-----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, Qr9IvuK13zIKZAHzvVkcvDkg1IECdnvvjYM5V8umeKIUWYMCk5kYlikoILII1MKt qWLSZQvO7CYLQHWfNsmaJA== 0001002105-99-000053.txt : 19990331 0001002105-99-000053.hdr.sgml : 19990331 ACCESSION NUMBER: 0001002105-99-000053 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 17 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 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: 10-K405 SEC ACT: SEC FILE NUMBER: 000-15981 FILM NUMBER: 99578960 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 10-K405 1 10-K405 - HILB, ROGAL AND HAMILTON COMPANY SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [ ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For Fiscal Year Ended December 31, 1998 COMMISSION FILE NO. 0-15981 HILB, ROGAL AND HAMILTON COMPANY (Exact name of registrant as specified in its charter) Virginia 54-1194795 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4235 Innslake Drive 23060 Glen Allen, Virginia (Zip Code) (Address of principal executive offices) (804) 747-6500 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of Class Name of Exchange on Which Registered Common Stock, no par value New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K [X]. State the aggregate market value of the voting stock held by non-affiliates of the registrant. $230,487,480 as of December 31, 1998 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable date. Class Outstanding at March 1, 1999 Common Stock, no par value 12,157,575 Documents Incorporated by Reference Portions of the registrant's Proxy Statement for the 1999 Annual Meeting of Shareholders (to be filed) are incorporated by reference into Part III hereof. PART I ITEM 1. BUSINESS The Company Hilb, Rogal and Hamilton Company (the "Company"), through its network of wholly-owned subsidiary insurance agencies (the "Agencies"), places various types of insurance, including property, casualty, marine, aviation and employee benefits, with insurance underwriters on behalf of its clients. The Agencies operate 59 offices in 16 states. The Company's client base ranges from personal to large national accounts and is primarily comprised of middle market commercial and industrial accounts. Insurance commissions accounted for approximately 90% of the Company's total revenues in 1998. The Company also advises clients on risk management and employee benefits and provides claims administration and loss control consulting services to clients, which contributed approximately 7% of revenues in 1998. The Company has historically grown principally through acquisitions of independent agencies with significant local market shares in small to medium-size metropolitan areas. Since 1984, the Company has acquired 173 independent agencies. The Company's prior growth strategy emphasized acquisitions of established independent agencies staffed by local professionals and centralization of certain administrative functions to allow agents to focus on business production. The Company believes that a key to its success has been a strong emphasis on local client service by experienced personnel with established community relationships. Beginning in 1997, the Company began to pursue a more focused merger and acquisition strategy which is expected to continue in the future. This program is largely focused on acquisitions which fit into the strategic and regional plans and targets entities which provide a specialty or product expertise which can be exported throughout the Company. The Agencies act as independent agents representing a large number of insurance companies, which gives the Company access to specialized products and capacity needed by its clients. Agencies and regions are staffed to handle the broad variety of insurance needs of their clients. Additionally, certain Agencies and regions have developed special expertise in areas such as aviation, construction and marine insurance services and this expertise is made available to clients throughout the regions and Company. The Company has established direct access to certain foreign insurance markets without the need to share commissions with excess and surplus lines brokers. This direct access allows the Company to enhance its revenues from insurance products written by foreign insurers and allows it to provide a broader array of insurance products to its clients. While the Agencies have historically been largely decentralized with respect to client solicitation, account maintenance, underwriting decisions, selection of insurance carriers and areas of insurance specialization, the Company maintains centralized administrative functions, including cash management and investment, human resources and legal functions, through its corporate headquarters. Accounting records and systems are maintained at each Agency, but the Company requires each Agency to comply with standardized financial reporting and control requirements. Through its internal auditing department, Company personnel periodically visit each Agency and monitor compliance with internal accounting controls and procedures. In the latter part of 1995, the Company created regional operating units to coordinate the efforts of several local offices in a geographic area to focus on markets, account retention, client service and new business production. The five U.S. regions are the Mid-Atlantic (Connecticut, Pennsylvania, Maryland and Virginia); Alabama/Georgia; Florida; Oklahoma/Texas and Western (Arizona, California, Colorado and 2 Michigan). Regional management of a sizable mass of coordinated and complementary resources has enabled each Agency to address a broader spectrum of client needs and respond more quickly and expertly than each could do on a stand-alone basis. Additionally, operations were streamlined by merging multiple locations in the same city into a single profit center and converting smaller locations into sales offices of a larger profit center in the same region. The Company derives income primarily from commissions on the sale of insurance products to clients paid by the insurance underwriters with whom the Agencies place their clients' insurance. The Company acts as an agent in soliciting, negotiating and effecting contracts of insurance through insurance companies and occasionally as a broker in procuring contracts of insurance on behalf of insureds. The Company derived in excess of 93% of its commission and fee revenue in 1998 from the sale of insurance products, principally property and casualty insurance. Accordingly, no breakdown by industry segments has been made. The balance is primarily derived from service fee income related to employee benefits and third party claims administration. Within its range of services, the Company also places surplus lines coverages (coverages not available from insurance companies licensed by the states in which the risks are located) with surplus lines insurers for various specialized risks. Insurance agents' commissions are generally a percentage of the premium paid by the client. Commission rates vary substantially within the insurance industry. Commissions depend upon a number of factors, including the type of insurance, the amount of the premium, the particular insurer, the capacity in which the Company acts and the scope of the services it renders to the client. In some cases, the Company or an Agency is compensated by a fee paid directly by the client. The Company may also receive contingent commissions which are based on the profit an insurance company makes on the overall volume of business placed with it by the Company. Contingent commissions are generally received in the first quarter of each year and, accordingly, may cause first quarter revenues and earnings to vary from other quarterly results. The Company provides a variety of professional services to assist clients in analyzing risks and in determining whether protection against risks is best obtained through the purchase of insurance or through retention of all or a portion of those risks and the adoption of risk management policies and cost-effective loss control and prevention programs. No material part of the Company's business is dependent on a single client or on a few clients, and the Company does not depend on a single industry or type of client for a substantial amount of its business. In 1998, the largest single client accounted for approximately 1.3% of the Company's total revenues. Operating History and Acquisition Program The Company was formed in 1982 to acquire and continue an existing insurance agency network. At that time, the Company undertook a program of consolidating agencies, closing or selling unprofitable locations and acquiring new agencies. From 1984 to March 1, 1999, a total of 173 agencies have been acquired. One hundred twenty-three of those agencies were acquired using the purchase method of accounting at a total purchase price of approximately $147.0 million. In a purchase acquisition, the purchase price of an agency is typically paid in cash and deferred cash payments. In some cases, a portion of the purchase price may also be paid in Common Stock. From November 1, 1988 to May 1, 1995, 50 agencies were acquired under the pooling-of-interests method of accounting in exchange for a total of approximately 8.1 million shares of Common Stock of the Company. The Company has substantial experience in acquiring insurance agencies. Each acquisition candidate is subjected to a due diligence process in which the Company evaluates the quality and reputation of the business and its management, revenues and earnings, specialized products and expertise, administrative and 3 accounting records, growth potential and location. For candidates that pass this screening process, the Company uses a pricing method that emphasizes pro forma revenues, profits and tangible net worth. As a condition to completing an acquisition, the Company requires that the principals be subject to restrictive covenants, either in a Company prepared form or as an amendment of the existing contracts. Once the acquisition is consummated, the Company takes steps to introduce its procedures and protocols and to integrate the agency's systems and employees into the Company. Recent Developments During 1998, the Company acquired six insurance agencies. See "Note K--Acquisitions" of the Notes to Consolidated Financial Statements beginning on page F-6 for a description of these acquisitions. Subsequent to December 31, 1998, the Company acquired certain assets and liabilities of one insurance agency for $2,244,000 ($1,450,000 in cash and $794,000 in guaranteed future payments) in a purchase accounting transaction. Pro forma revenues and net income are not material to the consolidated financial statements. On March 30, 1999, the Company announced the execution of a Stock Purchase Agreement with PM Holdings, Inc., Phoenix Home Life Mutual Insurance Company and Martin L. Vaughan, III to acquire all of the issued and outstanding shares of American Phoenix Corporation, a subsidiary of Phoenix Home Life Mutual Insurance Company, for approximately $49 million in cash, $32 million in 5.25% Convertible Subordinated Debentures due 2014, with a conversion price of $22.75 per share, callable in 2009, and 1,000,000 shares of Common Stock of the Company. The acquisition is subject to regulatory approval and satisfaction of certain conditions to closing. The Company expects to fund the cash portion of the purchase price with a credit facility to be obtained in connection with the acquisition. The acquisition is expected to be completed during the second quarter of 1999 and will be accounted for using purchase accounting. American Phoenix Corporation reported total assets of $106.6 million as of December 31, 1998 and revenues of $72.9 million for the year then ended. Competition The Company participates in a very competitive industry. It is a leading independent insurance agency system serving a wide variety of clients through its network of wholly-owned subsidiaries which operate 59 insurance agencies located in 16 states. Many of the Company's competitors are larger and have greater resources than the Company and operate on an international scale. In some of the Agencies' cities, because no major national insurance broker has established a presence, the Company competes with local agents and private, regional firms, some of who may be larger than the Company's local Agency. The Company is also in competition with certain insurance companies which write insurance directly for their customers, and the banking industry, as well as self-insurance and other employer sponsored programs. Employees As of December 31, 1998, the Company had approximately 1,610 employees. No employees are currently represented by a union. The Company believes its relations with its employees are good. 4 Regulation In every state in which the Company does business, the applicable Agency or an employee is required to be licensed or to have received regulatory approval by the state insurance department in order for the Company to conduct business. In addition to licensing requirements applicable to the Company, most jurisdictions require individuals who engage in brokerage and certain insurance service activities to be licensed personally. The Company's operations depend on the validity of and its continued good standing under the licenses and approvals pursuant to which it operates. Licensing laws and regulations vary from jurisdiction to jurisdiction. In all jurisdictions, the applicable licensing laws and regulations are subject to amendment or interpretation by regulatory authorities, and generally such authorities are vested with general discretion as to the grant, renewal and revocation of licenses and approvals. ITEM 2. PROPERTIES Except as mentioned below, the Company leases its Agencies' offices. For information with respect to the Company's lease commitments see "Note G--Leases" of the Notes to Consolidated Financial Statements beginning on page F-6. At December 31, 1998, the Company owned buildings in Oklahoma City, Oklahoma; Fort Myers, Florida; and Victoria, Texas from which the Agencies in those cities operate. In addition, the Company owned a building in Charlottesville, Virginia. ITEM 3. LEGAL PROCEEDINGS The Company and its Agencies have no material pending legal proceedings other than ordinary, routine litigation incidental to the business, to which it or a subsidiary is a party. With respect to the routine litigation, upon the advice of counsel, management believes that none of these proceedings, either individually or in the aggregate, if determined adversely to the Company, would have a material effect on the financial position or results of operations of the Company or its ability to carry on its business as currently conducted. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. EXECUTIVE OFFICERS OF THE REGISTRANT The executive officers of the registrant are as follows: Robert H. Hilb, 72, has been Chairman of the Company since 1991 and has been a director of the Company since 1982. He was Chief Executive Officer of the Company from 1991 to 1997 and was President of the Company from 1982 to 1995. Andrew L. Rogal, 50, has been Chief Executive Officer of the Company since 1997, and President of the Company since 1995 and has been a director of the Company since 1989. He was Chief Operating 5 Officer of the Company from 1995 to 1997. He was Executive Vice President of the Company from 1991 to 1995 and Senior Vice President of the Company from 1990 to 1991. He was Chief Executive Officer of Hilb, Rogal and Hamilton Company of Pittsburgh, Inc., a subsidiary of the Company, from 1990 to 1995 and was President of this subsidiary from 1987 to 1993. Timothy J. Korman, 46, has been Executive Vice President, Finance and Administration since 1997. He was Executive Vice President, Chief Financial Officer and Treasurer of the Company from 1995 to 1997, and was Senior Vice President and Treasurer of the Company from 1989 to 1995. He is a first cousin of Robert S. Ukrop, a director of the Company. Carolyn Jones, 43, has been Senior Vice President, Chief Financial Officer and Treasurer since 1997 and was Vice President and Controller of the Company from 1991 to 1997. Walter L. Smith, 41, has been Vice President and General Counsel of the Company since 1991 and Secretary of the Company since May 1998. He was Assistant Secretary of the Company from 1989 to 1998. Vincent P. Howley, 50, has been Vice President, Agency Financial Operations since 1997. He was Vice President-Audit of the Company from 1993 to 1997, and was Assistant Vice President-Audit of the Company from 1986 to 1993. John P. McGrath, 41, has been Vice President of the Company since May 1998. He has been Director of the Mid-Atlantic region since 1995 and Vice President of Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. and President HRH Financial Institutions Group, Inc., subsidiaries of the Company since 1998. He was President and Chief Executive Officer of Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. from 1993 to 1998, Senior Vice President and Chief Executive Officer of this subsidiary from 1991 to 1992 and Vice President of this subsidiary from 1990 to 1991. Richard E. Simmons, III, 45, has been Vice President of the Company since May 1998. He has been Director of the Alabama/Georgia region since 1995 and Chief Executive Officer of Hilb, Rogal and Hamilton Company of Alabama, Inc. a subsidiary of the Company, since 1997. He was President and Chief Executive Officer of this subsidiary from 1990 to 1996. William L. Chaufty, 46, has been Vice President of the Company since May 1998. He has been Director of the Texas/Oklahoma region since 1997 and President of Hilb, Rogal and Hamilton Company of Oklahoma, a subsidiary of the Company, since 1989. Michael A. Janes, 39, has been Vice President of the Company since May 1998. He has been Director of the Western region since 1997 and Chairman of Hilb, Rogal and Hamilton Company of Arizona, a subsidiary of the Company, since June 1998. He was President of this subsidiary from 1993 to 1998. Steven C. Deal, 45, has been Vice President of the Company since May 1998. He has been National Director of Select Commercial Operations since 1997, National Director of Personal Lines since 1998 and Chairman of Hilb, Rogal and Hamilton Company of Virginia, a subsidiary of the Company, since October 1997. He was President of this subsidiary from 1990 to 1997, Executive Vice President from 1989 to 1990 and Vice President from 1987 to 1988. Richard F. Galardini, 49, has been Vice President of the Company since May 1998. He has been National Director of Employee Benefits since 1997. He was Executive Vice President and Chief Operating Officer of Hilb, Rogal and Hamilton Company of Pittsburgh, Inc., a subsidiary of the Company, from 1996 to 1997 and was Vice President of this subsidiary from 1992 to 1996. 6 Henry C. Kramer, 54, joined the Company as Vice President, Human Resources in 1997. Prior thereto, he held various human resource positions with Alexander & Alexander, Inc. in Baltimore, Maryland from 1973 to 1997. Robert J. Hilb, 35, has been Vice President of the Company since 1997. He was President of HRH Resource Group, Ltd., a subsidiary of the Company from 1994 to 1997. Prior thereto, he held various insurance related positions within the Company. He is the son of Robert H. Hilb, Chairman and a director of the Company. Robert W. Blanton, Jr., 34, has been Vice President and Controller of the Company since May 1998. He was Assistant Vice President and Controller from 1997 to May 1998 and was Assistant Vice President of the Company from 1993 to 1997. He joined the Company in 1990 as Accounting Senior. Valerie C. Elwood, 37, has been Assistant Vice President of the Company since 1993. She joined the Company in 1987 and has held various positions in the accounting department. William C. Widhelm, 30, has been Assistant Vice President, Internal Audit since February 1999. He joined the Company in 1994 and has held various positions in the auditing department. All officers serve at the discretion of the Board of Directors. Each holds office until the next annual election of officers by the Board of Directors, which will occur after the Annual Meeting of Shareholders, scheduled to be held on June 8, 1999, or until their successors are elected. There are no family relationships nor any arrangements or understandings between any officer and any other person pursuant to which any such officer was selected, except as noted above. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's Common Stock has been publicly traded since July 15, 1987. It is traded on the New York Stock Exchange under the symbol "HRH". As of December 31, 1998, there were 610 holders of record of the Company's Common Stock. The following table sets forth the reported high and low sales prices per share of the Common Stock on the NYSE Composite Tape, based on published financial sources, and the dividends per share declared on Common Stock for the quarter indicated. 7 Cash Dividends Quarter Ended Sales Price Declared ------------------------------------------------------------------------------ High Low ---- --- 1997 March 31 13.88 $12.50 $.155 June 30 17.25 13.50 .155 September 30 18.69 15.75 .155 December 31 19.63 17.56 .155 1998 March 31 19.19 16.25 .155 June 30 18.44 15.50 .160 September 30 19.13 16.13 .160 December 31 19.88 15.94 .160 The Company's current dividend policy anticipates the payment of quarterly dividends in the future. The declaration and payment of dividends to holders of Common Stock will be at the discretion of the Board of Directors and will be dependent upon the future earnings and financial condition of the Company. 8 ITEM 6. SELECTED FINANCIAL DATA The information set forth in the following table should be read in conjunction with "Management's discussion and Analysis of Financial Conditions and Results of Operations" and the Consolidated Financial Statements and Notes thereto.
Year Ended December 31 1998 1997 1996 1995 1994 (in thousands, except per share amounts) Statement of Consolidated Income Data 1: Commissions and fees $175,887 $168,558 $153,968 $141,555 $132,914 Investment income 1,579 1,740 1,533 2,077 1,900 Other income 2 3,582 3,411 2,742 4,515 5,995 ----------- ----------- ---------- ---------- ---------- Total revenues 181,048 173,709 158,243 148,147 140,809 Compensation and Employee benefits 98,478 96,240 88,406 82,761 78,311 Other operating expenses 46,970 45,477 41,951 38,264 35,976 Amortization of Intangibles 7,919 8,110 7,596 6,966 6,436 Interest expense 2,317 2,037 1,245 559 812 Pooling-of-interests expense - - - - 488 ----------- ----------- ---------- ---------- ---------- Total expenses 155,684 151,864 139,198 128,550 122,023 ----------- ----------- ---------- ---------- ---------- Income before income taxes 25,364 21,845 19,045 19,597 18,786 Income taxes 10,419 9,055 7,639 7,768 7,394 ----------- ----------- ---------- ---------- ---------- Net income $ 14,945 $ 12,790 $ 11,406 $ 11,829 $ 11,392 =========== =========== ========== ========== ========== Net income per Common Share: Basic $ 1.20 $ 0.98 $ 0.84 $ 0.82 $ 0.77 =========== =========== ========== ========== ========== Diluted $ 1.18 $ 0.97 $ 0.84 $ 0.82 $ 0.77 =========== =========== ========== ========== ========== Weighted average number of shares Outstanding Basic 12,497 13,099 13,500 14,470 14,778 Diluted 12,709 13,215 13,526 14,480 14,785 Dividends paid per Common Share $ 0.635 $ 0.62 $ 0.605 $ 0.57 $ 0.50 Consolidated Balance Sheet Data Intangible assets, net $ 87,471 $ 82,170 $ 80,006 $ 60,854 $ 48,729 Total assets 188,066 181,607 181,475 163,249 158,895 Long-term debt, less current portion 43,658 32,458 27,196 11,750 3,173 Other long-term liabilities 10,192 9,537 9,870 7,514 2,144 Total shareholders' equity 45,710 51,339 55,298 56,646 66,430
___________________________ 1 See Note J of Notes to Consolidated Financial Statements beginning on page F-6 for information regarding business purchase transactions which impact the comparability of this information. In addition, during the years ended December 31, 1995 and 1994, the Company consummated 14 and four purchase acquisitions, respectively. 2 During 1998, 1997, 1996, 1995 and 1994, the Company sold certain insurance accounts and other assets resulting in gains of approximately $2,638,000, $2,475,000, $1,856,000, $3,337,000 and $5,044,000, respectively. 9 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The income of an insurance agency business such as the Company is principally derived from commissions earned, which are generally percentages of premiums placed with insurance underwriters. Premium pricing within the insurance underwriting industry has been cyclical and has displayed a high degree of volatility based on prevailing economic and competitive conditions. Decreases in premium rates result directly in revenue decreases to the Company. Since 1987, the property and casualty insurance industry has been in a "soft market," during which the underwriting capacity of insurance companies expanded, stimulating an increase in competition and a decrease in premium rates and related commissions and fees. The effect of the softness in rates on the Company's revenues has been offset by the Company's acquisitions and new business programs. Management cannot predict the timing or extent of premium pricing changes due to market conditions or their effects on the Company's operations in the future, but believes that the "soft market" conditions will continue into 1999. Results of Operations Total revenues for 1998 were $181.0 million, an increase of $7.3 million or 4.2% over 1997. For 1997, total revenues were $173.7 million, an increase of $15.5 million or 9.8% from 1996. Commissions and fees for 1998 were $175.9 million, or 4.3% higher than 1997. Approximately $6.5 million of commissions and fees were derived from purchase acquisitions of new insurance agencies. These increases were offset by decreases of $7.4 million from the sale of certain offices and accounts in 1998 and 1997. Excluding the effects of acquisitions and dispositions, commissions and fees increased 5.0%. Commissions and fees for 1997 were $168.6 million, or 9.5% higher than 1996. Approximately $18.3 million of commissions and fees were derived from purchase acquisitions of new insurance agencies. These increases were offset by decreases of $7.1 million from the sale of certain offices and accounts in 1997 and 1996. Excluding the effects of acquisitions and dispositions, commissions and fees increased 3.1%. Investment and other income remained level in 1998 and increased by $0.9 million in 1997. These amounts include gains of $2.6 million, $2.5 million and $1.9 million in 1998, 1997 and 1996, respectively, from the sale of certain offices, insurance accounts and other assets. Total operating expenses for 1998 were $155.7 million, an increase of $3.8 million or 2.5% from 1997. For 1997, total operating expenses were $151.9 million, an increase of $12.7 million or 9.1% from 1996. Compensation and employee benefits costs for 1998 were $98.5 million, an increase of $2.2 million or 2.3% from 1997. Increases include approximately $3.2 million related to purchase acquisitions, amounts related to revenue growth and $1.7 million in incentive compensation related to improved operating results offset by decreases of $4.5 million related to offices sold in 1998 and 1997. Compensation and employee benefits costs for 1997 were $96.2 million, an increase of $7.8 million or 8.9% from 1996. Increases include approximately $9.3 million related to purchase acquisitions and $1.7 million in incentive compensation related to improved operating results offset by decreases of $3.0 million related to offices sold in 1997 and 1996. Other operating expenses for 1998 were $47.0 million, or 3.3% higher than 1997. Increases relate primarily to purchase acquisitions and costs associated with revenue growth offset in part by the sale of 10 certain offices in 1998 and 1997 and consulting fees totaling $1.0 million in 1997 related to the Company's strategic plan. Other operating expenses for 1997 were $45.5 million, or 8.4% higher than 1996. Increases relate primarily to purchase acquisitions and to the aforementioned consulting fees in 1997 offset in part by the sale of certain offices in 1997 and 1996. Amortization expense primarily reflects the amortization of expiration rights, an intangible asset acquired in the purchase of insurance agencies. Amortization expense decreased by $0.2 million or by 2.4% in 1998 and increased by $0.5 million or 6.8% in 1997 which is attributable to purchase acquisitions consummated during 1998, 1997 and 1996 offset by decreases from amounts which became fully amortized or were sold in those years. The effective tax rates for the Company were 41.1% in 1998, 41.5% in 1997 and 40.1% in 1996. An analysis of the effective income tax rates is presented in "Note F--Income Taxes" of Notes to Consolidated Financial Statements. Over the last three years, inflationary pressure has been relatively modest and did not have a significant effect on the Company's operations. Liquidity and Capital Resources Net cash provided by operations totaled $19.6 million, $21.0 million and $16.6 million for the years ended December 31, 1998, 1997 and 1996, respectively, and is primarily dependent upon the timing of the collection of insurance premiums from clients and payment of those premiums to the appropriate insurance underwriters. The Company has historically generated sufficient funds internally to finance capital expenditures. Cash expenditures for the acquisition of property and equipment were $5.0 million, $2.1 million and $5.1 million for the years ended December 31, 1998, 1997 and 1996, respectively. The timing and extent of the purchase of investments is dependent upon cash needs and yields on alternate investments and cash equivalents. In addition, during 1998 and 1997, total proceeds from maturities of investments exceeded purchases of investments by $0.4 million and $2.4 million, respectively, as the Company utilized these funds for the repurchase of Common Stock of the Company and the acquisition of insurance agencies. Cash expenditures for the purchase of insurance agencies accounted for under the purchase method of accounting amounted to $10.4 million, $9.3 million and $9.7 million in the years ended December 31, 1998, 1997 and 1996, respectively. Cash expenditures for such insurance agency acquisitions have been funded primarily through operations and from long-term borrowings. In addition, a portion of the purchase price in such acquisitions may be paid through Common Stock and deferred cash payments. Cash proceeds from the sales of certain offices, insurance accounts and other assets totaled $8.9 million, $6.5 million and $2.5 million in the years ended December 31, 1998, 1997 and 1996, respectively. The Company did not have any material capital expenditure commitments as of December 31, 1998. Financing activities utilized cash of $16.4 million, $16.0 million and $6.0 million for the years ended December 31, 1998, 1997 and 1996, respectively, as the Company made scheduled debt payments and annually increased its dividend rate. In addition, during 1998, 1997 and 1996, the Company repurchased 1,045,280, 700,000 and 801,700, respectively, shares of its Common Stock under a stock repurchase program. The Company is currently authorized to purchase an additional 777,500 shares and anticipates that it will continue to repurchase shares in 1999 at a decreased level. The Company has a bank credit agreement 11 for $40.0 million under loans due in 2003. At December 31, 1998, there were loans of $40.0 million outstanding under the agreement. The Company had a current ratio (current assets to current liabilities) of 0.88 to 1.00 as of December 31, 1998. Shareholders' equity of $45.7 million at December 31, 1998, decreased from $51.3 million at December 31, 1997, and the debt to equity ratio of 0.96 to 1.00 at December 31, 1998 increased from the last year-end ratio of 0.63 to 1.00 due to the aforementioned purchase of Common Stock of the Company and an increase in borrowings to $40.0 million under the bank agreement used for insurance agency acquisitions and the repurchase of Common Stock. On March 29, 1999, the Company entered into a Stock Purchase Agreement with PM Holdings, Inc., Phoenix Home Life Mutual Insurance Company and Martin L. Vaughan, III to acquire all of the issued and outstanding shares of capital stock of American Phoenix Corporation. The acquisition is subject to regulatory approval and satisfaction of certain conditions to closing. Upon consummation of the acquisition, the Company expects to incur debt of approximately $49 million under a credit facility to be obtained in connection with the acquisition and to issue $32 million principal amount of 5.25% Convertible Subordinated Debentures due 2014. The Company expects repayment and servicing of the debt to be funded largely from cash flows of the combined operations. Additionally, management believes that these cash requirements will be partially offset by federal income tax benefits related to the interest expense and a portion of the goodwill amortization. Based upon the historic ability of the Company and American Phoenix Corporation to generate consistent, positive cash flows, the Company believes that the combined company will have sufficient liquidity and adequate capital resources to meet both its short- and long-term capital needs. Market Risk The Company has certain investments and utilizes derivative financial instruments which are subject to market risk; however, the Company believes that exposure to market risk associated with these instruments is not material. Impact of Year 2000 Many existing computer programs use only two digits to identify a year in the date field. These programs were designed and developed without considering the impact of the upcoming change in the century. If not corrected, this could result in a system failure or miscalculations causing disruption of operations, and could conceivably have a material adverse effect on the Company. The Company's technological operations rely primarily on personal computers ("PC's") and off-the-shelf software applications. As such, management is monitoring a program to evaluate external software relationships and ready its computer systems for the year 2000. As part of this process, the Company has assessed its year 2000 readiness by (1) performing an inventory of its PC's and applications software; (2) seeking compliance statements from its agency management system and other third party software vendors; and (3) testing PC hardware. As a result of this assessment, the Company is upgrading or replacing portions of its existing software and hardware that were not year 2000 compliant. Generally, these modifications and replacements were contemplated with normal system enhancements and improvements. The Company has substantially completed the required software replacements during 1998 and expects hardware replacements to be completed during 1999. The Company is also assessing any systems that may contain embedded chips or microcontrollers, such as elevators, office equipment, telephones or security systems. This assessment should be completed by mid 1999 with replacements or upgrades and limited testing to occur during the remainder of 1999. 12 The Company is also evaluating insurance carriers, financial institutions and other third party vendors. This process is expected to be complete by mid 1999. Determining the year 2000 readiness of external parties requires the collection of compliance statements made by those parties, together with factual research. Although the Company has taken, and will continue to take, reasonable efforts to gather information to determine the readiness of external parties, often such information is not provided voluntarily, is not available or is not reliable. In assessing the material risks to the Company's business arising from the year 2000 problem, the Company considers the year 2000 readiness of agency management system vendors, insurance carriers, financial institutions and other third parties (including public utilities and telecommunication service companies) to be the primary risk to its business. The loss of services from any one of these entities could disrupt operations and have a material adverse effect on the Company. The year 2000 readiness of third parties is substantially beyond the Company's knowledge and control, and there can be no assurances that the Company will not be adversely affected by the failure of a third party to adequately address the year 2000 problem. The Company is scheduled to begin a comprehensive contingency planning effort in March 1999 to ensure that all critical business functions will continue on January 1, 2000. The plan will outline the procedures to follow for the most likely areas of risk. The Company expects its contingency plan to create a business continuity project work group, define triggers for activating contingency plans, assess business resumption strategies and establish alternative processes for core business functions, where commercially reasonable. The Company's contingency planning efforts will be ongoing throughout 1999. The Company currently estimates that the total costs for addressing the year 2000 issue, including the necessary enhancements, will be approximately $3.5 million. Software and hardware replacements are being capitalized; whereas, the costs associated with preparing for the year 2000 are expensed as incurred and are being funded with cash from operations. As of December 31, 1998, the Company had spent approximately $1.8 million. The Company does not expect the total cost of addressing the year 2000 issue with respect to its internal computer systems and hardware to be material to its consolidated financial condition or results of operations. Forward-Looking Statements When used in this annual report, in Form 10-K or other filings by the Company with the Securities and Exchange Commission, in the Company's press releases or other public or shareholder communications, or in oral statements made with the approval of an authorized Company executive officer, the words or phrases "would be," "will allow," "expects to," "will continue," "is anticipated," "estimate," "project" or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. While forward-looking statements are provided to assist in the understanding of the Company's anticipated future financial performance, the Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date made. Forward-looking statements are subject to significant risks and uncertainties, many of which are beyond the Company's control. Although the Company believes that the assumptions underlying its forward-looking statements are reasonable, any of the assumptions could prove to be inaccurate. Actual results may differ materially from those contained in or implied by such forward-looking statements for a variety of reasons. Risk factors and uncertainties that might cause such a difference include, but are not limited to the following: the Company's commission revenues are highly dependent on premium rates charged by insurers, which are subject to fluctuation; the continuation of the "soft market" during which the underwriting capacity of insurance companies has 13 expanded causing increased competition and decreased premium rates and related commissions and fees; continued low interest rates will reduce income earned on invested funds; the insurance intermediary business is extremely competitive with a number of competitors being substantially larger than the Company; the alternative insurance market continues to grow; the Company's revenues vary significantly from quarter to quarter as a result of the timing of policy renewals and the net effect of new and lost business production; the general level of economic activity can have a substantial impact on the Company's renewal business; uncertainties associated with the Company's year 2000 remediation program and contingency plans; and the year 2000 readiness of third parties. The Company's continued growth has also been enhanced through acquisitions, which may or may not be available on acceptable terms in the future and which, if consummated, may or may not be advantageous to the Company. The Company does not undertake, and specifically disclaims any obligation, to update any forward-looking statements to reflect occurrences or unanticipated events or circumstances after the date of such statements. ITEM 7A. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The Company believes that its exposure to market risk associated with transactions using derivative financial instruments is not material. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The response to this item is submitted in a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Except as to certain information regarding executive officers included in Part I, the Proxy Statement for the 1999 Annual Meeting of the Shareholders to be filed within 120 days after the end of the last fiscal year is incorporated herein by reference for the information required by this item. ITEM 11. EXECUTIVE COMPENSATION The Proxy Statement for the 1999 Annual Meeting of the Shareholders to be filed within 120 days after the end of the last fiscal year is incorporated herein by reference for the information required by this item. 14 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The Proxy Statement for the 1999 Annual Meeting of the Shareholders to be filed within 120 days after the end of the last fiscal year is incorporated herein by reference for the information required by this item. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The Proxy Statement for the 1999 Annual Meeting of the Shareholders to be filed within 120 days after the end of the last fiscal year is incorporated herein by reference for the information required by this item. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) (1) and (2). The response to this portion of Item 14 is submitted as a separate section of this report. (3) Exhibits - Index Exhibit No. Document ----------- -------- 2 Stock Purchase Agreement dated March 29, 1999 by and among Hilb, Rogal and Hamilton Company, a Virginia corporation, PM Holdings, Inc., a Connecticut corporation, Phoenix Home Life Mutual Insurance Company, a New York life insurance company and Martin L. Vaughan, III* 3.1 Articles of Incorporation (incorporated by reference to Exhibit 4.1 to the Company's Registration Statement on Form S-3, File No. 33-56488, effective March 1, 1993, hereinafter, the Form S-3) 3.2 Amended and Restated Bylaws* 10.1 $20,000,000 Credit Agreement dated February 12, 1996 among Hilb, Rogal and Hamilton Company, Certain Banks and Crestar Bank, as Agent of the Banks (incorporated by reference to Exhibit 10.1 to the Company's Form 10-K for the year ended December 31, 1995, File No. 0-15981) 15 Exhibit No. Document ----------- -------- 10.2 Amendment dated February 24, 1997 to Credit Agreement dated February 12, 1996 among Hilb, Rogal and Hamilton Company, Certain Banks and Crestar Bank as Agent of the Banks (incorporated by reference to Exhibit 10.2 to the Company's Form 10-K for the year ended December 31, 1996, File No. 0-15981) 10.3 Amendment dated December 15, 1998 to Credit Agreement dated February 12, 1996 among Hilb, Rogal and Hamilton Company, Certain Banks and Crestar Bank as Agent of the Banks* 10.4 Incentive Stock Option Plan, as amended (incorporated by reference to Exhibit 28.27 of the Form S-3) 10.5 Consulting Agreement with Robert H. Hilb (incorporated by reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended June 30, 1997, File No. 0-15981) 10.6 Employment Agreement of Andrew L. Rogal (incorporated by reference to Exhibit 10.2 to the Company's Form 10-Q for the quarter ended June 30, 1997, File No. 0-15981) 10.7 Hilb, Rogal and Hamilton Company 1989 Stock Plan, as amended and restated* 10.8 Supplemental Executive Retirement Plan, as amended and restated* 10.9 Hilb, Rogal and Hamilton Company Outside Directors Deferral Plan, as amended and restated* 10.10 Hilb, Rogal and Hamilton Company Non-employee Directors Stock Incentive Plan, as amended and restated* 10.11 Sale and Quitclaim Agreement between Hilb, Rogal and Hamilton Company of Pittsburgh, Inc. and Harold J. Bigler, Chandler G. Ketchum and Richard F. Galardini* 16 Exhibit No. Document ----------- -------- 10.12 Form of Change of Control Employment Agreement for the following executive officers: Andrew L. Rogal, Timothy J. Korman, Carolyn Jones, Walter L. Smith, Vincent P. Howley, Henry C. Kramer, Robert J. Hilb and Robert W. Blanton, Jr.* 10.13 Form of Change of Control Employment Agreement for the following executive officers: John P. McGrath, Richard E. Simmons, III, William C. Chaufty, Steven C. Deal, Michael A. Janes and Richard F. Galardini* 10.14 Employment Agreement of John P. McGrath* 10.15 Employment Agreement of Richard F. Galardini* 10.16 Employment Agreement of Michael A. Janes* 21 Subsidiaries of Hilb, Rogal and Hamilton Company* 23 Consent of Ernst & Young LLP* 27 Financial Data Schedule* (electronic copy only) * Filed Herewith (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of 1998. (c) Exhibits The response to this portion of Item 14 as listed in Item 14(a)(3) above is submitted as a separate section of this report. (d) Financial Statement Schedules The response to this portion of Item 14 is submitted as a separate section of this report. 17 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant, Hilb, Rogal and Hamilton Company, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. HILB, ROGAL AND HAMILTON COMPANY By: /s/ Andrew L. Rogal ----------------------------------- Andrew L. Rogal, President and Chief Executive Officer Date: March 30, 1999 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature Title Date /s/ Andrew L. Rogal President and Chief Executive March 30, 1999 - ------------------------------------ Officer Andrew L. Rogal (Principal) /s/ Carolyn Jones Senior Vice President, Chief March 30, 1999 - ------------------------------------ Financial Officer and Treasurer Carolyn Jones (Principal Financial Officer) /s/ Robert W. Blanton, Jr. Vice President and Controller March 30, 1999 - ------------------------------------ (Principal Accounting Officer) Robert W. Blanton, Jr. /s/ Robert H. Hilb Chairman and Director March 30, 1999 - ------------------------------------ Robert H. Hilb /s/ Philip J. Faccenda Director March 30, 1999 - ------------------------------------ Philip J. Faccenda /s/ Robert S. Ukrop Director March 30, 1999 - ------------------------------------ Robert S. Ukrop /s/ Thomas H. O'Brien Director March 30, 1999 - ------------------------------------ Thomas H. O'Brien 18 /s/ J.S.M. French Director March 30, 1999 - ------------------------------------ J.S.M. French /s/ Norwood H. Davis, Jr. Director March 30, 1999 - ------------------------------------ Norwood H. Davis, Jr. /s/ Theodore L. Chandler, Jr. Director March 30, 1999 - ------------------------------------ Theodore L. Chandler, Jr. /s/ Anthony F. Markel Director March 30, 1999 - ------------------------------------ Anthony F. Markel
19 ANNUAL REPORT ON FORM 10-K ITEM 8, ITEMS 14 (a)(1) AND (2) AND (d) INDEX OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA FINANCIAL STATEMENT SCHEDULES CERTAIN EXHIBITS YEAR ENDED DECEMBER 31, 1998 HILB, ROGAL AND HAMILTON COMPANY GLEN ALLEN, VIRGINIA 20 FORM 10-K ITEM 14 (a)(1) AND (2) HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES The following consolidated financial statements of Hilb, Rogal and Hamilton Company and subsidiaries are included in Item 8:
Page Report of Independent Auditors ...................................................................... F-1 Consolidated Balance Sheets, December 31, 1998 and 1997 ............................................. F-2 Statement of Consolidated Income, Years Ended December 31, 1998, 1997 and 1996 ...................................................... F-3 Statement of Consolidated Shareholders' Equity, Years Ended December 31, 1998, 1997 and 1996 ...................................................... F-4 Statement of Consolidated Cash Flows, Years Ended December 31, 1998, 1997 and 1996 ...................................................... F-5 Notes to Consolidated Financial Statements........................................................... F-6 The following consolidated financial statement schedule of Hilb, Rogal and Hamilton Company and subsidiaries is included in Item 14(d): Schedule II Valuation and Qualifying Accounts......................................... F-19
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted. 21 Report of Ernst & Young LLP, Independent Auditors Shareholders and Board of Directors Hilb, Rogal and Hamilton Company We have audited the accompanying consolidated balance sheet of Hilb, Rogal and Hamilton Company and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1998. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hilb, Rogal and Hamilton Company and subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects, the information set forth therein. Ernst & Young LLP Richmond, Virginia February 10, 1999, except for Note M, as to which the date is March 30, 1999 F-1 CONSOLIDATED BALANCE SHEET HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
December 31 1998 1997 ------------ ------------ ASSETS CURRENT ASSETS Cash and cash equivalents, including $10,951,000 $ 19,394,958 $ 22,314,860 and $7,645,000, respectively, of restricted funds Investments 3,383,742 3,892,533 Receivables: Premiums, less allowance for doubtful accounts of $1,505,000 and $2,299,000, respectively 45,313,620 41,292,489 Other 6,257,370 5,720,513 ------------ ------------ 51,570,990 47,013,002 Prepaid expenses and other current assets 3,852,095 3,612,523 ------------ ------------ TOTAL CURRENT ASSETS 78,201,785 76,832,918 INVESTMENTS 3,068,140 5,030,000 PROPERTY AND EQUIPMENT, NET 12,387,194 11,762,080 INTANGIBLE ASSETS Expiration rights 81,074,920 75,193,075 Goodwill 35,985,542 33,411,145 Noncompetition agreements 14,740,145 11,636,847 ------------ ------------ 131,800,607 120,241,067 Less accumulated amortization 44,329,974 38,071,304 ------------ ------------ 87,470,633 82,169,763 OTHER ASSETS 6,938,074 5,811,797 ------------ ------------ $188,065,826 $181,606,558 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Premiums payable to insurance companies $ 65,436,784 $ 67,520,370 Accounts payable and accrued expenses 13,025,426 10,925,646 Premium deposits and credits due customers 7,765,575 7,752,502 Current portion of long-term debt 2,277,479 2,074,788 ------------ ------------ TOTAL CURRENT LIABILITIES 88,505,264 88,273,306 LONG-TERM DEBT 43,658,306 32,457,882 OTHER LONG-TERM LIABILITIES 10,191,881 9,536,771 SHAREHOLDERS' EQUITY Common Stock, no par value; authorized 50,000,000 shares; outstanding 12,117,412 and 12,813,023 shares, respectively 3,831,208 16,540,461 Retained earnings 41,879,167 34,798,138 ------------ ------------ 45,710,375 51,338,599 ------------ ------------ $188,065,826 $181,606,558 ============ ============
See notes to consolidated financial statements. F-2 STATEMENT OF CONSOLIDATED INCOME HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
Year Ended December 31 1998 1997 1996 --------------- --------------- --------------- Revenues Commissions and fees $ 175,886,766 $ 168,558,411 $ 153,967,914 Investment income 1,578,782 1,739,578 1,533,066 Other 3,582,345 3,410,891 2,742,120 --------------- --------------- --------------- 181,047,893 173,708,880 158,243,100 Operating expenses Compensation and employee benefits 98,478,098 96,239,782 88,406,342 Other operating expenses 46,969,711 45,476,904 41,950,933 Amortization of intangibles 7,919,355 8,110,010 7,596,274 Interest expense 2,317,195 2,037,338 1,244,729 --------------- --------------- --------------- 155,684,359 151,864,034 139,198,278 --------------- --------------- --------------- INCOME BEFORE INCOME TAXES 25,363,534 21,844,846 19,044,822 Income Taxes 10,418,469 9,054,995 7,638,431 --------------- --------------- --------------- NET INCOME $ 14,945,065 $ 12,789,851 $ 11,406,391 =============== =============== =============== NET INCOME PER COMMON SHARE: BASIC $ 1.20 $ 0.98 $ 0.84 =============== =============== =============== DILUTED $ 1.18 $ 0.97 $ 0.84 =============== =============== ===============
See notes to consolidated financial statements. F-3 STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
Common Retained Stock Earnings -------------- -------------- Balance at January 1, 1996 $ 29,903,900 $ 26,741,990 Issuance of 462,170 shares of Common Stock 6,251,661 Purchase of 801,700 shares of Common Stock (10,845,095) Payment of dividends ($.605 per share) (8,116,389) Other (44,187) Net income 11,406,391 -------------- -------------- Balance at December 31, 1996 25,266,279 30,031,992 Issuance of 192,446 shares of Common Stock 2,895,697 Purchase of 700,000 shares of Common Stock (11,338,557) Payment of dividends ($.62 per share) (8,023,705) Other (282,958) Net income 12,789,851 -------------- -------------- Balance at December 31, 1997 16,540,461 34,798,138 Issuance of 349,669 shares of Common Stock 5,684,404 Purchase of 1,045,280 shares of Common Stock (18,672,302) Payment of dividends ($.635 per share) (7,864,036) Other 278,645 Net income 14,945,065 -------------- -------------- Balance at December 31, 1998 $ 3,831,208 $ 41,879,167 ============== ==============
See notes to consolidated financial statements. F-4 STATEMENT OF CONSOLIDATED CASH FLOWS HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES
Year Ended December 31 1998 1997 1996 ------------------------------------------------------ OPERATING ACTIVITIES Net income $ 14,945,065 $ 12,789,851 $ 11,406,391 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of intangible assets 7,919,355 8,110,010 7,596,274 Depreciation and amortization 3,589,957 3,557,298 3,259,452 ------------ ------------ ------------ Net income plus amortization and depreciation 26,454,377 24,457,159 22,262,117 Provision for losses on receivables 560,262 383,670 1,276,258 Provision for deferred income taxes (503,796) (397,674) (816,246) Gain on sale of assets (2,637,829) (2,474,894) (1,856,443) Changes in operating assets and liabilities net of effects from insurance agency acquisitions and dispositions: (Increase) decrease in accounts receivable (5,991,755) 3,784,756 (1,405,660) (Increase) decrease in prepaid expenses (460,178) 197,802 (1,649,239) Increase (decrease) in premiums payable to insurance companies 2,562,095 (2,115,712) (4,241,464) Increase (decrease) in premium deposits and credits due customers 13,073 (1,197,195) 774,857 Increase (decrease) in accounts payable and accrued expenses 405,635 (1,178,335) 224,046 Other operating activities (752,315) (475,547) 2,077,498 ------------ ------------ ------------ NET CASH PROVIDED BY OPERATING ACTIVITIES 19,649,569 20,984,030 16,645,724 INVESTING ACTIVITIES Purchase of held-to-maturity investments (444,281) (3,549,631) (7,339,705) Purchase of available-for-sale investments -- -- (260,000) Proceeds from maturities and calls of held-to-maturity investments 833,593 5,640,804 7,866,672 Proceeds from sale of available-for-sale investments -- 260,000 3,914,000 Purchase of property and equipment (4,978,966) (2,135,837) (5,051,253) Purchase of insurance agencies, net of cash acquired (10,446,138) (9,309,760) (9,722,979) Proceeds from sale of assets 8,912,516 6,546,661 2,461,177 Other investing activities 2,403 115,892 222,231 ------------ ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES (6,120,873) (2,431,871) (7,909,857) FINANCING ACTIVITIES Proceeds from long-term debt 18,975,000 7,750,668 30,861,966 Principal payments on long-term debt (11,071,664) (5,329,866) (18,024,341) Repurchase of Common Stock (18,672,302) (11,338,557) (10,845,095) Dividends (7,864,036) (8,023,705) (8,116,389) Other financing activities 2,184,404 929,787 141,660 ------------ ------------ ------------ NET CASH USED IN FINANCING ACTIVITIES (16,448,598) (16,011,673) (5,982,199) ------------ ------------ ------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,919,902) 2,540,486 2,753,668 Cash and cash equivalents at beginning of year 22,314,860 19,774,374 17,020,706 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,394,958 $ 22,314,860 $ 19,774,374 ============ ============ ============
See notes to consolidated financial statements. F-5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES December 31, 1998 Hilb, Rogal and Hamilton Company (the Company), a Virginia corporation, operates as an agency system with offices located in 16 states. Its principal activity is the performance of retail insurance services which involves placing property and casualty and life and health insurance with insurers on behalf of commercial clients in a variety of industries and individual clients. NOTE A -- SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The accompanying financial statements include the accounts of the Company and its subsidiaries. Significant intercompany accounts and transactions have been eliminated in consolidation. Use of Estimates: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Revenues: Commission income as well as the related premiums receivable from customers and premiums payable to insurance companies are recorded as of the effective date of insurance coverage or the billing date, whichever is later. Premium adjustments, including policy cancellations, are recorded as they occur. Contingent commissions and commissions on premiums billed and collected directly by insurance companies are recorded as revenue when received. Fees for services rendered and override commissions are recorded as earned. These policies are in accordance with predominant industry practice. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less at the date of acquisition to be cash equivalents. The carrying amounts reported on the balance sheet approximate the fair values. Investments: Management determines the appropriate classification of debt securities at the time of purchase and reevaluates such designation at each balance sheet date. Debt securities are classified as held-to-maturity when the Company has the positive intent and ability to hold the securities to maturity. Held-to-maturity securities are stated at amortized cost, which is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Interest and dividends are included in investment income. Realized gains and losses, and declines in value judged to be other than temporary are included in investment income. Marketable debt securities not classified as held-to-maturity are classified as available-for-sale. Available-for-sale securities are carried at fair value. Amortized cost of debt securities in this category is adjusted for amortization of premiums and accretion of discounts to maturity. Such amortization is included in investment income. Realized gains and losses and declines in value judged to be other than temporary on available-for-sale securities are included in investment income. The cost of securities sold is based on the specific identification method. Interest and dividends on securities classified as available-for-sale are included in investment income. F-6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE A -- SIGNIFICANT ACCOUNTING POLICIES -- Continued Property and Equipment: Property and equipment are stated on the basis of cost. Depreciation is computed by the straight-line method over estimated useful lives (30 to 33 years for buildings, 3 to 7 years for equipment). Leasehold improvements are generally amortized using a straight-line method over the term of the related lease. Intangible Assets: Intangible assets arising from acquisitions accounted for as purchases principally represent expiration rights, the excess of costs over the fair value of net assets acquired and noncompetition agreements. The cost of such assets is being amortized principally on a straight-line basis over periods ranging up to 20 years for expiration rights, 15 to 40 years for the excess of costs over the fair value of net assets acquired and 3 to 20 years for noncompetition agreements. The carrying value of the Company's intangible assets is periodically reviewed to ensure that there are no conditions which exist indicating that the recorded amount of intangible assets is not recoverable from future undiscounted cash flows. Effective January 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." Adoption of this statement did not have a material impact on the Company's financial position or results of operations. Accounting for Stock-Based Compensation: In October 1995, the Financial Accounting Standards Board (the FASB) issued Statement No. 123, "Accounting for Stock-Based Compensation" (Statement No. 123). Statement No. 123 defines a fair value based method of accounting for employee stock options. Companies may, however, elect to adopt this new accounting rule through a pro forma disclosure option, while continuing to use the intrinsic value based method of accounting prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB No. 25). The Company has elected to continue to follow APB No. 25 and related interpretations in accounting for its employee stock options. In addition, the effect of applying Statement No. 123's fair value method to the Company's employee stock options does not result in net income and net income per share that are materially different from amounts reported. Accordingly, the pro forma disclosures required by Statement No. 123 have not been included in the footnotes to the financial statements. Fair Value of Financial Instruments: The carrying amounts reported in the balance sheet for cash and cash equivalents, receivables, premiums payable to insurance companies, accounts payable and accrued expenses and long-term debt approximate those assets' and liabilities' fair values. Fair values for investment securities are based on quoted market prices and are disclosed in Note B. Interest Rate Swaps: The Company enters into interest rate swap agreements to modify the interest characteristics of its outstanding debt. Each interest rate swap agreement is designated with all or a portion of the principal balance and term of a specific debt obligation. These agreements involve the exchange of amounts based on variable interest rates for amounts based on fixed interest rates over the life of the agreement without an exchange of the notional amount upon which the payments are based. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment of interest expense related to the debt (the accrual accounting method). The related amount payable to or receivable from counterparties is included in other liabilities or assets. The fair value of the swap agreements and changes in the fair value as a result of changes in market interest rates are not recognized in the financial statements. F-7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE A -- SIGNIFICANT ACCOUNTING POLICIES -- Continued Gains and losses on terminations of interest rate swap agreements are deferred as an adjustment to the carrying amount of the outstanding debt and amortized as an adjustment to interest expense related to the debt over the remaining term of the original contract life of the terminated swap agreement. In the event of the early extinguishment of a designated debt obligation, any realized or unrealized gain or loss from the swap would be recognized in income coincident with the extinguishment gain or loss. Income Taxes: The Company (except for its Canadian subsidiary sold in 1998) files a consolidated federal income tax return with its subsidiaries. Deferred taxes result from temporary differences between the income tax and financial statement bases of assets and liabilities and are based on tax laws as currently enacted. Accounting Pronouncements: In February 1998, the FASB issued Statement No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits" (Statement No. 132) which revises employers' disclosures about pension and other postretirement benefit plans. The Company has adopted Statement No. 132 and restated its disclosures for earlier periods. In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" which is required to be adopted in years beginning after June 15, 1999. Because of the Company's minimal use of derivatives, management does not anticipate that the new statement will have a significant effect on earnings or financial position of the Company. F-8 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE B -- INVESTMENTS The following is a summary of held-to-maturity investments included in current and long-term assets on the consolidated balance sheet:
Held-to-Maturity Investments ----------------------------------------------------------------------- Gross Gross Cost Unrealized Gains Unrealized Losses Fair Value ---------- ---------------- ----------------- ---------- December 31, 1998 Obligations of states and political subdivisions $4,719,000 $ 64,000 $ -- $4,783,000 Certificates of deposit and other 1,733,000 -- -- 1,733,000 ---------- ------------ ------------ ---------- $6,452,000 $ 64,000 $ -- $6,516,000 ========== ============ ============ ==========
Held-to-Maturity Investments ----------------------------------------------------------------------- Gross Gross Cost Unrealized Gains Unrealized Losses Fair Value ---------- ---------------- ----------------- ---------- December 31, 1997 Obligations of U.S. government agencies $1,000,000 $ -- $ -- $1,000,000 Obligations of states and political subdivisions 5,840,000 75,000 1,000 5,914,000 Certificates of deposit and other 2,083,000 2,083,000 ---------- ------------ ------------ ---------- $8,923,000 $ 75,000 $ 1,000 $8,997,000 ========== ============ ============ ==========
The amortized cost and fair value of held-to-maturity investments at December 31, 1998, by contractual maturity, are as follows. Actual maturities may differ from contractual maturities because the issuers of the securities may have the right to prepay obligations without prepayment penalties.
Cost Fair Value Held-to-Maturity Investments Due in one year $ 3,384,000 $ 3,393,000 Due after one year through five years 3,068,000 3,123,000 ----------- ----------- $ 6,452,000 $ 6,516,000 =========== ===========
NOTE C -- PROPERTY AND EQUIPMENT Property and equipment consists of the following:
1998 1997 ---- ---- Furniture and equipment $28,830,000 $27,880,000 Buildings and land 3,350,000 3,835,000 Leasehold improvements 2,376,000 1,887,000 ----------- ----------- 34,556,000 33,602,000 Less accumulated depreciation and amortization 22,169,000 21,840,000 ----------- ----------- $12,387,000 $11,762,000 =========== ===========
F-9 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE D -- LONG-TERM DEBT
1998 1997 ---- ---- Notes payable to banks, interest currently at 6.2% $40,000,000 $30,000,000 Installment notes payable incurred in acquisitions of insurance agencies, 4.95% to 9.0%, due in various installments, to 2003 5,651,000 4,123,000 Installment notes payable, 6.0% to 8.0%, due in various installments, to 2003 284,000 410,000 ----------- ----------- 45,935,000 34,533,000 Less current portion 2,277,000 2,075,000 ----------- ----------- $43,658,000 $32,458,000 =========== ===========
Maturities of long-term debt for the four years ending after December 31, 1999 are $1,780,000 in 2000; $964,000 in 2001; $601,000 in 2002 and $40,313,000 in 2003. Interest paid was $2,321,000, $3,437,000 and $1,232,000 in 1998, 1997 and 1996, respectively. The Company entered into a credit agreement with two banks that allows for borrowings of up to $40,000,000 under loans due in 2003, which bear interest at variable rates. At December 31, 1998, $40,000,000 was borrowed under this agreement. This credit agreement contains, among other provisions, requirements for maintaining certain financial ratios. The Company entered into two interest rate swap agreements effective December 19, 1997 and January 21, 1998 to manage interest rate exposure on its long-term debt. The swap agreements are contracts to exchange floating rate for fixed rate interest payments periodically over the life of the agreement without the exchange of the underlying combined notional amount of $15,000,000. The notional amounts of interest rate agreements are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The credit risk to the Company would be the counterparty's inability to pay the differential in the fixed rate and variable rate in a rising interest rate environment. The Company is exposed to market risk from changes in interest rates. The differential paid or received on the interest rate per the agreements is recognized as an adjustment to interest expense. Under the Company's interest rate swap agreements, the Company contracted with the counterparty to exchange the difference between the Company's fixed pay rates of 6.52% and 6.46% and the counterparty's variable pay rate of LIBOR plus 0.575%. At December 31, 1998, the variable rate was approximately 6.14%. The contracts expire December 19, 2002 and January 21, 2003, respectively. F-10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE E -- RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS The Company sponsors the Hilb, Rogal and Hamilton Company Profit Sharing Savings Plan (the Profit Sharing Plan) which covers substantially all employees of the Company and its subsidiaries. The Profit Sharing Plan, which may be amended or terminated by the Company at any time, provides that the Company shall contribute to a trust fund such amounts as the Board of Directors shall determine subject to certain earnings restrictions as defined in the Profit Sharing Plan. Prior to merger with the Company, certain of the merged companies had separate profit sharing, ESOP or benefit plans. These plans were terminated or frozen at the time of merger with the Company. The total expense recorded under these plans for 1998, 1997 and 1996 was approximately $2,378,000, $3,120,000 and $2,680,000, respectively. In addition, in 1998, the Company amended and restated the Supplemental Executive Retirement Plan for key executives to convert the plan from a defined benefit arrangement to a defined contribution arrangement. Contributions to this defined contribution plan for the year ended December 31, 1998 amounted to approximately $75,000. The Company also retained its defined benefit Supplemental Executive Retirement Plan for grandfathered participants prior to January 1, 1998. This plan pays supplemental pension benefits to key executives in addition to amounts received under the Profit Sharing Plan. Such benefits will be paid from Company assets. The Company sponsors postretirement benefit plans that provide medical and life insurance benefits to retirees. Employees who retire after age 55 with 10 years of service are eligible to participate. The plans are contributory for substantially all participants, with retiree contributions adjusted annually and the health care plan contains other cost sharing features such as deductibles and coinsurance. The accounting for the health care plan anticipates future cost sharing changes to the written plan that are consistent with the Company's expressed intent to increase retiree contributions annually in accordance with increases in health care costs. The Company's policy is to fund the cost of these benefits when actual claims are incurred. F-11 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE E -- RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS -- Continued The following tables set forth a reconciliation of the changes in benefit obligation and fair value of assets, a statement of funded status, weighted average discount rates used by the actuary and components of net periodic benefit cost:
Pension Benefits Other Benefits ---------------------------- ---------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- Reconciliation of Change in Benefit Obligations: Benefit obligation at beginning of year $ 3,143,000 $ 2,976,000 $ 896,000 $1,050,000 Service cost 27,000 188,000 -- -- Interest cost 174,000 229,000 64,000 80,000 Plan amendments (746,000) -- -- -- Actuarial (gain)/loss 109,000 (83,000) (34,000) (41,000) Benefit payments (167,000) (167,000) (31,000) (193,000) ----------- ----------- ----------- ----------- Benefit obligation at end of year $ 2,540,000 $ 3,143,000 $ 895,000 $ 896,000 =========== =========== =========== =========== Reconciliation of Fair Value of Plan Assets: Fair value of plan assets at beginning of year $ -- $ -- $ -- $ -- Employer contributions -- -- 31,000 193,000 Benefit payments -- -- (31,000) (193,000) ----------- ----------- ----------- ----------- Fair value of plan assets at end of year $ -- $ -- $ -- $ -- =========== =========== =========== =========== Funded Status: Funded status as of December 31 $(2,540,000) $(3,143,000) $ (895,000) $ (896,000) Unrecognized transition cost -- -- 881,000 991,000 Unrecognized prior service cost 975,000 1,795,000 -- -- Unrecognized (gain)/loss 65,000 (45,000) (668,000) (704,000) ----------- ----------- ----------- ----------- Accrued benefit cost $(1,500,000) $(1,393,000) $ (682,000) $ (609,000) =========== =========== =========== =========== Weighted Average Assumptions as of December 31: Discount rate 7.00% 7.50% 7.00% 7.50% Salary scale 4.00% 4.00% -- --
Pension Benefits Other Benefits ---------------- -------------- 1998 1997 1996 1998 1997 1996 ---- ---- ---- ---- ---- ---- Components of Net Periodic Benefit Cost: Service cost $ 27,000 $188,000 $182,000 -- -- -- Interest cost 174,000 229,000 223,000 64,000 80,000 82,000 Amortization of transition obligation -- -- -- 110,000 115,000 115,000 Amortization of prior gains -- -- -- (70,000) (79,000) (67,000) Amortization of prior service cost 73,000 126,000 135,000 -- -- -------- -------- -------- -------- -------- -------- Net periodic benefit cost $274,000 $543,000 $540,000 $104,000 $116,000 $130,000 ======== ======== ======== ======== ======== ========
F-12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE E -- RETIREMENT PLANS AND OTHER POSTRETIREMENT BENEFIT PLANS -- Continued The following table provides the amounts recognized in the statement of financial position as of December 31, 1998 and 1997:
Pension Benefits Other Benefits ---------------- -------------- 1998 1997 1998 1997 ---- ---- ---- ---- Accrued benefit liability $(2,331,000) $(2,228,000) $(682,000) $(609,000) Intangible asset 831,000 835,000 -- -- ----------- ----------- --------- --------- Net amount recognized $(1,500,000) $(1,393,000) $(682,000) $(609,000) =========== =========== ========= =========
For measurement purposes, a 7.25% gross medical trend rate was assumed in 1999. The rate is assumed to decrease to 6.15% over the period to 2020 and remain level thereafter. Assumed health care cost rates have an effect on the amounts reported for the health care plans. A one percent change in assumed health care costs trend rates would have the following effects:
1% Increase 1% Decrease ----------- ----------- Effect on total of service and interest cost components of net periodic postretirement health care benefit cost $ 7,000 $ 6,000 Effect on the health care component of the accumulated postretirement benefit obligation 53,000 50,000
NOTE F -- INCOME TAXES The components of income taxes shown in the statement of consolidated income are as follows: 1998 1997 1996 ---- ---- ---- Current Federal $ 8,542,000 $7,401,000 $6,481,000 State 2,039,000 1,438,000 1,305,000 Foreign 341,000 614,000 668,000 ----------- ---------- ---------- 10,922,000 9,453,000 8,454,000 Deferred Federal (362,000) (247,000) (639,000) State (68,000) (46,000) (73,000) Foreign (74,000) (105,000) (104,000) ----------- ---------- ---------- (504,000) (398,000) (816,000) ----------- ---------- ---------- $10,418,000 $9,055,000 $7,638,000 =========== ========== ========== F-13 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE F -- INCOME TAXES -- Continued The effective income tax rate varied from the statutory federal income tax rate as follows:
1998 1997 1996 ---- ---- ---- Statutory federal income tax rate 35.0% 35.0% 35.0% Tax exempt investment income (0.5) (0.8) (1.4) State income taxes, net of federal tax benefit 5.0 4.2 4.5 Other 1.6 3.1 2.0 ---- ---- ---- Effective income tax rate 41.1% 41.5% 40.1% ==== ==== ====
Income taxes paid were $10,678,000, $9,646,000 and $10,128,000 in 1998, 1997 and 1996, respectively. Income before income taxes from the Company's Canadian operations (sold in 1998) was $451,000, $900,000 and $1,168,000 in 1998, 1997 and 1996, respectively. Deferred income taxes reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax liabilities and assets on the consolidated balance sheet are as follows:
1998 1997 ---- ---- Deferred tax liabilities: Intangible assets $5,531,000 $6,015,000 Other--net 1,513,000 1,129,000 ---------- ---------- Total deferred tax liabilities 7,044,000 7,144,000 Deferred tax assets: Deferred compensation 1,083,000 917,000 Bad debts 571,000 870,000 Other 1,255,000 833,000 ---------- ---------- Total deferred tax assets 2,909,000 2,620,000 ---------- ---------- Net deferred tax liabilities $4,135,000 $4,524,000 ========== ==========
In 1997, the Company reached a final agreement with the Internal Revenue Service (the IRS) which resolved all issues arising from the IRS's audit of the Company's income tax returns for the seven years ended December 31, 1994. Since the agreement related to deductions claimed in connection with intangible assets acquired by the Company, the additional tax that resulted from the agreement, including payments of $2,626,000 and a $1,500,000 increase in deferred tax liabilities, was recorded as an increase in goodwill of $4,126,000 on the December 31, 1996 balance sheet. The settlement will not have a significant impact on the Company's future earnings. F-14 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE G -- LEASES The Company and its subsidiaries have noncancellable lease contracts for office space, equipment and automobiles which expire at various dates through the year 2008 and generally include escalation clauses for increases in lessors' operating expenses and increased real estate taxes. Future minimum rental payments required under such operating leases are summarized as follows: 1999 $ 6,526,000 2000 5,731,000 2001 4,545,000 2002 3,988,000 2003 2,886,000 Thereafter 8,454,000 ----------- $32,130,000 Rental expense for all operating leases amounted to $7,474,000 in 1998, $7,276,000 in 1997 and $6,845,000 in 1996. Included in rental expense for 1998, 1997 and 1996 is approximately $554,000, $386,000 and $313,000, respectively, which was paid to employees or related parties. NOTE H -- SHAREHOLDERS' EQUITY The Company has adopted and the shareholders have approved the 1986 Incentive Stock Option Plan, the Hilb, Rogal and Hamilton Company 1989 Stock Plan and the Non-employee Directors Stock Incentive Plan, which provide for the granting of options to purchase up to an aggregate of approximately 1,853,000 and 1,765,000 shares of Common Stock as of December 31, 1998 and 1997, respectively. The number of shares available for grant may increase or decrease with the respective changes in the number of shares of Common Stock outstanding. Stock options granted have seven to ten year terms and vest and become fully exercisable at various periods up to five years. Stock option activity under the plans were as follows: Weighted Average Shares Exercise Price ------ -------------- Outstanding at January 1, 1996 806,725 $13.38 Granted 72,900 13.00 Exercised 3,600 10.40 Expired 132,700 13.21 --------- Outstanding at December 31, 1996 743,325 13.39 Granted 528,190 15.97 Exercised 78,052 12.19 Expired 87,000 13.42 --------- Outstanding at December 31, 1997 1,106,463 14.70 Granted 290,747 17.68 Exercised 136,405 13.16 Expired 54,346 15.20 --------- Outstanding at December 31, 1998 1,206,459 15.54 ========= Exercisable at December 31, 1998 613,969 14.62 The options outstanding at December 31, 1998 have exercise prices that range from $9.34 to $18.69. The weighted average contractual life of these options is five years. F-15 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE H -- SHAREHOLDERS' EQUITY -- Continued There were 309,000 and 466,000 shares available for future grant under these plans as of December 31, 1998 and 1997, respectively. No compensation expense is recognized in operations for 1998, 1997 or 1996. NOTE I -- NET INCOME PER SHARE The following table sets forth the computation of basic and diluted net income per share:
1998 1997 1996 ---- ---- ---- Numerator for basic and dilutive net income per share - net income $14,945,065 $12,789,851 $11,406,391 Denominator Weighted average shares 12,453,558 13,069,453 13,493,255 Effect of guaranteed future shares to be issued in connection with agency acquisitions 43,194 29,764 7,075 ----------- ----------- ----------- Denominator for basic net income per share 12,496,752 13,099,217 13,500,330 Effect of dilutive securities: Employee stock options 187,794 101,280 25,451 Contingent stock - acquisitions 24,198 14,222 -- ----------- ----------- ----------- Dilutive potential common shares 211,992 115,502 25,451 ----------- ----------- ----------- Denominator for diluted net income per share - adjusted weighted average shares and assumed conversions 12,708,744 13,214,719 13,525,781 =========== =========== =========== Net Income Per Common Share: Basic $ 1.20 $ 0.98 $ 0.84 ====== ====== ====== Diluted $ 1.18 $ 0.97 $ 0.84 ====== ====== ======
NOTE J -- ACQUISITIONS During 1998, the Company acquired certain assets and liabilities of six insurance agencies for $9,998,000 ($4,498,000 in cash, $3,500,000 in guaranteed future payments and 113,945 shares of Common Stock) in purchase accounting transactions. Assets acquired include expiration rights of $7,220,000, noncompetition agreements of $2,645,000 and goodwill of $1,922,000. The combined purchase price may be increased by approximately $885,000 in 1999, $1,635,000 in 2000, $1,500,000 in 2001, $1,125,000 in 2002 and $525,000 in 2003 based upon commissions or net profits realized. During 1997, the Company acquired certain assets and liabilities of six insurance agencies for $9,426,000 ($6,333,000 in cash, $2,393,000 in guaranteed future payments and 53,555 shares of Common Stock) in purchase accounting transactions. Assets acquired include expiration rights of $7,082,000, noncompetition agreements of $1,151,000 and goodwill of $1,310,000. The combined purchase price was increased by $2,564,000 in 1998 and may be increased by approximately $1,490,000 in 1999 and $1,490,000 in 2000 based upon commissions or net profits realized. F-16 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE J -- ACQUISITIONS -- Continued During 1996, the Company acquired certain assets and liabilities of 15 insurance agencies for $16,189,000 ($7,343,000 in cash, $2,736,000 in guaranteed future payments and 451,610 shares of Common Stock) in purchase accounting transactions. Assets acquired include expiration rights of $13,565,000, noncompetition agreements of $2,820,000 and goodwill of $2,717,000. The combined purchase price was increased by approximately $4,957,000 in 1998 and $3,392,000 in 1997 and may be increased by approximately $1,354,000 in 1999, $127,000 in 2000 and $37,000 in 2001 based upon commissions or net profits realized. The above purchase acquisitions have been included in the Company's consolidated financial statements from their respective acquisition dates. The pro forma unaudited results of operations for the years ended December 31, 1998 and 1997, assuming the above 1998 and 1997 purchase acquisitions had occurred as of January 1, 1997, are as follows: 1998 1997 ---- ---- Revenues $186,417,000 $183,477,000 Net Income 15,093,000 12,942,000 Net Income Per Common Share: Basic $1.19 $0.97 Diluted $1.17 $0.96 NOTE K -- SALE OF ASSETS During 1998, 1997 and 1996, the Company sold certain insurance accounts and other assets resulting in gains of approximately $2,638,000, $2,475,000 and $1,856,000, respectively. These amounts are included in other revenues in the statement of consolidated income. Revenues, expenses and assets of these operations were not material to the consolidated financial statements. NOTE L -- COMMITMENTS AND CONTINGENCIES Included in cash and cash equivalents and premium deposits and credits due customers are approximately $929,000 and $1,496,000 of funds held in escrow at December 31, 1998 and 1997, respectively. In addition, premiums collected from insureds but not yet remitted to insurance carriers are restricted as to use by laws in certain states in which the Company operates. The amount of cash and cash equivalents so restricted was approximately $10,022,000 and $6,149,000 at December 31, 1998 and 1997, respectively. There are in the normal course of business various outstanding commitments and contingent liabilities. Management does not anticipate material losses as a result of such matters. The Company is generally involved in routine insurance policy related litigation. Several suits have been brought against the Company involving settlement of various insurance matters where customers are seeking both punitive and compensatory damages. Management, upon the advice of counsel, is of the opinion that such suits are substantially without merit, that valid defenses exist and that such litigation will not have a material effect on the consolidated financial statements. F-17 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- Continued HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES NOTE M -- SUBSEQUENT EVENTS Subsequent to December 31, 1998, the Company acquired certain assets and liabilities of one insurance agency for $2,244,000 ($1,450,000 in cash and $794,000 in guaranteed future payments) in a purchase accounting transaction. Pro forma revenues and net income are not material to the consolidated financial statements. On March 30, 1999, the Company announced the execution of a Stock Purchase Agreement with PM Holdings, Inc., Phoenix Home Life Mutual Insurance Company and Martin L. Vaughan, III to acquire all of the issued and outstanding shares of American Phoenix Corporation, a subsidiary of Phoenix Home Life Mutual Insurance Company, for approximately $49 million in cash, $32 million in 5.25% Convertible Subordinated Debentures due 2014, with a conversion price of $22.75 per share, callable in 2009, and 1,000,000 shares of Common Stock of the Company. The acquisition is subject to regulatory approval and satisfaction of certain conditions to closing. The Company expects to fund the cash portion of the purchase price with a credit facility to be obtained in connection with the acquisition. The acquisition is expected to be completed during the second quarter of 1999 and will be accounted for using purchase accounting. American Phoenix Corporation reported total assets of $106.6 million as of December 31, 1998 and revenues of $72.9 million for the year then ended. NOTE N -- QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 1998 and 1997:
Three Months Ended 1 ------------------------------------------------------------------------------- March 31 June 30 September 30 December 31 ------------------------------------------------------------------------------- (in thousands, except per share amounts) 1998 - ---- Total Revenues $48,698 $45,924 $44,000 $42,426 Net Income 5,946 4,446 3,101 1,452 Net Income Per Common Share: Basic 0.47 0.35 0.25 0.12 Diluted 0.46 0.35 0.25 0.12 1997 - ---- Total Revenues $47,913 $44,323 $41,850 $39,623 Net Income 5,407 3,537 2,566 1,280 Net Income Per Common Share: Basic 0.41 0.27 0.20 0.10 Diluted 0.40 0.27 0.19 0.10
________________________ 1 Quarterly financial information is affected by seasonal variations. The timing of contingent commissions, policy renewals and acquisitions may cause revenues, expenses and net income to vary significantly from quarter to quarter. F-18 HILB, ROGAL AND HAMILTON COMPANY AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E Additions --------- Charged Balance at Charged to Other Balance Beginning to Costs Accounts Deductions at End Description of Period and Expenses (Describe)* (Describe)** of Period Year ended December 31, 1998: Allowance for doubtful accounts $2,299,000 $ 560,000 $ 44,000 $1,398,000 $1,505,000 Year ended December 31, 1997: Allowance for doubtful accounts 2,445,000 384,000 66,000 596,000 2,299,000 Year ended December 31, 1996: Allowance for doubtful accounts 1,772,000 1,276,000 100,000 703,000 2,445,000
- ---------------------- * Recoveries ** Bad debts written off F-19 EX-2 2 EXHIBIT 2 Exhibit 2 STOCK PURCHASE AGREEMENT By and Among Hilb, Rogal and Hamilton Company a Virginia corporation and PM Holdings, Inc. a Connecticut corporation and Phoenix Home Life Mutual Insurance Company a New York life insurance company and Martin L. Vaughan, III Dated as of March 29, 1999 TABLE OF CONTENTS
Page I. DEFINITIONS..............................................................................................1 1.1. Certain Matters of Construction.................................................................1 1.2. Cross Reference Table...........................................................................2 1.3. Certain Definitions.............................................................................3 II. THE ACQUISITION..........................................................................................9 2.1. Acquisition.....................................................................................9 2.2. Consideration and Closing.......................................................................9 III. REPRESENTATIONS AND WARRANTIES OF SELLERS...............................................................12 3.1. Corporate Matters..............................................................................12 3.2. Financial Statements...........................................................................13 3.3. Change in Condition............................................................................14 3.4. Liabilities....................................................................................15 3.5. Assets.........................................................................................16 3.6. Intellectual Property..........................................................................17 3.7. Year 2000 Compliance...........................................................................18 3.8. Accounts.......................................................................................19 3.9. Certain Contractual Obligations................................................................19 3.10. Insurance......................................................................................21 3.11. Transactions with Affiliates...................................................................21 3.12. Compliance with Laws...........................................................................22 3.13. Tax Matters....................................................................................22 3.14. Employee Relations and Employee Benefit Plans..................................................23 3.15. Environmental Matters..........................................................................28 3.16. Accounts Receivable............................................................................29 3.17. Litigation.....................................................................................29 3.18. Agents and Broker Relationships................................................................29 3.19. Brokers........................................................................................29 3.20. Full Disclosure................................................................................29 IIIA. REPRESENTATIONS AND WARRANTIES OF PHL...................................................................29 3A.1. Corporate Matters..............................................................................30 3A.2. Financial Information of Holdings..............................................................31 IIIB. REPRESENTATIONS AND WARRANTIES OF VAUGHAN...............................................................31 3B.1. Matters Relating to Vaughan....................................................................31 IV. REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................31 4.1. Corporate Matters..............................................................................31 4.2. Financial Statements...........................................................................32 4.3. Change in Condition............................................................................33 4.4. Compliance with Laws...........................................................................33 4.5. Litigation.....................................................................................33 4.6. Financing......................................................................................34 4.7. Buyer SEC Documents............................................................................34 4.8. Brokers........................................................................................34 V. CERTAIN COVENANTS OF THE PARTIES........................................................................34 5.1. Access to Information of Buyer.................................................................34 5.2. Access to Premises and Information of APC......................................................34 5.3. Confidentiality Letter.........................................................................35 5.4. Operation of APC Business Prior to the Closing Date............................................35 5.5. Certain Notices................................................................................37 5.6. Preparation for Closing........................................................................37 5.7. Tax Matters....................................................................................37 5.8. Expenses of Transaction; Accounts..............................................................41 5.9. Books and Records; Personnel...................................................................41 5.10. Use of Certain Names and Marks.................................................................42 5.11. Further Assurances.............................................................................42 5.12. Reimbursement by the Parties...................................................................42 5.13. Financial Statement Deliveries.................................................................43 5.14. Errors and Omissions Insurance.................................................................44 5.15. No Solicitation or Employment; Interference in Relationships...................................44 5.16. No Solicitation of Proposals or Offers.........................................................44 5.17. Noncompetition Covenant........................................................................44 5.18. Payment of Certain Outstanding Debt; Capital Contribution......................................49 5.19. Assumption of Excluded Liabilities by Holdings or PHL; Purchase of Owned Real Property.......................................................49 5.20. Financing......................................................................................50 5.21. Assumption of Certain Liabilities by Buyer.....................................................50 5.22. Collection of Accounts Receivable..............................................................50 5.23. Audit of Accounts Payable......................................................................51 5.24. Certain Leases.................................................................................51 5.25. Acquisition of Atlanta Subsidiary..............................................................51 5.26. Financial Position of Holdings.................................................................52 5.27. Cooperation....................................................................................52 5.28. Guarantees.....................................................................................52 5.29. Record Retention...............................................................................52 5.30. Minority Interests.............................................................................52 VI. CONDITIONS TO THE OBLIGATION OF BUYER TO CLOSE..........................................................53 6.1. Representations, Warranties and Covenants......................................................53 6.2. Closing Agreements.............................................................................53 6.3. Legality; Governmental Authorization; Litigation...............................................54 6.4. Affiliate Debt.................................................................................54 6.5. Financing......................................................................................54 6.6. Opinions of Counsel............................................................................54 6.7. Vaughan Employment Agreement...................................................................54 6.8. Vaughan Resignation Letter.....................................................................54 ii 6.9. Update.........................................................................................54 6.10. General........................................................................................54 VII. CONDITIONS TO THE OBLIGATION OF SELLERS TO CLOSE........................................................55 7.1. Representations, Warranties and Covenants......................................................55 7.2. Closing Agreements.............................................................................55 7.3. Legality; Government Authorization; Litigation.................................................55 7.4. Opinion of Counsel.............................................................................56 7.5. General........................................................................................56 7.6. Update.........................................................................................56 7.7. Listing of Shares Issuable Upon Conversion of Subordinated Debentures..........................56 7.8. Board of Directors.............................................................................56 7.9. Payment........................................................................................56 7.10. Registration of the Buyer Common Shares........................................................56 VIII. INDEMNIFICATION.........................................................................................56 8.1. Indemnification by Sellers.....................................................................56 8.2. Indemnification by Buyer.......................................................................57 8.3. Time Limitation on Indemnification.............................................................58 8.4. Monetary Limitations on Indemnification........................................................58 8.5. Reporting......................................................................................59 8.6. Third Party Claims.............................................................................59 8.7. No Circular Recovery...........................................................................59 8.8. Nature of Certain Payments.....................................................................60 8.9. Other Remedies.................................................................................60 IX. CONSENT TO JURISDICTION; GOVERNING LAW..................................................................60 9.1. Consent to Jurisdiction........................................................................60 9.2. Governing Law..................................................................................60 X. TERMINATION.............................................................................................61 10.1. Termination of Agreement.......................................................................61 10.2. Effect of Termination..........................................................................62 XI. MISCELLANEOUS...........................................................................................62 11.1. Entire Agreement; Waivers......................................................................62 11.2. Amendment or Modification......................................................................62 11.3. Survival, etc..................................................................................62 11.4. Independence of Representations and Warranties.................................................62 11.5. Severability...................................................................................63 11.6. Successors and Assigns.........................................................................63 11.7. Notices........................................................................................63 11.8. Public Announcements...........................................................................64 11.9. Headings, etc..................................................................................64 11.10. Third Party Beneficiaries......................................................................64 11.11. Counterparts...................................................................................64
iii EXHIBITS Exhibit A - Baltimore Lease Exhibit B - Indenture Exhibit C - Jamestown Lease Exhibit D - Miami Lease Exhibit E - Registration Rights Agreement Exhibit F - Risk Management Agreement Exhibit G - Rule 145 Representation Letter Exhibit H - Vaughan Employment Agreement Exhibit I - Voting and Standstill Agreement Exhibit J - Trademark License Agreement Exhibit K - Form of Legal Opinion of Stroock & Stroock & Lavan LLP Exhibit L - Form of Legal Opinion of Carole A. Masters Exhibit M - Form of Legal Opinion of Sorokin, Gross & Hyde, P.C. Exhibit N - Form of Legal Opinion of Williams, Mullen, Christian & Dobbins, P.C. SCHEDULES Schedule 5.7.1 - APC Electing Subsidiaries iv STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as of the 29th day of March, 1999, by and among HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation (the "Buyer"), PM HOLDINGS, INC., a Connecticut corporation ("Holdings"), PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY, a New York life insurance company ("PHL"), and MARTIN L. VAUGHAN, III (individually "Vaughan," and collectively with Holdings, the "Sellers"). RECITALS 1. Holdings owns 5,000 Class A common shares, which is eighty-five percent (85%) of the issued and outstanding shares, of the capital stock of American Phoenix Corporation, a Connecticut corporation ("APC"), and Vaughan owns 882 Class B common shares, which is fifteen percent (15%) of the issued and outstanding shares, of the capital stock of APC. The issued and outstanding shares of capital stock of APC are collectively referred to herein as the "APC Shares." 2. The Sellers desire to sell and transfer the APC Shares to Buyer, and Buyer desires to purchase and accept transfer of (the "Purchase") the APC Shares from Sellers, upon the terms and subject to all of the conditions set forth in this Agreement. 3. PHL is the ultimate corporate parent of Holdings and, in connection with, and to induce Buyer to consummate, the Purchase, PHL desires to make certain representations and warranties and perform and satisfy certain covenants and obligations upon the terms and subject to all of the conditions set forth in this Agreement. AGREEMENT Therefore, in consideration of the foregoing and the mutual agreements and covenants set forth below, which are acknowledged by each party to be fair and adequate consideration for its obligations and commitments hereunder, the parties hereby agree as follows: ARTICLE I Definitions For the purposes of this Agreement: Section 1.1. Certain Matters of Construction. In addition to the definitions set forth below in this Article I: (a) The words "hereof", "herein", "hereunder" and words of similar import shall refer to this Agreement as a whole and not to any particular Section or provision of this Agreement, and any reference to a particular Section of this Agreement shall include all subsections thereof. (b) The word "party" shall refer to Buyer, Holdings, PHL or Vaughan, as the case may be, and the word "parties" shall refer to Buyer, Holdings, PHL and Vaughan, collectively. (c) Definitions shall be equally applicable to both the singular and plural forms of the terms defined, and references to the masculine, feminine or neuter gender shall include each other gender. (d) Accounting terms used herein and not otherwise defined herein are used herein as defined by GAAP. Section 1.2. Cross Reference Table. The following terms are defined in the Preamble, Recitals or Sections set forth opposite the term and shall have the respective meaning therein set forth: Term Definition ---- ---------- "Affiliated Group" Section 3.13(b) "Agreement" Preamble "AGUB" Section 5.7.6 "Allocations" Section 5.7.6 "APC" Recitals "APC Annual Balance Sheets" Section 3.2.1 "APC Assets" Section 3.5.1 "APC Benefit Arrangements" Section 3.14.2(a) "APC Electing Subsidiaries" Section 5.7.1 "APC Financial Statements" Section 3.2.1 "APC Headquarters" Section 1.3.7 "APC Marks" Section 5.10 "APC Plans" Section 3.14.2(a) "APC Shares" Recitals "APIA Georgia" Section 5.2.5 "Books and Records" Section 5.9(b)(i) "Buyer" Preamble "Buyer Disclosure Letter" Article IV "Buyer Financial Statements" Section 4.2.1 "Buyer's Deemed Sales Price Notice" Section 5.7.6 "Buyer SEC Documents" Section 4.7 "Cash Consideration" Section 2.2.1 "Closing" Section 2.2.4 "Closing Agreements" Section 6.2 "Closing Date" Section 2.2.4 "Closing Date Accounts Receivable" Section 5.22 2 "Closing Date Balance Sheet" Section 2.2.2 "Commitment Letter" Section 4.6 "Confidentiality Agreement" Section 5.3 "Contracts" Section 3.9 "Copyright Properties" Section 3.6.1 "Exchange Act" Section 4.7 "Excluded Liabilities" Section 2.2.3 "February 1999 APC Balance Sheet" Section 3.2.1 "February 1999 APC Financial Statements" Section 3.2.1 "General Survival Period" Section 8.3 "Holdings" Preamble "Holdings Balance Sheet" Section 3A.2 "HSR Act" Section 3.1.3 "IJB" Section 5.4 "Indemnifying Party" Section 8.1, 8.2 "Indemnitee" Section 8.1, 8.2 "Insurance Policies" Section 3.10 "Intellectual Property" Section 3.6.1 "Lead Lender" Section 4.6 "Leases" Section 3.5.2 "Leases-Out" Section 3.5.2 "Net Adjustment to Buyer" Section 2.2.2 "Net Adjustment to Sellers" Section 2.2.2 "1998 APC Balance Sheet" Section 3.2.1 "1998 APC Financial Statements" Section 3.2.1 "Offeror" Section 5.17.3(iv) "Owned Real Property" Section 3.5.1 "Patent Properties" Section 3.6.1 "Permits" Section 3.12 "PHL" Preamble "Post-Closing Tax Period" Section 5.7.2 "Pre-Closing Tax Period" Section 5.7.2 "Purchase" Recitals "Purchase Consideration" Section 2.2.1 "Required Filings" Section 3.1.3 "Reserved Claims" Section 8.3 "Restricted Period" Section 5.17 "Section 338(h)(10) Elections" Section 5.7.1 "Securities Act" Section 4.7 "Sellers" Preamble "Software Properties" Section 3.6.1 "Tax Loss" Section 5.7.2 "Threshold" Section 8.5 "Trade Secrets" Section 3.6.1 "Trademark License Agreement" Section 5.10 "Trademark Properties" Section 3.6.1 3 "Transaction Costs" Section 5.7.6 "Vaughan" Preamble "WARN" Section 3.14.1 "Year 2000 Compliant" Section 3.7 Section 1.3. Certain Definitions. The following terms shall have the following meanings: 1.3.1. "Action" shall mean any claim, action, cause of action or suit (in contract or tort or otherwise), arbitration, proceeding or investigation by or before any Governmental Authority (and whether brought by any Governmental Authority or any other Person). 1.3.2. "Adjusted Tangible Net Worth" shall mean, with respect to APC and its Subsidiaries, $(negative) 48,328,012. 1.3.3. "Affiliate" shall mean, as to any specified Person, each other Person directly or indirectly controlling, controlled by or under direct or indirect common control with that specified Person. For the purposes of this definition, "control," when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, or by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Notwithstanding the foregoing, any investment company registered under the Investment Company Act of 1940, as amended, shall not be deemed an Affiliate of any specified Person. 1.3.4. "Affiliate Debt" shall mean all Debt between APC or any Subsidiary of APC, on the one hand, and PHL, either of the Sellers or any of their Affiliates (other than APC or its Subsidiaries), on the other hand, and all intercompany advances of funds between PHL, either of the Sellers or any of their Affiliates (other than APC or its Subsidiaries), on the one hand, and APC or any Subsidiary of APC, on the other hand. 1.3.5. "Alternative Accountants" shall mean one of the top five (5) national accounting firms in the United States other than the accounting firms that regularly audit the annual financial statements of any of the parties, which firm is mutually acceptable to the parties or, if the parties do not agree upon such a firm within three (3) Business Days of the date any dispute under this Agreement is required to be submitted to such firm, then such a top five firm as is chosen by lot. 1.3.6. "APC Business" shall mean, taken as a whole, the businesses conducted by APC and its Subsidiaries as such businesses are currently being conducted by them. 1.3.7. "APC Headquarters Employees" shall mean any Person employed by APC prior to the Closing whose place of employment is at the corporate headquarters of APC in Hartford, Connecticut (the "APC Headquarters") other than: (a) employees of APC Subsidiaries, (b) Persons listed on the Buyer Disclosure Letter, or (c) Persons whom the parties, within thirty (30) days after the date hereof mutually agree in writing shall be retained by APC or its Affiliates. 4 1.3.8. "Baltimore Lease" shall mean the Lease Agreement to be entered into by APC or its Affiliate and Holdings or its Affiliate at the Closing, which shall be in substantially the form attached hereto as Exhibit A. 1.3.9. "Business Day" shall mean any day on which banking institutions in New York, New York are customarily open for the purpose of transacting business. 1.3.10. "Buyer Common Shares" shall mean, in the aggregate, the 1,000,000 shares of the Buyer Common Stock to be issued by Buyer to Sellers at Closing pursuant and subject to the terms and conditions set forth herein and, with respect to the Buyer Common Stock to be issued to Holdings, in the Voting and Standstill Agreement. 1.3.11. "Buyer Common Stock" shall mean the shares of Common Stock, no par value, issued by the Buyer. 1.3.12. "Bylaws" shall mean all written rules, regulations and bylaws, and all other documents (other than the Charter), relating to the management, governance or internal regulation of a Person (other than an individual) or interpretative of the Charter of such Person, each as from time to time in effect. 1.3.13. "Charter" shall mean the certificate or articles of incorporation or organization, statute, constitution, joint venture or partnership agreement or other charter documents of any Person (other than an individual), each as from time to time in effect. 1.3.14. "Code" shall mean the Internal Revenue Code of 1986, as amended, and in effect from time to time. 1.3.15. "Compensation", as applied to any Person, shall mean all salaries, compensation, remuneration, commissions or bonuses of any character, and medical, surgical, dental, hospital, disability, unemployment, retirement, pension, vacation, insurance or fringe benefits of any kind, or other payments or benefits of any kind whatsoever made or provided directly or indirectly by or on behalf of APC or its Subsidiaries to such Person or members of the immediate family of such Person. 1.3.16. "Contractual Obligation" shall mean, with respect to any Person, any contract, agreement, deed, mortgage, lease, sublease, license, indenture, Guarantee, commitment, undertaking or arrangement, written or oral, or other consensual document or instrument, including, without limitation, any document or instrument evidencing or otherwise relating to any indebtedness, but excluding the Charter and Bylaws of such Person, to which or by which such Person is a party or otherwise subject or bound or to which or by which any property or right of such Person is subject or bound. 1.3.17. "Debt" of any Person shall mean all obligations of such Person (i) in respect of indebtedness for borrowed money, (ii) evidenced by notes, bonds, debentures or similar instruments, (iii) for the deferred purchase price of property, tangible or real, goods or services (other than trade payables or accruals incurred in the Ordinary Course of Business or, with 5 respect to a Person other than APC or its Subsidiaries, in the Ordinary Course of the Business of such Person), (iv) under capital leases and (v) in the nature of Guarantees of the obligations described in clauses (i) through (iv) above of any other Person. 1.3.18. "Distribution" shall mean, with respect to the capital stock of or other Equity Securities issued by any Person, (i) the declaration or payment of any dividend on or in respect of any shares of any class of such capital stock or in respect of any such Equity Security; (ii) the purchase, redemption or other retirement of any shares of any class of such capital stock or of any such Equity Security, directly, or indirectly through a Subsidiary of such Person or otherwise; and (iii) any other distribution on or in respect of any shares of any class of such capital stock or on or in respect of any such Equity Security. 1.3.19. "Enforceable" shall mean, with respect to any Contractual Obligation, that such Contractual Obligation is the legal, valid and binding obligation of the Person in question, enforceable against such Person in accordance with its terms, subject to bankruptcy, reorganization, insolvency and other similar laws affecting the enforcement of creditors' rights in general and to general principles of equity (regardless of whether considered in a proceeding in equity or an Action at law). 1.3.20. "Environmental Laws" shall mean any Legal Requirement in effect on or prior to the Closing Date relating to (i) releases or threatened releases of Hazardous Substances, (ii) the manufacture, handling, transport, use, treatment, storage or disposal of Hazardous Substances or materials containing Hazardous Substances or (iii) otherwise relating to pollution of the environment or the protection of human health or the environment. 1.3.21. "Equity Securities" shall mean, with respect to any Person that is not a natural Person, all shares of capital stock or other equity or beneficial interests issued by or created in or by such Person, all stock appreciation or similar rights or grants of, or any other Contractual Obligation for, any right to share in the equity, income, revenues or cash flow of such Person, and all securities or other rights, warrants or other Contractual Obligations to acquire any of the foregoing, whether by conversion, exchange, exercise or otherwise. 1.3.22. "ERISA" shall mean the federal Employee Retirement Income Security Act of 1974 or any successor statute, and the rules and regulations thereunder, and in the case of any referenced section of any such statute, rule or regulation, any successor section thereto, collectively and as from time to time amended and in effect. 1.3.23. "GAAP" shall mean generally accepted United States accounting principles as in effect on the date hereof, consistently applied in accordance with past practices. 1.3.24. "Governmental Authority" shall mean any United States federal, state or local or any foreign government, governmental authority, regulatory or administrative agency, governmental commission, court or tribunal (or any department, bureau or division of any of the foregoing). 6 1.3.25. "Governmental Order" shall mean any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority. 1.3.26. "Guarantee", with respect to any Person, shall mean (i) any guarantee of the payment or performance of, or any contingent obligation in respect of, any Debt or other obligation of any other Person, (ii) any other arrangement whereby credit is extended to any other Person on the basis of any promise or undertaking of such Person (a) to pay the Debt of such other Person, (b) to purchase any obligation owed by such other Person, (c) to purchase or lease assets under circumstances that would enable such other Person to discharge one or more of its obligations, or (d) to maintain the capital, working capital, solvency or general financial condition of such other Person and (iii) any liability of such Person as a general partner of a partnership or as a venturer in a joint venture in respect of Debt or other obligations of such partnership or venture. 1.3.27. "Hazardous Substances" shall mean (i) substances which contain substances defined in or regulated under the following federal statutes, and their state counterparts, each as amended, as well as these statutes' implementing regulations as amended from time to time and as interpreted by administering Governmental Authorities: the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act, the Comprehensive Environmental Response, Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water Act, the Asbestos Hazard Emergency Response Act, the Atomic Energy Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide, and Rodenticide Act, and the Clean Air Act; (ii) petroleum and petroleum products, including crude oil and any fractions thereof; (iii) natural gas, synthetic gas and any mixtures thereof; (iv) radon; (v) PCBs; (vi) asbestos; (vii) any substance with respect to which a Governmental Authority requires environmental investigation, monitoring, reporting or remediation; and (viii) any other radioactive or toxic materials or substances. 1.3.28. "Income Tax" means any Tax which is, in whole or in part, based on or measured by income or gains. 1.3.29. "Indenture" shall mean the Indenture, dated the Closing Date, which shall be in the form attached hereto as Exhibit B. 1.3.30. "Jamestown Lease" shall mean the Lease Agreement to be entered into by Holdings or its Affiliate and APC or its Affiliate at the Closing, which shall be in substantially the form attached hereto as Exhibit C. 1.3.31. "Knowledge" shall mean the actual knowledge of Vaughan or of the executive officers of PHL, Holdings or Buyer, as the case may be, following due inquiry of Vaughan or the executive officers of each Subsidiary of PHL, Holdings or Buyer, as the case may be. For purposes of this definition, "executive officer" shall mean the two (2) highest ranking officers of the Person in question but, in the event several individuals have the same rank or title, then that individual with the longest term of service with his or her current employer shall be deemed the highest ranking among such similarly titled or ranked individuals. 7 1.3.32. "Legal Requirement" shall mean any United States federal, state or local or any foreign law, statute, standard, ordinance, code, order, rule, regulation, resolution or promulgation, or any Governmental Order, or any license, franchise, consent, approval, permit or similar right granted by any Governmental Authority under any of the foregoing. 1.3.33. "Liabilities" shall mean any and all liabilities and obligations, whether accrued, fixed, absolute or contingent, matured or unmatured or determined or determinable. 1.3.34. "Lien" shall mean any mortgage, pledge, lien, security interest, charge, attachment, equity or other encumbrance, or restriction on the creation of any of the foregoing, whether relating to any property or right or the income or profits therefrom; provided, however, that the term "Lien" shall not include statutory liens for Taxes to the extent that the payment thereof is not in arrears or otherwise due. 1.3.35. "Limited Knowledge" shall mean the actual knowledge of the executive officers of PHL, Holdings, Vaughan or Buyer, as the case may be, without any obligation to investigate. For purposes of this definition, "executive officer" shall mean the two (2) highest ranking officers of the Person in question but, in the event several individuals have the same rank or title, then that individual with the longest term of service with his or her current employer shall be deemed the highest ranking among such similarly titled or ranked individuals. 1.3.36. "Losses" shall mean any and all losses, damages, obligations, Liabilities, claims, awards (including, without limitation, interest), assessments, amounts paid in settlement, judgments, orders, decrees, fines and penalties, plus reasonable costs and expenses reasonably incurred (including, without limitation, reasonable legal costs and expenses and reasonable costs and expenses of collection). 1.3.37. "Material Adverse Effect" shall mean any adverse change in or effect on the business, condition (financial or otherwise), operations, performance or properties of any Person that is material to such Person and its Subsidiaries, taken as a whole; provided, however, that when such term is used in reference to Buyer, such term shall not include any change or effect attributable to the acquisition of APC or any Subsidiary of APC; provided further, however, that such term when used in reference to APC and its Subsidiaries shall not include (i) changes in general economic conditions, changes in legal or regulatory conditions that affect, in general, businesses in which APC or any of its Subsidiaries are engaged or the insurance industry in general and not specifically relating to APC or its Subsidiaries, or (ii) the loss of accounts which represented less than $3,250,000 of the consolidated revenues of APC and its Subsidiaries for 1998. 1.3.38. "Miami Lease" shall mean the Lease Agreement to be entered into by Holdings or its Affiliate and APC or its Affiliate at the Closing, in substantially the form attached hereto as Exhibit D. 1.3.39. "Ordinary Course of Business" shall mean the ordinary course of the business of a Person consistent with such Person's regular custom and practice. 8 1.3.40. "Person" shall mean any individual, partnership, corporation, limited liability company, association, trust, joint venture, unincorporated organization or other entity, and any Governmental Authority. 1.3.41. "Registration Rights Agreement" shall mean the Registration Rights Agreement to be entered into by PHL, Holdings and Buyer at the Closing in the form attached hereto as Exhibit E. 1.3.42. "Risk Management Agreement" shall mean the Risk Management Agreement to be entered into by PHL and Buyer at the Closing in the form attached hereto as Exhibit F. 1.3.43. "Rule 145 Representation Letter" shall mean the Rule 145 Representation Letter to be executed by PHL, Holdings and Vaughan in the form attached hereto as Exhibit G. 1.3.44. "Subordinated Debentures" shall mean Buyer's 5.25% Convertible Subordinated Debentures (Due 2014), in the aggregate principal amount of $32,000,000. 1.3.45. "Subsidiary" shall mean, as the case may be, any Person of which Buyer, PHL, Holdings or APC (or other specified Person) shall own directly or indirectly at least a majority of the outstanding capital stock (or other shares of Equity Securities) entitled to vote generally in the election of directors or in which Buyer, PHL, Holdings or APC (or other Specified Person) is a general partner or joint venturer without limited liability; provided, however, all references in Sections 3.6, 3.8, 3.10, 3.14 and 3.15 of this Agreement to the Subsidiaries of APC shall not include Lees Preston Ferry (Holdings) Ltd., a company incorporated with limited liability under the laws of the United Kingdom, or its direct and indirect subsidiaries. 1.3.46. "Tangible Net Worth" shall mean, with respect to APC and its Subsidiaries on a consolidated basis, the aggregate of (a) the capital stock and surplus of APC and its Subsidiaries, and (b) APC's and its Subsidiaries' consolidated retained earnings or deficit, each determined on a basis in accordance with GAAP after eliminating (i) that portion of the book amount of all assets which would be treated as intangible under GAAP, including, without limitation, goodwill, trademarks, tradenames, copyrights, patents, licenses and rights with respect to the foregoing and unamortized debt, discount and expense, (ii) deferred Taxes and (iii) property, real and personal, and equipment. 1.3.47. "Taxes" shall mean all United States federal, state or local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax, fee, levy, duty, impost or charge of any kind whatsoever, including any interest, penalty, or addition thereto, whether disputed or not; and the term "Tax" means one of the foregoing Taxes. 1.3.48. "Tax Return" shall mean any return, declaration, report, claim for refund, or information return or statement relating to Taxes, including any schedule or attachment thereto, 9 and including any amendment thereof, required to be filed with any tax authority, domestic or foreign. 1.3.49. "Vaughan Employment Agreement" shall mean the Employment Agreement entered into by Buyer and Vaughan as of the date hereof in the form attached hereto as Exhibit H. 1.3.50. "Voting and Standstill Agreement" shall mean the Voting and Standstill Agreement to be entered into by the Buyer, Holdings and PHL at the Closing in the form attached hereto as Exhibit I. ARTICLE II The Acquisition Section 2.1. Acquisition. Upon the terms, subject to the conditions, and in reliance on the representations, warranties and covenants set forth herein, Sellers agree to sell and transfer to Buyer, and Buyer agrees to purchase and accept from Sellers, on the Closing Date, all of the APC Shares. Section 2.2. Consideration and Closing. 2.2.1. Purchase Consideration. 2.2.1A. Consideration to PHL. At the Closing, in consideration of the non-competition covenants and obligations to be complied with by PHL pursuant to Section 5.17 of this Agreement, Buyer shall issue to PHL the aggregate principal amount of $10,000,000 of the Subordinated Debentures and $150,000 in cash. 2.2.1B. Consideration to Sellers. At the Closing, in consideration of the sale and transfer of the APC Shares by Sellers to Buyer and of the agreements by PHL and Sellers to perform those obligations and covenants to be fulfilled or complied with by them hereunder, Buyer shall: (a) pay to Vaughan at the Closing (by wire transfer of immediately available funds to an account designated in writing by Vaughan to Buyer) not fewer than three (3) Business Days prior to the Closing Date, the cash sum of $671,988 (the "Cash Consideration"); (b) issue to Holdings, and deliver certificates representing, 865,042 shares of Buyer Common Stock at the Closing; (c) issue to Vaughan, and deliver certificates representing, 134,958 shares of Buyer Common Stock at the Closing; and (d) issue to Holdings the aggregate principal amount of $22,000,000 of the Subordinated Debentures. 10 The items of consideration provided for in subsections (a) - (d) above shall collectively be referred to as the "Purchase Consideration." 2.2.2. Tangible Net Worth Adjustment. After the Closing, the Purchase Consideration shall be decreased dollar-for-dollar by the amount, if any, by which the Tangible Net Worth of APC and its Subsidiaries, on a consolidated basis as of the date of the Closing Date Balance Sheet, is less than the Adjusted Tangible Net Worth (in such case, the "Net Adjustment to Buyer"), and increased dollar-for-dollar by the amount, if any, by which the Tangible Net Worth of APC and its Subsidiaries as of the date of the Closing Date Balance Sheet, is greater than the Adjusted Tangible Net Worth (in such case, the "Net Adjustment to Sellers"). Such adjustment shall be determined on the basis of a balance sheet of APC and its Subsidiaries as of the Closing Date if the Closing occurs on the last calendar day of any month, but if the Closing occurs on any other day, then as of the last calendar day of the month immediately preceding the Closing Date, prepared by APC in accordance with GAAP, which balance sheet may be reviewed or audited, at Buyer's expense and sole election, by Ernst & Young LLP, or at Holdings' expense and sole election, by PricewaterhouseCoopers (the "Closing Date Balance Sheet"). For the purpose of the preparation of the Closing Date Balance Sheet, (a) the value of the minority shareholders' Equity Securities of the Subsidiaries of APC outstanding as of the Closing Date shall be determined in accordance with the formula set forth in the respective buy-sell agreements with respect to the respective APC Subsidiaries, using for purposes of such formulae the respective Subsidiaries' financial statements as of the Closing Date if the Closing occurs on the last calendar day of any month, but if the Closing occurs on any other day, then their respective financial statements as of the last calendar day of the month immediately preceding, and no discounts for lack of marketability, minority interest or other discounts shall be taken into effect, (b) the APC Assets on the Closing Date Balance Sheet shall not include any commissions earned but not received on insurance policies which are direct billed by the insurance carriers to the commercial customers of APC and its Subsidiaries to the extent that such commissions exceed $1,500,000, (c) the capital contribution of PHL or Holdings, as the case may be (as provided in Section 5.18(b)), shall be included, (d) the purchase price paid by Holdings or PHL, as the case may be, for the Owned Real Property shall be included and (e) accruals as of the date of the Closing Date Balance Sheet for the applicable pro rata portions of bonuses earned by employees of APC and its Subsidiaries and any other accruals for expenses incurred but not yet paid shall be included. Buyer and its accountants, Ernst & Young LLP, and Holdings and its accountants, PricewaterhouseCoopers, shall be permitted to review the Closing Date Balance Sheet and the work papers related to the preparation and review of the Closing Date Balance Sheet, and, in the event of any dispute concerning the correctness of such Closing Date Balance Sheet, such dispute shall be submitted to the Alternative Accountants for resolution. If issues in dispute are submitted to such accounting firm for resolution, (i) each party will furnish to such accounting firm such work papers and other documents and information relating to the disputed issues as such accounting firm may request and are available to that party (or its independent public accountants), and will be afforded an opportunity to present to such accounting firm any material relating to the determination and to discuss the determination with such accounting firm, (ii) a determination by such accounting firm, as set forth in a notice delivered to both parties by such accounting firm no later than thirty (30) days after the issues in dispute are submitted to such accounting firm, will be binding and conclusive on the parties, and (iii) Buyer, on the one hand, and Sellers, on the other, will each bear fifty percent (50%) of the fees of such accounting firm for such determination. The Closing 11 Date Balance Sheet shall be prepared within thirty (30) days following Closing. Buyer or Sellers, jointly and severally, whichever is the case, shall pay the Net Adjustment to Sellers or the Net Adjustment to Buyer, whichever is the case, to Sellers or Buyer, as the case may be, by wire transfer or delivery of other immediately available funds within three (3) Business Days after the date on which the Closing Date Balance Sheet is finally determined. Any Net Adjustment to Sellers or any Net Adjustment to Buyer, as the case may be, shall bear interest at a rate of seven percent (7%) per annum from the Closing Date, and all accrued interest shall be paid at the same time as any Net Adjustment to Sellers or any Net Adjustment to Buyer. Any Net Adjustment to Sellers payable to, or any Net Adjustment to Buyer payable by, Sellers, as the case may be, shall be payable in proportion to Holdings' and Vaughan's respective percentage ownership in APC as of the Closing Date. 2.2.3. Excluded Liabilities. The parties agree that, except as otherwise provided herein or in any of the Closing Agreements, Buyer (and after the Closing, APC and its Subsidiaries) shall not have any responsibility or incur or assume any Liabilities with respect to the following matters (collectively, the "Excluded Liabilities") (it being understood, subject to Section 5.21 of this Agreement, that such assets shall be transferred to, or such obligations will be assumed by, PHL or Holdings prior to Closing): (a) any Owned Real Property; and (b) any APC Headquarters Employees. Notwithstanding the foregoing to the contrary, with respect to any APC Headquarters Employees, Buyer (and after the Closing, APC and its Subsidiaries) shall, except as provided hereinafter, assume Liabilities accrued, arising or incurred under, or otherwise relating to, any APC Plan or APC Benefit Arrangement, and such Liabilities shall not be deemed Excluded Liabilities for purposes of this Agreement. The foregoing notwithstanding, Holdings shall be responsible for any severance benefits payable as a result of the termination within eight (8) weeks after the Closing of the employment of any APC Headquarters' Employee other than any severance benefits or penalties as are attributable to the wrongful acts or inactions of Buyer or its Affiliates (including APC or its Subsidiaries after the Closing). All of the above notwithstanding, the parties have agreed that in the interests of facilitating a transition following the Closing, APC shall be entitled to continue, for a period of up to eight (8) weeks following the Closing, the employment of any of the APC Headquarters Employees, provided APC shall be liable for such employees' salary and benefits earned or accrued during such period. Such continuation of employment for such period of time shall not affect Holdings' obligation hereunder for severance benefits (as more fully described above). If, however, APC, without Holdings' prior express written permission, continues, after that date which is eight (8) weeks after the Closing, the employment of any APC Headquarters Employee, such circumstance, without more, shall immediately and automatically result in the termination of all obligations of Holdings under this Agreement for severance benefits of any kind with respect to such employee. 2.2.4. Time and Place of Closing. The closing of the purchase and sale of the APC Shares and the other transactions contemplated by this Agreement (the "Closing") shall take place at the 12 offices of Williams, Mullen, Christian & Dobbins in Richmond, Virginia on such date as is mutually agreed by the parties hereto (the "Closing Date") at 10:00 a.m. (local time); provided that: (i) all conditions to Closing have been satisfied or waived as provided in Articles VI and VII hereof, and (ii) the Closing Date shall in no event be later than June 30, 1999. 2.2.5. Delivery. At the Closing, Sellers will convey, transfer and assign the APC Shares to Buyer free and clear of any Liens (including, without limitation, restrictions on transfer or voting), and will deliver to Buyer certificates evidencing all of the APC Shares duly endorsed or accompanied by separate stock power(s) duly endorsed, with all required stock transfer Tax stamps affixed and in form proper for transfer, against delivery by Buyer of the Subordinated Debentures, the Cash Consideration and issuance by Buyer of the Buyer Common Shares as set forth in Section 2.2.1 above. ARTICLE III Representations and Warranties of Sellers Except as disclosed, or as qualified by information set forth in the Sellers' disclosure letter dated of even date herewith and delivered to Buyer concurrently herewith (the "Sellers' Disclosure Letter"), Sellers, jointly and severally, represent and warrant to Buyer and to Buyer's successors and permitted assigns as of the date hereof and as of the Closing Date (except to the extent that Sellers' representations and warranties expressly speak as of a specified earlier date) as follows: Section 3.1. Corporate Matters. 3.1.1. Organization and Standing; Power and Authority. APC is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut. Each of the Subsidiaries of APC is a corporation duly organized, validly existing and in good standing (to the extent its jurisdiction of incorporation or organization recognizes such concept) under the jurisdiction of its incorporation or organization. Each of APC and its Subsidiaries has all requisite power and authority, corporate and otherwise, to carry on its respective portion of the APC Business as currently conducted. Each of APC and its Subsidiaries is duly qualified or licensed to do business as a foreign corporation or otherwise, and is in good standing as such (to the extent their respective jurisdictions of incorporation or qualification recognize such concept), in each jurisdiction where the nature of APC's or such Subsidiary's activities or its ownership or leasing of property requires such qualification or license, except to the extent that the failure to be so qualified or licensed would not have a Material Adverse Effect on APC. 3.1.2. Non-Contravention. No approval, consent, waiver, authorization or other order of, and no filing, registration, qualification or recording with, any Governmental Authority or any other Person is required to be obtained or made by or on behalf of Sellers, APC or any of their Subsidiaries in connection with the execution, delivery or performance of this Agreement and the consummation of the transactions contemplated hereby, except for (a) satisfaction of the requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and (b) the items listed in Section 3.1.2 of the Sellers' Disclosure Letter. Specifically, and not by way of limitation, all filings with and approvals of State Departments of Insurance and similar Governmental Authorities, which filings and approvals must be made or obtained prior to 13 the Closing (collectively, the "Required Filings") are set forth in the Sellers' Disclosure Letter. Neither the execution, delivery and performance of this Agreement nor the consummation of any of the transactions contemplated hereby (including, without limitation, the execution, delivery and performance of the Closing Agreements) does or will constitute, result in or give rise to (i) a breach or violation or default under any Legal Requirement applicable to Sellers, APC, or any of their Subsidiaries (assuming the accuracy of the representations and warranties of Buyer in Article IV hereof), (ii) a breach of or a default under any Charter or Bylaws provision of Holdings, APC or any of their Subsidiaries, (iii) the acceleration of the time for performance of any obligation under any Contractual Obligation of Holdings, APC or any of their Subsidiaries, (iv) the imposition of any Lien upon or the forfeiture of any APC Asset, (v) a breach of or a default under any Contractual Obligation of Holdings, APC or any of their Subsidiaries, or (vi) the right to any severance payments other than by operation of law (including, without limitation, if such payments become due only if employment is terminated following the Closing), termination, right of termination, modification of terms or change in benefits or burdens under any Contractual Obligation, other than in the case of clauses (i), (iii), (iv), (v) and (vi) such as, individually or in the aggregate, have and could reasonably be expected to have neither a Material Adverse Effect on APC nor on the ability of Holdings to consummate the transactions contemplated hereby. 3.1.3. Title to APC Shares. (a) Holdings is the beneficial and record holder of, and has good and valid title to, 5,000 Class A shares of the APC Shares, which is eighty-five percent (85%) of the issued and outstanding shares of the capital stock of APC. (b) Sellers, collectively, own all of the APC Shares. (c) Except for this Agreement, there is no Contractual Obligation pursuant to which Sellers or its Affiliates have, directly or indirectly, granted any Equity Security in APC or any of its Subsidiaries to any Person or any right to acquire any of, or any interest in, any APC Asset. Upon delivery of certificates representing the APC Shares, and delivery of the Purchase Consideration, Buyer will receive good and valid title to all of the APC Shares, free and clear of any Liens (including, without limitation, restrictions on transfer or voting) and subject to no rescission rights or similar rights or equities of any kind, other than such Liens or rights as arise out of actions or inactions of Buyer. 3.1.4. Capitalization. The only issued and outstanding shares of capital stock of APC are the APC Shares, all of which are duly authorized, validly issued, fully paid and non-assessable. There is no Contractual Obligation or Charter or Bylaw provision that obligates APC or any of its Subsidiaries to issue, purchase or redeem, or make any payment in respect of, any Equity Security. 3.1.5. Subsidiaries. APC's only Subsidiaries are listed in the Sellers' Disclosure Letter, which sets forth the name and jurisdiction of incorporation or organization, the date of incorporation or organization, the issued and outstanding shares of capital stock and number of shares owned of record and beneficially by each minority shareholder of such Subsidiaries and the federal or foreign taxpayer identification number of each such Subsidiary. APC is the direct 14 record and beneficial owner of all of the issued and outstanding shares of capital stock of each of its respective Subsidiaries, such shares of capital stock have been duly authorized and validly issued and are fully paid and nonassessable, and APC has good and valid title to such shares free and clear of any Liens (including, without limitation, restrictions on transfer or voting). There is no outstanding Equity Security of any Subsidiary of APC other than its issued and outstanding shares of capital stock. APC has no equity investment in any Person other than its Subsidiaries. 3.1.6. Charter and Bylaws. Sellers have heretofore made available to Buyer true and complete copies of the Charter and Bylaws of APC and each of its Subsidiaries, in each case in the form currently in effect and as will be in effect immediately prior to the Closing. Section 3.2. Financial Statements. 3.2.1. Financial Information. Sellers have previously provided Buyer with (i) a true and complete copy of the unaudited consolidated balance sheet of APC and its Subsidiaries as of February 28, 1999 (the "February 1999 APC Balance Sheet"), and the related unaudited statements of income, stockholders' equity and cash flows of such entities for the two (2) months ending February 28, 1999 (collectively, with the February 1999 APC Balance Sheet, the "February 1999 APC Financial Statements"), and (ii) true and complete copies of the audited consolidated balance sheets of APC and its Subsidiaries as of December 31, 1998, 1997 and 1996 (collectively, the "APC Annual Balance Sheets") and the related audited statements of income, stockholders' equity and cash flows of such entities for such fiscal years ended December 31, 1998, 1997 and 1996 (collectively with the APC Annual Balance Sheets and the February 1999 APC Financial Statements, the "APC Financial Statements"). 3.2.2. Character of Financial Information. The APC Financial Statements, including (except with respect to the February 1999 APC Financial Statements) the notes thereto, were prepared in accordance with GAAP throughout the periods specified therein and present fairly, in all material respects, the consolidated financial position and results of operations of APC and its Subsidiaries at the respective dates and for the periods specified therein, subject in the case of the February 1999 APC Financial Statements to year-end audit adjustments. Section 3.3. Change in Condition. Since February 28, 1999: (a) The APC Business has been conducted in all material respects only in the Ordinary Course of Business (except as may be otherwise required by the terms of this Agreement), and without limiting the generality of the foregoing, APC and its Subsidiaries have made capital expenditures only in the Ordinary Course of Business; (b) Neither APC nor any of its Subsidiaries has: (i) made any capital expenditure greater than $50,000 except for expenditures for repairs and maintenance in the Ordinary Course of Business; 15 (ii) incurred or otherwise become liable in respect of any Debt or become liable in respect of any Guarantee, other than any Debt or any Guarantee between APC and its respective wholly-owned Subsidiaries; (iii) mortgaged or pledged an APC Asset or subjected any APC Asset to any Lien; (iv) made any change in its authorized or issued capital stock or granted or issued any option, purchase right, convertible stock, other sort of security or registration right, or purchased, redeemed or retired any shares or other securities, or declared or made any Distribution (other than distributions or contributions in connection with an increase in or the repayment or cancellation (in whole or in part) of Debt or intercompany advances between APC and its respective wholly-owned Subsidiaries); (v) sold, leased to others or otherwise disposed of any of the APC Assets except in the Ordinary Course of Business and except for such assets as were not, individually or in the aggregate, material to APC; (vi) purchased any Equity Security issued by any Person other than ones issued by a Subsidiary of APC, or any assets material in amount or constituting a business or line of business, or been party to any merger, consolidation or other business combination or entered into any Contractual Obligation relating to any such purchase, merger, consolidation or business combination; (vii) made any loan, advance or capital contribution to or investment in any Person other than loans, advances or capital contributions to or investments in or to APC or any of APC's wholly-owned Subsidiaries and other than loans or advances made in the Ordinary Course of Business which are not material either singly or in the aggregate; (viii) canceled or compromised any Debt or claim other than in the Ordinary Course of Business and other than any Debt, intercompany advances or claim between APC and its respective wholly-owned Subsidiaries; (ix) sold, transferred, licensed or otherwise disposed of any Intellectual Property other than in the Ordinary Course of Business; (x) made or agreed to make any material change in its customary methods of accounting or accounting practices; (xi) engaged in or become obligated in respect of any transaction with PHL, Holdings or any of their Affiliates; (xii) waived or released or permitted to lapse any right of material value except in the Ordinary Course of Business or suffered any material damage to or material destruction or loss of any material asset or property, whether or not covered by insurance; 16 (xiii) instituted, settled or agreed to settle any material Action; or (xiv) consented or agreed to do any of the foregoing. (c) Neither APC nor any of its Subsidiaries has (i) had any material change in its relationships with its employees, producers, agents, independent contractors, insurance carriers, customers, referral sources or suppliers, or (ii) made any changes in the rate of Compensation payable (or paid or agreed in writing or orally promised to pay, conditionally or otherwise, any extra Compensation) to any director, officer, manager, employee, producer, consultant or agent (other than changes granted in the Ordinary Course of Business and consistent with past practice, which changes will not have a Material Adverse Effect); (d) There has been no amendment of any material provision of any Equity Security issued by APC or any of its Subsidiaries; (e) Neither APC nor any of its Subsidiaries has entered into any Contractual Obligation (and PHL, Sellers and their Affiliates have not entered into any Contractual Obligation obligating APC or any of its Subsidiaries) to do any of the things referred to in clauses (a) through (d) above with respect to APC, any of the Subsidiaries of APC or the APC Business; and (f) No Material Adverse Effect has occurred with respect to APC and its Subsidiaries. Section 3.4. Liabilities. Except as otherwise provided in this Agreement, neither APC nor any of its Subsidiaries has any Liabilities, other than, to the extent the existence thereof is consistent with all other representations and warranties of PHL and Sellers, as: (a) set forth on the February 1999 APC Balance Sheet; (b) incurred since the date of the February 1999 APC Balance Sheet in the Ordinary Course of Business; (c) incurred in respect of the Leases and Contracts; or (d) between APC and its respective wholly-owned Subsidiaries or between wholly-owned Subsidiaries of APC. Section 3.5. Assets. 3.5.1. Title to Assets; Owned Real Estate. APC and its Subsidiaries have good and valid title to, or, in the case of property held under lease or other Contractual Obligation, a valid and enforceable right to use under an Enforceable Lease or license, all of their properties, rights and assets, whether real or personal property or intellectual property and whether tangible or intangible (collectively, the "APC Assets"), including, without limitation, all properties, rights and assets reflected in the February 1999 APC Balance Sheet or acquired after the date of the February 1999 APC Balance Sheet (except as sold or otherwise disposed of since the date of the February 1999 APC Balance Sheet in the Ordinary Course of Business or as otherwise permitted or required by this Agreement to be disposed of since the date of the 17 February 1999 APC Balance Sheet). The Sellers' Disclosure Letter contains a true, correct and complete list of all real property and buildings owned by APC or any of its Subsidiaries (collectively, the "Owned Real Property") and identifies the respective owner of each such parcel or building. No APC Asset is subject to any Lien except as described in the Sellers' Disclosure Letter. The APC Assets (including, without limitation, the Owned Real Property, the Intellectual Property, the Leases and the Contracts), constitute all material properties, rights and assets held for or used in the APC Business as currently conducted. 3.5.2. Real Property Leases. The Sellers' Disclosure Letter sets forth a true, correct and complete list of (a) each facility, location or parcel which is leased or subleased, or which has been agreed to be leased or subleased, as lessee or sublessee by APC or any of its Subsidiaries (all of the leases, subleases or other Contractual Obligations pursuant to which such facilities, locations or parcels are held or are to be held being referred to herein collectively as the "Leases"), and (b) each lease, sublease or other Contractual Obligation (collectively, the "Leases-Out") under which APC or any of its Subsidiaries is a lessor or sublessor of any facility, location or parcel. True, correct and complete copies of the Leases and the Leases-Out, and all material amendments, modifications and supplemental agreements thereto, have been previously made available to the Buyer. Except as set forth on the Sellers' Disclosure Letter, to Sellers' Knowledge: (a) each Lease and each Lease-Out is an Enforceable agreement of APC or the Subsidiary of APC which is party thereto, and each Lease or Lease-Out is an Enforceable agreement of the other parties thereto; (b) APC or the Subsidiary of APC which is a party thereto has fulfilled all material obligations required pursuant to the Leases and the Leases-Out to have been performed by APC or the Subsidiary of APC party thereto on its part; (c) neither APC nor any Subsidiary of APC is in material breach of or default under any Lease or Lease-Out, and no event has occurred which with the passage of time or giving of notice or both would constitute such a breach or default, result in a loss of rights or result in the creation of any Lien thereunder or pursuant thereto; (d) (i) there is no existing material breach or default by any other party to any Lease or Lease-Out, and (ii) no event has occurred which with the passage of time or giving of notice or both would constitute a material default by such other party, result in a loss of rights or result in the creation of any Lien thereunder or pursuant thereto; (e) neither APC nor any Subsidiary of APC is obligated to pay any material leasing or lease brokerage commission as a result of the transactions contemplated hereby; and (f) there is no pending or threatened eminent domain taking affecting any of the properties which are the subject of the Leases or the Leases-Out. 18 Section 3.6. Intellectual Property. 3.6.1. Definition of Intellectual Property. "Intellectual Property" shall mean, collectively, all (i) United States or foreign patents, patent applications, patent disclosures, and all renewals, reissues, divisions, continuations, extensions or continuations-in-part thereof, and all discoveries which may be patentable (collectively, "Patent Properties"), (ii) trademarks, service marks, trade dress, trade names and corporate names and registrations and applications for registration thereof (collectively, "Trademark Properties"), (iii) copyrights (registered or unregistered), registrations and applications for registration thereof, including all renewals, derivative works, enhancements, modifications, updates, new releases or other revisions thereof, and all works of authorship (collectively, "Copyright Properties"), (iv) computer software (including source code and object code), data, databases, code segments, algorithms, objects, routines, templates and documentation (collectively, "Software Properties"), (v) trade secrets and other confidential information, including, but not limited to, ideas, processes, formulas, compositions, inventions (whether patentable or unpatentable and whether or not reduced to practice), know-how, manufacturing and production processes and techniques, research and development information, drawings, blue prints, specifications, designs, plans, proposals, technical data, copyrightable works, financial and marketing plans, schematics, and customer and supplier lists and information ("Trade Secrets"), (vi) rights to third party warranties relating to the foregoing, including, without limitation, rights to millennium compliance warranties, (vii) copies and tangible embodiments of all of the foregoing (in whatever form or medium), (viii) the internet domain names used by APC's Subsidiaries, (ix) the telephone numbers used by APC and its Subsidiaries, (x) all licenses and rights to royalties, and (xi) all damages and payments under and the right to sue for infringement with respect to all of the foregoing, and the goodwill symbolized by all of the foregoing and connected therewith throughout the world. 3.6.2. Ownership of Intellectual Property. APC and its Subsidiaries own or are authorized by license to use the "American Phoenix" name and all Software Properties developed or currently used by each which are material to the conduct of the APC Business, and each has the right to use the "American Phoenix" name and such Software Properties, and in each case, such usage without more, will not infringe upon the Intellectual Property rights of another Person, and such Software Properties are listed in the Sellers' Disclosure Letter. 3.6.3. Compliance with License Agreements. All license agreements relating in any manner to the Intellectual Property used by APC and its Subsidiaries that are material to the conduct of the APC Business are listed in the Sellers' Disclosure Letter. APC and its Subsidiaries are in full compliance in all material respects with and are not in default under any such license agreements, and to the Knowledge of Sellers, all other parties to any of such license agreements are in full compliance in all material respects with and are not in default under any of such license agreements. 3.6.4. Registrations. There are no registered (with the U.S. Copyright Office, U.S. Patent and Trademark Office or the trademark registration offices of any of the fifty states) Patent Properties, Trademark Properties or Copyright Properties owned and used by APC and its Subsidiaries (except as used pursuant to a license agreement listed in the Sellers' Disclosure 19 Letter) in the conduct of the APC Business. 3.6.5. Custom Software. There are no Software Properties that APC and its Subsidiaries have had written or developed by any Person not an employee of APC or its Subsidiaries. 3.6.6. Noninfringement. APC and its Subsidiaries have not infringed, misappropriated, or otherwise used in an unauthorized manner the proprietary rights (including, but not limited to, the patent, trade secret, trademark, service mark, trade dress, or copyright rights) of any third party. 3.6.7. Rights Granted to Others. APC and its Subsidiaries have not granted or committed to grant any rights in their Intellectual Property of any nature whatsoever to any third party. 3.6.8. No Claims. No claim has been asserted in writing by any Person to Sellers (i) to the effect that any Action by APC or any of its Subsidiaries, infringes on the Intellectual Property rights of any other Person; or (ii) that challenges or questions the right of APC or any of its Subsidiaries to use any of the Intellectual Property being used by it; or (iii) except for license agreements disclosed in the Sellers' Disclosure Letter, which asserts the right of any third party to use such Intellectual Property. 3.6.9. Unauthorized Use. To the Knowledge of Sellers, there has been no unauthorized use, infringement or misappropriation of any of the Intellectual Property of APC or its Subsidiaries by any third party, including, but not limited to, any employee, former employee, producer, agent or independent contractor of APC or its Subsidiaries. Section 3.7. Year 2000 Compliance. "Year 2000 Compliant" or "Year 2000 Compliance" means, with respect to computer systems (including, but not limited to, all hardware, software, embedded systems, databases and tools) that the computer systems (i) accurately process date/time data (including, but not limited to, calculating, comparing and sequencing) from, into, and between the twentieth and twenty-first centuries, and the years 1999 and 2000 and leap year calculations, (ii) will operate prior to, during, and after the calendar year 2000 AD without error relating to date data, specifically including any error relating to, or the product of, date data which represents or references different centuries or more than one century, (iii) will respond to two-digit date input in a manner which resolves any ambiguity as to century in a disclosed, defined and predetermined manner and (iv) will store and provide output of date information in manners that are unambiguous as to century. APC and its Subsidiaries are implementing a program to identify on a timely basis the Year 2000 Compliance of mission critical: (i) products and services supplied by third parties and used in the APC Business, and (ii) computer systems or components therein used in the APC Business, whether owned or leased by APC or any of its Subsidiaries, and to remediate (or replace or abandon as appropriate) any such non-Year 2000 Compliant systems, test any such renovated or updated products or services, and implement contingency plans in the event of internal computer system or third party failure that is mission critical to its business. This program is outlined in the Sellers' Disclosure Letter, and included therein, is an identification of those tasks and or/tests that 20 have not been completed as of the date of this Agreement, as well as a list of all vendors where APC and its Subsidiaries have determined the vendor's product or service are not Year 2000 Compliant. With respect to third party developed software, Sellers shall be entitled to rely upon vendor certifications received by either of them or their Affiliates, provided that APC and its Subsidiaries have adequate contingency plans in place in the event of failure. Sellers reasonably believe, consistent with industry standards, that APC and its Subsidiaries will complete all aspects of such program prior to the time when any damages are likely to result from the failure of such products and services to be Year 2000 Compliant. Section 3.8. Accounts. Each bank account or similar account for the deposit of cash or securities currently maintained by or on behalf of, or utilized by, APC or any Subsidiary of APC (i) is wholly owned by APC or one of its Subsidiaries; (ii) periodically reconciled to its bank statements; and (iii) to the extent such accounts of APC and its Subsidiaries in the aggregate hold monies in an escrow or trust capacity, contains in the aggregate all escrow and trust monies of APC and its Subsidiaries required to be so maintained by it. Section 3.9. Certain Contractual Obligations. Set forth in the Sellers' Disclosure Letter is a true and complete list of all of the material Contractual Obligations of APC or any of its Subsidiaries (except for or with respect to the APC Plans and the APC Benefit Arrangements), including, without limitation, each of the following: (a) All collective bargaining agreements and other labor agreements; all material employment, producer or consulting agreements; and all other material plans, agreements, arrangements or practices which constitute Compensation or benefits to any of the directors, officers or employees of APC or any of its Subsidiaries; (b) All Contractual Obligations under which APC or any of its Subsidiaries is or may become obligated to pay any legal, accounting, brokerage, finder's or similar fees or expenses in connection with, or incur any severance pay or special Compensation obligations which would become payable by reason of, this Agreement or the consummation of the transactions contemplated hereby; (c) All Contractual Obligations under which APC or any of its Subsidiaries is or will after the Closing be restricted from carrying on any business or other activities anywhere in the world; (d) All Contractual Obligations (including, without limitation, options) to: (i) sell or otherwise dispose of any APC Assets except in the Ordinary Course of Business or (ii) purchase or otherwise acquire any individual property or other assets for a price of $50,000 or more; (e) All Contractual Obligations which, individually, are in excess of $50,000 under which APC or any of its Subsidiaries has any liability for Debt or obligation for Debt or constituting or giving rise to a Guarantee of any liability or obligation of any Person (other than any Lease, any Debt or intercompany advances between APC and its wholly-owned Subsidiaries), or under which any Person has any liability or obligation constituting or giving rise to a Guarantee 21 of any liability or obligation of APC or any of its Subsidiaries (including, without limitation, partnership and joint venture agreements) other than any Guarantee by APC of any Lease; (f) Any lease or other Contractual Obligation under which any tangible personal property having a cost or capital lease obligation in excess of $50,000 is held or used by APC or any of its Subsidiaries; (g) Any Contractual Obligation under which APC or any of its Subsidiaries would reasonably be expected to become obligated to pay any amount in excess of $50,000 in respect of indemnification obligations or purchase price adjustment provisions in connection with any (i) acquisition or disposition of assets, securities or real property, (ii) other acquisition or disposition of assets other than in the Ordinary Course of Business, (iii) assumption of liabilities or warranty, (iv) settlement of claims, (v) merger, consolidation or other business combination, or (vi) series or group of related transactions or events of a type specified in subclauses (i) through (v); and if with respect to any Contractual Obligation there exists any pending or, to the Knowledge of Sellers, threatened Action that could reasonably be expected to result in APC, its Subsidiaries or any of them being liable to pay an amount in excess of $50,000 or there currently exist circumstances that would reasonably be expected to give rise to such an Action; (h) All written contracts or commitments relating to commission arrangements with others (other than those listed under subsection (i) below), pursuant to which $50,000 or more is expected to be paid by APC or any of its Subsidiaries in 1999; (i) All written agreements with agents or independent contractors, which are the exclusive representative of APC or any of its Subsidiaries in a specified market, relating to the APC Business; (j) All written agreements containing covenants limiting competition by APC or its Subsidiaries in any kind of business or in any jurisdiction or limiting the ability of APC or its Subsidiaries to retain the services of any Person or classes of Persons or to sell any product or the ability of APC or its Subsidiaries to acquire Equity Securities issued by any Persons; and (k) Any other Contractual Obligation of a type not specifically covered in clauses (a) through (j) above entered into other than in the Ordinary Course of Business, involving payments by or on behalf of, or to, APC or any of its Subsidiaries in excess of $50,000 during the calendar year ended December 31, 1998 or $100,000 over the remaining term of such Contractual Obligation or the termination of which may reasonably be expected to require payments by APC or any of its Subsidiaries exceeding $50,000 (other than purchase orders entered into in the Ordinary Course of Business). Sellers have heretofore made available to Buyer a true and complete copy (or, in the case of oral contracts or arrangements, a full and accurate written summary) of each of the Contractual Obligations listed in the Sellers' Disclosure Letter, each as in effect on the date hereof, including, without limitation, all amendments (such Contractual Obligations required to be listed in the Sellers' Disclosure Letter, together with all licenses identified in Section 3.6.3 of Sellers' Disclosure Letter and the Insurance Policies, but excluding the APC Plans and APC 22 Benefit Arrangements, being referred to herein collectively as the "Contracts"). Each Contract is Enforceable by APC or the Subsidiary of APC which is party thereto, against each Person (other than APC or such Subsidiary of APC) party thereto. No material breach or default by APC or any of its Subsidiaries under any of the Contracts has occurred and is continuing, and no event has occurred or circumstance exists which with notice or lapse of time would constitute such a breach or default or permit termination, modification or acceleration by any other Person under any of the Contracts or would result in a loss of rights or creation of any Lien thereunder or pursuant thereto except as would arise from execution, delivery and performance of this Agreement and the Closing Agreements. To the Knowledge of Sellers, no material breach or default by any other Person under any of the Contracts has occurred and is continuing, and no event has occurred or circumstance exists that with notice or lapse of time would constitute such a breach or default or permit termination, modification or acceleration by APC or any of its Subsidiaries under any of the Contracts or would result in a loss of rights or creation of any Lien thereunder or pursuant thereto except as would arise from the execution, delivery and performance of this Agreement and the Closing Agreements. Section 3.10. Insurance. The Sellers' Disclosure Letter sets forth a list of all (i) fire, theft, casualty, general liability, workers compensation, fidelity, errors and omissions, business interruption, environmental, product liability, automobile and other insurance policies maintained by APC or any of its Subsidiaries, or by Holdings relating to APC or the APC Business, (ii) life insurance policies maintained by PHL or APC or any Subsidiary of APC on the life of any of its employees, officers or directors, other than the group term insurance provided for all employees (collectively, items (i) and (ii) shall be referred to as the "Insurance Policies"), specifying the type of coverage, the amount of coverage, the premium, the insurer, the policyholder, each covered insured, the policy owner, the expiration date of each such policy and a description of any retroactive premium adjustments or other loss-sharing arrangements, (iii) any self-insurance arrangements by or affecting APC or its Subsidiaries, any sharing of risk contracts or arrangements affecting APC and any obligations of APC or its Subsidiaries to any third party with respect to insurance, and (iv) excess of loss or catastrophic loss reinsurance arrangements maintained by APC or any of its Subsidiaries or to which any of them is a party. True, correct and complete copies of all Insurance Policies have been previously made available by the Sellers to the Buyer. To the Knowledge of the Sellers, the Insurance Policies are Enforceable and will continue to be Enforceable immediately after the Closing in accordance with their terms as in effect immediately before the Closing. All premiums due and payable on any of the Insurance Policies or renewals thereof have been paid or will be paid timely through the Closing Date, and Sellers have no Knowledge that there is any default (including with respect to the payment of premiums or the giving of notices) by APC or any its Subsidiaries under the Insurance Policies nor any default by any other party to the Insurance Policies and Sellers have no Knowledge that any event has occurred which, with notice or the lapse of time, would constitute such a breach or default or permit termination, modification or acceleration, under any Insurance Policy. Neither PHL, Holdings, APC nor any of their Subsidiaries has received any notice from the issuer of any of the Insurance Policies denying coverage or reserving rights with respect to a particular claim currently pending under any Insurance Policy or with respect to any Insurance Policy in general. Since February 28, 1999, neither APC nor any Subsidiary of APC has incurred any loss, damage, expense or liability that has had or would reasonably be expected to have a Material Adverse Effect and that was or would be covered by any Insurance Policy for which it has not properly 23 asserted a claim under any Insurance Policy. Each of APC and its Subsidiaries is covered by types of insurance customary for the industry in which it is engaged and in coverage amounts reasonable for a company of its size. There is no outstanding recommendation or requirement by the issuer of any Insurance Policy of any material changes in the conduct of the APC Business or of any material repairs or other work to be done on or with respect to any APC Asset. Section 3.11. Transactions with Affiliates. None of (i) the officers, directors or employees of Holdings, PHL or their Affiliates is an officer, director, employee, consultant, distributor, supplier or vendor of, or is party to any Contractual Obligation with, and (ii) Sellers, PHL or their Affiliates is a consultant, distributor, supplier or vendor of, APC or any Subsidiary of APC. Except with respect to obligations arising or circumstances existing prior to the Closing (including, without limitation, services provided prior to Closing and existing guaranties of certain Liabilities of APC and its Subsidiaries), neither APC nor any Subsidiary of APC will have any Liability or obligation to or for the benefit of PHL, the Sellers or any of their Subsidiaries (other than APC or any Subsidiary of APC) as a result of any agreement among such Persons which is in effect on the date hereof. There are no APC Assets (including, without limitation, Intellectual Property) that PHL, Sellers or any of their Affiliates (other than APC or its Subsidiaries) own or are licensed or otherwise have the right to use which are used in or necessary to the conduct of the APC Business nor are there any services or staffing being provided to the APC Business by PHL, Sellers or any of their Affiliates other than pursuant to written Contractual Obligations. Section 3.12. Compliance with Laws. Without regard to environmental matters which are covered in Section 3.15 of this Agreement, (i) the APC Business as heretofore, and currently being, operated has not been, and is not, in violation of, nor is APC or any Subsidiary of APC in default under, any Legal Requirement, except for such violations or defaults as have not had and will not have individually or in the aggregate a Material Adverse Effect, and (ii) APC and the Subsidiaries of APC have been duly granted and continue to hold, and at the Closing will hold, all licenses, permits, consents, approvals, franchises and other authorizations under any Legal Requirement or trade practice necessary for them to hold for the conduct of the APC Business as currently conducted (collectively, the "Permits"), except such as have not had and will not have individually or in the aggregate a Material Adverse Effect. All of the Permits are now and after giving effect to the Closing will be in full force and effect, except for those whose failure to be in full force and effect would not have a Material Adverse Effect. Within twenty-one (21) days following the execution of this Agreement, Sellers will provide Buyer with an update to the Sellers' Disclosure Letter which will set forth all Permits and applications therefor that are material to the APC Business. Neither PHL, Sellers, APC nor any Subsidiary of APC has received any notice from any Governmental Authority or other licensing authority or association that such entity will revoke, cancel, rescind, materially modify or refuse to renew in the ordinary course any of the Permits, which actions individually or in the aggregate could reasonably be expected to have a Material Adverse Effect. Section 3.13. Tax Matters. Except as set forth in the APC Financial Statements: (a) The following is correct with respect to APC and its Subsidiaries for so long as each Subsidiary has been owned by APC (i) all Tax Returns required to be filed on or before the Closing Date by, or with respect to APC or any of its Subsidiaries have been or will be 24 timely filed (taking into account permitted extensions) with the appropriate taxing authorities; (ii) all Tax Returns required to be filed on or before the Closing Date by, or with respect to APC or any of its Subsidiaries have accurately reflected and will accurately reflect all material liability for Taxes of APC and its Subsidiaries for the periods covered thereby; (iii) APC and its Subsidiaries have timely paid, withheld or made provision in the APC Financial Statements for all Taxes shown as due and payable on any Tax Return and have timely paid, withheld, or made provision in the APC Financial Statements for all material Taxes, whether or not shown on any Tax Return; (iv) no Liens for Taxes upon the APC Assets exist; (v) neither APC nor any of its Subsidiaries currently is the beneficiary of any extension of time within which to file any Tax Return; and (vi) no claim has ever been made by an authority in a jurisdiction where any of APC or its Subsidiaries does not file Tax Returns that any of them is or may be subject to taxation by that jurisdiction. The amounts recorded as liabilities for Taxes on the February 1999 APC Financial Statements are sufficient for the payment of all material unpaid Taxes for which APC or its Subsidiaries are or shall become liable as of February 28, 1999 with respect to all periods through February 28, 1999. (b) APC and each of its Subsidiaries is a member of the affiliated group of which PHL is the common parent, within the meaning of Section 1504(a) of the Code (the "Affiliated Group"), and such Affiliated Group files a consolidated federal Income Tax Return. Neither APC nor any of its Subsidiaries has at any time been a member of an affiliated group filing a consolidated federal Income Tax Return other than the Affiliated Group. All Income Taxes shown on any consolidated federal income Tax Return of the Affiliated Group have been paid for each taxable period during which APC and its Subsidiaries were a member of the Affiliated Group. (c) Each of APC and its Subsidiaries has withheld and paid all material Taxes required to have been withheld and paid in connection with amounts paid or owing to any employee, producer, independent contractor, creditor, stockholder, foreign Person, or other third party. (d) There is no dispute or claim concerning any material Tax Liability of any of APC and its Subsidiaries as to which Sellers have Limited Knowledge. The Sellers' Disclosure Letter lists all Income Tax Returns filed with respect to APC or any of its Subsidiaries (with respect to each Subsidiary only since its acquisition or creation by APC or an APC Subsidiary) for taxable periods ended on or after December 31, 1994, indicates those Tax Returns that have been audited, and indicates those Tax Returns that currently are the subject of audit. Sellers have delivered to Buyer correct and complete copies of all portions of federal Income Tax Returns and examination reports and statements of deficiencies assessed against or agreed to by PHL, Sellers, APC or any of their Subsidiaries since December 31, 1994 which pertain to APC and its Subsidiaries. Any representation with respect to Subsidiaries under this Section 3.13(d) shall relate to a Subsidiary only for periods following its acquisition or creation by APC or an APC Subsidiary. (e) Neither APC nor any of its Subsidiaries has waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. 25 (f) Neither APC nor any of its Subsidiaries has (i) made any payments, (ii) is obligated to make any payments, or (iii) is a party to any agreement that under certain circumstances could obligate it to make any payments that will not be deductible under Code Section 280G. (g) There are no tax sharing, allocation, indemnification or similar agreements or arrangements in effect between APC or any of its Subsidiaries, or any predecessor or affiliate thereof, and any other party under which APC or any of its Subsidiaries could be liable for any Taxes or other claims of any Person. (h) Neither APC nor any of its Subsidiaries has applied for, been granted, or agreed to any accounting method change for which it will be required to take into account any adjustment under Section 481 of the Code or any similar provision of the Code or the corresponding tax laws of any nation, state or locality. (i) No indebtedness of APC or any of its Subsidiaries consists of "corporate acquisition indebtedness" within the meaning of Section 279 of the Code. Section 3.14. Employee Relations and Employee Benefit Plans. 3.14.1. Employee Relations. (a) To the Knowledge of Sellers, APC and each of its Subsidiaries are in material compliance with all federal, state or other applicable laws, domestic or foreign, respecting employment and employment practices, terms and conditions of employment and wages and hours of employment; (b) No legal claim in respect of application for employment, employment or termination of employment of any Person has been asserted or, to the Knowledge of Sellers, threatened, against APC or any of its Subsidiaries; (c) To the Knowledge of Sellers, APC and each of its Subsidiaries have not, and are not, engaged in any unfair labor practice; (d) No unfair labor practice complaint against APC or any of its Subsidiaries is pending before the National Labor Relations Board; (e) No labor strike, dispute, slowdown or stoppage is actually pending or, to the Knowledge of Sellers, threatened against or involving APC or any of its Subsidiaries; (f) Neither APC nor any of its Subsidiaries is a party to any collective bargaining agreement and no collective bargaining agreement is currently being negotiated by any of them; (g) None of the employees of APC or any of its Subsidiaries is represented by a labor union; 26 (h) No petition has been filed or Action instituted by any employee or group of employees of APC or any of its Subsidiaries with any labor relations board seeking recognition of a bargaining representative; (i) To the Knowledge of Sellers, there is no organizational effort currently being made or threatened by or on behalf of any labor union to organize any employees of APC or any of its Subsidiaries; (j) There are no other controversies or disputes pending between APC or any of its Subsidiaries on the one hand, and any of their respective employees on the other hand, except for such other controversies and disputes with individual employees arising in the Ordinary Course of Business that have not had and may not reasonably be expected to have a Material Adverse Effect; and (k) Sellers, PHL, APC and the Subsidiaries of APC have taken any and all actions necessary to comply with the Worker Adjustment and Retraining Notification Act ("WARN"), with respect to any event or occurrence affecting APC or its Subsidiaries since the effective date of WARN, or, if later, the date of acquisition by APC of such Subsidiaries. 3.14.2. Employee Benefit Plans and Programs. (a) List of Plans. Set forth in the Sellers' Disclosure Letter is an accurate and complete list, by name and benefit type, of all plans and benefit arrangements in which employees of APC or any Subsidiary of APC participate (the "APC Plans" and "APC Benefit Arrangements"), which list further specifies which of said plans and arrangements are sponsored by any Affiliate of Sellers other than APC or a Subsidiary of APC. (b) Status of Plans. (i) Each APC Plan and APC Benefit Arrangement has, at all times, been maintained and operated in compliance, in all material respects, with its terms and the requirements of all applicable laws, including, without limitation, ERISA and the Code; (ii) No complete or partial termination of any APC Plan or APC Benefit Arrangement has occurred or is expected to occur solely as a result of this Agreement and the consummation of the transactions contemplated hereby; (iii) Neither APC nor any of its Subsidiaries has any current commitment or understanding to create, modify or terminate any APC Plan or APC Benefit Arrangement, except solely as required by current applicable law; (iv) Except as required by applicable law or the terms of a current collective bargaining agreement, no condition or circumstance exists that would prevent the subsequent unrestricted amendment or termination of any APC Plan or APC Benefit Arrangement; and 27 (v) Apart from the transactions contemplated by this Agreement or change in applicable law, no event has occurred and no condition or circumstance has existed that will, or could, result in a material increase in the benefits under, or the expense of maintaining, any APC Plan or APC Benefit Arrangement from the level of benefits or expense incurred for the most recently concluded fiscal year thereof. (c) Liabilities. (i) Neither Sellers, PHL, APC nor any of its Subsidiaries maintain or contribute to an APC Plan subject to Section 412 or 418B of the Code, or Section 302 of ERISA or which otherwise is a "multiemployer plan" (as such term is defined in Section 4001(a)(3) of ERISA); (ii) Neither APC nor any of its Subsidiaries maintains any APC Plan or APC Benefit Arrangement which is a "group health plan" (as such term is defined in Section 5000(b)(1) of the Code) that has not been administered and operated, in all material respects, in compliance with the applicable requirements of Sections 601, 701 and 702 of ERISA and Sections 4980B(f), 9801 and 9802 of the Code; and, neither APC nor any of its Subsidiaries is subject to any liability for fines, penalties or loss of Tax deduction as a result of such administration and operation; (iii) Neither APC nor any of its Subsidiaries maintains any APC Plan or APC Benefit Arrangement (whether qualified or nonqualified within the meaning of Section 401(a) of the Code) providing for retiree health and/or life benefits or having unfunded liabilities; (iv) Neither APC nor any of its Subsidiaries maintains any APC Plan which is an "employee welfare benefit plan" (as such term is defined in Section 3(1) of ERISA) that has provided any "disqualified benefit" (as such term is defined in Section 4976(b) of the Code) with respect to which any excise tax could be imposed; (v) No Person is entitled to, with respect to employment with APC or any of its Subsidiaries, any benefit to be paid after termination of employment (other than pursuant to an APC Plan that is tax-qualified under Section 401(a) of the Code or pursuant to the group health plan continuation coverage requirements under Section 4980B of the Code and Part 6 of Title I of ERISA); (vi) Neither APC nor any of its Subsidiaries has incurred any liability for any tax or excise tax arising under Section 4971, 4977, 4978, 4979, 4980, 4980B or 4980D of the Code; and, no event has occurred and no condition or circumstance has existed that could give rise to any such liability; (vii) No Actions are pending, or, to the Knowledge of Sellers, threatened, anticipated or expected to be asserted against any APC Plan or APC Benefit Arrangement or the assets of any such APC Plan or APC Benefit Arrangement (other than routine claims for benefits and appeals of denied routine claims); 28 (viii) No civil or criminal Action brought pursuant to the provisions of Title I, Subtitle B, Part 5 of ERISA is pending, or, to the Knowledge of Sellers, threatened, anticipated or expected to be asserted against APC or any of its Subsidiaries or to the Knowledge of Sellers, any fiduciary of any APC Plan or APC Benefit Arrangement, with respect to any APC Plan or APC Benefit Arrangement; and (ix) On or after January 1, 1993, no APC Plan or APC Benefit Arrangement or, with respect to any APC Plan or APC Benefit Arrangement, and to the Knowledge of Sellers, any fiduciary thereof, is or has been the direct or indirect subject of an audit, investigation or examination by any governmental or quasi-governmental agency; or, has entered into a settlement with such agency. (d) Contributions. (i) Full payment has been made, or by the Closing Date will have been made, of all material amounts which APC or any of its Subsidiaries is required, under applicable law, under any APC Plan or APC Benefit Arrangement or under any agreement relating to any APC Plan or APC Benefit Arrangement to which APC or any of its Subsidiaries is a party, to have paid as contributions thereto as of the last day of the most recent fiscal year of such APC Plan or APC Benefit Arrangement ended prior to Closing; (ii) All contributions by APC or any of its Subsidiaries to an APC Plan or an APC Benefit Arrangement have been deducted, or can be deducted, in the taxable year for which such contributions are made; and, no such contribution deduction has been challenged or disallowed; (iii) APC has made adequate provision for reserves to make APC Plan or APC Benefit Arrangement contributions that have accrued or will have accrued through Closing, but that have not been made because they are not yet due under the terms of any APC Plan or APC Benefit Arrangement or related agreements; and (iv) Benefits under all APC Plans or APC Benefit Arrangements are materially as represented in this Agreement and have not been increased subsequent to the date as of which plan documents were provided or made available to Buyer except as may be required by applicable law. (e) Tax Qualification. (i) Each APC Plan intended to be qualified under Section 401(a) of the Code has been determined to be so qualified, as to design, by the Internal Revenue Service. Each APC Plan intended to be tax-qualified is qualified under Section 401(a) of the Code (and with respect to the APC's 401(k) plan, Section 401(k) of the Code); (ii) Each trust established in connection with any APC Plan which is intended to be exempt from federal income taxation under Section 501(a) of the Code continues 29 to be exempt; and (iii) Since the date of each most recent determination referred to in this paragraph (e), to the Knowledge of Sellers, no event has occurred and no condition or circumstance has existed that resulted or is likely to result in the revocation of any such determination or that could adversely affect the qualified status of any APC Plan or the exempt status of any such related trust. (f) Transactions. Neither APC nor any of its Subsidiaries nor, to the Knowledge of Sellers, any of their respective directors, officers, employees or other Persons who participate in the operation of any APC Plan or APC Benefit Arrangement or related trust or funding vehicle, has engaged in any transaction with respect to any APC Plan or APC Benefit Arrangement or breached any applicable fiduciary responsibilities or obligations under Title I of ERISA with respect to any APC Plan or APC Benefit Arrangement that would subject any of them to a Tax, penalty or liability for prohibited transactions under ERISA or the Code or would result in any claim being made under, by or on behalf of any such APC Plan or APC Benefit Arrangement, by any Person with standing to make such claim for which APC or its Subsidiaries would have a liability. (g) Triggering Events. (i) The execution of this Agreement and the consummation of the transactions contemplated hereby, do not constitute a triggering event under any APC Plan or APC Benefit Arrangement, policy, arrangement, statement, commitment or agreement, whether or not legally enforceable, which (either alone or upon the occurrence of any additional or subsequent event) will or may result in any payment (whether of severance pay or otherwise), acceleration, vesting or increase in benefits to any employee or former employee or director of APC or any of its Subsidiaries; and (ii) No APC Plan or APC Benefit Arrangement provides for the payment of severance benefits upon the termination of employment of an employee of APC or any of its Subsidiaries. (h) Documents. Sellers have delivered or caused to be delivered to Buyer or its counsel true and complete copies of all of the following documents in connection with each APC Plan and APC Benefit Arrangement, as applicable: (i) all APC Plans and APC Benefit Arrangements as in effect on the date hereof, together with all amendments thereto, including, in the case of any APC Plan or APC Benefit Arrangement not set forth in writing, a written description thereof; (ii) all current summary plan descriptions and summaries of material modifications; (iii) all current trust agreements, declarations of trust and other documents establishing other funding arrangements (and all amendments thereto and the latest financial statements thereof); (iv) the most recent Internal Revenue Service determination letter obtained with respect to each APC Plan or APC Benefit Arrangement intended to be qualified under Section 401(a) of the Code or exempt under Section 501(a) of the Code; (v) the annual report on Internal Revenue Service Form 5500-series for each of the last three (3) years for each APC Plan or APC Benefit Arrangement required to file such form; (vi) the most recently prepared financial 30 statements for each APC Plan or APC Benefit Arrangement; and (vii) all Contractual Obligations relating to each APC Plan or APC Benefit Arrangement, including, without limitation, service provider agreements, insurance contracts, annuity contracts, investment management agreements, subscription agreements, participation agreements and record-keeping agreements. 3.14.3 Compensation of Employees. Set forth in the Sellers' Disclosure Letter is an accurate and complete list for APC, showing the names of all Persons employed by APC and its Subsidiaries who received more than $80,000 in 1998 cash compensation (including, without limitation, salary, commission and bonus) and who are expected to be employed by APC or its Subsidiaries on the Closing Date. Such list sets forth the present (1999) salary or hourly wage and the total cash compensation in 1998. 3.14.4 Employment Agreements. Neither APC nor any of its Subsidiaries is a party to or bound by (i) any written employment agreement, producer agreement or similar arrangement providing annual cash compensation to an individual in excess of $80,000, other than written agreements or arrangements that may be terminated at any time by APC or its Subsidiaries, as the case may be, upon no more than ninety (90) days' notice without penalty or other payment, or any extension of any benefit or other coverage, or (ii) any employment agreement or producer agreement that causes an employee to be other than an "at will" employee. Section 3.15. Environmental Matters. (a) Neither APC nor any of its Subsidiaries is or has in the past been in violation of Environmental Laws. Neither APC nor the Subsidiaries of APC has received notice of any Action pending against it or such Subsidiaries nor, to the Knowledge of Sellers, is there any basis for any Action or is any Action threatened against APC or its Subsidiaries, in each case in respect of (i) a violation by APC or any Subsidiary of APC of any Environmental Laws, or (ii) the presence or release or threatened release into the environment of any Hazardous Substance whether or not generated by APC or any Subsidiary of APC or located at or about or emanating from or to a site included in the Owned Real Property or any other facility, location, building or site currently or heretofore owned, leased or otherwise used by APC or any Subsidiary of APC or any predecessor entity of any of them. (b) Except for matters that would not result in any material Liability to APC and its Subsidiaries taken as a whole, no event has occurred or condition exists or operating practice is being engaged in that is currently contrary to any environmental law and that gives rise to any Liability or Losses on the part of APC or any of its Subsidiaries (or, after the Closing, Buyer) either at the present or at any future time (including, without limitation, any obligation to conduct any remedial or monitoring work) under any Environmental Laws or otherwise resulting from or relating to the handling, storage, use, transportation or disposal of any Hazardous Substance by or on behalf of APC or any Subsidiary of APC or any of their respective predecessors or otherwise. (c) The Sellers have previously made available to Buyer true and correct copies of all written reports and all other documents arising out of environmental inspections, investigations, studies, audits, tests, reviews or other analyses conducted by Sellers with respect 31 to any Owned Real Property listed in the Sellers' Disclosure Letter or any real property leased or otherwise used by APC or any of its Subsidiaries. Section 3.16. Accounts Receivable. All accounts receivable of APC and its Subsidiaries that are reflected on the APC Financial Statements (i) are accurate and complete in all material respects, and (ii) represent or will represent valid obligations arising from services actually performed in the Ordinary Course of Business. None of such accounts receivable are subject to any counterclaim or set-off except to the extent set forth on the Sellers' Disclosure Letter. Section 3.17. Litigation. Without regard to environmental matters which are covered in Section 3.15 of this Agreement, there is no Action against APC or any Subsidiary of APC, pending or, to the Knowledge of Sellers, threatened, with respect to which APC or any of its Subsidiaries are or would reasonably be expected to be parties. There is no Action pending or, to the Limited Knowledge of Sellers, threatened, that seeks rescission of, seeks to enjoin the consummation of, or otherwise relates to, this Agreement or any of the transactions contemplated hereby. No Governmental Order specifically directed at APC or any of its Subsidiaries has been issued which has had or could reasonably be expected to have a Material Adverse Effect. Section 3.18. Agents and Broker Relationships. Since February 28, 1999, neither APC nor any of its Subsidiaries has had any agent, broker or insurance carrier terminate its relationship with it so as to adversely affect its business, reputation, income, property or financial condition, nor has any such terminated Person taken or successfully solicited any accounts or customers of APC or its Subsidiaries, and, to the Knowledge of Sellers, no broker, agent or insurer with whom APC or any of its Subsidiaries currently does business intends to terminate its relationship with APC or any Subsidiary of APC as of any date or upon the happening of any event. Section 3.19. Brokers. Except for Bear Stearns & Co., no broker, finder, investment bank or banker or similar agent is entitled to any brokerage, finder's or other fee, Compensation or reimbursement of expenses in connection with the transactions contemplated by this Agreement based upon agreements or arrangements made by or on behalf of (or the conduct of) Sellers, PHL, APC, any Subsidiary of APC or any of their respective Affiliates. Sellers shall be solely responsible for the payment of the fees and expenses of Bear Stearns & Co. Section 3.20. Full Disclosure. No statement contained in any document, certificate, or other writing furnished or to be furnished by PHL, Sellers, APC or any of their Subsidiaries to Buyer pursuant to the provisions of this Agreement contains or will contain any untrue statement of a material fact or omits or will omit to state any material fact necessary, in the light of the circumstances under which it was made, in order to avoid statements herein or therein being misleading. ARTICLE IIIA Representations and Warranties of PHL 32 PHL represents and warrants to Buyer and to Buyer's successors and assigns as of the date hereof and as of the Closing Date (except to the extent that PHL's representations and warranties expressly speak as of a specified earlier date) as follows: Section 3A.1. Corporate Matters. 3A.1.1. Organization and Standing; Power and Authority. (a) PHL is a life insurance company duly organized, validly existing and in good standing under the laws of the State of New York and has all requisite power and authority, corporate and otherwise, to enter into this Agreement and the Closing Agreements to which it is intended to be a party as reflected on the signature page thereof, to carry out and perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. (b) Holdings is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut and has all requisite power and authority, corporate and otherwise, to enter into this Agreement and each of the Closing Agreements to which it is intended to be a party as reflected on the signature page thereof, to carry out and perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. 3A.1.2. Authorization and Enforceability. (a) This Agreement has been duly authorized, executed and delivered by PHL and is Enforceable against PHL. Each of the Closing Agreements to which PHL or any of its Affiliates is a party as reflected on the signature page thereof has been duly authorized, and, on or before the Closing Date, will be duly executed and delivered by PHL or its applicable Affiliate and be Enforceable against PHL or such Affiliate, as the case may be. (b) This Agreement has been duly authorized, executed and delivered by Holdings and is Enforceable against Holdings. Each of the Closing Agreements to which Holdings or any of its Affiliates, including APC, is a party as reflected on the signature page thereof has been duly authorized, and, on or before the Closing Date, will be duly executed and delivered by Holdings or its applicable Affiliate and be Enforceable against Holdings or such Affiliate, as the case may be. 3A.1.3. Non-Contravention. No approval, consent, waiver, authorization or other order of, and no filing, registration, qualification or recording with, any Governmental Authority or any other Person is required to be obtained or made by or on behalf of PHL in connection with the execution, delivery or performance of this Agreement and the consummation of the transactions contemplated hereby, except for (a) satisfaction of the requirements of the HSR Act, and (b) the items listed in Section 3A.1.3 of the Sellers' Disclosure Letter. Specifically, and not by way of limitation, all Required Filings are set forth in the Sellers' Disclosure Letter. Neither the execution, delivery and performance of this Agreement nor the consummation of any of the transactions 33 contemplated hereby (including, without limitation, the execution, delivery and performance of the Closing Agreements) does or will constitute, result in or give rise to (i) a breach or violation or default under any Legal Requirement applicable to PHL (assuming the accuracy of the representations and warranties of Buyer in Article IV hereof), or (ii) a breach of or a default under any Charter or Bylaws provision of PHL. 3A.1.4. Title to APC Shares. All of the APC Shares owned by Holdings are held free and clear of any Liens (including, without limitation, restrictions on transfer or voting). Section 3A.2. Financial Information of Holdings. Holdings has previously provided Buyer with a true and complete copy of the unaudited consolidated balance sheet of Holdings and its Subsidiaries as of December 31, 1998 (the "Holdings Balance Sheet"). The Holdings Balance Sheet presents fairly, in all material respects, the consolidated financial position of Holdings and its Subsidiaries as of December 31, 1998. ARTICLE IIIB Representations and Warranties of Vaughan Except as disclosed, or as qualified by information set forth in the Sellers' Disclosure Letter, Vaughan represents and warrants to Buyer as of the date hereof and as of the Closing Date (except to the extent that Vaughan's representations and warranties expressly speak as of a specified earlier date) as follows: Section 3B.1. Matters Relating to Vaughan. 3B.1.1. Enforceability. This Agreement is, and each of the Closing Agreements to which Vaughan is a party as reflected on the signature page thereof, will be when it is executed and delivered by Vaughan, Enforceable against Vaughan. 3B.1.2. Title to APC Shares. Vaughan is the beneficial and record holder of, and has good and valid title to, 882 Class B shares of the APC Shares, which is fifteen percent (15%) of the issued and outstanding shares of the capital stock of APC, free and clear of any Liens (including, without limitation, restrictions on transfer, except as provided in the Shareholders' Agreement with APC dated April 13, 1993, which shall be terminated effective as of the Closing Date). ARTICLE IV Representations and Warranties of Buyer Except as disclosed, or as qualified by information set forth in the Buyer's disclosure letter dated of even date herewith and delivered to Sellers concurrently herewith (the "Buyer Disclosure Letter"), Buyer represents and warrants to Sellers as of the date hereof and as of the Closing Date 34 (except to the extent that Buyer's representations and warranties expressly speak as of a specified earlier date) as follows: Section 4.1. Corporate Matters. 4.1.1. Incorporation and Authority of Buyer. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia and has all requisite power and authority, corporate and otherwise, to enter into this Agreement and each of the Closing Agreements to which it is intended to be a party as reflected on the signature page thereof, to carry out and perform its obligations hereunder and thereunder and to consummate the transactions contemplated hereby and thereby. 4.1.2. Organization, Power and Standing. Each of the Subsidiaries of Buyer is a corporation duly incorporated, validly existing and in good standing under the jurisdiction of its incorporation or organization (to the extent recognized in such jurisdiction of incorporation or organization). Each of Buyer and its Subsidiaries has all requisite power and authority, corporate and otherwise, to carry on its business as currently conducted, and, in the case of the Buyer, to consummate the transactions contemplated hereby. Each of Buyer and its Subsidiaries is duly qualified or licensed to do business as a foreign corporation or otherwise, and is in good standing as such (to the extent such concept is recognized in such jurisdiction), in each jurisdiction where the nature of Buyer's or such Subsidiaries' activities or their ownership or leasing of property requires such qualification or license, except to the extent that the failure to be so qualified or licensed would not have a Material Adverse Effect on Buyer. 4.1.3. Authorization and Enforceability. This Agreement has been duly authorized, executed and delivered by Buyer, and is Enforceable against Buyer. Each of the Closing Agreements to which Buyer is a party as reflected on the signature page thereof has been duly authorized, and, on or before the Closing Date, will be duly executed and delivered by Buyer and will be Enforceable against Buyer. 4.1.4. Non-Contravention. No approval, consent, waiver, authorization or other order of, and no filing, registration, qualification or recording with, any Governmental Authority or any other Person is required to be obtained or made by or on behalf of Buyer in connection with the execution, delivery or performance of this Agreement or any of the Closing Agreements and the consummation of the transactions contemplated hereby and thereby, except for (i) satisfaction of the requirements of the HSR Act and (ii) the items listed in the Buyer Disclosure Letter. Except as set forth in the Buyer Disclosure Letter, neither the execution, delivery and performance of this Agreement nor the consummation of any of the transactions contemplated hereby (including, without limitation, the execution, delivery and performance of the Closing Agreements and performance by Buyer of Buyer's obligations in respect of the Buyer Common Stock and Subordinated Debentures in accordance with its terms) does or will constitute, result in or give rise to (i) a breach or violation or default under any Legal Requirement applicable to Buyer or any of Buyer's Subsidiaries (assuming the accuracy of the representations and warranties of PHL and Sellers in Articles III, IIIA and IIIB hereof), (ii) a breach of or a default under any Charter or Bylaws provision of Buyer or any of Buyer's Subsidiaries, (iii) the acceleration of the time for performance of any obligation under any Contractual Obligation of Buyer or any of Buyer's 35 Subsidiaries, (iv) the imposition of any Lien upon or the forfeiture of any asset of Buyer or any of Buyer's Subsidiaries, or (v) a breach of or a default under any material Contractual Obligation of Buyer or any of Buyer's Subsidiaries. 4.1.5. Capitalization. As of March 26, 1999, 12,157,975 shares of Buyer Common Stock were issued and outstanding. Each outstanding share of the Buyer Common Stock is duly authorized, validly issued, fully paid and non-assessable. There is no Contractual Obligation or Charter or Bylaw provision that obligates Buyer to issue, purchase or redeem, or make any payment in respect of any Equity Security. 4.1.6. Charter and Bylaws. Buyer has heretofore made available to Sellers true and complete copies of the Charter and Bylaws of Buyer, in the form currently in effect and as will be in effect immediately prior to Closing. Section 4.2. Financial Statements. 4.2.1. Financial Information. Buyer has previously made available to Sellers true and complete copies of the audited consolidated balance sheets of Buyer as of December 31, 1998, 1997 and 1996 and the related audited consolidated statements of income, stockholders' equity and cash flows of Buyer for such fiscal years ended December 31, 1998, 1997 and 1996 (collectively, the "Buyer Financial Statements"). 4.2.2. Character of Financial Information. The Buyer Financial Statements, including the notes thereto, were prepared in accordance with GAAP consistently applied throughout the periods specified therein and present fairly, in all material respects, the consolidated financial position and results of operations of the Buyer and its Subsidiaries for the periods specified therein. Section 4.3. Change in Condition. Except for the matters set forth in the Buyer Disclosure Letter, since December 31, 1998: (a) The business of the Buyer has been conducted only in the Ordinary Course of Business (except as may be otherwise required by the terms of this Agreement); (b) Neither the Buyer nor any of its Subsidiaries has (except as required or otherwise contemplated by this Agreement): (i) made any change in its authorized or issued capital stock or granted or issued any option, purchase right, convertible stock, other sort of security or registration right, purchased, redeemed or retired any shares or other securities, or declared or made any Distribution; (ii) amended its Charter or Bylaws; 36 (iii) made or agreed to make any material change in its customary methods of accounting practices; or (iv) instituted, settled or agreed to settle any material Action. (c) There has been no amendment of any material provision of any Equity Security of the Buyer other than as contemplated by this Agreement and the Closing Agreements; and (d) No Material Adverse Effect has occurred with respect to Buyer and its Subsidiaries. Section 4.4. Compliance with Laws. Except as set forth in the Buyer Disclosure Letter, the Buyer's business as heretofore, and currently being, operated has not been, and is not, in violation of, nor is Buyer or any Subsidiary of Buyer in default under, any Legal Requirement, except for such violations or defaults as have not had and will not have individually or in the aggregate a Material Adverse Effect on Buyer. Section 4.5. Litigation. Except as set forth in the Buyer Disclosure Letter, there is no Action pending or, to the Knowledge of Buyer, threatened with respect to Buyer or any of its Subsidiaries, which could reasonably be expected to have a Material Adverse Effect on Buyer. There is no Action pending or, to the Knowledge of Buyer, threatened, that seeks rescission of, seeks to enjoin the consummation of, or otherwise relates to, this Agreement or any of the transactions contemplated hereby and that could reasonably be expected to have a Material Adverse Effect on Buyer or a material adverse effect on Buyer's ability to consummate the transactions contemplated hereby. No Governmental Order specifically directed at Buyer or any of Buyer's Subsidiaries has been issued which has had or could reasonably be expected to have a Material Adverse Effect on Buyer. Section 4.6. Financing. Buyer has received and delivered to Sellers a commitment letter with respect to fully underwritten debt financing from First Union National Bank and First Union Capital Markets Corp. ("Lead Lender") dated as of March 15, 1999 (the "Commitment Letter"), which is in an amount sufficient to enable Buyer to pay the Cash Consideration. The terms of such letter have not been altered or amended by Buyer or Lead Lender in a manner that would have a Material Adverse Effect upon Buyer's ability to perform its obligations under this Agreement and such letter remains in full force and effect (unless superseded by definitive credit documentation that would not have a Material Adverse Effect upon Buyer's ability to perform its obligations under this Agreement). Section 4.7. Buyer SEC Documents. Buyer has filed all required reports, schedules, forms, statements and other documents with the Securities and Exchange Commission since January 1, 1998 (collectively, the "Buyer SEC Documents"). As of their respective dates, the Buyer SEC Documents complied as to form, in all material respects, with the requirements of the Securities Act of 1933, as amended (the "Securities Act") and the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and regulations promulgated thereunder applicable to the Buyer SEC Documents, and none of the Buyer SEC Documents, as of their 37 respective filing dates, contained any untrue statements of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. Section 4.8. Brokers. Except for Davenport & Company, LLC, no broker, finder, investment bank or similar agent is entitled to any brokerage, finder's or other fee, Compensation or reimbursement of expenses in connection with the transactions contemplated by this Agreement based upon agreements or arrangements by or on behalf of (or the conduct of) Buyer or its Affiliates. Buyer shall be solely responsible for the payment of the fees and expenses of Davenport & Company, LLC. ARTICLE V Certain Covenants of the Parties Section 5.1. Access to Information of Buyer. Prior to the Closing, Buyer shall cause its management to be available to Sellers and their representatives and advisors at such times, and from time to time, as Sellers may reasonably request in connection with the transactions contemplated hereby. Buyer will cause to be delivered to Sellers as soon as is practicable such additional information and copies of documents, books and records relating to Buyer as may be reasonably requested by Sellers or their respective representatives and advisors, and all financial statements (audited and unaudited) of Buyer and its Subsidiaries that are prepared prior to the Closing Date. All financial statements prepared by or on behalf of Buyer after the date hereof shall be included within the meaning of the term Buyer Financial Statements for all purposes of this Agreement from and after their respective dates. Section 5.2. Access to Premises and Information of APC. Prior to the Closing, Sellers will, and will cause APC and its Subsidiaries to, permit Buyer and its prospective lenders listed in the Buyer Disclosure Letter (which shall execute appropriate confidentiality agreements reasonably acceptable to PHL), and their respective representatives and advisors, to have full access to their premises and documents, books and records and to make copies at their expense during APC's normal business hours of such financial and operating data and other information with respect to APC and its Subsidiaries as Buyer, such lenders, or any of their representatives and advisors shall reasonably request; provided, however, that Sellers shall not be required to provide access to, or copies of, the portions of any documents, books and records or other data that contain information relating solely to entities other than APC and its Subsidiaries. In addition, Sellers shall cause the management of APC and its Subsidiaries to be available to Buyer and its prospective lenders at such times during APC's normal business hours, and from time to time, as Buyer and its prospective lenders may reasonably request in connection with the transactions contemplated hereby and their review of the APC Business. Sellers will cause to be delivered as soon as is practicable such additional information and copies of documents, books and records relating to APC and its Subsidiaries or the APC Business as may be reasonably requested by Buyer, such lenders, or any of their representatives and advisors, and all financial statements, audited and unaudited, of APC or its Subsidiaries that are prepared prior to the Closing Date. All financial statements so provided to the Buyer after the date hereof shall be included 38 within the meaning of the term APC Financial Statements for all purposes of this Agreement from and after their respective dates. Section 5.3. Confidentiality Letter. The provisions of that certain letter agreement between Buyer and Holdings dated October 27, 1998 (the "Confidentiality Agreement") are hereby confirmed and remain in effect and are acknowledged to be Enforceable with respect to Buyer, PHL, Sellers, APC and each of their Subsidiaries as fully as if each of them had been an original signatory and to apply to all documents and materials disclosed hereunder or in the due diligence review of any party in connection with the transactions contemplated hereunder; provided, however, that the Confidentiality Agreement is hereby amended so that (i) it shall terminate with respect to the obligations of Buyer thereunder upon the consummation of the Closing and (ii) it shall not prohibit any retention of records or disclosure made in connection with the enforcement of any right or remedy relating to this Agreement or the transactions contemplated hereby. Section 5.4. Operation of APC Business Prior to the Closing Date. (a) On and prior to the Closing Date, except as otherwise required by this Agreement, Sellers will cause APC to conduct the APC Business only in the Ordinary Course of Business, and Sellers will use their reasonable commercial efforts to maintain the value of the APC Business as a going concern and the relationships of APC and its Subsidiaries with insurance carriers, customers, suppliers, vendors, employees, producers, agents, referral sources and Governmental Authorities. Sellers agree to cause APC and its Subsidiaries to make capital expenditures only in the Ordinary Course of Business up to the Closing Date and prior to the Closing Date and to obtain the written consent of the Buyer prior to any capital expenditure which is individually equal to or greater than $50,000 or any capital expenditures in the aggregate of more than $100,000, whether or not in the Ordinary Course of Business. Without in any way limiting the generality of the foregoing, on and prior to the Closing Date, Sellers will cause APC and its Subsidiaries to refrain from doing any of the following without the prior written consent of Buyer: (i) enter into any transaction with PHL, Sellers or any of their Affiliates (other than APC or its Subsidiaries) except in the Ordinary Course of Business or with respect to Affiliate Debt as set forth in the Sellers' Disclosure Letter; (ii) pay or accrue any Compensation other than in the Ordinary Course of Business or increase any Compensation of any officer or employee other than such increases in Compensation for individual employees as may be made in the Ordinary Course of Business; (iii) make any Distribution other than (w) those required in connection with the dissolution of Poor, Bowen, Bartlett & Kennedy of PA, Inc., (x) the distributions set forth in the Sellers' Disclosure Letter pursuant to Section 3.3(b); (y) distributions of cash or of any receivable constituting Affiliate Debt in connection with the repayment or cancellation of Affiliate Debt; and (z) distributions or contributions in connection with an increase in or the repayment or cancellation (in whole or in part) of Debt or intercompany advances between APC and any of its respective wholly-owned Subsidiaries; 39 (iv) incur any Debt except in the Ordinary Course of Business or intercompany advances between APC and any of its respective wholly-owned Subsidiaries, except in the Ordinary Course of Business or, in the case of Lees Preston Fairy (Holdings), Ltd., such Subsidiary may borrow, or enter into an agreement to borrow, from APC an amount not to exceed Five Hundred Thousand Dollars ($500,000) in order to facilitate the execution and consummation of a Profit-Sharing Agreement with International Jewelers Fine Art & Insurance Services Inc. ("IJB"), or incur any Lien except in the Ordinary Course of Business; (v) amend the Charter or Bylaws of APC or any Subsidiary of APC other than the Articles of Association of Lees Preston Fairy (Holdings), Ltd.; (vi) allow any material permit or license to lapse or terminate or fail to renew any material permit or license in accordance with reasonably prudent business practice; (vii) fail to operate the APC Business and maintain APC's and its Subsidiaries' books, accounts and records in the Ordinary Course of Business and maintain in good repair, ordinary wear and tear excepted, APC's and its Subsidiaries' business premises, fixtures, machinery, furniture and equipment in a manner consistent with past practice; (viii) engage any new employee of APC or any of its Subsidiaries for a salary in excess of $100,000 per annum; (ix) enter into, amend in any material respect, extend, terminate or permit any renewal notice period or option to lapse with respect to any Lease, Lease-Out or any other Contractual Obligation that contains either consideration to be given or performed by APC or any of its Subsidiaries of a value exceeding $50,000 per year or a term exceeding one year (except for the making of capital expenditures consistent with the opening paragraph of this Section 5.4); (x) purchase, or otherwise acquire, or enter into a lease of any real property except for Lease renewals in the Ordinary Course of Business; (xi) issue any capital stock or other securities or enter into any amendment of any material term of any outstanding security of APC or any of its Subsidiaries, except that Lees Preston Fairy (Holdings), Ltd. may issue or commit to issue securities if and to the extent required in order to consummate its current merger discussions and may grant the option contemplated under the proposed Profit-Sharing Agreement with IJB; (xii) take any of the actions specified in any of subsections (a) through (d) of Section 3.3; or (xiii) consent or agree to do any of the foregoing. Section 5.5. Certain Notices. 40 (a) On and prior to the Closing Date, Sellers will promptly upon becoming aware thereof give Buyer written notice of any material development that results in or constitutes a Material Adverse Effect with respect to the APC Business, and any material breach of or inaccuracy in any representation or warranty of PHL or Sellers contained in this Agreement. (b) On and prior to the Closing Date, Buyer will promptly upon becoming aware thereof give Sellers written notice of any material development affecting Buyer, or the financial condition of Buyer and any material breach of or inaccuracy in any representation or warranty of Buyer contained in this Agreement. Section 5.6. Preparation for Closing. Each party will use its best efforts to bring about the timely fulfillment of each of the conditions precedent to the obligations of the other parties hereto set forth in this Agreement. Without limiting the generality of the foregoing, the parties shall take the actions set forth below in this Section 5.6. 5.6.1. HSR Filing. Promptly upon execution and delivery of this Agreement, each of PHL and Buyer will prepare and file, or cause to be prepared and filed, with the appropriate Governmental Authorities, a notification with respect to the transactions contemplated by this Agreement pursuant to the HSR Act. Each of PHL and Buyer will promptly provide all additional information requested, and take all other actions necessary or appropriate, to comply with notification requirements under the HSR Act and to cause the expiration of all waiting periods under the HSR Act. 5.6.2. Closing Agreements. Each of PHL and Sellers will enter into each of the Closing Agreements to which it is intended to be a party, and PHL will cause each of its Subsidiaries and Affiliates which is intended to be a party to any Closing Agreement to enter into each Closing Agreement to which such Person is intended to be a party. Buyer will enter into each of the Closing Agreements to which it is intended to be a party. Section 5.7. Tax Matters. 5.7.1. Section 338(h)(10) Election. Sellers and Buyer (i) shall join in making timely, effective and irrevocable elections under Section 338(h)(10) of the Code and any corresponding elections under state, local, or foreign tax law that have substantially the same effect as an election under Section 338(h)(10) of the Code (collectively, the "Section 338(h)(10) Elections") with respect to APC and each of the Subsidiaries listed on attached Schedule 5.7.1 (the "APC Electing Subsidiaries"), and (ii) shall file such elections in accordance with applicable regulations. Sellers and Buyer agree to cooperate in all respects for the purpose of effectuating timely and effective Section 338(h)(10) Elections, including, without limitation, the execution and filing of any forms or returns. 41 5.7.2. Tax Indemnification. (i) Sellers, jointly and severally, shall be liable for and shall pay (and shall indemnify and hold Buyer harmless from and against) (x) all Taxes with respect to APC and its Subsidiaries for any Pre-Closing Tax Period (including, without limitation, any Taxes attributable to the Section 338(h)(10) Election) but only to the extent the amount payable exceeds the amount accrued therefor in the Closing Date Balance Sheet adjusted as provided in Section 5.7.2(ii) below and (y) any and all federal Income Taxes of the Affiliated Group of which Holdings is a member imposed on APC or any of its Subsidiaries pursuant to Section 1.1502-6 of the Treasury Regulations, in each case incurred or suffered by Buyer, any of its Affiliates or, effective upon the Closing, APC or any of its Subsidiaries (the sum of (x) and (y) being referred to as a "Tax Loss"). For purposes of this Section 5.7, (A) the term "Pre-Closing Tax Period" shall mean all taxable periods ending on or before the close of the Closing Date and the portion ending at the close of the Closing Date of any taxable period that includes (but does not end on) the Closing Date, and (B) the term "Post-Closing Tax Period" shall mean all taxable periods that begin on or after the day following the Closing Date and the portion beginning after the Closing Date of any taxable period that includes (but does not end on) the Closing Date. In the case of a taxable period that includes (but does not end on) the Closing Date, the Tax attributable to the Pre-Closing Tax Period shall be the responsibility of Sellers (and not APC and its Subsidiaries) and the Taxes attributable to the Post-Closing Tax Period shall be the responsibility of Buyer and APC and its Subsidiaries. Buyer shall be liable (and shall indemnify and hold Sellers harmless from and against) any Taxes attributable to the Post-Closing Tax Period. (ii) For purposes of this Section 5.7.2, in the case of any Taxes that are imposed on a periodic basis and are payable for a Tax period that includes (but does not end on) the Closing Date, the portion of such Tax related to the portion of such Tax period ending on the Closing Date shall (x) in the case of any Taxes other than Taxes based upon or related to income, sales, gross receipts, wages, capital expenditures or expenses, be deemed to be the amount of such Tax for the entire Tax period multiplied by a fraction, the numerator of which is the number of days in the Tax period ending on the Closing Date and the denominator of which is the number of days in the entire Tax period, and (y) in the case of any Tax based upon or related to income, sales, gross receipts, wages, capital expenditures or expenses, be deemed equal to the amount which would be payable if the relevant Tax period ended on the Closing Date. In the case of Income Taxes described in the preceding sentence, if either Buyer or Sellers are adversely affected (as a consequence of an increase in liability or a reduction of refund or other Tax attribute) that would have been available to it if the relevant tax period had ended on the Closing Date, and the other party is benefited from such circumstance, the party benefited shall reimburse the party adversely affected to the extent of the benefit realized. In the event the Closing occurs on a date other than the date of the Closing Date Balance Sheet, for purposes of this Section 5.7.2 only, the amount accrued for Taxes in the Closing Date Balance Sheet shall be adjusted to reflect any increase or decrease in Taxes with respect to APC and its Subsidiaries attributable to the operation of APC and it Subsidiaries in the Ordinary Course of Business from the date of the Closing Date Balance Sheet through the Closing Date determined in a manner consistent with prior practices without any change in an election or accounting method. Such adjustment shall not include any Taxes attributable to an "extraordinary transaction" as such term is defined in Section 1.1502(b)(2)(ii)(C) of the Treasury Regulations. 42 (iii) Any payment pursuant to this Section 5.7.2 shall be made (x) if reflected on a Tax Return, contemporaneously with the filing of such Tax Return and (y) in all other cases, not later than thirty (30) days after receipt by Sellers or Buyer, as the case may be, of written notice from Buyer or Sellers stating that any Tax Loss has been paid by Buyer or Sellers, any of its Affiliates or, effective upon the Closing, APC or any Subsidiary of APC, and the amount thereof and of the indemnity payment requested; provided, however, no payment shall be made until the procedures set forth in Section 5.7.2(ii) and 5.7.5(iii) have been complied with. (iv) If any claim or demand for Taxes in respect of which indemnity may be sought pursuant to this Section 5.7.2 is asserted in writing against Buyer, any of its Affiliates or, effective upon the Closing, APC or any Subsidiary of APC, Buyer shall promptly notify PHL and Sellers of such claim or demand within sufficient time that would allow Sellers to timely respond to such claim or demand, and shall give PHL and Sellers such information with respect thereto as they may reasonably request. PHL and Sellers may discharge, at any time, their indemnification obligations under this Section 5.7.2 by paying to Buyer the amount of the applicable Tax Loss, calculated on the date of such payment. PHL and Sellers may, at their own expense, participate in and, upon notice to Buyer, assume the defense of any such Action (including any Tax audit). If PHL or Sellers assume such defense and if the relevant Action relates to a taxable period that includes (but does not end on) the Closing Date, Buyer shall have the right (but not the duty) to participate in the defense thereof to the extent it relates to Taxes for which Buyer is not entitled to indemnification hereunder and to employ counsel, at its own expense, separate from the counsel employed by PHL or Sellers. Whether or not PHL or Sellers choose to defend or prosecute any Action, all of the parties hereto shall cooperate in the defense or prosecution thereof. (v) Except with respect to Taxes described in clause (y) of Section 5.7.2(i), Buyer shall be liable for any Taxes pertaining to any Post-Closing Tax Period. 5.7.3. Tax Sharing Agreements. Except as provided below in this Section 5.7.3, all Tax sharing agreements or similar agreements with respect to or involving APC and its Subsidiaries shall be terminated as of the Closing Date and, after the Closing Date, APC and its Subsidiaries shall not be bound thereby or have any liability thereunder. Notwithstanding the foregoing, The Tax Allocation Agreement between PHL and its Subsidiaries, dated November 10, 1994, and the Connecticut Tax Allocation Agreement between Holdings and its Subsidiaries, dated August 25, 1993, shall survive with respect to the liability of APC and its Subsidiaries to Holdings or PHL, or the liability of Holdings or PHL to APC and its Subsidiaries, as the case may be, in connection with any consolidated federal income Tax Returns of the PHL Affiliated Group or any combined Connecticut income Tax Return of the Holdings Affiliated Group for any Pre-Closing Tax Period. 5.7.4. Transfer Taxes. All transfer, documentary, sales, use, stamp, registration and other such Taxes and fees (including any penalties and interest) incurred in connection with this Agreement shall be borne equally by Sellers and Buyer. 5.7.5. Return Filings, Refunds and Credits. 43 (i) PHL shall prepare or cause to be prepared and file or cause to be filed all Tax Returns of APC and its Subsidiaries for all Tax periods ending on or before the Closing Date and shall be responsible for remitting all Taxes reflected on such Tax Returns. Copies of all such Tax Returns (or the relevant portion thereof relating to APC and its Subsidiaries) shall be furnished to Buyer. (ii) Buyer shall prepare or cause to be prepared and file or cause to be filed on a timely basis all Tax Returns with respect to APC and its Subsidiaries for taxable periods including (but not ending on) the Closing Date (taking into account extensions) and shall be responsible for remitting all Taxes reflected on such Tax Returns. If requested by PHL or Sellers, Buyer shall furnish copies of all such Tax Returns prepared by Buyer that are prepared for a Pre-Closing Tax Period. (iii) Sellers and Buyer shall reasonably cooperate, and shall cause their respective Affiliates, agents, auditors, representatives, officers and employees reasonably to cooperate, in preparing and filing all Tax Returns (including amended returns and claims for refund), including maintaining and making available to each other all records reasonably required in connection with Taxes and in resolving all disputes and audits with respect to all taxable periods relating to Taxes. Buyer, PHL and Sellers agree to retain or cause to be retained all books and records pertinent to APC and its Subsidiaries until the applicable period for assessment under applicable law (giving effect to any and all extensions or waivers) has expired, and to abide by or cause the abidance with all record retention agreements entered into with any taxing authority. Buyer, PHL and Sellers shall cooperate with each other in the conduct of any audit or other proceedings involving APC or any Subsidiary of APC for any Tax purposes and each shall execute and deliver such powers of attorney and other documents as are necessary to carry out the intent of this subsection. Any Tax Return prepared by PHL pursuant to Section 5.7.5(i) for which PHL intends to seek reimbursement from Buyer or, effective after Closing, APC or any of its Subsidiaries, for any portion of the Taxes reflected on such Tax Return or any Tax Return prepared by, or at the direction of, Buyer pursuant to Section 5.7.5(ii) for which Buyer intends to seek indemnification from Sellers for any portion of the Taxes reflected on such Tax Return shall be prepared in a manner consistent with past practice and without a change of any election or any accounting method and shall be submitted to PHL or Buyer, as the case may be, in sufficient time to permit a reasonable review prior to the due date (including extensions) of such Tax Return. Buyer or PHL, as the case may be, shall have the right to review all work papers and procedures used to prepare any such Tax Return. If Buyer or PHL, as the case may be, within twenty (20) Business Days after delivery of any such Tax Return, notifies the other party in writing that it objects to any items in such Tax Return, the parties shall proceed in good faith to resolve the disputed items and, if they are unable to do so within ten (10) Business Days, the disputed items shall be resolved (within a reasonable time, taking into account the deadline for filing such Tax Return) with respect to (i) items for which PHL or Buyer is solely liable by reference to such party's treatment and (ii) all other items by the Alternative Accountants. Upon resolution of all disputed items, the relevant Tax Return shall be adjusted to reflect such resolution and shall be binding upon the parties without further adjustment. The costs, fees and expense of such Alternative Accountants shall be borne equally by PHL and Buyer. (iv) With respect to Tax refunds pertaining to APC or its Subsidiaries for any 44 tax period or portion thereof ending on or before the Closing Date: (a) if and to the extent such refund is less than or equal to the corresponding asset reflected on the Closing Date Balance Sheet, APC shall be entitled to retain the entire amount; and (b) if and to the extent such refund exceeds the asset so reflected, Holdings shall be entitled to such excess amount. (v) If and to the extent any Liability reflected on the Closing Date Balance Sheet for Taxes proves to have been overstated, Buyer shall pay Holdings cash in the amount of such overstatement. 5.7.6. Allocation of Consideration. In connection with the Section 338(h)(10) Elections, Holdings and Buyer shall act together in good faith to determine and agree upon: (i) the amount of the "adjusted grossed-up basis" (the "AGUB") of the APC Shares and the shares of each of the Electing Subsidiaries (within the meaning of Treasury Regulations Section 1.338(b)-1(c)) and (ii) the proper allocations (the "Allocations") of the AGUB of the APC Shares among the assets of APC, and the AGUB of the shares of the APC Electing Subsidiaries among the assets of the APC Electing Subsidiaries, including, without limitation, intangibles, in accordance with the IRC and the Treasury Regulations promulgated thereunder. Unless otherwise agreed by the parties, the AGUB of the APC Shares, allocated to the APC Electing Subsidiaries shall be allocated among the APC Electing Subsidiaries based on their 1998 operating revenue. For this purpose, the operating revenues shall be the sum of commissions, fees and contingent payments less outside brokers' expenses, as reflected on the unaudited consolidated income statements of APC and its Subsidiaries included in the Seller Disclosure Letter. Notwithstanding the foregoing, the calculations of the AGUB and the Allocations which the parties shall agree upon pursuant to this Section shall not include the respective investment banking, legal, accounting and other fees or costs incurred by each of Buyer and Sellers as a result of the transactions contemplated by this Agreement ("Transaction Costs"). Holdings and each APC Electing Subsidiary will calculate the gain or loss, if any, resulting from the Section 338(h)(10) Elections in a manner consistent with the Allocations and the amount of the APC Electing Subsidiary AGUB and will not take any position inconsistent with the Section 338(h)(10) Elections, the Allocations or the amount of the AGUB in any Tax Return or otherwise, except as otherwise required by any final determination of a proposed adjustment by a taxing authority; provided, however, that Holdings will be entitled to take into account its Transaction Costs when calculating such gain or loss. Buyer will allocate the AGUB of the APC Shares among the assets of APC and the AGUB of the APC Electing Subsidiaries among the assets of the APC Electing Subsidiaries in a manner consistent with the Allocations and will not take any position inconsistent with the Section 338(h)(10) Elections, the Allocations or the amount of the AGUB in any Tax Return or otherwise, except as otherwise required by any final determination of a proposed adjustment by a taxing authority; provided, however, that Buyer will be entitled to add its Transaction Costs to the AGUB of the APC Shares for purposes of allocating such AGUB among the APC Assets. Section 5.8. Expenses of Transaction; Accounts. 5.8.1. Transaction Costs of Sellers. Except to the extent specifically otherwise provided herein, Holdings shall pay all financial advisory, legal, accounting and other fees and expenses incurred by Holdings, APC or any of their Subsidiaries in connection with the transactions contemplated by this Agreement other than normal salaries, benefits and expenses of APC 45 personnel, and Vaughan shall pay all such fees and expenses incurred by him in connection with the transactions contemplated by this Agreement; provided, however, that with respect to APC and its Subsidiaries, Holdings shall pay only fees and expenses incurred prior to and on the Closing Date. 5.8.2. Transaction Costs of Buyer. Except to the extent specifically otherwise provided herein, Buyer shall bear all financial advisory, legal, accounting and other fees and expenses incurred by Buyer in connection with the transactions contemplated by this Agreement and all such fees and expenses incurred by APC or its Subsidiaries from and after the Closing Date. 5.8.3. Accounts. Subject to the provisions of Section 3.8, after the Closing Date, all monies and bank or other depository accounts arising out of, relating to or established for the APC Business, APC or any Subsidiary of APC shall be held by, and accessible only to, Buyer, APC or such Subsidiary of APC. Section 5.9. Books and Records; Personnel. (a) Sellers acknowledge and agree that from and after the Closing Date, APC will be entitled to own and possess, subject to the next succeeding sentence, all documents, books, records, agreements and financial data of any sort relating to APC, as the case may be, its Subsidiaries or the APC Business. Sellers agree to deliver and cause their Affiliates to deliver, not later than immediately following the Closing, all such books and records in their possession to APC, as appropriate, or, to the extent such books and records are not readily separable from the books and records of Holdings or any of its Affiliates relating to their businesses other than the APC Business, true and complete copies of such books and records. (b) From and after the Closing Date: (i) Buyer shall, and shall cause APC to, allow PHL, Sellers and their agents reasonable access to all books and records (other than books and records which are subject to the attorney/client privilege or which constitute an attorney's work product) of APC or relating to the APC Business arising from or relating to periods prior to the Closing Date (the "Books and Records") during normal working hours at Buyer's principal place of business or at any location where the Books and Records are stored, and PHL and Holdings shall have the right, at their own expense, to make copies of any Books and Records; provided, however, that any such access or copying shall be had or done (A) in such a manner so as not to interfere with the normal conduct of Buyer's business or the APC Business and (B) for a legitimate business purpose (such as tax preparation) that does not involve direct or indirect competition with the APC Business. (ii) Holdings shall reimburse Buyer, APC and its Subsidiaries for the reasonable out-of-pocket expenses reasonably incurred by any of them in performing the covenants contained in this Section 5.9. The parties agree that the confidentiality provisions of the Confidentiality Agreement shall apply to the information disclosed pursuant to this Section 5.9. 46 Section 5.10. Use of Certain Names and Marks. PHL and Sellers acknowledge and confirm that: (i) from and after the Closing Date, neither PHL, Sellers nor their Affiliates has or shall have any rights in the current legal names and current assumed names of the Subsidiaries of APC (except as otherwise provided in this Section 5.10) and those trademarks to be listed in the Sellers' Disclosure Letter, and all confusingly similar variations of the foregoing (collectively, the "APC Marks"), and (ii) neither PHL, Sellers nor any of their Affiliates will contest the ownership or validity of any rights of Buyer or APC and its Subsidiaries in or to any of the APC Marks, or registrations (or applications for registration) thereof; provided, however, neither Buyer, APC or its Subsidiaries shall have any rights whatsoever in and to the service mark and trade name "PHOENIX" and the service mark and trade name "AMERICAN PHOENIX," except as otherwise expressly provided in the Trademark License Agreement (the "Trademark License Agreement") to be entered into at the Closing between PHL and APC, in substantially the form attached hereto as Exhibit J. Section 5.11. Further Assurances. Each party, upon the request from time to time of any other party hereto after the Closing, and without further consideration, will do each and every act and thing as may be necessary or reasonably requested to consummate the transactions contemplated hereby in an orderly fashion. Section 5.12. Reimbursement by the Parties. To the extent that any party to this Agreement or its Subsidiaries receives any payment after the Closing which belongs in whole or in part to another Person or any of its Subsidiaries, it shall promptly pay over such payment to such other Person. In the case of errors and omissions claims made prior to Closing, if and to the extent any payment received (i) was reflected as an asset in determining APC's Tangible Net Worth at Closing, then to that extent such payment shall be retained by or paid to APC, (ii) was reflected as a Liability in determining APC's Tangible Net Worth at Closing, then to that extent such payment shall be retained by or paid to Holdings or PHL, or (iii) was not reflected as an asset or a Liability in determining APC's Tangible Net Worth at Closing, then to the extent any Person has paid or is liable to pay all or any part of the sums received to another Person, the payment under such errors and omissions coverage shall be paid to the Person who made, or has an obligation to make, such payment. Section 5.13. Financial Statement Deliveries. 5.13.1. Financial Statements of APC. As soon as is reasonably practicable following the date hereof and in any event not later than three (3) Business Days after their preparation in final form, and in the case of clause (a) below, no later than April 23, 1999, Sellers shall cause to be delivered to Buyer, at the cost and expense of Sellers, each of the following: (a) The unaudited consolidated balance sheet of APC and its Subsidiaries as of March 31, 1999 and the related statements of earnings, stockholders' equity and cash flows for the quarter then ended; and (b) Such additional unaudited financial statements of APC and its Subsidiaries as are prepared prior to the Closing Date and, after the Closing Date, such additional financial statements of APC and its Subsidiaries for periods prior to the Closing Date as are in Holdings' 47 possession. Nothing in this paragraph (b) shall obligate Holdings to prepare any financial statement that would not have been prepared absent Buyer's request. Sellers shall cause all financial statements (including the notes thereto) referred to in this Section 5.13.1 to be prepared in accordance with GAAP consistently applied throughout the periods specified therein, and to present fairly in all material respects, the consolidated financial position and results of operations of APC and its Subsidiaries for the periods specified therein, subject in the case of financial statements for interim periods to an absence of footnotes and to normal year-end audit adjustments which will not in the aggregate be material. Sellers shall use their best efforts to cause PricewaterhouseCoopers to consent in writing (and to deliver such consent to Buyer) to the inclusion of its report on the historical audited financial statements in any filings made by Buyer under the Securities Act or the Exchange Act. 5.13.2. Financial Statements of Buyer. As soon as is reasonably practicable following the date hereof and in any event not later than three (3) Business Days after their preparation in final form and, in the case of clause (a) below, no later than April 23, 1999, Buyer shall cause to be delivered to Sellers, at the cost and expense of Buyer, each of the following: (a) The unaudited consolidated balance sheet of the Buyer as of March 31, 1999 and the related statements of earnings, stockholders' equity and cash flows for the quarter then ended; and (b) Such additional unaudited financial statements of the Buyer as are prepared prior to the Closing Date. Buyer shall cause all financial statements (including the notes thereto) referred to in this Section 5.13.2 to be prepared in accordance with GAAP consistently applied throughout the periods specified therein, and to present fairly in all material respects, the consolidated financial position and results of operations of Buyer for the periods specified therein, subject in the case of financial statements for interim periods to an absence of footnotes and to normal year-end audit adjustments which will not in the aggregate be material. Section 5.14. Errors and Omissions Insurance. Buyer will use its best efforts to include APC in its errors and omissions coverage, including full prior acts coverage, for all periods arising on or after the Closing, provided such terms are acceptable to Buyer. Alternatively, Buyer may request APC to continue its existing coverage, including full prior acts coverage, or procure a limited term tail policy. In either circumstance, Holdings shall pay the appropriate carrier one (1) year's premiums for that portion of the coverage attributable to APC. All premiums attributable to such insurance coverage for periods commencing on or after that date which is one (1) year after the Closing shall be payable by Buyer. The foregoing assumes that the errors and omissions coverages for APC will be upon substantially the same terms as APC currently maintains, including, without limitation, APC's current limits and deductibles. Section 5.15. No Solicitation or Employment; Interference in Relationships. Except as provided by law, or as otherwise contemplated by this Agreement with respect to certain employees of APC, for a period beginning on the date hereof and ending on the second 48 anniversary of the Closing Date, neither PHL, Holdings nor any of their Affiliates shall solicit to employ or employ any individual who is an employee (other than secretarial or clerical employee) of APC or any of its Subsidiaries on the date hereof. PHL, Holdings and their Affiliates, from and after the Closing Date, will take no action and make no statement to discourage the continuation of any of the existing business relationships of APC or any of its Subsidiaries. Section 5.16. No Solicitation of Proposals or Offers. The parties hereto shall not, after the date hereof and before the Closing Date, directly or indirectly, through any officer, director, employee, agent or otherwise, solicit, initiate or encourage submission of proposals or offers from any Person relating to any acquisition or purchase of all or (other than in the Ordinary Course of Business) a substantial portion of the assets of, or any equity interest in, Buyer, on the one hand, or APC or any of its Subsidiaries, on the other hand, or any business combination involving any of them or, except to the extent required by fiduciary obligations under Legal Requirements or case law as advised by counsel, participate in any negotiations regarding, or furnish to any other Person any information with respect to, or otherwise cooperate in any way with, or assist or participate in, facilitate or encourage, any effort or attempt by any other Person to do or seek any of the foregoing. The parties shall, to the extent permitted by the terms of each such party's confidentiality agreements with other Persons existing on the date hereof, promptly advise one another if any such proposal or offer, or any inquiry or contact with any Person with respect thereto, is made, shall promptly inform one another of all the terms and conditions thereof, and shall furnish to one another copies of any such written proposal or offer and the contents of any communications in response thereto. Neither party shall waive any provisions of any "standstill" agreements between such party and any other Person, except to the extent that such waiver is, as advised by counsel, required by fiduciary obligations under Legal Requirements. Section 5.17. Noncompetition Covenant. 5.17.1. Definitions. For purposes of this Section 5.17 only, the following terms shall have the following meanings: "Acquire" shall mean and include the act of acquiring the stock or assets of another Person, or merging or otherwise combining through a business combination with another Person. "Controlling" shall mean the power to direct the management and policies of a Person, directly or indirectly, whether through the ownership of voting securities, or by contract or otherwise. "Incidental Business" shall mean an insurance agency or broker that, in the twelve (12) months preceding its acquisition (i) derived less than fifty percent (50%) of its revenues from the sale of Property-Casualty Insurance in the United States, and (ii) had consolidated revenues arising from the sale of Property-Casualty Insurance in the United States equal to or less than Five Million Dollars ($5,000,000). "Person" shall mean a natural person or a corporation, partnership, limited liability company or any other business entity, domestic or foreign. 49 "Property-Casualty Business" shall mean an insurance agency or broker (but not an insurance or reinsurance company) organized in the United States that derived during the preceding calendar year fifty percent (50%) or more of its revenues from the sale of Property-Casualty Insurance in the United States. "Property-Casualty Insurance" shall mean those forms of insurance denominated as such under applicable state insurance laws, but shall not include any type of insurance which may be underwritten by a duly licensed life insurance company, such as, for example and not in limitation, stop-loss insurance. "Restricted Period" shall mean the period from the Closing Date until the later of: (i) the third anniversary of the Closing Date, or (ii) that date upon which PHL, Holdings and its Affiliates (other than, as provided in the Voting and Standstill Agreement, Phoenix Investment Partners, Ltd. and its Subsidiaries) no longer hold that number of Adjusted Outstanding Shares (as defined in the Voting and Standstill Agreement) equal to at least ten percent (10%) of the issued and outstanding Buyer Common Stock. 5.17.2. Non-Compete Covenant. PHL and Holdings agree that, during the Restricted Period, without the prior written consent of Buyer, PHL, Holdings and their Affiliates (except as otherwise provided in the Voting and Standstill Agreement with respect to Phoenix Investment Partners, Ltd. and its Subsidiaries) shall not, directly or indirectly, through ownership of an interest in any Person in any country, state, locality or territory, domestic or foreign, acquire an ownership interest in a Property-Casualty Business or an Incidental Business except as otherwise provided hereafter. 5.17.3. Exceptions to Covenant. Section 5.17.2 notwithstanding, during the Restricted Period, PHL, Holdings and their Affiliates may, without the prior consent of Buyer: (i) Acquire an interest of less than five percent (5%) of the outstanding capital stock of a publicly-traded company that owns or constitutes a Property-Casualty Business or an Incidental Business; (ii) Acquire less than a Controlling interest in an Incidental Business; (iii) Acquire a Controlling interest in an Incidental Business, subject to the limitations in clause (i) of Section 5.17.4; (iv) organize or form a new, start-up Property-Casualty Business, subject to the limitations in clause (i) of Section 5.17.4 and, provided that, if such start-up Property-Casualty Business during any calendar year derives revenues arising from the sale of Property-Casualty Insurance in the United States that exceed Five Million Dollars ($5,000,000), then, at such time, PHL, Holdings or their Affiliates, as the case may be, shall provide Buyer with a right of first refusal with respect to such portion (designated by the selling party) of such Property-Casualty Business as is necessary in order to reduce such revenues below an amount equal to Five Million Dollars ($5,000,000). In such case, PHL, Holdings or their Affiliates, as the case may be (the "Offeror"), shall send a notice to Buyer which (a) identifies the start-up Property-Casualty 50 Business or portion thereof for which the right of first refusal exists, (b) provides relevant summary financial information pertaining to the business of such Property-Casualty Business, and (c) states the offering price and any other material terms for such business. Buyer shall have sixty (60) days from receipt of the notice hereunder in which to elect whether to acquire the business identified in clause (a), which election shall be evidenced by a writing delivered to the Offeror by the close of business. In the event Buyer does not timely exercise its rights hereunder, or, having exercised its rights, fails to close the sale in a timely manner, the Offeror shall be entitled to sell the business identified in clause (a) upon the terms such business was offered to Buyer pursuant to this paragraph, but may not materially modify such terms without reoffering such business to Buyer hereunder upon the proposed new terms. (v) Acquire less than a Controlling Interest in any Property-Casualty Business, subject to the limitations in clause (i) of Section 5.17.4; and, provided that, in the twelve (12) calendar months preceding its acquisition, such Property-Casualty Business did not have revenues arising from the sale in the United States of Property-Casualty Insurance in an amount exceeding Five Million Dollars ($5,000,000); and (vi) Acquire a Controlling Interest in any Property-Casualty Business, subject to the limitations in clause (i) of Section 5.17.4 and to Buyer's rights, if any, pursuant to Sections 5.17.5 and 5.17.6 and provided that such Property-Casualty Business did not, during the twelve (12) calendar months preceding such acquisition, have revenues from the sale in the United States of Property-Casualty Insurance in an amount exceeding Five Million Dollars ($5,000,000). 5.17.4. Limitations. (i) Restrictions on Aggregate Revenues. PHL, Holdings and their Subsidiaries shall not acquire any Person pursuant to clauses (iii), (iv), (v) or (vi) of Section 5.17.3 if such acquisition would cause the aggregate commission and fee revenue obtained by PHL, Holdings and their Affiliates from all Property-Casualty Businesses and Incidental Businesses Acquired during the Restricted Period pursuant to clauses (iii) through (vi) of Section 5.17.3, and from all Property-Casualty Businesses organized by PHL, Holdings and their Affiliates during the Restricted Period, which revenue is attributable to the sale of Property-Casualty Insurance in the United States, to exceed Twenty Million Dollars ($20,000,000) for calendar year 1999 and, for subsequent years, such number increased by three percent (3%) for each year after 1999 to and including the calendar year of measurement. (ii) Restriction on Combinations. During the Restricted Period, neither PHL, Holdings nor their Affiliates shall merge or otherwise combine the management and operations of any Property-Casualty Businesses or any Incidental Businesses with those of any other Property-Casualty Business or any Incidental Business Acquired during the Restricted Period, unless the resulting Person qualifies, at the time of such combination, as an Incidental Business. 5.17.5. Option. If during the Restricted Period, PHL, Holdings or any of their Affiliates wishes to Acquire, directly or indirectly, a Controlling interest in a Property-Casualty Business pursuant to clause (vi) of Section 5.17.3 above, it may do so provided: (i) it offers an option to Buyer to acquire, in the optionor's discretion, the whole Property-Casualty Business being 51 acquired or only that portion thereof that causes such business to fail to qualify as an Incidental Business; and (ii) the limitation contained in clause (i) of Section 5.17.4 shall continue to be satisfied. The offer pursuant to this Section 5.17.5 to Buyer shall be in the form of a notice providing (a) identifying information as to the Property-Casualty Business or portion thereof that the offeror is proposing to sell to Buyer, (b) relevant summary financial information pertaining to the business identified in clause (a), and (c) the purchase price for such business, determined as provided hereinafter. Buyer shall have sixty (60) days from receipt of the notice hereunder in which to elect whether to exercise its option, which exercise shall be evidenced by a writing delivered to the Offeror by the close of business on the sixtieth day following receipt of the notice of option, but if such date is not a day on which Buyer is open for business, then by the close of business on its first business day thereafter. The purchase price under this Section 5.17.5 shall be the price Offeror would be paying for the Property-Casualty Business or, if only a portion thereof is subject to the option hereunder, then the purchase price shall be calculated on a pro rata basis. If Buyer does not accept the offer, or, having accepted the offer, fails to settle in a timely manner, then the Offeror may Acquire such business on the terms and conditions of the offer presented to Buyer; provided that, PHL, Holdings or any of their Affiliates, as the case may be, shall dispose of the whole Property-Casualty Business being Acquired or only that portion thereof that causes such business to fail to qualify as an Incidental Business within twenty-four (24) calendar months following its acquisition. During any period pending the disposition of such business to a third party pursuant to the terms of this Section 5.17.5, PHL, Holdings or their Affiliates, as the case may be, shall pay to Buyer, on a net basis, the revenue generated by such Property-Casualty Business during the period from the date that Buyer elects not to purchase such business through the date on which such Property-Casualty Business or portion thereof is sold by PHL, Holdings or their Affiliates, as the case may be. 5.17.6. Right of First Refusal. If during the Restricted Period, PHL, Holdings or any of their Affiliates wishes to acquire, directly or indirectly, a Controlling interest in a Property-Casualty Business where such acquisition would cause them to fail to comply with the limitation contained in clause (i) of Section 5.17.4, they may do so, provided they sell, subject to providing Buyer with a right of first refusal with respect to, such portion (designated by the selling party) of the aggregate Property-Casualty Businesses acquired during the Restricted Period as necessary in order to comply with such limitation once the sale that is subject to such right is consummated. PHL, Holdings or their Affiliates, whichever of them wishes to acquire a Property-Casualty Business subject to a right of first refusal hereunder, shall send a notice to Buyer which (i) identifies the Property-Casualty Business or portion thereof it wishes to sell, (ii) provides relevant summary financial information pertaining to the business identified in clause (i), and (iii) states the offering price and any other material terms for such business. Buyer shall have sixty (60) days from receipt of the notice hereunder in which to elect whether to acquire the business identified in clause (i), which election shall be evidenced by a writing delivered to the Offeror by the close of business. In the event Buyer does not timely exercise its rights hereunder, or, having exercised its rights, fails to close the sale in a timely manner, the Offeror shall be entitled to sell the business identified in clause (i) upon the terms such business was offered to Buyer pursuant to this paragraph, but may not materially modify such terms without re-offering such business to Buyer hereunder upon the proposed new terms. 52 5.17.7. Non-Circumvention. PHL and Holdings hereby agree that they and their Affiliates will not attempt to circumvent the intent of the foregoing provisions of this Section 5.17 through any joint venture agreement or other business arrangement. The foregoing notwithstanding, PHL, Holdings and their Affiliates shall be permitted to do the following, without being deemed to be in violation of this paragraph 5.17.7: (i) Acquire, start-up or continue to own an interest in an insurance or reinsurance company engaged in underwriting any type of insurance or reinsurance, including, without limitation, Property-Casualty Insurance, and except as expressly prohibited by this Section 5.17, without regard to what method such company utilizes to distribute its products, subject to the limitations below; (ii) Acquire a block of insurance or reinsurance of any kind or underwrite any type of insurance; (iii) hire or otherwise retain or continue to employ or contract with any Person who sells Property-Casualty Insurance; (iv) enter into or continue any kind of arrangement with any Person, including a Property-Casualty Business, relating to the marketing or sale of any products or services, subject to any applicable limitations in the case of Persons organized, Acquired or owned pursuant to clause (i) above, issued or underwritten by PHL, Holdings or their Affiliates; and (v) lease or otherwise make available on an Affiliate's premises space for an insurance agent to sell insurance, including Property-Casualty Insurance. In the event PHL, Holdings or their Affiliates Acquire or own any insurance or reinsurance company engaged in the sale of Property-Casualty Insurance which distributes such insurance through Property-Casualty Businesses and Incidental Businesses it owns, the aggregate revenues received on a consolidated basis by such insurer or reinsurer in any calendar year which are attributable to the sale by such businesses of Property-Casualty Insurance in the United States shall not, when aggregated with the revenues counted for purposes of clause (i) of Section 5.17.4 above, exceed Thirty Million Dollars ($30,000,000) nor shall the aggregate of such revenues received by such insurer or reinsurer from any single Property-Casualty Business or Incidental Business they own exceed Ten Million Dollars ($10,000,000). 5.17.8. Remedies. (i) Liquidated Damages. If PHL, Holdings or their Affiliates breach the limitations contained in clause (i) of Section 5.17.4, and Buyer, in its sole discretion, deems such breach to be an isolated and incidental violation, then in lieu of seeking any other remedies available to Buyer under this Agreement and applicable law, Buyer may elect to cause PHL, Holdings or their Affiliates, as the case may be, to pay to Buyer as liquidated damages an amount equal to the net commission revenue (after taxes and expenses) generated in the United States for the period from the date of default until the date of payment, which revenue is attributable to the Incidental Business, Property-Casualty Business or portion thereof that exceeds such limitations. The 53 foregoing sum is agreed by the parties to be in the nature of liquidated damages for the breach of this Section 5.17 and is acknowledged to be reasonable in light of the nature of this Agreement and the difficulty in determining the actual damages which Buyer would suffer in connection with a breach of this Section 5.17. (ii) Specific Performance. PHL and Holdings acknowledge that Buyer and its Affiliates will be irrevocably damaged if all of the provisions of this Section 5.17 are not specifically enforced and accordingly, PHL and Holdings each agree that, in addition to any other relief to which Buyer and its Affiliates may be entitled, Buyer and its Affiliates will be entitled to seek and obtain injunctive relief from a court of competent jurisdiction for the purpose of restraining PHL and Holdings from any actual or threatened breach of this Section 5.17, except as provided in clause (iii) below. (iii) Other. In the event PHL, Holdings or their Affiliate would be in violation of this Section 5.17 as a consequence of a merger or other business combination whose primary purpose is not the acquisition of one or more Property-Casualty Businesses, then the acquiring party or its relevant Affiliate shall, at its option, either: (a) within six (6) months after consummation of such transaction sell such number of Buyer Common Shares as to trigger the termination of the Restricted Period, as provided in Section 5.17.1 above; or (b) have twenty-four (24) months after consummation of such transaction in which to either divest itself of a sufficient amount of Incidental Businesses, Property-Casualty Businesses or portions thereof or to otherwise reduce the revenues from the sale of Property-Casualty Insurance in the United States it derives therefrom in order to come into compliance with the covenants contained in this Section 5.17. If and to the extent PHL, Holdings and their Affiliates fail to meet the requirements set forth above in this clause (iii), Buyer shall be entitled to liquidated damages pursuant to clause (i) of Section 5.17.8, but shall not be entitled to injunctive relief preventing or reversing the merger or other business combination. 5.17.9. Validity of Covenant. PHL and Holdings agree that all of the covenants contained in this Section 5.17 are reasonably necessary to protect the legitimate interests of Buyer, are reasonable with respect to time and territory and do not interfere with the interests of the public and that the descriptions of the covenants contained in this Section 5.17 are sufficiently accurate and definite to inform each of them of the scope of the covenants. PHL and Holdings agree that the consideration to be received by Sellers hereunder, upon receipt of such consideration at the Closing, will be full, fair and adequate to support the obligations of PHL and Holdings hereunder. 5.17.10. Amendment of Section 5.17. PHL, Holdings and Vaughan acknowledge the difficulty of agreeing upon a non-competition covenant of the kind contemplated herein which will have a long duration and yet should remain relevant in the ever-evolving financial services marketplace. For this reason, without the intent of detracting in any way from the validity of this Section 5.17, the parties agree that the provisions of this Section 5.17 may be amended through a writing signed by all of Buyer, PHL and Holdings, without any consent thereto by Vaughan. Section 5.18. Payment of Certain Outstanding Debt; Capital Contribution. 54 (a) At the Closing, Buyer shall make a payment to The First National Bank of Boston, in an amount sufficient to satisfy all existing indebtedness owed by APC and its Subsidiaries, provided that, such payment shall not exceed $48,328,012. Following such payment, Holdings shall cooperate with the Buyer to (a) obtain from The First National Bank of Boston the release of all collateral securing the indebtedness of APC and its Subsidiaries to such bank, including assets pledged and mortgaged by APC and its Subsidiaries, and (b) obtain originals of all credit agreements and related loan documents necessary to effectuate the preceding items. (b) At or prior to Closing, PHL or Holdings shall contribute capital to APC in an amount equal to the greater of (i) $19,805,898 or (ii) an amount sufficient to satisfy all indebtedness of APC and its Subsidiaries outstanding as of the Closing Date to The First National Bank of Boston and Deutsche Bank after effect is given to the payment of Buyer under Section 5.18(a). Section 5.19. Assumption of Excluded Liabilities by Holdings or PHL; Purchase of Owned Real Property. Prior to the Closing Date, Holdings or PHL shall assume all of the Excluded Liabilities. In connection therewith, Holdings or PHL shall purchase from APC or its Subsidiary, as applicable, each parcel of Owned Real Property. In addition, to the extent provided in Section 2.2.3, PHL and Holdings shall indemnify Buyer (and after Closing, APC and its Subsidiaries) for any Losses incurred by Buyer (and after Closing, APC and its Subsidiaries) with respect to any severance payment obligations required to be made by Buyer, APC or their Subsidiaries after the Closing to any employees employed by APC at the APC Headquarters whose employment is terminated after the Closing. Section 5.20. Financing. Prior to the Closing, Buyer shall use its best efforts to satisfy all of the terms and conditions set forth in the Commitment Letter. If the lenders shall have terminated the Commitment Letter or definitive loan documentation contemplated thereby for any reason other than the occurence of an event or change constituting a Material Adverse Effect with respect to APC, Buyer shall use its best efforts to obtain substitute financing by not later than June 30, 1999. Section 5.21. Assumption of Certain Liabilities by Buyer. Buyer and APC shall indemnify Holdings, PHL and their Subsidiaries for all Losses suffered by any of Holdings, PHL and their Subsidiaries as a result of the use by APC or its Subsidiaries after the Closing of any name pursuant to the Trademark License Agreement and use after the Closing of any forms, booklets and other written materials used by APC or its Subsidiaries prior to the Closing in the conduct of the APC Business. From and after the Closing Date, Buyer shall also be liable for all Losses incurred by Buyer, APC and their Subsidiaries arising out of or relating to the termination after the Closing of any employee of APC (except as provided in Section 2.2.3) or of any Subsidiaries of APC and shall indemnify PHL, Holdings and their Affiliates for any Losses reasonably incurred by them in connection with or as a result of any such termination, including, without limitation, any payments in the nature of severance ultimately required to be paid to any such terminating employees (except as provided in Section 2.2.3). From and after the Closing Date, Buyer shall take any and all actions necessary to comply with WARN and shall indemnify PHL, Holdings and their Affiliates against all Losses they incur as a result of any actual or alleged failure of Buyer or APC to take such actions. Section 5.22. Collection of Accounts Receivable. Following the Closing Date, Buyer 55 shall, consistent with its customary business practices and in the Ordinary Course of Business, use its best efforts to collect the accounts receivable of APC and its Subsidiaries that are outstanding as of the Closing Date (collectively, the "Closing Date Accounts Receivable"). On a monthly basis for a period of one year from the Closing Date, Buyer shall deliver to Holdings a computer generated accounts receivable aging report with respect to the Closing Date Accounts Receivable, which shall include the identity of delinquent accounts by agency office. One year from the Closing Date, Buyer shall notify Sellers of any uncollected Closing Date Accounts Receivable and shall provide Sellers with reasonable evidence of such determination. Within fifteen (15) days from Buyer's notification of the uncollected Closing Date Accounts Receivable, if any, Sellers, jointly and severally, shall pay to Buyer, on a dollar-for-dollar basis, the amount by which the uncollected Closing Date Accounts Receivable exceed the sum of (a) the accounts receivable reserve set forth on the Closing Date Balance Sheet, plus (b) $125,000. Any dispute regarding the calculation of uncollected Closing Date Accounts Receivable shall be submitted to the Alternative Accountants for resolution, in which case, (i) Sellers and Buyer will furnish to such accounting firm such work papers and other documents and information relating to the disputed issues as such accounting firm may request and are available to Sellers and Buyer, and will be afforded an opportunity to present to such accounting firm any material relating to the determination and to discuss the determination with such accounting firm, (ii) a determination by such accounting firm, as set forth in a notice delivered to both parties by such accounting firm no later than thirty (30) days after the issues in dispute are submitted to such accounting firm, will be binding and conclusive on the parties, and (iii) Buyer, on the one hand, and Sellers, on the other, will each bear fifty percent (50%) of the fees of such accounting firm for such determination. Upon Buyer's receipt of any reimbursement pursuant to this Section 5.22, Buyer shall promptly assign to Holdings all of the uncollected Closing Date Accounts Receivable. Section 5.23. Audit of Accounts Payable. Buyer shall, as of one hundred twenty (120) days following the Closing Date, audit the accuracy and completeness of the accounts payable of APC and its Subsidiaries as reflected on the Closing Date Balance Sheet and shall notify Sellers of any errors, positive or negative, in the statement of accounts payable in the Closing Date Balance Sheet. If the actual accounts payable were less than the amount reflected on the Closing Date Balance Sheet, then Buyer shall reimburse Holdings in the amount of such overstatement. If the actual accounts payable exceeded the amount reflected on the Closing Date Balance Sheet, then Sellers, jointly and severally, shall reimburse Buyer in the amount of such understatement. Any amount due hereunder, whether due from Sellers or Buyer, shall be paid within thirty (30) days from Buyer's notification to Sellers of the results of such audit, unless Sellers, in good faith, dispute such results. Any dispute regarding the audit of accounts payable shall be submitted to the Alternative Accountants for resolution, in which case, (i) Sellers and Buyer will furnish to such accounting firm such work papers and other documents and information relating to the disputed issues as such accounting firm may request and are available to Buyer or Sellers, and will be afforded an opportunity to present to such accounting firm any material relating to the determination and to discuss the determination with such accounting firm, (ii) a determination by such accounting firm, as set forth in a notice delivered to both parties by such accounting firm no later than thirty (30) days after the issues in dispute are submitted to such accounting firm, will be binding and conclusive on the parties, and (iii) Buyer, on the one hand, and Sellers, on the other, will each bear fifty percent (50%) of the fees of such accounting firm for such determination. 56 Section 5.24. Certain Leases. Buyer shall indemnify Holdings and PHL for and hold them harmless from any Losses incurred by APC, Holdings or PHL after the Closing as a result of the failure to obtain prior to the Closing any required consent to assign the following leases: St. Davids Center Indenture of Lease between Wyeth Laboratories Inc. and American Brokerage Corporation of Philadelphia, dated November 15, 1990; and Office Lease between Magnolia Associates, Ltd. and American Phoenix Corporation, dated August 2, 1995. Section 5.25. Acquisition of Atlanta Subsidiary. In the event that the Closing has not occurred on or before April 30, 1999, Buyer and Sellers will enter into a stock purchase agreement effective as of such date, in a form that is mutually acceptable to Sellers and Buyer, pursuant to which all of the issued and outstanding capital stock of American Phoenix Insurance Agency of Georgia, a Georgia corporation ("APIA Georgia") will be acquired by Buyer. Such agreement shall provide for a purchase price equal to APIA Georgia's revenue from the period of May 1, 1998 through May 1, 1999. Such purchase price, together with interest from May 1, 1999 to the date of closing at a rate of seven percent (7%) per annum shall be payable on the date this Agreement is validly terminated pursuant to Article X hereof; provided that, the purchase price shall be deemed paid in full upon the Closing hereunder. The purchase price agreement will provide that, subject to the terms thereof, the purchase price shall be payable by Buyer as follows: fifty percent (50%) by wire transfer or certified check at closing, and fifty percent (50%) payable on May 1, 2000 by wire transfer or certified check. The purchase agreement shall contain representations, warranties and indemnities similar in substance and scope to those set forth in this Agreement, but the parties acknowledge and agree that such provisions shall be modified where necessary to reflect the smaller size of such transaction. The purchase agreement shall provide that, from May 1, 1999 and thereafter, Buyer shall be responsible for all salaries and benefits of, and all severance obligations with respect to, all APIA Georgia employees. Section 5.26. Financial Position of Holdings. Holdings shall deliver a copy of its annual consolidated balance sheet to Buyer for each calendar year through 2003. PHL and Holdings shall notify Buyer immediately of any event that has, or reasonably could be expected to have, a Material Adverse Effect on Holdings, and in the event of such a Material Adverse Effect, PHL shall, upon the request of Buyer, guarantee the payment and performance of the indemnity obligations of Sellers hereunder, and shall execute and deliver to Buyer an instrument in form reasonably satisfactory to Buyer to evidence such guarantee. Section 5.27. Cooperation. From and after the Closing, the parties will cooperate and cause their respective Subsidiaries to cooperate to the extent reasonably required for each party to appropriately defend against any Action brought or threatened to be brought against another party hereto or its Subsidiaries. Such cooperation shall include, without limitation, making records and personnel available during normal business hours. The party seeking such cooperation shall bear all reasonable costs of travel and lodging reasonably incurred by the Person whose cooperation is requested. Section 5.28. Guarantees. The parties acknowledge and agree that Holdings and PHL are each, individually, the guarantor of certain obligations of APC and its Subsidiaries to certain non-bank Persons identified in Item 5.28 of Sellers' Disclosure Letter. In consideration for Holdings and PHL agreeing to allow such guarantees to remain in full force and effect after the Closing, Buyer agrees to defend, indemnify and hold Holdings, PHL and their Affiliates harmless 57 from and against all Actions arising after Closing as a result of or in connection with such guarantees and the underlying obligations of APC and its Subsidiaries. Section 5.29. Record Retention. Buyer, PHL and Sellers agree, in addition to abiding by the covenants contained in Section 5.9 with respect to books and records, to retain or cause to be retained all books and records pertaining to Actions currently pending against APC or any APC Subsidiary and not to destroy such until the later of: (a) the running of the applicable statutes of limitation; or (b) termination of the Action by verdict, settlement or otherwise and the completion of all appeals therefrom or the termination of all periods for appeal. Buyer, PHL and Sellers also agree to retain or cause to be retained all books and records pertaining to APC or its Subsidiaries until the later of: (i) passage of the relevant survival period under Section 8.3 of this Agreement for bringing an Action; or (ii) ten (10) years from the date hereof. The foregoing notwithstanding, nothing herein shall be deemed to condone or require: (x) the destruction of books or records in contravention of applicable Legal Requirements; or (y) the destruction of any records commonly held for permanent retention such as, without limitation, minute books and stock ledgers. Section 5.30. Minority Interests. Within sixty (60) days after the Closing, Buyer will offer to purchase the outstanding shares of minority interests in the APC Subsidiaries outstanding as of the Closing Date at a price calculated in accordance with the applicable formula in the respective buy-sell agreements entered into by such minority shareholders; provided that, Buyer, may, in its sole discretion, determine whether to make such an offer to the minority shareholder(s), if any, of Lees Preston Fairy (Holdings), Ltd. In the event that any holder of minority interests in the APC Subsidiaries elects not to sell its minority shares to Buyer, Buyer shall have no further obligation with respect to such minority shareholders under this Agreement, except as otherwise provided. 58 ARTICLE VI Conditions to the Obligation of Buyer to Close The obligations of Buyer at the Closing to purchase the APC Shares, to issue the Buyer Common Shares and the Subordinated Debentures, to pay the Cash Consideration and to execute and deliver the Closing Agreements to which it is party are subject to the satisfaction, at or prior to the Closing, of each of the following conditions, compliance with which, or the occurrence of which, may be waived prior to the Closing in writing by Buyer in its sole discretion: Section 6.1. Representations, Warranties and Covenants. 6.1.1. Continued Accuracy of Representations and Warranties. All representations and warranties of PHL and Sellers contained in this Agreement or any Closing Agreement that include qualifications as to materiality or Material Adverse Effect shall be true and correct as of the Closing Date and all other representations and warranties of PHL and Sellers contained in this Agreement or any Closing Agreement shall be true and correct in all material respects as of the Closing Date, in each case with the same force and effect as if such representations and warranties were made at and as of the Closing, except to the extent such representations and warranties expressly speak as of a specified earlier date. 6.1.2. Performance of Agreements. PHL and Sellers shall have performed and satisfied in all material respects all covenants and agreements required by this Agreement or any Closing Agreement to be performed or satisfied by them at or prior to the Closing, and Sellers shall have delivered the APC Shares and all required instruments of transfer. 6.1.3. Closing Certificate. At the Closing, Holdings shall furnish to Buyer an unqualified certificate, signed by the President of Holdings and the President of APC, dated the Closing Date, to the effect that the conditions specified in Sections 6.1.1 and 6.1.2 hereof have been satisfied. Section 6.2. Closing Agreements. At or prior to the Closing, the parties thereto other than Buyer shall have entered into each of the following documents or agreements (collectively, the "Closing Agreements," it being understood by the parties that the Vaughan Employment Agreement shall be deemed to be one of the Closing Agreements for all purposes other than Sections 6.2 and 7.2), in substantially the form thereof attached hereto without change other than such changes as may be acceptable to Buyer: (i) the Voting and Standstill Agreement, (ii) the Indenture, (iii) the Registration Rights Agreement, (iv) the Risk Management Agreement, 59 (v) the Baltimore Lease (unless the current holder of a right of first refusal with respect to the premises leased under the Baltimore Lease validly exercises its right to acquire such premises), the Miami Lease and the Jamestown Lease, (vi) the Trademark License Agreement, and (vii) the Rule 145 Representation Letter. Section 6.3. Legality; Governmental Authorization; Litigation. Buyer's purchase of and payment for the APC Shares, and the consummation of the other transactions contemplated hereby, shall not be prohibited by any Legal Requirement. All Required Filings and HSR Act filings shall have been made and all requisite approvals obtained and related waiting periods expired or terminated. No Action shall have been instituted at or prior to the Closing by any Governmental Authority that seeks to delay, enjoin or otherwise make illegal the consummation of the transactions contemplated hereby; but if such Action shall have been instituted by a non-federal Governmental Authority, then there must be no reasonable likelihood that the result of such Action could be to delay, enjoin or otherwise make illegal Buyer's purchase of the APC Shares or the consummation of any other transaction contemplated hereby. Section 6.4. Affiliate Debt. Except to the extent not finally determined prior to the availability of the Closing Date Balance Sheet: (a) there shall not be any outstanding Affiliate Debt, and (b) there shall not be outstanding any Debt or other advances owed to APC or any Subsidiary of APC by PHL, Holdings or any of their Affiliates or by any present or former employee, officer, stockholder or director of PHL, Holdings or their Affiliates other than APC and its Subsidiaries. Section 6.5. Financing. Buyer shall have obtained the funds to be provided pursuant to the Commitment Letter, unless Buyer shall have failed to have obtained such funds (i) exclusively as a result of Buyer's failure to pay any fees or expenses required to be paid by Buyer under the Commitment Letter or (ii) due to the lenders terminating the Commitment Letter or definitive loan documentation contemplated thereby other than by reason of the occurrence of any event or change constituting a Material Adverse Effect with respect to APC. Section 6.6. Opinions of Counsel. Sellers shall have furnished Buyer with the favorable opinion of (i) Stroock & Stroock & Lavan LLP, dated the Closing Date, in substantially the form of Exhibit K hereto, (ii) Carole A. Masters, Esquire, in substantially the form of Exhibit L hereto, and Sorokin, Gross & Hyde, P.C., in substantially the form of Exhibit M hereto. Section 6.7. Vaughan Employment Agreement. The Vaughan Employment Agreement shall be in full force and effect, subject to the Closing. Section 6.8. Vaughan Resignation Letter. Vaughan shall have executed and delivered to Buyer a resignation letter with respect to his position on the Board of Directors of Buyer, in form reasonably satisfactory to Buyer. 60 Section 6.9. Update. PHL and Sellers shall have provided the Buyer with a written update of all of the information provided in, and consistent with the form of, all parts of the Sellers' Disclosure Letter as of a date which is no more than five (5) Business Days prior to the Closing Date. The information provided in such updates shall not constitute a Material Adverse Effect with respect to APC and its Subsidiaries, taken as a whole. No written update provided by PHL and Sellers of the Sellers' Disclosure Letter prior to the Closing Date shall cure any breach of any representation and warranty of PHL and Sellers. Section 6.10. General. Sellers shall have furnished Buyer with such officers' certificates, good standing certificates, incumbency certificates and other customary closing documents as Buyer may reasonably request in connection with the transactions contemplated hereby, including, without limitation (i) an instrument of assumption by PHL or Holdings or, in the case of the Owned Real Properties, any of their Subsidiaries of the Excluded Liabilities, (ii) either a "sworn affidavit" or a "qualifying statement" that complies with Section 1445 of the Code and (iii) resignation letters from such officers and directors of APC or any of its Subsidiaries as are primarily employed by PHL or Holdings. ARTICLE VII Conditions to the Obligation of Sellers to Close The obligations of Sellers at the Closing to sell and transfer the APC Shares and to execute and deliver the Closing Agreements to which they are a party are subject to the satisfaction, at or prior to the Closing, of each of the following conditions, compliance with which, or the occurrence of which, may be waived prior to the Closing in writing by Sellers in their sole discretion: Section 7.1. Representations, Warranties and Covenants. 7.1.1. Continued Accuracy of Representations and Warranties. All representations and warranties of Buyer contained in this Agreement or any Closing Agreement that include qualifications as to materiality shall be true and correct as of the Closing Date and all other representations and warranties of Buyer contained in this Agreement or any Closing Agreement shall be true and correct in all material respects as of the Closing Date, in each case with the same force and effect as if such representations and warranties were made at and as of the Closing, except to the extent such representations and warranties expressly speak as of a specified earlier date. 7.1.2. Performance of Agreements. Buyer shall have performed and satisfied in all material respects all covenants and agreements required by this Agreement or any Closing Agreement to be performed or satisfied by Buyer at or prior to the Closing and shall have delivered all payments, Buyer Common Shares, Subordinated Debentures, documents and instruments of transfer required by Article II. 61 7.1.3. Closing Certificate. At the Closing, Buyer shall furnish to Sellers an unqualified certificate signed by the President of Buyer dated the Closing Date, to the effect that the conditions specified in Sections 7.1.1 and 7.1.2 hereof have been satisfied. Section 7.2. Closing Agreements. At or prior to the Closing, Buyer shall have entered into each of the Closing Agreements to which it is party, such agreements being in substantially the form attached hereto without change other than such changes as may be reasonably satisfactory to Sellers. Section 7.3. Legality; Government Authorization; Litigation. Sellers' sale of the APC Shares, and the consummation of the other transactions contemplated hereby, shall not be prohibited by any Legal Requirement. All Required Filings and HSR Act filings shall have been made and related waiting periods shall have expired or been terminated. No Action shall have been instituted at or prior to the Closing by any Governmental Authority that seeks to delay, enjoin or otherwise make illegal the consummation of the transactions contemplated hereby; but if such Action shall have been instituted by a non-federal Governmental Authority, then there must be no reasonable likelihood that the result of such Action could be to delay, enjoin or otherwise make illegal Sellers' sale of the APC Shares or the consummation of any other transaction contemplated hereby. Section 7.4. Opinion of Counsel. Buyer shall have furnished Sellers with the favorable opinion of Williams, Mullen, Christian & Dobbins, P.C. dated the Closing Date, in substantially the form of Exhibit N hereto. Section 7.5. General. Sellers shall have received copies of such officers' certificates, good standing certificates, incumbency certificates and other customary closing documents as they may reasonably request in connection with the transactions contemplated hereby. Section 7.6. Update. The Buyer shall have provided the Sellers with a written update of all of the information provided in, and consistent with the form of, all parts of the Buyer Disclosure Letter as of a date which is no more than five (5) Business Days prior to the Closing Date. The information provided in such updates shall not constitute a Material Adverse Effect with respect to Buyer. No written update provided by Buyer of the Buyer Disclosure Letter prior to the Closing Date shall cure any breach of any representation and warranty of Buyer. Section 7.7. Listing of Shares Issuable Upon Conversion of Subordinated Debentures.On or prior to the Closing Date, the shares of Buyer Common Stock issuable upon conversion of the Subordinated Debentures shall be listed, on a when issued basis, on the New York Stock Exchange. Section 7.8. Board of Directors. On or prior to the Closing Date, the Board of Directors of Buyer shall have been increased from nine (9) to thirteen (13) directors and Vaughan, Robert W. Fiondella, and David W. Searfoss shall have been elected to the Board of Directors of Buyer in accordance with the provisions of the Voting and Standstill Agreement. 62 Section 7.9. Payment. Buyer shall have delivered to Sellers the payments provided for in Section 2.2 hereof and all other payments required to be made by Buyer on the Closing Date pursuant to the terms hereof, and shall have issued to Sellers the Buyer Common Shares and to Holdings and PHL the Subordinated Debentures. Section 7.10. Registration of the Buyer Common Shares. The issuance of the Buyer Common Shares to Sellers shall have been registered under the Securities Act of 1933, as amended, pursuant to Buyer's effective Registration Statement on Form S-4. All certificates evidencing Buyer Common Stock delivered to Sellers at the Closing shall be free of all restrictive legends, and no stop transfer instructions shall be filed with the stock transfer agent with respect to such shares. In the event that Vaughan is unable to sell the Buyer Common Shares acquired by him pursuant to this Agreement during the one year period following the Closing Date due to the holding period requirements of Rule 144(d), then the Buyer will take such steps as may be necessary to permit Vaughan to sell such shares free of such holding period requirements. ARTICLE VIII Indemnification Section 8.1. Indemnification by Sellers. In addition to other obligations of indemnification contained in this Agreement, Sellers, jointly and severally (collectively, in their capacities as indemnifying parties, the "Indemnifying Party"), hereby agree, subject to the limitations set forth below, to indemnify Buyer and its Affiliates and their respective directors, officers and employees (including, without limitation, APC and each Subsidiary of APC from and after the Closing) (each in its capacity as indemnified party, an "Indemnitee"), regardless of any investigation conducted by or knowledge obtained by any of them, and hold each of Buyer and such Affiliates and their respective directors, officers and employees harmless, from, against and in respect of any and all Losses arising from or related to any of the following: (i) any breach of, untruth of or inaccuracy in (or any allegation by any third party of facts which, if true as alleged, would constitute such a breach or inaccuracy in) any representation or warranty made by or on behalf of PHL or either of the Sellers in this Agreement (including, without limitation, the Sellers' Disclosure Letter) or in any Closing Agreement or other document, instrument or certificate delivered pursuant hereto; (ii) any breach, non-fulfillment or violation of any covenant or agreement made by PHL or either of the Sellers in this Agreement or in any Closing Agreement or in any document, instrument or certificate delivered pursuant hereto; (iii) any Excluded Liability; (iv) subject to the limitations and conditions set forth elsewhere in this Agreement, any severance due and payable under any APC Plan or APC Benefit Arrangement, Contractual Obligation or Legal Requirement by reason of the execution and delivery of this Agreement, the Closing Agreements or the consummation of the transactions contemplated 63 hereunder or thereunder, including, without limitation, severance due and payable with respect to any APC Headquarters Employee pursuant to Section 2.2.3; (v) any Liability (other than Tax Liability covered by the provisions of Section 5.7.2 hereof) that arises from or relates to the conduct of the APC Business during any period prior to the Closing Date unless such Liability was disclosed in the February 1999 APC Balance Sheet or in the Sellers' Disclosure Letter or incurred in the Ordinary Course of Business since the dates thereof; (vi) any Liability (other than Tax Liability covered by the provisions of Section 5.7.2 hereof) of APC or any of its Subsidiaries arising as a result of APC or any of its Subsidiaries being a member of a group of companies or other entities controlled by PHL or Holdings or any other Person (other than APC or any of its Subsidiaries) prior to the Closing Date. Section 8.2. Indemnification by Buyer. In addition to other obligations of indemnification contained in this Agreement, Buyer (in its capacity as indemnifying party, the "Indemnifying Party") hereby agrees, subject to the limitations set forth below, to indemnify PHL, Sellers and their Affiliates other than APC or any of its Subsidiaries and their respective directors, officers and employees (each in its capacity as indemnified party, an "Indemnitee") regardless of any investigation conducted by or knowledge obtained by any of them, and hold each of PHL, Sellers and their Affiliates and their respective directors, officers and employees harmless from, against and in respect to any and all Losses arising from or related to any of the following: (i) any breach of, untruth of or inaccuracy in (or any allegation by any third party of facts which, if true as alleged, would constitute such a breach or inaccuracy in) any representation or warranty made by or on behalf of Buyer in this Agreement (including, without limitation, in the Buyer Disclosure Letter) or in any Closing Agreement or other document, instrument or certificate delivered pursuant hereto; (ii) any breach, non-fulfillment or violation of any covenant or agreement made by Buyer in this Agreement, or in any Closing Agreement or in any document, instrument or certificate delivered pursuant hereto; or (iii) any Liability incurred by PHL, Sellers or any of their Affiliates relating to or arising from any time period after the Closing Date arising out of, with respect to or in connection with the APC Business or any matter or circumstance involving APC or any of its Subsidiaries, including, without limitation, the APC Plans and the APC Benefit Arrangements, other than matters with respect to (a) any Excluded Liabilities (b) any Losses covered by Section 5.7 or the indemnity in Section 8.1 or (c) any Losses arising out of an illegal or tortious course of conduct on the part of PHL, Sellers or any of their Affiliates. Section 8.3. Time Limitation on Indemnification. Notwithstanding the foregoing, no claim may be made or suit instituted under any provision of this Article VIII more than two (2) years following the Closing Date (the "General Survival Period") except for Reserved Claims. The term "Reserved Claims" shall mean (a) all Actions as to which any Indemnitee has given any 64 Indemnifying Party notice on or prior to the end of the General Survival Period, (b) all Actions by any Indemnitee based upon an alleged or actual breach of or inaccuracy in the representations or warranties contained in Sections 3.1.4, 3A.1.4 and 3B.1.2 (Title to APC Shares), 3.1.6 (Subsidiaries), 3.13 (Tax Matters), 3.14.2 (Employee Benefit Plans and Programs) and 3.15 (Environmental Matters), (c) all Actions for Tax Losses pursuant to Section 5.7.2 and (d) all Actions based upon fraud. With respect to clause (b) above, the only claims concerning Section 3.1.4, 3A.1.4, 3B.1.2 or Section 3.1.6 which shall be considered Reserved Claims are those which are based upon or arise out of an allegation that Sellers have breached their representation as to the validity of, in the case of Section 3.1.4, 3A.1.4 or 3B.1.2, Sellers' title, direct or indirect, to the APC Shares and, in the case of Section 3.1.6, APC's title, direct or indirect, to the capital stock of any APC Subsidiary. As to the Reserved Claims, there shall be no time limitation with respect to any such claims or any suit instituted with respect thereto, other than for any applicable statute of limitations. Section 8.4. Monetary Limitations on Indemnification. 8.4.1. Monetary Limitations on PHL's and Sellers' Indemnification Obligations. Except with respect to claims referred to in clauses (b), (c) or (d) of the definition of Reserved Claims and claims for breaches of any covenant under Article V hereof, Sellers as Indemnifying Party shall not have any obligation to indemnify Buyer or any of its Affiliates as Indemnitees under Section 8.1 in respect of any Loss incurred by Buyer and/or any of its Affiliates as Indemnitees unless the aggregate cumulative total of all Losses (other than Losses arising out of claims referred to in clauses (b), (c) or (d) of the definition of Reserved Claims or claims for breaches of any covenant under Article V hereof) incurred by Buyer and/or any of its Affiliates as Indemnitees exceeds $1,000,000, whereupon Buyer and each of its Affiliates as Indemnitees shall be entitled to indemnification for the aggregate cumulative amount of such Losses without regard to any dollar basket or limitation (commencing with the first dollar of Losses). With respect to claims referred to in clauses (b), (c) or (d) of the definition of Reserved Claims) and claims for breaches of any covenant under Article V hereof, no such minimum dollar limitation or basket shall apply. 8.4.2. Monetary Limitations on Buyer's Indemnification Obligations. Except with respect to all claims based on fraud or claims for breaches by Buyer of any covenant under Article V hereof, Buyer as Indemnifying Party shall not have any obligation to indemnify PHL, Sellers or any of their Affiliates as Indemnitees under Section 8.2 in respect of any Loss incurred by PHL, Sellers and/or any of their Affiliates as Indemnitees unless the aggregate cumulative total of all Losses (other than Losses arising out of claims based on fraud or claims for breaches by Buyer of any covenant under Article V hereof) incurred by PHL, Sellers and/or any of their Affiliates as Indemnitees exceeds $1,000,000, whereupon PHL, Sellers and each of their Affiliates as Indemnitees shall be entitled to indemnification for the aggregate cumulative amount of such Losses without regard to any dollar basket or limitation (commencing with the first dollar of Losses). With respect to claims based on fraud or claims for breaches by Buyer of any covenant under Article V hereof, no such minimum dollar limitation or basket shall apply. Section 8.5 Reporting. Within forty-five (45) days after that date which is one year after the Closing Date, each party shall provide the other with a written report with respect to the 65 claims that have arisen during that year which would be subject to indemnification under this Article VIII had the aggregate amounts in controversy reached the $1,000,000 level (the "Threshold"). Thereafter, each party shall respond in a timely fashion to the other party's reasonable requests for additional information concerning such claims and, if and when the Threshold is reached, shall cooperate in trying to resolve such claims. In addition, once the Threshold is reached for an Indemnitee, such Indemnitee shall provide the Indemnifying Party with a written report within forty-five (45) days after the end of each calendar quarter, identifying all new claims that arose during such quarter. Notwithstanding the foregoing, any party's failure to comply in any respect with this Section 8.5 shall not affect in any way such party's indemnification rights under the terms of this Agreement. Section 8.6. Third Party Claims. Promptly after the receipt by any Indemnitee of notice of the commencement of any Action against such Indemnitee by a third party (other than any Action relating to Taxes or any Tax Return, which shall be governed by Section 5.7) such Indemnitee shall, if a claim with respect thereto is or may be made against any Indemnifying Party pursuant to this Article VIII, give such Indemnifying Party written notice thereof. The failure to give such notice shall not relieve any Indemnifying Party from any obligation hereunder except where, and then solely 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 such failure to give notice. Such Indemnifying Party shall have the right to defend such Action, at such Indemnifying Party's expense and with counsel of its choice reasonably satisfactory to the Indemnitee, provided that the Indemnifying Party so notifies the Indemnitee that it will defend such Action within fifteen (15) days after receipt of such notice and then actually commences promptly the defense of such Action, and otherwise the Indemnitee shall have the right to defend such Action and the Indemnifying Party will reimburse the Indemnitee promptly and periodically for the costs of defending such Action, including reasonable attorneys' fees and expenses reasonably incurred. If the Indemnifying Party is defending such Action, the Indemnitee may retain separate co-counsel at its sole cost and expense and may participate in the defense of such Action. Section 8.7. No Circular Recovery. PHL and Sellers hereby agree that they will not make any claim for indemnification against Buyer, APC or any of its Subsidiaries by reason of the fact that PHL, Sellers or any of their officers, directors, agents or other representatives was a controlling Person, director, officer, employee, agent or other representative of APC or any of its Subsidiaries or was serving as such for another Person at the request of APC or any Subsidiary of APC (whether such claim is for Losses of any kind or otherwise and whether such claim is pursuant to any statute, Charter, Bylaw, Contractual Obligation or otherwise) with respect to any Action brought by Buyer or any of its Affiliates against PHL and/or Sellers (whether such Action is pursuant to this Agreement, applicable law, or otherwise). Section 8.8. Nature of Certain Payments. The following payments shall be deemed for all purposes to be adjustments to the Purchase Consideration: all payments pursuant to Article VIII or pursuant to Sections 2.2.3, 5.7, 5.14, 5.19, 5.21, 5.22 or 5.23. 66 Section 8.9. Other Remedies. The remedies set forth under this Article VIII are in addition to any other remedies and rights which might otherwise be available or applicable under any other provisions of this Agreement or otherwise under applicable law. ARTICLE IX Consent to Jurisdiction; Governing Law Section 9.1. Consent to Jurisdiction. Each party to this Agreement, by its execution hereof, (i) hereby irrevocably submits, and agrees to cause each of its Affiliates to submit, to the exclusive jurisdiction of the federal courts located either in the City of Richmond, Virginia, or in the City of Hartford Connecticut, and in the event that such federal courts shall not have subject matter jurisdiction over the relevant proceeding, then of the state courts located in the City of Richmond, Virginia, or in the City of Hartford, Connecticut, for the purpose of any Action arising out of or based upon this Agreement or any Closing Agreement or relating to the subject matter hereof or thereof or the transactions contemplated hereby or thereby, (ii) hereby waives, and agrees to cause each of its Subsidiaries and Affiliates to waive, to the extent not prohibited by applicable law, and agrees not to assert, and agrees not to allow any of its Subsidiaries and Affiliates to assert, by way of motion, as a defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such proceeding brought in one of the above-named courts is improper, or that this Agreement or any other Closing Agreement, or the subject matter hereof or thereof, may not be enforced in or by such court and (iii) hereby agrees not to commence or to permit any of its Subsidiaries or Affiliates to commence any Action arising out of or based upon this Agreement or any Closing Agreement or relating to the subject matter hereof or thereof other than before one of the above-named courts nor to make any motion or take any other Action seeking or intending to cause the transfer or removal of any such Action to any court other than one of the above-named courts whether on the grounds of inconvenient forum or otherwise. Each party hereby consents to service of process in any such proceeding in any manner permitted by Virginia or Connecticut law, as the case may be, and agrees that service of process by registered or certified mail, return receipt requested, at its address specified pursuant to Section 11.7 hereof is reasonably calculated to give actual notice. Section 9.2. Governing Law. This Agreement shall be governed by and construed in accordance with the domestic substantive law of the Commonwealth of Virginia, without giving effect to any choice or conflict of law provision or rule that would cause the application of the law of any other jurisdiction. 67 ARTICLE X Termination Section 10.1. Termination of Agreement. This Agreement may be terminated by the parties only as provided below: (a) Buyer, Sellers and PHL may terminate this Agreement by mutual written consent at any time prior to the Closing. (b) Buyer may terminate this Agreement by giving written notice to PHL and Sellers at any time prior to the Closing (i) in the event that any representation or warranty made by or on behalf of PHL and Sellers herein or pursuant hereto or in any Closing Agreement containing qualifications as to materiality or Material Adverse Effect shall have been inaccurate when made, or any other representation or warranty made by or on behalf of PHL and Sellers herein or in any Closing Agreement shall have been inaccurate in any material respect when made, or in each case if then made would be so inaccurate, and such inaccuracy is not capable of cure or if capable of cure is not so cured within a reasonable period following notice of such inaccuracy, (ii) in the event that PHL or Sellers materially breach or violate any covenant or agreement contained herein or in any Closing Agreement to be performed by PHL or Sellers and such breach or violation is not capable of cure or if capable of cure is not so cured within a reasonable period following notice of such breach or violation, (iii) if the Closing shall not have occurred on or before June 30, 1999 by reason of the failure of any condition set forth in Article VI hereof to be satisfied (unless the failure results primarily from the failure of any representation or warranty made by or on behalf of Buyer herein or in any Closing Agreement containing qualifications as to materiality or Material Adverse Effect to be true and correct or any other representation or warranty made by or on behalf of Buyer herein or in any Closing Agreement to be true and correct in all material respects or from the material breach or violation by Buyer of any covenant or agreement contained herein or in any Closing Agreement). (c) Sellers may terminate this Agreement by giving written notice to Buyer at any time prior to the Closing (i) in the event that any representation or warranty made by or on behalf of Buyer herein or pursuant hereto or in any Closing Agreement containing qualifications as to materiality or Material Adverse Effect shall have been inaccurate when made, or any other representation or warranty made by or on behalf of Buyer herein or in any Closing Agreement shall have been inaccurate in any material respect when made, or in each case if then made would be so inaccurate, and such inaccuracy is not capable of cure or if capable of cure is not so cured within a reasonable period following notice of such inaccuracy, (ii) in the event that Buyer materially breaches or violates any covenant or agreement contained herein or in any Closing Agreement to be performed by Buyer and such breach or violation is not capable of cure or if capable of cure is not so cured within a reasonable period following notice of such breach or violation, or (iii) if the Closing shall not have occurred on or before June 30, 1999 by reason of the failure of any condition set forth in Article VII hereof to be satisfied (unless the failure results primarily from the failure of any representation or warranty made by or on behalf of PHL and Sellers herein or in any Closing Agreement containing qualifications as to materiality or Material Adverse Effect to be true and correct or any other representation or warranty made by or on 68 behalf of PHL and Sellers herein or in any Closing Agreement to be true and correct in all material respects or from the material breach or violation by PHL or Sellers of any covenant or agreement contained herein or in any Closing Agreement). Section 10.2. Effect of Termination. In the event of the termination of this Agreement pursuant to Section 10.1, all obligations of the parties hereunder (other than the obligations under Sections 5.8 (Expenses of Transaction; Accounts), 9.1 (Consent to Jurisdiction), 9.2 (Governing Law), 10.1 (Termination of Agreement), 10.2 (Effect of Termination), 11.1 (Entire Agreement), 11.6 (Successors and Assigns), 11.7 (Notices), 11.8 (Public Announcements) and 11.10 (Third Party Beneficiaries), each of which shall survive termination) shall terminate without any liability of any party to any other party; provided, however, that no termination shall relieve any party from any liability arising from or relating to breach prior to termination. ARTICLE XI Miscellaneous Section 11.1. Entire Agreement; Waivers. This Agreement, the Closing Agreements and the Confidentiality Agreement constitute the entire agreement among the parties hereto pertaining to the subject matter hereof and thereof and supersede all prior and contemporaneous agreements, understandings, negotiations and discussions, whether oral or written, of the parties with respect to such subject matter. No waiver of any provision of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), shall constitute a continuing waiver unless otherwise expressly provided nor shall be effective unless in writing and executed (i) in the case of a waiver by Buyer, by Buyer and (ii) in the case of a waiver by Sellers, by Sellers. Section 11.2. Amendment or Modification. The parties hereto may not amend or modify this Agreement except in such manner as may be agreed upon by a written instrument executed and delivered by Buyer, PHL and Sellers. Section 11.3. Survival, etc. All representations, warranties, covenants and agreements made by or on behalf of any party hereto in this Agreement (including, without limitation, in Sellers' Disclosure Letter and the Buyer Disclosure Letter), or pursuant to any document, certificate or other instrument referred to herein or delivered in connection with the transactions contemplated hereby, shall be deemed to have been relied upon by the parties hereto, notwithstanding any investigation made by or on behalf of any of the parties hereto or any opportunity therefor (including without limitation the availability for review of any document), and, subject to the provisions of Article VIII, shall survive the execution and delivery of this Agreement and the Closing. Neither the period of survival nor the liability of any party with respect to such party's representations, warranties covenants and agreements shall be reduced by any investigation made at any time by or on behalf of any party. If notice of a claim has been given prior to the expiration of any time period set forth herein for any such notice by a party in whose favor such representations, warranties, covenants or agreements have been made to any party that made such representations, warranties, covenants or agreements, then the relevant 69 representations, warranties, covenants or agreements shall survive as to such claim until such claims have been finally resolved. Section 11.4. Independence of Representations and Warranties. The parties hereto intend that each representation, warranty, covenant and agreement contained herein shall have independent significance. If any party has breached any representation, warranty, covenant or agreement contained herein in any respect, the fact that there exists any other representation, warranty, covenant or agreement relating to the same subject matter (regardless of the relative levels of specificity) that the party has not breached shall not detract from or mitigate the fact that such party is in breach of the first representation, warranty, covenant or agreement. Section 11.5. Severability. In the event that any provision hereof (including, without limitation, any of the provisions of Section 5.17 hereof) would, under applicable law, be invalid or unenforceable in any respect, such provision shall (to the extent permitted under applicable law) be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law. The provisions hereof (including, without limitation, each of the provisions of Section 5.17 hereof) are severable, and in the event any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof. Section 11.6. Successors and Assigns. All of the terms and provisions of this Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective transferees, successors and permitted assigns (each of which such transferees, successors and permitted assigns shall be deemed to be a party hereto for all purposes hereof); provided, however, that neither PHL, Sellers nor Buyer may assign or transfer (by operation of law or otherwise) any of their respective rights or obligations hereunder. Section 11.7. Notices. Any notices or other communications required or permitted hereunder shall be sufficiently given only if in writing (including telecopy or similar teletransmission), addressed as follows: If to Holdings Phoenix Home Life Mutual Insurance Company or PHL, (or, for Holdings) PM Holdings, Inc. to either, at: One American Row Hartford, Connecticut 06102-5056 Attention: Carole A. Masters, Esquire Telecopier: (860) 403-5182 With a copy to: Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, NY 10038 Attention: David Finkelman, Esquire Telecopier: (212) 806-6006 If to Vaughan, to him at: Martin L. Vaughan, III 70 1450 Lakeview Drive Deland, Florida 32720 With a copy to: Sorokin, Gross & Hyde, P.C. One Corporate Center Hartford, Connecticut Attention: Morris W. Banks, Esquire Telecopier: (860) 522-1781 If to Buyer, to it at: Hilb, Rogal and Hamilton Company 4235 Innslake Drive P.O. Box 1220 Glen Allen, Virginia 23060-1220 Attention: Walter L. Smith, Esquire Telecopier: (804) 747-3138 With a copy to: Williams, Mullen, Christian & Dobbins, P.C. 1021 East Cary Street, 16th Floor Richmond, Virginia 23219 Attention: Theodore L. Chandler, Jr., Esquire Telecopier: (804) 783-6507 Unless otherwise specified herein, such notices or other communications shall be deemed received (a) in the case of any notice or communication sent other than by mail, on the date actually delivered to such address (evidenced, in the case of delivery by overnight courier, by confirmation of delivery from the overnight courier service making such delivery, and in the case of a telecopy, by receipt of a transmission confirmation form or the addressee's confirmation of receipt), or (b) in the case of any notice or communication sent by mail, three (3) Business Days after being sent, if sent by registered or certified mail, with first-class postage prepaid. Each of the parties hereto shall be entitled to specify a different address by giving notice as aforesaid to each of the other parties hereto. Section 11.8. Public Announcements. At all times on or before the Closing Date, no party hereto will issue or make any reports, statements or releases to the public or generally to any Persons to whom Buyer or APC or their Subsidiaries provides services or with whom Buyer or APC or their Subsidiaries otherwise has significant business relationships with respect to this Agreement or the transactions contemplated hereby without the prior written consent of the other parties hereto. If any party hereto is unable to obtain, after reasonable effort, the approval of its public report, statement or release from the other parties hereto and such report, statement or release is, in the opinion of legal counsel to such party, required by law in order to discharge such party's disclosure obligations, then such party may make or issue the legally required report, statement or release and promptly furnish the other parties with a copy thereof. Each party hereto will also obtain the prior approval by the other parties hereto of any press release to be issued immediately following the Closing announcing the consummation of the transactions contemplated by this Agreement. 71 Section 11.9. Headings, etc. Section and subsection headings are not to be considered part of this Agreement, are included solely for convenience, are not intended to be full or accurate descriptions of the content thereof and shall not affect the construction hereof. Section 11.10. Third Party Beneficiaries. Except as otherwise provided in Article VIII, nothing in this Agreement is intended or shall be construed to entitle any Person other than the parties, APC or their respective transferees, successors and assigns permitted hereby to any claim, cause of Action, remedy or right of any kind. Section 11.11. Counterparts. This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts each of which shall be deemed an original, but all of which together shall constitute but one and the same instrument. (SIGNATURES ON FOLLOWING PAGE) 72 IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have executed, or have caused to be executed by their respective officers thereunto duly authorized, this Stock Purchase Agreement as of the date first above written. PHL: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY By: /s/ David W. Searfoss ---------------------------------- Name: David W. Searfoss Title: Executive Vice President and Chief Financial Officer SELLERS: PM HOLDINGS, INC. By: /s/ David W. Searfoss ---------------------------------- Name: David W. Searfoss Title: Vice President/Chief Financial Officer /s/ Martin L. Vaughan, III -------------------------------------- Martin L. Vaughan, III BUYER: HILB, ROGAL AND HAMILTON COMPANY By: /s/ Andrew L. Rogal ---------------------------------- Name: Andrew L. Rogal Title: President and Chief Executive Officer 73 EXHIBITS Exhibit A - Baltimore Lease [Omitted] Exhibit B - Indenture [Omitted] Exhibit C - Jamestown Lease [Omitted] Exhibit D - Miami Lease [Omitted] Exhibit E - Registration Rights Agreement Exhibit F - Risk Management Agreement [Omitted] Exhibit G - Rule 145 Representation Letter [Omitted] Exhibit H - Vaughan Employment Agreement [Omitted] Exhibit I - Voting and Standstill Agreement Exhibit J - Trademark License Agreement [Omitted] Exhibit K - Form of Legal Opinion of Stroock & Stroock & Lavan LLP [Omitted] Exhibit L - Form of Legal Opinion of Carole A. Masters [Omitted] Exhibit M - Form of Legal Opinion of Sorokin, Gross & Hyde, P.C. [Omitted] Exhibit N - Form of Legal Opinion of Williams, Mullen, Christian & Dobbins, P.C. [Omitted] SCHEDULES Schedule 5.7.1 - APC Electing Subsidiaries [Omitted] The Company will provide the omitted exhibits and schedule to the Commission upon request. Exhibit E to Stock Purchase Agreement REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of ________ __, 1999, is made between Hilb, Rogal and Hamilton Company, a Virginia corporation (the "Company"), PM Holdings, Inc., a Connecticut corporation ("Holdings"), and Phoenix Home Life Mutual Insurance Company, a New York life insurance company ("PHL"). W I T N E S S E T H: WHEREAS, the Company, Holdings, PHL and Martin L. Vaughan, III entered into a Stock Purchase Agreement dated March 29, 1999 (the "Stock Purchase Agreement"), under which the Company agreed to acquire from Holdings and Martin L. Vaughan, III all of the issued and outstanding shares of the capital stock of American Phoenix Corporation, a Connecticut corporation ("APC"); and WHEREAS, pursuant to the Stock Purchase Agreement, (i) Holdings acquired __________ shares of the Company's Common Stock (as hereinafter defined) and $22,000,000 principal amount of the Company's Subordinated Debentures (as hereinafter defined), and (ii) PHL acquired $10,000,000 principal amount of the Company's Subordinated Debentures; and WHEREAS, the Subordinated Debentures acquired by Holdings and PHL pursuant to the Stock Purchase Agreement are convertible into shares of Common Stock pursuant to the terms of the Subordinated Debentures; and WHEREAS, the Company has agreed to enter into this Agreement to provide certain registration rights to Holdings in order to facilitate the distribution of the shares of Common Stock acquired by Holdings pursuant to the Stock Purchase Agreement and any shares of Common Stock that may be acquired by Holdings, PHL or their Affiliates upon conversion of the Subordinated Debentures. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and in the Stock Purchase Agreement, the Company, Holdings and PHL hereby agree as follows: ARTICLE I Definitions Except as otherwise specified herein, capitalized terms used in this Agreement shall have the respective meanings assigned to such terms in the Stock Purchase Agreement. For purposes of this Agreement, the following terms have the following meanings: (a) "Affiliate" shall mean, as to any specified Person, each other Person directly or indirectly controlling, controlled by or under direct or indirect common control with that specified Person. For the purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, or by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. Notwithstanding the foregoing, the following shall not be deemed to be an Affiliate of Holdings or PHL for purposes of this Agreement: (i) Phoenix Investment Partners, Ltd., a Delaware corporation, and its subsidiaries (or any successor thereof), and (ii) any Person registered as an investment company under the Investment Company Act of 1940, as amended. (b) "Blue Sky Filing" shall mean a filing made in connection with the registration or qualification of the Registrable Shares under a particular state's securities or blue sky laws. (c) "Common Shares" shall mean the __________ shares of Common Stock that Holdings acquired from the Company pursuant to the Stock Purchase Agreement and such additional shares of Common Stock that the Company may issue with respect to such shares pursuant to any stock splits, stock dividends, recapitalizations, restructurings, reclassifications or similar transactions. (d) "Common Stock" shall mean the Common Stock, without par value, of the Company. (e) "Effective Period," with respect to the Registrable Shares, shall mean the period from the date of effectiveness of the Registration Statement relating to the Registrable Shares under Section 2.3 below to the date that is two years from the date of such effectiveness; provided, that, for each Holdback Period required by the Company under Article III of this Agreement and for each Discontinuance Period (as defined in Section 2.5(k) below), the Effective Period shall be extended by the number of days during which the applicable Holdback Period or Discontinuance Period was in effect. (f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. (g) "NYSE" shall mean the New York Stock Exchange. (h) "Person" shall have the meaning set forth in Section 3(a)(9) of the Exchange Act as in effect on the date of this Agreement, and shall include, without limitation, corporations, partnerships, limited liability companies and trusts. (i) "Prospectus" shall mean the prospectus included in a Registration Statement (including a prospectus that discloses information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Shares covered by such Registration Statement, and all other amendments and supplements to such prospectus, including post-effective amendments, and all material incorporated by reference or deemed to be incorporated by reference in any such prospectus. -2- (j) "Registrable Shares" shall mean collectively (i) the Common Shares and (ii) the aggregate number of shares of Common Stock into which the Subordinated Debentures are convertible pursuant to the terms of the Subordinated Debentures and such additional shares of Common Stock that the Company may issue with respect to such shares pursuant to any stock splits, stock dividends, recapitalizations, restructurings, reclassifications or similar transactions. (k) "Registration Statement" shall mean a registration statement of the Company under the Securities Act that covers the resale of the Registrable Shares pursuant to the terms of this Agreement, including the related Prospectus, all amendments and supplements to such registration statement, including pre- and post-effective amendments, all exhibits thereto and all material incorporated by reference or deemed to be incorporated by reference in such registration statement. (l) "SEC" shall mean the Securities and Exchange Commission. (m) "Securities Act" shall mean the Securities Act of 1933, as amended. (n) "Subordinated Debentures" shall mean the Company's 5.25% Convertible Subordinated Debentures (Due 2014), in the aggregate principal amount of $32,000,000. (o) "Voting and Standstill Agreement" shall mean the Voting and Standstill Agreement, dated ________ __, 1999, executed by the Company, Holdings and PHL in connection with the Stock Purchase Agreement. ARTICLE II Registration of Securities Section 2.1. Securities Subject to this Agreement. The securities entitled to the benefits of this Agreement are the Registrable Shares. For the purposes of this Agreement, one or more of the Registrable Shares will no longer be subject to this Agreement when and to the extent that (i) a Registration Statement covering such Registrable Shares has been declared effective under the Securities Act and such Registrable Shares have been sold pursuant to such effective Registration Statement, (ii) such Registrable Shares are distributed to the public pursuant to Rule 144 under the Securities Act, (iii) such Registrable Shares shall have been otherwise transferred or disposed of, new certificates therefor not bearing a legend restricting further transfer or disposition shall have been delivered by the Company and, at such time, subsequent transfer or disposition of such securities shall not require registration or qualification of such Registrable Shares under the Securities Act or any similar state law then in force, or (iv) such Registrable Shares have ceased to be outstanding. Section 2.2. Registration Rights. Holdings may exercise the demand and piggy-back registration rights to which it is entitled under this Agreement only at a time at which the Holdings Ownership Percentage (as such term is defined in the Voting and Standstill Agreement) exceeds -3- 10% or Holdings is otherwise deemed by the Company to be an Affiliate of the Company. Holdings may not exercise any such rights after ________ __, 2014. Section 2.3. Demand Registration. (a) Holdings shall have the right, subject to Section 2.2 above, to make one written request to the Company for the registration of all of the Registrable Shares subject to this Agreement that are beneficially owned by Holdings, PHL and their Affiliates at the time of the request. The Company shall not be obligated to register any of the Registrable Shares held by an Affiliate of Holdings or PHL unless and until such Affiliate shall have agreed in writing to indemnify the Company pursuant to Section 4.2 of this Agreement. (b) Upon the receipt of the request described in Section 2.3(a) above, the Company shall (i) within 45 days of such request, file a Registration Statement with the SEC under the Securities Act to register the resale of the Registrable Shares as set forth in such request and (ii) use its best efforts to cause such Registration Statement to become effective as soon as practicable after the filing thereof with the SEC. On or before the Closing Date, the Company shall have listed on the NYSE, on a when issued basis, the Registrable Shares. (c) The Company shall use its best efforts to maintain the effectiveness of the Registration Statement relating to the Registrable Shares, and maintain the listing of such shares, as applicable, on the NYSE or any exchange or automated interdealer quotation system on which the Common Stock is then listed or quoted, during the Effective Period. (d) If the Company is required to effect a Registration Statement pursuant to this Section 2.3, the Company may, in its discretion, include securities, other than Registrable Shares, among the securities covered by such registration. (e) The Company shall not be required to effect more than one registration under this Section 2.3. Section 2.4 Piggy-Back Registration. (a) In the event that the Company shall propose to file a registration statement under the Securities Act relating to a public offering by or through one or more underwriters of shares of Common Stock for the Company's own account or for the account of any holder of shares of Common Stock other than Holdings, PHL or any of their Affiliates (a "Selling Shareholder") and on a form and in a manner that would permit the registration of any of the Registrable Shares for sale to the public under the Securities Act, the Company shall (i) give written notice to Holdings of its intention to do so and of the right of Holdings, subject to Section 2.2 above, to have any or all of the Registrable Shares subject to this Agreement that are beneficially owned by Holdings, PHL and their Affiliates at the time of such notice included among the securities to be covered by such registration statement and (ii) at the written request of Holdings given to the Company within 20 days after the Company provides such notice, use its best efforts to include among the securities covered by such registration statement the number of such Registrable Shares that -4- Holdings shall have requested be so included (subject, however, to reduction in accordance with Section 2.4(b) below). None of Holdings, PHL and their Affiliates, however, shall be entitled to participate in any offering pursuant to this Section 2.4(a) unless and until Holdings, PHL, if participating, and any participating Affiliate have entered into an underwriting or other agreement with such underwriter or underwriters for such offering in such customary form as such underwriter or underwriters shall reasonably determine. (b) Holdings may include Registrable Shares in any registration statement relating to any offering pursuant to Section 2.4(a) above to the extent that the inclusion of such shares shall not reduce the number of shares of Common Stock to be offered and sold by the Company or the Selling Shareholder, as the case may be. If the lead managing underwriter selected by the Company for any such offering determines that marketing factors require a limitation on the number of Registrable Shares to be offered and sold by Holdings, PHL and their Affiliates in such offering, there shall be included in such offering only that number of Registrable Shares, if any, that such lead managing underwriter reasonably and in good faith believes will not jeopardize the success of the offering of all shares of Common Stock that the Company or the Selling Shareholder, as the case may be, desires to sell for its own account. In such event and provided that the lead managing underwriter has so notified the Company in writing, the shares of Common Stock to be included in such offering shall consist of (i) the securities that the Company or the Selling Shareholder, as the case may be, proposes to sell, and (ii) the number, if any, of Registrable Shares requested to be included in such registration that, in the opinion of such lead managing underwriter, can be sold without jeopardizing the success of the offering of the shares of Common Stock that the Company or the Selling Shareholder, as the case may be, desires to sell for its own account. (c) Nothing in this Section 2.4 shall create any liability on the part of the Company to Holdings, PHL or any of their Affiliates if the Company for any reason should decide not to file a registration statement proposed to be filed under Section 2.4(a) above or to withdraw such registration statement subsequent to its filing, regardless of any action whatsoever that Holdings may have taken, whether as a result of the issuance by the Company of any notice hereunder or otherwise. Section 2.5. Registration Procedures. In order to comply with the requirements of Sections 2.3 and 2.4 above, the Company will: (a) prepare and file with the SEC a Registration Statement covering the Registrable Shares on any form or forms for which the Company then qualifies and that counsel for the Company shall deem appropriate, and which form shall be available for the sale of the Registrable Shares (i) in connection with the registration of the Registrable Shares pursuant to Section 2.3 above, on a delayed or continuous basis in accordance with Rule 415 under the Securities Act (or any successor rule); provided, however, that the methods of distribution permitted by such Registration Statement shall not include underwritten offerings; or -5- (ii) in connection with a registration that includes any Registrable Shares pursuant to Section 2.4 above, in accordance with the intended methods of distribution thereof. (b) prepare and file with the SEC pre- and post-effective amendments to the Registration Statement and such amendments and supplements to the Prospectus used in connection therewith as may be required by the rules, regulations or instructions applicable to the registration form utilized by the Company, or by the Securities Act or the rules and regulations thereunder, and cause the Prospectus as so supplemented to be filed pursuant to Rule 424 under the Securities Act, and otherwise comply with the provisions of the Securities Act with respect to the disposition of the Registrable Shares; (c) furnish to Holdings such number of copies of the Registration Statement and each pre- and post-effective amendment thereto, any Prospectus or Prospectus supplement and each amendment thereto and such other documents as Holdings may reasonably request in order to facilitate the transfer or disposition of the Registrable Shares by Holdings; (d) make such Blue Sky Filings, if necessary, to register or qualify the Registrable Shares under such state securities or blue sky laws of such jurisdictions as Holdings may reasonably request, and do any and all other acts that may be reasonably necessary or advisable to enable Holdings to consummate the transfer or disposition in such jurisdictions of the Registrable Shares, except that the Company shall not for any such purpose be required (i) to qualify generally to do business as a foreign corporation in any jurisdiction where, but for the requirements of this Section 2.5(d), it would not be obligated to be so qualified, (ii) to subject itself to taxation in any such jurisdiction, or (iii) to consent to general service of process in any such jurisdiction; (e) notify Holdings, at any time when a Prospectus is required to be delivered under the Securities Act with respect to one or more of the Registrable Shares, of the Company's becoming aware that a Prospectus included in the Registration Statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, and prepare and furnish to Holdings a reasonable number of copies of an amendment to such Prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Shares, such Prospectus shall not include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (f) notify Holdings (1) when any Prospectus or Prospectus supplement or pre- or post-effective amendment has been filed, and, with respect to the Registration Statement or any post-effective amendment, when such Registration Statement or post-effective amendment has become effective; -6- (2) of any request by the SEC or any other applicable regulatory authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (3) of the issuance by the SEC or any other applicable regulatory authority of any stop order of which the Company or its counsel is aware suspending the effectiveness of the Registration Statement or any order preventing the use of a related Prospectus, or the initiation or any threats of any proceedings for such purpose; and (4) of the receipt by the Company of any written notification of the suspension of the registration or qualification of any of the Registrable Shares for sale in any jurisdiction, or the initiation or any threats of any proceeding for such purpose; (g) make generally available to the Company's shareholders, as soon as reasonably practicable, an earnings statement that shall satisfy the provisions of Section 11(a) of the Securities Act, provided that the Company shall be deemed to have complied with this Section 2.5(g) if it has complied with Rule 158 under the Securities Act; (h) use its best efforts to provide a transfer agent and registrar for the Registrable Shares covered by the Registration Statement no later than the effective date of such Registration Statement; (i) cooperate with Holdings to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing the securities to be sold under the Registration Statement, and enable such securities to be in such denominations and registered in such names as Holdings may reasonably request; (j) provide Holdings and any attorney, accountant or other agent retained by Holdings (collectively, the "Inspectors") with reasonable access during normal business hours to appropriate officers of the Company and its subsidiaries to ask questions and to obtain information that any such Inspector may reasonably request and make available for inspection all financial and other records, pertinent corporate documents and properties of any of the Company and its subsidiaries (collectively, the "Records"), as shall be reasonably necessary to enable them to exercise their due diligence responsibility; provided, however, that the Records that the Company determines, in good faith, to be confidential and that it notifies the Inspectors in writing are confidential shall not be disclosed to any Inspector unless such Inspector signs or is otherwise bound by a confidentiality agreement reasonably satisfactory to the Company; and (k) in the event of the issuance of any stop order of which the Company or its counsel is aware suspending the effectiveness of the Registration Statement or any order suspending or preventing the use of any related Prospectus or suspending the registration or qualification of any Registrable Shares for sale in any jurisdiction, the Company promptly will use its best efforts to obtain its withdrawal. -7- Holdings shall furnish to the Company in writing such information regarding Holdings, PHL and their Affiliates as is required to be disclosed pursuant to the Securities Act. Holdings agrees to notify the Company promptly of any inaccuracy or change in information previously furnished by Holdings to the Company or of the happening of any event in either case as a result of which the Registration Statement, a Prospectus, or any amendment or supplement thereto contains an untrue statement of a material fact regarding Holdings, PHL or any of their Affiliates or omits to state a material fact regarding Holdings, PHL or any of their Affiliates required to be stated therein or necessary to make the statements therein not misleading and to furnish promptly to the Company any additional information required to correct and update any previously furnished information or required so that such Registration Statement, Prospectus, or amendment or supplement, shall not contain, with respect to Holdings, PHL or any of their Affiliates, an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. Holdings agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Sections 2.5(e) or (k) above, Holdings will forthwith discontinue (and cause any Affiliate, and PHL and any of its Affiliates, to discontinue) the transfer or disposition of any Registrable Shares pursuant to the Prospectus relating to the Registration Statement covering such Registrable Shares until Holdings' receipt of the copies of the amended or supplemented Prospectus contemplated by Section 2.5(e) or the withdrawal of any order contemplated by Section 2.5(k), and, if so directed by the Company, Holdings will deliver to the Company all copies, other than permanent file copies then in Holdings' possession, of the Prospectus covering such Registrable Shares at the time of receipt of such notice. The period during which any discontinuance under this paragraph is in effect is referred to herein as a "Discontinuance Period." Section 2.6. Registration Expenses. (a) In connection with the registration of the Registrable Shares pursuant to Section 2.3 above, the Company will pay any and all out-of-pocket expenses incident to the Company's performance of or compliance with this Agreement, including, without limitation, (i) all registration and filing fees with the SEC relating to the shares of Common Stock into which the Subordinated Debentures are convertible pursuant to the terms of the Subordinated Debentures, (ii) all fees and expenses of complying with state securities or blue sky laws, (iii) all printing and delivery expenses, (iv) all fees and expenses incurred in connection with the listing of the Registrable Shares on the NYSE, or any other exchange or automated interdealer quotation system as then applicable, (v) the fees and disbursements of the Company's counsel and of its independent public accountants, and (vi) the fees and expenses of any special experts retained by the Company in connection with the requested registration, and Holdings shall pay any and all out-of-pocket expenses incurred by Holdings, including, without limitation, (x) all registration and filing fees with the SEC relating to the Common Shares, (y) all fees or disbursements of counsel to Holdings and (z) all brokerage commissions, fees and expenses and all transfer taxes and documentary stamp taxes, if any, relating to the sale or disposition of the Registrable Shares. -8- (b) In connection with a registration that includes any Registrable Shares pursuant to Section 2.4 above, Holdings will pay any and all out-of-pocket expenses attributable to such Registrable Shares, including, without limitation, (i) all registration and filing fees with the SEC and the National Association of Securities Dealers, Inc., (ii) all fees and expenses associated with qualifying the Registrable Shares with state securities or blue sky laws, (iii) any fees or disbursements of counsel to Holdings, and (iv) any brokerage commissions and fees, underwriting discounts and commissions, transfer taxes and documentary stamp taxes, if any, relating to the sale or disposition of the Registrable Shares. ARTICLE III Holdback Period If one or more underwritten public offerings of shares of Common Stock (other than the Registrable Shares) by the Company occur during the Effective Period, then, in connection with each such public offering, the Company may require Holdings, PHL and their Affiliates to refrain from, and Holdings, PHL and their Affiliates will refrain from, selling any of the Registrable Shares for a period determined by the Company but not to exceed 120 days (or such lesser period as the Company may require its officers and directors or other holders of shares of Common Stock to so refrain) (each such period referred to as a "Holdback Period") so long as the Company delivers written notice to Holdings of the Company's requirement of a Holdback Period and the length of such Holdback Period prior to commencement of the Holdback Period. ARTICLE IV Indemnification; Contribution Section 4.1. Indemnification by the Company. The Company will, and hereby agrees to, indemnify and hold harmless, to the fullest extent permitted by law, and, subject to Section 4.3 below, defend Holdings, PHL, each of their Affiliates (i) to whom Holdings or PHL transferred Registrable Shares in a manner permitted by the Voting and Standstill Agreement and (ii) who is listed as a selling shareholder in the Prospectus, and their respective officers, directors, employees, agents, representatives and each other Person, if any, who controls Holdings within the meaning of the Securities Act (each, a "Company Indemnitee"), against any and all losses, claims, damages, liabilities and expenses, joint or several, to which they or any of them may become subject under the Securities Act or any other statute or common law, including any amount paid in settlement of any action or proceeding, commenced or threatened, and to reimburse them for any reasonable legal or other expenses incurred by them in connection with investigating any claims and defending any actions (collectively, "Losses"), with respect to sales of Registrable Shares under the Registration Statement, insofar as any Losses arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any pre- or post-effective amendment thereto or in any Blue Sky Filing, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading or (ii) any untrue statement or alleged untrue statement of a material fact contained in the Prospectus or any amendment or supplement -9- thereto, or the omission or alleged omission to state therein a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the indemnification agreement contained herein shall not (i) apply to Losses arising out of, or based upon, any such untrue statement or alleged untrue statement, or any such omission or alleged omission, if such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by such Company Indemnitee from time to time specifically for use in the Registration Statement, the Prospectus or any such amendment or supplement thereto or any Blue Sky Filing or (ii) inure to the benefit of any Person, to the extent that any such Loss arises out of such Person's failure to send or give a copy of the Prospectus, as the same may be then supplemented or amended, to the Person asserting an untrue statement or alleged untrue statement, or omission or alleged omission, at or prior to the written confirmation of the sale of the Registrable Shares to such Person if such statement or omission was corrected in the Prospectus or any amendment or supplement thereto prior to the written confirmation of the sale. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Company Indemnitee or any other Person and shall survive the transfer of such securities by such Company Indemnitee. Section 4.2. Indemnification by Holdings. Holdings and PHL will, and hereby agree to, indemnify and hold harmless and, subject to Section 4.3 below, defend (in the same manner and to the same extent as set forth in Section 4.1 above), and cause each of their Affiliates who is listed as a selling shareholder in the Prospectus to so indemnify, hold harmless and defend, the Company and the Company's officers, directors, employees, agents, representatives and each other Person, if any, who controls the Company within the meaning of the Securities Act, with respect to any such untrue statement or alleged untrue statement in, or any such omission or alleged omission from, the Registration Statement, any Prospectus, or any amendment or supplement thereto, if such statement or omission was made in reliance upon and in conformity with information furnished in writing to the Company by Holdings, PHL or any of their Affiliates from time to time specifically for use in the Registration Statement, the Prospectus, and any such amendment or supplement thereto. Such indemnity shall remain in full force and effect, regardless of any investigation made by or on behalf of the Company or any such director, officer or any other Person and shall survive the transfer of such securities by Holdings and PHL. The liability of an indemnifying party under this Section 4.2 shall be limited to the amount of the net proceeds received by such indemnifying party upon the resale of any Registrable Shares pursuant to the Registration Statement creating such liability. Section 4.3. Notices of Claims. Promptly after receipt by an indemnified party of notice of the commencement of any action or proceeding involving a claim referred to in Sections 4.1 and 4.2 above, such indemnified party will give, if a claim in respect thereof is to be made against an indemnifying party, written notice to the latter of the commencement of such action, provided that the failure of any indemnified party to give notice as provided herein shall not relieve the indemnifying party of its obligations under this Article IV, except to the extent that the indemnifying party is actually prejudiced in any material respect by such failure to give notice. In case any such action is brought against an indemnified party, the indemnifying party shall be entitled to participate in and, unless in such indemnified party's reasonable judgment a conflict of interest between such indemnified and indemnifying parties may exist in respect of such claim, to -10- assume the defense thereof, jointly with any other indemnifying party similarly notified to the extent that it may wish, with counsel reasonably satisfactory to such indemnified party, and, after notice from the indemnifying party to such indemnified party of its election to assume the defense thereof, the indemnifying party shall not be liable to such indemnified party for any legal or other expenses subsequently incurred by the latter in connection with the defense thereof other than reasonable costs of reasonable investigation. If the indemnifying party advises an indemnified party that it will contest a claim for indemnification hereunder, or fails, within 30 days of receipt of any indemnification notice to notify, in writing, such Person of its election to defend, settle or compromise, at its sole cost and expense, any action, proceeding or claim (or discontinues its defense at any time after it commences such defense), then the indemnified party may, at its option, defend, settle or otherwise compromise or pay such action or claim in each case at the indemnifying party's expense. In any event, unless and until the indemnifying party elects in writing to assume and does so assume the defense of any such claim, proceeding or action, the indemnified party's reasonable costs and expenses arising out of the defense, settlement or compromise of any such action, claim or proceeding shall be losses subject to indemnification hereunder. The indemnified party shall cooperate fully with the indemnifying party in connection with any negotiation or defense of any such action or claim by the indemnifying party and shall furnish to the indemnifying party all information reasonably available to the indemnified party that relates to such action or claim. The indemnifying party shall keep the indemnified party fully informed at all times as to the status of the defense or any settlement negotiations with respect thereto. If the indemnifying party elects to defend any such action or claim, then the indemnified party shall be entitled to participate in such defense with counsel of its choice at its sole cost and expense, except that the indemnifying party shall be liable for such reasonable costs and expenses if, in such indemnified party's reasonable judgment, a conflict of interest between such indemnified and indemnifying parties may exist as described above. If the indemnifying party does not assume such defense, the indemnified party shall keep the indemnifying party informed at all times as to the status of the defense; provided, however, that the failure to keep the indemnifying party so informed shall not affect the obligations of the indemnifying party hereunder. No indemnifying party shall be liable for any settlement of any action, claim or proceeding effected without its written consent; provided, however, that the indemnifying party shall not unreasonably withhold, delay or condition its consent. No indemnifying party shall, without the written consent of the indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a general written release from all liability with respect to such claim or litigation. Section 4.4. Indemnification Payments. The indemnification required by this Article IV shall be made by periodic payments of the amount thereof during the course of the investigation or defense as and when bills are received or Losses are incurred, subject to the receipt of such documentary support therefor as the indemnifying party may reasonably request. Section 4.5. Contribution. If the indemnification provided for in this Article IV is unavailable to or insufficient to hold harmless a party otherwise entitled to be indemnified thereunder in respect to any Losses referred to therein, then the parties required to provide indemnification under this Article IV shall contribute to the amount paid or payable by such party -11- as a result of Losses in such proportion as is appropriate to reflect the relative fault of each such indemnifying party in connection with the statements or omissions that resulted in such Losses. The relative fault of each indemnifying party shall be determined by reference to whether the untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company, Holdings and PHL agree that it would not be just and equitable if contributions pursuant to this Section 4.5 were determined by pro rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to above in this Section 4.5. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. Section 4.6. Other Rights and Liabilities. The indemnity and contribution agreements contained herein shall be in addition to (i) any cause of action or similar right of the indemnified party against the indemnifying party or others and (ii) any liabilities the indemnifying party may be subject to pursuant to the law. ARTICLE V Rule 144 Representations The Company covenants that, for the time that the Holdings Ownership Percentage (as such term is defined in the Voting and Standstill Agreement) exceeds 10% or Holdings is otherwise deemed by the Company to be an Affiliate of the Company, it will use its best efforts to: (i) file with the SEC all reports and other documents required to be filed by the Company under the Exchange Act and the rules and regulations promulgated thereunder; (ii) if not required to file such reports and documents referred to in subsection (i) above, keep publicly available certain information regarding the Company, as contemplated by Rule 144(c)(2) under the Securities Act; and (iii) take all other actions reasonably necessary to enable Holdings, PHL and their Affiliates to sell the Registrable Shares without registration under the Securities Act within the limitation of the exemption provided by Rule 144 under the Securities Act. -12- ARTICLE VI Miscellaneous Section 6.1. Notices. Any notices or other communications required or permitted hereunder shall be sufficiently given if in writing (including telecopy or similar teletransmission), addressed as follows: If to the Company, Hilb, Rogal and Hamilton Company to it at: 4235 Innslake Drive Glen Allen, Virginia 23060 Telecopier: (804) 747-3138 Attention: Andrew L. Rogal With a copy to: Williams Mullen Christian & Dobbins 1021 East Cary Street, 16th Floor Richmond, Virginia 23219 Telecopier: (804) 783-6507 Attention: Theodore L. Chandler, Jr., Esquire If to Holdings PM Holdings, Inc. or PHL, to them at: One American Row Hartford, Connecticut 06115 Telecopier: (860) 403-5182 Attention: Carole A. Masters, Esquire Phoenix Home Life Mutual Insurance Company One American Row Hartford, Connecticut 06115 Telecopier: (860) 403-5182 Attention: David W. Searfoss Executive Vice President and Chief Financial Officer With a copy to: Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, New York 10038-4982 Telecopier: (212) 806-6006 Attention: David L. Finkelman, Esquire -13- Unless otherwise specified herein, such notices or other communications shall be deemed received (a) in the case of any notice or communication sent other than by mail, on the date actually delivered to such address (evidenced, in the case of delivery by overnight courier, by confirmation of delivery from the overnight courier service making such delivery, and in the case of a telecopy, by receipt of a transmission confirmation form or the addressee's confirmation of receipt), or (b) in the case of any notice or communication sent by mail, three Business Days after being sent, if sent by registered or certified mail, with first-class postage prepaid. Each of the parties hereto shall be entitled to specify a different address by giving notice as aforesaid to each of the other parties hereto. Section 6.2. Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated except by an instrument in writing signed by Holdings and by the Company following approval thereof by a majority of the Continuing Directors (as such term is defined in the Voting and Standstill Agreement). Section 6.3. Successors and Assigns. Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties and their respective successors and assigns, including without limitation in the case of any corporate party hereto any corporate successor by merger or otherwise; provided that no party may assign this Agreement without the other party's prior written consent, which consent will not be required in the event of the transfer of all of the Registrable Shares beneficially owned by Holdings in accordance with Sections 4.1(g) or 4.1(h) of the Voting and Standstill Agreement. Section 6.4. Entire Agreement. This Agreement embodies the entire agreement and understanding among the parties relating to the subject matter hereof and supersedes all prior agreements and understandings relating to such subject matter. There are no representations, warranties or covenants by the parties hereto relating to such subject matter other than those expressly set forth in this Agreement and the Stock Purchase Agreement. Section 6.5. Specific Performance. The parties acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief. Section 6.6. Remedies Cumulative. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. Section 6.7. No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and -14- any custom or practice of the parties at variance with the terms hereof, shall not constitute a waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. Section 6.8. No Third Party Beneficiaries. Except as provided in Article IV above, this Agreement is not intended to be for the benefit of and shall not be enforceable by any Person who or which is not a party hereto. Section 6.9. Consent to Jurisdiction. Each party to this Agreement, by its execution hereof, (i) hereby irrevocably submits, and agrees to cause each of its Affiliates to submit, to the jurisdiction of the federal courts located either in the City of Richmond, Virginia, or in the City of Hartford, Connecticut, and in the event that such federal courts shall not have subject matter jurisdiction over the relevant proceeding, then of the state courts located either in the City of Richmond, Virginia, or in the City of Hartford, Connecticut, for the purpose of any Action (as such term is defined in the Stock Purchase Agreement) arising out of or based upon this Agreement or relating to the subject matter hereof or the transactions contemplated hereby, (ii) hereby waives, and agrees to cause each of its Affiliates to waive, to the extent not prohibited by applicable law, and agrees not to assert, and agrees not to allow any of its Affiliates to assert, by way of motion, as a defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such proceeding brought in one of the above-named courts is improper, or that this Agreement or the subject matter hereof may not be enforced in or by such court and (iii) hereby agrees not to commence or to permit any of its Affiliates to commence any Action arising out of or based upon this Agreement or relating to the subject matter hereof other than before one of the above-named courts nor to make any motion or take any other action seeking or intending to cause the transfer or removal of any such Action to any court other than one of the above-named courts whether on the grounds of inconvenient forum or otherwise. Each party hereby consents to service of process in any such proceeding in any manner permitted by Virginia or Connecticut law, as the case may be, and agrees that service of process by registered or certified mail, return receipt requested, at its address specified pursuant to Section 6.1 above is reasonably calculated to give actual notice. Notwithstanding anything contained in this Section 6.9 to the contrary with respect to the parties' forum selection, if an Action is filed against a party to this Agreement, including its Affiliates, by a person who or which is not a party to this Agreement, an Affiliate of a party to this Agreement, or an assignee thereof (a "Third Party Action"), in a forum other than the federal district court or a state court located in the City of Richmond, Virginia, or in the City of Hartford, Connecticut, and such Third Party Action is based upon, arises from, or implicates rights, obligations or liabilities existing under this Agreement or acts or omissions pursuant to this Agreement, then the party to this Agreement, including its Affiliates, joined as a defendant in such Third Party Action shall have the right to file cross-claims or third-party claims in the Third Party Action against the other party to this Agreement, including its Affiliates, and even if not a defendant therein, to intervene in such Third Party Action with or without also filing cross-claims or third-party claims against the other party to this Agreement, including its Affiliates. -15- Section 6.10. Governing Law. This Agreement shall be governed by and construed in accordance with the domestic substantive law of the Commonwealth of Virginia, without giving effect to any choice or conflict of law provision or rule that would cause the application of the law of any other jurisdiction. Section 6.11. Name, Captions. The name assigned to this Agreement and the section captions used herein are for convenience of reference only and shall not affect the interpretation or construction hereof. Section 6.12. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies each signed by less than all, but together signed by all, the parties hereto. Section 6.13. Expenses. Each of the parties hereto shall bear their own expenses incurred in connection with this Agreement and the transactions contemplated hereby, except that in the event of a dispute concerning the terms or enforcement of this Agreement, the prevailing party in any such dispute shall be entitled to reimbursement of reasonable legal fees and disbursements from the other party or parties to such dispute. Section 6.14. Severability. In the event that any provision of this Agreement would, under applicable law, be invalid or unenforceable in any respect, such provision shall (to the extent permitted under applicable law) be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law. The provisions of this Agreement are severable, and in the event that any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof. [SIGNATURES ON NEXT PAGE] -16- IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Registration Rights Agreement to be executed, as of the date first above written by their respective officers thereunto duly authorized. HILB, ROGAL AND HAMILTON COMPANY By: ______________________________________ Name: Andrew L. Rogal Title: President and Chief Executive Officer PM HOLDINGS, INC. By: ______________________________________ Name: Title: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY By: ______________________________________ Name: Title: -17- Exhibit I to Stock Purchase Agreement VOTING AND STANDSTILL AGREEMENT THIS VOTING AND STANDSTILL AGREEMENT (the "Agreement"), dated as of ___________, 1999, is made by and among Hilb, Rogal and Hamilton Company, a Virginia corporation (the "Company"), PM Holdings, Inc., a Connecticut corporation ("Holdings"), and Phoenix Home Life Mutual Insurance Company, a New York life insurance company ("PHL"). W I T N E S S E T H: WHEREAS, the Company, Holdings, PHL and Martin L. Vaughan, III entered into a Stock Purchase Agreement dated March 29, 1999 (the "Stock Purchase Agreement"), under which the Company agreed to acquire from Holdings and Martin L. Vaughan, III all of the issued and outstanding shares of the capital stock of American Phoenix Corporation, a Connecticut corporation ("APC"); and WHEREAS, pursuant to the Stock Purchase Agreement, (i) Holdings acquired __________ shares of the Company's Common Stock (as hereinafter defined) and $22,000,000 principal amount of the Company's Subordinated Debentures (as hereinafter defined), and (ii) PHL acquired $10,000,000 principal amount of the Company's Subordinated Debentures; and WHEREAS, the Subordinated Debentures acquired by Holdings and PHL pursuant to the Stock Purchase Agreement are convertible into shares of Common Stock pursuant to the terms of the Subordinated Debentures; and WHEREAS, the parties to this Agreement desire to establish certain rights and obligations in connection with the relationship of Holdings and PHL to the Company. NOW, THEREFORE, in consideration of the mutual covenants and agreements set forth herein and in the Stock Purchase Agreement, the Company, Holdings and PHL hereby agree as follows: ARTICLE I Definitions; Representations and Warranties Section 1.1. Definitions. Except as otherwise specified herein, capitalized terms used in this Agreement shall have the respective meanings assigned to such terms in the Stock Purchase Agreement. For purposes of this Agreement, the following terms have the following meanings: (a) "Adjusted Outstanding Shares" shall mean, at any time and with respect to the determination of (i) the Holdings Ownership Percentage as it relates to Holdings and its Affiliates, (ii) the Standstill Percentage as it relates to Holdings and its Affiliates, and (iii) any other percentage of the beneficial ownership of Common Stock as it relates to a Person or Group, the total number of shares of Common Stock then issued and outstanding together with the total number of shares of Common Stock not then issued and outstanding that would be outstanding if all then existing Subordinated Debentures had been converted. (b) "Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date of this Agreement, and shall include, with respect to a determination of the Affiliates of Holdings, any Affiliate of PHL; provided, however, that (i) PXP and its subsidiaries and (ii) any Person registered as an investment company under the Investment Company Act of 1940, as amended, which might otherwise be deemed to be an "affiliate" of Holdings or PHL within the meaning of Rule 12b-2 under the Exchange Act (a "Related Investment Company"), shall not be deemed to be Affiliates of Holdings or PHL for purposes of this Agreement to the extent their respective businesses consist principally of investing in securities, investment management and/or advisory services, and any shares of Common Stock or other equity securities of the Company acquired, or caused to be acquired, by PXP and its subsidiaries or such Related Investment Company in the conduct of their respective businesses in the ordinary course for the account of, or for the benefit of, clients of PXP or its subsidiaries, policyholders or investors (other than Holdings, PHL or their Affiliates), and not with the purpose of avoiding the provisions of Section 3.1 below, shall not be deemed, for purposes of this Agreement, to be beneficially owned by Holdings, PHL or their Affiliates. (c) "Beneficial ownership," "beneficial owner" and "beneficially own" shall have the meanings ascribed to such terms in Rule 13d-3 under the Exchange Act as in effect on the date of this Agreement; provided that Holdings and each of its Affiliates and any Person or Group shall be deemed to be the beneficial owners of any shares of Common Stock that Holdings or such Affiliate, Person and/or Group, as the case may be, has the right to acquire within sixty (60) days after the determination date pursuant to any other agreement, arrangement or understanding or upon the exercise of conversion or exchange rights, warrants, options or otherwise, including but not limited to any right to acquire shares of Common Stock through the conversion of the Subordinated Debentures. (d) "Board of Directors" shall mean the Board of Directors of the Company. (e) "Business Day" shall mean any day on which banking institutions in New York, New York are customarily open for the purpose of transacting business. (f) "Common Stock" shall mean the Common Stock, without par value, of the Company. (g) "Continuing Directors" shall mean the members of the Board of Directors of the Company immediately prior to the Closing Date and any future members of the Board of Directors nominated by the Board of Directors; provided, however, that no Holdings Director shall constitute a Continuing Director or be counted in determining the presence of a quorum of Continuing Directors. -2- (h) "Control" shall mean the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. (i) "Group" shall have the meaning comprehended by Section 13(d)(3) of the Exchange Act as in effect on the date of this Agreement. (j) "Holdings Designee" shall mean a member of the Board of Directors of the Company who was designated by Holdings for nomination pursuant to this Agreement, but shall not include Robert W. Fiondella or Martin L. Vaughan, III. (k) "Holdings Directors" shall mean Robert W. Fiondella and the Holdings Designee. (l) "Holdings Ownership Percentage" shall mean, at any time, the percentage of the Adjusted Outstanding Shares that is beneficially owned in the aggregate by Holdings, PHL and their Affiliates. Immediately following the consummation of the transactions contemplated by the Stock Purchase Agreement, the Holdings Ownership Percentage was ____%. (m) "Holdings Securities" shall mean collectively (i) the _________ shares of Common Stock that Holdings acquired pursuant to the terms of the Stock Purchase Agreement, (ii) the Subordinated Debentures acquired by Holdings and PHL pursuant to the terms of the Stock Purchase Agreement, (iii) the shares of Common Stock into which the Subordinated Debentures are convertible pursuant to the terms of the Subordinated Debentures and (iv) any other shares of Common Stock that Holdings, PHL and their Affiliates may acquire from time to time, including without limitation such additional shares of Common Stock that the Company may issue with respect to such shares pursuant to any stock splits, stock dividends, recapitalizations, restructurings, reclassifications or similar transactions. (n) "HRH Designee" shall mean a member of the Board of Directors of the Company who was designated by the Continuing Directors for appointment or nomination pursuant to this Agreement. (o) "Indenture" shall mean the Indenture, dated ____________, 1999, executed by the Company and _______________, as Trustee, in connection with the issuance of the Subordinated Debentures. (p) "NYSE Rules" shall mean the rules and regulations of the New York Stock Exchange as in effect from time to time. (q) "Person" shall have the meaning set forth in Section 3(a)(9) of the Exchange Act as in effect on the date of this Agreement, and shall include, without limitation, corporations, partnerships, limited liability companies and trusts. (r) "PXP" shall mean Phoenix Investment Partners, Ltd., a Delaware corporation, approximately 60% of the common stock of which is currently owned by Holdings. -3- (s) "Registration Rights Agreement" shall mean the Registration Rights Agreement, dated ___________, 1999, executed by the Company, Holdings and PHL in connection with the Stock Purchase Agreement. (t) "Subordinated Debentures" shall mean the Company's 5.25% Convertible Subordinated Debentures (Due 2014), in the aggregate principal amount of $32,000,000, acquired by Holdings and PHL pursuant to the Stock Purchase Agreement. (u) "Standstill Percentage" shall mean, at any time, 20.0% of the Adjusted Outstanding Shares. (v) "Transfer" shall mean sell, transfer, assign, pledge, hypothecate, give away or in any manner dispose of any Common Stock or Subordinated Debentures. Section 1.2. Representations and Warranties of Holdings. Holdings represents and warrants to the Company as follows: (a) Holdings is a corporation duly organized, validly existing and in good standing under the laws of the State of Connecticut. (b) Except for the Holdings Securities, neither Holdings nor any of its Affiliates beneficially owns any Common Stock or any options, warrants or rights of any nature (including conversion and exchange rights) to acquire beneficial ownership of any Common Stock. (c) Holdings has full legal right, power and authority to enter into and perform this Agreement, and the execution and delivery of this Agreement by Holdings have been duly authorized by all necessary corporate action on behalf of Holdings. This Agreement is enforceable against Holdings in accordance with its terms, subject to bankruptcy, reorganization, insolvency and other similar laws affecting the enforcement of creditors' rights generally and to general principles of equity (regardless of whether considered in a proceeding in equity or an action at law). (d) The execution, delivery and performance of this Agreement by Holdings does not and will not conflict with or constitute a violation of or default under the Charter or Bylaws (or comparable documents) of Holdings, or any statute, law, regulation, order or decree applicable to Holdings, or any contract, commitment, agreement, arrangement or restriction of any kind to which Holdings is a party or by which Holdings is bound, other than such violations as would not prevent or materially delay the performance by Holdings of its obligations hereunder or otherwise subject the Company to any material claim or liability. Section 1.3. Representations and Warranties of PHL. PHL represents and warrants to the Company as follows: (a) PHL is a life insurance company duly organized, validly existing and in good standing under the laws of the State of New York. -4- (b) PHL has full legal right, power and authority to enter into and perform this Agreement, and the execution and delivery of this Agreement by PHL have been duly authorized by all necessary corporate action on behalf of PHL. This Agreement is enforceable against PHL in accordance with its terms, subject to bankruptcy, reorganization, insolvency and other similar laws affecting the enforcement of creditors' rights generally and to general principles of equity (regardless of whether considered in a proceeding in equity or an action at law). (c) The execution, delivery and performance of this Agreement by PHL does not and will not conflict with or constitute a violation of or default under the Charter or Bylaws (or comparable documents) of PHL, or any statute, law, regulation, order or decree applicable to PHL, or any contract, commitment, agreement, arrangement or restriction of any kind to which PHL is a party or by which PHL is bound, other than such violations as would not prevent or materially delay the performance by PHL of its obligations hereunder or otherwise subject the Company to any material claim or liability. Section 1.4. Representations and Warranties of the Company. The Company hereby represents and warrants to Holdings and PHL as follows: (a) The Company is a corporation duly organized, validly existing and in good standing under the laws of the Commonwealth of Virginia. (b) The Company has full legal right, power and authority to enter into and perform this Agreement, and the execution and delivery of this Agreement by the Company have been duly authorized by all necessary corporate action on behalf of the Company. This Agreement is enforceable against the Company in accordance with its terms, subject to bankruptcy, reorganization, insolvency and other similar laws affecting the enforcement of creditors' rights generally and to general principles of equity (regardless of whether considered in a proceeding in equity or an action at law). (c) The execution, delivery and performance of this Agreement by the Company does not and will not conflict with or constitute a violation of or default under the Charter or Bylaws of the Company, or any statute, law, regulation, order or decree applicable to the Company, or any contract, commitment, agreement, arrangement or restriction of any kind to which the Company is a party or by which the Company is bound, other than such violations as would not prevent or materially delay the performance by the Company of its obligations hereunder or otherwise subject Holdings or PHL to any material claim or liability. ARTICLE II Board Representation Section 2.1. Initial Board Representation. On the later of the Closing Date or the date of the Company's 1999 annual meeting of shareholders, the Company will (a) take such action as may be necessary to increase the size of the Board of Directors from nine (9) to thirteen (13) directors, (b) upon receipt of executed letter agreements regarding resignation in the form attached to this Agreement as Exhibit A, fill two (2) of the vacancies created thereby with Martin -5- L. Vaughan, III and the Holdings Designee in accordance with the applicable provisions of the Charter and Bylaws of the Company, and (c) fill the remaining two (2) vacancies created thereby with Robert W. Fiondella and the HRH Designee in accordance with the applicable provisions of the Company's Charter and Bylaws. With respect to the four (4) directors appointed to the Board of Directors pursuant to this Section 2.1, the Company will (i) appoint Robert W. Fiondella and Martin L. Vaughan, III to the Class whose current term expires in 2000, the Holdings Designee to the Class whose current term expires in 2001 and the HRH Designee to the Class whose current term expires in 2002, and (ii) subject to the right of Holdings to designate a new Holdings Designee as a substitute for the initial Holdings Designee, nominate and recommend each for election as a director to the respective Class designated above at the next annual meeting of the Company's shareholders following such appointments; provided that, if any such director is not elected by the shareholders of the Company, the Company shall have no further obligations under this Section 2.1 for the applicable year; and provided further that the Company shall be under no obligation to appoint or recommend for election the Holdings Designee or Martin L. Vaughan, III to the Board of Directors unless and until it has received from such director an executed letter agreement regarding resignation in the form attached to this Agreement as Exhibit A. The HRH Designee shall be an executive officer of the Company at the time of appointment or nomination by the Company. Any person designated by Holdings to be the Holdings Designee shall be reasonably acceptable to the Continuing Directors, and, if found unacceptable by the Continuing Directors (i) the Company shall not be obligated to appoint or recommend for election any such person to the Board of Directors and (ii) Holdings shall be entitled to designate a replacement that is reasonably acceptable to the Continuing Directors. Section 2.2. Continuing Board Representation. (a) Except as otherwise expressly provided by the provisions of this Article II, the Company agrees that, during the term of this Agreement, it will not take or recommend to its shareholders any action that would cause the Board of Directors to consist of any number of directors other than thirteen (13) directors; provided, however, that the Company may increase the number of directors on the Board of Directors (i) in connection with the consummation of business combination transactions wherein the Company has agreed to increase the size of the Board of Directors or (ii) with the consent of Holdings, which will not be unreasonably withheld; and provided further, that the Company may reduce the number of directors on the Board of Directors in the event of the death, resignation or removal of any director pursuant to the Company's Bylaws or this Agreement (unless such death, resignation or removal relates to the Holdings Designee and Holdings has the right under this Article II to designate a replacement). (b) Subject to the provisions of Sections 2.2(a), 2.2(c) and 2.5 hereof regarding reductions in the size of the Board of Directors and any required resignation of the Holdings Designee, during the term of this Agreement the Company will nominate and recommend the Holdings Directors for election in the applicable year in which their respective Class terms expire; provided that, if any such Holdings Director is not elected by the shareholders of the Company, the Company shall have no further obligations under this Section 2.2(b) for the applicable year; and provided further that the Company shall be under no obligation to nominate or recommend for election the Holdings Designee to the Board of Directors unless and until it has received from such director an executed letter agreement regarding resignation in the form attached to this -6- Agreement as Exhibit A. Any person designated by Holdings to be a Holdings Designee shall be reasonably acceptable to the Continuing Directors, and, if found unacceptable by the Continuing Directors (i) the Company shall not be obligated to appoint or recommend for election any such person to the Board of Directors and (ii) Holdings shall be entitled to designate a replacement that is reasonably acceptable to the Continuing Directors. (c) The Company shall have no obligation to nominate or recommend a Holdings Director for election to the Board of Directors after the termination of this Agreement pursuant to Article VI hereof or upon the occurrence of the following events: (i) With respect to the Holdings Designee, upon the earlier of (x) the date when the Holdings Ownership Percentage is less than ten percent (10%), or (y) subject to the right of Holdings to designate a replacement Holdings Designee pursuant to Section 2.7 hereof, his death, disability or attainment of the age of seventy (70) years; or (ii) With respect to Robert W. Fiondella, upon the earlier of his death, disability or attainment of the age of seventy (70) years; or (iii) With respect to each of the Holdings Directors, upon a final determination by a court of competent jurisdiction that this Agreement has been breached by PHL, Holdings or their Affiliates. For purposes of this Section 2.2(c) and Section 2.5(b) below, the term "disability" shall mean the inability to perform the duties of a director as a result of a physical or mental incapacity (or combination thereof) for a period longer than three (3) consecutive months or for more than six (6) months in any consecutive twelve (12) month period, in each case determined by the written opinion of such director's regular attending physician. The Company may take such action as may be necessary to reduce the size of the Board of Directors upon the occurrence of the events set forth in (c)(i) and (c)(iii) above or in the event of Mr. Fiondella's death or disability. Upon attaining the age of seventy (70) years, Mr. Fiondella may continue to serve as a director for the remainder of his then current term on the Board of Directors and thereafter the Company may take such action as may be necessary to reduce the size of the Board of Directors by one director. (d) Until the earlier to occur of (i) the date on which there are no Holdings Directors serving on the Board of Directors pursuant to this Agreement or (ii) the expiration of this Agreement, the Company agrees that it will not take or recommend to its shareholders any action that would result in any amendment to the Company's Bylaws in effect on the date hereof that would impose any qualifications on the eligibility of directors of the Company to serve on any committee of the Board of Directors, except as may be required by the NYSE Rules, the rules and regulations under the Internal Revenue Code of 1986, as amended, relating to the qualification of employee stock benefit plans and the deductibility of compensation paid to executive officers, the rules and regulations under Section 16(b) of the Exchange Act, including Rule 16b-3 thereunder or any successor rule, and the Company's Bylaws. -7- Section 2.3. Committee Representation. Until the earlier to occur of (i) the date on which there are no Holdings Directors serving on the Board of Directors pursuant to this Agreement or (ii) the expiration of this Agreement, to the extent that, and for so long as, but only insofar as required by applicable law or NYSE Rules, any of the Holdings Directors is qualified under the then-current NYSE Rules, the rules and regulations under the Internal Revenue Code of 1986, as amended, relating to the qualification of employee stock benefit plans and the deductibility of compensation paid to executive officers, the rules and regulations under Section 16(b) of the Exchange Act, including Rule 16b-3 thereunder or any successor rule, the Board of Directors shall designate, as it deems appropriate, each of the Holdings Directors to serve on at least one committee of the Board of Directors (whether existing on the date hereof or formed or constituted after the date hereof). Section 2.4. Resignations at the Request of Holdings; Vacancies. Holdings shall have the right to request the resignation from the Board of Directors of the Holdings Designee pursuant to the terms of Exhibit A. In the event that the Holdings Designee for any reason ceases to serve as a member of the Board of Directors during his or her term of office and at such time Holdings would have the right to a designation hereunder if an election for the resulting vacancy were to be held, Holdings may designate a person to fill such vacancy (a "Holdings Designee Vacancy"); provided that, the person so designated shall be reasonably acceptable to the Continuing Directors. Subject to the foregoing and Section 2.2 hereof, the Company agrees to (i) appoint Holdings' designee to the Board of Directors to fill the Holdings Designee Vacancy and to serve until the next annual meeting of the Company's shareholders and (ii) nominate and recommend the Holdings' designee for election to the Board of Directors at the next annual meeting of the Company's shareholders to fill the remaining term of the class of directors to which such designee was appointed; provided further that the Company shall be under no obligation to appoint, nominate or recommend for election any such designee to fill an Holdings Designee Vacancy unless and until it has received from such designee an executed letter agreement regarding resignation in the form attached to this Agreement as Exhibit A. Other than with respect to the foregoing provisions relating to a Holdings Designee Vacancy, the Board of Directors shall have the sole and exclusive right to designate a replacement director in the event of any vacancy on the Board of Directors. Section 2.5. Required Resignations. (a) On the earlier of (i) the date when the Holdings Ownership Percentage is less than ten percent (10%), or (ii) the date of any final determination by a court of competent jurisdiction that this Agreement has been breached by PHL, Holdings or their Affiliates, Holdings shall, within five (5) Business Days, use its best efforts to cause the Holdings Designee to resign from the Board of Directors. In the event of any decrease in the Holdings Ownership Percentage to below such ten percent (10%) threshold, any subsequent increase in the Holdings Ownership Percentage to or above such ten percent (10%) threshold shall not entitle Holdings to reinstate, elect or designate any Holdings Designee to the Board of Directors. If Holdings does not cause the resignation of the Holdings Designee within such five (5) Business Day period, the Company may seek such resignation or, in the alternative, the Continuing Directors may seek the removal of the Holdings Designee. -8- (b) In the event of the disability or termination of employment of Martin L. Vaughan, III under the Employment Agreement between the Company and Martin L. Vaughan, III dated ______________, 1999, the Company may request Martin L. Vaughan, III to resign from the Board of Directors. If such resignation is not received by the Company within five (5) Business Days from the date of the Company's request for resignation, the Company may seek his removal in accordance with the letter agreement attached hereto as Exhibit A. (c) Upon any shareholder vote relating to the removal of a director for failure to resign pursuant to this Section 2.5, Holdings and its Affiliates shall (i) attend any meeting either in person or by proxy and (ii) vote in favor of such removal. At such time as a director becomes subject to resignation pursuant to this Section 2.5, the Board of Directors may amend its Bylaws or take such other action as it deems appropriate to reduce the number of directors constituting the Board of Directors proportionately or fill the vacancy caused by such resignation(s) with its own nominee in accordance with the applicable provisions of the Charter and Bylaws of the Company. Section 2.6. No Voting Trust. This Agreement does not create or constitute, and shall not be construed as creating or constituting, a voting trust agreement under the Virginia Stock Corporation Act or any other applicable corporation law. Section 2.7. Notification of Designation. Holdings shall notify the Company in writing not later than March 1st of the year in which the Holdings Designee's term on the Board of Directors expires as to the designation of the person to be nominated for election as the Holdings Designee at the annual meeting of the Company's shareholders for such year; provided that, if Holdings should fail to so notify the Company of its Holdings Designee by such date, Holdings shall be deemed to have designated the then current Holdings Designee for nomination to the Board of Directors at the next annual meeting of shareholders. Holdings shall cause the Holdings Designee to provide promptly information that may be required under the Exchange Act for inclusion in the Company's proxy statement for such annual meeting and shall cooperate with the Company in obtaining any such information, including but not limited to the prompt completion of any director questionnaires applicable to the directors generally. Holdings shall have the sole and exclusive right to designate the Holdings Designee under this Article II and the Company shall not be required to accept a designation from any Person other than Holdings; provided, however, that to the extent that Holdings Transfers all of the Holdings Securities beneficially owned by Holdings to (i) an Affiliate of Holdings or PHL in compliance with Section 4.1(g) hereof or (ii) a Person surviving a merger or formed by a consolidation pursuant to Section 4.1(h) hereof, such Affiliate or Person shall have the sole and exclusive right to designate the Holdings Designee under this Article II from and after the date of such Transfer. Section 2.8. No Duty to Designate; Reduction of Board Representation. Nothing contained in this Article II shall be construed as requiring Holdings to designate any Holdings Designee or as requiring any Holdings Director, once elected, to continue to serve in office if such Holdings Director elects to resign. Until the earlier to occur of (i) the date on which there are no Holdings Directors serving on the Board of Directors pursuant to this Agreement or (ii) the expiration of this Agreement, in the event of any vacancy created by the death, resignation or removal of the Holdings Designee or the failure of Holdings to designate an Holdings Designee, -9- other than a vacancy created by the resignation or removal of an Holdings Designee pursuant to Section 2.5 above, Holdings may notify the Company in writing that it does not intend to designate a person to fill such vacancy, and the Company thereafter may take such action as may be necessary either to reduce the size of the Board of Directors by one director or fill the vacancy with its own designee. ARTICLE III Standstill Restrictions; Voting Matters Section 3.1. Standstill Restrictions. (a) During the term of this Agreement, PHL and Holdings covenant and agree that PHL and Holdings shall not, and shall not permit any of their Affiliates to, either individually or as part of a Group, directly or indirectly: (i) acquire (other than acquisitions resulting from corporate action taken by the Board of Directors with respect to any pro rata distribution of shares of Common Stock in connection with any stock split, stock dividend, recapitalization, reclassification or similar transaction), propose to acquire (or publicly announce or otherwise disclose an intention to propose to acquire), offer to acquire, or agree to acquire any Common Stock (or any options, warrants, rights or other securities exercisable for, or convertible or exchangeable into, Common Stock, including without limitation the Subordinated Debentures) if the effect of such acquisition would cause the Holdings Ownership Percentage to equal or exceed the Standstill Percentage (other than as a result of any stock purchases or repurchases by the Company); provided that this Section 3.1(a)(i) shall not apply to (a) any acquisition of Common Stock or of options, warrants, rights or other securities exercisable for, or convertible or exchangeable into, Common Stock granted to any Person, including without limitation Holdings Directors, pursuant to any benefit plan of the Company or any of its Affiliates or the exercise, conversion or exchange of any such option, warrant, right or other security or (b) any acquisition of Common Stock upon the exercise by PHL, Holdings or their Affiliates of rights pursuant to any Rights Agreement that may be adopted by the Company for the purpose of deterring coercive takeover activities with respect to the Company, provided that all of the shares of Common Stock so acquired upon the exercise of the rights shall be subject to all of the terms of this Agreement; (ii) propose (or publicly announce or otherwise disclose an intention to propose), solicit, offer, seek or take any action to effect, negotiate with or provide any confidential information relating to the Company or its business to any other Person with respect to, any tender or exchange offer, merger, consolidation, share exchange, business combination, restructuring, recapitalization or similar transaction involving the Company (other than (x) any of the foregoing that has been approved by the Board of Directors or (y) in connection with any tender or exchange offer in which the Board of Directors has (a) recommended that its shareholders accept such offer or (b) after ten (10) business days (as defined in Rule 14d-1 under the Exchange Act as in effect on the date of this Agreement) from the date of commencement of such offer, expressed no opinion, remained neutral, was unable to take a position or otherwise did not oppose or recommend that its shareholders reject such offer); -10- (iii) make, or in any way participate in, any "solicitation" of "proxies" to vote (as such terms are defined in Rule 14a-1 under the Exchange Act), solicit any consent or communicate with or seek to advise or influence any person or entity with respect to the voting of any Common Stock or become a "participant" in any "election contest" (as such terms are defined or used in Rule 14a-11 under the Exchange Act) with respect to the Company; provided that nothing in this Section 3.1(a)(iii) shall apply to any deemed solicitation of proxies by the Holdings Directors that may result from such Holdings Directors' position or status as a director of the Company at the time of any general solicitation of proxies by the management of the Company; (iv) form, participate in or join any Person or Group with respect to any Common Stock or Subordinated Debentures, or otherwise act in concert with any Person for the purpose of (x) acquiring beneficial ownership of any Common Stock or Subordinated Debentures or (y) holding or disposing of Common Stock or Subordinated Debentures for any purpose prohibited by this Section 3.1(a); (v) except as specifically provided in Section 3.2 below, deposit any Common Stock or Subordinated Debentures into a voting trust or subject any Common Stock or Subordinated Debentures to any arrangement or agreement with respect to the voting thereof; (vi) initiate, propose or otherwise solicit shareholders for the approval of any shareholder proposal with respect to the Company as described in Rule 14a-8 under the Exchange Act, or induce or attempt to induce any other Person to initiate, propose or otherwise solicit any such shareholder proposal; (vii) except as specifically provided in Article II of this Agreement, seek election to or seek to place a representative on the Board of Directors, or seek the removal of any member of the Board of Directors (other than a Holdings Director); (viii) call or seek to have called any meeting of the shareholders of the Company for any purpose; (ix) take any other action to seek to Control the management or policies of the Company; (x) demand, request or propose to amend, waive or terminate the provisions of this Section 3.1(a); or (xi) agree to do any of the foregoing, or advise, assist, encourage or persuade any third party to take any action with respect to any of the foregoing. (b) PHL and Holdings agree that they will notify the Company promptly if any inquiries or proposals are received by, any information is exchanged with respect to, or any negotiations or discussions are initiated or continued by or with, PHL, Holdings or any of their Affiliates regarding any matter described in Section 3.1(a) above. PHL and the Company shall -11- mutually agree upon an appropriate response to be made to any such proposals received by PHL, Holdings or any of their Affiliates. (c) Nothing contained in this Article III shall be deemed to restrict the manner in which the Holdings Directors may participate in deliberations or discussions of the Board of Directors or individual consultations with any member of the Board of Directors, so long as such actions do not otherwise violate any provision of Section 3.1(a) above. (d) Each of Holdings and PHL covenants and agrees that, during the term of this Agreement and so long as Holdings, PHL or their Affiliates Control (i) PXP and its subsidiaries (or any successor of PXP and its subsidiaries) or (ii) any Person registered as an investment company under the Investment Company Act of 1940, as amended, which might otherwise be deemed to be an "affiliate" of Holdings or PHL within the meaning of Rule 12b-2 under the Exchange Act (a "Related Investment Company"), it will not, and will not permit any of its Affiliates to, cause or permit PXP and its subsidiaries (or any such successor of PXP and its subsidiaries) or such Related Investment Company, directly or indirectly, to (i) attempt to exercise Control or influence over the business and affairs of the Company, (ii) act in concert with Holdings, PHL or their Affiliates to violate the provisions of this Agreement or (iii) act in concert with any other Person for the purposes of violating the provisions of this Agreement or otherwise effecting a change of Control of the Company. Each of Holdings and PHL also covenants and agrees that, during the term of this Agreement, it will not direct or influence, or attempt to direct or influence, the voting or disposition of shares of Common Stock owned of record or beneficially by PXP and its subsidiaries (or any successor of PXP and its subsidiaries). Section 3.2. Voting Matters. (a) During the term of this Agreement, PHL and Holdings will take all such action as may be required so that the Common Stock beneficially owned and entitled to be voted by PHL, Holdings and their Affiliates, as a Group, are voted or caused to be voted (in person or by proxy): (i) with respect to the Continuing Director's nominees to the Board of Directors, in accordance with the recommendation of the Board of Directors, or a nominating or similar committee of the Board of Directors, if any such committee exists and makes a recommendation; and (ii) in accordance with the recommendation of the Board of Directors with respect to any transaction to be effected with the Company or its Affiliates in connection with an unsolicited tender or exchange offer, any "election contest" (as such term is defined or used in Rule 14a-11 under the Exchange Act as in effect on the date of this Agreement) with respect to the Board of Directors of the Company or any other attempt to acquire Control of the Company or the Board of Directors. (b) For a period of five (5) years from the date of this Agreement, PHL and Holdings will take all such action as may be required so that the Common Stock beneficially owned and entitled to be voted by PHL, Holdings and their Affiliates, as a Group, are voted or caused to be voted (in person or by proxy) in accordance with the recommendation of the Board of Directors -12- of the Company with respect to negotiated mergers, acquisitions, divestitures, consolidations, sale of assets, share exchanges or other similar transactions for which shareholder approval is sought. (c) With respect to all matters brought before the Company's shareholders for a vote not otherwise provided for in Section 2.5(c) or Section 3.2(a) and (b) above, PHL, Holdings and their Affiliates may vote in accordance with their independent judgment without regard to any request or recommendation of the Board of Directors. (d) PHL, Holdings and their Affiliates who beneficially own any of the Common Stock shall be present, in person or by proxy, at all duly held meetings of shareholders of the Company so that the Common Stock held by PHL, Holdings and their Affiliates may be counted for the purposes of determining the presence of a quorum at such meetings. ARTICLE IV Transfers of Holdings Securities Section 4.1. Transfer Restrictions. During the term of this Agreement, PHL, Holdings and their Affiliates, shall not, directly or indirectly, Transfer any of the Holdings Securities beneficially owned by PHL, Holdings and their Affiliates to any Person or Group without the prior written consent of the Company (which consent may be withheld in the Company's sole discretion), if (i) as a result of such Transfer, such Person or Group would have beneficial ownership of Common Stock representing in the aggregate more than 9.9% of the issued and outstanding shares of Common Stock, such determination to be based upon (x) the most recent publicly available information as to the number of shares of Common Stock beneficially owned by such Person or Group (to the extent such information is available) or the transferor's actual knowledge, after due inquiry, as to such beneficial ownership, (y) the number or amount of Holdings Securities proposed to be Transferred and (z) the number of issued and outstanding shares of Common Stock on the date of Transfer (as adjusted pursuant to Rule 13d- 3(d)(1)(i) under the Exchange Act), or (ii) prior to such Transfer, such Person or Group has beneficial ownership of Common Stock representing in the aggregate more than 9.9% of the issued and outstanding shares of Common Stock, such determination to be based upon (x) the most recent publicly available information as to the number of shares of Common Stock beneficially owned by such Person or Group (to the extent such information is available) or the transferor's actual knowledge, after due inquiry, as to such beneficial ownership and (y) the number of issued and outstanding shares of Common Stock on the date of Transfer (as adjusted pursuant to Rule 13d-3(d)(1)(i) under the Exchange Act). Subject to the foregoing limitation (except in the case of subparagraphs (g) and (h) of this Section 4.1) and, with respect to any Transfer of the Subordinated Debentures, the provisions of the Indenture, PHL, Holdings and their Affiliates may Transfer the Holdings Securities beneficially owned by PHL, Holdings and their Affiliates in the following manner: (a) to the Company or any Affiliate of the Company; -13- (b) pursuant to an effective registration statement under the Securities Act as provided in the Registration Rights Agreement; provided that such registration statement shall apply only to sales of the Common Stock of the Company and not to sales of the Subordinated Debentures; (c) pursuant to Rule 144, Rule 144A, Regulation S or any other applicable exemption from registration under the Securities Act; (d) pursuant to a distribution (including any such distribution pursuant to any liquidation or dissolution) by PHL or Holdings to its shareholders; provided that, upon a change in Control of PHL or Holdings occurring after the date of this Agreement, PHL or Holdings shall not distribute any of the Holdings Securities to its Affiliates pursuant to this Section 4.1(d) or otherwise unless PHL or Holdings has received the prior written consent of the Company (which consent may be withheld in the Company's sole discretion) and obtained an agreement in writing by the distributee to be bound by the terms and conditions of this Agreement, such agreement to be substantially in the form of Exhibit B attached hereto; (e) pursuant to a merger or consolidation of the Company or pursuant to a plan of liquidation of the Company, which has been approved by the affirmative vote of a majority of the members of the Board of Directors then in office; (f) pursuant to a tender or exchange offer in which more than 67% of the issued and outstanding shares of Common Stock have been tendered by Persons who are not Affiliates of Holdings, PHL or its Affiliates or in which the Board of Directors has (i) recommended that its shareholders accept such offer or (ii) after ten (10) business days (as defined in Rule 14d-1 under the Exchange Act as in effect on the date of this Agreement) from the date of commencement of such offer, expressed no opinion, remained neutral, was unable to take a position or otherwise did not oppose or recommend that its shareholders reject such offer; (g) to any Affiliate of Holdings or PHL; provided that such Affiliate has delivered to the Company an agreement in writing by such Affiliate to be bound by the terms and conditions of this Agreement, such agreement to be substantially in the form of Exhibit B attached hereto; (h) pursuant to a merger or consolidation of Holdings or PHL or any Affiliate to which the Holdings Securities have theretofore been Transferred; provided that the Person surviving such merger or formed by such consolidation shall have delivered to the Company an agreement in writing by such Person to be bound by the terms and conditions of this Agreement, such agreement to be substantially in the form of Exhibit B attached hereto. In connection with any permitted Transfer pursuant to this Section 4.1, the rights of PHL and Holdings under this Agreement shall not transfer to any transferee(s) of the Holdings Securities, except to the extent provided in Section 2.7 hereof or upon express assignment of such rights to the extent permitted by Section 7.3 hereof. Section 4.2. Transfers to Affiliates. In the event of any Transfer of the Holdings Securities to an Affiliate of PHL or Holdings under Section 4.1 above, or such Affiliate otherwise becomes the beneficial owner of any of the Holdings Securities, PHL shall use its best efforts to -14- cause such Affiliate to comply with all of the provisions of this Agreement, including without limitation this Article IV. Section 4.3. Confidential Information. In connection with any permitted Transfer of the Holdings Securities pursuant to this Article IV, neither PHL, Holdings nor their Affiliates shall disclose any confidential information relating to the Company or its business to any Person except as required by applicable law, including without limitation Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, but only to the extent that any required disclosure of such confidential information has been preceded by the execution of a confidentiality agreement by PHL, Holdings or their Affiliates, as the case may be, and such Person substantially in the form attached hereto as Exhibit C. Such confidentiality agreement shall be promptly forwarded to the Company for its execution, which execution by the Company may be subsequent to the permitted Transfer or disclosure to such Person; provided that the failure of the Company to so execute such confidentiality agreement shall in no way be construed to be a failure on the part of PHL, Holdings or their Affiliates, as the case may be, to fulfill its obligations under this paragraph or to limit or affect the validity of such confidentiality agreement as between PHL, Holdings or their Affiliates, as the case may be, and such Person. ARTICLE V Further Assurances Each party shall execute and deliver such additional instruments and other documents and shall take such further actions as may be necessary or appropriate to effectuate, carry out and comply with all of its respective obligations under this Agreement. Holdings shall deliver to the Company, concurrently with the filing thereof with the Securities and Exchange Commission, copies of all Forms 3, 4 and 5, Form 144 and Schedules 13D or 13G, and each amendment thereto, filed by Holdings, PHL or its Affiliates pursuant to the Exchange Act. Holdings and PHL agree to provide any additional information requested by the Company regarding Transfers of the Holdings Securities for the purpose of determining compliance with this Agreement. Holdings shall notify the Company promptly of any proposed Transfer of the Holdings Securities pursuant to Sections 4.1(g) and (h) hereof. If reasonably requested by the Company at any time during the term of this Agreement, Holdings agrees to confirm in writing to the Company the number of Holdings Securities held, beneficially and of record, by Holdings and its Affiliates as of the latest practicable date. ARTICLE VI Termination Unless earlier terminated by written agreement of the parties hereto, this Agreement shall terminate on the expiration of ten (10) years from the date hereof. Any termination of this Agreement as provided herein shall be without prejudice to the rights of any party arising out of the breach by any other party of any provisions of this Agreement that occurred prior to the termination. -15- ARTICLE VII Miscellaneous Section 7.1. Notices. Any notices or other communications required or permitted hereunder shall be sufficiently given if in writing (including telecopy or similar teletransmission), addressed as follows: If to the Company, Hilb, Rogal and Hamilton Company to it at: 4235 Innslake Drive Glen Allen, Virginia 23060 Telecopier: (804) 747-3138 Attention: Andrew L. Rogal With a copy to: Williams Mullen Christian & Dobbins 1021 East Cary Street, 16th Floor Richmond, Virginia 23219 Telecopier: (804) 783-6507 Attention: Theodore L. Chandler, Jr., Esquire If to Holdings PM Holdings, Inc. or PHL, One American Row to them at: Hartford, Connecticut 06115 Telecopier: (860) 403-5182 Attention: Carole A. Masters, Esquire Phoenix Home Life Mutual Insurance Company One American Row Hartford, Connecticut 06115 Telecopier: (860) 403-5182 Attention: David W. Searfoss Executive Vice President and Chief Financial Officer With a copy to: Stroock & Stroock & Lavan LLP 180 Maiden Lane New York, New York 10038-4982 Telecopier: (212) 806-6006 Attention: David L. Finkelman, Esquire Unless otherwise specified herein, such notices or other communications shall be deemed received (a) in the case of any notice or communication sent other than by mail, on the date actually delivered to such address (evidenced, in the case of delivery by overnight courier, by confirmation of delivery from the overnight courier service making such delivery, and in the case of a telecopy, by receipt of a transmission confirmation form or the addressee's confirmation of receipt), or (b) in the case of any notice or communication sent by mail, three (3) Business Days after being -16- sent, if sent by registered or certified mail, with first-class postage prepaid. Each of the parties hereto shall be entitled to specify a different address by giving notice as aforesaid to each of the other parties hereto. Section 7.2. Amendments, Waivers, Etc. This Agreement may not be amended, changed, supplemented, waived or otherwise modified or terminated except by an instrument in writing signed by Holdings, PHL and the Company following approval thereof by a majority of the Continuing Directors. Section 7.3. Successors and Assigns. Except as otherwise provided herein, this Agreement shall be binding upon and shall inure to the benefit of and be enforceable by the parties and their respective successors and assigns, including without limitation in the case of any corporate party hereto any corporate successor by merger or otherwise; provided that no party may assign this Agreement without the other party's prior written consent, which consent will not be required in the event of the Transfer of the Holdings Securities in accordance with Sections 4.1(g) or 4.1(h) hereof. Notwithstanding the foregoing, during the term of this Agreement, as long as Holdings, PHL or any of their Affiliates beneficially own any of the Holdings Securities, no assignment of this Agreement by Holdings, PHL or any of their Affiliates shall relieve the assignor from its obligation to fully perform or comply with the terms of this Agreement and, unless otherwise expressly agreed in writing by the Company, such assignor shall remain bound by all of the provisions hereof. Section 7.4. Entire Agreement. This Agreement, the Stock Purchase Agreement, the Indenture and the Registration Rights Agreement embody the entire agreement and understanding among the parties relating to the subject matter hereof and supersede all prior agreements and understandings relating to such subject matter. There are no covenants by the parties hereto relating to such subject matter other than those expressly set forth in this Agreement, the Stock Purchase Agreement, the Indenture and the Registration Rights Agreement. Section 7.5. Specific Performance. The parties acknowledge that money damages are not an adequate remedy for violations of this Agreement and that any party may, in its sole discretion, apply to a court of competent jurisdiction for specific performance or injunctive or such other relief as such court may deem just and proper in order to enforce this Agreement or prevent any violation hereof and, to the extent permitted by applicable law, each party waives any objection to the imposition of such relief. Section 7.6. Remedies Cumulative. All rights, powers and remedies provided under this Agreement or otherwise available in respect hereof at law or in equity shall be cumulative and not alternative, and the exercise or beginning of the exercise of any thereof by any party shall not preclude the simultaneous or later exercise of any other such right, power or remedy by such party. Section 7.7. No Waiver. The failure of any party hereto to exercise any right, power or remedy provided under this Agreement or otherwise available in respect hereof at law or in equity, or to insist upon compliance by any other party hereto with its obligations hereunder, and any custom or practice of the parties at variance with the terms hereof, shall not constitute a -17- waiver by such party of its right to exercise any such or other right, power or remedy or to demand such compliance. Section 7.8. No Third Party Beneficiaries. This Agreement is not intended to be for the benefit of and shall not be enforceable by any Person who or which is not a party hereto. Section 7.9. Consent to Jurisdiction. Each party to this Agreement, by its execution hereof, hereby (i) irrevocably submits, and agrees to cause each of its Affiliates to submit, to the jurisdiction of the federal courts located either in the City of Richmond, Virginia, or in the City of Hartford, Connecticut, and in the event that such federal courts shall not have subject matter jurisdiction over the relevant proceeding, then of the state courts located either in the City of Richmond, Virginia, or in the City of Hartford, Connecticut, for the purpose of any Action arising out of or based upon this Agreement or relating to the subject matter hereof or the transactions contemplated hereby, (ii) waives, and agrees to cause each of its Affiliates to waive, to the extent not prohibited by applicable law, and agrees not to assert, and agrees not to allow any of its Affiliates to assert, by way of motion, as a defense or otherwise, in any such Action, any claim that it is not subject personally to the jurisdiction of the above-named courts, that its property is exempt or immune from attachment or execution, that any such proceeding brought in one of the above-named courts is improper, or that this Agreement or the subject matter hereof may not be enforced in or by such court and (iii) hereby agrees not to commence or to permit any of its Affiliates to commence any Action arising out of or based upon this Agreement or relating to the subject matter hereof other than before one of the above-named courts nor to make any motion or take any other action seeking or intending to cause the transfer or removal of any such Action to any court other than one of the above-named courts whether on the grounds of inconvenient forum or otherwise. Each party hereby consents to service of process in any such proceeding in any manner permitted by Virginia or Connecticut law, as the case may be, and agrees that service of process by registered or certified mail, return receipt requested, at its address specified pursuant to Section 7.1 above is reasonably calculated to give actual notice. Notwithstanding anything contained in this Section 7.9 to the contrary with respect to the parties' forum selection, if an Action is filed against a party to this Agreement, including its Affiliates, by a Person who or which is not a party to this Agreement, an Affiliate of a party to this Agreement, or an assignee thereof (a "Third Party Action"), in a forum other than the federal district court or a state court located in the City of Richmond, Virginia, or in the City of Hartford, Connecticut, and such Third Party Action is based upon, arises from, or implicates rights, obligations or liabilities existing under this Agreement or acts or omissions pursuant to this Agreement, then the party to this Agreement, including its Affiliates, joined as a defendant in such Third Party Action shall have the right to file cross-claims or third-party claims in the Third Party Action against the other party to this Agreement, including its Affiliates, and even if not a defendant therein, to intervene in such Third Party Action with or without also filing cross-claims or third-party claims against the other party to this Agreement, including its Affiliates. Section 7.10. Governing Law. This Agreement shall be governed by and construed in accordance with the domestic substantive law of the Commonwealth of Virginia, without giving effect to any choice or conflict of law provision or rule that would cause the application of the law of any other jurisdiction. -18- Section 7.11. Name, Captions. The name assigned to this Agreement and the section captions used herein are for convenience of reference only and shall not affect the interpretation or construction hereof. Section 7.12. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies each signed by fewer than all, but together signed by all, the parties hereto. Section 7.13. Expenses. Each of the parties hereto shall bear their own expenses incurred in connection with this Agreement and the transactions contemplated hereby, except that in the event of a dispute concerning the terms or enforcement of this Agreement, the prevailing party in any such dispute shall be entitled to reimbursement of reasonable legal fees and disbursements reasonably incurred from the other party or parties to such dispute. Section 7.14. Severability. In the event that any provision hereof would, under applicable law, be invalid or unenforceable in any respect, such provision shall (to the extent permitted under applicable law) be construed by modifying or limiting it so as to be valid and enforceable to the maximum extent compatible with, and possible under, applicable law. The provisions hereof are severable, and in the event any provision hereof should be held invalid or unenforceable in any respect, it shall not invalidate, render unenforceable or otherwise affect any other provision hereof. [SIGNATURES ON NEXT PAGE] -19- IN WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby, have caused this Voting and Standstill Agreement to be executed, as of the date first above written by their respective officers thereunto duly authorized. HILB, ROGAL AND HAMILTON COMPANY By: ____________________________________________ Name: Andrew L. Rogal Title: President and Chief Executive Officer PM HOLDINGS, INC. By: ____________________________________________ Name: Title: PHOENIX HOME LIFE MUTUAL INSURANCE COMPANY By: ____________________________________________ Name: Title: -20- Exhibit A Form of Resignation Agreement Hilb, Rogal and Hamilton Company 4235 Innslake Drive Glen Allen, Virginia 23060 Ladies and Gentlemen: I hereby acknowledge that my position on the Board of Directors of Hilb, Rogal and Hamilton Company ("the Company") is subject to the provisions of a Voting and Standstill Agreement (the "Agreement"), dated _____________, 1999, between the Company, PM Holdings, Inc., a Connecticut corporation ("Holdings"), and Phoenix Home Life Mutual Insurance Company, a New York life insurance company ("PHL"). Accordingly, I hereby agree to resign immediately from such Board of Directors under the terms of Article II of the Agreement in the event that the Company or Holdings (with respect to the Holdings Designee) requests such resignation in accordance with such terms. I understand that, if I do not resign as requested within five (5) Business Days (as defined in the Agreement), the Company may seek specific performance of this letter agreement through court proceedings or otherwise may seek to remove me from office. I agree that any failure to resign upon request shall be deemed to be "cause" for my removal from the Board of Directors. Date: _________________ _________________________________ Name Agreed to and Accepted: Hilb, Rogal and Hamilton Company By:___________________________ Name: Title: Exhibit B Form of Assumption Agreement Hilb, Rogal and Hamilton Company 4235 Innslake Drive Glen Allen, Virginia 23060 Ladies and Gentlemen: Pursuant to Section 4.1[(d), (g) or (h)] of the Voting and Standstill Agreement (the "Agreement"), dated _____________, 1999, between Hilb, Rogal and Hamilton Company ("the Company"), PM Holdings, Inc., a Connecticut corporation ("Holdings"), and Phoenix Home Life Mutual Insurance Company, a New York life insurance company ("PHL"), the undersigned hereby agrees to be bound by all of the terms and conditions of the Agreement to the same extent as if it were a party thereto and assumes all of the obligations of [Holdings, PHL or their Affiliate] under the Agreement with respect to the Holdings Securities (as defined in the Agreement). [HOLDINGS, PHL or AFFILIATE] Date: _________________ By:_________________________________ Name: Title: [TRANSFEREE] Date: _________________ By:_________________________________ Name: Title: Agreed to and Accepted: Hilb, Rogal and Hamilton Company By:___________________________ Name: Title: Exhibit C Form of Confidentiality Agreement ________ __, 19__ CONFIDENTIAL [Name] [Address] Re: Confidentiality Agreement Ladies and Gentlemen: In connection with our [soliciting, offering, seeking to effect or negotiating] with you with respect to the [sale, transfer, assignment, pledge, etc.] of [shares of Common Stock, without par value, or 5.25% Convertible Subordinated Debentures], of Hilb, Rogal and Hamilton Company (the "Company"), we are prepared to make available to you certain confidential information relating to the Company and its business (the "Confidential Information"). As a condition to your being furnished the Confidential Information, you agree to comply with the terms and conditions of this letter agreement (this "Agreement"). For the purposes of this Agreement, the term "Representatives" shall mean your employees, agents and advisors and the directors, officers, employees and agents of any of your advisors. The term "Third Party" shall be broadly interpreted to include without limitation any corporation, company, group, partnership, other entity or individual. The term "Confidential Information" shall not include information that (i) was or becomes generally available to the public other than as a result of a disclosure by you or your Representatives, or (ii) was or becomes available to you on a non-confidential basis from a source other than the Company or its advisors. You hereby agree to treat the Confidential Information as confidential and, unless required by applicable law, you shall not, and shall direct your Representatives not to, use in any way or to disclose, directly or indirectly, the Confidential Information to any Third Party without the written consent of the Company. It is understood and agreed that money damages would not be a sufficient remedy for any breach of this Agreement by you and that the Company shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any such breach, and you further agree to waive any requirement for the securing or posting of any bond in connection with such remedy. Such remedy shall not be deemed to be the exclusive remedy for your breach of this Agreement, but shall be in addition to all other remedies available at law or equity to the Company. If you are in agreement with the foregoing, please so indicate by signing and returning one copy of this Agreement, whereupon it will constitute our agreement with respect to the subject matter hereof. Very truly yours, [Name] Officer of [Holdings or Affiliate] CONFIRMED AND AGREED as of the date first written above: [NAME] By:_________________________________ Name: Title: Hilb, Rogal and Hamilton Company By:_________________________________ Name: Title: EX-3.(II) 3 EXHIBIT 3.2 Exhibit 3.2 AMENDED AND RESTATED BYLAWS OF HILB, ROGAL AND HAMILTON COMPANY * * * * * * * * ARTICLE I Shareholders The shareholders of the Corporation shall be those who appear on the books of the Corporation as holders of one or more shares of the capital stock, and the original stock transfer books shall be prima facie evidence as to the identity of the shareholders entitled to vote at any meeting of shareholders. ARTICLE II Meetings of the Shareholders Section 1. The annual meeting of the shareholders of the Corporation shall be held on the first Tuesday in May of each year during normal business hours, at the offices of the Corporation, or at such other time and at such other place within or without the Commonwealth of Virginia as may from time to time be fixed by the Board of Directors, or in the absence of action by the Directors, as may be fixed by the Chief Executive Officer. Section 2. Special meetings of the shareholders of the Corporation may be held at any time, at such place within or without the Commonwealth of Virginia as shall be designated in the notice of any such meeting, upon the call of the Chief Executive Officer, or by order of the Board of Directors, whenever they deem it necessary. Section 3. Written notice of any annual or special meeting of the shareholders shall be mailed to the address of or be delivered to each shareholder of record entitled to vote at such meeting not less than ten (10) nor more than sixty (60) days prior to the date of such meeting; provided, however, that written notice of any meeting to act on an amendment of the Articles of Incorporation or on a reduction of stated capital or on a plan of merger, consolidation or exchange shall be given not less than twenty-five (25) nor more than sixty (60) days prior to the date of such meeting. In the case of a special meeting, the notice shall include a statement of the purpose or purposes for which the meeting is called. Section 4. To constitute a quorum, shareholders holding a majority of all the outstanding shares of stock of the Corporation entitled to vote must be present, either in person or by proxy, each share of such stock being entitled to one vote, which may be given personally or by duly authorized proxy. Less than a quorum may adjourn the meeting to a fixed time and place, no further notice of any adjourned meeting being required. Section 5. The Board of Directors may fix in advance a date as the record date for the purposes of determining shareholders entitled to notice of or to vote at any meeting of the shareholders or any adjournment thereof, or entitled to receive a payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, such date not to be more than seventy (70) days preceding the date on which the particular action requiring such determination of the shareholders is to be taken. Section 6. The officer or agent having charge of the stock transfer books for shares of the Corporation shall make, at least ten (10) days before each meeting of shareholders, a complete list of the shareholders entitled to vote at such meeting or any adjournment thereof, with the address of and the number of shares held by each. Such list, for a period of ten (10) days prior to such meeting, shall be kept on file at the registered office of the Corporation or at its principal place of business or at the office of its transfer agent or registrar and shall be subject to inspection by any shareholder at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting for the purposes thereof. The original stock transfer books shall be prima facie evidence as to who are the shareholders entitled to examine such list or transfer books or to vote at any meeting of shareholders. Section 7. The Chief Executive Officer shall preside over all meetings of the shareholders of the Corporation at which he is present. If the Chief Executive Officer is not present, a chairman of the meeting shall be elected at the meeting by those authorized to vote at the meeting. The Secretary of the Corporation shall record the minutes of all the meetings if he is present at the meeting. If he is not present, the chairman of the meeting shall appoint a secretary of the meeting. The chairman of the meeting may appoint one or more inspectors of the election to determine the qualification of voters, the validity of proxies, and the results of ballots. Section 8. Notice of Shareholder Business and Nominations. A. Annual Meetings of Shareholders. (1) Nominations of persons for election to the Board of Directors of the Corporation and the proposal of business to be considered by the shareholders may be made at an annual meeting of shareholders (a) pursuant to the Corporation's notice of meeting ("Corporate Initiative"), (b) by or at the direction of the Board of Directors ("Board Initiative") or (c) by any shareholder of the Corporation who was a shareholder of record at the time of giving of notice provided for in this Bylaw, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw ("Shareholder Initiative"). (2) For nominations or other business to be properly brought before an annual meeting by Shareholder Initiative, the shareholder must have given timely notice thereof in writing to the Secretary of the Corporation and such other business must otherwise be a proper matter for shareholder action. If the annual meeting date of the Corporation is no more than 30 days before nor 60 days after the anniversary date of the preceding annual meeting of the Corporation ("Anniversary Date"), then notice of the Shareholder Initiative must be delivered to the Secretary at the Corporation's principal executive offices, during normal business hours, no more than 90 days nor less than 60 days prior to the Anniversary Date. If the annual meeting date of the Corporation is more than 30 days before or more than 60 days after the Anniversary Date, then the notice of Shareholder Initiative must be delivered to the Secretary of the Corporation's principal executive offices, during normal business hours, no more than 90 days prior to such annual meeting and no later than the later to occur of (i) 60 days prior to the annual meeting or (ii) the tenth day following the day on which public announcement of the date of the annual meeting was made by the Corporation. If an annual meeting is adjourned, the public announcement thereof shall not commence a new time period for delivery of the notice of Shareholder Initiative. Notice of a Shareholder Initiative shall set forth (a) as to each person whom the shareholder proposes to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (b) as to any other business that the shareholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such shareholder and the beneficial owner, if any, on whose behalf the proposal is made; and (c) as to the shareholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such shareholder, as they appear on the Corporation's books, and of such beneficial owner and (ii) the class or series and number of shares of the Corporation which are owned beneficially and of record by such shareholder and such beneficial owner. (3) Notwithstanding anything in paragraph A(2) of this Bylaw to the contrary, if the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement by the Corporation naming all of the nominees for director or specifying the size of the increased Board of Directors at least 70 days prior to the Anniversary Date, notice of a Shareholder Initiative shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the Corporation. B. Special Meetings of Shareholders. Only such business shall be conducted at a special meeting of shareholders as shall have been brought before the meeting pursuant to the Corporation's notice of meeting. Nominations of persons for election to the Board of Directors may be made at a special meeting of shareholders at which directors are to be elected pursuant to the Corporation's notice of meeting (1) by or at the direction of the Board of Directors or (2) provided that the Board of Directors has determined that directors shall be elected at such meeting, by any shareholder of the Corporation who is a shareholder of record at the time of giving of notice provided for in this Bylaw, who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Bylaw. If the Corporation calls a special meeting of shareholders for the purpose of electing one or more directors to the Board of Directors, any such shareholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the Corporation's notice of meeting, if the shareholder's notice required by paragraph A(2) of this Bylaw shall be delivered to the Secretary at the principal executive offices of the Corporation not earlier than the close of business on the 90th day prior to such special meeting and not later than the close of business on the later of the 60th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a shareholder's notice as described above. C. General. (1) Only such persons who are nominated in accordance with the procedures set forth in this Bylaw shall be eligible to serve as directors and only such business shall be conducted at a meeting of shareholders as shall have been brought before the meeting in accordance with the procedures set forth in this Bylaw. Except as otherwise provided by law, the Articles of Incorporation or these Bylaws, the chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Bylaw and, if any proposed nomination or business is not in compliance with this Bylaw, to declare that such defective proposal or nomination shall be disregarded. (2) For purposes of this bylaw, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (3) Notwithstanding the foregoing provisions of this Bylaw, a shareholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Bylaw. Nothing in this Bylaw shall be deemed to affect any rights (a) of shareholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (b) of the holders of any class of series of Preferred Stock to elect directors under specified circumstances. ARTICLE III Board of Directors Section 1. The affairs and business of the Corporation shall be under the management and control of the Board of Directors, which shall be composed of not less than three (3) nor more than fourteen (14) members, as may be fixed from time to time by the Board of Directors. Directors need not be residents of Virginia or shareholders of the Corporation. No person other than Robert H. Hilb, a founder of the Corporation, may stand for election as a Director if that person has attained the age of seventy (70) years. The Board of Directors may elect, employ or appoint such other officers and agents as it deems necessary. Section 2. The Directors shall be elected at each annual meeting of the shareholders of the Corporation held at the time and place hereinbefore designated. No individual shall be named or elected as a director without his prior consent. Vacancies in the Board, whether caused by death, resignation, or otherwise, may be filled by the Board of Directors, and the person so elected shall hold office until the next annual meeting of the shareholders, or until their successors are elected; provided, however, that nothing herein shall prevent the shareholders from filling any such vacancies existing at the time of any meeting of the shareholders, annual or special, or created at the time of such meeting by resignations accepted, or otherwise, or additional placed created by an increase in the Board authorized at such meetings. The shareholders may increase the Board of Directors from time to time and may provide that the additional places shall be filled by the Board of Directors at such time as they may deem proper. Should the number of Directors at any time be increased, the resulting additional places on the Board shall be considered vacancies to be filled, as above provided, by the Board of Directors or shareholders. Until any such additional places shall have been filled by the election of Directors, the total number of Directors of the Corporation, for the purposes of determining a quorum, shall be the number of Directors actually elected and serving at the time of any given meeting. Section 3. The Board of Directors shall hold its meetings at such time and place as shall be designated, or in the absence of designation by the Board of Directors, at such place as shall be designated in the notice. A meeting may be called at any time by the Chairman or by any two Directors. Due notice of the time and place of each meeting of the Directors shall be given by the Secretary personally, or by mail or telegraph, to all Directors. A majority of the Directors shall constitute a quorum. The Chairman shall preside over all meetings of the Board of Directors at which he is present. If the Chairman is not present, the Chief Executive Officer shall preside. If neither of such officers is present, a chairman of the meeting shall be elected at the meeting by the Directors present at the meeting. Section 4. The Board of Directors may, by resolution adopted by a majority of the Directors, designate three or more of their number, of whom the Chairman and the Chief Executive Officer shall each be one ex officio, to constitute an Executive Committee, which shall have and exercise all the powers of the Board that may be lawfully delegated, including the power to authorize the seal of the Corporation to be affixed to such documents as may require it, but shall not be empowered to declare dividends. The acts and records of said Executive Committee shall at all times be subject to the supervision and control of the Board of Directors when in meeting assembled. The Secretary shall attend and keep a record of the meetings of the said Executive Committee. Section 5. The vote of a majority of disinterested Directors and the vote of a majority of independent Directors shall be required to approve any contract, lease, loan or transaction of any kind between the Corporation and any executive officer, Director or affiliated person of the Corporation. ARTICLE IV Officers Section 1. The officers of the Corporation shall be a Chairman, a Chief Executive Officer, a President, a Secretary, a Treasurer and such Chief Operating Officers, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents, Assistant Secretaries, Assistant Treasurers, Assistant Vice Presidents or other officers as may be deemed necessary from time to time by the Board of Directors. Assistant officers shall have the same authority and power as the primary officeholder. Any two or more offices may be held by the same person, except the offices of Chief Executive Officer and Secretary shall be held by different persons. All of the officers shall be elected by the Board of Directors each year as soon after the annual meeting of the shareholders as is convenient. Section 2. The Chairman shall preside at all meetings of the Board of Directors at which he is present. In addition, he shall do everything and discharge all duties generally pertaining to his office as Chairman of the Board of Directors of a corporation of this character and such additional duties as may be delegated to him from time to time by the Board of Directors. Section 3. The Chief Executive Officer of the Corporation shall attend and preside at all meetings of the shareholders, shall attend all meetings of the Board of Directors, shall exercise general supervision over the property, business and affairs of the Corporation and shall do everything and discharge all duties generally pertaining to his office as the executive head of a corporation of this character, subject to the control of the Board of Directors. He may at each annual meeting of the shareholders render a general report of the Corporation's condition and business. Section 4. The President, or the Chief Operating Officer, as the case may be, shall supervise the day-to-day operations and affairs of the corporation and do everything and discharge all duties generally pertaining to his office as the operating head of a corporation of this character and such additional duties as may be delegated to him from time to time by the Chief Executive Officer, subject to the control of the Board of Directors. Section 5. In the instance of the inability of the Chief Executive Officer to act on account of absence, illness or for any other reason, his duties shall be performed during the period of such inability by the President, or the Chief Operating Officer, as the case may be. In the instance of the inability of the President, or the Chief Operating Officer, as the case may be, to act on account of absence, illness, or for any other reason, his duties shall be performed during the period of such inability by the most senior vice president available. The vice presidents in the order of their seniority ranking shall be Executive Vice President, Senior Vice President and Vice President. The acts of the vice president, duly authorized and performed under such conditions, shall be the acts of, and binding upon, the Corporation. If a vice president who has temporarily assumed the duties of the President, or the Chief Operating Officer, as the case may be, is unable for any reason to continue to perform such duties, the same shall be performed by the Vice President next in seniority ranking who is available for the purpose. The President, or the Chief Operating Officer, as the case may be, if either should act as Chief Executive Officer under this Bylaw shall report fully to the Chief Executive Officer upon the Chief Executive Officer's return to duty with respect to all actions taken and transactions accomplished by the President, or the Chief Operating Officer, as the case may be, during the absence or disability of the Chief Executive Officer. A vice president who acts as President under this Bylaw shall report fully to the President upon his return to duty with respect to all actions taken and transactions accomplished by him during the absence or disability of the President. Section 6. In the absence of the Chief Executive Officer, the President and any Vice President, the Board of Directors may designate some other individual to discharge such executive duties as may be required for the elapsed period. Section 7. The Treasurer shall have charge and custody of the funds, securities of whatsoever nature and other like property of the Corporation. The Treasurer shall endorse checks, notes and bills for deposit only as may be required for the business of the Corporation, shall have authority to collect the funds of the Corporation and shall deposit same in such bank or banks as the Board may designate, and the same shall not be drawn therefrom except by checks to be signed in the manner designated herein. Section 8. The Secretary shall sign, with the Chief Executive Officer, all certificates of stock. The Secretary shall keep a book containing the names of all persons who are now, or may hereafter become, shareholders of the Corporation, showing their place of residence, the number of shares held by them, respectively, and the time when they respectively became the owners of such shares. The Secretary shall keep a record of the proceedings of the meetings of the shareholders, of the Board of Directors and of the Executive Committee. He shall have charge of the seal of the Corporation and shall perform such other duties as pertain to such office or as the Chief Executive Officer or the Board of Directors may from time to time require. ARTICLE V Certificates of Stock Section 1. Each shareholder shall be entitled to a certificate of certificates of stock in such form as may be approved by the Board of Directors, signed by the Chief Executive Officer, or the President, and by the Secretary and with the corporate seal impressed thereon. Section 2. All transfers of stock of the Corporation shall be made upon its books by surrender of the certificate for the shares transferred accompanied by an assignment in writing by the holders and may be accomplished either by the holder in person or by a duly authorized attorney in fact. Section 3. In case of the loss, mutilation, or destruction of a certificate of stock, a duplicate certificate may be issued upon such terms not in conflict with law as the Board of Directors may prescribe. Section 4. The Board of Directors may also appoint one or more Transfer Agents and Registrars for its stock and may, at its option, require stock certificates to be both countersigned by a Transfer Agent and registered by a Registrar. If certificates of capital stock of the Corporation are signed both by a Transfer Agent and Registrar, the signatures thereon of the officers of the Corporation and the seal of the Corporation thereon may be facsimiles, engraved or printed. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers of the Corporation. ARTICLE VI Voting of Stock Held Unless otherwise provided by a vote of the Board of Directors, the Chief Executive Officer may either appoint attorney(s)-in-fact to vote any stock of any other Corporation owned by this Corporation or may attend any meeting of the holders of stock of such other Corporation and vote such shares in person. ARTICLE VII Checks All checks, notes, drafts, and bonds given by the Corporation in the course of its business shall be signed in the name of the Corporation in such manner as may be designated by the Directors from time to time. ARTICLE VIII Fiscal Year The fiscal year of the Corporation shall end on December 31st of each calendar year. ARTICLE IX Corporate Seal The corporate seal of this Corporation shall consist of two concentric circles around the inner edge of which shall be engraved the words "HILB, ROGAL AND HAMILTON COMPANY" and "VIRGINIA" and across the center thereof the word "SEAL." ARTICLE X Amendments These Bylaws may be altered, amended or repealed by a vote of the majority of the number of Directors present at any meeting of the Board of Directors, or by the shareholders at any special meeting, when notice of such proposed amendment has been given in the notice calling said board meeting or special meeting of the shareholders, unless the same shall be waived in the manner prescribed by law, or by the shareholders at any annual meeting. ARTICLE XI Gender Wherever the context requires or is appropriate, references in these Bylaws to the masculine gender of words shall include the feminine and vice versa. Certified to be the original of the Amended and Restated Bylaws of Hilb, Rogal & Hamilton Company duly adopted by the Board of Directors of the Corporation on March 29, 1999. Secretary EX-10 4 EXHIBIT 10.3 Exhibit 10.3 SECOND AMENDMENT TO CREDIT AGREEMENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Agreement") is made and entered into as of this 15TH day of December, 1998, by and among HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation (the "Borrower"), the Banks set forth on the signature page hereto (the "Banks"), and CRESTAR BANK, a Virginia banking corporation, as agent for the Banks under the Credit Agreement (in such capacity, the "Agent"). RECITALS A. The Borrower, the Agent and the Banks are parties to that certain Credit Agreement dated as of February 12, 1996 and that certain Amendment to Credit Agreement dated as of February 24, 1997 (together, the "Credit Agreement"), pursuant to which each Bank, severally and not jointly, agreed to make Loans from time to time until the Commitment Termination Date in an aggregate principal amount at any time outstanding not exceeding the amount of its Commitment. Capitalized terms not otherwise defined herein shall have the meanings given such terms in the Credit Agreement. B. The Borrower has requested that the Agent and the Banks make certain amendments to the Credit Agreement and the Agent and the Banks are willing to make certain amendments to the Credit Agreement on the terms and conditions set forth herein. AGREEMENT In consideration of the Recitals and of the mutual promises and covenants contained herein, the Borrower, the Agent and the Banks agree as follows: 1. Amendments to Credit Agreement. The Borrower, the Agent and the Banks agree to the following amendments to the Credit Agreement: (a) Section 7.02 of the Credit Agreement is amended by deleting the existing provision and substituting the following in lieu thereof: "SECTION 7.02. Indebtedness to Total Capitalization Ratio. The ratio of Consolidated Indebtedness to the sum of Consolidated Indebtedness plus Consolidated Net Worth shall not at any time exceed .55 to 1.00. For purposes of this covenant, (i) Consolidated Indebtedness shall be determined as of the date of the last day of each quarter and the date of any change in Consolidated Indebtedness, and (ii) Consolidated Net Worth shall be calculated as of the last day of each quarter." (b) The definition of "Commitment" as set forth in Exhibit A of the Credit Agreement is amended by deleting the existing provision and substituting the following in lieu thereof: "'Commitment' means, with respect to each Bank, $20,000,000, as such amount may be reduced from time to time pursuant to this Agreement." (c) The definition of "Commitment Termination Date" as set forth in Exhibit A of the Credit Agreement is amended by deleting the existing provision and substituting the following in lieu thereof: "'Commitment Termination Date' means December 31, 2003, or such earlier date and time on which the Commitments are terminated pursuant to Article VIII." (d) Schedule 4.06(a) is amended by deleting the existing schedule in its entirety and substituting in lieu thereof the Schedule 4.06(a) attached hereto. 2. Representations and Warranties. The Borrower hereby represents and warrants to the Agent and the Banks as follows: (a) Recitals. The Recitals in this Agreement are true and correct in all respects. (b) Incorporation of Representations. All representations and warranties of the Borrower in the Credit Agreement are incorporated herein in full by this reference and are true and correct as of the date hereof. (c) No Defaults. No Default or Event of Default has occurred and is continuing under the Credit Agreement. (d) Corporate Power; Authorization. The Borrower has the corporate power, and has been duly authorized by all requisite corporate action, to execute and deliver this Agreement and to perform its obligations hereunder. This Agreement has been duly executed and delivered by the Borrower. (e) Enforceability. This Agreement is the legal, valid and binding obligation of the Borrower, enforceable against the Borrower in accordance with its terms. -2- (f) No Violation. The Borrower's execution, delivery and performance of this Agreement do not and will not (i) violate any law, rule, regulation or court order to which the Borrower is subject, or (ii) conflict with or result in a breach of the Borrower's Articles of Incorporation or Bylaws or any agreement or instrument to which the Borrower is party or by which it or its properties are bound. (g) Obligations Absolute. The obligation of the Borrower to repay the Loans, together with all interest accrued thereon, is absolute and unconditional, and there exists no known right of set off or recoupment, counterclaim or defense of any nature whatsoever to payment of the Obligations, and, to the Borrower's knowledge, it does not currently hold and has not previously held any claims of any kind against the Banks and their respective employees, directors, agents, successors or assigns arising out of or in any way connected with this Agreement, the Credit Agreement or the Replacement Notes. 3. Conditions Precedent to Effectiveness of Agreement. This Agreement shall not be effective unless and until each of the following conditions shall have been satisfied in the Agent and the Banks sole discretion or waived by the Agent and the Banks, for whose sole benefit such conditions exist: (a) The Borrower shall have paid all of the Agent's and the Banks' costs and expenses (including the Agent's and the Banks' reasonable attorneys fees) incurred in connection with the preparation of this Agreement. (b) The Borrower shall have delivered, or caused to be delivered, to each Bank: (i) a duplicate original of this Agreement executed on the Borrower's behalf by its duly authorized officer. (ii) a duly executed promissory note reflecting such Bank's increased Commitment and new Commitment Termination Date and substantially in the form of Exhibit B to the Credit Agreement (each, a "Replacement Note"), payable to its order and otherwise complying with the provisions of Section 1.03 of the Credit Agreement, whereupon the original notes will be returned to the Borrower marked "Cancelled by Substitution". (c) The Borrower shall have delivered, or caused to be delivered, to the Agent, (i) a certificate of the Secretary or an Assistant Secretary of the Borrower dated as of the date hereof substantially in the form attached as Appendix 1 hereto and (ii) a certificate of the Chief Financial Officer of the Borrower, substantially in the form attached as Appendix 2 hereto. -3- 4. Effect and Construction of Agreement. Except as expressly provided herein, the Credit Agreement shall remain in full force and effect in accordance with its respective terms, and this Agreement shall not be construed to: (i) waive or impair any rights, powers or remedies of the Agent and the Banks under the Credit Agreement; or (ii) constitute an agreement by the Agent and the Banks or require the Agent and the Banks to make further amendments to the Credit Agreement. In the event of any inconsistency between the terms of this Agreement and the Credit Agreement, this Agreement shall govern. The Borrower acknowledges that it has consulted with counsel and with such other experts and advisors as it has deemed necessary in connection with the negotiation, execution and delivery of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring that it be construed against the party causing this Agreement or any part hereof to be drafted. 5. Expenses. The Borrower agrees to pay all costs, fees and expenses of the Agent and the Banks (including the reasonable fees of the Agent's and the Banks' counsel) incurred by the Agent and the Banks in connection with the negotiation, preparation, administration and enforcement of this Agreement. 6. Miscellaneous. (a) Further Assurance. The Borrower agrees to execute such other and further documents and instruments as the Agent may request to implement the provisions of this Agreement. (b) Benefit of Agreement. This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto, their respective successors and assigns. No other person or entity shall be entitled to claim any right or benefit hereunder, including, without limitation, the status of a third-party beneficiary of this Agreement. (c) Integration. This Agreement, together with the Credit Agreement and the Replacement Notes, constitutes the entire agreement and understanding among the parties relating to the subject matter hereof, and supersedes all prior proposals, negotiations, agreements and understandings relating to such subject matter. In entering into this Agreement, the Borrower acknowledges that it is relying on no statement, representation, warranty, covenant or agreement of any kind made by the Agent and the Banks or any employee or agent of the Agent and the Banks, except for the agreements of the Agent and the Banks set forth herein. -4- (d) Severability. The provisions of this Agreement are intended to be severable. If any provisions of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or enforceability without in any manner affecting the validity of enforceability of such provision in any other jurisdiction or the remaining provisions of this Agreement in any jurisdiction. (e) Governing Law. This Agreement shall be governed by and construed in accordance with the internal substantive laws of the Commonwealth of Virginia, without regard to the choice of law principles of such state. (f) Counterparts; Telecopied Signatures. This Agreement may be executed in any number of counterparts and by different parties to this Agreement on separate counterparts, each of which, when so executed, shall be deemed an original, but all such counterparts shall constitute one and the same agreement. Any signature delivered by a party by facsimile transmission shall be deemed to be an original signature hereto. (g) Notices. Any notices with respect to this Agreement shall be given in the manner provided for in Section 10.04 of the Credit Agreement. (h) Amendment. No amendment, modification, rescission, waiver or release of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. CRESTAR BANK, as Agent FIRST UNION NATIONAL BANK (formerly, First Union National Bank of Virginia) By: /s/ By: /s/ -------------------------------- -------------------------------- Its: Vice President Its: Vice President --------------------------- --------------------------- CRESTAR BANK HILB, ROGAL AND HAMILTON COMPANY By: /s/ By: /s/ Carolyn Jones -------------------------------- -------------------------------- Its: Vice President Its: Sr. VP, CFO & Treasurer ---------------------------- --------------------------- -5- EX-10 5 EXHIBIT 10.7 Exhibit 10.7 AMENDED AND RESTATED EFFECTIVE FEBRUARY 2, 1999 HILB, ROGAL AND HAMILTON COMPANY 1989 STOCK PLAN I. PURPOSE This 1989 Stock Plan is intended to assist Hilb, Rogal and Hamilton Company (the "Company") in recruiting, retaining and motivating capable individuals as key employees and Directors by enabling those individuals who contribute significantly to the Company to participate in its future success and to associate their interests with those of the Company through equity participation or equity-based rewards. This Plan is also intended to assist affiliated corporations in recruiting, retaining and motivating capable individuals as key employees by enabling such employees who contribute significantly to the affiliated corporation and, thereby the Company, to participate in the Company's future success and to associate their interests with those of the Company through equity participation or equity- based rewards. The proceeds received by the Company from the sale of Common Stock pursuant to this Plan shall be used for general corporate purposes. II. DEFINITIONS For purposes of this Plan, the following terms shall have the following meanings: (a) Affiliate means any "subsidiary" or "parent" corporation (within the meaning of Section 424 of the Code) of the Company. (b) Agreement means a written agreement (including any amendment or supplement thereto) between the Company and a Participant specifying the terms and conditions of an Option, SAR or Restricted Stock award granted to such Participant. (c) Board means the Board of Directors of the Company. (d) Change of Control shall mean (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (a) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Company, (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (z) any acquisition by any corporation pursuant to a transaction which complies with clauses (a), (b) and (c) of subsection (iii) of this Section; or (ii) Individuals who, as of February 2, 1999, constitute the Board "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to February 2, 1999 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. Notwithstanding the foregoing, for purposes of subsection (i) of this Section, a Change of Control shall not be deemed to have taken place if, as a result of an acquisition by the Company which reduces the Outstanding Company Common Stock or the Outstanding Company Voting Securities, the beneficial ownership of a Person increases to 25% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities; provided, however, that if a Person shall become the beneficial owner of 25% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities by reason of share purchases by the Company and, after such share purchases by the Company, such Person becomes the beneficial owner of any additional shares of the Outstanding Company Common Stock or the Outstanding Company Voting Stock through any means except an acquisition directly from the Company, for purposes of subsection (a) of this Section, a Change of Control shall be deemed to have taken place. (e) Change of Control Date is the date of the occurrence of an event described in (i), (ii) or (iii) of the definition of "Change of Control" above. (f) Code means the Internal Revenue Code of 1986, and any amendments thereto. (g) Committee means the Compensation Committee which shall be appointed from time to time by the Board but shall always consist of three individuals, all of whom shall be Directors of the Company who are not employees of the Company. (h) Common Stock means the common stock of the Company. (i) Director means a member of the Board. (j) Exchange Act means the Securities Exchange Act of 1934, as amended from time to time, and any successor thereto. (k) Fair Market Value means, for any given date, the closing price per share of Common Stock as reported on the New York Stock Exchange composite tape on that day or, if the Common Stock was not traded on such day, then the next preceding day that the Common Stock was traded on such exchange, all as reported by such source as the Committee may select. (l) Initial Value means with respect to any SAR, the Fair Market Value on the date of the grant of the SAR as set forth in the applicable Agreement. (m) Option means a stock option, not otherwise specifically qualified for favorable tax treatment under a section of the Code, that entitles the holder to purchase from the Company a stated number of shares of Common Stock at the price set forth in an Agreement under the terms of this Plan. (n) Participant means an employee of the Company or an Affiliate or a member of the Board of Directors of the Company, whether or not an employee of the Company, who satisfies the requirements of Section IV of the Plan and who either is selected by the Committee to receive an Option, SAR or award of Restricted Stock or receives a grant of an Option pursuant to Section VII. (o) Person shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, including a "group" as defined in Section 13(d). (p) Plan means the Hilb, Rogal and Hamilton Company 1989 Stock Plan. (q) 1986 Plan means the Hilb, Rogal and Hamilton Company 1986 Incentive Stock Option Plan. (r) Restricted Stock means shares of Common Stock awarded to a Participant under Section X of this Plan. Shares of Common Stock shall cease to be Restricted Stock when, in accordance with the terms of the applicable Agreement, they become freely transferable and free of substantial risk of forfeiture. (s) SAR means a stock appreciation right entitling the holder to receive, with respect to each share of Common Stock encompassed by the exercise of such SAR, the excess of the Fair Market Value over the Initial Value of the SAR. (t) Subsidiary means, with respect to any corporation, a subsidiary of that corporation within the meaning of Code Section 424(f). III. ADMINISTRATION This Plan shall be administered by the Committee. Employees of the Company and its Affiliates and Directors, whether or not employees of the Company or an Affiliate, shall be eligible to participate in this Plan; provided, however, that non-employee Directors shall only receive awards of Options under Section VII below and no other awards or grants hereunder except for adjustments pursuant to Section XI. The Committee shall have authority to grant Options, Restricted Stock awards, or SARs or any combination thereof to any individual eligible to be a Participant other than a non-employee Director, upon such terms (not inconsistent with the provisions of this Plan) as it may consider appropriate. The terms upon which each Option, Restricted Stock award or SAR is granted by the Committee may include conditions (in addition to those contained in this Plan) established by the Committee upon the exercisability of all or any part of the Option or SAR (including the terms of exercise, Option price, time of vesting, transferability and forfeitability) and the price, transferability or forfeitability of Restricted Stock. Notwithstanding any such conditions, the Committee may, in its discretion, accelerate the time at which any Option or SAR which has been granted by the Committee may be exercised or at which Restricted Stock becomes freely transferable and free of risk of forfeiture. The Committee, in its discretion, may establish guidelines supplementing this Plan regarding the selection of Participants, other than non-employee Directors, and the amounts, times and terms for grants by the Committee of Options, Restricted Stock awards and SARs. In addition, the Committee shall have complete authority to interpret all provisions of this Plan, to adopt, amend, and rescind rules and regulations pertaining to the administration of this Plan, and to make all other determinations necessary or advisable for the administration of this Plan. The Committee shall prescribe the form of Agreements, consistent with the Plan, to set forth terms and conditions for Options, SARs and Restricted Stock awards granted to individual Participants. Any decision made, or action taken, by the Committee in connection with the administration of this Plan shall be final and conclusive. No member of the Committee shall be liable for any act done in good faith with respect to this Plan or any Agreement or Common Stock or stock right granted under its terms. All expenses associated with the administration of this Plan shall be borne by the Company. IV. ELIGIBILITY (1) General. Any employee of the Company, or any employee of an Affiliate, who, in the judgment of the Committee, has contributed or may be expected to contribute to the profits or growth of the Company or an Affiliate, as the case may be, may be granted one or more Options, SARs or awards of Restricted Stock by the Committee. Non-employee Directors shall receive Options only under the terms of Sections VII below. (2) Grants. The Committee will designate employees to whom Options, SARs or awards of Restricted Stock are to be granted and will specify the number of shares of Common Stock subject to each grant. An Option may be granted to an employee with a related SAR and an SAR may be granted to an employee with a related Option or each may be granted independently. All Options, SARs and awards of Restricted Stock granted under this Plan shall be evidenced by Agreements which shall be subject to applicable provisions of this Plan and, with respect to grants of Options, SARs and awards of Restricted Stock to employees, to such other terms and provisions as the Committee may adopt. V. MAXIMUM NUMBER OF SHARES SUBJECT TO PLAN Upon the proper exercise of any Option, independent SAR or award of Restricted Stock, and payment therefor, the Company may deliver to the Participant authorized but previously unissued Common Stock. The maximum aggregate number of shares of Common Stock that may be issued pursuant to both this Plan and the 1986 Plan is 625,000, inclusive of all shares issued pursuant to the 1986 Plan prior to the adoption of this Plan, (the "Maximum Issuable Shares"). The Maximum Issuable Shares shall be increased, or decreased, at the end of each fiscal year by 13.39% of the increase, or decrease, in the number of shares of Common Stock issued and outstanding between the first and last days of the fiscal year (other than increases from the issuance of Common Stock under this Plan or the 1986 Plan); provided, however, that the Maximum Issuable Shares shall not be reduced below the number that is the sum of those already issued and those that are the subject of outstanding options under the 1986 Plan or this Plan at the end of the fiscal year. This annual adjustment shall first be made as of the last day of the Company's fiscal year that begins on January 1, 1989. If an Option is terminated, in whole or in part, for any reason other than its exercise, the number of shares of Common Stock allocated to the Option or portion thereof may be reallocated to other Options to be granted under this Plan or options under the 1986 Plan. Any shares of Restricted Stock that are forfeited by a Participant may be reallocated to other awards of Restricted Stock under this Plan. Upon the exercise of an SAR granted independently of an Option, the Company may deliver to the Participant authorized but previously unissued Common Stock, cash, or a combination thereof as provided in Section IX(3). If such an SAR is terminated, in whole or in part, for any reason other than its exercise, the number of shares of Common Stock allocated to that SAR, or portion thereof, respectively, may be reallocated to other Options under this Plan or options under the 1986 Plan or SARs which may be granted independently of Options under this Plan. VI. OPTION PRICE The price per share for Common Stock which may be purchased by the exercise of any Option granted by the Committee under this Plan shall be set by the Committee. Such Option price may differ between Options and may be less than Fair Market Value at the time of grant in the discretion of the Committee. VII. OPTION GRANTS TO NON-EMPLOYEE DIRECTORS Each Director of the Company who is not an employee of the Company at the time of the grant shall receive a grant of an Option for the purchase of 2,000 shares of Common Stock on the first business day following the 1993, 1994, 1995, 1996 and 1997 Annual Meetings of the Shareholders of the Company. Each such Option granted to a non-employee Director shall be for a purchase price equal to the Fair Market Value of the Common Stock at the time of the grant and shall be evidenced by an Agreement. Such Agreement shall contain terms and provisions consistent with the applicable provisions of this Plan. VIII. EXERCISE OF OPTIONS AND SARS (1) Maximum Option or SAR Period. Options and SARs granted to employees may be exercisable immediately or become exercisable after any term of months or years and may remain exercisable for any term of months or years as set by the Committee in its discretion at the time of granting. The date upon which any Option or SAR granted by the Committee becomes exercisable may be accelerated by the Committee in its discretion. The term of exercisability for any Option or SAR granted by the Committee may be extended by the Committee and may be made contingent upon the continued employment of the Participant by the Company or Affiliate. The terms of any Option or SAR granted by the Committee may provide that the Option or SAR is exercisable in whole or in part from time to time over such period of time as the Committee shall consider appropriate. (2) Nontransferability. Any Option or SAR granted under this Plan shall be nontransferable except, in the case of the death of the Participant, by will or by the laws of descent and distribution. In the event of any such transfer upon the death of the Participant, the Option and any related SAR must be transferred to the same person or persons, trust or estate and may not be separated. During the lifetime of the Participant to whom an Option or SAR is granted, the Option or SAR may be exercised only by the Participant. No right or interest of a Participant in any Option or SAR shall be liable for, or subject to, any obligation, lien, or liability of such Participant. (3) Employee Status. In the event that the terms of any Option or SAR granted to an employee of the Company provide that the Option or SAR may be exercised only during the employment of the Participant or within a specified period of time after the termination of his employment, the Committee may decide in each case whether and the extent to which leaves of absence for governmental or military service, illness, temporary disability, or other reasons shall be deemed interruptions of continuous employment. IX. METHODS OF EXERCISE (1) Exercise. Subject to the provisions of Sections VIII, XI and XIII, an Option or SAR granted by the Committee may be exercised in whole at any time or in part from time to time at such times and in compliance with the applicable Agreement and such other requirements as the Committee shall determine. An Option granted under Section VII hereof may be exercised in whole at any time or in part from time to time at such times and in compliance with the applicable Agreement. A partial exercise of an Option or SAR shall not affect the right to exercise the Option or SAR from time to time in accordance with this Plan with respect to remaining shares subject to the Option or SAR, except that the exercise of an Option shall result in the termination of any related SAR to the extent of the number of shares with respect to which the Option is exercised. (2) Payment for Option Exercises. Unless otherwise provided by the Agreement (or permitted by the Committee for non- qualified Options granted by the Committee), payment of the Option price shall be made in cash (in United States dollars) or a cash equivalent acceptable to the Committee. If the Agreement so provides (or the Committee so permits), payment of all or a part of the Option price for a non-qualified Option may be effected by a "cashless exercise" thereof (i) by the Participant surrendering shares of Common Stock to the Company, or (ii) by the Participant delivering to a broker instructions to sell a sufficient number of the shares of Common Stock being acquired upon exercise of the Option to cover the Option price and any additional costs and expenses associated with the cashless exercise. If Common Stock is surrendered to pay all or part of the Option price, the shares surrendered must have a Fair Market Value (determined as of the date of exercise of the Option) that is not less than such Option price or part thereof. (3) Settlement of SARs. At the discretion of the Committee, the amount payable as a result of the exercise of an SAR may be settled in cash, Common Stock or a combination of cash and Common Stock. No fractional share shall be delivered upon the exercise of an SAR but cash shall be paid in lieu thereof. (4) Shareholder Rights. No Participant shall, as a result of receipt of any Option or SAR, have any rights as a shareholder until the date he exercises such Option or SAR. (5) Tax Withholding With Respect to Options. In the case of the exercise of an Option, the Participant shall pay to the Company in cash the full amount of all federal and state income and employment taxes required to be withheld by the Company in respect of the taxable income of the Participant from such exercise. If the Agreement so provides (or the Committee so permits for non-qualified Options granted by the Committee), payment of all or a part of such taxes may be made by the Participant surrendering shares of Common Stock to the Company, provided the shares surrendered have a Fair Market Value (determined as of the date of exercise of the Option) that is not less than the amount of such taxes or part thereof, or by the sale of shares of Common Stock upon the cashless exercise of an Option through a broker. X. RESTRICTED STOCK. (1) Award. In accordance with the provisions of Section IV, the Committee will designate employees to whom an award of Restricted Stock is to be made and will specify the number of shares of Restricted Stock to be awarded, and the purchase price per share to be paid by the Participant. (2) Vesting. The Committee, on the date of the award, may prescribe that the Participant's rights in the Restricted Stock shall be forfeitable or otherwise restricted in any manner in the discretion of the Committee for such period of time as is set forth in the Agreement. By way of example and not limitation, the restrictions may postpone transferability of the shares or may provide that the shares will be forfeited if the employment of the Participant by the Company or an Affiliate or the service of the Participant as a Director terminates before the expiration of a stated term. (3) Shareholder Rights. Prior to the forfeiture of shares in accordance with the terms of the Agreement and while the shares are Restricted Stock, a Participant will have all rights of a shareholder with respect to Restricted Stock, including the right to receive dividends and vote the shares; provided, however, that (i) a Participant may not sell, transfer, pledge, exchange, hypothecate, or otherwise dispose of Restricted Stock, (ii) the Company shall retain custody of the certificates evidencing shares of Restricted Stock, and (iii) the Participant will deliver to the Company a stock power, endorsed in blank, with respect to each award of Restricted Stock. The limitations set forth in the preceding sentence shall not apply after the shares cease to be Restricted Stock. (4) Tax Withholding With Respect to Restricted Stock. The Participant shall pay or provide for the payment to the Company in cash of the full amount of all federal and state income and employment taxes required to be withheld by the Company with respect to the inclusion in the taxable income of the Participant of any amount pursuant to an award of Restricted Stock, including an election made pursuant to Section 83(b) of the Code or the lapse of any restriction with respect thereto. XI. CHANGES IN CAPITAL STRUCTURE Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option or SAR, and the price per share thereof, and the number of shares of Restricted Stock awarded, shall be adjusted proportionately for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company by reason of any stock dividend, stock split, combination, reclassification, recapitalization, or the general issuance to holders of Common Stock of rights to purchase Common Stock at substantially below its then fair market value, or any change in the number of shares of Common Stock outstanding effected without receipt of cash, property, labor or services by the Company, or any spin-off or other type of distribution of assets to shareholders. In the event of a change in the Common Stock of the Company as presently constituted, which is limited to a change of all or part of its authorized shares without par value into the same number of shares with a par value, or any subsequent change into the same number of shares with a different par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. Except as expressly provided above in this Section XI or in Section XIII(3), a Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Restricted Stock or of Common Stock subject to any Option or SAR. The grant of an Option, SAR or Restricted Stock award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. XII. COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES No Option or SAR shall be exercisable, no Common Stock or Restricted Stock shall be issued, no certificates for shares of Common Stock or Restricted Stock shall be delivered, and no payment shall be made under this Plan (i) except in compliance with all applicable federal and state laws and regulations and rules of all domestic stock exchanges on which the Company's shares may be listed and (ii) until the Company has obtained such consent or approval as the Board or the Committee may deem advisable from regulatory bodies having jurisdiction over such matters and from the shareholders. The Company and the Committee shall have the right to rely on the opinion of counsel for either of them as to such compliance. Any share certificate issued to evidence Common Stock for which an Option or SAR is exercised or to evidence Restricted Stock may bear such legends and statements as the Board or the Committee may deem advisable to assure compliance with federal and state laws and regulations. XIII. GENERAL PROVISIONS (1) Effect on Employment. Neither the adoption of this Plan, its operation, nor any documents describing or referring to this Plan (or any part thereof) shall confer upon any employee any right to continue in the employ of the Company or an Affiliate or in any way affect any right and power of the Company or an Affiliate, as the case may be, to terminate the employment of any employee at any time with or without assigning a reason therefor. (2) Unfunded Plan. This Plan, insofar as it provides for grants, shall be unfunded, and the Company shall not be required to segregate any assets that may at any time be represented by grants under the Plan. Any liability of the Company to any person with respect to any grant under this Plan shall be based solely upon any contractual obligations that may be created pursuant to this Plan. No such obligation of the Company shall be deemed to be secured by any pledge of, or other encumbrance on, any property of the Company. (3) Change of Control. Notwithstanding any other provision of the Plan to the contrary, in the event of a Change of Control: (a) Any outstanding Option or SAR which is not presently exercisable or vested as of a Change of Control Date shall become fully exercisable and vested to the full extent of the original grant upon such Change of Control Date. (b) The restrictions applicable to any outstanding Restricted Stock shall lapse, and such Restricted Stock shall become free of all restrictions and become fully vested, nonforfeitable and transferable to the full extent of the original grant. (4) Rules of Construction. Headings are given to the articles and sections of this Plan solely as a convenience to facilitate reference. The reference to any statute, regulation, or other provision of law shall be construed to refer to any amendment to or successor of such provision of law. XIV. AMENDMENTS The Board may amend or terminate this Plan from time to time; provided, however, that: (i) no amendment may become effective until the approval of the Company's shareholders is obtained if the amendment (a) increases the aggregate number of shares that may be issued hereunder or (b) changes the class of individuals eligible to become Participants and, (ii) the Board may amend Section VII hereof but only to provide for the granting of Options to non-employee Directors in a year or years after 1996 which Option grants must not cause this Plan to fail to qualify for exemption from Section 16(b) of the Securities Exchange Act of 1934 under the provisions of Rule 16b-3 or any successor rule and provided that such amendment to Section VII hereof must also be approved by a majority of the employee Directors then serving on the Board. No amendment shall, without a Participant's consent, adversely affect any rights of such Participant under any Option or SAR outstanding or Restricted Stock issued at the time such amendment is made unless required by law, regulation or rule of stock exchange. XV. EFFECTIVE DATE OF PLAN Options and SARs may be granted under this Plan, upon its adoption by the Board, provided that no Option or SAR will be effective unless and until this Plan is approved by the holders of a majority of the shares of the Company's outstanding voting stock present in person, or represented by proxy, and entitled to vote at a duly held meeting of the shareholders. No Option or SAR granted prior to such shareholder approval may be exercised before the requisite shareholder approval is obtained. XVI. GOVERNING LAW The Plan shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Virginia, except to the extent that federal law shall be deemed to apply. EX-10 6 EXHIBIT 10.8 Exhibit 10.8 HILB, ROGAL, AND HAMILTON COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Amended and Restated Effective February 2, 1999 HILB, ROGAL, AND HAMILTON COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN Table of Contents Page ARTICLE I GENERAL Section 1.1 Effective Date 1 Section 1.2 Purpose 1 ARTICLE II DEFINITIONS AND USAGE Section 2.1 Definitions 2 Section 2.2 Usage 6 ARTICLE III ELIGIBILITY AND PARTICIPATION Section 3.1 Eligibility and Participation 6 ARTICLE IV SUPPLEMENTAL BENEFIT Section 4.1 Entitlement to Benefits 7 Section 4.2 Supplemental Benefit 7 Section 4.3 Normal Form of Payment 8 Section 4.4 Time of Payment 9 Section 4.5 Segregation of Assets 9 Section 4.6 Forfeiture of Supplemental Benefit 9 ARTICLE V DEATH AND DISABILITY BENEFITS Section 5.1 Death Benefit 9 Section 5.2 Disability Benefit 10 ARTICLE VI ADMINISTRATION Section 6.1 General 10 Section 6.2 Administrative Rules 11 Section 6.3 Duties 11 Section 6.4 Fees 12 ARTICLE VII CLAIMS PROCEDURE Section 7.1 General 12 Section 7.2 Denials 12 Section 7.3 Notice 12 Section 7.4 Appeals Procedure 13 Section 7.5 Review 13 ARTICLE VIII MISCELLANEOUS PROVISIONS Section 8.1 Amendment 13 Section 8.2 Termination 14 Section 8.3 No Assignment 14 Section 8.4 Incapacity 15 Section 8.5 Successors and Assigns 15 Section 8.6 Governing Law 15 Section 8.7 No Guarantee of Employment 15 Section 8.8 Unfunded Plan 15 Section 8.9 Severability 16 Section 8.10 Notification of Addresses 16 Section 8.11 Bonding 16 HILB, ROGAL, AND HAMILTON COMPANY SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN ARTICLE I GENERAL 1.1 Effective Date. The provisions of the Plan shall be effective as of December 16, 1994, and, as amended and restated, effective January 1, 1998. The rights, if any, of any person whose status as an employee of the Company and its subsidiaries and affiliates, if any, has terminated shall be determined pursuant to the Plan as in effect on the date such employee terminated, unless subsequently adopted provisions of the Plan are made specifically applicable to such person. 1.2 Purpose. The purpose of the Plan is to provide supplemental retirement income to a Participant. The Plan is intended to be (and shall be construed and administered as) an "employee pension benefit plan" under the provisions of the Employee Retirement Income Security Act of 1974 ("ERISA") which is unfunded and maintained by the Company solely to provide retirement income to a select group of management or highly compensated employees as such group is described under sections 201(2), 301(a)(3), and 401(a)(1) of ERISA as interpreted by the U.S. Department of Labor. The Plan is not intended to be a plan described in section 401(a) of the Code or section 3(2)(A) of ERISA. ARTICLE II DEFINITIONS AND USAGE 2.1 Definitions. Wherever used in the Plan, the following words and phrases shall have the meanings set forth below unless the context plainly requires a different meaning: "Benefit Commencement Date" means the January 1 following a Participant's termination of employment with the Company, or such earlier date in the absolute discretion of the Committee. "Board" means the Board of Directors of the Company. "Change of Control" means (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (a) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Company, (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (z) any acquisition by any corporation pursuant to a transaction which complies with clauses (a), (b) and (c) of subsection (iii) of this Section; or (ii) Individuals who, as of February 2, 1999, constitute the Board "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to February 2, 1999 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. Notwithstanding the foregoing, for purposes of subsection (i) of this Section, a Change of Control shall not be deemed to have taken place if, as a result of an acquisition by the Company which reduces the Outstanding Company Common Stock or the Outstanding Company Voting Securities, the beneficial ownership of a Person increases to 25% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities; provided, however, that if a Person shall become the beneficial owner of 25% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities by reason of share purchases by the Company and, after such share purchases by the Company, such Person becomes the beneficial owner of any additional shares of the Outstanding Company Common Stock or the Outstanding Company Voting Stock through any means except an acquisition directly from the Company, for purposes of subsection (a) of this Section, a Change of Control shall be deemed to have taken place. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Committee" means the Compensation Committee of the Board, if any, and otherwise, the Board. "Company" means Hilb, Rogal, and Hamilton Company and any successor thereto. "Compensation" means total base compensation, excluding bonuses and other forms of compensation, paid to a Participant for personal services rendered to the Company without regard to any Compensation Limitation. "Compensation Limitation" means $150,000 as adjusted to reflect cost-of-living increases by the Secretary of the Treasury or his delegate from time to time under section 401(a)(17) of the Code. "Eligible Employee" means an employee of the Company whose Compensation exceeds $150,000 as adjusted from time to time under section 401(a)(17) of the Code. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time. "Grandfathered Participant" means a Participant who is designated by the Committee as a "grandfathered participant." "Participant" means an Eligible Employee who is participating in the Plan in accordance with Section 3.1 hereof and shall include a Grandfathered Participant, unless otherwise specified. "Plan" means the Hilb, Rogal, and Hamilton Company Supplemental Executive Retirement Plan. "Plan Year" means the calendar year. "Pre-1998 Accrued Benefit" means the value of the benefit for each Participant in the Plan who was not in pay status (receiving benefits) as of December 31, 1997 determined in accordance with the terms of the Plan determined in accordance with the terms of the Plan then in effect as though the Participant had terminated employment as of that date. "Retirement Plan" means the Hilb, Rogal and Hamilton Company Profit Sharing Savings Plan. "Separation from Service" means a Participant's termination from employment as described in the Retirement Plan. "Supplemental Benefit" means the benefit provided in accordance with Section 4.2 of the Plan. "Years of Service", for purposes of benefit accrual and vesting, means a Participant's full years of employment with the Company. Years of employment with Insurance Management Corporation shall be credited as Years of Service for purposes of vesting and benefit accrual. 2.2 Usage. Except where otherwise indicated by the context, any masculine terminology used herein shall also include the feminine and vice versa, and the definition of any term herein in the singular shall also include the plural and vice versa. ARTICLE III ELIGIBILITY AND PARTICIPATION 3.1 Eligibility and Participation. The Committee shall designate from time to time Eligible Employees of the Company who shall participate in the Plan; provided, however, that such Eligible Employees shall be members of a select group of management or highly compensated employees as such group is described under sections 201(2), 301(a)(3), and 401(a)(1) of ERISA. The Eligible Employees of the Company so designated by the Committee shall become Participants in the Plan. ARTICLE IV SUPPLEMENTAL BENEFIT 4.1 Entitlement to Benefits. Each Participant shall be entitled to the vested portion of his Supplemental Benefit provided in Section 4.2 of the Plan upon reaching his Benefit Commencement Date. A Participant who terminates employment (for any reason other than disability or death) shall have a vested interest in his Supplemental Benefit, based upon the following vesting schedule: Years of Service Vesting Percentage 0-4 0% 5 33.33% 6-15 6.66% per year Notwithstanding the foregoing, a Participant shall be fully vested upon a Change of Control. 4.2 Supplemental Benefit. A Participant's Supplemental Benefit shall be equal to his account balance under the Plan. (a) Deemed Contributions to Account. Annually the account of a Participant shall be credited (deemed to have been contributed) with an amount that is calculated by determining the total employer match and profit sharing contribution (as a percentage of compensation) that the Participant would have received under the Retirement Plan but without the Compensation Limitation that applies to such Retirement Plan, reduced by the amount of employer match and profit sharing contribution actually contributed to the Retirement Plan by the Company. (b) Account Adjustments. A deemed contribution to the Participant's account shall be treated as having been invested in one or more deemed investments designated by the Committee from time to time. The value of a Participant's account shall be adjusted at least annually to reflect increase or decrease in the value of such deemed investments. In the absence of any designation of one or more deemed investments, the Participant's account shall be credited with interest at an annual rate specified from time to time by the Committee. (c) Exception for Grandfathered Participants. Participants in the Plan as of December 31, 1997 shall be regarded as Grandfathered Participants. Effective January 1, 1998, their accounts shall be administered as set forth above except as follows: (1) A Grandfathered Participant's Pre-1998 Accrued Benefit shall be determined and shall be the beginning amount in the Participant's account as of January 1, 1998. (2) Annually, the account of a Grandfathered Participant shall be credited with the greater of 2% of Compensation or the amount determined in Paragraph (a) above. 4.3 Normal Form of Payment. The normal form of payment of the Participant's Supplemental Benefit shall be five annual installments with interest as determined by the Committee from time to time. 4.4 Time of Payment. (a) General Time of Payment. The actual payment of the Supplemental Benefit shall commence on the Participant's Benefit Commencement Date. (b) Accelerated Payment of Benefits: Notwithstanding anything herein to the contrary, in the sole discretion of the Committee, payment of benefits under Article IV or V of the Plan may be accelerated. 4.5 Segregation of Assets. The Company may, but shall not be obligated, to segregate assets in trust or otherwise for the purpose of paying obligations under this plan. Further, the Company has no obligation to match with actual investment any deemed contribution or deemed investment. 4.6 Forfeiture of Supplemental Benefit. Notwithstanding anything in Article IV to the contrary, a Participant shall forfeit the right to or interest in his Supplemental Benefit as follows: After a Participant has begun receiving payment of his Supplemental Benefit, he shall forfeit all right to or interest in any future payments if he enters into employment with a competitor of the Company without the consent of the Company. ARTICLE V DEATH AND DISABILITY BENEFITS 5.1 Death Benefit. If a Participant dies while employed by the Company before his Benefit Commencement Date, the surviving spouse of the Participant shall be entitled to a death benefit equal to the Participant's Supplemental Benefit determined as of the Participant's date of death. A deceased Participant shall be fully vested in his Supplemental Benefit as of his date of death. If a Participant dies after retirement and after he has begun to receive his benefits under the Plan, the death benefit shall be equal to the principal of any of the Participant's remaining payments. The death benefit shall be paid to his designated beneficiary, if any, in a lump sum within sixty (60) days of the Participant's date of death or as soon thereafter as is practicable. If no beneficiary is designated, the death benefit shall be paid to his estate. 5.2 Disability Benefit. If a Participant becomes disabled, as defined in the Retirement Plan, he shall become fully vestedin his Supplemental Benefit determined as of the date of his separation from service as a result of disability. ARTICLE VI ADMINISTRATION 6.1 General. The Administrator shall be the Committee, or such other person or persons as designated by the Committee. Except as otherwise specifically provided in the Plan, the Administrator shall be responsible for administration of the Plan. The Administrator shall be the "named fiduciary" within the meaning of Section 402(c)(2) of ERISA. 6.2 Administrative Rules. The Administrator may adopt such rules of procedure as it deems desirable for the conduct of its affairs, except to the extent that such rules conflict with the provisions of the Plan. 6.3 Duties. The Administrator shall have the following rights, powers and duties: (a) The decision of the Administrator in matters within its jurisdiction shall be final, binding and conclusive upon the Company and upon any other person affected by such decision, subject to the claims procedure hereinafter set forth. (b) The Administrator shall have the duty and authority to interpret and construe the provisions of the Plan, to decide any question that may arise regarding the rights of employees, Participants and beneficiaries, and the amounts of their respective interests, to adopt such rules and to exercise such powers as the Administrator may deem necessary for the administration of the Plan, and to exercise any other rights, powers or privileges granted to the Administrator by the terms of the Plan. (c) The Administrator shall maintain full and complete records of its decisions. Its records shall contain all relevant data pertaining to the Participant and his rights and duties under the Plan. The Administrator shall have the duty to maintain account records of all Participants. (d) The Administrator shall cause the principal provisions of the Plan to be communicated to the Participants, and a copy of the Plan and other documents to be available at the principal office of the Company for inspection by the Participants at reasonable times determined by the Administrator. (e) The Administrator shall periodically report to the Committee with respect to the status of the Plan. 6.4 Fees. No fee or compensation shall be paid to any person for services as the Administrator. ARTICLE VII CLAIMS PROCEDURE 7.1 General. Any claim for benefits under the Plan shall be filed by the Participant or surviving spouse ("claimant") on the form prescribed for such purpose with the Administrator. 7.2 Denials. If a claim for benefits under the Plan is wholly or partially denied, notice of the decision shall be furnished to the claimant by the Administrator within a reasonable period of time after receipt of the claim by the Administrator. 7.3 Notice. Any claimant who is denied a claim for benefits shall be furnished written notice setting forth: (a) the specific reason or reasons for the denial; (b) specific reference to the pertinent provision of the Plan upon which the denial is based; (c) a description of any additional material or information necessary for the claimant to perfect the claim; and (d) an explanation of the claim review procedure under the Plan. 7.4 Appeals Procedure. In order that a claimant may appeal a denial of a claim, the claimant or the claimant's duly authorized representative may: (a) request a review by written application to the Administrator, or its designate, no later than sixty (60) days after receipt by the claimant of written notification of denial of a claim; (b) review pertinent documents; and (c) submit issues and comments in writing. 7.5 Review. A decision on review of a denied claim shall be made not later than sixty (60) days after receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered within a reasonable period of time, but not later than one hundred and twenty (120) days after receipt of a request for review. The decision on review shall be in writing and shall include the specific reason(s) for the decision and the specific reference(s) to the pertinent provisions of the Plan on which the decision is based. ARTICLE VIII MISCELLANEOUS PROVISIONS 8.1 Amendment. The Company reserves the right to amend the Plan in any manner that it deems advisable by a resolution of the Board, which shall be communicated to Participants not later than sixty (60) days following the effective date of such amendment. No amendment shall, without the Participant's consent, affect the amount of the Participant's Supplemental Benefit at the time the amendment becomes effective or the right of the Participant to receive a Retirement Benefit after the Participant has met the entitlement requirements provided in Section 4.1 of the Plan. 8.2 Termination. The Company reserves the right to terminate the Plan at any time by resolution of the Board, which shall be communicated to Participant not later than sixty (60) days following the effective date of such amendment. No termination shall, without the consent of the Participant, affect the amount of the Participant's Supplemental Benefit prior to the termination of the right of the Participant to receive a Supplemental Benefit after the Participant has met the entitlement requirements provided in Section 4.1 of the Plan. 8.3 No Assignment. The Participant shall not have the power to pledge, transfer, assign, anticipate, mortgage or otherwise encumber or dispose of in advance any interest in amounts payable hereunder or any of the payments provided for herein, no shall any interest in amounts payable hereunder or in any payments be subject to seizure for payment of any debts, judgments, alimony or separate maintenance, or be reached or transferred by operation of law in the event of bankruptcy, insolvency or otherwise. 8.4 Incapacity. If the Administrator determines that any person to whom such benefit is payable is incompetent by reason of physical or mental disability, the Administrator may cause the payments becoming due to such person to be made to another for his benefit. Payments made pursuant to this Section shall, as to such payment, operate as a complete discharge of the Plan, each Company, the Committee and the Administrator. 8.5 Successors and Assigns. The provisions of the Plan are binding upon and inure to the benefit of each Company, its respective successors and assigns, and the Participant and his beneficiaries, heirs, legal representatives, and assigns. 8.6 Governing Law. The Plan shall be subject to and construed in accordance with the laws of the Commonwealth of Virginia to the extent not preempted by the provisions of ERISA. 8.7 No Guarantee of Employment. Nothing contained in the Plan shall be construed as a contract of employment or deemed to give any Participant the right to be retained in the employ of the Company or to give any Participant any equity or other interest in the assets, business, or affairs of the Company. No Participant hereunder shall have a security interest in assets of any Company used to make contributions or pay benefits. 8.8 Unfunded Plan. The obligation of the Company to make payments under this Plan constitutes nothing more than an unsecured promise of the Company to make such payments, and any property of the Company that may be set aside in a trust or otherwise for the payment of benefits under this Plan shall, in the event of the Company's bankruptcy or insolvency, remain subject to the claims of the Company's general creditors until such benefits are distributed in accordance with Article IV hereof. 8.9 Severability. If any provision of the Plan shall be held illegal or invalid for any reason, such illegality or invalidity shall not affect the remaining provisions of the Plan, but the Plan shall be construed and enforced as if such illegal or invalid provision had never been included herein. 8.10 Notification of Addresses. Each Participant shall file with the Administrator, from time to time, in writing, the post office address of the Participant, the post office address of each Beneficiary, and each change of post office address. Any communication, statement or notice addressed to the last post office address filed with the Administrator (or if no such address was filed with the Administrator, then to the last post office address of the Participant or beneficiary as shown on the Company's records) shall be binding on the Participant and each beneficiary for all purposes of the Plan and neither the Administrator nor any Company shall be obliged to search for or ascertain the whereabouts of any Participant or beneficiary. 8.11 Bonding. The Administrator and all agents and advisors employed by it shall not be required to be bonded, except as otherwise required by ERISA. IN WITNESS WHEREOF, the Company has caused this Plan to be executed by its duly authorized officer. HILB, ROGAL & HAMILTON COMPANY By /s/ Walter L. Smith ----------------------------------- EX-10 7 EXHIBIT 10.9 Hilb, Rogal and Hamilton Company Amended and Restated Outside Directors Deferral Plan Effective April 1, 1998 Amended and Restated February 2, 1999 TABLE OF CONTENTS Page ARTICLE I Definition of Terms 1 1.1 Account 1 1.2 Administrator 1 1.3 Affiliate 1 1.4 Beneficiary 1 1.5 Benefit Commencement Date 1 1.6 Board 2 1.7 Code 2 1.8 Compensation 2 1.9 Corporation 2 1.10 Death Benefit 2 1.11 Deferral Amount 2 1.12 Deferral Benefit 2 1.13 Deferral Contributions 2 1.14 Deferral Year 2 1.15 Deferral Election 2 1.16 Deferred Cash Account 2 1.17 Deferred Stock Unit 3 1.18 Deferred Stock Unit Account 3 1.19 Director 3 1.20 Effective Date 3 1.21 Eligible Director 3 1.22 Former Plan 3 1.23 Participant 3 1.24 Plan 3 1.25 Plan Year 3 1.26 Rate of Return 4 1.27 Short Plan Year 4 ARTICLE II - Eligibility and Participation 4 2.1 Eligibility 4 2.2 Notice and Election Regarding Active Participation 4 2.3 Commencement of Active Participation 4 2.4 Length of Participation 4 ARTICLE III Determination of Deferral 5 3.1 Deferral Benefit 5 3.2 Transition Credits 5 3.3 Deferral Election 5 3.4 Subtractions from Deferred Cash Account and Deferred Stock Unit Account 6 3.5 Crediting of Interest to Deferred Cash Account 7 3.6 Equitable Adjustment in Case of Error or Omission 7 3.7 Statement of Benefits 7 ARTICLE IV Accounts and Investments 7 4.1 Accounts 7 4.2 Deferred Stock Units 7 4.3 Hypothetical Nature of Accounts and Investments 8 ARTICLE V Vesting 8 5.1 Vesting 8 ARTICLE VI Death Benefits 9 6.1 Pre-Benefit Commencement Date Death Benefit 9 6.2 Post-Benefit Commencement Date Death Benefit 9 ARTICLE VII Payment of Benefits 9 7.1 Payment of Deferral Benefit 9 7.2 Payment of Death Benefit 9 7.3 Form of Payment of Deferral Benefit 9 7.4 Benefit Determination and Payment Procedure 10 7.5 Payments to Minors and Incompetents 10 7.6 Distribution of Benefit When Distributee Cannot Be Located 10 ARTICLE VIII Beneficiary Designation 10 8.1 Beneficiary Designation 10 ARTICLE IX Withdrawals 11 9.1 No Withdrawals Permitted 11 9.2 Hardship Exemption 11 ARTICLE X Funding 11 10.1 Funding 11 ARTICLE XI Change of Control 12 11.1 Change of Control 12 11.2 Effect of Change of Control. 14 ARTICLE XII Plan Administrator 14 12.1 Appointment of Administrator 14 12.2 Duties and Responsibilities of Plan Administrator 14 ARTICLE XIII Amendment or Termination of Plan 15 13.1 Amendment or Termination of the Plan 15 ARTICLE XIV Miscellaneous 15 14.1 Non-assignability 15 14.2 Notices and Elections 15 14.3 Delegation of Authority 15 14.4 Service of Process 15 14.5 Governing Law 15 14.6 Binding Effect 16 14.7 Severability 16 14.8 Gender and Number 16 14.9 Titles and Captions 16 Hilb, Rogal and Hamilton Company Amended and Restated Outside Directors Deferral Plan Effective January 1, 1995, the Board of Directors of Hilb, Rogal and Hamilton Company (the "Corporation") adopted the Outside Directors Deferral Plan, under which non-employee directors of the Corporation had the opportunity to defer receipt of certain compensation until retirement or departure from the Board. The Board of Directors determined it to be in the best interests of the Corporation to allow non-employee directors of the Corporation to continue to have the opportunity to defer receipt of certain compensation until retirement or departure from the Board provided that the deferred amounts are aligned with the interests of the Corporation by being tied to the performance of the Corporation's common stock. Effective ________, 1999, the Board of Directors has determined it to be in the best interests of the Corporation to make certain amendments to the Outside Directors Deferral Plan. Therefore, the Board of Directors believes it to be in the best interest of the Corporation to amend and restate the Outside Directors Deferral Plan for such purposes. Pursuant to action taken by the Board of Directors, the Hilb, Rogal and Hamilton Company Amended and Restated Outside Directors Deferral Plan (the "Plan") is amended and restated in its entirety as follows: ARTICLE I Definition of Terms The following words and terms as used in this Plan shall have the meaning set forth below, unless a different meaning is clearly required by the context: 1.1 "Account": A bookkeeping account established for a Participant under Article IV hereof. 1.2 "Administrator": The Compensation Committee of the Board is the Plan Administrator unless responsibility is delegated as provided for in Article XII hereof. 1.3 "Affiliate": Any subsidiary, parent, affiliate, or other related business entity to the Corporation. 1.4 "Beneficiary": The person or persons designated by a Participant or otherwise entitled pursuant to Section 8.1 to receive benefits under the Plan attributable to such Participant after the death of such Participant. 1.5 "Benefit Commencement Date": The date irrevocably elected by the Participant pursuant to Section 3.3, which date may not be later than the January 1 following the Participant's 75th birthday. The same Benefit Commencement Date shall be required for all Deferral Contributions made and Deferral Benefits attributable to a Deferral Year. 1.6 "Board": The present and any succeeding Board of Directors of the Corporation, unless such term is used with respect to a particular Affiliate and its Directors, in which event it shall mean the present and any succeeding Board of Directors of that Affiliate. 1.7 "Code": The Internal Revenue Code of 1986, as the same may be amended from time to time. 1.8 "Compensation": Fees payable to a Participant for service as a member of the Board, including (i) annual retainer fee ("Retainer") and (ii) meeting or committee fees (collectively referred to as "Additional Fees") paid by the Corporation to an Eligible Director, but excluding any such compensation deferred from a prior period, expense reimbursement and allowances and benefits not normally paid in cash to the Participant. 1.9 "Corporation": Hilb, Rogal and Hamilton Company, or any successor thereto. 1.10 "Death Benefit": The benefit with respect to a Participant due a Participant's Beneficiary, determined in accordance with Article VI hereof. 1.11 "Deferral Amount": With respect to each Plan Year, the sum of the Deferral Contributions of a Participant with respect to his Retainer and/or his Additional Fees to be paid during the Plan Year. 1.12 "Deferral Benefit": The balance in a Participant's Deferred Cash Account and Deferred Stock Unit Account. 1.13 "Deferral Contributions": That portion of a Participant's Compensation which is deferred under the Plan or which has been deferred under the Former Plan. 1.14 "Deferral Year": The Plan Year with respect to which a Deferral Contribution is made. For purposes hereof, a Deferral Contribution is considered made with respect to the Plan Year in which the amount would otherwise have been paid to the Participant. 1.15 "Deferral Election": An irrevocable election of a Deferral Amount in writing executed by the Eligible Director or Participant and timely filed with the Administrator. 1.16 "Deferred Cash Account": An unfunded, bookkeeping account maintained on the books of the Corporation for a Participant which reflects his interest in amounts attributable to his Deferred Contributions under the Former Plan. The Deferred Cash Account of a Participant consists of his Deferral Contributions made under the Former Plan with respect to Compensation earned after December 31, 1994 and before April 1, 1998. Separate subdivisions of the Deferred Cash Account shall continue to be maintained to reflect Deferral Contributions made and Deferral Benefits attributable with respect to each Deferral Year and within each Deferral Year, the Deferral Contributions and Deferral Benefits attributable to Deferral Contributions of Retainer and Deferral Contributions of Additional Fees. 1.17 "Deferred Stock Unit": A hypothetical share of the Corporation's common stock. 1.18 "Deferred Stock Unit Account": An unfunded, bookkeeping account maintained on the books of the Corporation for a Participant which reflects his interest in amounts attributable to his Deferred Contributions under the Plan. The Deferred Stock Unit Account of a Participant consists of his Deferral Contributions made under the Plan with respect to Compensation earned after April 1, 1998. Separate subdivisions of the Deferred Stock Unit Account shall be maintained to reflect Deferral Contributions made and Deferral Benefits attributable with respect to each Deferral Year and within each Deferral Year, the Deferral Contributions and Deferral Benefits attributable to Deferral Contributions of Retainer and Deferral Contributions of Additional Fees. 1.19 "Director": An individual who serves as a member of the Board. 1.20 "Effective Date": The Effective Date of the Plan is April 1, 1998. 1.21 "Eligible Director": A Director who is not an employee of the Corporation and who has not reached the age of 75 before the Deferral Year. 1.22 "Former Plan": The Hilb Rogal and Hamilton Company Outside Directors Deferral Plan effective January 1, 1995. 1.23 "Participant": An Eligible Director who elects to participate in the Plan, and further differentiated as follows: (i) "Active Participant": A Participant who has an election to make Deferral Contributions to the Plan in effect at the time in question. (ii) "Inactive Participant": A Participant who does not have an election to make Deferral Contributions to the Plan in effect at the time in question. 1.24 "Plan": This document, as contained herein or duly amended, which shall be known as the "Hilb, Rogal and Hamilton Amended and Restated Outside Directors Deferral Plan". 1.25 "Plan Year": The calendar year or any Short Plan Year. 1.26 "Rate of Return": Nine percent (9%) for the 1995 through 1999 Deferral Years, and nine percent (9%) for Deferral Years after 1999 until, if ever, increased by the Compensation Committee. 1.27 "Short Plan Year": The remaining portion of the calendar year after the Effective Date of this Plan. ARTICLE II Eligibility and Participation 2.1 Eligibility. Each Eligible Director shall be eligible to participate in the Plan and to defer Compensation hereunder for such Plan Year. 2.2 Notice and Election Regarding Active Participation. (a) The Administrator shall notify each Eligible Director within a reasonable period of time prior to the beginning of each Plan Year. (b) In order to become an Active Participant and to make Deferral Contributions with respect to a Plan Year, an Eligible Director must file with the Administrator a Deferral Election, as provided in Section 3.3 which is effective as of the first day of the Plan Year, such election must be filed by the date established by the Administrator, which date shall be no later than the December 31 preceding such Plan Year or the last day before the commencement of a Short Plan Year, whichever is applicable. (c) By executing and filing such election with the Administrator, an Eligible Director consents and agrees to the following: (i) To execute such applications and take such physical examinations and to supply truthfully and completely such information as may be requested by any health questionnaire provided by the Administrator; (ii) To be bound by all terms and conditions of the Former Plan, the Plan and all amendments thereto. 2.3 Commencement of Active Participation. An Eligible Director shall become an Active Participant with respect to a Plan Year only if he is expected to have Compensation during such Plan Year, and he timely files and has in effect a Deferral Election for such Plan Year. 2.4 Length of Participation. An individual who is or becomes a Participant shall be or remain an Active Participant as long as he has a Deferral Election in effect; and he shall be or remain an Inactive Participant as long as he is entitled to future benefits under the terms of the Plan and is not considered an Active Participant. ARTICLE III Determination of Deferral 3.1 Deferral Benefit. For purposes hereof, a Participant's Deferral Benefit shall be the balance in his Deferred Cash Account and his Deferred Stock Unit Account at the time in question. 3.2 Transition Credits. Each Participant who has a balance standing to his credit in the Former Plan as of April 1, 1998, shall be permitted a one-time election, on or before April 1, 1998, to convert all or a portion of the balance standing to his credit in the Former Plan to Deferred Stock Units as of April 1, 1998. A Participant who elects to convert all or a portion of his Deferral Account (as defined in the Former Plan) in the Former Plan to Deferred Stock Units shall be credited with the number of Deferred Stock Units determined by dividing the portion of his Deferred Cash Account under the Former Plan on April 1, 1998 for which such election is made, by the Closing Price of the common stock of the Corporation on the date of the Participant's election. If the formula produces a fractional Deferred Stock Unit, then the fractional Deferred Stock shall be rounded off to the nearest thousandth and credited to the Participant. Once a Participant has made an election under this Section 3.2 to convert some or all of his Deferred Cash Account to Deferred Stock Units of the Corporation, the Corporation's rights and obligations, if any, with respect to the Deferred Stock Units will be governed by this Plan. 3.3 Deferral Election. (a) Subject to the restrictions and conditions hereinafter provided, a Participant may irrevocably elect, as a Deferral Contribution with respect to a Plan Year, to receive an amount of his Compensation which is specified by his Deferral Election for such Plan Year in the form of Deferred Stock Units. Any such election must be filed with the Administrator at the time required under Section 2.2(b). (b) The following conditions apply: (i) The maximum Deferral Contribution of Retainer with respect to any Participant for a Plan Year shall be one hundred percent (100%) of his Retainer for such Plan Year and such election shall be made in whole dollar amounts. A Participant who elects to receive his Retainer in Deferred Stock Units shall have credited to his Deferred Stock Unit Account as of the first day of each calendar quarter the number of Deferred Stock Units determined by dividing that portion of his accrued, deferred Retainer for the quarter (determined by dividing the amount of such Retainer previously selected by the Participant to be applied to the purchase of Deferred Stock Units by four) by the Closing Price as of the first day of such calendar quarter. (ii) The maximum Deferral Contribution of Additional Fees with respect to any Participant for a Plan Year shall be one hundred percent (100%) of his Additional Fees for such Plan Year and such election shall be made in twenty- five percent (25%) increments. A Participant who elects to receive his Additional Fees in Deferred Stock Units shall have credited to his Deferred Stock Unit Account as of the day on which the Additional Fees are accrued the number of Deferred Stock Units determined by multiplying his accrued Additional Fees on said day by the percentage of such Additional Fees previously selected by the Participant to be applied to the purchase of Deferred Stock Units, and dividing the product thereof by the Closing Price as of the day on which the Additional Fees are accrued. (iii) A Participant who elects to defer one hundred percent (100%) of his Compensation shall receive additional Deferred Stock Units equal to thirty percent (30%) of said Participant's Compensation for the Plan Year. Such Deferred Stock Units shall be credited to the Participant in addition to the Deferred Stock Units received as a result of the election to defer the Retainer and Additional Fees in the manner provided by subsections (i) and (ii) above. (iv) A separate Deferral Election must be filed for each Plan Year. (v) Each Deferral Election shall be made on a form provided by the Administrator and shall specify the Deferral Amount and source of deferrals and such additional information as the Administrator may require. (vi) A Deferral Election must specify the period of payment. A Participant may elect to receive a lump sum payment or installment payments over periods of five, ten or fifteen years beginning on the January 1 after age 55, 60, 65, 70 or 75. (vii) A Participant shall have the option of postponing the elected Benefit Commencement Date of a Deferral Benefit specified in 3.3 (b) (vi) above by making an irrevocable election to roll over such Deferral Benefit at least one year before such Deferral Benefit is payable, provided that the Participant may not change his previous allocation of amounts to his Deferred Cash Account and Deferred Stock Unit Account at such time and provided that the Participant may not postpone the elected Benefit Commencement Date past the January 1 following the Participant's 75th birthday. A Participant shall make such election on a form designated by the Administrator. 3.4 Subtractions from Deferred Cash Account and Deferred Stock Unit Account. All distributions from a Participant's Deferred Cash Account and Deferred Stock Unit Account shall be subtracted when such distributions are made. 3.5 Crediting of Interest to Deferred Cash Account. There shall be credited to each Participant's Deferred Cash Account an amount representing interest on the balance of such account. Under the Former Plan, the interest was credited as of the first day of the Deferral Year. Under this Plan, interest shall be credited as earned. Such interest shall be based on the applicable Rate of Return for the Deferral Year. 3.6 Equitable Adjustment in Case of Error or Omission. If an error or omission is discovered in the Deferred Cash Account and Deferred Stock Unit Account of a Participant, the Administrator shall make such equitable adjustment as the Administrator deems appropriate. 3.7 Statement of Benefits. Within a reasonable time after the end of the Plan Year and at the date a Participant's Deferral Benefit or Death Benefit becomes payable under the Plan, the Administrator shall provide to each Participant (or, if deceased, to his Beneficiary) a statement of the benefit under the Plan. ARTICLE IV Accounts and Investments 4.1 Accounts. A separate Account under the Plan shall be established for each Participant. Such Account shall be (a) credited with the amounts credited in accordance with Sections 3.2 and 3.3, (b) credited (or charged, as the case may be) with the investment results determined in accordance with Sections 4.2 and 4.3, and (c) charged with the amounts paid by the Plan to or on behalf of the Participant in accordance with Article VII. With each Participant's Account, separate subaccounts (including, as necessary, a Deferred Stock Unit Account and a Deferred Cash Account) shall be maintained to the extent that the Board determines them necessary or useful in the administration of the Plan. 4.2 Deferred Stock Units. Except as provided below, a Participant's Deferred Stock Unit Account shall be treated as if it were invested in Deferred Stock Units that are equivalent in value to the fair market value of the shares of the Corporation's common stock in accordance with the following rules: (a) Before the Benefit Commencement Date, the number of Deferred Stock Units credited to a Participant's Deferred Stock Unit Account shall be increased on each date on which a dividend is paid on the Corporation's common stock. The number of additional Deferred Stock Units credited to a Participant's Deferred Stock Unit Account as a result of such increase shall be determined by (i) multiplying the total number of Deferred Stock Units (with fractional Deferred Stock Units rounded off to the nearest thousandth) credited to the Participant's Deferred Stock Unit Account immediately before such increase by the amount of the dividend paid per share of the Corporation's common stock on the dividend payment date, and (ii) dividing the product so determined by the Closing Price on the dividend payment date. (b) The dollar value of the Deferred Stock Units credited to a Participant's Deferred Stock Unit Account on any date shall be determined by multiplying the number of Deferred Stock Units (including fractional Deferred Stock Units) credited to the Participant's Deferred Stock Unit Account by the Closing Price on that date. (c) In the event of a transaction or event described in this subsection (c), the number of Deferred Stock Units credited to a Participant's Deferred Stock Unit Account shall be adjusted in such manner as the Board, in its sole discretion, deems equitable. A transaction or event is described in this subsection (c) if (i) it is a dividend (other than regular quarterly dividends) or other distribution (whether in the form of cash, shares, other securities, or other property), extraordinary cash dividend, recapitalization, stock split, reverse stock split, reorganization, merger, consolidation, split- up, spin-off, repurchase, or exchange of shares or other securities, the issuance or exercisability of stock purchase rights, the issuance of warrants or other rights to purchase shares or other securities, or other similar corporate transaction or event and (ii) the Board determines that such transaction or event affects the shares of the Corporation's common stock, such that an adjustment pursuant to this paragraph (c) is appropriate to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan. (d) A Participant who elects to receive distribution of his Accounts in annual installments will not have his or her Deferred Stock Unit Account credited with Deferred Stock Units on or after the Benefit Commencement Date. (e) On the Benefit Commencement Date, the Deferred Stock Unit Account of a Participant who has elected to receive his Deferral Benefit in quarterly installments shall be converted to a Deferred Cash Account which shall accrue annual interest at the Rate of Return. 4.3 Hypothetical Nature of Accounts and Investments. Each Account established under this Article IV shall be maintained for bookkeeping purposes only. Neither the Plan nor any of the Accounts established under the Plan shall hold any actual funds or assets. The Deferred Stock Units established hereunder shall be used solely to determine the amounts to be paid hereunder, shall not represent an equity security of the Corporation, shall not be convertible into or otherwise entitle a Participant to acquire an equity security of the Corporation and shall not carry any voting or dividend rights. ARTICLE V Vesting 5.1 Vesting. A Participant's Deferred Cash Account and Deferred Stock Unit Account shall be fully vested and non- forfeitable at all times. ARTICLE VI Death Benefits 6.1 Pre-Benefit Commencement Date Death Benefit. In the event that a Participant dies prior to his Benefit Commencement Date, then the Participant's Deferred Stock Unit Account shall be converted to a Deferred Cash Account as of the first of January following the Participant's date of death, which Deferred Cash Account shall accrue annual interest thereafter at the Rate of Return to the extent not paid out in a lump sum pursuant to the Participant's election form. If the Participant has not reached age 65 at the time of the Participant's death, the Beneficiary of such Participant shall be entitled to receive as a Death Benefit an amount equal to the Deferral Benefit as of the Benefit Commencement Date that the Participant would have received had the Participant lived to received the full Deferral Benefit. If the Participant is age 65 or older at the time of the Participant's death, the Beneficiary of such Participant shall be entitled to receive as a Death Benefit an amount equal to the Deferral Benefit as of the first of January following the Participant's date of death. This Death Benefit shall be paid pursuant to the Participant's election form except that the payment shall be made, or begin, on the first of January after the Participant's date of death. 6.2 Post-Benefit Commencement Date Death Benefit. In the event that a Participant dies after his Benefit Commencement Date, then the Beneficiary of such participant shall be entitled to receive as a Death Benefit a continuation of the payment of the Deferral Benefit in the same manner and in the same amount that the Participant would have received had the Participant lived to receive the Deferral Benefit. ARTICLE VII Payment of Benefits 7.1 Payment of Deferral Benefit. A Participant's Deferral Benefit, if any, shall become payable to the Participant as of the Benefit Commencement Date specified in his Deferral Election or as soon thereafter as is administratively practical. If the Participant has elected to receive the Deferral Benefit in quarterly installments, each of the Participant's quarterly installment payments shall be comprised of accrued interest, if any, and that portion of the Participant's Deferral Benefit equal to the balance in the Participant's Deferred Cash Account divided by the number of remaining annual installment payments to be made to the Participant. 7.2 Payment of Death Benefit. A Participant's pre- commencement Death Benefit shall be payable to his Beneficiary as set forth in Article VI. A Participant's post-commencement Death Benefit shall be paid in installments payable quarterly over the period irrevocably elected by the Participant pursuant to his Deferral Election. 7.3 Form of Payment of Deferral Benefit. A Participant shall be paid his Deferral Benefit beginning at the Benefit Commencement Date in a lump sum or in periodic installment payments payable quarterly over a period of five, ten, or fifteen years as irrevocably elected by the Participant pursuant to Section 3.3. 7.4 Benefit Determination and Payment Procedure. The Administrator shall make all determinations concerning eligibility for benefits under the Plan, the time or terms of payment, and the form or manner of payment to the Participant or the Participant's Beneficiary, in the event of the death of the Participant. The Administrator shall promptly notify the Corporation of each such determination that benefit payments are due and provide to the Corporation all other information necessary to allow the Corporation to carry out said determination, whereupon the Corporation shall pay such benefits in accordance with the Administrator's determination. 7.5 Payments to Minors and Incompetents. If a Participant or Beneficiary entitled to receive any benefits hereunder is a minor or is adjudged to be legally incapable of giving valid receipt and discharge for such benefits, or is deemed so by the Administrator, benefits will be paid to such person as the Administrator may designate for the benefit of such Participant or Beneficiary. Such payments shall be considered a payment to such Participant or Beneficiary and shall, to the extent made, be deemed a complete discharge of any liability for such payments under the Plan. 7.6 Distribution of Benefit When Distributee Cannot Be Located. The Administrator shall make all reasonable attempts to determine the identity and/or whereabouts of a Participant or a Participant's Beneficiary entitled to benefits under the Plan, including the mailing by certified mail of a notice to the last known address shown on the Corporation's or the Administrator's records. If the Administrator is unable to locate such a person entitled to benefits hereunder, or if there has been no claim made for such benefits, the Corporation shall continue to hold the benefit due such person, subject to any applicable statute of escheats. ARTICLE VIII Beneficiary Designation 8.1 Beneficiary Designation. (a) A Participant may designate a Beneficiary as part of his Deferral Election. Any Beneficiary designation made hereunder shall be effective only if properly signed and dated by the Participant and delivered to the Administrator prior to the time of the Participant's death. Any Beneficiary designation hereunder shall remain effective until changed or revoked hereunder. (b) A Beneficiary designation may be changed by the Participant at any time, or from time to time, by filing a new designation in writing with the Administrator. (c) If the Participant dies without having designated a Beneficiary, or if the Beneficiary so designated has predeceased him, then his estate shall be deemed to be his Beneficiary. (e) If a Beneficiary of the Participant shall survive the Participant but shall die before the Participant's entire benefit under the Plan has been distributed, then the unpaid balance thereof shall be distributed to any other beneficiary named by the deceased Beneficiary to receive his interest or, if none, to the estate of the deceased Beneficiary. ARTICLE IX Withdrawals 9.1 No Withdrawals Permitted. No withdrawals or other distributions shall be permitted from the Deferred Cash Account and Deferred Stock Unit Account except as provided in Article VII. 9.2 Hardship Exemption. (a) A distribution of a portion of the Participant's Deferral Account because of an Unforeseeable Emergency will be permitted only to the extent required by the Participant to satisfy the emergency need. Whether an Unforeseeable Emergency has occurred will be determined solely by the Administrator. Distributions in the event of an Unforeseeable Emergency may be made by and with the approval of the Administrator upon written request by a Participant. (b) An "Unforeseeable Emergency" is defined as a severe financial hardship to the Participant resulting from a sudden and unexpected illness or accident of the Participant or of a dependent of the Participant, loss of the Participant's property due to casualty, or other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the Participant's control. The circumstances that will constitute an Unforeseeable Emergency will depend upon the facts of each case, but, in any event, any distribution under this Section 9.2 shall not exceed the remaining amount required by the Participant to resolve the hardship after (i) reimbursement or compensation through insurance or otherwise, (ii) obtaining liquidation of the Participant's assets, to the extent such liquidation would not itself cause a severe financial hardship, or (iii) suspension of deferrals under the Plan. ARTICLE X Funding 10.1 Funding. (a) All Plan Participants and Beneficiaries are general unsecured creditors of the Corporation with respect to the benefits due hereunder and the Plan constitutes a mere promise by the Corporation to make benefit payments in the future. It is the intention of the Corporation that the Plan be considered unfunded for tax purposes. (b) The Corporation may, but is not required to, purchase life insurance in amounts sufficient to provide some or all of the benefits provided under this Plan or may otherwise segregate assets for such purpose. (c) The Corporation may, but is not required to, establish a grantor trust which may be used to hold assets of the Corporation which are maintained as reserves against the Corporation's unfunded, unsecured obligations hereunder. Such reserves shall at all times be subject to the claims of the Corporation's creditors. To the extent such trust or other vehicle is established, and assets contributed, for the purpose of fulfilling the Corporation's obligation hereunder, then such obligation of the Corporation shall be reduced to the extent such assets are utilized to meet its obligations hereunder. Any such trust and the assets held thereunder are intended to conform in substance to the terms of the model trust described in Revenue Procedure 92-64. ARTICLE XI Change of Control 11.1 Change of Control. A "Change of Control" shall mean (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 25% or more of either (i) the then outstanding shares of common stock of the Corporation (the "Outstanding Corporation Common Stock") or (ii) the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors (the "Outstanding Corporation Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Corporation, (ii) any acquisition by the Corporation, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Corporation or any corporation controlled by the Corporation or (iv) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii) and (iii) of subsection (c) of this Section; or (b) Individuals who, as of February 2, 1999, constitute the Board "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to February 2, 1999 whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Corporation (a "Business Combination"), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation a corporation which as a result of such transaction owns the Corporation or all or substantially all of the Corporation's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Corporation Common Stock and Outstanding Corporation Voting Securities, as the case may be, (ii) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Corporation or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (d) Approval by the shareholders of the Corporation of a complete liquidation or dissolution of the Corporation. Notwithstanding the foregoing, for purposes of subsection (a) of this Section, a Change of Control shall not be deemed to have taken place if, as a result of an acquisition by the Corporation which reduces the Outstanding Corporation Common Stock or the Outstanding Corporation Voting Securities, the beneficial ownership of a Person increases to 25% or more of the Outstanding Corporation Common Stock or the Outstanding Corporation Voting Securities; provided, however, that if a Person shall become the beneficial owner of 25% or more of the Outstanding Corporation Common Stock or the Outstanding Corporation Voting Securities by reason of share purchases by the Corporation and, after such share purchases by the Corporation, such Person becomes the beneficial owner of any additional shares of the Outstanding Corporation Common Stock or the Outstanding Corporation Voting Stock through any means except an acquisition directly from the Company, for purposes of subsection (a) of this Section, a Change of Control shall be deemed to have taken place. 11.2 Effect of Change of Control. Notwithstanding any other provision in any other Article of this Plan to the contrary, (i) the value of all amounts deferred by a Participant which have not yet been credited to the Participant's Account and (ii) the value of such Participant's Account shall be paid to such Participant in each case in a lump- sum cash payment on the occurrence of a Change of Control or as soon thereafter as practicable, but in no event later than five days after the Change of Control. The amount of cash credited to each Participant's Account prior to determining the amount of cash to be paid from the Account shall be determined by the Board (which, for this purpose, shall be comprised of employee members of the Board prior to the Change of Control) so as to reflect fairly and equitably appropriate interest and dividends and circumstances as the Board deems appropriate, including, without limitation, the recent price of shares of the Corporation's common stock. For purposes of payments under this Article XI, the value of a Deferred Stock Unit shall be computed as the greater of (1) the Closing Price on or nearest the date on which the Change of Control is deemed to occur, or (2) the highest per share price for shares of the Corporation's common stock actually paid in connection with the Change of Control. ARTICLE XII Plan Administrator 12.1 Appointment of Administrator. (a) The Compensation Committee may appoint one or more persons to serve as the Plan Administrator (the "Administrator") for the purpose of administering the Plan. In the event more than one person is appointed, the persons shall form a committee for the purpose of functioning as the Administrator of the Plan. The person or committeemen serving as Administrator shall serve for indefinite terms at the pleasure of the Compensation Committee, and may, by thirty (30) days prior written notice to the Compensation Committee, terminate such appointment. 12.2 Duties and Responsibilities of Plan Administrator. (a) The Administrator shall maintain and retain necessary records regarding its administration of the Plan. (b) The Administrator is empowered to settle claims against the Plan and to make such equitable adjustments in a Participant's or Beneficiary's rights or entitlements under the Plan as it deems appropriate in the event an error or omission is discovered or claimed in the operation or administration of the Plan. (c) The Administrator may construe the Plan, correct defects, supply omissions or reconcile inconsistencies to the extent necessary to effectuate the Plan, and such action shall be conclusive. ARTICLE XIII Amendment or Termination of Plan 13.1 Amendment or Termination of the Plan. The Plan may be terminated or amended at any time by the Board, effective as of any date specified. Any such action taken by the Board shall be evidenced by a resolution and shall be communicated to Participants and Beneficiaries prior to the effective date thereof. No amendment or termination shall decrease a Participant's Deferral Benefit accrued prior to the effective date of the amendment or termination. The Board reserves the right to unilaterally shorten the deferral period of any Participant hereunder in its sole discretion if, in its sole discretion, it determines that to do so will be fair and equitable to the Participant. ARTICLE XIV Miscellaneous 14.1 Non-assignability. The interests of each Participant under the Plan are not subject to claims of the Participant's creditors; and neither the Participant nor his Beneficiary shall have any right to sell, assign, transfer or otherwise convey the right to receive any payments hereunder or any interest under the Plan, which payments and interest are expressly declared to be non-assignable and non-transferable. 14.2 Notices and Elections. All notices required to be given in writing and all elections required to be made in writing under any provision of the Plan shall be invalid unless made on such forms as may be provided or approved by the Administrator and, in the case of a notice or election by a Participant or Beneficiary, unless executed by the Participant or Beneficiary giving such notice or making such election. Notices and elections shall be deemed given or made when received by any member of the committee that serves as Administrator. 14.3 Delegation of Authority. Whenever the Corporation is permitted or required to perform any act, such act may be performed by its Chief Executive Officer or President or other person duly authorized by its Chief Executive Officer or President or its Board. 14.4 Service of Process. The Administrator shall be the agent for service of process on the Plan. 14.5 Governing Law. The Plan shall be construed, enforced and administered in accordance with the laws of the Commonwealth of Virginia. 14.6 Binding Effect. The Plan shall be binding upon and inure to the benefit of the Corporation, its successors and assigns, and the Participant and his heirs, executors, administrators and legal representatives. 14.7 Severability. If any provision of the Plan should for any reason be declared invalid or unenforceable by a court of competent jurisdiction, the remaining provisions shall nevertheless remain in full force and effect. 14.8 Gender and Number. In the construction of the Plan, the masculine shall include the feminine or neuter and the singular shall include the plural and vice-versa in all cases where such meanings would be appropriate. 14.9 Titles and Captions. Titles and captions and headings herein have been inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. IN WITNESS WHEREOF, the Corporation has caused the Plan, as amended and restated, to be signed on its behalf by its duly authorized officer on the __ day of Feb, 1999. Hilb, Rogal and Hamilton Company By: /s/ Walter L. Smith -------------------------------------- Its VP, CC & Sec -------------------------------------- EX-10 8 EXHIBIT 10.10 Exhibit 10.10 AMENDED AND RESTATED HILB, ROGAL AND HAMILTON COMPANY NON-EMPLOYEE DIRECTORS STOCK INCENTIVE PLAN 1. Purpose. The Purpose of the Hilb, Rogal and Hamilton Company Non-employee Directors Stock Incentive Plan (the "Plan") is to encourage ownership in the Company by non-employee members of the Board, to promote long-term shareholder value and to provide non-employee members of the Board with an incentive to continue as directors of the Company. The Plan was originally adopted by the Board and Shareholders of the Company as of May 5, 1998, amended as of August 4, 1998, and amended and restated by the Board effective February 2, 1999. 2. Definitions. As used in the Plan, the following terms have the meanings indicated: (a) "Act" means the Securities Exchange Act of 1934, as amended. (b) "Agreement" means a written agreement (including any amendment or supplement thereto) between the Company and an Eligible Director specifying the terms and conditions of an Option granted to such Eligible Director. (c) "Annual Meeting" means the annual meeting of shareholders at which members of the Board are routinely elected. (d) "Board" means the Board of Directors of the Company. (e) "Change of Control" shall mean (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Act, (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Act) of 25% or more of either (a) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (b) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (w) any acquisition directly from the Company, (x) any acquisition by the Company, (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company or (z) any acquisition by any corporation pursuant to a transaction which complies with clauses (a), (b) and (c) of subsection (iii) of this Section; or (ii) Individuals who, as of February 2, 1999, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to February 2, 1999 whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or con sents by or on behalf of a Person other than the Board; or (iii)Consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (a) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (b) no Person (excluding any corporation resulting from such Business Combination or any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 25% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (c) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) Approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. Notwithstanding the foregoing, for purposes of subsection (i) of this Section, a Change of Control shall not be deemed to have taken place if, as a result of an acquisition by the Company which reduces the Outstanding Company Common Stock or the Outstanding Company Voting Securities, the beneficial ownership of a Person increases to 25% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities; provided, however, that if a Person shall become the beneficial owner of 25% or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities by reason of share purchases by the Company and, after such share purchases by the Company, such Person becomes the beneficial owner of any additional shares of the Outstanding Company Common Stock or the Outstanding Company Voting Stock through any means except an acquisition directly from the Company, for purposes of subsection (i) of this Section, a Change of Control shall be deemed to have taken place. (f) "Company" means Hilb, Rogal and Hamilton Company. (g) "Committee" means the Compensation Committee of the Board. .. (h) "Common Stock" means the Common Stock of the Company. In the event of a change in the capital structure of the Company (as provided in Section 13), the shares resulting from such a change shall be deemed to be the Common Stock within the meaning of the Plan. (i) "Date of Grant" means the date as of which a director is automatically awarded an Option pursuant to Section 6. (j) "Effective Date" means the date the Plan is adopted by shareholders of the Company. (k) "Eligible Director" means a member of the Board who is not an employee of the Company or any Subsidiary. (l) "Fair Market Value" means, on any given date, the closing price per share of Common Stock, as reported on the New York Stock Exchange composite tape on that day or, if the Common Stock was not traded on such day, then on the next preceding day that the Common Stock was traded on such exchange, all as reported by such source as the Committee may select. (m) "Fees" means all amounts payable to an Eligible Director for services rendered as a director, including retainer fees, meeting fees, and committee fees, but excluding travel and other out of pocket expense reimbursements. (n) "Option" means a stock option, not otherwise specifically qualified for favorable tax treatment under a section of the Internal Revenue Code, that entitles the holder to purchase from the Company a stated number of shares of Common Stock at the price set forth in an Agreement under the terms of this Plan, at a price determined in accordance with the Plan. (o) "Plan Year" means the calendar year or the remaining portion of the calendar year after the Effective Date of this Plan. (p) "Subsidiary" means any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if each of the corporations in the unbroken chain (other than the last corporation) owns stock possessing at least 50% of the total combined voting power of all classes of stock in one of the other corporations in such chain. 3. Participation in the Plan. Each Eligible Director who was not an employee of the Company or Subsidiary for at least one year before the Date of Grant of an Option shall be eligible to receive Options under Section 6. Each Eligible Director shall be eligible to elect to receive Common Stock in lieu of Fees under Section 7. 4. Stock Subject to the Plan. The maximum number of shares of Common Stock that may be issued upon exercise of Options granted or Stock Elections pursuant to the Plan shall be 200,000, subject to adjustment as provided in Section 13. 5. Non-Statutory Stock Options. All Options granted under the Plan shall be non-statutory in nature and shall not be entitled to special tax treatment under Internal Revenue Code Section 422. 6. Award, Terms, Conditions and Form of Options. Each Option shall be evidenced by a written agreement in such form as the Committee shall from time to time approve, which Agreement shall comply with and be subject to the following terms and conditions: (a) Each Eligible Director shall receive a grant of an Option for the purchase of 5,000 shares of Common Stock on the first business day following the Annual Meeting of the Company's Shareholders. If at any time under the Plan there are not sufficient shares of Common Stock available to permit fully the Option grants described in this Section 6(a), the Option grants shall be reduced pro rata (to zero, if necessary) so as not to exceed the number of shares of Common Stock available. (b) The Option exercise price shall be the Fair Market Value of the Common Stock on the Date of Grant. (c) Subject to Section 6(e) below, all Options shall become exercisable immediately or after any term of months or years and may remain exercisable for any term of months or years as set by the Committee in its discretion at the time of granting. Further, the date upon which any Option granted becomes exercisable may be accelerated by the Committee in its discretion and the term of exercisability for any Option granted may be extended by the Committee. The terms of any Option granted by the Committee may provide that the Option is exercisable in whole or in part from time to time over such period of time as the Committee shall consider appropriate. (d) An Option may be exercised in whole at any time or in part from time to time at such times and in compliance with the applicable Agreement. A partial exercise of an Option shall not affect the right to exercise the Option from time to time in accordance with this Plan with respect to remaining shares subject to the Option. (e) Unless otherwise provided by the Agreement payment of the Option price shall be made in cash (in United States dollars) or a cash equivalent acceptable to the Committee. If the Agreement so provides, payment of all or a part of the Option price for a non-statutory Option may be effected by a "cashless exercise" thereof (i) by the Eligible Director surrendering shares of Common Stock to the Company, or (ii) by the Eligible Director delivering to a broker instructions to sell a sufficient number of the shares of Common Stock being acquired upon exercise of the Option to cover the Option price and any additional costs and expenses associated with the cashless exercise. If Common Stock is surrendered to pay all or part of the Option price, the shares surrendered must have a Fair Market Value (determined as of the date of exercise of the Option) that is not less than such Option price or part thereof. (f) Options shall become fully exercisable upon a Change of Control. 7. Receipt of Fees in Stock. (a) An Eligible Director may elect to receive up to 100 percent of his or her Fees in shares ofCommon Stock (a "Stock Election"). A Stock Election must be in writing and shall be delivered to the Corporate Secretary of the Company prior to the Annual Meeting for the Plan Year to which the Stock Election pertains. Except as provided in Section 7(c), a Stock Election may be revoked prior to the last day of any calendar quarter for all calendar quarters beginning after the revocation. A Stock Election must specify the applicable percentage of the Fees that the Eligible Director wishes to receive in shares of Common Stock (the "Designated Percentage"). (b) If a Stock Election is made, the number of shares of Common Stock to be issued in lieu of the Fees shall be determined by multiplying the Designated Percentage times the Fees at the time that such Fees are earned and dividing that product by the Fair Market Value of the Common Stock on the day on which the Fees are earned. The portion of an Eligible Director's Fees which is the Eligible Director's retainer is earned as of the first day of the quarter for which the retainer is paid. The portion of an Eligible Director's Fees which are the Eligible Director's meeting fees is earned as the date on which the meeting for which the Eligible Director is paid occurs. The number of shares of Common Stock is to be issued in lieu of the Fees for each calendar quarter shall be issued on the last day of such calendar quarter to an Eligible Director. At the time the shares of Common Stock are to be issued to the Eligible Director, if the formula used to calculate the total number of shares of Common Stock earned by the Eligible Director (including, if applicable, any 30% increase under Section 7(c)) results in a fractional share, the number of shares of Common Stock issued to the Eligible Director shall be rounded down to the next whole share. (c) If the Designated Percentage in a Stock Election is 100 percent, the number of shares of Common Stock as determined under Section 7(b) shall be increased by 30 percent at each time that the Eligible Director's Fees are earned and issued as provided under Section 7(b). To receive the increased amount of Common Stock, the Stock Election must be irrevocable in respect to the Plan Year to which it pertains. 8. Withholding. In the case of the exercise of an Option, the Eligible Director shall pay to the Company in cash the full amount of all federal and state income and employment taxes required to be withheld by the Company in respect of the taxable income of the Eligible Director from such exercise. If the Agreement so provides, payment of all or a part of such taxes may be made by the Eligible Director surrendering shares of Common Stock to the Company, provided the shares have a Fair Market Value (determined as of the date of exercise of the Option) that is not less than the amount of such taxes or part thereof, or by the sale of shares of Common Stock upon the cashless exercise of an Option through a broker. 9. Transferability. An Option shall not be transferable by the optionee otherwise than by will, or by the laws of descent and distribution, and shall be exercised during the lifetime of the optionee only by him; provided that an Eligible Director may transfer any Option to members of the Eligible Director's immediate family or trusts or family partnerships for the benefit of such persons, subject to such terms and conditions as may be established by the Committee. Except as specifically provided in the Agreement, no Option or interest therein may be transferred, assigned, pledged or hypothecated by the optionee during his or her lifetime, whether by operation of law or otherwise, or be made subject to execution, attachment or similar process. 10. Administration. The Plan shall be administered by the Committee. The Committee shall have all powers necessary to administer the Plan, including, without limitation, the authority (within the limitations described herein) to construe the Plan, to determine all questions arising under the Plan, and to adopt and amend rules and regulations for the administration of the Plan as it may deem desirable. Any decision of the Committee in the administration of the Plan shall be final and conclusive. The Committee may act only by a majority of its members in office, except that members thereof may authorize any one or more of their number or any officer of the Company to execute and deliver documents on behalf of the Committee. No member of the Committee shall be liable for anything done or omitted to be done by him or any other member of the Committee in connection with the Plan, except for his or her own willful misconduct or as expressly provided by statute. 11. Termination. The Plan shall terminate upon the earlier of: (a) the adoption of a resolution of the Board terminating the Plan; or (b) the date shares of Common Stock are no longer available under the Plan for the automatic award of Option shares; or (c) The tenth anniversary of the Effective Date. No termination of the Plan shall materially and adversely affect any of the rights or obligations of any Eligible Director under any Option previously granted by the Plan without such Eligible Director's consent. 12. Limitation of Rights (a) Neither the Plan nor any other action taken pursuant to the Plan, shall constitute or be evidence of any agreement or understanding, express or implied, that the Company will retain any person as a director for any period of time. (b) An optionee shall have no rights as a shareholder with respect to shares of Common Stock covered by his or her Options until the date of exercise of the Option, and, except as provided in Section 13, no adjustment will be made for dividends or other rights for which the record date is prior to the date of such exercise. 13. Changes in Capital Structure. (a) Subject to any required action by the shareholders of the Company, the number of shares of Common Stock covered by each outstanding Option and the price per share thereof shall be adjusted proportionately for any increase or decrease in the number of issued and outstanding shares of Common Stock of the Company by reason of any stock dividend, stock split, combination, reclassification, recapitalization, or the general issuance to holders of Common Stock of rights to purchase Common Stock at substantially below its then fair market value, or any change in the number of shares of Common Stock outstanding effected without receipt of cash, property, labor or services by the Company, or any spin-off or other type of distribution of assets to shareholders. In the event of a change in the Common Stock of the Company as presently constituted, which is limited to a change of all or part of its authorized shares without par value into the same number of shares with a par value, or any subsequent change into the same number of shares with a different par value, the shares resulting from any such change shall be deemed to be the Common Stock within the meaning of the Plan. (b) Except as expressly provided above in this Section 6(e) or Section 13, an Eligible Director shall have no rights by reason of any subdivision or consolidation of shares of stock of any class or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class or by reason of any dissolution, liquidation, merger, or consolidation or spin-off of assets or stock of another corporation. Any issue by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to any Option. (c) The grant of an Option award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure or to merge or to consolidate or to dissolve, liquidate or sell, or transfer all or any part of its business or assets. 14. Amendment of the Plan. The Plan may be terminated or amended at any time by the Board, effective as of any date specified, except as required by applicable law. No amendment or termination shall decrease an Eligible Director's accrued benefit prior to the effective date of the amendment or termination. 15. Notice. All notices and other communications required or permitted to be given under this Plan shall be in writing and shall be deemed to have been duly given if delivered personally or mailed first class, postage prepaid, as follows: (a) if to the Company - at its principal business address to the attention of the Treasurer; (b) if to any Participant - to the Participants' address as reflected on the records of the Company. 16. Non-Assignability. Each Participant's rights under the Plan shall be non-assignable. 17. Responsibility for Legal Effect. Neither the Committee nor the Company makes any representations or warranties, express or implied, or assumes any responsibility concerning the legal, tax or other implications or effects of this Plan. 18. Successors, Acquisitions, Mergers, Consolidations. The terms and conditions of the Plan shall inure to the benefit of and bind the Company and the Participants, and their successors, assigns and personal representatives. 19. Controlling Law. The Plan shall be construed in accordance with the laws of the Commonwealth of Virginia to the extent not preempted by laws of the United States of America. 20 Gender and Number. In the construction of the Plan, the masculine shall include the feminine or neuter and the singular shall include the plural and vice-versa in all cases where such meanings would be appropriate. 21 Titles and Captions. Titles and captions and headings herein have been inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof. EX-10 9 EXHIBIT 10.11 SALE AND QUITCLAIM AGREEMENT Agreement dated as of January 1,1996, between HILB, ROGAL AND HAMILTON COMPANY OF PITTSBURGH, INC., a corporation ("Purchaser"), and HAROLD J. BIGLER ("Mr. Bigler"), CHANDLER G. KETCHUM ("Mr. Ketchum") and RICHARD F. GALARDINI ("Mr. Galardini") (with Messrs. Bigler, Ketchum and Galardini collectively being referred to herein as "Seller"). Recitals 1. Purchaser is the surviving corporation of a merger with Bigler- Ketchum Group, Inc. ("B-K"). 2. Seller, at the time of the merger, negotiated a special incentive with respect to business that B-K had pursued but had not yet written ("Chamber Business"), which is hereafter defined to mean all business written by Purchaser in conjunction with the Chambers of Commerce Service Corporation. 3. Purchaser, in order to consummate the merger with B-K, agreed to compensate Seller if the Chamber Business were ultimately written by Purchaser (the "Contingent Interest"). 4. The Chamber Business was written by Purchaser (as the successor to B-K) and continues to be written by Purchaser. 5. Purchaser desires to purchase the Contingent Interest so that Seller shall have no claim or right to any of the Chamber Business or any of Purchaser's business at all. 6. Each of Mr. Bigler, Mr. Ketchum, and Mr. Galardini is agreeable to the terms expressed herein for his sale of the Contingent Interest and quitclaim of any interest in Purchaser's business. Agreements 1. Seller and Purchaser agree that, as of January 1, 1996 ("Effective Date"), Purchaser owns the Contingent Interest and, except as stated herein in paragraph 2, none of Mr. Bigler, Mr. Ketchum and Mr. Galardini has any interest in any of Purchaser's business which each of them hereby expressly quitclaim to Purchaser. 2. The purchase price for the Contingent Interest and the quitclaim shall be determined based on the resulting amount of Chamber Business, and the profitability to Purchaser thereon, to be realized during the five calendar years 1996 through 2000. Attached hereto as Exhibit 1 is Purchaser's calculation of profitability on the Chamber Business for calendar year 1995. Gross revenues and Required Profit Margin to Purchaser on the Chamber Business shall be calculated in a similar manner for calendar years 1996 through 2000, except that payments of the purchase price to Seller shall also be deducted (also on an accrual basis). For purposes herein, Required Profit Margin shall mean 20%. A. The purchase price to Mr. Galardini for the purchase of his Contingent Interest and quitclaim is 10% of the Chamber Business to be realized in each of the years 1996 through 2000, subject to a maximum payment for any such year of $150,000 for $1,500,000 or more of Chamber Business. Each such payment shall be due in full on or before February 15 after such year end, but shall be contingent upon Mr. Galardini continuing to be the primary producer and servicer of Chamber Business for each such year. Additionally, should Mr. Galardini remain in the employ of Purchaser beyond 2000, and for each full calendar year he shall do so through 2005 and continue to be the primary producer and servicer of the Chamber Business, Mr. Galardini shall receive a bonus of 10% of Chamber Business for such year, subject to a maximum payment for any such year of $150,000 for $1,500,000 or more in Chamber Business. B. With respect to Mr. Bigler and Mr. Ketchum, for each of calendar years 1996 through 2000, the purchase price for his Contingent Interest and quitclaim, to be paid in full on February 15 of each following year, shall be one of the following amounts: (i) If Chamber Business for such calendar year was $1,000,000 or less and the Required Profit Margin is not attained, each of Mr. Bigler and Mr. Ketchum shall receive an amount equal to 10% of Chamber Business, less his half of that amount of purchase price reduction necessary to achieve the Required Profit Margin; (ii) if Chamber Business for such calendar year was $1,000,000 or less and the Required Profit Margin is attained, each of Mr. Bigler and Mr. Ketchum shall receive an amount equal to 10% of Chamber Business; (iii) if Chamber Business for such calendar year exceeds $1,000,000 but is less than or equal to $1,750,000, and the Required Profit Margin is not attained, each of Mr. Bigler and Mr. Ketchum shall receive $175,000 less his half of that amount of purchase price reduction necessary to achieve the Required Profit Margin; (iv) if Chamber Business for such calendar year exceeds $1,000,000, but is less than or equal to $1,750,000, and the Required Profit Margin is attained, each of Mr. Bigler and Mr. Ketchum shall receive $175,000; (v) if Chamber Business for such calendar year exceeds $1,750,000, and the Required Profit Margin is not attained, each of Mr. Bigler and Mr. Ketchum shall receive an amount equal to twelve percent (12%) of Chamber Business for such year, less his half of the amount of purchase price reduction necessary to achieve the Required Profit Margin; or (vi) if Chamber Business for such calendar year exceeds $1,750,000 and the Required Profit Margin is attained, each of Mr. Bigler and Mr. Ketchum shall receive an amount equal to twelve percent (12%) of Chamber Business. C. To the extent the foregoing formula should result for any year in a chargeback to Mr. Bigler and Mr. Ketchum for failure to achieve the Required Profit Margin, then such chargebacks may be recaptured in subsequent years through December 31, 2000, at the time of the February 15 payment, to the extent the Required Profit Margin has been exceeded in one or more subsequent years. Recapture of any such prior year amounts shall be treated as reducing profits in the year just ended. D. The foregoing purchase price calculation may be demonstrated by the following example. For calendar years 1996 through 2000, suppose that Chamber Business and Profit Margin, respectively are as follows: Year Chamber Business Profit Margin 1996 $ 900,000 18% 1997 $ 1,200,000 19% 1998 $ 1,600,000 21% 1999 $ 1,800,000 18% 2000 $ 2,000,000 23% It is noted that the Profit Margin calculation deducts purchase price payments on an accrual basis (i.e. prior to final and full payment on February 15 of the following year). Based on the foregoing, for calendar years 1996 through 2000, the purchase price payable to each of Messrs. Bigler, Ketchum and Galardini, respectively, before offset or deduction, shall be as follows:
Year Mr. Bigler Mr. Ketchum Mr. Galardini 1996 $ 81,000 (90,000-9,000) $ 81,000 (90,000-9,000) $ 90,000 1997 $169,000 (175,000-6,000) $169,000 (175,000-6,000) $120,000 1998 $183,000 (175,000+8,000 recaptured) $183,000 (175,000+8,000 recaptured) $150,000 1999 $198,000 (216,000-18,000) $198,000 (216,000- 18,000) $150,000 2000 $265,000 (240,000+25,000 recaptured) $265,000 (240,000+25,000 recaptured) $150,000
To the extent any sums shall be due Purchaser from Seller at the time Purchaser is to pay any of the purchase price to Seller, Purchaser shall have the right to offset such obligation against the payment due to Seller. E. Notwithstanding that final payment for any year is due on February 15 of the following year, Purchaser has agreed as of April 30, 1996, to make semi-monthly payments equal to 90% of the estimated payments of the purchase price due to each of Messrs. Galardini, Bigler and Ketchum for each such year. Purchaser estimates that calendar year 1996 will produce $1,400,000 of Chamber Business and the Required Profit Margin. Purchaser shall have the right to adjust these semi-monthly payments quarterly to reflect actual results and amounts due. Within twenty (20) days of the close of each quarter during the term of this Agreement, Purchaser shall provide to each of Sellers true and correct copies of all financial statements and reports as are prepared by and/or for Purchaser pertaining to either the amount of Chamber Business or the Required Profit Margin during the preceding quarter. All estimates and adjustments by Purchaser shall be made in good faith and final payments for each such year shall be reconciled and paid by February 15 of the following year. Additionally, although it has always been contemplated that this Agreement takes effect as of January 1, 1996, each of Messrs. Bigler, Ketchum and Galardini has been mistakenly paid an amount of salary relating to the Chamber Business for the period January 1, 1996, through April 15, 1996. In Mr. Bigler's case, such amount is $38,550; in Mr. Ketchum's case, such amount is $38,550; and in Mr. Galardini's case, such amount is $36,000. The parties agree that each such amount shall be treated as a credit against the payment of the purchase price due him based on calendar year 1996. Upon consummation of this Agreement, Purchaser will make all payments necessary to bring current the sums due to Seller (after the foregoing credits). F. Notwithstanding anything in the foregoing to the contrary, the fundamental expectations of the parties hereto could be drastically altered if the Chambers of Commerce Service Corporation elects to terminate the contract pursuant to which Chamber Business has been written ("Contract") at any time prior to January 1, 2001. The Contract provides that, upon termination, Purchaser shall be paid 2% of premiums for Chamber Business written in the two years prior to such termination. If the Contract is terminated prior to January 1, 2001, then upon termination and continuing through the earlier of two years after termination or December 31, 2000, the payment structure referenced in paragraphs 2.A, 2.B and 2.C shall cease and Purchaser shall pay Seller, collectively, half of such termination payments (one-third of such half payments to each of Messrs. Bigler, Ketchum and Galardini). Additionally, within 45 days after termination of the Contract, the prior period year shall be calculated and paid, prorated by days in the year completed as to target revenue and purchase price payment (but not as to Required Profit Margin). 3. Seller and Purchaser covenant and agree, pursuant to Section 1060 of the Internal Revenue Code of 1986, as amended ("Code"), to allocate and report all purchase price payments herein for the acquisition of expiration data , except to the extent the Code may require imputation of interest and recharacterization of some portion of the payments herein as interest. 4. At the end of the five (5) year period referred to in paragraph 2 hereof, no further payments of any kind shall be made or due to Seller for the sale of the Contingent Interest and quitclaim, and the Chamber Business and all other business of Purchaser shall continue to belong to Purchaser with no claims of any kind whatsoever being against such business. 5. Seller agrees, during the term of this Agreement and for a period of five (5) years thereafter, that Seller will not, directly or indirectly, without the prior consent of Purchaser, on Seller's own behalf or as a partner or an employee, officer, director or shareholder of any corporation, association or other entity, solicit or accept insurance or bond business from, or act as the insurance agent of, any of the customers included within the Chamber Business, nor for the same period will Seller encourage or aid anyone who is not an employee of Purchaser in the solicitation of customers included within the Chamber Business. Finally, for the same period, each of the Sellers covenants to use his best efforts to ensure that the Contract remains in force, nor will he encourage anyone that it be terminated. 6. Purchaser shall not be obligated to close this Agreement until the lease for 1026 Fifth Avenue is terminated without any further liability to Purchaser and Purchaser has executed a new for such space for the period May 1, 1996, through April 30, 1997, at an annual rental rate of $46,800 or upon such other circumstances reasonably satisfactory to Purchaser that its liability under the lease has been extinguished. Upon such occurrences, Purchaser shall cause certain shares of HRH stock owned by Mr. Bigler and Mr. Ketchum, but held by Purchaser's parent corporation pursuant to an escrow agreement, to be returned to them. 7. In the event of any disagreement, the Seller and the Buyer shall each make a good faith attempt to reconcile the difference; however, if they are unable to reconcile all differences within a period of fourteen (14) days after notification to the Buyer of such disagreement, then the Seller and the Buyer shall submit all questions in dispute to one of the "Big Six" firms of certified public accountants (other than Seller's Reviewer or the accounting firm normally employed by Seller, HRH or Buyer, if applicable) located at Allegheny County, Pennsylvania, as may be agreed upon by the Seller and the Buyer or, in default of such agreement, as may be determined by the President at such time of the American Institute of Certified Public Accountants, which chosen accounting firm ("Umpire") shall, within a period of thirty (30) days after submission, determine and report to the Seller and the Buyer upon all questions in dispute, and the report of the Umpire shall be final, conclusive and binding on the Seller and the Buyer. The fees charged by the Umpire shall be equally divided among the Seller and the Buyer. The Profit Statements, as prepared by the Buyer or HRH, or, if varied by agreement between the Seller and the Buyer or by the report of the Umpire, then as so varied, shall be final, conclusive and binding on the Seller and the Buyer. 8. This Agreement shall inure to the benefit of and be binding upon and enforceable against the heirs and legal representatives of Seller and the successors and assigns of Purchaser. In the event of the death, disability or incapacity of any of the Sellers prior to January 1, 2001, any amounts due or to become due to said Seller pursuant to this Agreement shall be paid as scheduled herein to his estate or grantor trust. Except to his estate or a grantor trust owned by Seller, Seller may not assign any of its rights or obligations hereunder without the written consent of Purchaser. IN WITNESS WHEREOF, the parties have executed this Agreement this ___ day of May, 1996. SELLER: MR. BIGLER /s/ Harold S. Bigler -------------------------------------- Harold S. Bigler MR. KETCHUM /s/ Chandler G. Ketchum -------------------------------------- Chandler G. Ketchum MR. GALARDINI /s/ Richard F. Galardini -------------------------------------- Richard F. Galardini PURCHASER: HILB, ROGAL AND HAMILTON COMPANY OF PITTSBURGH, INC. By: /s/ ---------------------------------- Its: ---------------------------------- EXHIBIT 1 CHAMBER BUSINESS REVENUE AND PROFIT MARGIN (Calculated as per agreement and per accounting guidelines attached as E XHIBIT 2) EXHIBIT 2 4.3 REVENUES HRH's policy for recognizing revenue generally follows industry practice as summarized below: 4.3.1 AGENCY BILLED COMMISSIONS Agency Billed Commission Income (Account 401) together with the applicable premiums due from customers and payable to insurancecompanies, are recorded on the later of the billing date or effective date. Income should never be recognized before the effective date of the policy. This practice follows accepted insurance industry practice. However, at year-end; commission income and receivables for policies with effective dates prior to December 31st should be accrued where coverage is bound and the premium billed, as with a binder. The related company payables and producer commissions should also be recorded but it may be necessary to charge miscellaneous company/producer codes and later re-enter them to the proper codes as a means of maintaining your normal payables cycle. In no instance should the billing of a premium be unreasonably delayed. A. Regular Premiums - Generally, policies are billed at the effective date. If the entire premium is billed, then the entire commission income is recognized. B. Installment Premiums - If the billing is on an installment basis, the commissions earned are recorded as billed (normally, over the policy year). (Audits are billed upon receipt of the audit). C. Worker's Compensation Premiums - Worker's compensation policies and other policies normally subject to audit at the end of the policy year are recorded as billed (normally, over the policy year). Audits are billed upon receipt of the audit. D. Financed Premiums - In-house financing is discouraged because it is usually not worth the related risk and additional record keeping burdens. When in use, premiums financed in-house should be recorded in their entirety at the effective date of the policy and set up as Notes Receivable- Customers (Account 107). 4.3.2 DIRECT BILL, CONTINGENT AND LIFE INSURANCE COMMISSIONS Direct Bill Commissions (Account 402), Contingent Commissions (Account 415), and Life Product Commissions (Accounts 404, 405) are recorded when received. 4.3.3 COMMISSION ADJUSTMENTS Average Commission Adjustments (Account 403) such as commission rate adjustments and policy cancellations are normally recorded when billed. 4.3.4 OTHER COMMISSIONS AND FEES Miscellaneous Commission Income (Account 409) and Bonus Commissions (Account 407) is recorded when received. Service Fee Income (Account 408) is recorded when earned. 4.3.5 FINANCE CHARGES Late Charge Income (Account 430) is required by HRH and should be accumulated as part of Accounts Receivable Premiums (Account 105) on a monthly basis when statements are sent to customers. Many states require all customers to be treated equally. Therefore, finance charges should be uniformly attached to all customer accounts over 30 days "past due". 4.3.6 INTEREST INCOME Interest Income (Accounts 420, 421) should be recorded on the accrual basis each month based on a best estimate of amounts receivable from either the HRH cash management program or outside sources. The accounting entry to record such an accrual would be: 112 Interest Receivable - HRH XXX 420 Interest Income - HRH Program XXX 4.3.7 OTHER INCOME Dividend Income (Account 422), Rental Income (Account 432) and Other Income (Account 433) should be recorded on the accrual basis and unpaid amounts earned should be recorded at a minimum at year-end. The accounting entry to record such an accrual (using rental income as an example) would be: 109 Accounts Receivable - Other XXX 432 Rental Income XXX When payment of any accrued revenue is received, the appropriate receivable account should be credited. Other income usually includes non-recurring, non-insurance related items of revenue. Insurance related revenues should be categorized in a different revenue account. EX-10 10 EXHIBIT 10.12 Exhibit 10.12 HILB, ROGAL AND HAMILTON COMPANY Change of Control Employment Agreement With _______________________ [CORPORATE EMPLOYEE] CHANGE OF CONTROL EMPLOYMENT AGREEMENT AGREEMENT by and between Hilb, Rogal and Hamilton Company, a Virginia corporation (the "Company"), and ___ (the "Executive"), dated as of the 1st day of July, 1998. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. (c) "Subsidiary" shall mean any corporation that is directly, or indirectly though one or more intermediaries, controlled by the Company. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall be deemed to have taken place if: (a) any individual, entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act) becomes the beneficial owner of shares of the Company having 25 percent or more of the total number of votes that may be cast for the election of directors of the Company, other than (i) as a result of any acquisition directly from the Company, or (ii) as a result of any acquisition by any employee benefit plans (or related trusts) sponsored or maintained by the Company or its Subsidiaries; or (b) there is a change in the composition of the Board such that the individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this definition, that any individual who becomes a member of the Board subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or (c) if at any time, (i) the Company shall consolidate with, or merge with, any other Person and the Company shall not be the continuing or surviving corporation, (ii) any Person shall consolidate with, or merge with, the Company, and the Company shall be the continuing or surviving corporation and in connection therewith, all or part of the outstanding Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, (iii) the Company shall be a party to a statutory share exchange with any other Person after which the Company is a Subsidiary of any other Person, or (iv) the Company shall sell or otherwise transfer 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons. 3. Employment Period; Guaranty. If the Executive is employed by the Company and/or a Subsidiary on the Effective Date, the Company hereby agrees to continue to employ and to cause such Subsidiary to continue to employ the Executive, and the Executive hereby agrees to remain in the employ of the Company and/or such Subsidiary, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). For purposes of this Agreement, unless expressly limited to Hilb, Rogal and Hamilton Company, "Company" hereinafter shall mean each of Hilb, Rogal and Hamilton Company and/or any of its Subsidiaries that employ the Executive. 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under annual incentive plans of the Company and its affiliated companies or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean that the Executive is unable, by reason of physical or mental incapacity, to perform his duties to the Company on a full-time basis for a period longer than three (3) consecutive months or more than six (6) months in any consecutive twelve (12)-month period. The existence of a Disability shall be determined by the Board of Directors of the Company, based upon due consideration of the opinion of the Executive's personal physician or physicians and of the opinion of any physician or physicians selected by the Board of Directors for these purposes. If the Executive's personal physician disagrees with the physician retained by the Company, the Board of Directors will retain an impartial physician selected by the Executive's personal physician and the Company's physician and the opinion of the impartial physician shall be binding upon the Company and the Executive. The Executive shall submit to examination by any physician or physicians so selected by the Board of Directors, and shall otherwise cooperate with the Board of Directors in making the determination contemplated hereunder, such cooperation to include, without limitation, consenting to the release of information by any such physician(s) to the Board of Directors. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason; Window Period. The Executive's employment may be terminated (i) during the Employment Period by the Executive for Good Reason or (ii) during the Window Period by Executive without any reason. For purposes of this Agreement, "Window Period" shall mean the 30-day period immediately following the first anniversary of the Effective Date. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive during the Window Period or for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) During the Window Period. If, during the Employment Period, the Executive shall terminate employment without any reason during the Window Period: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and (2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and (ii) the amount equal to the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and (iii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, Death or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the Accrued Obligations; and B. the amount equal to the product of (1) three and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the qualified defined benefit retirement plan of the Company or any of its affiliated companies (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plan of the Company or any of its affiliated companies in which the Executive participates (together, the "BRP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the BRP as of the Date of Termination; (ii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (c) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (d) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(d) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (e) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax (the "Reduced Amount"), then no Gross- Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any pro ceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties),incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Restrictive Covenants. (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Nonraiding of Employees. The Executive covenants that during his employment hereunder and for a period of two (2) years immediately following the date of termination of Executive's employment, but only if said termination is voluntary or for Cause, he will not solicit, induce or encourage for the purposes of employing or offering employment to any individuals who, as of the date of termination of the Executive's employment, are employees of the Company or its affiliates, nor will he directly or indirectly solicit, induce or encourage any of the Company's or its affiliates' employees to seek employment with any other business, whether or not the Executive is then affiliated with such business. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: Hilb, Rogal and Hamilton Company 4235 Innslake Drive Glen Allen, Virginia 23060 Attention: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any pro vision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall become effective, and shall replace and supercede any existing Employment Agreement between the Company and the Executive, to the extent its terms are more advantageous to the Executive, except that any covenants contained in any prior agreement between Executive and the Company restricting Executive's ability to compete with or to solicit the employees, clients or customers of the Company, or to use or disclose any Confidential Information (as that term is defined in any such agreement), shall remain in full force and effect. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. HILB, ROGAL AND HAMILTON COMPANY By: _____________________________________ Title: _____________________________________ __________________________________________ [Name of Executive] EX-10 11 EXHIBIT 10.13 Exhibit 10.13 HILB, ROGAL AND HAMILTON COMPANY Change of Control Employment Agreement With _ [FIELD EMPLOYEE] CHANGE OF CONTROL EMPLOYMENT AGREEMENT AGREEMENT by and between Hilb, Rogal and Hamilton Company, a Virginia corporation (the "Company"), and __ (the "Executive"), dated as of the 1st day of July, 1998. The Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Executive, notwithstanding the possibility, threat or occurrence of a Change of Control (as defined below) of the Company. The Board believes it is imperative to diminish the inevitable distraction of the Executive by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control and to encourage the Executive's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Executive with compensation and benefits arrangements upon a Change of Control which ensure that the compensation and benefits expectations of the Executive will be satisfied and which are competitive with those of other corporations. Therefore, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement. NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS: 1. Certain Definitions. (a) The "Effective Date" shall mean the first date during the Change of Control Period (as defined in Section 1(b)) on which a Change of Control (as defined in Section 2) occurs. Anything in this Agreement to the contrary notwithstanding, if a Change of Control occurs and if the Executive's employment with the Company is terminated prior to the date on which the Change of Control occurs, and if it is reasonably demonstrated by the Executive that such termination of employment (i) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (ii) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination of employment. (b) The "Change of Control Period" shall mean the period commencing on the date hereof and ending on the third anniversary of the date hereof; provided, however, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof shall be hereinafter referred to as the "Renewal Date"), unless previously terminated, the Change of Control Period shall be automatically extended so as to terminate three years from such Renewal Date, unless at least 60 days prior to the Renewal Date the Company shall give notice to the Executive that the Change of Control Period shall not be so extended. (c) "Subsidiary" shall mean any corporation that is directly, or indirectly though one or more intermediaries, controlled by the Company. 2. Change of Control. For the purpose of this Agreement, a "Change of Control" shall be deemed to have taken place if: (a) any individual, entity or "group" (within the meaning of Sections 13(d)(3) or 14(d)(2) of the Exchange Act) becomes the beneficial owner of shares of the Company having 25 percent or more of the total number of votes that may be cast for the election of directors of the Company, other than (i) as a result of any acquisition directly from the Company, or (ii) as a result of any acquisition by any employee benefit plans (or related trusts) sponsored or maintained by the Company or its Subsidiaries; or (b) there is a change in the composition of the Board such that the individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, for purposes of this definition, that any individual who becomes a member of the Board subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of those individuals who are members of the Board and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual were a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board shall not be so considered as a member of the Incumbent Board; or (c) if at any time, (i) the Company shall consolidate with, or merge with, any other Person and the Company shall not be the continuing or surviving corporation, (ii) any Person shall consolidate with, or merge with, the Company, and the Company shall be the continuing or surviving corporation and in connection therewith, all or part of the outstanding Common Stock shall be changed into or exchanged for stock or other securities of any other Person or cash or any other property, (iii) the Company shall be a party to a statutory share exchange with any other Person after which the Company is a Subsidiary of any other Person, or (iv) the Company shall sell or otherwise transfer 50% or more of the assets or earning power of the Company and its Subsidiaries (taken as a whole) to any Person or Persons. 3. Employment Period; Guaranty. If the Executive is employed by the Company and/or a Subsidiary on the Effective Date, the Company hereby agrees to continue to employ and to cause such Subsidiary to continue to employ the Executive, and the Executive hereby agrees to remain in the employ of the Company and/or such Subsidiary, subject to the terms and conditions of this Agreement, for the period commencing on the Effective Date and ending on the third anniversary of such date (the "Employment Period"). For purposes of this Agreement, unless expressly limited to Hilb, Rogal and Hamilton Company, "Company" hereinafter shall mean each of Hilb, Rogal and Hamilton Company and/or any of its Subsidiaries that employ the Executive. 4. Terms of Employment. (a) Position and Duties. (i) During the Employment Period, (A) the Executive's position (including status, offices, titles and reporting requirements), authority, duties and responsibilities shall be at least commensurate in all material respects with the most significant of those held, exercised and assigned at any time during the 120-day period immediately preceding the Effective Date and (B) the Executive's services shall be performed at the location where the Executive was employed immediately preceding the Effective Date or any office or location less than 35 miles from such location. (ii) During the Employment Period, and excluding any periods of vacation and sick leave to which the Executive is entitled, the Executive agrees to devote reasonable attention and time during normal business hours to the business and affairs of the Company and, to the extent necessary to discharge the responsibilities assigned to the Executive hereunder, to use the Executive's reasonable best efforts to perform faithfully and efficiently such responsibilities. During the Employment Period it shall not be a violation of this Agreement for the Executive to (A) serve on corporate, civic or charitable boards or committees, (B) deliver lectures, fulfill speaking engagements or teach at educational institutions and (C) manage personal investments, so long as such activities do not significantly interfere with the performance of the Executive's responsibilities as an employee of the Company in accordance with this Agreement. It is expressly understood and agreed that to the extent that any such activities have been conducted by the Executive prior to the Effective Date, the continued conduct of such activities (or the conduct of activities similar in nature and scope thereto) subsequent to the Effective Date shall not thereafter be deemed to interfere with the performance of the Executive's responsibilities to the Company. (b) Compensation. (i) Base Salary. During the Employment Period, the Executive shall receive an annual base salary ("Annual Base Salary"), which shall be paid at a monthly rate, at least equal to twelve times the highest monthly base salary paid or payable, including any base salary which has been earned but deferred, to the Executive by the Company and its affiliated companies in respect of the twelve-month period immediately preceding the month in which the Effective Date occurs. During the Employment Period, the Annual Base Salary shall be reviewed no more than 12 months after the last salary increase awarded to the Executive prior to the Effective Date and thereafter at least annually. Any increase in Annual Base Salary shall not serve to limit or reduce any other obligation to the Executive under this Agreement. Annual Base Salary shall not be reduced after any such increase and the term Annual Base Salary as utilized in this Agreement shall refer to Annual Base Salary as so increased. As used in this Agreement, the term "affiliated companies" shall include any company controlled by, controlling or under common control with the Company. (ii) Annual Bonus. In addition to Annual Base Salary, the Executive shall be awarded, for each fiscal year ending during the Employment Period, an annual bonus (the "Annual Bonus") in cash at least equal to the Executive's highest bonus under annual incentive plans of the Company and its affiliated companies or any comparable bonus under any predecessor or successor plan, for the last three full fiscal years prior to the Effective Date (annualized in the event that the Executive was not employed by the Company for the whole of such fiscal year) (the "Recent Annual Bonus"). Each such Annual Bonus shall be paid no later than the end of the third month of the fiscal year next following the fiscal year for which the Annual Bonus is awarded, unless the Executive shall elect to defer the receipt of such Annual Bonus. (iii) Incentive, Savings and Retirement Plans. During the Employment Period, the Executive shall be entitled to participate in all incentive, savings and retirement plans, practices, policies and programs applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with incentive opportunities (measured with respect to both regular and special incentive opportunities, to the extent, if any, that such distinction is applicable), savings opportunities and retirement benefit opportunities, in each case, less favorable, in the aggregate, than the most favorable of those provided by the Company and its affiliated companies for the Executive under such plans, practices, policies and programs as in effect at any time during the 120-day period immediately preceding the Effective Date or if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (iv) Welfare Benefit Plans. During the Employment Period, the Executive and/or the Executive's family, as the case may be, shall be eligible for participation in and shall receive all benefits under welfare benefit plans, practices, policies and programs provided by the Company and its affiliated companies (including, without limitation, medical, prescription, dental, disability, employee life, group life, accidental death and travel accident insurance plans and programs) to the extent applicable generally to other peer executives of the Company and its affiliated companies, but in no event shall such plans, practices, policies and programs provide the Executive with benefits which are less favorable, in the aggregate, than the most favorable of such plans, practices, policies and programs in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, those provided generally at any time after the Effective Date to other peer executives of the Company and its affiliated companies. (v) Expenses. During the Employment Period the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses incurred by the Executive in accordance with the most favorable policies, practices and procedures of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vi) Fringe Benefits. During the Employment Period, the Executive shall be entitled to fringe benefits, including, without limitation, tax and financial planning services, payment of club dues, and, if applicable, use of an automobile and payment of related expenses, in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (vii) Office and Support Staff. During the Employment Period, the Executive shall be entitled to an office or offices of a size and with furnishings and other appointments, and to exclusive personal secretarial and other assistance, at least equal to the most favorable of the foregoing provided to the Executive by the Company and its affiliated companies at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as provided generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. (viii) Vacation. During the Employment Period, the Executive shall be entitled to paid vacation in accordance with the most favorable plans, policies, programs and practices of the Company and its affiliated companies as in effect for the Executive at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies. 5. Termination of Employment. (a) Death or Disability. The Executive's employment shall terminate automatically upon the Executive's death during the Employment Period. If the Company determines in good faith that the Disability of the Executive has occurred during the Employment Period (pursuant to the definition of Disability set forth below), it may give to the Executive written notice in accordance with Section 12(b) of this Agreement of its intention to terminate the Executive's employment. In such event, the Executive's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Executive (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Executive shall not have returned to full-time performance of the Executive's duties. For purposes of this Agreement, "Disability" shall mean that the Executive is unable, by reason of physical or mental incapacity, to perform his duties to the Company on a full-time basis for a period longer than three (3) consecutive months or more than six (6) months in any consecutive twelve (12)-month period. The existence of a Disability shall be determined by the Board of Directors of the Company, based upon due consideration of the opinion of the Executive's personal physician or physicians and of the opinion of any physician or physicians selected by the Board of Directors for these purposes. If the Executive's personal physician disagrees with the physician retained by the Company, the Board of Directors will retain an impartial physician selected by the Executive's personal physician and the Company's physician and the opinion of the impartial physician shall be binding upon the Company and the Executive. The Executive shall submit to examination by any physician or physicians so selected by the Board of Directors, and shall otherwise cooperate with the Board of Directors in making the determination contemplated hereunder, such cooperation to include, without limitation, consenting to the release of information by any such physician(s) to the Board of Directors. (b) Cause. The Company may terminate the Executive's employment during the Employment Period for Cause. For purposes of this Agreement, "Cause" shall mean: (i) the willful and continued failure of the Executive to perform substantially the Executive's duties with the Company or one of its affiliates (other than any such failure resulting from incapacity due to physical or mental illness), after a written demand for substantial performance is delivered to the Executive by the Board or the Chief Executive Officer of the Company which specifically identifies the manner in which the Board or Chief Executive Officer believes that the Executive has not substantially performed the Executive's duties, or (ii) the willful engaging by the Executive in illegal conduct or gross misconduct which is materially and demonstrably injurious to the Company. For purposes of this provision, no act or failure to act, on the part of the Executive, shall be considered "willful" unless it is done, or omitted to be done, by the Executive in bad faith or without reasonable belief that the Executive's action or omission was in the best interests of the Company. Any act, or failure to act, based upon authority given pursuant to a resolution duly adopted by the Board or upon the instructions of the Chief Executive Officer or a senior officer of the Company or based upon the advice of counsel for the Company shall be conclusively presumed to be done, or omitted to be done, by the Executive in good faith and in the best interests of the Company. The cessation of employment of the Executive shall not be deemed to be for Cause unless and until there shall have been delivered to the Executive a copy of a resolution duly adopted by the affirmative vote of not less than three-quarters of the entire membership of the Board at a meeting of the Board called and held for such purpose (after reasonable notice is provided to the Executive and the Executive is given an opportunity, together with counsel, to be heard before the Board), finding that, in the good faith opinion of the Board, the Executive is guilty of the conduct described in subparagraph (i) or (ii) above, and specifying the particulars thereof in detail. (c) Good Reason; Window Period. The Executive's employment may be terminated (i) during the Employment Period by the Executive for Good Reason or (ii) during the Window Period by Executive without any reason. For purposes of this Agreement, "Window Period" shall mean the 30-day period immediately following the first anniversary of the Effective Date. For purposes of this Agreement, "Good Reason" shall mean: (i) the assignment to the Executive of any duties inconsistent in any respect with the Executive's position (including status, offices, titles and reporting requirements), authority, duties or responsibilities as contemplated by Section 4(a) of this Agreement, or any other action by the Company which results in a diminution in such position, authority, duties or responsibilities, excluding for this purpose an isolated, insubstantial and inadvertent action not taken in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (ii) any failure by the Company to comply with any of the provisions of Section 4(b) of this Agreement, other than an isolated, insubstantial and inadvertent failure not occurring in bad faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive; (iii) the Company's requiring the Executive to be based at any office or location other than as provided in Section 4(a)(i)(B) hereof or the Company's requiring the Executive to travel on Company business to a substantially greater extent than required immediately prior to the Effective Date; (iv) any purported termination by the Company of the Executive's employment otherwise than as expressly permitted by this Agreement; or (v) any failure by the Company to comply with and satisfy Section 11(c) of this Agreement. For purposes of this Section 5(c), any good faith determination of "Good Reason" made by the Executive shall be conclusive. (d) Notice of Termination. Any termination by the Company for Cause, or by the Executive during the Window Period or for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 12(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive's employment under the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than thirty days after the giving of such notice). The failure by the Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company, respectively, hereunder or preclude the Executive or the Company, respectively, from asserting such fact or circumstance in enforcing the Executive's or the Company's rights hereunder. (e) Date of Termination. "Date of Termination" means (i) if the Executive's employment is terminated by the Company for Cause, or by the Executive during the Window Period or for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be, (ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and (iii) if the Executive's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Executive or the Disability Effective Date, as the case may be. 6. Obligations of the Company upon Termination. (a) During the Window Period. If, during the Employment Period, the Executive shall terminate employment without any reason during the Window Period: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the sum of (1) the Executive's Annual Base Salary through the Date of Termination to the extent not theretofore paid and (2) the product of (x) the higher of (I) the Recent Annual Bonus and (II) the Annual Bonus paid or payable, including any bonus or portion thereof which has been earned but deferred (and annualized for any fiscal year consisting of less than twelve full months or during which the Executive was employed for less than twelve full months), for the most recently completed fiscal year during the Employment Period, if any (such higher amount being referred to as the "Highest Annual Bonus") and (y) a fraction, the numerator of which is the number of days in the current fiscal year through the Date of Termination, and the denominator of which is 365, in each case to the extent not theretofore paid (the sum of the amounts described in clauses (1) and (2) shall be hereinafter referred to as the "Accrued Obligations"); and (ii) the amount equal to the product of (1) one- half and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and (iii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (b) Good Reason; Other Than for Cause, Death or Disability. If, during the Employment Period, the Company shall terminate the Executive's employment other than for Cause, Death or Disability or the Executive shall terminate employment for Good Reason: (i) the Company shall pay to the Executive in a lump sum in cash within 30 days after the Date of Termination the aggregate of the following amounts: A. the Accrued Obligations; and B. the amount equal to the product of (1) two and (2) the sum of (x) the Executive's Annual Base Salary and (y) the Highest Annual Bonus; and C. an amount equal to the excess of (a) the actuarial equivalent of the benefit under the qualified defined benefit retirement plan of the Company or any of its affiliated companies (the "Retirement Plan") (utilizing actuarial assumptions no less favorable to the Executive than those in effect under the Retirement Plan immediately prior to the Effective Date), and any excess or supplemental retirement plan of the Company or any of its affiliated companies in which the Executive participates (together, the "BRP") which the Executive would receive if the Executive's employment continued for three years after the Date of Termination assuming for this purpose that all accrued benefits are fully vested, and, assuming that the Executive's compensation in each of the three years is that required by Section 4(b)(i) and Section 4(b)(ii), over (b) the actuarial equivalent of the Executive's actual benefit (paid or payable), if any, under the Retirement Plan and the BRP as of the Date of Termination; (ii) for three years after the Executive's Date of Termination, or such longer period as may be provided by the terms of the appropriate plan, program, practice or policy, the Company shall continue benefits to the Executive and/or the Executive's family at least equal to those which would have been provided to them in accordance with the plans, programs, practices and policies described in Section 4(b)(iv) of this Agreement if the Executive's employment had not been terminated or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies and their families, provided, however, that if the Executive becomes reemployed with another employer and is eligible to receive medical or other welfare benefits under another employer provided plan, the medical and other welfare benefits described herein shall be secondary to those provided under such other plan during such applicable period of eligibility. For purposes of determining eligibility (but not the time of commencement of benefits) of the Executive for retiree benefits pursuant to such plans, practices, programs and policies, the Executive shall be considered to have remained employed until three years after the Date of Termination and to have retired on the last day of such period; (iii) the Company shall, at its sole expense as incurred, provide the Executive with outplacement services the scope and provider of which shall be selected by the Executive in his sole discretion; and (iv) to the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies (such other amounts and benefits shall be hereinafter referred to as the "Other Benefits"). (c) Death. If the Executive's employment is terminated by reason of the Executive's death during the Employment Period, this Agreement shall terminate without further obligations to the Executive's legal representatives under this Agreement, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(c) shall include, without limitation, and the Executive's estate and/or beneficiaries shall be entitled to receive, benefits at least equal to the most favorable benefits provided by the Company and affiliated companies to the estates and beneficiaries of peer executives of the Company and such affiliated companies under such plans, programs, practices and policies relating to death benefits, if any, as in effect with respect to other peer executives and their beneficiaries at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive's estate and/or the Executive's beneficiaries, as in effect on the date of the Executive's death with respect to other peer executives of the Company and its affiliated companies and their beneficiaries. (d) Disability. If the Executive's employment is terminated by reason of the Executive's Disability during the Employment Period, this Agreement shall terminate without further obligations to the Executive, other than for payment of Accrued Obligations and the timely payment or provision of Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section 6(d) shall include, and the Executive shall be entitled after the Disability Effective Date to receive, disability and other benefits at least equal to the most favorable of those generally provided by the Company and its affiliated companies to disabled executives and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, as in effect generally with respect to other peer executives and their families at any time during the 120-day period immediately preceding the Effective Date or, if more favorable to the Executive and/or the Executive's family, as in effect at any time thereafter generally with respect to other peer executives of the Company and its affiliated companies and their families. (e) Cause; Other than for Good Reason. If the Executive's employment shall be terminated for Cause during the Employment Period, this Agreement shall terminate without further obligations to the Executive other than the obligation to pay to the Executive (x) his Annual Base Salary through the Date of Termination, (y) the amount of any compensation previously deferred by the Executive, and (z) Other Benefits, in each case to the extent theretofore unpaid. If the Executive voluntarily terminates employment during the Employment Period, excluding a termination for Good Reason, this Agreement shall terminate without further obligations to the Executive, other than for Accrued Obligations and the timely payment or provision of Other Benefits. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination. 7. Non-exclusivity of Rights. Nothing in this Agreement shall prevent or limit the Executive's continuing or future participation in any plan, program, policy or practice provided by the Company or any of its affiliated companies and for which the Executive may qualify, nor, subject to Section 12(f), shall anything herein limit or otherwise affect such rights as the Executive may have under any contract or agreement with the Company or any of its affiliated companies. Amounts which are vested benefits or which the Executive is otherwise entitled to receive under any plan, policy, practice or program of or any contract or agreement with the Company or any of its affiliated companies at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program or contract or agreement except as explicitly modified by this Agreement. 8. Full Settlement. The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment. The Company agrees to pay as incurred, to the full extent permitted by law, all legal fees and expenses which the Executive may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company, the Executive or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof (including as a result of any contest by the Executive about the amount of any payment pursuant to this Agreement), plus in each case interest on any delayed payment at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). 9. Certain Additional Payments by the Company. (a) Anything in this Agreement to the contrary notwithstanding and except as set forth below, in the event it shall be determined that any payment or distribution by the Company to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise, but determined without regard to any additional payments required under this Section 9) (a "Payment") would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the "Excise Tax"), then the Executive shall be entitled to receive an additional payment (a "Gross-Up Payment") in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments. Notwithstanding the foregoing provisions of this Section 9(a), if it shall be determined that the Executive is entitled to a Gross-Up Payment, but that the Payments do not exceed 110% of the greatest amount that could be paid to the Executive such that the receipt of Payments would not give rise to any Excise Tax (the "Reduced Amount"), then no Gross- Up Payment shall be made to the Executive and the Payments, in the aggregate, shall be reduced to the Reduced Amount. (b) Subject to the provisions of Section 9(c), all determinations required to be made under this Section 9, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by a nationally recognized certified public accounting firm as may be designated by the Executive (the "Accounting Firm") which shall provide detailed supporting calculations both to the Company and the Executive within 15 business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the individual, entity or group effecting the Change of Control, the Executive shall appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 9, shall be paid by the Company to the Executive within five days of the receipt of the Accounting Firm's determination. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made ("Underpayment"), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 9(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive. (c) The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the 30-day period following the date on which it gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall: (i) give the Company any information reasonably requested by the Company relating to such claim, (ii) take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company, (iii) cooperate with the Company in good faith in order effectively to contest such claim, and (iv) permit the Company to participate in any pro ceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties),incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 9(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive, on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and further provided that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company's control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority. (d) If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), the Executive becomes entitled to receive any refund with respect to such claim, the Executive shall (subject to the Company's complying with the requirements of Section 9(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 9(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of 30 days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid. 10. Restrictive Covenants. (a) Confidential Information. The Executive shall hold in a fiduciary capacity for the benefit of the Company all secret or confidential information, knowledge or data relating to the Company or any of its affiliated companies, and their respective businesses, which shall have been obtained by the Executive during the Executive's employment by the Company or any of its affiliated companies and which shall not be or become public knowledge (other than by acts by the Executive or representatives of the Executive in violation of this Agreement). After termination of the Executive's employment with the Company, the Executive shall not, without the prior written consent of the Company or as may otherwise be required by law or legal process, communicate or divulge any such information, knowledge or data to anyone other than the Company and those designated by it. (b) Nonraiding of Employees. The Executive covenants that during his employment hereunder and for a period of two (2) years immediately following the date of termination of Executive's employment, but only if said termination is voluntary or for Cause, he will not solicit, induce or encourage for the purposes of employing or offering employment to any individuals who, as of the date of termination of the Executive's employment, are employees of the Company or its affiliates, nor will he directly or indirectly solicit, induce or encourage any of the Company's or its affiliates' employees to seek employment with any other business, whether or not the Executive is then affiliated with such business. In no event shall an asserted violation of the provisions of this Section 10 constitute a basis for deferring or withholding any amounts otherwise payable to the Executive under this Agreement. 11. Successors. (a) This Agreement is personal to the Executive and without the prior written consent of the Company shall not be assignable by the Executive otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Executive's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 12. Miscellaneous. (a) This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Virginia without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Executive: If to the Company: Hilb, Rogal and Hamilton Company 4235 Innslake Drive Glen Allen, Virginia 23060 Attention: Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any pro vision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such federal, state, local or foreign taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Executive's or the Company's failure to insist upon strict compliance with any provision of this Agreement or the failure to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason pursuant to Section 5(c)(i)-(v) of this Agreement, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. (f) The Executive and the Company acknowledge that, except as may otherwise be provided under any other written agreement between the Executive and the Company, the employment of the Executive by the Company is "at will" and, subject to Section 1(a) hereof, prior to the Effective Date, the Executive's employment and/or this Agreement may be terminated by either the Executive or the Company at any time prior to the Effective Date, in which case the Executive shall have no further rights under this Agreement. From and after the Effective Date, this Agreement shall become effective, and shall replace and supercede any existing Employment Agreement between the Company and the Executive, to the extent its terms are more advantageous to the Executive, except that any covenants contained in any prior agreement between Executive and the Company restricting Executive's ability to compete with or to solicit the employees, clients or customers of the Company, or to use or disclose any Confidential Information (as that term is defined in any such agreement), shall remain in full force and effect. IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand and, pursuant to the authorization from its Board of Directors, the Company has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. HILB, ROGAL AND HAMILTON COMPANY By: _____________________________________ Title: _____________________________________ [NAME OF SUBSIDIARY] By: _____________________________________ Title: _____________________________________ _________________________________________ EX-10 12 EXHIBIT 10.14 Exhibit 10.14 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated June 3, 1986, is made between HILB, ROGAL AND HAMILTON COMPANY OF PITTSBURGH, INC., a Pennsylvania corporation ("Employer"), and JOHN P. MCGRATH ("Employee") residing at 350 Queenswood Drive, Zelienople, Pennsylvania 16063. In consideration of the sum of $1.00, receipt of which is acknowledged by Employee, Employer's employment or continued employment of Employee, and the mutual promises contained in this Agreement, the parties agree as follows: 1. Employer agrees to employ Employee as ACCOUNT EXECUTIVE for a term of one (1) year and to pay Employee such compensation as is mutually agreed upon; provided, however, that during such term either party may terminate this Agreement, with or without cause, by giving thirty (30) days written notice to the other of its intent to do so. Unless this agreement has been previously terminated or unless either party gives thirty (30) days written notice to the other to the contrary, this Agreement shall renew upon the same terms and conditions for like one (1) year terms upon the expiration of the initial term and each succeeding renewal term. Employee's compensation shall be reviewed by Employer not less frequently than annually during the term of this Agreement and any renewals or extensions thereof, and shall be full compensation for all services performed by Employee under this Agreement. 2. Employee agrees (i) to devote his full business time and energies to the business and affairs of Employer, (ii) to use his best efforts, skills and abilities to promote the interest of the Employer and the related business interests of Hilb, Rogal and Hamilton Company ("HRH") and its other subsidiaries and (iii) to perform faithfully and to the best of his ability all assignments of work given to him by Employer. (HRH and its subsidiary corporations, including Employer, are herein referred to as the "HRH Companies"). 3. All business, including insurance, bond, risk management, self-insurance and other services (collectively, the "HRH Business"), transacted through the efforts of Employee shall be the sole property of the Employer and the HRH Companies, and Employee acknowledges that he shall have no right to any commission or fees resulting from the conduct of such business other than in the form of the compensation referred to in Paragraph 1. Premiums, commissions or fees on the HRH Business transacted through the efforts of Employee shall be invoiced to the assured or purchaser by Employer or one of the other HRH Companies. All checks or bank drafts received by Employee from any assured or purchaser shall be made payable to such company and all amounts collected by Employee shall be promptly turned over to Employer. 4. Employee acknowledges that, in the course of his employment hereunder, he will become acquainted and entrusted with certain confidential information and trade secrets of Employer and the HRH Companies, concerning customers of the HRH Companies ("HRH Customers") and sources with which insurance is placed, which confidential information includes, but is not limited to, financial data and marketing programs for the HRH Companies, policy expiration dates, policy terms, conditions and rates, customers' risk characteristics, and information concerning the insurance market for large or unusual commercial risks. Employee agrees that he will safeguard all such confidential information from exposure to or appropriation by unauthorized persons and that he will not, without the prior written consent of Employer or other applicable HRH Company during the term of this Agreement or any time thereafter, divulge or make any use of such confidential information except as may be required in the course of his employment hereunder. Upon termination of his employment, Employee promises to deliver to Employer all materials, including personal notes and reproductions relating to the Employer and HRH Companies and to the HRH Business, which are in his possession or control. Employee agrees that compensation and benefits otherwise owing to him may be withheld for failure to comply with the terms of this paragraph. 5. In the event of any termination of Employee's employment hereunder whether by Employer or by Employee, Employee agrees that for a period of three years following such termination he will not, without the prior written consent of Employer or HRH, directly or indirectly, solicit or accept insurance or bond business from, or perform any of the services included within the HRH Business, for any HRH Customer with whom he or any HRH Company office in which he has worked has had business relations. 6. If, during the period of three years following the termination of employment hereunder, any commission or fee becomes payable to Employee or to any person, firm or corporation by whom Employee is then employed, as a result of a violation by Employee of the provisions of paragraphs 4 or 5 of this Agreement, Employee agrees to promptly pay to Employer an amount equal to 75% of such commission or fee. In addition, the parties agree that in the event of a breach by Employee of the terms of paragraphs 4 and/or 5 monetary damages alone will not be sufficient to protect the interest of Employer and the HRH Companies and, as a result, that Employer and the HRH Companies shall be entitled to injunctive relief against Employee to prevent the breach of any such provision hereunder. It is further agreed that the foregoing remedies shall be cumulative and not exclusive, and shall be in addition to any other remedies available to Employer and the HRH Companies at law or in equity. 7. In the event that on the date of this Agreement Employee is employed under the terms of a prior separate employment agreement with Employer or any other of the HRH Companies ("prior employment agreement"), such prior employment agreement shall not be terminated by the executive of this Agreement. Rather the two Agreements shall be read as constituting one employment agreement; provided, however, that in the event of conflicts in the interpretation of the two Agreements, the terms of this Agreement will determine the resolution of said conflict of interpretation. 8. If any provision of this Agreement or any part of any provisions of this Agreement is determined to be unenforceable for any reason whatsoever, it shall not invalidate or affect the other portions or parts of the Agreement, which shall remain in full force and effect and be enforceable according to their terms. WITNESS the following signatures. EMPLOYER: HILB, ROGAL AND HAMILTON COMPANY OF PITTSBURGH, INC. By: /s/ --------------------------------- EMPLOYEE: /s/ JOHN C. MCGRATH ------------------------------(SEAL) JOHN C. MCGRATH EX-10 13 EXHIBIT 10.15 Exhibit 10.15 PITTSBURGH PRODUCER'S EMPLOYMENT AGREEMENT THIS AGREEMENT, dated February 28, 1992, is made between HILB, ROGAL AND HAMILTON COMPANY OF PITTSBURGH, INC., a Pennsylvania corporation ("Employer"), and Richard E. Galardini ("Employee"), a resident of South Park Township, Pennsylvania. RECITALS WHEREAS, Employer is a wholly-owned subsidiary of Hilb, Rogal and Hamilton Company, a Virginia corporation ("HRH"); WHEREAS, HRH and Employer desire that Employee be employed primarily for the production of new business and secondarily for the servicing of such of Employer's clients assigned by Employer to Employee for service and for the period of time specified herein; and WHEREAS, Employee desires to accept such employment subject to the terms and conditions specified herein; and WHEREAS, HRH and Employer aver and Employee acknowledges that HRH and Employer will incur substantial costs in developing, increasing and protecting its business, including costs for training employees and advertising the business of the Employer; NOW, THEREFORE, in consideration of the premises stated above and the sum of $1.00, receipt of which is acknowledged by Employee, Employer's employment or continued employment of Employee, and the mutual promises contained in this Agreement, the parties agree as follows: 1. EMPLOYMENT: TERM, COMPENSATION; RENEWAL. Employer agrees to employ Employee for an initial term of three years ("Initial Term"), effective as of March 1, 1992 ("Effective Date"), and to compensate Employee as described on Exhibit A attached hereto and incorporated herein by this reference. Upon the expiration of the Initial Term, this Agreement shall renew for one (1) year terms; provided that this Agreement shall not renew if either party gives written notice to the other not less than thirty (30) days prior to the end of the Initial Term (or any renewals thereof) of its intent not to renew the Agreement, and provided further that either party may terminate this agreement at any time (including the Initial Term), with or without cause, upon the giving of thirty (30) days written notice to the other of its intent to do so. Employee's compensation shall be reviewed by Employer not less frequently than annually during the term of this Agreement and any extensions or renewals thereof, may be adjusted upward or downward in Employer's sole exercise of its reasonable business discretion and shall be full compensation for all services performed by Employee under this Agreement. 2. FULL EFFORTS OF EMPLOYEE. Employee represents to Employer that he has no employment or other relationship with any competitor of Employer which would restrict him in performing the duties contemplated herein. Employee agrees to indemnify and hold Employer harmless from all claims and damages (including reasonable attorney's fees and costs) suffered by Employer and arising out of a breach of the foregoing representation. Employee agrees (i) to devote his full business time and energies to the business and affairs of Employer, (ii) to use his best efforts, skills and abilities to promote the interest of the Employer and the related business interests of HRH and its other subsidiaries and (iii) to perform faithfully and to the best of his ability all assignments of work given to him by Employer. During the course of his employment hereunder, Employee shall not, directly or indirectly, enter into or engage in any business which competes with the business of Employer without the written consent of HRH. 3. FULL COMPENSATION FOR SERVICES. All business, including insurance, bond, risk management, self-insurance and other services (collectively, the "HRH Business"), transacted through the efforts of Employee or any other employee of HRH or any of its subsidiary corporations (HRH and its subsidiary corporations, including Employer, are herein referred to as the "HRH Companies.") shall be the sole property of the Employer and the HRH Companies, and Employee acknowledges that he shall have no right to any commission or fee resulting from the conduct of such business other than in the form of the compensation referred to in paragraph 1. Premiums, commissions or fees on the HRH Business transacted through the efforts of Employee shall be invoiced to the assured or purchaser by Employer or one of the other HRH Companies. All checks or bank drafts received by Employee from any assured or purchaser shall be made payable to such company and all amounts collected by Employee shall be promptly turned over to Employer. If Employee fails to turn over any such amounts, Employer retains the right to collect such amounts by deducting same from Employee's compensation. 4. CONFIDENTIAL INFORMATION. For purposes of this paragraph 4, the following words shall have the following respective meanings: "Employer" shall mean Hilb, Rogal and Hamilton Company of Pittsburgh, Inc., any of its predecessors and any person or entity from which it has, now or at the time of termination, acquired accounts; "HRH Companies" means Employer, HRH and any subsidiary of HRH; "HRH Customers" means the customers of the HRH Companies; and "Confidential Information" shall mean the confidential information and trade secrets of Employer and the HRH Companies, which shall include, but not be limited to, information about the HRH Customers such as customer lists, customer risk characteristics, policy expiration dates, policy terms, conditions and rates, and information about the HRH Companies such as financial data, marketing programs and specialized insurance markets. Employee acknowledges that, in the course of his employment hereunder, he will become acquainted and entrusted with the Confidential Information which is the exclusive property of employer. Employee agrees and covenants that he will safeguard the Confidential Information from exposure to, or appropriation by, unauthorized persons and that he will not, directly or indirectly, without the prior written consent of Employer and HRH during the term of this Agreement or any time thereafter, divulge or make any use of the Confidential Information except as may be required in the course of his employment hereunder. Upon termination of his employment, Employee covenants to deliver to Employer all information and materials, including personal notes and reproductions, relating to the Confidential Information, the HRH Companies, and the HRH Customers, which are in his possession or control. Employee agrees that, in addition to any other remedies available herein, compensation and benefits otherwise owing to him may be withheld for failure to comply with the terms of his paragraph. 5. EMPLOYEE COVENANTS. Employee recognizes that over a period of many years that Employer (specifically including for the purposes of this paragraph 5 any predecessors of Employer or entities from which it might have acquired insurance accounts) has developed, at considerable expense, relationships with, and knowledge about, customers and prospective customers which constitute a major part of the value of the Employer. During the course of his employment by Employer, Employee will have substantial contact with these customers and prospective customers. In order to protect the value of the Employer's business, Employee covenants voluntary or involuntary, he shall not directly or indirectly as an owner, stockholder, director, employee, partner, agent, broker, consultant or other participant, for a period of three (3) years from the date of such termination ("Restricted Period"): (a) approach, contact or solicit, or continue to allow himself to be approached or contacted by, any individual or firm, which was a Customer (as hereinafter defined), or Prospective Customer (as hereinafter defined), of the Employer, for the purpose of offering, obtaining, selling, diverting or receiving, to or from said individual or firm, services in the field of insurance or any other business engaged in by the Employer during Employee's term of employment; (b) approach, contact, or solicit, or continue to allow himself to be approached or contacted by, any individual or firm, which was a Customer, or Prospective Customer, of the Employer with whom Employee had personal contact or whose name became known to him in the course of the performance of his employment duties while in the employ of the Employer, for the purpose of offering, obtaining, selling, diverting or receiving, to or from said individual or firm, services in the field of insurance or any other business engaged in by the Employer during the Employee's term of employment; (c) approach, contact or solicit, or continue to allow himself to be approached or contacted by, any individual or firm, which was a Customer, or Prospective Customer, of the Employer other than those Customers and Prospective Customers with whom Employee had personal contact while in the employ of Employer, for the purpose of offering, obtaining, selling, diverting or receiving, to or from said individual or firm, services in the field of insurance or any other business engaged in by the Employer during Employee's term of employment; and (d) approach, contact or solicit, or continue to allow himself to be approached or contacted by, any individual or firm: (i) described above in subparagraph (a), (b) or (c); and (ii) located within the Restricted Area (as hereinafter defined); for the purpose of offering, obtaining, selling, diverting or receiving, to or from said individual or firm, services in the field of insurance or any other business engaged in by the Employer during Employee's term of employment. As used herein, "Customers" shall be limited to those customers of Employer for whom there is insurance coverage in force or to or for whom Employer is rendering services as of the date of termination of employment, "Prospective Customers" shall mean those parties known by Employee to have been solicited by an employee or agent of Employer (such solicitation, having been made within the twelve (12) months preceding the date of termination of employment); and "Restricted Area" shall mean the counties of Allegheny, Beaver, Lawrence, butler, Armstrong, Indiana, Westmoreland, Fayette, Greene and Washington, any political subdivision thereof and any independent cities or towns contained within the geographic area of the foregoing counties. Subparagraphs (a), (b), (c) and (d) are separate and divisible covenants; if for any reason any one covenant is held to be invalid or unenforceable, in whole or in part, the same shall not be held to affect the validity or enforceability of the others. Further, the periods and scope of the restrictions set forth in any such subparagraph shall be reduced by the minimum amount necessary to reform such subparagraph to the maximum level of enforcement permitted to Employer by the law governing this Agreement. 6. NONRAIDING OF EMPLOYEES. Employee covenants that during his employment hereunder (including renewals) and for an additional period of six (6) months after termination of his employment hereunder for any reason, he will not hire any employees of Employer for work in a business in competition with Employer, nor will he directly or indirectly aid or encourage any of the Employer's employees to seek employment with a business in competition with Employer, whether or not Employee is then affiliated with such competing business. 7. NOTIFICATION OF FORMER AND NEW EMPLOYMENT. During the term of this Agreement and the Restricted Period specified in paragraph 5 hereof, Employee covenants to notify any prospective employer or joint venturer, which is a competitor of Employer located within the Restricted Area, of this Agreement with Employer; and if Employee accepts employment or establishes a relationship with such competitor, Employee covenants to notify Employer immediately of such relationship. 8. EMPLOYEE BREACH OF AGREEMENT. If, during the Restricted Period, any commission or fee becomes payable to Employee or to any person, firm, partnership, corporation or other entity by or with whom Employee is then employed or affiliated, as a result of a violation by Employee of the provisions of paragraph 4 or 5 of this Agreement, Employee agrees to promptly pay Employer as liquidated damages for such one or more accounts ("Stolen Accounts") the amount determined to be Employer's damages as follows: Employee acknowledges that it would be difficult to calculate the damages incurred by Employer in the event of a breach by the Employee of paragraphs 4 or 5, therefore, the Employee acknowledges that the following liquidated damages clause is necessary and reasonable for the protection of the Employer. Employee further acknowledges that an industry rule of thumb for valuation of an entire agency is 1.5 times revenue and that, on the margin, a selected account may be worth 2 times revenue. Accordingly, whenever there is a Stolen Account, Employee shall immediately pay Employer on Employer's written demand an amount equal to ONE HUNDRED SEVENTY FIVE PERCENT (175%) of the greater of the annualized commissions and fees (i) realized by Employer from such Stolen Accounts during the twelve months preceding the date of the conversion, if any, or (ii) estimated by Employer to be realized (based on premiums, rates, coverages, etc.) in the Stolen Account. If Employee does not pay such amount within ten (10) days of written demand therefor, Employer may, in its sole discretion, and provided that Employee pays Employer 100% of the commissions and fees realized from such Stolen Accounts in the initial twelve months of its being written directly or indirectly by Employee, allow Employee to refinance the remainder of the amount due for a period of one year with interest, compounded monthly, at the lesser of the annual rate of 15% or the maximum legal rate, and due in a lump sum on the first anniversary date of the conversion date. In addition, the parties agree that, in the event of a breach by Employee of the terms of paragraph 4, 5, 6 or 7, monetary damages alone will not be sufficient to protect the interests of Employer and the HRH Companies and, as a result, that Employer and the HRH Companies shall be entitled to injunctive relief against Employee to prevent the breach of any such provisions hereunder. It is further agreed that the breach of any such provisions hereunder. It is further agreed that the foregoing remedies shall be cumulative and not exclusive, shall not be waived by any partial exercise or nonexercise thereof and shall be in addition to any other remedies available to Employer and the HRH Companies at law or in equity. 9. TOLLING OF RESTRICTIVE COVENANTS DURING VIOLATION. If a violation by Employee of any of the restrictive covenants of this Agreement occurs, nothing herein shall limit the authority of a judge or arbiter to extend the period of such violated covenant for a period of time equal to the period of such violation by Employee. It is the intent of this paragraph that the running of the restricted period of a restrictive covenant shall be tolled during any period of violation of such covenant so that the Employer shall get the full and reasonable protection for which it contracted and so that an Employee may not profit by his breach. 10. STANDARDS OF PERFORMANCE; CAUSE. In addition to the full efforts required of Employee in paragraph 2 hereof and notwithstanding anything herein to the contrary, Employee's employment may be terminated or altered, immediately upon notice to the Employee, in the discretion of Employer, prior to the expiration (including renewals) of this Agreement, for "Cause." For purposes hereof and without limitation Cause shall be solely criminal or immoral conduct or any one or more acts which will have more than a nominal adverse effect against the Employer or any of the HRH Companies and shall also include the failure of Employee, whether through incompetence, inefficiency, negligence, inability, incapacity or otherwise, to observe or perform any of his duties or obligations hereunder. 11. ATTORNEYS' FEES. Except as set forth in the next sentence, in any dispute over this Agreement or in pursuit of any remedy permitted under this Agreement, each party shall bear its own costs and fees, including attorney's fees, irrespective of the laws of that jurisdiction concerning such fees and costs. In the case of a material violation of paragraph 4, 5, 6 or 7 which violation becomes the gravamen of an action by Employer against Employee, then Employee shall pay all of the Employer's costs and fees, including reasonable attorneys' fees and costs, incurred in enforcing such one or more restrictive covenants. 12. DELINQUENT CUSTOMER ACCOUNTS; COLLECTION. Employer may, at its discretion, require Employee to take any and all actions deemed necessary by Employer to recover the balance of any customer account sold or serviced by Employee which account has not been paid in a timely fashion and which has not been collected in accordance with the normal procedures of Employer (with such account being referred to as a "Delinquent Customer Account"). If a Delinquent Customer Account exists, Employee shall be responsible for full payment of such amounts and Employer may deduct such delinquent amounts from Employee's compensation. 13. SEVERABILITY AND INDEPENDENCE. If any provision of this Agreement or any part of any provision of this Agreement is determined to be unenforceable for any reason whatsoever, it shall be severable from the rest of this Agreement and shall not invalidate or affect the other portions or parts of the Agreement, which shall remain in full force and effect and be enforceable according to their terms. Furthermore, no covenant herein shall be dependent upon any other covenant or provision herein, each of which covenants shall stand independently and be enforceable without regard to the other or to any other provision of this Agreement. 14. GOVERNING LAW. This Agreement shall be construed under and governed by the laws of the State of Pennsylvania. 15. MISCELLANEOUS. A. Case and Gender. Wherever required by the context of this Agreement, the singular and plural cases and the masculine, feminine and neuter genders shall be interchangeable. B. Nonwaiver. The waiver by HRH or Employer of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach or as a waiver of any other provisions of this Agreement. C. Captions. The captions provided in this Agreement are intended for descriptive and reference purposes only and are not intended to limit the applicability of the terms of any paragraph to that caption. D. Succession and Assignment. This Agreement shall be binding upon the parties hereto and is not assignable by Employee. This Agreement shall inure, however, to the benefit of Employer's successors and assigns, including, without limitation, successor corporations by way of merger or consolidation or any entity which purchases substantially all of the assets of Employer. E. Entire Agreement. This Agreement supersedes any prior written or unwritten agreement, representation or understanding between the Employer and Employee and represents the entire agreement, representations and understanding between Employer and Employee concerning the subject matter hereof. F. WAIVER OF JURY TRIAL. EACH OF EMPLOYER AND EMPLOYEE KNOWINGLY AND VOLUNTARILY WAIVES THE RIGHT TO A JURY TRIAL IN RESPECT OF ANY LEGAL PROCEEDINGS IN STATE OR FEDERAL COURT ARISING IN CONNECTION HEREWITH. THIS PROVISION IS A MATERIAL INDUCEMENT FOR EMPLOYER TO ENTER INTO THIS AGREEMENT. ________________________________ ________________________________ EMPLOYER EMPLOYEE WITNESS the following signatures. EMPLOYER: HILB, ROGAL AND HAMILTON COMPANY OF PITTSBURGH, INC. By: /s/ ----------------------------------- Its: ---------------------------------- EMPLOYEE: /s/ RICHARD F. GALARDINI -------------------------------------- RICHARD F. GALARDINI EXHIBIT A Employee shall be paid an annual salary of $100,000, payable semi-monthly, as earned. Future changes in compensation need not be reflected by amendment hereto as Employer may effect such change through signature of a payroll authorization form. EX-10 14 EXHIBIT 10.16 Exhibit 10.16 EMPLOYMENT AGREEMENT THIS AGREEMENT, dated June 21, 1993, is made between HILB, ROGAL AND HAMILTON COMPANY OF ARIZONA, an Arizona corporation ("Employer"), and MICHAEL A. JANES ("Employee"), a resident of Phoenix, Arizona. RECITALS WHEREAS, Employer is a wholly-owned subsidiary of HILB, ROGAL AND HAMILTON COMPANY, a Virginia corporation ("HRH"); WHEREAS, Employee has been a Vice President of Employer; WHEREAS, the former president of Employer has terminated employment and Employer desires for Employee to be promoted to President; WHEREAS, HRH and Employer desire that Employee be employed as President with primary responsibility for the overall management and profitability of Employer, and secondary responsibility for the production of new business and for the servicing of business coded to Employee for service and for the period of time specified herein; WHEREAS, Employee desires to accept such employment subject to the terms and conditions specified herein; and WHEREAS, HRH and Employer aver and Employee acknowledges that HRH and Employer will incur substantial costs in developing, increasing and protecting its business, including costs for training employees and advertising the business of the Employer; NOW, THEREFORE, in consideration of the premises stated above and the sum of $1.00, receipt of which is acknowledged by Employee, Employer's employment or continued employment of Employee, and the mutual promises contained in this Agreement, the parties agree as follows: 1. EMPLOYMENT: TERM' COMPENSATION: RENEWAL. Employer agrees to employ Employee for an initial term of three (3) years ("Initial Term"), effective as of April 1, 1993 ("Effective Date"), and to compensate Employee as described on Exhibit A attached hereto and incorporated herein by this reference. Upon the expiration of the Initial Term, this Agreement shall renew for one (1) year terms; provided that this Agreement shall not renew if either party gives written notice to the other not less than thirty (30) days prior to the end of the Initial Term (or any renewals thereof) of its intent not to renew the Agreement, and provided further that either party may terminate this Agreement at any time after the Initial Term, with or without cause, upon the giving of thirty (30) days written notice to the other of its intent to do so. If this Agreement is terminated by either party on thirty (30) days notice, Employee shall continue to render services faithfully during such period and his employment hereunder shall terminate at the end of the notice period. At its sole option, Employer may elect to pay Employee, as severance pay, the base salary due Employee for the unexpired portion of the notice period, thereby immediately terminating Employee's employment in lieu of permitting Employee to continue performing his duties during the notice period. Except as limited in the next following sentence, Employee's compensation shall be reviewed by Employer not less frequently than annually during the term of this Agreement and any extensions or renewals thereof, may be adjusted upward or downward in Employer's sole exercise of its reasonable business discretion and shall be full compensation for all services performed by Employee under this Agreement. During the Initial Term, Employee's compensation may be reduced only for "Cause." 2. FULL EFFORTS OF EMPLOYEE. Employee represents to Employer that he has no employment or other relationship with any competitor of Employer which would restrict him in performing the duties contemplated herein. Employee agrees to indemnify and hold Employer harmless from all claims and damages (including reasonable attorneys' fees and costs) suffered by Employer and arising out of a breach of the foregoing representation. Employee agrees (i) to devote his full business time and energies to the business and affairs of Employer, (ii) to use his best efforts, skills and abilities to promote the interests of the Employer and the related business interests of HRH and its other subsidiaries and (iii) to perform faithfully and to the best of his ability all assignments of work given to him by Employer. During the course of his employment hereunder, Employee shall not, directly or indirectly, enter into or engage in any other activity or other gainful employment without the prior written consent of HRH. 3. FULL COMPENSATION FOR SERVICES. All business, including insurance, bond, risk management, self-insurance and other services (collectively, the "HRH Business"), transacted through the efforts of Employee or any other employee of HRH or any of its subsidiary corporations (HRH and its subsidiary corporations, including Employer, are herein referred to as the "HRH Companies.") shall be the sole property of the Employer and the HRH Companies, and Employee acknowledges that he shall have no right to any commission or fee resulting from the conduct of such business other than in the form of the compensation referred to in paragraph 1. Premiums, commissions or fees on the HRH Business transacted through the efforts of Employee shall be invoiced to the insured or purchaser by Employer or one of the other HRH Companies. All checks or bank drafts received by Employee from any insured or purchaser shall be made payable to such company and all amounts collected by Employee shall be promptly turned over to Employer. 4. CONFIDENTIAL INFORMATION. For purposes of this paragraph 4, the following words shall have the following respective meanings: "Employer" shall mean Hilb, Rogal and Hamilton Company of Arizona, any of its predecessors and any person or entity from which it has, now or at the time of termination, acquired insurance accounts; "HRH Companies" means Employer, HRH and any subsidiary of HRH; "HRH Customers" means the customers of the HRH Companies; and "Confidential Information" shall mean any and all information of a proprietary or confidential nature and trade secrets of Employer and the HRH Companies. Such confidential information shall include, but not be limited to, information about the HRH Customers such as customer lists, customer risk characteristics, policy expiration dates, policy terms, conditions and rates, information about prospective customers, and information about the HRH Companies such as financial data, marketing programs and specialized insurance markets. Confidential information may be acquired from any source during Employee's term of employment, whether or not such information was expressly disclosed to Employee during the term of his employment. Employee acknowledges that, in the course of his employment hereunder, he will become acquainted and entrusted with the Confidential Information which is the exclusive property of Employer. Employee agrees and covenants that he will safeguard the Confidential Information from exposure to, or appropriation by, unauthorized persons, either within or outside the employment of Employer or the HRH Companies, and that he will not, directly or indirectly, without the prior written consent of Employer and HRH during the term of this Agreement and any time in the three year period following termination of this Agreement, divulge or make any use of the Confidential Information except as may be required in the course of his employment hereunder. Upon termination of his employment, Employee covenants to deliver to Employer all information and materials, including personal notes and reproductions, relating to the Confidential Information, the HRH Companies, and the HRH Customers, which are in his possession or control. 5. NONPIRACY COVENANTS. For the purpose of this paragraph 5, the following terms shall have the following meanings: "Customers" shall be limited to those customers of Employer for whom there is an insurance policy or bond in force or to or for whom Employer is rendering services as of the date of termination of Employee's employment; "Known Customers" shall be limited to those "Customers" with whom Employee had personal contact, or for whom Employee handled insurance or bonds, or whose names became known to Employee, in the course of the performance of his employment duties for Employer; "Prohibited Services" shall mean (i) services in the fields of insurance or bonds or (ii) services performed by Employer, its agents or employees in any other business engaged in by Employer on the date of termination of Employee's employment. "Field of insurance" does not include title insurance, but does include all other lines of insurance sold by Employer, including, without limitation, property and casualty, life, group, accident, health, disability, and annuities; "Prospective Customers" shall be limited to those parties known by Employee to have been solicited for business within any Prohibited Service within the twelve (12) month period preceding the date of termination of Employee's employment, by an employee (including Employee) or agent of Employer and with or from whom, within the twelve (12) month period preceding the date of termination of Employee's employment, an employee (including Employee) or agent of Employer either had met for the purpose of offering any Prohibited Service or had received a written response to an earlier solicitation to provide a Prohibited Service; and "Restricted Period" shall mean the period of three (3) years immediately following the date of termination of Employee's employment. Employee recognizes that over a period of many years the Employer (specifically including for the purposes of this paragraph 5 any predecessors of Employer or entities from which it might have acquired insurance accounts) has developed, at considerable expense, relationships with, and knowledge about, Customers and Prospective Customers which constitute a major part of the value of the Employer. During the course of his employment by Employer, Employee will have substantial contact with these Customers and Prospective Customers. In order to protect the value of the Employer's business, Employee covenants and agrees that, in the event of the termination of his employment, whether voluntary or involuntary, whether with or without cause, he shall not, directly or indirectly, for his own account or for the account of any other person or entity, as an owner, stockholder, director, employee, partner, agent, broker, consultant or other participant during the Restricted Period: (a) solicit a Customer or Prospective Customer for the purpose of providing Prohibited Services to such Customer or Prospective Customer; (b) solicit a Known Customer or Prospective Customer for the purpose of providing Prohibited Services to such Known Customer or Prospective Customer; and (c) accept an unsolicited invitation from a Known Customer or Prospective Customer to provide Prohibited Services to such Known Customer or Prospective Customer without first complying with the provisions of paragraph 8(b) hereof. Subparagraphs (a), (b) and (c) are separate and divisible covenants; if for any reason any one covenant is held to be illegal, invalid or unenforceable, in whole or in part, the remaining covenants shall remain valid and enforceable and shall not be affected thereby. Further, the periods and scope of the restrictions set forth in any such subparagraph shall be reduced by the minimum amount necessary to reform such subparagraph to the maximum level of enforcement permitted to Employer by the law governing this Agreement. 6. NONRAIDING OF EMPLOYEES. Employee covenants that during his employment hereunder (including renewals) and for twelve (12) months after termination of his employment, whether voluntary or involuntary, with or without cause, he will not hire any individuals who, as of the date of termination of Employee's employment, were employees of Employer or had been preceding Employee's termination, nor will employees of Employer within the six (6) month period he directly or indirectly solicit, induce or encourage any of the Employer's employees to seek employment with any other business, whether or not Employee is then affiliated with such business. 7. NOTIFICATION OF FORMER AND NEW EMPLOYMENT. During the term of this Agreement and the Restricted Period specified in paragraph 5 hereof, Employee covenants to notify any prospective employer or joint venturer, which is a competitor of Employer located within the Restricted Area, of this Agreement with Employer; and if Employee accepts employment or establishes a relationship with such competitor, Employee covenants to notify Employer immediately of such relationship. 8. REMEDIES UPON EMPLOYEE BREACH OF AGREEMENT. If Employee breaches any provision of this Agreement, each of Employer and the HRH Companies reserves the right to avail itself of any remedy available to it at law or in equity. Further, Employer may, at its sole option, employ disciplinary procedures against Employee for any breach, up to and including discharge. Additionally, where allowed by law, Employer reserves the right to offset against any sums due Employer from Employee any amounts which may otherwise be due from Employer to Employee. Employee acknowledges and agrees that Employer and the HRH Companies shall be entitled to injunctive relief against Employee for any violation by Employee paragraph 4, 5, 6 or 7 of this Agreement. Employee agrees that the foregoing remedies shall be cumulative and not exclusive, shall not be waived by any partial exercise or nonexercise thereof and shall be in addition to any other remedies available to Employer and the HRH Companies at law or in equity. (a) Notwithstanding the foregoing, if Employee breaches paragraph S(a) or S(b) of this Agreement, Employer may, at its sole option, seek liquidated damages with respect to each Customer, Known Customer or Prospective Customer procured by or through Employee, directly or indirectly, in violation of paragraph S(a) or S(b) of this Agreement (with such Customers and Known Customers being hereafter referred to as "Lost Customers" and with such Prospective Customers being hereafter referred to as "Lost Prospects"). Employee acknowledges that it would be difficult to calculate damages incurred by Employer in the event of such a breach and that the following liquidated damages clause, when so elected by Employer, is necessary and reasonable for the protection of Employer. Employer agrees that, if it elects to exercise the liquidated damages provision with respect to a Lost Customer or Lost Prospect, it shall not seek an injunction with respect thereto if Employee pays such liquidated damages. Employee also acknowledges that Employer may or may not choose to exercise this liquidated damages provision and that Employer may, at its sole option, seek injunctive relief with respect to some Lost Customers and Lost Prospects and liquidated damages with respect to other Lost Customers and Lost Prospects. Finally, Employee acknowledges that he has no right whatsoever to force Employer to exercise this liquidated damages provision, and that such choice remains entirely Employer's. Liquidated damages shall be calculated as follows: A Lost Customer shall be valued at 150% of the gross revenue to Employer in the most recent twelve (12) month period preceding the date of loss of such account. If such Lost Customer had not been a Customer or Known Customer of Employer for an entire twelve (12) month period, such liquidated damages shall be 150% of the gross revenue which would have been, in the absence of a breach by Employee, realized by Employer in the initial twelve (12) month period of such customer being served by Employer. A Lost Prospect shall be valued at 150% of the gross revenue realized in the initial twelve (12) month period of such Lost Prospect being served by any one or more persons or entities receiving such revenue as a result of Employee's breach. Employee acknowledges that the foregoing damage amounts are fair and reasonable, that an industry rule of thumb for the valuation of an agency is 150~o of revenue and that, on the margin, selected accounts may be worth much more than 150% of their annual revenue to an agency. Employee shall pay such liquidated damages to Employer within five (5) business days after written demand therefor. Thereafter, such liquidated damages shall bear interest at the maximum lawful rate. (b) If in accordance with the provisions of paragraph 5(c) hereof, a Known Customer or Prospective Customer desires to have Employee as its agent of record, then Employee, upon making arrangements reasonably satisfactory to Employer for payment, may purchase such Known Customer or Prospective Customer account from Employer for a price equal to the price established above for a Lost Customer or Lost Prospect, whichever is applicable. The payment of half of such purchase price upon binding of coverage or bonding in the first year Employee accepts such account during the Restricted Period and of the remaining half of the purchase price on the anniversary date in the following year is hereby covenanted by Employer to be reasonably satisfactory to it. Employee acknowledges that failure to pay timely for such accounts permitted to be purchased herein pursuant to paragraphs 5(c) and 8(b) hereof shall entitle Employer to receive injunctive relief. Employer acknowledges that payment for such accounts permitted to be purchased by Employee pursuant to paragraphs S(c) and 8(b) shall prohibit Employer from obtaining injunctive relief with respect to such accounts. (c) Employee acknowledges that a broker of record letter written during the Restricted Period, as a result of Employee's efforts, by a Customer, Known Customer or Prospective Customer in favor of Employee or any person or entity with whom or which Employee is directly or indirectly affiliated shall be prima facie evidence of, and shall establish a rebuttable presumption of, a violation of paragraph S of this Agreement and establishes a rebuttable presumption in favor of Employer that paragraph 5 of this Agreement has been violated by Employee. Further, Employee acknowledges that he has an affirmative duty to inform such Known Customer or Prospective Customer that he cannot accept its business unless he pays for such business pursuant to paragraph 8(b) hereof, until after the Restricted Period and that he must minimize all contact with such Known Customer or Prospective Customer during the Restricted Period. 9. TOLLING OF RESTRICTIVE COVENANTS DURING VIOLATION. If a violation by Employee of any of the restrictive covenants of this Agreement occurs, Employee agrees that the restrictive period of each such covenant so violated shall be extended by a period of time equal to the period of such violation by Employee. It is the intent of this paragraph that the running of the restricted period of a restrictive covenant shall be tolled during any period of violation of such covenant so that the Employer shall get the full and reasonable protection for which it contracted and so that an Employee may not profit by his breach. 10. STANDARDS OF PERFORMANCE: CAUSE. In addition to the full efforts required of Employee in paragraph 2 hereof and notwithstanding anything herein to the contrary, Employee's employment may be terminated or altered, immediately upon notice to the Employee, in the discretion of Employer, prior to the expiration (including renewals) of this Agreement, for "Cause." For purposes hereof and without limitation Cause shall be solely determined in good faith by Employer and shall include any dishonest, criminal or immoral conduct or any one or more acts having a material adverse effect on Employer or any of the HRH Companies. Also, Employer agrees that the settlement of the lawsuits with Amos Lovitt Touche ("ALT") and The Mahoney Group and the potential settlement of a lawsuit with Jack Puckett are not factors to be considered in determining "Cause," and specifically, the reversal of the accrual for a receivable from ALT and the return of overpaid purchase price to ALT are not due to Employee's doing anything wrong. 11. ATTORNEYS' FEES. In addition to any other remedies and damages available to Employer or the HRH Companies, if Employee violates paragraph 4, 5, 6 or 7 of this Agreement, which violation becomes the gravamen of an action by Employer or the HRH Companies against Employee, then Employee shall pay all costs and fees, including attorneys' fees and costs, incurred by Employer and the HRH Companies in enforcing such one or more restrictive covenants. 12. DELINQUENT CUSTOMER ACCOUNTS: COLLECTION. Employer may, at its discretion, require Employee to take any and all actions deemed necessary by Employer to recover the balance of any customer account sold or serviced by Employee which account has not been paid in a timely fashion and which has not been collected in accordance with the normal procedures of Employer due to a violation of such procedures by Employee (with such account being referred to as a "Delinquent Customer Account"). If a Delinquent Customer Account exists, Employee shall be responsible for full payment of such amounts. 13. ESSENCE OF AGREEMENT. The restrictive covenants from Employee for the benefit of the Employer set forth herein are the essence of this Agreement with respect to Employer agreeing to employ Employee and each such covenant shall be construed as independent of any other provision in this Agreement. The existence of any claim or cause of action of the Employee against the Employer, whether predicated on this Agreement or not, shall not constitute a defense to the enforcement by the Employer of any of the restrictive covenants contained herein. Employer shall at all times maintain the right to seek enforcement of these provisions whether or not Employer has previously refrained from seeking enforcement of any such provision as to Employee or any other individual who has signed an agreement with similar provisions. 14. SEVERABILITY AND INDEPENDENCE. If any provision of this Agreement or any part of any provision of this Agreement is determined to be unenforceable for any reason whatsoever, it shall be severable from the rest of this Agreement and shall not invalidate or affect the other portions or parts of the Agreement, which shall remain in full force and effect and be enforceable according to their terms. Furthermore, no covenant herein shall be dependent upon any other covenant or provision herein, each of which covenants shall stand independently and be enforceable without regard to the other or to any other provision of this Agreement. 15. INTERPRETATION. There shall be no presumption that this Agreement is to be construed against the Employer or the HRH Companies, since Employee acknowledges that he understands all provisions of this Agreement, that the restrictive covenants contained herein are ancillary to an enforceable agreement and are fair, necessary for the protection of Employer and the HRH Companies and relatively standard to the insurance agency industry and that he was offered the opportunity to negotiate, alter, and amend any and all provisions of this Agreement before executing this Agreement and legally binding himself hereto. 16. GOVERNING LAW. This Agreement shall be construed under and governed by the laws of the State of Arizona. 17. MISCELLANEOUS. A. Case and Gender. Wherever required by the context of this Agreement, the singular and plural cases and the masculine, feminine and neuter genders shall be interchangeable. B. Nonwaiver. The waiver by HRH or Employer of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any subsequent breach or as a waiver of any other provisions of this Agreement. C. Captions. The captions provided in this Agreement are intended for descriptive and reference purposes only and are not intended to limit the applicability of the terms of any paragraph to that caption. D. Succession and Assignment. This Agreement shall be binding upon the parties hereto and is not assignable by Employee. This Agreement shall inure, however, to the benefit of Employer's successors and assigns, including, without limitation, successor corporations by way of merger or consolidation or any entity which purchases substantially all of the assets of Employer. E. Entire Agreement. This Agreement supersedes any prior written or unwritten agreement, representation or understanding between the Employer and Employee and represents the entire agreement, representations and understanding between Employer and Employee concerning the subject matter hereof. WITNESS the following signatures. EMPLOYER: HILB, ROGAL AND HAMILTON COMPANY OF ARIZONA By: /s/ --------------------------------- Its: -------------------------------- EMPLOYEE: /s/ MICHAEL A. JANES ------------------------------------- MICHAEL A. JANES EXHIBIT A Employee shall be paid an annual salary of $150,000, payable semi-monthly, as earned. Future changes in compensation need not be reflected by amendment hereto as Employer may effect such change through signature of a payroll authorization form. Employer shall recommend to the Compensation Committee of the Board of Directors of HRH for consideration at the May 4, 1993, meeting that Employee be granted a nonqualified stock option at the market price that day for 4,000 shares of HRH stock, vesting at the rate of 800 shares for each full year of service from the date of grant. Employee shall also be provided with an automobile allowance in accordance with normal guidelines for Presidents of HRH offices. EX-21 15 EXHIBIT 21 Exhibit 21 Subsidiaries of Hilb, Rogal and Hamilton Company
State/Province of Name of Subsidiary Incorporation ------------------ ------------- HRH Financial Institutions Group, Inc. Pennsylvania HRH Insurance Services of the Coachella Valley, Inc. (2 locations) California HRH Insurance Services of Central California, Inc. (3 locations) California HRH of Connecticut (3 locations) Connecticut HRH of Northern California Insurance Services, Inc. (5 locations) California Hilb, Rogal and Hamilton Company of Alabama, Inc. (4 locations) Alabama Hilb, Rogal and Hamilton Company of Arizona (4 locations) Arizona Hilb, Rogal and Hamilton Company of Atlanta, Inc. Georgia Hilb, Rogal and Hamilton Company of Baltimore Maryland Hilb, Rogal and Hamilton Company of Denver Colorado Hilb, Rogal and Hamilton Company of the District of Columbia Delaware Hilb, Rogal and Hamilton Company of Fort Myers Florida Hilb, Rogal and Hamilton Company of Gainesville, Florida, Inc. Florida Hilb, Rogal and Hamilton Company of Gainesville, Georgia Georgia Hilb, Rogal and Hamilton Company of Grand Rapids Michigan Hilb, Rogal and Hamilton Company of Oklahoma Oklahoma Hilb, Rogal and Hamilton Company of Orlando Florida Hilb, Rogal and Hamilton Company of Pittsburgh, Inc.(3 locations) Pennsylvania Hilb, Rogal and Hamilton Company of Port Huron (2 locations) Michigan Hilb, Rogal and Hamilton Company of the Quad Cities (2 locations) Illinois Hilb, Rogal and Hamilton Company of St. Simons Island Georgia Hilb, Rogal and Hamilton Company of Savannah, Inc. Georgia Hilb, Rogal and Hamilton Company of Tampa Bay, Inc. Florida Hilb, Rogal and Hamilton Company of Texas (8 locations) Texas Hilb, Rogal and Hamilton Company of Virginia (2 locations) Virginia Hilb, Rogal and Hamilton Realty Company Delaware Hilb, Rogal and Hamilton Resource Group, Ltd. Virginia Hunt Insurance Group, Inc. Florida Professional Practice Insurance Brokers, Inc. (3 locations) California S. H. Gow & Company, Inc. (3 locations) Delaware
Each of the above subsidiaries is 100% owned by the registrant. EX-23 16 EXHIBIT 23 Exhibit 23 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-4 No. 33-44271, Form S-8 No. 33-59866 and Form S-8 No. 333-44735) of Hilb, Rogal and Hamilton Company and in the related Prospectuses of our report dated February 10, 1999 (except for Note M, as to which the date is March 30, 1999), with respect to the consolidated financial statements and schedule of Hilb, Rogal and Hamilton Company included in this Annual Report (Form 10-K) for the year ended December 31, 1998. Ernst & Young LLP Richmond, Virginia March 30, 1999 EX-27 17 FDS -- WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE. THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF HILB, ROGAL AND HAMILTON COMPANY AS OF AND FOR THE YEAR ENDED DECEMBER 31, 1998, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
5 1 12-MOS DEC-31-1998 DEC-31-1998 19,394,958 3,383,742 53,075,990 1,505,000 0 78,201,785 34,556,088 22,168,894 188,065,826 88,505,264 43,658,306 3,831,208 0 0 41,879,167 188,065,826 0 181,047,893 0 0 153,367,164 0 2,317,195 25,363,534 10,418,469 14,945,065 0 0 0 14,945,065 1.20 1.18
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