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 ACQUISITIONS OF
GOW MANAGEMENT SERVICES, INC.
AND
S. H. GOW & COMPANY, INC.
The following information is furnished to supplement and
complete the information contained in the Prospectus dated
February 12, 1992, relating to the offering of shares of the
Common Stock of Hilb, Rogal and Hamilton Company (the "Company")
to the shareholders of Gow Management Services, Inc. ("GMS") of
Buffalo, New York to consummate the merger of GMS and the Company
and the subsequent acquisition by GMS of certain assets of S. H.
Gow & Company, Inc. ("Gow") also of Buffalo, New York in exchange
for cash and deferred cash payments. GMS and Gow are separate
corporations with the same ownership structure.
Terms of the Transaction
(a) (1) Effective January 1, 1997, a subsidiary of the
Company will consummate an Agreement of Merger with GMS whereby
the shareholders of GMS will receive shares of Common Stock of
the Company valued at $300,000 based on the average closing price
for the period December 2, 1996 through December 6, 1996
("Shares") subject to (i) all necessary corporate approvals of
each corporation, (ii) all authorizations, consents and approvals
of all federal, state, local and foreign governmental agencies
and authorities required to be obtained, and (iii) all other
conditions precedent as outlined in the Agreement of Merger (see
Exhibit 2.29). The number of shares distributed to the
shareholders of GMS will be adjusted based upon the final
determination of net worth as defined in the Agreement of Merger.
Hilb, Rogal and Hamilton Company of Buffalo, a newly formed
subsidiary of the Company, will merge into Gow Management
Services, Inc. and the surviving corporation will be a wholly-
owned subsidiary of the Company (the "Merger").
Immediately following the Merger, the shareholders of Gow
have agreed to sell assets of Gow's insurance agency operations
including their insurance customer lists, expiration lists and
records, book of business, business records, files and daily
reports; furniture, fixtures and equipment; rights and interest
in and to agency and other agreements; certain maintenance agree
ments; and goodwill to GMS, which will be a wholly-owned
subsidiary of the Company, in exchange for $2,475,000 in cash and
three installments payable based upon profits realized in the
subsequent three year period which can increase the purchase
price up to a maximum of $1,278,450 in each year (subject to a
minimum of $675,000 in each year) payable in 14, 26 and 38
months. Each contingent payment includes interest imputed at the
lowest federal rate allowed pursuant to Section 1274 of the
Internal Revenue Code of 1986 with monthly compounding.
The acquisition is 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 Purchase and Sale (see Exhibit 2.30).
The assets purchased will be incorporated into the assets of
Gow Management Services, Inc., a wholly-owned subsidiary of the
Company.
In addition, the shareholders of GMS and Gow will enter into
covenants not to compete in exchange for $600,000 in cash and
three installments payable equal to 32.95% of the amount by which
the installment payments exceed $675,000 pursuant to the
Agreement of Purchase and Sale with Gow.
(2) The acquisitions of GMS and Gow by the Company
have been agreed upon because the Company is engaged in the
business of owning insurance agencies and because the
shareholders of GMS and Gow have determined that a merger with
the Company is beneficial to the growth of their insurance
operations.
The combined operations will add approximately 80 employees
and approximately $5,600,000 of revenues to the Company.
(3) Gow was incorporated in 1953 and elected S
Corporation status as provided by the Internal Revenue Code in
1987. Gow has 100 authorized shares of Class A, voting common
stock, $1 par value. There are 76 shares issued and
outstanding. Gow has 2,900 authorized shares of Class B, non-
voting common stock, $1 par value. There are 2,888 shares issued
and outstanding.
GMS is a related company with the same ownership structure
as Gow. It was incorporated in 1977. GMS has 100 authorized
shares of Class A, voting common stock, $1 par value. There are
76 shares issued and outstanding. GMS has 2,900 authorized
shares of Class B, non-voting common stock, $1 par value. There
are 2,888 shares issued and outstanding.
(4) There are no material differences between the
rights of the security holders of GMS and Gow and the rights of
security holders of the Company.
(5) & (6) The acquisition of GMS will be treated using
the purchase method of accounting for acquisitions under
generally accepted accounting principles.
GMS 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).
The acquisition of Gow will be treated as a purchase and the
assets purchased will be incorporated into the assets of GMS.
The assets will be recorded at fair market value for accounting
and tax purposes by the Company.
(c) The acquisition agreements are incorporated into this
supplement as Exhibit 2.29 and 2.30.
Pro Forma Financial Information
See attached - Schedule A
Material Contracts with Seller.
There have been no material contracts between the Company
and GMS or Gow prior to the proposed effective date of the
transactions.
Information with Respect to S. H. Gow & Company, Inc.
and Gow Management Services, Inc.
Gow was incorporated in 1953 and elected S Corporation
status as provided by the Internal Revenue Code in 1987. Gow
maintains its primary location in Buffalo, New York and has
offices in Rochester and Syracuse, New York.
Gow provides insurance brokerage services for personal and
small-to-medium size commercial and industrial accounts.
Services provided include personal and commercial property and
casualty insurance (approximately 90% of revenues) and group and
individual life and health insurance products (approximately 10%
of revenues).
GMS was incorporated in 1977 and maintains an office in
Buffalo, New York. it has the same ownership structure as Gow.
GMS provides alternative risk insurance programs as well as
claims administration and loss control services.
Common Stock and Dividend Data
There is no established public trading market for the stock
of GMS and Gow. There are three shareholders of GMS and Gow.
See Shareholder Information below for information regarding
shares held by each shareholder and information regarding
authorized and issued shares.
There have been no common stock dividend distributions by
GMS during the nine months ended September 30, 1996 or the years
ended December 31, 1995, 1994 and 1993.
Common stock dividend distributions by Gow during the nine
months ended September 30, 1996 and the years ended December 31,
1995, 1994 and 1993 were $2,716, $51,555, $33,719 and $0,
respectively.
Shareholder Information
(a) (1) WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY.
(2) & (3) GMS and Gow have agreed to submit the
acquisition agreements to their shareholders for adoption by
unanimous written consent after receipt and review of the Prospec
tus. Since the acquisition can be completed only with the
unanimous consent of the shareholders of the companies being
acquired (GMS and Gow), notice requirements shall have been met
and there shall be no dissenters.
(4) & (5) There are no material interests, direct
or indirect, of affiliates, officers or directors of the
registrant or of the companies being acquired (GMS and Gow) in
the proposed transactions.
(6) GMS has 100 authorized shares of Class A,
voting common stock, $1 par value. There are 76 shares issued
and outstanding. GMS has 2,900 authorized shares of Class B, non-
voting common stock, $1 par value. There are 2,888 shares issued
and outstanding.
Gow has 100 authorized shares of Class A, voting common
stock, $1 par value. There are 76 shares issued and outstanding.
Gow has 2,900 authorized shares of Class B, non-voting common
stock, $1 par value. There are 2,888 shares issued and
outstanding.
The ownership of the outstanding shares of GMS as follows:
Class A, Voting Class B, Non-Voting
Number Number
Name of Shares Percentage of Shares Percentage
Jefferey Gow 34 44.74% 1,292 44.74%
Michael Gow 34 44.74 1,292 44.74
Richard Mason 8 10.52 304 10.52
-- ------- ----- -------
76 100.00% 2,888 100.00%
== ======= ===== =======
The ownership of the outstanding shares of Gow as follows:
Class A, Voting Class B, Non-Voting
Number Number
Name of Shares Percentage of Shares Percentage
Jefferey Gow 34 44.74% 1,292 44.74%
Michael Gow 34 44.74 1,292 44.74
Richard Mason 8 10.52 304 10.52
-- ------- ----- -------
76 100.00% 2,888 100.00%
== ======= ===== =======
(7) Upon completion of the proposed acquisition, no
shareholder of Gow or GMS will serve as a director or executive
officer of the registrant.
Experts
The financial statements of Gow Management Services, Inc.
and S. H. Gow & Company, 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 Dopkins & Company, 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: December 27, 1996
<PAGE>
SCHEDULE A - PRO FORMA CONDENSED
FINANCIAL STATEMENTS (UNAUDITED)
The following pro forma condensed consolidated balance sheet
as of September 30, 1996 and the pro forma consolidated income
statements for the nine months ended September 30, 1996 and the
year ended December 31, 1995 give effect to the proposed
acquisitions of Gow Management Services, Inc. ("GMS") and S. H.
Gow & Company, Inc. ("Gow") expected to be effective on January
1, 1997; and the acquisition of certain assets and liabilities of
15 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 September 30, 1996, as if
they had occurred before September 30, 1996.
The pro forma statements have been prepared by management
based upon the historical financial statements of Hilb, Rogal
and Hamilton Company, GMS, Gow 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.
<PAGE>
HILB, ROGAL & HAMILTON COMPANY
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
HILB, ROGAL ACQUISITIONS PRO FORMA ADJUSTMENTS PRO FORMA
AND HAMILTON (PURCHASES) FOR PURCHASE ACQUISITIONS CONSOLIDATED
COMPANY
<S> <C> <C> <C> <C> <C>
ASSETS
CASH AND CASH EQUIVALENTS $21,131,935 $3,830,678 (6,184,000)(2) $18,778,613
INVESTMENTS 6,094,597 124,425 6,219,022
RECEIVABLES & OTHER 49,472,834 6,358,250 (291,262)(1) 55,539,822
------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 76,699,366 10,313,353 N/A (6,475,262) 80,537,457
INVESTMENTS 5,895,000 24,315 5,919,315
PROPERTY & EQUIPMENT 15,060,143 1,859,411 (1,859,411)(1) 1,000,000 (3) 16,060,143
INTANGIBLE ASSETS 64,089,498 360,770 (360,770)(1) 17,094,214 (3) 81,183,712
OTHER ASSETS 4,400,306 434,720 (217,070)(1) 4,617,956
------------------------------------------------------------------------------
TOTAL ASSETS $166,144,313 $12,992,569 N/A $9,181,701 $188,318,583
==============================================================================
LIABILITIES & EQUITY:
PREMIUMS PAYABLE-INS CO $68,872,563 $7,043,335 $75,915,898
OTHER ACCRUED LIABILITIES 16,782,190 2,836,186 (44,991)(1) 19,573,385
------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 85,654,753 9,879,521 N/A (44,991) 95,489,283
LONG-TERM DEBT 17,619,960 1,188,852 (928,670)(1) 4,125,714 (2) 22,005,856
OTHER LONG-TERM LIAB. 8,109,018 169,344 3,356,000 (3) 11,634,362
SHAREHOLDERS' EQUITY
COMMON STOCK 23,981,692 1,138,161(1,138,161)(4) 4,428,500 (2) 28,410,192
RETAINED EARNINGS 30,778,890 616,691 (616,691)(4) 30,778,890
------------------------------------------------------------------------------
54,760,582 1,754,852 N/A 2,673,648 59,189,082
------------------------------------------------------------------------------
$166,144,313 $12,992,569 N/A $9,181,701 $188,318,583
==============================================================================
</TABLE>
(1) TO ADJUST FOR ASSETS AND LIABILITIES NOT ACQUIRED.
(2) TO REFLECT PURCHASE PRICE OF ASSETS AND LIABILITIES
ACQUIRED SUBSEQUENT TO SEPTEMBER 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>
NINE MONTHS ENDED SEPTEMBER 30, 1996
---------------------------------------------------------------------
HILB, ROGAL ACQUISITIONS PRO FORMA ADJUSTMENTS PRO FORMA
& HAMILTON CO. (PURCHASES) FOR PURCHASE ACQUISITIONS CONSOLIDATED
<S> <C> <C> <C> <C>
REVENUES:
COMMISSIONS & FEES $116,493,506 $13,127,569 $129,621,075
INTEREST AND OTHER INCOME 2,833,746 281,077 ($299,598) (1) 2,815,225
------------------------------------------------------------------
TOTAL REVENUES 119,327,252 13,408,646 (299,598) 132,436,300
OPERATING EXPENSES:
COMPENSATION AND BENEFITS 65,871,369 8,626,747 74,498,116
OTHER OPERATING EXPENSES 30,314,437 3,299,953 (156,331) (2) 33,458,059
AMORTIZATION OF INTANGIBLES 5,558,598 130,762 702,818 (3) 6,392,178
INTEREST EXPENSE 762,364 127,962 38,406 (4) 928,732
------------------------------------------------------------------
TOTAL OPERATING EXPENSES 102,506,768 12,185,424 584,893 115,277,085
------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 16,820,484 1,223,222 (884,491) 17,159,215
INCOME TAXES 6,743,495 135,492 (5) 6,878,987
------------------------------------------------------------------
NET INCOME $10,076,989 $1,223,222 ($1,019,983) $10,280,228
==================================================================
NET INCOME PER COMMON SHARE $0.75 $0.74
==================================================================
SHARES ISSUED AND OUTSTANDING 13,243,553 357,180 13,600,733
==================================================================
WEIGHTED AVERAGE SHARES
OUTSTANDING 13,512,855 388,480 13,901,335
==================================================================
</TABLE>
(1) TO ADJUST HISTORICAL INTEREST AND TOADJUST 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 ADJUSTMENTS PRO FORMA
& HAMILTON CO. (PURCHASES) FOR PURCHASE ACQUISITIONS CONSOLIDATED
<S> <C> <C> <C> <C>
REVENUES:
COMMISSIONS & FEES $141,555,188 $29,603,347 $171,158,535
INTEREST AND OTHER INCOME 6,591,850 639,768 ($830,298) (1) 6,401,320
------------------------------------------------------------------------
TOTAL REVENUES 148,147,038 30,243,115 (830,298) 177,559,855
OPERATING EXPENSES:
COMPENSATION AND BENEFITS 82,760,664 19,106,206 (442,931) (2) 101,423,939
OTHER OPERATING EXPENSES 38,264,085 9,804,678 (468,352) (2) 47,600,411
AMORTIZATION OF INTANGIBLES 6,965,947 384,435 1,441,401 (3) 8,791,783
INTEREST EXPENSE 559,654 335,746 (12,030) (4) 883,370
------------------------------------------------------------------------
TOTAL OPERATING EXPENSES 128,550,350 29,631,065 518,088 158,699,503
------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES 19,596,688 612,050 (1,348,386) 18,860,352
INCOME TAXES 7,767,778 (294,534) (5) 7,473,244
-------------------------------------------------------------------------
NET INCOME $11,828,91 $612,050 ($1,053,852) $11,387,108
=========================================================================
NET INCOME PER COMMON SHARE $0.82 $0.76
=========================================================================
SHARES ISSUED AND OUTSTANDING 13,706,764 502,028 14,208,792
=========================================================================
WEIGHTED AVERAGE SHARES
OUTSTANDING 14,470,407 600,474 15,070,881
=========================================================================
</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>
Gow Management Services, Inc.
Financial Report
December 31, 1995
CONTENTS
INDEPENDENT AUDITORS' REPORT
ON THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance sheet 2
Statement of operations 3
Statement of shareholders' equity 4
(accumulated deficit)
Statement of cash flows 5
Notes to financial statements 6 - 9
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
Gow Management Services, Inc.
Buffalo, New York
We have audited the accompanying balance sheet of Gow Management
Services, Inc. as of December 31, 1995, and the related
statements of operations, shareholders' equity (accumulated
deficit) 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 Gow Management Services, 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.
/S/Dopkins & Company
CERTIFIED PUBLIC ACCOUNTANTS
November 9, 1996
<PAGE>
GOW MANAGEMENT SERVICES, INC.
BALANCE SHEET
December 31, 1995
ASSETS
Current Assets
Cash, including $79,355 of restricted funds $ 81,453
Receivables, premiums 71,942
Other current assets 2,000
-----------
Total current assets 155,395
Furniture and Equipment, Net 53,708
-----------
$ 209,103
===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Premiums payable to insurance companies $ 6,412
Accounts payable and accrued expenses 64,752
Premium deposits and credit due customers 121,715
-----------
Total current liabilities 192,879
Other long-term liabilities 6,500
Shareholders' Equity
Common stock 2,964
Retained earnings 6,760
-----------
9,724
-----------
$ 209,103
===========
See notes to financial statements.
<PAGE>
GOW MANAGEMENT SERVICES, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
REVENUES
Commission and fees $ 980,043
OPERATING EXPENSES
Compensation and employee benefits 695,112
Other operating expenses 175,608
-----------
Operating income before income taxes 109,323
Income taxes 33,418
-----------
Net Income $ 75,905
===========
Net Income Per Common Share $ 25.61
===========
Weighted Average Number of Shares of
Common Stock Outstanding 2,964
===========
See notes to financial statements.
<PAGE>
GOW MANAGEMENT SERVICES, INC.
STATEMENT OF SHAREHOLDERS' EQUITY (ACCUMULATED DEFICIT)
December 31, 1995
Retained
Common Earnings
Stock (Deficit) Total
Balance at January 1, 1995 $ 2,964 $ (69,145) $ (66,181)
Net income - 75,905 75,905
--------- --------- ---------
Balance at December 31, 1995 $ 2,964 $ 6,760 $ 9,724
========= ========= =========
See notes to financial statements.
<PAGE>
GOW MANAGEMENT SERVICES, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1995
OPERATING ACTIVITIES
Net income $ 75,905
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 29,363
Provision for deferred income taxes 30,500
-----------
135,768
Changes in operating assets and liabilities:
Decrease in premium receivables 6,132
Increase in premiums payable to insurance
companies 2,153
Decrease in accounts payable and accrued
expenses (145,438)
Increase in premium deposits and credits
due customers 11,196
-----------
Net cash provided by operating activities 9,811
-----------
INVESTING ACTIVITIES
Purchase of furniture and equipment (17,442)
-----------
Decrease in cash (7,631)
Cash at beginning of year 89,084
-----------
Cash at end of year $ 81,453
===========
Supplemental Disclosure of Cash Flow Information
Cash payments for income taxes $ 2,918
===========
See notes to financial statements.
<PAGE>
Note 1.Nature of Business and Significant Accounting Policies
Nature of business:
The company provides management and insurance consulting
services to customers to compliment its insurance
operations.
A summary of the Company's significant accounting
policies follows:
Restricted cash:
The Company maintains cash in bank deposit accounts
which, at times, may exceed federally insured limits. The
Company has not experienced any losses on such accounts
and believes it is not exposed to any significant credit
risk on cash.
Revenue recognition:
Income is achieved in contract form for services
rendered. Fees and income are recorded as of effective
date or billing date, whichever is later.
Furniture and equipment:
Furniture and equipment are stated at cost. Depreciation
is computed by the declining- balance methods over 5-year
estimated useful lives.
Income taxes:
Deferred taxes are provided on a liability method whereby
deferred tax assets are recognized for deductible
temporary differences and operating loss and tax credit
carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences
are the differences between the reported amounts of
assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not
be realized. Deferred tax assets and liabilities are
adjusted for the effects of changes in tax laws and rates
on the date of enactment.
Retirement plans:
The Company has a defined contribution pension plan and a
profit sharing plan for employees who have met certain
eligibility requirements. The Company's contribution to
the pension plan is at a rate of 5% of eligible
compensation and 10% of the excess of eligible
compensation over the Social Security wage base as
defined in the Plan. Contributions to the profit sharing
plan are discretionary as determined by the Board of
Directors. Aggregate contributions for both plans for the
year ended December 31, 1995 were $28,835.
Pervasiveness of estimates:
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 2.Furniture and Equipment
Furniture and equipment at December 31, 1995 consist of
the following:
Furniture and equipment $ 181,442
Less accumulated depreciation 127,734
---------
$ 53,708
=========
Note 3.Affiliated Company
The Company is affiliated to S. H. Gow & Company, Inc.
through common shareholders. Transactions with S. H. Gow
& Company, Inc. resulted in charges for services
resulting in consulting revenue of $110,000 in 1995. The
Company has an account payable to S. H. Gow & Co., Inc.
of $33,999 at December 31, 1995, which is included in
accounts payable and accrued expenses in the accompanying
balance sheet.
Note 4.Income Taxes
Deferred tax assets (liabilities) consist of the following components
as of December 31, 1995:
Deferred tax assets (included in other current
assets on the balance sheet):
Net operating loss carryforwards $ 2,000
Deferred tax liabilities (included in other long-
term liabilities on the balance sheet):
Accelerated tax depreciation (6,500)
--------
$ (4,500)
The provision for income taxes charged to operations for
the year ended December 31, 1995 consists of the following:
State tax expense, currently payable $ 2,918
Deferred tax expense 30,500
--------
$ 33,418
========
The income tax provision differs from the amount of
income tax determined by applying the U.S. federal income
tax rate to pretax income for the year ended December 31,
1995 due to the following:
Computed "expected" income tax expense $ 37,170
Increase (decrease) in income taxes resulting
from:
State taxes, net of federal tax benefit 1,926
Surtax exemption (5,869)
Other 191
--------
Total income tax expense $ 33,418
========
Note 5.Common Stock
Common stock at December 31, 1995 consists of the following:
Class A, par value $1, voting; 100 shares
authorized, 76 shares issued and outstanding $ 76
Class B, par value $1, non-voting; 2,900 shares
authorized, 2,888 shares issued and
outstanding 2,888
--------
$ 2,964
========
Note 6.Shareholder Agreements
Three shareholders have entered into a stock purchase and
sale agreement which states, among other things, that in
the event one of these shareholders dies, the Company is
required to buy all the shareholder's stock. The purchase
price per share resulting from a death during 1996 will
be $1,864.
Note 7.Subsequent Event
During 1996, the Company has entered into negotiations to
buy certain assets of S. H. Gow & Co., Inc. , a related
corporation. The Company anticipates then selling all of
their stock to an unaffiliated corporation. Negotiations
are ongoing and the agreements or sales prices have not
been finalized.
<PAGE>
Gow Management Services, Inc.
Financial Report
(Compiled)
December 31, 1994 and 1993
CONTENTS
ACCOUNTANTS' COMPILATION REPORT
ON THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of operations 3
Statements of shareholders' deficit 4
Statements of cash flows 5
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Gow Management Services, Inc.
Buffalo, New York
We have compiled the accompanying balance sheets of Gow
Management Services, Inc. as of December 31, 1994 and 1993, and
the related statements of operations, shareholders' deficit, and
cash flows for the years then ended, in accordance with
Statements on Standards for Accounting and Review Services issued
by the American Institute of Certified Public Accountants.
A compilation is limited to presenting information that is the
representation of management in the form of financial statements.
We have not audited or reviewed the accompanying financial
statements and, accordingly, do not express an opinion or any
other form of assurance on them.
Management has elected to omit substantially all of the
disclosures required by generally accepted accounting principles.
If the omitted disclosures were included in the financial
statements, they might influence the user's conclusions about the
Company's financial position, results of operations, and cash
flows. Accordingly, these financial statements are not designed
for those who are not informed about such matters.
/s/Dopkins & Company
CERTIFIED PUBLIC ACCOUNTANTS
November 9, 1996
<PAGE>
GOW MANAGEMENT SERVICES, INC.
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS 1994 1993
Current Assets
Cash, including $86,598 and $29,466,
respectively, of restricted funds $ 89,084 $ 31,357
Receivables, premiums 78,074 60,100
Other current assets 30,000 41,779
----------- ----------
Total Current Assets 197,158 133,236
Furniture and Equipment, Net 65,629 12,230
----------- -----------
$ 262,787 $ 145,466
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current Liabilities
Premiums payable to insurance companies $ 4,259 $ 0
Accounts payable and accrued expenses 210,190 171,190
Premium deposits and credit due customers 110,519 80,230
----------- -----------
Total Current Liabilities 324,968 251,420
Other Long-Term Liabilities 4,000 0
Shareholders' Deficit
Common stock 2,964 2,964
Accumulated Deficit (69,145) (108,918)
----------- -----------
(66,181) (105,954)
----------- -----------
$ 262,787 $ 145,466
=========== ===========
See accountants' compilation report.
<PAGE>
GOW MANAGEMENT SERVICES, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1994 and 1993
1994 1993
REVENUES
Commission and fees $ 924,093 $ 768,041
OPERATING EXPENSES
Compensation and employee benefits 662,564 599,812
Other operating expenses 205,239 152,263
----------- -----------
Operating income before income taxes 56,290 15,966
Income taxes 16,517 (1,929)
----------- -----------
Net Income $ 39,773 $ 17,895
=========== ===========
Net Income Per Common Share $ 13.42 $ 6.04
=========== ===========
Weighted Average Number of Shares
of Common Stock Outstanding 2,964 2,964
=========== ===========
See accountants' compilation report.
<PAGE>
GOW MANAGEMENT SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' DEFICIT
December 31, 1994 and 1993
Retained
Common Earnings
Stock (Deficit) Total
Balance at January 1, 1993 $ 2,964 $ (126,813) $ (123,849)
Net income 0 17,895 17,895
--------- ---------- ----------
Balance at December 31, 1993 2,964 (108,918) (105,954)
Net income 0 39,773 39,773
--------- ---------- ----------
Balance at December 31, 1994 $ 2,964 $ (69,145) $ (66,181)
========= ========== ==========
See accountants' compilation report.
<PAGE>
GOW MANAGEMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1994 and 1993
1994 1993
OPERATING ACTIVITIES
Net income $ 39,773 $ 17,895
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 19,921 7,725
Provision for deferred income taxes 15,500 0
----------- -----------
75,194 25,620
Changes in operating assets and liabilities:
(Increase) decrease in premium receivables (17,974) 57,757
Increase (decrease) in other operating activities 279 (79,688)
Increase (decrease) in premiums payable to
insurance companies 4,259 (14,423)
Increase (decrease) in premium deposits and
credits due customers 30,289 (26,356)
Increase in accounts payable and accrued
expenses 39,000 43,024
------------ ----------
Net cash provided by operating activities 131,047 5,934
------------ ----------
INVESTING ACTIVITIES
Purchase of furniture and equipment (73,320) (697)
----------- ----------
Increase in cash 57,727 5,237
Cash at beginning of year 31,357 26,120
----------- ----------
Cash at end of year $ 89,084 $ 31,357
=========== ==========
Supplemental Disclosure of Cash Flow Information
Cash payments for income taxes $ 1,017 $ 0
=========== ===========
See accountants' compilation report.
<PAGE>
Gow Management Services, Inc.
Financial Report
(Compiled)
Nine Months Ended September 30, 1996 and 1995
CONTENTS
ACCOUNTANTS' COMPILATION REPORT
ON THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of operations 3
Statements of shareholders' equity 4
(deficit)
Statements of cash flows 5
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Gow Management Services, Inc.
Buffalo, New York
We have compiled the accompanying balance sheets of Gow
Management Services, Inc. as of September 30, 1996 and 1995, and
the related statements of operations, shareholders' equity
(deficit), and cash flows for the nine months then ended, in
accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting information that is the
representation of management in the form of financial statements.
We have not audited or reviewed the accompanying financial
statements and, accordingly, do not express an opinion or any
other form of assurance on them.
Management has elected to omit substantially all of the
disclosures required by generally accepted accounting principles.
If the omitted disclosures were included in the financial
statements, they might influence the user's conclusions about the
Company's financial position, results of operations, and cash
flows. Accordingly, these financial statements are not designed
for those who are not informed about such matters.
/s/Dopkins & Company
CERTIFIED PUBLIC ACCOUNTANTS
December 5, 1996
<PAGE>
GOW MANAGEMENT SERVICES, INC.
BALANCE SHEETS
September 30, 1996 and 1995
ASSETS 1996 1995
Current Assets
Cash, including $41,928 and $109,801
respectively, of restricted funds $ 55,197 $ 120,620
Receivables, premiums 92,983 69,080
Other current assets 2,000 30,000
---------- -----------
Total Current Assets 150,180 219,700
Furniture and Equipment, Net 47,624 47,145
---------- -----------
$ 197,804 $ 266,845
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
(DEFICIT)
Current Liabilities
Premiums payable to insurance companies $ 4,480 $ 0
Accounts payable and accrued expenses 62,300 41,511
Premium deposits and credit due customers 59,980 293,538
---------- -----------
Total Current Liabilities 126,760 335,049
Other Long-Term Liabilities 6,500 4,000
Shareholders' Equity (Deficit)
Common stock 2,964 2,964
Retained earnings (accumulated deficit) 61,580 (75,168)
---------- -----------
64,544 (72,204)
---------- -----------
$ 197,804 $ 266,845
========== ===========
See accountants' compilation report.
<PAGE>
GOW MANAGEMENT SERVICES, INC.
STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1996 and 1995
1996 1995
REVENUES
Commission and fees $ 708,922 $ 641,173
OPERATING EXPENSES
Compensation and employee benefits 485,935 491,954
Other operating expenses 157,803 152,682
----------- -----------
Operating income (loss) before
income taxes 65,184 (3,463)
Income taxes 10,364 2,560
----------- -----------
Net Income (Loss) $ 54,820 $ (6,023)
=========== ===========
Net Income Per Common Share $ 18.50 $ (2.03)
=========== ===========
Weighted Average Number of Shares
of Common Stock Outstanding 2,964 2,964
=========== ===========
See accountants' compilation report.
GOW MANAGEMENT SERVICES, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
September 30, 1996 and 1995
Retained
Common Earnings
Stock (Deficit) Total
Balance at January 1, 1995 $ 2,964 $ (69,145) $ (66,181)
Net loss 0 (6,023) (6,023)
-------- --------- ---------
Balance at September 30, 1995 $ 2,964 $ (75,168) $ (72,204)
======== ========= =========
Balance at January 1, 1996 $ 2,964 $ 6,760 $ 9,724
Net income 0 54,820 54,820
-------- --------- --------
Balance at September 30, 1996 $ 2,964 $ 61,580 $ 64,544
======== ========= ========
See accountants' compilation report.
<PAGE>
GOW MANAGEMENT SERVICES, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
1996 1995
OPERATING ACTIVITIES
Net income (loss) $ 54,820 $ (6,023)
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation 17,201 20,230
----------- ---------
72,021 14,207
Changes in operating assets and liabilities:
(Increase) decrease in premium receivables (21,041) 8,994
Decrease in premiums payable to insurance companies (1,932) (4,259)
Increase (decrease) in premium deposits and
credits due customers (61,735) 183,019
Decrease in accounts payable and accrued expenses (2,452) (168,679)
------------ ---------
Net cash provided by (used in) operating activities (15,139) 33,282
------------ ---------
INVESTING ACTIVITIES
Purchase of furniture and equipment (11,117) (1,746)
----------- ----------
Increase (decrease) in cash (26,256) 31,536
Cash at beginning of period 81,453 89,084
----------- ----------
Cash at end of period $ 55,197 $ 120,620
=========== ==========
Supplemental Disclosure of Cash Flow Information
Cash payments for income taxes $ 10,364 $ 2,560
=========== ==========
See accountants' compilation report.
<PAGE>
Gow Management Services, Inc.
Financial Report
(Compiled)
Three Months Ended September 30, 1996 and 1995
CONTENTS
ACCOUNTANTS' COMPILATION REPORT
ON THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of operations 3
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
Gow Management Services, Inc.
Buffalo, New York
We have compiled the accompanying balance sheets of Gow
Management Services, Inc. as of September 30, 1996 and 1995, and
the related statements of operations for the three months then
ended, in accordance with Statements on Standards for Accounting
and Review Services issued by the American Institute of Certified
Public Accountants.
A compilation is limited to presenting information that is the
representation of management in the form of financial statements.
We have not audited or reviewed the accompanying financial
statements and, accordingly, do not express an opinion or any
other form of assurance on them.
Management has elected to omit substantially all of the
disclosures and statements of cash flows required by generally
accepted accounting principles. If the omitted disclosures and
the statements of cash flows were included in the financial
statements, they might influence the user's conclusions about the
Company's financial position, results of operations, and cash
flows. Accordingly, these financial statements are not designed
for those who are not informed about such matters.
/s/ Dopkins & Company
CERTIFIED PUBLIC ACCOUNTANTS
December 5, 1996
<PAGE>
GOW MANAGEMENT SERVICES, INC.
BALANCE SHEETS
September 30, 1996 and 1995
ASSETS 1996 1995
Current Assets
Cash, including $41,928 and $109,801
respectively, of restricted funds $ 55,197 $ 120,620
Receivables, premiums 92,983 69,080
Other current assets 2,000 30,000
----------- ------------
Total Current Assets 150,180 219,700
Furniture and Equipment, Net 47,624 47,145
----------- ------------
$ 197,804 $ 266,845
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY DEFICIT)
Current Liabilities
Premiums payable to insurance companies$ 4,480 $ 0
Accounts payable and accrued expenses 62,300 41,511
Premium deposits and credit due customers 59,980 293,538
----------- ------------
Total Current Liabilities 126,760 335,049
Other Long-Term Liabilities 6,500 4,000
Shareholders' Equity (Deficit)
Common stock 2,964 2,964
Retained earnings (accumulated deficit) 61,580 (75,168)
------------ -----------
64,544 (72,204)
----------- ------------
$ 197,804 $ 266,845
See accountants' compilation report. =========== ============
<PAGE>
GOW MANAGEMENT SERVICES, INC.
STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1996 and 1995
1996 1995
REVENUES
Commission and fees $ 233,045 $ 204,262
OPERATING EXPENSES
Compensation and employee benefits 137,639 123,897
Other operating expenses 77,009 61,671
----------- -----------
Operating income before income taxes 18,397 18,694
Income taxes 3,438 359
----------- -----------
Net Income $ 14,959 $ 18,335
=========== ===========
Net Income Per Common Share $ 5.05 $ 6.19
=========== ===========
Weighted Average Number of Shares of
Common Stock Outstanding 2,964 2,964
=========== ============
See accountants' compilation report.
<PAGE>
S. H. GOW & COMPANY, INC.
FINANCIAL REPORT
DECEMBER 31, 1995
CONTENTS
INDEPENDENT AUDITORS' REPORT
ON THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance sheet 2
Statement of operations 3
Statement of shareholders' equity 4
Statement of cash flows 5
Notes to financial statements 6 - 12
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
S. H. Gow & Company, Inc.
Buffalo, New York
We have audited the accompanying balance sheet of S. H. Gow &
Company, Inc. as of December 31, 1995, and the related statements
of operations, 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 S. H. Gow & Company, 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.
/s/ Dopkins & Company
CERTIFIED PUBLIC ACCOUNTANTS
November 9, 1996
<PAGE>
S.H. GOW & COMPANY, INC.
BALANCE SHEET
December 31, 1995
ASSETS
Current Assets
Cash, including $1,786,221 of restricted funds $ 1,790,021
Receivables:
Premiums 3,666,389
Other 24,256
------------
3,690,645
Prepaid expenses 54,691
------------
Total current assets 5,535,357
Investments 24,315
Property and Equipment, Net 1,399,220
Intangible assets 45,690
Less accumulated amortization 18,276
------------
27,414
Other Assets 133,871
------------
$ 7,120,177
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Premium payable to insurance companies $ 3,495,913
Accounts payable and accrued expenses 289,368
Premium deposits and credits due customers 1,822,514
Current portion of long-term debt 86,755
------------
Total current liabilities 5,694,550
Long-term debt 657,444
Shareholders' Equity
Common stock 2,964
Retained earnings 765,219
------------
768,183
------------
$ 7,120,177
============
See notes to financial statements.
<PAGE>
S.H. GOW & COMPANY, INC.
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
REVENUES
Commissions and fees $ 4,829,607
Investment income 57,978
Other 157,137
------------
5,044,722
OPERATING EXPENSES
Compensation and employee benefits 3,589,781
Other operating expenses 1,404,943
Amortization of intangibles 9,138
Interest expense 71,191
------------
5,075,053
------------
Net Loss $ (30,331)
============
Net Loss Per Common Share $ (10.23)
============
Weighted Average Number of Shares of
Common Stock Outstanding 2,964
============
See notes to financial statements.
<PAGE>
S.H. GOW & COMPANY, INC.
STATEMENT OF SHAREHOLDERS' EQUITY
December 31, 1995
Common Retained
Stock Earnings Total
Balance at January 1, 1995 $ 2,964 $ 847,105 $ 850,069
Payment of dividends ($17.39 per share) - (51,555) (51,555)
Net loss - (30,331) (30,331)
------------ ------------ -----------
Balance at December 31, 1995 $ 2,964 $ 765,219 $ 768,183
============ ============ ===========
See notes to financial statements.
<PAGE>
S.H. GOW & COMPANY, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1995
OPERATING ACTIVITIES
Net loss $ (30,331)
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation 127,408
Amortization of intangibles 9,138
Loss on sale of assets 999
------------
107,214
Changes in operating assets and
liabilities:
Increase in premium receivables (42,290)
Decrease in prepaid expenses 2,944
Increase in premiums payable to insurance
companies 194,605
Increase in accounts payable and accrued
expenses 22,493
Decrease in premium deposits and credits
due customers (129,906)
Other operating activities 126,967
-------------
Net Cash Provided By Operating Activities 282,027
INVESTING ACTIVITIES
Purchase of property and equipment (84,175)
Proceeds from sale of assets 16,575
-------------
Net Cash Used In Investing Activities (67,600)
FINANCING ACTIVITIES
Principal payments on long-term debt (82,372)
Dividends (51,555)
-------------
Net Cash Used In Financing Activities (133,927)
-------------
Increase in cash 80,500
Cash at beginning of year 1,709,521
------------
Cash at end of year $ 1,790,021
============
See notes to financial statements.
<PAGE>
Note 1.Nature of Business and Significant Accounting Policies
Nature of business:
The Company is a full service independent insurance
agency specializing in property, casualty, and employee
benefits for businesses and individuals. The Company has
three locations, all of which are in New York State. The
Company grants credit to customers, most of whom are also
located in New York State.
A summary of the Company's significant accounting
policies follows:
Restricted cash:
The Company maintains cash in bank deposit accounts
which, at times, may exceed federally insured limits. The
Company has not experienced any losses on such accounts
and believes it is not exposed to any significant credit
risk on cash.
Revenue recognition:
Commission income as well as the related premiums
receivable from customers and premiums payable to
insurance companies are recorded as of the effective date
of insurance coverage or the billing date, whichever is
later. Premium adjustments, including policy
cancellations, are recorded as they occur. Contingent
commissions, override commissions and commissions on
premiums billed and collected directly by insurance
companies are recorded as revenue when received. Fees
for services rendered are recorded as earned. These
policies are in accordance with predominant industry
practice.
Investments:
The Company has an investment in a foreign stock that is
stated at cost, as the market value of this investment is
indeterminable at December 31, 1995. During the year
ended December 31, 1995, the Company received dividends
of $2,737 from this investment.
Property and equipment:
Assets are stated at cost. Depreciation is computed by
the declining-balance methods over the following
estimated useful lives:
Years
Building 29 - 32
Furniture and equipment 3 - 10
Retirement plans:
The Company has a defined contribution pension plan and a
profit sharing plan for employees who have met certain
eligibility requirements. The Company's contribution to
the pension plan is at a rate of 5% of eligible
compensation and 10% of the excess of eligible
compensation over the Social Security wage base as
defined in the Plan. Contributions to the profit sharing
plan are discretionary as determined by the Board of
Directors.
Aggregate contributions for the year ended December 31,
1995 was $187,030.
Income taxes:
The Corporation, with the consent of its shareholders,
has elected to be taxed under Section 1362 (a) of the
Internal Revenue Code (S Corporation) and a similar
section of the New York State franchise tax law, which
provide that, in lieu of Corporation income taxes, the
shareholders are taxed on their proportionate share of
the Corporation's taxable income. Therefore, no provision
for income taxes has been made in these financial
statements.
Also, no provision has been made for any amounts which
may be advanced or paid as dividends to the stockholders
to assist them in paying their personal income taxes on
the income of the Corporation.
Pervasiveness of estimates:
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair value of financial instruments:
The following methods and assumptions were used to
estimate the fair value of financial instruments:
Long-Term Debt:
The fair value of long-term debt is estimated based on
interest rates for the same or similar debt offered to
the Company having the same or similar remaining
maturities and collateral requirements. The carrying
amount of long-term debt approximates fair value.
Note 2.Premium Trust Account
Premiums collected from insureds but not yet remitted to
insurance carriers are restricted as to use by law. The
Company maintains premium trust accounts with balances as
of December 31, 1995 as follows:
Restricted cash $1,786,221
Premium receivables 3,666,389
----------
5,452,610
Premiums payable to insurance companies (3,495,913)
Premium deposits and credits due customers (1,822,514)
-----------
Excess of restricted assets over applicable
liabilities $134,183
===========
Note 3.Cash Value of Life Insurance
The Company is the owner and beneficiary of life
insurance policies on the lives of certain
officers/shareholders. These policies have an aggregate
face value of $5,000,000. At December 31, 1995, the cash
value of these policies was $90,592 and is included in
other assets.
Note 4.Property and Equipment
Property and equipment at December 31, 1995 consist of
the following:
Building and land $ 1,618,734
Furniture and equipment 1,458,034
-----------
3,076,768
Less accumulated depreciation 1,677,548
-----------
$ 1,399,220
===========
Note 5.Long-Term Debt
Long-term debt at December 31, 1995 consists of the following:
Mortgage note payable to a bank in
monthly installments of $7,542 including
interest at 9.5% per annum through
January 1998, collateralized by a
security interest in real property.
This real property has a depreciated
cost of $806,305 at December 31, 1995.
A final balloon payment of $588,618 is
due in January 1998. $ 653,156
Term note payable to an insurance
company in monthly installments of
$5,255 including interest at 5.5% per
annum through July 1997, collateralized
by a security interest in equipment.
This equipment has a depreciated cost of
$30,807 at December 31, 1995. 91,043
---------
744,199
Less current maturities 86,755
---------
$ 657,444
=========
The maturities required on long-term debt at December 31,
1995 are as follows:
Years ending December 31,
1996 $ 86,755
1997 68,826
1998 588,618
--------
Total $744,199
========
Cash payments for interest was $71,191 for the year ended
December 31, 1995.
Note 6.Retained Earnings
Retained earnings consist of "C" corporation earnings and
"S" corporation earnings. The balance of the "S"
corporation accumulated adjustments account for income
tax purposes was $69,094 at December 31, 1995.
Note 7.Rental Income
The Company leases portions of its building under an
operating lease agreement. The cost of the rented
facilities is included in the balance sheet as a portion
of the cost of property and equipment and is not
separately determinable.
The lease expires in June 1998 and requires future
minimum annual rental income as follows:
Years ending December 31,
1996 $ 69,036
1997 69,036
1998 34,518
--------
Total $172,590
========
Rental income for the year ended December 31, 1995 was
$155,132.
Note 8.Leases
The Company is liable under long-term noncancelable
operating leases that relate to its branch sales
locations. Certain leases require the Company to pay
additional rent for the leased premises. The Company is
also liable under a long-term operating lease for an
automobile. Total rental expense under these leases for
the year ended December 31, 1995 amounted to $125,240.
Future minimum lease payments under these leases consist
of the following:
Years ending December 31,
1996 $126,548
1997 122,579
1998 124,400
1999 34,800
--------
Total $408,327
========
Note 9.Receivable from Affiliate
The Company is affiliated with Gow Management Services,
Inc. through common shareholders. Other assets include a
$33,999 noncurrent receivable from Gow Management
Services, Inc. Gow Management Services, Inc. provides
loss control and claim control services to customers of
S. H. Gow & Company, Inc. Transactions with Gow
Management Services, Inc. resulted in charges for
services resulting in operating expenses of $110,000 in
1995.
Note 10.Common Stock
Common stock at December 31, 1995 consists of the
following:
Class A, par value $1, voting; 100 shares
authorized, 76 shares issued and outstanding $ 76
Class B, par value $1, non-voting; 2,900 shares
authorized, 2,888 shares issued and
outstanding 2,888
-------
$ 2,964
=======
Note 11.Shareholder Agreements
Three shareholders have entered into a stock purchase and
sale agreement which states, among other things, that in
the event one of these shareholders dies, the Company is
required to buy all the shareholder's stock. The purchase
price per share resulting from a death during 1996 will
be $1,864. This agreement can be funded with the proceeds
of life insurance policies mentioned in Note 3. In the
event one of the shareholder's wishes to sell his shares
of the Company, such shares must first be offered to the
Corporation and the remaining shareholders.
Note 12.Contingency
The Company is a defendant in a lawsuit brought against
it and one of its customers aggregating $154,000. The
Company has agreed to indemnify the plaintiff for any
portion of the $154,000 that the plaintiff cannot recover
from the customer. No amount has been accrued in the
financial statements as the ultimate amount of loss, if
any, cannot presently be determined.
Note 13.Subsequent Event
During 1996, the Company has entered into negotiations to
sell certain assets to Gow Management Services, Inc., a
related corporation. Gow Management Services, Inc.
anticipates then selling all of their stock to an
unaffiliated corporation. Negotiations are ongoing and
the agreements or sales prices have not been finalized.
<PAGE>
S. H. Gow & Company, Inc.
Financial Report
(Reviewed)
December 31, 1994 and 1993
CONTENTS
INDEPENDENT ACCOUNTANT'S REPORT
ON THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of income 3
Statements of shareholders' equity 4
Statements of cash flows 5
Notes to financial statements 6 - 12
INDEPENDENT ACCOUNTANT'S REPORT
To the Board of Directors
S. H. Gow & Company, Inc.
Buffalo, New York
We have reviewed the accompanying balance sheets of S. H. Gow &
Company, Inc. as of December 31, 1994 and 1993, and the related
statements of income, shareholders' equity and cash flows, for
the years then ended, in accordance with Statements on Standards
for Accounting and Review Services issued by the American
Institute of Certified Public Accountants. All information
included in these financial statements is the representation of
the management of S. H. Gow & Company, Inc.
A review consists principally of inquiries of Company personnel
and analytical procedures applied to financial data. It is
substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements
taken as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material
modifications that should be made to the accompanying financial
statements in order for them to be in conformity with generally
accepted accounting principles.
/s/ Dopkins & Company
CERTIFIED PUBLIC ACCOUNTANTS
January 31, 1995
<PAGE>
S. H. GOW & COMPANY, INC.
BALANCE SHEETS
December 31, 1994 and 1993
ASSETS 1994 1993
Current Assets
Cash, including $1,705,151 and
$1,890,331, respectively,
of restricted funds $ 1,709,521 $ 1,894,240
Receivables:
Premiums, less allowance for doubtful
accounts of $0 and $28,960,
respectively 3,625,627 3,869,987
Other 22,728 69,013
------------ ------------
3,648,355 3,939,000
Prepaid expenses 57,635 55,839
------------ ------------
Total current assets 5,415,511 5,889,079
Investments 24,315 24,412
Property and Equipment, Net 1,460,027 1,543,995
Intangible assets 45,690 45,690
Less accumulated amortization 9,138 -
------------ -------------
36,552 45,690
Other Assets 260,838 220,543
------------ ------------
$ 7,197,243 $ 7,723,719
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Premiums payable to insurance companies $ 3,301,308 $ 3,884,286
Accounts payable and accrued expenses 266,875 277,223
Premium deposits and credits due customers 1,952,420 1,810,061
Current portion of long-term debt 79,925 74,275
------------ ------------
Total current liabilities 5,600,528 6,045,845
Long-term debt 746,646 825,626
Shareholders' Equity
Common stock 2,964 2,964
Retained earnings 847,105 849,284
------------ ------------
850,069 852,248
------------ ------------
$ 7,197,243 $ 7,723,719
============ ============
See accountants' review report and notes to financial statements.
<PAGE>
S.H. GOW & COMPANY, INC.
STATEMENTS OF OPERATIONS
Years Ended December 31, 1994 and 1993
1994 1993
REVENUES
Commissions and fees $ 4,841,777 $ 5,015,759
Investment income 51,830 37,614
Other 400,980 215,136
------------ ------------
5,294,587 5,268,509
OPERATING EXPENSES
Compensation and employee benefits 3,824,431 3,611,192
Other operating expenses 1,349,245 1,515,622
Amortization of intangibles 9,138 -
Interest expense 80,233 90,232
------------ ------------
5,263,047 5,217,046
------------ ------------
Net Income $ 31,540 $ 51,463
============ ============
Net Income Per Common Share $ 10.64 $ 17.36
============ ============
Weighted Average Number of Shares of
Common Stock Outstanding 2,964 2,964
============ ============
See accountants' review report and notes to financial statements.
<PAGE>
STATEMENT OF SHAREHOLDERS' EQUITY
Years Ended December 31, 1994 and 1993
Common Retained
Stock Earnings
Balance at January 1, 1992 $ 2,964 $ 797,821
Net income - 51,463
------------ -----------
Balance at December 31, 1993 2,964 849,284
Payment of dividends ($11.38 per - (33,719)
share)
Net income - 31,540
------------ -----------
Balance at December 31, 1994 $ 2,964 $ 847,105
============ ===========
See accountants' review report and notes to financial statements.
<PAGE>
S.H. GOW & COMPANY, INC.
STATEMENT OF CASH FLOWS
Year Ended December 31, 1994 and 1993
1994 1993
OPERATING ACTIVITIES
Net income $ 31,540 $ 51,463
Adjustments to reconcile net income to
net cash provided by (used in) operating
activities:
Depreciation 145,747 180,227
Amortization of intangible assets 9,138 -
(Gain) loss on sale of assets (72) 1,222
------------ -----------
186,353 232,912
Changes in operating assets and
liabilities:
(Increase) decrease in accounts receivable 290,645 (492,447)
Increase in prepaid expenses (1,796) (9,819)
Increase (decrease) in premiums payable
to insurance companies (582,978) 919,952
Increase (decrease) in accounts payable
and accrued expenses (10,348) 95,245
Increase in premium deposits and credits
due customers 142,359 639,480
Other operating activities (40,198) (44,930)
----------- -----------
Net Cash Provided By (Used In) Operating Activities (15,963) 1,340,393
----------- -----------
INVESTING ACTIVITIES
Purchase of property and equipment (63,307) (85,806)
Proceeds from sale of assets 1,600 -
----------- -----------
Net Cash Used In Investing Activities (61,707) (85,806)
----------- -----------
FINANCING ACTIVITIES
Principal payments on long-term debt (73,330) (77,171)
Dividends (33,719) -
----------- -----------
Net Cash Used In Financing Activities (107,049) (77,171)
----------- -----------
Increase (decrease) in cash (184,719) 1,177,416
Cash at beginning of year 1,894,240 716,824
------------ ------------
Cash at end of year $ 1,709,521 $ 1,894,240
============ ============
See accountants' review report and notes to financial statements.
<PAGE>
Note 1.Nature of Business and Significant Accounting Policies
Nature of business:
The Company is a full service independent insurance
agency specializing in property, casualty, and employee
benefits for businesses and individuals. The Company has
three locations, all of which are in New York State. The
Company grants credit to customers, most of whom are also
located in New York.
A summary of the Company's significant accounting
policies follows:
Restricted cash:
The Company maintains cash in bank deposit accounts
which, at times, may exceed federally insured limits.
The Company has not experienced any losses on such
accounts and believes it is not exposed to any
significant credit risk on cash.
Revenue recognition:
Commission income as well as the related premiums
receivable from customers and premiums payable to
insurance companies are recorded as of the effective date
of insurance coverage or the billing date, whichever is
later. Premium adjustments, including policy
cancellations, are recorded as they occur. Contingent
commissions, override commissions and commissions on
premiums billed and collected directly by insurance
companies are recorded as revenue when received. Fees for
services rendered are recorded as earned. These policies
are in accordance with predominant industry practice.
Investments:
The Company has an investment in an unlisted common stock
that is stated at cost which approximates market.
During the years ended December 31, 1994 and 1993, the
Company received dividends of $7,973 and $11,900,
respectively.
Property and equipment:
Assets are stated at cost. Depreciation is computed by
the declining-balance methods over the following
estimated useful lives:
Years
Building 29 - 32
Furniture and equipment 3 - 10
Retirement plans:
The Company has a defined contribution pension plan and a
profit sharing plan for employees who have met certain
eligibility requirements. The Company's contribution to
the pension plan is at a rate of 5% of eligible
compensation and 10% of the excess of eligible
compensation over the Social Security wage base as
defined in the plan. Contributions to the profit sharing
plan are discretionary as determined by the Board of
Directors.
Aggregate contributions for both plans for the years
ended December 31, 1994 and 1993 were $209,847 and
$215,046, respectively.
Income taxes:
The Corporation, with the consent of its shareholders,
has elected to be taxed under Section 1362(a) of the
Internal Revenue Code (S Corporation) and a similar
section of the New York State franchise tax law, which
provide that, in lieu of Corporation income taxes, the
shareholders are taxed on their proportionate share of
the Corporation's taxable income. Therefore, no
provision for income taxes has been made in these
financial statements.
Also, no provision has been made for any amounts which
may be advanced or paid as dividends to the shareholders
to assist them in paying their personal income taxes on
the income of the Corporation.
Note 2.Premium Trust Account
Premiums collected from insureds but not yet remitted to
insurance carriers are restricted as to use by law. The
Company maintains premium trust accounts with balances as
of December 31, 1994 as follows:
Restricted cash $ 1,705,151
Premium receivables 3,625,627
5,330,778
-----------
Premiums payable to insurance companies (3,301,308)
Premium deposits and credits due customers (1,952,420)
-----------
Excess of restricted assets over
applicable liabilities $ 77,050
===========
Note 3.Cash Value of Life Insurance
The Company is the owner and beneficiary of life
insurance policies on the lives of certain
officers/shareholders. These policies have an aggregate
face value of $5,000,000. At December 31, 1994 and 1993,
the cash value of these policies was $76,028 and $59,215
at December 31, 1994 and 1993, respectively, and is
included in other assets.
Note 4.Property and Equipment
Property and equipment at December 31, 1994 and 1993
consist of the following:
1994 1993
Building and land $ 1,626,275 $ 1,618,733
Furniture and equipment 1,417,984 1,387,514
----------- -----------
3,044,259 3,006,247
Less accumulated depreciation 1,584,232 1,462,252
----------- -----------
$ 1,460,027 $ 1,543,995
=========== ===========
Note 5.Long-Term Debt
Long-term debt at December 31, 1994 and 1993 consists of
the following:
1994 1993
Mortgage note payable to a bank in
monthly installments of $7,542
including interest at 9.5% per
annum through January 1998,
collateralized by a security
interest in real property. This
real property has a depreciated
cost of $859,185 and $897,062 at
December 31, 1994 and 1993,
respectively. A final balloon
payment of $588,618 is due in
January 1998. $ 679,391 $ 699,582
Term note payable to an insurance
Company in monthly installments of
$5,255 including interest at 5.5%
per annum through July 1997,
collateralized by a security
interest in equipment. This 147,180 200,319
equipment has a depreciated cost
of $51,346 and $85,577 at
December 31, 1994 and 1993,
respectively. 147,180 200,319
--------- ---------
826,571 899,901
Less current maturities 79,925 74,275
--------- ---------
$ 746,646 $ 825,626
========= =========
The maturities required on long-term debt at December 31,
1994 are as follows:
Years ending December 31,
1995 $ 79,925
1996 89,202
1997 68,825
1998 588,619
---------
Total $ 826,571
=========
Cash payments for interest was $80,233 and $90,232 for
the years ended December 31, 1994 and 1993, respectively.
Note 6.Retained Earnings
The following is a summary of the components of retained
earnings at December 31, 1994 and 1993 for both financial
statement and income tax purposes:
"C" "S"
Corporation Corporation
Retained Retained
Earnings Earnings Total
For Financial Statement Purposes:
Balance, December 31, 1993 $ 327,656 $ 521,628 $ 849,284
Add: Net income - 31,540 31,540
Less: Distributions to
Shareholders - (33,719) (33,719)
--------- --------- ---------
Balance, December 31, 1994 $ 327,656 $ 519,449 $ 847,105
========= ========= =========
For Income Tax Purposes:
Balance, December 31, 1993 $ 327,656 $ 20,715 $ 348,371
Add: Net income - 58,433 58,433
Less: Distributions to
Shareholders - (33,719) (33,719)
--------- -------- ---------
Balance, December 31, 1994 $ 327,656 $ 45,429 $ 373,085
========= ======== =========
S Corporation retained earnings at December 31, 1994
included $81,525 in the Accumulated Adjustments Account
and $(36,096) in the Other Adjustments Account.
The difference between "S" Corporation retained earnings
for financial statement purposes and income tax purposes
arises primarily from the excess of commission income
recorded for financial statement purposes in excess of
taxable commission income and accrued bonuses for
financial reporting purposes which were not tax
deductible until paid.
Note 7.Rental Income
The Company leases portions of its building under
operating lease agreements. The cost of the rented
facilities is included in the balance sheets as a portion
of the cost of property and equipment and is not
separately determinable.
The leases expire at various dates through 1998 and
require future minimum annual rental income as follows:
Years ending December 31,
1995 $ 104,685
1996 69,036
1997 69,036
1998 34,518
----------
Total $ 277,275
==========
Rental income for these leases for the years ended
December 31, 1994 and 1993 was $143,590 and $199,043,
respectively. Included in these amounts is supplemental
rental income relating to cost of living adjustments of
$27,022 and $82,475 for the years ending December 31,
1994 and 1993, respectively.
Note 8.Leases
The Company is liable under long-term noncancelable
operating leases that relate to its branch sales
locations. Certain leases require the Company to pay
additional rent for the leased premises. The Company is
also liable under a long-term operating lease for an
automobile. Total rental expense under these leases for
the years ended December 31, 1994 and 1993 amounted to
$152,967 and $191,807, respectively.
Future minimum lease payments under these leases consist
of the following:
Years ending December 31,
1995 $ 117,200
1996 117,200
1997 117,200
1998 117,200
1999 34,800
----------
Total $ 503,600
==========
Note 9.Receivable From Affiliate
Other assets includes a noncurrent receivable from an
affiliate, Gow Management Services, Inc. Gow Management
Services, Inc. provides loss control and claim control
services to customers of S. H. Gow & Company, Inc.
Currently, Gow Management Services, Inc. does not have
the ability to repay the entire amount owed to the
Company, however, management anticipates that income
generated over the next several years will be sufficient
to enable repayment. Transactions with Gow Management
Services, Inc. resulted in charges for services resulting
in operating expenses of $135,000 in 1994 and $120,000 in
1993.
Note 10.Common Stock
Common stock at December 31, 1994 and 1993 consists of
the following:
Class A, par value $1, voting;
100 shares authorized, 76 shares issued
and outstanding $ 76
Class B, par value $1, non-voting;
2,900 shares authorized, 2,888 shares
issued and outstanding 2,888
---------
$ 2,964
=========
Note 11.Shareholder Agreements
Three shareholders have entered into a stock purchase and
sale agreement which states, among other things, that in
the event one of these shareholders dies, the Company is
required to buy all the shareholder's stock. The
purchase price per share resulting from a death during
1995 will be $1,952. This agreement can be funded with
the proceeds of life insurance policies mentioned in Note
3. In the event one of the shareholder's wishes to sell
his shares of the Company, such shares must first be
offered to the Corporation and the remaining
shareholders.
See Accountant's Review Report.
<PAGE>
S. H. Gow & Company, Inc.
Financial Report
(Compiled)
Nine Months Ended September 30, 1996 and 1995
CONTENTS
ACCOUNTANTS' COMPILATION REPORT
ON THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of income 3
Statements of shareholders' equity 4
Statements of cash flows 5
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
S. H. Gow & Company, Inc.
Buffalo, New York
We have compiled the accompanying balance sheets of S. H. Gow &
Company, Inc. as of September 30, 1996 and 1995, and the related
statements of income, shareholders' equity, and cash flows for
the nine months then ended, in accordance with Statements on
Standards for Accounting and Review Services issued by the
American Institute of Certified Public Accountants.
A compilation is limited to presenting information that is the
representation of management in the form of financial statements.
We have not audited or reviewed the accompanying financial
statements and, accordingly, do not express an opinion or any
other form of assurance on them.
Management has elected to omit substantially all of the
disclosures required by generally accepted accounting principles.
If the omitted disclosures were included in the financial
statements, they might influence the user's conclusions about the
Company's financial position, results of operations, and cash
flows. Accordingly, these financial statements are not designed
for those who are not informed about such matters.
/s/ Dopkins & Company
CERTIFIED PUBLIC ACCOUNTANTS
December 5, 1996
<PAGE>
S.H. GOW & COMPANY, INC.
BALANCE SHEETS
September 30, 1996 and 1995
ASSETS 1996 1995
Current Assets
Cash, including $2,039,806
and $2,640,694, respectively,
of restricted funds $ 2,079,534 $ 2,709,866
Receivables:
Premiums 3,116,151 3,241,895
Other 72,416 293,726
----------- ------------
3,188,567 3,535,621
Prepaid expenses 34,590 85,820
----------- ------------
Total current assets 5,302,691 6,331,307
Investments 0 24,412
Property and Equipment, Net 1,319,230 1,430,458
Intangible assets 45,690 45,690
Less accumulated amortizaiton 25,130 15,992
----------- ------------
20,560 29,698
Other Assets 98,081 86,359
----------- ------------
$ 6,740,562 $ 7,902,234
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Premiums payable to insurance
companies $ 3,340,755 $ 4,200,412
Accounts payable and accrued
expenses 130,459 137,907
Premium deposits and credits
due customers 1,396,956 1,583,991
Current portion of long-term debt 78,969 87,696
----------- -----------
Total current liabilities 4,947,139 6,010,006
Long-term debt 599,731 677,493
Shareholders' Equity
Common stock 2,964 2,964
Retained earnings 1,190,728 1,211,771
----------- ------------
1,193,692 1,214,735
----------- ------------
$ 6,740,562 $ 7,902,234
============ ============
See accountants' compilation report.
<PAGE>
S.H. GOW & COMPANY, INC.
STATEMENTS OF INCOME
Nine Months Ended September 30, 1996 and 1995
1996 1995
REVENUES
Commissions and fees $ 3,672,427 $ 3,766,650
Investment income 40,025 35,384
Other 126,870 127,796
----------- -----------
3,839,322 3,929,830
OPERATING EXPENSES
Compensation and employee
benefits 1,958,875 2,050,719
Other operating expenses 1,395,684 1,402,246
Amortization of intangibles 6,854 6,854
Interest expense 49,684 53,790
----------- -----------
3,411,097 3,513,609
----------- -----------
Net Income $ 428,225 $ 416,221
=========== ===========
Net Income Per
Common Share $ 144.48 $ 140.43
=========== ===========
Weighted Average Number of Shares
of Common Stock Outstanding 2,964 2,964
=========== ===========
See accountants' compilation report.
<PAGE>
S.H. GOW & COMPANY, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
Nine Months Ended September 30, 1996 and 1995
Common Retained
Stock Earnings Total
Balance at January 1, 1995 $ 2,964 $ 847,105 $ 850,069
Payment of dividends ($17.39 per share) 0 (51,555) (51,555)
Net income 0 416,221 416,221
-------- ---------- ----------
Balance at September 30, 1995 $ 2,964 $1,211,771 $1,214,735
======== ========== ==========
Balance at January 1, 1996 $ 2,964 $ 765,219 $ 768,183
Payment of dividends ($.92 per share) 0 (2,716) (2,716)
Net income - 428,225 428,225
-------- ---------- ----------
Balance at September 30, 1996 $ 2,964 $1,190,728 $1,193,692
======== ========== ==========
See accountants' compilation report.
<PAGE>
S.H. GOW & COMPANY, INC.
STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996 and 1995
1996 1995
OPERATING ACTIVITIES
Net income $ 428,225 $ 416,221
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation 86,610 81,376
Amortization of intangible assets 6,854 6,854
Loss on sale of property and equipment 2,036 2,302
Gain on sale of investments (52,316) 0
----------- -----------
471,409 506,753
Changes in operating assets and liabilities:
Decrease in accounts receivable 502,078 112,734
(Increase) decrease in prepaid expenses 20,101 (28,185)
Increase (decrease) in premiums payable
to insurance companies (155,158) 899,104
Decrease in accounts payable and
accrued expenses (158,909) (128,968)
Decrease in premium deposits and
credits due customers (425,558) (368,429)
Other operating activities 35,790 174,382
------------ -----------
Net Cash Provided By Operating Activities 289,753 1,167,391
INVESTING ACTIVITIES
Purchase of property and equipment (8,889) (54,109)
Proceeds from sale of property and equipment 233 0
Proceeds from sale of investments 76,631 0
------------ ----------
Net Cash Provided By (Used In) Investing Activities 67,975 (54,109)
FINANCING ACTIVITIES
Principal payments on long-term debt (65,499) (61,382)
Dividends (2,716) (51,555)
------------ ----------
Net Cash Used In Financing Activities (68,215) (112,937)
Increase in cash 289,513 1,000,345
Cash at beginning of year 1,790,021 1,709,521
----------- -----------
Cash at end of year $ 2,079,534 $ 2,709,866
=========== ===========
See accountants' compilation report.
<PAGE>
S. H. Gow & Company, Inc.
Financial Report
(Compiled)
Three Months Ended September 30, 1996 and 1995
CONTENTS
ACCOUNTANTS' COMPILATION REPORT
ON THE FINANCIAL STATEMENTS 1
FINANCIAL STATEMENTS
Balance sheets 2
Statements of income 3
INDEPENDENT ACCOUNTANTS' REPORT
To the Board of Directors
S. H. Gow & Company, Inc.
Buffalo, New York
We have compiled the accompanying balance sheets of S. H. Gow &
Company, Inc. as of September 30, 1996 and 1995, and the related
statements of income for the three months then ended, in
accordance with Statements on Standards for Accounting and Review
Services issued by the American Institute of Certified Public
Accountants.
A compilation is limited to presenting information that is the
representation of management in the form of financial statements.
We have not audited or reviewed the accompanying financial
statements and, accordingly, do not express an opinion or any
other form of assurance on them.
Management has elected to omit substantially all of the
disclosures and statements of cash flows required by generally
accepted accounting principles. If the omitted disclosures and
the statements of cash flows were included in the financial
statements, they might influence the user's conclusions about the
Company's financial position, results of operations, and cash
flows. Accordingly, these financial statements are not designed
for those who are not informed about such matters.
/s/ Dopkins & Company
CERTIFIED PUBLIC ACCOUNTANTS
December 5, 1996
<PAGE>
S.H. GOW & COMPANY, INC.
BALANCE SHEETS
September 30, 1996 and 1995
ASSETS 1996 1995
Current Assets
Cash, including $2,039,806 and
$2,640,694, respectively,
of restricted funds $ 2,079,534 $ 2,709,866
Receivables:
Premiums 3,116,151 3,241,895
Other 72,416 293,726
----------- -----------
3,188,567 3,535,621
Prepaid expenses 34,590 85,820
----------- -----------
Total current assets 5,302,691 6,331,307
Investments 0 24,412
Property and Equipment, Net 1,319,230 1,430,458
Intangible assets 45,690 45,690
Less accumulated amortization 25,130 15,992
----------- -----------
20,560 29,698
Other Assets 98,081 86,359
----------- -----------
$ 6,740,562 $ 7,902,234
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Premiums payable to insurance
companies $ 3,340,755 $ 4,200,412
Accounts payable and accrued
expenses 130,459 137,907
Premium deposits and credits
due customers 1,396,956 1,583,991
Current portion of long-term debt 78,969 87,696
----------- -----------
Total current liabilities 4,947,139 6,010,006
Long-term debt 599,731 677,493
Shareholders' Equity
Common stock 2,964 2,964
Retained earnings 1,190,728 1,211,771
----------- -----------
1,193,692 1,214,735
----------- -----------
$ 6,740,562 $ 7,902,234
=========== ===========
See accountants' compilation report.
<PAGE>
S.H. GOW & COMPANY, INC.
STATEMENTS OF INCOME
Three Months Ended September 30, 1996 and 1995
1996 1995
REVENUES
Commissions and fees $ 1,315,648 $ 1,236,080
Investment income 16,082 15,526
Other 82,599 44,888
----------- ------------
1,414,329 1,296,494
OPERATING EXPENSES
Compensation and employee benefits 602,517 660,907
Other operating expenses 459,985 458,102
Amortization of intangibles 2,285 2,285
Interest expense 16,307 18,348
----------- -----------
1,081,094 1,139,642
----------- ------------
Net Income $ 333,235 $ 156,852
=========== ============
Net Income Per Common
Share $ 112.43 $ 52.92
=========== ============
Weighted Average Number of Shares
of Common Stock Outstanding 2,964 2,964
=========== ============
See accountants' compilation report.
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the year ended December 31,
1995 is derived from the audited financial statements of Gow Management
Services, Inc. The financial data for periods ended September 30, 1996
and 1995 and the years ended December 31 1994,1993, 1992 and 1991
are derived from unaudited financial statements. The unaudited financial
statements include all adjustments consisting of normal recurring
accruals, which Gow Management Services, Inc. considers necessary
for a fair presentation of the financial position and the results of
operations of these periods. Operating results for the nine months ended
September 30, 1996 are not necessarily indicative of the results that may be
expected for the entire year ending December 31, 1996. The data should be
read in conjunction with the financial statements, related notes and other
financial information included herein.
<TABLE>
<CAPTION>
Nine Months
Ended
Sept. 30 Year Ended December 31
---------------------- ---------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Commissions and fees $ 709 $ 641 $ 980 $ 924 $ 768 $ 650 $ 681
------- ------ ------- ------ ------- ------ -------
Total revenues 709 641 980 924 768 650 681
Compensation and employee benefits 486 492 695 663 600 508 456
Other operating expenses 158 152 176 205 152 144 185
------- ------ ------- ----- ------- ------ -------
Total expenses 644 644 871 868 752 652 641
------- ------ ------- ----- ------- ------ -------
Income before incme taxes 65 (3) 109 56 16 (2) 40
Income taxes 10 3 33 16 (2) 0 0
------- ------ ------- ----- ------- ------ -------
Net income 55 (6) 76 40 18 (2) 40
======= ====== ======= ===== ======= ======= =======
Balance Sheet Data:
Total assets $ 198 $ 267 $ 209 $ 263 $ 145 $ 165 $ 170
Long-term debt, less current portion - - - - - - -
Total shareholders' equity 65 (72) 10 (66) (106) (163) (163)
</TABLE>
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the year ended December 31, 1995
is derived from the audited financial statements of S. H. Gow & Company, Inc.
The financial data for the nine month periods ended September 30, 1996
and 1995 and the years ended December 31, 1994, 1993, 1992 and 1991
are derived from unaudited financial statements. The unaudited financial
statements include all adjustments consisting of normal recurring accruals,
which S. H. Gow & Company Inc. considers necessary for a fair presentation
of the financial position and the results of operations of these periods.
Operating results for the nine months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the entire
year ending December 31, 1996. The data should be read in conjunction
with the financial statements, related notes and other financial information
included herein.
<TABLE>
<CAPTION>
Nine Months
Ended
Sept. 30 Year Ended December 31
---------------------- ------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Income
Data:
Commissions and fees $ 3,672 $ 3,767 $ 4,830 $ 4,842 $ 5,016 $ 5,150 $ 5,749
Interest income and other 167 163 215 453 252 192 261
------- ------- ------- ------- ------- ------- -------
Total revenues 3,839 3,930 5,045 5,295 5,268 5,342 6,010
Compensation and employee benefits 1,959 2,051 3,590 3,824 3,616 3,739 3,879
Other operating expenses 1,402 1,409 1,414 1,359 1,516 1,701 1,986
Interest expense 50 54 71 80 90 63 111
------- ------- ------- ------- ------- ------- -------
Total expenses 3,411 3,514 5,075 5,263 5,217 5,500 5,976
------- ------- ------ ------- ------- ------- -------
Net income (loss) $ 428 $ 416 $ (30) $ 32 $ 51 $ (158) $ 34
======= ======= ======= ======= ======= ======= =======
Balance Sheet Data:
Total assets $ 6,741 $ 7,902 $ 7,120 $ 7,197 $ 7,724 $ 6,095 $ 7,402
Long-term debt, less durrent portion 600 677 657 747 826 904 725
Total shareholders' equity 1,194 1,215 768 850 852 801 958
</TABLE>
<PAGE>
S. H. GOW & COMPANY, INC. and
GOW MANAGEMENT SERVICES, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
S. H. Gow and Company, Inc. operates primarily as a Property
and Casualty insurance agency, and Gow Management Services, Inc.
provides various insurance services, primarily Third Party
Administration.
The income of S. H. Gow and Company, Inc. (the Company), is
principally derived from the commissions earned from the
placement of insurance policies with various insurance carriers.
Such commissions are generally a percentage of the premium of the
related insurance policy. Commission rates vary among the
different carriers and among the different types of policies
placed. Recent market conditions have resulted in reduced
premiums rates and related commissions for the Company.
The income for Gow Management Services, inc. is principally
derived from fees for Third Party Administration and Loss Control
contracts. Fees are based on anticipated salaries, related cost
and administrative cost in fulfillment of various service
contracts.
Management cannot predict the future changes in the market
conditions or the effect that they may have on the Company's
operations.
RESULTS OF OPERATIONS
The combined operating results for S. H. Gow & Company, Inc.
and Gow Management Services, Inc., are as follows:
Total revenues for 1995 were $6,024,765, a decrease of
$193,915, or 3.1% from 1994. For 1994, total revenues were
$6,218,680, an increase of $182,130, or 3.0% from 1993.
Commissions and fees for 1995 increased by $43,780, or .8%.
For 1994, commissions and fees decreased by $17,930 or .3%.
Nonoperating income and other revenues decreased by $237,695
in 1995 and increased by $200,060 in 1994. These fluctuations
are due mainly to a one time profit for S.H. Gow & Company, Inc.,
resulting from the dissolution of a related trust.
Total operating expenses for 1995 were $5,945,773 a decrease
of $185,077 or 3.0% from 1994. For 1994, total operating
expenses were $6,130,850 an increase of $161,729, or 2.7% from
1993.
Compensation and employee benefits costs, including a
Retirement Plan contribution, for 1995 were $4,284,893, a
decrease of $202,102, or 4.5% from 1994. This decrease was
attributable primarily to owners and officers bonuses. For 1994,
compensation and employee benefits costs were $4,486,995, an
increase of $275,991 or 6.6% from 1993.
For 1995, other operating expenses increased $26,067, or
1.7% from 1994 because of brokers' fees, increase in insurance
cost and bad debts. For 1994, other operating expenses decreased
$113,401, or 6.8% from 1993.
There was no interest expense related to insurance
operations for 1995 or 1994. S. H. Gow & Company, Inc. does own
the office building of its primary location at 344 Delaware
Avenue, Buffalo, New York, and has an outstanding mortgage.
RECENT INTERIM RESULTS
For the nine months ended September 30, 1996, commission and
fee income decreased by $26,474 or .6 % from the nine months
ended September 30, 1995. Other revenue increased by $3,715, or
2.3%.
Compensation and employee benefits for the nine months ended
September 30, 1996, decreased $97,863, or 3.9% from the nine
months ended September 30, 1995. This is primarily due to a
reduction in existing staff.
Other operating expenses for the nine months ended September
30, 1996, decreased $1,441 from the nine months ended September
30, 1995.
No provision for income taxes was made on the part of S. H.
Gow & Company, Inc. because it is a Sub-Chapter (S) corporation.
Gow Management Services, Inc., a C corporation, does accrue for
income taxes. For nine months ending September 30, 1996, this
amount totaled $10,364.
CAPITAL RESOURCES
As of September 30, 1996, the Company had total assets of
$6,938,366, and total liabilities of $5,680,130.
AGREEMENT OF MERGER
OF
HILB, ROGAL AND HAMILTON COMPANY OF BUFFALO
INTO
GOW MANAGEMENT SERVICES, INC.
THIS MERGER AGREEMENT ("Agreement"), to be effective upon filing of
a Certificate of Merger on or around January 7, 1997, but to be accounted
for as if effective as of 12:01 a.m. on January 1, 1997, 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 to be formed pursuant to this Agreement, HILB, ROGAL AND
HAMILTON COMPANY OF BUFFALO, a Delaware corporation ("HRH Merger
Subsidiary"), and GOW MANAGEMENT SERVICES, INC., a Delaware corporation
("Merging Entity"), and the three shareholders of Merging Entity, JEFFREY
GOW ("Mr. J. Gow"), MICHAEL GOW ("Mr. M. Gow") and RICHARD MASON ("Mr.
Mason"), (with Messrs. Mason, J. Gow and M. Gow 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 engages in an affiliated
service business to a sister corporation, S. H. Gow & Company, Inc.,
which operates a general insurance agency.
B. Immediately following the consummation of the transactions
contemplated by this Agreement, Merging Entity, which will then be a
wholly-owned subsidiary of Parent, will acquire substantially all of the
assets and business of S. H. Gow & Company, Inc. pursuant to an Agreement
of Purchase and Sale entered into simultaneously herewith.
C. Parent is engaged in the business of owning and operating
insurance agencies and will form HRH Merger Subsidiary for the purposes
contemplated herein.
D. 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 as the consideration stated herein.
E. 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, as
amended ("Code"), and further be accounted for as a "purchase" in
accordance with Accounting Principles Board Opinion Number 16 and other
applicable guidelines.
In consideration of the foregoing facts and of the respective
representations, warranties, covenants, conditions and agreements set
forth below, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. PLAN OF MERGER.
1.1 Effective Date. Subject to fulfillment of the conditions
precedent in Sections 6 and 7 of this Agreement, Merging Entity and HRH
Merger Subsidiary (collectively, "Constituents") will cause a Certificate
of Merger to be signed, verified and delivered on or before January 7,
1997 (or at such later time as may be agreed upon by the parties), to the
Secretary of State of the State of Delaware ("Effective Date"), as
provided by the laws of the State of Delaware. On the Effective Date,
the separate existence of each of Constituents shall cease and HRH Merger
Subsidiary shall be merged with and into Merging Entity, which shall be
the surviving corporation of the Merger (hereinafter referred to as 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 certificate of incorporation of Surviving
Corporation shall be the name and certificate 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:
Stephen H. Gow Chairman
Richard Mason President
Robert H. Hilb Vice President
Andrew L. Rogal Vice President
Dianne F. Fox Secretary
Timothy J. Korman Treasurer
Walter L. Smith Vice President
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 in the manual provided to Merging Entity and titled
"Accounting Policies and Procedures" ("GAAP Policy"). 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 is owned, collectively, by
Shareholders. Each Shareholder owns, free and clear of any liens,
encumbrances, restrictions or adverse claims whatsoever except as set
forth in Schedule 2.4, the number of shares of Merging Entity set forth
below opposite his name and each Shareholder shall receive therefor for
each share of Common Stock the number of shares of no par value common
stock of Parent as described herein:
Shareholder Number of Shares Percentage
Voting Nonvoting
Mr. Jeffrey Gow 34 1,292 44.74%
Mr. Michael Gow 34 1,292 44.74%
Mr. Richard Mason 10 304 10.52%
In exchange for all of the shares of Common Stock, Shareholders shall
collectively receive $300,000 worth of shares of common stock of Parent,
valued at the average closing price for such stock over the period
December 9, 1996, through December 20, 1996 ("Average Price"), subject to
adjustment as provided in Section 13.6 and to all the terms and
conditions contained herein. This Agreement shall not be consummated
under any circumstances unless 100% of the shares of Common Stock are
exchanged for shares of Parent common stock.
(b) The manner and basis of conversion of shares on the
Effective Date shall be as follows:
(i) Each share of common stock of HRH Merger Subsidiary
which is issued and outstanding on the Effective Date, with all rights
with respect thereto, shall become one (1) share of Class A voting common
stock, $1.00 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 that number of shares (which number of shares is
subject to adjustment as provided in Section 13.6) of common stock, no
par value, of Parent to which it is entitled on a pro rata basis. 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, upon delivery to Parent or its duly
authorized agent for cancellation of certificates representing all of his
shares of Common Stock , and subject to the ten percent holdback of
shares described in Section 8.6, shall thereafter be entitled to receive
certificates representing the duly issued and outstanding number of
shares of Parent common stock to which such Shareholder is entitled.
(c) Appropriate adjustment (i.e. to ensure that Shareholders
collectively receive $300,000 of Parent Common Stock) shall be made on
the number of shares of Parent common stock to be issued upon conversion
if, during the period commencing on November 1, 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) After the Effective Date and 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 common stock.
1.5 Closing Date. The closing of the transactions contemplated by
this Agreement ("Closing") shall take place at the offices of Hodgson,
Russ, Andrews, Woods & Goodyear, LLP, located at 1800 One M&T Plaza,
Buffalo, New York, at 10:00 o'clock a.m. on January 7, 1997, 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 Delaware ("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
or where failure to qualify to do business would not have a material
adverse effect, the nature of the business conducted by Merging Entity
and the character or ownership of properties owned by it do 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 certificate of incorporation, and all
amendments thereto, of Merging Entity heretofore delivered to Parent 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
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, except that its sister company,
S.H. Gow & Company, Inc., has a similar name.
2.3 Capitalization of Merging Entity. The capitalization of
Merging Entity is as follows:
(a) Merging Entity is authorized to issue 100 shares of Class
A voting common stock, $1.00 par value and 2,900 shares of Class B
nonvoting common stock, $1.00 par value. Merging Entity is not
authorized to issue, and has not issued, any shares of any other class.
All of the shares comprising Common Stock outstanding and owned as of the
date hereof are as set forth in Section 1.4(a), supra.
(b) All of the outstanding shares of Common Stock have been
duly and validly issued and are fully paid and nonassessable. The
issuance of all shares of Common Stock was and has been in compliance
with all applicable statutes, rules and regulations, including, without
limitation, all applicable federal and state securities laws. There is
no existing option, warrant, call or commitment to which Merging Entity
is a party requiring the issuance of any additional shares of common
stock of Merging Entity or of any other securities convertible into
shares of common stock of Merging Entity or any other equity security of
Merging Entity of any class or character whatsoever.
(c) No shares of the authorized stock of Merging Entity have
ever been registered under the provisions of any federal or state
securities law, nor has Merging Entity filed or been required to file any
report with any federal or state securities commission, department,
division or other governmental securities 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 certificate of
incorporation or bylaws of Merging Entity or any material 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. Merging Entity does not
own any stock or other interest in any other corporation, nor is it a
participant in any joint entity.
2.7 Financial Statements. Shareholders and Merging Entity have
caused to be delivered to Parent a true and complete copy of the audited
financial statements of Merging Entity, conformed to GAAP Policy,
together with an unqualified opinion and an accountant's consent to use
such statements in a Securities and Exchange Commission ("SEC")
registration statement, for the calendar year of Merging Entity ended
December 31, 1995, and unaudited financial statements for calendar years
1993 and 1994, including, without limitation, balance sheets and
statements of income for such period (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 nine-month period ended September
30, 1996 including, without limitation, a balance sheet and statement of
income for such period then ended ("Interim Statements"). 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 , in the case of the audited statements, 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, neither the Financial
Statements nor the Interim Statements contains any untrue statement of
any material fact or omits to state any material fact required to be
stated to make such Financial Statements or Interim Statements not
misleading.
2.8 Absence of Undisclosed Liabilities. (The term "Most Recent
Balance Sheet," as used in this Agreement, means the balance sheet of
Merging Entity at November 30, 1996. Also, the term "Most Recent Balance
Sheet Date," as used in this Agreement, means November 30, 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 material 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 of any basis for the assertion against
Merging Entity, as of the Most Recent Balance Sheet Date, of any material
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 adverse change in the financial condition or
results of operations 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.
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 in all
material respects. All taxes, assessments, fees, penalties, interest and
other governmental charges which were required to be paid by Merging
Entity on such returns and reports have been duly paid and satisfied on
or before their respective due dates. No tax deficiency or penalty has
been asserted or, to the best knowledge of each of the Shareholders,
threatened with respect to Merging Entity. No federal or state income
tax return of Merging Entity has been audited during the past five years
or, to the knowledge of any Shareholder, is proposed to be audited, by
any federal or state taxing authority, including, without limitation, the
U.S. Internal Revenue Service and the New York Department of Taxation and
Finance, and no waiver of any statute of limitations has been given or is
in effect with respect to the assessment of any taxes against Merging
Entity. The provisions for taxes included in the Most Recent Balance
Sheet and in the Financial Statements were sufficient for the payment of
all accrued and unpaid federal, state and local income, withholding,
social security, unemployment, excise, real property, tangible personal
property, intangible personal property and other taxes of Merging Entity,
whether or not disputed, for the periods reflected.
2.11 Real and Personal Property Owned by Merging Entity. Merging
Entity does not own any real property. Schedule 2.11 consists of a copy
of the depreciation schedules filed as a part of the most recent annual
Federal income tax returns of Merging Entity (with deletions of any items
disposed of prior to the date of this Agreement). 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, within the prior three (3) years, 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. 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 of which Shareholders have knowledge 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.
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, 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 material disagreements or
unreconciled discrepancies between Merging Entity and any such company as
to the amounts owed by Merging Entity.
2.15 Officers and Directors; Banks; Powers of Attorney. Schedule
2.15 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.
2.16 Compensation and Fringe Benefits. Schedule 2.16 contains a
correct and complete list of each officer, director, employee or agent of
Merging Entity in the format as set forth in Schedule 2.16. Also,
Schedule 2.16 contains a description of all fringe benefits presently
being provided by Merging Entity to any of its employees or agents.
2.17 Patents; Trademarks; Copyrights and Trade Names. Merging
Entity owns or is possessed of or is licensed under such copyrights
(including, without limitation, software) as are used in, and are of
material importance to, the conduct of its business. Merging Entity owns
no patents, patent applications, trademarks, trademark registrations or
applications, trade names (other than its corporate name), copyrights or
copyright registrations or applications.
2.18 Indebtedness. Schedule 2.18 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 in all material respects 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, to the best knowledge of Shareholders, no event has
occurred which, but for the passage of time or the giving of notice, or
both, would constitute such a default.
2.19 Employment Agreements and Other Material Contracts. Schedule
2.19 contains (a) a complete list of every employment agreement,
independent contractor and brokerage agreement to which Merging Entity is
a party, copies of which have been provided to Parent and (b) 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.
Merging Entity is not in default in any material respect under any
material agreement, lease, contract or other instrument to which it is a
party. To the best knowledge of Shareholders, no party with whom Merging
Entity has any agreement which is of material importance to its business
is in default thereunder.
2.20 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 2.20 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 2.19; (iii) discharged or satisfied any material 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 certificate 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 $25,000.00. 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 2.20.
2.21 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 2.21, 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.
2.22 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 2.22.
2.23 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, 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).
2.24 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 2.24 ("Employee Benefit Plans").
(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, participation
in or termination of any Employee Benefit Plan, except for regular,
periodic, current contributions to any such Employee Benefit Plan.
(C) 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) No pending claim or lawsuit has been asserted against
Merging Entity with respect to the operation of any Employee Benefit
Plan. Merging Entity and Shareholders know of no facts or circumstances
which could form the basis for any such claim or lawsuit.
(E) Merging Entity has made full and timely payment of all
amounts required to be contributed under the terms of each Employee
Benefit Plan and no event or condition exists regarding any of the
Employee Benefit Plans which could be deemed a "reportable event" with
respect to which the 30-day notice has not been waived which could result
in a material liability to Merging Entity and no event exists which would
subject Merging Entity to a material fine under Section 4701 of ERISA.
(F) Merging Entity is not subject to any material liability,
tax or penalty and the termination of or withdrawal from any Employee
Benefits Plan will not subject Merging Entity to any additional
contribution requirement and the execution or performance of the
transactions contemplated by this Agreement will not create, accelerate
or increase any obligations under any Employee Benefit Plan.
(G) Merging Entity has no obligation to any retired or former
employee or any current employee upon retirement under any Employee
Benefit Plan.
2.25 Competitors. Except as disclosed in Schedule 2.25, 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, its sister company, S.H. Gow & Company, Inc., or a corporation
listed on a national securities exchange or a corporation whose
securities are traded in the over-the-counter market.
2.26 Accounts and Notes Receivable. The reserve for bad debts, if
any, contained in the Most Recent Balance Sheet and the Financial
Statements was calculated on a consistent basis which, in the light of
past experience, is considered adequate. All accounts receivable and all
notes receivable of Merging Entity reflected in the Most Recent Balance
Sheet are fully collectible when due at the aggregate amount shown, less
the bad debt allowance stated therein, it being the intent of all of the
parties to this Agreement that Shareholders are hereby representing and
warranting to Parent the full collectibility when due of all of the notes
receivable and accounts receivable of Merging Entity in the aggregate
amount shown in each such balance sheet, less the bad debt allowance
stated therein. All notes receivable, if any, of Merging Entity are due
and payable within one year after the Effective Date.
2.27 Permits and Licenses. All material 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.
2.28 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 SEC; 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.
2.29 Financing Statements. 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. There are no deferred money purchase notes related to
Merging Entity's acquisition of any portion of its assets.
2.30 Brokers. Except for fees owing to Marsh, Berry & Company,
Inc., which fees shall be the responsibility of Shareholders, no
commission, finder's fee, brokerage fee or similar charge will be
incurred by Merging Entity or any Shareholder for the consummation of the
transactions contemplated herein.
2.31 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 when received.
3. ACCESS AND INFORMATION. Throughout the period prior to the
Effective Date, Shareholders caused Merging Entity and all its employees
to give to Parent, and any and all authorized representatives of Parent
(including auditors and attorneys), reasonable access upon prior notice,
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 deemed appropriate
with respect to the affairs of Merging Entity, and further caused 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 have reasonably requested.
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; provided, however, that to the extent that
as a result of any such investigation prior to Closing (a) Parent has
actual knowledge that any representation or warranty of Shareholders is
untrue and (b) Shareholders do not have actual knowledge that such
representation or warranty is untrue, then Shareholders shall have no
liability with respect to such untrue representation or warranty.
4. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents
and
warrants to Shareholders as follows:
4.1 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 Delaware.
4.2 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
filing of a certificate of merger with the Secretary of State of the
State of Delaware (each of which actions in (i) through (v) Parent
covenants to use its best reasonable efforts to cause to occur prior to
the Effective Date), no governmental or other authorization, approval or
consent for the execution, delivery and performance of this Agreement,
including the issuance of Parent Stock, 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 or
any applicable laws, rules or regulations.
Each of Parent and HRH Merger Subsidiary has, or will prior to
Closing have, all necessary power and authority and will have taken all
action necessary to authorize, execute and deliver this Agreement, and to
perform its obligations under this Agreement, including without
limitation the obligation of Parent to issue the shares of the common
stock of Parent to the Shareholders pursuant to Section 1.4.
4.3 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 ___ 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.
4.4 Status of Parent common stock. The shares of Parent common
stock to be issued to Shareholders pursuant to this Agreement will, when
so issued, be duly and validly authorized and issued, fully paid and
nonassessable and will be registered, when issued, pursuant to Parent's S-
4 registration statement and supplement thereto under the Securities Act
of 1933.
4.5 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.
4.6 SEC Compliance. Parent has filed with the SEC all forms,
reports, schedules, statements and other documents required to be filed
by it since January 1, 1993 under the Securities Act of 1933 and the
Exchange Act of 1934 (such documents, as amended from time to time, being
the "Parent SEC Documents"). Each Parent SEC Document, including without
limitation any financial statements or schedules included therein, (a)
did not, at the time filed (or, in the case of any Parent SEC Document
that has been amended prior to the date hereof, at the time of the filing
of such amendment), contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading, and (b) at the time filed,
complied in all material respects with the applicable requirements of the
Securities Act of 1933 and the Exchange Act of 1934. Parent has made
available to the Shareholders, or will make available to the Shareholders
before Closing, a supplement to its S-4 registration statement which
complies with all applicable SEC rules, together with all other
prospectus and other materials and information required to be disclosed
pursuant to all applicable federal and state securities laws and
regulations, including without limitation such information as is
necessary in compliance with Rule 145 to enable Shareholders to sell any
shares of common stock of Parent received pursuant to this Agreement.
5. 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:
5.1 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.
5.2 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.
5.3 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.
5.4 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.
5.5 Opinion. Parent shall have received a favorable opinion, dated
as of the Closing Date, from the law firm of Hodgson, Russ, Andrews,
Woods & Goodyear, LLP, counsel for Shareholders and Merging Entity, in
form and substance as set forth in Schedule 5.5 and otherwise reasonably
satisfactory to counsel for Parent.
5.6 Delivery of Common Stock. There shall be duly delivered for
cancellation to Parent at the Closing not less than 100% of the shares of
Common Stock issued and outstanding at the time of the Closing, free and
clear of any liens or encumbrances as required to be listed on Schedule
2.4.
5.7 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. 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 13.6) 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.
5.8 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.
5.9 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.
5.10 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, except where failure to obtain such approval
would not have a material adverse effect.
5.11 Registration Statement. Parent shall have filed an
amended or supplemented S-4 registration statement with the SEC.
6. 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
Shareholders and Merging Entity:
6.1 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.
6.2 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.
6.3 Effective Registration Statement. The registration statement
on Form S-4 under the Securities Act of 1933 referred to in Sections
2.31, 4.4 and 4.6 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.
6.4 Prospectus Approval. After delivery and review of the
aforementioned amendment or supplement to Parent's S-4 registration
statement, Shareholders and Merging Entity shall have approved this
Agreement and the consummation of all transactions contemplated thereby.
7. POST-MERGER COVENANTS.
7.1 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 2.26.
B. Payment. To pay timely all liabilities of Merging Entity which
have been properly reserved for in the Merger Balance Sheet, as
defined in Section 7.2.A.
C. Employee Benefit Plans. To take all actions required of
it pursuant to Schedule 7.1.C at the times specified therein.
7.2 POST-MERGER COVENANTS OF SHAREHOLDERS. Shareholders, jointly
and severally, covenant to Parent as follows:
A. Delivery of Merger Balance Sheet. To cause to be
delivered to Parent as soon after the Closing Date as is practicable, and
in all events no later than sixty (60) days after the Effective Date, the
Merger Balance Sheet, as defined in Section 13.6(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 prepared and
delivered to the Surviving Corporation for filing, at no expense to the
Surviving Corporation 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 in all material respects and,
prior to actual filing thereof, Shareholders shall deliver drafts of such
filings to Parent for its review.
C. Employee Benefit Plans. To take all actions required of
them pursuant to Schedule 7.1.C at the times specified therein.
D. Bind Tail Coverage. To bind the tail coverage referenced
in Section 5.7 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.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION.
8.1 Survival of Representations and Warranties of Parent. All
representations, warranties and covenants made herein or pursuant hereto
by Parent shall survive the Closing until December 31, 1999.
8.2 Survival of Representations and Warranties of Shareholders.
Except for the representations and warranties relating to taxes contained
in Section 2.10, which shall survive until one year after the expiration
of the applicable statute of limitations, all representations, warranties
and covenants made herein or pursuant hereto by Shareholders shall
survive the Closing until December 31, 1999.
8.3 Indemnification Agreement by Shareholders. Shareholders,
jointly and severally, shall indemnify and hold harmless Parent and
Surviving Corporation, and their respective successors and assigns, 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 Merging Entity or any Shareholder
under the terms of this Agreement; and
(ii) All demands, claims, actions, suits, proceedings,
loss, damage, liability, judgments, costs and expenses (including,
without limitation, court costs, experts' and reasonable attorneys' fees
at the trial level and in connection with all appellate proceedings)
incident to any of the foregoing.
Notwithstanding the foregoing, to the extent any amount for
which Shareholders would otherwise be liable to indemnify Parent and
Surviving Corporation is covered by any tail insurance coverage required
to be provided by Shareholders hereunder, Shareholders obligation to
indemnify Parent and Surviving Corporation shall be reduced by the amount
of any proceeds of any such tail coverage.
8.4 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;
and
(ii) All demands, claims, actions, suits, proceedings, loss,
damage, liability, judgments, costs and expenses (including, without
limitation, court costs, experts' and reasonable attorneys' fees at the
trial level and in connection with all appellate proceedings) incident to
any of the foregoing.
8.5 Assertion of Indemnification Claim. Either the Shareholders or
Parent, as the case may be (an "Indemnified Party"), shall give notice to
the other (an "Indemnifying Party") as soon as possible after the
Indemnified Party has actual knowledge of any claim as to which
indemnification may be sought and the amount thereof, if known, and
supply any other information in the possession of the Indemnified Party
regarding such claim, and will permit the Indemnifying Party (at its
expense) to assume the defense of any third party claim and any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party who shall conduct the defense of such claim or
litigation shall be reasonably satisfactory to the Indemnified Party, and
provided further that the omission by the Indemnified Party to give
notice as provided herein will not relieve the Indemnifying Party of its
indemnification obligations hereunder except to the extent that the
omission results in a failure of actual notice to the Indemnifying Party
and the Indemnifying Party is materially damaged as a result of the
failure to give notice. The Indemnifying Party may settle or compromise
any third party claim or litigation with the consent of the Indemnified
Party which consent may not be unreasonably withheld.
The Indemnified Party shall have the right at all times to
participate in the defense, settlement, negotiations or litigation
relating to any third party claim or demand at its own expense. In the
event that the Indemnifying Party does not assume the defense of any
matter as above provided, then the Indemnified Party shall have the right
to defend any such third party claim or demand, and will be entitled to
settle any such claim or demand in its discretion. In any event, the
Indemnified Party will cooperate in the defense of any such action and
the records of each party shall be available to the other with respect to
such defense.
8.6 Limitation of Amount of Indemnity and Escrow of Parent Common
Stock. The indemnity provided by Shareholders to Parent and Surviving
Corporation pursuant to Section 8.3 and the indemnity provided by Parent
to Shareholders pursuant to Section 8.4 shall in each case be limited to
a maximum aggregate amount equal to $300,000.
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, $30,000 of shares of its common stock,
valued at the Average Price ("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 31, 1997; (ii) determination and settlement of any
amounts pursuant to Section 13.6; and (iii) determination and settlement
of any amounts claimed by Parent as of December 31, 1997, pursuant to
Section 8.3 ("Release Date").
Between the Effective Date and the Release Date, Parent shall hold
the Escrowed Shares and shall deposit any dividends received thereon in
an interest-bearing account. Upon the Release Date, and absent a written
directive to the contrary from each such Shareholder not desiring to
receive his shares pro rata, Parent shall distribute the Escrowed Shares,
less any decrease in such shares pursuant to this Agreement, plus any
additional shares issued pursuant to this Agreement, to the Shareholders,
pro rata. Dividends on the Escrowed Shares and the interest earned
thereon ("Escrow Funds") shall be distributed in the same manner
determined according to the immediately preceding sentence. If Escrowed
Shares were decreased to satisfy the indemnity provided herein, the
Escrow Funds shall be reduced by a percentage equal to the fraction
established where the numerator is the number of Escrowed Shares used to
satisfy such indemnity and the denominator is the number of Escrowed
Shares.
9. 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.
10. DEFAULT.
10.1 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 material
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, after notice to
Shareholders and failure to cure within thirty (30) days after notice,
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.
10.2 Default by Parent. Except as otherwise expressly provided in
this Agreement, if Parent shall fail to perform or comply with any
material covenant, agreement or condition contained in this Agreement
that is required to be performed or complied with by Parent on or prior
to the Closing Date, then Shareholders and Merging Entity, at the
unanimous option of Shareholders and Merging Entity, after notice to
Parent and failure to cure within thirty (30) days after notice, may seek
specific performance of this Agreement or may elect to sue for damages.
If Shareholders and Merging Entity elect to sue for specific performance,
Parent expressly waives any claim or defense that Shareholders and
Merging Entity have an adequate remedy at law.
11. 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. Jeffrey Gow
______________________
______________________
Mr. Michael Gow
______________________
______________________
Mr. Richard Mason
______________________
______________________
With copies to:
Mr. Douglas A. Yoh
Marsh, Berry & Company, Inc.
7466 Auburn Road
Concord, Ohio 44077
Hodgson, Russ, Andrews, Woods & Goodyear, LLP
1800 One M&T Plaza
Buffalo, New York 14203
Attention: Todd M. Joseph, Esq.
(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.
12. 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.
13. MISCELLANEOUS PROVISIONS.
13.1 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.
13.2 Governing Law. EXCEPT FOR THE MERGER OF HRH MERGER SUBSIDIARY INTO
MERGING ENTITY, WHICH SHALL BE GOVERNED BY DELAWARE LAW, THIS AGREEMENT
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE
COMMONWEALTH OF VIRGINIA.
13.3 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.
13.4 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.
13.5 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.
13.6 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 December 31, 1996,
computed under the GAAP Policy referenced in Section 2.7 hereof and in
accordance with Section 2.26 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. The
Merger Balance Sheet shall be deemed accepted by Parent if no objections
thereto are made within fifteen (15) days of delivery. If Parent objects
to the Merger Balance Sheet within fifteen (15) days of delivery, then
the parties shall have fifteen (15) days to resolve any objections of
Parent to the Merger Balance Sheet. If the parties are unable to resolve
such differences, one arbitrator shall be selected by Shareholders and
one arbitrator shall be selected by Parent. The two arbitrators shall
then pick one mutually acceptable arbitrator (the "Arbitrator") to
resolve all questions in dispute. The decision of the Arbitrator shall
be final and the fees for his services shall be borne fifty percent (50%)
by Parent and fifty percent (50%) by Shareholders.
Notwithstanding anything in the foregoing to the contrary, if the
Merger Balance Sheet is not submitted within seventy-five (75) days after
the Effective Date, then Parent shall submit a Merger Balance Sheet
within fifteen (15) days thereafter which shall be final, conclusive and
binding on all parties hereto, and not subject to any of the arbitration
provisions described above.
(b) Tangible Net Worth . The term "Tangible Net Worth" means
the remainder arrived at from the Merger Balance Sheet when total
liabilities are subtracted from total assets and 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 zero ($0.00) (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 the Average Price; and
(ii) If Tangible Net Worth is less than zero ($0.00) (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 the Average
Price.
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 8.6.
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).
13.7 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.
13.8 Nonsolicitation Covenant. Each of the Shareholders, by
signature hereto, covenants that he shall not for a period of five (5)
years after the Effective Date, directly or indirectly, except on behalf
of Surviving Corporation, its successors or assigns, solicit or accept
risk management, insurance or bond business from any of the customers of
Merging Entity as of the moment immediately preceding the Effective Date.
Each of the Shareholders, by signature hereto, acknowledges: (i) that
this covenant is ancillary to this Merger Agreement, is integral hereto
and is independent of any other provision herein, (ii) that this covenant
is reasonably necessary for the protection of Surviving Corporation's
legitimate business interests; (iii) that this covenant poses no undue
hardship on the Shareholders and is reasonably limited as to duration and
scope; and (iv) that this covenant is in addition to any covenants which
Shareholders may make in any employment or other agreements executed or
to be executed with Surviving Corporation. Further, if any part of this
covenant is deemed overbroad or void as against public policy, each of
the Shareholders, by signature hereto, acknowledges that such invalid
portions shall be severable from this covenant and specifically requests
that, upon such event, this covenant be reformed ("blue-pencilled") to
permit Surviving Corporation to obtain the maximum permissible benefit
from this covenant.
13.9 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 Shareholders and Merging Entity at Buffalo, New York,
this 7th day of January, 1997.
SHAREHOLDERS:
_________________________________________
Jeffrey Gow
_________________________________________
Michael Gow
_________________________________________
Richard Mason
MERGING ENTITY:
GOW MANAGEMENT SERVICES, INC.
By_______________________________________
___________________________________, its
___________________________________
EXECUTED by Parent at Buffalo , New York, this 7th day of January,
1997.
HILB, ROGAL AND HAMILTON COMPANY
By_______________________________________
____________________________________, its
____________________________________
AGREEMENT OF PURCHASE AND SALE
BY AND BETWEEN
GOW MANAGEMENT SERVICES, INC.
AND
S. H. GOW & COMPANY, INC.
THIS AGREEMENT, effective as of 12:02 a.m. on January 1, 1997
("Effective Date"), is made and entered into this _____ day of January,
1997, by and between HILB, ROGAL AND HAMILTON COMPANY, a Virginia
corporation ("HRH"), acting on behalf of itself and the wholly owned
subsidiary of Seller it will acquire upon completion of a merger on or
around January 7, 1997, but will be accounted for as if effective as of
12:01 a.m. on January 1, 1997, GOW MANAGEMENT SERVICES, INC., a Delaware
corporation ("Buyer"); S. H. GOW & COMPANY, INC., a Delaware corporation
("Seller"); and Seller's three shareholders, JEFFREY GOW ("Mr. J. Gow"),
MICHAEL GOW ("Mr. M. Gow"), and RICHARD MASON ("Mr. Mason"), with Messrs.
Mason, J. Gow and M. Gow collectively being referred to herein as
"Shareholders".
W I T N E S S E T H:
WHEREAS, HRH is engaged in the business of owning insurance
agencies;
WHEREAS, Seller currently conducts an insurance agency business in
and around Buffalo, New York;
WHEREAS, simultaneously herewith, HRH and Buyer have entered into an
Agreement of Merger pursuant to which HRH will acquire Buyer from
Shareholders, effective upon filing of the Certificate of Merger on or
around January 7, 1997, but to be accounted for as if effective as of
12:01 a.m. on January 1, 1997 (the "Agreement of Merger");
WHEREAS, Shareholders desire that Seller sell certain of its assets
utilized in that business under the terms hereinafter provided;
WHEREAS, HRH desires that Buyer, after it has been acquired by HRH
pursuant to the Agreement of Merger, purchase certain of Seller's assets
utilized in such business.
NOW THEREFORE, in consideration of the premises and of the mutual
promises and covenants hereinafter set forth, and intending to be legally
bound, the parties hereto agree as follows:
PORTIONS OF THIS AGREEMENT ARE SUBJECT TO ARBITRATION.
1. Sale and Assignment of Assets. Subject to the terms and
conditions contained in this Agreement, Seller hereby agrees to sell
convey, transfer, assign and deliver to Buyer, free and clear of any
judgment, mortgage, pledge, lien, conditional sale agreement, security
interest, option, or other encumbrance or claim of any nature whatsoever
(other than liens which relate to liabilities expressly assumed by Buyer
hereunder), all of Seller's right, title and interest in and to the
following assets ("Assets"): (i) its insurance customer lists,
expiration lists and records, book of business, business records, files
and daily reports; (ii) all furniture, fixtures and equipment identified
on Schedule 1 attached hereto, all of which are used in, or form a part
of, Seller's insurance agency business; (iii) all of its rights and
interest in and to its agency agreements with those insurance companies
for which it acts as agent, including all contingency and profit sharing
agreements with such companies; (iv) certain maintenance and other
agreements listed on Schedule 1; (v) all of its rights or interests in
restrictive covenants or other agreements protecting or prohibiting any
of the accounts transferred in (i) above from being solicited by others;
(vi) cash of Seller in amount equal to "pre-billed" accounts to be
assumed by Buyer (i.e., premiums collected with respect to policies which
are effective on or after the Effective Date); and (vii) the goodwill of
Seller, including, but not limited to, the corporate name of "S. H. Gow &
Company, Inc." and any trade names related thereto. Seller shall sign
such Bills of Sale in form and substance as set forth in Schedule 1.1, or
other documents of assignment or transfer as Buyer shall request.
Buyer is not acquiring, and is hereby expressly excluded from
acquiring from Seller, the following assets of the Seller which the
Seller retains: (i) except as provided in clause (vi) of the preceding
paragraph, cash or other readily liquid working capital on hand as of the
close of business of Seller on the day prior to the Effective Date
("Pre-Effective Moment"); (ii) accounts and other receivables as of the
Pre-Effective Moment, including commissions earned but not paid on
business billed by Seller which was written and having an effective date
prior to the Pre-Effective Moment, but excluding direct bill commissions
which shall be treated as earned when received; and (iii) prepaid
insurance, finance charges, taxes and licenses. Except for those
liabilities of Seller listed in Schedule 6.K (the "Assumed Liabilities"),
Buyer is not assuming any liabilities of Seller of any kind and shall be
fully indemnified therefor.
2. Purchase Price. In consideration for the transfer and
assignment of the above-described Assets, the Buyer shall pay to the
Seller at the times specified herein the sums referred to in A, B, C, and
D (collectively the "Purchase Price"), payable as follows:
A. On the later of the Closing Date or the Effective Date
("Transfer Date"), Buyer shall deliver to Seller the sum of TWO MILLION
FOUR HUNDRED SEVENTY-FIVE THOUSAND AND NO/100 DOLLARS ($2,475,000);
B. On March 3, 1998, Buyer shall pay Seller, before
application of any applicable offset or indemnity, that sum determined to
be due pursuant to Section 3.A, which amount shall not be greater than
$1,278,450, nor less than $675,000;
C. On March 2, 1999, Buyer shall pay Seller, before
application of any applicable offset or indemnity, that sum determined to
be due pursuant to Section 3.B, which amount shall not be greater than
$1,278,450, nor less than $675,000;
D. On March 1, 2000, Buyer shall pay Seller, before
application of any applicable offset or indemnity, that sum determined to
be due pursuant to Section 3.C, which amount shall not be greater than
$1,278,450, nor less than $675,000;
E. Additionally, not as a part of Purchase Price, but as
additional consideration to bind their restrictive covenants, Buyer shall
disburse at the same time as the payments in B, C and D are made,
respectively an aggregate amount of money before application of any
applicable offset or indemnity, to Mr. Mason and those individuals named
in Section 8.B equal to 49.14243% of the amount by which each of the
payments determined pursuant to B, C and D exceeds $675,000. For
example, if the amount determined to be due Seller pursuant to Section
3.A is $1,000,000, then the aggregate amount to be distributed among the
eligible individuals would be $159,712.90 (($1,000,000 - 675,000) x
.4914243)). As a second example, if the amount determined to be due
Seller pursuant to Section 3.B is the maximum amount of $1,278,450, then
the aggregate amount to be distributed among the eligible individuals
would also be the maximum amount of $296,550. As the third and final
example, if the amount determined to be due Seller pursuant to Section
3.C is the minimum amount of $675,000, then the aggregate amount to be
distributed among the eligible individuals would also be the minimum
amount of $0 (zero).
F. The payments referenced in B, C and D above are hereafter
referred to as "Buyer's Deferred Obligations." Each of Buyer's Deferred
Obligations shall have interest imputed at the lowest applicable federal
rate allowed Buyer pursuant to Section 1274 of the Internal Revenue Code
of 1986, as amended ("Code"), with respect to such Buyer's Deferred
Obligation (for Buyer's Deferred Obligation due March 3, 1998: 5.63%; for
Buyer's Deferred Obligation due March 2, 1999: 5.63%; for Buyer's
Deferred Obligation due March 1, 2000: 6.10%). Buyer's Deferred
Obligations shall contain a right of offset as specified in Sections 3
and 13 hereof.
G. On the Transfer Date, Buyer shall pay to each of the
Shareholders, not as a part of the Purchase Price (as herein defined) but
as an integral part of the transactions contemplated herein, that sum
called for in the Employment Agreement and Covenant Not to Compete for
such Shareholder to receive for covenanting not to compete with Buyer or
HRH. These payments have been separately bargained for by the parties
and represent full and fair value to each of the Shareholders for his
individual covenant not to compete.
H. On the Transfer Date, in exchange for the present payment
and the future payments of the Purchase Price to Seller, each at the
times specified herein, Buyer shall receive the Assets from Seller free
and clear of any lien or encumbrance of any kind whatsoever, other than
liens related to the Assumed Liabilities.
3. Abatement of the Purchase Price.
A. Abatement of Purchase Price Based on Year 1 Agency Profit.
(1) As used herein, the term "Year 1 Agency Profit" shall
mean the net profit of Buyer for calendar year 1997 ("Year 1"),
determined in accordance with generally accepted accounting principles
applied on a consistent basis, but subject to Buyer's accounting policies
(which shall satisfy generally accepted accounting principles) as set
forth from in HRH's Accounting Policies and Procedures Manual previously
provided to Seller ("Buyer's GAAP") and applied uniformly in determining
the net profit of each subsidiary of HRH, before any provision for
federal or state income taxes and before any provision for amortization
of any portion of the Assets which are intangible and before any
provision for any overhead charge by HRH, as the parent of the Buyer, to
the Buyer. Additionally, the parties have reached special agreement with
regard to the calculation of Year 1 Agency Profit as it relates to
interest income and expense, profit sharing expense, bad debt expense,
depreciation, professional fees, business insurance and other direct
corporate costs, and a new producer's salary as set forth in this
subsection. Specifically, interest income and expense shall be
calculated in the manner described below and, to the extent not
inconsistent therewith, in a manner consistent with the pro forma
financial statements attached hereto as Schedule 3, such that interest
income and expense shall reflect the true operating results and shall not
be unnecessarily credited or charged with excessive interest income or
expense; 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 HRH's Pension and Profit Sharing Plan;
bad debt expense charged against earnings shall be the actual bad debt
expense booked according to HRH accounting policy; depreciation charges
shall be the actual depreciation charged; the charges against the
earnings for professional fees (other than "hearing" legal costs),
business insurance and other direct corporate costs shall be $216,000,
regardless of the actual costs incurred therefor by Buyer; Year 1 Agency
Profit shall not be charged with up to $30,000 of a new producer's salary
provided that such new producer produces commission income from new
accounts, which accounts were not acquired as part of the Assets or from
existing customers of Seller or Buyer, equal to at least 50% of such
excluded amount; Seller shall reimburse the costs incurred by Buyer with
respect to the employment of Stephen H. Gow (except for expenses incurred
for benefits provided to all employees of Buyer), and such reimbursed
amount shall not be charged as an expense in computing Year 1 Agency
Profit; and Seller shall reimburse Buyer $26,000 with respect to the
lease by Buyer from Seller of certain premises at 344 Delaware Avenue,
Buffalo, New York, and such amount shall not be charged as an expense in
computing Year 1 Agency Profit.
The Buyer shall cause the Year 1 Agency Profit to be determined, and
the amount thereof communicated to the Shareholders, as soon as is
reasonably practicable after Year 1, and, in all events, no later than
sixty-two (62) days after Year 1. In the event of a disagreement by the
Shareholders, collectively, as to the computation of the Year 1 Agency
Profit, such disagreement shall be resolved in the manner described in
subsection D., below.
(2) To the extent the Year 1 Agency Profit shall be less
than $1,350,000 (with such deficiency being the "Year 1 Deficiency"),
then for each $1 of Year 1 Deficiency, Buyer shall be entitled to reduce
the portion of the Purchase Price payable in fourteen months by aggregate
amounts of $1.341 down to a minimum aggregate amount payable of $675,000.
For example, if the Year 1 Deficiency equals $50,000, the fourteen month
payment to be received by Seller would be reduced by $67,050 to the
aggregate amount payable of $1,211,400. If the Year 1 Deficiency equals
or exceeds $450,000, the fourteen month payment to be received by Seller
would be reduced by the maximum amount of $603,450 to the minimum
aggregate amount payable of $675,000.00.
B. Abatement of Purchase Price Based on Year 2 Agency Profit.
(1) As used herein, the term "Year 2 Agency Profit" shall
mean the net profit of the Buyer for calendar year 1998 ("Year 2"),
determined in accordance with Buyer's GAAP and applied uniformly in
determining the net profit of each subsidiary of HRH, before any
provision for federal or state income taxes, before any provision for
amortization of any portion of the Assets which are intangible and before
any provision for any overhead charge by HRH, as the parent of the Buyer,
to the Buyer. Additionally, the parties have reached special agreement
with regard to the calculation of Year 2 Agency Profit as it relates to
interest income and expense, profit sharing expense, bad debt expense,
depreciation, professional fees, business insurance and other direct
corporate costs, and a new producer's salary as set forth in this
subsection. Specifically, interest income and expense shall be
calculated in the manner described below and, to the extent not
inconsistent therewith, in a manner consistent with the pro forma
financial statements attached hereto as Schedule 3, such that interest
income and expense shall reflect the true operating results and shall not
be unnecessarily credited or charged with excessive interest income or
expense; 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 HRH's Pension and Profit Sharing Plan;
bad debt expense charged against earnings shall be the actual bad debt
expense booked according to HRH accounting policy; depreciation charges
shall be the actual depreciation charged; the charges against the
earnings for professional fees (other than "hearing" legal costs),
business insurance and other direct corporate costs shall be $216,000,
regardless of the actual costs incurred therefor by Buyer; Year 2 Agency
Profit shall not be charged with up to $30,000 of a new producer's salary
provided that such new producer produces commission income from new
accounts, which accounts were not acquired as part of the Assets or from
existing customers of Seller or Buyer, equal to at least 50% of such
excluded amount; Seller shall reimburse the costs incurred by Buyer with
respect to the employment of Stephen H. Gow (except for expenses incurred
for benefits provided to all employees of Buyer), and such reimbursed
amount shall not be charged as an expense in computing Year 2 Agency
Profit; and Seller shall reimburse Buyer $26,000 with respect to the
lease by Buyer from Seller of certain premises at 344 Delaware Avenue,
Buffalo, New York, and such amount shall not be charged as an expense in
computing Year 2 Agency Profit.
The Buyer shall cause the Year 2 Agency Profit to be determined, and
the amount thereof communicated to the Shareholders, as soon as is
reasonably practicable after Year 2, and, in all events, no later than
sixty-two (62) days after Year 2. In the event of any disagreement by
the Shareholders, collectively, as to the computation of the Year 2
Agency Profit, such disagreement shall be resolved in the manner
described in subsection D, below.
(2) To the extent the Year 2 Agency Profit shall be less
than $1,350,000 (with such deficiency being the "Year 2 Deficiency"),
then for each $1 of Year 2 Deficiency, Buyer shall be entitled to reduce
the portion of the Purchase Price payable in twenty-six months by
aggregate amounts of $1.341, down to a minimum aggregate amount payable
of $675,000. For example, if the Year 2 Deficiency equals $50,000, the
twenty-six month payment to be received by Seller would be reduced by
$67,050 to the aggregate amount payable of $1,211,400. If the Year 2
Deficiency equals or exceeds $450,000, the twenty-six month payment to be
received by Seller would be reduced by the maximum amount of $603,450 to
the minimum aggregate amount payable of $675,000.
C. Abatement of Purchase Price Based on Year 3 Agency Profit.
(1) As used herein, the term "Year 3 Agency Profit" shall
mean the net profit of the Buyer for calendar year 1999 ("Year 3"),
determined in accordance with Buyer's GAAP and applied uniformly in
determining the net profit of each subsidiary of HRH, before any
provision for federal or state income taxes, before any provision for
amortization of any portion of the Assets which are intangible and before
any provision for any overhead charge by HRH, as the parent of the Buyer,
to the Buyer. Additionally, the parties have reached special agreement
with regard to the calculation of Year 3 Agency Profit as it relates to
interest income and expense, profit sharing expense, bad debt expense,
depreciation, professional fees, business insurance and other direct
corporate costs, and a new producer's salary as set forth in this
subsection. Specifically, interest income and expense shall be
calculated in the manner described below and, to the extent not
inconsistent therewith, in a manner consistent with the pro forma
financial statements attached hereto as Schedule 3, such that interest
income and expense shall reflect the true operating results and shall not
be unnecessarily credited or charged with excessive interest income or
expense; 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 HRH's Pension and Profit Sharing Plan;
bad debt expense charged against earnings shall be the actual bad debt
expense booked according to HRH accounting policy; depreciation charges
shall be the actual depreciation charged; the charges against the
earnings for professional fees (other than "hearing" legal costs),
business insurance and other direct corporate costs shall be $216,000,
regardless of the actual costs incurred therefor by Buyer; `Year 3 Agency
Profit shall not be charged with up to $30,000 of a new producer's salary
provided that such new producer produces commission income from new
accounts, which accounts were not acquired as part of the Assets or from
existing customers of Seller or Buyer, equal to at least 50% of such
excluded amount; Seller shall reimburse the costs incurred by Buyer with
respect to the employment of Stephen H. Gow (except for expenses incurred
for benefits provided to all employees of Buyer), and such reimbursed
amount shall not be charged as an expense in computing Year 3 Agency
Profit; and Seller shall reimburse Buyer $26,000 with respect to the
lease by Buyer from Seller of certain premises at 344 Delaware Avenue,
Buffalo, New York, and such amount shall not be charged as an expense in
computing Year 3 Agency Profit.
The Buyer shall cause the Year 3 Agency Profit to be determined, and
the amount thereof communicated to the Shareholders, as soon as is
reasonably practicable after Year 3, and, in all events, no later than
sixty-two (62) days after Year 3. In the event of any disagreement by
the Shareholders, collectively, as to the computation of the Year 3
Agency Profit, such disagreement shall be resolved in the manner
described in subsection D., below.
(2) To the extent the Year 3 Agency Profit shall be less
than $1,350,000 (with such deficiency being the "Year 3 Deficiency"),
then for each $1 of Year 3 Deficiency, Buyer shall be entitled to reduce
the portion of the Purchase Price payable in twenty-six months by
aggregate amounts of $1.341, down to a minimum aggregate amount payable
of $675,000. For example, if the Year 3 Deficiency equals $50,000, the
twenty-six month payment to be received by Seller would be reduced by
$67,050 to the aggregate amount payable of $1,211,400. If the Year 3
Deficiency equals or exceeds $450,000, the twenty-six month payment to be
received by Seller would be reduced by the maximum amount of $603,450 to
the minimum aggregate amount payable of $675,000.
D. Determination of Agency Profit.
(1) As soon as practicable after Year 1, Year 2 and Year
3, and in all events, no later than sixty-two (62) days after Year 1,
Year 2 and Year 3, respectively, Buyer or HRH shall deliver to the
Shareholders the determination of the Year 1 Agency Profit, Year 2 Agency
Profit and Year 3 Agency Profit ("Profit Statements"). In addition, the
Shareholders or any firm or certified public accountants designated by
the Shareholders (referred to below as the "Seller's Reviewer") shall be
permitted reasonable access to the work papers, schedules, memoranda and
other documents used in preparing the Profit Statements.
(2) As soon as is reasonably practicable after delivery
to the Shareholders of the Profit Statements, and, in all events, within
fifteen business (15) days after such delivery, the Shareholders shall
give written notice to the Buyer either to the effect that the Profit
Statement is acceptable as prepared or specifying any disagreement with
respect to any item in such document. In the event of any disagreement,
the Shareholders, on the one hand, and the Buyer, on the other hand,
shall each make a good faith attempt to reconcile the difference;
however, if they are unable to reconcile all differences within a period
of fourteen (14) days after notification to the Buyer of such
disagreement, then the Shareholders, on the one hand, and the Buyer, on
the other hand, shall submit all questions in dispute to one of the "Big
Six" firms of certified public accountants (other than Seller's Reviewer
or the accounting firm normally employed by Seller, HRH or Buyer, if
applicable) located at a mutually agreed neutral site, as may be agreed
upon by the Shareholders, on the one hand, and the Buyer, on the other
hand, or, in default of such agreement, as may be determined by the
President at such time of the American Institute of Certified Public
Accountants, which chosen accounting firm ("Umpire") shall, within a
period of thirty (30) days after submission, determine and report to the
Shareholders, on the one hand, and the Buyer, on the other hand, upon all
questions in dispute, and the report of the Umpire shall be final,
conclusive and binding on the Shareholders and the Buyer. The fees
charged by the Umpire shall be equally divided among the Shareholders, on
the one hand, and the Buyer on the other hand.
The Profit Statements, as prepared by the Buyer or HRH, or, if
varied by agreement between the Shareholders, on the one hand, and the
Buyer, on the other hand, or by the report of the Umpire, then as so
varied, shall be final, conclusive and binding on the Shareholders and
the Buyer.
E. No Commissions Counted Twice. Notwithstanding anything in
the foregoing to the contrary, the accounting for any account for
purposes of determining Year 1 Agency Profit, Year 2 Agency Profit and
Year 3 Agency Profit shall be done in such a manner as to prevent any
commissions which are earned in one year from being counted in two years
and in such a manner as to prevent two years of commissions from any such
account as being earned in any one year.
4. Allocation of Purchase Price. The Purchase Price shall be
allocated at Closing in the manner prescribed under Section 1060 of the
Code and the regulations promulgated thereunder. Buyer and Seller intend
to allocate the Purchase Price, after imputation of interest, among the
Assets as follows:
Expiration Lists 4,867,825
Furniture, Fixtures
and Equipment Adjusted tax basis as of 12/31/96
Goodwill Balance of Purchase Price
To the extent any payment based on Year 1 Agency Profit, Year 2 Agency
Profit and Year 3 Agency Profit is less than the maximum payment called
for herein, Buyer and Seller shall first apply such reduction to
goodwill. If such reductions eliminate goodwill, then such reduction
shall next be applied to the value of the expiration lists. If any
payment is made pursuant to the Agreement in excess of the Purchase
Price, such excess shall be allocable to goodwill. All adjustments shall
be discounted to their present value at the time of such adjustment by
using the imputed interest percentage which shall adjust the amount of
imputed interest accordingly. Buyer and Seller mutually covenant and
agree that for tax purposes each of them will report the purchase and
sale consummated hereunder on the basis of the foregoing allocation in
compliance with Section 1060 of the Code.
5. Closing. The closing ("Closing") shall be held at the offices
of Hodgson, Russ, Andrews, Woods & Goodyear, LLP on January 7, 1997, at
10:00 a.m. ("Closing Date").
6. Representations and Warranties of Seller and Shareholders.
Seller and Shareholders, jointly and severally, hereby represent and
warrant to the Buyer and HRH as follows:
A. Except as set forth in Schedule 6.A, Seller has good and
marketable title to, and owns, the Assets to be sold, assigned and
transferred hereunder, and the Assets are, or will be as of the Effective
Date, free and clear from any and all judgments, mortgages, pledges,
liens, conditional sales agreements, security interest, options or other
encumbrances or claims of every nature and kind whatsoever, other than
liens on any Assets transferred subject to any Assumed Liabilities.
B. Seller is a corporation duly organized, validly existing
and in good standing as a domestic corporation under the laws of the
State of Delaware; Seller possesses all necessary corporate power to
enter into this Agreement and to consummate the transactions contemplated
hereby; the Shareholders and Board of Directors of Seller have taken, or
will have taken by the Closing Date, all necessary corporate actions to
authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby; and except as set
forth on Schedule 6.B, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby
will breach or violate any provision of Seller's certificate of
incorporation or bylaws, any statute or ordinance, or any material
contract, agreement or other instrument to which Seller is a party or by
which it is bound.
C. Except as set forth on Schedule 6.C, no notice, report or
other filing is required to be submitted to, and no consent, approval or
authorization is required to be received from, any governmental authority
or other person or entity in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated
hereunder, except where failure to do so will not have a material adverse
effect.
D. Seller is not in default under any material agreement
which is being assigned to Buyer hereunder.
E. Except as set forth on Schedule 6.E, there are no
judgments, actions, suits, levies, attachments or governmental or
administrative agency proceedings pending or, to the best knowledge of
Shareholders, threatened against or affecting the Assets or the
transactions contemplated by this Agreement, nor are there any such
actions pending or, to the best knowledge of Shareholders, threatened
between Seller and any of its clients or insurance companies for which it
acts as agent.
F. Seller is, and has during the past five years been, in
full compliance in all material respects with all licensing and other
regulatory laws for the conduct of its present operations (including,
without limitation, its property and casualty, personal lines and life
businesses) and all of Seller's employees or agents who write any type of
insurance for Seller (including the Shareholders) are and have been, in
full compliance in all material respects with all licensing and other
regulatory laws such that Seller and Shareholders have no liabilities of
any nature related to any failure, whether intentional or inadvertent, to
comply with any such laws and which may attach to, or affect the use of,
the Assets in a materially adverse manner by the Buyer or HRH. Attached
hereto as Schedule 6.F is a complete list of all insurance licenses held
by Seller and all states in which it is qualified to transact business.
G. Seller maintains errors and omissions coverage for all of
its operations in amounts which it deems to provide adequate coverage;
all such policies are described on Schedule 6.G (carrier, retrodate,
claims made or occurrence policy, deductible and limits); and except as
set forth on Schedule 6.G, neither Seller nor Shareholders have received
any notice of any claim against Seller, its agents, employees or
directors or any of the Shareholders.
H. (1) Schedule 6.H. contains a true and complete list of
each "employee pension benefit plan" (within the meaning of Section 3(2)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") (including without limitation multiemployer plans within the
meaning of ERISA Section 3(37)), under which any employee or former
employee of Seller has any present or future right to benefits or under
which Seller have any present or future liability. All such plans,
agreements, programs, policies and arrangements shall be collectively
referred to as the "Seller Plans".
(2) Each Seller Plan which is intended to be qualified
within the meaning of section 401(a) of the Code is so qualified and has
received a favorable determination letter as to its qualification, or
application has been made to the Internal Revenue Service for the
issuance of such letter.
(3) No Seller Plan is a multiemployer plan within the
meaning of Section 4001(a)(3) of ERISA or is an "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA subject to Title IV of
ERISA.
(4) Except as disclosed on Schedule 6.H, Seller has no
employment agreement with any employee which is not terminable at will
and no employee pension, profit-sharing, or other retirement plan.
I. The list of Seller's liabilities, including liabilities
for credit receivables and liabilities to insurance companies for all
lines of insurance business outstanding as of the Pre-Effective Moment
(which liabilities shall be separately stated and referred to as "Credit
Receivables" and as "Insurance Company Payables"), attached hereto as
Schedule 6.I is complete and correct as of the date hereof and will be
updated as soon as practicable after the date hereof to reflect a
complete and correct list of such Seller's liabilities as of the Pre-
Effective Moment; and other than the Assumed Liabilities, Seller and the
Shareholders are and will be responsible for all liabilities of Seller of
any type whatsoever accrued as of the Effective Date.
J. Schedule 6.J contains a correct and complete list of all
insurance companies with respect to which Seller has an agency contract
or similar relationship. Except as identified in Schedule 6.J, no
Shareholder has any knowledge of any proposed termination of, or
modification to, the existing relations between Seller and any of such
insurance companies. Furthermore, except as otherwise set forth in
Schedule 6.J, all accounts with all insurance companies represented by
Seller or with whom it transacts business are current and there are no
material disagreements or unreconciled discrepancies between Seller and
any such company as to the amounts owed by Seller.
K. Except as disclosed on Schedule 6.K, there are no
maintenance or other continuing agreements affecting or concerning the
use of the Assets or Seller's insurance agency business.
L. Seller has timely filed or will file all tax returns
required of it and timely paid all tax liabilities owed by it, such that
no tax liabilities to Buyer or HRH of any kind whatsoever could be
attached to or associated with the Assets.
M. Seller and Shareholders have caused to be delivered to HRH
and Buyer true and complete copies of (1) Seller's 1995 federal and state
income tax returns, (2) Seller's audited financial statements for the
period ended December 31, 1995 and (3) Seller's compiled financial
statements for the nine-month period ended September 30, 1996, and the
calendar years ended in 1993 and 1994. Seller and Shareholders shall
cause any newly-prepared financial information for periods through the
Effective Date (including interim management reports) to be delivered
promptly to the Buyer.
Each of the foregoing financial statements is true and correct, is
in accordance with the books and records of Seller, presents fairly the
financial condition and results of operations of Seller as of and for the
periods indicated, and has been prepared, or will be prepared, in
accordance with generally accepted accounting principles consistently
applied throughout the periods covered by such statements. All such
financial statements do not contain any untrue statement of any material
fact nor omit to state any material fact required to be stated to make
such financial statements not misleading.
N. Except as disclosed on Schedule 6.A, there are no
financing statements or other security interests of any kind filed or
required to be filed against the Assets or affecting the use of, or title
to, the Assets ("Financing Statements"). Except as further disclosed on
Schedule 6.A, there are no deferred money purchase notes related to the
Seller's acquisition of any portion of the Assets ("Notes"). Any such
liabilities related to the Financing Statements or Notes can and will be
paid off at or prior to Closing, except for liens relating to Assets
transferred subject to any Assumed Liabilities as further detailed on
Schedule 6.A.
O. Other than fees owing to Marsh, Berry & Company, Inc.,
which fees are the responsibility of Seller and Shareholders, Seller and
Shareholders have not employed any broker or finder for the purposes of
completing the transactions contemplated herein or for any transaction
similar to 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.
P. Except for the transactions contemplated herein, neither
Seller nor Shareholders have entered into any agreement for the sale of
the Assets (or any portion thereof) or for the direct or indirect sale or
exchange of Seller.
Q. Shareholders and Seller understand and acknowledge that
errors and omissions prior to the Effective Date remain their risk
exclusively and are not insured under Buyer's or HRH's insurance program,
and have been advised to, and will, take out insurance, effective as of
the Effective Date to insure each Shareholder and the Seller for claims
arising under errors and omissions occurring prior to the Effective Date;
and when such insurance is purchased, Shareholders and Seller will
furnish all such certificates of insurance to Buyer and HRH as soon as is
practicable.
R. Except as identified in Schedule 6.R, Shareholders have no
knowledge of any proposed termination of any insurance account presently
written or serviced by Seller. Also, except as otherwise set forth in
Schedule 6.R, all customer accounts, including, without limitation, those
accounts with respect to which Seller financed any premiums, are current.
For purposes of this Section, the terms "insurance account" and "customer
account" shall be limited to accounts which generate aggregate annual
income (commissions and fees) of $25,000 or more.
The census data for all of Seller's employees as of the date
hereof, in the form provided in Schedule 6.S , is true and complete in all
material respects.
The foregoing representations and warranties shall survive the
Closing until March 1, 2000.
7. Representations and Warranties of Buyer and HRH. Buyer and HRH
hereby represent and warrant to the Seller and the Shareholders as
follows:
A. Buyer is duly organized, validly existing and in good
standing as a domestic corporation under the laws of the State of
Delaware; HRH is duly organized, validly existing and in good standing as
a domestic corporation under the laws of the Commonwealth of Virginia;
each of Buyer and HRH has the corporate power to enter into this
Agreement and to consummate the transactions hereby contemplated and has
taken all actions necessary to authorize the execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby.
B. This Agreement and the transactions contemplated hereby
will not breach or violate any provision of Buyer's or HRH's articles of
incorporation or bylaws or any statute, rule, regulation or material
agreement to which either is a party or by which either is bound.
C. Neither Buyer nor HRH has employed a broker or finder for
the purposes of completing the transactions contemplated hereby.
D. HRH has, and Buyer will have as of each time contemplated
for it to make such a payment, adequate financial resources and
capability to consummate the transactions contemplated by this Agreement.
Neither HRH nor Buyer will be or become insolvent as a result of
consummating the transactions contemplated by this Agreement.
E. Except for necessary reports and other filings with the
SEC and New York Stock Exchange, each of which has been or will be made
prior to Closing, no notice, report or other filing is required to be
submitted to, and no consent, approval or authorization is required to be
received from, any governmental authority or other person or entity in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
F. The foregoing representations and warranties shall survive
the Closing until March 1, 2000.
8. Conditions Precedent to Performance by Buyer and HRH. The
obligation of Buyer and HRH to perform under this Agreement is contingent
upon the following conditions being fulfilled at or prior to Closing (or
the Effective Date, where stated to be applicable), any of which may be
waived in Buyer's or HRH's sole discretion without impairing any right of
indemnification or other right or remedy under this Agreement:
A. R. Mason shall have entered into an Employment Agreement
and Covenant Not to Compete with Buyer and each of J. Gow and M. Gow
shall have entered into a Covenant Not to Compete with Buyer, in form and
substance as set forth in Schedule 8.A attached hereto.
B. Each of the individuals listed on Schedule 8.B shall have
entered into an Employment Agreement and Covenant Not to Compete with
Buyer, substantially in form and substance as set forth in Schedule 8.B
attached hereto.
C. Buyer and HRH shall have received from Hodgson, Russ,
Andrews, Woods & Goodyear, LLP, counsel to Seller, an opinion in form and
substance as set forth in Schedule 8.C attached hereto.
D. The Shareholders and Seller shall have complied in all
material respects with all representations, warranties, conditions,
covenants and agreements required under this Agreement to be performed or
complied with by Seller or the Shareholders on or before the Closing.
E. No suit, action or proceeding, or governmental
investigation, against or concerning, directly or indirectly, Seller, or
any of Seller's 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 the counsel for Buyer, renders it impossible or
inadvisable for Buyer to consummate or cause to be consummated the
transactions contemplated by this Agreement.
F. All transactions contemplated hereby, and the form and
substance of all legal proceedings and of all instruments used or
delivered hereunder, shall be reasonably satisfactory to counsel for
Buyer.
G. The Buyer shall have received certified copies of
resolutions of the Board of Directors and Shareholders of Seller, to the
extent deemed necessary by, and in form satisfactory to, counsel for
Buyer, authorizing the execution and delivery of this Agreement by Seller
and the consummation of the transactions contemplated hereby.
H. The escrow provided for in Section 12 hereof shall have
been established and funded in accordance with such Section 12.
I. Each of the Shareholders, and, if applicable, all those
persons designated in Section 8.B, above, shall have obtained
substantially all of the material licenses and other regulatory approvals
necessary to operate lawfully the property and casualty, personal lines
and life insurance businesses (in a manner similar to the present conduct
of such businesses by Seller) to be conducted by Buyer and each of its
agents, solicitors and employees.
J. HRH shall have completed the acquisition by merger of
Buyer, except for the actual filing of the Certificate of Merger which
shall be submitted for filing on the date of Closing.
8.1. Conditions Precedent to Performance by Seller and Shareholders.
The obligation of Seller and Shareholders to perform under this Agreement
is contingent upon the following conditions being fulfilled at or prior
to Closing (or the Effective Date, where stated to be applicable), any of
which may be waived in Seller's or Shareholders' sole discretion without
impairing any right of indemnification or other right or remedy under
this Agreement:
A. Buyer shall have entered into an Employment Agreement and
Covenant Not to Compete with R. Mason and shall have entered into a
Covenant Not to Compete with J. Gow and M. Gow, in form and substance as
set forth in Schedule 8.A attached hereto.
B. Buyer shall have entered into an Employment Agreement and
Covenant Not to Compete with each of the individuals listed in Schedule
8.B, substantially in form and substance as set forth in Schedule 8.B
attached hereto.
C. Buyer and HRH shall have complied in all material respects
with all representations, warranties, conditions, covenants and
agreements required under this Agreement to be performed or complied with
by Buyer or HRH on or before Closing.
D. No material suit, action or proceeding, or governmental
investigation, against or concerning, directly or indirectly, Buyer or
HRH which has not been previously disclosed to Seller, 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 the counsel for the
Seller, renders it impossible or inadvisable for the Seller to consummate
or cause to be consummated the transactions contemplated by this
Agreement.
E. All transactions contemplated hereby, and the form and
substance of all legal proceedings and of all instruments used or
delivered hereunder, shall be reasonably satisfactory to counsel for the
Seller.
F. The Seller shall have received certified copies of
resolutions of the boards of directors of Buyer and HRH, to the extent
deemed necessary by, and in form satisfactory to, counsel for the Seller,
authorizing the execution and delivery of this Agreement by the Buyer and
HRH and the consummation of the transactions contemplated hereby.
G. HRH shall have completed the acquisition by merger of
Buyer, except for the actual filing of the Certificate of Merger which
shall be submitted for filing on the date of Closing.
H. Buyer shall have delivered such instruments of assignment
and assumption as are necessary to evidence Buyer's assumption of the
Assumed Liabilities.
I. Buyer shall have delivered the cash portion of the
Purchase Price pursuant to Section 2.A, and the contemplated noncompete
payments under the agreements referenced in Section 8.A.
J. Buyer shall have executed and delivered a lease agreement
for the premises located at 344 Delaware Avenue, Buffalo, New York
substantially in the form attached hereto as Exhibit 8.1.J.
9. Covenants of Seller and Shareholders. Seller and Shareholders
covenant and agree that, except as otherwise consented to in writing by
Buyer and HRH:
A. Regular Course of Business. Prior to the Transfer Date,
Seller will carry on its business diligently and in the ordinary course
consistent with past management practices, except as otherwise
contemplated by this Agreement.
B. Restricted Activities and Transactions of Seller. Prior
to the Transfer Date, except as contemplated by this Agreement, Seller
will not engage in any one or more of the following activities or
transactions:
(1) except for indebtedness in the ordinary course of
business, issue, sell, deliver or agree to issue, sell or deliver any
stock, bonds or other corporate securities of which Seller is the issuer
(whether authorized and unissued or held in treasury), or grant or issue
or agree to grant or issue any options, warrants or other rights calling
for the issue thereof;
(2) borrow or agree to borrow any funds or voluntarily
incur, or assume or become subject to, whether directly or by way of
guarantee or otherwise, any obligation or liability (absolute or
contingent) except obligations and liabilities incurred in the ordinary
course of business;
(3) except in the ordinary course of business, mortgage,
pledge or encumber any part of its assets, tangible or intangible;
(4) sell or transfer, or agree to sell or transfer, any
substantial part of its assets, property or rights; or cancel, or agree
to cancel, any substantial debts or claims;
(5) except in the ordinary course of business, enter, or
agree to enter, into any agreement or arrangement granting any
preferential rights to purchase any of the assets, property, or rights of
Seller or requiring the consent of any party to the transfer and
assignment of any such assets, property or rights;
(6) except in the ordinary course of business, make or
permit any amendment or termination of any material contract, agreement
or license to which it is a party;
(7) make any material change in any profit-sharing,
bonus, deferred compensation, insurance, pension, retirement or other
employee benefit plan, payment or arrangement, except as required by law;
(8) except for minor acquisitions or dispositions
effected in the ordinary course of business, merge or consolidate with
any other corporation, acquire control of any other corporation or
business entity, or take any steps incident to or in furtherance of any
of such actions whether by entering into an agreement providing therefor
or otherwise;
(9) make any material alteration in the manner of keeping
its books, accounts or records or in the accounting practices therein
reflected; or
(10) except for transactions not referred in clauses (1) -
(9), above, and except in the ordinary course of business, enter into any
other material contract, agreement, course of action or transaction.
C. Confidentiality. Seller will, and will use its reasonable
efforts to cause its authorized representatives (including, without
limitation, the Shareholders) to, hold in strict confidence and not
disclose to any other party without the prior written consent of Buyer
and HRH, all information received by them from Buyer or HRH in connection
with the transactions contemplated hereby, and the terms of this
Agreement, except such information may be disclosed (i) where necessary
to any regulatory authorities or governmental agencies, (ii) if required
by court order or decree or applicable law, (iii) if it is or becomes
publicly available without violation of any covenant of confidentiality
or (iv) if it is otherwise contemplated herein.
D. Consents. Seller will use its best reasonable efforts to
obtain or make at the earliest practicable date (and, with respect to
those consents identified in Section 8.I, before Closing), all consents,
estoppel certificates and filings necessary to the consummation of the
transactions contemplated hereby which are necessary to be obtained by
Seller or which are reasonably requested by Buyer or HRH.
E. Nonsolicitation Covenant. Each of the Shareholders, by
signature hereto, covenants that he shall not for a period of five (5)
years after the Effective Date, directly or indirectly, except on behalf
of Buyer, its successors or assigns, solicit or accept risk management,
insurance or bond business from any of the customers of Seller as of the
moment immediately preceding the Effective Date. Each of the
Shareholders, by signature hereto, acknowledges: (i) that this covenant
is ancillary to this Agreement, is integral hereto and is independent of
any other provision herein, (ii) that this covenant is reasonably
necessary for the protection of Buyer's 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 Buyer.
Further, if any part of this covenant is deemed overbroad or void as
against public policy, each of the Shareholders, by signature hereto,
acknowledges that such invalid portions shall be severable from this
covenant and specifically requests that, upon such event, this covenant
be reformed ("blue-pencilled") to permit Buyer to obtain the maximum
permissible benefit from this covenant.
Change of Name. Immediately after the Closing, Seller and
Shareholders will change Seller's corporate name, thereby allowing Buyer
to change its name to "S. H. Gow & Company, Inc." Plans.
To take the actions required of them in Schedule 9.G at the times specified
therein.
10. Covenants of Buyer and HRH. Buyer and HRH covenant and agree
that, except as otherwise consented to in writing by Seller and
Shareholders:
Confidentiality. Buyer and HRH each will, and each will use its
reasonable efforts to cause its authorized representatives to, hold in
strict confidence and not disclose to any other party without the prior
written consent of Seller and Shareholders, all information received by
them from Seller and Shareholders in connection with the transactions
contemplated hereby, and the terms of this Agreement, except such
information may be disclosed (i) where necessary to any regulatory
authorities or governmental agencies, (ii) if required by court order or
decree or applicable law, (iii) if it is or becomes publicly available
without violation of any covenant of confidentiality or (iv) if it is
otherwise contemplated herein.
Financial Access for Shareholders. From and after the Closing
and continuing until the last payment owing from Buyer to Seller pursuant to
Section 2 hereof is made, Buyer shall deliver to each Shareholder (i)
within 30 days after the end of each calendar quarter, internally
prepared financial statements of Buyer for the quarterly period then
ended (and year ended, when applicable) in the form required to be
provided to HRH, and (ii) upon the request of any Shareholder with at
least 30 days prior notice, internally prepared financial statements of
Buyer for any specific month in the form required to be provided to HRH,
as well as any other financial information reasonably requested by any
Shareholder relevant to (i) the payments required under this Agreement,
(ii) any tax return of Seller or Shareholders with respect to periods
prior to the Effective Date or (iii) any litigation or other legal
proceeding involving matters relating to the operation of Seller's
business prior to the Effective Date.
Plans. To take the actions required of them in Schedule 9.G at
the times specified therein.
11. Accounts and Other Receivables. Seller and Buyer agree that
all accounts receivable of Seller as of the Pre-Effective Moment
(including commissions earned but not paid on business billed by Seller
which was written and having an effective date prior to the Effective
Date, but excluding direct bill commissions not received by Seller prior
to the Effective Date) to be attached hereto at Closing (and to be
updated, if necessary, as soon thereafter as is practicable) as Schedule
11 belong to Seller and shall be paid to Seller in the manner described
below. Buyer shall collect all such accounts receivable for a period of
six months after the Effective Date using collection practices and
procedures which are substantially the same as those used by other HRH
offices to collect their own receivables. If any payment is received
without an invoice enclosed or without reference to any specific invoice,
and if neither Seller nor Buyer is aware of a dispute as to the oldest
balance of such account, then each such payment shall be applied to the
oldest balance of that account first. Not later than twenty (20) days
after the end of any month, Buyer shall remit to Seller all receivables
so collected for Seller, or if the escrow account to be established
pursuant to Section 12 is underfunded, then and only to such extent,
Buyer shall instead deposit such amounts in such escrow account. This
arrangement shall continue until (i) all such existing receivables as of
the Pre-Effective Moment have either been paid to Seller or (ii) six
months after the Effective Date, whichever occurs first. If at the end
of such six month period any of such accounts receivable have not been
collected, Seller shall have the right to continue to attempt to collect
such amounts for its own account; provided that Seller agrees that it
will not litigate any accounts receivable claim without the prior written
consent of Buyer and HRH. If Buyer does not grant such approval to
Seller within five (5) business days after written request, then Buyer
shall purchase such receivable at its face value and Seller shall not
pursue further collection efforts on such receivable.
12. Accounts Payable and Other Liabilities of Seller. Seller and
Buyer mutually acknowledge and agree that Buyer is not assuming any of
Seller's accounts payable or other liabilities of any kind whatsoever,
whether arising prior to, on or after the Effective Date, other than the
Assumed Liabilities. A list with Seller's Insurance Company Payables is
attached hereto as Schedule 6.I. Seller and Shareholders covenant and
agree to pay all liabilities and payables owed by Seller which are
related to its insurance business as they become due, other than any such
liabilities or payables with respect to which there exists a reasonable
basis to dispute the legal obligation to pay such liability or account
payable. To ensure full payment of Seller's liabilities, Buyer and
Seller agree that an amount equal to the greater of $450,000 or 100% of
Insurance Company Payables ("Escrow Amount"), consisting of (a)
$_______________ drawn from the cash payable to Seller at Closing
pursuant to Section 2.A and (b) $_______________ to be collected from the
accounts receivable of Seller in due course after Closing, shall be held
in co-escrow in an interest-bearing account at a financial institution of
Seller's choosing (which institution shall be reasonably available to HRH
and Buyer, and, for the choice of which, neither HRH nor Buyer shall be
liable in any way to Seller or Shareholders) and shall be drawn upon by
joint signature of an officer of Buyer and the President of Seller
("Escrow Agents") and used to pay Seller's Insurance Company Payables,
Credit Receivables and other accounts payable listed on Schedule 6.I.
Receivables of Seller collected by Buyer after the Effective Date may be
deposited into the Escrow Account if and to the extent the Escrow Account
is underfunded. When all such liabilities required to be listed on
Schedule 6.I have been paid, excluding any such liabilities with respect
to which, at Buyer's sole discretion, there is a reasonable basis to
dispute Seller's legal obligation to pay, the Escrow Agents shall release
the balance of the cash (including interest accrued) to Seller. Evidence
of payment of any such liability of Seller shall be in the form of a
cancelled check, written receipt from the creditor or other evidence
reasonably satisfactory to Buyer that all amounts owed or accrued up to
the Effective Date have been paid. The release of the balance of the
cash to Seller shall not relieve Seller of its obligation to pay any of
its liabilities, including any contested liabilities should Seller be
found liable.
13. Indemnification.
A. Indemnification by Seller and Shareholders. Seller and
Shareholders covenant and agree that they shall jointly and severally
indemnify and hold Buyer and HRH harmless from any and all damages or
expenses (including legal costs and reasonable attorneys' fees) which
Buyer or HRH may suffer due to (a) any breach by Seller or Shareholders
of any representations, warranties, conditions or covenants hereunder or
(b) the assertion against Buyer or HRH of any liability or claim relating
to the operation of the business of Seller prior to the Effective Date
(except to the extent it is an Assumed Liability).
B. Indemnification by Buyer and HRH. Buyer and HRH covenant
and agree that each shall jointly and severally indemnify and hold Seller
and Shareholders harmless from any and all damages or expenses (including
legal costs and reasonable attorney's fees) which Seller and Shareholders
may suffer due to (a) any breach by Buyer or HRH of any representations,
warranties, conditions or covenants hereunder, (b) any failure of Buyer
or HRH to pay or perform the Assumed Liabilities or (c) the assertion
against Seller or any Shareholder or any liability or claim relating to
the operation of the business of Buyer from and after the Effective Date.
C. Limitations on Indemnity. Notwithstanding anything to the
contrary in this Section 13, the maximum aggregate amount for which
Sellers and Shareholders, on one hand, or Buyer and HRH, on the other
hand, shall be liable to the other at any time pursuant to this Section
13 shall be limited to the Purchase Price.
D. Right of Offset. Buyer shall be entitled to offset
against any of the Deferred Obligations any and all amounts for which
Seller and Shareholders are required to indemnify Buyer and HRH pursuant
to this Section 13.
Buyer shall not have the right to exercise any right of
setoff pursuant to this Section 13.D until (i) with respect to any amount
claimed in good faith to be owing directly from Seller or Shareholders to
Buyer (including, without limitation, in the event of a breach of a
representation or warranty), Buyer has given Seller and Shareholders
written notice of such setoff at least fifteen (15) days prior to
exercising such right of setoff and either (A) neither Seller nor
Shareholders have objected to the amount of the setoff within such 15 day
period or (B) if Seller or Shareholders have so objected in good faith to
the amount of the setoff, the appropriate amount of setoff has been
determined by good faith discussion between the parties or by arbitration
as provided below or (ii) with respect to any amount owing from Seller or
Shareholders to Buyer for indemnification of amounts incurred by Buyer to
any third person, Buyer shall have been required to make payment to such
third Person.
In the event that Seller or Shareholders object in good faith
to the amount of any setoff claimed by Buyer pursuant to this Section and
Buyer and Seller or Shareholders, acting diligently and in good faith,
are unable to mutually agree upon the amount of such setoff within
fifteen (15) days after Seller or Shareholders receive notice of the
claim for setoff from Buyer, then either Buyer or Seller or Shareholders
shall have the right, upon written notice to the other, to submit the
dispute to arbitration in accordance with Section 3.D.2 hereof.
14. Miscellaneous.
A. Binding Nature, Assignments. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective heirs, guardians, personal representatives, successors
and assigns. No amendment, modification, termination or waiver of any
provision of this Agreement shall be effective unless the same shall be
in writing and signed by all parties hereto.
B. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF
VIRGINIA.
C. Headings and Exhibits. The headings of the various
Sections herein are for convenience of reference only and shall not
define or limit any of the terms or provisions hereof. All Schedules and
other documents referred to in this Agreement are an integral part of
this Agreement.
D. Notices. Any notices or other communications required or
permitted hereunder shall be in writing and delivered at the addresses
designated below, or mailed by overnight mail, registered or certified
mail, return receipt requested, postage prepaid, addressed as follows, or
to such other address or addresses as may hereafter be furnished by any
party to the others in compliance with the terms hereof:
If to Buyer or HRH, to:
Mr. Robert H. Hilb, Chairman and
Chief Executive Officer
Hilb, Rogal and Hamilton Company
4235 Innslake Drive
P.O. Box 1220
Glen Allen, Virginia 23060-1220
With a copy to:
Walter L. Smith, Esquire
Hilb, Rogal and Hamilton Company
4235 Innslake Drive
P.O. Box 1220
Glen Allen, Virginia 23060-1220
If to Seller or Shareholders, to:
Mr. Jeffrey Gow
____________________
____________________
Mr. Michael Gow
____________________
____________________
Mr. Richard Mason
____________________
____________________
With a copies to:
Douglas A. Yoh
Marsh/Berry & Company
7466 Auburn Road
Concord, Ohio 44077
Hodgson, Russ, Andrews, Woods & Goodyear, LLP
1800 One M&T Plaza
Buffalo, New York 14203
Attention: Todd M. Joseph, Esq.
All such notices and other communications shall be effective when
delivered at the designated addresses or deposited in the mails in
conformity with the provisions hereof.
E. Public Releases. Buyer and Seller agree that they will
jointly approve public releases or letters to customers or the press
concerning the consummation of the transactions contemplated by this
Agreement.
F. Casualty Loss. The Seller shall bear the risk of loss,
destruction, or damage to the Assets caused by fire or other casualty
through Closing Date. Thereafter such risk shall shift to the Buyer.
G. Payment of Fees. Buyer, Seller, HRH and Shareholders
shall each pay their own attorneys' fees and other expenses relating to
this transaction.
H. Further Instruments and Actions. The parties shall
execute and deliver such other documents and instruments as may be
reasonably necessary (including, without limitation, obtaining the
signatures of spouses) and shall take such further action as may be
necessary or appropriate, to carry out the terms and purposes of this
Agreement.
I. Right to Modify or Amend. The parties may at any time by
mutual agreement modify or amend this Agreement in any manner as agreed
upon by them in writing.
J. Termination. At any time prior to the Closing, the
parties may by mutual written agreement terminate this Agreement. In the
event this Agreement is so terminated, the parties shall have no
liability to each other hereunder.
K. Complete Agreement. This Agreement and the Schedules
hereto constitute the entire Agreement between the parties hereto with
respect to the transactions contemplated herein. No representation,
promise or inducement not included or required to be included herein
shall be binding upon any party hereto.
L. Execution and Counterparts. This Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which shall represent one agreement.
M. Severability. Any provision of this Agreement which is invalid,
illegal or unenforceable shall be ineffective to the extent of such
invalidity, illegality or unenforceability, without affecting in any way
the remaining provisions hereof.
N. Understanding of Agreement. Seller, Shareholders, HRH and
Buyer acknowledge that each has read and understood the provisions of
this Agreement, and that this Agreement entered into voluntarily and
after having had all opportunities to seek such advice as each may have
wished to receive.
O. Later Acquisitions. Seller and Shareholders acknowledge
that a later acquisition by Buyer of another insurance agency could
affect the determination of Year 1, Year 2 and Year 3 Agency Profit and
agree to cooperate with Buyer and HRH in making any adjustments as
necessary to this Agreement to carry out its intent. Any such
acquisition proposed to be consummated prior to March 1, 2000 shall be
subject to (a) the prior consent of Mr. Mason and (b) an agreement
between Shareholders and Parent as to what adjustments are to be made in
the determination of Agency Profit for each of the affected years.
P. Case and Gender. Wherever required by the context of this
Agreement, the singular and plural cases and the masculine, feminine and
neuter genders shall be interchangeable.
Q. HRH Policy on Post-Acquisition Cash Held by Buyer. Seller
and Shareholders acknowledge that they have been informed of the policy
of HRH not to allow cash and cash equivalents in excess of what HRH
believes to be the appropriate amount of working capital for any of its
operating offices to remain in an interest-earning account for the
benefit of that office. As such, Seller and Shareholders acknowledge
that HRH will cause any such excessive amounts of cash and equivalents to
be dividended to HRH, that such dividends would reduce interest earnings
attributable to Buyer after the Effective Date, and that HRH has the
right to declare such dividends.
R. Nonwaiver. The waiver by any party of any provision of
this Agreement shall not operate or be construed as a waiver of any other
provisions of this Agreement.
S. Guaranty of HRH. HRH guarantees (a) the timely payment,
without any setoff or reduction (except as specifically agreed to
herein), of all indebtedness, liabilities and obligations for the payment
of money, regardless of kind, incurred for any purpose, now existing or
hereafter arising, direct or indirect, absolute or contingent, similar or
dissimilar, related or unrelated, due or not due, contractual or
tortious, liquidated or unliquidated or arising by operation of law or
otherwise, and (b) the timely performance of all other obligations
whatsoever, that are now or hereafter owing by Buyer and Seller or
Shareholders pursuant to this Agreement or pursuant to any other
agreement, instrument or certificate executed and delivered pursuant to
or in connection with this Agreement, or arising in connection with the
transactions contemplated hereby. Such guaranty is a continuing guaranty
and, to the extent it relates to the payment of any such amount, a
guaranty of payment rather than collection. Such guaranty is independent
of and in addition to any other collateral or other security for the
payment of any such amount or the performance of any such other
obligations.
WITNESS the following signatures:
SELLER:
S. H. GOW & COMPANY, INC.
By ______________________________________
Its ______________________________________
HRH, ON BEHALF OF ITSELF AND
ITS TO BE ACQUIRED COMPANY, BUYER:
HILB, ROGAL AND HAMILTON COMPANY
By ______________________________________
Its ______________________________________
SHAREHOLDERS:
_________________________________________
Jeffrey Gow
_________________________________________
Michael Gow
_________________________________________
Richard Mason
CONSENT OF DOPKINS & COMPANY, INDEPENDENT ACCOUNTANTS
We consent to the reference of our firm under the caption
"Experts" and to the use of our reports dated November 9,
1996 with respect to the financial statements of S. H. Gow &
Company, Inc. and Gow Management Services, Inc. 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/ Dopkins & Company
Buffalo, New York
December 20, 1996
