-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, tOcXKMTvSlHxYQdzdgSARNOjxrQbpKGBrGNxNqHRO5EzQmRwWdJTZwdR97+eKI++ rMQv6ohyZrqJWS2hq2sshw== 0000814898-95-000014.txt : 199506300000814898-95-000014.hdr.sgml : 19950630 ACCESSION NUMBER: 0000814898-95-000014 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19950629 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: 95550650 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 ALL OF THE CAPITAL STOCK OF THE ENTITIES OWNING ALL OF THE CAPITAL STOCK OF HAYHURST ELIAS DUDEK, INC. AND B.D.H. INSURANCE MANAGERS LIMITED 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") and certain other consideration to the shareholders of the entities owning all of the capital stock of Hayhurst Elias Dudek, Inc. ("HED") and B.D.H. Insurance Managers Limited ("BDH") in exchange for 100% of the capital stock of these entities. Terms of the Transaction (a) (1) Effective July 1, 1995, a Canadian subsidiary of the Company will consummate an Agreement of Purchase and Sale of all of the capital stock of the entities owning all of the capital stock of HED and BDH ("Agreement of Purchase") whereby the shareholders of these entities will receive shares of Common Stock of the Company valued at CDN $1,800,000 based on the average closing price on the New York Stock Exchange for each of the ten consecutive trading days prior to closing date ("Shares") plus cash of CDN $1,800,000 plus two future cash 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) the satisfaction of all other conditions precedent as outlined in the Agreement of Purchase (see Exhibit 2.22). The purchase price will be adjusted after closing based upon the final determination of net worth as defined in the Agreement of Purchase. The future cash 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 CDN $2,520,000 in each year (subject to a minimum, before any applicable indemnity, of CDN $1,080,000 in each year). HED is currently owned by three holding companies and BDH is currently owned by two holding companies and a trust, referred to herein collectively as the "Holding Companies." The Holding Companies have no other significant assets or operations other than their investment in HED or BDH. Accordingly, financial information and other data included herein is limited to that of the operations of HED and BDH. Current stock ownership of HED and BDH is as follows: Shareholder Name Ownership % HED: Elias Agencies Ltd. ("Elias Ltd.") 40.5% Jo-Mar Holdings Ltd. ("Dudek Ltd.") 27.0% Brian D. Hayhurst Enterprises (1988) Ltd. ("Enterprises") 32.5% ------ 100.0% ====== BDH: Elias Holdings Ltd. ("Elias Holdco") 40.5% Dudek Holdings Ltd. ("Dudek Holdco") 27.0% The Hayhurst Barbados Trust ("Hayhurst Trust") 32.5% ------ 100.0% ====== The following series of transactions will occur immediately prior to or at the time of the acquisition by the Company. o The owners of the stock of Enterprises will sell 100% of the Enterprises' stock to Arthur G. Elias and John Dudek . o The Hayhurst Trust will sell its stock ownership in BDH to Arthur G. Elias and John Dudek. o The stock of Enterprises and BDH acquired in the above transactions will be transferred by Arthur G. Elias and John Dudek to 3157245 Canada Ltd. ("Newco"). Newco is a corporation recently incorporated under the laws of Canada and is owned 60% by Arthur G. Elias and 40% by John Dudek. o Hilb, Rogal and Hamilton Company of Canada Limited ("HRH of Canada"), a wholly-owned subsidiary of the Company, will acquire, for the aforementioned purchase price, all of the issued and outstanding stock and certain obligations as set forth in the Agreement of Purchase of Elias Ltd., Dudek Ltd., Elias Holdco, Dudek Holdco and Newco. o HED, BDH, Elias Ltd., Dudek Ltd., Elias Holdco, Dudek Holdco and Newco will then be amalgamated pursuant to the provisions of the Canada Business Corporations Act to form Hayhurst Elias Dudek, Inc., a corporation qualified and validly existing under the laws of Canada (the "Surviving Corporation"). The Surviving Corporation will be a wholly-owned subsidiary of HRH of Canada. (2) The acquisition of HED and BDH by the Company has been agreed upon because the Company is engaged in the business of owning insurance agencies and because the shareholders of HED and BDH have determined that a sale to the Company is beneficial to the growth of HED's and BDH's insurance operations in Canada. HED's and BDH's operations will add approximately 95 employees and $5,500,000 of revenues to the Company. (3) The stock issued in the transaction will be shares of Company Common Stock, no par value, valued at CDN $1,800,000 based on the average closing price on the New York Stock Exchange for each of the ten consecutive trading days prior to closing date. For a description of the Company Common Stock refer to the section entitled "Description of Common Stock" in the Prospectus. (4) There are no material differences between the rights of the security holders of HED and BDH 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) The Surviving Company will be included in a Canadian tax return of the Canadian operations as of the effective date. The acquisition will be recorded as a tax free exchange. (c) The acquisition agreement is incorporated into this supplement as Exhibit 2.22. Pro Forma Financial Information See attached - Schedule A Material Contracts with Seller There have been no material contracts between the Company and BDH, HED or the Holding Companies prior to the proposed effective date of the Agreement of Merger. Information with Respect to Hayhurst Elias Dudek, Inc. and B.D.H. Insurance Managers Limited HED and BDH were founded in 1982 as a result of a merger of three existing operations. HED and BDH are engaged in the business of owning and operating a general insurance agency with their principal offices located in Winnipeg, Manitoba, Canada. HED and BDH conduct their business and operations primarily in the Province of Manitoba, and also maintain office locations and/or conduct their business in the Provinces of Alberta, British Columbia, Ontario, New Brunswick, Newfoundland, Nova Scotia, Prince Edward Island, Quebec and Saskatchewan. HED and BDH specialize in the development and administration of association programs for property, casualty and group life and health insurance. In addition they maintain a book of traditional property and casualty accounts, and have the licensing agreement to market health insurance for domestic animals (dogs and cats) in Canada. Common Stock and Dividend Data There is no established public trading market for the stock of HED, BDH or the Holding Companies. As described under the section entitled "Terms of Transaction," BDH and HED each have three shareholders. Dividends paid by HED have totalled CDN$54,313, CDN$0 and CDN$50,617 during the fiscal years ended June 30, 1994, 1993 and 1992, respectively. Dividends paid by BDH have totalled CDN$191,225, CDN$193,730 and CDN$200,754 during the fiscal years ended June 30, 1994, 1993 and 1992, respectively. There have been no dividend distributions by HED or BDH since June 30, 1994. Shareholder Information (a) (1) WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY. (2) (3)&(6) HED and BDH have agreed to submit the Agreement of Purchase to its shareholders for adoption by unanimous written consent after receipt and review of this supplement to the Prospectus. Since the Agreement of Purchase requires that the transaction can be completed only with the unanimous consent of the shareholders of the companies being acquired, notice requirements shall have been met and there shall be no dissenters. (4) & (5) There are no material interests, direct or indirect of affiliates, officers or directors of the registrant or of the companies being acquired in the proposed transaction. (7) Upon completion of the proposed acquisition, no shareholder of HED, BDH or the Holding Companies will be serving as a director or executive officer of the registrant. Experts The financial statements of Hayhurst Elias Dudek, Inc. and B.D.H. Insurance Managers Limited for the fiscal year ended June 30, 1994 with comparative balance sheet figures for the year ended June 30, 1993 and comparative statements of earnings, deficit and changes in financial position figures for the years ended June 30, 1993 and 1992 appearing in this supplement to the Amended Prospectus dated February 12, 1992, and in the Registration Statement have been audited by KPMG Peat Marwick Thorne, independent auditors, as set forth in their reports thereon appearing elsewhere herein and are included in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. Hilb, Rogal and Hamilton Company Date of this Supplement: June 28, 1995 SCHEDULE A - PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED) The following pro forma condensed consolidated balance sheet as of March 31, 1995 and the pro forma consolidated income statements for the three months ended March 31, 1995 and the years ended December 31, 1994, 1993 and 1992 give effect to the pooling-of-interests merger with R. E. Lipman Insurance Brokers, Inc. ("Lipman," effective on May 1, 1995); the proposed acquisitions of the capital stock of the entities owning all of the capital stock of Hayhurst Elias Dudek, Inc. ("HED") and B.D.H. Insurance Managers Limited ("BDH") (expected to be effective July 1, 1995) and Cross Keys Insurance Agency, Inc. ("Cross Keys," expected to be effective July 1, 1995); and the acquisition of certain assets and liabilities of four insurance agencies purchased in 1995 and four insurance agencies purchased in 1994. 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 or pooling-of-interests 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, 1994, and the pooling-of-interests as if it had occurred prior to all periods presented. The pro forma condensed consolidated balance sheet gives effect to the business combinations which occurred or are probable of occurring subsequent to March 31, 1995, as if they had occurred before March 31, 1995. The pro forma statements have been prepared by management based upon the historical financial statements of Hilb, Rogal and Hamilton Company, Lipman, HED, BDH, Cross Keys 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 1994 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) MARCH 31, 1995
- ----------------------------------------------------------------------------------------------------------------------------------- HILB, ROGAL POOLING-OF- PRO FORMA ACQUISITIONS PRO FORMA ADJUSTMENTS PRO FORMA AND HAMILTON INTERESTS COMBINED (PURCHASES) FOR PURCHASE ACQUISITIONS CONSOLIDATED COMPANY MERGER POOLED TOTAL ============================== - ----------------------------------------------------------------------------------------------------------------------------------- ASSETS CASH AND CASH EQUIVALENTS $ 13,069,902 $323,110 $13,393,012 $2,035,856 $(65,011)(1) $ 30,000 (3) $ 14,097,857 (1,296,000)(2) INVESTMENTS 27,753,702 0 27,753,702 604,305 28,358,007 RECEIVABLES & OTHER 43,975,812 149,200 44,125,012 1,995,956 (18,330)(1) 46,102,638 ---------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 84,799,416 472,310 85,271,726 4,636,117 N/A (1,349,341) 88,558,502 ---------------------------------------------------------------------------------------------------------- INVESTMENTS 8,220,000 8,220,000 8,220,000 PROPERTY & EQUIPMENT 12,310,113 46,103 12,356,216 278,802 (271,366)(1) 145,000 (3) 12,508,652 INTANGIBLE ASSETS 49,494,816 0 49,494,816 34,000 (34,000)(1) 8,133,293 (3) 57,628,109 OTHER ASSETS 3,582,109 0 3,582,109 45,113 0 0 3,627,222 ---------------------------------------------------------------------------------------------------------- TOTAL ASSETS $158,406,454 $518,413 $158,924,867 $4,994,032 N/A $6,623,586 $170,542,485 ========================================================================================================== LIABILITIES & EQUITY: PREMIUMS PAYABLE-INS CO 64,996,844 378,188 $65,375,032 3,803,378 $69,178,410 OTHER ACCRUED LIABILITIES 17,427,338 20,129 17,447,467 1,312,628 (130,378)(1) 18,629,717 ---------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 82,424,182 398,317 82,822,499 5,116,006 N/A (130,378) 87,808,127 LONG-TERM DEBT 2,961,780 2,961,780 404,890 1,406,060 (2) 4,772,730 OTHER LONG-TERM LIAB. 2,859,807 2,859,807 127,040 2,288,000 (3) 5,274,847 SHAREHOLDERS' EQUITY COMMON STOCK 44,282,775 1,000 44,283,775 95,185 (95,185)(4) 2,406,000 (2) 46,689,775 RETAINED EARNINGS 25,877,910 119,096 25,997,006 (749,089) 749,089 (4) 25,997,006 ---------------------------------------------------------------------------------------------------------- 70,160,685 120,096 70,280,781 (653,904) N/A 3,059,904 72,686,781 ---------------------------------------------------------------------------------------------------------- $158,406,454 $518,413 $158,924,867 $4,994,032 N/A $6,623,586 $170,542,485 ==========================================================================================================
(1) TO ADJUST FOR ASSETS AND LIABILITIES NOT ACQUIRED. (2) TO REFLECT PURCHASE PRICE OF ASSETS AND LIABILITIES ACQUIRED SUBSEQUENT TO MARCH 31, 1995 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)
- --------------------------------------------------------------------------------------------------------------------------------- THREE MONTHS ENDED MARCH 31, 1995 ------------------------------------------------------------------------------------------------- HILB, ROGAL POOLING-OF- PRO FORMA ACQUISITIONS PRO FORMA ADJUSTMENTS PRO FORMA & HAMILTON CO. INTERESTS COMBINED (PURCHASES) FOR PURCHASE CONSOLIDATED MERGER POOLED ACQUISITIONS TOTAL - --------------------------------------------------------------------------------------------------------------------------------- REVENUES: COMMISSIONS & FEES $38,081,734 $96,594 $38,178,328 $1,854,032 $40,032,360 INTEREST INCOME 512,748 1,498 514,246 131,460 ($19,440) (1) 626,266 OTHER 761,655 376 762,031 762,031 ------------------------------------------------------------------------------------------------- TOTAL REVENUES 39,356,137 98,468 39,454,605 1,985,492 (19,440) 41,420,657 ------------------------------------------------------------------------------------------------- OPERATING EXPENSES: COMPENSATION AND BENEFITS 20,599,309 55,180 20,654,489 960,115 21,614,604 OTHER OPERATING EXPENSES 8,752,895 62,623 8,815,518 792,628 (43,584) (2) 9,564,562 AMORTIZATION OF INTANGIBLES 1,648,058 1,648,058 44,772 94,176 (3) 1,787,006 INTEREST EXPENSE 110,237 110,237 10,258 24,947 (4) 145,442 ------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 31,110,499 117,803 31,228,302 1,807,773 75,539 33,111,614 ------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 8,245,638 (19,335) 8,226,303 177,719 (94,979) 8,309,043 INCOME TAXES 3,298,255 3,298,255 33,096 (5) 3,331,351 ------------------------------------------------------------------------------------------------- NET INCOME $4,947,383 ($19,335) $4,928,048 $177,719 ($128,075) $4,977,692 ================================================================================================= NET INCOME PER COMMON SHARE $0.34 $0.33 $0.33 ================================================================================================= SHARES ISSUED AND OUTSTANDING 14,759,524 37,000 14,796,524 195,000 14,991,524 ------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING 14,757,450 37,000 14,794,450 236,667 15,031,117 -------------------------------------------------------------------------------------------------
(1) TO ADJUST HISTORICAL INTEREST AND TO ADJUST FOR LOST INTEREST EARNED FROM FROM CASH PAID FOR ACQUIRED AGENCIES. (2) TO REFLECT ADJUSTMENTS TO OTHER OPERATING EXPENSES TO REFLECT ADJUSTED 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 REFLECT INTEREST ON ACQUISITION DEBT AND TO ADJUST HISTORICAL INTEREST FOR DEBT NOT ASSUMED. (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, 1994 ------------------------------------------------------------------------------------------------- HILB, ROGAL POOLING-OF- PRO FORMA ACQUISITIONS PRO FORMA ADJUSTMENTS PRO FORMA & HAMILTON CO. INTERESTS COMBINED (PURCHASES) FOR PURCHASE CONSOLIDATED MERGER POOLED ACQUISITIONS TOTAL - --------------------------------------------------------------------------------------------------------------------------------- REVENUES: COMMISSIONS & FEES $132,914,113 $339,483 $133,253,596 $16,361,209 $149,614,805 INTEREST INCOME 1,899,803 9,147 1,908,950 298,308 ($357,135) (1) 1,850,123 OTHER 5,995,698 2,084 5,997,782 27,037 6,024,819 ------------------------------------------------------------------------------------------------- TOTAL REVENUES 140,809,614 350,714 141,160,328 16,686,554 (357,135) 157,489,747 ------------------------------------------------------------------------------------------------- OPERATING EXPENSES: COMPENSATION AND BENEFITS 78,310,999 240,592 78,551,591 10,099,119 88,650,710 OTHER OPERATING EXPENSES 35,975,715 134,437 36,110,152 5,141,717 (376,149) (2) 40,875,720 AMORTIZATION OF INTANGIBLES 6,436,119 6,436,119 871,742 288,966 (3) 7,596,827 INTEREST EXPENSE 812,216 812,216 418,095 (81,421) (4) 1,148,890 POOLING-OF-INTERESTS EXPENSE 487,986 487,986 487,986 ------------------------------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 122,023,035 375,029 122,398,064 16,530,673 (168,604) 138,760,133 ------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 18,786,579 (24,315) 18,762,264 155,881 (188,531) 18,729,614 INCOME TAXES 7,394,296 (6,350) 7,387,946 (13,060) (5) 7,374,886 ------------------------------------------------------------------------------------------------- NET INCOME $11,392,283 ($17,965) $11,374,318 $155,881 ($175,471) $11,354,728 ================================================================================================= NET INCOME PER COMMON SHARE $0.77 $0.77 $0.75 ================================================================================================= SHARES ISSUED AND OUTSTANDING 14,679,464 37,000 14,716,464 320,000 15,036,464 ------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING 14,778,304 37,000 14,815,304 329,375 15,144,679 -------------------------------------------------------------------------------------------------
(1) TO ADJUST HISTORICAL INTEREST AND TO ADJUST FOR LOST INTEREST EARNED FROM FROM CASH PAID FOR ACQUIRED AGENCIES. (2) TO REFLECT ADJUSTMENTS TO OTHER OPERATING EXPENSES TO REFLECT ADJUSTED 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 REFLECT INTEREST ON ACQUISITION DEBT AND TO ADJUST HISTORICAL INTEREST FOR DEBT NOT ASSUMED. (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, 1993 --------------------------------------------- HILB, ROGAL POOLING-OF- PRO FORMA & HAMILTON CO. INTERESTS COMBINED MERGERS POOLED TOTAL - ----------------------------------------------------------------------------- REVENUES: COMMISSIONS & FEES $137,662,048 $403,680 $138,065,728 INTEREST INCOME 1,558,982 9,678 1,568,660 OTHER 2,435,150 1,978 2,437,128 --------------------------------------------- TOTAL REVENUES 141,656,180 415,336 142,071,516 --------------------------------------------- OPERATING EXPENSES: COMPENSATION AND BENEFITS 82,469,714 286,526 82,756,240 OTHER OPERATING EXPENSES 37,773,552 139,098 37,912,650 AMORTIZATION OF INTANGIBLES 6,581,550 0 6,581,550 INTEREST EXPENSE 1,270,268 0 1,270,268 POOLING-OF-INTERESTS EXPENSE 503,207 503,207 --------------------------------------------- TOTAL OPERATING EXPENSES 128,598,291 425,624 129,023,915 --------------------------------------------- INCOME BEFORE INCOME TAXES 13,057,889 (10,288) 13,047,601 INCOME TAXES 4,764,496 (3,672) 4,760,824 --------------------------------------------- NET INCOME $8,293,393 ($6,616) $8,286,777 ============================================= NET INCOME PER COMMON SHARE $0.57 $0.57 ============================================= SHARES ISSUED AND OUTSTANDING 14,800,904 37,000 14,837,904 --------------------------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING 14,456,055 37,000 14,493,055 --------------------------------------------- HILB, ROGAL & HAMILTON COMPANY CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) - ----------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1992 --------------------------------------------- HILB, ROGAL POOLING-OF- PRO FORMA & HAMILTON CO. INTERESTS COMBINED MERGERS POOLED TOTAL - ----------------------------------------------------------------------------- REVENUES: COMMISSIONS & FEES $137,296,081 $423,032 $137,719,113 INTEREST INCOME 1,374,949 12,097 1,387,046 OTHER 1,789,925 677 1,790,602 --------------------------------------------- TOTAL REVENUES 140,460,955 435,806 140,896,761 --------------------------------------------- OPERATING EXPENSES: COMPENSATION AND BENEFITS 81,939,724 277,357 82,217,081 OTHER OPERATING EXPENSES 36,208,784 142,421 36,351,205 AMORTIZATION OF INTANGIBLES 6,557,924 0 6,557,924 INTEREST EXPENSE 1,820,819 0 1,820,819 POOLING-OF-INTERESTS EXPENSE 532,960 532,960 --------------------------------------------- TOTAL OPERATING EXPENSES 127,060,211 419,778 127,479,989 ---------------------------------------------- INCOME BEFORE INCOME TAXES 13,400,744 16,028 13,416,772 INCOME TAXES 4,809,342 10,141 4,819,483 --------------------------------------------- NET INCOME $8,591,402 $5,887 $8,597,289 ============================================= NET INCOME PER COMMON SHARE $0.65 $0.65 ============================================= SHARES ISSUED AND OUTSTANDING 13,242,808 37,000 13,279,808 --------------------------------------------- WEIGHTED AVERAGE SHARES OUTSTANDING 13,241,030 37,000 13,278,030 --------------------------------------------- Financial Statements of HAYHURST, ELIAS, DUDEK, INC. Year ended June 30, 1994 AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the balance sheet of Hayhurst, Elias, Dudek, Inc. as at June 30, 1994 and the statements of earnings, deficit and changes in financial position 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 an audit to obtain reasonable assurance 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. In our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at June 30, 1994 and the results of its operations and the changes in its financial position for the year then ended in accordance with generally accepted accounting principles. KPMG Peat Marwick Thorne Chartered Accountants Winnipeg, Canada August 19, 1994, except as to note 13 which is as of February 13, 1995 HAYHURST, ELIAS, DUDEK, INC. Balance Sheet June 30, 1994, with comparative figures for 1993 - --------------------------------------------------------- 1994 1993 - --------------------------------------------------------- Assets Current assets: Cash $ 1,091,554 $771,491 Term deposits 1,180,556 886,480 Investments (note 2) 604,611 604,611 Accounts receivable: Related parties (note 10) 124,348 120,468 Premiums, net of allowance of $15,082 (1993 - $10,000) 1,850,667 1,829,010 Claims 275,101 613,985 Income taxes receivable - 157,185 Prepaid expenses 97,037 80,850 - --------------------------------------------------------- 5,223,874 5,064,080 - --------------------------------------------------------- Fixed assets (note 3) 332,243 405,472 Deferred income taxes 159,230 172,062 Due from related parties (note 10) 147,437 200,000 Other assets (note 4) 139,500 1,418,200 _________________________________________________________ $6,002,284 $7,259,814 ========================================================= Liabilities and Shareholders' Deficit Current liabilities: Bonus payable $ 140,390 $ - Due to insurance companies 5,059,094 5,277,734 Due to sub-agents, associations and salesmen 154,317 181,367 Other accounts payable and accruals 571,750 524,982 Income taxes payable 59,794 Current portion of long-term debt (note 5) 77,800 101,974 - --------------------------------------------------------- 6,063,145 6,086,057 Deferred income taxes 138,578 163,193 Long-term debt (note 5) - 77,800 Shareholders' deficit: Share capital (note 6) 202,417 1,304,017 Deficit (401,856) (371,253) ------------------------------------------------------- (199,439) 932,764 Commitments (note 7) Contingent liability (note 12) Subsequent event (note 13) _________________________________________________________ $6,002,284 $7,259,814 ========================================================= See accompanying notes to financial statements. On behalf of the Board: ___________________________ Director ___________________________ Director HAYHURST, ELIAS, DUDEK, INC. Statement of Earnings Year ended June 30, 1994, with comparative figures for 1993 and 1992 - ---------------------------------------------------------------------------- 1994 1993 1992 - ---------------------------------------------------------------------------- Commission earnings and fees $8,127,466 $ 7,825,387 $7,210,773 Expenses: Remuneration: Commissions: Sub-agents 117,132 168,025 261,171 Associations 479,468 448,078 445,934 Sales staff 1,304,426 1,292,230 1,256,857 Salaries and employee benefits 3,279,319 3,459,757 2,936,085 -------------------------------------------------------------------------- 5,180,345 5,368,090 4,900,047 Selling: Telephone 400,239 413,791 348,744 Travel and entertainment 191,407 224,220 222,779 Automobile 205,504 180,831 156,682 Advertising and promotion 200,887 155,340 116,937 Bad debts 16,981 49,831 40,537 __________________________________________________________________________ 1,015,018 1,024,013 885,679 Occupancy: Rent 424,186 390,424 369,807 Insurance 93,870 83,408 96,475 Maintenance, utilities and taxes 109,362 100,331 94,133 __________________________________________________________________________ 627,418 574,163 560,415 Administration: Amortization of licenses 134,000 144,000 - Amortization of goodwill 30,600 57,050 77,650 Depreciation and amortization 169,504 194,666 175,503 Printing and stationery 278,448 279,909 171,431 Postage and messenger 155,596 139,140 98,097 Equipment lease 233,598 216,764 103,405 Interest and bank charges 47,940 48,837 59,119 Data processing 42,070 61,009 37,322 Legal and accounting 272,270 81,928 132,590 Miscellaneous 130,652 132,836 154,289 Management bonus 140,390 - 123,105 __________________________________________________________________________ 1,635,068 1,356,139 1,132,511 ____________________________________________________________________________ 8,457,849 8,322,405 7,478,652 ____________________________________________________________________________ Operating loss (330,383) (497,018) (267,879) Other income (expense): Contingent commissions 222,301 125,807 80,701 Investment income 175,662 214,456 298,012 Loss on advances - (140,435) (5,804) __________________________________________________________________________ 397,963 199,828 372,909 ____________________________________________________________________________ Earnings (loss) before income taxes 67,580 (297,190) 105,030 Income taxes (note 8): Current (recovery) 55,653 (45,100) 113,117 Deferred (11,783) (25,480) (22,300) __________________________________________________________________________ 43,870 (70,580) 90,817 ____________________________________________________________________________ Net earnings (loss) $23,710 $ (226,610) $14,213 ============================================================================ See accompanying notes to financial statements. HAYHURST, ELIAS, DUDEK, INC. Statement of Deficit Year ended June 30, 1994, with comparative figures for 1993 and 1992 - ---------------------------------------------------------------------------- 1994 1993 1992 - ---------------------------------------------------------------------------- Deficit, beginning of year $(371,253) $ (144,643) $(108,239) Net earnings (loss) 23,710 (226,610) 14,213 Dividends (54,313) - (50,617) ____________________________________________________________________________ Deficit, end of year $(401,856) $ (371,253) $(144,643) ============================================================================ See accompanying notes to financial statements. HAYHURST, ELIAS, DUDEK, INC. Statement of Changes in Financial Position Year ended June 30, 1994, with comparative figures for 1993 and 1992 - ----------------------------------------------------------------------------- 1994 1993 1992 - ----------------------------------------------------------------------------- Cash provided by (used in): Operations: Net earnings (loss) $ 23,710 $ (226,610) $ 14,213 Items not affecting working capital: Amortization of licenses 134,000 144,000 Amortization of goodwill 30,600 57,050 77,650 Depreciation and amortization 169,504 194,666 175,503 Deferred income taxes (11,783) (25,480) (22,300) Net changes in non-cash working capital balances: Accounts receivable 313,347 (1,066,111) 1,172,610 Income taxes receivable/payable 216,979 (181,806) (1,099) Prepaid expenses (16,187) 24,634 (48,905) Change in investments - - (500,000) Bonus payable 140,390 (108,105) 108,105 Due to insurance companies (218,640) 1,042,305 85,236 Due to sub-agents, associations and salesmen (27,050) 13,283 49,607 Other accounts payable and accruals 46,768 71,063 (13,245) - ----------------------------------------------------------------------------- 801,638 (61,111) 1,097,375 Financing: Principal repayments (101,974) (38,298) (30,643) Proceeds on long-term debt - 110,000 - Decrease (increase) due from related parties 52,563 (48,125) 44,510 Dividends (54,313) - (50,617) -------------------------------------------------------------------- (103,724) 23,577 (36,750) Investments: Reduction in (purchase of) license 12,500 (430,000) - Additions to fixed assets (96,275) (116,576) (194,413) -------------------------------------------------------------------- (83,775) (546,576) (194,413) - ----------------------------------------------------------------------------- Increase (decrease) in cash and term deposits614,139 (584,110) 866,212 Cash and term deposits, beginning of year 1,657,971 2,242,081 1,375,869 - ----------------------------------------------------------------------------- Cash and term deposits, end of year $ 2,272,110 $ 1,657,971 $2,242,081 ============================================================================= See accompanying notes to financial statements. HAYHURST, ELIAS, DUDEK, INC. Notes to Financial Statements Year ended June 30, 1994 1. Significant accounting policies: The financial statements are expressed in Canadian dollars and are prepared in accordance with accounting principles generally accepted in Canada. These principles differ in certain material respects from those accounting principles generally accepted in the United States. The differences are described in note 11. (a) Investments: Portfolio investments are recorded at the lower of cost and market. (b) Revenue: Commission income is recognized when a policy is billed and has become effective. Contingent commissions are recognized when collected. (c) Fixed assets: Fixed assets are recorded at cost. Depreciation is provided on the following basis which will depreciate the assets over their estimated life: Furniture and fixtures 20% declining balance Computer 20% straight-line Computer software 50% straight-line Leasehold improvements are being amortized on a straight-line basis over the term of the lease. (d) Income taxes: The company follows the income tax allocation method of recording income taxes. Deferred income taxes result primarily from deferring recognition of commissions for income tax purposes, in certain instances, until the following year and non- deductible capital costs. (e) Due to insurance companies: The amount due to insurance companies represents the net premiums payable to insurance companies. (f) Goodwill: Goodwill is being amortized on a straight-line basis over the estimated period of benefit, which ranges from five to forty years (note 13). (g) Licenses: Licenses are recorded at cost and are being amortized on a straight-line basis over three years, being the term of the licenses. HAYHURST, ELIAS, DUDEK, INC. Notes to Financial Statements, page 2 Year ended June 30, 1994 2. Investments: -------------------------------------------------------------------- 1994 1993 Market Cost Market Cost -------------------------------------------------------------------- Bonds $ 600,000 $ 600,000 $ 600,000 $ 600,000 Securities 3,635 4,611 4,680 4,611 -------------------------------------------------------------------- $ 603,635 $ 604,611 $ 604,680 $ 604,611 ==================================================================== 3. Fixed assets: -------------------------------------------------------------------- Accumulated 1994 1993 Cost depreciation Net Net Furniture and fixtures $ 518,536 $ 340,595 $ 177,941 $ 191,556 Computer equipment 310,334 270,560 39,774 74,966 Computer software 526,488 506,888 19,600 32,612 Leasehold improvements 235,110 140,182 94,928 106,338 -------------------------------------------------------------------- $ 1,590,468 $1,258,225 $ 332,243 $ 405,472 ==================================================================== 4. Other assets: -------------------------------------------------------------------- 1994 1993 -------------------------------------------------------------------- Purchased goodwill $ 232,520 $1,459,250 Accumulated amortization 232,520 327,050 -------------------------------------------------------------------- - 1,132,200 Licenses 417,500 430,000 Accumulated amortization 278,000 144,000 -------------------------------------------------------------------- 139,500 286,000 -------------------------------------------------------------------- $ 139,500 $1,418,200 ==================================================================== HAYHURST, ELIAS, DUDEK, INC. Notes to Financial Statements, page 3 Year ended June 30, 1994 5. Long-term debt: -------------------------------------------------------------------- 1994 1993 -------------------------------------------------------------------- CIBC Leasing Limited: 13.35% loan payable, due January 1, 1995, payable in monthly blended instalments of $3,443 $23,066 $58,679 13.35% loan payable, due February 1, 1995, payable in monthly blended instalments of $622 4,734 11,095 Pet Plan International Limited licensing agreement: Payment of $50,000 due September 1, 1994 50,000 110,000 ------------------------------------------------------------------- 77,800 179,774 Current portion of long-term debt 77,800 101,974 ------------------------------------------------------------------- $ - $77,800 =================================================================== Both of the CIBC Leasing Limited loans are secured by certain furniture and fixtures. 6. Share capital: -------------------------------------------------------------------- 1994 1993 -------------------------------------------------------------------- Authorized: Unlimited voting class A preferred shares with no dividend entitle- ment, redeemable at issued price Unlimited non-voting class B preferred shares with no dividend entitlement, redeemable at $1 per share Unlimited voting class A common shares Unlimited voting class B common shares Unlimited voting class C common shares Issued: 5,641 class A common shares $ 5,641 $ 5,641 11,716 class B common shares 6,045 6,045 4,339.25 class C common shares 1,292,331 1,292,331 -------------------------------------------------------------------- 1,304,017 1,304,017 Less net book value of goodwill acquired in exchange for class C common shares (note 13) 1,101,600 -------------------------------------------------------------------- $ 202,417 $1,304,017 ==================================================================== Effective July 1, 1990 the company acquired 70% of Leipsic Insurance Agencies. This acquisition has been accounted for by the purchase method. 4,339.25 class C common shares were issued in consideration for fixed assets of $68,331 and goodwill of $1,224,000 of Leipsic Insurance Agencies. As described in note 13, effective December 31, 1994 the company completed a transaction which essentially reversed this acquisition. HAYHURST, ELIAS, DUDEK, INC. Notes to Financial Statements, page 4 Year ended June 30, 1994 7. Commitments: (a) In accordance with the shareholders' agreement dated July 1, 1990, the directors of the company are obligated to declare bonuses and dividends in the amount that will eliminate any retained earnings that would otherwise have been created except for the amortization taken in respect of goodwill acquired through the acquisition of Leipsic Insurance Agencies. In the current year, a bonus of $140,390 (1993-nil) and dividends of $54,313 (1993-nil) were declared by the directors. (b) The company is committed under the terms of various leases for its premises and equipment to make rental payments as follows: ------------------------------------------------------------------- 1995 $ 607,198 1996 381,251 1997 314,456 1998 275,829 1999 236,869 Thereafter 346,306 ------------------------------------------------------------------- $ 2,161,909 =================================================================== 8. Income taxes: Income tax rates for the year ended June 30, 1994 and 1993 varied from the basic Federal and Provincial income tax rates as follows: ------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------- Basic rate applied to income before income taxes $30,952 $ (136,113) $48,104 Amortization of goodwill 14,015 17,044 19,403 Non-deductible miscellaneous expenses 10,831 13,803 13,355 Losses on investment - 14,430 - Other permanent differences (11,928) 20,256 9,955 ------------------------------------------------------------------------- Provision for income taxes $43,870 $ (70,580) $90,817 ========================================================================= 9. Other funds: The company acts as the administrator of loss pools on behalf of insurers. These funds amounting to $119,223 (1993 - $109,598) are not included in the accompanying balance sheet inasmuch as these are not funds to which the company is entitled. HAYHURST, ELIAS, DUDEK, INC. Notes to Financial Statements, page 5 Year ended June 30, 1994 10. Related party transactions: Accounts receivable consists of: ------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------- Inter-company receivables (payables): B.D.H. Insurance Managers Limited $ 144,861 $ 120,053 Leipsic Insurance Agencies (20,513) 415 ------------------------------------------------------------------------ $124,348 $ 120,468 Due from shareholders and directors: Brian D. Hayhurst Enterprises (1988) Ltd. $ 22,562 $ 65,000 Elias Agencies Ltd. 70,875 81,000 Jo-Mar Holdings Ltd. 54,000 54,000 ------------------------------------------------------------------------- $147,437 $ 200,000 ========================================================================= The company is committed to placing certain insurance business with a related company, B.D.H. Insurance Managers Limited in which it is limited to commission based on a formula. The commission earned from this business amounted to $2,145,404 (1993 - $2,184,581). The company paid $10,777 (1993 - $19,481) in commissions during the year to Arcand Hayhurst Associates Inc., related party. 11. United States accounting principles: The financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in Canada which, in the case of the company, conform in all material respects with those in the United States, with the following exceptions: Under Canadian GAAP, the company uses the deferral method of income tax allocation for accounting for income taxes. Under United States GAAP, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes" in February 1992. SFAS 109 requires a change from the deferral method of accounting for income taxes to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Effective January 1, 1993, the company adopted SFAS 109 for purposes of reporting under United States GAAP. The cumulative effect of this change in accounting for income taxes of $42,167 is determined as of January 1, 1993. HAYHURST, ELIAS, DUDEK, INC. Notes to Financial Statements, page 6 Year ended June 30, 1994 11. United States accounting principles (continued): Pursuant to the deferral method, which was applied in 1992 and prior years, deferred income taxes are recognized for income and expense items that are reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of the calculation. Under the deferral method, deferred taxes are not adjusted for subsequent changes in tax rates. If treated in accordance with United States GAAP, the effect of this difference would be: ------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------- Net earnings (loss) as reported under Canadian GAAP $23,710 $ (226,610) $14,213 Decrease (increase) in deferred tax expense 5,708 (3,962) - ------------------------------------------------------------------------- Net earnings (loss), as adjusted to United States GAAP $29,418 $ (230,572) $14,213 ========================================================================= The following table reflects the difference between Canadian and United States balance sheet amounts: ------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------- Deferred income tax assets: Canadian GAAP $ 159,230 $ 172,062 Deferred income tax adjustment arising from adoption of SFAS 109 (14,801) (16,423) ------------------------------------------------------------------------- United States GAAP $144,429 $155,639 ========================================================================= ------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------- Deferred income tax liabilities Canadian GAAP $ 138,578 $ 163,193 Deferred income tax adjustment arising from adoption of SFAS 109 25,620 29,705 ------------------------------------------------------------------------- United States GAAP $164,198 $192,898 ========================================================================= ------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------- Deficit: Canadian GAAP $ (401,856) $ (371,253) Deferred income taxes 5,708 (3,962) Cumulative effect of change in accounting principle for income taxes (46,129) (42,167) ------------------------------------------------------------------------- United States GAAP $ (442,277) $ (417,382) ========================================================================= HAYHURST, ELIAS, DUDEK, INC. Notes to Financial Statements, page 7 Year ended June 30, 1994 11. United States accounting principles (continued): Under United States GAAP, the statement of changes in financial position should be titled as the statement of cashflow and should contain the following additional disclosure: ------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------- Cash paid during the year for: Interest $47,940 $ 48,887 $59,119 Income taxes (161,326) 136,706 114,216 ------------------------------------------------------------------------- 12. Contingent liability: The company has granted a stand by letter of credit for $50,000 in favour of Pafco Warranty Co. to cover 50% of underwriting losses to a maximum of $50,000 on policies if such losses should arise. 13. Subsequent event: Effective December 31, 1994 the company transferred 20% of its operations to Leipsic Insurance Agencies, a 20% shareholder of the company. This transaction occurred on a tax deferred basis pursuant to the "butterfly" provisions of the Income Tax Act. The operations transferred were acquired by the company from Leipsic Insurance Agencies on July 1, 1990 at which time goodwill and fixed assets were recorded for consideration of 4,339.25 class C common shares of the company. Also effective December 31, 1994 the company cancelled the class C common shares that were issued in exchange for the assets referred to above, pursuant to the "butterfly" provisions of the Income Tax Act. The net book value of the goodwill which was transferred to the company in 1990 and was transferred back to Leipsic Insurance Agencies effective December 31, 1994 has been shown as a reduction in the amount of share capital in these financial statements. Upon cancellation of the class C common shares the excess of the book value of the class C common shares of $162,743 over the book value of the goodwill will be shown as a reduction of deficit in the company's 1995 financial statements. Financial Statements of B.D.H. INSURANCE MANAGERS LIMITED Year ended June 30, 1994 AUDITORS' REPORT TO THE SHAREHOLDERS We have audited the balance sheet of B.D.H. Insurance Managers Limited as at June 30, 1994 and the statements of earnings and deficit and changes in financial position 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 an audit to obtain reasonable assurance 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. In our opinion, these financial statements present fairly, in all material respects, the financial position of the company as at June 30, 1994 and the results of its operations and the changes in its financial position for the year then ended in accordance with generally accepted accounting principles. KPMG Peat Marwick Thorne Chartered Accountants Winnipeg, Canada August 19, 1994, except as to note 7 which is as of February 13, 1995 B.D.H. INSURANCE MANAGERS LIMITED Balance Sheet June 30, 1994, with comparative figures for 1993 - ----------------------------------------------------------------------------- 1994 1993 - ----------------------------------------------------------------------------- Assets Current assets: Cash $ 99,702 $ 63,435 Accounts receivable 690 447 Income taxes receivable - 1,104 ------------------------------------------------------------------------- 100,392 64,986 Due from related parties (note 2) 70,335 63,832 Goodwill, net of amortization - 532,800 Deferred income taxes 6,351 6,830 - ----------------------------------------------------------------------------- $ 177,078 $ 668,448 ============================================================================= Liabilities and Shareholders' Equity Current liabilities: Income tax payable $ 21,293 $ - Accounts payable and accrued charges 5,924 4,081 Due to related parties (note 2) 94,686 70,967 Bonus payable 54,175 59,600 ------------------------------------------------------------------------- 176,078 134,648 Shareholders' equity: Share capital (note 3) 58,600 577,000 Deficit (57,600) (43,200) ------------------------------------------------------------------------- 1,000 533,800 Commitment (note 4) Subsequent event (note 7) - ----------------------------------------------------------------------------- $ 177,078 $ 668,448 ============================================================================= See accompanying notes to financial statements. On behalf of the Board: __________________________ Director - -------------------------- Director B.D.H. INSURANCE MANAGERS LIMITED Statement of Earnings and Deficit Year ended June 30, 1994, with comparative figures for 1993 and 1992 - ----------------------------------------------------------------------------- 1994 1993 1992 Revenue: Commission $ 2,860,539 $ 2,912,774 $ 2,964,511 Interest 5,976 6,736 14,438 --------------------------------------------------------------------------- 2,866,515 2,919,510 2,978,949 Expenses: Amortization of goodwill 14,400 14,400 14,400 Bank charges and interest 15 3,872 143 Commissions 2,145,404 2,184,581 2,223,383 Office 2,400 2,400 2,400 Professional fees 5,080 2,735 1,308 Rent 3,000 3,000 3,000 Salaries and benefits 25,713 24,954 24,144 Management bonus 414,175 419,600 434,815 Telephone 793 760 739 Other 1,992 1,816 3,488 --------------------------------------------------------------------------- 2,612,972 2,658,118 2,707,820 - ----------------------------------------------------------------------------- Income from operations 253,543 261,392 271,129 Income taxes: Current 76,239 81,547 84,220 Deferred 479 515 555 --------------------------------------------------------------------------- 76,718 82,062 84,775 - ----------------------------------------------------------------------------- Net earnings 176,825 179,330 186,354 Deficit, beginning of year (43,200) (28,800) (14,400) Dividends (191,225) (193,730) (200,754) - ----------------------------------------------------------------------------- Deficit, end of year $(57,600) $(43,200) $ (28,800) ============================================================================= See accompanying notes to financial statements. B.D.H. INSURANCE MANAGERS LIMITED Statement of Changes in Financial Position Year ended June 30, 1994, with comparative figures for 1993 and 1992 - ----------------------------------------------------------------------------- 1994 1993 1992 - ----------------------------------------------------------------------------- Cash provided by (used in): Operations: Net earnings $ 176,825 $ 179,330 $186,354 Items not affecting working capital: Amortization of goodwill 14,400 14,400 14,400 Deferred income taxes 479 515 555 Net changes in non-cash working capital balances: Increase in amount due to related parties 23,719 173,905 (54,763) Increase in accounts receivable (243) (85) 2,031 Decrease in accounts payable to insurance companies (7,988) Increase (decrease) in accounts payable, other 1,843 (527) (3,410) Decrease (increase) in income taxes receivable/payable 22,397 (22,734) (6,425) Decrease in bonus payable (5,425) (30,215) (250,412) - ----------------------------------------------------------------------------- 233,995 314,589 (119,658) Financing: (Increase) decrease in due from related parties (6,503) (39,070) 29,238 Dividends paid (191,225) (193,730) (200,754) Decrease in dividends payable (82,084) -------------------------------------------------------------------------- (197,728) (232,800) (253,600) - ----------------------------------------------------------------------------- Increase in cash 36,267 81,789 (373,258) Cash (bank indebtedness), beginning of year 63,435 (18,354) 354,904 - ----------------------------------------------------------------------------- Cash, end of year $99,702 $ 63,435 $ (18,354) ============================================================================= See accompanying notes to financial statements. B.D.H. INSURANCE MANAGERS LIMITED Notes to Financial Statements Year ended June 30, 1994 1. Significant accounting policies: The financial statements are expressed in Canadian dollars and are prepared in accordance with accounting principles generally accepted in Canada. These principles differ in certain material respects from the accounting principles generally accepted in the United States. The differences are described in note 5. (a) Commission revenue: Commission income is recognized when an insurance policy is billed and has become effective. (b) Income taxes: The company follows the income tax allocation method for recording income tax. Deferred income taxes result primarily from non- deductible capital costs. (c) Goodwill: Goodwill is being amortized on a straight-line basis over the estimated period of benefit which is forty years (note 7). 2. Related party transactions: All commission income and commission expenses relate to policies sold by a related company, Hayhurst, Elias, Dudek, Inc. The company also pays rent and office expenses in the amounts of $3,000 and $2,400 respectively to Hayhurst, Elias, Dudek, Inc. Due from (to) related parties consists of: ------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------- Hayhurst, Elias, Dudek, Inc. $ (144,861) $ (120,053) Leipsic Insurance Agencies 50,175 49,086 ------------------------------------------------------------------------- $ (94,686) $ (70,967) ========================================================================= Brian D. Hayhurst Barbados Trust $ 65,248 $ 63,832 John Dudek 5,087 - ------------------------------------------------------------------------- $ 70,335 $ 63,832 ========================================================================= B.D.H. INSURANCE MANAGERS LIMITED Notes to Financial Statements, page 2 Year ended June 30, 1994 3. Share capital: ------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------- Share capital: Authorized: Unlimited voting class A preferred shares, with no dividend entitlement, redeemable at issued price Unlimited non-voting class B pre- ferred shares with no dividend entitlement, redeemable at $1 per share Unlimited voting class A common shares Unlimited voting class B common shares Unlimited voting class C common shares Issued: 325 class A common shares $ 325 $325 675 class B common shares 675 675 250 class C common shares (note 7) 576,000 576,000 -------------------------------------------------------------------- 577,000 577,000 Less net book value of goodwill acquired in exchange for class C common shares (note 7) 518,400 - ----------------------------------------------------------------------------- $58,600 $577,000 ============================================================================= Effective July 1, 1990, the company acquired 30% of Leipsic Insurance Agencies. This acquisition has been accounted for by the purchase method. 250 class C common shares were issued in consideration for goodwill of Leipsic Insurance Agencies in the amount of $576,000. As described in note 7, effective December 31, 1994 the company completed a transaction which essentially reversed this acquisition. 4. Income taxes: Income tax rates for the year ended June 30, 1994 and 1993 varied from the basic Federal and Provincial income tax rates as follows: ------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------- Basic rate applied to income before income taxes $71,753 $ 76,326 $76,170 Amortization of goodwill 4,075 4,205 4,205 Non-deductible miscellaneous expenses 1,115 Other permanent differences 890 416 4,400 ------------------------------------------------------------------------- Provision for income taxes $76,718 $ 82,062 $84,775 ========================================================================= B.D.H. INSURANCE MANAGERS LIMITED Notes to Financial Statements, page 3 Year ended June 30, 1994 5. Commitment: In accordance with the shareholders' agreement dated July 1, 1990, the directors of the company are obligated to declare bonuses and dividends in the amount that will eliminate any retained earnings that would otherwise have been created except for the amortization taken in respect of goodwill acquired through the acquisition of Leipsic Insurance Agencies. In the current year, a bonus of $414,175 (1993 - $419,600) and dividends of $191,225 (1993 - $193,730) were declared by the directors. 6. United States accounting principles: The financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") in Canada which, in the case of the company, conform in all material respects with those in the United States, with the following exceptions: Under Canadian GAAP, the company uses the deferral method of income tax allocation for accounting for income taxes. Under United States GAAP, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 109 (SFAS 109), "Accounting for Income Taxes" in February 1992. SFAS 109 requires a change from the deferral method of accounting for income taxes to the asset and liability method of accounting for income taxes. Under the asset and liability method of SFAS 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis and operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under SFAS 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Effective January 1, 1993, the company adopted SFAS 109 for purposes of reporting under United States GAAP. The cumulative effect of this change in accounting for income taxes of $6,067 is determined as of January 1, 1993. Pursuant to the deferral method, which was applied in 1992 and prior years, deferred income taxes are recognized for income and expense items that are reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of the calculation. Under the deferral method, deferred taxes are not adjusted for subsequent changes in tax rates. If treated in accordance with United States GAAP, the effect of this difference would be: ------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------- Net earnings as reported under Canadian GAAP $ 176,825 $ 179,330 $ 186,354 Increase in deferred tax expense (752) (425) ------------------------------------------------------------------------- Net earnings, as adjusted to United States GAAP $ 176,073 $ 178,905 $ 186,354 ========================================================================= B.D.H. INSURANCE MANAGERS LIMITED Notes to Financial Statements, page 4 Year ended June 30, 1994 6. United States accounting principles (continued): The following table reflects the difference between Canadian and United States balance sheet amounts: ------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------- Deferred income tax assets: Canadian GAAP $ 6,351 $6,830 Deferred income tax adjustment arising from adoption of SFAS 109 4,899 5,651 ------------------------------------------------------------------------- United States GAAP $11,250 $12,481 ========================================================================= ------------------------------------------------------------------------- 1994 1993 ------------------------------------------------------------------------- Deficit: Canadian GAAP $(57,600) $(43,200) Deferred income taxes (752) (425) Cumulative effect of change in accounting principles for income taxes 5,651 6,076 ------------------------------------------------------------------------- United States GAAP $(52,701) $(37,549) ========================================================================= Under United States GAAP, the statement of changes in financial position is titled the statement of cash flow and should contain the following additional disclosure: ------------------------------------------------------------------------- 1994 1993 1992 ------------------------------------------------------------------------- Cash paid during the year for: Interest $ 15 $ 3,872 $ 143 Income taxes 53,842 104,281 90,645 ========================================================================= 7. Subsequent event: Effective December 31, 1994 Leipsic Insurance Agencies sold its 20% interest in the company represented by 250 class C common shares to the remaining shareholders. Leipsic Insurance Agencies had acquired these shares July 1, 1990 at which time goodwill was recorded for consideration of the 250 class C common shares. The company intends to redeem these shares for nil consideration. The net book value of the goodwill which was transferred to the company in 1990 has been shown as a reduction in the amount of share capital in these financial statements. Upon redemption of the class C common shares the excess of the book value of the class C common shares of $57,600 over the book value of the goodwill will be shown as a reduction of deficit in the company's 1995 financial statements. UNAUDITED INTERIM FINANCIAL STATEMENTS HAYHURST ELIAS DUDEK, INC. AND B.D.H. INSURANCE MANAGER LIMITED UNAUDITED INTERIM FINANCIAL STATEMENTS HAYHURST, ELIAS, DUDEK, INC. AND B.D.H. INSURANCE MANAGER LIMITED CONSOLIDATED BALANCE SHEET HAYHURST ELIAS DUDEK AND B.D.H. INSURANCE MANAGER LIMITED (UNAUDITED) MAR. 31 MAR. 31 1995 1994 ASSETS CURRENT ASSETS Cash and cash equivalents $1,950,700 $1,309,163 Investments 604,305 604,305 Receivables: Premiums, less allowance for doubtful accounts of $59,303 and $59,303 respectively 1,063,088 1,169,009 Other 493,335 609,170 Prepaid expenses and other current assets 228,813 157,659 ---------- ---------- TOTAL CURRENT ASSETS $4,340,241 $3,849,306 FIXED ASSETS (NET) $ 265,864 $ 365,653 INTANGIBLE ASSETS 417,500 417,500 Less accumulated amortization 383,500 239,500 ---------- ---------- $ 34,000 $ 178,000 OTHER ASSETS 306 306 ---------- ---------- $4,640,411 $4,393,265 ========== ========== LIABILITIES AND SHAREHOLDERS EQUITY CURRENT LIABILITIES Premiums payable to insurance companies $3,474,836 $3,416,920 Accounts payable and accrued expenses 1,136,090 1,192,390 ---------- ---------- TOTAL CURRENT LIABILITIES $4,610,926 $4,609,310 SHAREHOLDERS' EQUITY Common Stock: Class A $ 12,685 $ 12,685 Class C 0 0 Retained Earning 416,796 271,256 Advance to shareholder (399,999) (499,986) ----------- ------------ 29,485 (216,045) ----------- ----------- $4,640,411 $4,393,265 =========== ========== STATEMENT OF CONSOLIDATED INCOME HAYHURST ELIAS DUDEK INC. AND B.D.H. INSURANCE MANAGER LIMITED (UNAUDITED) THREE MONTHS ENDED NINE MONTHS ENDED Mar. 31 Mar. 31 Mar. 31 Mar. 31 1995 1994 1995 1994 Revenues Commissions and Fees $1,749,953 $2,331,369 $5,733,929 $6,754,115 Investment Income 80,488 33,560 186,533 125,099 Other 95,901 44,716 97,872 44,716 ---------- ---------- ---------- --------- $1,926,342 $2,409,645 $6,018,334 $6,923,930 Operating Expenses Compensation and employee benefits $ 866,513 $1,133,078 $2,629,102 $3,397,722 Other Operating Expenses 824,314 861,782 2,487,466 2,591,309 Amortization of Intangibles 36,000 36,000 108,000 108,000 ---------- ----------- ---------- --------- $1,726,827 $2,030,860 $5,224,568 $6,097,031 INCOME BEFORE INCOME TAXES $ 199,515 $ 378,785 $ 793,766 $ 826,899 Estimated Income Taxes 79,978 162,084 329,345 344,520 ---------- ---------- ---------- --------- NET INCOME $ 119,537 $ 216,701 $ 464,421 $ 482,379 ========== ========== ========== ========== STATEMENT OF CONSOLIDATED CASH FLOWS HAYHURST ELIAS DUDEK AND B.D.H. INSURANCE MANAGER LIMITED (UNAUDITED) NINE MONTHS ENDED MAR. 31, 1995 MAR. 31, 1994 OPERATING ACTIVITIES Net Income $ 464,421 $ 482,379 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and Amortization 54,950 103,181 - Leipsic depreciation adjustment (21,442) Amortization of intangible assets 108,000 108,000 Proceeds on sale of business to Leipsic 163,500 0 ----------- ---------- $ 769,429 $ 693,560 Changes in operating assets and liabilities Decrease in accounts receivable 431,955 411,158 (Increase) Decrease in prepaid expense ( 6,364) ( 25,134) Increase (Decrease) in accounts payable and accrued expenses (1,368,230) (1,035,152) Advance to shareholders ( 399,996) ( 499,986) ----------- ---------- NET CASH OUTFLOW ( 573,206) ( 455,554) INVESTING ACTIVITIES Purchase of equipment and software development (66,338) ( 66,285) Adjustment of fixed assets re: Leipsic 99,209 ----------- ---------- NET CASH USED/GAIN IN INVESTING ACTIVITIES 32,871 ( 66,285) ----------- ----------- DECREASE IN CASH AND CASH EQUIVALENTS ( 540,335) ( 521,839) Cash and cash equivalents at beginning of period 2,491,035 1,831,002 ---------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,950,700 $1,309,163 ========== =========== NOTE TO CONSOLIDATED FINANCIAL STATEMENTS HAYHURST ELIAS DUDEK AND B.D.H. INSURANCE MANAGER LIMITED (Unaudited) Basis of Presentation The consolidated financial statements of Hayhurst Elias Dudek and B.D.H. Insurance Manager Limited 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 accounting 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 nine months ended March 31, 1995, are not necessarily indicative of the results that may be expected for the year ending June 30, 1995. For further information, refer to the Companys' financial statements and footnotes for the year ended June 30, 1994 included elsewhere herein. HAYHURST, ELIAS, DUDEK, INC. Balance Sheets As at June 30,
- -------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 - --------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash $ 1,091,554 $ 771,491 $ 638,015 $ 783,438 $ 687,913 Term deposits 1,180,556 886,480 1,604,066 592,431 36,537 Investments 604,611 604,611 604,611 104,611 353,056 Accounts receivable: Related parties 124,348 120,468 124,509 238,730 582 Premiums 1,850,667 1,829,010 1,011,648 1,730,288 557,823 Claims 275,101 613,985 435,788 749,119 481,053 Income taxes receivable - 157,185 - - 227,696 Prepaid expenses 97,037 80,850 105,484 56,579 36,435 ------------------------------------------------------------------------------------------------ 5,223,874 5,064,080 4,524,121 4,255,196 2,381,095 Fixed assets 332,243 405,472 483,562 464,652 411,267 Deferred income taxes 159,230 172,062 171,194 173,512 67,400 Due from related parties 147,437 200,000 151,875 196,385 268,416 Other assets 139,500 1,418,200 1,189,250 1,266,900 120,550 - ---------------------------------------------------------------------------------------------------- $ 6,002,284 $ 7,259,814 $ 6,520,002 $ 6,356,645 $ 3,248,728 ==================================================================================================== LIABILITIES AND SHAREHOLDERS DEFICIT Current liabilities: Due to insurance companies $ 5,059,094 $ 5,277,734 $ 4,235,429 $ 4,150,193 $ 1,954,706 Due to sub-agents, associations and salesmen 154,317 181,367 168,084 118,477 120,873 Due to related paries - - 74,593 48,175 63,930 Other accounts payable and accruals 571,750 524,982 453,919 467,164 434,355 Bonus payable 140,390 - 108,105 - 283,064 Income taxes payable 59,794 - 24,621 25,720 - Current portion of long-term debt 77,800 101,974 36,755 32,186 24,672 ------------------------------------------------------------------------------------------------ 6,063,145 6,086,057 5,101,506 4,841,915 2,881,600 Deferred income taxes 138,578 163,193 187,805 212,423 215,400 Long-term debt - 77,800 71,317 106,529 140,042 Shareholders' deficit: Share capital 202,417 1,304,017 1,304,017 1,304,017 11,686 Deficit (401,856) (371,253) (144,643) (108,239) - ------------------------------------------------------------------------------------------------ (199,439) 932,764 1,159,374 1,195,778 11,686 - ---------------------------------------------------------------------------------------------------- $ 6,002,284 $ 7,259,814 $ 6,520,002 $ 6,356,645 $ 3,248,728 ====================================================================================================
HAYHURST, ELIAS, DUDEK, INC. Statements of Earnings and Deficit
For the years ended June 30, - ---------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 - ---------------------------------------------------------------------------------------------------- Commissions earnings and fees $ 8,127,466 $ 7,825,387 $,7,210,773 $ 6,486,228 $ 4,852,039 Expenses Remuneration: Commissions: Sub-agents 117,132 168,025 261,171 396,474 568,801 Associations 479,468 448,078 445,934 483,970 514,751 Sales staff 1,304,426 1,292,230 1,256,857 1,507,744 750,245 Salaries and employee benefits 3,279,319 3,459,757 2,936,085 2,295,638 1,602,505 ----------------------------------------------------------------------------------------------- 5,180,345 5,368,090 4,900,047 4,683,826 3,436,302 Selling Telephone 400,239 413,791 348,744 350,734 314,106 Travel and entertainment 191,407 224,220 222,779 272,310 263,835 Automobile 205,504 180,831 156,682 128,739 94,184 Advertising and promotion 200,887 155,340 116,937 95,959 102,726 Bad debts 16,981 49,831 40,537 22,965 4,745 ----------------------------------------------------------------------------------------------- 1,015,018 1,024,013 885,679 870,707 779,596 Occupancy: Rent 424,186 390,424 369,807 299,428 122,284 Insurance 93,870 83,408 96,475 74,978 59,242 Maintenance, utilities and taxes 109,362 100,331 94,133 66,501 42,996 ----------------------------------------------------------------------------------------------- 627,418 574,163 560,415 440,907 224,522 Administration: Amortization of licenses 134,000 144,000 Amortization of goodwill 30,600 57,050 77,650 77,650 47,050 Depreciation and amortization 169,504 194,666 175,503 166,675 164,666 Printing and stationery 278,448 279,909 171,431 203,663 200,531 Postage and messenger 155,596 139,140 98,097 87,936 74,470 Equipment lease 233,598 216,764 103,405 61,969 41,578 Interest and bank charges 47,940 48,837 59,119 55,542 33,781 Data processing 42,070 61,009 37,322 33,236 23,456 Legal and accounting 272,270 81,928 132,590 381,904 84,824 Miscellaneous 130,652 132,836 154,289 153,147 54,394 Management bonus 140,390 123,105 283,064 ----------------------------------------------------------------------------------------------- 1,635,068 1,356,139 1,132,511 1,221,722 1,007,814 - ---------------------------------------------------------------------------------------------------- 8,457,849 8,322,405 7,478,652 7,217,162 5,448,234 - ---------------------------------------------------------------------------------------------------- Operating loss (330,383) (497,018) (267,879) (730,934) (596,195) Other income (expense): Contingent commissions 222,301 125,807 80,701 248,032 153,966 Investment income 175,662 214,456 298,012 411,370 575,835 Loss on advances (140,435) (5,804) ------------------------------------------------------------------------------------------------- 397,963 199,828 372,909 659,402 729,801 - ---------------------------------------------------------------------------------------------------- Earnings (loss) before income taxes 67,580 (297,190) 105,030 (71,532) 133,606 Income taxes: Current (recovery) 55,653 (45,100) 113,117 145,796 69,376 Deferred (11,783) (25,480) (22,300) (109,089) (9,000) ------------------------------------------------------------------------------------------------- 43,870 (70,580) 90,817 36,707 60,376 - ---------------------------------------------------------------------------------------------------- Net earnings (loss) $ 23,710 $ (226,610) $ 14,213 $ (108,239) $ 73,230 ====================================================================================================
B.D.H. INSURANCE MANAGERS LIMITED Balance Sheets As at June 30,
- ----------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 - ----------------------------------------------------------------------------------------------------- ASSETS Current assets: Cash $ 99,702 $ 63,435 $ $ 354,904 $ 36,216 Accounts receivable 690 447 362 2,393 311 Receivable from insurance companies 34,984 Due from related parties 102,938 48,175 63,930 Income taxes receivable 1,104 139,970 ------------------------------------------------------------------------------------------------- 100,392 64,986 103,300 405,472 275,411 Due from related parties 70,335 63,832 24,762 54,000 210,232 Goodwill, net of amortization 532,800 547,200 561,600 Deferred income taxes 6,351 6,830 7,345 7,900 8,500 - ----------------------------------------------------------------------------------------------------- $ 177,078 $ 668,448 $ 682,607 $ 1,028,972 $ 494,143 ===================================================================================================== Liabilities and Shareholders' Equity Current liabilities: Bank indebtedness $ $ $ 18,354 $ $ Accounts payable and accrued changes 5,924 4,081 4,608 16,006 4,148 Income tax payable 21,293 21,630 28,055 Due to related parties 94,686 70,967 Bonus payable 54,175 59,600 89,815 340,227 473,431 Dividends payable 82,084 15,564 ------------------------------------------------------------------------------------------------- 176,078 134,648 134,407 466,372 493,143 Shareholders' equity: Share capital 58,600 577,000 577,000 577,000 1,000 Deficit (57,600) (43,200) (28,800) (14,400) ------------------------------------------------------------------------------------------------- 1,000 533,800 548,200 562,600 1,000 - ----------------------------------------------------------------------------------------------------- $ 177,078 $ 668,448 $ 682,607 $ 1,028,972 $ 494,143 =====================================================================================================
B.D.H. INSURANCE MANAGERS LIMITED Statements of Earnings and Deficit
For the years ended June 30, - ----------------------------------------------------------------------------------------------------- 1994 1993 1992 1991 1990 - ----------------------------------------------------------------------------------------------------- Revenue Commission $ 2,860,539 $ 2,912,774 $ 2,964,511 $ 2,812,859 $ 2,793,640 Interest 5,976 6,736 14,438 23,284 13,390 -------------------------------------------------------------------------------------------------- 2,866,515 2,919,510 2,978,949 2,836,143 2,807,030 Expenses Amortizaiton of goodwill 14,400 14,400 14,400 14,400 Bank charges and interest 15 3,872 143 154 222 Commissons 2,145,404 2,184,581 2,223,383 2,109,617 2,095,230 Office 2,400 2,400 2,400 2,400 2,400 Professional fees 5,080 2,735 1,308 5,985 654 Rent 3,000 3,000 3,000 3,000 3,000 Salaries and benefits 25,713 24,954 24,144 32,859 30,786 Management bonus 414,175 419,600 434,815 413,727 473,431 Telephone 793 760 739 590 807 Other 1,992 1,816 3,488 249 -------------------------------------------------------------------------------------------------- 2,612,972 2,658,118 2,707,820 2,582,981 2,606,530 - ----------------------------------------------------------------------------------------------------- Income from operations 253,543 261,392 271,129 253,162 200,500 Income taxes: Current 76,239 81,547 84,220 75,943 45,600 Deferred 479 515 555 600 500 -------------------------------------------------------------------------------------------------- 76,718 82,062 84,775 76,543 46,100 - ----------------------------------------------------------------------------------------------------- Net earnings 176,825 179,330 186,354 176,619 154,400 Deficit, beginning of year (43,200) (28,800) (14,400) Dividends (191,225) (193,730) (200,754) (191,019) (154,400) - ----------------------------------------------------------------------------------------------------- Deficit, end of year $ (57,600) $ (43,200) $ (28,800) $ (14,400) $ - =====================================================================================================
HAYHURST ELIAS DUDEK INC. Management's Discussion and Analysis of Financial Condition and Results of Operations The income of Hayhurst Elias Dudek Inc. (HED) is derived from the commissions earned from various areas by administering their insurance needs and placing their insurance policies with various insurance carriers. There areas are: Association Groups (Property and Casualty, Life and Health) Municipalities and Schools; Risk Management of Commercial Account; Pet Plan Insurance and Personal Lines. Such commissions are generally a percentage of the premium. Commission rates are set by negotiating with the subscribing insurance companies for a term, usually a year period with some sharing in underwriting profit. The market conditions and loss ratio dictate the premium rates and related commissions for the company. There is no precise pattern that allows management to predict the future changes in the market conditions, or loss ratio conditions or any effect that they may influence on the company's operations. RESULTS OF OPERATIONS Total revenues for fiscal year ended June 30, 1994 were $8,525,429, an increase of $500,214 or 6.2% from 1993. For 1993, total revenues were $8,025,215, an increase of $441,533 of 5.8% from 1992. Commissions for fiscal year ended June 30, 1994 increased by $302,079 or 3.9% for 1993 commissions increased by $614,614 or 8.5%. The commission increases in 1994 and 1993 were primarily attributable to the acquisition of Pet Plan Insurance. Other income, net increased by $198,135 in 1994 and decreased by $173,081 in 1993. The increase and decreases of 1994 and 1993 is due mainly to the write- off of $140,435 of the loss on advances to the warranty program. Otherwise the net incrases were $57,700 in 1994 and the net decrases were $38,450 in 1993. Total compensation and employee benefits cost for 1994 were $4,583,745, a decrease of $168,242 or 3.5% from 1993. For 1993 total compensation and employee benefits costs were $4,751,987, an increase of $559,045 or 13.3% from 1992. This is primarily due to the increase of the number of employees in acquiring the operation of Pet Plan. For 1994 other operating expenses increased $163,296 or 4.6% from 1993. Other operating expenses increased $407,813 or 12.9% from 1992. 1994 increases were mainly in the area of legal costs while 1993 increases were due to the addition of the operation cost of Pet Plan. HAYHURST ELIAS DUDEK INC./B.D.H. INSURANCE MANAGER LIMITED CONSOLIDATED Management's Discussion and Analysis of Third Quarter Results of Operations RESULTS OF OPERATIONS: Total revenues for the fiscal quarter and nine months ended March 31, 1995 were $1,926,342 and $6,018,334 respectively, a decrease of $483,303 or 20% for the quarter, and a decrease of $905,596 or 13% for nine months from 1994. The commission decreased in 1995 from 1994 were mainly due to the demerger of Leipsic on July 1, 1994 and decrease in commission rate. Other income net increased by $98,113 and $114,590 for the quarter and nine months ended March 31, 1995 and 1994. The increase is mainly due to the higher interest rate as well as higher receipts in contingency profit sharing due to better management in underwriting of quality accounts. Total compensation and employee benefits cost were $866,513 and $2,629,102 for the quarter and nine months respectively in 1995, a decrease of $266,565 or 23.5% and $768,620 or 22.6% for the same period from 1994. This is primarily due to a decrease in the number of employees through demerger and reorganization plus freeze in salary. For the quarter and nine months in 1995 operating expenses decreased by $37,468 and $103,843 from 1994 respectively. Both decreases were attributable to demerger of Leipsic's operation. EX-2 2 EXHIBIT 2.22 AGREEMENT OF PURCHASE AND SALE OF ALL OF THE CAPITAL STOCK OF THE ENTITIES OWNING ALL OF THE CAPITAL STOCK OF HAYHURST ELIAS DUDEK, INC. AND B.D.H. INSURANCE MANAGERS LIMITED BY HILB, ROGAL AND HAMILTON COMPANY OF CANADA, LIMITED THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as of the 27th day of June, 1995 by and between the following: HILB, ROGAL AND HAMILTON COMPANY, a corporation incorporated under the laws of the Commonwealth of Virginia ("HRH"); and HILB, ROGAL AND HAMILTON COMPANY OF CANADA, LIMITED, a corporation incorporated under the laws of Canada which is a wholly-owned subsidiary of HRH ("Buyer"); and HAYHURST ELIAS DUDEK, INC., a corporation incorporated under the laws of Canada ("HED"); and ELIAS AGENCIES LTD., a corporation incorporated under the laws of the Province of Manitoba ("Elias Ltd."); and JO-MAR HOLDINGS LTD., a corporation incorporated under the laws of the Province of Manitoba ("Dudek Ltd."); and BRIAN D. HAYHURST ENTERPRISES (1988) LTD., a corporation incorporated under the laws of the Province of Manitoba ("Enterprises"); and B.D.H. INSURANCE MANAGERS LIMITED, a corporation incorporated under the laws of Canada ("BDH"); and ELIAS HOLDINGS LTD., a corporation incorporated under the laws of the Province of Manitoba ("Elias Holdco"); and DUDEK HOLDINGS LTD., a corporation incorporated under the laws of the Province of Manitoba ("Dudek Holdco"); and 3157245 CANADA LTD., a corporation incorporated under the laws of Canada ("Newco"); and THE HAYHURST BARBADOS TRUST, a trust established under the laws of the Island of Barbados (the "Hayhurst Trust"), with ERNST & YOUNG SERVICES LIMITED, as the sole trustee of The Hayhurst Barbados Trust (the "Hayhurst Trustee"); and ARTHUR G. ELIAS, an individual who is a resident of Winnipeg, Manitoba, Canada ("Elias"); and IRENE T. ELIAS, the spouse of Elias, and an individual who is a resident of Winnipeg, Manitoba, Canada ("Mrs. Elias"); and JOHN DUDEK, an individual who is a resident of Winnipeg, Manitoba, Canada ("Dudek"); and MARILYN N. DUDEK, the spouse of Dudek, and an individual who is a resident of Winnipeg, Manitoba, Canada ("Mrs. Dudek"); and BRIAN D. HAYHURST, an individual who is a resident of the Island of Barbados ("Hayhurst"); and WILLIAM JESSIMAN, an individual who is a resident of Winnipeg, Manitoba, Canada ("WJ"); and THE ELIAS FAMILY TRUST, a trust formed under the laws of the Province of Manitoba (the "Elias Trust"), with ARTHUR G. ELIAS, as the sole trustee of The Elias Family Trust (the "Elias Trustee"); and THE DUDEK FAMILY TRUST, a trust formed under the laws of the Province of Manitoba (the "Dudek Trust"), with JOHN DUDEK, as the sole trustee of The Dudek Family Trust (the "Dudek Trustee"). BACKGROUND STATEMENTS A. Description of Agency Business. HED and BDH are engaged in the business of owning and operating a general insurance agency with their principal offices located in Winnipeg, Manitoba, Canada. The insurance business and operations of HED and BDH are referred to in this Agreement as the "Agency." The Agency conducts its business and operations primarily in the Province of Manitoba, and also maintains office locations and/or conducts its business in the Provinces of Alberta, British Columbia, Ontario, New Brunswick, Newfoundland, Nova Scotia, Prince Edward Island, Quebec and Saskatchewan. B. Current Stock Ownership of HED. Elias and Mrs. Elias (the "Eliases") collectively own all of the issued and outstanding capital stock of Elias Ltd. (the "Elias Ltd. Stock"). Elias Ltd., in turn, owns 40.5% of the issued and outstanding capital stock of HED. Dudek and Mrs. Dudek (the "Dudeks") collectively own all of the issued and outstanding capital stock of Dudek Ltd. (the "Dudek Ltd. Stock"). Dudek Ltd., in turn, owns 27% of the issued and outstanding capital stock of HED. The Hayhurst Trust and WJ collectively own all of the issued and outstanding capital stock of Enterprises (the "Enterprises Stock"). Enterprises, in turn, owns 32.5% of the issued and outstanding capital stock of HED. Elias Ltd., Dudek Ltd. and Enterprises therefore collectively currently own all of the issued and outstanding capital stock of HED (the "HED Stock"). As of the date of the execution of this Agreement, the stock ownership of HED is set forth on Exhibit B which is attached hereto. C. Current Stock Ownership of BDH. Elias and the Elias Trust (the "BDH/Elias Group") collectively own all of the issued and outstanding capital stock of Elias Holdco (the "Elias Holdco Stock"). Elias Holdco, in turn, owns 40.5% of the issued and outstanding capital stock of BDH. Dudek and the Dudek Trust (the "BDH/Dudek Group") collectively own all of the issued and outstanding capital stock of Dudek Holdco (the "Dudek Holdco Stock"). Dudek Holdco, in turn, owns 27% of the issued and outstanding capital stock of BDH. The Hayhurst Trust owns 32.5% of the issued and outstanding capital stock of BDH. Elias Holdco, Dudek Holdco and the Hayhurst Trust therefore collectively currently own all of the issued and outstanding capital stock of BDH (the "BDH Stock"). As of the date of the execution of this Agreement, the stock ownership of BDH is set forth on Exhibit C which is attached hereto. D. Current Stock Ownership of Newco. Elias owns 60% of the issued and outstanding capital stock of Newco. Dudek owns 40% of the issued and outstanding capital stock of Newco. Elias and Dudek therefore collectively currently own all of the issued and outstanding capital stock of Newco (the "Newco Stock"). E. Preliminary Transfers. (1) Preliminary Enterprises Stock Transfers. Effective as of 12:01 a.m. on the Closing Date (as defined below in Section 5) and prior to the Stock Acquisition Transactions (also as defined below in Paragraph F), the Hayhurst Trust and WJ desire to sell, assign and transfer to Elias and Dudek, and Elias and Dudek desire to purchase and acquire from the Hayhurst Trust and WJ, all of the issued and outstanding Enterprises Stock owned by the Hayhurst Trust and WJ, through the direct sale, assignment and transfer of Enterprises Stock by each of the Hayhurst Trust and WJ to Elias and Dudek (the "Preliminary Enterprises Stock Transfers"). Upon completion of the Preliminary Enterprises Stock Transfers, the Eliases will own all of the issued and outstanding Elias Ltd. Stock, and the Dudeks will own all of the issued and outstanding Dudek Ltd. Stock, and Elias and Dudek will own all of the issued and outstanding Enterprises Stock. (2) Preliminary BDH Stock Transfers. Also effective as of 12:01 a.m. on the Closing Date and prior to the Stock Acquisition Transactions, the Hayhurst Trust desires to sell, assign and transfer to Elias and Dudek, and Elias and Dudek desire to purchase and acquire from the Hayhurst Trust, all of the issued and outstanding capital stock of BDH (the "Hayhurst BDH Stock") owned by the Hayhurst Trust (the "Preliminary BDH Stock Transfers"). Upon completion of the Preliminary BDH Stock Transfers, Elias Holdco, Dudek Holdco, Elias and Dudek will own all of the issued and outstanding BDH Stock. (3) Subsequent Stock Transfers to Newco. Immediately after the Preliminary Enterprises Stock Transfers and the Preliminary BDH Stock Transfers (collectively referred to as the "Preliminary Transfers"), effective as of 12:02 a.m. on the Closing Date, Elias and Dudek desire to transfer: (i) the Enterprises Stock to Newco (the "Enterprises Subsequent Stock Transfers"); and, (ii) the Hayhurst BDH Stock to Newco (the "BDH Subsequent Stock Transfers"). The Enterprises Subsequent Stock Transfers and BDH Subsequent Stock Transfers shall be collectively referred to herein as the "Subsequent Stock Transfers". F. Stock Acquisition Transactions. Immediately after the Subsequent Stock Transfers, effective as of 12:03 a.m. on the Closing Date, Buyer desires to purchase and acquire (i) all of the issued and outstanding Elias Ltd. Stock, and any indebtedness owing by Elias Ltd. to the Eliases, from the Eliases, (ii) all of the issued and outstanding Dudek Ltd. Stock, and any indebtedness owing by Dudek Ltd. to the Dudeks, from the Dudeks, (iii) all of the issued and outstanding Elias Holdco Stock, and any indebtedness owing by Elias Holdco to the BDH/Elias Group, from the BDH/Elias Group, (iv) all of the issued and outstanding Dudek Holdco Stock, and any indebtedness owing by Dudek Holdco to the BDH/Dudek Group, from the BDH/Dudek Group, and (v) all of the issued and outstanding Newco Stock; and, all of the respective selling parties desire to sell, assign and transfer the aforementioned Stock interests to Buyer in each case for the consideration and pursuant to the terms and conditions set forth in this Agreement (which transactions are also collectively referred to herein as the "Stock Acquisition Transactions"). G. Post-Stock Acquisition Transactions. Immediately after the completion of the Stock Acquisition Transactions, and effective as of 12:04 a.m. on the Closing Date, HED, BDH, Enterprises, Elias Ltd., Dudek Ltd., Elias Holdco, Dudek Holdco and Newco will be amalgamated pursuant to the provisions of the Canada Business Corporations Act (the "Amalgamation Transactions") to form Hayhurst Elias Dudek, Inc., a corporation qualified and validly existing under the laws of Canada (the "Surviving Corporation"). After the completion of the Amalgamation Transactions, the Surviving Corporation will be a wholly-owned subsidiary of Buyer and shall own and operate all of the insurance business of the Agency. TERMS OF AGREEMENT In consideration of the foregoing facts and of the respective representations, warranties, covenants and agreements set forth below, the parties hereto, intending to be legally bound, hereby covenant and agree as follows: PART A: PRELIMINARY TRANSFERS, SUBSEQUENT TRANSFERS ACQUISITION AND AMALGAMATION TRANSACTIONS AND CLOSING 1. PRELIMINARY TRANSFERS. 1.1 Preliminary Enterprises Stock Transfers. (a) Enterprises Stock Transfers. Effective as of 12:01 a.m. on the Closing Date and prior to the Stock Acquisition Transactions, and at the sole expense of Elias, Dudek and Hayhurst, the Hayhurst Trust and WJ shall sell, assign and transfer to Elias and Dudek, and Elias and Dudek shall purchase and acquire from the Hayhurst Trust and WJ, all of the issued and outstanding Enterprises Stock owned by the Hayhurst Trust and WJ, free and clear of all Encumbrances (as defined below in Section 2.1) through the direct sale, assignment and transfer of Enterprises Stock by each of the Hayhurst Trust and WJ to Elias and Dudek. Elias shall purchase and acquire sixty percent (60%) of the Enterprises Stock and Dudek shall purchase and acquire forty percent (40%) of the Enterprises Stock. (b) Resulting Enterprises Stock Ownership. Immediately upon completion of the Preliminary Enterprises Stock Transfers, the Eliases collectively shall own all of the issued and outstanding Elias Ltd. Stock, the Dudeks collectively shall own all of the issued and outstanding Dudek Ltd. Stock, and Elias and Dudek shall own all of the issued and outstanding Enterprises Stock in the respective proportions described above. Upon the completion of the Preliminary Enterprises Stock Transfers, the parties to those Transfers shall promptly provide to Buyer (1) original copies of all fully executed stock transfer agreements, (2) copies of appropriate stock certificates duly endorsed evidencing the transfers of Enterprises Stock, and (3) such other documentation reasonably requested by Buyer in connection with such Transfers. (c) Enterprises Stock Purchase Consideration. In exchange for the Enterprises Stock, Elias and Dudek shall pay and deliver to the Hayhurst Trust and WJ the amount and form of consideration that is described on Schedule 1.1(c) which is attached to this Agreement. The amount of consideration to be paid by Elias and Dudek to the Hayhurst Trust and WJ for the Enterprises Stock shall include (i) an amount equal to the retained earnings (of approximately CDN $550,000) held in the account of Enterprises, which retained earnings will be immediately transferred to Buyer as an asset of Enterprises in connection with the Stock Acquisition Transactions (the "Enterprises Retained Earnings"), and (ii) an amount equal to 32.5% of the net income after tax of HED as a result of the current year of operations, which net income after tax will be immediately transferred to Buyer as an asset of HED in connection with the Stock Acquisition Transactions (the "Undistributed HED Profit"). 1.2 Preliminary BDH Stock Transfers. (a) BDH Stock Transfers. Effective as of 12:01 a.m. on the Closing Date and prior to the Stock Acquisition Transactions, and at the sole expense of Elias, Dudek and Hayhurst, the Hayhurst Trust shall sell, assign and transfer to Elias and Dudek, and Elias and Dudek shall purchase and acquire from the Hayhurst Trust, all of the issued and outstanding Hayhurst BDH Stock free and clear of all Encumbrances. Elias shall purchase and acquire sixty percent (60%) of the Hayhurst BDH Stock and Dudek shall purchase and acquire forty percent (40%) of the Hayhurst BDH Stock. (b) Resulting BDH Stock Ownership. Immediately upon completion of the Preliminary BDH Stock Transfers, Elias Holdco, Dudek Holdco, Elias and Dudek collectively shall own all of the issued and outstanding BDH Stock. Upon the completion of the Preliminary BDH Stock Transfers, the parties to those Transfers shall promptly provide to Buyer (1) an original copy of the fully executed stock transfer agreements, (2) copies of appropriate stock certificates duly endorsed evidencing the Transfers of Hayhurst BDH Stock, and (3) such other documentation reasonably requested by Buyer in connection with such Transfers. (c) BDH Stock Purchase Consideration. In exchange for the Hayhurst BDH Stock, Elias and Dudek shall pay and deliver to the Hayhurst Trust the amount and form of consideration that is described on Schedule 1.2(c) which is attached to this Agreement. The amount of consideration to be paid by Elias and Dudek to the Hayhurst Trust for the Hayhurst BDH Stock shall include an amount equal to 32.5% of the net income after tax of BDH as a result of the current year of operations, which net income after tax will be immediately transferred to Buyer as an asset of BDH in connection with the Stock Acquisition Transactions (the "Undistributed BDH Profit"). 1.3 Subsequent Stock Transfers to Newco. (a) Subsequent Stock Transfers. Immediately after the Preliminary Transfers, effective as of 12:02 a.m. on the Closing Date, and at the sole expense of Elias, Dudek and Hayhurst, Elias and Dudek shall transfer (i) the Enterprises Stock to Newco, and (ii) the Hayhurst BDH Stock to Newco. All of the issued and outstanding Enterprises Stock and Hayhurst BDH Stock shall be assigned and transferred to Newco free and clear of all Encumbrances. Newco shall thereby acquire and receive one hundred percent (100%) of the Enterprises Stock and one hundred percent (100%) of the Hayhurst BDH Stock. (b) Resulting Stock Ownership. Immediately upon completion of the Subsequent Stock Transfers, (i) Newco shall own all of the issued and outstanding Enterprises Stock, and (ii) Elias Holdco, Dudek Holdco and Newco collectively shall own all of the issued and outstanding BDH Stock. Upon the completion of the Subsequent Stock Transfers, the parties to those Transfers shall promptly provide to Buyer (1) an original copy of the fully executed stock transfer agreements, (2) copies of appropriate stock certificates duly endorsed evidencing the Transfers of Enterprises Stock and Hayhurst BDH Stock, and (3) such other documentation reasonably requested by Buyer in connection with such Transfers. (c) Subsequent Stock Transfer Consideration. In exchange for the Enterprises Stock and Hayhurst BDH Stock, Newco shall pay and deliver to Elias and Dudek the amount and form of consideration that is described on Schedule 1.3(c) which is attached to this Agreement. The amount of consideration to be paid by Newco to Elias and Dudek for the Enterprises Stock shall include the amounts of the Enterprises Retained Earnings and the Undistributed HED Profit, and the amount of consideration to be paid by Newco to Elias and Dudek for the Hayhurst BDH Stock shall include the Undistributed BDH Profit. 2. STOCK ACQUISITION TRANSACTIONS. 2.1 Purchase and Sale of Stock. Immediately after the Preliminary Enterprises Stock Transfers, the Preliminary BDH Stock Transfers and the Subsequent Stock Transfers, effective as of 12:03 a.m. on the Closing Date, the following Stock Acquisition Transactions shall occur: (a) Elias Ltd. Stock Purchase. The Eliases shall sell, assign and transfer to Buyer, and Buyer shall purchase and accept from the Eliases, all of the issued and outstanding shares of Elias Ltd. Stock, and any indebtedness owing by Elias Ltd. to the Eliases; (b) Dudek Ltd. Stock Purchase. The Dudeks shall sell, assign and transfer to Buyer, and Buyer shall purchase and accept from the Dudeks, all of the issued and outstanding shares of Dudek Ltd. Stock, and any indebtedness owing by Dudek Ltd. to the Dudeks; (c) Elias Holdco Stock Purchase. The BDH/Elias Group shall sell, assign and transfer to Buyer, and Buyer shall purchase and accept from the BDH/Elias Group, all of the issued and outstanding shares of Elias Holdco Stock, and any indebtedness owing by Elias Holdco to the BDH/Elias Group; (d) Dudek Holdco Stock Purchase. The BDH/Dudek Group shall sell, assign and transfer to Buyer, and Buyer shall purchase and accept from the BDH/Dudek Group, all of the issued and outstanding shares of Dudek Holdco Stock, and any indebtedness owing by Dudek Holdco to the BDH/Dudek Group; and (e) Newco Stock Purchase. Elias and Dudek shall sell, assign and transfer to Buyer, and Buyer shall purchase and accept from Elias and Dudek, all of the issued and outstanding shares of Newco Stock. By purchasing and acquiring all of the issued and outstanding shares of Elias Ltd. Stock, Dudek Ltd. Stock, Elias Holdco Stock, Dudek Holdco Stock and Newco Stock, Buyer shall also acquire, as assets of those corporations, all of the issued and outstanding shares of HED Stock, BDH Stock and Enterprises Stock, and the stock of their respective subsidiaries as listed on Schedule 6.6. For the purposes of this Agreement, (i) the Eliases, the Dudeks, the BDH/Elias Group, and the BDH/Dudek Group shall also collectively be referred to as the "Direct Selling Shareholders" and individually as a "Direct Selling Shareholder," and (ii) Elias Ltd., Dudek Ltd., Enterprises, Elias Holdco, Dudek Holdco, HED, BDH, Newco and their respective subsidiaries listed on Schedule 6.6 shall also collectively be referred to as the "Acquired Corporations" and individually as an "Acquired Corporation." For the Consideration (as defined in Section 2.2 below), the Direct Selling Shareholders shall deliver to Buyer, free and clear of all mortgages, charges, pledges, security interests, conditional sales agreements, liens, encumbrances, actions, claims, demands, restrictions, equities of any nature whatsoever or howsoever arising, any adverse claims whatsoever or howsoever arising, and any rights or privileges capable of becoming any of the foregoing ("Encumbrances"), the number of shares of the capital stock of the Acquired Corporations described on Schedule 2.1, and each Direct Selling Shareholder shall receive therefor that percentage ("Applicable Percentage") and amount ("Applicable Amount") of the Consideration described on Schedule 2.1. Schedule 2.1 shall also set forth (i) the portion of the Consideration to be allocated as the purchase price for each Acquired Corporation, and (ii) the amounts of the Enterprises Retained Earnings, the Undistributed HED Profit and the Undistributed BDH Profit. The Applicable Percentage and Applicable Amount of Consideration to be received by each Direct Selling Shareholder shall be specifically and conclusively set forth on Schedule 2.1, subject to any rights of reduction and/or offset set forth in this Agreement or otherwise. The number of shares of capital stock set forth on Schedule 2.1 shall constitute all of the shares of capital stock, equities, securities or other interests of or in the Acquired Corporations, and shall be the stock acquired by Buyer (the "Acquired Stock"). The term "Acquired Stock" shall include all of the issued and outstanding shares of capital stock of the Acquired Corporations, including HED, BDH, Enterprises and their respective subsidiaries listed on Schedule 6.6 even though such shares shall be acquired as assets of Elias Ltd., Dudek Ltd., Elias Holdco, Dudek Holdco and Newco pursuant to this Agreement. Following the Preliminary Transfers and the Subsequent Stock Transfers described above, the Acquired Corporations shall comprise all of the holders and owners of stock, equities, securities or other interests of or in HED and/or BDH. Upon completion of the Stock Acquisition Transactions, Buyer shall have acquired all of the business and operations comprising the Agency. For the purposes of this Agreement, Elias, Mrs. Elias, Dudek, Mrs. Dudek, the Eliases, the Dudeks, Hayhurst, the Hayhurst Trust, WJ, Elias Ltd., Dudek Ltd., Enterprises, HED, the Elias Trust, the BDH/Elias Group, the Dudek Trust, the BDH/Dudek Group, Elias Holdco, Dudek Holdco, BDH and Newco shall also collectively be referred to as the "Warranting Persons" and individually as a "Warranting Person." Buyer, in reliance on the representations, warranties, covenants and agreements of the Warranting Persons set forth below, and subject to all of the terms and conditions contained herein, shall purchase and accept all of the shares of Acquired Stock from the Direct Selling Shareholders free and clear of all Encumbrances and shall pay and tender the Consideration to the Direct Selling Shareholders. For tendering to Buyer all of the shares of the Acquired Stock, the Direct Selling Shareholders shall collectively receive the Consideration specified in Section 2 hereof, subject to the fulfillment of all the terms and conditions contained herein. This Agreement shall not, under any circumstances, be consummated unless one hundred percent (100%) of the shares of the Acquired Stock are tendered to Buyer by the Direct Selling Shareholders. 2.2 Consideration for the Acquired Stock. The total consideration (referred to in this Agreement as the "Consideration" and stated in dollar amounts of the lawful money of Canada) shall be paid or delivered by Buyer to the Direct Selling Shareholders for one hundred percent (100%) of the Acquired Stock and shall consist of the Contingent Consideration referred to in Section 3 below, plus the following: (a) HRH Stock. As provided in Section 2.3 below, stock certificates evidencing that number of shares of HRH's common stock ("HRH Stock") which equals a value of CDN $1,800,000.00, when such HRH Stock is valued, per share, at the average of the closing price on the New York Stock Exchange for common stock of Buyer for each of ten (10) consecutive trading days with the tenth and final trading day being the last trading day which is ten (10) trading days prior to the Closing Date; (b) Cash Consideration. As provided in Section 2.3 below, the aggregate cash sum of (i) ONE MILLION EIGHT HUNDRED THOUSAND AND NO/100 DOLLARS (CDN $1,800,000.00) (the "HRH Dollars"), plus (ii) the amount of the Enterprises Retained Earnings, plus (iii) the amount of the Undistributed HED Profit, plus (iv) the amount of the Undistributed BDH Profit (which Enterprises Retained Earnings, Undistributed HED Profit and Undistributed BDH Profit is also collectively referred to herein as the "Excess Amounts"), by certified check, wire transfer of collected funds or intra-bank transfer (which HRH Dollars and Excess Amounts are also collectively referred to herein as the "Closing Cash Consideration"); (c) Deferred Consideration. A deferred cash balance, which shall consist of two (2) payments, due fourteen (14) and twenty-six (26) months after the Closing Date in the maximum amounts, before offset or reduction, each of CDN $2,520,000.00 (the "Buyer's Deferred Obligations"). (d) Exchange Rate. For all deliveries of Consideration or any other payments which are made under this Agreement other than those that are in collected funds in the currency specified hereunder, the exchange rate for Canadian or United States dollars shall be the exchange rate published in the Wall Street Journal on the Friday which is immediately prior to one week before the payment due date. (e) Rights of Offset, Reduction and Indemnification. The Buyer's Deferred Obligations and Contingent Consideration shall be subject to a right of offset as granted at law, and such other rights of indemnification, offset and reduction as provided in this Agreement. The Buyer's Deferred Obligations shall be payable only to the Direct Selling Shareholders subject to any assignment in favor of other Warranting Persons the Direct Selling Shareholders may execute and deliver to Buyer. The fourteen-month payment of the Buyer's Deferred Obligations shall be referred to in this Agreement as the "First Deferred Payment," and the twenty-six-month payment of Buyer's Deferred Obligations shall be referred to in this Agreement as the "Second Deferred Payment." 2.3 Delivery and Payment of Consideration. At the Closing, in exchange for the Acquired Stock, Buyer shall pay and deliver to the Direct Selling Shareholders (or to their legal counsel upon receipt of a written direction acceptable to the Buyer's counsel) (i) the HRH Stock (less the amount of such Stock that shall be held by Buyer and/or HRH in escrow pursuant to Section 13.5 of this Agreement), and (ii) the Closing Cash Consideration. In order to facilitate the payment by Buyer to the Direct Selling Shareholders of the Excess Amounts portion of the Closing Cash Consideration, the amounts of the Enterprises Retained Earnings, the Undistributed HED Profit and the Undistributed BDH Profit shall be dividended to Buyer by the Surviving Corporation for immediate payment to the Direct Selling Shareholders. The Direct Selling Shareholders shall, in turn, subject to satisfaction of the requirements of Rule 145 promulgated by the U.S. Securities and Exchange Commission pursuant to the Securities Act of 1933 ("Rule 145"), upon receipt of the Consideration, pay and/or satisfy all obligations owed by them (whether in Closing Cash Consideration or HRH Stock, as the case may be) to any other party to this Agreement and incurred by them in connection with the Preliminary Transfers and the Subsequent Stock Transfers as set forth on Schedules 1.1(c), 1.2(c) and 1.3(c). 2.4 Guarantee and Security for the Buyer's Obligations. In connection with the consummation of the Stock Acquisition Transactions and after the Amalgamation Transactions, HRH and the Surviving Corporation shall, subject to the rights of offset and indemnification set forth in this Agreement, respectively guarantee and be obligated for the payment of the Consideration, including the Deferred Obligations and the Contingent Consideration (if any) to be made under this Agreement. As security for the payment of the Buyer's Deferred Obligations and the Contingent Consideration (if any), the Surviving Corporation shall grant to the Direct Selling Shareholders a security interest in the assets of the Surviving Corporation. The Surviving Corporation shall execute and deliver to the Direct Selling Shareholders a Security Agreement in the form of agreement attached hereto as Exhibit 12.7. 3. DETERMINATION AND PAYMENT OF CONTINGENT CONSIDERATION OR REDUCTION OF CONSIDERATION FOR THE ACQUIRED STOCK AND REDUCTION OF DEFERRED PAYMENTS. 3.1 Contingent Consideration and Consideration Reduction Based on the Acquisition Audit Balance Sheet. (a) Preparation of Financial Statements. As soon as practicable after the close of business of the Agency on June 30, 1995, ("Pre-Effective Moment") and, in all events, within sixty-two (62) days after the Closing Date, the Warranting Persons (who shall be represented by Hayhurst, Elias and Dudek, or their survivors, collectively the "Designated Representative") shall cause the firm of KPMG Peat, Marwick, Thorne, Chartered Accountants, of Winnipeg, Manitoba (the "Designated Accountants") to prepare and deliver to them and the Buyer an audited balance sheet of the Agency and an unaudited balance sheet of the other Acquired Corporations as of the Pre-Effective Moment, prepared in accordance with the generally accepted accounting principles and with disclosure similar to the form of the June 30, 1994 financial statements attached hereto as Exhibit 3.1(a) (the "Acquisition Audited Balance Sheets" with the audited balance sheet of the Agency being referred to herein as the "Agency Acquisition Audited Balance Sheet"), together with the customary opinion of the Designated Accountants given with respect to such financial statements. The Designated Representative shall also cause the Designated Accountants to prepare and deliver to them and the Buyer, prior to the Closing Date, audited financial statements of the Agency, and prepare and deliver to the Buyer unaudited financial statements of the other Acquired Corporations, all as of and for the most recent annual period of the Acquired Corporations ("Prior Year 1"), prepared in accordance with generally accepted accounting principles ("Prior Year 1 Financial Statements"), together with the customary opinion of the Designated Accountants (if any) given with respect to such financial statements, and unaudited comparative statements for the periods ended June 30, 1993 ("Prior Year 2"), and June 30, 1992 ("Prior Year 3"), and for the quarters ended March 31, 1995, and March 31, 1994. The Prior Year 1, Prior Year 2 and Prior Year 3 Financial Statements and unaudited comparative statements, and the financial statements for the Agency for the quarters ended March 31, 1995 and March 31, 1994 are attached hereto as Exhibit 3.1(a) (the "Prior Years Financial Statements"). In addition, the Designated Representative shall cause the Designated Accountants to permit Buyer's in-house financial officer or any firm of certified public accountants (if U.S.) or chartered accountants (if Canadian) designated by Buyer (referred to below as the "Buyer's Reviewer") reasonable access to the work papers, schedules, memoranda and other documents used in preparing the Acquisition Audited Balance Sheet and any of the foregoing financial statements. (b) Review and Adjustment of Financial Statements. As soon as is reasonably practicable after delivery to Buyer of the Acquisition Audited Balance Sheet, and, in all events, within thirty (30) days after such delivery, Buyer shall give written notice to the Designated Representative accepting the Acquisition Audited Balance Sheet as prepared or specifying any disagreement with respect to any item in such document. In the event of a disagreement, the Designated Representative and Buyer shall each make a good faith attempt to reconcile the differences; however, if they are unable to reconcile all differences within a period of fourteen (14) days after notification to the Designated Representative of such disagreement, then the Designated Representative and Buyer shall submit all questions in dispute to one of the "Big Six" firms of chartered accountants (other than Buyer's Reviewer, Buyer's and HRH's outside auditors and the Designated Accountants) located in the Winnipeg, Manitoba region, as may be agreed upon by the Designated Representative and Buyer or, in default of such Agreement, as may be determined by the President of the Canadian Institute of Chartered Accountants, which chosen accounting firm ("Umpire") shall, within a period of thirty (30) days after submission, determine and report to the Designated Representative and Buyer upon all questions in dispute, and the report of the Umpire shall be final, conclusive and binding on the Warranting Persons and Buyer. The fees charged by the Umpire shall be equally divided between the Warranting Persons and Buyer. The Designated Representative shall bear all responsibility of notifying the Warranting Persons of all matters relating to the nature, handling and resolution of any such dispute, and shall exclusively and irrevocably bind the Warranting Persons with respect to any decision made or the resolution of any dispute. The Acquisition Audited Balance Sheet, as prepared by the Designated Accountants, or, if revised by agreement between the Designated Representative on behalf of the Warranting Persons and Buyer or by the report of the Umpire, then as so revised, shall be final, conclusive and binding on the Warranting Persons and Buyer. (c) Definition of Acquisition Net Worth. As used herein, the term "Acquisition Net Worth" shall mean the value which results when all liabilities of the Agency are subtracted from all assets of the Agency, each as shown by the Agency Acquisition Audited Balance Sheet, with the further adjustments of subtracting from the values shown on the Agency Acquisition Audited Balance Sheet any value assigned to intangible assets and any amount by which the Agency's net fixed assets exceed CDN $140,000.00. Acquisition Net Worth shall not include any Excess Amounts. (d) Determination and Payment of Contingent Consideration. If the Acquisition Net Worth shall exceed CDN $0 (Zero Canadian Dollars) (the amount of such excess being referred to below as "Contingent Consideration"), then, within a period of fifteen (15) days after the final determination of the Acquisition Net Worth in accordance with foregoing provisions of this Section 3.1, Buyer shall pay to each Direct Selling Shareholder, as additional consideration for such Direct Selling Shareholder's portion of the Acquired Stock, the Applicable Percentage of the Contingent Consideration set forth on Schedule 3.1(d). The Direct Selling Shareholders shall, in turn, upon receipt of the Contingent Consideration pay to other Warranting Persons (other than the Direct Selling Shareholders) the percentage portions set forth on Schedule 3.1(d). (e) Determination of Consideration Reduction and Reduction of Consideration. If, on the other hand, the Acquisition Net Worth shall be less than CDN $0 (Zero Canadian Dollars) (the amount of such deficit being referred to below as "Consideration Reduction"), then, the Consideration for the Acquired Stock shall be deemed automatically reduced, on a dollar-for-dollar basis, by an amount equal to the Consideration Reduction. In such event, the provisions of subparagraph (i) below shall become applicable or, if the Direct Selling Shareholders and Warranting Persons, collectively, do not comply with the provisions of subparagraph (i) below, then the provisions of subparagraph (ii) below automatically shall become applicable: (i) Within a period of fifteen (15) days after the final determination of the Acquisition Net Worth in accordance with the foregoing provisions of this Section 3.1, the Direct Selling Shareholders and the Warranting Persons having received any Consideration shall pay to the Surviving Corporation (as a reduction in the Consideration), an amount equal to the Consideration Reduction in the form of one or more cashier's checks made payable to the Surviving Corporation. (ii) If the Direct Selling Shareholders and the Warranting Persons having received any Consideration shall fail or refuse to comply with the provisions of subparagraph (i) above within the time limit specified therein, then in addition to all other remedies at law or in equity which Buyer might have, and without limiting the foregoing, Buyer shall be entitled to reduce the amount of such of the HRH Stock being held pursuant to the escrow provided herein and/or to reduce any payments pursuant to Section 3.2 hereof (in addition to any reduction provided for therein) to any of the Direct Selling Shareholders or any Warranting Person effective retroactively to the Closing Date, by a pro rata portion of the amount, plus interest computed from the Closing Date at the rate of ten percent (10%) per annum compounded daily. 3.2 Reduction of First Deferred Payment Consideration Based on Amount of Year 1 Agency Profit. (a) Determination of Year 1 Agency Profit. As used herein, the term "Year 1 Agency Profit" shall mean the net profit of the Surviving Corporation (also hereafter referred to as the "Agency") for the twelve (12) month period beginning July 1, 1995, and ending June 30, 1996 ("Year 1"), determined in accordance with generally accepted accounting principles applied on a consistent basis, and as stated, in Buyer's accounting standard manual which has been previously provided to the Warranting Persons, before any provision for federal or provincial income taxes and before any provision for amortization of intangibles of the Agency and before any provision for any overhead charge by Buyer, as the parent of the Agency, to the Agency. Additionally, the parties have reached special agreement with regard to the calculation of Year 1 Agency Profit as it relates to bad debt expense; professional fees, direct corporate costs and business insurance; and depreciation as set forth in this subsection. Specifically, bad debt expense shall be the actual write-offs of the Agency, or the actual bad debt expense according to the accounting principles and policy of Buyer, whichever is greater, and having regard to the past experience of the Agency; the charges for professional fees, direct corporate costs and business insurance shall be CDN $200,000 (which shall be charged on a basis of $16,667.00 per month), regardless of the actual costs incurred therefor; and depreciation, based on the fixed assets as of the date of the Acquisition Audited Balance Sheet, shall be charged at CDN $75,000. Additionally, the parties have reached special agreement with regard to the non- inclusion of certain employee payments in the calculation of Year 1 Agency Profit. Specifically, the amount of $25,000 of compensation paid to a new sales producer (hired after June 1, 1995) during the first twelve (12) months of employment of such new sales producer will not be deducted in the calculation of Year 1 Agency Profit, provided $12,500 of commission income is produced by that new sales producer. Also, amounts accrued or paid in respect of "General Bonus" pursuant to the Management Incentive Agreement (Exhibit 11.4) shall not be deducted in the calculation of Year 1 Agency Profit. Buyer shall cause the Year 1 Agency Profit to be determined, and the amount thereof communicated to the Designated Representative (on behalf of the Warranting Persons), as soon as is reasonably practicable after Year 1, and, in all events, within sixty-two (62) days after Year 1. In the event of a disagreement by the Designated Representative (on behalf of the Warranting Persons), as to the computation of the Year 1 Agency Profit, such disagreement shall be resolved in the same manner as provided in the case of a disagreement as to the Acquisition Audited Balance Sheet under the provisions of Section 3.1 above. (b) Reduction of First Deferred Payment. To the extent the Year 1 Agency Profit shall be less than CDN $1,920,000 (with such deficiency being the "Year 1 Deficiency"), then for each dollar (CDN $1) of Year 1 Deficiency Buyer shall be entitled to automatically without any further action reduce the First Deferred Payment by aggregate amounts of CDN $2.25 down to a minimum amount (before offset) payable of CDN $1,080,000. For example, if the Year 1 Deficiency equals CDN $100,000, the First Deferred payment would be reduced in the aggregate by CDN $225,000 down to the amount payable of CDN $2,295,000. If the Year 1 Deficiency equals or exceeds CDN $640,000, the First Deferred Payment would be reduced in the aggregate by the maximum amount of CDN $1,440,000 down to the minimum amount payable, before offset, of CDN $1,080,000. 3.3 Reduction of Second Deferred Payment Consideration Based on Year 2 Agency Profit. (a) Determination of Year 2 Agency Profit. As used herein, the term "Year 2 Agency Profit" shall mean the net profit of the Agency for the twelve (12) month period beginning July 1, 1996, and ending June 30, 1997 ("Year 2"), determined in accordance with generally accepted accounting principles applied on a consistent basis, and as stated, in Buyer's accounting standard manual which has been previously provided to the Warranting Persons, before any provision for federal or provincial income taxes and before any provision for amortization of intangibles of the Agency and before any provision for any overhead charge by Buyer, as the parent of the Agency, to the Agency. Additionally, the parties have reached special agreement with regard to the calculation of Year 2 Agency Profit as it relates to bad debt expense; professional fees, direct corporate costs and business insurance; and depreciation as set forth in this subsection. Specifically, bad debt expense shall be the actual write-offs of the Agency, or the actual bad debt expense according to the accounting policy of Buyer, whichever is greater, and having regard to the past experience of the Agency; the charges for professional fees, direct corporate costs and business insurance shall be CDN $200,000 (which shall be charged on a basis of $16,667.00 per month), regardless of the actual costs incurred therefor; and depreciation, based on the fixed assets as of the date of the Acquisition Audited Balance Sheet, shall be charged at CDN $75,000. Additionally, the parties have reached special agreement with regard to the non-inclusion of certain employee payments in the calculation of Year 2 Agency Profit. Specifically, the amount of $25,000 of compensation paid to a new sales producer (hired after June 1, 1995) during the first twelve (12) months of employment of such new sales producer will not be deducted in the calculation of Year 2 Agency Profit, provided $12,500 of commission income is produced by that new sales producer. Also, amounts accrued or paid in respect of "General Bonus" pursuant to the Management Incentive Agreement (Exhibit 11.4) shall not be deducted in the calculation of Year 2 Agency Profit. Buyer shall cause the Year 2 Agency Profit to be determined, and the amount thereof communicated to the Designated Representative (on behalf of the Warranting Persons), as soon as is reasonably practicable after Year 2, and, in all events, within sixty-two (62) days after Year 2. In the event of a disagreement by the Designated Representative (on behalf of the Warranting Persons), as to the computation of the Year 2 Agency Profit, such disagreement shall be resolved in the same manner as provided in the case of a disagreement as to the Acquisition Audited Balance Sheet under the provisions of Section 3.1 above. (b) Reduction of Second Deferred Payment. To the extent the Year 2 Agency Profit shall be less than CDN $1,920,000 (with such deficiency being the "Year 2 Deficiency"), then for each dollar (CDN $1) of Year 2 Deficiency Buyer shall be entitled to automatically without any further action reduce the Second Deferred Payment by aggregate amounts of CDN $2.25 down to a minimum amount of (before offset) payable of CDN $1,080,000. For example, if the Year 2 Deficiency equals CDN $100,000, the Second Deferred Payment would be reduced in the aggregate by CDN $225,000 down to the amount payable of CDN $2,295,000. If the Year 2 Deficiency equals or exceeds CDN $640,000, the Second Deferred Payment would be reduced in the aggregate by the maximum amount of CDN $1,440,000 down to the minimum amount payable, before offset, of CDN $1,080,000. 3.4 No Commissions Counted Twice. Notwithstanding anything in the foregoing to the contrary, the accounting for any account for purposes of determining Year 1 Agency Profit and Year 2 Agency Profit shall be done in such a manner as to prevent any commissions which are earned in one year from being counted in two years and in such a manner as to prevent two years of commissions from any such account as being earned in any one year. 3.5 GAAP. "Generally accepted accounting principles," unless otherwise specified herein, means the accounting principles so described and promulgated by the Canadian Institute of Chartered Accountants which are applicable as at the date on which any calculation made hereunder is to be effective or as at the date of any financial statements referred to herein. 4. AMALGAMATION TRANSACTIONS. 4.1 Amalgamation Transactions. Immediately after the completion of the Stock Acquisition Transactions and at the sole expense of the Warranting Persons, and effective as of 12:04 a.m. on the Closing Date, HED, BDH, Enterprises, Elias Ltd., Dudek Ltd., Elias Holdco, Dudek Holdco and Newco will be amalgamated pursuant to the provisions of the Canada Business Corporations Act to form Hayhurst Elias Dudek, Inc., a corporation qualified and validly existing under the laws of Canada. Immediately upon the completion of the Amalgamation Transactions, the Surviving Corporation shall (i) be a wholly-owned subsidiary of Buyer, and (ii) own all of the assets and have all of the authority, power, licenses and permits of the Agency to conduct the Agency's business, owns its properties and continue its operations. Prior to, and in connection with the Amalgamation Transactions, the Warranting Persons shall cause, to the extent they are not already, all Acquired Corporations to be continued federally pursuant to the Canada Business Corporations Act in order to facilitate their amalgamation to form the Surviving Corporation. 4.2 Deliveries in Connection with the Amalgamations. Upon the completion of the Amalgamation Transactions, Buyer shall promptly be provided with (1) an original copy of the fully executed amalgamation agreement(s), (2) originals of all stock certificates duly endorsed evidencing the cancellation of the issued and outstanding Acquired Stock of the Acquired Corporations as a result of the amalgamation, (3) one share certificate in the name of Buyer evidencing all of the issued and outstanding shares of the Surviving Corporation, (4) originals of appropriate federal and/or provincial certificates confirming the completion of the Amalgamation Transactions, (5) originals of appropriate provincial certificates confirming that the Surviving Corporation is duly qualified to conduct its business and operations in all provinces that it was qualified to do business prior to the Amalgamation Transactions, and (6) such other documentation reasonably requested by Buyer in connection with such Transactions. 5. CLOSING. The closing of the transactions contemplated by this Agreement shall include the completion and consummation in immediate succession of (1) the Preliminary Enterprises Stock Transfers which shall be effective as of 12:01 a.m. on the Closing Date, (2) the Preliminary BDH Stock Transfers which also shall be effective as of 12:01 a.m. on the Closing Date, (3) the Subsequent Stock Transfers which shall be effective as of 12:02 a.m. on the Closing Date, (4) the Stock Acquisition Transactions which shall be effective as of 12:03 a.m. on the Closing Date, and (5) the Amalgamation Transactions which shall be effective as of 12:04 a.m. on the Closing Date (which Transfers and Transactions are collectively referred to in this Agreement as the "Closing"). The Closing shall take place at the offices of Aikins, MacAulay & Thorvaldson, located at the Commodity Exchange Tower, 30th Floor, 360 Main Street, Winnipeg, Manitoba, Canada, R3C 4G1 on July 1, 1995 (the "Closing Date"), or at such other place and at such other time as shall be mutually agreed upon by the parties to this Agreement. Whereas the effective date of the Closing will be July 1, 1995, the parties have agreed that the payment of the Consideration and the delivery of documents will be completed on July 5, 1995. PART B: REPRESENTATIONS AND WARRANTIES 6. REPRESENTATIONS AND WARRANTIES OF THE WARRANTING PERSONS. The Warranting Persons, jointly and severally, represent and warrant, both as of the date of this Agreement and as of the Closing Date, to the Buyer and HRH as follows, and confirm that the Buyer and HRH are relying upon the accuracy of each of such representations and warranties in connection the purchase of the Acquired Stock and the completion of the other transactions hereunder: 6.1 Organization and Standing of the Acquired Corporations and the Trusts. (a) Each Acquired Corporation is a corporation duly incorporated and organized, validly existing and in good standing in all respects, and is validly registered in all respects, under the laws of the jurisdiction of its incorporation (the "Home Jurisdiction") and has all necessary 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. (b) Each Acquired Corporation is duly licensed, registered and qualified to do business, is up-to-date in the filing of all required corporate returns and other notices and filings and is otherwise in good standing in all respects, in each jurisdiction in which it (i) owns or leases property, or (ii) the nature or conduct of its business or any part thereof, or the nature of the property of the Acquired Corporation or any part thereof, makes such qualification necessary or desirable to enable its business to be carried on as now conducted or to enable the property and assets of the Acquired Corporation to be owned, leased and operated by it. Each Acquired Corporation is licensed, registered and qualified to do business in those provinces or other jurisdictions listed in Schedule 6.1(b) to this Agreement, and the nature of the business conducted by each Acquired Corporation and the character or ownership of properties owned or leased by it do not require it to be licensed, registered or qualified to do business in any other province or jurisdiction. Furthermore, except as set forth in Schedule 6.1(b) to this Agreement, the nature of the business conducted by each Acquired Corporation does not require it or any of its employees to qualify for, or to obtain any insurance agency, brokerage, adjuster, or other similar license or permit in any jurisdiction other than the Home Jurisdiction. (c) The copies of the articles of incorporation, bylaws and other constating documents, and all amendments thereto, of each Acquired Corporation, attached hereto as Schedule 6.1(c), are complete and correct as of the date hereof. Each Acquired Corporation's minute book or minute books contain a complete and accurate record in all material respects of all meetings and other corporate actions of each Acquired Corporation's shareholders and directors. (d) The Hayhurst Trust, the Elias Trust and the Dudek Trust (also collectively referred to herein as the "Trusts" and each individually as a "Trust") each have been duly established, created, formed and funded, and are validly subsisting pursuant to the laws of their respective jurisdictions. The Hayhurst Trust was established and continues to subsist pursuant to the laws of the Island of Barbados, the Elias Trust was established and continues to subsist pursuant to the laws of the Province of Manitoba, and the Dudek Trust was established and continues to subsist pursuant to the laws of the Province of Manitoba. 6.2 Corporate Name and Intellectual Property Matters. Neither any of the Acquired Corporations nor any of the Warranting Persons has granted to anyone any right to use the Agency's corporate name or any name similar to the Agency's corporate name. Also: (a) Schedule 6.2(a) attached hereto lists and contains a description of: (1) all patents, patent applications and registrations, trade marks, trade mark applications and registrations, copyrights, copyright applications and registrations, trade names and industrial designs, domestic or foreign, owned or used by the Agency or relating to the operation of the Agency's business; (2) all trade secrets, know-how, inventions and other intellectual property owned or used by the Agency or relating to its business, and (3) all computer systems and application software, including without limitation all documentation relating thereto and the latest revisions of all related object and source codes therefor, owned or used by the Agency or relating to the Agency's business, (all of the foregoing being hereinafter collectively called the "Intellectual Property"). (b) The Acquired Corporations have good and valid title to all of the Intellectual Property, free and clear of any and all Encumbrances, except in the case of any Intellectual Property licensed to the Agency as disclosed in Schedule 6.2(a). Complete and correct copies of all agreements whereby any rights in any of the Intellectual Property have been granted or licensed to the Acquired Corporations have been provided to Buyer. No royalty or other fee is required to be paid by the Acquired Corporations to any other person in respect of the use of any of the Intellectual Property except as provided in such agreements delivered to Buyer. The Acquired Corporations have protected the Agency's rights in the Intellectual Property in the manner and to the extent described in Schedule 6.2(a). Except as indicated in Schedule 6.2(a), the Acquired Corporations have the exclusive right to use all of the Intellectual Property and have not granted any license or other rights to any other person in respect of the Intellectual Property. Complete and correct copies of all agreements whereby any rights in any of the Intellectual Property have been granted or licensed by the Acquired Corporations to any other person have been provided to Buyer. (c) Except as disclosed in Schedule 6.2(a), there are no restrictions on the ability of the Agency, the Acquired Corporations or any successor to or assignee from them to use and exploit all rights in the Intellectual Property. All statements contained in all applications for registration of the Intellectual Property were true and correct as of the date of such applications. Each of the trade marks and trade names included in the Intellectual Property is in use. None of the rights of the Agency or the Acquired Corporations in the Intellectual Property will be impaired or affected in any way by the transactions contemplated by this Agreement. (d) The conduct of the Agency's business and the use of the Intellectual Property does not infringe, and neither the Agency nor the Acquired Corporations have not received any notice, complaint, threat or claim alleging infringement of, any patent, trade mark, trade name, copyright, industrial design, trade secret or other Intellectual Property or propriety right of any other person, and the conduct of the Agency's or their business does not include any activity which may constitute passing off. (e) To the best of the Warranting Persons' knowledge, the computer systems, including hardware and software, are free from viruses and the Warranting Persons have taken, and will continue to take, all steps and implement all procedures necessary to ensure, so far as reasonably possible, that such systems are free from viruses and will remain so until the Closing Date. 6.3 Capitalization of Acquired Corporations. The capitalization of each Acquired Corporation is as follows: (a) Each Acquired Corporation is authorized to issue the number of shares of capital stock set forth on Schedule 6.3 attached hereto. The number of issued and outstanding shares of capital stock of each Acquired Corporation is also set forth on Schedule 6.3 attached hereto. (b) All of the issued and outstanding shares of Acquired Stock have been duly and validly issued and are fully paid and nonassessable. The issuance of all shares of the Acquired Stock was and has been in compliance with all applicable statutes, rules and regulations, including, without limitation, all applicable federal, provincial and state securities laws. There is no existing option, warrant, call or commitment to which any Acquired Corporation is a party requiring the issuance of any additional shares of the Acquired Stock or of any other securities convertible into shares of the Acquired Stock or any other equity security of any class or character whatsoever. (c) Each Acquired Corporation is a "private company", as defined in the Securities Act, R.S.M. 1988, c. S50 (Manitoba). No shares of the authorized stock of any Acquired Corporation have ever been registered under the provisions of any federal, provincial or state securities law and no Acquired Corporation has ever filed or been required to file any report with any federal, provincial or state securities commission, department, division or other governmental agency. No shares or other securities of any Acquired Corporation have been issued in violation of any laws, the articles of incorporation, bylaws or other constating documents of any Acquired Corporation or the terms of any shareholders' agreement or any agreement to which any Acquired Corporation is or has been a party or by which it is or has been bound. (d) No present or prior holder of any shares of the authorized capital of any Acquired Corporation is entitled to any dividends or other distributions with respect to any such shares now or heretofore outstanding, other than as set forth on Schedule 6.3(d). 6.4 Ownership of the Acquired Stock. (a) Except as set forth in Schedule 6.4, as of the date of this Agreement each Warranting Person is, and as of the effective time of the Stock Acquisition Transactions each Direct Selling Shareholder will be the shareholder of record and the beneficial owner, with good and marketable title thereto, of the number of shares of the Acquired Stock set forth opposite its, his or her name in Schedule 6.4 of this Agreement, free and clear of any and all Encumbrances. Each such Encumbrance can and will be satisfied and removed at or prior to the Closing. There are no marital or other rights or interests of any spouses, past or present, of the parties to this Agreement in or to the Acquired Stock of any kind. All persons (including spouses) who have any marital or other rights or interests in or to the Acquired Stock are parties to this Agreement. (b) Other than as set forth on Schedule 6.4 or Schedule 6.20, no person has any agreement, option, understanding or commitment, or any right or privilege (whether by law, pre-emptive or contractual) capable of becoming an agreement, option or commitment, including convertible securities, warrants or convertible obligations of any nature, for: (1) the purchase, subscription, allotment or issuance of, or conversion into, any of the unissued shares in the capital of any Acquired Corporation or any securities of an Acquired Corporation; (2) the purchase from any Warranting Person of any of the Acquired Stock, or (3) the purchase or other acquisition from any Acquired Corporation of any of its undertakings, property or assets, other than in the ordinary course of its business. (c) As of the Closing, there shall be no shareholders' agreements, pooling agreements, voting trusts or other similar agreements with respect to the ownership or voting of any of the shares of any Acquired Corporation. 6.5 Authority. (a) The Warranting Persons, individually and collectively, have full and complete authority to enter into this Agreement and to sell, transfer and assign in accordance with the terms and conditions of this Agreement all of the shares of the Acquired Stock to the Buyer, free and clear of all Encumbrances and to perform all of their obligations under this Agreement. The Warranting Persons agree that they shall take all steps and perform all actions necessary to cause the approval of the Agreement and the transactions contemplated hereby by the Acquired Corporations within the time period called for herein. (b) Each of the Acquired Corporations and their respective shareholders and boards of directors have taken all necessary or desirable actions, steps and corporate and other proceedings to approve or authorize, validly and effectively, the entering into, and the execution, delivery and performance of this Agreement and all ancillary documents and agreements for the consummation of the transactions contemplated herein (the "Ancillary Agreements"), and the sale and transfer of the Acquired Stock to the Buyer. (c) This Agreement and each Ancillary Agreement is a legal, valid and binding obligation of the Warranting Persons, the Trustees and the Acquired Corporations, enforceable against each of them in accordance with its terms. (d) The sole trustee of the Hayhurst Trust is Ernst & Young Services Limited, a corporation incorporated under the laws of the Island of Barbados , the sole trustee of the Elias Trust is Elias, and the sole trustee of the Dudek Trust is Dudek, and each Trust and Trustee has taken all necessary or desirable actions, steps and corporate and/or other proceedings to approve or authorize, validly and effectively, the entering into, and the execution, delivery and performance of this Agreement and all Ancillary Agreements, and the sale and transfer of the Acquired Stock to the Buyer. Each Trustee has the sole, exclusive, full and complete power and authority to enter into this Agreement and to sell, transfer and assign in accordance with the terms and conditions of this Agreement all of the shares of the Acquired Stock to the Buyer or to any other party, free and clear of all Encumbrances and to perform all of their obligations under this Agreement. The Trusts and the Trustees agree that they shall take all steps and perform all actions necessary to cause the approval of the Agreement and the transactions contemplated hereby within the time period called for herein. 6.6 Subsidiaries and Other Relationships. Except as disclosed on Schedule 6.6, the Acquired Corporations do not own any stock or other interest in any other corporation, nor are they a participant in any joint venture, partnership or similar enterprise with any other person or entity. Except as disclosed on Schedule 6.6, any stock or other equity interest owned by the Acquired Corporations in any other entity represents one hundred percent (100%) ownership of such entity, is owned free and clear of any and all Encumbrances, has been duly and validly issued and is fully paid and nonassessable. No Acquired Corporation is subject to any obligation to make any investment in or to provide funds by way of loan, capital contribution or otherwise to any person or entity. Disclosed on Schedule 6.6 attached hereto is a description of all of the business activities of each Acquired Corporation. The Acquired Corporations have not operated any business other than as described in Schedule 6.6, and no Acquired Corporation, other than HED and BDH, has conducted any active business since its respective date of incorporation. The Acquired Corporations other than HED and BDH have only acted as holding corporations to own only the stock and assets described in Schedule 6.6. 6.7 Financial Statements. The Warranting Persons and the Acquired Corporations have caused to be delivered to the Buyer a true and complete copy of the Prior Years Financial Statements, of which copies are attached hereto as Exhibit 3.1(a). In addition, the Warranting Persons and the Acquired Corporations shall cause to be promptly delivered to the Buyer, as soon as available and in all events within thirty-one (31) days after the Closing Date, an unaudited balance sheet of the Acquired Corporations as of the Pre-Effective Moment. In addition, the Warranting Persons and the Acquired Corporations shall cause to be prepared and promptly delivered to the Buyer, as soon as available and, in all events within sixty-two (62) days after the Closing Date, the Acquisition Audited Balance Sheets (referenced in Section 3.1(a) above). Each of the foregoing financial statements is or will be true and correct in all respects, is or will be in accordance with the books and records of the Acquired Corporations, presents or will present fairly the financial condition and results of operations of the Acquired Corporations as of the date and for the period indicated, and has been prepared, or will be prepared, in accordance with generally accepted accounting principles 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 as of the Pre-Effective Moment). Furthermore, all such financial statements do not contain and will not contain any untrue statement of any material fact nor omit to state or will omit 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 foregoing statements of income is or will be true and correct, and the accounts payable reflected in each of the foregoing statements is or will be true and correct. 6.8 Absence of Undisclosed Liabilities. The term "Most Recent Balance Sheet," as used in this Section, means the balance sheet of the Agency at March 31, 1995. Also, the term "Most Recent Balance Sheet Date," as used in this Section, means March 31, 1995. Except as and to the extent specifically reflected, provided for or reserved against in the Most Recent Balance Sheet or except as disclosed in Schedule 6.8 to this Agreement, the Acquired Corporations, 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 the Acquired Corporations 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 the Warranting Persons or the Acquired Corporations knows or has reasonable grounds to know of any basis for the assertion against any Acquired Corporation, 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. 6.9 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 any Acquired Corporation 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 any Acquired Corporation. Without limiting the generality of the foregoing, since the Most Recent Balance Sheet Date, except as set forth on Schedule 6.9 attached hereto, there has been no material adverse change in the insurance accounts included within the Agency's "Book of Business," and none of the Warranting Persons or the Acquired Corporations knows or has reasonable grounds to know of any basis for any material adverse change in the insurance accounts included in the Agency's "Book of Business" between the date hereof and the Closing Date. For purposes hereof, "material adverse change" in the insurance accounts included in the Agency's "Book of Business" means, without limitation, the loss of any account generating an aggregate annual commission or fee income of CDN $5,000.00 or more or the loss of any program generating CDN $50,000.00 or more of revenues. 6.10 Taxes. (a) Each Acquired Corporation has filed all federal, provincial, state, municipal, 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 in a timely manner, and all of such returns and reports are true and correct. All taxes, assessments, reassessments, fees, penalties, interest, rates, levies and other governmental charges (collectively, "Government Charges") which were required to be paid by an Acquired Corporation on such returns and reports have been duly paid and satisfied on or before their respective due date. (b) Canadian federal and provincial income tax assessments have been issued to each Acquired Corporation covering all past periods up to and including the most recent fiscal year. There are no actions, suits, proceedings, investigations, enquiries or claims now pending or made, or, to the best of the knowledge of the Warranting Persons and the Acquired Corporations, threatened against any Acquired Corporation in respect to any Government Charge. No tax deficiency or penalty has been asserted or threatened with respect to any Acquired Corporation. There are no agreements, waivers or other arrangements providing for any extension of time with respect to the filing of any tax return or other document or the payment of any Government Charge by any Acquired Corporation or the period for any assessment or reassessment of such tax. Only the fiscal year of the Acquired Corporations subsequent to June 30, 1990 remains open for reassessment for additional taxes. (c) Except as described in Schedule 6.10 attached to this Agreement, no federal, provincial, municipal or state income tax return of an Acquired Corporation has been audited or, to the knowledge of any of the Warranting Persons and the Acquired Corporations, proposed to be audited, by any federal, provincial, municipal or state taxing authority, including, without limitation, the U.S. Internal Revenue Service, Revenue Canada and any provincial agency, authority, board or commission, and no waiver of any statute of limitations has been given or is in effect with respect to the assessment of any Government Charges against any Acquired Corporation. The provisions for Government Charges included in the Most Recent Balance Sheet and in the Prior Years Financial Statements, have been or will be sufficient for the payment of all accrued and unpaid federal, provincial, state and local income, withholding, social security, unemployment, excise, real property, tangible personal property, intangible personal property and other taxes of each Acquired Corporation, whether or not disputed, for the period reflected, and for all years and periods prior thereto. The provisions for Government Charges to be included in the Acquisition Audited Balance Sheets will be sufficient for the payment of all federal, provincial, state and local income, withholding, social security, unemployment, excise, real property, tangible personal property, intangible personal property and other taxes of each Acquired Corporation attributable to the period between the end of Prior Year 1 and the Pre-Effective Moment. (d) Each Acquired Corporation has withheld from each amount paid or credited to any person the amount of Government Charges required to be withheld therefrom and has remitted such Governmental Charges to the proper tax or other receiving authorities within the time required under applicable legislation. (e) Schedule 6.10 attached to this Agreement accurately sets out, for purposes of the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.) (Canada) (the "Canadian Income Tax Act"), the following: (1) the paid-up capital of all issued and outstanding shares in the capital of the Acquired Corporations; (2) all non-capital losses of the Acquired Corporations; (3) all net capital losses of the Acquired Corporations; (4) the amount of all investment tax credits available to the Acquired Corporations; (5) the adjusted cost base of the Acquired Corporations' capital properties; (6) the cost of the Acquired Corporations' depreciable properties, the capital cost allowance taken in respect of each class of such properties and the undepreciated capital cost of each class of such properties; (7) the amount (if any) of the Acquired Corporations' capital dividend account; (8) the amount (if any) of the Acquired Corporations' cumulative eligible capital account; and (9) the amount (if any) of the Acquired Corporations' refundable dividend tax on hand. (f) Each Acquired Corporation is a Canadian- controlled private corporation, as defined in the Canadian Income Tax Act, and has been one since the date of its incorporation, other than Enterprises. 6.11 Real and Personal Property Owned by the Acquired Corporations. The Acquired Corporations own no real property. Schedule 6.11 attached to this Agreement consists of a copy of the depreciation schedules filed as a part of the Acquired Corporations' two prior annual federal income tax returns (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 each Acquired Corporation since the Most Recent Balance Sheet Date and having a cost of CDN $1,000.00 or more, and a separate list of each item of intangible personal property presently owned by the Acquired Corporations. Certain of the Acquired Corporations also own various items of disposable type personal property such as office supplies that are not listed in Schedule 6.11. Each Acquired Corporation is the owner of and has good and marketable title to all of its properties and assets, whether tangible or intangible, in each case free and clear of all Encumbrances whatsoever, except as otherwise stated in Schedule 6.11. No other person or entity owns any asset which is being used in the business of each Acquired Corporation, except for premises and personal property leased by them. There are no agreements or commitments to purchase property or assets by the Acquired Corporations, other than in the ordinary course of their businesses. 6.12 Leases. Schedule 6.12 attached to this Agreement is a correct and complete list and brief description of all leases or other agreements under which each Acquired Corporation is a tenant or lessee of, or holds or operates any property, real or personal, owned by any third party. Each Acquired Corporation is the owner and holder of the leasehold estates granted by each of the instruments described in Schedule 6.12 except as otherwise stated in Schedule 6.12. 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. Each Acquired Corporation 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 which with notice or lapse of time, or both, would constitute an event of default under any of such leases or agreements. Each Acquired Corporation is exclusively entitled to all rights and benefits as lessee under such leases and agreements and each Acquired Corporation has not sublet, assigned, licensed or otherwise conveyed any rights in any leased premises or in any leases and agreements to any other person or entity. The names of the other parties to the leases, the description of the leased premises, the term, rent and other amounts payable under the leases and all renewal options available under the leases are accurately described in Schedule 6.12. All rental and other payments and other obligations required to be paid and performed by each Acquired Corporation pursuant to the leases have been duly paid and performed. No Acquired Corporation is in default of any of its obligations under the leases and, to the best of the knowledge of the Warranting Parties, none of the landlords or other parties to the leases are in default of any of their obligations under the leases. The terms and conditions of the leases will not be affected by, nor will any of the leases be in default as a result of, the completion of the transactions contemplated hereunder. The use by each Acquired Corporation of the leased premises is not in breach of any building, zoning or other statute, by-law, ordinance, regulation, covenant, restriction or official plan. Each Acquired Corporation has adequate rights of ingress to and egress from the leased premises for the operation of its business in the ordinary course. 6.13 Insurance. (a) Schedule 6.13(a) attached to this Agreement 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 each Acquired Corporation. Such policies are in amounts deemed by the Warranting Persons and the Acquired Corporations to be adequate. Each such policy is, on the date hereof, in full force and effect, and no Acquired Corporation is in default with respect to the payment of any premium or compliance with any provision contained in any such policy. (b) Furthermore, Schedule 6.13(b) and Schedule 6.17 attached to this Agreement contain 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 each Acquired Corporation. (c) With respect to errors and omissions (professional liability) insurance policies listed in Schedule 6.13(c) (and showing in detail for each such policy, the carrier, retrodate, claims made or occurrence policy and limits), prior to the effective dates of such policies, except as set forth on Schedule 6.13(c) attached hereto, no Acquired Corporation has given notice to any insurer of any act, error or omission in services rendered by any agent or employee of an Acquired Corporation or that should have been rendered by any agent or employee of an Acquired Corporation arising out of the operations of the Acquired Corporation. Furthermore, no agent or employee of an Acquired Corporation has breached any such professional duty or obligation prior to the effective dates of such policies. With respect to such policies, each Acquired Corporation has given notice of any and all claims for any act, error or omission by any agent or employee of the Acquired 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 6.13(c)). No Acquired Corporation has taken or has failed to take any action which would provide the insurer with a defense to its obligation under any such policy, neither have each Acquired Corporation nor any of the Warranting Persons received from any such insurer any notice of cancellation or non-renewal of any such policy, and, except as set forth in Schedule 6.13(c), none of the Warranting Persons has any basis to believe that any Acquired Corporation, or any agent or employee of an Acquired Corporation, has breached any professional duty or obligation. 6.14 Insurance Companies. Schedule 6.14 attached to this Agreement contains a correct and complete list of all insurance companies with respect to which each Acquired Corporation has an agency contract or similar relationship. Except as identified in Schedule 6.14, all relations between the Acquired Corporations and the insurance companies represented by them are good, and none of the Warranting Persons has any knowledge of any proposed termination of, or modification to, the existing relations between an Acquired Corporation and any of such insurance companies. Furthermore, except as otherwise set forth in Schedule 6.14, all accounts with all insurance companies represented by an Acquired Corporation or with whom an Acquired Corporation transacts business are current and there are no disagreements or unreconciled discrepancies between any Acquired Corporation and any such company as to the amounts owed by an Acquired Corporation. 6.15 Customers. Except as identified in Schedule 6.15 attached to this Agreement, all relations between the Acquired Corporations and the present customers of any Acquired Corporation, including without limitation the relations and contractual arrangements and agreements with associations, are good and anticipated to continue unchanged after Closing, and no Warranting Person has any knowledge of any proposed termination of any insurance account presently written or serviced by an Acquired Corporation. Also, except as otherwise set forth in Schedule 6.15, all customer accounts, including, without limitation, those accounts with respect to which any Acquired Corporation has financed any premiums, are current. For purposes of Section 6.15, the terms "insurance account" and "customer account" shall be limited to accounts which generate an aggregate annual commission income of CDN $5,000.00 or more. The Warranting Persons have no knowledge of any facts which could reasonably be expected to result in the loss of any customers or sources of revenue of the business which, in the aggregate, would be material to the business or condition of any Acquired Corporation. 6.16 Officers and Directors; Banks and Credit Cards; Powers of Attorney. Schedule 6.16 attached to this Agreement contains a correct and complete list of all officers and directors of each Acquired Corporation, a correct and complete list of the names and addresses of each bank in which an Acquired Corporation 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 having credit cards or holding powers of attorney from an Acquired Corporation. 6.17 Compensation and Fringe Benefits. Schedule 6.17 attached to this Agreement contains a correct and complete list of each officer, director, employee or agent of each Acquired Corporation and the compensation paid to each such person. Also, Schedule 6.17 contains a description of all fringe benefits presently being provided by each Acquired Corporation to any employees or agents of an Acquired Corporation. Schedule 6.17 attached hereto sets forth the name, job title, duration of employment, vacation entitlement, employee benefit entitlement and rate of remuneration (including bonus and commission entitlement) of each employee of the Acquired Corporations. Schedule 6.17 also sets forth the names of all employees of the Acquired Corporations who are now on disability, maternity or other authorized leave or who are receiving workers' compensation or short-term or long-term disability benefits. 6.18 Patents, Trademarks, Copyrights and Trade Names. Each Acquired Corporation owns or is possessed of or is licensed under such patents, trademarks, trade names and copyrights as are used in, and are of material importance to, the conduct of the Acquired Corporation's business, all of which are in good standing and uncontested. Schedule 6.2(a) attached to this Agreement contains a correct and complete list of all patents, trademarks, trade names and copyrights owned by or registered in the name of an Acquired Corporation. There is no material claim pending or, to the best knowledge of any of the Warranting Persons, threatened against an Acquired Corporation with respect to any alleged infringement of any patent, trademark, trade name or copyright owned or licensed to anyone other than an Acquired Corporation. 6.19 Indebtedness. Schedule 6.19 attached to this Agreement contains a correct and complete list of all instruments, agreements or arrangements pursuant to which an Acquired Corporation has borrowed any money, incurred any indebtedness or established any line of credit which represents a liability of an Acquired Corporation. True and complete copies of all such written instruments, agreements or arrangements have heretofore been delivered to, or made available for inspection by, Buyer. Each Acquired Corporation 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. 6.20 Employment Agreements and Other Material Contracts. Schedule 6.20 attached to this Agreement contains a complete list of every employment agreement, independent contractors and brokerage agreement, and a list and brief description of all material contracts, agreements and other instruments to which each Acquired Corporation is a party at the date hereof. Except as identified in Schedule 6.20, or in any other Schedule attached to this Agreement, no Acquired Corporation is 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 notice permitted at law; (iii) license, franchise, distributorship, dealer, manufacturer's representative, sales agency or advertising agreement; (iv) contract with any labor union or 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 (other than severance on termination of employment as permitted at law), 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 an Acquired Corporation. No Acquired Corporation is in default in any material respect under any agreement, lease, contract or other instrument to which it is a party. No party with whom an Acquired Corporation has any agreement which is of material importance to any Acquired Corporation's business is in material default thereunder. All such contracts, agreements, commitments, indentures and other instruments are now in good standing and in full force and effect without amendment thereto, each Acquired Corporation is entitled to all benefits thereunder and, to the best of the knowledge of the Warranting Persons, the other parties to such contracts, agreements, commitments, indentures and other instruments are not in default or breach of any of their obligations thereunder. There are no contracts, agreements, commitments, indentures or other instruments under which an Acquired Corporation's rights or the performance of its obligations are dependent upon or supported by the guarantee of or any security provided by any other person. 6.21 Absence of Certain Events. Since the Most Recent Balance Sheet Date, the business of all Acquired Corporations has been conducted only in the ordinary course and in substantially the same manner as theretofore conducted, and, except (i) as set forth in Schedule 6.21 attached to this Agreement or in any other Schedule attached to this Agreement, or (ii) for the transactions consummated pursuant to this Agreement, no Acquired Corporation has, 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, or increased any form of compensation or other benefits payable or to become payable to any of the employees, directors or officers of an Acquired Corporation; (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 6.20 attached hereto; (iii) discharged or satisfied any 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 any 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; (xii) made capital expenditures or entered into any commitments therefor aggregating more than CDN $5,000.00; (xiii) purchased, leased or otherwise acquired any properties or assets, except in the ordinary course of business; (xiv) waived, cancelled or written-off any rights, claims, accounts receivable or any amounts payable to an Acquired Corporation, except in the ordinary course of business; (xv) had any customer terminate, or communicate to an Acquired Corporation the intention or threat to terminate, its relationship with an Acquired Corporation, except in the case of customers whose business are not individually or in the aggregate material to any Acquired Corporation's business; or (xvi) made any material change with respect to any method of management, operation or accounting in respect of any Acquired Corporation's business. Except as contemplated by this Agreement, or the Schedules referred to in this Agreement, between the date hereof and the Closing Date, no Acquired Corporation will, without the prior written consent of the Buyer, do any of the things listed above in clauses (i) through (xvi) of this Section 6.21. 6.22 Investigations and Litigation. There is no investigation by any governmental agency pending, or, to the best knowledge of the Warranting Persons, threatened, against or adversely affecting any Acquired Corporation, and except as set forth on Schedule 6.22, there is no action, suit, proceeding or claim pending, judicial or administrative, or, to the best knowledge of the Warranting Persons, threatened, against any Acquired Corporation, or its business, properties, assets or goodwill, which might have a material adverse effect on any Acquired 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 any Acquired Corporation, or its business, properties, assets or goodwill. 6.23 Overtime, Back Wages, Vacation and Minimum Wages. To the best knowledge of the Warranting Persons, no present or former employee of any Acquired Corporation has any claim against any Acquired Corporation (whether under federal, provincial, state or other 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 6.23 to this Agreement. 6.24 Discrimination, Occupational Safety and Other Statutes and Regulations. No persons or parties (including, without limitation, governmental agencies of any kind) have any claim, or basis for any claim, action or proceeding, against any Acquired Corporation arising out of any statute, ordinance, rule or regulation relating to discrimination in employment or employment practices or occupational safety and health standards. 6.25 Labor Matters, Employment Standards and Employee Benefit Plans. (a) No Acquired Corporation is subject to any agreement with any labor union or employee association and has not made any commitment to or conducted negotiations with any labor union or employee association with respect to any future agreement and, to the best of the knowledge of the Warranting Persons, during the period of five (5) years preceding the date of this Agreement there has been no attempt to organize, certify or establish any labor union or employee association in relation to any of the employees of any Acquired Corporation. (b) There are no existing or, to the best of the knowledge of the Warranting Persons, threatened, labor strikes or labor disputes, grievances, controversies or other labor troubles affecting any Acquired Corporation or their businesses. (c) Each Acquired Corporation has complied with all laws, rules, regulations and orders applicable to it relating to employment, including those relating to wages, hours, collective bargaining, occupational health and safety, workers' hazardous materials, employment standards, pay equity and workers' compensation. There are no outstanding charges or complaints against any Acquired Corporation relating to unfair labor practices or discrimination or under any legislation relating to employees. Each Acquired Corporation has paid in full all amounts owing under the Workers' Compensation Act, R.S.M. 1987, c. W200 (Manitoba) or other applicable provincial legislation, and the workers' compensation claims experience of any Acquired Corporation would not permit a penalty reassessment under such legislation. (d) Except as listed in Schedule 6.25 or Schedule 6.17 attached to this Agreement, no Acquired Corporation has, and is not subject to, any present or future obligation or liability under, any pension plan, deferred compensation plan, retirement income plan, stock option or stock purchase plan, profit sharing plan, bonus plan or policy, employee group insurance plan, hospitalization plan, disability plan or other employee benefit plan, program, policy or practice, formal or informal, with respect to any of its employees, other than the Canada Pension Plan, R.S.C. 1985, c. C-8, and other similar health plans established pursuant to statute and specified on Schedule 6.25. Schedule 6.25 also lists the general policies, procedures and work-related rules in effect with respect to employees of each Acquired Corporation, whether written or oral, including but not limited to policies regarding holidays, sick leave, vacation, disability and death benefits, termination and severance pay, automobile allowances and rights to company-provided automobiles and expense reimbursements. (The plans, programs, policies, practices and procedures listed in Schedule 6.25 are hereinafter collectively called the "Benefit Plans"). Complete and correct copies of all documentation establishing or relating to the Benefit Plans listed in Schedule 6.25 or, where such Benefit Plans are oral commitments, written summaries of the terms thereof, and the most recent financial statements and actuarial reports related thereto and all reports and returns in respect thereof filed with any regulatory agency within three (3) years prior to the date hereof have been provided to Buyer. (e) No Acquired Corporation has, or has ever had, any pension plans included in the Benefit Plans for any of their employees other than pension arrangements for Hayhurst payable by HED. (f) There are no pending claims by any employee covered under the Benefit Plans or by any other person which allege a breach of fiduciary duties or violation of governing law or which may result in liability to any Acquired Corporation and, to the best of the knowledge of the Warranting Persons, there is no basis for such a claim. There are no employees or former employees of any Acquired Corporation who are receiving from any Acquired Corporation any pension or retirement payments, or who are entitled to receive any such payments, not covered by a pension plan to which any Acquired Corporation is a party. 6.26 Competitors. Except as disclosed in Schedule 6.26 attached to this Agreement, none of the Warranting Persons 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 (i) the Agency or a corporation listed on a national securities exchange or a corporation whose securities are traded in the over-the-counter market, and (ii) a security interest in Leipsic Insurance Agencies. 6.27 Accounts and Notes Receivable. The reserve for bad debts, if any, contained in the Most Recent Balance Sheet and to be contained in the Acquisition Audited Balance Sheet was, or, as the case may be, will be, calculated on a consistent basis which, in the light of past experience, is considered adequate. Except as set forth in Schedule 6.27 attached hereto, all accounts receivable and all notes receivable of the Acquired Corporations or any entities related to them reflected in the Acquisition Audited Balance Sheet are and will be fully collectible when due at the aggregate amount shown, less the bad debt allowance stated therein, it being the intent of all of the parties to this Agreement that the Warranting Persons are hereby representing and warranting to Buyer the full collectibility when due of all of the notes receivable and accounts receivable of each Acquired Corporation in the aggregate amount shown in the Acquisition Audited Balance Sheet, less the bad debt allowance stated therein. Except as set forth in Schedule 6.27, all notes receivable of each Acquired Corporation are due and payable within one year after the Closing Date. Any such notes receivable due and payable more than one year after the Closing Date ("Long Term Notes") will be fully collectible when due at the aggregate amount shown. Except as further set forth in Schedule 6.27, no Long Term Notes are secured by any interest in property, whether it be real, personal or intangible. 6.28 Permits, Licenses and Consents. (a) All permits, licenses and approvals of all federal, provincial, state or local regulatory agencies, which are required in order to permit each Acquired Corporation and its employees and agents to carry on business as now conducted by each Acquired Corporation, have been obtained by such Acquired Corporation and are current. (b) Except as specified in Schedule 6.28, attached hereto, none of the Acquired Corporations and no Warranting Person is under any obligation, contractual or otherwise, to request or obtain the consent of any person, and no permits, licenses, certifications, authorizations or approvals of, or notifications to, any federal, provincial, municipal or local government or governmental agency, board, commission or authority are required to be obtained by the Acquired Corporations or the Warranting Persons (or will need to be obtained by Buyer): (1) in connection with the execution, delivery or performance of this Agreement or the completion of any of the transactions contemplated herein; (2) to avoid the loss of any permit, license, certification or other authorization; or (3) in order that the authority of the Acquired Corporations to carry on the business of the Agency in the ordinary course and in the same manner as presently conducted remain in good standing and in full force and effect as of and following the closing of the transactions contemplated hereunder. Complete and correct copies of any agreements under which the Acquired Corporations and the Warranting Persons are obligated to request or obtain any such consent have been provided to Buyer and identified on Schedule 6.20. (c) All of Acquired Corporations' licenses are listed in Schedule 6.28 or Schedule 6.1(b) attached hereto and are valid and subsisting. Complete and correct copies of the licenses have been delivered to Buyer. Each Acquired Corporation is in compliance with all terms and conditions of the licenses. There are no proceedings in progress, pending or, to the best of the knowledge of the Warranting Persons, threatened, which could result in the revocation, cancellation or suspension of any of the licenses. 6.29 No Violation or Default. (a) The execution and delivery of this Agreement by the Warranting Parties and the Acquired Corporations, and the performance of this Agreement by them, will not violate, result in a breach of, or constitute a default under, the articles of incorporation or bylaws of any Acquired Corporation or of any indenture, contract, agreement or other instrument to which any Acquired Corporation is a party or is bound including, without limitation, any program or agency contract with any insurance company. (b) There are no outstanding work orders, non-compliance orders, deficiency notices or other such notices relative to the leased premises of any Acquired Corporation, the other properties and assets of any Acquired Corporation or its business which have been issued by any regulatory authority, police or fire department, sanitation, environment, labor, health or other governmental authorities or agencies. There are no matters under discussion with any such department or authority relating to work orders, non-compliance orders, deficiency notices or other such notices. Each Acquired Corporation's business is not being carried on, and none of the leased premises or the other properties or assets of an Acquired Corporation are being operated in a manner which is in contravention of any statute, regulation, rule, code, standard or policy. No amounts are owing by any Acquired Corporation in respect of its leased premises to any governmental authority or public utility, other than current accounts which are not in arrears. 6.30 HRH Stock. The Warranting Persons understand and acknowledge that the HRH Stock to be received by the Warranting Persons pursuant to this Agreement is registered and is subject to Rule 145 of the Securities Exchange Commission and any other applicable rules; the HRH Stock is being acquired for investment purposes only and not with a view to distribution or resale; any sale or other disposition of the HRH Stock shall be made pursuant to all applicable laws and regulations. No restrictive legend will be endorsed on the HRH Stock certificates to be received by the Warranting Persons. 6.31 Financing Statements. Except as disclosed on Schedule 6.31, there are no financing statements or other security interests of any kind filed or required to be filed against any of the Acquired Corporations' assets or affecting the use of, or title to, such assets ("Financing Statements"). Except as further disclosed on Schedule 6.31, there are no deferred money purchase notes related to any Acquired Corporation's acquisition of any portion of its assets ("Notes"). Any such liabilities related to the Financing Statements or Notes can and will be paid off at or prior to Closing, except as further detailed on Schedule 6.31 and agreed to by Buyer. 6.32 Brokers. Except as disclosed in Schedule 6.32, neither the Acquired Corporations nor any of the Warranting Persons 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. 6.33 Disclosure. On or before March 15, 1995, each Warranting Person has received copies of (i) a prospectus used in connection with the offering of up to 5,000,000 shares of common stock of HRH, dated February 12, 1992, (ii) Buyer's latest 1994 annual report, (iii) Buyer's Form 10-K for 1994, and (iv) Form 10-Q of Buyer as of March 31, 1995, and will acknowledge receipt of the supplement to the prospectus in connection with the registration of the HRH Stock with the Securities and Exchange Commission. 6.34 Warranting Person's Residency and Investment Canada Act. Except as set forth on Schedule 6.34 attached hereto, the Warranting Persons are not non-residents of Canada within the meaning of the Canadian Income Tax Act. Other than notification to Investment Canada under Section 11 of the Investment Canada Act, R.S.C. 1985, c. 28 (1st Supp.) (the "Investment Canada Act"), there are no other governmental notices that must be filed or delivered in connection with the consummation of this transaction. The transactions contemplated by this Agreement are not considered "reviewable" under the Investment Canada Act, and only notice of this transaction need be made to Investment Canada officials in connection with the acquisition of the Acquired Corporations. Notice under the Investment Canada Act may be made within thirty (30) days after the Closing Date without prejudice or penalty, and such notice shall be in the form of Exhibit 6.34 attached hereto. 6.35 Corporate Records. The corporate records and minute books of the Acquired Corporations, all of which shall have been provided to Buyer at Closing, contain complete and accurate minutes of all meetings of the directors and shareholders of the Acquired Corporations held since their incorporation, and original signed copies of all resolutions and bylaws duly passed or confirmed by the directors or shareholders of each Acquired Corporation other than at a meeting. All such meetings were duly called and held. The share certificate books, register of security holders, register of transfers and register of directors and any similar corporate records of each Acquired Corporation are complete and accurate. All exigible security transfer tax or similar tax payable in connection with the transfer of any securities of each Acquired Corporation has been duly paid. 6.36 Environmental Matters. (a) For the purposes of this Agreement, the following terms and expressions shall have the following meanings: (1) "Environmental Laws" means all applicable statutes, regulations, ordinances, by-laws, and codes and all international treaties and agreements, now or hereafter in existence in Canada (whether federal, provincial or municipal) and in the United States (whether federal, state or local) relating to the protection and preservation of the environment, occupational health and safety, product safety, product liability or Hazardous Substances, including, without limitation, the Dangerous Goods Handling and Transportation Act, R.S.M. 1987, c. D12 (Manitoba), as amended from time to time (the "DGHTA"), and the Canadian Environmental Protection Act, R.S.C. 1985, c. 16 (4th Supp.), as amended from time to time (the "CEPA"). (2) "Environmental Permits" includes all orders, permits, certificates, approvals, consents, registrations and licenses issued by any authority of competent jurisdiction under Environmental Laws. (3) "Hazardous Substance" means, collectively, any contaminant (as defined in the DGHTA), toxic substance (as defined in the CEPA), dangerous goods (as defined in the Transportation of Dangerous Goods Act, R.S.C. 1985, c. T-19 (Canada), as amended from time to time) or pollutant or any other substance which when released to the natural environment is likely to cause, at some immediate or future time, material harm or degradation to the natural environment or material risk to human health. (4) "Release" means any release, spill, leak, emission, discharge, leach, dumping, escape or other disposal which is or has been made in contravention of any Environmental Laws. (b) The Acquired Corporations, the operation of their business, the property and assets owned or used by any Acquired Corporation and the use, maintenance and operation thereof have been and are in compliance with all Environmental Laws. Each Acquired Corporation has complied with all reporting and monitoring requirements under all Environmental Laws. No Acquired Corporation has received any notice of any non-compliance with any Environmental Laws, and no Acquired Corporation has ever been convicted of an offence for non-compliance with any Environmental Laws or been fined or otherwise sentenced or settled such prosecution short of conviction. (c) Each Acquired Corporation has obtained all Environmental Permits necessary to conduct its business and to own, use and operate the properties and assets of the Agency. All such Environmental Permits are listed in Schedule 6.36 and complete and correct copies thereof have been provided to Buyer. (d) There are no Hazardous Substances located on or in any of the properties or assets owned or used by any Acquired Corporation, and no Release of any Hazardous Substances has occurred on or from the properties and assets of an Acquired Corporation or has resulted from the operation of the business and the conduct of all other activities of an Acquired Corporation. No Acquired Corporation has used any of its properties or assets to produce, generate, store, handle, transport or dispose of any Hazardous Substances and none of the real properties or leased premises of any Acquired Corporation has been or is being used as a landfill or waste disposal site. (e) Without limiting the generality of the foregoing, there are no underground or surface storage tanks or urea formaldehyde foam insulation, asbestos, polychlorinated biphenyls (PCBs) or radioactive substances located on or in any of the properties or assets owned or used by any Acquired Corporation. No Acquired Corporation is, and there is no basis upon which any Acquired Corporation could become, responsible for any clean-up or corrective action under any Environmental Laws. No Acquired Corporation has ever conducted or caused to be conducted an environmental audit, assessment or study of any of its properties or assets. 6.37 Restrictions on Doing Business. No Acquired Corporation is a party to or bound by any agreement which would restrict or limit its right to carry on any business or activity or to solicit business from any person or in any geographical area or otherwise to conduct its business as it may determine, (other than the agreement between HED and Pet Plan International Limited which restricts the offering of the program licensed thereby to the geographic region of Canada). No Acquired Corporation is subject to any legislation or any judgment, order or requirement of any court or governmental authority which is not of general application to persons carrying on a business similar to its business. To the best of the knowledge of the Warranting Persons, there are no facts or circumstances which could materially adversely affect the ability of the Agency to continue to operate its business as presently conducted following the completion of the transactions contemplated by this Agreement. 6.38 Non-Arm's Length Matters. Except as set forth in Schedule 6.38 attached hereto or as described in the Background Statements to this Agreement, no Acquired Corporation is a party to or bound by any agreement with, is not indebted to, and no amount is owing to an Acquired Corporation by, the Warranting Persons or any of their affiliates or any officers, former officers, directors, former directors, shareholders, former shareholders, employees (except for oral employment agreements with employees) or former employees of the Acquired Corporations or any person not dealing at arm's length with any of the foregoing. Except as set forth in Schedule 6.38 attached hereto, since June 30, 1994, no Acquired Corporation has made or authorized any payments to the Warranting Persons or any of their affiliates or any officers, former officers, directors, former directors, shareholders, former shareholders, employees or former employees of an Acquired Corporation or to any person not dealing at arm's length with any of the foregoing, except for salaries and other employment compensation payable to employees of an Acquired Corporation in the ordinary course of the routine daily affairs of the Acquired Corporations' business and at the regular rates payable to them. "Arm's length" will have the meaning ascribed to such term under the Canadian Income Tax Act. 6.39 Government Assistance. Schedule 6.39 attached hereto describes all agreements, loans, other funding arrangements and assistance programs (collectively called "Government Assistance Programs") which are outstanding in favor of the Acquired Corporations from any federal, provincial, municipal or other government or governmental agency, board, commission or authority, domestic or foreign (collectively called "Government Agencies"). Complete and correct copies of all documents relating to the Government Assistance Programs have been delivered to Buyer. Each Acquired Corporation has performed all of its obligations under the Government Assistance Programs, and no basis exists for any Government Agencies to seek payment or repayment by any Acquired Corporation of any amount or benefit received by it under any Government Assistance Programs. 6.40 Material Misstatements or Omissions. No representation or warranty by the Warranting Persons, or any of them, contained in this Agreement or in any document, statement, certificate, Schedule or financial statement furnished or to be furnished to Buyer by or on behalf of the Warranting Persons, 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 statement 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. 7. REPRESENTATIONS AND WARRANTIES OF HRH AND THE BUYER. HRH and Buyer, jointly and severally, represent and warrant, as of the date hereof and as of the Closing Date, to the Warranting Persons as follows: 7.1 Organization and Standing of HRH and Buyer. HRH is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia. Buyer is a corporation duly organized, validly existing and in good standing under the laws of Canada. 7.2 Authority. The execution, delivery and performance of this Agreement by HRH and Buyer have been duly and validly approved by all necessary corporate actions. Except for any securities or stock exchange approvals which shall have been obtained prior to the Closing Date, no governmental or other authorization, approval or consent for the execution, delivery and performance of this Agreement by HRH and Buyer is required. The execution and delivery of this Agreement by HRH and Buyer and the performance of this Agreement by HRH and Buyer will not violate, result in a breach of, or constitute a default under, the articles of incorporation or bylaws of HRH or Buyer or any indenture, contract, agreement or other instrument to which HRH and/or Buyer is a party or is bound. 7.3 Capitalization of HRH and Buyer. As of December 31, 1994, the authorized capital stock of HRH consisted of 50,000,000 shares of common stock, no par value, of which 14,679,464 shares were issued and outstanding, fully paid and nonassessable, and as of the date of this Agreement the authorized capital stock of the Buyer consist of an unlimited number of class A, B, C and D shares of common stock and an unlimited number of class A, B, C, D, E and F shares of preference stock, of which one (100) hundred shares of class A common stock are issued and outstanding, fully paid and nonassessable. 7.4 Status of HRH Stock. The HRH Stock to be issued to the Direct Selling Shareholders pursuant to this Agreement will, when so issued, be duly and validly authorized and issued, fully paid and nonassessable. 7.5 Brokers' or Finders' Fees. No agent, broker, person, or firm acting on behalf of HRH 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 in connection with any of the transactions contemplated herein. 7.6 Investment Canada Act. HRH is an "American" for purposes of and within the meaning of the Investment Canada Act. PART C: PRE-CLOSING AGREEMENTS 8. ACCESS AND INFORMATION. Throughout the period between the date of the execution of this Agreement and the Closing Date, the Warranting Persons shall cause the Acquired Corporations and all employees of the Acquired Corporations to give to Buyer, and any and all authorized representatives of Buyer (including auditors and attorneys), full and unrestricted access, during normal business hours, to the offices, assets, properties, contracts, books and records of the Acquired Corporations in order to give Buyer full opportunity to make such investigations as it deems appropriate with respect to the affairs of the Agency, and shall further cause the Acquired Corporations, and all employees of the Acquired Corporations, to provide to Buyer during such period such additional information concerning the affairs of the Acquired Corporations as Buyer 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, Buyer covenants with the Warranting Persons that Buyer will use its best efforts to deliver to the Designated Representative all documents, working papers and other written information concerning the Acquired Corporations obtained or prepared in connection with any such investigation. Regardless of any such investigation by Buyer, all representations and warranties of the Warranting Persons contained in this Agreement shall remain in full force and effect and no such investigation shall cause or result in a waiver by Buyer of any of the representations and warranties of the Warranting Persons contained herein. 9. CONDUCT OF THE ACQUIRED CORPORATIONS PENDING THE CLOSING DATE. The Warranting Persons covenant with Buyer that, between the date of the execution of this Agreement and the Closing Date, unless prior written consent to the contrary is obtained from Buyer: 9.1 Operate in Ordinary Course. The Acquired Corporations will be operated only in the ordinary course of business. 9.2 Negative Covenants. The Acquired Corporations will not do any of the things listed in clauses (i) through (xvi) of Section 6.21 of this Agreement. 9.3 Continuing Accuracy of Representations. There shall be no action, or failure to act, which would render any of the representations and warranties of the Warranting Persons contained in this Agreement untrue or incorrect in any material respect. 9.4 Preserve Business Organizations. Except as otherwise requested by Buyer, and without making any commitment on Buyer's behalf, the Warranting Persons will use their best efforts to preserve the Acquired Corporations' business organizations intact, to keep available to Buyer the services of its present employees, and to preserve for Buyer the goodwill of the Acquired Corporations' customers and others having business relations with them. 9.5 Corporate Approvals. The boards of directors of the Acquired Corporations will recommend to the applicable Warranting Persons that they adopt this Agreement. Each Acquired Corporation agrees to submit this Agreement to the applicable Warranting Persons for adoption by unanimous written consent with waiver of notice of the terms of this Agreement prior to the Closing Date, but only after delivery by Buyer to the Direct Selling Shareholders of an amended or supplemented S-4 registration statement for the HRH Stock to be issued pursuant to this Agreement and after the Direct Selling Shareholders have had an effective opportunity of at least ten (10) days to review such prospectus. Unless there is a failure of Buyer to fulfill its conditions set forth in Section 11 hereof or there is a material adverse change in the financial conditions of Buyer, the Warranting Persons covenant to adopt this Agreement and to approve all related aspects of this Agreement within the time period contemplated herein. PART D: CONDITIONS PRECEDENT TO PERFORMANCE 10. CONDITIONS PRECEDENT TO PERFORMANCE BY BUYER. The obligation of Buyer 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 Buyer: 10.1 Representations and Warranties. Buyer shall not have discovered any material error, misstatement or omission in any of the representations and warranties made by the Warranting Persons 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 the Warranting Persons, 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 Buyer, as though such representations and warranties had been made on and as of the Closing Date; and the Warranting Persons shall have delivered to Buyer a certificate, dated the Closing Date, and signed by all of them, to the foregoing effect, substantially in the form and substance as set forth in Exhibit 10.1. 10.2 Covenants. The Acquired Corporations and the Warranting Persons shall have performed and complied in all material respects with all covenants, agreements and conditions required under this Agreement to be performed or complied with by them on or before the Closing Date; and the Acquired Corporations and the Warranting Persons shall have delivered to Buyer a certificate dated the Closing Date, and signed by all of them, to the foregoing effect, substantially in the form and substance as set forth in Exhibit 10.1. 10.3 Litigation. No suit, action or proceeding, or governmental investigation, against or concerning, directly or indirectly, any Acquired Corporation, or any of the Acquired Corporations' 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 Buyer, renders it impossible or inadvisable for Buyer to consummate or cause to be consummated the transactions contemplated by this Agreement. 10.4 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 Buyer. 10.5 Opinion of Counsel. Buyer shall have received a favorable opinion, dated as of the Closing Date, from the law firm of Aikins, MacAulay & Thorvaldson, counsel for the Acquired Corporations and the Warranting Persons, substantially in the form and substance as set forth in Exhibit 10.5 and otherwise reasonably satisfactory to counsel for Buyer. 10.6 Delivery of Acquired Stock. There shall be duly tendered to Buyer at the Closing not less than one hundred percent (100%) of the shares of the Acquired Stock issued and outstanding at the time of the Closing. 10.7 Continuation of Acquired Corporation Contracts. To the extent desired by Buyer, Buyer shall have obtained a statement in writing from each of the insurance companies identified in Schedule 6.14 of this Agreement, in form satisfactory to the Buyer and Buyer's counsel, by which each such insurance company agrees that it will not terminate its program or insurance agency contract solely by reason of the transactions contemplated in this Agreement, and further agrees that it will continue to recognize the Agency, and its successors and assigns, as its agent under the existing contract between such company and the Agency or that it will enter into a substantially similar contract with the Agency, or its successors and assigns. 10.8 Shareholder Employment Agreements. An Employment Agreement between the Surviving Corporation, as the employer, and Elias, as the employee, substantially in form and substance as set forth in Exhibit 10.8 attached hereto, shall have been duly executed by Elias and delivered to Buyer. An employment agreement (either existing or new) between the Surviving Corporation, as the employer, and Dudek, as the employee, in the form acceptable to HRH, shall, at HRH's option, be in place at Closing or shall have been duly executed prior to Closing by Dudek and delivered to Buyer. 10.9 Other Employment Agreements. Employment Agreements between the Surviving Corporation, as the employer, and Mr. Chun Hao and Mr. Jean Fontaine, respectively in consideration of the payments they shall receive in connection with the Closing, shall have been executed substantially in the form and substance as set forth in Exhibit 10.9 attached hereto. 10.10 No Material Adverse Change. There shall have been no material adverse change in the Acquired Corporations' business, business prospects, assets and properties, or goodwill between the date of the execution of this Agreement and the Closing Date. Without limiting the foregoing, the definition of material adverse change with respect to the insurance accounts and programs included in the Agency's "Book of Business" contained in Section 6.9 above is, by this reference, incorporated herein. 10.11 Satisfaction of Certain Obligations. At or prior to the Closing, unless waived in writing by Buyer, all of the liabilities listed or required to be listed in Schedule 6.31 as Financing Statements or Notes shall have been satisfied in full. 10.12 Leases. The leases listed in Schedule 6.12 shall be in full force and effect with no defaults occurring as a result of any Acquired Corporation's action or inaction and all required consents (other than the consent required under the Mississauga, Ontario premises lease) shall have been obtained. 10.13 Resolutions. Buyer shall receive certified copies of resolutions adopted by the unanimous written consent of the board of directors and shareholders of each Acquired Corporation, and only after the delivery to the Direct Selling Shareholders of the amended or supplemented prospectus described below in Section 11.3, in form satisfactory to counsel for Buyer, authorizing the execution and delivery of this Agreement by the Acquired Corporations and the consummation of the transactions contemplated hereby, including, without limitation, the resignation (as officers and directors) of all members of the board of directors of each Acquired Corporation and the resignation of Hayhurst as Chairman of the Agency. 10.14 Approvals and Consents. All statutory requirements for the valid consummation by Warranting Persons of the transactions contemplated by this Agreement shall have been fulfilled; and, all authorizations, consents and approvals of all federal, provincial, state, local and foreign governmental agencies and authorities, and all consents and approvals under contracts to which the Acquired Corporations are parties (especially such consent required under the Mississauga, Ontario premises lease and the Agreement with Pet Plan International Limited and The Pet Plan Group Ltd.), required to be obtained in order to permit consummation by Warranting Persons of the transactions contemplated by this Agreement and to permit the business presently carried on by the Agency to continue unimpaired immediately following the Closing Date of this Agreement shall have been obtained. 10.15 Unanimous Shareholder Agreements. The shareholder of each of Buyer and the Surviving Corporation shall have executed an Unanimous Shareholder Agreement substantially in the form of agreement attached hereto as Exhibit 10.15 and the respective boards of directors of Buyer and the Surviving Corporation shall be comprised of an appropriate number of Canadian residents so as to comply with the provisions of the Canada Business Corporations Act. 10.16 Hayhurst Non-competition Agreement. Hayhurst shall have executed the non-competition agreement substantially in the form attached hereto as Exhibit 10.16. 10.17 Rule 145 Compliance. The persons and entities listed on Exhibit 10.17 shall have executed and delivered to Buyer a letter agreement substantially in the form attached as part of Exhibit 10.17 agreeing to comply with the provisions of Rule 145. 10.18 Full Releases. Each Warranting Person and Jean Fontaine shall have executed and delivered a full release of any and all claims, demands or interests of any kind that they may have as to any Acquired Corporation, HRH and the Buyer, substantially in the form attached hereto as Exhibit 10.18. All obligations to Hayhurst, for the payment to him of a pension or otherwise, shall have been paid and satisfied, and Hayhurst's full release shall evidence the payment and satisfaction thereof. Jean Fontaine's release shall include, without limitation, a release of any right to indemnification for any Reed, Stenhouse claims. 10.19 Hayhurst Tax Certificate. Hayhurst shall have delivered on the Closing Date a certificate pursuant to Section 116 of the Income Tax Act, certifying that adequate provision for payment of income tax pursuant to the Canadian Income Tax Act has been made. 11. CONDITIONS PRECEDENT TO PERFORMANCE BY THE WARRANTING PERSONS. The obligations of the Warranting Persons 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 all of the Warranting Persons: 11.1 Representations. The Warranting Persons shall not have discovered any material error, misstatement or omission in any of the representations and warranties made by HRH and the Buyer contained in this Agreement, and all representations and warranties of Buyer 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 the Warranting Persons, as though such representations and warranties had been made on and as of the Closing Date; and HRH and the Buyer shall have delivered to the Warranting Persons a certificate, dated the Closing Date, to the foregoing effect, substantially in the form and substance as set forth in Exhibit 11.1. 11.2 Covenants. HRH and the Buyer 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 them; and HRH and the Buyer shall have delivered to the Warranting Persons a certificate dated the Closing Date, to the foregoing effect, substantially in the form and substance as set forth in Exhibit 11.1. 11.3 Effective Registration Statement. The registration statement on Form S-4 under the Securities Act of 1933 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 the Direct Selling Shareholders for their review and subsequent approval of this Agreement and the transactions contemplated thereby. 11.4 Management Incentive Agreement. Buyer and the Surviving Corporation shall have executed the Management Incentive Agreement, substantially in the form and substance as set forth in Exhibit 11.4. 11.5 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 the Warranting Persons. 11.6 Opinion of Counsel. The Direct Selling Shareholders shall have received a favorable opinion, dated as of the Closing Date, from the law firm of Williams, Mullen, Christian & Dobbins, counsel for Buyer, substantially in the form and substance as set forth in Exhibit 11.6 and otherwise reasonably satisfactory to counsel for the Warranting Persons. 11.7 Delivery of HRH Stock. There shall be delivered to the Direct Selling Shareholders at the Closing the shares of HRH Stock comprising the Consideration, other than the Escrowed Shares. 11.8 Resolutions. The Direct Selling Shareholders shall receive certified copies of resolutions adopted by the boards of directors of HRH and Buyer, in form satisfactory to counsel for the Direct Selling Shareholders, authorizing the execution and delivery of this Agreement by HRH and Buyer and the consummation of the transactions contemplated hereby. 11.9 Approvals. All statutory requirements for the valid consummation by HRH and Buyer of the transactions contemplated by this Agreement shall have been fulfilled. PART E: CLOSING AND POST-CLOSING COVENANTS 12. ADDITIONAL REQUIREMENTS ON CLOSING AND POST-CLOSING MATTERS AND AGREEMENTS. 12.1 Resignations. At the Closing, the Warranting Persons shall deliver to Buyer, unless otherwise instructed by Buyer, the written resignations of all directors of the Acquired Corporations (as officers and directors) and the resignation by Hayhurst as Chairman of the Agency, effective as of the Closing Date, and shall take, or cause to be taken, all other actions as Buyer may request with respect to changes in the officers and directors of the Acquired Corporations as Buyer, in the sole discretion of Buyer, may deem advisable. 12.2 Minute Books. At the Closing, the Warranting Persons shall cause to be delivered to Buyer the minute book or minute books of the Acquired Corporations, all stock books of the Acquired Corporations, the corporate seals of the Acquired Corporations, if any, and all books and records pertaining to the Acquired Corporations and the Acquired Corporations' business assets and properties and liabilities. 12.3. Delivery of Acquisition Audit Balance Sheet. The Warranting Persons shall cause to be delivered to Buyer as soon after the Closing Date as is practicable, and in all events no later than sixty-two (62) days after the Closing Date, the Acquisition Audit Balance Sheets, as defined in Section 3.1(a), and its related work papers and other financial documents prepared therefor. The Acquisition Audit Balance Sheets will be true and correct, will be in accordance with the books and records of the Acquired Corporations, will present fairly the financial conditions and results of operations of the Acquired Corporations 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 Acquisition Audit Balance Sheets not misleading. 12.4. Post-Acquisition Filings. The Warranting Persons shall cause to be timely filed, at no expense which has not previously been reserved for on the Acquisition Audit Balance Sheets, all federal, provincial, state and local tax returns of all kinds required to be filed by the Acquired Corporations for all tax periods ending on or prior to the Closing Date ("Post- Acquisition Filings"). All Post-Acquisition Filings will be true and correct and, prior to actual filing thereof, Warranting Persons shall deliver drafts of such filings to Buyer for its review. Buyer shall allow the Warranting Persons, upon receiving reasonable written notice, all necessary access to the books and records of the Acquired Corporations in order to allow the Warranting Persons to comply with this provision. 12.5 Accounts Receivable. In the event of any delinquency or nonpayment of any portion of a Long Term Note, the Warranting Persons shall be obligated to satisfy such deficiency in the same manner as specified below for all other receivables of the Acquired Corporations. Buyer will cause the Surviving Corporation to use reasonable efforts in accordance with Buyer's customary collection practices to collect all such notes receivable, the accounts receivable, debit balances in the company payables of the Acquired Corporations. However, if, after the last day of the six-month period commencing on the Closing Date, the Surviving Corporation shall not have received payment of the accounts receivable, notes receivable, debit balances in the company payables (other than Long Term Notes) of the Surviving Corporation in the aggregate amount reflected in the Acquisition Audited Balance Sheet, less the reserve for bad debts stated therein, then, upon notice to the Designated Representative, and the submission to him from time to time of reasonable evidence of nonpayment, the Warranting Persons shall at such times be unconditionally obligated to forthwith pay the full amount of the difference to the Surviving Corporation, against the delivery to the Direct Selling Shareholders of an assignment of such defaulted accounts, notes, balances and payables and of any security held for any such accounts, notes, balances and payables. In such event, the Direct Selling Shareholders shall have the right to institute any collection proceedings desired in the name of the Agency, provided that the Warranting Persons shall indemnify and hold harmless Buyer and the Surviving Corporation, and each of them, from and against any and all demands, claims, actions and causes of action arising out of or in any manner relating to or arising out of any such collection proceeding, and from and against any and all loss, damage, liability, cost and expense, including attorneys' fees at the trial level and in connection with all appellate proceedings, incident thereto. 12.6 Investment Canada Act. The Warranting Persons and the Acquired Corporations shall cooperate with Buyer and HRH in the preparation and filing of notice to all appropriate Canadian federal governmental officials of any notice required under the Investment Canada Act. 12.7 Security Agreement. The Surviving Corporation shall have executed and delivered to the Direct Selling Shareholders a Security Agreement in the form of agreement attached hereto as Exhibit 12.7. 12.8 Ordinary Course Indemnity Agreements of Selling Shareholders. The Surviving Corporation shall indemnify the Direct Selling Shareholders for any obligations incurred by them pursuant to indemnity agreements executed by them personally in favor of insurers on behalf of the Agency of which written notice has been given to the Surviving Corporation, relating to events occurring in the period, and executed by the Direct Selling Shareholders, after the Closing Date. 12.9 Tail Insurance. To the extent that, after the Closing, any Warranting Person obtains insurance coverage for claims arising under errors and omissions, such Warranting Person shall cause HRH, HRH Canada and the Surviving Corporation to be added and named to the policy evidencing such coverage as additional named insureds for all prior acts. 12.10 Further Assurances. Each of the Warranting Persons and Buyer hereby covenants and agrees that at any time and from time to time after the Closing Date he, she or it will, upon the request of the others, do, execute, acknowledge and deliver or cause to be done, executed, acknowledged and delivered all such further acts, deeds, assignments, transfers, conveyances and assurances (including the obtaining of consents not obtained prior to Closing) as may be required for the better carrying out and performance of all the terms of this Agreement. PART F: INDEMNIFICATION 13. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION. 13.1 Survival of Representations and Warranties. Except with respect to the representations and warranties as to the ownership of the Acquired Stock contained in Section 6.4 and the representations and warranties as to the title to the properties and assets of the Acquired Corporations contained in Section 6.11, all of which shall survive in perpetuity, and except with respect to the representations and warranties as to tax liabilities of the Acquired Corporations contained in Section 6.10, which shall survive until one (1) year after the expiration of any applicable statute of limitations, the representations and warranties made herein or pursuant hereto by the Warranting Persons shall survive the Closing only for a period of three (3) years from and after the Closing Date. All representations and warranties made herein or pursuant hereto by Buyer shall survive the Closing only for a period of three (3) years from and after the Closing Date. 13.2 Indemnification Agreement by Warranting Persons. The Warranting Persons jointly and severally, shall indemnify and hold harmless Buyer, HRH, the Acquired Corporations and the Surviving Corporation, and their respective successors and assigns from and against and in respect of one hundred percent (100%) of: (i) All indebtednesses, obligations and liabilities of the Acquired Corporations or the Surviving Corporation of any nature whatsoever, whether accrued, absolute, contingent or otherwise, existing at the close of business as of the Pre-Effective Moment to the extent not reflected or reserved against in full in the Acquisition Audited Balance Sheets (defined in Section 3 hereof), including, without limitation, any claims for errors and omissions (to the extent not covered by insurance) and any tax liabilities to the extent not so reflected or reserved against, accrued in respect of, or measured by the income of any Acquired Corporation for any period on or prior to the Closing 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 13.2(i) above, (1) any and all tax liabilities, whether federal, provincial, state, local or otherwise, including interest and penalties for any time period on or prior to the Closing Date, and (2) any and all tax liabilities arising or resulting from the transactions consummated in connection with this Agreement; (iii) All liabilities of, or claims against, any Acquired Corporation or the Surviving Corporation arising out of any contract or commitment of the character described in Section 6.20 hereof and not listed or described in Schedule 6.20 attached to this Agreement, or arising out of any contract or commitment entered into or made by any Acquired Corporation 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 Sections 6.27 and 12.5 of this Agreement, any nonpayment on demand, when due, of any accounts receivable or notes receivable of the Acquired Corporations; (v) Any and all claims, demands, actions and causes of action arising out of or in any way relating to any Benefit Plan ever maintained by any Acquired Corporation; (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 the Warranting Persons, 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 the Warranting Persons, or any of them, and attached to this Agreement or delivered or to be delivered to the Buyer under the terms of this Agreement, irrespective of any due diligence review or investigation that may have been conducted by HRH or its representatives or the delivery of any documents or information by any Warranting Person to HRH or its representatives prior to the execution of this Agreement; and (vii) All demands, claims, actions, suits, proceedings, loss, damage, liability, judgments, costs and expenses (including, without limitation, court costs and attorneys' fees at the trial level and in connection with all appellate proceedings) incident to any of the foregoing. In addition, Buyer shall have the right to assert offset against any of Buyer's Deferred Obligations which may be due to the Direct Selling Shareholders on account of, and to the extent of, the foregoing. It is acknowledged that any loss, damage, liability or deficiency suffered by Buyer for which the Warranting Persons are to indemnify Buyer pursuant to the foregoing shall be the net after tax amount of any such loss, damage, liability or deficiency suffered by Buyer, and shall be net of any proceeds of insurance received for such loss. 13.3 Indemnification Agreement by HRH and Buyer. HRH and Buyer shall indemnify and hold harmless the Direct Selling 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 Buyer under the terms of this Agreement; and (ii) All demands, claims, actions, suits, proceedings, loss, damage, liability, judgments, costs and expenses (including, without limitation, court costs and attorneys' fees at the trial level and in connection with all appellate proceedings) incident to any of the foregoing. 13.4 Assertion of Indemnification Claim. Either the Direct Selling Shareholders or Buyer, HRH, the Acquired Corporations or the Surviving Corporation, as the case may be (an "Indemnified Party"), shall give notice to the other (an "Indemnifying Party") as soon as possible after the Indemnified Party has actual knowledge of any claim as to which indemnification may be sought and the amount thereof, if known, and supply any other information in the possession of the Indemnified Party regarding such claim, and will permit the Indemnifying Party (at its expense) to assume the defense of any third party claim and any litigation resulting therefrom, provided that counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation shall be reasonably satisfactory to the Indemnified Party, and provided further that the omission by the Indemnified Party to give notice as provided herein will not relieve the Indemnifying Party of its indemnification obligations hereunder except to the extent that the omission results in a failure of actual notice to the Indemnifying Party and the Indemnifying Party is materially damaged as a result of the failure to give notice. The Indemnifying Party may settle or compromise any third party claim or litigation with the consent of the Indemnified Party which consent may not be unreasonably withheld. 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. 13.5 Limitation of Amount of Indemnity and Escrow of HRH Stock. The indemnity provided to Buyer pursuant to Section 13.2 and the indemnity provided by Buyer to the Direct Selling Shareholders pursuant to Section 13.3 shall be limited to an amount equal to the Consideration. Notwithstanding anything in the foregoing to the contrary, Buyer shall retain on the Closing Date from the HRH Stock to be delivered to the Direct Selling Shareholders, as security for the indemnity provided to it herein, CDN $180,000 worth of shares of the HRH Stock ("Escrowed Shares"). By their signatures to this Agreement, each Direct Selling Shareholder, and if applicable each Warranting Person, has granted to Buyer a security interest in his, her or its portion of the Escrowed Shares, and has consented to the escrow provision described herein and has granted unto Buyer a continuing limited power of attorney to act over his, her or its 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) March 31, 1996; (ii) determination and settlement of any amounts pursuant to Section 3.1(e); and (iii) determination and settlement of any amounts claimed by Buyer as of March 31, 1996, pursuant to Section 13.4 ("Escrow Release Date"). Between the Closing Date and the Escrow Release Date, Buyer shall hold the Escrowed Shares and shall deposit any dividends received thereon in an interest-bearing account. Upon the Escrow Release Date, and absent a written directive to the contrary from each such Direct Selling Shareholder and Warranting Person not desiring to receive his shares pro rata, Buyer shall distribute the Escrowed Shares, less any reduction in such shares pursuant to the resolution of a claim under this Agreement, plus any additional shares issued pursuant to this Agreement, to the Direct Selling Shareholders and Warranting Persons, pro rata in accordance with the Applicable Percentages set forth on Schedule 2.1. 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 are used 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. The value of the Escrowed Shares as of the date of any satisfaction of such indemnity shall be the value, per share, at the average of the closing price on the New York Stock Exchange for common stock of HRH for each of ten (10) consecutive trading days with the tenth and final trading day being the last trading day which is ten (10) trading days prior to the realization of such indemnity. For the period from the Closing Date to the Escrow Release Date, the Direct Selling Shareholders and Warranting Persons shall be entitled to exercise all voting rights which may attach to the Escrowed Shares. 13.6 Remedies Cumulative. The rights and remedies of the parties under this Agreement are cumulative and in addition to and not in substitution for any rights or remedies provided by law. Any single or partial exercise by any party hereto of any right or remedy for default or breach of any term, covenant or condition of this Agreement does not waive, alter, affect or prejudice any other right or remedy to which such party may be lawfully entitled for the same default or breach. PART G: MISCELLANEOUS PROVISIONS 14. EXPENSES. All expenses (including, without limitation, legal, auditing and other related expenses) incurred in connection with this transaction by the Acquired Corporations and the Warranting Persons shall be the sole responsibility of the Warranting Persons (except such expenses which are agreed to be the expenses solely of Elias, Dudek and Hayhurst), and all expenses incurred by Buyer in connection with this transaction shall be the sole responsibility of Buyer. The Warranting Persons shall be responsible and shall cause any fees or commissions due to Hales & Associates and to their legal counsel to be paid from the Closing Cash Consideration. 15. DEFAULT. 15.1 Default by the Warranting Persons. Except as otherwise expressly provided in this Agreement, if the Warranting Persons 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 the Warranting Persons on or prior to the Closing Date, then Buyer, at the option of Buyer, may seek specific performance of this Agreement or Buyer, at the option of Buyer, may elect to sue such defaulting party for damages. In the event Buyer elects to sue for specific performance, the Warranting Persons expressly waive any claim or defense that Buyer has an adequate remedy at law. 15.2 Default by the Buyer. Except as otherwise expressly provided in this Agreement, if Buyer 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 Buyer on or prior to the Closing Date, then the Direct Selling Shareholders, at the option of the Warranting Persons, may seek specific performance of this Agreement or the Warranting Persons, at the option of the Designated Representative, may elect to sue for damages. In the event the Designated Representative elects to sue for specific performance, Buyer expressly waives any claim or defense that the Warranting Persons have an adequate remedy at law. 16. 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 sent by registered or certified mail, postage prepaid: (a) If to the Warranting Persons: Mr. Arthur G. Elias HAYHURST ELIAS DUDEK, INC. Number Four Fort Street Winnipeg, Manitoba Canada, R3C 1C4 With copy to: J. Douglas Sigurdson, Esquire AIKINS, MACAULAY & THORVALDSON 30th Floor Commodity Exchange Tower 360 Main Street Winnipeg, Manitoba Canada, R3C 4G1 And to: Brian D. Hayhurst Coralita Prospect St. James, Barbados And to: Brian D. Hayhurst 1560 North West Benfield Drive Portland, Oregon U.S.A. 97229 With a copy to: George Van Den Bosch, Esquire Pitbaldo & Hoskin 19th Floor Commodity Exchange Tower 360 Main Street Winnipeg, Manitoba Canada, R3C 4G1 (b) If to Buyer: Mr. Robert H. Hilb, President HILB, ROGAL AND HAMILTON COMPANY 4235 Innslake Drive P.O. Box 1220 Glen Allen, Virginia 23060-1220 With copy to: Walter L. Smith, Esquire HILB, ROGAL AND HAMILTON COMPANY 4235 Innslake Drive P.O. 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, certified or overnight 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. 17. EXTENSION OF TIME AND WAIVER. 17.1 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. 17.2 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. 18. MISCELLANEOUS PROVISIONS. 18.1 Counterparts and Execution. (a) Any number of counterparts of this Agreement and its Ancillary Agreements 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 and shall be effective as of the date thereof. (b) This Agreement and its Ancillary Agreements may be executed by one or more of the parties by facsimile transmitted signature and all parties agree that the reproduction of signatures by way of facsimile device will be treated as though such reproductions were executed originals. 18.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the Province of Manitoba and the laws of Canada applicable therein. 18.3 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. 18.4 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. 18.5 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, except that Buyer, without the consent of anyone, may assign this Agreement to a subsidiary of Buyer. In the event of any such assignment by Buyer, Buyer shall remain liable to the Direct Selling Shareholders for the payment of Buyer's Deferred Obligations in the same manner as if no assignment had been made. 18.6 Survival. Notwithstanding anything in the foregoing to the contrary, any rights which the Warranting Persons, HRH or Buyer may have at law or in equity against the other for a misstatement or omission by such party which should have been made, corrected or disclosed by such party, at or prior to the Closing Date, shall survive for the applicable period provided by Section 13.1. In addition, all covenants of the parties under this Agreement, including without limitation the nonsolicitation covenant contained in Section 18.9 below, shall survive the Closing. 18.7 Schedules and Exhibits. The Schedules and Exhibits 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. 18.8 Subsequent Acquisitions and Activities. The Direct Selling Shareholders acknowledge that a later acquisition by the Surviving Corporation of another insurance agency could affect the determination of subsequent year profitability and agree to cooperate with Buyer in making any adjustments as necessary to this Agreement and any ancillary agreements to carry out their intent. Buyer agrees that the consent of Elias, Dudek and Hayhurst shall be obtained before any later acquisition by the Surviving Corporation of another insurance agency during the three (3) years after the Closing Date. Buyer agrees that (i) it shall not cause a change of corporate name of the Surviving Corporation for a period of three (3) years after the Closing Date (provided, that the name of the Surviving Corporation may reflect an association with HRH and/or the Buyer in a manner acceptable to HRH); (ii) the business of the Agency shall be carried on in the ordinary course during the three (3) year period after the Closing Date; (iii) the annual profit of the Surviving Corporation during the three (3) year period after the Closing Date shall only be withdrawn by the Surviving Corporation (by way of dividend payment, loan repayment or any other means) three (3) months or more after the year end of the Surviving Corporation, subject to compliance with the accounting policies of the Buyer; and (iv) the Surviving Corporation shall not establish a pension plan for its employees during the three (3) year period after the Closing Date without first arranging with the management of HED for the implementation of such a plan so as not to adversely impact the Agency's future profitability which in turn will affect any payments to be made under the Management Incentive Agreement referenced in Section 11.4 above. 18.9 Nonsolicitation Covenants. (a) Each of the Warranting Persons, by signature hereto, covenants that he, she or it shall not for a period of three (3) years after the Closing Date, directly or indirectly, except on behalf of the Surviving Corporation, its successors or assigns, solicit or accept risk management, insurance or bond business from any of the customers of the Agency and the Surviving Corporation as of the moment immediately preceding the Closing Date. Each of the Warranting Persons, by signature hereto, acknowledges: (i) that this covenant is ancillary to this Agreement, is integral hereto and is independent of any other provision herein, (ii) that this covenant is reasonably necessary for the protection of Buyer's and the Surviving Corporation's legitimate business interests; (iii) that this covenant poses no undue hardship on them and is reasonably limited as to duration and scope; and (iv) that this covenant is in addition to any covenants which any of the Warranting Persons may make in any employment or other agreements executed or to be executed with the Surviving Corporation as part of this Agreement. Further, if any part of this covenant is deemed overbroad or void as against public policy, each of the Warranting Persons, by signature hereto, acknowledges that such invalid portions shall be severable from this covenant to permit the Surviving Corporation and/or Buyer to obtain the maximum permissible benefit from this covenant. (b) Each of the Warranting Persons, by signature hereto, covenants that he, she or it shall not for a period of two (2) years after the Closing Date, directly or indirectly, except on behalf of the Surviving Corporation, its successors or assigns, solicit or accept risk management, insurance or bond business from any of the customers of the Agency and the Surviving Corporation as of the moment immediately preceding the Closing Date. Each of the Warranting Persons, by signature hereto, acknowledges: (i) that this covenant is ancillary to this Agreement, is integral hereto and is independent of any other provision herein, (ii) that this covenant is reasonably necessary for the protection of Buyer's and the Surviving Corporation's legitimate business interests; (iii) that this covenant poses no undue hardship on them and is reasonably limited as to duration and scope; and (iv) that this covenant is in addition to any covenants which any of the Warranting Persons may make in any employment or other agreements executed or to be executed with the Surviving Corporation as part of this Agreement. Further, if any part of this covenant is deemed overbroad or void as against public policy, each of the Warranting Persons, by signature hereto, acknowledges that such invalid portions shall be severable from this covenant to permit the Surviving Corporation and/or Buyer to obtain the maximum permissible benefit from this covenant. (c) Each of the Warranting Persons, by signature hereto, covenants that he, she or it shall not for a period of one (1) year after the Closing Date, directly or indirectly, except on behalf of the Surviving Corporation, its successors or assigns, solicit or accept risk management, insurance or bond business from any of the customers of the Agency and the Surviving Corporation as of the moment immediately preceding the Closing Date. Each of the Warranting Persons, by signature hereto, acknowledges: (i) that this covenant is ancillary to this Agreement, is integral hereto and is independent of any other provision herein, (ii) that this covenant is reasonably necessary for the protection of Buyer's and the Surviving Corporation's legitimate business interests; (iii) that this covenant poses no undue hardship on them and is reasonably limited as to duration and scope; and (iv) that this covenant is in addition to any covenants which any of the Warranting Persons may make in any employment or other agreements executed or to be executed with the Surviving Corporation as part of this Agreement. Further, if any part of this covenant is deemed overbroad or void as against public policy, each of the Warranting Persons, by signature hereto, acknowledges that such invalid portions shall be severable from this covenant to permit the Surviving Corporation and/or Buyer to obtain the maximum permissible benefit from this covenant. (d) The covenants and agreements of the Employee contained in paragraphs (a), (b) and (c) above are each separate and distinct covenants and agreements of the Employee and if any of paragraphs (a), (b) and (c) is void, invalid or unenforceable, such paragraph shall be severed from this Agreement and shall not affect or impair any other paragraph or the balance of this Agreement, and this Agreement with the void, invalid or unenforceable paragraph stricken herefrom shall remain in full force and effect. 18.10 Employee Stock Options. Prior to Closing, Buyer will request that the HRH Compensation Committee establish, after Closing, the right to participate in the HRH Stock Option Plan for employees of the Surviving Corporation. 18.11 Acceptance. The binding date of acceptance of this Agreement shall be the date on which the last of the parties executes the same. 18.12 Singular and Plural Cases and Gender. Notwithstanding anything in the foregoing to the contrary, where required by the context, the singular and plural cases and the masculine, feminine and neuter genders, respectively, shall be interchangeable. 18.13 Knowledge. Any reference herein to "the best of (a party's) knowledge" or to a party's "knowledge" will mean the actual knowledge of that party and the knowledge which they would have had if they had conducted a diligent inquiry into the relevant subject matter. 18.14 Binding Effect. Except as otherwise provided in this Agreement, the provisions hereof shall be binding upon, and shall inure to the benefit of, the parties hereto, and their respective heirs, devisees, personal representatives, successors and assigns. 18.15 Announcements. No public announcement with respect to the transactions contemplated by this Agreement shall be made by any of the parties hereto without the prior written approval of HRH, Elias, Dudek and Hayhurst. EXECUTED by the Warranting Persons this _______ day of June, 1995. HAYHURST ELIAS DUDEK, INC. By: __________________ Its: __________________ B.D.H. INSURANCE MANAGERS LIMITED By: __________________ Its: __________________ ELIAS AGENCIES LTD. By: Its: JO-MAR HOLDINGS, LTD. By: Its: BRIAN D. HAYHURST ENTERPRISES (1988) LTD. By: Its: ELIAS HOLDINGS, LTD. By: Its: DUDEK HOLDINGS, LTD. By: Its: 3157245 CANADA, LTD. By: Its: THE HAYHURST BARBADOS TRUST By: ____________________ Ernst & Young Services Limited, Sole Trustee of The Hayhurst Barbados Trust By: ____________________ Its: ___________________ ARTHUR G. ELIAS _______________________ IRENE T. ELIAS JOHN DUDEK MARILYN N. DUDEK BRIAN D. HAYHURST WILLIAM JESSIMAN THE ELIAS FAMILY TRUST By: ____________________ Arthur G. Elias, Sole Trustee of The Elias Family Trust THE DUDEK FAMILY TRUST By: ____________________ John Dudek, Sole Trustee of The Dudek Family Trust EXECUTED by HRH and the Buyer this ______ day of June, 1995. HILB, ROGAL AND HAMILTON COMPANY By: ____________________ Its:____________________ HILB, ROGAL AND HAMILTON COMPANY OF CANADA, LIMITED By: ____________________ Its:____________________ EX-24 3 EXHIBIT 24.36 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated August 19, 1994, except as to note 13 (for Hayhurst, Elias, Dudek, Inc.) and note 7 (for B.D.H. Insurance Managers Limited) which are dated February 13, 1995, with respect to the financial statements of Hayhurst, Elias, Dudek, Inc. and B.D.H. Insurance Managers Limited included in the Registration Statement (Form S-4 No. 33-44271) and related prospectus of Hilb, Rogal and Hamilton Company, dated February 12, 1992, and related Supplement to Prospectus dated June 28, 1995. KPMG Peat Marwick Thorne Chartered Accountants Winnapeg, Canada June 28, 1995 -----END PRIVACY-ENHANCED MESSAGE-----