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 ALL OF THE CAPITAL STOCK OF THE
ENTITIES OWNING ALL OF THE CAPITAL STOCK OF
HAYHURST ELIAS DUDEK, INC. AND
B.D.H. INSURANCE MANAGERS LIMITED
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") and certain other consideration to
the shareholders of the entities owning all of the capital stock of Hayhurst
Elias Dudek, Inc. ("HED") and B.D.H. Insurance Managers Limited ("BDH") in
exchange for 100% of the capital stock of these entities.
Terms of the Transaction
(a) (1) Effective July 1, 1995, a Canadian subsidiary of the Company
will consummate an Agreement of Purchase and Sale of all of the capital stock
of the entities owning all of the capital stock of HED and BDH ("Agreement of
Purchase") whereby the shareholders of these entities will receive shares of
Common Stock of the Company valued at CDN $1,800,000 based on the average
closing price on the New York Stock Exchange for each of the ten consecutive
trading days prior to closing date ("Shares") plus cash of CDN $1,800,000 plus
two future cash payments 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) the satisfaction of all other conditions
precedent as outlined in the Agreement of Purchase (see Exhibit 2.22). The
purchase price will be adjusted after closing based upon the final
determination of net worth as defined in the Agreement of Purchase. The
future cash payments will be made based upon profits realized in the
subsequent two year period which may increase the purchase price up to a
maximum of CDN $2,520,000 in each year (subject to a minimum, before any
applicable indemnity, of CDN $1,080,000 in each year).
HED is currently owned by three holding companies and BDH is
currently owned by two holding companies and a trust, referred to herein
collectively as the "Holding Companies." The Holding Companies have no other
significant assets or operations other than their investment in HED or BDH.
Accordingly, financial information and other data included herein is limited to
that of the operations of HED and BDH.
Current stock ownership of HED and BDH is as follows:
Shareholder Name Ownership %
HED:
Elias Agencies Ltd. ("Elias Ltd.") 40.5%
Jo-Mar Holdings Ltd. ("Dudek Ltd.") 27.0%
Brian D. Hayhurst Enterprises (1988)
Ltd. ("Enterprises") 32.5%
------
100.0%
======
BDH:
Elias Holdings Ltd. ("Elias Holdco") 40.5%
Dudek Holdings Ltd. ("Dudek Holdco") 27.0%
The Hayhurst Barbados Trust ("Hayhurst Trust") 32.5%
------
100.0%
======
The following series of transactions will occur immediately prior to or at the
time of the acquisition by the Company.
o The owners of the stock of Enterprises will sell 100% of the
Enterprises' stock to Arthur G. Elias and John Dudek .
o The Hayhurst Trust will sell its stock ownership in BDH to Arthur
G. Elias and John Dudek.
o The stock of Enterprises and BDH acquired in the above
transactions will be transferred by Arthur G. Elias and John
Dudek to 3157245 Canada Ltd. ("Newco"). Newco is a
corporation recently incorporated under the laws of Canada and
is owned 60% by Arthur G. Elias and 40% by John Dudek.
o Hilb, Rogal and Hamilton Company of Canada Limited ("HRH
of Canada"), a wholly-owned subsidiary of the Company, will
acquire, for the aforementioned purchase price, all of the issued
and outstanding stock and certain obligations as set forth in the
Agreement of Purchase of Elias Ltd., Dudek Ltd., Elias Holdco,
Dudek Holdco and Newco.
o HED, BDH, Elias Ltd., Dudek Ltd., Elias Holdco, Dudek Holdco
and Newco will then be amalgamated pursuant to the provisions
of the Canada Business Corporations Act to form Hayhurst Elias
Dudek, Inc., a corporation qualified and validly existing under the
laws of Canada (the "Surviving Corporation"). The Surviving
Corporation will be a wholly-owned subsidiary of HRH of Canada.
(2) The acquisition of HED and BDH by the Company has
been agreed upon because the Company is engaged in the business of owning
insurance agencies and because the shareholders of HED and BDH have
determined that a sale to the Company is beneficial to the growth of HED's and
BDH's insurance operations in Canada.
HED's and BDH's operations will add approximately 95 employees and
$5,500,000 of revenues to the Company.
(3) The stock issued in the transaction will be shares of
Company Common Stock, no par value, valued at CDN $1,800,000 based on the
average closing price on the New York Stock Exchange for each of the ten
consecutive trading days prior to closing date. For a description of the
Company Common Stock refer to the section entitled "Description of Common
Stock" in the Prospectus.
(4) There are no material differences between the rights of the
security holders of HED and BDH and the rights of security holders of the
Company.
(5) The acquisition will be treated using the purchase method
of accounting for acquisitions under generally accepted accounting principles.
(6) The Surviving Company will be included in a Canadian tax
return of the Canadian operations as of the effective date. The acquisition
will be recorded as a tax free exchange.
(c) The acquisition agreement is incorporated into this supplement as
Exhibit 2.22.
Pro Forma Financial Information
See attached - Schedule A
Material Contracts with Seller
There have been no material contracts between the Company and BDH,
HED or the Holding Companies prior to the proposed effective date of the
Agreement of Merger.
Information with Respect to
Hayhurst Elias Dudek, Inc. and B.D.H. Insurance Managers Limited
HED and BDH were founded in 1982 as a result of a merger of three
existing operations. HED and BDH are engaged in the business of owning and
operating a general insurance agency with their principal offices located in
Winnipeg, Manitoba, Canada. HED and BDH conduct their business and
operations primarily in the Province of Manitoba, and also maintain office
locations and/or conduct their business in the Provinces of Alberta, British
Columbia, Ontario, New Brunswick, Newfoundland, Nova Scotia, Prince Edward
Island, Quebec and Saskatchewan.
HED and BDH specialize in the development and administration of
association programs for property, casualty and group life and health insurance.
In addition they maintain a book of traditional property and casualty accounts,
and have the licensing agreement to market health insurance for domestic
animals (dogs and cats) in Canada.
Common Stock and Dividend Data
There is no established public trading market for the stock of HED, BDH
or the Holding Companies. As described under the section entitled "Terms of
Transaction," BDH and HED each have three shareholders.
Dividends paid by HED have totalled CDN$54,313, CDN$0 and
CDN$50,617 during the fiscal years ended June 30, 1994, 1993 and 1992,
respectively. Dividends paid by BDH have totalled CDN$191,225, CDN$193,730
and CDN$200,754 during the fiscal years ended June 30, 1994, 1993 and 1992,
respectively. There have been no dividend distributions by HED or BDH since
June 30, 1994.
Shareholder Information
(a) (1) WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
(2) (3)&(6) HED and BDH have agreed to submit the Agreement
of Purchase to its shareholders for adoption by unanimous written consent after
receipt and review of this supplement to the Prospectus. Since the Agreement
of Purchase requires that the transaction can be completed only with the
unanimous consent of the shareholders of the companies being acquired, 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 companies being
acquired in the proposed transaction.
(7) Upon completion of the proposed acquisition, no shareholder
of HED, BDH or the Holding Companies will be serving as a director or
executive officer of the registrant.
Experts
The financial statements of Hayhurst Elias Dudek, Inc. and B.D.H.
Insurance Managers Limited for the fiscal year ended June 30, 1994 with
comparative balance sheet figures for the year ended June 30, 1993 and
comparative statements of earnings, deficit and changes in financial position
figures for the years ended June 30, 1993 and 1992 appearing in this supplement
to the Amended Prospectus dated February 12, 1992, and in the Registration
Statement have been audited by KPMG Peat Marwick Thorne, independent
auditors, as set forth in their reports thereon appearing elsewhere herein and
are included in reliance upon such reports given on the authority of such
firm as experts in accounting and auditing.
Hilb, Rogal and Hamilton Company
Date of this Supplement: June 28, 1995
<PAGE>
SCHEDULE A - PRO FORMA CONDENSED
FINANCIAL STATEMENTS (UNAUDITED)
The following pro forma condensed consolidated balance sheet as of
March 31, 1995 and the pro forma consolidated income statements for the three
months ended March 31, 1995 and the years ended December 31, 1994, 1993
and 1992 give effect to the pooling-of-interests merger with R. E. Lipman
Insurance Brokers, Inc. ("Lipman," effective on May 1, 1995); the proposed
acquisitions of the capital stock of the entities owning all of the capital
stock of Hayhurst Elias Dudek, Inc. ("HED") and B.D.H. Insurance Managers
Limited ("BDH") (expected to be effective July 1, 1995) and Cross Keys
Insurance Agency, Inc. ("Cross Keys," expected to be effective July 1, 1995);
and the acquisition of certain assets and liabilities of four insurance agencies
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 and adjustments 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 pooling-of-interests 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 March 31, 1995, as if they
had occurred before March 31, 1995.
The pro forma statements have been prepared by management based upon
the historical financial statements of Hilb, Rogal and Hamilton Company,
Lipman, HED, BDH, Cross Keys 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)
MARCH 31, 1995
<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>
ASSETS
CASH AND CASH EQUIVALENTS $ 13,069,902 $323,110 $13,393,012 $2,035,856 $(65,011)(1) $ 30,000 (3) $ 14,097,857
(1,296,000)(2)
INVESTMENTS 27,753,702 0 27,753,702 604,305 28,358,007
RECEIVABLES & OTHER 43,975,812 149,200 44,125,012 1,995,956 (18,330)(1) 46,102,638
----------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 84,799,416 472,310 85,271,726 4,636,117 N/A (1,349,341) 88,558,502
----------------------------------------------------------------------------------------------------------
INVESTMENTS 8,220,000 8,220,000 8,220,000
PROPERTY & EQUIPMENT 12,310,113 46,103 12,356,216 278,802 (271,366)(1) 145,000 (3) 12,508,652
INTANGIBLE ASSETS 49,494,816 0 49,494,816 34,000 (34,000)(1) 8,133,293 (3) 57,628,109
OTHER ASSETS 3,582,109 0 3,582,109 45,113 0 0 3,627,222
----------------------------------------------------------------------------------------------------------
TOTAL ASSETS $158,406,454 $518,413 $158,924,867 $4,994,032 N/A $6,623,586 $170,542,485
==========================================================================================================
LIABILITIES & EQUITY:
PREMIUMS PAYABLE-INS CO 64,996,844 378,188 $65,375,032 3,803,378 $69,178,410
OTHER ACCRUED LIABILITIES 17,427,338 20,129 17,447,467 1,312,628 (130,378)(1) 18,629,717
----------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 82,424,182 398,317 82,822,499 5,116,006 N/A (130,378) 87,808,127
LONG-TERM DEBT 2,961,780 2,961,780 404,890 1,406,060 (2) 4,772,730
OTHER LONG-TERM LIAB. 2,859,807 2,859,807 127,040 2,288,000 (3) 5,274,847
SHAREHOLDERS' EQUITY
COMMON STOCK 44,282,775 1,000 44,283,775 95,185 (95,185)(4) 2,406,000 (2) 46,689,775
RETAINED EARNINGS 25,877,910 119,096 25,997,006 (749,089) 749,089 (4) 25,997,006
----------------------------------------------------------------------------------------------------------
70,160,685 120,096 70,280,781 (653,904) N/A 3,059,904 72,686,781
----------------------------------------------------------------------------------------------------------
$158,406,454 $518,413 $158,924,867 $4,994,032 N/A $6,623,586 $170,542,485
==========================================================================================================
</TABLE>
(1) TO ADJUST FOR ASSETS AND LIABILITIES NOT ACQUIRED.
(2) TO REFLECT PURCHASE PRICE OF ASSETS AND LIABILITIES ACQUIRED SUBSEQUENT TO
MARCH 31, 1995 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)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED MARCH 31, 1995
-------------------------------------------------------------------------------------------------
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>
REVENUES:
COMMISSIONS & FEES $38,081,734 $96,594 $38,178,328 $1,854,032 $40,032,360
INTEREST INCOME 512,748 1,498 514,246 131,460 ($19,440) (1) 626,266
OTHER 761,655 376 762,031 762,031
-------------------------------------------------------------------------------------------------
TOTAL REVENUES 39,356,137 98,468 39,454,605 1,985,492 (19,440) 41,420,657
-------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
COMPENSATION AND BENEFITS 20,599,309 55,180 20,654,489 960,115 21,614,604
OTHER OPERATING EXPENSES 8,752,895 62,623 8,815,518 792,628 (43,584) (2) 9,564,562
AMORTIZATION OF INTANGIBLES 1,648,058 1,648,058 44,772 94,176 (3) 1,787,006
INTEREST EXPENSE 110,237 110,237 10,258 24,947 (4) 145,442
-------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 31,110,499 117,803 31,228,302 1,807,773 75,539 33,111,614
-------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 8,245,638 (19,335) 8,226,303 177,719 (94,979) 8,309,043
INCOME TAXES 3,298,255 3,298,255 33,096 (5) 3,331,351
-------------------------------------------------------------------------------------------------
NET INCOME $4,947,383 ($19,335) $4,928,048 $177,719 ($128,075) $4,977,692
=================================================================================================
NET INCOME PER COMMON SHARE $0.34 $0.33 $0.33
=================================================================================================
SHARES ISSUED AND OUTSTANDING 14,759,524 37,000 14,796,524 195,000 14,991,524
-------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING 14,757,450 37,000 14,794,450 236,667 15,031,117
-------------------------------------------------------------------------------------------------
</TABLE>
(1) TO ADJUST HISTORICAL INTEREST AND TO ADJUST FOR LOST INTEREST EARNED FROM
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)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1994
-------------------------------------------------------------------------------------------------
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>
REVENUES:
COMMISSIONS & FEES $132,914,113 $339,483 $133,253,596 $16,361,209 $149,614,805
INTEREST INCOME 1,899,803 9,147 1,908,950 298,308 ($357,135) (1) 1,850,123
OTHER 5,995,698 2,084 5,997,782 27,037 6,024,819
-------------------------------------------------------------------------------------------------
TOTAL REVENUES 140,809,614 350,714 141,160,328 16,686,554 (357,135) 157,489,747
-------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
COMPENSATION AND BENEFITS 78,310,999 240,592 78,551,591 10,099,119 88,650,710
OTHER OPERATING EXPENSES 35,975,715 134,437 36,110,152 5,141,717 (376,149) (2) 40,875,720
AMORTIZATION OF INTANGIBLES 6,436,119 6,436,119 871,742 288,966 (3) 7,596,827
INTEREST EXPENSE 812,216 812,216 418,095 (81,421) (4) 1,148,890
POOLING-OF-INTERESTS EXPENSE 487,986 487,986 487,986
-------------------------------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 122,023,035 375,029 122,398,064 16,530,673 (168,604) 138,760,133
-------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 18,786,579 (24,315) 18,762,264 155,881 (188,531) 18,729,614
INCOME TAXES 7,394,296 (6,350) 7,387,946 (13,060) (5) 7,374,886
-------------------------------------------------------------------------------------------------
NET INCOME $11,392,283 ($17,965) $11,374,318 $155,881 ($175,471) $11,354,728
=================================================================================================
NET INCOME PER COMMON SHARE $0.77 $0.77 $0.75
=================================================================================================
SHARES ISSUED AND OUTSTANDING 14,679,464 37,000 14,716,464 320,000 15,036,464
-------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE SHARES
OUTSTANDING 14,778,304 37,000 14,815,304 329,375 15,144,679
-------------------------------------------------------------------------------------------------
</TABLE>
(1) TO ADJUST HISTORICAL INTEREST AND TO ADJUST FOR LOST INTEREST EARNED FROM
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
---------------------------------------------
HILB, ROGAL POOLING-OF- PRO FORMA
& HAMILTON CO. INTERESTS COMBINED
MERGERS POOLED
TOTAL
- -----------------------------------------------------------------------------
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
---------------------------------------------
<PAGE>
HILB, ROGAL & HAMILTON COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
- -----------------------------------------------------------------------------
YEAR ENDED DECEMBER 31, 1992
---------------------------------------------
HILB, ROGAL POOLING-OF- PRO FORMA
& HAMILTON CO. INTERESTS COMBINED
MERGERS POOLED
TOTAL
- -----------------------------------------------------------------------------
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
---------------------------------------------<PAGE>
<PAGE>
Financial Statements of
HAYHURST, ELIAS,
DUDEK, INC.
Year ended June 30, 1994
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the balance sheet of Hayhurst, Elias, Dudek, Inc. as at June 30,
1994 and the statements of earnings, deficit and changes in financial position
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 an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 1994 and the
results of its operations and the changes in its financial position for the
year then ended in accordance with generally accepted accounting principles.
KPMG Peat Marwick Thorne
Chartered Accountants
Winnipeg, Canada
August 19, 1994, except as to note 13
which is as of February 13, 1995
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Balance Sheet
June 30, 1994, with comparative figures for 1993
- ---------------------------------------------------------
1994 1993
- ---------------------------------------------------------
Assets
Current assets:
Cash $ 1,091,554 $771,491
Term deposits 1,180,556 886,480
Investments (note 2) 604,611 604,611
Accounts receivable:
Related parties (note 10) 124,348 120,468
Premiums, net of allowance
of $15,082 (1993 - $10,000) 1,850,667 1,829,010
Claims 275,101 613,985
Income taxes receivable - 157,185
Prepaid expenses 97,037 80,850
- ---------------------------------------------------------
5,223,874 5,064,080
- ---------------------------------------------------------
Fixed assets (note 3) 332,243 405,472
Deferred income taxes 159,230 172,062
Due from related parties (note 10) 147,437 200,000
Other assets (note 4) 139,500 1,418,200
_________________________________________________________
$6,002,284 $7,259,814
=========================================================
Liabilities and Shareholders' Deficit
Current liabilities:
Bonus payable $ 140,390 $ -
Due to insurance companies 5,059,094 5,277,734
Due to sub-agents, associations
and salesmen 154,317 181,367
Other accounts payable
and accruals 571,750 524,982
Income taxes payable 59,794
Current portion of long-term debt
(note 5) 77,800 101,974
- ---------------------------------------------------------
6,063,145 6,086,057
Deferred income taxes 138,578 163,193
Long-term debt (note 5) - 77,800
Shareholders' deficit:
Share capital (note 6) 202,417 1,304,017
Deficit (401,856) (371,253)
-------------------------------------------------------
(199,439) 932,764
Commitments (note 7)
Contingent liability (note 12)
Subsequent event (note 13)
_________________________________________________________
$6,002,284 $7,259,814
=========================================================
See accompanying notes to financial statements.
On behalf of the Board:
___________________________ Director
___________________________ Director
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Statement of Earnings
Year ended June 30, 1994, with comparative figures for 1993 and 1992
- ----------------------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------------------
Commission earnings and fees $8,127,466 $ 7,825,387 $7,210,773
Expenses:
Remuneration:
Commissions:
Sub-agents 117,132 168,025 261,171
Associations 479,468 448,078 445,934
Sales staff 1,304,426 1,292,230 1,256,857
Salaries and employee benefits 3,279,319 3,459,757 2,936,085
--------------------------------------------------------------------------
5,180,345 5,368,090 4,900,047
Selling:
Telephone 400,239 413,791 348,744
Travel and entertainment 191,407 224,220 222,779
Automobile 205,504 180,831 156,682
Advertising and promotion 200,887 155,340 116,937
Bad debts 16,981 49,831 40,537
__________________________________________________________________________
1,015,018 1,024,013 885,679
Occupancy:
Rent 424,186 390,424 369,807
Insurance 93,870 83,408 96,475
Maintenance, utilities and taxes 109,362 100,331 94,133
__________________________________________________________________________
627,418 574,163 560,415
Administration:
Amortization of licenses 134,000 144,000 -
Amortization of goodwill 30,600 57,050 77,650
Depreciation and amortization 169,504 194,666 175,503
Printing and stationery 278,448 279,909 171,431
Postage and messenger 155,596 139,140 98,097
Equipment lease 233,598 216,764 103,405
Interest and bank charges 47,940 48,837 59,119
Data processing 42,070 61,009 37,322
Legal and accounting 272,270 81,928 132,590
Miscellaneous 130,652 132,836 154,289
Management bonus 140,390 - 123,105
__________________________________________________________________________
1,635,068 1,356,139 1,132,511
____________________________________________________________________________
8,457,849 8,322,405 7,478,652
____________________________________________________________________________
Operating loss (330,383) (497,018) (267,879)
Other income (expense):
Contingent commissions 222,301 125,807 80,701
Investment income 175,662 214,456 298,012
Loss on advances - (140,435) (5,804)
__________________________________________________________________________
397,963 199,828 372,909
____________________________________________________________________________
Earnings (loss) before income taxes 67,580 (297,190) 105,030
Income taxes (note 8):
Current (recovery) 55,653 (45,100) 113,117
Deferred (11,783) (25,480) (22,300)
__________________________________________________________________________
43,870 (70,580) 90,817
____________________________________________________________________________
Net earnings (loss) $23,710 $ (226,610) $14,213
============================================================================
See accompanying notes to financial statements.
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Statement of Deficit
Year ended June 30, 1994, with comparative figures for 1993 and 1992
- ----------------------------------------------------------------------------
1994 1993 1992
- ----------------------------------------------------------------------------
Deficit, beginning of year $(371,253) $ (144,643) $(108,239)
Net earnings (loss) 23,710 (226,610) 14,213
Dividends (54,313) - (50,617)
____________________________________________________________________________
Deficit, end of year $(401,856) $ (371,253) $(144,643)
============================================================================
See accompanying notes to financial statements.
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Statement of Changes in Financial Position
Year ended June 30, 1994, with comparative figures for 1993 and 1992
- -----------------------------------------------------------------------------
1994 1993 1992
- -----------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings (loss) $ 23,710 $ (226,610) $ 14,213
Items not affecting working capital:
Amortization of licenses 134,000 144,000
Amortization of goodwill 30,600 57,050 77,650
Depreciation and amortization 169,504 194,666 175,503
Deferred income taxes (11,783) (25,480) (22,300)
Net changes in non-cash working
capital balances:
Accounts receivable 313,347 (1,066,111) 1,172,610
Income taxes receivable/payable 216,979 (181,806) (1,099)
Prepaid expenses (16,187) 24,634 (48,905)
Change in investments - - (500,000)
Bonus payable 140,390 (108,105) 108,105
Due to insurance companies (218,640) 1,042,305 85,236
Due to sub-agents, associations
and salesmen (27,050) 13,283 49,607
Other accounts payable and accruals 46,768 71,063 (13,245)
- -----------------------------------------------------------------------------
801,638 (61,111) 1,097,375
Financing:
Principal repayments (101,974) (38,298) (30,643)
Proceeds on long-term debt - 110,000 -
Decrease (increase) due from
related parties 52,563 (48,125) 44,510
Dividends (54,313) - (50,617)
--------------------------------------------------------------------
(103,724) 23,577 (36,750)
Investments:
Reduction in (purchase of) license 12,500 (430,000) -
Additions to fixed assets (96,275) (116,576) (194,413)
--------------------------------------------------------------------
(83,775) (546,576) (194,413)
- -----------------------------------------------------------------------------
Increase (decrease) in cash and term deposits614,139 (584,110) 866,212
Cash and term deposits, beginning of year 1,657,971 2,242,081 1,375,869
- -----------------------------------------------------------------------------
Cash and term deposits, end of year $ 2,272,110 $ 1,657,971 $2,242,081
=============================================================================
See accompanying notes to financial statements.
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Notes to Financial Statements
Year ended June 30, 1994
1. Significant accounting policies:
The financial statements are expressed in Canadian dollars and are
prepared in accordance with accounting principles generally
accepted in Canada. These principles differ in certain material
respects from those accounting principles generally accepted
in the United States. The differences are described in note 11.
(a) Investments:
Portfolio investments are recorded at the lower of cost and
market.
(b) Revenue:
Commission income is recognized when a policy is billed and has
become effective. Contingent commissions are recognized when
collected.
(c) Fixed assets:
Fixed assets are recorded at cost.
Depreciation is provided on the following basis which will
depreciate the assets over their estimated life:
Furniture and fixtures 20% declining balance
Computer 20% straight-line
Computer software 50% straight-line
Leasehold improvements are being amortized on a straight-line
basis over the term of the lease.
(d) Income taxes:
The company follows the income tax allocation method of recording
income taxes. Deferred income taxes result primarily
from deferring recognition of commissions for income tax purposes,
in certain instances, until the following year and non-
deductible capital costs.
(e) Due to insurance companies:
The amount due to insurance companies represents the net premiums
payable to insurance companies.
(f) Goodwill:
Goodwill is being amortized on a straight-line basis over the
estimated period of benefit, which ranges from five to forty
years (note 13).
(g) Licenses:
Licenses are recorded at cost and are being amortized on a
straight-line basis over three years, being the term of the
licenses.
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Notes to Financial Statements, page 2
Year ended June 30, 1994
2. Investments:
--------------------------------------------------------------------
1994 1993
Market Cost Market Cost
--------------------------------------------------------------------
Bonds $ 600,000 $ 600,000 $ 600,000 $ 600,000
Securities 3,635 4,611 4,680 4,611
--------------------------------------------------------------------
$ 603,635 $ 604,611 $ 604,680 $ 604,611
====================================================================
3. Fixed assets:
--------------------------------------------------------------------
Accumulated 1994 1993
Cost depreciation Net Net
Furniture and fixtures $ 518,536 $ 340,595 $ 177,941 $ 191,556
Computer equipment 310,334 270,560 39,774 74,966
Computer software 526,488 506,888 19,600 32,612
Leasehold improvements 235,110 140,182 94,928 106,338
--------------------------------------------------------------------
$ 1,590,468 $1,258,225 $ 332,243 $ 405,472
====================================================================
4. Other assets:
--------------------------------------------------------------------
1994 1993
--------------------------------------------------------------------
Purchased goodwill $ 232,520 $1,459,250
Accumulated amortization 232,520 327,050
--------------------------------------------------------------------
- 1,132,200
Licenses 417,500 430,000
Accumulated amortization 278,000 144,000
--------------------------------------------------------------------
139,500 286,000
--------------------------------------------------------------------
$ 139,500 $1,418,200
====================================================================
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Notes to Financial Statements, page 3
Year ended June 30, 1994
5. Long-term debt:
--------------------------------------------------------------------
1994 1993
--------------------------------------------------------------------
CIBC Leasing Limited:
13.35% loan payable, due January 1, 1995,
payable in monthly blended instalments
of $3,443 $23,066 $58,679
13.35% loan payable, due February 1, 1995,
payable in monthly blended instalments
of $622 4,734 11,095
Pet Plan International Limited licensing
agreement:
Payment of $50,000 due September
1, 1994 50,000 110,000
-------------------------------------------------------------------
77,800 179,774
Current portion of long-term debt 77,800 101,974
-------------------------------------------------------------------
$ - $77,800
===================================================================
Both of the CIBC Leasing Limited loans are secured by certain
furniture and fixtures.
6. Share capital:
--------------------------------------------------------------------
1994 1993
--------------------------------------------------------------------
Authorized:
Unlimited voting class A preferred
shares with no dividend entitle-
ment, redeemable at issued price
Unlimited non-voting class B
preferred shares with no dividend
entitlement, redeemable at $1
per share
Unlimited voting class A common
shares
Unlimited voting class B common
shares
Unlimited voting class C common
shares
Issued:
5,641 class A common shares $ 5,641 $ 5,641
11,716 class B common shares 6,045 6,045
4,339.25 class C common shares 1,292,331 1,292,331
--------------------------------------------------------------------
1,304,017 1,304,017
Less net book value of goodwill
acquired in exchange for class C
common shares (note 13) 1,101,600
--------------------------------------------------------------------
$ 202,417 $1,304,017
====================================================================
Effective July 1, 1990 the company acquired 70% of Leipsic Insurance
Agencies. This acquisition has been accounted for by the purchase
method. 4,339.25 class C common shares were issued in consideration
for fixed assets of $68,331 and goodwill of $1,224,000 of Leipsic
Insurance Agencies. As described in note 13, effective December 31,
1994 the company completed a transaction which essentially reversed
this acquisition.
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Notes to Financial Statements, page 4
Year ended June 30, 1994
7. Commitments:
(a) In accordance with the shareholders' agreement dated July 1, 1990,
the directors of the company are obligated to declare bonuses and
dividends in the amount that will eliminate any retained
earnings that would otherwise have been created except for the
amortization taken in respect of goodwill acquired through the
acquisition of Leipsic Insurance Agencies. In the current year, a
bonus of $140,390 (1993-nil) and dividends of $54,313 (1993-nil)
were declared by the directors.
(b) The company is committed under the terms of various leases for its
premises and equipment to make rental payments as follows:
-------------------------------------------------------------------
1995 $ 607,198
1996 381,251
1997 314,456
1998 275,829
1999 236,869
Thereafter 346,306
-------------------------------------------------------------------
$ 2,161,909
===================================================================
8. Income taxes:
Income tax rates for the year ended June 30, 1994 and 1993 varied from
the basic Federal and Provincial income tax rates as follows:
-------------------------------------------------------------------------
1994 1993 1992
-------------------------------------------------------------------------
Basic rate applied to income before
income taxes $30,952 $ (136,113) $48,104
Amortization of goodwill 14,015 17,044 19,403
Non-deductible miscellaneous expenses 10,831 13,803 13,355
Losses on investment - 14,430 -
Other permanent differences (11,928) 20,256 9,955
-------------------------------------------------------------------------
Provision for income taxes $43,870 $ (70,580) $90,817
=========================================================================
9. Other funds:
The company acts as the administrator of loss pools on behalf of insurers.
These funds amounting to $119,223 (1993 - $109,598) are not included in
the accompanying balance sheet inasmuch as these are not funds to which
the company is entitled.
HAYHURST, ELIAS, DUDEK, INC.
Notes to Financial Statements, page 5
Year ended June 30, 1994
10. Related party transactions:
Accounts receivable consists of:
-------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------
Inter-company receivables (payables):
B.D.H. Insurance Managers Limited $ 144,861 $ 120,053
Leipsic Insurance Agencies (20,513) 415
------------------------------------------------------------------------
$124,348 $ 120,468
Due from shareholders and directors:
Brian D. Hayhurst Enterprises (1988)
Ltd. $ 22,562 $ 65,000
Elias Agencies Ltd. 70,875 81,000
Jo-Mar Holdings Ltd. 54,000 54,000
-------------------------------------------------------------------------
$147,437 $ 200,000
=========================================================================
The company is committed to placing certain insurance business with a
related company, B.D.H. Insurance Managers Limited in which it is limited
to commission based on a formula. The commission earned from this
business amounted to $2,145,404 (1993 - $2,184,581). The company
paid $10,777 (1993 - $19,481) in commissions during the year to Arcand
Hayhurst Associates Inc., related party.
11. United States accounting principles:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in Canada which, in the case of
the company, conform in all material respects with those in the United
States, with the following exceptions:
Under Canadian GAAP, the company uses the deferral method of income tax
allocation for accounting for income taxes. Under United States GAAP, the
Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes"
in February 1992. SFAS 109 requires a change from the deferral method of
accounting for income taxes to the asset and liability method of
accounting for income taxes. Under the asset and liability method of
SFAS 109, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis and operating loss and tax credit carry-forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under SFAS 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective January 1, 1993, the company adopted SFAS 109 for purposes of
reporting under United States GAAP. The cumulative effect of this change in
accounting for income taxes of $42,167 is determined as of January 1,
1993.
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Notes to Financial Statements, page 6
Year ended June 30, 1994
11. United States accounting principles (continued):
Pursuant to the deferral method, which was applied in 1992 and prior years,
deferred income taxes are recognized for income and expense items that
are reported in different years for financial reporting purposes and
income tax purposes using the tax rate applicable for the year of the
calculation. Under the deferral method, deferred taxes are not adjusted
for subsequent changes in tax rates.
If treated in accordance with United States GAAP, the effect of this
difference would be:
-------------------------------------------------------------------------
1994 1993 1992
-------------------------------------------------------------------------
Net earnings (loss) as reported
under Canadian GAAP $23,710 $ (226,610) $14,213
Decrease (increase) in deferred
tax expense 5,708 (3,962) -
-------------------------------------------------------------------------
Net earnings (loss), as adjusted
to United States GAAP $29,418 $ (230,572) $14,213
=========================================================================
The following table reflects the difference between Canadian and United
States balance sheet amounts:
-------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------
Deferred income tax assets:
Canadian GAAP $ 159,230 $ 172,062
Deferred income tax adjustment arising
from adoption of SFAS 109 (14,801) (16,423)
-------------------------------------------------------------------------
United States GAAP $144,429 $155,639
=========================================================================
-------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------
Deferred income tax liabilities
Canadian GAAP $ 138,578 $ 163,193
Deferred income tax adjustment arising
from adoption of SFAS 109 25,620 29,705
-------------------------------------------------------------------------
United States GAAP $164,198 $192,898
=========================================================================
-------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------
Deficit:
Canadian GAAP $ (401,856) $ (371,253)
Deferred income taxes 5,708 (3,962)
Cumulative effect of change in
accounting principle for income taxes (46,129) (42,167)
-------------------------------------------------------------------------
United States GAAP $ (442,277) $ (417,382)
=========================================================================
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Notes to Financial Statements, page 7
Year ended June 30, 1994
11. United States accounting principles (continued):
Under United States GAAP, the statement of changes in financial position
should be titled as the statement of cashflow and should contain the
following additional disclosure:
-------------------------------------------------------------------------
1994 1993 1992
-------------------------------------------------------------------------
Cash paid during the year for:
Interest $47,940 $ 48,887 $59,119
Income taxes (161,326) 136,706 114,216
-------------------------------------------------------------------------
12. Contingent liability:
The company has granted a stand by letter of credit for $50,000 in favour of
Pafco Warranty Co. to cover 50% of underwriting losses to a maximum of
$50,000 on policies if such losses should arise.
13. Subsequent event:
Effective December 31, 1994 the company transferred 20% of its operations
to Leipsic Insurance Agencies, a 20% shareholder of the company. This
transaction occurred on a tax deferred basis pursuant to the "butterfly"
provisions of the Income Tax Act. The operations transferred were
acquired by the company from Leipsic Insurance Agencies on July 1, 1990 at
which time goodwill and fixed assets were recorded for consideration of
4,339.25 class C common shares of the company.
Also effective December 31, 1994 the company cancelled the class C common
shares that were issued in exchange for the assets referred to above,
pursuant to the "butterfly" provisions of the Income Tax Act. The net
book value of the goodwill which was transferred to the company in
1990 and was transferred back to Leipsic Insurance Agencies effective
December 31, 1994 has been shown as a reduction in the amount of share
capital in these financial statements.
Upon cancellation of the class C common shares the excess of the book
value of the class C common shares of $162,743 over the book value of
the goodwill will be shown as a reduction of deficit in the company's
1995 financial statements.
<PAGE>
Financial Statements of
B.D.H. INSURANCE
MANAGERS LIMITED
Year ended June 30, 1994
<PAGE>
AUDITORS' REPORT TO THE SHAREHOLDERS
We have audited the balance sheet of B.D.H. Insurance Managers Limited as at
June 30, 1994 and the statements of earnings and deficit and changes in
financial position 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 an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the company as at June 30, 1994 and the
results of its operations and the changes in its financial position
for the year then ended in accordance with generally accepted accounting
principles.
KPMG Peat Marwick Thorne
Chartered Accountants
Winnipeg, Canada
August 19, 1994, except as to note 7
which is as of February 13, 1995
<PAGE>
B.D.H. INSURANCE MANAGERS LIMITED
Balance Sheet
June 30, 1994, with comparative figures for 1993
- -----------------------------------------------------------------------------
1994 1993
- -----------------------------------------------------------------------------
Assets
Current assets:
Cash $ 99,702 $ 63,435
Accounts receivable 690 447
Income taxes receivable - 1,104
-------------------------------------------------------------------------
100,392 64,986
Due from related parties (note 2) 70,335 63,832
Goodwill, net of amortization - 532,800
Deferred income taxes 6,351 6,830
- -----------------------------------------------------------------------------
$ 177,078 $ 668,448
=============================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Income tax payable $ 21,293 $ -
Accounts payable and accrued charges 5,924 4,081
Due to related parties (note 2) 94,686 70,967
Bonus payable 54,175 59,600
-------------------------------------------------------------------------
176,078 134,648
Shareholders' equity:
Share capital (note 3) 58,600 577,000
Deficit (57,600) (43,200)
-------------------------------------------------------------------------
1,000 533,800
Commitment (note 4)
Subsequent event (note 7)
- -----------------------------------------------------------------------------
$ 177,078 $ 668,448
=============================================================================
See accompanying notes to financial statements.
On behalf of the Board:
__________________________ Director
- -------------------------- Director
<PAGE>
B.D.H. INSURANCE MANAGERS LIMITED
Statement of Earnings and Deficit
Year ended June 30, 1994, with comparative figures for 1993 and 1992
- -----------------------------------------------------------------------------
1994 1993 1992
Revenue:
Commission $ 2,860,539 $ 2,912,774 $ 2,964,511
Interest 5,976 6,736 14,438
---------------------------------------------------------------------------
2,866,515 2,919,510 2,978,949
Expenses:
Amortization of goodwill 14,400 14,400 14,400
Bank charges and interest 15 3,872 143
Commissions 2,145,404 2,184,581 2,223,383
Office 2,400 2,400 2,400
Professional fees 5,080 2,735 1,308
Rent 3,000 3,000 3,000
Salaries and benefits 25,713 24,954 24,144
Management bonus 414,175 419,600 434,815
Telephone 793 760 739
Other 1,992 1,816 3,488
---------------------------------------------------------------------------
2,612,972 2,658,118 2,707,820
- -----------------------------------------------------------------------------
Income from operations 253,543 261,392 271,129
Income taxes:
Current 76,239 81,547 84,220
Deferred 479 515 555
---------------------------------------------------------------------------
76,718 82,062 84,775
- -----------------------------------------------------------------------------
Net earnings 176,825 179,330 186,354
Deficit, beginning of year (43,200) (28,800) (14,400)
Dividends (191,225) (193,730) (200,754)
- -----------------------------------------------------------------------------
Deficit, end of year $(57,600) $(43,200) $ (28,800)
=============================================================================
See accompanying notes to financial statements.
<PAGE>
B.D.H. INSURANCE MANAGERS LIMITED
Statement of Changes in Financial Position
Year ended June 30, 1994, with comparative figures for 1993 and 1992
- -----------------------------------------------------------------------------
1994 1993 1992
- -----------------------------------------------------------------------------
Cash provided by (used in):
Operations:
Net earnings $ 176,825 $ 179,330 $186,354
Items not affecting working
capital:
Amortization of goodwill 14,400 14,400 14,400
Deferred income taxes 479 515 555
Net changes in non-cash working
capital balances:
Increase in amount due to
related parties 23,719 173,905 (54,763)
Increase in accounts
receivable (243) (85) 2,031
Decrease in accounts payable
to insurance
companies (7,988)
Increase (decrease) in
accounts payable, other 1,843 (527) (3,410)
Decrease (increase) in income
taxes receivable/payable 22,397 (22,734) (6,425)
Decrease in bonus payable (5,425) (30,215) (250,412)
- -----------------------------------------------------------------------------
233,995 314,589 (119,658)
Financing:
(Increase) decrease in due
from related parties (6,503) (39,070) 29,238
Dividends paid (191,225) (193,730) (200,754)
Decrease in dividends payable (82,084)
--------------------------------------------------------------------------
(197,728) (232,800) (253,600)
- -----------------------------------------------------------------------------
Increase in cash 36,267 81,789 (373,258)
Cash (bank indebtedness), beginning
of year 63,435 (18,354) 354,904
- -----------------------------------------------------------------------------
Cash, end of year $99,702 $ 63,435 $ (18,354)
=============================================================================
See accompanying notes to financial statements.
<PAGE>
B.D.H. INSURANCE MANAGERS LIMITED
Notes to Financial Statements
Year ended June 30, 1994
1. Significant accounting policies:
The financial statements are expressed in Canadian dollars and are prepared
in accordance with accounting principles generally accepted in Canada.
These principles differ in certain material respects from the accounting
principles generally accepted in the United States. The differences
are described in note 5.
(a) Commission revenue:
Commission income is recognized when an insurance policy is billed and
has become effective.
(b) Income taxes:
The company follows the income tax allocation method for recording
income tax. Deferred income taxes result primarily from non-
deductible capital costs.
(c) Goodwill:
Goodwill is being amortized on a straight-line basis over the estimated
period of benefit which is forty years (note 7).
2. Related party transactions:
All commission income and commission expenses relate to policies sold by a
related company, Hayhurst, Elias, Dudek, Inc. The company also pays rent
and office expenses in the amounts of $3,000 and $2,400 respectively to
Hayhurst, Elias, Dudek, Inc.
Due from (to) related parties consists of:
-------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------
Hayhurst, Elias, Dudek, Inc. $ (144,861) $ (120,053)
Leipsic Insurance Agencies 50,175 49,086
-------------------------------------------------------------------------
$ (94,686) $ (70,967)
=========================================================================
Brian D. Hayhurst Barbados Trust $ 65,248 $ 63,832
John Dudek 5,087 -
-------------------------------------------------------------------------
$ 70,335 $ 63,832
=========================================================================
<PAGE>
B.D.H. INSURANCE MANAGERS LIMITED
Notes to Financial Statements, page 2
Year ended June 30, 1994
3. Share capital:
-------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------
Share capital:
Authorized:
Unlimited voting class A preferred
shares, with no dividend
entitlement, redeemable at
issued price
Unlimited non-voting class B pre-
ferred shares with no dividend
entitlement, redeemable at
$1 per share
Unlimited voting class A common shares
Unlimited voting class B common shares
Unlimited voting class C common shares
Issued:
325 class A common shares $ 325 $325
675 class B common shares 675 675
250 class C common shares (note 7) 576,000 576,000
--------------------------------------------------------------------
577,000 577,000
Less net book value of goodwill
acquired in exchange for class C
common shares (note 7) 518,400
- -----------------------------------------------------------------------------
$58,600 $577,000
=============================================================================
Effective July 1, 1990, the company acquired 30% of Leipsic Insurance
Agencies. This acquisition has been accounted for by the purchase
method. 250 class C common shares were issued in consideration for
goodwill of Leipsic Insurance Agencies in the amount of $576,000.
As described in note 7, effective December 31, 1994 the company completed
a transaction which essentially reversed this acquisition.
4. Income taxes:
Income tax rates for the year ended June 30, 1994 and 1993 varied from the
basic Federal and Provincial income tax rates as follows:
-------------------------------------------------------------------------
1994 1993 1992
-------------------------------------------------------------------------
Basic rate applied to income before
income taxes $71,753 $ 76,326 $76,170
Amortization of goodwill 4,075 4,205 4,205
Non-deductible miscellaneous expenses 1,115
Other permanent differences 890 416 4,400
-------------------------------------------------------------------------
Provision for income taxes $76,718 $ 82,062 $84,775
=========================================================================
<PAGE>
B.D.H. INSURANCE MANAGERS LIMITED
Notes to Financial Statements, page 3
Year ended June 30, 1994
5. Commitment:
In accordance with the shareholders' agreement dated July 1, 1990, the
directors of the company are obligated to declare bonuses and dividends
in the amount that will eliminate any retained earnings that would
otherwise have been created except for the amortization taken in respect of
goodwill acquired through the acquisition of Leipsic Insurance Agencies.
In the current year, a bonus of $414,175 (1993 - $419,600) and dividends
of $191,225 (1993 - $193,730) were declared by the directors.
6. United States accounting principles:
The financial statements have been prepared in accordance with generally
accepted accounting principles ("GAAP") in Canada which, in the case of the
company, conform in all material respects with those in the United States,
with the following exceptions:
Under Canadian GAAP, the company uses the deferral method of income tax
allocation for accounting for income taxes. Under United States GAAP,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes"
in February 1992. SFAS 109 requires a change from the deferral method of
accounting for income taxes to the asset and liability method of
accounting for income taxes. Under the asset and liability method of SFAS
109, deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis and operating loss and tax credit carry-forwards.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under
SFAS 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
Effective January 1, 1993, the company adopted SFAS 109 for purposes of
reporting under United States GAAP. The cumulative effect of this change in
accounting for income taxes of $6,067 is determined as of January 1, 1993.
Pursuant to the deferral method, which was applied in 1992 and prior years,
deferred income taxes are recognized for income and expense items that
are reported in different years for financial reporting purposes and
income tax purposes using the tax rate applicable for the year of the
calculation. Under the deferral method, deferred taxes are not adjusted for
subsequent changes in tax rates.
If treated in accordance with United States GAAP, the effect of this
difference would be:
-------------------------------------------------------------------------
1994 1993 1992
-------------------------------------------------------------------------
Net earnings as reported under
Canadian GAAP $ 176,825 $ 179,330 $ 186,354
Increase in deferred tax expense (752) (425)
-------------------------------------------------------------------------
Net earnings, as adjusted to
United States GAAP $ 176,073 $ 178,905 $ 186,354
=========================================================================
<PAGE>
B.D.H. INSURANCE MANAGERS LIMITED
Notes to Financial Statements, page 4
Year ended June 30, 1994
6. United States accounting principles (continued):
The following table reflects the difference between Canadian and United
States balance sheet amounts:
-------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------
Deferred income tax assets:
Canadian GAAP $ 6,351 $6,830
Deferred income tax adjustment
arising from adoption of SFAS 109 4,899 5,651
-------------------------------------------------------------------------
United States GAAP $11,250 $12,481
=========================================================================
-------------------------------------------------------------------------
1994 1993
-------------------------------------------------------------------------
Deficit:
Canadian GAAP $(57,600) $(43,200)
Deferred income taxes (752) (425)
Cumulative effect of change in accounting
principles for income taxes 5,651 6,076
-------------------------------------------------------------------------
United States GAAP $(52,701) $(37,549)
=========================================================================
Under United States GAAP, the statement of changes in financial position is
titled the statement of cash flow and should contain the following
additional disclosure:
-------------------------------------------------------------------------
1994 1993 1992
-------------------------------------------------------------------------
Cash paid during the year for:
Interest $ 15 $ 3,872 $ 143
Income taxes 53,842 104,281 90,645
=========================================================================
7. Subsequent event:
Effective December 31, 1994 Leipsic Insurance Agencies sold its 20% interest
in the company represented by 250 class C common shares to the remaining
shareholders. Leipsic Insurance Agencies had acquired these shares July 1,
1990 at which time goodwill was recorded for consideration of the 250
class C common shares. The company intends to redeem these shares
for nil consideration.
The net book value of the goodwill which was transferred to the company in
1990 has been shown as a reduction in the amount of share capital in these
financial statements.
Upon redemption of the class C common shares the excess of the book value
of the class C common shares of $57,600 over the book value of the goodwill
will be shown as a reduction of deficit in the company's 1995 financial
statements.
<PAGE>
UNAUDITED INTERIM FINANCIAL STATEMENTS
HAYHURST ELIAS DUDEK, INC. AND B.D.H. INSURANCE MANAGER LIMITED
<PAGE>
UNAUDITED INTERIM FINANCIAL STATEMENTS
HAYHURST, ELIAS, DUDEK, INC. AND B.D.H. INSURANCE MANAGER LIMITED<PAGE>
CONSOLIDATED BALANCE SHEET
HAYHURST ELIAS DUDEK AND B.D.H. INSURANCE MANAGER LIMITED
(UNAUDITED)
MAR. 31 MAR. 31
1995 1994
ASSETS
CURRENT ASSETS
Cash and cash equivalents $1,950,700 $1,309,163
Investments 604,305 604,305
Receivables:
Premiums, less allowance for
doubtful accounts of $59,303
and $59,303 respectively 1,063,088 1,169,009
Other 493,335 609,170
Prepaid expenses and other
current assets 228,813 157,659
---------- ----------
TOTAL CURRENT ASSETS $4,340,241 $3,849,306
FIXED ASSETS (NET) $ 265,864 $ 365,653
INTANGIBLE ASSETS 417,500 417,500
Less accumulated amortization 383,500 239,500
---------- ----------
$ 34,000 $ 178,000
OTHER ASSETS 306 306
---------- ----------
$4,640,411 $4,393,265
========== ==========
LIABILITIES AND SHAREHOLDERS EQUITY
CURRENT LIABILITIES
Premiums payable to insurance
companies $3,474,836 $3,416,920
Accounts payable and accrued
expenses 1,136,090 1,192,390
---------- ----------
TOTAL CURRENT LIABILITIES $4,610,926 $4,609,310
SHAREHOLDERS' EQUITY
Common Stock:
Class A $ 12,685 $ 12,685
Class C 0 0
Retained Earning 416,796 271,256
Advance to shareholder (399,999) (499,986)
----------- ------------
29,485 (216,045)
----------- -----------
$4,640,411 $4,393,265
=========== ==========
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
HAYHURST ELIAS DUDEK INC. AND B.D.H. INSURANCE MANAGER LIMITED
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
Mar. 31 Mar. 31 Mar. 31 Mar. 31
1995 1994 1995 1994
Revenues
Commissions and Fees $1,749,953 $2,331,369 $5,733,929 $6,754,115
Investment Income 80,488 33,560 186,533 125,099
Other 95,901 44,716 97,872 44,716
---------- ---------- ---------- ---------
$1,926,342 $2,409,645 $6,018,334 $6,923,930
Operating Expenses
Compensation and
employee benefits $ 866,513 $1,133,078 $2,629,102 $3,397,722
Other Operating Expenses 824,314 861,782 2,487,466 2,591,309
Amortization of
Intangibles 36,000 36,000 108,000 108,000
---------- ----------- ---------- ---------
$1,726,827 $2,030,860 $5,224,568 $6,097,031
INCOME BEFORE
INCOME TAXES $ 199,515 $ 378,785 $ 793,766 $ 826,899
Estimated Income Taxes 79,978 162,084 329,345 344,520
---------- ---------- ---------- ---------
NET INCOME $ 119,537 $ 216,701 $ 464,421 $ 482,379
========== ========== ========== ==========
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
HAYHURST ELIAS DUDEK AND B.D.H. INSURANCE MANAGER LIMITED
(UNAUDITED)
NINE MONTHS
ENDED
MAR. 31, 1995 MAR. 31, 1994
OPERATING ACTIVITIES
Net Income $ 464,421 $ 482,379
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and Amortization 54,950 103,181
- Leipsic depreciation adjustment (21,442)
Amortization of intangible assets 108,000 108,000
Proceeds on sale of business to Leipsic 163,500 0
----------- ----------
$ 769,429 $ 693,560
Changes in operating assets and liabilities
Decrease in accounts receivable 431,955 411,158
(Increase) Decrease in prepaid expense ( 6,364) ( 25,134)
Increase (Decrease) in accounts payable
and accrued expenses (1,368,230) (1,035,152)
Advance to shareholders ( 399,996) ( 499,986)
----------- ----------
NET CASH OUTFLOW ( 573,206) ( 455,554)
INVESTING ACTIVITIES
Purchase of equipment and
software development (66,338) ( 66,285)
Adjustment of fixed assets re: Leipsic 99,209
----------- ----------
NET CASH USED/GAIN IN INVESTING ACTIVITIES 32,871 ( 66,285)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS ( 540,335) ( 521,839)
Cash and cash equivalents at beginning
of period 2,491,035 1,831,002
---------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,950,700 $1,309,163
========== ===========
<PAGE>
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
HAYHURST ELIAS DUDEK AND B.D.H. INSURANCE MANAGER LIMITED
(Unaudited)
Basis of Presentation
The consolidated financial statements of Hayhurst Elias Dudek and B.D.H.
Insurance Manager Limited have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, all adjustments (consisting of normal recurring
accruals) considered for a fair presentation have been included. Operating
results for nine months ended March 31, 1995, are not necessarily indicative
of the results that may be expected for the year ending June 30, 1995. For
further information, refer to the Companys' financial statements and
footnotes for the year ended June 30, 1994 included elsewhere herein.
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Balance Sheets As at June 30,
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 1,091,554 $ 771,491 $ 638,015 $ 783,438 $ 687,913
Term deposits 1,180,556 886,480 1,604,066 592,431 36,537
Investments 604,611 604,611 604,611 104,611 353,056
Accounts receivable:
Related parties 124,348 120,468 124,509 238,730 582
Premiums 1,850,667 1,829,010 1,011,648 1,730,288 557,823
Claims 275,101 613,985 435,788 749,119 481,053
Income taxes receivable - 157,185 - - 227,696
Prepaid expenses 97,037 80,850 105,484 56,579 36,435
------------------------------------------------------------------------------------------------
5,223,874 5,064,080 4,524,121 4,255,196 2,381,095
Fixed assets 332,243 405,472 483,562 464,652 411,267
Deferred income taxes 159,230 172,062 171,194 173,512 67,400
Due from related parties 147,437 200,000 151,875 196,385 268,416
Other assets 139,500 1,418,200 1,189,250 1,266,900 120,550
- ----------------------------------------------------------------------------------------------------
$ 6,002,284 $ 7,259,814 $ 6,520,002 $ 6,356,645 $ 3,248,728
====================================================================================================
LIABILITIES AND SHAREHOLDERS DEFICIT
Current liabilities:
Due to insurance
companies $ 5,059,094 $ 5,277,734 $ 4,235,429 $ 4,150,193 $ 1,954,706
Due to sub-agents,
associations and salesmen 154,317 181,367 168,084 118,477 120,873
Due to related paries - - 74,593 48,175 63,930
Other accounts payable
and accruals 571,750 524,982 453,919 467,164 434,355
Bonus payable 140,390 - 108,105 - 283,064
Income taxes payable 59,794 - 24,621 25,720 -
Current portion of
long-term debt 77,800 101,974 36,755 32,186 24,672
------------------------------------------------------------------------------------------------
6,063,145 6,086,057 5,101,506 4,841,915 2,881,600
Deferred income taxes 138,578 163,193 187,805 212,423 215,400
Long-term debt - 77,800 71,317 106,529 140,042
Shareholders' deficit:
Share capital 202,417 1,304,017 1,304,017 1,304,017 11,686
Deficit (401,856) (371,253) (144,643) (108,239) -
------------------------------------------------------------------------------------------------
(199,439) 932,764 1,159,374 1,195,778 11,686
- ----------------------------------------------------------------------------------------------------
$ 6,002,284 $ 7,259,814 $ 6,520,002 $ 6,356,645 $ 3,248,728
====================================================================================================
</TABLE>
<PAGE>
HAYHURST, ELIAS, DUDEK, INC.
Statements of Earnings and Deficit
<TABLE>
<CAPTION>
For the years ended June 30,
- ----------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commissions earnings
and fees $ 8,127,466 $ 7,825,387 $,7,210,773 $ 6,486,228 $ 4,852,039
Expenses
Remuneration:
Commissions:
Sub-agents 117,132 168,025 261,171 396,474 568,801
Associations 479,468 448,078 445,934 483,970 514,751
Sales staff 1,304,426 1,292,230 1,256,857 1,507,744 750,245
Salaries and
employee benefits 3,279,319 3,459,757 2,936,085 2,295,638 1,602,505
-----------------------------------------------------------------------------------------------
5,180,345 5,368,090 4,900,047 4,683,826 3,436,302
Selling
Telephone 400,239 413,791 348,744 350,734 314,106
Travel and entertainment 191,407 224,220 222,779 272,310 263,835
Automobile 205,504 180,831 156,682 128,739 94,184
Advertising and promotion 200,887 155,340 116,937 95,959 102,726
Bad debts 16,981 49,831 40,537 22,965 4,745
-----------------------------------------------------------------------------------------------
1,015,018 1,024,013 885,679 870,707 779,596
Occupancy:
Rent 424,186 390,424 369,807 299,428 122,284
Insurance 93,870 83,408 96,475 74,978 59,242
Maintenance, utilities
and taxes 109,362 100,331 94,133 66,501 42,996
-----------------------------------------------------------------------------------------------
627,418 574,163 560,415 440,907 224,522
Administration:
Amortization of licenses 134,000 144,000
Amortization of goodwill 30,600 57,050 77,650 77,650 47,050
Depreciation and
amortization 169,504 194,666 175,503 166,675 164,666
Printing and stationery 278,448 279,909 171,431 203,663 200,531
Postage and messenger 155,596 139,140 98,097 87,936 74,470
Equipment lease 233,598 216,764 103,405 61,969 41,578
Interest and bank charges 47,940 48,837 59,119 55,542 33,781
Data processing 42,070 61,009 37,322 33,236 23,456
Legal and accounting 272,270 81,928 132,590 381,904 84,824
Miscellaneous 130,652 132,836 154,289 153,147 54,394
Management bonus 140,390 123,105 283,064
-----------------------------------------------------------------------------------------------
1,635,068 1,356,139 1,132,511 1,221,722 1,007,814
- ----------------------------------------------------------------------------------------------------
8,457,849 8,322,405 7,478,652 7,217,162 5,448,234
- ----------------------------------------------------------------------------------------------------
Operating loss (330,383) (497,018) (267,879) (730,934) (596,195)
Other income (expense):
Contingent commissions 222,301 125,807 80,701 248,032 153,966
Investment income 175,662 214,456 298,012 411,370 575,835
Loss on advances (140,435) (5,804)
-------------------------------------------------------------------------------------------------
397,963 199,828 372,909 659,402 729,801
- ----------------------------------------------------------------------------------------------------
Earnings (loss) before
income taxes 67,580 (297,190) 105,030 (71,532) 133,606
Income taxes:
Current (recovery) 55,653 (45,100) 113,117 145,796 69,376
Deferred (11,783) (25,480) (22,300) (109,089) (9,000)
-------------------------------------------------------------------------------------------------
43,870 (70,580) 90,817 36,707 60,376
- ----------------------------------------------------------------------------------------------------
Net earnings (loss) $ 23,710 $ (226,610) $ 14,213 $ (108,239) $ 73,230
====================================================================================================
</TABLE>
<PAGE>
B.D.H. INSURANCE MANAGERS LIMITED
Balance Sheets
As at June 30,
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash $ 99,702 $ 63,435 $ $ 354,904 $ 36,216
Accounts receivable 690 447 362 2,393 311
Receivable from
insurance companies 34,984
Due from related parties 102,938 48,175 63,930
Income taxes receivable 1,104 139,970
-------------------------------------------------------------------------------------------------
100,392 64,986 103,300 405,472 275,411
Due from related parties 70,335 63,832 24,762 54,000 210,232
Goodwill, net of amortization 532,800 547,200 561,600
Deferred income taxes 6,351 6,830 7,345 7,900 8,500
- -----------------------------------------------------------------------------------------------------
$ 177,078 $ 668,448 $ 682,607 $ 1,028,972 $ 494,143
=====================================================================================================
Liabilities and Shareholders' Equity
Current liabilities:
Bank indebtedness $ $ $ 18,354 $ $
Accounts payable and
accrued changes 5,924 4,081 4,608 16,006 4,148
Income tax payable 21,293 21,630 28,055
Due to related parties 94,686 70,967
Bonus payable 54,175 59,600 89,815 340,227 473,431
Dividends payable 82,084 15,564
-------------------------------------------------------------------------------------------------
176,078 134,648 134,407 466,372 493,143
Shareholders' equity:
Share capital 58,600 577,000 577,000 577,000 1,000
Deficit (57,600) (43,200) (28,800) (14,400)
-------------------------------------------------------------------------------------------------
1,000 533,800 548,200 562,600 1,000
- -----------------------------------------------------------------------------------------------------
$ 177,078 $ 668,448 $ 682,607 $ 1,028,972 $ 494,143
=====================================================================================================
</TABLE>
B.D.H. INSURANCE MANAGERS LIMITED
Statements of Earnings and Deficit
<TABLE>
<CAPTION>
For the years ended June 30,
- -----------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue
Commission $ 2,860,539 $ 2,912,774 $ 2,964,511 $ 2,812,859 $ 2,793,640
Interest 5,976 6,736 14,438 23,284 13,390
--------------------------------------------------------------------------------------------------
2,866,515 2,919,510 2,978,949 2,836,143 2,807,030
Expenses
Amortizaiton of goodwill 14,400 14,400 14,400 14,400
Bank charges and interest 15 3,872 143 154 222
Commissons 2,145,404 2,184,581 2,223,383 2,109,617 2,095,230
Office 2,400 2,400 2,400 2,400 2,400
Professional fees 5,080 2,735 1,308 5,985 654
Rent 3,000 3,000 3,000 3,000 3,000
Salaries and benefits 25,713 24,954 24,144 32,859 30,786
Management bonus 414,175 419,600 434,815 413,727 473,431
Telephone 793 760 739 590 807
Other 1,992 1,816 3,488 249
--------------------------------------------------------------------------------------------------
2,612,972 2,658,118 2,707,820 2,582,981 2,606,530
- -----------------------------------------------------------------------------------------------------
Income from operations 253,543 261,392 271,129 253,162 200,500
Income taxes:
Current 76,239 81,547 84,220 75,943 45,600
Deferred 479 515 555 600 500
--------------------------------------------------------------------------------------------------
76,718 82,062 84,775 76,543 46,100
- -----------------------------------------------------------------------------------------------------
Net earnings 176,825 179,330 186,354 176,619 154,400
Deficit, beginning of year (43,200) (28,800) (14,400)
Dividends (191,225) (193,730) (200,754) (191,019) (154,400)
- -----------------------------------------------------------------------------------------------------
Deficit, end of year $ (57,600) $ (43,200) $ (28,800) $ (14,400) $ -
=====================================================================================================
</TABLE>
<PAGE>
HAYHURST ELIAS DUDEK INC.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
The income of Hayhurst Elias Dudek Inc. (HED) is derived from the commissions
earned from various areas by administering their insurance needs and placing
their insurance policies with various insurance carriers. There areas are:
Association Groups (Property and Casualty, Life and Health) Municipalities and
Schools; Risk Management of Commercial Account; Pet Plan Insurance and Personal
Lines. Such commissions are generally a percentage of the premium. Commission
rates are set by negotiating with the subscribing insurance companies for a
term, usually a year period with some sharing in underwriting profit. The
market conditions and loss ratio dictate the premium rates and related
commissions for the company. There is no precise pattern that allows management
to predict the future changes in the market conditions, or loss ratio conditions
or any effect that they may influence on the company's operations.
RESULTS OF OPERATIONS
Total revenues for fiscal year ended June 30, 1994 were $8,525,429, an increase
of $500,214 or 6.2% from 1993. For 1993, total revenues were $8,025,215, an
increase of $441,533 of 5.8% from 1992.
Commissions for fiscal year ended June 30, 1994 increased by $302,079 or 3.9%
for 1993 commissions increased by $614,614 or 8.5%.
The commission increases in 1994 and 1993 were primarily attributable to the
acquisition of Pet Plan Insurance.
Other income, net increased by $198,135 in 1994 and decreased by $173,081 in
1993. The increase and decreases of 1994 and 1993 is due mainly to the write-
off of $140,435 of the loss on advances to the warranty program. Otherwise the
net incrases were $57,700 in 1994 and the net decrases were $38,450 in 1993.
Total compensation and employee benefits cost for 1994 were $4,583,745, a
decrease of $168,242 or 3.5% from 1993. For 1993 total compensation and
employee benefits costs were $4,751,987, an increase of $559,045 or 13.3% from
1992. This is primarily due to the increase of the number of employees in
acquiring the operation of Pet Plan.
For 1994 other operating expenses increased $163,296 or 4.6% from 1993. Other
operating expenses increased $407,813 or 12.9% from 1992. 1994 increases were
mainly in the area of legal costs while 1993 increases were due to the addition
of the operation cost of Pet Plan.
<PAGE>
HAYHURST ELIAS DUDEK INC./B.D.H. INSURANCE MANAGER LIMITED
CONSOLIDATED
Management's Discussion and Analysis
of Third Quarter Results of Operations
RESULTS OF OPERATIONS:
Total revenues for the fiscal quarter and nine months ended March 31, 1995 were
$1,926,342 and $6,018,334 respectively, a decrease of $483,303 or 20% for the
quarter, and a decrease of $905,596 or 13% for nine months from 1994.
The commission decreased in 1995 from 1994 were mainly due to the demerger of
Leipsic on July 1, 1994 and decrease in commission rate.
Other income net increased by $98,113 and $114,590 for the quarter and nine
months ended March 31, 1995 and 1994. The increase is mainly due to the higher
interest rate as well as higher receipts in contingency profit sharing due to
better management in underwriting of quality accounts.
Total compensation and employee benefits cost were $866,513 and $2,629,102 for
the quarter and nine months respectively in 1995, a decrease of $266,565 or
23.5% and $768,620 or 22.6% for the same period from 1994. This is primarily
due to a decrease in the number of employees through demerger and reorganization
plus freeze in salary.
For the quarter and nine months in 1995 operating expenses decreased by $37,468
and $103,843 from 1994 respectively. Both decreases were attributable to
demerger of Leipsic's operation.
AGREEMENT OF PURCHASE AND SALE
OF
ALL OF THE CAPITAL STOCK
OF THE ENTITIES OWNING ALL OF THE CAPITAL STOCK OF
HAYHURST ELIAS DUDEK, INC. AND
B.D.H. INSURANCE MANAGERS LIMITED
BY
HILB, ROGAL AND HAMILTON COMPANY OF CANADA, LIMITED
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and
entered into as of the 27th day of June, 1995 by and between the
following:
HILB, ROGAL AND HAMILTON COMPANY, a corporation
incorporated under the laws of the Commonwealth of
Virginia ("HRH"); and
HILB, ROGAL AND HAMILTON COMPANY OF CANADA, LIMITED, a
corporation incorporated under the laws of Canada which
is a wholly-owned subsidiary of HRH ("Buyer"); and
HAYHURST ELIAS DUDEK, INC., a corporation incorporated
under the laws of Canada ("HED"); and
ELIAS AGENCIES LTD., a corporation incorporated under
the laws of the Province of Manitoba ("Elias Ltd.");
and
JO-MAR HOLDINGS LTD., a corporation incorporated under
the laws of the Province of Manitoba ("Dudek Ltd.");
and
BRIAN D. HAYHURST ENTERPRISES (1988) LTD., a
corporation incorporated under the laws of the Province
of Manitoba ("Enterprises"); and
B.D.H. INSURANCE MANAGERS LIMITED, a corporation
incorporated under the laws of Canada ("BDH"); and
ELIAS HOLDINGS LTD., a corporation incorporated under
the laws of the Province of Manitoba ("Elias Holdco");
and
DUDEK HOLDINGS LTD., a corporation incorporated under
the laws of the Province of Manitoba ("Dudek Holdco");
and
3157245 CANADA LTD., a corporation incorporated under the
laws of Canada ("Newco"); and
THE HAYHURST BARBADOS TRUST, a trust established under
the laws of the Island of Barbados (the "Hayhurst
Trust"), with ERNST & YOUNG SERVICES LIMITED, as the
sole trustee of The Hayhurst Barbados Trust (the
"Hayhurst Trustee"); and
ARTHUR G. ELIAS, an individual who is a resident of
Winnipeg, Manitoba, Canada ("Elias"); and
IRENE T. ELIAS, the spouse of Elias, and an individual
who is a resident of Winnipeg, Manitoba, Canada ("Mrs.
Elias"); and
JOHN DUDEK, an individual who is a resident of
Winnipeg, Manitoba, Canada ("Dudek"); and
MARILYN N. DUDEK, the spouse of Dudek, and an
individual who is a resident of Winnipeg, Manitoba,
Canada ("Mrs. Dudek"); and
BRIAN D. HAYHURST, an individual who is a resident of the
Island of Barbados ("Hayhurst"); and
WILLIAM JESSIMAN, an individual who is a resident of
Winnipeg, Manitoba, Canada ("WJ"); and
THE ELIAS FAMILY TRUST, a trust formed under the laws
of the Province of Manitoba (the "Elias Trust"), with
ARTHUR G. ELIAS, as the sole trustee of The Elias
Family Trust (the "Elias Trustee"); and
THE DUDEK FAMILY TRUST, a trust formed under the laws
of the Province of Manitoba (the "Dudek Trust"), with
JOHN DUDEK, as the sole trustee of The Dudek Family
Trust (the "Dudek Trustee").
BACKGROUND STATEMENTS
A. Description of Agency Business. HED and BDH are engaged
in the business of owning and operating a general insurance
agency with their principal offices located in Winnipeg,
Manitoba, Canada. The insurance business and operations of HED
and BDH are referred to in this Agreement as the "Agency." The
Agency conducts its business and operations primarily in the
Province of Manitoba, and also maintains office locations and/or
conducts its business in the Provinces of Alberta, British
Columbia, Ontario, New Brunswick, Newfoundland, Nova Scotia,
Prince Edward Island, Quebec and Saskatchewan.
B. Current Stock Ownership of HED. Elias and Mrs. Elias
(the "Eliases") collectively own all of the issued and
outstanding capital stock of Elias Ltd. (the "Elias Ltd. Stock").
Elias Ltd., in turn, owns 40.5% of the issued and outstanding
capital stock of HED. Dudek and Mrs. Dudek (the "Dudeks")
collectively own all of the issued and outstanding capital stock
of Dudek Ltd. (the "Dudek Ltd. Stock"). Dudek Ltd., in turn,
owns 27% of the issued and outstanding capital stock of HED. The
Hayhurst Trust and WJ collectively own all of the issued and
outstanding capital stock of Enterprises (the "Enterprises
Stock"). Enterprises, in turn, owns 32.5% of the issued and
outstanding capital stock of HED. Elias Ltd., Dudek Ltd. and
Enterprises therefore collectively currently own all of the
issued and outstanding capital stock of HED (the "HED Stock").
As of the date of the execution of this Agreement, the stock
ownership of HED is set forth on Exhibit B which is attached
hereto.
C. Current Stock Ownership of BDH. Elias and the Elias
Trust (the "BDH/Elias Group") collectively own all of the issued
and outstanding capital stock of Elias Holdco (the "Elias Holdco
Stock"). Elias Holdco, in turn, owns 40.5% of the issued and
outstanding capital stock of BDH. Dudek and the Dudek Trust (the
"BDH/Dudek Group") collectively own all of the issued and
outstanding capital stock of Dudek Holdco (the "Dudek Holdco
Stock"). Dudek Holdco, in turn, owns 27% of the issued and
outstanding capital stock of BDH. The Hayhurst Trust owns 32.5%
of the issued and outstanding capital stock of BDH. Elias
Holdco, Dudek Holdco and the Hayhurst Trust therefore
collectively currently own all of the issued and outstanding
capital stock of BDH (the "BDH Stock"). As of the date of the
execution of this Agreement, the stock ownership of BDH is set
forth on Exhibit C which is attached hereto.
D. Current Stock Ownership of Newco. Elias owns 60% of
the issued and outstanding capital stock of Newco. Dudek owns
40% of the issued and outstanding capital stock of Newco. Elias
and Dudek therefore collectively currently own all of the issued
and outstanding capital stock of Newco (the "Newco Stock").
E. Preliminary Transfers.
(1) Preliminary Enterprises Stock Transfers.
Effective as of 12:01 a.m. on the Closing Date (as defined below
in Section 5) and prior to the Stock Acquisition Transactions
(also as defined below in Paragraph F), the Hayhurst Trust and WJ
desire to sell, assign and transfer to Elias and Dudek, and Elias
and Dudek desire to purchase and acquire from the Hayhurst Trust
and WJ, all of the issued and outstanding Enterprises Stock owned
by the Hayhurst Trust and WJ, through the direct sale, assignment
and transfer of Enterprises Stock by each of the Hayhurst Trust
and WJ to Elias and Dudek (the "Preliminary Enterprises Stock
Transfers"). Upon completion of the Preliminary Enterprises
Stock Transfers, the Eliases will own all of the issued and
outstanding Elias Ltd. Stock, and the Dudeks will own all of the
issued and outstanding Dudek Ltd. Stock, and Elias and Dudek will
own all of the issued and outstanding Enterprises Stock.
(2) Preliminary BDH Stock Transfers. Also effective
as of 12:01 a.m. on the Closing Date and prior to the Stock
Acquisition Transactions, the Hayhurst Trust desires to sell,
assign and transfer to Elias and Dudek, and Elias and Dudek
desire to purchase and acquire from the Hayhurst Trust, all of
the issued and outstanding capital stock of BDH (the "Hayhurst
BDH Stock") owned by the Hayhurst Trust (the "Preliminary BDH
Stock Transfers"). Upon completion of the Preliminary BDH Stock
Transfers, Elias Holdco, Dudek Holdco, Elias and Dudek will own
all of the issued and outstanding BDH Stock.
(3) Subsequent Stock Transfers to Newco. Immediately
after the Preliminary Enterprises Stock Transfers and the
Preliminary BDH Stock Transfers (collectively referred to as the
"Preliminary Transfers"), effective as of 12:02 a.m. on the
Closing Date, Elias and Dudek desire to transfer: (i) the
Enterprises Stock to Newco (the "Enterprises Subsequent Stock
Transfers"); and, (ii) the Hayhurst BDH Stock to Newco (the "BDH
Subsequent Stock Transfers"). The Enterprises Subsequent Stock
Transfers and BDH Subsequent Stock Transfers shall be
collectively referred to herein as the "Subsequent Stock
Transfers".
F. Stock Acquisition Transactions. Immediately after the
Subsequent Stock Transfers, effective as of 12:03 a.m. on the
Closing Date, Buyer desires to purchase and acquire (i) all of
the issued and outstanding Elias Ltd. Stock, and any indebtedness
owing by Elias Ltd. to the Eliases, from the Eliases, (ii) all of
the issued and outstanding Dudek Ltd. Stock, and any indebtedness
owing by Dudek Ltd. to the Dudeks, from the Dudeks, (iii) all of
the issued and outstanding Elias Holdco Stock, and any
indebtedness owing by Elias Holdco to the BDH/Elias Group, from
the BDH/Elias Group, (iv) all of the issued and outstanding Dudek
Holdco Stock, and any indebtedness owing by Dudek Holdco to the
BDH/Dudek Group, from the BDH/Dudek Group, and (v) all of the
issued and outstanding Newco Stock; and, all of the respective
selling parties desire to sell, assign and transfer the
aforementioned Stock interests to Buyer in each case for the
consideration and pursuant to the terms and conditions set forth
in this Agreement (which transactions are also collectively
referred to herein as the "Stock Acquisition Transactions").
G. Post-Stock Acquisition Transactions. Immediately after
the completion of the Stock Acquisition Transactions, and
effective as of 12:04 a.m. on the Closing Date, HED, BDH,
Enterprises, Elias Ltd., Dudek Ltd., Elias Holdco, Dudek Holdco
and Newco will be amalgamated pursuant to the provisions of the
Canada Business Corporations Act (the "Amalgamation
Transactions") to form Hayhurst Elias Dudek, Inc., a corporation
qualified and validly existing under the laws of Canada (the
"Surviving Corporation"). After the completion of the
Amalgamation Transactions, the Surviving Corporation will be a
wholly-owned subsidiary of Buyer and shall own and operate all of
the insurance business of the Agency.
TERMS OF AGREEMENT
In consideration of the foregoing facts and of the
respective representations, warranties, covenants and agreements
set forth below, the parties hereto, intending to be legally
bound, hereby covenant and agree as follows:
PART A:
PRELIMINARY TRANSFERS, SUBSEQUENT TRANSFERS
ACQUISITION AND AMALGAMATION TRANSACTIONS AND CLOSING
1. PRELIMINARY TRANSFERS.
1.1 Preliminary Enterprises Stock Transfers.
(a) Enterprises Stock Transfers. Effective as of
12:01 a.m. on the Closing Date and prior to the Stock Acquisition
Transactions, and at the sole expense of Elias, Dudek and
Hayhurst, the Hayhurst Trust and WJ shall sell, assign and
transfer to Elias and Dudek, and Elias and Dudek shall purchase
and acquire from the Hayhurst Trust and WJ, all of the issued and
outstanding Enterprises Stock owned by the Hayhurst Trust and WJ,
free and clear of all Encumbrances (as defined below in Section
2.1) through the direct sale, assignment and transfer of
Enterprises Stock by each of the Hayhurst Trust and WJ to Elias
and Dudek. Elias shall purchase and acquire sixty percent (60%)
of the Enterprises Stock and Dudek shall purchase and acquire
forty percent (40%) of the Enterprises Stock.
(b) Resulting Enterprises Stock Ownership.
Immediately upon completion of the Preliminary Enterprises Stock
Transfers, the Eliases collectively shall own all of the issued
and outstanding Elias Ltd. Stock, the Dudeks collectively shall
own all of the issued and outstanding Dudek Ltd. Stock, and Elias
and Dudek shall own all of the issued and outstanding Enterprises
Stock in the respective proportions described above. Upon the
completion of the Preliminary Enterprises Stock Transfers, the
parties to those Transfers shall promptly provide to Buyer
(1) original copies of all fully executed stock transfer
agreements, (2) copies of appropriate stock certificates duly
endorsed evidencing the transfers of Enterprises Stock, and
(3) such other documentation reasonably requested by Buyer in
connection with such Transfers.
(c) Enterprises Stock Purchase Consideration. In
exchange for the Enterprises Stock, Elias and Dudek shall pay and
deliver to the Hayhurst Trust and WJ the amount and form of
consideration that is described on Schedule 1.1(c) which is
attached to this Agreement. The amount of consideration to be
paid by Elias and Dudek to the Hayhurst Trust and WJ for the
Enterprises Stock shall include (i) an amount equal to the
retained earnings (of approximately CDN $550,000) held in the
account of Enterprises, which retained earnings will be
immediately transferred to Buyer as an asset of Enterprises in
connection with the Stock Acquisition Transactions (the
"Enterprises Retained Earnings"), and (ii) an amount equal to
32.5% of the net income after tax of HED as a result of the
current year of operations, which net income after tax will be
immediately transferred to Buyer as an asset of HED in connection
with the Stock Acquisition Transactions (the "Undistributed HED
Profit").
1.2 Preliminary BDH Stock Transfers.
(a) BDH Stock Transfers. Effective as of 12:01
a.m. on the Closing Date and prior to the Stock Acquisition
Transactions, and at the sole expense of Elias, Dudek and
Hayhurst, the Hayhurst Trust shall sell, assign and transfer to
Elias and Dudek, and Elias and Dudek shall purchase and acquire
from the Hayhurst Trust, all of the issued and outstanding
Hayhurst BDH Stock free and clear of all Encumbrances. Elias
shall purchase and acquire sixty percent (60%) of the Hayhurst
BDH Stock and Dudek shall purchase and acquire forty percent
(40%) of the Hayhurst BDH Stock.
(b) Resulting BDH Stock Ownership. Immediately
upon completion of the Preliminary BDH Stock Transfers, Elias
Holdco, Dudek Holdco, Elias and Dudek collectively shall own all
of the issued and outstanding BDH Stock. Upon the completion of
the Preliminary BDH Stock Transfers, the parties to those
Transfers shall promptly provide to Buyer (1) an original copy of
the fully executed stock transfer agreements, (2) copies of
appropriate stock certificates duly endorsed evidencing the
Transfers of Hayhurst BDH Stock, and (3) such other documentation
reasonably requested by Buyer in connection with such Transfers.
(c) BDH Stock Purchase Consideration. In
exchange for the Hayhurst BDH Stock, Elias and Dudek shall pay
and deliver to the Hayhurst Trust the amount and form of
consideration that is described on Schedule 1.2(c) which is
attached to this Agreement. The amount of consideration to be
paid by Elias and Dudek to the Hayhurst Trust for the Hayhurst
BDH Stock shall include an amount equal to 32.5% of the net
income after tax of BDH as a result of the current year of
operations, which net income after tax will be immediately
transferred to Buyer as an asset of BDH in connection with the
Stock Acquisition Transactions (the "Undistributed BDH Profit").
1.3 Subsequent Stock Transfers to Newco.
(a) Subsequent Stock Transfers. Immediately
after the Preliminary Transfers, effective as of 12:02 a.m. on
the Closing Date, and at the sole expense of Elias, Dudek and
Hayhurst, Elias and Dudek shall transfer (i) the Enterprises
Stock to Newco, and (ii) the Hayhurst BDH Stock to Newco. All of
the issued and outstanding Enterprises Stock and Hayhurst BDH
Stock shall be assigned and transferred to Newco free and clear
of all Encumbrances. Newco shall thereby acquire and receive one
hundred percent (100%) of the Enterprises Stock and one hundred
percent (100%) of the Hayhurst BDH Stock.
(b) Resulting Stock Ownership. Immediately upon
completion of the Subsequent Stock Transfers, (i) Newco shall own
all of the issued and outstanding Enterprises Stock, and
(ii) Elias Holdco, Dudek Holdco and Newco collectively shall own
all of the issued and outstanding BDH Stock. Upon the completion
of the Subsequent Stock Transfers, the parties to those Transfers
shall promptly provide to Buyer (1) an original copy of the fully
executed stock transfer agreements, (2) copies of appropriate
stock certificates duly endorsed evidencing the Transfers of
Enterprises Stock and Hayhurst BDH Stock, and (3) such other
documentation reasonably requested by Buyer in connection with
such Transfers.
(c) Subsequent Stock Transfer Consideration. In
exchange for the Enterprises Stock and Hayhurst BDH Stock, Newco
shall pay and deliver to Elias and Dudek the amount and form of
consideration that is described on Schedule 1.3(c) which is
attached to this Agreement. The amount of consideration to be
paid by Newco to Elias and Dudek for the Enterprises Stock shall
include the amounts of the Enterprises Retained Earnings and the
Undistributed HED Profit, and the amount of consideration to be
paid by Newco to Elias and Dudek for the Hayhurst BDH Stock shall
include the Undistributed BDH Profit.
2. STOCK ACQUISITION TRANSACTIONS.
2.1 Purchase and Sale of Stock. Immediately after the
Preliminary Enterprises Stock Transfers, the Preliminary BDH
Stock Transfers and the Subsequent Stock Transfers, effective as
of 12:03 a.m. on the Closing Date, the following Stock
Acquisition Transactions shall occur:
(a) Elias Ltd. Stock Purchase. The Eliases shall
sell, assign and transfer to Buyer, and Buyer shall purchase and
accept from the Eliases, all of the issued and outstanding shares
of Elias Ltd. Stock, and any indebtedness owing by Elias Ltd. to
the Eliases;
(b) Dudek Ltd. Stock Purchase. The Dudeks shall
sell, assign and transfer to Buyer, and Buyer shall purchase and
accept from the Dudeks, all of the issued and outstanding shares
of Dudek Ltd. Stock, and any indebtedness owing by Dudek Ltd. to
the Dudeks;
(c) Elias Holdco Stock Purchase. The BDH/Elias
Group shall sell, assign and transfer to Buyer, and Buyer shall
purchase and accept from the BDH/Elias Group, all of the issued
and outstanding shares of Elias Holdco Stock, and any
indebtedness owing by Elias Holdco to the BDH/Elias Group;
(d) Dudek Holdco Stock Purchase. The BDH/Dudek
Group shall sell, assign and transfer to Buyer, and Buyer shall
purchase and accept from the BDH/Dudek Group, all of the issued
and outstanding shares of Dudek Holdco Stock, and any
indebtedness owing by Dudek Holdco to the BDH/Dudek Group; and
(e) Newco Stock Purchase. Elias and Dudek shall
sell, assign and transfer to Buyer, and Buyer shall purchase and
accept from Elias and Dudek, all of the issued and outstanding
shares of Newco Stock.
By purchasing and acquiring all of the issued and
outstanding shares of Elias Ltd. Stock, Dudek Ltd. Stock, Elias
Holdco Stock, Dudek Holdco Stock and Newco Stock, Buyer shall
also acquire, as assets of those corporations, all of the issued
and outstanding shares of HED Stock, BDH Stock and Enterprises
Stock, and the stock of their respective subsidiaries as listed
on Schedule 6.6.
For the purposes of this Agreement, (i) the Eliases,
the Dudeks, the BDH/Elias Group, and the BDH/Dudek Group shall
also collectively be referred to as the "Direct Selling
Shareholders" and individually as a "Direct Selling Shareholder,"
and (ii) Elias Ltd., Dudek Ltd., Enterprises, Elias Holdco, Dudek
Holdco, HED, BDH, Newco and their respective subsidiaries listed
on Schedule 6.6 shall also collectively be referred to as the
"Acquired Corporations" and individually as an "Acquired
Corporation."
For the Consideration (as defined in Section 2.2
below), the Direct Selling Shareholders shall deliver to Buyer,
free and clear of all mortgages, charges, pledges, security
interests, conditional sales agreements, liens, encumbrances,
actions, claims, demands, restrictions, equities of any nature
whatsoever or howsoever arising, any adverse claims whatsoever or
howsoever arising, and any rights or privileges capable of
becoming any of the foregoing ("Encumbrances"), the number of
shares of the capital stock of the Acquired Corporations
described on Schedule 2.1, and each Direct Selling Shareholder
shall receive therefor that percentage ("Applicable Percentage")
and amount ("Applicable Amount") of the Consideration described
on Schedule 2.1. Schedule 2.1 shall also set forth (i) the
portion of the Consideration to be allocated as the purchase
price for each Acquired Corporation, and (ii) the amounts of the
Enterprises Retained Earnings, the Undistributed HED Profit and
the Undistributed BDH Profit.
The Applicable Percentage and Applicable Amount of
Consideration to be received by each Direct Selling Shareholder
shall be specifically and conclusively set forth on Schedule 2.1,
subject to any rights of reduction and/or offset set forth in
this Agreement or otherwise. The number of shares of capital
stock set forth on Schedule 2.1 shall constitute all of the
shares of capital stock, equities, securities or other interests
of or in the Acquired Corporations, and shall be the stock
acquired by Buyer (the "Acquired Stock"). The term "Acquired
Stock" shall include all of the issued and outstanding shares of
capital stock of the Acquired Corporations, including HED, BDH,
Enterprises and their respective subsidiaries listed on Schedule
6.6 even though such shares shall be acquired as assets of Elias
Ltd., Dudek Ltd., Elias Holdco, Dudek Holdco and Newco pursuant
to this Agreement. Following the Preliminary Transfers and the
Subsequent Stock Transfers described above, the Acquired
Corporations shall comprise all of the holders and owners of
stock, equities, securities or other interests of or in HED
and/or BDH. Upon completion of the Stock Acquisition
Transactions, Buyer shall have acquired all of the business and
operations comprising the Agency.
For the purposes of this Agreement, Elias, Mrs. Elias,
Dudek, Mrs. Dudek, the Eliases, the Dudeks, Hayhurst, the
Hayhurst Trust, WJ, Elias Ltd., Dudek Ltd., Enterprises, HED, the
Elias Trust, the BDH/Elias Group, the Dudek Trust, the BDH/Dudek
Group, Elias Holdco, Dudek Holdco, BDH and Newco shall also
collectively be referred to as the "Warranting Persons" and
individually as a "Warranting Person."
Buyer, in reliance on the representations, warranties,
covenants and agreements of the Warranting Persons set forth
below, and subject to all of the terms and conditions contained
herein, shall purchase and accept all of the shares of Acquired
Stock from the Direct Selling Shareholders free and clear of all
Encumbrances and shall pay and tender the Consideration to the
Direct Selling Shareholders. For tendering to Buyer all of the
shares of the Acquired Stock, the Direct Selling Shareholders
shall collectively receive the Consideration specified in Section
2 hereof, subject to the fulfillment of all the terms and
conditions contained herein. This Agreement shall not, under any
circumstances, be consummated unless one hundred percent (100%)
of the shares of the Acquired Stock are tendered to Buyer by the
Direct Selling Shareholders.
2.2 Consideration for the Acquired Stock. The total
consideration (referred to in this Agreement as the
"Consideration" and stated in dollar amounts of the lawful money
of Canada) shall be paid or delivered by Buyer to the Direct
Selling Shareholders for one hundred percent (100%) of the
Acquired Stock and shall consist of the Contingent Consideration
referred to in Section 3 below, plus the following:
(a) HRH Stock. As provided in Section 2.3 below,
stock certificates evidencing that number of shares of HRH's
common stock ("HRH Stock") which equals a value of CDN
$1,800,000.00, when such HRH Stock is valued, per share, at the
average of the closing price on the New York Stock Exchange for
common stock of Buyer for each of ten (10) consecutive trading
days with the tenth and final trading day being the last trading
day which is ten (10) trading days prior to the Closing Date;
(b) Cash Consideration. As provided in Section
2.3 below, the aggregate cash sum of (i) ONE MILLION EIGHT
HUNDRED THOUSAND AND NO/100 DOLLARS (CDN $1,800,000.00) (the "HRH
Dollars"), plus (ii) the amount of the Enterprises Retained
Earnings, plus (iii) the amount of the Undistributed HED Profit,
plus (iv) the amount of the Undistributed BDH Profit (which
Enterprises Retained Earnings, Undistributed HED Profit and
Undistributed BDH Profit is also collectively referred to herein
as the "Excess Amounts"), by certified check, wire transfer of
collected funds or intra-bank transfer (which HRH Dollars and
Excess Amounts are also collectively referred to herein as the
"Closing Cash Consideration");
(c) Deferred Consideration. A deferred cash
balance, which shall consist of two (2) payments, due fourteen
(14) and twenty-six (26) months after the Closing Date in the
maximum amounts, before offset or reduction, each of CDN
$2,520,000.00 (the "Buyer's Deferred Obligations").
(d) Exchange Rate. For all deliveries of
Consideration or any other payments which are made under this
Agreement other than those that are in collected funds in the
currency specified hereunder, the exchange rate for Canadian or
United States dollars shall be the exchange rate published in the
Wall Street Journal on the Friday which is immediately prior to
one week before the payment due date.
(e) Rights of Offset, Reduction and
Indemnification. The Buyer's Deferred Obligations and Contingent
Consideration shall be subject to a right of offset as granted at
law, and such other rights of indemnification, offset and
reduction as provided in this Agreement. The Buyer's Deferred
Obligations shall be payable only to the Direct Selling
Shareholders subject to any assignment in favor of other
Warranting Persons the Direct Selling Shareholders may execute
and deliver to Buyer. The fourteen-month payment of the Buyer's
Deferred Obligations shall be referred to in this Agreement as
the "First Deferred Payment," and the twenty-six-month payment of
Buyer's Deferred Obligations shall be referred to in this
Agreement as the "Second Deferred Payment."
2.3 Delivery and Payment of Consideration. At the
Closing, in exchange for the Acquired Stock, Buyer shall pay and
deliver to the Direct Selling Shareholders (or to their legal
counsel upon receipt of a written direction acceptable to the
Buyer's counsel) (i) the HRH Stock (less the amount of such Stock
that shall be held by Buyer and/or HRH in escrow pursuant to
Section 13.5 of this Agreement), and (ii) the Closing Cash
Consideration. In order to facilitate the payment by Buyer to
the Direct Selling Shareholders of the Excess Amounts portion of
the Closing Cash Consideration, the amounts of the Enterprises
Retained Earnings, the Undistributed HED Profit and the
Undistributed BDH Profit shall be dividended to Buyer by the
Surviving Corporation for immediate payment to the Direct Selling
Shareholders. The Direct Selling Shareholders shall, in turn,
subject to satisfaction of the requirements of Rule 145
promulgated by the U.S. Securities and Exchange Commission
pursuant to the Securities Act of 1933 ("Rule 145"), upon receipt
of the Consideration, pay and/or satisfy all obligations owed by
them (whether in Closing Cash Consideration or HRH Stock, as the
case may be) to any other party to this Agreement and incurred by
them in connection with the Preliminary Transfers and the
Subsequent Stock Transfers as set forth on Schedules 1.1(c),
1.2(c) and 1.3(c).
2.4 Guarantee and Security for the Buyer's
Obligations. In connection with the consummation of the Stock
Acquisition Transactions and after the Amalgamation Transactions,
HRH and the Surviving Corporation shall, subject to the rights of
offset and indemnification set forth in this Agreement,
respectively guarantee and be obligated for the payment of the
Consideration, including the Deferred Obligations and the
Contingent Consideration (if any) to be made under this
Agreement. As security for the payment of the Buyer's Deferred
Obligations and the Contingent Consideration (if any), the
Surviving Corporation shall grant to the Direct Selling
Shareholders a security interest in the assets of the Surviving
Corporation. The Surviving Corporation shall execute and deliver
to the Direct Selling Shareholders a Security Agreement in the
form of agreement attached hereto as Exhibit 12.7.
3. DETERMINATION AND PAYMENT OF CONTINGENT CONSIDERATION
OR REDUCTION OF CONSIDERATION FOR THE ACQUIRED STOCK
AND REDUCTION OF DEFERRED PAYMENTS.
3.1 Contingent Consideration and Consideration
Reduction Based on the Acquisition Audit Balance Sheet.
(a) Preparation of Financial Statements. As soon
as practicable after the close of business of the Agency on June
30, 1995, ("Pre-Effective Moment") and, in all events, within
sixty-two (62) days after the Closing Date, the Warranting
Persons (who shall be represented by Hayhurst, Elias and Dudek,
or their survivors, collectively the "Designated Representative")
shall cause the firm of KPMG Peat, Marwick, Thorne, Chartered
Accountants, of Winnipeg, Manitoba (the "Designated Accountants")
to prepare and deliver to them and the Buyer an audited balance
sheet of the Agency and an unaudited balance sheet of the other
Acquired Corporations as of the Pre-Effective Moment, prepared in
accordance with the generally accepted accounting principles and
with disclosure similar to the form of the June 30, 1994
financial statements attached hereto as Exhibit 3.1(a) (the
"Acquisition Audited Balance Sheets" with the audited balance
sheet of the Agency being referred to herein as the "Agency
Acquisition Audited Balance Sheet"), together with the customary
opinion of the Designated Accountants given with respect to such
financial statements. The Designated Representative shall also
cause the Designated Accountants to prepare and deliver to them
and the Buyer, prior to the Closing Date, audited financial
statements of the Agency, and prepare and deliver to the Buyer
unaudited financial statements of the other Acquired
Corporations, all as of and for the most recent annual period of
the Acquired Corporations ("Prior Year 1"), prepared in
accordance with generally accepted accounting principles ("Prior
Year 1 Financial Statements"), together with the customary
opinion of the Designated Accountants (if any) given with respect
to such financial statements, and unaudited comparative
statements for the periods ended June 30, 1993 ("Prior Year 2"),
and June 30, 1992 ("Prior Year 3"), and for the quarters ended
March 31, 1995, and March 31, 1994. The Prior Year 1, Prior Year
2 and Prior Year 3 Financial Statements and unaudited comparative
statements, and the financial statements for the Agency for the
quarters ended March 31, 1995 and March 31, 1994 are attached
hereto as Exhibit 3.1(a) (the "Prior Years Financial
Statements"). In addition, the Designated Representative shall
cause the Designated Accountants to permit Buyer's in-house
financial officer or any firm of certified public accountants (if
U.S.) or chartered accountants (if Canadian) designated by Buyer
(referred to below as the "Buyer's Reviewer") reasonable access
to the work papers, schedules, memoranda and other documents used
in preparing the Acquisition Audited Balance Sheet and any of the
foregoing financial statements.
(b) Review and Adjustment of Financial
Statements. As soon as is reasonably practicable after delivery
to Buyer of the Acquisition Audited Balance Sheet, and, in all
events, within thirty (30) days after such delivery, Buyer shall
give written notice to the Designated Representative accepting
the Acquisition Audited Balance Sheet as prepared or specifying
any disagreement with respect to any item in such document. In
the event of a disagreement, the Designated Representative and
Buyer shall each make a good faith attempt to reconcile the
differences; however, if they are unable to reconcile all
differences within a period of fourteen (14) days after
notification to the Designated Representative of such
disagreement, then the Designated Representative and Buyer shall
submit all questions in dispute to one of the "Big Six" firms of
chartered accountants (other than Buyer's Reviewer, Buyer's and
HRH's outside auditors and the Designated Accountants) located in
the Winnipeg, Manitoba region, as may be agreed upon by the
Designated Representative and Buyer or, in default of such
Agreement, as may be determined by the President of the Canadian
Institute of Chartered Accountants, which chosen accounting firm
("Umpire") shall, within a period of thirty (30) days after
submission, determine and report to the Designated Representative
and Buyer upon all questions in dispute, and the report of the
Umpire shall be final, conclusive and binding on the Warranting
Persons and Buyer. The fees charged by the Umpire shall be
equally divided between the Warranting Persons and Buyer. The
Designated Representative shall bear all responsibility of
notifying the Warranting Persons of all matters relating to the
nature, handling and resolution of any such dispute, and shall
exclusively and irrevocably bind the Warranting Persons with
respect to any decision made or the resolution of any dispute.
The Acquisition Audited Balance Sheet, as prepared by the
Designated Accountants, or, if revised by agreement between the
Designated Representative on behalf of the Warranting Persons and
Buyer or by the report of the Umpire, then as so revised, shall
be final, conclusive and binding on the Warranting Persons and
Buyer.
(c) Definition of Acquisition Net Worth. As used
herein, the term "Acquisition Net Worth" shall mean the value
which results when all liabilities of the Agency are subtracted
from all assets of the Agency, each as shown by the Agency
Acquisition Audited Balance Sheet, with the further adjustments
of subtracting from the values shown on the Agency Acquisition
Audited Balance Sheet any value assigned to intangible assets and
any amount by which the Agency's net fixed assets exceed CDN
$140,000.00. Acquisition Net Worth shall not include any Excess
Amounts.
(d) Determination and Payment of Contingent
Consideration. If the Acquisition Net Worth shall exceed CDN $0
(Zero Canadian Dollars) (the amount of such excess being referred
to below as "Contingent Consideration"), then, within a period of
fifteen (15) days after the final determination of the
Acquisition Net Worth in accordance with foregoing provisions of
this Section 3.1, Buyer shall pay to each Direct Selling
Shareholder, as additional consideration for such Direct Selling
Shareholder's portion of the Acquired Stock, the Applicable
Percentage of the Contingent Consideration set forth on Schedule
3.1(d). The Direct Selling Shareholders shall, in turn, upon
receipt of the Contingent Consideration pay to other Warranting
Persons (other than the Direct Selling Shareholders) the
percentage portions set forth on Schedule 3.1(d).
(e) Determination of Consideration Reduction and
Reduction of Consideration. If, on the other hand, the
Acquisition Net Worth shall be less than CDN $0 (Zero Canadian
Dollars) (the amount of such deficit being referred to below as
"Consideration Reduction"), then, the Consideration for the
Acquired Stock shall be deemed automatically reduced, on a
dollar-for-dollar basis, by an amount equal to the Consideration
Reduction. In such event, the provisions of subparagraph (i)
below shall become applicable or, if the Direct Selling
Shareholders and Warranting Persons, collectively, do not comply
with the provisions of subparagraph (i) below, then the
provisions of subparagraph (ii) below automatically shall become
applicable:
(i) Within a period of fifteen (15) days
after the final determination of the Acquisition Net Worth in
accordance with the foregoing provisions of this Section 3.1, the
Direct Selling Shareholders and the Warranting Persons having
received any Consideration shall pay to the Surviving Corporation
(as a reduction in the Consideration), an amount equal to the
Consideration Reduction in the form of one or more cashier's
checks made payable to the Surviving Corporation.
(ii) If the Direct Selling Shareholders and
the Warranting Persons having received any Consideration shall
fail or refuse to comply with the provisions of subparagraph (i)
above within the time limit specified therein, then in addition
to all other remedies at law or in equity which Buyer might have,
and without limiting the foregoing, Buyer shall be entitled to
reduce the amount of such of the HRH Stock being held pursuant to
the escrow provided herein and/or to reduce any payments pursuant
to Section 3.2 hereof (in addition to any reduction provided for
therein) to any of the Direct Selling Shareholders or any
Warranting Person effective retroactively to the Closing Date, by
a pro rata portion of the amount, plus interest computed from the
Closing Date at the rate of ten percent (10%) per annum
compounded daily.
3.2 Reduction of First Deferred Payment Consideration
Based on Amount of Year 1 Agency Profit.
(a) Determination of Year 1 Agency Profit. As
used herein, the term "Year 1 Agency Profit" shall mean the net
profit of the Surviving Corporation (also hereafter referred to
as the "Agency") for the twelve (12) month period beginning July
1, 1995, and ending June 30, 1996 ("Year 1"), determined in
accordance with generally accepted accounting principles applied
on a consistent basis, and as stated, in Buyer's accounting
standard manual which has been previously provided to the
Warranting Persons, before any provision for federal or
provincial income taxes and before any provision for amortization
of intangibles of the Agency and before any provision for any
overhead charge by Buyer, as the parent of the Agency, to the
Agency. Additionally, the parties have reached special agreement
with regard to the calculation of Year 1 Agency Profit as it
relates to bad debt expense; professional fees, direct corporate
costs and business insurance; and depreciation as set forth in
this subsection. Specifically, bad debt expense shall be the
actual write-offs of the Agency, or the actual bad debt expense
according to the accounting principles and policy of Buyer,
whichever is greater, and having regard to the past experience of
the Agency; the charges for professional fees, direct corporate
costs and business insurance shall be CDN $200,000 (which shall
be charged on a basis of $16,667.00 per month), regardless of the
actual costs incurred therefor; and depreciation, based on the
fixed assets as of the date of the Acquisition Audited Balance
Sheet, shall be charged at CDN $75,000. Additionally, the
parties have reached special agreement with regard to the non-
inclusion of certain employee payments in the calculation of Year
1 Agency Profit. Specifically, the amount of $25,000 of
compensation paid to a new sales producer (hired after June 1,
1995) during the first twelve (12) months of employment of such
new sales producer will not be deducted in the calculation of
Year 1 Agency Profit, provided $12,500 of commission income is
produced by that new sales producer. Also, amounts accrued or
paid in respect of "General Bonus" pursuant to the Management
Incentive Agreement (Exhibit 11.4) shall not be deducted in the
calculation of Year 1 Agency Profit. Buyer shall cause the Year
1 Agency Profit to be determined, and the amount thereof
communicated to the Designated Representative (on behalf of the
Warranting Persons), as soon as is reasonably practicable after
Year 1, and, in all events, within sixty-two (62) days after
Year 1. In the event of a disagreement by the Designated
Representative (on behalf of the Warranting Persons), as to the
computation of the Year 1 Agency Profit, such disagreement shall
be resolved in the same manner as provided in the case of a
disagreement as to the Acquisition Audited Balance Sheet under
the provisions of Section 3.1 above.
(b) Reduction of First Deferred Payment. To the
extent the Year 1 Agency Profit shall be less than CDN $1,920,000
(with such deficiency being the "Year 1 Deficiency"), then for
each dollar (CDN $1) of Year 1 Deficiency Buyer shall be entitled
to automatically without any further action reduce the First
Deferred Payment by aggregate amounts of CDN $2.25 down to a
minimum amount (before offset) payable of CDN $1,080,000. For
example, if the Year 1 Deficiency equals CDN $100,000, the First
Deferred payment would be reduced in the aggregate by CDN
$225,000 down to the amount payable of CDN $2,295,000. If the
Year 1 Deficiency equals or exceeds CDN $640,000, the First
Deferred Payment would be reduced in the aggregate by the maximum
amount of CDN $1,440,000 down to the minimum amount payable,
before offset, of CDN $1,080,000.
3.3 Reduction of Second Deferred Payment Consideration
Based on Year 2 Agency Profit.
(a) Determination of Year 2 Agency Profit. As
used herein, the term "Year 2 Agency Profit" shall mean the net
profit of the Agency for the twelve (12) month period beginning
July 1, 1996, and ending June 30, 1997 ("Year 2"), determined in
accordance with generally accepted accounting principles applied
on a consistent basis, and as stated, in Buyer's accounting
standard manual which has been previously provided to the
Warranting Persons, before any provision for federal or
provincial income taxes and before any provision for amortization
of intangibles of the Agency and before any provision for any
overhead charge by Buyer, as the parent of the Agency, to the
Agency. Additionally, the parties have reached special agreement
with regard to the calculation of Year 2 Agency Profit as it
relates to bad debt expense; professional fees, direct corporate
costs and business insurance; and depreciation as set forth in
this subsection. Specifically, bad debt expense shall be the
actual write-offs of the Agency, or the actual bad debt expense
according to the accounting policy of Buyer, whichever is
greater, and having regard to the past experience of the Agency;
the charges for professional fees, direct corporate costs and
business insurance shall be CDN $200,000 (which shall be charged
on a basis of $16,667.00 per month), regardless of the actual
costs incurred therefor; and depreciation, based on the fixed
assets as of the date of the Acquisition Audited Balance Sheet,
shall be charged at CDN $75,000. Additionally, the parties have
reached special agreement with regard to the non-inclusion of
certain employee payments in the calculation of Year 2 Agency
Profit. Specifically, the amount of $25,000 of compensation paid
to a new sales producer (hired after June 1, 1995) during the
first twelve (12) months of employment of such new sales producer
will not be deducted in the calculation of Year 2 Agency Profit,
provided $12,500 of commission income is produced by that new
sales producer. Also, amounts accrued or paid in respect of
"General Bonus" pursuant to the Management Incentive Agreement
(Exhibit 11.4) shall not be deducted in the calculation of Year 2
Agency Profit. Buyer shall cause the Year 2 Agency Profit to be
determined, and the amount thereof communicated to the Designated
Representative (on behalf of the Warranting Persons), as soon as
is reasonably practicable after Year 2, and, in all events,
within sixty-two (62) days after Year 2. In the event of a
disagreement by the Designated Representative (on behalf of the
Warranting Persons), as to the computation of the Year 2 Agency
Profit, such disagreement shall be resolved in the same manner as
provided in the case of a disagreement as to the Acquisition
Audited Balance Sheet under the provisions of Section 3.1 above.
(b) Reduction of Second Deferred Payment. To the
extent the Year 2 Agency Profit shall be less than CDN $1,920,000
(with such deficiency being the "Year 2 Deficiency"), then for
each dollar (CDN $1) of Year 2 Deficiency Buyer shall be entitled
to automatically without any further action reduce the Second
Deferred Payment by aggregate amounts of CDN $2.25 down to a
minimum amount of (before offset) payable of CDN $1,080,000. For
example, if the Year 2 Deficiency equals CDN $100,000, the Second
Deferred Payment would be reduced in the aggregate by CDN
$225,000 down to the amount payable of CDN $2,295,000. If the
Year 2 Deficiency equals or exceeds CDN $640,000, the Second
Deferred Payment would be reduced in the aggregate by the maximum
amount of CDN $1,440,000 down to the minimum amount payable,
before offset, of CDN $1,080,000.
3.4 No Commissions Counted Twice. Notwithstanding
anything in the foregoing to the contrary, the accounting for any
account for purposes of determining Year 1 Agency Profit and Year
2 Agency Profit shall be done in such a manner as to prevent any
commissions which are earned in one year from being counted in
two years and in such a manner as to prevent two years of
commissions from any such account as being earned in any one
year.
3.5 GAAP. "Generally accepted accounting principles,"
unless otherwise specified herein, means the accounting
principles so described and promulgated by the Canadian Institute
of Chartered Accountants which are applicable as at the date on
which any calculation made hereunder is to be effective or as at
the date of any financial statements referred to herein.
4. AMALGAMATION TRANSACTIONS.
4.1 Amalgamation Transactions. Immediately after the
completion of the Stock Acquisition Transactions and at the sole
expense of the Warranting Persons, and effective as of 12:04 a.m.
on the Closing Date, HED, BDH, Enterprises, Elias Ltd., Dudek
Ltd., Elias Holdco, Dudek Holdco and Newco will be amalgamated
pursuant to the provisions of the Canada Business Corporations
Act to form Hayhurst Elias Dudek, Inc., a corporation qualified
and validly existing under the laws of Canada. Immediately upon
the completion of the Amalgamation Transactions, the Surviving
Corporation shall (i) be a wholly-owned subsidiary of Buyer, and
(ii) own all of the assets and have all of the authority, power,
licenses and permits of the Agency to conduct the Agency's
business, owns its properties and continue its operations. Prior
to, and in connection with the Amalgamation Transactions, the
Warranting Persons shall cause, to the extent they are not
already, all Acquired Corporations to be continued federally
pursuant to the Canada Business Corporations Act in order to
facilitate their amalgamation to form the Surviving Corporation.
4.2 Deliveries in Connection with the Amalgamations.
Upon the completion of the Amalgamation Transactions, Buyer shall
promptly be provided with (1) an original copy of the fully
executed amalgamation agreement(s), (2) originals of all stock
certificates duly endorsed evidencing the cancellation of the
issued and outstanding Acquired Stock of the Acquired
Corporations as a result of the amalgamation, (3) one share
certificate in the name of Buyer evidencing all of the issued and
outstanding shares of the Surviving Corporation, (4) originals of
appropriate federal and/or provincial certificates confirming the
completion of the Amalgamation Transactions, (5) originals of
appropriate provincial certificates confirming that the Surviving
Corporation is duly qualified to conduct its business and
operations in all provinces that it was qualified to do business
prior to the Amalgamation Transactions, and (6) such other
documentation reasonably requested by Buyer in connection with
such Transactions.
5. CLOSING. The closing of the transactions contemplated
by this Agreement shall include the completion and consummation
in immediate succession of (1) the Preliminary Enterprises Stock
Transfers which shall be effective as of 12:01 a.m. on the
Closing Date, (2) the Preliminary BDH Stock Transfers which also
shall be effective as of 12:01 a.m. on the Closing Date, (3) the
Subsequent Stock Transfers which shall be effective as of 12:02
a.m. on the Closing Date, (4) the Stock Acquisition Transactions
which shall be effective as of 12:03 a.m. on the Closing Date,
and (5) the Amalgamation Transactions which shall be effective as
of 12:04 a.m. on the Closing Date (which Transfers and
Transactions are collectively referred to in this Agreement as
the "Closing"). The Closing shall take place at the offices of
Aikins, MacAulay & Thorvaldson, located at the Commodity Exchange
Tower, 30th Floor, 360 Main Street, Winnipeg, Manitoba, Canada,
R3C 4G1 on July 1, 1995 (the "Closing Date"), or at such other
place and at such other time as shall be mutually agreed upon by
the parties to this Agreement. Whereas the effective date of the
Closing will be July 1, 1995, the parties have agreed that the
payment of the Consideration and the delivery of documents will
be completed on July 5, 1995.
PART B:
REPRESENTATIONS AND WARRANTIES
6. REPRESENTATIONS AND WARRANTIES OF THE WARRANTING
PERSONS. The Warranting Persons, jointly and severally,
represent and warrant, both as of the date of this Agreement and
as of the Closing Date, to the Buyer and HRH as follows, and
confirm that the Buyer and HRH are relying upon the accuracy of
each of such representations and warranties in connection the
purchase of the Acquired Stock and the completion of the other
transactions hereunder:
6.1 Organization and Standing of the Acquired
Corporations and the Trusts.
(a) Each Acquired Corporation is a corporation
duly incorporated and organized, validly existing and in good
standing in all respects, and is validly registered in all
respects, under the laws of the jurisdiction of its incorporation
(the "Home Jurisdiction") and has all necessary 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.
(b) Each Acquired Corporation is duly licensed,
registered and qualified to do business, is up-to-date in the
filing of all required corporate returns and other notices and
filings and is otherwise in good standing in all respects, in
each jurisdiction in which it (i) owns or leases property, or
(ii) the nature or conduct of its business or any part thereof,
or the nature of the property of the Acquired Corporation or any
part thereof, makes such qualification necessary or desirable to
enable its business to be carried on as now conducted or to
enable the property and assets of the Acquired Corporation to be
owned, leased and operated by it. Each Acquired Corporation is
licensed, registered and qualified to do business in those
provinces or other jurisdictions listed in Schedule 6.1(b) to
this Agreement, and the nature of the business conducted by each
Acquired Corporation and the character or ownership of properties
owned or leased by it do not require it to be licensed,
registered or qualified to do business in any other province or
jurisdiction. Furthermore, except as set forth in Schedule
6.1(b) to this Agreement, the nature of the business conducted by
each Acquired Corporation does not require it or any of its
employees to qualify for, or to obtain any insurance agency,
brokerage, adjuster, or other similar license or permit in any
jurisdiction other than the Home Jurisdiction.
(c) The copies of the articles of incorporation,
bylaws and other constating documents, and all amendments
thereto, of each Acquired Corporation, attached hereto as
Schedule 6.1(c), are complete and correct as of the date hereof.
Each Acquired Corporation's minute book or minute books contain a
complete and accurate record in all material respects of all
meetings and other corporate actions of each Acquired
Corporation's shareholders and directors.
(d) The Hayhurst Trust, the Elias Trust and the
Dudek Trust (also collectively referred to herein as the "Trusts"
and each individually as a "Trust") each have been duly
established, created, formed and funded, and are validly
subsisting pursuant to the laws of their respective
jurisdictions. The Hayhurst Trust was established and continues
to subsist pursuant to the laws of the Island of Barbados, the
Elias Trust was established and continues to subsist pursuant to
the laws of the Province of Manitoba, and the Dudek Trust was
established and continues to subsist pursuant to the laws of the
Province of Manitoba.
6.2 Corporate Name and Intellectual Property Matters.
Neither any of the Acquired Corporations nor any of the
Warranting Persons has granted to anyone any right to use the
Agency's corporate name or any name similar to the Agency's
corporate name. Also:
(a) Schedule 6.2(a) attached hereto lists and
contains a description of:
(1) all patents, patent applications and
registrations, trade marks, trade mark applications and
registrations, copyrights, copyright applications and
registrations, trade names and industrial designs, domestic or
foreign, owned or used by the Agency or relating to the operation
of the Agency's business;
(2) all trade secrets, know-how, inventions
and other intellectual property owned or used by the Agency or
relating to its business, and
(3) all computer systems and application
software, including without limitation all documentation relating
thereto and the latest revisions of all related object and source
codes therefor, owned or used by the Agency or relating to the
Agency's business,
(all of the foregoing being hereinafter collectively called the
"Intellectual Property").
(b) The Acquired Corporations have good and valid
title to all of the Intellectual Property, free and clear of any
and all Encumbrances, except in the case of any Intellectual
Property licensed to the Agency as disclosed in Schedule 6.2(a).
Complete and correct copies of all agreements whereby any rights
in any of the Intellectual Property have been granted or licensed
to the Acquired Corporations have been provided to Buyer. No
royalty or other fee is required to be paid by the Acquired
Corporations to any other person in respect of the use of any of
the Intellectual Property except as provided in such agreements
delivered to Buyer. The Acquired Corporations have protected the
Agency's rights in the Intellectual Property in the manner and to
the extent described in Schedule 6.2(a). Except as indicated in
Schedule 6.2(a), the Acquired Corporations have the exclusive
right to use all of the Intellectual Property and have not
granted any license or other rights to any other person in
respect of the Intellectual Property. Complete and correct
copies of all agreements whereby any rights in any of the
Intellectual Property have been granted or licensed by the
Acquired Corporations to any other person have been provided to
Buyer.
(c) Except as disclosed in Schedule 6.2(a), there
are no restrictions on the ability of the Agency, the Acquired
Corporations or any successor to or assignee from them to use and
exploit all rights in the Intellectual Property. All statements
contained in all applications for registration of the
Intellectual Property were true and correct as of the date of
such applications. Each of the trade marks and trade names
included in the Intellectual Property is in use. None of the
rights of the Agency or the Acquired Corporations in the
Intellectual Property will be impaired or affected in any way by
the transactions contemplated by this Agreement.
(d) The conduct of the Agency's business and the
use of the Intellectual Property does not infringe, and neither
the Agency nor the Acquired Corporations have not received any
notice, complaint, threat or claim alleging infringement of, any
patent, trade mark, trade name, copyright, industrial design,
trade secret or other Intellectual Property or propriety right of
any other person, and the conduct of the Agency's or their
business does not include any activity which may constitute
passing off.
(e) To the best of the Warranting Persons'
knowledge, the computer systems, including hardware and software,
are free from viruses and the Warranting Persons have taken, and
will continue to take, all steps and implement all procedures
necessary to ensure, so far as reasonably possible, that such
systems are free from viruses and will remain so until the
Closing Date.
6.3 Capitalization of Acquired Corporations. The
capitalization of each Acquired Corporation is as follows:
(a) Each Acquired Corporation is authorized to
issue the number of shares of capital stock set forth on Schedule
6.3 attached hereto. The number of issued and outstanding shares
of capital stock of each Acquired Corporation is also set forth
on Schedule 6.3 attached hereto.
(b) All of the issued and outstanding shares of
Acquired Stock have been duly and validly issued and are fully
paid and nonassessable. The issuance of all shares of the
Acquired Stock was and has been in compliance with all applicable
statutes, rules and regulations, including, without limitation,
all applicable federal, provincial and state securities laws.
There is no existing option, warrant, call or commitment to which
any Acquired Corporation is a party requiring the issuance of any
additional shares of the Acquired Stock or of any other
securities convertible into shares of the Acquired Stock or any
other equity security of any class or character whatsoever.
(c) Each Acquired Corporation is a "private
company", as defined in the Securities Act, R.S.M. 1988, c. S50
(Manitoba). No shares of the authorized stock of any Acquired
Corporation have ever been registered under the provisions of any
federal, provincial or state securities law and no Acquired
Corporation has ever filed or been required to file any report
with any federal, provincial or state securities commission,
department, division or other governmental agency. No shares or
other securities of any Acquired Corporation have been issued in
violation of any laws, the articles of incorporation, bylaws or
other constating documents of any Acquired Corporation or the
terms of any shareholders' agreement or any agreement to which
any Acquired Corporation is or has been a party or by which it is
or has been bound.
(d) No present or prior holder of any shares of
the authorized capital of any Acquired Corporation is entitled to
any dividends or other distributions with respect to any such
shares now or heretofore outstanding, other than as set forth on
Schedule 6.3(d).
6.4 Ownership of the Acquired Stock.
(a) Except as set forth in Schedule 6.4, as of
the date of this Agreement each Warranting Person is, and as of
the effective time of the Stock Acquisition Transactions each
Direct Selling Shareholder will be the shareholder of record and
the beneficial owner, with good and marketable title thereto, of
the number of shares of the Acquired Stock set forth opposite
its, his or her name in Schedule 6.4 of this Agreement, free and
clear of any and all Encumbrances. Each such Encumbrance can and
will be satisfied and removed at or prior to the Closing. There
are no marital or other rights or interests of any spouses, past
or present, of the parties to this Agreement in or to the
Acquired Stock of any kind. All persons (including spouses) who
have any marital or other rights or interests in or to the
Acquired Stock are parties to this Agreement.
(b) Other than as set forth on Schedule 6.4 or
Schedule 6.20, no person has any agreement, option, understanding
or commitment, or any right or privilege (whether by law,
pre-emptive or contractual) capable of becoming an agreement,
option or commitment, including convertible securities, warrants
or convertible obligations of any nature, for:
(1) the purchase, subscription, allotment or
issuance of, or conversion into, any of the unissued shares in
the capital of any Acquired Corporation or any securities of an
Acquired Corporation;
(2) the purchase from any Warranting Person
of any of the Acquired Stock, or
(3) the purchase or other acquisition from
any Acquired Corporation of any of its undertakings, property or
assets, other than in the ordinary course of its business.
(c) As of the Closing, there shall be no
shareholders' agreements, pooling agreements, voting trusts or
other similar agreements with respect to the ownership or voting
of any of the shares of any Acquired Corporation.
6.5 Authority.
(a) The Warranting Persons, individually and
collectively, have full and complete authority to enter into this
Agreement and to sell, transfer and assign in accordance with the
terms and conditions of this Agreement all of the shares of the
Acquired Stock to the Buyer, free and clear of all Encumbrances
and to perform all of their obligations under this Agreement.
The Warranting Persons agree that they shall take all steps and
perform all actions necessary to cause the approval of the
Agreement and the transactions contemplated hereby by the
Acquired Corporations within the time period called for herein.
(b) Each of the Acquired Corporations and their
respective shareholders and boards of directors have taken all
necessary or desirable actions, steps and corporate and other
proceedings to approve or authorize, validly and effectively, the
entering into, and the execution, delivery and performance of
this Agreement and all ancillary documents and agreements for the
consummation of the transactions contemplated herein (the
"Ancillary Agreements"), and the sale and transfer of the
Acquired Stock to the Buyer.
(c) This Agreement and each Ancillary Agreement
is a legal, valid and binding obligation of the Warranting
Persons, the Trustees and the Acquired Corporations, enforceable
against each of them in accordance with its terms.
(d) The sole trustee of the Hayhurst Trust is
Ernst & Young Services Limited, a corporation incorporated under
the laws of the Island of Barbados , the sole trustee of the
Elias Trust is Elias, and the sole trustee of the Dudek Trust is
Dudek, and each Trust and Trustee has taken all necessary or
desirable actions, steps and corporate and/or other proceedings
to approve or authorize, validly and effectively, the entering
into, and the execution, delivery and performance of this
Agreement and all Ancillary Agreements, and the sale and transfer
of the Acquired Stock to the Buyer. Each Trustee has the sole,
exclusive, full and complete power and authority to enter into
this Agreement and to sell, transfer and assign in accordance
with the terms and conditions of this Agreement all of the shares
of the Acquired Stock to the Buyer or to any other party, free
and clear of all Encumbrances and to perform all of their
obligations under this Agreement. The Trusts and the Trustees
agree that they shall take all steps and perform all actions
necessary to cause the approval of the Agreement and the
transactions contemplated hereby within the time period called
for herein.
6.6 Subsidiaries and Other Relationships. Except as
disclosed on Schedule 6.6, the Acquired Corporations do not own
any stock or other interest in any other corporation, nor are
they a participant in any joint venture, partnership or similar
enterprise with any other person or entity. Except as disclosed
on Schedule 6.6, any stock or other equity interest owned by the
Acquired Corporations in any other entity represents one hundred
percent (100%) ownership of such entity, is owned free and clear
of any and all Encumbrances, has been duly and validly issued and
is fully paid and nonassessable. No Acquired Corporation is
subject to any obligation to make any investment in or to provide
funds by way of loan, capital contribution or otherwise to any
person or entity. Disclosed on Schedule 6.6 attached hereto is a
description of all of the business activities of each Acquired
Corporation. The Acquired Corporations have not operated any
business other than as described in Schedule 6.6, and no Acquired
Corporation, other than HED and BDH, has conducted any active
business since its respective date of incorporation. The
Acquired Corporations other than HED and BDH have only acted as
holding corporations to own only the stock and assets described
in Schedule 6.6.
6.7 Financial Statements. The Warranting Persons and
the Acquired Corporations have caused to be delivered to the
Buyer a true and complete copy of the Prior Years Financial
Statements, of which copies are attached hereto as Exhibit
3.1(a). In addition, the Warranting Persons and the Acquired
Corporations shall cause to be promptly delivered to the Buyer,
as soon as available and in all events within thirty-one (31)
days after the Closing Date, an unaudited balance sheet of the
Acquired Corporations as of the Pre-Effective Moment. In
addition, the Warranting Persons and the Acquired Corporations
shall cause to be prepared and promptly delivered to the Buyer,
as soon as available and, in all events within sixty-two (62)
days after the Closing Date, the Acquisition Audited Balance
Sheets (referenced in Section 3.1(a) above). Each of the
foregoing financial statements is or will be true and correct in
all respects, is or will be in accordance with the books and
records of the Acquired Corporations, presents or will present
fairly the financial condition and results of operations of the
Acquired Corporations as of the date and for the period
indicated, and has been prepared, or will be prepared, in
accordance with generally accepted accounting principles
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 as of the Pre-Effective Moment). Furthermore, all such
financial statements do not contain and will not contain any
untrue statement of any material fact nor omit to state or will
omit 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 foregoing statements of income is or will be true and
correct, and the accounts payable reflected in each of the
foregoing statements is or will be true and correct.
6.8 Absence of Undisclosed Liabilities. The term
"Most Recent Balance Sheet," as used in this Section, means the
balance sheet of the Agency at March 31, 1995. Also, the term
"Most Recent Balance Sheet Date," as used in this Section, means
March 31, 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 Schedule 6.8 to this
Agreement, the Acquired Corporations, 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 the Acquired Corporations 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
the Warranting Persons or the Acquired Corporations knows or has
reasonable grounds to know of any basis for the assertion against
any Acquired Corporation, 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.
6.9 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 any
Acquired Corporation 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 any Acquired Corporation.
Without limiting the generality of the foregoing, since the Most
Recent Balance Sheet Date, except as set forth on Schedule 6.9
attached hereto, there has been no material adverse change in the
insurance accounts included within the Agency's "Book of
Business," and none of the Warranting Persons or the Acquired
Corporations knows or has reasonable grounds to know of any basis
for any material adverse change in the insurance accounts
included in the Agency's "Book of Business" between the date
hereof and the Closing Date. For purposes hereof, "material
adverse change" in the insurance accounts included in the
Agency's "Book of Business" means, without limitation, the loss
of any account generating an aggregate annual commission or fee
income of CDN $5,000.00 or more or the loss of any program
generating CDN $50,000.00 or more of revenues.
6.10 Taxes.
(a) Each Acquired Corporation has filed all
federal, provincial, state, municipal, 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 in a timely manner, and all of such returns
and reports are true and correct. All taxes, assessments,
reassessments, fees, penalties, interest, rates, levies and other
governmental charges (collectively, "Government Charges") which
were required to be paid by an Acquired Corporation on such
returns and reports have been duly paid and satisfied on or
before their respective due date.
(b) Canadian federal and provincial income tax
assessments have been issued to each Acquired Corporation
covering all past periods up to and including the most recent
fiscal year. There are no actions, suits, proceedings,
investigations, enquiries or claims now pending or made, or, to
the best of the knowledge of the Warranting Persons and the
Acquired Corporations, threatened against any Acquired
Corporation in respect to any Government Charge. No tax
deficiency or penalty has been asserted or threatened with
respect to any Acquired Corporation. There are no agreements,
waivers or other arrangements providing for any extension of time
with respect to the filing of any tax return or other document or
the payment of any Government Charge by any Acquired Corporation
or the period for any assessment or reassessment of such tax.
Only the fiscal year of the Acquired Corporations subsequent to
June 30, 1990 remains open for reassessment for additional taxes.
(c) Except as described in Schedule 6.10 attached
to this Agreement, no federal, provincial, municipal or state
income tax return of an Acquired Corporation has been audited or,
to the knowledge of any of the Warranting Persons and the
Acquired Corporations, proposed to be audited, by any federal,
provincial, municipal or state taxing authority, including,
without limitation, the U.S. Internal Revenue Service, Revenue
Canada and any provincial agency, authority, board or commission,
and no waiver of any statute of limitations has been given or is
in effect with respect to the assessment of any Government
Charges against any Acquired Corporation. The provisions for
Government Charges included in the Most Recent Balance Sheet and
in the Prior Years Financial Statements, have been or will be
sufficient for the payment of all accrued and unpaid federal,
provincial, state and local income, withholding, social security,
unemployment, excise, real property, tangible personal property,
intangible personal property and other taxes of each Acquired
Corporation, whether or not disputed, for the period reflected,
and for all years and periods prior thereto. The provisions for
Government Charges to be included in the Acquisition Audited
Balance Sheets will be sufficient for the payment of all federal,
provincial, state and local income, withholding, social security,
unemployment, excise, real property, tangible personal property,
intangible personal property and other taxes of each Acquired
Corporation attributable to the period between the end of Prior
Year 1 and the Pre-Effective Moment.
(d) Each Acquired Corporation has withheld from
each amount paid or credited to any person the amount of
Government Charges required to be withheld therefrom and has
remitted such Governmental Charges to the proper tax or other
receiving authorities within the time required under applicable
legislation.
(e) Schedule 6.10 attached to this Agreement
accurately sets out, for purposes of the Income Tax Act, R.S.C.
1985, c. 1 (5th Supp.) (Canada) (the "Canadian Income Tax Act"),
the following:
(1) the paid-up capital of all issued and
outstanding shares in the capital of the Acquired Corporations;
(2) all non-capital losses of the Acquired
Corporations;
(3) all net capital losses of the Acquired
Corporations;
(4) the amount of all investment tax credits
available to the Acquired Corporations;
(5) the adjusted cost base of the Acquired
Corporations' capital properties;
(6) the cost of the Acquired Corporations'
depreciable properties, the capital cost allowance taken in
respect of each class of such properties and the undepreciated
capital cost of each class of such properties;
(7) the amount (if any) of the Acquired
Corporations' capital dividend account;
(8) the amount (if any) of the Acquired
Corporations' cumulative eligible capital account; and
(9) the amount (if any) of the Acquired
Corporations' refundable dividend tax on hand.
(f) Each Acquired Corporation is a Canadian-
controlled private corporation, as defined in the Canadian Income
Tax Act, and has been one since the date of its incorporation,
other than Enterprises.
6.11 Real and Personal Property Owned by the Acquired
Corporations. The Acquired Corporations own no real property.
Schedule 6.11 attached to this Agreement consists of a copy of
the depreciation schedules filed as a part of the Acquired
Corporations' two prior annual federal income tax returns (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 each Acquired Corporation since the Most
Recent Balance Sheet Date and having a cost of CDN $1,000.00 or
more, and a separate list of each item of intangible personal
property presently owned by the Acquired Corporations. Certain
of the Acquired Corporations also own various items of disposable
type personal property such as office supplies that are not
listed in Schedule 6.11. Each Acquired Corporation is the owner
of and has good and marketable title to all of its properties and
assets, whether tangible or intangible, in each case free and
clear of all Encumbrances whatsoever, except as otherwise stated
in Schedule 6.11. No other person or entity owns any asset which
is being used in the business of each Acquired Corporation,
except for premises and personal property leased by them. There
are no agreements or commitments to purchase property or assets
by the Acquired Corporations, other than in the ordinary course
of their businesses.
6.12 Leases. Schedule 6.12 attached to this Agreement
is a correct and complete list and brief description of all
leases or other agreements under which each Acquired Corporation
is a tenant or lessee of, or holds or operates any property, real
or personal, owned by any third party. Each Acquired Corporation
is the owner and holder of the leasehold estates granted by each
of the instruments described in Schedule 6.12 except as otherwise
stated in Schedule 6.12. 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. Each Acquired Corporation 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 which with notice or lapse of time,
or both, would constitute an event of default under any of such
leases or agreements. Each Acquired Corporation is exclusively
entitled to all rights and benefits as lessee under such leases
and agreements and each Acquired Corporation has not sublet,
assigned, licensed or otherwise conveyed any rights in any leased
premises or in any leases and agreements to any other person or
entity. The names of the other parties to the leases, the
description of the leased premises, the term, rent and other
amounts payable under the leases and all renewal options
available under the leases are accurately described in Schedule
6.12. All rental and other payments and other obligations
required to be paid and performed by each Acquired Corporation
pursuant to the leases have been duly paid and performed. No
Acquired Corporation is in default of any of its obligations
under the leases and, to the best of the knowledge of the
Warranting Parties, none of the landlords or other parties to the
leases are in default of any of their obligations under the
leases. The terms and conditions of the leases will not be
affected by, nor will any of the leases be in default as a result
of, the completion of the transactions contemplated hereunder.
The use by each Acquired Corporation of the leased premises is
not in breach of any building, zoning or other statute, by-law,
ordinance, regulation, covenant, restriction or official plan.
Each Acquired Corporation has adequate rights of ingress to and
egress from the leased premises for the operation of its business
in the ordinary course.
6.13 Insurance.
(a) Schedule 6.13(a) attached to this Agreement
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 each Acquired Corporation. Such
policies are in amounts deemed by the Warranting Persons and the
Acquired Corporations to be adequate. Each such policy is, on
the date hereof, in full force and effect, and no Acquired
Corporation is in default with respect to the payment of any
premium or compliance with any provision contained in any such
policy.
(b) Furthermore, Schedule 6.13(b) and Schedule
6.17 attached to this Agreement contain 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 each Acquired Corporation.
(c) With respect to errors and omissions
(professional liability) insurance policies listed in Schedule
6.13(c) (and showing in detail for each such policy, the carrier,
retrodate, claims made or occurrence policy and limits), prior to
the effective dates of such policies, except as set forth on
Schedule 6.13(c) attached hereto, no Acquired Corporation has
given notice to any insurer of any act, error or omission in
services rendered by any agent or employee of an Acquired
Corporation or that should have been rendered by any agent or
employee of an Acquired Corporation arising out of the operations
of the Acquired Corporation. Furthermore, no agent or employee
of an Acquired Corporation has breached any such professional
duty or obligation prior to the effective dates of such policies.
With respect to such policies, each Acquired Corporation has
given notice of any and all claims for any act, error or omission
by any agent or employee of the Acquired 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
6.13(c)). No Acquired Corporation has taken or has failed to
take any action which would provide the insurer with a defense to
its obligation under any such policy, neither have each Acquired
Corporation nor any of the Warranting Persons received from any
such insurer any notice of cancellation or non-renewal of any
such policy, and, except as set forth in Schedule 6.13(c), none
of the Warranting Persons has any basis to believe that any
Acquired Corporation, or any agent or employee of an Acquired
Corporation, has breached any professional duty or obligation.
6.14 Insurance Companies. Schedule 6.14 attached to
this Agreement contains a correct and complete list of all
insurance companies with respect to which each Acquired
Corporation has an agency contract or similar relationship.
Except as identified in Schedule 6.14, all relations between the
Acquired Corporations and the insurance companies represented by
them are good, and none of the Warranting Persons has any
knowledge of any proposed termination of, or modification to, the
existing relations between an Acquired Corporation and any of
such insurance companies. Furthermore, except as otherwise set
forth in Schedule 6.14, all accounts with all insurance companies
represented by an Acquired Corporation or with whom an Acquired
Corporation transacts business are current and there are no
disagreements or unreconciled discrepancies between any Acquired
Corporation and any such company as to the amounts owed by an
Acquired Corporation.
6.15 Customers. Except as identified in Schedule 6.15
attached to this Agreement, all relations between the Acquired
Corporations and the present customers of any Acquired
Corporation, including without limitation the relations and
contractual arrangements and agreements with associations, are
good and anticipated to continue unchanged after Closing, and no
Warranting Person has any knowledge of any proposed termination
of any insurance account presently written or serviced by an
Acquired Corporation. Also, except as otherwise set forth in
Schedule 6.15, all customer accounts, including, without
limitation, those accounts with respect to which any Acquired
Corporation has financed any premiums, are current. For purposes
of Section 6.15, the terms "insurance account" and "customer
account" shall be limited to accounts which generate an aggregate
annual commission income of CDN $5,000.00 or more. The
Warranting Persons have no knowledge of any facts which could
reasonably be expected to result in the loss of any customers or
sources of revenue of the business which, in the aggregate, would
be material to the business or condition of any Acquired
Corporation.
6.16 Officers and Directors; Banks and Credit Cards;
Powers of Attorney. Schedule 6.16 attached to this Agreement
contains a correct and complete list of all officers and
directors of each Acquired Corporation, a correct and complete
list of the names and addresses of each bank in which an Acquired
Corporation 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 having credit cards or
holding powers of attorney from an Acquired Corporation.
6.17 Compensation and Fringe Benefits. Schedule 6.17
attached to this Agreement contains a correct and complete list
of each officer, director, employee or agent of each Acquired
Corporation and the compensation paid to each such person. Also,
Schedule 6.17 contains a description of all fringe benefits
presently being provided by each Acquired Corporation to any
employees or agents of an Acquired Corporation. Schedule 6.17
attached hereto sets forth the name, job title, duration of
employment, vacation entitlement, employee benefit entitlement
and rate of remuneration (including bonus and commission
entitlement) of each employee of the Acquired Corporations.
Schedule 6.17 also sets forth the names of all employees of the
Acquired Corporations who are now on disability, maternity or
other authorized leave or who are receiving workers' compensation
or short-term or long-term disability benefits.
6.18 Patents, Trademarks, Copyrights and Trade Names.
Each Acquired Corporation owns or is possessed of or is licensed
under such patents, trademarks, trade names and copyrights as are
used in, and are of material importance to, the conduct of the
Acquired Corporation's business, all of which are in good
standing and uncontested. Schedule 6.2(a) attached to this
Agreement contains a correct and complete list of all patents,
trademarks, trade names and copyrights owned by or registered in
the name of an Acquired Corporation. There is no material claim
pending or, to the best knowledge of any of the Warranting
Persons, threatened against an Acquired Corporation with respect
to any alleged infringement of any patent, trademark, trade name
or copyright owned or licensed to anyone other than an Acquired
Corporation.
6.19 Indebtedness. Schedule 6.19 attached to this
Agreement contains a correct and complete list of all
instruments, agreements or arrangements pursuant to which an
Acquired Corporation has borrowed any money, incurred any
indebtedness or established any line of credit which represents a
liability of an Acquired Corporation. True and complete copies
of all such written instruments, agreements or arrangements have
heretofore been delivered to, or made available for inspection
by, Buyer. Each Acquired Corporation 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.
6.20 Employment Agreements and Other Material
Contracts. Schedule 6.20 attached to this Agreement contains a
complete list of every employment agreement, independent
contractors and brokerage agreement, and a list and brief
description of all material contracts, agreements and other
instruments to which each Acquired Corporation is a party at the
date hereof. Except as identified in Schedule 6.20, or in any
other Schedule attached to this Agreement, no Acquired
Corporation is 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 notice
permitted at law; (iii) license, franchise, distributorship,
dealer, manufacturer's representative, sales agency or
advertising agreement; (iv) contract with any labor union or
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 (other than severance on termination
of employment as permitted at law), 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 an Acquired Corporation. No Acquired Corporation
is in default in any material respect under any agreement, lease,
contract or other instrument to which it is a party. No party
with whom an Acquired Corporation has any agreement which is of
material importance to any Acquired Corporation's business is in
material default thereunder. All such contracts, agreements,
commitments, indentures and other instruments are now in good
standing and in full force and effect without amendment thereto,
each Acquired Corporation is entitled to all benefits thereunder
and, to the best of the knowledge of the Warranting Persons, the
other parties to such contracts, agreements, commitments,
indentures and other instruments are not in default or breach of
any of their obligations thereunder. There are no contracts,
agreements, commitments, indentures or other instruments under
which an Acquired Corporation's rights or the performance of its
obligations are dependent upon or supported by the guarantee of
or any security provided by any other person.
6.21 Absence of Certain Events. Since the Most Recent
Balance Sheet Date, the business of all Acquired Corporations has
been conducted only in the ordinary course and in substantially
the same manner as theretofore conducted, and, except (i) as set
forth in Schedule 6.21 attached to this Agreement or in any other
Schedule attached to this Agreement, or (ii) for the transactions
consummated pursuant to this Agreement, no Acquired Corporation
has, 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, or increased any form of
compensation or other benefits payable or to become payable to
any of the employees, directors or officers of an Acquired
Corporation;
(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 6.20 attached hereto;
(iii) discharged or satisfied any 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 any
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;
(xii) made capital expenditures or entered into
any commitments therefor aggregating more than CDN $5,000.00;
(xiii) purchased, leased or otherwise acquired any
properties or assets, except in the ordinary course of business;
(xiv) waived, cancelled or written-off any rights,
claims, accounts receivable or any amounts payable to an Acquired
Corporation, except in the ordinary course of business;
(xv) had any customer terminate, or communicate to
an Acquired Corporation the intention or threat to terminate, its
relationship with an Acquired Corporation, except in the case of
customers whose business are not individually or in the aggregate
material to any Acquired Corporation's business; or
(xvi) made any material change with respect to any
method of management, operation or accounting in respect of any
Acquired Corporation's business.
Except as contemplated by this Agreement, or the Schedules
referred to in this Agreement, between the date hereof and the
Closing Date, no Acquired Corporation will, without the prior
written consent of the Buyer, do any of the things listed above
in clauses (i) through (xvi) of this Section 6.21.
6.22 Investigations and Litigation. There is no
investigation by any governmental agency pending, or, to the best
knowledge of the Warranting Persons, threatened, against or
adversely affecting any Acquired Corporation, and except as set
forth on Schedule 6.22, there is no action, suit, proceeding or
claim pending, judicial or administrative, or, to the best
knowledge of the Warranting Persons, threatened, against any
Acquired Corporation, or its business, properties, assets or
goodwill, which might have a material adverse effect on any
Acquired 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 any Acquired
Corporation, or its business, properties, assets or goodwill.
6.23 Overtime, Back Wages, Vacation and Minimum Wages.
To the best knowledge of the Warranting Persons, no present or
former employee of any Acquired Corporation has any claim against
any Acquired Corporation (whether under federal, provincial,
state or other 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
6.23 to this Agreement.
6.24 Discrimination, Occupational Safety and Other
Statutes and Regulations. No persons or parties (including,
without limitation, governmental agencies of any kind) have any
claim, or basis for any claim, action or proceeding, against any
Acquired Corporation arising out of any statute, ordinance, rule
or regulation relating to discrimination in employment or
employment practices or occupational safety and health standards.
6.25 Labor Matters, Employment Standards and Employee
Benefit Plans.
(a) No Acquired Corporation is subject to any
agreement with any labor union or employee association and has
not made any commitment to or conducted negotiations with any
labor union or employee association with respect to any future
agreement and, to the best of the knowledge of the Warranting
Persons, during the period of five (5) years preceding the date
of this Agreement there has been no attempt to organize, certify
or establish any labor union or employee association in relation
to any of the employees of any Acquired Corporation.
(b) There are no existing or, to the best of the
knowledge of the Warranting Persons, threatened, labor strikes or
labor disputes, grievances, controversies or other labor troubles
affecting any Acquired Corporation or their businesses.
(c) Each Acquired Corporation has complied with
all laws, rules, regulations and orders applicable to it relating
to employment, including those relating to wages, hours,
collective bargaining, occupational health and safety, workers'
hazardous materials, employment standards, pay equity and
workers' compensation. There are no outstanding charges or
complaints against any Acquired Corporation relating to unfair
labor practices or discrimination or under any legislation
relating to employees. Each Acquired Corporation has paid in
full all amounts owing under the Workers' Compensation Act,
R.S.M. 1987, c. W200 (Manitoba) or other applicable provincial
legislation, and the workers' compensation claims experience of
any Acquired Corporation would not permit a penalty reassessment
under such legislation.
(d) Except as listed in Schedule 6.25 or Schedule
6.17 attached to this Agreement, no Acquired Corporation has, and
is not subject to, any present or future obligation or liability
under, any pension plan, deferred compensation plan, retirement
income plan, stock option or stock purchase plan, profit sharing
plan, bonus plan or policy, employee group insurance plan,
hospitalization plan, disability plan or other employee benefit
plan, program, policy or practice, formal or informal, with
respect to any of its employees, other than the Canada Pension
Plan, R.S.C. 1985, c. C-8, and other similar health plans
established pursuant to statute and specified on Schedule 6.25.
Schedule 6.25 also lists the general policies, procedures and
work-related rules in effect with respect to employees of each
Acquired Corporation, whether written or oral, including but not
limited to policies regarding holidays, sick leave, vacation,
disability and death benefits, termination and severance pay,
automobile allowances and rights to company-provided automobiles
and expense reimbursements. (The plans, programs, policies,
practices and procedures listed in Schedule 6.25 are hereinafter
collectively called the "Benefit Plans"). Complete and correct
copies of all documentation establishing or relating to the
Benefit Plans listed in Schedule 6.25 or, where such Benefit
Plans are oral commitments, written summaries of the terms
thereof, and the most recent financial statements and actuarial
reports related thereto and all reports and returns in respect
thereof filed with any regulatory agency within three (3) years
prior to the date hereof have been provided to Buyer.
(e) No Acquired Corporation has, or has ever had,
any pension plans included in the Benefit Plans for any of their
employees other than pension arrangements for Hayhurst payable by
HED.
(f) There are no pending claims by any employee
covered under the Benefit Plans or by any other person which
allege a breach of fiduciary duties or violation of governing law
or which may result in liability to any Acquired Corporation and,
to the best of the knowledge of the Warranting Persons, there is
no basis for such a claim. There are no employees or former
employees of any Acquired Corporation who are receiving from any
Acquired Corporation any pension or retirement payments, or who
are entitled to receive any such payments, not covered by a
pension plan to which any Acquired Corporation is a party.
6.26 Competitors. Except as disclosed in Schedule
6.26 attached to this Agreement, none of the Warranting Persons
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 (i) the Agency or a corporation listed on a
national securities exchange or a corporation whose securities
are traded in the over-the-counter market, and (ii) a security
interest in Leipsic Insurance Agencies.
6.27 Accounts and Notes Receivable. The reserve for
bad debts, if any, contained in the Most Recent Balance Sheet and
to be contained in the Acquisition Audited Balance Sheet was, or,
as the case may be, will be, calculated on a consistent basis
which, in the light of past experience, is considered adequate.
Except as set forth in Schedule 6.27 attached hereto, all
accounts receivable and all notes receivable of the Acquired
Corporations or any entities related to them reflected in the
Acquisition Audited Balance Sheet are and will be 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 the Warranting Persons are hereby
representing and warranting to Buyer the full collectibility when
due of all of the notes receivable and accounts receivable of
each Acquired Corporation in the aggregate amount shown in the
Acquisition Audited Balance Sheet, less the bad debt allowance
stated therein. Except as set forth in Schedule 6.27, all notes
receivable of each Acquired Corporation are due and payable
within one year after the Closing Date. Any such notes receivable
due and payable more than one year after the Closing Date ("Long
Term Notes") will be fully collectible when due at the aggregate
amount shown. Except as further set forth in Schedule 6.27, no
Long Term Notes are secured by any interest in property, whether
it be real, personal or intangible.
6.28 Permits, Licenses and Consents.
(a) All permits, licenses and approvals of all
federal, provincial, state or local regulatory agencies, which
are required in order to permit each Acquired Corporation and its
employees and agents to carry on business as now conducted by
each Acquired Corporation, have been obtained by such Acquired
Corporation and are current.
(b) Except as specified in Schedule 6.28,
attached hereto, none of the Acquired Corporations and no
Warranting Person is under any obligation, contractual or
otherwise, to request or obtain the consent of any person, and no
permits, licenses, certifications, authorizations or approvals
of, or notifications to, any federal, provincial, municipal or
local government or governmental agency, board, commission or
authority are required to be obtained by the Acquired
Corporations or the Warranting Persons (or will need to be
obtained by Buyer):
(1) in connection with the execution,
delivery or performance of this Agreement or the completion of
any of the transactions contemplated herein;
(2) to avoid the loss of any permit,
license, certification or other authorization; or
(3) in order that the authority of the
Acquired Corporations to carry on the business of the Agency in
the ordinary course and in the same manner as presently conducted
remain in good standing and in full force and effect as of and
following the closing of the transactions contemplated hereunder.
Complete and correct copies of any agreements under
which the Acquired Corporations and the Warranting Persons are
obligated to request or obtain any such consent have been
provided to Buyer and identified on Schedule 6.20.
(c) All of Acquired Corporations' licenses are
listed in Schedule 6.28 or Schedule 6.1(b) attached hereto and
are valid and subsisting. Complete and correct copies of the
licenses have been delivered to Buyer. Each Acquired Corporation
is in compliance with all terms and conditions of the licenses.
There are no proceedings in progress, pending or, to the best of
the knowledge of the Warranting Persons, threatened, which could
result in the revocation, cancellation or suspension of any of
the licenses.
6.29 No Violation or Default.
(a) The execution and delivery of this Agreement
by the Warranting Parties and the Acquired Corporations, and the
performance of this Agreement by them, will not violate, result
in a breach of, or constitute a default under, the articles of
incorporation or bylaws of any Acquired Corporation or of any
indenture, contract, agreement or other instrument to which any
Acquired Corporation is a party or is bound including, without
limitation, any program or agency contract with any insurance
company.
(b) There are no outstanding work orders,
non-compliance orders, deficiency notices or other such notices
relative to the leased premises of any Acquired Corporation, the
other properties and assets of any Acquired Corporation or its
business which have been issued by any regulatory authority,
police or fire department, sanitation, environment, labor, health
or other governmental authorities or agencies. There are no
matters under discussion with any such department or authority
relating to work orders, non-compliance orders, deficiency
notices or other such notices. Each Acquired Corporation's
business is not being carried on, and none of the leased premises
or the other properties or assets of an Acquired Corporation are
being operated in a manner which is in contravention of any
statute, regulation, rule, code, standard or policy. No amounts
are owing by any Acquired Corporation in respect of its leased
premises to any governmental authority or public utility, other
than current accounts which are not in arrears.
6.30 HRH Stock. The Warranting Persons understand and
acknowledge that the HRH Stock to be received by the Warranting
Persons pursuant to this Agreement is registered and is subject
to Rule 145 of the Securities Exchange Commission and any other
applicable rules; the HRH Stock is being acquired for investment
purposes only and not with a view to distribution or resale; any
sale or other disposition of the HRH Stock shall be made pursuant
to all applicable laws and regulations. No restrictive legend
will be endorsed on the HRH Stock certificates to be received by
the Warranting Persons.
6.31 Financing Statements. Except as disclosed on
Schedule 6.31, there are no financing statements or other
security interests of any kind filed or required to be filed
against any of the Acquired Corporations' assets or affecting the
use of, or title to, such assets ("Financing Statements"). Except
as further disclosed on Schedule 6.31, there are no deferred
money purchase notes related to any Acquired Corporation's
acquisition of any portion of its assets ("Notes"). Any such
liabilities related to the Financing Statements or Notes can and
will be paid off at or prior to Closing, except as further
detailed on Schedule 6.31 and agreed to by Buyer.
6.32 Brokers. Except as disclosed in Schedule 6.32,
neither the Acquired Corporations nor any of the Warranting
Persons 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.
6.33 Disclosure. On or before March 15, 1995, each
Warranting Person has received copies of (i) a prospectus used in
connection with the offering of up to 5,000,000 shares of common
stock of HRH, dated February 12, 1992, (ii) Buyer's latest 1994
annual report, (iii) Buyer's Form 10-K for 1994, and (iv) Form
10-Q of Buyer as of March 31, 1995, and will acknowledge receipt
of the supplement to the prospectus in connection with the
registration of the HRH Stock with the Securities and Exchange
Commission.
6.34 Warranting Person's Residency and Investment
Canada Act. Except as set forth on Schedule 6.34 attached
hereto, the Warranting Persons are not non-residents of Canada
within the meaning of the Canadian Income Tax Act. Other than
notification to Investment Canada under Section 11 of the
Investment Canada Act, R.S.C. 1985, c. 28 (1st Supp.) (the
"Investment Canada Act"), there are no other governmental notices
that must be filed or delivered in connection with the
consummation of this transaction. The transactions contemplated
by this Agreement are not considered "reviewable" under the
Investment Canada Act, and only notice of this transaction need
be made to Investment Canada officials in connection with the
acquisition of the Acquired Corporations. Notice under the
Investment Canada Act may be made within thirty (30) days after
the Closing Date without prejudice or penalty, and such notice
shall be in the form of Exhibit 6.34 attached hereto.
6.35 Corporate Records. The corporate records and
minute books of the Acquired Corporations, all of which shall
have been provided to Buyer at Closing, contain complete and
accurate minutes of all meetings of the directors and
shareholders of the Acquired Corporations held since their
incorporation, and original signed copies of all resolutions and
bylaws duly passed or confirmed by the directors or shareholders
of each Acquired Corporation other than at a meeting. All such
meetings were duly called and held. The share certificate books,
register of security holders, register of transfers and register
of directors and any similar corporate records of each Acquired
Corporation are complete and accurate. All exigible security
transfer tax or similar tax payable in connection with the
transfer of any securities of each Acquired Corporation has been
duly paid.
6.36 Environmental Matters.
(a) For the purposes of this Agreement, the
following terms and expressions shall have the following
meanings:
(1) "Environmental Laws" means all
applicable statutes, regulations, ordinances, by-laws, and codes
and all international treaties and agreements, now or hereafter
in existence in Canada (whether federal, provincial or municipal)
and in the United States (whether federal, state or local)
relating to the protection and preservation of the environment,
occupational health and safety, product safety, product liability
or Hazardous Substances, including, without limitation, the
Dangerous Goods Handling and Transportation Act, R.S.M. 1987, c.
D12 (Manitoba), as amended from time to time (the "DGHTA"), and
the Canadian Environmental Protection Act, R.S.C. 1985, c. 16
(4th Supp.), as amended from time to time (the "CEPA").
(2) "Environmental Permits" includes all
orders, permits, certificates, approvals, consents, registrations
and licenses issued by any authority of competent jurisdiction
under Environmental Laws.
(3) "Hazardous Substance" means,
collectively, any contaminant (as defined in the DGHTA), toxic
substance (as defined in the CEPA), dangerous goods (as defined
in the Transportation of Dangerous Goods Act, R.S.C. 1985, c.
T-19 (Canada), as amended from time to time) or pollutant or any
other substance which when released to the natural environment is
likely to cause, at some immediate or future time, material harm
or degradation to the natural environment or material risk to
human health.
(4) "Release" means any release, spill,
leak, emission, discharge, leach, dumping, escape or other
disposal which is or has been made in contravention of any
Environmental Laws.
(b) The Acquired Corporations, the operation of
their business, the property and assets owned or used by any
Acquired Corporation and the use, maintenance and operation
thereof have been and are in compliance with all Environmental
Laws. Each Acquired Corporation has complied with all reporting
and monitoring requirements under all Environmental Laws. No
Acquired Corporation has received any notice of any
non-compliance with any Environmental Laws, and no Acquired
Corporation has ever been convicted of an offence for
non-compliance with any Environmental Laws or been fined or
otherwise sentenced or settled such prosecution short of
conviction.
(c) Each Acquired Corporation has obtained all
Environmental Permits necessary to conduct its business and to
own, use and operate the properties and assets of the Agency.
All such Environmental Permits are listed in Schedule 6.36 and
complete and correct copies thereof have been provided to Buyer.
(d) There are no Hazardous Substances located on
or in any of the properties or assets owned or used by any
Acquired Corporation, and no Release of any Hazardous Substances
has occurred on or from the properties and assets of an Acquired
Corporation or has resulted from the operation of the business
and the conduct of all other activities of an Acquired
Corporation. No Acquired Corporation has used any of its
properties or assets to produce, generate, store, handle,
transport or dispose of any Hazardous Substances and none of the
real properties or leased premises of any Acquired Corporation
has been or is being used as a landfill or waste disposal site.
(e) Without limiting the generality of the
foregoing, there are no underground or surface storage tanks or
urea formaldehyde foam insulation, asbestos, polychlorinated
biphenyls (PCBs) or radioactive substances located on or in any
of the properties or assets owned or used by any Acquired
Corporation. No Acquired Corporation is, and there is no basis
upon which any Acquired Corporation could become, responsible for
any clean-up or corrective action under any Environmental Laws.
No Acquired Corporation has ever conducted or caused to be
conducted an environmental audit, assessment or study of any of
its properties or assets.
6.37 Restrictions on Doing Business. No Acquired
Corporation is a party to or bound by any agreement which would
restrict or limit its right to carry on any business or activity
or to solicit business from any person or in any geographical
area or otherwise to conduct its business as it may determine,
(other than the agreement between HED and Pet Plan International
Limited which restricts the offering of the program licensed
thereby to the geographic region of Canada). No Acquired
Corporation is subject to any legislation or any judgment, order
or requirement of any court or governmental authority which is
not of general application to persons carrying on a business
similar to its business. To the best of the knowledge of the
Warranting Persons, there are no facts or circumstances which
could materially adversely affect the ability of the Agency to
continue to operate its business as presently conducted following
the completion of the transactions contemplated by this
Agreement.
6.38 Non-Arm's Length Matters. Except as set forth in
Schedule 6.38 attached hereto or as described in the Background
Statements to this Agreement, no Acquired Corporation is a party
to or bound by any agreement with, is not indebted to, and no
amount is owing to an Acquired Corporation by, the Warranting
Persons or any of their affiliates or any officers, former
officers, directors, former directors, shareholders, former
shareholders, employees (except for oral employment agreements
with employees) or former employees of the Acquired Corporations
or any person not dealing at arm's length with any of the
foregoing. Except as set forth in Schedule 6.38 attached hereto,
since June 30, 1994, no Acquired Corporation has made or
authorized any payments to the Warranting Persons or any of their
affiliates or any officers, former officers, directors, former
directors, shareholders, former shareholders, employees or former
employees of an Acquired Corporation or to any person not dealing
at arm's length with any of the foregoing, except for salaries
and other employment compensation payable to employees of an
Acquired Corporation in the ordinary course of the routine daily
affairs of the Acquired Corporations' business and at the regular
rates payable to them. "Arm's length" will have the meaning
ascribed to such term under the Canadian Income Tax Act.
6.39 Government Assistance. Schedule 6.39 attached
hereto describes all agreements, loans, other funding
arrangements and assistance programs (collectively called
"Government Assistance Programs") which are outstanding in favor
of the Acquired Corporations from any federal, provincial,
municipal or other government or governmental agency, board,
commission or authority, domestic or foreign (collectively called
"Government Agencies"). Complete and correct copies of all
documents relating to the Government Assistance Programs have
been delivered to Buyer. Each Acquired Corporation has performed
all of its obligations under the Government Assistance Programs,
and no basis exists for any Government Agencies to seek payment
or repayment by any Acquired Corporation of any amount or benefit
received by it under any Government Assistance Programs.
6.40 Material Misstatements or Omissions. No
representation or warranty by the Warranting Persons, or any of
them, contained in this Agreement or in any document, statement,
certificate, Schedule or financial statement furnished or to be
furnished to Buyer by or on behalf of the Warranting Persons, 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 statement 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.
7. REPRESENTATIONS AND WARRANTIES OF HRH AND THE BUYER.
HRH and Buyer, jointly and severally, represent and warrant, as
of the date hereof and as of the Closing Date, to the Warranting
Persons as follows:
7.1 Organization and Standing of HRH and Buyer. HRH
is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia. Buyer
is a corporation duly organized, validly existing and in good
standing under the laws of Canada.
7.2 Authority. The execution, delivery and
performance of this Agreement by HRH and Buyer have been duly and
validly approved by all necessary corporate actions. Except for
any securities or stock exchange approvals which shall have been
obtained prior to the Closing Date, no governmental or other
authorization, approval or consent for the execution, delivery
and performance of this Agreement by HRH and Buyer is required.
The execution and delivery of this Agreement by HRH and Buyer and
the performance of this Agreement by HRH and Buyer will not
violate, result in a breach of, or constitute a default under,
the articles of incorporation or bylaws of HRH or Buyer or any
indenture, contract, agreement or other instrument to which HRH
and/or Buyer is a party or is bound.
7.3 Capitalization of HRH and Buyer. As of December
31, 1994, the authorized capital stock of HRH 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, and as of the date of this Agreement the
authorized capital stock of the Buyer consist of an unlimited
number of class A, B, C and D shares of common stock and an
unlimited number of class A, B, C, D, E and F shares of
preference stock, of which one (100) hundred shares of class A
common stock are issued and outstanding, fully paid and
nonassessable.
7.4 Status of HRH Stock. The HRH Stock to be issued
to the Direct Selling Shareholders pursuant to this Agreement
will, when so issued, be duly and validly authorized and issued,
fully paid and nonassessable.
7.5 Brokers' or Finders' Fees. No agent, broker,
person, or firm acting on behalf of HRH 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 in connection with any of the transactions
contemplated herein.
7.6 Investment Canada Act. HRH is an "American" for
purposes of and within the meaning of the Investment Canada Act.
PART C:
PRE-CLOSING AGREEMENTS
8. ACCESS AND INFORMATION. Throughout the period between
the date of the execution of this Agreement and the Closing Date,
the Warranting Persons shall cause the Acquired Corporations and
all employees of the Acquired Corporations to give to Buyer, and
any and all authorized representatives of Buyer (including
auditors and attorneys), full and unrestricted access, during
normal business hours, to the offices, assets, properties,
contracts, books and records of the Acquired Corporations in
order to give Buyer full opportunity to make such investigations
as it deems appropriate with respect to the affairs of the
Agency, and shall further cause the Acquired Corporations, and
all employees of the Acquired Corporations, to provide to Buyer
during such period such additional information concerning the
affairs of the Acquired Corporations as Buyer 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, Buyer covenants with the Warranting Persons
that Buyer will use its best efforts to deliver to the Designated
Representative all documents, working papers and other written
information concerning the Acquired Corporations obtained or
prepared in connection with any such investigation.
Regardless of any such investigation by Buyer, all
representations and warranties of the Warranting Persons
contained in this Agreement shall remain in full force and effect
and no such investigation shall cause or result in a waiver by
Buyer of any of the representations and warranties of the
Warranting Persons contained herein.
9. CONDUCT OF THE ACQUIRED CORPORATIONS PENDING THE
CLOSING DATE. The Warranting Persons covenant with Buyer that,
between the date of the execution of this Agreement and the
Closing Date, unless prior written consent to the contrary is
obtained from Buyer:
9.1 Operate in Ordinary Course. The Acquired
Corporations will be operated only in the ordinary course of
business.
9.2 Negative Covenants. The Acquired Corporations
will not do any of the things listed in clauses (i) through (xvi)
of Section 6.21 of this Agreement.
9.3 Continuing Accuracy of Representations. There
shall be no action, or failure to act, which would render any of
the representations and warranties of the Warranting Persons
contained in this Agreement untrue or incorrect in any material
respect.
9.4 Preserve Business Organizations. Except as
otherwise requested by Buyer, and without making any commitment
on Buyer's behalf, the Warranting Persons will use their best
efforts to preserve the Acquired Corporations' business
organizations intact, to keep available to Buyer the services of
its present employees, and to preserve for Buyer the goodwill of
the Acquired Corporations' customers and others having business
relations with them.
9.5 Corporate Approvals. The boards of directors of
the Acquired Corporations will recommend to the applicable
Warranting Persons that they adopt this Agreement. Each Acquired
Corporation agrees to submit this Agreement to the applicable
Warranting Persons for adoption by unanimous written consent with
waiver of notice of the terms of this Agreement prior to the
Closing Date, but only after delivery by Buyer to the Direct
Selling Shareholders of an amended or supplemented S-4
registration statement for the HRH Stock to be issued pursuant to
this Agreement and after the Direct Selling Shareholders have had
an effective opportunity of at least ten (10) days to review such
prospectus. Unless there is a failure of Buyer to fulfill its
conditions set forth in Section 11 hereof or there is a material
adverse change in the financial conditions of Buyer, the
Warranting Persons covenant to adopt this Agreement and to
approve all related aspects of this Agreement within the time
period contemplated herein.
PART D:
CONDITIONS PRECEDENT TO PERFORMANCE
10. CONDITIONS PRECEDENT TO PERFORMANCE BY BUYER. The
obligation of Buyer 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 Buyer:
10.1 Representations and Warranties. Buyer shall not
have discovered any material error, misstatement or omission in
any of the representations and warranties made by the Warranting
Persons 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 the Warranting Persons, or any
of them, 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 Buyer, as though such representations and
warranties had been made on and as of the Closing Date; and the
Warranting Persons shall have delivered to Buyer a certificate,
dated the Closing Date, and signed by all of them, to the
foregoing effect, substantially in the form and substance as set
forth in Exhibit 10.1.
10.2 Covenants. The Acquired Corporations and the
Warranting Persons 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 the Acquired Corporations
and the Warranting Persons shall have delivered to Buyer a
certificate dated the Closing Date, and signed by all of them, to
the foregoing effect, substantially in the form and substance as
set forth in Exhibit 10.1.
10.3 Litigation. No suit, action or proceeding, or
governmental investigation, against or concerning, directly or
indirectly, any Acquired Corporation, or any of the Acquired
Corporations' 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 Buyer,
renders it impossible or inadvisable for Buyer to consummate or
cause to be consummated the transactions contemplated by this
Agreement.
10.4 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 Buyer.
10.5 Opinion of Counsel. Buyer shall have received a
favorable opinion, dated as of the Closing Date, from the law
firm of Aikins, MacAulay & Thorvaldson, counsel for the Acquired
Corporations and the Warranting Persons, substantially in the
form and substance as set forth in Exhibit 10.5 and otherwise
reasonably satisfactory to counsel for Buyer.
10.6 Delivery of Acquired Stock. There shall be duly
tendered to Buyer at the Closing not less than one hundred
percent (100%) of the shares of the Acquired Stock issued and
outstanding at the time of the Closing.
10.7 Continuation of Acquired Corporation Contracts.
To the extent desired by Buyer, Buyer shall have obtained a
statement in writing from each of the insurance companies
identified in Schedule 6.14 of this Agreement, in form
satisfactory to the Buyer and Buyer's counsel, by which each such
insurance company agrees that it will not terminate its program
or insurance agency contract solely by reason of the transactions
contemplated in this Agreement, and further agrees that it will
continue to recognize the Agency, and its successors and assigns,
as its agent under the existing contract between such company and
the Agency or that it will enter into a substantially similar
contract with the Agency, or its successors and assigns.
10.8 Shareholder Employment Agreements. An
Employment Agreement between the Surviving Corporation, as the
employer, and Elias, as the employee, substantially in form and
substance as set forth in Exhibit 10.8 attached hereto, shall
have been duly executed by Elias and delivered to Buyer. An
employment agreement (either existing or new) between the
Surviving Corporation, as the employer, and Dudek, as the
employee, in the form acceptable to HRH, shall, at HRH's option,
be in place at Closing or shall have been duly executed prior to
Closing by Dudek and delivered to Buyer.
10.9 Other Employment Agreements. Employment
Agreements between the Surviving Corporation, as the employer,
and Mr. Chun Hao and Mr. Jean Fontaine, respectively in
consideration of the payments they shall receive in connection
with the Closing, shall have been executed substantially in the
form and substance as set forth in Exhibit 10.9 attached hereto.
10.10 No Material Adverse Change. There shall have
been no material adverse change in the Acquired Corporations'
business, business prospects, assets and properties, or goodwill
between the date of the execution of this Agreement and the
Closing Date. Without limiting the foregoing, the definition of
material adverse change with respect to the insurance accounts
and programs included in the Agency's "Book of Business"
contained in Section 6.9 above is, by this reference,
incorporated herein.
10.11 Satisfaction of Certain Obligations. At or
prior to the Closing, unless waived in writing by Buyer, all of
the liabilities listed or required to be listed in Schedule 6.31
as Financing Statements or Notes shall have been satisfied in
full.
10.12 Leases. The leases listed in Schedule 6.12
shall be in full force and effect with no defaults occurring as a
result of any Acquired Corporation's action or inaction and all
required consents (other than the consent required under the
Mississauga, Ontario premises lease) shall have been obtained.
10.13 Resolutions. Buyer shall receive certified
copies of resolutions adopted by the unanimous written consent of
the board of directors and shareholders of each Acquired
Corporation, and only after the delivery to the Direct Selling
Shareholders of the amended or supplemented prospectus described
below in Section 11.3, in form satisfactory to counsel for Buyer,
authorizing the execution and delivery of this Agreement by the
Acquired Corporations and the consummation of the transactions
contemplated hereby, including, without limitation, the
resignation (as officers and directors) of all members of the
board of directors of each Acquired Corporation and the
resignation of Hayhurst as Chairman of the Agency.
10.14 Approvals and Consents. All statutory
requirements for the valid consummation by Warranting Persons of
the transactions contemplated by this Agreement shall have been
fulfilled; and, all authorizations, consents and approvals of all
federal, provincial, state, local and foreign governmental
agencies and authorities, and all consents and approvals under
contracts to which the Acquired Corporations are parties
(especially such consent required under the Mississauga, Ontario
premises lease and the Agreement with Pet Plan International
Limited and The Pet Plan Group Ltd.), required to be obtained in
order to permit consummation by Warranting Persons of the
transactions contemplated by this Agreement and to permit the
business presently carried on by the Agency to continue
unimpaired immediately following the Closing Date of this
Agreement shall have been obtained.
10.15 Unanimous Shareholder Agreements. The
shareholder of each of Buyer and the Surviving Corporation shall
have executed an Unanimous Shareholder Agreement substantially in
the form of agreement attached hereto as Exhibit 10.15 and the
respective boards of directors of Buyer and the Surviving
Corporation shall be comprised of an appropriate number of
Canadian residents so as to comply with the provisions of the
Canada Business Corporations Act.
10.16 Hayhurst Non-competition Agreement. Hayhurst
shall have executed the non-competition agreement substantially
in the form attached hereto as Exhibit 10.16.
10.17 Rule 145 Compliance. The persons and entities
listed on Exhibit 10.17 shall have executed and delivered to
Buyer a letter agreement substantially in the form attached as
part of Exhibit 10.17 agreeing to comply with the provisions of
Rule 145.
10.18 Full Releases. Each Warranting Person and Jean
Fontaine shall have executed and delivered a full release of any
and all claims, demands or interests of any kind that they may
have as to any Acquired Corporation, HRH and the Buyer,
substantially in the form attached hereto as Exhibit 10.18. All
obligations to Hayhurst, for the payment to him of a pension or
otherwise, shall have been paid and satisfied, and Hayhurst's
full release shall evidence the payment and satisfaction thereof.
Jean Fontaine's release shall include, without limitation, a
release of any right to indemnification for any Reed, Stenhouse
claims.
10.19 Hayhurst Tax Certificate. Hayhurst shall have
delivered on the Closing Date a certificate pursuant to Section
116 of the Income Tax Act, certifying that adequate provision for
payment of income tax pursuant to the Canadian Income Tax Act has
been made.
11. CONDITIONS PRECEDENT TO PERFORMANCE BY THE WARRANTING
PERSONS. The obligations of the Warranting Persons 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 all of the Warranting Persons:
11.1 Representations. The Warranting Persons shall
not have discovered any material error, misstatement or omission
in any of the representations and warranties made by HRH and the
Buyer contained in this Agreement, and all representations and
warranties of Buyer 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 the Warranting Persons, as though such representations
and warranties had been made on and as of the Closing Date; and
HRH and the Buyer shall have delivered to the Warranting Persons
a certificate, dated the Closing Date, to the foregoing effect,
substantially in the form and substance as set forth in Exhibit
11.1.
11.2 Covenants. HRH and the Buyer 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 them; and HRH and
the Buyer shall have delivered to the Warranting Persons a
certificate dated the Closing Date, to the foregoing effect,
substantially in the form and substance as set forth in
Exhibit 11.1.
11.3 Effective Registration Statement. The
registration statement on Form S-4 under the Securities Act of
1933 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 the Direct Selling
Shareholders for their review and subsequent approval of this
Agreement and the transactions contemplated thereby.
11.4 Management Incentive Agreement. Buyer and the
Surviving Corporation shall have executed the Management
Incentive Agreement, substantially in the form and substance as
set forth in Exhibit 11.4.
11.5 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 the Warranting
Persons.
11.6 Opinion of Counsel. The Direct Selling
Shareholders shall have received a favorable opinion, dated as of
the Closing Date, from the law firm of Williams, Mullen,
Christian & Dobbins, counsel for Buyer, substantially in the form
and substance as set forth in Exhibit 11.6 and otherwise
reasonably satisfactory to counsel for the Warranting Persons.
11.7 Delivery of HRH Stock. There shall be delivered
to the Direct Selling Shareholders at the Closing the shares of
HRH Stock comprising the Consideration, other than the Escrowed
Shares.
11.8 Resolutions. The Direct Selling Shareholders
shall receive certified copies of resolutions adopted by the
boards of directors of HRH and Buyer, in form satisfactory to
counsel for the Direct Selling Shareholders, authorizing the
execution and delivery of this Agreement by HRH and Buyer and the
consummation of the transactions contemplated hereby.
11.9 Approvals. All statutory requirements for the
valid consummation by HRH and Buyer of the transactions
contemplated by this Agreement shall have been fulfilled.
PART E:
CLOSING AND POST-CLOSING COVENANTS
12. ADDITIONAL REQUIREMENTS ON CLOSING AND POST-CLOSING
MATTERS AND AGREEMENTS.
12.1 Resignations. At the Closing, the Warranting
Persons shall deliver to Buyer, unless otherwise instructed by
Buyer, the written resignations of all directors of the Acquired
Corporations (as officers and directors) and the resignation by
Hayhurst as Chairman of the Agency, effective as of the Closing
Date, and shall take, or cause to be taken, all other actions as
Buyer may request with respect to changes in the officers and
directors of the Acquired Corporations as Buyer, in the sole
discretion of Buyer, may deem advisable.
12.2 Minute Books. At the Closing, the Warranting
Persons shall cause to be delivered to Buyer the minute book or
minute books of the Acquired Corporations, all stock books of the
Acquired Corporations, the corporate seals of the Acquired
Corporations, if any, and all books and records pertaining to the
Acquired Corporations and the Acquired Corporations' business
assets and properties and liabilities.
12.3. Delivery of Acquisition Audit Balance Sheet.
The Warranting Persons shall cause to be delivered to Buyer as
soon after the Closing Date as is practicable, and in all events
no later than sixty-two (62) days after the Closing Date, the
Acquisition Audit Balance Sheets, as defined in Section 3.1(a),
and its related work papers and other financial documents
prepared therefor. The Acquisition Audit Balance Sheets will be
true and correct, will be in accordance with the books and
records of the Acquired Corporations, will present fairly the
financial conditions and results of operations of the Acquired
Corporations 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
Acquisition Audit Balance Sheets not misleading.
12.4. Post-Acquisition Filings. The Warranting
Persons shall cause to be timely filed, at no expense which has
not previously been reserved for on the Acquisition Audit Balance
Sheets, all federal, provincial, state and local tax returns of
all kinds required to be filed by the Acquired Corporations for
all tax periods ending on or prior to the Closing Date ("Post-
Acquisition Filings"). All Post-Acquisition Filings will be true
and correct and, prior to actual filing thereof, Warranting
Persons shall deliver drafts of such filings to Buyer for its
review. Buyer shall allow the Warranting Persons, upon receiving
reasonable written notice, all necessary access to the books and
records of the Acquired Corporations in order to allow the
Warranting Persons to comply with this provision.
12.5 Accounts Receivable. In the event of any
delinquency or nonpayment of any portion of a Long Term Note, the
Warranting Persons shall be obligated to satisfy such deficiency
in the same manner as specified below for all other receivables
of the Acquired Corporations. Buyer will cause the Surviving
Corporation to use reasonable efforts in accordance with Buyer's
customary collection practices to collect all such notes
receivable, the accounts receivable, debit balances in the
company payables of the Acquired Corporations. However, if,
after the last day of the six-month period commencing on the
Closing Date, the Surviving Corporation shall not have received
payment of the accounts receivable, notes receivable, debit
balances in the company payables (other than Long Term Notes) of
the Surviving Corporation in the aggregate amount reflected in
the Acquisition Audited Balance Sheet, less the reserve for bad
debts stated therein, then, upon notice to the Designated
Representative, and the submission to him from time to time of
reasonable evidence of nonpayment, the Warranting Persons shall
at such times be unconditionally obligated to forthwith pay the
full amount of the difference to the Surviving Corporation,
against the delivery to the Direct Selling Shareholders of an
assignment of such defaulted accounts, notes, balances and
payables and of any security held for any such accounts, notes,
balances and payables. In such event, the Direct Selling
Shareholders shall have the right to institute any collection
proceedings desired in the name of the Agency, provided that the
Warranting Persons shall indemnify and hold harmless Buyer and
the Surviving Corporation, and each of them, from and against any
and all demands, claims, actions and causes of action arising out
of or in any manner relating to or arising out of any such
collection proceeding, and from and against any and all loss,
damage, liability, cost and expense, including attorneys' fees at
the trial level and in connection with all appellate proceedings,
incident thereto.
12.6 Investment Canada Act. The Warranting Persons
and the Acquired Corporations shall cooperate with Buyer and HRH
in the preparation and filing of notice to all appropriate
Canadian federal governmental officials of any notice required
under the Investment Canada Act.
12.7 Security Agreement. The Surviving Corporation
shall have executed and delivered to the Direct Selling
Shareholders a Security Agreement in the form of agreement
attached hereto as Exhibit 12.7.
12.8 Ordinary Course Indemnity Agreements of Selling
Shareholders. The Surviving Corporation shall indemnify the
Direct Selling Shareholders for any obligations incurred by them
pursuant to indemnity agreements executed by them personally in
favor of insurers on behalf of the Agency of which written notice
has been given to the Surviving Corporation, relating to events
occurring in the period, and executed by the Direct Selling
Shareholders, after the Closing Date.
12.9 Tail Insurance. To the extent that, after the
Closing, any Warranting Person obtains insurance coverage for
claims arising under errors and omissions, such Warranting Person
shall cause HRH, HRH Canada and the Surviving Corporation to be
added and named to the policy evidencing such coverage as
additional named insureds for all prior acts.
12.10 Further Assurances. Each of the Warranting
Persons and Buyer hereby covenants and agrees that at any time
and from time to time after the Closing Date he, she or it will,
upon the request of the others, do, execute, acknowledge and
deliver or cause to be done, executed, acknowledged and delivered
all such further acts, deeds, assignments, transfers, conveyances
and assurances (including the obtaining of consents not obtained
prior to Closing) as may be required for the better carrying out
and performance of all the terms of this Agreement.
PART F:
INDEMNIFICATION
13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION.
13.1 Survival of Representations and Warranties.
Except with respect to the representations and warranties as to
the ownership of the Acquired Stock contained in Section 6.4 and
the representations and warranties as to the title to the
properties and assets of the Acquired Corporations contained in
Section 6.11, all of which shall survive in perpetuity, and
except with respect to the representations and warranties as to
tax liabilities of the Acquired Corporations contained in Section
6.10, which shall survive until one (1) year after the expiration
of any applicable statute of limitations, the representations and
warranties made herein or pursuant hereto by the Warranting
Persons shall survive the Closing only for a period of three (3)
years from and after the Closing Date.
All representations and warranties made herein or
pursuant hereto by Buyer shall survive the Closing only for a
period of three (3) years from and after the Closing Date.
13.2 Indemnification Agreement by Warranting Persons.
The Warranting Persons jointly and severally, shall indemnify and
hold harmless Buyer, HRH, the Acquired Corporations and the
Surviving Corporation, and their respective successors and
assigns from and against and in respect of one hundred percent
(100%) of:
(i) All indebtednesses, obligations and
liabilities of the Acquired Corporations or the Surviving
Corporation of any nature whatsoever, whether accrued, absolute,
contingent or otherwise, existing at the close of business as of
the Pre-Effective Moment to the extent not reflected or reserved
against in full in the Acquisition Audited Balance Sheets
(defined in Section 3 hereof), including, without limitation, any
claims for errors and omissions (to the extent not covered by
insurance) and any tax liabilities to the extent not so reflected
or reserved against, accrued in respect of, or measured by the
income of any Acquired Corporation for any period on or prior to
the Closing 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 13.2(i) above, (1) any and all tax
liabilities, whether federal, provincial, state, local or
otherwise, including interest and penalties for any time period
on or prior to the Closing Date, and (2) any and all tax
liabilities arising or resulting from the transactions
consummated in connection with this Agreement;
(iii) All liabilities of, or claims against, any
Acquired Corporation or the Surviving Corporation arising out of
any contract or commitment of the character described in Section
6.20 hereof and not listed or described in Schedule 6.20 attached
to this Agreement, or arising out of any contract or commitment
entered into or made by any Acquired Corporation 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 Sections 6.27
and 12.5 of this Agreement, any nonpayment on demand, when due,
of any accounts receivable or notes receivable of the Acquired
Corporations;
(v) Any and all claims, demands, actions and
causes of action arising out of or in any way relating to any
Benefit Plan ever maintained by any Acquired Corporation;
(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 the
Warranting Persons, 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 the Warranting
Persons, or any of them, and attached to this Agreement or
delivered or to be delivered to the Buyer under the terms of this
Agreement, irrespective of any due diligence review or
investigation that may have been conducted by HRH or its
representatives or the delivery of any documents or information
by any Warranting Person to HRH or its representatives prior to
the execution of this Agreement; and
(vii) All demands, claims, actions, suits,
proceedings, loss, damage, liability, judgments, costs and
expenses (including, without limitation, court costs and
attorneys' fees at the trial level and in connection with all
appellate proceedings) incident to any of the foregoing.
In addition, Buyer shall have the right to assert
offset against any of Buyer's Deferred Obligations which may be
due to the Direct Selling Shareholders on account of, and to the
extent of, the foregoing. It is acknowledged that any loss,
damage, liability or deficiency suffered by Buyer for which the
Warranting Persons are to indemnify Buyer pursuant to the
foregoing shall be the net after tax amount of any such loss,
damage, liability or deficiency suffered by Buyer, and shall be
net of any proceeds of insurance received for such loss.
13.3 Indemnification Agreement by HRH and Buyer. HRH
and Buyer shall indemnify and hold harmless the Direct Selling
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 Buyer
under the terms of this Agreement; and
(ii) All demands, claims, actions, suits,
proceedings, loss, damage, liability, judgments, costs and
expenses (including, without limitation, court costs and
attorneys' fees at the trial level and in connection with all
appellate proceedings) incident to any of the foregoing.
13.4 Assertion of Indemnification Claim. Either the
Direct Selling Shareholders or Buyer, HRH, the Acquired
Corporations or the Surviving Corporation, 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.
13.5 Limitation of Amount of Indemnity and Escrow of
HRH Stock. The indemnity provided to Buyer pursuant to Section
13.2 and the indemnity provided by Buyer to the Direct Selling
Shareholders pursuant to Section 13.3 shall be limited to an
amount equal to the Consideration.
Notwithstanding anything in the foregoing to the
contrary, Buyer shall retain on the Closing Date from the HRH
Stock to be delivered to the Direct Selling Shareholders, as
security for the indemnity provided to it herein, CDN $180,000
worth of shares of the HRH Stock ("Escrowed Shares"). By their
signatures to this Agreement, each Direct Selling Shareholder,
and if applicable each Warranting Person, has granted to Buyer a
security interest in his, her or its portion of the Escrowed
Shares, and has consented to the escrow provision described
herein and has granted unto Buyer a continuing limited power of
attorney to act over his, her or its 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 3.1(e); and (iii)
determination and settlement of any amounts claimed by Buyer as
of March 31, 1996, pursuant to Section 13.4 ("Escrow Release
Date").
Between the Closing Date and the Escrow Release Date,
Buyer shall hold the Escrowed Shares and shall deposit any
dividends received thereon in an interest-bearing account. Upon
the Escrow Release Date, and absent a written directive to the
contrary from each such Direct Selling Shareholder and Warranting
Person not desiring to receive his shares pro rata, Buyer shall
distribute the Escrowed Shares, less any reduction in such shares
pursuant to the resolution of a claim under this Agreement, plus
any additional shares issued pursuant to this Agreement, to the
Direct Selling Shareholders and Warranting Persons, pro rata in
accordance with the Applicable Percentages set forth on Schedule
2.1. 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 are used 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. The value of the
Escrowed Shares as of the date of any satisfaction of such
indemnity shall be the value, per share, at the average of the
closing price on the New York Stock Exchange for common stock of
HRH for each of ten (10) consecutive trading days with the tenth
and final trading day being the last trading day which is ten
(10) trading days prior to the realization of such indemnity.
For the period from the Closing Date to the Escrow Release Date,
the Direct Selling Shareholders and Warranting Persons shall be
entitled to exercise all voting rights which may attach to the
Escrowed Shares.
13.6 Remedies Cumulative. The rights and remedies of
the parties under this Agreement are cumulative and in addition
to and not in substitution for any rights or remedies provided by
law. Any single or partial exercise by any party hereto of any
right or remedy for default or breach of any term, covenant or
condition of this Agreement does not waive, alter, affect or
prejudice any other right or remedy to which such party may be
lawfully entitled for the same default or breach.
PART G:
MISCELLANEOUS PROVISIONS
14. EXPENSES. All expenses (including, without
limitation, legal, auditing and other related expenses) incurred
in connection with this transaction by the Acquired Corporations
and the Warranting Persons shall be the sole responsibility of
the Warranting Persons (except such expenses which are agreed to
be the expenses solely of Elias, Dudek and Hayhurst), and all
expenses incurred by Buyer in connection with this transaction
shall be the sole responsibility of Buyer. The Warranting
Persons shall be responsible and shall cause any fees or
commissions due to Hales & Associates and to their legal counsel
to be paid from the Closing Cash Consideration.
15. DEFAULT.
15.1 Default by the Warranting Persons. Except as
otherwise expressly provided in this Agreement, if the Warranting
Persons 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 the Warranting
Persons on or prior to the Closing Date, then Buyer, at the
option of Buyer, may seek specific performance of this Agreement
or Buyer, at the option of Buyer, may elect to sue such
defaulting party for damages. In the event Buyer elects to sue
for specific performance, the Warranting Persons expressly waive
any claim or defense that Buyer has an adequate remedy at law.
15.2 Default by the Buyer. Except as otherwise
expressly provided in this Agreement, if Buyer 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 Buyer on or prior to the Closing Date, then the
Direct Selling Shareholders, at the option of the Warranting
Persons, may seek specific performance of this Agreement or the
Warranting Persons, at the option of the Designated
Representative, may elect to sue for damages. In the event the
Designated Representative elects to sue for specific performance,
Buyer expressly waives any claim or defense that the Warranting
Persons have an adequate remedy at law.
16. 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 sent by registered or certified mail, postage prepaid:
(a) If to the Warranting Persons:
Mr. Arthur G. Elias
HAYHURST ELIAS DUDEK, INC.
Number Four Fort Street
Winnipeg, Manitoba
Canada, R3C 1C4
With copy to:
J. Douglas Sigurdson, Esquire
AIKINS, MACAULAY & THORVALDSON
30th Floor
Commodity Exchange Tower
360 Main Street
Winnipeg, Manitoba
Canada, R3C 4G1
And to:
Brian D. Hayhurst
Coralita Prospect
St. James, Barbados
And to:
Brian D. Hayhurst
1560 North West Benfield Drive
Portland, Oregon
U.S.A. 97229
With a copy to:
George Van Den Bosch, Esquire
Pitbaldo & Hoskin
19th Floor
Commodity Exchange Tower
360 Main Street
Winnipeg, Manitoba
Canada, R3C 4G1
(b) If to Buyer:
Mr. Robert H. Hilb, President
HILB, ROGAL AND HAMILTON COMPANY
4235 Innslake Drive
P.O. Box 1220
Glen Allen, Virginia 23060-1220
With copy to:
Walter L. Smith, Esquire
HILB, ROGAL AND HAMILTON COMPANY
4235 Innslake Drive
P.O. 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, certified or overnight 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.
17. EXTENSION OF TIME AND WAIVER.
17.1 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.
17.2 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.
18. MISCELLANEOUS PROVISIONS.
18.1 Counterparts and Execution.
(a) Any number of counterparts of this
Agreement and its Ancillary Agreements 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
and shall be effective as of the date thereof.
(b) This Agreement and its Ancillary
Agreements may be executed by one or more of the parties by
facsimile transmitted signature and all parties agree that the
reproduction of signatures by way of facsimile device will be
treated as though such reproductions were executed originals.
18.2 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the Province of
Manitoba and the laws of Canada applicable therein.
18.3 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.
18.4 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.
18.5 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,
except that Buyer, without the consent of anyone, may assign this
Agreement to a subsidiary of Buyer. In the event of any such
assignment by Buyer, Buyer shall remain liable to the Direct
Selling Shareholders for the payment of Buyer's Deferred
Obligations in the same manner as if no assignment had been made.
18.6 Survival. Notwithstanding anything in the
foregoing to the contrary, any rights which the Warranting
Persons, HRH or Buyer 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 Closing Date, shall survive for the applicable period
provided by Section 13.1. In addition, all covenants of the
parties under this Agreement, including without limitation the
nonsolicitation covenant contained in Section 18.9 below, shall
survive the Closing.
18.7 Schedules and Exhibits. The Schedules and
Exhibits 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.
18.8 Subsequent Acquisitions and Activities. The
Direct Selling Shareholders acknowledge that a later acquisition
by the Surviving Corporation of another insurance agency could
affect the determination of subsequent year profitability and
agree to cooperate with Buyer in making any adjustments as
necessary to this Agreement and any ancillary agreements to carry
out their intent. Buyer agrees that the consent of Elias, Dudek
and Hayhurst shall be obtained before any later acquisition by
the Surviving Corporation of another insurance agency during the
three (3) years after the Closing Date. Buyer agrees that (i) it
shall not cause a change of corporate name of the Surviving
Corporation for a period of three (3) years after the Closing
Date (provided, that the name of the Surviving Corporation may
reflect an association with HRH and/or the Buyer in a manner
acceptable to HRH); (ii) the business of the Agency shall be
carried on in the ordinary course during the three (3) year
period after the Closing Date; (iii) the annual profit of the
Surviving Corporation during the three (3) year period after the
Closing Date shall only be withdrawn by the Surviving Corporation
(by way of dividend payment, loan repayment or any other means)
three (3) months or more after the year end of the Surviving
Corporation, subject to compliance with the accounting policies
of the Buyer; and (iv) the Surviving Corporation shall not
establish a pension plan for its employees during the three (3)
year period after the Closing Date without first arranging with
the management of HED for the implementation of such a plan so as
not to adversely impact the Agency's future profitability which
in turn will affect any payments to be made under the Management
Incentive Agreement referenced in Section 11.4 above.
18.9 Nonsolicitation Covenants.
(a) Each of the Warranting Persons, by
signature hereto, covenants that he, she or it shall not for a
period of three (3) years after the Closing Date, directly or
indirectly, except on behalf of the Surviving Corporation, its
successors or assigns, solicit or accept risk management,
insurance or bond business from any of the customers of the
Agency and the Surviving Corporation as of the moment immediately
preceding the Closing Date. Each of the Warranting Persons, by
signature hereto, acknowledges: (i) that this covenant is
ancillary to this Agreement, is integral hereto and is
independent of any other provision herein, (ii) that this
covenant is reasonably necessary for the protection of Buyer's
and the Surviving Corporation's legitimate business interests;
(iii) that this covenant poses no undue hardship on them and is
reasonably limited as to duration and scope; and (iv) that this
covenant is in addition to any covenants which any of the
Warranting Persons may make in any employment or other agreements
executed or to be executed with the Surviving Corporation as part
of this Agreement. Further, if any part of this covenant is
deemed overbroad or void as against public policy, each of the
Warranting Persons, by signature hereto, acknowledges that such
invalid portions shall be severable from this covenant to permit
the Surviving Corporation and/or Buyer to obtain the maximum
permissible benefit from this covenant.
(b) Each of the Warranting Persons, by
signature hereto, covenants that he, she or it shall not for a
period of two (2) years after the Closing Date, directly or
indirectly, except on behalf of the Surviving Corporation, its
successors or assigns, solicit or accept risk management,
insurance or bond business from any of the customers of the
Agency and the Surviving Corporation as of the moment immediately
preceding the Closing Date. Each of the Warranting Persons, by
signature hereto, acknowledges: (i) that this covenant is
ancillary to this Agreement, is integral hereto and is
independent of any other provision herein, (ii) that this
covenant is reasonably necessary for the protection of Buyer's
and the Surviving Corporation's legitimate business interests;
(iii) that this covenant poses no undue hardship on them and is
reasonably limited as to duration and scope; and (iv) that this
covenant is in addition to any covenants which any of the
Warranting Persons may make in any employment or other agreements
executed or to be executed with the Surviving Corporation as part
of this Agreement. Further, if any part of this covenant is
deemed overbroad or void as against public policy, each of the
Warranting Persons, by signature hereto, acknowledges that such
invalid portions shall be severable from this covenant to permit
the Surviving Corporation and/or Buyer to obtain the maximum
permissible benefit from this covenant.
(c) Each of the Warranting Persons, by
signature hereto, covenants that he, she or it shall not for a
period of one (1) year after the Closing Date, directly or
indirectly, except on behalf of the Surviving Corporation, its
successors or assigns, solicit or accept risk management,
insurance or bond business from any of the customers of the
Agency and the Surviving Corporation as of the moment immediately
preceding the Closing Date. Each of the Warranting Persons, by
signature hereto, acknowledges: (i) that this covenant is
ancillary to this Agreement, is integral hereto and is
independent of any other provision herein, (ii) that this
covenant is reasonably necessary for the protection of Buyer's
and the Surviving Corporation's legitimate business interests;
(iii) that this covenant poses no undue hardship on them and is
reasonably limited as to duration and scope; and (iv) that this
covenant is in addition to any covenants which any of the
Warranting Persons may make in any employment or other agreements
executed or to be executed with the Surviving Corporation as part
of this Agreement. Further, if any part of this covenant is
deemed overbroad or void as against public policy, each of the
Warranting Persons, by signature hereto, acknowledges that such
invalid portions shall be severable from this covenant to permit
the Surviving Corporation and/or Buyer to obtain the maximum
permissible benefit from this covenant.
(d) The covenants and agreements of the
Employee contained in paragraphs (a), (b) and (c) above are each
separate and distinct covenants and agreements of the Employee
and if any of paragraphs (a), (b) and (c) is void, invalid or
unenforceable, such paragraph shall be severed from this
Agreement and shall not affect or impair any other paragraph or
the balance of this Agreement, and this Agreement with the void,
invalid or unenforceable paragraph stricken herefrom shall remain
in full force and effect.
18.10 Employee Stock Options. Prior to Closing, Buyer
will request that the HRH Compensation Committee establish, after
Closing, the right to participate in the HRH Stock Option Plan
for employees of the Surviving Corporation.
18.11 Acceptance. The binding date of acceptance of
this Agreement shall be the date on which the last of the parties
executes the same.
18.12 Singular and Plural Cases and Gender.
Notwithstanding anything in the foregoing to the contrary, where
required by the context, the singular and plural cases and the
masculine, feminine and neuter genders, respectively, shall be
interchangeable.
18.13 Knowledge. Any reference herein to "the best of
(a party's) knowledge" or to a party's "knowledge" will mean the
actual knowledge of that party and the knowledge which they would
have had if they had conducted a diligent inquiry into the
relevant subject matter.
18.14 Binding Effect. Except as otherwise provided in
this Agreement, the provisions hereof shall be binding upon, and
shall inure to the benefit of, the parties hereto, and their
respective heirs, devisees, personal representatives, successors
and assigns.
18.15 Announcements. No public announcement with
respect to the transactions contemplated by this Agreement shall
be made by any of the parties hereto without the prior written
approval of HRH, Elias, Dudek and Hayhurst.
<PAGE>
EXECUTED by the Warranting Persons this _______ day of
June, 1995.
HAYHURST ELIAS DUDEK, INC.
By: __________________
Its: __________________
B.D.H. INSURANCE MANAGERS
LIMITED
By: __________________
Its: __________________
ELIAS AGENCIES LTD.
By:
Its:
JO-MAR HOLDINGS, LTD.
By:
Its:
BRIAN D. HAYHURST
ENTERPRISES (1988) LTD.
By:
Its:
ELIAS HOLDINGS, LTD.
By:
Its:
DUDEK HOLDINGS, LTD.
By:
Its:
3157245 CANADA, LTD.
By:
Its:
THE HAYHURST BARBADOS TRUST
By: ____________________
Ernst & Young Services
Limited, Sole Trustee of
The Hayhurst Barbados Trust
By: ____________________
Its: ___________________
ARTHUR G. ELIAS
_______________________
IRENE T. ELIAS
JOHN DUDEK
MARILYN N. DUDEK
BRIAN D. HAYHURST
WILLIAM JESSIMAN
THE ELIAS FAMILY TRUST
By: ____________________
Arthur G. Elias, Sole Trustee
of The Elias Family Trust
THE DUDEK FAMILY TRUST
By: ____________________
John Dudek, Sole Trustee of
The Dudek Family Trust
<PAGE>
EXECUTED by HRH and the Buyer this ______ day of June,
1995.
HILB, ROGAL AND HAMILTON
COMPANY
By: ____________________
Its:____________________
HILB, ROGAL AND HAMILTON
COMPANY OF CANADA,
LIMITED
By: ____________________
Its:____________________
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our reports dated August 19, 1994, except as to note 13 (for
Hayhurst, Elias, Dudek, Inc.) and note 7 (for B.D.H. Insurance Managers
Limited) which are dated February 13, 1995, with respect to the financial
statements of Hayhurst, Elias, Dudek, Inc. and B.D.H. Insurance Managers
Limited included in the Registration Statement (Form S-4 No. 33-44271) and
related prospectus of Hilb, Rogal and Hamilton Company, dated February
12, 1992, and related Supplement to Prospectus dated June 28, 1995.
KPMG Peat Marwick Thorne
Chartered Accountants
Winnapeg, Canada
June 28, 1995
