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
INSURANCE MANAGEMENT, INC.
The following information is furnished to supplement
and complete the information contained in the
Prospectus dated February 12, 1992 ("Prospectus"),
relating to the offering of shares of the Common Stock
of Hilb, Rogal and Hamilton Company ("Company") to the
shareholders of Insurance Management, Inc. ("IMI") of
New Haven, Connecticut to consummate the merger of IMI
and the Company.
Terms of the Transaction
(a) (1) Effective on October 1, 1996, a subsidiary of
the Company will consummate an Agreement of Merger with
IMI whereby the shareholders of IMI will receive
250,000 shares of Common Stock of the Company
("Shares") plus two future stock 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) all other conditions precedent as
outlined in the Agreement of Merger (see Exhibit 2.28).
The number of shares distributed to the shareholders of
IMI will be adjusted based upon the final determination
of net worth as defined in the Agreement of Merger.
The future stock 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 shares valued at $1,687,500 in each year (subject to
a minimum, before any applicable indemnity, of shares
valued at $187,500 in each year). The contingent
payments include imputed interest at the lowest
applicable federal rate allowed under the Internal
Revenue Code of 1986, as amended.
The number of shares issued for the future payments
shall be based on a per share value computed as the
average closing price of the Common Stock of the
Company for the ten New York Stock Exchange trading
days preceding November 26, 1997 and November 26, 1998.
Hilb, Rogal and Hamilton Company of New Haven, a newly
formed subsidiary of the Company, will merge into
Insurance Management, Inc. and the surviving
corporation will be a wholly-owned subsidiary of the
Company (the "Merger").
(2) The Merger with IMI by the Company has been
agreed upon because the Company is engaged in the
business of owning insurance agencies and because
the shareholders of IMI have determined that a
merger with the Company is beneficial to the
growth of IMI's operations.
IMI's operations will add approximately 60 employees
and $5,300,000 of revenues to the Company.
(3) IMI was incorporated in 1963 in the state of
Connecticut, and has 47,500 authorized shares of common
stock, $1 par value. There are 45,000 shares issued of
which 27,602 are in the Treasury and 17,398 shares are
outstanding.
(4) There are no material differences between the
rights of the security holders of IMI 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) IMI will be included in the consolidated
return of the Company as of the effective date.
The acquisition will be recorded as a tax free
exchange under the rules of I.R.C. Sections
368(a)(1)(A) and 368(a)(2)(E).
(c) The acquisition agreement is incorporated into
this supplement as Exhibit 2.28.
Pro Forma Financial Information
See attached - Schedule A
Material Contracts with Seller
There have been no material contracts between the
Company and IMI prior to the proposed effective date of
the Agreement of Merger.
Information with Respect to
Insurance Management, Inc.
IMI was incorporated in 1963 and resulted from the
merger of four insurance agencies. IMI maintains its
primary office in New Haven, Connecticut and has branch
offices in Madison, Old Saybrook, Derby, Middletown,
Durham and Clinton, Connecticut.
IMI provides property and casualty insurance brokerage
services for personal and commercial and industrial
clients. Services provided include personal and
commercial property and casualty insurance
(approximately 93% of commissions and fees) and group
and individual life and health insurance products
(approximately 7% of commissions and fees).
Common Stock and Dividend Data
There is no established public trading market for the
stock of IMI. There are 17 shareholders of the
corporation. See Shareholder Information below for
information regarding shares held and information
regarding authorized and issued shares.
There were no common stock dividend distributions
during the six months ended June 30, 1996 or the years
ended December 31, 1995, 1994 and 1993.
Shareholder Information
(a) (1) (2) & (3) If the Merger is consummated,
objecting holders of IMI Common Stock ("Objecting
Shareholders") will be entitled to have the "fair
value" (exclusive of any element of value arising from
the accomplishment or expectation of the Transaction)
of their shares ("Objecting Shares") as of the day
prior to the date the Proxy Statement is mailed,
judicially determined and paid to them by complying
with the provisions of Section 33-374 of the
Connecticut General Statutes (sometimes hereinafter
referred to as the "Connecticut Appraisal Statute").
IMI shareholders considering seeking appraisal of their
shares of IMI Common Stock should note that the fair
value of their shares determined under Section 33-374
could be more, the same as, or less than the
consideration they would receive in connection with the
Merger if they did not seek appraisal of their shares.
The following is a summary of Section 33-374, which
sets forth the procedures for demanding statutory
appraisal rights. Failure by an Objecting Shareholder
to follow the provisions of Section 33-374 exactly
could result in the loss of appraisal rights.
IMI shareholders who desire to exercise their appraisal
rights must satisfy each of the conditions of the
Connecticut Appraisal Statute. As described below (i)
a written objection to the Merger must be filed with
IMI before the taking of the vote on the Merger and
(ii) a written demand that IMI repurchase the Objecting
Shares must be filed with IMI within ten days after the
IMI Special Meeting. These written notices must be
made in addition to and separate from any proxy vote
abstaining from or voting against the Transaction.
Voting against, abstaining from voting or failing to
vote with respect to the Merger will not constitute an
objection or a demand for appraisal for purposes of the
Connecticut Appraisal Statute.
Shareholders electing to exercise their appraisal
rights under Section 33-374 of the Connecticut
Appraisal Statute must not vote for approval of the
proposal relating to the Merger. If a shareholder of
IMI returns a signed proxy but does not specify a vote
against approval of the Merger or a direction to
abstain, the proxy will be voted for the Transaction,
which will have the effect of waiving that
shareholder's appraisal rights.
A shareholder who elects to exercise appraisal rights
should deliver his or her written objection and demand
for appraisal to the Secretary, IMI, 545 Long Wharf
Drive, New Haven, Connecticut 06511. The written
demand for appraisal should specify the shareholder's
name and mailing address, and that the shareholder is
thereby demanding appraisal of his or her shares of IMI
Common Stock.
ANY IMI SHAREHOLDER WISHING TO EXERCISE APPRAISAL
RIGHTS MUST (A) OBJECT TO THE MERGER BY WRITTEN NOTICE
DELIVERED TO IMI PRIOR TO THE TAKING OF THE VOTE ON THE
MERGER AT THE IMI SPECIAL MEETING AND (B) DEMAND THAT
IMI REPURCHASE THE OBJECTING SHARES OWNED BY SUCH
OBJECTING SHAREHOLDER BY WRITTEN NOTICE DELIVERED TO
IMI NO LATER THAN THE TENTH DAY AFTER THE IMI SPECIAL
MEETING ("A DEMAND"). IN ORDER TO BE EFFECTIVE, (A)
ANY SUCH DEMAND MUST STATE THE NUMBER AND CLASS OF
OBJECTING SHARES, AND (B) NONE OF THE SHARES OF THE
OBJECTING SHAREHOLDER MAY HAVE BEEN VOTED IN FAVOR OF
APPROVAL OF THE MERGER.
After an Objecting Shareholder has made a Demand, the
Objecting Shareholder will thereafter be entitled only
to payment for his Objecting Shares under the
Connecticut Appraisal Statute, and will not be entitled
to vote, to receive dividends or to exercise any other
rights of an IMI shareholder in respect of the
Objecting Shares, unless his or her Demand is withdrawn
with the consent of IMI, or the Transaction is
abandoned or rescinded, or the IMI Shareholders revoke
their approval of the Transaction, or no petition for
the determination of the fair value of IMI Common Stock
of the same class as the Objecting Shares of such
Objecting Shareholder is filed with the superior court
as described below, or a court of competent
jurisdiction determines that such Objecting Shareholder
is not entitled to payment under the Connecticut
Appraisal Statute.
At any time after the receipt of a written notice by an
Objecting Shareholder objecting to the Transaction, but
not later than ten days after receipt of a Demand to
purchase Objecting Shares or ten days after the
Effective Time, whichever is later, IMI will make a
written offer to each Objecting Shareholder who makes a
Demand, to pay for such Objecting Shareholder's
Objecting Shares at a specified price deemed by IMI to
be the fair value thereof as of the day prior to the
date on which the Proxy statement and the attached Plan
of Merger were mailed as part of the Proxy Statement,
exclusive of any element of value arising from the
expectation or accomplishment of the Transaction.
Within twenty days after demanding the purchase of such
Objecting Shareholder's Objecting Shares, each
Objecting Shareholder so demanding must submit the
certificate or certificates representing such Objecting
Shares to IMI for notation thereon that a Demand has
been made. Such Objecting Shareholder's failure to do
so will, at the option of the Surviving Corporation,
terminate such Objecting Shareholder's rights under the
Connecticut Appraisal Statute unless a court of
competent jurisdiction, for good and sufficient cause
shown, otherwise directs. If Objecting Shares
represented by a certificate on which notation has been
so made are transferred, each new certificate issued
therefor shall bear similar notation, together with the
name of the Objecting Shareholder of such Objecting
Shares who made the Demand, and a transferee of such
Objecting Shares shall acquire by such transfer no
rights in the surviving corporation other than those
which such Objecting Shareholder had after making such
Demand.
At any time during the period of sixty days after the
date IMI is obliged to make the offer under the
Connecticut Appraisal Statute described in the second
preceding paragraph, IMI or any Objecting Shareholder
who has made a Demand and who has not accepted the
offer made by IMI may file a petition in the superior
court for the judicial district where the principal
office of IMI is located, or before any judge thereof,
praying that the fair value of the Objecting Shares of
such Objecting Shareholder be found and determined.
All Objecting Shareholders making Demands for the
purchase of their Objecting Shares under the statute
who have not accepted the offer made by IMI, wherever
residing, will be made parties to the proceeding. A
copy of the petition will be served on each such
Objecting Shareholder who is not a Connecticut
resident. Service on nonresidents will also be made by
publication as provided by applicable law. The
jurisdiction of the court will be plenary and
exclusive. All Objecting Shareholders who are parties
to the proceeding will be entitled to judgment against
IMI for the amount of the fair value of their Objecting
Shares as of the day prior to the date on which the
Proxy Statement and the attached Plan of Merger are
mailed, exclusive of any element of value arising from
the expectation or accomplishment of the Transaction.
The court may, if it so elects, appoint one or more
persons as appraisers to receive evidence and recommend
a decision on the question of fair value. The
appraisers will have such power and authority as shall
be specified in the order of their appointment or an
amendment thereof. The court will by its judgment
determine the fair value of the Objecting Shares of the
Objecting Shareholders entitled to payment therefor and
will direct the payment of such value, together with
interest, if any, to the Objecting Shareholders
entitled thereto. The judgment may, but will not
necessarily, include an allowance for interest at such
rate as the court may find to be fair and equitable in
all the circumstances, from the date the Proxy
Statement and the attached Plan of Merger were mailed
to the date of payment. The costs and expenses of any
such proceeding will be determined by the court and
will be assessed against IMI, but all or any part of
such costs and expenses may be apportioned and assessed
as the court may deem equitable against any or all
Objecting Shareholders if the court finds that the
action of such Objecting Shareholders in failing to
accept such offer was arbitrary or vexatious or not in
good faith. Such expenses will include reasonable
compensation for and reasonable expenses of the
appraisers, but not the fees and expenses of counsel
for and experts employed by any party, but if the fair
value of the Objecting Shares as determined by the
valuation proceeding materially exceeds the amount
which the surviving corporation offered to pay
therefor, or if no offer is made, the court in its
discretion may award to an Objecting Shareholder who is
a party to the proceeding such sum as the court may
determine to be reasonable compensation to any expert
or experts employed by such Objecting Shareholder in
the proceeding.
Any judgment entered pursuant to the Connecticut
Appraisal Statute will be enforceable as other decrees
of the superior court are enforced and will be payable
only upon and concurrently with the surrender to IMI of
the certificate or certificates representing the
Objecting Shares for which payment is due, duly
endorsed for transfer. Upon payment of any such
judgment, the Objecting Shareholder will cease to have
any interest in such Objecting Shares.
If a demand to purchase Objecting Shares under the
Connecticut Appraisal Statute is withdrawn with the
consent of IMI, or if the Transaction is abandoned or
rescinded, or if no Demand or petition for the
determination of fair value by a court has been made or
filed within the time provided in the statute, or if a
court of competent jurisdiction determines that an
Objecting Shareholder is not entitled to the relief
provided by the Connecticut Appraisal Statute, then the
right of an Objecting Shareholder to be paid the fair
value of his or her Objecting Shares will cease and his
or her status as a shareholder will thereupon be
restored.
The "fair value" of Objecting Shares for the purposes
of the Connecticut Appraisal Statute means the fair
value thereof on the day prior to the date on which the
Proxy Statement and the attached Plan of Merger were
mailed, exclusive of any element of value arising from
the expectation or accomplishment of the Transaction.
The foregoing does not purport to be a complete
statement of the provisions of the Connecticut
Appraisal Statute and is qualified in its entirety by
reference to the provisions of the statute.
IMI shareholders considering seeking appraisal of their
shares of IMI Common Stock should note that the fair
value of their shares determined under Section 33-374
could be more, the same as, or less than the
consideration they would receive in connection with the
Merger if they did not seek appraisal of their shares.
THE BOARD OF DIRECTORS OF IMI UNANIMOUSLY RECOMMENDS A
VOTE FOR APPROVAL OF THE MERGER.
(4) & (5) There are no materialinterests, direct or
indirect of affiliates, officers or directors of the
registrant or of the company being acquired (IMI) in the
proposed transaction.
(6) IMI has 47,500 authorized shares of common stock,
$1 par value. Shares issued total 45,000, of which 27,602
are in the Treasury. Shares outstanding are as follows:
Number of
Shareholders* Common Shares* Percentage*
Robert O. Coulter 3,000 17.24%
T. Robert McCarron 1,500 8.62
David J. Curran 1,500 8.62
C. Anthony Ingersoll 1,500 8.62
David K. Homer 1,100 6.32
Neil W. Garbatini 1,080 6.21
Joseph L. Ferry 130 .75
Douglas F. Danaher 125 .72
Stephanie S. Shorey 100 .58
Richard P. Ridinger 220 1.26
John Scanlon 135 .78
Mario P. Lupone 85 .49
Madelyn R. Izzo 65 .37
Harry E. Burr 56 .32
Frederick Fraher 35 .20
Owen J. Flannery 22 .13
Insurance Management, Inc.
Employee Stock
Ownership Plan 6,745 38.77
------ -------
17,398 100.00%
====== =======
*The composition of the shareholders may change prior to the effective
date of the Merger; however, the total number of shares of HRH Common
Stock issued will not be impacted.
(7) Upon completion of the proposed
acquisition, no shareholder of IMI will be serving as a
director or executive officer of the registrant.
Experts
The consolidated financial statements of Insurance
Management, Inc. as of and for the year ended December
31, 1995 appearing in this supplement to the Amended
Prospectus dated February 12, 1992, and in the
Registration Statement have been audited by T. M.
Byxbee Company, P.C., independent auditors, as set forth in
their report thereon appearing elsewhere herein and are
included in reliance upon such report given on the
authority of such firm as experts in accounting and
auditing.
Hilb, Rogal and Hamilton Company
Date of this Supplement: September 10, 1996
<PAGE>
SCHEDULE A - PRO FORMA CONDENSED
FINANCIAL STATEMENTS (UNAUDITED)
The following pro forma condensed consolidated balance
sheet as of June 30, 1996 and the pro forma
consolidated income statements for the six months ended
June 30, 1996 and the year ended December 31, 1995 give
effect to the proposed acquisitions of Insurance
Management, Inc. ("IMI") and another insurance agency,
both which are expected to be effective on October 1,
1996; and the acquisition of certain assets and
liabilities of 11 insurance agencies purchased in 1996
and 13 insurance agencies purchased in 1995. 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 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, 1995. The pro forma condensed consolidated balance
sheet gives effect to the business combinations which
occurred or are probable of occurring subsequent to
June 30, 1996, as if they had occurred before June 30,
1996.
The pro forma statements have been prepared by
management based upon the historical financial statements
of Hilb, Rogal and Hamilton Company, IMI 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 1995 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.
HILB, ROGAL & HAMILTON COMPANY
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1996
<TABLE>
<CAPTION>
HILB, ROGAL ACQUISITIONS PRO FORMA ADJUSTMENTS PROFORMA
AND HAMILTON (PURCHASES) FOR PURCHASE ACQUISITIONS CONSOLIDATED
COMPANY
<S> <C> <C> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $21,482,227 $1,956,659 (2,905,000) (2) $20,533,886
INVESTMENTS 5,352,730 124,425 5,477,155
RECEIVABLES & OTHER 45,846,017 2,569,204 (306,051) (1) 48,109,170
------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 72,680,974 4,650,288 N/A (3,211,051) 74,120,211
INVESTMENTS 5,770,000 5,770,000
PROPERTY & EQUIPMENT 14,969,938 406,565 (406,565) (1) 515,000 (3) 15,484,938
INTANGIBLE ASSETS 64,391,946 333,356 (333,356) (1) 11,740,076 (3) 76,132,022
OTHER ASSETS 4,469,728 304,604 (217,070) (1) 4,557,262
------------------------------------------------------------------------------
TOTAL ASSETS $162,282,586 $5,694,813 N/A $8,087,034 $176,064,433
==============================================================================
LIABILITIES & EQUITY:
PREMIUMS PAYABLE-INS CO $67,191,549 $3,541,010 $70,732,559
OTHER ACCRUED LIABILITIES 15,124,267 457,735 15,582,002
------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 82,315,816 3,998,745 N/A 0 86,314,561
LONG-TERM DEBT 15,801,391 531,408 (271,226) (1) 2,065,076 (2) 18,126,649
OTHER LONG-TERM LIAB. 8,289,192 172,844 3,260,000 (3) 11,722,036
SHAREHOLDERS' EQUITY
COMMON STOCK 25,350,220 1,133,233 (1,133,233) (4) 4,025,000 (2) 29,375,220
RETAINED EARNINGS 30,525,967 (141,417) 141,417 (4) 30,525,967
------------------------------------------------------------------------------
55,876,187 991,816 N/A 3,033,184 59,901,187
------------------------------------------------------------------------------
$162,282,586 $5,694,813 N/A $8,087,034 $176,064,433
==============================================================================
</TABLE>
(1) TO ADJUST FOR ASSETS AND LIABILITIES NOT ACQUIRED.
(2) TO REFLECT PURCHASE PRICE OF ASSETS AND LIABILITIES
ACQUIRED SUBSEQUENT TO JUNE 30, 1996
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>
SIX MONTHS ENDED JUNE 30, 1996
--------------------------------------------------------------
HILB, ROGAL ACQUISITIONS PRO FORMA ADJUST- PRO FORMA
& HAMILTON CO. (PURCHASES) MENTS FOR PURCHASE CONSOLIDATED
ACQUISITIONS
<S> <C> <C> <C> <C>
REVENUES:
COMMISSIONS & FEES $78,768,286 $6,144,435 $84,912,721
INTEREST AND OTHER INCOME 2,243,540 59,430 ($124,330) (1) 2,178,640
-------------------------------------------------------------
TOTAL REVENUES 81,011,826 6,203,865 (124,330) 87,091,361
OPERATING EXPENSES:
COMPENSATION AND BENEFITS 44,115,134 3,799,409 47,914,543
OTHER OPERATING EXPENSES 19,603,610 1,531,422 (136,050) (2) 20,998,982
AMORTIZATION OF INTANGIBLES 3,666,605 67,267 333,801 (3) 4,067,673
INTEREST EXPENSE 461,460 46,843 22,564 (4) 530,867
------------------------------------------------------------
TOTAL OPERATING EXPENSES 67,846,809 5,444,941 220,315 73,512,065
------------------------------------------------------------
INCOME BEFORE INCOME TAXES 13,165,017 758,924 (344,645) 13,579,296
INCOME TAXES 5,328,496 165,712 (5) 5,494,208
------------------------------------------------------------
NET INCOME $7,836,521 $758,924 ($510,357) $8,085,088
============================================================
NET INCOME PER COMMON SHARE $0.58 $0.58
============================================================
SHARES ISSUED AND
OUTSTANDING 13,368,868 327,777 13,696,645
============================================================
WEIGHTED AVERAGE SHARES
OUTSTANDING 13,626,914 374,726 14,001,640
============================================================
</TABLE>
(1) TO ADJUST HISTORICAL INTEREST AND TO ADJUST FOR
LOST INTEREST EARNED FROM CASH PAID FOR ACQUIRED AGENCIES.
(2) TO REFLECT ADJUSTMENTS TO COMPENSATION AND OTHER
OPERATING EXPENSES TO REFLECT ADJUSTED COMPENSATION, 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 ADJUST HISTORICAL INTEREST AND REFLECT
INTEREST ON ACQUISITION DEBT.
(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, 1995
------------------------------------------------------------
HILB, ROGAL ACQUISITIONS PRO FORMA ADJUST- PROFORMA
& HAMILTON CO. (PURCHASES) MENTS FOR PURCHASE CONSOLIDATED
ACQUISITIONS
<S> <C> <C> <C> <C>
REVENUES:
COMMISSIONS & FEES $141,555,188 $23,193,697 $164,748,885
INTEREST AND OTHER INCOME 6,591,850 424,653 ($653,508) (1) 6,362,995
-----------------------------------------------------------
TOTAL REVENUES 148,147,038 23,618,350 (653,508) 171,111,880
OPERATING EXPENSES:
COMPENSATION AND BENEFITS 82,760,664 14,521,313 (442,931) (2) 96,839,046
OTHER OPERATING EXPENSES 38,264,085 7,924,127 (411,581) (2) 45,776,631
AMORTIZATION OF INTANGIBLES 6,965,947 375,297 1,089,197 (3) 8,430,441
INTEREST EXPENSE 559,654 264,555 (34,317) (4) 789,892
-----------------------------------------------------------
TOTAL OPERATING EXPENSES 128,550,350 23,085,292 200,368 151,836,010
-----------------------------------------------------------
INCOME BEFORE INCOME TAXES 19,596,688 533,058 (853,876) 19,275,870
INCOME TAXES 7,767,778 (128,327) (5) 7,639,451
-----------------------------------------------------------
NET INCOME $11,828,910 $533,058 ($725,549) $11,636,419
===========================================================
NET INCOME PER COMMON SHARE $0.82 $0.77
===========================================================
SHARES ISSUED AND OUTSTANDING 13,706,764 472,625 14,179,389
===========================================================
WEIGHTED AVERAGE SHARES
OUTSTANDING 14,470,407 571,071 15,041,478
===========================================================
</TABLE>
(1) TO ADJUST HISTORICAL INTEREST AND TO ADJUST FOR
LOST INTEREST EARNED FROM CASH PAID FOR ACQUIRED AGENCIES.
(2) TO REFLECT ADJUSTMENTS TO COMPENSATION AND OTHER
OPERATING EXPENSES TO REFLECT ADJUSTED COMPENSATION, 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 ADJUST HISTORICAL INTEREST AND REFLECT INTEREST ON ACQUISITION DEBT.
(5) TO REFLECT ESTIMATED TAXES AND THE TAX EFFECT OF
PROFORMA ADJUSTMENTS ON NET INCOME.
<PAGE>
INSURANCE MANAGEMENT INCORPORATED & ITS
SUBSIDIARY McCUTCHEON, BURR & IMI, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 (AUDITED),
1994 AND 1993 (UNAUDITED)
PAGES
INDEPENDENT AUDITOR'S REPORT 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2
Consolidated Statements of Income 3
Consolidated Statements of Shareholders' Equity 4
Consolidated Statements of Cash Flows 5-6
Notes to Consolidated Financial Statements 7-13
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Insurance Management Incorporated
New Haven, Connecticut
We have audited the accompanying consolidated balance
sheet of Insurance Management, Inc. and its subsidiary
McCutcheon, Burr & IMI, Inc. as of December 31, 1995, and
the related consolidated statements of income, shareholders'
equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides
a reasonable basis for our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of Insurance Management, Inc. and its
subsidiary McCutcheon, Burr & IMI, Inc. as of December 31,
1995, and the results of its operations and its cash flows
for the year then ended in conformity with generally
accepted accounting principles.
The December 31, 1994 and 1993 consolidated financial
statements were reviewed by us. We were not aware of any
material modifications that should be made to those
statements for them to be in conformity with generally
accepted accounting principles. However, a review is
substantially less in scope than an audit and does not
provide a basis for the expression of an opinion on the
financial statements taken as a whole.
/S/ T. M. Byxbee Company, P.C.
Hamden, Connecticut
June 10, 1996
<PAGE>
INSURANCE MANAGEMENT INCORPORATED AND ITS
SUBSIDIARY McCUTCHEON, BURR & IMI, INC.
CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
A S S E T S
1995 1994 1993
(AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and Equivalents $ 538,464 $ 640,599 $ 838,381
Investments Available for Sale 114,352 109,851 85,701
Receivables:
Premiums, Less Allowance for Doubtful Accounts
of $145,000 in 1995 and $135,000 in 1994 and
1993 862,320 904,727 1,177,969
Other 6,667 3,667 -
Other Current Assets 8,999 947 19,777
---------- ---------- ----------
Total Current Assets 1,530,802 1,659,791 2,121,828
PROPERTY AND EQUIPMENT, NET 395,537 462,010 561,857
INTANGIBLE ASSETS
Expiration Rights 995,136 995,136 995,136
Goodwill 186,200 186,200 186,200
Noncompetition Agreements 414,000 414,000 414,000
---------- ---------- ----------
1,595,336 1,595,336 1,595,336
Less: Accumulated Amortization 1,206,284 1,049,056 842,800
---------- ---------- ----------
Net Intangible Assets 389,052 546,280 752,536
OTHER ASSETS 66,866 217,395 43,214
---------- ---------- ----------
TOTAL $2,382,257 $2,885,476 $3,479,435
========== ========== ==========
L I A B I L I T I E S AN D S H A R E H O L D E R S ' E Q U I T Y
CURRENT LIABILITIES
Premiums Payable to Insurance Companies $ 912,348 $1,240,726 $1,592,065
Accounts Payable and Accrued Expenses 406,306 246,279 414,661
Current Portion of Long-Term Debt 309,186 360,551 436,323
---------- ---------- ----------
Total Current Liabilities 1,627,840 1,847,556 2,443,049
LONG-TERM DEBT - NET OF CURRENT PORTION 688,824 1,095,581 1,139,796
OTHER LIABILITIES 138,707 488,582 36,193
SHAREHOLDERS' EQUITY
Common Stock - $1 Par Value, 47,500 Shares
Authorized, 45,000 Shares Issued of which 27,484,
27,625, and 26,215 Shares are in the Treasury at
1995, 1994, and 1993, Respectively 45,000 45,000 45,000
Additional Paid-In Capital 390,561 357,453 286,857
Retained Earnings 879,630 844,997 802,607
Unrealized Holding Gain, Net of Tax Expense of
$25,755 in 1995 and $5,610 in 1994 38,632 18,553 -
---------- ---------- ----------
1,353,823 1,266,003 1,134,464
Less: Treasury Stock, at Cost 1,103,606 1,095,155 633,177
Unearned Compensation ESOP 323,331 457,434 640,890
Unfunded Pension Obligation, Net of Tax
Benefit of $173,105 - 259,657 -
---------- ---------- ----------
Total Equity (73,114) (546,243) (139,603)
---------- ---------- ----------
TOTAL $2,382,257 $2,885,476 $3,479,435
========== ========== ==========
</TABLE>
See notes to financial statement.
<PAGE>
INSURANCE MANAGEMENT INCORPORATED AND ITS
SUBSIDIARY McCUTHEON, BURR & IMI, INC.
CONSOLIDATED STATEMENT OF INCOME
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
(AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
REVENUES
Commissions and Fees $5,204,711 $5,185,358 $5,484,093
Investment Income 84,725 33,525 36,460
Other 4,121 19,010 7,004
-----------------------------------------
Total Revenues 5,293,557 5,237,893 5,527,557
OPERATING EXPENSES
Compensation and Employee Benefits 3,782,329 3,712,743 3,854,404
Other Operating Expenses 1,210,078 1,158,906 1,279,329
Amortization of Intangibles 157,230 206,254 184,621
Interest Expense 89,827 107,119 78,212
-----------------------------------------
Total Operating Expenses 5,239,464 5,185,022 5,396,566
-----------------------------------------
INCOME BEFORE INCOME TAXES 54,093 52,871 130,991
PROVISION FOR INCOME TAXES 19,460 10,481 52,561
-----------------------------------------
NET INCOME $ 34,633 $ 42,390 $ 78,430
=========================================
NET INCOME PER SHARE $ 2.17 $ 2.72 $ 4.74
=========================================
WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON
STOCK OUTSTANDING 15,933 15,612 16,556
=========================================
</TABLE>
See notes to financial statement.
<PAGE>
INSURANCE MANAGEMENT INCORPORATED AND ITS
SUBSIDIARY McCUTHEON, BURR & IMI, INC.
CONSOLIDATED STATEMENT OF SHAREHOLDERS'EQUITY
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED UNEARNED UNFUNDED
COMMON PAID-IN RETAINED HOLDING TREASURY COMPENSATION PENSION
STOCK CAPITAL EARNINGS GAIN STOCK ESOP OBLIGATION TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1993........... $ 45,000 $272,757 $724,177 $ - ($ 633,717) ($511,250) $ - ($103,033)
Sale of 60 Shares of Treasury Stock - 14,100 - - 540 - - 14,640
Net Income......................... - - 78,430 - - - - 78,430
Acquisition of Stock by ESOP....... - - - - - ( 157,272) - ( 157,272)
Release of ESOP Shares............. - - - - - 27,632 - 27,632
---------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1993......... 45,000 286,857 802,607 - ( 633,177) ( 640,890) - ( 139,603)
Sale of 365 Shares of Treasury
Stock............................ - 77,915 - - 3,285 - - 81,200
Purchase of 1,775 Shares of Company
Stock........................... - - - - ( 465,263) - - ( 465,263)
Net Income......................... - - 42,390 - - - - 42,390
Cumulative Effect of an Accounting
Change.......................... - - - 31,148 - - - 31,148
Change in Unrealized Holding Gain.. - - - ( 12,595) - - - ( 12,595)
Release of ESOP Shares............. - (7,319) - - - 183,456 - 176,137
Unfunded Pension Obligation........ - - - - - - ( 259,657) ( 259,657)
---------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994......... 45,000 357,453 844,997 18,553 ( 1,095,155) ( 457,434) ( 259,657) ( 546,243)
Sale of 181 Shares of Treasury
Stock............................ - 37,823 - - 1,629 - - 39,452
Purchase of 40 Shares of Company
Stock............................ - - - - ( 10,080) - - ( 10,080)
Net Income......................... - - 34,633 - - - - 34,633
Change in Unrealized Holding Gain.. - - - 20,079 - - - 20,079
Release of ESOP Shares............. - ( 4,715) - - - 134,103 - 129,388
Unfunded Pension Obligation........ - - - - - - 259,657 259,657
--------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995......... $ 45,000 $390,561 $879,630 $ 38,632 ($1,103,606) ($323,331) $ - ($ 73,114)
=============================================================================================
</TABLE>
See notes to financial statement.
<PAGE>
INSURANCE MANAGEMENT INCORPORATED AND ITS
SUBSIDIARY McCUTCHEON, BURR & IMI, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
DECEMBER 31, 1995, 1994 AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
(AUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME............................................. $ 34,633 $ 42,390 $ 78,430
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Bad Debts.......................................... 10,000 - -
Depreciation and Amortization...................... 269,928 319,000 311,303
Loss on Disposal of Property and Equipment......... 11,581 3,902 4,932
Gain on Sale of Investments........................ (43,365) - -
Deferred Income Taxes.............................. (46,300) ( 5,230) 29,300
ESOP Compensation.................................. 6,585 ( 48,401) -
Cash Surrender Value............................... (5,738) ( 6,269) ( 6,113)
Decrease (Increase) In:
Receivables...................................... 31,074 266,242 ( 70,067)
Other Current Assets............................. ( 8,052) 18,830 8,596
Deposits......................................... 7,780 ( 399) ( 12,554)
Increase (Decrease) In:
Premiums Payable................................. (328,378) ( 351,339) ( 2,756)
Accounts Payable and Accrued Expenses............ 160,027 ( 168,382) 178,725
Other Liabilities................................ 82,887 30,027 25,793
-----------------------------------
Net Cash Provided By Operating Activities.......... 182,662 100,371 545,589
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from the Sale of Investments.................. 79,088 13 -
Proceeds from the Sale of Property and Equipment....... - - 5,000
Acquisition of Property and Equipment.................. (54,795) ( 13,775) ( 2,508)
Acquisition of Intangible Assets....................... - - ( 233,136)
-----------------------------------
Net Cash Provided (Used) By Investing Activities... 24,293 ( 13,762) ( 230,644)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Long-Term Debt........................... 240,000 - -
Repayment of Long-Term Debt...........................( 586,040) ( 317,390) ( 282,564)
Purchase of Treasury Stock............................( 3,222) ( 48,201) -
Sale of Treasury Stock................................. 40,172 81,200 14,640
------------------------------------
Net Cash Used By Financing Activities............. ( 309,090) ( 284,391) ( 267,924)
-------------------------------------
NET INCREASE (DECREASE) IN CASH.......................( 102,135) ( 197,782) 47,021
CASH AT THE BEGINNING OF THE YEAR....................... 640,599 838,381 791,360
-----------------------------------
CASH AT THE END OF THE YEAR............................ $538,464 $640,599 $838,381
===================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash Paid During the Year For
Interest............................................. $ 84,332 $103,090 $ 80,920
Income Taxes......................................... 13,823 43,477 15,920
</TABLE>
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES
1995
Issued a note payable of $7,578 as partial payment for forty
shares of Company stock.
1994
Issued notes payable of $417,062 as partial payment for
1,775 shares of Company stock.
1993
Issued notes payable of $192,000 as payment for expiration
rights and noncompetition agreements.
Borrowed and simultaneously reloaned $500,000 to the
Company's ESOP.
Guaranteed $157,272 of ESOP debt.
See notes to financial statement.
<PAGE>
INSURANCE MANAGEMENT INCORPORATED AND ITS
SUBSIDIARY McCUTCHEON, BURR & IMI, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1994 AND 1993
NOTE 1 - ACCOUNTING POLICIES
The Company is an independent insurance agency providing,
through major insurance companies, both commercial and
personal lines of insurance to businesses and individuals
throughout the Connecticut area.
Consolidated Policy
The accompanying consolidated financial statements include
the accounts of the Company and its wholly owned subsidiary.
Intercompany transactions and balances have been eliminated
in consolidation.
Revenues
Commission income, the related premiums receivable from
customers, and premiums payable to insurance companies are
recorded at the later of the effective date of insurance
coverage or the billing dated. Premium adjustments,
including policy cancellations, are recorded as they occur.
Contingent commissions and commissions on premiums billed
and collected directly by insurance companies are recorded
as revenue when received.
Cash and Equivalents
All highly liquid investments are considered cash
equivalents. The Company maintains its cash in bank deposit
accounts at high credit quality financial institutions. The
balances, at times, may exceed federally insured limits.
Property and Equipment
Property and equipment are recorded at cost. The cost and
accumulated depreciation applicable to property and
equipment retired or otherwise disposed of are eliminated
from the related accounts and any gain or loss on disposal
is reflected in earnings. Expenditures for maintenance and
repairs are charged to operations as incurred. Depreciation
is provided over the estimated useful lives of the assets
which range from five to forty years, using the straight-
line method.
Intangible Assets
Goodwill, expirations, and noncompetition agreements are
amortized over periods ranging from five to eight years
using the straight-line method.
Income Taxes
Income taxes are provided for the tax effects of
transactions reported in the financial statements and
consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the
basis of assets and liabilities for financial statement and
income tax purposes. The differences relate primarily to
bad debts, investments, property and equipment, ESOP
compensation and pension obligations. The deferred tax
assets and liabilities represent the future consequences of
those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or
settled.
NOTE 1 - ACCOUNTING POLICIES (Continued)
Net Income Per Common Share
Net income per common share is based on the weighted average
number of shares of common stock outstanding during each
year.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect certain
reported amounts and disclosures. Accordingly, actual
results could differ from those estimates.
NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by
reference to various market data and other valuation
techniques as appropriate. The carrying amount of financial
instruments approximates their fair value at December 31,
1995.
NOTE 3 - INVESTMENTS
Effective January 1, 1994 the Company adopted Financial
Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities ("SFAS 115").
This statement addresses the accounting and reporting for
investments in equity securities that have readily
determinable fair values and for all investments in debt
securities. Those investments are to be classified in three
categories - Held to Maturity, Trading Securities and
Available-for-Sale. The adoption of this accounting
principle had no effect on prior years.
At December 31, 1995 and 1994 the Company's investments are
comprised of securities classified as available-for-sale,
resulting in investments being carried at market value. Due
to SFAS 115 not allowing for retroactive restatement, the
Company's investments at December 31, 1993 are stated at the
lower of aggregate cost or market.
[CAPTION]
<TABLE>
UNREALIZED UNREALIZED MARKET
SECURITIES AVAILABLE FOR SALE AT DECEMBER 31, COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
1995......................................... $49,965 $82,775 ($18,388) $114,352
1994......................................... 85,688 61,643 ( 37,480) 109,851
1993......................................... 85,701 83,120 ( 39,126) 129,695
</TABLE>
NOTE 4 - PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
1995 1994 1993
Property and equipment consists of the following:
<S> <C> <C> <C>
Furniture and Equipment............................... $ 977,193 $ 955,262 $ 941,488
Leasehold Improvements................................ 128,196 140,941 140,941
Automobiles........................................... 32,863 38,277 77,828
---------------------------------
1,138,252 1,134,480 1,160,257
Less: Accumulated Depreciation....................... 742,715 672,470 598,400
---------------------------------
$ 395,537 $ 462,010 $ 561,857
=================================
Depreciation Expense.................................. $ 109,864 $ 109,722 $ 125,424
=================================
</TABLE>
NOTE 5 - LONG-TERM DEBT
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Notes payable - Insurance Company, 6% to 8.5%,
due in various installments through December 1996....... $ - $ 245,989 $ 400,779
Notes payable - Bank, prime, due in various
installments through 1997............................... 180,000 156,250 231,250
Notes payable - Individuals, 6.25% to 8%, due in various
installments through March 2003......................... 417,238 478,262 81,600
Notes payable under noncompetition agreements and
purchase of expirations, non-interest bearing, due in
various installments through July 1998.................. 99,200 154,400 221,600
ESOP debt, non-interest bearing and prime plus 1%,
due in various installments through 2001................ 301,572 421,231 640,890
-------------------------------
998,010 1,456,132 1,576,119
Less: Current Portion.................................. 309,186 360,551 436,323
-------------------------------
$688,824 $1,095,581 $1,139,796
===============================
</TABLE>
A loan payable with a bank contains various customary
covenants which impose restrictions with respect to
financial ratios, disposition of assets and other
representations, warranties, and default provisions. At
December 31, 1995 the Company was in violation of certain
covenants which were subsequently waived by the Bank.
Substantially all the Company's assets are pledged as
collateral.
Aggregate maturities of long-term debt subsequent to
December 31, 1995, are as follows:
1996................................ $309,186
1997................................ 229,186
1998................................ 192,786
1999................................ 67,860
2000................................ 67,860
Thereafter.......................... 131,132
--------
$998,010
========
Interest expense for the years ended December 31, 1995, 1994
and 1993 was $86,729, $107,119 and $78,212, respectively.
NOTE 6 - LEASES
The Company leases office space under five operating leases
which expire at various times through 2004. Under three of
the leases, the Company is required to pay maintenance,
insurance, common fees, and taxes. Rent and related
expenses for 1995, 1994 and 1993 were $338,614, $334,080 and
$409,272, respectively.
NOTE 6 - LEASES (CONTINUED)
Future minimum lease payments are as follows:
1996................................. $ 291,871
1997................................. 284,620
1998.................................. 201,600
1999.................................. 192,600
2000................................... 192,600
----------
$1,163,291
==========
NOTE 7 - INCOME TAXES
The provision for income taxes consists of the following:
1995 1994 1993
Currently Payable:
Federal....................................... $ 51,795 $ 7,477 $15,383
State......................................... 13,965 8,234 7,878
Deferred........................................ ( 46,300) (5,230) 29,300
--------------------------
$ 19,460 $10,481 $52,561
==========================
Deferred taxes are comprised of the following:
1995 1994 1993
Deferred Asset................................. $121,500 $254,300 $71,500
Deferred Liabilities........................... ( 98,100) (87,100) ( 81,900)
-----------------------------
Net Deferred Asset (Liability).............. $ 23,400 $167,200 ($ 10,400)
==============================
Deferred taxes are included in other assets and other
liabilities on the consolidated balance sheet.
The effective income tax rate varied from the statutory
federal income tax rate as follows:
1995 1994 1993
Statutory Federal Income Tax
Rate.......................................... 34.0% 34.0% 34.0%
State Income Taxes, Net of Federal Tax Benefit 4.2 6.5 5.9
Effect of Graduated Rates and Other........... (2.2 ) (20.7 ) (.2)
--------------------------
Effective Income Tax Rate..................... 36.0% 19.8% 40.1%
==========================
NOTE 8 - PENSION PLAN
The Company maintains a pension plan which covers
substantially all of its employees. Pension costs include
current service costs which are accrued and funded on a
current basis.
On November 17, 1995, the Board of Directors of the Company
adopted an amendment to "freeze" the defined benefit plan
effective December 1, 1995. As a result of the amendment,
the Company recognized a curtailment loss of $126,955 which
is included in pension expense for the year ended December
31, 1995. See Note 11 - Contingencies for additional
information regarding the pension plan.
Funded status of the Plan at November 30:
1995 1994 1993
Accumulated Benefit Obligation....... ($3,797,615) ($4,500,945) ($3,606,372)
=======================================
Projected Benefit Obligation......... ($3,797,615) ($4,835,982) ($3,829,092)
Plan Assets at Fair Value............ 3,929,622 3,717,139 3,479,308
---------------------------------------
(Excess) Deficit Projected Benefit
Obligation......................... 132,007 (1,118,843) ( 349,784)
Unrecognized Net (Gain) Loss......... ( 270,714) 767,799 6,057
Unrecognized Net Liability at
Transition Date.................... - 295,224 317,934
Additional Minimum Liability......... - ( 727,986) -
---------------------------------------
Prepaid (Accrued) Pension Cost....... ($ 138,707) ($ 783,806) ($ 25,793)
========================================
Net pension cost includes the following components
at November 30:
1995 1994 1993
Service Cost.......................... $ 84,568 $ 126,528 $ 79,474
Interest Cost on Projected
Benefit Obligation.................. 267,220 324,581 259,960
Earnings on Plan Assets............... ( 246,497) ( 228,035) ( 230,294)
Net Amortization and Deferral......... 5,436 953 16,653
--------------------------------------
Net Pension Cost...................... $ 110,727 $ 224,027 $ 125,793
======================================
The discount rate used in determining the actuarial present
value of plan benefits and the expected rate of return on
plan assets was 7.25%, for 1995, 1994, and 1993.
NOTE 9 - EMPLOYEE STOCK OWNERSHIP PLAN
Insurance Management, Inc. sponsors a leveraged employee
stock ownership plan (ESOP) that covers substantially all
its employees. The Company makes annual contributions to
the ESOP. The ESOP shares are pledged as collateral for its
debt. As the debt is repaid, shares are released from
collateral and allocated to active employees, based on the
proportion of debt service paid in the year. The Company
accounts for its ESOP in accordance with Statement of
Position 93-6. Accordingly, the debt of the ESOP is
recorded as debt and the shares pledged as collateral are
reported as unearned ESOP shares in the consolidated
statement of shareholders' equity. As shares are released
from collateral, the Company reports compensation expense
equal to the current market price of the shares, and the
shares become outstanding for earnings-per-share (EPS)
computations. ESOP compensation expense for December 31,
1995, 1994 and 1993 was $201,585, $131,599 and $200,000,
respectively. The ESOP shares as of December 31 were as
follows:
NOTE 9 - EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED)
1995 1994 1993
Allocated Shares........................... 4,942 4,209 4,100
Shares Released for Allocation............. 532 733 109
Unreleased Shares.......................... 1,271 1,803 2,536
------------------------------
Total ESOP Shares.......................... 6,745 6,745 6,745
==============================
Fair Value of Unreleased Shares at
December 31.............................. $301,572 $421,231 $640,890
==============================
NOTE 10 - STOCK OPTION PLAN
The Company maintains an Incentive Stock Option Plan which
provides for granting options to key employees to purchase
up to 10,000 shares of common stock at a price not less than
the fair market value at the date of the grant. Fair value
is determined by an independent appraiser. The term and
exercisability of the stock options are determined by the
Plan's administrator within parameters prescribed in the
plan document.
1995 1994 1993
Shares Under Option:
Outstanding, Beginning of Year........ 1,673 1,428 1,505
Granted During the Year............. - 745 180
Cancelled During the Year........... ( 229) ( 190) ( 217)
Exercised, During the Year.......... ( 65) ( 310) ( 40)
---------------------------
Outstanding, End of Year.............. 1,379 1,673 1,428
===========================
The options are exercisable in February of each year as
follows:
Number of
Options
1996........................................... 240
1997........................................... 313
1998........................................... 161
1999........................................... 161
2000........................................... 161
Subsequent Years............................... 343
At December 31, 1995, 235 options are exercisable at $190
per share, 478 options at $235 per share, and 666 options at
$252 per share.
NOTE 11 - CONTINGENCIES
On June 1, 1991 the Company entered into an agreement to
purchase certain assets of McCutcheon & Burr, Inc. The
agreement required future contingent payments which were not
recorded by the Company. During 1993 the Company
renegotiated and settled this contingent liability for
approximately $207,000 which has been paid and added to the
cost of expirations purchased and is being amortized over
the remaining life of the expirations. A remaining amount
of approximately $78,000 is contingent upon future sales.
An amount has not been recorded in the financial statements
to reflect this remaining contingent obligation.
On July 30, 1993 the Company entered into an agreement to
purchase certain assets of James A. Beardsley. The
agreement provides for future contingent payments based on
total commissions earned during the period August 1993
through July 1998. No amount has been recorded in the
financial statements in connection with this contingent
liability.
As discussed in Note 8 - Pension Plan, the Board of
Directors adopted an amendment to "freeze" the defined
benefit plan. Management is investigating several
alternatives to settle its pension obligation, however as of
June 10, 1996 no settlement has been made. The cost of
settlement has not been determined and it is not known if
this cost may exceed the recorded liability of $138,707 as
of December 31, 1995.
NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results of
operations for the years ended December 31:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 30
<S> <C> <C> <C> <C>
1995
Revenue......................... $1,519,769 $1,206,285 $1,391,554 $1,175,949
Net Profit (Loss)............... 147,113 ( 26,006) 73,575 ( 160,049)
Net Income Per Share............ 9.34 ( 1.65) 4.61 ( 10.04)
1994
Revenues........................ 1,543,702 1,222,048 1,333,555 1,138,588
Net Profit (Loss)............... 166,797 ( 49,154) 37,205 ( 112,458)
Net Income Per Share............ 10.83 ( 3.15) 2.38 ( 7.20)
1993
Revenues........................ 1,855,951 1,215,282 1,299,574 1,156,750
Net Profit (Loss)............... 305,575 ( 71,516) ( 27,827) ( 127,802)
Net Income Per Share............ 18.47 ( 4.32) ( 1.68) ( 7.72)
</TABLE>
<PAGE>
INSURANCE MANAGEMENT, INC. AND SUBSIDIARY
INTERIM CONSOLIDATED FINANCIAL STATEMENTS
INSURANCE MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
CURRENT ASSETS
Cash and Equivalents.................................. $ 516,664 $ 538,464
Investments Available for Sale........................ 124,425 114,352
Receivables:
Premiums, Less Allowance for Doubtful Accounts of
$170,200 in 1996 and $145,000 in 1995.............. 1,198,746 862,320
Other................................................ 3,294 6,667
Other Current Assets.................................. 15,807 8,999
-----------------------
Total Current Assets............................... 1,858,936 1,530,802
PROPERTY AND EQUIPMENT, NET.......................... 342,316 395,537
INTANGIBLE ASSETS
Expiration Rights..................................... 995,136 995,136
Goodwill.............................................. 186,200 186,200
Noncompetition Agreements............................. 414,000 414,000
-----------------------
1,595,336 1,595,336
Less: Accumulated Amortization...................... 1,261,980 1,206,284
-----------------------
Net Intangible Assets.............................. 333,356 389,052
OTHER ASSETS......................................... 83,779 66,866
-----------------------
TOTAL............................................... $2,618,387 $2,382,257
=======================
L I A B I L I T I E S AN D S T O C K H O L D E R S ' E Q U I T Y
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
CURRENT LIABILITIES
Premiums Payable to Insurance Companies.............. $1,212,765 $ 912,348
Accounts Payable and Accrued Expenses................ 280,369 406,306
Current Portion of Long-Term Debt.................... 79,127 309,186
-----------------------
Total Current Liabilities......................... 1,572,261 1,627,840
LONG-TERM DEBT - NET OF CURRENT PORTION............. 508,325 688,824
OTHER LIABILITIES................................... 133,355 138,707
SHAREHOLDERS' EQUITY (DEFICIT)
Common Stock - $1 Par Value, 47,500 Shares
Authorized, 45,000 Shares Issued of Which
27,472 and 27,484 Shares are in the Treasury
at June 30, 1996 and December 31, 1995,
Respectively........................................ 45,000 45,000
Additional Paid-In Capital............................ 386,233 390,561
Retained Earnings..................................... 1,133,438 879,630
Unrealized Holding Gain, Net of Tax Expense of $29,755
in 1996 and $25,755 in 1995......................... 44,713 38,632
-----------------------
1,609,384 1,353,823
Less: Treasury Stock, at Cost....................... 1,103,498 1,103,606
Unearned Compensation ESOP.................... 101,440 323,331
-----------------------
Total Stockholders' Equity (Deficit)............... 404,446 ( 73,114)
------------------------
TOTAL.........................................,,,,,,,, $2,618,387 $2,382,257
=======================
See note to financial statement.
<PAGE>
INSURANCE MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
1996 1995 1996 1995
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
REVENUES
Commissions and Fees...................$1,244,472 $1,196,160 $2,756,615 $2,703,994
Investment Income...................... 8,681 8,162 17,012 14,728
Other.................................. - 1,963 316 7,332
-------------------------------------------------
Total............................... 1,253,153 1,206,285 2,773,943 2,726,054
OPERATING EXPENSES
Compensation and Employee Benefits..... 774,491 896,462 1,604,480 1,822,991
Other Operating Expenses............... 315,409 288,369 653,376 589,057
Amortization of Intangibles............ 26,518 39,308 55,696 78,616
Interest Expense....................... 19,120 22,765 37,383 46,235
-------------------------------------------------
Total............................... 1,135,538 1,246,904 2,350,935 2,536,899
-------------------------------------------------
INCOME BEFORE INCOME TAXES............. 117,615 ( 40,619) 423,008 189,155
PROVISION FOR INCOME TAXES............. 47,040 ( 14,613) 169,200 68,048
-------------------------------------------------
NET INCOME.............................$ 70,575 ($ 26,006) $ 253,808 $ 121,107
=================================================
NET INCOME PER SHARE...................$ 4.34 ($ 1.65) $ 15.60 $ 7.69
=================================================
WEIGHTED AVERAGE NUMBER OF SHARES OF
COMMON STOCK OUTSTANDING............. 16,273 15,755 16,273 15,755
=================================================
</TABLE>
See note to financial statement.
<PAGE>
INSURANCE MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
ADDITIONAL UNREALIZED UNEARNED UNFUNDED
COMMON PAID-IN RETAINED HOLDING TREASURY COMPENSATION PENSION
STOCK CAPITAL EARNINGS GAIN STOCK ESOP OBLIGATION TOTAL
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1995....... $45,000 $357,453 $ 844,997 $18,553 ($1,095,155) ($457,434) ($259,657) ($546,243)
Sale of 181 Shares of Treasury Stock - 37,823 - - 1,629 - - 39,452
Purchase of 40 Shares of Company Stock - - - - ( 10,080) - - ( 10,080)
Net Income....................... - - 34,633 - - - - 34,633
Change in Unrealized Holding Gain - - - 20,079 - - - 20,079
Release of ESOP Shares........... - ( 4,715) - - - 134,103 - 129,388
Unfunded Pension Obligation...... - - - - - - 259,657 259,657
--------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1995..... 45,000 390,561 879,630 38,632 ( 1,103,606) ( 323,331) - ( 73,114)
Sale of 12 Shares of Treasury Stock - 2,696 - - 108 - - 2,804
Net Income....................... - - 253,808 - - - - 253,808
Change in Unrealized Holding Gain - - - 6,081 - - - 6,081
Release of ESOP Shares........... - ( 7,024) - - - 221,891 - 214,867
----------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 (UNAUDITED) $45,000 $386,233 $1,133,438 $44,713 ($1,103,498) ($101,440) $ - $404,446
==============================================================================================
</TABLE>
See note to financial statement
INSURANCE MANAGEMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED
JUNE 30,
1996 1995
(UNAUDITED) (AUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES
NET INCOME.............................. $253,808 $121,107
ADJUSTMENTS TO RECONCILE NET INCOME TO NET
CASH PROVIDED BY OPERATING ACTIVITIES:
Bad Debts............................ 25,200 22,000
Depreciation and Amortization........ 159,627 128,798
Deferred Income Taxes................ ( 32,000) ( 24,000)
ESOP Compensation.................... 10,167 3,293
Cash Surrender Value................. 3,318 ( 2,870)
Decrease (Increase) In:
Receivables........................ (358,253) ( 189,956)
Other Current Assets............... ( 6,808) ( 33,194)
Deposits........................... 4,667 5,030
Increase (Decrease) In:
Premiums Payable................... 300,417 95,511
Accounts Payable and Accrued Expenses (125,937) 101,341
Other Liabilities................... ( 5,352) ( 22,034)
----------------------
Net Cash Provided By Operating Activities 228,854 205,026
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of Property and Equipment.... ( 42,900) ( 3,400)
----------------------
Net Cash Used In Investing Activities. ( 42,900) ( 3,400)
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of Long-Term Debt.............. (210,558) ( 208,086)
Sale of Treasury Stock................... 2,804 40,172
----------------------
Net Cash Used In Financing Activities. (207,754) ( 167,914)
----------------------
NET INCREASE (DECREASE) IN CASH AND
EQUIVALENTS............................ ( 21,800) 33,712
CASH AND EQUIVALENTS AT THE BEGINNING OF THE
PERIOD................................. 538,464 640,599
---------------------
CASH AND EQUIVALENTS AT THE END OF THE
PERIOD................................. $516,664 $674,311
=====================
<PAGE>
INSURANCE MANAGEMENT, INC. AND SUBSIDIARY
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements of Insurance
Management, Inc. and Subsidiary 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 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 the six months ended June 30, 1996 are
not necessarily indicative of the results that may be
expected for the year ending December 31, 1996. For further
information, refer to the Companys' financial statements and
footnotes for the year ended December 31, 1995.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The company is one of the largest independent insurance
agencies in South Central Connecticut with six offices in
New Haven and Middlesex Counties. In spite of the
continuing "soft market" in the property and casualty
industry and the weak economy in Connecticut, property and
casually commission income increased slightly in 1995.
Management is cautiously optimistic about increasing revenue
in 1996 and will continue to keep a tight control on
expenses.
RESULT OF OPERATIONS
Total revenue in 1995 was $5,293,557, an increase of $55,664
over 1994. Total revenue in 1994 was $289,664 lower than in
1993. This reduction was due principally to a significant
reduction, $272,945, in profit sharing income.
Property and casualty commissions in 1995 increased
$187,253, or 4% from 1994. In 1994, there was a minimal
decrease, less than $10,000 from 1993. Life and health
commissions declined $28,500, or 9%, in 1995. In 1994,
there was a decline of $15,912, or 5%. Investment income
increased by $51,200 in 1995. This was due to gains
realized from the sale of securities. In 1994, there was a
decrease of $2,935 due to lower rates of return and slower
collections.
Operating expenses increased $54,442 or 1% in 1995. In
1994, there was a decrease of $211,544 or 4% from 1993.
Compensation and employee benefits costs were $3,782,329 in
1995 compared to $3,712,743 in 1994, an increase of $69,586
or 1.9%. In 1994, there was a decrease of $141,661 or 3.7%
from 1993 compensation and employee benefits costs of
$3,854,404. The increase in 1995 was primarily due to
increased group insurance costs.
In 1995, other operating expenses were $1,210,078, $51,172
or 4.4% higher than 1994. Other operating expenses in 1994
were $1,158,906 or 9.4% lower than 993.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations totalled $182,662, $100,371
and $545,589 for the years ended December 31, 1995, 1994 and
1993, and is primarily dependent upon the timing of the
collection of insurance premiums from clients and payments
of those premiums to the appropriate underwriters.
The Company generates sufficient funds internally for the
purchase of personal property and equipment. Cash
expenditures for property and equipment totaled $54,795,
$13,775 and $2,508 for the years ended December 31, 1995,
1994 and 1993. Certain assets of two insurance agencies
were purchased for $409,136 in 1993. This purchase was also
funded primarily through operations.
Financing activities utilized cash of $309,090, $284,391 and
$267,924 for the years ended December 31, 1995, 1994 and
1993. During 1995, the Company refinanced $240,000 of debt
in order to obtain a more favorable interest rate, and
continued to reduce long term debt through the sale of
treasury stock to select employees.
The Company's current ratio (.94 to 1.00 at December 31,
1995) has consistently improved over the last three years.
The Company expects this trend to continue and believes that
cash generated from operations will provide sufficient funds
to meet the Company's operating requirements.
AGREEMENT OF MERGER
OF
HILB, ROGAL AND HAMILTON COMPANY OF NEW HAVEN
INTO
INSURANCE MANAGEMENT INCORPORATED
THIS MERGER AGREEMENT ("Agreement"), to be effective as
of 12:01 a.m. on October1, 1996, or at such other time
as may be agreed upon by the parties hereto, is made
and entered into by and among HILB, ROGAL AND HAMILTON
COMPANY, a Virginia corporation ("Parent"), for itself
and as agent for its wholly-owned subsidiary formed or
to be formed pursuant to this Agreement, HILB, ROGAL
AND HAMILTON COMPANY OF NEW HAVEN, a Connecticut
corporation ("HRH Merger Subsidiary"), and INSURANCE
MANAGEMENT INCORPORATED, a Connecticut corporation ("Merging
Entity"), and the fifteen shareholders of Merging
Entity (who shall later ratify this Agreement), ROBERT
O. COULTER ("Mr. Coulter"), T. ROBERT MCCARRON ("Mr.
McCarron"), DAVID J. CURRAN ("Mr. Curran"), C. ANTHONY
INGERSOLL ("Mr. Ingersoll"), NEIL W. GARBATINI ("Mr.
Garbatini"), DAVID K. HOMER ("Mr. Homer"), DOUGLAS F.
DANAHER ("Mr. Danaher"), JOSEPH L. FERRY ("Mr. Ferry"),
RICHARD P. RIDINGER ("Mr. Ridinger"), MARIO P. LUPONE
("Mr. Lupone"), HARRY E. BURR ("Mr. Burr"), OWEN J.
FLANNERY ("Mr. Flannery"), STEPHANIE S. SHOREY ("Ms.
Shorey"), MADELYN R. IZZO ("Ms. Izzo") and MESSRS.
COULTER, MCCARRON, CURRAN and INGERSOLL, TRUSTEES OF
THE INSURANCE MANAGEMENT, INC. EMPLOYEE STOCK OWNERSHIP
PLAN ("ESOP")(with Messrs. Coulter, McCarron, Curran,
Ingersoll, Garbatini, Homer, Danaher, Ferry, Ridinger,
Lupone, Burr, and Flannery, Mss. Shorey and Izzo and
ESOP hereinafter sometimes collectively referred to as
"Shareholders" or any one of the foregoing hereinafter
sometimes referred to as "Shareholder"), with reference
to the following facts:
A. Shareholders are the owners and holders of
all of the issued and outstanding shares of the authorized
capital stock (referred to below as the "Common Stock") of
Merging Entity which is engaged in the business of owning
and operating a general insurance agency.
B. Parent is engaged in the business of owning and
operating insurance agencies and will form HRH Merger
Subsidiary for the purposes contemplated herein.
C. Shareholders, Parent and Merging Entity have
reached an understanding with respect to the merger of
HRH Merger Subsidiary into Merging Entity ("Merger")
for which Shareholders shall receive that amount of
Parent's common stock and certain future cash payments
(contingent in amount based on the profitability of the
successor to Merging Entity) as the consideration
stated herein.
D. The parties hereto intend that this Agreement be
characterized as a reverse, triangular statutory merger
pursuant to Sections 368(a)(1)(A) and 368(a)(2)(E) of
the Internal Revenue Code of 1986 ("Code") and further
be accounted for, for financial accounting purposes, as
a "purchase" in accordance with the principles of the
Financial Accounting Standards Board and other
applicable guidelines.
In consideration of the foregoing facts and of the
respective representations, warranties, covenants,
conditions and agreements set forth below, the parties
hereto, intending to be legally bound hereby, agree as
follows:
1. PLAN OF MERGER.
1.1 Effective Date. Subject to fulfillment of the
conditions precedent in Sections 6 and 7 of this
Agreement, Merging Entity and HRH Merger Subsidiary
(collectively, "Constituents") will cause Articles of
Merger to be signed, verified and delivered on or
before October 1, 1996 (or at such later time as may be
agreed upon by the parties), to the Secretary of State
of the State of Connecticut and to be effective as of
12:01 a.m. on October 1, 1996 (or at such later time as
may be agreed upon by the parties) ("Effective Date"),
as provided by the laws of the State of Connecticut.
On the Effective Date, the separate existence of each
entity of Constituents shall cease and HRH Merger
Subsidiary shall be merged with and into Merging
Entity, which shall then become the Surviving
Corporation.
1.2 Corporate Structure of Surviving Corporation.
(a) On the Effective Date, by virtue of the
completion of the Merger, and thereafter until
amended as provided by law, the name of Surviving
Corporation and the articles of incorporation of
Surviving Corporation shall be the name and
articles of incorporation of Merging Entity in
effect immediately prior to the completion of the
Merger.
(b) On the Effective Date, by virtue of the
completion of the Merger, the bylaws of Merging
Entity in effect on the Effective Date shall be
the bylaws for Surviving Corporation.
(c) On the Effective Date, by virtue of the
completion of the Merger, the names and addresses
of the directors for Surviving Corporation shall
be:
Robert H. Hilb
4235 Innslake Drive, P.O. Box 1220
Glen Allen, Virginia 23060-1220
Andrew L. Rogal
4235 Innslake Drive, P.O. Box 1220
Glen Allen, Virginia 23060-1220
Timothy J. Korman
4235 Innslake Drive, P.O. Box 1220
Glen Allen, Virginia 23060-1220
(d) On the Effective Date, by virtue of
completion of the Merger, the officers of
Surviving Corporation shall be:
T. Robert McCarron President
David J. Curran Secretary/Treasurer
C. Anthony Ingersoll Senior Vice President
David K. Homer Senior Vice President and Assistant Secretary
Neil W. Garbatini Vice President
Harry E. Burr Vice President
Douglas F. Danaher Vice President
Joseph L. Ferry Vice President
Robert H. Hilb Vice President
Timothy J. Korman Assistant Treasurer
Dianne F. Fox Secretary
Walter L. Smith Assistant Secretary
1.3 Effect of Merger.
(a) On the Effective Date, the assets and
liabilities of HRH Merger Subsidiary shall be
taken on the books of Merging Entity at the amount
at which they shall at that time be carried on the
books of HRH Merger Subsidiary, subject to such
adjustments to the books of Merging Entity, if
any, as may be necessary to conform to the
accounting procedures of Parent. The books of the
Constituents, as so adjusted, shall become the
books of Surviving Corporation.
(b) On the Effective Date and thereafter,
Surviving Corporation shall possess all the
rights, privileges, immunities, powers, franchises
and authority, both public and private, of each
Constituent. All property of every description,
including every interest therein and all
obligations of or belonging to or due to each of
Constituents shall thereafter be taken and deemed
to be transferred to and vested in Surviving
Corporation, without further act or deed, although
HRH Merger Subsidiary and Merging Entity from time
to time, as and when required by Surviving
Corporation, shall execute and deliver, or cause
to be executed and delivered, all such deeds and
other instruments and shall take, or cause to be
taken, such further action as Surviving
Corporation may deem necessary or desirable to
confirm the transfer to and vesting in Surviving
Corporation of title to and possession of all such
rights, privileges, immunities, franchises and
authority. All rights of creditors of each of
Constituents shall be preserved unimpaired,
limited in lien to the property affected by such
liens immediately prior to the Effective Date, and
Surviving Corporation shall thenceforth be liable
for all the obligations of each of Constituents.
1.4 Conversion of Shares of Common Stock.
(a) All of the outstanding capital stock of
Merging Entity comprises the Common Stock, which
as of the Effective Date, will be owned, collectively,
by Shareholders. As of the Effective Date, each of
the Shareholders own, free and clear of any
liens, encumbrances, restrictions or adverse
claims whatsoever except as set forth in Schedule
2.4, the number of shares of Merging Entity set
forth below opposite his name and each Shareholder
shall receive therefor for each share of Common
Stock the number of shares of no par value common
stock of Parent and other consideration as
described herein:
Shareholder Number of Shares Percentage
Mr. Coulter 3,000 17.4135
Mr. McCarron 1,500 8.7068
Mr. Curran 1,500 8.7068
Mr. Ingersoll 1,500 8.7068
Mr. Homer 1,100 6.3850
Mr. Garbatini 1,080 6.2689
Mr. Ferry 130 .7546
Mr. Danaher 125 .7256
Ms. Shorey 100 .5804
Mr. Ridinger 220 1.2770
Mr. Lupone 85 .4934
Ms. Izzo 65 .3773
Mr. Burr 56 .3251
Mr. Flannery 22 .1277
ESOP 6,745 39.1514
------ --------
17,228 100.0001
In exchange for all of the shares of Common Stock,
Shareholders shall collectively receive 250,000 shares of
common stock of Parent, plus the two payments in common
stock of Parent referenced below, subject to adjustment as
provided in Section 14.6, to all the terms and conditions
contained herein, and the rights under Connecticut law of
any Shareholders dissenting to the Merger. Pursuant to the
Merger, 100% of the shares of Common Stock shall be
exchanged for shares of Parent common stock.
(b) The manner and basis of conversion of shares
on the Effective Date shall be as follows:
(i) Each share of common stock of HRH Merger
Subsidiary which is issued and outstanding on
the Effective Date, with all rights with
respect thereto, shall become one hundred
seventy-two and 28/100 (172.28) shares of
common stock, $1 par value, of Surviving
Corporation. (ii) Each
share of Common Stock which is issued and
outstanding on the Effective Date, with all
rights with respect thereto, shall be
converted into 14.511261 shares (which number
of shares is subject to adjustment as
provided in Section 14.6) of common stock, no
par value, of Parent, plus the right to
receive the proportionate share (or such
lesser amount as may be agreed between any
Shareholder and Merging Entity) of the two
contingent payments described below in
subsection (f), each of which contingent
payments shall not in the aggregate exceed in
value $1,687,500 nor be less in value than
$187,500 (before any applicable offset or
deduction). Such deferred payments shall
have interest imputed at the lowest
applicable federal rate allowed under the
Internal Revenue Code of 1986, as amended
("Code"). No fractional shares of Parent
common stock will be issued, as the number of
shares to be issued to any Shareholder in
accordance with the preceding sentence shall
be rounded up or down to the nearest whole
number (a fractional share of 0.5 or more
will be rounded up; less than 0.5 will be
rounded down). Each shareholder of Common
Stock, upon delivery to Parent or its duly
authorized agent for cancellation of
certificates representing such shares and
subject to the ten percent holdback of shares
described later herein, shall thereafter be
entitled to receive certificates representing
the number of shares of Parent common stock
to which such Shareholder is entitled.
(c) Appropriate adjustment shall be made on the
number of shares of Parent common stock to be issued
upon conversion if, during the period commencing on
July 31, 1996, and ending on the Effective Date,
Parent: (i) effects any dividend payable in shares of
common stock; (ii) splits or combines the outstanding
shares of Parent common stock; (iii) effects any
extraordinary distribution on Parent common stock; (iv)
effects any reorganization or reclassification of
Parent common stock; or (v) fixes a record date for the
determination of shareholders entitled to any of the
foregoing.
(d) Upon delivery of Common Stock to Parent
pursuant to subsection 1.4(b)(ii), Parent shall
receive all of the shares of common stock of
Surviving Corporation outstanding pursuant to
subsection 1.4(b)(i).
(e) Until its surrender, each certificate
comprising Common Stock referred to in subsection
1.4(b)(ii) herein shall be deemed for all
corporate purposes, other than the payment of
dividends, to evidence ownership of the number of
full shares of Parent common stock into which such
shares of Common Stock shall have been changed by
virtue of the merger. Unless and until any such
outstanding certificates of Common Stock shall be
so surrendered, no dividend payable to the holders
of record of Parent common stock, as of any date
subsequent to the Effective Date, shall be paid to
the holders of such outstanding certificates, but
upon such surrender of any such certificate or
certificates there shall be paid to the record
holder of the certificate or certificates of
Parent common stock into which the shares
represented by the surrendered certificate or
certificates shall have been so changed the amount
of such dividends which theretofore became payable
with respect to such shares of Parent.
(f) Contingent Consideration Based on Amount of
Year 1 Agency Profit and Year 2 Agency Profit.
(i) As used herein, the term "Agency Profit"
shall mean the net profit of Surviving
Corporation for any twelve month period
beginning October 1, 1996 ("Year 1") and
October1, 1997 ("Year 2"), determined in
accordance with generally accepted accounting
principles of Parent as described in Section
2.7 hereof, applied on a consistent basis,
and applied uniformly in determining the net
profit of each subsidiary of Parent, before
any provision for federal or state income
taxes and before any provision for
amortization of intangibles of the Surviving
Corporation and before any provision for
interest expense (other than interest
expense, if any, on any line of credit
maintained by Parent and drawn down by
Surviving Corporation for purposes and in
amount consistent with past practices of
Merging Corporation), and before any
provision for any overhead charge (or other
allocation of corporate family expenses) by
Parent, as the parent of Surviving
Corporation, to the Surviving Corporation,
and before any employee compensation expense
attributable to any employee stock option plan of Parent
or Surviving Corporation , or to any reallocation of Parent
common stock to be distributed as a Year 1
Payment or a Year 2 Payment (each as defined
below) with such reallocation being pursuant
to any incentive program established by the
Shareholders and without any expense being taken
or accrued for indemnification paid by Shareholders
pursuant to Section 9.3 below. Additionally, the parties
have reached special agreement with regard to
the calculation of Agency Profit as it
relates to profit sharing expense,
professional fees, business insurance and
direct corporate costs as set forth in this
subsection. Specifically, profit sharing
expense shall be set at 7% of eligible
compensation, regardless of the actual number
(higher or lower) actually determined to be
contributed to Parent's Pension and Profit
Sharing Plan; and the charges for
professional fees, business insurance and
direct corporate costs shall be $165,000,
regardless of the actual costs incurred
therefor. Parent shall cause the Agency
Profit to be determined, and the amount
thereof communicated to the Shareholders, as
soon as is reasonably practicable after Year
1 and Year 2, and, in all events, within
sixty- two (62) days thereafter, and the Year
1 Payment as initially determined, shall be made
by 12/1/97 and the Year 2 Payment as initially
determined shall be made by 12/1/98. In the event of a
disagreement by the Shareholders,
collectively, as to the computation of Agency
Profit for Year 1 or Year 2, such
disagreement shall be resolved in the same
manner as provided in the case of a
disagreement as to the Merger Balance Sheet
under the provisions of Section 14.6 snd any additional
Year 1 Payment or Year 2 Payment shall be made within five
(5) business days of any subsequent determination.
(ii) To the extent the Year 1 Agency Profit
shall be less than $1,400,000 (with such
deficiency being the "Year 1 Deficiency"),
then for each $1 of Year 1 Deficiency ,
Parent shall be entitled to reduce the
maximum aggregate stock payment valued at
$1,687,500 due to Shareholders on December 1,
1997 ("Year 1 Payment"), by $3, down to a
minimum aggregate amount (before any offset
or indemnity) of $187,500 for Year 1 Agency
Profit of $900,000 or less. For example, if
the Year 1 Deficiency equals $100,000,
Shareholders' Year 1 Payment would be reduced
in the aggregate by $300,000 down to the
aggregate amount of stock valued at
$1,387,500. If the Year 1 Deficiency equals
or exceeds $500,000, Shareholders' Year 1
Payment would be reduced in the aggregate by
the maximum amount of $1,500,000 down to the
minimum aggregate amount (before any
applicable offsets) of stock valued at
$187,500.
(iii) To the extent the Year 2 Agency
Profit shall be less than $1,400,000 (with
such deficiency being the "Year 2
Deficiency"), then for each $1 of Year 2
Deficiency, Parent shall be entitled to
reduce the maximum aggregate stock payment
valued at $1,687,500 due to Shareholders on
December 1, 1998 ("Year 2 Payment"), by $3
down to a minimum aggregate amount (before
any offset or indemnity) of $187,500 for Year
2 Agency Profit of $900,000 or less. For
example, if the Year 2 Deficiency equals
$100,000, Shareholders' Year 2 Payment would
be reduced in the aggregate by $300,000 down
to the aggregate amount of stock valued at
$1,387,500. If the Year 2 Deficiency equals
or exceeds $500,000, Shareholders' Year 2
Payment would be reduced in the aggregate by
the maximum amount of $1,500,000 down to the
minimum aggregate amount (before any
applicable offsets) of stock valued at
$187,500.
(iv) The payments to be made to Shareholders'
in Parent common stock based on the amounts
of Year 1 Agency Profit and Year 2 Agency
Profit shall be based on a per share value
computed as the average closing price for
Parent's common stock for the ten New York
Stock Exchange trading days preceding
November 26, 1997, for the Year 1 Payment and
preceding November 26, 1998, for the Year 2
Payment, as the case may be.
(g) Anything to the contrary herein
notwithstanding, in the event that any holder of
Common Stock votes against the Merger pursuant to
Section 3.5 below and then exercises his right to
be paid the fair value of his Common Stock
pursuant to the provisions of Connecticut law
concerning dissenters' rights, then the
consideration payable to such holder shall be so
determined and the consideration which would have
been received by such Shareholder, had he or she
not exercised such dissenters' rights, shall be
reallocated, pro rata, among the nondissenting
Shareholders.
1.5 Closing Date. The closing of the transactions
contemplated by this Agreement ("Closing") shall take
place at the offices of Wiggin & Dana, located at New
Haven, Connecticut, at 11 o'clock a.m. on September 26,
1996, or at such other place and time as shall be
mutually agreed upon by the parties to this Agreement
("Closing Date").
2. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS.
Shareholders, jointly and severally, represent and
warrant to Parent as follows:
2.1 Organization and Standing of Merging Entity.
Merging Entity is a corporation duly organized, validly
existing and in good standing under the laws of the
State of Connecticut ("Home State") and has full power
and authority to carry on its business as it is now
being conducted and to own or hold under lease the
properties and assets it now owns or holds under lease.
Except as set forth in Schedule 2.1 to this Agreement,
Merging Entity is not qualified to do business in any
state or other jurisdiction other than Home State.
Except as set forth in Schedule 2.1, the nature of the
business conducted by Merging Entity and the character
or ownership of properties owned by it does not require
Merging Entity to be qualified to do business in any
other jurisdiction. Furthermore, except as set forth
in Schedule 2.1 to this Agreement, the nature of the
business conducted by Merging Entity does not require
it or any of its employees to qualify for, or to obtain
any insurance agency, brokerage, adjuster, or other
similar license in any jurisdiction other than Home
State. The copy of the articles of incorporation, and
all amendments thereto, of Merging Entity heretofore
delivered to Parent and which have been or will be
initialed for identification purposes by the President
of Merging Entity is complete and correct as of the
date hereof. The copy of the bylaws, and all
amendments thereto, of Merging Entity heretofore
delivered to Parent and which have been or will be
initialed for identification purposes by the President
of Merging Entity is complete and correct as of the
date hereof. The minute book or minute books of
Merging Entity contain a complete and accurate record
in all material respects of all meetings and other
corporate actions of the shareholders and directors of
Merging Entity.
2.2 Name. Neither Merging Entity nor any of
Shareholders has granted to anyone any right to use the
corporate name or any name similar to the corporate
name of Merging Entity.
2.3 Capitalization of Merging Entity. The
capitalization of Merging Entity is as follows:
(a) Merging Entity is authorized to issue 47,500
shares of voting common stock, $1 par value and
2500 shares of preferred stock, $100 par value, none of which
preferred stock is issued or outstanding. Merging Entity is not
authorized to issue, and has not issued, any shares of
any other class. All of the shares comprising Common
Stock outstanding and owned as of the date hereof are
as set forth in Section 1.4(a), supra.
(b) All of the outstanding shares of Common Stock
have been duly and validly issued and are fully
paid and nonassessable. The issuance of all
shares of Common Stock was and has been in
compliance with all applicable statutes, rules and
regulations, including, without limitation, all
applicable federal and state securities laws.
There is no existing option, warrant, call or
commitment to which Merging Entity is a party
requiring the issuance of any additional shares of
common stock of Merging Entity or of any other
securities convertible into shares of common stock
of Merging Entity or any other equity security of
Merging Entity of any class or character
whatsoever, other than the incentive stock option
agreements listed in Schedule 2.3(b) hereto.
(c) No shares of the authorized stock of Merging
Entity have ever been registered under the
provisions of any federal or state securities law,
nor has Merging Entity filed or been required to
file any report with any federal or state
securities commission, department, division or
other governmental agency.
(d) No present or prior holder of any shares of
the authorized stock of Merging Entity is entitled
to any dividends with respect to any such shares
now or heretofore outstanding.
2.4 Ownership of Common Stock. Except as set forth in
Schedule 2.4, each Shareholder is the record owner,
free and clear of any and all liens, encumbrances,
restrictions and adverse claims whatsoever, of the
number of shares of Common Stock set forth opposite his
name in subsection 1.4(a). Each such lien,
encumbrance, restriction or adverse claim can and will
be removed at or prior to the Closing.
2.5 Authority. Shareholders, individually and
collectively, have full and complete authority to enter
into this Agreement and to transfer in accordance with
the terms and conditions of this Agreement all of the
shares of Common Stock, free and clear of all liens,
encumbrances, restrictions and adverse claims
whatsoever. The execution, delivery and performance of
this Agreement by Merging Entity does not violate,
result in a breach of, or constitute a default under,
the articles of incorporation or bylaws of Merging
Entity or any indenture, contract, agreement or other
instrument to which it is a party or is bound, or to
the best knowledge of Shareholders and Merging Entity,
any applicable laws, rules or regulations.
2.6 Subsidiaries and Other Relationships. Except as
disclosed on Schedule 2.6, Merging Entity does not own
any stock or other interest in any other corporation,
nor is it a participant in any joint entity. Except as
disclosed on Schedule 2.6, any stock owned by Merging
Entity in any other entity represents one hundred
percent (100%) ownership of such entity, is owned free
and clear of any and all liens, encumbrances,
restrictions and adverse claims, has been duly and
validly issued and is fully paid and nonassessable.
2.7 Financial Statements. Shareholders and Merging
Entity have caused or will cause to be delivered to
Parent a true and complete copy of the financial
statements of Merging Entity, prepared under the
accounting guidelines of Parent, previously provided to
them in the form of Parent's Accounting Policies and
Procedures Manual ("GAAP Policy"), together with an
unqualified opinion and an accountant's consent to use
such statements in a SEC registration statement, for
the three most recent calendar years of Merging Entity
(with 1995 being audited and 1994 and 1993 being
reviewed) including, without limitation, balance sheets
and statements of income for the periods referred to
above (collectively, "Financial Statements"). In
addition, Shareholders and Merging Entity have
delivered to Parent a true and complete copy of the
unaudited financial statements of Merging Entity for
the most recent month ended, including, without
limitation, a balance sheet and statement of income for
such period then ended. Each of the Financial
Statements is true and correct, is in accordance with
the books and records of Merging Entity, presents
fairly the financial condition and results of
operations of Merging Entity as of the date and for the
period indicated, and has been prepared in accordance
with Parent's GAAP Policy consistently applied
throughout the periods covered by such statements
(including, but not limited to, the establishment of
reserves for bad debts and accruals for all outstanding
debts and expenses). Furthermore, the Financial
Statements did not contain any untrue statement of any
material fact nor omitted to state any material fact
required to be stated to make such Financial Statements
not misleading. Without limiting the generality of the
foregoing, the commission income reflected in each of
the Financial Statements is or will be true and
correct, and the accounts payable reflected in each of
the Financial Statements is or will be true and
correct.
2.8 Absence of Undisclosed Liabilities. (The term
"Most Recent Balance Sheet," as used in this Agreement,
means the internally prepared balance sheet of Merging
Entity at August 31, 1996. Also, the term "Most Recent
Balance Sheet Date," as used in this Agreement, means
August31, 1996.)
Except as and to the extent specifically reflected,
provided for or reserved against in the Most Recent
Balance Sheet or except as disclosed in any Schedule to
this Agreement, Merging Entity, as of the Most Recent
Balance Sheet Date, did not have any indebtedness,
liability or obligation of any nature whatsoever,
whether accrued, absolute, contingent or otherwise, and
whether due or to become due, including, without
limitation, tax liabilities due or to become due, and
whether incurred in respect of or measured by the
income of Merging Entity for any period prior to the
Most Recent Balance Sheet Date, or arising out of
transactions entered into, or any state of facts
existing, prior thereto, and none of Shareholders knows
or has reasonable grounds to know of any basis for the
assertion against Merging Entity, as of the Most Recent
Balance Sheet Date, of any indebtedness, liability or
obligation of any nature or in any amount not fully
reflected or reserved against in the Most Recent
Balance Sheet or otherwise disclosed in any Schedule to
this Agreement.
2.9 No Adverse Change. Since the Most Recent Balance
Sheet Date, there has been no material change in the
financial condition, results of operations or business
prospects of Merging Entity other than changes
occurring in the ordinary course of business or except
as otherwise disclosed in any of the Schedules to this
Agreement, which changes have not had a material
adverse effect on the financial condition, results of
operations or business prospects of Merging Entity.
Without limiting the generality of the foregoing, since
the Most Recent Balance Sheet Date, there has been no
material adverse change in the insurance accounts
included within the "Book of Business" of Merging
Entity, and none of Shareholders knows or has
reasonable grounds to know of any basis for any
material adverse change in such insurance accounts
between the date hereof and the Effective Date. For
purposes hereof, "material adverse change" in the
insurance accounts included in the "Book of Business"
of Merging Entity means, without limitation, the loss
of any account generating an aggregate annual gross
income (commission or otherwise) of $5,000 or more.
2.10 Taxes. Merging Entity has filed all federal,
state and local income, withholding, social security,
unemployment, excise, real property tax, tangible
personal property tax, intangible personal property tax
and all other tax returns and reports required to be
filed by it to the date hereof and all of such returns
and reports are true and correct. All taxes,
assessments, fees, penalties, interest and other
governmental charges which were required to be paid
prior to the date hereof by Merging Entity on such
returns and reports have been duly paid and satisfied
on or before their respective due dates. No tax
deficiency or penalty has been asserted or threatened
with respect to Merging Entity. No federal or state
income tax return of Merging Entity has been audited
or, to the knowledge of any Shareholder, proposed to be
audited, by any federal or state taxing authority,
including, without limitation, the U.S. Internal
Revenue Service and the Connecticut Department of
Revenue Services, and no waiver of any statute of
limitations has been given or is in effect with respect
to the assessment of any taxes against Merging Entity.
The provisions for taxes included in the Most Recent
Balance Sheet and in the Prior Years Financial
Statements were sufficient for the payment of all
accrued and unpaid federal, state and local income,
withholding, social security, unemployment, excise,
real property, tangible personal property, intangible
personal property and other taxes of Merging Entity,
whether or not disputed, for the periods reflected, and
for all years and periods prior thereto.
2.11 Real and Personal Property Owned by Merging
Entity. Except as set forth in Schedule 2.11, Merging
Entity does not own any real property ("Real
Property"). Merging Entity has good and marketable
title to the Real Property and owns the Real Property
free and clear of any liens, encumbrances or claims,
except as further set forth in Schedule 2.11. Schedule
2.11 also consists of a copy of the depreciation
schedules filed as a part of the two prior annual
Federal income tax returns of Merging Entity (with
deletions of any items disposed of prior to the date of
this Agreement), a separate list of each item of
depreciable personal property acquired by Merging
Entity since the Most Recent Balance Sheet Date and
having a cost of $1,000.00 or more, and a separate list
of each item of intangible personal property presently
owned by Merging Entity. Merging Entity also owns
various items of disposable type personal property such
as office supplies that are not listed in Schedule
2.11. Merging Entity has good and marketable title to
all such tangible and intangible personal property, in
each case free and clear of all mortgages, security
interests, conditional sales agreements, claims,
restrictions, charges or other liens or encumbrances
whatsoever except as otherwise stated in Schedule 2.11.
2.12 Leases. Schedule 2.12 contains a correct and
complete list and brief description of all leases or
other agreements under which Merging Entity is a tenant
or lessee of, or holds or operates any property, real
or personal, owned by any third party. Merging Entity
is the owner and holder of the leasehold estates
granted by each of the instruments described in
Schedule 2.12 except as otherwise stated in Schedule
2.12. Each of said leases and agreements is in full
force and effect and constitutes a legal, valid and
binding obligation of the respective parties thereto,
enforceable in accordance with its terms. Merging
Entity enjoys peaceful and undisturbed possession of
all properties covered by all such leases and
agreements, and there is not any existing default or
event or condition, including the Merger contemplated
herein, which with notice or lapse of time, or both,
would constitute an event of default under any of such
leases or agreements.
2.13 Insurance. Schedule 2.13 contains a correct and
complete list, as of the date hereof, of all policies
of casualty, fire and extended coverage, theft, errors
and omissions, liability, life, and other forms of
insurance owned or maintained by Merging Entity. All
business operations of Merging Entity are and have been
continually insured against errors and omissions. Such
policies are in amounts deemed by Shareholders to be
adequate. Each such policy is, on the date hereof, in
full force and effect, and Merging Entity is not in
default with respect to any such policy.
Furthermore, Schedule 2.13 contains a correct and
complete list of all group life, group medical and
disability or other similar forms of insurance which
constitute an obligation of or benefit provided by
Merging Entity. Schedule 2.13 also contains a list of
any former employees or their dependents who are
presently under COBRA continuation coverage and
describes with reasonable particularity the pertinent
factors about each such person listed.
With respect to errors and omissions (professional
liability) insurance policies listed in Schedule 2.13
(which lists for each such policy the carrier,
retrodate, claims made or occurrence policy and
limits), prior to the effective dates of such policies,
Merging Entity had not given notice to any prior
insurer of any act, error or omission in services
rendered by any agent or employee of such corporation
or that should have been rendered by any agent or
employee of such corporation arising out of the
operations of Merging Entity. Furthermore, to the best
knowledge of Shareholders, no agent or employee of
Merging Entity breached any such professional duty or
obligation prior to the effective dates of such
policies. With respect to such policies, Merging
Entity has given notice of any and all claims for any
act, error or omission by any agent or employee of such
corporation with respect to professional services
rendered or that should have been rendered as required
by the terms of such policies (if any such notice has
been given, its contents are described in Schedule
2.13). To the best knowledge of Shareholders, Merging
Entity has not taken, nor has it failed to take, any
action which would provide the insurer with a defense
to its obligation under any such policy; neither
Merging Entity nor any Shareholder has received from
any such insurer any notice of cancellation or
nonrenewal of any such policy, and, except as set forth
in Schedule 2.13, no Shareholder has any basis to
believe that Merging Entity, or any agent or employee
of Merging Entity, has breached any professional duty
or obligation.
2.14 Insurance Companies. Schedule 2.14 contains a
correct and complete list of all insurance companies
with respect to which Merging Entity has an agency
contract or similar relationship. Except as identified
in Schedule 2.14, all relations between Merging Entity
and the insurance companies represented by it are good,
and no Shareholder has any knowledge of any proposed
termination of, or modification to, the existing
relations between Merging Entity and any of such
insurance companies. Furthermore, except as otherwise
set forth in Schedule 2.14, all accounts with all
insurance companies represented by Merging Entity or
with whom it transacts business are current and there
are no disagreements or unreconciled discrepancies
between Merging Entity and any such company as to the
amounts owed by Merging Entity.
2.15 Customers. Except as identified in Schedule 2.15,
all relations between Merging Entity and its present
customers are good, and no Shareholder has any
knowledge of any proposed termination of any insurance
account presently written or serviced by Merging
Entity. Also, except as otherwise set forth in Schedule
2.15, all customer accounts, including, without
limitation, those accounts with respect to which
Merging Entity financed any premiums, are current. For
purposes of Section 2.15, the terms "insurance account"
and "customer account" shall be limited to accounts
which generate an aggregate annual gross income
(commission or otherwise) of $5,000 or more.
2.16 Officers and Directors; Banks; Powers of Attorney.
Schedule 2.16 contains a correct and complete list of
all officers and directors of Merging Entity, a correct
and complete list of the names and addresses of each
bank in which Merging Entity has any account or safe
deposit box, together with the names of all persons
authorized to draw on each such account or having
access to any such safe deposit box, and a correct and
complete list of the names of all persons holding
powers of attorney from Merging Entity.
2.17 Compensation and Fringe Benefits. Schedule 2.17
contains a correct and complete list of each officer,
director, employee or agent of Merging Entity in the
format as set forth in Schedule 2.17. Also, Schedule
2.17 contains a description of all fringe benefits
presently being provided by Merging Entity to any of
its employees or agents.
2.18 Patents; Trademarks; Copyrights and Trade Names.
Merging Entity owns or is possessed of or is licensed
under such patents, trademarks, trade names and
copyrights (including, without limitation, software) as
are used in, and are of material importance to, the
conduct of its business, all of which are in good
standing and uncontested. Schedule 2.18 contains a
correct and complete list of all material patents,
patent applications filed or to be filed, trademarks,
trademark registrations and applications, trade names,
copyrights and copyright registrations and applications
owned by or registered in the name of Merging Entity.
There is no material claim pending or, to the best
knowledge of Shareholders, threatened against Merging
Entity with respect to any alleged infringement of any
patent, trademark, trade name or copyright owned or
licensed to anyone other than Merging Entity.
2.19 Indebtedness. Schedule 2.19 contains a correct
and complete list of all instruments, agreements or
arrangements pursuant to which Merging Entity has
borrowed any money, incurred any indebtedness or
established any line of credit which represents a
liability of Merging Entity on the date hereof. True
and complete copies of all such written instruments,
agreements or arrangements have heretofore been
delivered to, or made available for inspection by,
Parent. Merging Entity has performed all of the
obligations required to be performed by it to date, and
is not in default in any material respect under the
terms of any such written instruments, agreements or
arrangements, and no event has occurred which, but for
the passage of time or the giving of notice, or both,
would constitute such a default.
2.20 Employment Agreements and Other Material
Contracts. Schedule 2.20 contains a complete copy of
every written employment agreement, independent
contractor and brokerage agreement, and a list and
brief description of all other material contracts,
agreements and other instruments to which Merging
Entity is a party at the date hereof. Except as
identified in Schedule 2.20, or in any other Schedule
attached to this Agreement, Merging Entity is not a
party to any oral or written: (i) material contract,
agreement or other instrument not made in the ordinary
course of business; (ii) contract for the employment of
any person which is not terminable (without liability)
on 30 days or less notice; (iii) license, franchise,
distributorship, dealer, manufacturer's representative,
sales agency or advertising agreement; (iv) contract
with any labor organization; (v) lease, mortgage,
pledge, conditional sales contract, security agreement,
factoring agreement or other similar agreement with
respect to any real or personal property, whether as
lessor, lessee or otherwise; (vi) contract to provide
facilities, equipment, services or merchandise to any
other person, firm or corporation; (vii) contract for
the future purchase of materials, supplies, services,
merchandise or equipment; (viii) profit-sharing, bonus,
deferred compensation, stock option, severance pay,
pension, retirement or other plan or agreement
providing employee benefits; (ix) agreement or
arrangement for the sale of any of its properties,
assets or rights or for the grant of any preferential
rights to purchase any of its assets, properties, or
rights; (x) guaranty, subordination or other similar or
related type of agreement; (xi) contract or commitment
for capital expenditures; (xii) agreement or covenant
not to compete, solicit or enter into any particular
line of business; or (xiii) agreement for the
acquisition of any business or substantially all of the
properties, assets or stock or other securities of any
business under which there are any continuing or
unperformed obligations on the part of Merging Entity.
Merging Entity is not in default in any material
respect under any agreement, lease, contract or other
instrument to which it is a party. No party with whom
Merging Entity has any agreement which is of material
importance to its business is in default thereunder.
2.21 Absence of Certain Events. Since the Most Recent
Balance Sheet Date, the business of Merging Entity has
been conducted only in the ordinary course and in
substantially the same manner as theretofore conducted,
and, except as set forth in Schedule 2.21 attached to
this Agreement, or in any other Schedule attached to
this Agreement, Merging Entity has not, since the Most
Recent Balance Sheet Date: (i) issued any stocks,
bonds or other corporate securities or granted any
options, warrants or other rights calling for the issue
thereof; (ii) incurred, or become subject to, any
material obligation or liability (whether absolute or
contingent) except (A) current liabilities incurred in
the ordinary course of business, (B) obligations under
contracts entered into in the ordinary course of
business and (C) obligations under contracts not
entered into in the ordinary course of business which
are listed in Schedule 2.20; (iii) discharged or
satisfied any lien or encumbrance or paid any
obligation or liability (whether absolute or
contingent) other than current liabilities shown on the
Most Recent Balance Sheet and current liabilities
incurred since the Most Recent Balance Sheet Date in
the ordinary course of business; (iv) declared or made
any payment of dividends or distribution of any assets
of any kind whatsoever to stockholders or purchased or
redeemed any of its capital stock; (v) mortgaged,
pledged or subjected to lien, charge or any other
encumbrance, any of its assets and properties, real,
tangible or intangible; (vi) sold or transferred any of
its assets, properties or rights, or cancelled any
debts or claims, except in each case in the ordinary
course of business, or entered into any agreement or
arrangement granting any preferential rights to
purchase any of its assets, properties or rights or
which required the consent of any party to the transfer
and assignment of any of its assets, properties or
rights; (vii) suffered any extraordinary losses
(whether or not covered by insurance) or waived any
extraordinary rights of value; (viii) entered into any
transaction other than in the ordinary course of
business except as herein stated; (ix) amended its
articles of incorporation or bylaws; (x) increased the
rate of compensation payable or to become payable by it
to any of its employees or agents over the rate being
paid to them at the Most Recent Balance Sheet Date;
(xi) made or permitted any amendment to or termination
of any material contract, agreement or license to which
it is a party other than in the ordinary course of
business; or (xii) made capital expenditures or entered
into any commitments therefor aggregating more than
$5,000.00. Except as contemplated by this Agreement,
or the Schedules referred to in this Agreement, between
the date hereof and the Closing Date, Merging Entity
will not, without the prior written consent of Parent,
do any of the things listed above in clauses (i)
through (xii) of this Section 2.21.
2.22 Investigations and Litigation. There is no
investigation by any governmental agency pending, or,
to the best knowledge of Shareholders, threatened
against or adversely affecting Merging Entity, and
except as set forth on Schedule 2.22, there is no
action, suit, proceeding or claim pending, or, to the
best knowledge of Shareholders, threatened against
Merging Entity, or any of its businesses, properties,
assets or goodwill, which might have a material adverse
effect on such corporation, or against or affecting the
transactions contemplated by this Agreement. There is
no outstanding order, injunction, judgment or decree of
any court, government or governmental agency against or
affecting Merging Entity, or any of its businesses,
properties, assets or goodwill.
2.23 Overtime, Back Wages, Vacation and Minimum Wages.
To the best knowledge of Shareholders, no present or
former employee of Merging Entity has any claim against
Merging Entity (whether under federal or state law)
under any employment agreement, or otherwise, on
account of or for: (i) overtime pay for any period
other than the current payroll period; (ii) wages or
salary for any period other than the current payroll
period; (iii) vacation or time off (or pay in lieu
thereof), other than that earned in respect of the
current fiscal year; or (iv) any violation of any
statute, ordinance, rule or regulation relating to
minimum wages or maximum hours of work, except as
otherwise set forth in Schedule 2.23.
2.24 Discrimination, Occupational Safety and Other
Statutes and Regulations. To the best knowledge of
Shareholders, no persons or parties (including, without
limitation, governmental agencies of any kind) have any
claim, or basis for any claim, action or proceeding,
against Merging Entity arising out of any statute,
ordinance, rule or regulation relating to
discrimination in employment or employment practices or
occupational safety and health standards (including,
without limitation, The Occupational Safety and Health
Act, The Fair Labor Standards Act, Title VII of the
Civil Rights Act of 1964, The Civil Rights Act of 1992,
The Americans with Disabilities Act, and The Age
Discrimination in Employment Act of 1967, as any of the
same may have been amended).
2.25 Employee Benefit Plans.
(A) There are no employee benefit plans or
arrangements of any type, including but not
limited to any retirement, health, welfare,
insurance, bonus, executive compensation,
incentive compensation, stock bonus, stock option,
deferred compensation, commission, severance,
parachute, rabbi trust program or plan described
in Section 3(3) of the Employee Retirement Income
Security Act of 1974 ("ERISA"), maintained by
Merging Entity, or with respect to which Merging
Entity has a liability, other than those set forth
in Schedule 2.25(a) ("Employee Benefit Plans").
The Insurance Management Incorporated Defined
Benefit Plan listed on Schedule 2.25(a) ("Defined
Benefit Plan") was frozen as of December 1, 1995
and will continue in existence as of the Effective
Date.
(B) With respect to each Employee Benefit Plan,
except as set forth in Schedule 2.25(b): (i) if
intended to qualify under Sections 79, 105, 106,
125, 129, 401(a) or 409, or other Sections, of the
Internal Revenue Code ("Code"), such plan so
qualifies, and if applicable, its trust is exempt
from federal income tax under Code Section 501(a);
(ii) except where nonenforcement would not have a
material adverse effect on the operations of
Merging Entity, such plan has been administered
and enforced in accordance with its terms and
applicable law; (iii) no breaches of fiduciary
duty by Merging Entity, the Trustees, or, to the
best knowledge and belief of Merging Entity and
Shareholders after reasonable investigation, any
other person, have occurred; (iv) no disputes are
pending, or, to the knowledge of Merging Entity
and Shareholders, threatened; (v) no nonexempt
prohibited transaction has occurred; (vi) other
than any reportable event that may have occurred
as a result of the consummation of this Agreement,
there has been no reportable event for which the
30-day notice requirement under ERISA has not been
waived which could result in material liability to
Merging Entity; (vii) all contributions and
premiums due have been made on a timely basis
(including, if applicable, the time limited
established under Code Sections 404 and 412) or
have been properly recorded in the financial
records of Merging Entity; (viii) all
contributions made or required to be made meet the
requirements for deductibility under the Code; and
(ix) except as set forth in Schedule 2.25(b), no
liability (whether an indebtedness, a fine, a
penalty, a tax or any other amount) has been
incurred or will be incurred by Merging Entity as
a result of its maintenance, operation or
termination of any Employee Benefit Plan.
(C) No Employee Benefit Plan is a multiemployer
plan, as defined in Section 4001(a)(3) of ERISA or
a multiple employer plan. The consummation of the
transactions contemplated by this Agreement will
not entitle any individual to severance pay, and
will not accelerate the time of payment or
vesting, or increase the amount, of compensation
due to any individual.
(D) With respect to each Employee Benefit Plan,
Merging Entity has delivered or caused to be
delivered to Parent true and complete copies,
where applicable, of (i) all plan documents,
amendments and trust agreements currently in
effect; (ii) all summary plan descriptions, or
other notices or summaries of modifications, which
have been prepared by, or on behalf of Merging
Entity; (iii) all material employee
communications; (iv) the three (3) most recent
annual reports (Forms 5500); (v) the most recent
annual and any subsequent periodic accounting of
plan assets; and, (vi) the most recent
determination letter received from the IRS.
(E) With respect to each Employee Benefit Plan,
there is no pending claim or lawsuit which has
been asserted against that Employee Benefit Plan,
the assets of any of the trusts under such
Employee Benefit Plan, Merging Entity, or any
fiduciary of such Employee Benefit Plan with
respect to the operation of such Employee Benefit
Plan. Merging Entity and Shareholders, after
reasonable investigation, know of no facts or circumstances
which could form the basis for any such claim or lawsuit.
(F) All amendments required to have been made to
bring each Employee Benefit Plan into conformity
in all material respects with all of the
applicable provisions of the Code, ERISA and other
applicable laws have been made.
(G) Each Employee Benefit Plan has met, by its
terms and in its operation, all applicable
requirements for an exemption from federal income
taxation under Section 501(a) of the Code.
(H) There are no actions, audits, suits or claims
which are threatened or pending against any such
Employee Benefit Plan, any fiduciary of any of the
Employee Benefit Plans, or against any of the
assets of the Employee Benefit Plans other than
claims for benefits in the ordinary course.
(I) Merging Entity has no obligation to any
retired or former employee or any current employee
upon retirement under any Employee Benefit Plan
except as set forth in Schedule2.25(a).
2.26 Competitors. Except as disclosed in Schedule
2.26, none of Shareholders has any interest, direct or
indirect, as an owner, partner, agent, shareholder,
officer, director, employee, consultant or otherwise,
in any firm, partnership, corporation or other entity
that is engaged in the insurance agency business, or
any aspect thereof, other than Merging Entity or a
corporation listed on a national securities exchange or
a corporation whose securities are traded in the over-
the- counter market.
2.27 Accounts and Notes Receivable. Except for the
accounts receivable set forth in Schedule 2.27, all
accounts receivable and all notes receivable of Merging
Entity reflected in the Most Recent Balance Sheet and
to be reflected in the Merger Balance Sheet are fully
collectible when due at the aggregate amount shown,
less the bad debt allowance as so reflected, it being
the intent of all of the parties to this Agreement that
Shareholders are hereby representing and warranting to
Parent the full collectibility when due of all of the
notes receivable and accounts receivable of Merging
Entity in the aggregate amount shown in each such
balance sheet, less the accounts receivable so set
forth in Schedule 2.27 and such bad debt allowance.
Except as set forth in Schedule 2.27, all notes
receivable of Merging Entity are due and payable within
one year after the Effective Date. Any such notes
receivable due and payable more than one year after the
Effective Date ("Long Term Notes") are fully
collectible when due at the aggregate amount shown.
Except as further set forth in Schedule 2.27, no Long
Term Notes are secured by any interest in property,
whether it be real, personal or intangible. In the
event of any delinquency or nonpayment of any portion
of a Long Term Note, Shareholders shall be obligated to
satisfy such deficiency in the same manner as specified
below for all other receivables of Merging Entity.
2.28 Permits and Licenses. All permits, licenses and
approvals of all federal, state or local regulatory
agencies, which are required in order to permit Merging
Entity and its employees and agents to carry on
business as now conducted by it, have been obtained by
it and are current. 2.29 No Violation or
Default. The execution, delivery and performance of
this Agreement by Shareholders and Merging Entity will
not violate, result in a breach of, or constitute a
default under, the articles of incorporation or bylaws
of Merging Entity or of any indenture, contract,
agreement or other instrument to which Merging Entity
is a party or is bound including, without limitation,
any agency contract with any insurance company.
2.30 Common Stock of Parent. Shareholders understand
and acknowledge that the common stock of Parent to be
received pursuant to this Agreement is subject to Rule
145 of the Securities Exchange Commission ("SEC"); such
stock is being acquired for investment purposes only
and not with a view to distribution or resale; any sale
or other disposition of such stock shall be made
pursuant to the regulations promulgated under Rule 145
and in compliance with all other applicable laws,
regulations and interpretations.
2.31 Financing Statements. Except as disclosed on
Schedule 2.31, there are no financing statements or
other security interests of any kind filed or required
to be filed against Merging Entity's assets or
affecting the use of, or title to, such assets
("Financing Statements"). Except as further disclosed
on Schedule 2.31, there are no deferred money purchase
notes related to Merging Entity's acquisition of any
portion of its assets ("Notes"). Any such liabilities
related to the Financing Statements or Notes can be
discharged or prepaid prior to their stated maturities
without penalty, except as further detailed on Schedule
2.31. The assumption by Surviving Corporation of such
liabilities will not result in a default of any
Financing Statement or Note.
2.32 Brokers. Except as disclosed in Schedule 2.32,
neither Merging Entity nor any Shareholder has employed
any broker or finder for the purposes of completing the
transactions contemplated herein such that no
commission, finder's fee, brokerage fee or similar
charge will be incurred for the consummation of the
transactions contemplated herein.
2.33 Disclosure. Shareholders have each received a
copy of Parent's current S-4 registration statement
dated February 12, 1992, most recent annual report,
Form 10-K and Form 10-Q and will acknowledge receipt of
an amendment or supplement to such registration
statement. 2.34 Material Misstatements or
Omissions. No representation or warranty by
Shareholders or Merging Entity, or any of them,
contained in this Agreement or in any document,
statement, certificate, Schedule or financial statement
furnished or to be furnished to Parent by or on behalf
of Shareholders or Merging Entity, or any of them,
pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement contains,
or will when furnished contain, any untrue statements
of a material fact, or omits, or will then omit to
state, a material fact necessary to make the statements
contained herein or therein not misleading.
3. COVENANTS OF SHAREHOLDERS AND MERGING ENTITY PRIOR
TO EFFECTIVE DATE. Shareholders and Merging Entity
covenant with Parent that, between the date of the
execution of this Agreement and the Effective Date,
unless prior written consent to the contrary is
obtained from Parent:
3.1 Operate in Ordinary Course. Merging Entity will
be operated only in the ordinary course of business.
3.2 Negative Covenants. Except as contemplated by
this Agreement, Merging Entity will not do any of the
things listed in clauses (i) through (xii) of Section
2.21 of this Agreement.
3.3 Continuing Accuracy of Representations. There
shall be no action, or failure to act, which would
render any of the representations and warranties of
Shareholders contained in this Agreement untrue or
incorrect in any material respect.
3.4 Preserve Business Organizations. Except as
otherwise requested by Parent, and without making any
commitment on Parent's behalf, Shareholders will use
their best efforts to preserve the business
organizations of Merging Entity intact, to keep
available to Parent the services of its present
employees, and to preserve for Parent the goodwill of
its customers and others having business relations with
them.
3.5 Corporate Approvals. The board of directors of
Merging Entity will recommend to Shareholders that
Shareholders adopt this Agreement. Merging Entity
agrees to submit this Agreement to Shareholders prior
to the Effective Date and as soon as practicable after
delivery by Parent to Shareholders and Merging Entity
of an amended or supplemented S-4 registration
statement for Parent's common stock to be issued
pursuant to this Agreement and after Shareholders have
had an effective opportunity of at least ten (10)
days to review such prospectus.
4. ACCESS AND INFORMATION. Throughout the period
between the date of the execution of this Agreement by
Shareholders and Merging Entity and the Closing Date,
Shareholders shall cause Merging Entity and all its
employees to give to Parent, and any and all authorized
representatives of Parent (including auditors and
attorneys), full and unrestricted access, during
normal business hours, to the offices, assets, properties,
contracts, books and records of Merging Entity in order to
give Parent full opportunity to make such investigations as
it deems appropriate with respect to the affairs of Merging
Entity, and shall further cause Merging Entity, and all of
its employees to provide to Parent during such period such
additional information concerning the affairs of Merging
Entity as Parent may reasonably request. All information
obtained from any such investigation shall be held in
confidence, and, in the event of the termination of this
Agreement, Parent covenants with Shareholders and Merging
Entity that Parent will use its best efforts to return all
such documents, working papers and other written information
concerning Shareholders and Merging Entity obtained or
prepared in connection with any such investigation.
Regardless of any such investigation by Parent, all
representations and warranties of Shareholders
contained in this Agreement shall remain in full force
and effect and no such investigation shall cause or
result in a waiver by Parent of any of the
representations and warranties of Shareholders
contained herein.
5. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent
represents and
warrants to Shareholders as follows:
5.1 Organization and Standing of Parent and HRH Merger
Subsidiary. Parent is a corporation duly organized,
validly existing and in good standing under the laws of
the Commonwealth of Virginia. HRH Merger Subsidiary,
will, as of the Effective Date, be duly organized,
validly existing and in good standing under the laws of
the State of Connecticut.
5.2 Authority. Except for: (i) the incorporation of
HRH Merger Subsidiary; (ii) the approval of the
transactions contemplated hereby by the board of
directors of Parent and by the board of directors and
shareholder of HRH Merger Subsidiary; (iii) amendment
or supplementation of Parent's registration statement
pursuant to this Agreement; (iv) approval by the New
York Stock Exchange of the listing of the shares of
Parent common stock to be issued pursuant to this
Agreement; and (v) the issuance of a certificate of
merger to be issued by the Secretary of the State of
Connecticut, no governmental or other authorization,
approval or consent for the execution, delivery and
performance of this Agreement by Parent or HRH Merger
Subsidiary is required. The execution, delivery and
performance of this Agreement by Parent and HRH Merger
Subsidiary will not violate, result in a breach of, or
constitute a default under, the articles of
incorporation or bylaws of any such corporation or any
indenture, contract, agreement or other instrument to
which such corporation is a party or is bound.
5.3 Capitalization of Parent and HRH Merger
Subsidiary. As of June 30, 1996, the authorized
capital stock of Parent consisted of 50,000,000 shares
of common stock, no par value, of which 13,368,868
shares were issued and outstanding, fully paid and
nonassessable. The authorized capital stock of HRH
Merger Subsidiary will consist of 5,000 shares of
common stock, $1 par value, of which 100 shares will be
issued and outstanding, fully paid and nonassessable
and owned of record and beneficially by Parent prior
to, and as of, the Effective Date. Except for the
shares to be subscribed for by Parent pursuant to this
Agreement, there are no outstanding options, warrants
or other rights to subscribe for or purchase capital
stock of HRH Merger Subsidiary or securities
convertible into or exchangeable for capital stock of
HRH Merger Subsidiary.
5.4 Status of Parent common stock. The shares of
Parent common stock to be issued to Shareholders
pursuant to this Agreement will, when so issued, be
duly and validly authorized and issued, fully paid,
nonassessable, registered pursuant to the Securities
Act of 1933 ("33 Act") and may be sold pursuant to Rule
145 under the 33 Act.
5.5 Brokers' or finders' fees. No agent, broker,
person, or firm acting on behalf of Parent or any of
its subsidiaries or under the authority of any of them
is or will be entitled to any commission or broker's or
finder's fee or financial advisory fee from Parent or
HRH Merger Subsidiary in connection with any of the
transactions contemplated herein.
5.6 Financial Statements. Parent has delivered to
Shareholders a true and complete copy of its financial
statements for calendar years 1994 and 1995 ("Parent's
Financial Statements"). Parent's Financial Statements
were prepared under the GAAP Policy and are true and
correct, are in accordance with the consolidated books
and records of Parent, and present fairly the
consolidated financial condition and results of
operations of Parent as of the date and for the period
indicated.
5.7 Absence of Undisclosed Liabilities. (The term
"Parent's Most Recent Balance Sheet," as used in this
Agreement, means the balance sheet of Parent at
December 31, 1995. Also, the term "Parent's Most
Recent Balance Sheet Date," as used in this Agreement,
means December 31, 1995.) Except as and to the
extent specifically reflected, provided for or reserved
against in Parent's Most Recent Balance Sheet or except
as disclosed in any Schedule to this Agreement, Parent,
as of Parent's Most Recent Balance Sheet Date, did not
have any material indebtedness, liability or obligation
arising outside of the ordinary course of business 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 consolidated income of
Parent for any period prior to Parent's Most Recent
Balance Sheet Date, and Parent neither knows nor has
reasonable grounds to know of any basis for the
assertion against Parent, on a consolidated basis, as
of Parent's Most Recent Balance Sheet Date, of any
material indebtedness, liability or obligation of any
nature not arising in the ordinary course of business
which is not fully reflected or reserved against in
Parent's Most Recent Balance Sheet or otherwise
disclosed in any Schedule to this Agreement.
5.8 No Adverse Change. Since Parent's Most Recent
Balance Sheet Date, there has been no material adverse
change in the financial condition, results of
operations or business prospects of Parent, on a
consolidated basis, 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 Parent on a consolidated basis.
6. CONDITIONS PRECEDENT TO PERFORMANCE BY PARENT AND
HRH MERGER SUBSIDIARY. The obligation of Parent and HRH
Merger Subsidiary to consummate the transactions
contemplated by this Agreement shall be subject to the
satisfaction or fulfillment, on or prior to the Closing
Date, of the following conditions precedent, in
addition to all other conditions precedent contained in
this Agreement, each of which may be waived by Parent:
6.1 Representations. Parent shall not have discovered
any material error, misstatement or omission in any of
the representations and warranties made by Shareholders
contained in this Agreement, or in any financial
statement, certificate, Schedule, exhibit or other
document attached to or delivered pursuant to this
Agreement, and all representations and warranties of
Shareholders, 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 Parent, as though such
representations and warranties had been made on and as
of the Closing Date.
6.2 Covenants. Merging Entity and Shareholders shall
have performed and complied in all material respects
with all covenants, agreements and conditions required
under this Agreement to be performed or complied with
by them on or before the Closing Date.
6.3 Litigation. No suit, action or proceeding, or
governmental investigation, against or concerning,
directly or indirectly, Merging Entity, or any of its
assets and properties, shall have been instituted or
reinstituted, nor shall any basis therefor have arisen,
that might result in any order or judgment of any court
or of any administrative agency which, in the opinion
of counsel for Parent, renders it impossible or
inadvisable for Parent to consummate or cause to be
consummated the transactions contemplated by this
Agreement.
6.4 Approval by Counsel. All transactions
contemplated hereby, and the form and substance of all
legal proceedings and of all instruments used or
delivered hereunder, shall be reasonably satisfactory
to counsel for Parent.
6.5 Opinion. Parent shall have received a favorable
opinion, dated as of the Closing Date, from the law
firm of Wiggin & Dana, counsel for Shareholders and
Merging Entity, in form and substance as set forth in
Schedule 6.5 and otherwise reasonably satisfactory to
counsel for Parent. 6.6 Delivery of Common Stock.
There shall be duly delivered for cancellation to
Parent at the Closing not less than 90% of the shares
of Common Stock issued and outstanding at the time of
the Closing, free and clear of any liens or
encumbrances as required to be listed on Schedule 2.4.
6.7 Continuation of Agency Contracts. Parent shall
have obtained a statement in writing from two insurance
companies identified in Schedule 2.14 of this
Agreement, Middlesex and Seaco, in form satisfactory to
Parent and Parent's counsel, by which each such
insurance company agrees that it will not terminate its
insurance agency contract solely by reason of the
transactions contemplated in this Agreement, and
further agrees that it will continue to recognize
Surviving Corporation, and its successors and assigns,
as its agent under the existing agency contract between
such company and Merging Entity or that it will enter
into a substantially similar agency contract with
Surviving Corporation, or its successors and assigns.
6.8 Shareholder Employment Agreements. Employment
Agreements between Surviving Corporation, as Employer,
and each of the Shareholders (other than ESOP),
respectively, as Employee, in form and substance as set
forth in Schedule 6.8 attached hereto, shall have been
duly executed by each of them and delivered to Parent.
6.9 Other Employment Agreements. Employment
Agreements between Surviving Corporation, as Employer,
and the producers of Merging Entity and such of the
other employees of Merging Entity (other than the
Shareholders other than ESOP) as set forth in Schedule
6.9 shall have been executed.
6.10 Employee Benefit Plans.
A. Defined Benefit Plan. By action of its Board
of Directors taken no later than the Effective Date,
the Merging Entity shall commence the process of
terminating the Defined Benefit Plan in a standard
termination and shall issue the Notice of Intent to
Terminate to affected parties.
B. Other Welfare Plans. All other employee welfare palns shall
terminate except for employee group health insurance as presently
maintained by Merging Entity.
6.11 Material Adverse Change. There shall have been no
material adverse change in Merging Entity's business,
business prospects, Book of Business, assets and
properties, or goodwill between the date of the
execution of this Agreement and the Closing Date.
6.12 Tail Insurance. Unless notified in writing to the
contrary, Shareholders and Merging Entity shall have
delivered to Parent, in form reasonably satisfactory to
Parent and Parent's counsel, evidence of insurability,
to be effective as of the Effective Date, for an
extended reporting period for errors and omissions of a
minimum three year duration with deductible limits
reasonably acceptable to Parent and Parent's counsel,
which insurance, if bound, would insure Merging Entity
its agents and employees for the extended reporting
period for claims arising under errors and omissions
occurring prior to the Effective Date. Such tail
insurance shall be bound as soon after the Effective
Date as possible. If such insurance is not purchased
within one week after Closing, Parent shall have the
right to purchase such tail insurance deemed acceptable
to it. The cost for the tail insurance actually bound
by, or on behalf of, Merging Entity shall be borne by
Merging Entity and shall be reflected on the Merger
Balance Sheet (as defined in Section 14.6) as if such
coverage had been bound prior to the Effective Date and
the Shareholders shall be responsible for any
deductible amounts to be paid under such tail policy.
6.13 Related Party Transactions. All "related party"
(i.e., a Shareholder, a member of a Shareholder's
family, a business or entity affiliated with any of the
foregoing) receivables and payables of Merging Entity
and any receivables or payables from or to an employee
of Merging Entity on favorable terms shall have been
removed from the books of Merging Entity for their cash
equivalent face amounts.
6.14 Lease. The existing lease covering the New Haven
premises presently occupied by Merging Entity, in the
form attached hereto as Schedule 6.14, shall be in full
force and effect with no defaults occurring as a result
of Merging Entity's action or inaction.
6.15 Resolutions. Parent shall receive certified
copies of resolutions of the board of directors and
Shareholders of Merging Entity, to the extent deemed
necessary by, and in form satisfactory to, counsel for
Parent, authorizing the execution and delivery of this
Agreement by Merging Entity and the consummation of the
transactions contemplated hereby.
6.16 Approvals. All statutory requirements for the
valid consummation by Merging Entity of the
transactions contemplated by this Agreement shall have
been fulfilled; all authorizations, consents and
approvals of all federal, state, local and foreign
governmental agencies and authorities required to be
obtained in order to permit consummation by Merging
Entity of the transactions contemplated by this
Agreement and to permit the business presently carried
on by Merging Entity to continue unimpaired immediately
following the Effective Date of this Agreement shall
have been obtained.
6.17 Registration Statement. Parent shall have
filed an amended or supplemented S-4 registration statement
with the SEC.
6.18 [This Section is intentionally left blank.]
6.19 Management Incentive Agreement. The Management
Incentive Agreement, in form and substance as set forth
in Schedule 6.19, shall have been executed by all
parties thereto.
7. CONDITIONS PRECEDENT TO PERFORMANCE BY
SHAREHOLDERS AND MERGING ENTITY. The obligation of
Shareholders and Merging Entity to consummate the
transactions contemplated by this Agreement shall be
subject to the satisfaction or fulfillment on or prior
to the Closing Date, of the following conditions, in
addition to any other conditions contained in this
Agreement, each of which may be waived, collectively,
by a majority in interest of Shareholders and Merging
Entity:
7.1 Representations. Shareholders shall not have
discovered any material error, misstatement or omission
in any of the representations and warranties made by
Parent contained in this Agreement, and all
representations and warranties of Parent contained in
this Agreement shall be true and correct in all
material respects on and as of the Closing Date with
the same force and effect, except as otherwise approved
in writing by Shareholders and Merging Entity, as
though such representations and warranties had been
made on and as of the Closing Date.
7.2 Covenants. Parent shall have performed and
complied in all material respects with all covenants,
agreements and conditions required under this Agreement
to be performed and complied with by Parent and shall
have caused all corporate actions necessary for the
formation of HRH Merger Subsidiary and for the
consummation of this Agreement to have been taken by it
and HRH Merger Subsidiary.
7.3 Effective Registration Statement. The
registration statement on Form S-4 under the Securities
Act of 1933 referred to in Section 2.34 hereof shall
have been amended or supplemented and be effective
under such Act and not the subject of any "stop order"
or threatened "stop order" and the amended or
supplemented prospectus shall have been delivered to
Shareholders and Merging Entity.
7.4 Prospectus Approval. After delivery and review of
the aforementioned amendment or supplement to Parent's
S-4 registration statement, and subject to the
limitations on disapproval set forth in Section 3.5,
Shareholders and Merging Entity shall have approved
this Agreement and the consummation of all transactions
contemplated thereby, and Shareholders shall have
executed the execution page of this Merger Agreement.
8. POST-MERGER COVENANTS.
8.1 POST-MERGER COVENANTS OF PARENT. Parent covenants
to Shareholders as follows:
A. Collection. To cause Surviving Corporation
to use its reasonable business efforts, at least
comparable in quality to those of Merging Entity
prior to the Effective Date, to collect all notes
receivable and accounts receivable as described in
Section 2.27.
B. Payment. Subject to Merging Entity
fulfilling its Tangible Net Worth requirements, as
set forth in Section 14.6, and subject to the
fulfillment by Shareholders of their covenants set
forth in Section 8.2, to cause Surviving
Corporation to pay timely all liabilities of
Merging Entity which have been properly reserved
for in the Merger Balance Sheet, as defined in
Section 8.2.A.
C. Certain Employee Benefit Plans. Parent shall
undertake its actions set forth in Schedule 8.1.C.
D. Conduct of Business. During Year 1 and Year
2, to allow Surviving Corporation to operate in a
manner, as chosen by the Shareholders who shall
continue as officers of the Surviving Corporation,
consistent with sound insurance and business
practices, by which Surviving Corporation might
maximize Agency Profit and, toward that end, to
(i) provide such resources and support (financial,
administrative and otherwise) as are at least
equal to the resources and support provided to
Parent's subsidiaries generally, and (ii) permit
the day-to-day management of Surviving
Corporation's operations to remain under the
supervision and control of Merging Entity's
management as set forth in Section 1.2(d) hereof,
except for any such individual whose employment by
Surviving Corporation is terminated for cause by
Surviving Corporation pursuant to his employment
agreement, or voluntarily by such individual.
E. Access to Information. Parent shall provide,
or cause Surviving Corporation to provide,
Shareholders and their representatives with such
access to the books and records of Parent and
Surviving Corporation as may be reasonably
necessary to verify the calculation of Agency
Profit for Year 1 and Year 2.
8.2 POST-MERGER COVENANTS OF SHAREHOLDERS.
Shareholders, jointly and severally, covenant to Parent
as follows:
A. Delivery of Merger Balance Sheet. To cause
to be delivered to Parent as soon after the
Closing Date as is practicable, and in all events
no later than sixty (60) days after the payment of
the Unfunded Plan Liability, the Merger Balance
Sheet, as defined in Section 14.6(a), and its
related work papers and other financial documents
prepared therefor. The Merger Balance Sheet will
be true and correct, will be in accordance with
the books and records of Merging Entity, will
present fairly the financial conditions and
results of operations of Merging Entity as of the
date and for the period indicated, will not
contain any untrue statement of a material fact
nor will omit to state any material fact required
to be stated to make the Merger Balance Sheet not
misleading.
B. Post-Merger Filings. To cause to be timely
filed, at no expense which has not previously been
reserved for on the Merger Balance Sheet, all
federal, state and local tax returns of all kinds
required to be filed by Merging Entity for all tax
periods ending on or prior to the Effective Date
("Post-Merger Filings"). All Post-Merger Filings
will be true and correct and, prior to actual
filing thereof, Shareholders shall deliver drafts
of such filings to Parent for its review.
C. Employee Benefit Plans. Shareholders shall
cause to be undertaken the actions set forth for
Merging Entity in Schedule 8.1.C.
D. Bind Tail Coverage. To bind the tail
coverage referenced in Section 6.12 as soon after
the Effective Date as is possible and in no event
later than seven (7) days after the Effective
Date, and to pay any and all deductibles accruing
under such tail policy during the period of three
years after the Effective Date. Shareholders
acknowledge that Parent shall have the right to
bind tail coverage for Merging Entity if
Shareholders do not produce an appropriate
certificate of insurance within thirty (30) days
after Closing. Any costs for such tail coverage
shall have been expensed as if such coverage had
been bound prior to the Effective Date, and shall
not be reflected as an asset on the Merger Balance
Sheet.
E. Disposition of Shares. To hold the shares of
Parent common stock received in this Merger and
not to dispose of such shares in either a manner
or volume or at a time which would cause this
Merger not to be treated as a merger.
F. Operating Covenants. To strive to hold
aggregate compensation (before payroll taxes,
benefit costs and performance bonuses) below
$2,400,000; and to hold executive automobile costs
and aggregate travel and entertainment expenses
below $85,000 and $85,000, respectively.
9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND
INDEMNIFICATION.
9.1 Survival of Representations and Warranties of
Parent. All representations, warranties, indemnities
and covenants made herein or pursuant hereto by Parent
shall survive the Closing only for three years (3)
after the Effective Date.
9.2 Survival of Representations and Warranties of
Shareholders. Except for the specific contingencies
detailed below in subparagraphs (ix) and (xiv) of
Section 9.3 for which Parent shall be indemnified for
the periods stated therein, all representations,
warranties, indemnities and covenants made herein or
pursuant hereto by Shareholders shall survive the
Closing only for three (3) years after the Effective
Date.
9.3 Indemnification Agreement by Shareholders.
Shareholders, to the extent set forth in Section 9.6,
shall indemnify and hold harmless Parent and Surviving
Corporation, and their respective successors and
assigns, from and against and in respect of:
(i) All indebtednesses, obligations and
liabilities of Merging Entity of any nature
whatsoever, whether accrued, absolute, contingent
or otherwise, existing at the close of business as
of the day prior to the Effective Date, to the
extent not reflected or reserved against in full
in the Merger Balance Sheet, including, without
limitation, any tax liabilities to the extent not
so reflected or reserved against, accrued in
respect of, or measured by the income of Merging
Entity for any period prior to the Effective Date,
or arising out of transactions entered into, or
any state of facts existing, prior to such date;
(ii) Without limiting the generality of the
indemnity set forth in Section 9.3(i) above, any
and all tax liabilities of Merging Entity, whether
federal, state, local or otherwise, resulting from
a lawful deficiency for any time period prior to
the Effective Date;
(iii) All liabilities of, or claims against,
Merging Entity arising out of any contract or
commitment of the character described in Section
2.20 hereof and not listed or described in
Schedule 2.20 attached to this Agreement, or
arising out of any contract or commitment entered
into or made by Merging Entity between the date of
the execution of this Agreement and the Closing
Date except as expressly permitted under any of
the provisions of this Agreement;
(iv) Subject to the provisions of Section 2.27
hereof, any nonpayment on demand, when due, of any
accounts receivable or notes receivable of Merging
Entity;
(v) Any and all claims, demands, actions and
causes of action arising out of or in any way
relating to any health benefit plan or to any
Employee Benefit Plan (as described in Section
2.25) presently maintained or heretofore
maintained by Merging Entity or arising out of or
in any way relating to the termination or
"freezing" of any such Employee Benefit Plan not
previously reflected on the Merger Balance Sheet
in the calculation of Tangible Net Worth;
(vi) Any loss, damage, liability or deficiency
resulting from any misrepresentation, breach of
warranty or nonfulfillment of any covenant or
agreement on the part of Shareholders or Merging
Entity, or any of them, under the terms of this
Agreement, or from any misrepresentation in or
omission from any financial statement,
certificate, Schedule, exhibit or other document
proposed by or at the direction of Shareholders,
or any of them, and attached to this Agreement or
delivered or to be delivered to Parent under the
terms of this Agreement;
(vii) Any and all claims, demands, actions and
causes of action arising out of or in any way
relating to errors and omissions and all other
types of litigation and claims, which are
attributable to Merging Entity prior to the
Effective Date (including the exercise by any
Shareholder of his or her dissenters' rights);
(viii) To the extent not previously cured in
the manner specified in Section 14.6, the amount
by which Tangible Net Worth (as defined in Section
14.6), shall be less than the amount of negative
$1,000,000 (one million dollars less than zero);
(ix) Until ninety (90) days after the expiration
of the applicable statute of limitations, any and
all tax liabilities arising out of all open
returns of Merging Entity for all periods ending
on or prior to the Effective Date and relating to
amortization of intangibles, deductions for
compensation, "listed" property, or travel and
entertainment expenses or the tax characterization
of expenses incident to this Agreement, any and
all claims or liabilities arising out of or in any
way relating to any health benefit plan or to any
Employee Benefit Plan (as described in Section
2.25) presently or heretofore maintained by
Merging Entity or arising out of or in any way
relating to the termination, modification or
"freezing" of any such Employee Benefit Plan, and
any and all claims or liabilities arising out of
Post-Merger Filings or for a violation of the
covenants set forth in Section 8.E hereof;
(x) All deductibles arising under the tail
coverage referenced in Section 6.12;
(xi) Any and all claims, demands, actions or
causes of action arising out of or in any way
relating to any of the pending or threatened
litigation disclosed or required to be disclosed
on Schedule 2.22;
(xii) Any existing unreconciled discrepancies
as or to have been disclosed on Schedule 2.14;
(xiii) Any and all losses, claims, demands or
deficiencies existing, arising or accruing prior
to the Effective Date, arising out of or in any
way relating to the ownership by Merging Entity of
the intangible assets of Merging Entity;
(xiv) Until ninety (90) days after the
expiration of the applicable statute of
limitations, any and all liabilities, claims,
losses, demands or deficiencies of any nature
whatsoever arising out of a "Known
Misrepresentation" (a representation or warranty
made with actual knowledge of its falsity or with
reckless indifference to the truth) or due to the
ownership of the common stock not being as set
forth in Section 1.4(a); and
(xv) All demands, claims, actions, suits,
proceedings, loss, damage, liability, judgments,
costs and expenses (including, without limitation,
court costs, reasonable experts' and attorneys'
fees at the trial level and in connection with all
appellate proceedings) incident to any of the
foregoing.
Subject to the provisions of Section 9.5, below,
dealing with the assertion of an indemnified claim,
each of the Year 1 Payment and the Year 2 Payment is
subject to the right of offset by Parent.
9.4 Indemnification Agreement by Parent. Parent shall
indemnify and hold harmless Shareholders, and each of them,
and their respective heirs and personal representatives from
and against and in respect of:
(i) Any loss, damage, liability or deficiency
resulting from any misrepresentation, breach of
warranty or nonfulfillment of any covenant or agreement
on the part of the Parent under the terms of this
Agreement;
(ii) All indebtedness, obligations and liabilities
of Surviving Corporation of any nature whatsoever, to
the extent not subject to Shareholders' indemnification
obligations under Section 9.3;
(iii) All demands, claims, actions, suits,
proceedings, loss, damage, liability, judgments,
costs and expenses (including, without limitation,
court costs, reasonable experts' and attorneys'
fees at the trial level and in connection with all
appellate proceedings) incident to any of the
foregoing.
9.5 Assertion of Indemnification Claim. Either the
Shareholders or Parent, as the case may be (an
"Indemnified Party"), shall give notice to the other
(an "Indemnifying Party") as soon as possible after the
Indemnified Party has actual knowledge of any claim as
to which indemnification may be sought and the amount
thereof, if known, and supply any other information in
the possession of the Indemnified Party regarding such
claim, and will permit the Indemnifying Party (at its
expense) to assume the defense of any third party claim
and any litigation resulting therefrom, provided that
counsel for the Indemnifying Party who shall conduct
the defense of such claim or litigation shall be
reasonably satisfactory to the Indemnified Party, and
provided further that the omission by the Indemnified
Party to give notice as provided herein will not
relieve the Indemnifying Party of its indemnification
obligations hereunder except to the extent that the
Indemnifying Party is materially damaged, or its
ability to defend any claim subject to indemnification
is materially prejudiced, as a result of the failure to
give notice. The Indemnifying Party may settle or
compromise any third party claim or litigation with the
consent of the Indemnified Party, which consent may not
be unreasonably withheld.
The Indemnified Party shall have the right at all times
to participate in the defense, settlement, negotiations
or litigation relating to any third party claim or
demand at its own expense. In the event that the
Indemnifying Party does not assume the defense of any
matter as above provided, then the Indemnified Party
shall have the right to defend any such third party
claim or demand, and will be entitled to settle any
such claim or demand in its discretion. In any event,
the Indemnified Party will cooperate in the defense of
any such action and the records of each party shall be
available to the other with respect to such defense.
9.6 Limitation of Amount of Indemnity and Escrow of
Parent Common Stock. The indemnity provided to Parent
pursuant to Section 9.3 and the indemnity provided by Parent
to Shareholders pursuant to Section 9.4 shall be limited to
an amount equal to $337,500 plus 250,000 shares of Parent's
common stock times $13.50 per share, or $3,712,500, which
is the approximate minimum value upon which this Agreement
is predicated, and shall be the exclusive remedy available
to Parent or Shareholders for breach by the other of any
representation, warranty, covenant or agreement made or
given hereunder, except for the right to seek specific
performance, as set forth in Section 11 hereof.
Notwithstanding anything in the foregoing to the
contrary, Parent shall retain on the Effective Date
from the shares of its common stock to be delivered to
the Shareholders, according to the percentage ownership
each such Shareholder has in Merging Entity, as
security for the indemnity provided to it herein,
25,000 shares of its common stock ("Escrowed Shares").
By their signatures to this Agreement, each Shareholder
has granted to Parent a security interest in his
portion of the Escrowed Shares, and has consented to
the escrow provision described herein and has granted
unto Parent a continuing limited power of attorney to
act over his proportionate number of the Escrowed
Shares pursuant to this Agreement, which power of
attorney is coupled with an interest and is not
revocable until the later of: (i) December 1, 1998;
(ii) determination and settlement of any amounts
pursuant to Section 14.6; and (iii) determination and
settlement of any amounts claimed by Parent as of
December 1, 1998, pursuant to Section 9.3 ("Release
Date").
The obligation of the Shareholders to indemnify Parent
under Section 9.3 shall be joint and several, subject
to the following limitations:
(i) the liability of each of Messrs. Coulter,
McCarron, Curran, Ingersoll, and Homer (the "Majority
Shareholders") shall be limited to an amount no greater
than 200% of the consideration actually paid to such
Majority Shareholder by Parent for his shares of Common
Stock;
(ii) the liability of each of the other
Shareholders, other than ESOP (the "Minority
Shareholders"), shall be limited to an amount no
greater than 100% of the consideration actually paid to
such Minority Shareholder by Parent for his shares of
Common Stock;
(iii) the liability of ESOP, which shall be
pro rata, shall be recoverable only from ESOP's portion
of the Escrowed Shares, or by offset if otherwise
available hereunder against any Year 1 Payment or any
Year 2 Payment to be made to ESOP; and
(iv) notwithstanding the foregoing, each
Shareholder other than ESOP shall be individually
liable for the full amount of any indemnification
obligation arising out of or attributable to any defect
in such Shareholder's ownership of the number of shares
ascribed to him or her hereunder, or to any intentional
or reckless breach by him or her of any representation,
warranty or covenant given hereunder regarding his or
her personal acts, omissions or affairs.
Further, for any indemnity payment due to Parent,
Parent shall first look to the Escrowed Shares, valued
at $13.50 per share, and thereafter to shares to be
issued pursuant to the Year 1 Payment or the Year 2
Payment (such shares valued at the same price
determined herein). If at any time of payment to
Parent any indemnity obligation of Shareholders remains
unsatisfied, then Parent may seek recovery from the
Shareholders, to the extent set forth above.
Between the Effective Date and the Release Date, Parent
shall hold the Escrowed Shares and shall deposit any
dividends received thereon in an interest-bearing
account. Upon the Release Date, and absent a written
directive to the contrary from each such Shareholder
not desiring to receive his shares pro rata, Parent
shall distribute the Escrowed Shares, less any decrease
in such shares pursuant to this Agreement, plus any
additional shares issued pursuant to this Agreement, to
the Shareholders, pro rata. Dividends on the Escrowed
Shares and the interest earned thereon ("Escrow Funds")
shall be distributed in the same manner determined
according to the immediately preceding sentence. If
Escrowed Shares were decreased to satisfy the indemnity
provided herein, the Escrow Funds shall be reduced by a
percentage equal to the fraction established where the
numerator is the number of Escrowed Shares used to
satisfy such indemnity and the denominator is the
number of Escrowed Shares.
10. EXPENSES. All expenses (including, without
limitation, legal, auditing, accounting and other
related expenses such as preparation of Post-Merger
Filings and the Merger Balance Sheet) incurred in
connection with this transaction by Merging Entity and
Shareholders, or any of them, shall be the sole
responsibility of Merging Entity or Shareholders
(depending upon the nature of the expense), and all
expenses incurred by Parent in connection with this
transaction shall be the sole responsibility of Parent.
11. DEFAULT.
11.1 Default by Shareholders or Merging Entity. Except
as otherwise expressly provided in this Agreement, if
Shareholders or Merging Entity, or any of them, shall
fail to perform or comply with any covenant, agreement
or condition contained in this Agreement that is
required to be performed or complied with by
Shareholders or Merging Entity on or prior to the
Closing Date, then Parent shall have the option to seek
specific performance of this Agreement or to sue such
defaulting party for damages. If Parent elects to sue
for specific performance, Shareholders and Merging
Entity expressly waive any claim or defense that Parent
has an adequate remedy at law.
11.2 Default by Parent. Except as otherwise
expressly provided in this Agreement, if Parent shall
fail to perform or comply with any covenant, agreement
or condition contained in this Agreement that is
required to be performed or complied with by Parent on
or prior to the Closing Date, then Shareholders, at the
option of a majority in interest of the Shareholders,
acting in person or by attorney-in-fact, may seek
specific performance of this Agreement or may elect to
sue for damages. If Shareholders elect to sue for
specific performance, Parent expressly waives any claim
or defense that Shareholders have an adequate remedy at
law.
12. NOTICES. All notices or other communications
permitted or required to be given hereunder by any
party to any other party shall be in writing and shall
be delivered personally or by telecopier, telex or
other similar communication or sent by registered or
certified mail, postage prepaid:
(a) If to Shareholders or Merging Entity:
Mr. T. Robert McCarron, President
INSURANCE MANAGEMENT, INC.
545 Long Wharf Drive
New Haven, CT 06511
With copy to:
Bennett J. Bernblum, Esquire
WIGGIN & DANA
One Century Tower
New Haven, Connecticut 06508-1832
(b) If to Parent or HRH Merger Subsidiary:
Mr. Robert H. Hilb, President
HILB, ROGAL AND HAMILTON COMPANY
4235 Innslake Drive
Post Office Box 1220
Glen Allen, Virginia 23060-1220
With copy to:
Walter L. Smith, Esquire
HILB, ROGAL AND HAMILTON COMPANY
4235 Innslake Drive
Post Office Box 1220
Glen Allen, Virginia 23060-1220
Notices delivered personally or by telecopier, telex or
other similar communication shall be effective when
delivered. Notices forwarded by registered or
certified mail shall be deemed effective when received
or in any event not later than ten (10) days after
deposit in the mails, postage prepaid. Any party
wishing to change any above named person or address may
do so by complying with the notice provisions of this
Section.
13. EXTENSION OF TIME AND WAIVER.
(a) Time is of the essence with respect to this
Agreement. However, the parties hereto may, by
mutual agreement in writing, extend the time for
the performance of any of the obligations of the
parties hereto.
(b) Each party for whose benefit a
representation, warranty, covenant, agreement or
condition is intended may, in writing: (i) waive
any inaccuracies in the warranties and
representations contained in this Agreement; and
(ii) waive compliance with any of the covenants,
agreements or conditions contained herein and so
waive performance of any of the obligations of the
other parties hereto, and any default hereunder;
provided, however, that any such waiver shall not
affect or impair the waiving party's rights in
respect to any other representation, warranty,
covenant, agreement or condition or any default
with respect thereto.
14. MISCELLANEOUS PROVISIONS.
14.1 Counterparts. Any number of counterparts of this
Agreement may be signed and delivered, each of which
shall be considered the original and all of which,
together, shall constitute one and the same instrument.
14.2 Governing Law. EXCEPT FOR THE MERGER OF HRH
MERGER SUBSIDIARY INTO MERGING ENTITY, WHICH SHALL BE
GOVERNED BY CONNECTICUT LAW, THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE COMMONWEALTH OF VIRGINIA.
14.3 Entire Agreement. This Agreement constitutes the
entire Agreement and understanding between the parties
hereto with respect to the transactions contemplated
hereby, expressly superseding all prior Agreements and
understandings, whether oral or written, and no change,
modification, termination or attempted waiver of any of
the provisions of this Agreement shall be binding
unless reduced to writing and signed by the party or
parties against whom enforcement is sought.
14.4 Section Headings. The section headings in this
Agreement are for convenience of reference only and
shall not be deemed to alter or affect any provision
hereof.
14.5 No Assignment. Neither this Agreement, nor any
rights or liabilities hereunder, may be assigned by any
party without the prior written consent of all of the
other parties.
14.6 Adjustment Based on Merger Balance Sheet.
(a) Determination of Merger Balance Sheet. For
purposes hereof, "Merger Balance Sheet" means an
unaudited balance sheet of Merging Entity, as of
the close of business on the day immediately
preceding the Effective Date, computed under
Parent's GAAP Policy referenced in Section 2.7
hereof and in accordance with Section 2.27 hereof
and after having reconciled any differences
between the tax and financial accounting so that
Surviving Corporation shall not be responsible for
any liabilities unless and to the extent the same
are reflected on the Merger Balance Sheet.
Additionally, besides the normal operating
accruals required under Parents' GAAP Policy, the
Merger Balance Sheet shall require subtraction of
all costs of Merging Entity and Shareholders
(actual and estimated) of completing the Merger
(e.g. legal, accounting, insurance, etc.) and of
administering the termination of the Employee
Benefit Plans and the cash contributed to the
Defined Benefit Plan to eliminate the Unfunded
Plan Liability. The Merger Balance Sheet shall be
prepared by the Shareholders at the expense of the
Merging Entity, and submitted to the Parent as
soon as practicable after the Effective Date. The
Merger Balance Sheet shall be deemed accepted by
Parent if no objections thereto are made within
fifteen (15) days of delivery. If Parent objects
to the Merger Balance Sheet within fifteen (15)
days of delivery, then the parties shall have
fifteen (15) days to resolve any objections of
Parent to the Merger Balance Sheet. If the
parties are unable to resolve such differences,
one arbitrator shall be selected by Shareholders
and one arbitrator shall be selected by Parent.
The two arbitrators shall then pick one mutually
acceptable arbitrator (the "Arbitrator") to
resolve all questions in dispute. The decision of
the Arbitrator shall be final and the fees for his
services shall be borne fifty percent (50%) by
Parent and fifty percent (50%) by Shareholders.
Notwithstanding anything in the foregoing to the
contrary, if the Merger Balance Sheet is not submitted
within seventy-five (75) days after the Effective Date,
then Parent shall submit a Merger Balance Sheet,
prepared at its expense, within fifteen (15) days
thereafter which shall be final, conclusive and binding
on all parties hereto, and not subject to any of the
arbitration provisions described above.
(b) Tangible Net Worth. The term "Tangible Net
Worth" means the remainder arrived at from the
Merger Balance Sheet when total liabilities are
subtracted from total assets, and intangible
assets other than cash, cash equivalents and net
receivables are then subtracted from that
remainder (total assets - total liabilities -
intangible assets other than cash, cash
equivalents and net receivables).
(c) Adjustment. The number of shares to be
delivered by Parent to Shareholders pursuant to
Section 1.4 shall be adjusted as follows:
(i) If Tangible Net Worth exceeds the target
of negative $1,000,000 (i.e. is less than one
million dollars less than zero) (with such
excess being referred to as "Excess Tangible
Net Worth"), then the number of shares shall
be increased by the number of shares
determined by dividing Excess Tangible Net
Worth by $13.50; and
(ii) If Tangible Net Worth is less than the
target of negative $1,000,000 (i.e. is more
than one million dollars less than zero)
(with such shortfall being referred to as
"Insufficient Tangible Net Worth"), then the
number of shares shall be decreased by the
number of shares determined by dividing
Insufficient Tangible Net Worth by $13.50.
In the event of an increase in the number of shares of
common stock of Parent to be issued to Shareholders,
such additional shares shall be issued, promptly after
determination of such number, by Parent to Shareholders
in the same proportion as set forth in Section 1.4(a).
In the event of a decrease in the number of shares of
common stock of Parent, such shares shall be assigned,
promptly after determination of such number, to Parent
(at Parent's discretion either from the Escrowed Shares
or the Shareholders or both) in the same proportions as
set forth in Section 1.4(a), unless Parent shall have
received a differing written directive pursuant to
Section 9.6. The value of any shares of Parent common
stock to be issued or returned pursuant to this
Agreement shall be adjusted to reflect the occurrence
after the Effective Date of any of the events specified
in Section 1.4(c).
14.7 [This Section is intentionally left blank.]
14.8 Schedules. Schedules referenced in this Agreement
are an integral part of this Agreement and are to be
deemed a part of this Agreement whether attached hereto
on execution of this Agreement or anytime thereafter.
14.9 Parent Policy on Post-Acquisition Cash Held by
Surviving Corporation. Merging Entity and Shareholders
acknowledge that they have been informed of the policy
of Parent not to allow cash and cash equivalents from
Year 1 Agency Profit or Year 2 Agency Profit to remain
in an interest-earning account for the benefit of that
office. As such, Merging Entity and Shareholders
aknowledge that Parent will cause any such excessive
amounts of cash and equivalents to be dividended to
Parent, that such dividends would reduce interest
earnings attributable to Surviving Corporation after
the Effective Date, and that Parent has the right to
declare such dividends. Accordingly, Parent agrees
that Surviving Corporation will be credited with
interest earnings attributable to Surviving
Corporation's operations, including interest earned
from cash and cash equivalents on hand prior to the
distribution of any such sums which may have been
earned as Year1 Agency Profit or Year 2 Agency Profit,
and that sound collection and payment practices will
benefit Surviving Corporation in the determination of
Year 1 Agency Profit and Year 2 Agency Profit.
14.10 Subsequent Acquisitions. Merging Entity and
Shareholders acknowledge that a later acquisition by
Surviving Corporation of another insurance agency could
affect the determination of subsequent year
profitability and agree to cooperate with Parent in
making any adjustments as necessary to this Agreement
and any ancillary agreements to carry out their intent.
Parent agrees not to cause such an acquisition to occur
during Year 1 or Year 2 without the agreement of a
majority in interest of the Shareholders.
14.11 Nonsolicitation Covenant. Each of the
Shareholders (other than ESOP), by signature hereto,
covenants that he shall not for a period of five (5)
years after the Effective Date, directly or indirectly,
except on behalf of Surviving Corporation, its
successors or assigns, solicit or accept risk
management, insurance or bond business from any of the
customers of Merging Entity as of the moment
immediately preceding the Effective Date. Each of the
Shareholders (including ESOP), by signature hereto,
acknowledges: (i) that this covenant is ancillary to
this Merger Agreement, is integral hereto and is
independent of any other provision herein, (ii) that
this covenant is reasonably necessary for the
protection of Surviving Corporation's legitimate
business interests; (iii) that this covenant poses no
undue hardship on the Shareholders and is reasonably
limited as to duration and scope; and (iv) that this
covenant is in addition to any covenants which
Shareholders may make in any employment or other
agreements executed or to be executed with Surviving
Corporation. Further, if any part of this covenant is
deemed overbroad or void as against public policy, each
of the Shareholders (including ESOP), by signature
hereto, acknowledges that such invalid portions shall
be severable from this covenant and specifically
requests that, upon such event, this covenant be
reformed ("blue-penciled") to permit Surviving
Corporation to obtain the maximum permissible benefit
from this covenant.
14.12 Acceptance. The binding date of acceptance
of this Agreement shall be the Date on which the last
of the parties executes the same.
EXECUTED by Merging Entity at New Haven, Connecticut,
this ____ day of September, 1996.
MERGING ENTITY:
INSURANCE
MANAGEMENT, INC.
By__________________________________
_______________________________, its
__________________________________
RATIFIED AND EXECUTED by Shareholders at New Haven,
Connecticut, this ____ day of
September, 1996.
SHAREHOLDERS:
_____________________________________ _____________________________________
ROBERT O. COULTER DOUGLAS F. DANAHER
_____________________________________ _____________________________________
T. ROBERT MCCARRON STEPHANIE S. SHOREY
_____________________________________ _____________________________________
DAVID J. CURRAN RICHARD P. RIDINGER
_____________________________________ _____________________________________
C. ANTHONY INGERSOLL MARIO P. LUPONE
_____________________________________ _____________________________________
DAVID K. HOMER NEIL W. GARBATINI
_____________________________________ _____________________________________
MADELYN R. IZZO HARRY E. BURR
_____________________________________ _____________________________________
OWEN J. FLANNERY JOSEPH L. FERRY
_____________________________________ _____________________________________
ROBERT O. COULTER, TRUSTEE OF THE T. ROBERT MCCARRON, TRUSTEE OF THE
INSURANCE MANAGEMENT, INC. ESOP INSURANCE MANAGEMENT, INC. ESOP
_____________________________________ _____________________________________
DAVID J. CURRAN, TRUSTEE OF THE C. ANTHONY INGERSOLL, TRUSTEE OF
INSURANCE MANAGEMENT, INC. ESOP THE INSURANCE MANAGEMENT, INC.ESOP
EXECUTED by Parent at New Haven, Connecticut, this
____ day of September, 1996.
HILB, ROGAL AND
HAMILTON COMPANY
By_________________________________
______________________________, its
_________________________________
CONSENT OF T. M. BYXBEE COMPANY, P.C., INDEPENDENT ACCOUNTANTS
We consent to the reference of our firm under the caption
"Experts" and to the use of our report dated June 10, 1996
with respect to the financial statements of Insurance
Management Incorporated included in the Supplement to
Prospectus dated February 12, 1992 and related Registration
Statement (Form S-4, No. 33-44271) of Hilb, Rogal and
Hamilton Company.
/s/ T. M. Byxbee Company, P.C.
Hamden, Connecticut
September 4, 1996
