SALE AND QUITCLAIM AGREEMENT
Agreement dated as of January 1,1996, between HILB, XXXXX AND
XXXXXXXX COMPANY OF PITTSBURGH, INC., a corporation ("Purchaser"), and
XXXXXX X. XXXXXX ("Xx. Xxxxxx"), XXXXXXXX X. XXXXXXX ("Xx. Xxxxxxx") and
XXXXXXX X. XXXXXXXXX ("Xx. Xxxxxxxxx") (with Messrs. Xxxxxx, Xxxxxxx and
Xxxxxxxxx collectively being referred to herein as "Seller").
Recitals
1. Purchaser is the surviving corporation of a merger with Xxxxxx-
Xxxxxxx Group, Inc. ("B-K").
2. Seller, at the time of the merger, negotiated a special
incentive with respect to business that B-K had pursued but had not yet
written ("Chamber Business"), which is hereafter defined to mean all
business written by Purchaser in conjunction with the Xxxxxxxx of
Commerce Service Corporation.
3. Purchaser, in order to consummate the merger with B-K, agreed
to compensate Seller if the Chamber Business were ultimately written by
Purchaser (the "Contingent Interest").
4. The Chamber Business was written by Purchaser (as the successor
to B-K) and continues to be written by Purchaser.
5. Purchaser desires to purchase the Contingent Interest so that
Seller shall have no claim or right to any of the Chamber Business or any
of Purchaser's business at all.
6. Each of Xx. Xxxxxx, Xx. Xxxxxxx, and Xx. Xxxxxxxxx is agreeable
to the terms expressed herein for his sale of the Contingent Interest and
quitclaim of any interest in Purchaser's business.
Agreements
1. Seller and Purchaser agree that, as of January 1, 1996
("Effective Date"), Purchaser owns the Contingent Interest and, except as
stated herein in xxxxxxxxx 0, xxxx of Xx. Xxxxxx, Xx. Xxxxxxx and Xx.
Xxxxxxxxx has any interest in any of Purchaser's business which each of
them hereby expressly quitclaim to Purchaser.
2. The purchase price for the Contingent Interest and the
quitclaim shall be determined based on the resulting amount of Chamber
Business, and the profitability to Purchaser thereon, to be realized
during the five calendar years 1996 through 2000. Attached hereto as
Exhibit 1 is Purchaser's calculation of profitability on the Chamber
Business for calendar year 1995. Gross revenues and Required Profit
Margin to Purchaser on the Chamber Business shall be calculated in a
similar manner for calendar years 1996 through 2000, except that payments
of the purchase price to Seller shall also be deducted (also on an
accrual basis). For purposes herein, Required Profit Margin shall mean
20%.
A. The purchase price to Xx. Xxxxxxxxx for the purchase of his
Contingent Interest and quitclaim is 10% of the Chamber Business to be
realized in each of the years 1996 through 2000, subject to a maximum
payment for any such year of $150,000 for $1,500,000 or more of Chamber
Business. Each such payment shall be due in full on or before February
15 after such year end, but shall be contingent upon Xx. Xxxxxxxxx
continuing to be the primary producer and servicer of Chamber Business
for each such year. Additionally, should Xx. Xxxxxxxxx remain in the
employ of Purchaser beyond 2000, and for each full calendar year he shall
do so through 2005 and continue to be the primary producer and servicer
of the Chamber Business, Xx. Xxxxxxxxx shall receive a bonus of 10% of
Chamber Business for such year, subject to a maximum payment for any such
year of $150,000 for $1,500,000 or more in Chamber Business.
B. With respect to Xx. Xxxxxx and Xx. Xxxxxxx, for each of
calendar years 1996 through 2000, the purchase price for his Contingent
Interest and quitclaim, to be paid in full on February 15 of each
following year, shall be one of the following amounts:
(i) If Chamber Business for such calendar year was $1,000,000
or less and the Required Profit Margin is not attained, each of Xx.
Xxxxxx and Xx. Xxxxxxx shall receive an amount equal to 10% of Chamber
Business, less his half of that amount of purchase price reduction
necessary to achieve the Required Profit Margin;
(ii) if Chamber Business for such calendar year was $1,000,000
or less and the Required Profit Margin is attained, each of Xx. Xxxxxx
and Xx. Xxxxxxx shall receive an amount equal to 10% of Chamber Business;
(iii) if Chamber Business for such calendar year exceeds
$1,000,000 but is less than or equal to $1,750,000, and the Required
Profit Margin is not attained, each of Xx. Xxxxxx and Xx. Xxxxxxx shall
receive $175,000 less his half of that amount of purchase price reduction
necessary to achieve the Required Profit Margin;
(iv) if Chamber Business for such calendar year exceeds
$1,000,000, but is less than or equal to $1,750,000, and the Required
Profit Margin is attained, each of Xx. Xxxxxx and Xx. Xxxxxxx shall
receive $175,000;
(v) if Chamber Business for such calendar year exceeds
$1,750,000, and the Required Profit Margin is not attained, each of Xx.
Xxxxxx and Xx. Xxxxxxx shall receive an amount equal to twelve percent
(12%) of Chamber Business for such year, less his half of the amount of
purchase price reduction necessary to achieve the Required Profit Margin;
or
(vi) if Chamber Business for such calendar year exceeds
$1,750,000 and the Required Profit Margin is attained, each of Xx. Xxxxxx
and Xx. Xxxxxxx shall receive an amount equal to twelve percent (12%) of
Chamber Business.
C. To the extent the foregoing formula should result for any year
in a chargeback to Xx. Xxxxxx and Xx. Xxxxxxx for failure to achieve the
Required Profit Margin, then such chargebacks may be recaptured in
subsequent years through December 31, 2000, at the time of the February
15 payment, to the extent the Required Profit Margin has been exceeded in
one or more subsequent years. Recapture of any such prior year amounts
shall be treated as reducing profits in the year just ended.
D. The foregoing purchase price calculation may be demonstrated by
the following example. For calendar years 1996 through 2000, suppose
that Chamber Business and Profit Margin, respectively are as follows:
Year Chamber Business Profit Margin
1996 $ 900,000 18%
1997 $ 1,200,000 19%
1998 $ 1,600,000 21%
1999 $ 1,800,000 18%
2000 $ 2,000,000 23%
It is noted that the Profit Margin calculation deducts purchase
price payments on an accrual basis (i.e. prior to final and full payment
on February 15 of the following year).
Based on the foregoing, for calendar years 1996 through 2000, the
purchase price payable to each of Messrs. Xxxxxx, Xxxxxxx and Xxxxxxxxx,
respectively, before offset or deduction, shall be as follows:
Year Xx. Xxxxxx Xx. Xxxxxxx Xx. Xxxxxxxxx
1996 $ 81,000 (90,000-9,000) $ 81,000 (90,000-9,000) $ 90,000
1997 $169,000 (175,000-6,000) $169,000 (175,000-6,000) $120,000
1998 $183,000 (175,000+8,000 recaptured) $183,000 (175,000+8,000 recaptured) $150,000
1999 $198,000 (216,000-18,000) $198,000 (216,000- 18,000) $150,000
2000 $265,000 (240,000+25,000 recaptured) $265,000 (240,000+25,000 recaptured) $150,000
To the extent any sums shall be due Purchaser from Seller at the
time Purchaser is to pay any of the purchase price to Seller, Purchaser
shall have the right to offset such obligation against the payment due to
Seller.
E. Notwithstanding that final payment for any year is due on
February 15 of the following year, Purchaser has agreed as of April 30,
1996, to make semi-monthly payments equal to 90% of the estimated
payments of the purchase price due to each of Messrs. Galardini, Xxxxxx
and Xxxxxxx for each such year. Purchaser estimates that calendar year
1996 will produce $1,400,000 of Chamber Business and the Required Profit
Margin. Purchaser shall have the right to adjust these semi-monthly
payments quarterly to reflect actual results and amounts due. Within
twenty (20) days of the close of each quarter during the term of this
Agreement, Purchaser shall provide to each of Sellers true and correct
copies of all financial statements and reports as are prepared by and/or
for Purchaser pertaining to either the amount of Chamber Business or the
Required Profit Margin during the preceding quarter. All estimates and
adjustments by Purchaser shall be made in good faith and final payments
for each such year shall be reconciled and paid by February 15 of the
following year.
Additionally, although it has always been contemplated that
this Agreement takes effect as of January 1, 1996, each of Messrs.
Xxxxxx, Xxxxxxx and Xxxxxxxxx has been mistakenly paid an amount of
salary relating to the Chamber Business for the period January 1, 1996,
through April 15, 1996. In Xx. Xxxxxx'x case, such amount is $38,550; in
Xx. Xxxxxxx'x case, such amount is $38,550; and in Xx. Xxxxxxxxx'x case,
such amount is $36,000. The parties agree that each such amount shall be
treated as a credit against the payment of the purchase price due him
based on calendar year 1996. Upon consummation of this Agreement,
Purchaser will make all payments necessary to bring current the sums due
to Seller (after the foregoing credits).
F. Notwithstanding anything in the foregoing to the contrary,
the fundamental expectations of the parties hereto could be drastically
altered if the Xxxxxxxx of Commerce Service Corporation elects to
terminate the contract pursuant to which Chamber Business has been
written ("Contract") at any time prior to January 1, 2001. The Contract
provides that, upon termination, Purchaser shall be paid 2% of premiums
for Chamber Business written in the two years prior to such termination.
If the Contract is terminated prior to January 1, 2001, then upon
termination and continuing through the earlier of two years after
termination or December 31, 2000, the payment structure referenced in
paragraphs 2.A, 2.B and 2.C shall cease and Purchaser shall pay Seller,
collectively, half of such termination payments (one-third of such half
payments to each of Messrs. Xxxxxx, Xxxxxxx and Xxxxxxxxx).
Additionally, within 45 days after termination of the Contract, the prior
period year shall be calculated and paid, prorated by days in the year
completed as to target revenue and purchase price payment (but not as to
Required Profit Margin).
3. Seller and Purchaser covenant and agree, pursuant to Section
1060 of the Internal Revenue Code of 1986, as amended ("Code"), to
allocate and report all purchase price payments herein for the
acquisition of expiration data , except to the extent the Code may
require imputation of interest and recharacterization of some portion of
the payments herein as interest.
4. At the end of the five (5) year period referred to in paragraph
2 hereof, no further payments of any kind shall be made or due to Seller
for the sale of the Contingent Interest and quitclaim, and the Chamber
Business and all other business of Purchaser shall continue to belong to
Purchaser with no claims of any kind whatsoever being against such
business.
5. Seller agrees, during the term of this Agreement and for a
period of five (5) years thereafter, that Seller will not, directly or
indirectly, without the prior consent of Purchaser, on Seller's own
behalf or as a partner or an employee, officer, director or shareholder
of any corporation, association or other entity, solicit or accept
insurance or bond business from, or act as the insurance agent of, any of
the customers included within the Chamber Business, nor for the same
period will Seller encourage or aid anyone who is not an employee of
Purchaser in the solicitation of customers included within the Chamber
Business. Finally, for the same period, each of the Sellers covenants to
use his best efforts to ensure that the Contract remains in force, nor
will he encourage anyone that it be terminated.
6. Purchaser shall not be obligated to close this Agreement until
the lease for 0000 Xxxxx Xxxxxx is terminated without any further
liability to Purchaser and Purchaser has executed a new for such space
for the period May 1, 1996, through April 30, 1997, at an annual rental
rate of $46,800 or upon such other circumstances reasonably satisfactory
to Purchaser that its liability under the lease has been extinguished.
Upon such occurrences, Purchaser shall cause certain shares of HRH stock
owned by Xx. Xxxxxx and Xx. Xxxxxxx, but held by Purchaser's parent
corporation pursuant to an escrow agreement, to be returned to them.
7. In the event of any disagreement, the Seller and the Buyer
shall each make a good faith attempt to reconcile the difference;
however, if they are unable to reconcile all differences within a period
of fourteen (14) days after notification to the Buyer of such
disagreement, then the Seller and the Buyer shall submit all questions in
dispute to one of the "Big Six" firms of certified public accountants
(other than Seller's Reviewer or the accounting firm normally employed by
Seller, HRH or Buyer, if applicable) located at Allegheny County,
Pennsylvania, as may be agreed upon by the Seller and the Buyer or, in
default of such agreement, as may be determined by the President at such
time of the American Institute of Certified Public Accountants, which
chosen accounting firm ("Umpire") shall, within a period of thirty (30)
days after submission, determine and report to the Seller and the Buyer
upon all questions in dispute, and the report of the Umpire shall be
final, conclusive and binding on the Seller and the Buyer. The fees
charged by the Umpire shall be equally divided among the Seller and the
Buyer.
The Profit Statements, as prepared by the Buyer or HRH, or, if
varied by agreement between the Seller and the Buyer or by the report of
the Umpire, then as so varied, shall be final, conclusive and binding on
the Seller and the Buyer.
8. This Agreement shall inure to the benefit of and be binding
upon and enforceable against the heirs and legal representatives of
Seller and the successors and assigns of Purchaser. In the event of the
death, disability or incapacity of any of the Sellers prior to January 1,
2001, any amounts due or to become due to said Seller pursuant to this
Agreement shall be paid as scheduled herein to his estate or grantor
trust. Except to his estate or a grantor trust owned by Seller, Seller
may not assign any of its rights or obligations hereunder without the
written consent of Purchaser.
IN WITNESS WHEREOF, the parties have executed this Agreement this
___ day of May, 1996.
SELLER:
XX. XXXXXX
/s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx
XX. XXXXXXX
/s/ Xxxxxxxx X. Xxxxxxx
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Xxxxxxxx X. Xxxxxxx
XX. XXXXXXXXX
/s/ Xxxxxxx X. Xxxxxxxxx
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Xxxxxxx X. Xxxxxxxxx
PURCHASER:
HILB, XXXXX AND XXXXXXXX COMPANY
OF PITTSBURGH, INC.
By: /s/
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Its:
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EXHIBIT 1
CHAMBER BUSINESS REVENUE AND PROFIT MARGIN
(Calculated as per agreement and per accounting guidelines attached as E
XHIBIT 2)
EXHIBIT 2
4.3 REVENUES
HRH's policy for recognizing revenue generally follows industry practice
as summarized below:
4.3.1 AGENCY BILLED COMMISSIONS
Agency Billed Commission Income (Account 401) together with the
applicable premiums due from customers and payable to insurancecompanies, are
recorded on the later of the billing date or effective date. Income should
never be recognized before the effective date of the policy. This practice
follows accepted insurance industry practice. However, at year-end; commission
income and receivables for policies with effective dates prior to December 31st
should be accrued where coverage is bound and the premium billed, as with a
binder. The related company payables and producer commissions should also be
recorded but it may be necessary to charge miscellaneous company/producer codes
and later re-enter them to the proper codes as a means of maintaining your
normal payables cycle. In no instance should the billing of a premium be
unreasonably delayed.
A. Regular Premiums - Generally, policies are billed at the
effective date. If the entire premium is billed, then the entire commission
income is recognized.
B. Installment Premiums - If the billing is on an installment
basis, the commissions earned are recorded as billed (normally, over the
policy year). (Audits are billed upon receipt of the audit).
C. Worker's Compensation Premiums - Worker's compensation
policies and other policies normally subject to audit at the end of the policy
year are recorded as billed (normally, over the policy year). Audits are
billed upon receipt of the audit.
D. Financed Premiums - In-house financing is discouraged
because it is usually not worth the related risk and additional record keeping
burdens. When in use, premiums financed in-house should be recorded in their
entirety at the effective date of the policy and set up as Notes Receivable-
Customers (Account 107).
4.3.2 DIRECT XXXX, CONTINGENT AND LIFE INSURANCE COMMISSIONS
Direct Xxxx Commissions (Account 402), Contingent Commissions
(Account 415), and Life Product Commissions (Accounts 404, 405) are recorded
when received.
4.3.3 COMMISSION ADJUSTMENTS
Average Commission Adjustments (Account 403) such as commission
rate adjustments and policy cancellations are normally recorded when billed.
4.3.4 OTHER COMMISSIONS AND FEES
Miscellaneous Commission Income (Account 409) and Bonus
Commissions (Account 407) is recorded when received. Service Fee Income
(Account 408) is recorded when earned.
4.3.5 FINANCE CHARGES
Late Charge Income (Account 430) is required by HRH and should
be accumulated as part of Accounts Receivable Premiums (Account 105) on a
monthly basis when statements are sent to customers. Many states require
all customers to be treated equally. Therefore, finance charges should
be uniformly attached to all customer accounts over 30 days "past due".
4.3.6 INTEREST INCOME
Interest Income (Accounts 420, 421) should be recorded on the
accrual basis each month based on a best estimate of amounts receivable from
either the HRH cash management program or outside sources. The
accounting entry to record such an accrual would be:
112 Interest Receivable - HRH XXX
420 Interest Income - HRH Program XXX
4.3.7 OTHER INCOME
Dividend Income (Account 422), Rental Income (Account 432) and
Other Income (Account 433) should be recorded on the accrual basis and unpaid
amounts earned should be recorded at a minimum at year-end. The
accounting entry to record such an accrual (using rental income as an
example) would be:
109 Accounts Receivable - Other XXX
432 Rental Income XXX
When payment of any accrued revenue is received, the appropriate
receivable account should be credited.
Other income usually includes non-recurring, non-insurance related
items of revenue. Insurance related revenues should be categorized in a
different revenue account.
