<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the Quarter Ended June 30, 1997
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 from _______ to __________
Commission file number 0-20766
-------------------------------------------------------
HCC Insurance Holdings, Inc.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 76-0336636
- -------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13403 Northwest Freeway, Houston, Texas 77040-6094
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(713) 690-7300
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
On August 8, 1997, there were 45,934,708 shares of Common Stock, $1 par value
issued and outstanding.
<PAGE>
HCC INSURANCE HOLDINGS, INC.
INDEX
Part I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Item 1. Condensed Consolidated Balance Sheets
June 30, 1997 and December 31, 1996..........................................3
Condensed Consolidated Statements of Earnings
Six Months Ended June 30, 1997 and
Six Months Ended June 30, 1996...............................................4
Condensed Consolidated Statements of Earnings
Three Months Ended June 30, 1997 and
Three Months Ended June 30, 1996.............................................5
Condensed Consolidated Statements of Changes in Shareholders' Equity
Six Months Ended June 30, 1997 and
Year Ended December 31, 1996.................................................6
Condensed Consolidated Statements of Cash Flows
Six Months Ended June 30, 1997 and
Six Months Ended June 30, 1996...............................................8
Notes to Condensed Consolidated Financial Statements...........................9
Item 2. Management's Discussion and Analysis..........................................13
Part II. OTHER INFORMATION.......................................................................16
</TABLE>
2
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
---------
Condensed Consolidated Balance Sheets
(Unaudited)
---------
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
------------------- ------------------
<S> <C> <C>
ASSETS
Investments:
Securities available for sale:
Fixed income securities, at market
(cost: 1997 $383,719,000; 1996 $371,844,000) $ 390,283,000 $ 377,555,000
Marketable equity securities, at market
(cost: 1997 $12,167,000; 1996 $13,434,000) 11,914,000 13,250,000
------------------- ------------------
Total investments 402,197,000 390,805,000
Cash and short-term investments:
Cash 1,106,000 9,171,000
Short-term investments, at cost, which approximates market 103,313,000 78,693,000
------------------- ------------------
Total cash and short-term investments 104,419,000 87,864,000
Restricted cash and cash investments 49,458,000 44,363,000
Reinsurance recoverables 148,789,000 132,684,000
Premium, claims and other receivables 223,599,000 168,717,000
Ceded unearned premium 77,969,000 71,758,000
Deferred policy acquisition costs 24,488,000 24,166,000
Property and equipment, net 17,366,000 17,021,000
Deferred income tax 8,974,000 10,871,000
Other assets, net 36,959,000 15,795,000
------------------- ------------------
TOTAL ASSETS $1,094,218,000 $ 964,044,000
------------------- ------------------
------------------- ------------------
LIABILITIES
Loss and loss adjustment expense payable $ 245,497,000 $ 229,049,000
Reinsurance balances payable 59,190,000 45,449,000
Unearned premium 164,337,000 151,959,000
Deferred ceding commissions 17,791,000 16,670,000
Premium and claims payable 171,601,000 123,118,000
Notes payable 79,476,000 73,167,000
Accounts payable and accrued liabilities 20,359,000 23,370,000
------------------- ------------------
Total liabilities 758,251,000 662,782,000
SHAREHOLDERS' EQUITY
Common Stock, $1.00 par value; 100,000,000 shares authorized,
(issued and outstanding: 1997 45,582,329 shares; 1996 47,416,643 shares) 45,582,000 47,417,000
Additional paid-in capital 150,291,000 139,971,000
Retained earnings 136,087,000 167,012,000
Unrealized investment gain, net 4,133,000 3,623,000
Foreign currency translation adjustment (126,000) (91,000)
Treasury stock (1996 3,301,741 shares) - (56,670,000)
------------------- ------------------
Total shareholders' equity 335,967,000 301,262,000
------------------- ------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,094,218,000 $ 964,044,000
------------------- ------------------
------------------- ------------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Condensed Consolidated Statements of Earnings
(Unaudited)
----------
<TABLE>
<CAPTION>
For the six months ended June 30,
1997 1996
---------------- -----------------
<S> <C> <C>
REVENUE
Net earned premium $ 92,809,000 $ 86,805,000
Fee and commission income 32,199,000 26,131,000
Net investment income 12,729,000 11,434,000
Computer products and services 3,601,000 4,098,000
Net realized investment gain (loss) (294,000) 5,207,000
---------------- -----------------
Total revenue 141,044,000 133,675,000
EXPENSE
Loss and loss adjustment expense 56,070,000 53,657,000
Operating expense:
Policy acquisition costs 26,088,000 23,386,000
Compensation expense 20,153,000 19,251,000
Other operating expense 15,575,000 12,541,000
Merger expense 7,277,000 26,160,000
Ceding commissions (20,361,000) (16,438,000)
---------------- -----------------
Net operating expense 48,732,000 64,900,000
Interest expense 2,810,000 2,664,000
---------------- -----------------
Total expense 107,612,000 121,221,000
---------------- -----------------
Earnings before income tax provision 33,432,000 12,454,000
Income tax provision (benefit) 11,419,000 (339,000)
---------------- -----------------
NET EARNINGS $ 22,013,000 $ 12,793,000
---------------- -----------------
---------------- -----------------
EARNINGS PER SHARE DATA:
Primary:
Earnings per share $ 0.48 $ 0.29
---------------- -----------------
---------------- -----------------
Weighted average shares outstanding 46,053,000 44,330,000
---------------- -----------------
---------------- -----------------
Fully diluted:
Earnings per share $ 0.48 $ 0.29
---------------- -----------------
---------------- -----------------
Weighted average shares outstanding 46,146,000 44,410,000
---------------- -----------------
---------------- -----------------
Cash dividends declared, per share $ 0.06 $ 0.02
---------------- -----------------
---------------- -----------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Condensed Consolidated Statements of Earnings
(Unaudited)
----------
<TABLE>
<CAPTION>
For the three months ended June 30,
1997 1996
--------------- --------------
<S> <C> <C>
REVENUE
Net earned premium $ 48,134,000 $ 43,614,000
Fee and commission income 16,142,000 13,750,000
Net investment income 6,526,000 5,742,000
Computer products and services 1,955,000 2,180,000
Net realized investment gain (loss) (238,000) 3,881,000
--------------- --------------
Total revenue 72,519,000 69,167,000
EXPENSE
Loss and loss adjustment expense 29,452,000 26,421,000
Operating expense:
Policy acquisition costs 11,845,000 11,265,000
Compensation expense 10,276,000 10,007,000
Other operating expense 8,733,000 7,142,000
Merger expense 5,404,000 24,984,000
Ceding commissions (9,366,000) (8,818,000)
--------------- --------------
Net operating expense 26,892,000 44,580,000
Interest expense 1,435,000 1,408,000
--------------- --------------
Total expense 57,779,000 72,409,000
--------------- --------------
Earnings (loss) before income tax provision 14,740,000 (3,242,000)
Income tax provision (benefit) 5,758,000 (3,884,000)
--------------- --------------
NET EARNINGS $ 8,982,000 $ 642,000
--------------- --------------
--------------- --------------
EARNINGS PER SHARE DATA:
Primary:
Earnings per share $ 0.19 $ 0.01
--------------- --------------
--------------- --------------
Weighted average shares outstanding 46,383,000 44,263,000
--------------- --------------
--------------- --------------
Fully diluted:
Earnings per share $ 0.19 $ 0.01
--------------- --------------
--------------- --------------
Weighted average shares outstanding 46,482,000 44,279,000
--------------- --------------
--------------- --------------
Cash dividends declared, per share $ 0.03 $ 0.02
--------------- --------------
--------------- --------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Condensed Consolidated Statements of Changes in Shareholders' Equity
For the six months ended June 30, 1997 and
for the year ended December 31, 1996
(Unaudited)
----------
<TABLE>
<CAPTION>
Additional Unrealized
Common paid-in Retained investment
Stock capital earnings gain (loss)
--------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1995 $ 18,460,000 $ 138,084,000 $ 142,134,000 $ 9,296,000
27,688,869 shares of Common Stock issued for
150% stock dividend 27,689,000 (27,689,000) - -
132,108 shares of Common Stock issued for exercise
of options, including tax benefit of $366,000 132,000 837,000 - -
Net earnings - - 41,586,000 -
Cash dividends declared, $0.06 per share - - (2,104,000) -
Compensatory grant of pooled company stock prior to
merger - 23,682,000 - -
Dividends to shareholders of pooled companies prior to
merger - - (7,705,000) -
Capitalize undistributed earnings of pooled company
upon conversion from S Corporation - 3,840,000 (3,840,000) -
1,136,400 shares of Common Stock issued
for NASRA combination 1,136,000 - (1,452,000) -
Repurchase of 520,000 shares of Common Stock by
pooled company prior to merger - - - -
Unrealized investment loss on fixed income
securities, net of deferred tax benefit of $857,000 - - - (1,594,000)
Unrealized investment loss on marketable equity
securities, net of deferred tax benefit of $2,144,000 - - - (4,079,000)
Other - 1,217,000 (1,607,000) -
--------------- ----------------- ----------------- ---------------
BALANCE AS OF DECEMBER 31, 1996 $ 47,417,000 $ 139,971,000 $ 167,012,000 $ 3,623,000
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
Foreign
currency Total
translation Treasury shareholders'
adjustment stock equity
---------------- ---------------- ---------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1995 $ (186,000) $ (50,570,000) $ 257,218,000
27,688,869 shares of Common Stock issued for
150% stock dividend - - -
132,108 shares of Common Stock issued for exercise
of options, including tax benefit of $366,000 - - 969,000
Net earnings - - 41,586,000
Cash dividends declared, $0.06 per share - - (2,104,000)
Compensatory grant of pooled company stock prior to
merger - - 23,682,000
Dividends to shareholders of pooled companies prior to
merger - - (7,705,000)
Capitalize undistributed earnings of pooled company
upon conversion from S Corporation - - -
1,136,400 shares of Common Stock issued
for NASRA combination - - (316,000)
Repurchase of 520,000 shares of Common Stock by
pooled company prior to merger - (7,909,000) (7,909,000)
Unrealized investment loss on fixed income
securities, net of deferred tax benefit of $857,000 - - (1,594,000)
Unrealized investment loss on marketable equity
securities, net of deferred tax benefit of $2,144,000 - - (4,079,000)
Other 95,000 1,809,000 1,514,000
---------------- ---------------- ---------------
BALANCE AS OF DECEMBER 31, 1996 $ (91,000) $ (56,670,000) $ 301,262,000
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
6
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Condensed Consolidated Statements of Changes in Shareholders' Equity
For the six months ended June 30, 1997 and
for the year ended December 31, 1996
(Unaudited)
(continued)
----------
<TABLE>
<CAPTION>
Additional Unrealized
Common paid-in Retained investment
Stock capital earnings gain (loss)
---------------- ---------------- --------------- -------------
<S> <C> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1996 $ 47,417,000 $ 139,971,000 $ 167,012,000 $ 3,623,000
392,652 shares of Common Stock issued for
exercise of options, including tax benefit
of $881,000 392,000 4,448,000 - -
266,667 shares of Common Stock issued for
TRM acquisition 267,000 6,700,000 - -
725,000 shares of Common Stock issued for
Interworld combination 725,000 - (238,000) -
98,003 shares of Common Stock issued for
MGU acquisition 98,000 2,602,000 - -
Net earnings - - 22,013,000 -
Cash dividends declared, $0.06 per share - - (2,453,000) -
Repurchase of 14,895 shares of Common Stock
by pooled company prior to merger - - - -
Retirement of 3,316,636 shares of Treasury
Stock (3,317,000) (3,430,000) (50,247,000) -
Unrealized investment gain on fixed income
securities, net of deferred tax charge
of $298,000 - - - 555,000
Unrealized investment loss on marketable
equity securities, net of deferred tax
benefit of $24,000 - - - (45,000)
Other - - - -
---------------- ---------------- --------------- -------------
BALANCE AS OF JUNE 30, 1997 $ 45,582,000 $ 150,291,000 $ 136,087,000 $ 4,133,000
---------------- ---------------- --------------- -------------
---------------- ---------------- --------------- -------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
<TABLE>
<CAPTION>
Foreign
currency Total
translation Treasury shareholders'
adjustment stock equity
---------------- ---------------- ---------------
<S> <C> <C> <C>
BALANCE AS OF DECEMBER 31, 1996 $ (91,000) $ (56,670,000) $ 301,262,000
392,652 shares of Common Stock issued for
exercise of options, including tax benefit
of $881,000 - - 4,840,000
266,667 shares of Common Stock issued for
TRM acquisition - - 6,967,000
725,000 shares of Common Stock issued for
Interworld combination - - 487,000
98,003 shares of Common Stock issued for
MGU acquisition - - 2,700,000
Net earnings - - 22,013,000
Cash dividends declared, $0.06 per share - - (2,453,000)
Repurchase of 14,895 shares of Common Stock
by pooled company prior to merger - (324,000) (324,000)
Retirement of 3,316,636 shares of Treasury
Stock - 56,994,000 -
Unrealized investment gain on fixed income
securities, net of deferred tax charge
of $298,000 - - 555,000
Unrealized investment loss on marketable
equity securities, net of deferred tax
benefit of $24,000 - - (45,000)
Other (35,000) - (35,000)
---------------- ---------------- ---------------
BALANCE AS OF JUNE 30, 1997 $ (126,000) $ - $ 335,967,000
---------------- ---------------- ---------------
---------------- ---------------- ---------------
See Notes to Condensed Consolidated Financial Statements.
7
</TABLE>
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
--------
Condensed Consolidated Statements of Cash Flows
(Unaudited)
--------
<TABLE>
<CAPTION>
For the six months ended June 30,
1997 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 22,013,000 $ 12,793,000
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Change in reinsurance recoverables (16,105,000) (20,115,000)
Change in premium, claims and other
receivables (54,882,000) (14,987,000)
Change in ceded unearned premium (6,211,000) 39,000
Change in deferred income tax, net of tax
effect of unrealized gain or loss 1,623,000 (9,161,000)
Change in loss and loss adjustment expense
payable 16,448,000 16,906,000
Change in reinsurance balances payable 13,741,000 (7,970,000)
Change in unearned premium 12,378,000 14,366,000
Change in premium and claims payable, net
of restricted cash 43,388,000 8,722,000
Net realized investment (gain) loss 294,000 (5,207,000)
Non cash compensation expense - 23,841,000
Depreciation and amortization expense 2,324,000 1,753,000
Other, net (4,038,000) 4,864,000
-------------- --------------
Cash provided by operating activities 30,973,000 25,844,000
Cash flows from investing activities:
Sales of fixed income securities 15,394,000 17,222,000
Maturity or call of fixed income securities 8,390,000 7,333,000
Sales of equity securities 8,329,000 22,693,000
Cash paid for acquisitions (10,150,000) -
Cost of investments acquired (43,446,000) (41,691,000)
Purchases of property and equipment (1,958,000) (1,187,000)
-------------- --------------
Cash provided (used) by investing activities (23,441,000) 4,370,000
Cash flows from financing activities:
Proceeds from notes payable 10,406,000 12,000,000
Sale of Common Stock 4,840,000 741,000
Payments on notes payable (4,097,000) (14,423,000)
Dividends paid (1,802,000) (5,719,000)
Repurchase Common Stock (324,000) (6,597,000)
-------------- --------------
Cash provided (used) by financing activities 9,023,000 (13,998,000)
-------------- --------------
Net change in cash and short-term investments 16,555,000 16,216,000
Cash and short-term investments at
beginning of period 87,864,000 78,437,000
-------------- --------------
CASH AND SHORT-TERM INVESTMENTS AT END
OF PERIOD $ 104,419,000 $ 94,653,000
-------------- --------------
-------------- --------------
Supplemental cash flow information:
Interest paid $ 3,328,000 $ 3,607,000
-------------- --------------
-------------- --------------
Income tax paid $ 12,635,000 $ 3,945,000
-------------- --------------
-------------- --------------
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
8
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(1) GENERAL INFORMATION
HCC Insurance Holdings, Inc. ("the Company" or "HCCH") and its subsidiaries
include domestic and foreign property and casualty insurance companies and
managing general underwriters, surplus lines insurance brokers and wholesale
insurance and reinsurance brokers. The Company, through its subsidiaries,
provides specialized property, casualty, accident and health insurance,
underwritten on both a direct and reinsurance basis, and insurance agency
services.
BASIS OF PRESENTATION
The unaudited condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles and
include all adjustments which are, in the opinion of management,
necessary for fair presentation of the results of the interim periods.
All adjustments made to the interim periods are of a normal recurring
nature. The condensed consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany balances and transactions have been eliminated.
The condensed consolidated financial statements for periods reported
should be read in conjunction with the annual consolidated financial
statements and notes related thereto. The condensed consolidated balance
sheet as of December 31, 1996, and the statement of shareholders' equity
for the year then ended were derived from audited financial statements,
but do not include all disclosures required by generally accepted
accounting principles.
On June 17, 1997, the Company issued 8,511,625 shares of its Common Stock
and 604,575 options to purchase its Common Stock to acquire all of the
outstanding common stock and options of AVEMCO Corporation ("AVEMCO").
This business combination was accounted for as a pooling-of-interests.
The Company's condensed consolidated financial statements have been
restated to include the accounts and operations of AVEMCO for all periods
presented.
INCOME TAX
For the six months ended June 30, 1997 and 1996, the income tax provision
has been calculated based on an estimated effective tax rate for each of
the fiscal years. The difference between the Company's effective tax rate
and the Federal statutory rate is primarily the result of nontaxable
municipal bond interest included in pretax income. In addition, during
1996, prior to its merger with the Company, LDG Management Company
Incorporated ("LDG") was an S Corporation and thus exempt from Federal
income tax until May 21, 1996.
EARNINGS PER SHARE
Earnings per share are based on the weighted average number of common and
common equivalent shares outstanding during the period divided into net
earnings. Weighted average shares outstanding have been adjusted to
include shares and options issued in connection with the combination of
AVEMCO. Outstanding common stock options, when dilutive, are considered
to be common stock equivalents for the purpose of this calculation. The
treasury stock method is used to calculate common stock equivalents due
to options.
EFFECTS ON RECENT ACCOUNTING PRONOUNCEMENTS
In February, 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
per Share". SFAS No. 128 is effective for fiscal periods ending after
December 15, 1997. Early application is not permitted. SFAS No. 128
modifies the denominator to be used in the earnings per share
calculations, and requires additional disclosures of the calculations.
The statement will have no effect on the Company's net earnings,
shareholders' equity or cash flows and an insignificant effect on
earnings per share.
In June, 1997, the Financial Accounting Standards Board issued SFAS No.
130 "Reporting Comprehensive Income" and SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information". Both statements are
effective for fiscal years beginning after December 15, 1997. These
SFAS's require that additional information be included in a complete set
of financial statements, but will have no effect on the Company's net
earnings, shareholders' equity or cash flows.
9
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(1) GENERAL INFORMATION, CONTINUED
RECLASSIFICATIONS
Certain amounts in the 1996 condensed consolidated financial statements
have been reclassified to conform to the 1997 presentation. Such
reclassifications had no effect on the Company's shareholders' equity,
net earnings or cash flows.
(2) REINSURANCE
In the normal course of business the Company's insurance company
subsidiaries cede a substantial portion of their premium to unrelated
domestic and foreign reinsurers through quota share, surplus, excess of
loss and facultative reinsurance agreements. Although the ceding of
reinsurance does not discharge the primary insurer from liability to its
policyholder, the subsidiaries participate in such agreements for the
purpose of limiting their loss exposure and diversifying their business.
Substantially all of the reinsurance assumed by the Company's insurance
company subsidiaries was underwritten directly by the subsidiaries but
issued by other unrelated companies in order to satisfy local licensing
or other requirements, predominantly on foreign business or as
reinsurance of captives. The following table represents the approximate
effect of such reinsurance transactions on net premium and loss and loss
adjustment expense:
<TABLE>
<CAPTION>
Loss and Loss
Written Earned Adjustment
Premium Premium Expense
------------- ------------- -------------
<S> <C> <C> <C>
For the six months ended June 30, 1997:
Direct business $ 92,620,000 $ 86,559,000 $ 49,562,000
Reinsurance assumed 92,579,000 88,125,000 90,724,000
Reinsurance ceded (88,450,000) (81,875,000) (84,216,000)
------------- ------------- -------------
NET AMOUNTS $ 96,749,000 $ 92,809,000 $ 56,070,000
------------- ------------- -------------
------------- ------------- -------------
For the six months ended June 30, 1996:
Direct business $ 97,288,000 $ 95,023,000 $ 58,993,000
Reinsurance assumed 81,128,000 69,153,000 54,719,000
Reinsurance ceded (77,337,000) (77,371,000) (60,055,000)
------------- ------------- -------------
NET AMOUNTS $ 101,079,000 $ 86,805,000 $ 53,657,000
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
The table below represents the approximate composition of reinsurance
recoverables in the accompanying condensed consolidated balance sheets:
<TABLE>
<CAPTION>
June 30, 1997 December 31, 1996
---------------- -----------------
<S> <C> <C>
Reinsurance recoverable on paid losses $ 28,720,000 $ 23,333,000
Reinsurance recoverable on outstanding losses 111,206,000 102,350,000
Reinsurance recoverable on IBNR 11,338,000 9,416,000
Reserve for uncollectible reinsurance (2,475,000) (2,415,000)
---------------- -----------------
TOTAL REINSURANCE RECOVERABLES $148,789,000 $132,684,000
---------------- -----------------
---------------- -----------------
10
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(2) REINSURANCE, CONTINUED
The insurance company subsidiaries require reinsurers not authorized by
their respective states of domicile to collateralize their reinsurance
obligations to the Company with letters of credit or cash deposits. At
June 30, 1997, the Company held letters of credit and cash deposits in
the amounts of $90.1 million and $8.5 million, respectively, to
collateralize certain reinsurance balances. The Company has established a
reserve of $2.5 million as of June 30, 1997, to reduce the effects of any
recoverable problems. In order to minimize its exposure to reinsurance
credit risk, the Company evaluates the financial condition of its
reinsurers and places their reinsurance with a diverse group of
financially sound companies.
(3) ACQUISITIONS
TRM
On January 24, 1997, the Company acquired all of the occupational
accident business of the TRM International, Inc. group of companies in
exchange for 266,667 shares of the Company's Common Stock and $6.55
million in cash. This acquisition has been accounted for as a purchase
and results of operations of the business acquired has been included in
the consolidated statements of earnings beginning in January 1997. Cost
in excess of net assets acquired (goodwill) of approximately $13.5
million was recorded from this acquisition. Goodwill is being amortized
over twenty years.
INTERWORLD
On April 30, 1997, the Company acquired all of the outstanding shares of
Interworld Corporation in exchange for 725,000 shares of the Company's
Common Stock. This combination has been accounted for as a
pooling-of-interests. However, the Company's consolidated financial
statements have not been restated due to immateriality.
AVEMCO
On June 17, 1997, the Company issued 8,511,625 shares of its Common
Stock and 604,575 options to purchase its Common Stock to acquire all of
the outstanding common stock and options of AVEMCO. This business
combination has been accounted for as a pooling-of-interests and,
accordingly, the Company's condensed consolidated financial statements
have been restated to include the accounts and operations of AVEMCO for
all periods presented.
Separate total revenue and net earnings amounts of the merged entities
are presented for the periods prior to the merger in the following table:
For the six For the six
months ended months ended
June 30, 1997 June 30, 1996
--------------- ---------------
Total revenue:
HCCH $ 81,598,000 $ 75,260,000
AVEMCO 59,446,000 58,415,000
--------------- ---------------
TOTAL REVENUE $ 141,044,000 $ 133,675,000
--------------- ---------------
--------------- ---------------
Net earnings:
HCCH $ 21,295,000 $ 5,404,000
AVEMCO 718,000 7,389,000
--------------- ---------------
NET EARNINGS $ 22,013,000 $ 12,793,000
--------------- ---------------
--------------- ---------------
</TABLE>
11
<PAGE>
HCC Insurance Holdings, Inc. and Subsidiaries
----------
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(Continued)
(3) ACQUISITIONS, CONTINUED
MGU
On June 26, 1997, the Company acquired all of the outstanding shares of
Managed Group Underwriting, Inc. in exchange for 98,003 shares of the
Company's Common Stock and a cash payment of $3.6 million. This
acquisition has been accounted for as a purchase and the results of
operations will be included in the consolidated statements of earnings
beginning in July, 1997. Cost in excess of net assets acquired (goodwill)
of approximately $6.2 million was recorded from this acquisition.
Goodwill will be amortized over twenty years.
CONTINENTAL
On July 31, 1997, the Company acquired all of the outstanding shares of
Continental Aviation Underwriters, Inc. in exchange for 17,354 shares of
the Company's Common Stock and a cash payment of $2.8 million. This
acquisition will be accounted for as a purchase and the results of
operations will be included in the consolidated statements of earnings
beginning in August, 1997.
SOUTHERN
On August 8, 1997, the Company acquired all of the outstanding shares of
Southern Aviation Insurance Underwriters, Inc. and Aviation Claims
Administrators, Inc. in exchange for 225,000 shares of the Company's
Common Stock. These combinations will be accounted for as
poolings-of-interests. However, the Company's consolidated financial
statements will not be restated due to immateriality.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
The Company completed the acquisition of Interworld Corporation on April 30,
1997 (pooling-of-interests), of AVEMCO Corporation on June 17, 1997
(pooling-of-interests), of Managed Group Underwriting, Inc. on June 30, 1997
(purchase), of Continental Aviation Underwriters, Inc. on July 31, 1997
(purchase) and Southern Aviation Insurance Underwriters, Inc. on August 8,
1997 (pooling-of-interests).
THREE MONTHS ENDED JUNE 30, 1997 VERSUS THREE MONTHS ENDED JUNE 30, 1996.
Gross written premium decreased to $90.1 million for the second quarter of
1997 from $101.0 million for the same period in 1996 due primarily to
reductions in property business as competition increases however, aviation
and accident and health premium increased during the quarter. Net written
premium for the second quarter of 1997 increased 9% to $54.1 million from
$49.9 million for the same period in 1996 due to increases in aviation and
accident and health where the Company's retentions are greater due to the
lack of catastrophe exposures. Net earned premium increased 10% to $48.1
million for the second quarter of 1997 compared to $43.6 million for the same
period in 1996.
Going forward, quarterly gross written premium is anticipated to remain at or
near the second quarter of 1997 level. However, net written premium and net
earned premium should decrease approximately 30% due to the implementation of
a significant reinsurance program covering AVEMCO's business since the
acquisition, which should have a positive effect on net earnings.
Fee and commission income increased 17% to $16.1 million for the second
quarter of 1997 compared to $13.8 million for the same period in 1996 due to
the increased agency activity in light of recent acquisitions. The Company
expects fee and commission income to continue to increase during the
remainder of 1997 due to the effects of recent acquisitions and internal
growth. Net investment income increased 14% to $6.5 million for the second
quarter of 1997 compared to $5.7 million for the same period in 1996
reflecting a higher level of investments. Total revenue increased 5% to $72.5
million.
Net realized investment losses from sales of equity securities were $8,000
during the second quarter of 1997, compared to gains of $4.1 million for the
same period in 1996. During 1996, the Company systematically liquidated the
majority of its equity portfolio. Net realized investment losses from
disposition of fixed income securities were $230,000 during the second
quarter of 1997, compared to losses of $196,000 for the same period in 1996.
Loss and LAE increased $3.0 million during the second quarter of 1997, to
$29.5 million, reflecting the increase in business, as the Company's GAAP
loss ratio remained constant at 61%.
Other operating expense increased 22% to $8.7 million for the second quarter
of 1997. These expenses reflect increased expenditures required to meet the
overall growth in business. Goodwill amortization expense was $402,000 for
the second quarter of 1997, compared to $171,000 for the second quarter of
1996 and is included in other operating expense. Currency conversion losses
amounted to $323,000 for the second quarter of 1997, compared to losses of
$44,000 during the same period in 1996.
Merger expense represents non-recurring items incurred to consummate the
acquisitions and mergers which are or will be accounted for as
poolings-of-interests. The amounts incurred during the second quarter of 1996
were due to the combination with LDG and included a compensatory stock grant
of $24.0 million to certain key LDG employees immediately prior to the
merger. The amounts incurred during the second quarter of 1997 were due to
the combinations with AVEMCO Corporation and Interworld Corporation.
Income tax expense was $5.8 million for the second quarter of 1997, compared
to an income tax benefit of $3.9 million for the second quarter of 1996. The
1996 amount included a deferred tax benefit of $9.6 million which was
recorded in connection with the compensatory stock grant to certain key LDG
employees. Also, as an S Corporation, LDG was exempt from Federal income
taxes through May 21, 1996. Had LDG been subject to Federal income taxes
during that period, additional income tax expense of $1.0 million would have
been recorded for the second quarter of 1996.
Net earnings increased to $9.0 million for the second quarter of 1997 from
$642,000 for the same period in 1996. This increase was principally a result
of higher underwriting profits, increased fee and commission income and the
non-recurring compensation charge incurred during 1996.
Earnings per share increased to $0.19 for the second quarter of 1997 from $
0.01 for the second quarter of 1996. This reflects the increase in net
earnings, offset by a 5% increase in weighted average shares outstanding.
The Company's insurance company subsidiaries' statutory combined ratio was
78.7% for the second quarter of 1997, as compared to 78.4% for the same
period in 1996. The Company's combined ratio remains significantly better
than the industry average.
The Company's book value per share was $7.37 as of June 30, 1997, up from
$7.14 as of March 31, 1997. Earnings added $0.20 per share to book value
during the second quarter of 1997.
13
<PAGE>
SIX MONTHS ENDED JUNE 30, 1997 VERSUS SIX MONTHS ENDED JUNE 30, 1996.
Gross written premium increased 4% to $185.2 million for the first six months
of 1997 from $178.4 million for the same period in 1996, due primarily to
increased aviation and accident and health premiums partially offset by
decreased marine premium. Net written premium for the first six months of
1997 decreased to $96.7 million from $101.1 million for the same period in
1996, due primarily to decreased marine and offshore energy premium partially
offset by increases in aviation and accident and health premium. Net earned
premium increased 7% to $92.8 million for the first six months of 1997
compared to $86.8 million for the same period in 1996.
Fee and commission income increased 23% to $32.2 million for the first six
months of 1997 compared to $26.1 million for the same period in 1996 due to
the increased agency activity. The Company expects fee and commission income
to continue to increase during the remainder of 1997 due to the effects of
recent acquisitions and internal growth. Net investment income increased 11%
to $12.7 million for the first six months of 1997 compared to $11.4 million
for the same period in 1996 reflecting a higher level of investments. Total
revenue increased 6% to $141.0 million.
Net realized investment losses from sales of equity securities were $50,000
during the first six months of 1997, compared to gains of $5.3 million for
the same period in 1996. During 1996, the Company systematically liquidated
the majority of its equity portfolio. Net realized investment losses from
disposition of fixed income securities were $244,000 during the first six
months of 1997, compared to losses of $65,000 for the same period in 1996.
Loss and LAE increased $2.4 million during the first six months of 1997, to
$56.1 million, as the Company's GAAP loss ratio decreased to 60% from 62%.
Other operating expense increased 24% to $15.6 million for the first six
months of 1997. These expenses reflect increased expenditures required to
meet the overall growth in business. Goodwill amortization expense was
$711,000 for the first six months of 1997 compared to $340,000 for the first
six months of 1996 and is included in other operating expense. Currency
conversion losses amounted to $541,000 for the first six months of 1997,
compared to losses of $171,000 for the same period in 1996.
Merger expense represents non-recurring items incurred to consummate the
acquisitions and mergers which are or will be accounted for as
poolings-of-interests. The amounts incurred during the first six months of
1996 were due to the combination with LDG and included a compensatory stock
grant of $24.0 million to certain key LDG employees immediately prior to the
merger. The amounts incurred during 1997 were due to the combinations with
AVEMCO Corporation and Interworld Corporation.
Income tax expense was $11.4 million for the first six months of 1997,
compared to an income tax benefit of $339,000 during the first six months of
1996. The 1996 amount included a deferred tax benefit of $9.6 million which
was recorded in connection with the compensatory stock grant to certain key
LDG employees. Also, as an S Corporation, LDG was exempt from Federal income
taxes through May 21, 1996. Had LDG been subject to Federal income tax during
that period, additional income tax expense of $2.3 million would have been
recorded for the six months ended June 30, 1996.
Net earnings increased 72% to $22.0 million for the first six months of 1997
from $12.8 million for the same period in 1996. This increase was principally
a result of higher underwriting profits, increased fee and commission income
and the non-recurring compensation charge incurred during 1996.
Earnings per share increased 66% to $0.48 for the first six months of 1997
from $0.29 for the first six months of 1996. This reflects a 72% increase in
net earnings, partially offset by a 4% increase in weighted average shares
outstanding.
The Company's insurance company subsidiaries' statutory combined ratio was
78.5% for the first six months of 1997, as compared to 82.3% for the same
period in 1996. The Company's combined ratio remains significantly better
than the industry average.
The Company's book value per share was $7.37 as of June 30, 1997, up from
$6.83 as of December 31, 1996. Earnings added $0.48 per share to book value
during the first six months of 1997.
14
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash and investment portfolio increased $27.9
million or 6% since December 31, 1996, and totaled $506.6 million as of June
30, 1997, of which $104.4 million was cash and short-term investments. Total
assets increased to $1.1 billion as of June 30, 1997, from $964 million as of
December 31, 1996.
FORWARD-LOOKING STATEMENTS IN THIS FORM 10-Q ARE MADE PURSUANT TO THE SAFE
HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
INVESTORS ARE CAUTIONED THAT ALL FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND
UNCERTAINTY, INCLUDING WITHOUT LIMITATION, THE RISK OF A SIGNIFICANT NATURAL
DISASTER, THE INABILITY OF THE COMPANY TO REINSURE CERTAIN RISKS, THE
ADEQUACY OF ITS LOSS RESERVES, EXPANSION OR CONTRACTION OF ITS VARIOUS LINES
OF BUSINESS, THE IMPACT OF INFLATION, CHANGING REGULATIONS IN FOREIGN
COUNTRIES, THE EFFECT OF PENDING ACQUISITIONS, AS WELL AS GENERAL MARKET
CONDITIONS, COMPETITION AND PRICING. PLEASE REFER TO THE COMPANY'S SECURITIES
AND EXCHANGE COMMISSION FILINGS, COPIES OF WHICH ARE AVAILABLE FROM THE
COMPANY WITHOUT CHARGE, FOR FURTHER INFORMATION.
15
<PAGE>
PART II - OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS:
There are no material pending legal proceedings to which the
registrant is a party or of which any of the property of the
registrant is the subject, except for claims arising in the ordinary
course of business, none of which are considered material.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 22, 1997, the Company held its 1997 Annual Meeting of
Shareholders. At such time the following items were submitted to a
vote of shareholders through the solicitation of proxies:
(a) Election of Directors.
The following persons were elected to serve on the Board of
Directors until the 1998 Annual Meeting of Shareholders or
until their successors have been duly elected and qualified.
The Directors received the votes set forth opposite their
respective names:
WITHHELD
NAME FOR AGAINST AUTHORITY
---- --- ------- ---------
James M. Berry 30,441,264 599 41,442
Patrick B. Collins 30,438,764 3,099 41,442
J. Robert Dickerson 30,438,764 3,099 41,442
Edwin H. Frank, III 30,441,264 599 41,442
Allan W. Fulkerson 30,438,764 3,099 41,442
Walter J. Lack 30,382,514 59,349 41,442
Stephen J. Lockwood 30,440,764 1,099 41,442
Stephen L. Way 30,440,764 1,099 41,442
Hugh T. Wilson 30,438,764 3,099 41,442
(b) Shareholders of the Company were requested to approve the
Company's 1997 Flexible Incentive Plan. Such plan was approved
by the shareholders, who voted 17,205,607 shares in favor,
8,342,857 shares against, and 77,271 shares who abstained or
withheld authority to vote.
(c) Shareholders of the Company were requested to ratify the
appointment of Coopers & Lybrand, L.L.P., as independent
auditors for the Company and its subsidiaries to audit the
accounts of the Company and its subsidiaries for the year ended
December 31, 1997. Such appointment was approved by the
shareholders, who voted 27,676,554 shares in favor, 4,563
shares against, and 40,838 shares who abstained or withheld
authority to vote.
On June 17, 1997, the Company held a Special Meeting of
Shareholders. At such time the following item was submitted to a
vote of shareholders through the solicitation of proxies:
(a) Shareholders of the Company were requested to approve the
Agreement and Plan of Reorganization dated February 28, 1997,
pursuant to which AVEMCO Corporation would merge with a
subsidiary of HCCH, with AVEMCO surviving the merger as a
wholly owned subsidiary of HCCH. Such proposal was approved by
the shareholders, who voted 26,921,316 shares in favor, 30,617
shares against, and 36,094 shares who abstained or withheld
authority to vote.
16
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K:
(a) Exhibits:
The exhibits listed on the accompanying Index to Exhibits on
the following page are filed as part of this report.
(b) Reports on Form 8-K:
On June 19, 1997, the Registrant filed a report on Form 8-K
reporting that the Company had consummated the merger with
AVEMCO Corporation on June 17, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HCC Insurance Holdings, Inc.
----------------------------------
(Registrant)
August 13, 1997 /s/ Frank J. Bramanti
------------------- ----------------------------------
(Date) Frank J. Bramanti, President
17
<PAGE>
INDEX TO EXHIBITS
10.335 - Stock Purchase Agreement dated June 27, 1997 between
Sandra L. Ruder and HCC Insurance Holdings, Inc. related
to the purchase of 100% of the common stock of Managed
Group Underwriting, Inc.
11 - Statements Regarding Computation of Earnings Per Share.
27 - EDGAR Financial Data Schedule - June 30, 1997.
27.1 - EDGAR Financial Data Schedule - Restated June 30, 1996.
18
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
DATED AS OF
JUNE 26, 1997
BY AND BETWEEN
HCC INSURANCE HOLDINGS, INC.,
AND
SANDRA L. RUDER
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE I SALE AND TRANSFER OF THE MGU COMMON STOCK. . . . . . . . . . . . 1
Section 1.1 Sale of MGU Common Stock.. . . . . . . . . . . . . . . . 1
Section 1.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF
MGU AND SHAREHOLDER . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.1 Corporate Existence and Power. . . . . . . . . . . . . . 3
Section 2.2 Authorization. . . . . . . . . . . . . . . . . . . . . . 3
Section 2.3 Governmental Authorization . . . . . . . . . . . . . . . 4
Section 2.4 Non-Contravention. . . . . . . . . . . . . . . . . . . . 4
Section 2.5 Capitalization . . . . . . . . . . . . . . . . . . . . . 5
Section 2.6 Subsidiaries and Joint Ventures. . . . . . . . . . . . . 5
Section 2.7 MGU Financial Statements . . . . . . . . . . . . . . . . 5
Section 2.8 Absence of Certain Changes . . . . . . . . . . . . . . . 6
Section 2.9 No Undisclosed Liabilities . . . . . . . . . . . . . . . 7
Section 2.10 Litigation . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.11 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2.12 Employee Benefit Plans, ERISA. . . . . . . . . . . . . . 8
Section 2.13 Material Agreements. . . . . . . . . . . . . . . . . . . 10
Section 2.14 Properties . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2.15 Environmental Matters. . . . . . . . . . . . . . . . . . 11
Section 2.16 Labor Matters. . . . . . . . . . . . . . . . . . . . . . 12
Section 2.17 Compliance with Laws . . . . . . . . . . . . . . . . . . 12
Section 2.18 Trademarks, Tradenames, Etc. . . . . . . . . . . . . . . 12
Section 2.19 Sale of MGU. . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.20 Broker's Fees. . . . . . . . . . . . . . . . . . . . . . 12
Section 2.21 Investment Representation. . . . . . . . . . . . . . . . 12
Section 2.22 Payment to Wilbur. . . . . . . . . . . . . . . . . . . . 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF HCCH . . . . . . . . . . . . . 13
Section 3.1 Corporate Existence and Power. . . . . . . . . . . . . . 13
Section 3.2 Corporate Authorization. . . . . . . . . . . . . . . . . 14
Section 3.3 Governmental Authorization . . . . . . . . . . . . . . . 14
Section 3.4 Non-Contravention. . . . . . . . . . . . . . . . . . . . 14
Section 3.5 Capitalization of HCCH . . . . . . . . . . . . . . . . . 15
Section 3.6 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.7 SEC Filings. . . . . . . . . . . . . . . . . . . . . . . 16
Section 3.8 Financial Statements . . . . . . . . . . . . . . . . . . 17
Section 3.9 Absence of Certain Changes . . . . . . . . . . . . . . . 17
Section 3.10 No Undisclosed Liabilities . . . . . . . . . . . . . . . 17
i
<PAGE>
TABLE OF CONTENTS (CONT.)
PAGE
Section 3.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . 17
Section 3.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 3.13 Employee Benefit Plans; ERISA. . . . . . . . . . . . . . 18
Section 3.14 Material Agreements. . . . . . . . . . . . . . . . . . . 20
Section 3.15 Properties . . . . . . . . . . . . . . . . . . . . . . . 20
Section 3.16 Environmental Matters. . . . . . . . . . . . . . . . . . 21
Section 3.17 Labor Matters. . . . . . . . . . . . . . . . . . . . . . 21
Section 3.18 Compliance with Laws . . . . . . . . . . . . . . . . . . 21
Section 3.19 Trademarks, Tradenames, Etc. . . . . . . . . . . . . . . 21
Section 3.20 Broker's Fees. . . . . . . . . . . . . . . . . . . . . . 21
Section 3.21 Release of Personal Guaranty . . . . . . . . . . . . . . 21
Section 3.22 MGU as a Separate Subsidiary . . . . . . . . . . . . . . 22
ARTICLE IV COVENANTS OF SHAREHOLDER . . . . . . . . . . . . . . . . . . . . 22
Section 4.1 Conduct of MGU . . . . . . . . . . . . . . . . . . . . . 22
Section 4.2 Access to Financial and Operational Information. . . . . 23
Section 4.3 Other Offers . . . . . . . . . . . . . . . . . . . . . . 24
Section 4.4 Maintenance of Business. . . . . . . . . . . . . . . . . 24
Section 4.5 Compliance with Obligations. . . . . . . . . . . . . . . 24
Section 4.6 Notices of Certain Events. . . . . . . . . . . . . . . . 24
Section 4.7 Affiliates Agreement . . . . . . . . . . . . . . . . . . 25
Section 4.8 Necessary Consents . . . . . . . . . . . . . . . . . . . 25
Section 4.9 Regulatory Approval. . . . . . . . . . . . . . . . . . . 25
Section 4.10 Satisfaction of Conditions Precedent . . . . . . . . . . 25
ARTICLE V COVENANTS OF HCCH. . . . . . . . . . . . . . . . . . . . . . . . 25
Section 5.1 Conduct of HCCH. . . . . . . . . . . . . . . . . . . . . 25
Section 5.2 Listing of HCCH Common Stock . . . . . . . . . . . . . . 26
Section 5.3 Access to Financial and Operation Information. . . . . . 26
Section 5.4 Maintenance of Business. . . . . . . . . . . . . . . . . 26
Section 5.5 Compliance with Obligations. . . . . . . . . . . . . . . 26
Section 5.6 Notices of Certain Events. . . . . . . . . . . . . . . . 27
Section 5.7 Employee Matters . . . . . . . . . . . . . . . . . . . . 27
Section 5.8 Earnings of MGU. . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VI COVENANTS OF HCCH, SHAREHOLDER AND MGU . . . . . . . . . . . . . 27
Section 6.1 Advice of Changes. . . . . . . . . . . . . . . . . . . . 28
Section 6.2 Regulatory Approvals. . . . . . . . . . . . . . . . . . 28
Section 6.3 Actions Contrary to Stated Intent. . . . . . . . . . . . 28
Section 6.4 Certain Filings. . . . . . . . . . . . . . . . . . . . . 28
ii
<PAGE>
TABLE OF CONTENTS (CONT.)
PAGE
Section 6.5 Communications . . . . . . . . . . . . . . . . . . . . . 28
Section 6.6 Satisfaction of Conditions Precedent . . . . . . . . . . 28
Section 6.7 Tax Cooperation. . . . . . . . . . . . . . . . . . . . . 29
Section 6.8 Confidentiality. . . . . . . . . . . . . . . . . . . . . 29
ARTICLE VII CONDITIONS TO CLOSING. . . . . . . . . . . . . . . . . . . . . . 29
Section 7.1 Conditions to Obligations of HCCH. . . . . . . . . . . . 29
Section 7.2 Conditions to Obligations of Shareholder . . . . . . . . 32
Section 7.3 Conditions to Obligations of Each Party. . . . . . . . . 33
ARTICLE VIII TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . 33
Section 8.1 Termination. . . . . . . . . . . . . . . . . . . . . . . 33
Section 8.2 Effect of Termination. . . . . . . . . . . . . . . . . . 34
ARTICLE IX CLOSING MATTERS. . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 9.1 The Closing. . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE X INDEMNIFICATION AND
REMEDIES, CONTINUING COVENANTS . . . . . . . . . . . . . . . . . 34
Section 10.1 Agreement to Indemnify . . . . . . . . . . . . . . . . . 34
Section 10.2 HCCH Agreement to Indemnify. . . . . . . . . . . . . . . 35
Section 10.3 Survival of Representations. . . . . . . . . . . . . . . 35
Section 10.4 Procedure for Indemnification; Third Party Claims. . . . 36
ARTICLE XI MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.1 Further Assurances.. . . . . . . . . . . . . . . . . . . 36
Section 11.2 Fees and Expenses. . . . . . . . . . . . . . . . . . . . 36
Section 11.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 11.4 Governing Law. . . . . . . . . . . . . . . . . . . . . . 37
Section 11.5 Binding upon Successors and Assigns, Assignment. . . . . 38
Section 11.6 Severability . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . 38
Section 11.8 Amendment and Waivers. . . . . . . . . . . . . . . . . . 38
Section 11.9 No Waiver. . . . . . . . . . . . . . . . . . . . . . . . 38
Section 11.10 Construction of Agreement. . . . . . . . . . . . . . . . 38
Section 11.11 Counterparts . . . . . . . . . . . . . . . . . . . . . . 38
iii
<PAGE>
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into as of the
26th day of June, 1997 but effective as of 12:01 a.m. on July 1, 1997 (the
"Effective Time" and the "Effective Date" respectively) by and between HCC
Insurance Holdings, Inc., a Delaware corporation ("HCCH"), and Sandra L. Ruder a
resident of Missouri (the "Shareholder").
RECITALS:
A. Shareholder, as trustee of the Sandra L. Ruder Revocable Trust, dated
February 13, 1997 (the "Trust"), currently owns all of the outstanding stock of
Managed Group Underwriting, Inc., a Kansas corporation ("MGU"), a Company
engaged in the insurance business.
B. Prior to Closing all of the outstanding stock of MGU will be
transferred from the Trust to Shareholder.
C. HCCH desires to purchase all of the outstanding stock of MGU and
Shareholder desires to sell to HCCH her shares in MGU (being all of the
outstanding stock of MGU) for the consideration and on the terms set forth in
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties hereto do hereby agree as follows:
ARTICLE I
SALE AND TRANSFER OF THE MGU COMMON STOCK
SECTION 1.1 SALE OF MGU COMMON STOCK.
(a) Subject to the terms and conditions of this Agreement, at the Closing
hereinafter defined, Shareholder shall sell, transfer and deliver to HCCH, and
HCCH shall purchase from Shareholder, all of the outstanding stock of MGU (the
"MGU Common Stock").
SECTION 1.2 PURCHASE PRICE.
(a) At the closing, HCCH shall deliver to Shareholder the purchase price
("Purchase Price") which shall be equal to $5,900,000 to be paid, as follows:
(i) $3,600,000 in cash (the "Cash Payment") to be transferred by wire
transfer to such account as Shareholder shall specify, in immediately
available funds; plus
<PAGE>
(ii) that number of shares of HCCH Common Stock (the "Share Payment")
equal to (x) $2,300,000, (y) divided by the HCCH Acquisition Price. As
used herein, the HCCH Acquisition Price means the average of the closing
prices of HCCH Common Stock as reported by the New York Stock Exchange
("NYSE") for the ten trading days ending three trading days before the
Closing Date, hereinafter defined.
(b) No fractional shares of HCCH Common Stock shall be issued and the
Shareholder shall be entitled to receive an additional cash payment equal to the
fractional share of HCCH Common Stock such Shareholder would otherwise be
entitled to receive, multiplied by the HCCH Acquisition Price.
SECTION 1.3 CLOSING DELIVERIES.
At the Closing:
(a) Shareholder shall deliver to HCCH
(i) certificates dated July 1, 1997 representing the MGU Common
Stock, endorsed or transferred to HCCH, which shall transfer to HCCH good
and indefeasible title to the MGU Common Stock, free and clear of all
encumbrances; and
(ii) such other documents including officers' certificates and
opinions of counsel as may be required by this Agreement or reasonably
requested by HCCH.
(b) HCCH shall
(i) cause the Cash Payment to be transferred to an account
designated by Shareholder in immediately available funds; and
(ii) deliver certificates of HCCH Common Stock dated June 26, 1997 in
the amount of the Share Payment. Shareholder agrees and understands that
such shares of HCCH Common Stock shall be restricted as to transfer and
shall bear the appropriate legend as set forth herein;
(iii) deliver to MGU that number of shares of HCCH Common Stock
equal to $400,000 divided by the HCCH Acquisition Price (the "MGU Shares").
Such MGU Shares will be transferred by MGU for use in satisfying MGU's
obligation to Wilbur, hereinafter defined. No fractional shares of HCCH
Common Stock shall be issued and MGU shall be entitled to receive an
additional cash payment equal to the fractional share of HCCH Common Stock
that MGU would otherwise be entitled to receive, multiplied by the HCCH
Acquisition Price; and
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(iv) deliver to Shareholder such other documents, including officers'
certificates and opinions of counsel, as may be required by this Agreement
or reasonably requested by Shareholder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF MGU AND SHAREHOLDER
Except as disclosed in a document referring specifically to this Agreement
(the "MGU Disclosure Schedule") which has been delivered to HCCH on or before
the date hereof, each of MGU and Shareholder (jointly and severally) represents
and warrants to HCCH (it being agreed that the disclosure on the MGU Disclosure
Schedule of the existence of any document or fact or circumstance or situation
relating to any representations, warranties, covenants or agreements in any
section of this Agreement shall be automatically deemed to be disclosure of such
document or fact or circumstance or situation for purposes of all other
representations, warranties, covenants and agreements in this Agreement) as set
forth below.
SECTION 2.1 CORPORATE EXISTENCE AND POWER. MGU is a corporation duly
organized, validly existing and in good standing under the laws of the state of
its incorporation, and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals (collectively, "Governmental
Authorizations") required to carry on its business as now conducted, except such
Governmental Authorizations the failure of which to have obtained would not have
a Material Adverse Effect, as hereinafter defined, on MGU. MGU has delivered to
HCCH true and complete copies of MGU's Articles of Incorporation and Bylaws as
currently in effect. MGU is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where the character of
the property owned or leased by it or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified would not
have a Material Adverse Effect on MGU. For purposes of this Agreement, a
"Material Adverse Effect," with respect to any person or entity (including
without limitation MGU and HCCH), means a material adverse effect on the
condition (financial or otherwise), business, properties, assets, liabilities
(including contingent liabilities), results of operations or prospects of such
person or entity and its affiliated companies and subsidiaries and/or parent
corporation and/or corporations under the same stock ownership, taken as a
whole; and "Material Adverse Change" means a change or a development involving a
prospective change which would result in a Material Adverse Effect.
SECTION 2.2 AUTHORIZATION.
(a) Shareholder represents and warrants that she has full right, power and
authority to enter into this Agreement, the Affiliates Agreement to be entered
into by her, and each other agreement to be entered into by her in connection
with the transactions contemplated hereby and that this Agreement, the
Affiliates Agreement, and such other agreements contemplated hereby constitute,
or upon execution will constitute, valid and binding agreements of such
Shareholder,
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enforceable against her in accordance with their respective terms, except as
such enforcement may be limited by bankruptcy, insolvency or other similar
laws effecting the enforcement of creditors' rights generally or by general
principles of equity.
SECTION 2.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by Shareholder of this Agreement, and the consummation of the
transactions contemplated hereunder require no action by MGU or Shareholder or
any filing by them with any governmental body, agency, official or authority
other than in respect of:
(a) compliance with any applicable requirements of the Securities Act and
the rules and regulations promulgated thereunder;
(b) compliance with any applicable foreign or state securities or "blue
sky" laws;
(c) compliance with any requirements of any federal, state, foreign or
other insurance or reinsurance or intermediaries or managing general agent laws,
including licensing or other related laws;
(d) such other filings or registrations with, or authorizations, consents
or approvals of, governmental bodies, agencies, officials or authorities, the
failure of which to make or obtain (i) would not reasonably be expected to have
a Material Adverse Effect on MGU, or (ii) would not materially adversely affect
the ability of MGU or HCCH to consummate the transactions contemplated hereby
and operate their businesses as heretofore operated.
SECTION 2.4 NON-CONTRAVENTION. The execution, delivery and performance
by Shareholder of this Agreement, and the consummation by Shareholder of the
transactions contemplated hereby and thereby do not and will not:
(a) contravene or conflict with MGU's charter or bylaws;
(b) assuming compliance with the matters referred to in Section 2.3,
contravene or conflict with or constitute a violation of any provision of
any law, regulation, judgment, injunction, order or decree binding upon or
applicable to MGU or Shareholder;
(c) conflict with or result in a breach or violation of, or constitute a
default under, or result in a contractual right to cause the termination or
cancellation of or loss of a material benefit under, or right to accelerate, any
material agreement, contract or other instrument binding upon MGU or any
material license, franchise, permit or other similar authorization held by MGU;
or
(d) result in the creation or imposition of any Lien (as hereinafter
defined) on any material asset of MGU,
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except, with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses that in
the aggregate would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on MGU. For purposes of this Agreement,
the term "Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
SECTION 2.5 CAPITALIZATION.
(a) As of May 30, 1997, the authorized, issued and outstanding capital
stock of MGU was 100,000 shares authorized; 1,167 shares issued and outstanding
all of which outstanding shares were owned by Shareholder free of any Liens or
other encumbrances.
(b) All outstanding shares set forth in (a) above have been, or will be
prior to the Closing Date, duly authorized and validly issued and are fully paid
and nonassessable and free from any preemptive rights. Except as set forth in
and as otherwise contemplated by this Agreement, for MGU there are outstanding
(i) no shares of capital stock or other voting securities, (ii) no securities
convertible into or exchangeable for shares of its capital stock or voting
securities), (iii) no options or other rights to acquire, and no obligation to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for its capital stock or other voting securities (the items in
clauses (i), (ii) and (iii) being referred to collectively as the "MGU
Securities"), (iv) no obligations to repurchase, redeem or otherwise acquire any
of MGU Securities and (v) no contractual rights of any person or entity to
include any such securities in any registration statement proposed to be filed
under the Securities Act.
SECTION 2.6 SUBSIDIARIES AND JOINT VENTURES.
(a) For purposes of this Section 2.6, (i) "Subsidiary" means, with respect
to any entity, any corporation of which securities or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are directly or indirectly owned by
such entity, and (ii) "Joint Venture" means, with respect to any entity, any
corporation or organization (other than such entity and any Subsidiary thereof)
of which such entity or any Subsidiary thereof is, directly or indirectly, the
beneficial owner of 25% or more of any class of equity securities or equivalent
profit participation interest.
(b) As of the date hereof MGU has no Subsidiaries or Joint Ventures which
are material to the business of MGU.
SECTION 2.7 MGU FINANCIAL STATEMENTS. MGU has delivered to HCCH MGU's
audited balance sheets as of December 31, 1996 (the "Balance Sheet Date") and
1995, MGU's audited income statements for the annual periods ended December 31,
1996 and 1995 and MGU's unaudited balance sheets and income statements for the
period ending April 30, 1997 (collectively, the "MGU Financial Statements").
The MGU Financial Statements present fairly in all material respects,
substantially in conformity with generally accepted accounting principles
consistently applied (except as indicated in the notes thereto), the financial
position of MGU as
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of the dates thereof and results of operations and cash flows for the periods
therein indicated (subject to normal year-end adjustments in the case of any
interim financial statements and the absence of certain footnotes in the case
of unaudited financial statements). MGU has no material debt, liability or
obligation of any nature, whether accrued, absolute, contingent or otherwise,
and whether due or to become due, that is not reflected, reserved against or
disclosed in the MGU Financial Statements except for (i) those that are not
required to be reported in accordance with the aforesaid accounting
principles; (ii) normal or recurring liabilities incurred since December 31,
1996 in the ordinary course of business or (iii) as disclosed in the MGU
Disclosure Schedule.
SECTION 2.8 ABSENCE OF CERTAIN CHANGES. Since December 31, 1996, MGU
has in all material respects conducted its business in the ordinary course and
there has not been:
(a) any Material Adverse Change with respect thereto or any event,
occurrence or development of a state of circumstances or facts known to MGU,
which as of the date hereof could reasonably be expected to have a Material
Adverse Effect on MGU;
(b) any declaration, setting aside or payment or any dividend or other
distribution in respect of any shares of capital stock of MGU other than the
declaration, setting aside or payment of dividends in accordance with its
existing dividend policy or practice, which policy or practice is not
inconsistent with MGU's past policy or practice;
(c) any repurchase, redemption or other acquisition by MGU of any
outstanding shares of capital stock or other securities of or other ownership
interests in MGU;
(d) any amendment of any term of any outstanding securities of MGU;
(e) any damage, destruction or other property or casualty loss (whether or
not covered by insurance) affecting the business, assets, liabilities, earnings
or prospects of MGU which, individually or in the aggregate, has had or would
reasonably be expected to have a Material Adverse Effect on MGU;
(f) any increase in indebtedness for borrowed money or capitalized lease
obligations of MGU, except in the ordinary course of business;
(g) any sale, assignment, transfer or other disposition of any tangible or
intangible asset material to the business of MGU, except in the ordinary course
of business and for a fair and adequate consideration;
(h) except for the agreement with Wilbur and ISU referred to in Section
7.1(l), any amendment, termination or waiver by MGU of any right of substantial
value under any agreement, contract or other written commitment to which it is a
party or by which it is bound;
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(i) any material reduction in the amounts of coverage provided by existing
casualty and liability insurance policies with respect to the business or
properties of MGU;
(j) any (i) grant of any severance or termination pay to any director,
officer or employee of MGU, (ii) entering into of any employment, deferred
compensation or other similar agreement (or any amendment to any such existing
agreement) with any director, officer or employee of MGU, (iii) any increase in
benefits payable under any existing severance or termination pay policies or
employment agreements, or (iv) any increase in compensation, bonus or other
benefits payable to directors, officers or employees of MGU, in each case other
than in the ordinary course of business consistent with past practice;
(k) any new or amendment to or alteration of any existing bonus,
incentive, compensation, severance, stock option, stock appreciation right,
pension, matching gift, profit-sharing, employee stock ownership, retirement,
pension group insurance, death benefit, or other fringe benefit plan,
arrangement or trust agreement adopted or implemented by MGU which would result
in a material increase in cost;
(l) any capital expenditures, capital additions or capital improvements
incurred or undertaken by MGU except in the ordinary course of business; or
(m) the entering into of any agreement by MGU or any person on behalf of
MGU to take any of the foregoing actions.
SECTION 2.9 NO UNDISCLOSED LIABILITIES. There are no existing
liabilities of MGU of any kind whatsoever that are, individually or in the
aggregate, material to MGU, other than:
(a) liabilities disclosed or provided for in the respective audited
financial statements as of and for the fiscal year ended December 31, 1996
(including the notes thereto) of MGU;
(b) liabilities incurred in the ordinary course of business consistent
with past practice since December 31, 1996;
(c) liabilities under this Agreement or indicated in the MGU Disclosure
Schedule.
SECTION 2.10 LITIGATION. Other than actions, suits, proceedings, claims
or investigation occurring in the ordinary course of business involving
respective amounts in controversy of less than $10,000 each and $100,000 in the
aggregate, there is no action, suit, proceeding, claim or investigation pending
against, nor have MGU or Shareholder received written notice of a claim
threatened against MGU or any of its assets or against or involving any of its
officers, directors or employees in connection with the business or affairs of
MGU, including, without limitation, any such claims for indemnification arising
under any agreement to which MGU is a party. MGU has not received written
notice that it is subject, or in default with respect, to any writ, order,
judgment, injunction or decree which could, individually or in the aggregate,
have a Material Adverse Effect on MGU.
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SECTION 2.11 TAXES.
(a) MGU (i) has filed when due (taking into account extensions) with the
appropriate federal, state, local, foreign and other governmental agencies, all
material tax returns, estimates and reports required to be filed by it,
(ii) either paid when due and payable or established adequate reserves or
otherwise accrued on the MGU's Financial Statements all material federal, state,
local or foreign taxes, levies, imposts, duties, licenses and registration fees
and charges of any nature whatsoever, and unemployment and social security taxes
and income tax withholding, including interest and penalties thereon ("Taxes")
and there are no tax deficiencies claimed in writing by any Taxing authority and
received by MGU or Shareholder that, in the aggregate, would result in any tax
liability in excess of the amount of the reserves or accruals and (iii) has or
will establish in accordance with its normal accounting practices and procedures
accruals and reserves that, in the aggregate, are adequate for the payment of
all Taxes not yet due and payable and attributable to any period preceding the
Effective Time. The MGU Disclosure Schedule sets forth those tax returns for
all periods that currently are the subject of audit by any federal, state, local
or foreign taxing authority.
(b) There are no material taxes, interest, penalties, assessments or
deficiencies claimed in writing by any Taxing authority and received by MGU or
Shareholder to be due in respect of any tax returns filed by MGU (or any
predecessor corporations). Neither MGU nor any predecessor corporation, has
executed or filed with the Internal Revenue Service ("IRS") or any other Taxing
authority any agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any Taxes.
(c) MGU is not a party to or bound by (or will prior to the Effective Date
become a party to or bound by) any Tax indemnity, Tax sharing or Tax allocation
agreement or other similar arrangement. MGU is not a member of an affiliated
group or filed or been included in a combined, consolidated or unitary Tax
return.
(d) MGU has maintained a valid Subchapter "S" election pursuant to the
Code and there is no corporate income tax due from MGU.
SECTION 2.12 EMPLOYEE BENEFIT PLANS, ERISA.
(a) MGU is not a party to any oral or written (i) employment, severance,
collective bargaining or consulting agreement not terminable on 60 days' or less
notice, (ii) agreement with any executive officer or other key employee of MGU
(A) the benefits of which are contingent, or the terms of which are materially
altered, upon the occurrence of a transaction involving MGU of the nature of any
of the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee extending for a period longer than one
year, or (C) providing severance benefits or other benefits after the
termination of employment of such executive officer or key employee regardless
of the reason for such termination of employment, (iii) agreement, plan or
arrangement under which any person may receive payments subject to the tax
imposed by Section 4999 of the Code, or (iv) agreement or plan, including,
without
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limitation, any stock option plan, stock appreciation right plan, restricted
stock plan or stock purchase plan, the benefits of which would be increased,
or the vesting of benefits of which will be accelerated, by the occurrence of
any of the transactions contemplated by this Agreement or the value of any of
the benefits of which will be calculated on the basis of any of the
transactions contemplated by this Agreement.
(b) Neither MGU nor any corporation or other entity which under
Section 4001(b) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), is under common control with MGU (a "MGU ERISA Affiliate")
maintains or within the past five years has maintained, contributed to, or been
obligated to contribute to, any "Employee Pension Benefit Plan" ("Pension Plan")
or any "Employee Welfare Benefit Plan" ("Welfare Plan") as such terms are
defined in Sections 3(2) and 3(1) respectively of ERISA, which is subject to
ERISA. Each Pension Plan and Welfare Plan disclosed in the MGU Disclosure
Schedule (which Plans have been heretofore delivered to HCCH) and maintained by
MGU has been maintained in all material respects in compliance with their terms
and all provisions of ERISA and the Code (including rules and regulations
thereunder) applicable thereto.
(c) No Pension Plan or Welfare Plan is currently subject to an audit or
other investigation by the IRS, the Department of Labor (the "DOL"), the Pension
Benefit Guaranty Corporation or any other governmental agency or office nor are
any such Plans subject to any lawsuits or legal proceedings of any kind or to
any material pending disputed claims by employees or beneficiaries covered under
any such Plan or by any other parties.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, resulting in liability to MGU or any MGU ERISA
Affiliate has occurred with respect to any Pension Plan or Welfare Plan. Each
of MGU or Original Shareholder has no knowledge of any breach of fiduciary
responsibility under Part 4 of Title I of ERISA which has resulted in liability
of MGU and MGU ERISA Affiliate, any trustee, administrator or fiduciary of any
Pension Plan or Welfare Plan.
(e) Neither MGU nor any MGU ERISA Affiliate, since January 1, 1986, has
maintained or contributed to, or been obligated or required to contribute to, a
"Multiemployer Plan," as such term is defined in Section 4001(a)(3) of ERISA.
Neither MGU nor any MGU ERISA Affiliate has either withdrawn, partially or
completely, or instituted steps to withdraw, partially or completely, from any
Multiemployer Plan nor has any event occurred which would enable a Multiemployer
Plan to give notice of and demand payment of any withdrawal liability with
respect to MGU or any MGU ERISA Affiliate.
(f) There is no contract, agreement, plan or arrangement covering any
employee or former employee of MGU or any MGU ERISA Affiliate that, individually
or collectively, could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Sections 162(a)(I) or 280G of the Code.
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(g) With respect to MGU and each MGU ERISA Affiliate, the MGU Disclosure
Schedule correctly identifies each material agreement, policy, plan or other
arrangement, whether written or oral, express or implied, fixed or contingent,
to which MGU is a party or by which MGU or any property or asset of MGU is
bound, which is or relates to a pension, option, bonus, deferred compensation,
retirement, stock purchase, profit-sharing, severance pay, health, welfare,
incentive, vacation, sick leave, medical disability, hospitalization, life or
other insurance or fringe benefit plan, policy or arrangement.
(h) Neither MGU nor any MGU ERISA Affiliate maintains or has maintained or
contributed to any Pension Plan that is or was subject to Section 302 of Title
IV of ERISA or Section 412 of the Code. MGU has made available to HCCH, for
each Pension Plan which is intended to be "qualified" within the meaning of
Section 401(a) of the Code, a copy of the most recent determination letter
issued by the IRS to the effect that each such Plan is so qualified and that
each trust created thereunder is tax exempt under Section 501 of the Code, and
MGU is unaware of any fact or circumstances that would jeopardize the qualified
status of each such Pension Plan or the tax exempt status of each trust created
thereunder.
SECTION 2.13 MATERIAL AGREEMENTS.
(a) The MGU Disclosure Schedule includes a complete and accurate list of
all contracts, agreements, leases (other than MGU Property Leases, as
hereinafter defined), and instruments to which MGU is a party or by which it or
its properties or assets are bound which individually involve net payments or
receipts in excess of $25,000 per annum, inclusive of contracts entered into
with customers and suppliers in the ordinary course of business, or that pertain
to employment or severance benefits for any officer, director or employee of
MGU, whether written or oral, but exclusive of contracts, agreements, leases and
instruments terminable without penalty upon 60 days' or less prior written
notice to the other party or parties thereto (the "Material MGU Agreements").
(b) Neither MGU nor, to the knowledge of MGU, any other party is in
default under any Material MGU Agreement and no event has occurred which (after
notice or lapse of time or both) would become a breach or default under, or
would permit modification, cancellation, acceleration or termination of any
Material MGU Agreement or result in the creation of any security interest upon,
or any person obtaining any right to acquire, any properties, assets or rights
of MGU, which, in any such case, has had or would reasonably be expected to have
a Material Adverse Effect.
(c) To the knowledge of MGU, each such Material MGU Agreement is in full
force and effect and is valid and legally binding and there are no material
unresolved disputes involving or with respect to any Material MGU Agreement. No
party to a Material MGU Agreement has advised MGU or Shareholder that it intends
either to terminate a Material MGU Agreement or to refuse to renew a Material
MGU Agreement upon the expiration of the term thereof. No representation or
warranty is made that all benefits contemplated in the Material MGU Agreements
will be received.
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(d) MGU is not in violation of, or in default with respect to, any term of
its Articles of Incorporation or Bylaws.
SECTION 2.14 PROPERTIES. MGU owns no real estate, and all leases of real
property to which MGU is a party or by which it is bound ("MGU Property Leases")
are in full force and effect. There exists no default under such MGU Property
Leases, nor any event which with notice or lapse of time or both would
constitute a default thereunder, which default would have a Material Adverse
Effect. All of the properties and assets which are owned by MGU are owned free
and clear of any Lien, except for Liens which do not have a Material Adverse
Effect. MGU has good and indefeasible title with respect to such owned
properties and assets subject to no Liens, other than those permitted under this
Section 2.14, to all of the properties and assets necessary for the conduct of
their business other than to the extent that the failure to have such title
would not have a Material Adverse Effect.
SECTION 2.15 ENVIRONMENTAL MATTERS.
(a) For the purposes of this Agreement, the following terms have the
following meanings:
"Environmental Laws" shall mean any and all federal, state, local and
foreign statutes, laws (including case law), regulations, ordinances,
rules, judgments, orders, decrees, codes, plans, injunctions, permits,
concessions, grants, franchises, licenses, agreements and governmental
restrictions relating to human health, the environment or to emissions,
discharges or releases of pollutants, contaminants, Hazardous Substances
(as hereinafter defined) or wastes into the environment or otherwise
relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants,
Hazardous Substances or wastes or the clean-up or other remediation
thereof.
"Environmental Liabilities" shall mean all liabilities, whether vested
or unvested, contingent or fixed, actual or potential, which (i) arise
under or relate to Environmental Laws and (ii) relate to actions occurring
or conditions existing on or prior to the Effective Time.
"Hazardous Substances" shall mean any toxic, radioactive, caustic or
otherwise hazardous substance, including petroleum, its derivatives,
by-products and other hydrocarbons, or any substance having any constituent
elements displaying any of the foregoing characteristics.
"Regulated Activity" shall mean any generation, treatment, storage,
recycling, transportation, disposal or release of any Hazardous Substances.
(b) No notice, notification, demand, request for information, citation,
summons, complaint or order has been received, no complaint has been filed, no
penalty has been assessed
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and no investigation or review is pending, or to any such party's knowledge,
has been threatened by any governmental entity or other party with respect to
any (i) alleged violation of any Environmental Law, (ii) alleged failure to
have any environmental permit, certificate, license, approval, registration
or authorization required in connection with the conduct of its business or
(iii) Regulated Activity.
(c) MGU has no material Environmental Liabilities and there has been no
release of Hazardous Substances into the environment by MGU or with respect to
any of its properties which has had, or would reasonably be expected to have, a
Material Adverse Effect.
SECTION 2.16 LABOR MATTERS. MGU is not a party to any collective
bargaining agreement or other labor union contract applicable to persons
employed by MGU, nor does it know of any activities or proceedings of any labor
union to organize any such employees.
SECTION 2.17 COMPLIANCE WITH LAWS. Except for violations which do not
have and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect, MGU has received no notice that it is in
violation of, or has violated, any applicable provisions of any laws, statutes,
ordinances or regulations or any term of any judgment, decree, injunction or
order binding against it.
SECTION 2.18 TRADEMARKS, TRADENAMES, ETC. MGU owns or possesses, or
holds a valid right or license to use, all intellectual property, patents,
trademarks, tradenames, servicemarks, copyrights and licenses, and all rights
with respect to the foregoing, necessary for the conduct of its business as now
conducted, without any known conflict with the rights of others.
SECTION 2.19 SALE OF MGU. Except as contemplated by this Agreement,
there are currently no discussions to which MGU or Shareholder is a party
relating to (a) the sale of any material portion of their assets, (b) any
merger, consolidation, liquidation, dissolution or similar transaction involving
MGU whereby MGU will issue any securities or for which MGU is required to obtain
the approval of its shareholders, or (c) the sale of the MGU Common Stock.
SECTION 2.20 BROKER'S FEES. Neither MGU, Shareholder nor anyone acting
on the behalf or at the request thereof has any liability to any broker, finder,
investment banker or agent, or has agreed to pay any brokerage fees, finder's
fees or commissions, or to reimburse any expenses of any broker, finder,
investment banker or agent in connection with this Agreement.
SECTION 2.21 INVESTMENT REPRESENTATION. The shares of HCCH Common Stock
to be acquired by Shareholder and MGU pursuant to this Agreement will be
acquired solely for their individual account, for investment purposes only and,
except for MGU's transfer of the MGU Shares to Wilbur, not with a view to the
distribution thereof. Shareholder is not participating, directly or indirectly,
in any distribution or transfer of such HCCH Common Stock, nor is she
participating, directly or indirectly, in underwriting any such distribution of
HCCH Common Stock within the meaning of the Securities Act. Shareholder and MGU
have such knowledge and experience in business matters that each is capable of
evaluating the merits and risks of an
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investment in HCCH and the acquisition of the shares of HCCH Common Stock,
and each is making an informed investment decision with respect thereto.
Shareholder and MGU have been informed by HCCH that the shares of HCCH Common
Stock to be issued pursuant to this Agreement and the documents to be
executed in connection herewith will not be registered under the Securities
Act at the time of their issuance and may not be transferred, assigned or
otherwise disposed of absent registration under the Securities Act or
availability of an appropriate exemption therefrom. Shareholder and MGU have
further been informed that HCCH will be under no obligation to register the
shares of HCCH Common Stock under the Securities Act or to take any steps to
assist Shareholder and MGU to comply with any applicable exemption under the
Securities Act with respect to the shares of HCCH Common Stock. Provided,
however, HCCH shall promptly approve Shareholder's pledge of its HCCH Common
Stock to any national bank having three or more bank locations situated in
the State of Missouri.
SECTION 2.22 PAYMENT TO WILBUR. MGU shall utilize the MGU Shares it
receives pursuant to this Agreement to satisfy MGU's obligation to Wilbur
pursuant to that certain agreement entered into as of June 12, 1997, among MGU,
Shareholder, Wilbur and ISU, as hereinafter defined.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF HCCH
Except as disclosed in a document referring specifically to this Agreement
or in a document, exhibit, or appendix filed with the Securities and Exchange
Commission ("SEC") which has been filed on or before the date hereof,
(collectively referred to herein as the "HCCH Disclosure Schedule") which has
been delivered to Shareholder on or before the date hereof, HCCH represents and
warrants to Shareholder (it being agreed that the disclosure on the HCCH
Disclosure Schedule of the existence of any document or fact or circumstance or
situation relating to any representations, warranties, covenants or agreements
in any section of this Agreement shall be automatically deemed to be disclosure
of such document or fact or circumstance or situation for purposes of all other
representations, warranties, covenants and agreements in this Agreement):
SECTION 3.1 CORPORATE EXISTENCE AND POWER. HCCH and each of its
Subsidiaries is a corporation duly incorporated, validly existing and in good
standing under the laws of the state of its incorporation. Each of HCCH and
each of its Subsidiaries has all corporate powers and all material Governmental
Authorizations required to carry on its business as now conducted, except such
Governmental Authorizations the failure of which to have obtained would not have
a Material Adverse Effect on HCCH. HCCH and each of its Subsidiaries is duly
qualified to do business as a foreign corporation and is in good standing in
each jurisdiction where the character of the property owned or leased by it or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified would not have a Material Adverse Effect on HCCH.
HCCH has delivered to MGU true and complete copies of HCCH's Certificate of
Incorporation and Bylaws, as currently in effect.
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SECTION 3.2 CORPORATE AUTHORIZATION. The execution, delivery and
performance by HCCH of this Agreement, and the consummation by HCCH of the
transactions contemplated hereby and thereby are within the corporate powers
of HCCH and have been duly authorized by all necessary corporate action.
This Agreement constitutes, or upon execution will constitute, valid and
binding agreements of HCCH enforceable in each case in accordance with their
respective terms, except as such enforcement may be limited by bankruptcy,
insolvency or other similar laws affecting the enforcement of creditors'
rights generally or by general principles of equity.
SECTION 3.3 GOVERNMENTAL AUTHORIZATION. The execution, delivery and
performance by HCCH of this Agreement, require no action by or in respect of,
or filing with, any governmental body, agency, official or authority other
than:
(a) compliance with any applicable requirements of the Exchange Act and
the rules and regulations promulgated thereunder;
(b) compliance with any applicable requirements of the Securities Act
and the rules and regulations promulgated thereunder;
(c) compliance with any applicable foreign or state securities or "blue
sky" laws and the rules and regulations of the NYSE;
(d) compliance with any applicable requirements of any insurance
regulatory agency having authority over HCCH and its Subsidiaries; and
(e) such other filings or registrations with, or authorizations,
consents or approvals of, governmental bodies, agencies, officials or
authorities, the failure of which to make or obtain (i) would not reasonably
be expected to have a Material Adverse Effect on HCCH or (ii) would not
materially adversely affect the ability of MGU or HCCH to consummate the
transactions contemplated hereby and operate their businesses as heretofore
operated.
SECTION 3.4 NON-CONTRAVENTION. The execution, delivery and
performance by HCCH of this Agreement and the consummation by HCCH of the
transactions contemplated hereby and thereby do not and will not:
(a) contravene or conflict with the Certificate of Incorporation, or
Bylaws of HCCH;
(b) assuming compliance with the matters referred to in Section 3.3,
contravene or conflict with or constitute a violation of any provision of any
law, regulation, judgment, injunction, order or decree binding upon or
applicable to HCCH or any Subsidiary of HCCH;
(c) conflict with or result in a breach or violation of, or constitute
a default under, or result in a contractual right to cause the termination or
cancellation of or loss of a material benefit under, or right to accelerate,
any material agreement, contract or other instrument binding
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upon HCCH or any other Subsidiary of HCCH or any material license, franchise,
permit or other similar authorization held by HCCH or any Subsidiary of HCCH;
or
(d) result in the creation or imposition of any Lien on any material
asset of HCCH or any Subsidiary of HCCH,
except, with respect to clauses (b), (c) and (d) above, for contraventions,
defaults, losses, Liens and other matters referred to in such clauses that in
the aggregate would not be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on HCCH.
SECTION 3.5 CAPITALIZATION OF HCCH.
(a) The authorized capital stock of HCCH consists of 100,000,000 shares
of HCCH Common Stock. As of December 31, 1996, there were 35,850,832 shares
of HCCH Common Stock issued and outstanding. All outstanding shares of HCCH
Common Stock have been duly authorized and validly issued and are fully paid
and nonassessable and free from any preemptive rights. Except as set forth
in this Section and as otherwise contemplated by this Agreement and except as
disclosed in public filings made by HCCH with the SEC prior to the Closing
Date or on the HCCH Disclosure Schedule and except for changes since December
31, 1996 resulting from the exercise of employee and director stock options,
there are outstanding (i) no shares of capital stock or other voting
securities of HCCH, (ii) no securities of HCCH convertible into or
exchangeable for shares of capital stock or voting securities of HCCH and
(iii) no options or other rights to acquire from HCCH, and no obligation of
HCCH to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or other voting securities of HCCH
(the items in clauses (i), (ii) and (iii) being referred to collectively as
the "HCCH Securities"). There are no outstanding obligations of HCCH or any
of its Subsidiaries to repurchase, redeem or otherwise acquire any HCCH
Securities.
(b) All shares of HCCH Common Stock issued to Shareholder shall, upon
issuance, be fully paid, validly issued and nonassessable.
SECTION 3.6 SUBSIDIARIES.
(a) Each HCCH Subsidiary is a corporation duly incorporated, validly
existing and in good standing under the laws of its jurisdiction of
incorporation, has all corporate powers and all material Governmental
Authorizations required to carry on its business as now conducted, except
such Governmental Authorizations the failure of which to have obtained would
not have a Material Adverse Effect on HCCH, and is duly qualified to do
business as a foreign corporation and is in good standing in each
jurisdiction where the character of the property owned or leased by HCCH, or
the nature of its activities make such qualification necessary, except for
those jurisdictions where failure to be so qualified would not, individually
or in the aggregate, have a Material Adverse Effect on HCCH. All
Subsidiaries and Joint Ventures material to the business of HCCH ("Material
HCCH Subsidiaries") and their respective jurisdictions of incorporation or
organization and HCCH's ownership interest therein are identified in the HCCH
Disclosure
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Schedule. Other than its investments in its Subsidiaries and Joint Ventures,
and shares of stock in publicly held companies aggregating less than 10% of
such public company's outstanding stock, HCCH does not own, directly or
indirectly, any outstanding capital stock or equity interest in any
corporation, partnership, Joint Venture or other entity.
(b) All of the outstanding capital stock of, or other ownership
interests in, each Material HCCH Subsidiary that is owned by HCCH, is owned
by HCCH, directly or indirectly, free and clear of any material Lien and free
of any other material limitation or restriction on its rights as owner
thereof (including any restriction on the right to vote, sell or otherwise
dispose of such capital stock or other ownership interests), other than those
imposed by applicable law. There are no existing options, calls or
commitments of any character relating to the issued or unissued capital stock
or other securities or equity interests (collectively, "HCCH Subsidiary
Securities") of any HCCH Subsidiary.
SECTION 3.7 SEC FILINGS.
(a) HCCH has since October 28, 1992 filed all forms, proxy statements,
schedules, reports and other documents required to be filed by it with the
SEC pursuant to the Exchange Act.
(b) HCCH has delivered, and will promptly deliver in the case of any of
the following filed with the SEC on or after the date hereof and prior to the
Closing Date, to MGU:
(i) its annual reports on Form 10-K for its fiscal years ended
December 31, 1996, 1995 and 1994;
(ii) any current reports on Form 8-K since January 1, 1997 and its
proxy or information statements relating to meetings of, or actions taken
without a meeting by, the shareholders of HCCH held since January 1, 1997;
and
(iii) all of its other reports, statements, schedules and
registration statements filed with the SEC since December 31, 1996. None
of HCCH's Subsidiaries is required to file any forms, reports or other
documents with the SEC.
(c) As of its filing date, no such report or statement filed pursuant
to the Exchange Act contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements
made therein, in the light of the circumstances under which they were made,
not misleading.
(d) No registration statement filed pursuant to the Securities Act, if
declared effective by the SEC, as of the date such statement or amendment
became effective, contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary
to make the statements therein not misleading.
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SECTION 3.8 FINANCIAL STATEMENTS. The audited consolidated financial
statements of HCCH included in its annual reports on Form 10-K and amendments
thereto and the unaudited financial statements of HCCH included in its
quarterly reports on Form 10-Q referred to in Section 3.7 present fairly, in
conformity with generally accepted accounting principles applied on a
consistent basis (except as may be indicated in the notes thereto), the
consolidated financial position of HCCH and its consolidated subsidiaries as
of the dates thereof and their consolidated results of operations and cash
flows for the periods then ended (subject to normal year-end adjustments in
the case of any interim financial statements). For purposes of this
Agreement, "HCCH Balance Sheet" means the consolidated balance sheet of HCCH
as of December 31, 1996, and the notes thereto, contained in HCCH's annual
report on Form 10-K filed with the SEC, and "HCCH Balance Sheet Date" means
December 31, 1996.
SECTION 3.9 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the
HCCH Disclosure Schedule, since the HCCH Balance Sheet Date, HCCH and each of
its Subsidiaries have in all material respects conducted their business in
the ordinary course and there has not been:
(a) any Material Adverse Change with respect to HCCH or any event,
occurrence or development of a state of circumstances or facts known to HCCH,
which as of the date hereof could reasonably be expected to have a Material
Adverse Effect on HCCH;
(b) any amendment of any material term of any outstanding HCCH
Securities;
(c) the entering into of any agreement by HCCH or any person on behalf
of HCCH to take any of the foregoing actions.
SECTION 3.10 NO UNDISCLOSED LIABILITIES. There are no liabilities of
HCCH or any of its Subsidiaries of any kind whatsoever that are, individually
or in the aggregate, material to HCCH and its Subsidiaries, taken as a whole,
other than:
(a) liabilities disclosed or provided for in the HCCH Balance Sheet
(including the notes thereto);
(b) liabilities incurred in the ordinary course of business consistent
with past practice since the HCCH Balance Sheet Date; and
(c) liabilities under this Agreement or as indicated in the HCCH
Disclosure Schedule.
SECTION 3.11 LITIGATION. Other than actions, suits, proceedings,
claims or investigations occurring in the ordinary course of business or such
actions, suits, proceedings, claims or investigations involving respective
amounts in controversy of less than $1,000,000 each, there is no action,
suit, proceeding, claim or investigation pending or, to the knowledge of
HCCH, overtly threatened, against HCCH or any of its Subsidiaries or any of
their assets or against or involving any of its officers, directors or
employees in connection with the business or affairs of HCCH, including,
without limitation, any such claims for indemnification arising under any
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agreement to which HCCH or any of its Subsidiaries is a party, which could,
individually or in the aggregate, have a Material Adverse Effect on HCCH.
HCCH and each of its Subsidiaries are not subject to or in default with
respect to any writ, order, judgment, injunction or decree which could,
individually or in the aggregate, have a Material Adverse Effect on HCCH.
SECTION 3.12 TAXES.
(a) HCCH and each of its Subsidiaries (i) has filed when due (taking
into account extensions) with the appropriate federal, state, local, foreign
and other governmental agencies, all material tax returns, estimates and
reports required to be filed by it, (ii) either paid when due and payable or
established adequate reserves or otherwise accrued on the HCCH Balance Sheet
all material Taxes, and there are no tax deficiencies claimed in writing by
any Taxing authority and received by HCCH that, in the aggregate, would
result in any tax liability in excess of the amount of the reserves or
accruals, and (iii) has or will establish in accordance with its normal
accounting practices and procedures accruals and reserves that, in the
aggregate, are adequate for the payment of all Taxes not yet due and payable
and attributable to any period preceding the Effective Time. The HCCH
Disclosure Schedule sets forth those tax returns of HCCH (or any predecessor
entities) for all periods that currently are the subject of audit by any
federal, state, local or foreign taxing authority.
(b) There are no material taxes, interest, penalties, assessments or
deficiencies claimed in writing by any taxing authority and received by HCCH
or any of its Subsidiaries to be due in respect of any tax returns filed by
HCCH (or any predecessor corporations) or any of its Subsidiaries. Neither
HCCH nor any predecessor corporation, nor any of their respective
Subsidiaries, has executed or filed with the IRS or any other Taxing
authority any agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any Taxes.
(c) HCCH is not a party to or bound by (or will prior to the Effective
Date become a party to or bound by) any Tax indemnity, Tax sharing or Tax
allocation agreement or other similar arrangement which includes a party
other than HCCH and its Subsidiaries. Neither HCCH nor any of its
Subsidiaries has been a member of an affiliated group other than one of which
HCCH was the common parent, or filed or been included in a combined,
consolidated or unitary Tax return other than one filed by HCCH (or a return
for a group consisting solely of its Subsidiaries and predecessors).
SECTION 3.13 EMPLOYEE BENEFIT PLANS; ERISA.
(a) Neither HCCH nor any corporation or other entity which under
Section 4001(b) of ERISA is under common control with HCCH (an "HCCH ERISA
Affiliate") maintains or within the past five years has maintained,
contributed to, or been obligated to contribute to, any Pension Plan or any
Welfare Plan which is subject to ERISA. Each Pension Plan and Welfare Plan
disclosed in the HCCH Disclosure Schedule (which Plans have been heretofore
delivered to MGU) and maintained by HCCH has been maintained in all material
respects in compliance with
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their terms and all provisions of ERISA and the Code (including rules and
regulations thereunder) applicable thereto.
(b) Neither HCCH nor any HCCH ERISA Affiliate maintains or has
maintained or contributed to any Pension Plan that is or was subject to
Section 302 or Title IV of ERISA or Section 412 of the Code. HCCH has made
available to MGU for each Pension Plan which is intended to be "qualified"
within the meaning of Section 401(a) of the Code, a copy of the most recent
determination letter issued by the IRS to the effect that each such Plan is
so qualified and that each trust created thereunder is tax exempt under
Section 501 of the Code, and HCCH is unaware of any fact or circumstances
that would jeopardize the qualified status of each such Pension Plan or the
tax exempt status of each trust created thereunder.
(c) To the knowledge of HCCH, no Pension Plan or Welfare Plan is
currently subject to an audit or other investigation by the IRS, the
Department of Labor, the Pension Benefit Guaranty Corporation or any other
governmental agency or office nor are any such Plans subject to any lawsuits
or legal proceedings of any kind or to any material pending disputed claims
by employees or beneficiaries covered under any such Plan or by any other
parties.
(d) No "prohibited transaction," as defined in Section 406 of ERISA or
Section 4975 of the Code, resulting in liability to HCCH or any HCCH ERISA
Affiliate has occurred with respect to any Pension Plan or Welfare Plan.
HCCH has no knowledge of any breach of fiduciary responsibility under Part 4
of Title I of ERISA which has resulted in liability of HCCH, any HCCH ERISA
Affiliate, any trustee, administrator or fiduciary of any Pension Plan or
Welfare Plan.
(e) Neither HCCH nor any HCCH ERISA Affiliate, since January 1, 1986,
has maintained or contributed to, or been obligated or required to contribute
to, a "Multiemployer Plan," as such term is defined in Section 4001(a)(3) of
ERISA. Neither HCCH nor any HCCH ERISA Affiliate has either withdrawn,
partially or completely, or instituted steps to withdraw, partially or
completely, from any Multiemployer Plan nor has any event occurred which
would enable a Multiemployer Plan to give notice of and demand payment of any
withdrawal liability with respect to HCCH or any HCCH ERISA Affiliate.
(f) With respect to HCCH and each HCCH ERISA Affiliate, the HCCH
Disclosure Schedule correctly identifies each material agreement, policy,
plan or other arrangement, whether written or oral, express or implied, fixed
or contingent, to which HCCH is a party or by which HCCH or any property or
asset of HCCH is bound, which is or relates to a pension, option, bonus,
deferred compensation, retirement, stock purchase, profit-sharing, severance
pay, health, welfare, incentive, vacation, sick leave, medical disability,
hospitalization, life or other insurance or fringe benefit plan, policy or
arrangement.
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SECTION 3.14 MATERIAL AGREEMENTS.
(a) The HCCH Disclosure Schedule includes a complete and accurate list of
all contracts, agreements, leases (other than HCCH Property Leases, as
hereinafter defined) and instruments to which HCCH or any of its Subsidiaries is
a party or by which it or its properties or assets are bound which individually
involve net payments or receipts in excess of $1,000,000 per annum, inclusive of
contracts that pertain to employment or severance benefits for any officer,
director or employee of HCCH, whether written or oral, but exclusive of
contracts entered into with customers and suppliers in the ordinary course of
business or contracts, agreements, leases and instruments terminable without
penalty by HCCH upon 60 days or less prior written notice to the other party or
parties thereto (the "Material HCCH Agreements").
(b) Neither HCCH, any HCCH Subsidiary, nor, to the knowledge of HCCH, any
other party is in default under any Material HCCH Agreement and no event has
occurred which (after notice or lapse of time or both) would become a breach or
default under, or would permit modification, cancellation, acceleration or
termination of any Material HCCH Agreement or result in the creation of any
security interest upon, or any person obtaining any right to acquire, any
properties, assets or rights of HCCH which, in any such case, has had or would
reasonably be expected to have a Material Adverse Effect on HCCH.
(c) To the knowledge of HCCH, each such Material HCCH Agreement is in full
force and effect and is valid and legally binding and there are no material
unresolved disputes involving or with respect to any Material HCCH Agreement.
No party to a Material HCCH Agreement has advised HCCH or any of its
Subsidiaries that it intends either to terminate a Material HCCH Agreement or to
refuse to renew a Material HCCH Agreement upon the expiration of the term
thereof.
(d) Each of HCCH, and each HCCH Subsidiary is not in violation of, or in
default with respect to, any term of its Certificate of Incorporation or Bylaws.
SECTION 3.15 PROPERTIES. To the knowledge of HCCH, all leases of real
property to which HCCH or any of its Subsidiaries is a party or by which it or
any of its Subsidiaries is bound ("HCCH Property Leases") which are material to
the business of HCCH and its Subsidiaries taken as a whole are in full force and
effect. To the knowledge of HCCH, there exists no default under such HCCH
Property Leases, nor any event which with notice or lapse of time or both would
constitute a default thereunder by HCCH or any of its Subsidiaries, which
default would have a Material Adverse Effect on HCCH. All of the properties and
assets which are owned by HCCH and each of its Subsidiaries are owned by each of
them, respectively, free and clear of any Lien, except for Liens which do not
have a Material Adverse Effect on HCCH. HCCH and each of its Subsidiaries have
good and indefeasible title with respect to such owned properties and assets
subject to no Liens, other than those permitted under this Section 3.15, to all
of the properties and assets necessary for the conduct of their business other
than to the extent that the failure to have such title would not have a Material
Adverse Effect on HCCH.
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SECTION 3.16 ENVIRONMENTAL MATTERS.
(a) To the knowledge of HCCH, no notice, notification, demand, request for
information, citation, summons, complaint or order has been received, no
complaint has been filed, no penalty has been assessed and no investigation or
review is pending, or to HCCH's knowledge, has been threatened by any
governmental entity or other party with respect to any (i) alleged violation by
HCCH or any of its Subsidiaries of any Environmental Law, (ii) alleged failure
by HCCH or any such Subsidiary to have any environmental permit, certificate,
license, approval, registration or authorization required in connection with the
conduct of its business or (iii) Regulated Activity.
(b) To the knowledge of HCCH, neither HCCH nor any of its Subsidiaries has
any material Environmental Liabilities and there has been no release of
Hazardous Substances into the environment by HCCH or any such Subsidiary or with
respect to any of their respective properties which has had, or would be
reasonably expected to have, a Material Adverse Effect on HCCH.
SECTION 3.17 LABOR MATTERS. Neither HCCH nor any of its Subsidiaries is
a party to any collective bargaining agreement or other labor union contract
applicable to persons employed by HCCH or any such Subsidiary, nor do the
executive officers of HCCH know of any activities or proceedings of any labor
union to organize any such employees.
SECTION 3.18 COMPLIANCE WITH LAWS. Except for violations which do not
have and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on HCCH, neither HCCH nor any of its
Subsidiaries is in violation of, or has violated, any applicable provisions of
any laws, statutes, ordinances or regulations or any term of any judgment,
decree, injunction or order binding against it.
SECTION 3.19 TRADEMARKS, TRADENAMES, ETC. HCCH owns or possesses, or
holds a valid right or license to use, all intellectual property, patents,
trademarks, tradenames, servicemarks, copyrights and licenses, and all rights
with respect to the foregoing, necessary for the conduct of its business as now
conducted, without any known conflict with the rights of others.
SECTION 3.20 BROKER'S FEES. Neither HCCH, nor anyone acting on the
behalf or at the request thereof has any liability to any broker, finder,
investment banker or agent, or has agreed to pay any brokerage fees, finder's
fees or commissions, or to reimburse any expenses of any broker, finder,
investment banker or agent in connection with the transactions contemplated by
this Agreement.
SECTION 3.21 RELEASE OF PERSONAL GUARANTY. HCCH shall use commercially
reasonable efforts to have Shareholder released as a Guarantor of that certain
credit line agreement by and between Boatmen's National Bank and MGU. HCCH's
failure to obtain such release, however, shall not give Shareholder any rights
to terminate this Agreement.
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SECTION 3.22 MGU AS A SEPARATE SUBSIDIARY. HCCH shall use reasonable
efforts to maintain and continue MGU as a subsidiary, either directly or
indirectly, of HCCH until December 31, 1998.
ARTICLE IV
COVENANTS OF SHAREHOLDER
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) termination of this Agreement pursuant to Section 8.1
hereof, MGU and Shareholder agree that:
SECTION 4.1 CONDUCT OF MGU. MGU shall in all material respects conduct
its business in the ordinary course. Without limiting the generality of the
foregoing, from the date hereof until the Effective Time, except as contemplated
by this Agreement:
(a) MGU will not adopt or propose any change in its Articles of
Incorporation or Bylaws;
(b) MGU will not enter into or amend any employment agreements (oral or
written) or increase the compensation payable or to become payable by it to any
of its officers, directors, or consultants over the amount payable as of
December 31, 1996, or increase the compensation payable to any other employees
(other than (i) increases in the ordinary course of business which are not in
the aggregate material, or (ii) pursuant to plans disclosed in MGU Disclosure
Schedule), or adopt or amend any employee benefit plan or arrangement (oral or
written);
(c) MGU will not issue any MGU Securities;
(d) MGU will keep in full force and effect any existing directors' and
officers' liability insurance and will not modify or reduce the coverage
thereunder;
(e) Other than the payment of dividends in accordance with its existing
dividend policy or practice, which policy or practice is consistent with past
policy or practice, and the declaration setting aside or payment of "S"
corporation dividends or distributions to Shareholder as disclosed in the MGU
Disclosure Schedules or as otherwise provided in this Agreement, MGU will not
pay any dividend or make any other distribution to holders of its capital stock
nor redeem or otherwise acquire any MGU Securities;
(f) MGU will not, directly or indirectly, dispose of or acquire any
material properties or assets except in the ordinary course of business;
(g) MGU will not incur any additional indebtedness for borrowed money
except pursuant to existing arrangements which have been disclosed to HCCH prior
to the date hereof;
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(h) MGU will not amend or change the period of exercisability or
accelerate the exercisability of any outstanding options or warrants to acquire
shares of capital stock, or accelerate, amend or change the vesting period of
any outstanding restricted stock;
(i) MGU and Shareholder will not, directly or indirectly, agree or commit
to do any of the foregoing;
(j) MGU will not (i) change accounting methods except as necessitated by
changes which MGU is required to make in order to prepare its federal, state and
local tax returns; (ii) amend or terminate any contract, agreement or license to
which it is a party (except pursuant to arrangements previously disclosed in
writing to HCCH or disclosed in the MGU Disclosure Schedule) except those
amended or terminated in the ordinary course of business, consistent with past
practices, or involving changes which are not materially adverse in amount or
effect to MGU individually or taken as a whole; (iii) lend any amount to any
person or entity, other than advances for travel and expenses which are incurred
in the ordinary course of business consistent with past practices, and which are
not material in amount to MGU taken as a whole, which travel and expenses shall
be documented by receipts for the claimed amounts; (iv) enter into any guarantee
or suretyship for any obligation except for the endorsements of checks and other
negotiable instruments in ordinary course of business, consistent with past
practice; (v) waive or release any material right or claim except in the
ordinary course of business, consistent with past practice; (vi) issue or sell
any shares of its capital stock of any class or any other of its securities, or
issue or create any warrants, obligations, subscriptions, options, convertible
securities, stock appreciation rights or other commitments to issue shares of
capital stock, or take any action other than this transaction to accelerate the
vesting of any outstanding option or other security (except pursuant to existing
arrangements disclosed in writing to HCCH before the date of this agreement);
(vii) merge, consolidate or reorganize with or acquire any entity; (viii) agree
to any audit assessment by any tax authority or file any federal or state income
or franchise tax return unless copies of such returns have been delivered to
HCCH for its review prior to such agreement or filing; and (ix) terminate the
employment of any key executive employee; and
(k) Shareholder shall take no action nor engage in any activity which
would result in MGU losing its "S" corporation status.
SECTION 4.2 ACCESS TO FINANCIAL AND OPERATIONAL INFORMATION. MGU and
Shareholder will give HCCH, its counsel, financial advisors, auditors and other
authorized representatives reasonable access during normal business hours to
their offices, properties, books and records, will furnish to HCCH, its counsel,
financial advisors, auditors and other authorized representatives such financial
and operating data as such persons may reasonably request and will instruct its
employees, counsel and financial advisors to cooperate with HCCH in its
investigation of the business of MGU and in the planning for the combination of
the businesses of MGU and HCCH following the consummation of the transactions
contemplated by this Agreement; PROVIDED that no investigation pursuant to this
Section shall affect any representation or warranty given hereunder. In
addition, following the public announcement of this Agreement or the
transactions
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contemplated hereby, MGU will cooperate in arranging joint meetings among
representatives of MGU and HCCH and persons with whom they maintain business
relationships.
SECTION 4.3 OTHER OFFERS.
(a) MGU and Shareholder will not, directly or indirectly, (i) take any
action to solicit, initiate or discuss any Acquisition Proposal (as hereinafter
defined), or (ii) engage in negotiations with, or disclose any nonpublic
information relating to, MGU or afford access to the properties, books or
records of MGU to, any person or entity that may be considering making, or has
made, an Acquisition Proposal. To the extent that MGU or any of their
respective officers, directors, employees or other agents, or Shareholder are
currently involved in any discussions with respect to any Acquisition Proposal
or contemplated or proposed Acquisition Proposal, MGU, and Shareholder shall
terminate, and shall use their best efforts to cause, where applicable, their
respective officers, directors, employees or other agents to terminate, such
discussions immediately. The term "Acquisition Proposal" as used herein means
any offer or proposal for, or any indication of interest in, a merger or other
business combination involving MGU or the acquisition of any equity interest in,
or a substantial portion of the assets of, MGU other than the transactions
contemplated by this Agreement.
SECTION 4.4 MAINTENANCE OF BUSINESS. MGU will use its reasonable best
efforts to carry on its business, keep available the services of its officers
and employees and preserve its relationships with those of its customers,
agents, suppliers, licensors and others having business relationships with it
that are material to its business in substantially the same manner as it has
prior to the date hereof. If MGU becomes aware of a material deterioration or
facts which are likely to result in a material deterioration in the relationship
with any customers, supplier, licensor or others having business relationships
with it, it will promptly in writing bring such information to the attention of
the HCCH.
SECTION 4.5 COMPLIANCE WITH OBLIGATIONS. MGU shall use its reasonable
best efforts to comply in all material respects with (i) all applicable federal,
state, local and foreign laws, rules and regulations, (ii) all material
agreements and obligations, including its respective charter and bylaws, by
which it, its properties or its assets may be bound, and (iii) all decrees,
orders, writs, injunctions, judgments, statutes, rules and regulations
applicable to MGU and its respective properties or assets.
SECTION 4.6 NOTICES OF CERTAIN EVENTS. MGU shall, upon obtaining
knowledge of any of the following, promptly notify HCCH of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with this Agreement,
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with this Agreement, and
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(c) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against MGU which, if pending on the date of
this Agreement, would have been required to have been disclosed pursuant hereto
or which relate to the consummation of transactions contemplated by this
Agreement.
SECTION 4.7 AFFILIATES AGREEMENT. Shareholder shall deliver to HCCH
simultaneously with the execution of this Agreement, a written agreement from
each of its "affiliates" (as that term is used in Rule 144 or 145 under the
Securities Act) (the "Affiliates Agreement") in form and substance reasonably
satisfactory to HCCH.
SECTION 4.8 NECESSARY CONSENTS. After the Closing Date, MGU shall use
reasonable best efforts to obtain such written consent and take such other
actions as may be necessary or appropriate for MGU to allow HCCH to carry on the
acquired business after the Closing Date (as defined in Section 9.1 hereof).
SECTION 4.9 REGULATORY APPROVAL. MGU, and, where required pursuant to
the rules or regulations of any regulatory agency, Shareholder, will execute and
file, or join in the execution and filing, with any application or other
document that may be necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state, local or foreign which may be
reasonably required, or which HCCH may reasonably request, in connection with
the consummation of the transaction provided for in this Agreement. MGU and
Shareholder, will use reasonable best efforts to obtain or assist HCCH in
obtaining all such authorizations, approvals and consents.
SECTION 4.10 SATISFACTION OF CONDITIONS PRECEDENT. MGU shall use all
reasonable efforts to cause the transactions provided for in this Agreement to
be consummated, and, without limiting the generality of the foregoing to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions provided for herein.
ARTICLE V
COVENANTS OF HCCH
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) the termination of this Agreement pursuant to Section 8.1
hereof, HCCH agrees that, except as otherwise permitted with the written consent
of Shareholder, which consent shall not be unreasonably withheld:
SECTION 5.1 CONDUCT OF HCCH. HCCH and its Subsidiaries shall in all
material respects conduct their business in the ordinary course PROVIDED,
HOWEVER, THAT nothing in this Agreement shall be construed to prohibit or
otherwise restrain HCCH in any manner from acquiring other businesses or
substantially all of the assets thereof. Without limiting the
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generality of the foregoing, from the date hereof until the Effective Time,
except as contemplated hereby or previously disclosed by HCCH to Shareholder
in writing:
(a) HCCH will not adopt or propose any change in its Certificate of
Incorporation or Bylaws;
(b) HCCH will not take any action that would result in a failure to
maintain the trading of HCCH Common Stock on the NYSE; and
(c) HCCH will not, and will not permit any of its Subsidiaries to, agree
or commit to do any of the foregoing.
SECTION 5.2 LISTING OF HCCH COMMON STOCK. HCCH shall cause the shares
of HCCH Common Stock to be issued hereunder to be approved for listing on the
NYSE within sixty days of the Effective Time.
SECTION 5.3 ACCESS TO FINANCIAL AND OPERATION INFORMATION. HCCH will
give Shareholder, her counsel, financial advisors, auditors and other authorized
representatives reasonable access during normal business hours to the offices,
properties, books and records of HCCH and its Subsidiaries, will furnish to
Shareholder, her counsel, financial advisors, auditors and other authorized
representatives such financial and operating data as such persons may reasonably
request and will instruct HCCH's employees, counsel and financial advisors to
cooperate with Shareholder in her investigation of the business of HCCH and its
Subsidiaries, and will furnish promptly to Shareholder copies of all reports,
schedules, registration statements, correspondence and other documents filed
with or delivered to the SEC, PROVIDED that no investigation pursuant to this
Section shall affect any representation or warranty given by HCCH to Shareholder
hereunder. In addition, if requested by Shareholder following the public
announcement of this Agreement, HCCH will cooperate in arranging joint meetings
among representatives of HCCH and MGU and persons with whom HCCH maintains
business relationships. All requests for information made pursuant to this
Section shall be directed to the President of HCCH or such person as may be
designated by him in writing.
SECTION 5.4 MAINTENANCE OF BUSINESS. HCCH will use its reasonable
efforts to carry on its business, keep available the services of its officers
and employees and preserve its relationships with those of its customers,
suppliers, licensors and others having business relationships with it that are
material to its business in substantially the same manner as it has prior to the
date hereof. If HCCH becomes aware of a material deterioration or facts which
are likely to result in a material deterioration in the relationship with any
material customer, supplier, licensor or others having business relationships
with it, it will promptly bring such information to the attention of MGU in
writing.
SECTION 5.5 COMPLIANCE WITH OBLIGATIONS. HCCH and its Subsidiaries
shall each use its reasonable best efforts to comply in all material respects
with (i) all applicable federal, state, local and foreign laws, rules and
regulations, (ii) all material agreements and obligations,
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including its respective charter and bylaws, by which it, its properties or
its assets may be bound, and (iii) all decrees, orders, writs, injunctions,
judgments, statutes, rules and regulations applicable to HCCH and its
Subsidiaries and their respective properties or assets; except to the extent
that the failure to comply with matters in clauses (i), (ii) and (iii) would
not have a Material Adverse Effect on HCCH.
SECTION 5.6 NOTICES OF CERTAIN EVENTS. HCCH shall, upon obtaining
knowledge of any of the following, promptly notify Shareholder of:
(a) any notice or other communication from any person alleging that the
consent of such person is or may be required in connection with this Agreement;
(b) any notice or other communication from any governmental or regulatory
agency or authority in connection with this Agreement; and
(c) any actions, suits, claims, investigations or other judicial
proceedings commenced or threatened against HCCH or any of its Subsidiaries
which, if pending on the date of this Agreement, would have been required to
have been disclosed pursuant to Section 3.11 or which relate to the consummation
of the transactions contemplated by this Agreement.
SECTION 5.7 EMPLOYEE MATTERS. HCCH agrees that all employees of MGU
that remain employed after the Effective Time shall, within a reasonable time
not to exceed 18 months, following the Effective Time, be entitled to receive
the same benefits to which other employees of HCCH are entitled to receive and
shall be entitled to participate in HCCH's employee benefit plans provided such
employees have satisfied the plan's eligibility requirements. Until such time,
MGU shall continue existing employee benefit plans.
SECTION 5.8 EARNINGS OF MGU. HCCH agrees that Shareholder shall be
entitled to receive, on or about January 15, 1998, an amount equal to the net
earnings of MGU for the period commencing January 1, 1997 and ending June 30,
1997 as an "S" Corporation dividend or distribution. Within 15 days after such
amount is determined by MGU, and agreed to by HCCH, HCCH shall execute its
promissory note in a form mutually acceptable to Shareholder and HCCH for such
amount. Such promissory note shall bear interest at 7 1/2% per annum and shall
be payable on January 15, 1998.
ARTICLE VI
COVENANTS OF HCCH, SHAREHOLDER AND MGU
From the date hereof until the occurrence of the earlier of (i) the
Effective Time or (ii) termination of this Agreement pursuant to Section 8.1
hereof, each of Shareholder and MGU and HCCH agree that:
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SECTION 6.1 ADVICE OF CHANGES. It or she will promptly advise the
others in writing (i) of any event known to any of its executive officers or
Shareholder occurring subsequent to the date of this Agreement that in its
reasonable judgment renders any representation or warranty of such party
contained in this Agreement, if made on or as of the date of such event or the
Effective Date, untrue, inaccurate or misleading in any material respect and
(ii) of any Material Adverse Change in the business condition of the party.
SECTION 6.2 REGULATORY APPROVALS. It or she shall execute and
file, or join in the execution and filing of, any application or other
document that may be necessary in order to obtain the authorization, approval or
consent of any governmental body, federal, state, local or foreign, which may be
requested in connection with the consummation of the transactions contemplated
by this Agreement. Each party shall use its reasonable best efforts to obtain
all such authorizations, approvals and consents.
SECTION 6.3 ACTIONS CONTRARY TO STATED INTENT. It or she shall not,
from or after the date hereof and either before or after the Effective Time,
take any action that would prevent the transactions contemplated by this
Agreement from qualifying for a Section 338(h)(10) election by Shareholder or
from maintaining the "S" corporation status of MGU.
SECTION 6.4 CERTAIN FILINGS. Shareholder and HCCH shall cooperate with
one another:
(a) in determining whether any action by or in respect of, or filing with,
any governmental body, agency or official, or authority is required, or any
actions, consents, approvals or waivers are required to be obtained from parties
to any material contracts, in connection with the consummation of the
transactions contemplated by this Agreement; and
(b) in seeking any such actions, consents, approvals or waivers or making
any such filings, furnishing information required in connection therewith and
seeking timely to obtain any such actions, consents, approvals or waivers.
SECTION 6.5 COMMUNICATIONS. Neither Shareholder nor HCCH will furnish
any communication outside of their respective companies, if the subject matter
thereof relates to the transactions contemplated by this Agreement and is not in
the ordinary course of business, without the prior approval of the other of them
as to the content thereof, which approval shall not be unreasonably withheld;
PROVIDED that the foregoing shall not be deemed to prohibit any disclosure
required by any applicable law or rule of the NYSE.
SECTION 6.6 SATISFACTION OF CONDITIONS PRECEDENT. HCCH and Shareholder
will each use its reasonable best efforts to satisfy or cause to be satisfied
all the conditions precedent that are applicable to each of them, and to cause
the transactions contemplated by this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain all material consents and
authorizations of third parties and to make filings with, and give all notices
to, third parties that may be necessary or reasonably required on its part in
order to effect the transactions contemplated hereby.
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SECTION 6.7 TAX COOPERATION. HCCH and Shareholder shall cooperate in
the preparation, execution and filing of all returns, questionnaires,
applications or other documents regarding any transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes or fees which become payable
in connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time. Shareholder,
MGU and HCCH agree that prior or subsequent to the Closing, they shall take all
actions required and necessary in order to make an effective Section 338(h)(10)
election under the Code.
SECTION 6.8 CONFIDENTIALITY. Between the date of this Agreement and the
Closing Date, each party, and MGU, will maintain in confidence, and cause its
directors, officers, employees, agents, and advisors to maintain in confidence,
and not use to the detriment of another party, any written or oral or other
information obtained in confidence from another party or MGU in connection with
this Agreement or the transactions contemplated hereby unless such information
is already known to such party or to others not bound by a duty of
confidentiality or unless such information becomes publicly available through no
fault of such party, unless the use of such information is necessary or
appropriate in making any filing or obtaining any consent or approval required
for the consummation of the transaction contemplated hereby or unless the
furnishing or use of such information is required by or necessary or appropriate
in connection with legal proceedings.
If the transactions contemplated by this Agreement are not consummated,
each party will return or destroy as much of such written information as may be
reasonably requested. Whether or not the Closing takes place, Shareholder
waives, and will upon request cause MGU to waive, any cause of action, right or
claim arising out of the access of HCCH or its representatives to any trade
secrets or other confidential information of MGU except for the intentional
competitive misuse by HCCH of such trade secrets or confidential information.
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.1 CONDITIONS TO OBLIGATIONS OF HCCH. The obligations of HCCH
hereunder are subject to the fulfillment or satisfaction, on and as of the
Closing Date, of each of the following conditions (any one or more of which may
be waived by HCCH, but only in a writing signed by HCCH):
(a) The representations and warranties of MGU and Shareholder contained in
Article III remain true and accurate in all material respects on and as of the
Closing Date with the same force and effect as if they had been made on the
Closing Date (except to the extent a representation or warranty speaks
specifically as of an earlier date and except for changes contemplated by this
Agreement) and MGU and Shareholder shall have provided HCCH with a
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certificate executed by the President and the Treasurer of the corporation or
individually, as the case may be, dated as of the Closing Date, to such
effect.
(b) MGU and Shareholder shall have performed and complied in all material
respects with all of the covenants contained herein on or before the Closing
Date, and HCCH shall receive a certificate to such effect signed by the
President and Treasurer of the corporation or individually, as the case may be.
(c) Except as set forth in the MGU Disclosure Schedule, there shall have
been no Material Adverse Change in MGU since December 31, 1996.
(d) HCCH shall have received from (i) each person or entity who may be
deemed pursuant to Section 4.7 to be an affiliate of MGU a duly executed
Affiliates Agreement and (ii) Shareholder, the written agreement contemplated to
be entered into by such person pursuant to Section 4.7 and such agreements shall
remain in full force and effect.
(e) All written consents, assignments, waivers or authorizations, other
than Governmental Authorizations, that are required as a result of the
transaction contemplated by this Agreement for the continuation in full force
and effect of any material contracts or leases of MGU shall have been obtained.
(f) HCCH shall have received the opinion of counsel to MGU and Shareholder
in form and substance satisfactory to HCCH.
(g) All underwriting agreements of MGU in force on the date hereof shall
be in force on the Closing Date, except for such agreements which have been
replaced with agreements of similar like and kind.
(h) Shareholder shall be alive and not, in any way, Disabled. For
purposes of this Agreement, Shareholder shall be deemed to be "Disabled" if she
is unable to engage in any substantial portion of her regular duties for MGU by
reason of any medically determinable physical or mental impairment which can be
expected to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months.
(i) MGU shall have received the unqualified opinion of independent public
accountants to MGU on their audited financial statements for the most recent
fiscal year end.
(j) MGU shall have delivered to HCCH its audited balance sheet and its
audited income statement for each of the most recent fiscal year end.
(k) MGU shall have earned no less than $862,000 pre-tax for the fiscal
year ended December 31, 1996 and on a pro-forma combined basis, as reasonably
determined by HCCH, be expected to earn at least $950,000 pre-tax for the year
ended December 31, 1997.
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(l) MGU shall have entered into an agreement with John Wilbur ("Wilbur")
and International Specialty Underwriters, Inc. ("ISU") in the form attached
hereto and Wilbur will have represented and warranted to MGU and HCCH in a form
satisfactory to MGU and HCCH that his acquisition of the MGU Shares is for
investment.
(m) Shareholder shall have taken no action or engaged in any activity
which shall have resulted in MGU losing its ability to be considered a
Subchapter "S" corporation.
(n) Shareholder shall have transferred all the MGU Common Stock to HCCH,
free and clear of all Liens and encumbrances, with transfer taxes, if any, paid
by Shareholder. No claim shall have been filed, made or threatened by any
person or entity asserting that he, she or it is entitled to any part of the
Purchase Price paid for the MGU Common Stock.
(o) Shareholder shall have executed and delivered to HCCH an Employment
Agreement in a form mutually agreed to by Shareholder and HCCH, and HCCH shall
have received a covenant against competition for a period of three years
following Shareholder's employment with HCCH or MGU.
(p) On or prior to the Closing Date, Shareholder shall have furnished HCCH
with evidence of such consents as Shareholder shall know, or HCCH shall
determine, to be required to enable HCCH to continue to enjoy the benefit of any
lease, license, permit, contract or other agreement or instrument to or of which
MGU is a party or beneficiary and which can, by its terms (with consent) and
consistent with applicable law, be so enjoyed after the transfer of the MGU
Common Stock to HCCH. If there is in existence any lease, governmental license,
permit or contract that by its terms or applicable law, expires, terminates or
is otherwise rendered invalid upon the transfer of the MGU Common Stock to HCCH,
and such lease, license, permit, or contract is required in order for the
business of MGU to continue to be conducted following the transfer of the MGU
Common Stock in the same manner as conducted previously, HCCH shall have
obtained, or been furnished by Shareholder an equivalent of, that lease,
license, permit, or contract effective as of and after the Closing Date.
(q) HCCH shall have received resignations of all persons who are officers
or directors of MGU immediately prior to the Closing.
(r) HCCH shall have received general releases in favor of MGU and HCCH
executed by Shareholder and any such other employees, officers or directors of
MGU as HCCH may designate. Those releases will not relate to rights or
obligations arising under this Agreement.
(s) HCCH shall have received possession of all corporate, accounting,
business and tax records of MGU.
(t) The form and substance of all actions, proceedings, instruments and
documents required to consummate the transactions contemplated by this Agreement
shall have been satisfactory in all reasonable respects to HCCH and HCCH's
counsel.
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(u) Cathy L. Legan will have represented and warranted to MGU and HCCH
that her acquisition of the HCCH Common Stock is for investment.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF SHAREHOLDER. Shareholder's
obligations hereunder are subject to the fulfillment or satisfaction, on and as
of the Closing Date, of each of the following conditions (any one or more of
which may be waived, but only in a writing signed by such party):
(a) The representations and warranties of HCCH set forth herein shall be
true and accurate in all material respects on and as of the Closing Date with
the same force and effect as if they had been made on the Closing Date (except
to the extent a representation or warranty speaks specifically as of an earlier
date and except for changes contemplated by this Agreement) and HCCH shall have
provided Shareholder with a certificate executed by the President and the Chief
Financial Officer of HCCH, dated as of the Closing Date, to such effect. For
the purposes of determining the accuracy of the representations and warranties
of HCCH, any change or effect in the business of HCCH that results in
substantial part as a consequence of the public announcement or pendency of the
intended acquisition of the MGU Common Stock by HCCH shall not be deemed a
Material Adverse Change or Material Adverse Effect or other breach of
representation or warranty with respect to HCCH.
(b) HCCH shall have performed and complied with all of its covenants
contained herein in all material respects on or before the Closing Date, and
Shareholder shall receive a certificate to such effect signed by HCCH's
President and Chief Financial Officer.
(c) Except as set forth in the HCCH Disclosure Schedule, there shall have
been no Material Adverse Change in HCCH since the HCCH Balance Sheet Date.
(d) Shareholder shall have received from Winstead Sechrest & Minick P.C.,
counsel to HCCH, an opinion in form and substance satisfactory to the
Shareholder.
(e) Shareholder shall agree to a three (3) year non-compete provision
beginning upon ceasing to be employed by HCCH and MGU.
(f) A listing application covering the shares of HCCH Common Stock to be
issued in connection with the transaction contemplated by this Agreement shall
have been filed with the NYSE.
(g) HCCH shall have executed and delivered to Shareholder the Employment
Agreement in a mutually agreed to form.
(h) The form and substance of all actions, proceedings, instruments and
documents required to consummate the transactions contemplated by this Agreement
shall have been satisfactory in all reasonable respects to Shareholder and her
counsel.
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SECTION 7.3 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective
obligations of the parties hereunder are subject to the fulfillment, on and
as of the Closing Date, of each of the following conditions (any one or more
of which may be waived by such parties, but only in a writing signed by such
parties):
(a) No statute, rule, regulation, executive order, decree, injunction
or restraining order shall have been enacted, promulgated or enforced (and
not repealed, superseded or otherwise made inapplicable) by any court or
governmental authority which prohibits the consummation of the transaction
contemplated by this Agreement (each party agreeing to use its reasonable
best efforts to have any such order, decree or injunction lifted).
(b) There shall have been obtained any and all Governmental
Authorizations, permits, approvals and consents of securities or "blue sky"
commissions of any jurisdiction and of any other governmental body or agency,
that may reasonably be deemed necessary so that the consummation of the
transaction contemplated by this Agreement will be in compliance with
applicable laws, the failure to comply with which would have a Material
Adverse Effect on HCCH, MGU, or would be reasonably likely to subject any of
HCCH, MGU or any of their respective directors or officers to penalties or
criminal liability.
ARTICLE VIII
TERMINATION OF AGREEMENT
SECTION 8.1 TERMINATION. This Agreement may be terminated at any
time prior to the Closing Date:
(a) By the mutual consent of Shareholder and the Board of Directors of
HCCH.
(b) By the Board of Directors of HCCH or by Shareholder if there has
been a material breach by the other of any representation or warranty
contained in this Agreement, which in either case cannot be, or has not been,
cured within 15 days after written notice of such breach is given to the
party committing such breach, provided that the right to effect such cure
shall not extend beyond the date set forth in subparagraph (c) below.
(c) By the Board of Directors of HCCH or by Shareholder if all
conditions of Closing required by Article VII hereof have not been met or
waived by August 31, 1997, provided, however, that neither HCCH nor
Shareholder, shall be entitled to terminate this Agreement pursuant to this
subparagraph (c) if such party is in willful and material violation of any of
its representations, warranties or covenants in this Agreement.
(d) If any governmental authority shall have issued an order, decree or
ruling or taken any other action permanently enjoining, restraining or
otherwise prohibiting the transactions
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contemplated by this Agreement and such order, decree, ruling or other action
shall have become final and nonappealable.
(e) By the Board of Directors of HCCH, if Shareholder shall have become
Disabled or shall have died.
SECTION 8.2 EFFECT OF TERMINATION. Upon termination of this
Agreement pursuant to this Article VIII, this Agreement shall be void and of
no effect and shall result in no obligation of or liability to any party or
their respective directors, officers, employees, agents or shareholders,
unless such termination was the result of an intentional breach of any
representation, warranty or covenant in this Agreement, in which case the
party who breached the representation, warranty or covenant shall be liable
to the other party for damages, and all costs and expenses incurred in
connection with the preparation, negotiation, execution and performance of
this Agreement.
ARTICLE IX
CLOSING MATTERS
SECTION 9.1 THE CLOSING. Subject to termination of this Agreement as
provided in Article VIII above, the closing of the transactions provided for
herein (the "Closing") will take place at the offices of Winstead Sechrest &
Minick P.C., 910 Travis Street, Suite 1700, Houston, Texas 77002 at 9:00
a.m., Houston Time on June 26, 1997, or, if all conditions to Closing have
not been satisfied or waived by such date, such other place, time and date as
Shareholder and HCCH may mutually select (the "Closing Date").
ARTICLE X
INDEMNIFICATION AND
REMEDIES, CONTINUING COVENANTS
SECTION 10.1 AGREEMENT TO INDEMNIFY. Subject to the limitations set
forth in this Article X, from and after the Effective Time, Shareholder will
indemnify and hold harmless HCCH and its respective officers, directors,
agents and employees, and each person, if any, who controls or may control
HCCH within the meaning of the Securities Act (hereinafter referred to
individually as a "MGU Indemnified Person" and collectively as "MGU
Indemnified Persons") from and against any and all claims, demands, actions,
causes of action, losses, costs, damages, liabilities and expenses including,
without limitation, reasonable legal fees, (net of: (i) any recoveries under
insurance policies; (ii) recoveries from third parties; and (iii) tax savings
known to MGU Indemnified Persons at the time of making of claims hereunder)
made against or incurred by MGU Indemnified Persons (hereafter in this
Section 10.1 referred to as "HCCH Damages"), arising out of any material
misrepresentation or breach of or default under any of the
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representations, warranties, covenants or agreements given or made in this
Agreement or any certificate or exhibit delivered by or on behalf of MGU or
Shareholder pursuant hereto. The indemnification provided for in this
Section 10.1 will not apply unless and until the aggregate HCCH Damages for
which one or more MGU Indemnified Persons seeks indemnification exceeds
$75,000 in the aggregate, in which event the indemnification provided for
will include all HCCH Damages (a franchise deductible). The MGU Indemnified
Persons are only entitled to be reimbursed for the actual indemnified
expenditures or damages incurred by them for the above described losses.
Such MGU Indemnified Persons are not entitled to consequential, special, or
other speculative or punitive categories of damages.
SECTION 10.2 HCCH AGREEMENT TO INDEMNIFY. Subject to the limitations
set forth in this Article X, from and after the Effective Time HCCH will
indemnify and hold harmless MGU and Shareholder and their officers,
shareholders, directors, administrators, heirs, personal representatives,
successors and assigns (hereinafter in this Section 10.2 referred to
individually as an "HCCH Indemnified Person" and collectively as "HCCH
Indemnified Persons") from and against any and all claims, demands, actions,
causes of action, losses, costs, damages, liabilities and expenses including,
without limitation, reasonable legal fees (net of: (i) any recoveries under
insurance policies; (ii) recoveries from third parties; and (iii) tax savings
known to HCCH Indemnified Persons at the time of making a claim hereunder)
(hereafter in this Section 10.2 referred to as "MGU Damages") arising out of
any misrepresentation or breach of or default under any of the
representations, warranties, covenants and agreements given or made by HCCH
in this Agreement or any certificate or exhibit delivered by or on behalf of
HCCH pursuant hereto. The indemnification provided for in this Section 10.2
will not apply unless and until the aggregate MGU Damages for which one or
more HCCH Indemnified Person seeks indemnification exceeds $75,000 in the
aggregate, in which event the indemnification provided for will include all
MGU Damages (a franchise deductible). The HCCH Indemnified Persons are only
entitled to be reimbursed for the actual indemnified expenditures or damages
incurred by them for the above described losses. Such HCCH Indemnified
Persons are not entitled to consequential, special, or other speculative or
punitive categories of damages.
SECTION 10.3 SURVIVAL OF REPRESENTATIONS. The right to enforce the
breach of each representation, warranty, covenant and agreement set forth in
this Agreement will remain operative and in full force and effect for the
maximum period permitted by applicable law after the Closing (the last date
of such applicable period being herein called the "Final Date"), regardless
of any investigation made by or on behalf of the parties to this Agreement,
upon which Final Date such representations, warranties, covenants and
agreements shall expire and be of no further force and effect. Any
litigation or other action of any kind arising out of or attributable to a
breach of any representation, warranty, covenant or agreement contained in
this Agreement, must be commenced prior to the Final Date. If not so
commenced prior to the Final Date, any claims or indemnifications brought
under this Article X will thereafter conclusively be deemed to be waived
regardless of when such claim is or should have been discovered. Any such
claim for indemnification brought under this Article X, brought before the
Final Date, shall survive until a final resolution of such claim is
effective. As set forth herein, no investigation by any party hereto into
the business, operations and conditions of the other party shall diminish in
any
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way the effect of any representation or warranty made by any such party in
this Agreement or shall relieve any party of any of its obligations under
this Agreement.
SECTION 10.4 PROCEDURE FOR INDEMNIFICATION; THIRD PARTY CLAIMS.
(a) Promptly after receipt by an indemnified party under this Article X
of notice of a claim against it for indemnification brought under this
Article X (a "Claim"), the indemnified party will, if a claim is to be made
against an indemnifying party, give prompt written notice to the indemnified
party of the Claim, but the failure to promptly notify the indemnified party
will not relieve the indemnified party of any liability that it may have to
any indemnified party, except to the extent that the indemnifying party
demonstrates that the defense of such action is prejudice by the indemnifying
party's failure to give such prompt notice. Such notice shall contain a
description in reasonable detail of facts upon which such Claim is based and,
to the extent known, the amount thereof.
(b) If any Claim referred to in this Article X is made by a third party
against an indemnified party and such indemnified party gives written notice
to the indemnifying party of the Claim, the indemnifying party will be
entitled to participate in the defense of Claim and, to the extent that it
wishes to assume the defense of the Claim and, after written notice from the
indemnifying party to the indemnified party of its election to assume the
defense of the Claim, the indemnifying party shall assume such defense and
will not be liable to the indemnified party under this Article X for any fees
of other counsel or any other expenses with respect to the defense of the
Claim in each case subsequently incurred by the indemnified party in
connection with the defense of the Claim.
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 FURTHER ASSURANCES. Each party agrees to cooperate
fully with the other parties and to execute such further instruments,
documents and agreements and to give such further written assurances as
may be reasonably requested by any other party to better evidence and
reflect the transactions described herein and contemplated hereby and to
carry into effect the intents and purposes of this Agreement.
SECTION 11.2 FEES AND EXPENSES. Until otherwise agreed by the
parties, each party shall bear its own fees and expenses, including counsel
fees and fees of brokers and investment bankers contracted by such party, in
connection with the transaction contemplated hereby.
SECTION 11.3 NOTICES. Whenever any party hereto desires or is
required to give any notice, demand, or request with respect to this
Agreement, each such communication shall be in writing and shall be effective
only if it is delivered by personal service or mailed, United States
36
<PAGE>
registered or certified mail, postage prepaid, or sent by prepaid overnight
courier or confirmed telecopier, addressed as follows:
HCCH:
HCC Insurance Holdings, Inc.
13403 Northwest Freeway
Houston, Texas 77040-6094
Telecopy: (713) 462-2401
Attention: Frank J. Bramanti, President
With a copy to (which shall not constitute notice):
Winstead Sechrest & Minick P.C.
910 Travis, Suite 1700
Houston, Texas 77002-5895
Telecopy: (713) 951-3800
Attention: Arthur S. Berner, Esq.
MGU and Shareholder:
Sandra L. Ruder
7505 N.W. Tiffany Spring Parkway, Suite 200
Kansas City, MO 64153
Telecopy: (816) 891-1076
With a copy to (which shall not constitute notice):
Seigfreid, Bingham, Levy, Selzer & Gee, P.C.
2800 Commerce Tower
911 Main Street
Kansas City, Missouri 64105
Telecopy: (816) 474-3447
Attention: Jack R. Selzer, Esq.
Such communications shall be effective when they are received by the
addressee thereof. Any party may change its address for such
communications by giving notice thereof to other parties in conformity with
this Section.
SECTION 11.4 GOVERNING LAW. The internal laws of the State of Texas
(irrespective of its choice of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto. Any dispute
arising hereunder shall lie exclusively in the state courts of the State of
Texas.
37
<PAGE>
SECTION 11.5 BINDING UPON SUCCESSORS AND ASSIGNS, ASSIGNMENT. This
Agreement and the provisions hereof shall be binding upon each of the parties,
their permitted successors and assigns. This Agreement may not be assigned by
any party without the prior consent of the other.
SECTION 11.6 SEVERABILITY. If any provision of this Agreement, or the
application thereof, shall for any reason or to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances shall continue in full force and effect and in
no way be affected, impaired or invalidated.
SECTION 11.7 ENTIRE AGREEMENT. This Agreement, together with the
Confidentiality Agreement, and any other agreement and instrument referenced
herein constitute the entire understanding and agreement of the parties with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between parties with respect hereto.
SECTION 11.8 AMENDMENT AND WAIVERS. Any amendment or waiver affecting
the Shareholder shall be valid if consented to in writing by Shareholder. Any
term or provision of this Agreement may be amended, and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively) only by a writing signed by
Shareholder. The waiver by Shareholder of any breach hereof or default in the
performance hereof shall not be deemed to constitute a waiver of any other
default or any succeeding breach or default, unless such waiver so expressly
states. At any time before the Effective Time, this Agreement may be amended or
supplemented by MGU, Shareholder or HCCH with respect to any of the terms
contained in this Agreement.
SECTION 11.9 NO WAIVER. The failure of any party to enforce any of the
provisions hereof shall not be construed to be a waiver of the right of such
party thereafter to enforce such provisions.
SECTION 11.10 CONSTRUCTION OF AGREEMENT. A reference to an Article,
Section or an Exhibit shall mean an Article of, a Section in, or Exhibit to,
this Agreement unless otherwise explicitly set forth. The titles and headings
herein are for reference purposes only and shall not in any manner limit the
construction of this Agreement which shall be considered as a whole. The words
"include," "includes" and "including" when used herein shall be deemed in each
case to be followed by the words "without limitation."
SECTION 11.11 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be an original as against any party whose
signature appears thereon and all of which together shall constitute one and the
same instrument. This Agreement shall become binding when one or more
counterparts hereof, individually or taken together, shall bear the signatures
of all the parties reflected hereon as signatories.
38
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
39
<PAGE>
HCC INSURANCE HOLDINGS, INC.
By: /s/ Frank J. Bramanti
-----------------------------------
Name: Frank J. Bramanti,
Title: President
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
SIGNATURE PAGE OF AGREEMENT
<PAGE>
/s/ Sandra L. Ruder
--------------------------------------
Sandra L. Ruder
MANAGED GROUP UNDERWRITING, INC.
By: /s/ Sandra L. Ruder
----------------------------------
Name: Sandra L. Ruder
Title: President
SIGNATURE PAGE OF AGREEMENT
<PAGE>
EXHIBIT 11
HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
For the six months ended June 30,
1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings $ 22,013,000 $ 12,793,000
---------------- ----------------
---------------- ----------------
Primary:
Weighted average Common Stock and common stock
equivalents outstanding 46,053,000 44,330,000
---------------- ----------------
---------------- ----------------
Earnings per share $ 0.48 $ 0.29
---------------- ----------------
---------------- ----------------
Reconciliation of number of shares outstanding:
Common Stock outstanding at period end 45,582,000 43,023,000
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 1,281,000 1,114,000
Changes in Common Stock for issuance (810,000) 193,000
---------------- ----------------
Weighted average Common Stock and common stock
equivalents outstanding 46,053,000 44,330,000
---------------- ----------------
---------------- ----------------
Fully Diluted:
Weighted average Common Stock and common stock
equivalents outstanding 46,146,000 44,410,000
---------------- ----------------
---------------- ----------------
Earnings per share $ 0.48 $ 0.29
---------------- ----------------
---------------- ----------------
Reconciliation of number of shares outstanding:
Common Stock outstanding at period end 45,582,000 43,023,000
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 1,296,000 1,175,000
Changes in Common Stock for issuance (732,000) 212,000
---------------- ----------------
Weighted average Common Stock and common stock
equivalents outstanding 46,146,000 44,410,000
---------------- ----------------
---------------- ----------------
</TABLE>
Note: Share and option amounts have been restated for all periods presented
to include the shares and options of AVEMCO Corporation prior to its
combination with the Company (see notes 1 and 3 to the condensed
consolidated financial statements).
<PAGE>
EXHIBIT 11
HCC INSURANCE HOLDINGS, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE (UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------
For the three months ended June 30,
1997 1996
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Net earnings $ 8,982,000 $ 642,000
---------------- ----------------
---------------- ----------------
Primary:
Weighted average Common Stock and common stock
equivalents outstanding 46,383,000 44,263,000
---------------- ----------------
---------------- ----------------
Earnings per share $ 0.19 $ 0.01
---------------- ----------------
---------------- ----------------
Reconciliation of number of shares outstanding:
Common Stock outstanding at period end 45,582,000 43,023,000
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 1,263,000 1,166,000
Changes in Common Stock for issuance (462,000) 74,000
---------------- ----------------
Weighted average Common Stock and common stock
equivalents outstanding 46,383,000 44,263,000
---------------- ----------------
---------------- ----------------
Fully Diluted:
Weighted average Common Stock and common stock
equivalents outstanding 46,482,000 44,279,000
---------------- ----------------
---------------- ----------------
Earnings per share $ 0.19 $ 0.01
---------------- ----------------
---------------- ----------------
Reconciliation of number of shares outstanding:
Common Stock outstanding at period end 45,582,000 43,023,000
Additional dilutive effect of outstanding options
(as determined by the application of the treasury
stock method) 1,296,000 1,180,000
Changes in Common Stock for issuance (396,000) 76,000
---------------- ----------------
Weighted average Common Stock and common stock
equivalents outstanding 46,482,000 44,279,000
---------------- ----------------
---------------- ----------------
</TABLE>
Note: Share and option amounts have been restated for all periods presented
to include the shares and options of AVEMCO Corporation prior to its
combination with the Company (see notes 1 and 3 to the condensed
consolidated financial statements).
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE CONDENSED
CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOUND ON PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30,
1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 390,283,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 11,914,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 505,510,000
<CASH> 1,106,000
<RECOVER-REINSURE> 148,789,000
<DEFERRED-ACQUISITION> 6,697,000
<TOTAL-ASSETS> 1,094,218,000
<POLICY-LOSSES> 245,497,000
<UNEARNED-PREMIUMS> 164,337,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 79,476,000
0
0
<COMMON> 45,582,000
<OTHER-SE> 290,385,000
<TOTAL-LIABILITY-AND-EQUITY> 1,094,218,000
92,089,000
<INVESTMENT-INCOME> 12,729,000
<INVESTMENT-GAINS> (294,000)
<OTHER-INCOME> 35,800,000
<BENEFITS> 56,070,000
<UNDERWRITING-AMORTIZATION> 5,727,000
<UNDERWRITING-OTHER> 43,005,000
<INCOME-PRETAX> 33,432,000
<INCOME-TAX> 11,419,000
<INCOME-CONTINUING> 22,013,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22,013,000
<EPS-PRIMARY> 0.48
<EPS-DILUTED> 0.48
<RESERVE-OPEN> 117,283,000
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 122,935,000
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS RESTATED SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM THE FINANCIAL
STATEMENTS OF THE COMPANY'S FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. THE
AMOUNTS SHOWN BELOW HAVE BEEN RESTATED DUE TO THE MERGER WITH AVEMCO ON JUNE 17,
1997, WHICH WAS ACCOUNTED FOR AS A POOLING-OF-INTERESTS (SEE NOTE 1).
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 341,795,000
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 25,851,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 452,576,000
<CASH> 9,723,000
<RECOVER-REINSURE> 137,815,000
<DEFERRED-ACQUISITION> 6,724,000
<TOTAL-ASSETS> 957,286,000
<POLICY-LOSSES> 217,662,000
<UNEARNED-PREMIUMS> 165,461,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 69,205,000
0
0
<COMMON> 46,240,000
<OTHER-SE> 229,295,000
<TOTAL-LIABILITY-AND-EQUITY> 957,286,000
86,805,000
<INVESTMENT-INCOME> 11,434,000
<INVESTMENT-GAINS> 5,207,000
<OTHER-INCOME> 30,229,000
<BENEFITS> 53,657,000
<UNDERWRITING-AMORTIZATION> 6,948,000
<UNDERWRITING-OTHER> 57,952,000
<INCOME-PRETAX> 12,454,000
<INCOME-TAX> (339,000)
<INCOME-CONTINUING> 12,793,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,793,000
<EPS-PRIMARY> 0.29
<EPS-DILUTED> 0.29
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
