-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WtAbvL2sRpfGHXXm3eki/BG1vi0LndMN9UeymvGOCdcl79finrMsgNY76Typxjzq nUuofwa9NqYNs7AFoGYrgQ== 0000814898-96-000013.txt : 19960911 0000814898-96-000013.hdr.sgml : 19960911 ACCESSION NUMBER: 0000814898-96-000013 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19960910 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: HILB ROGAL & HAMILTON CO /VA/ CENTRAL INDEX KEY: 0000814898 STANDARD INDUSTRIAL CLASSIFICATION: INSURANCE AGENTS BROKERS & SERVICES [6411] IRS NUMBER: 541194795 STATE OF INCORPORATION: VA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 424B2 SEC ACT: 1933 Act SEC FILE NUMBER: 033-44271 FILM NUMBER: 96627893 BUSINESS ADDRESS: STREET 1: 4235 INNSLAKE DR CITY: GLEN ALLEN STATE: VA ZIP: 23060 BUSINESS PHONE: 8047476500 MAIL ADDRESS: STREET 1: P O BOX 1220 CITY: GLEN ALLEN STATE: VA ZIP: 23060 424B2 1 Filed under SEC Rule 424 (b)(2) Registration No. 33-44271 HILB, ROGAL AND HAMILTON COMPANY SUPPLEMENT TO PROSPECTUS DATED FEBRUARY 12, 1992 RELATING TO ACQUISITION OF INSURANCE MANAGEMENT, INC. The following information is furnished to supplement and complete the information contained in the Prospectus dated February 12, 1992 ("Prospectus"), relating to the offering of shares of the Common Stock of Hilb, Rogal and Hamilton Company ("Company") to the shareholders of Insurance Management, Inc. ("IMI") of New Haven, Connecticut to consummate the merger of IMI and the Company. Terms of the Transaction (a) (1) Effective on October 1, 1996, a subsidiary of the Company will consummate an Agreement of Merger with IMI whereby the shareholders of IMI will receive 250,000 shares of Common Stock of the Company ("Shares") plus two future stock payments subject to (i) all necessary corporate approvals of each corporation, (ii) all authorizations, consents and approvals of all federal, state, local and foreign governmental agencies and authorities required to be obtained, and (iii) all other conditions precedent as outlined in the Agreement of Merger (see Exhibit 2.28). The number of shares distributed to the shareholders of IMI will be adjusted based upon the final determination of net worth as defined in the Agreement of Merger. The future stock payments will be made based upon profits realized in the subsequent two year period which may increase the purchase price up to a maximum of shares valued at $1,687,500 in each year (subject to a minimum, before any applicable indemnity, of shares valued at $187,500 in each year). The contingent payments include imputed interest at the lowest applicable federal rate allowed under the Internal Revenue Code of 1986, as amended. The number of shares issued for the future payments shall be based on a per share value computed as the average closing price of the Common Stock of the Company for the ten New York Stock Exchange trading days preceding November 26, 1997 and November 26, 1998. Hilb, Rogal and Hamilton Company of New Haven, a newly formed subsidiary of the Company, will merge into Insurance Management, Inc. and the surviving corporation will be a wholly-owned subsidiary of the Company (the "Merger"). (2) The Merger with IMI by the Company has been agreed upon because the Company is engaged in the business of owning insurance agencies and because the shareholders of IMI have determined that a merger with the Company is beneficial to the growth of IMI's operations. IMI's operations will add approximately 60 employees and $5,300,000 of revenues to the Company. (3) IMI was incorporated in 1963 in the state of Connecticut, and has 47,500 authorized shares of common stock, $1 par value. There are 45,000 shares issued of which 27,602 are in the Treasury and 17,398 shares are outstanding. (4) There are no material differences between the rights of the security holders of IMI and the rights of security holders of the Company. (5) The acquisition will be treated using the purchase method of accounting for acquisitions under generally accepted accounting principles. (6) IMI will be included in the consolidated return of the Company as of the effective date. The acquisition will be recorded as a tax free exchange under the rules of I.R.C. Sections 368(a)(1)(A) and 368(a)(2)(E). (c) The acquisition agreement is incorporated into this supplement as Exhibit 2.28. Pro Forma Financial Information See attached - Schedule A Material Contracts with Seller There have been no material contracts between the Company and IMI prior to the proposed effective date of the Agreement of Merger. Information with Respect to Insurance Management, Inc. IMI was incorporated in 1963 and resulted from the merger of four insurance agencies. IMI maintains its primary office in New Haven, Connecticut and has branch offices in Madison, Old Saybrook, Derby, Middletown, Durham and Clinton, Connecticut. IMI provides property and casualty insurance brokerage services for personal and commercial and industrial clients. Services provided include personal and commercial property and casualty insurance (approximately 93% of commissions and fees) and group and individual life and health insurance products (approximately 7% of commissions and fees). Common Stock and Dividend Data There is no established public trading market for the stock of IMI. There are 17 shareholders of the corporation. See Shareholder Information below for information regarding shares held and information regarding authorized and issued shares. There were no common stock dividend distributions during the six months ended June 30, 1996 or the years ended December 31, 1995, 1994 and 1993. Shareholder Information (a) (1) (2) & (3) If the Merger is consummated, objecting holders of IMI Common Stock ("Objecting Shareholders") will be entitled to have the "fair value" (exclusive of any element of value arising from the accomplishment or expectation of the Transaction) of their shares ("Objecting Shares") as of the day prior to the date the Proxy Statement is mailed, judicially determined and paid to them by complying with the provisions of Section 33-374 of the Connecticut General Statutes (sometimes hereinafter referred to as the "Connecticut Appraisal Statute"). IMI shareholders considering seeking appraisal of their shares of IMI Common Stock should note that the fair value of their shares determined under Section 33-374 could be more, the same as, or less than the consideration they would receive in connection with the Merger if they did not seek appraisal of their shares. The following is a summary of Section 33-374, which sets forth the procedures for demanding statutory appraisal rights. Failure by an Objecting Shareholder to follow the provisions of Section 33-374 exactly could result in the loss of appraisal rights. IMI shareholders who desire to exercise their appraisal rights must satisfy each of the conditions of the Connecticut Appraisal Statute. As described below (i) a written objection to the Merger must be filed with IMI before the taking of the vote on the Merger and (ii) a written demand that IMI repurchase the Objecting Shares must be filed with IMI within ten days after the IMI Special Meeting. These written notices must be made in addition to and separate from any proxy vote abstaining from or voting against the Transaction. Voting against, abstaining from voting or failing to vote with respect to the Merger will not constitute an objection or a demand for appraisal for purposes of the Connecticut Appraisal Statute. Shareholders electing to exercise their appraisal rights under Section 33-374 of the Connecticut Appraisal Statute must not vote for approval of the proposal relating to the Merger. If a shareholder of IMI returns a signed proxy but does not specify a vote against approval of the Merger or a direction to abstain, the proxy will be voted for the Transaction, which will have the effect of waiving that shareholder's appraisal rights. A shareholder who elects to exercise appraisal rights should deliver his or her written objection and demand for appraisal to the Secretary, IMI, 545 Long Wharf Drive, New Haven, Connecticut 06511. The written demand for appraisal should specify the shareholder's name and mailing address, and that the shareholder is thereby demanding appraisal of his or her shares of IMI Common Stock. ANY IMI SHAREHOLDER WISHING TO EXERCISE APPRAISAL RIGHTS MUST (A) OBJECT TO THE MERGER BY WRITTEN NOTICE DELIVERED TO IMI PRIOR TO THE TAKING OF THE VOTE ON THE MERGER AT THE IMI SPECIAL MEETING AND (B) DEMAND THAT IMI REPURCHASE THE OBJECTING SHARES OWNED BY SUCH OBJECTING SHAREHOLDER BY WRITTEN NOTICE DELIVERED TO IMI NO LATER THAN THE TENTH DAY AFTER THE IMI SPECIAL MEETING ("A DEMAND"). IN ORDER TO BE EFFECTIVE, (A) ANY SUCH DEMAND MUST STATE THE NUMBER AND CLASS OF OBJECTING SHARES, AND (B) NONE OF THE SHARES OF THE OBJECTING SHAREHOLDER MAY HAVE BEEN VOTED IN FAVOR OF APPROVAL OF THE MERGER. After an Objecting Shareholder has made a Demand, the Objecting Shareholder will thereafter be entitled only to payment for his Objecting Shares under the Connecticut Appraisal Statute, and will not be entitled to vote, to receive dividends or to exercise any other rights of an IMI shareholder in respect of the Objecting Shares, unless his or her Demand is withdrawn with the consent of IMI, or the Transaction is abandoned or rescinded, or the IMI Shareholders revoke their approval of the Transaction, or no petition for the determination of the fair value of IMI Common Stock of the same class as the Objecting Shares of such Objecting Shareholder is filed with the superior court as described below, or a court of competent jurisdiction determines that such Objecting Shareholder is not entitled to payment under the Connecticut Appraisal Statute. At any time after the receipt of a written notice by an Objecting Shareholder objecting to the Transaction, but not later than ten days after receipt of a Demand to purchase Objecting Shares or ten days after the Effective Time, whichever is later, IMI will make a written offer to each Objecting Shareholder who makes a Demand, to pay for such Objecting Shareholder's Objecting Shares at a specified price deemed by IMI to be the fair value thereof as of the day prior to the date on which the Proxy statement and the attached Plan of Merger were mailed as part of the Proxy Statement, exclusive of any element of value arising from the expectation or accomplishment of the Transaction. Within twenty days after demanding the purchase of such Objecting Shareholder's Objecting Shares, each Objecting Shareholder so demanding must submit the certificate or certificates representing such Objecting Shares to IMI for notation thereon that a Demand has been made. Such Objecting Shareholder's failure to do so will, at the option of the Surviving Corporation, terminate such Objecting Shareholder's rights under the Connecticut Appraisal Statute unless a court of competent jurisdiction, for good and sufficient cause shown, otherwise directs. If Objecting Shares represented by a certificate on which notation has been so made are transferred, each new certificate issued therefor shall bear similar notation, together with the name of the Objecting Shareholder of such Objecting Shares who made the Demand, and a transferee of such Objecting Shares shall acquire by such transfer no rights in the surviving corporation other than those which such Objecting Shareholder had after making such Demand. At any time during the period of sixty days after the date IMI is obliged to make the offer under the Connecticut Appraisal Statute described in the second preceding paragraph, IMI or any Objecting Shareholder who has made a Demand and who has not accepted the offer made by IMI may file a petition in the superior court for the judicial district where the principal office of IMI is located, or before any judge thereof, praying that the fair value of the Objecting Shares of such Objecting Shareholder be found and determined. All Objecting Shareholders making Demands for the purchase of their Objecting Shares under the statute who have not accepted the offer made by IMI, wherever residing, will be made parties to the proceeding. A copy of the petition will be served on each such Objecting Shareholder who is not a Connecticut resident. Service on nonresidents will also be made by publication as provided by applicable law. The jurisdiction of the court will be plenary and exclusive. All Objecting Shareholders who are parties to the proceeding will be entitled to judgment against IMI for the amount of the fair value of their Objecting Shares as of the day prior to the date on which the Proxy Statement and the attached Plan of Merger are mailed, exclusive of any element of value arising from the expectation or accomplishment of the Transaction. The court may, if it so elects, appoint one or more persons as appraisers to receive evidence and recommend a decision on the question of fair value. The appraisers will have such power and authority as shall be specified in the order of their appointment or an amendment thereof. The court will by its judgment determine the fair value of the Objecting Shares of the Objecting Shareholders entitled to payment therefor and will direct the payment of such value, together with interest, if any, to the Objecting Shareholders entitled thereto. The judgment may, but will not necessarily, include an allowance for interest at such rate as the court may find to be fair and equitable in all the circumstances, from the date the Proxy Statement and the attached Plan of Merger were mailed to the date of payment. The costs and expenses of any such proceeding will be determined by the court and will be assessed against IMI, but all or any part of such costs and expenses may be apportioned and assessed as the court may deem equitable against any or all Objecting Shareholders if the court finds that the action of such Objecting Shareholders in failing to accept such offer was arbitrary or vexatious or not in good faith. Such expenses will include reasonable compensation for and reasonable expenses of the appraisers, but not the fees and expenses of counsel for and experts employed by any party, but if the fair value of the Objecting Shares as determined by the valuation proceeding materially exceeds the amount which the surviving corporation offered to pay therefor, or if no offer is made, the court in its discretion may award to an Objecting Shareholder who is a party to the proceeding such sum as the court may determine to be reasonable compensation to any expert or experts employed by such Objecting Shareholder in the proceeding. Any judgment entered pursuant to the Connecticut Appraisal Statute will be enforceable as other decrees of the superior court are enforced and will be payable only upon and concurrently with the surrender to IMI of the certificate or certificates representing the Objecting Shares for which payment is due, duly endorsed for transfer. Upon payment of any such judgment, the Objecting Shareholder will cease to have any interest in such Objecting Shares. If a demand to purchase Objecting Shares under the Connecticut Appraisal Statute is withdrawn with the consent of IMI, or if the Transaction is abandoned or rescinded, or if no Demand or petition for the determination of fair value by a court has been made or filed within the time provided in the statute, or if a court of competent jurisdiction determines that an Objecting Shareholder is not entitled to the relief provided by the Connecticut Appraisal Statute, then the right of an Objecting Shareholder to be paid the fair value of his or her Objecting Shares will cease and his or her status as a shareholder will thereupon be restored. The "fair value" of Objecting Shares for the purposes of the Connecticut Appraisal Statute means the fair value thereof on the day prior to the date on which the Proxy Statement and the attached Plan of Merger were mailed, exclusive of any element of value arising from the expectation or accomplishment of the Transaction. The foregoing does not purport to be a complete statement of the provisions of the Connecticut Appraisal Statute and is qualified in its entirety by reference to the provisions of the statute. IMI shareholders considering seeking appraisal of their shares of IMI Common Stock should note that the fair value of their shares determined under Section 33-374 could be more, the same as, or less than the consideration they would receive in connection with the Merger if they did not seek appraisal of their shares. THE BOARD OF DIRECTORS OF IMI UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE MERGER. (4) & (5) There are no materialinterests, direct or indirect of affiliates, officers or directors of the registrant or of the company being acquired (IMI) in the proposed transaction. (6) IMI has 47,500 authorized shares of common stock, $1 par value. Shares issued total 45,000, of which 27,602 are in the Treasury. Shares outstanding are as follows: Number of Shareholders* Common Shares* Percentage* Robert O. Coulter 3,000 17.24% T. Robert McCarron 1,500 8.62 David J. Curran 1,500 8.62 C. Anthony Ingersoll 1,500 8.62 David K. Homer 1,100 6.32 Neil W. Garbatini 1,080 6.21 Joseph L. Ferry 130 .75 Douglas F. Danaher 125 .72 Stephanie S. Shorey 100 .58 Richard P. Ridinger 220 1.26 John Scanlon 135 .78 Mario P. Lupone 85 .49 Madelyn R. Izzo 65 .37 Harry E. Burr 56 .32 Frederick Fraher 35 .20 Owen J. Flannery 22 .13 Insurance Management, Inc. Employee Stock Ownership Plan 6,745 38.77 ------ ------- 17,398 100.00% ====== ======= *The composition of the shareholders may change prior to the effective date of the Merger; however, the total number of shares of HRH Common Stock issued will not be impacted. (7) Upon completion of the proposed acquisition, no shareholder of IMI will be serving as a director or executive officer of the registrant. Experts The consolidated financial statements of Insurance Management, Inc. as of and for the year ended December 31, 1995 appearing in this supplement to the Amended Prospectus dated February 12, 1992, and in the Registration Statement have been audited by T. M. Byxbee Company, P.C., independent auditors, as set forth in their report thereon appearing elsewhere herein and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. Hilb, Rogal and Hamilton Company Date of this Supplement: September 10, 1996 SCHEDULE A - PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED) The following pro forma condensed consolidated balance sheet as of June 30, 1996 and the pro forma consolidated income statements for the six months ended June 30, 1996 and the year ended December 31, 1995 give effect to the proposed acquisitions of Insurance Management, Inc. ("IMI") and another insurance agency, both which are expected to be effective on October 1, 1996; and the acquisition of certain assets and liabilities of 11 insurance agencies purchased in 1996 and 13 insurance agencies purchased in 1995. The pro forma information is based on the historical financial statements of Hilb, Rogal and Hamilton Company and the acquired agencies, giving effect to the transactions under the purchase method of accounting and the assumptions and adjustments in the accompanying notes to the pro forma financial statements. The pro forma consolidated income statements give effect to the purchase method acquisitions and proposed purchase method acquisitions as if they had occurred on January 1, 1995. The pro forma condensed consolidated balance sheet gives effect to the business combinations which occurred or are probable of occurring subsequent to June 30, 1996, as if they had occurred before June 30, 1996. The pro forma statements have been prepared by management based upon the historical financial statements of Hilb, Rogal and Hamilton Company, IMI and other acquired agencies. These pro forma statements may not be indicative of the results that actually would have occurred if the combination had been in effect on the dates indicated or which may be obtained in the future. The pro forma financial statements should be read in conjunction with the audited financial statements and notes of the Company included in the Company's 1995 Annual Report to Shareholders which is incorporated by reference in the Company's Annual Report on Form 10-K, which is incorporated herein by reference. HILB, ROGAL & HAMILTON COMPANY PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) JUNE 30, 1996
HILB, ROGAL ACQUISITIONS PRO FORMA ADJUSTMENTS PROFORMA AND HAMILTON (PURCHASES) FOR PURCHASE ACQUISITIONS CONSOLIDATED COMPANY ASSETS CASH AND CASH EQUIVALENTS $21,482,227 $1,956,659 (2,905,000) (2) $20,533,886 INVESTMENTS 5,352,730 124,425 5,477,155 RECEIVABLES & OTHER 45,846,017 2,569,204 (306,051) (1) 48,109,170 ------------------------------------------------------------------------------ TOTAL CURRENT ASSETS 72,680,974 4,650,288 N/A (3,211,051) 74,120,211 INVESTMENTS 5,770,000 5,770,000 PROPERTY & EQUIPMENT 14,969,938 406,565 (406,565) (1) 515,000 (3) 15,484,938 INTANGIBLE ASSETS 64,391,946 333,356 (333,356) (1) 11,740,076 (3) 76,132,022 OTHER ASSETS 4,469,728 304,604 (217,070) (1) 4,557,262 ------------------------------------------------------------------------------ TOTAL ASSETS $162,282,586 $5,694,813 N/A $8,087,034 $176,064,433 ============================================================================== LIABILITIES & EQUITY: PREMIUMS PAYABLE-INS CO $67,191,549 $3,541,010 $70,732,559 OTHER ACCRUED LIABILITIES 15,124,267 457,735 15,582,002 ------------------------------------------------------------------------------ TOTAL CURRENT LIABILITIES 82,315,816 3,998,745 N/A 0 86,314,561 LONG-TERM DEBT 15,801,391 531,408 (271,226) (1) 2,065,076 (2) 18,126,649 OTHER LONG-TERM LIAB. 8,289,192 172,844 3,260,000 (3) 11,722,036 SHAREHOLDERS' EQUITY COMMON STOCK 25,350,220 1,133,233 (1,133,233) (4) 4,025,000 (2) 29,375,220 RETAINED EARNINGS 30,525,967 (141,417) 141,417 (4) 30,525,967 ------------------------------------------------------------------------------ 55,876,187 991,816 N/A 3,033,184 59,901,187 ------------------------------------------------------------------------------ $162,282,586 $5,694,813 N/A $8,087,034 $176,064,433 ==============================================================================
(1) TO ADJUST FOR ASSETS AND LIABILITIES NOT ACQUIRED. (2) TO REFLECT PURCHASE PRICE OF ASSETS AND LIABILITIES ACQUIRED SUBSEQUENT TO JUNE 30, 1996 IN PURCHASE TRANSACTIONS. (3) TO ADJUST FOR ASSET VALUATIONS UNDER PURCHASE ACCOUNTING. (4) TO ELIMINATE SHAREHOLDERS' EQUITY OF ACQUIRED ENTITIES. HILB, ROGAL & HAMILTON COMPANY CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1996 -------------------------------------------------------------- HILB, ROGAL ACQUISITIONS PRO FORMA ADJUST- PRO FORMA & HAMILTON CO. (PURCHASES) MENTS FOR PURCHASE CONSOLIDATED ACQUISITIONS REVENUES: COMMISSIONS & FEES $78,768,286 $6,144,435 $84,912,721 INTEREST AND OTHER INCOME 2,243,540 59,430 ($124,330) (1) 2,178,640 ------------------------------------------------------------- TOTAL REVENUES 81,011,826 6,203,865 (124,330) 87,091,361 OPERATING EXPENSES: COMPENSATION AND BENEFITS 44,115,134 3,799,409 47,914,543 OTHER OPERATING EXPENSES 19,603,610 1,531,422 (136,050) (2) 20,998,982 AMORTIZATION OF INTANGIBLES 3,666,605 67,267 333,801 (3) 4,067,673 INTEREST EXPENSE 461,460 46,843 22,564 (4) 530,867 ------------------------------------------------------------ TOTAL OPERATING EXPENSES 67,846,809 5,444,941 220,315 73,512,065 ------------------------------------------------------------ INCOME BEFORE INCOME TAXES 13,165,017 758,924 (344,645) 13,579,296 INCOME TAXES 5,328,496 165,712 (5) 5,494,208 ------------------------------------------------------------ NET INCOME $7,836,521 $758,924 ($510,357) $8,085,088 ============================================================ NET INCOME PER COMMON SHARE $0.58 $0.58 ============================================================ SHARES ISSUED AND OUTSTANDING 13,368,868 327,777 13,696,645 ============================================================ WEIGHTED AVERAGE SHARES OUTSTANDING 13,626,914 374,726 14,001,640 ============================================================
(1) TO ADJUST HISTORICAL INTEREST AND TO ADJUST FOR LOST INTEREST EARNED FROM CASH PAID FOR ACQUIRED AGENCIES. (2) TO REFLECT ADJUSTMENTS TO COMPENSATION AND OTHER OPERATING EXPENSES TO REFLECT ADJUSTED COMPENSATION, DEPRECIATION EXPENSE, RENT EXPENSE, ETC. (3) TO REFLECT ADJUSTMENTS TO AMORTIZATION OF INTANGIBLES DUE TO VALUATION OF AGENCY ASSETS ON THE PURCHASE BASIS OF ACCOUNTING. INTANGIBLE ASSETS REPRESENT EXPIRATION RIGHTS, THE EXCESS OF COSTS OVER THE FAIR VALUE OF NET ASSETS ACQUIRED AND NONCOMPETITION AGREEMENTS. (4) TO ADJUST HISTORICAL INTEREST AND REFLECT INTEREST ON ACQUISITION DEBT. (5) TO REFLECT ESTIMATED TAXES AND THE TAX EFFECT OF PROFORMA ADJUSTMENTS ON NET INCOME. HILB, ROGAL & HAMILTON COMPANY CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
YEAR ENDED DECEMBER 31, 1995 ------------------------------------------------------------ HILB, ROGAL ACQUISITIONS PRO FORMA ADJUST- PROFORMA & HAMILTON CO. (PURCHASES) MENTS FOR PURCHASE CONSOLIDATED ACQUISITIONS REVENUES: COMMISSIONS & FEES $141,555,188 $23,193,697 $164,748,885 INTEREST AND OTHER INCOME 6,591,850 424,653 ($653,508) (1) 6,362,995 ----------------------------------------------------------- TOTAL REVENUES 148,147,038 23,618,350 (653,508) 171,111,880 OPERATING EXPENSES: COMPENSATION AND BENEFITS 82,760,664 14,521,313 (442,931) (2) 96,839,046 OTHER OPERATING EXPENSES 38,264,085 7,924,127 (411,581) (2) 45,776,631 AMORTIZATION OF INTANGIBLES 6,965,947 375,297 1,089,197 (3) 8,430,441 INTEREST EXPENSE 559,654 264,555 (34,317) (4) 789,892 ----------------------------------------------------------- TOTAL OPERATING EXPENSES 128,550,350 23,085,292 200,368 151,836,010 ----------------------------------------------------------- INCOME BEFORE INCOME TAXES 19,596,688 533,058 (853,876) 19,275,870 INCOME TAXES 7,767,778 (128,327) (5) 7,639,451 ----------------------------------------------------------- NET INCOME $11,828,910 $533,058 ($725,549) $11,636,419 =========================================================== NET INCOME PER COMMON SHARE $0.82 $0.77 =========================================================== SHARES ISSUED AND OUTSTANDING 13,706,764 472,625 14,179,389 =========================================================== WEIGHTED AVERAGE SHARES OUTSTANDING 14,470,407 571,071 15,041,478 ===========================================================
(1) TO ADJUST HISTORICAL INTEREST AND TO ADJUST FOR LOST INTEREST EARNED FROM CASH PAID FOR ACQUIRED AGENCIES. (2) TO REFLECT ADJUSTMENTS TO COMPENSATION AND OTHER OPERATING EXPENSES TO REFLECT ADJUSTED COMPENSATION, DEPRECIATION EXPENSE, RENT EXPENSE, ETC. (3) TO REFLECT ADJUSTMENTS TO AMORTIZATION OF INTANGIBLES DUE TO VALUATION OF AGENCY ASSETS ON THE PURCHASE BASIS OF ACCOUNTING. INTANGIBLE ASSETS REPRESENT EXPIRATION RIGHTS, THE EXCESS OF COSTS OVER THE FAIR VALUE OF NET ASSETS ACQUIRED AND NONCOMPETITION AGREEMENTS. (4) TO ADJUST HISTORICAL INTEREST AND REFLECT INTEREST ON ACQUISITION DEBT. (5) TO REFLECT ESTIMATED TAXES AND THE TAX EFFECT OF PROFORMA ADJUSTMENTS ON NET INCOME. INSURANCE MANAGEMENT INCORPORATED & ITS SUBSIDIARY McCUTCHEON, BURR & IMI, INC. CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995 (AUDITED), 1994 AND 1993 (UNAUDITED) PAGES INDEPENDENT AUDITOR'S REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets 2 Consolidated Statements of Income 3 Consolidated Statements of Shareholders' Equity 4 Consolidated Statements of Cash Flows 5-6 Notes to Consolidated Financial Statements 7-13 INDEPENDENT AUDITOR'S REPORT The Board of Directors Insurance Management Incorporated New Haven, Connecticut We have audited the accompanying consolidated balance sheet of Insurance Management, Inc. and its subsidiary McCutcheon, Burr & IMI, Inc. as of December 31, 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Insurance Management, Inc. and its subsidiary McCutcheon, Burr & IMI, Inc. as of December 31, 1995, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. The December 31, 1994 and 1993 consolidated financial statements were reviewed by us. We were not aware of any material modifications that should be made to those statements for them to be in conformity with generally accepted accounting principles. However, a review is substantially less in scope than an audit and does not provide a basis for the expression of an opinion on the financial statements taken as a whole. /S/ T. M. Byxbee Company, P.C. Hamden, Connecticut June 10, 1996 INSURANCE MANAGEMENT INCORPORATED AND ITS SUBSIDIARY McCUTCHEON, BURR & IMI, INC. CONSOLIDATED BALANCE SHEET DECEMBER 31, 1995, 1994 AND 1993
A S S E T S 1995 1994 1993 (AUDITED) (UNAUDITED) (UNAUDITED) CURRENT ASSETS Cash and Equivalents $ 538,464 $ 640,599 $ 838,381 Investments Available for Sale 114,352 109,851 85,701 Receivables: Premiums, Less Allowance for Doubtful Accounts of $145,000 in 1995 and $135,000 in 1994 and 1993 862,320 904,727 1,177,969 Other 6,667 3,667 - Other Current Assets 8,999 947 19,777 ---------- ---------- ---------- Total Current Assets 1,530,802 1,659,791 2,121,828 PROPERTY AND EQUIPMENT, NET 395,537 462,010 561,857 INTANGIBLE ASSETS Expiration Rights 995,136 995,136 995,136 Goodwill 186,200 186,200 186,200 Noncompetition Agreements 414,000 414,000 414,000 ---------- ---------- ---------- 1,595,336 1,595,336 1,595,336 Less: Accumulated Amortization 1,206,284 1,049,056 842,800 ---------- ---------- ---------- Net Intangible Assets 389,052 546,280 752,536 OTHER ASSETS 66,866 217,395 43,214 ---------- ---------- ---------- TOTAL $2,382,257 $2,885,476 $3,479,435 ========== ========== ========== L I A B I L I T I E S AN D S H A R E H O L D E R S ' E Q U I T Y CURRENT LIABILITIES Premiums Payable to Insurance Companies $ 912,348 $1,240,726 $1,592,065 Accounts Payable and Accrued Expenses 406,306 246,279 414,661 Current Portion of Long-Term Debt 309,186 360,551 436,323 ---------- ---------- ---------- Total Current Liabilities 1,627,840 1,847,556 2,443,049 LONG-TERM DEBT - NET OF CURRENT PORTION 688,824 1,095,581 1,139,796 OTHER LIABILITIES 138,707 488,582 36,193 SHAREHOLDERS' EQUITY Common Stock - $1 Par Value, 47,500 Shares Authorized, 45,000 Shares Issued of which 27,484, 27,625, and 26,215 Shares are in the Treasury at 1995, 1994, and 1993, Respectively 45,000 45,000 45,000 Additional Paid-In Capital 390,561 357,453 286,857 Retained Earnings 879,630 844,997 802,607 Unrealized Holding Gain, Net of Tax Expense of $25,755 in 1995 and $5,610 in 1994 38,632 18,553 - ---------- ---------- ---------- 1,353,823 1,266,003 1,134,464 Less: Treasury Stock, at Cost 1,103,606 1,095,155 633,177 Unearned Compensation ESOP 323,331 457,434 640,890 Unfunded Pension Obligation, Net of Tax Benefit of $173,105 - 259,657 - ---------- ---------- ---------- Total Equity (73,114) (546,243) (139,603) ---------- ---------- ---------- TOTAL $2,382,257 $2,885,476 $3,479,435 ========== ========== ==========
See notes to financial statement. INSURANCE MANAGEMENT INCORPORATED AND ITS SUBSIDIARY McCUTHEON, BURR & IMI, INC. CONSOLIDATED STATEMENT OF INCOME DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 (AUDITED) (UNAUDITED) (UNAUDITED) REVENUES Commissions and Fees $5,204,711 $5,185,358 $5,484,093 Investment Income 84,725 33,525 36,460 Other 4,121 19,010 7,004 ----------------------------------------- Total Revenues 5,293,557 5,237,893 5,527,557 OPERATING EXPENSES Compensation and Employee Benefits 3,782,329 3,712,743 3,854,404 Other Operating Expenses 1,210,078 1,158,906 1,279,329 Amortization of Intangibles 157,230 206,254 184,621 Interest Expense 89,827 107,119 78,212 ----------------------------------------- Total Operating Expenses 5,239,464 5,185,022 5,396,566 ----------------------------------------- INCOME BEFORE INCOME TAXES 54,093 52,871 130,991 PROVISION FOR INCOME TAXES 19,460 10,481 52,561 ----------------------------------------- NET INCOME $ 34,633 $ 42,390 $ 78,430 ========================================= NET INCOME PER SHARE $ 2.17 $ 2.72 $ 4.74 ========================================= WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING 15,933 15,612 16,556 =========================================
See notes to financial statement. INSURANCE MANAGEMENT INCORPORATED AND ITS SUBSIDIARY McCUTHEON, BURR & IMI, INC. CONSOLIDATED STATEMENT OF SHAREHOLDERS'EQUITY DECEMBER 31, 1995, 1994 AND 1993
ADDITIONAL UNREALIZED UNEARNED UNFUNDED COMMON PAID-IN RETAINED HOLDING TREASURY COMPENSATION PENSION STOCK CAPITAL EARNINGS GAIN STOCK ESOP OBLIGATION TOTAL BALANCE AT JANUARY 1, 1993........... $ 45,000 $272,757 $724,177 $ - ($ 633,717) ($511,250) $ - ($103,033) Sale of 60 Shares of Treasury Stock - 14,100 - - 540 - - 14,640 Net Income......................... - - 78,430 - - - - 78,430 Acquisition of Stock by ESOP....... - - - - - ( 157,272) - ( 157,272) Release of ESOP Shares............. - - - - - 27,632 - 27,632 --------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1993......... 45,000 286,857 802,607 - ( 633,177) ( 640,890) - ( 139,603) Sale of 365 Shares of Treasury Stock............................ - 77,915 - - 3,285 - - 81,200 Purchase of 1,775 Shares of Company Stock........................... - - - - ( 465,263) - - ( 465,263) Net Income......................... - - 42,390 - - - - 42,390 Cumulative Effect of an Accounting Change.......................... - - - 31,148 - - - 31,148 Change in Unrealized Holding Gain.. - - - ( 12,595) - - - ( 12,595) Release of ESOP Shares............. - (7,319) - - - 183,456 - 176,137 Unfunded Pension Obligation........ - - - - - - ( 259,657) ( 259,657) --------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1994......... 45,000 357,453 844,997 18,553 ( 1,095,155) ( 457,434) ( 259,657) ( 546,243) Sale of 181 Shares of Treasury Stock............................ - 37,823 - - 1,629 - - 39,452 Purchase of 40 Shares of Company Stock............................ - - - - ( 10,080) - - ( 10,080) Net Income......................... - - 34,633 - - - - 34,633 Change in Unrealized Holding Gain.. - - - 20,079 - - - 20,079 Release of ESOP Shares............. - ( 4,715) - - - 134,103 - 129,388 Unfunded Pension Obligation........ - - - - - - 259,657 259,657 -------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995......... $ 45,000 $390,561 $879,630 $ 38,632 ($1,103,606) ($323,331) $ - ($ 73,114) =============================================================================================
See notes to financial statement. INSURANCE MANAGEMENT INCORPORATED AND ITS SUBSIDIARY McCUTCHEON, BURR & IMI, INC. CONSOLIDATED STATEMENT OF CASH FLOWS DECEMBER 31, 1995, 1994 AND 1993
1995 1994 1993 (AUDITED) (UNAUDITED) (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME............................................. $ 34,633 $ 42,390 $ 78,430 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Bad Debts.......................................... 10,000 - - Depreciation and Amortization...................... 269,928 319,000 311,303 Loss on Disposal of Property and Equipment......... 11,581 3,902 4,932 Gain on Sale of Investments........................ (43,365) - - Deferred Income Taxes.............................. (46,300) ( 5,230) 29,300 ESOP Compensation.................................. 6,585 ( 48,401) - Cash Surrender Value............................... (5,738) ( 6,269) ( 6,113) Decrease (Increase) In: Receivables...................................... 31,074 266,242 ( 70,067) Other Current Assets............................. ( 8,052) 18,830 8,596 Deposits......................................... 7,780 ( 399) ( 12,554) Increase (Decrease) In: Premiums Payable................................. (328,378) ( 351,339) ( 2,756) Accounts Payable and Accrued Expenses............ 160,027 ( 168,382) 178,725 Other Liabilities................................ 82,887 30,027 25,793 ----------------------------------- Net Cash Provided By Operating Activities.......... 182,662 100,371 545,589 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from the Sale of Investments.................. 79,088 13 - Proceeds from the Sale of Property and Equipment....... - - 5,000 Acquisition of Property and Equipment.................. (54,795) ( 13,775) ( 2,508) Acquisition of Intangible Assets....................... - - ( 233,136) ----------------------------------- Net Cash Provided (Used) By Investing Activities... 24,293 ( 13,762) ( 230,644) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from Long-Term Debt........................... 240,000 - - Repayment of Long-Term Debt...........................( 586,040) ( 317,390) ( 282,564) Purchase of Treasury Stock............................( 3,222) ( 48,201) - Sale of Treasury Stock................................. 40,172 81,200 14,640 ------------------------------------ Net Cash Used By Financing Activities............. ( 309,090) ( 284,391) ( 267,924) ------------------------------------- NET INCREASE (DECREASE) IN CASH.......................( 102,135) ( 197,782) 47,021 CASH AT THE BEGINNING OF THE YEAR....................... 640,599 838,381 791,360 ----------------------------------- CASH AT THE END OF THE YEAR............................ $538,464 $640,599 $838,381 =================================== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash Paid During the Year For Interest............................................. $ 84,332 $103,090 $ 80,920 Income Taxes......................................... 13,823 43,477 15,920
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES 1995 Issued a note payable of $7,578 as partial payment for forty shares of Company stock. 1994 Issued notes payable of $417,062 as partial payment for 1,775 shares of Company stock. 1993 Issued notes payable of $192,000 as payment for expiration rights and noncompetition agreements. Borrowed and simultaneously reloaned $500,000 to the Company's ESOP. Guaranteed $157,272 of ESOP debt. See notes to financial statement. INSURANCE MANAGEMENT INCORPORATED AND ITS SUBSIDIARY McCUTCHEON, BURR & IMI, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1995, 1994 AND 1993 NOTE 1 - ACCOUNTING POLICIES The Company is an independent insurance agency providing, through major insurance companies, both commercial and personal lines of insurance to businesses and individuals throughout the Connecticut area. Consolidated Policy The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary. Intercompany transactions and balances have been eliminated in consolidation. Revenues Commission income, the related premiums receivable from customers, and premiums payable to insurance companies are recorded at the later of the effective date of insurance coverage or the billing dated. Premium adjustments, including policy cancellations, are recorded as they occur. Contingent commissions and commissions on premiums billed and collected directly by insurance companies are recorded as revenue when received. Cash and Equivalents All highly liquid investments are considered cash equivalents. The Company maintains its cash in bank deposit accounts at high credit quality financial institutions. The balances, at times, may exceed federally insured limits. Property and Equipment Property and equipment are recorded at cost. The cost and accumulated depreciation applicable to property and equipment retired or otherwise disposed of are eliminated from the related accounts and any gain or loss on disposal is reflected in earnings. Expenditures for maintenance and repairs are charged to operations as incurred. Depreciation is provided over the estimated useful lives of the assets which range from five to forty years, using the straight- line method. Intangible Assets Goodwill, expirations, and noncompetition agreements are amortized over periods ranging from five to eight years using the straight-line method. Income Taxes Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the basis of assets and liabilities for financial statement and income tax purposes. The differences relate primarily to bad debts, investments, property and equipment, ESOP compensation and pension obligations. The deferred tax assets and liabilities represent the future consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. NOTE 1 - ACCOUNTING POLICIES (Continued) Net Income Per Common Share Net income per common share is based on the weighted average number of shares of common stock outstanding during each year. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 - FAIR VALUE OF FINANCIAL INSTRUMENTS The fair value of financial instruments is determined by reference to various market data and other valuation techniques as appropriate. The carrying amount of financial instruments approximates their fair value at December 31, 1995. NOTE 3 - INVESTMENTS Effective January 1, 1994 the Company adopted Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"). This statement addresses the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Those investments are to be classified in three categories - Held to Maturity, Trading Securities and Available-for-Sale. The adoption of this accounting principle had no effect on prior years. At December 31, 1995 and 1994 the Company's investments are comprised of securities classified as available-for-sale, resulting in investments being carried at market value. Due to SFAS 115 not allowing for retroactive restatement, the Company's investments at December 31, 1993 are stated at the lower of aggregate cost or market. [CAPTION] UNREALIZED UNREALIZED MARKET SECURITIES AVAILABLE FOR SALE AT DECEMBER 31, COST GAINS LOSSES VALUE 1995......................................... $49,965 $82,775 ($18,388) $114,352 1994......................................... 85,688 61,643 ( 37,480) 109,851 1993......................................... 85,701 83,120 ( 39,126) 129,695
NOTE 4 - PROPERTY AND EQUIPMENT
1995 1994 1993 Property and equipment consists of the following: Furniture and Equipment............................... $ 977,193 $ 955,262 $ 941,488 Leasehold Improvements................................ 128,196 140,941 140,941 Automobiles........................................... 32,863 38,277 77,828 --------------------------------- 1,138,252 1,134,480 1,160,257 Less: Accumulated Depreciation....................... 742,715 672,470 598,400 --------------------------------- $ 395,537 $ 462,010 $ 561,857 ================================= Depreciation Expense.................................. $ 109,864 $ 109,722 $ 125,424 =================================
NOTE 5 - LONG-TERM DEBT
1995 1994 1993 Notes payable - Insurance Company, 6% to 8.5%, due in various installments through December 1996....... $ - $ 245,989 $ 400,779 Notes payable - Bank, prime, due in various installments through 1997............................... 180,000 156,250 231,250 Notes payable - Individuals, 6.25% to 8%, due in various installments through March 2003......................... 417,238 478,262 81,600 Notes payable under noncompetition agreements and purchase of expirations, non-interest bearing, due in various installments through July 1998.................. 99,200 154,400 221,600 ESOP debt, non-interest bearing and prime plus 1%, due in various installments through 2001................ 301,572 421,231 640,890 ------------------------------- 998,010 1,456,132 1,576,119 Less: Current Portion.................................. 309,186 360,551 436,323 ------------------------------- $688,824 $1,095,581 $1,139,796 ===============================
A loan payable with a bank contains various customary covenants which impose restrictions with respect to financial ratios, disposition of assets and other representations, warranties, and default provisions. At December 31, 1995 the Company was in violation of certain covenants which were subsequently waived by the Bank. Substantially all the Company's assets are pledged as collateral. Aggregate maturities of long-term debt subsequent to December 31, 1995, are as follows: 1996................................ $309,186 1997................................ 229,186 1998................................ 192,786 1999................................ 67,860 2000................................ 67,860 Thereafter.......................... 131,132 -------- $998,010 ======== Interest expense for the years ended December 31, 1995, 1994 and 1993 was $86,729, $107,119 and $78,212, respectively. NOTE 6 - LEASES The Company leases office space under five operating leases which expire at various times through 2004. Under three of the leases, the Company is required to pay maintenance, insurance, common fees, and taxes. Rent and related expenses for 1995, 1994 and 1993 were $338,614, $334,080 and $409,272, respectively. NOTE 6 - LEASES (CONTINUED) Future minimum lease payments are as follows: 1996................................. $ 291,871 1997................................. 284,620 1998.................................. 201,600 1999.................................. 192,600 2000................................... 192,600 ---------- $1,163,291 ========== NOTE 7 - INCOME TAXES The provision for income taxes consists of the following: 1995 1994 1993 Currently Payable: Federal....................................... $ 51,795 $ 7,477 $15,383 State......................................... 13,965 8,234 7,878 Deferred........................................ ( 46,300) (5,230) 29,300 -------------------------- $ 19,460 $10,481 $52,561 ========================== Deferred taxes are comprised of the following: 1995 1994 1993 Deferred Asset................................. $121,500 $254,300 $71,500 Deferred Liabilities........................... ( 98,100) (87,100) ( 81,900) ----------------------------- Net Deferred Asset (Liability).............. $ 23,400 $167,200 ($ 10,400) ============================== Deferred taxes are included in other assets and other liabilities on the consolidated balance sheet. The effective income tax rate varied from the statutory federal income tax rate as follows: 1995 1994 1993 Statutory Federal Income Tax Rate.......................................... 34.0% 34.0% 34.0% State Income Taxes, Net of Federal Tax Benefit 4.2 6.5 5.9 Effect of Graduated Rates and Other........... (2.2 ) (20.7 ) (.2) -------------------------- Effective Income Tax Rate..................... 36.0% 19.8% 40.1% ========================== NOTE 8 - PENSION PLAN The Company maintains a pension plan which covers substantially all of its employees. Pension costs include current service costs which are accrued and funded on a current basis. On November 17, 1995, the Board of Directors of the Company adopted an amendment to "freeze" the defined benefit plan effective December 1, 1995. As a result of the amendment, the Company recognized a curtailment loss of $126,955 which is included in pension expense for the year ended December 31, 1995. See Note 11 - Contingencies for additional information regarding the pension plan. Funded status of the Plan at November 30: 1995 1994 1993 Accumulated Benefit Obligation....... ($3,797,615) ($4,500,945) ($3,606,372) ======================================= Projected Benefit Obligation......... ($3,797,615) ($4,835,982) ($3,829,092) Plan Assets at Fair Value............ 3,929,622 3,717,139 3,479,308 --------------------------------------- (Excess) Deficit Projected Benefit Obligation......................... 132,007 (1,118,843) ( 349,784) Unrecognized Net (Gain) Loss......... ( 270,714) 767,799 6,057 Unrecognized Net Liability at Transition Date.................... - 295,224 317,934 Additional Minimum Liability......... - ( 727,986) - --------------------------------------- Prepaid (Accrued) Pension Cost....... ($ 138,707) ($ 783,806) ($ 25,793) ======================================== Net pension cost includes the following components at November 30: 1995 1994 1993 Service Cost.......................... $ 84,568 $ 126,528 $ 79,474 Interest Cost on Projected Benefit Obligation.................. 267,220 324,581 259,960 Earnings on Plan Assets............... ( 246,497) ( 228,035) ( 230,294) Net Amortization and Deferral......... 5,436 953 16,653 -------------------------------------- Net Pension Cost...................... $ 110,727 $ 224,027 $ 125,793 ====================================== The discount rate used in determining the actuarial present value of plan benefits and the expected rate of return on plan assets was 7.25%, for 1995, 1994, and 1993. NOTE 9 - EMPLOYEE STOCK OWNERSHIP PLAN Insurance Management, Inc. sponsors a leveraged employee stock ownership plan (ESOP) that covers substantially all its employees. The Company makes annual contributions to the ESOP. The ESOP shares are pledged as collateral for its debt. As the debt is repaid, shares are released from collateral and allocated to active employees, based on the proportion of debt service paid in the year. The Company accounts for its ESOP in accordance with Statement of Position 93-6. Accordingly, the debt of the ESOP is recorded as debt and the shares pledged as collateral are reported as unearned ESOP shares in the consolidated statement of shareholders' equity. As shares are released from collateral, the Company reports compensation expense equal to the current market price of the shares, and the shares become outstanding for earnings-per-share (EPS) computations. ESOP compensation expense for December 31, 1995, 1994 and 1993 was $201,585, $131,599 and $200,000, respectively. The ESOP shares as of December 31 were as follows: NOTE 9 - EMPLOYEE STOCK OWNERSHIP PLAN (CONTINUED) 1995 1994 1993 Allocated Shares........................... 4,942 4,209 4,100 Shares Released for Allocation............. 532 733 109 Unreleased Shares.......................... 1,271 1,803 2,536 ------------------------------ Total ESOP Shares.......................... 6,745 6,745 6,745 ============================== Fair Value of Unreleased Shares at December 31.............................. $301,572 $421,231 $640,890 ============================== NOTE 10 - STOCK OPTION PLAN The Company maintains an Incentive Stock Option Plan which provides for granting options to key employees to purchase up to 10,000 shares of common stock at a price not less than the fair market value at the date of the grant. Fair value is determined by an independent appraiser. The term and exercisability of the stock options are determined by the Plan's administrator within parameters prescribed in the plan document. 1995 1994 1993 Shares Under Option: Outstanding, Beginning of Year........ 1,673 1,428 1,505 Granted During the Year............. - 745 180 Cancelled During the Year........... ( 229) ( 190) ( 217) Exercised, During the Year.......... ( 65) ( 310) ( 40) --------------------------- Outstanding, End of Year.............. 1,379 1,673 1,428 =========================== The options are exercisable in February of each year as follows: Number of Options 1996........................................... 240 1997........................................... 313 1998........................................... 161 1999........................................... 161 2000........................................... 161 Subsequent Years............................... 343 At December 31, 1995, 235 options are exercisable at $190 per share, 478 options at $235 per share, and 666 options at $252 per share. NOTE 11 - CONTINGENCIES On June 1, 1991 the Company entered into an agreement to purchase certain assets of McCutcheon & Burr, Inc. The agreement required future contingent payments which were not recorded by the Company. During 1993 the Company renegotiated and settled this contingent liability for approximately $207,000 which has been paid and added to the cost of expirations purchased and is being amortized over the remaining life of the expirations. A remaining amount of approximately $78,000 is contingent upon future sales. An amount has not been recorded in the financial statements to reflect this remaining contingent obligation. On July 30, 1993 the Company entered into an agreement to purchase certain assets of James A. Beardsley. The agreement provides for future contingent payments based on total commissions earned during the period August 1993 through July 1998. No amount has been recorded in the financial statements in connection with this contingent liability. As discussed in Note 8 - Pension Plan, the Board of Directors adopted an amendment to "freeze" the defined benefit plan. Management is investigating several alternatives to settle its pension obligation, however as of June 10, 1996 no settlement has been made. The cost of settlement has not been determined and it is not known if this cost may exceed the recorded liability of $138,707 as of December 31, 1995. NOTE 12 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of quarterly results of operations for the years ended December 31:
THREE MONTHS ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 30 1995 Revenue......................... $1,519,769 $1,206,285 $1,391,554 $1,175,949 Net Profit (Loss)............... 147,113 ( 26,006) 73,575 ( 160,049) Net Income Per Share............ 9.34 ( 1.65) 4.61 ( 10.04) 1994 Revenues........................ 1,543,702 1,222,048 1,333,555 1,138,588 Net Profit (Loss)............... 166,797 ( 49,154) 37,205 ( 112,458) Net Income Per Share............ 10.83 ( 3.15) 2.38 ( 7.20) 1993 Revenues........................ 1,855,951 1,215,282 1,299,574 1,156,750 Net Profit (Loss)............... 305,575 ( 71,516) ( 27,827) ( 127,802) Net Income Per Share............ 18.47 ( 4.32) ( 1.68) ( 7.72)
INSURANCE MANAGEMENT, INC. AND SUBSIDIARY INTERIM CONSOLIDATED FINANCIAL STATEMENTS INSURANCE MANAGEMENT, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET JUNE 30, DECEMBER 31, 1996 1995 (UNAUDITED) CURRENT ASSETS Cash and Equivalents.................................. $ 516,664 $ 538,464 Investments Available for Sale........................ 124,425 114,352 Receivables: Premiums, Less Allowance for Doubtful Accounts of $170,200 in 1996 and $145,000 in 1995.............. 1,198,746 862,320 Other................................................ 3,294 6,667 Other Current Assets.................................. 15,807 8,999 ----------------------- Total Current Assets............................... 1,858,936 1,530,802 PROPERTY AND EQUIPMENT, NET.......................... 342,316 395,537 INTANGIBLE ASSETS Expiration Rights..................................... 995,136 995,136 Goodwill.............................................. 186,200 186,200 Noncompetition Agreements............................. 414,000 414,000 ----------------------- 1,595,336 1,595,336 Less: Accumulated Amortization...................... 1,261,980 1,206,284 ----------------------- Net Intangible Assets.............................. 333,356 389,052 OTHER ASSETS......................................... 83,779 66,866 ----------------------- TOTAL............................................... $2,618,387 $2,382,257 ======================= L I A B I L I T I E S AN D S T O C K H O L D E R S ' E Q U I T Y JUNE 30, DECEMBER 31, 1996 1995 (UNAUDITED) CURRENT LIABILITIES Premiums Payable to Insurance Companies.............. $1,212,765 $ 912,348 Accounts Payable and Accrued Expenses................ 280,369 406,306 Current Portion of Long-Term Debt.................... 79,127 309,186 ----------------------- Total Current Liabilities......................... 1,572,261 1,627,840 LONG-TERM DEBT - NET OF CURRENT PORTION............. 508,325 688,824 OTHER LIABILITIES................................... 133,355 138,707 SHAREHOLDERS' EQUITY (DEFICIT) Common Stock - $1 Par Value, 47,500 Shares Authorized, 45,000 Shares Issued of Which 27,472 and 27,484 Shares are in the Treasury at June 30, 1996 and December 31, 1995, Respectively........................................ 45,000 45,000 Additional Paid-In Capital............................ 386,233 390,561 Retained Earnings..................................... 1,133,438 879,630 Unrealized Holding Gain, Net of Tax Expense of $29,755 in 1996 and $25,755 in 1995......................... 44,713 38,632 ----------------------- 1,609,384 1,353,823 Less: Treasury Stock, at Cost....................... 1,103,498 1,103,606 Unearned Compensation ESOP.................... 101,440 323,331 ----------------------- Total Stockholders' Equity (Deficit)............... 404,446 ( 73,114) ------------------------ TOTAL.........................................,,,,,,,, $2,618,387 $2,382,257 ======================= See note to financial statement. INSURANCE MANAGEMENT, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1996 1995 1996 1995 (UNAUDITED) (UNAUDITED) REVENUES Commissions and Fees...................$1,244,472 $1,196,160 $2,756,615 $2,703,994 Investment Income...................... 8,681 8,162 17,012 14,728 Other.................................. - 1,963 316 7,332 ------------------------------------------------- Total............................... 1,253,153 1,206,285 2,773,943 2,726,054 OPERATING EXPENSES Compensation and Employee Benefits..... 774,491 896,462 1,604,480 1,822,991 Other Operating Expenses............... 315,409 288,369 653,376 589,057 Amortization of Intangibles............ 26,518 39,308 55,696 78,616 Interest Expense....................... 19,120 22,765 37,383 46,235 ------------------------------------------------- Total............................... 1,135,538 1,246,904 2,350,935 2,536,899 ------------------------------------------------- INCOME BEFORE INCOME TAXES............. 117,615 ( 40,619) 423,008 189,155 PROVISION FOR INCOME TAXES............. 47,040 ( 14,613) 169,200 68,048 ------------------------------------------------- NET INCOME.............................$ 70,575 ($ 26,006) $ 253,808 $ 121,107 ================================================= NET INCOME PER SHARE...................$ 4.34 ($ 1.65) $ 15.60 $ 7.69 ================================================= WEIGHTED AVERAGE NUMBER OF SHARES OF COMMON STOCK OUTSTANDING............. 16,273 15,755 16,273 15,755 =================================================
See note to financial statement. INSURANCE MANAGEMENT, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
ADDITIONAL UNREALIZED UNEARNED UNFUNDED COMMON PAID-IN RETAINED HOLDING TREASURY COMPENSATION PENSION STOCK CAPITAL EARNINGS GAIN STOCK ESOP OBLIGATION TOTAL BALANCE AT JANUARY 1, 1995....... $45,000 $357,453 $ 844,997 $18,553 ($1,095,155) ($457,434) ($259,657) ($546,243) Sale of 181 Shares of Treasury Stock - 37,823 - - 1,629 - - 39,452 Purchase of 40 Shares of Company Stock - - - - ( 10,080) - - ( 10,080) Net Income....................... - - 34,633 - - - - 34,633 Change in Unrealized Holding Gain - - - 20,079 - - - 20,079 Release of ESOP Shares........... - ( 4,715) - - - 134,103 - 129,388 Unfunded Pension Obligation...... - - - - - - 259,657 259,657 -------------------------------------------------------------------------------------------- BALANCE AT DECEMBER 31, 1995..... 45,000 390,561 879,630 38,632 ( 1,103,606) ( 323,331) - ( 73,114) Sale of 12 Shares of Treasury Stock - 2,696 - - 108 - - 2,804 Net Income....................... - - 253,808 - - - - 253,808 Change in Unrealized Holding Gain - - - 6,081 - - - 6,081 Release of ESOP Shares........... - ( 7,024) - - - 221,891 - 214,867 ---------------------------------------------------------------------------------------------- BALANCE AT JUNE 30, 1996 (UNAUDITED) $45,000 $386,233 $1,133,438 $44,713 ($1,103,498) ($101,440) $ - $404,446 ==============================================================================================
See note to financial statement INSURANCE MANAGEMENT, INC. AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1996 1995 (UNAUDITED) (AUDITED) CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME.............................. $253,808 $121,107 ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES: Bad Debts............................ 25,200 22,000 Depreciation and Amortization........ 159,627 128,798 Deferred Income Taxes................ ( 32,000) ( 24,000) ESOP Compensation.................... 10,167 3,293 Cash Surrender Value................. 3,318 ( 2,870) Decrease (Increase) In: Receivables........................ (358,253) ( 189,956) Other Current Assets............... ( 6,808) ( 33,194) Deposits........................... 4,667 5,030 Increase (Decrease) In: Premiums Payable................... 300,417 95,511 Accounts Payable and Accrued Expenses (125,937) 101,341 Other Liabilities................... ( 5,352) ( 22,034) ---------------------- Net Cash Provided By Operating Activities 228,854 205,026 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of Property and Equipment.... ( 42,900) ( 3,400) ---------------------- Net Cash Used In Investing Activities. ( 42,900) ( 3,400) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of Long-Term Debt.............. (210,558) ( 208,086) Sale of Treasury Stock................... 2,804 40,172 ---------------------- Net Cash Used In Financing Activities. (207,754) ( 167,914) ---------------------- NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS............................ ( 21,800) 33,712 CASH AND EQUIVALENTS AT THE BEGINNING OF THE PERIOD................................. 538,464 640,599 --------------------- CASH AND EQUIVALENTS AT THE END OF THE PERIOD................................. $516,664 $674,311 ===================== INSURANCE MANAGEMENT, INC. AND SUBSIDIARY NOTE TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - BASIS OF PRESENTATION The consolidated financial statements of Insurance Management, Inc. and Subsidiary have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered for a fair presentation have been included. Operating results for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the Companys' financial statements and footnotes for the year ended December 31, 1995. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION The company is one of the largest independent insurance agencies in South Central Connecticut with six offices in New Haven and Middlesex Counties. In spite of the continuing "soft market" in the property and casualty industry and the weak economy in Connecticut, property and casually commission income increased slightly in 1995. Management is cautiously optimistic about increasing revenue in 1996 and will continue to keep a tight control on expenses. RESULT OF OPERATIONS Total revenue in 1995 was $5,293,557, an increase of $55,664 over 1994. Total revenue in 1994 was $289,664 lower than in 1993. This reduction was due principally to a significant reduction, $272,945, in profit sharing income. Property and casualty commissions in 1995 increased $187,253, or 4% from 1994. In 1994, there was a minimal decrease, less than $10,000 from 1993. Life and health commissions declined $28,500, or 9%, in 1995. In 1994, there was a decline of $15,912, or 5%. Investment income increased by $51,200 in 1995. This was due to gains realized from the sale of securities. In 1994, there was a decrease of $2,935 due to lower rates of return and slower collections. Operating expenses increased $54,442 or 1% in 1995. In 1994, there was a decrease of $211,544 or 4% from 1993. Compensation and employee benefits costs were $3,782,329 in 1995 compared to $3,712,743 in 1994, an increase of $69,586 or 1.9%. In 1994, there was a decrease of $141,661 or 3.7% from 1993 compensation and employee benefits costs of $3,854,404. The increase in 1995 was primarily due to increased group insurance costs. In 1995, other operating expenses were $1,210,078, $51,172 or 4.4% higher than 1994. Other operating expenses in 1994 were $1,158,906 or 9.4% lower than 993. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations totalled $182,662, $100,371 and $545,589 for the years ended December 31, 1995, 1994 and 1993, and is primarily dependent upon the timing of the collection of insurance premiums from clients and payments of those premiums to the appropriate underwriters. The Company generates sufficient funds internally for the purchase of personal property and equipment. Cash expenditures for property and equipment totaled $54,795, $13,775 and $2,508 for the years ended December 31, 1995, 1994 and 1993. Certain assets of two insurance agencies were purchased for $409,136 in 1993. This purchase was also funded primarily through operations. Financing activities utilized cash of $309,090, $284,391 and $267,924 for the years ended December 31, 1995, 1994 and 1993. During 1995, the Company refinanced $240,000 of debt in order to obtain a more favorable interest rate, and continued to reduce long term debt through the sale of treasury stock to select employees. The Company's current ratio (.94 to 1.00 at December 31, 1995) has consistently improved over the last three years. The Company expects this trend to continue and believes that cash generated from operations will provide sufficient funds to meet the Company's operating requirements. EX-2 2 AGREEMENT OF MERGER OF HILB, ROGAL AND HAMILTON COMPANY OF NEW HAVEN INTO INSURANCE MANAGEMENT INCORPORATED THIS MERGER AGREEMENT ("Agreement"), to be effective as of 12:01 a.m. on October1, 1996, or at such other time as may be agreed upon by the parties hereto, is made and entered into by and among HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation ("Parent"), for itself and as agent for its wholly-owned subsidiary formed or to be formed pursuant to this Agreement, HILB, ROGAL AND HAMILTON COMPANY OF NEW HAVEN, a Connecticut corporation ("HRH Merger Subsidiary"), and INSURANCE MANAGEMENT INCORPORATED, a Connecticut corporation ("Merging Entity"), and the fifteen shareholders of Merging Entity (who shall later ratify this Agreement), ROBERT O. COULTER ("Mr. Coulter"), T. ROBERT MCCARRON ("Mr. McCarron"), DAVID J. CURRAN ("Mr. Curran"), C. ANTHONY INGERSOLL ("Mr. Ingersoll"), NEIL W. GARBATINI ("Mr. Garbatini"), DAVID K. HOMER ("Mr. Homer"), DOUGLAS F. DANAHER ("Mr. Danaher"), JOSEPH L. FERRY ("Mr. Ferry"), RICHARD P. RIDINGER ("Mr. Ridinger"), MARIO P. LUPONE ("Mr. Lupone"), HARRY E. BURR ("Mr. Burr"), OWEN J. FLANNERY ("Mr. Flannery"), STEPHANIE S. SHOREY ("Ms. Shorey"), MADELYN R. IZZO ("Ms. Izzo") and MESSRS. COULTER, MCCARRON, CURRAN and INGERSOLL, TRUSTEES OF THE INSURANCE MANAGEMENT, INC. EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")(with Messrs. Coulter, McCarron, Curran, Ingersoll, Garbatini, Homer, Danaher, Ferry, Ridinger, Lupone, Burr, and Flannery, Mss. Shorey and Izzo and ESOP hereinafter sometimes collectively referred to as "Shareholders" or any one of the foregoing hereinafter sometimes referred to as "Shareholder"), with reference to the following facts: A. Shareholders are the owners and holders of all of the issued and outstanding shares of the authorized capital stock (referred to below as the "Common Stock") of Merging Entity which is engaged in the business of owning and operating a general insurance agency. 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 and certain future cash payments (contingent in amount based on the profitability of the successor to Merging Entity) 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, for financial accounting purposes, as a "purchase" in accordance with the principles of the Financial Accounting Standards Board 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, 1996 (or at such later time as may be agreed upon by the parties), to the Secretary of State of the State of Connecticut and to be effective as of 12:01 a.m. on October 1, 1996 (or at such later time as may be agreed upon by the parties) ("Effective Date"), as provided by the laws of the State of Connecticut. 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: Robert H. Hilb 4235 Innslake Drive, P.O. Box 1220 Glen Allen, Virginia 23060-1220 Andrew L. Rogal 4235 Innslake Drive, P.O. Box 1220 Glen Allen, Virginia 23060-1220 Timothy J. Korman 4235 Innslake Drive, P.O. Box 1220 Glen Allen, Virginia 23060-1220 (d) On the Effective Date, by virtue of completion of the Merger, the officers of Surviving Corporation shall be: T. Robert McCarron President David J. Curran Secretary/Treasurer C. Anthony Ingersoll Senior Vice President David K. Homer Senior Vice President and Assistant Secretary Neil W. Garbatini Vice President Harry E. Burr Vice President Douglas F. Danaher Vice President Joseph L. Ferry Vice President Robert H. Hilb Vice President Timothy J. Korman Assistant Treasurer Dianne F. Fox Secretary Walter L. Smith Assistant 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 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 as of the Effective Date, will be owned, collectively, by Shareholders. As of the Effective Date, each of the Shareholders own, 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 and other consideration as described herein: Shareholder Number of Shares Percentage Mr. Coulter 3,000 17.4135 Mr. McCarron 1,500 8.7068 Mr. Curran 1,500 8.7068 Mr. Ingersoll 1,500 8.7068 Mr. Homer 1,100 6.3850 Mr. Garbatini 1,080 6.2689 Mr. Ferry 130 .7546 Mr. Danaher 125 .7256 Ms. Shorey 100 .5804 Mr. Ridinger 220 1.2770 Mr. Lupone 85 .4934 Ms. Izzo 65 .3773 Mr. Burr 56 .3251 Mr. Flannery 22 .1277 ESOP 6,745 39.1514 ------ -------- 17,228 100.0001 In exchange for all of the shares of Common Stock, Shareholders shall collectively receive 250,000 shares of common stock of Parent, plus the two payments in common stock of Parent referenced below, subject to adjustment as provided in Section 14.6, to all the terms and conditions contained herein, and the rights under Connecticut law of any Shareholders dissenting to the Merger. Pursuant to the Merger, 100% of the shares of Common Stock shall be exchanged for shares of Parent common stock. (b) The manner and basis of conversion of shares on the Effective Date shall be as follows: (i) Each share of common stock of HRH Merger Subsidiary which is issued and outstanding on the Effective Date, with all rights with respect thereto, shall become one hundred seventy-two and 28/100 (172.28) shares 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 14.511261 shares (which number of shares is subject to adjustment as provided in Section 14.6) of common stock, no par value, of Parent, plus the right to receive the proportionate share (or such lesser amount as may be agreed between any Shareholder and Merging Entity) of the two contingent payments described below in subsection (f), each of which contingent payments shall not in the aggregate exceed in value $1,687,500 nor be less in value than $187,500 (before any applicable offset or deduction). Such deferred payments shall have interest imputed at the lowest applicable federal rate allowed under the Internal Revenue Code of 1986, as amended ("Code"). No fractional shares of Parent common stock will be issued, as the number of shares to be issued to any Shareholder in accordance with the preceding sentence shall be rounded up or down to the nearest whole number (a fractional share of 0.5 or more will be rounded up; less than 0.5 will be rounded down). Each shareholder of Common Stock, upon delivery to Parent or its duly authorized agent for cancellation of certificates representing such shares and subject to the ten percent holdback of shares described later herein, shall thereafter be entitled to receive certificates representing the number of shares of Parent common stock to which such Shareholder is entitled. (c) Appropriate adjustment shall be made on the number of shares of Parent common stock to be issued upon conversion if, during the period commencing on July 31, 1996, and ending on the Effective Date, Parent: (i) effects any dividend payable in shares of common stock; (ii) splits or combines the outstanding shares of Parent common stock; (iii) effects any extraordinary distribution on Parent common stock; (iv) effects any reorganization or reclassification of Parent common stock; or (v) fixes a record date for the determination of shareholders entitled to any of the foregoing. (d) Upon delivery of Common Stock to Parent pursuant to subsection 1.4(b)(ii), Parent shall receive all of the shares of common stock of Surviving Corporation outstanding pursuant to subsection 1.4(b)(i). (e) Until its surrender, each certificate comprising Common Stock referred to in subsection 1.4(b)(ii) herein shall be deemed for all corporate purposes, other than the payment of dividends, to evidence ownership of the number of full shares of Parent common stock into which such shares of Common Stock shall have been changed by virtue of the merger. Unless and until any such outstanding certificates of Common Stock shall be so surrendered, no dividend payable to the holders of record of Parent common stock, as of any date subsequent to the Effective Date, shall be paid to the holders of such outstanding certificates, but upon such surrender of any such certificate or certificates there shall be paid to the record holder of the certificate or certificates of Parent common stock into which the shares represented by the surrendered certificate or certificates shall have been so changed the amount of such dividends which theretofore became payable with respect to such shares of Parent. (f) Contingent Consideration Based on Amount of Year 1 Agency Profit and Year 2 Agency Profit. (i) As used herein, the term "Agency Profit" shall mean the net profit of Surviving Corporation for any twelve month period beginning October 1, 1996 ("Year 1") and October1, 1997 ("Year 2"), determined in accordance with generally accepted accounting principles of Parent as described in Section 2.7 hereof, applied on a consistent basis, and applied uniformly in determining the net profit of each subsidiary of Parent, before any provision for federal or state income taxes and before any provision for amortization of intangibles of the Surviving Corporation and before any provision for interest expense (other than interest expense, if any, on any line of credit maintained by Parent and drawn down by Surviving Corporation for purposes and in amount consistent with past practices of Merging Corporation), and before any provision for any overhead charge (or other allocation of corporate family expenses) by Parent, as the parent of Surviving Corporation, to the Surviving Corporation, and before any employee compensation expense attributable to any employee stock option plan of Parent or Surviving Corporation , or to any reallocation of Parent common stock to be distributed as a Year 1 Payment or a Year 2 Payment (each as defined below) with such reallocation being pursuant to any incentive program established by the Shareholders and without any expense being taken or accrued for indemnification paid by Shareholders pursuant to Section 9.3 below. Additionally, the parties have reached special agreement with regard to the calculation of Agency Profit as it relates to profit sharing expense, professional fees, business insurance and direct corporate costs as set forth in this subsection. Specifically, profit sharing expense shall be set at 7% of eligible compensation, regardless of the actual number (higher or lower) actually determined to be contributed to Parent's Pension and Profit Sharing Plan; and the charges for professional fees, business insurance and direct corporate costs shall be $165,000, regardless of the actual costs incurred therefor. Parent shall cause the Agency Profit to be determined, and the amount thereof communicated to the Shareholders, as soon as is reasonably practicable after Year 1 and Year 2, and, in all events, within sixty- two (62) days thereafter, and the Year 1 Payment as initially determined, shall be made by 12/1/97 and the Year 2 Payment as initially determined shall be made by 12/1/98. In the event of a disagreement by the Shareholders, collectively, as to the computation of Agency Profit for Year 1 or Year 2, such disagreement shall be resolved in the same manner as provided in the case of a disagreement as to the Merger Balance Sheet under the provisions of Section 14.6 snd any additional Year 1 Payment or Year 2 Payment shall be made within five (5) business days of any subsequent determination. (ii) To the extent the Year 1 Agency Profit shall be less than $1,400,000 (with such deficiency being the "Year 1 Deficiency"), then for each $1 of Year 1 Deficiency , Parent shall be entitled to reduce the maximum aggregate stock payment valued at $1,687,500 due to Shareholders on December 1, 1997 ("Year 1 Payment"), by $3, down to a minimum aggregate amount (before any offset or indemnity) of $187,500 for Year 1 Agency Profit of $900,000 or less. For example, if the Year 1 Deficiency equals $100,000, Shareholders' Year 1 Payment would be reduced in the aggregate by $300,000 down to the aggregate amount of stock valued at $1,387,500. If the Year 1 Deficiency equals or exceeds $500,000, Shareholders' Year 1 Payment would be reduced in the aggregate by the maximum amount of $1,500,000 down to the minimum aggregate amount (before any applicable offsets) of stock valued at $187,500. (iii) To the extent the Year 2 Agency Profit shall be less than $1,400,000 (with such deficiency being the "Year 2 Deficiency"), then for each $1 of Year 2 Deficiency, Parent shall be entitled to reduce the maximum aggregate stock payment valued at $1,687,500 due to Shareholders on December 1, 1998 ("Year 2 Payment"), by $3 down to a minimum aggregate amount (before any offset or indemnity) of $187,500 for Year 2 Agency Profit of $900,000 or less. For example, if the Year 2 Deficiency equals $100,000, Shareholders' Year 2 Payment would be reduced in the aggregate by $300,000 down to the aggregate amount of stock valued at $1,387,500. If the Year 2 Deficiency equals or exceeds $500,000, Shareholders' Year 2 Payment would be reduced in the aggregate by the maximum amount of $1,500,000 down to the minimum aggregate amount (before any applicable offsets) of stock valued at $187,500. (iv) The payments to be made to Shareholders' in Parent common stock based on the amounts of Year 1 Agency Profit and Year 2 Agency Profit shall be based on a per share value computed as the average closing price for Parent's common stock for the ten New York Stock Exchange trading days preceding November 26, 1997, for the Year 1 Payment and preceding November 26, 1998, for the Year 2 Payment, as the case may be. (g) Anything to the contrary herein notwithstanding, in the event that any holder of Common Stock votes against the Merger pursuant to Section 3.5 below and then exercises his right to be paid the fair value of his Common Stock pursuant to the provisions of Connecticut law concerning dissenters' rights, then the consideration payable to such holder shall be so determined and the consideration which would have been received by such Shareholder, had he or she not exercised such dissenters' rights, shall be reallocated, pro rata, among the nondissenting Shareholders. 1.5 Closing Date. The closing of the transactions contemplated by this Agreement ("Closing") shall take place at the offices of Wiggin & Dana, located at New Haven, Connecticut, at 11 o'clock a.m. on September 26, 1996, 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 Connecticut ("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 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 47,500 shares of voting common stock, $1 par value and 2500 shares of preferred stock, $100 par value, none of which preferred stock is issued or outstanding. 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, other than the incentive stock option agreements listed in Schedule 2.3(b) hereto. (c) No shares of the authorized stock of Merging Entity have ever been registered under the provisions of any federal or state securities law, nor has Merging Entity filed or been required to file any report with any federal or state securities commission, department, division or other governmental agency. (d) No present or prior holder of any shares of the authorized stock of Merging Entity is entitled to any dividends with respect to any such shares now or heretofore outstanding. 2.4 Ownership of Common Stock. Except as set forth in Schedule 2.4, each Shareholder is the record owner, free and clear of any and all liens, encumbrances, restrictions and adverse claims whatsoever, of the number of shares of Common Stock set forth opposite his name in subsection 1.4(a). Each such lien, encumbrance, restriction or adverse claim can and will be removed at or prior to the Closing. 2.5 Authority. Shareholders, individually and collectively, have full and complete authority to enter into this Agreement and to transfer in accordance with the terms and conditions of this Agreement all of the shares of Common Stock, free and clear of all liens, encumbrances, restrictions and adverse claims whatsoever. The execution, delivery and performance of this Agreement by Merging Entity does not violate, result in a breach of, or constitute a default under, the 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 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 (with 1995 being audited and 1994 and 1993 being reviewed) 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 month ended, including, without limitation, a balance sheet and statement of income for such period then ended. 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, the Financial Statements did not contain any untrue statement of any material fact nor omitted to state any material fact required to be stated to make such Financial Statements not misleading. Without limiting the generality of the foregoing, the commission income reflected in each of the Financial Statements is or will be true and correct, and the accounts payable reflected in each of the Financial 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 internally prepared balance sheet of Merging Entity at August 31, 1996. Also, the term "Most Recent Balance Sheet Date," as used in this Agreement, means August31, 1996.) Except as and to the extent specifically reflected, provided for or reserved against in the Most Recent Balance Sheet or except as disclosed in any Schedule to this Agreement, Merging Entity, as of the Most Recent Balance Sheet Date, did not have any indebtedness, liability or obligation of any nature whatsoever, whether accrued, absolute, contingent or otherwise, and whether due or to become due, including, without limitation, tax liabilities due or to become due, and whether incurred in respect of or measured by the income of Merging Entity for any period prior to the Most Recent Balance Sheet Date, or arising out of transactions entered into, or any state of facts existing, prior thereto, and none of Shareholders knows 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 none of Shareholders knows or 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 generating an aggregate annual gross income (commission or otherwise) of $5,000 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 prior to the date hereof 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 Connecticut Department of Revenue Services, 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. 2.11 Real and Personal Property Owned by Merging Entity. Except as set forth in Schedule 2.11, Merging Entity does not own any real property ("Real Property"). Merging Entity has good and marketable title to the Real Property and owns the Real Property free and clear of any liens, encumbrances or claims, except as further set forth in Schedule 2.11. Schedule 2.11 also 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 event or condition, including the Merger contemplated herein, which with notice or lapse of time, or both, would constitute an event of default under any of such leases or agreements. 2.13 Insurance. Schedule 2.13 contains a correct and complete list, as of the date hereof, of all policies of casualty, fire and extended coverage, theft, errors and omissions, liability, life, and other forms of insurance owned or maintained by Merging Entity. All business operations of Merging Entity are and have been continually insured against errors and omissions. Such policies are in amounts deemed by Shareholders to be adequate. Each such policy is, on the date hereof, in full force and effect, and Merging Entity is not in default with respect to any such policy. Furthermore, Schedule 2.13 contains a correct and complete list of all group life, group medical and disability or other similar forms of insurance which constitute an obligation of or benefit provided by Merging Entity. Schedule 2.13 also contains a list of any former employees or their dependents who are presently under COBRA continuation coverage and describes with reasonable particularity the pertinent factors about each such person listed. With respect to errors and omissions (professional liability) insurance policies listed in Schedule 2.13 (which lists for each such policy the carrier, retrodate, claims made or occurrence policy and limits), prior to the effective dates of such policies, Merging Entity had not 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 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 $5,000 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 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 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 written 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 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 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. 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 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"). The Insurance Management Incorporated Defined Benefit Plan listed on Schedule 2.25(a) ("Defined Benefit Plan") was frozen as of December 1, 1995 and will continue in existence as of the Effective Date. (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) 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) except where nonenforcement would not have a material adverse effect on the operations of Merging Entity, such plan has been administered and enforced in accordance with its terms and applicable law; (iii) 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; (iv) no disputes are pending, or, to the knowledge of Merging Entity and Shareholders, threatened; (v) no nonexempt prohibited transaction has occurred; (vi) other than any reportable event that may have occurred as a result of the consummation of this Agreement, there has been no reportable event for which the 30-day notice requirement under ERISA has not been waived which could result in material liability to Merging Entity; (vii) 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) or have been properly recorded in the financial records of Merging Entity; (viii) all contributions made or required to be made meet the requirements for deductibility under the Code; and (ix) 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 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 three (3) 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. (H) 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 other than claims for benefits in the ordinary course. (I) Merging Entity has no obligation to any retired or former employee or any current employee upon retirement under any Employee Benefit Plan except as set forth in Schedule2.25(a). 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. Except for the accounts receivable set forth in Schedule 2.27, all accounts receivable and all notes receivable of Merging Entity reflected in the Most Recent Balance Sheet and to be reflected in the Merger Balance Sheet are fully collectible when due at the aggregate amount shown, less the bad debt allowance as so reflected, 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 accounts receivable so set forth in Schedule 2.27 and such bad debt allowance. 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 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. 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 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. 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 prior to the Effective Date and as soon as practicable 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. 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 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 Connecticut. 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 Parent common stock to be issued pursuant to this Agreement; and (v) the issuance of a certificate of merger to be issued by the Secretary of the State of Connecticut, 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, 1996, the authorized capital stock of Parent consisted of 50,000,000 shares of common stock, no par value, of which 13,368,868 shares were issued and outstanding, fully paid and nonassessable. The authorized capital stock of HRH Merger Subsidiary will consist of 5,000 shares of common stock, $1 par value, of which 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 Parent common stock. The shares of Parent common stock to be issued to Shareholders pursuant to this Agreement will, when so issued, be duly and validly authorized and issued, fully paid, nonassessable, registered pursuant to the Securities Act of 1933 ("33 Act") and may be sold pursuant to Rule 145 under the 33 Act. 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. 5.6 Financial Statements. Parent has delivered to Shareholders a true and complete copy of its financial statements for calendar years 1994 and 1995 ("Parent's Financial Statements"). Parent's Financial Statements were prepared under the GAAP Policy and are true and correct, are in accordance with the consolidated books and records of Parent, and present fairly the consolidated financial condition and results of operations of Parent as of the date and for the period indicated. 5.7 Absence of Undisclosed Liabilities. (The term "Parent's Most Recent Balance Sheet," as used in this Agreement, means the balance sheet of Parent at December 31, 1995. Also, the term "Parent's Most Recent Balance Sheet Date," as used in this Agreement, means December 31, 1995.) Except as and to the extent specifically reflected, provided for or reserved against in Parent's Most Recent Balance Sheet or except as disclosed in any Schedule to this Agreement, Parent, as of Parent's Most Recent Balance Sheet Date, did not have any material indebtedness, liability or obligation arising outside of the ordinary course of business 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 consolidated income of Parent for any period prior to Parent's Most Recent Balance Sheet Date, and Parent neither knows nor has reasonable grounds to know of any basis for the assertion against Parent, on a consolidated basis, as of Parent's Most Recent Balance Sheet Date, of any material indebtedness, liability or obligation of any nature not arising in the ordinary course of business which is not fully reflected or reserved against in Parent's Most Recent Balance Sheet or otherwise disclosed in any Schedule to this Agreement. 5.8 No Adverse Change. Since Parent's Most Recent Balance Sheet Date, there has been no material adverse change in the financial condition, results of operations or business prospects of Parent, on a consolidated basis, 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 Parent on a consolidated basis. 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. 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. 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 Wiggin & Dana, counsel for Shareholders and Merging Entity, in form and substance as set 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 90% 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. Parent shall have obtained a statement in writing from two insurance companies identified in Schedule 2.14 of this Agreement, Middlesex and Seaco, 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 (other than ESOP), 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 the producers of Merging Entity and such of the other employees of Merging Entity (other than the Shareholders other than ESOP) as set forth in Schedule 6.9 shall have been executed. 6.10 Employee Benefit Plans. A. Defined Benefit Plan. By action of its Board of Directors taken no later than the Effective Date, the Merging Entity shall commence the process of terminating the Defined Benefit Plan in a standard termination and shall issue the Notice of Intent to Terminate to affected parties. B. Other Welfare Plans. All other employee welfare palns shall terminate except for employee group health insurance as presently maintained by Merging Entity. 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 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 New Haven premises presently occupied by Merging Entity, in the form attached hereto as Schedule 6.14, 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. 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. 6.18 [This Section is intentionally left blank.] 6.19 Management Incentive Agreement. The Management Incentive Agreement, in form and substance as set forth in Schedule 6.19, shall have been executed by all parties thereto. 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 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. 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. 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 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, and Shareholders shall have executed the execution page of this Merger Agreement. 8. POST-MERGER COVENANTS. 8.1 POST-MERGER COVENANTS OF PARENT. Parent covenants to Shareholders as follows: A. Collection. To cause Surviving Corporation to use its reasonable business efforts, at least comparable in quality to those of Merging Entity prior to the Effective Date, to collect all notes receivable and accounts receivable as described in Section 2.27. 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. Certain Employee Benefit Plans. Parent shall undertake its actions set forth in Schedule 8.1.C. D. Conduct of Business. During Year 1 and Year 2, to allow Surviving Corporation to operate in a manner, as chosen by the Shareholders who shall continue as officers of the Surviving Corporation, consistent with sound insurance and business practices, by which Surviving Corporation might maximize Agency Profit and, toward that end, to (i) provide such resources and support (financial, administrative and otherwise) as are at least equal to the resources and support provided to Parent's subsidiaries generally, and (ii) permit the day-to-day management of Surviving Corporation's operations to remain under the supervision and control of Merging Entity's management as set forth in Section 1.2(d) hereof, except for any such individual whose employment by Surviving Corporation is terminated for cause by Surviving Corporation pursuant to his employment agreement, or voluntarily by such individual. E. Access to Information. Parent shall provide, or cause Surviving Corporation to provide, Shareholders and their representatives with such access to the books and records of Parent and Surviving Corporation as may be reasonably necessary to verify the calculation of Agency Profit for Year 1 and Year 2. 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 payment of the Unfunded Plan Liability, 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. Shareholders shall cause to be undertaken the actions set forth for Merging Entity in Schedule 8.1.C. 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 Parent common 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 merger. F. Operating Covenants. To strive to hold aggregate compensation (before payroll taxes, benefit costs and performance bonuses) below $2,400,000; and to hold executive automobile costs and aggregate travel and entertainment expenses below $85,000 and $85,000, respectively. 9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION. 9.1 Survival of Representations and Warranties of Parent. All representations, warranties, indemnities and covenants made herein or pursuant hereto by Parent shall survive the Closing only for three years (3) after the Effective Date. 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, indemnities and covenants made herein or pursuant hereto by Shareholders shall survive the Closing only for three (3) years after the Effective Date. 9.3 Indemnification Agreement by Shareholders. Shareholders, to the extent set forth in Section 9.6, 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, 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 not previously reflected on the Merger Balance Sheet in the calculation of Tangible Net Worth; (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 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 (including the exercise by any Shareholder of his or her dissenters' rights); (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 negative $1,000,000 (one million dollars less than zero); (ix) Until ninety (90) days 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; (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 existing, arising or accruing prior to the Effective Date, arising out of or in any way relating to the ownership by Merging Entity of the intangible assets of Merging Entity; (xiv) Until ninety (90) days 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, reasonable experts' and attorneys' fees at the trial level and in connection with all appellate proceedings) incident to any of the foregoing. Subject to the provisions of Section 9.5, below, dealing with the assertion of an indemnified claim, each of the Year 1 Payment and the Year 2 Payment is subject to the right of offset by Parent. 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 covenant or agreement on the part of the Parent under the terms of this Agreement; (ii) All indebtedness, obligations and liabilities of Surviving Corporation of any nature whatsoever, to the extent not subject to Shareholders' indemnification obligations under Section 9.3; (iii) All demands, claims, actions, suits, proceedings, loss, damage, liability, judgments, costs and expenses (including, without limitation, court costs, reasonable 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 Indemnifying Party is materially damaged, or its ability to defend any claim subject to indemnification is materially prejudiced, as a result of the failure to give notice. The Indemnifying Party may settle or compromise any third party claim or litigation with the consent of the Indemnified Party, which consent may not be unreasonably withheld. The Indemnified Party shall have the right at all times to participate in the defense, settlement, negotiations or litigation relating to any third party claim or demand at its own expense. In the event that the Indemnifying Party does not assume the defense of any matter as above provided, then the Indemnified Party shall have the right to defend any such third party claim or demand, and will be entitled to settle any such claim or demand in its discretion. In any event, the Indemnified Party will cooperate in the defense of any such action and the records of each party shall be available to the other with respect to such defense. 9.6 Limitation of Amount of Indemnity and Escrow of Parent Common Stock. The indemnity provided to Parent pursuant to Section 9.3 and the indemnity provided by Parent to Shareholders pursuant to Section 9.4 shall be limited to an amount equal to $337,500 plus 250,000 shares of Parent's common stock times $13.50 per share, or $3,712,500, which is the approximate minimum value upon which this Agreement is predicated, and shall be the exclusive remedy available to Parent or Shareholders for breach by the other of any representation, warranty, covenant or agreement made or given hereunder, except for the right to seek specific performance, as set forth in Section 11 hereof. Notwithstanding anything in the foregoing to the contrary, Parent shall retain on the Effective Date from the shares of its common stock to be delivered to the Shareholders, according to the percentage ownership each such Shareholder has in Merging Entity, as security for the indemnity provided to it herein, 25,000 shares of its common stock ("Escrowed Shares"). By their signatures to this Agreement, each Shareholder has granted to Parent a security interest in his portion of the Escrowed Shares, and has consented to the escrow provision described herein and has granted unto Parent a continuing limited power of attorney to act over his proportionate number of the Escrowed Shares pursuant to this Agreement, which power of attorney is coupled with an interest and is not revocable until the later of: (i) December 1, 1998; (ii) determination and settlement of any amounts pursuant to Section 14.6; and (iii) determination and settlement of any amounts claimed by Parent as of December 1, 1998, pursuant to Section 9.3 ("Release Date"). The obligation of the Shareholders to indemnify Parent under Section 9.3 shall be joint and several, subject to the following limitations: (i) the liability of each of Messrs. Coulter, McCarron, Curran, Ingersoll, and Homer (the "Majority Shareholders") shall be limited to an amount no greater than 200% of the consideration actually paid to such Majority Shareholder by Parent for his shares of Common Stock; (ii) the liability of each of the other Shareholders, other than ESOP (the "Minority Shareholders"), shall be limited to an amount no greater than 100% of the consideration actually paid to such Minority Shareholder by Parent for his shares of Common Stock; (iii) the liability of ESOP, which shall be pro rata, shall be recoverable only from ESOP's portion of the Escrowed Shares, or by offset if otherwise available hereunder against any Year 1 Payment or any Year 2 Payment to be made to ESOP; and (iv) notwithstanding the foregoing, each Shareholder other than ESOP shall be individually liable for the full amount of any indemnification obligation arising out of or attributable to any defect in such Shareholder's ownership of the number of shares ascribed to him or her hereunder, or to any intentional or reckless breach by him or her of any representation, warranty or covenant given hereunder regarding his or her personal acts, omissions or affairs. Further, for any indemnity payment due to Parent, Parent shall first look to the Escrowed Shares, valued at $13.50 per share, and thereafter to shares to be issued pursuant to the Year 1 Payment or the Year 2 Payment (such shares valued at the same price determined herein). If at any time of payment to Parent any indemnity obligation of Shareholders remains unsatisfied, then Parent may seek recovery from the Shareholders, to the extent set forth above. Between the Effective Date and the Release Date, Parent shall hold the Escrowed Shares and shall deposit any dividends received thereon in an interest-bearing account. Upon the Release Date, and absent a written directive to the contrary from each such Shareholder not desiring to receive his shares pro rata, Parent shall distribute the Escrowed Shares, less any decrease in such shares pursuant to this Agreement, plus any additional shares issued pursuant to this Agreement, to the Shareholders, pro rata. Dividends on the Escrowed Shares and the interest earned thereon ("Escrow Funds") shall be distributed in the same manner determined according to the immediately preceding sentence. If Escrowed Shares were decreased to satisfy the indemnity provided herein, the Escrow Funds shall be reduced by a percentage equal to the fraction established where the numerator is the number of Escrowed Shares used to satisfy such indemnity and the denominator is the number of Escrowed Shares. 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 sue such defaulting party for damages. If Parent elects to sue for specific performance, Shareholders and Merging Entity expressly waive any claim or defense that Parent has an adequate remedy at law. 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, at the option of a majority in interest of the Shareholders, acting in person or by attorney-in-fact, may seek specific performance of this Agreement or may elect to sue for damages. If Shareholders elect to sue for specific performance, Parent expressly waives any claim or defense that Shareholders 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: Mr. T. Robert McCarron, President INSURANCE MANAGEMENT, INC. 545 Long Wharf Drive New Haven, CT 06511 With copy to: Bennett J. Bernblum, Esquire WIGGIN & DANA One Century Tower New Haven, Connecticut 06508-1832 (b) If to Parent or HRH Merger Subsidiary: Mr. Robert H. Hilb, President HILB, ROGAL AND HAMILTON COMPANY 4235 Innslake Drive Post Office Box 1220 Glen Allen, Virginia 23060-1220 With copy to: Walter L. Smith, Esquire HILB, ROGAL AND HAMILTON COMPANY 4235 Innslake Drive Post Office Box 1220 Glen Allen, Virginia 23060-1220 Notices delivered personally or by telecopier, telex or other similar communication shall be effective when delivered. Notices forwarded by registered or certified mail shall be deemed effective when received or in any event not later than ten (10) days after deposit in the mails, postage prepaid. Any party wishing to change any above named person or address may do so by complying with the notice provisions of this Section. 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 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. MISCELLANEOUS PROVISIONS. 14.1 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. 14.2 Governing Law. EXCEPT FOR THE MERGER OF HRH MERGER SUBSIDIARY INTO MERGING ENTITY, WHICH SHALL BE GOVERNED BY CONNECTICUT LAW, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA. 14.3 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. 14.4 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. 14.5 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. 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 the day immediately preceding the Effective Date, 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. Additionally, besides the normal operating accruals required under Parents' GAAP Policy, the Merger Balance Sheet shall require subtraction of all costs of Merging Entity and Shareholders (actual and estimated) of completing the Merger (e.g. legal, accounting, insurance, etc.) and of administering the termination of the Employee Benefit Plans and the cash contributed to the Defined Benefit Plan to eliminate the Unfunded Plan Liability. The Merger Balance Sheet shall be prepared by the Shareholders at the expense of the Merging Entity, and submitted to the Parent as soon as practicable after the Effective Date. The Merger Balance Sheet shall be deemed accepted by Parent if no objections thereto are made within fifteen (15) days of delivery. If Parent objects to the Merger Balance Sheet within fifteen (15) days of delivery, then the parties shall have fifteen (15) days to resolve any objections of Parent to the Merger Balance Sheet. If the parties are unable to resolve such differences, one arbitrator shall be selected by Shareholders and one arbitrator shall be selected by Parent. The two arbitrators shall then pick one mutually acceptable arbitrator (the "Arbitrator") to resolve all questions in dispute. The decision of the Arbitrator shall be final and the fees for his services shall be borne fifty percent (50%) by Parent and fifty percent (50%) by Shareholders. Notwithstanding anything in the foregoing to the contrary, if the Merger Balance Sheet is not submitted within seventy-five (75) days after the Effective Date, then Parent shall submit a Merger Balance Sheet, prepared at its expense, within fifteen (15) days thereafter which shall be final, conclusive and binding on all parties hereto, and not subject to any of the arbitration provisions described above. (b) Tangible Net Worth. The term "Tangible Net Worth" means the remainder arrived at from the Merger Balance Sheet when total liabilities are subtracted from total assets, and intangible assets other than cash, cash equivalents and net receivables are then subtracted from that remainder (total assets - total liabilities - intangible assets other than cash, cash equivalents and net receivables). (c) Adjustment. The number of shares to be delivered by Parent to Shareholders pursuant to Section 1.4 shall be adjusted as follows: (i) If Tangible Net Worth exceeds the target of negative $1,000,000 (i.e. is less than one million dollars less than zero) (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 $13.50; and (ii) If Tangible Net Worth is less than the target of negative $1,000,000 (i.e. is more than one million dollars less than zero) (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 $13.50. In the event of an increase in the number of shares of common stock of Parent to be issued to Shareholders, such additional shares shall be issued, promptly after determination of such number, by Parent to Shareholders in the same proportion as set forth in Section 1.4(a). In the event of a decrease in the number of shares of common stock of Parent, such shares shall be assigned, promptly after determination of such number, to Parent (at Parent's discretion either from the Escrowed Shares or the Shareholders or both) in the same proportions as set forth in Section 1.4(a), unless Parent shall have received a differing written directive pursuant to Section 9.6. The value of any shares of Parent common stock to be issued or returned pursuant to this Agreement shall be adjusted to reflect the occurrence after the Effective Date of any of the events specified in Section 1.4(c). 14.7 [This Section is intentionally left blank.] 14.8 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. 14.9 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 from Year 1 Agency Profit or Year 2 Agency Profit to remain in an interest-earning account for the benefit of that office. As such, Merging Entity and Shareholders aknowledge 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. Accordingly, Parent agrees that Surviving Corporation will be credited with interest earnings attributable to Surviving Corporation's operations, including interest earned from cash and cash equivalents on hand prior to the distribution of any such sums which may have been earned as Year1 Agency Profit or Year 2 Agency Profit, and that sound collection and payment practices will benefit Surviving Corporation in the determination of Year 1 Agency Profit and Year 2 Agency Profit. 14.10 Subsequent Acquisitions. Merging Entity and Shareholders acknowledge that a later acquisition by Surviving Corporation of another 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. Parent agrees not to cause such an acquisition to occur during Year 1 or Year 2 without the agreement of a majority in interest of the Shareholders. 14.11 Nonsolicitation Covenant. Each of the Shareholders (other than ESOP), by signature hereto, covenants that he shall not for a period of five (5) years after the Effective Date, directly or indirectly, except on behalf of Surviving Corporation, its successors or assigns, solicit or accept risk management, insurance or bond business from any of the customers of Merging Entity as of the moment immediately preceding the Effective Date. Each of the Shareholders (including ESOP), 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 (including ESOP), 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-penciled") to permit Surviving Corporation to obtain the maximum permissible benefit from this covenant. 14.12 Acceptance. The binding date of acceptance of this Agreement shall be the Date on which the last of the parties executes the same. EXECUTED by Merging Entity at New Haven, Connecticut, this ____ day of September, 1996. MERGING ENTITY: INSURANCE MANAGEMENT, INC. By__________________________________ _______________________________, its __________________________________ RATIFIED AND EXECUTED by Shareholders at New Haven, Connecticut, this ____ day of September, 1996. SHAREHOLDERS: _____________________________________ _____________________________________ ROBERT O. COULTER DOUGLAS F. DANAHER _____________________________________ _____________________________________ T. ROBERT MCCARRON STEPHANIE S. SHOREY _____________________________________ _____________________________________ DAVID J. CURRAN RICHARD P. RIDINGER _____________________________________ _____________________________________ C. ANTHONY INGERSOLL MARIO P. LUPONE _____________________________________ _____________________________________ DAVID K. HOMER NEIL W. GARBATINI _____________________________________ _____________________________________ MADELYN R. IZZO HARRY E. BURR _____________________________________ _____________________________________ OWEN J. FLANNERY JOSEPH L. FERRY _____________________________________ _____________________________________ ROBERT O. COULTER, TRUSTEE OF THE T. ROBERT MCCARRON, TRUSTEE OF THE INSURANCE MANAGEMENT, INC. ESOP INSURANCE MANAGEMENT, INC. ESOP _____________________________________ _____________________________________ DAVID J. CURRAN, TRUSTEE OF THE C. ANTHONY INGERSOLL, TRUSTEE OF INSURANCE MANAGEMENT, INC. ESOP THE INSURANCE MANAGEMENT, INC.ESOP EXECUTED by Parent at New Haven, Connecticut, this ____ day of September, 1996. HILB, ROGAL AND HAMILTON COMPANY By_________________________________ ______________________________, its _________________________________ EX-23 3 CONSENT OF T. M. BYXBEE COMPANY, P.C., INDEPENDENT ACCOUNTANTS We consent to the reference of our firm under the caption "Experts" and to the use of our report dated June 10, 1996 with respect to the financial statements of Insurance Management Incorporated included in the Supplement to Prospectus dated February 12, 1992 and related Registration Statement (Form S-4, No. 33-44271) of Hilb, Rogal and Hamilton Company. /s/ T. M. Byxbee Company, P.C. Hamden, Connecticut September 4, 1996 -----END PRIVACY-ENHANCED MESSAGE-----