- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
|X| SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
| | SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________.
COMMISSION FILE NUMBER 1-11794
E. W. BLANCH HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 41-1741779
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 NORTH AKARD, SUITE 4500, DALLAS, TEXAS 75201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 756-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, par value $.01 per share New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendments to this Form 10-K. | |
As of March 6, 2000, 13,331,213 shares of Common Stock were outstanding
and the aggregate market value of the Common Stock held by non-affiliates of the
Registrant on that date was approximately $666,144,050.
DOCUMENTS INCORPORATED BY REFERENCE.
1. Portions of Registrant's 1999 Annual Report to Shareholders are
incorporated into Parts I, II and IV.
2. Portions of Registrant's Proxy Statement dated March 24, 2000 are
incorporated into Part III.
3. Registrant's Form 8-K dated March 22, 2000.
- --------------------------------------------------------------------------------
<PAGE>
PART I
Item 1.
BUSINESS
GENERAL
a) Development of Business
E. W. Blanch Holdings, Inc. (the "Company") was incorporated in the
State of Delaware on March 1, 1993 as a holding company for the capital stock of
E. W. Blanch Co., Inc. The Company, through predecessor organizations, was
originally founded in 1957. Unless otherwise indicated, reference to the
"Company" hereinafter includes all operating subsidiaries.
The Company's principal business is that of integrated risk management
and distribution services, including reinsurance intermediation and technical,
analytical and financial consulting services.
ACQUISITIONS
In the third quarter of 1999, the Company acquired JD Warren, Inc., a
Pittsburgh, Pennsylvania based services company specializing in the
identification and recovery of outstanding third-party deductibles for the
insurance industry. Also in the third quarter of 1999, the Company purchased the
thirty percent of its international joint venture, Swire Blanch Insurance
(Holdings) Ltd., it did not previously own. Swire Blanch Insurance (Holdings)
Ltd. is now a wholly owned subsidiary of the Company and has been renamed E.W.
Blanch Holdings Ltd.
In the fourth quarter of 1999, the Company acquired Crawley Warren
Group Ltd., a leading Lloyd's broker and provider of special risk management
services around the world. Also in the fourth quarter of 1999, the Company
acquired Michael V. Mahoney Insurance Brokers Pty Ltd., an Australian general
retail broker. The Company accounted for all of the above acquisitions under the
purchase method of accounting.
The following are the pro forma results for the Company had the companies
described above been acquired at the beginning of the periods indicated
(unaudited - in thousands, except per share amounts):
Twelve Months Ended
December 31,
1999 1998
---------------------------------------
Revenues $275,573 $248,402
Net Income $37,756 $33,738
Earnings per Share - Diluted $2.74 $2.57
DISPOSITIONS
In the second quarter of 1999, the Company sold two non-strategic
subsidiaries of E.W. Blanch Holdings Ltd.
STRATEGIC INVESTMENTS
In the first quarter of 1999, the Company made an equity investment in
Russell Miller Advisors Asia, LLC ("RMAA"). RMAA is an insurance specialty
investment banking firm that makes equity investments in Asian insurance and
financial services industries. The Company accounts for RMAA under the equity
method as an unconsolidated subsidiary.
In the fourth quarter of 1999, the Company made an equity investment in
Ward North America Holding, Inc. ("Ward"). Ward is a provider of integrated
outsource claims solutions in the United States and Canada. The Company accounts
for Ward as a long-term investment.
-2-
<PAGE>
b) Financial Information About Operating Segments
Financial information about the Company's operating segments is
incorporated by reference to the section entitled "Management's Discussion and
Analysis" on pages 24 through 30, and Note 16 of the Notes to the Consolidated
Financial Statements on page 45, of the Company's 1999 Annual Report to
Shareholders.
c) Narrative Description of Business
DOMESTIC OPERATIONS
Revenues generated by domestic operations are derived from risk
management and distribution services provided to insurance and reinsurance
companies. These services are sold both on bundled and component bases. Major
components provided include reinsurance intermediation and technical and
analytical consulting services. These services are generally recurring and due
to its expertise and the value-added nature of its services, the Company has
been able to generate relatively high operating margins. Also, domestic
operations include the operations of the holding company.
The Company provides intermediary services to a diverse group of
insurance, reinsurance and related businesses located throughout the United
States. During 1999, no domestic client accounted for more than 10% of
consolidated revenues earned by the Company.
REINSURANCE INTERMEDIATION
As a reinsurance intermediary, the Company structures and arranges
reinsurance between insurers seeking to cede insurance risks and reinsurers
willing to assume such risks. In 1999, no single reinsurer used by domestic
operations accounted for more than 10% of consolidated revenues earned by the
Company.
The Company earns revenues from the structuring, placement and
servicing of reinsurance, primarily on a treaty basis. The Company is a
significant intermediary in the property catastrophe and casualty reinsurance
markets. Catastrophe reinsurance indemnifies a ceding company against a
catastrophic loss resulting from a single event such as a hurricane, earthquake
or tornado. Casualty reinsurance indemnifies a ceding company for a specified
loss caused by injuries to third parties including resulting legal liability.
The Company's activities in the casualty reinsurance arena relate primarily to
professional liability, workers' compensation and specialized casualty exposures
underwritten by excess and surplus lines insurance carriers.
Reinsurance brokerage rates, which vary by line of business, are
generally standard throughout the industry. Brokerage rates are typically based
upon a percentage of the reinsurance premium placed. In recent years, price
competition among reinsurance intermediaries has increased and there have been
instances of fee-based compensation arrangements between certain large insurers
and intermediaries such as the Company. As a result, the compensation received
by the Company relative to premium volume has in certain instances decreased in
recent years. The introduction of fee-based compensation arrangements may have
the effect of reducing the variability of the reinsurance intermediary's
compensation due to changes in external market factors such as changes in the
price of reinsurance.
-3-
<PAGE>
The Company's reinsurance intermediary business is highly competitive.
The Company competes with a number of reinsurance intermediaries, direct writers
of reinsurance and other financial institutions, some of which have greater
financial and other resources than the Company. The Company competes on the
basis of the quality and extent of services offered and the ability to provide
solutions that meet the needs of ceding companies, including price and capacity
requirements. In certain situations, the Company competes for reinsurance with
financial institutions which offer alternative products which attempt to
securitize or finance insurance exposures. Among the Company's competitors are
Aon Risk Services, Guy Carpenter and Co., Inc., General Re and Munich Re. There
is also competition within the reinsurance market for experienced and productive
reinsurance professionals that are essential in delivering the Company's
services. The inability of the Company to recruit and retain such reinsurance
professionals could have a material adverse effect upon its business.
Fiduciary funds and amounts of reinsurance premiums payable by the
ceding company to the reinsurer and loss payments payable by the reinsurer to
the ceding company pursuant to a reinsurance agreement, which amounts represent
receivables of the intermediary, are known as "fiduciary assets." Consistent
with industry practice, interest on the fiduciary funds accrues to the
reinsurance intermediary. Fiduciary funds are maintained in segregated accounts
for the benefit of ceding companies or reinsurers, are not commingled with other
assets of a reinsurance intermediary and are not subject to the claims of the
intermediary's creditors. At December 31, 1999, the Company had domestic
fiduciary assets and liabilities of $548.2 million. Fiduciary assets at December
31, 1999 included $80.5 million of fiduciary funds. In recent years, although
the volume of fiduciary funds processed through the Company's domestic fiduciary
accounts have increased due to business growth, the period of time for which the
funds are held has declined due to advances in technology, including electronic
transfers of funds and data. As this trend continues, the amount of investment
income earned by the Company on these funds may diminish.
The Company's reinsurance intermediary business is subject to some
government regulation. In 1990, the National Association of Insurance
Commissioners developed the Reinsurance Intermediary Model Act (the "Model Act")
which has been adopted by most states. The Company currently is licensed or is
in the process of becoming licensed in all states where it is required to be
licensed as a reinsurance intermediary. Government regulation of the Company's
business has not been a significant commercial barrier.
TECHNICAL AND ANALYTICAL CONSULTING SERVICES
The Company provides technical and analytical consulting services
primarily to insurance and reinsurance companies, government entities and
underwriting facilities. Such services are generally provided as part of the
Company's core reinsurance intermediation function, but are also marketed on a
component basis. Services include product development, facility administration,
strategic reinsurance program reviews, actuarial services, catastrophe exposure
management and analysis, and run-off management. The Company's Catalyst(R) risk
modeling software is a proprietary technology which provides a competitive
advantage in these consulting services.
-4-
<PAGE>
The Company also provides financial consulting services, tailored
reinsurance products and capital markets products designed to assist its clients
in capital preservation and risk management.
The Company competes with a number of competitors in its risk
management consulting and administration services business, including primary
insurance brokers, reinsurance intermediaries, management consultants,
accounting firms and financial services firms. Some of these competitors may
have, or be affiliated with, entities that have greater financial and other
resources than the Company. The Company competes with these entities on the
basis of the quality, price, innovation, and range of products and services.
FOREIGN OPERATIONS
The Company's foreign operations include E.W. Blanch Ltd., an
international risk management and distribution services firm headquartered in
London, England. E.W. Blanch Ltd. includes the operations previously carried out
by Swire Blanch Insurance (Holdings) Ltd. and the operations of Crawley Warren
Group Ltd. acquired in November 1999. These operations include a registered
Lloyd's of London insurance and reinsurance broker now trading as Blanch Crawley
Warren Ltd. and international intermediary operations. Through E.W. Blanch
Consulting Ltd., it also provides financial consulting services through the sale
of its benefits administration products, principally to companies in the
technology sector. International intermediary services include retail insurance
operations located in Hong Kong. Approximately 78% of E.W. Blanch Ltd.'s
revenues are generated in the United Kingdom with the remainder primarily from
the Pacific Rim. The Company's foreign operations have relatively lower profit
margins than its domestic operations. This is due to a number of factors
including competitive market conditions for Lloyd's brokers, the small, start-up
nature of many of the international offices, the competitiveness of the
insurance brokerage business, and the amortization of goodwill associated with
the purchase of E.W. Blanch Ltd. The Company seeks to grow its international
profitability through the integration of systems, services and expertise in
order to increase revenue production and processing efficiencies.
The Company's foreign operations provide services to a diverse client
base, including original insureds and insurance companies located throughout the
world. During 1999, no foreign client accounted for more than 10% of
consolidated revenues earned by the Company.
REINSURANCE INTERMEDIATION
In 1999, no single insurer or reinsurer used by foreign operations
accounted for more than 10% of consolidated revenues earned by the Company. The
Company's foreign operations brokerage rates are similar to those for domestic
operations. Like the Company's domestic operations, the Company's international
intermediary business is highly competitive. The Company competes with a number
of reinsurance intermediaries, direct writers of reinsurance and other financial
institutions, some of which have greater financial and other resources than the
Company. The Company competes on the basis of the quality and extent of services
offered and the ability to provide solutions that meet the needs of ceding
companies, including price and capacity requirements. In certain situations, the
Company competes for reinsurance with financial institutions which offer
alternative products which attempt to securitize or finance insurance exposures.
The Company has similar types of competitive issues internationally and
-5-
<PAGE>
domestically. The Company's primary foreign competitors are other Lloyd's
brokers, in addition to the Company's domestic competitors or affiliates of
those companies. The Company also competes for experienced professionals to
deliver the Company's services internationally and could be adversely affected
if the Company is unable to recruit and retain such employees.
The Company's foreign operations also have fiduciary assets, similar to
its domestic operations, and earns investment income on the funds it holds for
insurance and reinsurance companies. At December 31, 1999, the Company had
foreign fiduciary assets and liabilities of $421.6 million. Fiduciary assets at
December 31, 1999 included $94.1 million of fiduciary funds.
The Company's foreign intermediary business is subject to varying
amounts of government regulation in each of the countries where it has
operations. The Company currently is licensed or is in the process of becoming
licensed in all countries where it is required to be licensed as an insurance or
reinsurance intermediary. Government regulation of the Company's business has
not been a significant commercial barrier.
FINANCIAL PENSION AND CONSULTANCY SERVICES
Through E.W. Blanch Holdings Ltd., the Company provides independent
advice on various aspects of the financial services industry, including the
design, administration and financial control of employee benefits packages,
personal financial planning and pension fund administration. These services are
provided, outside of the United States, to individuals, professional
intermediaries, owner-managed businesses and corporations of all sizes. The
Company plans to continue to develop these services.
The Company competes with other financial service and insurance
companies in providing these services. Some of these competitors may have, or be
affiliated with, entities that have greater financial and other resources than
the Company. The Company competes with these entities on the basis of the
quality, price, innovation, and range of products and services.
EMPLOYEES
As of December 31, 1999, the Company had 1,291 employees. The table
below reflects the number of Company employees by geographic segment at December
31 of the respective year:
1999 1998
------------------ -----------------
Domestic operations 756 665
Foreign operations 535 499
------------------ -----------------
Total 1,291 1,164
================== =================
The increase in the number of employees in the Company's domestic operations is
primarily due to increased business levels and the acquisition of JD Warren,
Inc. The Company believes its relationship with its employees is excellent. The
Company is not a party to any collective bargaining agreement.
-6-
<PAGE>
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
In connection with the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995, the Company expresses caution that the
following important risk factors, among others, could cause the Company's actual
results to differ materially from those projected in forward-looking statements,
both written and verbal, about the Company made by or on behalf of the Company.
COMPETITION
The reinsurance intermediary business, the Company's primary source of
revenue, is highly competitive. The Company competes with a number of
reinsurance intermediaries in the broker reinsurance market. The consolidation
of reinsurance intermediary competitors through mergers and acquisitions has
continued in 1999, with the result that certain of the Company's principal
competitors have increased substantially in size and potential resources, which
may make them more formidable competitors. Results of the Company's operations
may also be affected by competition for reinsurance business between broker
reinsurers and direct reinsurance writers. Broker reinsurers compete with direct
writers based primarily upon the price of reinsurance, reinsurance capacity,
contract terms and conditions, quality and extent of services offered, financial
strength, reputation and experience. The Company competes with other reinsurance
intermediaries and direct writers on the basis of the quality and extent of
services offered to ceding companies and the ability to provide solutions that
meet the needs of ceding companies, including price and capacity requirements.
Finally, in certain situations, the Company finds itself in competition for
reinsurance business with other financial institutions which offer alternative
products which attempt to securitize or finance insurance exposures using
various capital market products.
The Company also faces substantial competition in its efforts to
generate revenues by offering unbundled risk management consulting, financial
consulting and administration services to its clients and prospects.
In addition, the Company competes with other entities with respect to
the employment of personnel, including reinsurance brokers. The Company's
competitors include entities which have, or are affiliated with entities that
have, greater financial and other resources than the Company.
DEPENDENCE ON KEY PERSONNEL
The Company's business depends, and will continue to depend, on the
services of its executive officers, senior reinsurance brokers, senior
consultants and other key employees. Such persons may from time to time leave
the Company due to, among other things, retirement, health, personal and
professional reasons. The Company has entered into employment agreements with
most of its executive officers and senior reinsurance brokers. The employment
agreements contain provisions under which the employees have agreed not to
compete with the Company for specified periods of time following termination of
employment and not to solicit other employees to join in a departure from the
Company. The Company intends to continue to seek enforcement of employment
agreements though this may not prevent the departure of key personnel. There can
be no assurance that the Company will be able to retain its existing personnel
or to find and attract additional qualified employees.
-7-
<PAGE>
MARKET CONDITIONS IN THE INSURANCE AND REINSURANCE INDUSTRIES
The Company's business is affected by market conditions in the
insurance and reinsurance industries, which historically have been subject to
significant volatility in demand, supply and price.
Insurance companies generally purchase reinsurance in order to, among
other things, manage their exposures on insured risks, maintain acceptable
financial ratios and protect their underwriting results from catastrophic
events. The propensity of insurers to purchase, as well as the propensity of
reinsurers to supply reinsurance, is affected by a variety of factors, including
the level of surplus capacity in the insurance and reinsurance markets,
prevailing premium rates for insurance and reinsurance, underwriting experience,
regulatory considerations, changes in the investment environment and general
economic conditions and business trends.
To the extent that these factors influence the need for, availability
of and price of insurance and reinsurance, they may also affect the amount of
reinsurance brokerage, normally a function of the ceded premium, received by the
Company. For example, when reinsurance premium rates rise, brokerage associated
with a particular amount of coverage placed may increase. The Company's ability
to earn increased brokerage in this instance may, however, be limited if
insurers purchase less reinsurance which has been an increasing trend among the
Company's clients, or if the supply of certain reinsurance coverage is
curtailed. Conversely, declining prices for reinsurance would generally reduce
the brokerage associated with a particular placement. A reduction in brokerage
may, however, be limited if insurers purchase more reinsurance at the lower
premium rates or if more or larger placements of coverages are achieved due to
increases in the supply of reinsurance. The Company's reinsurance brokerage
revenues can also be negatively influenced by clients who choose to increase
their retentions of risk, thereby purchasing less reinsurance, and by
acquisitions of the Company's clients where the acquirer does not purchase
reinsurance, purchases less reinsurance or purchases reinsurance elsewhere.
Price competition among reinsurance intermediaries has increased in
recent years, and there have been instances of fee-based compensation
arrangements between certain large insurers and reinsurance intermediaries such
as the Company. As a result, the compensation received by the Company relative
to premium volume has in certain instances decreased in recent years and there
can be no assurance that these arrangements will not become more prevalent in
the future.
In addition, the development of state or federal underwriting
facilities, pools, or other alternate coverage mechanisms for catastrophic risks
such as earthquakes or hurricanes may, in the future, lead to a reduction in the
amount of such risks insured by primary insurers, and may consequently reduce
such insurers' needs for reinsurance of the type traditionally brokered by the
Company.
The insurance brokerage industry in general is experiencing a period of
low growth due to competitive pricing of underlying insurance and reinsurance
premiums, and competitive pressures on brokerage and commission rates. Although
the Company seeks to achieve growth in this market through its business
strategies, there can be no assurance that these strategies will be successful
to achieve consistent internal growth in a difficult market environment. Should
internal growth slow, or even decline, the Company will be less likely to meet
revenue targets which could affect net income, profit margins, and the market
price of the Company's common stock.
The Company has experienced and may continue to experience greater
fluctuations in revenues due to the impact of market conditions on commissions
resulting in some renewable contracts not being renewed, renewed on
substantially different terms or influenced by other circumstances. See UNICOVER
LITIGATION AND WORKERS' COMPENSATION REINSURANCE ISSUES below.
-8-
<PAGE>
INTERNAL REORGANIZATION
In response to the changing market, the Company has reviewed its
operations and organization resulting in a plan to realign internal operations
to better take advantage of the market and respond to changing customer needs.
There can be no assurance that the reorganization will be successfully
completed, or that it will positively affect revenues.
FUTURE ACQUISITIONS
One of the Company's strategic solutions to market conditions and to
growth has been to acquire international and domestic operations of similar and
related businesses. The ability of the Company to continue to successfully
acquire such businesses will depend on numerous factors that the Company may not
be able to control such as finding suitable candidates, successfully and quickly
integrating the businesses into its domestic and/or international operations,
profitably funding the acquisition, maintaining sufficient management resources
for evaluating and negotiating acquisitions, minimizing the distractions from
the business during acquisitions and integrations, and successfully achieving
anticipated benefits from the acquisitions.
-9-
<PAGE>
SPECIFIC ENGAGEMENTS AND NEW OPPORTUNITIES
The Company has been engaged and is pursuing a variety of specific
engagements and opportunities, in addition to its traditional reinsurance
intermediary and wholesale brokerage lines of business. In its efforts to expand
its revenues, the Company is exploring a variety of potential initiatives and
opportunities that are related to the Company's traditional core business, but
that will require the Company in some instances to operate in areas where the
Company does not have historical experience.
These specific engagements and opportunities give rise to certain risks
and uncertainties. For example, alternative distribution opportunities are
subject to significant negotiations among the Company, the primary insurance
company transferring the insurance risks at issue, the alternative insurance
companies assuming those risks, and the reinsurance marketplace providing the
capacity to support the risk transfer. These alternative distribution
transactions also generally require approval of terms and rates by relevant
state insurance departments. As a result, there can be no assurance these
transactions will be consummated, and the timing of the transactions is
difficult to predict, which can reduce or delay the revenues the Company expects
to receive.
These specific engagements also can result in increased fluctuations in
the Company's earnings. While the revenues in the Company's core reinsurance and
insurance intermediary lines of business also are subject to fluctuation, as
described above, the revenues from these core lines of business generally tend
to recur each year, as the reinsurance or insurance contracts are renewed by the
Company's customers. For certain of these specific engagements and new
opportunities, however, the potential revenues may not recur each year.
Additionally, the timing of the engagements can affect quarterly results, adding
to fluctuations in quarterly earnings which can impact the market price of the
Company's common stock.
Also, as the Company expands into new (though related) lines of
business, there likely will be increased unpredictability as to whether the
Company will be successful in those new endeavors. These new opportunities
generally involve technological capabilities and personnel skill sets that the
Company must acquire externally and/or build internally. The availability and
revenue potential for some of these opportunities are unknown or uncertain and
the ability of the Company to recognize gains from any strategic investments in
these opportunities cannot be assured. For these reasons, it is possible the
Company may invest substantial resources into these potential specific
engagements and opportunities, without achieving the revenues it anticipates in
return.
INTERNATIONAL OPERATIONS
The Company is significantly increasing its reinsurance intermediary
and wholesale brokerage activities outside of its traditional territory in the
United States. The Company has offices in Adelaide, Asuncion, Brisbane,
Copenhagen, Hong Kong, LaBuan, London, Melbourne, Mexico City, New Castle, Rio
de Janeiro, Santiago, Singapore and Sydney. The Company has representative
offices in Beijing, Buenos Aires, Hanoi, Ho Chi Minh City and Shanghai. With
these international operations come increased risks, including the potential
that the Company will not successfully integrate its international operations
with its domestic and other international operations, currency exchange risks,
unstable local insurance markets, unstable local economies, legal and regulatory
constraints and liabilities in jurisdictions where the Company does not have
significant experience, and political risks, especially in third-world
countries.
-10-
<PAGE>
FOREIGN CURRENCY
The Company's primary functional currency is the U.S. dollar. The
functional currency of the Company's foreign operations is the currency of the
primary economic environment in which the subsidiary operates. Therefore,
fluctuations in foreign currency rates can have an impact on the Company's
results of operations. However, the Company believes its exposure to market risk
in certain geographic areas that have experienced or are likely to experience an
economic downturn, such as the Pacific Rim and Latin America, is minimal.
Additional information is contained in the Company's 1999 Annual Report to
Shareholders under the caption Market Risk on pages 28 through 29.
UNICOVER LITIGATION AND WORKERS' COMPENSATION REINSURANCE ISSUES
The workers' compensation reinsurance industry was impacted in 1999 by
certain events principally surrounding an entity called Unicover Managers, Inc.
("Unicover"). Unicover served as a managing general underwriter for various
insurance companies that provided reinsurance coverage to the workers'
compensation primary insurance industry. It has been alleged that Unicover, on
behalf of companies it represented, assumed reinsurance exposures at prices and
volume levels that were imprudent for those companies and their
retrocessionaires, and that correspondingly were advantageous to the customers
who procured reinsurance coverage through Unicover. Various clients of the
Company, employing the Company's reinsurance intermediary services, procured
workers' compensation reinsurance coverage through Unicover in late 1998 and
early 1999.
One client that the Company assisted in procuring reinsurance through
Unicover was the "AIG" group of insurance companies. A lawsuit was commenced in
1999 relating to that reinsurance program. The Company is the third-party
defendant and cross-claimant in that litigation, which is described in more
detail in Item 3. Legal Proceedings. The Company also assisted various other
clients in procuring workers' compensation reinsurance coverage with Reliance
Insurance Company ("Reliance"), managed by Unicover. In 1999, Reliance engaged
in negotiations with those clients of the Company, to settle Reliance's
reinsurance obligations to those clients of the Company. In January 2000,
Reliance announced that those settlement negotiations had been successfully
concluded. Also in January 2000, Reliance and the Company reached an agreement
in principle concerning the Company's brokerage revenue associated with these
settled reinsurance placements. As a result of this agreement, the Company will
not experience any material adverse impact with respect to revenues the Company
has previously recognized for these placements.
The Company also assisted another client company, EBI Indemnity Company
("EBI"), in procuring workers' compensation reinsurance coverage through
Unicover. The Company has
-11-
<PAGE>
been advised that the reinsurance companies represented by Unicover settled
their obligations to EBI in January 2000. To date, the Company has not reached
an agreement with EBI or those reinsurers concerning the Company's brokerage
revenues associated with the reinsurance program, although discussions are
ongoing. In 1999 the Company recognized revenue for this program in accordance
with its standard revenue recognition practices, through the third quarter of
1999. Some, but not all, of that recognized revenue has been received by the
Company. If the Company is not successful in negotiating a satisfactory
resolution of its right to brokerage for the EBI reinsurance program, it intends
to pursue its legal remedies to enforce its rights.
The Company also assisted a client, Superior National Insurance Group
("SNIG"), in procuring workers' compensation reinsurance coverage. This coverage
was procured through a competitor of Unicover, Web Management LLC ("WEB"), which
represented a reinsurer named United States Life Insurance Co. of the City of
New York ("U.S. Life"). The Company is advised that U.S. Life in late 1999
commenced an arbitration proceeding against SNIG. The Company is advised that
U.S. Life alleges, possibly among other things, that this reinsurance program
should be rescinded, for alleged nondisclosure of material information. The
Company is not a party to this arbitration proceeding. However, it is possible
that in the event U.S. Life is successful in that proceeding, the Company may be
required to return reinsurance brokerage previously received and recognized. If
the Company were required to return all of its previously recognized and
received brokerage for this program, the amount would have a material adverse
impact on the Company's financial position and results of operations. However,
based on currently available information, the Company does not believe that this
is likely to occur.
The Company has not made any material accruals for any loss contingency
relating to the revenues recognized to date on the Unicover litigation and
workers' compensation reinsurance issues discussed above, because in the
Company's opinion, no such loss contingencies are likely to occur. However, the
Company is of the opinion that there is a reasonable possibility (i.e., more
than remote but less than likely) of a loss contingency with respect to certain
of those issues, and estimates a possible range of loss for these reasonably
possible loss contingencies of zero to $7.1 million. The Company intends to
continue to vigorously pursue and defend its rights to brokerage on these
matters, including its rights to brokerage in addition to what it has recognized
to date.
GOVERNMENT REGULATION
Certain countries and states in which the Company operates require the
licensing of certain components of the Company's operations. Reinsurance
intermediary licensing statutes generally require, among other things, a written
contract between the ceding company and the reinsurance intermediary which is
terminable at will by the ceding company.
Insurance regulation, including the regulation of intermediaries, has
been subject to increased scrutiny by the National Association of Insurance
Commissioners (the "NAIC") and legislative and regulatory bodies. The NAIC and
state insurance regulators have been reexamining existing laws and regulations,
with an emphasis on insurance company investment and solvency issues. From time
to time members of Congress have raised the possibility of federal regulation
that could result in the federal government assuming some role in the monitoring
of the insurance industry. No assurance can be given as to future legislative or
regulatory changes or as to their effect upon the Company.
The Company's subsidiary E.W. Blanch Capital Markets, Inc. ("EWB
Capital Markets") is a broker-dealer, registered with the Securities and
Exchange Commission ("SEC") and securities regulatory commissions in certain
states. EWB Capital Markets must maintain current registration with the
applicable regulatory bodies. EWB Capital Markets is a member of the National
Association of Securities Dealers ("NASD"). The securities industry in the
United States is subject to extensive regulation under federal and state laws.
The SEC is the federal agency charged with administration of the federal
securities laws. Much of the regulation of broker-dealers, such as EWB Capital
Markets, has been delegated to self-regulatory organizations like the NASD. The
NASD conducts periodic examinations of member broker-dealers. Securities firms
are also subject to regulation by state securities commissions in the states in
which they are registered.
FIDUCIARY FUNDS
As an intermediary, the Company acts as a conduit for insurance and
reinsurance premiums and loss payments which are paid to and remitted from
fiduciary accounts. The Company could be liable if it were to mishandle such
funds in violation of its fiduciary obligations.
The Company earns investment income on the fiduciary funds it holds on
behalf of insurance and reinsurance companies. In recent years, although the
volume of funds processed through the Company's fiduciary accounts have
increased due to business growth, the period of time for which the funds are
held has declined due to advances in technology, including electronic transfers
of funds and data. As this trend continues, the amount of investment income
earned by the Company on these funds may diminish. The Company's investment
income on the fiduciary funds also is impacted by fluctuating interest rates.
Item 2.
PROPERTIES
The Company's physical properties consist primarily of leases of
commercial office space. At December 31, 1999, the Company leased 378,000 square
feet of office space, including 228,000 square feet at its three primary
locations, Dallas, London, and Minneapolis. The Company considers its properties
to be adequate for its present and reasonably foreseeable requirements.
Item 3.
LEGAL PROCEEDINGS
The Company is engaged in legal proceedings in the ordinary course of
business, none of which, either individually or in the aggregate, will, in the
opinion of management, have a material adverse effect on the consolidated
financial position of the Company or the results of its operations.
The various lawsuits to which the Company is a party are routine in
nature and incidental to the Company's business, with the following exception:
E.W. Blanch Co. ("Blanch"), a subsidiary of the Company, is a
third-party defendant in a lawsuit venued in the Supreme Court of the State of
New York, County of New York. This lawsuit was instituted on February 16, 1999,
and Blanch was added as a third-party defendant on
-12-
<PAGE>
March 23, 1999. Plaintiffs are AIU Insurance Company and various other insurance
companies, all of whom are part of the "AIG" group of companies. Defendants are
Unicover Managers, Inc. ("Unicover") and ReliaStar Life Insurance Company
("ReliaStar"). Blanch was joined in the lawsuit as a third-party defendant by
ReliaStar.
In this lawsuit, AIG as plaintiff alleges that ReliaStar, through its
agent Unicover, agreed to provide certain reinsurance protection to AIG,
relating to workers' compensation insurance policies issued by the plaintiff AIG
companies in California and elsewhere in the United States. Defendants assert
that the reinsurance coverages in issue never were bound, and defendant
ReliaStar further asserts that if defendant Unicover in fact did bind those
coverages, it acted beyond the authority granted by ReliaStar.
In ReliaStar's third-party complaint against Blanch, ReliaStar alleges
that Blanch, as AIG's reinsurance broker on the reinsurance placements in issue,
knew or should have known that the reinsurance coverages were not bound and knew
or should have known that Unicover did not have the authority to bind ReliaStar
to those coverages.
The relief being sought by AIG in its complaint against ReliaStar and
Unicover is that defendants be required to honor the reinsurance commitments
that AIG alleges were made, and be required to pay an unspecified amount of
money damages for alleged breach of those reinsurance commitments and (with
respect to Unicover) for negligent misrepresentation.
The relief being sought by ReliaStar in its third-party complaint
against Blanch is that, in the event ReliaStar is found to be liable to AIG,
Blanch be required to indemnify and hold ReliaStar harmless for that liability,
or in the alternative, Blanch be required to make a contribution for a portion
of that liability in an amount to be determined by the Court.
Blanch, in turn, has filed a counterclaim against ReliaStar and
Unicover. The counterclaim alleges that ReliaStar and Unicover, in fact, did
bind the reinsurance coverages in issue, and therefore, they owe Blanch the
reinsurance brokerage to which Blanch is entitled under those reinsurance
contracts. Alternatively, if it is determined that Unicover misrepresented its
authority to bind ReliaStar, Blanch should be awarded money damages resulting
from its reliance on those misrepresentations.
This lawsuit is in the pre-trial stage, with a trial expected to occur
sometime in 2000. Blanch intends to defend vigorously the claims made against it
by ReliaStar and to pursue vigorously its counterclaims against ReliaStar and
Unicover.
Management believes, based on current information, that these actions
will not have a material adverse effect upon the financial position or results
of operations of the Company.
-13-
<PAGE>
Item 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the Company's fourth quarter.
Item 4A.
EXECUTIVE OFFICERS OF THE COMPANY (AS OF MARCH 6, 2000)
<TABLE>
<CAPTION>
DATES
ELECTED TO
NAME AND AGE OFFICE PRESENT POSITION AND BUSINESS EXPERIENCE
- ------------ ------ ----------------------------------------
<S> <C> <C> <C>
Edgar W. Blanch, Jr. (63) 3/03/93 Chairman and Chief Executive Officer
Kaj Ahlmann (49) 11/24/99 Vice Chairman
1993-1999 Chairman, President and Chief Executive Officer -
Employers Reinsurance Corporation (Reinsurer)
Chris L. Walker (42) 7/27/95 President and Chief Operating Officer
3/03/93-7/27/95 Executive Vice President
Frank S. Wilkinson, Jr. (60) 3/03/93 Executive Vice President
Susan B. Wollenberg (36) 1/24/00 Senior Vice President and Chief Financial Officer
1995-2000 Second Vice President (Finance and Business
Development) - Employers Reinsurance Corporation
(Reinsurer)
1993-1995 Assistant Vice President (Finance) - Employers
Reinsurance Corporation (Reinsurer)
Scott K. Billings (37) 1/01/00 Senior Vice President and Chief Accounting Officer
1998-1999 Vice President and Controller
1994-1998 Assistant Controller and Controller - H.D. Vest, Inc.
(Financial Services)
Daniel P. O'Keefe (47) 4/01/96 Senior Vice President, General Counsel and Corporate
Secretary
Prior to 4/01/96 Partner - Dorsey & Whitney LLP (Law Firm)
*Rodman R. Fox (36) 3/7/97 President and Chief Operating Officer - Blanch
4/1/95-3/7/97 Executive Vice President - Blanch
5/6/93-4/1/95 Senior Vice President - Blanch
</TABLE>
* Mr. Fox resigned from his employment with the Company effective March 20,
2000.
-14-
<PAGE>
PART II
Item 5.
MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED SHAREHOLDER MATTERS
The information required by Item 5 is incorporated herein by reference
to the section entitled "Stock Listing and Trading Information" on page 49 of
the Company's 1999 Annual Report to Shareholders.
Item 6.
SELECTED FINANCIAL DATA
The information required by Item 6 is incorporated herein by reference
to the section entitled "Six Year Financial Summary" on page 23 of the Company's
1999 Annual Report to Shareholders.
Item 7.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The information required by Item 7 is incorporated herein by reference
to the section entitled "Management's Discussion and Analysis" on pages 24
through 30 of the Company's 1999 Annual Report to Shareholders.
Item 7(a).
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by Item 7(a) is incorporated herein by
reference to the section entitled "Market Risk" on pages 28 through 29 of the
Company's 1999 Annual Report to Shareholders.
Item 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 is incorporated herein by reference
to pages 31 through 47 of the Company's 1999 Annual Report to Shareholders.
Item 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable.
-15-
<PAGE>
PART III
Item 10.
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information required by Item 10 with regard to Directors is
incorporated herein by reference to the section entitled "Election of Directors"
in the Company's proxy statement for its Annual Meeting of Shareholders in 2000.
The information required by Item 10 with regard to executive officers is set
forth in Item 4A hereof. The information required by Item 10 with regard to
Section 16 reporting is incorporated by reference to the section entitled
"Section 16(a) Beneficial Ownership Reporting Compliance" of the Company's proxy
statement for its Annual Meeting of Shareholders in 2000.
Item 11.
EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference
to the section entitled "Executive Compensation" in the Company's proxy
statement for its Annual Meeting of Shareholders in 2000.
Item 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required in Item 12 is incorporated herein by reference
to the section entitled "Security Ownership of Certain Beneficial Owners" in the
Company's proxy statement for its Annual Meeting of Shareholders in 2000.
Item 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated herein by reference
to the section entitled "Certain Relationships and Related Transactions" in the
Company's proxy statement for its Annual Meeting of Shareholders in 2000.
-16-
<PAGE>
PART IV
Item 14.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(a)(1) The following consolidated financial statements of E. W. Blanch
Holdings, Inc. included in the 1999 Annual Report to Shareholders are
incorporated by reference into this Report by Item 8 hereof:
Report of Independent Auditors
Consolidated Statements of Income for the years ended December 31,
1999, 1998 and 1997
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
(a)(2) All schedules to the consolidated financial statements listed in
Article 5 of Regulation S-X are not required under the related
instructions or are inapplicable and therefore have been omitted.
(a)(3) The Exhibits required to be a part of this Report are listed in the
Index to Exhibits on pages 21 through 22 hereof.
Pursuant to Item 601 (b) (4) (iii) of Regulation S-K, copies of certain
instruments defining the rights of holders of certain long-term debt of
the Company are not filed, and in lieu thereof, the Company agrees to
furnish copies thereof to the Securities and Exchange Commission upon
request.
(b) Reports on Form 8-K
The registrant filed a current report on Form 8-K on March 22, 2000.
The report contained the Company's press release reporting preliminary
results for the first quarter ending March 31, 2000 and the resignation
of Rodman R. Fox. Mr. Fox was a member of the Board of Directors of the
Company, and was President and Chief Operating Officer of the Company's
E.W. Blanch Co. subsidiary. This Form 8-K should be read in conjunction
with the Company's financial statements included in Exhibit 13 hereof.
(c) Exhibits
Included in Item 14(a)(3) above.
(d) Financial Statement Schedules
Included in Item 14(a)(2) above.
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, E. W. Blanch Holdings, Inc. has duly caused this annual
report on Form 10-K to be signed on its behalf by the undersigned, thereunto
duly authorized, on March 28, 2000.
E. W. BLANCH HOLDINGS, INC.
(Registrant)
By: /s/ Edgar W. Blanch, Jr.
-------------------------------------
Edgar W. Blanch, Jr., Chairman of the Board,
Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of E. W.
Blanch Holdings, Inc. and in the capacities indicated on March 28, 2000.
Signature Title
- ------------------------------- ----------------------------------------------
/s/ Edgar W. Blanch, Jr. Chairman of the Board, Chief Executive Officer
- ------------------------------- and Director
Edgar W. Blanch, Jr.
/s/ Susan B. Wollenberg Senior Vice President and Chief Financial
- ------------------------------- Officer
Susan B. Wollenberg
/s/ Scott K. Billings Senior Vice President and Chief Accounting
- ------------------------------- Officer
Scott K. Billings
Edgar W. Blanch, Jr., pursuant to powers of attorney which are being
filed with this Annual Report on Form 10-K, has signed below on March 28, 2000
as attorney-in-fact for the following directors of the Registrant:
James N. Land, Jr. William B. Madden
Steven G. Rothmeier Gerald A. Isom
Paul B. Ingrey Chris L. Walker
Frank S. Wilkinson, Jr.
Kaj Ahlmann
/s/ Edgar W. Blanch, Jr.
------------------------------------------
Edgar W. Blanch, Jr.
Attorney-in-fact
-18-
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------ -----------
<S> <C>
3.1 Restated Certificate of Incorporation of the Company (5)
3.2 By-Laws of the Company (2)
4.1 Specimen Common Stock Certificate (2)
4.2 Rights Agreement, dated as of January 24, 1997, between the
Company and Norwest Bank Minnesota, N.A., as Rights Agent (3)
4.3 Rights Agreement Amendment, dated as of October 16, 1998, between
the Company and Norwest Bank Minnesota, N.A., as Rights Agent (9)
4.4 Credit Agreement, dated as of November 3, 1998, between the
Company and Nationsbank, N.A., as Agent (11)
10.1* Non-Employee Directors Stock Plan (2)
10.2* Directors' Stock Option Plan (7)
10.3* 1993 Stock Incentive Plan, as amended (11)
10.4* 1997 Stock Incentive Plan (7)
10.5* Executive Restricted Stock Incentive Plan (7)
10.6* 1999 Management Incentive Plan (1)
10.7* K2 Technologies, Inc. 1994 Stock Plan (10)
10.8* K2 Technologies, Inc. 1996 Stock Plan (10)
10.9* K2 Technologies, Inc. 1998 Key Person Stock Option Plan (10)
10.10* Employment Agreement between the Company and Edgar W. Blanch, Jr. (4)
10.11* Employment Agreement between the Company and Frank S. Wilkinson, Jr. (2)
10.12* Employment Agreement between the Company and Chris L. Walker (2)
10.13* Employment Agreement between the Company and Rodman R. Fox (11)
10.14* Specimen Severance Agreement (6)
10.15* Schedule of Executives Receiving Severance Agreements, as amended (1)
</TABLE>
-19-
<PAGE>
10.16* Employment Agreement between the Company and Kaj Ahlmann (1)
10.17 Stock Purchase Agreement by and among Paragon Reinsurance Risk
Management Services, Inc., E.W. Blanch Holdings, Inc., JD Warren,
Incorporated, Ronald R. Morris, Michael P. Lopes and Paul A.
Herskovitz, dated August 25, 1999 (1)
10.18 Sale/Purchase Agreement of the entire issued share capital of
Crawley Warren Group Ltd. by and among B.J. Warren Esq. And
Others, and E.W. Blanch Ltd., dated November 1999 (1)
11 Computation of Earnings per Share (8)
13 Portions of the 1999 Annual Report to Shareholders incorporated
by reference in this Form 10-K (1)
21 Subsidiaries of the Company (1)
23 Consent of Ernst & Young LLP (1)
24 Powers of Attorney (1)
27 Financial Data Schedule for the year ended December 31, 1999 (1)
- -------------------------------------
(1) Filed with this Annual Report on Form 10-K.
(2) Incorporated by reference to the Company's Registration Statement on
Form S-1, Registration No. 33-59198.
(3) Incorporated by reference to the Company's Registration Statement on
Form 8-A, dated January 24, 1997.
(4) Filed with the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended June 30, 1997.
(5) Filed with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1996.
(6) Filed with the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1997.
(7) Filed with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
(8) The information required by Exhibit 11 is incorporated by reference to
Note 8 to the Company's Consolidated Financial Statements for the year
ended December 31, 1999 included in Exhibit 13 with this Annual Report
on Form 10-K.
(9) Incorporated by reference to Amendment number one to the Company's
registration statement on Form 8-A dated November 18, 1998.
(10) Filed with the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended September 30, 1998.
(11) Filed with the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1998.
* Management contract and compensatory plan or arrangement required to be
filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
-20-
EXHIBIT 10.6
E. W. BLANCH HOLDINGS, INC.
MANAGEMENT INCENTIVE PLAN
This document explains the terms of the Management Incentive Plan (the Plan) of
E. W. Blanch Holdings, Inc. (the Company, Holdings, or Holdings Company).
Participants
Edgar W. Blanch, Jr. Chris L. Walker
Rodman R. Fox Frank S. Wilkinson, Jr.
Ian D. Packer
Funding
The sum of the following two components equals the total amount of the Plan
pool:
1. 20% of the 1999 pre-tax profits in excess of 20% growth over 1998 pre-tax
profits, adjusted for the 1998 Plan expense.
1998 pre-tax profits $61,330,206
Add back 1998 Plan expense 1,850,000
------------
$63,180,206
Times Growth Goal (120%) 1.20
------------
1999 pre-tax profit goal $75,816,247
2. 37.5% of the aggregate amount awarded to the E. W. Blanch Holdings, Inc,
Incentive Plan (for all other employees) will be allocated to the bonus
pool.
Any stock acquisitions or stock offerings may require adjustment to the
measurement of earnings to ensure that the cost of capital is recognized.
Allocation and Payment
Mr. Blanch shall be paid 50% of the Plan pool. The Committee may not increase
this percentage allocation, but may, at its discretion, reduce it. Awards will
be allocated to the other participants from the remaining funds in the Plan
pool, based upon the Committee's judgment of their performance and contributions
during the year. Additionally, individual bonuses paid to the participants may
not exceed 100% of their respective base salaries.
Funds available for distribution shall be paid no later than March 15, 2000. In
order to be eligible to receive an award, a participant must be an employee of
the Company on the date such award is to be paid.
Administration and Amendments
The Company's shareholders must approve the Plan. The Plan shall then be
administered, construed and interpreted by the Committee. The Plan shall be
effective for the Company's 1999 fiscal year.
The Committee may require that Plan participants enter into written
participation agreements, in such form or forms as the Committee shall deem
appropriate.
EXHIBIT 10.15
SCHEDULE OF EXECUTIVES RECEIVING SEVERANCE AGREEMENTS
Name of Executive Severance Amount (4(I) (a))
- --------------------------- ---------------------------
E.W. Blanch, Jr. three (3)
Rodman R. Fox three (3)
Ian D. Packer three (3)
Chris L. Walker three (3)
Frank S. Wilkinson, Jr. three (3)
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
AGREEMENT between E. W. Blanch Holdings., Inc., a Delaware corporation
(hereinafter called the "Company"), and Kaj Ahlmann (hereinafter called the
"Employee").
1. EFFECTIVE DATE. The effective date of this Agreement shall be
November 24, 1999.
2. EMPLOYMENT. The Company hereby employs the Employee and the Employee
hereby accepts employment upon the terms and conditions hereinafter set forth.
3. TERM. The term of this Agreement shall be from the effective date of
this Agreement to March 31, 2004 and shall automatically renew for annual
periods thereafter unless the Company gives notice of its intention not to
renew, not less than 30 days prior to the end of the current annual period. This
Agreement is also subject to early termination by the Company for "Cause."
For purposes of this Agreement, the Company shall have Cause to
terminate Employee's employment hereunder upon (a) any misrepresentation or
concealment of a material fact for the purpose of securing this employment
agreement; (b) theft, fraud, embezzlement, dishonesty, or other similar behavior
by the Employee; (c) any material breach by the Employee of the terms of this
Agreement; (d) any repeated or material neglect of duty or misconduct of the
Employee in discharging any of his duties and responsibilities hereunder; (e)
any conduct of the Employee which is materially detrimental or embarrassing to
the Company, including but not limited to the Employee being convicted of a
felony; and/or (f) any refusal or material or repeated failure by the Employee
to comply with the policies, rules, and regulations of the Company. In the event
that this Agreement shall be terminated for Cause, the Company shall continue to
make payments hereunder for all services rendered by the Employee up to the date
of termination but shall have no further obligations to make payments after that
date.
The Company may terminate the Employee's employment hereunder if (i)
the Employee becomes disabled, as such term is defined in the group disability
insurance policy of Employer or (ii) the Employee dies. In any such case, the
Company shall have no further obligation or liability under this Agreement.
4. COMPENSATION. For all services rendered by the Employee under this
Agreement, the Company shall pay the Employee at a salary rate of not less than
$650,000.00 per year, payable in accordance with the Company's payroll practice
as from time to time in effect.
Employee will participate in the Company's bonus and incentive
compensation plans as may exist from time to time at the discretion of the
Company, subject to the eligibility and other provisions of those plans.
5. DUTIES. The Employee is engaged as an executive of the Company and
hereby promises to perform and discharge faithfully and efficiently the duties,
which may be assigned to him from time to time. Employee will work out of Kansas
City, Kansas and will not be expected to relocate to Dallas or elsewhere.
6. EXTENT OF SERVICES. The Employee shall devote substantially his full
time, attention and energies to the business of the Company and shall not during
the term of this Agreement be engaged in any other substantial business
activity, whether or not such business activity is pursued for gain, profit or
other pecuniary advantage; but this shall not be construed as preventing the
Employee from investing his personal assets in businesses which do not compete
with the Company in such form or manner as
-1-
<PAGE>
will not require any substantial services on the part of the Employee in the
operation of the affairs of the companies in which such investments are made and
in which his participation is solely that of an investor and except that the
Employee may purchase securities in any corporation whose securities are
regularly traded, provided that such purchases shall not result in him
collectively owning beneficially at any time more than 1% of any class of
securities of any corporation engaged in a business competitive with that of the
Company.
7. COVENANTS NOT TO SOLICIT, COMPETE OR INTERFERE. For a period of two
(2) years from and after the termination of Employee's employment hereunder for
any reason, other than a material breach by the Company hereunder, Employee will
not, directly or indirectly, as a sole proprietor, member of a partnership, or
stockholder, investor, officer or director of a corporation, or as an employee,
agent, associate or consultant of any person, firm or corporation:
(a) Solicit or accept business (i) from any clients or
prospects of the Company or its affiliates who were solicited or
serviced directly by the Employee or where the Employee supervised,
directly or indirectly, in whole or in part, the solicitation or
service activities related to such clients or prospects or (ii) from
any former client of the Company or its affiliates who was such within
one (1) year prior to Employee's date of termination and who was
solicited or serviced directly by the Employee or where the Employee
supervised, directly or indirectly, in whole or in part, the
solicitation or service activities related to such former client; or
(b) Solicit, or assist anyone else in the solicitation of, any
of the Company's employees to terminate their employment with the
Company and to become employed by any business enterprise with which
the Employee may then be associated, affiliated, or connected; or
(c) Engage in the business of the type performed by the
Company or its affiliates, including but not limited to reinsurance
brokerage and related business. The geographic area encompassed by this
restriction shall be the entire United States. Employee acknowledges
that, in light of his senior management position within the Company,
this is a reasonable and appropriate geographic restriction.
As used in this paragraph 7 and in paragraph 8, "affiliate" shall mean
any person, firm or corporation that, directly or indirectly, controls, is
controlled by, or is under common control with, the Company, whether such
control is through stock ownership, contract or otherwise, and shall expressly
include the Company's predecessor, E. W. Blanch Co. Limited Partnership; and
"prospect" shall mean any person or organization to whom a proposal for services
was rendered by the Company or its affiliates during the 12-month period
immediately preceding the Employee's date of termination; and "solicit" includes
but is not limited to any contact or communication of any nature with a prospect
or existing client for the purpose of or having the effect of maintaining or
establishing goodwill as a basis for any present, future or expanded business,
or otherwise furthering a business goal.
It is the desire and intent of the parties that the provisions of this
paragraph 7 shall be enforced to the fullest extent permissible under the laws
and public policies applied in each jurisdiction in which enforcement is sought.
Accordingly, if any particular portion of this paragraph 7 shall be adjudicated
to be invalid or unenforceable, this paragraph 7 shall be deemed amended to
permit a court to modify the portion thus adjudicated to be invalid or
unenforceable, so that this paragraph shall be legally
-2-
<PAGE>
enforceable to the full extent permitted in the law of the particular
jurisdiction in which such adjudication is made.
8. NONDISCLOSURE OF INFORMATION. Employee recognizes and acknowledges
that the Company's trade secrets and confidential or proprietary information,
including such trade secrets or information as may exist from time to time, and
information as to the identity of clients of the Company, reinsurance contract
data and other similar items, are valuable, special and unique assets of the
Company's business, access to and knowledge of which are essential to the
performance of the duties of Employee hereunder. Employee will not, during or
after the term hereof, in whole or in part, disclose such secrets or
confidential or proprietary information to any person, firm, corporation,
association or other entity for any reason or purpose whatsoever, nor shall
Employee make use of any such property for his own purposes or for the benefits
of any person, firm, corporation or other entity (except the Company) under any
circumstances, during or after the term hereof, provided that after the term
hereof these restrictions shall not apply to such secrets or information which
are then in the public domain (provided that Employee was not responsible,
directly or indirectly, for such secrets or information entering the public
domain without the Company's consent).
9. INJUNCTIVE RELIEF. If there is a breach or threatened breach of the
provisions of paragraphs 7 or 8 of this Agreement, the Company shall be entitled
to an injunction restraining Employee from such breach. Nothing herein shall be
construed as prohibiting the Company from pursuing any other remedies for such
breach or threatened breach including recovery of and damages incurred by the
Company and any profits made by Employee as a result of such breach or
threatened breach. The Company shall be entitled to recovery of its legal fees
and related costs in the event of a breach or threatened breach of this
Agreement by Employee.
10. EMPLOYEE BENEFITS. During the term of this Agreement, Employee
shall participate in all employee benefit plans of the Company, subject to the
eligibility, enrollment and other requirements of such plans.
11. NOTICES. Any notice required or permitted to be given under this
Agreement shall be in writing and shall be deemed to have been duly given or
delivered if delivered personally or mailed by registered or certified mail,
return receipt requested, with first class postage prepaid, to his residence in
the case of Employee and to its principal office in the case of the Company.
12. BREACH, WAIVER OF BREACH. The waiver by the Company of a breach of
any provision of this Agreement by the Employee shall not operate or be
construed as a waiver of any subsequent breach by the Employee.
13. GOVERNING LAW. The validity, interpretation, construction,
performance, enforcement and remedies of or relating to this Agreement, and the
rights and obligations of the parties hereunder, shall be governed by the
substantive laws of the State of Texas (without regard to the conflict of laws
rules or statutes of any jurisdiction), and any and every legal proceeding
arising out of or in connection with this Agreement shall be brought in the
appropriate courts of the State of Texas, each of the parties hereby consenting
to the exclusive jurisdiction of said courts for this purpose.
14. ASSIGNMENT. The rights and obligations of the Company under this
Agreement shall inure to the benefit of and shall be binding upon the successors
of the Company and may be assigned, for all or any part of the term hereof, by
the Company to an affiliate of the Company or to any corporation (i) which at
the time controls the capital stock of the Company, (ii) which succeeds to
substantially all the assets of the Company or (iii) the controlling capital
stock of which is at the time
-3-
<PAGE>
owned by the Company; provided, however, that in the event of any transaction
specified in (i), (ii) or (iii) above, the Company shall remain liable with
respect to the obligations of the Company under this Agreement. In the event of
such assignment, any and all references to the "Company" in other paragraphs of
this Agreement shall be deemed to mean and include such assignee corporation.
15. ENTIRE AGREEMENT. This instrument contains the entire agreement of
the parties with respect to employment. It may not be changed orally but only by
an agreement in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
16. SURVIVAL. The parties expressly acknowledge and agree that the
provisions of this Agreement, which by their express or implied terms extend
beyond the termination of Employee's employment hereunder (including, without
limitation, the provisions of paragraphs 7 and 8 relating to noncompetition and
nondisclosure of information), shall continue in full force and effect
notwithstanding Employee's termination of employment hereunder or the
termination of this Agreement, respectively.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
dates below.
E. W. Blanch Holdings, Inc.
500 North Akard, Suite 4500
Dallas, TX 75201
------------------------------------- ------------------------------
Edgar W. Blanch, Jr., CEO Date
------------------------------------- ------------------------------
Kaj Ahlmann
Address:
-------------------------------------
-------------------------------------
-------------------------------------
-4-
EXHIBIT 10.17
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into as of August 25, 1999 by and among Paragon Reinsurance Risk Management
Services, Inc., a Delaware corporation ("Buyer"), E.W. Blanch Holdings, Inc., a
Delaware corporation ("Holdings"), JD Warren, Incorporated, a Pennsylvania
corporation (the "Company"), Ronald R. Morris, Michael P. Lopes and Paul A.
Herskovitz (collectively, the "Shareholders").
WITNESSETH:
WHEREAS, the Shareholders own all of the issued and outstanding shares
of capital stock of the Company;
WHEREAS, the Shareholders desire to sell and convey to Buyer, and Buyer
desires to purchase from the Shareholders, all of the outstanding capital stock
of the Company; and
NOW, THEREFORE, for and in consideration of the premises and of the
mutual representations, warranties, covenants and agreements contained herein,
and of other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and upon the terms and subject to the conditions
hereinafter set forth, the parties do hereby agree as follows:
1. PURCHASE AND SALE & PURCHASE PRICE
1.1 PURCHASE AND SALE OF SHARES. Subject to the terms and conditions
set forth in this Agreement, the Shareholders each agree to sell, convey,
transfer, assign, and deliver to Buyer, and Buyer agrees to purchase from each
Shareholder on the Closing Date (as defined below), all of the issued and
outstanding shares of the capital stock, par value $.01 per share, of the
Company (the "Shares") free and clear of all Liens.
1.2 PURCHASE PRICE. As consideration for the transfer of the Shares to
Buyer, Buyer shall deliver at the Closing the following amounts (collectively,
the "Purchase Price"):
(a) To the Shareholders on a pro-rata basis in accordance with
their share ownership in the Company as set forth in Schedule 1.2(a), by wire
transfer of immediately available funds to the account(s) designated by the
Shareholder Representative (as defined below), an aggregate amount equal to
Twelve Million Two Hundred Seventy Seven Thousand Two Hundred Ninety Five
Dollars ($12,277,295); and
(b) To Norwest Bank Minnesota, N.A. ("Escrow Holder"), by wire
transfer in immediately available funds, an amount equal to Three Million Seven
Hundred Thirty Thousand Dollars ($3,730,000) to be held in an interest bearing
escrow account (the "Escrow Account"). The Escrow Holder shall retain, hold and
dispose of these funds in accordance with the terms of the Escrow Agreement
among Buyer, the Shareholders and Escrow Holder, which shall be in
-1-
<PAGE>
substantially the form of Exhibit A attached hereto (the "Escrow Agreement").
The Escrow Agreement shall provide that:
(i) Two Million Three Hundred Thirty One Thousand Two
Hundred Fifty Dollars ($2,331,250), together with the interest accrued thereon,
shall be released from the Escrow Account to the Shareholders, pro-rata, in the
event the Company enters into "clean-up" Deductible Recovery Agreements with
Division 82-Energy of AIG and Division 54-Construction of AIG on or before
December 31, 1999 (the "AIG Agreements"), such AIG Agreements to be negotiated
in good faith by the management of the Company with such attorneys and advisors
as management reasonably deems appropriate. In the event the Company does not
enter into the AIG Agreements on or before December 31, 1999, then $2,331,250,
together with the interest accrued thereon, shall be released by the Escrow
Holder to the Buyer on December 31, 1999; and
(ii) The balance of the funds held in the Escrow Account
shall be held for a period of one year following the Closing by the Escrow
Holder in order to serve as the non-exclusive remedy on the part of the Buyer
for the payment of any liability of the Shareholders to Buyer arising under
Sections 1.4 and 9.1 of this Agreement. Upon the completion of such one year
period, any unused funds, including interest income, shall be released pro-rata
to the Shareholders.
1.3 PURCHASE PRICE ADJUSTMENT. In the event the Company between the
Balance Sheet Date and the Closing Date makes any loans, declares, sets aside or
pays any dividend or other distribution (whether in cash, securities or property
or any combination thereof) to any of its Shareholders (a "Distribution"), then
the Purchase Price shall be reduced by the amount of such Distribution, such
amount to be reflected on the Closing Date Balance Sheet (as defined below).
1.4 POST-CLOSING ADJUSTMENT
(a) Within fifteen (15) days after the Closing (as defined
below), the Shareholder Representative shall prepare a balance sheet of the
Company at the close of business on the Closing Date (the "Closing Date Balance
Sheet"). The Closing Date Balance Sheet shall be prepared in accordance with
generally accepted accounting principles consistently applied in accordance with
the past practices of the Company ("GAAP"). Within such fifteen (15) day period,
the Shareholder Representative shall promptly deliver a copy of the Closing Date
Balance Sheet to Buyer.
(b) If Buyer does not object to the Closing Date Balance Sheet
within fifteen (15) days of receipt thereof, then in the event the Company has
made a Distribution as reflected on the Closing Date Balance Sheet, then the
Buyer shall so notify the Escrow Agent and the Escrow Holder shall pay to Buyer
an amount in cash equal to the Distribution (the "Purchase Price Reduction") as
set forth in the Escrow Agreement.
(c) If Buyer objects to the Closing Date Balance Sheet, it shall
notify the Shareholder Representative within fifteen (15) days following receipt
thereof, setting forth in specific detail the basis for its objection and its
proposal for any adjustments thereto. Buyer and the Shareholder Representative
shall use their best efforts to reach agreement as to any such proposed
-2-
<PAGE>
adjustment or that no such adjustment is necessary. If agreement is reached as
to any proposed adjustment, the parties shall make such adjustment and the
Purchase Price Reduction shall be based thereon. If Buyer and the Shareholder
Representative are unable to reach agreement within thirty (30) days, then Ernst
& Young LLP or such other accounting firm as agreed upon by Buyer and the
Shareholder Representative (the "Third Party Accounting Firm") shall be engaged
to review the proposed adjustment as to which agreement has not been reached and
shall make a determination as to the resolution of the proposed adjustment to
cause the Purchase Price Reduction to have been properly calculated in
accordance with the provisions of this Agreement. All resolutions shall
represent either agreement with the position taken by Buyer or the Shareholder
Representative or a compromise of such positions. The determination of the Third
Party Accounting Firm shall be final, conclusive and binding upon Buyer and the
Shareholders. Buyer and the Shareholders shall share equally the costs of the
Third Party Accounting Firm hereunder. Any amounts owed to Buyer as a result of
these adjustments (i.e., a Distribution) will be paid by the Escrow Holder after
the determination of the Third Party Accounting Firm as set forth in the Escrow
Agreement.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE SHAREHOLDERS
The Company and each of the Shareholders, jointly and severally, hereby
represent and warrant to Buyer that all of the following representations and
warranties are true as of the date of this Agreement and, subject to Section 4.8
hereof, shall be true at the time of Closing:
2.1 DUE ORGANIZATION. The Company is a corporation duly organized and
validly existing under the laws of the state of its incorporation, and it is
duly authorized and qualified to do business under all applicable laws,
regulations, ordinances and orders of public authorities to carry on its
business in the places and in the manner as now conducted in each jurisdiction
where the failure to be so authorized or qualified would have a Material Adverse
Effect. SCHEDULE 2.1 contains a list of all jurisdictions in which the Company
is authorized or qualified to do business. True, complete and correct copies of
the Articles of Incorporation (as of the date hereof, certified by the Secretary
or Assistant Secretary of the Company and, as of August 6, 1999, by the
Secretary of State or other appropriate authority of the state of incorporation
of the Company) and bylaws (certified by the Secretary or Assistant Secretary of
the Company) of the Company, are all attached hereto as SCHEDULE 2.1. The minute
books of the Company made available to Buyer are true, correct and complete in
all material respects, maintained in accordance with applicable Laws and reflect
accurately all actions taken by the shareholders and the board of directors of
the Company.
2.2 AUTHORIZATION. (i) The duly authorized officer of the Company
executing this Agreement has the authority to enter into and bind the Company to
the terms of this Agreement and (ii) the Company has the full legal right, power
and authority to enter into this Agreement. The execution and delivery of this
Agreement by each of the Shareholders and the Company, and the performance by
each of their obligations hereunder, have been or by the Closing will have been
duly authorized by all requisite corporate action on the part of each of the
Shareholders and the Board of Directors of the Company, and no other corporate
or shareholder authorization or approval on the part of the Shareholders or of
the Company is required for any of the Shareholders or the Company to enter into
this Agreement or to perform their obligations hereunder.
-3-
<PAGE>
2.3 CAPITAL SHARES OF THE COMPANY. The authorized capital stock of the
Company is as set forth on SCHEDULE 2.3 hereto. All of the issued and
outstanding shares of the capital stock of the Company (the "Shares") have been
duly authorized and validly issued, are fully paid and nonassessable, and no
holder thereof is entitled to any preemptive rights (except any statutory
preemptive rights, which the Shareholders hereby waive). All of the issued and
outstanding shares of the capital stock of the Company are owned by the
Shareholders and in the amounts set forth on SCHEDULE 2.3 hereto and further,
except as set forth on SCHEDULE 2.3, such shares were offered, issued, sold and
delivered by the Company in compliance with all applicable state and federal
laws concerning the issuance of securities. Further, none of the Shares were
issued in violation of the preemptive rights of any past or present shareholder.
The Shareholders (i) own of record and beneficially and have good and marketable
title to all of the issued and outstanding Shares, free and clear of any and all
Liens, charges, adverse claims, options, rights or restrictions of any character
whatsoever other than standard state and federal securities law private offering
legends and restrictions, and (ii) have the right to vote the Shares on any
matters as to which any shares of the Company's Common Stock are entitled to be
voted under the laws of the state of incorporation of the Company and the
Company's Articles of Incorporation and By-laws, free of any right of any other
Person.
2.4 TRANSACTIONS IN CAPITAL SHARES. Except as set forth on SCHEDULE
2.4, no option, warrant, call, conversion right or commitment of any kind exists
which obligates the Company to issue any of its authorized but unissued capital
stock. Except as set forth on SCHEDULE 2.4, the Company has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of its
equity securities or any interests therein or to pay any dividend or make any
distribution in respect thereof. The Company does not, directly or indirectly,
own, and has not agreed to purchase or otherwise acquire, the capital stock or
other equity interests of, or any interest convertible into or exchangeable or
exercisable for such capital stock or such equity interests of, any corporation,
partnership, joint venture or other entity. There is no agreement, arrangement,
contract or other commitment of any kind whatsoever (contingent or otherwise)
pursuant to which any Person is or may become entitled to receive any payment
from the Company based on the revenues or earnings, or calculated in accordance
therewith, of the Company. There is no voting trust, proxy or other agreement,
arrangement, contract or other commitment of any kind whatsoever to which the
Company is a party, or by which the Company, or any of its properties or assets,
is bound with respect to the voting of any share of capital stock or other
equity interest of the Company.
2.5 ENFORCEABILITY. This Agreement constitutes a valid and binding
obligation of each of the Shareholders and the Company enforceable in accordance
with its terms, subject to the effects of bankruptcy, insolvency, fraudulent
conveyance, moratorium, reorganization, or similar laws affecting creditors'
rights and to general equitable principles.
2.6 SUBSIDIARIES. Except as set forth on SCHEDULE 2.6, the Company does
not presently own, of record or beneficially, or control, directly or
indirectly, any capital stock, securities convertible into capital stock or any
other equity interest in any corporation, association or business entity, nor is
the Company, directly or indirectly, a participant in any joint venture,
partnership or other non-corporate entity, nor has the Company made any
commitment to effect any of the foregoing.
-4-
<PAGE>
2.7 PREDECESSOR STATUS; ETC. Set forth on SCHEDULE 2.7 is a listing of
all names of all predecessor entities of the Company, including the names of any
entities from whom the Company previously acquired material assets. The Company
has not been a subsidiary or division of another corporation or a part of an
acquisition which was later rescinded.
2.8 SPIN-OFF BY THE COMPANY. Except as set forth on SCHEDULE 2.8, there
has not been any sale or spin-off of material assets of the Company or any
Affiliate of the Company, other than in the ordinary course of business, within
the preceding two years.
2.9 FINANCIAL STATEMENTS. The Company has delivered to Buyer (as
SCHEDULE 2.9) true, complete and correct copies of the Company's (i) Balance
Sheet as of (x) June 30, 1999 (hereinafter referred to as the "Balance Sheet
Date"), and (y) as of March 31, 1999, and (ii) Statements of Income and Retained
Earnings and Cash Flows for the three month period and twelve month period
ending on such dates, respectively (collectively, the "Financial Statements").
Such Financial Statements have been prepared in accordance with GAAP applied on
a consistent basis throughout the periods indicated. The balance sheets included
in the Financial Statements present accurately the financial condition of the
Company as of the dates indicated thereon, and the Statements of Income and
Retained Earnings and Cash Flows included in the Financial Statements present
accurately the results of the Company's operations for the periods indicated
thereon. If required, the President or Chief Financial Officer of the Company
has executed, or will execute any documentation reasonably required by Buyer's
independent public accountants with respect to relevant accounting issues.
2.10 LIABILITIES AND OBLIGATIONS. The Company has delivered to Buyer an
accurate list (SCHEDULE 2.10) as of the Balance Sheet Date of (i) all
liabilities of the Company which are reflected on the Balance Sheet of the
Company as of the Balance Sheet Date and (ii) any liabilities (including
contingencies) of the Company which are not reflected in the balance sheet as of
the Balance Sheet Date. Except as set forth on SCHEDULE 2.10, since the Balance
Sheet Date, the Company has not incurred any liabilities of any kind, character
and description, whether accrued, absolute, secured or unsecured, contingent or
otherwise, other than liabilities incurred in the ordinary course of business.
The Company has also delivered to Buyer, in the case of those liabilities which
are not fixed, a reasonable estimate of the maximum amount which the Company
expects will be payable. For each such liability for which the amount is not
fixed or is contested, the Company has provided to Buyer the following
information:
(i) a summary description of the liability together with the
following:
(a) copies of all material relevant documentation relating
thereto;
(b) amounts claimed and any other action or relief sought; and
(c) name of claimant and all other parties to the claim, suit
or proceeding;
(ii) the name of each court or agency before which such claim, suit
or proceeding is pending; and
(iii) the date such claim, suit or proceeding was instituted.
2.11 ACCOUNTS AND NOTES RECEIVABLE. The Company has delivered to Buyer
an accurate list (SCHEDULE 2.11) of the accounts and notes receivable of the
Company as of the Balance Sheet
-5-
<PAGE>
Date, including any such amounts which are not reflected in the Balance Sheet as
of the Balance Sheet Date, and including receivables from and advances to
employees. The Company has also provided Buyer on SCHEDULE 2.11 with an accurate
list of all receivables obtained subsequent to the Balance Sheet Date. On or
prior to the Closing Date, the Company shall provide Buyer with an aging of all
accounts and notes receivable of the Company as of the most recent practicable
date showing amounts due in 30 day aging categories. Except to the extent
reflected on SCHEDULE 2.11 such accounts and notes are collectible in the amount
shown on SCHEDULE 2.11, net of reserves reflected in the balance sheet as of the
Balance Sheet Date.
2.12 PERMITS/COMPLIANCE WITH LAWS. The Company possesses all material
franchises, grants, authorizations, licenses, permits, use and development
rights, easements, access rights, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and
assets as now being owned, licensed and operated and to carry on its business as
it is now being conducted (collectively, the "Permits"), and there is no claim,
action, suit, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened regarding modification, suspension or
cancellation of any such Permits. SCHEDULE 2.12 sets forth a true, correct and
complete list of all such Permits. Except as set forth in SCHEDULE 2.12, the
Company (and each of its properties and assets) is, and has been in compliance
in all material respects with such Permits and with all Laws applicable to it or
by or to which any of its properties or assets is bound or subject. Except as
set forth in SCHEDULE 2.12, none of the Permits will lapse, be impaired,
terminate or expire as a result of the performance of this Agreement by the
Company or the Shareholders or the consummation of the transactions contemplated
hereby.
2.13 INTELLECTUAL PROPERTY.
(a) For purposes of this Agreement, "Intellectual Property" means
all of the following used by the Company in the operations of its business (i)
all inventions (whether patentable or unpatentable and whether or not reduced to
practice), all improvements thereto, and all patents, patent applications, and
patent disclosures, together with all reissuances, continuations,
continuations-in-part, revisions, extensions, and reexaminations thereof, (ii)
the name "JD Warren, Inc." and all other trademarks, service marks, trade dress,
logos, trade names, and corporate names, together with all translations,
adaptations, derivations, and combinations thereof and including all goodwill
associated therewith, and all applications, registrations, and renewals in
connection therewith, (iii) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (iv) all mask
works and all applications, registrations, and renewals in connection therewith,
(v) all trade secrets and confidential business information (including ideas,
research and development, know-how, formulas, compositions, manufacturing and
production processes and techniques, technical data, designs, drawings,
specifications, customer and supplier lists, pricing and cost information, and
business and marketing plans and proposals), (vi) all computer software
(including data and related documentation), (vii) all other proprietary rights,
and (viii) all copies and tangible embodiments thereof (in whatever form or
medium).
(b) The Company owns all right, title and interest in, or has a
valid license to use, the Intellectual Property. Such licenses are not
terminable due to any breach or noncompliance by
-6-
<PAGE>
the Company and shall not be adversely affected by the transactions contemplated
herein. No other Person has any right, title or interest in, to or under any of
the Intellectual Property owned by the Company. SCHEDULE 2.13(B) sets forth a
list of all patents, patent applications, trademarks, trademark applications,
trademark registrations, copyright applications, copyright registrations,
applications to register industrial designs, registrations of industrial
designs, applications to register maskworks, registrations of maskworks, trade
names and trade dress included in the Intellectual Property. SCHEDULE 2.13(B)
indicates which Intellectual Property is owned by the Company and which
Intellectual Property is licensed to the Company.
(c) Each employee of the Company, and each independent
contractor, outside consultant and other agent who has participated in or is
participating in the conception, design or development of any software, other
product, service or Intellectual Property for, on behalf of or at the request of
the Company, has assigned all right, title and interest therein and thereto to
the Company.
(d) Except as set forth in SCHEDULE 2.13(D), the Intellectual
Property owned by the Company is not subject to any Lien in favor of any third
party. None of the Company's rights in or to any of the Intellectual Property
shall be materially and adversely affected by its execution or delivery of this
Agreement or by the performance of its obligations hereunder or by the
transactions contemplated herein. No claims with respect to any Intellectual
Property have been asserted or, to the best of the Company's knowledge,
threatened by any Person (i) against the Company, or (ii) to the best of the
Company's knowledge, against any other Person based on its use of any
Intellectual Property owned, licensed or used by the Company or based on any
product or service provided by the Company. To the best of the Company's
knowledge, none of the Company's past or present activities, including, but not
limited to, the manufacture, use, sale or distribution of any product and the
provision of any service, and no manufacture, use, sale or distribution of any
of the Company's products by any Person constitutes or has constituted an
infringement, misappropriation, unauthorized use or other violation of, and no
valid grounds exist for any bona fide claims against the Company or any such
Person with respect to, the Intellectual Property of any other Person. Without
limiting the generality of the foregoing, no Person ever employed or otherwise
engaged by the Company has asserted or, to the Company's knowledge, threatened
any claim against the Company relating to any Intellectual Property. To the best
of the Company's knowledge, there has not been, nor is there presently, any
unauthorized use, infringement, misappropriation or violation of any of the
Intellectual Property by any Person. Except as set forth in SCHEDULE 2.13(D),
the Company has the full right to make, have made, sell, possess, use, copy,
distribute, display, transfer and license all Intellectual Property.
(e) No Intellectual Property owned by the Company is subject to
any outstanding order, award, decision, injunction, judgment, decree,
stipulation or agreement in any manner restricting the transfer, use,
enforcement or licensing thereof by the Company. The Company has not entered
into any agreement to defend or indemnify any other Person against any charge of
infringement of any Intellectual Property. The Company has not entered into any
agreement granting any third party the right to bring infringement actions with
respect to, or otherwise to enforce rights with respect to, any Intellectual
Property. The Company has the exclusive right to file, prosecute and maintain
all applications, patents and registrations with respect to Intellectual
Property owned by the Company.
-7-
<PAGE>
(f) Except as set forth in SCHEDULE 2.13(F), the Company has
taken all reasonable and necessary steps to maintain, enforce and protect the
Intellectual Property owned by the Company and its rights thereunder, and no
such rights to Intellectual Property have been lost or are in jeopardy of being
lost. The Company has paid all fees, annuities and all other payments which have
heretofore become due to any Governmental Authority with respect to Intellectual
Property owned by the Company.
(g) The Company has not transferred its right, title or interest
in or to any copy of any computer program or other software owned or licensed by
the Company. No computer program or other software owned or licensed by the
Company has been supplied by the Company to any Person except pursuant to a
binding license prohibiting further distribution and disclosure. All source code
for all computer programs and other software owned by the Company is in the sole
possession of the Company and has been maintained strictly confidential. The
Company has no obligation to afford any Person access to any source code for any
computer program or other software.
(h) All computer programs and other software which are owned,
used or licensed by the Company have been upgraded as necessary so that they are
fully functional in every material respect, are operative for their current
business purposes and free of material defects and deficiencies. All computer
programs and other software transferred by the Company to its customers or to
any other transferees (i) fully conform with all specifications,
representations, warranties, and other descriptions established by the Company
or conveyed thereby, (ii) are operative for their intended purposes and free of
material defects and deficiencies, and (iii) have been fully maintained by the
Company on behalf of its customers and other transferees to their reasonable
satisfaction.
2.14 ENVIRONMENTAL MATTERS. Except as set forth on SCHEDULE 2.14, (i)
the Company has complied with and is in compliance with all applicable federal,
state, local and foreign statutes (civil and criminal), laws, ordinances,
regulations, rules, notices, permits, judgments, orders and decrees relating to
environmental protection (collectively "Environmental Laws") including, without
limitation, Environmental Laws relating to air, water, land and the generation,
storage, use, handling, transportation, treatment or disposal of "Regulated
Substances," which is defined as petroleum, solid waste, Hazardous Wastes and
Hazardous Substances (as such terms are defined in any applicable Environmental
Law), except to the extent that noncompliance with any Environmental Law, either
singly or in the aggregate, does not have a Material Adverse Effect; (ii) the
Company has obtained and adhered to all necessary permits and other approvals
necessary to treat, transport, store, dispose of and otherwise handle Regulated
Substances and has reported, to the extent required by all Environmental Laws,
all past and present sites owned and operated by the Company where Regulated
Substances have been treated, stored, disposed of or otherwise handled; (iii)
there have been no releases or threats of releases (as defined in Environmental
Laws) of Regulated Substances at, from, in or on any property owned, leased or
operated by the Company except as permitted by Environmental Laws; (iv) the
Company does not know of any on-site or off-site location to which the Company
has transported or disposed of Regulated Substances or arranged for the
transportation of Regulated Substances, which site is the subject of any
federal, state, local or foreign enforcement action or any other investigation
which could reasonably be expected to lead to any claim against the Company for
any clean-up cost, remedial work, damage to
-8-
<PAGE>
natural resources or personal injury, including, but not limited to, any claim
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended; and (v) to the best of the Company's knowledge, the Company
has no contingent liability in connection with any release of any Regulated
Substance into the environment.
2.15 PERSONAL PROPERTY. The Company has delivered to Buyer an accurate
list (SCHEDULE 2.15) of all personal property included (or that will be
included) in "fixed assets" on the balance sheet of the Company and all other
personal property of the Company with a value in excess of $25,000 (i) as of the
Balance Sheet Date and (ii) acquired since the Balance Sheet Date, including in
each case true, complete and correct copies of leases for material equipment
used in the operation of the business of the Company. Except as shown on
SCHEDULE 2.15, all of the material machinery and equipment of the Company listed
on SCHEDULE 2.15 are in good working order and condition, ordinary wear and tear
excepted. All leases set forth on SCHEDULE 2.15 are in full force and effect and
constitute valid and binding agreements of the parties (and their successors)
thereto in accordance with their respective terms and, as to the best of the
Company's knowledge, there have been no defaults thereunder by any Person. All
material fixed assets used by the Company in the operation of its business are
either owned by the Company or leased under an agreement indicated on SCHEDULE
2.15. The Company has also indicated on SCHEDULE 2.15 a summary description of
all plans or projects involving the opening of new operations, expansion of any
existing operations, obtaining of new management contracts, or the acquisition
of any real property or existing business, to which or for which management of
the Company has made any material expenditure since the date of formation of the
Company, which if pursued by the Company would require additional material
expenditures of capital.
2.16 TITLE TO REAL PROPERTY. The Company does not own any real
property.
2.17 LEASED PROPERTY. SCHEDULE 2.17 lists and describes briefly all
real property leased or subleased to the Company (the "Leased Property"). Except
as set forth in SCHEDULE 2.17, with respect to each lease and sublease listed in
SCHEDULE 2.17:
(A) no party to such lease or sublease is in breach or default,
and no event has occurred which, with notice or lapse of time, would constitute
a breach or default or permit termination, modification, or acceleration
thereunder;
(B) the Company has not assigned, transferred, conveyed,
mortgaged, deeded in trust, or encumbered any interest in the leasehold or
subleasehold;
(C) the Leased Property has received all approvals of
Governmental Authorities (including licenses and permits) required from the
Company in connection with the operation thereof and has been operated and
maintained by the Company in accordance with applicable laws, rules, and
regulations;
(D) utilities and other services necessary for the operation of
the Leased Property as presently operated are available at the Leased Property;
(E) as of the Closing Date there will be no past due amounts
under any lease or sublease;
-9-
<PAGE>
(F) assuming the due authorization and execution by the lessors
thereunder, the lease or sublease is legal, valid, binding, enforceable and in
full force and effect, subject to the effects of bankruptcy, insolvency,
fraudulent conveyance, moratorium, reorganization, or similar laws affecting
creditors' rights and to general equitable principles;
(G) subject to Buyer's compliance with all the terms and
conditions of the lease or sublease, the lease or sublease will continue to be
legal, valid, binding, enforceable, and in full force and effect on identical
terms following the consummation of the transactions contemplated hereby;
(H) the Company has not repudiated any provision of the lease or
sublease, and has not received written notice, or otherwise have knowledge, that
any other party to the lease or sublease has repudiated any provision thereof;
(I) there are no disputes, oral agreements, or forbearance
programs in effect as to the lease or sublease;
(J) to the best of the Company's knowledge, the owner of the
Leased Property has good and indefeasible title to the parcel of real property;
and
(K) to the best of the Company's knowledge, with respect to any
sublease, the representations and warranties set forth in subsections (A)
through (J) above are true and correct with respect to the underlying lease.
2.18 SIGNIFICANT CUSTOMERS; MATERIAL CONTRACTS AND COMMITMENTS. The
Company has delivered to Buyer an accurate list (SCHEDULE 2.18) of (i) all
customers and (ii) all material contracts, commitments and similar agreements to
which the Company is a party or by which the Company or any of its properties
are bound (including, but not limited to, contracts with significant customers,
joint venture or partnership agreements, contracts with any labor organizations,
loan agreements, indemnity or guaranty agreements, bonds, mortgages, options to
purchase land, liens, pledges or other security agreements, covenants not to
compete and contracts which restrict or limit the ability of the Company to
compete in any business with any Person, and contracts providing for the payment
of any bonus or other payment upon the sale of the Company or any change of
control of the Company, and any management, service or consulting contracts) (a)
as of the Balance Sheet Date and (b) entered into since the Balance Sheet Date,
and has delivered true, complete and correct copies of such agreements to Buyer.
Except to the extent set forth on SCHEDULE 2.18, (i) none of the Company's
significant customers have canceled or substantially reduced or, to the
knowledge of the Company, are currently attempting or threatening to cancel or
substantially reduce demand for the Company's services and (ii) the Company has
complied in all material respects with all material commitments and obligations
pertaining to it, and is not itself, nor is any Person in material default under
any such contracts and agreements and no notice of default has been received.
The Company is not bound by or subject to (and none of its assets or properties
is bound by or subject to) any arrangement with any labor union. No employees of
the Company are represented by any labor union or covered by any collective
bargaining agreement and no campaign to establish such representation is in
progress. There is no pending or to the best of
-10-
<PAGE>
the Company's knowledge threatened labor dispute involving the Company and any
group of its employees nor has the Company experienced any labor interruptions
over the past year and the Company's relationships with its employees is good.
2.19 INSURANCE. The Company has delivered to Buyer an accurate list
(SCHEDULE 2.19) as of the Balance Sheet Date of all insurance policies carried
by the Company and, except as set forth on SCHEDULE 2.19, has delivered to Buyer
an accurate list (attached to SCHEDULE 2.19) of all insurance loss runs or
workmen's compensation claims received since the formation of the Company. Also
attached to SCHEDULE 2.19 are true, complete and correct copies of certificates
of insurance with respect to all insurance policies currently in effect. Such
insurance policies are currently in full force and effect and shall remain in
full force and effect through the Closing Date.
2.20 COMPENSATION: EMPLOYMENT AGREEMENTS. The Company has delivered to
Buyer an accurate list (SCHEDULE 2.20) showing all officers, directors and
employees of the Company, listing all employment agreements with such officers,
directors and employees and the rate of compensation (and the portions thereof
attributable to salary, bonus and other compensation, respectively) of each of
such persons as of (i) the Balance Sheet Date and (ii) the date hereof. The
Company has provided to Buyer true, complete and correct copies of any
employment agreements for persons listed on SCHEDULE 2.20.
2.21 EMPLOYEE BENEFIT PLANS.
(i) Set forth on SCHEDULE 2.21 hereto is a complete list of all
"employee pension benefit plans" as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including than
Multiemployer Plans) ("Pension Benefit Plans"), "welfare benefit plans" as
defined in Section 3(1) of ERISA ("Welfare Plans"), or stock bonus, stock
option, restricted stock, stock appreciation right, stock purchase, bonus,
incentive, deferred compensation, severance, or vacation plans, or any other
employee benefit plan, program, policy or arrangement maintained or contributed
to by the Company or any of its ERISA Affiliates or to which the Company or any
of its ERISA Affiliates, contributes or is obligated to make payments thereunder
or otherwise may have any liability (including Multiemployer Plans)
(collectively, the "Employee Benefit Plans"). For purposes of this Section, (a)
the term "ERISA Affiliates" means any person (as defined in ERISA Section 3(9))
that is or has been a member of any group of persons described in Code Sections
414(b), (c), (m) or (o), and (b) the term "Multiemployer Plan" means a
multiemployer plan as defined as such in ERISA Section 3(37) to which
contributions are or have been made by the Company or any of its ERISA
Affiliates, or as to which the Company or any of its ERISA Affiliates may have
liability and that is covered by Title IV of ERISA.
(ii) Each of the Employee Benefit Plans (and each related trust,
insurance contract or fund) complies in form and in operation in all material
respects with the applicable requirements of ERISA, the Code and other
applicable laws.
(iii) With respect to each of the Employee Benefit Plans, true,
correct and complete copies of the following documents have been delivered to
Buyer: (a) the plan document and any related trust agreement, including
amendments thereto, (b) any current summary plan
-11-
<PAGE>
descriptions and other material communications to participants relating to the
Employee Benefit Plans, (c) the most recent Form 5500 Annual Report, if
applicable, and (d) any correspondence with the IRS, the Pension Benefit
Guaranty Corporation, the Department of Labor or any other Agency.
(iv) All contributions to, and payments from, the Employee
Benefit Plans which are required to have been made by the Company or any of its
ERISA Affiliates with respect to any period ending on or before the Closing
Date, in accordance with the Employee Benefit Plans, have been timely made.
(v) Neither the Company nor any of its ERISA Affiliates maintains
or contributes to, nor has it ever maintained or contributed to, any pension
plan subject to Title IV of ERISA, Code Section 412 or ERISA Section 302.
Neither the Company nor any of its ERISA Affiliate has incurred any liability
under Title IV of ERISA. Neither the Company nor any of its ERISA Affiliates has
any liability (including any contingent liability under ERISA Section 4204) with
respect to any Multiemployer Plan covering employees (or former employees)
employed in the United States. Neither the Company nor any of its ERISA
Affiliates has incurred any liability or taken any action that could reasonably
be expected to cause it to incur any liability (i) on account of a partial or
complete withdrawal (within the meaning of ERISA Sections 4205 and 4203,
respectively) with respect to any Multiemployer Plan or (ii) on account of
unpaid contributions to any such Multiemployer Plan.
(vi) Neither the Company nor any of its ERISA Affiliates
maintains or ever has maintained, or contributes or ever has contributed to, any
Welfare Plan providing for continuing benefits or coverage for any participant
or any beneficiary of a participant following termination of employment, except
as may be required under COBRA. Each of Company's Welfare Plans which are "group
health plans", as described in Code Section 5000(b)(1), have complied with the
notice and continuation requirements of Code Section 4980B or Part 6 of Subtitle
B of Title I of ERISA and the regulations thereunder.
(vii) The Pension Benefit Plans intended to qualify under Code
Section 401 have been determined by the IRS to be so qualified and no event has
occurred and no condition exists with respect to the form or operation of such
Pension Benefit Plans which would cause the loss of such qualification or
exemption or the imposition of any material liability, penalty or tax under
ERISA or the Code.
(viii) Except as disclosed on SCHEDULE 2.21 hereof, the
consummation of the transactions contemplated by this Agreement will not result
in an increase in the amount of compensation or benefits or accelerate the
vesting or timing of payment of any benefits or compensation payable to or in
respect of any employee of the Company. The Company is not obligated to make any
payment or transfer, accelerate any payment or transfer, or otherwise provide
any benefit that would constitute an "excess parachute payment" under Code
Section 280G.
(ix) Neither the Company nor any employee of the foregoing, nor
any trustee, administrator, other fiduciary or any other "party in interest" or
"disqualified person" with respect
-12-
<PAGE>
to the Pension Benefit Plans or Welfare Plans, has engaged in a "prohibited
transaction" (as such term is defined in Section 4975 of the Code or Section 406
of ERISA) which could result in a tax or penalty on a Company under Section 4975
of the Code or Section 502(i) of ERISA ("Prohibited Transaction"), except any
such event which would not, individually or in the aggregate, either impair such
Company's ability to consummate the transactions contemplated hereby or have a
Material Adverse Effect.
2.22 EMPLOYEES. Except as disclosed on SCHEDULE 2.22 the Company has
not incurred any liability under, and has complied in all respects with, the
Worker Adjustment Retraining Notification Act and the regulations promulgated
thereunder, and any similar state laws (collectively, "WARN"), and does not
expect to incur any such liability as a result of actions taken or not taken
prior to the Closing. SCHEDULE 2.22 lists (i) all employees terminated or laid
off by the Company in connection with any layoff or reduction in workforce
during the 90 days prior to the date hereof and (ii) all employees who have
experienced a reduction in hours of work of more than 50% during any month
during the 90 days prior to the date hereof. The Company shall update SCHEDULE
2.22 from the date hereof through the Closing. The Company will neither take nor
fail to take any actions that would violate the provisions of WARN (including
the giving of notices as may be required to Governmental Authorities as well as
affected employees). The Company is not in violation nor has it received notice
of any claim not yet resolved with respect to a violation by it of any federal,
state or local fair employment or civil rights law, or any statutory or common
law relating to wrongful discharge, defamation, sexual harassment or otherwise
relating to employment.
2.23 QUALIFIED PLANS. The Company (i) does not maintain, and has never
maintained, any plans that qualify under Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code") or that have been determined by the
Internal Revenue Service to be so qualified; (ii) has not engaged in any
transaction prohibited under the provisions of Section 4975 of the Code or
Section 406 of ERISA; and (iii) has not incurred any liability for excise tax or
penalty due to the Internal Revenue Service nor any liability to the Pension
Benefit Guaranty Corporation. The Company further represents that, except as set
forth on SCHEDULE 2.23:
(i) there have been no terminations, partial terminations or
discontinuance of contributions to any such Qualified Plan
intended to qualify under Section 401(a) of the Code without
notice to and approval by the Internal Revenue Service;
(ii) no such plan subject to the provisions of Title IV of ERISA
has been terminated;
(iii) there have been no "reportable events" (as that phrase is
defined in Section 4043 of ERISA) with respect to any such
plan; and
(iv) the Company has not incurred liability under Section 4062 of
ERISA.
2.24 CONFORMITY WITH LAW. Except to the extent set forth on SCHEDULE
2.24, the Company is not in violation of any law or regulation or any order of
any court or federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the Company the violation of which would have a Material Adverse Effect; and
except to the extent set forth on SCHEDULE 2.24, there are no claims, actions,
suits or proceedings or investigations pending or, to the knowledge of the
Company, threatened, against or affecting the Company, at law or in equity, or
before or by any federal, state, municipal or other governmental department,
commission, board, bureau, agency or instrumentality having jurisdiction over
the
-13-
<PAGE>
Company and no notice of any such claim, action, suit or proceeding or
investigation, whether pending or threatened, has been received by the Company
or any Shareholder.
2.25 TAXES. Except as set forth on SCHEDULE 2.25, (i) the Company has
timely filed or will timely file all requisite Tax returns, reports and forms
("Returns") for all periods ended on or before the Closing Date and all such
Returns are complete and correct in all material respects; (ii) the Company has
paid all Taxes owed with respect to periods ended on or before the Closing Date
(whether or not shown as due on Company Returns); (iii) there are no
examinations in progress or claims against the Company for Taxes and no notice
of any claim for Taxes, whether pending or threatened, has been received by the
Company or any Shareholders; (iv) the amounts included in accrued payables on
the Financial Statements as of the Balance Sheet Date delivered to Buyer as a
part of SCHEDULE 2.9 are sufficient for the payment of all Taxes for all fiscal
periods ended on or before that date; (v) the Company has a taxable year ended
March 31st of each year, and all Returns necessary to initially obtain and
continuously retain such taxable year end have been (or will be) timely filed;
(vi) the Company currently utilizes the accrual method of accounting for income
tax purposes and such method of accounting has not changed since its formation;
(vii) there is no agreement or other document extending, or having the effect of
extending, the period of assessment or collection of any Taxes and no power of
attorney with respect to any Taxes has been executed or filed with any taxing
authority; and (viii) there are no liens for Taxes with respect to any assets or
properties of the Company except for statutory liens for Taxes not yet due; (ix)
the Company (and any predecessor of the Company) has been a validly electing
Subchapter S corporation at all relevant times during its existence for both
federal and state income tax purposes, and neither the Company nor its
Shareholders have taken or will take (or allow) any action that could (or would)
result in the termination of the Company's status as a validly electing
Subchapter S corporation up to and including the Closing Date; (x) the Company
will not be liable for any Tax under Section 1374 of the Internal Revenue Code
of 1986, as amended (the "Code"), in connection with the deemed sale of its
assets in the event an election under Code Section 338(h)(10) is made with
respect to the purchase and sale of the Shares; (xi) no claim has ever been made
by an authority in a jurisdiction where the Company does not file Returns that
the Company is or may be subject to a Tax liability in such jurisdiction; and
(xii) the Company has withheld and paid all Taxes required to have been withheld
and paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, stockholder, or other third party.
For purposes of this Agreement, the term "Tax" shall be understood to
include any tax or similar governmental charge, impost or levy (including,
without limitation, income taxes, franchise taxes, transfer taxes or fees, sales
taxes, use taxes, gross receipts taxes, value added taxes, employment taxes,
excise taxes, ad valorem taxes, property taxes, withholding taxes, payroll
taxes, minimum taxes, or windfall profit taxes) together with any related
penalties, fines, additions to tax or interest, imposed by the United States or
any state, county, local or foreign government or subdivision or agency thereof.
2.26 NO VIOLATIONS. A certified copy of the Articles of Incorporation
and a true, complete and correct copy of the Bylaws, both as amended to date, of
the Company (the "Charter Documents"), have been delivered to Buyer. The Company
is not (i) in violation of any Charter Document or (ii) in default in any
material respect under any material lease, instrument, agreement,
-14-
<PAGE>
license, or permit to which it is a party or by which its properties are bound
(the "Company Material Documents"); and, except as set forth on the schedules
and documents attached to this Agreement, (a) the rights and benefits of the
Company under the Company Material Documents will not be materially and
adversely affected by the transactions contemplated hereby and (b) the execution
of this Agreement and the performance of the obligations hereunder and the
consummation of the transactions contemplated hereby will not result in any
violation or breach or constitute a default (or an event which, with notice of
lapse of time or both, would constitute a default) under, any of the terms or
provisions of the Company Material Documents or the Charter Documents. Except as
set forth on SCHEDULE 2.26, none of the Company Material Documents requires
notice to, or the consent or approval of, any Governmental Authority or other
third party to any of the transactions contemplated hereby to remain in full
force and effect, and such transactions shall not give rise to any right to
termination, cancellation or acceleration or loss of any right or benefit
pursuant to any Company Material Document.
2.27 GOVERNMENT CONTRACTS. Except as set forth on SCHEDULE 2.27, the
Company is not a party to any contracts with any Governmental Authority.
2.28 ABSENCE OF CHANGES. Since the Balance Sheet Date, except as set
forth on SCHEDULE 2.28 there has not been:
(i) any material adverse change in the financial condition,
assets, liabilities (contingent or otherwise), income or business of the Company
(excluding profits and losses in the ordinary course of business);
(ii) any damage, destruction or loss (whether or not covered by
insurance) materially adversely affecting the properties or business of the
Company;
(iii) any change in the authorized capital of the Company or in
its securities outstanding or any change in their respective ownership interests
or any grant of any options, warrants, calls, conversion rights or commitments;
(iv) any declaration or payment of any dividend or distribution
in respect of the capital stock or any direct or indirect redemption, purchase
or other acquisition of any of the capital stock of the Company;
(v) any increase in the compensation, bonus, sales commissions or
fee arrangement payable or to become payable by the Company to any of its
officers, directors, shareholders, employees, consultants or agents, except for
ordinary and customary salary increases for employees in accordance with past
practice;
(vi) any work interruptions, labor grievances or claims filed, or
any event or condition of any character, which would result in a Material
Adverse Effect;
(vii) any sale or transfer, or any agreement to sell or transfer,
any material assets, property or rights of the Company to any person, including,
without limitation, shareholders and their affiliates;
-15-
<PAGE>
(viii) any cancellation, or agreement to cancel, any indebtedness
or other obligation owing to the Company, including without limitation any
indebtedness or obligation of any of its shareholders or any affiliate thereof,
provided that the Company may negotiate and adjust bills in the course of good
faith disputes with customers in a manner consistent with past practice;
(ix) any plan, agreement or arrangement granting any preferential
rights to purchase or acquire any interest in any of the assets, property or
rights of the Company or requiring consent of any party to the transfer and
assignment of any such assets, property or rights;
(x) any purchase or acquisition of, or agreement, plan or
arrangement to purchase or acquire, any property, rights or assets outside of
the ordinary course of the Company's business;
(xi) any waiver of any rights or claims of the Company under any
Laws;
(xii) any material breach, amendment or termination of any
contract, agreement, license, permit or other right to which the Company is a
party;
(xiii) any transaction by the Company outside the ordinary course
of its business;
(xiv) any sale of any of the assets of the Company for less than
fair market value; or
(xv) any transactions between the Company and any of its
Affiliates.
2.29 DEPOSIT ACCOUNTS: POWERS OF ATTORNEY. The Company has delivered to
Buyer an accurate list (SCHEDULE 2.29) as of the date of the Agreement, of:
(i) the name of each financial institution in which Buyer has
accounts or safe deposit boxes;
(ii) the names in which the accounts or boxes are held;
(iii) the type of account; and
(iv) the name of each person authorized to draw thereon or have
access thereto.
SCHEDULE 2.29 also sets forth the name of each person, corporation, firm or
other entity holding a general or special power of attorney from the Company and
a description of the terms of such power.
2.30 LITIGATION. Except as set forth in SCHEDULE 2.30, there is no
suit, action, arbitration, or legal, administrative, or other proceeding, or
governmental investigation of any kind whatsoever, at law or in equity
(including, without limitation, proceedings seeking injunctive relief) pending
or, to the best knowledge of any of the Shareholders or the Company, threatened,
against or affecting the Company. The Company is not a party to, or in default
under, any judgment, order or decree of any Governmental Authority. The matters
set forth in SCHEDULE 2.30 if decided adversely to the Company will not result
in a Material Adverse Effect. Upon request, the Company has furnished or made
available to Buyer copies of all relevant court papers and other documents
relating to the matters set forth in SCHEDULE 2.30. Except as set forth in
SCHEDULE 2.30, the Company
-16-
<PAGE>
is not presently engaged in any legal action to recover moneys due to it or
damages sustained by it.
2.31 YEAR 2000. Except as set forth on SCHEDULE 2.31, to the best of
the Company's knowledge, each item of equipment and each software or other
computer program developed or used by the Company in the operation of its
business (a "Company System") (a) has been produced or amended in a manner which
ensures that a change of, reference to, or use after, December 31, 1999, of date
related data for dates before, on, or after December 31, 1999, in the operation
of that Company System, whether alone or in conjunction with each other Company
System, will not have a Material Adverse Effect on, or give rise to, a material
increased inconvenience in, the operation of that Company System; and (b) has
been tested in conjunction with each item of equipment and software or other
computer program under the control of a third party (a "Third Party System")
with which a Company System routinely exchanges date information in a manner
which substantially advances the result that the inclusion after December 31,
1999, of date-related data for dates before, on, or after December 31, 1999, in
the information exchanged with a Third Party System will not have a Material
Adverse Effect on, or give rise to, a material increased inconvenience in, the
exchange of date-related data or the subsequent use of that date-related data.
SCHEDULE 2.31 includes a description of what additionally must be completed by
the Company to ensure that the results contemplated by this Section 2.31 are
timely accomplished.
2.32 RELATED PARTY AGREEMENTS. Except as set forth in SCHEDULE 2.32, no
current or former director, executive officer or stockholder of the Company or
any Affiliate or associate of any of the foregoing is a party to any agreement,
arrangement, contract or other commitment to which the Company is a party or by
or to which any of its properties or assets is bound or subject, or has an
interest in any agreement, arrangement, contract or other commitment, property
or asset (real or personal), tangible or intangible, owned by, used in or
pertaining to the business of the Company.
2.33 HART-SCOTT-RODINO MATTERS. The consummation of the transactions
contemplated by this Agreement will require no filings pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the rules
and regulations thereunder promulgated.
2.34 COMPANY ASSETS. Except as set forth on SCHEDULE 2.34, the Company
owns, free and clear of any and all Liens, all assets necessary to the conduct,
in the ordinary course, of the business of the Company.
2.35 DISCLOSURE. No representation or warranty of the Company or the
Shareholders contained in this Agreement contains or will contain any untrue
statement of material fact, or omits or will omit to state any material fact
necessary in order to make the statements herein or therein, in light of the
circumstances under which it was or will be made, not misleading. Subject to the
provisions of Section 4.8, at the sole option of Buyer, the truth and accuracy
of any and all warranties and representations of the Company, or on behalf of
the Company at the date of this Agreement and at the Closing, shall be a
precondition to the consummation of this transaction.
-17-
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer and Holdings, jointly and severally, hereby represent and warrant
to the Shareholders as follows:
3.1 DUE ORGANIZATION. Buyer is a corporation duly organized and validly
existing under the laws of the state of its incorporation, and it is duly
authorized and qualified to do business under all applicable laws, regulations,
ordinances and orders of public authorities to carry on its business in the
places and in the manner as now conducted except where the failure to be so
authorized or qualified would not have a material adverse effect on the
business, financial condition, results of operations or prospects of Buyer taken
as a whole.
3.2 AUTHORIZATION. (i) The duly authorized representative of Buyer
executing this Agreement has the authority to enter into and bind Buyer to the
terms of this Agreement and (ii) Buyer has the full legal right, power and
authority to enter into this Agreement. The execution and delivery of this
Agreement by Buyer and Holdings and the performance by each of their respective
obligations hereunder, have been or by the Closing will have been duly
authorized by all requisite corporate action on the part of Buyer and Holdings,
and no other corporate or approval is required for Buyer and Holdings to enter
into this Agreement or to perform their respective obligations hereunder.
3.3 NO VIOLATIONS. The execution of this Agreement and the performance
of the obligations hereunder and the consummation of the transactions
contemplated hereby will not result in any violation or breach or constitute a
default ( or an event which, with notice of lapse of time or both, would
constitute a default) under the certificate of incorporation or bylaws of Buyer
or under any of the terms or provisions of any material lease, instrument,
agreement, license, or permit to which it is a party or by which its properties
are bound (the "Buyer Material Documents"). Except as set forth on SCHEDULE 3.3,
none of the Buyer Material Documents requires notice to, or the consent or
approval of, any Governmental Authority or other third party to any of the
transactions contemplated hereby to remain in full force and effect, and such
transactions shall not give rise to any right to termination, cancellation or
acceleration or loss of any right or benefit pursuant to the Buyer Material
Documents.
3.4 ENFORCEABILITY. This Agreement constitutes a valid and binding
obligation of Buyer and Holdings enforceable in accordance with its terms,
subject to the effects of bankruptcy, insolvency, fraudulent conveyance,
moratorium, reorganization, or similar laws affecting creditors' rights and to
general equitable principles.
4. COVENANTS OF THE PARTIES
4.1 ACCESS AND COOPERATION; DUE DILIGENCE. Between the date of this
Agreement and the Closing Date, the Company will afford to the officers and
authorized representatives of Buyer access to all of the Company's sites,
properties, books and records and will furnish Buyer with such additional
financial and operating data and other information as to the business and
properties of the Company as Buyer may from time to time reasonably request. The
Company will cooperate with Buyer, its representatives, auditors and counsel in
the preparation of any documents or other
-18-
<PAGE>
material which may be required in connection with any documents or materials
required by this Agreement.
4.2 CONDUCT OF BUSINESS PENDING CLOSING. Between the Balance Sheet Date
and the Closing Date, the Company will, except as set forth on SCHEDULE 4.2:
(i) carry on its business in substantially the same manner as it
has heretofore and not introduce any material new method of management,
operation or accounting;
(ii) maintain its respective properties and facilities, including
those held under leases, in as good working order and condition as at present,
ordinary wear and tear excepted;
(iii) perform all of its respective obligations under agreements
relating to or affecting its respective assets, properties or rights;
(iv) keep in full force and effect present insurance policies or
other comparable insurance coverage;
(v) use its reasonable efforts to maintain and preserve its
business organization intact, retain its respective present employees and
maintain its respective relationships with suppliers, customers and others
having business relations with the Company;
(vi) maintain compliance in all material respects with all
permits, laws, rules and regulations, consent orders, and all other orders of
applicable courts, regulatory agencies and similar governmental authorities;
(vii) maintain present material debt and lease instruments and
not enter into new or amended debt or lease instruments, without the knowledge
and consent of the Buyer; and
(viii) not increase present salaries and commission levels for
all officers, directors, employees and agents, except for ordinary and customary
salary increases for employees (other than key employees) in accordance with
past practice; provided, however that Ron Morris' salary shall not exceed
$25,000 per month.
4.3 PROHIBITED ACTIVITIES. Except as disclosed on SCHEDULE 4.3, between
the Balance Sheet Date and the Closing Date, the Company has not and, without
the prior written consent of Buyer, will not:
(i) make any change in its Articles of Incorporation or bylaws or
comparable organizational documents;
(ii) issue, reissue, sell, deliver, transfer, repurchase, redeem,
acquire or pledge or authorize or propose the issuance, reissuance, sale,
delivery, transfer, repurchase, redemption, acquisition or pledge of shares of
capital stock of any class or series, or any securities convertible into capital
stock of any class or series or grant or enter into any rights, warrants,
options, agreements or commitments with respect to the issuance of such capital
stock or convertible
-19-
<PAGE>
securities or amend any terms of any such right, warrant, option, agreement or
commitment;
(iii) declare, set aside or pay any dividend or other
distribution (whether in cash, securities or property or any combination
thereof) in respect of any class or series of its capital stock;
(iv) adjust, split, combine, subdivide or reclassify any shares
of its capital stock, as the case may be, or any option, warrant or right
relating thereto;
(v) allow the Company's net worth to be negative;
(vi) create, incur, assume or guarantee any indebtedness, other
than in the ordinary course of business, consistent with past practice;
(vii) enter into any contract or commitment or incur or agree to
incur any liability or make any capital expenditures, except if it is in the
normal course of business (consistent with past practice) or involves an amount
not in excess of $25,000, including contracts to provide services to customers;
(viii) increase the compensation payable or to become payable to
any officer, director, shareholder, employee or agent (except for ordinary and
customary salary increases for employees in accordance with past practice),
adopt or amend any employee benefit plan, or make any bonus or management fee
payment to any such person;
(ix) create, assume or permit to exist any mortgage, pledge or
other lien or encumbrance upon any assets or properties whether now owned or
hereafter acquired, except (1) with respect to purchase money liens incurred in
connection with the acquisition of equipment with an aggregate cost not in
excess of $25,000 necessary or desirable for the conduct of the business of the
Company, (2) (A) liens for taxes either not yet due or being contested in good
faith and by appropriate proceedings (and for which contested taxes adequate
reserves have been established and are being maintained) or (B) materialmen's,
mechanics', workers', repairmen's, employees' or other like liens arising in the
ordinary course of business (the liens set forth in clause (2) being referred to
herein as "Statutory Liens") or (3) Liens existing as of the date of this
Agreement as set forth on SCHEDULE 2.15 hereto;
(x) sell, assign, lease or otherwise transfer or dispose of any
property or equipment except in the ordinary course of business;
(xi) negotiate for the acquisition of any business or the
start-up of any new business;
(xii) merge or consolidate or agree to merge or consolidate with
or into another Person;
(xiii) waive any rights or claims of the Company pursuant to any
contract or under any Laws, provided that the Company may negotiate and adjust
bills in the course of good faith
-20-
<PAGE>
disputes with customers in a manner consistent with past practice, provided,
further, that such adjustments shall not be deemed to be included in SCHEDULE
2.11 unless specifically listed thereon;
(xiv) commit a material breach or amend or terminate any
agreement, permit, license or other right of the Company;
(xv) enter into any other transaction outside the ordinary course
of its business or prohibited hereunder;
(xvii) change any of the accounting or tax principles, practices
or methods used by the Company or fail to maintain the accounts, books and
records of the Company in the usual, regular and ordinary manner on a basis
consistently applied;
(xviii) enter into, adopt, amend or terminate any collective
bargaining agreement;
(xix) enter into any transaction, agreement or arrangement with,
any of its Affiliates, officers, directors, partners, employees, agents,
consultants, stockholders or their Affiliates, associates or family members;
(xx) settle or compromise any Tax liability or agree to any
adjustment of any Tax attribute or make any election with respect to its Taxes;
(xxi) fail to duly and timely file any Tax Return with the
appropriate Governmental Authorities required to be filed by it in a true,
correct and complete form or to timely pay all Taxes shown to be due thereon;
(xxii) revoke the Company's election to be taxed under the
provisions of Subchapter S of the Code, or take any action (or allow any action
to be taken) that would result in a termination of such election; or
(xxiii) enter into any agreement, commitment or transaction with
respect to taking any of the foregoing actions or any action that would make any
representation or warranty contained in this Agreement untrue or incorrect in
any material respect or which could reasonably be expected to prevent the
satisfaction of any condition to Closing set forth in Sections 5 or 6 hereof or
to otherwise prevent or materially delay the consummation of the transactions
contemplated by this Agreement.
4.4 PUBLIC ANNOUNCEMENTS. Prior to the Closing, no party to this
Agreement shall effect any press release or public announcement with respect to
the transactions contemplated by this Agreement without the prior written
approval of all other parties hereto.
4.5 NO SHOP BY THE COMPANY. Neither the Company, any Shareholder nor
any agent, officer, director or any representative of any of the foregoing will,
during the period commencing on the date of this Agreement and ending with the
earlier to occur of the Closing or September 1, 1999 in accordance with its
terms, directly or indirectly:
-21-
<PAGE>
(i) solicit or initiate the submission of proposals or offers from
any Person for,
(ii) participate in any discussions pertaining to, or
(iii) furnish any information to any Person other than Buyer
relating to, any acquisition or purchase of all or a material
amount of the assets of, or any equity interest in, the
Company or a merger, consolidation or business combination of
the Company with any Person.
4.6 AUTHORIZED CAPITAL. The Company shall maintain its authorized
capital stock as set forth herein. Other than as set forth on SCHEDULE 2.4,
there have been no issuances of, or agreements regarding the issuance of, any
capital stock, warrants, options or other securities convertible into or
exchangeable for capital stock of the Company or rights to acquire the same.
4.7 NOTIFICATION OF CERTAIN MATTERS. The Company shall give prompt
notice to Buyer of (i) the occurrence or non-occurrence of any event the
occurrence or non-occurrence of which reasonably would be likely to cause any
representation or warranty of the Company or any of the Shareholders contained
herein to be untrue or inaccurate in any respect at or prior to the Closing and
(ii) any failure of the Company or any of the Shareholders to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
such Person hereunder. The delivery of any notice pursuant to this Section 4.7
shall not be deemed to (i) modify the representations or warranties hereunder of
the Company or the Shareholders, which modification may only be made pursuant to
Section 4.8, (ii) modify the conditions set forth in Sections 5 and 6, or (iii)
limit or otherwise affect the remedies available hereunder to the Buyer.
4.8 AMENDMENT OF SCHEDULES. Each party hereto agrees that, with respect
to the representations and warranties of such party contained in this Agreement,
such party shall have the continuing obligation until the Closing to supplement
or amend promptly the Schedules hereto with respect to any matter hereafter
arising or discovered which, if existing or known at the date of this Agreement,
would have been required to be set forth or described in the Schedules. No
amendment or supplement to a Schedule that constitutes a Material Adverse Effect
may be made unless Buyer consents in writing to such amendment or supplement. No
amendment or supplement to a Schedule that constitutes or reflects a material
adverse change to Buyer may be made unless the Company consents in writing to
such amendment or supplement. For all purposes of this Agreement, including
without limitation for purposes of determining whether the conditions set forth
in Sections 5 and 6 have been fulfilled, the Schedules hereto shall be deemed to
be the Schedules as amended or supplemented pursuant to this Section 4.8.
4.9 REGULATORY APPROVAL. The parties hereto shall use all reasonable
efforts to obtain all authorizations, consents, orders and approvals of
Governmental Authorities and non-governmental third parties (the "Regulatory
Approvals") that may be or become necessary for performance of the transactions
contemplated pursuant to this Agreement, and shall cooperate fully with each
other in promptly seeking to obtain all such authorizations, consents orders and
approvals.
-22-
<PAGE>
4.10 PNC LOAN. The Company shall arrange with PNC Bank, National
Association for the payment by Buyer concurrently with the Closing of all
amounts outstanding under that certain Promissory Note dated January 14, 1999,
and for the release by PNC Bank of its security interest in all collateral
granted to PNC Bank by the Company under that certain Commercial Security
Agreement dated January 14, 1999.
4.12 REASONABLE EFFORTS. Upon the terms and subject to the conditions
of this Agreement, each of Buyer, the Company and Shareholders agree to, and the
Shareholders agree to cause the Company to use commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws to consummate and
make effective the transactions contemplated by this Agreement as promptly as
practicable (including satisfaction, but not waiver, of the conditions to
Closing set forth in Sections 5 and 6 hereof).
5. CONDITIONS TO OBLIGATIONS OF BUYER
The obligation of Buyer to purchase the Shares, and to cause the other
transactions contemplated hereby to occur at the Closing, shall be subject to
the satisfaction of each of the following conditions at or prior to the Closing:
5.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of the Company and the Shareholders contained in
Section 2 shall be true and correct in all material respects as of the Closing
Date as though such representations and warranties had been made as of that time
(except for matters expressly disclosed in the certificate or a schedule
thereto); all of the terms, covenants and conditions of this Agreement to be
complied with and performed by the Company and the Shareholders on or before the
Closing Date shall have been duly complied with and performed in all material
respects; and a certificate to the foregoing effect dated the Closing Date and
signed by the President or any Vice President of the Company shall have been
delivered to Buyer.
5.2 NO MATERIAL ADVERSE CHANGE. No Material Adverse Effect shall have
occurred, and the Company shall not have suffered any loss or damage to any of
its properties or assets, whether or not covered by insurance, since the Balance
Sheet Date, which change, loss or damage materially affects or impairs the
ability of the Company to conduct its business as it is currently being
conducted; and Buyer shall have received a certificate signed by the President
or any Vice President of the Company dated the Closing Date to such effect.
5.3 GENERAL DUE DILIGENCE REVIEW. The general due diligence review of
the Company (including, without limitation, legal, financial and operational
matters and including, without limitation, satisfactory review of the historical
financial statements of the Company provided to Buyer and a review of the
compliance by the Company with all Laws issued by any Governmental Authority) to
be conducted by or on behalf of Buyer shall have been completed in a manner
satisfactory to Buyer and shall not reveal or produce adverse facts with respect
to the Company, its premises, business, operations, financial condition or
prospects which are not otherwise disclosed in this Agreement or any Schedule
attached hereto.
-23-
<PAGE>
5.4 SATISFACTION. All actions, proceedings, instruments and documents
required to consummate the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to Buyer.
5.5 NO LITIGATION. No action or proceeding before a court or any
Governmental Authority shall have been instituted or threatened to restrain or
prohibit the transactions contemplated herein and no Governmental Authority
shall have taken any other action or made any request of Buyer as a result of
which the management of Buyer reasonably deems it inadvisable to proceed with
the transactions hereunder.
5.6 OPINION OF COUNSEL. Buyer shall have received an opinion from Titus
& McConomy LLP, counsel for the Company ("Titus & McConomy"), dated the Closing
Date, substantially in the form of Exhibit B attached hereto .
5.7 RESIGNATIONS AND RELEASES OF THE COMPANY'S DIRECTORS. Buyer shall
have received the resignations of and releases from each of the directors of the
Company, effective as of the Closing Date.
5.8 CONSENTS AND APPROVALS. Except as provided in Section 10.16, all
necessary consents of and filings with any Governmental Authority, including,
but not limited to the Regulatory Approvals, relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the consummation of the transactions contemplated herein and no Governmental
Authority shall have taken any other action or made any request of Buyer as a
result of which Buyer reasonably deems it inadvisable to proceed with the
transactions hereunder.
5.9 RESOLUTIONS. Buyer shall have received from the Company certified
copies of the resolutions duly adopted by the Board of Directors of the Company,
authorizing the transactions hereunder, in form and substance satisfactory to
counsel to Buyer.
5.10 CERTIFICATE. The Company shall have delivered to Buyer a
certificate, dated as of the Closing Date, signed by the President of the
Company certifying as to the fulfillment of the Company's conditions specified
in Sections 4.2, 4.3, 5.1, 5.2, 5.5, 5.8, 5.16, 5.17, 5.18, 5.20, 5.22 and 5.23
of this Agreement.
5.11 BOARD APPROVAL. The Boards of Directors of Buyer and of Holdings,
respectively, shall have authorized the transactions hereunder.
5.12 GOOD STANDING CERTIFICATES. The Company shall have delivered to
Buyer a certificate, dated as of a date no earlier than ten days prior to the
Closing Date, duly issued by the appropriate Governmental Authority in the
Company's state of formation and in each state in which it is authorized to do
business, showing that the Company is in good standing and authorized to do
business and that all state franchise and/or income Tax Returns and Taxes for
the Company for all periods prior to the Closing have been filed and paid.
-24-
<PAGE>
5.13 EMPLOYMENT CONTRACTS. Ronald R. Morris, Michael P. Caffrey, Paul
A. Herskovitz, Joseph G. Warnagiris and VV Kumar shall have entered into
Employment Contracts with Buyer, substantially in the form of Exhibit C attached
hereto (the "Employment Contracts").
5.14 CONSULTING AGREEMENT. The Company and Lowell Associates, Inc.
shall have entered into an Amended and Restated Consulting Agreement,
substantially in the form of Exhibit D attached hereto (the "Consulting
Agreement").
5.15 CONTINUITY OF EMPLOYEES. Buyer shall have made arrangements
suitable to it for the employment by Buyer of sufficient of the Company's
employees to continue the operation of the business of the Company without
disruption thereto, and the Shareholders shall use their reasonable best efforts
to assist the Buyer in this effort, and such employees shall have executed a
Non-Disclosure and Non-Competition Agreement, substantially in the form of
Exhibit E attached hereto.
5.16 INTELLECTUAL PROPERTY RIGHT ASSIGNMENT. Each employee of the
Company, and each independent contractor, outside consultant and other agent of
the Company who has participated in the conception, design or development of any
software, other product, service or Intellectual Property for, on behalf of or
at the request of the Company, shall have assigned all right, title and interest
therein and thereto to the Company.
5.17 CARNEGIE OFFICE PARK LEASE. The Company shall have obtained the
written consent from Carnegie Office Park, Incorporated as required pursuant to
Section 14 of that certain Lease dated April 14, 1997.
5.18 INDEBTEDNESS. The amount of all indebtedness of the Company as of
the Closing, including without limitation, all amounts owed to PNC Bank,
National Association, shall not exceed $175,000 in the aggregate; excluding the
loan made by the Buyer to the Company immediately prior to the Closing as set
forth in Section 5.19.
5.19 BUYER LOAN. The Buyer shall have loaned to the Company immediately
prior to the Closing an amount equal to $1,278,559.40 and the Company shall have
executed and delivered to the Buyer a Promissory Note, substantially in the form
of Exhibit F attached hereto.
5.20 RE-PURCHASE OF OPTIONS. Immediately prior to the Closing, the
Company shall have paid to each holder of an option to acquire stock in the
Company (an "Option Holder") the amount specified for each Option Holder as set
forth on Schedule 5.20 attached hereto (i.e., the amount each Option Holder
would have otherwise received if such option holder had exercised their option
and sold their stock in the Company to the Buyer hereunder) and each such Option
Holder shall have executed the Stock Option Re-Purchase Agreement stipulating
that they are merely cashing out the options and not exercising them, such
agreement to be substantially in the form attached hereto as Exhibit G.
-25-
<PAGE>
5.21 ESCROW AGREEMENT. Buyer, Holdings, the Company, the Shareholder
Representative and the Escrow Holder shall have entered into the Escrow
Agreement.
5.22 WANDER RELEASE. James Wander shall have released any and all right
or claim to receive any equity in the Company, whether in the form of stock or
options), such release to be in form satisfactory to Buyer's counsel.
5.23 TITUS & MCCONOMY PAYMENT LETTER. The Company shall have paid to
Titus & McConomy $42,890 and Titus & McConomy shall have delivered to the
Company a letter stating that the law firm has been paid in full for the
services that the firm has rendered in connection with the transactions
contemplated in this Agreement.
6. CONDITIONS TO OBLIGATIONS OF SELLERS
The obligation of the Shareholders to sell the Shares and to cause the
other transactions contemplated hereby to occur at the Closing, shall be subject
to the satisfaction of each of the following conditions at or prior to the
Closing:
6.1 REPRESENTATIONS AND WARRANTIES; PERFORMANCE OF OBLIGATIONS. All
representations and warranties of Buyer and Holdings contained in Section 3
shall be true and correct in all material respects as of the Closing Date as
though such representations and warranties had been made as of that time (except
for matters expressly disclosed in the certificate or a schedule thereto); all
of the terms, covenants and conditions of this Agreement to be complied with and
performed by Buyer on or before the Closing Date shall have been duly complied
with and performed in all material respects; and a certificate to the foregoing
effect dated the Closing Date and signed by a duly authorized officer of Buyer
shall have been delivered to the Shareholders.
6.2 NO LITIGATION. No action or proceeding before a court or any other
Governmental Authority shall have been instituted or threatened to restrain or
prohibit the transactions contemplated herein and no Governmental Authority
shall have taken any other action or made any request of the Company or the
Shareholders as a result of which the Shareholders reasonably deem it
inadvisable to proceed with the transactions hereunder.
6.3 CONSENTS AND APPROVALS. Except as provided by Section 10.16, all
necessary consents of and filings with any Governmental Authority, including,
but not limited to the Regulatory Approvals, relating to the consummation of the
transaction contemplated herein shall have been obtained and made and no action
or proceeding shall have been instituted or threatened to restrain or prohibit
the consummation of the transactions contemplated herein.
6.4 CERTIFICATE. Buyer shall have delivered to the Shareholders a
certificate, dated as of the Closing Date, signed by a duly authorized officer
of the Buyer certifying as to the fulfillment of the conditions specified in
this Section 6.1, 6.2 and 6.3.
6.5 BOARD APPROVAL. The Board of Directors of the Company shall have
authorized the transactions hereunder.
-26-
<PAGE>
6.6 SATISFACTION. All actions, proceedings, instruments and documents
required to consummate the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been approved
by counsel to the Company and the Shareholders.
7. CLOSING
7.1 CLOSING. Unless this Agreement is first terminated as provided in
Section 8, and subject to the satisfaction or waiver of all the conditions set
forth in Sections 5 and 6, the closing of the transactions contemplated hereby
(the "Closing") shall take place at the offices of Buyer in Dallas, Texas, or
such other place as is agreed to by Buyer and the Shareholders, on September 1,
1999, or such other date as the parties may agree upon in writing (the "Closing
Date").
7.2 DELIVERY OF THE SHARES. At the Closing, the Shareholders shall
deliver or cause to be delivered to Buyer the original stock certificate(s)
evidencing all of the Shares, duly endorsed or accompanied by duly executed
stock powers assigning the Shares to Buyer, free and clear of all Liens,
together with any and all other instruments necessary to transfer to the Buyer
title to the Shares.
7.3 CASH PAYMENT TO THE SHAREHOLDERS. At the Closing, Buyer shall
deliver, by wire transfer of immediately available funds (i) to the Shareholders
on a pro-rata basis in accordance with their share ownership in the Company as
set forth in Schedule 1.2(a) to the account(s) designated by the Shareholder
Representative, an aggregate amount equal to Twelve Million Two Hundred Seventy
Seven Thousand Two Hundred Ninety Five Dollars ($12,277,295), and (ii) to the
Escrow Holder, an amount equal to Three Million Seven Hundred Thirty Thousand
Dollars ($3,730,000).
8. TERMINATION PRIOR TO CLOSING
8.1 TERMINATION. This Agreement may be terminated at any time prior to
the Closing Date solely:
(i) by mutual written agreement of Buyer and the Shareholders; or
(ii) by either the Buyer, on the one hand, or the Company and the
Shareholders, on the other hand, in the event of a material breach of
this Agreement by any party which remains uncured for a period of 30
days after delivery of notice thereof.
(iii) by either the Buyer, on the one hand, or the Company and the
Shareholders, on the other hand, by written notice if the Closing has
not occurred on or before October 1, 1999.
8.2 LIABILITIES IN EVENT OF TERMINATION. Except as otherwise provided
herein, the termination of this Agreement pursuant to Sections 8.1(ii) or
8.1(ii) hereof will in no way limit any obligation or liability of any party
based on or arising from a breach or default by such party with respect to any
of its representations, warranties, covenants or agreements contained in this
Agreement including, but not limited to, legal and audit costs and out of pocket
expenses.
-27-
<PAGE>
9. OBLIGATIONS AFTER THE CLOSING DATE
9.1 INDEMNIFICATION BY THE SHAREHOLDERS.
(a) Each Shareholder hereby agrees to indemnify, defend and hold
harmless the Company, the Buyer, Holdings and each of their respective officers,
directors, employees, Affiliates or subsidiaries (collectively, the "Buyer
Group") against such Shareholder's Proportionate Share (as hereinafter defined)
of any and all losses, liabilities, damages, claims, demands, costs,
obligations, deficiencies and expenses (including, without limitation, interest,
penalties, court costs, reasonable expert witness fees and expenses, reasonable
consultants' fees and expenses and reasonable attorneys' fees and expenses)
(collectively, "Losses") actually and reasonably incurred by any member of the
Buyer Group arising from or in connection with: (i) the Shareholders ownership
of the Shares, (ii) the conduct of the business of the Company prior to the
Closing Date, whether or not such Losses occur prior to or subsequent to the
Closing Date, (iii) any breach by the Shareholders or the Company of any of
their representations and warranties, (iv) any breach by the Shareholders of any
of their covenants or agreements contained herein, which breach continues for
thirty days after written notice thereof, (v) any breach by the Company prior to
Closing of any of its covenants or agreements contained herein, which breach
continues for thirty days after written notice thereof, (vi) any intentional
misrepresentation made by any of the Shareholders in connection with the
transactions contemplated by this Agreement; (vii) any violation by the Company
or the Shareholders of any Environmental Laws occurring prior to the Closing;
(viii) any and all liabilities of the Company or the Shareholders for Taxes
arising out of the ownership of the Shares or the operation of the Company prior
to the Closing Date; (ix) any violation by the Company of ERISA or other Laws
regarding employee benefit matters occurring prior to the Closing; and (x) any
action taken by the Company or the Shareholders resulting in the termination of
the Company's status as a validly electing Subchapter S corporation up to and
including the Closing Date.
(b) Notwithstanding the provisions of Section 9.1(a), no Shareholder
shall have any liability to any member of the Buyer Group pursuant to the terms
of this Section 9.1 until the amount for which all Shareholders would otherwise
be liable but for the provisions of this Section 9.1, exceeds $200,000 in the
aggregate, at which point each Shareholder shall be liable for such
Shareholder's Proportionate Share of all claims in respect of such Losses, up to
a maximum of such Shareholder's Proportionate Share of that portion of the
Purchase Price actually paid over to the Shareholders under Section 1.2.
(c) As used in this Section 9.1, the "Proportionate Share" of any
Shareholder shall mean the percentage obtained by dividing the number of Shares
owned by such Shareholder immediately prior to the Closing by the number of
Shares owned by all Shareholders immediately prior to the Closing, as set forth
on Schedule 1.2(a) attached hereto.
9.2 INDEMNIFICATION BY BUYER. Buyer and Holdings, jointly and
severally, hereby agrees to indemnify and hold harmless the Shareholders against
any and all Losses arising from or in connection with (i) Buyer's ownership of
the Shares or the conduct of the business of the Company subsequent to the
Closing Date, or (ii) any breach by Buyer of any of its representations
-28-
<PAGE>
or warranties, covenants or agreements contained herein; provided, however, that
the Shareholders shall not make any claim against Buyer for indemnification
under this Section unless and until the aggregate amount of such claims exceeds
$200,000 in the aggregate, at which point Buyer shall be liable for all claims
in respect of such Losses up to a maximum of that portion of the Purchase Price
actually paid over to the Shareholders under Section 1.2.
9.3 INDEMNIFICATION CONDITIONS. The obligations and liabilities of the
indemnifying party with respect to claims made by third parties shall be subject
to the following conditions:
(i) The indemnified party shall give the indemnifying party
prompt written notice of any such claim, and the indemnifying party shall have
the right to undertake the defense thereof, at the indemnifying party's expense,
by representatives chosen by it and reasonably acceptable for the indemnified
party;
(ii) If the indemnifying party undertakes the defense of any such
claim, the indemnified party shall, to the best of its ability, assist the
indemnifying party, at the indemnifying party's expense, in the defense of such
claim, and shall promptly send to the indemnifying party, at the indemnifying
party's expense, copies of any documents received by the indemnified party which
relate to such claim;
(iii) If the indemnifying party, within a reasonable time after
notice of any such claim, fails to defend the indemnified party against which
such claim has been asserted, the indemnified party shall (upon reasonable prior
written notice to the indemnifying party) have the right to undertake the
defense, compromise or settlement of such claim on behalf of and for the account
and risk of the indemnifying party, at the indemnifying party's expense, subject
to the right of the indemnifying party to assume the defense of such claim at
any time prior to settlement, compromise or final determination thereof;
(iv) If, in the reasonable opinion of the indemnified party's
legal counsel, a conflict of interest with respect to any claim exists between
the indemnified party against which a claim has been asserted and the
indemnifying party, then such indemnified party shall have the right to retain
its own counsel with respect to such claim; provided that the reasonable fees
and expenses of such counsel shall be at the expense of the indemnified party;
and
(v) Anything in this Section 9 to the contrary notwithstanding,
(a) if there is a reasonable probability that a claim will materially and
adversely affect the indemnified party other than as a result of money damages
or other money payments, the indemnified party shall have the right, at its own
cost and expense, to defend, compromise or settle such claim; provided, however,
that if such claim is settled without the indemnifying party's prior written
consent, the indemnified party shall be deemed to have waived all rights against
the indemnifying party for money damages arising out of such claim; and (b) the
indemnifying party shall not, without the prior written consent of the
indemnified party, settle or compromise any claim or consent to the entry of any
judgment which does not include as an unconditional term thereof the giving by
the claimant or the plaintiff to the indemnified party a release from all
liability with respect to such claim.
-29-
<PAGE>
(vi) No claim for indemnification made by any member of the Buyer
Group under clause (ii) through clause (v) of Section 9.1(a) shall be valid
unless notice thereof is duly given to the Shareholders within two years after
the Closing Date; provided, however, that the foregoing shall not apply to a
breach by the Shareholders or the Company of the representations and warranties
provided in Sections 2.3, 2.4 and 2.5.
9.4 COOPERATION. Each of Buyer, the Shareholders and the Company, and
each of their successors and assigns, shall cooperate with each other in the
defense of any suit, action, investigation, proceeding or claim by a third party
and, during normal business hours, shall afford each other reasonable access to
their books and records and employees relating to such suit, action,
investigation, proceeding or claim and shall furnish each other all such further
information that they have the right and power to furnish as may reasonably be
necessary to defend such suit, action, investigation, proceeding or claim.
9.5 NON-SOLICITATION OF EMPLOYEES. None of the Shareholders shall prior
to the third anniversary of the Closing Date, (i) solicit, or assist anyone else
in the solicitation of, any employees of the Company or its Affiliates to
terminate their employment with the Company or its Affiliates or (ii) hire any
former employees of the Company or its Affiliates to become employed by any
business enterprise with which the Shareholder may then be associated,
affiliated, or connected.
9.6 COVENANTS NOT TO COMPETE. In consideration of this Agreement and
the transactions contemplated hereby, the Shareholders (collectively, the
"Covenantors" and individually a "Covenantor") each covenant and agree with
Buyer that for a period of three (3) years following the Closing Date (the
"Non-Compete Period"), they will not, directly or indirectly: (i) engage in, be
engaged by (including engagement for consulting or advising), or have any
interest in, any other Person (other than Buyer) which conducts any Competing
Business with the business of Buyer or the Company; provided however, that
nothing contained herein shall restrict any Covenantor from owning 5% or less of
the securities of any competitor of Buyer which securities are listed on any
national securities exchange or traded actively in the national over-the-counter
market, if such Covenantor has no other connection or relationship with the
issuer of such securities, (ii) otherwise solicit any person or entity who is,
or at any time during the Non-Compete Period was, a customer of the Company for
the purpose of requesting or inducing such person or entity to obtain services
from the Covenantor or any person or entity associated in any way with the
Covenantor, or (iii) interfere with or attempt to disrupt the relationship,
contractual or otherwise, between the Company and any of its franchisees,
employees, agents affiliates, customers, suppliers or referral sources. The term
"Competing Business" shall mean (a) selling or attempting to sell any products
or services which are the same as or similar to any products or services sold by
the Company at any time during the Non-Compete Period, and /or (b) soliciting,
trading with, advising, calling upon or otherwise doing or attempting to do
business with any clients, customers or accounts that have done business with
the Company at any time during the Non-Compete Period.
Each Covenantor acknowledges that the covenants contained in this
Section shall be construed as a series of separate covenants. Each separate
covenant shall be deemed identical in terms to the covenant set forth in the
first sentence of this Section. If in any judicial proceeding, a court shall
refuse to enforce any of the separate covenants deemed included in this Section,
then
-30-
<PAGE>
such unenforceable covenant shall be deemed eliminated from the provisions
hereof for the purpose of those proceedings to the extent necessary to permit
the remaining separate covenants to be enforced.
Each Covenantor recognizes the broad scope of the foregoing covenants,
but expressly agrees that they are reasonable in light of the scope of the
business as heretofore conducted by Shareholders and to be conducted by Buyer.
If any court or tribunal of competent jurisdiction shall refuse to enforce the
foregoing covenants because the time limit applicable thereto is deemed
unreasonable, it is expressly understood and agreed that such covenants shall
not be void, but that for the purpose of such proceedings and in such
jurisdictions such time limitation shall be deemed to be reduced to the extent
necessary to permit enforcement of the covenants. If any court or tribunal of
competent jurisdiction shall refuse to enforce any or all of the foregoing
covenants because they are more extensive (whether as to scope of business or
otherwise) than is deemed reasonable, it is expressly understood and agreed
between the parties hereto that such covenants shall not be void, but that for
the purpose of such proceedings and in such jurisdictions, the restrictions
contained herein (whether as to scope of business or otherwise) shall be deemed
to be reduced to the extent necessary to permit enforcement of the covenants.
Each Covenantor further acknowledges and agrees that monetary damages
resulting from any breach of the foregoing covenants may be difficult to
ascertain in whole or in part and that Buyer shall be entitled to seek specific
enforcement, injunctive relief and all other equitable remedies permitted under
applicable Laws.
9.7 SECTION 338(h)(10) ELECTION.
(a) Should Buyer wish to make an election under Section 338(h)(10) of
the Code (and any corresponding provisions of state, local or foreign law)
(collectively, a "Section 338(h)(10) Election") with respect to the purchase and
sale of the Shares, the Shareholders shall join Buyer in making such election.
If a Section 338(h)(10) Election is made, Buyer shall be responsible for
preparing and Buyer and the Company shall be responsible for timely filing any
forms necessary or helpful in making a Section 338(h)(10) Election. An
authorized Shareholder, on behalf of the Company, shall sign at the Closing all
federal and state forms used to make a Section 338(h)(10) Election requiring its
signature, which forms shall be filed by Buyer and the Company as described in
the preceding sentence. The Company shall include any income, gain, loss,
deduction, or other tax item resulting from the Section 338(h)(10) Election on
its Tax Returns to the extent permitted by applicable law and shall pay any Tax
imposed on the Company attributable to the making of such election including,
but not limited to, (i) any Tax imposed under Code Section 1374, (ii) any Tax
imposed under Treasury Regulation Section 1.338(h)(10)-1(e)(5), and (iii) any
state, local or foreign Tax imposed on the Company's gain.
(b) Promptly after the Closing Date, Shareholders shall provide to
Buyer any information reasonably requested by Buyer in connection with its
filing of a Section 338(h)(10) Election.
(c) If a Section 338(h)(10) Election is made, the Purchase Price and
other relevant items shall be allocated among the assets of the Company as
determined by Buyer in accordance
-31-
<PAGE>
with the Treasury Regulations promulgated under Section 338 of the Code. Buyer
shall deliver a schedule setting forth the fair market value of the assets and
such allocation within ninety (90) days after the Closing Date, and such
allocation shall become final upon Shareholders' written approval thereof;
provided, that if Buyer and Shareholders are unable to agree on such allocation
Buyer and Shareholders thereafter shall negotiate in good faith to resolve any
such disagreements. If Buyer and Shareholders are unable to resolve any such
disagreements within thirty (30) days after Buyer submits such allocation to
Shareholders, Buyer and Shareholders shall submit any dispute regarding the
amount of the Purchase Price allocated to the tangible assets of the Company to
an appraisal firm jointly selected by Buyer and Shareholders (the "Appraiser")
for resolution. If Buyer and Shareholders are unable to agree upon an Appraiser,
the Appraiser shall be selected by lot from a list of four (4) firms (of which
two (2) firms shall be selected by each of Buyer and Shareholders). The
resolution of such disagreements and the allocation by the Appraiser shall be
final and binding on Buyer and Shareholders. Buyer and the Shareholders shall
share equally the costs and expenses of the Appraiser. Buyer and Shareholders
shall file any tax returns and any other governmental filing on a basis
consistent with such allocation of fair market value.
9.8 TAXES.
(i) The Company shall prepare or cause to be prepared and file or
cause to be filed all Tax Returns for the Company for all tax periods ending on
or prior to the Closing Date which are filed after the Closing Date. The Company
shall permit Buyer to review and comment on each such Tax Return prior to filing
and shall make such revisions to such Tax Returns as are reasonably requested by
Buyer. To the extent permitted by applicable law, the Shareholders shall include
any income, gain, loss, deduction or other tax items for such periods on their
Tax Returns in a manner consistent with the Schedule K-1's prepared by the
Company for such periods.
(ii) The Company, Shareholders and Buyer shall cooperate fully,
as and to the extent reasonably requested by the other party, in connection with
the filing of any Tax Returns described in subparagraph (i) immediately above
and in connection with any audit, litigation or other proceeding with respect to
Taxes related to tax periods described in subparagraph (i) immediately above.
Such cooperation shall include the retention and (upon the other party's
reasonable request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding.
9.9 EMPLOYEE BENEFIT PLANS. As of January 1, 2000, as a wholly owned
subsidiary of Buyer, the Company's employees shall be eligible to participate in
Buyer's employee benefit plans, subject to the terms and conditions of such
plans. For 1999, the Company's employees shall be eligible to participate in the
bonus plan attached hereto as Exhibit H (the "1999 Bonus Plan"). The allocation
of any bonus payments under the 1999 Bonus Plan shall at the discretion of Buyer
and shall be made on or before March 15, 2000.
-32-
<PAGE>
9.10 RECORDS PERTAINING TO THE COMPANY.
(i) Turnover of Records. At the Closing, the Shareholders will
deliver or cause to be delivered to Buyer and the Company any records (a) in the
possession of the Shareholders, (b) applicable primarily to the Company and (c)
of which the Company does not already have copies.
(ii) Retention of Records. The Shareholders shall, for a period
of seven (7) years after the Closing Date, neither dispose of nor destroy any of
the accounting, tax, business or other records or files of the Shareholders
which pertain in part to the Company without first offering to turn over
possession of copies thereof to Buyer and the Company, at the Company's expense,
by written notice to Buyer and the Company, at least thirty (30) days prior to
the proposed date of such disposition or destruction.
(iii) Access to Records. Upon the reasonable request of Buyer
and/or the Company, the Shareholders shall allow Buyer and the Company and their
representatives access to all business records and files of the Shareholders
which pertain in part to the Company, during customary working hours at the
principal place of business of the Shareholders, or at any location where such
records are stored, and Buyer and the Company shall have the right, at the
Company's expense, to make copies of any such records and files.
(iv) Assistance with Records. For a seven year period after the
Closing Date, the Shareholders shall make available to Buyer and the Company at
the Company's expense, upon written request, (a) personnel of the Shareholders
to assist Buyer and the Company in locating and obtaining records and files
maintained by the Shareholders and (b) any of the personnel of the Shareholders
whose assistance or participation is reasonably required by Buyer and the
Company in anticipation of, or preparation for, any existing or future third
party actions, Tax or other matters in which the Company or any of its past,
present or future Affiliates is involved and which relate to the business of the
Company.
9.11 CONFIDENTIALITY. Prior to the Closing, each of the Company on the
one hand, and Buyer, on the other hand, will hold and will cause their
representatives to hold in strict confidence, unless compelled to disclose by
judicial or administrative process, or, in the opinion of its counsel, by other
requirements of law, all documents and information concerning the Company
furnished to Buyer (in the case of Buyer) and all documents and information
concerning Buyer furnished to the Company (in the case of the Company) in
connection with the transactions contemplated by this Agreement. Prior to the
Closing, neither the Company nor Buyer shall publicly disclose the existence of
negotiations, discussions, agreements or other information or documentation
concerning the proposed transaction. Except as required by law or stock exchange
regulation, any public announcements regarding the transactions contemplated
herein shall be made only with the mutual consent of the Company and Buyer;
provided, however, that Buyer may disclose the approximate aggregate amount of
consideration it paid for the Shares.
-33-
<PAGE>
10. MISCELLANEOUS
10.1 ENTIRE AGREEMENT. This Agreement (including the exhibits and
schedules hereto) constitutes the entire agreement and supersedes all prior and
contemporaneous agreements and understandings, both written and oral, between or
among the parties hereto with respect to the subject matter hereof, and no party
shall be liable or bound to the other in any manner by any representations,
warranties, covenants or agreements not set forth herein.
10.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any
rights, interests, or obligations hereunder may be assigned by any party hereto
without the prior written consent of all other parties hereto, and any purported
assignment in violation of this Section shall be null and void.
10.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by the different parties hereto on different counterparts, each
of which shall for all purposes be deemed to be an original and all of which
shall constitute the same instrument.
10.4 HEADINGS. The headings of the articles and sections of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction hereof.
10.5 CONSTRUCTION. As used in this Agreement, the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular article, section, paragraph or
other subdivision.
10.6 MODIFICATION AND WAIVER. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled to
the benefits thereof. No supplement, modification or amendment of this Agreement
shall be binding unless executed in writing by all of the parties hereto. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar) nor
shall such waiver constitute a continuing waiver.
10.7 SCHEDULES, ETC. All exhibits and schedules annexed hereto are
expressly made a part of this Agreement as though fully set forth herein.
10.8 NOTICES. All notices of communication required or permitted
hereunder shall be in writing and may be given by (a) depositing the same in
United States mail, addressed to the party to be notified, postage prepaid and
registered or certified with return receipt request, (b) delivering the same in
person to an officer or agent of such party, (c) telecopying the same with
electronic confirmation of receipt. All such notices duly given shall be
effective upon receipt by the parties to whom addressed.
-34-
<PAGE>
(i) If to Buyer, addressed to it at:
Paragon Reinsurance Risk Management Services, Inc.
500 North Akard, Suite 4500
Dallas, TX 75201
Attn: Bill Windhorst
with a copy to Holdings at:
E.W. Blanch Holdings, Inc.
500 North Akard, Suite 4500
Dallas, TX 75201
Attn: James S. Caulfield, Esq.
(ii) If to the Shareholders, addressed thereto at:
Ron Morris
7 Old Farm Rd.
Rossyln Farms, PA 15106
with a copy to:
Titus & McConomy
Four Gateway Center, 20th Floor
Pittsburgh, PA 15222-1207
Attn: David I. Cohen, Esq.
(iii) If to the Company, addressed to:
JD Warren, Incorporated
Building 6, Suite 140
800 North Bell Ave.
Carnegie, PA 15106
with a copy to:
Titus & McConomy
Four Gateway Center, 20th Floor
Pittsburgh, PA 15222-1207
Attn: David I. Cohen, Esq.
or to such other address or counsel as any party hereto shall specify pursuant
to this Section from time to time.
-35-
<PAGE>
10.9 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CHOICE OF LAW OR
CONFLICTS OF LAWS PROVISIONS THEREOF.
10.10 SURVIVAL OF COVENANTS, AGREEMENTS, REPRESENTATIONS AND
WARRANTIES. All representations, warranties, covenants and agreements made
hereunder or pursuant hereto or in connection with the transactions contemplated
hereby shall survive the Closing as set forth herein and shall continue in full
force and effect thereafter according to their terms.
10.12 EXPENSES. The Shareholders, on the one hand, and Buyer, on the
other hand, shall be solely responsible for their respective costs and expenses
(including, without limitation, attorneys fees and other legal costs) incurred
in connection with the transactions contemplated hereby.
10.13 THIRD PARTY BENEFICIARIES. No individual or firm, corporation,
partnership or other entity shall be a third-party beneficiary of the
representations, warranties, covenants and agreements made by any party hereto.
10.14 NUMBER AND GENDER OF WORDS. Whenever the singular number is used,
the same shall include the plural where appropriate, and words of any gender
shall include each other gender where appropriate.
10.15 FURTHER ASSURANCES. From time to time after the Closing, at the
request of any other party but at the expense of the requesting party, Buyer,
the Company or the Shareholders, as the case may be, will execute and deliver
any such other instruments of conveyance, assignment and transfer, and take such
other action as the other party may reasonably request in order to consummate or
evidence the transactions contemplated hereby.
10.16 BROKERS AND AGENTS. Except as disclosed on SCHEDULE 10.16, each
party represents and warrants that it has employed no broker or agent in
connection with this transaction and agrees to indemnify and hold harmless the
other parties against all loss, cost, damages or expense arising out of claims
for fees or commissions of brokers employed or alleged to have been employed by
such indemnifying party.
10.17 APPOINTMENT AND ACCEPTANCE OF SHAREHOLDER REPRESENTATIVES.
(a) In order to facilitate the consummation of the transactions
contemplated by this Agreement and the resolution of matters after the Closing
between Buyer, the Company and the Shareholders, the Shareholders hereby
expressly appoint Ron Morris (the "Shareholder Representative") to serve as the
attorney-in-fact and agent for each of the Shareholders in his/her name, place
and stead in connection with the transactions contemplated by this Agreement in
accordance with the terms of this Agreement and to execute the Escrow Agreement,
such appointment being coupled with an interest and irrevocable. By executing
and delivering this Agreement, the Shareholder Representative hereby accepts his
authorization and appointment as the Shareholder Representative and as
attorney-in-fact and agent on behalf of the Shareholders in accordance with the
terms of this Agreement.
-36-
<PAGE>
(b) Each Shareholder hereby expressly acknowledges and agrees
that (i) the Shareholder Representative is authorized to act on his/her behalf
notwithstanding any dispute or disagreement between or among the Shareholders
and (ii) Buyer and any other person shall be entitled to rely on any and all
actions taken by the Shareholder Representative under or pursuant to this
Agreement without liability to, or obligation to inquire of, any Shareholder.
(c) The authority of the Shareholder Representative hereunder
shall continue and be effective until all of the rights and obligations of the
Shareholders hereunder, or any dispute arising hereunder, shall terminate.
10.18 CERTAIN DEFINITIONS.
(i) "Affiliate" has the meaning set forth in Rule 12b-2 of the
regulations promulgated under the authority of the Securities Exchange Act of
1934, as amended.
(ii) "Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government (including any government authority, agency, department, board,
commission or instrumentality of the United States, any State of the United
States or any political subdivision thereof), any tribunal or arbitrator(s) of
competent jurisdiction, or any self-regulatory organization.
(iii) "Laws" shall mean any federal, state, local or foreign law,
statute, ordinance, rule, regulation, code, order, judgment or decree,
administrative order or decree, administrative or judicial decision, and any
other executive or legislative proclamation.
(iv) "Lien" means any lien, security interest, mortgage, pledge,
charge or similar encumbrance.
(v) "Material Adverse Effect" means any event which would result
in a material adverse effect on the business, financial condition, results of
operations or prospects of the Company, taken as a whole.
(vi) "Person" means an individual, a partnership, a corporation,
an association, a joint stock company, a trust, a joint venture, an
unincorporated organization, a Governmental Authority (or any department, agency
or political subdivision thereof) or any other entity.
(v) "Shareholder Representative" means Ron Morris.
-37-
<PAGE>
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first above written.
Paragon Reinsurance Risk
Management Services, Inc
By:
------------------------------
Title:
---------------------------
E.W. Blanch Holdings, Inc.
By:
------------------------------
Title:
---------------------------
JD Warren, Incorporated
By:
------------------------------
Title:
---------------------------
---------------------------------
Ronald R. Morris
---------------------------------
Michael P. Lopes
---------------------------------
Paul A. Herskovitz
-38-
EXHIBIT 10.18
DATED NOVEMBER 1999
-------------------------------
B.J. WARREN ESQ. AND OTHERS (1)
AND
E W BLANCH LIMITED (2)
------------------------------------------------
AGREEMENT
FOR THE SALE/PURCHASE OF THE ENTIRE ISSUED SHARE
CAPITAL OF CRAWLEY WARREN GROUP LIMITED
------------------------------------------------
NORTON ROSE
London
<PAGE>
CONTENTS
PAGE
RECITALS
CLAUSE HEADING
1 Definitions and interpretation...................................1
2 The Dividend.....................................................8
3 Sale of the Sale Shares..........................................8
4 Consideration....................................................9
5 Completion.......................................................9
6 Post-Completion matters and indemnity...........................12
7 Representations and warranties..................................14
8 Claims for breach of warranty or undertaking....................15
9 Professional Negligence and other indemnities...................16
10 Restrictive covenants...........................................20
11 Continuing effects of this Agreement............................22
12 Announcements...................................................22
13 Releases, waivers etc., by the Purchaser........................23
14 Notices.........................................................23
15 Entire Agreement................................................24
16 Alterations.....................................................24
17 Severability....................................................25
18 Counterparts....................................................25
19 Payment of Costs................................................25
<PAGE>
20 Successors and Assigns..........................................25
21 Applicable law and submission to jurisdiction...................26
Schedule 1 The Vendors......................................................27
Schedule 2..................................................................33
Part A - The Warrantors.........................................33
Part B - The Associates.........................................33
Schedule 3 The Company......................................................34
Schedule 4 The Subsidiaries.................................................35
Part A - The Direct Subsidiaries................................35
Part B - The Indirect Subsidiaries..............................49
Schedule 5 Matters represented and warranted................................74
Part A - General................................................74
Part B - Taxation..............................................108
Schedule 6 The Properties..................................................115
Part A - English Properties....................................115
Part B - Non-UK Properties.....................................116
Schedule 7 Directors and employees.........................................118
Part A - Additional Directors..................................118
Part B - Persons to receive Service Agreements.................118
Schedule 8 Provisions for the protection of the Warrantors.................119
Schedule 9 Arrangements relating to the Escrow Amount......................128
AGREED FORM DOCUMENTS
DOCUMENT CLAUSE
Contribution Agreements 1.1
Disclosure Bundle 1.1
Key Employment Agreements 1.1
Loan Notes 1.1
Management Accounts 1.1
Taxation Deed 5.1(a)(iv)
List of matters reported to the Company's E&O insurers 9.1
<PAGE>
THIS AGREEMENT is dated ................ November 1999 and is made BETWEEN:
(1) THE PERSONS whose names and addresses are stated in schedule 1
(together the "VENDORS" and each individually a "VENDOR"); and
(2) E W BLANCH LIMITED a company registered in England under number
3864576 whose registered office is at 32-38 Leman Street, London E1
8EW ("THE PURCHASER")
NOW IT IS HEREBY AGREED as follows:
1 DEFINITIONS AND INTERPRETATION
1.1 In this Agreement unless the context otherwise requires:
"ACCOUNTING PERIOD" has the meaning given in section 12 ICTA 1988;
"THE ACCOUNTS" means the Company's audited consolidated accounts (as
defined in section 262 CA 1985) for the financial year ended on the
Accounts Date, including the notes to those accounts and the
associated directors' and auditors' reports and any profit and loss
account omitted in reliance on section 230(3) CA 1985;
"THE ACCOUNTS DATE" means 31 December 1998;
"ACTUAL TAXATION LIABILITY" in relation to any person, means a
liability of that person to make payment of, or of an amount in
respect of, Taxation, whether or not such Taxation is also or
alternatively chargeable against or attributable to any other
person;
"ASSOCIATES" means in relation to each of the Warrantors the persons
listed beneath the name of that Warrantor in Part B of schedule 2;
"THE AUDITORS" means the auditors of the Company namely Mazars
Neville Russell, Chartered Accountants, of 24 Bevis Marks, London
EC3A 7JB;
"BUSINESS" means the business of providing insurance broking and
associated or ancillary services to the Clients (including without
limitation, broking risks related to personal accident and health,
reinsurance, travel, property and casualty, aviation and space,
bloodstock, marine, political and financial and film and
entertainment, Lloyd's and non-Lloyd's business carried on by the
Group);
"BUSINESS DAY" means a day on which banks are ordinarily open for
the transaction of normal banking business in London;
"CA 1985" means the Companies Act 1985;
"CLIENTS" means any person who is or has been a client of the
Business during the period of 24 months immediately preceding the
Completion Date including those persons whose names are listed in
the list of clients in the Disclosure Bundle;
1
<PAGE>
"CLIENT CONTRACTS" means the benefit, subject to the burden, of all
contracts or arrangements between any Group Company and the Clients;
"CLIENT CREDITORS" means the aggregate amount owed as at the
Completion Date by the Company to Clients in connection with the
Business, whether by transmission of claims settlement monies
received from insurers, refunds of premiums for the unexpired period
of insurance policies post cancellation, rebates of commission
generated by sales of policies prior to the Completion Date, or
otherwise and whether or not the same are recorded in the books of
account of the Company at the Completion Date;
"THE COMPANY" or "CWG" means Crawley Warren Group Limited (No.
1195662);
"COMPLETION" means completion of the sale and purchase of the Sale
Shares by the performance by the parties of their respective
obligations under clause 5.1;
"COMPLETION AMOUNT" means the sum of(pound)16,450,638;
"THE COMPLETION DATE" means 19 November 1999 or such later date (not
being after 31 December 1999) as the parties may agree;
"THE CONFIDENTIAL INFORMATION" means trade secrets and information
equivalent to them (including but not limited to formulae,
processes, methods, knowledge and Know-how) in connection with the
products distributed and sold and the services supplied by the Group
and which are for the time being confidential to any Group Company;
"CONTINUING CHARGES" means the charges registered against CWG and
the Lloyd's Company referred to in the fax dated 24 November 1999
from the Purchaser's Solicitors to Mr Bill Evans of CWG;
"CONTINUING LOANS" means the outstanding loans by the Company in
favour of:
(a) Malcolm Bernardes, Andrew Thompson and David Sales; and
(b) any of the Company's employees to cover season ticket
loans in respect of their travel to work;
"THE CONTRIBUTION AGREEMENTS" means the agreements in the agreed
form to be entered into by each of the Warrantors with his
Associates and the Purchaser;
"DESIGNATED VENDORS" means those of the Vendors to whom the Loan
Notes will be issued by the Purchaser and against whose names an
asterisk appears in schedule 1;
"DISCLOSURE BUNDLE" means the copy documents numbered 1 to 1218
inclusive in the agreed form contained in the 37 lever arch files
plus the original deeds and documents relating to the English
Properties set out in Part A of schedule 6 and listed in the
schedule comprising disclosure document number 1208 which are deemed
to form part of the Disclosure Letter and in the case of the said
lever arch files are annexed thereto;
2
<PAGE>
"THE DISCLOSURE LETTER" means the letter of the same date as the
Completion Date from the Warrantors to the Purchaser disclosing
certain matters in relation to the Warranties which has been
delivered to the Purchaser prior to the execution of this Agreement;
"DIVIDEND" means the interim dividend which has been declared by the
Company immediately prior to Completion in accordance with clause
2.1 in the aggregate sum of (pound)5,000,000;
"EMPLOYEE SHARE OWNERSHIP TRUST ACCOUNT" means the account no.
00043311, sort code 51-50-14 with National Westminster Bank plc in
the name of Crawley Warren Group plc's Employees Trust being the
Company's employee trust fund account;
"ESCROW ACCOUNT" means the escrow account set up and operated in
accordance with schedule 9 being the account no. 16780159 with
National Westminster Bank plc, Temple Bar Branch, 217 Strand,
London, sort code 60-80-08 in the joint names of the Vendors'
Solicitors and the Purchaser's Solicitors;
"ESCROW AMOUNT" means the sum of(pound)2,475,000;
"ESOT" means the Company's employee share ownership trust;
"THE GROUP" means the Company and the Subsidiaries;
"GROUP COMPANY" means each and any body corporate in the Group;
"GUARANTEE" means any guarantee, indemnity, suretyship, letter of
comfort or other assurance, security or right of set-off given or
undertaken by a person to secure or support the obligations (actual
or contingent) of any third party and whether given directly or by
way of counter-indemnity to any third party who has provided a
Guarantee but excluding any guarantee given to any third party
pursuant to Lloyd's jurisdiction or regulation (including any
Lloyd's brokers security and trust deed and any guarantee in respect
of Lloyd's membership);
"HERITAGE PROVISION" means the provision of (pound)690,000 made in
the Accounts to cover any liability of Crawley Warren & Company
Limited or any other Group Company to repay brokerage in the event
that the underwriters succeed on their claims to avoid ab initio
certain reinsurance contracts placed in respect of Heritage;
"IBA" means the one or more insurance broking accounts maintained or
operated by any Group Company;
"IBRC" means the Insurance Brokers Registration Council;
"ISB" means International Space Brokers Inc.;
"ICTA 1988" means the Income and Corporation Taxes Act 1988;
"INTELLECTUAL PROPERTY RIGHTS" means all patents, registered
designs, trade marks and service marks (whether registered or not),
domain names, copyright,
3
<PAGE>
design rights, rights in databases and all similar property rights,
including those subsisting (in any part of the world) in inventions,
designs, drawings, performances, computer programs, semiconductor
topographies, plant varieties, confidential information, business or
brand names, goodwill or the style of presentation of goods or
services and in applications for protection thereof;
"KEY EMPLOYEES" means Bernard James Warren, John Harrison Howes,
Malcolm Bernardes and Richard Mahoney;
"KEY EMPLOYMENT AGREEMENTS" means the employment agreements in the
agreed form between the Company and the Key Employees;
"KEY VENDORS" means Bernard James Warren, John Harrison Howes, John
Hyem and Michael Alexander Hemmings;
"KNOW-HOW" means all industrial and commercial information and
techniques, accounts, records and information (wherever situate)
pertaining to the activities of the Group;
"LLOYD'S" means the Society of Lloyd's incorporated under the
Lloyd's Acts 1871-1982 acting as a corporation, or through the
Council of Lloyd's, or any other body acting under its authority;
"LLOYD'S COMPANY" means Crawley Warren & Company Limited;
"LOAN NOTES" means the loan notes of (pound)1 in the agreed form to
be issued by the Purchaser to the Designated Vendors in accordance
with clause 5.1(c)(ii), each holding of Loan Notes being issued in
respect of a principal sum equal to such part of the Completion
Amount as each Designated Vendor elects to take in the form of Loan
Notes as set out in column (5) of schedule 1 and which would
otherwise be payable in cash to each of the Designated Vendors;
"THE MANAGEMENT ACCOUNTS" means the consolidated management accounts
of the Company for the period from 1 January 1999 to 30 June 1999
(both dates inclusive) in the agreed form;
"NET RETAINED BROKERAGE" means the amount of brokerage commission
received or receivable by the Company attributable to the Business
properly retained by the Company net of (i) payment of any
sub-commission or other payment due to any third party and (ii) any
brokerage repaid or returned;
"NOMINATED ACCOUNT" means the Vendors' Solicitors' client account
numbered 21384533 at National Westminster Bank PLC of Temple Bar
Branch, 217 Strand, London WC2R 1AL - Sort Code 60-80-08 or such
other account or accounts as the Vendors' Solicitors shall specify;
"PROHIBITED AREA" means the UK and Republic of Ireland, the United
States (including, but not restricted to the states of Georgia,
Illinois, California, Kansas, Texas, Indiana, Florida, Minnesota and
the Commonwealth of Massachusetts), Australia (including, but not
restricted to New South Wales), Bermuda and the island of Cyprus;
4
<PAGE>
"THE PROPERTIES" means the leasehold properties details of which are
set out in schedule 6;
"PURCHASER'S GROUP" means the Purchaser together with its
subsidiaries and any parent company of the Purchaser and all of such
parent company's or companies' subsidiaries;
"THE PURCHASER'S SOLICITORS" means Norton Rose, of Kempson House,
Camomile Street, London EC3A 7AN;
"RELATED COMPANY" in relation to any company means any subsidiary or
holding company of that company or any subsidiary of that holding
company;
"RELEVANT BREACH" means any event, matter or circumstance which is
inconsistent with, contrary to or otherwise a breach of any of the
Warranties (as qualified by clause 7.2(a));
"RELEVANT CLAIM" means a claim by the Purchaser involving or
relating to a breach of any of the Warranties;
"RELIEF" means any loss, relief, allowance, exemption, set-off,
deduction, credit or other relief relating to any Taxation or to the
computation of income, profits or gains for the purposes of any
Taxation;
"RESPECTIVE PROPORTIONS" means (in relation to the Vendors) the
respective proportions shown in column (4) of schedule 1 (being the
proportions in which the Sale Shares are held by the Vendors as
shown in column (3) of that schedule);
"THE RESTRICTED SERVICES" means:
(a) all services which are supplied by any Group Company or
International Space Brokers Inc.at the Completion Date
(including without prejudice to the generality of the
foregoing, the Business); and
(b) any other services which are similar to and competing
with any of the services referred to in (a) above;
"THE SALE SHARES" means the 10,000,000 issued Ordinary Shares of 10p
each of the Company referred to in column (3) of schedule 1;
"SECURITY INTEREST" means a mortgage, lien, pledge, charge,
hypothecation or other security interest (or an agreement or
commitment to create any of them), but excluding:
(a) any lien arising in the ordinary course of business to
secure amounts which are not material;
(b) any unpaid vendor's or supplier's lien arising in the
ordinary course of any Group Company's trading business
to secure amounts due in respect of goods or services
sold or supplied;
5
<PAGE>
(c) liens arising by operation of law, including a banker's
lien; and
(d) any Lloyd's broker security and trust deed;
"THE SUBSIDIARIES" means the companies and undertakings specified in
schedule 4 and for the purposes of the Warranties set out in
schedule 5, clause 9.1(d), the Taxation Deed and schedule 8 shall be
deemed to include ISB and its subsidiaries European Space Brokers
S.A. and ISB Asia/Pacific Pte Limited;
"SUBSIDIARY" means a subsidiary undertaking (as defined by section
258 CA 1985);
"TAXATION" has the meaning given to that expression in the Taxation
Deed;
"TAXATION AUTHORITY" has the meaning given in the Taxation Deed;
"THE TAXATION DEED" means the taxation deed in the agreed form to be
entered into between the Warrantors (1) and the Purchaser (2);
"THE TAX WARRANTIES" means the Warranties as to the matters stated
in part B of schedule 5;
"TCGA 1992" means the Taxation of Chargeable Gains Act 1992;
"THE TERMINATION DATE" (in relation to either of B J Warren or J
Howes) means the date of termination (for whatever reason and
whether in breach of contract or not) of the Key Employment
Agreement to be entered into pursuant to clause 5.1(d)(iii) between
the Company and that Key Employee;
"THE TDR PROVISION" means the unused balance of the US$290,000
provision made in CWG's consolidated management accounts up to 31
October 1999 to provide for any liability arising from the
investigations carried out by the Texas Department of Revenue in
relation to International Accident Facilities Inc and International
Accident Facilities (Texas) Inc. in respect of unpaid surplus lines
tax;
"THE VENDORS' SOLICITORS" means Crockers Oswald Hickson, of 10 Gough
Square, London EC4A 3NJ;
"WARRANTIES" means the representations and warranties referred to in
clause 7.1;
"THE WARRANTORS" means those persons whose names are stated in Part
A of schedule 2;
"WARRANTOR PROPORTIONS" means (in relation to the Warrantors) the
respective proportions shown in column (2) of Part A of schedule 2
(being the proportions in which the Warrantors undertake to pay the
Purchaser in the event of a Relevant Breach or a breach of the
Taxation Deed).
1.2 In this Agreement unless the context otherwise requires:
6
<PAGE>
(a) a document expressed to be "IN THE AGREED FORM" means a
document in a form which has been agreed by the parties
contemporaneously with or before the execution of this
Agreement and which has, for the purposes of
identification, been signed or initialled by them or on
their behalf;
(b) references to a clause or schedule are to a clause of,
or a schedule to, this Agreement, references to this
Agreement include its schedules and references in a
schedule or part of a schedule to a paragraph are to a
paragraph of that schedule or that part of that
schedule;
(c) references to this Agreement or any other document or to
any specified provision of this Agreement or any other
document are to this Agreement, that document or that
provision as in force for the time being and as amended
from time to time in accordance with the terms of this
Agreement or that document or, as the case may be, with
the agreement of the relevant parties;
(d) references to any English legal term for any action,
remedy, method of judicial proceeding, legal document,
legal status, Court, official or any legal concept or
thing shall in respect of any jurisdiction other than
England be deemed to include what most nearly
approximates in that jurisdiction to the English legal
term;
(e) words importing the singular include the plural and vice
versa, words importing a gender include every gender and
references to persons include corporations;
(f) the contents table and the descriptive headings to
clauses, schedules and paragraphs are inserted for
convenience only, have no legal effect and shall be
ignored in the interpretation of this Agreement;
(g) all agreements, obligations and liabilities (other than
in respect of the Warranties, the Taxation Deed and the
restrictive covenants in clause 10 or otherwise where
specifically provided to the contrary) on the part of
the Vendors or any two or more of the Vendors are joint
and several and shall be construed accordingly.
1.3 In this Agreement, unless the context otherwise requires:
(a) "enactment" means any statute or statutory provision
(whether of the United Kingdom or elsewhere),
subordinate legislation, as defined by section 21(1)
Interpretation Act 1978, and any other subordinate
legislation made under any such statute or statutory
provision;
(b) a reference to any enactment shall be construed as
including a reference to:
(i) any enactment which that enactment has
directly or indirectly replaced (whether
with or without modification); and
(ii) that enactment as re-enacted, replaced or
modified from time to time, whether before,
on or after the date hereof save to the
extent
7
<PAGE>
that the liability of any party hereunder
would thereby be increased or extended.
2 THE DIVIDEND
2.1 The Dividend, which has been declared by the Company immediately
prior to Completion shall be paid on 30th November 1999 to the
members on the register on the date of such declaration and the
Purchaser hereby undertakes to provide the Company with sufficient
funds to enable the Dividend to be paid.
3 SALE OF THE SALE SHARES
3.1 The Vendors shall sell to the Purchaser and the Purchaser (relying,
as the Vendors acknowledge, on the representations, warranties,
undertakings and indemnities of the Vendors and the Warrantors (or
any of them) referred to or contained in this Agreement or the
Taxation Deed) shall purchase from the Vendors the Sale Shares.
3.2 (a) (i) Subject to clauses 3.1 and 3.2(a)(ii) the
Vendors shall sell and transfer the Sale
Shares free from all encumbrances and
(subject thereto) with full title guarantee.
(ii) Where any of the Vendors are stated in
schedule 1 to be trustees, those Vendors
shall sell and transfer free from all
encumbrances and with limited title
guarantee such of the Sale Shares as are
held by them in that capacity.
(iii) For the purposes of this clause 3.2
"encumbrances" includes all claims, liens,
charges, encumbrances and equities and other
rights exercisable by third parties.
(b) The transfers of the Sale Shares to the Purchaser shall
be deemed to include expressly and be made subject to
all the foregoing provisions of this clause 3.2.
3.3 Title to, beneficial ownership of, and any risk attaching to, the
Sale Shares shall pass on Completion and the Sale Shares shall be
sold and purchased together with all rights and benefits attached or
accruing to them at Completion (including the right to receive all
dividends, (other than the Dividend) distributions, or any return of
capital declared, paid or made by the Company) on or after
Completion.
3.4 Each of the Vendors hereby waives any rights of pre-emption
conferred on him by the Articles of Association of the Company or
otherwise over Sale Shares hereby agreed to be sold by the other
Vendors.
8
<PAGE>
3.5 The Purchaser shall not be obliged to complete the purchase of any
of the Sale Shares unless the purchase of all the Sale Shares is
completed simultaneously.
4 CONSIDERATION
4.1 The consideration for the sale of the Sale Shares shall be:
(a) the payment by the Purchaser in cash to the Vendors
(other than the Designated Vendors in so far as they do
not elect to take all or part of the Consideration due
to them in cash) in their Respective Proportions on
Completion of the Completion Amount;
(b) the issue by the Purchaser of Loan Notes to the
Designated Vendors for all or that part of the
Consideration due to them as they may elect to receive
in the form of Loan Notes; and
(c) the payment by the Purchaser into the Escrow Account of
the Escrow Amount.
4.2 If and to the extent that there is any unused balance relating to
the Griffin Receipt (as defined in paragraph 14 of schedule 8) after
the operation of the set-off provisions set out in paragraph 13 of
schedule 8 the Purchaser shall within 5 working days of the
calculation of such unused balance pay to the Vendor's Solicitors
(for the account of the Vendors) a sum equal to 50 per cent. of such
unused balance.
4.3 The Purchaser shall calculate the unused balance relating to the
Griffin Receipt within 2 months after the expiry of the fourth
anniversary of the Completion Date and shall notify the Key Vendors
of the amount so calculated as soon as possible after such
calculation is made.
4.4 If a Griffin Receipt is received by the Purchaser after the expiry
of the fourth anniversary of the Completion Date then the Purchaser
shall as soon as reasonably practicable pay to the Vendors'
Solicitors (for the account of the Vendors) a sum equal to 50 per
cent. of such Receipt.
4.5 If there shall be any dispute between the parties as to the amount
of any payment to the Vendors under clause 4.2 the matter or matters
in dispute shall be referred to the auditors of the Company for the
time being. The said auditors shall act as experts and not as
arbitrators, their decision shall be final and binding upon the
parties hereto and their costs shall be borne between the parties as
they (the auditors) shall think fit.
5 COMPLETION
5.1 Completion shall take place at the offices of the Purchaser's
Solicitors or at such other place as the parties may agree on the
Completion Date when the following business (but not part only
unless the Purchaser shall so agree) shall be transacted:
(a) The Vendors shall deliver to the Purchaser:
9
<PAGE>
(i) transfers in respect of the Sale Shares duly
executed and completed in favour of the
Purchaser or as it may direct or have
directed, together with the certificates
therefor and the duly executed powers of
attorney or other authorities under which
any of the transfers have been executed and
certified copies of the Minutes recording
the Resolution of the trustees of such of
the Vendors as are trustees, in each case
authorising the sale of the Sale Shares held
by those Vendors and the execution of the
transfers in respect of them;
(ii) such other documents as may be required to
give a good title to the Sale Shares and to
enable the Purchaser or its nominees to
become the registered holders thereof;
(iii) (in respect of the Company) its statutory
and minute books written up to date, and its
Common Seal, Certificate of Incorporation,
any Certificate or Certificates of
Incorporation on Change of Name and other
documents and records including copies of
its Memorandum and Articles of Association;
(iv) the Taxation Deed duly executed by each of
the parties thereto;
(v) evidence in a form satisfactory to the
Purchaser that all Guarantees given by any
Group Company in respect of liabilities of
any of the Vendors have been released; and
(vi) a letter in a form reasonably acceptable to
the Purchaser from Frank Crystal & Co.
confirming that neither the Purchaser nor
its parent nor any member of the Purchaser's
group is a competitor of International Space
Brokers Inc. and accordingly that the
acquisition by the Purchaser of the Company
pursuant to this Agreement will not trigger
the option provision in the Stockholder
Agreement dated 28 January 1994 in respect
of International Space Brokers Inc. and made
between the Company (1) Frank Crystal & Co.
(2) and Le Blanc de Nicolay (3).
(b) The Vendors shall:
(i) cause the transfers mentioned in clause
5.1(a)(i) to be resolved to be registered
(subject only to their being duly stamped)
notwithstanding any provision to the
contrary in the Articles of Association of
the Company;
(ii) cause the persons named in part A of
schedule 7 to be validly appointed as
additional Directors of the Company; and
(iii) procure that B. Warren, R. Holland and L.
Morant shall retire as trustees, and that C.
Bowen, P. Evans and M. Lesser shall be
appointed as additional trustees, of the
Crawley Warren Pension Scheme; and
10
<PAGE>
(iv) repay to each Group Company, or procure the
repayment thereto of, all (if any)
indebtedness outstanding at Completion from
the Vendors or any of them (other than the
Continuing Loans) to that Group Company
(other than in respect of any trading in the
ordinary course of business by that Group
Company with any of the Vendors, which shall
be repaid in accordance with existing
arrangements).
(c) The Purchaser shall:
(i) pay the Completion Amount by electronic
funds transfer to the Nominated Account of
the Vendors' Solicitors (who are hereby
authorised to receive it in such account)
and the Purchaser shall have no obligation
as to the distribution or allocation of the
amount so paid between the Vendors;
(ii) issue the Loan Notes to, and execute
certificates in favour of, each of the
Designated Vendors; and
(iii) pay the Escrow Amount by electronic funds
transfer to the Escrow Account;
and the payment of such monies into such accounts shall
constitute a good discharge to the Purchaser.
(d) The parties shall join in procuring that:
(i) all existing bank mandates in force for the
Company shall be altered (in such manner as
the Purchaser shall at Completion require)
to reflect the resignations and appointments
referred to above;
(ii) all the Group Companies shall repay all (if
any) loans made to them by the Vendors (or
any of them) and outstanding at Completion;
(iii) the Key Employees shall enter into the Key
Employment Agreements; and
(iv) each of the Contribution Agreements will be
entered into by each of the Warrantors, his
Associates and the Purchaser.
5.2 If the Vendors shall fail or be unable to comply with any of their
obligations under the preceding provisions of this clause 5 on the
Completion Date the Purchaser may:
(a) defer Completion to a date not more than 28 days after
that date (in which case the provisions of this clause
5.2(a) shall apply to Completion as so deferred); or
(b) proceed to Completion so far as practicable but without
prejudice to the Purchaser's rights (whether under this
Agreement generally or under this
11
<PAGE>
clause) to the extent that the Vendors shall not have
complied with their obligations thereunder; or
(c) (save where the Purchaser, considering in good faith the
materiality or otherwise of the breach, is of the
opinion that the breach is immaterial) treat such
failure or inability to comply as a repudiatory breach
of this Agreement, acceptance of which shall discharge
the Purchaser from its undischarged obligations under
this Agreement (without prejudice to any other remedy
which the Purchaser may have, whether in damages or
otherwise).
6 POST-COMPLETION MATTERS AND INDEMNITY
6.1 Each of the Vendors hereby declares that for so long as he remains
the registered holder of any of the Sale Shares after Completion he
will:
(a) hold the Sale Shares and (other than the Dividend) the
dividends and other distributions of profits or surplus
or other assets declared, paid or made in respect of
them after Completion and all rights arising out of or
in connection with them in trust for the Purchaser and
its successors in title; and
(b) deal with and dispose of the Sale Shares and (other than
the Dividend) all such dividends, distributions and
rights as are described in clause 6.1(a) as the
Purchaser or any such successor may direct; and
(c) if so requested by the Purchaser or any such successor:
(i) vote at all meetings which he shall be
entitled to attend as the registered holder
of the Sale Shares in such manner as the
Purchaser or any such successor may direct;
and
(ii) execute all instruments of proxy or other
documents which the Purchaser may reasonably
require and which may be necessary or
desirable or convenient to enable the
Purchaser or any such successor to attend
and vote at any such meeting.
6.2 The Vendors shall:
(a) use all reasonable endeavours to secure with effect from
Completion the release of the Group Companies without
cost to any of the Group Companies from Guarantees to
the extent agreed with the Purchaser; and
(b) indemnify and keep indemnified the Purchaser (which
takes the benefit of this indemnity for itself and as
trustee for each Group Company) against all actions,
proceedings, losses, costs, claims, damages, liabilities
and expenses which it or any Group Company may suffer or
incur in respect of any claim made under any such
Guarantees after Completion.
6.3 The Vendors shall execute or, so far as each is able, procure that
any necessary third party shall execute all such documents and/or do
or, so far as each is able, procure the doing of such acts and
things as the Purchaser shall after Completion
12
<PAGE>
reasonably require in order to give effect to this Agreement and any
documents entered into pursuant to it and to give to the Purchaser
the full benefit of all the provisions of this Agreement.
6.4 The trustees of the ESOT shall, upon request of the Company and as
soon as possible after the receipt of the funds payable under clause
6.7 below, pay over to the Company the surplus funds in the ESOT
(after deducting monies to meet any Taxation liabilities) for the
Company to distribute as bonuses to employees and directors selected
by the ESOT trustees.
6.5 The Company will be liable for employer's National Insurance
contributions payable on the bonuses referred to in clause 6.4 and
will calculate the necessary deductions of employee's National
Insurance contributions and income tax to be collected via PAYE.
6.6 The Purchaser undertakes with the Vendors and each of them that for
a period of six months after Completion it will not effect or
procure the appointment of any new trustee or the retirement of any
existing trustee of the ESOT.
6.7 Within 3 working days of the Completion Date the Purchaser shall
procure that the Company makes a payment of(pound)610,000 into the
ESOT.
6.8 If any shares in the capital of Uni-Alliance Insurance Holdings
Limited ("Uni-Alliance"), an associated company of the Company, or
any subsidiary of Uni-Alliance shall be offered to the public on or
before 31 March 2002, the Purchaser will pay to the Vendors'
Solicitors (for distribution to the Vendors) 50 per cent. of the
value of the Company's shares in Uni-Alliance to the extent that the
value for such shareholding exceeds (pound)3 million, whether such
increase accrues for the benefit of the Company or any other company
in the Purchaser's Group to which the Company's present shareholding
in Uni-Alliance may have been transferred. Any payment due under
this clause 6.8 shall become payable within 14 days of the Valuation
Date (as defined in clause 6.10 below) whether before or after 31
March 2002.
6.9 If there shall be any dispute between the parties as to the amount
of any payment to the Vendors under clause 6.8 the matter or matters
in dispute shall be referred to the auditors of the Company for the
time being (or the auditors for the time being of such other member
of the Purchaser's Group to which the Company's shareholding in
Uni-Alliance may have been transferred). The said auditors shall act
as experts and not as arbitrators, their decision shall be final and
binding upon the parties hereto and their costs shall be borne as
they (the auditors) shall think fit.
6.10 For the purpose of clause 6.8 the value of the shares in
Uni-Alliance shall be determined as at the date ("the Valuation
Date") which is the later of:
(a) the date on which the shares are freely capable of being
converted to cash by the Company (or any other company
in the Purchaser's Group to
13
<PAGE>
which the Company's present shareholding in Uni-Alliance
may have been transferred); and
(b) if the shares have not been converted to cash within 18
months of the date in (a) above, then the date which is
18 months after the expiry of such date.
7 REPRESENTATIONS AND WARRANTIES
7.1 In consideration of the Purchaser entering into this Agreement:
(a) the Warrantors hereby warrant and represent to the
Purchaser (for itself and as trustee for its successors
in title):
(i) (subject to clause 7.2) in the terms set out
in schedule 5; and
(ii) that any statement in schedule 5 which is
qualified as being made "so far as the
Warrantors are aware" or "to the best of the
knowledge, information and belief of the
Warrantors" or any similar expression has
been so qualified after due diligent and
careful enquiries by the Warrantors
(including enquiry where appropriate of
relevant personnel which might include any
of the following: executive directors,
brokers, company secretary, general
managers, financial controller, taxation
manager and personnel manager of each Group
Company and the accountants, solicitors, tax
advisers and insurance brokers who act, or
at the relevant time acted, for each Group
Company) and that each of the Warrantors has
used all reasonable endeavours to ensure
that all information given, referred to or
reflected in that statement is accurate in
all material respects.
7.2 (a) The Warranties shall be qualified to the extent, but
only to the extent, of those matters fully and fairly
disclosed in the Disclosure Letter and for this purpose
"fully and fairly disclosed" means disclosed in such
manner and in such detail as to enable a reasonable
purchaser to make an informed and accurate assessment of
the matter concerned.
(b) All references in schedule 5 to "the Company" shall
unless the context otherwise requires be construed as
references to each and every Group Company.
(c) Each of the paragraphs in schedule 5:
(i) shall be construed as a separate and
independent representation and/or warranty;
and
14
<PAGE>
(ii) save as expressly otherwise provided in this
Agreement, shall not be limited by reference
to any other paragraph in schedule 5 or by
any other provision of this Agreement or the
Taxation Deed,
and the Purchaser shall have a separate claim and right
of action in respect of every Relevant Breach of each
such representation or warranty.
(d) All references in schedule 5 to "CWG" shall be construed
as a reference to the Company only.
7.3 The Warranties shall not in any respect be extinguished or affected
by Completion.
7.4 Each of the Vendors agrees with the Purchaser (both as Purchaser and
as trustee for each Group Company and each Group Company's
directors, employees, agents and advisers):
(a) that the giving by any Group Company and/or any of its
directors, employees, agents or advisers to any of the
Vendors or their agents or advisers of any information
or opinion in connection with the Warranties or the
Taxation Deed or the Disclosure Letter or otherwise in
relation to the business or affairs of any Group Company
or in connection with the negotiation and preparation of
this Agreement, the Taxation Deed or the Disclosure
Letter shall not be deemed a representation, warranty or
guarantee to the Vendors of the accuracy of such
information or opinion;
(b) to waive any right or claim which he may have against
any Group Company and/or any of its directors, employees
or agents for any error, omission or misrepresentation
in any such information or opinion; and
(c) that any such right or claim shall not constitute a
defence to any claim by the Purchaser under or in
relation to this Agreement (including the Warranties) or
the Taxation Deed.
7.5 Schedule 8 shall have effect for the purpose of limiting the
liability of the Warrantors.
7.6 The following Warranties are not given in respect of any subsidiary
of ISB:
(a) the Property Warranties contained in paragraph 20 of
schedule 5;
(b) the Pensions Warranties contained in paragraph 22 of
schedule 5; and
(c) any warranty (or that part thereof) which expressly
requires information to be contained in the Disclosure
Letter.
8 CLAIMS FOR BREACH OF WARRANTY OR UNDERTAKING
8.1 The rights and remedies conferred on the Purchaser under this
Agreement, are cumulative and are additional to, and not exclusive
of, any rights or remedies provided by law or otherwise available at
any time to the Purchaser.
15
<PAGE>
8.2 The Warrantors severally agree and undertake with the Purchaser to
pay in cash in their respective Warrantor Proportions to the
Purchaser (or as the Purchaser may direct) on demand if there is a
Relevant Breach or a breach of the Taxation Deed, a sum equal to the
aggregate of:
(a) the amount necessary to put the Company into the
position which would have existed had there been no
breach of warranty, in particular, where the breach or
the effect of the breach is that the value of an asset
(including one warranted to exist but not in fact
existing) of the Company is or becomes less than its
value would have been had there been no such breach or
the Company has or incurs any liability or increase in
liability which would not have been incurred had there
been no such breach, then the Warrantors will pay the
full amount of such deficiency or diminution in value of
the asset or (as the case may be) of such liability or
increase in liability; and
(b) all losses incurred or suffered by the Purchaser or the
Company, directly or indirectly, as a result of or in
connection with the breach of warranty.
8.3 The Purchaser warrants to the Warrantors that as at the date hereof
it has no knowledge of any circumstance entitling it to make a claim
for breach of any of the Warranties.
9 PROFESSIONAL NEGLIGENCE AND OTHER INDEMNITIES
9.1 The Warrantors hereby undertake to the Purchaser (acting for itself
and as trustee for each member of the Purchaser's Group, the Company
and the Subsidiaries) to pay to the Purchaser on demand made at any
time and from time to time an amount equal to any liability
(excluding any liability specifically provided for in the Management
Accounts as at 30 June 1999 other than the Heritage Provision and
TDR Provision and satisfied on or before Completion) whether direct
or indirect (including any loss, fines, levies, charges, interest,
penalties, claims, costs, damages and expenses) of whatsoever nature
whensoever arising at any time or times before or after the date
hereof whether actual or contingent which may arise out of or be
occasioned or suffered in consequence of or in connection with any
of the following:
(a) any uninsured liability in respect of any negligent
acts, errors, negligent omissions or negligent advices
occurring, rendered, or given by the Company or any of
the Subsidiaries or any of their respective officers,
empoyees or agents prior to Completion relating to (i)
the claims detailed on the list of matters reported to
the Company's errors and omissions insurers in the
agreed form and (ii) any other matters notified to the
Company or the Subsidiaries or in respect of which the
Company or the Subsidiaries are otherwise aware and
which (in either case) have not been reported to the
Company's errors and omissions insurers;
(b) any fine, levy, damages (whether compensatory or
punitive), penalty or similar charge whatsoever,
including an order to return commissions and/or
brokerage and/or other monies already received (or in
respect of any jurisdiction other than England, whatever
term approximates in that
16
<PAGE>
jurisdiction to the foregoing terms) imposed by, or
ordered to be paid by, any regulatory body or court
(wheresoever situate in the world) to which the Company
or any Subsidiary is or may be or is held or deemed to
be subject, where the failure, default or non-compliance
on the part of the Group Company occurred or was
subsisting prior to Completion, including without
limitation:
(i) Lloyd's regulatory division's investigation
into the operations of Crawley Warren &
Company Limited (both generally and in
respect of the management of binding
authorities relating to bloodstock business
written in Cyprus) to the extent that any
fine exceeds (pound)10,000 and any costs
exceed (pound)5,500;
(ii) any loss fine damages or other penalty
howsoever termed and arising from the claim
against International Accident Facilities
Inc. and/or International Accident
Facilities Texas Inc. pursuant to the
dispute concerning the issuance of insurance
policies to National Convenience Stores;
(iii) any loss fine damages penalty or other
liability howsoever termed arising from the
illegal selling or placement of insurance or
reinsurance cover by any Group Company;
(c) any liability (including but not limited to liability
arising out of warranties and indemnities) arising
pursuant to the ownership of and sale subsequent by
Charles Terrace Limited of the business of Compass
Certificate Schemes Limited; and the ownership of and
subsequent sale by Crawley Warren (USA) Inc. (or a
subsidiary thereof) of Innovative Services International
LLC and Continental Aviation Underwriting Inc.;
(d) any debits properly made in accordance with generally
accepted accounting principles to the Company's proft
and loss account after the Completion Date where the
original transaction giving rise thereto was recorded in
the insurance ledgers of the Company or any of the
Subsidiaries as at 30 September 1999 ("Relevant Debits")
after the deduction of any credits made or capable of
being made in accordance with generally accepted
accounting principles to the Company's profit and loss
account after the Completion Date where the original
transaction giving rise thereto was recorded in the
insurance ledgers of the Company or any of the
Subsidiaries as at 30 September 1999;
For the avoidance of doubt:
(i) credits referred to in this clause 9.1(d)
include those recorded as part of the bad
and doubtful debt provision relating to
transactions recorded in the insurance
ledgers of the Company or any of the
Subsidiaries as at 30th September 1999 not
required for off-set against Relevant
Debits; and
(ii) any claims under this clause 9.1(d) in
relation to ISB or its subsidiaries shall be
limited to 46.35 per cent of the value of
such claim;
17
<PAGE>
(e) any loss arising from the directors of the Company
registering (i) the transfer of 21,000 shares in the
Company outside the period in respect of which a waiver
of pre-emption rights by shareholders was in force and
(ii) the transfer of 1,000 shares in the Company in
contravention of the pre-emption provisions in the
Company's Articles of Association;
(f) any liability arising from the Company or any Subsidiary
having acted prior to Completion ultra vires of any
binding authority to which such company is cover-holder
to the extent such liability is not covered by
insurance;
(g) any debit to the profit and loss account of the Company
after the Completion Date arising as a result of the
underwriters succeeding in respect of their claims to
avoid ab initio the reinsurance contracts placed in
respect of Heritage and as a consequence of which
Crawley Warren & Company Limited or any other Group
Company is required to repay brokerage in excess of the
Heritage Provision;
(h) any debit to the profit and loss account of ISB which
results directly or indirectly from commissions due in
connection with the space insurance programme of TCI
Satellite Entertainment Inc to ISB in the sum of
US$54,085 not being paid to ISB (as referred to in the
disclosure against warranty 6.7 in the Disclosure
Letter);
(i) any liability (contingent or otherwise) of CW Midwest
Inc pursuant to the reimbursement agreement between CW
Midwest Inc and Raybon Cox (as referred to in the
disclosure against warranty 11.1(e) in the Disclosure
Letter);
(j) any liability (contingent or otherwise) including
without limitation, costs, claims, demands and damages
of any member of the Group arising whether directly or
indirectly from:
(i) the actual or potential disputes or
litigation involving Columbus Community
Hospital, Cozad Hospital and SkillMaster as
referred to in the disclosure against
warranty 6.7 in the Disclosure Letter;
(ii) the actual or potential disputes or
litigation involving Guarantee Life v Blue
Star Underwriters as referred to in the
disclosure against warranty 25.1 in the
Disclosure Letter;
(iii) any claim against any member of the Group
arising from those existing and potential
employee claims or circumstances listed in
the disclosure against warranty 18.6 in the
Disclosure Letter which relate to Gillian
Lockwood, Terri Petherbridge, Jacqueline
Murphy and Joanne Brown;
(iv) the actual or potential disputes or
litigation against any member of the Group
arising from the dispute with Atrimar
Constructions Pty Limited and Internet
Constructions Pty Limited as referred to in
the disclosure against warranty 25.1 in the
Disclosure Letter;
18
<PAGE>
(k) any amount which the Group is unable to recover from
Peter Shellard as detailed in the disclosure against
warranty 18.10 in the Disclosure Letter;
(l) any amount which any Group Company is unable to recover
from Michael Roberts pursuant to the purchase by the
Group of Mansions of Australia Pty Limited as detailed
in the disclosure against warranty 19.4 in the
Disclosure Letter;
(m) any liability of any Group Company to satisfy any
additional premium or call demanded by the Griffin
Insurance Association Limited in respect of any period
up to the Completion Date;
(n) any liability of any Group Company arising out of the
existing litigation between Le Blanc de Nicolay
Reassurance SA ("Le Blanc") and ISB except for:
(i) costs incurred by ISB in relation to such
litigation, and
(ii) any obligation by ISB to pay Le Blanc any
monies in respect of the commissions
allegedly owed by ISB to Le Blanc from the
period after 15 May 1998 to the extent that
such commissions have not been booked and
credited to the profit and loss account of
ISB;
(o) any liability arising whether directly or indirectly
from the discrepanices contained in AUG's computerised
register of allotment compared to its shareholders'
register;
(p) any costs or liability arising to the extent that any
charges over the Company or any of the Subsidiaries any
of their assets have not been satisfied or discharged in
full prior top Completion (other than the Continuing
Charges).
9.2 The following provisions of schedule 8 shall apply in relation to
this clause 9 in the same manner in which the said provisions apply
to claims under the Warranties and (if applicable) the Taxation
Deed: 2.1(g), 3.1(a), 3.1(b), 4, 7-11 (inclusive) and 14. Paragraph
13 of schedule 8 shall apply only in relation to clause 9.1(d).
9.3 No claim shall be brought by the Purchaser pursuant to clause 9
unless notice in writing of such claim (specifying in reasonable
detail the event, matter or default which gives rise to the claim)
has been given to the Warrantors before the fourth anniversary of
the Completion Date or (in the case of claims pursuant to clause
9.1(b) which relate to a non-UK jurisdiction only, before the second
anniversary of the Completion Date).
9.4 No information known to the Purchaser (whether actual or
constructive) (including without limitation any matter disclosed in
the Disclosure Letter) shall prejudice any claim made by the
Purchaser under this clause 9.
19
<PAGE>
10 RESTRICTIVE COVENANTS
10.1 Each of the Key Vendors undertakes with the Purchaser that without
the prior consent in writing of the Purchaser he will not directly,
or indirectly whether by himself, his employees or agents and
whether on his own behalf or on behalf of any person, firm or
company or otherwise howsoever, for a period of 3 years from the
date of Completion.
(a) (subject to clause 10.5) carry on, be employed or
otherwise engaged, concerned or interested in any
capacity (whether for reward or otherwise) in, provide
any technical, commercial or professional advice to, or
in any way assist any business which is or is about to
be engaged in the supply of the Restricted Services in
the Prohibited Area in competition with the Company or
any other Group Company;
(b) in relation to the Restricted Services or any of them,
solicit or canvass, accept orders from or otherwise deal
with any person, firm, company or other organisation
who:
(i) was a client of the Company or any other
Group Company at any time during the 3 years
prior to Completion; or
(ii) at the date of Completion was in the process
of negotiating or contemplating doing
business with the Company or any other Group
Company,
and with whom that Key Vendor had personal dealings at
any time in the 3 years prior to Completion in the
course of his employment;
(c) solicit or entice away or endeavour to solicit or entice
away from the Company or any other Group Company any
director or broker or manager or other person employed
or otherwise engaged by that Group Company on the date
of Completion, whether or not that person would commit
any breach of his contract of employment by reason of
his leaving the service of that Group Company;
10.2 Clause 10.1 shall be deemed to be repeated herein with the
substitution of the period "12 months from the Termination Date in
relation to that Key Vendor" for the period "3 years from the date
of Completion".
10.3 Each of the Vendors (which expression shall not in this clause 10.3
include any of the Vendors who are trustees) undertakes with the
Purchaser that except under the terms of any service agreement
between himself and a Group Company or the Purchaser he will not at
any time after Completion directly or indirectly, whether by
himself, his employees or agents or otherwise howsoever:
(a) without the Purchaser's prior written consent, engage in
any trade or business or be associated with any person
firm or company engaged in any trade or business using
any of the names Crawley Warren, International Space
Brokers, ISB, International Accident Facilities, IAF,
Cox or Mansions or any name incorporating the words
Crawley or
20
<PAGE>
Warren or International Space Brokers or ISB or
International Accident Facilities or IAF or Cox or
Mansions or any similar name or names or any colourable
imitation thereof;
(b) (subject to clause 10.5) in the course of carrying on
any trade or business, claim, represent or otherwise
indicate any present association with the Company or any
other Group Company or, for the purpose of obtaining or
retaining any business or custom, claim, represent or
otherwise indicate any past association with the Company
or any other Group Company;
(c) (subject to clause 10.5) without the consent of the
Company or the Purchaser use, whether on his own behalf
or any third party, or divulge to any third party, any
of the Confidential Information.
10.4 Each of the Vendors undertakes with the Purchaser that, if the
Company or any other Group Company obtains any of the Confidential
Information from any third party under an agreement including any
restriction on disclosure known to him, he will not at any time
without the consent of the Company or the Purchaser infringe that
restriction.
10.5 (a) The restriction in clause 10.1(a) shall not operate to
prohibit any Key Vendor from holding up to 3 per cent of
the shares of any competing company the shares of which
are listed or dealt in on a recognised stock exchange;
(b) The reference in clause 10.5(a) to clause 10.1(a) shall
include clause 10.1(a) as repeated by clause 10.2.
(c) The restrictions in clauses 10.3(c) and 10.4 shall not
apply:
(i) in respect of any of the Confidential
Information which is in or becomes part of
the public domain, other than through a
breach of the obligations of confidentiality
set out in this Agreement; or
(ii) to any of the Vendors to the extent that he
is required to disclose Confidential
Information by any applicable law,
governmental order, decree, regulation,
licence or rule or pursuant to the
regulations of any securities exchange or
regulatory or governmental body to which he
is subject or otherwise to his professional
advisers.
10.6 Each of the Vendors agrees with the Company and the Purchaser that
the restrictive covenants in this clause 10, so far as each such
covenant is relevant to him or her, are reasonable and necessary for
the protection of the value of the Sale Shares and the Company and
that having regard to that fact those covenants do not work harshly
on him.
21
<PAGE>
10.7 (a) The Vendors acknowledge that they have had the
opportunity to take independent advice on the
restrictions in clause 10.1 to 10.4 inclusive.
(b) While those restrictions are considered by the parties
to be reasonable in all the circumstances, it is agreed
that if any of those restrictions, by themselves or
taken together, shall be adjudged to go beyond what is
reasonable in all the circumstances for the protection
of the legitimate interests of the Purchaser but would
be adjudged reasonable if part or parts of the wording
thereof were deleted or amended or qualified or the
periods thereof were reduced or the range of products or
services or area dealt with were thereby reduced in
scope, then the relevant restriction or restrictions
shall apply with such modification or modifications as
may be necessary to make it or them valid and effective.
11 CONTINUING EFFECTS OF THIS AGREEMENT
11.1 No provision of this Agreement or of any arrangement of which this
Agreement forms part which is of such nature as to render the
Agreement or arrangement subject to registration under the
Restrictive Trade Practices Act 1976 shall take effect until the day
after the date on which particulars of the Agreement or arrangement
are furnished to the Director General of Fair Trading in accordance
with that Act.
11.2 Subject to clause 11.1, all provisions of this Agreement shall so
far as they are capable of being performed or observed continue in
full force and effect notwithstanding Completion except in respect
of those matters then already performed and Completion shall not
constitute a waiver of any of the Purchaser's rights in relation to
this Agreement or the Taxation Deed.
12 ANNOUNCEMENTS
12.1 Each of the Vendors undertakes with the Purchaser to provide, and to
use his best endeavours to procure that each of the Directors of the
Company and the Subsidiaries shall provide, all such information
known to him or which on reasonable enquiry ought to be known to him
and relating to the Group or otherwise as the Purchaser may
reasonably require for the purpose of complying with any
requirements of law or of the New York Stock Exchange.
12.2 Save as expressly required by law or by the New York Stock Exchange
or by any relevant regulatory, governmental or quasi-governmental
authority, all announcements or circulars by, of or on behalf of any
of the parties hereto made before or after Completion and relating
to the sale and purchase of the Sale Shares shall be in terms to be
agreed between the parties in advance of issue and for the purpose
of this clause 12.2 "parties" shall be deemed to mean the Purchaser
on the one hand and the Key Vendors on the other.
22
<PAGE>
13 RELEASES, WAIVERS ETC., BY THE PURCHASER
13.1 The Purchaser may, in its discretion, in whole or in part release,
compound or compromise, or waive its rights or grant time or
indulgence in respect of, any liability to it under this Agreement
or the Taxation Deed and may do so as regards any one or more of the
Vendors or Warrantors under that liability without in any way
prejudicing or affecting the liability of or its rights against any
other of the Vendors or Warrantors in respect of the same or a like
liability, whether joint and several or otherwise.
13.2 Subject to clause 13.3, neither the single or partial exercise or
temporary or partial waiver by the Purchaser of any right, nor the
failure by the Purchaser to exercise in whole or in part any right
or to insist on the strict performance of any provision of this
Agreement, nor the discontinuance, abandonment or adverse
determination of any proceedings taken by the Purchaser to enforce
any right or any such provision shall (except for the period or to
the extent covered by any such temporary or partial waiver) operate
as a waiver of, or preclude any exercise or enforcement or (as the
case may be) further or other exercise or enforcement by the
Purchaser of, that or any other right or provision.
13.3 Clause 13.2 is without prejudice to the time limits in paragraph 5
of schedule 8 (for which purposes time shall be of the essence) and
all references in clause 13.2 to:
(a) any right shall include any power, right or remedy
conferred by this Agreement on, or provided by law or
otherwise available to, the Purchaser; and
(b) any failure to do something shall include any delay in
doing it.
13.4 The giving by the Purchaser of any consent to any act which by the
terms of this Agreement requires such consent shall not prejudice
the right of the Purchaser to withhold or give consent to the doing
of any similar act.
14 NOTICES
14.1 Except as otherwise provided in this Agreement, every notice under
this Agreement shall be in writing in the English language and shall
be deemed to be duly given if it (or the envelope containing it)
identifies the party to whom it is intended to be given as the
addressee and:
(a) it is delivered by being handed personally to the
addressee (or, where the addressee is a corporation, any
one of its Directors or its Secretary); or
(b) it is delivered by being left in a letter box or other
appropriate place for the receipt of letters at the
addressee's authorised address; or
(c) the envelope containing the notice is properly addressed
to the addressee at his authorised address and duly
posted by first class mail or registered post or the
recorded delivery service (or by airmail registered post
if overseas) or the notice is duly transmitted to that
address by facsimile transmission,
23
<PAGE>
and, in proving the giving or service of such notice, it shall be
conclusive evidence to prove that the notice was duly given within
the meaning of this clause 14.1.
14.2 A notice sent by post (or the envelope containing it) shall not be
deemed to be duly posted for the purposes of clause 14.1(c) unless
it is put into the post properly stamped or with all postal or other
charges in respect of it otherwise prepaid.
14.3 For the purposes of this clause 14 the authorised address of each of
the Vendors shall be the respective addresses of each of the Key
Vendors or (in the case of notices transmitted by facsimile
transmission) the respective facsimile numbers (if any) of the Key
Vendors and the service of notice on the Key Vendors shall be deemed
to be service on each and every Vendor and the authorised address of
(respectively) the Purchaser and the Company and each of the
Subsidiaries shall be the address of its registered office for the
time being or (in the case of notices transmitted by facsimile
transmission) its respective facsimile numbers at that address.
14.4 Any notice duly given within the meaning of clause 14.1 shall be
deemed to have been both given and received:
(a) if it is delivered in accordance with clause 14.1(a) or
14.1(b), on such delivery;
(b) if it is duly posted or transmitted in accordance with
clause 14.1(c) by any of the methods there specified, on
the second (or, when sent airmail, fifth) business day
after the day of posting or (in the case of a notice
transmitted by facsimile transmission) upon receipt by
the sender of the correct transmission report.
14.5 For the purposes of this clause 14 "notice" shall include any
request, demand, instructions, communication or other document.
15 ENTIRE AGREEMENT
15.1 This Agreement (together with all documents which are required by
its terms to be entered into by the parties or any of them and all
those terms of any other documents which this Agreement expressly
preserves and all other documents which are in the agreed form and
are entered into by the parties or any of them in connection with
this Agreement) sets out the entire agreement and understanding
between the parties in connection with the Company and the sale and
purchase and other matters described in it.
16 ALTERATIONS
16.1 No purported alteration of this Agreement shall be effective unless
it is in writing, refers to this Agreement and is duly executed by
each party hereto.
24
<PAGE>
17 SEVERABILITY
17.1 Each provision of this Agreement is severable and distinct from the
others. The parties intend that every such provision shall be and
remain valid and enforceable to the fullest extent permitted by law.
If any such provision is or at any time becomes to any extent
invalid, illegal or unenforceable under any enactment or rule of
law, it shall to that extent be deemed not to form part of this
Agreement but (except to that extent in the case of that provision)
it and all other provisions of this Agreement shall continue in full
force and effect and their validity, legality and enforceability
shall not be thereby affected or impaired, provided that the
operation of this clause would not negate the commercial intent and
purpose of the parties under this Agreement.
17.2 If any provision of this Agreement is illegal or unenforceable as a
result of any time period being stated to endure for a period in
excess of that permitted by a regulatory authority, that provision
shall take effect with a time period that is acceptable to the
relevant regulatory authorities subject to it not negating the
commercial intent of the parties under this Agreement.
18 COUNTERPARTS
18.1 This Agreement may be entered into in the form of two or more
counterparts each executed by one or more of the parties but, taken
together, executed by all and, provided that all the parties so
enter into the Agreement, each of the executed counterparts, when
duly exchanged or delivered, shall be deemed to be an original, but,
taken together, they shall constitute one instrument.
19 PAYMENT OF COSTS
19.1 Each of the parties shall be responsible for his respective legal
and other costs incurred in relation to the negotiation, preparation
and completion of this Agreement, the Taxation Deed and all
ancillary documents.
20 SUCCESSORS AND ASSIGNS
20.1 This Agreement shall be binding on and shall enure for the benefit
of the successors in title and personal representatives of each
party.
20.2 Save as provided in clause 20.3, none of the parties hereto shall be
entitled to assign the benefit of any rights under this Agreement.
20.3 The benefit of this Agreement (including the Warranties) and the
Taxation Deed shall be freely assignable by the Purchaser within the
Purchaser's Group (provided that if the assignee subsequently leaves
the Purchaser's Group the Purchaser shall procure that the benefit
of the Warranties and the Taxation Deed is re-assigned either to
itself or to another company which is at that time a member of the
Purchaser's Group) and, in the event of any such assignment, all
references in this Agreement and the Taxation Deed to the Purchaser
shall be deemed to include its assigns.
25
<PAGE>
21 APPLICABLE LAW AND SUBMISSION TO JURISDICTION
21.1 This Agreement shall be governed by and construed in accordance with
English law.
21.2 It is hereby agreed that if any party has any claim against another
party arising out of or in connection with this Agreement such claim
shall be referred to the High Court of Justice in England, to the
jurisdiction of which each of the parties hereto irrevocably
submits.
IN WITNESS whereof this Agreement has been entered into the day and year first
above written.
26
<PAGE>
SCHEDULE 1
THE VENDORS
<TABLE>
<CAPTION>
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
(1) (2) (3) (4) (5)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Name Address No. Ordinary Respective Principal
---- ------- ------------ ---------- ---------
Shares Held Proportions (%) Amount of
----------- --------------- ---------
Loan Notes
((pound))
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
<S> <C> <C> <C> <C>
Island Trustees Ltd Hill House 230,515 2.30515 Nil
& A. Macfadyen & 1 Little New Street
R. Wightman London EC4A 3TR
(Trustees)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Thomas Joseph 28 Harwood 3,500 0.03500 Nil
Adams Avenue
Ardleigh Green
Hornchurch
Essex RM11 2NT
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Richard David 10 Gough Square 377,206 3.77206 Nil
Hudson Alan London EC4A 3NJ
Gordon Archibald
Macfadyen Adrian
Baulf (Trustees)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Malcolm 5 Kings Avenue 20,000 0.20000 24,147
Bernardes Sundridge Park
Bromley
Kent BR1 4HN
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Maria Jane Bryant St Mary's Lodge 25,612 0.25612 Nil
Kitson Road
Barnes
London SW13 9HJ
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Pauline Chapman Ferhana 5,000 0.05000 Nil
67 Shepherds Hill
Harold Wood
Essex RM3 0NP
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Brian L. Colesby 35 Madeira Drive 3,500 0.03500 Nil
Hastings
Sussex TN34 2NH
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Margaret Isobel Holmwood 20,000 0.20000 38,081
Collins Oaken Drive
Claygate
Surrey KT10 0DL
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*David John Davies 19 Coney Hill Road 7,500 0.07500 8,280
West Wickham
Kent BR4 9BU
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Alan Gordon A. 10 Gough Square 97,794 0.97794 Nil
Macfadyen, Richard London EC4A 3NJ
David Hudson,
Sheila Mary Warren
WDFT (Trustees)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
(1) (2) (3) (4) (5)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Name Address No. Ordinary Respective Principal
---- ------- ------------ ---------- ---------
Shares Held Proportions (%) Amount of
----------- --------------- ---------
Loan Notes
((pound))
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
<S> <C> <C> <C> <C>
Steven V. Eagle 71 Friends Avenue 3,500 0.03500 Nil
The Grange
Cheshunt
Herts. EN8 8LE
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Michael W. 44 Deer Park 5,000 0.05000 997
Gamble Harlow
Essex CM19 4LE
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Alan Gordon A. 10 Gough Square 85,000 0.85000 Nil
Macfadyen, Richard London EC4A 3NJ
David Hudson,
Sheila Mary Warren
GCW (Trustees)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Martin Howard 29 Tryfan Close 6,000 0.06000 2,901
Green Redbridge
Ilford
Essex IG4 5JX
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Roger Charles 27 Congreve Road 5,000 0.05000 Nil
Grover Eltham
London SE9 1LP
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Paul Harrison 17 Byron Drive 5,000 0.05000 997
Northumberland Heath
Erith
Kent DA8 1YD
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Steven Hart 10 Poynes Road 5,000 0.05000 997
Horley
Surrey RH6 8LT
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Michael Alexander Pandora House 537,868 5.37868 Nil
Hemmings Warren Road
Kingston-upon-Thames
Surrey KT2 7HN
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
David Francis Glebe House 20,000 0.20000 Nil
Howard Ulcombe
Nr. Maidstone
Kent ME17 1DN
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Dolores Ann Howes Cervantes 251,471 2.51471 Nil
2 Riesco Drive
Croydon
Surrey CR0 5RS
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
John Harrison Cervantes 628,676 6.28676 Nil
Howes 2 Riesco Drive
Croydon
Surrey CR0 5RS
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
(1) (2) (3) (4) (5)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Name Address No. Ordinary Respective Principal
---- ------- ------------ ---------- ---------
Shares Held Proportions (%) Amount of
----------- --------------- ---------
Loan Notes
((pound))
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
<S> <C> <C> <C> <C>
Adrian John Baulf, 179 High Street 600,000 6.00000 Nil
Caroline Hyem, Bromley
John Hyem Kent BR1 1LB
(Trustees)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Caroline Hyem Finches 80,000 0.80000 Nil
Castle Walk
Wadhurst
East Sussex
TN5 6DB
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
John Hyem Finches 11,544 0.11544 Nil
Castle Walk
Wadhurst
East Sussex
TN5 6DB
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Louise Claire Jones Elmwood 25,613 0.25613 Nil
11 North Park
Richings Park
Iver
Buckinghamshire SLO 9DH
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Allan Kennedy 3 Douglas Walk 5,000 0.05000 997
Chelmsford
Essex CM2 9XQ
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Mrs Patricia Lloyd Oakley 25,000 0.25000 35,236
as Executrix of 34 Lloyd Park Avenue
Christopher Charles Croydon
Lloyd (deceased) Surrey CR0 5SB
(Trustee)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
David William 34 Kilworth Avenue 7,500 0.07500 Nil
Long Shenfield
Essex CM15 8PT
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Alan Gordon 10 Gough Square 85,000 0.85000 Nil
Macfadyen, Richard London EC4A 3NJ
David Hudson,
Sheila Mary Warren
LPW (Trustees)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Richard John 34 Manor Road 7,500 0.07500 5,757
Mahoney South Woodham Ferrers
Essex CM3 5PT
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Christopher Mills 23 Berger Close 5,000 0.05000 Nil
Orpington
Kent BR5 1HR
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
(1) (2) (3) (4) (5)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Name Address No. Ordinary Respective Principal
---- ------- ------------ ---------- ---------
Shares Held Proportions (%) Amount of
----------- --------------- ---------
Loan Notes
((pound))
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
<S> <C> <C> <C> <C>
Julia Anne Mills "Roxane" 25,613 0.25613 Nil
3 Tummers End
Chalfont St Peter
Buckinghamshire SL9 9LW
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Leslie Guy Mark 20 Seeleys Road 15,000 0.15000 20,038
Morant Beaconsfield
Bucks. HP9 1SZ
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Alan Gordon A 10 Gough Square 40,000 0.40000 Nil
Macfadyen, Richard London EC4A 3NJ
David Hudson,
Sheila Mary Warren
MRW (Trustees)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Alan Gordon A 10 Gough Square 85,000 0.85000 Nil
Macfadyen, Richard London EC4A 3NJ
David Hudson,
Sheila Mary Warren
NKW (Trustees)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Peter Thomas 100 Tuffnells Way 20,000 0.20000 26,055
Osborne Harpenden
Hertfordshire
AL5 3HW
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
George Alan Packer 37 Henwoods Crescent 5,000 0.05000 Nil
Pembury
Tunbridge Wells
Kent TN2 4LJ
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Howard Douglas Hunters Lodge 7,500 0.07500 5,757
Arthur Rigg The Links
Redhill Road
Cobham
Surrey KT11 1EF
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Mrs Lynda Ann 16 Southbourne Gardens 3,500 0.03500 Nil
Roberts Ilford
Essex IG1 2QF
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*David James Sales 4 Swans Green Close 7,500 0.07500 8,780
Thundersley
Essex SS7 3PE
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
(1) (2) (3) (4) (5)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Name Address No. Ordinary Respective Principal
---- ------- ------------ ---------- ---------
Shares Held Proportions (%) Amount of
----------- --------------- ---------
Loan Notes
((pound))
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
<S> <C> <C> <C> <C>
*Peter David The Old Thatch 7,500 0.07500 9,835
Shellard Chitcombe Road
Broad Oak
Rye
East Sussex
TN31 6EU
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Clive Patrick Giles 47 Park Road 7,500 0.07500 14,280
Smith East Molesey
Surrey KT8 9LD
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Martin Paul 9 The Linkway 10,000 0.10000 19,040
Spencer Sutton
Surrey SM2 5SE
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Bradley H J Start 20 Acres End 3,500 0.03500 Nil
Chelmsford
Essex CM1 2XR
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Gerard William 42 Morris Road 20,000 0.20000 25,081
Stone Poplar
London E14 6NX
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
B.J. Warren and America House 219,000 2.19000 Nil
J. Howes as America Square
Trustees of Crawley London
Warren Group EC3N 2AH
Employee Share
Ownership Scheme
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Bernard James Magnolia House 4,635,147 46.35147 Nil
Warren 26 Kippington Road
Sevenoaks
Kent TN13 2LJ
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Elizabeth Anne Brooklands Cottage 250,000 2.50000 Nil
Warren Marsh Green
Kent
TN8 5QR
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Guy Charles 5096 East Maplewood Drive 279,412 2.79412 Nil
Warren Littleton
Colorado 80121
USA
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Joanna Warren 35 Tavistock Terrace 139,706 1.39706 Nil
London N19 4BZ
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Lewis Patrick Tanners 250,000 2.50000 Nil
Warren Freight Lane
Cranbrook
Kent TN17 3PF
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
(1) (2) (3) (4) (5)
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Name Address No. Ordinary Respective Principal
---- ------- ------------ ---------- ---------
Shares Held Proportions (%) Amount of
----------- --------------- ---------
Loan Notes
((pound))
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
<S> <C> <C> <C> <C>
Mel Richard Thurlby House 200,000 2.00000 Nil
Warren Station Road
Thurlby
Lincolnshire
PE10 0JA
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Neil Kenneth 35 Tavistock Terrace 139,706 1.39706 Nil
Warren London N19 4BZ
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Sheila Mary Warren Magnolia House 419,117 4.19117 Nil
26 Kippington Road
Sevenoaks
Kent TN13 2LJ
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
Michael David Millstone 5,000 0.05000 Nil
Williams 158 Cumberland Avenue
South Benfleet
Essex SS7 1DY
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
*Alan Wood 39 Philip Avenue 10,000 0.10000 5,106
Rush Green
Romford
Essex RM7 0XD
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
TOTAL 10,000,000 100 252,362
- ---------------------------- -------------------------- ------------------ --------------------- ----------------
</TABLE>
32
<PAGE>
SCHEDULE 2
PART A - THE WARRANTORS
Warrantor Proportion
Name (inclusive of Associates)
Bernard James Warren 70.58824%
John Harrison Howes 13.23529%
Michael Alexander Hemmings 8.08824%
John Hyem 8.08823%
-----------
100.00000
PART B - THE ASSOCIATES
ASSOCIATES OF BERNARD JAMES WARREN:
Sheila Mary Warren
Elizabeth Anne Warren
Guy Charles Warren
Joanna Warren
Lewis Patrick Warren
Mel Richard Warren
Neil Kenneth Warren
A G A Macfadyen )
R D Hudson ) as Trustees
Sheila Mary Warren )
ASSOCIATES OF JOHN HARRISON HOWES:
Dolores Anne Howes
A G A Macfadyen )
R D Hudson ) as Trustees
A Baulf )
ASSOCIATES OF MICHAEL ALEXANDER HEMMINGS
Island Trustees Limited )
A G A Macfadyen ) as Trustees
R Wightman )
ASSOCIATES OF JOHN HYEM
Caroline Hyem
Maria Jane Bryant
Louise Clare Jones
Julia Anne Mills
John Hyem )
Caroline Hyem ) as Trustees
A Baulf )
33
<PAGE>
SCHEDULE 3
THE COMPANY
Date and place of incorporation: 7 January 1975, England and Wales
Registered number: 1195662
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 25,000,000 Ordinary Shares of 10p each
Issued share capital: 10,000,000 Ordinary Shares of 10p each
Directors: J H Howes
L G M Morant
B J Warren
Secretary: J R W Evans
Auditors: Mazars Neville Russell, London
Bankers: National Westminster Bank, London
Accounting reference date: 31 December
34
<PAGE>
SCHEDULE 4
THE SUBSIDIARIES
PART A - THE DIRECT SUBSIDIARIES
Name: Crawley Warren & Company Limited
Date and place of incorporation: 9 February 1973, England and Wales
Registered number: 1095411
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 2,500,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,250,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Group Limited - 1,250,000
Ordinary Shares
Directors: M Bernardes
D F Howard
J H Howes
L G M Morant
P T Osborne
D J Sales
P D Shellard
G W Stone
K S Stratton
B J Warren
Secretary: J R W Evans
Auditors: Mazars Neville Russell, London
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
35
<PAGE>
Name: Crawley Warren Investments Limited
Date and place of incorporation: 4 May 1990, England and Wales
Registered number: 2499195
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Group Limited - 1,000
Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: Mazars Neville Russell, London
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
36
<PAGE>
Name: Charles Terrace Limited
Date and place of incorporation: 10 May 1995, England and Wales
Registered number: 3054628
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 100 Ordinary Shares of(pound)1 each
Issued share capital: 100 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Group Limited - 100
Ordinary Shares
Directors: L G M Morant
G W Stone
Secretary: J R W Evans
Auditors: Mazars Neville Russell, London
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
37
<PAGE>
Name: International Aviation Brokers Limited
Date and place of incorporation: 12 March 1997, England and Wales
Registered number: 3332261
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 100 Ordinary Shares of pound 1 pound each
Issued share capital: 100 Ordinary Shares of 1 pound each
Shareholder: Crawley Warren Group Limited - 100
Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: Mazars Neville Russell, London
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
38
<PAGE>
Name: International Space Brokers Limited
Date and place of incorporation: 17 June 1994, England and Wales
Registered number: 2940266
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Group Limited - 1,000
Ordinary Shares
Directors: R M Bathurst
J H Howes
F H G Richards
C P G Smith
B J Warren
Secretary: J R W Evans
Auditors: Mazars Neville Russell, London
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
39
<PAGE>
Name: International Space Brokers Europe Limited
Date and place of incorporation 14 April 1998, England and Wales
Registered number: 3545611
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 100 Ordinary Shares of 1 pound each
Issued share capital: 100 Ordinary Shares of 1 pound each
Shareholder: Crawley Warren Group Limited - 100
Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: Mazars Neville Russell, London
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
40
<PAGE>
Name: Offshore Insurance Brokerage Limited
Date and place of incorporation: 1 March 1976, Bermuda
Registered number: EC4398
Registered office: Cedar House, 41 Cedar Avenue, Hamilton HM
12, Bermuda
Authorised share capital: 12,000 Shares of US$1 each
Issued share capital: 12,000 Shares 1/6 called and paid
Shareholder: Crawley Warren Group Limited
Directors: B J Warren (President)
L G M Morant
Secretary: Sheri Simons
J R W Evans (Assistant Secretary)
Auditors: None
Bankers: Bank of N T Butterfield & Sons Limited
Accounting reference date: 31 December
41
<PAGE>
Name: Crawley Warren Holdings Canada Limited
Date and place of incorporation: 6 June 1988, England and Wales
Registered number: 2265127
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 10,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Group Limited - 1,000
Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
42
<PAGE>
Name: CW Consultants Limited
Date and place of incorporation: 18 March 1977, England and Wales
Registered number: 1303650
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 5,000 Ordinary Shares of(pound)1 each
Issued share capital: 5,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Group Limited - 5,000
Ordinary Shares
Directors: L G M Morant
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
43
<PAGE>
Name: CW Golf Limited
Date and place of incorporation: 17 October 1979, England and Wales
Registered number: 1454719
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 1,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Group Limited - 1,000
Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
44
<PAGE>
Name: CW Underwriting Management Limited
Date and place of incorporation: 2 July 1986, England and Wales
Registered number: 2033388
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 5,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Group Limited - 5,000
Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
45
<PAGE>
Name: Mansions UK Limited
Date and place of incorporation: 1 September 1995, England and Wales
Registered number: 3097649
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Group Limited - 1,000
Ordinary Shares
Directors: L G M Morant
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
46
<PAGE>
Name: Voyageur Europe Limited
Date and place of incorporation: 21 December 1990, England and Wales
Registered number: 2570351
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Group Limited - 1,000
Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
47
<PAGE>
Name: Voyageur Insurance Services (UK) Limited
Date and place of incorporation: 24 July 1978, England and Wales
Registered number: 1380068
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Group Limited - 1,000
Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
48
<PAGE>
PART B - THE INDIRECT SUBSIDIARIES
Name: Crawley Warren Holdings USA Limited
Date and place of incorporation: 10 October 1989, England and Wales
Registered number: 2430837
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren Investments Limited - 1,000
Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: Mazars Neville Russell, London
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
49
<PAGE>
Name: MedRisk International Limited
Date and place of incorporation: 4 May 1995, England and Wales
Registered number: 3053215
Registered office: 24 Bevis Marks
London EC3A 7NR
Authorised share capital: 10,000 Ordinary Shares of(pound)1 each
Issued share capital: 10,000 Ordinary Shares of(pound)1 each
Shareholder: TJE Management LLC - 10,000 Ordinary Shares
Directors: H Carroll
R H Plumb
Secretary: J R W Evans
Auditors: Mazars Neville Russell, London
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
50
<PAGE>
Name: Crawley Warren (USA) Inc
Date and place of incorporation: 1974 Massachusetts, USA
EIN: 04-2565423
Registered office: One State Street, Boston, MA 02109
Authorised share capital: 12,500 shares
Issued share capital: 1,927 shares
Stockholder: Crawley Warren Holdings (USA) Limited
Directors: B J Warren
D A Bakst
Secretary: David A Bakst
Auditors: Tofias Fleishman Shapiro Co, P.C.
Bankers: BankBoston, Boston, MA, USA
Fiscal year: December 31
51
<PAGE>
Name: International Accident Facilities Inc
Date and place of incorporation: 1975 Massachusetts, USA
EIN: 04-2526514
Registered office: One State Street, Boston, MA 02109
Authorised share capital: 12,500 shares
Issued share capital: 470 shares
Shareholder: Crawley Warren (USA) Inc.
Directors: B J Warren
D A Bakst
Secretary: David A Bakst
Auditors: Tofias Fleishman Shapiro Co., P.C.
Bankers: BankBoston
Fiscal year: December 31
52
<PAGE>
Name: Crawley Warren Insurance Services Inc
Date and place of incorporation: 1950 California, USA (Acquired by CW (USA)
Inc.)
EIN: 95.1639655
Registered office: 100 California Street, Ste 650, San
Francisco, CA 94111
Authorised share capital: 1,000 shares
Issued share capital: 348 shares
Shareholder: Crawley Warren (USA) Inc.
Directors: B J Warren
J H Howes
D A Bakst
Secretary: D A Bakst
Auditors: Tofias Fleishman Shapiro, Co., PC
Bankers: Union Bank of California
Fiscal year: December 31
53
<PAGE>
Name: CW Midwest Inc
Date and place of incorporation: 1993 Indiana, USA
EIN: 35.1884838
Registered office: 300 No. Meridian St, Ste 2700, Indianapolis,
IN 46204
Authorised share capital: 100,000
Issued share capital: 1,301
Shareholder: Crawley Warren (USA) Inc.
Directors: B J Warren
D A Bakst
Secretary: D A Bakst
Auditors: Greenwalt Sponsel Co. Inc.
Bankers: National City Bank
Civitas Bank
Fiscal year: December 31
Registered Agent: Charles T Richardson
54
<PAGE>
Name: Crawley Warren Florida Inc
Date and place of incorporation: 1997 Florida, USA
EIN: 65-0774357
Registered office: c/o Corporation Service Company, 1201 Hayes
Street, Tallahassee, Fl 32301
Authorised share capital: 100,000
Issued share capital: 1,000
Shareholder: Crawley Warren (USA) Inc.
Directors: B J Warren
L G M Morant
D A Bakst
Secretary: D A Bakst
Auditors: Tofias, Fleishman Shapiro; Co., PC
Bankers: BankBoston
Fiscal year: December 31
55
<PAGE>
Name: National Life & General Insurance Agency
Inc.
Date and place of incorporation: 1980 Massachusetts, USA
EIN: 04-12701122
Registered office: One State Street, Boston, MA 02109
Authorised share capital: 12,500
Issued share capital: 1,000
Shareholder: International Accident Facilities, Inc.
Directors: B J Warren
D A Bakst
Secretary: D A Bakst
Auditors: Tofias Fleishman Shapiro; Co., PC
Bankers: BankBoston
Fiscal year: December 31
56
<PAGE>
Name: International Claims Administrators Inc
Date and place of incorporation: 1997 Kansas, USA
EIN: 74-2853222
Registered office: 7777 East Osie Street, Ste 307, Wichita, KA
67207
Authorised share capital: 100,000
Issued share capital: 1,000
Shareholder: Crawley Warren (USA) Inc.
Directors: B J Warren
L G M Morant
D A Bakst
Secretary: D A Bakst
Auditors: Tofias Fleishman Shapiro; Co., PC
Bankers: BankBoston
Fiscal year: December 31
57
<PAGE>
Name: TJE Management LLC
Date and place of incorporation: 1994 Minnesota, USA
Registered number: 41-1794489
Registered office: 431 So. 7th Street, Ste 2405, Minneapolis,
MA 55415
Authorised share capital: None
Issued share capital: None
Shareholder: Crawley Warren (USA) Inc. 63.2%
Hobson D Carroll 36.8%
Directors: None
Secretary: None
Auditors: Eide Bailey LLP, Eden, MN
Bankers: First Bank, Minneapolis
Fiscal year: December 31
58
<PAGE>
Name: International Accident Facilities (Texas)
Inc.
Date and place of incorporation: 1996 Texas, USA
Registered number: 75.2651286
Registered office: 910 Travis St., Suite 1700, Houston, Texas
77002-5895
Authorised share capital: 100,000 (per value 0.01)
Issued share capital: 1,000
Shareholder: Terrance M Wright
Directors: Terrance M Wright
Secretary: Terrance M Wright
Auditors: Tofias Fleishman Shapiro; Co., PC
Bankers: Frost Bank
Fiscal year: December 31
Members: David D Knott
59
<PAGE>
Name: Crawley Warren Australia Pty Limited
Date and place of incorporation: 6 February 1995 at Sydney, Australia
Registered number: Australian Company Number 068 096 748
Registered office: Level 8, Legal & General House, 1 York
Street, Sydney
Issued share capital: 170,000 ordinary shares of AUS$1 each, fully
paid
Shareholder: Crawley Warren Investments Ltd
Directors: Bernard Warren, John Howes, David Howard,
Michael Mitchell, Kingsley Edwards
Secretary: Kingsley Edwards & Michael Mitchell (joint)
Auditors: Lord & Brown Chartered Accountants
Bankers: St George Partnership Bank, Sydney
Accounting reference date: 31 December
60
<PAGE>
Name: Mansions of Australia Pty Limited
Date and place of incorporation: 27 September 1995 at New South Wales,
Australia
Registered number: Australian Company Number 071 258 752
Registered office: Lord Brown, Level 8, Legal & General House,
1 York Street, Sydney NSW 2000, Australia
Issued share capital: 370,000 ordinary shares of AUS$1 each, fully
paid
Shareholder: Crawley Warren Investments Ltd
Directors: Michael Mitchell (local director), B J
Warren, J H Howes
Secretary: Michael Mitchell
Kingsley Edwards
Auditors: Lord Brown, Level 8, 1 York Street, Sydney
NSW 2000, Australia
Bankers: St George Bank Ltd, 4 Bligh Street, Sydney
NSW 2000, Australia
Accounting reference date: 31 December
61
<PAGE>
Name: CW Accident & Health Limited
Date and place of incorporation: 27 January 1986, England and Wales
Registered number: 1982820
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren & Company Limited - 1,000
Ordinary Shares
Directors: M Bernardes
P Harrison
R Khadivi
C Mills
G A Packer
P D Shellard
G W Stone
M Symons
B J Warren
N K Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
62
<PAGE>
Name: CW Aerospace Limited
Date and place of incorporation: 9 February 1981, England and Wales
Registered number: 1544212
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 4,000 Ordinary Shares of 25p each
20,000 Deferred Shares of 25p each
Issued share capital: 4,000 Ordinary Shares of 25p each
20,000 Deferred Shares of 25p each
Shareholder: Crawley Warren & Company Limited - 4,000
Ordinary Shares & 20,000 Deferred Shares
Directors: J S Armitage
R M Bathurst
L W Broadway
C M Freeman
J H Howes
F H G Richards
D J Sales
C P G Smith
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
63
<PAGE>
Name: CW Bloodstock Limited
Date and place of incorporation: 13 January 1987, England and Wales
Registered number: 2089016
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren & Company Limited - 1,000
Ordinary Shares
Directors: G A H Chapman
D F Howard
J H Howes
D W Long
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
64
<PAGE>
Name: CW Film & Entertainment Limited
Date and place of incorporation: 23 July 1993, England and Wales
Registered number: 2838915
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: CW Accident & Health Limited - 1,000
Ordinary Shares
Directors: M Bernardes
S G Farris
J S Green
P D Shellard
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
65
<PAGE>
Name: CW Group Services Limited
Date and place of incorporation: 28 January 1986, England and Wales
Registered number: 1983314
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren & Company Limited - 1,000
Ordinary Shares
Directors: M I Collins
M A G Dyas
M P Spencer
B J Warren
M D Williams
A Wood
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
66
<PAGE>
Name: CW Life Limited
Date and place of incorporation: 11 November 1988, England and Wales
Registered number: 2315865
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren & Company Limited - 1,000
Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
67
<PAGE>
Name: CW Marine Limited
Date and place of incorporation: 10 October 1988, England and Wales
Registered number: 2303482
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren & Company Limited - 1,000
Ordinary Shares
Directors: M H Green
J H Howes
P T Osborne
K J Tait
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
68
<PAGE>
Name: CW Political & Financial Risks Limited
Date and place of incorporation: 19 January 1993, England and Wales
Registered number: 2781097
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren & Company Limited - 1,000
Ordinary Shares
Directors: J H Howes
M J Martin
P A Sweesey
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
69
<PAGE>
Name: CW Property & Casualty Limited
Date and place of incorporation: 27 January 1986, England and Wales
Registered number: 1982821
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren & Company Limited - 1,000
Ordinary Shares
Directors: S Cleminson
D J Davies
J E B MacNaughton
B J Warren
E C V Williams
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
70
<PAGE>
Name: CW Reinsurance Intermediaries Limited
Date and place of incorporation: 27 December 1973, England and Wales
Registered number: 1153430
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 10,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren & Company Limited - 10,000
Ordinary Shares
Directors: S C Frame
P F McCarthy
R J Mahoney
G Millen
H D A Rigg
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
71
<PAGE>
Name: CW Special Risks UK Limited
Date and place of incorporation: 15 February 1982, England and Wales
Registered number: 1613939
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 1,000 Ordinary Shares of(pound)1 each
Issued share capital: 1,000 Ordinary Shares of(pound)1 each
Shareholder: Crawley Warren & Company Limited - 1,000
Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
72
<PAGE>
Name: CW UK Limited
Date and place of incorporation: 18 November 1986, England and Wales
Registered number: 2075157
Registered office: America House
America Square
London EC3N 2AH
Authorised share capital: 50,000 Ordinary Shares of(pound)1 each
Issued share capital: 200 Ordinary Shares of(pound)1 each
Shareholder: CW Bloodstock Limited - 200 Ordinary Shares
Directors: J H Howes
B J Warren
Secretary: J R W Evans
Auditors: None
Bankers: National Westminster Bank Plc, London
Accounting reference date: 31 December
73
<PAGE>
SCHEDULE 5
MATTERS REPRESENTED AND WARRANTED
PART A - GENERAL
1 FACTUAL STATEMENTS
1.1 All statements of fact in this Agreement are correct.
2 CONSTITUTION AND STRUCTURE OF THE GROUP
2.1 Except as stated in schedule 4, each Group Company is a private
company limited by shares incorporated in England.
2.2 The shares set out in schedule 1 (being the Sale Shares) are fully
paid up and constitute the entire issued share capital of the
Company and all the other information set out in schedule 1 and all
the information set out in schedules 2 and 3 is complete and
accurate in all respects.
2.3 The Subsidiaries are the only subsidiaries of the Company and the
Company owns the entire issued share capital of each Subsidiary,
fully paid up and free from any liens, charges or encumbrances;
2.4 CWG owns 25% of the issued share capital of Uni-Alliance Insurance
Holdings Ltd. (such shares being fully paid up), the Company's
liabilities to this company are limited to such shareholding and CWG
is not a party to any shareholders agreement or arrangement in
relation to Uni-Alliance Insurance Holdings Ltd.
2.5 The Company has no:
(a) interest in the share capital of, or other investment
in, any body corporate other than the Subsidiaries;
(b) interest in any partnership, joint venture, consortium
or other unincorporated association or arrangement for
sharing profit other than the Subsidiaries; or
(c) branch, agency, place of business or permanent
establishment outside the United Kingdom ("OVERSEAS
BRANCH") or substantial assets outside the United
Kingdom other than such of the Subsidiaries incorporated
overseas;
and has no outstanding obligation to acquire any such interest or
overseas branch or in respect of any such interest or overseas
branch formerly owned by it or agreed to be acquired by it.
2.6 Copies of the Memorandum and Articles of Association of each Group
Company (having attached thereto copies of all such resolutions as
are by law required to be attached thereto) are attached to the
Disclosure Letter.
2.7 There is no shadow director of the Company.
74
<PAGE>
2.8 Crawley Warren (USA) Inc. owns not less than 46.35% of the total
issued and outstanding voting and non-voting common stock of ISB and
50% of the voting common stock of ISB.
3 POWERS AND OBLIGATIONS OF THE VENDORS
3.1 This Agreement constitutes, and the Taxation Deed and the other
documents executed by the Vendors which are to be delivered at
Completion will, when executed, constitute legal, valid and binding
obligations of the Vendors enforceable in accordance with their
respective terms.
3.2 The execution and delivery of, and the performance by the Vendors of
their respective obligations under, and compliance with the
provisions of, this Agreement and the Taxation Deed by the Vendors
will not:
(a) result in a breach of, or constitute a default under,
any instrument to which any of the Vendors is a party or
by which any of the Vendors is bound; or
(b) result in a violation of any law or regulation in any
jurisdiction having the force of law or of any order,
judgment or decree of any court or governmental agency
or agreement to which any of the Vendors is a party or
by which any of the Vendors is bound.
4 COMPLIANCE WITH LEGAL REQUIREMENTS (INCLUDING LLOYD'S)
4.1 Compliance has been made with all legal and procedural requirements
and other formalities in relation to the Company concerning:
(a) the Memorandum and Articles of Association or other
constitutional documents (including all resolutions
passed or purported to have been passed) and the keeping
of Company Books as required and in accordance with CA
1985;
(b) the filing of all documents required by the Companies
Acts 1985 and 1989 or by legislation corresponding
thereto in other jurisdictions to be filed at Companies
House or other corresponding registry;
(c) issues of shares, debentures or other securities;
(d) payments of interest and dividends and the making of
other distributions; and
(e) Directors (including any shadow directors) and other
officers.
4.2 Copies of all documents referred to in paragraph 4.1(b) above appear
on the Company's file at Companies House or other corresponding
registry or are attached to the Disclosure Letter.
4.3 The Company has obtained or, has procured that the appropriate
Subsidiary has obtained all licences, permissions, consents and
other approvals required for or in connection with the carrying on
of the Business in the places and in the
75
<PAGE>
manner in which the Business is now carried on; such licences,
permissions, consents and approvals are in full force and effect,
are not limited in duration or subject to any unusual or onerous
conditions and have been complied with in all respects, and there
are no circumstances which indicate that any of such licences,
permissions, consents, or approvals will or may be revoked or not
renewed or which may confer a right of revocation.
4.4 All registers and minute books required by law to be kept by the
Company have been properly written up and contain an accurate and
complete record of the matters which should be dealt with therein
and the Company has not received any application or request for
rectification of its statutory registers or any notice or allegation
that any of them is incorrect.
4.5 The Company has conducted its business in all material respects in
accordance with all applicable laws and regulations of the United
Kingdom and any relevant foreign country including (without
limitation) the Insurance Brokers Registration Act 1977, the IBRC
Code of Conduct, the Lloyd's Acts 1871 to 1982 and all bye-laws,
rules and regulations thereunder and all codes of practice issued by
Lloyd's and all undertakings given to Lloyd's from time to time
including without limitation Lloyd's Code of Practice for Lloyd's
Brokers. There is no order, decree or judgment of any Court or any
governmental agency or regulator outstanding against the Company or
which may have a material adverse affect upon the assets or business
of the Company.
4.6 The Company has complied in all material respects with all statutes
and regulations applicable to it or to its property, including
(without limitation) CA 1985 and the Health and Safety at Work etc.
Act 1974.
4.7 As far as the Warrantors are aware there are no grounds for
disciplinary enquiries or proceedings by any regulatory body against
the Company or its directors and any other employees.
4.8 All documents, accounts, reports and returns required by the
applicable regulatory body to be filed, deposited or submitted have
been duly filed, deposited or submitted.
4.9 No discussions have taken place, whether of a formal or informal
nature, between the Company and any regulatory body which might
render necessary or desirable or suggest any material alteration in
the way in which the Company carries on the Business, might restrict
or affect the Business in any material way or might lead to the
withdrawal of authorisation under any relevant legislation, the
imposition of conditions or special requirements or intervention by
any regulatory body in the Business.
4.10 The Company has not been party to the placement, directly or
indirectly, of insurances which are:
(a) unlawful under the law of any relevant jurisdiction; or
(b) contrary to IBRC or Lloyd's (or other relevant overseas)
bye-laws, regulations, directions or codes; or
76
<PAGE>
(c) fictitious or sham transactions
and the Company has not purported to arrange insurances with
companies not authorised to carry on business as insurers in the
relevant territory.
4.11 Neither the Company nor any officer, employee or agent of the
Company has carried on insurance business as insurance broker in any
part of the world without due authorisation from the appropriate
regulatory authority or without being the agent of a duly authorised
carrier.
4.12 Details of all the licences, permission and consents required for
the carrying on of the Business are set out in the Disclosure
Letter.
4.13 The Lloyd's Company is duly registered as a Lloyd's broker and has
at all times in all material respects complied with the provisions
of the Lloyd's Acts 1871 to 1982 and all bye-laws, rules,
regulations, codes or practice resolutions and directions thereunder
and any undertakings given to Lloyd's from time to time and the
Company has not been notified that it has committed any
contravention of any of the same.
4.14 Except for the enquiry into the affairs of the Lloyd's Company by
Lloyd's Brokers Department in 1998, in respect of which further
warranties are given below, neither the Lloyd's Company nor any of
its directors, officers or employees from time to time have been the
subject of any enquiry by Lloyd's nor formally warned or reprimanded
by Lloyd's and there are no circumstances which could give rise to
such enquiry, warning or reprimand.
4.15 All action that the Lloyd's Company was required to take in order to
comply with the findings of the enquiry carried out into its affairs
by Lloyd's Brokers Department in 1998, has been taken to the
satisfaction of Lloyd's Brokers Department.
4.16 The Lloyd's Company has not entered into an umbrella arrangement
pursuant to the provisions of the Lloyd's Umbrella Arrangement
Byelaw No. 6 of 1988 or otherwise.
4.17 All appropriate security and trust deeds have been executed and all
insurance monies held by or on behalf of the Lloyd's Company are
held subject thereto.
4.18 The Lloyd's Company does not act as a guarantor of a non-Lloyd's
broker.
4.19 All directors of the Lloyd's Company comply with Rule 15(1) of the
Lloyd's Broker Byelaw (No. 5 of 1988).
4.20 The Lloyd's Company is duly registered as an insurance broker under
the Insurance Brokers (Registration) Act 1977 and there are no
circumstances relating to the Company's business or affairs, which
might materially prejudice such registration.
4.21 The Lloyd's Company has at all times complied with the provisions of
the Insurance Brokers (Registration) Act 1977 and all byelaws and
regulations thereunder and all undertakings given to the IBRC from
time to time.
77
<PAGE>
4.22 The complaint against, and investigation by the Texas Department of
Insurance of, International Accident Facilities Inc. and
International Facilities of Texas Inc. (relating to the sale by
those companies of Lloyd's policies without a licence and the
dealing in surplus lines risk without the involvement of a
Texan-authorised surplus lines broker) has been settled to the
satisfaction of the complainant and the Texas Department of
Insurance and there is no further claim or liability whatsoever in
respect of these matters.
4.23 The Company has not received notification that any investigation or
enquiry is being or has been conducted by any governmental or other
body in respect of its affairs and the Warrantors are not aware of
any circumstances which are likely to give rise to such
investigation or enquiry.
4.24 There are attached to the Disclosure Letter copies of all charges
created by the Company and currently in force and all such charges
have been registered (if appropriate) under Part XII CA 1985 and are
valid and enforceable.
5 NET RETAINED BROKERAGE AND COMMISSION
5.1 The Company has neither paid nor received any commission nor made
any payments or entered into any other arrangement, whether to
secure business or otherwise, to any person, firm or body which in
the hand of such person, firm or body would be regarded under the
laws of any part of the United Kingdom (or the laws of any other
country to which such person, firm or body may be subject) as
illegal or improper.
5.2 So far as the Warrantors are aware all commission credited in the
books of the Company will be collected in the ordinary course of
business.
5.3 The Disclosure Letter sets out accurately the policy of the Company
with respect to the crediting of brokerage in its books of accounts
and (i) no credit has been taken for brokerage except in accordance
with that policy and (ii) there are no facts or circumstances known
to the Warrantors or the Company which might require reversal of
brokerage credit entries or return of brokerage already collected.
6 CLIENTS AND CLIENT CONTRACTS
6.1 So far as the Warrantors are aware, neither this Agreement, nor
Completion will or is likely to cause, ipso facto, any person who
normally does business with the Company in relation to the Business,
not to continue to do so with the Company on the same basis.
6.2 There are no clients or customers of the Business other than the
Clients.
6.3 All of the Client Contracts:
(a) have been entered into the ordinary course of the
Business; and
(b) are on arms length terms.
6.4 None of the Client Contracts:
78
<PAGE>
(a) are (having regard to the normal terms and conditions
prevailing in similar businesses) of an unusual or long
term nature; or
(b) give rise to any obligation on the Company in the nature
of a guarantee.
6.5 Save as set out in the Disclosure Letter, the Company has no
standard terms and conditions of business with Clients.
6.6 Each Client Contract is valid and in full force and effect, and
there is no material default or claim of material default under any
provision thereof.
6.7 There are no material unresolved disputes under any of the Client
Contracts and the Warrantors are not aware of any reasons, facts or
circumstances which are likely (or, if known to such Client, would
be likely) to give rise to any material dispute in relation to any
of the Client Contracts.
6.8 The Client Contracts comprise all the contracts to which the Company
is a party which directly or indirectly represent all the sources of
brokerage commission of the Business at the date hereof.
6.9 Intentionally omitted
6.10 The placing of insurance on behalf of Clients represents the only
source of income of the Business at the date hereof.
7 CLIENT CREDITORS
7.1 None of the Client Creditors is disputed by the Company, and there
are no circumstances that are likely, (or, if known to such Client
would be likely) to give rise to any dispute in relation to any of
the Client Creditors.
7.2 There are no amounts due and owing by the Company in connection with
the Business which the failure to pay has, or which would with the
passage of time have, a material and adverse effect on the Business.
8 INSURANCE COMPANIES/SYNDICATES
8.1 The Disclosure Letter contains details of all communications
received during the preceding period of 24 months (written or oral)
between the Company and any insurance company or Lloyd's syndicate
threatening to write to policy holders in respect of a default on
the part of the Company, cancel insurance policies, or withhold or
not renew cover. No such insurance company or Lloyd's syndicate has
during the period of 24 months preceding the date hereof taken any
such action in respect of a Client who represents, or Clients who
together represent, a material part of the Business. There is no
fact or circumstance which would or might reasonably be expected to
cause any such insurance company or Lloyd's syndicate to take any
such action in respect of a Client who represents, or Clients who
together represent, a material part of the Business. "Material" in
this warranty means not less than 2% of turnover.
79
<PAGE>
8.2 All of the Client Contracts can be terminated by either party
thereto on not more than three months written notice, without
payment of any penalty or without giving rise to any claim for
damages or compensation.
8.3 None of the Client Contracts is known to be likely to result in a
loss to any of the Business on completion of performance.
8.4 There are no agreements with insurers or Lloyd's syndicates whereby
the Company is liable to pay additional premium to such insurers or
Lloyd's syndicates to preserve the insurer's or Lloyd's syndicates
premium/loss ratio.
9 CONDUCT OF BUSINESS
9.1 The Company and/or its sub-agents and/or other delegates has/have
not purported to bind any risk under any authority, or other
facility except in strict accordance with the terms of such
authority or facility. The Company has not given anyone else
authority to bind any risk under any authority, or other facility
except in strict accordance with the terms of such authority or
facility granted.
9.2 No cover note or other intimation of cover has been knowingly issued
or sent to any person by the Company unless and until the relevant
risk has been properly bound and all cover notes and intimations of
cover issued by the Company are complete and accurate in all
material respects.
9.3 The Company's IBAs have been maintained and used in accordance with
all applicable rules, regulations and codes of conduct and no notice
has been received from any regulatory authority (or is threatened or
likely to be received) with regard to the use of IBAs.
9.4 The Company's policies on funding either premium or claims are
contained in the Disclosure Letter. So far as the Warrantors are
aware, all sums funded will be collected in the ordinary course of
business within credit terms agreed.
9.5 The Company has not settled insurance premiums, claims returns of
premium, brokerage, commission adjustments and other items in
account except with the authority (expressed or implied) of the
principal on whose behalf such settlements purport to have been
made.
9.6 When settling accounts with other insurance intermediaries the
Company has taken credit only for its share of commission
receivable. The Company has not when settling an account with other
insurance intermediaries taken credit for claims collectable but not
collected by the other party to such accounts.
9.7 The Company's policy with regard to security (behind Clients'
policies) is set out in the Disclosure Letter.
9.8 In the placement of insurances and presentation of claims
notifications, processing or other handling of claims, the Company
has not breached any duty owed to the relevant Client including but
not limited to the duty (to the extent applicable) to make full
disclosure of material facts to underwriters.
80
<PAGE>
9.9 The brokerage due to ISB in respect of the Iridium programme placed
by ISB has been paid in full and is credited in ISB's insurance
ledger.
10 ERRORS AND OMISSIONS INSURANCE
10.1 The Company is now and has at all times been insured against errors
and omissions in amounts not less than those specified from time to
time by Lloyd's and the IBRC.
10.2 There is no outstanding claim nor have any circumstances likely to
give rise to a claim been reported under the errors and omissions
insurance maintained by the Company and neither the Warrantors nor
the Company is aware of any facts or circumstances likely to give
rise to any claim under such insurance.
10.3 No errors and omissions insurer has failed or refused to pay any
claim made by or on behalf of the Company during the six years prior
to the date of this Agreement and there are no circumstances that
might lead to any liability under such insurance being avoided.
10.4 The Company's errors and omissions insurance (including work done by
the Company in respect of the renewal of the current errors and
omissions insurance policies) has been placed and continued on the
basis of full disclosure by the Company and all declarations made to
errors and omissions insurers were true, complete and accurate and
where necessary supplemented in the light of changing circumstances.
11 ACCOUNTS
11.1 The Accounts:
(a) comply with the requirements of CA 1985;
(b) comply with all current statements of standard
accounting practice, financial reporting standards and
Urgent Issues Task Force Abstracts applicable to a
company incorporated in the United Kingdom and have been
prepared in accordance with the historical cost
convention, on a recognised and consistent basis and on
the same basis and in accordance with the same
accounting policies as the corresponding accounts for
the preceding 3 financial years;
(c) give a true and fair view of the state of affairs of the
Group as at the Accounts Date and its profit for the
financial year ended on that date; and have not been
affected by any unusual, extraordinary, exceptional or
non-recurring items other than those identified as such;
(d) are accurate in all material respects; and
(e) make full provision for all established liabilities or
make proper provision for (or contain a note in
accordance with good accounting practice respecting) all
deferred or contingent liabilities (whether
81
<PAGE>
liquidated or unliquidated) at the date thereof,
including (without limitation) for the cessation or
diminution of any part of the Business, closure costs
and deferred taxation, Provided that (without
limitation) where provision for deferred taxation is not
made in the Accounts details of all or any deferred
taxation liability have been disclosed to the Purchaser
in the Disclosure Letter.
11.2 (Without limiting paragraph 11.1 above):
(a) adequate provision has been made in the Accounts:
(i) for depreciation of assets;
(ii) in valuing work-in-progress for any
foreseeable losses which may arise on
completion or realisation;
(iii) for any foreseeable liabilities in relation
to the disposal of any assets or the
cessation or diminution of any part of the
Business or closures;
(iv) for bad or doubtful debts; and
(v) for the future cost (calculated on an
actuarial basis) of any unfunded commitments
under any pension scheme involving the
Company.
11.3 The results shown by the audited consolidated accounts for each of
the 2 financial periods of the Company immediately preceding the
financial year ended on the Accounts Date were not (save as
disclosed therein) affected by any extraordinary, exceptional or
non-recurring item (bearing the meanings attributed to them by the
Financial Reporting Standards Board in the Financial Reporting
Standards) or by any other factor rendering such results for all or
any part of such periods unusually high or low.
11.4 The value of the fixed assets shown in the Accounts did not exceed
their market value at the Accounts Date.
11.5 The accounting records of the Company have been properly written up
on a consistent basis and accurately reflect all the transactions to
which the Company has been a party and contain all matters required
by CA 1985 to be entered in them.
11.6 The Management Accounts (a copy of which has been attached to the
Disclosure Letter) have been prepared on a prudent basis consistent
in all material respects with the Accounts and since 30 June 1999,
no further provision for bad debts or other extraordinary provision
has been made which is not known to the Purchaser.
11.7 There have been no reports concerning and commissioned by the
Company by accountants or by financial or management consultants
within the 3 years prior to the date hereof.
82
<PAGE>
11.8 The Company has not factored or discounted any of its debts or
engaged in financing of a type that would not require to be shown or
reflected in the Accounts.
11.9 All debts (less any specific provision made in the Accounts) due to
the Company included in the Accounts and all debts now due to the
Company (less any such specific provision made) have either prior to
the date hereof realised or will realise their full amount in cash
in the ordinary course of business.
11.10 The accounting reference date of the Company is 31 December and has
at all times during the last 5 years been 31 December.
12 SHARE CAPITAL
12.1 There is no option, right to acquire, mortgage, charge, pledge, lien
or other form of security or encumbrance on, over or affecting the
Sale Shares, there is no agreement or commitment to give or create
any of the foregoing and no person has made any claim to be entitled
to any of the foregoing.
12.2 The Vendors are entitled to sell and transfer or procure the sale
and transfer of the full legal and beneficial ownership in the Sale
Shares to the Purchaser on the terms set out in this Agreement.
12.3 No share or loan capital of the Company is now under option or is
agreed or resolved conditionally or unconditionally to be created or
issued or put under option.
12.4 The Company has not at any time:
(a) purchased or redeemed or repaid or agreed to purchase,
redeem or repay any share capital; or
(b) given or agreed to give any financial assistance in
connection with any such acquisition of share capital as
would fall within sections 151 to 158 (inclusive) CA
1985.
12.5 The Company has not made and is not proposing to make a distribution
except out of profits available for the purpose and none of the
reserves appearing in the Accounts are undistributable reserves.
13 OWNERSHIP AND CONDITION OF ASSETS
13.1 The fixed and loose plant, machinery, furniture, fixtures, fittings,
equipment, vehicles and all other assets used in relation to the
Business are the property of the relevant Group Company free from
any hire or hire-purchase agreement or agreement for payment on
deferred terms or bill of sale or lien, mortgage, charge,
encumbrance, burden or other adverse claim and have at all material
times been and are in the possession of or under the control of the
relevant Group Company.
83
<PAGE>
13.2 The Company owns or has and will following Completion have, the
right to use all assets and rights that it needs to carry on the
Business as carried on immediately prior to Completion.
13.3 So far as the Warrantors are aware all plant, machinery, vehicles
and equipment owned or used by the Company is in good condition and
in working order, has been properly serviced and maintained on a
regular basis by competent personnel and complies with appropriate
safety regulations and none is dangerous, inefficient, out-of-date,
unsuitable, in need of renewal or replacement or surplus to
requirements.
13.4 The Company maintains no plant register of the fixed assets used by
it in the Business.
13.5 There has been no exercise or purported exercise of any Security
Interest over any of the fixed or other assets of the Company and
there is no dispute directly or indirectly relating to any such
assets.
13.6 In respect of all plant and machinery held by the Company under any
hire-purchase, conditional sale, leasing or rental agreement:
(a) a summary of the value of all such hire-purchase and
conditional sale agreements, leases and rental
agreements is attached to the Disclosure Letter;
(b) where the annual rental or charge exceeds (pound)5,000
the amount of the last rental payable by the Company is
the amount currently payable under such hire-purchase,
conditional sale, leasing or rental agreement having
regard to all its terms, and at the date hereof no
circumstance exists by virtue of which the lessor or the
owner is or might be entitled to require an upward
adjustment to the rental;
(c) no circumstances have occurred which would entitle the
lessor or the owner to terminate any such hire-purchase,
conditional sale, leasing or rental agreement; and
(d) no inquiry or investigation is being conducted by the
Inland Revenue concerning the availability to the lessor
of capital allowances in respect of the plant and
machinery concerned.
14 INSURANCE
14.1 The Company has effected all insurances required by law to be
effected by it.
14.2 The Company maintains and has maintained with a reputable insurance
office or underwriter adequate insurance cover against all risks
prudently insured against by companies carrying on a similar
business and in particular:
(a) its assets are covered against those risks to their full
replacement or reinstatement value (including where
relevant the cost of any demolition and of all fees and
expenses which may be incurred in such replacement or
reinstatement) free from any deduction or excess;
84
<PAGE>
(b) the Company is adequately covered against personal
accident, public and product liability, loss of profits,
consequential loss, employers' liability acts of
terrorism, professional indemnity, and other risks
prudently covered by insurance by such companies; and
(c) in respect of policies insuring those of the leasehold
properties where the Company is responsible for
maintaining the insurance the policy conforms in all
respects to the requirements of the relevant lease.
14.3 All premiums due on the policies in respect of such insurance cover
("the Policies") have been paid; all the other conditions of the
Policies have been performed and observed; and none of the Policies
has or may become void or voidable as a result of an act or omission
of the Company prior to the Completion Date.
14.4 None of the Policies is subject to any special or unusual terms or
restrictions or to the payment of any premium in excess of the usual
rate.
14.5 The Policies, together with the receipts for the latest premiums
payable in respect thereof, are in the possession of the Company.
14.6 The Policies will continue in full force and effect notwithstanding
Completion.
14.7 No claim exceeding (pound)5,000 is outstanding either by the insurer
or the insured under any of the Policies and no claim against the
Company by any third party is outstanding in respect of any risk
covered by any of the Policies or by any policy previously held by
the Company.
14.8 There are no circumstances which would or might entitle the Company
to make a claim under any of the Policies or which would or might be
required under any of the Policies to be notified to the insurers.
14.9 The Company has no keyman insurance or equivalent insurance with
respect to any of its directors or employees.
15 TRADING
15.1 Save for any warranty implied by law or contained in writing, the
Company has not given any warranty or guarantee, or made any
representation, in respect of services supplied or agreed to be
supplied by it.
15.2 No part of the Company's business has been materially and adversely
affected by the loss during the 3 years ended on the Accounts Date
of:
(a) any important client or source of supply, (being a
client or insurer which over a period of 3 months or
more during those 3 years has accounted for 5 per cent.
or more in value of the services supplied by or to the
Company during that period);
(b) an overall decrease in the value of business received by
or supplies made to the Company; or
85
<PAGE>
(c) by any abnormal factor not affecting similar businesses
to a like extent
and no such client or insurer has given notice to the Company of an
intention to cease or reduce dealing with or supplies to the
Company.
15.3 Neither this Agreement nor Completion is likely to cause the Company
to lose the benefit of any right or privilege that it presently
enjoys.
15.4 So far as the Warrantors are aware:
(a) neither this Agreement nor Completion is likely to cause
any person who normally does business with the Company
not to continue to do so on the same basis; and
(b) the attitude or actions of clients, insurers, employees
and other persons with regard to the Company will not be
otherwise prejudicially affected by the execution of
this Agreement or Completion.
15.5 The Company has not committed any material breach of any agreement
or arrangement to which it is a party.
15.6 The Company has not paid to any person any sum in the nature of a
bribe or improper inducement.
15.7 Other than in the ordinary course of a client relationship the
Company is not a party to any confidentiality or secrecy agreement
or undertaking or other arrangement, which may restrict its use or
disclosure of any information.
15.8 The Company has exclusive ownership (free of any lien or other third
party right) of and direct control of and access to:
(a) all documents of title relating to its assets;
(b) all subsisting written agreements to which it is a
party;
(c) all records, systems, data and information held by it or
on its behalf which are recorded, maintained, stored or
otherwise wholly or partly dependent on any system
(including, without limitation, any electronic,
mechanical or photographic process whether computerised
or not) whether operated by the Company or not;
15.9 No substantial part of the Business is carried on under the
agreement or consent of a third party (save that of any governmental
or quasi governmental regulator) nor is there any agreement which
significantly restricts the fields in which the Company carries on
the Business.
15.10 There are not now outstanding any agreements or arrangements
(whether by way of guarantee, indemnity, warranty, representation or
otherwise) under which the Company is under a prospective or
contingent liability in respect of any disposal by the Company of
its assets or business or any substantial part thereof.
86
<PAGE>
15.11 Offshore Insurance Brokerage Limited has ceased to trade (but is not
dormant), has no outstanding liabilities under any agreement or
arrangement, has no authorisations or licences which if allowed to
lapse would incur costs, and has no unsatisfied creditors, which
liabilities, creditors and costs together exceed (pound)10,000 in
aggregate (other than intra group transactions).
16 TRANSACTIONS SINCE THE ACCOUNTS DATE
16.1 Since the Accounts Date:
(a) except for intra-group transactions, the Company has not
entered into transactions or incurred liabilities other
than in the ordinary course of day-to-day trading
operations;
(b) the assets of the Company have not been depleted by any
unlawful act on the part of any person;
(c) there has been no materially adverse change in the
financial or trading position of the Company and the
Business has been carried on in the ordinary course and
in the same manner (including nature and scale) as
immediately before the Accounts Date;
(d) except in respect of intra-group transactions, no loan
or loan capital has been repaid by the Company in whole
or in part or has become liable to be so repaid;
(e) save for the ordinary business of an Annual General
Meeting, there has been no resolution of or consent by
the members or any class of members of the Company;
(f) the Company has paid its creditors within the time
limits agreed with such creditors;
(g) the Company has not offered price reductions or
discounts or allowances on services or provided them at
less than cost to an extent that may materially affect
its profitability; and
17 FINANCIAL MATTERS
17.1 Full details of all bank accounts maintained or used by CWG
(including, in each case, the name and address of the bank with whom
the account is kept and the number and nature of the account) and of
all direct debit or standing order or similar authorities applicable
to any of these accounts and statements showing the balance on each
account as at the close of business on a date not being more than
three business days prior to the date of this Agreement are attached
to the Disclosure Letter. Since the date of each statement no
payment out of any of the accounts has been made, except for routine
payments in the ordinary course of trading, and the present balances
are not substantially different from those shown in the statement.
17.2 Where any Group Company at the date of this Agreement and outside
the ordinary course of business has amounts outstanding, unpaid or
unperformed
87
<PAGE>
represented by cheques, warrants, mandates or other payment
instructions (and for the purposes of this warranty a Group
Company's IBAs shall be disregarded), the amount so represented does
not exceed (pound)100,000 in aggregate.
17.3 In relation to the Security Interests outstanding at the date of
this Agreement (details of which are set out in the Disclosure
Letter) and in relation to all overdraft, loan and other financial
and leasing facilities available to the Company:
(a) full details thereof and true and correct copies of all
documents relating thereto are attached to the
Disclosure Letter;
(b) there has been no contravention of or non-compliance
with any provision of any such document;
(c) no steps for the enforcement of any encumbrances have
been taken or threatened;
(d) there has not been any alteration in the terms and
conditions of any of the said arrangements or
facilities, all of which are in full force and effect;
(e) nothing has been done or omitted to be done whereby the
continuance of the said arrangements and facilities in
full force and effect might be affected or prejudiced;
and
(f) none of the arrangements is dependent on the guarantee
or indemnity of, or on any security provided by, a third
party other than a Group Company.
17.4 The total amount borrowed by the Company:
(a) from its bankers does not exceed its overdraft
facilities; or
(b) from whatsoever source does not exceed any limitation on
borrowing contained in the Articles of Association or
any debenture or loan instrument or other deed or
document binding on it.
17.5 Save for the borrowings referred to in paragraphs 17.3 and 17.4 and
any intra-Group arrangements, the Company:
(a) does not have outstanding any loan capital;
(b) has not incurred or agreed to incur any borrowing which
it has not repaid or satisfied;
(c) has not lent or agreed to lend any money which has not
been repaid to it;
(d) does not own the benefit of any third party debt present
or future; and
(e) is not a party to or has any obligation under:
88
<PAGE>
(i) any loan agreement, debenture, acceptance
credit facility, bill of exchange,
promissory note, finance lease, debt or
inventory financing, discounting or
factoring arrangement or sale and lease back
arrangement; or
(ii) any other arrangement the purpose of which
is to raise money or provide finance or
credit.
17.6 No event has occurred or been alleged which is or, with the passage
of time and/or the giving of any notice, certificate, declaration or
demand, would become an event of default under, or a breach of any
of, the terms of any loan capital, borrowing, debenture or financial
facility of the Company or would entitle any third party to call for
repayment prior to normal maturity.
17.7 The Company is neither a party to, nor has any liability (including,
without limitation, any prospective or contingent liability) under,
any guarantee, indemnity or other agreement to secure or support an
obligation of a third party.
17.8 Except for the Continuing Loans, there is no outstanding
indebtedness on any account whatsoever owing by the Company to any
of the Vendors other than ordinarily accrued emoluments or by any of
the Vendors to the Company.
17.9 None of the Vendors has given any guarantee or indemnity or created
any other like obligation or given comfort in support of the
Company, which remains outstanding.
17.10 The Company has not given any guarantee or indemnity or created any
other like obligation in respect of a Group Company or otherwise
which remains outstanding.
17.11 Having regard to the existing facilities available to it, the
Company has sufficient working capital for the purposes of
continuing to carry on its business in its present form and at its
present level of turnover and for the purpose of executing, carrying
out and fulfilling in accordance with their terms all orders,
projects and other contractual obligations which have been placed
with or undertaken by the Company.
17.12 The Company does not hold any security (including any guarantee or
indemnity) that is not valid and enforceable by the Company against
the grantor thereof in accordance with its terms.
17.13 Completion of this Agreement will not result in the creation,
crystallisation or enforcement of any Security Interest over any
asset of the Company.
17.14 The Disclosure Letter contains full details of each grant or subsidy
or other financial assistance received or receivable by the Company
from any governmental or quasi-governmental authority and the
Company has not done, or omitted to do, any act which could result
in all or part of any such assistance becoming repayable early or
being forfeited or withheld and no Vendor has any reason to expect
that Completion of this Agreement will give rise thereto.
89
<PAGE>
17.15 No loan has been made by the Company in breach of the Consumer
Credit Act 1974.
17.16 The time difference between the payment of claims by International
Accident Facilities Inc. and its recovery of claim reimbursements is
the sole reason for the overdrawn balance of its bank account.
17.17 C W Midwest Inc has no liability under any loan note arrangement.
17.18 The loan of(pound)171,000 from NatWest Bank plc to CWG has been
repaid in full in accordance with the terms of the facility and any
security given has been released.
17.19 The sum of US$387,000 due to be paid in 1999 in respect of the
Company's acquisition of certain of the shares in ISB previously
owned by Le Blanc de Nicolay has been paid in full.
18 EMPLOYEES
18.1 The Disclosure Letter contains the following information in relation
to each employee of the Company, namely:
(a) name;
(b) age (except in the case of employees of any Group
Company operating in the United States);
(c) emoluments (including any bonus or commission
arrangements and any non-cash benefits);
(d) date of commencement of employment or of any previous
employment with which such employment is continuous;
(e) where in excess of 6 months, the notice period required
to be given by the Company and the employee;
(f) whether or not a member of the Company's pension scheme;
and
(g) date of last increase in salary
and such information is complete and correct in all respects.
18.2 True, up-to-date and complete copies of all standard form contracts
of employment copies of employment contracts for certain senior
employees are contained in the Disclosure Letter together with
copies of all consultancy agreements currently in force to which the
Company is a party.
18.3 Since the Accounts Date and except for salary reviews in the
ordinary course of employment, no material change has been made in
the terms of employment by the Company of any employee and no such
change, and no negotiation or request for such a change, is due or
expected within 6 months from the date of this Agreement.
90
<PAGE>
18.4 The Company has maintained adequate up to date records regarding the
service of each of its employees (including details of terms of
employment, payments of statutory or other sick pay, statutory or
other maternity pay, disciplinary and health and safety matters,
income tax and social security contributions and termination of
employment), copies of all underlying documentation relating to
schemes operated by the Company in connection with the matters
referred to in this paragraph 18.4 are attached to the Disclosure
Letter and the Company is not proposing to adopt any new scheme in
relation to any such matters.
18.5 Since the Accounts Date, no employee has given notice terminating
his contract of employment or is under notice of dismissal and no
amount due to or in respect of any employee or former employee is in
arrear and unpaid other than his salary for the month current at the
date of this Agreement and in respect of the reimbursement of
expenses properly incurred and authorised.
18.6 The Company is not involved in any dispute with its employees or any
of them and there are no present circumstances (including
Completion), which are likely to give, rise to any such dispute.
18.7 Within a period of one year preceding the date of this Agreement:
(a) the Company has not given notice of any redundancies to
the Secretary of State for Employment or started
consultations with any independent trade union or unions
under Part XI ERA and the Company has not failed to
comply with any obligation under such Part XI; and
(b) the Company has not been a party to any relevant
transfer as defined in the Transfer of Undertakings
(Protection of Employment) Regulations 1981 and the
Company has not failed to comply with any duty to inform
and consult any independent trade union.
18.8 Since the Accounts Date, no gratuitous payment has been made or
promised by the Company in connection with the actual or proposed
termination, breach, suspension or variation of any employment or
engagement of any present or former director, officer or employee of
or consultant to the Company; and there is no outstanding obligation
or ex gratia arrangement for the Company to pay any compensation to
any present or former director, officer, employee or consultant.
18.9 There is no existing, pending or threatened dispute between the
Company and any material number or category of its employees or any
trade union or other organisation formed for a similar purpose and
there are no circumstances (including Completion), which are likely
to give, rise to any such dispute. There is no collective bargaining
agreement or other arrangement (whether binding or not) between the
Company and any trade union or other body representing its
employees.
18.10 With the exception of PAYE and national insurance contributions in
respect of the payment period current at Completion the Company does
not have outstanding any undischarged liability to pay to any
governmental or regulatory
91
<PAGE>
authority in any jurisdiction any contribution, taxation or other
levy arising in connection with the employment or engagement of
personnel by the Company.
18.11 The Company does not have and is not proposing to introduce any
share incentive scheme, share option scheme or profit sharing bonus
or other incentive scheme for any director, officer or employee.
18.12 There are no training schemes arrangements or proposals in existence
nor have there been any such schemes or arrangements at any material
time in the past in respect of which a levy may become payable by
the Company under the Industrial Training Act 1982.
18.13 So far as the Warrantors are aware neither this Agreement nor
Completion will or is likely to cause any director, officer or
senior employee to terminate his engagement or employment with the
Company.
19 CONTRACTS
19.1 So far as the Warrantors are aware, no circumstances exist which
constitute a ground on which any contract or other arrangement to
which the Company is a party could be avoided, repudiated,
rescinded, prematurely determined (whether as a result of this
Agreement, the sale of the Sale Shares or otherwise) or declared to
be invalid or which would give any other contracting party the right
to impose any obligation (whether to make payment on or otherwise)
on, the Company.
19.2 The Company has not received any notice of a claim in respect of the
matters referred to in warranty 19.1, above, nor has it received
notice indicating that such a claim is foreseeable.
19.3 The Company is not a party to any agreement for the supply by or to
the Company (whether as principal or as agent) of any goods or
services including (but not limited to) distributorship, agency,
manufacturing, licensing, supply or management agreements excluding
agreements entered into in the ordinary course of business or which
are likely to be discharged by performance within 3 months of the
date hereof.
19.4 So far as the Warrantors are aware no liability in respect of any
claim against the Company arising out of any error or omission on
the part of the Company in the supply of any service before
Completion will exceed in amount the limit of insurance cover in
force for the benefit of the Company against such a claim.
19.5 The Company is not a party to any material contract, obligation or
arrangement which:
(a) is of an unusual or abnormal nature, or outside the
ordinary course of trading or involving or which may
involve obligations on the Company calling for special
mention;
(b) is of a long term nature (that is, unlikely to have been
fully performed in accordance with its terms within 6
months after the date on which it was entered into or
undertaken); or
92
<PAGE>
(c) is incapable of termination by the Company in accordance
with its terms on no more than 3 months' notice; or
(d) gives any party an option to acquire or dispose of any
asset or requires another person to do so; or
(e) is likely to result in a loss to the Company on
completion or performance; or
(f) cannot readily be fulfilled or performed by the Company
on time without undue or unusual expenditure of money,
effort or personnel; or
(g) involves payments by or to the Company by reference to
fluctuations in any index of retail prices, any other
index, the rate of exchange for any currency or the cost
or value of any raw material or commodity; or
(h) (or in relation to which) any relevant requirements of
section 319 CA 1985 have not been complied with; or
(i) involves or is likely to involve outstanding expenditure
by the Company of more than(pound)50,000; or
(j) involves or is likely to involve the supply of services
the aggregate sales value of which will represent in
excess of 5 per cent. of the turnover of the Company for
the preceding financial year; or
(k) is a contract for hire or rent, hire-purchase or
purchase by way of credit or instalment payment or for
maintenance of the Company's assets
and the Company has no offer, bid, tender or proposal outstanding
which by the acceptance or other act of some other person would give
rise to any such transaction.
19.6 There are no powers of attorney or other authorities (express or
implied) which are still outstanding or effective to or in favour of
any person to enter into any contract or commitment or to do
anything on behalf of the Company (other than on such authority of
directors or of employees as either is ostensible or is implied to
enter into routine contracts in the normal course of their duties).
19.7 The Company is not a party to any agreement or arrangement or under
any obligation under which it is or may become liable to make any
investment (as defined in section 1(1) of the Financial Services Act
1986) with, or to deposit any money with or to provide any loan or
financial accommodation or credit (other than normal trade credit)
to, any person or to subscribe, convert, acquire, dispose of or
underwrite any investment.
20 THE PROPERTIES AND OTHER INTERESTS IN LAND
20.1 ISB and each Group Company specified in schedule 6 are the
beneficial owners of the Properties set opposite their names which
are the only properties owned or occupied or in which ISB or any
Group Company has any right or interest.
93
<PAGE>
20.2 The title to each of the Properties is good and marketable and is
properly constituted by documents of title which are properly
stamped and are in the possession and under the control of the
Company.
20.3 All the documents relating to the value, marketability, use of and
title to the Properties shall (if required) be made available to the
Purchaser's Solicitors for inspection prior to Completion.
20.4 Each of the Properties are free from:
(a) any mortgage, charge, rent-charge, lien, encumbrance or
other third party right in the nature of security;
(b) any Land Charge or Local Land Charge.
20.5 Subject to paragraph 20.14(a), the Company has vacant possession of
each of the Properties vested in it and (subject as aforesaid) there
are no circumstances known to the Warrantors which would entitle or
require any landlord or any other person to exercise any powers of
entry or right to forfeiture or right to take possession or which
would otherwise restrict or terminate the continued sole and
exclusive possession or occupation of each of the Properties by the
Company.
20.6 No person is entitled to any option, right over, interest in, right
of pre-emption, first refusal, surrender or determination relating
to any of the Properties nor is any person in the course of
acquiring any of these.
20.7 Other than contained or referred to in the lease or tenancy
agreement under which any of the Properties are held, the Company is
not aware of any covenant, stipulation, restriction, easement, right
of way, exception, reservation, grant, condition, agreement or
declaration affecting any of the Properties or their use. There is
no material subsisting breach or alleged breach of any of the said
matters.
20.8 The Properties are not subject to the payment of any outgoings other
than business rates or water charges and the sums reserved by or
payable by virtue of the lease or tenancy agreement under which any
of the Properties are held.
20.9 The Company has paid all rent or licence fees and all other
outgoings which have become due in respect of each of the
Properties. The Company has in all material respects performed and
observed its obligations under all covenants (whether affecting the
freehold or leasehold titles), conditions, agreements, statutory
requirements, planning consents, byelaws, orders and regulations
affecting any of the Properties, its use and any business of the
Company there carried on. No notice of any breach of any such matter
has been received.
20.10 The actual use of each of the Properties so far as the Warrantors
are aware is permitted under the Town and Country Planning
legislation. No notices have been received of any existing
contravention of any of the provisions of the Town and Country
Planning legislation and so far as the Warrantors are aware there
are no outstanding enforcement notices, Stop Notices, enforcement
proceedings or appeals (whether against refusal, deemed or
otherwise, conditions or
94
<PAGE>
enforcement) nor is any user stated to be personal nor is any
planning permission suspended or remains unimplemented in whole or
in part. No planning application has been submitted by or on behalf
of the Company which awaits determination.
20.11 The Company has received no notice of any outstanding orders or
notices affecting any of the Properties nor of any proposals of any
local or other authority (involving compulsory acquisition or
requisition or otherwise) or any other circumstances which may
result in any such order or notice being made or served or which may
otherwise adversely affect any of the Properties.
20.12 There are not in force or required to be in force any licences which
apply to any of the Properties or to the business carried on
therein.
20.13 The Company has not received notice of nor are the Warrantors aware
of any dispute relating to any of the Properties.
20.14 (a) Where any of the Properties are not occupied by the
Company, details of the present sub-tenants or other
occupiers of the relevant Properties (or an indication
that the relevant Property is vacant) are set out in
part B of schedule 6 and such sub-tenants or occupiers
occupy those parts of the Properties shown against their
names.
(b) Written particulars (including copies of all documents)
where requested of all sub-leases, sub-tenancies and
licences for occupation of any of the Properties or any
parts thereof and of all variations and proposed
variations thereof or derivative interests therein and
of the grant or proposed grant of any licences pursuant
to the provisions of any such documents have been
supplied to the Purchaser.
(c) There is no claim or dispute pending or expected, either
by or with the Company or by or with any such
sub-lessee, licensee or occupier.
20.15 The Company has not elected to waive the exemption from Value Added
Tax in relation to any supply made in relation to any of the
Properties.
20.16 Any written replies given by or on behalf of the Warrantors or
Company to enquiries raised by the Purchaser's solicitors in respect
of any of the Properties are true and accurate in all material
respects and not misleading.
20.17 No solicitors are instructed by or on behalf of the Company in
connection with any matter relating to any of the Properties except
for the Vendors' Solicitors in respect of this Agreement and the
Disclosure Letter.
20.18 Since the Accounts Date the Company has not acquired or disposed of
or agreed to acquire or dispose of the whole or any part of any land
or buildings or any interest therein, nor will it acquire or dispose
of the whole or any part of any
95
<PAGE>
land or buildings or interest therein without the prior written
consent of the Purchaser.
20.19 The Company has not at any time entered into either the lease of or
a licence to assign any leasehold property as a guarantor of the
lessee's covenants contained in any such document. The Company has
not at any time assigned or otherwise disposed of any leasehold
property without receiving a full and legally effective indemnity in
respect of its liability under the lease pursuant to which that
property was held. No claim has been made against the Company in
respect of any leasehold property formerly held by it or in respect
of which it acted as a guarantor nor is any such claim anticipated.
21 ENVIRONMENTAL MATTERS
21.1 The Company complies and has at all times complied with all
Environmental Laws and Environmental Licences and has obtained and
maintained in full force and effect all Environmental Licences and
there are no facts or circumstances entitling any such Environmental
Licences to be revoked, suspended, amended, varied, withdrawn or not
renewed or which would prevent compliance with any Environmental
Licence which might have a material adverse effect on the use or
value of any of the Properties.
21.2 No claim, prosecution, demand or action relating to the Environment
or in respect of Environmental Law has been made or so far as the
Warrantors are aware, threatened against the Group, which might have
a material adverse effect on the use or value of any of the
Properties.
For the purposes of these warranties:
"ENVIRONMENT" means all or any of the following media; air
(including air within buildings or other structures; land (including
buildings and any other structures or erections in, on or under it
and any soil and anything below the surface of the land); water
(including sea, ground and surface water) and any living organism
supported by such media.
"ENVIRONMENTAL LAWS" include all or any law, common law, statute,
rule, regulation, treaty, directive, direction, decision of the
court, by-law, code of practice, circular, guidance note, order,
notice or demand of any governmental authority or agency or any
regulatory body or any other body whatsoever in any jurisdiction,
including the European Union, relating to the protection or
conservation of the Environment or the storage, generation or
disposal of waste and/or the business carried on by the Group.
"ENVIRONMENTAL LICENCE" means any permit, licence, authorisation,
consent or other approval required at any time by the Group and/or
in relation to the business carried on by the Group pursuant to
Environmental Laws.
22 PENSIONS AND RELATED BENEFITS
22.1 In this paragraph:
96
<PAGE>
"DISCLOSED ARRANGEMENTS" means the Pension Schemes, the US Employee
Benefit Plans and any other arrangements for providing Relevant
Benefits details of which are contained in the Disclosure Letter;
"FORMER SCHEME" means all occupational pension schemes (as defined
in section 1 of the Pension Schemes Act 1993) other than the Pension
Schemes in which any Relevant Employer has participated at any time
prior to Completion;
"RELEVANT BENEFITS" means pensions, allowances, lump sums,
gratuities, expense payments or other like benefits in respect of
retirement, death, termination of employment (whether or not
voluntary), ill-health, injury, disablement or medical or dental
treatment provided for or in respect of any Relevant Employee;
"RELEVANT EMPLOYEE" means any director or former director or
employee or former employee of the Company and/or the Subsidiaries;
"RELEVANT EMPLOYER means the Company and/or the Subsidiaries;
"PENSION SCHEMES" means the Crawley Warren Pension Scheme and the
Crawley Warren Executive Pension Scheme;
"US EMPLOYEE BENEFIT PLANS" means the "employee pension benefit
plans" referred to in Warranty 22.20.
22.2 Apart from the Disclosed Arrangements, the Relevant Employer is not
under any legal liability or voluntary or moral obligation to
provide any Relevant Benefits (whether on a funded or unfunded
basis) or to contribute to any scheme or arrangement providing
Relevant Benefits (including any personal pension scheme approved
under Chapter IV, Part XIV ICTA) nor has any proposal been announced
to pay any Relevant Benefits or establish or contribute to any such
scheme or arrangement.
22.3 True and complete copies have been supplied to the Purchaser of:
(a) all trust deeds, rules, notices and other documents
governing the Disclosed Arrangements and the
participation therein of the Relevant Employer;
(b) all announcements, members' booklets and other
explanatory literature of current effect relating to the
Disclosed Arrangements and any letters or other
documents relating to provisions for individual Relevant
Employees or groups of Relevant Employees;
(c) all policies, agreements and other arrangements of
current effect entered into in relation to the Disclosed
Arrangements with insurance companies, investment
managers, advisers or other persons;
(d) the latest actuarial valuation report in respect of the
Crawley Warren Pension Scheme and the trustees' report
and audited accounts for the Pension Schemes together
with any supplementary accounting advice relating to the
Pension Schemes and any supplementary actuarial advice
relating to the Crawley Warren Pension Scheme; and
97
<PAGE>
(e) any contracting-out certificate and any undertakings in
relation to the Pension Schemes and any notification of
approval of the Pension Schemes by the Inland Revenue.
22.4 Full details in writing have been supplied to the Purchaser of all
discretionary practices in relation to the Disclosed Arrangements.
22.5 Full particulars in writing of the assets in which the Pension
Schemes are invested have been supplied to the Purchaser and none of
the resources of the Pension Schemes are invested in any loan or
other arrangement with any beneficiary or any employer-related
investment (as defined in section 40 of the Pensions Act 1995) or
are subject to any charge or encumbrance or are being used for the
purposes of stock lending or other arrangements whereby such
resources may be released without full payment being received
forthwith on behalf of the relevant Pension Scheme in respect of
them.
22.6 A list of the Relevant Employees who are covered by the Disclosed
Arrangements, together with all particulars of them necessary to
establish their entitlement to benefits thereunder, has been
supplied to the Purchaser.
22.7 The current rates of contributions payable in respect of the
Disclosed Arrangements by the Relevant Employer and, where
applicable, the Relevant Employees are as set out in the Disclosure
Letter and all such contributions up to and including the Completion
Date have been paid or will have been paid by the Completion Date.
22.8 All consultancy, legal and other fees, charges and expenses in
respect of the Disclosed Arrangements for which the Relevant
Employer is responsible have been paid or will have been paid by the
Completion Date and no services have been provided in relation to
the Disclosed Arrangements in respect of which an account or other
invoice has not been rendered which if rendered would be payable by
the Relevant Employer.
22.9 All death in service benefits (other than refunds of contributions)
payable under the Pension Schemes, and all benefits under the other
Disclosed Arrangements, are now and will up to and including the
Completion Date be fully insured under policies effected with
insurance companies as disclosed, all premiums due under such
policies have been paid or will have been paid by the Completion
Date; and there are no grounds on which any such policies may be
avoided.
22.10 The Crawley Warren Pension Scheme is a contracted-out scheme within
the meaning of section 7(3) of the Pension Schemes Act 1993 and the
Relevant Employer holds or is named on a current contracting-out
certificate in relation to that Scheme and there are no
circumstances existing which would cause such contracting-out
certificate to be withdrawn or placed in jeopardy. The Crawley
Warren Executive Pension Scheme is not a contracted-out scheme.
22.11 There has been no breach of trust and no material actions, suits or
claims (other than routine claims for benefits) are pending or
threatened in respect of the Disclosed Arrangements in relation to
the Relevant Employees and there are no circumstances existing which
may give rise to any such actions, suits or claims.
98
<PAGE>
22.12 No payment of any of the assets of the Pension Schemes has been made
to the Relevant Employer (or any other participating employer) or
will have been so made up to and including the Completion Date.
22.13 The Disclosed Arrangements have been administered in accordance with
their governing documents and all applicable legal requirements.
22.14 The Pension Schemes have been formally approved by the Board of
Inland Revenue and are treated by them as exempt approved schemes
under Chapter I, Part XIV ICTA and there are no circumstances
existing which would cause such approval to be withdrawn or placed
in jeopardy.
22.15 All records relating to the Disclosed Arrangements have been
properly maintained, all information provided for the purposes of
the latest actuarial valuation of the Crawley Warren Pension Scheme
was complete and accurate in all material respects and there has
been no material adverse change in the financial position of the
Crawley Warren Pension Scheme since the effective date of such
valuation.
22.16 The latest audited accounts for the Pension Schemes give a true and
fair view of the financial transactions of the Pension Schemes
during the relevant accounting period and of the disposition of its
net assets at the end of that period.
22.17 No Relevant Employer has any liability to make any payment to the
Pension Schemes or to any Former Scheme whether pursuant to section
144 of the Pension Schemes Act 1993, sections 59, 60 or 75 of the
Pensions Act 1995.
22.18 The assets of the Pension Schemes have not been depleted by any
improper or unlawful act and:
(a) in respect of such assets as are held to provide money
purchase benefits or in respect of additional voluntary
contributions (other than those applied to secure
additional benefits by way of crediting the member
concerned with additional pensionable service), such
assets represent fully all such contributions paid by or
in respect of the relevant members together with all
income and gains accruing thereto; and
(b) in respect of such assets as are held to provide final
salary benefits, such assets are sufficient to provide
(on the basis adopted in the latest actuarial valuation
of the Crawley Warren Pension Scheme as at 1 January
1999) the benefits payable and prospectively payable to
and in respect of the members (including deferred and
pensioner members) up to and including the Completion
Date based on the pensionable service of members
completed or credited up to the Completion Date and
their pensionable earnings then applicable , but with
allowance being made in accordance with the said basis
for future increases in earnings due to inflation and
merit and increases in pensions, both in deferment and
while in course of payment.
22.19 The Crawley Warren Executive Pension Scheme provides only money
purchase benefits within the meaning of section 181(1) of the
Pension Schemes Act 1993
99
<PAGE>
and no assurance, promise or guarantee has been given to any
Relevant Employee of any particular level or amount of benefit
(other than death in service benefits) payable to or in respect of
him on retirement, death or leaving service.
22.20 US Employee Benefit Plans
(a) The Disclosure Letter contains a complete list of all
"employee pension benefit plans" as defined in Section
3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") (including Multiemployer
Plans) ("Pension Benefit Plans"), "welfare benefit
plans" as defined in Section 3(1) of ERISA ("Welfare
Plans"), or stock bonus, stock option, restricted stock,
stock appreciation right, stock purchase, bonus,
incentive, deferred compensation, severance, or vacation
plans, or any other employee benefit plan, program,
policy or arrangement maintained or contributed to by
the Company or any of its ERISA Affiliates or to which
the Company or any of its ERISA Affiliates, contributes
or is obligated to make payments thereunder or otherwise
may have any liability (including Multiemployer Plans)
(collectively, the "Employee Benefit Plans"). For
purposes of this Section, (a) the term "ERISA
Affiliates" means any person (as defined in ERISA
Section 3(9)) that is or has been a member of any group
of persons described in Code Sections 414(b), (c), (m)
or (o), and (b) the term "Multiemployer Plan" means a
multiemployer plan as defined as such in ERISA Section
3(37) to which contributions are or have been made by
the Company or any of its ERISA Affiliates, or as to
which the Company or any of its ERISA Affiliates may
have liability and that is covered by Title IV of ERISA.
(b) Each of the Employee Benefit Plans (and each related
trust, insurance contract or fund) complies in form and
in operation in all material respects with the
applicable requirements of ERISA, the Code and other
applicable laws.
(c) With respect to each of the Employee Benefit Plans,
true, correct and complete copies of the following
documents are annexed to the Disclosure Letter: (a) the
plan document and any related trust agreement, including
amendments thereto, (b) any current summary plan
descriptions and other material communications to
participants relating to the Employee Benefit Plans, (c)
the most recent Form 5500 Annual Report, if applicable,
and (d) any correspondence with the IRS, the Pension
Benefit Guaranty Corporation, the Department of Labor or
any other agency.
(d) All contributions to, and payments from, the Employee
Benefit Plans which are required to have been made by
the Company or any of its ERISA Affiliates with respect
to any period ending on or before the Completion Date,
in accordance with the Employee Benefit Plans, have been
timely made.
100
<PAGE>
(e) Neither the Company nor any of its ERISA Affiliates
maintains or contributes to, nor has it ever maintained
or contributed to, any pension plan subject to Title IV
of ERISA, Code Section 412 or ERISA Section 302. Neither
the Company nor any of its ERISA Affiliates has incurred
any liability under Title IV of ERISA. Neither the
Company nor any of its ERISA Affiliates has any
liability (including any contingent liability under
ERISA Section 4204) with respect to any Multiemployer
Plan covering employees (or former employees) employed
in the United States. Neither the Company nor any of its
ERISA Affiliates has incurred any liability or taken any
action that could reasonably be expected to cause it to
incur any liability (i) on account of a partial or
complete withdrawal (within the meaning of ERISA
Sections 4205 and 4203, respectively) with respect to
any Multiemployer Plan or (ii) on account of unpaid
contributions to any such Multiemployer Plan.
(f) Neither the Company nor any of its ERISA Affiliates
maintains or ever has maintained, or contributes or ever
has contributed to, any Welfare Plan providing for
continuing benefits or coverage for any participant or
any beneficiary of a participant following termination
of employment, except as may be required under COBRA.
Each of Company's Welfare Plans which are "group health
plans", as described in Code Section 5000(b)(1), have
complied with the notice and continuation requirements
of Code Section 4980B or Part 6 of Subtitle B of Title I
of ERISA and the regulations thereunder.
(g) The Pension Benefit Plans intended to qualify under Code
Section 401 have been determined by the IRS to be so
qualified and no event has occurred and no condition
exists with respect to the form or operation of such
Pension Benefit Plans which would cause the loss of such
qualification or exemption or the imposition of any
material liability, penalty or tax under ERISA or the
Code.
(h) The consummation of the transactions contemplated by
this Agreement will not result in an increase in the
amount of compensation or benefits or accelerate the
vesting or timing of payment of any benefits or
compensation payable to or in respect of any employee of
the Company. The Company is not obligated to make any
payment or transfer, accelerate any payment or transfer,
or otherwise provide any benefit that would constitute
an "excess parachute payment" under Code Section 280G.
(i) Neither the Company nor any employee of the foregoing,
nor any trustee, administrator, other fiduciary or any
other "party in interest" or "disqualified person" with
respect to the Pension Benefit Plans or Welfare Plans,
has engaged in a "prohibited transaction" (as such term
is defined in Section 4975 of the Code or Section 406 of
ERISA) which could result in a tax or penalty on a
Company under Section 4975 of the Code or Section 502(i)
of ERISA ("Prohibited Transaction"), except any such
event which would not, individually or in the aggregate,
either impair such Company's ability to consummate the
transactions contemplated hereby or have a material
adverse effect.
101
<PAGE>
23 INSIDER MATTERS
23.1 There is not, nor during the six years prior to the date hereof has
there been, any agreement, arrangement, loan, quasi-loan or
undertaking to which the Company is a party and in which the Vendors
or any of them or any other person beneficially interested in the
share capital of the Company at that time or (except for service
agreements) any director of the Company or any person associated
with any of them within the meaning of section 435 Insolvency Act
1986 is or has been interested.
23.2 The Company has not been party to any transaction falling within
section 320 CA 1985 (substantial property transactions).
23.3 Since the Accounts Date, no member of the Group has transferred any
asset to any of the Vendors or to any person beneficially interested
in any part of the share capital of any member of the Group, or any
director of any member of the Group or any person associated with
any such director or Vendor (within the meaning of section 435
Insolvency Act 1986), except at market value.
24 INTELLECTUAL PROPERTY RIGHTS
24.1 Complete and accurate particulars of all Intellectual Property
Rights of which the Company is, or has applied to be, registered as
proprietor and of all material unregistered Intellectual Property
Rights owned by the Company are set out in the Disclosure Letter.
24.2 All Intellectual Property Rights used or required by the Company in
connection with the Business are in full force and effect and not
subject to any application for cancellation or amendment or licence
of right or compulsory licence and are vested in and beneficially
owned solely by the Company free from and clear of any restrictions
or encumbrances.
24.3 The Company has not infringed the Intellectual Property Rights of
any other person.
24.4 The Company has not granted and is not obliged to grant any licences
under any Intellectual Property Rights owned by it or licences to it
to furnish Know-how to any person.
24.5 Except as mentioned in the Disclosure Letter the Company has not
been granted any licence or right under or in respect of any
Intellectual Property Rights of a third party (other than computer
software licences) and the Company has not breached the terms of any
such licence to which it is a party and all such licences remain in
force and effect and neither the Company nor the Warrantors are
aware of any reason why any of them should be suspended or
terminated, and has not manufactured, sold, supplied or developed
anything which is the subject of any such Intellectual Property
Rights, whether presently existing or (to the knowledge of the
Company) applied for and by carrying on business in the ordinary
course the Company is not and will not become liable to pay any
royalty or like fee.
102
<PAGE>
24.6 Since the Accounts Date, no disclosure has been made to any person
other than the Purchaser of any of the Know-how and the Confidential
Information except properly and in the ordinary course of business
and on the footing that such disclosure is to be treated as being of
a confidential nature.
24.7 There has occurred no act, omission or event which would entitle any
authority or person to cancel, forfeit or modify any Intellectual
Property Rights owned or used by the Company and there is no
litigation or other proceedings (whether legal or administrative)
pending or threatened involving any of the Intellectual Property
Rights or any circumstance likely to give rise to any such
proceeding and to the best of the information, knowledge and belief
of the Warrantors no person has made any claim adverse to the
continuing enjoyment by the Company of the Intellectual Property
Rights.
24.8 Since the Accounts Date the Company has not sold or otherwise
disposed of any Intellectual Property Rights owned or used by the
Company.
24.9 There exists no actual or threatened infringement (including misuse
of confidential information) or any event likely to constitute an
infringement or breach by any third party of any of the Intellectual
Property Rights held or used by the Company.
24.10 The Company does not use or otherwise carry on its business under
any name other than its corporate name and its letters and order
forms comply with all applicable legislation.
24.11 All application, renewal and other official statutory and regulatory
fees and all professional advisers' fees rendered to and received by
the Company prior to the date hereof relating to the administration
of the registered Intellectual Property Rights owned by the Company
or for the protection or enforcement thereof have been duly paid and
all steps have been taken for their maintenance and protection.
24.12 All inventions made by any employees of the Company and used or
enjoyed by the Company were made in the course of the normal duties
of the employee concerned and no claim for compensation under
section 40 Patents Act 1977 or otherwise has been made against the
Company nor to the best of the knowledge information and belief of
the Warrantors is any such claim likely to be made.
24.13 The Intellectual Property Rights owned by or licensed to the Company
are all the Intellectual Property Rights necessary to operate the
Business after Completion in the same manner as currently operated.
24.14 All necessary back-up systems are utilised to ensure that in the
event of any fault in any computer system used by the Company, no
more than one day's data might be lost and no such faults have
occurred in the last 12 months.
24.15 The Company has complied in all material respects with the
provisions of the Data Protection Act 1984 and no order has been
threatened against the Company for erasure of personal data under
section 24(3) Data Protection Act 1984.
103
<PAGE>
24.16 All Information Technology used by the Company has functioned
throughout the last 12 months without any material problems and in
accordance with its specifications and are sufficient for the
requirements for the Business as currently carried on and where any
services in relation to Information Technology are supplied by any
third party such services have been supplied in a timely and
satisfactory manner in accordance with the relevant service
agreement.
24.17 Summary details of the Information Technology used by the Company
have been disclosed and all contracts, licences, leases, maintenance
and support agreements and disaster recovery agreements in respect
of such Information Technology have been disclosed and all such
agreements are in full force and effect and the Company has not
breached the terms of any such agreement and there is no reason why
any of them should be suspended or terminated.
24.18 All computer hardware used in the Business is owned by or under the
control of the Company and is not wholly or partly dependent on any
facilities that are not under the ownership or control of the Group.
24.19 The Company operates physical and environmental security procedures
and commercially available anti-virus software in line with those
procedures to detect so far as possible and deal with any infections
or contamination.
24.20 Save as disclosed in the Disclosure Letter and so far as the
Warrantors are aware each item of equipment and Information
Technology used by the Company in the course of its business
including (without limit) each item of equipment and Information
Technology under the control of a third party is Millennium
Compliant.
For the purposes of these warranties, "Millennium Compliant" shall
have the meaning given to it in BSI-DISCPD 2000-1.
24.21 In relation to each item of equipment or Information Technology
disclosed as not being Millennium Compliant so far as the Warrantors
are aware the Disclosure Letter contains details of all remedial
steps being taken to ensure that such item of equipment or
Information Technology becomes Millennium Compliant together with
the best available costings as to the cost of all such remedial
steps.
24.22 Each Group Company has discharged its responsibilities and
obligations to Lloyd's in respect of Millennium Compliance.
25 LITIGATION
25.1 Neither the Company nor any person for whose acts the Company may be
vicariously liable is engaged in any capacity in any litigation,
arbitration, prosecution or other legal proceedings or in any
proceedings or hearings before any statutory or Governmental body,
department, board or agency; no such matters are pending or
threatened; and the Warrantors are not aware of any circumstances
which are likely to give rise to any such matter.
104
<PAGE>
25.2 There is no outstanding judgment, order, decree, arbitral award or
decision of any court, tribunal, arbitrator or governmental agency
against the Company or any person for whose acts the Company may be
vicariously liable.
25.3 The Company is not a party to any subsisting undertaking given to
any court or third party arising out of any proceedings of the kind
described in paragraph 25.1.
26 INSOLVENCY
26.1 No order has been made and no resolution has been passed for the
winding up of the Company or for a provisional liquidator to be
appointed in respect of the Company and no petition has been
presented and no meeting has been convened for the purpose of
winding up the Company.
26.2 No administration order has been made and no petition for such an
order has been presented in respect of the Company.
26.3 No receiver (which expression shall include an administrative
receiver) has been appointed in respect of the Company or in respect
of all or any part of its assets.
26.4 No voluntary arrangement has been proposed under section 1
Insolvency Act 1986 in respect of the Company.
26.5 The Company is not insolvent or unable to pay its debts within the
meaning of section 123 Insolvency Act 1986 and has not stopped
paying its debts as they fall due.
26.6 No distress, execution or other process has been levied or
threatened in respect of any asset of the Company.
26.7 No composition in satisfaction of the debts of the Company or scheme
of arrangement of its affairs or compromise or arrangement between
it and its creditors and/or members or any class of its creditors
and/or members has been proposed, sanctioned or approved.
26.8 No event analogous to any of the circumstances mentioned in any of
the foregoing sub-paragraphs of this paragraph 26 has occurred in
relation to the Company outside England.
26.9 No guarantee, loan capital, borrowed money or interest is overdue
for payment and no other obligation or indebtedness is outstanding
which is substantially overdue for performance or payment.
26.10 No circumstances have arisen which are likely to result in:
(a) a transaction to which the Company is a party being set
aside; or
(b) a third party claim involving any asset owned or used by
the Company being made under section 238 or 339
(Transactions at an undervalue) or sections 239 or 340
(Preferences) Insolvency Act 1986.
105
<PAGE>
27 COMPETITION/EC MATTERS
27.1 The Company is not, and has not been party to, or concerned in any
agreement, arrangement, understanding or concerted practice, or any
other conduct or practice (unilateral or otherwise) which:
(a) has been or should have been or is required to be
furnished to the Director General of Fair Trading
pursuant to the Restrictive Trade Practices Act 1976
("the RTPA 1976"); or
(b) constitutes a breach of any relevant undertaking, order,
direction, assurance or other measure taken under the
Fair Trading Act 1973, the RTPA 1976, the Competition
Act 1980; or
(c) may be prohibited by the Competition Act 1998 when it is
effective; or
(d) infringes Article 81 or 82 of the EC Treaty (using the
Article numbers of the EC Treaty applicable since the
Treaty of Amsterdam came into force on 1 May 1999) or
any similar provisions of the ECSC, Euratom, or EEA
Treaties, or any other competition rule of the European
Community including, without prejudice to the generality
of the foregoing, any rule relating to state aid, public
procurement, or anti-dumping; or
(e) infringes any competition, anti-trust or equivalent
legislation of any other jurisdiction; or
(f) constitutes a breach of any term or condition of any
licence, authorisation, appointment, code or similar
instrument applicable to the Company and the Business.
27.2 The Company is not subject to any prohibition, order, direction,
condition, undertaking, assurance or similar measure or obligation
imposed by or under any of the laws referred to in this paragraph
27.
27.3 The Company is not, and has not been subject to any investigation,
request for information, notice or other communication (whether
formal or informal, and whether or not in writing) by any court,
governmental or regulatory authority pursuant to any of the laws
referred to in this paragraph 27.
27.4 The Company has no reason to believe that any such action as is
mentioned in this paragraph 27 will be taken against it in relation
to any of its current activities.
28 MISCELLANEOUS
28.1 No Vendor has any interest in any other company or business which
has a close trading relationship with or is in competition with the
Company.
28.2 All information disclosed in the Disclosure Letter (including any of
its attachments) and all other written information which has been
given by the Warrantors or any of the officials or professional or
financial advisers of the Company to any of the Directors, officials
or professional advisers of the
106
<PAGE>
Purchaser in the course of the negotiations leading to this
Agreement which are included in the Disclosure Letter was when given
and remains and will at Completion be true and accurate in all
material respects and is not misleading because of any omission or
ambiguity or for any other reason.
28.3 No-one is entitled to receive from the Company any finder's fee,
brokerage or commission or other benefit in connection with the sale
of the Sale Shares.
107
<PAGE>
Part B - Taxation
For the purposes of this Part B of schedule 8, and in respect of any Group
Company which is resident for tax purposes outside the United Kingdom,
references to the provisions of ICTA 1988, TCGA 1992 and any other United
Kingdom statutory provision, shall be construed as references to those
provisions of any relevant statute or other legislation applicable in the
jurisdiction in which such Group Company is so resident and which most closely
conform with the provisions of ICTA 1988, TCGA 1992 or such other United Kingdom
statutory reference referred to herein.
1.1 General
(a) All returns and computations which ought to have been
made by or in respect of the Company for any Taxation
purposes have been duly made; all such returns,
computations and any other notices, accounts and
information supplied to any Taxation Authority are
up-to-date, correct and were made on a proper basis;
none of such returns, computations, notices, accounts or
information is disputed in any respect by the Taxation
Authority concerned and there is no fact known to the
Warrantors which might give rise to any such dispute or
to any liability to Taxation not provided for in the
Accounts.
(b) All Taxation for which the Company is liable, the due
date for payment of which is on or before Completion,
has been or will be paid on or before Completion, and
the Company has not within the three consecutive years
commencing prior to the date hereof paid or become
liable to pay any penalty or interest charged by virtue
of any provisions relating to Taxation.
(c) No payment has been made by the Company which will not
be deductible for corporation tax purposes in computing
its income profits or otherwise in computing the
corporation tax payable by it.
(d) The provisions included in the Accounts are sufficient
to cover all Taxation in respect of all Accounting
Periods for which the Company was then or might at any
time thereafter become or have become liable including
(without limitation) Taxation:
(i) on or in respect of or by reference to the
profits, gains or income earned or accrued
or deemed for Taxation purposes to be earned
or accrued for any period ended on or before
the Accounts Date; or
(ii) in respect of distributions made, interest
or charges on income paid on or before the
Accounts Date.
108
<PAGE>
(e) (i) The Company is a close company (as defined
in section 414 ICTA 1988);
(ii) no amount has been treated under section 418
ICTA 1988 as a distribution of the Company
nor has the Company incurred any expense to
which section 418 ICTA 1988 could apply;
(iii) the Company has not made any loan or advance
to which section 419 ICTA 1988 has been or
could be applied (including, without
limitation by virtue of the application of
section 419(5) ICTA 1988).
(f) Full disclosure has been made in the Disclosure Letter
of any material difference between the accounting and
the Taxation treatment of any item in the Accounts.
(g) Full disclosure has been made in the Disclosure Letter
of all matters relating to Taxation in respect of which
the Company has, or will at Completion have, an
outstanding entitlement under any statute relating to
Taxation to make:
(i) any claim, disclaimer, or election for
relief from Taxation;
(ii) any election for an alternative basis or
method of Taxation;
(iii) any appeal against any assessment to
Taxation; or
(iv) any application for postponement of
Taxation,
where the making of such claim, disclaimer or election,
appeal or application was assumed in the preparation of
the Accounts.
(h) The amount of Taxation chargeable on the Company during
any Accounting Period has not, to any material extent,
depended on any concession, agreement or other formal or
informal arrangement with any Taxation Authority.
(i) During the three years before the date hereof:
(i) there has been no major change in the nature
or conduct of a trade or business carried on
by the Company;
(ii) the scale of activities of any trade carried
on by the Company has not been small or
negligible within the meaning of sections
245 or 768 ICTA 1988.
(j) The Company is not liable for any Taxation owed by any
other company which has been sold out of the same group
of companies as the Company or was controlled by the
Company for any Taxation purposes in respect of
Accounting Periods beginning before or after such sale.
109
<PAGE>
(k) The Company has duly deducted all amounts from any
payments from which Tax falls to be deducted at source
and the Company has duly paid or accounted for such
amounts to the relevant Taxation Authority.
(l) The Company has not been concerned in any transaction
other than the transactions contemplated by this
Agreement in respect of which provision is made in any
statute relating to Taxation for a clearance to be
obtained from any Taxation Authority in relation to such
transaction except where all applicable clearances
(based on full disclosure of all material facts and
circumstances) have been obtained.
(m) The Company has no unrelieved surplus ACT (as such term
is defined for the purposes of the Corporation Tax
(Treatment of Unrelieved Surplus Advance Corporation
Tax) Regulations 1998) and the Company is not a member
of a group which has an amount of unrelieved surplus
ACT.
(n) The Company is a large company for the purposes of the
Corporation Tax (Instalment Payment) Regulations 1998
(the "Regulations") and the Company is not part of any
arrangement entered into with any Taxation Authority
pursuant to section 36 of the Finance Act 1998.
(o) Insofar as the Warrantors are aware and based on the
best estimate, at the time the payment is made, of the
forecast profits for the year ended 31st December 1999,
the instalments of corporation tax paid by the Company
on 14th July 1999 and 14th October 1999 in respect of
the accounting period of the Company ended 31st December
1999 have been paid in accordance with regulation 5 of
the Regulations and such instalments represent, in
aggregate, thirty per cent (30%) of the total liability
of the Company for that accounting period (as referred
to in regulation 2(3) of the Regulations) and so far as
the Warrantors are aware there is no matter,
circumstance, transaction of other event in each such
case arising on or before Completion which could require
an adjustment to the level of the total liability of the
Company for such accounting period (defined as
aforesaid) after Completion.
(p) The Company has not been involved in any transaction
which has given or may give rise to a liability to
Taxation on the Company (or would have given or might
give rise to such a liability but for the availability
of any Relief) other than Taxation in respect of normal
trading income or receipts of such company arising from
transactions entered into by it in the ordinary course
of business.
1.2 Post-Accounts Date Events
(a) Since the Accounts Date:
(i) save as provided in the Accounts, no
dividend has been declared or paid on, and
no distribution of capital made in respect
of, any share capital and no loan or loan
capital has been repaid in whole or in part;
110
<PAGE>
(ii) no expenditure incurred (including rents,
interest, annual payments or any other sums
paid or for which the Company is liable to
pay) will be disallowed as a deduction,
debit or a charge on income in computing
profits for the purposes of corporation tax;
(iii) no event has occurred which will result in
the Company becoming liable to pay or bear
any Taxation liability directly or primarily
chargeable against or attributable to
another person, firm or company;
(iv) no Accounting Period of the Company has
ended as referred to in section 12(3) ICTA
1988;
(v) no disposal has taken place or other event
occurred which will or may have the effect
of crystallising any liability to Taxation
which should have been included in the
provision for deferred taxation made in the
Accounts if such disposal or other event had
been planned or predicted at the Accounts
Date.
1.3 Capital Allowances
Full disclosure has been made to the Purchaser of all capital
expenditure qualifying for capital allowances and all balancing
adjustments pursuant to the CAA 1990 and Chapter I Part XIII ICTA
1988 in respect of any Accounting Period of the Company.
1.4 Distributions
Save as provided for in the Accounts no distribution (within the
meaning of sections 209 and 210 ICTA 1988) has been made by the
Company during any Accounting Period.
1.5 Groups
(a) The Disclosure Letter contains full details of all
surrenders, transfers, claims and agreements for
surrenders, transfers or claims for any amounts by way
of group relief under the provisions of sections 402 to
413 ICTA 1988 or any amounts of advance corporation tax
under the provisions of section 240 ICTA 1988 together
with details of all payments for group relief within the
meaning of section 402(6) ICTA 1988 and of all payments
in respect of surrenders of amounts of advance
corporation tax within the meaning of section 240(8)
ICTA 1988 in each case made or received or agreed to be
made or received, in respect of any Accounting Period
ended within three years prior to the Accounts Date.
(b) The Disclosure Letter contains particulars of all
elections (if any) made by the Company under section 247
ICTA 1988 and the Company has not paid any dividend
without paying advance corporation tax or made any
payment without deduction of income tax in the
circumstances specified
111
<PAGE>
in section 247(6) ICTA 1988. In respect of each such
election the conditions of section 247 ICTA 1988 have at
all times been satisfied.
1.6 VAT
(a) The Company is a registered and taxable person for the
purposes of the Value Added Tax Act 1994 ("VATA 1994")
and has complied in all material respects with VATA 1994
and any statutory modification or re-enactment thereof
and all orders, provisions, directions or other
conditions made or imposed thereunder or under any other
law relating to VAT.
(b) The Company is not a member of a group for VAT purposes.
(c) The Company has not made and does not make exempt
supplies for VAT purposes (except such exempt
transactions as may be disregarded in calculating the
amount of input tax for which the Company may claim a
credit or repayment under section 24 or section 25 VATA
1994).
(d) The Company has made no election pursuant to paragraph 2
Schedule 10 VATA 1994 in respect of the Properties.
(e) No asset of the Company is a capital item the input tax
on which may be subject to adjustment in accordance with
the provisions of Part XV of the Value Added Tax
Regulations 1995.
(f) No defaults have been suffered by the Company under the
default surcharge provisions of section 59 VATA 1994.
(g) No circumstances exist whereby the Company is or might
become liable in respect of any misdeclaration by virtue
of sections 63 or 64 VATA 1994.
(h) The provisions of Schedule 9A VATA 1994 could not be
applied by any Taxation Authority in respect of any
transaction undertaken by the Company prior to
Completion.
(i) The Disclosure Letter contains full details of any
partial exemption special method agreed with any
Taxation Authority pursuant to Part XIV of the Value
Added Tax Regulations 1995.
(j) No supplies have been made to the Company to which the
provisions of section 8 VATA 1994 could be applied.
1.7 Stamp duty
All documents in the possession of the Company or to the production
of which the Company is entitled which are necessary to establish
title to any asset and which attract stamp or transfer duty in the
United Kingdom or elsewhere have been duly stamped.
112
<PAGE>
1.8 Disputes
No Taxation Authority has in the last three years carried out or is
at present conducting any review, audit or investigation into the
business or affairs of the Company (or any aspect thereof) and the
Warrantors know of no reason why any such review, audit or
investigation should be initiated.
1.9 Loan relationships
(a) There are no circumstances which could cause any
Taxation Authority to deny relief for interest paid by,
or accrued in the Accounts of the Company and no such
relief has been denied in fact.
(b) All credits and debits brought into account by the
Company in connection with any loan relationship to
which the Company is or was a party for the purpose of
computing any provision for tax made in the Accounts
were calculated in accordance with an authorised
accruals basis of accounting.
1.10 Capital Gains
(a) The Company has sufficient records to determine the
Taxation consequences which would arise on any disposal
or on the realisation of any asset owned at the Accounts
Date or acquired since that date but before Completion.
(b) Disregarding any relief or allowance (including
indexation relief) available to the Company (other than
amounts allowable under section 38 TCGA 1992) no
chargeable gain or profit would arise if any asset of
the Company were to be realised for a consideration
equal to the book value thereof as shown or included in
the Accounts.
(c) All chargeable assets of the Company were acquired at
market value at the time of acquisition and there are no
circumstances giving rise or which may give rise to
liability or loss under or pursuant to any of sections
17, 30, 139, 140, 176, 177, 178 and 179 TCGA 1992.
1.11 International
(a) The Company is not liable for any Taxation as the agent
of any other person or business not resident in its
jurisdiction and does not constitute a permanent
establishment of any other person, business or
enterprise for any Taxation purpose.
(b) The Company is and has at all times been resident in the
United Kingdom for Tax purposes and is not and has not
been treated as resident or liable for Taxation in any
other jurisdiction for any Taxation purposes (including
for the purposes of any double taxation agreement).
(c) The provisions of Schedule 28AA could not be applied to
any transaction undertaken by the Company prior to
Completion.
113
<PAGE>
(d) The Company has not received notice of any direction
made by the Inland Revenue under section 747 ICTA 1988
and no circumstances exist which would entitle any
Taxation Authority to make such or a direction or
require any apportionment to the Company of any profits
of a controlled foreign company pursuant to section 752
ICTA 1988.
(e) The Company is not, nor could it be treated as thinly
capitalised for any tax purpose. There are no
circumstances which could cause any Taxation Authority
to deny relief for interest paid by the Company, and no
such relief has been denied in fact.
(f) The provisions in the Management Accounts are sufficient
to cover all Texas state premium tax on business written
prior to Completion by International Accident
Facilities, Inc. and International Accident Facilities
of Texas, Inc.
1.12 Insurance Premium Tax ("IPT")
If the Company is liable to be registered in respect of IPT, it is
so registered and has complied in all material respects with the
provisions contained in Part III and Schedule 7 Finance Act 1994 and
any statutory modifications or re-enactment thereof and all
regulations, orders, provisions, directions or other conditions made
or imposed thereunder or under any other law relating to IPT.
1.13 PAYE
(a) The Company has properly operated the PAYE system and
has deducted tax as required by law from all payments to
or treated as made to employees of the Company and duly
accounted to the Inland Revenue for all tax so deducted
and all returns required pursuant to section 203 ICTA
1988 and regulations made thereunder have been made and
are accurate and complete in all respects.
(b) The Disclosure Letter contains full details of all
dispensations obtained by the Company and all details of
any visit from the Audit Office of the Inland Revenue
within the period of six years prior to Completion
including full details of any settlement made pursuant
thereto.
(c) Any payment made to or for the benefit or indirect
benefit of any person who is or might be regarded by any
Taxation Authority as an employee of the Company is made
to such person direct and is not made to any company or
other entity associated with that person.
114
<PAGE>
SCHEDULE 6
THE PROPERTIES
Part A - English Properties
<TABLE>
<CAPTION>
OWNING GROUP PROPERTY DESCRIPTION PARTIES TO LEASE DATE OF LEASE
COMPANY
<S> <C> <C> <C>
1. The Company Premises on basement, lower (1) Special Risks Services 21 November 1996
ground, ground and first Limited
floor, America House, 2 (2) Crawley Warren Group plc
America Square, London EC3
2. The Company Premises on second floor and (1) London Market Claims 21 November 1996
basement, America House, 2 Services Limited
America Square, London EC3 (2) Crawley Warren Group plc
3. The Company Premises on fifth floor, (1) Trafalgar House Development 31 March 1994
America House, 2 America Holdings Limited
Square, London EC3 (2) Crawley Warren Group plc
4. The Company Premises on fifth floor and (1) QBE Re-Insurance (UK) 17 July 1997
basement storage space, Limited
America House, 2 America (2) Crawley Warren Group plc
Square, London EC3
5. The Company First floor (rear right), 6 (1) Commercial Union Assurance 20 November 1987
Lloyds Avenue, London EC3 Company plc
(2) Gammell Kershaw &
Company Limited
6. The Company Ground floor (centre left), 6 (1) Commercial Union Assurance 1 April 1993
Lloyds Avenue, London EC3 Company plc
(2) Crawley Warren Group plc
</TABLE>
Part B - Sub-Let Properties
<TABLE>
<CAPTION>
OCCUPYING PROPERTY DESCRIPTION PARTIES TO LEASE DATE OF LEASE
COMPANY
<S> <C> <C> <C>
7. Townsend Premises on first floor (rear (1) Crawley Warren Group plc 30th April 1996
McCormack right) 6 Lloyds Avenue (2) Townsend McCormack
Limited London EC3 Limited
</TABLE>
115
<PAGE>
Part C - Non-UK Properties
<TABLE>
<CAPTION>
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
OWNING GROUP COMPANY PROPERTY DESCRIPTION PARTIES TO LEASE DATE OF LEASE
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
<S> <C> <C> <C>
8. International Accident 815 Brazos (1) 815 Brazos Inc. (2) International 6 February
Facilities Inc. Austin, Texas Accident Facilities Inc. 1997
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
9. International Accident Suite 170 Atrium on Elmbrook, (1) Spire Properties Inc.
Facilities Inc. 8204 Elmbrook, Dallas, Texas (2) International Accident Facilities Inc. 1 May 1997
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
10. International Claims Suite 307 Cherry Creek Business (1) Louis E Weiss (2) International Claims 20 November
Administrators Inc. Park 7777 E. Osie, Wichita, Kansas Administrators Inc. 1998
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
11. International Accident Suite 300, 3rd Floor, 1 State (1) Nathan R Miller Properties Ltd. December 1997
Facilities Inc. Street, Boston, Massachusetts (2) International Accident Facilities Inc.
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
12. International Accident Suite 410, 4th Floor, 1 State (1) Nathan R Miller Properties Ltd 2 December
Facilities Inc. Street, Boston, Massachusetts (2) International Accident Facilities Inc. 1998
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
13. C W Midwest Inc. 5170 Commerce Circle, (1) Cox Insurance Group, Inc. 1 June 1993
Indianapolis, Indiana (2) C W Midwest Inc.
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
14. Crawley Warren Insurance Suite 650, 6th Floor, 100 (1) R REEF USA Fund-111 27 September
Services Inc. California Street, San Francisco, (2) Crawley Warren Insurance Services Inc. 1991
California 94111
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
15. Mansions of Austrialia Pty Rooms on 5th Floor, 9 Barrack (1) Darisha Holdings Pty Limited 9 July 1996
Limited Street, Sydney (2) Mansions of Australia Pty Limited
- ----- -------------------------------------------------------------- -------------------------------------------- ---------------
</TABLE>
116
<PAGE>
<TABLE>
<CAPTION>
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
OWNING GROUP COMPANY PROPERTY DESCRIPTION PARTIES TO LEASE DATE OF LEASE
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
<S> <C> <C> <C>
16. CW MidWest Inc. (trading Office 309, Applewood Tech (1) Corporate Office Images Ltd 4 August 1998
as Cox Insurance Group) Center, 2801 Youngfield Street, (2) Cox Insurance Group (renewed 13
Golden, Colorado July 1999)
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
17. International Space Premises on 9th Floor of 1300 (1) Knickerbocker Properties, Inc. xiv 24 June 1997
Brokers, Inc. (Occupier) Wilson Boulevard, Arlington, (2) International Space Brokers, Inc.
Virginia
- ----- --------------------------- ----------------------------------- -------------------------------------------- --------------
</TABLE>
117
<PAGE>
SCHEDULE 7
DIRECTORS AND EMPLOYEES
Part A - Additional Directors
C. Bowen
P. Evans
M. Lesser
E. Patel
Part B - Persons to receive Service Agreements
B. Warren
J. Howes
M. Bernardes
R. Mahoney
118
<PAGE>
SCHEDULE 8
PROVISIONS FOR THE PROTECTION OF THE WARRANTORS
1 REMEDIES
1.1 Where any matter or default giving rise to a breach of any Warranty
is capable of remedy, the breach shall not entitle the Purchaser to
damages or other compensation unless written notice of the breach is
given to any of the Warrantors and the matter or default is not
remedied to the reasonable satisfaction of the Purchaser within 14
days after the date on which such notice is served.
2 EXCLUSION OF CERTAIN CLAIMS
2.1 No claim shall be made by the Purchaser against the Warrantors and
the Warrantors shall have no liability to the Purchaser under this
Agreement (including the Warranties) or the Taxation Deed (to the
extent specified in this paragraph 2. 1) or otherwise:
(a) in respect of any warranty, representation, indemnity,
covenant, undertaking or otherwise arising out of or in
connection with the sale of the Sale Shares except where
it is expressly contained in this Agreement or the
Taxation Deed; or
(b) in respect of any matter or thing done in the execution
and performance of this Agreement or solely by reason or
in direct consequence of the execution and performance
of this Agreement; or
(c) save where the claim arises under the Taxation Deed, in
respect of any matter which is fully and fairly
disclosed in the Disclosure Letter (and for this purpose
"fully and fairly disclosed" means disclosed in such
manner and in such detail as to enable a reasonable
purchaser to make an informed and accurate assessment of
the matter concerned);
(d) (except where specifically warranted) for:
(i) any inaccuracies in the Management Accounts;
or
(ii) any opinion which may have been expressed or
any forecast which may have been made by any
person in any of such correspondence,
documents or accounts; or
(e) save where the claim arises under the Taxation Deed, in
respect of any liability if that liability would not
have arisen or occurred but for an act, omission or
transaction done, made or carried out by any one or more
of the Purchaser or any Group Company or any of their
respective directors, employees or agents:
(i) before Completion on the decision or at the
request of the Purchaser; or
119
<PAGE>
(ii) after Completion otherwise than as required
by law or pursuant to a legally binding
commitment of that Group Company created on
or before Completion (save a commitment
undertaken at the request or with the
consent of the Purchaser) and otherwise than
in the ordinary course of business as
carried on immediately before Completion; or
(f) save where the claim arises under the Taxation Deed, in
respect of any matter resulting from a change in the
accounting or taxation policies or practices of the
Purchaser or any Group Company (including the method of
submitting taxation returns) introduced or having effect
after Completion;
(g) in respect of any liability or other matter or thing to
the extent that it occurs as a result of any legislation
not in force at the date hereof or any change in law or
administrative practice having retrospective effect
which comes into force after the date hereof or any
increase hereafter in the rates of taxation in force at
the date hereof;
(h) in respect of a liability which is contingent only
unless and until such contingent liability becomes an
actual liability and is due and payable, but this
paragraph 2.1(h) shall not operate to avoid a claim made
with reasonable particularity in respect of a contingent
liability within the applicable time limits specified in
paragraph 5;
and the Warranties shall be deemed to be qualified accordingly.
2.2 The Warrantors shall have no liability in respect of any claim under
the Warranties or clause 9 which arises from any act or alleged act
of professional negligence occurring prior to Completion unless (i)
it is a matter specified in clause 9.1(a) or (ii) as at the date of
this Agreement either the Company or any of its employees has
sufficient information in relation to the act or alleged act of
negligence or the circumstances thereof that it ought reasonably to
have concluded that a complaint or claim of professional negligence
might be made in relation thereto and that it ought accordingly to
have reported such matter to its errors and omissions insurers, and
the Company has not reported such circumstances to its errors and
omissions insurers.
3 ALLOWANCES AGAINST CLAIMS
3.1 The Warrantors shall not be liable under this Agreement in respect
of any claim if and to the extent that:
(a) specific allowance, provision or reserve is made in the
Accounts in respect of the matter or thing giving rise
to the claim; or
(b) the loss in respect of which the claim (including any
claim under the Taxation Deed) is made:
(i) is recovered under a policy of insurance in
force on the date of such loss and if such
policy is maintained by the Warrantors, the
120
<PAGE>
amount so recovered (net of costs of
recovery) is paid to the Purchaser; or
(ii) would have been recoverable under a policy
of insurance in force at Completion which is
not recoverable either because of any change
in the terms of the insurance after
Completion or because the policy is not
continued in force by the Purchaser or any
Group Company after Completion.
4 THIRD PARTY CLAIMS
4.1 The Warrantors shall be entitled to require the Purchaser (in the
name of any Group Company if the Warrantors so request) or any Group
Company at the expense of the Warrantors to take all such reasonable
steps or proceedings as the Warrantors may consider necessary in
order to avoid, dispute, resist, mitigate, compromise, defend or
appeal against any relevant third party claim (that is to say any
claim by a third party against any Group Company which will or may
give rise to a claim under the Warranties).
4.2 The Purchaser shall act or shall procure that the relevant Group
Company shall act in accordance with any such requirements subject
to the Purchaser and/or the Group Company being properly indemnified
by the Warrantors to the reasonable satisfaction of the Purchaser
against all reasonable costs and expenses incurred in connection
with the taking of such steps or proceedings.
4.3 For the purpose of enabling the Warrantors to avoid, dispute,
resist, mitigate, compromise, defend or appeal against any relevant
third party claim or to decide what steps or proceedings should be
taken in order to do so, the Purchaser shall:
(a) give notice to the Warrantors within 14 days of any
relevant third party claim or any circumstance giving or
likely to give rise to a relevant third party claim
coming to its notice or to the notice of any Group
Company;
(b) give the Warrantors or their duly authorised
representatives reasonable access to the personnel of
the Purchaser and/or the relevant Group Company (as the
case may be) and to any premises, chattels, accounts,
documents and records which are relevant to such claim
and are within the power, possession or control of the
Purchaser and/or the relevant Group Company in the Group
("relevant assets") to enable the Warrantors and their
duly authorised representatives to investigate the claim
and to examine and take copies or photographs of the
relevant assets at their own expense; and
(c) if the Warrantors so request, delegate entirely to them
the conduct of any proceedings of whatsoever nature
arising in connection with the third party claim and, in
that event, give or cause to be given to the Warrantors
all such assistance as they may reasonably require in
disputing the claim and instruct such solicitors or
other professional advisers as the Warrantors may
nominate to act in accordance with the Warrantors'
instructions on their behalf or on behalf of and in the
name of the relevant Group Company.
121
<PAGE>
4.4 The Warrantors shall reimburse to the Purchaser or the relevant
Group Company (as the case may be) all reasonable costs, charges and
expenses incurred by it in complying with its obligations under
paragraphs 4.1 to 4.3 inclusive.
5 TIME LIMITS
5.1 No claim shall be brought by the Purchaser or any Group Company for
breach of the Warranties or any other term of this Agreement (other
than clause 9 in respect of which the provisions of clause 9.3 shall
apply) or under the Taxation Deed unless notice in writing of such
claim (specifying in reasonable detail the event, matter or default
which gives rise to the claim) has been given to the Warrantors:
(a) in the case of a claim under the Taxation Deed or under
any of the Taxation Warranties, within seven years after
Completion; or
(b) in any other case, by 31 March 2002.
5.2 The Warrantors shall have no liability in respect of any claim under
the Warranties unless within twelve months after the date upon which
the Purchaser shall first have given notice thereof to the
Warrantors pursuant to paragraph 5.1 above proceedings in respect
thereof shall have been instituted by the Purchaser against the
Warrantors.
6 THRESHOLDS
6.1 Subject to paragraph 6.2, the Warrantors shall have no liability in
respect of any claim made under or in respect of any of the
Warranties set out in Part A of schedule 5 ("the General
Warranties") unless the amount of that claim when added to the
aggregate of all other such claims exceeds (pound)250,000. If the
aggregate amount of claims exceeds (pound)250,000 the Warrantors'
liability will be for the entire amount and not merely the excess.
6.2 If and in the event that the aggregate of all claims referred to in
paragraph 6.1 exceeds (pound)225,000, the Warrantors shall have no
liability in respect of any further claim made under or in respect
of any of the General Warranties unless that claim exceeds the sum
of (pound)1,000.
6.3 The Warrantors shall have no liability in respect of any claim made
under or in respect of the Taxation Deed or in respect of any of the
Tax Warranties ("A TAXATION CLAIM") unless the amount of that
Taxation Claim when added to the aggregate of all other Taxation
Claims exceeds (pound)50,000. If the aggregate amount of all
Taxation Claims exceeds (pound)50,000 the Warrantors' liability will
be for the entire amount and not merely the excess.
6.4 The Warrantors' liability in respect of any breach of warranty claim
or claim under clause 9 of the Agreement relating to ISB shall not
in any event exceed:
(i) 46.35% of the loss or damage suffered or incurred by ISB
by reason of the circumstances giving rise to the breach
of warranty or claim under clause 9; and
122
<PAGE>
(ii) all reasonable costs and expenses of or incidental to
the presentation, negotiation and settlement of such
claim.
6.5 References to "(pound)" in this paragraph 6 shall, in relation to
any Relevant Claim or Taxation Claim made in a currency other than
pounds sterling, be construed as references to the equivalent in
pounds sterling of such other currency at the date the claim is
made.
7 AGGREGATE MAXIMUM
7.1 Subject to paragraph 7.2, the aggregate liability of the Warrantors
in their respective Warrantor Proportions in respect of all claims
under or in respect of any of the terms of this Agreement or the
Taxation Deed shall not exceed an aggregate amount equal to:
(a) (pound)24,207,975; and
(b) all reasonable costs and expenses of or incidental to
the presentation, negotiation and settlement of all such
claims;
Provided always that no Warrantor shall be liable for more than his
Warrantor Proportion of the aforementioned aggregate.
7.2 The aggregate liability of the Warrantors in their respective
Warrantor Proportions in respect of clause 9.1(b) and insofar as any
such regulatory claims or liabilities arise in respect of or out of
the USA only, shall not exceed US$5 million.
7.3 For the avoidance of doubt, the Warrantors agree that they shall be
liable for the full amount of each and every claim (in excess of the
threshold set out in paragraph 6), up to the aggregate maximum as
set out in paragraphs 7.1 and 7.2.
8 NO DUPLICATION OF LIABILITY
8.1 The Purchaser hereby agrees with the Warrantors that, in respect of
any matter which may give rise to a liability under this Agreement
(including the Warranties) and also under the Taxation Deed:
(a) such liability shall not be met more than once;
(b) any liability with respect to such matter to any of the
Purchaser or the Company or any other Group Company
shall be deemed to be satisfied by the satisfaction of
the liability with respect to such matter to any other
of them.
8.2 For the avoidance of doubt, the Purchaser agrees that the Warrantors
shall have no liability under the Warranties or the Taxation Deed in
respect of any claim for stamp duty or stamp duty reserve tax
arising out of the sale and purchase of the Sale Shares under this
Agreement or Completion.
123
<PAGE>
9 SUCCESSFUL CLAIMS DEEMED TO CONSTITUTE A REDUCTION IN PURCHASE PRICE
9.1 The satisfaction by the Warrantors of any claim under this Agreement
(including the Warranties) shall be deemed to constitute a reduction
in the consideration payable by the Purchaser for the sale of the
Sale Shares.
10 PURSUING RECOVERY FROM THIRD PARTY
10.1 Where any Group Company or the Purchaser is entitled to recover from
a third party (being a person other than the Warrantors) a sum in
respect of a loss, damage, cost or expense which is or could become
the subject of a claim against the Warrantors under the Warranties
or the Taxation Deed (and whether before or after the Warrantors
have made payment hereunder) the Purchaser shall:
(a) if so required by the Warrantors and at the Warrantors'
cost and expense and on the Warrantors providing proper
indemnities and security in respect of all costs and
expenses to be incurred, procure that the Purchaser or
the relevant Group Company (as the case may be) takes
all steps as the Warrantors may reasonably require to
enforce such recovery;
(b) keep the Warrantors informed of the progress of any
action taken; and
(c) thereafter any claim against the Warrantors shall be
limited to the amount by which the total of the loss,
damage, costs and expenses suffered or incurred by the
Purchaser or the relevant Group Company as a result of
such breach shall exceed the amount so recovered,
Provided always that nothing in this paragraph 10 shall require the
Purchaser or any Group Company to take any step which the Purchaser
reasonably believes may be adversely and materially prejudicial to
the business of the Purchaser or any Group Company.
10.2 If the Purchaser declines to take steps to enforce recovery against
any third party in reliance upon the proviso to paragraph 10.1 then
the Purchaser shall (upon the Warrantors' written request) procure
that the relevant Group Company assigns to the Warrantors (without
limitation and without prejudice to the Purchaser's right of
recovery against the Warrantors) the relevant Group Company's rights
of recovery against the third party.
11 SUBSEQUENT RECOVERY
11.1 If the Warrantors make any payment pursuant to the Warranties or the
Taxation Deed ("the Payment") and after making the Payment the
Purchaser or any Group Company recovers any amount which is
referable to the subject matter of the claim in respect of which the
Payment was made, the Purchaser shall or shall procure that the
relevant Group Company (as the case may be) shall upon receipt
thereof forthwith pay to the Warrantors a sum equal to the lesser
of:
(a) the amount recovered (after deducting any taxation in
respect thereof payable by the recipient and any costs
attributable to the recovery); and
(b) the Payment.
124
<PAGE>
12 COVENANT TO PAY (CLAUSE 8.2)
12.1 The provisions of this schedule shall apply to claims under clause
8.2 of this Agreement in the same way that they apply to claims
under the Warranties; and the Warrantors' liability to the Purchaser
under clause 8.2 shall be limited and modified accordingly. All
references in this schedule to all or any claims under the
Warranties and/or the Taxation Deed shall be deemed to include all
or any claims made pursuant to clause 8.2.
13 SET-OFFS
13.1 If either of the Heritage Provision or the TDR Provision shall prove
to be an over-provision the amount over-provided shall be set off
against the liability (if any) of the Warrantors under the
Warranties and clause 9.1(d) and (in the case of the TDR Provision
only the Taxation Deed.
13.2 If after Completion any monies are paid to any Group Company in
respect of the sale by Charles Terrace Limited of the business of
Compass Certificate Schemes Limited ("the Compass Payment"), the
amount so paid shall be set off against the liability (if any) of
the Warrantors under the Warranties and clause 9.1(d).
13.3 Any overprovision in respect of the TDR Provision may be set off
against the liability of the Warrantors under clause 9.1(d) or the
Taxation Deed (at the Warrantor's election) but not both.
13.4 Any set off required by this paragraph 13 shall be effected only if
and to the extent that:
(a) (insofar as the Heritage Provision and TDR Provision are
concerned) the relevant credit has been made to the
profit and loss account of the Company or any of the
Subsidiaries in accordance with generally accepted
accounting principles; and
(b) (insofar as the Griffin Receipt and the Compass Payment
are concerned), such monies are credited to the profit
and loss account of the Company or any of the
Subsidiaries in accordance with generally accepted
accounting principles.
13.5 The Purchaser shall keep a running account of any payments made by
the Warrantors under this Agreement or the Taxation Deed (whether
from the Escrow Account or otherwise). As and when any credits to
the Company's or any Subsidiary's profit and loss account arising
from this paragraph 13 are made, the Purchaser shall reconcile such
credits (in accordance with this paragraph 13) against the payments
(if any) made at that date by the Warrantors under this Agreement or
the Taxation Deed and shall either:
(a) if it is at the relevant date known or reasonably likely
that the Warrantors shall be obliged to make a further
payment to the Purchaser under this Agreement or the
Taxation Deed, notify the Warrantors that it shall
permit such further payment to be made net of the
credit; or
125
<PAGE>
(b) make an appropriate repayment to the Warrantors of any
over-payment (or, if the repayment occurs in the 12
months immediately following Completion, make an
appropriate repayment to the Escrow Account).
13.6 If there shall be any difference between the parties on the question
of whether there shall be any such over-provision or the amount
thereof, the matter shall be referred to the relevant Group
Company's auditors for the time being whose decision shall be final,
such decision being given as experts not as arbitrators. The cost of
such auditors in acting hereunder shall be borne by the parties
equally.
14 GRIFFIN INSURANCE ASSOCIATION
14.1 If the Griffin Insurance Association Limited ("the Griffin") is
sold, wound up or de-mutualised or its business is sold at any time
during the period of seven years from the Completion Date and any
Group Company, the Purchaser or any member of the Purchaser's Group
receives a capital payment or other realisable and material benefit
(including without limitation credit against premiums or call) in
connection with the said sale, winding-up or de-mutualisation and by
reason of any Group Company's membership of the Griffin, or there is
any other return call made to any Group Company by the Griffin (in
either case, "the Griffin Receipt"), there shall be set against the
Warrantors' liability to the Purchaser under the Warranties or
clause 8 or clause 1.1(d) an amount equal to the Griffin Receipt.
14.2 The provisions of clause 4.2 shall also apply in respect of any
Griffin Receipt to the extent such receipt is not utilised under
paragraph 14.1.
15 INFORMATION FOR WARRANTORS
15.1 The Purchaser shall procure that the Warrantors (and their
professional advisers) are promptly provided with such information
and copy documentation as they may reasonably require in order that
they may (i) assess the extent of their liability in respect of any
current claims against the Warrantors under the Warranties or clause
9 (ii) assess the value of any credits which are available to be
made against the claims in question and (iii) assess whether the
Purchaser has discharged its obligation to take all reasonable steps
to mitigate its loss in respect of the claims in question. If the
Warrantors reasonably deem it necessary the Purchaser shall procure
that any relevant Group Company allows the Warrantors and/or their
professional advisers to inspect the books and records of the
Company, subject to such confidentiality undertakings as the
Purchaser may reasonably require.
15.2 Any requests pursuant to paragraph 15.1 shall be made by the
Representative Warrantor. "Representative Warrantor" means Mr
Bernard Warren or such other of the Warrantors as a majority of the
Warrantors shall (with the written consent of the appointee) appoint
to act as the representative of the Warrantors for the purposes of
schedule 8 of this Agreement.
15.3 Only one request for information and/or inspection every 3 months
may be made by the Representative Warrantor under paragraph 15.1.
126
<PAGE>
15.4 The Purchaser undertakes to take all reasonable steps to mitigate
(and procure that each Group Company mitigates) its loss in respect
of any fact, matter or circumstance which may give rise to a claim
against the Warrantors under this Agreement.
16 EXCLUSION OF LIMITATIONS
16.1 Subject to paragraph 16.2 the provisions of this schedule shall not
apply to any claim made as a result of:
(a) any claim against warranty 2.2 and 2.3 (share
ownership), warranty 3 (capacity) and warranty 12.2
(share capital) in schedule 5;
(b) any claim arising out of any fraud or fraudulent
misrepresentation on the part of the Company or any of
its employees or officers or any of the Vendors.
16.2 The provisions of paragraph 16.1 shall not apply in respect of any
claim against the two subsidiaries of ISB, European Space Brokers
S.A. and ISB Asia/Pacific Pte Limited.
127
<PAGE>
SCHEDULE 9
ARRANGEMENTS RELATING TO THE ESCROW AMOUNT
1 The Escrow Amount is to be retained in the Escrow Account and shall
only be released in accordance with the provisions hereof. The
Escrow Account shall be opened and maintained at the Vendors'
Solicitors bank and shall be opened on the signature of not less
than one partner of each of the Vendors' Solicitors and the
Purchaser's Solicitors.
2 Subject as hereinafter mentioned the parties shall join in procuring
the Vendors' Solicitors and the Purchaser's Solicitors to procure
that the whole of the monies standing to the credit of the Escrow
Account together with any interest earned thereon shall become
payable to the Vendors' Solicitors (whose receipt shall be a good
discharge therefor) for the account of the Vendors on such date as
is 12 months after the Completion Date ("the Payment Date"). The
Purchaser and the Purchaser's Solicitors shall have no obligation as
to the distribution or allocation of any amount so paid between the
Vendors.
3 If prior to the Payment Date the Purchaser shall notify the Vendors'
Solicitors in writing of any claim under any of the provisions of
this Agreement or the Taxation Deed the Vendors' Solicitors and the
Purchaser's Solicitors shall retain in the Escrow Account whichever
is the lesser of:
(a) the whole of the monies standing to the credit of the
Escrow Account; and
(b) the aggregate amount claimed as aforesaid
and the balance (if any) shall then become payable as aforesaid on
the Payment Date.
4 (a) In the event that any monies shall be retained in the
Escrow Account after the Payment Date as aforesaid, the
Vendors' Solicitors and the Purchaser's Solicitors shall
continue to hold such monies in the Escrow Account
pending the settlement or resolution of any claim so
made.
(b) On any claim having been settled or resolved and the
amount payable thereunder determined, the Vendors'
Solicitors and the Purchasers' Solicitors shall pay to
the Purchaser out of the Escrow Account an amount equal
to the amount so payable together with any interest
earned thereon (insofar as there shall be sufficient
standing to the credit of the Escrow Account).
(c) Any amount standing to the credit of the Escrow Account
after settlement or resolution of all claims made as
aforesaid shall be payable to the Vendors' Solicitors
(whose receipt shall be a good discharge therefor) for
the account of the Vendors.
128
<PAGE>
5 The payment of any sum to the Purchaser and/or any Group Company
pursuant to this schedule in or towards satisfaction of any claim
under the terms of this Agreement or the Taxation Deed shall in no
way prejudice or affect any other rights or remedies of the
Purchaser or any Group Company for the purpose of recovering any
amount due to the Purchaser or any Group Company and not satisfied
by payment made out of the First Escrow Account.
6 For the purposes of this schedule 9 and save where a claim is made
under the Taxation Deed:
(a) any claim notified under paragraph 3 shall be deemed to
have been withdrawn if legal proceedings have not been
issued and served in respect thereof within 12 months of
the claim being so notified;
(b) a claim shall be deemed to be settled upon the Vendors
and the Purchaser agreeing a final settlement thereof
and a claim shall be deemed to be resolved upon an order
or decree of a Court of competent jurisdiction being
given in proceedings in respect of the claim and such
order or decree being final and not or no longer
appealable;
(c) the amount determined to be payable upon the settlement
or resolution of the claim shall be the amount agreed by
the Vendors and the Purchaser under any such settlement
or determination by any such order or decree (as the
case may be) to be payable by the Vendors in respect
thereof.
129
<PAGE>
SIGNED by............. )
as the duly apointed attorney of )
ISLAND TRUSTEES LIMITED )
(as trustee of the settlement dated )
15 October 1987 by M.A. Hemmings) ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
A. MACFADYEN (as trustee for: the )
settlement dated 15 October 1987 by )
M.A. Hemmings; the settlement dated )
15 October 1987 by B.J. Warren; the )
settlement dated 16 October 1987 by )
J.H. Howes; the settlements all dated )
2 March 1999 made by B.J. Warren for )
each of G.C. Warren, L.P. Warren, ) ........................
M.R. Warren and N.K. Warren)
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
R. WIGHTMAN (as trustee of the )
settlement dated 15 October 1987 )
by M.A. Hemmings) ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
THOMAS JOSEPH ADAMS ) ........................
in the presence of:
130
<PAGE>
SIGNED by ............ )
as the duly appointed attorney of )
R.D. HUDSON (as trustee for: the )
settlement dated 15 October 1987 )
by B.J. Warren; the settlement dated )
16 October 1987 by J.H. Howes; the )
settlements all dated 2 March 1999 )
made by B. J. Warren for each )
of G.C. Warren, L.P. Warren, M.R. Warren ) ........................
and N.K. Warren) in the presence of: )
SIGNED by ............ )
as the duly appointed attorney of )
S.M. WARREN (as trustee for: the )
settlement dated 15 October 1987 )
by B.J. Warren; the settlements all dated )
2 March 1999 made by B.J. Warren for each )
of G.C. Warren, L.P. Warren, M.R. Warren ) ........................
and N.K. Warren) in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
A.J. BAULF (as trustee for: the )
settlement dated 16 October 1987 )
by J.H. Howes and the settlement dated ) ........................
7 July 1999 by J Hyem) in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
MALCOLM BERNARDES ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
MARIA JANE BRYANT ) ........................
in the presence of:
131
<PAGE>
SIGNED by ............ )
as the duly appointed attorney of )
PAULINE CHAPMAN ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
BRIAN L. COLESBY ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
MARGARET ISOBEL COLLINS ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
DAVID JOHN DAVIES ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
STEVEN V. EAGLE ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
MICHAEL W. GAMBLE ) ........................
in the presence of:
132
<PAGE>
SIGNED by ............ )
as the duly appointed attorney of )
MARTIN HOWARD GREEN ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
ROGER CHARLES GROVER ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
PAUL HARRISON ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
STEVEN HART ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
MICHAEL ALEXANDER HEMMINGS ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
DAVID FRANCIS HOWARD ) ........................
in the presence of:
133
<PAGE>
SIGNED by ............ )
as the duly appointed attorney of )
DOLORES ANN HOWES ) ........................
in the presence of:
SIGNED by ............ )
JOHN HARRISON HOWES ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
CAROLINE HYEM ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
JOHN HYEM ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
CAROLINE HYEM (as trustee of the )
settlement dated 7 July 1999 by J. Hyem) ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
JOHN HYEM (as trustee of the )
settlement dated 7 July 1999 by J. Hyem) ) ........................
in the presence of:
134
<PAGE>
SIGNED by ............ )
as the duly appointed attorney of )
LOUISE CLAIRE JONES ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
ALLAN KENNEDY ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
PATRICIA LLOYD )
(as executrix of Christopher Lloyd) ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
DAVID WILLIAM LONG ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
RICHARD JOHN MAHONEY ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
CHRISTOPHER MILLS ) ........................
in the presence of:
135
<PAGE>
SIGNED by ............ )
as the duly appointed attorney of )
JULIA ANNE MILLS ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
LESLIE GUY MARK MORANT ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
PETER THOMAS OSBORNE ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
GEORGE ALAN PACKER ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
HOWARD DOUGLAS ARTHUR RIGG ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
LYNDA ANN ROBERTS ) ........................
in the presence of:
136
<PAGE>
SIGNED by ............ )
as the duly appointed attorney of )
DAVID JAMES SALES ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
PETER DAVID SHELLARD ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
CLIVE PATRICK GILES SMITH ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
MARTIN PAUL SPENCER ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
BRADLEY H J START ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
GERARD WILLIAM STONE ) ........................
in the presence of:
137
<PAGE>
SIGNED by ............ )
B.J. WARREN (as trustee of the Employee )
Share Option Scheme) ) ........................
in the presence of:
SIGNED by ............ )
J. HOWES (as trustee of the Employee )
Share Option Scheme) ) ........................
in the presence of:
SIGNED by ............ )
BERNARD JAMES WARREN ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
ELIZABETH ANNE WARREN ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
GUY CHARLES WARREN ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
JOANNA WARREN ) ........................
in the presence of:
138
<PAGE>
SIGNED by ............ )
as the duly appointed attorney of )
LEWIS PATRICK WARREN ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
MEL RICHARD WARREN ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
NEIL KENNETH WARREN ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
SHEILA MARY WARREN ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
MICHAEL DAVID WILLIAMS ) ........................
in the presence of:
SIGNED by ............ )
as the duly appointed attorney of )
ALAN WOOD ) ........................
in the presence of:
139
<PAGE>
SIGNED by......... )
for and on behalf of )
E W BLANCH LIMITED ) ........................
in the presence of: Director
140
EXHIBIT 13
1999 ANNUAL REPORT
STOCK LISTING AND TRADING INFORMATION
The common stock of E.W. Blanch Holdings, Inc. is traded on the New York Stock
Exchange under the symbol "EWB". The following table sets forth high, low and
closing prices and the amounts of cash dividends per common share for E.W.
Blanch Holdings, Inc. common stock for each quarter of 1999 and 1998.
Market Price and Dividends
Dividends
Quarter Ended High Low Close Per Share
- ----------------------------------------------------------------------
1999
March 31 58 1/2 46 1/16 52 1/2 $ 0.12
June 30 68 3/4 51 1/4 68 3/16 $ 0.12
September 30 71 7/16 62 15/16 65 1/8 $ 0.12
December 31 64 3/4 52 3/8 61 1/4 $ 0.14
Year $ 0.50
1998
March 31 38 3/8 33 5/16 38 3/8 $ 0.10
June 30 38 1/2 35 36 3/4 $ 0.12
September 30 38 11/16 34 7/8 38 11/16 $ 0.12
December 31 47 7/16 36 1/2 47 7/16 $ 0.12
Year $ 0.46
- ----------------------------------------------------------------------
As of December 31, 1999, there were 297 registered shareholders of
E.W. Blanch Holdings, Inc. common stock.
<PAGE>
SIX YEAR FINANCIAL SUMMARY
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS:
REVENUES:
Operations $235,439 $203,613 $158,103 $101,905 $ 87,203 $ 75,917
Interest income 9,021 9,109 8,694 7,133 7,733 4,801
- -----------------------------------------------------------------------------------------------------------------------------------
Total revenues 244,460 212,722 166,797 109,038 94,936 80,718
EXPENSES:
Salaries and benefits 95,581 92,652 75,908 44,762 39,738 32,458
Travel and marketing 16,388 15,671 13,681 7,569 6,112 4,914
General and administrative 48,724 38,147 29,711 20,387 15,965 12,964
Amortization of goodwill 3,295 3,237 3,009 3,078 2,980 1,307
Interest and other expense 1,565 1,685 1,326 231 351 397
Restructuring charge (2) -- -- -- 22,750 -- --
- -----------------------------------------------------------------------------------------------------------------------------------
Total expenses 165,553 151,392 123,635 98,777 65,146 52,040
- -----------------------------------------------------------------------------------------------------------------------------------
Income before taxes (2) 78,907 61,330 43,162 10,261 29,790 28,678
Income taxes 32,137 24,741 17,008 3,970 11,584 11,615
- -----------------------------------------------------------------------------------------------------------------------------------
Net income before minority interest and equity
interest in loss of unconsolidated subsidiaries 46,770 36,589 26,154 6,291 18,206 17,063
Minority interest, net of tax 197 995 451 -- -- --
Equity interest in loss of unconsolidated subsidiaries, net of tax 6,863 3,831 -- -- -- --
===================================================================================================================================
Net Income (2) $ 39,710 $ 31,763 $ 25,703 $ 6,291 $ 18,206 $ 17,063
===================================================================================================================================
PER COMMON SHARE:
Earnings - basic (2) (3) $ 3.07 $ 2.51 $ 2.03 $ 0.48 $ 1.34 $ 1.22
Earnings - assuming dilution (2) (3) 2.89 2.42 1.99 0.48 1.34 1.22
Cash dividends (1) 0.50 0.46 0.40 0.40 0.40 0.32
Book value 11.81 8.62 6.08 5.16 5.05 3.88
===================================================================================================================================
BALANCE SHEET:
Current assets $ 77,905 $ 62,247 $ 51,381 $ 35,840 $ 25,055 $ 17,836
Long-term investments 32,322 18,427 14,939 9,793 7,035 15,837
Investment in unconsolidated subsidiaries 7,948 20,014 -- -- -- --
Intangibles, net (2) 84,226 30,425 34,916 17,490 38,939 41,575
Total assets 1,231,865 933,256 919,767 514,756 497,413 529,897
Current liabilities 97,916 48,335 37,033 13,154 13,620 21,107
Long-term debt, less current portion 249 557 13,675 1,188 350 665
Shareholders' equity 156,935 110,637 76,452 68,453 66,679 52,908
===================================================================================================================================
FINANCIAL RATIOS:
Profit margin (pre-tax) (2) 32% 29% 26% 9% 31% 36%
Return on average shareholders' equity (2) 30% 34% 35% 9% 30% 31%
===================================================================================================================================
OTHER:
Weighted average number of shares
outstanding (000) (3)
Basic 12,938 12,678 12,656 13,220 13,558 14,007
Assuming dilution 13,762 13,146 12,945 13,230 13,590 14,007
Number of shares outstanding at year-end (000) 13,288 12,842 12,580 13,260 13,208 13,647
Closing market price per share $ 61.25 $ 47.44 $ 34.44 $ 20.13 $ 23.38 $ 20.63
Number of employees at year-end 1,291 1,164 1,130 648 566 603
===================================================================================================================================
</TABLE>
(1) Regular quarterly cash dividend of $0.08 per share initiated fourth quarter
1993; increased to $0.10 in the first quarter 1995; increased to $0.12 in the
second quarter 1998 and increased to $0.14 in the fourth quarter of 1999. Cash
dividends were declared and paid in the same fiscal year.
(2) A $22.75 million charge was recognized in 1996 to reflect the restructuring
of the San Antonio based managing general agency operation. The charge includes
a $19.5 million write-down of goodwill as well as a $3.25 million reserve for
office lease and other related restructuring expenses. Prior to the
restructuring charge, certain 1996 operating results were: Income before taxes,
$33.0 million; Net income, $20.2 million; Net income per share, $1.53; Profit
margin (pre-tax), 30%; and Return on average shareholders' equity, 27%.
(3) The earnings per share amounts prior to 1997 have been restated as required
to comply with Statement of Financial Standards No. 128, Earnings per Share. For
further discussion of earnings per share and the impact of Statement No. 128,
see the notes to the consolidated financial statements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
E.W. Blanch Holdings, Inc. and subsidiaries ("the Company") is a leading
provider of integrated risk management and distribution services, including
reinsurance intermediation and technical, analytical and financial consulting
services.
MAJOR DEVELOPMENTS
Acquisitions
In the third quarter of 1999, the Company acquired JD Warren, Inc., a
Pittsburgh, Pennsylvania based services company specializing in the
identification and recovery of outstanding third-party deductibles for the
insurance industry. Also in the third quarter of 1999, the Company purchased the
thirty percent of its international joint venture, Swire Blanch Insurance
(Holdings) Ltd., it did not previously own. Swire Blanch Insurance (Holdings)
Ltd. is now a wholly owned subsidiary of the Company and has been renamed E.W.
Blanch Holdings Ltd.
In the fourth quarter of 1999, the Company acquired Crawley Warren Group Ltd., a
leading Lloyd's broker and provider of special risk management services around
the world. Also in the fourth quarter of 1999, the Company acquired Michael V.
Mahoney Insurance Brokers Pty Ltd., an Australian general retail broker. The
Company accounts for all of the 1999 acquisitions under the purchase method of
accounting.
Strategic Investments
In the first quarter of 1999, the Company made an equity investment in Russell
Miller Advisors Asia, LLC ("RMAA"). RMAA is an insurance specialty investment
banking firm that makes equity investments in Asian insurance and financial
services industries. The Company accounts for RMAA under the equity method as an
unconsolidated subsidiary.
In the fourth quarter of 1999, the Company made an equity investment in Ward
North America Holding, Inc. ("Ward"). Ward is a provider of integrated
outsource claims solutions in the United States and Canada. The Company accounts
for Ward as a long-term investment.
NATURE OF BUSINESS
Domestic Operations
Domestic operations provide risk management and distribution services to
insurance and reinsurance companies. These services are sold both on bundled and
component bases. Major components provided include reinsurance intermediation
and technical and analytical consulting services. These services are generally
recurring and due to its expertise and the value-added nature of its services,
the Company has been able to generate relatively high operating margins. Also,
domestic operations include the operations of the holding company.
<PAGE>
Risk Management and Distribution Services
Reinsurance Intermediation
As a reinsurance intermediary, the Company structures and arranges reinsurance
between insurers seeking to cede insurance risks and reinsurers willing to
assume such risks.
The Company earns revenues from the structuring, placement and servicing of
reinsurance, primarily on a treaty basis. The Company is a significant
intermediary in the property catastrophe and casualty reinsurance markets.
Catastrophe reinsurance indemnifies a ceding company against a catastrophic loss
resulting from a single event such as a hurricane, earthquake or tornado.
Casualty reinsurance indemnifies a ceding company for a specified loss caused by
injuries to third parties including resulting legal liability. The Company's
activities in the casualty reinsurance arena relate primarily to professional
liability, workers' compensation and specialized casualty exposures underwritten
by excess and surplus lines insurance carriers.
Technical and Analytical Consulting Services
The Company provides technical and analytical consulting services primarily to
insurance and reinsurance companies, government entities and underwriting
facilities. Such services are generally provided as part of the Company's core
reinsurance intermediation function, but are also marketed on a component basis.
Services include product development, facility administration, strategic
reinsurance program reviews, actuarial services, catastrophe exposure management
and analysis, and run-off management. The Company's Catalyst(R) risk modeling
software is a proprietary technology which provides a competitive advantage in
these consulting services.
The Company also provides financial consulting services, tailored reinsurance
products and capital markets products designed to assist its clients in capital
preservation and risk management.
Foreign Operations
The Company's foreign operations include E.W. Blanch Ltd., an international risk
management and distribution services firm headquartered in London, England. E.W.
Blanch Ltd. includes the operations previously carried out by Swire Blanch
Insurance (Holdings) Ltd. and the operations of Crawley Warren Group Ltd.
acquired in November 1999. These operations include a registered Lloyd's of
London insurance and reinsurance broker, now trading as Blanch Crawley Warren
Ltd., and international intermediary operations. Through E.W. Blanch Consulting
Ltd., it also provides financial consulting services through the sale of its
benefits administration products, principally to companies in the technology
sector. International intermediary services include retail insurance operations
located in Hong Kong. Approximately 78% of E.W. Blanch Ltd.'s revenues are
generated in the United Kingdom with the remainder primarily from the Pacific
Rim. The Company's foreign operations have relatively lower profit margins than
its domestic operations. This is due to a number of factors including
competitive market conditions for Lloyd's brokers, the small, start-up nature of
many of the international offices, the competitiveness of the insurance
brokerage business, and the amortization of goodwill associated with the
purchase of E.W. Blanch Ltd. The Company seeks to grow its international
profitability through the integration of systems, services and expertise in
order to increase revenue production and processing efficiencies.
<PAGE>
Interest Income
The Company's interest income is derived from two sources: fiduciary investments
and corporate investments. As an intermediary, the Company acts as a conduit for
insurance and reinsurance premiums and loss payments that are paid to and
remitted from clients and reinsurers. Under applicable regulations, the Company
is required to hold fiduciary funds in appropriate bank and investment accounts
subject to restrictions on withdrawals and prohibitions on commingling. The
Company earns interest income on funds held in these accounts. Corporate
interest income represents interest and dividends earned on the investment of
the Company's capital, which is primarily generated from operations.
Year 2000 Issue
The Company has completed all work to bring its information technology ("IT")
systems in compliance with the year 2000. The Company has not experienced or
been notified of any year 2000 issue or problem. The costs incurred by the
Company to bring its IT systems in compliance with the year 2000 were less than
$2 million in total and management does not expect to incur material
expenditures in the future related to the year 2000 issue.
European Monetary Unit
The Company has initiated an analysis of the new European Monetary Unit ("EMU")
and its effects on the Company's business processes and IT system requirements.
The Company's core back office processing and financial systems are currently
capable of handling multiple currencies and will, therefore, be able to handle
the EMU as another currency. However, it is likely that the Company will have to
modify its systems to accommodate decimalization and rounding issues, currency
conversions, and the new reporting requirements of the EMU. The Company has
contracted with an outside consulting firm to develop further detailed business
and consequent IT requirements for each phase of the EMU changeover. This study
has been completed and a three-year project plan was approved by the Company's
audit committee in the second quarter of 1999. The Company's management believes
that the costs associated with upgrading IT systems and the impact on business
processes will be immaterial to the Company's results of operations, liquidity
and financial condition.
Unicover Litigation and Workers' Compensation Reinsurance Issues
The workers' compensation reinsurance industry was impacted in 1999 by certain
events principally surrounding an entity called Unicover Managers, Inc.
("Unicover"). Unicover served as a managing general underwriter for various
insurance companies that provided reinsurance coverage to the workers'
compensation primary insurance industry. It has been alleged that Unicover, on
behalf of companies it represented, assumed reinsurance exposures at prices and
volume levels that were imprudent for those companies and their
retrocessionaires, and that correspondingly were advantageous to the customers
who procured reinsurance coverage through Unicover. Various clients of the
Company, employing the Company's reinsurance intermediary services, procured
workers' compensation reinsurance coverage through Unicover in late 1998 and
early 1999.
One client that the Company assisted in procuring reinsurance through Unicover
was the "AIG"
<PAGE>
group of insurance companies. A lawsuit was commenced in 1999 relating to that
reinsurance program. The Company is the third-party defendant and cross-claimant
in that litigation, which is described in more detail in Note 14 to the
Consolidated Financial Statements included herein. Management does not expect,
based on current information, that this litigation will have a material adverse
impact on the financial position or results of operations of the Company.
The Company also assisted various other clients in procuring workers'
compensation reinsurance coverage with Reliance Insurance Company ("Reliance"),
managed by Unicover. In 1999, Reliance engaged in negotiations with those
clients of the Company, to settle Reliance's reinsurance obligations to those
clients of the Company. In January 2000, Reliance announced that those
settlement negotiations had been successfully concluded. Also in January 2000,
Reliance and the Company reached an agreement in principle concerning the
Company's brokerage revenue associated with these settled reinsurance
placements. As a result of this agreement, the Company will not experience any
material adverse impact with respect to revenues the Company has previously
recognized for these placements.
The Company also assisted another client company, EBI Indemnity Company ("EBI"),
in procuring workers' compensation reinsurance coverage through Unicover. The
Company has been advised that the reinsurance companies represented by Unicover
settled their obligations to EBI in January 2000. To date, the Company has not
reached an agreement with EBI or those reinsurers concerning the Company's
brokerage revenues associated with this reinsurance program, although
discussions are ongoing. In 1999, the Company recognized revenue for this
program in accordance with its standard revenue recognition practices, through
the third quarter of 1999. Some, but not all, of that recognized revenue has
been received by the Company. If the Company is not successful in negotiating a
satisfactory resolution of its right to brokerage for the EBI reinsurance
program, it intends to pursue its legal remedies to enforce its rights.
The Company also assisted a client, Superior National Insurance Group ("SNIG"),
in procuring workers' compensation reinsurance coverage. This coverage was
procured through a competitor of Unicover, WEB Management LLC ("WEB"), which
represented a reinsurer named United States Life Insurance Co. of the City of
New York ("U.S. Life"). The Company is advised that U.S. Life in late 1999
commenced an arbitration proceeding against SNIG. The Company is advised that
U.S. Life alleges, possibly among other things, that this reinsurance program
should be rescinded, for alleged non-disclosure of material information. The
Company is not a party to this arbitration proceeding. However, it is possible
that in the event U.S. Life is successful in that proceeding, the Company may be
required to return reinsurance brokerage previously received and recognized. If
the Company were required to return all of its previously recognized and
received brokerage for this program, the amount would have a material adverse
impact on the Company's financial position and results of operations. However,
based on currently available information, the Company does not believe that this
is likely to occur.
Seasonality
The Company has historically realized a greater amount of its core annual
brokerage revenue and net income in the first and third quarters due primarily
to semi-annual deposits on property catastrophe reinsurance contracts. The
Company's technical and analytical consulting services are generally not
seasonal in nature. Based upon these factors, and given the increased
<PAGE>
significance of these non-seasonal revenue sources, management believes that
historical quarterly results may not be indicative of future period results.
Geographic Segment Information
The following is a summary of revenues and income before taxes by geographic
segment for the years ended December 31:
Income
(IN THOUSANDS) Revenues Before Taxes
- ----------------------------------------------------------
1999
Domestic operations $ 185,015 $ 69,110
Foreign operations 59,445 9,797
- ----------------------------------------------------------
$ 244,460 $ 78,907
==========================================================
1998
Domestic operations $ 162,829 $ 56,047
Foreign operations 49,893 5,283
- ----------------------------------------------------------
$ 212,722 $ 61,330
==========================================================
1999 COMPARED TO 1998
Operating Revenue
The following are the components of operating revenue for the years ended
December 31:
(IN THOUSANDS) 1999 1998
- ----------------------------------------------------------
Domestic operations $ 178,242 $ 156,340
Foreign operations 57,197 47,273
- ----------------------------------------------------------
$ 235,439 $ 203,613
==========================================================
For the year ended December 31, 1999, domestic operating revenue increased $21.9
million, or 14.0% from the prior year primarily as a result of new client
production, recognition of a $3.5 million gain from the sale of the Clarendon
National Florida Personal Lines program to Tower Hill Insurance Group, Inc. in
the first quarter of 1999 and the acquisition of JD Warren, Inc. in September
1999.
Foreign operating revenue increased $9.9 million, or 21.0% from the prior year
primarily as the result of new production, the acquisition of Dunn & Carter Ltd.
in July 1998 and the acquisition of Crawley Warren Group Ltd. in November 1999.
<PAGE>
Interest Income
The following are the components of interest income for the years ended December
31:
(IN THOUSANDS) 1999 1998
- ----------------------------------------------------------
Domestic operations $ 6,773 $ 6,489
Foreign operations 2,248 2,620
- ----------------------------------------------------------
$ 9,021 $ 9,109
==========================================================
Interest income decreased by $0.1 million, or 1%, for the year ended December
31, 1999, as compared to the prior year.
Expenses
Domestic operating expenses increased $9.1 million to $115.9 million or 8.5%,
for the year ended December 31, 1999 compared to $106.8 million the prior year.
The increase is due primarily to increased general and administrative expenses
from increased business levels. General and administrative expenses also include
a reserve for a portion of the brokerage recognized in 1998 for the placement of
certain workers' compensation reinsurance contracts for the AIG Companies,
because the validity of those placements has been placed into question in a
judicial proceeding as described in more detail in Note 14 to the Consolidated
Financial Statements. Similarly, a portion of the revenues for those placements,
which otherwise would have been recognized in 1999, was not recognized, for the
same reasons.
Foreign operating expenses increased $5.0 million to $49.6 million or 11.3%, for
the year ended December 31, 1999 compared to $44.6 million the prior year. The
increase is due primarily to increased business levels and the acquisition of
Dunn & Carter Ltd. in July 1998 and the acquisition of Crawley Warren Group Ltd.
in November 1999. These increases were partially offset by the sale of two
non-strategic subsidiaries of E.W. Blanch Holdings Ltd. in the second quarter of
1999.
Equity in Net Loss of Unconsolidated Subsidiaries
Equity in net loss of unconsolidated subsidiaries increased $3.0 million to $6.9
million, or 79.1% for the year ended December 31, 1999 compared to $3.8 million
the prior year. The primary reason is the start up nature of the Company's
equity investment in Insurance Holdings of America, Inc. ("IHA"). As of December
31, 1999, the Company has reduced its pre-tax basis in IHA to zero. No future
operation losses of IHA, if any, will be recognized by the Company until its
pre-tax basis becomes positive.
Profit Margins
Operating profit margins, calculated as income before taxes and allocation of
central costs as a percentage of total revenues, were 36.1% for domestic
operations for the year ended December 31, 1999, compared to 33.2% for the same
period in the prior year.
<PAGE>
Operating profit margins were 20.4% for foreign operations for the year ended
December 31, 1999, compared to 14.4% for the same period in the prior year.
Income Taxes
The Company's combined federal and state effective tax rate is 40.7% for the
year ended December 31, 1999, compared to 40.3% for the same period the prior
year. The Company's effective tax rate for domestic and foreign operations for
the year ended December 31, 1999 was 40.9% and 39.3%, respectively.
1998 COMPARED TO 1997
Operating Revenue
The following are the components of operating revenue for the years ended
December 31:
(IN THOUSANDS) 1998 1997
- ----------------------------------------------------------
Domestic operations $ 156,340 $ 122,461
Foreign operations 47,273 35,642
- ----------------------------------------------------------
$ 203,613 $ 158,103
==========================================================
For the year ended December 31, 1998, domestic operating revenue increased $33.9
million, or 27.7% from the prior year, primarily as a result of new client
production and a one time gain of $1.0 million before tax, associated with the
disposition of the Company's operations in San Antonio, Texas and other selected
assets.
Foreign operating revenue increased $11.6 million, or 32.6% from the prior year,
primarily as the result of new production and the inclusion of twelve months of
activity in 1998, as compared to eleven months of activity in 1997, due to the
acquisition of Swire Blanch in February 1997. Also, contributing to the increase
is the acquisitions of Walbaum Americana S.A. and Dunn & Carter Ltd. in 1998.
Interest Income
The following are the components of interest income for the years ended December
31:
(IN THOUSANDS) 1998 1997
- ----------------------------------------------------------
Domestic operations $ 6,489 $ 6,494
Foreign operations 2,620 2,200
- ----------------------------------------------------------
$ 9,109 $ 8,694
==========================================================
Interest income increased by $0.4 million, or 4.8%, for the year ended December
31, 1998 as compared to the prior year. The increase is due primarily to larger
balances held in fiduciary funds from foreign operations coupled with increased
yields for those funds.
<PAGE>
Expenses
Domestic operating expenses increased $16.2 million to $106.8 million or 17.9%,
for the year ended December 31, 1998, compared to $90.6 million the prior year.
The increase is due primarily to increased salary and benefits expenses of $10.0
million, or 18.4% due to normal salary progression and business acquisitions
partially offset by the sale of the Company's general agency operations in the
second quarter of 1998. Domestic operations also experienced increases in travel
and marketing, and general and administrative expenses. The increased general
and administrative expense is partially due to the consolidation of the
Company's international corporate headquarters to Dallas, Texas in 1998,
increased software amortization and loss on sale of fixed assets from the
disposition of the general agency operations.
Foreign operating expenses increased $11.6 million to $44.6 million or 35.1%,
for the year ended December 31, 1998, compared to $33.0 million the prior year.
Similar to domestic operations, the increase is due primarily to increased
salary and benefits expenses of $6.8 million, or 31.3% due to acquisitions,
business expansion and normal salary progression. In addition, the increase is
caused by twelve months of activity in 1998 as compared to eleven months in 1997
due to the acquisition of Swire Blanch in February 1997.
Profit Margins
Operating profit margins, calculated as income before taxes and allocation of
central costs as a percentage of total revenues, were 33.2% for domestic
operations for the year ended December 31, 1998, compared to 29.7% for the same
period in the prior year.
Operating profit margins were 14.4% for foreign operations for the year ended
December 31, 1998, compared to 12.7% for the same period in the prior year.
Income Taxes
The Company's combined federal and state effective tax rate is 40.3% for the
year ended December 31, 1998 compared to 39.4% for the same period the prior
year. The increase in the tax rate is due to changes in the apportionment of
state taxes and taxes on foreign operations. The Company's effective tax rate
for domestic and foreign operations for the year ended December 31, 1998 was
40.6% and 37.9%, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company's sources of funds consist primarily of brokerage commissions and
fees and interest income. Funds are applied generally to the payment of
operating expenses, the purchase of equipment used in the ordinary course of
business, the repayment of outstanding indebtedness, and the distribution of
earnings. The Company's cash and cash equivalents were $6.7 million at December
31, 1999, compared with $0.7 million in the prior year.
The Company generated $49.2 million of cash from operations in 1999, compared
with $45.7 million in 1998. The increase in operating cash flow in 1999 is
primarily due to the increase in
<PAGE>
net income compared to the prior year partially offset by the timing of changes
in operating assets and liabilities.
Cash flow used in investing activities was $89.5 million in 1999. During 1999,
the Company used $19.8 million of cash for the purchase of property and
equipment, primarily computer systems. The Company used $59.8 million, net of
cash acquired, to acquire the following consolidated and unconsolidated
subsidiaries during 1999: Crawley Warren Group Ltd., JD Warren, Inc., remaining
30% of Swire Blanch Insurance (Holdings) Ltd., not previously owned by the
Company, Michael V. Mahoney Insurance Brokers Pty Ltd. and a 50% interest in
Russell Miller Advisors Asia, LLC. The Company used $16.0 million for the
purchase of investments and received proceeds from the sale of investments of
$5.1 million. The Company received $4.3 million in proceeds from the sale of two
non-strategic subsidiaries of E.W. Blanch Holdings Ltd. in the second quarter of
1999. The Company recognized an immaterial gain in connection with this
disposition.
Cash flow provided by financing activities was $46.3 million in 1999. During
1999, the primary sources of cash from financing activities were proceeds of
$48.2 million from net borrowings on lines of credit and $7.6 million from the
issuance of treasury shares used to fund employee benefit plans. The primary
uses of cash were $6.4 million of dividends paid to shareholders and $3.2
million for the purchase of treasury stock.
The Company's long-term investment portfolio at December 31, 1999 was $32.3
million, which is comprised of equity and debt investments. The market value of
the Company's investment portfolio at December 31, 1999 was $3.2 million greater
than amortized cost. The Company's investment in unconsolidated subsidiaries at
December 31, 1999 was $7.9 million. The Company's trading portfolio at December
31, 1999 was $5.1 million, which is comprised of debt investments. The market
value of the Company's trading portfolio at December 31, 1999 was $0.2 million
below amortized cost. Cash, investments and the Company's lines of credit are
available and managed for the payment of its operating and capital expenditures.
The Company is not subject to any significant regulatory capital requirements in
connection with its business.
The Company has a $100 million unsecured revolving credit facility with several
banks that will be used to fund general corporate requirements. The facility,
which expires in 2001, carries market rates of interest, which may vary
depending upon the Company's degree of leverage. Commitment fees of .200% to
.375% are payable on any unused portion. The facility contains several financial
covenants and restrictions related to acquisitions, payment of dividends and
sales of assets. Covenants contained in the agreement require the Company to
exceed minimum levels of net worth and meet a fixed charge ratio. The Company is
currently in compliance with all of its covenants governing its indebtedness.
The Company had $57.8 million outstanding under this facility as of December 31,
1999, at a rate of 6.9%. This was used primarily for the acquisition of Crawley
Warren Group Ltd. in the fourth quarter of 1999.
The Company also has a (pound)7.0 million secured revolving credit facility,
which translates to $11.3 million at December 31, 1999. As of December 31, 1999,
the Company had no outstanding balance under this facility. This facility is
secured by a guarantee from E.W. Blanch Holdings, Inc. The interest rate is
0.32% above the London Inter Bank Offer Rate ("LIBOR"). In addition, the Company
has a HK$7.1 million secured revolving credit facility, which translates to $0.9
million at December
<PAGE>
31, 1999. This facility is secured by a guarantee from E.W. Blanch Holdings,
Inc. As of December 31, 1999, the Company had $0.9 million outstanding under
this facility. The interest rate is 0.32% above the Hong Kong Inter Bank Offer
Rate ("HIBOR"). Also, the Company has a HK$5.0 million secured revolving credit
facility, which translates to $0.6 million at December 31, 1999. This facility
is secured by a guarantee from E.W. Blanch Holdings, Ltd. As of December 31,
1999, the Company had $0.6 million outstanding under this facility. The interest
rate is 0.32% above HIBOR.
The Company paid a quarterly dividend of $0.10 per share in the first quarter of
1998. In April 1998, the Board of Directors increased the quarterly dividend to
$0.12 per share. In October 1999, the Board of Directors increased the quarterly
dividend to $0.14 per share. The Company intends to continue paying quarterly
dividends subject to declaration by the Board of Directors.
The Company believes that its cash and investments, combined with its borrowing
facilities and internally generated funds, will be sufficient to meet its
present and reasonably foreseeable long-term capital needs.
MARKET RISK
The Company is exposed to market risk from changes in interest rates and changes
in foreign currency exchange rates as measured against the United States dollar.
The Company believes its exposure to market risk in certain geographic areas
that have experienced or are likely to experience an economic downturn, such as
the Pacific Rim and Latin America, is minimal. The Company has established
policies, procedures and internal processes governing its management of market
risks and the use of financial instruments to manage its exposure to all such
risks.
The Company is exposed to market risk for changes in interest rates related to
the increase or decrease in the amount of investment income the Company can earn
on its fixed income investment portfolios. The Company invests in high-credit
quality issuers and, by policy, limits the amount of credit exposure to any one
issuer. As stated in its policy, the Company maximizes the safety and
preservation of its invested principal funds by limiting default risk, market
risk and reinvestment risk. The Company mitigates default risk by investing in
safe and high-credit quality securities. These portfolios include only
marketable securities with active secondary or resale markets to ensure
portfolio liquidity. The Company does not use derivative financial instruments
in its investment portfolios. A large portion of the Company's financial
instruments are in fiduciary securities classified as fiduciary assets on the
Company's balance sheet. Fiduciary fund investments carry interest rate risk to
the Company because they generate interest revenues to the Company.
The Company has various fiduciary assets in several countries other than the
United States and Great Britain. The balances in these assets are very small in
each country and any foreign currency rate fluctuation would have an immaterial
effect on the Company's results. At December 31, 1999, the aggregate amount of
these assets was $18.8 million.
Additionally, the Company is exposed to interest rate risk through its
borrowings under its secured and unsecured revolving credit facilities.
Information about the Company's borrowing arrangements, including principal
amounts and related interest rates, appears in Note 7 to the Consolidated
Financial Statements included herein.
<PAGE>
Exposure to variability in foreign currency exchange rates is managed, where
possible, through the use of natural hedges, whereby funding obligations and
assets are entered in matched currencies. The Company, from time to time, enters
into foreign currency exchange forward agreements to manage its British pound
exposure arising from fluctuating exchange rates. As the Company expands
globally, the risk of foreign currency exchange rate fluctuation may increase.
If that occurs, the Company will consider appropriate measures to manage that
risk.
The following table summarizes the Company's interest rate and foreign currency
exchange rate sensitive financial instruments by expected maturity date as of
December 31, 1999.
<TABLE>
<CAPTION>
PRINCIPAL (NOTIONAL) AMOUNT BY EXPECTED MATURITY DATE
----------------------------------------------------------------------------------
FAIR VALUE
(U.S. $ IN THOUSANDS) 2000 2001 2002 2003 2004 THEREAFTER TOTAL 12/31/99
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE RISK:
Trading Portfolio Debt Instruments:
Fixed Rate Securities $ 338 $ 1,139 $ -- $ 452 $ 98 $ 3,326 $ 5,353 $ 5,128
----------------------------------------------------------------------------------
Average interest rate 6.00% 7.34% -- 5.89% 6.56% 7.03% 6.93% 6.93%
Non-Trading Portfolio Debt Instruments:
Domestic Fiduciary Fixed Rate Securities 49,108 10,087 8,312 2,052 1,046 -- 70,605 70,151
----------------------------------------------------------------------------------
Average interest rate 5.43% 6.95% 6.90% 7.96% 8.45% -- 5.94% 5.94%
Domestic Fiduciary Variable Rate Securities 9,752 -- -- -- -- -- 9,752 9,752
----------------------------------------------------------------------------------
Average interest rate 4.90% -- -- -- -- -- 4.90% 4.90%
Foreign Fiduciary Variable Rate Securities 94,133 -- -- -- -- -- 94,133 94,133
----------------------------------------------------------------------------------
Average interest rate 4.50% -- -- -- -- -- 4.50% 4.50%
Revolving Credit Facilities 59,360 -- -- -- -- -- 59,360 59,360
----------------------------------------------------------------------------------
Average interest rate 6.86% -- -- -- -- -- 6.86% 6.86%
- ----------------------------------------------------------------------------------------------------------------------------------
FOREIGN EXCHANGE RATE RISK:
British Pound Sterling Hedge Contracts $15,000 $ -- $ -- $ -- $ -- $ -- $15,000 $ 186
----------------------------------------------------------------------------------
Average forward foreign currency
exchange rate $ 1.598 -- -- -- -- -- $ 1.598 $ 1.598
Hong Kong Dollar Denominated
Revolving Credit Facilities 1,560 -- -- -- -- -- 1,560 1,560
----------------------------------------------------------------------------------
Average forward foreign currency
exchange rate $ 0.129 -- -- -- -- -- $ 0.129 $ 0.129
British Pound Sterling Denominated
Fiduciary Variable Rate Securities 16,330 -- -- -- -- -- 16,330 16,330
----------------------------------------------------------------------------------
Average forward foreign currency
exchange rate $ 1.618 -- -- -- -- -- $ 1.618 $ 1.618
All Other Foreign Operations Foreign Denominated
Fiduciary Variable Rate Securities 18,803 -- -- -- -- -- 18,803 18,803
----------------------------------------------------------------------------------
Average forward foreign currency
exchange rate various -- -- -- -- -- various various
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
FORWARD-LOOKING STATEMENTS
Statements other than historical information contained in this Annual Report are
considered forward-looking and involve a number of risks and uncertainties.
Forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. There are certain
important factors that could cause results to differ materially from
<PAGE>
those anticipated by some of the statements made above. Some of the factors that
could cause actual results to differ materially are the following: market
dynamics (including the workers' compensation reinsurance market as discussed on
page 25 above), interest rate changes, regulatory changes, competition, and
legal proceedings that could impact reinsurance placements facilitated by the
Company. Additional information concerning risk factors are contained in the
Company's Securities and Exchange Commission filings, including but not limited
to the current Form 10-K, copies of which are available from the Company without
charge.
<PAGE>
Report of Independent Auditors
The Board of Directors
E.W. Blanch Holdings, Inc.
We have audited the accompanying consolidated balance sheets of E.W. Blanch
Holdings, Inc. as of December 31, 1999 and 1998, and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
consolidated financial statements of Crawley Warren Group Ltd., a wholly-owned
subsidiary acquired in 1999, which statements reflect total assets of
$212,532,770 as of December 31, 1999. That balance sheet was audited by other
auditors whose report has been furnished to us, and our opinion, insofar as it
relates to the balance sheet data included for Crawley Warren Group Ltd., is
based solely on the report of the other auditors.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits and the report of other auditors
provide a reasonable basis for our opinion.
In our opinion, based on our audits and, as to the balance sheet at December 31,
1999, the report of other auditors, the financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
E.W. Blanch Holdings, Inc. at December 31, 1999 and 1998, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1999, in conformity with accounting principles
generally accepted in the United States.
Dallas, Texas
January 25, 2000
<PAGE>
REPORT OF THE AUDITORS
FOR THE YEAR ENDED DECEMBER 31 1999
TO THE MEMBERS OF CRAWLEY WARREN GROUP LIMITED
We have audited the financial statements on pages 2 to 15 which have been
prepared following the accounting policies set out on pages 4 and 5 of the
financial statements.
RESPECTIVE RESPONSIBILITIES OF DIRECTORS AND AUDITORS
As described in the Report of Directors, the Company's directors are responsible
for the preparation of financial statements. It is our responsibility to form an
independent opinion, based on our audit, on those statements and to report our
opinion to you.
BASIS OF OPINION
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements.
OPINION
In our opinion the financial statements give a true and fair view of the state
of affairs of the Company and the Group at December 31 1999 and of the profit of
the Group for the year then ended and have been properly prepared in accordance
with the Companies Act 1985.
MAZARS NEVILLE RUSSELL
Chartered Accountants and Registered Auditors
24 Bevis Marks London EC3A 7NR
January 21 2000
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Operations $ 235,439 $ 203,613 $ 158,103
Interest income 9,021 9,109 8,694
- ----------------------------------------------------------------------------------------------------------
Total revenues 244,460 212,722 166,797
EXPENSES:
Salaries and benefits 95,581 92,652 75,908
Travel and marketing 16,388 15,671 13,681
General and administrative 48,724 38,147 29,711
Amortization of goodwill 3,295 3,237 3,009
Interest expense 1,565 1,685 1,326
- ----------------------------------------------------------------------------------------------------------
Total expenses 165,553 151,392 123,635
- ----------------------------------------------------------------------------------------------------------
Income before taxes 78,907 61,330 43,162
Income taxes 32,137 24,741 17,008
- ----------------------------------------------------------------------------------------------------------
Net income before minority interest and equity interest
in loss of unconsolidated subsidiaries, net of tax 46,770 36,589 26,154
Minority interest, net of tax 197 995 451
Equity interest in loss of unconsolidated subsidiaries, net of tax 6,863 3,831 --
==========================================================================================================
Net income $ 39,710 $ 31,763 $ 25,703
==========================================================================================================
Earnings per share - basic $ 3.07 $ 2.51 $ 2.03
Earnings per share - assuming dilution 2.89 2.42 1.99
==========================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
AT DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS) 1999 1998
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 6,662 $ 707
Due from fiduciary accounts 55,423 41,551
Prepaid insurance 1,129 1,141
Investments, trading portfolio 5,128 5,245
Other current assets 9,563 13,603
- ----------------------------------------------------------------------------------------------------
Total current assets 77,905 62,247
Long-term investments 32,322 18,427
Investment in unconsolidated subsidiaries 7,948 20,014
Property and equipment, net 40,918 32,420
Intangibles, net 84,226 30,425
Other assets 18,704 8,805
Fiduciary accounts - assets 969,842 760,918
- ----------------------------------------------------------------------------------------------------
Total assets $ 1,231,865 $ 933,256
====================================================================================================
LIABILITIES, MINORITY INTEREST AND SHAREHOLDERS' EQUITY:
LIABILITIES:
Accrued compensation $ 6,037 $ 9,865
Notes payable to banks under lines of credit 59,360 11,112
Accounts payable 19,310 16,950
Current portion of long-term liabilities 308 289
Other current liabilities 12,901 10,119
- ----------------------------------------------------------------------------------------------------
Total current liabilities 97,916 48,335
Long-term debt, less current portion 249 557
Other liabilities, less current portion 6,809 9,177
Commitments and contingencies -- --
Fiduciary accounts - liabilities 969,842 760,918
- ----------------------------------------------------------------------------------------------------
Total liabilities 1,074,816 818,987
MINORITY INTEREST: 114 3,632
SHAREHOLDERS' EQUITY:
Common stock - par value $0.01 per share
(authorized 30,000,000 shares; issued and outstanding:
14,141,671 shares in 1999 and 1998) 141 141
Additional paid-in capital 64,518 56,996
Treasury stock (854,171 shares in 1999 and 1,299,714 shares in 1998) (21,446) (26,598)
Accumulated other comprehensive income:
Cumulative translation adjustment 39 53
Unrealized gain on investments, net of tax 1,636 1,274
- ----------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income 1,675 1,327
Retained earnings 112,047 78,771
- ----------------------------------------------------------------------------------------------------
Total shareholders' equity 156,935 110,637
- ----------------------------------------------------------------------------------------------------
Total liabilities, minority interest and shareholders' equity $ 1,231,865 $ 933,256
====================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31, (in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 39,710 $ 31,763 $ 25,703
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortization 12,890 12,123 8,554
Deferred income tax provision (benefit) (4,816) 8,241 233
Undistributed earnings of unconsolidated subsidiaries 6,863 3,831 --
Non-cash compensation expense 5,449 3,043 1,125
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Due from fiduciary accounts (14,347) (12,300) (11,171)
Other current assets (1,076) (6,392) (2,009)
Accrued compensation (3,828) 3,375 2,452
Accounts payable and other current liabilities 11,635 5,596 8,931
Purchases of trading portfolio investments (3,191) (9,267) --
Sales of trading portfolio investments 2,984 5,747 --
Other, net (3,069) (90) 461
- -----------------------------------------------------------------------------------------------------
Net cash provided by operating activities 49,204 45,670 34,279
INVESTING ACTIVITIES:
Purchases of long-term investments (16,049) (4,641) (5,919)
Sales of long-term investments 5,062 1,771 1,118
Purchases of property and equipment, net (19,831) (19,510) (12,907)
Issuance of finance notes receivable, net -- -- (14)
Acquisition of unconsolidated subsidiaries and consolidated
subsidiaries, net of cash acquired (59,792) (28,487) 480
Sale of subsidiaries 4,260 2,500 15,092
Other, net (3,182) (11) (147)
- -----------------------------------------------------------------------------------------------------
Net cash used in investing activities (89,532) (48,378) (2,297)
FINANCING ACTIVITIES:
Dividends paid (6,434) (5,834) (5,099)
Proceeds from issuance of treasury shares
related to employee stock plans 7,577 5,126 228
Purchase of treasury stock (3,193) (4,326) (14,550)
Net (repayments) borrowings on lines of credit 48,248 4,000 (140)
Payments on long-term debt (80) (6,808) (2,353)
Other financing activities, net 165 (351) 471
- -----------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 46,283 (8,193) (21,443)
=====================================================================================================
Net increase (decrease) in cash and cash equivalents 5,955 (10,901) 10,539
Cash and cash equivalents at beginning of year 707 11,608 1,069
- -----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 6,662 $ 707 $ 11,608
=====================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES.
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock
--------------------------- Additional
Amount $0.01 Number of Paid-in
Par Value Shares Capital
-------------------------------------------
<S> <C> <C> <C>
December 31, 1996 $ 141 14,142 $ 52,769
Issuance of treasury stock under employee benefit plans
Purchase of treasury stock
Comprehensive income, net of tax:
Net income
Foreign currency translation adjustment
Unrealized gain on investment
Comprehensive income, net of tax
Dividends declared on common stock
- --------------------------------------------------------------------------------------------------------------
December 31, 1997 141 14,142 52,769
Tax benefit of non-qualified options exercised 988
Excess fair market value over cost of non-qualified options
exercised 3,231
Stock granted to employees 8
Issuance of treasury stock under employee benefit plans
Purchase of treasury stock
Net income
Other comprehensive income, before tax:
Foreign currency translation adjustment
Holding gain arising during period
Reclassification adjustment
Other comprehensive income, before tax
Income tax expense related to other comprehensive income
Other comprehensive income, net of tax
Comprehensive income, net of tax
Dividends declared on common stock
- --------------------------------------------------------------------------------------------------------------
December 31, 1998 141 14,142 56,996
Tax benefit of non-qualified options exercised 2,840
Excess fair market value over cost of non-qualified options
exercised 4,682
Accrual for restricted shares
Issuance of treasury stock under employee benefit plans
Purchase of treasury stock
Net income
Other comprehensive income, before tax:
Foreign currency translation adjustment
Holding gain arising during period
Reclassification adjustment
Other comprehensive income, before tax
Income tax expense related to other comprehensive income
Other comprehensive income, net of tax
Comprehensive income, net of tax
Dividends declared on common stock
- --------------------------------------------------------------------------------------------------------------
December 31, 1999 $141 14,142 $64,518
==============================================================================================================
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
Treasury Stock Accumulated
-------------------------- Other Total
Number of Comprehensive Retained Shareholders'
Amount Shares Income Earnings Equity
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
December 31, 1996 $ (16,366) (882) $ (329) $ 32,238 $ 68,453
Issuance of treasury stock under employee benefit plans 1,353 69 1,353
Purchase of treasury stock (14,550) (750) (14,550)
Comprehensive income, net of tax:
Net income 25,703 25,703
Foreign currency translation adjustment (37) (37)
Unrealized gain on investment 629 629
--------------
Comprehensive income, net of tax 26,295
==============
Dividends declared on common stock (5,099) (5,099)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1997 (29,563) (1,563) 263 52,842 76,452
Tax benefit of non-qualified options exercised 988
Excess fair market value over cost of non-qualified options
exercised 3,231
Stock granted to employees 8
Issuance of treasury stock under employee benefit plans 7,291 381 7,291
Purchase of treasury stock (4,326) (118) (4,326)
Net income 31,763 31,763
Other comprehensive income, before tax:
Foreign currency translation adjustment 148 148
Holding gain arising during period 2,929 2,929
Reclassification adjustment (1,332) (1,332)
---------------- ---------------
Other comprehensive income, before tax 1,745 1,745
Income tax expense related to other comprehensive income (681) (681)
---------------- --------------
Other comprehensive income, net of tax 1,064 1,064
--------------
Comprehensive income, net of tax 32,827
==============
Dividends declared on common stock (5,834) (5,834)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1998 (26,598) (1,300) 1,327 78,771 110,637
Tax benefit of non-qualified options exercised 2,840
Excess fair market value over cost of non-qualified options
exercised 4,682
Accrual for restricted shares (2,306) (2,306)
Issuance of treasury stock under employee benefit plans 10,651 505 10,651
Purchase of treasury stock (3,193) (59) (3,193)
Net income 39,710 39,710
Other comprehensive income, before tax:
Foreign currency translation adjustment (23) (23)
Holding gain arising during period 1,070 1,070
Reclassification adjustment (467) (467)
---------------- --------------
Other comprehensive income, before tax 580 580
Income tax expense related to other comprehensive income (232) (232)
---------------- --------------
Other comprehensive income, net of tax 348 348
--------------
Comprehensive income, net of tax 40,058
==============
Dividends declared on common stock (6,434) (6,434)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31, 1999 ($21,446) (854) $1,675 $112,047 $156,935
===================================================================================================================================
</TABLE>
THE INCOME TAX EXPENSE OR (BENEFIT) FOR EACH COMPONENT OF OTHER COMPREHENSIVE
INCOME FOR 1999 AND 1998 IS AS FOLLOWS: FOREIGN CURRENCY TRANSLATION
ADJUSTMENT $9 AND $58; HOLDING GAIN ARISING DURING PERIOD $(428) AND $1,142
AND RECLASSIFICATION ADJUSTMENT $187 AND $(519), RESPECTIVELY.
SEE ACCOMPANYING NOTES.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 ORGANIZATION AND BASIS OF PRESENTATION
E. W. Blanch Holdings, Inc. and its subsidiaries ("the Company") and its
predecessor organizations have been in operation since 1957. The consolidated
financial statements include the accounts of the Company and its wholly and
majority owned subsidiaries. The Company categorizes its business operations
into two geographic segments, domestic and foreign operations.
Nature of Business
The Company is a provider of risk management and distribution services to
insurance companies, reinsurance companies, Fortune 1000 companies, government
entities and financial institutions. These services are sold both on bundled and
component bases. Major components provided include reinsurance intermediation
and technical, analytical and financial consulting services. As a reinsurance
intermediary, the Company structures and arranges reinsurance between insurers
seeking to cede insurance risks and reinsurers willing to assume such risks. The
Company receives and disburses funds for premium and loss transactions under
reinsurance contracts on behalf of insurance and reinsurance companies, and
provides reinsurance transaction reporting and reinsurance consulting services.
The Company earns revenues from the structuring, placement and servicing of
reinsurance, primarily on a treaty basis. The Company also earns fees from
providing technical, analytical, financial and pension consulting services.
Investment income is earned from the temporary investment of fiduciary
funds held by the Company, and from investments owned by the Company.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial statements include the accounts and
operations of the Company and its wholly and majority owned subsidiaries. All
material inter-company accounts and transactions have been eliminated.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
<PAGE>
Revenue Recognition
Reinsurance brokerage is recognized at the later of the billing or effective
date of the reinsurance contract. Any subsequent adjustments, including
cancellations, are recognized upon notification from the ceding companies,
unless these amounts are subject to reasonable estimation by the Company.
Primary insurance distribution commissions and fees are recognized when the
underlying premiums are due, provided that substantially all services relating
to the placement of the insurance are complete, the policy premium is known or
can be reasonably estimated and coverage is provided under the insurance policy.
Any adjustments to commissions, primarily from cancellations, are estimated when
the initial commission on the policy is recognized.
Risk management fees and financial and pension consultancy commissions and
fees are recognized during the period when services are provided or according to
the terms specified in the contract.
Financial Instruments
Management has classified its investments in debt and marketable equity
securities as either for trading purposes or as available for sale. The
Company's trading portfolio is carried at fair value and the corresponding
unrealized holding gains or losses are recognized in earnings for the period.
The Company's available for sale portfolio, included in long-term investments on
the balance sheet, is carried at fair value and the corresponding unrealized
gains or losses, net of applicable deferred taxes, are recognized as a separate
component of shareholders' equity. Fair values are generally based on quoted
market prices.
The Company's non-marketable securities, included in long-term investments
on the balance sheet, are carried at amortized cost, less any impairment
charges. Realized gains and losses on sales of investments are determined using
the specific identification method.
Financial instruments held by the Company other than investments include
notes receivable, notes payable to banks, and long-term debt. These instruments
are carried at their net unpaid principal balances which approximate fair value.
Investment in Unconsolidated Subsidiaries
Equity investments over which the Company has the ability to exercise
significant influence, generally determined by ownership of at least 20% but no
more than 50% of the voting stock of the investee, are accounted for under the
equity method. The equity method requires the investment initially to be
recorded at cost and subsequently increased (decreased) for the Company's share
of net income (loss), including eliminations for the Company's share of
inter-company transactions and amortization of goodwill, and reduced when
dividends are received until these costs are recovered.
<PAGE>
Cash and Cash Equivalents
The Company considers investments in money market funds to be cash equivalents.
The carrying amount of cash and cash equivalents reported in the balance sheet
approximates fair value.
Depreciation and Amortization
Fixed assets are recorded at cost and are depreciated on a straight-line basis
over the estimated useful lives of the respective assets. The estimated useful
life for office computer hardware and software is 3 to 5 years and office
furniture and equipment is 7 years. Leasehold improvements are amortized on a
straight-line basis over the life of the improvement or the remaining term of
the respective lease, whichever is shorter. Amortization of amounts capitalized
under capital leases is included with depreciation expense.
Software Development Costs
The Company has software that is developed internally. If the intended use of
the software is for internal purposes, then certain costs associated with the
software development are capitalized and amortized straight-line over the
estimated useful life of the software. If the Company plans to market the
software to third parties, then the associated costs are expensed when incurred
until technological feasibility of the software is established. Subsequent costs
incurred are capitalized and amortized over the remaining estimated economic
life of the product using the greater of the straight-line method or the amount
computed by comparing period revenues to total expected product revenues.
Intangibles
The Company has intangible assets consisting of goodwill and software license
fees. Software licenses are amortized over the remaining estimated economic life
of the product using the greater of the straight-line method or the amount
computed by comparing period revenues to total expected product revenues. The
software license balance is currently being amortized over five years.
The excess of cost over the fair value of net assets acquired (or goodwill)
is amortized on a straight-line basis over its estimated useful life. Initial
amortization periods range from 5 to 20 years. Accumulated amortization of
goodwill at December 31, 1999 and 1998 was $19.2 and $15.9 million,
respectively. The Company eliminated $6.9 million of goodwill in relation to the
sale of its general agency operations in the second quarter of 1998. Management
annually reviews the recoverability of intangibles using undiscounted cash flow
modeling. A write-down is recorded when the sum of the expected future net cash
flows is less than the book value.
Fiduciary Accounts
As an intermediary, the Company acts as a conduit for insurance and reinsurance
premiums and loss payments which are paid to and remitted from fiduciary
accounts. Receivables and payables for premiums and losses under reinsurance
contracts are recorded in the fiduciary accounts when
<PAGE>
due or reported. The majority of the fiduciary account assets and liabilities
represent receivables and corresponding payables between insurers and
reinsurers. Reinsurance and insurance brokerage, fiduciary interest income and
reimbursement of loss advances by the Company are transferred periodically from
the fiduciary accounts to the Company's bank accounts.
In accordance with applicable regulations, the Company maintains cash
resulting from fiduciary transactions in separate bank and investment accounts.
The average balances and weighted average interest rates in these accounts were
$174.6 million and 4.60%, and $128.6 million and 4.99% at December 31, 1999 and
1998, respectively.
Foreign Currency Translation
The Company's primary functional currency is the U.S. dollar. The functional
currency of the Company's foreign operations is the currency of the primary
economic environment in which the subsidiary operates. The Company translates
income and expense accounts at the average rate in effect for the period.
Balance sheet accounts are translated at the period end exchange rate.
Adjustments resulting from the balance sheet translation are reflected in
Shareholders' Equity.
Income Taxes
The Company files a consolidated federal income tax return. Deferred taxes are
recognized for all temporary differences between the tax and financial reporting
basis of the Company's assets and liabilities using tax rates in effect for the
year in which the differences are expected to reverse.
Stock Based Compensation
As permitted by SFAS No. 123, "Accounting for Stock Based Compensation," the
Company continues to follow Accounting Principles Board Opinion (APB) No. 25,
"Accounting for Stock Issued to Employees," and the related interpretations in
accounting for its stock options. The disclosures required by SFAS No. 123 have
been included in the accompanying notes to the Company's financial statements.
Other New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities," which is
required to be adopted in years beginning after June 15, 2000. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Statement will require the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of derivatives will either
be offset against the change in fair value of the hedged assets, liabilities, or
firm commitments through earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
<PAGE>
While an analysis is not complete, based on the Company's derivative
positions at December 31, 1999, management does not anticipate that the adoption
of the new statement will have a significant effect on earnings or the financial
position of the Company. Because the standard allows certain foreign currency
transactions to be accounted for as hedges for financial reporting purposes that
were not previously treated as hedges, the Company may change its policies
toward the management of certain foreign currency exposures. Any changes that
may occur would be to further reduce the Company's exposure to foreign currency
risks.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in Financial
Statements." SAB No. 101 summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company will adopt SAB No. 101 in the first quarter of 2000.
Management is currently analyzing the effect of applying SAB No. 101 and the
impact on prior periods, if material, will be reported in the first quarter of
2000 as a cumulative effect adjustment.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year presentation.
3 ACQUISITIONS AND DISPOSITIONS
In the third quarter of 1999, the Company acquired JD Warren, Inc. a Pittsburgh,
Pennsylvania based services company specializing in the identification and
recovery of outstanding third-party deductibles for the insurance industry. This
acquisition is accounted for under the purchase method of accounting. The cost
of this acquisition was $17.5 million. The Company added $17.4 million of
goodwill with this acquisition which is being amortized over 20 years.
In the third quarter of 1999, the Company purchased the thirty percent of
its international joint venture, Swire Blanch Insurance (Holdings) Ltd., it did
not previously own. Swire Blanch Insurance (Holdings) Ltd. is now a wholly owned
subsidiary of the Company and has been renamed E.W. Blanch Holdings Ltd.
In the fourth quarter of 1999, the Company acquired Crawley Warren Group
Ltd., a leading Lloyd's broker and provider of special risk management services
around the world. The cost of this acquisition was $40.4 million. This
acquisition is accounted for under the purchase method of accounting.
Accordingly, goodwill of approximately $33.9 million resulting from the
preliminary purchase price allocation is being amortized over 20 years. Assets
acquired and liabilities assumed have been reported at their estimated fair
values which will be finalized in 2000.
In the fourth quarter of 1999, the Company acquired Michael V. Mahoney
Insurance Brokers Pty Ltd., an Australian general retail broker. This
acquisition is accounted for under the
<PAGE>
purchase method of accounting. The cost of this acquisition was $2.9 million.
The Company added $2.1 million of goodwill with this acquisition.
The following are the pro forma results for the Company had the companies
described above been acquired at the beginning of the periods indicated
(unaudited - in thousands, except per share amounts):
Twelve Months Ended
December 31,
1999 1998
--------------------------
Revenues $275,573 $248,402
Net Income $37,756 $33,738
Earnings per Share - Diluted $2.74 $2.57
In the second quarter of 1999, the Company sold two non-strategic
subsidiaries of E.W. Blanch (Holdings), Ltd.
In the second quarter of 1998, the Company completed its acquisition of
Walbaum Americana, S.A. ("Walbaum"), a Buenos Aires, Argentina based provider of
risk management services in Latin America. In the third quarter of 1998, the
Company completed acquisitions of Dunn & Carter Ltd. ("Dunn & Carter"), a London
based insurance broker specializing in retrocessional reinsurance and K2
Technologies, Inc. ("K2"), a San Jose, California based company specializing in
the design and support of interactive software platforms for use in risk
assessment and engineering as well as information integration. The Company uses
purchase accounting to account for these acquisitions. The combined cost of
these acquisitions was $11.8 million. The combined pro forma impact on net
income from these acquisitions prior to their respective acquisition dates would
have had an immaterial impact on consolidated net income and earnings per share
for 1998.
In the second quarter of 1998, the Company sold its San Antonio, Texas
based operations including the sale of its general agency, Blanch Insurance
Services, Inc., and other selected assets. As part of the sale agreement, the
Company became a shareholder of the purchasing company.
The Company acquired a software license in 1998 for $2.5 million.
Accumulated amortization of the software license at December 31, 1999 was $0.6
million. Unamortized software license fees at December 31, 1999 were $1.9
million.
<PAGE>
4 INVESTMENTS
The Company's investments, at December 31, are summarized as follows:
1999
TRADING Gross Unrealized
---------------------- Fair
(IN THOUSANDS) Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Debt investments $ 5,353 $ -- $ (225) $ 5,128
Equity investments -- -- -- --
- --------------------------------------------------------------------------------
$ 5,353 $ -- $ (225) $ 5,128
================================================================================
AVAILABLE FOR SALE Gross Unrealized
---------------------- Fair
(IN THOUSANDS) Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Debt investments $ 6,857 $ -- $ -- $ 6,857
Equity investments 5,740 3,158 -- 8,898
- --------------------------------------------------------------------------------
$ 12,597 $ 3,158 $ -- $ 15,755
================================================================================
OTHER Gross Unrealized
---------------------- Fair
(IN THOUSANDS) Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Debt investments $ -- $ -- $ -- $ --
Equity investments 16,567 -- -- 16,567
- --------------------------------------------------------------------------------
$ 16,567 $ -- $ -- $ 16,567
================================================================================
TOTAL LONG-TERM INVESTMENTS Gross Unrealized
---------------------- Fair
(IN THOUSANDS) Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Debt investments $ 6,857 $ -- $ -- $ 6,857
Equity investments 22,307 3,158 -- 25,465
- --------------------------------------------------------------------------------
$ 29,164 $ 3,158 $ -- $ 32,322
================================================================================
TOTAL Gross Unrealized
---------------------- Fair
(IN THOUSANDS) Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Debt investments $ 12,210 $ -- $ (225) $ 11,985
Equity investments 22,307 3,158 -- 25,465
- --------------------------------------------------------------------------------
$ 34,517 $ 3,158 $ (225) $ 37,450
================================================================================
1998
TRADING Gross Unrealized
---------------------- Fair
(IN THOUSANDS) Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Debt investments $ 5,147 $ 98 $ -- $ 5,245
Equity investments -- -- -- --
- --------------------------------------------------------------------------------
$ 5,147 $ 98 $ -- $ 5,245
================================================================================
<PAGE>
AVAILABLE FOR SALE Gross Unrealized
---------------------- Fair
(IN THOUSANDS) Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Debt investments $ 6,382 $ -- $ -- $ 6,382
Equity investments 7,102 2,150 (407) 8,845
- --------------------------------------------------------------------------------
$ 13,484 $ 2,150 $ (407) $ 15,227
================================================================================
OTHER Gross Unrealized
---------------------- Fair
(IN THOUSANDS) Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Debt investments $ -- $ -- $ -- $ --
Equity investments 3,200 -- -- 3,200
- --------------------------------------------------------------------------------
$ 3,200 $ -- $ -- $ 3,200
================================================================================
TOTAL LONG-TERM INVESTMENTS Gross Unrealized
---------------------- Fair
(IN THOUSANDS) Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Debt investments $ 6,382 $ -- $ -- $ 6,382
Equity investments 10,302 2,150 (407) 12,045
- --------------------------------------------------------------------------------
$ 16,684 $ 2,150 $ (407) $ 18,427
================================================================================
TOTAL Gross Unrealized
---------------------- Fair
(IN THOUSANDS) Cost Gains (Losses) Value
- --------------------------------------------------------------------------------
Debt investments $ 11,529 $ 98 $ -- $ 11,627
Equity investments 10,302 2,150 (407) 12,045
- --------------------------------------------------------------------------------
$ 21,831 $ 2,248 $ (407) $ 23,672
================================================================================
Gross gains realized on the sales of investments were $1.9 million and $1.4
million for the year ended December 31, 1999 and 1998, respectively. Gross
losses realized on the sales of investments were $0.7 million and $0.1 million
for the years ended December 31, 1999 and 1998, respectively.
The cost and fair values of debt securities at December 31, 1999, by
contractual maturity, are summarized as follows:
Fair
(IN THOUSANDS) Cost Value
- --------------------------------------------------------------------------------
Due in one year or less $ 338 $ 335
Due after one year through five years 5,403 5,348
Due after five years 6,469 6,302
- --------------------------------------------------------------------------------
$ 12,210 $ 11,985
================================================================================
The following table summarizes investments accounted for under the equity
method with their respective percentage of ownership, equity in net assets and
carrying value as of December 31, 1999.
Percentage
of Common Equity in Carrying
(IN THOUSANDS) Stock Owned Net Assets Value
- --------------------------------------------------------------------------------
Catastrophe Risk Exchange, Inc. (1) 50.0% $ 1,000 $ 4,951
Insurance Holdings of America, LLC (1)(2) 18.6% 2,167 --
MSTC Blanch S.A. (1) 35.0% 319 1,593
Russell Miller Advisors Asia, LLC (1) 50.0% 1,559 1,404
- --------------------------------------------------------------------------------
Total Investment in Unconsolidated Subsidiaries $ 5,045 $ 7,948
================================================================================
(1) The difference between the initial cost and the equity in net assets at the
acquisition date is being amortized over 20 years.
(2) The Company's portion of losses on the Insurance Holdings of America, LLC
investment have reduced its carrying value to zero.
<PAGE>
The following is a summarized balance sheet of all of the Company's
unconsolidated subsidiaries before taking the Company's ownership percentage as
of December 31, 1999.
(IN THOUSANDS)
- --------------------------------------------------------------------------
Current assets $ 30,255
Non current assets 16,882
--------------
Total assets $ 47,137
==============
Current liabilities $ 18,654
Non current liabilities 12,055
Shareholders' equity 16,428
--------------
Total liabilities and shareholders' equity $ 47,137
==========================================================================
The combined revenue and net loss of all of the Company's unconsolidated
subsidiaries, before taking the Company's ownership percentage, for 1999 was
$9.3 million and ($31.6) million, respectively.
5 PROPERTY AND EQUIPMENT
The Company's property and equipment at December 31 are summarized as follows:
(in thousands) 1999 1998
- -----------------------------------------------------------
Computer hardware $ 19,256 $ 16,581
Computer software 28,208 20,932
Office furniture and equipment 16,591 14,419
Leasehold improvements 7,042 5,101
Automobiles 427 1,312
- -----------------------------------------------------------
71,524 58,345
Less accumulated depreciation
and amortization (30,606) (25,925)
- -----------------------------------------------------------
$ 40,918 $ 32,420
===========================================================
The Company's depreciation expense was $4.4 million, $5.4 million, and $3.3
million for 1999, 1998 and 1997, respectively. The amortization expense was $5.2
million, $3.5 million and $2.2 million, for 1999, 1998 and 1997, respectively.
Of this amortization expense, computer software was $4.6 million, $3.0 million
and $1.2 million for 1999, 1998 and 1997, respectively.
<PAGE>
6 LONG-TERM DEBT
The Company's long-term debt at December 31 is summarized as follows:
(IN THOUSANDS) 1999 1998
- --------------------------------------------------------------------------
Capital lease obligations $ 557 $ 846
Less current portion (308) (289)
- --------------------------------------------------------------------------
$ 249 $ 557
==========================================================================
Maturities of long-term debt are summarized as follows:
(IN THOUSANDS)
- --------------------------------------------------------------------------
2000 $308
2001 249
- --------------------------------------------------------------------------
7 LINES OF CREDIT
The Company has a $100 million unsecured revolving credit facility with several
banks that will be used to fund general corporate requirements. The facility,
which expires in 2001, carries market rates of interest, which may vary
depending upon the Company's degree of leverage. Commitment fees of .200% to
.375% are payable on any unused portion. The facility contains several financial
covenants and restrictions related to acquisitions, payment of dividends and
sales of assets. Covenants contained in the agreement require the Company to
exceed minimum levels of net worth and meet a fixed charge ratio. The Company is
currently in compliance with all of its covenants governing its indebtedness.
The Company had $57.8 million outstanding under this facility as of December 31,
1999, at a rate of 6.9%. This was used primarily for the acquisition of Crawley
Warren Group Ltd. in the fourth quarter of 1999.
The Company also has a (pound)7.0 million secured revolving credit
facility, which translates to $11.3 million at December 31, 1999. This facility
is secured by a guarantee from E.W. Blanch Holdings Inc. As of December 31,
1999, the Company had no outstanding balance under this facility. The interest
rate is 0.32% above the London Inter Bank Offer Rate ("LIBOR"). In addition, the
Company has a HK$7.1 million secured revolving credit facility, which translates
to $0.9 million at December 31, 1999. This facility is secured by a guarantee
from E.W. Blanch Holdings Inc. As of December 31, 1999, the Company had $0.9
million outstanding under this facility. The interest rate is 0.32% above the
Hong Kong Inter Bank Offer Rate ("HIBOR"). Also, the Company has a HK$5.0
million secured revolving credit facility, which translates to $0.6 million at
December 31, 1999. This facility is secured by a guarantee from E.W. Blanch
Holdings Ltd. As of December 31, 1999, the Company had $0.6 million outstanding
under this facility. The interest rate is 0.32% above HIBOR.
<PAGE>
8 SHAREHOLDERS' EQUITY
Preferred Stock
The Board of Directors may, from time to time, direct the issuance of preferred
stock in one or more series and may, at the time of issuance, determine the
rights, preferences, and limitations of each series. The issuance of preferred
stock may adversely affect various rights, including dividend and voting rights,
of the common shareholders and may be used as an anti-takeover device.
On January 24, 1997, the Board of Directors approved a shareholder rights
plan, which provides protection against hostile takeovers and market activities
that could result in a sale of the Company. The Board of Directors retains the
right to approve a sale of the Company or redeem the rights under certain
circumstances. The Company paid a dividend of one right for each common share
outstanding on February 7, 1997. Each right will entitle a shareholder to buy
1/100 of a share of the Company's newly created Series A Junior Participating
Preferred Stock at an exercise price of $100. The rights will become exercisable
in the event that a person or group acquires, or makes a tender offer for, 15%
or more of the Company's common shares, subject to certain exceptions.
Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share, for the years ended December 31:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Numerator for earnings per share - basic and assuming dilution:
Net income $39,710 $31,763 $25,703
- ------------------------------------------------------------------------------------------------------
Denominator for per share, basic weighted-average shares 12,938 12,678 12,656
Effect of dilutive securities:
Employee stock options 715 414 289
Employee restricted stock grants 109 54 --
Denominator for earnings per share, assuming dilution-
adjusted weighted-average shares and assumed conversions 13,762 13,146 12,945
-----------------------------------
Earnings per share - basic $3.07 $2.51 $2.03
Earnings per share - assuming dilution $2.89 $2.42 $1.99
======================================================================================================
</TABLE>
Dividends
The Company initiated the payment of a quarterly cash dividend during the fourth
quarter of 1993. In October 1999, the Board of Directors increased the quarterly
cash dividend to $0.14 per share from $0.12 per share. The Company intends to
continue paying quarterly dividends subject to declaration by the Board of
Directors. The Company is not subject to any regulatory or capital requirements
that restrict its ability to pay dividends, except for the minimum net worth
requirement in its credit facility (see Note 7).
<PAGE>
Treasury Shares
The Company uses treasury shares to fund its equity-based contributions to the
employee benefit plans.
9 INCOME TAXES
Income taxes for the years ended December 31 are summarized as follows:
(in thousands) 1999 1998 1997
- -------------------------------------------------------------
Current:
Federal $ 25,736 $ 10,431 $ 12,592
State 2,344 1,824 1,864
Foreign 4,251 6,528 2,319
- -------------------------------------------------------------
32,331 18,783 16,775
Deferred taxes:
Federal 11 8,944 745
State 21 773 16
Foreign (226) (3,759) (528)
- -------------------------------------------------------------
(194) 5,958 233
- -------------------------------------------------------------
$ 32,137 $ 24,741 $ 17,008
=============================================================
The reconciliation between income tax expense and the amount computed by
applying the statutory federal income tax rate for the years ended December 31
is summarized as follows:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------
Income tax at the federal
statutory rate $ 27,852 $ 21,466 $ 15,107
State taxes, net of federal
tax benefit 2,366 2,597 1,212
Foreign taxes at rate
other than U.S. rate 422 347 252
Non-deductible meals and
entertainment 342 402 457
Goodwill amortization 501 359 526
Other 654 (430) (546)
- --------------------------------------------------------------------------
$ 32,137 $ 24,741 $ 17,008
==========================================================================
Pre-tax income attributed to domestic operations was $68.6 million, and pre-tax
income attributed to foreign operations was $10.3 million for the year ended
December 31, 1999.
<PAGE>
Deferred tax assets and liabilities are comprised of the following at December
31:
(in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------
Deferred tax assets:
Foreign net operating losses $ 1,529 $ 1,611 $ 528
Lease obligations 42 -- 535
Intangible assets 158 512 6,905
Unrealized gains on investments 5,302 680 --
Accrued expenses 5,785 3,751 563
- --------------------------------------------------------------------------------
12,816 6,554 8,351
Valuation allowance (1,143) (1,204) --
- --------------------------------------------------------------------------------
Total deferred tax assets 11,673 5,350 8,351
================================================================================
Deferred tax liabilities:
Lease obligations -- 1,643 --
Property, plant and equipment 4,749 1,503 1,029
Deferred revenue on customer contracts 514 610 630
- --------------------------------------------------------------------------------
Total deferred tax liabilities 5,263 3,756 1,659
================================================================================
Net deferred tax assets $ 6,410 $ 1,594 $6,872
================================================================================
10 STOCK PLANS
The Company adopted the E. W. Blanch Holdings Inc. Employee Stock Purchase Plan
("the ESPP") in May 1994. Pursuant to the ESPP, eligible employees of the
Company may purchase shares of the Company's common stock at 90% of fair market
value, subject to certain limitations and qualifications. The Company has
reserved 300,000 shares of common stock for issuance under the ESPP. At December
31, 1999, approximately 39,274 shares had been issued under the ESPP.
The Company adopted the 1993 Stock Incentive Plan ("the 1993 Stock Plan")
in May 1993. Pursuant to the 1993 Stock Plan, key employees of the Company who
have been selected as participants are eligible to receive awards of various
forms of equity-based incentive compensation including stock options, stock
appreciation rights, stock bonuses, restricted stock awards, performance units,
phantom stock, and awards consisting of combinations of such incentives. The
Company has reserved 4,400,000 shares of common stock for issuance under the
1993 Stock Plan.
Outstanding grants of shares under the 1993 Stock Plan were 2,197,281 and
1,927,874 at December 31, 1999 and 1998, respectively, with a weighted average
exercise price of $34.81 and $26.41 at December 31, 1999 and 1998, respectively.
The weighted average contractual life for options outstanding under the 1993
Stock Plan at December 31, 1999 was 7.6 years. Outstanding restricted stock
awards under the 1993 Stock Plan were 145,451 at December 31, 1999. Exercised
option grants under the 1993 Stock Plan were 432,367 shares. Vested stock awards
under the 1993 Stock Plan were 156,618 at December 31, 1999. In addition, the
Company had reserved 427,996 and 488,460 shares at December 31, 1999 and 1998,
respectively, for future grant, resulting in 1,040,287 and 1,712,183 shares
available for grant under the 1993 Stock Plan at December 31, 1999 and 1998,
respectively.
<PAGE>
The original term of such options is 10 years and options become exercisable
over the first three years of the term. There were 1,157,847 options exercisable
at December 31, 1999.
In July 1998, the Company acquired K2 Technologies, Inc. ("K2"). As part of
the acquisition, the Company converted the outstanding K2 options into options
to purchase the Company's common stock. The Company reduced the number of shares
subject to K2 options outstanding to reflect the Company's stock price at the
date of acquisition. The K2 options retain their original exercise price, which
is equal to the grant date market price, and their original grant dates per the
terms of the K2 option plans prior to the acquisition. The weighted average
exercise price for the K2 options outstanding at December 31, 1999 is $1.68 with
a weighted average contractual life of 7.1 years. The term for the K2 options is
10 years and the options become exercisable evenly over the first four years of
the term. The Company had outstanding option grants of 12,970 shares at December
31, 1999. There were 7,509 options exercisable at December 31, 1999.
The Company adopted the 1997 Stock Incentive Plan ("1997 Stock Plan"), in
October 1997. Pursuant to the Stock Incentive Plan, employees who have been
selected as participants are eligible to receive awards of various forms of
equity-based incentive compensation including stock options, stock appreciation
rights, restricted stock, restricted stock units, performance awards, or other
stock-based awards. The Company has reserved 1,000,000 treasury shares for
issuance under the 1997 Stock Plan.
Outstanding grants under the 1997 Stock Plan were 250,000 at December 31,
1999, with an exercise price of $31.38 and a weighted average contractual life
of 7.8 years. The original term of all stock options is 10 years and the options
become exercisable over the first three years of the term. There were 166,667
options exercisable at December 31, 1999.
The Company adopted the Directors' Stock Option Plan in July 1998. Pursuant
to the Directors' Stock Option Plan, directors of the Company are eligible to
receive stock options. The Company has reserved 300,000 shares of common stock
for issuance under the Directors' Stock Option Plan. Outstanding grants under
the Directors' Stock Option Plan were 45,000 shares at December 31, 1999, with a
weighted average exercise price of $36.86 and a weighted average contractual
life of 8.1 years. The original term of all stock options is 10 years and the
options become exercisable over the first three years of the term. There were
20,000 options exercisable at December 31, 1999.
The following is a summary of options outstanding by range of grant price:
<PAGE>
<TABLE>
<CAPTION>
$17.50 - $26.26 - $56.06 - ALL
LESS THAN $3.26 $26.25 $37.00 $66.62 OPTIONS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Options outstanding 12,970 879,302 1,035,968 577,011 2,505,251
Average option price per share $1.68 $21.45 $32.39 $58.18 $34.33
Weighted average contractual life 7.1 6.0 7.9 9.5 7.6
Options exercisable 7,509 742,247 602,267 -- 1,352,023
Average option price per share $1.34 $21.20 $31.91 -- $25.86
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Option activity during 1999, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
AVERAGE
OPTION
PRICE PER
SHARES SHARE
- --------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at December 31, 1996 785,333 $19.80
Granted 1,296,500 28.20
Cancelled (37,165) 20.22
Exercised (1,668) 18.50
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1997 2,043,000 $25.16
- --------------------------------------------------------------------------------------
Granted 362,373 31.84
Cancelled (50,962) 19.26
Exercised (110,804) 18.74
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1998 2,243,607 $26.69
- --------------------------------------------------------------------------------------
Granted 620,279 56.07
Cancelled (24,491) 37.62
Exercised (334,144) 23.12
- --------------------------------------------------------------------------------------
Outstanding at December 31, 1999 2,505,251 $34.33
- --------------------------------------------------------------------------------------
</TABLE>
As permitted under SFAS No. 123, the Company continues to apply APB Opinion
No. 25 and related interpretations and, accordingly, does not recognize
compensation expense for grants under its stock option plans. If the Company had
elected to recognize compensation expense based on the fair value of the stock
on the grant date as prescribed by SFAS No. 123, net income and earnings per
share would have been reduced to the pro forma amounts indicated in the table
below:
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income - as reported $39,710 $31,763 $25,703
Net income - pro forma 34,753 26,849 24,470
Earnings per share, basic - as reported $3.07 $2.51 $2.03
Earnings per share, assuming dilution - as reported $2.89 $2.42 $1.99
Earnings per share, basic - pro forma $2.69 $2.12 $1.93
Earnings per share, assuming dilution - pro forma $2.53 $2.04 $1.89
- -----------------------------------------------------------------------------------------------------
</TABLE>
The pro forma net income and earnings per share may not be representative
of the effects on net income and earnings per share in future years.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
<TABLE>
<CAPTION>
1999 1998 1997
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
Expected dividend yield 0.90% 1.00% 1.20%
Expected stock price volatility 21.20% 20.45% 20.85%
Expected life of options 7 years 7 years 7 years
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The Company used the seven-year United States Treasury Note rate at the
date of grant for the risk-free interest rate assumption. The range of these
rates was 4.7% to 5.4% in 1999, 5.5% to 5.8% in 1998, and 6.0% to 6.9% in 1997.
The weighted average fair value of options granted during 1999, 1998 and 1997
was $20.40, $11.72 and $11.28 per share, respectively.
The Company has a Non-Employee Directors' Stock Plan ("the Directors'
Plan"). The Directors' Plan permits each participant to elect to receive or
defer all or a portion of the directors' fees in common stock of the Company.
The Company has reserved 25,000 shares of Common Stock for issuance under the
Directors' Plan. At December 31, 1999, approximately 2,139 shares of stock have
been earned under this plan at an average cost of $19.93 per share.
The Company adopted the Restricted Stock Incentive Plan ("the Restricted
Stock Plan") in April 1997. Pursuant to the Restricted Stock Plan, eligible
participants may elect to forego a specified percentage of eligible base
compensation, in exchange for the right to receive a restricted stock grant.
This election is irrevocable for the performance period. The amount of the
restricted stock received is tied to the achievement of certain objective
performance goals established by the Compensation Committee of the Board of
Directors. The goals may be based on various business criteria including stock
price, market share, sales, earnings per share, return on equity, return on
invested capital or net assets employed, cumulative total return to
shareholders, consolidated pre-tax earnings, net earnings, operating income,
earnings before interest and taxes, and cash flow - all computed in accordance
with generally accepted accounting principles.
If target performance goals are achieved and the Compensation Committee so
certifies, the participant is awarded restricted stock equal to two times the
amount of base compensation foregone, subject to a three-year vesting schedule.
If target performance is not achieved the participant is awarded restricted
stock equal in value to 50% of base compensation foregone, fully vesting on
April 1 following the end of the performance period. The Company achieved its
target performance goal in 1999 and 1998 performance periods. Shares granted
come out of the 1993 Stock Plan. The Company will award approximately 135,283
shares of restricted stock for the 1999 performance period and has granted
142,894 shares in 1999 for the 1998 performance period to participants subject
to a three-year vesting period under the 1993 Stock Plan. In accordance with APB
Opinion No. 25, the Company recognized $5.4 million and $3.0 million of
compensation expense in 1999 and 1998, respectively for both the 1999 and 1998
performance periods. The weighted average fair value of shares granted for the
1998 performance period is $51.25 at the date of grant.
11 EMPLOYEE BENEFITS AND INCENTIVE PLANS
The Company has a defined contribution retirement plan ("the Retirement Plan")
for most of its domestic employees. Contributions to the Retirement Plan are
discretionary and generally are equal to 7.5% of the employee's base salary.
Employees with salaries that exceed the Internal Revenue Service limit for
qualified plans receive the difference between 7.5% of their salary and the IRS
allowable plan contribution in cash. Total Retirement Plan expense for 1999,
1998, and 1997 was $2.6 million, $2.5 million, and $2.3 million, respectively.
<PAGE>
Of those amounts, $0.5 million, $0.4 million, and $0.3 million were paid in cash
in 1999, 1998, and 1997, respectively.
The Company has a cash bonus and stock option incentive plan ("the
Incentive Plan") designed to reward employees for exceptional performance. The
amount of the award is tied to the achievement of certain objective performance
goals established by the Compensation Committee of the Board of Directors. The
goals may be based on various business criteria including stock price, market
share, sales, earnings per share, return on equity, return on invested capital
or net assets employed, cumulative total return to shareholders, consolidated
pre-tax earnings, net earnings, operating income, earnings before interest and
taxes, and cash flow - all computed in accordance with generally accepted
accounting principles. Shares granted come out of the 1993 Stock Plan. Total
cash bonus incentive plan expense for 1999, 1998, and 1997 was $1.5 million,
$7.4 million, and $2.3 million, respectively. For 1999, the Company reserved
approximately 12,000 option grants of common stock. For 1998, the Company
granted 244,364 option grants under the Incentive Plan.
The Company's foreign subsidiary, E.W. Blanch Ltd., has a defined
contribution retirement plan ("E.W. Blanch Ltd. Plan") for its eligible
employees. Contributions to the E.W. Blanch Ltd. Plan are equal to 4.0% to 10.0%
of the employees salary based upon employee participations. Total Swire Plan
expense for 1999, 1998, and 1997 was $1.6 million, $1.6 million, and $1.3
million, respectively.
12 RELATED PARTY TRANSACTIONS
The Company had outstanding notes receivable from employees totaling $1.6
million and $1.4 million at December 31, 1999 and 1998, respectively. The
majority of these notes are interest bearing and are payable over ten years
beginning in 1999.
The Company purchased a software license from Insurance Holdings of
America, Inc. ("IHA") for $2.5 million in 1998. The Company owns 18.6% of
outstanding common shares of IHA as of December 31, 1999. The Company entered
into an agreement with Consumer Insurance Services of America, Inc. ("CISA"), a
subsidiary of IHA, to develop and implement its program to offer insurance
products to members and/or employees of Sam's Club. The Company received $0.6
million from IHA in 1999 to provide this service.
In February 1997, the Company purchased 750,000 shares of its common stock,
at a negotiated price of $19.40 per share, from its Chairman. Total
consideration was $14.6 million.
13 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Supplemental disclosure of cash flow information for the years ended December 31
is as follows:
<PAGE>
(IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------
Cash paid during the period for:
Interest $1,543 $1,693 $1,178
Income taxes
(federal, state, city and foreign) 31,205 14,928 9,540
Non-cash investing activities:
Non-cash consideration from sale of subsidiary -- 7,696 --
================================================================================
14 COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company has operating leases for its headquarters, branch office facilities,
and certain equipment. Total rent expense for such operating leases was $9.6
million, $8.8 million, and $6.8 million for 1999, 1998, and 1997, respectively.
Future minimum rental payments required under these leases are summarized
as follows:
(IN THOUSANDS)
- ----------------------------------------------------------------
2000 $10,890
2001 9,719
2002 9,286
2003 8,309
2004 6,955
Thereafter 25,839
- ----------------------------------------------------------------
$70,998
================================================================
Unicover Litigation and Workers' Compensation Reinsurance Issues
The workers' compensation reinsurance industry was impacted in 1999 by certain
events principally surrounding an entity called Unicover Managers, Inc.
("Unicover"). Unicover served as a managing general underwriter for various
insurance companies that provided reinsurance coverage to the workers'
compensation primary insurance industry. It has been alleged that Unicover, on
behalf of companies it represented, assumed reinsurance exposures at prices and
volume levels that were imprudent for those companies and their
retrocessionaires, and that correspondingly were advantageous to the customers
who procured reinsurance coverage through Unicover. Various clients of the
Company, employing the Company's reinsurance intermediary services, procured
worker's compensation reinsurance coverage through Unicover in late 1998 and
early 1999.
One client that the Company assisted in procuring reinsurance through
Unicover was the "AIG" group of insurance companies. A lawsuit was commenced in
1999 relating to that reinsurance program. The Company is the third-party
defendant and cross-claimant in that litigation, which is described in more
detail in the Legal Proceedings section of this note.
The Company also assisted various other clients in procuring workers'
compensation reinsurance coverage with Reliance Insurance Company ("Reliance"),
managed by Unicover. In
<PAGE>
1999, Reliance engaged in negotiations with those clients of the Company, to
settle Reliance's reinsurance obligations to those clients of the Company. In
January 2000, Reliance announced that those settlement negotiations had been
successfully concluded. Also in January 2000, Reliance and the Company reached
an agreement in principle concerning the Company's brokerage revenue associated
with these settled reinsurance placements. As a result of this agreement, the
Company will not experience any material adverse impact with respect to revenues
the Company has previously recognized for these placements.
The Company also assisted another client company, EBI Indemnity Company
("EBI") in procuring workers' compensation reinsurance coverage through
Unicover. The Company has been advised that the reinsurance companies
represented by Unicover settled their obligations to EBI in January 2000. To
date, the Company has not reached an agreement with EBI or those reinsurers
concerning the Company's brokerage revenues associated with this reinsurance
program, although discussions are ongoing. In 1999, the Company recognized
revenue for this program in accordance with its standard revenue recognition
practices, through the third quarter of 1999. Some, but not all, of that
recognized revenue has been received by the Company. If the Company is not
successful in negotiating a satisfactory resolution of its right to brokerage
for the EBI reinsurance program, it intends to pursue its legal remedies to
enforce its rights.
The Company also assisted a client, Superior National Insurance Group
("SNIG"), in procuring workers' compensation reinsurance coverage. This coverage
was procured through a competitor of Unicover, WEB Management LLC ("WEB"), which
represented a reinsurer named United States Life Insurance Co. of the City of
New York ("U.S. Life"). The Company is advised that U.S. Life in late 1999
commenced an arbitration proceeding against SNIG. The Company is advised that
U.S. Life alleges, possibly among other things, that this reinsurance program
should be rescinded, for alleged non-disclosure of material information. The
Company is not a party to this arbitration proceeding. However, it is possible
that in the event U.S. Life is successful in that proceeding, the Company may be
required to return reinsurance brokerage previously received and recognized. If
the Company were required to return all of its previously recognized and
received brokerage for this program, the amount would have a material adverse
impact on the Company's financial position and results of operations. However,
based on currently available information, the Company does not believe that this
is likely to occur.
The Company has not made any material accruals for any loss contingency
relating to the revenues recognized to date on the Unicover litigation and
workers' compensation reinsurance issues discussed above, because in the
Company's opinion, no such loss contingencies are likely to occur. However, the
Company is of the opinion that there is a reasonable possibility (i.e., more
than remote but less than likely) of a loss contingency with respect to certain
of those issues, and estimates a possible range of loss for these reasonably
possible loss contingencies of zero to $7.1 million. The Company intends to
continue to vigorously pursue and defend its rights to brokerage on these
matters, including its rights to brokerage in addition to what it has recognized
to date.
Legal Proceedings
In the normal course of business, the Company and its subsidiaries are parties
to a number of
<PAGE>
lawsuits. Management believes that these suits will be resolved with no material
financial impact on the Company.
The various lawsuits to which the Company is a party are routine in nature
and incidental to the Company's business, with the following exception:
E.W. Blanch Co. ("Blanch"), a subsidiary of the Company, is a third-party
defendant in a lawsuit venued in the Supreme Court of the State of New York,
County of New York. This lawsuit was instituted on February 16, 1999, and Blanch
was added as a third-party defendant on March 23, 1999. Plaintiffs are AIU
Insurance Company and various other insurance companies, all of whom are part of
the "AIG" group of companies. Defendants are Unicover Managers, Inc.
("Unicover") and ReliaStar Life Insurance Company ("ReliaStar"). Blanch was
joined in the lawsuit as a third-party defendant by ReliaStar.
In this lawsuit, AIG as plaintiff alleges that ReliaStar, through its agent
Unicover, agreed to provide certain reinsurance protection to AIG, relating to
workers' compensation insurance policies issued by the plaintiff AIG companies
in California and elsewhere in the United States. Defendants assert that the
reinsurance coverages in issue never were bound, and defendant ReliaStar further
asserts that if defendant Unicover in fact did bind those coverages, it acted
beyond the authority granted by ReliaStar.
In ReliaStar's third-party complaint against Blanch, ReliaStar alleges that
Blanch, as AIG's reinsurance broker on the reinsurance placements in issue, knew
or should have known that the reinsurance coverages were not bound and knew or
should have known that Unicover did not have the authority to bind ReliaStar to
those coverages.
The relief being sought by AIG in its complaint against ReliaStar and
Unicover is that defendants be required to honor the reinsurance commitments
that AIG alleges were made, and be required to pay an unspecified amount of
money damages for alleged breach of those reinsurance commitments and (with
respect to Unicover) for negligent misrepresentation.
The relief being sought by ReliaStar in its third party complaint against
Blanch is that, in the event ReliaStar is found to be liable to AIG, Blanch be
required to indemnify and hold ReliaStar harmless for that liability, or in the
alternative, Blanch be required to make a contribution for a portion of that
liability in an amount to be determined by the Court.
Blanch, in turn, has filed a counterclaim against ReliaStar and Unicover.
The counterclaim alleges that ReliaStar and Unicover, in fact, did bind the
reinsurance coverages in issue, and therefore, they owe Blanch the reinsurance
brokerage to which Blanch is entitled under those reinsurance contracts.
Alternatively, if it is determined that Unicover misrepresented its authority to
bind ReliaStar, Blanch should be awarded money damages resulting from its
reliance on those misrepresentations.
This lawsuit is in the pre-trial stage, with a trial expected to occur
sometime in 2000. Blanch intends to defend vigorously the claims made against it
by ReliaStar and to pursue vigorously its counterclaims against ReliaStar and
Unicover.
<PAGE>
Management believes, based on current information, that these actions will
not have a material adverse effect upon the financial position or results of
operations of the Company.
15 FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK
At December 31, 1999, the Company had three forward foreign exchange contracts
outstanding in which the Company will buy $5 million with British Pound Sterling
on March 1, 2000, at a forward exchange rate of 1.6075; $5 million with British
Pound Sterling on June 28, 2000, at a forward exchange rate of 1.5984; and $5
million with British Pound Sterling on October 25, 2000, at a forward exchange
rate of 1.5894. The fair value of these contracts at December 31, 1999,
calculated using the exchange rate on that date, was $0.2 million.
16 BUSINESS SEGMENT INFORMATION
The Company provides risk management and distribution services to insurance and
reinsurance companies. These services are sold both on bundled and component
bases. All of the Company's operational revenues are generated from these
services. The Company's reportable segments are based on geographic areas in
which the Company markets its risk management and distribution services. The
reportable geographic segments are managed separately. Domestic operations were
further classified into Primary and Wholesale Insurance Services ("Wholesale")
in 1998 and 1997. Wholesale included the Company's general agency operations
until they were sold in the second quarter of 1998. The general agency
operations provided primary distribution of insurance to property and casualty
insurance companies, largely through independent insurance agents. Foreign
operations include certain immaterial United States operations.
<PAGE>
The following is additional business segment information for the year ended
December 31:
<TABLE>
<CAPTION>
Domestic
Domestic Wholesale Domestic Foreign
(IN THOUSANDS) Primary Ins. Services Total Operations Consolidated
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999
Profit, net of tax $ 34,122 $ -- $ 34,122 $ 5,588 $ 39,710
Revenues 185,015 -- 185,015 59,445 244,460
Interest revenue 6,773 -- 6,773 2,248 9,021
Interest expense 472 -- 472 1,093 1,565
Depreciation & amortization expense 9,732 -- 9,732 3,158 12,890
Equity in interest in loss of unconsolidated subsidiaries 6,863 -- 6,863 -- 6,863
Income tax 28,283 -- 28,283 3,854 32,137
Total assets 764,712 -- 764,712 467,153 1,231,865
Net assets 145,771 -- 145,771 11,164 156,935
Amount of investment in equity method investees 7,948 -- 7,948 -- 7,948
Expenditures for long-lived assets 35,198 -- 35,198 4,731 39,929
1998
Profit (Loss), net of tax $ 30,423 $ (832) $ 29,591 $ 2,172 $ 31,763
Revenues 158,443 4,386 162,829 49,893 212,722
Interest revenue 6,410 79 6,489 2,620 9,109
Interest expense 537 (125) 412 1,273 1,685
Depreciation & amortization expense 7,344 1,227 8,571 3,552 12,123
Equity in interest in loss of unconsolidated subsidiaries 3,831 -- 3,831 -- 3,831
Income tax 23,449 (710) 22,739 2,002 24,741
Total assets 685,604 -- 685,604 247,652 933,256
Net assets 105,389 -- 105,389 5,248 110,637
Amount of investment in equity method investees 20,014 -- 20,014 -- 20,014
Expenditures for long-lived assets 22,393 379 22,772 3,264 26,036
1997
Profit (Loss), net of tax $ 23,931 $ (540) $ 23,391 $ 2,312 $ 25,703
Revenues 118,374 10,580 128,954 37,843 166,797
Interest revenue 6,006 488 6,494 2,200 8,694
Interest expense 223 -- 223 1,103 1,326
Depreciation & amortization expense 4,415 1,326 5,741 2,813 8,554
Equity in interest in loss of unconsolidated subsidiaries -- -- -- -- --
Income tax 15,096 (142) 14,954 2,054 17,008
Total assets 645,374 42,957 688,331 231,436 919,767
Net assets 75,547 12,328 87,875 (11,423) 76,452
Amount of investment in equity method investees -- -- -- -- --
Expenditures for long-lived assets 9,512 297 9,809 21,391 31,200
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
17 SUBSEQUENT EVENT
In March 2000, the Company purchased 15,798 shares of its common stock, at a
price of $47.07 per share, from its Chairman. Total consideration was $0.7
million.
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1999
REVENUES:
Operations $59,668 $56,463 $56,453 $62,855
Interest income 2,344 1,929 2,549 2,199
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 62,012 58,392 59,002 65,054
EXPENSES:
Salaries and benefits 25,885 23,864 23,770 22,062
Travel and marketing 3,503 4,629 3,277 4,979
General and administrative 12,337 11,285 10,608 14,494
Amortization of goodwill 771 749 735 1,040
Interest expense 320 123 245 877
- --------------------------------------------------------------------------------------------------------------------------------
Total expenses 42,816 40,650 38,635 43,452
- --------------------------------------------------------------------------------------------------------------------------------
Income before taxes 19,196 17,742 20,367 21,602
Income taxes 7,894 7,682 7,832 8,729
- --------------------------------------------------------------------------------------------------------------------------------
Net income before minority interest and equity interest
in loss of unconsolidated subsidiaries 11,302 10,060 12,535 12,873
Minority interest, net of tax 231 (43) 17 (8)
Equity interest in loss of unconsolidated subsidiaries, net of tax 1,581 2,230 1,761 1,291
================================================================================================================================
Net Income 9,490 7,873 10,757 11,590
================================================================================================================================
Earnings per share - basic $ 0.74 $ 0.61 $ 0.83 $ 0.89
Earnings per share - assuming dilution $ 0.70 $ 0.58 $ 0.78 $ 0.84
================================================================================================================================
1998
REVENUES:
Operations $44,805 $45,284 $52,539 $60,985
Interest income 2,147 2,083 2,504 2,375
- --------------------------------------------------------------------------------------------------------------------------------
Total revenues 46,952 47,367 55,043 63,360
EXPENSES:
Salaries and benefits 21,572 23,417 22,894 24,769
Travel and marketing 3,135 4,305 3,609 4,622
General and administrative 8,659 8,778 10,018 10,692
Amortization of goodwill 694 694 696 1,153
Interest expense 374 469 550 292
- --------------------------------------------------------------------------------------------------------------------------------
Total expenses 34,434 37,663 37,767 41,528
- --------------------------------------------------------------------------------------------------------------------------------
Income before taxes 12,518 9,704 17,276 21,832
Income taxes 4,808 3,699 6,689 9,545
- --------------------------------------------------------------------------------------------------------------------------------
Net income before minority interest and equity interest
in loss of unconsolidated subsidiaries 7,710 6,005 10,587 12,287
Minority interest, net of tax 180 (127) 535 407
Equity interest in loss of unconsolidated subsidiaries, net of tax 441 536 1,435 1,419
================================================================================================================================
Net Income $ 7,089 $ 5,596 $ 8,617 $10,461
================================================================================================================================
Earnings per share - basic $ 0.56 $ 0.44 $ 0.67 $ 0.82
Earnings per share - assuming dilution $ 0.53 $ 0.42 $ 0.65 $ 0.79
================================================================================================================================
Equity interest in loss of unconsolidated subsidiaries as per
filed 10-Q documents -- -- 146
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
THE REASON FOR THE DIFFERENCE IN EQUITY INTEREST IN LOSS OF UNCONSOLIDATED
SUBSIDIARIES FOR THE FIRST THREE QUARTERS OF 1998 IS DUE TO THE COMPANY
INCREASING ITS EQUITY INVESTMENT IN INSURANCE HOLDINGS OF AMERICA, INC. ABOVE
20% IN THE FOURTH QUARTER. THE QUARTERLY SCHEDULE REPORTS RESULTS AS IF THE
COMPANY HAD ACCOUNTED FOR THIS INVESTMENT USING THE EQUITY ACCOUNTING METHOD
FOR THE ENTIRE YEAR.
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
State or other jurisdiction of
Name of Subsidiary incorporation or organization
- ------------------ -----------------------------
Blanch Catastophe Services, Inc. Delaware
Blanch, L. P. Texas
E.W. Blanch DL, LLC Delaware
E.W. Blanch GP, Inc. Delaware
E.W. Blanch Capital Risk Solutions, Inc. Delaware
E.W. Blanch Co., Inc. Delaware
E.W. Blanch Insurance Services, Inc. Delaware
E.W. Blanch International, Inc. Delaware
Paragon Reinsurance Risk Management
Services, Inc. Delaware
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-09712) pertaining to the 1993 Stock Incentive Plan of E.W. Blanch
Holdings, Inc., the Registration Statement (Form S-8 No. 333-65689) pertaining
to the K2 Technologies, Inc. 1994 Stock Plan, K2 Technologies, Inc. 1996 Stock
Plan, K2 Technologies, Inc. 1998 Key Person Stock Option Plan, and the
Registration Statement (Form S-8 No. 333-45261) pertaining to the Non-Employee
Directors' Stock Plan, Directors' Stock Option Plan, Executive Restricted Stock
Incentive Plan, and the 1997 Stock Incentive Plan, of our report dated January
25, 2000, with respect to the consolidated financial statements of E.W. Blanch
Holdings, Inc. incorporated by reference in the Annual Report (Form 10-K) for
the year ended December 31, 1999.
/s/ ERNST & YOUNG LLP
Dallas, Texas
March 30, 2000
EXHIBIT 24
POWER OF ATTORNEY
I, Kaj Ahlmann, the undersigned, of 17945 Rosewood, Stillwell,
Kansas 66085, make, constitute, and appoint Edgar W. Blanch, Jr., of P.O. Box
1409, Boerne, Texas 78006, my true and lawful attorney-in-fact, in my name,
place and stead sign the E. W. Blanch Holdings, Inc. Annual Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1999.
/s/ Kaj Ahlmann
(Acknowledgment)
STATE OF Texas)
) SS.
COUNTY OF Dallas)
The foregoing instrument was acknowledged before me this 9th day of
March, 2000, by Kaj Ahlmann.
/s/ Lola A. Richert
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, Paul B. Ingrey, the undersigned, of 11 Capri Court, Palm Coast,
Florida 32137, make, constitute, and appoint Edgar W. Blanch, Jr., of P.O. Box
1409, Boerne, Texas 78006, my true and lawful attorney-in-fact, in my name,
place and stead sign the E. W. Blanch Holdings, Inc. Annual Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1999.
/s/ Paul B. Ingrey
(Acknowledgment)
STATE OF Florida)
) SS.
COUNTY OF Flagler)
The foregoing instrument was acknowledged before me this 17th day of
February, 2000, by Paul B. Ingrey.
/s/ Stephanie M. Bernhard
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, Gerald A. Isom, the undersigned, of 95 Fairview Road, Penn
Valley, Pennsylvania 19072, make, constitute, and appoint Edgar W. Blanch, Jr.,
of P.O. Box 1409, Boerne, Texas 78006, my true and lawful attorney-in-fact, in
my name, place and stead sign the E. W. Blanch Holdings, Inc. Annual Report to
the Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1999.
/s/ Gerald A. Isom
(Acknowledgment)
STATE OF Pennsylvania)
) SS.
COUNTY OF Montgomery)
The foregoing instrument was acknowledged before me this 21st day of
February, 2000, by Gerald A. Isom.
/s/ John S. Riblet
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, James N. Land, Jr., the undersigned, of P. O. Box 822, Short
Hills, New Jersey 07078, make, constitute, and appoint Edgar W. Blanch, Jr., of
P.O. Box 1409, Boerne, Texas 78006, my true and lawful attorney-in-fact, in my
name, place and stead sign the E. W. Blanch Holdings, Inc. Annual Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1999.
/s/ James N. Land, Jr.
(Acknowledgment)
STATE OF New Jersey)
) SS.
COUNTY OF Morris)
The foregoing instrument was acknowledged before me this 22nd day of
February, 2000, by James N. Land, Jr.
/s/ Percy Pacheco
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, William B. Madden, the undersigned, of 4520 Belfort, Dallas,
Texas 75205, make, constitute, and appoint Edgar W. Blanch, Jr., of P.O. Box
1409, Boerne, Texas 78006, my true and lawful attorney-in-fact, in my name,
place and stead sign the E. W. Blanch Holdings, Inc. Annual Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1999.
/s/ William B. Madden
(Acknowledgment)
STATE OF Texas)
) SS.
COUNTY OF Dallas)
The foregoing instrument was acknowledged before me this 18th day of
February, 2000, by William B. Madden.
/s/ Anne Rush
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, Steven G. Rothmeier, the undersigned, of P. O. Box 11901, St.
Paul, Minnesota 55111-0901, make, constitute, and appoint Edgar W. Blanch, Jr.,
of P.O. Box 1409, Boerne, Texas 78006, my true and lawful attorney-in-fact, in
my name, place and stead sign the E. W. Blanch Holdings, Inc. Annual Report to
the Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1999.
/s/ Steven G. Rothmeier
(Acknowledgment)
STATE OF Minnesota)
) SS.
COUNTY OF Ramsey)
The foregoing instrument was acknowledged before me this 22nd day of
February, 2000, by Steven G. Rothmeier.
/s/ Sally A. Taverna
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, Chris L. Walker, the undersigned, of 15430 Masons Pointe, Eden
Prairie, Minnesota 55347, make, constitute, and appoint Edgar W. Blanch, Jr., of
P.O. Box 1409, Boerne, Texas 78006, my true and lawful attorney-in-fact, in my
name, place and stead sign the E. W. Blanch Holdings, Inc. Annual Report to the
Securities and Exchange Commission on Form 10-K for the fiscal year ended
December 31, 1999.
/s/ Chris L. Walker
(Acknowledgment)
STATE OF Minnesota)
) SS.
COUNTY OF Dakota)
The foregoing instrument was acknowledged before me this 1st day of
March, 2000, by Chris L. Walker.
/s/ Patricia K. Hanson
Signature of Notary Public
<PAGE>
POWER OF ATTORNEY
I, Frank S. Wilkinson, Jr., the undersigned, of 2240 W. Lake Isles
Parkway, Minneapolis, Minnesota 55405, make, constitute, and appoint Edgar W.
Blanch, Jr., of P.O. Box 1409, Boerne, Texas 78006, my true and lawful
attorney-in-fact, in my name, place and stead sign the E. W. Blanch Holdings,
Inc. Annual Report to the Securities and Exchange Commission on Form 10-K for
the fiscal year ended December 31, 1999.
/s/ Frank S. Wilkinson, Jr.
(Acknowledgment)
STATE OF Minnesota)
) SS.
COUNTY OF Hennepin)
The foregoing instrument was acknowledged before me this 18th day of
February, 2000, by Frank S. Wilkinson, Jr.
/s/ Kelly Renee Burns
Signature of Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY DATA EXTRACTED FROM THE CONSOLIDATED BALANCE
SHEET AS OF DECEMBER 31, 1999 AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
TWELVE MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 6,662
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 77,905
<PP&E> 71,524
<DEPRECIATION> 30,606
<TOTAL-ASSETS> 1,231,865
<CURRENT-LIABILITIES> 97,916
<BONDS> 0
0
0
<COMMON> 141
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,231,865
<SALES> 235,439
<TOTAL-REVENUES> 244,460
<CGS> 0
<TOTAL-COSTS> 165,553
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,565
<INCOME-PRETAX> 78,907
<INCOME-TAX> 32,137
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,710
<EPS-BASIC> 3.07
<EPS-DILUTED> 2.89
</TABLE>
