
AND COMPILATION REPORT OF INDEPENDENT ACCOUNTANTS
<PAGE>
COMPILATION REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholder
R.E. Lipman Insurance Brokers, Inc.
We have compiled the accompanying balance sheets of R.E. Lipman
Insurance Brokers, Inc. (a California corporation) as of December 31,
1993 and 1992, and the related statements of operations and retained
earnings, and cash flows for the years then ended, in accordance
with Statements on Standards for Accounting and Review Services issued
by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial
statements information that is the representation of management.
We have not audited or reviewed the accompanying financial statements and,
accordingly, do not express an opinion or any other form of assurance
on them.
Blanding, Boyer & Rockwell
Walnut Creek, California
March 6, 1995<PAGE>
R.E. LIPMAN INSURANCE BROKERS, INC.
BALANCE SHEETS
DECEMBER 31, 1993 AND 1992
(See compilation report of independent accountants.)
ASSETS
1993 1992
-------- -------
CURRENT ASSETS
Cash and equivalents, including
$240,993 and $258,033, respectively,
held in trust $323,441 $372,111
Premiums receivables (Note 1) 182,742 263,577
-------- --------
Total current assets 506,183 635,688
-------- --------
PROPERTY AND EQUIPMENT
Office equipment 53,297 57,164
Leasehold improvements 78,018 46,498
Allowance for depreciation (80,997) (80,785)
-------- --------
Total property and equipment 50,318 22,877
-------- --------
$556,501 $658,565
======== ========
LIABILITIES AND STOCKHOLDER EQUITY
CURRENT LIABILITIES
Premiums payable to insurance companies $402,040 $495,144
Accounts payable 2,872 3,623
Accrued liabilities 928 321
Deferred taxes on income (Note 2) 12,600 14,800
-------- --------
Total current liabilities 418,440 513,888
-------- --------
STOCKHOLDER'S EQUITY
Common stock
Par value $10, authorized 5,000
issued and outstanding 100 shares 1,000 1,000
Retained earnings 137,061 143,677
-------- --------
138,061 144,677
-------- --------
$556,501 $658,565
======== ========
See notes to financial statements.
R.E. LIPMAN INSURANCE BROKERS, INC.
STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
AS OF DECEMBER 31, 1993 AND 1992
(See compilation report of independent accountants.)
1993 1992
-------- --------
REVENUES
Commissions and fees $403,680 $423,032
Interest income 9,678 12,097
Miscellaneous 1,978 2,145
Loss on sale of equipment - (1,468)
-------- --------
415,336 435,806
-------- --------
EXPENSES
Compensation and related 286,526 277,357
General and administrative 82,969 88,143
Rentals (Note 3) 29,092 26,601
Marketing 20,867 19,041
Depreciation 6,170 8,636
-------- --------
425,624 419,778
-------- --------
Income (loss) before income tax
provision (10,288) 16,028
INCOME TAX PROVISION (BENEFIT)(NOTE 2) (3,672) 10,141
-------- --------
Net income (loss) (6,616) 5,887
RETAINED EARNINGS
Beginning of year 143,677 137,790
-------- --------
End of year $137,061 $143,677
======== ========
Net income (loss) per common share $ (66) $ 59
======== ========
See notes to financial statements.
R.E. LIPMAN INSURANCE BROKERS, INC.
STATEMENTS OF CASH FLOWS
AS OF DECEMBER 31, 1993 AND 1992
(See compilation report of independent accountants.)
1993 1992
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (6,616) $ 5,887
Charges not requiring cash currently:
Depreciation 6,170 8,636
Loss on equipment disposition - 1,468
Deferred taxes (benefit) (2,200) 14,800
Changes in operating working capital
requirements:
Net premiums in trust (12,268) 56,737
Accounts payable and accrued expenses (146) (11,839)
-------- --------
Cash provided (used) for
operations (15,060) 75,689
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Equipment purchases (33,610) (17,923)
Proceeds from equipment disposition - 17,500
-------- --------
Cash used for investments (33,610) (423)
-------- --------
DECREASE IN CASH AND EQUIVALENTS (48,670) 75,266
Cash and equivalents at
Beginning of year 372,111 296,845
-------- --------
End of year $323,441 $372,111
======== ========
See notes to financial statements.
R.E. LIPMAN INSURANCE BROKERS, INC.
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
NOTE 1 - OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES:
R.E. Lipman Insurance Brokers, Inc., located in Benicia, California, was
incorporated August 22, 1979. The Company is primarily involved in selling
commercial property and liability insurance coverage, and also provides
counsel and claims services.
The Company's significant accounting policies include the following:
Basis of accounting - Commission income as well as the related premiums
receivable from customers and premiums payable to insurance companies are
recorded as of the effective date of insurance coverage or the billing date,
whichever is later. Premium adjustments, including policy cancellations,
are recorded as they occur. Contingent commissions and commissions on
premium billed and collected directly by insurance companies are recorded as
revenue when received. Fees for services rendered and override commissions
are recorded as earned. These policies are in accordance with predominant
industry practice. Expenses are recognized as incurred.
Cash and equivalents - The Company considers all funds and highly
liquid debt instruments purchased with maturities of three months or less
to be cash equivalents. Cash balances usually exceed federally insured
limits.
Property and equipment - Major additions to equipment and leasehold
improvements are capitalized and recorded at cost. Replacements, maintenance
and repairs which do not improve or extend the life of the respective assets are
expensed as incurred.
Depreciation is provided using primarily declining balance methods
for financial reporting, and conforms to depreciation reported on federal tax
returns. The Company utilized accelerated methods for both state and federal
income tax reporting.
<PAGE>
NOTE 2 - INCOME TAX PROVISION:
The Company computes and records federal income tax and California
franchise tax currently payable based on taxable income, which may
differ from financial statement income. Some differences may arise
from the reporting of financial statement amounts in different periods
than for tax purposes. Deferred income taxes are provided for the
income tax effects of these differences.
Income tax expense (benefit) consists of the following elements.
Federal State Total
------- ------- -------
1993
Currently payable (refundable) $(2,272) $ 800 $(1,472)
(Benefit) to the future (1,300) (900) (2,200)
------- ------- -------
$(3,572) $ (100) $(3,672)
======= ======= =======
1992
Currently refundable $(3,819) $ (840) $(4,659)
Deferred to the future 9,100 5,700 14,800
------- ------- -------
$ 5,281 $ 4,860 $10,141
======= ======= =======
Cash payments for state taxes were $800. There were no federal
tax payments.
NOTE 3 - RELATED PARTY TRANSACTIONS:
Related party transactions during 1993 and 1992 included $29,902
and $26,601 paid in each year, respectively, to the owner for rent on
the office building. Commencing February 1991, the term of the lease
agreement is five years. During 1993, rent was offset by $900 received
for sublease rents.
NOTE 4 - SUBSEQUENT EVENTS:
The Company's shareholder is currently negotiating the exchange
of the Company's stock for the stock in another company who operates
a similar business. The exchange will be treated as a pooling-of-interest.
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the year ended December
31, 1994 is derived from the financial statements of R. E. Lipman
Insurance Brokers, Inc. The fincial data for the years ended Decmeber
31, 1993, 1992, 1991 and 1990 are derived from unaudited financial
statements. The unaudited financial statements include all adjustments,
consisting of normal recurring accruals, which R. E. Lipman Insurance
Brokers, Inc. considers necessary for a fair presentation of the financial
position and the results of operations of these periods. The data should
be read in conjunction with the financial statements, related notes and
other financial information included herein.
<TABLE>
<CAPTION>
Year Ended December 31
--------- --------- --------- --------- ---------
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
(unaudited)(unaudited)(unaudited)(unaudited)
<S> <C> <C> <C> <C> <C>
Statement of Consolidated Income
Data:
Commissions and fees $339,483 $403,680 $423,032 $403,678 $363,839
Interest income and other 11,231 11,656 12,774 19,351 9,903
-------- -------- -------- -------- --------
Total revenues 350,714 415,336 435,806 423,029 373,742
Compensation and employee
benefits 240,592 286,526 277,357 270,965 232,163
Other operating expenses 134,437 139,098 142,421 150,428 122,415
-------- -------- -------- -------- --------
Total expenses 375,029 425,624 419,778 421,393 354,578
-------- -------- -------- -------- --------
Income before income taxes (loss) (24,315) (10,288) 16,028 1,636 19,164
Income taxes (benefit) (6,350) (3,672) 10,141 8,706 4,953
-------- -------- -------- -------- --------
Net income ($17,965) ($6,616) $5,887 ($7,070) $14,211
========= ========= ========= ========= =========
Consolidated Balance Sheet Data:
Total assets 518,413 556,501 658,565 534,403 534,586
Total shareholders' equity 120,096 138,061 144,677 139,790 135,328<PAGE>
</TABLE>
<PAGE>
Management's Discussion and Analysis of Operations
R. E. LIPMAN INSURANCE BROKERS, INC.
The income of R. E. Lipman Insurance Brokers, Inc. is principally derived
from commissions and fees earned on the sale of insurance policies from
various insurers for various lines of business. These are primarily
commercial property and casualty products with increasing amounts derived from
life, health and other benefit policies.
Commissions are generally a percentage of premium and vary from carrier
to carrier. Carriers have increasingly been reducing commissions and
restricting the ability of the independent agent to place coverage.
The California economy has been in a slump for nearly five years and
only in 1995 is the outlook optimistic. R. E. Lipman Insurance Brokers,
Inc. intends to e positioned to take advantage of the expanding marketplace
for all insurance products.
RESULTS OF 1992 OPERATIONS
In 1992, revenues increased slightly from the results of 1991. However,
1991 revenues were enhanced by a sizable bonus commissions which was not earned
in 1992. The success of the year was based in operations alone.
The residual effect of Prop. 103 continued to erode the confidence of the
insurers who remained in the State. This change in the marketplace increased
the difficulty of finding carriers willing to accept risks. Therefore,
future income potential was limited unless more business could be produced.
In September 1992, a new producer was hired and trained. His first
year's production had not been recognized by the end of the calendar
year.
Salaries and benefits continued to be the majority of the expense of
operating the agency, followed by physical expansion of the office to
accommodate increased staff.
Retained earnings on an accrual basis for 1992 reached an all-time high
due to successful operations.
RESULTS OF 1993 OPERATIONS
Revenues in 1993 enjoyed a major boost as a result of a contingency bonus of
$41,710. The normal business operations continued to slow as a result of
further Prop. 103 contraction. Overall revenues decreased by nearly $20,000
and the cost of business increased due to the new producer's expenses and the
increased efforts to find new clients and insurers.
General and administrative expenses decreased due to the reduction of
some staff to a part-time basis.
The year ended on a loss which created a tax loss carryforward.
RESULTS OF 1994 OPERATIONS
Revenues: These reflected the continued contraction of the insurance
marketplace, the soft market for commercial premiums, and the almost
36% reduction in workers' compensation premiums. Workers' Compensation
policies represented over 40% of this agency's business.
Fracturing of the marketplace into more carriers, each with less volume,
created a situation where the large contingent bonus commissions of the
past were no longer earned.
Interest income (the result of effective management of assets held
prior to paying the insurers) reflected little change from the prior
year due to the increase in interest rates. As more policies were direct
billed, the total sums managed decreased. However, effective
management of funds resulted in a very small contraction.
Miscellaneous income stayed about the same and was an insignificant
portion of the operations.
Total revenue only decreased 15% from the previous year. This fact,
considering the changes in the marketplace and composition of the
firm, is testimony to the ability of the agency to focus on the most
profitable sections of the business.
Expenses: These decreased primarily by reduction of payroll and benefits.
The ratio of compensation-related expenses to income has not varied more
than 10% in three years. General and administrative expenses decreased by
deferring maintenance on the leased premises and the effective use of filing
and computer systems implemented and installed in 1993.
The rental of the premises has not changed substantially. The last rent
increase was in 1993.
Marketing expenses increased by more than 20% due to a new vehicle added
in 1994.
Depreciation continued to decrease due to expense elections and a diminishing
basis of depreciable assets.
Income (Loss): This was a direct effect of the reduction of income and
inertia of expenses not able to be decreased as fast as revenue declined.
The tax loss carryforward softened the impact of the loss in 1994.
It is expected that 1995 will be a profitable or break even year.
AGREEMENT OF MERGER
OF
R. E. LIPMAN INSURANCE BROKERS, INC.
INTO
HRH INSURANCE SERVICES OF NORTHERN CALIFORNIA, INC.
THIS MERGER AGREEMENT ("Agreement"), to be effective as of
12:01 a.m. on May 1, 1995, or at such other time as may be agreed upon by
the parties hereto, is made and entered into by and among HILB, ROGAL
AND HAMILTON COMPANY, a Virginia corporation ("Parent"), its
wholly-owned subsidiary, HRH INSURANCE SERVICES OF NORTHERN
CALIFORNIA, INC., a California corporation ("Survivor"), and R. E.
LIPMAN INSURANCE BROKERS, INC., a California corporation
("Merging Entity"), and ROGER E. LIPMAN, in his dual capacities acting
for himself, and as Trustee of the R. E. LIPMAN 1990 TRUST, the sole
shareholder of Merging Entity (hereinafter sometimes collectively
referred to as "Shareholders" or any one of the foregoing hereinafter
sometimes referred to as "Shareholder"), with reference to the following
facts:
A. Shareholders are the owners and holders of all of the issued and
outstanding shares of the authorized capital stock (referred to below as the
"Common Stock") of Merging Entity which is engaged in the business of
owning and operating a general insurance agency.
B. Parent is engaged in the business of owning and operating
insurance agencies and Survivor is an operating insurance agency.
C. Shareholders, Parent, Survivor and Merging Entity have reached
an understanding with respect to the merger of Merging Entity into Survivor
("Merger") for which Shareholders shall receive that amount of Parent's
common stock as the consideration stated herein.
D. The parties hereto intend that this Agreement be characterized as
a triangular statutory merger pursuant to Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986 ("Code") and further be
accounted for as a "pooling of interests" in accordance with Accounting
Principles Board Opinion Number 16 and other applicable guidelines.
In consideration of the foregoing facts and of the respective
representations, warranties, covenants, conditions and agreements set forth
below, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. PLAN OF MERGER.
1.1 Effective Date. Subject to fulfillment of the conditions
precedent in Sections 6 and 7 of this Agreement, Merging Entity and
Survivor (collectively, "Constituents") will cause Articles of Merger to be
signed, verified and delivered on or before March 31, 1995 (or at such
later time as may be agreed upon by the parties), to the Secretary of State
of the State of California and to be effective as of 12:01 a.m. on April
1, 1995 (or at such later time as may be agreed upon by the parties)
("Effective Date"), as provided by the laws of the State of California.
On the Effective Date, the separate existence of each entity of Constituents
shall cease and Merging Entity shall be merged with and into Survivor,
which shall become the Surviving Corporation.
1.2 Organization of Survivor.
(a) On the Effective Date, and thereafter until amended as
provided by law, the articles of incorporation of Survivor in effect on the
Effective Date shall be the articles of incorporation for the Surviving
Corporation.
(b) On the Effective Date, and thereafter until amended as
provided by law, the bylaws of Survivor in effect on the Effective Date
shall be the bylaws for the Surviving Corporation.
(c) On the Effective Date, and thereafter until changed as provided
by law, the names and addresses of the directors for Surviving
Corporation shall be:
Robert H. Hilb
4235 Innslake Drive, P.O.
Box 1220
Glen Allen, Virginia 23060-1220
Andrew L. Rogal
Warner Centre
333 Forbes Avenue
Pittsburgh, Pennsylvania 15222
John C. Adams, Jr.
4235 Innslake Drive, P.O. Box 1220
Glen Allen, Virginia 23060-1220
(d) On the Effective Date, and thereafter until changed as
provided by law, the officers of Survivor on the Effective Date shall be
the officers of Surviving Corporation.
1.3 Effect of Merger.
(a) On the Effective Date, the assets and liabilities of Merging
Entity shall be taken on the books of Survivor at the amount at which they
shall at that time be carried on the books of Merging Entity, subject to
such adjustments, if any, as may be necessary to conform to the accounting
procedures of Survivor.
(b) On the Effective Date and thereafter, Survivor shall
possess all the rights, privileges, immunities, powers, franchises and
authority, both public and private, of each of the corporations comprising
Constituents. All property of every description, including every interest
therein and all obligations of or belonging to or due to each of
Constituents shall thereafter be taken and deemed to be transferred to and
vested in Survivor, without further act or deed, although Merging Entity
from time to time, as and when required by Survivor, shall execute and
deliver, or cause to be executed and delivered, all such deeds and other
instruments and shall take, or cause to be taken, such further action as
Survivor may deem necessary or desirable to confirm the transfer to and
vesting in Survivor of title to and possession of all such rights,
privileges, immunities, franchises and authority. All rights of
creditors of each of Constituents shall be preserved unimpaired, limited in
lien to the property affected by such liens immediately prior to the
Effective Date, and Survivor shall thenceforth be liable for all the
obligations of each of Constituents.
1.4 Conversion of Shares of Common Stock.
(a) All of the outstanding capital stock of Merging Entity
comprises the Common Stock, which is owned, collectively, by Shareholders.
Each of Shareholders owns, free and clear of any liens, encumbrances,
restrictions or adverse claims whatsoever except as set forth in Schedule
2.4, the number of shares of Merging Entity set forth below opposite his
name and each Shareholder shall receive therefor for each share of Common
Stock the number of shares of no par value common stock of Parent as
described herein:
Shareholder Number of Shares Percentage
R. E. LIPMAN 1990 TRUST 100 100%
In exchange for all of the shares of Common Stock, Shareholders shall
collectively receive 37,000 shares of common stock of Parent, subject to
adjustment as provided in Section 14.6 and to all the terms and conditions
contained herein. This Agreement shall not be consummated under any
circumstances unless 100% of the shares of Common Stock are exchanged for
shares of Parent common stock.
(b) The manner and basis of conversion of shares on the Effective
Date shall be as follows:
(i) Each share of common stock of Survivor which is
issued and outstanding on the Effective Date, with all rights with respect
thereto, shall become one (1) share of common stock, $10 par value, of
Surviving Corporation.
(ii) Each share of Common Stock which is issued and
outstanding on the Effective Date, with all rights with respect thereto,
shall be converted into 370 shares (which number of shares is subject to
adjustment as provided in Section 14.6) of common stock, no par value, of
Parent. No fractional shares of Parent common stock will be issued as the
number of shares to be issued to any Shareholder in accordance with the
preceding sentence shall be rounded up or down to the nearest whole
number (a fractional share of 0.5 or more will be rounded up; less than 0.5
will be rounded down). Each shareholder of Common Stock, upon delivery
to Parent or its duly authorized agent for cancellation of certificates
representing such shares and subject to the ten percent holdback of shares
described later herein, shall thereafter be entitled to receive certificates
representing the number of shares of Parent common stock to which such
Shareholder is entitled.
(c) Appropriate adjustment shall be made on the number of
shares of Parent common stock to be issued upon conversion if, during the
period commencing on February 21, 1995, and ending on the Effective Date,
Parent: (i) effects any dividend payable in shares of common stock;
(ii) splits or combines the outstanding shares of Parent common stock;
(iii) effects any extraordinary distribution on Parent common stock;
(iv) effects any reorganization or reclassification of Parent common stock;
or (v) fixes a record date for the determination of shareholders entitled
to any of the foregoing.
(d) Upon delivery of Common Stock to Parent pursuant to
subsection 1.4(b)(ii), Parent shall receive all of the shares of common
stock of Surviving Corporation outstanding pursuant to subsection
1.4(b)(i).
(e) Until its surrender, each certificate comprising Common
Stock referred to in subsection 1.4(b)(ii) herein shall be deemed for all
corporate purposes, other than the payment of dividends, to evidence
ownership of the number of full shares of Parent common stock into which
such shares of Common Stock shall have been changed by virtue of the
merger. Unless and until any such outstanding certificates of Common Stock
shall be so surrendered, no dividend payable to the holders of record of
Parent common stock, as of any date subsequent to the Effective Date, shall
be paid to the holders of such outstanding certificates, but upon such
surrender of any such certificate or certificates there shall be paid to the
record holder of the certificate or certificates of Parent common stock into
which the shares represented by the surrendered certificate or certificates
shall have been so changed the amount of such dividends which theretofore
became payable with respect to such shares of Parent.
1.5 Closing Date. The closing of the transactions contemplated by this
Agreement ("Closing") shall take place at the offices of Survivor, located
at 160 Mitchell Boulevard, San Rafael, California, at 10 o'clock a.m. on
April __, 1995, or at such other place and time as shall be mutually
agreed upon by the parties to this Agreement ("Closing Date").
2. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Shareholders, jointly
and severally, represent and warrant to Parent as follows:
2.1 Organization and Standing of Merging Entity. Merging Entity is
a corporation duly organized, validly existing and in good standing under
the laws of the State of California ("Home State") and has full power and
authority to carry on its business as it is now being conducted and to
own or hold under lease the properties and assets it now owns or holds
under lease. Except as set forth in Schedule 2.1 to this Agreement,
Merging Entity is not qualified to do business in any state or other
jurisdiction other than Home State. Except as set forth in Schedule 2.1,
the nature of the business conducted by Merging Entity and the character
or ownership of properties owned by it does not require Merging Entity to
be qualified to do business in any other jurisdiction. Furthermore, except
as set forth in Schedule 2.1 to this Agreement, the nature of the business
conducted by Merging Entity does not require it or any of its employees to
qualify for, or to obtain any insurance agency, brokerage, adjuster, or
other similar license in any jurisdiction other than Home State. The
copy of the articles of incorporation, and all amendments thereto, of
Merging Entity heretofore delivered to Parent and which have been or will
be initialed for identification purposes by the President of Merging
Entity is complete and correct as of the date hereof. The copy of the
bylaws, and all amendments thereto, of Merging Entity heretofore delivered
to Parent and which have been or will be initialed for identification
purposes by the President of Merging Entity is complete and correct as
of the date hereof. The minute book or minute books of Merging Entity
contain a complete and accurate record in all material respects of all
meetings and other corporate actions of the shareholders and directors of
Merging Entity.
2.2 Name. Neither Merging Entity nor any of Shareholders has
granted to anyone any right to use the corporate name or any name similar
to the corporate name of Merging Entity.
2.3 Capitalization of Merging Entity. The capitalization of Merging
Entity is as follows:
(a) Merging Entity is authorized to issue 5000 shares of voting
common stock, $10 par value. Merging Entity is not authorized to issue,
and has not issued, any shares of any other class. All of the shares
comprising Common Stock outstanding and owned as of the date hereof are
as set forth in Section 1.4(a), supra.
(b) All of the outstanding shares of Common Stock have been
duly and validly issued and are fully paid and nonassessable. The
issuance of all shares of Common Stock was and has been in compliance
with all applicable statutes, rules and regulations, including, without
limitation, all applicable federal and state securities laws. There is no
existing option, warrant, call or commitment to which Merging Entity is a
party requiring the issuance of any additional shares of common stock of
Merging Entity or of any other securities convertible into shares of common
stock of Merging Entity or any other equity security of Merging Entity of
any class or character whatsoever.
(c) No shares of the authorized stock of Merging Entity have
ever been registered under the provisions of any federal or state securities
law, nor has Merging Entity filed or been required to file any report with
any federal or state securities commission, department, division or other
governmental agency.
(d) No present or prior holder of any shares of the authorized
stock of Merging Entity is entitled to any dividends with respect to any
such shares now or heretofore outstanding.
2.4 Ownership of Common Stock. Except as set forth in Schedule
2.4, each Shareholder is the record owner, free and clear of any and all
liens, encumbrances, restrictions and adverse claims whatsoever, of the
number of shares of Common Stock set forth opposite his name in subsection
1.4(a). Each such lien, encumbrance, restriction or adverse claim can be
removed at or prior to the Closing.
Merging Entity is autonomous and has never been a subsidiary or
division of another enterprise. There has been no change in the equity
interest of Merging Entity in contemplation of effecting this Agreement,
such as excessive distributions or additional issuances, exchanges or
retirements of securities. Any shares of Common Stock reacquired by
Merging Entity were reacquired only for legitimate purposes other than
business combinations. Schedule 2.4 describes all changes, issuances,
exchanges and retirements of equity securities within the last three years
as well as the legitimate purpose (i.e. other than effecting this Agreement)
for each such transaction.
2.5 Authority. Shareholders, individually and collectively, have full
and complete authority to enter into this Agreement and to transfer in
accordance with the terms and conditions of this Agreement all of the shares
of Common Stock, free and clear of all liens, encumbrances, restrictions and
adverse claims whatsoever. The execution, delivery and performance of this
Agreement by Merging Entity does not violate, result in a breach of, or
constitute a default under, the articles of incorporation or bylaws of
Merging Entity or any indenture, contract, agreement or other instrument to
which it is a party or is bound, or to the best knowledge of Shareholders
and Merging Entity, any applicable laws, rules or regulations.
2.6 Subsidiaries and Other Relationships. Except as disclosed on
Schedule 2.6, Merging Entity does not own any stock or other interest in any
other corporation, nor is it a participant in any joint entity. Except as
disclosed on Schedule 2.6, any stock owned by Merging Entity in any other
entity represents one hundred percent (100%) ownership of such entity, is
owned free and clear of any and all liens, encumbrances, restrictions and
adverse claims, has been duly and validly issued and is fully paid and
nonassessable.
2.7 Financial Statements. Shareholders and Merging Entity have
caused to be delivered to Parent a true and complete copy of the audited
financial statements of Merging Entity, prepared under the accounting
guidelines of Parent, previously provided to them in the form of Parent's
Accounting Policies and Procedures Manual ("GAAP Policy"), together with
an unqualified opinion and an accountant's consent to use such statements in
a SEC registration statement, for the three most recent calendar years of
Merging Entity including, without limitation, balance sheets and statements
of income for the periods referred to above (collectively, "Financial
Statements"). In addition, Shareholders and Merging Entity have delivered to
Parent a true and complete copy of the unaudited financial statements of
Merging Entity for the most recent month ended, including, without
limitation, a balance sheet and statement of income for such period then
ended. Each of the Financial Statements is true and correct, is in
accordance with the books and records of Merging Entity, presents fairly the
financial condition and results of operations of Merging Entity as of the
date and for the period indicated, and has been prepared in accordance with
Parent's GAAP Policy consistently applied throughout the periods covered by
such statements (including, but not limited to, the establishment of
reserves for bad debts and accruals for all outstanding debts and expenses).
Furthermore, the Financial Statements did not contain any untrue statement
of any material fact nor omitted to state any material fact required to be
stated to make such Financial Statements not misleading. Without limiting
the generality of the foregoing, the commission income reflected in each of
the Financial Statements is true and correct, and the accounts payable
reflected in each of the Financial Statements is true and correct.
2.8 Absence of Undisclosed Liabilities. (The term "Most Recent
Balance Sheet," as used in this Agreement, means the balance sheet of
Merging Entity at February 28, 1995. Also, the term "Most Recent Balance
Sheet Date," as used in this Agreement, means February 28, 1995.)
Except as and to the extent specifically reflected, provided for or reserved
against in the Most Recent Balance Sheet or except as disclosed in any
Schedule to this Agreement, Merging Entity, as of the Most Recent Balance
Sheet Date, did not have any indebtedness, liability or obligation of any
nature whatsoever, whether accrued, absolute, contingent or otherwise, and
whether due or to become due, including, without limitation, tax liabilities
due or to become due, and whether incurred in respect of or measured by
the income of Merging Entity for any period prior to the Most Recent
Balance Sheet Date, or arising out of transactions entered into, or any
state of facts existing, prior thereto, and none of Shareholders knows or
has reasonable grounds to know of any basis for the assertion against
Merging Entity, as of the Most Recent Balance Sheet Date, of any
indebtedness, liability or obligation of any nature or in any amount not
fully reflected or reserved against in the Most Recent Balance Sheet or
otherwise disclosed in any Schedule to this Agreement.
2.9 No Adverse Change. Since the Most Recent Balance Sheet Date,
there has been no material change in the financial condition, results of
operations or business prospects of Merging Entity other than changes
occurring in the ordinary course of business or except as otherwise
disclosed in any of the Schedules to this Agreement, which changes have not
had a material adverse effect on the financial condition, results of
operations or business prospects of Merging Entity. Without limiting the
generality of the foregoing, since the Most Recent Balance Sheet Date, there
has been no material adverse change in the insurance accounts included
within the "Book of Business" of Merging Entity, and none of Shareholders
knows or has reasonable grounds to know of any basis for any material
adverse change in such insurance accounts between the date hereof and the
Effective Date. For purposes hereof, "material adverse change" in the
insurance accounts included in the "Book of Business" of Merging Entity
means, without limitation, the loss of any account generating an aggregate
annual gross income (commission or otherwise) of $2,500 or more.
2.10 Taxes. Merging Entity has filed all federal, state and local
income, withholding, social security, unemployment, excise, real property
tax, tangible personal property tax, intangible personal property tax and
all other tax returns and reports required to be filed by it to the date
hereof and all of such returns and reports are true and correct. All
taxes, assessments, fees, penalties, interest and other governmental
charges which were required to be paid by Merging Entity on such returns
and reports have been duly paid and satisfied on or before their respective
due dates. No tax deficiency or penalty has been asserted or threatened
with respect to Merging Entity. No federal or state income tax return of
Merging Entity has been audited or, to the knowledge of any Shareholder,
proposed to be audited, by any federal or state taxing authority,
including, without limitation, the U.S. Internal Revenue Service and the
California Franchise Tax Board, and no waiver of any statute of limitations
has been given or is in effect with respect to the assessment of any taxes
against Merging Entity. The provisions for taxes included in the Most
Recent Balance Sheet and in the Financial Statements were sufficient for the
payment of all accrued and unpaid federal, state and local income,
withholding, social security, unemployment, excise, real property, tangible
personal property, intangible personal property and other taxes of Merging
Entity, whether or not disputed, for the periods reflected, and for all
years and periods prior thereto.
2.11 Real and Personal Property Owned by Merging Entity. Except as
set forth in Schedule 2.11, Merging Entity does not own any real property
("Real Property"). Merging Entity has good and marketable title to the Real
Property and owns the Real Property free and clear of any liens,
encumbrances or claims, except as further set forth in Schedule 2.11.
Schedule 2.11 also consists of a copy of the depreciation schedules filed as
a part of the two prior annual Federal income tax returns of Merging Entity
(with deletions of any items disposed of prior to the date of this
Agreement), a separate list of each item of depreciable personal property
acquired by Merging Entity since the Most Recent Balance Sheet Date and
having a cost of $1,000.00 or more, and a separate list of each item of
intangible personal property presently owned by Merging Entity. Merging
Entity also owns various items of disposable type personal property such as
office supplies that are not listed in Schedule 2.11. Merging Entity has
good and marketable title to all such tangible and intangible personal
property, in each case free and clear of all mortgages, security interests,
conditional sales agreements, claims, restrictions, charges or other liens
or encumbrances whatsoever except as otherwise stated in Schedule 2.11.
2.12 Leases. Schedule 2.12 contains a correct and complete list and
brief description of all leases or other agreements under which Merging
Entity is a tenant or lessee of, or holds or operates any property, real or
personal, owned by any third party. Merging Entity is the owner and holder
of the leasehold estates granted by each of the instruments described in
Schedule 2.12 except as otherwise stated in Schedule 2.12. Each of said
leases and agreements is in full force and effect and constitutes a legal,
valid and binding obligation of the respective parties thereto, enforceable
in accordance with its terms. Merging Entity enjoys peaceful and
undisturbed possession of all properties covered by all such leases and
agreements, and there is not any existing default or event or condition,
including the Merger contemplated herein, which with notice or lapse of
time, or both, would constitute an event of default under any of such leases
or agreements.
2.13 Insurance. Schedule 2.13 contains a correct and complete list, as
of the date hereof, of all policies of casualty, fire and extended coverage,
theft, errors and omissions, liability, life, and other forms of insurance
owned or maintained by Merging Entity. All business operations of Merging
Entity are and have been continually insured against errors and omissions.
Such policies are in amounts deemed by Shareholders to be adequate. Each
such policy is, on the date hereof, in full force and effect, and Merging
Entity is not in default with respect to any such policy.
Furthermore, Schedule 2.13 contains a correct and complete list of all
group life, group medical and disability or other similar forms of insurance
which constitute an obligation of or benefit provided by Merging Entity as
well as a list of any material (hospital or home care) services known by
Shareholders and Merging Entity to have been incurred by Merging Entity's
group health plan within 90 days of this date, which list details with
reasonable accuracy the recipients of such services and the date of
service. Schedule 2.13 also contains a list of any former employees or
their dependents who are presently under COBRA continuation coverage and
describes with reasonable particularity the pertinent factors about each
such person listed.
With respect to errors and omissions (professional liability) insurance
policies listed in Schedule 2.13 (which lists for each such policy the
carrier, retrodate, claims made or occurrence policy and limits), prior to
the effective dates of such policies, Merging Entity had not given notice
to any prior insurer of any act, error or omission in services rendered by
any agent or employee of such corporation or that should have been
rendered by any agent or employee of such corporation arising out of the
operations of Merging Entity. Furthermore, to the best knowledge of
Shareholders, no agent or employee of Merging Entity breached any such
professional duty or obligation prior to the effective dates of such
policies. With respect to such policies, Merging Entity has given notice
of any and all claims for any act, error or omission by any agent or
employee of such corporation with respect to professional services rendered
or that should have been rendered as required by the terms of such policies
(if any such notice has been given, its contents are described in
Schedule 2.13). To the best knowledge of Shareholders, Merging Entity
has not taken, nor has it failed to take, any action which would provide
the insurer with a defense to its obligation under any such policy;
neither Merging Entity nor any Shareholder has received from any such
insurer any notice of cancellation or nonrenewal of any such policy,
and, except as set forth in Schedule 2.13, no Shareholder has any basis
to believe that Merging Entity, or any agent or employee of Merging Entity,
has breached any professional duty or obligation.
2.14 Insurance Companies. Schedule 2.14 contains a correct and
complete list of all insurance companies with respect to which Merging
Entity has an agency contract or similar relationship. Except as
identified in Schedule 2.14, all relations between Merging Entity and the
insurance companies represented by it are good, and no Shareholder has any
knowledge of any proposed termination of, or modification to, the existing
relations between Merging Entity and any of such insurance companies.
Furthermore, except as otherwise set forth in Schedule 2.14, all accounts
with all insurance companies represented by Merging Entity or with whom
it transacts business are current and there are no disagreements or
unreconciled discrepancies between Merging Entity and any such company
as to the amounts owed by Merging Entity.
2.15 Customers. Except as identified in Schedule 2.15, all relations
between Merging Entity and its present customers are good, and no
Shareholder has any knowledge of any proposed termination of any insurance
account presently written or serviced by Merging Entity. Also, except as
otherwise set forth in Schedule 2.15, all customer accounts, including,
without limitation, those accounts with respect to which Merging Entity
financed any premiums, are current. For purposes of Section 2.15, the
terms "insurance account" and "customer account" shall be limited to
accounts which generate an aggregate annual gross income (commission or
otherwise) of $2,500 or more.
2.16 Officers and Directors; Banks; Powers of Attorney. Schedule
2.16 contains a correct and complete list of all officers and directors of
Merging Entity, a correct and complete list of the names and addresses of
each bank in which Merging Entity has any account or safe deposit box,
together with the names of all persons authorized to draw on each such
account or having access to any such safe deposit box, and a correct and
complete list of the names of all persons holding powers of attorney from
Merging Entity.
2.17 Compensation and Fringe Benefits. Schedule 2.17 contains a
correct and complete list of each officer, director, employee or agent of
Merging Entity in the format as set forth in Schedule 2.17. Also, Schedule
2.17 contains a description of all fringe benefits presently being provided
by Merging Entity to any of its employees or agents.
2.18 Patents; Trademarks; Copyrights and Trade Names. Merging
Entity owns or is possessed of or is licensed under such patents,
trademarks, trade names and copyrights (including, without limitation,
software) as are used in, and are of material importance to, the conduct
of its business, all of which are in good standing and uncontested.
Schedule 2.18 contains a correct and complete list of all material
patents, patent applications filed or to be filed, trademarks,
trademark registrations and applications, trade names,
copyrights and copyright registrations and applications owned by or
registered in the name of Merging Entity. There is no material claim
pending or, to the best knowledge of Shareholders, threatened against
Merging Entity with respect to any alleged infringement of any patent,
trademark, trade name or copyright owned or licensed to anyone other than
Merging Entity.
2.19 Indebtedness. Schedule 2.19 contains a correct and complete list
of all instruments, agreements or arrangements pursuant to which Merging
Entity has borrowed any money, incurred any indebtedness or established any
line of credit which represents a liability of Merging Entity on the date
hereof. True and complete copies of all such written instruments,
agreements or arrangements have heretofore been delivered to, or made
available for inspection by, Parent. Merging Entity has performed all of
the obligations required to be performed by it to date, and is not in
default in any material respect under the terms of any such written
instruments, agreements or arrangements, and no event has occurred which,
but for the passage of time or the giving of notice, or both, would
constitute such a default.
2.20 Employment Agreements and Other Material Contracts.
Schedule 2.20 contains a complete copy of every employment agreement,
independent contractor and brokerage agreement, and a list and brief
description of all other material contracts, agreements and other
instruments to which Merging Entity is a party at the date hereof.
Except as identified in Schedule 2.20, or in any other Schedule attached
to this Agreement, Merging Entity is not a party to any oral or written:
(i) material contract, agreement or other instrument not made in the
ordinary course of business; (ii) contract for the employment of any
person which is not terminable (without liability) on 30 days or less
notice; (iii) license, franchise, distributorship, dealer,
manufacturer's representative, sales agency or advertising agreement; (iv)
contract with any labor organization; (v) lease, mortgage, pledge,
conditional sales contract, security agreement, factoring agreement or
other similar agreement with respect to any real or personal property,
whether as lessor, lessee or otherwise; (vi) contract to provide
facilities, equipment, services or merchandise to any other person,
firm or corporation; (vii) contract for the future purchase of materials,
supplies, services, merchandise or equipment; (viii) profit-sharing,
bonus, deferred compensation, stock option, severance pay, pension,
retirement or other plan or agreement providing employee
benefits; (ix) agreement or arrangement for the sale of any of its
properties, assets or rights or for the grant of any preferential rights
to purchase any of its assets, properties, or rights; (x) guaranty,
subordination or other similar or related type of agreement; (xi) contract
or commitment for capital expenditures; (xii) agreement or covenant not
to compete, solicit or enter into any particular line of business; or
(xiii) agreement for the acquisition of any business or substantially
all of the properties, assets or stock or other securities of any
business under which there are any continuing or unperformed obligations
on the part of Merging Entity. Merging Entity is not in default in
any material respect under any agreement, lease, contract or
other instrument to which it is a party. No party with whom Merging Entity
has any agreement which is of material importance to its business is in
default thereunder.
2.21 Absence of Certain Events. Since the Most Recent Balance
Sheet Date, the business of Merging Entity has been conducted only in the
ordinary course and in substantially the same manner as theretofore
conducted, and, except as set forth in Schedule 2.21 attached to this
Agreement, or in any other Schedule attached to this Agreement, Merging
Entity has not, since the Most Recent Balance Sheet Date: (i) issued any
stocks, bonds or other corporate securities or granted any options, warrants
or other rights calling for the issue thereof; (ii) incurred, or become
subject to, any material obligation or liability (whether absolute or
contingent) except (A) current liabilities incurred in the ordinary
course of business, (B) obligations under contracts entered into in the
ordinary course of business and (C) obligations under contracts not entered
into in the ordinary course of business which are listed in Schedule 2.20;
(iii) discharged or satisfied any lien or encumbrance or paid any
obligation or liability (whether absolute or contingent) other than
current liabilities shown on the Most Recent Balance Sheet and current
liabilities incurred since the Most Recent Balance Sheet
Date in the ordinary course of business; (iv) declared or made any payment
of dividends or distribution of any assets of any kind whatsoever to
stockholders or purchased or redeemed any of its capital stock; (v)
mortgaged, pledged or subjected to lien, charge or any other encumbrance,
any of its assets and properties, real, tangible or intangible; (vi) sold or
transferred any of its assets, properties or rights, or cancelled any debts
or claims, except in each case in the ordinary course of business, or
entered into any agreement or arrangement granting any preferential rights
to purchase any of its assets, properties or rights or which required the
consent of any party to the transfer and assignment of any of its assets,
properties or rights; (vii) suffered any extraordinary losses (whether or
not covered by insurance) or waived any extraordinary rights of value;
(viii) entered into any transaction other than in the ordinary course
of business except as herein stated; (ix) amended its articles of
incorporation or bylaws; (x) increased the rate of compensation payable
or to become payable by it to any of its employees or agents over the
rate being paid to them at the Most Recent Balance Sheet
Date; (xi) made or permitted any amendment to or termination of any
material contract, agreement or license to which it is a party other than in
the ordinary course of business; or (xii) made capital expenditures or
entered into any commitments therefor aggregating more than $5,000.00.
Except as contemplated by this Agreement, or the Schedules referred to
in this Agreement, between the date hereof and the Closing Date, Merging
Entity will not, without the prior written consent of Parent, do any of the
things listed above in clauses (i) through (xii) of this Section 2.21.
2.22 Investigations and Litigation. There is no investigation by any
governmental agency pending, or, to the best knowledge of Shareholders,
threatened against or adversely affecting Merging Entity, and except as set
forth on Schedule 2.22, there is no action, suit, proceeding or claim
pending, or, to the best knowledge of Shareholders, threatened against
Merging Entity, or any of its businesses, properties, assets or goodwill,
which might have a material adverse effect on such corporation, or against
or affecting the transactions contemplated by this Agreement. There is no
outstanding order, injunction, judgment or decree of any court, government
or governmental agency against or affecting Merging Entity, or any of its
businesses, properties, assets or goodwill.
2.23 Overtime, Back Wages, Vacation and Minimum Wages. To the
best knowledge of Shareholders, no present or former employee of Merging
Entity has any claim against Merging Entity (whether under federal or state
law) under any employment agreement, or otherwise, on account of or for: (i)
overtime pay for any period other than the current payroll period;
(ii) wages or salary for any period other than the current payroll period;
(iii) vacation or time off (or pay in lieu thereof), other than that earned
in respect of the current fiscal year; or (iv) any violation of any
statute, ordinance, rule or regulation relating to minimum wages or
maximum hours of work, except as otherwise set forth in Schedule 2.23.
2.24 Discrimination, Occupational Safety and Other Statutes and
Regulations. To the best knowledge of Shareholders, no persons or parties
(including, without limitation, governmental agencies of any kind) have any
claim, or basis for any claim, action or proceeding, against Merging Entity
arising out of any statute, ordinance, rule or regulation relating to
discrimination in employment or employment practices or occupational safety
and health standards (including, without limitation, The Occupational Safety
and Health Act, The Fair Labor Standards Act, Title VII of the Civil Rights
Act of 1964, The Civil Rights Act of 1992, The Americans with Disabilities
Act, and The Age Discrimination in Employment Act of 1967, as any of the
same may have been amended).
2.25 Employee Benefit Plans.
(A) There are no employee benefit plans or arrangements of
any type, including but not limited to any retirement, health, welfare,
insurance, bonus, executive compensation, incentive compensation, stock
bonus, stock option, deferred compensation, commission, severance,
parachute, rabbi trust program or plan described in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), maintained by
Merging Entity, or with respect to which Merging Entity has a liability,
other than those set forth in Schedule 2.25(a) ("Employee Benefit Plans").
(B) With respect to each Employee Benefit Plan, except as set
forth in Schedule 2.25(b): (i) if intended to qualify under Sections 79,
105, 106, 125, 129, 401(a), 401(k), 403(a), or 409, or other Sections, of
the Internal Revenue Code ("Code"), such plan so qualifies, and if
applicable, its trust is exempt from federal income tax under Code Section
501(a); (ii) if intended to qualify as an organization described in Section
501(c)(9) of the Code, such organization so qualifies and any trusts
established pursuant to its constitution are exempt from federal income tax
under Section 501(a) of the Code; (iii) such plan has been administered
and enforced in accordance with its terms and applicable law; (iv) no
breaches of fiduciary duty by Merging Entity, the Trustees, or, to the
best knowledge and belief of Merging Entity and Shareholders after
reasonable investigation, any other person, have occurred; (v) no
disputes are pending, or, to the knowledge of Merging Entity and
Shareholders, threatened; (vi) no nonexempt prohibited transaction has
occurred; (vii) there has been no reportable event for which the 30-day
notice requirement under ERISA has not been waived; (viii) all contributions
and premiums due have been made on a timely basis (including, if
applicable, the time limited established under Code Sections 404 and 412);
(ix) all contributions made or required to be made meet the requirements
for deductibility under the Code; (x) all contributions which have not
been made have been properly recorded in the financial records of Merging
Entity; and (xi) except as set forth in Schedule 2.25(b), no liability
(whether an indebtedness, a fine, a penalty, a tax or any other amount)
has been incurred or will be incurred by Merging Entity as a result of
its maintenance, operation or termination of any Employee Benefit Plan.
(C) No Employee Benefit Plan is a multiemployer plan, as
defined in Section 4001(a)(3) of ERISA or a multiple employer plan. The
consummation of the transactions contemplated by this Agreement will not
entitle any individual to severance pay, and will not accelerate the time of
payment or vesting, or increase the amount, of compensation due to any
individual.
(D) With respect to each Employee Benefit Plan, Merging
Entity has delivered or caused to be delivered to Parent true and complete
copies, where applicable, of (i) all plan documents, amendments and trust
agreements currently in effect; (ii) all summary plan descriptions, or other
notices or summaries of modifications, which have been prepared by, or on
behalf of Merging Entity; (iii) all material employee communications;
(iv) the five (5) most recent annual reports (Forms 5500); (v) the most
recent annual and any subsequent periodic accounting of plan assets; and,
(vi) the most recent determination letter received from the IRS.
(E) With respect to each Employee Benefit Plan, there is no
pending claim or lawsuit which has been asserted against that Employee
Benefit Plan, the assets of any of the trusts under such Employee Benefit
Plan, Merging Entity, or any fiduciary of such Employee Benefit Plan with
respect to the operation of such Employee Benefit Plan. Merging Entity and
Shareholders, after reasonable investigation, know of no facts or
circumstances which could form the basis for any such claim or lawsuit.
(F) All amendments required to have been made to bring each
Employee Benefit Plan into conformity in all material respects with all of
the applicable provisions of the Code, ERISA and other applicable laws have
been made.
(G) Each Employee Benefit Plan has met, by its terms and in
its operation, all applicable requirements for an exemption from federal
income taxation under Section 501(a) of the Code.
(H) Each Employee Benefit Plan has at all times been
maintained in accordance with all applicable laws, has complied with
applicable ERISA or other requirements; and, there are no actions, audits,
suits or claims which are threatened or pending against any such Employee
Benefit Plan, any fiduciary of any of the Employee Benefit Plans, or against
any of the assets of the Employee Benefit Plans.
(I) Merging Entity has made full and timely payment of all
amounts required to be contributed under the terms of each Employee
Benefit Plan and no event or condition exists regarding any of the Employee
Benefit Plans which could be deemed a "reportable event" with respect to
which the 30-day notice has not been waived which could result in a material
liability to Merging Entity and no event exists which would subject Merging
Entity to a material fine under Section 4701 of ERISA.
(J) Merging Entity is not subject to any material liability, tax or
penalty and the termination of or withdrawal from any Employee Benefits
Plan will not subject Merging Entity to any additional contribution
requirement and the execution or performance of the transactions
contemplated by this Agreement will not create, accelerate or increase any
obligations under any Employee Benefit Plan.
(K) Merging Entity has no obligation to any retired or former
employee or any current employee upon retirement under any Employee
Benefit Plan.
(L) Each Employee Benefit Plan maintained by Merging Entity
has at all times been maintained, by its terms and in operation, in
accordance with all applicable laws in all material respects, including
(to the extent applicable) Code Section 4980B. Further, there has been
no failure to comply with applicable ERISA or other requirements concerning
the filing of reports, documents and notices with the Secretary of Labor
and Secretary of Treasury or the furnishing of such documents to
participants or beneficiaries that could subject any Employee Benefit Plan
to any material civil or any criminal sanction or could require any such
person to indemnify any other person for such a sanction. There are no
actions, audit, suits or claims known to Merging Entity or Shareholders
which are pending or threatened against any Employee Benefit Plan,
any fiduciary of any of the Employee Benefit Plans with respect to the
Employee Benefit Plans or against the assets of any of the Employee
Benefit Plans, except claims for benefits made in the ordinary
course of the operation of such plans.
(M) Merging Entity is not subject to any material liability, tax
or penalty whatsoever to any person whomsoever as a result of Merging
Entity engaging in a prohibited transaction under ERISA or the Code, and
neither Merging Entity nor any of the Shareholders has knowledge of any
circumstances which reasonably might result in any such material liability,
tax or penalty as a result of a breach of fiduciary duty under ERISA. The
termination of or withdrawal from any Employee Benefit Plan maintained by
Merging Entity which is subject to Title IV of ERISA, or any other Employee
Benefit Plan, will not subject Merging Entity to any additional contribution
requirement or to any other liability, tax or penalty whatsoever. The
execution or performance of the transactions contemplated by this Agreement
will not create, accelerate or increase any obligations under any Employee
Benefit Plan. Merging Entity has no obligation to any retired or former
employee, or any current employee upon retirement, under any Employee
Benefit Plan.
2.26 Competitors. Except as disclosed in Schedule 2.26, none of
Shareholders has any interest, direct or indirect, as an owner, partner,
agent, shareholder, officer, director, employee, consultant or otherwise,
in any firm, partnership, corporation or other entity that is engaged in
the insurance agency business, or any aspect thereof, other than Merging
Entity or a corporation listed on a national securities exchange or a
corporation whose securities are traded in the over-the-counter market.
2.27 Accounts and Notes Receivable. The reserve for bad debts, if
any, contained in the Most Recent Balance Sheet and the Financial
Statements was calculated on a consistent basis which, in the light of past
experience, is considered adequate. All accounts receivable and all notes
receivable of Merging Entity reflected in the Most Recent Balance Sheet are
fully collectible when due at the aggregate amount shown, less the bad debt
allowance stated therein, it being the intent of all of the parties to this
Agreement that Shareholders are hereby representing and warranting to
Parent the full collectibility when due of all of the notes receivable and
accounts receivable of Merging Entity in the aggregate amount shown in each
such balance sheet, less the bad debt allowance stated therein. Except as
set forth in Schedule 2.27, all notes receivable of Merging Entity are due
and payable within one year after the Effective Date. Any such notes
receivable due and payable more than one year after the Effective Date
("Long Term Notes") are fully collectible when due at the aggregate amount
shown. Except as further set forth in Schedule 2.27, no Long Term Notes
are secured by any interest in property, whether it be real, personal or
intangible. In the event of any delinquency or nonpayment of any portion
of a Long Term Note, Shareholders shall be obligated to satisfy such
deficiency in the same manner as specified below for all other
receivables of Merging Entity.
2.28 Permits and Licenses. All permits, licenses and approvals of all
federal, state or local regulatory agencies, which are required in order to
permit Merging Entity and its employees and agents to carry on business as
now conducted by it, have been obtained by it and are current.
2.29 No Violation or Default. The execution, delivery and performance of
this Agreement by Shareholders and Merging Entity will not violate, result
in a breach of, or constitute a default under, the articles of
incorporation or bylaws of Merging Entity or of any indenture, contract,
agreement or other instrument to which Merging Entity is a party or is
bound including, without limitation, any agency contract with any insurance
company.
2.30 Common Stock of Parent. Shareholders understand and
acknowledge that the common stock of Parent to be received pursuant to this
Agreement is subject to Rule 145 of the Securities Exchange Commission
("SEC"); such stock is being acquired for investment purposes only and not
with a view to distribution or resale; any sale or other disposition of
such stock shall be made pursuant to the regulations promulgated under
Rule 145 and in compliance with all other applicable laws, regulations and
interpretations, including, without limitation, any accounting
interpretations of the SEC with regard to maintenance of the pooling-of-
interests contemplated herein.
2.31 Financing Statements. Except as disclosed on Schedule 2.31,
there are no financing statements or other security interests of any kind
filed or required to be filed against Merging Entity's assets or affecting
the use of, or title to, such assets ("Financing Statements"). Except as
further disclosed on Schedule 2.31, there are no deferred money purchase
notes related to Merging Entity's acquisition of any portion of its assets
("Notes"). Any such liabilities related to the Financing Statements or
Notes can be discharged or prepaid prior to their stated maturities without
penalty, except as further detailed on Schedule 2.31. The assumption
by Surviving Corporation of such liabilities will not result in a default
of any Financing Statement or Note.
2.32 Brokers. Except as disclosed in Schedule 2.32, neither Merging
Entity nor any Shareholder has employed any broker or finder for the
purposes of completing the transactions contemplated herein such that no
commission, finder's fee, brokerage fee or similar charge will be incurred
for the consummation of the transactions contemplated herein.
2.33 Disclosure. Shareholders have each received a copy of Parent's
current S-4 registration statement dated February 12, 1992, most recent
annual report, Form 10-K and Form 10-Q and will acknowledge receipt of an
amendment or supplement to such registration statement.
2.34 Material Misstatements or Omissions. No representation or
warranty by Shareholders or Merging Entity, or any of them, contained in
this Agreement or in any document, statement, certificate, Schedule or
financial statement furnished or to be furnished to Parent by or on behalf
of Shareholders or Merging Entity, or any of them, pursuant to this
Agreement or in connection with the transactions contemplated by this
Agreement contains, or will when furnished contain, any untrue statements
of a material fact, or omits, or will then omit to state, a material fact
necessary to make the statements contained herein or therein not
misleading.
3. COVENANTS OF SHAREHOLDERS AND MERGING
ENTITY PRIOR TO EFFECTIVE DATE. Shareholders and Merging Entity
covenant with Parent that, between the date of the execution of this
Agreement and the Effective Date, unless prior written consent to the
contrary is obtained from Parent:
3.1 Operate in Ordinary Course. Merging Entity will be operated
only in the ordinary course of business.
3.2 Negative Covenants. Except as contemplated by this Agreement,
Merging Entity will not do any of the things listed in clauses (i) through
(xii) of Section 2.21 of this Agreement.
3.3 Continuing Accuracy of Representations. There shall be no
action, or failure to act, which would render any of the representations
and warranties of Shareholders contained in this Agreement untrue or
incorrect in any material respect.
3.4 Preserve Business Organizations. Except as otherwise requested
by Parent, and without making any commitment on Parent's behalf,
Shareholders will use their best efforts to preserve the business
organizations of Merging Entity intact, to keep available to Parent the
services of its present employees, and to preserve for Parent the goodwill
of its customers and others having business relations with them.
3.5 Corporate Approvals. The board of directors of Merging Entity
will recommend to Shareholders that Shareholders adopt this Agreement.
Merging Entity agrees to submit this Agreement to Shareholders for adoption
by unanimous written consent with waiver of notice of the terms of this
Agreement prior to the Effective Date, but only after delivery by Parent to
Shareholders and Merging Entity of an amended or supplemented S-4
registration statement for Parent's common stock to be issued pursuant to
this Agreement and after Shareholders have had an effective opportunity of
at least ten (10) days to review such prospectus. Unless there is a failure
of Parent to fulfill its conditions set forth in Section 7 hereof or there
is a material adverse change in the financial conditions of Parent,
Shareholders covenant to adopt this Agreement and to approve all aspects
of the Merger within the time period contemplated herein.
4. ACCESS AND INFORMATION. Throughout the period between the date
of the execution of this Agreement by Shareholders and Merging Entity
and the Closing Date, Shareholders shall cause Merging Entity and all its
employees to give to Parent, and any and all authorized representatives of
Parent (including auditors and attorneys), full and unrestricted access,
during normal business hours, to the offices, assets, properties, contracts,
books and records of Merging Entity in order to give Parent full
opportunity to make such investigations as it deems appropriate with
respect to the affairs of Merging Entity, and shall further cause Merging
Entity, and all of its employees to provide to Parent during such period
such additional information concerning the affairs of Merging Entity as
Parent may reasonably request. All information obtained from any such
investigation shall be held in confidence, and, in the event of the
termination of this Agreement, Parent covenants with Shareholders and
Merging Entity that Parent will use its best efforts to return
all such documents, working papers and other written information concerning
Shareholders and Merging Entity obtained or prepared in connection with
any such investigation.
Regardless of any such investigation by Parent, all representations and
warranties of Shareholders contained in this Agreement shall remain in full
force and effect and no such investigation shall cause or result in a
waiver by Parent of any of the representations and warranties of
Shareholders contained herein.
5. REPRESENTATIONS AND WARRANTIES OF PARENT.
Parent represents and warrants to Shareholders as follows:
5.1 Organization and Standing of Parent and Survivor. Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the Commonwealth of Virginia. Survivor is a corporation duly
organized, validly existing and in good standing under the laws of the
State of California.
5.2 Authority. Except for: (i) the approval of the transactions
contemplated hereby by the board of directors of Parent and by the board of
directors and shareholder of Survivor; (ii) amendment or supplementation of
Parent's registration statement pursuant to this Agreement; (iii) approval
by the New York Stock Exchange of the listing of the shares of Parent
common stock to be issued pursuant to this Agreement; and (iv) the issuance
of a certificate of merger to be issued by the Secretary of State of the
State of California, no governmental or other authorization, approval or
consent for the execution, delivery and performance of this Agreement by
Parent or Survivor is required. The execution, delivery and performance
of this Agreement by Parent and Survivor will not violate, result in a
breach of, or constitute a default under, the articles of incorporation or
bylaws of any such corporation or any indenture, contract, agreement or
other instrument to which such corporation is a party or is bound.
5.3 Capitalization of Parent and Survivor. As of December 31, 1994,
the authorized capital stock of Parent consisted of 50,000,000 shares of
common stock, no par value, of which 14,679,464 shares were issued and
outstanding, fully paid and nonassessable. The authorized capital stock of
Survivor consists of 25,000 shares of common stock, $10 par value, of which
650 shares are issued and outstanding, fully paid and nonassessable and
owned of record and beneficially by Parent. There are no outstanding
options, warrants or other rights to subscribe for or purchase capital
stock of Survivor or securities convertible into or exchangeable for
capital stock of Survivor.
5.4 Status of Parent common stock. The shares of Parent common
stock to be issued to Shareholders pursuant to this Agreement will, when so
issued, be duly and validly authorized and issued, fully paid and
nonassessable.
5.5 Brokers' or finders' fees. No agent, broker, person, or firm acting
on behalf of Parent or any of its subsidiaries or under the authority of
any of them is or will be entitled to any commission or broker's or
finder's fee or financial advisory fee from Parent or Survivor in
connection with any of the transactions contemplated herein.
6. CONDITIONS PRECEDENT TO PERFORMANCE BY
PARENT AND SURVIVOR. The obligation of Parent and Survivor to
consummate the transactions contemplated by this Agreement shall be subject
to the satisfaction or fulfillment, on or prior to the Closing Date, of the
following conditions precedent, in addition to all other conditions
precedent contained in this Agreement, each of which may be waived by
Parent:
6.1 Representations. Parent shall not have discovered any material
error, misstatement or omission in any of the representations and
warranties made by Shareholders contained in this Agreement, or in any
financial statement, certificate, Schedule, exhibit or other document
attached to or delivered pursuant to this Agreement, and all
representations and warranties of Shareholders contained in this
Agreement and in any financial statement, certificate, Schedule,
exhibit or other document attached to or delivered pursuant to this
Agreement shall be true and correct in all material respects
on and as of the Closing Date with the same force and effect, except as
affected by transactions expressly authorized herein or otherwise
approved in writing by Parent, as though such representations and
warranties had been made on and as of the Closing Date; and
Shareholders and Merging Entity shall have delivered to Parent a
certificate, dated the Closing Date, and signed by all of them, to the
foregoing effect, in form and substance as set forth in Schedule 6.1.
6.2 Covenants. Merging Entity and Shareholders shall have
performed and complied in all material respects with all covenants,
agreements and conditions required under this Agreement to be performed
or complied with by them on or before the Closing Date; and Merging Entity
and Shareholders shall have delivered to Parent a certificate dated the
Closing Date, and signed by all of them, to the foregoing effect, in form
and substance as set forth in Schedule 6.1.
6.3 Litigation. No suit, action or proceeding, or governmental
investigation, against or concerning, directly or indirectly, Merging
Entity, or any of its assets and properties, shall have been instituted or
reinstituted, nor shall any basis therefor have arisen, that might
result in any order or judgment of any court or of any administrative
agency which, in the opinion of counsel for Parent, renders it
impossible or inadvisable for Parent to consummate or cause to be
consummated the transactions contemplated by this Agreement.
6.4 Approval by Counsel. All transactions contemplated hereby, and
the form and substance of all legal proceedings and of all instruments
used or delivered hereunder, shall be reasonably satisfactory to counsel
for Parent.
6.5 Opinion. Parent shall have received a favorable opinion, dated as
of the Closing Date, from the law firm of Ruth Frishman, counsel for
Shareholders and Merging Entity, in form and substance as set forth in
Schedule 6.5 and otherwise reasonably satisfactory to counsel for Parent.
6.6 Delivery of Common Stock. There shall be duly delivered for
cancellation to Parent at the Closing not less than 100% of the shares of
Common Stock issued and outstanding at the time of the Closing, free and
clear of any liens or encumbrances as required to be listed on Schedule
2.4.
6.7 Continuation of Agency Contracts. To the extent desired by
Parent, Parent shall have obtained a statement in writing from each of the
insurance companies identified in Schedule 2.14 of this Agreement, in form
satisfactory to Parent and Parent's counsel, by which each such insurance
company agrees that it will not terminate its insurance agency contract
solely by reason of the transactions contemplated in this Agreement, and
further agrees that it will continue to recognize Survivor, and its
successors and assigns, as its agent under the existing agency contract
between such company and Merging Entity or that it will enter into a
substantially similar agency contract with Survivor, or its successors
and assigns.
6.8 Shareholder Employment Agreements. Employment Agreements
between Survivor, as Employer, and Roger E. Lipman, as Employee, in form
and substance as set forth in Schedule 6.8 attached hereto, shall have been
duly executed by each of them and delivered to Parent.
6.9 Other Employment Agreements. Employment Agreements
between Survivor, as Employer, and such of the other employees of Merging
Entity (other than Mr. Lipman) as shall be specified by Parent, in form
previously approved by the President of Parent, shall be in full force and
effect or such new agreements as have been requested by Parent shall have
been executed, in form and substance as set forth in Schedule 6.9 attached
hereto.
6.10 Employee Benefit Plans. Parent shall have been furnished
evidence satisfactory to Parent that all Employee Benefit Plans identified
in Schedule 2.25 attached to this Agreement have been, as directed by
Parent, either continued, modified in conformity with Parent's plans or
terminated and, in the event of termination, the benefits thereunder have
either been "frozen" or provision has been made for the distribution
thereof in accordance with the terms of such Employee Benefit Plans.
6.11 Material Adverse Change. There shall have been no material
adverse change in Merging Entity's business, business prospects, Book of
Business, assets and properties, or goodwill between the date of the
execution of this Agreement and the Closing Date.
6.12 Tail Insurance. Unless notified in writing to the contrary,
Shareholders and Merging Entity shall have delivered to Parent, in form
reasonably satisfactory to Parent and Parent's counsel, evidence of
insurability, to be effective as of the Effective Date, for an extended
reporting period for errors and omissions of a minimum three year duration
with deductible limits reasonably acceptable to Parent and Parent's
counsel, which insurance, if bound, would insure Merging Entity its agents
and employees for the extended reporting period for claims arising under
errors and omissions occurring prior to the Effective Date.
6.13 Related Party Transactions. All "related party" (i.e. a
Shareholder, a member of a Shareholder's family, a business or entity
affiliated with any of the foregoing) receivables and payables of Merging
Entity and any receivables or payables from or to an employee of Merging
Entity on favorable terms shall have been removed from the books of
Merging Entity for their cash equivalent face amounts.
6.14 Lease. The existing lease covering the premises presently
occupied by Merging Entity, in the form attached hereto as Schedule 6.14,
shall have been amended to provide for a lease term ending, or terminated
as of, March 31, 1995, such that Surviving Corporation shall have no
liability for such lease, whether arising before or after April 1, 1995.
6.15 Resolutions. Parent shall receive certified copies of resolutions
of the board of directors and Shareholders of Merging Entity, to the extent
deemed necessary by, and in form satisfactory to, counsel for Parent,
authorizing the execution and delivery of this Agreement by Merging Entity
and the consummation of the transactions contemplated hereby.
6.16 Approvals. All statutory requirements for the valid
consummation by Merging Entity of the transactions contemplated by this
Agreement shall have been fulfilled; all authorizations, consents and
approvals of all federal, state, local and foreign governmental agencies
and authorities required to be obtained in order to permit consummation by
Merging Entity of the transactions contemplated by this Agreement and to
permit the business presently carried on by Merging Entity to continue
unimpaired immediately following the Effective Date of this Agreement shall
have been obtained.
6.17 Registration Statement. Parent shall have filed an amended or
supplemented S-4 registration statement with the SEC, which registration
statement shall show that the transactions contemplated herein shall be
treated as a "pooling of interests" for accounting purposes.
7. CONDITIONS PRECEDENT TO PERFORMANCE BY
SHAREHOLDERS AND MERGING ENTITY. The obligation of
Shareholders and Merging Entity to consummate the transactions
contemplated by this Agreement shall be subject to the satisfaction or
fulfillment on or prior to the Closing Date, of the following conditions,
in addition to any other conditions contained in this Agreement, each of
which may be waived, collectively, by a majority in interest of
Shareholders and Merging Entity:
7.1 Representations. Shareholders shall not have discovered any
material error, misstatement or omission in any of the representations and
warranties made by Parent contained in this Agreement, and all
representations and warranties of Parent contained in this Agreement shall
be true and correct in all material respects on and as of the Closing Date
with the same force and effect, except as otherwise approved in writing by
Shareholders and Merging Entity, as though such representations and
warranties had been made on and as of the Closing Date; and Parent shall
have delivered to Shareholders and Merging Entity a certificate to the
foregoing effect, dated the Closing Date, in form and substance as set
forth in Schedule 7.1.
7.2 Covenants. Parent shall have performed and complied in all
material respects with all covenants, agreements and conditions required
under this Agreement to be performed and complied with by Parent and shall
have caused all corporate actions necessary for the consummation of this
Agreement to have been taken by it and Survivor; and Parent shall have
delivered to Shareholders and Merging Entity a certificate to the foregoing
effect, dated the Closing Date, in form and substance as set forth in
Schedule 7.2.
7.3 Effective Registration Statement. The registration statement on
Form S-4 under the Securities Act of 1933 referred to in Section 2.34
hereof shall have been amended or supplemented and be effective under such
Act and not the subject of any "stop order" or threatened "stop order" and
the amended or supplemented prospectus shall have been delivered to
Shareholders and Merging Entity.
7.4 Prospectus Approval. After delivery and review of the
aforementioned amendment or supplement to Parent's S-4 registration
statement, and subject to the limitations on disapproval set forth in
Section 3.5, Shareholders and Merging Entity shall have approved this
Agreement and the consummation of all transactions contemplated thereby.
8. POST-MERGER COVENANTS.
8.1 POST-MERGER COVENANTS OF PARENT. Parent covenants
to Shareholders as follows:
A. Collection. To cause Surviving Corporation to use its
reasonable business efforts, at least comparable in quality to those of
Merging Entity prior to the Effective Date, to collect all notes
receivable and accounts receivable as described in Section 2.27.
B. Payment. Subject to Merging Entity fulfilling its Tangible
Net Worth requirements, as set forth in Section 14.6, and subject to the
fulfillment by Shareholders of their covenants set forth in Section 8.2, to
cause Surviving Corporation to pay timely all liabilities of Merging Entity
which have been properly reserved for in the Merger Balance Sheet, as
defined in Section 8.2.A.
8.2 POST-MERGER COVENANTS OF SHAREHOLDERS.
Shareholders, jointly and severally, covenant to Parent as follows:
A. Delivery of Merger Balance Sheet. To cause to be
delivered to Parent as soon after the Closing Date as is practicable,
and in all events no later than sixty (60) days after the Effective Date,
the Merger Balance Sheet, as defined in Section 14.6(a), and its related
work papers and other financial documents prepared therefor. The Merger
Balance Sheet will be true and correct, will be in accordance with the
books and records of Merging Entity, will present fairly the financial
conditions and results of operations of Merging Entity as of the date and
for the period indicated, will not contain any untrue statement of a
material fact nor will omit to state any material fact required to
be stated to make the Merger Balance Sheet not misleading.
B. Post-Merger Filings. To cause to be timely filed, at no
expense which has not previously been reserved for on the Merger Balance
Sheet, all federal, state and local tax returns of all kinds required to
be filed by Merging Entity for all tax periods ending on or prior to the
Effective Date ("Post-Merger Filings"). All Post-Merger Filings will
be true and correct and, prior to actual filing thereof, Shareholders
shall deliver drafts of such filings to Parent for its review.
C. Employee Benefit Plans. Unless written directive from
Parent stating otherwise is delivered to Shareholders prior to the Closing
Date , to cause, at no expense which has not previously been reserved for
in the Merger Balance Sheet, all Employee Benefit Plans of Merging Entity
to have been terminated with any benefits thereunder having been either
"frozen" or provisions having been made for distribution thereof in
accordance with the terms of such Employee Benefit Plan. Shareholders
specifically understand that they have covenanted hereby to take any and
all actions reasonably required to eliminate any and all potential
liability of Surviving Corporation and Parent with respect to such
Employee Benefits Plans.
D. Bind Tail Coverage. To bind the tail coverage referenced
in Section 6.12 as soon after the Effective Date as is possible and in
no event later than seven (7) days after the Effective Date, and to pay
any and all deductibles accruing under such tail policy during the
period of three years after the Effective Date. Shareholders
acknowledge that Parent shall have the right to bind tail coverage for
Merging Entity if Shareholders do not produce an appropriate certificate
of insurance within thirty (30) days after Closing. Any costs for such
tail coverage shall be reflected on the Merger Balance Sheet as if
such coverage had been bound prior to the Effective Date.
E. Disposition of Shares. To hold the shares of Parent
common stock received in this Merger and not to dispose of such shares in
either a manner or volume or at a time which would cause this Merger not to
be treated as a tax-free merger or as a pooling-of-interests.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES
AND INDEMNIFICATION.
9.1 Survival of Representations and Warranties of Parent. All
representations, warranties and covenants made herein or pursuant hereto by
Parent shall survive the Closing only until the earlier to occur of:
(i) March 31 of the year in the year following the Effective Date of this
Merger; or (ii) one year after the Effective Date.
9.2 Survival of Representations and Warranties of Shareholders.
Except for the specific contingencies detailed below in subparagraphs (ix)
through (xiv), inclusive, of Section 9.3 for which Parent shall be
indemnified for the periods stated therein, all representations,
warranties and covenants made herein or pursuant hereto by Shareholders
shall survive the Closing only until the earlier to occur of: (i) March
31 of the year in the year following the Effective Date of the Merger;
or (ii) one year after the Effective Date.
9.3 Indemnification Agreement by Shareholders. Shareholders, jointly
and severally, shall indemnify and hold harmless Parent and Survivor, and
their respective successors and assigns, from and against and in respect
of:
(i) All indebtednesses, obligations and liabilities of Merging
Entity of any nature whatsoever, whether accrued, absolute, contingent or
otherwise, existing at the close of business as of the day prior to the
Effective Date to the extent not reflected or reserved against in full in
the Merger Balance Sheet, including, without limitation, any tax
liabilities to the extent not so reflected or reserved against, accrued
in respect of, or measured by the income of Merging Entity for any
period prior to the Effective Date, or arising out of transactions
entered into, or any state of facts existing, prior to such date;
(ii) Without limiting the generality of the indemnity set forth
in Section 9.3(i) above, any and all tax liabilities of Merging Entity,
whether federal, state, local or otherwise, resulting from a lawful
deficiency for any time period prior to the Effective Date;
(iii) All liabilities of, or claims against, Merging Entity arising
out of any contract or commitment of the character described in Section
2.20 hereof and not listed or described in Schedule 2.20 attached to this
Agreement, or arising out of any contract or commitment entered into or
made by Merging Entity between the date of the execution of this Agreement
and the Closing Date except as expressly permitted under any of the
provisions of this Agreement;
(iv) Subject to the provisions of Section 2.27 hereof, any
nonpayment on demand, when due, of any accounts receivable or notes
receivable of Merging Entity;
(v) Any and all claims, demands, actions and causes of action
arising out of or in any way relating to any health benefit plan or to
any Employee Benefit Plan (as described in Section 2.25) presently
maintained or heretofore maintained by Merging Entity or arising out of
or in any way relating to the termination or "freezing" of any such
Employee Benefit Plan;
(vi) Any loss, damage, liability or deficiency resulting from any
misrepresentation, breach of warranty or nonfulfillment of any covenant or
agreement on the part of Shareholders or Merging Entity, or any of them,
under the terms of this Agreement, or from any misrepresentation in or
omission from any financial statement, certificate, Schedule, exhibit or
other document proposed by or at the direction of Shareholders, or any
of them, and attached to this Agreement or delivered or to be delivered to
Parent under the terms of this Agreement;
(vii) Any and all claims, demands, actions and causes of action
arising out of or in any way relating to errors and omissions and all other
types of litigation and claims, which are attributable to Merging Entity
prior to the Effective Date;
(viii) Until March 31, 1998, and to the extent not previously
cured in the manner specified in Section 14.6, the amount by which Tangible
Net Worth (as defined in Section 14.6) shall be less than the amount of
$47,000;
(ix) Until one year after the expiration of the applicable statute
of limitations, any and all tax liabilities arising out of all open
returns of Merging Entity for all periods ending on or prior to the
Effective Date and relating to amortization of intangibles, deductions for
compensation, "listed" property, or travel and entertainment expenses or
the tax characterization of expenses incident to this Agreement, any
and all claims or liabilities arising out of or in any way relating to
any health benefit plan or to any Employee Benefit Plan (as described in
Section 2.25) presently or heretofore maintained by Merging Entity or
arising out of or in any way relating to the termination, modification
or "freezing" of any such Employee Benefit Plan, and any and all
claims or liabilities arising out of Post-Merger Filings or for a
violation of the covenants set forth in Section 8.E hereof;
(x) Until three (3) years after the Effective Date, all
deductibles arising under the tail coverage referenced in Section 6.12;
(xi) Until March 31, 1998, any and all claims, demands, actions
or causes of action arising out of or in any way relating to any of the
pending or threatened litigation disclosed or required to be disclosed on
Schedule 2.22;
(xii) Until March 31, 1998, any existing unreconciled
discrepancies as or to have been disclosed on Schedule 2.14;
(xiii) Until March 31, 1998, any and all losses, claims, demands
or deficiencies arising out of or in any way relating to the ownership by
Merging Entity of the intangible assets of Merging Entity;
(xiv) Until one year after the expiration of the applicable
statute of limitations, any and all liabilities, claims, losses demands or
deficiencies of any nature whatsoever arising out of a "Known
Misrepresentation" (a representation or warranty made with actual knowledge
of its falsity or with reckless indifference to the truth) or due to the
ownership of the common stock not being as set forth in Section 1.4(a); and
(xv) All demands, claims, actions, suits, proceedings, loss,
damage, liability, judgments, costs and expenses (including, without
limitation, court costs, experts' and attorneys' fees at the trial level
and in connection with all appellate proceedings) incident to any of
the foregoing.
9.4 Indemnification Agreement by Parent. Parent shall indemnify and
hold harmless Shareholders, and each of them, and their respective heirs
and personal representatives from and against and in respect of:
(i) Any loss, damage, liability or deficiency resulting from any
misrepresentation, breach of warranty or nonfulfillment of any covenant or
agreement on the part of the Parent under the terms of this Agreement;
(ii) All demands, claims, actions, suits, proceedings, loss, damage,
liability, judgments, costs and expenses (including, without limitation,
court costs, experts' and attorneys' fees at the trial level and in
connection with all appellate proceedings) incident to any of the foregoing.
9.5 Assertion of Indemnification Claim. Either the Shareholders or
Parent, as the case may be (an "Indemnified Party"), shall give notice
to the other (an "Indemnifying Party") as soon as possible after the
Indemnified Party has actual knowledge of any claim as to which
indemnification may be sought and the amount thereof, if known, and
supply any other information in the possession of the Indemnified Party
regarding such claim, and will permit the Indemnifying Party (at its
expense) to assume the defense of any third party claim and any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party who shall conduct the defense of such claim or
litigation shall be reasonably satisfactory to the Indemnified Party, and
provided further that the omission by the Indemnified Party to give
notice as provided herein will not relieve the Indemnifying Party of its
indemnification obligations hereunder except to the extent that the
omission results in a failure of actual notice to the Indemnifying Party
and the Indemnifying Party is materially damaged as a result of the
failure to give notice. The Indemnifying Party may settle or compromise
any third party claim or litigation with the consent of the Indemnified
Party which consent may not be unreasonably withheld.
The Indemnified Party shall have the right at all times to participate in
the defense, settlement, negotiations or litigation relating to any third
party claim or demand at its own expense. In the event that the
Indemnifying Party does not assume the defense of any matter as above
provided, then the Indemnified Party shall have the right to defend any
such third party claim or demand, and will be entitled to settle any such
claim or demand in its discretion. In any event, the Indemnified Party
will cooperate in the defense of any such action and the records of
each party shall be available to the other with respect to such defense.
9.6 Limitation of Amount of Indemnity and Escrow of Parent
Common Stock. Except for the provisions of subparagraphs (ix) through
(xiv), inclusive, of Section 9.3 (and so much of subparagraph (xv) of
Section 9.3 as relates to the foregoing) which shall be unlimited in
the amount of indemnity (the "Continuing Indemnity"), the remainder of
indemnity provided to Parent pursuant to Section 9.3 ("General Indemnity")
and the indemnity provided by Parent to Shareholders pursuant to Section
9.4 shall be limited to an amount equal to 3,700 shares of Parent's
common stock times $12 per share, which is the approximate per share
value upon which this Agreement is predicated.
Notwithstanding anything in the foregoing to the contrary,
Parent shall retain on the Effective Date from the shares of its common
stock to be delivered to the Shareholders, according to the percentage
ownership each such Shareholder has in Merging Entity, as security for
the indemnity provided to it herein, 3,700 shares of its common stock
("Escrowed Shares"). By their signatures to this Agreement, each
Shareholder has granted to Parent a security interest in his portion
of the Escrowed Shares, and has consented to the escrow provision
described herein and has granted unto Parent a continuing limited power
of attorney to act over his proportionate number of the Escrowed Shares
pursuant to this Agreement, which power of attorney is coupled with an
interest and is not revocable until the later of: (i) March 31, 1996;
(ii) determination and settlement of any amounts pursuant
to Section 14.6; and (iii) determination and settlement of any amounts
claimed by Parent as of March 31, 1996, pursuant to Section 9.3 ("Release
Date").
Between the Effective Date and the Release Date, Parent shall hold
the Escrowed Shares and shall deposit any dividends received thereon in an
interest-bearing account. Upon the Release Date, and absent a written
directive to the contrary from each such Shareholder not desiring to
receive his shares pro rata, Parent shall distribute the Escrowed Shares,
less any decrease in such shares pursuant to this Agreement, plus any
additional shares issued pursuant to this Agreement, to the Shareholders,
pro rata. Dividends on the Escrowed Shares and the interest earned
thereon ("Escrow Funds") shall be distributed in the same manner
determined according to the immediately preceding sentence. If Escrowed
Shares were decreased to satisfy the indemnity provided herein, the Escrow
Funds shall be reduced by a percentage equal to the fraction established
where the numerator is the number of Escrowed Shares used to satisfy
such indemnity and the denominator is the number of Escrowed Shares.
10. EXPENSES. All expenses (including, without limitation, legal,
auditing, accounting and other related expenses such as preparation of
Post-Merger Filings and the Merger Balance Sheet) incurred in connection
with this transaction by Merging Entity and Shareholders, or any of them,
shall be the sole responsibility of Merging Entity or Shareholders
(depending upon the nature of the expense), and all expenses incurred by
Parent in connection with this transaction shall be the sole
responsibility of Parent.
11. DEFAULT.
11.1 Default by Shareholders or Merging Entity. Except as otherwise
expressly provided in this Agreement, if Shareholders or Merging Entity,
or any of them, shall fail to perform or comply with any covenant,
agreement or condition contained in this Agreement that is required to be
performed or complied with by Shareholders or Merging Entity on or prior to
the Closing Date, then Parent shall have the option to seek specific
performance of this Agreement or to sue such defaulting party for damages.
If Parent elects to sue for specific performance, Shareholders and
Merging Entity expressly waive any claim or defense that Parent has an
adequate remedy at law.
11.2 Default by Parent. Except as otherwise expressly provided in
this Agreement, if Parent shall fail to perform or comply with any
covenant, agreement or condition contained in this Agreement that is
required to be performed or complied with by Parent on or prior to the
Closing Date, then Shareholders and Merging Entity, at the unanimous
option of Shareholders and Merging Entity, may seek specific performance
of this Agreement or may elect to sue for damages. If Shareholders and
Merging Entity elect to sue for specific performance, Parent expressly
waives any claim or defense that Shareholders and Merging Entity have an
adequate remedy at law.
12. NOTICES. All notices or other communications permitted or
required to be given hereunder by any party to any other party shall be in
writing and shall be delivered personally or by telecopier, telex or other
similar communication or sent by registered or certified mail, postage
prepaid:
(a) If to Shareholders or Merging Entity:
Mr. Roger E. Lipman, President
R. E. LIPMAN INSURANCE BROKERS, INC.
P.O. Box 725
Benicia, California 94510-0725
With copy to:
Ruth Frishman, Esquire
P.O. Box 2426
Truckee, California 96160
(b) If to Parent or Survivor:
Mr. Robert H. Hilb, President
HILB, ROGAL AND HAMILTON COMPANY
4235 Innslake Drive
Post Office Box 1220
Glen Allen, Virginia 23060-1220
With copy to:
Walter L. Smith, Esquire
HILB, ROGAL AND HAMILTON COMPANY
4235 Innslake Drive
Post Office Box 1220
Glen Allen, Virginia 23060-1220
Notices delivered personally or by telecopier, telex or other similar
communication shall be effective when delivered. Notices forwarded by
registered or certified mail shall be deemed effective when received or in
any event not later than ten (10) days after deposit in the mails, postage
prepaid. Any party wishing to change any above named person or address
may do so by complying with the notice provisions of this Section.
13. EXTENSION OF TIME AND WAIVER.
(a) Time is of the essence with respect to this Agreement.
However, the parties hereto may, by mutual agreement in writing, extend the
time for the performance of any of the obligations of the parties hereto.
(b) Each party for whose benefit a representation, warranty,
covenant, agreement or condition is intended may, in writing: (i) waive
any inaccuracies in the warranties and representations contained in this
Agreement; and (ii) waive compliance with any of the covenants, agreements
or conditions contained herein and so waive performance of any of the
obligations of the other parties hereto, and any default hereunder;
provided, however, that any such waiver shall not affect or impair the
waiving party's rights in respect to any other representation, warranty,
covenant, agreement or condition or any default with respect thereto.
14. MISCELLANEOUS PROVISIONS.
14.1 Counterparts. Any number of counterparts of this Agreement
may be signed and delivered, each of which shall be considered the original
and all of which, together, shall constitute one and the same instrument.
14.2 Governing Law. EXCEPT FOR THE MERGER OF THE MERGING ENTITY INTO
SURVIVOR, WHICH SHALL BE GOVERNED BY CALIFORNIA LAW, THIS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF VIRGINIA.
14.3 Entire Agreement. This Agreement constitutes the entire
Agreement and understanding between the parties hereto with respect to the
transactions contemplated hereby, expressly superseding all prior
Agreements and understandings, whether oral or written, and no change,
modification, termination or attempted waiver of any of the provisions of
this Agreement shall be binding unless reduced to writing and signed by
the party or parties against whom enforcement is sought.
14.4 Section Headings. The section headings in this Agreement are
for convenience of reference only and shall not be deemed to alter or
affect any provision hereof.
14.5 No Assignment. Neither this Agreement, nor any rights or
liabilities hereunder, may be assigned by any party without the prior
written consent of all of the other parties.
14.6 Adjustment Based on Merger Balance Sheet.
(a) Determination of Merger Balance Sheet. For purposes
hereof, "Merger Balance Sheet" means an unaudited balance sheet of
Merging Entity, as of the close of business on March 31, 1995, computed
under Parent's GAAP Policy referenced in Section 2.7 hereof and in
accordance with Section 2.27 hereof, after making all other adjustments
required herein, and after having reconciled any differences between tax
and financial accounting so that Surviving Corporation shall not be
responsible for any liabilities unless and to the extent the same are
reflected on the Merger Balance Sheet. The Merger Balance Sheet shall be
deemed accepted by Parent if no objections thereto are made within
fifteen (15) days of delivery. If Parent objects to the Merger Balance
Sheet within fifteen (15) days of delivery, then the parties shall have
fifteen (15) days to resolve any objections of Parent to the Merger
Balance Sheet. If the parties are unable to resolve such differences,
one arbitrator shall be selected by Shareholders and one
arbitrator shall be selected by Parent. The two arbitrators shall then
pick one mutually acceptable arbitrator (the "Arbitrator") to resolve all
questions in dispute. The decision of the Arbitrator shall be final and
the fees for his services shall be borne fifty percent (50%) by Parent and
fifty percent (50%) by Shareholders. Notwithstanding anything in the
foregoing to the contrary, if the Merger Balance Sheet is not submitted
within seventy-five (75) days after the Effective Date, then Parent shall
submit a Merger Balance Sheet within fifteen (15) days thereafter, which
shall be final, conclusive and binding on all parties hereto and not
subject to any of the arbitration provisions described above.
(b) Tangible Net Worth. The term "Tangible Net Worth"
means the remainder arrived at from the Merger Balance Sheet when total
liabilities are subtracted from total assets, and furniture, fixtures and
equipment and intangible assets other than cash, cash equivalents and net
receivables are then subtracted from that remainder (total assets - total
liabilities - furniture, fixtures and equipment - intangible assets other
than cash, cash equivalents and net receivables).
(c) Adjustment. The number of shares to be delivered by Parent to
Shareholders pursuant to Section 1.4 shall be adjusted as follows:
(i) If Tangible Net Worth exceeds $47,000
(with such excess being referred to as "Excess Tangible Net Worth"),
then the number of shares shall be increased by the number of shares
determined by dividing Excess Tangible Net Worth by $12; and
(ii) If Tangible Net Worth is less than $47,000 (with such
shortfall being referred to as "Insufficient Tangible Net Worth"), then the
number of shares shall be decreased by the number of shares determined by
dividing Insufficient Tangible Net Worth by $12.
In the event of an increase in the number of shares of common stock
of Parent to be issued to Shareholders, such additional shares shall be
issued, promptly after determination of such number, by Parent to
Shareholders in the same proportion as set forth in Section 1.4(a). In the
event of a decrease in the number of shares of common stock of Parent,
such shares shall be assigned, promptly after determination of such
number, to Parent (at Parent's discretion either from the Escrowed Shares
or the Shareholders or both) in the same proportions as set forth in
Section 1.4(a), unless Parent shall have received a differing written
directive pursuant to Section 9.6. The value of any shares of Parent
common stock to be issued or returned pursuant to this Agreement shall
be adjusted to reflect the occurrence after the Effective Date of any of
the events specified in Section 1.4(c).
14.7 Survival. Notwithstanding anything in the foregoing to the
contrary, any rights which Shareholders or Parent may have at law or in
equity against the other for a misstatement or omission by such party which
should have been made, corrected or disclosed by such party, at or prior to
the Effective Date, shall survive for the applicable period provided by
law or equity for the remedy of such act or omission.
14.8 Schedules. Schedules referenced in this Agreement are an
integral part of this Agreement and are to be deemed a part of this
Agreement whether attached hereto on execution of this Agreement or
anytime thereafter.
14.9 Parent Policy on Post-Acquisition Cash Held by Survivor.
Merging Entity and Shareholders acknowledge that they have been informed
of the policy of Parent not to allow cash and cash equivalents in excess of
what Parent believes to be the appropriate amount of working capital for
any of its operating offices to remain in an interest-earning account for
the benefit of that office. As such, Merging Entity and Shareholders
acknowledge that Parent will cause any such excessive amounts of cash and
equivalents to be dividended to Parent, that such dividends would reduce
interest earnings attributable to Surviving Corporation after the Effective
Date, and that Parent has the right to declare such dividends.
14.10 Subsequent Acquisitions. Merging Entity and Shareholders
acknowledge that a later acquisition by Surviving Corporation of another
insurance agency could affect the determination of subsequent year
profitability and agree to cooperate with Parent in making any adjustments
as necessary to this Agreement and any ancillary agreements to carry out
their intent.
14.11 Nonsolicitation Covenant. Each of the Shareholders, by
signature hereto, covenants that he shall not for a period of five (5)
years after the Effective Date, directly or indirectly, except on behalf
of Surviving Corporation, its successors or assigns, solicit or accept
risk management, insurance or bond business from any of the customers
of Merging Entity as of the moment immediately preceding the Effective
Date. Each of the Shareholders, by signature hereto, acknowledges:
(i) that this covenant is ancillary to this Merger Agreement, is integral
hereto and is independent of any other provision herein, (ii) that this
covenant is reasonably necessary for the protection of Surviving
Corporation's legitimate business interests; (iii) that this covenant
poses no undue hardship on the Shareholders and is reasonably limited
as to duration and scope; and (iv) that this covenant is in
addition to any covenants which Shareholders may make in any employment
or other agreements executed or to be executed with Surviving Corporation.
Further, if any part of this covenant is deemed overbroad or void as
against public policy, each of the Shareholders, by signature hereto,
acknowledges that such invalid portions shall be severable from this
covenant and specifically requests that, upon such event, this covenant
be reformed ("blue-pencilled") to permit Surviving Corporation to obtain
the maximum permissible benefit from this covenant.
14.12 Acceptance. The binding date of acceptance of this Agreement
shall be the Date on which the last of the parties executes the same.
<PAGE>
EXECUTED by Shareholders and Merging Entity at _________,
California, this _______ day of April __, 1995.
SHAREHOLDERS:
ROGER E. LIPMAN, individually
and as Trustee of the
R. E. LIPMAN 1990 TRUST
-------------------------
Roger E. Lipman
MERGING ENTITY:
R. E. LIPMAN INSURANCE
BROKERS, Inc.
By _________________________
_________________, its
_________________
<PAGE>
EXECUTED by Parent and Survivor at ____________,
_____________, this ___ day of April ___, 1995.
SURVIVOR:
HRH INSURANCE SERVICES OF
NORTHERN CALIFORNIA, INC.
By_______________________
_______________, its
______________
PARENT:
HILB, ROGAL AND HAMILTON
COMPANY
By_______________________
________________, its
________________
Exhibit 24.35
CONSENTS OF BLANDING, BOYER & ROCKWELL, INDEPENDENT AUDITORS
We have audited the financial statements of R. E. Lipman Insurance
Brokers, Inc. (a California corporation) for the year ended December 31, 1994
referred to in the accompanying independent Auditors' Report dated February
22, 1995.
We hereby consent to the use of our above mentioned audit report in
connection with the Securities and Exchange Commissions Form S-4 filing of
Hilb, Rogal and Hamilton Company.
Blanding, Boyer & Rockwell
Walnut Creek, California
April 10, 1995
We have compiled the financial statements of R. E. Lipman Insurance
Brokers, Inc. (a California corporation) for the years ended December 31, 1993
and 1992 referred to in the accompanying Compilation Report of Independent
Accountants' dated March 6, 1995.
We hereby consent to the use of our above mentioned compilation report
in connection with the Securities and Exchange Commissions Form S-4 filing
of Hilb, Rogal and Hamilton Company.
Blanding, Boyer & Rockwell
Walnut Creek, California
April 10, 1995
