-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OtmXEMgCXQauPlUzmdAxNcj85WU8Os9ok74LAeICScB577+b2QphrOH0YitRCr7O g/qUcs6RnhTaWDubfGLAqA== 0000814898-98-000006.txt : 19980930 0000814898-98-000006.hdr.sgml : 19980930 ACCESSION NUMBER: 0000814898-98-000006 CONFORMED SUBMISSION TYPE: 424B2 PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 19980929 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: SEC FILE NUMBER: 033-44271 FILM NUMBER: 98717422 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 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 HUNT INSURANCE GROUP, INC. The following information is furnished to supplement and complete the information contained in the Prospectus dated February 12, 1992 ("Prospectus"), relating to the offering of shares of the Common Stock of Hilb, Rogal and Hamilton Company ("Company") to the shareholders of Hunt Insurance Group, Inc. ("Hunt") of Tallahassee, Florida to consummate the merger of Hunt and the Company. Terms of the Transaction (a) (1) Effective on October 1, 1998, a subsidiary of the Company will consummate an Agreement of Merger with Hunt whereby the shareholders of Hunt will receive shares of Common Stock of the Company valued at $1,000,000 based on the average closing price for the period September 3, 1998 through September 17, 1998 ("Shares") plus five future stock payments subject to (i) all necessary corporate approvals of each corporation, (ii) all authorizations, consents and approvals of all federal, state, local and foreign governmental agencies and authorities required to be obtained, and (iii) all other conditions precedent as outlined in the Agreement of Merger (see Exhibit 2.32). The number of shares distributed to the shareholders of Hunt will be adjusted based upon the final determination of net worth as defined in the Agreement of Merger. The future stock payments will be made at applicable market prices based upon profits realized in the subsequent five year period which may increase the purchase price up to a maximum of shares valued at $745,000 in each year (subject to a minimum, before any applicable indemnity, of shares valued at $220,000 in each year). The contingent payments include imputed interest at the lowest applicable federal rate allowed under the Internal Revenue Code of 1986, as amended. Hilb, Rogal and Hamilton Company of Tallahassee, a newly formed subsidiary of the Company, will merge into Hunt Insurance Group, Inc. and the surviving corporation will be a wholly-owned subsidiary of the Company (the "Merger"). (2) The Merger with Hunt by the Company has been agreed upon because the Company is engaged in the business of owning insurance agencies and because the shareholders of Hunt have determined that a merger with the Company is beneficial to the growth of Hunt's operations. Hunt's operations will add approximately 40 employees and $3,500,000 of revenues to the Company. (3) Hunt was incorporated in 1984 in the state of Florida, and has 10,000 authorized shares of common stock, $1 par value. There are 5,375 shares issued and outstanding. (4) There are no material differences between the rights of the security holders of Hunt 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) Hunt will be included in the consolidated return of the Company as of the effective date. The acquisition will be recorded as a tax free exchange under the rules of I.R.C. Sections 368(a)(1)(A) and 368(a)(2)(E). (c) The acquisition agreement is incorporated into this supplement as Exhibit 2.32. Pro Forma Financial Information See attached - Schedule A Material Contracts with Seller There have been no material contracts between the Company and Hunt prior to the proposed effective date of the Agreement of Merger. Information with Respect to Hunt Insurance Group, Inc. Hunt was founded in 1984 and maintains its office in Tallahassee, Florida. Hunt specializes in administration of self-insurance funds and reinsurance programs directed primarily at law enforcement agencies. Services provided include administration fees (approximately 92% of commissions and fees), personal and commercial property and casualty insurance (approximately 3% of commissions and fees) and group and individual life and health insurance products (approximately 5% of commissions and fees). Common Stock and Dividend Data There is no established public trading market for the stock of Hunt. There are five shareholders of the corporation. See Shareholder Information below for information regarding shares held and information regarding authorized and issued shares. There were no common stock dividend distributions during the six months ended June 30, 1998 or the years ended December 31, 1997, 1996 and 1995. Shareholder Information (a) (1) We are not asking you for a proxy and you are requested not send us a proxy. (2) & (3) Hunt has agreed to submit the acquisition agreement to its shareholders for adoption by unanimous written consent after receipt and review of the Prospectus. Since the acquisition can be completed only with the unanimous consent of the shareholders of the company being acquired (Hunt), 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 company being acquired (Hunt) in the proposed transaction. (6) Hunt has 10,000 authorized shares of common stock,$1 par value. Shares outstanding are as follows: Number of Shareholders Common Percentage Shares ---------------------------------------------- John E. Hunt, Jr. 3,635 67.6% Richard T. Hunt 735 13.7 Scott P. Hunt 735 13.7 David J. Jilk 135 2.5 P. Daniel Condon 135 2.5 ------ ------ 5,375 100.0% ====== ====== (7) Upon completion of the proposed acquisition,no shareholder of Hunt will be serving as a director or executive officer of the registrant. Experts The consolidated financial statements of Hunt Insurance Group, Inc. as of and for the year ended December 31, 1997 appearing in this supplement to the Amended Prospectus dated February 12, 1992, and in the Registration Statement have been audited by Catledge, Sanders & Sanders, independent auditors, as set forth in their report thereon appearing elsewhere herein and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing. Hilb, Rogal and Hamilton Company Date of this Supplement: September 29, 1998 SCHEDULE A - PRO FORMA CONDENSED FINANCIAL STATEMENTS (UNAUDITED) The following pro forma condensed consolidated balance sheet as of June 30, 1998 and the pro forma consolidated income statements for the six months ended June 30, 1998 and the year ended December 31, 1997 give effect to the proposed acquisition of Hunt Insurance Group, Inc. ("Hunt"); and the acquisition of certain assets and liabilities of six insurance agencies purchased in 1997 and one insurance agency purchased in 1998. The pro forma information is based on the historical financial statements of Hilb, Rogal and Hamilton Company and the acquired agencies, giving effect to the transactions under the purchase method of accounting and the assumptions and adjustments in the accompanying notes to the pro forma financial statements. The pro forma consolidated income statements give effect to the purchase method acquisitions and proposed purchase method acquisitions as if they had occurred on January 1, 1997. The pro forma condensed consolidated balance sheet gives effect to the business combinations which occurred or are probable of occurring subsequent to June 30, 1998, as if they had occurred before June 30, 1998. The pro forma statements have been prepared by management based upon the historical financial statements of Hilb, Rogal and Hamilton Company, Hunt 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 1997 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) 6/30/98 HILB, ROGAL ACQUISITIONS PRO FORMA ADJUSTMENTS PRO FORMA AND HAMILTON (PURCHASES) FOR PURCHASE ACQUISITIONS CONSOLIDATED COMPANY ASSETS CASH AND CASH EQUIVALENTS $28,144,592 $592,936 (421,130) (1),(3) (700,000) (2) $27,616,398 INVESTMENTS 2,509,086 0 2,509,086 RECEIVABLES & OTHER 49,310,706 320,458 0 (3) 49,631,164 -------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 79,964,384 913,394 N/A (1,121,130) 79,756,648 INVESTMENTS 4,491,383 0 4,491,383 PROPERTY & EQUIPMENT 11,303,758 205,137 (205,137) (1) 150,000 (3) 11,453,758 INTANGIBLE ASSETS 82,640,121 0 0 3,869,535 (3) 86,509,656 OTHER ASSETS 5,419,956 23,352 5,443,308 -------------------------------------------------------------------------------------- TOTAL ASSETS $183,819,602 $1,141,883 N/A $2,693,268 $187,654,753 LIABILITIES & EQUITY: PREMIUMS PAYABLE-INS CO $68,349,289 $228,346 $68,577,635 OTHER ACCRUED LIABILITIES 23,279,515 262,270 0 23,541,785 -------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 91,628,804 490,616 N/A 0 92,119,420 LONG-TERM DEBT 31,598,133 0 0 1,544,535 (2) 33,142,668 OTHER LONG-TERM LIAB. 10,032,807 0 800,000 (2) 10,832,807 SHAREHOLDERS' EQUITY COMMON STOCK 9,352,650 5,375 (5,375) (4) 1,000,000 (2) 10,352,650 RETAINED EARNINGS 41,207,208 645,892 (645,892) (4) 41,207,208 ------------------------------------------------------------------------------------- 50,559,858 651,267 N/A 348,733 51,559,858 ------------------------------------------------------------------------------------- $183,819,602 $1,141,883 N/A $2,693,268 $187,654,753 =====================================================================================
(1) TO ADJUST FOR ASSETS AND LIABILITIES NOT ACQUIRED. (2) TO REFLECT PURCHASE PRICE OF ASSETS AND LIABILITIES ACQUIRED SUBSEQUENT TO JUNE 30, 1998 IN PURCHASE TRANSACTIONS. (3) TO ADJUST FOR ASSET VALUATIONS UNDER PURCHASE ACCOUNTING. (4) TO ELIMINATE SHAREHOLDERS' EQUITY OF ACQUIRED ENTITIES.
HILB, ROGAL & HAMILTON COMPANY CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) SIX MONTHS ENDED JUNE 30, 1998 -------------------------------------------------------------------------- HILB, ROGAL ACQUISITIONS PRO FORMA ADJUSTMENTS PRO FORMA & HAMILTON CO. (PURCHASES) FOR PURCHASE CONSOLIDATED ACQUISITIONS REVENUES: COMMISSIONS & FEES $91,031,861 $1,790,576 0 $92,822,437 INTEREST AND OTHER INCOME 3,589,614 18,676 ($17,500) (1) 3,590,789 -------------------------------------------------------------------------- TOTAL REVENUES 94,621,475 1,809,252 (17,500) 96,413,226 OPERATING EXPENSES: COMPENSATION AND BENEFITS 49,287,468 849,704 0 50,137,172 OTHER OPERATING EXPENSES 22,735,267 385,781 (10,504) (2) 23,110,542 AMORTIZATION OF INTANGIBLES 3,896,708 0 107,577 (3) 4,004,282 INTEREST EXPENSE 1,099,061 1,336 81,429 (4) 1,181,822 ------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 77,018,504 1,236,821 178,502 78,433,818 ------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 17,602,971 572,431 (196,002) 17,979,408 INCOME TAXES 7,211,833 150,572 (5) 7,362,400 ------------------------------------------------------------------------ NET INCOME $10,391,138 $572,431 ($346,574) $10,617,008 ======================================================================== NET INCOME PER COMMON SHARE $0.82 $0.83 NET INCOME PER COMMON SHARE ===== ===== - Assuming dilution $0.80 $0.81 ===== ===== SHARES ISSUED AND OUTSTANDING 12,434,137 55,556 12,489,693 ======================================================================== WEIGHTED AVERAGE SHARES OUTSTANDING 12,663,328 116,667 12,779,995 WEIGHTED AVERAGE SHARES ======================================================================== OUTSTANDING - Assuming dilution 12,911,810 116,667 13,028,477 ========================================================================
(1) TO ADJUST HISTORICAL INTEREST AND TO ADJUST FOR LOST INTEREST EARNED 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 ADJUST HISTORICAL INTEREST AND REFLECT INTEREST ON ACQUISITION DEBT. (5) TO REFLECT ESTIMATED TAXES AND THE TAX EFFECT OF PROFORMA ADJUSTMENTS ON NET INCOME.
HILB, ROGAL & HAMILTON COMPANY CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) YEAR ENDED DECEMBER 31, 1997 ---------------------------------------------------------------------------- HILB, ROGAL ACQUISITIONS PRO FORMA ADJUSTMENTS PRO FORMA & HAMILTON CO. (PURCHASES) FOR PURCHASE CONSOLIDATED ACQUISITIONS REVENUES: COMMISSIONS & FEES $168,558,411 $5,906,310 0 $174,464,721 INTEREST AND OTHER INCOME 5,150,469 129,504 ($135,625) (1) 5,144,348 --------------------------------------------------------------------------- TOTAL REVENUES 173,708,880 6,035,814 (135,625) 179,609,069 OPERATING EXPENSES: COMPENSATION AND BENEFITS 96,239,782 3,652,279 0 99,892,061 OTHER OPERATING EXPENSES 45,476,904 1,395,126 (88,764) (2) 46,783,266 AMORTIZATION OF INTANGIBLES 8,110,010 0 380,423 (3) 8,490,433 INTEREST EXPENSE 2,037,338 8,655 99,578 (4) 2,145,571 --------------------------------------------------------------------------- TOTAL OPERATING EXPENSES 151,864,034 5,056,059 391,237 157,311,330 --------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 21,844,846 979,755 (526,862) 22,297,738 INCOME TAXES 9,054,995 181,157 (5) 9,236,152 --------------------------------------------------------------------------- NET INCOME $12,789,851 $979,755 ($708,019) $13,061,586 =========================================================================== NET INCOME PER COMMON SHARE $0.98 $0.99 NET INCOME PER COMMON SHARE ===== ===== - assuming dilution $0.97 $0.98 ===== ===== SHARES ISSUED AND OUTSTANDING 12,813,023 55,556 12,868,579 =========================================================================== WEIGHTED AVERAGE SHARES OUTSTANDING 13,099,217 137,500 13,236,717 =========================================================================== WEIGHTED AVERAGE SHARES OUTSTANDING - assuming dilution 13,214,719 137,500 13,352,219 ===========================================================================
(1) TO ADJUST HISTORICAL INTEREST AND TO ADJUST FOR LOST INTEREST EARNED 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 ADJUST HISTORICAL INTEREST AND REFLECT INTEREST ON ACQUISITION DEBT. (5) TO REFLECT ESTIMATED TAXES AND THE TAX EFFECT OF PROFORMA ADJUSTMENTS ON NET INCOME. HUNT INSURANCE GROUP, INC. Tallahassee, Florida FINANCIAL STATEMENTS Year Ended December 31, 1997 HUNT INSURANCE GROUP, INC. Tallahassee, Florida YEAR ENDED DECEMBER 31, 1997 C O N T E N T S Independent Auditors' Report Balance Sheet, December 31, 1997 EXHIBIT A Statement of Income and Retained Earnings, Year Ended December 31, 1997 EXHIBIT B Statement of Cash Flows, Year Ended December 31, 1997 EXHIBIT C Notes to Financial Statements December 31, 1997 Management's Discussion and Analysis of Financial Condition and Results of Operations (2) Independent Auditor's Report To The Board of Directors and Stockholders Hunt Insurance Group, Inc. 2324 Centerville Road Tallahassee, Florida 32308 We have audited the accompanying balance sheet of HUNT INSURANCE GROUP, INC. as of December 31, 1997, and the related statements of income and retained earnings and cash flows for the year then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express on opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of HUNT INSURANCE GROUP, INC. as of December 31, 1997, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles. As discussed in Note 12 to the financial statements, management discovered adjustments necessary to deferred administrator's fees and directors' fees as of January 1, and December 31, 1997. Accordingly, these financial statements have been revised to include the correct amounts. CATLEDGE, SANDERS & SANDERS Certified Public Accountants July 29, 1998 (3) HUNT INSURANCE GROUP, INC. Tallahassee, Florida BALANCE SHEET DECEMBER 31, 1997 ASSETS CURRENT ASSETS Cash and cash equivalents $ 933,615 Receivables: Administrator's Fees 242,660 Other 19,959 Prepaid expenses and other current assets 219,492 ---------- TOTAL CURRENT ASSETS 1,415,726 PROPERTY AND EQUIPMENT, NET 149,884 OTHER ASSETS 23,528 ---------- $1,589,138 LIABILITIES AND STOCKHOLDERS' EQUITY ========== CURRENT LIABILITIES Accounts payable and accrued expenses $ 463,321 Deferred administrator's fees 779,270 Current portion of long-term debt 36,407 ---------- TOTAL CURRENT LIABILITIES 1,278,998 ---------- LONG-TERM DEBT 16,641 ---------- SHAREHOLDERS' EQUITY Common Stock, par value $1, authorized 10,000 shares; issued 5,375 shares 5,375 Paid in excess of par value 216,082 Retained Earnings 72,042 ---------- 293,499 ---------- $1,589,138 ========== Read Accompanying Notes EXHIBIT A (4) HUNT INSURANCE GROUP, INC. Tallahassee, Florida STATEMENT OF INCOME AND RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1997 REVENUES Commissions and fees $3,079,274 Investment and other income 25,728 ---------- 3,105,002 OPERATING EXPENSES ---------- Compensation and employee benefits 2,033,751 Other operating expenses 741,750 Interest expense 8,655 ---------- 2,784,156 ---------- INCOME BEFORE INCOME TAXES 320,846 Income taxes 130,652 ---------- NET INCOME 190,194 Retained earnings, January 1, 1997 ( 118,152) ---------- RETAINED EARNINGS, DECEMBER 31, 1997 $ 72,042 =========== NET INCOME PER COMMON SHARE: BASIC $ 36.04 DILUTED $ 36.04 Read the Accompanying Notes EXHIBIT B (5) HUNT INSURANCE GROUP, INC. Tallahassee, Florida STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 CASH FLOWS FROM OPERATING ACTIVITIES Net income (Exhibit B) $ 190,194 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation expense 67,943 Directors' fees paid by issuance of capital stock 27,972 Decrease in accounts receivable 567,083 Increase in prepaid expense and other current assets 13,753 Decrease in other assets 27,178 Decrease in accounts payable and accrued expenses ( 101,678) Increase in deferred administrator's fees 79,122 Net realized gains on available-for-sale securities ( 998) Gain on disposition of equipment ( 1,474) ------------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES 869,095 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of equipment ( 65,064) Proceeds from sale of equipment 10,757 Loans to officers and employees ( 112,829) Net cash flows used by ------------ investing activities ( 167,136) CASH FLOWS FROM FINANCING ACTIVITIES Repayment of short-term debt ( 54,428) Repayment of long-term debt ( 22,038) Net cash flows used by ------------ financing activities ( 76,466) ------------- NET INCREASE IN CASH AND CASH EQUIVALENTS 625,493 Cash and cash equivalents, January 1, 1997 308,122 ------------- CASH AND CASH EQUIVALENTS, DECEMBER 31, 1997 $ 933,615 ============= SUPPLEMENTAL DISCLOSURES Interest paid $ 8,655 Income taxes paid $ 37,688 Read the Accompanying Notes EXHIBIT C (6) HUNT INSURANCE GROUP, INC. Tallahassee, Florida NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997 HUNT INSURANCE GROUP, INC. is a Florida Corporation located in Tallahassee, Florida. Its income is derived principally from management of self-insurance funds for law enforcement agencies in the State of Florida, consulting fees, and insurance commissions. ACCOUNTING METHOD - Assets, liabilities, income and expenses are recognized on the accrual basis of accounting. DEPRECIATION - Property and equipment are depreciated over the estimated useful lives of the assets by use of accelerated and straight-line methods. CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment at December 31, 1997 consist of the following: Classification Cost -------------- -------- Automobiles $ 54,484 Communication Equipment 58,100 Computer Equipment 285,332 Furniture & Equipment 180,723 Leasehold Improvements 67,745 -------- Total Cost 646,384 Less Accumulated Depreciation 496,500 -------- Net Property and Equipment $149,884 ======== Depreciation expense for 1997 was $67,943. NOTE 3 - RENT The Company rents its physical location on a month-to-month basis from its major stockholders. Total rents paid for 1997 were $110,098. (7) NOTES TO FINANCIAL STATEMENT (Continued) NOTE 4 - INCOME TAX EFFECT Various income and expense items of the Company are non-taxable or non- deductible for Federal and State income taxes. As a result, the Company's taxable income is $274,925. Income tax expense is computed as follows: Federal Florida Total ------------------------------- Income Tax Expense $112,002 $18,650 $130,652 Income Tax Per Tax Returns 90,471 15,710 106,181 -------- ------- -------- Reduction in Deferred Tax Asset $ 21,531 $ 2,940 $ 24,471 ======== ======= ======== The balance of the deferred tax asset of $36,740, resulting from deferred compensation, is included in the financial statements as an other current asset. NOTE 5 - NOTES PAYABLE Total Current Long-Term Debt Portion Portion ------- ------- --------- Description Bank note, payable monthly at $602 including interest at 8.75% per annum collateralized by $27,911 of automotive equipment. $22,142 $ 5,501 $16,641 Bank note, payable monthly at $3,403, plus interest at prime rate of Sun Bank. Principal balance due on May 17, 1998. Management intends to renew at the same monthly repayment terms for an additional year. No collateral. 30,656 30,656 Bank lines of credit, no collateral, total commitment of $700,000. 250 250 ------- ------- ------- Totals $53,048 $36,407 $16,641 Scheduled future maturities of debt outstanding at December 31, 1997 are: 1998 - $36,407; 1999 - $6,002; 2000 - $6,547; 2001 - $4,092. (8) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 6 - EQUIPMENT LEASE COMMITMENTS The Company leases vehicles and equipment under operating lease agreements. The future minimum lease payments are as follows: Year Ended Amount ---------- ------- 12/31/98 $16,738 12/31/99 12,802 12/31/00 12,802 12/31/01 9,964 ------- Total $52,306 ======= NOTE 7 - CASH DEPOSITS IN EXCESS OF INSURED LIMITS The company maintains bank accounts with balances in excess of the federally insured limits. NOTE 8 - CONTINGENCIES The Company has entered into an indemnity agreement with one of the self-insurance funds it administers. The Company agreed to hold the Fund harmless from any liability the Fund incurs as a result of a legal action against the Fund, if the liability is the result of the Company's negligence. The legal action is for $758,034 plus interest and fees. The Fund's attorneys are contesting the legal action. The Company's attorneys are of the opinion the Company will not incur liability as a result of this matter. Also, the Company has insurance coverage available to cover this type of claim. Therefore, no liability is provided for this contingency. NOTE 9 - RISKS AND UNCERTAINTIES The Company's administration contracts are with a small number of self-insurance funds. Loss of a major contract agreement could have a significant financial impact on the Company. NOTE 10 - PENSION PLAN The Company has a 401-K plan covering substantially all of its employees. The plan allows employees to defer up to 15% of their compensation on an elective, pretax basis, subject to the maximum limit allowed by law. The Company also has the option each year to make a discretionary contribution to the plan on behalf of the employees. Company contributions and other expenses of the plan were $66,685 for the current year. (9) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 11 - RESTATEMENT OF DECEMBER 31,1997 FINANCIAL STATEMENTS Management discovered adjustments necessary to the balances of deferred administrator's fees, and directors' fee expense, as of the current and prior year ends. Accordingly, these financial statements have been revised to include the correct balances as follows: Revised Prior Financial Financial Statements Statements Change ---------- ---------- -------- Prepaid Expenses $ 36,740 $ 36,740 Deferred Administrator's Fees $779,270 $510,161 $269,109 Beginning Retained Earnings ($118,152) $264,748 ($382,900) Net Income $190,194 $144,635 $ 45,559 NOTE 12 - CAPITAL STOCK Board of Directors' fees were paid by issuing 50 shares of the Company's capital stock. This was recorded as an operating expense in the amount of $27,972. (10) HUNT INSURANCE GROUP, INC. Tallahassee, Florida FINANCIAL STATEMENTS Year Ended December 31, 1996 HUNT INSURANCE GROUP, INC. Tallahassee, Florida YEAR ENDED DECEMBER 31, 1996 C O N T E N T S Accountants' Report Balance Sheet, December 31, 1996 EXHIBIT A Statement of Income and Retained Earnings, Year Ended December 31, 1996 EXHIBIT B Statement of Cash Flows, Year Ended December 31, 1996 EXHIBIT C Notes to Financial Statements December 31, 1996 Management's Discussion and Analysis of Financial Condition and Results of Operations (2) Accountants' Report To The Board of Directors and Stockholders Hunt Insurance Group, Inc. 2324 Centerville Road Tallahassee, Florida 32308 We have reviewed the accompanying balance sheet of HUNT INSURANCE GROUP, INC. as of December 31, 1996, and the related statements of income and retained earnings and cash flows for the year then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Hunt Insurance Group, Inc. A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. As discussed in Note 11 to the financial statements, management discovered adjustments necessary to the financial statements as of January 1, and December 31, 1996, subsequent to the issuance of our report on those financial statements dated March 31, 1997. Accordingly, these financial statements have been restated to include the necessary adjustments. CATLEDGE, SANDERS & SANDERS Certified Public Accountants July 29, 1998 (3) HUNT INSURANCE GROUP, INC. Tallahassee, Florida BALANCE SHEET DECEMBER 31, 1996 ASSETS CURRENT ASSETS Cash and cash equivalents $ 308,122 Receivables: Premiums, less allowance for doubtful accounts of $53,273 350,945 Administrator's fees 468,367 Other 10,390 Prepaid expenses and other current assets 120,416 ---------- TOTAL CURRENT ASSETS 1,258,240 PROPERTY AND EQUIPMENT, NET 162,047 OTHER ASSETS 49,707 ---------- $1,469,994 ========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 564,999 Deferred administrator's fees 700,148 Current portion of long-term debt 90,835 ---------- TOTAL CURRENT LIABILITIES 1,355,982 ---------- LONG-TERM DEBT 38,679 ---------- SHAREHOLDER'S EQUITY Common Stock, par value $1, authorized 10,000 shares; issued 5,325 shares 5,325 Paid in excess of par value 188,160 Retained earnings ( 118,152) ---------- 75,333 ---------- $1,469,994 ========== Read Accompanying Notes and Accountants' Report EXHIBIT A (4) HUNT INSURANCE GROUP, INC. Tallahassee, Florida STATEMENT OF INCOME AND RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1996 REVENUES Commissions and fees $2,621,827 Investment and other income 1,761 ---------- 2,623,588 ---------- OPERATING EXPENSES Compensation and employee benefits 1,724,286 Other operating expenses 709,366 Interest expense 20,824 ---------- 2,454,476 ---------- INCOME BEFORE INCOME TAXES 169,112 Income taxes 67,944 ---------- NET INCOME 101,168 Retained earnings, January 1, 1996 ( 219,320) ---------- RETAINED EARNINGS, DECEMBER 31, 1996 ($ 118,152) ========== NET INCOME PER COMMON SHARE: BASIC $ 19.23 DILUTED $ 19.23 Read the Accompanying Notes and Accountants' Report EXHIBIT B (5) HUNT INSURANCE GROUP, INC. Tallahassee, Florida STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1996 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $2,451,066 Income tax refund 9,639 Interest and other income received 13,309 Cash provided by ---------- operating activities $2,474,014 Cash paid for operating expenses 2,222,838 Cash paid for interest expense 20,824 ---------- Cash paid for operating activities 2,243,662 Net cash flows provided by ---------- operating activities 230,352 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ( 81,125) Proceeds from sale of equipment 13,533 Proceeds of life insurance cash values 103,525 Loans to officers and employees ( 41,679) ---------- Net cash flows used by investing activities ( 5,746) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds of long-term debt 29,155 Repayment of short-term debt ( 135,265) Repayment of long-term debt ( 39,202) ---------- Net cash flows used by financing activities ( 145,312) ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 79,294 Cash and cash equivalents, January 1, 1996 228,828 ----------- CASH AND CASH EQUIVALENTS, DECEMBER 31, 1996 $ 308,122 =========== RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES Net income (Exhibit B) $ 101,168 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation expense 64,433 Directors' fees paid by issue of capital stock 77,000 Increase in accounts receivable ( 595,361) Increase in prepaid expense ( 29,827) Decrease in other assets 100,374 Increase in accounts payable and accrued expenses 363,354 Increase in deferred administrator's fees 135,001 Loss on disposition of equipment 14,210 ----------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 230,352 =========== Read the Accompanying Notes and Accountants' Report. EXHIBIT C (6) HUNT INSURANCE GROUP, INC. Tallahassee, Florida NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1996 NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES HUNT INSURANCE GROUP, INC. is a Florida Corporation located in Tallahassee, Florida. Its income is derived principally from management of self-insurance funds for law enforcement agencies in the State of Florida, consulting fees, and insurance commissions. ACCOUNTING METHOD - Assets, liabilities, income and expenses are recognized on the accrual basis of accounting. DEPRECIATION - Property and equipment are depreciated over the estimated useful lives of the assets by use of accelerated and straight-line methods. CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment at December 31, 1996 consist of the following: Classification Cost -------------- -------- Automobiles $ 74,685 Communication Equipment 44,155 Computer Equipment 245,254 Furniture & Equipment 175,468 Leasehold Improvements 63,370 -------- Total Cost 602,932 Less Accumulated Depreciation 440,885 -------- Net Property and Equipment $162,047 ======== Depreciation expense for 1996 was $64,433. NOTE 3 - RENT The Company rents its physical location on a month-to-month basis from its major stockholders. Total rents paid for 1996 were $106,731. (7) NOTES TO FINANCIAL STATEMENT (Continued) NOTE 4 - INCOME TAX EFFECT Various income and expense items of the Company are non-taxable or non-deductible for Federal and State income taxes. As a result, the Company's taxable income is $77,483. Income tax expense is computed on this amount as follows: Federal Florida Total ------- ------- ------- Income Tax Expense $60,995 $ 6,949 $67,944 Income Tax Per Tax Returns 14,573 4,215 18,788 ------- ------- ------- Reduction in Deferred Tax Asset $46,422 $ 2,734 $49,156 ======= ======= ======= The balance of the net deferred tax asset of $61,211 is included in the financial statements as an other current asset. Components of the deferred tax asset are as follows: Deferred Administrator's Fees $ 77,457 Deferred Compensation ( 16,246) -------- Total $ 61,211 ======== NOTE 5 - NOTES PAYABLE Total Current Long-Term Debt Portion Portion -------- ------- --------- Description Bank note, payable monthly at $1,583, plus interest at prime rate of Sun Bank. No collateral. $ 9,500 $ 9,500 Bank note, payable monthly at $602 including interest at 8.75% per annum collateralized by $27,911 of automotive equipment. 27,184 5,042 $ 22,142 Bank note, payable monthly at $3,403, plus interest at prime rate of Sun Bank. Principal balance due on May 17, 1997. Management intends to renew at the same monthly repayment terms for an additional year. No collateral. 71,472 71,472 Note payable monthly to individual at $501, including interest at 7.75% per annum. No collateral. 21,108 4,571 16,537 Bank lines of credit, no collateral, total commitment of $700,000. 250 250 -------- -------- -------- Totals $129,514 $ 90,835 $ 38,679 ======== ======== ======== Scheduled future maturities of outstanding debt at December 31, 1996 are: 1997 - $90,835; 1998 - $10,403; 1999 - $11,298; 2000 - $12,271 and thereafter - $4,707. (8) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 6 - EQUIPMENT LEASE COMMITMENTS The Company leases vehicles under operating lease agreements. The future minimum lease payments are as follows: Year Ended Amount ---------- ------- 12/31/97 $ 8,723 12/31/98 3,936 ------- Total $12,659 ======= Total lease expense under these leases for 1996 was $16,858. NOTE 7 - CASH DEPOSITS IN EXCESS OF INSURED LIMITS The company maintains bank accounts with balances in excess of the federally insured limits. NOTE 8 - CONTINGENCIES The Company entered into an indemnity agreement with one of the self-insurance funds it administers. The Company agreed to hold the Fund harmless from any liability the Fund incurs as a result of a legal action against the Fund, if the liability is the result of the Company's negligence. The legal action is for $758,034 plus interest and fees. The Fund's attorneys are contesting the legal action. The Company's attorneys are of the opinion the Company will not incur liability as a result of this matter. Also, the Company has insurance coverage available to cover this type of claim. Therefore, no liability is provided for this contingency. NOTE 9 - RISKS AND UNCERTAINTIES The Company's administration contracts are with a small number of self-insurance funds. Loss of a major contract agreement could have a significant financial impact on the Company. NOTE 10 - RESTATEMENT OF DECEMBER 31, 1996 FINANCIAL STATEMENTS Management discovered adjustments necessary to the balances of deferred administrator's fees, as of the current and prior year ends, and directors' fee expense for the current year end. Accordingly, these financial statements have been revised to include the correct balances as follows: Revised Prior Financial Financial Statements Statements Change ---------- ---------- -------- Prepaid Expense $120,416 $ 59,205 $ 61,211 Deferred Administrator's Fees $700,148 $700,148 Beginning Retained Earnings ($219,320) $235,460 ($454,780) Net Income $101,168 $ 29,288 $ 71,880 (9) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 11 - CAPITAL STOCK Board of Directors' fees were paid by issuing 175 shares of the Company's capital stock. This was recorded as an operating expense in the amount of $77,000. NOTE 12 - PENSION PLAN The Company has a 401-K plan covering substantially all of its employees. The plan allows employees to defer up to 15% of their compensation on an elective, pretax basis, subject to the maximum limit allowed by law. The Company also has the option each year to make a discretionary contribution to the plan on behalf of the employees. Company contributions and other expenses of the plan were $56,491 for 1996. (10) HUNT INSURANCE GROUP, INC. Tallahassee, Florida FINANCIAL STATEMENTS Year Ended December 31, 1995 HUNT INSURANCE GROUP, INC. Tallahassee, Florida YEAR ENDED DECEMBER 31, 1995 C O N T E N T S Accountants' Report Balance Sheet, December 31, 1995 EXHIBIT A Statement of Income and Retained Earnings, Year Ended December 31, 1995 EXHIBIT B Statement of Cash Flows, Year Ended December 31, 1995 EXHIBIT C Notes to Financial Statements December 31, 1995 Management's Discussion and Analysis of Financial Condition and Results of Operations (2) Accountants' Report To The Board of Directors and Stockholders Hunt Insurance Group, Inc. 2324 Centerville Road Tallahassee, Florida 32308 We have reviewed the accompanying balance sheet of HUNT INSURANCE GROUP, INC. as of December 31, 1995, and the related statements of income and retained earnings and cash flows for the year then ended, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. All information included in these financial statements is the representation of the management of Hunt Insurance Group, Inc. A review consists principally of inquiries of Company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in conformity with generally accepted accounting principles. As discussed in Note 10 to the financial statements, management discovered adjustments necessary to the financial statements as of January 1, and December 31, 1995, subsequent to the issuance of our report on those financial statements dated February 21, 1996. Accordingly, these financial statements have been restated to include the necessary adjustments. CATLEDGE, SANDERS & SANDERS Certified Public Accountants July, 29, 1998 (3) HUNT INSURANCE GROUP, INC. Tallahassee, Florida BALANCE SHEET DECEMBER 31, 1995 ASSETS CURRENT ASSETS Cash and cash equivalents $ 228,828 Receivables: Administrator's fees 136,896 Other 97,445 Prepaid expenses and other current assets 152,235 --------- TOTAL CURRENT ASSETS 615,404 PROPERTY AND EQUIPMENT, NET 173,098 OTHER ASSETS 150,081 --------- $ 938,583 ========= LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 201,645 Deferred administrator's fees 565,147 Current portion of long-term debt 232,784 --------- TOTAL CURRENT LIABILITIES 999,576 --------- LONG-TERM DEBT 41,842 --------- SHAREHOLDERS' EQUITY Common Stock, par value $1, authorized 10,000 shares; issued 5,150 5,150 Paid in excess of par value 111,335 Retained earnings ( 219,320) --------- ( 102,835) --------- $ 938,583 ========= Read Accompanying Notes and Accountants' Report EXHIBIT A (4) HUNT INSURANCE GROUP, INC. Tallahassee, Florida STATEMENT OF INCOME AND RETAINED EARNINGS YEAR ENDED DECEMBER 31, 1995 REVENUES Commissions and fees $2,125,881 Investment and other income 9,103 ---------- 2,134,984 OPERATING EXPENSES Compensation and employee benefits 1,526,302 Other operating expenses 620,018 Interest expense 45,293 ---------- 2,191,613 INCOME (LOSS) BEFORE INCOME TAXES ( 56,629) Income tax benefit ( 6,639) ---------- NET INCOME (LOSS) ( 49,990) Retained earnings, January 1, 1995 ( 131,052) Retirement of treasury stock ( 38,278) ---------- RETAINED EARNINGS, DECEMBER 31, 1995 ($ 219,320) ========== NET INCOME (LOSS) PER COMMON SHARE: BASIC ($ 9.71) DILUTED ($ 9.71) Read Accompanying Notes and Accountants' Report EXHIBIT B (5) HUNT INSURANCE GROUP, INC. Tallahassee, Florida STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1995 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from customers $2,246,236 Interest and other income received 9,103 ---------- Cash provided by operating activities $2,255,339 Cash paid for operating expenses 2,164,901 Cash paid for interest expense 45,293 Cash paid for income taxes 3,987 ---------- Cash paid for operating activities 2,214,181 --------- Net cash flows provided by operating activities 41,158 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment ( 2,234) ----------- Net cash flows used by investing activities ( 2,234) CASH FLOWS FROM FINANCING ACTIVITIES Proceeds of long-term debt 101,050 Repayment of long-term debt ( 63,263) ---------- Net cash flows provided by financing activities 37,787 ----------- NET INCREASE IN CASH AND CASH EQUIVALENTS 76,711 Cash and cash equivalents, January 1, 1995 152,117 ----------- CASH AND CASH EQUIVALENTS, DECEMBER 31, 1995 $ 228,828 =========== RECONCILIATION OF NET INCOME TO NET CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) (Exhibit B) ($ 49,990) Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation expense 51,900 Decrease in accounts receivable 108,654 Increase in prepaid expense ( 13,749) Increase in other assets ( 15,711) Decrease in accounts payable and accrued expenses ( 50,686) Increase in deferred administrator's fees 10,740 ----------- NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES $ 41,158 =========== Read the Accompanying Notes and Accountants' Report. EXHIBIT C (6) HUNT INSURANCE GROUP, INC. Tallahassee, Florida NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1995 NOTE 1 - DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES HUNT INSURANCE GROUP, INC. is a Florida Corporation located in Tallahassee, Florida. Its income is derived principally from management of self-insurance funds, consulting fees, and insurance commissions. ACCOUNTING METHOD - Assets, liabilities, income and expenses are recognized on the accrual basis of accounting. DEPRECIATION - Property and equipment are depreciated over the estimated useful lives of the assets by use of accelerated and straight-line methods. CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity date of three months or less to be cash equivalents. ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 2 - PROPERTY AND EQUIPMENT Property and equipment at December 31, 1995 consist of the following: Classification Cost -------------- -------- Automobiles $111,030 Communication Equipment 44,156 Computer Equipment 198,032 Furniture & Equipment 174,709 Leasehold Improvements 58,596 -------- Total Cost 586,523 Less Accumulated Depreciation 413,425 -------- Net Property and Equipment $173,098 ======== Depreciation expense for 1995 was $51,900. NOTE 3 - RENT The Company rents its physical location on a month-to-month basis from its major stockholders. Total rents paid for 1995 were $125,601. (7) NOTES TO FINANCIAL STATEMENT (Continued) NOTE 4 - INCOME TAX EFFECT Various income and expenses of the Company are non-taxable and non-deductible for Federal and State income taxes. As a result, the Company's net operating loss is $17,023. The income tax effect of this loss carried back to 1992 for Federal tax purposes is a refund due of $6,639. A deferred tax asset of $110,367, resulting from deferred administrator's fees, is included in the financial statements as an other current asset. NOTE 5 - NOTES PAYABLE Total Current Long-Term Debt Portion Portion -------- --------- ---------- Description Bank note, payable monthly at $1,583, plus interest at prime rate of Sun Bank. No collateral. $ 28,300 $ 19,000 $ 9,300 Bank note, payable monthly at $623 including interest at 7.40% per annum collateralized by $20,000 of automotive equipment. 4,850 4,850 Bank note, payable monthly at $3,403, plus interest at prime rate of Sun Bank. Principal balance due on May 17, 1996. Management intends to renew at the same monthly repayment terms for an additional year. No collateral. 105,487 105,487 Note payable monthly to individual at $501, including interest at 7.75% per annum. No collateral. 34,689 3,447 31,242 Bank line of credit, no collateral, due on demand, interest at .5% above the bank's prime rate, payable quarterly. 100,000 100,000 Bank lines of credit, no collateral, total commitment of $700,000. 1,300 1,300 -------- -------- -------- Totals $274,626 $232,784 $ 41,842 ======== ======== ======== Scheduled future maturities of outstanding debt at December 31, 1995 are: 1996 - $232,784; 1997 - $13,025; 1998 - $4,024; 1999 - $4,347; 2000 - $4,696; and thereafter - $15,750. (8) NOTES TO FINANCIAL STATEMENTS (Continued) NOTE 6 - RETIREMENT PLANS The Company adopted a profit sharing plan effective January 1, 1985. The Plan covers all eligible employees. Determination of the amount contributed to the plan is made by the Board of Directors annually. There was no contribution for 1995. During 1995 a 401-K plan was adopted effective January 1, 1995, covering all substantially all employees of the Company. The plan allows employees to defer up to 15% of their compensation on an elective, pretax basis, subject to the maximum limit allowed by law. The Company also has the option to make a discretionary contribution to the plan on behalf of the employees. The Company paid $2,710 in administrative costs for the plan in 1995. NOTE 7 - TREASURY STOCK During 1994 the Company purchased 110 shares of its outstanding common stock for $38,388. This stock was retired in 1995 and shown as a reduction of outstanding stock and retained earnings at cost. NOTE 8 - EQUIPMENT LEASE COMMITMENTS The Company leases vehicles under operating lease agreements. The future minimum lease payments are as follows: Year Ended Amount ---------- ------- 12/31/96 $12,922 12/31/97 851 ------- Total $13,773 ======= Total lease expense under these leases for 1995 was $23,721. NOTE 9 - CASH DEPOSITS IN EXCESS OF INSURED LIMITS The Company maintains bank accounts with balances in excess of federally insured limits. NOTE 10 - RESTATEMENT OF DECEMBER 31, 1995 FINANCIAL STATEMENTS Management discovered adjustments necessary to the balances of deferred administrator's fees as of the current and prior year ends. Accordingly, these financial statements have been revised to include the correct balances as follows: Revised Prior Financial Financial Statements Statements Change ---------- ---------- -------- Prepaid Expense $152,235 $ 41,868 $110,367 Deferred Administrator's Fees $565,147 $565,147 Beginning Retained Earnings ($131,052) $312,988 ($444,040) Net Income (Loss) ($ 49,990) ($ 39,250) ($ 10,740) (9) HUNT INSURANCE GROUP, INC. Tallahassee, Florida FINANCIAL STATEMENTS Three and Six Months Ended June 30, 1998 and 1997 HUNT INSURANCE GROUP, INC. Tallahassee, Florida THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 _________________________________________________ C O N T E N T S _______________ Accountant's Report Balance Sheets, June 30, 1998 and December 31, 1997 EXHIBIT A Statements of Income and Retained Earnings, Three and six months ended June 30, 1998 and 1997 EXHIBIT B Statements of Cash Flows, Six months ended June 30, 1998 and 1997 EXHIBIT C Notes to financial statements Management's Discussion and Analysis of Financial Condition and Results of Operations (2) Accountant's Report - ------------------- To The Board of Directors and Stockholders Hunt Insurance Group, Inc. 2324 Centerville Road Tallahassee, Florida 32308 We have compiled the accompanying balance sheets of HUNT INSURANCE GROUP, INC. (a corporation) as of June 30, 1998, and December 31, 1997, and the related statements of income and retained earnings for the three and six months ended June 30, 1998 and 1997, and cash flows for the six months ended June 30, 1998 and 1997, in accordance with Statements on Standards for Accounting and Review Services issued by the American Institute of Certified Public Accountants. A compilation is limited to presenting in the form of financial statements information that is the representation of management. We have not audited or reviewed the accompanying financial statements and, accordingly, do not express an opinion or any other form of assurance on them. Management has elected to omit substantially all of the disclosures ordinarily included in financial statements prepared in accordance with generally accepted accounting principles. If the omitted disclosures were included in the financial statements, they might influence the user's conclusions about the company's assets, liabilities, equity, revenues, and expenses. Accordingly, these financial statements are not designed for those who are not informed about such matters. CATLEDGE, SANDERS & SANDERS Certified Public Accountants August 17, 1998 (3) HUNT INSURANCE GROUP, INC. Tallahassee, Florida BALANCE SHEETS JUNE 30, 1998 AND DECEMBER 31, 1997 (UNAUDITED) 1998 1997 ASSETS ------ ----- CURRENT ASSETS Cash and cash equivalents $ 592,936 $ 933,615 Receivables: Administrator's fees 45,351 242,660 Other 45,857 19,959 Prepaid expenses and other current assets 229,250 219,492 ---------- ---------- TOTAL CURRENT ASSETS 913,394 1,415,726 PROPERTY AND EQUIPMENT, NET 205,137 149,884 OTHER ASSETS 23,352 23,528 ---------- ---------- $1,141,883 $1,589,138 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Accounts payable and accrued expenses $ 228,346 $ 463,321 Deferred administrator's fees 262,020 779,270 Current portion of long-term debt 250 36,407 ---------- ---------- TOTAL CURRENT LIABILITIES 490,616 1,278,998 ---------- ---------- LONG-TERM DEBT - 16,641 ---------- ---------- SHAREHOLDERS' EQUITY Common Stock, par value $1, authorized 10,000 shares; issued 5,375 5,375 5,375 Paid in excess of par value 216,082 216,082 Retained earnings 429,810 72,042 ---------- ---------- 651,267 293,499 ---------- ---------- $1,141,883 $1,589,138 ========== ========== Read Accountant's Report EXHIBIT A (4) HUNT INSURANCE GROUP, INC. Tallahassee, Florida STATEMENTS OF INCOME AND RETAINED EARNINGS THREE AND SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1998 1997 1998 1997 ------------------------------------------ REVENUES Commissions and fees $901,604 $717,828 $1,790,576 $1,411,043 Investment and other income 8,680 29,774 18,676 48,989 -------- -------- ---------- ---------- 910,284 747,602 1,809,252 1,460,032 OPERATING EXPENSES -------- -------- ---------- ---------- Compensation and employee benefits 473,168 363,459 849,704 728,914 Other operating expenses 209,863 188,247 385,781 380,461 Interest expense 286 2,191 1,336 4,898 -------- -------- ---------- ---------- 683,317 553,897 1,236,821 1,114,273 -------- -------- ---------- ---------- INCOME BEFORE INCOME TAXES 226,967 193,705 572,431 345,759 Income taxes 85,113 72,640 214,662 129,660 -------- -------- ---------- ---------- NET INCOME 141,854 121,065 357,769 216,099 Retained earnings, Beginning 287,956 ( 23,118) 72,041 ( 118,152) -------- --------- ---------- ------------ RETAINED EARNINGS, ENDING $429,810 $ 97,947 $ 429,810 $ 97,947 ======== ========= ========== ============ NET INCOME PER COMMON SHARE: BASIC $ 26.39 $ 22.73 $ 66.56 $ 40.58 DILUTED $ 26.39 $ 22.73 $ 66.56 $ 40.58 Read Accountant's Report EXHIBIT B HUNT INSURANCE GROUP, INC. Tallahassee, Florida STATEMENTS OF CASH FLOWS SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED) 1998 1997 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES Net income (Exhibit B) $357,769 $216,099 Adjustments to reconcile net income to net cash flows provided by operating activities: Depreciation expense 25,504 24,535 Gain on sale of equipment ( 1,275) (Increase) decrease in accounts receivable 171,411 760,082 (Increase) decrease in prepaid expense and other current assets ( 9,758) ( 22,782) Increase (decrease) in other assets 175 ( 309) Decrease in accounts payable and accrued expenses ( 234,973) ( 320,062) Decrease in deferred administrator's fees ( 517,250) ( 527,875) ---------- ---------- NET CASH FLOWS PROVIDED (USED) BY OPERATING ACTIVITIES ( 207,122) 128,413 ---------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Sale of equipment - 9,599 Purchase of equipment ( 80,759) ( 22,876) Net cash flows used by ---------- ---------- investing activities ( 80,759) ( 13,277) CASH FLOWS FROM FINANCING ACTIVITIES ---------- ---------- Repayment of short-term debt ( 36,157) ( 40,389) Increase (repayment) of long-term debt ( 16,641) 5,776 Net cash flows used by ---------- ---------- financing activities ( 52,798) ( 34,613) ---------- ---------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ( 340,679) 80,523 Cash and cash equivalents, January 1 933,615 308,122 ---------- ---------- CASH AND CASH EQUIVALENTS, JUNE 30 $592,936 $388,645 ========== ========== SUPPLEMENTAL DISCLOSURES Interest paid $ 1,336 $ 4,898 Read Accountant's Report EXHIBIT C (6) HUNT INSURANCE GROUP, INC. Tallahassee, Florida NOTES TO FINANCIAL STATEMENTS JUNE 30, 1998 NOTE 1 - BASIS OF PRESENTATION The accompanying unaudited financial statements of Hunt Insurance Group, Inc. 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 necessary for a fair presentation have been included. Operating results for the six month period ended June 30, 1998 are not necessarily indicative of the results that may be expected for the year ending December 31, 1998. For further information, refer to the financial statements and footnotes thereto for the year ended December 31, 1997. NOTE 2 - INCOME TAXES A deferred tax asset of $36,740 at June 30, 1998, and $48,975 for June 30, 1997 is included in other current assets. The deferred taxes result from temporary differences between the reporting for income tax and financial statement purposes primarily related to deferred administrator's fees and deferred compensation arrangements. NOTE 3 - NET INCOME PER SHARE The following table sets forth the computation of basic and diluted net income per share. THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30 JUNE 30 1998 1997 1998 1997 ---------------------------------------- Numerator for basic and dilutive net income per share - net income $141,854 $121,065 $357,769 $216,099 -------- -------- -------- -------- Denominator Weighted average shares for basic and dilutive net income per share 5,375 5,325 5,375 5,325 -------- -------- -------- -------- Net income per common share Basic $ 26.39 $ 22.73 $ 66.56 $ 40.58 ======== ======== ======== ======== Diluted $ 26.39 $ 22.73 $ 66.56 $ 40.58 ======== ======== ======== ======== (7)
HUNT INSURANCE GROUP, INC. Tallahassee, Florida SELECTED FINANCIAL DATA Year Ended December 31 1997 1996 1995 1994 1993 - ------------------------------------------------------------------------------------------------- Statement of Consolidated Income Data: Commissions and Fees $ 3,079,274 $ 2,621,827 $ 2,125,881 $ 2,254,480 $ 2,471,245 Investment and other income 25,728 1,761 9,103 5,178 19,251 Total revenues 3,105,002 2,623,588 2,134,984 2,259,658 2,490,496 Compensation and employee benefits 2,033,751 1,724,286 1,526,302 1,574,564 1,681,911 Other operating expenses 741,750 709,366 620,018 712,059 740,262 Amortization of intangibles - - - - - Interest expense 8,655 20,824 45,293 26,116 27,677 Total expenses 2,784,156 2,454,476 2,191,613 2,312,739 2,449,850 Income before income taxes 320,846 169,112 (56,629) (53,081) 40,646 Income taxes 130,652 67,944 (6,639) 1,059 24,424 Net income (loss) $ 190,194 $ 101,168 $ (49,990) $ (54,140) $ 16,222 Net income (loss) per Common Share: Basic $ 36.04 $ 19.23 $ (9.71) $ (10.51) $ 3.08 Diluted $ 36.04 $ 19.23 $ (9.71) $ (10.51) $ 3.08 Weighted average number of shares outstanding: Basic 5,277 5,261 5,150 5,150 5,260 Diluted 5,277 5,261 5,150 5,150 5,260 Dividends paid per Common Share - - - - - Consolidated Balance Sheet Data: Intangible assets, net Total assets $ 1,589,138 $ 1,469,994 $ 938,583 $ 991,394 $ 1,400,657 Long-term debt, less current portion 16,641 38,679 41,842 67,840 167,388 Other long-term liabilities - - - - - Total shareholders' equity 293,499 75,333 (102,835) (52,845) 59,684
HUNT INSURANCE GROUP, INC. Tallahassee, Florida MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year Ended December 31, 1997 RESULTS OF OPERATIONS Total revenues for 1997 were $3,105,002, an increase of $481,414 or 18% over 1996. Fund administration fees increased to $2,440,052, an increase of $325,393, or 15% over 1996. The remaining $156,021 increase in revenue was a result of various increases in other fees, commissions and investment income. Total operating expenses were $2,784,156, an increase of $329,680 or 13% over 1996. An increase in compensation and employee benefits by $309,465 to $2,033,751 or 18% over 1996, accounted for most of this increase. Income tax expense of $130,652 represents an effective tax rate of 41% for the year. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations totaled $869,095 for the year. Capital expenditures of $65,064, and loans to officers and employees of $112,829, were financed by internally generated cash. Financing activities utilized cash of $76,466 to repay short and long-term debts during the year. The Company expects to have sufficient cash generated from operations to meet short-term funding needs. HUNT INSURANCE GROUP, INC. Tallahassee, Florida MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year Ended December 31, 1996 RESULTS OF OPERATIONS Total revenues for 1996 were $2,623,588, an increase of $488,604 or 23% over 1995. Fund administration fees increased to $2,114,659, an increase of $442,958, or 26.5% over 1995. The remaining $45,646 increase in revenue was a result of various increases in other fees, commissions and investment income. Total operating expenses were $2,454,476, an increase of $262,863 or 12% over 1995. An increase in compensation and employee benefits of $197,984 to $1,724,286 or 13% over 1995, accounted for most of this increase. Directors' fees of $77,000, paid by issuing shares of the Company's capital stock, resulted in the balance of the increase in operating expenses. Income tax expense of $67,944 represents an effective tax rate of 40% for the year. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations totaled $228,360 for the year. Capital expenditures of $81,125, and loans to officers and employees of $41,679, were financed by internally generated cash. Net loans against life insurance cash values totaled $103,525. Financing activities consisted of net repayment of debt of $145,112. The Company expects to have sufficient cash generated from operations to meet short-term funding needs. HUNT INSURANCE GROUP, INC. Tallahassee, Florida MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Year Ended December 31, 1995 RESULTS OF OPERATIONS Total revenues for 1995 were $2,134,984, an decrease of $124,674 or 6% less than 1994. Fund administration fees decreased to $1,671,701 a decrease of 13% from 1994. This was primarily due to discontinuance of services to the Louisiana SHARP program which generated a fee of $180,000 during 1994. Total operating expenses were $2,191,613, a decrease of $121,126 or 5% less than 1994. A decrease in compensation and employee benefits of $48,262 to $1,526,302 or 3% less than 1994, accounted for a large portion of this. Also contributing to the decline in operating expenses, travel expenses decreased by $36,595 and legal and accounting by $47,160. LIQUIDITY AND CAPITAL RESOURCES Net cash provided by operations totaled $41,158 for the year. Capital expenditures were very low at $2,234. Financing activities consisted of an increase in debt of $37,787 to meet funding requirements during the year. The Company expects an increase in revenues and profits for 1996 that will generate sufficient cash from operations to meet short-term funding needs without an increase in borrowings. HUNT INSURANCE GROUP, INC. Tallahassee, Florida MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THREE AND SIX MONTHS ENDED JUNE 30, 1998 RESULTS OF OPERATIONS: For the three months ended June 30, 1998 commissions and fees were $901,604, an increase of 25.6% over $717,828 for the comparable period of the prior year. This was primarily a result of an increase in fund administration fees of $110,720. Operating expenses increased by $129,420 for the three months ended June 30, 1998 over the comparable period of the prior year. The primary increase was in compensation and benefits in the amount of $109,709. The Company's overall tax rate for the three months ended June 30, 1998 was 37.5%, which was comparable to the same period of the prior year. For the six months ended June 30, 1998, commissions and fees were $1,790,576, an increase of 26.9%, or $379,533 over the six months ended June 30,1997. An increase in fund administrative fees of $364,715 accounted for the majority of this increase. Operating expenses increased by $122,420 for the six months ended June 30, 1998 over the six months ended June 30, 1997, primarily due to an increase in compensation and benefits of $120,790. The Company's overall tax rate of 37.5% for the six months ended June 30, 1998 was comparable to prior periods. The timing of various items of income and expense may cause revenues, expenses and net income to vary significantly from quarter to quarter. As a result of the factors described above, operating results for the six months ended June 30, 1998 should not be considered indicative of the results that may be expected for the entire year ending December 31, 1998. LIQUIDITY AND CAPITAL RESOURCES: Net cash used by operating activities totaled $207,122 for the six months ended June 30, 1998. Net cash provided by operating activities was $128,413 for the six months ended June 30, 1997. Net cash provided by operations is primarily dependent upon the timing of the collection of fund administration fees. Management's Discussion and Analysis Page two Purchases of equipment totaled $80,759 and $22,876 for the six months ended June 30, 1998 and 1997 respectively. The Company is generating sufficient cash from operations to finance its current needs for equipment. During the six months ended June 30, 1998 the Company utilized $52,798 to repay significantly all of its debt. During the same period of the prior year, $34,613 was utilized to decrease the Company's debt. The company believes that cash generated from operations will provide sufficient funds to meet the Company's short and long-term funding needs. EX-2 2 AGREEMENT OF MERGER OF HILB, ROGAL AND HAMILTON COMPANY OF TALLAHASSEE INTO HUNT INSURANCE GROUP, INC. THIS MERGER AGREEMENT ("Agreement"), to be effective as of 12:01 a.m., on October 1, 1998, or at such other time as may be agreed upon by the parties hereto, is made and entered into by and among HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation ("Parent"), for itself and as agent for its wholly-owned subsidiary to be formed pursuant to this Agreement, HILB, ROGAL AND HAMILTON COMPANY OF TALLAHASSEE, a Florida corporation ("HRH Merger Subsidiary"), and HUNT INSURANCE GROUP, INC., a Florida corporation ("Merging Entity"), and the five shareholders of Merging Entity, JOHN E. HUNT, JR. ("Mr. J. Hunt"), SCOTT P. HUNT ("Mr. S. Hunt"), RICHARD T. HUNT ("Mr. R. Hunt"), DAVID J. JILK ("Mr. Jilk"), and P. DANIEL CONDON ("Mr. Condon"), (with Messrs. J. Hunt, S. Hunt, R. Hunt, Jilk and Condon hereinafter sometimes collectively referred to as "Shareholders" or any one of the foregoing hereinafter sometimes referred to as "Shareholders"), with reference to the following facts: A. Shareholders are the owners and holders of all of the issued and outstanding shares of the authorized capital stock (referred to below as the "Common Stock") of Merging Entity which is engaged in the business of owning and operating a general insurance agency. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 1 of 59 B. Parent is engaged in the business of owning and operating insurance agencies and will form HRH Merger Subsidiary for the purposes contemplated herein. C. Shareholders, Parent and Merging Entity have reached an understanding with respect to the merger of HRH Merger Subsidiary into Merging Entity ("Merger") for which Shareholders shall receive that amount of Parent's common stock as the consideration stated herein. D. The parties hereto intend that this Agreement be characterized as a reverse, triangular statutory merger pursuant to Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code of 1986 ("Code") and further be accounted for as a "purchase" in accordance with Accounting Principles Board Opinion Number 16 and other applicable guidelines. In consideration of the foregoing facts and of the respective representations, warranties, covenants, conditions and agreements set forth below, the parties hereto, intending to be legally bound hereby, agree as follows: 1. PLAN OF MERGER. 1.1 Effective Date. Subject to fulfillment of the conditions precedent in Sections 6 and 7 of this Agreement, Merging Entity and HRH Merger Subsidiary (collectively, "Constituents") will cause Articles of Merger to be signed, verified and delivered on or before October 1, 1998 (or at such later time as may be agreed upon by the parties), to the Secretary of State of Florida and to be effective as of 12:01 a.m. on October 1, 1998 (or at such later time as may be agreed upon by the parties) ("Effective Date"), as provided by the laws of the State of _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 2 of 59 Florida. On the Effective Date, the separate existence of each entity of Constituents shall cease and HRH Merger Subsidiary shall be merged with and into Merging Entity, which shall then become the Surviving Corporation. 1.2 Corporate Structure of Surviving Corporation. (a) On the Effective Date, by virtue of the completion of the Merger, and thereafter until amended as provided by law, the name of Surviving Corporation and the articles of incorporation of Surviving Corporation shall be the name and articles of incorporation of Merging Entity in effect immediately prior to the completion of the Merger. (b) On the Effective Date, by virtue of the completion of the Merger, the bylaws of Merging Entity in effect on the Effective Date shall be the bylaws for Surviving Corporation. (c) On the Effective Date, by virtue of the completion of the Merger, the names and addresses of the directors for Surviving Corporation shall be: Andrew L. Rogal 4235 Innslake Drive, P.O. Box 1220 Glen Allen, Virginia 23060-1220 Timothy J. Korman 4235 Innslake Drive, P.O. Box 1220 Glen Allen, Virginia 23060-1220 Walter L. Smith 4235 Innslake Drive, P.O. Box 1220 Glen Allen, Virginia 23060-1220 (d) On the Effective Date, by virtue of completion of the Merger, the officers of Surviving Corporation shall be: John E. Hunt, Jr. President and Chairman _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 3 of 59 Scott P. Hunt Executive Vice President Richard T. Hunt Vice President P. Daniel Condon Vice President Andrew L. Rogal Vice President Timothy J. Korman Vice President Carolyn Jones Vice President David J. Jilk Treasurer, Assistant Secretary Walter L. Smith Secretary 1.3 Effect of Merger. (a) On the Effective Date, the assets and liabilities of HRH Merger Subsidiary shall be taken on the books of Merging Entity at the amount at which they shall at that time be carried on the books of HRH Merger Subsidiary, subject to such adjustments to the books of Merging Entity, if any, as may be necessary to conform to the accounting procedures of Parent. The books of the Constituents, as so adjusted, shall become the books of Surviving Corporation. (b) On the Effective Date and thereafter, Surviving Corporation shall possess all the rights, privileges, immunities, powers, franchises and authority, both public and private, of each Constituent. All property of every description, including every interest therein and all obligations of or belonging to or due to each of Constituents shall thereafter be taken and deemed to be transferred to and vested in Surviving Corporation, without further act or deed, although HRH Merger Subsidiary and Merging Entity from time to time, as and when required by Surviving Corporation, shall execute and deliver, or cause to be executed and delivered, all such deeds and other instruments and shall take, or cause to be taken, such further action as Surviving Corporation may deem necessary or desirable to confirm the transfer to and vesting in _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 4 of 59 Surviving Corporation of title to and possession of all such rights, privileges, immunities, franchises and authority. All rights of creditors of each of Constituents shall be preserved unimpaired, limited in lien to the property affected by such liens immediately prior to the Effective Date, and Surviving Corporation shall thenceforth be liable for all the obligations of each of Constituents. 1.4 Conversion of Shares of Common Stock. (a) All of the outstanding capital stock of Merging Entity comprises the Common Stock, which is owned, collectively, by Shareholders. Each of Shareholders owns, free and clear of any liens, encumbrances, restrictions or adverse claims whatsoever except as set forth in Schedule 2.4, the number of shares of Merging Entity set forth below opposite his name and each Shareholder shall receive therefor for each share of Common Stock the number of shares of no par value common stock of Parent as described herein: Shareholder Number of Shares Percentage John E. Hunt, Jr. 3,635 67.628% Scott P. Hunt 735 13.674% Richard T. Hunt 735 13.674% David J. Jilk 135 2.512% P. Daniel Condon 135 2.512% In exchange for all of the shares of Common Stock, Shareholders shall collectively receive up to $4,725,000 worth of shares of common stock of Parent (_HRH Stock_), subject to adjustment as provided in Section 14 and to all the terms and conditions contained herein. This Agreement shall _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 5 of 59 not be consummated under any circumstances unless 100% of the shares of Common Stock are exchanged for shares of HRH Stock. (b) The manner and basis of conversion of shares on the Effective Date shall be as follows: (i) Each share of common stock of HRH Merger Subsidiary which is issued and outstanding on the Effective Date, with all rights with respect thereto, shall become one (1) share of common stock, $1 par value, of Surviving Corporation. (ii) Each share of Common Stock which is issued and outstanding on the Effective Date, with all rights with respect thereto, shall be converted into a value of shares (which number of shares is subject to adjustment and is to be delivered as provided in Section 14) of common stock, no par value, of Parent. No fractional shares of HRH Stock will be issued as the number of shares to be issued to any Shareholder in accordance with the preceding sentence shall be rounded up or down to the nearest whole number (a fractional share of 0.5 or more will be rounded up; less than 0.5 will be rounded down). Each shareholder of Common Stock, upon delivery to Parent or its duly authorized agent for cancellation of certificates representing such shares and subject to any other limitations herein, shall thereafter be entitled to receive certificates representing the number of shares of HRH Stock to which such Shareholder is entitled. (c) Appropriate adjustment shall be made on the number of shares of HRH Stock to be issued upon conversion if, during the period commencing on September 10, 1998, and ending on the Effective Date, Parent: (i) effects any dividend payable in shares of common stock; (ii) _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 6 of 59 splits or combines the outstanding shares of HRH Stock; (iii) effects any extraordinary distribution on HRH Stock; (iv) effects any reorganization or reclassification of HRH Stock; or (v) fixes a record date for the determination of shareholders entitled to any of the foregoing. (d) Upon delivery of Common Stock to Parent pursuant to subsection 1.4(b)(ii), Parent shall receive all of the shares of common stock of Surviving Corporation outstanding pursuant to subsection 1.4(b)(i). (e) Until its surrender, each certificate comprising Common Stock referred to in subsection 1.4(b)(ii) herein shall be deemed for all corporate purposes, other than the payment of dividends, to evidence ownership of the number of full shares of HRH Stock into which such shares of Common Stock shall have been changed by virtue of the merger. Unless and until any such outstanding certificates of Common Stock shall be so surrendered, no dividend payable to the holders of record of HRH Stock, as of any date subsequent to the Effective Date, shall be paid to the holders of such outstanding certificates, but upon such surrender of any such certificate or certificates there shall be paid to the record holder of the certificate or certificates of HRH Stock into which the shares represented by the surrendered certificate or certificates shall have been so changed the amount of such dividends which theretofore became payable with respect to such shares of Parent. 1.5 Closing Date. The closing of the transactions contemplated by this Agreement ("Closing") shall take place at the offices of Cooper, Coppins & Monroe, located at Tallahassee, Florida, at 11:00 o'clock a.m. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 7 of 59 on September 30, 1998, or at such other place and time as shall be mutually agreed upon by the parties to this Agreement ("Closing Date"). 2. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Shareholders, jointly and severally, represent and warrant to Parent as follows: 2.1 Organization and Standing of Merging Entity . Merging Entity is a corporation duly organized, validly existing and in good standing under the laws of the State of Florida ("Home State") and has full power and authority to carry on its business as it is now being conducted and to own or hold under lease the properties and assets it now owns or holds under lease. Except as set forth in Schedule 2.1 to this Agreement, Merging Entity is not qualified to do business in any state or other jurisdiction other than Home State. Except as set forth in Schedule 2.1, the nature of the business conducted by Merging Entity and the character or ownership of properties owned by it does not require Merging Entity to be qualified to do business in any other jurisdiction. Furthermore, except as set forth in Schedule 2.1 to this Agreement, the nature of the business conducted by Merging Entity does not require it or any of its employees to qualify for, or to obtain any insurance agency, brokerage, adjuster, or other similar license in any jurisdiction other than Home State. The copy of the articles of incorporation, and all amendments thereto, of Merging Entity heretofore delivered to Parent and which have been or will be initialed for identification purposes by the President of Merging Entity is complete and correct as of the date hereof. The copy of the bylaws, and all amendments thereto, of Merging Entity heretofore delivered to Parent and which have been or will be initialed for identification purposes by the President of Merging Entity is complete _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 8 of 59 and correct as of the date hereof. The minute book or minute books of Merging Entity contain a complete and accurate record in all material respects of all meetings and other corporate actions of the shareholders and directors of Merging Entity. 2.2 Name. Neither Merging Entity nor any of Shareholders has granted to anyone any right to use the corporate name or any name similar to the corporate name of Merging Entity. 2.3 Capitalization of Merging Entity. The capitalization of Merging Entity is as follows: (a) Merging Entity is authorized to issue 10,000 shares of voting common stock, $1 par value. Merging Entity is not authorized to issue, and has not issued, any shares of any other class. All of the shares comprising Common Stock outstanding and owned as of the date hereof are as set forth in Section 1.4(a), supra. (b) All of the outstanding shares of Common Stock have been duly and validly issued and are fully paid and nonassessable. The issuance of all shares of Common Stock was and has been in compliance with all applicable statutes, rules and regulations, including, without limitation, all applicable federal and state securities laws. There is no existing option, warrant, call or commitment to which Merging Entity is a party requiring the issuance of any additional shares of common stock of Merging Entity or of any other securities convertible into shares of common stock of Merging Entity or any other equity security of Merging Entity of any class or character whatsoever. (c) No shares of the authorized stock of Merging Entity have ever been registered under the provisions of any federal or state securities law, nor has Merging Entity filed or been required to file any _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 9 of 59 report with any federal or state securities commission, department, division or other governmental agency. (d) No present or prior holder of any shares of the authorized stock of Merging Entity is entitled to any dividends with respect to any such shares now or heretofore outstanding. 2.4 Ownership ofCommon Stock . Except as set forth in Schedule 2.4, each Shareholder is the record owner, free and clear of any and all liens, encumbrances, restrictions and adverse claims whatsoever, of the number of shares of Common Stock set forth opposite his name in subsection 1.4(a). Each such lien, encumbrance, restriction or adverse claim can and will be removed at or prior to the Closing. Merging Entity is autonomous and has never been a subsidiary or division of another enterprise. There has been no change in the equity interest of Merging Entity in contemplation of effecting this Agreement, such as excessive distributions or additional issuances, exchanges or retirements of securities. Any shares of Common Stock reacquired by Merging Entity were reacquired only for legitimate purposes other than business combinations. Schedule 2.4 describes all changes, issuances, exchanges and retirements of equity securities within the last three years as well as the legitimate purpose (i.e. other than effecting this Agreement) for each such transaction. 2.5 Authority . Shareholders, individually and collectively, have full and complete authority to enter into this Agreement and to transfer in accordance with the terms and conditions of this Agreement all of the shares of Common Stock, free and clear of all liens, encumbrances, restrictions and adverse claims whatsoever. The execution, delivery and _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 10 of 59 performance of this Agreement by Merging Entity does not violate, result in a breach of, or constitute a default under, the articles of incorporation or bylaws of Merging Entity or any indenture, contract, agreement or other instrument to which it is a party or is bound, or to the best knowledge of Shareholders and Merging Entity, any applicable laws, rules or regulations. 2.6 Subsidiaries and Other Relationships. Except as disclosed on Schedule 2.6, Merging Entity does not own any stock or other interest in any other corporation, nor is it a participant in any joint entity. Except as disclosed on Schedule 2.6, any stock owned by Merging Entity in any other entity represents one hundred percent (100%) ownership of such entity, is owned free and clear of any and all liens, encumbrances, restrictions and adverse claims, has been duly and validly issued and is fully paid and nonassessable. 2.7 Financial Statements. Shareholders and Merging Entity have caused or will cause to be delivered to Parent a true and complete copy of the audited financial statements of Merging Entity, prepared under the accounting guidelines of Parent, previously provided to them in the form of Parent's Accounting Policies and Procedures Manual ("GAAP Policy"), together with an unqualified opinion and an accountant's consent to use such statements in a SEC registration statement, for the three most recent calendar years of Merging Entity including, without limitation, balance sheets and statements of income for the periods referred to above (collectively, "Financial Statements"). In addition, Shareholders and Merging Entity have delivered to Parent a true and complete copy of the unaudited financial statements of Merging Entity for the most recent _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 11 of 59 month ended, including, without limitation, a balance sheet and statement of income for such period then ended ("Interim Statements"). Each of the Financial Statements is true and correct, is in accordance with the books and records of Merging Entity, presents fairly the financial condition and results of operations of Merging Entity as of the date and for the period indicated, and has been prepared in accordance with Parent's GAAP Policy consistently applied throughout the periods covered by such statements (including, but not limited to, the establishment of reserves for bad debts and accruals for all outstanding debts and expenses). Furthermore, neither the Financial Statements nor the Interim Statements contained any untrue statement of any material fact or omitted to state any material fact required to be stated to make such Financial Statements or Interim Statements not misleading. Without limiting the generality of the foregoing, the commission income reflected in each of the Financial Statements and Interim Statements is or will be true and correct, and the accounts payable reflected in each of the Financial Statements and Interim Statements is or will be true and correct. 2.8 Absence of Undisclosed Liabilities. (The term "Most Recent Balance Sheet," as used in this Agreement, means the balance sheet of Merging Entity at August 30, 1998. Also, the term "Most Recent Balance Sheet Date," as used in this Agreement, means August 30, 1998.) Except as and to the extent specifically reflected, provided for or reserved against in the Most Recent Balance Sheet or except as disclosed in any Schedule to this Agreement, Merging Entity, as of the Most Recent Balance Sheet Date, did not have any indebtedness, liability or obligation of any nature whatsoever, whether accrued, absolute, _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 12 of 59 contingent or otherwise, and whether due or to become due, including, without limitation, tax liabilities due or to become due, and whether incurred in respect of or measured by the income of Merging Entity for any period prior to the Most Recent Balance Sheet Date, or arising out of transactions entered into, or any state of facts existing, prior thereto, and none of Shareholders knows or has reasonable grounds to know of any basis for the assertion against Merging Entity, as of the Most Recent Balance Sheet Date, of any indebtedness, liability or obligation of any nature or in any amount not fully reflected or reserved against in the Most Recent Balance Sheet or otherwise disclosed in any Schedule to this Agreement. 2.9 No Adverse Change. Since the Most Recent Balance Sheet Date, there has been no material change in the financial condition, results of operations or business prospects of Merging Entity other than changes occurring in the ordinary course of business or except as otherwise disclosed in any of the Schedules to this Agreement, which changes have not had a material adverse effect on the financial condition, results of operations or business prospects of Merging Entity. Without limiting the generality of the foregoing, since the Most Recent Balance Sheet Date, there has been no material adverse change in the insurance accounts included within the "Book of Business" of Merging Entity, and Shareholder neither knows nor has reasonable grounds to know of any basis for any material adverse change in such insurance accounts between the date hereof and the Effective Date. For purposes hereof, "material adverse change" in the insurance accounts included in the "Book of Business" of Merging Entity means, without limitation, the loss of any account _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 13 of 59 generating an aggregate annual gross income (commission or otherwise) of $10,000 or more. 2.10 Taxes. Merging Entity has filed all federal, state and local income, withholding, social security, unemployment, excise, real property tax, tangible personal property tax, intangible personal property tax and all other tax returns and reports required to be filed by it to the date hereof and all of such returns and reports are true and correct. All taxes, assessments, fees, penalties, interest and other governmental charges which were required to be paid by Merging Entity on such returns and reports have been duly paid and satisfied on or before their respective due dates. No tax deficiency or penalty has been asserted or threatened with respect to Merging Entity. No federal or state income tax return of Merging Entity has been audited or, to the knowledge of any Shareholder, proposed to be audited, by any federal or state taxing authority, including, without limitation, the U.S. Internal Revenue Service and the Florida Department of Revenue, and no waiver of any statute of limitations has been given or is in effect with respect to the assessment of any taxes against Merging Entity. The provisions for taxes included in the Most Recent Balance Sheet and in the Prior Years Financial Statements were sufficient for the payment of all accrued and unpaid federal, state and local income, withholding, social security, unemployment, excise, real property, tangible personal property, intangible personal property and other taxes of Merging Entity, whether or not disputed, for the periods reflected, and for all years and periods prior thereto. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 14 of 59 2.11 Real and Personal Property Owned by Merging Entity . Merging Entity does not own any real property. Schedule 2.11 consists of a copy of the depreciation schedules filed as a part of the two prior annual Federal income tax returns of Merging Entity (with deletions of any items disposed of prior to the date of this Agreement), a separate list of each item of depreciable personal property acquired by Merging Entity since the Most Recent Balance Sheet Date and having a cost of $1,000.00 or more, and a separate list of each item of intangible personal property presently owned by Merging Entity. Merging Entity also owns various items of disposable type personal property such as office supplies that are not listed in Schedule 2.11. Merging Entity has good and marketable title to all such tangible and intangible personal property, in each case free and clear of all mortgages, security interests, conditional sales agreements, claims, restrictions, charges or other liens or encumbrances whatsoever except as otherwise stated in Schedule 2.11. 2.12 Leases. Schedule 2.12 contains a correct and complete list and brief description of all leases or other agreements under which Merging Entity is a tenant or lessee of, or holds or operates any property, real or personal, owned by any third party. Merging Entity is the owner and holder of the leasehold estates granted by each of the instruments described in Schedule 2.12 except as otherwise stated in Schedule 2.12. Each of said leases and agreements is in full force and effect and constitutes a legal, valid and binding obligation of the respective parties thereto, enforceable in accordance with its terms. Merging Entity enjoys peaceful and undisturbed possession of all properties covered by all such leases and agreements, and there is not any existing default or _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 15 of 59 event or condition, including the Merger contemplated herein, which with notice or lapse of time, or both, would constitute an event of default under any of such leases or agreements. 2.13 Insurance. Schedule 2.13 contains a correct and complete list, as of the date hereof, of all policies of casualty, fire and extended coverage, theft, errors and omissions, liability, life, and other forms of insurance owned or maintained by Merging Entity. All business operations of Merging Entity are and have been since January 1, 1989, continually insured against errors and omissions. Such policies are in amounts deemed by Shareholders to be adequate. Each such policy is, on the date hereof, in full force and effect, and Merging Entity is not in default with respect to any such policy. Furthermore, Schedule 2.13 contains a correct and complete list of all group life, group medical and disability or other similar forms of insurance which constitute an obligation of or benefit provided by Merging Entity as well as a list of any material (hospital or home care) services known by Shareholders and Merging Entity to have been incurred by Merging Entity's group health plan within 90 days of this date, which list details with reasonable accuracy the recipients of such services and the date of service. Schedule 2.13 also contains a list of any former employees or their dependents who are presently under COBRA continuation coverage and describes with reasonable particularity the pertinent factors about each such person listed. With respect to errors and omissions (professional liability) insurance policies listed in Schedule 2.13 (which lists for each such policy the carrier, retrodate, claims made or occurrence policy and _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 16 of 59 limits), prior to the effective dates of such policies, Merging Entity had not given notice to any prior insurer of any act, error or omission in services rendered by any agent or employee of such corporation or that should have been rendered by any agent or employee of such corporation arising out of the operations of Merging Entity. Furthermore, to the best knowledge of Shareholders, no agent or employee of Merging Entity breached any such professional duty or obligation prior to the effective dates of such policies. With respect to such policies, Merging Entity has given notice of any and all claims for any act, error or omission by any agent or employee of such corporation with respect to professional services rendered or that should have been rendered as required by the terms of such policies (if any such notice has been given, its contents are described in Schedule 2.13). To the best knowledge of Shareholders, Merging Entity has not taken, nor has it failed to take, any action which would provide the insurer with a defense to its obligation under any such policy; neither Merging Entity nor any Shareholder has received from any such insurer any notice of cancellation or nonrenewal of any such policy, and, except as set forth in Schedule 2.13, no Shareholder has any basis to believe that Merging Entity, or any agent or employee of Merging Entity, has breached any professional duty or obligation. 2.14 Insurance Companies. Schedule 2.14 contains a correct and complete list of all insurance companies with respect to which Merging Entity has an agency contract or similar relationship. Except as identified in Schedule 2.14, all relations between Merging Entity and the insurance companies represented by it are good, and no Shareholder has any knowledge of any proposed termination of, or modification to, the _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 17 of 59 existing relations between Merging Entity and any of such insurance companies. Furthermore, except as otherwise set forth in Schedule 2.14, all accounts with all insurance companies represented by Merging Entity or with whom it transacts business are current and there are no disagreements or unreconciled discrepancies between Merging Entity and any such company as to the amounts owed by Merging Entity. 2.15 Customers . Except as identified in Schedule 2.15, all relations between Merging Entity and its present customers are good, and no Shareholder has any knowledge of any proposed termination of any insurance account presently written or serviced by Merging Entity. Also, except as otherwise set forth in Schedule 2.15, all customer accounts, including, without limitation, those accounts with respect to which Merging Entity financed any premiums, are current. For purposes of Section 2.15, the terms "insurance account" and "customer account" shall be limited to accounts which generate an aggregate annual gross income (commission or otherwise) of $10,000 or more. 2.16 Officers and Directors; Banks; Powers of Attorney. Schedule 2.16 contains a correct and complete list of all officers and directors of Merging Entity, a correct and complete list of the names and addresses of each bank in which Merging Entity has any account or safe deposit box, together with the names of all persons authorized to draw on each such account or having access to any such safe deposit box, and a correct and complete list of the names of all persons holding powers of attorney from Merging Entity. 2.17 Compensation and Fringe Benefits. Schedule 2.17 contains a correct and complete list of each officer, director, employee or agent of _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 18 of 59 Merging Entity in the format as set forth in Schedule 2.17. Also, Schedule 2.17 contains a description of all fringe benefits presently being provided by Merging Entity to any of its employees or agents. 2.18 Patents; Trademarks; Copyrights and Trade Names . Merging Entity owns or is possessed of or is licensed under such patents, trademarks, trade names and copyrights (including, without limitation, software) as are used in, and are of material importance to, the conduct of its business, all of which are in good standing and uncontested. Schedule 2.18 contains a correct and complete list of all material patents, patent applications filed or to be filed, trademarks, trademark registrations and applications, trade names, copyrights and copyright registrations and applications owned by or registered in the name of Merging Entity. There is no material claim pending or, to the best knowledge of Shareholders, threatened against Merging Entity with respect to any alleged infringement of any patent, trademark, trade name or copyright owned or licensed to anyone other than Merging Entity. 2.19 Indebtedness . Schedule 2.19 contains a correct and complete list of all instruments, agreements or arrangements pursuant to which Merging Entity has borrowed any money, incurred any indebtedness or established any line of credit which represents a liability of Merging Entity on the date hereof. True and complete copies of all such written instruments, agreements or arrangements have heretofore been delivered to, or made available for inspection by, Parent. Merging Entity has performed all of the obligations required to be performed by it to date, and is not in default in any material respect under the terms of any such written instruments, agreements or arrangements, and no event has _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 19 of 59 occurred which, but for the passage of time or the giving of notice, or both, would constitute such a default. 2.20 Employment Agreements and Other Material Contracts. Schedule 2.20 contains a complete copy of every employment agreement, independent contractor and brokerage agreement, and a list and brief description of all other material contracts, agreements and other instruments to which Merging Entity is a party at the date hereof. Except as identified in Schedule 2.20, or in any other Schedule attached to this Agreement, Merging Entity is not a party to any oral or written: (i) material contract, agreement or other instrument not made in the ordinary course of business; (ii) contract for the employment of any person which is not terminable (without liability) on 30 days or less notice; (iii) license, franchise, distributorship, dealer, manufacturer's representative, sales agency or advertising agreement; (iv) contract with any labor organization; (v) lease, mortgage, pledge, conditional sales contract, security agreement, factoring agreement or other similar agreement with respect to any real or personal property, whether as lessor, lessee or otherwise; (vi) contract to provide facilities, equipment, services or merchandise to any other person, firm or corporation; (vii) contract for the future purchase of materials, supplies, services, merchandise or equipment; (viii) profit-sharing, bonus, deferred compensation, stock option, severance pay, pension, retirement or other plan or agreement providing employee benefits; (ix) agreement or arrangement for the sale of any of its properties, assets or rights or for the grant of any preferential rights to purchase any of its assets, properties, or rights; (x) guaranty, subordination or other similar or related type of _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 20 of 59 agreement; (xi) contract or commitment for capital expenditures; (xii) agreement or covenant not to compete, solicit or enter into any particular line of business; or (xiii) agreement for the acquisition of any business or substantially all of the properties, assets or stock or other securities of any business under which there are any continuing or unperformed obligations on the part of Merging Entity. Merging Entity is not in default in any material respect under any agreement, lease, contract or other instrument to which it is a party. No party with whom Merging Entity has any agreement which is of material importance to its business is in default thereunder. 2.21 Absence of Certain Events. Since the Most Recent Balance Sheet Date, the business of Merging Entity has been conducted only in the ordinary course and in substantially the same manner as theretofore conducted, and, except as set forth in Schedule 2.21 attached to this Agreement, or in any other Schedule attached to this Agreement, Merging Entity has not, since the Most Recent Balance Sheet Date: (i) issued any stocks, bonds or other corporate securities or granted any options, warrants or other rights calling for the issue thereof; (ii) incurred, or become subject to, any material obligation or liability (whether absolute or contingent) except (A) current liabilities incurred in the ordinary course of business, (B) obligations under contracts entered into in the ordinary course of business and (C) obligations under contracts not entered into in the ordinary course of business which are listed in Schedule 2.20; (iii) discharged or satisfied any lien or encumbrance or paid any obligation or liability (whether absolute or contingent) other than current liabilities shown on the Most Recent Balance Sheet and current liabilities incurred _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 21 of 59 since the Most Recent Balance Sheet Date in the ordinary course of business; (iv) declared or made any payment of dividends or distribution of any assets of any kind whatsoever to stockholders or purchased or redeemed any of its capital stock; (v) mortgaged, pledged or subjected to lien, charge or any other encumbrance, any of its assets and properties, real, tangible or intangible; (vi) sold or transferred any of its assets, properties or rights, or cancelled any debts or claims, except in each case in the ordinary course of business, or entered into any agreement or arrangement granting any preferential rights to purchase any of its assets, properties or rights or which required the consent of any party to the transfer and assignment of any of its assets, properties or rights; (vii) suffered any extraordinary losses (whether or not covered by insurance) or waived any extraordinary rights of value; (viii) entered into any transaction other than in the ordinary course of business except as herein stated; (ix) amended its articles of incorporation or bylaws; (x) increased the rate of compensation payable or to become payable by it to any of its employees or agents over the rate being paid to them at the Most Recent Balance Sheet Date; (xi) made or permitted any amendment to or termination of any material contract, agreement or license to which it is a party other than in the ordinary course of business; or (xii) made capital expenditures or entered into any commitments therefor aggregating more than $5,000.00. Except as contemplated by this Agreement, or the Schedules referred to in this Agreement, between the date hereof and the Closing Date, Merging Entity will not, without the prior written consent of Parent, do any of the things listed above in clauses (i) through (xii) of this Section 2.21. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 22 of 59 2.22 Investigations and Litigation . There is no investigation by any governmental agency pending, or, to the best knowledge of Shareholders, threatened against or adversely affecting Merging Entity, and except as set forth on Schedule 2.22, there is no action, suit, proceeding or claim pending, or, to the best knowledge of Shareholders, threatened against Merging Entity, or any of its businesses, properties, assets or goodwill, which might have a material adverse effect on such corporation, or against or affecting the transactions contemplated by this Agreement. There is no outstanding order, injunction, judgment or decree of any court, government or governmental agency against or affecting Merging Entity, or any of its businesses, properties, assets or goodwill. 2.23 Overtime, Back Wages, Vacation and Minimum Wages . To the best knowledge of Shareholders, no present or former employee of Merging Entity has any claim against Merging Entity (whether under federal or state law) under any employment agreement, or otherwise, on account of or for: (i) overtime pay for any period other than the current payroll period; (ii) wages or salary for any period other than the current payroll period; (iii) vacation or time off (or pay in lieu thereof), other than that earned in respect of the current fiscal year; or (iv) any violation of any statute, ordinance, rule or regulation relating to minimum wages or maximum hours of work, except as otherwise set forth in Schedule 2.23. 2.24 Discrimination, Occupational Safety and Other Statutes and Regulations. To the best knowledge of Shareholders, no persons or parties (including, without limitation, governmental agencies of any _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 23 of 59 kind) have any claim, or basis for any claim, action or proceeding, against Merging Entity arising out of any statute, ordinance, rule or regulation relating to discrimination in employment or employment practices or occupational safety and health standards (including, without limitation, The Occupational Safety and Health Act, The Fair Labor Standards Act, Title VII of the Civil Rights Act of 1964, The Civil Rights Act of 1992, The Americans with Disabilities Act, and The Age Discrimination in Employment Act of 1967, as any of the same may have been amended). 2.25 Employee Benefit Plans . (a) There are no employee benefit plans or arrangements of any type, including but not limited to any retirement, health, welfare, insurance, bonus, executive compensation, incentive compensation, stock bonus, stock option, deferred compensation, commission, severance, parachute, rabbi trust program or plan described in Section 3(3) of the Employee Retirement Income Security Act of 1974 ("ERISA"), maintained by Merging Entity, or with respect to which Merging Entity has a liability, other than those set forth in Schedule 2.25(a) ("Employee Benefit Plans"). (b) With respect to each Employee Benefit Plan, except as set forth in Schedule 2.25(b): (i) if intended to qualify under Sections 79, 105, 106, 125, 129, 401(a), 401(k), 403(a), or 409, or other Sections, of the Internal Revenue Code ("Code"), such plan so qualifies, and if applicable, its trust is exempt from federal income tax under Code Section 501(a); (ii) if intended to qualify as an organization described _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 24 of 59 in Section 501(c)(9) of the Code, such organization so qualifies and any trusts established pursuant to its constitution are exempt from federal income tax under Section 501(a) of the Code; (iii) such plan has been administered and enforced in accordance with its terms and applicable law; (iv) no breaches of fiduciary duty by Merging Entity, the Trustees, or, to the best knowledge and belief of Merging Entity and Shareholders after reasonable investigation, any other person, have occurred; (v) no disputes are pending, or, to the knowledge of Merging Entity and Shareholders, threatened; (vi) no nonexempt prohibited transaction has occurred; (vii) there has been no reportable event for which the 30-day notice requirement under ERISA has not been waived; (viii) all contributions and premiums due have been made on a timely basis (including, if applicable, the time limited established under Code Sections 404 and 412); (ix) all contributions made or required to be made meet the requirements for deductibility under the Code; (x) all contributions which have not been made have been properly recorded in the financial records of Merging Entity; and (xi) except as set forth in Schedule 2.25(b), no liability (whether an indebtedness, a fine, a penalty, a tax or any other amount) has been incurred or will be incurred by Merging Entity as a result of its maintenance, operation or termination of any Employee Benefit Plan. (c) No Employee Benefit Plan is a multiemployer plan, as defined in Section 4001(a)(3) of ERISA or a multiple employer plan. The consummation of the transactions contemplated by this Agreement will not entitle any individual to severance pay, and will not accelerate the time _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 25 of 59 of payment or vesting, or increase the amount, of compensation due to any individual. (d) With respect to each Employee Benefit Plan, Merging Entity has delivered or caused to be delivered to Parent true and complete copies, where applicable, of (i) all plan documents, amendments and trust agreements currently in effect; (ii) all summary plan descriptions, or other notices or summaries of modifications, which have been prepared by, or on behalf of Merging Entity; (iii) all material employee communications; (iv) the five (5) most recent annual reports (Forms 5500); (v) the most recent annual and any subsequent periodic accounting of plan assets; and, (vi) the most recent determination letter received from the IRS. (e) With respect to each Employee Benefit Plan, there is no pending claim or lawsuit which has been asserted against that Employee Benefit Plan, the assets of any of the trusts under such Employee Benefit Plan, Merging Entity, or any fiduciary of such Employee Benefit Plan with respect to the operation of such Employee Benefit Plan. Merging Entity and Shareholders, after reasonable investigation, know of no facts or circumstances which could form the basis for any such claim or lawsuit. (f) All amendments required to have been made to bring each Employee Benefit Plan into conformity in all material respects with all of the applicable provisions of the Code, ERISA and other applicable laws have been made. (g) Each Employee Benefit Plan has met, by its terms and in its operation, all applicable requirements for an exemption from federal income taxation under Section 501(a) of the Code. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 26 of 59 (h) Each Employee Benefit Plan has at all times been maintained in accordance with all applicable laws, has complied with applicable ERISA or other requirements; and, there are no actions, audits, suits or claims which are threatened or pending against any such Employee Benefit Plan, any fiduciary of any of the Employee Benefit Plans, or against any of the assets of the Employee Benefit Plans. (i) Merging Entity has made full and timely payment of all amounts required to be contributed under the terms of each Employee Benefit Plan and no event or condition exists regarding any of the Employee Benefit Plans which could be deemed a "reportable event" with respect to which the 30-day notice has not been waived which could result in a material liability to Merging Entity and no event exists which would subject Merging Entity to a material fine under Section 4701 of ERISA. (j) Merging Entity is not subject to any material liability, tax or penalty and the termination of or withdrawal from any Employee Benefits Plan will not subject Merging Entity to any additional contribution requirement and the execution or performance of the transactions contemplated by this Agreement will not create, accelerate or increase any obligations under any Employee Benefit Plan. (k) Merging Entity has no obligation to any retired or former employee or any current employee upon retirement under any Employee Benefit Plan. (l) Each Employee Benefit Plan maintained by Merging Entity has at all times been maintained, by its terms and in operation, in accordance with all applicable laws in all material respects, including (to the extent applicable) Code Section 4980B. Further, there has been _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 27 of 59 no failure to comply with applicable ERISA or other requirements concerning the filing of reports, documents and notices with the Secretary of Labor and Secretary of Treasury or the furnishing of such documents to participants or beneficiaries that could subject any Employee Benefit Plan to any material civil or any criminal sanction or could require any such person to indemnify any other person for such a sanction. There are no actions, audit, suits or claims known to Merging Entity or Shareholders which are pending or threatened against any Employee Benefit Plan, any fiduciary of any of the Employee Benefit Plans with respect to the Employee Benefit Plans or against the assets of any of the Employee Benefit Plans, except claims for benefits made in the ordinary course of the operation of such plans. (m) Merging Entity is not subject to any material liability, tax or penalty whatsoever to any person whomsoever as a result of Merging Entity engaging in a prohibited transaction under ERISA or the Code, and neither Merging Entity nor any of the Shareholders has knowledge of any circumstances which reasonably might result in any such material liability, tax or penalty as a result of a breach of fiduciary duty under ERISA. The termination of or withdrawal from any Employee Benefit Plan maintained by Merging Entity which is subject to Title IV of ERISA, or any other Employee Benefit Plan, will not subject Merging Entity to any additional contribution requirement or to any other liability, tax or penalty whatsoever. The execution or performance of the transactions contemplated by this Agreement will not create, accelerate or increase any obligations under any Employee Benefit Plan. Merging Entity has no _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 28 of 59 obligation to any retired or former employee, or any current employee upon retirement, under any Employee Benefit Plan. 2.26 Competitors. Except as disclosed in Schedule 2.26, none of Shareholders has any interest, direct or indirect, as an owner, partner, agent, shareholder, officer, director, employee, consultant or otherwise, in any firm, partnership, corporation or other entity that is engaged in the insurance agency business, or any aspect thereof, other than Merging Entity or a corporation listed on a national securities exchange or a corporation whose securities are traded in the over-the- counter market. 2.27 Accounts and Notes Receivable. The reserve for bad debts, if any, contained in the Most Recent Balance Sheet and the Financial Statements was calculated on a consistent basis which, in the light of past experience, is considered adequate. All accounts receivable and all notes receivable of Merging Entity reflected in the Most Recent Balance Sheet are fully collectible when due at the aggregate amount shown, less the bad debt allowance stated therein, it being the intent of all of the parties to this Agreement that Shareholders are hereby representing and warranting to Parent the full collectibility when due of all of the notes receivable and accounts receivable of Merging Entity in the aggregate amount shown in each such balance sheet, less the bad debt allowance stated therein. Except as set forth in Schedule 2.27, all notes receivable of Merging Entity are due and payable within one year after the Effective Date. Any such notes receivable due and payable more than one year after the Effective Date ("Long Term Notes") are fully collectible when due at the aggregate amount shown. Except as further _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 29 of 59 set forth in Schedule 2.27, no Long Term Notes are secured by any interest in property, whether it be real, personal or intangible. In the event of any delinquency or nonpayment of any portion of a Long Term Note, Shareholders shall be obligated to satisfy such deficiency in the same manner as specified below for all other receivables of Merging Entity. 2.28 Permits and Licenses . All permits, licenses and approvals of all federal, state or local regulatory agencies, which are required in order to permit Merging Entity and its employees and agents to carry on business as now conducted by it, have been obtained by it and are current. 2.29 No Violation or Default. The execution, delivery and performance of this Agreement by Shareholders and Merging Entity will not violate, result in a breach of, or constitute a default under, the articles of incorporation or bylaws of Merging Entity or of any indenture, contract, agreement or other instrument to which Merging Entity is a party or is bound including, without limitation, any agency contract with any insurance company. 2.30 Common Stock of Parent . Shareholders understand and acknowledge that the common stock of Parent to be received pursuant to this Agreement is subject to Rule 145 of the Securities Exchange Commission ("SEC"); such stock is being acquired for investment purposes only and not with a view to distribution or resale; any sale or other disposition of such stock shall be made pursuant to the regulations promulgated under Rule 145 and in compliance with all other applicable laws, regulations and interpretations. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 30 of 59 2.31 Financing Statements . Except as disclosed on Schedule 2.31, there are no financing statements or other security interests of any kind filed or required to be filed against Merging Entity's assets or affecting the use of, or title to, such assets ("Financing Statements"). Except as further disclosed on Schedule 2.31, there are no deferred money purchase notes related to Merging Entity's acquisition of any portion of its assets ("Notes"). Any such liabilities related to the Financing Statements or Notes can be discharged or prepaid prior to their stated maturities without penalty, except as further detailed on Schedule 2.31. The assumption by Surviving Corporation of such liabilities will not result in a default of any Financing Statement or Note. 2.32 Brokers . Except as disclosed in Schedule 2.32, neither Merging Entity nor any Shareholder has employed any broker or finder for the purposes of completing the transactions contemplated herein such that no commission, finder's fee, brokerage fee or similar charge will be incurred for the consummation of the transactions contemplated herein. 2.33 Disclosure . Shareholders have each received a copy of Parent's current S-4 registration statement dated February 12, 1992, most recent annual report, Form 10-K and Form 10-Q and will acknowledge receipt of an amendment or supplement to such registration statement. 2.34 Material Misstatements or Omissions. No representation or warranty by Shareholders or Merging Entity, or any of them, contained in this Agreement or in any document, statement, certificate, Schedule or financial statement furnished or to be furnished to Parent by or on behalf of Shareholders or Merging Entity, or any of them, pursuant to _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 31 of 59 this Agreement or in connection with the transactions contemplated by this Agreement contains, or will when furnished contain, any untrue statements of a material fact, or omits, or will then omit to state, a material fact necessary to make the statements contained herein or therein not misleading. 3. COVENANTS OF SHAREHOLDERS AND MERGING ENTITY PRIOR TO EFFECTIVE DATE. Shareholders and Merging Entity covenant with Parent that, between the date of the execution of this Agreement and the Effective Date, unless prior written consent to the contrary is obtained from Parent: 3.1 Operate in Ordinary Course . Merging Entity will be operated only in the ordinary course of business. 3.2 Negative Covenants . Except as contemplated by this Agreement, Merging Entity will not do any of the things listed in clauses (i) through (xii) of Section 2.21 of this Agreement. 3.3 Continuing Accuracy of Representations . There shall be no action, or failure to act, which would render any of the representations and warranties of Shareholders contained in this Agreement untrue or incorrect in any material respect. 3.4 Preserve Business Organizations . Except as otherwise requested by Parent, and without making any commitment on Parent's behalf, Shareholders will use their best efforts to preserve the business organizations of Merging Entity intact, to keep available to Parent the services of its present employees, and to preserve for Parent the goodwill of its customers and others having business relations with them. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 32 of 59 3.5 Corporate Approvals . The board of directors of Merging Entity will recommend to Shareholders that Shareholders adopt this Agreement. Merging Entity agrees to submit this Agreement to Shareholders for adoption by unanimous written consent with waiver of notice of the terms of this Agreement prior to the Effective Date, but only after delivery by Parent to Shareholders and Merging Entity of an amended or supplemented S-4 registration statement for Parent's common stock to be issued pursuant to this Agreement and after Shareholders have had an effective opportunity of at least ten (10) days to review such prospectus. Unless there is a failure of Parent to fulfill its conditions set forth in Section 7 hereof or there is a material adverse change in the financial conditions of Parent, Shareholders covenant to adopt this Agreement and to approve all aspects of the Merger within the time period contemplated herein. 4. ACCESS AND INFORMATION. Throughout the period between the date of the execution of this Agreement by Shareholders and Merging Entity and the Closing Date, Shareholders shall cause Merging Entity and all its employees to give to Parent, and any and all authorized representatives of Parent (including auditors and attorneys), full and unrestricted access, during normal business hours, to the offices, assets, properties, contracts, books and records of Merging Entity in order to give Parent full opportunity to make such investigations as it deems appropriate with respect to the affairs of Merging Entity, and shall further cause Merging Entity, and all of its employees to provide to Parent during such period such additional information concerning the affairs of Merging Entity as Parent may reasonably request. All information obtained from any such _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 33 of 59 investigation shall be held in confidence, and, in the event of the termination of this Agreement, Parent covenants with Shareholders and Merging Entity that Parent will use its best efforts to return all such documents, working papers and other written information concerning Shareholders and Merging Entity obtained or prepared in connection with any such investigation. Regardless of any such investigation by Parent, all representations and warranties of Shareholders contained in this Agreement shall remain in full force and effect and no such investigation shall cause or result in a waiver by Parent of any of the representations and warranties of Shareholders contained herein. 5. REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents and warrants to Shareholders as follows: 5.1 Organization and Standing of Parent and HRH Merger Subsidiary . Parent is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia. HRH Merger Subsidiary, will, as of the Effective Date, be duly organized, validly existing and in good standing under the laws of the State of Florida. 5.2 Authority. Except for: (i) the incorporation of HRH Merger Subsidiary; (ii) the approval of the transactions contemplated hereby by the board of directors of Parent and by the board of directors and shareholder of HRH Merger Subsidiary; (iii) amendment or supplementation of Parent's registration statement pursuant to this Agreement; (iv) approval by the New York Stock Exchange of the listing of the shares of _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 34 of 59 HRH Stock to be issued pursuant to this Agreement; and (v) the issuance of a certificate of merger to be issued by the Secretary of State of the State of Florida, no governmental or other authorization, approval or consent for the execution, delivery and performance of this Agreement by Parent or HRH Merger Subsidiary is required. The execution, delivery and performance of this Agreement by Parent and HRH Merger Subsidiary will not violate, result in a breach of, or constitute a default under, the articles of incorporation or bylaws of any such corporation or any indenture, contract, agreement or other instrument to which such corporation is a party or is bound. 5.3 Capitalization of Parent and HRH Merger Subsidiary. As of June 30, 1998, the authorized capital stock of Parent consisted of 50,000,000 shares of common stock, no par value, of which 12,434,137 shares were issued and outstanding, fully paid and nonassessable. The authorized capital stock of HRH Merger Subsidiary will consist of 5,000 shares of common stock, $1 par value, of which 100 shares will be issued and outstanding, fully paid and nonassessable and owned of record and beneficially by Parent prior to, and as of, the Effective Date. Except for the shares to be subscribed for by Parent pursuant to this Agreement, there are no outstanding options, warrants or other rights to subscribe for or purchase capital stock of HRH Merger Subsidiary or securities convertible into or exchangeable for capital stock of HRH Merger Subsidiary. 5.4 Status of HRH Stock. The shares of HRH Stock to be issued to Shareholders pursuant to this Agreement will, when so issued, be duly and validly authorized and issued, fully paid and nonassessable. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 35 of 59 5.5 Brokers' or finders' fees. No agent, broker, person, or firm acting on behalf of Parent or any of its subsidiaries or under the authority of any of them is or will be entitled to any commission or broker's or finder's fee or financial advisory fee from Parent or HRH Merger Subsidiary in connection with any of the transactions contemplated herein. 6. CONDITIONS PRECEDENT TO PERFORMANCE BY PARENT AND HRH MERGER SUBSIDIARY. The obligation of Parent and HRH Merger Subsidiary to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or fulfillment, on or prior to the Closing Date, of the following conditions precedent, in addition to all other conditions precedent contained in this Agreement, each of which may be waived by Parent: 6.1 Representations. Parent shall not have discovered any material error, misstatement or omission in any of the representations and warranties made by Shareholders contained in this Agreement, or in any financial statement, certificate, Schedule, exhibit or other document attached to or delivered pursuant to this Agreement, and all representations and warranties of Shareholders, or any of them, contained in this Agreement and in any financial statement, certificate, Schedule, exhibit or other document attached to or delivered pursuant to this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect, except as affected by transactions expressly authorized herein or otherwise approved in writing by Parent, as though such representations and warranties had been made on and as of the Closing Date; and Shareholders and Merging Entity shall _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 36 of 59 have delivered to Parent a certificate, dated the Closing Date, and signed by all of them, to the foregoing effect, in form and substance as set forth in Schedule 6.1. 6.2 Covenants. Merging Entity and Shareholders shall have performed and complied in all material respects with all covenants, agreements and conditions required under this Agreement to be performed or complied with by them on or before the Closing Date; and Merging Entity and Shareholders shall have delivered to Parent a certificate dated the Closing Date, and signed by all of them, to the foregoing effect, in form and substance as set forth in Schedule 6.1. 6.3 Litigation. No suit, action or proceeding, or governmental investigation, against or concerning, directly or indirectly, Merging Entity, or any of its assets and properties, shall have been instituted or reinstituted, nor shall any basis therefor have arisen, that might result in any order or judgment of any court or of any administrative agency which, in the opinion of counsel for Parent, renders it impossible or inadvisable for Parent to consummate or cause to be consummated the transactions contemplated by this Agreement. 6.4 Approval by Counsel. All transactions contemplated hereby, and the form and substance of all legal proceedings and of all instruments used or delivered hereunder, shall be reasonably satisfactory to counsel for Parent. 6.5 Opinion. Parent shall have received a favorable opinion, dated as of the Closing Date, from the law firm of Cooper, Coppins & Monroe, counsel for Shareholders and Merging Entity, in form and substance as set _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 37 of 59 forth in Schedule 6.5 and otherwise reasonably satisfactory to counsel for Parent. 6.6 Delivery of Common Stock. There shall be duly delivered for cancellation to Parent at the Closing not less than 100% of the shares of Common Stock issued and outstanding at the time of the Closing, free and clear of any liens or encumbrances as required to be listed on Schedule 2.4. 6.7 Continuation of Agency Contracts. To the extent desired by Parent, Parent shall have obtained a statement in writing from each of the insurance companies identified in Schedule 2.14 of this Agreement, in form satisfactory to Parent and Parent's counsel, by which each such insurance company agrees that it will not terminate its insurance agency contract solely by reason of the transactions contemplated in this Agreement, and further agrees that it will continue to recognize Surviving Corporation, and its successors and assigns, as its agent under the existing agency contract between such company and Merging Entity or that it will enter into a substantially similar agency contract with Surviving Corporation, or its successors and assigns. 6.8 Shareholder Employment Agreements. Employment Agreements between Surviving Corporation, as Employer, and each of the Shareholders, respectively, as Employee, in form and substance as set forth in Schedule 6.8 attached hereto, shall have been duly executed by each of them and delivered to Parent. 6.9 Other Employment Agreements. Employment Agreements between Surviving Corporation, as Employer, and such of the other employees of _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 38 of 59 Merging Entity (other than Shareholders) as shall be specified by Parent, in form previously approved by the President of Parent, shall be in full force and effect or such new agreements as have been requested by Parent shall have been executed, in form and substance as set forth in Schedule 6.9 attached hereto. 6.10 Employee Benefit Plans. Parent shall have been furnished evidence satisfactory to Parent that all Employee Benefit Plans identified in Schedule 2.25 attached to this Agreement have been terminated and provision has been made for the distribution of all benefits thereunder in accordance with the terms of such Employee Benefit Plans. 6.11 Material Adverse Change. There shall have been no material adverse change in Merging Entity's business, business prospects, Book of Business, assets and properties, or goodwill between the date of the execution of this Agreement and the Closing Date. 6.12 Tail Insurance. Unless notified in writing to the contrary, Shareholders and Merging Entity shall have delivered to Parent, in form reasonably satisfactory to Parent and Parent's counsel, evidence of insurability, to be effective as of the Effective Date, for an extended reporting period for errors and omissions of a minimum three year duration with deductible limits reasonably acceptable to Parent and Parent's counsel, which insurance, if bound, would insure Merging Entity its agents and employees for the extended reporting period for claims arising under errors and omissions occurring prior to the Effective Date. Such tail insurance shall be bound as soon after the Effective Date as possible. If such insurance is not purchased within one week after Closing, Parent shall have the right to purchase such tail insurance _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 39 of 59 deemed acceptable to it. The cost for the tail insurance actually bound by, or on behalf of, Merging Entity shall be borne by Merging Entity and shall be reflected on the Merger Balance Sheet (as defined in Section 14.6) as if such coverage had been bound prior to the Effective Date and the Shareholders shall be responsible for any deductible amounts to be paid under such tail policy. 6.13 Related Party Transactions. All "related party" (i.e. a Shareholder, a member of a Shareholder's family, a business or entity affiliated with any of the foregoing) receivables and payables of Merging Entity and any receivables or payables from or to an employee of Merging Entity on favorable terms shall have been removed from the books of Merging Entity for their cash equivalent face amounts. 6.14 Lease. The existing lease covering the premises presently occupied by Merging Entity, in the form attached hereto as Schedule 2.12, shall have been terminated, and a new lease, in the form set forth as Schedule 6.14 shall have been executed to provide for a lease term ending September 30, 2003, on terms otherwise acceptable to Parent and, as amended, shall be in full force and effect with no defaults occurring as a result of Merging Entity's action or inaction. 6.15 Resolutions. Parent shall receive certified copies of resolutions of the board of directors and Shareholders of Merging Entity, to the extent deemed necessary by, and in form satisfactory to, counsel for Parent, authorizing the execution and delivery of this Agreement by Merging Entity and the consummation of the transactions contemplated hereby. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 40 of 59 6.16 Approvals. All statutory requirements for the valid consummation by Merging Entity of the transactions contemplated by this Agreement shall have been fulfilled; all authorizations, consents and approvals of all federal, state, local and foreign governmental agencies and authorities required to be obtained in order to permit consummation by Merging Entity of the transactions contemplated by this Agreement and to permit the business presently carried on by Merging Entity to continue unimpaired immediately following the Effective Date of this Agreement shall have been obtained. 6.17 Registration Statement. Parent shall have filed an amended or supplemented S-4 registration statement with the SEC, which registration statement shall show that the transactions contemplated herein shall be treated as a "purchase" for accounting purposes. 6.18 Other Items. Merging Entity, in addition to the financial clean-up contemplated in Section 6.13, shall have removed all company cars and cash value life insurance from its books for the respective cash or book value of each such item. 7. CONDITIONS PRECEDENT TO PERFORMANCE BY SHAREHOLDERS AND MERGING ENTITY. The obligation of Shareholders and Merging Entity to consummate the transactions contemplated by this Agreement shall be subject to the satisfaction or fulfillment on or prior to the Closing Date, of the following conditions, in addition to any other conditions contained in this Agreement, each of which may be waived, collectively, by a majority in interest of Shareholders and Merging Entity: 7.1 Representations. Shareholders shall not have discovered any material error, misstatement or omission in any of the representations _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 41 of 59 and warranties made by Parent contained in this Agreement, and all representations and warranties of Parent contained in this Agreement shall be true and correct in all material respects on and as of the Closing Date with the same force and effect, except as otherwise approved in writing by Shareholders and Merging Entity, as though such representations and warranties had been made on and as of the Closing Date; and Parent shall have delivered to Shareholders and Merging Entity a certificate to the foregoing effect, dated the Closing Date, in form and substance as set forth in Schedule 7.1. 7.2 Covenants. Parent shall have performed and complied in all material respects with all covenants, agreements and conditions required under this Agreement to be performed and complied with by Parent and shall have caused all corporate actions necessary for the formation of HRH Merger Subsidiary and for the consummation of this Agreement to have been taken by it and HRH Merger Subsidiary; and Parent shall have delivered to Shareholders and Merging Entity a certificate to the foregoing effect, dated the Closing Date, in form and substance as set forth in Schedule 7.1. 7.3 Effective Registration Statement. The registration statement on Form S-4 under the Securities Act of 1933 referred to in Section 2.34 hereof shall have been amended or supplemented and be effective under such Act and not the subject of any "stop order" or threatened "stop order" and the amended or supplemented prospectus shall have been delivered to Shareholders and Merging Entity. 7.4 Prospectus Approval. After delivery and review of the aforementioned amendment or supplement to Parent's S-4 registration _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 42 of 59 statement, and subject to the limitations on disapproval set forth in Section 3.5, Shareholders and Merging Entity shall have approved this Agreement and the consummation of all transactions contemplated thereby. 8. POST-MERGER COVENANTS. 8.1 Post-Merger Covenants of Parent. Parent covenants to Shareholders until October 1, 2003, as follows: A. Collection. To cause Surviving Corporation to use its reasonable business efforts, at least comparable in quality to those of Merging Entity prior to the Effective Date, to collect all notes receivable and accounts receivable as described in Section 2.27. B. Payment. Subject to Merging Entity fulfilling its Tangible Net Worth requirements, as set forth in Section 14.6, and subject to the fulfillment by Shareholders of their covenants set forth in Section 8.2, to cause Surviving Corporation to pay timely all liabilities of Merging Entity which have been properly reserved for in the Merger Balance Sheet, as defined in Section 8.2.A. C. Not to interfere with or attempt to control the operations of Surviving Corporation or direct assets or programs of Surviving Corporation to another subsidiary of Parent, except (i) where a majority in interest of the remaining Shareholders has agreed to do so; or (ii) after Shareholders have received two consecutive years of the minimum payments due hereunder, and then Parent must still act in good faith. D. Not to sell the Surviving Corporation, or its assets, unless as part of a sale of Parent, to any third party without giving a _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 43 of 59 majority in interest of Shareholders fifteen (15) days to match any such offer and an additional forty-five (45) days to close such offer. 8.2 Post-Merger Covenants of Shareholders. Shareholders, jointly and severally, covenant to Parent as follows: A. Delivery of Merger Balance Sheet. To cause to be delivered to Parent as soon after the Closing Date as is practicable, and in all events no later than sixty (60) days after the Effective Date, the Merger Balance Sheet, as defined in Section 14.6(a), and its related work papers and other financial documents prepared therefor. The Merger Balance Sheet will be true and correct, will be in accordance with the books and records of Merging Entity, will present fairly the financial conditions and results of operations of Merging Entity as of the date and for the period indicated, will not contain any untrue statement of a material fact nor will omit to state any material fact required to be stated to make the Merger Balance Sheet not misleading. B. Post-Merger Filings. To cause to be timely filed, at no expense which has not previously been reserved for on the Merger Balance Sheet, all federal, state and local tax returns of all kinds required to be filed by Merging Entity for all tax periods ending on or prior to the Effective Date ("Post-Merger Filings"). All Post-Merger Filings will be true and correct and, prior to actual filing thereof, Shareholders shall deliver drafts of such filings to Parent for its review. C. Employee Benefit Plans. Unless written directive from Parent stating otherwise is delivered to Shareholders prior to the Closing Date , to cause, at no expense which has not previously been reserved for in the Merger Balance Sheet, all Employee Benefit Plans of _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 44 of 59 Merging Entity (other than its Section 125 plan) to have been terminated with provisions having been made for distribution thereof in accordance with the terms of such Employee Benefit Plan. The Section 125 plan shall continue through calendar year 1998. Shareholders specifically understand that they have covenanted hereby to take any and all actions reasonably required to eliminate any and all potential liability of Surviving Corporation and Parent with respect to such Employee Benefits Plans. D. Bind Tail Coverage. To bind the tail coverage referenced in Section 6.12 as soon after the Effective Date as is possible and in no event later than seven (7) days after the Effective Date, and to pay any and all deductibles accruing under such tail policy during the period of three years after the Effective Date. Shareholders acknowledge that Parent shall have the right to bind tail coverage for Merging Entity if Shareholders do not produce an appropriate certificate of insurance within thirty (30) days after Closing. Any costs for such tail coverage shall have been expensed as if such coverage had been bound prior to the Effective Date and shall not be reflected as an asset on the Merger Balance Sheet. E. Disposition of Shares. To hold the shares of HRH Stock received in this Merger and not to dispose of such shares in either a manner or volume or at a time which would cause this Merger not to be treated as a tax-free merger or as a pooling-of-interests. 9. SURVIVAL OF REPRESENTATIONS AND WARRANTIES AND INDEMNIFICATION. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 45 of 59 9.1 Survival of Representations and Warranties of Parent. All representations, warranties and covenants made herein or pursuant hereto by Parent shall survive the Closing until December 1, 2003. 9.2 Survival of Representations and Warranties of Shareholders . Except for the specific contingencies detailed below in subparagraphs (ix) and (xiv) of Section 9.3 for which Parent shall be indemnified for the periods stated therein, all representations, warranties and covenants made herein or pursuant hereto by Shareholders shall survive the Closing only until December 1, 2003. 9.3 Indemnification Agreement by Shareholders. Shareholders, jointly and severally with respect to Messrs. J. Hunt, R. Hunt and S. Hunt, and pro rata with respect to Messrs. Jilk and Condon, shall indemnify and hold harmless Parent and Surviving Corporation, and their respective successors and assigns, from and against and in respect of: (i) All indebtednesses, obligations and liabilities of Merging Entity of any nature whatsoever, whether accrued, absolute, contingent or otherwise, existing at the close of business as of the day prior to the Effective Date to the extent not reflected or reserved against in full in the Merger Balance Sheet, including, without limitation, any tax liabilities to the extent not so reflected or reserved against, accrued in respect of, or measured by the income of Merging Entity for any period prior to the Effective Date, or arising out of transactions entered into, or any state of facts existing, prior to such date; (ii) Without limiting the generality of the indemnity set forth in Section 9.3(i) above, any and all tax liabilities of Merging Entity, _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 46 of 59 whether federal, state, local or otherwise, resulting from a lawful deficiency for any time period prior to the Effective Date; (iii) All liabilities of, or claims against, Merging Entity arising out of any contract or commitment of the character described in Section 2.20 hereof and not listed or described in Schedule 2.20 attached to this Agreement, or arising out of any contract or commitment entered into or made by Merging Entity between the date of the execution of this Agreement and the Closing Date except as expressly permitted under any of the provisions of this Agreement; (iv) Subject to the provisions of Section 2.27 hereof, any nonpayment on demand, when due, of any accounts receivable or notes receivable of Merging Entity; (v) Any and all claims, demands, actions and causes of action arising out of or in any way relating to any health benefit plan or to any Employee Benefit Plan (as described in Section 2.25) presently maintained or heretofore maintained by Merging Entity or arising out of or in any way relating to the termination or "freezing" of any such Employee Benefit Plan; (vi) Any loss, damage, liability or deficiency resulting from any misrepresentation, breach of warranty or nonfulfillment of any covenant or agreement on the part of Shareholders or Merging Entity, or any of them, under the terms of this Agreement, or from any misrepresentation in or omission from any financial statement, certificate, Schedule, exhibit or other document proposed by or at the direction of Shareholders, or any of them, and attached to this Agreement _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 47 of 59 or delivered or to be delivered to Parent under the terms of this Agreement; (vii) Any and all claims, demands, actions and causes of action arising out of or in any way relating to errors and omissions and all other types of litigation and claims, which are attributable to Merging Entity prior to the Effective Date; (viii) To the extent not previously cured in the manner specified in Section 14.6, the amount by which Tangible Net Worth (as defined in Section 14.6), shall be less than the amount of $175,000; (ix) Until one year after the expiration of the applicable statute of limitations, any and all tax liabilities arising out of all open returns of Merging Entity for all periods ending on or prior to the Effective Date and relating to amortization of intangibles, deductions for compensation, "listed" property, or travel and entertainment expenses or the tax characterization of expenses incident to this Agreement, any and all claims or liabilities arising out of or in any way relating to any health benefit plan or to any Employee Benefit Plan (as described in Section 2.25) presently or heretofore maintained by Merging Entity or arising out of or in any way relating to the termination, modification or "freezing" of any such Employee Benefit Plan, and any and all claims or liabilities arising out of Post-Merger Filings or for a violation of the covenants set forth in Section 8.E hereof; (x) All deductibles arising under the tail coverage referenced in Section 6.12; _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 48 of 59 (xi) Any and all claims, demands, actions or causes of action arising out of or in any way relating to any of the pending or threatened litigation disclosed or required to be disclosed on Schedule 2.22; (xii) Any existing unreconciled discrepancies as or to have been disclosed on Schedule 2.14; (xiii) Any and all losses, claims, demands or deficiencies arising out of or in any way relating to the ownership by Merging Entity of the intangible assets of Merging Entity; (xiv) Until one year after the expiration of the applicable statute of limitations, any and all liabilities, claims, losses demands or deficiencies of any nature whatsoever arising out of a "Known Misrepresentation" (a representation or warranty made with actual knowledge of its falsity or with reckless indifference to the truth) or due to the ownership of the common stock not being as set forth in Section 1.4(a); and (xv) All demands, claims, actions, suits, proceedings, loss, damage, liability, judgments, costs and expenses (including, without limitation, court costs, experts' and attorneys' fees at the trial level and in connection with all appellate proceedings) incident to any of the foregoing. 9.4 Indemnification Agreement by Parent. Parent shall indemnify and hold harmless Shareholders, and each of them, and their respective heirs and personal representatives from and against and in respect of: (i) Any loss, damage, liability or deficiency resulting from any misrepresentation, breach of warranty or nonfulfillment of any _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 49 of 59 covenant or agreement on the part of the Parent under the terms of this Agreement; (ii) All demands, claims, actions, suits, proceedings, loss, damage, liability, judgments, costs and expenses (including, without limitation, court costs, experts' and attorneys' fees at the trial level and in connection with all appellate proceedings) incident to any of the foregoing. 9.5 Assertion of Indemnification Claim. Either the Shareholders or Parent, as the case may be (an "Indemnified Party"), shall give notice to the other (an "Indemnifying Party") as soon as possible after the Indemnified Party has actual knowledge of any claim as to which indemnification may be sought and the amount thereof, if known, and supply any other information in the possession of the Indemnified Party regarding such claim, and will permit the Indemnifying Party (at its expense) to assume the defense of any third party claim and any litigation resulting therefrom, provided that counsel for the Indemnifying Party who shall conduct the defense of such claim or litigation shall be reasonably satisfactory to the Indemnified Party, and provided further that the omission by the Indemnified Party to give notice as provided herein will not relieve the Indemnifying Party of its indemnification obligations hereunder except to the extent that the omission results in a failure of actual notice to the Indemnifying Party and the Indemnifying Party is materially damaged as a result of the failure to give notice. The Indemnifying Party may settle or compromise any third party claim or litigation with the consent of the Indemnified Party which consent may not be unreasonably withheld. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 50 of 59 The Indemnified Party shall have the right at all times to participate in the defense, settlement, negotiations or litigation relating to any third party claim or demand at its own expense. In the event that the Indemnifying Party does not assume the defense of any matter as above provided, then the Indemnified Party shall have the right to defend any such third party claim or demand, and will be entitled to settle any such claim or demand in its discretion. In any event, the Indemnified Party will cooperate in the defense of any such action and the records of each party shall be available to the other with respect to such defense. 10. EXPENSES. All expenses (including, without limitation, legal, auditing, accounting and other related expenses such as preparation of Post-Merger Filings and the Merger Balance Sheet) incurred in connection with this transaction by Merging Entity and Shareholders, or any of them, shall be the sole responsibility of Merging Entity or Shareholders (depending upon the nature of the expense), and all expenses incurred by Parent in connection with this transaction shall be the sole responsibility of Parent. 11. DEFAULT . 11.1 Default by Shareholders or Merging Entity. Except as otherwise expressly provided in this Agreement, if Shareholders or Merging Entity, or any of them, shall fail to perform or comply with any covenant, agreement or condition contained in this Agreement that is required to be performed or complied with by Shareholders or Merging Entity on or prior to the Closing Date, then Parent shall have the option to seek specific performance of this Agreement or to sue such _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 51 of 59 defaulting party for damages. If Parent elects to sue for specific performance, Shareholders and Merging Entity expressly waive any claim or defense that Parent has an adequate remedy at law. 11.2 Default by Parent. Except as otherwise expressly provided in this Agreement, if Parent shall fail to perform or comply with any covenant, agreement or condition contained in this Agreement that is required to be performed or complied with by Parent on or prior to the Closing Date, then Shareholders and Merging Entity, at the unanimous option of Shareholders and Merging Entity, may seek specific performance of this Agreement or may elect to sue for damages. If Shareholders and Merging Entity elect to sue for specific performance, Parent expressly waives any claim or defense that Shareholders and Merging Entity have an adequate remedy at law. 12. NOTICES . All notices or other communications permitted or required to be given hereunder by any party to any other party shall be in writing and shall be delivered personally or by telecopier, telex or other similar communication or sent by registered or certified mail, postage prepaid: (a) If to Shareholders or Merging Entity: John E. Hunt, Jr. 9089 Centerville Road Tallahassee, Florida 32308 Scott P. Hunt 8031 Evening Star Lane Tallahassee, Florida 32312 Richard T. Hunt 2742 Shiloh Way, E. Tallahassee, Florida 32308 _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 52 of 59 P. Daniel Condon 5431 Lawton Court Tallahassee, Florida 32311 David J. Jilk 1306 Lawndale Road Tallahassee, Florida 32311 With copy to: John C. Cooper, Esquire COOPER, COPPINS & MONROE 1319 Thomaswood Drive Tallahassee, Florida 32317 (b) If to Parent or HRH Merger Subsidiary: Mr. Andrew L. Rogal, President HILB, ROGAL AND HAMILTON COMPANY 4235 Innslake Drive Post Office Box 1220 Glen Allen, Virginia 23060-1220 With copy to: Walter L. Smith, Esquire HILB, ROGAL AND HAMILTON COMPANY 4235 Innslake Drive Post Office Box 1220 Glen Allen, Virginia 23060-1220 Notices delivered personally or by telecopier, telex or other similar communication shall be effective when delivered. Notices forwarded by registered or certified mail shall be deemed effective when received or in any event not later than ten (10) days after deposit in the mails, postage prepaid. Any party wishing to change any above named person or address may do so by complying with the notice provisions of this Section. 13. EXTENSION OF TIME AND WAIVER . (a) Time is of the essence with respect to this Agreement. However, the parties hereto may, by mutual agreement in writing, extend _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 53 of 59 the time for the performance of any of the obligations of the parties hereto. (b) Each party for whose benefit a representation, warranty, covenant, agreement or condition is intended may, in writing: (i) waive any inaccuracies in the warranties and representations contained in this Agreement; and (ii) waive compliance with any of the covenants, agreements or conditions contained herein and so waive performance of any of the obligations of the other parties hereto, and any default hereunder; provided, however, that any such waiver shall not affect or impair the waiving party's rights in respect to any other representation, warranty, covenant, agreement or condition or any default with respect thereto. 14. CALCULATION OF HRH STOCK TO BE DELIVERED AND OTHER ADJUSTMENTS . 14.1 Maximum Amount of HRH Stock to be Delivered. The purchase price (the _Purchase Price_) for the Common Stock will be $4,725,000, before application of the Adjustment Amounts, payable as follows: (i) $1,000,000 of HRH Stock at Closing; (ii) $745,000 of HRH Stock, less the Year 1 Purchase Adjustment, if any, fourteen (14) months after Closing (December 1, 1999); (iii) $745,000 of HRH Stock, less the Year 2 Purchase Adjustment, if any, twenty-six (26) months after Closing (December 1, 2000); (iv) $745,000 of HRH Stock, less the Year 3 Purchase Adjustment, if any, thirty-eight (38) months after Closing (December 1, 2001); (v) $745,000 of HRH Stock, less the Year 4 Purchase Adjustment, if any, fifty (50) months after Closing (December 1, 2002); and (vi) $745,000 of HRH _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 54 of 59 Stock, less the Year 5 Purchase Adjustment, if any, sixty-two (62) months after Closing (December 1, 2003). Payments of the Purchase Price are subject to the right of Buyer to assert set-off in addition to any reduction arising as a result of the Adjustment Amounts. Further, Purchase Price does not include the aggregate sum of $1,400,000 being paid to Shareholders pursuant to the Employment Agreements as additional compensation for restrictive covenants therein. 14.2 Definitions . _Year 1_ shall mean the period October 1, 1998, through September 30, 1999. _Year 2_ shall mean the period October 1, 1999, through September 30, 2000. _Year 3_ shall mean the period October 1, 2000, through September 30, 2001. _Year 4_ shall mean the period October 1, 2001, through September 30, 2002. _Year 5_ shall mean the period October 1, 2002, through September 30, 2003. _Agency Profit_ shall mean the consolidated net profit of the Surviving Corporation during Year 1, Year 2, Year 3, Year 4 or Year 5, determined in accordance with the GAAP Policy, before any provision for federal or state income taxes and before any provision of amortization of intangibles of the Surviving Corporation, but after a special overhead charge by the Buyer to the Seller for indirect costs borne by Buyer, such as general insurance, professional fees and other corporate costs as set forth in this subsection. The annual overhead charge shall be $120,000, regardless of the actual costs incurred therefor. Buyer shall cause the Agency Profit to be determined and the amount thereof communicated to Shareholders, as soon as is reasonably practicable after each of Year 1, _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 55 of 59 Year 2, Year 3, Year 4 and Year 5 and, in all events, within sixty-two (62) days after each such year (_Annual Income Statement_). _Target Profit_ shall mean that amount of Year 1 Agency Profit, Year 2 Agency Profit, Year 3 Agency Profit, Year 4 Agency Profit and Year 5 Agency Profit which would eliminate any Year 1 Purchase Adjustment, Year 2 Purchase Adjustment, Year 3 Purchase Adjustment, Year 4 Purchase Adjustment and Year 5 Purchase Adjustment, respectively, which for each such Year is as follows: Year 1 $ 875,000 Year 2 $1,000,000 Year 3 $1,150,000 Year 4 $1,325,000 Year 5 $1,525,000 14.3 Determination of Annual Income Statements. If within thirty days following delivery of an Annual Income Statement, Shareholders have not given Parent notice of its objection to such Annual Income Statements (such notice must contain a statement of the basis of Shareholders' objections), then the Agency Profit reflected in the Annual Income Statement will be used in computing the Year 1, Year 2, Year 3, Year 4 or Year 5 Purchase Adjustment. If Shareholders give such notice of objection and the items in dispute cannot be resolved by agreement between Shareholders and Parent within sixty (60) days, then the issues in dispute will be submitted to a mutually agreed _Big Six_ firm of certified public accountants not used by Merging Entity or Parent (the _Accountants_), for resolution. If issues in dispute are submitted to the Accountants for resolution, (i) each party will furnish to the Accountants such workpapers and other documents and information relating _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 56 of 59 to the disputed issues as the Accountants may request and are available to that party, and will be afforded the opportunity to present to the Accountants any material relating to the determination and to discuss the determination with the Accountants; (ii) the determination by the Accountants, as set forth in a notice delivered to both parties by the Accountants, will be binding and conclusive on the parties; and (iii) Parent and Shareholders will each bear 50% of the fees of the Accountants for such determination. 14.4 Value of HRH Stock. HRH Stock shall be valued by taking the average of the New York Stock Exchange closing price for the previous 10 trading days from that trading date which is two weeks prior to the due date. For example, since the New York Stock Exchange was closed on September 7, 1998, and the HRH Stock is to be delivered on October 1, 1998, the average closing price of Parent's common stock for the period September 3, 1998, through September 17, 1998, shall establish the value (with such value for the Closing being referred to hereafter as _Closing Stock Value_). 14.5. Purchase Adjustment. (a) The Year 1 Purchase Adjustment shall be zero ($0) for Year 1 Agency Profit of $875,000 or more. If Year 1 Agency Profit is less than $875,000, the Year 1 Purchase Adjustment shall be equal to the lesser of (i) $525,000; or (ii) three times the remainder when Year 1 Agency Profit is subtracted from Target Profit. For example, if Target Profit less Year 1 Agency Profit equals $100,000, the fourteen month _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 57 of 59 payment of HRH Stock would be reduced in the aggregate by $300,000 down to the aggregate value of $445,000. If the Target Profit less Year 1 Agency Profit equals or exceeds $175,000, the fourteen month payment of HRH Stock would be reduced in the aggregate by the maximum amount of $525,000 down to the minimum amount of $220,000. (b) The Year 2 Purchase Adjustment shall be zero ($0) for Year 2 Agency Profit of $1,000,000 or more. If Year 2 Agency Profit is less than $1,000,000, the Year 2 Purchase Adjustment shall be equal to the lesser of (i) $525,000; or (ii) 1.75 times the remainder when Year 2 Agency Profit is subtracted from Target Profit. For example, if Target Profit less Year 2 Agency Profit equals $100,000, the twenty-six month payment of HRH Stock would be reduced in the aggregate by $175,000 down to the amount of $570,000. If the Target Profit less Year 2 Agency Profit equals or exceeds $300,000, the twenty-six month payment of HRH Stock would be reduced in the aggregate by the maximum amount of $525,000 down to the minimum amount of $220,000. (c) The Year 3 Purchase Adjustment shall be zero ($0) for Year 3 Agency Profit of $1,150,000 or more. If Year 3 Agency Profit is less than $1,150,000, the Year 3 Purchase Adjustment shall be equal to the lesser of (i) $525,000; or (ii) 1.18 times the remainder when Year 3 Agency Profit is subtracted from Target Profit. For example, if Target Profit less Year 3 Agency Profit equals $100,000, the thirty-eight month payment of HRH Stock would be reduced in the aggregate by $118,000 down to the amount of $627,000. If the Target Profit less Year 3 Agency Profit equals or exceeds $449,915, the thirty-eight month payment of HRH _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 58 of 59 Stock would be reduced in the aggregate by the maximum amount of $525,000 down to the minimum amount of $220,000. (d) The Year 4 Purchase Adjustment shall be zero ($0) for Year 4 Agency Profit of $1,325,000 or more. If Year 4 Agency Profit is less than $1,325,000, the Year 4 Purchase Adjustment shall be equal to the lesser of (i) $525,000; or (ii) 0.85 times the remainder when Year 4 Agency Profit is subtracted from Target Profit. For example, if Target Profit less Year 4 Agency Profit equals $100,000, the fiftieth month payment of HRH Stock would be reduced in the aggregate by $85,000 down to the amount of $660,000. If the Target Profit less Year 4 Agency Profit equals or exceeds $617,647, the fiftieth month payment of HRH Stock would be reduced in the aggregate by the maximum amount of $525,000 down to the minimum amount of $220,000. (e) The Year 5 Purchase Adjustment shall be zero ($0) for Year 5 Agency Profit of $1,525,000 or more. If Year 5 Agency Profit is less than $1,525,000, the Year 5 Purchase Adjustment shall be equal to the lesser of (i) $525,000; or (ii) 0.60 times the remainder when Year 5 Agency Profit is subtracted from Target Profit. For example, if Target Profit less Year 5 Agency Profit equals $100,000, the sixty-second month payment of HRH Stock would be reduced in the aggregate by $60,000 down to the amount of $685,000. If the Target Profit less Year 5 Agency Profit equals or exceeds $875,000, the sixty-second month payment of HRH Stock would be reduced in the aggregate by the maximum amount of $525,000 down to the minimum amount of $220,000. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 59 of 59 14.6 Adjustment Based on Merger Balance Sheet . (a) Determination of Merger Balance Sheet. For purposes hereof, "Merger Balance Sheet" means an unaudited balance sheet of Merging Entity, as of the close of business on September 30, 1998, computed under Parent's GAAP Policy referenced in Section 2.7 hereof and in accordance with Section 2.27 hereof and after having reconciled any differences between the tax and financial accounting so that Surviving Corporation shall not be responsible for any liabilities unless and to the extent the same are reflected on the Merger Balance Sheet. The Merger Balance Sheet shall be deemed accepted by Parent if no objections thereto are made within fifteen (15) days of delivery. If Parent objects to the Merger Balance Sheet within fifteen (15) days of delivery, then the parties shall have fifteen (15) days to resolve any objections of Parent to the Merger Balance Sheet. If the parties are unable to resolve such differences, the procedure set forth in Section 14.2 shall be used. Notwithstanding anything in the foregoing to the contrary, if the Merger Balance Sheet is not submitted within seventy-five (75) days after the Effective Date, then Parent shall submit a Merger Balance Sheet within fifteen (15) days thereafter which shall be final, conclusive and binding on all parties hereto, and not subject to any of the arbitration provisions described above. (b) Tangible Net Worth . The term "Tangible Net Worth" means the remainder arrived at from the Merger Balance Sheet when total liabilities are subtracted from total assets, and intangible assets other than cash, cash equivalents and net receivables are then subtracted from _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 60 of 59 that remainder (total assets - total liabilities - intangible assets other than cash, cash equivalents and net receivables). (c) Adjustment. The number of shares to be delivered by Parent to Shareholders pursuant to Section 1.4 shall be adjusted as follows: (i) If Tangible Net Worth exceeds $175,000 (with such excess being referred to as "Excess Tangible Net Worth"), then the number of shares shall be increased by the number of shares determined by dividing Excess Tangible Net Worth by the Closing Stock Value; and (ii) If Tangible Net Worth is less than $175,000 (with such shortfall being referred to as "Insufficient Tangible Net Worth"), then the number of shares shall be decreased by the number of shares determined by dividing Insufficient Tangible Net Worth by the Closing Stock Value. In the event of an increase in the number of shares of common stock of Parent to be issued to Shareholders, such additional shares shall not be issued until September 30, 1999, with the intent being to apply such positive amount to the resolution of the litigation disclosed on Schedule 2.22. Once such resolution has occurred and a positive number remains, Parent shall promptly issue to Shareholders the remaining number of shares of Parent common stock in the same proportion as set forth in Section 1.4(a). In other words, Excess Net Worth shall be kept open until September 30, 1999 as a reserve account for deductibles and costs arising out of the litigation disclosed in Schedule 2.22. In the event of a decrease in the number of shares of common stock of Parent, such shares shall be assigned, promptly after determination of such number, to _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 61 of 59 Parent from the Shareholders in the same proportions as set forth in Section 1.4(a). The value of any shares of HRH Stock to be issued or returned pursuant to this Agreement shall be adjusted to reflect the occurrence after the Effective Date of any of the events specified in Section 1.4(c). 15. MISCELLANEOUS PROVISIONS. 15.1 Counterparts . Any number of counterparts of this Agreement may be signed and delivered, each of which shall be considered the original and all of which, together, shall constitute one and the same instrument. 15.2 Governing Law . EXCEPT FOR THE MERGER OF HRH MERGER SUBSIDIARY INTO MERGING ENTITY, WHICH SHALL BE GOVERNED BY FLORIDA LAW, THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF VIRGINIA. 15.3 Entire Agreement . This Agreement constitutes the entire Agreement and understanding between the parties hereto with respect to the transactions contemplated hereby, expressly superseding all prior Agreements and understandings, whether oral or written, and no change, modification, termination or attempted waiver of any of the provisions of this Agreement shall be binding unless reduced to writing and signed by the party or parties against whom enforcement is sought. 15.4 Section Headings. The section headings in this Agreement are for convenience of reference only and shall not be deemed to alter or affect any provision hereof. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 62 of 59 15.5 No Assignment . Neither this Agreement, nor any rights or liabilities hereunder, may be assigned by any party without the prior written consent of all of the other parties. 15.6 Survival . Notwithstanding anything in the foregoing to the contrary, any rights which Shareholders or Parent may have at law or in equity against the other for a misstatement or omission by such party which should have been made, corrected or disclosed by such party, at or prior to the Effective Date, shall survive for the applicable period provided by law or equity for the remedy of such act or omission. 15.7 Schedules . Schedules referenced in this Agreement are an integral part of this Agreement and are to be deemed a part of this Agreement whether attached hereto on execution of this Agreement or anytime thereafter. 15.8 Parent Policy on Post-Acquisition Cash Held by Surviving Corporation. Merging Entity and Shareholders acknowledge that they have been informed of the policy of Parent not to allow cash and cash equivalents in excess of what Parent believes to be the appropriate amount of working capital for any of its operating offices to remain in an interest-earning account for the benefit of that office. As such, Merging Entity and Shareholders acknowledge that Parent will cause any such excessive amounts of cash and equivalents to be dividended to Parent, that such dividends would reduce interest earnings attributable to Surviving Corporation after the Effective Date, and that Parent has the right to declare such dividends. 15.9 Subsequent Acquisitions. Merging Entity and Shareholders acknowledge that a later acquisition by Surviving Corporation of another _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 63 of 59 insurance agency could affect the determination of subsequent year profitability and agree to cooperate with Parent in making any adjustments as necessary to this Agreement and any ancillary agreements to carry out their intent. 15.10 Nonsolicitation Covenant. Each of the Shareholders, by signature hereto, covenants that he shall not for a period of three (3) years after the Effective Date, directly or indirectly, except on behalf of Surviving Corporation, its successors or assigns, solicit or accept risk management, insurance or bond business from any of the customers of Merging Entity as of the moment immediately preceding the Effective Date. Each of the Shareholders, by signature hereto, acknowledges: (i) that this covenant is ancillary to this Merger Agreement, is integral hereto and is independent of any other provision herein, (ii) that this covenant is reasonably necessary for the protection of Surviving Corporation's legitimate business interests; (iii) that this covenant poses no undue hardship on the Shareholders and is reasonably limited as to duration and scope; and (iv) that this covenant is in addition to any covenants which Shareholders may make in any employment or other agreements executed or to be executed with Surviving Corporation. Further, if any part of this covenant is deemed overbroad or void as against public policy, each of the Shareholders, by signature hereto, acknowledges that such invalid portions shall be severable from this covenant and specifically requests that, upon such event, this covenant be reformed ("blue-pencilled") to permit Surviving Corporation to obtain the maximum permissible benefit from this covenant. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 64 of 59 15.11 Acceptance . The binding date of acceptance of this Agreement shall be the Date on which the last of the parties executes the same. _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 65 of 59 EXECUTED by Shareholders and Merging Entity at Tallahassee, Florida, this _______ day of September, 1998. SHAREHOLDERS: ______________________________________ John E. Hunt, Jr. ______________________________________ Scott P. Hunt ______________________________________ Richard T. Hunt ______________________________________ David J. Jilk ______________________________________ P. Daniel Condon MERGING ENTITY: HUNT INSURANCE GROUP, INC. By_______________________________ _________________________________, its _________________________________ EXECUTED by Parent at Glen Allen, Virginia, this ______ day of September, 1998. HILB, ROGAL AND HAMILTON COMPANY By____________________________________ __ ___________________________________, its ___________________________________ _________________________________________________________________________ ______________________ Hunt Insurance Group Merger _ Draft 2 Page 66 of 59 EX-23 3 CONSENT OF CATLEDGE, SANDERS & SANDERS INDEPENDENT ACCOUNTANTS We consent to the reference of our firm under the caption "Experts" and to the use of our report dated July 29, 1998 with respect to the financial statements of Hunt Insurance Group, Inc. included in the Supplement to Prospectus dated February 12, 1992 and related Registration Statement (Form S-4, No. 33-44271) of Hilb, Rogal, and Hamilton Company. /s Catledge, Sanders & Sanders CATLEDGE, SANDERS & SANDERS Certified Public Accountants September 24, 1998 -----END PRIVACY-ENHANCED MESSAGE-----