AGREEMENT OF MERGER
OF
HILB, XXXXX AND XXXXXXXX COMPANY OF TALLAHASSEE
INTO
XXXX INSURANCE GROUP, INC.
THIS MERGER AGREEMENT ("Agreement"), to be effective as of 12:01
a.m., on October 1, 1998, or at such other time as may be agreed upon by
the parties hereto, is made and entered into by and among HILB, XXXXX AND
XXXXXXXX COMPANY, a Virginia corporation ("Parent"), for itself and as
agent for its wholly-owned subsidiary to be formed pursuant to this
Agreement, HILB, XXXXX AND XXXXXXXX COMPANY OF TALLAHASSEE, a Florida
corporation ("HRH Merger Subsidiary"), and XXXX INSURANCE GROUP, INC., a
Florida corporation ("Merging Entity"), and the five shareholders of
Merging Entity, XXXX X. XXXX, XX. ("Xx. X. Xxxx"), XXXXX X. XXXX ("Xx.
X. Xxxx"), XXXXXXX X. XXXX ("Xx. X. Xxxx"), XXXXX X. XXXX ("Xx. Xxxx"),
and P. XXXXXX XXXXXX ("Xx. Xxxxxx"), (with Messrs. X. Xxxx, X. Xxxx, X.
Xxxx, Xxxx and Xxxxxx hereinafter sometimes collectively referred to as
"Shareholders" or any one of the foregoing hereinafter sometimes referred
to as "Shareholders"), with reference to the following facts:
A. Shareholders are the owners and holders of all of the issued
and outstanding shares of the authorized capital stock (referred to below
as the "Common Stock") of Merging Entity which is engaged in the business
of owning and operating a general insurance agency.
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B. Parent is engaged in the business of owning and operating
insurance agencies and will form HRH Merger Subsidiary for the purposes
contemplated herein.
C. Shareholders, Parent and Merging Entity have reached an
understanding with respect to the merger of HRH Merger Subsidiary into
Merging Entity ("Merger") for which Shareholders shall receive that
amount of Parent's common stock as the consideration stated herein.
D. The parties hereto intend that this Agreement be characterized
as a reverse, triangular statutory merger pursuant to Sections
368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986
("Code") and further be accounted for as a "purchase" in accordance with
Accounting Principles Board Opinion Number 16 and other applicable
guidelines.
In consideration of the foregoing facts and of the respective
representations, warranties, covenants, conditions and agreements set
forth below, the parties hereto, intending to be legally bound hereby,
agree as follows:
1. PLAN OF MERGER.
1.1 Effective Date. Subject to fulfillment of the conditions
precedent in Sections 6 and 7 of this Agreement, Merging Entity and HRH
Merger Subsidiary (collectively, "Constituents") will cause Articles of
Merger to be signed, verified and delivered on or before October 1, 1998
(or at such later time as may be agreed upon by the parties), to the
Secretary of State of Florida and to be effective as of 12:01 a.m. on
October 1, 1998 (or at such later time as may be agreed upon by the
parties) ("Effective Date"), as provided by the laws of the State of
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Florida. On the Effective Date, the separate existence of each entity of
Constituents shall cease and HRH Merger Subsidiary shall be merged with
and into Merging Entity, which shall then become the Surviving
Corporation.
1.2 Corporate Structure of Surviving Corporation.
(a) On the Effective Date, by virtue of the completion of the
Merger, and thereafter until amended as provided by law, the name of
Surviving Corporation and the articles of incorporation of Surviving
Corporation shall be the name and articles of incorporation of Merging
Entity in effect immediately prior to the completion of the Merger.
(b) On the Effective Date, by virtue of the completion of the
Merger, the bylaws of Merging Entity in effect on the Effective Date
shall be the bylaws for Surviving Corporation.
(c) On the Effective Date, by virtue of the completion of the
Merger, the names and addresses of the directors for Surviving
Corporation shall be:
Xxxxxx X. Xxxxx
0000 Xxxxxxxx Xxxxx, X.X. Xxx 0000
Xxxx Xxxxx, Xxxxxxxx 00000-0000
Xxxxxxx X. Xxxxxx
0000 Xxxxxxxx Xxxxx, X.X. Xxx 0000
Xxxx Xxxxx, Xxxxxxxx 00000-0000
Xxxxxx X. Xxxxx
0000 Xxxxxxxx Xxxxx, X.X. Xxx 0000
Xxxx Xxxxx, Xxxxxxxx 00000-0000
(d) On the Effective Date, by virtue of completion of the
Merger, the officers of Surviving Corporation shall be:
Xxxx X. Xxxx, Xx. President and
Chairman
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Xxxxx X. Xxxx Executive Vice
President
Xxxxxxx X. Xxxx Vice President
P. Xxxxxx Xxxxxx Vice President
Xxxxxx X. Xxxxx Vice President
Xxxxxxx X. Xxxxxx Vice President
Xxxxxxx Xxxxx Vice President
Xxxxx X. Xxxx Treasurer,
Assistant Secretary
Xxxxxx X. Xxxxx Secretary
1.3
Effect of Merger.
(a) On the Effective Date, the assets and liabilities of HRH
Merger Subsidiary shall be taken on the books of Merging Entity at the
amount at which they shall at that time be carried on the books of HRH
Merger Subsidiary, subject to such adjustments to the books of Merging
Entity, if any, as may be necessary to conform to the accounting
procedures of Parent. The books of the Constituents, as so adjusted,
shall become the books of Surviving Corporation.
(b) On the Effective Date and thereafter, Surviving
Corporation shall possess all the rights, privileges, immunities, powers,
franchises and authority, both public and private, of each Constituent.
All property of every description, including every interest therein and
all obligations of or belonging to or due to each of Constituents shall
thereafter be taken and deemed to be transferred to and vested in
Surviving Corporation, without further act or deed, although HRH Merger
Subsidiary and Merging Entity from time to time, as and when required by
Surviving Corporation, shall execute and deliver, or cause to be executed
and delivered, all such deeds and other instruments and shall take, or
cause to be taken, such further action as Surviving Corporation may deem
necessary or desirable to confirm the transfer to and vesting in
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Surviving Corporation of title to and possession of all such rights,
privileges, immunities, franchises and authority. All rights of
creditors of each of Constituents shall be preserved unimpaired, limited
in lien to the property affected by such liens immediately prior to the
Effective Date, and Surviving Corporation shall thenceforth be liable for
all the obligations of each of Constituents.
1.4
Conversion of Shares of Common Stock.
(a) All of the outstanding capital stock of Merging Entity
comprises the Common Stock, which is owned, collectively, by
Shareholders. Each of Shareholders owns, free and clear of any liens,
encumbrances, restrictions or adverse claims whatsoever except as set
forth in Schedule 2.4, the number of shares of Merging Entity set forth
below opposite his name and each Shareholder shall receive therefor for
each share of Common Stock the number of shares of no par value common
stock of Parent as described herein:
Shareholder Number of Shares Percentage
Xxxx X. Xxxx, Xx. 3,635 67.628%
Xxxxx X. Xxxx 735 13.674%
Xxxxxxx X. Xxxx 735 13.674%
Xxxxx X. Xxxx 135 2.512%
P. Xxxxxx Xxxxxx 135 2.512%
In exchange for all of the shares of Common Stock, Shareholders shall
collectively receive up to $4,725,000 worth of shares of common stock of
Parent (_HRH Stock_), subject to adjustment as provided in Section 14 and
to all the terms and conditions contained herein. This Agreement shall
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not be consummated under any circumstances unless 100% of the shares of
Common Stock are exchanged for shares of HRH Stock.
(b) The manner and basis of conversion of shares on the
Effective Date shall be as follows:
(i) Each share of common stock of HRH Merger Subsidiary
which is issued and outstanding on the Effective Date, with all rights
with respect thereto, shall become one (1) share of common stock, $1 par
value, of Surviving Corporation.
(ii) Each share of Common Stock which is issued and
outstanding on the Effective Date, with all rights with respect thereto,
shall be converted into a value of shares (which number of shares is
subject to adjustment and is to be delivered as provided in Section 14)
of common stock, no par value, of Parent. No fractional shares of HRH
Stock will be issued as the number of shares to be issued to any
Shareholder in accordance with the preceding sentence shall be rounded up
or down to the nearest whole number (a fractional share of 0.5 or more
will be rounded up; less than 0.5 will be rounded down). Each
shareholder of Common Stock, upon delivery to Parent or its duly
authorized agent for cancellation of certificates representing such
shares and subject to any other limitations herein, shall thereafter be
entitled to receive certificates representing the number of shares of HRH
Stock to which such Shareholder is entitled.
(c) Appropriate adjustment shall be made on the number of
shares of HRH Stock to be issued upon conversion if, during the period
commencing on September 10, 1998, and ending on the Effective Date,
Parent: (i) effects any dividend payable in shares of common stock; (ii)
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splits or combines the outstanding shares of HRH Stock; (iii) effects any
extraordinary distribution on HRH Stock; (iv) effects any reorganization
or reclassification of HRH Stock; or (v) fixes a record date for the
determination of shareholders entitled to any of the foregoing.
(d) Upon delivery of Common Stock to Parent pursuant to
subsection 1.4(b)(ii), Parent shall receive all of the shares of common
stock of Surviving Corporation outstanding pursuant to subsection
1.4(b)(i).
(e) Until its surrender, each certificate comprising Common
Stock referred to in subsection 1.4(b)(ii) herein shall be deemed for all
corporate purposes, other than the payment of dividends, to evidence
ownership of the number of full shares of HRH Stock into which such
shares of Common Stock shall have been changed by virtue of the merger.
Unless and until any such outstanding certificates of Common Stock shall
be so surrendered, no dividend payable to the holders of record of HRH
Stock, as of any date subsequent to the Effective Date, shall be paid to
the holders of such outstanding certificates, but upon such surrender of
any such certificate or certificates there shall be paid to the record
holder of the certificate or certificates of HRH Stock into which the
shares represented by the surrendered certificate or certificates shall
have been so changed the amount of such dividends which theretofore
became payable with respect to such shares of Parent.
1.5
Closing Date. The closing of the transactions contemplated by
this Agreement ("Closing") shall take place at the offices of Xxxxxx,
Xxxxxxx & Monroe, located at Tallahassee, Florida, at 11:00 o'clock a.m.
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on September 30, 1998, or at such other place and time as shall be
mutually agreed upon by the parties to this Agreement ("Closing Date").
2. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Shareholders,
jointly and severally, represent and warrant to Parent as follows:
2.1 Organization and Standing of Merging Entity
. Merging Entity is
a corporation duly organized, validly existing and in good standing under
the laws of the State of Florida ("Home State") and has full power and
authority to carry on its business as it is now being conducted and to
own or hold under lease the properties and assets it now owns or holds
under lease. Except as set forth in Schedule 2.1 to this Agreement,
Merging Entity is not qualified to do business in any state or other
jurisdiction other than Home State. Except as set forth in Schedule 2.1,
the nature of the business conducted by Merging Entity and the character
or ownership of properties owned by it does not require Merging Entity to
be qualified to do business in any other jurisdiction. Furthermore,
except as set forth in Schedule 2.1 to this Agreement, the nature of the
business conducted by Merging Entity does not require it or any of its
employees to qualify for, or to obtain any insurance agency, brokerage,
adjuster, or other similar license in any jurisdiction other than Home
State. The copy of the articles of incorporation, and all amendments
thereto, of Merging Entity heretofore delivered to Parent and which have
been or will be initialed for identification purposes by the President of
Merging Entity is complete and correct as of the date hereof. The copy
of the bylaws, and all amendments thereto, of Merging Entity heretofore
delivered to Parent and which have been or will be initialed for
identification purposes by the President of Merging Entity is complete
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and correct as of the date hereof. The minute book or minute books of
Merging Entity contain a complete and accurate record in all material
respects of all meetings and other corporate actions of the shareholders
and directors of Merging Entity.
2.2 Name.
Neither Merging Entity nor any of Shareholders has
granted to anyone any right to use the corporate name or any name similar
to the corporate name of Merging Entity.
2.3 Capitalization of Merging Entity.
The capitalization of Merging Entity is as follows:
(a) Merging Entity is authorized
to issue 10,000 shares of voting common stock, $1 par value. Merging
Entity is not authorized to issue, and has not issued, any shares of any
other class. All of the shares comprising Common Stock outstanding and
owned as of the date hereof are as set forth in Section 1.4(a), supra.
(b) All of the outstanding shares of Common Stock have been
duly and validly issued and are fully paid and nonassessable. The
issuance of all shares of Common Stock was and has been in compliance
with all applicable statutes, rules and regulations, including, without
limitation, all applicable federal and state securities laws. There is
no existing option, warrant, call or commitment to which Merging Entity
is a party requiring the issuance of any additional shares of common
stock of Merging Entity or of any other securities convertible into
shares of common stock of Merging Entity or any other equity security of
Merging Entity of any class or character whatsoever.
(c) No shares of the authorized stock of Merging Entity have
ever been registered under the provisions of any federal or state
securities law, nor has Merging Entity filed or been required to file any
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report with any federal or state securities commission, department,
division or other governmental agency.
(d) No present or prior holder of any shares of the authorized
stock of Merging Entity is entitled to any dividends with respect to any
such shares now or heretofore outstanding.
2.4 Ownership ofCommon Stock
. Except as set forth in Schedule 2.4, each Shareholder is
the record owner, free and clear of any and all liens, encumbrances,
restrictions and adverse claims whatsoever, of the number of shares of
Common Stock set forth opposite his name in subsection 1.4(a). Each such
lien, encumbrance, restriction or adverse claim can and will be removed
at or prior to the Closing.
Merging Entity is autonomous and has never been a subsidiary or
division of another enterprise. There has been no change in the equity
interest of Merging Entity in contemplation of effecting this Agreement,
such as excessive distributions or additional issuances, exchanges or
retirements of securities. Any shares of Common Stock reacquired by
Merging Entity were reacquired only for legitimate purposes other than
business combinations. Schedule 2.4 describes all changes, issuances,
exchanges and retirements of equity securities within the last three
years as well as the legitimate purpose (i.e. other than effecting this
Agreement) for each such transaction.
2.5
Authority . Shareholders, individually and collectively, have
full and complete authority to enter into this Agreement and to transfer
in accordance with the terms and conditions of this Agreement all of the
shares of Common Stock, free and clear of all liens, encumbrances,
restrictions and adverse claims whatsoever. The execution, delivery and
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performance of this Agreement by Merging Entity does not violate, result
in a breach of, or constitute a default under, the articles of
incorporation or bylaws of Merging Entity or any indenture, contract,
agreement or other instrument to which it is a party or is bound, or to
the best knowledge of Shareholders and Merging Entity, any applicable
laws, rules or regulations.
2.6
Subsidiaries and Other Relationships. Except as disclosed on
Schedule 2.6, Merging Entity does not own any stock or other interest in
any other corporation, nor is it a participant in any joint entity.
Except as disclosed on Schedule 2.6, any stock owned by Merging Entity in
any other entity represents one hundred percent (100%) ownership of such
entity, is owned free and clear of any and all liens, encumbrances,
restrictions and adverse claims, has been duly and validly issued and is
fully paid and nonassessable.
2.7
Financial Statements. Shareholders and Merging Entity have
caused or will cause to be delivered to Parent a true and complete copy
of the audited financial statements of Merging Entity, prepared under the
accounting guidelines of Parent, previously provided to them in the form
of Parent's Accounting Policies and Procedures Manual ("GAAP Policy"),
together with an unqualified opinion and an accountant's consent to use
such statements in a SEC registration statement, for the three most
recent calendar years of Merging Entity including, without limitation,
balance sheets and statements of income for the periods referred to above
(collectively, "Financial Statements"). In addition, Shareholders and
Merging Entity have delivered to Parent a true and complete copy of the
unaudited financial statements of Merging Entity for the most recent
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month ended, including, without limitation, a balance sheet and statement
of income for such period then ended ("Interim Statements"). Each of the
Financial Statements is true and correct, is in accordance with the books
and records of Merging Entity, presents fairly the financial condition
and results of operations of Merging Entity as of the date and for the
period indicated, and has been prepared in accordance with Parent's GAAP
Policy consistently applied throughout the periods covered by such
statements (including, but not limited to, the establishment of reserves
for bad debts and accruals for all outstanding debts and expenses).
Furthermore, neither the Financial Statements nor the Interim Statements
contained any untrue statement of any material fact or omitted to state
any material fact required to be stated to make such Financial Statements
or Interim Statements not misleading. Without limiting the generality of
the foregoing, the commission income reflected in each of the Financial
Statements and Interim Statements is or will be true and correct, and the
accounts payable reflected in each of the Financial Statements and
Interim Statements is or will be true and correct.
2.8
Absence of Undisclosed Liabilities. (The term "Most Recent
Balance Sheet," as used in this Agreement, means the balance sheet of
Merging Entity at August 30, 1998. Also, the term "Most Recent Balance
Sheet Date," as used in this Agreement, means August 30, 1998.)
Except as and to the extent specifically reflected, provided for or
reserved against in the Most Recent Balance Sheet or except as disclosed
in any Schedule to this Agreement, Merging Entity, as of the Most Recent
Balance Sheet Date, did not have any indebtedness, liability or
obligation of any nature whatsoever, whether accrued, absolute,
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contingent or otherwise, and whether due or to become due, including,
without limitation, tax liabilities due or to become due, and whether
incurred in respect of or measured by the income of Merging Entity for
any period prior to the Most Recent Balance Sheet Date, or arising out of
transactions entered into, or any state of facts existing, prior thereto,
and none of Shareholders knows or has reasonable grounds to know of any
basis for the assertion against Merging Entity, as of the Most Recent
Balance Sheet Date, of any indebtedness, liability or obligation of any
nature or in any amount not fully reflected or reserved against in the
Most Recent Balance Sheet or otherwise disclosed in any Schedule to this
Agreement.
2.9
No Adverse Change. Since the Most Recent Balance Sheet Date,
there has been no material change in the financial condition, results of
operations or business prospects of Merging Entity other than changes
occurring in the ordinary course of business or except as otherwise
disclosed in any of the Schedules to this Agreement, which changes have
not had a material adverse effect on the financial condition, results of
operations or business prospects of Merging Entity. Without limiting the
generality of the foregoing, since the Most Recent Balance Sheet Date,
there has been no material adverse change in the insurance accounts
included within the "Book of Business" of Merging Entity, and Shareholder
neither knows nor has reasonable grounds to know of any basis for any
material adverse change in such insurance accounts between the date
hereof and the Effective Date. For purposes hereof, "material adverse
change" in the insurance accounts included in the "Book of Business" of
Merging Entity means, without limitation, the loss of any account
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generating an aggregate annual gross income (commission or otherwise) of
$10,000 or more.
2.10
Taxes. Merging Entity has filed all federal, state and local
income, withholding, social security, unemployment, excise, real property
tax, tangible personal property tax, intangible personal property tax and
all other tax returns and reports required to be filed by it to the date
hereof and all of such returns and reports are true and correct. All
taxes, assessments, fees, penalties, interest and other governmental
charges which were required to be paid by Merging Entity on such returns
and reports have been duly paid and satisfied on or before their
respective due dates. No tax deficiency or penalty has been asserted or
threatened with respect to Merging Entity. No federal or state income
tax return of Merging Entity has been audited or, to the knowledge of any
Shareholder, proposed to be audited, by any federal or state taxing
authority, including, without limitation, the U.S. Internal Revenue
Service and the Florida Department of Revenue, and no waiver of any
statute of limitations has been given or is in effect with respect to the
assessment of any taxes against Merging Entity. The provisions for taxes
included in the Most Recent Balance Sheet and in the Prior Years
Financial Statements were sufficient for the payment of all accrued and
unpaid federal, state and local income, withholding, social security,
unemployment, excise, real property, tangible personal property,
intangible personal property and other taxes of Merging Entity, whether
or not disputed, for the periods reflected, and for all years and periods
prior thereto.
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2.11 Real and Personal Property Owned by Merging Entity
. Merging
Entity does not own any real property. Schedule 2.11 consists of a copy
of the depreciation schedules filed as a part of the two prior annual
Federal income tax returns of Merging Entity (with deletions of any items
disposed of prior to the date of this Agreement), a separate list of each
item of depreciable personal property acquired by Merging Entity since
the Most Recent Balance Sheet Date and having a cost of $1,000.00 or
more, and a separate list of each item of intangible personal property
presently owned by Merging Entity. Merging Entity also owns various
items of disposable type personal property such as office supplies that
are not listed in Schedule 2.11. Merging Entity has good and marketable
title to all such tangible and intangible personal property, in each case
free and clear of all mortgages, security interests, conditional sales
agreements, claims, restrictions, charges or other liens or encumbrances
whatsoever except as otherwise stated in Schedule 2.11.
2.12 Leases.
Schedule 2.12 contains a correct and complete list and
brief description of all leases or other agreements under which Merging
Entity is a tenant or lessee of, or holds or operates any property, real
or personal, owned by any third party. Merging Entity is the owner and
holder of the leasehold estates granted by each of the instruments
described in Schedule 2.12 except as otherwise stated in Schedule 2.12.
Each of said leases and agreements is in full force and effect and
constitutes a legal, valid and binding obligation of the respective
parties thereto, enforceable in accordance with its terms. Merging Entity
enjoys peaceful and undisturbed possession of all properties covered by
all such leases and agreements, and there is not any existing default or
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event or condition, including the Merger contemplated herein, which with
notice or lapse of time, or both, would constitute an event of default
under any of such leases or agreements.
2.13
Insurance. Schedule 2.13 contains a correct and complete list,
as of the date hereof, of all policies of casualty, fire and extended
coverage, theft, errors and omissions, liability, life, and other forms
of insurance owned or maintained by Merging Entity. All business
operations of Merging Entity are and have been since January 1, 1989,
continually insured against errors and omissions. Such policies are in
amounts deemed by Shareholders to be adequate. Each such policy is, on
the date hereof, in full force and effect, and Merging Entity is not in
default with respect to any such policy.
Furthermore, Schedule 2.13 contains a correct and complete list of
all group life, group medical and disability or other similar forms of
insurance which constitute an obligation of or benefit provided by
Merging Entity as well as a list of any material (hospital or home care)
services known by Shareholders and Merging Entity to have been incurred
by Merging Entity's group health plan within 90 days of this date, which
list details with reasonable accuracy the recipients of such services and
the date of service. Schedule 2.13 also contains a list of any former
employees or their dependents who are presently under COBRA continuation
coverage and describes with reasonable particularity the pertinent
factors about each such person listed.
With respect to errors and omissions (professional liability)
insurance policies listed in Schedule 2.13 (which lists for each such
policy the carrier, retrodate, claims made or occurrence policy and
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limits), prior to the effective dates of such policies, Merging Entity
had not given notice to any prior insurer of any act, error or omission
in services rendered by any agent or employee of such corporation or that
should have been rendered by any agent or employee of such corporation
arising out of the operations of Merging Entity. Furthermore, to the
best knowledge of Shareholders, no agent or employee of Merging Entity
breached any such professional duty or obligation prior to the effective
dates of such policies. With respect to such policies, Merging Entity
has given notice of any and all claims for any act, error or omission by
any agent or employee of such corporation with respect to professional
services rendered or that should have been rendered as required by the
terms of such policies (if any such notice has been given, its contents
are described in Schedule 2.13). To the best knowledge of Shareholders,
Merging Entity has not taken, nor has it failed to take, any action which
would provide the insurer with a defense to its obligation under any such
policy; neither Merging Entity nor any Shareholder has received from any
such insurer any notice of cancellation or nonrenewal of any such policy,
and, except as set forth in Schedule 2.13, no Shareholder has any basis
to believe that Merging Entity, or any agent or employee of Merging
Entity, has breached any professional duty or obligation.
2.14
Insurance Companies. Schedule 2.14 contains a correct and
complete list of all insurance companies with respect to which Merging
Entity has an agency contract or similar relationship. Except as
identified in Schedule 2.14, all relations between Merging Entity and the
insurance companies represented by it are good, and no Shareholder has
any knowledge of any proposed termination of, or modification to, the
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existing relations between Merging Entity and any of such insurance
companies. Furthermore, except as otherwise set forth in Schedule 2.14,
all accounts with all insurance companies represented by Merging Entity
or with whom it transacts business are current and there are no
disagreements or unreconciled discrepancies between Merging Entity and
any such company as to the amounts owed by Merging Entity.
2.15 Customers
. Except as identified in Schedule 2.15, all
relations between Merging Entity and its present customers are good, and
no Shareholder has any knowledge of any proposed termination of any
insurance account presently written or serviced by Merging Entity. Also,
except as otherwise set forth in Schedule 2.15, all customer accounts,
including, without limitation, those accounts with respect to which
Merging Entity financed any premiums, are current. For purposes of
Section 2.15, the terms "insurance account" and "customer account" shall
be limited to accounts which generate an aggregate annual gross income
(commission or otherwise) of $10,000 or more.
2.16
Officers and Directors; Banks; Powers of Attorney. Schedule
2.16 contains a correct and complete list of all officers and directors
of Merging Entity, a correct and complete list of the names and addresses
of each bank in which Merging Entity has any account or safe deposit box,
together with the names of all persons authorized to draw on each such
account or having access to any such safe deposit box, and a correct and
complete list of the names of all persons holding powers of attorney from
Merging Entity.
2.17
Compensation and Fringe Benefits. Schedule 2.17 contains a
correct and complete list of each officer, director, employee or agent of
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Merging Entity in the format as set forth in Schedule 2.17. Also,
Schedule 2.17 contains a description of all fringe benefits presently
being provided by Merging Entity to any of its employees or agents.
2.18 Patents; Trademarks; Copyrights and Trade Names
. Merging
Entity owns or is possessed of or is licensed under such patents,
trademarks, trade names and copyrights (including, without limitation,
software) as are used in, and are of material importance to, the conduct
of its business, all of which are in good standing and uncontested.
Schedule 2.18 contains a correct and complete list of all material
patents, patent applications filed or to be filed, trademarks, trademark
registrations and applications, trade names, copyrights and copyright
registrations and applications owned by or registered in the name of
Merging Entity. There is no material claim pending or, to the best
knowledge of Shareholders, threatened against Merging Entity with respect
to any alleged infringement of any patent, trademark, trade name or
copyright owned or licensed to anyone other than Merging Entity.
2.19 Indebtedness
. Schedule 2.19 contains a correct and complete
list of all instruments, agreements or arrangements pursuant to which
Merging Entity has borrowed any money, incurred any indebtedness or
established any line of credit which represents a liability of Merging
Entity on the date hereof. True and complete copies of all such written
instruments, agreements or arrangements have heretofore been delivered
to, or made available for inspection by, Parent. Merging Entity has
performed all of the obligations required to be performed by it to date,
and is not in default in any material respect under the terms of any such
written instruments, agreements or arrangements, and no event has
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Xxxx Insurance Group Merger _ Draft 2 Page 19 of 59
occurred which, but for the passage of time or the giving of notice, or
both, would constitute such a default.
2.20
Employment Agreements and Other Material Contracts. Schedule
2.20 contains a complete copy of every employment agreement, independent
contractor and brokerage agreement, and a list and brief description of
all other material contracts, agreements and other instruments to which
Merging Entity is a party at the date hereof. Except as identified in
Schedule 2.20, or in any other Schedule attached to this Agreement,
Merging Entity is not a party to any oral or written: (i) material
contract, agreement or other instrument not made in the ordinary course
of business; (ii) contract for the employment of any person which is not
terminable (without liability) on 30 days or less notice; (iii) license,
franchise, distributorship, dealer, manufacturer's representative, sales
agency or advertising agreement; (iv) contract with any labor
organization; (v) lease, mortgage, pledge, conditional sales contract,
security agreement, factoring agreement or other similar agreement with
respect to any real or personal property, whether as lessor, lessee or
otherwise; (vi) contract to provide facilities, equipment, services or
merchandise to any other person, firm or corporation; (vii) contract for
the future purchase of materials, supplies, services, merchandise or
equipment; (viii) profit-sharing, bonus, deferred compensation, stock
option, severance pay, pension, retirement or other plan or agreement
providing employee benefits; (ix) agreement or arrangement for the sale
of any of its properties, assets or rights or for the grant of any
preferential rights to purchase any of its assets, properties, or rights;
(x) guaranty, subordination or other similar or related type of
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Xxxx Insurance Group Merger _ Draft 2 Page 20 of 59
agreement; (xi) contract or commitment for capital expenditures; (xii)
agreement or covenant not to compete, solicit or enter into any
particular line of business; or (xiii) agreement for the acquisition of
any business or substantially all of the properties, assets or stock or
other securities of any business under which there are any continuing or
unperformed obligations on the part of Merging Entity. Merging Entity is
not in default in any material respect under any agreement, lease,
contract or other instrument to which it is a party. No party with whom
Merging Entity has any agreement which is of material importance to its
business is in default thereunder.
2.21 Absence of Certain Events.
Since the Most Recent Balance Sheet Date, the business of Merging Entity
has been conducted only in the ordinary course and in substantially the
same manner as theretofore conducted, and, except as set forth in
Schedule 2.21 attached to this Agreement, or in any other Schedule
attached to this Agreement, Merging Entity has not, since the Most Recent
Balance Sheet Date: (i) issued any stocks, bonds or other corporate
securities or granted any options, warrants or other rights calling for
the issue thereof; (ii) incurred, or become subject to, any material
obligation or liability (whether absolute or contingent) except (A)
current liabilities incurred in the ordinary course of business, (B)
obligations under contracts entered into in the ordinary course of
business and (C) obligations under contracts not entered into in the
ordinary course of business which are listed in Schedule 2.20; (iii)
discharged or satisfied any lien or encumbrance or paid any obligation or
liability (whether absolute or contingent) other than current liabilities
shown on the Most Recent Balance Sheet and current liabilities incurred
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Xxxx Insurance Group Merger _ Draft 2 Page 21 of 59
since the Most Recent Balance Sheet Date in the ordinary course of
business; (iv) declared or made any payment of dividends or distribution
of any assets of any kind whatsoever to stockholders or purchased or
redeemed any of its capital stock; (v) mortgaged, pledged or subjected to
lien, charge or any other encumbrance, any of its assets and properties,
real, tangible or intangible; (vi) sold or transferred any of its assets,
properties or rights, or cancelled any debts or claims, except in each
case in the ordinary course of business, or entered into any agreement or
arrangement granting any preferential rights to purchase any of its
assets, properties or rights or which required the consent of any party
to the transfer and assignment of any of its assets, properties or
rights; (vii) suffered any extraordinary losses (whether or not covered
by insurance) or waived any extraordinary rights of value; (viii) entered
into any transaction other than in the ordinary course of business except
as herein stated; (ix) amended its articles of incorporation or bylaws;
(x) increased the rate of compensation payable or to become payable by it
to any of its employees or agents over the rate being paid to them at the
Most Recent Balance Sheet Date; (xi) made or permitted any amendment to
or termination of any material contract, agreement or license to which it
is a party other than in the ordinary course of business; or (xii) made
capital expenditures or entered into any commitments therefor aggregating
more than $5,000.00. Except as contemplated by this Agreement, or the
Schedules referred to in this Agreement, between the date hereof and the
Closing Date, Merging Entity will not, without the prior written consent
of Parent, do any of the things listed above in clauses (i) through (xii)
of this Section 2.21.
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2.22 Investigations and Litigation
. There is no investigation by
any governmental agency pending, or, to the best knowledge of
Shareholders, threatened against or adversely affecting Merging Entity,
and except as set forth on Schedule 2.22, there is no action, suit,
proceeding or claim pending, or, to the best knowledge of Shareholders,
threatened against Merging Entity, or any of its businesses, properties,
assets or goodwill, which might have a material adverse effect on such
corporation, or against or affecting the transactions contemplated by
this Agreement. There is no outstanding order, injunction, judgment or
decree of any court, government or governmental agency against or
affecting Merging Entity, or any of its businesses, properties, assets or
goodwill.
2.23 Overtime, Back Wages, Vacation and Minimum Wages
. To the best
knowledge of Shareholders, no present or former employee of Merging
Entity has any claim against Merging Entity (whether under federal or
state law) under any employment agreement, or otherwise, on account of or
for: (i) overtime pay for any period other than the current payroll
period; (ii) wages or salary for any period other than the current
payroll period; (iii) vacation or time off (or pay in lieu thereof),
other than that earned in respect of the current fiscal year; or (iv) any
violation of any statute, ordinance, rule or regulation relating to
minimum wages or maximum hours of work, except as otherwise set forth in
Schedule 2.23.
2.24
Discrimination, Occupational Safety and Other Statutes and
Regulations. To the best knowledge of Shareholders, no persons or
parties (including, without limitation, governmental agencies of any
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Xxxx Insurance Group Merger _ Draft 2 Page 23 of 59
kind) have any claim, or basis for any claim, action or proceeding,
against Merging Entity arising out of any statute, ordinance, rule or
regulation relating to discrimination in employment or employment
practices or occupational safety and health standards (including, without
limitation, The Occupational Safety and Health Act, The Fair Labor
Standards Act, Title VII of the Civil Rights Act of 1964, The Civil
Rights Act of 1992, The Americans with Disabilities Act, and The Age
Discrimination in Employment Act of 1967, as any of the same may have
been amended).
2.25 Employee Benefit Plans
.
(a) There are no employee benefit plans or arrangements of any
type, including but not limited to any retirement, health, welfare,
insurance, bonus, executive compensation, incentive compensation, stock
bonus, stock option, deferred compensation, commission, severance,
parachute, rabbi trust program or plan described in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA"), maintained by
Merging Entity, or with respect to which Merging Entity has a liability,
other than those set forth in Schedule 2.25(a) ("Employee Benefit
Plans").
(b) With respect to each Employee Benefit Plan, except as set
forth in Schedule 2.25(b): (i) if intended to qualify under Sections 79,
105, 106, 125, 129, 401(a), 401(k), 403(a), or 409, or other Sections, of
the Internal Revenue Code ("Code"), such plan so qualifies, and if
applicable, its trust is exempt from federal income tax under Code
Section 501(a); (ii) if intended to qualify as an organization described
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Xxxx Insurance Group Merger _ Draft 2 Page 24 of 59
in Section 501(c)(9) of the Code, such organization so qualifies and any
trusts established pursuant to its constitution are exempt from federal
income tax under Section 501(a) of the Code; (iii) such plan has been
administered and enforced in accordance with its terms and applicable
law; (iv) no breaches of fiduciary duty by Merging Entity, the Trustees,
or, to the best knowledge and belief of Merging Entity and Shareholders
after reasonable investigation, any other person, have occurred; (v) no
disputes are pending, or, to the knowledge of Merging Entity and
Shareholders, threatened; (vi) no nonexempt prohibited transaction has
occurred; (vii) there has been no reportable event for which the 30-day
notice requirement under ERISA has not been waived; (viii) all
contributions and premiums due have been made on a timely basis
(including, if applicable, the time limited established under Code
Sections 404 and 412); (ix) all contributions made or required to be made
meet the requirements for deductibility under the Code; (x) all
contributions which have not been made have been properly recorded in the
financial records of Merging Entity; and (xi) except as set forth in
Schedule 2.25(b), no liability (whether an indebtedness, a fine, a
penalty, a tax or any other amount) has been incurred or will be incurred
by Merging Entity as a result of its maintenance, operation or
termination of any Employee Benefit Plan.
(c) No Employee Benefit Plan is a multiemployer plan, as
defined in Section 4001(a)(3) of ERISA or a multiple employer plan. The
consummation of the transactions contemplated by this Agreement will not
entitle any individual to severance pay, and will not accelerate the time
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Xxxx Insurance Group Merger _ Draft 2 Page 25 of 59
of payment or vesting, or increase the amount, of compensation due to any
individual.
(d) With respect to each Employee Benefit Plan, Merging Entity
has delivered or caused to be delivered to Parent true and complete
copies, where applicable, of (i) all plan documents, amendments and trust
agreements currently in effect; (ii) all summary plan descriptions, or
other notices or summaries of modifications, which have been prepared by,
or on behalf of Merging Entity; (iii) all material employee
communications; (iv) the five (5) most recent annual reports (Forms
5500); (v) the most recent annual and any subsequent periodic accounting
of plan assets; and, (vi) the most recent determination letter received
from the IRS.
(e) With respect to each Employee Benefit Plan, there is no
pending claim or lawsuit which has been asserted against that Employee
Benefit Plan, the assets of any of the trusts under such Employee Benefit
Plan, Merging Entity, or any fiduciary of such Employee Benefit Plan with
respect to the operation of such Employee Benefit Plan. Merging Entity
and Shareholders, after reasonable investigation, know of no facts or
circumstances which could form the basis for any such claim or lawsuit.
(f) All amendments required to have been made to bring each
Employee Benefit Plan into conformity in all material respects with all
of the applicable provisions of the Code, ERISA and other applicable laws
have been made.
(g) Each Employee Benefit Plan has met, by its terms and in
its operation, all applicable requirements for an exemption from federal
income taxation under Section 501(a) of the Code.
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(h) Each Employee Benefit Plan has at all times been
maintained in accordance with all applicable laws, has complied with
applicable ERISA or other requirements; and, there are no actions,
audits, suits or claims which are threatened or pending against any such
Employee Benefit Plan, any fiduciary of any of the Employee Benefit
Plans, or against any of the assets of the Employee Benefit Plans.
(i) Merging Entity has made full and timely payment of all
amounts required to be contributed under the terms of each Employee
Benefit Plan and no event or condition exists regarding any of the
Employee Benefit Plans which could be deemed a "reportable event" with
respect to which the 30-day notice has not been waived which could result
in a material liability to Merging Entity and no event exists which would
subject Merging Entity to a material fine under Section 4701 of ERISA.
(j) Merging Entity is not subject to any material liability,
tax or penalty and the termination of or withdrawal from any Employee
Benefits Plan will not subject Merging Entity to any additional
contribution requirement and the execution or performance of the
transactions contemplated by this Agreement will not create, accelerate
or increase any obligations under any Employee Benefit Plan.
(k) Merging Entity has no obligation to any retired or former
employee or any current employee upon retirement under any Employee
Benefit Plan.
(l) Each Employee Benefit Plan maintained by Merging Entity
has at all times been maintained, by its terms and in operation, in
accordance with all applicable laws in all material respects, including
(to the extent applicable) Code Section 4980B. Further, there has been
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Xxxx Insurance Group Merger _ Draft 2 Page 27 of 59
no failure to comply with applicable ERISA or other requirements
concerning the filing of reports, documents and notices with the
Secretary of Labor and Secretary of Treasury or the furnishing of such
documents to participants or beneficiaries that could subject any
Employee Benefit Plan to any material civil or any criminal sanction or
could require any such person to indemnify any other person for such a
sanction. There are no actions, audit, suits or claims known to Merging
Entity or Shareholders which are pending or threatened against any
Employee Benefit Plan, any fiduciary of any of the Employee Benefit Plans
with respect to the Employee Benefit Plans or against the assets of any
of the Employee Benefit Plans, except claims for benefits made in the
ordinary course of the operation of such plans.
(m) Merging Entity is not subject to any material liability,
tax or penalty whatsoever to any person whomsoever as a result of Merging
Entity engaging in a prohibited transaction under ERISA or the Code, and
neither Merging Entity nor any of the Shareholders has knowledge of any
circumstances which reasonably might result in any such material
liability, tax or penalty as a result of a breach of fiduciary duty under
ERISA. The termination of or withdrawal from any Employee Benefit Plan
maintained by Merging Entity which is subject to Title IV of ERISA, or
any other Employee Benefit Plan, will not subject Merging Entity to any
additional contribution requirement or to any other liability, tax or
penalty whatsoever. The execution or performance of the transactions
contemplated by this Agreement will not create, accelerate or increase
any obligations under any Employee Benefit Plan. Merging Entity has no
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Xxxx Insurance Group Merger _ Draft 2 Page 28 of 59
obligation to any retired or former employee, or any current employee
upon retirement, under any Employee Benefit Plan.
2.26
Competitors. Except as disclosed in Schedule 2.26, none of
Shareholders has any interest, direct or indirect, as an owner, partner,
agent, shareholder, officer, director, employee, consultant or otherwise,
in any firm, partnership, corporation or other entity that is engaged in
the insurance agency business, or any aspect thereof, other than Merging
Entity or a corporation listed on a national securities exchange or a
corporation whose securities are traded in the over-the- counter market.
2.27
Accounts and Notes Receivable. The reserve for bad debts, if
any, contained in the Most Recent Balance Sheet and the Financial
Statements was calculated on a consistent basis which, in the light of
past experience, is considered adequate. All accounts receivable and all
notes receivable of Merging Entity reflected in the Most Recent Balance
Sheet are fully collectible when due at the aggregate amount shown, less
the bad debt allowance stated therein, it being the intent of all of the
parties to this Agreement that Shareholders are hereby representing and
warranting to Parent the full collectibility when due of all of the notes
receivable and accounts receivable of Merging Entity in the aggregate
amount shown in each such balance sheet, less the bad debt allowance
stated therein. Except as set forth in Schedule 2.27, all notes
receivable of Merging Entity are due and payable within one year after
the Effective Date. Any such notes receivable due and payable more than
one year after the Effective Date ("Long Term Notes") are fully
collectible when due at the aggregate amount shown. Except as further
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Xxxx Insurance Group Merger _ Draft 2 Page 29 of 59
set forth in Schedule 2.27, no Long Term Notes are secured by any
interest in property, whether it be real, personal or intangible. In the
event of any delinquency or nonpayment of any portion of a Long Term
Note, Shareholders shall be obligated to satisfy such deficiency in the
same manner as specified below for all other receivables of Merging
Entity.
2.28 Permits and Licenses
. All permits, licenses and approvals of
all federal, state or local regulatory agencies, which are required in
order to permit Merging Entity and its employees and agents to carry on
business as now conducted by it, have been obtained by it and are
current.
2.29 No Violation or Default. The execution, delivery and
performance of this Agreement by Shareholders and Merging Entity will not
violate, result in a breach of, or constitute a default under, the
articles of incorporation or bylaws of Merging Entity or of any
indenture, contract, agreement or other instrument to which Merging
Entity is a party or is bound including, without limitation, any agency
contract with any insurance company.
2.30 Common Stock of Parent
. Shareholders understand and
acknowledge that the common stock of Parent to be received pursuant to
this Agreement is subject to Rule 145 of the Securities Exchange
Commission ("SEC"); such stock is being acquired for investment purposes
only and not with a view to distribution or resale; any sale or other
disposition of such stock shall be made pursuant to the regulations
promulgated under Rule 145 and in compliance with all other applicable
laws, regulations and interpretations.
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2.31 Financing Statements
. Except as disclosed on Schedule 2.31,
there are no financing statements or other security interests of any kind
filed or required to be filed against Merging Entity's assets or
affecting the use of, or title to, such assets ("Financing Statements").
Except as further disclosed on Schedule 2.31, there are no deferred money
purchase notes related to Merging Entity's acquisition of any portion of
its assets ("Notes"). Any such liabilities related to the Financing
Statements or Notes can be discharged or prepaid prior to their stated
maturities without penalty, except as further detailed on Schedule 2.31.
The assumption by Surviving Corporation of such liabilities will not
result in a default of any Financing Statement or Note.
2.32 Brokers
. Except as disclosed in Schedule 2.32, neither Merging
Entity nor any Shareholder has employed any broker or finder for the
purposes of completing the transactions contemplated herein such that no
commission, finder's fee, brokerage fee or similar charge will be
incurred for the consummation of the transactions contemplated herein.
2.33 Disclosure
. Shareholders have each received a copy of Parent's
current S-4 registration statement dated February 12, 1992, most recent
annual report, Form 10-K and Form 10-Q and will acknowledge receipt of an
amendment or supplement to such registration statement.
2.34 Material Misstatements or Omissions. No representation or warranty
by Shareholders or Merging Entity, or any of them, contained in this
Agreement or in any document, statement, certificate, Schedule or
financial statement furnished or to be furnished to Parent by or on
behalf of Shareholders or Merging Entity, or any of them, pursuant to
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Xxxx Insurance Group Merger _ Draft 2 Page 31 of 59
this Agreement or in connection with the transactions contemplated by
this Agreement contains, or will when furnished contain, any untrue
statements of a material fact, or omits, or will then omit to state, a
material fact necessary to make the statements contained herein or
therein not misleading.
3. COVENANTS OF SHAREHOLDERS AND MERGING ENTITY PRIOR TO EFFECTIVE
DATE. Shareholders and Merging Entity covenant with Parent that, between
the date of the execution of this Agreement and the Effective Date,
unless prior written consent to the contrary is obtained from Parent:
3.1 Operate in Ordinary Course
. Merging Entity will be operated
only in the ordinary course of business.
3.2 Negative Covenants
. Except as contemplated by this Agreement,
Merging Entity will not do any of the things listed in clauses (i)
through (xii) of Section 2.21 of this Agreement.
3.3 Continuing Accuracy of Representations
. There shall be no
action, or failure to act, which would render any of the representations
and warranties of Shareholders contained in this Agreement untrue or
incorrect in any material respect.
3.4 Preserve Business Organizations
. Except as otherwise requested
by Parent, and without making any commitment on Parent's behalf,
Shareholders will use their best efforts to preserve the business
organizations of Merging Entity intact, to keep available to Parent the
services of its present employees, and to preserve for Parent the
goodwill of its customers and others having business relations with them.
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3.5 Corporate Approvals
. The board of directors of Merging Entity
will recommend to Shareholders that Shareholders adopt this Agreement.
Merging Entity agrees to submit this Agreement to Shareholders for
adoption by unanimous written consent with waiver of notice of the terms
of this Agreement prior to the Effective Date, but only after delivery by
Parent to
Shareholders and Merging Entity of an amended or supplemented S-4
registration statement for Parent's common stock to be issued pursuant to
this Agreement and after Shareholders have had an effective opportunity
of at least ten (10) days to review such prospectus. Unless there is a
failure of Parent to fulfill its conditions set forth in Section 7 hereof
or there is a material adverse change in the financial conditions of
Parent, Shareholders covenant to adopt this Agreement and to approve all
aspects of the Merger within the time period contemplated herein.
4.
ACCESS AND INFORMATION. Throughout the period between the date
of the execution of this Agreement by Shareholders and Merging Entity and
the Closing Date, Shareholders shall cause Merging Entity and all its
employees to give to Parent, and any and all authorized representatives
of Parent (including auditors and attorneys), full and unrestricted
access, during normal business hours, to the offices, assets, properties,
contracts, books and records of Merging Entity in order to give Parent
full opportunity to make such investigations as it deems appropriate with
respect to the affairs of Merging Entity, and shall further cause Merging
Entity, and all of its employees to provide to Parent during such period
such additional information concerning the affairs of Merging Entity as
Parent may reasonably request. All information obtained from any such
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Xxxx Insurance Group Merger _ Draft 2 Page 33 of 59
investigation shall be held in confidence, and, in the event of the
termination of this Agreement, Parent covenants with Shareholders and
Merging Entity that Parent will use its best efforts to return all such
documents, working papers and other written information concerning
Shareholders and Merging Entity obtained or prepared in connection with
any such investigation.
Regardless of any such investigation by Parent, all representations
and warranties of Shareholders contained in this Agreement shall remain
in full force and effect and no such investigation shall cause or result
in a waiver by Parent of any of the representations and warranties of
Shareholders contained herein.
5. REPRESENTATIONS AND WARRANTIES OF PARENT.
Parent represents and warrants to Shareholders as follows:
5.1 Organization and Standing of Parent and HRH Merger Subsidiary
.
Parent is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia. HRH Merger
Subsidiary, will, as of the Effective Date, be duly organized, validly
existing and in good standing under the laws of the State of Florida.
5.2 Authority. Except for: (i) the incorporation of HRH Merger
Subsidiary; (ii) the approval of the transactions contemplated hereby by
the board of directors of Parent and by the board of directors and
shareholder of HRH Merger Subsidiary; (iii) amendment or supplementation
of Parent's registration statement pursuant to this Agreement; (iv)
approval by the New York Stock Exchange of the listing of the shares of
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Xxxx Insurance Group Merger _ Draft 2 Page 34 of 59
HRH Stock to be issued pursuant to this Agreement; and (v) the issuance
of a certificate of merger to be issued by the Secretary of State of the
State of Florida, no governmental or other authorization, approval or
consent for the execution, delivery and performance of this Agreement by
Parent or HRH Merger Subsidiary is required. The execution, delivery
and performance of this Agreement by Parent and HRH Merger Subsidiary
will not violate, result in a breach of, or constitute a default under,
the articles of incorporation or bylaws of any such corporation or any
indenture, contract, agreement or other instrument to which such
corporation is a party or is bound.
5.3 Capitalization of Parent and HRH Merger Subsidiary. As of June
30, 1998, the authorized capital stock of Parent consisted of 50,000,000
shares of common stock, no par value, of which 12,434,137 shares were
issued and outstanding, fully paid and nonassessable. The authorized
capital stock of HRH Merger Subsidiary will consist of 5,000 shares of
common stock, $1 par value, of which 100 shares will be issued and
outstanding, fully paid and nonassessable and owned of record and
beneficially by Parent prior to, and as of, the Effective Date. Except
for the shares to be subscribed for by Parent pursuant to this Agreement,
there are no outstanding options, warrants or other rights to subscribe
for or purchase capital stock of HRH Merger Subsidiary or securities
convertible into or exchangeable for capital stock of HRH Merger
Subsidiary.
5.4 Status of HRH Stock. The shares of HRH Stock to be issued to
Shareholders pursuant to this Agreement will, when so issued, be duly and
validly authorized and issued, fully paid and nonassessable.
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5.5 Brokers' or finders' fees. No agent, broker, person, or firm
acting on behalf of Parent or any of its subsidiaries or under the
authority of any of them is or will be entitled to any commission or
broker's or finder's fee or financial advisory fee from Parent or HRH
Merger Subsidiary in connection with any of the transactions contemplated
herein.
6. CONDITIONS PRECEDENT TO PERFORMANCE BY PARENT AND HRH MERGER
SUBSIDIARY. The obligation of Parent and HRH Merger Subsidiary to
consummate the transactions contemplated by this Agreement shall be
subject to the satisfaction or fulfillment, on or prior to the Closing
Date, of the following conditions precedent, in addition to all other
conditions precedent contained in this Agreement, each of which may be
waived by Parent:
6.1 Representations. Parent shall not have discovered any material
error, misstatement or omission in any of the representations and
warranties made by Shareholders contained in this Agreement, or in any
financial statement, certificate, Schedule, exhibit or other document
attached to or delivered pursuant to this Agreement, and all
representations and warranties of Shareholders, or any of them, contained
in this Agreement and in any financial statement, certificate, Schedule,
exhibit or other document attached to or delivered pursuant to this
Agreement shall be true and correct in all material respects on and as of
the Closing Date with the same force and effect, except as affected by
transactions expressly authorized herein or otherwise approved in writing
by Parent, as though such representations and warranties had been made on
and as of the Closing Date; and Shareholders and Merging Entity shall
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Xxxx Insurance Group Merger _ Draft 2 Page 36 of 59
have delivered to Parent a certificate, dated the Closing Date, and
signed by all of them, to the foregoing effect, in form and substance as
set forth in Schedule 6.1.
6.2 Covenants. Merging Entity and Shareholders shall have
performed and complied in all material respects with all covenants,
agreements and conditions required under this Agreement to be performed
or complied with by them on or before the Closing Date; and Merging
Entity and Shareholders shall have delivered to Parent a certificate
dated the Closing Date, and signed by all of them, to the foregoing
effect, in form and substance as set forth in Schedule 6.1.
6.3 Litigation. No suit, action or proceeding, or governmental
investigation, against or concerning, directly or indirectly, Merging
Entity, or any of its assets and properties, shall have been instituted
or reinstituted, nor shall any basis therefor have arisen, that might
result in any order or judgment of any court or of any administrative
agency which, in the opinion of counsel for Parent, renders it impossible
or inadvisable for Parent to consummate or cause to be consummated the
transactions contemplated by this Agreement.
6.4 Approval by Counsel. All transactions contemplated hereby, and
the form and substance of all legal proceedings and of all instruments
used or delivered hereunder, shall be reasonably satisfactory to counsel
for Parent.
6.5 Opinion. Parent shall have received a favorable opinion, dated
as of the Closing Date, from the law firm of Xxxxxx, Xxxxxxx & Xxxxxx,
counsel for Shareholders and Merging Entity, in form and substance as set
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forth in Schedule 6.5 and otherwise reasonably satisfactory to counsel
for Parent.
6.6 Delivery of Common Stock. There shall be duly delivered for
cancellation to Parent at the Closing not less than 100% of the shares of
Common Stock issued and outstanding at the time of the Closing, free and
clear of any liens or encumbrances as required to be listed on Schedule
2.4.
6.7 Continuation of Agency Contracts. To the extent desired by
Parent, Parent shall have obtained a statement in writing from each of
the insurance companies identified in Schedule 2.14 of this Agreement, in
form satisfactory to Parent and Parent's counsel, by which each such
insurance company agrees that it will not terminate its insurance agency
contract solely by reason of the transactions contemplated in this
Agreement, and further agrees that it will continue to recognize
Surviving Corporation, and its successors and assigns, as its agent under
the existing agency contract between such company and Merging Entity or
that it will enter into a substantially similar agency contract with
Surviving Corporation, or its successors and assigns.
6.8 Shareholder Employment Agreements. Employment Agreements
between Surviving Corporation, as Employer, and each of the Shareholders,
respectively, as Employee, in form and substance as set forth in Schedule
6.8 attached hereto, shall have been duly executed by each of them and
delivered to Parent.
6.9 Other Employment Agreements. Employment Agreements between
Surviving Corporation, as Employer, and such of the other employees of
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Xxxx Insurance Group Merger _ Draft 2 Page 38 of 59
Merging Entity (other than Shareholders) as shall be specified by Parent,
in form previously approved by the President of
Parent, shall be in full force and effect or such new agreements as have
been requested by Parent shall have been executed, in form and substance
as set forth in Schedule 6.9 attached hereto.
6.10 Employee Benefit Plans.
Parent shall have been furnished evidence satisfactory to Parent
that all Employee Benefit Plans identified in Schedule 2.25 attached to
this Agreement have been terminated and provision has been made for the
distribution of all benefits thereunder in accordance with the terms of
such Employee Benefit Plans.
6.11 Material Adverse Change. There shall have been no material
adverse change in Merging Entity's business, business prospects, Book of
Business, assets and properties, or goodwill between the date of the
execution of this Agreement and the Closing Date.
6.12 Tail Insurance. Unless notified in writing to the contrary,
Shareholders and Merging Entity shall have delivered to Parent, in form
reasonably satisfactory to Parent and Parent's counsel, evidence of
insurability, to be effective as of the Effective Date, for an extended
reporting period for errors and omissions of a minimum three year
duration with deductible limits reasonably acceptable to Parent and
Parent's counsel, which insurance, if bound, would insure Merging Entity
its agents and employees for the extended reporting period for claims
arising under errors and omissions occurring prior to the Effective Date.
Such tail insurance shall be bound as soon after the Effective Date as
possible. If such insurance is not purchased within one week after
Closing, Parent shall have the right to purchase such tail insurance
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Xxxx Insurance Group Merger _ Draft 2 Page 39 of 59
deemed acceptable to it. The cost for the tail insurance actually bound
by, or on behalf of, Merging Entity shall be borne by Merging Entity and
shall be reflected on the Merger Balance Sheet (as defined in Section
14.6) as if such coverage had been bound prior to the Effective Date and
the Shareholders shall be responsible for any deductible amounts to be
paid under such tail policy.
6.13 Related Party Transactions. All "related party" (i.e. a
Shareholder, a member of a Shareholder's family, a business or entity
affiliated with any of the foregoing) receivables and payables of Merging
Entity and any receivables or payables from or to an employee of Merging
Entity on favorable terms shall have been removed from the books of
Merging Entity for their cash equivalent face amounts.
6.14 Lease. The existing lease covering the premises presently
occupied by Merging Entity, in the form attached hereto as Schedule 2.12,
shall have been terminated, and a new lease, in the form set forth as
Schedule 6.14 shall have been executed to provide for a lease term ending
September 30, 2003, on terms otherwise acceptable to Parent and, as
amended, shall be in full force and effect with no defaults occurring as
a result of Merging Entity's action or inaction.
6.15 Resolutions. Parent shall receive certified copies of
resolutions of the board of directors and Shareholders of Merging Entity,
to the extent deemed necessary by, and in form satisfactory to, counsel
for Parent, authorizing the execution and delivery of this Agreement by
Merging Entity and the consummation of the transactions contemplated
hereby.
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Xxxx Insurance Group Merger _ Draft 2 Page 40 of 59
6.16 Approvals. All statutory requirements for the valid
consummation by Merging Entity of the transactions contemplated by this
Agreement shall have been fulfilled; all authorizations, consents and
approvals of all federal, state, local and foreign governmental agencies
and authorities required to be obtained in order to permit consummation
by Merging Entity of the transactions contemplated by this Agreement and
to permit the business presently carried on by Merging Entity to continue
unimpaired immediately following the Effective Date of this Agreement
shall have been obtained.
6.17 Registration Statement. Parent shall have filed an
amended or supplemented S-4 registration statement with the SEC, which
registration statement shall show that the transactions contemplated
herein shall be treated as a "purchase" for accounting purposes.
6.18 Other Items. Merging Entity, in addition to the financial
clean-up contemplated in Section 6.13, shall have removed all company
cars and cash value life insurance from its books for the respective cash
or book value of each such item.
7. CONDITIONS PRECEDENT TO PERFORMANCE BY SHAREHOLDERS AND MERGING
ENTITY. The obligation of Shareholders and Merging Entity to consummate
the transactions contemplated by this Agreement shall be subject to the
satisfaction or fulfillment on or prior to the Closing Date, of the
following conditions, in addition to any other conditions contained in
this Agreement, each of which may be waived, collectively, by a majority
in interest of Shareholders and Merging Entity:
7.1 Representations. Shareholders shall not have discovered any
material error, misstatement or omission in any of the representations
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Xxxx Insurance Group Merger _ Draft 2 Page 41 of 59
and warranties made by Parent contained in this Agreement, and all
representations and warranties of Parent contained in this Agreement
shall be true and correct in all material respects on and as of the
Closing Date with the same force and effect, except as otherwise approved
in writing by Shareholders and Merging Entity, as though such
representations and warranties had been made on and as of the Closing
Date; and Parent shall have delivered to Shareholders and Merging Entity
a certificate to the foregoing effect, dated the Closing Date, in form
and substance as set forth in Schedule 7.1.
7.2 Covenants. Parent shall have performed and complied in all
material respects with all covenants, agreements and conditions required
under this Agreement to be performed and complied with by Parent and
shall have caused all corporate actions necessary for the formation of
HRH Merger Subsidiary and for the consummation of this Agreement to have
been taken by it and HRH Merger Subsidiary; and Parent shall have
delivered to Shareholders and Merging Entity a certificate to the
foregoing effect, dated the Closing Date, in form and substance as set
forth in Schedule 7.1.
7.3 Effective Registration Statement. The registration statement
on Form S-4 under the Securities Act of 1933 referred to in Section 2.34
hereof shall have been amended or supplemented and be effective under
such Act and not the subject of any "stop order" or threatened "stop
order" and the amended or supplemented prospectus shall have been
delivered to Shareholders and Merging Entity.
7.4 Prospectus Approval. After delivery and review of the
aforementioned amendment or supplement to Parent's S-4 registration
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Xxxx Insurance Group Merger _ Draft 2 Page 42 of 59
statement, and subject to the limitations on disapproval set forth in
Section 3.5, Shareholders and Merging Entity shall have approved this
Agreement and the consummation of all transactions contemplated thereby.
8. POST-MERGER COVENANTS.
8.1 Post-Merger Covenants of Parent. Parent covenants to
Shareholders until October 1, 2003, as follows:
A. Collection. To cause Surviving Corporation to use its
reasonable business efforts, at least comparable in quality to those of
Merging Entity prior to the Effective Date, to collect all notes
receivable and accounts receivable as described in Section 2.27.
B. Payment. Subject to Merging Entity fulfilling its
Tangible Net Worth requirements, as set forth in Section 14.6, and
subject to the fulfillment by Shareholders of their covenants set forth
in Section 8.2, to cause Surviving Corporation to pay timely all
liabilities of Merging Entity which have been properly reserved for in
the Merger Balance Sheet, as defined in Section 8.2.A.
C. Not to interfere with or attempt to control the operations
of Surviving Corporation or direct assets or programs of Surviving
Corporation to another subsidiary of Parent, except (i) where a majority
in interest of the remaining Shareholders has agreed to do so; or (ii)
after Shareholders have received two consecutive years of the minimum
payments due hereunder, and then Parent must still act in good faith.
D. Not to sell the Surviving Corporation, or its assets,
unless as part of a sale of Parent, to any third party without giving a
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Xxxx Insurance Group Merger _ Draft 2 Page 43 of 59
majority in interest of Shareholders fifteen (15) days to match any such
offer and an additional forty-five (45) days to close such offer.
8.2
Post-Merger Covenants of Shareholders. Shareholders, jointly
and severally, covenant to Parent as follows:
A. Delivery of Merger Balance Sheet. To cause to be
delivered to Parent as soon after the Closing Date as is practicable, and
in all events no later than sixty (60) days after the Effective Date, the
Merger Balance Sheet, as defined in Section 14.6(a), and its related work
papers and other financial documents prepared therefor. The Merger
Balance Sheet will be true and correct, will be in accordance with the
books and records of Merging Entity, will present fairly the financial
conditions and results of operations of Merging Entity as of the date and
for the period indicated, will not contain any untrue statement of a
material fact nor will omit to state any material fact required to be
stated to make the Merger Balance Sheet not misleading.
B. Post-Merger Filings. To cause to be timely filed, at no
expense which has not previously been reserved for on the Merger Balance
Sheet, all federal, state and local tax returns of all kinds required to
be filed by Merging Entity for all tax periods ending on or prior to the
Effective Date ("Post-Merger Filings"). All Post-Merger Filings will be
true and correct and, prior to actual filing thereof, Shareholders shall
deliver drafts of such filings to Parent for its review.
C. Employee Benefit Plans. Unless written directive from
Parent stating otherwise is delivered to Shareholders prior to the
Closing Date , to cause, at no expense which has not previously been
reserved for in the Merger Balance Sheet, all Employee Benefit Plans of
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Xxxx Insurance Group Merger _ Draft 2 Page 44 of 59
Merging Entity (other than its Section 125 plan) to have been terminated
with provisions having been made for distribution thereof in accordance
with the terms of such Employee Benefit Plan. The Section 125 plan shall
continue through calendar year 1998. Shareholders specifically
understand that they have covenanted hereby to take any and all actions
reasonably required to eliminate any and all potential liability of
Surviving Corporation and Parent with respect to such Employee Benefits
Plans.
D. Bind Tail Coverage. To bind the tail coverage referenced
in Section 6.12 as soon after the Effective Date as is possible and in no
event later than seven (7) days after the Effective Date, and to pay any
and all deductibles accruing under such tail policy during the period of
three years after the Effective Date. Shareholders acknowledge that
Parent shall have the right to bind tail coverage for Merging Entity if
Shareholders do not produce an appropriate certificate of insurance
within thirty (30) days after Closing. Any costs for such tail coverage
shall have been expensed as if such coverage had been bound prior to the
Effective Date and shall not be reflected as an asset on the Merger
Balance Sheet.
E. Disposition of Shares. To hold the shares of HRH Stock
received in this Merger and not to dispose of such shares in either a
manner or volume or at a time which would cause this Merger not to be
treated as a tax-free merger or as a pooling-of-interests.
9.
SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION.
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Xxxx Insurance Group Merger _ Draft 2 Page 45 of 59
9.1 Survival of Representations and Warranties of Parent. All
representations, warranties and covenants made herein or pursuant hereto
by Parent shall survive the Closing until December 1, 2003.
9.2 Survival of Representations and Warranties of Shareholders
.
Except for the specific contingencies detailed below in subparagraphs
(ix) and (xiv) of Section 9.3 for which Parent shall be indemnified for
the periods stated therein, all representations, warranties and covenants
made herein or pursuant hereto by Shareholders shall survive the Closing
only until December 1, 2003.
9.3 Indemnification Agreement by Shareholders. Shareholders,
jointly and severally with respect to Messrs. X. Xxxx, X. Xxxx and X.
Xxxx, and pro rata with respect to Messrs. Xxxx and Xxxxxx, shall
indemnify and hold harmless Parent and Surviving Corporation, and their
respective successors and assigns, from and against and in respect of:
(i) All indebtednesses, obligations and liabilities of Merging
Entity of any nature whatsoever, whether accrued, absolute, contingent or
otherwise, existing at the close of business as of the day prior to the
Effective Date to the extent not reflected or reserved against in full in
the Merger Balance Sheet, including, without limitation, any tax
liabilities to the extent not so reflected or reserved against, accrued
in respect of, or measured by the income of Merging Entity for any period
prior to the Effective Date, or arising out of transactions entered into,
or any state of facts existing, prior to such date;
(ii) Without limiting the generality of the indemnity set forth
in Section 9.3(i) above, any and all tax liabilities of Merging Entity,
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Xxxx Insurance Group Merger _ Draft 2 Page 46 of 59
whether federal, state, local or otherwise, resulting from a lawful
deficiency for any time period prior to the Effective Date;
(iii) All liabilities of, or claims against, Merging Entity
arising out of any contract or commitment of the character described in
Section 2.20 hereof and not listed or described in Schedule 2.20 attached
to this Agreement, or arising out of any contract or commitment entered
into or made by Merging Entity between the date of the execution of this
Agreement and the Closing Date except as expressly permitted under any of
the provisions of this Agreement;
(iv) Subject to the provisions of Section 2.27 hereof, any
nonpayment on demand, when due, of any accounts receivable or notes
receivable of Merging Entity;
(v) Any and all claims, demands, actions and causes of action
arising out of or in any way relating to any health benefit plan or to
any Employee Benefit Plan (as described in Section 2.25) presently
maintained or heretofore maintained by Merging Entity or arising out of
or in any way relating to the termination or "freezing" of any such
Employee Benefit Plan;
(vi) Any loss, damage, liability or deficiency resulting from
any misrepresentation, breach of warranty or nonfulfillment of any
covenant or agreement on the part of Shareholders or Merging Entity, or
any of them, under the terms of this Agreement, or from any
misrepresentation in or omission from any financial statement,
certificate, Schedule, exhibit or other document proposed by or at the
direction of Shareholders, or any of them, and attached to this Agreement
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Xxxx Insurance Group Merger _ Draft 2 Page 47 of 59
or delivered or to be delivered to Parent under the terms of this
Agreement;
(vii) Any and all claims, demands, actions and causes of
action arising out of or in any way relating to errors and omissions and
all other types of litigation and claims, which are attributable to
Merging Entity prior to the Effective Date;
(viii) To the extent not previously cured in the manner
specified in Section 14.6, the amount by which Tangible Net Worth (as
defined in Section 14.6), shall be less than the amount of $175,000;
(ix) Until one year after the expiration of the applicable
statute of limitations, any and all tax liabilities arising out of all
open returns of Merging Entity for all periods ending on or prior to the
Effective Date and relating to amortization of intangibles, deductions
for compensation, "listed" property, or travel and entertainment expenses
or the tax characterization of expenses incident to this Agreement, any
and all claims or liabilities arising out of or in any way relating to
any health benefit plan or to any Employee Benefit Plan (as described in
Section 2.25) presently or heretofore maintained by Merging Entity or
arising out of or in any way relating to the termination,
modification or "freezing" of any such Employee Benefit Plan, and any and
all claims or liabilities arising out of Post-Merger Filings or for a
violation of the covenants set forth in Section 8.E hereof; (x)
All deductibles arising under the tail coverage referenced in
Section 6.12;
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Xxxx Insurance Group Merger _ Draft 2 Page 48 of 59
(xi) Any and all claims, demands, actions or causes of action
arising out of or in any way relating to any of the pending or threatened
litigation disclosed or required to be disclosed on Schedule 2.22;
(xii) Any existing unreconciled discrepancies as or to have
been disclosed on Schedule 2.14;
(xiii) Any and all losses, claims, demands or deficiencies
arising out of or in any way relating to the ownership by Merging Entity
of the intangible assets of Merging Entity;
(xiv) Until one year after the expiration of the applicable
statute of limitations, any and all liabilities, claims, losses demands
or deficiencies of any nature whatsoever arising out of a "Known
Misrepresentation" (a representation or warranty made with actual
knowledge of its falsity or with reckless indifference to the truth) or
due to the ownership of the common stock not being as set forth in
Section 1.4(a); and
(xv) All demands, claims, actions, suits, proceedings, loss,
damage, liability, judgments, costs and expenses (including, without
limitation, court costs, experts' and attorneys' fees at the trial level
and in connection with all appellate proceedings) incident to any of the
foregoing.
9.4 Indemnification Agreement by Parent. Parent shall indemnify
and hold harmless Shareholders, and each of them, and their respective
heirs and personal representatives from and against and in respect of:
(i) Any loss, damage, liability or deficiency resulting from
any misrepresentation, breach of warranty or nonfulfillment of any
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Xxxx Insurance Group Merger _ Draft 2 Page 49 of 59
covenant or agreement on the part of the Parent under the terms of this
Agreement;
(ii) All demands, claims, actions, suits, proceedings, loss,
damage, liability, judgments, costs and expenses (including, without
limitation, court costs, experts' and attorneys' fees at the trial level
and in connection with all appellate proceedings) incident to any of the
foregoing.
9.5 Assertion of Indemnification Claim. Either the Shareholders or
Parent, as the case may be (an "Indemnified Party"), shall give notice to
the other (an "Indemnifying Party") as soon as possible after the
Indemnified Party has actual knowledge of any claim as to which
indemnification may be sought and the amount thereof, if known, and
supply any other information in the possession of the Indemnified Party
regarding such claim, and will permit the Indemnifying Party (at its
expense) to assume the defense of any third party claim and any
litigation resulting therefrom, provided that counsel for the
Indemnifying Party who shall conduct the defense of such claim or
litigation shall be reasonably satisfactory to the Indemnified Party, and
provided further that the omission by the Indemnified Party to give
notice as provided herein will not relieve the Indemnifying Party of its
indemnification obligations hereunder except to the extent that the
omission results in a failure of actual notice to the Indemnifying Party
and the Indemnifying Party is materially damaged as a result of the
failure to give notice. The Indemnifying Party may settle or compromise
any third party claim or litigation with the consent of the Indemnified
Party which consent may not be unreasonably withheld.
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Xxxx Insurance Group Merger _ Draft 2 Page 50 of 59
The Indemnified Party shall have the right at all times to
participate in the defense, settlement, negotiations or litigation
relating to any third party claim or demand at its own expense. In the
event that the Indemnifying Party does not assume the defense of any
matter as above provided, then the Indemnified Party shall have the right
to defend any such third party claim or demand, and will be entitled to
settle any such claim or demand in its discretion. In any event, the
Indemnified Party will cooperate in the defense of any such action and
the records of each party shall be available to the other with respect to
such defense.
10.
EXPENSES. All expenses (including, without limitation,
legal, auditing, accounting and other related expenses such as
preparation of Post-Merger Filings and the Merger Balance Sheet) incurred
in connection with this transaction by Merging Entity and Shareholders,
or any of them, shall be the sole responsibility of Merging Entity or
Shareholders (depending upon the nature of the expense), and all expenses
incurred by Parent in connection with this transaction shall be the sole
responsibility of Parent.
11. DEFAULT
.
11.1
Default by Shareholders or Merging Entity. Except as otherwise
expressly provided in this Agreement, if Shareholders or Merging Entity,
or any of them, shall fail to perform or comply with any covenant,
agreement or condition contained in this Agreement that is required to be
performed or complied with by Shareholders or Merging Entity on or prior
to the Closing Date, then Parent shall have the option to seek specific
performance of this Agreement or to xxx such
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Xxxx Insurance Group Merger _ Draft 2 Page 51 of 59
defaulting party for damages. If Parent elects to xxx for specific
performance, Shareholders and Merging Entity expressly waive any claim or
defense that Parent has an adequate remedy at law.
11.2 Default by Parent.
Except as otherwise expressly provided in this Agreement, if Parent shall
fail to perform or comply with any covenant, agreement or
condition contained in this Agreement that is required to be performed or
complied with by Parent on or prior to the Closing Date, then
Shareholders and Merging Entity, at the unanimous option of Shareholders
and Merging Entity, may seek specific performance of this Agreement or
may elect to xxx for damages. If Shareholders and Merging Entity elect
to xxx for specific performance, Parent expressly waives any claim or
defense that Shareholders and Merging Entity have an adequate remedy at
law.
12. NOTICES
. All notices or other communications permitted or
required to be given hereunder by any party to any other party shall be
in writing and shall be delivered personally or by telecopier, telex or
other similar communication or sent by registered or certified mail,
postage prepaid:
(a) If to Shareholders or Merging Entity:
Xxxx X. Xxxx, Xx.
0000 Xxxxxxxxxxx Xxxx
Xxxxxxxxxxx, Xxxxxxx 00000
Xxxxx X. Xxxx
0000 Xxxxxxx Xxxx Xxxx
Xxxxxxxxxxx, Xxxxxxx 00000
Xxxxxxx X. Xxxx
0000 Xxxxxx Xxx, X.
Xxxxxxxxxxx, Xxxxxxx 00000
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Xxxx Insurance Group Merger _ Draft 2 Page 52 of 59
P. Xxxxxx Xxxxxx
0000 Xxxxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxx 00000
Xxxxx X. Xxxx
0000 Xxxxxxxx Xxxx
Xxxxxxxxxxx, Xxxxxxx 00000
With copy to:
Xxxx X. Xxxxxx, Esquire
XXXXXX, XXXXXXX & XXXXXX
0000 Xxxxxxxxxx Xxxxx
Xxxxxxxxxxx, Xxxxxxx 00000
(b) If to Parent or HRH Merger Subsidiary:
Xx. Xxxxxx X. Xxxxx, President
HILB, XXXXX AND XXXXXXXX COMPANY
0000 Xxxxxxxx Xxxxx
Post Xxxxxx Xxx 0000
Xxxx Xxxxx, Xxxxxxxx 00000-0000
With copy to:
Xxxxxx X. Xxxxx, Esquire
HILB, XXXXX AND XXXXXXXX COMPANY
0000 Xxxxxxxx Xxxxx
Post Xxxxxx Xxx 0000
Xxxx Xxxxx, Xxxxxxxx 00000-0000
Notices delivered personally or by telecopier, telex or other
similar communication shall be effective when delivered. Notices
forwarded by registered or certified mail shall be deemed effective when
received or in any event not later than ten (10) days after deposit in
the mails, postage prepaid. Any party wishing to change any above named
person or address may do so by complying with the notice provisions of
this Section.
13. EXTENSION OF TIME AND WAIVER
.
(a) Time is of the essence with respect to this Agreement.
However, the parties hereto may, by mutual agreement in writing, extend
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Xxxx Insurance Group Merger _ Draft 2 Page 53 of 59
the time for the performance of any of the obligations of the parties
hereto.
(b) Each party for whose benefit a representation, warranty,
covenant, agreement or condition is intended may, in writing: (i) waive
any inaccuracies in the warranties and representations contained in this
Agreement; and (ii) waive compliance with any of the covenants,
agreements or conditions contained herein and so waive performance of any
of the obligations of the other parties hereto, and any default
hereunder; provided, however, that any such waiver shall not affect or
impair the waiving party's rights in respect to any other representation,
warranty, covenant, agreement or condition or any default with respect
thereto.
14. CALCULATION OF HRH STOCK TO BE DELIVERED AND OTHER ADJUSTMENTS
.
14.1
Maximum Amount of HRH Stock to be Delivered. The purchase
price (the _Purchase Price_) for the Common Stock will be $4,725,000,
before application of the Adjustment Amounts, payable as follows: (i)
$1,000,000 of HRH Stock at Closing; (ii) $745,000 of HRH Stock, less the
Year 1 Purchase Adjustment, if any, fourteen (14) months after Closing
(December 1, 1999); (iii) $745,000 of HRH Stock, less the Year 2 Purchase
Adjustment, if any, twenty-six (26) months after Closing (December 1,
2000); (iv) $745,000 of HRH Stock, less the Year 3 Purchase Adjustment,
if any, thirty-eight (38) months after Closing (December 1, 2001); (v)
$745,000 of HRH Stock, less the Year 4 Purchase Adjustment, if any, fifty
(50) months after Closing (December 1, 2002); and (vi) $745,000 of HRH
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Stock, less the Year 5 Purchase Adjustment, if any, sixty-two (62) months
after Closing (December 1, 2003). Payments of the Purchase Price are
subject to the right of Buyer to assert set-off in addition to any
reduction arising as a result of the Adjustment Amounts. Further,
Purchase Price does not include the aggregate sum of $1,400,000 being
paid to Shareholders pursuant to the Employment Agreements as additional
compensation for restrictive covenants therein.
14.2 Definitions
. _Year 1_ shall mean the period October 1, 1998,
through September 30, 1999. _Year 2_ shall mean the period October 1,
1999, through September 30, 2000. _Year 3_ shall mean the period October
1, 2000, through September 30, 2001. _Year 4_ shall mean the period
October 1, 2001, through September 30, 2002. _Year 5_ shall mean the
period October 1, 2002, through September 30, 2003.
_Agency Profit_ shall mean the consolidated net profit of the
Surviving Corporation during Year 1, Year 2, Year 3, Year 4 or Year 5,
determined in accordance with the GAAP Policy, before any provision for
federal or state income taxes and before any provision of amortization of
intangibles of the Surviving Corporation, but after a special overhead
charge by the Buyer to the Seller for indirect costs borne by Buyer, such
as general insurance, professional fees and other corporate costs as set
forth in this subsection. The annual overhead charge shall be $120,000,
regardless of the actual costs incurred therefor. Buyer shall cause the
Agency Profit to be determined and the amount thereof communicated to
Shareholders, as soon as is reasonably practicable after each of Year 1,
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Xxxx Insurance Group Merger _ Draft 2 Page 55 of 59
Year 2, Year 3, Year 4 and Year 5 and, in all events, within sixty-two
(62) days after each such year (_Annual Income Statement_).
_Target Profit_ shall mean that amount of Year 1 Agency Profit, Year
2 Agency Profit, Year 3 Agency Profit, Year 4 Agency Profit and Year 5
Agency Profit which would eliminate any Year 1 Purchase Adjustment, Year
2 Purchase Adjustment, Year 3 Purchase Adjustment, Year 4 Purchase
Adjustment and Year 5 Purchase Adjustment, respectively, which for each
such Year is as follows:
Year 1 $ 875,000
Year 2 $1,000,000
Year 3 $1,150,000
Year 4 $1,325,000
Year 5 $1,525,000
14.3 Determination of Annual Income Statements. If within thirty
days following delivery of an Annual Income Statement, Shareholders have
not given Parent notice of its objection to such Annual Income Statements
(such notice must contain a statement of the basis of Shareholders'
objections), then the Agency Profit reflected in the Annual Income
Statement will be used in computing the Year 1, Year 2, Year 3, Year 4 or
Year 5 Purchase Adjustment. If Shareholders give such notice of objection
and the items in dispute cannot be resolved by agreement between
Shareholders and Parent within sixty (60) days, then the issues in
dispute will be submitted to a mutually agreed _Big Six_ firm of
certified public accountants not used by Merging Entity or Parent (the
_Accountants_), for resolution. If issues in dispute are submitted to the
Accountants for resolution, (i) each party will furnish to the
Accountants such workpapers and other documents and information relating
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Xxxx Insurance Group Merger _ Draft 2 Page 56 of 59
to the disputed issues as the Accountants may request and are available
to that party, and will be afforded the opportunity to present to the
Accountants any material relating to the determination and to discuss the
determination with the Accountants; (ii) the determination by the
Accountants, as set forth in a notice delivered to both parties by the
Accountants, will be binding and conclusive on the parties; and (iii)
Parent and Shareholders will each bear 50% of the fees of the Accountants
for such determination.
14.4
Value of HRH Stock. HRH Stock shall be valued by taking the
average of the New York Stock Exchange closing price for the previous 10
trading days from that trading date which is two weeks prior to the due
date. For example, since the New York Stock Exchange was closed on
September 7, 1998, and the HRH Stock is to be delivered on October 1,
1998, the average closing price of Parent's common stock for the period
September 3, 1998, through September 17, 1998, shall establish the value
(with such value for the Closing being referred to hereafter as _Closing
Stock Value_).
14.5.
Purchase Adjustment.
(a) The Year 1 Purchase Adjustment shall be zero ($0) for Year
1 Agency Profit of $875,000 or more. If Year 1 Agency Profit is less
than $875,000, the Year 1 Purchase Adjustment shall be equal to the
lesser of (i) $525,000; or (ii) three times the remainder when Year 1
Agency Profit is subtracted from Target Profit. For example, if Target
Profit less Year 1 Agency Profit equals $100,000, the fourteen month
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Xxxx Insurance Group Merger _ Draft 2 Page 57 of 59
payment of HRH Stock would be reduced in the aggregate by $300,000 down
to the aggregate value of $445,000. If the Target Profit less Year 1
Agency Profit equals or exceeds $175,000, the fourteen month payment of
HRH Stock would be reduced in the aggregate by the maximum amount of
$525,000 down to the minimum amount of $220,000.
(b) The Year 2 Purchase Adjustment shall be zero ($0) for Year
2 Agency Profit of $1,000,000 or more. If Year 2 Agency Profit is less
than $1,000,000, the Year 2 Purchase Adjustment shall be equal to the
lesser of (i) $525,000; or (ii) 1.75 times the remainder when Year 2
Agency Profit is subtracted from Target Profit. For example, if Target
Profit less Year 2 Agency Profit equals $100,000, the twenty-six month
payment of HRH Stock would be reduced in the aggregate by $175,000 down
to the amount of $570,000. If the Target Profit less Year 2 Agency
Profit equals or exceeds $300,000, the twenty-six month payment of HRH
Stock would be reduced in the aggregate by the maximum amount of $525,000
down to the minimum amount of $220,000.
(c) The Year 3 Purchase Adjustment shall be zero ($0) for Year
3 Agency Profit of $1,150,000 or more. If Year 3 Agency Profit is less
than $1,150,000, the Year 3 Purchase Adjustment shall be equal to the
lesser of (i) $525,000; or (ii) 1.18 times the remainder when Year 3
Agency Profit is subtracted from Target Profit. For example, if Target
Profit less Year 3 Agency Profit equals $100,000, the thirty-eight month
payment of HRH Stock would be reduced in the aggregate by $118,000 down
to the amount of $627,000. If the Target Profit less Year 3 Agency
Profit equals or exceeds $449,915, the thirty-eight month payment of HRH
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Xxxx Insurance Group Merger _ Draft 2 Page 58 of 59
Stock would be reduced in the aggregate by the maximum amount of $525,000
down to the minimum amount of $220,000.
(d) The Year 4 Purchase Adjustment shall be zero ($0) for Year
4 Agency Profit of $1,325,000 or more. If Year 4 Agency Profit is less
than $1,325,000, the Year 4 Purchase Adjustment shall be equal to the
lesser of (i) $525,000; or (ii) 0.85 times the remainder when Year 4
Agency Profit is subtracted from Target Profit. For example, if Target
Profit less Year 4 Agency Profit equals $100,000, the fiftieth month
payment of HRH Stock would be reduced in the aggregate by $85,000 down to
the amount of $660,000. If the Target Profit less Year 4 Agency Profit
equals or exceeds $617,647, the fiftieth month payment of HRH Stock would
be reduced in the aggregate by the maximum amount of $525,000 down to the
minimum amount of $220,000.
(e) The Year 5 Purchase Adjustment shall be zero ($0) for Year
5 Agency Profit of $1,525,000 or more. If Year 5 Agency Profit is less
than $1,525,000, the Year 5 Purchase Adjustment shall be equal to the
lesser of (i) $525,000; or (ii) 0.60 times the remainder when Year 5
Agency Profit is subtracted from Target Profit. For example, if Target
Profit less Year 5 Agency Profit equals $100,000, the sixty-second month
payment of HRH Stock would be reduced in the aggregate by $60,000 down to
the amount of $685,000. If the Target Profit less Year 5 Agency Profit
equals or exceeds $875,000, the sixty-second month payment of HRH Stock
would be reduced in the aggregate by the maximum amount of $525,000 down
to the minimum amount of $220,000.
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Xxxx Insurance Group Merger _ Draft 2 Page 59 of 59
14.6 Adjustment Based on Merger Balance Sheet
.
(a)
Determination of Merger Balance Sheet. For purposes
hereof, "Merger Balance Sheet" means an unaudited balance sheet of
Merging Entity, as of the close of business on September 30, 1998,
computed under Parent's GAAP Policy referenced in Section 2.7 hereof and
in accordance with Section 2.27 hereof and after having reconciled any
differences between the tax and financial accounting so that Surviving
Corporation shall not be responsible for any liabilities unless and to
the extent the same are reflected on the Merger Balance Sheet. The
Merger Balance Sheet shall be deemed accepted by Parent if no objections
thereto are made within fifteen (15) days of delivery. If Parent objects
to the Merger Balance Sheet within fifteen (15) days of delivery, then
the parties shall have fifteen (15) days to resolve any objections of
Parent to the Merger Balance Sheet. If the parties are unable to resolve
such differences, the procedure set forth in Section 14.2 shall be used.
Notwithstanding anything in the foregoing to the contrary, if
the Merger Balance Sheet is not submitted within seventy-five (75) days
after the Effective Date, then Parent shall submit a Merger Balance Sheet
within fifteen (15) days thereafter which shall be final, conclusive and
binding on all parties hereto, and not subject to any of the arbitration
provisions described above.
(b) Tangible Net Worth
. The term "Tangible Net Worth" means
the remainder arrived at from the Merger Balance Sheet when total
liabilities are subtracted from total assets, and intangible assets other
than cash, cash equivalents and net receivables are then subtracted from
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Xxxx Insurance Group Merger _ Draft 2 Page 60 of 59
that remainder (total assets - total liabilities - intangible assets
other than cash, cash equivalents and net receivables).
(c)
Adjustment. The number of shares to be delivered by
Parent to Shareholders pursuant to Section 1.4 shall be adjusted as
follows:
(i) If Tangible Net Worth exceeds $175,000 (with such
excess being referred to as "Excess Tangible Net Worth"), then the number
of shares shall be increased by the number of shares determined by
dividing Excess Tangible Net Worth by the Closing Stock Value; and
(ii) If Tangible Net Worth is less than $175,000 (with
such shortfall being referred to as "Insufficient Tangible Net Worth"),
then the number of shares shall be decreased by the number of shares
determined by dividing Insufficient Tangible Net Worth by the Closing
Stock Value.
In the event of an increase in the number of shares of common stock
of Parent to be issued to Shareholders, such additional shares shall not
be issued until September 30, 1999, with the intent being to apply such
positive amount to the resolution of the litigation disclosed on Schedule
2.22. Once such resolution has occurred and a positive number remains,
Parent shall promptly issue to Shareholders the remaining number of
shares of Parent common stock in the same proportion as set forth in
Section 1.4(a). In other words, Excess Net Worth shall be kept open
until September 30, 1999 as a reserve account for deductibles and costs
arising out of the litigation disclosed in Schedule 2.22. In the event
of a decrease in the number of shares of common stock of Parent, such
shares shall be assigned, promptly after determination of such number, to
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Xxxx Insurance Group Merger _ Draft 2 Page 61 of 59
Parent from the Shareholders in the same proportions as set forth in
Section 1.4(a). The value of any shares of HRH Stock to be issued or
returned pursuant to this Agreement shall be adjusted to reflect the
occurrence after the Effective Date of any of the events specified in
Section 1.4(c).
15.
MISCELLANEOUS PROVISIONS.
15.1 Counterparts
. Any number of counterparts of this Agreement may
be signed and delivered, each of which shall be considered the original
and all of which, together, shall constitute one and the same instrument.
15.2 Governing Law
. EXCEPT FOR THE MERGER OF HRH MERGER SUBSIDIARY
INTO MERGING ENTITY, WHICH SHALL BE GOVERNED BY FLORIDA LAW, THIS
AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE COMMONWEALTH OF VIRGINIA.
15.3 Entire Agreement
. This Agreement constitutes the entire
Agreement and understanding between the parties hereto with respect to
the transactions contemplated hereby, expressly superseding all prior
Agreements and understandings, whether oral or written, and no change,
modification, termination or attempted waiver of any of the provisions of
this Agreement shall be binding unless reduced to writing and signed by
the party or parties against whom enforcement is sought.
15.4
Section Headings. The section headings in this Agreement are
for convenience of reference only and shall not be deemed to alter or
affect any provision hereof.
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Xxxx Insurance Group Merger _ Draft 2 Page 62 of 59
15.5 No Assignment
. Neither this Agreement, nor any rights or
liabilities hereunder, may be assigned by any party without the prior
written consent of all of the other parties.
15.6 Survival
. Notwithstanding anything in the foregoing to the
contrary, any rights which Shareholders or Parent may have at law or in
equity against the other for a misstatement or omission by such party
which should have been made, corrected or disclosed by such party, at or
prior to the Effective Date, shall survive for the applicable period
provided by law or equity for the remedy of such act or omission.
15.7 Schedules
. Schedules referenced in this Agreement are an
integral part of this Agreement and are to be deemed a part of this
Agreement whether attached hereto on execution of this Agreement or
anytime thereafter.
15.8
Parent Policy on Post-Acquisition Cash Held by Surviving
Corporation. Merging Entity and Shareholders acknowledge that they have
been informed of the policy of Parent not to allow cash and cash
equivalents in excess of what Parent believes to be the appropriate
amount of working capital for any of its operating offices to remain in
an interest-earning account for the benefit of that office. As such,
Merging Entity and Shareholders acknowledge that Parent will cause any
such excessive amounts of cash and equivalents to be dividended to
Parent, that such dividends would reduce interest earnings attributable
to Surviving Corporation after the Effective Date, and that Parent has
the right to declare such dividends.
15.9
Subsequent Acquisitions. Merging Entity and Shareholders
acknowledge that a later acquisition by Surviving Corporation of another
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Xxxx Insurance Group Merger _ Draft 2 Page 63 of 59
insurance agency could affect the determination of subsequent year
profitability and agree to cooperate with Parent in making any
adjustments as necessary to this Agreement and any ancillary agreements
to carry out their intent.
15.10
Nonsolicitation Covenant. Each of the Shareholders, by
signature hereto, covenants that he shall not for a period of three (3)
years after the Effective Date, directly or indirectly, except on behalf
of Surviving Corporation, its successors or assigns, solicit or accept
risk management, insurance or bond business from any of the customers of
Merging Entity as of the moment immediately preceding the Effective Date.
Each of the Shareholders, by signature hereto, acknowledges: (i) that
this covenant is ancillary to this Merger Agreement, is integral hereto
and is independent of any other provision herein, (ii) that this covenant
is reasonably necessary for the protection of Surviving Corporation's
legitimate business interests; (iii) that this covenant poses no undue
hardship on the Shareholders and is reasonably limited as to duration and
scope; and (iv) that this covenant is in addition to any covenants which
Shareholders may make in any employment or other agreements executed or
to be executed with Surviving Corporation. Further, if any part of this
covenant is deemed overbroad or void as against public policy, each of
the Shareholders, by signature hereto, acknowledges that such invalid
portions shall be severable from this covenant and specifically requests
that, upon such event, this covenant be reformed ("blue-pencilled") to
permit Surviving Corporation to obtain the maximum permissible benefit
from this covenant.
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Xxxx Insurance Group Merger _ Draft 2 Page 64 of 59
15.11 Acceptance
. The binding date of acceptance of this
Agreement shall be the Date on which the last of the parties executes the
same.
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Xxxx Insurance Group Merger _ Draft 2 Page 65 of 59
EXECUTED by Shareholders and Merging Entity at Tallahassee, Florida,
this _______ day of September, 1998.
SHAREHOLDERS:
______________________________________
Xxxx X. Xxxx, Xx.
______________________________________
Xxxxx X. Xxxx
______________________________________
Xxxxxxx X. Xxxx
______________________________________
Xxxxx X. Xxxx
______________________________________
P. Xxxxxx Xxxxxx
MERGING ENTITY:
XXXX INSURANCE GROUP, INC.
By_______________________________
_________________________________, its
_________________________________
EXECUTED by Parent at Glen Allen, Virginia, this ______ day of
September, 1998.
HILB, XXXXX AND XXXXXXXX COMPANY
By____________________________________
__
___________________________________, its
___________________________________
_________________________________________________________________________
______________________
Xxxx Insurance Group Merger _ Draft 2 Page 66 of 59
